Natural Resources and Standard of Living

Natural resource endowments help make a nation prosperous...unless you use them to the almost exclusive benefit of those in power. An example:

Qaddafi's Libya produces 0.27 barrels per citizen per day; the United Arab Emirates (where Dubai is located) produces 0.34 barrels per citizen per day. Yet the average Emirati is three times as wealthy as the average Libyan, according to IMF data on gross domestic product at purchasing power parity per capita. Why are Libyans poorer on average than Mexicans while Emiratis richer than Americans?

Exhibit A: Journalists Are Good at Journalism; Business, Maybe Not

Michael Giberson takes the Wall Street Journal to school for this article about gasoline and crude prices. The "gasoline prices aren't falling as fast as the price of crude" story is hardly breaking new ground, but this time it's not even valid as a storyline:

The mystery of the just-down-13-percent gasoline prices is almost entirely created by trying to treat the NYMEX price as the relevant benchmark, but it isn’t. (As noted here in February.) Currently the Brent price is a better indicator of the world oil market price for crude oil. Our story here, then, is that world oil prices have dropped 18 percent since April while average gasoline prices dropped 13 percent. Hardly a different warranting a headline.

The reporter fully recognizes this point, as he explains, “gasoline prices on the East Coast and even in the Gulf Coast track the price of Brent crude, which analysts view as a better indicator of global prices than Nymex. While Nymex futures are down 30% since April 29, Brent is down 18%.” And the story is accompanied by a graphic, above, which graphically illustrates the point that Brent seems to be the relevant reference point.

So why the struggle to cast this story about gasoline prices that are not falling fast enough?

The whole thing reminds me of something a professor told us often: "Remember, the guys who write for the WSJ are more likely to be experts at journalism than at business. Don't be too ready to learn about your industry from a journalism major."

Yep.

A Big Shift

I remember as a boy reading predictions that the world would run out of oil in 10 years.

That was over 30 years ago. But what's more surprising is the prospect of a huge shift in which regions of the world control the most oil:

Amy Myers Jaffe of Rice University says in the next decade, new oil in the US, Canada and South America could change the center of gravity of the entire global energy supply.

"Some are now saying, in five or 10 years' time, we're a major oil-producing region, where our production is going up," she says.

The US, Jaffe says, could have 2 trillion barrels of oil waiting to be drilled. South America could hold another 2 trillion. And Canada? 2.4 trillion. That's compared to just 1.2 trillion in the Middle East and north Africa.

Skip the article's human interest aspect. This isn't about North Dakota, it's much bigger than that. The section that starts with Jaffe's comments is the real story.

Knowledge Problem

These two posts on Yergin's take on peak oil led me to a blog I'd not seen before, Knowledge Problem.

Students know how much I love to use "why we will never run out of oil" as a way to demonstrate the value of thinking like an economist. Now I'm looking though older posts. Like a kid in a candy shop...

Why Oil Prices Fell

Pretend it's a multiple choice question. Oil prices fell yesterday to about $95/barrel. What caused the decline?

a) A slowdown in manufacturing growth in China.
b) Concerns about euro debt.
c) Plans for an interest rate hike in China.
d) Could be all of the above, or none of the above.

My money's on D. Coming up with plausible reasons for a price change, and actually being able to prove the reason for the price change, are two so very different things.