Taking a short break from my “Hiding from the Computers” posts, here are a few links that have caught my eye over the last week.
- If you are to read one thing this week, then it should be the short 6-page report by Andrew Flowers of the Atlanta Fed entitled “The Productivity Paradox: Is Technology Failing or Fueling Growth?“. The arguments are nothing new to readers of this blog, but it is nice to have them restated so succinctly all in one place.
- Robert Gordon’s 2012 paper “Is US Economic Growth Over?” was a watershed in bringing this issue out of the closet since Gordon is one of the most-respected growth economists in the world. Indeed, the outgoing Fed Chairman Ben Bernanke dealt with the stagnation hypothesis head on in a speech entitled “Economic Prospects for the Long Run“; the talk referenced both Robert Gordon and Tyler Cowen. Bernanke also brought up the productivity conundrum in his last speech as Fed chair on 3rd January 2014.
- Yves Smith from Naked Capitalism is one of my favourite bloggers, but she can be infuriatingly uneven at times. But here are 10 of her best posts from 2013. As an ex-investment banker and consultant, she is a past master at unveiling the bullshit espoused by certain sectors of the financial sector.
- And another of my favourite bloggers, Stuart Staniford of Early Warning, is back after a long hiatus. He kicks off with an update on the oil market. I like his last chart showing crude and condensate production flat-lining since 2004. I don’t take this as irrefutable proof that the peak oilers are/were right since if an alternative liquid functions as an oil substitute (or at least partially functions) then in economic terms it is oil. Nonetheless, I am an advocate of the modern peak oil argument championed by Colin Campbell and Jean Laherrere in an incredibly prescient 1998 Scientific American article entitled “The End of Cheap Oil”. Campbell and Leherrere said: “The world is not running out of oil—at least not yet. What our society does face, and soon, is the end of the abundant and cheap oil on which all industrial nations depend.” Average price of Brent crude in 1998: $12.76 per barrel. Average price of Brent crude in 2013: $108.41—the third year in a row above $100 per barrel. Why? Because all incremental growth in oil production is now coming from non-traditional (i.e. expensive) sources as Staniford’s chart shows, and Campbell and Laherrere predicted 15 years ago. In short, Campbell and Laherrere were spectacularly right, the darling of the global financial press Daniel Yergin—who has for years preached technology-led oil abundance—was spectacularly wrong.
- Finally, at one stage I contemplated doing a post at the end of 2013 entitled “Reasons to Be Cheerful”. This is a blog that highlights tail risk, so by definition it focuses on the negative (no apologies for this—I am from a profession that regards such an approach as good risk management). However, certain negative tail risks sometimes get a little less negative. One such, I thought, was climate sensitivity to a doubling of CO2. In the Intergovernmental Panel on Climate Change (IPCC) Fourth Assessment Report (AR4) in 2007, sensitivity was given as 2°C to 4.5°C. The latest report published in late 2013, AR5, slightly reduced sensitivity to 1.5°C to 4.5°. However, it is going to be a long time until we have the final word on sensitivity. A new study by Sherwood et al on the impact of clouds provides evidence that the top end (bad end) of sensitivity could be worse than AR5. Such uncertainty over the sensitivity number is, in itself, a big risk. Realclimate.org has a lot more on this issue this week.