Who murdered capitalism?

Earlier this week, Ian Welsh posted The Death of Capitalism, arguing that capitalism "has failed because it failed to deal with climate change." It is not a simple-minded screed by a tree-hugger against the evil capitalist industrialists. There is some deep philosophy behind it, which, as Welsh does better than almost any writer I know, he discusses plainly and very understandably: 

Capitalism’s great claim to being a superior form of organization for production and distribution of goods and services is that it is best able to account for costs and benefits: It produces that for which people are willing and able to pay.

People weren’t willing and/or able to pay to stop climate change. In part, this is because actors with money were able to obfuscate both the science and the situation, spending millions on doing so, and buying the political process. In part, it is because climate change’s worst effects were expected to take place AFTER the death of the people who needed to act to stop it.

If you were 30 in 1980, you are 66 today. If you were 40, you are 76. If you were in the decision making class, overwhelmingly allocated to those who were 50+ in 1980, you are 86 today.

People who were in their prime and during their decision-making days, when we needed to act on climate change, were making a DEATH BET.

They bet they would be dead before the worst results of climate change happened.

They will win this bet.

This was a RATIONAL thing for them to do. I want to repeat that, because too many people think “rational=good.” It does not. It was rational for them to discount a future they would not see.

I do not disagree with Welsh, but I think he is wrong to blame "capitalism." Not that capitalism is blameless in creating the problem of climate change. I mean wrong in the sense that maps of the world in the eighteenth and nineteenth centuries were wrong: they provide a basic idea of certain incontrovertible facts, such as the existence of continents, and oceans, and major rivers, but they simply do not provide all the real details you need to get to where you want to go safely and expeditiously. For example: What kind of capitalism are we talking about here? Industrial capitalism? Or financial / rentier capitalism? American capitalism? Or German or Japanese capitalism?

Because statistics and data show clearly that the United States is becoming less capital intense. It is becoming, in other words, less capitalistic. This is a symptom, as well as a function, of the U.S. economy coming to be dominated by rentiers and usurers, rather than producers. Remember Mitt Romney and Bain Capital? Private equity operations like that—and there are many—force companies to borrow money to pay out fees and dividends, actually de-capitalizing those victim companies. Is that capitalism? And note that such looted companies are under intense pressure, by the financiers looting them, to drive down labor costs as much as possible, perhaps by relocating offshore. And, to skirt environmental and safety regulations, Which of course contributes to the causes of climate change.

Denmark and windpower breaking new records

Because Denmark has no fossil fuel resources of her own, every bit of money saved by harvesting renewable energy goes straight to the nation's bottom line.  Besides, the Danes are very good at windmills—Vestas and all.  So it isn't so surprising that Denmark has gotten closer to powering her society with wind than anyone else.  If you follow the Vestas link, you can learn all about the fabulous V136—3.45 MW wind turbine.  The 136 is for the rotor diameter in meters which translates into 446'.  That, folks, is a serious piece of machinery

The USA has some primo wind sites.  I lived for a short while in NW North Dakota and I can assure you, there are some fabulous ones out there.  The big problem is that those wind sites are a LONG way from the country's population centers and without better means of electrical transmission, that distance is too far to be economically practical.  So a wind-based infrastructure must necessarily be very sensitive to local conditions.  This is a long way of saying—just because the Danes have gotten damn good at making windpower work doesn't mean their methods are relevant to USA.

In fact, my guess is that because USA has more places with abundant sunlight, PV cells will be much more important to any green energy future than wind.  But who really knows?—green energy is still quite young.

The Saker on Putin's neoliberal obstacles

The levels of vitriol directed at Vlad Putin are way out of proportion to any real crimes he may have committed.  I mean, seriously, we want to go to war over Crimea???  Germany is willing to put at risk over six thousand businesses with Russian operations over eastern Ukraine???  The number of USA citizens who could even find Crimea on a map is miniscule.  The latest poutrage from the UK is the official assertion that Putin was responsible for the the death of a rogue secret agent.

