Palin For VP

Things are getting murky with Palin.  For up to date commentary, check out the Daily Dish and Scott’s blog over at The Politics of Scrabble.  And if you’re into the absurd, this made me laugh out loud, where McCain reveals his VP choice of Palin was a hoax, and that his real VP running mate will in fact be a ham sandwich.  For serious.

Shale Gas

Regular readers of this blog will not be surprised that I am revisiting energy!  Check out this article at the globe and mail.  I am going to summarize here because the globe does this annoying thing of charging for articles after a period of time has elapsed. 

If I am beating a dead horse here, I apologize, but it’s a part of economics that fascinates me and it’s entirely predictable.  The usual disclaimers should be included here for ignoring GHGs, climate change and profligate energy use; this is strictly an examination of the market at work in a functional and efficient fashion.  I’ll be talking about market failures soon enough I imagine, but they are much more depressing and insidious, not to mention harder to spot.

Natural gas is a clean burning fossil fuel and is essentially localized to the North American market.  Unlike oil’s shipping infrastructure, moving natural gas around on the oceans is a new thing, and shipping it around is done in the form of liquefied natural gas.  It had appeared that natural gas production in North America was going to be in terminal decline and that we’d have to start relying on liquefied natural gas imports to satisfy energy needs. 

But now,  production of natural gas is expected to rise 30% by 2030, including rising production in the continental US (take note ‘peak oil’ theorists).  This is thanks to shale gas, a natural gas that is trapped within shale rock.  It’s an unconventional reserve previously thought of as being too difficult to tap.  In response to the disruption of natural gas production by Hurricane Katrina, and the resultant high prices, drillers started working on getting at the shale gas.

A few years later, and costs have come down to a level where drillers can make a profit at the current average price levels, let alone the prices seen in 05/06.  Note, natural gas has not correllated with the price of oil in the last year.  This is another example of prices spurring development of technology and previously unusable or unknown resources.  It would be silly to think a similar story will not unfold with oil.

MD

Productivity and Development

Productivity is a measure of how much one can produce, given available time and capital.  A farm worker, with no tools (ie capital), only has her labour to produce a crop and will not be very productive; picture tilling soil and harvesting by hand.  Throw in a hoe, or a combine harvester, and the farm worker’s productivity starts improving, sometimes dramatically.  Rising productivity in an economy means that more is being produced with less, and so the people participating in that economy are richer on the whole.   

Increased productivity has produced the developed economy that we live in today.  Going back to subsistence living, people had to always be focused on survival and there was little room for anything else.  Once people got past the level of subsistence, there was time to develop technology and society.  In other words, and sticking to the agriculture theme, a productive farming sector freed up people’s time.  When a village could feed itself with less than the sum total of the available labour, then people had time to be kings, priests, blacksmiths and teachers, for example.

What we have currently in the world is a wide range of countries at various stages of economic development.  The most developed have a high level of productivity and the average worker in these countries is concerned mostly with the acquisition of luxuries; subsistence is taken for granted.  Developing economies (such as China) are rapidly acquiring technology and capital and are increasing productivity.  Workers in developing economies are not concerned with subsistence, but maybe their parents were.  Undeveloped economies are not very productive and often are still only concerned with survival and subsistence living, like some countries in Africa.

I’m just about finished up reading ‘Bad Samaritans’ by Chang, and so this post and my next few will all be tied into or inspired by this book.  Here he summarises what a country has to put in place to move forward developmentally, “-the foundation of economic development is the acquisition of more productive knowledge.” (pg 142).  It sounds really simple.  But putting it into practice requires long term strategic planning and is anathema to the neo liberal economic orthodoxy.  More to follow.