|May the source be with you, but remember the KISS principle ;-)|
|Contents||Bulletin||Scripting in shell and Perl||Network troubleshooting||History||Humor|
|News||Neoliberalism as a New Form of Corporatism||Recommended Links||GDP as a false measure of a country economic output||Ethno-linguistic and "Cultural" Nationalism as antidote to Neoliberalism||Chronic unemployment|
|Anti-globalization movement||Brexit as the start of the reversal of neoliberal globalization||Why Peak Oil Threatens the International Monetary System||Eroding Western living standards||Immigration, wage depression and free movement of workers||Greece debt enslavement||Ukraine debt enslavement|
|Economics of Peak Energy||The fiasco of suburbia||Quite coup||Casino Capitalism||Lawrence Summers||Oil glut fallacy|
|Rational Fools vs. Efficient Crooks: The efficient markets hypothesis||Austerity||Financial Sector Induced Systemic Instability of Economy||Energy Geopolitics||Corruption of Regulators||MSM propagated myth about Saudis defending market share||Great condensate con|
|Russia oil production||Helicopter Ben: Arsonist Turned into Firefighter||Financial Quotes||Casino Capitalism Dictionary||Financial Humor||Humor||Etc|
Secular stagnation is a term proposed by Keynesian economist Alvin Hansen back in the 1930s to explain the USA dismal economic performance during this period. The period in which sluggish growth and output, and employment levels well below potential, coincide with a problematically low (even negative) real interest rates even in the face of the extraordinarily easy monetary policy. Later a similar phenomenon occurred in Japan. that's why it is often called called Japanification of the economy. Secular stagnation returned to the USA in full force after the financial crisis of 2008 (so called The Long Recession), so this is the second time the USA society experience the same socio-economic phenomenon.
Formally it can be defined as any stagnation that lasts substantially longer then the business cycle (and dominates the business cycle induced variations of economic activities), the suppression of economic performance for a long (aka secular) period. It also can be viewed as the crisis of demand, when demand became systemically weak (which under neoliberalism is ensured by redistribution of wealth up).
The global stagnation we are experiencing is the logical result of the dominance of neoliberalism and a sign of its crisis an a ideology. It is somewhat similar to the crisis of Bolshevik's ideology in the USSR in 60th when everybody realized that the existing society cannot fulfill the key promise of higher living standards. And that over centralization of economic life naturally leads to stagnation. The analogy does not ends here, but this point is the most important.
Neoliberalism replaced over-centralization (with iron fist one party rule) with over-financialization (with iron fist rule of financial oligarchy), with generally the same result as for the economy ( In other words neoliberalism like bolshevism is equal to economic stagnation; extremes meet). The end of cheap oil did not help iether. In a sense neoliberalism might be viewed as the elite reaction to the end of cheap oil, when it became clear that there are not enough cookies for everyone.
This growth in the financial sector's profits has not been an accident; it is the result of engineered shift in the elite thinking, which changed government policies. The central question of politics is, in my view, "Who has a right to live and who does not". In the answer to this question, neoliberal subscribes to Social Darwinism: ordinary citizens should be given much less rather than more social protection. Such policies would have been impossible in 50th and 60th (A Short History of Neo-liberalism)
In 1945 or 1950, if you had seriously proposed any of the ideas and policies in today's standard neo-liberal toolkit, you would have been laughed off the stage at or sent off to the insane asylum. At least in the Western countries, at that time, everyone was a Keynesian, a social democrat or a social-Christian democrat or some shade of Marxist.
The idea that the market should be allowed to make major social and political decisions; the idea that the State should voluntarily reduce its role in the economy, or that corporations should be given total freedom, that trade unions should be curbed and citizens given much less rather than more social protection--such ideas were utterly foreign to the spirit of the time. Even if someone actually agreed with these ideas, he or she would have hesitated to take such a position in public and would have had a hard time finding an audience.
And this change in government polices was achieved in classic Bolsheviks coup d'état way, when yoiu first create the Party of "professional neoliberal revolutionaries". Who then push for this change and "occupy" strategic places like economics departments at the universities, privately funded think tanks, MSM, and then subvert one or both major parties. The crisis of "New Deal Capitalism" helped, but without network of think tanks and rich donors, the triumph of neoliberalism in the USA would have been impossible:
...one explanation for this triumph of neo-liberalism and the economic, political, social and ecological disasters that go with it is that neo-liberals have bought and paid for their own vicious and regressive "Great Transformation". They have understood, as progressives have not, that ideas have consequences. Starting from a tiny embryo at the University of Chicago with the philosopher-economist Friedrich von Hayek and his students like Milton Friedman at its nucleus, the neo-liberals and their funders have created a huge international network of foundations, institutes, research centers, publications, scholars, writers and public relations hacks to develop, package and push their ideas and doctrine relentlessly.
Most economists are acutely aware of the increasing role in economic life of financial markets, institutions and operations and the pursuit of prifits via excotic instruments such as derivatives (all this constituted financialization). This dominant feature of neoliberalism has huge the re-distributional implications, huge effects on the US economy, international dimensions and monetary system, depth and longevity of financial crises and unapt policy responses to them.
They have built this highly efficient ideological cadre because they understand what the Italian Marxist thinker Antonio Gramsci was talking about when he developed the concept of cultural hegemony. If you can occupy peoples' heads, their hearts and their hands will follow.
I do not have time to give you details here, but believe me, the ideological and promotional work of the right has been absolutely brilliant. They have spent hundreds of millions of dollars, but the result has been worth every penny to them because they have made neo-liberalism seem as if it were the natural and normal condition of humankind. No matter how many disasters of all kinds the neo-liberal system has visibly created, no matter what financial crises it may engender, no matter how many losers and outcasts it may create, it is still made to seem inevitable, like an act of God, the only possible economic and social order available to us.
