The dismal science

[JohnRoberts]

I find it hard to call economics a "science" since unlike physics or chemistry it doesn't strictly follow rigid laws, but more like statistical predictions of large scale average behaviors.

An economist and microbiologist who reunited at a friends wedding came up with an interesting observation. Colonies of one cell microbes who share or trade animo acids between colonies in exchange for amino acids they don't make themselves prosper better than colonies of microbes that make all the amino acids they need themselves.


http://www.wsj.com/articles/economies-of-ail-how-bacteria-flourish-1449847072

This acts  a lot like free markets and how communities that trade goods they can make efficiently for those they can't,  are more prosperous.

Or not... but it makes economics look a little more like science....  8)

JR

 

[Pip]

And then there's oil!!!!!

 

[JohnRoberts]

And then there's oil!!!!!

Oil is actually behaving like it should based on supply and demand.  The record high prices (as high as $145/barrel in recent years),  "and" easy borrowing, lead to huge increases in exploration budgets with new oil companies popping up everywhere. Now we have supply coming out of our ears, and the OPEC cartel instead of cutting supply to firm up prices like they normally would,  is pumping full out trying to crush the small marginal (US shale) oil producers who can't make a profit at the current price of $35/barrel.  Tar sands in Canada are uneconomic too.

As bad as the supply imbalance is now (there are full oil tankers at sea sailing in circles just as portable oil storage). Iran is expected to start selling their oil to intl markets again in 2016. The extra Iranian supply should hold prices low well through 2016.  The OPEC plan is working but slowly...  investment in new exploration has been severely cut. Some oil cost more than $35 a barrel to produce so those wells get shuttered in, but not as quickly as you might think. Since the wells are already operational the marginal cost to keep pumping is not the full amortized cost, but eventually the actual loss catches up. and small companies go belly up (or get bought by big companies). 

A possible event that could raise prices in the US is that reportedly congress is considering dropping the ban on exporting crude oil. The international price is higher than the domestic oil that is relatively cheaper because it has to be used here. So if US crude could be shipped out and sold internationally the price for domestic crude could rise to international prices.

Demand is flexible too, so the longer prices stay at record lows, the more demand will be stimulated. Look at how many people are buying SUVs instead of gas sippers. Not only are consumers buying less fuel efficient vehicles, consumers are driving more, thanks to the cheap gas.  Auto insurance companies have experienced underwriting losses, since all the extra driving is leading to extra accidents (texting may have a little to do with that too, but I blame the extra mileage due to cheap gas).

It may take years for oil markets to reach equilibrium, and hopefully if we can export crude oil we may finally break the back of the opec cartel (many OPEC members are hurting from the cheap oil prices).  Exporting LNG may help change the dynamics of Europe being dependent on Russian NG pipeline.

The market will come back in balance eventually and oil prices will firm up again, but it is unlikely it will  return to $145 brl highs any time soon,  but $35 is unusually low and unlikely to persist for very long either.  I am not smart enough to predict what it will cost when... but the market forces do seem to be working . 

This cheap energy is like a tax break-bonus for consumers, and experts predicted a bigger impact to the economy than we've seen (so far). It may turn out to be a better christmas than experts predict, with  more increased web shopping than in store.  Maybe not as many sweater and winter coat gifts this year,  but it will get cold before winter is over, it always does.  ;D

JR

 

[joaquins]

Going back to your original post, a similar observation could be done inside a culture. Often driven by religion there are cultures of greater collaboration between individuals or families which are usually not more prosperous than those cultures where less collaboration is present and each one needs to satisfy it's own needs.

I'm not taking a side here or saying people should be left to starve to death on the streets if they don't have money to buy lunch, that wouldn't be nice. Just making a note on micro economy which end affecting the macro at some point.

JS

 

[PRR]

> we have supply coming out of our ears,
> (US shale) oil producers

I'm reading SAE Journal 1915 and 1919.

