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| Sun Apr 20 21:49:45 2008 Best Books - Economics and Finance |
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| Thu Apr 17 20:00:52 2008 Edward Lorenz, 1917 - 2008 |
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| Tue Apr 15 22:13:14 2008 Peak Oil |
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| Sun Apr 20 21:49:45 2008 Best Books - Economics and Finance I list my favorite books on economics and finance. |
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| What are my current favorite books on economics and finance? To make the list, a book had to meet these criteria: Be interesting to read. This is hard for this subject! I just wanted books that had an engaging style and narrative thread. Give a solid big picture. Many books in this area are just one recent author's attempt to sell the public on their latest "winning" strategy. (Isn't it funny how for most of these authors the best way to make money is often just to sell books about making money?) I wanted books that would give a coherent overview of how markets worked, so an intelligent reader could figure out strategies on their own. Be reasonably objective. I wanted books where the author realized that although they were experts, they didn't know everything. Usually good authors compensate by presenting different viewpoints, and clearly separating personal feelings and anecodtes from facts. So, flipping through my small library, here are my top picks (no particular order): Personal Finance: Easy, this has to be A Random Walk Down Wall Street by Burton Malkiel. Debunks a lot of the investment myths you hear about. His simple (and very practical) advice on dollar-cost-averaging has gotten me through two boom-bust cycles. Economics: A favorite is The Worldly Philosophers by Robert Heilbroner. It is a combination of a History of Economics and a primer all in one. Macroeconomics: I'd pick The World Economy Since the Wars by John Kenneth Galbraith. Maybe an odd choice, since I don't see many other references to it! But I trust very few textbooks on macroeconomics since I don't believe anyone really knows how it works. What I like about Galbraith's book is that it is just him rambling about his experiences and observations during the 20th century. He was not just an observer: he was a participant, and held key posts in the US Government throughout World War II and after. Great book. And speaking of Galbraith, that reminds me of Busts: One of the most important things you can do, either as an individual investor or the leader of a country or company, is to recognize (and if possible ameliorate) boom/bust cycles. Unfortunately, most of those in charge don't seem to be able to recognize busts until after they've happened. If those in charge can't prevent them, at least a savvy investor can take precautions to limit their exposure. And I know of no better way to recognize these cycles than to study previous ones. The Great Crash, again by Galbraith, is probably the best such book. It meets all of the criteria, especially readability. Although Galbraith was better known for other books such as The Affluent Society and The New Industrial State, I would not be surprised if The Great Crash became his biggest legacy, if only because it remains timeless, whereas some of his other works were hugely relevant in the 1950s but are less so now. The other boom/bust book to read is of course Extraordinary Popular Delusions and the Madness of Crowds by Charles Mackay, first published in 1841. Not all of it is excellent, but the chapters on The Mississippi Scheme, The South-Sea Bubble, and Tulipomania are stunning. Even in 1841, he was writing about historical events, but those chapters could be from the from the headlines of today. Later chapters on Alchemy, Fortune Tellers, Magnetisers, and so on, just add to the point. The bottom line: the clever have taken advantage of the foolish for all of recorded history. Hopefully you can avoid being foolish by reading these, and hopefully you have the integrity not to take advantage of those who have not read them. Comments |
Related: economics lists books Unrelated: energy environment geopolitics mathematics predictions science |
| Thu Apr 17 20:00:52 2008 Edward Lorenz, 1917 - 2008 Founder of Chaos Theory. |
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| Edward Lorenz died yesterday. You can also see his bio on wikipedia. That entry notes he "brought about one of the most dramatic changes in mankind's view of nature since Sir Isaac Newton." That's an amazing comparison! But it may be a fair one. Chaos theory shook up how people (and mathematicians) modeled and thought about systems. Uncertainty and unpredictability were put at center stage, and to some extent explained. I had heard of Lorenz's work mostly through the great book Chaos, which is well worth a look if you haven't already read it. One of the things I found fascinating was that Lorenz did all of this great mathematical work while constructing models of the weather. Later, as mathematicians were exploring chaos theory, they were shocked to discover Lorenz's seminal papers in journals like "American Meteorologist Monthly." As part of modeling the weather, he noticed (by accident) that he'd get wildly different weather patterns if the starting conditions for his simulation were even slightly different. This was later coined as the butterfly effect, which has to be one of the most over-used (and poorly understood) scientific metaphors in popular culture. As a grad student working on my own simulations of semiconductor systems (which were also chaotic!) I definitely ran into this effect. Chaos theory has been helpful to describe multiple systems I've worked in, from semiconductors to distributed systems to markets. Comments |
Related: mathematics Unrelated: books economics energy environment geopolitics lists predictions science |
| Tue Apr 15 22:13:14 2008 Peak Oil So when will the oil run out? |
