Friday fun: iTunes’ underplayed list

Lynne Kiesling

If you have an eclectic music collection, here’s some fun, especially if you’ve recently added a variety of music but haven’t listened to it yet: put the “underplayed” list on random and hit play. I’ve had the following in succession:

  1. Gang of Four, At Home He Feels Like A Tourist
  2. Mendelssohn, Sonata 1 for cello and piano, 2nd movement
  3. Gene Krupa and Buddy Rich, Perdido (this is a kickin’ drum-off between the two, awesome!)
  4. R.E.M., Strange
  5. John Wesley Harding, Ordinary Weekend

It’s a bit disjointed, but the fun and surprise of rediscovering long-dormant parts of the collection far outweighs that.

Eternal truths about those who are attracted to politics

Lynne Kiesling

Over the past week there’s been an interesting online conversation with the participants discussing one of the eternal tautological conundrums: why does politics attract power-hungry narcissists?

Matt Yglesias kicked it off with what I think is a pretty naive query about the degree of cynicism and immorality in politics. Such cynicism and immorality is neither new nor confined solely to republican democracies, but we certainly do seem to be swirling in it now, don’t we? And while I characterize as naive his asking about what I see as almost a tautology (power attracts those who like power and have a heightened sense of self importance), it is a valid and valuable question when probed more deeply, and as such has provoked interesting response and discussion.

For example, our erstwhile Free Exchange blogger states the problem as

I think that this dynamic can be easily oversold, but it’s definitely one of the main reasons we have the legislators we have; powerful positions attract people who are interested in getting and maintaining power.

Arnold Kling points out that

… the growth in concentrated political power in this country leads to a system that selects for leaders with exaggerated senses of self-importance and a remarkable lack of perspective on their own foibles (think of Elliot Spitzer or Mark Sanford or John Edwards). One of the problems with large-scale politics and large-scale capitalism is that there is this tendency to select the most overconfident, driven, and aggressive men for leadership positions.

While I think he’s correct to say “men”, that’s as a central tendency, not as a description of the whole politician population — we have our Nancy Pelosis and Barbara Boxers too. And, to be fair, Arnold is generalizing the point to encompass CEOs, not just politicians, which I think has some justification.

Ilya Somin at Volokh posits a selection-based hypothesis, which in part is a formal way of restating my tautological form above:

The key explanation is selection effects. A politician willing to do anything to take and hold on to power will have a crucial edge over an opponent who imperils his chances of getting elected in order to advance the public interest. The former type is likely to prevail over the latter far more often than not. This is especially true in a political environment where most voters are often ignorant and irrational about government and public policy. Candidates have strong incentives to pander to this ignorance and exploit it in order to win elections.

As Ilya notes in his post, the scenario here is one in which the short-term interests of a constituency and the long-term “public interest” are not aligned, but this long-term “public interest” is in keeping with the representative’s stated principles, and the cynicism of the craven politician induces him/her to vote according to the desires of his/her constituency instead of voting for the “public interest”. There are a lot of issues with this scenario — isn’t the representative doing what s/he was elected to do by voting the constituency’s interest? Is there really such a thing as a monolithic “public interest”? Even if s/he wants to “do good”, the only way to do so is longevity in office, so how do we untangle motives from tactics that are needed to satisfy those motives?

One reason this discussion caught my eye is that I have despaired about this eternal truth — political processes as attractors for power-hungry narcissists — for most of my intellectual life; in fact, it’s one of the first consciously small-l-liberal thoughts I can remember having as a child. If the other tautology is true — that democracy is the worst form of government, except for all the others — then is there a way to cultivate representatives who are not power-hungry narcissists? I continue to come up empty with respect to that question.

