The Middle East Uprisings, their Economies, and the World Economy-Becker

 

The revolutions and protests in Tunisia, Egypt, Libya, Bahrain, and other parts of the MENA region (Middle East and North Africa) are the most important world development in the past 20 years, even though it is still highly uncertain about the types of governments that will emerge, the effects on their economic and political freedoms, and their production of oil. I expect, however, that these economies will become more competitive and less government-controlled, and that world oil prices would tend to be higher in both the short and long runs.

The larger MENA countries are mainly autocratic, and their governments tend to dominate their economies. Corruption is common, and political connections are usually needed to start and grow businesses, to gain access to raw materials and other inputs, to obtain protected positions in telecommunications and other sectors, and to get credit from government banks.  The Heritage Foundation and The Wall Street Journal prepare annual indexes of overall economic freedom for many countries, including those from the MENA region, that can be roughly compared across countries. Studies have shown that the degree of economic freedom in different countries in any year is positively related to their subsequent economic growth.

Saudi Arabia and Turkey have the highest index of overall economic freedom of any of the larger MENA countries. Their levels of economic freedom place them in the “moderately free” category. Then come Morocco, Egypt, and Tunisia, with indexes in the “mostly unfree” category.  Syria and Yemen have even less freedom, while Iran and Libya are close to the bottom of all 179 countries considered, with indexes of economic freedom in the “economically repressed” category.

None of the major oil producers of the MENA region are democratic, with the exception of Iraq that has a fledgling democracy. They have a mixed record on economic freedom. Qatar, The United Arab Emirates, Kuwait, and Saudi Arabia are in the moderately free category, while the others have much less economic freedom.

Countries that become much more democratic as a result of the upheaval rocking the MENA region are likely to become far more transparent about how they spend their oil and other public revenues since information flow is much greater in democratic than autocratic countries. They would also become less corrupt since the greatest amounts of corruption are generally found in more authoritarian countries. Information flows about all aspects of life would increase, so that citizens would become much better informed about what is happening in their own countries and in the world.

If, as I expect, the shift away from autocratic regimes in the MENA region would increase the role of competition, and increase the private sector, that should speed up the rate of economic growth in these countries. However, the evidence is very mixed on whether democracies in general spur economic growth. Probably the most significant difference is that the variation in growth rates among democratic governments tends to be less than that among autocratic governments. Enlightened dictators can accomplish a lot for their economies, but misguided ones can cause disasters-as in China’s “Great Leap Forward” under Mao. The much greater information flow in democracies and the relatively free elections tend to prevent democracies from engaging in terrible and unpopular policies for prolonged periods.

The world is especially interested in what will happen to world oil production if many of the major oil producers from the MENA region become much more democratic. I say “if” because large oil reserves tend to discourage the growth of democracy (see, for example, Michael L. Ross, “Does Oil Hinder Democracy?” World Politics, 2001). One reason for this is that sizable oil production gives military leaders and autocrats a strong incentive to gain control of these governments and their large revenue base because that does not require trying to collect high taxes on earnings and profits.

However, if large oil producers did become much more democratic, the effects on their oil production is unclear. Would they encourage production and refinery of oil by international companies with much expertise at these activities, or would they, as in democratic Mexico and Brazil, reserve oil production and refinery for less efficient government-owned companies? Their oil production might well decline if government enterprises ran the oil industry. Democratic regimes might have a longer time horizon than the replaced autocratic regimes, especially if the latter governments feared being overthrown. Such governments tend to pump out oil (and other natural resources) at a faster pace since they would not expect to collect the oil revenues in the more distant future.

MENA country regimes that become much more democratic as a result of the current unrest would tend to produce less oil than the autocratic regimes they replaced if they use government-run oil companies, and have a long horizon. This would mean higher oil prices in the near and long term. On the other hand, if these democratic governments used efficient international companies to produce and refine their oil, and if they did not have a particularly long time horizon because they needed larger revenues, they might increase their oil production compared to the autocratic regimes they replace. Although it is uncertain which scenario will prevail, I lean toward expecting reductions in oil production from the MENA region, and higher world oil prices.

 

 

 

Comments

[ugg slippers]

Simply want to mention what a useful web page you’ve got in this article!

[Xavier]

Prof. Becker and Judge Posner views on the subject are ambivalent and may be limited by insufficient exposure to developing countries. Their experience seems to be mostly in and of the United States. By contrast I spent my career working abroad in developing countries, including some in MENA, first meeting a bottom line, and then systematically studying their differences. I am more pessimistic.

