OIL
New Yorker

It was sometime last spring that the dreaded words 'oil shock' first began to appear regularly in commentary on the United States economy. As the price of oil rose past forty dollars a barrel, many economists and Wall Street analysts predicted that higher petroleum prices would slow the economy and perhaps even throw it into recession. They recalled the reverberations of previous oil shocks (in 1973, following the Arab oil embargo; in 1979 and 1980, after the Iranian revolution and the Iran-Iraq war; and in 1990, after Iraq’s invasion of Kuwait) and suggested that we’d soon be feeling them again. Since then, the price of oil has gone well above fifty dollars a barrel, and the oil-price anxiety is as acute as ever. Last week’s news that inflation had jumped in March had people talking about stagflation and Gerald Ford. Before we know it, it will be 1974 all over again.

Or not. It may be hard to be blasé when you’re paying $2.50 a gallon at the pump, or if you’re the chairman of a major airline, but there is surprisingly little evidence that high oil prices have anywhere close to the effect on our economy that we seem to believe they do. They matter, of course, but, of all the reasons to be concerned about America’s economic standing, oil, believe it or not, belongs pretty far down on the list.

Why such a lowly rank for the economy’s so-called lifeblood? Haven’t most postwar recessions been accompanied by rising oil prices? Indeed they have. But correlation is not causation, and all oil spikes are not created equal. The fact that the geopolitical oil crises of the seventies hurt the economy doesn’t say much about what high prices will do to us now, in the absence of a crisis.

When you look closely, it is hard to know what effect, exactly, oil prices have on the economy. For instance, higher oil prices are often assumed to be inflationary-that is, they raise prices. But Mark Hooker, a former economist at the Federal Reserve, has shown that since 1980 higher oil prices have had essentially no effect on over-all inflation. Higher oil prices are also said to create uncertainty, which causes consumers and businesses to hold off on major purchases and investments, thereby slowing down the economy. But there’s little evidence of this. Robert Barsky and Lutz Kilian, economists at the University of Michigan, have found that in the past three decades higher oil prices have had no consistent effect on whether or not consumers kept buying cars or expensive household items like washing machines. (The oil spike of 1979 led to less car buying. The oil spike of 1980 led to more. Or maybe it all had to do with Lee Iacocca.) Oil shocks have also had no predictable impact on corporations’ decisions about whether to invest in equipment or new plants.

Higher prices do function as a kind of tax increase that raises the cost of doing business (with the proceeds effectively going to foreign exporters). But the size of this tax is too small to create a meaningful slowdown on its own. And, while there’s some evidence that higher energy costs increase unemployment when oil-dependent industries lay people off, the number of jobs lost is too small to disrupt the economy as a whole.

More recently, steep rises in the price of oil have accompanied healthy economic growth-in 1999-2000 and in the past few years, for example. Declines in oil prices have not necessarily sparked economic booms, either. And recessions haven’t always been triggered by high oil prices. The downturns of 1973 and 1990 started even before the oil shocks occurred, which suggests that oil wasn’t solely to blame (though it undoubtedly made things worse). In the past thirty-five years, there has not been a single case in which high oil prices have thrown an otherwise propulsive economy into reverse.

The point is not that oil spikes are irrelevant but that they don’t have any kind of predictable or consistent impact. The past isn’t much of a guide; the American economy has changed dramatically since the seventies and is far less dependent on oil than it used to be. Roughly speaking, the United States uses about half as much energy per dollar of G.D.P. than it did thirty years ago, and even though American oil production has dwindled, oil imports as a percentage of the economy are still very small (about 1.5 per cent). This is both because of more efficient energy use-though let’s not start handing out any medals here-and because of a decline in manufacturing. As for consumers, energy costs still make up less than five per cent of the average household budget, while a barrel of oil costs about sixty per cent of what it did twenty-five years ago.

The Federal Reserve is another factor; it’s more sophisticated than it used to be in its management of interest rates and its understanding of oil prices. In the seventies, poor monetary policy helped turn an oil crisis into an economic crisis. There’s little chance of that happening today. Also, the current oil spike has been caused, for the most part, not by war or revolution but by a gradual increase in demand, primarily from China and the United States, whereas in the past every oil shock that accompanied a major slowdown was the product of political or military upheaval-a limit on supply.

Historical analogies are hard to resist, especially in a time of difficulty, because they help us identify patterns. That’s why Wall Street is rife with rules of thumb. Still, they can also confuse and obfuscate. Sometimes the people who insist that “things are different this time”-for example, during the dot-com boom of the late nineties-are deluding themselves. But sometimes things really are different. It can’t be 1974 forever.