Neoliberalism naturally leads to secular stagnation due to redistribution of wealth up. which undermines purchasing power of the 99%, or more correctly 99.9 of the population. In the USA this topic became hotly debated theme in establishment circles after Summers speech in 2013. Unfortunately it was suppressed in Presidential campaign of 2016. Please note that Sanders speaks about Wall Street shenanigans, but not about ideology of neoliberalism. No candidates tried to address this problem of "self-colonization" of the USA, which is probably crucial to "making America great again" instead of continued slide into what is called "banana republic" coined by American writer O. Henry (William Sydney Porter 1862–1910). Here is how Wikipedia described the term:
Banana republic or banana state is a pejorative political science term for politically unstable countries in Latin America whose economies are largely dependent on exporting a limited-resource product, e.g. bananas. It typically has stratified social classes, including a large, impoverished working class and a ruling plutocracy of business, political, and military elites. This politico-economic oligarchy controls the primary-sector productions to exploit the country's economy.
... ... ...
In economics, a banana republic is a country operated as a commercial enterprise for private profit, effected by a collusion between the State and favoured monopolies, in which the profit derived from the private exploitation of public lands is private property, while the debts incurred thereby are a public responsibility.
This topic is of great importance to the US elite because the USA is the citadel of neoliberalism. It also suggest that the natural way neoliberal economic system based on increasing of the level of inequality (redistribution of wealth up) should behave: after the initial economic boom (like in case of steroids use) caused by financialization of economy (as well as dissolution of the USSR), helped by off-shoring of manufacturing, the destructive effects of this temporary boost come into foreground. Redistribution of wealth up increases inequality which after a certain delay starts to undercuts domestic demand. It also tilts the demand more toward conspicuous consumption (note the boom of luxury cars sales in the USA).
But after inequality reaches certain critical threshold the economy faces extended period of low growth reflecting persistently weak private demand (purchasing power of lower 90% of population). People who mostly have low level service economy jobs (aka MC-jobs) can't buy that much. Earlier giants of American capitalism like Ford understood that, but Wall Street sharks do not and does not want. They operate under principle "Après nous le déluge" ("After us, the deluge").
An economic cycle enters recession when total spending falls below expected by producers and they realize that production level is too high relative to demand. What we have under neoliberalism is Marx's crisis of overproduction on a new level. At this level it is intrinsically connected with the parasitic nature of complete financialization of the economy. The focus on monetary policy and the failure to enact fiscal policy options is the key structural defect of neoliberalism ideology and can't be changed unless neoliberal ideology is abandoned. Which probably will not happen unless another huge crisis hits the USA. That might not happen soon. Bolshevism lasted more then 70 years. If we assume that the "age of neoliberalism" started at 1973 with Pinochet coup d'état in Chile, neoliberalism as a social system is just 43 years old (as of 2016). It still has some "time to live"(TTL) in zombies state due to the principle first formulated by Margaret Thatcher as TINA ("There Is No Alternative") -- the main competitor, bolshevism, was discredited by the collapse of the USSR and China leadership adoption of neoliberalism. While Soviet leadership simply abandoned the sinking ship and became Nouveau riche in a neoliberal society that followed, Chinese elite managed to preserved at least outer framework of the Marxist state and the political control of the Communist party (not clear for how long). But there was a neoliberal transformation of Chinese economy, initiated, paradoxically, by the Chinese Communist Party.
Currently, no other ideology, including old "New Deal" ideology can compete with neoliberal ideology, although things started to change with Sanders campaign in the USA on the left and Trump campaign on the right. Most of what we see as a negative reaction to neoliberalism in Europe generally falls into the domain of cultural nationalism.
The 2008 financial crisis, while discrediting neoliberalism as an ideology (in the same way as WWII discredited Bolshevism), was clearly not enough for the abandonment of this ideology. Actually neoliberalism proved to be remarkably resilient after this crisis. Some researchers claim that it entered "zombie state" and became more bloodthirsty and ruthless.
There is also religious overtones of neoliberalism which increase its longevity (similar to Trotskyism, and neoliberalism can be called "Trotskyism for rich"). So, from a small, unpopular sect with virtually no influence, neo-liberalism has become the major world religion with its dogmatic doctrine, its priesthood, its law-giving institutions and perhaps most important of all, its hell for heathen and sinners who dare to contest the revealed truth. Like in most cults adherents became more fanatical believers after the prophecy did not materialized. The USA elite tried partially alleviate this problem by resorting to military Keynesianism as a supplementary strategy. But while military budget was raised to unprecedented levels, it can't reverse the tendency. Persistent high output gap is now a feature of the US economy, not a transitory state.
But there is another factor in play here: combination of peak (aka "plato" ;-) oil and established correlation of the speed of economic growth and prices on fossil fuels and first of all on oil. Oil provides more than a third of the energy we use on the planet every day, more than any other energy source (How High Oil Prices Will Permanently Cap Economic Growth - Bloomberg). It is dominant fuel for transport and in this role it is very difficult to replace.
That means that a substantial increase of price of oil acts as a fundamental limiting factor for economic growth. And "end of cheap oil" simply means that any increase of supply of oil to support growing population on the planet and economic growth now requires higher prices. Which naturally undermine economic growth, unless massive injection of currency are instituted. that probably was the factor that prevented slide of the US economy into the recession in 2009-2012. Such a Catch-22.
Growth dampening potential of over $100-a-barrel oil is now a well established factor. Unfortunately, the reverse is not true. Drop of oil price to below $50 as happened in late 2014 and first half of 2015 did not increase growth rate of the USA economy. It might simply prevented it from sliding it into another phase of Great Recession. Moreover when economies activity drops, less oil is needed. Enter permanent stagnation.