First it is most important to make clear that democracy does not breed competitive markets or vice versa. You can easily have one without the other. Today China should be the more obvious example.
Judge Posner suspects and alludes to this but to my surprise Prof. Becker apparently not.

But then one of the more jarring things I learned during the more than twenty years of systematic study is that economic models developed in and for industrial economies are usually transplanted to developing countries without questioning and modifying the key underlying assumptions. The most important are that those countries are not fairly homogeneous, actively participatory, and transparent democracies free of corruption.

Some twenty five years ago I led a team that did an in-depth review of Turkey’s manufacturing industries. At the time Turkey was a functioning secular democracy as measured by its voting record, the standard measure in the advanced countries of the West. Yet, like so many other developing economies there was little internal competition. Its fairly large manufacturing sector consisted mainly of a few protected and heavily integrated conglomerates. There are exceptions of course. Brazil and Korea are notable ones but then they have always also looked to compete abroad.

More important is the history of democracy of these countries and the internal obstacles it faces. Unlike the advanced economies of the West, MENA countries have little experience with democracy and very few of the many thousands or even tens if not hundreds of thousands of organizations of civil society common in the West. In fact in most MENA countries these are prohibited. In the very few where they do exist, like Turkey, it took a very strong leader, almost a benevolent dictator to force the changes to the underlying social structures that were necessary to support democracy. That was more than 70 years ago and yet the military still has to intervene occasionally to keep the democratic process from derailing, most recently in 1980 and 1997.

About four or five years ago I remained skeptical about the possible success of the US’s effort to bring democracy to Iraq. Then I learned that the US had actually spent upwards of 500 million dollars in the first three years to foment the development of organizations of civil society and my pessimism abated. I haven’t checked this variable recently so I don’t know whether it has progressed and if so how much. However, the fact that they’ve had so much trouble selecting new governments and new faces gives me some reason for pause.

I expect that despite the turmoil and cries for freedom of the people, autocracies of one kind or another will remain the norm in the MENA countries except Turkey and hopefully Iraq. The experience in 1979 in Iran should disabuse us. At the time there were very similar if not larger demonstrations. I don’t know enough of the history of Iran to know why the military didn’t prevail. And I don’t know enough about other countries of the region but if there isn’t a strong military like in Egypt I would expect a theocracy or at best another dictatorship to emerge. One can only hope for another Ataturk.

As to the oil, my worry is not new autocracies. Prof. Becker explains well why they would want to continue selling oil to the West. But I would keep an eye on Iran and Iranian fomented Shia unrest. Even then I would not worry about Iran controlling more oil fields. They too have an interest in selling oil. My fear is a resumption of the millennia old Persian-Arab feud that in recent centuries morphed into and was perhaps even worsened by bad blood between Sunni and Shia. I would hate to see them go at each other literally and physically over the oil fields of the Middle East. If they did the events could then become really momentous and we would be in real trouble.

[wii Accessory Bundles]

You got a really useful blog I have been here reading for about half an hour. I am a newbie and your post is valuable for me.

[NEH]

The rise of Democracy in MENA? Why is it that in the West we always see political turmoil resulting in the rise of Democracies and a free voting Public in Nations without any type of history or democratic conventions that might lead to Democracy? Hope against hope? From what we have seen in the past is that one corrupt and brutal Dictatorship is simply supplanted by another corrupt and brutal Dictatorship. The only things that change are the names and faces. Historically, look at Iran, look at Afghanistan, look at Iraq, look at any of the countries in Central and South America who gave rise to the phrase, "Banana Republic Elections". Are we seeing the rise of "Oil Republic Elections"? In the long run, I have absolutely no faith in any of these Revolutions ending in any type of Democratic view, Democratic Institutions, or a Democratic way of life.

Now on their impact on Oil exports, a lot of these countries are tied into OPEC which controls export quotas. These revolutions may very well be tied into the desire within OPEC to set the new price benchmark at $100/barrel or it may very well be that the member countries will cover the shortfall of exports from various member countries who are in turmoil at present. Such as Saudi Arabia's response that it would increase it's exports to cover Libya's export declines. Hence stabilising, the world's markets (if there is a slowdown in the world's economy, all of the Oil Exporters will be hurt in the long run). The real issue becomes, "Why such volatility in the Oil Futures Market"? The answer, "Unrestrained open speculation in the Oil Futures Market". Has anyone observed the declines in the Stock and Bonds market as of late? Where has all that money gone? I would hazard to guess, the Oil Futures Market and hence the inflated prices for Crude.

