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Tilting at Windmills

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May 21, 2008
By: Kevin Drum

ECONOMY WATCH....Most market watchers seem to have become slightly more optimistic about the economy lately, but not the Fed:

Under its new economic forecast, the Fed said it now believes gross domestic product will grow between just 0.3 percent to 1.2 percent this year. That's lower than a previous Fed forecast, released in late February, that estimated growth to be between 1.3 percent and 2 percent.

In addition to lowering their GDP estimate, the Fed also increased their estimate of unemployment as well as their estimate of the inflation rate. Apparently their growing pessimism was driven by skyrocketing oil prices, continued softening in the housing market, and the ongoing credit debacle.

Kevin Drum 3:41 PM Permalink | Trackbacks | Comments (50)

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Comments

Market sure lost its optimism today.
Kak! I'm gonna have to work till I'm 99!

Posted by: optical weenie on May 21, 2008 at 3:46 PM | PERMALINK

They wanted the Repugs, and got what Repugs bring! Take from the poor; give to the rich; wreck the economy in the process....

Posted by: bigapplegeorgiapeach on May 21, 2008 at 3:52 PM | PERMALINK

Most of the folks at Calculated Risk (calculatedrisk.blogspot.com) seem to know more about the state of the economy than the Fed...

Posted by: on May 21, 2008 at 3:53 PM | PERMALINK

Yes, the Bush promise of reinvigorating the economy by lowering taxes (mostly on the rich) is not working out so well...

Posted by: Detroit Dan on May 21, 2008 at 3:55 PM | PERMALINK

Oil at 133.55 up 4.57.140.00 by Friday or next week? My area(Louisville,Ky.) stations went to $3.99 today and I'm sure will go to $4.15+ tomorrow.Joe Six-pack and family can't keep up with increases in gas,food,beer and everything else..........Brother,can you spare a dime!

Posted by: R.L. on May 21, 2008 at 3:59 PM | PERMALINK

I confess, it's my fault. I blew the tax rebate on dental work for the kids instead of new shoes for my friend. Sorry, folks.

But I'm sure the dentist will spend the money on something, so don't lose hope yet.

Posted by: thersites on May 21, 2008 at 4:02 PM | PERMALINK

Thersites,
Tell your dentist to spend his money on a pair of lizard Manolo's, size 7.

Posted by: optical weenie on May 21, 2008 at 4:10 PM | PERMALINK

Diesel hit $4.99/gal in NW California today.

IMHO: Diesel is more important to watch than gasoline as the bulk of commodities are moved on diesel power... ditto the farm equipment that produces your food.

This is gonna really start hitting the consumers hard... and soon.

Posted by: Buford on May 21, 2008 at 4:12 PM | PERMALINK

Weenie,
I meant to tell you. Little Timmy was understanding about how he'd have to wait a year for new braces, because Daddy's friend wanted fancy-assed designer shoes. He's such a sweet kid,and a good sport.
But my wife was harder to reason with. Harsh words were exchanged. Lawyers were mentioned, and I had to back down.
Sorry about that.

Posted by: thersites on May 21, 2008 at 4:15 PM | PERMALINK

Buford's right about diesel. But has someone explained why diesel is more expensive? I don't think it's more expensive to refine, is it?

Posted by: thersites on May 21, 2008 at 4:16 PM | PERMALINK

I think it has already hit Buford. My grocery bill has gone up 20% in the last 2 months - even though I have scaled way back on eating meats and cheeses.

Posted by: optical weenie on May 21, 2008 at 4:19 PM | PERMALINK

Thersites,
I read somewhere (and no I don't have the link) that diesel is up because the Europeans are sucking it up like crazy - most of their cars run on diesel.
So I guess we can blame the increased trucking costs on the cheese eating surrender monkeys.