Also there is not much oil left that can be profitably extracted at prices below $80. So the current oil price slump is a temporary phenomenon, whether it was engineered, or is a mixture of factors including temporary overcapacity . Sooner or later oil prices should return to level "above $80", as only at this level of oil price capital expenditures in new production make sense. That des not mean that oil prices can't be suppressed for another year or even two, but as Herbert Stein aptly noted "If something cannot go on forever, it will stop,"
Imagine the alien spaceship landed somewhere in the world. There would be denial, disbelief, fear, and great uncertainty for the future. World leaders would struggle to make sense of the events. The landing would change everything.
The secular stagnation (aka "end of permanent growth") is a very similar event. This also is the event that has potential to change everything, but it is much more prolonged in time and due to this less visible ("boiling frog effect"). Also this is not a single event, but a long sequence of related events that probably might last several decades (as Japan had shown) or even centuries. The current "Great Recession" might be just a prolog to those events. It is clearly incompatible with capitalism as a mode of production, although capitalism as a social system demonstrated over the years tremendous adaptability and it is too early to write it down completely. Also no clear alternatives exists.
A very slow recovery and the secular stagnation is characteristic of economies suffering from a balance-sheet recession (aka crisis of overproduction), as forcefully argued by Nomura’s Richard Koo and other economists. The key point is that private investment is down, not because of “policy uncertainty” or “increased regulation”, but because business-sector expectations about future profitability have become dramatically depressed — and rationally so — in a context characterized by heavy indebtedness (of both households and corporations). As businesses see the demand falls they scale down production which creates negative feedback look and depresses demand further.
|The key point is that private investment is down, not because of “policy uncertainty” or “increased regulation”, but because business-sector expectations about future profitability have become dramatically depressed — and rationally so — in a context characterized by heavy indebtedness (of both households and corporations). As businesses see the demand falls they scale down production which creates negative feedback look and depresses demand further.|
There are at least five different hypothesis about the roots of secular stagnation:
Summers’s remarks and articles were followed by an explosion of debate concerning “secular stagnation”—a term commonly associated with Alvin Hansen’s work from the 1930s to ’50s, and frequently employed in Monthly Review to explain developments in the advanced economies from the 1970s to the early 2000s.2 Secular stagnation can be defined as the tendency to long-term (or secular) stagnation in the private accumulation process of the capitalist economy, manifested in rising unemployment and excess capacity and a slowdown in overall economic growth. It is often referred to simply as “stagnation.” There are numerous theories of secular stagnation but most mainstream theories hearken back to Hansen, who was Keynes’s leading early follower in the United States, and who derived the idea from various suggestions in Keynes’s General Theory of Employment, Interest and Money (1936).
Responses to Summers have been all over the map, reflecting both the fact that the capitalist economy has been slowing down, and the role in denying it by many of those seeking to legitimate the system. Stanford economist John B. Taylor contributed a stalwart denial of secular stagnation in the Wall Street Journal. In contrast, Paul Krugman, who is closely aligned with Summers, endorsed secular stagnation on several occasions in the New York Times. Other notable economists such as Brad DeLong and Michael Spence soon weighed in with their own views.3
Three prominent economists have new books directly addressing the phenomena of secular stagnation.4 It has now been formally modelled by Brown University economists Gauti Eggertsson and Neil Mehrotra, while Thomas Piketty’s high-profile book bases its theoretical argument and policy recommendations on stagnation tendencies of capitalism. This explosion of interest in the Summers/Krugman version of stagnation has also resulted in a collection of articles and debate, edited by Coen Teulings and Richard Baldwin, entitled Secular Stagnation: Facts, Causes and Cures.5
Seven years after “The Great Financial Crisis” of 2007–2008, the recovery remains sluggish. It can be argued that the length and depth of the Great Financial Crisis is a rather ordinary cyclical crisis. However, the monetary and fiscal measures to combat it were extraordinary. This has resulted in a widespread sense that there will not be a return to “normal.” Summers/Krugman’s resurrection within the mainstream of Hansen’s concept of secular stagnation is an attempt to explain how extraordinary policy measures following the 2007–2008 crisis merely led to the stabilization of a lethargic, if not comatose, economy.
But what do these economists mean by secular stagnation? If stagnation is a reality, does their conception of it make current policy tools obsolete? And what is the relationship between the Summers/Krugman notion of secular stagnation and the monopoly-finance capital theory?
... ... ...
In “secular stagnation,” the term “secular” is intended to differentiate between the normal business cycle and long-term, chronic stagnation. A long-term slowdown in the economy over decades can be seen as superimposed on the regular business cycle, reflecting the trend rather than the cycle.
In the general language of economics, secular stagnation, or simply stagnation, thus implies that the long-run potential economic growth has fallen, constituting the first pillar of MISS. This has been most forcefully argued for by Robert Gordon, as well as Garry Kasparov and Peter Thiel.6 Their argument is that the cumulative growth effect of current (and future) technological changes will be far weaker than in the past. Moreover, demographic changes place limits on the development of “human capital.” The focus is on technology, which orthodox economics generally sees as a factor external to the economy and on the supply-side (i.e., in relation to cost). Gordon’s position is thus different than that of moderate Keynesians like Summers and Krugman, who focus on demand-side contradictions of the system.
In Gordon’s supply-side, technocratic view, there are forces at work that will limit the growth in productive input and the efficiency of these inputs. This pillar of MISS emphasizes that it is constraints on the aggregate supply-side of the economy that have diminished absolutely the long-run potential growth.