One bright spot, other than the price spiking in the Open Futures market, the U.S. is somewhat insulated from a slowdown in oil production by Libya and others. As for our sources of Crude to feed our transport and industrial operations, approx. half comes from U.S. sources, the balance comes from the following top three U.S. importers, Canada no.1, Mexico no.2 and Saudi Arabia no.3.

Europe and Asia, they may very well have future problems...

[Xavier]

NEH, a couple of points. Two thirds and not just one half of our oil comes from abroad. According to the latest data, below, in the last few weeks we have been producing about five-and-a-half million barrels a day, and importing about eleven on average.

http://www.eia.doe.gov/dnav/pet/pet_sum_sndw_dcus_nus_w.htm

And what makes you think that if Europe and Asia have problems that will not affect us and affect us big time? The world economy is now so tied together that when any one major country or group of countries gets a cold we all do.

[NEH]

Xavier, Does that D.O.E. accounting take into account the current fields that are out of production at present or is it based simply on currently producing fields (don't accept as fact everything as reported)? Hmmm? ;) As for Europe and Asia, their Crude imports are coming from the current crop of Nations that may move into holding "Oil Republic Elections" (we've already minimized our exposure). Excepting Europe, which gets a large amount of Crude from Russia.

As for that soft and fuzzy worldview of Global "Interconnectedness" and the "cold" analogy, time for US too seriously think about "decoupling" and setting up the "quarantine"; in regards to our Economic, Military and Political safety, health and well being. Our responsibilities lay with the Nation and the Public. Not some fuzzy headed thinking about the well being of some ideal World...

[Xavier]

NEH, I don’t know about the oil figures. I was surprised at the totals. Last time I checked consumption was closer to 20 million barrels a day. Must be the slower economy and the season—less driving, the fuel oil is from inventories? And production is also low so it may be the offshore thing. Either way the US has been importing about two thirds of its needs for a long time.

As to cutting the umbilical cord to the rest of the world, that may be tougher than it seems. For one the US needs a lot of raw materials, including some that are only produced abroad for its more sophisticated technologies . And then there is the employment generated by exports. In 2009 GDP was 14.1 trillion and exports 2.1 trillion. That’s about 15 percent of production which in employment terms, and based on an overall labor force of 130 million, could mean as many as 19 million jobs. Here are web sites with more data:

http://www.bea.gov/

http://data.bls.gov/cgi-bin/surveymost

For exports and imports you can go to, and hit the “Annual” tab at the bottom:

http://www.bea.gov/international/xls/table1.xls

[Joe Smith]

NEH and Xavier, at the EIA web site, downlaod table 5.1, US Petroleum Outlook, 1949-2009. Here you will get in one excel file all of the relevant stats dealing with US Petroleum, except for Consumption. For Consumption, you will need excel Table 1.3, Primary energy Consumption by Source. When you graph the data in table 5.1 you will see where the declines in US petroleum production have taken place, and the rise in net imports. When you match the date in table 5.1 with the data in table 1.3, you will see that the US is importing about 50-60% of its Petroleum needs thru 2009. Imports started to exceed domestic petromeum production around 1993. No matter what Washington,DC says to the contrary, our country and our GDP is petroleum dependent and will be for many decades to come.

[Upset Taxpayer]

In reading these two posts and some of the comments---Tom Rekdal says it is not even clear that anything will change---it is painfully obvious exactly how woeful the mental models of these two writers, and of conservatives generally, really are.

Sean Hannity and Rush Limbaugh falsely keep telling Americans that there will be two SUVs in every drive way, with low taxes. It is not going to turn out that way.

World forces and events are moving so rapidly that only one mental model is of any moment at present. John Boyd's OODA loop is all that matters now; that, and Patterns of Conflict and his other writings.

The Soviet Union collapse was at the pace permitted by a Xerox copier. We are now operating on digital time.

If we do not learn, quickly, to observe, orient, decide, and act at a digital place, we will be soon replaced by someone who does.

Two facts are painfully self-evidence. Obama is not up to snuff and he is the best we got.

Neither post mentions the real danger---the personal ambition of a new Caesar or Napoleon, or more than one.

Conservatism holds no lessons in this game. God Bless people who worship ancient rocks and ruins, but what we should do is leave the Mid East, bringing our Zionist friends with us.

At a reasoned cost we can isolate ourselves achieve energy independence, as long as the Canadians and Mexico are with us, and give Europe, Russia, and India time and the opportunity to assert themselves. They are the front line and our policy should adapt to that new reality.

The Sunni/Shite divide is not bridgeable or are the problems in Pakistan and Turkey.

