Friday, July 25, 2014

The iron law of non-renewable resources

When I took the Energy and Public Policy sequence at the University of Minnesota in the early 19702, one of the concepts we were taught was the Iron Law of non-renewable resources—attributed to Barry Commoner—that stated, "Every unit of oil (or whatever) that is found and extracted makes the next unit harder to find and more expensive to extract."

There is nothing I learned at the university that has held up better than that law.  In fact, This little piece by Drum points out the fact that the Iron Law is still working fine in 2014, thank you very much.

Chart of the Day: Oil Is Getting Harder and Harder to Find

—Kevin Drum on Wed. July 23, 2014 12:46 PM PDT

Oil expert James Hamilton has an interesting summary of the current world oil market up today, and it's worth a read. His bottom line, however, is that $100-per-barrel oil is here to stay:

The run-up of oil prices over the last decade resulted from strong growth of demand from emerging economies confronting limited physical potential to increase production from conventional sources. Certainly a change in those fundamentals could shift the equation dramatically. If China were to face a financial crisis, or if peace and stability were suddenly to break out in the Middle East and North Africa, a sharp drop in oil prices would be expected. But even if such events were to occur, the emerging economies would surely subsequently resume their growth, in which case any gains in production from Libya or Iraq would only buy a few more years.

The chart on the right shows the situation dramatically. In just the past ten years, capital spending by major oil companies on exploration and extraction has tripled. And the result? Those same companies are producing less oil than they were in 2004. There's still new oil out there, but it's increasingly both expensive to get and expensive to refine.

(And all the hype to the contrary, the fracking revolution hasn't changed that. There's oil in those formations in Texas and North Dakota, but the wells only produce for a few years each and production costs are sky high compared to conventional oil.)

In a hypertechnical sense, the peak oil optimists were right: New technology has been able to keep global oil production growing longer than the pessimists thought. But, it turns out, not by much. Global oil production is growing very slowly; the cost of new oil is skyrocketing; the quality of new oil is mostly lousy; and we continue to bump up right against the edge of global demand, which means that even a small disruption in supply can send the world into an economic tailspin. So details aside, the pessimists continue to be right in practice even if they didn't predict the exact date we'd hit peak oil. It's long past time to get dead serious about finding renewable replacements on a very large scale. more

Fix the trade deficit—if you can

Dave Johnson, bless his heart, thinks that there are Democrats who can be convinced that the real problem with the economy is the trade deficit.  Whew!  He is obviously right about the trade deficit being the real problem with the economy.  He is probably not right about the Democrats agreeing with him.

The problem with the trade deficit is that it is structural.  And the main drain is the fact that we must import so much energy to feed the lifestyle we have designed for ourselves.  The census department calculates that petroleum products as a percentage of the deficit has run between 32% and 66% since 2006.  Talk about structural!  Something as obvious as urban sprawl means that petroleum consumption is designed and built into the social order.  Worse, because we have not meaningfully addressed our oil consumption since this problem first became obvious in 1973, we have been forced to sell off the crown jewels of USA industrialization to pay the energy bills.  This has meant that any realistic ability to increase our export industries has been severely crippled.

And so, Mr. Johnson, while I agree with virtually everything you write about the trade deficit, I must protest that without a meaningful reduction in petroleum imports, any talk about reducing the trade deficit is utterly meaningless.

The Democrat's Agenda Should Be: Fix The Trade Deficit

Dave Johnson | June 25, 2014

There is no way around it: There are three issues on people’s minds as we go into the midterm elections: jobs, jobs and jobs.

Since the 2008 financial crash – actually since Reagan was elected – most of the gains from our economy have gone to the 1 percent and many of the jobs have been shipped out of the country. And everyone knows it. What they don’t know is the direct relationship between the two. That relationship is the trade deficit.

The trade deficit is a direct measure of jobs leaving the country. The trade deficit is factories closing. The trade deficit is American dollars going to other countries so people there can spend them. The trade deficit is our standard of living leaking away. And the trade deficit is a major factor driving what remains of the budget deficit.

The trade deficit is our economy’s problem. Democrats need to get on board with that message. It doesn’t hurt that it’s also true.

Democrats Don’t Get That Republican Propaganda Works

Democrats in Washington are surrounded by D.C.’s daily events and don’t get it that the public doesn’t see what they think they see. They are immersed in the news and fighting daily battles and tend to think the public is informed and doing that, too. They tend to put reasons on things the public does that line up with what they experience in D.C.: “The reason voters in district 5 of the county special election in Colorado voted for Kranitz was because the sub-amendment to our section 5 jurisdictional funding retroparticle was blocked in committee on the third markup. Because it was on C-SPAN.”

But the public isn’t seeing it that way. The public is seeing “Democrats have been in charge” since 2008 and the economy is still bad. Period, end of story. (Not 2009, by the way; the election was in 2008 so they think the 2009 $1.4 trillion budget deficit was caused by Obama and the stimulus.)

