Tuesday, January 31, 2012

Looks like someone in the government believes in climate change

This country may block international agreements on climate change and promote economic policies guaranteed to produce that change, but the guys who make the maps that find their way to the back of seed packets are going with the evidence.

Good for them!  I am certain they will now be cursed by the denialists.

Pushing on a string

The head of the Fed from 1951-1970 was this pinched little man named William McChesney Martin who once considered a career as a Presbyterian minister.  A thorough Calvinist, Martin was a reminder that WASPs can be bankers too.  He was once described as "the happy Puritan."  Unfortunately, it was the puritanism that worries about people having too much pleasure.  His most famous quote about his central banking philosophy was that the job of the Federal Reserve is "to take away the punch bowl just as the party gets going."  Hard to get more Puritan than that.

What saved Martin from being an unmitigated disaster was that his Puritanism made him cautious.  He thought that raising interest rates by 1/4 point was this big deal that should require serious thought by all concerned.  So he didn't do anything rash like run up rates to 21% prime—as Volcker did in 1981.  Martin tinkered with the economy—Volcker crashed it.  In countless ways, the real economy of USA has not recoverd from Volcker's "shock therapy."

And why is this so?  Because as any Producer can tell you, wrecking is easier than building.  Slowing the economy down is easier than speeding it up.  Now it's one thing if the economic slowdown has just been long enough so that people are glad to get back to work, the tools are still there, and the customers haven't gone anywhere.  That was a Martin slowdown.  With the Volcker crash, the factory is closed, the tools are shipped to Malaysia, the people who ran the factory have gone elsewhere looking for work.  To restart economic activity from that wasteland is almost as difficult as redoing the industrial revolution.

So now our glorious Fed, the institution that kept interest rates beyond the ability of the honest Producers to pay from 1981 until 2005 and wrecked vast landscapes of Productive activity, are now discovering that even rates at near-zero will not get the real economy restarted.  This reality has long been a part of monetary thinking—they even have a term for it "Pushing on a string."  Doesn't mean they actually understand the concept. (sigh)

Monday, January 30, 2012

The economics of solar energy

There is nothing in the real economy more important than energy and its price.  NOTHING!  Not only does energy displace the most unpleasant sorts of human labor, but the lower its price, the more of everything else one can buy.  And of the known energy sources—nothing even comes close to the importance of petroleum.  Nothing is so easy to handle, burns so cleanly, is so easy to transport, and packs so much energy in a tiny space.  Yergin got it right, oil IS The Prize.

Since oil is finite and everyone wants it, at some point it will be impossible to supply the demand.  When that will happen is anyone's guess but it is beginning to become abundantly clear that oil production has peaked.  If seven years without a meaningful rise in production doesn't indicate a peak, it would be hard to imagine what does.

Sunday, January 29, 2012

Protesting the bad guys

On a warm August 13 night in 1970, I got it into my head that I really wanted to see how Germans do protests.  I had found my way to Berlin and had spent a couple of days soaking up the Cold War energy doing things like crossing the border at Checkpoint Charlie and visiting a tomb of an unknown soldier in East Berlin (trust me, there is nothing quite as attention-getting as German troops goose-stepping.)  East Germany was depressing beyond words and the Berlin Wall redefined ugly and stupid.  So when I heard there was going to be a demonstration against the Wall on its ninth anniversary, I hopped on the subway and got off at the station nearest to the announced protest site.

Within an hour, I had been gassed.  I had managed to attend more than my share of demos between 1968 and 1970 including several where gas was used but I had managed not to even get a smell of it.  In Berlin, I discovered this had mostly been dumb luck.  The police had decided the demo was over and anyone who was still around would be gassed.  They laid down a fog and the buildings kept it around long enough so everyone got a taste.

I took several hours to walk it off and I found myself in a bar with some young Germans who decided this careless Yank could use some help.  I soon discovered that Berlin could lay legitimate claim as the European center for the counterculture and that strategies for revolution were considered small talk.  Part of this was due to a ruling that allowed young men in Berlin an exemption from military service.  When my new comrades discovered that I had spent the first half of 1970 successfully applying for a conscientious objector status from my draft board, they decided to adopt me.  By that time, it was already too late to go back to the youth hostel so I followed them to a ratty apartment.

The conversation was soon butt-puckering intense because these guys were extraordinarily well-educated.  Most were informed by Marx but none had any illusions of how Marxism was actually being practiced two miles from their apartment.  As I listened to this intellectual tour de force conducted after midnight by some now seriously wasted young students in their second or third language, it dawned on me, "In Germany, even the hippies are serious."

Those young radicals never pulled off a revolution, but some of them would throw a major scare into the German establishment.  And the biggest scare would come from SERIOUS folks who called themselves the Baader Meinhof Faction.  Not surprisingly, these people were not especially interested in the theories of Gandhi.  These were the children of the folks who had made the Third Reich work.  They absolutely loathed their Nazi parents and had few compunctions about using terror and assassinations.  And because they were the children of the establishment, they knew who the bad guys were and where they lived and worked.  There are reasons why it took the rest of the world to beat Germany in the 1940s.  I discovered that night that the only thing more scary than Nazis are the children of Nazis who are utterly pissed off at their parents.