Nor, is acceptable, as Posner does, to tell a man without a job, without hope for a family, a legacy, it eat cake. Yet that is his message to Egypt et al.

Without vision the people perish.

These two posters are supposed to be among our great thinkers yet neither offers vision.

History has many lessons for us. Look at how Japan moved to secure needed resources in the years before WWII. If elected to run Egypt, tomorrow, I would be damned to know what to do. How does one create meaningful work, meaningful lives, out of nothing? Yet with a $20.00 cell phone every Egyptian knows that they are being hosed by life.

[NEH]

Now I wonder if I should throw a curve into all this and raise the issue of "Synfuels" (coal gasification, coal liquefaction, oil sands, oil shale, bitumen conversion etc., etc.)? The research and development of which occured in the seventies and eighties. These projects are shelved at the D.O.E. waiting for the day when Crude costs became high enough for these technologies to become cost effective. Another big approach is to get our Electrical Generating capacity off of Fossil Fuels and into the Atomic Age.

We're not just tied to Crude Oil Production alone...

[Atlanta Roofing]

If SGen is right, this will kill the airline industry. Anyone notice the recent ticket price hike? Why don't these politicians & central bankers see that inflationary monetary policies will crush petro-chemical based economies?

[Jack]

Good posts -- yeah a crap shoot with dice loaded against democracies popping up like dandelions in the spring sunshine; still we hope the best for those turning out the corruption of the past.

NEH: "The real issue becomes, "Why such volatility in the Oil Futures Market"? The answer, "Unrestrained open speculation in the Oil Futures Market". Has anyone observed the declines in the Stock and Bonds market as of late? Where has all that money gone? I would hazard to guess, the Oil Futures Market and hence the inflated prices for Crude."

The "futures market" for oil is a curious thing. Consider, most futures markets are hedges balancing a price now before calamity or good fortune takes place before harvest time. They also serve to tell farmers what to plant in order to maximize profit in the coming season.

What "should" happen in oil? I'm recalling Boone Pickens buying oil companies for there reserves, those selling cheaper than the expected costs of exploration and development.... something of a market inefficiency to the low side. It would seem that the price equalibrium for a tanker full of oil would be about what it costs to replace that oil.

Pickens, about a year ago said prices in the $40 range still covered new production. Here in Alaska, though pipeline throughput is a third what it was at peak production, oil that was profitable at $18 in 2000 is being sold at the "world price" of $80 plus -- ha! with BP, Exxon and Chevron whining about the state having slightly changed the share due to the state.

So what would explain oil prices having quadrupled and more over the last decade? In commodities we've seen doublings in coffee, corn and other grains at times but only when demand substantially outstripped supply. With the world in deep recession, over the last few years are we seeing supply curves actually falling below demand curves? I don't think so. And now that a shortfall MIGHT occur, the Saudis appear ready to open the valves that a shortfall doesn't occur.

The Saudis send some of their princes to the best econ schools and I see what their reasoning is likely to be. Both that of tipping the world into deeper recession, and that at prices north of $100 all sorts of changes are likely to take place. Jettisoning our fleet of gashogs in favor of Chevy Volts and the like at much a faster pace than otherwise, along with developing shale at "national security" speed comes quickly to mind.

With NEH I think there is something really wrong with the oil futures market. I'm hearing stock brokers/touts putting ordinary investors into commodities, as IF they were investments and not speculation in a zero sum game. And surely as we keep blindly importing huge amounts of increasingly costly oil are those whose sovereign funds are overflowing with petro-bucks pouring some of them back into the futures market?? With the "risk" of buying the top having been well compensated by past moves from $20 to $40 and $40 to $60? They can afford to be wrong on a few forward contracts.

There's more. In econ the classic substitution model is that of drinking tea when the coffee crop fails and prices soar. In the US natural gas is so plentiful its prices have decoupled from oil. At $4.50/mcf I think an NG BTU works out to less than $25/bbl oil, a price so low it "appears" to be a factor slowing down the construction of a long proposed 52" pressurized pipe from the N. Slope which might further depress NG prices.

Pickens was touting NG for heavy transport as refueling stations for trucks could be fewer than that needed for passenger vehicles and could make a good sized dent in diesel demand. There are various techs out there for conversions including one that injects NG with diesel from and inexpensive CNG tank which increased the mileage of a diesel P/U from 25 to 38 mpg.

IF we believe actual (honest!) supply and demand indicates $100 oil or god forbid, actual shortfalls with frenzied bidding for very scarce bbls, why are we not moving much faster to supplant oil with cleaner burning and much cheaper NG? We'll need and have to pay up for oil to power our airplanes and for a long time to fuel our existing gashogs but wouldn't it be wise to use NG, as Pickens suggests as the interim fuel while other alternatives and better conservation efforts are worked out?