None of this makes a lick of sense.  Compared to our drone-assassin Obama, Putin is damn near a saint.  The resurgent Orthodox church in Russia certainly thinks so.  He is astonishingly popular with the voters.  He is, by far, the best leader Russia has had since at least Catherine the Great, and perhaps ever.  Any country that cannot get along with such a leader should probably examine its own foreign policy failures.

So what is the story???  I have been thinking about this for quite a few years now and my pet theory has long been that Putin's real "crime" was that he actually sent one of those thieving oligarchs (Khodorkovsky) to prison.  These were the pirates who ripped off the assets of the Soviet Union during the Yeltsin years.  The rest of the crooks got the message and fled to London with their loot.  For a TINY fraction of their ill-gotten gains, these oligarchs were then able to create the Putin-is-evil-personified story and sell it to the UK and USA press.

In the story below, The Saker argues that the neoliberals who organized the plunder of USSR assets are still alive and well, still very much in power, and screwing up the Russian economy for Putin in a plan to destroy him and his government.  And so we see that once again, the neoliberals will stop at nothing to get their way.  In fact, the Saker argues that if Putin were to do something basic like getting rid of the neoliberal crazy who is running the Russian central bank, the international reaction would be at least as harsh as the response to the annexation of Crimea.

Is Silicon Valley running out of ideas?

Early in his career, (1999) Michael Lewis wrote an excellent book called The New New Thing about the life and times of Jim Clark—the founder of Silicon Graphics, Netscape, and Healtheon, thereby becoming the first denizen of Silicon Valley to have created three billion-dollar companies.  The tale of Silicon Graphics was quite traditional because they were building 3D workstations.  This was a venture into the world of high-tech hardware of the sort that had made Silicon Valley the goto place for the hardware needed by the Defense Department and the space race.  What Clark discovered was that because hardware is so expensive to create, you either needed the deep pockets of the government or a steady stream of patient venture capitalists willing to wait while you make something very difficult actually work.

In truth, patient venture capitalists do not exist in the real world.  Patient people don't become venture capitalists in the first place.  So what Clark discovered was that the greedy demands of the VC community were so onerous, that by the time he finally had produced some Silicon Graphics workstations for sale, he had gone through so many rounds of fund-raising that he didn't own much of anything anymore.  Not long after he was forced out of the company he had invented.  The lesson he drew was that if you wanted to succeed in the world of privately-funded startups, the project had to be short and take advantage of existing technology.  In other words, no hardware.

The project that fulfilled his new requirements was Netscape.  No Hardware involved!  Even better, a prototype web browser had been developed at the University of Illinois by some grad students including one Marc Andreessen.  Clark simply hired Andreessen and together with a handful of coders, created the browser called Netscape.  Essentially, Clark invented a "new" Silicon Valley that required a minimum of capital yet could deliver stupendous results if the product was a "hit."  This is the development model that launched a thousand apps like Facebook.  It is the model that the author, writing below, thinks has essentially exhausted itself.

There are still some brave souls who venture into the world of hardware.  Elon Musk made his grubstake at PayPal before discovering the joys of building something as complicated as an electric car.  I imagine we are about to find out how extremely rare such a move is.

More worries about debt defaults

Debts that cannot be repaid, will not be repaid.
Michael Hudson

One of the more interesting scenes in the The Big Short comes when the protagonists who have been shorting the housing market are beginning to lose their nerve.  The "cure" is to attend the securitization conference in Las Vegas where they can meet the people they are betting against.  This was a convention of true believers in the conventional wisdom who were making some of the easiest money in history—a sure sign of God's blessing.  Not that these were godly people, understand, they just elevated their arrogance to godlike levels.  Our protagonists are not impressed—when someone has a different belief system than yours, almost everything they do looks crazy.  But in this case, we are talking about people who worshipped at the alter of mortgage-backed securities so to an outsider, they looked quite insane indeed.

Flash forward to 2016 and some sober bankers are warning about the oncoming waves of debt default. (see below)  And since the central banks have been dumping free money on the financial system in the absurd belief that this fluffing will eventually lead to growth in the real economy, they have essentially run out of weapons to fight another 2007-8 economic collapse.  And this time around, the lousy loans are not limited to subprime mortgages.  Anyone looking to short bad loans these days will discover a target-rich environment.