The second pillar of MISS, also a supply-side view, goes back at least to Joseph Schumpeter. To explain the massive slump of 1937, Schumpeter maintained there had emerged a growing anti-business climate. Moreover, he contended that the rise of the modern corporation had displaced the role of the entrepreneur; the anti-business spirit had a repressive effect on entrepreneurs’ confidence and optimism.7 Today, this second pillar of MISS has been resurrected suggestively by John B. Taylor, who argues the poor recovery is best “explained by policy uncertainty” and “increased regulation” that is unfavorable to business. Likewise, Baker, Bloom, and Davis have forcefully argued that political uncertainty can hold back private investment and economic growth.8
Summers and Krugman, as Keynesians, emphasize a third MISS pillar, derived from Keynes’s famous liquidity trap theory, which contends that the “full-employment real interest rate” has declined in recent years. Indeed, both Summers and Krugman demonstrate that real interest rates have declined over recent decades, therefore moving from an exogenous explanation (as in pillars one and two) to a more endogenous explanation of secular stagnation.9 The ultimate problem here is lack of investment demand, such that, in order for net investment to occur at all, interest rates have to be driven to near zero or below. Their strong argument is that there are now times when negative real interest rates are needed to equate saving and investment with full employment.
However, “interest rates are not fully flexible in modern economies”—in other words, market-determined interest rate adjustments chronically fail to achieve full employment. Summers contends there are financial forces that prohibit the real interest rate from becoming negative; hence, full employment cannot be realized.10
Some theorists contend that there has been demographic structural shifts increasing the supply of saving, thus decreasing interest rates. These shifts include an increase in life expectancy, a decrease in retirement age, and a decline in the growth rate of population.
Others, including Summers, point out that stagnation in capital formation (or accumulation) can be attributed to a decrease in the demand for loanable funds for investment. One mainstream explanation offered for this is that today’s new technologies and companies, such as Google, Microsoft, Amazon, and Facebook, require far less capital investment. Another hypothesis is that there has been an important decrease in the demand for loanable funds, although they argue this is due to a preference for safe assets. These factors can function together to keep the real interest rate very low. The policy implication of secular low interest rates is that monetary policy is more difficult to implement effectually; during a recession, it is weakened and can even become ineffectual.
Edward Glaeser, focusing on “secular joblessness,” places severe doubt on the first pillar of MISS, but then makes a very important additional argument. Glaeser rejects the notion that there has been a slowdown in technological innovation; innovation is simply “unrelenting.” Likewise, he is far less concerned with secular low real interest rates, which may be far more cyclical. “Therefore,” contends Glaeser, “stagnation is likely to be temporary.”
Nonetheless, Glaeser underscores secular joblessness, and thus the dysfunction of U.S. labor markets constitutes a fourth pillar of MISS: “The dysfunction in the labour market is real and serious, and seems unlikely to be solved by any obvious economic trend.” Somehow, then, the problem is due to a misfit of skills or “human capital” on the side of workers, who thus need retraining. “The massive secular trend in joblessness is a terrible social problem for the US, and one that the country must try to address” with targeted policy.11 Glaeser’s argument for the dysfunction of U.S. labor markets is based on recession-generated shocks to employment, specifically of less-skilled U.S. workers. After 1970, when workers lost their job, the damage to human capital became permanent. In short, when human capital depreciates due to unemployment, overall abilities and “talent” are “lost” permanently. This may be because the skills required in today’s economy need to be constantly practiced to be retained. Thus, there is a ratchet-like effect in joblessness caused by recessions, whereby recession-linked joblessness is not fully reversed during recoveries—and all this is related to skills (the human capital of the workers), and not to capital itself. According to Glaeser, the ratchet-like effect of recession-linked joblessness is further exacerbated by the U.S. social-safety net, which has “made joblessness less painful and increased the incentives to stay out of work.”12
Glaeser contends that, if his secular joblessness argument is correct, the macroeconomic fiscal interventions argued for by Summers and Krugman are off-base.13 Instead, the safety net should be redesigned in order to encourage rather than discourage people from working. Additionally, incentives to work need to be radically improved through targeted investments in education and workforce training.14 Such views within the mainstream debate, emphasizing exogenous factors, are generally promoted by freshwater (conservative) rather than saltwater (liberal) economists. Thus, they tend to emphasize supply-side or cost factors.
The fifth pillar of MISS contends that output and productivity growth are stagnant due to a failure to invest in infrastructure, education, and training. Nearly all versions of MISS subscribe to some version of this, although there are both conservative and liberal variations. Barry Eichengreen underscores this pillar and condemns recent U.S. fiscal developments that have “cut to the bone” federal government spending devoted to infrastructure, education, and training.
The fifth pillar of MISS necessarily reflects an imbalance between public and private investment spending. Many theorists maintain that the imbalance between public and private investment spending, hence secular stagnation, “is not inevitable.” For example, Eichengreen contends if “the US experiences secular stagnation, the condition will be self-inflicted. It will reflect the country’s failure to address its infrastructure, education and training needs. It will reflect its failure to…support aggregate demand in an effort to bring the long-term unemployed back into the labour market.”15
The sixth pillar of MISS argues that the “debt overhang” from the overleveraging of financial firms and households, as well as private and public indebtedness, are a serious drag on the economy. This position has been argued for most forcefully by several colleagues of Summers at Harvard, most notably Carmen Reinhart and Kenneth Rogoff.16 Atif Mian and Amir Sufi also argue that household indebtedness was the primary culprit causing the economic collapse of 2007–2008. Their policy recommendation is that the risk to mortgage borrowers must be reduced to avoid future calamities.17
As noted, the defenders of MISS do not necessarily support a compatibility between the above six pillars: those favored by conservatives are supply-side and exogenous in emphasis, while liberals tend towards demand-side and endogenous ones. Instead, most often these pillars are developed as competing theories to explain the warrant of some aspect of secular stagnation, and/or to defend particular policy positions while criticizing alternative policy positions. However, the concern here is not whether there is the possibility for a synthesis of mainstream views. Rather, the emphasis is on how partial and separate such explanations are, both individually and in combination.