Democrats Need A Simple And Clear Economic Agenda

If Democrats can’t come up with a counter to the Republican message that the economy is bad because Democrats are “in charge” and spend too much, they are going to lose badly. (P.S.: The answer is not to say “OK, so we’ll spend less.” That’s just feeds the lies and – as we have seen – just makes the economy even worse.)

At The New Republic, Danny Vinik writes in “Hillary Clinton’s Biggest Vulnerability: Her Economic Agenda” that “as we enter the latter half of Barack Obama’s second term, the public increasingly blames him and his party for the weak recovery.”

Vinik explains that there are Democratic proposals that would really help fix the economy, but they are from “left-leaning economists” and “they have little political support.” One proposal is in a paper from (“left-leaning”?) Larry Summers, who argues that we have entered into “secular stagnation” and the “solution to secular stagnation is significant rounds of fiscal stimulus to fill the still-large hole in consumer demand for goods and services, known as aggregate demand.” In other words, more “stimulus” that Republicans will obstruct.

Another proposal is to fix the trade deficit:

A separate paper, from left-leaning economist Dean Baker, argues that the trade deficit is a significant impediment to full employment. U.S. imports exceeded exports by $500 billion in 2013—that is, $500 billion of American demand for goods and services supported jobs overseas. In response, Baker proposes lowering the value of the dollar and cracking down on currency manipulators like China who artificially lower the value of their currency so that their goods and services are cheaper, boosting exports. Yet, trade policy is not an exciting or accessible issue to most voters. A candidate could include it as part of their economic platform, but it cannot form the backbone of it.

Yet another proposal is a change in monetary policy to promote full employment. This brings up a political problem, according to Vinik. The public doesn’t understand monetary policy and has been propagandized to be against further stimulus. (The public thinks “government spending” causes unemployment.)

Vinik writes “Democrats will have to convince voters that much of the Obama agenda is still the right prescription for the economy, despite the weak results over the past five-plus years. That’s not easy.”

What Went Wrong: Filibusters And Austerity

President Obama and Democrats have made significant proposals that would have made a tremendous difference in the economy we experience today, but they also contributed to the mess we are in.

It’s a fact that Senate Republicans filibustered literally everything Democrats offered that might have helped the economy. That’s their strategy and it’s working: Block anything that could help the economy and blame Democrats because they were “in charge” while the economy continued to stagnate.

Here’s the thing: Democrats let them do it. They did not end the filibuster. For whatever reasons – tradition, attempting to remain “bipartisan” and “civil” against uncivil partisan opponents, whatever – the end result was they did not deliver for their constituents, the American people.

The other thing that Democrats let Republicans do to the country was austerity. In fact, most Democrats bought into it, went along with it, pushed it, reinforced it, messaged it and gladly fell into the Republican trap.

So, with an election coming, Democrats haven’t delivered for their constituents – the 99 percent – and the public is not happy with that.

The Problem Is The Trade Deficit, Not The Budget Deficit

Here is a path for Democrats: Talk about the trade deficit.

Our trade deficit is literally a measure of how many jobs we ship out of the country. And our trade deficit is huge. It is humongous. It is enormous. It is larger than any trade deficit in the history of the world, and it continues and continues and gets worse and worse.

The trade deficit is also a traditional Democratic issue. It is about jobs, blue-collar workers, jobs, factories, jobs, manufacturing, good wages and jobs. It is about seeing “Made in America” in stores again.

Everyone knows where the jobs went and continue to go: out of the country, mostly to China.

Everyone knows that the reason their pay is stagnant of falling is because people are afraid their job will be sent out of the country, too.

Everyone knows that something has been going on with these trade deals that let companies move out of the country to places where people and the environment are exploited and then bring the same goods back to the U.S. and sell them in the same stores for the same prices. OF COURSE that means jobs leave the country!

Ask almost anyone what they think of “NAFTA” – shorthand for all trade deals – and you will discover what is certainly one of the most salient, activating issues in politics today. Democrats, Republicans, Tea Party members, they all get it that jobs are being shipped out of the country (because they are), they all get it is making a few people really, really rich (because it is), and they all get that it is causing the rest of us to feel pain (because that is the result).

Economist tell us that the trade deficit represents “demand” that is leaving our country and is fueling jobs elsewhere. This means that people here are buying stuff – “demand” – but that the stuff they are buying is made somewhere else so we don’t get the benefit of those people all buying stuff. And the fact that there is a “deficit” means that the “somewhere else” is not reciprocating by buying stuff from us. They are not “trading” with us, they are selling to us but not buying from us. They are cheating and playing tricks to drain our country of those jobs and factories that would come back if they were buying the same amount from us as we are buying from them.

If Democrats want a simple jobs plan, this is it: Fix the trade deficit. Explain to people what balanced trade means and demand that trade be balanced. Come up with a clear plan to BALANCE trade and explain how this will bring back the jobs.

