Riksbank wanders off the reservation?

Like many, I have some serious problems with Sweden's Central Bank, the Riksbank.  These are the people who pay for and award the "Nobel" prize in economics.  So they have a track record of promoting and rewarding the ideas of some real right-wing loons.  In that role, they are arguably as much to blame for the last 40 years of neoliberalism as any institution on planet earth.  Even the exceptions like Stiglitz and Krugman were serious neoliberals when they got their prizes.  That they have become more enlightened since then is a happy accident.

So when it comes to whether the Riksbank stays "on the reservation" when it comes to monetary policy, such questions are pointlessly amusing because in many ways, the Riksbank IS the "reservation."  Yet here we have Ambrose Evans-Pritchard telling us that the Riksbank just tore up the rulebook when they dropped their interest rates to zero the other day.  As Evans-Pritchard basically speaks for the "City," he assumes that anyone not in London is already off the reservation and so his job is to point out the errors in their thinking from that oh-so-lofty height of British arrogance.

The Swedes are a pragmatic bunch so even their doctrinaire neoliberals are probably still open to facts.  Which leads me to believe that the Riksbank insiders have seen enough data to believe that the looming problems facing the global economy are led by the specter of deflation.  Evans-Pritchard seems to think they should be more worried about fueling an asset bubble but of course, that is absurd.  While asset bubbles tend to pop on their own, there are no serious examples of deflations curing themselves.

My guess is that for once, the Riksbank got it right.  Now if they would just discover a few more enlightened economists for their phony "Nobel" prize, they might actually accomplish some good in the world.

Renewable energy and developing economies

One of the truly encouraging stories about the coming Solar Age is that the most immediate beneficiaries will probably be those areas of the world that don't have an existing electrical infrastructure to displace.  That by itself is a critical advantage.  Add to that the fact that the poorest areas are also those that have the best solar sites.

As solar equipment gets cheaper, these facts will dominate.  The report below claims that poor nations are adopting clean energy at twice the speed of rich ones.  Perhaps we should be surprised that the number isn't six times the speed—maybe it's just a matter of time.  After all, solar has only been the low-cost option for a few years.

Whenever one is tempted to give up hope, it is always comforting to remember that we are very close to the day when energy (both its cost and availability) ceases to be the most important problem of economic management and becomes this nearly limitless source of prosperity.  Just remember, the argument that "power is everything" is not only an issue when you are running out, it is also true when you discover that you have an essentially infinite supply.

It is always about energy

One of the reasons that Apollo 13 is one of my favorite movies is that there is a scene where the ground crew is trying to figure out a way to get the crippled craft home.  They are talking about the various strategies when John Aaron, (played by Loren Dean) delivers his "power is everything" speech wherein he lists the many things that will fail if the batteries go dead.  It's quite a list and at the end, the crew is dead.  Now I have no idea if this scene is fictionalized but I know several things that make it true to life.  1) John Aaron truly was a man with more than his share of good judgment and phenomenal problem-solving skills.  He was in the room because of his abilities—not because he had a privileged upbringing or an "elite" education (Southwest Oklahoma State, anyone?) 2) The reason everyone paid attention to him was because these were rocket scientists who were forced to consider energy issues every day.  While most folks in the industrial countries live lives of such ease they can treat energy as just another detail, people who designed devices that could transport humans through the cold vacuum of space KNEW that energy is always a matter of life and death.

I have never been in space but I had an experience similar enough to make me shudder whenever I recall it.  It was a very dark February night in North Dakota.  The wind was howling along in the 30-40 knot range—enough to violently shake the car.  The temperature was around -25°F (-32°C) and dropping rapidly.  I was about 30 miles (50 km) from home on a road with almost no traffic or settlements and the gas gauge was in the red.  I was scared shitless.  I only had gotten my driver's license a few weeks earlier so I didn't have a lot of emergency planning experience.  I figured that if I ran out of gas, I might survive for two hours in the car or 10 minutes outside of it.  That was my "power is everything" moment and I have never forgotten it.

The story below is about the Germans contemplating the possibility that Russia could cut off her natural gas this winter.  Officially, the response to this possibility is that it might cause a few inconveniences but that good planning will pull everyone through.  But apparently, there are some John Aarons in Germany who are warning that everything most certainly will not be OK.  Their report was leaked to Spiegel.  Suddenly, the German grown-ups are having their own "power is everything" moments.

Everyone seems to be hoping that Russia will decide that it is in their best interests to keep selling their gas.  As Richter asks so arrogantly below, "What are they going to do with the gas that gets pumped on a daily basis to Europe, and particularly to the largest consumer, Germany? Inhale it?"  No mein Wolf, if they don't sell it this winter, they can always sell it next winter.  Germany will still need energy and replacing the infrastructure to substitute for Russian gas will require years of planning and construction.  In this case, the "power is everything" argument extends to the realms of geopolitical gamesmanship.

And economics.  One of the reasons why I find the economics profession so childishly goofy is that virtually none of them even BEGIN to treat energy seriously.  Perhaps instead of being miseducated at Harvard, Chicago, or Stanford, they might opt for one of those physics degrees from Southwest Oklahoma State.  Because Aaron was right, power IS everything!

Waiting for the other shoe to drop

This was a spectacularly beautiful fall here in southern Minnesota.  And last week the trees went out in a blaze of yellows and russets and oranges.  Every tree that can turn color did this year so the show lasted over three weeks.  And then it's done—those stunning leaves are replaced by naked branches shaking in the ever colder wind.  In a month, there will be snow on the ground but right now, winter is just a dull dread.

In some ways, I feel the same way about the course of human events.  We seem to be at an end of an era of flamboyant partying by a tiny elite that is about to crash with no alternatives in sight.  Our elections have become almost meaningless with voters forced to choose between different visions of plundering neoliberalism, but even if they were not and this election produced a mandate for major economic change like the one in 1932, who would be qualified to organize the new "100 days?"  We don't have political movements organized around progressive economic issues, our academic economists are hopelessly right-wing, there are no enlightened bankers in the mold of Marriner Eccles, and our media is historically illiterate so the public mostly is too.