I need to mention the "world" oil price falling to $10 after we responded with Carter's "CAFE" standards, and the 55 mph speed limit and some other conservation measures. As we consume one quarter of all the oil produced, were we to invest in the multi-fuel fleets, common in Brazil, we'd gain both by immediately keeping more of our dollars at home, as well as dampening world-wide demand for oil.

In the past, the problems of NG for cars was that of short range due to limited tank capacity and lower power in an engine designed for gasoline. With hybrids both of those problems are greatly reduced as the batteries give acceleration power, and the IC engine is there to extend the limited range of the batteries.

Ha! but! there are all these shale fracking projects on the horizon........ so instead of clean and readily available NG do we now spend much more to defile the environment with shale projects bringing us oil at "world prices?"

[Jack]

Atlanta? Other than the external price hikes of oil (which the Fed has no control over) and the closely related food cost pressures, I don't see anything that looks like inflation. Probably need to sop up a WHOLE lot of unemployment before there will be wage inflation (for working folk) and it'll be a WHILE before housing prices are bid up.

Oh........ and please don't confuse the increases in tortilla chips and meat with inflation...... it's due to trying to fuel the world's most wasteful fleet of gashogs on heavily subsidized corn liquor. Really dumb.

[NEH]

Jack, Ah Yes! Let's also throw "Biofuels" into the mix. With the issue of MTBE (Methltertiary Butyl Ether, an oxygenate additive to gasoline)now contaminating various water tables the move was on to find another safer oxygenate and voila, Ethanol, and the rise of E-10. Now the move is on to E-15 to repalace 15% of the gasoline mix. But, in the Biofuels game, corn is not the only feedstock available. Brazil has used sugar cane for years and has higher production rates. There is a "Cellulosic" process utilising a wide variety of biomass. In fact there are currently process's available from such companies as VIRGIN Bio (forgot the name of the actual company, but it starts with a "G" (process known as "GIFT") and is a subsidary of Richard Brant's Virgin Co.) that has developed a process that can be adapted to the existing Industrial Still's utilizing corn as a feedstock. All it takes now is the political Will and investment dollars to implement.

As an aside, yesterday I was at Gas Station filling my car (a Chevy HHR which gets 28-29 mpg). It cost me approx. 40 Bucks at $3.40 a gallon. In drives a young woman in a brand new giant $$$ Super SUV. Cost her $150 bucks to tank up. All the while she's moaning and groaning about the high cost of fuel. Some people just can't see the handwriting on the wall and like Lemmings will follow the herd to the Abyss...

[Upset Taxpayer]

Jack

Adios

[NEH]

Jack, OH! BTW, there isn't a complete loss of food stuffs in converting corn to ethanol, one of the by-product streams is "Distillers Grain" which is the solids left overs which are then utilized as feed for livestock. So there really isn't much of a loss in food stuffs. At least as far as meat is concerned...

[Xavier]

Jack, I know you discount anything coming from someone you perceive, rightly or wrongly, to be Republican, i.e. someone who doesn’t agree with all of your analyses and positions, but to your excellent question of “why are we not moving much faster to supplant oil with cleaner burning and much cheaper NG?”, you may want to consider the following possible answer taken from a lengthy paper I wrote on the behavior of complex feedback systems, i.e., societies like our own, based on analyses using engineering tools.

“Regulation grows continuously in advanced societies and may eventually form a large all encompassing straitjacket that very much determines how the society as a whole functions. There is strong evidence that societies that performed better historically had a larger number of internal checks [that elsewhere I refer to as values] operating down to the level of the individual that obviated the need for excessive or “perfect” government regulation, a subject to which I will return later. When there is excessive regulation and there are sudden large flows of new capital, the system gives or fails where the regulatory straitjacket is weakest. In the 2000s this happened in housing. If the overall regulatory system had been looser maybe then the large inflows of foreign savings would have been spread more widely throughout the economy and a crisis could have been averted or at least dampened.