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BASEBALL
McSweeney's

Essential Choices Regarding a Roster Composed Entirely of Fictional Characters Played by Kevin Costner

Starting Lineup
1. The Mariner, CF, Waterworld
Still unsure of how his amphibious speed-swimming will translate to sea-level land-running, we'll take the gamble anyway and stick him at the top of the lineup. If he's half as fast on land, he'll make Ichiro look like the current Baseball Tonight incarnation of John Kruk. Not that yesteryear's Kruk was any more nimble.

2. Jake, RF, Silverado
After the table-setting speed of the Mariner, the rest of the lineup is obviously lacking speed. Thus, this is where we'll stick Jake, because Jake is a fast-sounding name.

3. The Postman, LF, The Postman
Sure, he's a little overbearing and protective (and his "I bleed red, white, and blue" antics were a little much to take during last year's election), but he consistently produces mediocre numbers. The only knock on him is that he's slow. Nursing-home slow. And until we get the rule changed, horses still aren't allowed on the base paths.

4. Charley Waite, DH, Open Range
He doesn't move like he used to, but that's the whole reason the designated hitter spot was created. When he gets ahold of one, though, oh my, it's a sight to behold. Especially when he's angry. In fact, let's plant some false quotes in the papers about how Waite called all the other pitchers in the league "big pussies." Then when he gets the inevitable brush-back pitch, the anger will flow double-, nay, triplefold. And then Barry's record is in jeopardy.

5. Frank Farmer, SS, The Bodyguard
Not the greatest fielder or hitter around (batting this high in the lineup is evidence of the general offensive woes of the Costners), but if you're looking for someone who's loyal, true, and willing to take a bullet for you now and then, then that's good ol' Farmie. You'd think his confidence would be hurt with all the fans constantly singing "that song," as he refers to it. But nope, he just drowns it out. The white earpiece continuously playing erotic recordings probably helps.

6. Thomas J. Murphy, 3B, 3000 Miles to Graceland
He's not exactly trustworthy-but you need a man like that on your team. Especially at third base, where base runners, trying to get to home so quickly, sometimes lose their control and accidentally trip over the third baseman's feet. Whoopsy!

7. Crash Davis, C, Bull Durham
As if there's another choice.

8. Roy McAvoy, 1B, Tin Cup
Surprisingly, not so good at baseball. But damn, he's charming! We'll put him in the "clubhouse leader" category along with Jose Valentin and Julio Franco.

9. Frat Boy #1, 2B, Night Shift
His swing has quite a few gaps in it (as of today, his career batting average is .179), but his Gold Glove-caliber defense makes him an integral part of the squad. Plus, he's still young; you can always teach adequate batting, but it's tough to make a great fielder.

Starting Rotation
Billy Chapel, For Love of the Game
He's got only a few years left before age finally catches up to him, but like any first-ballot Hall of Famer, Chapel's got a few tricks left up his sleeve. Mostly his right one. That was the first lesson Chapel learned in magic camp while preparing for a career after baseball. Be cautioned: don't give him your $20 bills to rip up-he learns that next year.

Ray Kinsela, Field of Dreams
The big plus on Kinsela is his knowledge of the game's history. If you need someone to tell you who won the Cy Young in 1948, he's your man. The problem is that he insists on using memorabilia as equipment: the baggy jerseys, the old dirty hats, the tiny gloves. And, worst of all, Gaylord Perry's jockstrap, complete with aged spit stains. The stench in the locker room will become a complete nuisance in about 20 degrees.

"Butch" Haynes, A Perfect World
Is there any place else to stick a guy named "Butch" than the back end of the rotation? Besides the boxing ring? Or in prison?

Relievers

Denny Davies, The Upside of Anger
I'll be honest: I haven't seen the movie. But I did notice in the preview that he usually has a drink in his hand. And this is where you stick the fellers who like their liquor. Drink on, Double D!

Robin of Locksley, Robin Hood: Prince of Thieves
He's got the pinpoint accuracy and legendary stories of a closer, but he still has a big weakness: his enormous heart. Some days he feels bad for the hitters and generously offers up pitches right over the plate. We have to harden him somehow. Probably with voodoo. Or by turning him into a cyborg.