Do your part. Ask every candidate for Congress if they understand what the trade deficit is, how bad it is and what their plan is to fix it. more

Thursday, July 24, 2014

The real costs of sanctions on Russia

The spat between Russian and Ukraine is enough to make me sick.  I want both countries to succeed and prosper.  And this ginned up fight is going to prevent both countries from prospering as they could and should.  The odious Ms. Nuland claimed USA spent $5 Billion to foment this rumble. One can only hope that the economic damages from those actions do not return a thousandfold.  After all, it is MUCH easier to wreck things than to build.

The biggest issue is that Russia supplies the energy that powers much of Europe.  If this crises gets bad enough so that energy shipments are disrupted, that $5 Billion will soon seem like a rounding error.  Worse, because the energy markets are global, everyone will be hurt.  As anyone in the Producer Classes can tell you, there is simply no better way to crash the global economy than to raise the price of energy.

Wednesday, July 23, 2014

Remembering the moon landing

Sunday night, July 20, was the 45th anniversary of the first time man walked on the moon.  Like most of the people alive when it happened, I can remember vividly where I was.  I was visiting a rural dairy farm in Southeast Minnesota that was set on a hill so the TV reception was superb.  The sun had only been down for a short time and there were hundreds of fireflies in the gathering darkness.

Yes indeed, I was a space aficionado—and had been since the first flight of Sputnik in 1957.  That afternoon, I was riding along with my father as he ran errands.  I got left in the car with the radio running.  I was too young to understand the significance of that basketball-sized projectile that did little more than beep, but I could clearly hear the fear in the voices of the people who read the news.  Those errands took about an hour and a half and it seemed like Sputnik was all they could talk about.  Soon, I would discover that Sputnik meant that every year I was handed a brand new science textbook.  I may have lived in tiny towns with tiny schools that could not afford first-rate science teachers, but I always had textbooks that were as good as the country could produce.

I would graduate from high school in 1967 so I had completed two years at a university by the summer of 1969.  The era between 1957 and 1969 was truly the golden age of USA areospace.  In addition to the manned space program, the industry produced such phenomenal aircraft as the X-15 (first flown in 1959, it still holds the official world record for the highest speed ever reached by a manned, powered aircraft—its maximum speed was 4,520 miles per hour (7,274 km/h), the SR-71 (first flown in 1966, it has held the world record for the fastest air-breathing manned aircraft since 1976) and the incomparable Boeing 747 (first flown in 1969, it is still the fastest subsonic air transport in the skies.)  Anyone remotely interested in the details of powered flight had plenty to follow.  And I did.  I pretended I was sick so I could stay home from school on February 20, 1962.  I wanted to listen to John Glenn orbit the earth on the radio (we did not have a TV and it really wouldn't have made much difference if we had.)

Around here, we celebrated the anniversary of men on the moon by watching the utterly charming (fictionalized) account of Australia's role in getting those amazing TV pictures of the first moonwalk back to earth—called The Dish (2000).  I really like this movie because it depicts this incredible event from the perspective of a small town in the middle of nowhere.  That's as close to my perspective as is likely to be made into a movie—so I have a high-def copy.  I like the characters, the costumes and hairdos, the music selections, the humorous takes on cultural stereotypes, and above all, the excitement the people of Parks Australia felt being a part of an event that would prove that science can be daring.

I need to remember the good parts because while it was happening in 1969, I had begun to sour on the mighty feats of USA aerospace.  I was literally sickened by the idea that a magnificent aircraft like the B-52 was being used to drop high explosive on peasants working rice paddies with the help of water buffalo. I was furious that the nation had in 1968 elected a liar who promised to end the war against the Vietnamese with his "secret plan" and then did no such thing.  Flying may be one of the great aesthetic accomplishments of human history, but the warmongers made certain they could even turn that into a tool for pure evil.

One of the details The Dish does especially well comes in the portrayal of Al, the NASA rep from Houston. Very bright, thorough, and assertive, he initially grates on his Aussie colleagues but eventually wins them over because of his intrinsic honesty, his humility in the face of the big project, his dry humor, but mostly his relentlessly pragmatic problem-solving style.  He sums it all up when he explains that aw-shucks small-town Neil Armstrong was his favorite guy at NASA.

A guy from Ohio, Armstrong was the pluperfect pilot because he was driven to master every tiny detail of flight.  He built models, he soloed at 16, he studied (and eventually taught) aeronautical engineering, he became an accomplished test pilot, and so much more.  When he was chosen to make the first moon landing, he was arguably the best pure pilot to have ever lived.  Good thing, too as that first landing was only seconds away from disaster.  He so thoroughly understood the science of flight, and how aerospace design and manufacturing fits into that science, he was able to get the absolute maximum out of the lunar lander on his first try.

