Friday, January 23, 2009

Commodities Rebound? Watch the Job Cuts

From the Wall St. Journal:

Resources Layoffs Bode Ill


Along with the government, one of the few sectors seemingly immune to layoffs has been the resources business. Indeed, a shortage of skilled workers, pushing up wages and lengthening development schedules, was cited as a key reason for soaring commodities prices.

So why the recent flurry of pink slips? Wednesday, BHP Billiton said it will cut 6% of its work force. Oil major ConocoPhillipsand oil-field-services giant Schlumberger also announced staff reductions this month.

With crude oil and industrial metals prices having collapsed, some trimming is to be expected, especially following the hiring spree of recent years. Moreover, as in BHP's case, many of the workers being let go are contractors, with lower associated hiring and firing costs.

Even if cutting some workers makes sense in a crunch, however, this is worrying, and not merely for the sector's employees. Until recently, investors in mining and energy were fed a diet of Malthusian predictions about peak oil, equipment shortages and a dearth of engineering graduates.

Instead, the cycle lives on. Consensus forecasts still point to a bounce back in the price of commodities such as oil and aluminum as early as this year. But if the pace of layoffs picks up, the unavoidable conclusion would be that the producers themselves don't share such optimism.

Wednesday, January 21, 2009

The Worse Inauguration Day Ever

For the stock market, that is. I think it was more related to the British banking crisis than to Obama's taking office. However, there was a 100-point drop as soon as Obama's speech ended, suggesting that traders were disappointed in what they heard. I'm not sure what they were expecting. It was your typical inauguration day speech. Presidents don't lay out policy details in such speeches. The only thing I can figure is that, like the good folks at The Automatic Earth, they found the speech not very inspiring. Perhaps they were hoping Obama would show more charisma - in order to get the voters behind the tough choices that loom in the near future.

I found the speech disappointing as well. It seemed like a speech Dubya could have made.

We will not apologize for our way of life, nor will we waver in its defense, and for those who seek to advance their aims by inducing terror and slaughtering innocents, we say to you now that our spirit is stronger and cannot be broken; you cannot outlast us, and we will defeat you.

If I didn't know that was Obama's speech, I'd have guessed it was the Shrub's.

Perhaps I was just expecting too much. Expectations were insane for this speech. People were saying it would be not only Obama's best speech ever, it would be the best presidential speech in history. The reality was a reasonably competent inaugural speech, but nothing to write home about.

A lot of my friends are extremely excited over the new Obama presidency. I'm not. It's better than four more years of Bush...but not much. I just don't see much difference between the Democrats and the Republicans. Geithner for Treasury. Salazar for Interior. Jason Furman for economic policy director. Ugh.

I think the honeymoon is going to be short-lived. The financial crisis is heating up again. If there isn't real change, instead of just talk about it, Obama will end up being even more despised than Bush. Mark it down: in four years, many of the people who are euphoric today about Obama's election will be calling for his head and denying they ever voted for him.

Saturday, January 10, 2009

Western prosperity is based on resources that are running out

This letter is from the January 8, 2009 issue of Nature:

SIR — In response to the lack of a flagship achievement by economics, as noted by Jean-Philippe Bouchaud in his Essay ‘Economics needs a scientific revolution’ (Nature 455, 1181; 2008), Jesper Stage proposes in Correspondence that the prosperity of western societies is one such achievement (‘Speaking up for economic sciences modelling’ Nature 456, 570; 2008). However, this prosperity is mainly based on the use of non-renewable resources and therefore is probably spurious.

Several hundred million years were needed to form the fossil energy that will be exhausted during a few hundred years. This is roughly equivalent to spending all one’s annual income during the first 30 seconds of a year. In particular, the frenzy to automate processes in order to increase competitiveness leads to rapid exhaustion of available resources, for example through over-fishing or degradation of soils.

All current growth-based economic models imply massive use of non-renewable resources and environmental degradation. These models are not sustainable, even in the short term. As early as 160 years ago, John Stuart Mill affirmed that “the richest and most prosperous countries would very soon attain the stationary state” (Principles of Political Economy Longmans, 1848). In contrast to that time, when resources were being used up at a rate that was several orders of magnitude slower than today, a phase of economic degrowth is necessary before a stationary state can be reached. It would be a major achievement of economics to achieve such a degrowth without social and political disasters.

Hervé Philippe
Département de Biochimie
Université de Montréal
Montréal, Québec, Canada

"Degrowth," eh? Interesting term. I think I like it.