One might hope that public choice economics, by treating politicians as rational agents and analyzing political economy processes such as lobbying and rent-seeking, could yield some insights. But Will Wilkinson’s foray into this discussion is not particularly sanguine; in fact, he contends that by treating politicians as rational agents, public choice economics is too generous to politicians:

By insisting that politicians are motivated by considerations no different than businessmen or anybody else, public choice economists have helped slay the pernicious myth that politicians are generally warmly other-regarding public servants. But the economist’s assumption of motivational uniformity fails to capture that politicians do in fact seem to be really odd people who don’t seem to be primarily motivated by the same considerations that motivate most of us most of the time. The incentives of the political process create a kind of filter that selects for individuals extraordinarily fixated on power and status and extraordinarily motivated to keep it. If this is right (anyone know of personality studies of politicans?), then the problem with standard public choice is that it gives too much credit to politicians by assuming they’re like everyone else and therefore it fails to capture just how exceptionally prone politicians are to narcissism, motivated cognition, self-deception, and brazen lying.

I think Will’s got it about right, and that his remark starts us down the road of developing a behavioral public choice model of politician decision-making, kind of an analogue to Bryan Caplan’s behavioral public choice model of voter decision-making. Will’s insight is also consistent with Ilya’s selection effects hypothesis, and is succinctly summed up by one of the commenters on Ilya’s post:

The most conservative senator and the most liberal senator have more in common with each other than they have in common with either you or me.

Is bicycling “bad to the bone”?

Michael Giberson

Research studying competitive cyclists suggests that cycling can reduce bone density.

… most recreational cyclists probably don’t need to worry too much about their bones. “The studies to date have looked primarily at racers,” [researcher Aaron] Smathers says. “That’s a very specialized demographic. These guys train for hours at a very high intensity. They sweat a lot. They never go for runs. They don’t usually do much weight-lifting,” to avoid adding bulk. “They’re strange.”

I never “train for hours at a very high intensity,” so I’m probably safe.

Should the federal government use the SPR to counter speculators?

Michael Giberson

At Rigzone:

Governments should consider their strategic petroleum reserves a part of their arsenal to limit speculation in the oil market, according to a report issued Thursday by Rice University’s James A. Baker Institute for Public Policy.

If the policy is to sell SPR oil into the market when prices get “too high” (at $90 a barrel? at $100? How do we know?), how does the policy avoid draining the strategic reserve when rising international tensions suggest that the strategic reserve is actually needed for, you know, strategic reasons?

The addition of (another) big, politicized player in the oil market seems unlikely to reduce volatility.  Maybe the authors address these issues in the report, which I was unable to find in my first attempt after reading the Rigzone story.

UPDATE: The report is Ken Medlock and Amy Myers Jaffe, “Who Is In the Oil Futures Market and How Has It Changed?

The SPR section is just two pages at the end of the document. Here is a sample:

Several years after 1990, the Clinton administration also used the “test sale” tool to cap oil prices at $40 a barrel, by signaling to oil markets and OPEC that it would use such sales from the U.S. strategic petroleum reserve to calm oil markets and discourage speculative activity during a sudden disruption or severe imbalance of markets. The strategy proved similarly successful, discouraging future markets players from holding long positions above the $39 a barrel level for fear that U.S. government intervention in the market could cause them losses.

What if we had started selling the oil at, say, $50 or $60 a barrel in 2005, and prices continued to rise? Is the response to sell faster? How low do we let the SPR go before the strategic value of the reserve becomes compromised (i.e., how much more oil is in the SPR than is necessary for strategic reasons)?

It still seems that when there is a demand-driven price rise, which the 2005-2008 was in large part (whatever additional role might have been played by speculators), the policy sells off part of the reserve to help keep prices down, and the effect is to employ the SPR to subsidize the growing demand.

Not that trying to buy low and sell high isn’t a good financial strategy, but the federal government just isn’t set up well to arbitrage the market.

(Hat tip to FT Energy Source)

ANOTHER UPDATE: I just read the last two pages. Craig Pirrong read the whole thing and was less than impressed (i.e., “In a nutshell, this report is bilge.”).

Joe Romm to Michael Lynch on peak oil: Wanna bet?

