EconAir

  To an economist, the word “cost” implicitly has the word “opportunity” in front of it.  Not knowing the difference between accounting cost and opportunity cost can lead to some serious pricing mistakes and misallocation of resources. Saudi Arabia is one of the world’s three large crude oil producers, pumping over 10 million barrels per day. (A barrel is 42 gallons.) About 2.5 million barrels per day are refined for domestic consumption. Consumption of domestic oil has been rising rapidly. Saudi Arabia is the world’s most inefficient   user   of oil. The country subsidizes the price of gasoline and electricity. It has the world’s highest oil consumption per capita. Besides fuel, oil is used to generate electricity and desalinize water. It has been common for families to leave their air conditioning on even when going on vacation. Some offices are so cold that employees wear sweaters.   Prices to consumers are low because of low crude oil production costs and th...

There is a story, possibly true, that when the British surrendered to American and French forces at Yorktown, effectively ending British rule of America, someone in the British army sang or played an old English folk song, “The World Turned Upside Down.”    (See https://en.wikipedia.org/wiki/The_World_Turned_Upside_Down ) I think I know how the British felt.   Many of the assumptions economists have made about economic reality and economic policies now seem out-of-date or even reversed. UNITED STATES The Fed fought inflation; now it sets inflation targets when there is no inflation. The Fed worries about deflation even though the major source is a fall in energy and commodity prices. Another source is the fall in the prices of technology products. There is a large increase in the money supply, large government deficits, a large trade deficit, and a large decrease in the unemployment rate. Economic theory and past experience says that there should...

Saudi Oil Minister BACKGROUND INFORMATION Oil is measured in barrels. A barrel is 42 gallons. Total global daily production is around 96-97 million barrels/day. Saudi Arabia, Russia and the United States all produce around 10 million barrels a day.   With their allies, these three countries account for close to 40% of global production. Because of the improved technology of shale oil production, U.S. output has gone up almost 5 million barrels/day since 2008. Currently, total global production is greater than total demand by somewhere between one and three million barrels/day. There are record amounts of oil in storage. A small percentage increase of supply over demand has led to a large decrease in price. In the fall of 2014, a barrel of oil cost about $100/barrel.   Last month the price fell to around $30/barrel.   Since then, it has rallied to around $40/barrel. THE ECONOMICS AND GEOPOLITICS OF OIL The economies of seven...