Neoliberalism as "respectable" behavior

Because of where I live, I was exposed many years ago to an old argument in economics. The history of a local liberal arts college has an interesting story.  When the school was just starting out, it had a young president named John Bates Clark.  (Yes, the very same John Bates Clark in whose name they award a prize to the up-and-coming economist most likely to not rock the boat.  Sometimes they mistakenly award their prize to someone who decides to become a bit more progressive in their old age—Stiglitz and Krugman are two of the more well-known examples.)   One of Clark's first students was the genius named Thorstein Veblen.  Even though Clark and Veblen would form a lifelong friendship, their views on economics were could hardly be more opposed.  While Clark would spend most of his life teaching, promoting, and trying to find wider applications for the Theory of Marginal Utility, Veblen would spend a significant fraction of his energy debunking marginal utility in all its forms.

The local college honors this intellectual spat by sponsoring its Veblen-Clark lecture series on economics.  But it's all window dressing—there are NO Veblenians in the economics department.  This is an expensive high-class school with a reputation to uphold.  Hence the department is devoutly neoliberal.  The spirit of Clark—the man who thought that the driving mechanism of the market could be applied to all human endeavors—smiles down on the economics department of his school.

So why are there neoliberal Democrats—even though this set of beliefs runs counter to the economic interests of most who call themselves Democrats?  That answer is pretty easy—MOST people under the age of about 65 have never been exposed to anything BUT neoliberalism in any academic setting.  And the more prestigious the school, the more rigorous the indoctrination.

Iceland and Auroracoin

As someone who has followed the various debates over money for most of my life, I find this new effort to introduce a new currency into Iceland's battered economy to be a very interesting story.  Coming as it does following an economic catastrophe triggered by banks playing crooked games with money, any attempt to introduce a new currency that is democratically controlled (as opposed to controlled by banksters) is bound to attract interest.  The alternative money schemes proposed in the areas of USA most devastated by the "Crime of 1873" were based on two principles:

1. The value of money is determined by the hard work and ingenuity of the people who issue it,
2. Any money that you can use to pay your taxes is by definition valuable—this was a primary teaching of the Greenback Party.

Whether the Icelandic Auroacoin will succeed is probably a function of how closely it adheres to these principles.  It will also be restricted to the local economy—it is almost impossible to imagine the Aurocoins ever trading on the Forex exchanges.  An Icelander might be able to buy a used car from a neighbor with Auroacoins but he won't be able to buy a new car imported from Germany with them.

Have the Climate Change deniers won?

Now this is an interesting question.  On one hand, it is absolutely, utterly impossible for the climate change deniers to "win."  Climate change is a scientific fact and as such is something we cannot dispute but can only learn to understand better.  It actually makes no difference what anyone's opinion on the subject might be, the fact remains that pumping CO2 into the atmosphere has and will trap greater amounts of energy.  What happens to that excess energy is open to various forms of prognostication, but the existence of that extra energy is well beyond reasonable debate.

On the other hand, the deniers have won in the sense that they have blocked meaningful progress in addressing the problem at a public policy level.  And the problem is not confined to drooling morons and the coal company hirelings.  It has spread to the educated "elites' who don't dispute the science.  I posted an example from Harvard just last Tuesday.  In fairness, while I love to blast "liberal denialism" these days, (personal examples can be found here, here, and here) having one's heart in the right place is an improvement, however small.  The BIG reason that the liberals and environmental activists don't get anything done is that they don't understand the nature of the problems they face.  They actually try the "solutions" they do understand (organizing conferences, writing books, publishing a magazine, organizing rallies, etc.)  Unfortunately, none of these "solutions" is remotely applicable to the problem.  So they keep doing things that clearly cannot work and soon everyone gets tired of their hectoring / consciousness-awareness raising.

And so even though climate change is obviously the most important subject in the history of human existence, most people just want it to go away. And since most of us cannot do much about it anyway, and actually understanding the issues means you stayed awake during high school chemistry class, ignoring the whole subject is a very real and quite desirable option.

Solar's growing promise

There are NO reasonable arguments against the proposition that in order for humanity to survive on this planet, we must stop consuming the stored energy capital found in the earth and design a society that can live off of the energy income that beams from the sun.  Of course, that is not to say that this transition will be easy, cheap, or quick.  But it is beginning to look like the basics are in place.

The key to this possibility is the enormous advantage we have because we understand electricity pretty well.  Considering it was 1832 when Faraday first explained electromagnetic generation and we didn't see the first central power station until 1881, the idea that we could power our societies with anything other than fire is very recent.  And the idea that we could economically convert sunlight directly to electricity is just now happening.  Because humanity has learned how to make cheap PV cells, more solar has been installed in the U.S. in the last 18 months than in the 30 years prior.

So even though we have a long way to go, there is really good news to report.  Direct conversion of sunlight to electricity is now cheap enough to go head-to-head with our least expensive fires.  Folks like Dean Baker are beginning to realize that wars over fuels may soon become an embarrassing footnote in human history.  Yet as SolarCity's growing problems remind us, the habits of living off the earth's energy capital do not disappear overnight.

Money creation—the mind is repelled

The process by which banks create money is so simple that the mind is repelled.

John Kenneth Galbraith

I can still remember small details of the room where I was sitting when someone explained the mysteries and glories of fractional banking to me.  I did NOT believe him.  I was in seventh grade and had already thoroughly absorbed the idea that banks attracted deposits by paying a low rate of interest, found worthy borrowers willing to pay a higher rate of interest, and made their living off that spread.  It had to be true or else why would Milburn Drysdale put up with so much to keep Jed Clampett from moving his money out of Drydale's bank in the Beverly Hillbillies.  Thankfully, by the time I was ready to write my chapter on Money in Elegant Technology, I had been overwhelmed by the evidence that the fractional banking story was true and the Beverly Hillbillies version was not.

Unfortunately, most people still believe the fairytale about the importance of depositors, big and small, to the banking business.  I understand their skepticism because I was once one of them (in the seventh grade.)  Even so, it is a bit unnerving to discover the true believers can be full-grown and aging adults.  And their childish beliefs are even less understandable these days after the Bank of England (of all institutions) has decided to come clean on the facts of fractional banking (in March 2014).

An end to neoliberalism?

