Week-end Wrap - September 29, 2018

Week-end Wrap - September 29, 2018
by Tony Wikrent
Economics Action Group, North Carolina Democratic Party Progressive Caucus


Simulcasting The Second International Conference of Modern Monetary Theory (#mmtconf18), Friday-Sunday, Sept 28-30, The New School, New York City [via Naked Capitalism]

Seattle judges throw out 15 years of marijuana convictions

[BBC, via Naked Capitalism 9-25-18] 

“Judges in Seattle have decided to quash convictions for marijuana possession for anyone prosecuted in the city between 1996 and 2010. City Attorney Pete Homes asked the court to take the step ‘to right the injustices of a drug war that has primarily targeted people of colour.’ Possession of marijuana became legal in the state of Washington in 2012.”

Can the US win a trade war?
By Marshall Auerback, September 22, 2018 [Asia Times, via Naked Capitalism 9-23-18]

The Democratic Party response to Trump's trade war so far has been straight out of an Economics 101 textbook, or a briefing paper by the Council on Foreign Relations. Unfortunately, this response is basically a defense of the economic status quo, which has been disastrous for the living standards of working class Americans.

....the US president is probably right in his implicit assumption that the US, not China, is likely to come out ahead in its steadily intensifying trade conflict with Beijing – at least in the short term, until China can wean itself off its export-led mercantilist growth model.

Here I think Auerback is wrong: China has already weaned itself "off its export-led mercantilist growth model." Just look at how far advanced is China's high speed rail system or how aggressive is China's program of building new electric power generating capacity -- which includes coal fired power plants as well as renewables. This is an aspect of national economic development most economists and USA policy makers simply do not understand: at some point in a country's economic development, it is exporting goods not because it is following an "export-led mercantilist growth model" but simply because it has become the producer of the best, most advanced, and/or most cost effective machinery and technology. Alexander Hamilton, the first USA Treasury Secretary, who designed the basic structure of the USA economy, understood this thoroughly. This is the reason South Korea remains, after China, the world's largest shipbuilder, or that Toyota is now a larger car maker than General Motors or Ford.

Trump’s goal is to disrupt this “Chimerica” nexus and induce bringing supply chains back to the US. However, one potentially adverse outcome is that this policy may be inflationary, by creating short-term bottlenecks as the flow of cheap Chinese imports is disrupted. Furthermore, a tariff, like a devaluation, is expansionary as it diverts demand from foreign to home producers, thereby further contributing to potential inflation. 

For Trump, this might be a reasonable trade-off. But if the president is successful in securing these objectives, he might well find himself winning a trade battle with China, but losing the inflationary war.

Oil bites back

Well, the laws of oilfield "gravity" are finally kicking back in. They are:

1. In spite of small motor-efficiency gains, the demand for oil continues to soar. Those people in China and India who finally got a nice car are not about to park it in the front yard and look at it.
2. It has been a long time since the discovery of a major oil field. At some point, maybe soon, demand will significantly outstrip supplies. The scramble will be on.
3. Fracking was a diversion. It cannot succeed because the energy gathered through fracking barely exceeds the energy it takes to frack. It's not easy to rearrange underground rock formations.
4. The sanctions on Iran may prove a significant boost to their national prospects. Keep it in the ground. By the time sanctions are lifted, the price of oil may have doubled or more. In real economic terms, the price of oil can only go up.

The position of USA is very precarious. For over a generation, this nation has waged war on the middle-east oil nations. Spilled a LOT of blood in the process. Mostly to prove that oil was forever. Well, it's NOT. And the people who can control the global production of oil come from places where people seethe with anger at the very mention of our name. No one owes us any favors. And even with fracking, we are still net importers of petroleum products.

Now IF we had put this problem—one that was already well-defined by 1973—on a WWII footing as Jimmy Carter suggested when when he called the energy problem "the Moral Equivalent Of War," the coming events would be so much easier to manage. Instead, official Washington took to calling his quite reasonable suggestion MEOW. Oh Jimmuh! you were such a pussy. Carter discovered that rational argumentation just wasn't butch enough.

Week-end Wrap - September 22, 2018

Week-end Wrap - September 22, 2018
by Tony Wikrent
Economics Action Group, North Carolina Democratic Party Progressive Caucus

The Spider’s Web: Britain’s Second Empire
[Naked Capitalism 9-22-18]
Until I saw this new film on Saturday, I had the following story -- on how the effects of climate change is now causing an increase in global hungry -- as the lead. But I long ago concluded that it is the financial and economic pressure imposed on companies and countries by predatory financiers -- including but not limited to budget austerity -- that is the fundamental obstacle to solving climate change, and most other problems. Thus, the number one task must be confronting the banksters and financial powers that be. The USA was originally founded in opposition to the economics of the British empire, but American School economics has been almost entirely repressed and replaced by its British free trade nemesis. This also corroborates the lead of the Sept 9. wrap, How the City of London created Eurobonds, destroyed the Bretton Woods world financial system and saved crooks, criminals, and dictators from the rule of law.

