Thursday, July 31, 2008

A letter to the Ribaz's new pen-pal, John McCain

Dear John,

Thanks so much for your letter of July 25. It's certainly a special day in the "Ribaz" household when a "PERSONAL - URGENT" letter with a presorted postage stamp shows up in the mailbox, and a letter dunning us for a contribution no less. It's a privilege to be on your mailing list.

This being our first letter from you, we were surprised that so much of it focused on your opponent and not you. Indeed, the parts warning that your opponent is "plotting to spend and do whatever it takes to bring (your) campaign down" and cautioning that you need to be "ready to counter the distortions, innuendoes and accusations" seemed, well, ironic in light of your campaign's activities.

I mean really John, do you think that your opponent "would rather lose a war than lose a campaign" or, as you write in your letter, that he "will surrender to Al Qaeda in Iraq?" Isn't there an air of doing "whatever it takes" when you run an ad accusing your opponent of raising gas prices by supporting the very drilling policy that you advocated in your 2000 campaign, a policy that President Bush's Department of Energy says won't produce any additional oil for a decade and even then won't affect gas prices by more than a few pennies? Or how about your more recent ad, falsely accusing your opponent of snubbing wounded veterans? Or more sleazy yet, the news that you had an ad script accusing him of using the troops as a prop if he did visit?

You write that you "intend to fight as hard as (you) can," and the recent ads are certainly evidence of that. But I hope that you can also see how a set of damned if you do, damned if you don't ads seem like a below-the-belt punch.

As you've probably guessed by now, the "Ribaz" household won't be sending the suggested minimum campaign contribution of $35. Please don't "whine" at this negative economic outcome. If it's any consolation, we won't be asking for your cheapo gas tax holiday either. By our book, that makes us about even.

We hope that you will continue to write often, but we also hope that future letters and ads will be a bit more positive.

The Ribazes

Wednesday, July 30, 2008

Medical privacy should extend to illegal immigrants

The News & Observer has a story this morning about an illegal immigrant in nearby Alamance County who was arrested after using the county's public health clinic.

In what is becoming a favorite tactic of immigration enforcement, the woman was charged with four federal felonies related to her use of false documents. While law enforcement officials are fond of saying that they only pursue illegal immigrants who commit or are suspected of committing crimes, the documentation statutes mean that nearly all working immigrants fall into this category.

What is more alarming in this case, however, is that the information that was used to pursue the immigrant appears to have come from the health department itself. The health department is being investigated for providing notes and other documents for illegal immigrants that use the immigrants' assumed identities instead of their true identities. It appears that the arrested immigrant's name came up in that investigation.

While immigration extremists advocate a scorched earth policy of making every institution in the U.S. as inhospitable to illegal immigrants as possible, there are good reasons for maintaining confidentiality when receiving health services or reporting crimes. In the case of health clinics, the community has a vested interest in all residents getting treatment and in the health department being able to track diseases. The risks of highly communicable diseases like TB, meningitis, or severe flu spreading through a community are too high. In this particular case, the immigrant is the parent of a U.S. citizen, so there is an additional interest in that child being able to get treatment.

Sometimes officials need to look the other way for the greater good. The arrest in Alamance County appears to be especially short-sighted.

Thursday, July 24, 2008

I'm feeling manipulated

The Commodity Futures Trading Commission (CFTC) Tuesday:

The ... preliminary analysis to date does not support the proposition that speculative activity has systematically driven changes in oil prices.
The CFTC today:

The U.S. Commodity Futures Trading Commission (CFTC) announced today its case against Optiver Holding BV, two of its subsidiaries, and three employees, charging them with manipulation and attempted manipulation of New York Mercantile Exchange (NYMEX) Light Sweet Crude Oil, New York Harbor Heating Oil, and New York Harbor Gasoline futures contracts during March 2007.

The complaint charges all defendants with 19 separate instances of attempted manipulation involving the aforementioned energy futures contracts on 11 days in March 2007. The complaint further alleges that in at least five of those 19 attempts, defendants successfully manipulated certain of these energy futures contracts, causing artificial prices.
So speculators can't manipulate prices, unless they do.

The minimum wage: some history and a modest proposal

The federal minimum wage increases 70 cents today from $5.85 to $6.55 per hour. The increase is the second since the Fair Minimum Wage Act of 2007 was passed. At that time the federal minimum wage was $5.15 and had remained at that level since 1997. Next year the minimum wage will increase again to $7.25.

