The president gave a speech about gas prices, in which he said the following about the “drill, baby, drill” school of energy policy:

You know that’s not a plan — especially since we’re already drilling. That’s a bumper sticker

This is true, but in the same speech he paid lip service to “energy independence”, which is an equally empty bumper sticker. More or less the entire political spectrum is associated with misguided ideas about energy policy.

First, “drill, baby, drill”: this argument rests upon a deeply mistaken view of how gas prices are set. The gasoline industry is not competitive: the price of gas is simply whatever the oil cartel thinks it can get. This means that it is influenced by the level of demand much more than by the level of physical supply. The specific demand that sets the price is not the demand of this or that region, but worldwide demand: if people in one region will not pay a given price for gas, the oil cartel does not lower the price in that region, they just sell elsewhere instead. They would be idiots to do otherwise. The amount of oil produced in the United States rather than in Canada or Russia is totally irrelevant to the setting of this worldwide price. The only situation in which it might be relevant would be if we had a nationalized oil company selling domestically-produced gasoline at below market rate, as Mexico does now, and as many middle-eastern countries have done. I suspect most adherents of the “drill, baby, drill” school do not envision such a set-up.

Second, “energy independence” is a misguided expression of nationalism. Look at the example of our supposedly pernicious “dependence” on Iran, one of the major oil producers. It would be hard to find a country more hostile to the United States than Iran. And yet, it is not the case that Iran refuses to sell oil to us, thus exercising its power to cripple our industry. The present reality is just the opposite: we refuse to buy oil from them.* They would be happy to have the money from our gasoline purchases. We are not hostages to the hated oil-producing countries, they are hostages to worldwide demand for oil. If you can’t find a buyer for it, an oil surplus is not a boon: you can’t eat the stuff.**

I think part of the motivation behind calls for energy independence may be a perception that desire to control foreign oil has had undue, harmful influence on the United States’ foreign policy. This is probably true. But, if true, it just shows that our political elites have failed to grasp what I said above, that where oil is produced, and who owns it, is irrelevant. These political elites–notably, both Bush administrations–have thus underestimated the relentless power of the market, and overestimated the state’s power to interfere with it.

More broadly speaking, this focus on where the oil we burn is produced misses the real point, which is that oil is a dirty fuel that inflicts ample harm on parties not involved in its use. The problem with it is not that it is too expensive, but that it is deceptively cheap.

*This is called “collective punishment.” It is widely recognized as brutal and counter-productive, in the abstract, or when it’s happening to you.

**I owe this insight to an editorial in the Wall Street Journal, published at some time in 2001 or 2002. It is one of the few true things I have ever read in that editorial page.

“Cohabitation is a point of delicate experiment, and is, in a majority of instances, pregnant with ill-humor and unhappiness.”

-William Godwin, Memoirs of the Author of ‘The Rights of Woman’

Over the past year or so, I’ve found maddening the extent to which the average person takes it for granted that inflation is always very much a bad thing. This tendency seems to have prevailed through the entire postwar era. It has also become the mainstream view among central bankers.

It may now seem difficult to imagine, but it was not always thus. As recently as the 1930s, and going back to colonial times, there was a sizeable contingent in the US favoring easy money and a rising price level. Adherents to this view included the Greenback Party (which elected a dozen or so candidates to congress, on the platform of returning to the paper money printing of the Civil War), the Free Silver movement that elected scores of candidates in the late 19th century and captured the Democratic Party in 1896, and Franklin Roosevelt, who in 1933 suspended the convertability of dollars into gold and promised to oversee a dramatic rise in the price level. One supporter of this policy was the filmmaker Busby Berkeley, who that year celebrated the inflationist measure with the dance number We’re in the Money:

The Greenbackers, the Free Silverists, FDR, and Busby Berkeley were all correct. A moderately rising price level is a good thing for everybody. In the long run, it doesn’t matter what the price level is, but in the short term rising prices are a spur to production and employment, and gradually transfer wealth from creditors to debtors (because debt is denoted in nominal terms, a depreciation in the value of money allows it to be amortized more quickly, wasting less real output). On the face of it these phenomena would seem to be bad for the people “tricked” into increasing production and the people whose savings are diminished. Empirically, however, the benefits of greater equality and employment seem to be society-wide, and difficult to quantify in advance. Louis XVI probably thought that the severe inequalities of monarchist France — including the stable price of his assets — were a pretty good deal. That didn’t work out too well for him.

But people sloppily attribute higher income to their own performance, while seeing larger commodity prices as akin to theft. Because of this bias we treat price stability as sacrosanct and tolerate higher-than-necessary unemployment. How can we reintroduce the inflationist narrative of the Greenbackers, Free Silverists, FDR, and Berkeley, so that the central bank will have to heed it?

Via Greg Mankiw, this video advances the sensible view that pennies are a big waste of everyone’s time and we should stop using them:

Mankiw seems to want the government to lead the way on this. Good luck with that, Greg! The rent-seeking zinc interests (and the people they employ, and those peoples’ landlords and barbers and so on) like their subsidy just fine, and Washington will not deprive them of it. Washington has better things to do. I wonder instead if prominent businesses could lead the way by voluntarily ceasing to use pennies in their transactions. If Peet’s Coffee or Trader Joe’s or some other well-known and suitably “hip” place started rounding all transactions to the nearest five and giving change accordingly, it would likely be popular with both employees and customers, and smaller actors might follow suit. Then we can put this penny nonsense behind us and focus on what’s really wrong with this country: the nickel.

On the one hand, Mitt Romney is quite dreamy. That’s nice in a president, as the late Warren G. Harding demonstrated. I also suspect from Mitt’s track record, and the fact that he has the annoying but not-insane Greg Mankiw as his economic advisor, that he would do a passable-to-good job as president, at least on domestic matters. It seems like the responsible thing to do is to vote for the guy who I think will actually do the best job.