Posted by: optical weenie on May 21, 2008 at 4:21 PM | PERMALINK

Thersites:
optical weenie pretty much nailed the diesel thing. When refined oil produces roughly fixed amounts of the various fuels, roughly twice as much gasoline as diesel. Europeans went on a diesel car buying spree, since diesel engines get better gas mileage, and with taxes in Europe have lower per mile fuel costs. So European refineries are running full time to make diesel and the surplus diesel is exported to the US. Joe Sixpack will never admit it, but at current oil prices $4gallon is a bargain, subsidized of course by the diesel consumers. Moving to diesel cars because they get better mileage is just not a scalable solution.

Posted by: bigTom on May 21, 2008 at 4:38 PM | PERMALINK

But my wife was harder to reason with. Harsh words were exchanged. Lawyers were mentioned, and I had to back down. - Thersites

You should of offered to get her a pair too - then you would have two happy people, instead of two pissed off ones. Idiot!

Posted by: optical weenie on May 21, 2008 at 4:38 PM | PERMALINK

bigTom:
That was my next question -- why European demand for diesel had gone up suddenly. When do we invade?

But here's the other real question: I don't doubt that global oil supplies are stretched to meet increased demand. But has this supply/demand ratio (or whatever the proper economic term would be) really changed by 33% over the last few months, or are other forces at work besides the Holy Free Market that have increased Regular from 3 to 4 bucks a gallon?

Posted by: thersites on May 21, 2008 at 4:46 PM | PERMALINK

The fed is simply slow rolling the bad news to prevent a more widespread panic. What is funny is that employment and inflation numbers are already goosed, so the economy is actually much worse than what they are trying to spin. The lockdown is MEWs, on top of peak oil, is going to have a significant impact to the economy.

Posted by: kis on May 21, 2008 at 4:52 PM | PERMALINK

What is a MEWs kis? Remember there is Friday Catblogging at this site - some of us might interpret a lockdown on MEWs as putting a muzzle on Inkblot.

Posted by: optical weenie on May 21, 2008 at 4:56 PM | PERMALINK

A lockdown of MEWs is sort of like a muzzle on Inkblot, to the extent it doesn't let him consume.

A MEW is a mortgage equity withdrawl. You have to see the chart of GDP with/without MEWs over the last few years to understand.

It is about halfway down in the comments here...
http://www.irvinehousingblog.com/blog/comments/a-shooting-star/#comments

Posted by: kis on May 21, 2008 at 5:03 PM | PERMALINK

The economy is doing much worse than the government reports - click here for details.

If Bush has proven one thing in his two wretched terms in office, it is that so-called "trickle-down" economics is an utter and complete failure. Bush and the Republican Congress rammed through multiple tax breaks for wealthy individuals and corporations and what did it produce? Doodley-squat. Weaker than average economic growth. Weaker than average job creation. A mountain of debt that our great-grandchildren will be paying off. It doesn't work, folks. Unbridled capitalism, as envisioned by the neocons, is a downward spiral. Socialist economies like China and Sweden are eating our friggin' lunch - literally and figuratively!!!

Posted by: The Conservative Deflator on May 21, 2008 at 5:15 PM | PERMALINK

Weenie: You should of offered to get her a pair too

Yeah, I thought of that. Then she started hitting me over the head with her wooden leg.

But all is not lost. I've learned that her lawyer is named Swan.

Posted by: thersites on May 21, 2008 at 5:21 PM | PERMALINK

"trickle-down" economics is an utter and complete failure

That's a matter of perspective, isn't it?

Posted by: thersites on May 21, 2008 at 5:24 PM | PERMALINK

McKinney

Posted by: on May 21, 2008 at 5:24 PM | PERMALINK

"explained why diesel is more expensive"

In 1999 (or therabouts) the EPA mandated USA diesel conversion to the 'Ultra Low Sulfur Fuel' specifications comparible to clean fuel standards in Europe.

In 2006 the deadline arrived and the oil producers were caught unprepared for the change and can't produce enough of the low sulfur fuel.

Imagine that... restricted production capacity driving up prices [snark tag].

The US Govt had estimated that diesel costs would increase from $.12 to $.25 per gallon due to the conversion. Instead, the price differential between diesel and gasoline went from minus $.50/gallon to a $.70/gal premium! GOTCHA!