Michael Giberson

Joe Romm, at Climate Progress, offers a public wager to Michael Lynch, of the recent NYT op-ed opposing peak oil. Romm singles out this line from Lynch’s piece:

Oil remains abundant, and the price will likely come down closer to the historical level of $30 a barrel as new supplies come forward….

And then offers the bet:

Here’s my bet to Lynch. Let’s take the average price of oil from 2010 to 2015. For every $1 a barrel it is below $40, I’ll pay you $200, if you pay me a mere $100 for every $1 a barrel it is above $40.

The average spot price in this series of data from the EIA over the period 1986-2008 is $37.78 (in inflation-adjusted 2008 dollars; other data series will get you a slightly higher or lower price, but not a fundamentally different conclusion).  A data series running back to about 1974 would find a higher average, and a longer view is necessary to see an average near $30 (in constant 2008 dollars).

Historical analyses of crude oil prices have found two different kinds of conclusions. Some folks find a random walk, which implies that a good unbiased estimate of a future price is today’s current price, and other folks find a bit of mean reversion, meaning that as the price moves above or below long run average prices there is at least a weak tendency for prices to return toward that long run average. The first view gives a future estimated price of around $70/bbl (but with a very wide variance), while the later view probably suggests a price closer to $35 or $40/bbl.

Technically speaking, you will have noticed, all Lynch said was prices would “likely come down closer to … $30.”  Beginning with a price around $70 when the article was published, any price less than $70 is “closer to” $30.  And Lynch said “likely come down closer to … $30 as new supplies come forward in the deep waters off West Africa and Latin America, in East Africa, and perhaps in the Bakken oil shale fields of Montana and North Dakota.”  So if anything prevents those supplies from coming forward, then Lynch’s claim isn’t tested.

That’s a problem with most such public pronouncements – they usually are not specified in a manner clear enough for testing (perhaps with good reason).  To make a meaningful wager, the principals will have to be more specific on issues like selection of a price series, method of averaging, adjustments for inflation, and so on.

I’m a big fan of the idea of pundits putting their money where their mouth is, so I’d to see Lynch respond with whatever clarifications he needs to fully specify his claim, and then Romm can decide whether he is still willing to offer a wager.  I hope they work out a deal.

NOTE: See earlier KP posts on the Lynch op-ed and on a response from The Oil Drum.  A second, better response at The Oil Drum has been posted.

ASIDE: I was going to suggest that Romm and Lynch take the wager to Long Bets, but Long Bets requires all bets to be even money and Romm is trying to tempt Lynch with a two-to-one offer.

There are a handful of peak oil related predictions up at Long Bets: see #246, #257, and #168.

150th anniversary of Edwin Drake’s first oil well in Pennsylvania

Michael Giberson

Here’s wishing a happy 150th birthday to the oil industry!

On August 27, 1859, Edwin Drake and his steam engine succeeded, after weeks of work, in drilling a successful oil well.  Actually, more like “chipping” than “drilling.”  Alex Madrigal has the story and several old stereograph images:

A western Pennsylvania river valley seems an unlikely place to go looking for momentous change, but the historical fact is that the Oil Creek valley, about 100 miles north of Pittsburgh, was the world’s very first oil field. From 1859 to 1873, this was the largest oil field in the world. During that time, 56 million barrels of oil came out of the ground.

Take note of the description of the stereograph [MG: see it on Madrigal's site]: “Source of the world’s most gigantic fortunes — pumping wells in the oil country — western Pennsylvania.” It took a few years to really get going and really only produced near capacity for half a decade, but it made millionaires. In just the six years from 1859-1865, $17 million was made in this backwater part of the country.

But as quickly as it flowed onto the world scene, Oil Creek valley went dry and everyone packed up and went home. Or to Texas.

(In case you’re interested: The first producing oil well in Texas was drilled in 1864, but the action didn’t really get going until a big discovery in 1894.  And then, on January 10, 1901, Spindletop.  Natural oil seeps were known to Indians in Texas well before Spanish explorers arrived.)