They made a pretty good movie about the most famous radicals of the era—Ulrike Meinhof and Andreas Baader.  It came out in 2008 and was entitled The Baader Meinhof Complex.  Yes this is a movie, but it is a German movie about German historical events that many people actually know—so we can assume the history is mostly right.  The film starts with a demo against the Shah of Iran in Berlin that is set upon by both the German police and Savak thugs.  A West Berlin student Benno Ohnesorg was killed.  The protestors cried murder.  The police claimed "self-defense."  Some of the protestors came to the conclusion that the authorities were perfectly willing to murder them and that peaceful change had become impossible.  Soon the Red Army (Baader-Meinhof) Faction was born.  (One of the more interesting details about these radicals was that the big actors of RAF were Lutheran preacher's kids.  Gave me a minor rooting interest.)

So last Monday, Der Spiegel makes a claim that their new evidence shows that the protestors were right and that the police were lying.  This does not excuse everything the RAF did—far from it.  But it DOES validate their foundation story.

Of course, I could not have known any of that in August 1970.  But judging by their sophistication, my hosts that Berlin night probably knew a very great deal about the issues surrounding the underground war against the German establishment.  And since the German establishment had become very much a creature of the USA establishment, I knew what little I knew about RAF from news sources approved by CIA, State, and the Pentagon.  (Which means—less than nothing.)

We will probably see a lot of protests this spring.  People will get hurt.  And some people will come to the conclusion that peaceful change is impossible.  I would personally suggest that anyone who wants to try their hand at violence watch The Baader Meinhof Complex.  And as they watch try to remember, if the most serious young revolutionaries in post-war Europe could not make violence work, maybe it isn't a workable solution.

Saturday, January 28, 2012

Saturday toons 28 JANUARY 12

Short list of political cartoons today.  Two things will sink the Mittster—taxes and vulture capitalism.

Friday, January 27, 2012

SOTU: The horse has left, and the barn burned down

So, President Obama can still deliver a great speech. There are howls of joy on part of the tubez because the President has established a task force to begin (finally!) to investigate the massive national scandal caused by fake documentation being used to foreclose on millions of people's homes. Matt Taibbi, who I generally adore, writes that "The administration is clearly listening to the Occupy movement."

I just can't get that excited. This is a classic case of too little, too late. The horse has already left, and the barn has burned down. In fact, the whole effing farm has already been blown away in a dust storm.

Back in February 2009, I posted this little fantasy speech of what I think really needs to be done. If it seems politically impossible to you, I'll just repeat what Ian Welsh recently wrote: "You can have widespread prosperity and democracy, or you can have oligarchs. You can’t have both." Oh, and I'll point you to George Soros's eye popping prediction of riots, police state and class war for America.

Those masters of the universe continue to impress

If ever a man personifies the expression "Just smart enough to be dangerous" it must certainly be Vikram Pandit of Citicorp.  This guy couldn't contribute to the solution of any of the big man-made problems like Peak Oil or climate change with a gun to his head.  But since he was clever enough to get the USA government to save his paycheck, they made him one of six co-chairman of the World Economic Forum—the winter meeting in Davos Switzerland, where the folks who have amassed enough financial power gather to destroy lives around the world.

But let's leave the critique of Pandit to those who know him better—the folks from Business Insider and Bloomberg.

Thursday, January 26, 2012

Miss the Cold War?

It is highly unlikely that anyone who lived through the "duck and cover" days of the Cuban Missile Crises, the building of the Berlin Wall, and the rest of the fear-mongering that went with our perpetual state of war post-1945 will ever have a detached and scholarly view of Marxism.  The enemy was communism and the god of communism was Marx.  I knew people who quite seriously believed he was a modern incarnation of the devil.

I know I was scared shitless.  I had nightmares.  I lived in a town settled by Mennonites who had been farming in Russia before being driven out in the 1870s by an evil new Tsar, Alexander II.  These people were predisposed to believe that Russians could be wicked—Russians led by atheists was their worst nightmare.  One neighbor built a stand-alone fallout shelter connected by a tunnel to his house.

But I got lucky—I got to know some Scandinavian Marxists who mostly demonstrated to me why practicing Marxists were a lot like any other devoutly religious person.  As a preacher's kid who was exposed to deeply religious people from earliest childhood, this made them seem pretty normal.  Their belief set was filled with noble sentiments and my friends had more than their share of idealistic altruism.

The problem with the Marxists wasn't that they lacked high moral purpose, the problem was that they couldn't run a modern economy.  Turns out Marxist thinking may well be suited to organizing education and medicine but screws up agriculture and manufacturing.  No Marxist would have dreamed up the iPad in any imaginable timeline.  Saddled with Ladas, long lines, and crop failures, the tide of Marxism would start to recede from its economic misconceptions, mistakes, and mismanagement.