On the other hand, I want the GOP to lose the election, and I’d prefer a disastrous presidential candidate who drags down other GOP reps — preferably someone with a history of egregious narcissism, habitual philandering, and outrageous and provocative statements. This makes me think that I ought to cast my vote for Newt Gingrich. Whether he wins or loses, it is likely to be funny. The value of humor should not be discounted.

And then there’s Ron Paul, who’s a total crank on economic policy (and I really mean a total crank) and whose interpretation of the Constitution is silly and ahistorical, but who is better on civil liberties and foreign policy than any Democrat I know of. Whenever I watch the Republican debates, it is hard not to sympathize with him. And I would vastly, vastly prefer to be arguing with a libertarian Republican party whose skepticism toward government action extended to interventions overseas and the surveillance of private activities, instead of the xenophobic, pro-torture, pro-wiretapping GOP we have. But to hope for so much is to slip into fantasy.

So. Who gets my vote?

I apply for a tutoring gig on craigslist, and this is what shows up in my inbox:

 How you doing? I m Sorry getting in-touch late. I hereby inform you that qualified and efficient tutor is needed to
lecture my son because i dont want him by any chance be too playful and by so doing might not be doing well with his studies and that is why i am getting a tutor for him Asap that will devote quality time with him for the time been

He is apparently on holidays, I am willing to pay the sum of $400 plus every other charges involved. I hope to read back from you soon

Regards,
Smith

I’m sorry, but is it unreasonable for me to want a higher caliber of confidence man than this? This guy is specifically aiming at “marks” who have enough education to apply to tutoring jobs… and this is the copy he sends to fool us into trusting him? “I hope to read back from you soon?” “i don’t want him by any chance be too playful”? I don’t even really understand what too-good-to-be-true fantasy job the guy thinks he’s dangling in front of us simple rubes. And we’re supposed to believe that his name is Smith?! AND that’s apparently his entire name?!

Woe, woe, woe unto any person simple enough to be taken in by this e-mail and move on to the next stage of the con! One worries for this con man’s family and anyone else he’s providing for.

This Thanksgiving, I am supremely grateful not to be in a monetary union dominated by Germany. For other things, too, but that’s a big one.

And which ones? I’m curious about the extent to which normal people have heard about figures in the field, past and present. My guess is that most people can name three, and could name four if they really thought about it.

Readers?

I have been perennially skeptical of Newt Gingrich ever since the great government shut-down of the the mid-90s, and specifically, his decision to attribute it to a perceived snub by Bill Clinton. In his previous runs for the Republican nomination, it seemed he was allergic to getting above the 5 percent threshold. But in this election, all of the viable hard-right candidates  have discredited themselves in one way or another, and suddenly Gingrich is the great white hope of the talk-radio set. He currently has the support of 22 percent of the Republican electorate. I suspect that he, too, will blow out and spin off to the side of the road, leaving Romney as the nominee, but, But, BUT, I eagerly welcome the prospect of being proven wrong about this.

Go, Newt, go! If you go into the general election, this thing has 1964 written all over it.

Crappy pro-EU propaganda!

I will not let an aside be an aside. Paul Krugman writes:

As an aside, the interesting thing about the euro from a political point of view is the way it cut across the ideological spectrum. It was hailed by the Wall Street Journal crowd, who saw it as a sort of milestone on the way back to gold, and by many on the British left, who saw it as a way to create an alliance of social democracies. It was criticized by Thatcherites, who wanted to be free to move Britain in an American direction, and by American liberals, who believed in the importance of discretionary monetary and fiscal policy.

Krugman is right that thought on the euro did not follow ideological alignment. But I think his own position as an American liberal who was critical of the idea shades his vision. The view that he attributes to “many on the British left,” that the eurozone would be an alliance of social democracies, was widespread internationally among leftish types. So was the sympathetic view of the euro as an implicit challenge to the political and military dominance of the United States. That is how I saw it at the time, at least, and when I lived in France it seemed to be a common view among French people. Because the most visible opponents of the euro were nationalist xenophobes on the right, tribal instincts made many of us feel we must belong in the other camp. Krugman’s view was that a eurozone with a continent-wide monetary policy would not be able to deal with downturns that affected some countries but not others, given that Europe’s economy was not integrated enough that workers could move in large numbers from recessionary countries to prosperous one. Krugman was studying Japan’s economic woes at the time, and so was acutely aware that serious recessions could still occur in modern, developed countries. Krugman’s critique has proven to be prescient, to say the least. But most of us back then thought Japan’s problems were due to unusual features of the Japanese economy (declining population, unwillingness to allow immigration, &c) and that central bankers in the west had figured everything out. There would never be a serious recession, we thought, so it didn’t matter. That was the crazy idea that prevailed in the late 90s, just as it prevailed in the 20s. Whoops.

The fundamental idea behind the European Common Market, which expanded to become the European Union, was to create common interests between the European powers that would prevent further conflict between them. It is paradoxical that now, half a century later, the institution that resulted is causing more turmoil in Europe than it has seen in decades. The proud workings of rationality stand once again humbled.

UPDATE: I’ve edited the post to make it more precise. The first draft needlessly brought Krugman’s writings on the liquidity trap into the mix. In fact his case against the euro was stronger than I originally implied, since it doesn’t rely on that special case. (I think that if Krugman were to restate his argument now, he would probably emphasize the lack of continent-wide fiscal policy capable of making transfer payments to workers in recession-affected countries, since it’s unrealistic to assume that increased labor mobility would actually fix unemployment problems).