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Friday, January 28, 2011




Strategy for Living: How to Make the Best Use of Your Time

Last updated: January 28, 2011


August 13, 2009

How to Make the Best Use of Your Time

The Economist about the latest round of kamikaze attacks in Iraq during one of which two truck bombers have nearly erased an entire settlement near Mosul.

Over 100 civilians were killed and hundreds wounded in a four-day period this week. Two lorries packed with explosives levelled most of a settlement on the edge of Mosul in northern Iraq. Residents were sleeping on rooftops to escape the summer heat when their houses collapsed beneath them.

. . .

. . . Previously insurgents had focused on the Shia, but they are increasingly turning the other cheek. “Let them kill us,” Sheikh Khudair al-Allawi, the imam of a mosque that was bombed recently, told the New York Times. “It’s a waste of their time.” The insurgents have taken note and are switching to the Kurds. The bombed dwellings outside Mosul were under the protection of Kurdish forces.

Source: Another bloody mess



January 28, 2011

If America does not come to Muhammad...

... then Muhammad plays "Battlefield". If you've got neither Kurds nor Shia, and America does not come...




PS

If you missed the irony, this is the original Jihadi video

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Spill, baby, spill!

Last updated: January 28, 2011

January 7, 2011




The latest good news from the Gulf of Mexico is that the methane, that made up for 30% of the Macondo well's output, is gone as well. Researchers spent several weeks in the gulf dropping sensors to detect the presence of natural gas in the water but they found nothing. They did detect however huge pockets of depleted oxygen used by oil eating microbes who at the same breath disintegrated the bulk of the oil released during the BP disaster.

McCain: "The fish love to be around those rigs"
(Opponents of offshore drilling ridicule McCain)



As scientists quietly lowering their estimates of the environmental damage, I can tell you why I am not surprised. This is because I am addicted to watching nature documentaries of the kind I embedded in abundance in Pitch Black. Now when it comes to methane, I got one video there on the subject made right in the Gulf of Mexico. You can see for yourself that the existence of a whole unique ecosystem in the gulf is conditioned entirely on one simple thing - methane gas continuously seeping into water. The gas stops, this ecosystem goes off.



Now, I am not saying that a release of such a huge amount of oil and gas into water can't overwhlem the system for a while, but come on, guys. This is no Waldez. The Gulf of Mexico is known for its rich deposits of oil and gas. You did not think that all this bounty is sitting down there in hermetically sealed containers, did you? If the gulf's microfauna did not know how to deal with this stuff, we would have had huge amounts of oil floating on the surface at any given moment. It's probably not for nothing that large areas of the gulf's seabed are covered with natural asphalt. This asphalt by the way is sustaining another unique ecosystem. To say that fish love to hang out around oil rigs is nothing compared to the passion some ecosystems have developed towards oil, natural gas and other toxic stuff.



There is nothing mysterious about the mysterious disappearance of the BP's spill. I would not bet my house on it at the time, but it was very plausible to expect the gulf's ecosystem to be able to deal with this kind of things given that an equivalent of several BP disasters is naturally happening in the depths of the gulf every year. What is mysterious, however, is the attitude of the scientists themselves who were actively participating in and instigating the self feeding public hysteria that ended with the BP pouring many truckloads of oil dispersant into the water. The oil eating microbes did not come out of nowhere, they are living in the gulf feeding on its oil and gas. However, I have never heard about the existence of dispersant eating bacteria in the area. I won't be surprised to hear in a few years from now that a significant environmental damage was inflicted on the gulf by the dispersant.

The conduct of scientists during this non disaster raises questions. I don't suspect them of deliberate maliciousness, but it looks increasingly likely as if large chunks of the scientific community have joined the media whose primary function these days is to gratify the general public's irresistible urge to have itself constantly whipped up into hysteria. It's impossible that throughout this whole event we had no authority coming up and advising the government and BP to go easy with the dispersant, if only because the gulf's microfauna may know to do it better. If these people are just as accurate with their global warming predictions... You know, lets not talk about this as I am actually with them on this one.

