Administration’s Drastic Drawdown of Strategic Petroleum Reserve Makes Us Vulnerable to Actual Oil Supply Shock

Although fracking technology has enabled renewed oil production in the U.S., the West remains heavily dependent on oil imports, especially from the Middle East. Even in the U.S., the current refining capacity is not well-matched to the type of light oil produced by fracking, so we still import oil (of types that our refineries can handle), although we also export fracked oil. Since oil remains the basis of so much economic activity, and since many oil exporting countries are unstable or even hostile to the U.S and our allies, the U.S. in 1975 established a large Strategic Petroleum Reserve (SPR) to store up crude oil. The storage is mainly in caverns in Texas and Louisiana, dissolved out of underground salt deposits. It was mainly filled in the Reagan/Bush administrations in the late 1970’s, and topped up under Bush II around 2003-2004.

The statutory purpose of this stockpile is to protect us and our allies against a “a significant reduction in supply which is of significant scope and duration,” per the Department of Energy. If such an event occurs, leading to high prices and associated economic impact, the President is authorized to release oil from the SPR. However,

In no case may the Reserve be drawn down…

 (A) in excess of an aggregate of 30,000,000 barrels with respect to each such shortage;

(B) for more than 60 days with respect to each such shortage;

Somehow various administrations and also Congress have circumvented these restrictions on draining the SPR, and over the years have sold off bits and pieces to raise money for government spending. However, the current administration has decimated the SPR, selling off a third of it (some 200 million barrels), mostly in the past six months:

Source: U.S. EIA

The administration projects this gusher to stop after November. Essentially all objective observers recognize this as primarily a political move, to reduce gasoline prices in order to curry favor with voters for the mid-term elections this November. It’s one thing to knock the price of gasoline down from $5.00/gallon back in the spring, when the world was panicked about Russia’s invasion of Ukraine, but to keep on selling into a moderated market is irresponsible. We haven’t had an actual shortfall in supply these past few months. Among other things, Russia keeps happily pumping and selling, out into the global grey market.

I won’t belabor the point here (stay tuned for more posts on this subject), but the world is structurally short of oil. With this administration having spent its first year demonizing oil and oil companies, the petroleum industry is understandably cautious about making expensive investments in future oil production. They know they will be stabbed in the back as soon as the current party in power no longer needs them.

By dumping this oil now, the administration is making the U.S. and the West more vulnerable later, if there is an actual global oil supply crisis (think: Iran vs. Saudi Arabia in the Persian Gulf…). Irritated by the lowish oil prices engendered by the SPR release, OPEC just announced production cuts which will drive prices right back up. They can cut production far longer than we can drain the SPR. If this all motivates further investment in low CO2 energy (including nuclear), that is perhaps a good thing. But between now, and attaining a carbon-free utopia in the future, we need to keep the crude flowing. Let us hope for the best here.

Energy analyst Robert Rapier writes:

Ultimately, drawing down the SPR was a political decision. Think about it. An administration that has frequently emphasized the importance of reducing carbon emissions is trying to increase oil supplies to bring down rising oil prices — which will in turn help keep demand (and carbon emissions) high.

But even though the Biden Administration wants to address rising carbon emissions, high gasoline prices cause incumbents to lose elections. So, they try to tame gasoline prices even though it contradicts one of their key objectives of reducing carbon emissions.

The SPR has now been depleted since President Biden took office from 640 million barrels to 450 million barrels…

President Biden’s gamble to deplete the SPR in order to fight high oil prices may not hurt him at all. Of course, if for some reason we had a true supply emergency and found ourselves needing that oil, it would be looked upon as a terrible decision.

Highlights from EA Global DC

I was in DC last weekend for the Effective Altruism Global conference. I met a lot of smart people who are going to have a huge impact on the world, and some who already are. I’ll share a few of my favorite highlights here, with the disclaimer that most quotes won’t be exact:

The mistake every do-gooder makes is coming to a country and thinking ‘I’m just here to help people, I’m not a political actor.’ Guess what? You are. What you do changes the balance of power, often toward the center

Chris Blattman

I’m funding the Yale spit test? The world doesn’t make sense [Yale, NIH, et c should be on it]… its like, if I won an academy award or NBA MVP, how screwed up would the world be?