Bad as it is here in USA, it doesn't seem much better anywhere else.  The great lefty awakening in Latin America seems to be running on fumes. China has made almost every developmental mistake possible so now her rickety prosperity rests on an environment so polluted, her cities are almost unlivable.  India has just elected a neoliberal crackpot to revive her economy—well good luck to that.  And the great neoliberal experiment that is the EU has now claimed so many angry victims, it seems destined for the scrap-heap of history.

Of course, the Greeks, Spaniards, and Portuguese etc. have been furious / depressed for years now.  But as is always the case, economic rot at the bottom of the social order tends to spread upwards so now Germany, which accounts for 30% of the activity of the EU, is now feeling the pinch.  Unfortunately, things will have to get very bad before Germans will rethink their organizational ideas.  With few exceptions, this is a neoliberal monoculture.

How long will the naked branches wave at the greying skies?  How cold and deep will be the winter?  And is there any reason to believe that there are shoots of new life waiting for spring to blossom forth?  The only thing that inspires hope is that this misery is the result of believing really, REALLY, dumb ideas.  Humans have progressed out of greater difficulties than this.  This misery is wholly optional—all we need to do is change our minds.  Unfortunately, that is both the good news and the bad news.

Micropower starts to take over

Amory Lovins has been arguably the greatest proponent of energy efficiency that the USA has had in the last 40 years.  A MacArthur "genius" award winner, he not only gave the language the concept of "negawatts", he actually went out and tried to demonstrate his ideas with actual buildings.  His effort in Aspen Colorado was innovative and expensive and probably proved above all that energy efficiency was going to be a LOT harder than it looked.  But for an academic, it was a good solid effort.

My brother also pursued the idea of getting a house to net-zero, but because his budget was so much smaller, he had to rely on the cleverness he had acquired over the years as a builder.  I am not certain if he or Lovins actually got to net-zero first but the fact that it was even close says quite a lot about the changing environment for such projects.  Whereas Lovins set about organizing a political movement that saw him bringing his message to thousands, my brother made the final leap to net-zero when the required solar panels cost less than a new pick-up truck.

So here we see Lovins marveling that the micropower movement is taking off without the big political struggle that so consumed much of his life.  Cheap solar panels will do that.  And maybe that's the big lesson here—all the struggle over who is financing which knuckle-dragging climate change denier may suddenly be rendered moot because solar power is rapidly becoming the low-cost option.

Ocean warming gets better instrumentation

My favorite professor would repeatedly stress that air pollution was just a temporary stage en route to water pollution.  The big topic in those days was acid rain which was caused by the combination of sulfur oxides and water in the atmosphere.  But the principle is the same.  Anything in the air is almost certainly going to wind up in the water supplies.

In the case of CO2, the fact that oceans are the final resting place of much of it is hardly a surprise.  We are already seeing the oceans becoming much more acidic.  But water is also a FAR more powerful heat sink than air.  It may be that the atmosphere has already reached some upper limit for heat retention.  For someone like me who has lived on the high prairies, this does not comes as much of surprise because I have watched hot days turn into spectacular thunderstorms and tornadoes followed by a sharp cool-down.  It's like the air can only get so hot before it goes berserk and shakes off the excess energy in sometimes violent spasms.

Unfortunately, the limits to how much heat water can absorb is much higher.  And while we seemingly keep bumping up against the the heat absorbing capacity of air, this does not seem like much of a problem with the oceans.  Anyway, it looks like the scientific community is about start conducting serious measurements into the heat being absorbed and retained by the oceans.  With the polar ice melting at unprecedented rates, my guess is that they are about to find that ocean warming is an even more serious problem then atmospheric warming.

The fracking con

Nothing, but nothing so dramatically confirms the end of the Age of Petroleum like the practice of fracking.  The whole idea is based on the notion that shale formations contain gas and oil deposits that can be liberated if those formations can be fractured.  There is not a lot of petroleum in most shale formations, but there are many them which drives the fracking boosters to proclaim that they are the future of fossil fuel production.

Well, no.  The very idea of fracturing stable underground stone deposits require folks to ignore just how energy-intensive this process is.  So from the git-go, the whole enterprise is hobbled by the reality that maybe fracking will just barely produce more energy than it consumes (on a good day).  Basic rule of energy production—if it is thermodynamically preposterous, the economics will never work out.  And because fracking is so energy-intensive, it is also dangerous, environmentally insane (it can actually trigger earthquakes), and EX-PEN-SIVE!

So far, the various fracking operations have been able to keep going on borrowed money.  Borrowing so much money is usually pretty difficult but because there are so many people who want to believe the fossil fuel party cannot end, the spigot is still on in spite of growing doubts that extracting energy using fracking is ever likely to be profitable using any accepted definition of the term.

So the fracking enthusiasts have been forced into using that old standby whenever the facts contradict the hype—they tell big juicy lies.  When the fracking bubble crashes, the real economy will take a serious hit.  Will it be as serious as when the real estate bubble collapsed under its enormous pile of BS in 2008?  Probably not—but since so much monetary ammunition has been used up to counter the baleful effects of the Crash of 2008, even a small hit could get very serious.

And like the collapse of the real estate bubble, there will be plenty of folks who saw through the fracking hype.  gjohnsit over at Dailykos will be one of those who can say, "I told you so."

Wal-Mart and solar sabotage

The idea that the Wal-Mart clan might not be the most enlightened folks on the planet when it comes to solar power should hardly surprise anyone.  Accidental billionaires are some of the most predictably useless folks alive.  These people are hopelessly careless—the product of a lifetime of folks bailing them out from their mistakes because with enough cash, almost any screw-up can be erased.

So this story is not a tale of some hard-nosed characters out to sabotage roof-top solar through brilliant organization.  Rather the Waltons are just kicking in to fund pet projects of their fellow useless rich-kids.  In this case, it is the utilities who see the handwriting on the wall and want to stave off the bad news as long as possible.  And yes, the utilities probably can delay the inevitable for a while.  But solar has already become the low-cost option in thousands of locales around the world.  It's going to damn tough to stop this juggernaut now that it has started to roll.