Now I want to make it very clear from the beginning that I am all for tight safety regulation, environment and punishing transgressing companies with fines and the stuff. The BP paid a heavy price for its negligence and if necessary it should be made pay more. Spills on such a scale is no minor nuisance. Nevertheless, McCain may well have a point when he says that fish like oil rigs. Fishermen know this too. In fact, if this is your lucky oil rig, you may even catch a ride on the back of a friendly 10 feet long whale shark. So far so true.




What McCain does not seem to know is that what you see from above pales in comparison to what divers see around oil rigs.



Obviously there should be some explanation for the fact that oil platforms look like explosions of marine life in the midst of underwater desert. There is no more mystery here than in the mysterious disappearance of the spill. Basically, in many areas there seems to be a shortage of attachable surface, in particular, with access to the upper layers of water. This is what oil rigs are providing to scallops and other creatures. Basically, oil rigs are huge corral reefs. At the end of its productive life, an oil rig is usually hosting an entire ecosystem. Once it's there, you simply don't want it to go. Unless, of course, you are so fascinated with the concept of protecting nature that the activity of protecting matters for you more than what you are presumably protecting.



To put it short. Obviously no fish likes spills. If fish could talk, they would have been very unlikely to lavish praise on the BP and its partners. Yet, they might well have put their newly acquired vocalization abilities to good use by collectively chanting "Drill, baby, drill!" So if you thought that McCain is the idiot here, think again.


An abandoned oil rig in Benin




January 28, 2011

A new study found that dispersants injected into the depths of the Gulf of Mexico are still there. The rate of biodegradation is negligible or very slow. And, as a matter of fact, it appears that the chemicals got trapped in a plume of oil they seem to have caused themselves.

January 27, 2011
Study: Undersea Dispersant in Gulf of Mexico Lingered in Deepwater Plume

. . .

While a large portion of the oil and gas escaping from the well stayed in the dark deep -- subsequently consumed by microbes and spread thin over the Gulf's vastness -- it remains uncertain whether dispersants, or simple physics, caused this plume. And while that question remains unresolved, it is now clear that the dispersants stayed put, closely following the hydrocarbon plume's southwest tack, some 3,600 feet below the surface.

. . .

"The good news is that the dispersant stayed in the deep ocean after it was first applied," Kujawinski added in a statement. "The bad news is that it stayed in the deep ocean and did not degrade."

Source: NYTimes

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Tuesday, January 25, 2011




Avatar RELOADED

Last updated: January 25, 2011

April 13, 2010


James Cameron talks the talk and walks the walk

James Cameron is on a mission to save an Indian tribe in the Amazon. What you see below is an avatar, piloted by Cameron remotely from his office in Hollywood, leading the tribe to storm a nearby US military base.


Source: The New York Times

I just can't resist quoting a couple of paragraphs from the NYT article. Simply incredible.

“The snake kills by squeezing very slowly,” Mr. Cameron said to more than 70 indigenous people, some holding spears and bows and arrows, under a tree here along the Xingu River. “This is how the civilized world slowly, slowly pushes into the forest and takes away the world that used to be,” he added.

As if to underscore the point, seconds later a poisonous green snake fell out of a tree, just feet from where Mr. Cameron’s wife sat on a log. Screams rang out. Villagers scattered. The snake was killed. Then indigenous leaders set off on a dance of appreciation, ending at the boat that took Mr. Cameron away. All the while, Mr. Cameron danced haltingly, shaking a spear, a chief’s feathery yellow and white headdress atop his head.

I have two comments to make here. First, it's hard not to be impressed by the fact that even wild snakes can smell that something crappy is going on here. Two, when choosing between the indigenous snake and Cameron's civilized wife, I am not sure they killed the right person.