This could be the perfect opportunity rein in the criminality of the banking system and force to central banks to fund the needs of the real economy.  But you watch—the greatest obstacle to a sane system of banking will not be fraud but the insanity of people who are attached to the "conventional wisdom."

Neocons don't like being called neocons anymore

As much bashing of neoliberalism that goes on around here, we all would do well to remember that neoliberalism has an ugly cousin—neoconservatism.  If one is worse than the other is a question of theological hair-splitting.  And while neoliberals tend to focus on macroeconomics, neocons have been most public on issues of foreign policy.  Their big public-policy "success" was stampeding the USA into invading Iraq in 2003.  Now that this "triumph" has turned into a debacle for the ages, the neocons are now trying to ditch their name and association with Iraq.  It is easy to understand why.  For complex reasons I don't pretend to understand, most of the big war-mongers still have their jobs.  But their reputations are shot.  For example, look at proud neocon Hilary Clinton—she lost the 2008 primaries to Obama over her support for the Iraq invasion and now in 2016, she might lose to Bernie Sanders for largely the same reason.

Will the Fed pay for infrastructure?

The thinking that produced Elegant Technology evolved in three stages.

1) Could the industrial state remake itself so the outcome wasn't always environmental disaster?  After about three years of looking, I assumed the answer was yes.

2) What is stopping us from building the new and improved industrial state?  Answer: It will be very difficult and expensive to improve on what we got and no one seems interested in spending the money.

3) History provides ample examples of when societies faced an emergency, the money would be created to fund a solution.  I assumed the environmental crises was such an emergency.

I had reached stage three by 1985.  I knew it was possible for the central banks to monetize debt because USA had done it as recently as WW II.  So I have been waiting for these geniuses to actually do something about the infrastructure for 30 freaking years now.  But Ellen Brown now assures us that the topic of the Fed paying for infrastructure has finally been reopened.

Be still my heart.  Can we only hope its true?

The pain caused by crackpot economics

The reason the great economic meltdowns are so pernicious is that the vast majority of victims have no idea what hit them. For many, it seems like a natural catastrophe. Worse, none of the solutions they have for coping with such catastrophes seem to help. It certainly doesn't help to pray. It doesn't help much to vote. It doesn't help much to relocate, etc.

I was there for the meltdown in the 1981 and 82 when a deliberate action of the Federal Reserve System caused the prime interest rate to go to 21%. Not surprisingly this action absolutely devastated Midwest agriculture. Pictures of farmers who were losing their farms of four and five generations begin to show up in the media. Significantly, the most common look on the faces of the people losing their land, livelihoods, and homes was confusion. And even if you could tell them that this disaster was caused by greedy bankers performing a crackpot economic experiment, they would have never believed to you. And of course the media and the on-air economic experts, and their politicians, were not about to tell them—even though the facts were out in the open.

My mother just barely survived the Great Depression. Her father was trying to make 58 acres of very marginal farmland provide a living for the family. The poverty in the area where she grew up was almost universal. Her mother died in 1935 from a disease that was quite treatable—but what she really died from was desperation and a broken heart. There was no money in the house to send my mother or her brother to high school so for the rest of her life she walked around with an inferiority complex about her educational deficiencies. She made up for this pain by becoming a prolific reader which had the effect of usually making her the best informed person in the room but this did not compensate for that 8th-grade education that she was so ashamed of. Mostly she never got over the great fear that came from spending a childhood on the thin edge of economic catastrophe.

She's did a pretty good job of spreading that fear to her children. My sister who died last summer certainly went to her death carrying fears she learned from my mother. So economic catastrophes live on in the younger generations. And yet the bad economic theory and naked greed that causes these catastrophes may have only lasted for a few years.

Perhaps the greatest reason I keep plugging away at this blog is that I want to be a source of information to explain what is going on when those great economic disasters fall on the heads of perfectly innocent victims. It's bad enough that they happen. It's much worse when they happen to you and you have no possible explanation for what went wrong. And so, I have spent pretty much every day since 1981 working on better and more accurate explanations.