Tyler Cowen, referring to Fast Grants

You should all be political independents, both parties are terrible. You should be voluntary social conservatives, behave like Mormons…. we need a marginal revolution toward the better parts of the Mormon / social conservative package

Tyler Cowen
“Keep right” indeed

Tyler later specified that the main things he meant by this were to marry young and not drink, though I don’t think he realized how common the latter already is:

As he often does, Tyler recommend that people travel more:

If I meet someone who’s been to 40 countries I tell them they should travel more, and to weirder places

Tyler Cowen

But when someone asked “How much travel is too much”, he came up with this limiting principle:

How much travel is too much travel? 10% after your significant other gets mad at you

Tyler Cowen

I asked Matt Yglesias how much of his policy influence comes just from writing things online, and how much from personal connections and being in DC. He said something like:

Personal connections matter a lot given how real people change their minds, but there’s also less of a dichotomy than you’d think. For instance, a WaPo column of mine was getting passed around the White House, but I wrote it because someone in the WH suggested the topic. Politicians often communicate with each other via the media, though I wish they wouldn’t. Just talk to each other, you work in the same building!

Matt Yglesias

His take on the changing media environment:

My tweets are more influential than my columns & substack, because they are read so much more & I’m followed by many journalists. Overall though now is a great time for specialists, obsessives and weirdos. Construction Physics is a great blog now but if he’d written it in 2003 people would just be like, WTF. On the other hand my [generalist] college blog did well in 2003 but if a college student wrote the same kind of things today people would say, who cares?

Matt Yglesias

Journalists are suspicious haters, that’s our function in society

Can’t remember if this was Matt Yglesias or Kelsey Piper

Tyler and Matt were both telling people that you can accomplish your goals more effectively by being more “normie” in some ways. This can be a bit of a sacrifice, but:

If you can give a kidney, you can learn to tie a tie, give a firm handshake, and look people in the eye

Matt Yglesias

I’m some combination of smart enough and arrogant enough that its normally rare for me to meet someone and think “oh, you’re smarter than I am”. But at EAG it was common; not just because of the ridiculous numbers of top-university degrees and real-world accomplishments, but the breadth and depth of the conversations, everything from mental math to number theory, AI to finance, to a surprisingly convincing pitch for the relevance of metaphysics for political theory.

The other main place I think this is SSC / ACX meetups

It wasn’t a step up for everyone though; I talked to someone at a top hedge fund who said the people he worked with were “are the smartest, most dedicated people I’ve been around…. smarter than EAs, more able to execute than mathematicians at [top PhD program he was at]”. They work 12 hour days, actually working the whole time (no long lunch break, small talk with colleagues, reading social media on their computers)… but all in a ruthless, selfish, impressively successful quest to outsmart the market and make more money.

Overall it was a great time and helped me narrow down my plans for what to do with my time and brainpower post-tenure. If you’re interested there are more conferences ahead.

Patrick Henry Blog

I wrote about Patrick Henry for OLL this week.

Can [the President] not at the head of his army beat down every opposition? Away with your President, we shall have a King: The army will salute him Monarch; your militia will leave you and assist in making him King, and fight against you: And what have you to oppose this force? What will then become of you and your rights? Will not absolute despotism ensue?” It is noted in the manuscript that the stenographer could not keep up with the torrent of terrible possible consequences that Henry was shouting about concerning a chief executive.

Most of his apocalyptic scenarios have not happened … yet. What inspired me in his speech was his energy more than his arguments. As much as he praised the American spirit of the past that ousted British rule, he was not complacent. He models a kind of patriotism that embraces an American project without holding to any fantasies about the morality of particular American leaders or soundness of American institutions. He would not have been disillusioned by the scandals and crimes of the American political class. He anticipated it. 

Read the rest at The Reading Room.

Putin as the New Hitler: The Russian Political Philosophy Which Justifies Unlimited Atrocities (To Save the World)

When the Nazis in the mid-twentieth century carried out schemes to kill millions of people (soldiers and civilians), they did not say, “Yes, we are evil, but we have the most guns.” Rather, they espoused a political philosophy to justify their actions. According to this Wikipedia entry, the Nazis held that they were simply carrying out normal, healthy, natural selection (the strong eliminating the weak) by having the “superior” race kill and displace the inferior races of humans. Germans therefore felt justified in occupying lands in Eastern Europe, Russia, and Ukraine, to provide “living space” and agricultural production for the master race.