The real issue here is that a bunch of mouth-breathers will be able to slow necessary progress for no other reason than they have too much money and they can.  Besides, sabotaging progress towards solar probably meets with approval down at the yacht club.  Solar is the direct opposite of conspicuous waste—the very sort of waste that makes folks buy yachts in the first place.  So this story is not so much about the fact that the Walton heirs are useless, corrupt, and just plain evil, it is rather about the Leisure Class interests they represent.

Can economic reality abort Cold War II?

All the lies and warmongering we have been subjected to over the plight of the Ukrainians these last few months may come to a crashing halt for one simple reason—the global economy is profoundly threatened by the sanctions placed on Russia.  This is scary.  To even imagine that folks could consider backing down from a potential Cold War II, after all the investment in that buildup of hostilities, over something like economics means quite a few things—none of them very good.  Mostly, it means that the European economy is so fragile that no one in their right mind wants to risk crashing it over something like the government of the Ukraine.

One of the basic beliefs of this site is that the Leisure Classes can do significant damage to the real economy before it starts to backfire on their let's-pretend economy.  In the case of Europe, there has been massive damage to the real economy since the Crash of 2008.  In fact, it could be argued that there has been no meaningful recovery from the damage it caused.  Six years of a brutal depression felt by millions is plenty of reason that a nasty 2008-like collapse could happen again.  In fact, it is almost inevitable.  All it needs is a trigger and the self-inflicted wounds caused by sanctions on Russia could easily become the triggering mechanism.

Soon, the Leisure Classes must ask themselves, "Which do we love more—war or money?"  As much as those folks worship war, my guess is that in the end, they love money more.  This is sort of an unusual question because a true member of the Leisure Class thinks that he will never be forced to choose—he believes that starting wars leads to money and has many historical examples to prove him right.  But this time, something—maybe bad "war karma", means that this utterly needless fight over Ukraine is going to bankrupt some of the very rich too.  This includes some formerly rich nations.

We will see.  The German intelligence services recently released another bogus report on the shoot-down of MH17.  Still nothing on the missing tower tapes, etc.  But they managed to (sort of) absolve the Russians.  Is this the opening to an end to sanctions?  The following end-to-sanctions story comes from UK—a place absolutely awash in bellicose Russkie-bashing for several years now (note, Halligan really wants to blame the French and Germans if sanctions end.)

Laissez-faire economics

The claim that economics was a "science" as represented by its elevation to "Nobel" status (and other similar events) was soon followed by an enormous move towards reactionary ideas.  It was if the profession decided that if you threw enough math at economics, soon you would be sounding like J. P. Morgan.  It seems strange that adding powerful computers and high-end math to the investigation of economic behavior would lead to a generation of pre-industrial knuckle-draggers and some of the most primitive thinking since the decline of feudalism, but that is what in fact happened.

Because I was there when the economics department of my university got an IBM 360, I was very much caught up in the excitement of combining powerful computers with economic research.  Unfortunately, I lost interest in econometrics almost as soon as I understood how it was done.  My thinking went through four stages:

1. Holy shit! Do you see what you can do with a computer's help.
2. Learning computer modeling puts you in a small class where only other members of the caste can truly understand you.  This opens up huge avenues for fraud:
3. The main reason to learn stats is to prevent someone else from committing fraud against you.
4. More and more people will gain access to the power of statistical analysis.  When that happens, the stratification of importance within the profession should be a matter of who asks the best questions.  Very soon, it will not be about who has the biggest computers, it will be about knowing enough to ask important questions.

Disillusionment began to set in.  I began to suspect that all the really interesting economic questions were FAR beyond the ability to reduce them to mathematical formulas.  Watching computers being applied to other pursuits than academic economic investigations over time only confirmed those suspicions.

1. Precision manufacture is an obvious application for computing.  And for many applications, this worked magnificently.  Any design that combined straight lines and circles could be easily described for computerized manufacture.  Unfortunately, the really interesting design problems can NOT be reduced to formulas.  A car's fender, for example, can not be described using formulas—it can only be described by specifying an assemblage of multiple points.  If math formulas cannot describe something as common and uncomplicated as a car fender, how can it hope to describe human behavior?
2. When people started using computers for animation, it soon became apparent that human motion was almost impossible to model correctly.  After a great deal of effort, the animators eventually put tracing balls on real humans and recorded that motion before transferring it to the animated character.  Formulas failed to describe simple human behavior—like a toddler trying to walk.

Lately, I have discovered a Swedish economist who did NOT give up on econometrics merely because it sounded so impossible.  In fact, he still teaches the stuff.  But for the rest of us, he systematically destroys the pretensions of those who think they can describe human behavior with some basic formulas.

And here we see what happens when economics substitutes the appearance of scientific rigor for the real thing.  Unfortunately, real lives are destroyed in the process.

Free trade versus autarky

Autarky is one of those words that has fallen so far out of favor that it would probably stump a panel of "Jeopardy" champions—even though it means self-sufficient (a virtue that is still widely prized.)  Actually, this contradiction makes a lot of sense.  True self-sufficiency is astonishingly hard to achieve and on a individual level, probably impossible.  There are small groups that make a fine try at being self-sufficient.  The fascination with the Amish is mostly due to their ability to make their way economically outside of the technostructure.  But as the hippies discovered with their back-to-the-land efforts, the freedoms promised by self-sufficiency come at the price of a lot of very hard work.

Autarky as an economic strategy was given a bad name because the Nazis tried so hard to create a self-contained economy.  In this case, autarky was merely another preparation for warfare.  And while the Nazis came quite close to their goals of economic self-sufficiency, there were still plenty of gaps in their desire to limit trade to only allies.  Even (especially?) on a national level, autarky is so hard to achieve that even a totalitarian state cannot pull it off.

Which brings us to today's featured article.  It is from Radio Free Europe so is probably as establishment / CIA / State as these things get.  Normally, I would not bother to read such obvious propaganda, but I am glad I read this one.  Because buried near the bottom is that that archaic and disused term—autarky.  Yes indeed, we now have a believable explanation for the irrational hostility to Russia and Putin.  Not only does Putin's Russia want to reorder the existing, dollar-based, global trading system, it has the possibility through the strategies of autarky to escape the shit-storm such a move has triggered.  And according to this piece, Putin is appointing a new generation of bureaucrats who share his vision.