Raising interest rates in a recession

The world's central bankers have painted themselves into a corner.  Since the early 1980s when Paul Volcker made naked usury public policy in USA, when he raised the prime to over 21% in a brutal attempt to curb inflation, we have seen the central bankers make successful attempts to slow dow the economy while their attempts to get the economy to grow have been pathetic.  The worst side effect of usury as public policy is that it bred a whole generation of people who are hyper-vigilent about the possibility, however remote, that inflation is about to break out.  And that the "good" fight against inflation is always worth fighting because it gives added powers and riches to the creditor classes.

Russia was confronted with sanctions over Crimea / Ukraine in 2014 which caused shortages that led to an outbreak of inflation.  As "luck" would have it, their central bank was being led by a Yale-educated economist named Elvira Nabiullina who immediately hiked interest rates.  And like the prescription for blood-letting of old, this policy immediately made things MUCH worse.  We tend to forget that when the USSR abandoned Marxism, the advisors who swooped in to "help" were some of the most doctrinaire neoliberals on the planet.  Russia has recovered a little since 1991, but not much, because most of her new leadership became enthusiastic neoliberals—including Putin.

Lest we in USA gloat, our newly minted Fed chief is just as goofy as her Russian counterpart.  They are singing from the same hymnal, after all.  So even though the global economy is teetering on the brink of a major slowdown, Janet Yellen announced in December that USA would raise its prime rate.  Below we see Dave Lindorff try to make some sense out of a move so obviously foolish.  I am glad someone is trying because I have pretty much come to the conclusion that such central banker "wisdom" is probably just another manifestation of dementia.

Icebergs and global warming

Not surprisingly, many of the early predictions from the climate change folks have been inaccurate.  Of course, they get the big subject right—the global atmosphere has trapped more energy and usually more energy leads to more heat.  Much error is just an occupational hazard of trend projections.  It is tempting to take a data curve and stick something on the end.  When this practice fails—and it does quite often—it is usually because the model has left out some important complicating factor.

Which is why the following story is so interesting.  Huge icebergs are breaking loose from Antarctica—global warming, check.  But because they are so large, they sort of tow around their own weather systems and their meltwater supports a carbon absorbing phytoplankton.  Even better, it seems, these island-sized ice cubes cool some significant areas.  Well, duh!  It takes a LOT of energy to melt ice—says the man writing on a night headed for -10°F (-23°C).

Unfortunately, whatever benefit is to be gained from melting the Antarctic ice sheets, it is a one-time deal.  If these little iceberg micro-climates gain the planet a few years, we would be very wise to spend that time building the necessary zero-carbon-emission green society.

Electric cars—the new Chevy Bolt

With the arrival of the new Chevy Bolt, GM's eco-cred just goes up a significant notch.  While we still await Tesla's new "mid-priced" arrival, the Bolt looks to be a serious player.  Cars are nasty-difficult to build so it is important that someone who has been building cars for over a century is employing their resources and expertise has come forward with a new model—complete with all the required safety features and a nation-wide network of sales and service.

Personally, I am not a big fan of the mini-SUV look but I don't sell cars so what do I know?  But then, when it comes to electric vehicles, nobody really knows how to sell them.  But my guess is that with a few more attractive examples like this one, the era of the electric cars looks to be right around the corner.

Chevrolet Bolt

More on fracking and Peak Oil

The hype surrounding fracked oil is so irrational, I have a hard time taking any of it seriously.  The idea that a process that fractures deep underground rock formations to liberate tiny oil deposits was going to make USA an oil exporter  again has set some new record for delusional thinking.  Some of this ridiculous hype was understandable—after all, much was in the service of selling junk bonds.  But damn, folks, isn't there some level of credulity you will not cross?

Apparently not.  One of the things that continues to sadden me in my old age is the continuing revelations of just what otherwise "sane" people believe.  As someone who was raised in a religious home, I was exposed to irrational beliefs from my earliest awareness.  I just thought (hoped? believed?) that religion was the only place for crazy opinions and if I could only escape those people, I could live my life in some sort of rational utopia.  Sadly no.

The ultimate absurdity of the fracking mania was the idea that somehow fracked production was discrediting the fact of Peak Oil.  In fact fracking was proving the whole notion of Peak Oil.  The guy below explains this better than I have the ambition to try.  Recommended reading.