Some enterprising politicans should be asking questions about this.

Posted by: Buford on May 21, 2008 at 5:28 PM | PERMALINK

I've learned that her lawyer is named Swan.


Isn't that good for you? Unless, of course, your lawyer is Norman Rogers.

Posted by: optical weenie on May 21, 2008 at 5:35 PM | PERMALINK

!!dooH niboR

Posted by: Jet on May 21, 2008 at 5:37 PM | PERMALINK

teJ si ynnuf.

Weenie, I ain't goin' there.

Posted by: thersites on May 21, 2008 at 5:46 PM | PERMALINK

Listen to this report:

"Bloomberg -- The U.S. Postal Service purchased more than 30,000 ethanol-capable trucks and minivans from 1999 to 2005, making it the biggest American buyer of alternative-fuel vehicles. Gasoline consumption jumped by more than 1.5 million gallons as a result. A Postal Service study found the new vehicles got as much as 29% fewer miles to the gallon."

Since corn based ethanol is barely (30% ??) a net energy producer, this effort by the post office resulted in extra capital investment that yielded zero benefit.

In other words, environmentalists, because they do not understand government, cause more gasoline to be burned, not less.

Posted by: Matt on May 21, 2008 at 5:47 PM | PERMALINK

We are surprised that gas prices are going up? The dollar has dropped like a rock. What did we expect?

Sadly there seems to be little incentive for American employers to raise wages as long as folks in India will work cheap and even less for them to hire American workers do more to compete on the world market.

The Bushies have succeeded in their eight year drive to turn America into Mexico north. A few rich patrons and a lot of poor peasants living from day to day.

Posted by: Ron Byers on May 21, 2008 at 5:50 PM | PERMALINK

"That's a matter of perspective, isn't it?"
--thersites

I'm assuming you are being cynical or alluding to the fact that the very wealthy have done quite well under Bush? If you mean the latter, point taken. However, what most people don't understand is that the truly wealthy (i.e. net worth > $5 million) are a very small percentage of the population and virtually no one who isn't there now will ever, ever get there, particularly not by the sweat of their brow alone....

TCD

Posted by: The Conservative Deflator on May 21, 2008 at 5:50 PM | PERMALINK

Matt,

Name me a serious environmentalist or environmental organization that advocates ethanol as a fuel alternative. Ethanol is another shell game to keep the rubes amused while ADM rakes in the government money.

Posted by: thersites on May 21, 2008 at 5:52 PM | PERMALINK

TCD: ... assuming you are being cynical or alluding to the fact that the very wealthy have done quite well...
Both. But mostly just snark for snark's sake.

Posted by: thersites on May 21, 2008 at 5:54 PM | PERMALINK

Matt wrote: "In other words, environmentalists, because they do not understand government, cause more gasoline to be burned, not less."

Matt, have you noticed that your comments are completely incoherent, typically consisting of libertarian bromides strung together with non sequiturs, signifying nothing?

No offense -- you seem nice enough, and well-meaning. But your comments are unintelligible.

Posted by: SecularAnimist on May 21, 2008 at 6:04 PM | PERMALINK

SecAn - my thoughts exactly. For a while there I was thinking I was having one long brain fart. Nice to know I'm normal.


Don't touch that one Thers or I'll call your wife and tell her you sent me the Manolo's.

Posted by: optical weenie on May 21, 2008 at 6:08 PM | PERMALINK

And, they know where the books are being cooked. SO, they know that the underlying economy is heading downward much more steeply than the public declarations of the Bush Administration would have us believe.

Posted by: Eric on May 21, 2008 at 6:12 PM | PERMALINK

OW: one long brain fart

Cheese, or cat?

Go ahead and try to call her. We haven't paid the phone bill since 1972.

Posted by: thersites on May 21, 2008 at 6:15 PM | PERMALINK

Conservative Deflator wrote: "If Bush has proven one thing in his two wretched terms in office, it is that so-called 'trickle-down' economics is an utter and complete failure."

thersites replied: "That's a matter of perspective, isn't it?"