I still find it all quite amazing.  I look back on those days with an utter certainty that in its current configuration, USA absolutely could not return to the moon.  And lots of other things.  We have lost a great deal in the process of deindustrialization.  It is good for people to build difficult things.  That was the heart of Kennedy's great line "We choose to go to the moon and do those other things, not because it is easy but because it is hard."  I miss the science done to make things better, not to make a gazillion.   And I certainly miss the can-do style of the folks who pulled off the moon shot.  And THAT is the quality we must reclaim to survive.  Rebuilding the country to operate without fire is a project that will make the moon landing look like a cheap stunt.

Tuesday, July 22, 2014

June global temp record broken—Lake Mead drying up

We will never be short of evidence for the fact of global warming.  June just set the record for the warmest month in recorded history and Lake Mead, the reservoir behind the Hoover Dam (the project that made possible Las Vegas and much of southern California urban development) is now at its lowest level ever.

You see, the deniers can deny all they want, but that doesn't change anything important.  The globe will go on warming in spite of their ignorant bleatings.  So one by one, they will just have to accept some new evidence that can break through their delusions.  In the end, the only deniers left will be those who deny for hire—and even they won't believe their own useless bullshit.

The only real issue is if the sane folks, who actually have the possibility to do something meaningful, can chart a new course in time.  For years, as the Democratic Party became the Republicans of Eisenhower (I am being generous here) while the Republican Party was philosophically taken over by nutjobs who were getting their political ideas from Limbaugh and Glenn Beck, I assumed that the sane folks were still in the Democratic Party.

I guess that is my form of denialism.  Climate change is mostly a technological issue and the left is actually awash in folks who wear their technological illiteracy proudly and openly.  I know dozens of lefties who believe we could instantly solve our energy / climate change problems if we could only get our hands on those 200 mpg carburetor designs the oil companies bought up on the sly so we would keep buying their products.  Heck, I know lefties who consider the process of assembling something from IKEA as an ordeal (I am NOT making this up.)

It is a LONG journey from admitting that the planet is warming dangerously to having any useful ideas on how to reverse the process.

Monday, July 21, 2014

Fuel cell update

Rob Wile over at Business Insider takes another run at the possibility that fuel cells may be the answer to the question, "Can we make a serious car that produces no carbon emissions?"  If you type "fuel cells" into the search box on the top left, you will see that I have covered this subject before in some detail. And the big objection to a widespread adoption of fuel cells is the fact that hydrogen fueling stations are extremely rare so it doesn't much matter how good any fuel-celled vehicle might be.  I mean, say what you want about the inconvenience of plugging in a battery-powered car, it is almost impossible to be somewhere where there isn't an electrical outlet nearby.

But the landscape IS changing.  Musk really has made a splash with the Tesla S—a car so good that Lexus has noticed that it is losing sales of its flagship LS to its plug-in rival.  Lexus pretends to be unconcerned asking “I think the question remains to be seen how many people will buy a second Tesla.”  Lexus is Toyota's premium brand and it's Toyota that is sending the most serious fuel-celled car to market—so this is obviously the company line.

Honestly, I don't see any way around the problem of zero hydrogen infrastructure.  On the other hand, Toyota didn't become the biggest car maker on earth by making too many big mistakes.  It is also a company that stands by its convictions.  They lost a lot of money on those early Priuses before the market would prove them right.  (I live in a town that is crawling with Priuses so it is especially hard for me to remember when the hybrid car was considered a joke.)

In a duel between little Elon Musk and mighty Toyota, the odds must tilt heavily towards Toyota and its marketing worldview.  On the other hand, Musk has managed to capture sales from the absolutely superb Lexus LS so he and his vision may survive yet.

Sunday, July 20, 2014

Will the new BRICS bank change anything?

The news that the BRICS countries have formed their own development bank is the subject of an interesting debate between Michael Hudson, an Institutionalist, and Leo Panitch, your classic academic Marxist.  Not surprisingly, Hudson believes that if you get the banking arrangements right, a lot of good can come from that one essential improvement.  Panitch, on the other hand, believes that not much will change because just tinkering with the banking arrangements doesn't change the reality that "capitalists" will still be in charge.

Regular readers know I am a big fan of Hudson and Institutionalism while I have very little tolerance for the Marxists who so often confuse industrialization with capitalism and reject the analytic distinctions between Finance Capitalism and its industrial variant.  Of course, Hudson may be getting way ahead of himself.  While there are many examples of how public and democratic banking has accomplished great things, most have been failures because they absolutely need people who understand WHY and HOW public banking should work better.

Considering that none of the five leaders of the BRICS countries that agreed to fund the new bank has much of a track record in explaining or promoting public banking, Panitch may be right.  This probably isn't going to change much.  On the other hand, since Finance Capitalism is one of history's biggest flops, even small improvements would help.  The chance of the new bank succeeding is probably dependent on getting someone who thinks like Hudson to run it.

Full transcript after the break.

