Globalization seems to be looked on as an unmitigated “good” by economists. Unfortunately, economists seem to be guided by their badly flawed models; they miss real-world problems. In particular, they miss the point that the world is finite. We don’t have infinite resources, or unlimited ability to handle excess pollution. So we are setting up a “solution” that is at best temporary.
Economists also tend to look at results too narrowly–from the point of view of a business that can expand, or a worker who has plenty of money, even though these users are not typical. In real life, the business are facing increased competition, and the worker may be laid off because of greater competition.
The following is a list of reasons why globalization is not living up to what was promised, and is, in fact, a very major problem.
1. Globalization uses up finite resources more quickly. As an example, China joined the world trade organization in December 2001. In 2002, its coal use began rising rapidly (Figure 1).
In my view, wages are the backbone an economy. If workers have difficulty finding a job, or have difficulty earning sufficient wages, the lack of wages will be a problem, not just for the workers, but for governments and businesses. Governments will have a hard time collecting enough taxes, and businesses will have a hard time finding enough customers. There can be business-to-business transactions, but ultimately somewhere “downstream,” businesses need wage-earning customers who can afford to pay for goods and services. Even if a business produces a resource that is in very high demand, such as oil, it still needs wage-earning customers either to buy the resource directly (for example, as gasoline), or to buy the resource indirectly (for example, as food which uses oil in production and transport).
It is not just any wages that are important. It is the wages paid by private companies (rather than governments) that are important, as the backbone to the economy. Governments tend to get their revenues from private citizens and from businesses, both of which are dependent on wages of private citizens. There are a few pieces outside of this loop, such as taxes on imports from foreign countries. With the advent of free international trade, this source is disappearing. Another piece outside the US wage-loop is taxes on resource extraction, if these resources are exported.
Instead of using the analogy of a backbone, perhaps I should say that wages are the base that ultimately determines the quantity of goods and services an economy can afford.
Obviously there are other kinds of income, such as “rents,” but these, too, ultimately come from wage earners. Furthermore, businesses cannot earn money to pay dividends unless some consumer, somewhere, can afford to buy the goods and services their business is selling. ( Continue… )
We are used to expecting that more investment will yield more output, but in the real world, things don’t always work out that way.
In Figure 1, we see that for several groupings, the increase (or decrease) in oil consumption tends to correlate with the increase (or decrease) in GDP. The usual pattern is that GDP growth is a little greater than oil consumption growth. This happens because of changes of various sorts: (a) Increasing substitution of other energy sources for oil, (b) Increased efficiency in using oil, and (c) A changing GDP mix away from producing goods, and toward producing services, leading to a proportionately lower need for oil and other energy products.
The situation is strikingly different for Saudi Arabia, however. A huge increase in oil consumption (Figure 1), and in fact in total energy consumption (Figure 2, below), does not seem to result in a corresponding rise in GDP.
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At least part of problem is that Saudi Arabia is reaching limits of various types. One of them is inadequate water for a rising population. Adding desalination plants adds huge costs and huge energy usage, but does not increase the standards of living of citizens. Instead, adding desalination plants simply allows the country to pump less water from its depleting aquifers. ( Continue… )
Rising energy costs impact fixed incomes (Sponsor content)
In the current economy, many Americans are on tight budgets and can’t afford to spend more on energy. Our recent study finds that more than half of U.S. households will spend an average 20 percent of their family budget on energy, nearly double what they spent 13 years ago.
Last year we spoke with the people of Red Springs, North Carolina to find out how rising energy costs would impact their daily lives. In North Carolina, the 2.1 million households earning less than $50,000 annually spend 23 percent of their income on energy. To the people of Red Springs, any increase in electricity prices would make a huge difference to their already tight family budgets.
With heavy handed EPA regulations coming, American families are going to be paying higher electricity prices. Hasty regulations will slow the recovery of our economy, hurt hardworking families and put thousands of jobs at risk.
In late February, BP execs descended on Tanzania with a request to pursue natural gas investments and try their luck in a venue that has become one of the biggest gems in the region.
Tanzania is open to the request, of course, but made it clear that the competition is pretty high. Total SA of France is also in line for Tanzanian gas exploration license. Norway’s Statoil is also shopping in Tanzania.
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Recent offshore discoveries of some 33 trillion cubic feet of gas put Tanzania on the map, and the risk is relatively low. Tanzania has a natural gas processing plant on Songo Songo Island, with a 70 million cubic feet/day capacity. It is also planning an LNG terminal. ( Continue… )
The major Internet company's ban on telecommuting has ruffled feathers in Silicon Valley and sparked a larger debate on the role of physical proximity in an increasingly digital workplace.
But most of all Yahoo! is bucking a longstanding trend toward more telecommuting and, in the process, setting itself up as a company that's less "green." The wonder is that Yahoo! isn't the only tech giant to favor face-to-face interaction despite the energy saving potential of telecommuting. Some of the companies at the forefront of the digital revolution – who are making virtual communication easier for billions of workers – are themselves old-fashioned when it comes to work arrangements.