Of course, the economists who informed me in the beginning didn't treat Marx as much of an economist anyway.  So I became one of those mixed-economy types who believed that Marxism was only useful when the project was large and public—but keep these people AWAY from agriculture and the manufacture of anything complicated.

Anyway, we recently had a demonstration of the preservation of archaic traits.  The Republicans had a debate in Florida and the candidates were asked to explain how they would react to the death of Fidel Castro—the last of the Cold War era official enemies.  The responses were predictably sub-reptilian.  But of course, Fidel is still with us.  And he had a response.  I must be getting old—this Cold War exchange no longer frightened me but rather inspired a sentimental nostalgia.

Wednesday, January 25, 2012

Heterodox economics, heterodox thinking

We are often told that the big distinction in learning strategies is between the specialists and the generalists.  Academia in USA is so heavily skewed to the production of specialists that it is almost impossible to become a well-trained generalist.  And this state of affairs certainly has its advantages.  People who devote the majority of their energy to learning one subject are highly useful members of society.  We certainly want our heart surgeons and tower crane operators to be more than gifted amateurs.

Unfortunately, the same strategy that produces our gifted specialists is terrible for producing the sort of generalists necessary for the kind of thinking required to make community-wide decisions.  So while our computers become more intricate (the output of specialists), our politics (a profession requiring generalists) become more primitive—and thousands of other excellent examples.

The problem is that there aren't many agreed-on paths to becoming a high-level generalist.  So even natural generalists blessed with an omnivorous curiosity tend to get funneled into some specialism.  Schools have experimented with cross-disciplinary degree programs and the whole idea of liberal arts distribution requirements is to encourage a basic generalism.  But in the end, about the only way to produce a high-level generalist is to train curious kids to a specialist level in three or four skill-sets and hope the intellectual sparks created by the process will encourage them to fill in the gaps on their own.

Back when I learned economics, the great practitioners were all generalists.  Some of this was the legacy of Thorstein Veblen who was called "the last man to know everything."  There really was once a time when with great effort, someone could essentially learn everything humans knew.  Of course, now it is almost impossible to know even 1% of those bits of knowledge that are beyond rational debate.  So in the 1970s the economics profession essentially threw in the towel and abandoned any sort of generalist approach.  The result is that we have had a profession devote 30 years of big computers and big math in an effort to prove the narrow and utterly bogus proposition that markets are infallible.  The specialist economists who are dazzling at fast algebra are unfortunately so socially backward and narrowly focused they regularly prescribe disasters.

So it is comforting in a small way to discover that an over-reliance on specialist thinking doesn't work very well in medicine either.  The following from Wired Magazine about Pfizer's $21 billion dollar disaster drug torcetrapib is a real economics manifestation of the intellectual problem that reduced economics to its present level of irrelevance.

Tuesday, January 24, 2012

The education of David Stockman continues

I have a special interest in a decreasingly tiny sliver of American life—the really smart farm kid.  My favorites includes Thorstein Veblen and Henry Ford but there have been thousands of them and much of the industrial midwest was built by them.

So I was hopeful when one of those obviously smart farm kids was named to be Ronald Reagan's Budget Director.  Of course, he came in spouting supply-side horse shit but I kept hoping that rural reality would show up when it counted.  In some ways it did.  In 1981, William Greider published an interview in the Atlantic Monthly called The Education of David Stockman where he blew the whistle on the supply-siders.  It wasn't a major awakening but it was a start.  And Reagan "took him to the woodshed" over it and eventually he lost his job.

Stockman still doesn't understand things very deeply but it is obvious he is still evolving.  So when he sat down with Bill Moyers to discuss his take on today's economy, it was a good place to see how far he had evolved.  Well, not so much as I had hoped but he does draw a distinction between crony capitalism and the real thing—so there's a start.

Gordon Gekko in Florida

Mitt Romney is having some more trouble pushing his big lie that Bain Capital was a creator of jobs.  This time, it's the Miami Herald that is calling him on his BS.  Romney was once leading the Florida Primary by 25% in the polls.  That lead is gone.  Say what you will about the current Republican Party—it seems more obvious by the day that their voters are not going to back Gordon Gekko.

More financial corruption of government

The sheer amount of corruption that surrounds the property financial bubble is quite literally breath-taking.  And because the size of the corruption is so vast, it includes nearly everyone including the biggest and most well-know white-shoe law firms in the land.

Monday, January 23, 2012

Shades of Catherine the Great

One of the more noticeable things here in the northern corn belt is the prevalence of German surnames.  Farming is a LOT harder than it looks and after 150 years of harsh climate, Predatory economics, and assorted other major hazards, a large percentage of the survivors are German.  A surprising number of these immigrants, however, came from Russia.  This is an interesting story and one I heard from kids in my grade school who spoke German at home but whose grandparents had fled Russia in the 1870s.  Here is their story as told by a North Dakota historian in 1910.