It seems that a somewhat similar political philosophy has taken hold among Russian elites. This became evident early on in Russia’s 2022 invasion of Ukraine, when the Russians bombed a children’s shelter and a maternity hospital. Since then, there have been innumerable bombings of apartment buildings, shopping malls, etc., as deliberate murderous attacks on civilians, rather than having any direct military benefit. The Russians are killing  Ukrainians with the sort of callous abandon displayed by the Nazis towards “undesirables”. The initial Russian complaints about Ukraine joining NATO have disappeared; it is clear that Russia wants to simply erase Ukraine as an entity. It seems that this has been Russia’s plan under Putin for many years. Reportedly, Russian textbooks since around 2014 have deleted discussion of Ukraine as a separate nation.

Where did this toxic outlook come from? According to many observers, a chief architect for this view is political philosopher Aleksandr Dugin. German professor Antony Mueller has summarized some of Dugin’s positions:

Russians are “eschatologically chosen.” They must stand against the false faith, the pseudoreligion of Western liberalism and the spread of its evil: modernity, scientism, postmodernity, and the new world order. This is the thesis of Aleksandr Dugin, the prominent Russian philosopher, and a mentor of the Russian president Vladimir Putin…His theory is a “crusade” against postmodernity, the postindustrial society, liberal thought, and globalization… For Dugin, America is a threat to the Russian culture and to Russia’s identity. He makes his position unmistakably clear when he declares:

“I strongly believe that Modernity is absolutely wrong and the Sacred Tradition is absolutely right. USA is the manifestation of all I hate—Modernity, westernization, unipolarity, racism, imperialism, technocracy, individualism, capitalism.”

Dugin apparently believes that the world, or at least Eurasia, can only be saved from the ravages of “modernity” and American influence by uniting under Russian leadership  and returning to the Sacred Tradition of “religion, hierarchy, and family.”

An independent Ukraine stands in the way of this grand vision. From the Guardian:

Dugin’s worldview is most clearly articulated in his 1997 publication “The Foundations of Geopolitics”, which reportedly became a textbook in the Russian general staff academy and solidified his transition from a dissident to a prominent pillar of the conservative establishment.

In the book, Dugin laid out his vision to divide the world, calling for Russia to rebuild its influence through annexations and alliances while proclaiming his opposition to Ukraine as a sovereign state.

“Ukraine as a state has no geopolitical meaning, no particular cultural import or universal significance, no geographic uniqueness, no ethnic exclusiveness,” he wrote.

… Twenty-five years later, Russia’s president repeated some of Dugin’s views on Ukraine in his 4,000-word essay “On the Historical Unity of Russians and Ukrainians”, which many saw as a blueprint for the invasion he launched just six months after it was published.

And as far as Ukrainians resisting Russia’s neo-imperial ambitions, Dugin said, “I think we should kill, kill, kill [Ukrainians], there can’t be any other talk.”

There you have it. The exact influence of Dugin on Putin is debated, but there is no doubt that Dugin’s views are influential in the circles of Russian decision makers. Many Westerners thought early on that Putin would be satisfied with conquering the Russian-speaking Donbas region in the east, and a narrow land bridge to connect that with the Russian-occupied Crimea. His attempts, foiled by heroic Ukrainian resistance, to take Kiev and to take Odessa in the southwest showed that he wants the whole enchilada.

This could be a long war.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Addendum: Dugin’s daughter was killed by a car bomb near Moscow on August 20, 2022. Reportedly the bomb was aimed at Dugin himself, since he was expected to be in the car with his daughter. Moscow accused Ukraine of the assassination, which Kiev plausibly denies. There is also reasonable speculation that a Russian government agency (presumably with Putin’s tacit approval) was aiming to bump off Dugin, for some Byzantine reason.

CFTC Orders PredictIt Shut Down- Can Political Betting Survive?

Political betting has long been in a legal grey area. It seems that the Commodities Futures Trading Commission wants to make everything black and white, but at least for now it has simply made everything murkier.

PredictIt is the largest political betting site in the US; if you want to know who is likely to win an upcoming election, its the best place to find a quick answer. Prediction markets have two great virtues- they are usually right about what’s going to happen, and if they aren’t you can bet, making money and improving their accuracy at the same time.

PredictIt has operated since 2014 under a “no-action letter” from the CFTC. Effectively, the regulators told them “we’re not saying what you’re doing is definitely legal, but we know about it and have no plans to shut you down as long as you stick to the limits described in this letter”. But last week the CFTC withdrew their letter and ordered PredictIt to shut down by February 2023.

My first question was, why? Why shut them down now after 8 years when all their operations seem to be working as usual? The CFTC said only that “DMO has determined that Victoria University has not operated its market in compliance with the terms of the letter and as a result has withdrawn it”, but did not specify which of the terms PredictIt violated, leaving us to speculate. Did the scale simply get too big? Did they advertise too heavily? Did Victoria University, the official operator, let too much be handled by a for-profit subcontractor? Did some of their markets stray too far from the “binary option contracts concerning political election outcomes and economic indicators” they were authorized for?