Saturday, July 19, 2014

Minnesota is meeting Obama's carbon targets (NYT)

When one lives in the hinterlands, one of the more "exciting" events is to be covered in the national or international press.  It is especially gratifying to be recognized for something that resembles virtue.  So Thursday's story in the New York Times about Minnesota's somewhat successful attempts at lowering our carbon emissions qualifies as a national recognition of local virtue.

And even though the situation looks somewhat different here on the ground, we'll accept the recognition—even though I find it personally depressing that there are other states that are doing so much worse.  Here's why.  Because we are an energy-poor state with an extremely harsh climate that is only livable with regular energy inputs, we are the classic example of a locale that flourished as the direct result of cheap energy.  When we try to lower our carbon footprint, we start from a very high place.  So while we may be doing better than some others, we still have a VERY long way to go.  And the fact that we have done some things well is probably less due to our intrinsic virtue and more to those constant reminders of how much our existence is owed to energy that show up each month as utility bills.

Because arguably the foremost inventor of Institutional Analysis, Thorstein Veblen, spent his most formative years in Minnesota, it is probably appropriate to explain the biggest success in getting private-public cooperation on carbon reduction using that method.

Minnesotans have had a critical opinion of nuclear power for a long time.  Northern States Power (NSP) built two plants at Monticello and Prairie Island before losing a permit battle to political groups in an attempt to build a third.  The arguments of the critics turned out to be right and NSP saved a ton of money not building that third nuke.  So the nuke operators have a wary but respectful relationship with the greenies.  The utility discovered the activists actually know something and the activists found out that their utilities are run by reasonable people.

This relationship led to perhaps the most enlightened political compromise I can think of.  Because no one has ever figured out long-term storage for nuclear waste, spent fuel rods must be kept in pools next to the power plant itself.  Eventually these pools fill up so bigger pools must be built.  This requires licensing and so the utilities and greenies meet at the state capital.  The greenies put up a decent fight but in the end, the decision would favor the facts on the ground—the plants were necessary for continued existence in a cold-weather place and the plants needed bigger pools.  But the greenies insisted they get something too.  And what they demanded was that NSP—now Xcel—would make a good-faith effort to solve the problems of gathering power with renewables based on numerical targets.

What made this legislation such an act of pure genius was that it forced renewable energy to grow up.  Utility companies have exactly zero interest in hippie technology—their stuff must be exceedingly well designed and built and above all, utterly reliable.  Institutionally what happened is that while Xcel was run by people with expertise in nuclear or fossil-fueled power plants, now they had to create a division to make wind and solar work.  This new division is the triumph of that great political compromise.  I have met some of the wind guys from Xcel.  They are excellent at what they do and quite passionate about getting better.

The lesson here is that if a society wants a green outcome, it simply must get the green experts inside where the grown-ups make the big decisions.

Friday, July 18, 2014

Calculating the costs of climate change

Attempts to put a price on environmental disasters have always been pretty cynical—after all, how can one put a price on the priceless?

The closest human efforts come to economically modeling the natural order come during the practices of mass production.  For example, if an automobile has 12,064 parts, all 12,064 must be on hand or the assembly line cannot move.  Under those circumstances, a washer costing a fraction of a cent is as valuable as a driver's seat worth hundreds of dollars.  It doesn't matter one whit how cheap the missing parts may be, if they are missing, production stops.

Unfortunately, when folks start to tote up the price of climate change, they tend to count up the costs of those missing washers and not the costs of a global environmental stumble.  But even at that pathetically inadequate level of "cost analysis" the numbers are beginning to add

The costs for doing nothing about our currently unsustainable practices are also beginning to mount up.  This is only to be expected too.  Every step in the wrong direction only makes the journey to a solution longer.  But change is hard—especially when the forces arrayed against change include our old friends ignorance, laziness, and a lack of imagination.

Thursday, July 17, 2014

Finding the money for major infrastructure upgrades

Today, Ellen Brown writes an incredible essay about the investment giants Black Rock and PIMCO suing the major to-big-to-fail banks.  These are the same banks that have run roughshod over elected governments and terrorized the leaders of superpowers in recent years so this suit represents a clash of the titans.

In the midst of the speculation about what might happen if such a suit would lead to a bankruptcy of a major bank that would then bring down the whole financial system, Brown injects a note of reality into such speculation.  The reality is that there is almost no catastrophe easier to contain than one in the credit system.  Since the whole system is nothing more than folks reprogramming each other's computer chips, a credit meltdown can be contained by simply pushing some other buttons.  Compare this to solving the problems caused by Peak Oil—those cannot be solved by pushing different buttons.  Not. Even. Close.

We will need $trillions to climb out of the mess we find ourselves.  And finding those trillions is just a start—they must be spent wisely.  I will leave it to Ellen and other visionaries to find the money—this blog is dedicated to ensuring that all that money doesn't just buy a lot more of the same.
Black Rock and PIMCO Sue Banks for $250 Billion

Did the Other Shoe Just Drop?

by ELLEN BROWN  JULY 16, 2014


Phoenix Rising

In a thought-provoking March 2014 article called American Delusionalism, or Why History Matters, John Michael Greer disagrees. He notes that historically, governments have responded by modifying their financial systems:

Massive credit collapses that erase very large sums of notional wealth and impact the global economy are hardly a new phenomenon . . . but one thing that has never happened as a result of any of them is the sort of self-feeding, irrevocable plunge into the abyss that current fast-crash theories require.

