[Real price of oil] My question

Still many economists and business forecasters may want to believe that current hike of oil price was caused by temporary distortion of market, and high price will increase oil production, then eventually oil price will be stabilized. However, oil production seems to peak and gradually decrease in the near future. Although there are some counterarguments on this, but let's stick on the peak oil scenario.

My question is whether real price of oil will increase or decrease when oil production decreases. In other words, whether will increasing rate of oil price still be lower than inflation rate of other commodities (Apparently, inflation rate (CPI) does not explain energy price)? Nominal price of oil will easily increase along with production decrease. It will cause supply-pulled inflation, too. We can consider two different cases about inflation and oil price.

1. Inflation rate will be greater than increasing rate of oil price. Then we can say that real price of oil will decrease. Although nominal price of oil increase, price of other commodities go up higher. Then we may feel that oil is relatively cheaper. Oil and other energy sources are basic inputs into production. When oil price increases, it may cause cascade of value addition. For example, 5% increase of oil price will signal timber producers to increase its product price by 8%. Then, it will signal furniture producers to increase it's product price by 10%. When market participants expect such basic input price to increase, they may over-react by charging more than actual increase of inputs. In conclusion, higher inflation will disguise "real" price of oil.
   
   
2. Increasing rate of oil price is greater than inflation rate. Then real price of oil will increase. In this case, the market reacts to higher oil price and reduces oil use in its production. Technological progress may explain this situation.
   

Both cases seem plausible. They can happen at the same time also. Question is which factor is more influential.

-Sung.

Debate on real price of oil in the future

While interviewing our department's chair candidate, there was a brief debate on the real price of oil in the future between two faculty members. They gave two different forecast about the change of real oil price. One professor forecasted that real price of oil will increase, while the other forecasted the opposite. This is very important issue in my field. I suggested a discussion to other students, and will post the discussion here.

-Sung.

FYI

• Real price: Inflation adjusted price.
  "Money price is the price quoted in money while relative or real price is the exchange ratio between real goods regardless of money (from Wikipedia.org)."
  
• CPI: Consumer Price Index. Government officially calculate it from some commodities, which do not include food and energy. In general, it is used as inflation rate.

Fishing rod selection

There are so many different fishing rods in market. When I went to buy my first fishing tackles, I asked a clerk for recommendation. For general everyday fishing, he recommended me Medium power, 6'6" rod. I can see almost every angler use this type of rod at shore.

I have had no problem in using the 6'6" rod until I started using 6" swim bait. My rod was too weak to handle the lure properly. It made me think about rod selection. Here is my thought about lure selection:

1. Weight of lure: It is the first consideration. If you want to use heavy lures, you have to choose a heavier power rod. With light rod, you can not make right presentation of your lure.
2. Weight of target fish: It determines power and length of a rod, too. If you are targeting large fish, you need heavier power and longer rod. The rod will make fighting a lot easier. But reel is more important in fighting. It means that although you have a light rod, if you have a heavy reel, then you can land the fish without any serious problem. It will take more time in fighting, though.
   
3. Casting method and location: It determines length of a rod. If you want flipping or pitching most time, you should choose a longer one. If you will fish at beach, you definitely need longer one, too. But casting seems not so important consideration in rod selection.

Lure Classification

There are so many different types of fishing lures. We definitely need classify them to better understand when and where we use one. I found that classification by play depth is the most useful way. There are 3 types of lures according to play depth: top, middle and bottom water baits.

1. Top water

• Floating hard bait: They look typical hard plastic baits, but they remain floated when they are retrieved. Chug bug, Jitter bug, Stik bait are brand names of this kind of lure. They are usually called topwater lure.
  
• Buzz bait: They look like spinner baits, but they have props which make them float.
  
• Frog bait: They look like frog, and do not snag on grassed water.
  

2. Middle water

• Diving hard bait: They are the most typical hard plastic baits. They have lips, and they make the bait dive. Larger the lips, deeper they dive.
  
• Swim bait: They are soft plastic lure with paddle at the end. The paddle makes it swim in the middle of water.
  
• Spinner: They are made of wire and wings. Being retrieved fast, spinning wings imitate swimming bait fish.
  
• Spoon: They are spoon-shaped baits.
  

3. Bottom water

• Soft Plastic: There are many different shape of soft plastic baits, such as worm, bait fish, cray fish, and salamander. They are used with jig head or Carolina rig or no sinker rig. They are many variations of rigging.
  
• Jig: Jig is a combination of jig head and many kinds of skirts. For example, bucktail jig is a jighead with bucktail skirt.
  

I found this classification useful. Because it gives us idea which lure we have to use at different situation. Classification like soft plastic, hard plastic, non plastic does not help at all.

Who is a good economist or ecological economist? What makes a good economist?

I think that a good economist is a someone who has profound insights into how human economy works. Someone who really understand the mechanism of economy. Whoelse can be? Creativity in modeling seems a key to be a good economist. Ability in econometric analysis? It is necessary, but it does not provide any insight.

In history, without any doubt Keynes is the best economist. Among current economists, I admire Paul Krugman because of his insights and his participation in social issues. I would like to hear what you think.

Responses to climate change from conservatives

Main strategy of conserviatives to climate change has been total denial: there is no such a thing like global warming. There is only natural fluctuation of climate pattern. But as undeniable evidence has been accumulated, they seem to change their strategy. Here are what I found from conservatives on news media;

(1) Now, conservatives accept extraordinary climate change as a fact.

(2) But they still raise questions about whether the change was caused by human activities.

(3) Furthermore, they are skeptical whether we can do something to prevent climate change, although they accept that the change was resulted from human activites.

(4) They suggest that we need focus on related problems such as disaster prevention, poverty, rather than on climate change itself.


At some degree, I agree with them. In particular, I am not fully sure whether we can change the dirction of climate change. We might cross the river. Instead chasing rarely achievable goals, we may want to spend our time to adapt ourselves to potential changes from climate change and to make this world ready for the uncertain future. What we need is not a protest plan but a survival plan.

What is "technical progress?"

J. Black. 2002. A Dictionary of economics. Oxford Univ. Press

"Improvement in knowledge of possible techniques. Such changes may allow more output to be obtained from unchanged inputs, the same output to be obtained from fewer inputs, or new forms of output to be produced which were not previously possible"

(1) More output with same inputs
(2) Smae output with fewer inputs
(3) New output(pure innovation?), eventually more output

Except (3), is the basic of technical progress substitution? Through substitution or reorganization of production process, we can produce more or the same with fewer inputs.