At first glance, the increases appear to be very generous. However, when adjusted for inflation (using the Consumer Price Index for All Urban Consumers), the recent wages are quite modest in historic terms. To see this, consider the minimum wages before and after changes over the last four decades.

Federal minimum wage over time
Year Nominal value Real value
(2008 dollars)
1968 $1.60 $10.06

1973 $1.60 $7.88
1974 $2.00 $8.88
1975 $2.10 $8.54
1976 $2.30 $8.84
1977 $2.30 $8.30
1978 $2.65 $8.89
1979 $2.90 $8.74
1980 $3.10 $8.23
1981 $3.35 $8.06

1989 $3.35 $5.91
1990 $3.80 $6.36
1991 $4.25 $6.83

1995 $4.25 $6.10
1996 $4.75 $6.62
1997 $5.15 $7.02

2006 $5.15 $5.59
2007 $5.85 $6.17
2008 $6.55 $6.55
2009 $7.25

Over the last 40 years, the real value of the minimum wage has been as high as $10 per hour (1968) and as low as $5.59 per hour (2006). Over the decade of the 1970s the real minimum wage averaged $8.61; over the 1980s, it averaged $7.04, and over the 1990s, it averaged $6.59.

Today's value of $6.55 is below all of those averages. Assuming that inflation over the next year is at or above 4 percent, next year's nominal increase to $7.25 would be worth less than $7.00 in today's dollars--below the average from the 1980s and below the value from 1997. All in all, these are very modest amounts.

Minimum wage policy is subject to intense political squabbling. Democrats generally favor higher minimum wages on fairness grounds. Republicans generally oppose the increases because they raise costs for businesses and can reduce employment. In the past, these differences have led to long impasses where the nominal wage remains fixed. Before the 2007 legislation, the minimum wage had not been adjusted in a decade. Minimum wages were also fixed in nominal terms for five years in the 1990s and for nine years in the 1980s. During these periods, the real value of the wage declined substantially.

Regardless of your views on the effectiveness of the minimum wage, this is a terrible way to make policy--letting the wage drift down and then coming back with large adjustments every year. It's hard to rationalize a saw-tooth pattern in wage rates.

A modest proposal is to accept that next year's value of $7.25 represents a consensus of where the federal minimum wage "should" be. If this is the consensus value, it should be automatically adjusted/indexed for inflation starting in 2010. Should a new consensus or new circumstances develop, the wage could subsequently be legislated up or down. Effectively, indexing would change the default for minimum wage policy from one in which the real value generally erodes to one in which the real value stays constant.

Businesses and their conservative backers should be willing to accept indexing because it removes some uncertainty from wage policy, keeps the wage at a historically modest level, and takes the steam out of progressive calls for wage jumps. Progressives should accept it because it establishes the minimum wage near its highest real value in the last 20 years.

What about it Washington?

Monday, July 21, 2008

Proposed credit card changes

In the not exactly news category, the Federal Reserve this May proposed changing several regulations for credit card issuers. The new regulations are intended to rein in some of the "gotcha" practices of the card companies. The regulations include:

  • Giving consumers more reasonable amounts of time to make payments and setting more reasonable due dates for payments.
  • Limiting the circumstances under which an issuer can increase interest rates on existing balances, such as to changes in pegged rates or to missed payments on those balances. This rule would prohibit the current practice of raising rates on outstanding card balances if something else in your credit situation changes.
  • Requiring issuers to apply at least some of the payments in excess of the minimum to balances that have high interest rates. For instance, if part of your balance comes from cash advances, which typically have very high interest rates, and part comes from regular purchases, which usually have lower rates, the issuer would have to apply part or all of any excess payment to the cash advance balance.
  • Eliminating "two-cycle" billing. This would restrict issuers to only charge interest and fees on balances from the current billing cycle.
  • Preventing over-limit fees for credit card holds. Card issuers could charge fees for actual charges that push you over your credit limit but not for temporary holds by hotels, gas stations, and others that do not result in actual charges.
There are also several additional regulations for disclosures of terms and for subprime cards. A summary of all of the proposed regulations is available here.

Though card issuers are opposed, these are all sensible restrictions. The Fed is taking comments through August 4.

Consumers should remember that the best ways to hold down fees are to use credit cards responsibly, to understand the terms of their existing cards, and to shop around for the best rates and terms for their individual circumstances.

