Today’s Papers: Gas Prices and Simpson/Bowles II

February 20th, 2013 at 5:10 pm

Random observations re political economy from the broadsheets:

–Steve Mufson provides a useful account of what’s going on with gas prices.  Sometimes gas price spikes have obvious causes—like a geo-politically driven supply disruption—and sometimes, like now, it’s a bit harder to nail down what’s driving the spike.  Mufson reports that the current spike is a:

…result of refinery closures and maintenance, lower oil production by Saudi Arabia, market anxiety about tensions in Iran and Iraq, and guarded optimism about the prospects for economic recovery in the United States, Europe and China.

Importantly, I don’t think demand pressures from end-use consumers is playing a big role.  This chart—one of my favorites—showing a uniquely weak trend in distance-travelled by drivers since the recession took hold (see chart 1 here; it’s only through Nov 2012, and it’s a moving average but the unsmoothed data show the same pattern).

The thing to remember is that the oil and gas markets are what I call butterfly markets.  They’re a lot tighter than other commodity markets, meaning that prices are a lot more elastic to disruptions than other markets (as in a butterfly flaps its wings in Dubai, etc…).   And yes, there’s a cartel at work here too (OPEC), which can also move prices in ways the textbooks don’t always talk about.

–Simpson/Bowles II: Lots of reporting on their new framework, and very little of it would lead you to believe its going anywhere.  Ezra Klein and I had a good discussion of the issues last night on The Last Word with Lawrence O’Donnell.  In a nutshell, while these two have been vilified, ignored, and falsely praised by people with no idea what’s in their plans, they’ve actually made some useful contributions to the debate.

True, I and others have been justly critical of the deep cuts to Social Security and the plethora of magic asterisks throughout their work.   They’ve been way too focused on budget deficits versus jobs deficits.  But until now, they’ve always pushed balance between tax increases and spending cuts, more so, in fact, than the President’s plans—e.g., their prior plan had a cuts/revenues ratio of close to 1/1, while the White House has typically been at 2/1.  They solidly established the principle that deficit reduction should not raise poverty or inequality, a principle that is actually embedded, at least to some extent, in the sequester, which protects social insurance and anti-poverty programs like Medicaid, SNAP, and the EITC.

But, as both Ez and I stress, this new plan appears to abandon these principles.   It’s much more tilted to cuts versus revenues, and the magnitude of the cuts is such that they won’t be able to protect the economically vulnerable.  From what they’ve said, they appear to be trying to parse out some strategic position in the debate, somewhere between the President and Boehner, though as Ezra points out, they’re about where the President is on revenues and to Boehner’s right on cuts.  So they’ve punted on both the balance in their earlier plan and their fundamental principles of protection.

Print Friendly, PDF & Email

3 comments in reply to "Today’s Papers: Gas Prices and Simpson/Bowles II"

  1. DRN0001 says:

    Most significantly, as Steve Benen observes (and Mark Thoma endorses) S-B have been revealed to be BS artists. Despite their purported obsession on deficit reduction, their latest plan includes tax cuts.

    . . . Pants on fire.

  2. Fred Donaldson says:

    The media seems to be in denial, when Bowles/Simpson is presented as some expert testimony on budgets and deficits. I spent many years preparing company budgets, for up to 38 divisions at one time, and I will swear that cuts are easy to sell to the owners, but they don’t work in the long run. The golden bullet is to create more revenue. That requires leadership, thought and discipline, while pure cuts are often the tool of the dullard.

    There are forces behind folks like Simpson, who fear an increase in FICA for employers, who are concerned about a higher ceiling on Soc Sec. contributions, who wish that Medicare money went into profit insurance companies, and who generally oppose any public ownership or direction, even if their proposals make most people miserable.

    Is it too much education that makes some of us analyze these stances, looking for good, where it doesn’t exist? You don’t have to be sincere to spout an opinion, nor honest to recommend a program. Many folks are bought and paid for – by money, by fear, by the desire to please the persons “above” them. Every totalitarian regime and every royal court had its jesters, its lackeys, its sad hangers on – all enjoying life while the world crumbled around them.

    The WH should regard a campaign to lower Soc Sec benefits and raise the Medicare age as an assault on the public, not as some wise suggestion from the advocates of a new gilded age.

  3. readerOfTeaLeaves says:

    I try to follow the main topics of economic discussion in the US, but the reality that I see increasingly diverges from the political conversation. I see a lot of discussion — including Simpson-Bowles, along with Ms. Yellin’s speech — that strikes me as rooted in industrial-era, hierarchical, pre-1980s, pre-microprocessor, pre-robotics, concepts of an economy.

    This was really driven home during a dinner conversation in the past week with people who work at ‘global’ companies that do a lot of metrics, rely heavily on logistics, and have to adapt to new business conditions in real-time.

    It’s almost as if the conversation out of DC is from some other universe; and the idea that Congress can twiddle its thumbs on this sequester, or on that showdown… well, who has the time or patience for that silliness anymore?

    The economics arguments that make the most sense to me are those of Nick Haneaur and Eric Liu (“The Gardens of Democracy”), and it appears that Hanaeur’s involvement with lends credence and insight to his arguments that an economy is a complex, adaptive system — and that we need to pay far more attention to networks, and to feedback loops.

    Microprocessors lie at the heart of this economic activity. Yet D.C blathers on about The Federal Debt, as if that’s the biggest economic problem that we face: it’s not. Not by a factor of about 30,000,000,000.

    Meanwhile, over in the UK, in what I view as one of the most brilliant interviews that I have ever read, former Bank of England governor David Potter offered an important statistic:

    Over the last twenty years, one hundred million Chinese may have been added to world manufacturing as low-cost labour (The Economist, 29 July 2010). In the same period, some thirty billion microprocessors have been added to automate much of what we do, and many have automated the processes and machines that make the bulk of manufactured goods across most industries. It is the productivity gains from the automation of manufacturing that has delivered such a plenitude of goods at such low cost.

    Since the time that Alan Simpson first arrived in DC around 1980, over 30,000,000,000 microprocessors began to drive the global economy. I think it’s reasonable to say that the ‘owners’ got most of the economic gains of the productivity that resulted.

    I don’t see DC, nor the Fed, articulating the implications of 30 billion microprocessors driving the global economy.

    Given the speed of change, I’m increasingly skeptical that policy processes can keep up with underlying, structural shifts in commerce and industrial production. Perhaps Simson-Bowles is Exhibit 101 in how far the real economy is beginning to separate and diverge from the policy processes of D.C. Very discouraging.