The reason for this is that credit is merely one way by which a society manages the distribution of goods and services. . . . A credit collapse . . . doesn’t make the energy, raw materials, and labor vanish into some fiscal equivalent of a black hole; they’re all still there, in whatever quantities they were before the credit collapse, and all that’s needed is some new way to allocate them to the production of goods and services.

This, in turn, governments promptly provide. In 1933, for example, faced with the most severe credit collapse in American history, Franklin Roosevelt temporarily nationalized the entire US banking system, seized nearly all the privately held gold in the country, unilaterally changed the national debt from “payable in gold” to “payable in Federal Reserve notes” (which amounted to a technical default), and launched a series of other emergency measures. The credit collapse came to a screeching halt, famously, in less than a hundred days. Other nations facing the same crisis took equally drastic measures, with similar results. . . .

Faced with a severe crisis, governments can slap on wage and price controls, freeze currency exchanges, impose rationing, raise trade barriers, default on their debts, nationalize whole industries, issue new currencies, allocate goods and services by fiat, and impose martial law to make sure the new economic rules are followed to the letter, if necessary, at gunpoint. Again, these aren’t theoretical possibilities; every one of them has actually been used by more than one government faced by a major economic crisis in the last century and a half.

That historical review is grounds for optimism, but confiscation of assets and enforcement at gunpoint are still not the most desirable outcomes. Better would be to have an alternative system in place and ready to implement before the boom drops.

The Better Mousetrap

North Dakota has established an effective alternative model that other states might do well to emulate. In 1919, the state legislature pulled its funds out of Wall Street banks and put them into the state’s own publicly-owned bank, establishing financial sovereignty for the state. The Bank of North Dakota has not only protected the state’s financial interests but has been a moneymaker for it ever since.

On a national level, when the Wall Street credit system fails, the government can turn to the innovative model devised by our colonial forebears and start issuing its own currency and credit—a power now usurped by private banks but written into the US Constitution as belonging to Congress.

The chief problem with the paper scrip of the colonial governments was the tendency to print and spend too much. The Pennsylvania colonists corrected that systemic flaw by establishing a publicly-owned bank, which lent money to farmers and tradespeople at interest. To get the funds into circulation to cover the interest, some extra scrip was printed and spent on government services. The money supply thus expanded and contracted naturally, not at the whim of government officials but in response to seasonal demands for credit. The interest returned to public coffers, to be spent on the common weal.

The result was a system of money and credit that was sustainable without taxes, price inflation or government debt – not to mention without credit default swaps, interest rate swaps, central bank manipulation, slicing and dicing of mortgages, rehypothecation in the repo market, and the assorted other fraudulent schemes underpinning our “systemically risky” banking system today.

[snip] more
Is a larger version of the Bank of North Dakota what the BRICS countries are attempting?  We soon shall see.  As someone who knows more than a little about the operations of the Bank of North Dakota, I would remind people that it works mostly because it is staffed from top to bottom by scrupulously honest people.  All the BRICS countries suffer from persistent and chronic corruption.  And it only takes a little corruption to sink a public bank.  Those who would argue that it would be nearly impossible for a BRICS development bank to do a worse job than the IMF have a point.  But my point is that done right, these new institutions could usher in an era of genuine and sweeping prosperity.

Tuesday, July 15, 2014

BatTram and industrial design

Now this is a story to make your day.  Most visitors to Russia soon notice that the only things that are actually beautiful were built before 1917 and most of this was done by imported artisans (like the spectacular areas of St. Petersburg.)  Much of the rest—especially that built immediately after the Great Patriotic War—is just gruesomely ugly.  Of course, much of this is fairly easy to explain.  Huge areas of USSR were destroyed by the Germans and it had to be rebuilt by grieving widows because millions of young men had perished in the conflict.  Not surprisingly, sound industrial design was not a major priority during the reconstruction.  This is really quite unfortunate.  This is actually an important economic issue because people and societies tend to care for beautiful things.  Maintain enough things carefully and the culture improves dramatically.  A maintenance culture tends to promote other virtues.

But fear not.  It looks like Russian industrial design just might be flickering to life.  The example in question is a new tram and it is quite stunning.  The designer is a young man named Alexei Maslov who looks barely old enough to shave.  Even better, this tram is a project of a tank company named Uralvagonzavod.

