2011 - %3, August

Our Oil-Constrained Future

| Fri Aug. 26, 2011 2:55 AM PDT

I've talked a few times (first here, most recently here) about the possibility that world growth is now constrained by oil production. The basic story is simple: As long as there's spare oil-production capacity, increasing demand caused by economic growth produces only a steady, manageable increase in oil prices. But oil production is now close to its maximum and can't be easily or quickly expanded. When the global economy grows enough that demand starts to bump up against this ceiling, oil prices don't rise slowly and steadily; rather, they spike suddenly, causing a recession, which in turn reduces oil demand and drives down prices. When the economy recovers, the cycle starts all over. Because of this dynamic, the production ceiling for oil produces a corresponding ceiling for world economic growth.

Stuart Staniford puts some numbers to this for our most recent recession. What would it have taken for growth to continue at its 2000-08 rate over the past few years?

In the counterfactual world, 2009 gross world product would have been 6.4 percent larger than in the actual world. We can estimate the implications for oil supply because we know that the global income elasticity of oil demand is about 2/3. Thus the counterfactual world would have required an additional 4.5 percent more oil than the real world.

…2009 oil production was around 85 [million barrels per day] (depending on what source you like) so in the counterfactual world we would have needed it to be around 88-89mbd. Now, in 2008, oil production got up to around 86mbd (on an average basis) but doing so triggered (or required) an oil shock in which prices briefly reached $135/barrel on a monthly basis and almost $150 on a daily basis. What would the likely price path have been had the world then needed an additional 2-3mbd the following year?

To give an indication of the scale of 2-3mbd, note that the loss of 1.6mbd of oil this year (Libya) triggered something like a $30 increase in the price of oil (before it became clear that the global economy was slowing again causing prices to fall). That, along with other commodity price increases, was enough to cause a little bump in inflation that significantly reduced the Federal Reserve's latitude for action.

OPEC countries routinely claim that they can increase pumping capacity to meet world demand. "Our customers aren't asking for more supplies," is the usual phrasing. But that's not true. The world plainly wants more oil that OPEC can't provide. After all, if OPEC had plentiful supplies, we wouldn't see huge price spikes whenever demand gets near the neighborhood of 90 mbd. But we do.

Now, there are some caveats here. For one thing, no one can say for sure precisely what OPEC's pumping capacity is (Middle East regimes are very secretive on this score), and Iraq, in particular, can certainly increase its production capacity if it ever gets its infrastructure rebuilt. But in a way, that's small beer. Global production capacity right now seems to be a little under 90 mbd, and even if this increases to 95 mbd or 100 mbd a few years down the road, we're going to be continually bumping up against this ceiling along the way as the global economy grows. That's going to cause sporadic but frequent price spikes.

The effect this has on the economy is probably greater than even most pessimists realize. James Hamilton, a University of California-San Diego economics professor who's studied the economics of oil demand deeply, points out that 10 of the 11 recessions in the United States since World War II have been preceded by an increase in oil prices—and even small increases in oil prices can have a surprisingly big impact on economic growth. In a recent update of a model he originally published in 2003, he estimates that an oil price spike of 10 percent over its previous high produces a GDP decline of 1.4 percentage points one year later. To put this into real-world terms, his model suggests that the huge run-up in oil prices between 2007 and 2008, when prices nearly doubled, explains most of the Great Recession that followed. And he forecasts that the Libyan price spike early this year, which came on top of a 9 percent increase the previous quarter, will reduce GDP by an estimated 2.4 percentage points by the end of 2011. And the Libyan price spike was pretty modest.

The precise effect of oil prices on the economy depends on which model you prefer, and Hamilton says that a different model that uses a three-year window might be more accurate. That would be good news for the economy in 2011 (and 2012), but it doesn't matter much for the long run. Basically, we're stuck with two stubborn observations. First, world demand for oil is very near its production ceiling, which means that even small increases in demand (or small disruptions in supply) now result in large oil price spikes. And increases in demand are inevitable every time the economy starts growing even modestly. Second, even small increases in the price of oil cause large GDP losses. Price spikes of 20 to 30 percent are likely to be common in the future as we periodically bump up against production ceilings, and if Hamilton's model is correct, this will produce subsequent declines in GDP of 3 to 5 percentage points. That's huge. The effect on world GDP may be less pronounced, but it will still be significant.