“The surprising question we get is: ‘How many people telecommute at Google?’" Google CFO Patrick Pichette said at a talk last week in Australia, "And our answer is: ‘As few as possible’ … There is something magical about sharing meals. There is something magical about spending the time together, about noodling on ideas, about asking at the computer ‘What do you think of this?’ These are [the] magical moments that we think at Google are immensely important in the development of your company, of your own personal development and [of] building much stronger communities.” ( Continue… )
The amount of crude oil delivered by rail in the United States set a record last year by an overwhelming margin. The U.S. Energy Department said it expects domestic crude oil production by 2014 to reach 7.8 million bpd, a 20 percent increase from today's figures. That's enough oil production to seemingly strain U.S. oil pipeline capacity. The Association of American Railroads states that nearly a quarter of a million carloads of crude oil traveled on the U.S. rail system in 2012. Last week, pipeline company Kinder Morgan said it was planning to build a rail system to carry crude oil from as far away as western Canada to the Houston market. Given ongoing concerns over pipeline integrity, projects like Keystone XL could fall by the wayside given the increased interest in rail.
The AAR reported that 233,811 carloads of crude oil traveled by rail last year. In 2012, crude oil took up about 0.8 percent of rail carloads in the United States, up from the 0.2 percent in 2011. With each carload capable of carrying roughly 700 barrels of crude oil, the entire U.S. rail system can support around 450,000 bpd. During the fourth quarter of 2012 alone, more than 81,000 carloads of oil – or 56.7 million barrels – traveled by rail. (Related article: Keystone XL: Celebrities Won't Help the Cause)
Pipeline company Kinder Morgan last week announced it was teaming up with Mecuria Energy Trading Co. to build a rail project designed to handle 210,000 bpd. The project would let Mercuria source crude oil from as far away as western Canada to the Houston market for distribution. Kinder owns roughly 46,000 miles of pipelines. The deal with Mercuria, however, is the first for the pipeline giant and would feed the largest refining complex in the world.
"It will provide U.S. and Canadian producers much needed market access and optionality to deliver their crude oil production," said John Schlosser, Kinder Morgan Terminals president, in a statement. ( Continue… )
Spending cuts scheduled to start Friday will have a variety of effects, provided Congress fails to negotiate out of the approaching sequester. America's energy sector won't be spared, as federal agencies plan to furlough workers and curtail research spending.
In short, the spending cuts would delay leasing activity on public lands for everything from oil and gas to wind and solar projects, with a significant loss of revenue in the process. It would also cut funding for training for solar jobs, home weatherization, and energy research.
Here's a rundown of the effects:
Oil, gas and coal
Interior Secretary Ken Salazar made a similar argument in a letter to the US Senate Committee on Appropriations earlier this month, saying the sequester would mean approximately 300 fewer onshore oil and gas leases issued in Western states. Some of the 550 offshore oil and gas exploration plans in the Gulf of Mexico would also be jeopardized. ( Continue… )
With U.S. natural gas production having risen more than 25 percent from its nadir in 2005, natural gas producers are pushing for an end to limits on U.S. natural gas exports. The growth in supplies comes primarily from previously inaccessible shale deposits deep in the Earth, a development that has convinced many people that the country is now entering a new era of natural gas abundance.
Trouble is, the United States remains an importer of natural gas. Through November 2012 the country imported 12.5 percent of its natural gas consumption for the year, mostly from Canada. That's down from an average of 15.7 percent for the previous 20-year period. But it's not exactly energy independence.
So worried are industrial consumers of natural gas about exports pushing up prices and thus their production costs that they've formed an alliance to fight the loosening of export restrictions. The alliance includes utilities dependent on natural gas to fuel electricity generation, chemical companies that use it as a feedstock for making myriad industrial chemicals, and heavy industrial users such Alcoa and Nucor who use natural gas to fire their metal-making operations. (Those who heat their homes and businesses with natural gas also stand to benefit if the alliance prevails.)
The members of the alliance have reason to worry since Europeans are paying close to $12 per thousand cubic feet for liquefied natural gas and the Japanese are paying more than $17. Compare that to the U.S. domestic pipeline price for natural gas of just $3.27 as of last Friday (Henry Hub spot price). ( Continue… )
The key question: How much is BP to blame for the explosion that took the lives of 11 people and spewed an estimated 4.9 million barrels of oil into the Gulf of Mexico – and, thus, how much will it have to pay in civil penalties?
The trial, which could last for months, will pit rival claims of culpability as BP tries to offload responsibility for the Deepwater Horizon disaster onto its onetime partners, Transocean and Halliburton. At stake: up to $18 billion in fines. Prosecutors will have to prove not only that BP made mistakes but it acted with gross negligence.
"Despite BP's attempts to shift the blame to other parties," Justice Department attorney Mike Underhill said in opening statements, "by far the primary fault for this disaster belongs to BP." ( Continue… )