Sunday, July 20, 2008

In debt reporting

The New York Times has a heart-rending but all too common story about one American's struggles with debt. The story encapsulates so much that was wrong with the easy credit and serial refinancings of the last decade.

Saturday, July 19, 2008

More energy gamemanship

The Hill reports that the Democratic leadership of the House is considering bringing another energy bill up under special up-or-down voting rules that prohibit amendments but require a two-thirds vote. The bill would call for a release of 10 percent of the Strategic Petroleum Reserve (SPR), new rules against oil speculation, and "use-it-or-lose-it" regulations for existing oil leases.

The first provision is irresponsible. The SPR is intended to provide oil in a supply emergency, not to manipulate prices. We're not in a supply emergency now, but could be if tensions with Iran grow worse or if there is a major hurricane in the Gulf of Mexico. The other two propositions are mostly for show, with the last being included only to embarrass Republicans.

In any case, it's all a political game as the bill is unlikely to get enough Republican support to pass.

A final quote in The Hill article provides some insight into the legislators' mindset. Discussing the proposed release from the SPR, Rep. Ed Markey (D-MA) said, "You don't have to deploy it every day. You just have to know when to deploy it, to make sure that the speculators don’t control the price of oil, the American government controls the price of oil."

How about the forces of supply and demand controlling the price of oil?

Friday, July 18, 2008

Shocking priorities of the military brass

An interesting juxtaposition of articles in the Washington Post and New York Times this morning.

The Washington Post leads with a story about Air Force brass trying to divert counter-terrorism to buy plush Senior Leader Intransit Comfort Capsules (SLICC) for trips in military planes.
Explaining his instructions to subordinates, [the officer in charge of the program] said he used the term world class "in just about everything I discuss. . . . That represents an attitude." He said he wanted to "create an environment that whoever was riding in that would be proud of," the government would be proud of and "the people of the United States" would be proud of.
Important decisions about the capsules, including the color of the carpets, leather upholstery, and even the seat belts, consumed significant amounts of top officers' time. The Post web-site has pictures of the proposed capsules.

The New York Times leads with a story about shoddy electrical work at U.S. bases in Iraq killing and injuring more of our troops than previously disclosed.

During just one six-month period ... at least 283 electrical fires destroyed or damaged American military facilities in Iraq, including the military’s largest dining hall in the country.

And while the Pentagon has previously reported that 13 Americans have been electrocuted in Iraq, many more have been injured, some seriously, by shocks, according to the documents. A log compiled earlier this year at one building complex in Baghdad disclosed that soldiers complained of receiving electrical shocks in their living quarters on an almost daily basis.

Another environment that the people and government of the U.S. can be proud of.

Thursday, July 17, 2008

What's good for T. Boone Pickens, Jr. might be good for us

As you've probably already seen on TV, oilman and energy developer, T. Boone Pickens, Jr., has been hawking a prescription for increased energy independence that he modestly calls, The Pickens Plan.

Pickens is an unabashed conservative and active in Republican politics. He not only supported George W. Bush in the last two elections but also helped to fund the despicable Swift Boat smear campaign against John Kerry. So, he's not exactly a darling of progressives.

What then is he advocating? Pickens calls for developing wind turbines for electricity across the middle of the country from the Dakotas to Texas and developing the transmission infrastructure necessary to send that electricity to the rest of the country. He estimates the cost at $1.2 trillion--an enormous investment but one that compares favorably to what we currently spend on energy.

Pickens further advocates using the new generation capacity from the wind turbines to replace power plants that run on natural gas and reallocating the natural gas freed up from power generation to natural gas vehicles. He estimates that these measures could reduce U.S. imports of oil by a third.

What's his motivation? Pickens has invested in the development and supply of natural gas for at least a decade. He would have a clear commercial interest in expanding this market. More recently, he has also invested in giant wind farms. As such, he also has an interest in subsidies and reduced regulatory bottlenecks to support transmission lines for those farms.

Crony capitalism notwithstanding, Pickens' plan dovetails with U.S. needs. He is putting his own money into the wind generators and would be providing clean energy. The U.S. already needs to invest in its electrical transmission infrastructure. His plan would mostly benefit the environment and help reduce our dependence on oil.

The specifics of his plan need to be examined carefully. However, it could end up being a wind-wind solution to our energy problems.

Wednesday, July 16, 2008

Simpler standards for investment banks

The Federal Reserve and Treasury Department have proposed new regulations for investment banks as well temporary access to emergency lending from the Fed.

