A better way to price the future takes hold

SHORT-TERM thinking is a criticism often levelled at corporations and banks by anti-capitalist protesters, and they may well be right. A lack of concern for the future is built mathematically into economic theory, and this carries through to the behaviour of companies and governments. But a different way of putting a financial value on the future is changing that.
Economists assume that society will gradually get richer, typically by about 3 per cent a year - occasional crashes notwithstanding. To account for this, they "discount" future events: models might value a resource at $100 if it's immediately available, but only $97 if it is only available in a year's time.
The problem, says economist John Geanakoplos of Yale University, is that models shave off the same percentage every year. As a result, the value of assets decreases exponentially, and is effectively zero within decades or centuries. So economics effectively ignores far-future events, even if they are world-shattering.
Exponential discounting's reign is an accident of history: early 20th-century economist Paul Samuelson introduced it as a simple solution but emphasised that it wasn't necessarily right. In fact real humans do not discount exponentially. Questionnaire studies show that the rate at which we discount resources with time decreases gradually, not exponentially: we behave as if resources do still have a value significantly greater than zero in the distant future.
This is known in the trade as hyperbolic discounting, and although individuals and some markets display it, economists dislike it on the grounds that it is "irrational". That's because under hyperbolic discounting, a person has a strong preference for getting something today rather than tomorrow, but only a weak preference for getting it on day 100 rather than day 101; yet when day 100 arrives, they will strongly prefer to get the resource immediately.

World power swings back to America

The American phoenix is slowly rising again. Within five years or so, the US will be well on its way to self-sufficiency in fuel and energy. Manufacturing will have closed the labour gap with China in a clutch of key industries. The current account might even be in surplus.

By Ambrose Evans-Pritchard, International Business Editor

Assumptions that the Great Republic must inevitably spiral into economic and strategic decline - so like the chatter of the late 1980s, when Japan was in vogue - will seem wildly off the mark by then.

Telegraph readers already know about the "shale gas revolution" that has turned America into the world’s number one producer of natural gas, ahead of Russia.

Less known is that the technology of hydraulic fracturing - breaking rocks with jets of water - will also bring a quantum leap in shale oil supply, mostly from the Bakken fields in North Dakota, Eagle Ford in Texas, and other reserves across the Mid-West.

"The US was the single largest contributor to global oil supply growth last year, with a net 395,000 barrels per day (b/d)," said Francisco Blanch from Bank of America, comparing the Dakota fields to a new North Sea.

Total US shale output is "set to expand dramatically" as fresh sources come on stream, possibly reaching 5.5m b/d by mid-decade. This is a tenfold rise since 2009.