Conservative Deflator replied: "I'm assuming you are being cynical or alluding to the fact that the very wealthy have done quite well under Bush? If you mean the latter, point taken."

The intent of the "trickle-down" economic policies of the Cheney/Bush administration is to enrich their ultra-rich cronies and financial backers, at the expense and to the detriment of everyone else.

Nor do they view the impoverishment of the middle-class and working-class (who are increasingly indistinguishable) as an unfortunate consequence of their policies: they view it as a desirable consequence, since it creates a large, powerless cheap-labor class that can be all the more easily exploited.

So in Cheney/Bush's own terms, their economic policies have been entirely successful: the economy of desperation that confronts most Americans today is "mission accomplished".

Of course all their proclamations that their policies would benefit everyone are nothing but deliberate, shameless, sickening, blatant lies -- just like the lies they used to lead the USA into their long-planned war of unprovoked aggression to seize control of Iraq's oil.

So I would say that "if Bush has proven one thing in his two wretched terms in office" it is that he is a liar who has deliberately and with malice -- and very successfully -- lied and duped and bamboozled the American people into catastrophe.

Posted by: SecularAnimist on May 21, 2008 at 6:17 PM | PERMALINK

environmentalists...cause more gasoline to be burned, not less.

Doubtful. Most likely the boondoggle described was Republican politicians spending the peoples' money on environmental sounding projects that enriched ethanol manufacturers and postal service vehicle producers. No environmental improvement was necessary to achieve the publicity, good will and graft the project was designed for.

Posted by: Brojo on May 21, 2008 at 6:41 PM | PERMALINK

"Matt, have you noticed that your comments are completely incoherent"

Actually they are not, what you are hearing is me contradict the rantnrave theories which never made sense.

We have had this problem since out founding, rantnravers with no math skills.

I will give you an example. At one time westerners demanded that the government use silver for coinage, and their party passed a federal law requiring the government to buy silver at market prices. Within a few weeks the government was on track to put the entire earth crust of silver into its vault before someone who could multiply pointed out the folly.

There are nuumerous and humorous examples. One is the obvious, Republicans lower the cost of government and buy more of it, the same as happens with bread and gasoline. When economists point this out this fallacy they are accused of senility, yet people operate this way in purchasing bread. Is it true? Yes, Repbunlicans expand government, in fact on their charter, they actually said that in 1864, this party is for the purpose of lowering taxes and expanding government, and they do. They were formed for that purpose.

Yet in spite of staring at that fact and buying bread for years, rantnravers still do not believe, even their own actions, and they still think that Republicans shrink government.

So you go therough the step by step theory, adn they finally agree! So what is their next act? They tell me that the Dems will raise taxes and grow government! They still do not get their own actions.

Here is another case. England had a pain operating their cotton manufacturing while the North and South traded government roles every 8 to 4 years. The South, incredibly stupid, though that England never figured this out5. So the SAouth seceded, went to England to sell cotton, and found the warehouses full. Why? Well, the English said in so many words, we watch you bozos to opposite all the time, you think we are stupid?

I will give you another one. Who invented supply side economics and why? Irving Crystal, mainly for the purpose if getting Republicans to quit fighting about deficits vs taxes. In other words, it is made up theory designed to give the Republicans a rantnrave theory which made no sense buy gets us by the electorate.

I have listened to people on this blog advocate rantnraves which result in their being poor four years down the line, and they are still here, regretting the rantnrave but still proposing more nonsense rantnrave, like Kevin does.

I have a whole list of rantnraves in which poor people on this blog demand the right to give their money to rich people, it is funny really.

Who was responsible for the Post Office burning more gasoline in the name of environmentalism?

I can bitch becasue I am anonymous, but people like Brad Delong has to keep their mouth shut about some truths because rantnravers on this site will misinterpret his truth and hurt themselves. I have no such restriction.