If this model is accurate—and if the ceiling on global oil production really is around 90 mbd and can be expanded only slowly—it means that every time the global economy starts to reach even moderate growth rates, demand for oil will quickly bump up against supply constraints, prices will spike, and we'll be thrown back into recession. Rinse and repeat.

If you don't believe in global warming, that's one thing. But the evidence that the world is starting to reach growth constraints based on oil production is, if not a slam dunk case, still pretty compelling. So even if, as Rick Perry says, the world's climate scientists are just inventing global warming as a devious scheme to increase their funding, we still ought to be going balls to the wall to expand existing forms of alternative energy and fund research into new ones. Unless, of course, you really like the prospect of a future full of relentless and painful oil-induced recessions. It doesn't seem very agreeable to me.

Advertise on MotherJones.com

Fear and Loathing at the Federal Reserve

| Thu Aug. 25, 2011 9:47 PM PDT

Why is Ben Bernanke unlikely to announce any major action to help the economy in his Jackson Hole speech on Friday? Because of inflation hawks on the Fed board? Because of concerns that further monetary policy isn't effective when interest rates are already near zero? Because of a generalized fear of being on unfamiliar ground? Mark Thoma says it's all of the above:

But that is not quite enough. I think a majority on the FOMC would still push forward if it weren’t for the change in the political environment. When Bernanke wrote earlier in his career and criticized the Japanese central bank for not doing more, I don’t think he thought the consequences of being wrong about inflation were as severe as they are now. The Ron Pauls in Congress looking for a reason to attack and take away the Fed’s powers, the criticism from many on the left for all sorts of things, etc., etc., puts the Fed in a more precarious political position than they ever expected to be in, and the fear of making a mistake and losing independence is tying its hands. The Fed values independence first and foremost, and it is unwilling to put that in danger. Thus, the Fed is trading more unemployment now for less in the future, and it’s mainly the political environment rather than economics that is driving this decision.

Paul Krugman says much the same thing today. The political environment is so toxic right now that the Fed is afraid that helping the economy — and thereby "interfering" with next year's election — might produce a serious backlash in Congress.

But there's more to this. The Fed is secure from Republican backlash as long as (a) Obama remains president and (b) he refuses to go along with Republican mischief. So if fear of losing its independence is really what's holding back Bernanke and his allies at the Fed, it means they think there's a significant chance that either (a) or (b) or both won't be true over the long term. Fasten your seat belts.

The End of Refrigeration

| Thu Aug. 25, 2011 8:19 PM PDT

The last refrigerator we had lasted about 20 years. Sometime around year 15 it finally blew out a condenser or a coil or whatever it is that makes refrigerators produce coldness and we paid $400 to have it fixed. A few years later it broke again and we bought a new one.

This one broke after eight years. But not because of a condenser or a coil or something comprehensibly structural. The repair guy took about five seconds to diagnose the problem: it stopped working because the "main board" blew out. That's it on the right. Now, maybe I'm off base on this because it's been so long, but this looks like a butt simple design to me. One small custom chip, some relays, a transformer, a couple of heat sinks, and a bunch of passive parts. Maybe a build cost of $20-30 or so? But GE's price to me was $250, plus $150 for the 20 minutes it took to pull out the old one and swap in the new one.

Paying $400 for a big piece of physical gear plus a couple hours of labor didn't bother me. Paying $400 for a primitive circuit board and a few minutes to plug it in does. The repair guy laughed good-naturedly when I mentioned this. "All the computer guys say the same thing," he told me. He even knew what I was going to say about the board before I said it. Our neighborhood is lousy with electrical engineers and other high tech weenies.

Bottom line: $400 because a $2.02 Song Chuan 832 Series 30 A SPDT 12 VDC Through Hole General Purpose Heavy Duty Power Relay burned out. So here's your economics question for the day: Did I stimulate the economy today? Or this an example of the broken refrigerator fallacy? Or did most of my consumption spending leak out to China? Please phrase your answers in the form of a koan.

Be the Smartest Nerd in the Room on #Irene

| Thu Aug. 25, 2011 4:54 PM PDT

Click here for the latest updates on what's happening with Hurricane Irene.