Neoliberalism is most certainly NOT dead.  I wish it were.  There are few ideologies that have caused more damage to more people than that body of crackpot beliefs.  But because it reduces complex problems into "solutions" for simpletons, it will probably be taught somewhere on earth 500 years from now (assuming the human race survives that long.)

The reason why neoliberalism has followers is because it is a pretty damn good system for the über-greedy to seize ever larger shares of the economic pie.  Unfortunately, this system is pathetic at creating the pie in the first place.  If you are a someone (or country) that is starting out poor and hope to improve your situation through development, neoliberalism is the LAST set of ideas you should try.  So it is IS quite encouraging to see that many developing nations are beginning to discover this truth.

Unfortunately for those of us who live in countries that had once achieved enormous power and success, neoliberalism has destroyed much of our economic muscle.  Compared to where we need to go to build a society that can actually sustain itself, we are very much a developing country (again.)  We are the ones most in need of learning that neoliberalism is mostly the method by which rich countries become poor again.

So Russia is just a regional power, huh

The G8 (now G7) is supposed to be this exclusive club of important economies. But since it contains members like Italy and Canada while excluding India and China, it looks to most outsiders as a club for white folks (plus Japan).  They had included Russia back in the days when it looked like she would roll over and submit to every crazed neoliberal that smiled at her, but now that she has objected to the destabilization of the Ukraine, that smiling bimbo must be thrown out of the club.

So anyway, Russia has the one thing everyone wants (liquid fossil fuels) and is now on the outside with a couple of economies that those G-7 frat boys seem to not respect either. So the possibility for making deals seems very good.  Let the courtship begin (actually, it seems to have begun long ago).

The Germans start to get real about Crimea

Watching the situation in Russia unfold is beyond fascinating—at least to someone who likes to indulge in Institutional Analysis. Because the facts on the ground are just so overwhelmingly obvious, the "crises" over Crimea makes a perfect introduction in how to actually do IA.

Here are the facts that pretty much drive everything else:

• Crimea is not only the home of the Black Sea navy, it was a resort for the Russian elite—think Palm Beach or Aspen for the Romanovs.  There are historical reasons why Crimea is almost as Russian as St. Petersburg.
• Eastern Ukraine was the site of the most ferocious warfare in human history—the Russians drove back the most elite Army ever assembled through a sheer force of will and a willingness to lose the lives of many, MANY brave young men.  The Russians shed a lot blood to liberate that territory from the Nazis.  It required decades to recover from the damage.  The Eastern Ukraine belongs to Russia because of how much they paid for it.  All arrangements must honor that fact and Russia will make sure it does.
• The USA response is so ridiculously uninformed at all levels of the press, the elected representative, academia, and the State department, that anything they have to say on the subject of Crimea would be comical except that their rampant stupidity destroys lives.  Yes, many of these people are also evil but even someone as vile as Victoria Nuland is first and foremost just an idiot.  These people are still using George Kennan's ideas of containment and encirclement as the only response to Russia because, quite frankly no one in this crowd has even considered anything else or come up with anything better.  And these ridiculous amateurs get to play these absurd geopolitical games because USA is just more willing to spend for expensive weapons than anyone else.
• The German Foreign Minister is a pig of a man who is even more primitive than the Kennan crowd.  This man truly believes in his bones that the Russians are Üntermenchen.  Lately, he's been running around the Ukraine stirring up trouble including a seduction of their oligarchs.  The man is so annoying it's a miracle of Christian charity that Putin hasn't assassinated his ass.

But soaring above this madness is Putin and so far, his response to this commotion has resulted in a near-80% approval rating, wild celebrations throughout Russia, and people in the streets hugging and openly weeping for joy.  And yet, we here in USA are supposed to believe that Putin is vulnerable politically and WE are the good guys.  We are on the side of Pussy Riot, after all.  Of course, it's pretty easy to sell this load of horseshit to a public that cannot find Crimea on a map and doesn't even know that Germany-USSR was about 96% of what we call World War II.  There are disadvantages to learning history from Stephen Spielberg, after all.

Anyway, the Germans have by FAR the most to lose if this "crises" gets any more serious.  Their investments in Russia represent a a great deal of toil and good strategic planning.  I am pretty sure that they are not willing to give this up over a dispute concerning a bankrupt country, a Russian resort, and a toy navy.  Now Germany must throttle in Frau Merkel and her I-hate-the-Übermenschen crowd so that everyone can get back to work.  The following from Der Spiegel seems like a good effort in that direction.

Hahvahd and its role in climate change denial

The realization that so-called "liberals" are a major part of climate change denial struck me like a lightening bolt at a locally organized conference in January.  (Details can be found here, here, and here.)  So it is delightful to read a young Harvard law student attacking the obviously backward administration of his school for outing itself as a major part of the problem.  He writes, "Denial is not so much about a failure to recognize facts as it is a reluctance to do anything about them."  And all he is asking is for the leaders of his school to divest the fossil-fuel stocks from their portfolios.

Even so, when you are a student at a school full of back-stabbing strivers and viciously arrogant professors, taking on the leadership takes quite a bit of courage.  He may soon discover how amazingly reactionary Harvard "liberals" really are.  And he will really stir up the knuckle-draggers when he realizes that the whole economics department at Harvard is populated from top to bottom with folks who teach a retrograde nonsense that makes meaningful solutions to climate change utterly impossible.

Good luck, Mr. Hamilton.  I sincerely hope you have a trust fund because if you keep telling the truth like this, you are going to need it.

"Free" trade as a weapon?

Oh that wily Putin.  Just when the fatally-flawed Transatlantic Trade and Investment Partnership (TTIP) was in danger of failing due to its internal contradictions, Vladimir P. decides he needs to secure his navel base in Crimea. In the ensuing chest-pounding, the free-trade cultists have decided that the least they can do is salvage their destructive ideas—what with all the war-mongering going on anyway.

As last Friday's post on NAFTA pointed out, these lose-lose-lose free-trade agreements benefit absolutely no one—not even the banksters who dream them up (unless you consider the economic free-fall the free traitors engineered in 2008 a smashing success.)  So IF the fear o'Putin provides the ammo to pass TTIP, he will have managed to destroy much of his economic competition without so much as lifting a finger.

Lest you think I exaggerate, note that in the following article from DW, the suggestion is made that the West might be able to save the Ukraine because of the fracked gas from the North Dakota Bakken oil field.  Yeah right!  Last winter (the coldest in over 30 years) they couldn't even get Bakken gas to Minnesota—they FLARED almost 40% of it.  But hey, free traitors are known for this sort of clear-headed thinking so why should they stop now?