January 25, 2011

James Cameron takes Earth Day group beyond 1M tree goal

The Earth Day group claims to have exceeded its last year goal of planting one million trees around the world with the creator of Avatar, James Cameron, spearheading the group's effort in Brazil

Associated Press
JANUARY 19, 2011

WASHINGTON — The Earth Day Network says it has exceeded its goal of planting one million trees worldwide.

...

"Avatar" director James Cameron planted the first tree in April in Brazil. The effort also included planting more than 500,000 trees in Haiti... Trees were also planted in New York City, San Francisco and Los Angeles,...

Source

According to the Earth Day group, as a special courtesy to James Cameron, all trees are globally connected by means of a broadband network and equipped with special USB access points to allow online users in different locations to remotely swap complex mental and emotional information.


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Saturday, January 15, 2011




Funky Arabs

Last updated: January 15, 2011

August 17, 2009


Those who followed the latest mess in Iran have sure noticed that something was very wrong and did not make sense in the story. A regime, that was once eliminating dissidents by thousands, was plainly struggling this time to demonstrate how tough and determined it is. Not only the regime has failed to silence the opposition leaders, even the death toll was remarkably limited. What followed next was even more bizarre. One scandal followed another one with the authorities admitting and promising to investigate police abuses. Finally there came demands to kick the Supreme Leader out accusing him of being a dictator, a thing absolutely unthinkable in the past. What's really happening here? And what's really happening in this region in general? Say what's happening with the Arabs?

Saddam Hussein with his gas warfare against the Shias and Kurds does not need any introduction. The same goes about the Black September in Jordan when Palestinian militants were running across mine fields to surrender themselves to Israeli soldiers, whatever only to avoid facing the king's tanks and his mukhabarat. On one sunny day the late father of Bashar Asad has got so upset with a failed assassination attempt against him that within hours he has emptied Syrian jails by rounding up and executing just about every single member of Muslim Brotherhood held there. And there were hundreds if not thousands.

Another famous episode happened when Syrian army flattened within a week a whole town with some estimates putting the death toll at 30 thousand. According to Thomas Friedman, the dictator was not only in no rash to rebuild the city but the place was actually left wide open for all to come and see to get the idea of what awaits those who dare to challenge the Baath rule.

The questions some would like to ask these days are these: If Muslim Brothers stage another uprising in Syria, will the dictator dare again to order his air force to bomb out corridors across Syrian cities to facilitate movement of armour? Or say if the Palestinians in Jordan rise up in defiance, will the king be bold enough to order his tanks to storm Palestinian camps and neighborhoods? The answer may vary depending on who you ask, but some Israeli Arabs I could talk to vehemently denied that anything like this is possible these days. And the reason given most often? The silly TV and other media!

It's very possible that over the last years some regimes around have lost quite a few of their once formidable teeth. But having done this, they can hardly find any consolation in the fact that they are now facing a population, some sections of which may have got very funky recently, but the majority of which has simply got very angry without getting any funky. This combination of weakened regimes and increasingly restless populations is generally not considered conducive to stability. But it may become the defining one in the near future for a few countries around.

Jad Shwery - Funky Arabs



January 13, 2011

This theory is being tested right now in Tunisia where the president, Zine el-Abidine Ben Ali, appears increasingly unable or reluctant to use overwhelming force to stop riots and protests that a few days ago reached the capital.




January 14, 2011

President Ben Ali has apparently fled the country. Prime Minister said he is taking over. The army is reportedly moving in to replace security forces. This is after Ben Ali dismissed the government earlier today and announced early elections.









January 15, 2011

The Point of Inflection

The first Twitter revolution of the Arab World seems on the way to become the first ever to succeed in modern history. I am not going to predict the outcome or the possible region wide domino effect of this surprisingly underreported and under-analyzed revolution. However, I would notice that, together with Iran's subsidy reform, this is one of the most significant and wrought with far reaching consequences developments of the last few years. President Zine El Abidine Ben Ali can certainly comfort himself with the fact that some kind of historic immortality is now assured to him as the first modern Arab ruler to be overthrown by a popular revolt.

