Publications: Notes at the Margin

Gresham's Law and the New Economics of Petroleum (October 3, 2016)


Gresham"s law regarding currency holds that "bad money drives out good." In a sense, it also applies to analysis and reporting. That is, bad analysis and reporting drives out good analysis and reporting. Were reporters and analysts familiar with restrictive commodity agreements, they would understand that the so-called deal reached in Algiers has less chance to succeed than did the ceasefire pact for Aleppo, Syria. Were reporters and analysts familiar with cartel theory, they would understand that several countries must reduce production and that the cuts must be significant for three reasons. First, barrel counters at the International Energy Agency and the Energy Information Administration have finally realized that global consumption is increasing at a very slow rate. Second, four OPEC members—Iran, Iraq, Libya, and Nigeria—want to produce and sell more oil. Third, US producers, having learned to operate with low costs, are beginning to boost their output.


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