This thing is from DW so it is obvious that neoliberal ideas have become so dominant in Germany, the country is willing to turn on its its own world-class Producer Classes.  And there are those who still want to believe that economics is a science. (sheesh)

Is an economic culture of greed natural?

Last week, Ian Welsh posted Economic Theories are Prescriptive, not Descriptive, in which he observed,

Modern economics is famous for believing in the rational economic actor, almost entirely concerned with his or her own utility.  (In normal parlance, a selfish bastard).  This is a model of how people behave, but it’s an oversimplification of human nature so severe as to be wrong.  Most people don’t behave like that most of the time: they cooperate, and they share and most of them don’t free ride.

However, Welsh notes, there are people who fully embody the selfish bastard model of the rational economic actor. Individuals who have had formal economics training tend, more more than other people, to act more in accordance with the theoretical model. Then Welsh points to two other groups, which leads him to make a crucial point.

Who else behaves that way?  Senior executives in large corporations and rich people.  The people who control the economy, act as economic theory says they should.

Be clear, all elites in all places and times have not acted this way... It is not even the case that executives in the 50s and 60s acted this way.  When John Kenneth Galbraith investigated why executives back then didn’t pay themselves more, he came to the conclusion that they didn’t because they believed, as a group, that doing so would be wrong, and they took out anyone who tried to pay themselves more than they considered appropriate.

So why do executives act that way now?

Ideas lead culture and policy produces the outcomes one would expect.  Thatcher and Reagan and intellectuals like Dawkins made being greedy and taking whatever you could get, screw the hindmost, acceptable... We were told this is how humans are; and this is how humans should be; and that doing this would produce better outcomes for everyone.  This was legislated into law: the removal of protections from financial abuse put in place in the 30s, the lowering of top tax rates; the emphasis on consumption taxes over wealth taxes, the dropping of corporate tax rates; the “free trade” movement which allowed elites to avoid taxes and make goods in sweatshop nations.

The previous generation, those who experienced the Great Depression as adults, and who remembered the 20s and what the last great unregulated economy had wrought, were old, and out of power.  Those who believed; who knew; that economic success had nothing to do with any sort of virtue, were gone.  The new generations accepted a premise they desperately wanted to believe: that they could be selfish assholes, acting in their own interest and not caring about other people, and that it would all work out for the best.

What we must understand, Welsh argues, is that we do not have to unquestioningly accept the current ideology, which legitimizes and enables the rich and their greed. Welsh concludes:

Ethics are socially bound, and are created and recreated by each generation.  To be sure, they are related to the means of production and the incentive system; but we create the incentive system. The executives of the 50s and 60s, by and large, chose something different than the executives of the 80s through today.

What has been chosen, can be changed.  If we want an economy which works for everyone, we can have it.

But we have to choose it, and we have convince or crush those who would chose otherwise.  And for those who wince at the word crush, remember, inequality means death and illness for many people.  The crushing has already happened, the class war occurred, and the rich won.  And the casualties are piling up.

Welsh's post elicited some negative comments, which are quite interesting, in a clinical sort of way. They suggest to me people who are desperately looking for some piddling difference to argue over, to save themselves from having to deal with the implications of the need to crush the plutocrats and their apologists. One commenter inveighed that it was absurd to argue that "Reagan and Thatcher invented greed." But that is not what Welsh wrote at all; he wrote that Reagan and Thatcher "made... greed... acceptable." (The full sentence is in the second excerpt, above.)

Of course Reagan and Thatcher did not "invent greed." That hardly disproves the point Mr. Welsh is making: How does a society create a system of incentives and punishments that check the worst manifestations of greed, and steer individual desires and actions in a direction that comports with the general welfare?

Central to Welsh's argument is his observation of the duality of human nature. Yes, there are some people who are fully the cold, calculating, self-serving bastards that are the worst embodiment of economists' model of  the rational economic actor. But this is a caricature of general humanity. Thankfully, humanity is richly ornamented with glittering examples of selflessness, charity, and even sacrifice. As Welsh noted, people have died trying to save their pets. Not to mention relatives, friends, and even complete strangers. Isn't that so impressed us and the rest of the world, when we witnessed the heroism of New York City police and fire fighters struggling to rescue and assist complete strangers at the World Trade Center on 9-11, entering a burning skyscraper from which they never came out alive?

Remembering NAFTA

Hands down the easiest way to get me to leave an economics debate is to say something remotely positive about NAFTA.  I tried to organize political opposition to it while it was still bouncing around congress.  I wrote the angriest anti-NAFTA screed I could muster.  I put any "liberal" who supported it on my permanent shit-list (yes, Michael Kinsley, I am talking about you.)  I leave the debate because to hang around would soon lead me to threaten physical violence.

What really frosts me is that every dire prediction we few brave opponents could muster turned out to be correct—if not understated.  To us, the flaws in NAFTA were just screamingly obvious.  But nothing worked.  The Democrats I knew locally just assumed that their newly elected president had to know what he was doing.  Little did they know that NAFTA would just be the first of many Clintonian sell-outs of the Democratic base.

So now that that the greedheads are pushing new and even more extreme trade agreements, it it appropriate that we tote up the scorecard of NAFTA's victims. They are many but are almost totally ignored by the major organs of the press.  And why should it be otherwise?—the presstitutes were all cheerleading for NAFTA when it passed.

Oh, the insanity of it all

Guy Noir, Garrison Keillor's fictional private eye, claims to spend time pondering life's persistent questions.  Well, I don't...usually.  I like to spend my thinking on questions that probably have satisfyingly repeatable answers.  But there is one question that gnaws on me, How did my country get stuck on stupid?  The country I grew up in had cured diseases that had threatened humanity for most of recorded history.  We had figured out communication devices that included pictures.  We figured out how to grow so much food that we were literally drowning in plenty.  We sent men to the moon mostly to prove it could be done.  I spent my childhood gobbling up publications like Scientific American that promised a cornucopia to any society willing to do its homework.  Friends of our family built parts for moon rockets, helped build an air transport system that made flying routine, and developed methods for finding oil deep in the earth.