Saturday, January 21, 2012

Citizens United – The Sedition of the Roberts 5

Two attorneys involved in defending Occupy Wall Street make a very interesting argument that the notorious Citizens United decision does NOT rest on the concept of corporate person-hood, and therefore the effort to get a Constitutional amendment ending corporate person-hood is a waste of time and resources.

While I disagree with their opposition to a movement to declare corporations “not human” (or, even better, “inhumane”), the two attorneys, Rob Hager and James Marc Leas, do force us to find firmer ground on which to combat the pervasive and perverse influence of money in politics. I think that ground can be found by returning to the ideas of the American Revolution concerning the best form of government being a republic, and identifying the money in politics as being the result of new oligarchies having come into being – remembering that oligarchies are always and everywhere hostile and inimical to a republican form of government.

This issue of a republican form of government will come up more and more frequently, as the one percenters move to impose increasingly dictatorial political restraints in their effort to control the or even avert the social explosion being brewed by their continued looting of the economy. Recall that in early December 2011, Representative John Conyers requested U.S. Attorney General Eric Holder to determine whether Michigan's new state law that could place Detroit and four other cities in Michigan under the control of an unelected emergency manager violated violates Article 4, Section 4 of the U.S. Constitution guaranteeing to the states a republican form of government.

Saturday toons 21 JANUARY 12

The cartoonists have been very good recently because in my mind, the story of this election is the story of Mitt Romney as a vulture capitalist—Gordon Gekko explaining to Bud Fox why he was wrecking Blue Star Airlines in spite of his promises not to, "Because it was wreckable."  Can it be possible that the citizens of the USA will vote for a corporate raider—someone who personally destroyed their lives and got extremely rich doing so?

What was so utterly loathsome about the raiders was how casually these sociopaths destroyed vital industries that took sometimes four generations to build.  So now the pirates are going to scream "If you are against seizing and destroying assets—you are against holy capitalism!"  And the papers and pundits will shuck and jive around this issue.  But facing the apologists for this crime spree is an irrefutable fact—there IS a difference between up and down, between building and destroying.  I am betting reality wins this one.

Of course, Romney is an example of another persistent scab on the face of the Republican Party—the idiot sons.  W. raised the bar but he has plenty of company.  George Romney (Mitt's father) made cars—cars so ugly and badly-made American Motors is out of business but at least he made something difficult.  Mitt gave us Staples—a big box office supply store—and wrecked a whole lot of other enterprise.  The slippage between George and Mitt Romney utterly trivializes the slippage between W. and dad.

So here's to Gordon Gekko—the face of the new Republican Party.  I wonder how well this gang of uber-thieves is going to get along with the fundies.

Friday, January 20, 2012

Citizens United and corporate personhood

Two attorneys involved in defending Occupy Wall Street make a very interesting argument that the notorious Citizens United decision does NOT rest on the concept of corporate person-hood, and therefore the effort to get a Constitutional amendment ending corporate person-hood is a waste of time and resources.

As I read the article below, I thought that more fundamentally, we need to address the issues of what a republic is supposed to be, and how the people are supposed to direct the affairs of the republic through their representatives -- which brings us to the issues of oligarchies and political factions, which WERE considered in the Constitutional Convention and in The Federalist Papers, as I noted in Wealth and Income Inequalities are Markers of Oligarchy.

The "brilliance" of mainstream economists

Larry Summers is the perfect example of what an economist looks like these days.  This man was once the youngest person to ever get tenure at Harvard.  He has not one but two uncles who have won the Riksbank Prize (Nobel) in economics.  Not surprisingly, he has been disastrously wrong about just about everything he has ever written about—which might be a problem except that economics these days is a "profession" where the surest route to the top is to have been involved in nearly every crackpot decision made in the past 35 years.  That's our Larry.

In a normal world, a guy like Summers would have long since been retired to a home where some poor minimum-wage caregiver has to change his drool buckets every shift.  But economics is more than just another fail-upward gig, the occupation has so ruthlessly run off the sane that there are almost no alternatives to the neoliberal mouth-breathers.  This means a potential replacement for Summers isn't some brilliant Institutionalist who wrote his Ph.D. thesis on market failures and has done amazing work on the factors contributing to structural underemployment—because those people mostly don't exist anymore.  So if you need an economist to run the World Bank and don't pick Larry Summers, you are almost certain to get someone who is just as goofy only without the pedigree or CV.  Or the "brilliance."

Thursday, January 19, 2012

Hungary—well that was fast

This is what a 'thoughtful' observer in the mainstream press was saying about Hungary only a week ago.  The Prime Minister is called an "authoritarian populist."  (Oh horror!)  It warned of a default.  It warned of a breakdown in talks between the IMF and the government.

I would not be the least surprised that the bondholders are worried.  After all, there are almost 200 nations that could default any day now.