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| In earlier posts (Apr 1 and Mar 26) I mentioned that oil prices would go up because demand would increase while supplies ran out. Reading some of the links, I started asking myself: "When will the oil really run out?" And then today, it was announced that Russian oil production declined in the first quarter of 2008. Maybe it's a trend? Some people think that the drop in Russian production is a short-term decline, but other articles claimed that the drop could be because the oil is running out. One Russian oil executive has claimed that "the period of intense oil production is over" and last year's Russian production was the most he would see "in his lifetime." Dire stuff! Could that happen across the world? For instance, will we see gas rationing in our lifetimes? Figuring out when the oil disappears depends on three things:
Worldwide Oil Consumption How much oil does the world use? It turns out there are decent statistics on that. For instance, there are many statistics about US oil consumption from the US Department of Energy. There are a lot of breakdowns of how much oil and petroleum products we produce and consume. We consume a lot more than we produce--no surprise. Of course, the oil market is global, so the US picture isn't enough. There is good information about world oil consumption from the CIA World Factbook. The summary? In 2005, the world consumed close to 30 billion barrels of oil. The US led the list with 7.5 billion barrels--that's over 20 million barrels a day. Determining the increase in consumption is difficult. The US has actually started flattening out. I think a few years of high oil prices are starting to affect consumer behavior. During the oil crisis of the 1970's, US oil consumption dropped by around 20%. So clearly we are able to cut consumption when needed! However, the rest of the world is consuming more. China's rate of increase is over 7% per year, and India's use is also growing at over 5% per year, according to The IAGS. So determining yearly growth is tricky. Based on historical data, I picked a yearly growth of around 1.5%. But that is probably on the low side. Worldwide Oil Reserves Okay, the world consumed 30 billion barrels in 2005, and we consume about 1.5% more each year. How long will the oil last? It turns out reserves are hard to determine. There is a lot of discussion about reserves, with several people noting that many countries suspiciously jacked up their stated reserves without any clear explanation. (See another example here.) I'm using a value of 1 trillion barrels of proven reserves, since that seems to be generally agreed upon as a minimum and is also the figure given by the Department of Energy. There may be more oil in the world, but it is generally believed that there are 1 trillion barrels of cheap oil. Other oil will be much more expensive to extract. Given consumption (30 billion barrels per year in 2005 with a 1.5% growth rate) and reserves (1 trillion barrels) it is simple math to calculate how many years remain. The result? The result is that we run out of oil in 2032 (24 years from now). A 3% growth rate in consumption would move that date closer to 2028. Twenty years. That's not long. But that's also not realistic. That assumes that consumption keeps growing, and production matches it. We'd keep pumping more and more oil out of the ground until everyone's wells ran dry on the same day. Worldwide Oil Production In practice, production starts declining as oil fields get depleted. According to Hubberts, any given oil field tends to have a rapid ramp up of production, hits its peak, and then rapidly declines. So the problem isn't that we run out of oil. The problem is that within a short time of hitting peak production, global production starts declining, and the world cannot possibly produce enough oil to meet its needs. And production will keep declining at a fast rate. If you add up all the oil production curves from all of the world's oil fields, you get a total worldwide oil production curve. The result is on the left for all but OPEC and Russia. As you can see, most predictions indicate that the rest of the world has already peaked (the US peaked in 1971). What can possibly save us? Originally OPEC and Russia were believed to have large production remaining, but Russia could be near their peak. So that leaves only OPEC, and no one is sure about their reserves or production capabilities. It seems doubtful that they could compensate for the world's increased demand and everyone else's production decline at the same time. Over the next decade, production should drop dramatically as oil fields are depleted, and we don't have large new oil fields to develop. The impact is hard to judge. Certainly we are hosed in 2032. The question is: will we hit hard oil shortages much earlier? Peak Oil This worst-case scenario, that we are only a decade or so away from worldwide oil shortages, is called Peak Oil. There are many believers in peak oil (such as this guy and these guys). Much of it has the ring of Y2K doomsayers! But even industry insiders like this guy think that we are close to significant oil production declines. Certainly there are people who disagree, such as this guy. But overall I am inclined to err on the side of caution. Based on all these sources, I think production will decline, and/or will become more expensive. The combination of less production, more expensive production, and increasing demand, will drive oil prices up through the roof. When will this happen? We may have a short breather, since US consumption is flattening a bit, and India and China haven't yet caught up. But I'm sure we'll see prices of over $10 a gallon (in 2008 dollars) for regular gasoline within 10 years as production declines kick in. And it will just get worse from there. Another prediction: we'll see gasoline rationing within 15 years. Start planning now! Comments |
Related: environment energy predictions Unrelated: books economics geopolitics lists mathematics science |
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