Today, I would find it difficult to name ten people I know who even respect science and its methods for discovering further useful facts.  Want to see that please-call-on-someone-else look of panic just ask someone to explain how full-color high definition pictures arrive on the big screen TV in their den.  Ask where the gasoline that runs their car comes from.  Ask how airplanes fly.  And these are the easy questions—the sort of thing any reasonably curious child could answer even in the days before the Internet.  With the Internet, ignorance truly is a choice and useful information can be found in fractions of seconds (I DO love my Google!)  And yet, most people I meet think and act as if the Enlightenment never happened.  How is this even possible?

But the easiest way to bring out the cavemen in everyone is move the questions to topics of international cooperation.  Would someone please explain to me why there is even a conflict in the Ukraine?  Even IF this is about oil and the failure to update the technologies that support our lives, how does anyone think that provoking fights will solve THAT dilemma.  Even worse, the fights aren't even original—google Crimea and you will find that humanity has fought over this chunk of land before and the outcome was damn ugly.  See Charge of the Light Brigade.

Which is why I really liked this piece by Kunstler.  He is not especially troubled by how USA came to a foreign policy that is absurd.  Rather, he finds it a reason for ridicule and man, is he funny!  I guess the reason we got stuck on stupid is the most obvious one—it's easier than doing the homework necessary to get to a higher ground.

You say you want a revolution?

One of the subjects that has fascinated me my whole life is the question, "How do you really effect social change?"  Growing up in a Lutheran parsonage, the first "answer" I was exposed to was the belief that the first order of business was to change people's hearts.  Better, more ethical people produced better societies, I was taught.  And while the Protestant Reformation actually did lead to better societies, it was a long and very messy process.  Europeans were still killing each other over the ramifications of the Reformation 300 years after it happened.

The second motor of social change was, of course, political revolutions.  Growing up in a country born in a Revolution, this notion was always present even though the idea of revolutions being a good idea was so thoroughly watered down by the mid 20th century as to be almost meaningless.  I once visited the home of Thomas Jefferson and on a tour lasting 1.5 hours, the fact that Jefferson was a revolutionary who supported violent change in governments was never mentioned.  Social orders tend to be so conservative that they even whitewash the revolutionary tendencies of their revolutionary founding fathers.

Expecting social change from religion and politics is almost certainly guaranteed to disappoint.  Both are Leisure Class practices and as such, tend to enhance the power of the status quo.  And yet as boy growing up in the USA Midwest, I knew that social order had been dramatically altered and arguably improved from say, 200 years ago.  And if the Leisure Classes were not responsible, who was?  In the Midwest you didn't have to look far for an answer—life had improved for the great masses because of the inventors and the person who really changed everything was Henry Ford.  His invention wasn't the automobile—it was the affordable automobile.  And if putting so much technology into the hands of the ordinary folk wasn't enough, he instituted his even more revolutionary belief that his workers should be paid well.

Since every inventor only succeeds if his new idea displaces some older one, inventors—by definition—must be revolutionaries.  Some actually understand this and look on it as one of the great perks of their profession.  And the extra-smart ones understand that surest way for their revolution to succeed is to hijack the most ubiquitous characteristic of the Leisure Classes—status emulation.  If an invention somehow becomes cool, it wins—"simple" as that.

While Elon Musk is obviously an almost perfect example of a Producer Class revolutionary, I am not sure he actually deserves all the credit he gets these days for his contributions to solar—as in the article below.  There are thousands of people who actually did the real heavy lifting of making solar affordable.  But making solar "cool" is a terrific accomplishment so I will tolerate some of the hyperbole thrown his way.

The War Nerd writes about Crimea

And with this definitive essay, I hope to return to my normal topics.

Bring back the Cold War?

A model built when 15

So long as the big media of this country insists on portraying everything happening in Russia / Ukraine through the language and perspective of the Cold War, I thought it would be interesting to see what has been happening since the collapse of the Soviet Union in 1991.  Yes, Russia's military budgets have been severely constricted and much of the USSR's Cold War arsenal has been allowed to rot.  But the question is, does Russia still pack a punch? I concentrated my search on the aerospace industries because I have been a nearly lifelong airplane enthusiast.  This enthusiasm has not been as intense as when I was a teenager, but it didn't take very long to get back up to speed.  I spent much of the afternoon going, "Oh Wow!"

Here in USA, the big story surrounds the F-35 fiasco.  This was the going to be the perfect fighter plane—ultra high-performance with the ability to hide from radar.  What has emerged is an expensive mess.  These planes first flew in 2006 yet in 2011, the Pentagon was complaining that:

• The helmet-mounted display system does not work properly.
• The fuel dump subsystem poses a fire hazard.
• The Integrated Power Package is unreliable and difficult to service.
• The F-35C's arresting hook does not work.
• Classified "survivability issues", which have been speculated to be about stealth.[179]
• The wing buffet is worse than previously reported.
• The airframe is unlikely to last through the required lifespan.
• The flight test program has yet to explore the most challenging areas.
• The software development is behind schedule.
• The aircraft is in danger of going overweight or, for the F-35B, not properly balanced for VTOL operations.
• There are multiple thermal management problems. The air conditioner fails to keep the pilot and controls cool enough, the roll posts on the F-35B overheat, and using theafterburner damages the aircraft.
• The automated logistics information system is partially developed.
• The lightning protection on the F-35 is uncertified, with areas of concern.

In December 2011, the Pentagon and Lockheed Martin came to an agreement to assure funding and delivery for a fifth order of early F-35 aircraft of yet undefined type. On 22 February 2013, the fledgling F-35 fleet was grounded after a routine inspection of a F-35A at Edwards Air Force Base found a crack in an engine turbine blade.

There are other quite capable aircraft in the USA inventory including the F-22 and F-18 but the top-of-the-line fighter may never ever fly properly.

On the other hand, the Russians have not one but two fighters with a 35 designation already wowing the generals at the Paris Air Show.  The Sukhoi Su-35 can do maneuvers that seem aerodynamically impossible including the signature "Cobra" stunt where the nose of the aircraft doesn't seem to be pointed anywhere near the direction of flight.


My guess is that the arm-chair Cold Warriors who want to pick a fight with Russia would soon discover that even without an obscene defense budget, the Russians are as capable of defending themselves as they were when Napoleon and Hitler thought they would be easy pickings.