Wednesday, January 18, 2012

Slapping the little guys back in line

After watching the banksters swagger around, looting and pillaging, for over a generation, I have pretty much decided that the most we can hope to achieve in controlling these criminals is serious regulation.  I still applaud the wag who suggested that "the regulation of the financial services business should be so comprehensive and strict, the head of Goldman Sachs would have to get a hall pass from Marcy Kaptur to take a dump." But in reality, I would settle for financial services being treated like a regulated utility.

But look what happened to Hungary when she attempted to put some restrictions on the "sacred" independence of the central bank.  The EU has stepped in to explain how her government will be allowed to run.   Actually, the restrictions Hungary wanted impose are very reasonable—which pretty much means my reform wish list will never happen. (sigh)  I especially liked the part where central bankers were required to swear a loyalty oath the the country.  Imagine asking a central banker to place the well-being of his country above the institutional needs of the central bank. (the horror)  Gotta bring the big guns down on that!

Tuesday, January 17, 2012

Bankster bashing for good reasons

The bad guys are worried.  After making off with the world's assets and crashing the real economy, the banksters are suddenly concerned that maybe people really ARE pissed at them.  This precious little piece from the Economist wants everyone to know that even just sending these pirates to jail would be so over the top.  Because banksters are really not simply a gang of ignorant rapacious thugs, they are a responsible group of misunderstood geniuses who go to work every day with a goal of social betterment firmly fixed in their steely gazes.  Or words to that effect.

Monday, January 16, 2012

Rising food prices accelerated by speculators

Cheap food—the ultimate bribe to 99% in USA.  It has been official government policy since I can remember.  I grew up hearing farmers curse cheap food policies.

But food isn't so cheap as it once was.  Could we ever see "first" world food riots? I have no idea but I do know, letting speculators in on this action is going to make things MUCH worse.

Sunday, January 15, 2012

The Great Decline (consolidated)

This past week, I have attempted to briefly summarize why the prosperous USA of my youth no longer exists.  This is a HUGE subject so naturally, a lot of things were left out but considering this is a story that most people missed even though they lived though it, it's a pretty good basic primer.  So today, I am mushing all six articles together into a single post for the convenience of anyone who wants to pass this history around.

There are many reasons why folks missed this major change in the fortunes of a nation.  Economics is poorly covered by the mainstream media.  Economics is a subject shot through with specialized jargon.  The 1% who actually benefitted by these economic changes controlled many of the communications channels so many of the greatest disasters were presented as a necessary improvement.  Etc.

Thanks to all who have already commented.

Saturday, January 14, 2012

Saturday toons 14 JANUARY 12

Today we see the cartoonists take on the interesting topic—will USA elect as President a man who has made his pile as a vulture capitalist?

Friday, January 13, 2012

The war on Producers

The whole point of deregulation was to make it possible to organize massive plunder and not go to jail.  All other reasons proffered are just so many distractions.  At the start of the Reagan administration, there were still a lot of heavy assets to loot.  There have been books written about this era—some of them very good—and there will be a lot more.  The reason is simple—the era of neoliberal plunder of real assets and the deindustrialization that followed represented a historical reversal of a national pro-industrial development strategy that goes back to those inventor founding fathers such as Jefferson, Franklin, and Tom Paine.

During the madness, it mattered little how well an industrial concern was managed.  Loyal customers, good products, great research teams, whatever—didn't matter to a raider.  In fact, suppose a company had set aside a nice nest egg to pay for the development of new products.  In the world of Producers, this made such a company a shining example of industrial capitalism.  In the mind of a raider, this nest egg was what he intended to grab during the hostile takeover.  The idea that the "restructuring" specialists only destroyed the weak and deserving is utter nonsense.  Lots of fine companies were destroyed.  Not merely stolen—destroyed!

It was during this era that USA lost its economic muscle.  I am not going to try to summarize the destruction or highlight some especially bad actors because in truth, EVERYONE got sucked into the madness.  Union pension funds were used to destroy the very industries that would pay future pension costs.  Environmental NGOs invested their endowments in currency swaps.  City administrators bought junk bonds because the higher return meant raises down at city hall without raising taxes.

Thursday, January 12, 2012

Bad theory becomes law

The whole point of changing the teaching of economics was to make it acceptable to trash the regulations that had been put in place during the New Deal to prevent another Great Depression.  And as would become readily apparent, these regulations had been put in place to address real needs.  Well written and administered regulations lead to more scientifically advanced and prosperous societies because regulations protect and permit honest entrepreneurs to thrive.  The more complex the society, the more of these honest people it takes to keep all the parts working.  Take away the rules and the cheaters will drive out the honest operators.  The only historical outcome of "deregulation" is a rise in corruption of all forms and a destruction of industrial potential.  Pretty much describes the past 35 years, huh?

Deregulation in all its forms has been an ongoing project.  There are literally countless examples.  This is just my list.  I have also created a separate category for the decriminalization of usury because this involved special levels of cultural warfare.

