Re: replenishment

[Paul Davidson <pdavidson@xxxxxxx>]

At 04:20 PM 4/30/02 -0400, you wrote:
> Paul,
>      Just because a resource is finite does not
> tell us what the near term price movements for it
> will be.  The Hotelling model makes a forecast of
> such prices rising at the real rate of interest.  But
> his model assumes a) perfect information, b)
> perfect competition, and c) constant technology.
> None of these three assumptions holds.


Of course the Hotelling model was the basis of Nordhaus's
predictions.

Also there is no ex ante real interest rate in a monetary entrepreneurial
economy as developed by Keynes and by my monetary theory analysis. 
That quashes Hotelling-- even if there was pure competition and no change
in technology. 

>      I would
> observe, as I did in a paper you once
> published in the JPKE by me back in 1981, that
> over time there is an oscillation in the industrial
> organization of the world petroleum industry between
> more competitive and more monopolistic, with
> neither form being able to maintain itself over time.
> This oscillation tells us more about the shorter term
> fluctuations of the price of oil than anything else.
> In 1973 we had a major outbreak of increased monopoly
> power that pushed the price up.  It fluctuated at a high
> level after that until 1986 when the Sa'udis got tired
> of the cheating on OPEC by the warring Iran and Iraq
> and crashed the price by increasing output. 

Yes but what gave OPEC the strength it had in 1973 to create an oil
pricespike? OPEC had been organized more than a decade earlier and had
several times tried to raise the price above the prevailing $2 per barrel
for Saudi  sweet crude before 1973 -- and always failed. Why did it
succeed this time and again in 1979? Give up? [ I was interviewed on
McNeil-Lehrer TV program on PBS -- in a debate with an oil industry
executive on this subject at the time.

Paul 

Paul

> gher prices,
> although these have not been sustained.
> Barkley Rosser
> ----- Original Message -----
> From: "Paul Davidson" <pdavidson@xxxxxxx>
> To: "J. Barkley Rosser, Jr." <rosserjb@xxxxxxx>
> Cc: <pkt@xxxxxxxxxxxxxxxx>
> Sent: Tuesday, April 30, 2002 3:56 PM
> Subject: Re: replenishment
>
>
> > At 01:27 PM 4/30/02 -0400, you wrote:
> > >      That there may be deeper pools of
> oil does not
> > >disprove the dinosaur or other biological origin theories
> > >and certainly does not make oil a "renewable" or
> > >"non-finite" resource, although it may suggest
> that
> > >there is more of it than many believe.
> >
> >
> > In 1973 I presented a paper at Brookings (reprinted in Brookings
> Papers on
> > Economic Activity) -- coauthored by a graduate student of mine
> (Hoesung
> > Lee) and an Assistant Professor  colleague (Larry Falk) -- in
> which we
> > argued -- and prevented some econometrics evidence to show -- that
> there
> > was a lot more oil than most people suspected.  At the time,
> Bill Nordhaus
> > had written a paper that was widely quoted as the everlasting truth,
> that
> > the price of oil would reach $100 a barrel in real  terms by
> the year
> 2000.
> > While the implications of  our paper was that if there was ever
> a free
> > competitive market for crude oil, we would be drowning in the stuff
> at the
> > 1973 market price  - and the price in the year $2000 might be
> somewhere in
> > the neighborhood of $8-15   (in 1972 dollars) by the
> 1990's    --although
> > we  did not take into account of Congressionally mandated
> mileage saving
> > requirements for automobiles-- legislation passed after we had
> written
> > the  paper
> >
> >    Although both Nordhaus and we overestimated the
> actual real price of
> oil
> > by the end of the 20th century, guess who was closer to the correct
> real
> > price!  But who remembers that -- and therefore Nordhaus
> remains a
> > glimmering (if small) star in the Economics Establishment --and I
> was
> > relegated to the status of a "kook".
> >
> > Art Okun (of Brookings) had asked Robert Solow and Charlie Schultze
> to be
> > the discussants of my paper.  Solow was so incensed that I was
> making
> light
> > of the mainstream - Malthusian --idea that we were running out of
> oil --
> as
> > a non-renewable resource--that he told Okun he would not dignify
> the
> > Davidson paper by being  a discussant..
> >
> >   Schultze remained as a discussant -- but lambasted me
> for not knowing
> > anything about the basic concept  of scarcity, i.e., that the
> rise in the
> > market prices of oil was an inevitable result of scarcity (running
> out).
> >
> >   Of course, I was the only one of these guys who have
> ever met a payroll,
> > i.e., I had been the Assistant Director of the Economics Division of
> an
> oil
> > company and had been privy to many private petroleum engineering
> reports.
> >
> > Paul
> >
> >
> >
> > Paul Davidson
> > Editor, Journal of Post Keynesian Economics
> > Economics Department - 523 SMC
> > University of Tennessee
> > Knoxville, Tennessee 37996-0550
> > phone # (865) 974-4221
> > fax # (865) 974-1686
> > home phone  (865) 692-0802
> >
> http://econ.bus.utk.edu/Davidson.html
> >
> >
> >
> >
> >

Paul Davidson

Editor, JOURNAL OF POST KEYNESIAN ECONOMICS

Economics Department - University of Tennessee

523 SMC

Knoxville, Tennessee 37996-0550

work phone: (865) 974-4221

fax: (865) 974-4601/  (865) 974-1686

home phone and fax (865) 692-0802