Manager

Lt. John Dunbar, Dances with Wolves
Friends of Indians and wolves alike, Dunbar is more of the spiritual leader of the team than a standard X's and O's type of manager. He might not know when to lay down the bunt sign, and for some reason McAvoy continually gets the green light on 3-0 counts, but he can deliver one hell of a pep talk. Dances with Wolves? More like Dances with Division Championships!

STOCK MARKET JITTERS

The American stockmarket has taken a tumble. Why are investors so jittery? (Economist)

Like a mob of meerkats alert to any approaching danger, investors in American shares take fright easily these days. Spooked by mixed economic and company news last week, they fled stocks for bonds, pushing down the big share-price indices to their lowest in five months and dragging markets in Europe and Japan with them (see chart below). Spirits revived a bit this week, despite the first-quarter loss of $1.1 billion announced by General Motors on April 19th. But the little creatures turned tail again the next day, when unexpectedly high inflation and low fuel supplies sent share and bond prices down and oil prices up. Are investors right to be so nervous?

It is true that the domestic economic news is beginning to point to an unhappy combination of lower growth and higher inflation. Four big sets of statistics for March—employment, retail sales, manufacturing production and housing starts—suggest that the American economy is losing momentum. This week's inflation data were surprisingly bad: consumer prices rose by 0.6% in March alone; the core index (which excludes volatile food and fuel prices) rose by 0.4%. Core inflation in the first three months of the year was 3.3% at an annualised rate, well above the Federal Reserve's comfort zone. Some now think that the Fed may speed up its recent step-by-step increases in interest rates.


This adds to the stockmarket's fear that the American consumer, on whose shoulders the world's economic growth now rests, is buckling as interest rates and oil prices rise. A weaker housing market could complete the consumer's undoing: prices have climbed by 65% across the nation since 1997 and by much more in some areas, and the boom has helped to fuel an increase in household debt and consumption. A reported drop of almost four points to 88.7 in the University of Michigan's April consumer-sentiment index added to this week's chill. Amid talk of “stagflation”, the S&P 500 share index headed down again, closing on April 20th at 1,137.5, 4.2% lower than on April 12th, when the most recent slide began, and 6.1% lower than at the start of the year.

Against this background, first-quarter corporate earnings have not been especially solid. There are plenty of stars—Apple, Yahoo!, Intel, Caterpillar, General Electric, Bank of America, Wachovia—but plenty of weak spots too—not least IBM, whose disappointing earnings gave investors the jitters last week, Coca-Cola and virtually anything that moves (General Motors, Ford, Continental Airlines). Though lower than last year's, forecasts of growth in corporate profits in 2005 have increased since the year began, according to Thomson First Call, a research firm that tabulates brokers' estimates. In that, however, they seem not to reflect investors' sentiments.

Three well-known measures of investor confidence now indicate a sharp reversal of mood. In March, of the 324 global fund managers (with more than $1 trillion in assets among them) that Merrill Lynch surveys each month, 11% more believed that economic growth would increase than that it would decrease. In April, their views were the opposite: 20% more thought that growth would fall than that it would rise. The survey found a similar shift in beliefs about an increase in corporate profits, and the fund managers' assumption of higher inflation continued. An index compiled by State Street Global Markets shows that investors are reallocating assets away from the riskier ones, in expectation of hard times to come.

Jumping at shadows

All this nervousness might look a little odd. After all, corporate America has emerged from the dark days of 2000-02 with increased productivity, strengthened balance sheets and mostly huge profits. The economic news is not catastrophic, merely intermittently depressing. So why this rumbling unease that reveals itself whenever a fact or figure disconcerts?

One possible answer comes from Rochdale Research, part of a boutique broker-dealer in New York. Nicholas Colas, head of research there, suggests that firms have achieved their strong balance sheets and impressive cash balances (at non-financial firms in the S&P 500, equal to 14% of total assets at the end of 2004) by underinvesting in their operations, despite the good global growth of recent years. They have tended to their financial ratios and paid out huge dollops of cash to shareholders through dividends, special repayments (Microsoft) and share repurchases (Citigroup, Merrill Lynch, Dell, and many others in the S&P 500). What they have not done is place bold bets on their own future growth, despite a recent uptick in mergers and acquisitions in which private-equity firms make much of the running. Since companies have done little to generate growth internally, they are unusually dependent on macroeconomic trends for it.

This makes sense. As the chart above shows, American firms are taking in more cash than they know what to do with. The return on non-financial S&P firms' capital employed has been rising, reflecting healthy profitability; the rate of growth of capital employed, having dropped sharply in 2002-03, has picked up only slightly, reflecting the reluctance to invest.

