Remarkable stability in the oil market

The price has been remarkably stable/consistent since 2010. Never going much above $105 and never dropping below $85 during this time.

This, I believe is the result of a very large supply of expensive oil coming onto the market starting in earnest in 2009. Shale oil has a marginal cost of 80/barrel or so. The talk of a "technological revolution" is hype. 

It's real interesting that virtually nobody in the media talks about the stability of oil prices which could be construed as a good thing (isn't stability usually good?). But my guess is that stability at a price in the mid/upper 90's weakens the case of a "technological revolution" so it's ignored. Stability and revolution just do not go together. A technological revolution should send oil prices dropping like a stone (like computer chip prices did). Stability indicates that we have not have had one. We have had an economic revolution where due to economic factors (supply and demand) we now need to exploit much more expensive oil. It just so happens that there is a LOT of expensive oil out there hence the stability in price.

I think we may be on the verge of an era of green energy. Cost in a MPG sense for electric cars is 2/gallon right now and I do not see that going much higher. To many sources of elect are out there and wind and solar will never become more expensive. They will become less and less expensive but at a slow rate. We have a boom in nat gas. More cheap elect. Global warming may cause people to re-evaluate Nuclear.

Possible story in Popular Mechanics 5 years from now:

"10 Tips on keeping your Hybrid running on electricity for as long as possible "

Reason for this headline: oil will still be expensive but electricity may be even cheaper than it is today and the range problems of elect cars will not yet be solved.

Letter to Jeff Madrick regarding "Education Is Not the Answer"

See:
http://harpers.org/archive/2013/06/education-is-not-the-answer/

My letter to Mr. Madrick:

Mr. Madrick,

I thought "Education Is Not the Answer" was very good. I have been skeptical of the "Education IS the answer" arguments for a long time. 

My degree is in Finance and one of the basics of Finance is "net present value" which a way to determine present value of something given certain assumptions, payments etc. NPV analysis is used all over the place in business and finance but -tellingly- has not been used in any of the 'important' studies which purport to show the importance of college education WRT earnings/wealth.

A NPV analysis typically works by asking what is the current value of a stream of future income. Typically what is being valued is a loan or a business (how much should we pay to buy a business that is making a profit of X). The core concept is that you pay something now to get something later and given your assumptions on interest rates, future profits and so forth, how much should you pay.  This is a core concept of Finance and obviously could be used to estimate the value of a college education. But it isn't. The analyses I have seen on the value of education simply calculates the increased earnings that college graduates attain over their career and do not consider the up front cost at all! But there is (of course) a substantial up-front cost to college: not just the payments and loans and interest on those loans but 4 years making very little or no money vs. 4 years of employment. During those 4 years of employment a person can make contributions to a 401K, has withholding for Social Security and has 4 years seniority at the end where a college grad is starting for 0 with no 401k, and 0 into Social Security. This is significant. On a purely financial basis one needs to make a lot more money later to make up for all of that.

But no analysis that I have seen on the value of a college education gets into NPV - they simply calculate the increased earnings of college grads and say oh how great that is - without rigorously considering the costs. The costs are important! The lack of subjecting the costs to a a rigorous NPV analysis caused me to be skeptical of studies purporting to show the benefits of college (in a financial sense) a long time ago. 

But it gets worse. The "value" of college seems to be to broad a concept. It's like asking what is the value of living in New York City. The average income in New York is very high of course. But there is a big difference between Manhattan and the Bronx, and there is a big difference between being transferred to New York by an employer and moving there "on spec" so to speak. If someone asks "is it worth moving to New York?", you would need a lot more information before you could answer intelligently. A college education is likewise a very broad concept. There is a big difference between majoring in English vs. Electrical Engineering. 

But it gets even worse. How does an English major fare if he gets an entry level job and never gets any further education vs. an English major who goes into sales, gets and MBA had has a laser like focus on getting a corner office job someday. This latter English major's income stream will likely be far higher than the former. 

What is more important: level of education/skill or job title in determining who makes a lot of money. Where is the stronger correlation: level of education/skill to income (and income gains) or job title X (such as CEO) to income and income gains. I suspect the stronger correlation is to job title. 

I suspect that an there is a strong correlation between level of authority/management and income gains over the last 30 years. IE if you are in upper management of a sizable company then it's pretty likely that your income rose more than most people. I also suspect there is a strong correlation between money management and income gains over the last 30 years  IE if you in the management team of a hedge fund then then it's pretty likely that your income rose more than most people. Finally I suspect that professional athletes and major entertainers have made strong gains over the last 30 years. I also suspect that if you are involved in making something your income dropped. Think assembly line workers, and industrial engineers.

And how about this: what happened to your income over the last 30 years if you were in a job that used to be unionized but no longer is. Think assembly line worker. I'm guessing that if you are in this category your income over the last 30 years took a hit.

I use the word "suspect" and "guess" above because it's a) what I see all around me but b) you don't see a lot of rigorous analysis/reporting on it. You see a lot of reporting on the so called "1%" but you don't see a lot of reporting/analysis on who they are. When that subject comes up the platitudes fly regarding education and skills. 

The article "Education Is Not the Answer" seems to imply that a big cause of income polarization over the last 30 years has been the decline of unions which decreased the the bargaining power of workers and strengthened the hand of management. Perhaps there has been a substantial transfer of wealth away from (industrial and other) workers and to management (especially upper management). But this is certainly not the story we hear in our media day after day. We hear a bright sunny story about skill and education. It is important to know which one is more accurate.

And as to the value of a college education for the average person: how about a NPV analysis.