Peak oiler responds to Lynch op-ed in NYT

Michael Giberson

A few days ago I mentioned Michael Lynch’s op-ed in the New York Times in which he takes a few swings at peak oil.  Nate Hagens, at The Oil Drum, offers the beginning of a response:

Peak Oil has never been about the amount of hydrocarbon molecules that exist, but flow rates, timing and costs.

Actually, I think peak oil was initially about the amount of hydrocarbon molecules that exist, but the better arguments today are about flow rates, timing and costs.  Thinking on the margin.  Good start!  (But I think Lynch is on board with this “flow rates, timing and costs” thing.  For example, he addresses the peak oil argument comparing the “[discovery of] one barrel for every three or four produced.” This point concerns flow rates.  His next point concerns costs, he also talks timing.)

Reserves additions are backdated to date of discovery – even with that global discoveries peaked in 1960s and have declined every decade – we need to find oil before we produce it.

I don’t understand this point.  If reserve additions are backdated to the fields date of discovery, then things get analytically messy for peak oilers and their critics. (Which doesn’t undermine the concluding observation that “we need to find oil before we produce it,” though what this has to do with backdating I still don’t see.)  I guess the point is we should un-backdate reserve additions to get a better view of the real current flow rates.

New, better technology generally allows us to maintain current oil flow rate at cost of higher future decline, (which then requires more discoveries, etc.).

True, mathematically speaking, if we talking about some fixed amount of hydrocarbon molecules to be recovered.  But the better peak oil positions are about “flow rates, timing and costs.” Better technology increases production rates hydrocarbons and allows that production at a lower cost and increases the total amount of hydrocarbons recovered over any given period of time.  The way Hagens puts it, is as if we would be better off without better technology.

Lynch and most other natural resource optimists completely ignore net energy analysis – the fact that energy and other natural resource inputs are requirements of oil extraction.

The link is in the original, citing back to a guest post at The Oil Drum explaining net energy analysis.  The guest post is an intelligent and thoughtful exposition of the idea, which points out, among other things, “The relation between ‘peak oil’ and the [Energy Return on Investment] for world oil production is unknown” and “There is a widely held assumption that the EROI for a nonrenewable energy resource such as crude oil or a renewable resource such as wind inexorably decline once the physical quality of the resource base begins to decline (e.g., smaller and deeper fields, or less windy sites). This is not necessarily the case.”

Hagens has four more points of lesser relevance to peak oil. Sure current economic conditions and government deficits  affect the current demand and supply of oil.  But relative to the peak oil big picture, these are transitory noise.  The post has an extensive set of comments, but the signal-to-noise level is pretty low, so I gave up trying to find better arguments there.

Actually, I didn’t start this post intending to critique Hagens’s arguments, but I hope as The Oil Drum‘s staff works over a response to Lynch that they can do much better than this beginning.  Interest in peak oil seems to be growing even within the oil industry – not all proponents are as ignorant “of how the oil industry goes about finding fields and extracting petroleum” as Lynch suggests – so it is worthwhile to examine the best arguments for and against peak oil and the best arguments against those arguments.

Any reading recommendations?

Health care economics tidbits: Mackey, New York Times, Horwitz

Lynne Kiesling

One great thing about being on holiday out of the country is that I have blissfully been spared the annoying, politicized, and frequently wrong-headed and vapid health care policy discussions and media coverage thereof. I read John Mackey’s WSJ editorial with his health care policy recommendations, the top three of which being:

• Equalize the tax laws so that employer-provided health insurance and individually owned health insurance have the same tax benefits. Now employer health insurance benefits are fully tax deductible, but individual health insurance is not. This is unfair.

• Repeal all state laws which prevent insurance companies from competing across state lines. We should all have the legal right to purchase health insurance from any insurance company in any state and we should be able use that insurance wherever we live. Health insurance should be portable.