The Big Short—a second look

Tuesday, I saw The Big Short for the second time.  I sat next to friend who has been making commercial-grade documentaries since the 1970s.  It was an afternoon matinee so we had the theater essentially to ourselves.  Which was probably a good thing because friend got all the jokes (and there are quite a few in this movie.)  We spent time afterwards trying to evaluate what we had seen.  And while we discussed the technical brilliance of the shot selections and the editing, what we really wanted to know was whether this innovative form of story-telling was an effective way of conveying serious information.  We came to no hard conclusions but we certainly thought the approach was worth a try.

The next night, I hear from Tony and he has now seen The Big Short.  I tend to take Tony seriously anyway, but in this case, he is the man who has plowed through Lewis' book multiple times so he has extra credentials.  Unlike my friend the documentarian, Tony is far more skeptical of video and TV in general.  He tends to think that TV watching turns people's brains into mush and goodness knows, he has plenty of evidence to back him up.  We discussed the fidelity of the movie to the book.  Mostly we discussed whether you can really pack a subject as complex as the 2008 global economic meltdown in a two-hour movie and still make it entertaining.  Tony seemed to think that all the important information was in the film but that most folks would need to watch it multiple times to comprehend it all.

As someone who had just seen it a second time, I could not help but agree.  And I start out knowing what a credit default swap is so when those incredibly clever explanations surfaced during the film, I could sit back and be entertained (and trust me, I usually needed a break from the breakneck pace of the story-telling.) So I went looking to see what the folks who write reviews for IMDb had to say.  Almost everyone has high praise for one aspect or another of this brilliant effort at moviemaking but as to my questions, a significant number suggest that multiple viewings are recommended, an interesting number mentioned how the 2008 meltdown affected them personally, and another group commented as people who were inside the offices where these economic crimes were committed.  There was a small group that complained they just didn't get it.  What is remarkable is how small this group is.  Or maybe not—people who don't understand something are often loathe to admit it.

The reason I am so serious about evaluating the story-telling effectiveness of The Big Short is that for many, MANY subjects, the public is so uniformed / misinformed that to effectively participate in a discussion on major policy issues will require crash courses in the basics.  Now it can be legitimately argued that some subjects are so complex, it will be better to leave the big decisions to highly-trained experts.  Even so, most people want to be included in any issue that directly affects their lives.  Most environmental issues fall under this heading so even though the crowd assigned to manage a smooth transition to a greener tomorrow may be required to be elite specialists, they rest of us at least want to know the big direction their expertise will take us.  So even though we will never reach some pure-consensus-democracy on the big issues, or even if that is a good idea, we will still need effective communication with the general public on a host of public policy matters.

In many ways, The Big Short is simply another variation on the model developed by The Daily Show and now John Oliver over at HBO.  The key to these shows is relentless research which produces the basic case that some government official is being ridiculous.  From there, the job gets easier because the funny comes from demonstrating the distance between the ridiculous posturing and the best facts the staff can find.  Not only do many find this approach highly amusing (I am one of them) it is incredibly effective in informing people.  Studies have shown people who get their news from places like The Daily Show are better informed than from any other source including public television.

But probably the best way to determine how effective The Big Short has been is if we see an organized pushback from big money.  But because the movie is so well organized and its case is so rock-solid, big money may just choose to ignore it and hope it disappears as social commentary like Wolf of Wall Street did.  Of course, WOWS was mostly an overlong demonstration for how boring people who have done too many drugs can be—The Big Short mentions the degeneracy of the money boys but there are no drug-taking scenes.  Discrediting this movie will be very difficult.

So here's to the success of The Big Short.  I see the box-office take has already passed the cost to make the thing.  And because this is a film people will want to see multiple times, it will probably become profitable even by Hollywood accounting standards.  This is a good thing because I can think of about 50 subjects that could stand this sort of treatment.

German agriculture in big trouble

Of all human activities, farming is arguably the most vulnerable.  Not only are growing plants susceptible to weather and pest-related catastrophes, but farmers and their crops are essentially defenseless. Any roving band of vandals can easily torch their crops but even worse, those assigned to "protect" agriculture have centuries of experience ripping off those tending the land.  (see feudalism, tax farming, etc.)