The neoliberal "free-traders" did an amazing amount of damage to Russia.  That is not so surprising as unfettered trade turns the activity into this glorious opportunity to rip off the Producer Classes.  And that is precisely what happened during the Yeltsin days.  Nobodies with zero relevant skills made off with whole industries and got stinking, filthy, rich by exploiting the weaknesses in the philosophy of "free" trade.  And not so surprisingly, the people who got rich overnight at the expense of the Russian middle classes now worship neoliberalism and try to ensure that likeminded souls have all the important economic jobs.  And this is what Putin is trying to stop in the name of patriotism and national pride.  And he is recruiting his foot soldiers from the provinces where self-sufficiency is still valued.

Just to make sure we understand just how serious this conflict is, there has been a recent exchange between Mikhail Khodorkovsky, one of the neoliberal pirates who almost made off with much of Russia's oil wealth before being sent to Siberia for corruption and fraud, and Igor Strelkov, a man who has a clear sense of the damage Khodorkovsky caused and why Russia must resort to a state of near war to defend itself.  Khodorkovsky's speech was given to the 2014 Freedom House Awards Dinner on October 1.  It is full of the arguments used by all the neoliberal hacks that populate both parties in USA.  Strelkov, on the other hand addresses his Russian readers with pitches to their patriotism, historical Christian roots, and the raw memory of the catastrophe of the Yeltsin days.  Our politicians will certainly not understand—it's probably why none of them have Putin's approval ratings.

The USA military does NOT get it on climate change

Last January, I attended a climate change conference that featured a TV personality who had come to agree with the climate scientists after a lifetime of denial.  Not surprisingly (I guess) he peppered his speech with appeals to deniers like he once was—quoting the Bible, Ronald Reagan, etc.  At one point, he cited some examples of how the Navy was planning for the changes that climate change would bring to their operations.  "The Navy gets climate change," he shouted excitedly.

I thought I was going to be sick.  After a lifetime of passionate interest in the history of USA aerospace, there was one thing I KNEW about the military—almost every bit of their equipment requires massive amounts of premium fuels.  Navy jets, because they must operate off carrier decks, are some of the biggest gas hogs in the air.  Suggesting that these exemplars of conspicuous waste understood the issues of climate change was a bit like suggesting that Hugh Hefner was an expert on growing old gracefully with your lifetime partner.

In fairness I would imagine that the Navy, as part of the USA industrial state, is probably much closer to "getting it" on climate change than the folks who think a solution will come from marching behind large puppets and clever signs through the streets of New York.  Even so, I will not give the military much credit for understanding climate change until they stop using massive displays of waste as a form of chest-pounding.  I mean, considering that 99% of their potential targets are essentially defenseless, why exactly do they need supersonic aircraft?  How much fuel is required to demonstrate readiness or ferociousness?

Wind power in Scandinavia

A friend who spent a significant part of his childhood with his father—a very successful Mexico City architect / property developer—is someone who can always be counted on to provide the views of the Latin American oligarchical classes.  One day we were discussing the boast made by Hugo Chavez that Venezuela had the investment capital to provide her with the "industrial density of Sweden."  Friend laughed uproariously and then said, "Well, that may be true because she has an almost continuous trade surplus from her oil exports and can buy whatever machines she could possibly want, but what she is missing are the Swedes to run them."  (This is the sort of remark that almost always elicits a nod of approval in Minneapolis so friend was probably being more charming than analytical, but it certainly has a large element of fact built in.)

I thought about that remark today while reading how the Nordic countries plan to manage the VERY tricky transition from coal and gas to wind power as the way to power their societies.  A lot of fossil-fueled electrical generating capacity must soon be mothballed yet this does not seem to cause much distress.  For the Nordics, reducing the national carbon footprint is just another problem to be solved—and these are people who solve complex problems for pure enjoyment.

As my friend would point out, almost everyone has the same set of energy problems.  What they are missing are the Swedes (Norwegians, Danes, Finns).

Oliver Stone goes to Russia

As someone who thoroughly appreciates Oliver Stone's latest attempts at retelling history, I am quite delighted to see he has gone to Russia to cover the latest episodes in east-west relations.  Apparently, he gave an interview to a big Russian newspaper that is really too good to miss.  So here it is.  At one point in the introduction, the question is asked,

how is it possible, that this man, not a professional journalist or historian, understands what is going on in Ukraine and Russia and the mess the US has gotten itself into, better than the combined western media and Washington policy makers?

As someone who is nearly the same age as Stone, I'd like to give that question a shot.  A couple of years ago, I was talking with a highly educated German who has a major job at the University of California, Berkeley.  As one point he expressed some dismay at the narrow worldviews of many of his colleagues.  I said, "What do you expect?  Even the best-educated Americans know almost nothing about recent history and what they think they know, is usually wrong.  For example, almost no one in USA born after 1945 has any idea that USSR fought the Germans in WW II."  He looked at me incredulously, "What do such people believe?  That World War II was fought only between Germany and UK / USA?"  "That is precisely what I am saying", I replied. "Not only do we not know that almost every important battle of WW II was fought between the Germans and the Red Army, we are taught by omission that they never happened—they don't even come up."

Somewhere along the line, Stone managed to learn the history of the Great Patriotic War.  And that makes all the difference because it is quite literally impossible to know these historical facts and believe the Cold War BS that comes from the State Department.  At this point, it becomes obvious that for the paid liars at State, the near-universal historical illiteracy of the American public is a feature, not a bug.

The consumer runs out of money

In the past 40 years, anyone who has tried to run a business in USA will tell you one fundamental truth—their biggest problem was not finding something to sell, getting a quality product produced, finding skilled employees, raising capital, and after the desktop revolution and the coming of the Internet, being able to mount a slick marketing campaign, the BIG problem was finding enough customers with money to spend.  Not surprisingly, lack of customers has been the #1 reason for business failures.