Water vapor, showing massive footprint of Hurricane Irene at 1945 UTC on 25 Aug 2011. Credit: NOAA.Water vapor, showing massive footprint of Hurricane Irene at 1945 UTC on August 25. Credit: NOAA.

No matter where Hurricane Irene makes landfall it will likely impact a huge area of the East Coast. That's because the storm is so huge—and it's still growing—and because it's so slow moving. These two factors amplify storm surge by inundating a lot of territory for a very long time.

 

Crescent moon. Credit: NASA.Crescent moon. Credit: NASA.Worse, Irene may well end up walloping the densely populated Northeast during the highest tides of the month—on Sunday's new moon. If all the variables line up just wrong, this could lead to a catastrophic storm tide.

 

Storm surge versus storm tide. Credit: NOAA.Storm surge versus storm tide. Credit: NOAA.

Meteorologist Jeff Masters, writing at his Wunderblog, warns:

I am most concerned about the storm surge danger to North Carolina, Virginia, Maryland, Delaware, New Jersey, New York, and the rest of the New England coast. Irene is capable of inundating portions of the coast under 10-15 feet of water, to the highest storm surge depths ever recorded.

 

Historical SLOSH (Sea, Lake, and Overland Surge from Hurricanes) animation from the 1938 New England hurricane. Credit: NOAA.Historical SLOSH (Sea, Lake, and Overland Surge from Hurricanes) animation from the 1938 New England hurricane. Credit: NOAA.

The 1938 New England hurricane (back in the days before naming), the only Cat 3 storm to hit the Northeast since the 1800s, drove a 15-foot storm surge onto Long Island.  

Above, you can see the extent of that surge from New York to Cape Cod. Here's an animated simulation of that.

 

Hand-drawn weather map of the 1938 Hurricane. Credit: NOAA. Hand-drawn weather map of the 1938 hurricane. Credit: NOAA.

Masters estimates a 20 percent chance that Irene will deliver a storm surge higher than eight feet to New York City. If so, this is what it might look like, in his words:

SLOSH model predicts that a mid-strength Category 2 hurricane with 100-mph winds could drive a 15-20 foot storm surge to Manhattan, Queens, Kings, and up the Hudson River. JFK airport could be swamped, southern Manhattan would flood north to Canal Street, and a surge traveling westwards down Long Island Sound might breach the sea walls that protect La Guardia Airport. Many of the power plants that supply the city with electricity might be knocked out, or their docks to supply them with fuel destroyed. The more likely case of a Category 1 hurricane hitting at high tide would still be plenty dangerous, with waters reaching 8-12 feet above ground level in Lower Manhattan.

 

Storm surge for a Category 3 hurricane. Credit: NOAA's Storm Surge Interactive Risk Maps.Storm surge for a Category 3 hurricane. Credit: NOAA's Storm Surge Interactive Risk Maps.

Here's a storm surge map for a Category 3 hurricane that I generated with NOAA's Interactive Risk Maps tool.

It's a good idea to use that tool to take a look at your own risks if you're anywhere along Irene's flight path.

 Credit: Rhode Island National Guard.Credit: Rhode Island National Guard.

Here you can see the storm surge damage from 1954's Hurricane Carol in Westerly, Rhode Island. Buildings in the center of the photo were floated off their foundations. Buildings in the lower portion were swept completely away and only slabs and driveways remained.

 

Sea surface temperatures on 23 Aug 2011. Credit: NASA Earth Observatory.Sea surface temperatures on August 23. Credit: NASA Earth Observatory.

To make matters worse, sea surface temperatures are running 1 to 3 degrees F above average between North Carolina and New York. Since warmer waters make for a wetter storm, Irene will likely manifest as a superwet double whammy: wet from intense rainfall, and wet from intense storm surge.

 

Predicted rainfall from 25-31 August 2011. Credit: NOAA/NWS HPC.Predicted rainfall from August 25 to 31. Credit: NOAA/NWS HPC.

This five-day precipitation forecast forewarns Irene's real fury. Monster rainfall totals will likely lead to flooding of streams and rivers along much of the East Coast.