Crimeans choose Russia in a landslide vote

Crimea has been Russian since 1783 when Catherine the Great annexed it.  It has been an important part of the Motherland hosting the Black Sea fleet while providing a luxury vacation spot for her ruling classes ever since.  The only reason it was ever in the hands of the Ukrainians was that Nikita Khrushchev "gave" it to her in 1954 in a drunken act of Soviet-era solidarity.  This transfer changed some administrative procedures but it never changed the facts on the ground.  Culturally, Crimea was still about as Russian as St. Petersburg.

So Sunday's vote was a political slam dunk.  Not only was it a chance to undo Khrushchev's drunken mistake, it was a chance to radically alter the Crimean citizen's economic future.  Russia has its economic problems but compared to Ukraine's, they are trivial.  As a part of Russia, a Crimean civil servant, retiree, or teacher would double their paychecks.  By contrast, Ukraine is on the verge of falling into the hands of the IMF—a certain economic calamity that guarantees that living standards will fall drastically.  Even folks immune from cultural and historical considerations could not ignore the economic ones.

The Ukraine is understandably furious.  She may have some of the world's best farmland but she does NOT have oil.  Recently, oil was discovered in Crimea's offshore and some big boys like Exxon and Shell were all set to drill.  It wasn't a huge find—guesses are the Skifska area would produce as much as 10% of Norway's North Sea fields.  But it was nothing to sneeze at either.  With the loss of Crimea, Ukraine just lost its best chance at reducing it dependence on Russian oil.  So this border change is far from from being a done deal.

Or maybe not.  The West may huff and puff but in fact, there are just too many economic interests at stake here.  Germany has an estimated 6500 enterprises doing business with Russia.  England's stock and property markets are largely dependent on the influx of Russian money, Etc.  I mean seriously, how much in economic losses are folks willing to suffer in the name of a distant border dispute and the theories of how international law applies to referendums?  My guess is, very little.  I certainly hope I am right.  I also hope that Ukraine somehow gets its government and future back from the fascists who have somehow seized power in their country.  They most certainly deserve better.

The economics of saber-rattling

One of the uglier realities of life is that if you are not in the way, war can be very good for the Producing Classes—at least for awhile.  In my corner of the world, the pioneer farmers became incredibly prosperous because of the increased consumption and Greenback economics of Lincoln and the Civil War.  Thorstein Veblen's father made so much money between 1864 and 1873 he was able to send his children to some fancy universities—not bad for an immigrant who nearly starved when he first arrived.  The party came to a crashing halt in 1873 when USA went back on the gold standard.  Midwest and western agriculture didn't really recover until the outbreak of WW I in Europe.  My uncle in Iowa made so much money growing the food necessary to plug the shortages caused by the collapse of European agriculture, he was able to retire as a middle-aged man in 1921.  This party ended when Britain went back on the gold standard in 1923.  The resulting economic collapse did not really end until USA started gearing up for WW II.  This stimulus was so effective that by 1962, USA industry was larger than the rest of the planet's combined.

Of course, the argument can be made that it isn't warfare itself that is so good for the Producing Classes, but the fact that war conditions provide relief from the crackpot economics that give us gold standards and global depressions.  There is absolutely nothing that prohibits us from using Greenbacks and Keynesian stimulus for more worthy goals.  In fact, this blog is dedicated to employing the enlightened economics we can seem to justify during wars for goals FAR more worthy—goals like meaningfully addressing climate change and the end of the age of petroleum.

Already we are seeing speculation as to what might happen to Russia if the rest of the world tries to gang up on her as "punishment" for her actions to protect her navel bases in Crimea.  As my Friday's post seemed to indicate, there are Russians who seem to think such a situation will be immensely good for her industry and other Producing Class activities.  And if the current situation gets Russia to rethink neoliberalism and try some more enlightened economics, economic sanctions will be the best thing that has happened to her in a LONG time.

What is most interesting about all this saber-rattling over Crimea is that like most of the real fights these day, the underlying cause is the fight over hydrocarbons.  Since it should be painfully obvious that planet earth cannot tolerate any more burning of those hydrocarbons, the enlightened economics that folks will use for more war-mongering could be much better deployed making the fight over fossil fuels irrelevant.  Unfortunately, we understand war and many desire it.  Creating conditions for peaceful prosperity?—not so much.

Winter gives up grudgingly

This is what it looked like in my corner of the world just one week ago.  This winter was a throwback to the 1970-80s—not quite as bad but really close.

Western sanctions against Russia?

The very idea that crippled economies like USA-UK-EU can threaten Russia with economic sanctions is quite amusing.  First of all, it is impossible to threaten an industrialized nation that is also an energy exporter.  Russia has all the naturally occuring elements of the periodic table found within her borders.  She has already produced a self-sufficient industrialization once, there is nothing that says she could not do it again.  If the West actually tries economic sanctions, the result will be a turbo-boost for Russia's real economy.

And guess what?  The Russians know it.  This Dmitry Rogozin actually tweeted (!) about "import replacement"—an economic concept the neoliberals thought they had buried for all time because it is a direct refutation of everything they hold dear. Oh dear!  Unfortunately for the free-marketeers, a country with the talent and resources to do import replacement will discover it is a powerful engine for economic growth.  Besides, its good to make your own stuff!

Bob Crow, R.I.P.

While it is certainly sad to watch the Party of Lincoln become this lunatic crowd of extremists who cannot even be swayed with the scientific method, nothing is quite as sad as watching the Party of the People become an utterly corrupt appendage of Wall Street's most vicious Predators.  Of course, it isn't just USA Democrats who have become neoliberal swine, so have the Social Democrats in Sweden and Germany, the Socialists in France, and the Labour Party in Britain, etc.  These parties became political groupings that existed mainly to trash the social gains of a century of struggle—by the people they claim to represent.  The treachery of the neoliberal Dems has been truly breath-taking—humanity doesn't get much more vile than Tony Blair, Gerhardt Schroeder, or Bill Clinton.

There have been a FEW people willing to swing against this tide of Predator-Class economic insanity.  One of them was Britain's Bob Crow who understood that his struggle was against neoliberalism.  Only the good die young—he was only 52.

Putin bashing has gotten out of hand

In this age of aggressive ignorance, there are few places to hide when your brain screams for a break.  Personally, I watch the comedy on late night TV.  It isn't perfect but when the Daily Show or Colbert are having a good night, they are about as smart and clever as probably anyone at any time in human history.  I also record Letterman and Ferguson for the monologues—they give a good idea of what is acceptable to mock on broadcast TV.  Besides, both are remarkable talents and Ferguson will sometimes do impromptu riffs on subjects as exotic as the existentialism of Soren Kierkegaard.  Even better, all these shows use the same formula for funny—tell the truth.  Their most successful jokes are always for some insight that explains the world with remarkable clarity.  What's not to like?