The theme of the fight between the British and American schools of political economy is whether a national economy should be controlled by the richest economic elites to suit whatever ends they select, or by the people, to promote the General Welfare. You will see echoes of this theme in most of the stories below.

See also Mainstream Economics Has Become a Celebration of the Wealthy Rentier Class, by Michael Hudson.

Global hunger is no longer decreasing, and is now increasing, because of the effects of climate change
By Charles Benavidez, September 19, 2018 [Safehaven.com, via Naked Capitalism 9-20-18]

Week-end Wrap - September 15, 2018

Week-end Wrap - September 15, 2018
by Tony Wikrent
Economics Action Group, North Carolina Democratic Party Progressive Caucus

“Best Ever” Economy? How much credit does Trump deserve for the current state of the economy?
by Invictus, September 10, 2018 [The Big Picture]
Conservative windbag Eric Bolling cited six economic indicators that purportedly show how great the USA economy is doing under Trump:  Unemployment Rate, GDP, Wage Growth, Number of Blacks Employed, Number of Hispanics Employed, and Number of Women Employed, but provided no graphs nor data.

Well, let’s have a look at all six of the items Eric Bolling chose to highlight — all in one handy chart. The St. Louis Fed’s FRED service let’s us do this very easily. We can index all six metrics to 100 at January 2009, when Obama took office, and see how they’ve been doing since. If there’s been a significant improvement (or even reversal of a undesirable trend) since January 2017, it should be easily visible....

Have a look at this chart — it’s un-doctored, except I hid the x-axis labels showing the years. Can you determine when Trump took office? When his policies went into place? Where the Trump economic surge is? ....

The claim that Trump Economy is all that different from the Obama economy — for Civilian Unemployment, for Employment levels of Blacks or Hispanics or Women, for Real GDP or for nominal hourly wages — is unsupported by the actual BLS and BEA data. For the budget deficit, on the other hand, CBO reportsthe deficit is noticeably wider under Trump than what he inherited from his predecessor, and likely to get even worse.

Elevator Speech econ #3—Producer vs Predators

I have been reviewing my old posts based on number of pageviews. The readers of this blog are exceedingly perceptive. I also found a potential post that never got the publish button. Interesting because the "elevator speeches" got significant hits. In fact, they will be included in a minor page redesign.



If you are of the mind that the study of economics should concentrate on the actions within a society that provide for the material needs in life, eventually it becomes clear that the most important distinction in life is that there is an enormous difference between talking about a problem and solving one.  Understand this, and the rest of life is details.

(note about this illustration) I came across Thorstein Veblen's famous distinction between business and industry in 1982 and was just dazzled by the implications.  I was living in the American Midwest where the examples of the difference between industrial genius and financial maneuver were just everywhere.  While collecting all these examples, I discovered that this blinding flash of insight wasn't even Veblen's—it belonged to the agrarian radicals who were trying to solve the problems of settling previously untilled lands.  Veblen's father was a particularly fine example of one of those pioneer agrarian problem-solvers so he came by understanding as a child.  (Sure am glad I discovered this idea via Veblen, however!) For a more detailed explanation of the history of Producer-Predator thought, see Chapter Three of Elegant Technology.

But dividing the world into the problem-solving Producers and the Predators who make things worse by talking things to death while cornering the community's resources is much more than a cute parlor trick.  Turns out that the biggie problems facing the planet such as peak oil and climate change exist because of former problem-solving efforts gone wrong.  ANY meaningful plan to address these enormous dilemmas must understand HOW the Producer Classes solve problems so that our next attempts can yield a better outcome.

This idea that only a more enlightened breed of Producers could ever solve the BIG problems would drive the writing of Elegant Technology.  That's what Elegant Technology is—the social and economic support necessary to train and employ the Producers who can solve things like the end of the Age of Petroleum.

Week-end Wrap - September 8, 2018

Week-end Wrap - September 8, 2018
by Tony Wikrent
Economics Action Group, North Carolina Democratic Party Progressive Caucus

How the City of London created Eurobonds, destroyed the Bretton Woods world financial system and saved crooks, criminals, and dictators from the rule of law
by Oliver Bullough, September 7, 2018 [The Guardian, via Naked Capitalism 9-8-18]

Bullough is the author of an interesting new book, Moneyland: Why Thieves And Crooks Now Rule The World And How To Take It Back. It appears that Bullough confirms that it was, once again, the British empire, that imposed massive pain on millions of people worldwide. It is always important to recall that in the 19th century, the political economy of Britain was seen to be a hostile competitor to to the political economy of the United States.