However, Allan Meltzer observes,
Only in the weird world of Washington are mistakes rewarded with major new responsibilities. After mismanaging both housing loans and the dot-com mess, the Federal Reserve may now become responsible for supervising investment banks.
He offers a simpler, alternative prescription:
Investment banks don't need the Fed to regulate them. Some clear rules on capitalization would suffice.

Monday, July 14, 2008

Did Sen. Schumer cause the run at IndyMac?

Federal regulators closed the California-based bank and mortgage-lender, IndyMac, on Friday. The Federal Deposit Insurance Corporation (FDIC) will step in to run the bank and may have to pay off depositors with insured accounts. With some $19 billion in deposits, the FDIC payment to depositors could be the largest in nearly a quarter century. Even with the FDIC bailout, depositors could lose half a billion dollars from accounts that exceeded the FDIC maximums, and of course, investors would lose their funds.

IndyMac was active in the mortgage market just below the prime level but just above the sub-prime level. The bank had been struggling, with losses in the hundred of millions of dollars over the last several quarters and with no expectations of profitability for at least the rest of this year. The share price of the bank plummeted 80% from October until February, briefly rebounded, but then resumed its decline. So, the fundamentals of the bank were fraying.

Things, however, came to a head two weeks ago, when a letter from Sen. Charles Schumer (D-NY) to banking regulators was leaked. The letter expressed fears that IndyMac was likely to fail without an intervention. A run began almost immediately and continued until the FDIC stepped in on Friday.

In announcing the closure, The Office of Thrift Supervision blamed the senator, saying his letter was "the immediate cause of the closing." The announcement went on to criticize Sen. Schumer's "interference in the regulatory process." Sen. Schumer has, in turn, has said that IndyMac's condition was well-known and that regulators were "asleep at the switch."

Was Sen. Schumer right in publicly airing his concerns about a specific bank? It's hard to see how his comments could have helped IndyMac continue as a going concern or how the comments could have headed off a takeover. The only reasonable positive motivation would be to force the feds to move in while the bank still had some funds left.

Banks are extremely fragile propositions. At any time, they have more loaned out in illiquid investments than they have on hand to cover nominally liquid deposits. Regulations, deposit insurance, and the ability to borrow from the Federal Reserve are intended to maintain confidence and solvency. However, investors and large depositors can still get spooked and withdraw a bank's capital. "Naming names" as Sen. Schumer did was sure to make that happen.

There is little doubt that Sen. Schumer's letter forced the issue. Now that the feds have moved in, the remaining question is whether anything could have been done to save the bank or to mitigate its losses. If Sen. Schumer's letter pre-empted an orderly and less expensive bail-out of the bank, he's a self-aggrandizing scroundel. Then again, if he prompted a takeover while there was still something to save, he deserves our thanks.

Friday, July 11, 2008

Rep. Rangel "flat" out wrong

Like many New York City residents, Rep. Charles Rangel benefits from the city's rent control laws. However, unlike other residents, he has four rent-controlled apartments: three grouped together to form a suite and another on a separate floor that serves as his office.

Rep. Rangel's cozy arrangement violates both the spirit and letter of the city's rent control law, which is intended to make residences there more affordable. In particular, rent-control is only supposed to apply to residences. He also appears to be violating House ethics rules that ban representatives from accepting gifts in excess of $100. The difference between the controlled rents that his landlord has agreed to accept and the fair market rents for his units is several thousand dollars per month and should be rightly viewed as a gift.

Rep. Rangel should "get his house in order" by ending this arrangement immediately, and the House ethics panel should do likewise by investigating and determining an appropriate disciplinary action. Come November, the voters of New York will have an opportunity to decide whether additional "House cleaning" is needed and whether Mr. Rangel should have more time to putter around his inexpensive digs.

Positive UI claims data

Today looks like a nail-biter on Wall Street, as investors watch the accelerating slide of mortgage guarantors Fannie Mae and Freddie Mac.

Lost in the gloomy economic news was a positive report from the Department of Labor that initial claims for unemployment insurance last week dropped by 58,000 to 346,000 on a seasonally adjusted basis. Claims at or above 400,000 per week are usually associated with increasing unemployment.

The data from last week are hard to interpret because they include the 4th of July holiday. Also, the seasonally adjusted trends didn't match the unadjusted trends--the raw number of new claims rose substantially from the week before. In addition, the total number of people collecting unemployment insurance increased.