Well, these days the demonization of Vladimir Putin.  Letterman turns to cheap name-calling.  Ferguson uses his cred as a well-traveled and obviously bright foreigner.  Stewart and Colbert interview book authors and Council on Foreign Relations experts.  They use their reputations to turn someone into a villain worth destroying.  Putin is a homophobe.  Putin is an intolerant tyrant who jails successful businessmen and playful performance artists.  He's a closet queen with exhibitionist tendencies.  He's a KGB thug.  He's corruption on steroids. ETC!  It could be that Putin-bashing in the ranks of the comics is worrying about nothing.  But here's the deal.  If this sort of crude character assassination is going on in one of the more enlightened corners of the culture, one can only imagine the pure BS going out over the airways at NBC or CBS or Fox.

Of course, SOME of the criticism of Putin IS based in reality.  Attitudes towards gays in Russia is still primitive.  The legislation banning "homosexual propaganda" passed the Duma by a vote of 436-0.  Mikhail Khodorkovsky, the oligarch Putin put in jail for fraud really WAS guilty but was certainly no worse than the rest of the thieves who looted and destroyed the Russian economy during the Yeltsin years.  And then there is the case of Pussy Riot, the "performance artists" who decided to take their act to the Cathedral of Christ the Savior.  This is the gem of high Orthodox culture where the 1882 world premiere of the 1812 Overture by Tchaikovsky was held.  It is the symbol of Christianity destroyed by Stalin in 1931 but rebuilt in the 1990s at a cost of an estimated 1 Billion Euros.  One did not have to Orthodox or Christian to think that Pussy Riot screeching about Holy Shit in such a place was offensive—sending them to jail for a couple of years was probably overdoing it.  (Well maybe—an 84-year-old nun was recently sentenced to three years in jail right here in USA for desecrating something even more sacred than an expensive church—a nuclear installation.)  And yes, Putin has released too many pictures of himself with his shirt off.

Compared to Putin's remarkable accomplishments, these are trivialities—NOT dealbreakers.  He might be the most successful politician on earth—even after 14 years in the public spotlight, his approval ratings still hover near 70%.  (Compare that to Obama's 41%—and he's only been in office six years.)  Even the things our comics mock have probably added to those remarkable approval ratings but at the heart of his popularity is the world-class job he has done managing an economy that was flat on its back when he first took over.

During Putin's first premiership and presidency (1999–2008), real incomes increased by a factor of 2.5, real wages more than tripled; unemployment and poverty more than halved and the Russians' self-assessed life satisfaction rose significantly. Putin's first presidency was marked by high economic growth: the Russian economy grew for eight straight years, seeing GDP increase by 72% in PPP (sixfold in nominal). more

As should be obvious by now, I have become a Russophile over the years.  This has not been always true—I once hated and feared USSR like any good 'Merikun during the Cold War.  Then I discovered the wonders of Tarasov hockey during the Summit Series in 1972.  Soon after, I discovered the plays of Chekov.  Then I stumbled over the story of The Siege of Leningrad when I read Harrison Salisbury's The 900 Days.  The biggest eye-opener was reading the official accounting of the Great Patriotic War published by Novisti Press in 1961. Throw into this mix the fact that my sister's genealogical search places a significant minority of my ancestors on the little Baltic island of Gotland.  Since the Gotland Vikings spent a lot of time in Russia / Ukraine, there is a very high chance I share some DNA with some of the folks on TV.  And so I am almost clinically depressed about the events in Ukraine (when I am not furious.)  I THOUGHT the Cold War would end when the Warsaw Pact was dissolved (1991)  But Nooooooooo

Since I have been hearing most of these same lies about USSR / Russia my whole life, I should have grown immune to them, but I have not. However, I DO understand that at least 99.9999% of what we are told about Russia has been produced by paid liars in the service of a spy agency or the State Department.

But Hillary Clinton comparing Putin to Hitler was so over the top, I almost threw up (also when Ferguson did it.)  Putin grew up in Leningrad / St. Petersburg.  He was born in 1952 to a 41-year-old woman who had lost both sons including one to diphtheria during the Siege of Leningrad.  She may have survived the Siege herself but she had emerged childless and very damaged.  She lived for many years in extreme poverty and reduced rations—every survivor in Leningrad did.  She was probably surprised she got her period back and got pregnant.  She had been so traumatized by the experience she had turned to the Orthodox church, which had been driven underground by Marxist zealots.  Her young son turned to a fantasy world where USSR secret services were better than Bond.  When he found out he could be a secret agent if only he studied hard enough, he became a diligent and highly accomplished student.

By contrast, Hillary grew up in a prosperous Chicago suburb—the spoiled child of rich Republicans.  She was a Goldwater girl who went to a real "finishing" school—Wellesley.  She wanders the world in a fog of ignorance so profound, she is admired by the same sort of people who love Sarah Palin.

But I could be wrong.  Maybe she actually does know more about being a victim of Fascism than Putin.  So prove me wrong Hillary—explain everything you know about the Siege of Leningrad.  Go ahead, I have 30 seconds to spare.  And if on the off chance you have actually heard of the Siege, tell us everything about who actually defeated the Germans in WW II.  Start us off with your understanding of the Battle of Kursk.  Then explain who liberated Auschwitz.  Tell us ONE thing that isn't laughably crazy.

What follows is two essays.  The first is by Andre Vltchek—anther Leningrader who is offended by the mindless Russky-bashing these days, followed by a Paul Craig Roberts piece which reminds us just how good a leader Putin has actually been over the years.  Vltchek's piece has been radically shortened—I encourage everyone to read the whole piece.

The "economics" of force and fraud

As someone who has been preaching that the most useful way to understand modern economies is to examine the difference between Producers and Predators, it is always good to see that someone else has come to largely the same conclusion through by a different path.  In this case, the man's name is Mike Norman who runs an interesting blog that occasionally sends me readers.  Here he describes Predator finance capitalism in a way that could have come straight out of Elegant Technology yet his blog does not exist to promote an engineering / Producer alternative.  In fact he markets lessons in Forex Trading.

Will liquid metal electrical storage actually work?