Peak gasoline was already past in 1919. The early gasolines would vaporize in a gust of air, making carburation trivial and cool weather driving possible. By 1917 demand for gasoline motor-fuel exceeded lamp-oil (kerosene), so most gasoline went far up the kerosene fraction. Hard to vaporize. Heated manifolds and hot-spots. Demand for total petro-products was rising faster than new production. "There is no hope" of large new fields because all the likely places (from Ohio down to Texas and out to Calif) had already been tapped. Mexican crude was promising except the political situation inside Mexico and Mexico-vs-US made business risky. Colorado Shale was promising. Refineries were doing "cracking" to turn heavier fractions into lighter fractions but it seems to have made as much bunker-sludge as gasoline-type product.

We were so short, someone came up with "Liberty Fuel". Ran almost as good as (bad) gasoline but didn't have any gasoline in it. Formula was secret for a while. Analysis and vapor-curve suggested 80% kerosene. Later found to be mostly benzole (coal tar extract) with a kerosene topper.

As we know, shale was the next big thing for many-many-many decades. And the process used now is nothing like the processes proposed for most of the 20th century.

> wells get shuttered in, but not as quickly as you might think. Since the wells are already operational the marginal cost to keep pumping is not the full amortized cost, but eventually the actual loss catches up

Old-old-old story. Diamonds and oil. You need a big investment to sink the hole. If you find anything, you have to sell it. Even if everybody else is selling and everybody is in a price war. If you don't pay-off your investors, at least somewhat, they get mean. In the past a deBeers or a Rockefeller started (as you say) quietly buying-out these losers and throttling supply. The Saudis are playing the other side, "buying" lower values on marginal wells. They know whoever ends up with the now sub-marginal wells will understand that heavy pumping is the road to ruin.

We been through all this before. Even the Mexico thing. While there is a stable government in Mexico City, which does control the oil fields, they don't truly rule the outlands, and the drug lords now play the parts Villa and Zapata did in 1910-1920.

 

[Script]

I find it hard to call economics a "science" since unlike physics or chemistry it doesn't strictly follow rigid laws, but more like statistical predictions of large scale average behaviors.

You are referring to "big data"?

Markets sure do not follow rigid laws, never did, and economics is more like a philosophy fueled by twisted psychology, or the other way round, while "big data" is a very recent phenomenon. Not sure though whether it's really a good one. I don't believe that big data is the "holy grail" that finally has made us come to realiye what moves markets. Quite the opposite is the case, I think.

Big data means somebody posts a fart on Facebook/Twitter (I'm shamelessly simplifying), other people see it, like it, retweet it, and comment on it until things go viral -- and all that is then converted into an algorythm to predict economic market movements. Maybe all good until here. But then this very same algorythm is also routed back into the market much like a CV to VCA signal in feedback configuration with too high a threshold/ration so that the entire system works almost like a self-fulfilling prophecy (the bigger the fart, the bigger the hype, the stronger the CV signal, the higher the attenuation, the more biased the output, the bigger the hype, the stronger the CV signal...) -- well, not quite, there are dynamically shifting turning points (clamps or rather S/H), yet these algorythms not only seem to enhance market movements, they probably also create (automated high-speed trading) movements where otherwise there would have been none 8or only little). All based on what? SMS input, newspapers opinions, TV show talk, and sitcom jokes? That's a lot of hot air to let it run our markets.

 

[JPK]

Exchange between free people creates value (objective+subjective).
It is interesting to see that this is also true at the microbe level.
This is probably a universal law!

 

[JohnRoberts]

Exchange between free people creates value (objective+subjective).
It is interesting to see that this is also true at the microbe level.
This is probably a universal law!

Thanks, yes I thought it was interesting enough to share. There does seem to be tangible benefit to specializing efforts on a fraction of an organism's needs (that can be done more efficiently), then using trade to exchange the excess they have to fill the rest of that organism's needs. In biology such relationships between organisms is well known as symbiosis, but i've never seen it analyzed for multiple community's joint benefit (faster/more growth).  Note: from this study, too much specialization reduces the success of individual colonies so not a "more (less) is always better" relationship... pretty interesting.