Wednesday, January 11, 2012

The new reality

Peak Oil presented the USA model of prosperity with a VERY unwelcome dilemma.  In any era where energy supplies are rising and prices are falling, big sprawling projects are possible.  Interstate highway system—no problem.  Urban sprawl—no problem.  A two-ton car for every adult in the land—a goal to be cherished.  But when energy prices rise, making big heavy things for a living becomes risky indeed.  Anything that was called a "heavy" industry had encountered a major roadblock.

So while major industries like steelmaking staggered under the new reality, the enterprises that made the small and light thrived—most especially those associated with the computer industry.  The daily output of an automobile factory required trains to haul away—the daily output of a microchip factory could probably be packed in a van.  And then there was software—a vital requirement for computers that was actually weightless.

In short, there was a real economy reason why the steel mills of Reading Pennsylvania were shut down and left to rust while companies like Microsoft became the darlings of the financial press.  But these changes were about to be accelerated by that ultimate in weightless enterprise—financial "services."

So what? you say.  Out with the old—in with the new.  Creative Destruction is a good thing according to various economic gurus and replacing steel mills with traders in the various manifestations of weightless electronic money is probably an environmental benefit.  What's not to love?  Well two things actually.

Tuesday, January 10, 2012

The foundations are laid for the Great Decline

The Great Prosperity following World War II was product of many forces but was based on the material wealth churned out by the amazing productivity of the American Industrial System.  As late as 1962, USA made more things than the rest of the planet combined.  As a result, we were a creditor nation and had a massive trade surplus.

But the 1960s saw an explosion of overseas expenses—most notably for wars of imperial aggression.  Yup, Vietnam.  (I have a friend who believes the decline of USA was the direct result of the "bad karma" we earned invading Vietnam.  He has a point.)  As the trade balance tipped into negative territory, something very important happened to the real economy.  In 1970, domestic oil production peaked.  After that, the oil bill would contribute ever larger amounts to the trade deficit.

Monday, January 9, 2012

Did economics once work better?

Of all the wrong-wing gibberish, the most annoying is the claim that we Progressives are just dreamers who don't have a track record to run on.  Wrong.  We have a track record that is the envy of any political movement ever.  When it comes to economics, WE are the grown-ups in the room.

In the days to come, I intend to explain how a system that produced significant prosperity was destroyed and the events that destroyed it.  This is a pretty big project so today, I post an introduction that outlines the basic historical contours.  We will get to the specifics soon enough—starting tomorrow when I intend to discuss the decision to allow free-floating currency exchange rates and the impact of domestic Peak Oil in USA

Sunday, January 8, 2012

A blueprint for a dump

One of the things that always fascinates me is talking to folks, say, 35 years old and realizing that the USA that I grew up in doesn't even exist as a possibility for them.  It hasn't existed at any time during their lives and since the teaching of contemporary history is virtually non-existent in the country, the ONLY possible way that USA could exist in a 35 yo mind is if they got very lucky and read some good books.

My father was poor as only a small-town preacher can be.  During much of my childhood, he made $300 a month.  There were six of us.  We did get to live in a parsonage so housing was free but there wasn't much left over in any month and it was always welcome when a farmer from church slipped some fresh food into the car.  But this was not poor by any stretch of the international definition of poor.  We children went to well-lit, well-heated mostly new schools that had music, art, and science departments.  Our house had central heating and indoor plumbing.  We had a telephone.  Even though we didn't get television until I was a high-school sophomore, we had radio and a record player.  My oldest sister took music lessons on the piano, flute, double bass, and pipe organ becoming proficient in all of them.

When it came time to go to college, I had a big land-grant university waiting for me that charged $125 in tuition and $300 for a dorm room each quarter.  Jobs within walking distance of campus paid at least $2.00 an hour and because I knew how to build houses, I could get $4.00 an hour working construction during the summer.  Do the math.  It was a lot of work but it was possible to self-finance a university education.

And about those jobs.  In the fall of 1969, I got a part-time job delivering critical care medical equipment.  In the spring of 1970, I got into a hassle with my draft board and would up dropping out of school (long story).  In three month of working full time at the medical delivery service, I was able to save up enough money so I could spend the whole summer hitchhiking through Europe—one of my most profoundly significant life experiences and one only the children of the truly wealthy can afford now.

The other astonishing memory was of a house I helped build the summer I graduated from high school.  It was a modest affair for the times—three bedrooms, a full bath, kitchen, dining room, living room, central heating, a full basement, and a two-car garage.  It would cost the new homeowner $18,400 ready to move in.  Here was the interesting part—the guy we were building it for worked on the line at the local shoe factory doing things like pulling lasts and stitching soles.  Sometimes he would come by after his shift to watch us build his house.  He always looked very tired.  I am sure he earned every cent he made at that factory twice over but he was getting a brand-new house that was literally beyond the imagination of some teenaged girl toiling endless hours making shoes for Nike in Indonesia these days.

