Freudian Economics

4/1/09 – April Fools Day

Oh, to be glib enough to intentionally coin a phrase. I bring this up because much current economic thinking, or, perhaps, economic policy without thinking, seems to have a Freudian twist to it. It is only appropriate to address this issue on this day.

There are way too many examples of these slips of the tongue to be able to do justice to such a topic here. Maybe this discussion will inspire some scholarly research and a thesis topic. (Note: The Reader’s Digest is an excellent source.) If so, please copy me on the final product. Nevertheless, I will start the ball rolling with some examples that have left an impression on me and have contributed to my explanation of various aspects of energy economics and energy policy.

The unexpected value
A well recognized author and expert in risk analysis, who would wish to remain anonymous, in lecturing about the mean or the expected value of a probability distribution made this slip.

Upon further review, as we like to say in NFL replays, this term is much more descriptive of the information contained in seeing the whole distribution, in that it forces the observer to recognize the extremes and not focus on the “expected”. Such a narrow focus is the middle scenario trap discussed in my report.

The Kyoto Gratification Process
This term came up at an economics conference when a speaker, in his enthusiasm for the topic, while meaning to say ratification slipped with the word gratification.

Indeed, gratification may be more appropriate as it describes the emotional exuberance of any promoter of an issue. Here the environmental preacher generally simply waves his hand over the economic costs of “Green Energy” and dismisses the fact that the environment does not recognize political borders.

While Kyoto is almost ancient history, knee jerk reactions to climatic concerns can lead to policy that does not consider all consequences, intended or otherwise. The economic cost to society following such a path of gratification is priceless to some but incalculable to most.

Such emotional approaches are not at all unique to the environmental movement and I do not mean to single out this group. Tunnel vision for any cause is just self-gratification, but does not sell the cause to the masses. Now I had better take my own advice here as I continue on my quest for ways to develop an informed, energy literate consumer base.

AESOPs Fables
This is one phrase that I can claim credit for and one I intentionally coined. This is my concept of an “Arctic Energy Strategic Operating Plan” discussed in Step 9.8 of my report. Here I suggested that a gas pipeline running east from Prudhoe Bay to the Mackenzie Delta then south to the natural gas hub in Canada coupled with a liquids pipeline going west from the delta to pump station #1 on at Prudhoe would be the most cost effective transportation corridor possible. Of course such a plan was just a fairy tale because it was too logical to happen.

Today, with breakthroughs in tight shale technology to recover natural gas, the L-48 market is flooded with gas. Not only does this make any arctic pipeline uneconomic for decades to come but also kills any idea of expanding LNG imports to the US. AESOP really is a fairy tale. It is time to wake up from that dream and find a different use for the arctic natural gas resource, because it certainly isn’t an economic reserve.

(Note: Without Arctic gas, ANWR may now be not only politically incorrect, but economically unfeasible.)

Current Points to Ponder

Trap Money
I’m sure this term has been already used, but I discovered that I misspelled TARP money in my notes for a talk I recently gave with the term “trap money”. Again upon further review it appears that many recipients of the TARP feel trapped.

Soon after that presentation I was working with some staff in Washington, again, who want to remain anonymous, discussing an energy education project that I am working on, when that individual kept asking me how much money I wanted. Needless to say our project is totally focused (yes, a type of scenario trap) on promoting private sector action. Therefore, unless forced by law, we will avoid trap money.

A crisis of epic ethic proportions – Article in the WSJ by John Bogle
This is truly a great way to describe the current financial crisis. Mr. Bogle emphasizes the need to create a “fiduciary” society as an underlying cultural requirement in correcting the excesses that led to this crisis.

I couldn’t agree more, especially, if this leads to this sort of ingrained culture in that segment of society know as government. Here, consequences such a jail time for not performing due diligence and fulfilling their fiduciary responsibility to the electorate would be a great step toward responsible government. What a wonderful point to ponder. Of course, it is just as much a fairy tale as Aesop noted above.

A new world (of) disorder – Article in the WSJ by William Cohen
Again this is a real scary point to ponder, if Mr. Cohen is right. With no observable leadership or coordination internationally with the G-20 or in the US, how will some semblance of order return?

Bias Differential
While the real term is basis differentials, here in the Rockies we see a bias differential where the producer is in a never ending cycle of drilling like mad when he sees a window in pipeline capacity (low basis differentials) which in turn fills up that capacity expanding the negative basis differential. This situation encourages expansion of capacity starting the cycle all over again. The producer seems to have a bias pleading, “I just want to drill and hopefully make some money.” (See Points to Ponder Bias Differential 09/05/15 for an expanded discussion.)

Click here for more information about Confessions of an Energy Price Forecaster: A 12 Step Program to Enlightenment

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