In part, this is a function of size. The bigger a company gets, the harder it is to manage what it has, still less to come up with something new. Citigroup is in divesting mode (it announced the sale of its Travelers life-insurance business to MetLife in January), at least for the moment. Microsoft, though energetic, has not found a way to compensate for what seems to be the natural diminution of its business through the growth of open-source software and computing alternatives to the PC.

In part it is also a function of a shift in corporate power in America to stronger, mainly institutional, shareholders from chief executives weakened by a climate of muddle and outright scandal. There is no harm in a company returning to shareholders cash for which it has no profitable use: that is what responsible stewardship would dictate. But it is also possible that powerful shareholders' own short-termism influences the decision: it is harder to estimate the eventual long-run profits from business expansion than it is to see the immediate gap between the return on shares (3.3% total trailing annual return for the S&P 500 as a whole) and the lower reward available on the cash it takes to buy them back.

And what of other stockmarkets, wrestling—especially in continental Europe and Japan—with their own economic demons as well as with America's? Markets in Britain, France and Germany all fell this week, though the British and French indices are still higher than at the start of the year. On April 20th, Japan's Nikkei rose, heartened by Intel's strong performance, before falling again on America's renewed gloom. It is all in the eye of the beholder.

Daily Telegraph Opinion

What I would be thinking about if I were Billy Joel driving toward a holiday party where I knew there was going to be a piano:
McSweeney's

"I'm not doing it. I'm just not. I know I say the same thing every year, but this time I mean it—I am not playing it this year. Seriously, how many times can I possibly be expected to play that stupid song? I bet if you counted the number of times I've played it over the years, it probably adds up to, like, a jillion. I'm not even exaggerating. One jillion times. Well, not this year.

This year, I'm just going to say, "Sorry, folks, I'm only playing holiday songs tonight." Yeah, that's a good plan. That's definitely what I'm going to do, and if they don't like it, tough cookies. It'll just be tough cookies for them.

But I know exactly what'll happen. I'll sit down, play a few holiday songs, and then some drunk jerk will yell out, "'Piano Man,'" and everybody will start clapping, and I'll look like a real asshole if I don't play it.

I wonder if they'll have shrimp cocktail.

Now that I think of it, it's always Bob Schimke who yells out, "'Piano Man.'" He does it every year. He gets a couple of Scotches in that fat gut of his, and then it's, "Hey, Billy, play 'Piano Man'!" That guy is such a dick. He thinks he's such a big shot because he manages that stupid hedge fund. Big deal. He thinks because he used to play quarterback for Amherst that everybody should give a shit. I don't. Who cares about you and your stupid hedge fund, Bob? That's what I should say to him this year. I really should. I should just march right up to him and say, "Who cares about your stupid hedge fund, you dick?" Let's just see what Mr. Quarterback has to say about that. And I know he made a pass at Christie that time. She probably liked it—that's probably why she denied it even happened.

I'm such a loser.

Why do I even go to these parties? I mean, honestly, how many times do I need to see Trish and Steve and Lily and that creepy doctor husband of hers and all their rich Long Island friends? Although that Greenstein girl is nice. Maybe she'll be there. What's her name—Alison?

What if Alison asks me to play "Piano Man"? Then what? I've got to stick to my guns, that's what. I'll simply say, "Some other time." Yeah, that's good. Kind of like we're making a date or something. And then at the end of the night when we're all getting our coats, I'll turn to her and say something like, "So when do you want to get together and hear 'Piano Man'?" Oh man, that's really good. That's so smooth. After all, how is she going to say no? She's the one who asked to hear it in the first place! Oh man, Billy, that is just perfect.

Maybe she'll say something like, "How about right now?" Yeah. And maybe we'll leave together. I can drive her back to my place and I can play her the stupid song and then maybe we'll do it. I'd really like to do it with that Greenstein girl. How awesome would that be? Me leaving with Alison on my arm and Bob's big fat stupid face watching us go. That would be too rich. I'd be real nonchalant about it, too—"See you later, Bob."

Who am I kidding? She'd never go out with me. She was dating that actor for a while. What's his name? Benicio? What kind of name is Benicio? A stupid name, that's what kind. Hi, I'm Benicio. I'm so cool. I'm sooooo cool. I should start going by Billicio. I'm Billicio Del Joelio. I play pianolo.

Sing us a song, you're the piano man ...