 

Hurricane Irene at 2245 UTC 25 Aug 2011. Credit: NOAA/GOES Project Science.Hurricane Irene at 22:45 UTC on August 25. Credit: NOAA/GOES Project Science.

Here's what the storm's grown to this afternoon.

State to Greenlight Keystone XL?

| Thu Aug. 25, 2011 2:20 PM PDT

UPDATE: The State Department did issue the environmental impact statement on Friday, as expected, concluding that it would have minimal impact if it is constructed. However, an official from the State Department said that the EIS "should not be seen as a lean in any direction, either for or against the pipeline," as there are still additional reviews that must be completed before a final decision is made.

ORIGINAL POST: The total number of pipeline protesters arrested outside the White House hit 322 on Thursday, and the biggest day of action is still expected on Saturday. But protesters might get some disappointing news, if this piece in the Washington Post is accurate:

The State Department will remove a major roadblock to construction of a massive oil pipeline stretching from Canada to Texas when it releases its final environmental assessment of the project as soon as Friday, according to sources briefed on the process.
The move is critical because it will affirm the agency’s earlier finding that the project will have “limited adverse environmental impacts” during construction and operation, according to sources familiar with the assessment who asked not to be identified because the decision has not been made public.

After that assessment is released, the State Department is still planning to hold public listening sessions in September, and there's supposed to be a wider evaluation of whether or not constructing the pipeline is in the government's interest. That assessment could look more closely at whether the pipeline fits in with our energy needs and with the Obama administration's stated goals on addressing climate change.

In any case, if the release is issued tomorrow, it would certainly add more urgency to the ongoing protests outside the White House. Mother Jones contributor Bill McKibben also wrote today about why he decided to get arrested this week in protest of the pipeline.

Quote of the Day: Flexible Mind, Flexible Body

| Thu Aug. 25, 2011 12:36 PM PDT

From yoga teacher Sarah Miller's piece in The Awl today, "Why Yoga Can Be So Irritating":

There are teachers and students who think flexibility is some kind of indication of how good a person you are. A teacher once said to me, "Your hamstrings are tight is because your mind is not flexible." I said, "Have you ever taken differential calculus?" She said, "What?" I said, "Have you ever taken differential calculus?" She had not. She said she was terrible at math. I said, "Well, I am very good at math." (This was not strictly true, but I was quite confident I was better at math than she was.) “Is there something wrong with your mind that you aren’t?”

This was obviously written for nerds everywhere. You shall know the differential calculus, and the differential calculus shall set you free.

Advertise on MotherJones.com

BP Guard Shoots, Kills Polar Bear

| Thu Aug. 25, 2011 12:30 PM PDT

Oil companies have gotten a bad rap for hating on polar bears, both for warming up their environment and for opposing efforts to protect the bears under the Endangered Species Act. But the oil giant BP one-upped everyone on that front this week, as it came to light that a security guard at the company's oil field in Alaska's North Slope shot and killed a polar bear earlier this month.

Via Alaska Dispatch:

The death appears to have been accidental, according to BP Alaska spokesman Steve Rinehart, who said the guard thought he'd fired a bean bag round at the female bear but BP later discovered it was a "cracker shell" that mortally wounded her.
The polar bear death is the first time in 35 years of working on the North Slope that a bear has been killed by a security guard working for BP, Rinehart said.
"We dearly wish it had not happened," Rinehart said, "but it's not a trend or a population impact. We have worked safely and carefully around polar bears under strict guidance from the U.S. Fish and Wildlife Service."

Polar bears are considered a "threatened species," while not officially on the "endangered" list. But it's still illegal to kill them. The US Fish and Wildlife Service says they are investigating the shooting. Bill Snape, a lawyer with the Center for Biological Diversity, said the group is looking into their legal options for pursuing this if the federal government doesn't prosecute.

Hearing From the Other Half

| Thu Aug. 25, 2011 11:34 AM PDT

CJR's Erika Fry tallies up the op-ed contributions to the New York Times last month:

From my analysis of the past month’s bylines, New York Times readers were treated to the views of:

  • forty-one academics (ten at Ivy League institutions)
  • forty writers and journalists
  • nine presidents and one vice president of an organization or think tank
  • four current and former political office holders.