Of course, there are always companies that find a niche and produce a big "hit" product or service (although in a hits-just-keep-on-coming world, those successes tend to be very short-lived).  There are enough of them so the glossy business mags have something to put on their covers each month.  But since the USA worker hasn't gotten a raise since 1973 and the cost of the necessities of life keep rising, what's left over keeps shrinking.  At some point, it doesn't matter how wonderful your product or service, or how clever your marketing, there are simply not enough folks with money to keep your doors open.  Too many producers—not enough consumers.

The little guy on Main Street knew this long ago.  Now the problem has moved up the food chain so that as reported below:

seven out of every eight major American retail companies “cite weak consumer spending as a risk factor to their stock price,”

Because there is obviously no "free-market" solution to this problem, the only solutions will involve collectivized actions like raising the minimum wage.  But the BIG change will be to finally end the adherence to that most discredited crackpot economic idea—trickle-down "economics."  It turns out that rising yachts cannot life the tides no matter how much the economists would wish to make it so.

German economy loses altitude

The markets and the real economy are very tenuously linked.  In fact, a major blow to the real economy can send the markets soaring.  But this time, the massively overbought markets are looking for an excuse to sell and by gum, if you look at the real economy, you will very likely find all sorts of reasons to take your money and run.  The only economy in the EU that is not staggering from one disaster to the next is Germany's and folks, they are running out of customers very quickly.  So on the news that German exports have dropped sharply, the DAX plunged to a near one-year low.

I tend to discount this sort of news.  There are thousands of economic horror stories out there that are routinely ignored whenever the markets are advancing.  Considering how much naked corruption, front-running, and computers trading with each other that goes on in those massively over-reported markets, I wonder why anyone takes this news any more seriously than for any other form of betting.  But they do, and governments are known to create extreme hardships for their own citizens in order to keep those magic markets soaring ahead.  So I keep track of the casino only because far too many take it seriously.

Finland and Apple

On Monday, Finland lost its AAA credit rating.  This is the only country that paid its WW I war era debts to USA and the country that managed to maintain it independence from USSR after WW II by paying its onerous reparations through heroic efforts that included housewives turning in their wedding rings for the gold.  These are people who pay their debts.  So for them to lose their AAA rating, there must be something seriously wrong with their economy.

There are two major things wrong with the economy of Finland these days—the collapse of Nokia and the continued decline of the global paper industry.  The problems at Nokia are especially sad.  As recently as 2007, it was arguably the world leader in cellphones and the hardware that made them work.  Then came the iPhone—a device that wasn't much of a phone but was a spectacular hand-held computer—and suddenly, those gems made by Nokia looked like something from the dark ages.  Things that once mattered so much—range, signal clarity, durability, etc.—were suddenly irrelevant in the new world where the new abilities such as numbers and availability of applications now dominated.  Nokia could have responded with a line of smart-phones of its own but the company structure was so dominated by cell-phone experts, it had no institutional way to fight back.  Eventually, it would be sold to Microsoft for the fire-sale price of $7.2 billion and the layoffs—over 12,000—began.  For a country with barely over 5 million people, this is a catastrophe.

The paper industry also became a Finnish specialty.  Here in Minnesota, every paper mill in the state is owned by Finns.  They had achieved global dominance through hard-work and innovation—Finnish paper-making machinery was extremely reliable and efficient and Finnish management techniques were first rate. What could possibly go wrong?  People could stop buying and using so much paper—that's what.  Computers had long promised a paperless society but had in fact delivered a paper boom when desktop publishing exploded in the 1980s.  Then came the iPad and its imitators and suddenly, the promise of the paperless society began to come true.

So it wasn't much of an intellectual stretch for the Finnish PM to blame its economic problems on Apple's two big marketing breakthroughs—the iPad and the iPhone.  Finland makes others things of course, but paper and cellphones were the two major accomplishments.  And for all the brave talk, replacing them as engines of the national economy will be damn difficult.

When neoliberalism crashes and burns, how will the true believers respond?

These days, even the IMF is warning that the current economic situation cannot last much longer—it can get a whole lot worse.  They can list their reasons for why we can see a major crash on the horizon but here are mine.

The economics profession lost the plot with the arrival of econometrics.  Because numbers-crunching needs numbers to crunch, only those economic questions that had been reduced to numbers would be studied.  As a result, many extremely important economic questions such as, What is the role of aesthetics to economic outcomes?  Or precision?  Or wise use of resources?  Or the production or reduction of waste products, or the role of design in energy consumption?  Etc.?  In short, everything important to the real economy would now be shunted aside as non-important / existent while massive arguments would break out over trivialities such as the role of hedge funds.  In such an atmosphere, the symbolic economy would flourish (stock markets reaching record levels) while the real economy fell apart (everyone the world over now faces catastrophic infrastructure deficits.)

Unfortunately, as the real economy collapses, the number of people who have enough money to participate in the symbolic economy collapses with it.  So while the economics profession ignores the health of the real economy, they inevitably fail to see the problems facing the symbolic economy.  Not surprisingly, they are utterly unprepared to foresee the various threats to their unicorn and rainbow constructions of reality.  (How many economists foresaw the problems of 2007-8?)  Of course, if you cannot see a problem developing, it will surely be impossible to plan for the eventualities they present.

And so we see Larry Elliot, the economics editor for The Guardian size up the state of planning in case the overheated markets collapse.  To call these people clowns is an insult to clowns.  Unfortunately, the financial "heavy-hitters" will try once again to fix the symbolic economy while ignoring the problems of the real economy.  Of course they will—they have no choice because they refuse to acknowledge that the real economy exists.  Unfortunately, the "tools" they had to pump up the symbolic economy without fixing the real thing were mostly used up to rescue the economy from the crash of 2008.  Hard to lower interest rates when the prime is nearly zero already.

Is history more important to public policy than economics?