The EU and Germany, in an irrational fit of anger, decided to levy economic sanctions on Putin's Russia for the crime of opposing a coup-installed government in neighboring Ukraine.  Russia countered with sanctions against European agriculture and suddenly farmers, the most innocent of economic bystanders in this conflict, are subject to ruin.  Not surprisingly, they are crying foul.

For most of history, people who grow our food have been considered the very bottom of the socio-economic ladder.  This is almost universally true—EVEN in places such as USA were some farmers have achieved an upper-middle-class status.  But even these prosperous farmers quickly discover that if the conditions are wrong, they will get dumped on like the serfs of old,  And the German farmers, along with most of European agriculture, are quickly discovering that their economic and cultural interests are still at the end of the line.  In this case, those in front of them include the "Atlanticist" toadies who keep the USA occupation happy and the supermarkets who are making super-profits.

Yes, farmers driving expensive tractors CAN cause social inconveniences like Paris traffic jams but that will not move their interests up the line.  And soon, they must return to their farms.  It is a fact of their profession.  In the end, agriculture loses to the Predators because they are building occupation and it is simply more difficult to build than destroy.

Irrational central banking

Following the action of the world's central bankers is often quite instructive.  But Lordy, is it dull.  Institutional Analysis postulates that members of the same occupation tend eventually to think in similar ways—conformity is the #1 unofficial job requirement.  But there is arguably no occupation more conformist than the world of central banking—not even the Vatican's Curia.  And because the central bankers set the agenda in economics, we have a profession that is ridiculously ridged and insists on strict adherence to the lessons of unbelievable fairy tales.

In fact, believing the economic unbelievable is the primary requirement for entrance into the profession.  Wrap this all up in high-end math and our economic marching orders come from math nerds who seem fulfilled by arguments over how many angels can dance on a dimensionless point in space. Actually, their arguments always have a predetermined outcome—the creditors are always right and thus have first claim on a society's goodies.

So even though the global economy is teetering on catastrophic slowdown, the Fed finally agreed to start raising interest rates.  Normally this is done to slow down the economy but this time, I believe they raised interest rates simply because they thought 0-1% rates were inherently immoral.  Ah yes, economics as bad theology.

Climate change and Big Oil

The stories about what the oil industry knew about climate change just get juicer.  Probably the main reason I am so hooked on these tales is because Institutional Analysis could have predicted (and probably did somewhere) exactly the behavior of the oil companies.

Start with Institutional assumption #1: The oil companies always know.  They have to know everything possible about the crude they will turn into gasoline and jet fuel—including which oil fields it comes from.  These people build and maintain infrastructure so complex, massive, and expensive that most folks find it incomprehensible.  Their work is not only difficult, it is very dangerous so getting the answer right is often a matter of life and death.

Because this basic assumption is true beyond rational debate, it follows that the oil industry employs the best scientists on earth.  They have the most money to pay for top talent and plenty of good reasons to employ them.  The science of climate change has been pretty much settled since the early 20th century and is simple enough to explain to a reasonably alert 7th-grader.  OF COURSE the oil scientists understood climate change.  And now we see that they relied on their calculations to makes design changes in their infrastructure.  That's called putting your money where your mouth is.

What Big Oil chose to do with all this leading-edge understanding of climate change was not so predictable but in retrospect, quite understandable.  Because it is quite obvious that they looked at the climate change problem and concluded that even with all their massive scientific expertise, they didn't know what to do about it.  And so they chose to make the environmental pests go away.  They concluded that the environmentalists didn't know how to fix things either but they did know how to write regulations off-loading the fix on someone else—such as the oil companies.  So the environmental scientists had to be neutralized, and for an astonishingly small amount of money, they were.  Turns out it isn't hard to confuse the general public about matters they already find confusing.

The real lesson here is not about the power of Big Oil, but their self-defined powerlessness.  It's easy to sit on the sidelines and wonder why the oil companies didn't just turn their immense scientific and technological skills towards the problem of building the new green energy infrastructure.  But having stared into that abyss, they chose to muddy the academic debate while corrupting the processes of democracy.  Turns out that was a whole lot easier.