This not unlike how we no longer hunt and/or harvest to satisfy all our personal food needs, but instead work at some unrelated occupation that we do better, and exchange the compensation for food from "food markets", where everybody does things that they (hopefully) do more efficiently.

@PRR  The last operating coal mine in GB is closing this week... as much because of cost economics as global warming relief. Domestic UK coal costs significantly more than imported (thermal) coal. I guess the coal in bad kids stockings will have to be imported next year. 

@Script I wasn't referring to big data per se, but it is worth noting that the microbial colonies are made up of millions(?) of individual cells, so observations of entire colony behavior is clearly macro or average behavior.  High speed algorithmic trading is based on asymmetrical price information. The HS trader tries to exploit a price discovery advantage by spoofing trades (placing and immediately canceling most), to gain a sense of the market trend.  This is illegal AFAIK but only a few have been caught and prosecuted so far.

@ Joaquins I am not sure how market theory applies to religious or philosophical beliefs, but knowledge and wisdom is interesting because transferring it between individuals does not reduce the knowledge/wisdom in the giver. We end up with twice the population of informed individuals. Such information sharing is the classic win-win-win making us all richer (smarter).

JR

 

[PRR]

> The last operating coal mine in GB is closing

The Industrial Revolution is over. I wonder who won?

> UK coal costs significantly more than imported (thermal) coal.

AHHH! Near me they wanna build "torrefaction" plants. Apparently they bake wood into a coal-like fuel, and expect to ship it to Europe (coals to Newcastle?). I guess part of the point is lower Sulfur.

 

[JohnRoberts]

> The last operating coal mine in GB is closing

The Industrial Revolution is over. I wonder who won?

> UK coal costs significantly more than imported (thermal) coal.

AHHH! Near me they wanna build "torrefaction" plants. Apparently they bake wood into a coal-like fuel, and expect to ship it to Europe (coals to Newcastle?). I guess part of the point is lower Sulfur.

The largest torrefaction plant in North America  is in Quitman, MS (not far from me),  same state as our  "Clean" (cough) coal power plant in Dekalb. over two years late and $Bs over budget. Now scheduled to start up next year but we've heard that before. 

I guess turning wood into coal is renewable energy.  : of course some complain about the nitrogen and carbon oxides released, from that process.. 

JR

 

[PRR]

Carbon oxides in the tory plant should be small: carbon is the point.

Of course massive CO2 is released when burned in the destination boiler.

I read there's lot of "volatiles" released in the baking. Having burned wood, I can imagine. No tory plant near me, so I'm not too concerned.

Yes, I guess a tory plant in whatever neck of woods is near you makes as much sense as up here. Maybe more, as your "renewables" grow-back faster.

 

[JohnRoberts]

Carbon oxides in the tory plant should be small: carbon is the point.

Of course massive CO2 is released when burned in the destination boiler.

I read there's lot of "volatiles" released in the baking. Having burned wood, I can imagine. No tory plant near me, so I'm not too concerned.

Yes, I guess a tory plant in whatever neck of woods is near you makes as much sense as up here. Maybe more, as your "renewables" grow-back faster.

There is still a pretty significant soft wood industry around here,,, I routinely see logging trucks go by loaded with pine. Since paper use is down, and Canada is probably cheaper for wood products, not a bad idea for MS to find better use for pine forests... 

I won't post the link to the attack website but they complain about carbon monoxide emission and IIRC nitrogen dioxide(?)... both will probably form acids in the atmosphere...

but legal (permitted) apparently... I guess it's green so may be getting a free pass.  Maybe VW can buy and shut down this plant to offset their nitrous emissions (just kidding).

JR

 

[DaveP]

The UK is shutting down electric plants that run on coal to meet its emission targets.  I think our industrial revolution finished in about 1965.

Saudi Arabia is also keeping their oil pumping to hurt Iran and Russia, its a case of who has the biggest treasury to finance the losses.

Rocket science is easier than economics because the variables are fewer I guess.  Gravity is predictable, trends are less so. good topic though.

DaveP

 

[JohnRoberts]

The UK is shutting down electric plants that run on coal to meet its emission targets.  I think our industrial revolution finished in about 1965.