• Repeal government mandates regarding what insurance companies must cover. These mandates have increased the cost of health insurance by billions of dollars. What is insured and what is not insured should be determined by individual customer preferences and not through special-interest lobbying.

These are precisely the over-the-dinner-table health care policy recommendations the KP Spouse and I have been discussing. I left for vacation the day after Mackey’s editorial, so I missed all of the “boycott Whole Foods” hullaballoo. And, honestly, it makes no sense to me.

Seriously, Mackey has been describing himself as a libertarian for years. Years. He runs his business in ways that are largely consistent with a classical liberal philosophy, although some may not agree with his specific choices. But markets talk, and the expansion and market cap of Whole Foods speak volumes. So I don’t get how those agitating to boycott Whole Foods have any grounding for their advocacy. He is making proposals consistent with his philosophy, and with policies that his highly-successful business has followed for years. If those who want to boycott Whole Foods now had been paying attention, they would not be surprised by his recommendations.

Or am I being too logical and analytical … ? Probably!

In other health care policy writing, Ron Bailey points us to “an amazingly perceptive article” in the New York Times from David Leonhardt, examining the effects if we had competition, choice, and more free markets in health care. Both Ron’s post and the Leonhardt article are worth a read, if only to remind yourself that removing the counterproductive existing regulations that hamper health care and raise costs is not as difficult and complicated as the administration and Congress want to make it.

Finally, in a must-read 2008 article on health care economics in the Freeman, Steve Horwitz nails exactly why profits are much more than a motive, and therefore are as important in creating efficient and ethical health care as they are in other aspects of human action. He closes with this money quote:

Thus the real problem with focusing on the profit motive is that it assumes that the primary role of profits is to motivate (or in contemporary language “incentivize”) producers. If one takes that view, it might seem relatively easy to find other ways to motivate them or to design a new system where production is taken over by the state. However, if the more important role of profits is to communicate knowledge about the efficiency of resource use and enable producers to learn what they are doing well or poorly, the argument becomes much more complicated. Now the critics must explain what in the absence of profits will tell producers what they should and should not do. Eliminating profit-seeking from an industry doesn’t just require that a new incentive be found but that a new way of learning be developed as well. Profit is not just a motive; it is also integral to the irreplaceable social learning process of the market. Critics may consider eliminating the profit motive the equivalent of giving the Tin Man from Oz a heart; in fact it’s much more like Oedipus’ gouging out his own eyes.

Amen, brother. Hat tip to Art Carden for the link to Steve’s article, which had escaped my notice before (sorry!).

Kauffman economics bloggers video

Lynne Kiesling

Last February I was thrilled to be invited to an economics bloggers forum at the Kauffman Foundation, organized by Tim Kane (who contributes to the Kauffman blog Growthology). As part of the forum the Kauffman folks recorded video interviews with each of us for their library.

They have now released a video from the event that includes some excerpts from our interviews and from the informal filming of the event, with Tim providing narration and context. I am pleased and honored to be included in the video, which also includes folks like Tyler Cowen, Robert Cringely, Mark Thoma, Arnold Kling, Don Boudreaux, Virginia Postrel, and Amity Shlaes.

Thanks to the Kauffman Foundation and Tim for creating such a good event and such a good video reflection of it.

Back from my epic travels!

Lynne Kiesling

I love traveling, but it is always good to return home. After two weeks on the road, first for some English countryside holiday time in Shropshire, then the Mont Pelerin Society meeting in Stockholm, then some SoCal holiday time at the La Jolla Music Festival and then in LA, the catching up and digging out is gonna take some time. But it was a much-needed break, including, to be honest, a much-needed break from my overly-attentive relationship with the Internet.

Big, huge, massive thanks and shout-outs (shouts-out?) to Mike for keeping up the reading, writing, analysis, and commentary here at KP during my travels. On the infrequent occasions when I did check in during my trip, I was glad to have something interesting and thoughtful to read when I got here.

And now it’s back to work.