Electrical storage is one of the two game changers in any scheme to power a society with renewables (the other is figuring out how to transmit electricity over long distances with minimal power loss.)  Because storage is SO important, lots of folks are spending time and effort to figure out ways to do it. Some ideas sound more plausible than others but we won't actually know until something works.  This is a Producer Class activity—only results matter.

The following idea sounds plausible enough so Bill Gates has invested in it.

Another green success story

Eigg, a Scottish island, has figured out how to power itself with renewables.  What it has in common with other successful experiments is that it is a small community where the decision-making loop is much easier to manage, it has almost no installed technology to displace, and it has obvious environmental clues as to how to proceed—in this case a lot of wind.

We all should be so fortunate.

Ukraine—the problems only escalate

Even though I find the sabre-rattling profoundly depressing, the Ukrainian crises seriously demands attention here at real-economics.  There are a wide assortment of non-economic issues that are driving the conflict including the historical animosities between Russia and Ukraine and a lot of Cold War baggage that seems not to have gone away in spite of the collapse of the Warsaw Pact in 1991. But the economic reasons are just overwhelming.  These include:

• The bill for energy owed to Russia / Gazprom.  One of the sweeteners Putin / Russia offered the Ukraine to turn down a closer alliance with the EU was a discount for natural gas.  The Gazprom people were probably not at all happy about this and so are probably relieved that all their customers will be charged the same market prices.
• The energy pipelines that crisscross the region.  Reader JL sent a link that explains all the various interests involved.  Anyone who argues that most of the world's conflicts involve some aspect of the "awl bidnuss" are rarely completely wrong
• Ukraine owes western banks $15 Billion.  These loans are teetering on default.  In a world where the Fed pumps $65 Billion / month to stave off the collapse of a hopelessly corrupt banking system, $15 Billion barely rises to the level of a rounding error.  But as the chief bad guy / philosopher king of the grasshoppers argues in A Bug's Life when asked why it is so important to take the ant's food (impose structural adjustments), Hopper points out to the other grasshoppers how greatly the ants outnumber them and is afraid that they will eventually stand up against them, which is why this is more about keeping the ants in line than taking their food.

So it turns out that the neocon wet dream of overthrowing a legitimate democratically-elected government and replacing it with a neoliberal one willing to impoverish the Ukrainian citizens is not only illegal, but like the invasion of Iraq, it will likely wind up being crazy expensive.  Even "simple" actions like economic sanctions against Russia for opposing this scheme have the potential for being way more expensive to the EU than anyone is willing to admit publicly.  From Der Spiegel, economic second thoughts about the wisdom of economic warfare over Ukraine.  Keep in mind that the Germans have already enthusiastically joined in the chorus of Putin-bashing.

Saturday toons 8 MAR 14

Forget the 1%

The following essay is funny, clever, and spot on.  The mega-rich of this world have long since forgotten even how to do anything useful and so their "contributions" to the real economy are usually negative.  Alt thinks the solution is to just ignore the mega-rich.  Let them have their competitions in uselessness and status emulation because quite frankly, the rest of cannot afford to be aggressively useless and even if we could, most of us would actually choose to live useful lives.

My only friendly amendment to this piece would be to remind everyone that the useless can also be damaging.  So we cannot actually ignore the 1% ALL the time.  Sometimes, we must act to prevent the harm to the real economy that they can cause and pass rules to prevent this from happening.

The Inflation Obsession

On 25 FEB 2014, I created a post about how newly released Fed minutes from 2008 had demonstrated conclusively that the Fed governors barely noticed the oncoming catastrophe that would soon threaten the global economy and instead discussed their inflation worries because that is who they are and what they do.

Now Paul Krugman weighs in on the same subject and comes roughly to the same conclusions.  The boy's going to become an Institutionalist yet!  None of this would be important except that Krugman has become the goto guy for most Liberals on any economic discussion. This is actually pretty amazing since Krugman was awarded John Bates Clark Medal in 1992, given biannually by the American Economic Association to the economist under 40 who has made the most important contributions to (conservative / reactionary) economics.  Clark himself started out as a Christian German Socialist but during the 1880s became this hopeless reactionary.  Thorstein Veblen would spend most of his career taking aim at Clark's newfound nonsense—especially his theory of marginal utility (and doing a fine job of it, thank you very much.)  So for a Clark winner to evolve into something that resembles an Institutionalist is remarkable considering Veblen pretty much invented Institutional Analysis.

I would also point out to Mr. Krugman that this inflation obsession at the Fed level is at least partially caused by the same obsession at our universities.  Krugman has been at Princeton for quite awhile now and I haven't noticed Princeton grads more balanced in their economic concerns.  He's been writing for the NYT for years and that paper is still obsessed with the arguments for "sound" money.  So Mr. Krugman doesn't have to go very far to find influential folks in the economic debates who are certainly no better than the Fed Governors.

EU initiative aims to rebuild solidarity

In 1989, I was fortunate enough to meet an Estonian living in Helsinki who was trying to figure out a way to organize a movement that would result in the removal of Soviet influences from his country—especially the puppet government.  This man had a wide assortment of reasons for wanting them out but the essential reason was pretty clear.  "In the 1930s, we had roughly the same standard of living as Sweden," he said and went on to describe why he thought Estonia should be able to equal Sweden economically again.  Since I had spent the 1980s witnessing (and writing about) the deliberate dismantling of the sort of capitalism that had made USA, Western Europe, and Sweden so rich, I suggested he might just have to wait awhile and the Western living standards would return to his level.

I think of him every once in a while.  The good news was that Estonia did rid itself of much of the influence of USSR / Russia.  The bad news was was that neoliberalism was coming into full flower about that time and poor Estonia soon found herself in an economic shit hole from which she has been unable to extricate herself.  As Michael Hudson put it in 2012, "The Baltic countries of Latvia, Estonia and Lithuania already have been plunged so deeply into debt that their populations are emigrating to find work and flee debt-burdened real estate."

Yesterday, I saw an interesting post at the DW site that immediately reminded me of my Estonian acquaintance and a story he told to illustrate why he wanted those damn Russian / Commies out of his country.  It involved an Estonian farm that had been collectivized post WW II.  The new managers had been chosen for their political correctness and not their experience in agriculture so not surprisingly, the yields immediately began to fall.  This happened in spite of (because of?) the fact that the managers were religiously applying their best Marxist understanding to the problems of growing food.  Finally, the zealots come to the "stunning" conclusion that what they really needed was some fertilizer.  So they applied to the appropriate agency to get some—only to be told that they were on a three-year waiting list.  Yet one spring day, the collective farm was informed that they were going to get their shipment of fertilizer.  Unfortunately, it wasn't going to arrive until planting was done.  Not the best time, but...