“Thus, for instance, energy ‘independence’ and security have long eluded policymakers. A major alternative is electric powered transportation. Yet electric cars require large new volumes of electricity that require very large investments in new generating plants and high voltage transmission lines. The large volumes of foreign capital that became available during the 2000s would have been a perfect source but few investors were willing to take on the massive regulation and powerful interest groups. Long time energy investor T. Boone Pickens has warned about the difficulty of raising capital for such ventures. He points out how even his multibillion investment in wind power is constrained by insufficient transmission lines. At the same time the large automobile companies with the technological and financial capacity to develop battery powered cars have been reluctant to make the necessary investment in development. They argue that the investment is only viable with large volumes but that these require much more electric power generation and transmission than is available. The country is thus in a Catch-22 created by excessive regulation and interest group opposition. As long as investors are unwilling to risk capital in energy production and transmission, efforts to incentivize battery development and production will remain symbolic attempts to pierce through the thick regulatory blanket that immobilizes the industry.”

With respect to NG I suspect that the answer is the same. I don’t know if some filters to you in Alaska, but here in the mid-Atlantic, T. Boone has been spending a lot of money and time on an intensive advertising and public relations campaign aimed at relieving regulations that according to him are holding back investments in NG. Since he is a guy that is willing to put money where his mouth is I tend to believe him. Moreover, at his age, over 80, I seriously doubt it is a personal play to enrich himself even more. And since I wrote the above I have heard, but can’t confirm, that T. Boone has now stopped further investment in his wind power project because there aren’t sufficient transmission lines and efforts to construct more are being held back by regulation and environmentalists.

[NEH]

Ah... Here we go again. The reason for our energy problems is "REGULATION and GOVERNMENT CONTROL". You guys sound like a broken record, and we still haven't gotten the problems solved by the last round of DEREGULATION in the Financial Sectors. Practising Goebbel's Dictum? "If you tell a big enough lie long enough it will become True (at least in the minds of the ignorant)". It's not a matter of De-regulation, but more of a matter of "Fast tracking" Project Permits.

We certainly don't want to end like the Environmental and Safety disaster that China has become. Especially,with the hazardous substances and byproducts that the Energy Industry handles and deals with on a daily basis.

[imenevazno]

Interesting discussion on a similar subject matter on Mr. Soros's article:

http://www.project-syndicate.org/commentary/soros52/English

[Jack]

Xavier -- I don't discount commentary from "the right" and once wrote here that I see HONEST folk of either "extreme" residing next to each other on a political round table instead of a see-saw. Across from those actually trying to solve our problems are those (very successful in recent years) primarily concerned with carving off a fatted chunk of pork for themselves. WE are going down because of their success.

Also meant to compliment you on you world wide observations, sounds as though you've had an interesting career.

As for the mortgage mess.......... THE problem was a wholesale jettisoning of banking standards from top to bottom......... as the producers of "Inside Job" said at the Academies....... "So far NO of them have been put in prison and this is WRONG." Indeed it is.

As for oil "regulation??" Ha! They've been subsidized since the beginning. Saw the old and great film "Giant" again recently with one line being "Yeah, and that 25% depletion allowance ain't bad either". "WE" have long made the mistake of keeping oil much cheaper than it really is, and Carter, though politically rather ineffectual, had it right with the CAFE std (which all the gashogging "SUV's" and tank-like "P/U's" that make up the most wasteful fleet in world history were exempt from) and trying to put one thin dime of demand dampening tax on gasoline. He failed. Clinton tried a BTU tax that would have been even better in a time when we needed increased revenues anyway, but that died at the hands of the lobbyists too, so "we" increased income taxes, built the gargantuan fleet of "$150 a fillup" pigs you see and are continuing to export what few spendables we have remaining. While "housing" was prime to fail, it was $100 oil that triggered the downward spiral.

A bit more on NG. Brazil wisely implemented some sort of multi-fuel std giving the CONSUMER something of a chance to take his best shot. NEH mentions cane being more productive than corn for ethanol, I think the figure is something like eight times, though one would have to compare planting and harvesting costs. Our corn deal is the work of lobbyists, none more rapacious than Archer Daniels. Examples? we do not allow Brazilian eth to be imported. More? Our sugar pricing schemes has largely put the Mexican sugar industry on the ropes.

Cane grows well down there. IF we want ethanol we should open it up to Mexico where with cane and cheap labor it would be cheaper and we'd likely save a bundle that is now going to the corn scammers and increasing food costs in all of North America and beyond. How dumb is it to have a policy that in essence rolls up the tortillas meant for inexpensive meals and stuffing them into the gas pig NEH mentions? At NO benefit in saving oil?

And for dumb? Here we are THE nation most dependent on oil (highest fuel per GDP dollar) so at the mercy of the Saudis that our president has to beg them to open the valves? And we've had forty years to respond to the first "crisis?"

Well, the "right" and those feathering their own beds will rely on "the market" to fix it all, but "the market" has not been a level playing field since the oil era began.