As Krugman said "We now know that the economic expansion of 2003-2007 was driven by a bubble. You can say the same about the latter part of the 90s expansion; and you can in fact say the same about the later years of the Reagan expansion, which was driven at that point by runaway thrift institutions and a large bubble in commercial real estate." In other words blowing bubbles is the fundamental way neoliberal economy functions, not an anomaly.
As much as the USA population is accustomed to hypocrisy of the ruling elite and is brainwashed by MSM, this news, delivered to them personally by the crisis of 2008 was too much for them not question the fundamentals (A Primer on Neoliberalism):
Of course, the irony that those same institutions would now themselves agree that those “anti-capitalist” regulations are required is of course barely noted. Such options now being considered are not anti-capitalist. However, they could be described as more regulatory or managed rather than completely free or laissez faire capitalism, which critics of regulation have often preferred.
But a regulatory capitalist economy is very different to a state-based command economy, the style of which the Soviet Union was known for. The points is that there are various forms of capitalism, not just the black-and-white capitalism and communism. And at the same time, the most extreme forms of capitalism can also lead to the bigger bubbles and the bigger busts.
In that context, the financial crisis, as severe as it was, led to key architects of the system admitting to flaws in key aspects of the ideology.
At the end of 2008, Alan Greenspan was summoned to the U.S. Congress to testify about the financial crisis. His tenure at the Federal Reserve had been long and lauded, and Congress wanted to know what had gone wrong. Henry Waxman questioned him:
I found a flaw in the model that I perceived is the critical functioning structure that defines how the world works, so to speak.
In other words, you found that your view of the world, your ideology, was not right, it was not working.
Precisely. That is precisely the reason I was shocked, because I had been going for 40 years or more with very considerable evidence that it was working exceptionally well.
[Greenspan’s flaw] warped his view about how the world was organized, about the sociology of the market. And Greenspan is not alone. Larry Summers, the president’s senior economic advisor, has had to come to terms with a similar error—his view that the market was inherently self-stabilizing has been “dealt a fatal blow.” Hank Paulson, Bush’s treasury secretary, has shrugged his shoulders with similar resignation. Even Jim Cramer from CNBC’s Mad Money admitted defeat: “The only guy who really called this right was Karl Marx.” One after the other, the celebrants of the free market are finding themselves, to use the language of the market, corrected.
— Raj Patel, Flaw , The Value of Nothing, (Picador, 2010), pp.4, 6-7
Now for the second time in history, the challenge is to save capitalism from itself: to recognize the great strengths of open, competitive markets while rejecting the extreme capitalism and unrestrained greed that have perverted so much of the global financial system in recent times. It took such a statesman as Franklin Delano Roosevelt to rebuild American capitalism after the Great Depression. New Deal policies allowed to rebuild postwar domestic demand, to engineer the Marshall Plan to rebuild Europe and to set in place the Bretton Woods system to govern international economic engagement.
With the abolishment of those policies blowing of one bubble after another, each followed by a financial crisis became standard chain of the events. Since 1973 we already have a half-dozen bubbles following by economic crisis. It started with Savings and loan crisis which partially was caused by the deregulation of S&Ls in 1980, by the Depository Institutions Deregulation and Monetary Control Act signed by President Jimmy Carter on March 31, 1980, an important step is a series that eliminated regulations initially designed to prevent lending excesses and minimize failures.
To hide this unpleasant fact neoliberals resort to so called the Great Neoliberal Lie:
What is neoliberalism
The fallacious and utterly misleading argument that the global economic crisis (credit crunch) was caused by excessive state spending, rather than by the reckless gambling of the deregulated, neoliberalized financial sector.
Just as with other pseudo-scientific theories and fundamentalist ideologies, the excuse that "we just weren't fundamentalist enough last time" is always there. The neoliberal pushers of the establishment know that pure free-market economies are as much of an absurd fairytale as 100% pure communist economies, however they keep pushing for further privatizations, tax cuts for the rich, wage repression for the ordinary, and reckless financial sector deregulations precisely because they are the direct beneficiaries of these policies. Take the constantly widening wealth gap in the UK throughout three decades of neoliberal policy. The minority of beneficiaries from this ever widening wealth gap are the business classes, financial sector workers, the mainstream media elite and the political classes. It is no wonder at all that these people think neoliberalism is a successful ideology. Within their bubbles of wealth and privilege it has been. To everyone else it has been an absolute disaster.
Returning to a point I raised earlier in the article; one of the main problems with the concept of "neoliberalism" is the nebulousness of the definition. It is like a form of libertarianism, however it completely neglects the fundamental libertarian idea of non-aggression. In fact, it is so closely related to that other (highly aggressive) US born political ideology of Neo-Conservatism that many people get the two concepts muddled up. A true libertarian would never approve of vast taxpayer funded military budgets, the waging of imperialist wars of aggression nor the wanton destruction of the environment in pursuit of profit.
Another concept that is closely related to neoliberalism is the ideology of minarchism (small stateism), however the neoliberal brigade seem perfectly happy to ignore the small-state ideology when it suits their personal interests. Take the vast banker bailouts (the biggest state subsidies in human history) that were needed to save the neoliberalised global financial sector from the consequences of their own reckless gambling, the exponential growth of the parasitic corporate outsourcing sector (corporations that make virtually 100% of their turnover from the state) and the ludicrous housing subsidies (such as "Help to Buy and Housing Benefits) that have fueled the reinflation of yet another property Ponzi bubble.