Several factors were mentioned in connection with the Tunisian Twitter revolution. Autocratic rule. Several very damning WikiLeaks in one of which the US embassy in Tunisia portrayed the country as a mafia state. Unemployment. Food price inflation. Without going into comprehensive analysis of the causes, however, I want to comment on a few economic and demographic aspects of the revolution. So here is the Tunisian population pyramid


The structure of the pyramid provides some clues as to why and why now of the revolution. First of all you can see that 20 years ago Tunisia succeeded to bend its demographics and set itself on the path to winning the battle against population growth. The generation born around this pivotal moment of Tunisia's demographic history is now in the age groups of 15-25.

Basically Tunisia is now living through the peak of its demographic explosion as the country's biggest generation ever hit the labor market. This should explain a certain paradox of how one of the better run economies of the Arab World, that experienced 5% economic growth on average in recent years, can still suffer from massive unemployment. In its last health check of the economy, the IMF reported the following:

Growth is expected to reach 3.8 percent in 2010, after slowing to 3 percent in 2009 as the global downturn took its toll. But unemployment has begun to rise, after having fallen to 12.4 percent in 2007, and at 13.3 percent, remains relatively high, particularly among the educated youth.

Source: Tunisia Weathers Crisis Well, But Unemployment Persists

Tunisia's unemployment malaise has apparently a regional aspect with the bulk of investments diverted to the North at the expense of the South. But besides regional peculiarities, the general situation is defined by the fact that Tunisia has just finished going through massive uninterrupted increase in its working age population. Basically the rate of new entrees on the labor market has just finished stabilizing and is about to start falling every year, unless here comes an unprecedented surge in female workforce participation. To put it short, Tunisia's unemployment crisis is not caused by the lack of economic growth.

In fact, from the population pyramid it appears that Ben Ali was short of just a few years to start seeing the economy exiting its high unemployment trap. Basically until now Tunisian economy was like a bycicle. The moment it stops, it starts falling. The economy could not slow down even for a year without immediately leading to increase in unemployment. Economic growth was relatively robust. However, it could not catch up with the rapidly growing workforce. The global crisis did not crash the economy, but it apparently slowed it down to the point that the unemployment started growing again. This and the globally rising food prices have become the last straw for some people in the country.

Another question is why this thing exploded only now and not before. Tunisia certainly lived through worse than this without experiencing such a massive unrest. This takes me back to my post about Iran's Green Revolution.


Source: Flashdance ReLOADED.

There exists a certain similarity between the two countries. Both have exploded when the point of inflection of the population pyramid reached the age groups of 15-25. We tend to take it for granted that when fertility hits the replacement level, the demographic crisis is over. In reality at this point the crisis is only starting to build up. Potential instability seems to be concentrated in particular age groups and at a particular point on the demographic timeline.

The generations of protesters in both countries share the same traits. They are big. In fact they are probably going to be the biggest ever born in both countries. And they have few children and probably are unmarried on a massive scale. The risk of instability seems to be defined by two factors. You need a sea of testosterone in the form of young males and you need it free, that means unburdened by big families. Naturally, this trend is at its peak when the point of inflection is in the age groups of 15-25. When the age structure is distorted in favor of these age groups, the conditions are the best for another green revolution. This means the revolution can happen 20 years after the trend to low fertility establishes itself and a whole decade after a nation joins the sub replacement fertility club. I am not saying that every nation that reaches this point in its demographic history will explode, or it can't explode at another point. Nevertheless, if you expect troubles, watch this moment.

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Tuesday, January 11, 2011




South Sudan votes on independence

As South Sudan is voting on independence here is a couple of impressive maps from BBC. First, Sudan's great climatic divide.