Most of the problems mentioned today -- inadequate grid, lack of NG infrastructure and the like are a result of having been flow up a blind canyon, at least, since the early 70's. As a "market" proponent, suppose, as seems completely logical to me, that we had gradually shifted some of the income tax burden onto NON-renewable resources from the 70's until today. We'd have seen the development of alternatives and conservation efforts that are now crucial having been more gradually implemented over 40 years. Our factories and buildings would be less wasteful of fossil fuels as are those of EU, Japan and virtually everyone else.

Importing, say a third less than the 20 million bbls per day? Seven billion bbls per year? We'd keep (@ 75/bbl) over $500 billion/year in our economy and not be burning those billions of bbls in the atmosphere.

Ha! If Carter had Clinton's powers of persuasion and we'd kinda skipped 20 years of oil-soaked presidents, perhaps that's where we'd be today. But "spilled milk" and time to get cracking. Surely the wiser of our bastions of industry are not comfortable relying on OPEC and perhaps the Saudi royals for pricing our most important industrial resource.

[Xavier]

Jack, Re your "As for oil 'regulation??' Ha!" I hope you are not suggesting I said anything about oil regulation. Indeed, your "They've been subsidized since the beginning" makes it a perfect example of regulatory capture, i.e., they've gotten to government for favorable regulation and what not.

No. I was speaking of the rest of the energy industry. I used the less charged example of wind power. Your natural gas is another excellent example. Almost precisely 50 years ago I did my engineering bachelor’s thesis in alternative energy, with emphasis on continuously fed batteries, that is, fuel cells. Even if you were to use the much more efficient hydrogen instead of running beefier power lines into every home, you’d still need electricity to make the hydrogen. The bottom line is that you need more power generation and near as I can tell the only really large source is nuclear.

Natural gas, however, is indeed very intriguing. I’d like to know a bit more about the reserves that T. Boone Pickens keeps talking about. They sound too good to be true. Still, he does have a point that when oil is exhausted there will be little or no choice for commercial transportation than natural gas or gasified carbon or shale. And he makes the further point that NG and wind are only part of the answer.

And yes, I did catch the more positive notes, and I appreciated them very much, but heck you kept hammering on a whole class of people, in this case Republicans. You will probably not believe it but when someone generalizes in the same way about Democrats my reaction is exactly the same. I just don’t like knocking people or seeing them knocked, anyone, and much less whole classes of people just because my first reaction to what they say is disagreement. Hey, maybe if I listen carefully to what others, anybody, say I will learn something I had missed. Many have called me naïve for that. I prefer curious, or interested in what others think and say and why.

[Jack]

Xavier: Here's a bit of a summary of the NG situation today. For the Alaska Gas Line today the delay in building it may be the low prices predicted due to shale production in the L-48. Basically that $4.50 NG might cost $4 to transport which might point to waiting until prices increase. But! there are questions:

Shale production is new and fraught with environmental concerns of considerable magnitude. At this point I don't think protective regulations have been implemented. Sooo, what may seem cheap today may not be so cheap or in some cases done at all. Unknown.

While most Alaskans have a "boomer" interest in building the pipeline, mine is more that of what's good for the nation, and the world, in terms of

A. taking the pressure off oil/making us less dependent on increasingly costly imported oil

B. global warming and even more critical, ocean acidification

As an aside today's news mentioned several nations other than S-A increasing production to make up for Libyan problems. It strikes me as, well, silly for a nation that consumes so much oil as does the US to ignore what are essentially national security issues, ie that a Khadafi, Iranian fundamentalists or others have so much control over a resource crucial to the functioning of the US and other industrialized nations. Given, recent volatility, including the early 70's do we sit here waiting for am economy tanking "market signal" or do what I'd think most responsible CEO's would do; take steps to get out in front and assure their company of reliable supplies of their critical raw materials?

Thus, NG from AK or elsewhere being much cheaper than oil, with Boone, I'd favor government leadership that would speed up the use of NG in transportation and electrical generation. Also in the NE there are 10's of millions of leaky old poorly insulated homes still burning fuel oil. Except for costly LNG there's not much NG in that region.

Consider that as oil skyrockets or lines form at gas stations, having the option of pulling in and refueling at an NG tank at lower cost as well as knowing it was a cleaner and domestically produced alternative.

http://webcache.googleusercontent.com/search?q=cache:fNEXOASTgvoJ:www.freerepublic.com/focus/f-news/2648247/posts+alaska+natural+gas+amount&cd=6&hl=en&ct=clnk&gl=us&source=www.google.com

So do we wait for a "better day?" Not sure, however, in 1999 there was a gas line "deal" pending with the feds setting a price support. They fill the gap if NG was below $1.50 to take some of the market risk out of the, back then, $20 billion project. Today the cost estimates are in the $40 billion range and requires NG at $5 plus.