Note also that the British have historically specialized in the banking, hiding, and use of dirty money, with the role of the Hong Kong and Shanghai Bank in the 19th century opium trade particularly notorious. The Hong Shang is today HSBC, which has been fined a number of times by USA and other authorities for assisting and directing the laundering of dirty money for a seemingly endless list of shady clients. Among the directors of HSBC is Jonathan Evans, Lord Evans of Weardale, former Director-General of the British Security Service, the United Kingdom's domestic security and counter-intelligence service, proving that the domination of the world's financial system by criminal means is a matter of state policy for the Brits.

The article is an excerpt from the book, and may be a bit of a slog at first, but this is really crucial information for anyone who wants to know who really runs the world, and how.

Are the Saudis

In the fall of 1974, I took what was easily my most interesting course at the University of Minnesota. It was named Energy and Public Policy and was taught by the infinitely curious, snoose-using, balding Minnesota-Swede named Dean Abrahamson. He was a Physics Ph.D., medical doctor, and had also collected a degree in public policy from the soon-to-be Humphrey Institute. He had been pursuing the question "just how dangerous are nuclear power plants?" He thought at first it was a physics question, then a medical question, and finally came to the conclusion that it was a collective public policy question. Along the way, he realized that if nuclear power really was too dangerous to use, he would have to know about the competing energy alternatives. Acid rain dominated the environmental news those days and he judged coal burning as a close second to the dangers of fission. But since the Oil Shock of 1973 was fresh in everyone's memory, Dr. Dean spent a lot of time lecturing on middle east oil.

If that wasn't enough, we had a genuine Saudi student in the class. I paid special attention to his remarks. He rigorously defended the Saudi oil embargo and had a pretty legitimate list of grievances against the oil imperialists. He wasn't overly happy about the cultural imperialism that resulted in young Saudi men imitating the pickups, belt buckles, and boots of the Texas / Oklahoma oil guys. And he thought that oil prices were far too low.

Oops. NOW we are talking. Since the Industrial Revolution had produced a million clever things that needed petroleum to run, folks could get really desperate if they got cut off from their sources of energy. In some applications, such as the fuels needed to run the machinery of a harvest, diesel fuel is extremely time-critical. In real-world terms, that fuel is priceless. Before oil shock #1, such diesel fetched about $0.25 at the pump. Because while this fuel is priceless, the farmer wants to pay as little as possible. Our Saudi student may have had no inkling just how valuable oil is to folks who live in cultures where nearly everything has become powered. But he did know that Saudi Arabia deserved a bigger slice of the pie.

The following story tells the tale that the Saudis are still trying to come to grips with their big but dwindling oil deposits. Those who wanted to take Aramco public still thought it was a good idea to trade oil for paper or reprogrammed computer chips. Those who block this move obviously have different thoughts about the value of oil. Personally, I think it would have been insane for the Saudis to take Aramco public.

Week-end Wrap - September 1, 2018

Week-end Wrap - September 1, 2018
by Tony Wikrent
Economics Action Group, North Carolina Democratic Party Progressive Caucus

The trans-Atlantic elites appear to have settled, in the past few weeks, on their response to Trump's simple minded trade protectionism. The elites' core argument is that protectionist measures threaten the "global value chains" -- the complex web of world suppliers that provide parts and components for almost all manufactured products.

Conspicuously missing from this core argument is the question, "value for whom?". The USA working class did quite well, thank you very much, when USA industrial companies made everything "in house." The most famous example was Ford's River Rouge plant, which old Henry designed and built to swallow ship loads of taconite, coal, limestone and other raw materials at one end, and spew forth each day a gusher of fully assembled automobiles out the other end.

Of course, it was not a bed or roses for the working class. But making everything "in house" gave organized labor a single -- hence very vulnerable -- pressure point to lean on and threaten. Break up the assembly process into a "global value chain" of four or five hundred or more suppliers scattered about the globe, and the United Auto Workers can only make semi- informed guesses as to where is the best place to picket and strike.

Lambert Strether, in his "Water Cooler" each weekday at Naked Capitalism, has done a great job of rounding up news and articles about Trump's trade war. LS's Sept. 1 front page report on the Council of Foreign Relations report was especially excellent, with some pointed comments.

Trade wars won’t fix globalization. Here’s why 

[Council on Foreign Relations, via Naked Capitalism 9-1-18] 

And a child shall lead them

The wolf also shall dwell with the lamb, and the leopard shall lie down with the kid; and the calf and the young lion and the fatling together; and a little child shall lead them.
Isaiah 11:6 King James Version (KJV)

Most of the scientists I rely on for climate change news are old codgers like myself. They are folks who have devoted their lives to finding the most accurate information their precision instruments can reveal. Great people but there is a bit of "whew, we aren't going to have to deal with the end game ourselves—but folks, it will be really ugly" in their approach. So to read about the young Swedish activist who believes that she has most of her life ahead of her and doesn't want fools to screw up her possibilities, is like breath of fresh air.

I have boldfaced the parts I believe are especially perceptive. There may be hope for the next generation, after all. It is the job of us old codgers to give the young the best roadmap possible for what has, and has not, worked in the past when it comes to social change. And yes, I take this as a mandate. Go Greta!