The great divide across Sudan is visible even from space, as this Nasa satellite image shows. The northern states are a blanket of desert, broken only by the fertile Nile corridor. Southern Sudan is covered by green swathes of grassland, swamps and tropical forest.

Source: BBC

Next, the ethnic map. The outstanding feature of this map is the landlocked and dry as a bone Arab heartland (Yellow)

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Monday, January 10, 2011




The Life and Death of a Minke Whale


The Minke whales are the smallest baleen whale. If you don't know what baleen is, check Wikipedia. This post is a tribute to the Minke whale.


Bryant Austin on his work as a whale photographer




A northern Minke goes on a breaching spree




A Minke takes part in a fund raising paddle boarding marathon.
At the end the surfer is awarded with a brand new paddle board.
The whale receives nothing.




Dwarf Minke whales party on the Great Barrier Reef. Humans are welcome




A curious southern Minke tries to move a boat in Antarctica




The end...




Bryant Austin - The Minke Eyes
(You'd better raise volume here)



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Monday, January 3, 2011




The Great Leap Forward

Special thanks to Cice for helping with this post


Muslim demographics have been getting some attention recently. Declining Arab, Persian and Turkish birth rates in the Middle East are interpreted by some as signs of modernity sweeping the region. You should be aware of two problems though. For one you have different sources reporting widely divergent data. For example, if you believe Wikipedia that relies on the US Census Bureau (USCB), the Saudi total fertility rate (TFR) should be around meager 2.35 births to woman in 2010. According to the USCB, it was 2.6 in 2008. According to the World Bank, however, in 2008 the rate was not 2.6, but 3.1. This is not a huge difference but to get from 3.1 to 2.6 can easily take a whole decade. You would like to know whether you can raise a toast to the death of Muslim demographics already or you will have to wait for another decade. The USCB is an important source and used both by Wikipedia and NationMaster. The CIA Factbook population figures apparently also come from the USCB. Google, on the other hand, is sourcing the World Bank for its charts.

Google/World Bank TFR Graph for Saudi Arabia



Two, you have big expatriate communities in Arab countries of the Persian Gulf. Naturally, Western expats or hordes of Indian workers are of little interest to you since they are not citizens, have few rights and little influence, and eventually return to their countries. The problem is that both Wikipedia and Google don't provide separate statistics for nationals and expats but instead report cumulative stats for the entire population, while you would like to know first of all how the local Arabs are doing in demographic terms.

The difference between the cumulative stats and data for nationals can be huge. For example, this summer the National reported a 50% drop in the UAE birth rate between 1990-2007, almost to the replacement level, and quoted an "expert" who warned about the approaching decline in the number of UAE nationals. However, a blog post by a Western expat in the UAE I stumbled upon a few days ago, disputes the number. Without sourcing national statistical databases, the guy drops a bunch of links to other articles who seem to be better informed than the National (which on other occasions is not bad at all). The links point to a wide fertility gap between the expat population of the UAE and the UAE nationals who account for only 20% of the entire population.

From the links it appears that in 2005 the TFR for nationals was standing at 4.6 which is quite high even by the standards of the Middle East. The World Bank, sourced by the Google chart, reports TFR of 2.2 for the same year. This is obviously due to the fact that the World Bank data comes for the entire UAE population including the huge community of expats. So the TFR of the entire UAE population, as reported by the World Bank, is less than a half of the TFR of local Arabs. Obviously the local Emiratees still have quite a few years to go before we can declare them an endangered species.

This Google/World Bank Graph is of little use, if you want to know how the UAE nationals are doing



Now, what's indeed the true demographic situation of Saudi Arabia, by far the most important Arab country in the Gulf? Given that the World's Bank provides only cumulative stats for the Gulf countries, you would like to see a detailed breakdown of fertility data by nationality. The Saudi Central Department of Statistics indeed provides such information in "Indicators of fertility by nationality in 2004 to 2009" here. The Saudi data for 2004-2009 looks like this.