Swords into plowshares. A beautiful thing for everyday usage.  What's not to like?  Well a few things, actually.  Those beautiful linoleum floors probably won't look so nice after a few days being trampled with muddy boots, those wood and aluminum handrails will soil and scratch, and that lovely cream-colored felt upholstery will not stand up to drunken, heaving revelers.  But these are easily fixed details—otherwise this is a magnificent effort.  (More photos here)

Sunday, July 13, 2014

Democrats struggle to understand how Bush Tax Cuts wiped out $6.6 trillion in personal income

According to an analysis by Pulitzer-Prize winning reporter David Cay Johnston, the Bush tax cuts, rather than resulting in great general prosperity – as argued by Bush and the Republican Party – cost working Americans a total of 6.6 trillion dollars in lost income over 12 years. For each American taxpayer that is $48,000 in pre-tax personal income.

Johnston is author of the 2008 book Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You With the Bill), and was formerly a correspondent for the New York Times. He has been a pioneer in tracking down, calculating, and revealing to the public the trillions of dollars the very rich and various corporations have hidden in hot money centers around the world to avoid and evade taxes. In January 2009, he presented in Mother Jones magazine a point-by-point plan for dramatically shifting government policies away from favoring the rich and corporations, to working for the general welfare of all Americans. Among his points was a ruthless crackdown on tax havens such as Bermuda and the Cayman Islands, including the use of military force if that was required to overcome the refusal of the authorities of those locales to cooperate.

The discussion on Daily Kos of Johnston’s determination that the Bush tax cuts had essentially robbed each working American of $48,000 in pre-tax personal income reflected the confusion and ignorance that still characterizes thinking about political economy among Democrats and the left generally. A number of tenets and assumptions fostered by movement conservatism were much in evidence. For example, one commenter wrote:
But how do you make that the fault of the Bush tax cuts? For at least the first few years doesn't it make more sense to blame 9/11? In actual fact, I think a big part of the issue is globalization and the knowledge economy…. Globally, incomes are converging…. Secondly, the Internet and the knowledge economy are transforming us into a winner takes all economy.
Leaving aside the glaring contradiction of how incomes could possibly be converging in a “winner takes all economy,” the commenter is asking an important question> What is the causal mechanism by which Bush’s $1.6 trillion in tax cuts resulted in a drop in personal income of $6.6 trillion? This is slightly different than asking why Republican / conservative tax cuts don’t actually pay for themselves, but is closely related. In December 2010, when President Obama was pushing through an extension of the Bush tax cuts, I wrote The Obama tax deal with Republicans is insane, in which I noted, “there have been three grand multi-year national experiments with Republican / Conservative tax cutting over the past century.” These were: the Harding / Coolidge tax cuts of 1921 through 1926; the Reagan tax cuts of 1981; and the Bush tax cuts of 2002. The results of each one of these tax cuts was exactly the same: “all three experiments resulted in the average American becoming poorer, the real (industrial) economy in tatters, and spectacular financial crashes.”

Sachs on climate change

Oh goody.  Jeffrey Sachs has decided to bring his wisdom and expertise to the topic of climate change.  Things are going to get better now, I'll bet.  NOT

Sachs comes late to the environmental debates.  He's been busy.  In 1985, he was the leader of a team from Harvard who decided that Bolivia's economic problems weren't caused by global macroeconomic trends but the fact that her tin miners were making too much money.  So he designed a bundle of programs that openly assaulted the social fabric which he called "shock therapy." (Yes indeed, he really takes credit for inventing that ghastly expression.)

Fresh off his "success" at teaching neoliberalism to the Bolivians, Sachs would take his show on the road to Poland, Slovenia and Estonia.  But his most notorious job was with the Yeltsin government between 1991-94.  His lovely advice set Russia on a downward spiral that made the Great Depression look tame.  Ever wonder how a bunch of corrupt kleptocrats made off with virtually everything of value and triggered an economic catastrophe that saw the Russian middle class destroyed?  Ask Jeff.  He was in the room when most of the decisions were made.  In fact, the corruption surrounding Sachs was so odious, Harvard would eventually lose the contract with Russia and Sachs, who was once the youngest member of the Harvard faculty to have been granted tenure, was asked to leave.  This is how he became a member of the Columbia faculty where he now spends his time defending his role in the Russian debacle and running their Earth Institute.

Unfortunately, since Sachs' first priority is still to defend his role in Russia, he is forced to come up with environmental "solutions" that don't contradict his neoliberalism.  Good luck with that.  (The floggings will continue until morale improves.)  And because his premises are so fundamentally dishonest, his advice on climate problems range from crackpot to goofy.  For example, in his latest efforts, he claims that coal burning can continue because successful methods of carbon sequestration are just around the corner.  His beliefs in saving the planet on the cheap are so bad they actually make Al Gore's look sane by comparison.

Fortunately for the rest of us, Sachs the environmentalist cannot do nearly as much damage as Sachs the economic crackpot has already done.

Saturday, July 12, 2014

What to do about science cranks

The foremost thing that attracted me to the study of science was that it was a form of thinking based on reproducible results.  Coming from a home where theological discussions based on absolutely nothing substantial at all were the norm, science was like finding a warm place to go on a very cold night.  And what I found especially heartwarming was the fact that science trafficked in facts that were provable no matter who believed in them.