Today these things seem to me like a fantasy and I lived through them.  I grew up in a nation that went to the moon just because we could do it.  I was there when the Interstate highway system was new.  I remember when the Boeing 727 brought the jet age to small airports and dozens of other aviation triumphs that culminated with the 747 in 1969—still considered the best subsonic transportation plane ever designed.  The optimism was so heady, my high school graduation speaker (1967) promised our class that we would be the last humans to walk solely upon planet earth.

Well obviously, that USA doesn't exist any longer and so I have decided, as a new year's project, to explain as best I can the economic, social, political, and cultural changes that destroyed the country of my childhood.  None of this is new.  All of the events I will describe happened in public.  In fact, the only reason this isn't common knowledge is because contemporary history is not taught.  I am calling this tale of extended disaster "a blueprint for a dump."

Saturday, January 7, 2012

Saturday toons 07 JANUARY 12

As the New Year staggers in, we may have become slightly more aware of our condition but not much else has changed.  Note that one of these toons is from 2004.  And yes, the Brits still hate the French and the Germans—imagine that.

Friday, January 6, 2012

Peak oil and climate change hits food prices

Yesterday, temperatures shattered all high-temp records for January here in Minnesota.  In Rochester, the record was broken by 15° F.  That's not merely breaking a record—that's demolishing it.  It has been said that the further you are from the oceans, the equator, and sea level, the more noticeable the effects of climate change are likely to be.  We don't have a lot of elevation but we are in the middle of a large continent and are half-way to the north pole.  15° F!

None of this would matter so much except that we grow a LOT of food around here.  15° F hotter than usual is amusing in January.  In July, it would cause a catastrophic crop failure.  Last year, we had a difficult growing season.  Spring was cold and wet.  Some planting didn't get done until June.  Then heavy rains washed out many low spots.  Finally, by the end of July when the corn began to pollinate, the weather turned very hot.  It turns out corn does not pollinate when the temps are above 90° F.  So when the sweet corn came on the market in August, you could see the damage cause by that "minor" heat wave—the ears were not filled out with about 2" of the tip un-pollinated.  Three days of excessive heat and the corn yield suffered by 10-20%.  It turns out we don't actually need enough climate change to turn Minnesota into the Sahara.  Just a small change is enough to cause tremendous problems.  This also applies when a 2" rainfall becomes a 5" flash flood or when a 30 mph windstorm becomes a 60 mph blow.

And you watch—even with these looming catastrophes, neither Peak Oil nor climate change will rate even a passing mention in this fall's elections.

Thursday, January 5, 2012

Oh those job creators

Of all the annoying Frank Lunz memes, the idea the that uber-rich in USA are somehow associated with creating jobs is truly the most vile.  Once up a time, there were rich guys who DID create a lot of jobs.  But that was back in the days of industrial capitalism.  Now the vast majority of the 1% have actively destroyed employment—especially in the category of good jobs.

Wednesday, January 4, 2012

Leading the way

It's nice to have someone else sort out the problems of renewables.  It's even nicer when that someone is German.  Why?  Because no tribe on earth is as practiced at making even bad ideas work well.  For example, there is probably no idea that is more unworkable than to build a high-powered sports car with the engine mounted behind the rear axel.  Objects in motion tend to be far more stable when the weight is concentrated in the nose—as with an arrow.  If the weight is concentrated in the tail, the tail keeps trying to pass the nose.  To even try to make such a configuration work seems an act of lunacy yet the Germans managed to build such a car and make it one of the most desirable vehicles ever built—the Porsche 911.  And they made it work through dogged persistence and a willingness to fuss over a thousand details.

Replacing nuclear power with wind will probably make the 911 problems look very elementary.  But if humanity is really going to power itself with renewables, SOMEONE has to solve these problems.  In this article, we read of Germans complaining how hard it is—thank goodness they are the world champions at producing the essential elements of infrastructure.

Tuesday, January 3, 2012

Mitt Romney—job creator

The vulture capitalists who made their money by destroying jobs, companies, lives, and communities now seem to find the unmitigated chutzpah to call themselves "job creators."  Mitt Romney, the son of an automobile executive whose career was at the execrable American Motors, decided it would be more "profitable" to wreck rather than make things.  He was probably right.  No wonder the Republican establishment wants this clown to lead their ticket.  It will be interesting to see how the great Republican unwashed react to his appeal at the Iowa caucuses tonight.  Let the freakshow begin in earnest!

Sunday, January 1, 2012

Predictions for 2012

Institutional Analysis has the side benefit of being able to make pretty accurate projections.  Of course, since the basic assumptions of IA include the idea that institutions act the way they do because it is the most efficient way to promote their own economic interests, you can sum up most IA predictions by saying that things will not change much—bankers will continue to act as bankers, etc.

But even when the default setting for IA is that things won't change much, there is still an incredible amount of understanding that can be derived from this basic idea—especially at a time when the great institutions are in serious trouble and populations around the world are clamoring for change.  So the question becomes, how much change can those angry populations reasonably expect?  This is actually a very important and interesting question.