You can see that the national TFR (TFR for nationals) is not that different from the TFR for the total population and is coming down. You can also see that the World Bank's data matches the Saudi data for the total population in 2008 (though it increasingly does not for the previous years). On the other hand, I have no idea where the USCB takes its numbers from, but they seem to be just guessing or don't care for accuracy at all. This is rather unfortunate given how many rely on the USCB for data.

Interestingly enough, I recalculated the Saudi national TFR manually using the data from the Saudi Demographic Research Bulletin (tables 2 and 24) and got a bit lower figure of 3.28 for 2007. However, this is a minor difference. The Saudis should be expected to know to count themselves better than anybody else and the difference is probably due to their access to finer data that they use for calculating TFR.

Now why there is no major gap between the Saudi national indicators and the stats for entire population? This is because in Saudi Arabia expats account only for something like 20% of the entire population. 20% of expats are simply not enough to distort the statistics to such a spectacular degree and create such a confusion as in the case of the UAE. So you can rely on total statistics for Arab countries where expat population is around 20%. As far as I know another such country in the Gulf is Oman and here is the Google graph. You don't need a breakdown by nationality to know where Oman stands in demographic terms. The World Bank is enough (if they got the fertility rate just as accurately for 2008 as Saudi Arabia).

This Google/World Bank TFR Graph for Oman should be pretty close to the native Omani TFR, probably something like 3.2 for 2008




Finally what about the data itself? What about the TFR of 3.x for this flagship of Sunni fundamentalism in the Middle East and in fact the entire Muslim World, which is Saudi Arabia? The truth is that Islam does not have the "multiply and procreate" commandment. It's a Judeo Christian thing. So it's hard to know how much of the recent passion for birth control simply reflects the region's unemployment disaster. After all, the most aggressive family planning campaign in the Middle East is run by the Ayatollahs in Iran.

There are certain signs of stirring under the surface in Saudi Arabia, but otherwise the country still strikes one as exceptionally conservative. Recently no other else but the director of the Commission for Promotion of Virtue and Prevention of Vice in Makkah Region, the boss of the moral police in the area (the guys who patrol streets to enforce gender segregation and proper Islamic attire), came under attack as a closet liberal himself, prompting intellectuals to write open letters in defense of the the daring sheikh. When chiefs of the moral police in your kingdom are the most progressive sector of the society, you have a good reason to start suspecting that you are not exactly a bastion of progress. And when your king is rumored to be spending sleepless nights on designing a whole new country within a country, where he can at last desegregate the sexes and shelter the more liberal section of the population from the clerics and their suicide bombers, it's a reasonable bet that the overall mood in the society does not bode well for the reformers.

However, if you believe that demography is destiny, you can certainly find some encouragement in the current data. Saudi Arabia is a big country. Its Wahhabi ideology has left the whole region, and even countries beyond, steadily drowning in a sea of suicide bombers. It's a very important Arab country and as of late its demographic transition appears to be quickly progressing towards completion. Even if this demographic transition is not driven by a genuine cultural shift, it may be already creating one as a byproduct. If you believe that demography is destiny in the Middle East too, then the Arab world may well be just about to shake off the shackles of its past and plunge into modernity. The stage appears all set for the Great Arab Leap Forward.

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Saturday, January 1, 2011




Energy Unintelligence

Last updated: January 3, 2011

January 1, 2011


I stumbled by chance upon a certain Mark P. Mills who posted an absurd critique of Thomas Friedman's latest rant against America's addiction to oil. There is almost nothing in the post that I can agree with, but I would like to comment only on a few points because these seem to be very common misconceptions held by many people and not only MPM.