Above all else, knowing history is the essential navigation tool.  If you don't know where you came from, you cannot know where you are.  And if you don't know where you are, it is impossible to chart where you may want to go.
—absolutely favorite defense for why anyone interested in leading a meaningful life should know history

I did not always find history so fascinating.  When I was in high school and college, I found history to be tedious and stupid.  But then I discovered a book that covered the history of the development of musical instruments.  What a mind-blower!  Even relatively simple instruments like a violin or guitar are significant and difficult feats of building—while something like a pipe organ or piano were civilization-defining accomplishments when they were perfected.  From this book I learned two incredibly important concepts:

1. there are as many kinds of history as there are human achievements, 
2. the people who built our civilizations were infinitely more interesting than the religious figures, moneychangers, politicians, and warriors that so regularly populate standard history texts

In my mind, the biggest reason no one wants to study history is because it is mostly about the Leisure Classes—people who take pride in their uselessness.

Armed with these two insights, I began to devour as much historical information as I could about the nation-builders and what they accomplished.  For example, one of my favorite books was the autobiography of Alfred Sloan.  Needless to say, building GM's market share from 12% to over 50% was a large project.  But that didn't make him immune from appreciating the fact that "big" accomplishments rested on the success of thousands of significant "little" accomplishments.  At one point, he tells of the mind-boggling difficulty of making successful fuel injectors.  You "must make a hole the size of a mosquito's stinger in the hardest steel ever made."  Apparently he got so creative in describing that problem because solving it took GM over a year.  And while this problem was being solved, GM's diesel engine program was effectively put on hold.

My other passion became the topic of what happened when the builders tried to change the debate on economics.

Occasionally, I will read a history book by an established historian but I seldom do this anymore because I find such books less relevant the older I get.  I suppose the last book I read like that was Faust's Metropolis: A History of Berlin, the 1998 door stop by Alexandra Richie of Oxford.  It was frighteningly awful.  For example, the role of Berlin as a manufacturing center with Siemens as the big engine of European electrification was barely mentioned while Richie could go on for pages listing obscure nobodies who were slighted in their desire to be famous for their modern art.  And while she does mention that the Siemen's workforce became so radicalized that Berlin got the nickname "Red" Berlin, she offers nothing in the way of explanation for why making electrical machinery would cause that.

Today, we feature an essay for why the study of history is more helpful in the making of public policy than economics.  Being written by academic historians, it often veers off into irrelevance but the basic point is sound—historical illiterates are pretty damn useless when it comes to collective action.  Of course, I would say that if the subject is economic policy, it should at LEAST be informed by a working understanding of economic history.

What the crumbling Kiel Canal says about the German economy

My childhood home was not in Germany, but I grew up around so many German-speakers, there were times when it could just as well have been.  My neighbors were often highly virtuous, and one of the virtues I found most admirable was that they believed in maintenance and other manifestations of the Instinct of Workmanship.  So when I saw DDR for the first time, I could only marvel at what madness could have caused Germans (GERMANS?) to build something as truly awful as the Trabant.  I blamed Marxism because it was a body of beliefs that was notoriously technologically backwards.

So now we find the Germans have taken to neglecting routine maintenance.  Since Marxism can no longer be blamed, I blame neoliberalism.  Neoliberalism has trashed the European economy so thoroughly that even though Germany is only now starting to hurt, the wreckage all around them has scared them so badly they will not spend money for capital improvements even when they could borrow at 0.15%.

Evans-Pritchard has no trouble identifying other flaws in German economic thinking.  Being a Brit, he is good at pointing out flaws in the Germans.  And he's probably right about most of them.  But at the bottom, I still believe her problems mainly come from the neoliberal madness.

Evil or stupid? the Troika in action

Whenever there is a financial calamity caused by standard classical prescriptions, my first instinct is to see these things as conceptual errors.  Turning an economic problem into a calamity isn't all that hard to do so it is well within your typical economic expert's power to pull off.  Then there is the problem of religious fanaticism—neoliberalism is based on ideas that have ALWAYS produced disasters so the only reason anyone can believe this horseshit is that it appeals to the irrational that seems to exist in us all.  Worse, these folks are selected for their willingness to conform so they are badly practiced in innovation.

Before we can believe that the people who staff the working level positions of places like IMF are just hopelessly evil, however, we must get past that they are relentlessly mediocre people who create economic structural adjustments for national economies that are little more than checking off boxes.  I mean, this isn't much of a defense but it should keep them from the guillotines when they have finally collected enough really angry victims.

But Auerback makes a strong case for the truly evil nature of the financial actors.  He argues that they knew exactly what they were doing when they pawned off all that real estate speculation on the Irish citizens.  In fact, they threatened the country with bankruptcy if they burned the bondholders—which is exactly what should have happened both from the point of justice and sound economic policy.

Of course, this naked extortion could also be explained away with a sort of "Predators will be Predators" description of human behavior.  Banksters prey on the Producers because it is the only survival strategy they know.  I am not sure this explanation will stave off the mobs, but you can bet it will be proffered.

Losing the "freedom" to lie

Jon Hellevig is on a roll.  I discovered him in time to include his views in a post last Saturday called Petro rubles.  His insights into the Russian economy are first rate.

Well, he's back.  This time to complain about low-grade reporting and high-grade lying going on in the big organs of the Russian press.  Seems like they mostly exist to stir up trouble by misleading their readers.  Those of us here in USA know what he is talking about because our press has been arguing for policies that have largely destroyed the productive middle class, lied us into utterly insane wars that benefit no one except the arms merchants, and militarized our police forces against the day when a fed-up populace comes out shooting—among a 1000 other crimes against the public good.  Of course, the big difference between Big Media in USA and Big Media in Russia is that their lying troublemakers are almost all foreign.  So Russia passed a law saying non-Russians could not own more than 20% of a Russian newspaper.  (the horror)

Hellevig finds the outcry of the affected organs of propaganda pretty absurd.  According to him, the put-upon press is mostly losing their "freedom to lie"—a "freedom" they have thoroughly abused of late.  Hellevig has that good hard-nosed Nordic pragmatic view of truth-telling—it is a virtue that leads to prosperity and civic order.  Russia can only benefit by restricting the damages caused by people who believe lying is a necessary part of the social order.

Could not agree with him more!

