The Unassuming Economist

By John M. Biers

A big drop in oil prices due to a global economic slowdown constitutes a bigger worry than the relatively high price floor for oil that has prevailed recently period, an International Monetary Fund analyst said in an interview this week.

Oil prices have dropped roughly 20% in recent weeks amid weak jobs data and other economic indicators that have renewed fears of a global slowdown, yet remain high by historical standards, lingering around or above $100 a barrel Brent since January 2011.

In remarks that provided a view of how the IMF sees the oil market, Prakash Loungani said the global economy has adapted to a relatively high oil price floor as long as it isn’t caused by an unexpected supply disruption. But Mr. Loungani said the agency now fears a big drop in prices because it would likely be accompanied by a major global economic slowdown.

“The worry is that the economies are looking soft, both the U.S. and major emerging economies,” said Mr. Loungani, an advisor in the research department of the IMF who handles commodities research.

“We are very worried about the state of the world economy,” Mr. Loungani said in a telephone interview.

Thursday, ICE July North Sea Brent crude was 1.2%, or $1.23, higher at $101.87 a barrel. Light, sweet crude oil for July delivery was up 1.6%, or $1.34 higher, at $86.38 a barrel on the New York Mercantile Exchange.

Mr. Loungani said a relatively high oil price isn’t in itself a huge concern for the economy. The influential Saudi oil minister, Ali al-Naimi, said recently he wants oil prices around $100 a barrel. Other countries in the Organization of Petroleum Exporting Countries now also look for triple-digit oil prices, leaving the $22-$28 a barrel price band once favored by the cartel as a distant memory.

Mr. Loungani pointed to IMF research that has shown how the world has adapted to relatively high oil prices due to a number of factors. For one, much of the reason for higher oil prices rests on rising demand in emerging economies; in that case, the benefits of strong growth outweigh the negatives of higher oil prices.

Other mitigating factors to high prices include more sophisticated central bank policies that guard against oil-related inflation growth; greater efficiency in the use of energy in the economy; and greater diversification in energy supplies.

“The trends are in the direction of reduced impact” on the economy from higher oil prices, Mr. Loungani said. “The structure of the economy has adjusted.”

However, Mr. Loungani said the global economy can still be harmed by sudden price spikes if they are caused by unexpected supply disruptions, because “the economy still doesn’t have the means to handle that in the short-term.”

Some economists have highlighted the role that higher oil prices played in the global 2007-2008 slowdown related to lower disposable income. At the time, the dominant explanation for the slowdown concerned the bursting of the U.S. housing bubble and the ensuing financial crisis.

Mr. Loungani said he has been persuaded that “oil prices may have played a role” in that slowdown, but he said the current weakness relates more to lingering financial weakness and the ongoing euro zone crisis.

Write to John Biers at john.biers@dowjones.com

The recovery from the Great Recession has been unusually uneven: very weak in many advanced economies but surprisingly strong in many emerging and developing economies. The trajectory of the ongoing recovery in advanced economies has so far displayed some disturbing similarities with the sluggish recovery following the much shallower 1991 global recession. Read the full article here.

Josh Rogin at Foreign Policy reports:

The Brookings Institution was selected today as the “top think tank in the world” by an academic program that evaluated over 5,000 think tanks from across the globe. 

That’s the second year in a row that Brookings has topped the “Global Go To Think Tanks Rankings,” compiled by the Think Tank and Civil Societies program at the University of Pennsylvania and published by the Diplomatic Courier. The project considered the views of 793 experts, 150 journalists and scholars, 55 current and former directors of think tank programs, 40 public and private donors, hundreds of think tanks, 25-30 intergovernmental organizations, and 120 academic institutions.  

Other U.S.-based think tanks also fared well. The Carnegie Endowment for International Peace held its spot from last year, staying put at #3 on the list, while the Council on Foreign Relations (CFR) dropped two slots from last year, coming in at #4. The Center for Strategic and International Studies (CSIS) jumped up two spots to #5, the RAND Corporation held its place at #6, and the Peterson Institute for International Economics kept its #10 position.  

Non-U.S. think tanks that made the top 10 were Chatham House (#2), Amnesty International (#7) , Transparency International (#8), and the International Crisis Group (#9).  

Conservative and libertarian think tanks took a hit in 2011: The Heritage Foundation dropped five places since last year, coming in this year at #13. CATO dropped from #12 last year to #14 this year, and the American Enterprise Institute dropped in the rankings from #13 to #17. Meanwhile, the liberal Center for American Progress made its first appearance on the top 25, coming in at #19. Human Rights Watch was ranked #22 in the world, down six spots compared to last year.  

Some U.S.-based think thanks were singled out as the best in specific regions or functions. CSIS was ranked #1 in international affairs and security research. The Carnegie Moscow Center and the Carnegie Middle East Center were ranked as the top think tanks in their region. Brookings was ranked #1 in international development research, and the Carnegie Endowment was named as the think tank with the most innovative policy ideas.  

Google Ideas, the “think-do tank” led by former State Department official Jared Cohen, was named the best new think tank established in the last 18 months. CFR was named as the best think tank in the world in the use of digital and social media.  

5,329 think tanks were nominated and then ranked overall and in 30 different regional and functional sub-categories. This year, the process was changed to include “expert panels” that evaluated the data, incorporate categories for smaller think tanks, and expand the participation of organizations in developing countries, especially in the BRICs (Brazil, Russia, India, and China).  

The United States by far has the most think tanks in the world (1,815!), followed by China (425), India (292), Britain (286), and Germany (194). Washington alone has 393 think tanks. Other leading states include Massachusetts, with 176, and California with 170.  

The think tanks were rated by their access to resources, how much content they put out, and their impact on policy and politics.  

“There are a number of major political, economic, social, and technological trends that are converging at this moment in history and that have a profound impact on governments and the institutions that serve them,” reads the beginning of the report. “It is essential that think tanks understand these trends and be ahead of them so that we are all not buried by them.”