First, regarding U.S. dependence on Saudi Arabia: about 5 percent of what we burn, and thus about 10 percent of what we import, comes from the Saudis. America’s number one (and rising) source of imported oil is Canada – over double the amount we get from Saudi Arabia. It’s hard to sustain a good rant about depending on Canada. (Although it is true that Canadians do rant about depending on the American entertainment industry, but that’s another story.) America could stop importing every drop of oil from the Saudis without much difficulty, by ramping up imports from elsewhere (or even ramping domestic production, if we really wanted to). It’s not the U.S. that is particularly dependent on the Saudis per se, but the world. To the extent that we make the world’s problems ours, well then so be it. But facts are facts.

Source: Energy Intelligence

Now I am pretty much sure that TF knows that the bulk of the US petroleum imports does not come from the Middle East. Yet, I am also sure that TF is also perfectly aware of the fact that the price of oil is set globally. Basically America can substitute the Saudi oil with any other oil and maybe even stop buying oil from the Middle East completely, but this is unlikely to have any major effect on the global price of oil. However, the global oil market is constantly observed slumping to any sign of gasoline glut in the US and this is what Thomas Friedman is ranting about all the time.

Basically, the thrust of TF's argument on energy comes in two points. One, America's dependence on petroleum imports leaves it bogged down up to the neck in the Middle East. Two, by cutting its petroleum consumption America can crash the global market making Iran's and other nuts' oil revenues evaporate into the thin air. As a matter of fact, half way through his post MPM agrees with the second point himself. So what's the point of arguing about this really?

In fact, it's immaterial whether Americans replace gasoline and other petroleum products with more expensive alternatives or would just consume less, MPM got this one wrong too. It's really all about how much of the US petroleum demand is leaking to, or better sweeping clean, the global market and right now the US accounts for between 20%-25% of the global demand. TF does not claim that the US depends on the Middle East because it buys its oil from the Middle East, but because, as long as America keeps importing such huge volumes of foreign petroleum, it needs the Middle East to continue pumping the global market with Arab and Persian oil to keep the prices at bay. In this sense the US is more than dependent on Saudi Arabia.

To put it short, for the US to extricate itself from the Middle East and stop funding, directly or indirectly, the Arabs, Persians, Russians and Hugo Chavez, the US should indeed stop its petroleum addiction, or, at the very least, to contain this addiction within its borders. It does matter how this addiction is defined because ridding oneself of an addiction to imports can be achieved by substituting imports with locally extracted petroleum. This will be just as effective geopolitically, even though it would hardly amount to ridding America of the oil addiction as such.

To be sure, there should be some factors that can mitigate the impact of a decline in the US oil consumption on the Middle East. Venezuela, which accounts for close to 10% of the US imports, may fail to find enough refineries capable of processing its low quality oil outside the US. This may limit Venezuela's ability to divert its supplies elsewhere. Basically this part of the impact is very likely to be very concentrated in Venezuela with few escape routes for Chavez to ship the pain out of the country to other oil exporters. In practical terms it changes little since Chavez has long ago transformed his regime into the greatest destabilizing factor in Latin America and globally by bankrolling the narcogeurillas in Colombia, Fidel Castro in Cuba and other nuts. When TF talks about petro-dictators, he certainly holds Chavez to be one of them.

Another factor pertains to the fact that by far the biggest US petroleum supplier is Canada which accounts for 20% of the total imports. Much of the Canadian oil is an alternative oil the Canadians squeeze out of tar sands. Not that Canada should have a major problem to diversify its consumer base and divert its supplies to other parts of the global market, but this is an expensive oil to produce. Canada's tar sand industry is very likely to be the first to go out of business if the price of oil sustains a protracted and deep decline. At this point, other exporters will certainly see their revenues drop but Canada, who operates on thinner profit margins, will probably absorb the brunt of the pain shock. After such a decline the global market may stabilize for a while with the supply harmonized against the demand by the disappearance of an important producer. But, Canada aside, a short look at a graph at the end of the post should be enough for most people to figure out what a devastation can the US wreck with the global oil market by cutting on imports.