The train arrives with the fertilizer.  Unfortunately, the folks unloading it didn't really know what it was so they piled it up on the ground and before the collective could claim it, it got rained on and the granular powder turns into a big crusty blob.  It could be reclaimed by smashing it into powder again and letting it dry but this required a lot of labor that was unfortunately trying to plant the crops out at the farm.  Soon the fertilizer pile gets rained on again.  This time it is beyond reclaiming.  So the fertilizer they had waited three years to get didn't actually make it to the fields.  The output of the farm not only did not go up, it went down again.

The agricultural bureaucrats up the line were not amused.  They didn't actually know what had happened but they did know that they had sent scarce fertilizer to a farm and the yields had not gone up.  So they dispatched folks to find out how this could be.  For some reason they weren't terribly interested in the fertilizer-in-the-rain story because what they were looking for were signs that the folks on the collective farm weren't ideologically pure enough.  But the farm's managers were indeed gung-ho Marxists so the investigation concluded that the farm's workers (who, remember, didn't cause any of the problems) were suffering from "alienation" (an official Marxist disease.)

The senior bureaucrats went back to headquarters and came up with recommendations.  Surprisingly, they did not recommend supplying fertilizers in winter months, training rail workers how to handle expensive fertilizers, or building waterproof storage facilities to keep the shipment until the farm could pick it up.  Oh, no, no, no!  The diagnosis was "alienation" so the prescription would be cultural uplift.  So the good workers at the collective farm were treated to a performance by one of the minor ballet companies from nearby Leningrad.  Not surprisingly, this did not raise yields.

I was assured that this story was absolutely true.  And now we see that the EU is going to try to placate people whose lives have been destroyed by the EU's economic mismanagement with—wait for it—cultural renewal.  Apparently, stupid Leisure Class bureaucrats we have with us always.  I should warn these dunderheads that I once met a man who was so furious with people like them, he seemed perfectly willing to die to get them out of his life and country.

Escobar—Carnival in Crimea

Leave it to Pepe Escobar over at Asia Times to write one of the better analysis of the goings-on in Ukraine.  This is not so surprising as over the years he has specialized in writing about the arrogant prima donnas that like to think they run the world.  In short, he is a world-class observer of the habits and rituals of the Leisure Classes.  And like Veblen the original, he can be very funny at times because any accurate description of the Leisure Classes will eventually have to come to grips with the fact that they are usually ridiculous.  It is REALLY hard to top John Kerry sternly scolding Putin "in the 21st century, you just don't invade other countries without provocation" for Leisure Class silliness.  Around the world, people are turning to each other in amazement wondering if it is actually possible that the USA Secretary of State hasn't heard of Iraq.

So while the clowns play geopolitical chess, the facts on the ground keep grinding away.  Ukraine is in crying need of an environmental makeover because her greatest asset, the black farmland, has been misused since at least Stalin and her extractive / industrial ventures are some of the filthiest on the planet.  Add to this sad mix is the fact that anyone with any real influence is probably an utterly corrupt kleptocrat who long ago sold his soul to the Predatory philosophies of neoliberalism.  Of course, with neoliberalism comes crushing debts that are used as an excuse to destroy anything that could ever resemble progress.

Of course, this could easily stop being ridiculously funny if the chest-pounders in USA get their way and use this very small dispute to get themselves a real shooting war.  So far, this seems unlikely as even überhawk John McCain says USA has no military options.  Unfortunately there are plenty other hawks who are willing to stir up war fever against Russia.  As someone who grew up during the Cold War, I have a good idea of just how ugly this can get.

Japan's post-Fukushima energy plan

Of course, no one could have seen THIS coming.  Japan has 48 nuclear reactors that were producing power until shut down in the wake of the Fukushima meltdown.  The shut-down was a result of this burst of never-again idealism that postulated that Japan could get along on electricity provided by a combination of fossil-fuel plants and renewables.  But fossil fuels are polluting and expensive—which led to rare-for-Japan trade deficits, while renewables are still mostly in the design stages.  And there aren't a lot of obvious choices for renewables. For example, off-shore wind turbines will be very expensive because the waters get deep very quickly of her coasts.

So there they are with these power plants that were working not so very long ago combined with bad choices for replacement.  I'm surprised they didn't restart them sooner.  And IF this shutdown time has been used to maintain and bring all these plants up to some shiny new standards, a second Fukushima will be very unlikely.  Industrial progress has always depended on learning from your mistakes.  And even IF Japan has some crafty scheme for going to renewables, building the new infrastructure will require power.  Besides, a nuclear power plant that is operating is probably no more dangerous than one sitting idle with a skeleton crew.

Musk, Tesla and electrical storage

Elon Musk is probably not the untrammeled genius he and everyone else thinks he is (example—some of his space ventures are mathematically insane) but most of the time, this man actually rates his status as a visionary (example—his idea to make an electric car that is so cool, it becomes an object of status emulation.)  And it has been quite enjoyable to watch his thinking evolve as he struggles to make his Tesla S even more desirable.

The S was made possible because of its lithium-ion battery pack's ability to store more electricity than with previous battery designs.  His problem is that lithium-ion batteries are expensive which prices the S out of the range of at least 97% of the population.  Since the price of those batteries is largely determined by its chemistry and radical improvements in battery chemistry do not appear on the near horizon, Musk has decided to attack the problem the old-fashioned way—vertical integration combined with economies-of-scale production techniques.  He is calling his new production facility a Gigafactory.

The possibility of cheaper lithium-ion batteries has put Musk in touch with some other visionaries like Tom Leyden of Grid Storage Systems who hopes to produce stand-alone solar cell / battery arrays to power homes, etc.  So Musk looks into the possibility and realizes that if such systems became affordable, the energy utilities would lose many (if not most) of their customers.  Frankly, I think Musk is getting WAY ahead of himself here but he IS addressing an interesting topic—How does new technology replace existing technology if the existing technology is owned by economically entrenched interests that do NOT want change?

Saturday toons 1 MAR 14