Here is another classic, Free Republic types and immigration. They complain about immigration and vote Republican. The entire Republican party, including it past and current fiscal policies were designed to attract immigration, this goes back to 1854 and earlier. Yet Freepers still cannot read history books. Same problem on the right and left, they have to lie to the rantnravers for their own good.


Posted by: Matt on May 21, 2008 at 7:15 PM | PERMALINK

But has someone explained why diesel is more expensive? I don't think it's more expensive to refine, is it? - thersites

It takes more crude oil to refine a gallon of diesel than it does for gasoline. Also the density of diesel fuel is higher than gasoline and diesel contains more BTUs of energy per gallon.

http://bioenergy.ornl.gov/papers/misc/energy_conv.html
gasoline density (average) = 0.73 g/ml
petro-diesel density (average) = 0.84 g/ml


"Note that the energy content (heating value) of petroleum products per unit mass is fairly constant, but their density differs significantly hence the energy content of a liter, gallon, etc. varies between gasoline, diesel, kerosene."

Posted by: Doc at the Radar Station on May 21, 2008 at 7:15 PM | PERMALINK

Is anyone ready for “Motionless Electromagnetic Generator” yet?

It’s already patented in the US!

Don’t tell me Exxon bought the rights.

Google it.

Posted by: MEG on May 21, 2008 at 8:07 PM | PERMALINK

Speaking of Exxon etc: Everyone should let their fingers run not walk to see thisthis fabulous post that explains how the rise of unregulated futures trading (and worse, futures derivatives - the ultimate "paper oil" market) is driving oil prices way up (estimate: about 60% of the recent price rise is due to speculation and not fundamentals - maybe with pure supply/demand and even peak oil, we'd be around 80-90/bbl. REM the Congressional hearings today.)

PS: There's not much chance off-beat electromagnetic stuff can save us, but maybe hemp oil diesel and solar Stirling can help.

tyrannogenius

Posted by: Neil B. on May 21, 2008 at 8:17 PM | PERMALINK

T.V. evangelist Joel Osteen was in our city Sunday and told the crowd "It doesn't matter if gas goes to $20 a gallon. God can multiply your gas and provide more miles per gallon". Problem solved!

Posted by: R.L. on May 21, 2008 at 8:26 PM | PERMALINK

Neil B., here's a link (pdf) that has the whole testimony with charts:
http://hsgac.senate.gov/public/_files/052008Masters.pdf

I'd like to see Krugman post some response to this.

Posted by: Doc at the Radar Station on May 21, 2008 at 8:47 PM | PERMALINK

Steve Peasley at http://blog.investtalk.com has an interesting take on the gas crises:

"It is interesting that a slowing economy has not pulled down the commodity prices. Over the last few years trading in commodities on the futures market has exploded. That is a sign of dramatic speculation. Gasoline prices are not going to fall any time soon until some of this speculation is taken out. No one knows how much of the cost of a barrel of oil or a tank of gas is due to traders� speculation, but it is significant. There is currently an adequate supply and the supply is actually growing as the demand for gasoline in the U.S. is falling. Drivers are changing their habits to reduce consumption; despite that prices are still increasing. The perception is world demand is going to outstrip supply sometime in the future; that is not likely to happen. Both supply and demand are elastic; as prices rise more supply will be found and demand will reduce. Currently oil producers are using about $50 per barrel as the price to justify new projects. With the price near $125 there will be pressure to find, drill and pump more oil. There is plenty of oil but the easy stuff has already been found. Now it is oil sands, oil shale and deep water deposits that are being exploited. These are very expensive projects so high oil prices are needed to justify them."

Posted by: Ruth on May 21, 2008 at 9:12 PM | PERMALINK

In 1999 (or therabouts) the EPA mandated USA diesel conversion to the 'Ultra Low Sulfur Fuel' specifications comparible to clean fuel standards in Europe.

In 2006 the deadline arrived and the oil producers were caught unprepared for the change and can't produce enough of the low sulfur fuel.

Wait, how on earth can you have seven years' advance notice and be "caught unprepared"? Were they hoping the EPA would just forget to implement the changes?