So perhaps we've a "jobs" project that is paid for by cheap NG for years to come.

Here the mood changes when the Bush Admin took over:

"Opposition to the Alaska natural gas pipeline route mandate and price supports came from both the Bush administration and the Canadian government. In a letter to the Sen. Domenici, Secretary of Energy Spencer Abraham wrote, "[The administration] believes market forces should select the route of the pipeline.” He continued, “The administration strongly opposes the price-floor tax credit provision in the Senate energy bill and any similar provisions." Abraham suggested several non-price support tax provisions that could subsidize the construction of the pipeline.[22] Former Canadian Ambassador to the United States Michael Kergin wrote that Canada is of the opinion that the Alaskan pipeline should be built without subsidies and without the route being determined by legislation"

........... For "some reason" they favored more costly and wasteful imported LNG projects which require higher NG prices -- perhaps $7? to justify and packed the FERC with LNG project fans.

Ha! otherwise we might have built an "uneconomic" pipeline for $20 billion that would be ready now to bring cheap NG to market, perhaps to yet better fuel Boone's transition fuel idea, with perhaps more projects to bring NG to from the midwest terminus to areas still dependent on oil for heating.

In short, on some of these big moves with long time lines, I think we can do better than waiting for the "market" signal of having run headlong into a buzz saw.

Both you and NEH seem to have hopes for nukie power, but it appears that the reason they aren't being built is the fairly simple one of them being too costly and beaten out even by wind where that option is available.

[Kim]

Interesting article and enjoyed the comments. Being from Wyoming, I have a different perspective than Xavier in regards to wind and nukes, but appreciate the well thought out response. I have enjoyed the blog for quite some time and appreciate the high quality content.

[NEH]

Jack, The issue between Nukes and Wind lies in the energy density per square foot of space and availabilty of power supplied. With wind, in order to supply the same amount of power that a single Nuke does, the wind farm needs to be at least a thousand times larger than the space required for a single Nuke. This would require covering almost the entire Continent with Wind Turbines. Also, what happens when the wind doesn't blow? No power and the storage of electricity is less than optimal to cover these short falls of power generation. While Nukes on the other hand can be throttled up or down as demand requires. Nukes are expensive, but then so are Wind Turbines and the storage capacity required at the massive scale required.

The same analysis also applies to Solar Technology.

All of these technologies are simply an attempt to wean the Electrical Generating Industry away from using fossil fuels (oil, gas and coal) thereby allowing their exclusive use in the Petrochemical Industries. This allows a larger availability of feedstock supply to the Petrochemical Industry and the possibility of lower costs via increased supply and lower demand.

[Jack]

NEH -- We're shooting for the same goal, that of your last paragraph. I imagine a future generation will view our callous burning of nonrenewables in the same light as killing whales for lamp oil. Unconventional oil, shale etc. probably gives us the reserves for a century, but it's the burning itself that is likely to be the limiting factor. Ha, maybe a good thing too, so oil will be there for plastics and other uses.

With wind having its limitations, I imagine the future will be one of many sources with a greatly improved grid serving a market far more efficient than that of today.

I've higher hopes for solar. You've probably seen projects for large desert installations both P-V and boilers to turbines. Some utilities have already begun on one of the obvious solutions to the long payback of rooftop P-V of the utility installing it at their expense with benefits for the homeowner and the utility.

"Distributed power" (at the ends of the supply chain) is another. There are NG powered turbine generators available so efficient that a Los Angeles college saves big money over the local utility by running them for electric and using the waste heat to heat their swimming pools. They scale from a size that could be used in a six unit residence for $30k or so on up. Having them around at the end of the chain would be a great help when there are power outages; out electrical grid being much less reliable than NG lines -- except perhaps in earthguake zones.

I guess my main issue is that of government (US) leadership being required. For example if nukes are to be a part of the solution if we instead continue to waste oil until "the market" gives a signal we'll be a decade or more late which will have its own costs and dampening effects on our economy. Ha! as is, and has been the case since oil price gouging went above the $40 or so justified by costs of new development. IF $80 to over $100 is a truthful "market signal" indicating that the world is scraping the barrel bottom, we're already a decade late and should give energy security the priority we, too often, give to ginning up trillion buck optional wars. ............. as Rome burns? or has nothing to burn!