Larry Summers, Brad DeLong, and Paul Kugman are having an extended discussion on the role of models in economics on their blogs this week.
That’s good. Since the model is the message in economics today, that is actually the most important discussion possible to have in economics.…Lars P. Syll’s Blog
DeLong, Summers & Krugman on models
Lars P. Syll | Professor, Malmo University
2 comments:
http://moslereconomics.com/2015/12/31/saudi-production-7/
Thoughts on this Tom? Is Mosler correct on Oil?
Warren certainly knows a lot more about this than I do.
His analysis was that the Saudis have the largest supply of oil at the lowest cost of extraction, which put them in the position of swing producer with monopoly power. Their previous strategy was to let others pump the quantity that they desired, which was not enough in total to supply global market demand. KSA could then top off quantity demanded at the price they set as swing producer.
For some reason(s) that they did not declare and remain speculative, they decided to increase quantity and let the price fall. This would obviously hurt producers whose margins were cut and especially those whose costs were above the market price. It would also hurt those speculating on a rising oil price by hoarding oil, since there is the cost of both leverage and storage that acts as alligators.
Why the Saudis did this and are continuing with this policy is unclear since a lot of people are affected and KSA has given no indication as to what the strategy it is pursuing may be.
However, it is coincidental that this happened fairly soon after the US oil producers starting increasing output from shale fields. It's also known that the cost such production is relatively high, so it's clear that they would be hurt by prices falling under their costs.
It's also coincidental that it happened as the West began targeting Russia economically.
Whatever their reasoning, it seems to be important enough to endure their taking a hit, too, since the increased quantity at the lower price is not brining in the amount more limited production at the higher prices did. Their fiscal balance is worsening and the government (read ruling elite) is concerned about it. In fact, it seems to be a source of contention among the royals that runs the country.
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