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Oilprice.com has a good interview with James Hamilton from Econbrowser up on their site.  I’d suggest taking a look 😉

As will one day become clear, one of the big drivers of the slowdown in the developed world has been the sharp increase in commodity prices – specifically oil.  While the global financial crisis was a major driver, it is also possible to make the case that part of the reason for the run up in debt was an assumption by households and individuals that the lift in oil prices would be temporary – when in fact it looks like it is a relatively persistent shift up.

As stated here:

James Stafford: Whenever oil prices spike politicians are quick to blame speculators and oil companies for manipulating the markets. Are you in agreement with this – are speculators and oil companies to blame? Or are there other factors that are overlooked deliberately or otherwise by the mainstream media?

James Hamilton: The story is pretty simple, and even though politicians may try to distort it, you’d hope that the media would do a better job of reporting the truth than they have.  World oil production was basically stagnant between 2005 and 2008, even though world GDP was up 17%.  With economic growth like that you’d normally expect increased demand, particularly from the rapidly growing emerging economies, and in fact China did increase its consumption by a million barrels a day over these 3 years.  But with no more oil being produced, that meant that the rest of us– the U.S., Europe, Japan– had to reduce our consumption.  It took a pretty big price run-up before that happened.  To those claiming the price is too high, I would ask, how high do you think the price had to go to persuade Americans to reduce oil consumption by a million barrels a day?

We have seen demand rising (on the back of increasing productive capacity in the developing world) while supply has stagnated.  Many times people have told me “there is heap of oil lying around” – and this is true – but the question is, “what is the cost of extracting this oil”.  Even some of the most optimistic people say that we shouldn’t expect oil prices to fall below $70US a barrel in current dollar terms.

The big saviour will hopefully be technology – higher prices drives the incentive to find substitutes.  However, that doesn’t stop the intervening period being painful.

Howdy loyal TVHE readers.

We’ve just done a bit of an upgrade/refresh to the blog theme and commenting system.

The two major changes are:

1. The theme is “responsive” so should re-size and look normal on any device
2. Comments are being done through Disqus which allows a little more interactivity.

Comments can still be left with just a name and email address allowing anonymity for those who choose etc… but if you want you can use twitter/FB or use a Disqus account.

Let us know if you have any issues with anything. If people have problems with Disqus we can pretty easily go back to the native WP system.

As of today, the blog is officially five years old – judging by the first post that was put up.  This was a post by James on banning smoking in public places.  His justification for it boiled down to:

The fact that we’re currently co-ordinated on an equilibrium where people go to smoking pubs rather than non-smoking pubs is an artifact of the historical norm in favour of smoking. Thus, the lack of non-smoking pubs shows that nobody individually has an incentive to deviate. What it doesn’t show is that this outcome is best or even that it is preferred by everybody.

This is where the government comes in: they must decide whether it is welfare improving to pass laws that re-organise society around a non-smoking norm. Certainly the non-smokers will be better off, but what about the smokers? They may well be worse off, but not by as much as they would like you to think.

He even starts his commentary on time-inconsistency towards the end of the post.

I even commented on the post, showing a complete disregard for the idea of norms:

Surely, if individuals hated being in bars with smokers so much, non-smoking bars would have appeared. After all if non-smokers value not having smoke around, they would be willing to pay a premium, and the bar would sell a differentiated good. If the non-smoker had a smoking friend they would negotiate. If not smoking was so important, the smoker would sacrifice smoking indoors (and maybe choose a worse alternative for smoking outside) for some compensation (e.g. a drink). As this transaction didn’t take place (which would have been a version of the Coase theorem) I doubt the externality was severe enough to require a solution.

What is amazing is that the sort of things we are talking about, and the justifications, haven’t changed at all.  I’m not sure what that means.

Note:  In truth we are a little over 5 -there was a prior post about a week beforehand that was about the “purpose of the blog” – but it was accidentally deleted as we tried to figure out what we were doing 🙂 .  I also remember it taking a full week before any of us would start posting, because no-one wanted to be the first – so thank you James for breaking the seal.