Posted by: Mnemosyne on May 21, 2008 at 10:36 PM | PERMALINK

Alas, Ruth, Steve Peasley doesn't know much. The USA, still by far the largest economy, is no longer the over-powering dominator of economic activity it used to be and the world still has finite resources. Meanwhile India and China, all 2.5 billion of them, and others all motor on with high single, even double digit growth. The dollar has declined against most currencies, against the Ecu by 65%, the last few years!

Particularly gasoline demand has shown so far to be relatively inelastic in the US which is not surprising as it is still 40-50% of what West Europeans pay.

The Chinese have huge foreign currency deposits (mostly $$, surprise) with which to buy foreign commodities and influence. Foreign policy has been extraordinarily inept and not at all forward (or outward) looking under the present idiot son and his Secretary of State while the Chinese have been extraordinarily engaged.

The US still uses about 1.5-2 times as much energy per capita as other similar economies, and he seems to have forgotten totally about that small deal, global climate change.

No doubt, at some point, commodities might dip. We had the 70-80s price boom, too. But don't expect them to collapse unless the world's economies stagnate.

In fact the slowdown in the USA will actually take some small pricing pressure off the Chinese in their pursuit of secure commodity resources and infrastructure costs.

Posted by: notthere on May 22, 2008 at 12:15 AM | PERMALINK

More GDP means less oil left.

Posted by: Luther on May 22, 2008 at 12:32 AM | PERMALINK

"That's a matter of perspective, isn't it?"
--thersites

Much as the classic Wodehouse line about your view of hunting depending upon which side of the gun you were standing.


"There was a time in the past under industrial capitalism when in a class war between capitalists and workers, moderate inflation could help workers keep their jobs by keeping the economy expanding and make it easier for them to pay off their debts to capitalists. But nowadays, under finance capitalism, when capital comes mostly not from capitalists but from enforced savings held by worker pension funds, inflation robs workers of their retirement resources while stagflation lays them off from their current jobs.

Capital has been manipulated as a notional value on which derivative transactions are calculated and profit and loss are realized. Finance capitalism, through income disparity condoned by a supply-side ideology of keeping profit for the rich in the name of capital formation and letting the working poor be taken care of through trickling down from the rich, has constructed a financial infrastructure that channels profits to a few and assigns losses to the many. The inequity is mind-boggling. At least the capitalists of industrial capitalism used their own money. In finance capitalism, the retirement funds of workers are manipulated by financiers to exploit workers. " THE ROAD TO HYPERINFLATION, Part 3 Inflation targeting By Henry C K Liu http://www.atimes.com/atimes/ Global_Economy/JB21Dj04.html
Posted by: MsNThrope on May 22, 2008 at 11:40 AM | PERMALINK

T.V. evangelist Joel Osteen was in our city Sunday and told the crowd "It doesn't matter if gas goes to $20 a gallon. God can multiply your gas and provide more miles per gallon". Problem solved!
Posted by: R.L.

Tell me you're makin' that up! Please.

“It’s a big gambling hall,” The Washington Post quotes Fadel Gheit, an oil analyst at Oppenheimer. “This time it’s just speculation,” Peter C. Fusaro, chairman of Global Change Associates, told the Post, adding, “There’s a large bet out there that prices will continue to trend higher. But it’s detached from fundamentals because there’s no shortage of oil.” - Ralph Nader, "The Price of Oil" http://www.commondreams.org/archive/2007/11/10/5134/
Posted by: MsNThrope on May 22, 2008 at 12:11 PM | PERMALINK

Could you help me. Your world is made of your memories, and your memories are given to you by your world. The whispering voice of happenstance is always in our ears. 'This is the world. This is the way things are. Look. Pay attention. Remember.' Help me! I find sites on the topic: Unique wall clock. I found only this - kids safari wall clock. Reducing this set, mountains have side to be then original in the post of useful ailments, wall clock. Wall clock, what wealth will first cease? THX :cool:, Gaye from Republic.

Posted by: Gaye on March 12, 2010 at 1:15 AM | PERMALINK




 

 

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