When it comes to practical suggestions, MPM seems to be unduly obsessed with the lack of cheaper alternatives. But who said energy should be cheap in the first place? THE CHEAP IS THE ENEMY OF THE SUSTAINABLE. The US would have never had to import oil from overseas or grow corn for ethanol, if it cared to fix a floor for the price of gas at, say, $3/gallon 50 years ago. So how about replacing cheap oil with one alternative, that for an extra price preserves all technical advantages of the oil itself? Namely, how about replacing cheap oil with a more expensive oil? The US imports more than a half of its petroleum, It also consumes twice as much oil per unit of GDP than Europe. What's the reason for such a dramatic difference in per unit consumption that accounts for the lion's share of the US petroleum imports? You don't really have to sweat very hard in order to figure it out - gas taxes in the US are only a fraction of what they are in Europe. This is not about making Americans pay more taxes, but about the fact that Americans are paying taxes in all the wrong places. Shift taxes to where they are due and you get that energy independence that right now appears so out of reach to MPM and others.


Top global petroleum consumers (red) and Producers (blue) in barrels per day.



PS

I stole this graph from here. It dates by 2008 and is really not meant to illustrate anything. It's included here only in order to keep you happy.


January 3, 2011

Fear the Boom and Low Prices

The place you should study isn't the bust
It's the boom that should make you feel leery



Now, to pass a judgment on the controversy between the two giants of modern economic theory is a bit out of my league. I can only say that my intuition is that both of them can be perfectly right at the same time and wrong at the same time. Certainly, most economists seemed to be in agreement during the crisis that some kind of stimulus was absolutely necessary to stop the economy from tanking. On the other hand, Hayek's idea of the bust as malinvestments driven by low interest rates should ring and ring and ring to a lot of people. The fact is that the two were concentrating on different stages of the cycle, but it's precisely here where I see a certain parallel between Hayek's focus on the boom part of the cycle and the energy market.

Hayek - Fear the Boom



Unlike food and cloths, the bulk of petroleum consumption does not happen because consumers are interested in drinking petroleum per se. The demand is conditioned by consumption of other durable goods such as cars and housing. Naturally, it makes the demand inelastic since, once a person purchases an SUV and builds a house in a suburb, he usually has no easy way to wind down his demand for transportation fuels. This makes consumption of such durable goods a bet on the long term performance of energy market. In this sense low energy prices, let alone subsidized prices, are not that different from low interest rates. This is just another factor that can easily confuse the market and trick consumers into overstretching themselves through malinvestments in these goods.

The oil market is neither very elastic on the supply side. The only cushion that this market normally has is the spare capacity of Saudi Arabia of which there's been left not so much recently. The Saudi manipulation of the oil market is basically an attempt to trade stability for the price, to moderately overcharge in exchange for a stable price secured through standby fields that Saudi can activate on-demand. It's hard to say that the Saudis were very successful in stabilizing the market recently. To sum it up, the lack of elasticity on both sides of the market, combined with frequent warnings about the approaching end of the age of cheap oil, should make any government think twice if it wants to have its citizens to continue growing petroleum addicted. The oil market has become too unreliable during the last few decades. You simply don't want to grow dependent on such a market, when you know that you may have no easy way to go back, when that proverbial thing hits the fan again.


In practical terms it means that governments should not worry so much about high oil prices. It's the boom part of the cycle that should make them feel leery. When the price is low, when people buy SUVs and other gas guzzlers, when the suburban sprawl is growing. This is because the trap of energy intensive economy is very easy to fall into. However, without a major technological breakthrough we are all still waiting for to happen, this trap can become very difficult to get out, if and when the oil market resumes exploring the world that lies beyond $100/barrel.


PS

Despite Keynes and Hayek representing two mutually hostile lines of economic thought, at least as far as Hayek is concerned, and there is a plenty of interviews with Hayek available on YouTube, there seems to have been no personal hostility between the two. In fact, it appears they were good buddies. That's why it's appropriate to end this post with a tribute to Keynes.


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