IMF predicts slow growth

The charming folks over at IMF, the very same people who spent the last 40 years perfecting demand destruction with their "structural adjustments", have now discovered that bringing back an economy deliberately crippled by their crackpot economic policies is harder than it looks.  Of course, people who wreck things can NEVER consider what it took to build them in the first place.  If they had that much empathy, they wouldn't wreck things in the first place.

It's actually pretty easy to understand, IMF.  The real economy is constrained by resource limitations.  These resource limitations are a certainty because we have created a system that mines valuable resources, processes them into something humans need or want, and finally tries to find a place to hide the trash when our creations wear out or grow tiresome.  Real growth rates in such a system of linear industrialization will inevitably crash because resources are finite—and so are places to hide the garbage.

Now the IMF COULD fund real growth IF they allocated their money towards building systems that avoided linear industrialization like the plague.  And of course, they would have to end their practice of charging compound interest.  So long as the moneychangers demand compound interest for the use of money, the producers will try to make the real economy expand at compound rates.  Since that cannot be done, the IMF is in fact designing failure.  I could do without the IMF's phony surprise whenever the real economy is not performing at they think it should.  It is a bit much to destroy damn near every economy on the planet and then act surprised when they don't spring back when you act a bit enlightened for a few months.

Neoliberalism finally catches up to the German economy

Neoliberalism's fatal flaw is that because it is an economics of the idle rich, the rest of the society is left behind in poverty.  Poor people don't buy much so neoliberalism's most predictable policy outcome is demand destruction.

For many years now, German economic thought has been dominated by the most reactionary neoliberals possible. Wolfgang Schäuble, her current finance minister, believes that neoliberalism is not only functionally and intellectually superior, but morally and ethically as well.  And for a long time, German economic performance has given him little reason to doubt his convictions.  But as the rest of the EU collapses into economic chaos, poverty, and hopelessness, Germany is discovering that her prosperity is not possible without prosperous customers—poor poor people eventually lead to poorer rich people.  Of course, if the rich can get governments and central bankers to cover up this reality, they may never know that the real economy is collapsing all around them.

But the laws of economic gravity cannot be suspended forever and demand destruction was likely to have caught up with the Germans sooner or later.  But then, she foolishly joined the rest of the EU in imposing sanctions on Russia—one of the few remaining countries with the ability to buy her exports.  Not surprisingly, the real German economy hit a wall in August.  Factory orders plunged 5.7% in ONE month.

Neoliberalism is a reliable way for rich nations to become poor ones.  Because Germany is so very rich and still has a functioning real economy, it is unlikely she will become Greece or Italy anytime soon.  Even so, she will recover from this economic hurricane only with great difficulty and she will be significantly poorer a year from now.  Unfortunately, a year from now, the overwhelming majority of German economists will be devout neoliberals who will be shouting that the problems were caused by people lacking sufficient devotion to the true faith.

Hong Kong takes to the streets

As someone who spent the years 1967-74 at a university with a serious tradition of progressive activism, I spent way too much time thinking about the effectiveness and strategies of street protests.  Minnesota isn't a big street protest state because of the weather, but there were some of note.  The last one I attended was in April 1970 when the first Earth Day coincided with a General Electric shareholders gathering in town.  I spent several hours next to a woman who chanted, "Save Mother Earth!" in a really annoying voice.  I went home and swore off marches because I was absolutely certain that I had wasted my day.  Haven't been to one since.

But lately, I have been thinking that maybe the marches I attended were designed to be useless and ineffectual.  I knew next to nothing about the people who organized these affairs but I also know now that the most reliable, dues-paying, organizers were employed by the police or other forces of authority.  And now we see that NGOs sponsored by such reactionary outfits as the National Endowment for Democracy probably organize more protests these days, in more countries, than all the amateurs combined.

Professional troublemaking will only get you so far.  At some point, you must at least pretend to address a real grievance or you won't attract many followers.  So when you see a large mob with staying power, it is obviously more than NED out making mischief.  Someone has identified a real, hot-button, grievance and gotten folks to believe they have a solution.  Of course, with so many real grievances to choose from, this may be little more than focus-group-driven trouble-making.  More likely, the grievance comes first—then the protest.  At that point, the task at hand is to channel the protest into safe and acceptable ways that never threaten the big economic interests.

So no, I do not even pretend to know who is organizing what in Hong Kong.  But since protests in Hong Kong are extremely rare, the best guess is that the real grievances are economic.  Economics is always the best guess if you only have one.  So when I spotted an essay that blames the anger on neoliberalism, I found it believable enough to repost.  Actually, the financial insiders of Hong Kong practice an economics that is so viciously corrupt and exploitive that actual neoliberalism would constitute an improvement.  But close enough.  Unfortunately, because neoliberalism is so well entrenched and has really very little organized intellectual opposition, this protest will probably fade into irrelevance like the other challenges to the orthodox order in the last 40 years.

Winter is coming—project update

Woke up last week and some local maple trees had gotten a head start on fall. Minnesota is not known for its colorful foliage but my little town didn't get that memo.  In the 1970s, the magnificent elms that provided a canopy for most of the streets died in the Dutch Elm Disease epidemic.  While the temptation was to replant with something fast-growing like silver maples, many chose to plant the much slower-growing but sturdier hard maples.  The big payoff is that these trees go out in a blaze of color each fall.  And now that most of these trees are turning 40 years old, our town looks a lot like something you would see in New England with their large stands of hard maples.  Because so many chose patience in their plantings, our little town has some of the prettier street-scapes in the state.  And they do provide an early-warning about winter because they change color at least two weeks before the oak trees turn.



And I have a project that needs finishing.  I still have a stretch of exterior wall with no insulation whatsoever.  But at least the demolition phase is done.  It is amazing how much effort it required to fill that little dumpster.  When I was 25, I could have filled it in a couple of days.  Now, at 65, it took a bit longer.

Dumpster rental / disposal fees are a LOT higher than they used to be.  Rehab creates some serious piles of junk.  Notice there was no door on this dumpster so everything had to go in over the 6' (1.8 m) side.  This included an old iron tub.  Nice to have a big strong neighbor.