This year's slowdown in economic growth has been felt especially acutely in the labor market, where unemployment is about one percent higher than it was last spring. If the latest unemployment claims numbers hold up and continue, we could see joblessness stabilize.

Thursday, July 10, 2008

Always Look on the Bright Side of Life

Phil Gramm: "We have sort of become a nation of whiners. You just hear this constant whining, complaining about a loss of competitiveness, America in decline."

Sounds a little...well...whiny. So what does it say, when you start whining about whiners? Worse, what does it say when you write a whiny blog about whining about whiners?

I'll just stop while I'm ahead.

Wednesday, July 9, 2008

Equality in crash tests

Starting in 2010, the U.S. Department of Transportation will include female dummies as passengers in its automobile crash tests.

Despite this long-awaited change, it seems unlikely that the male dummies will stop to ask for directions.

Tuesday, July 8, 2008

Democrats should let the energy bill go forward

The Hill reports that the Democratic leadership in Congress is sitting on important energy legislation, fearing that Republicans and centrist Democrats would amend the legislation to allow drilling in new areas, including the Alaska National Wildlife Refuge (ANWR) and off the coasts of the country.

The Democrats are crowing that they have already forced the Republicans into difficult votes, such as a provision in the existing legislation that energy companies either use their existing federal energy leases or give them up so that they can be used by others (a majority of Republicans took the side of oil companies and opposed this provision). However, Americans who are facing $4 a gallon gasoline and will shortly face huge heating bills will certainly see through this gamesmanship.

The Hill quoted an unnamed Democratic aide as saying, "our strategy on gas prices is 'Drive small cars and wait for the wind.'" In other words, the strategy, such as it is, is to tweak consumption, to hope for a technological fix, and to pray that Americans don't mind high prices in the meantime.

Unfortunately, the policy neglects a full and appropriate supply response. Because of this, it inflicts unnecessary hardship on consumers and the economy as a whole.

A sensible energy policy requires more conservation and greater efficiency but also should include new production from both renewable and non-renewable sources. New drilling won't help immediately and won't cure all of our problems even in the long run, but it is a sensible part of the solution. Moreover, drilling appears to be a necessary political compromise to get other things that the Democrats want and that the country needs.

It's time for the Democratic leadership to end its political games, to act on behalf of the American people, and to bring comprehensive energy legislation to the floor of Congress for a vote.

Monday, July 7, 2008

Iraq Prime Minister playing into the hands of the enemy

The government of Iraq, which the Bush administration occassionally treats as being sovereign, is balking at an open-ended occupation by U.S. forces.

Speaking in the United Arab Emirates today, Prime Minister Maliki said

One of the two basic topics is either to have a memorandum of understanding for the departure of forces or a memorandum of understanding to set a timetable for the presence of the forces, so that we know (their presence) will end in a specific time.
Perhaps President Bush can trot out some of these tired chestnuts to change the Prime Minister's mind--specifically, that a withdrawal
  • "is wrong for our troops and ... wrong for our country,"

  • "would undermine our troops and threaten the safety of the American people here at home,"

  • "is not a plan to bring peace to the region or to make our people safer at home,"

  • "would embolden our enemies and confirm their belief that America is weak,"

  • "would be an invitation to the enemy to attack America and our friends around the world,"

  • "forc(es) our nation to withdraw on the enemy's terms," and

  • "would increase the probability that American troops would one day have to return to Iraq and confront an enemy that's even more dangerous."
Sen. John McCain could further admonish the Prime Minister that "setting a date for withdrawal is chaos, genocide, and we'll be back, because Al Qaeda will then succeed."

Instead, the Prime Minister is foolishly and selfishly overlooking the needs of the U.S. by calling for a deadline. How can he be so short-sighted and ungrateful?

No End in Sight

The story is depressingly familiar by now. The Bush administration, having made up its mind to go to war in Iraq, also deludes itself into thinking that the war can be done on the cheap. It then goes on to make one calamitous decision after another, all the while sneering at those who had the temerity to question its "wisdom."

No End in Sight documents the chain of mistakes that contributed to the explosion in violence in Iraq in 2006 and 2007. It should be required viewing of every nationally elected official.

The most profoundly maddening element of the story is how the administration marginalized experts who didn't buy into its hubris. Shelves of State Department reports on the challenges that a post-Saddam Iraq would went unread, and the State Department itself was excluded from the reconstruction effort. The advice of military professionals, such as Gen. Shinseki, with experience with difficult peace-keeping operations in the Balkins was dismissed. A National Intelligence Estimate that pointed to a deepening and broadening insurgency was derided as "just guessing" and "pessimistic predictions." First-hand observations from troops and officials were ignored. All of this came at the cost of thousands of American and Iraqi lives.