Saudi Arabia is also keeping their oil pumping to hurt Iran and Russia, its a case of who has the biggest treasury to finance the losses.

While the Russian economy is heavily dependent on energy exports, Iranian oil/gas has been embargoed for years. The the low oil prices will be more revenue than the previous none for Iran when they start selling it again (soon probably) .  The Saudi strategy seems more targeted at new US (shale) production that has exceeded everybody's expectations for output. To some extent this strategy is working to hurt many small  marginal players, typically with too much easy debt**  by them being acquired or shutting down.  Another factor that could influence oil prices, at least in the US, the congress is considering lifting the 40 YO ban on exporting crude (as part of the pending budget bill). I expect this would have a larger impact on domestic oil prices raising them up closer to internationals oil prices, while it could have a lesser negative impact on international oil prices as markets rebalance. 

***There may be some economic ripples from less liquid "junk" bond debt, that have been bough by junk bond mutual funds, that were held by investors. If too many investors try to redeem these junk bond mutual funds at the same time they could have liquidity problems turning those bonds into dollars.  Just understand that junk bonds pay higher interest rates because they are more risky. Putting them into a mutual fund spreads out the risk a little, but won't change a broad market trend.  Now that the fed has started raising interbank rates the hunt for interest rate yield will be diminished, albeit very slightly by the quarter point raise, but more will follow, or not. 

Rocket science is easier than economics because the variables are fewer I guess.  Gravity is predictable, trends are less so. good topic though.

DaveP

Old economist joke, if you ask two economists one question, you get three answers.  ;D ;D ;D

JR

 

[JohnRoberts]

And then there's oil!!!!!

Since they dropped the 40 YO ban on exporting crude oil (in the recent budget bill) the price of WTI (west texas intermediate) has risen to roughly equal the price of Brent (euro zone) oil. Previously domestic oil sold at a discount to intl prices because it was restricted and had to be used domestically. 

This will not increase the price of pump gas since that is already priced based on Brent prices, but refiners will make less profit from the crack spread due to their increased input cost.

JR 

{edit] another market adjustment caused by the persistent low price for crude oil, a few of the bio-fuel start-ups funded by millions of government funding have pivoted to reposition the algae derived oil as cooking/food oil.  Another bio-fuel maker is marketing algae derived protein as a health food. 

I question the merit of continuing the ethanol boondoggle (this years farm bill extended it). It takes more energy to produce ethanol than it delivers when burned.  It takes 1.5 gallons of ethanol to equal the energy content of one gallon of gasoline.  Ethanol reduces greenhouse gas emissions slightly but at an excessive price per ton of reduction. ($250). Only 5-25% of the energy content of ethanol is renewable, the rest of the energy comes from normal energy sources (coal, nuclear, gas, oil).  It made sense when we were importing oil. Now not at all, but farm states like it and primaries in Iowa are right around the corner. 

 

[PRR]

Alcohol for motor fuel was dubious in 1920, when we were running out of gasoline and the common gasoline was knock-prone (because they were blending-in as much lamp-fuel as possible). Alky is good no-nox but estimates were that we would need to divert half of food-crop production to run all our cars.

Nevertheless, it was clear at the time that alky would always be in the picture. GM switched from varnish-cork to brass carb floats for this reason. Dunno why 80 years later we are having trouble with alky fuels, why my new snoblower mandates less than 15% alky.

 

[JohnRoberts]

Alcohol for motor fuel was dubious in 1920, when we were running out of gasoline and the common gasoline was knock-prone (because they were blending-in as much lamp-fuel as possible). Alky is good no-nox but estimates were that we would need to divert half of food-crop production to run all our cars.

Nevertheless, it was clear at the time that alky would always be in the picture. GM switched from varnish-cork to brass carb floats for this reason. Dunno why 80 years later we are having trouble with alky fuels, why my new snoblower mandates less than 15% alky.