While the contributions opined on a wide variety of topics—“Why do Russians hate ice?” to “Drones Alone are not the Answer”—and reflected geographic diversity, they originated from a rather narrow class of well-educated and successful individuals. When contributions did occasionally focus on working class issues—“Isolated, Vulnerable and Broke” told of the fast decreasing fortunes of Hispanic families in America—they were expressed in the voice of an Ivy League academic.

Part of the problem may be a lack of submissions, and perhaps these op-ed pages are as representative as the submissions they receive. But if that’s the case, it surely wouldn’t be difficult for papers to find individuals from the “other half” with worthy (and fresh) things to say. Perhaps editors could take a more active role in soliciting contributions; certainly the Internet has proven that there are lots of articulate people out there who want to speak their minds. For editors, it could be as easy as looking for blogs and combing comments.

I'm not sure what to think of this. On the one hand: yes, it would be nice to hear from actual people with actual lives a little more often. On the other hand: I have to admit that I'm skeptical that the blogs of America are full of working class diamonds in the rough who would expand our visions if only we had a chance to read them. These folks get interviewed on the local news with some frequency, and most of the time they're not especially enlightening. The truth is that writing even minimally interesting op-eds is harder than it sounds.  

But yes, I'm elitist scum. And technocratic elitist scum at that, more interested in bloodless charts and statistics than I am in actual human blood, sweat, and toil. Anyone who reads this blog knows I'm not joking, either: I really am more interested in what the big-picture evidence says than I am in eavesdropping on the kitchen table conversation of middle-class families.

Still, it would be an interesting experiment. Every day for a month, let's insist that Andy Rosenthal dig up and run a submission from someone who's literally a working stiff and has absolutely no other credentials. Let 'em tell us what's bugging them, whether it's the owner of a dry cleaning shop complaining about onerous regulations, a truck driver tired of long hours, or a waitress who wishes her customers weren't such assholes. Whatever. I'd have pretty low expectations for this experiment, which means it wouldn't be hard to impress me. So come on, Rosenthal, give it a try.

Ohio Declines Federal Unemployment Funds for Battered Women

| Thu Aug. 25, 2011 11:16 AM PDT

I know I've mentioned this before, but Ohio governor John Kasich is really an asshole.

H/t JanieBT.

Report: Tea Party's Favorite Snake Needs Government Aid

| Thu Aug. 25, 2011 10:50 AM PDT
Snakes on the wane: The eastern diamondback rattler has lost 97 percent of its habitat.

Since the tea party movement rose to prominence in early 2009, the yellow "Don't Tread on Me" flag has been a ubiquitous presence at everything from health care protests to campaign stops. It features the Revolutionary War-era slogan, along with a coiled rattlesnake, because, as Benjamin Franklin explained, the rattler "never begins an attack, nor, when once engaged, ever surrenders."

But the flag doesn't feature just any snake; it's a eastern diamondback rattlesnake—and despite what the flag says, lots of people seem to be treading on its natural habitat. According to a new report from the Center for Biological Diversity, the species could be nearing extinction unless the federal government intervenes. Scientific American reports that the CBD, along with Protect All Living Species and the delightfully acronymed One More Generation, have petitioned the US Fish and Wildlife Service to classify the eastern diamondback rattlesnake as an endangered species. The rattler is down to 3 percent of its original habitat, and according to the CBD, its population has fallen from 3 million to 100,000. From the report:

"The eastern diamondback rattlesnake is a wildlife icon of North America," said biologist Bruce Means, president and executive director of the Coastal Plains Institute, in a prepared statement. Means was also one of the petitioners. "Africa has its lion, Asia its tiger, and we can boast of this marvelous 'Don't Tread On Me' snake. Like so many others, it's a wildlife treasure that we must not allow to go extinct. Remaining habitat for the snake must be preserved, and negative public attitudes toward these nonaggressive animals must be reversed."

But how will this sit with tea partiers? As my colleague Kate Sheppard has reported, many tea partiers view the Endangered Species Act as a tool of an overreaching federal government—if not something even more nefarious. In Florida, conservative activists are fighting to roll back manatee protection rules because they believe the regulations are part of a United Nations plan called "Agenda 21," which they fear will force humans to live in designated areas and turn the rest of the planet into protected biosphere reserves.