The rotten floor and stud have been patched and the fun part of the project has begun—building is SO much more satisfying than demolition.  Besides, new parts are cleaner so I can stop wearing gloves—which I really dislike.



The big payoff.  One of the important upgrades of this project was to make this bathroom wheelchair / walker accessible.  Because the walls of the bathroom could only be moved at great difficulty and expense, we needed to find a few inches using the floorplan we had.  A shallow vanity was required.  A favorite niece married a cabinetmaker a while back so we had a source of expertise.  Partner designed a vanity that recalled some of her favorite 50s design themes—tubular chrome hardware, and bookmatched and blueprinted flat surfaces.  Cabinetmaker did not like the idea of plywood construction in a bathroom.  So the vanity below may look booked-and-blue but those are solid-wood fronts.  A lot of thought went into making that possible. We tend to forget that there were some magnificent designs in the 50s because so much was overwrought.  This will be an excellent reminder of the good stuff.  I still have problems considering a 50s-era house as an historical artifact that requires era-faithful upgrades, so I am glad someone else has taken up that torch.



So yes, I am a lot slower than I used to be.  And I really detest demolition.  But I still get a kick out of fixing a real problem with style.  And because I now know what is in the walls, I seriously believe that we can cut the energy usage of this house in half using that knowledge to design a new insulation package.  Reducing a carbon footprint is harder than it looks but it can be done without breaking the bank.

Petro rubles?

The Russian economy makes for fascinating picture these days.  The sanctions from EU / USA have forced her onto a war footing.  Interestingly enough, this is a much more comfortable place for a country that spent at least 50 years of the 20th century either fighting a war or trying to rebuild the damage it caused.  There must be incredible institutional memories of how this is done.  In fact, it can be argued that Russia's experiments with neoliberalism since Yeltsin are increasingly being seen as the failures they so obviously are.  And when Russia looks at the collapse of the EU economies, it can only make their self-confidence grow.

What evidence do we have that Putin's economic team knows what they are doing?  I believe the most compelling example is that Putin has suddenly discovered the value of a cheap ruble.  As someone who lives in a country that regularly ties itself into economic knots in order to maintain the high value of the dollar, this is an amazing development—but one that makes sense.  I have been listening to USA Producers complain about about undervalued currencies in Japan, China, South Korea, etc. etc. most of my adult life.  Bitching about the high value of the dollar is one of the few remaining signs we still have some Producer Class survivors.

What this means in practice is that Russia is about to look economically a great deal more like Japan of the 1980s.  And one of the things they will probably discover is that a very large percentage of their imports are things they could easily produce themselves.  Whether Russia has the human resources to pull this off is another matter.  A high-functioning Producer Class does not just happen overnight—even IF they have been given economic space to grow by a government that seems to believe in import substitution as a critical element of cultural self-defense.

As regular readers know, I am a pretty serious amateur historian and Russia is a pet interest.  It is my contention that Putin is by far the most interesting and imaginative Russian leader of the last 150 years.  The historians are going to have a field day with this guy.  IMHO, Putin has now passed every leader Russia has ever had save Peter the Great.  And the accomplishment of Peter that Putin has yet to match is that Peter was such a magnificent builder.  Peter got it.  He had actually trained in a Dutch shipyard as a young man.  Shipbuilding was arguably the pinnacle of Producer Class accomplishment at the time.  Russia was a VERY different place when Peter got done with it.  While Putin missed the shipyard training, he still could become the nation's historical master builder if he can jerk the economy back from the neoliberal madmen and create something resembling a Producer State.  It IS possible that could happen—after all, he has all the pieces.

The following is an interesting assessment of Russia's economic "reformation" written by a Finn.  I make it a habit to withhold judgment about Russia until I have heard from a Finn.  After all, these are a small (5+ million) people who have managed to maintain their independence from a massive superpower with whom they share a 1300 km border.  And the ONLY way they could do this is to have an extremely clear-eyed view of their neighbor.  Not surprisingly, they are the best in the business.  Must read.

Perovskite—the next solar cell wonder material?

One of the things that critics of solar energy forget is that it is still a VERY young industry.  The cells 10 years from now will probably be a lot better because there is a lot of room for improvement in design and materials.  The fact that solar is changing so rapidly is certainly no excuse not to get in with both feet.  Because while the technology is still a moving target, good solar sites are not.  A good solar site will make electricity no matter the state of the technology.

Will perovskite become the next wonder material in PV?  Who knows?  Certainly not me.  I remember when a 27 GB hard drive for $300 was this incredible bargain and that certainly the physical limits of magnetic storage were in sight.  I thought about that yesterday was I was reading an ad for a 5 TB HDD for $300. But it seems like at this stage of the game, it would be silly not to keep track of the materials and processes that have significant upside potential and perovskite seems to fit the bill.

India and energy

The good news is that India has decided to get electricity to the 300 million that have never had it.  Good news for those whose lives will transformed.  I am just old enough to have met those people who lives were changed by REA.  Rural life went from being an ordeal to a preferable choice for many.  The bad news is that India has decided to provide much of this electricity by burning coal.  Given the scale of this project, this will be nothing less than a catastrophe for the planet AND India.

From a planning perspective, the choice for coal is dismally unimaginative.  Yes, there are advantages to buying reliable capital equipment out of a catalog.  But the disadvantages are enormous including: locking yourself into fifty years of buying coal set at market rates, becoming a global pariah in an era when carbon emissions are increasingly unpopular, settling for a dying technology, and the enormous costs of a distribution system that must be tacked onto the costs of any system involving large central generation etc.

India points out that criticism from the west is bad form.  After all, most of the excess carbon in atmosphere is tagged "Made in USA or Europe."  Her energy minister says concerning criticisms from Western governments that they are nothing more than “homilies and pontificating, having enjoyed themselves the fruits of ruining the environment over many years.”  But that's sort of the point—the atmosphere is severely damaged and just because you weren't the ones that did the damage is no argument for why you should start now.  Besides, building coal burners is a technological decision akin to building steam locomotives.

India says she will also become a renewable superpower.  Which begs the question—if you are going to be serious about renewables, why waste money on new coal-burners?  Especially now.