I'm fine with ethanol as an oxygenate-octane extender (better than MTBE), but not 10-15% worth.  My lawn mower and chain saw motors have plenty of alcohol damage

Lots of edible corn going to fuel... Kind of ironic that we use food to make ethanol for fuel, and the new bio-fuel industry is turning algae oil and protein into food.. ;D

JR

 

[Gene Pink]

> > PRR:
> >  Dunno why 80 years later we are having trouble with alky fuels, why my new snoblower mandates less than 15% alky.

Your snowblower likely doesn't have a computer controlled throttle body and oxygen sensor to compensate for the difference in the stoichiometric ratios between gasoline and gasahol.  Even if it did, it would have to be programmed to handle "flex-fuel" ratios to deal with more than 10-15% alcohol.  Alcohol burns a lot leaner, and is the bane of us classic car guys that have carburetors with no wires in or out. We really hate burnt valves and seats, that aren't even properly lubricated by lead anymore. Our poor valves, under attack from above and below, by many angles of modern politics.

> JR:
> I'm fine with ethanol as an oxygenate-octane extender (better than MTBE), but not 10-15% worth.  My lawn mower and chain saw motors have plenty of alcohol damage.

I'm not fine with it, but MTBE was a disaster. I miss tetraethyl lead (*1) , and I miss the original red-lead paint from Rustoleum, the newer "Ruddy Brown" rusty metal primer just ain't the same.

The first thing to get damaged on small engines from alcohol, is the original vinyl(?) fuel lines, they just break down and crumble. Any decent lawnmower shop has spools of some greenish tinted hose in all sizes, I forget the tradename, that supposedly stands up to alcohol. Even Home Depot/Loews have it in way-too-expensive multisize kits, ya gotta buy the whole kit to get the one size you need. I have replaced most small engine fuel lines here, and so far, so good. Also, that primer bulb will break down, there are replacements rated(?) for gasafrigginhol. It is still a good idea to run them dry before you put them up.

The second thing is that straight gasoline is not hydroscopic at all. Mix alcohol in, and the blend is very hydroscopic, and the moisture content will corrode the hell out of aluminum carburetors and steel fittings,, and any urethane diaphragms, gaskets, whatever,  will also swell up and break down.

There are some workarounds.

1) some areas still have alcohol-free fuel stations. Patronize them for your small engine needs. And your big engine needs.

2) Visit your local small airport with a 5-gallon can and a credit card, fill up with "LL-100". That's 100 octane low-lead gasoline, even your 2-sroke weed wacker will smile at you for it.  Illegal to use on the highway as no road taxes are paid, and it would quickly foul any catatonic perverter on a car made from 1975 on up.

3) If 1 and 2 aren't viable, you can easily remove the alcohol from "gasahol". 3 gallons of 10% gasahol in a 5-gallon can, add a gallon of clean water. Shake and let settle a few times. Alcohol will mix with gas, but it much prefers water, and will mix into it, leaving behind straight gasoline on top Decant unadulterated gasoline off of the top. (Ironic, government paying subsidies with our tax dollars to put the alcohol in, and then we have to jump through hoops to take it back out, and figure out how to dispose of it, likely creating an environmental hazard in the process.)

#3 leaves two problems:

A) The gasoline is now at a lower octane than the mix was, either start with a higher grade, or add a bit of Toluene, it is 114 octane. Toluene is a great octane booster, and relatively cheap from industrial paint stores by the 5-gallon pail. And a good all-around solvent.

B) You are stuck with a water/ethanol mix that smells like gasoline with unknown additives in it, disposal problem, or maybe boil off the ethanol and reuse the water. But eventually, you end up with some really nasty haz-mat  water.

Note*1) everybody needs their minimum adult daily requirement of lead and other heavy metals. Without them, how else would you have the presence of mind to know who is really out to get you?

Gene

 

[JohnRoberts]

> > PRR:
> >  Dunno why 80 years later we are having trouble with alky fuels, why my new snoblower mandates less than 15% alky.

Your snowblower likely doesn't have a computer controlled throttle body and oxygen sensor to compensate for the difference in the stoichiometric ratios between gasoline and gasahol.  Even if it did, it would have to be programmed to handle "flex-fuel" ratios to deal with more than 10-15% alcohol.  Alcohol burns a lot leaner, and is the bane of us classic car guys that have carburetors with no wires in or out. We really hate burnt valves and seats, that aren't even properly lubricated by lead anymore. Our poor valves, under attack from above and below, by many angles of modern politics.