PredictIt hasn’t been much clearer about what happened, simply putting a notice on their site. Their CEO did an interview on the Star Spangled Gamblers podcast where he said there was no one thing that triggered the CFTC but did mention “scope” as a concern- which I interpret to mean that they offered some types of markets the CFTC didn’t like, perhaps markets like “how many times will Donald Trump tweet this month”.

The other big question here is about PredictIt’s competitors. In 2021 it seemed like we were entering a golden age of real-money prediction markets, with crypto-based PolyMarket and economics-focused Kalshi joining PredictIt. I looked forward to seeing this competition play out in the marketplace, but it now seems like we’re headed toward a Kalshi-only monopoly where they win not by offering the product users like best, but by having the best relationship with regulators. Polymarket had offered markets without even a no-action letter, based on the crypto ethos of “better to ask forgiveness than permission”; this January the CFTC hit them with a $1.5 million fine and ordered them to stop serving US customers.

If the CFTC doesn’t reverse their decision to shut down PredictIt, then February 2023 will see a Kalshi monopoly. This has led to speculation that Kalshi is behind the attack on PredictIt; their cofounder issued this not-quite-a-denial. But it certainly looks bad for the CFTC that they are effectively giving a monopoly to the company that hires the most ex-CFTC members.

For now you can still bet on PredictIt or Kalshi (or even Polymarket if you’re outside the US). If you’d like to petition the CFTC about PredictIt you can do so here. It might actually work; while the CFTC’s recent actions certainly look cronyistic, they’ve been reasonable compared to other regulators. They’re giving PredictIt no fines and several months to wind down, and even Polymarket gets to keep serving non-US customers from US soil. I’d likely make different decisions if I were at CFTC but the ideal solution here is a change in the law itself, as we’ve seen recently in sports betting. Prediction markets are impressive generators and aggregators of information, and politics and policy are at least as valuable an application as sports. To go meta, suppose we want to know- will PredictIt survive past February? There’s a prediction market for that, and its currently saying they’ve got a 20% chance.

The “Textbook Definition” of a Recession

Three weeks I wrote a blog post about how economists define a recession. I pretty quickly brushed aside the “two consecutive quarters of declining GDP,” since this is not the definition that NBER uses. But since that post (and thanks to a similar blog post from the White House the day after mine), there has been an ongoing debate among economists on social media about how we define recessions. And some economists and others in the media have insisted that the “two quarters” rule is a useful rule of thumb that is often used in textbooks.

It is absolutely true that you can find this “two quarters” rule mentioned in some economics textbooks. Occasionally, it is even part of the definition of a recession. But to try and move this debate forward, I collected as many examples as I could find from recent introductory economics textbooks. I tried to stick with the most recent editions to see what current thinking on the topic is among textbook authors, though I will also say a little bit about a few older editions after showing the results of my search.

Undoubtedly, I have missed a few principles textbooks (there are a lot of them!) so if you have a recent edition that I didn’t include, please share it and I’ll update the post accordingly. I also tried to stick with textbooks published in the last decade, though I made an exception for Samuelson and Nordhaus (2010) since Samuelson is so important to the history of principles textbooks (and his definition has changed, which I’ll discuss below).

But here’s my data on the 17 recent principles textbooks that I’ve found so far (send me more if you have them!). Thanks to Ninos Malek for gathering many of these textbooks and to my Twitter followers for some pointers too.

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Recession or not, the biggest GDP political football is 3 months away

US GDP fell for the second straight quarter according to statistics released this week by the Bureau of Economic Analysis. This means that by one common definition we’re now in a recession, which has ignited a debate about whether “two consecutive quarters of negative GDP growth” is the best definition (as opposed to ‘when the NBER says there’s one’, like I generally teach and Jeremy argued for here, or something else).

Naturally this debate has political overtones, since the party in power would be blamed for a recession, so we’ve seen the White House CEA argue that we’re not in a recession, many on the other side argue that we are, and plentiful hypocrisy from people who should know better.