The Godfather of neoliberalism was Milton Friedman. He made the case that illegal drugs should be legalised in order to create a free-market drug trade, which is one of the very few things I agreed with him about. However this is politically inconvenient (because the illegal drug market is a vital source of financial sector liquidity) so unlike so many of his neoliberal ideas that have consistently failed, yet remain incredibly popular with the wealthy elite, Friedman's libertarian drug legalisation proposals have never even been tried out.
The fact that neoliberals are so often prepared to ignore the fundamental principles of libertarianism (the non-aggression principle, drug legalisation, individual freedoms, the right to peaceful protest ...) and abuse the fundamental principles of small state minarchism (vast taxpayer funded bailouts for their financial sector friends, £billions in taxpayer funded outsourcing contracts, alcohol price fixing schemes) demonstrate that neoliberalism is actually more like Ayn Rand's barmy (greed is the only virtue, all other "virtues" are aberrations) pseudo-philosophical ideology of objectivism than a set of formal economic theories.
The result of neoliberal economic theories has been proven time and again. Countries that embrace the neoliberal pseudo-economic ideology end up with "crony capitalism", where the poor and ordinary suffer "austerity", wage repression, revocation of labor rights and the right to protest, whilst a tiny cabal of corporate interests and establishment insiders enrich themselves via anti-competitive practices, outright criminality and corruption and vast socialism-for-the-rich schemes.
Neoliberal fanatics in powerful positions have demonstrated time and again that they will willingly ditch their right-wing libertarian and minarchist "principles" if those principles happen to conflict with their own personal self-interest. Neoliberalism is less of a formal set of economic theories than an error strewn obfuscation narrative to promote the economic interests, and justify the personal greed of the wealthy, self-serving establishment elite.
The 1930s, a well researched period of balance-sheet recession, provides some interesting perspective despite large historical distance. Roosevelt was no socialist, but his New Deal did frighten many businesses, especially large business which BTW attempted a coupe to remove him from is position. Fortunately for Roosevelt CIA did not exist yet. And New Deal government projects has been much bigger and bolder, then anything Obama ever tried, because Obama administration was constrained in its action by dominant neoliberal thinking. Like regulatory capture, which is an immanent feature of neoliberalism, there is also less known and less visible ideological capture of the government. Which also makes neoliberalism more similar to bolshevism as this ideological capture and related inability of the USSR elite to modernize the economy on some "mixed" principles, when over-centralization stopped working. It, along with the collapse of the ideology, probably was one of the main reasons of the collapse of the USSR. Chinese leadership managed to do this and introduced "new economic policies"(NEP).
Uner New deal regime when public investment and hence aggregate demand expanded, the economy started to grow anyway. Roosevelt did have a vision and he did convince the electorate about the way to go. Cheap optimism of Reagan, or even audacity of hope "Obama style" were not enough. After all, as Francis Bacon may remind us: “Hope is a good breakfast, but it is a bad supper” (Apophthegms, 1624).
Obama/Bernanke-style attempts to stimulate growth by pure injection of cheap money in this environment not only inflate new bubbles instead of old one, with which the fighting starts. They also lead to massive redistribution of wealth that makes the problem even worse:
Paul Krugman tells us that Larry Summers joined the camp concerned about secular stagnation in his I.M.F. talk last week, something that I had not picked up from prior coverage of the session. This is good news, but I would qualify a few of the points that Krugman makes in his elaboration of Summers' remarks.
First, while the economy may presently need asset bubbles to maintain full employment (a point I made in Plunder and Blunder: The Rise and Fall of the Bubble Economy), it doesn't follow that we should not be concerned about asset bubbles. The problem with bubbles is that their inflation and inevitable deflation lead to massive redistribution of wealth.
Larry Summers was the first establishment economist who conceded that this is the fact (Wikipedia)
... Larry Summers presented his view during November 2013 that secular (long-term) stagnation may be a reason that U.S. growth is insufficient to reach full employment: "Suppose then that the short term real interest rate that was consistent with full employment [i.e., the "natural rate"] had fallen to negative two or negative three percent. Even with artificial stimulus to demand you wouldn't see any excess demand. Even with a resumption in normal credit conditions you would have a lot of difficulty getting back to full employment."
Robert J. Gordon wrote in August 2012:
"Even if innovation were to continue into the future at the rate of the two decades before 2007, the U.S. faces six headwinds that are in the process of dragging long-term growth to half or less of the 1.9 percent annual rate experienced between 1860 and 2007. These include demography, education, inequality, globalization, energy/environment, and the overhang of consumer and government debt. A provocative 'exercise in subtraction' suggests that future growth in consumption per capita for the bottom 99 percent of the income distribution could fall below 0.5 percent per year for an extended period of decades".
One hypothesis is that high levels of productivity greater than the economic growth rate are creating economic slack, in which fewer workers are required to meet the demand for goods and services. Firms have less incentive to invest and instead prefer to hold cash. Journalist Marco Nappolini wrote in November 2013:
"If the expected return on investment over the short term is presumed to be lower than the cost of holding cash then even pushing interest rates to zero will have little effect. That is, if you cannot push real interest rates below the so-called short run natural rate [i.e., the rate of interest required to achieve the growth rate necessary to achieve full employment] you will struggle to bring forward future consumption, blunting the short run effectiveness of monetary policy...Moreover, if you fail to bring it below the long run natural rate there is a strong disincentive to increase fixed capital investment and a consequent preference to hold cash or cash-like instruments in an attempt to mitigate risk. This could cause longer-term hysteresis effects and reduce an economy's potential output."
The cost of energy is probably another reason of secular stagnation along with excessive public and private debt. Rising cost of energy is deadly for capitalism. Here are some comments that might clarify the situation:
This is the biggest crybaby column Krugman's ever written. He should be ashamed of himself and return his Nobel prize immediately. Has he ever put down Keynes long enough to read a little Marx? Here's Robert Brenner summing it up in 2009:
What mainly accounts for the long-term weakening of the real economy is a deep, and lasting, decline of the rate of return on capital investment since the end of the 1960s.