What I did not even consider in those early heady days was that the legitimacy of scientific thought would be appropriated by charlatans and crackpots.  One practice is to dress up bullshit as science by surrounding the spurious claims with the charts and trappings of science.  The economics "profession" is more guilty of this than anyone but there are many other guilty parties like the "creation scientists".  The other practice is to take one of science's best features—the willingness to upgrade and amend almost any finding when new information arrives—and use it to spread doubt where none should exist.  This is the strategy of the climate-change deniers.

Because both practices are so common, one would assume that journalists and government officials could spot them from miles away.  But such an assumption would be wrong because the vast majority of them slept through their seventh-grade science classes—or were taught by people who hadn't properly learned how science arrives at the truth.  Unfortunately, this sad state of affairs extends to many with advanced degrees from fancy universities.

The BBC has decided that it wants to halt the runaway lunacy of inviting pseudo-scientists to debate the real thing.  I don't actually know if BBC is being especially brave here or are simply reacting to the fact that "scientific" cranks are common to British culture.  The second is possible because as anyone who ever watched Doc Martin has observed, the doc seems to spend half his waking hours trying to undo the damage caused by the scientifically illiterate cranks.  If UK wasn't overrun by such cranks, the Doc Martin writers wouldn't have much to work with and no one would get their jokes.  But lest anyone here is USA starts to gloat, just remember, BBC is at least TRYING to make it clear that there is a difference between scientific thinking and the rest.  People here in our media make statements on-air that would make time travelers from the Middles Ages actually wince.

Friday, July 11, 2014

Arctic ice

EASILY the most frustrating thing about environmental awareness is the utter lack of urgency about the most serious dilemmas to have ever faced humanity. Of course, we have the same casual approach to almost everything.  In 1940, a group of Producer Class superstars got together and designed and built the first prototype for the P-51 Mustang in 149 days.  It was easily the best fighter plane of WW II.  I think about this these days because we are trying to add a three-season porch to our house and we have already spent far longer than 149 days and haven't driven the first nail.  But nothing can top the fiasco surrounding the F-35—the latest descendant of the P-51.  It first flew in 2006 and it isn't operational yet.  As of today, the few that have been delivered are grounded.

This is something that folks, who believe that if we just get the politics right a big problem like climate change will disappear, should keep in mind.  Even if we could get some serious funding to build the new infrastructure that would put out all those damn fires, getting it built will not happen quickly.  We are now a society that thinks and behaves like F-35 builders, not the folks who figured out the P-51.

Anyway, I especially like this essay by Robert Hunziker because he dwells on the lack of urgency concerning the very real possibility that the Arctic ice cap will completely melt down.

Thursday, July 10, 2014

Hudson on Ukraine

There are only a few economists who label themselves Institutionalists.  Of that tiny crowd, only a small subset of them can lay legitimate claim to the title.  Michael Hudson is one such person.  So when he tries to explain the economics behind the madness in the Ukraine, it is worth reading.

The reason I am having such a difficult time wrapping my arms around the conflicts in Ukraine is because they make absolutely no economic sense whatsoever.  Ukraine essentially has two asset types worth seizing—her vast mineral wealth and her huge fertile farmlands.  Now I can understand why mines are tempting targets for theft—you can always operate primitive mines with slave labor and brutality.  But farms are another matter completely.  Without highly skilled farmers, the best agricultural land in the world is utterly worthless.

Collectivized agriculture was a notorious failure everywhere it was tried for the simple reason that it placed management decisions in the hands of political hacks who refused to acknowledge how difficult farming is.  With the collapse of the USSR, many of those collective farms went broke.  In Russia, there is currently 23 million hectares of unused farmland—much in the most fertile areas.  Russia is actually recruiting farmers from the West to put this land back into production—shades of Catherine the Great.

But if the economics of trying to seize the assets of Ukraine make little sense, the argument that NATO wants to expand its influence right up to the borders of Russia makes even less sense.  Russia still has a nuclear arsenal that can destroy the cities of the West in less than an hour.  Close proximity would give NATO a potential head start in a nuclear conflict but not enough to make a damn bit of difference.  30 years and billions of research dollars has not produced a workable anti-ballistic system—so essentially we are at the same stalemate as in 1975.

So if there are no obvious economic or military reasons to mess with Ukraine, we are mostly forced to conclude that it is being done because this sort of geopolitical meddling is all a lot of folks in academia and the State Department know how to do.  So USA spends $5 billion to destabilize the society, stage coups, and shell towns in eastern Ukraine so some greedheads can get their hands on some primitive mines in the Donets Basin?

It is really good when someone like Hudson at least TRIES to untangle some motivation for such sociopathic madness.  He is probably mostly right in his conclusions.  And if my loyal Ukrainian readers think he is wrong, the comment feature of this blog still works.