Oh great. Now it's in my head. Perfect. Now I have to walk around that stupid party with that stupid song stuck in my head all night.

Amherst sucks at football.

You know what I should do? I should just turn this car around and go home. Just pick up the phone and call them and tell them I ate some bad fish or something. Yeah, that's what I should do. This party's going to suck anyway. By the time I get there, all the shrimp cocktail will probably be gone anyway.

What am I going to do? Go through my entire life avoiding situations where somebody might ask me to play a song? I can't do that. No, Billy, you've just got to grow yourself a sack and take care of business. And if that loudmouth Bob Schimke requests "Piano Man," I just need to look him in the eye and tell him I'd be happy to play it for him just as soon as he goes ahead and fucks himself.

Who am I kidding? Of course I'm going to play it. I always play it. Probably the only reason half the people at that party even show up is to hear me play "Piano Man." They probably don't even like me. Not really. They just want to tell all their friends that Billy came and played "Piano Man." Again. Like I'm the loser who's dying to play it. Whatever.

Fine. I'll do it, but not because they want me to, but because I want me to. I'm not even going to wait for them to ask. I'm going to march right in there and play the song and that'll be that. I'm not even going to take off my coat first. Yeah. Let's see what Bob has to say about that. I might even play it twice."



TIPS FOR FOUR DAYS IN ISTANBUL

Day 1: Historic day: The following are all in the same area (old city) and are the major touristic sites you should see. You probably can't fit all 6 items into one day (unless you really streamline your visits) but here they are - it's up to you how you budget your time:

Topkapi Palace - 2-3 hours
Haghia Sophia Museum - 1 hour
Blue Mosque - half hour
Basilica Cistern - 1 hour
Grand Bazaar & Spice Market - 2-3 hours (kilim purchase here, but I don't know any names)
Cemberlitas Hamam (Turkish Bath) - 1 hour

Lunch: Konyali Restaurant inside Topkapi Palace
Dinner: Four Seasons Hotel (in the same area)

Day 2: Bosphorus Day: You will get to see modern Istanbul along the Bosphorus Channel along with some more historic sites if you wish. I am giving you the sites as they come up south to north, so you can make your way up the Bosphorus on the European side, bypassing any site you wish:

Dolmabahce Palace - 2 hours
Ciragan Palace Hotel - must see. Stop by for tea or a drink.
Ortakoy Neighborhood - small outdoor shopping and cute restaurants by the sea for lunch. Great street food.
Rumeli Hisari Fortress - 1 hour.
Rumeli Hisari Neighborhood - two great fish restaurants, named Iskele and Karaca, and if you go to the latter you should find waiter Coskun (pronounced josh-coun) and give him my name.
Boat tour of the Bosphorus (with dinner if you do it at night).

Lunch: Ortakoy Neighborhood
Drink: Ciragan Palace Hotel
Dinner: Rumeli Hisari Restaurants
Night life: Laila Night Club (very upscale but fun)

Day 3: Nature Day: Take a ferry from Kabatas Port to the Princess Islands. Get off at Buyukada island. Walk around the island and contemplate architecture or take a horse carriage tour around the island.

Lunch: Facyo Restaurant close to the pier: good seafood.
Dinner: Aya Yorgi - must see. This is the top of the island and it takes quite some effort to get there. It's like a quasi-pilgrimige. You get one of the best views of Istanbul from this place at sun down. Take a carriage from downtown and ask him to take you to Lunapark. From there you will walk up a very steep hill to Aya Yorgi (half hour hike) where there is an old Greek Orthodox Monastery and a wonderful family run restaurant. Try to get there 15 minutes before sun down (extra bonus if you go on full moon).

Day 4: Shopping and modern Istanbul. Go to Taksim Square, and walk down Istiklal Street from there. This is like the Times Square and Broadway Avenue of Istanbul. Lots of nice stores, restaurants, galleries, movie theatres right and left for miles. There is also a great Turkish Bath here (in case you miss the one above) called Galatasaray Hamam. You must see (preferably for dinner) Passage des Fleurs (Cicek Pasaji) and Nevizade Street, which has some amazing street dining. Some good restaurant names there are Nevizade and Cumhuriyet Meyhanesi. Also check out Fransiz Sokagi (the French Street) if you have time - maybe for lunch or drinks. Don't forget Ali Muhiddin Haci Bekir for Turkish sweets: it's one of the best stores for sweets and candy. There are also many many bars and nightclubs in this area.