But in political terms, the fight over the binary “are we in a recession” call won’t be the big economic factor in November’s elections- that will be inflation and GDP, especially 3rd quarter GDP. One of the oldest and best predictors of US elections is the Fair Model, which uses inflation and the number of recent “strong growth quarters”. Fair’s update following the recent Q2 GDP announcement states:

the predicted vote share for the Democrats is 46.70, which compares to 48.99 in October. The smaller predicted vote share for the Democrats is due to two fewer strong growth quarters and slightly higher inflation

By Election Day we’ll have 3 more months of economic data making it clear whether inflation is getting under control and whether economic activity is picking back up or continuing to decline. Monthly data releases on inflation and unemployment will be closely watched, but the most discussed release will likely be third quarter GDP. It will summarize 3 months instead of just one, it will be of huge relevance to the debate over how severe the recession is or whether we’re even in one, and it will likely be released less than two weeks before election day. The NBER almost certainly won’t weigh in by then; they tend to take over a year to date recessions, not adjudicate debates in real time.

So when BEA does release their Q3 GDP estimate in late October, what will it say? Markets currently estimate at least a 75% chance it will be positive (they had estimated a 36% chance of positive Q2 GDP just before the latest announcement). That sounds high to me, the yield curve is still inverted and I bet investment will continue to drag, but forecasting exact GDP numbers is hard. Its a much easier bet that whatever the number turns out to be will loom large in political debates just before the elections. Perhaps we’ll get the Q3 GDP growth number that would make for the most chaotic debate: 0.0%.

Birmingham AL hosts The World Games

Have you heard of The World Games? It’s the Olympics for sports that are too random to be in the real Olympics. It is happening right now in Birmingham, AL. It’s not too late to get your tickets to see Canoe Polo.

For people interested in regional politics, this blog about the city successfully hosting a major event might be interesting. His references to people in “the suburbs” is something you won’t understand without some context and history. But you don’t have to be a local to learn that history, since everything is online.

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Inflation for Thee, But Temporarily Not for FL

On May 6, 2022, the governor of Florida, Ron DeSantis, signed House Bill 7071. The bill was touted as a tax-relief package for Floridians in order to ease the pains caused by inflation. In total, the bill includes $1.2 billion in forgone tax revenues by temporarily suspending sales taxes that are levied on a variety of items that pull at one’s heartstrings. Below is the list of affected products.

A minor political point that I want to make first is that the children’s items are getting a lot of press, but they are only about 18.4% of the tax expenditures. The tax break on hurricane windows and doors received 37% of the funds and gasoline is receiving another 16.7%. There are ~$150 million in additional sales, corporate, and ad valorem tax exemptions. Looking at the table, it seems that producers of hurricane windows and doors might be the biggest beneficiary and that that the children’s items are there to make the bill politically palatable. Regardless, this is probably not the best use of $1.2 billion.


There are at least three economic points worth making.

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How Zoning Affects Your Home, Your City, and Your Life (a book review)

As you drive, walk, or bike around your city, what do you think about as you see the various buildings and other structures? Perhaps you think about the lives of the people in them, or the architecture of the buildings themselves, or the products and services that the businesses offer for sale. For me, lately I’ve been thinking about one thing as I make my way around town: zoning. It’s not something I had thought about before very much, but after reading Nolan Gray’s new book Arbitrary Lines: How Zoning Broke the American City and How to Fix It, I’ve been thinking about zoning a lot more.

(Disclosure: I know the author of the book, but I paid for my own copy and got it in advance through the luck of the Amazon-pre-order draw.)

The book does a wonderful job of explaining what zoning is (and importantly, also what it is not), where zoning comes from historically (it’s a development of the early 20th century), and how zoning affects our cities. I really like the way that the book encourages the reader to be a part of the story of zoning. In Chapter 2, Gray encourages you to put down the book and locate your city’s zoning map to learn more about how zoning impacts your life.

I immediately did so and had no trouble finding zoning maps for the city I live in, Conway, Arkansas. Conveniently, my city provides both a simple PDF map and an interactive map, which provides a lot more detail. The interactive map even has embedded links with historical information on different pieces of property. For example, I found the ordinance for when my college, the University of Central Arkansas (previously Arkansas State Teachers College), was annexed by the City in 1958. Pretty cool!

Looking over the map, it’s pretty clear that most of the city that I live in is covered by R-1 and R-2 zoning. But what exactly do these designations mean? You can probably guess that “R” designates residential, but what does it proscribe about land use?

For that, you must dig into the zoning ordinances. And as Gray cautions in the book (somewhat tongue-in-cheek), you might not want to get in too deep with your zoning ordinances, since they can run hundreds or thousands of pages. But I was brave enough to do so, and located my zoning code online (the PDF runs a modest 253 pages).

What did I learn about the zoning that covers my city?

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