The failure of the rate of profit to recover is all the more remarkable, in view of the huge drop-off in the growth of real wages over the period.
The main cause, though not the only cause, of the decline in the rate of profit has been a persistent tendency to overcapacity in global manufacturing industries."
There's more, too. Instead of siding with crackpot Summers, Krugman should expand his research and be of some use to us all.
I am not sure that it is correct to think about public debt as internal debt. It's all about energy.
That means that public debt is to a large extent foreign due to unalterable oil consumption (and related trade deficits). And that completely changes the situation unless you are the owner of the world reserve currency.
But even in the latter case (exorbitant privilege as Valéry Giscard d'Estaing called it ) you can expect attacks on the status of the currency as world reserve currency. The growth is still supported via militarization, forced opening of foreign markets (with military force, if necessary) and conversion of the state into national security state. But as Napoleon admitted "You can do anything with bayonets except sit on them"
One positive thing about high public (and to a large extent foreign owned) debt in the USA is that it undermines what Bacevich called "new American militarism" (http://www.amazon.com/The-New-American-Militarism-Americans/dp/0195173384). Bacevich argues that this is distinct political course adopted by the "defense intellectuals," the evangelicals, and the neocons. And they will never regret their failed efforts such as Iraq invasion.
From Amazon review:
=== Quote ===
Bacevich clearly links our present predicaments both at home and abroad to the ever greater need for natural resources, especially oil from the Persian Gulf. He demolishes all of the reasons for our bellicosity based on ideals and links it directly to our insatiable appetite for oil and economic expansion. Naturally, like thousands of writers before him, he points out the need for a national energy policy based on more effective use of resources and alternative means of production.
=== End of Quote ==
As Heinberg explained fossil fuels, primarily oil, permeate every aspect of our modern culture - from agriculture to cities and a long-term perspective. In the age of almost 7 billion people demanding more and more of limited resources, the media, politicians and governments tend to only report short-term perspectives and ignore Heinberg's Five Axioms of Sustainability to the extent that these concepts are taboo to be spoken, discussed or thought (Heinberg, Richard (2007) Five Axioms of Sustainability):
1. (Tainter’s Axiom): Any society that continues to use critical resources unsustainably will collapse.
Exception: A society can avoid collapse by finding replacement resources.
Limit to the exception: In a finite world, the number of possible replacements is also finite.
2. (Bartlett’s Axiom): Population growth and/or growth in the rates of consumption of resources cannot be sustained.
3. To be sustainable, the use of renewable resources must proceed at a rate that is less than or equal to the rate of natural replenishment.
4. To be sustainable, the use of non-renewable resources must proceed at a rate that is declining, and the rate of decline must be greater than or equal to the rate of depletion.
The rate of depletion is defined as the amount being extracted and used during a specified time interval (usually a year) as a percentage of the amount left to extract.
5. Sustainability requires that substances introduced into the environment from human activities be minimized and rendered harmless to biosphere functions.
In cases where pollution from the extraction and consumption of non-renewable resources that has proceeded at expanding rates for some time threatens the viability of ecosystems, reduction in the rates of extraction and consumption of those resources may need to occur at a rate greater than the rate of depletion.
Archaeologist Joseph Tainter, in his classic study The Collapse of Complex Societies (1988), demonstrated that collapse is a frequent if not universal fate of complex societies and argued that collapse results from declining returns on efforts to support growing levels of societal complexity using energy harvested from the environment. Jared Diamond’s popular book Collapse: How Societies Choose to Fail or Succeed (2005) similarly makes the argument that collapse is the common destiny of societies that ignore resourse constraints. This axiom defines sustainability by the consequences of its absence—that is, collapse.
Adapted from Wikipedia
Excluding the current, there were two period of stagnation in the USA history:
Construction of structures, residential, commercial and industrial, fell off dramatically during the depression, but housing was well on its way to recovering by the late 1930s.
The depression years were the period of the highest total factor productivity growth in the United States, primarily to the building of roads and bridges, abandonment of unneeded railroad track and reduction in railroad employment, expansion of electric utilities and improvements wholesale and retail distribution.
The war created pent up demand for many items as factories that once produced automobiles and other machinery converted to production of tanks, guns, military vehicles and supplies. Tires had been rationed due to shortages of natural rubber; however, the U.S. government built synthetic rubber plants. The U.S. government also built synthetic ammonia plants, aluminum smelters, aviation fuel refineries and aircraft engine factories during the war. After the war commercial aviation, plastics and synthetic rubber would become major industries and synthetic ammonia was used for fertilizer. The end of armaments production free up hundreds of thousands of machine tools, which were made available for other industries. They were needed in the rapidly growing aircraft manufacturing industry.
The memory of war created a need for preparedness in the United States. This resulted in constant spending for defense programs, creating what President Eisenhower called the military-industrial complex.
U.S. birth rates began to recover by the time of World War II, and turned into the baby boom of the postwar decades. A building boom commenced in the years following the war. Suburbs began a rapid expansion and automobile ownership increased.
High-yielding crops and chemical fertilizers dramatically increased crop yields and greatly lowered the cost of food, giving consumers more discretionary income. Railroad locomotives switched from steam to diesel power, with a large increase in fuel efficiency. Most importantly, cheap food essentially eliminated malnutrition in countries like the United States and much of Europe.
Many trends that began before the war continued:
- The use of electricity grew steadily as prices continued to fall, although at slower rate than in the early decades. More people purchased washing machines, dryers, refrigerators and other appliances. Air conditioning became increasingly prevalent in households and businesses. See:Diffusion of innovations#Diffusion data
- Infrastructures: The highway system continued to expand. Construction of the interstate highway system started in the late 1950s. The pipeline network continued to expand. Railroad track mileage continued its decline.