Over the last year, the situation in Iraq has become less hellish, with civilian casualities back at the levels they were at in 2005 (roughly the level they were at when Vice President Cheney famously observed that the insurgency was "in the last throes"). However, the Iraqi government continues to put off important steps toward reconciliation, and our troops continue to see no end in sight.

Thursday, July 3, 2008

Job situation continues to deteriorate

The June 2008 employment figures are out, and the news isn't good.

The seasonally-adjusted unemployment rate held steady last month at 5.5 percent. That's nearly a full percentage point higher than the rate last June and up half a percentage point since the start of the year.

The bad news, however, comes in the numbers behind this number. The number of employed people and the number of jobs (these are measured in separate surveys) each fell, while the number of people who were unemployed (out of work but looking for a job) rose.

How then did the unemployment rate stay steady? The number of people who indicate that they "in the labor force" (people either working or looking for work) fell. The unemployment rate is calculated by dividing the number of people looking for work by the number of people in the labor force. The labor force number fell just enough to keep the measured unemployment rate steady.

Jobs disappearing and people leaving the labor force are not good economic signs. While we may yet dodge a full-blown economic recession, it is clear that we are well into an employment recession.

Wednesday, July 2, 2008

One more Chinese import

The New York Times reports that the interrogation techniques that were taught to the personnel at Guantanamo Bay were taken directly from Korean War POWs experiences at the hands of the communist Chinese (compare page 51 of the "interrogation techniques" PDF link to to page 4 of the "experiences" PDF link).

Not only were the Chinese techniques, such as compelling a POW to stand or sit for prolonged periods, previously described as "torture," but the results obtained from these techniques were recognized as "false confessions" and "brain-washing." form of torture was experienced by a considerable number of Air Force prisoners of war during efforts to coerce false confessions from them. The prisoners were required to stand, or sit, at attention for exceedingly long periods of time-in one extreme case, day and night for a week at a time with only brief respites. In a few cases, the standing was aggravated by extreme cold. This form of torture had several distinct advantages for extorting confessions.
It just goes to show that some styles do come back into fashion and that what's old can become new again.

More seriously, what does adopting the most despicable tools of totalitarians say about us, especially when we know that the intelligence value of those tools has been discredited?

Democratic hypocrisy on "big oil"

If I blogged about every instance of political hypocrisy, I wouldn't get anything done (I'm already unproductive enough, thank you very much). However, this story from The Hill about Democratic members of Congress criticizing oil companies while holding substantial amounts of stock in those companies stands out as a glaring example of the "say one thing and do another" attitude in Washington.

Some of the Democrats interviewed for the story said that it was evidence of their virtue, as it showed how they are willing to legislate against their own personal interests. However, the Democrats' actions don't square with their rhetoric.

Consider the statements of Tenn. Rep. Steve Cohen, who has said that oil companies' profits are "unconscionable" and that the companies are "gouging the American public." Or consider N.Y. Rep. Carolyn Maloney's remarks that oil profits are "eye-popping" and that companies are "working hard to prevent gasoline alternatives" and possibly "manipulating capacity."

In each case, the representatives argue that the oil industry's behavior is immoral and perhaps illegal, yet they don't seem to mind benefiting for that exact behavior through the dividends and capital gains on their oil company stocks.

It would be foolish to suggest that members of Congress divest themselves of all stocks. However, one would think that they would stand behind their rhetoric and divest from companies that they really believed were harming American consumers. The fact that so many continue to hold these stocks tells us all we need to know about where they really stand on these issues.

Tuesday, July 1, 2008

IEA predicts that oil market will remain tight

In a presentation to the World Petroleum Congress, Lawrence Eagles of the International Energy Agency (IEA) predicted that oil markets would remain tight over the next five years while also downplaying the role of speculators in the recent price rise.

If correct, this is bad economic news, with Eagles going so far as to suggest that the world may be experiencing a "third oil shock" and that the share of output going to oil expenditures may return to levels from the early 1980s.

The bright spots in the IEA analysis are that oil demand among developed countries has declined (and is likely to continue declining) even as their economic output has expanded and that capacity is expected to grow, albeit at a very slow pace after 2010. Overall demand, however, is likely to grow because of rapid growth in consumption among developing countries.