> JR:
> I'm fine with ethanol as an oxygenate-octane extender (better than MTBE), but not 10-15% worth.  My lawn mower and chain saw motors have plenty of alcohol damage.

I'm not fine with it, but MTBE was a disaster. I miss tetraethyl lead (*1) , and I miss the original red-lead paint from Rustoleum, the newer "Ruddy Brown" rusty metal primer just ain't the same.

The amount used to replace MTBE is not going to trash fuel lines.  Even the gas station pumps can't handle 15% or more. That sure tells me to avoid it

The first thing to get damaged on small engines from alcohol, is the original vinyl(?) fuel lines, they just break down and crumble. Any decent lawnmower shop has spools of some greenish tinted hose in all sizes, I forget the tradename, that supposedly stands up to alcohol. Even Home Depot/Loews have it in way-too-expensive multisize kits, ya gotta buy the whole kit to get the one size you need. I have replaced most small engine fuel lines here, and so far, so good. Also, that primer bulb will break down, there are replacements rated(?) for gasafrigginhol. It is still a good idea to run them dry before you put them up.

Yup  i've rebuilt all mine... one weed-eater that had been sitting for 10+ years didn't even have a trace of the old fuel lines, usually you find them in pieces, but this one evaporated. I had to replace the carb on my mower the float valve seat was trashed and not replaceable. 

The second thing is that straight gasoline is not hydroscopic at all. Mix alcohol in, and the blend is very hydroscopic, and the moisture content will corrode the hell out of aluminum carburetors and steel fittings,, and any urethane diaphragms, gaskets, whatever,  will also swell up and break down.

There are some workarounds.

1) some areas still have alcohol-free fuel stations. Patronize them for your small engine needs. And your big engine needs.

None very close to me.

2) Visit your local small airport with a 5-gallon can and a credit card, fill up with "LL-100". That's 100 octane low-lead gasoline, even your 2-sroke weed wacker will smile at you for it.  Illegal to use on the highway as no road taxes are paid, and it would quickly foul any catatonic perverter on a car made from 1975 on up.

I like that idea but again a 20 mile drive,,, I miss the good old days when we could buy Sunoco 280 (106-108 octane?)

3) If 1 and 2 aren't viable, you can easily remove the alcohol from "gasahol". 3 gallons of 10% gasahol in a 5-gallon can, add a gallon of clean water. Shake and let settle a few times. Alcohol will mix with gas, but it much prefers water, and will mix into it, leaving behind straight gasoline on top Decant unadulterated gasoline off of the top. (Ironic, government paying subsidies with our tax dollars to put the alcohol in, and then we have to jump through hoops to take it back out, and figure out how to dispose of it, likely creating an environmental hazard in the process.)

pass   

#3 leaves two problems:

A) The gasoline is now at a lower octane than the mix was, either start with a higher grade, or add a bit of Toluene, it is 114 octane. Toluene is a great octane booster, and relatively cheap from industrial paint stores by the 5-gallon pail. And a good all-around solvent.

B) You are stuck with a water/ethanol mix that smells like gasoline with unknown additives in it, disposal problem, or maybe boil off the ethanol and reuse the water. But eventually, you end up with some really nasty haz-mat  water.

Note*1) everybody needs their minimum adult daily requirement of lead and other heavy metals. Without them, how else would you have the presence of mind to know who is really out to get you?

Gene

I appreciate that breathing lead is not a good thing, but ethanol is just a farm state boondoggle. No wonder VW was inclined to cheat when the regulators are so whacko... (of course two wrongs don't make a right).

JR

 

[DaveP]

I greew up breaving led fuumes like Everee One els, Bu it ain't stuntid mi deevelhopemint nott mush i don fink.  But mi feet feeel like lead moost mawnins soo mabe der led as gon too mee pheat.

dribble dribble
DavePeeee