Falling oil prices and Keystone: that goop might stay in the ground after all…

November 13th, 2014 at 1:49 pm

Back when the idea for the Keystone XL pipeline first came out, I wrote numerous pieces suggesting that while I worried about the environmental impact of extracting and refining oil from tar sands–a particularly dirtier process–I figured that it was likely coming out of the ground, regardless of whether it ultimately went south through the US or west through Canada.

Now I’m not so sure. The sharp decline in oil prices changes the calculus, as noted in this Marketwatch analysis:

the Canadian Energy Research Institute estimates that oil-sands projects need a price of $85 a barrel to be profitable in the current cheapest…method and new standalone mines will require $105 a barrel to make a reasonable return.

Crude is trading at $75/barrel as we speak, and the EIA just cut its year-ahead forecast by $18 to $85/barrel.

Of course, they could be wrong and oil could climb to a high-enough perch to make tar sand extraction profitable. Meanwhile, the timing of the politics could easily push Congress to offer bipartisan support for Keystone this week, as Louisiana Sen. Mary Landrieu wants this behind her in her upcoming runoff election.

But for now, the economics may be doing the environment a favor by pricing oil at a level that could keep the tar sands underground.

Hey, What’d I Miss? OTE 10/28 — 11/11

November 11th, 2014 at 3:28 pm
  • On jobs day, giving my first impressions of October’s employment report.
  • On the midterm elections, laying out what I didn’t hear on economic policy in the run up to the midterms and explaining why the midterms were a big, dystopic groan from an electorate that knows something fundamental is broken and nobody’s trying to fix it.
  • Describing the real reason corporate tax reform is so hard to pull off (hint: it’s not just the partisan divide).
  • Highlighting a post from my CBPP colleague Jesse Cross-Call that explains why states that took the Medicaid expansion are experiencing slower cost growth and fewer uninsured.
  • Explaining what we can learn from Denmark re wage policies.
  • Describing why the Fed needs to continue to support the economy through very low rates and the big balance sheet they’ve built up.
  • Jotting down different ways to scare an economist on Halloween.
  • Laying out a few thoughts about the political economy of the midterms.
  • Excerpting a piece from E.J. Dionne’s column that lays out what we’re dealing with regards to the strategy of political dysfunction.
  • Teaming up with Dean Baker to explain why getting the economy back to full employment is that best way to restore the bargaining power of most American workers.
  • Explaining why Ryan Avent’s critique of the Fed lands some punches but misses some too.
  • Music: a funk classic from the man himself, James Brown, and a great tune from an old friend (pianist Ted Rosenthal) in this week’s musical interlude.


Progressive wonks always bring a spreadsheet to a knife fight.

November 11th, 2014 at 9:18 am

I completely agree with my old colleague Peter Orszag who argues this AM that the new Republican majority in the Senate would make a big mistake were they to appoint a strongly partisan proxy to head the Congressional Budget Office when the directorship opens up next year.

While I’ve had some disagreements with their work, there’s no question in my mind that the current director, Doug Elmendorf, objectively applies the rules and findings of the current state of economics, finance, and budgeting to the analyses of the agency. In fact, my objections are always with those rules and “findings,” not with CBO.

With that in mind, Peter offers a good idea:

One of the strongest signals the new congressional leadership could send that it is indeed determined to govern responsibly would be to reappoint Elmendorf. The CBO’s independence, analytical prowess and respected role in policy-making would continue for four more years.

Rumors are circulating, however, that the new leadership might appoint someone who is more an advocate than an analyst. That would be a disaster for the organization. And it would show that the commitment to governing articulated by House Speaker John Boehner and soon-to-be-Senate Majority Leader Mitch McConnell goes only so far. If Elmendorf is not re-appointed, the next director should at least be someone respected for his or her analytical skills, knowledge of policy and independence.

It’s a good point, but I fear it may be a naive one. What worries me is that the last thing the new leadership cares about is independence, analytical prowess, and respect in policy circles. Specifically, they may well be looking for someone who will embrace “dynamic scoring” of their budgets, building in bright rosy assumptions that make phat tax cuts pay for themselves by trickling down in ways CBO has heretofore been careful to avoid because such dynamics don’t occur in real economies. If they can stack the deck so that budget plans like those written by Rep. Ryan do not increase the long-term budget deficit (because they “pay for themselves” through the miracle of dynamic scoring), I have a hard time imagining that they won’t try to do so.

I hope I’m wrong, but this deserves careful and close watching. Facts have been on the run for a while now in our benighted capital and the results of the midterms give me little hope that they’ll find their way back here anytime soon.