For example, Barack Obama ran on a platform of change.  People believed he meant what he said and expected that a black community organizer would go to Washington and change things.  Some of them worked very hard and gave money to get him elected.  So now they are extremely disappointed because on issue after issue, Obama not only did not change much, he has actually extended his predecessor's most hated policies.

But really, did the Obama backers have any reasonable expectation that he would govern all that differently than W. Bush?  The IA answer is, probably not.  Why?  Because the permanent institutions of government—the people who were there before he got to the White House and will be there when he leaves—have just too much power and inertia.  Moreover, the permanent government has been dealing with Presidents who they could ignore since at least the Alzheimer administration of Ronald Reagan.  RR wasn't allowed within 10 miles of an important decision and my guess is that neither is Obama.  The permanent institutions of government do not care one whit whether the President is a Republican or Democrat or by how many votes he was elected.  Obama has been clued to the power of permanent government and it is clear he wants to please them MUCH more than he wants to represent some volunteer who slept in a church basement to get him elected.  Of course, this was hardly a secret.  The fact that Obama was already in the pocket of Wall Street long before he was even considering a run for the presidency should have tipped folks off, but it didn't.

So the first prediction of 2012 is that for all the sound and fury, the elections won't mean much.  The big issues like how this country will rebuild its economy, how the financial institutions should be reformed and how debt should be restructured, how we deal with Peak Oil or climate change, etc. will be buried under an amazing pile of irrelevance like Gnoot Gingrich's sex life.  Thoughtful voters will turn away in disgust.  Correct that—everyone will be disgusted by the mental image of Gnoot having sex.

The economy will continue to stagger from one disaster to another because the powerful players have such narrowly defined interests.  The big actors consist of the creditor classes and the only thing they are really interested in is will they get their money back with interest (rents).  Anything that threatens their income stream is by definition bad—no matter how socially useful it would be.  So they will patch up their defective monetary video games with naked grabs for any wealth not nailed down—and even some that is.  The idea that the creditor classes should invest in the real economy is hopelessly beyond their ability to even imagine.

The powerless will resort to the only options they have—public protest, strikes, boycotts or whatever—and the authorities will respond with outsized and disproportionate displays of violence.  People will probably get killed in the process.  Under other historical circumstances, this could lead to revolutions but since the powerless are also agenda-less, this probably won't happen.  In all fairness, the question should be asked—if the powerful cannot come up with anything that reasonably resembles a solution to the big problems, why should the powerless?  Even so, if the powerless cannot even get something as basic as a foreclosure moratorium and mortgage restructuring done, they really are camping out in the cold for nothing.

The for-profit media will continue to avoid covering anything important and their market share will continue to slide towards zero.  The trend in "reporters" will continue in the direction of CNN's Wolf Blitzer—someone so stupid no serious person would listen to his advice on how to vacuum their carpets.  Fortunately, there are plenty of information alternatives like the Internet.  Unfortunately, all this information can only confuse those without a decent education that includes a lot of historical context.  Anyone actually see citizens of USA getting such an education?  Yeah, me neither.

The USA will still retain its "lone superpower" status but its global influence will continue to diminish as people discover that the ability to blow things up doesn't mean all that much.  In economics, the USA will NOT lead the green revolution—that train has already left the station.  And its cultural influence will continue slide as the idea that "American Culture" is an oxymoron spreads beyond the world's intellectual classes.  Somewhere it is probably possible to make a bet whether the Swedish or USA version of The Girl with the Dragon Tattoo will have the bigger box office take.  The bets are probably on the Swedish version.  Cultural dominance has become WAY more important than aircraft carriers in any scheme of empire.  And while Three Stooges fans prove that there will always be a market for stupid, the culture of empire cannot live by stupid alone.

Turns out the biggest problem is that we as a nation have forgotten how to make positive change. Sure we still know how to change—backwards.  Any fool can drag us back to the dark ages and anyone who has seen the republican clowns running for president can argue we have already arrived.  I mean, Ron Paul actually wants to put us back on the gold standard—and he's the enlightened one.  Gnoot won't let a lifetime of profoundly regressive ideas that ended in disaster dent his self-evaluation that he is an intellectual.  The rest barely communicate above the level of grunting.  But on this, the Democrats are barely better.  After all, Al Gore's Cap-and-Trade plans to combat climate change are little more than a Wall Street scheme to make a quick buck.

I mean, can anyone seriously believe that a bunch of banksters who have few skills beyond snorting lines from a hooker's thighs are going to organize the phase-out of fire.  Positive change can only happen when serious people work hard for years to perfect a solution.  On Wall street, long range planning means tomorrow's lunch.  Since such people cannot think long-term, they are not qualified to make positive change.  And as anyone who has dabbled in Institutional Analysis can tell you, any change is difficult but positive change is nearly impossible.

(See also: The most interesting events of 2011)