- Better roads and increased investment in the distribution system of trucks, warehouses and material-handling equipment, such as forklift trucks continued to reduce the cost of goods.
- Mechanization of agriculture increased dramatically, especially the use of combine harvesters. Tractor sales peaked in the mid-1950s.
One of the first researchers who clearly attributed secular stagnation problem to neoliberalism was Alan Nasser, Professor Emeritus of Political Economy and Philosophy at The Evergreen State College. In his September 22, 2005 paper ECONOMIC LAWS, STRUCTURAL TENDENCIES, SECULAR STAGNATION THEORY, AND THE FATE OF NEOLIBERALISM he pointed out the key features of secular stagnation long before Summers started to understand the problem and even befor the economic crash of 2008 ;-)
September 22, 2005 | alannasser.org
Alan Nasser Invited presentation, University of Lille,
"We have now grown used to the idea that most ordinary or natural growth processes (the growth of organisms, or popu- lations of organisms or, for example, of cities) is not merely limited, but self-limited, i.e. is slowed down or eventually brought to a standstill as a consequence of the act of growth itself. For one reason or another, but always for some reason, organisms cannot grow indefinitely, just as beyond a certain level of size or density a population defeats its own capacity for further growth."
Sir Peter Medawar, The Revolution of Hope
"A business firm grows and attains great strength, and afterwards perhaps stagnates and decays; and at the turning point there is a balancing or equilibrium of the forces of life and decay. And as we reach to the higher stages of our work, we shall need ever more and more to think of economic forces as those which make a young man grow in strength until he reaches his prime; after which he gradually becomes stiff and inactive, till at last he sinks to make room for other and more vigorous life."
Alfred Marshall, Principals of Economics (1890)
"Though Keynes's 'breakdown theory is quite different from Marx's, it has an important feature in common with the latter: in both theories, the breakdown is motivated by causes inherent to the working of the economic engine, not by the action of factors external to it."
Joseph Schumpeter, Ten Great Economists
In this paper I shall address two major issues. Firstly, I shall discuss the implications for economic theory of a conception of economic laws widely at variance with the empiricist and/or positivist account of what laws are, how they are discovered, and how they are related to theory. At the same time, I will reject one cornerstone of anti-positivist thought, namely the idea that one cannot provide an account of laws that is fundamentally the same for the natural and the social sciences. Thus, I shall argue that an anti-positivist account of laws is entirely compatible with a conception of scientific laws that applies to both the "hard" (natural) and the "soft" (social) sciences. I shall defend this position by showing its application to economics and economic laws. In doing so, I will compare and contrast both natural-scientific (primarily physical) laws and social-scientific (primarily economic) laws. Secondly, I will argue that perhaps the most significant economic law descriptive of mature capitalism is the law of secular stagnation. The latter states that it is the natural tendency of a developed, industrialized capitalist economy to default to a state of chronic excess capacity and underconsumption. And this is itself a result of the tendency in advanced capitalism for the economic surplus (roughly, the difference between the Gross Domectic Product and the cost of producing the GDP) to grow at a rate more rapid than the growth of profitable industrial investment opportunities. In the course of my discussion I will use the United States as a paradigm case, Much as Marx attempted to identify the underlying features of the accumulation process by reference to England during the Industrial Revulution.
This has in fact been the state of global capital since the end of the "Golden Age" and the commencement of the age of globalized Reaganism/Thatcherism, i.e. the Age of Neoliberalism. I date the transition as commencing in 1973, the last year of post-War Keynesian growth rates in the USA. In fact, I will argue, neoliberal economic policy exacerbates capitalism'a tendency to stagnation. Let me begin with an account of economic laws.
LAWS, GENERATIVE MECHANISMS AND TENDENCIES
On the Humean or radical empiricist (positivist) account of laws, the latter are descriptions of observed regularities. Presumably, the scientist observes a "constant conjunction" of different kinds of happening, and infers from the regularity of the conjunction that the latter could not be merely accidental, and so concludes that the observed pattern of regularities must be nomological or law-like. 'Sodium chloride dissolves in water' and 'Metal expands when heated' would be simple examples of the results of this account of how laws of nature are discovered.
That this empiricist account is flawed becomes evident when we consider full-fledged laws of a genuine natural science, e.g. physics. I emphasize that laws are components of theories, which themselves are constitutive of established scientific disciplines, such as physics, chemistry, and biology. In fact, the two "laws" mentioned at the end of the preceding paragraph are not laws of physics at all. Among the genuine laws of physics is, e.g., 'Falling bodies near the surface of the earth accelerate at a constant rate.' This law is certainly not established by the observation of repeated conjunctions of events. On the contrary, actually observed falling bodies in "open systems", that is, in the circumstances of everyday life, conspicuously fail to conform to this law. Yet this is not taken to refute the law. For the law describes the behavior of bodies in a vacuum, that is to say, in a "closed system", one created by the scientist, typically in a laboratory situation. Philosophers of science have tended to ignore the distinction between regularities observed only in closed systems, and conjunctions observed in everyday life, which, as such, have no value as contributions to scientific knowledge. These philosophers have, accordingly, written as if the regularities in question were features of open systems, of nature. This confusion impedes our understanding of all types of laws, from physical to economic.
This failure –until relatively recently- of philosophers of science to properly attend to the importance of laboratory work in the acquisition of scientific knowledge is due to the fact that these philosophers have focused almost exclusively on science as established theory, i.e. as a way of representing the world. They had ignored how these theories were actually established. That is, they paid little attention to experiment, which is a way of intervening in the world. This inattention to what happens in closed systems created in the laboratory led thinkers to miss the importance of the concept of tendencies or dispositions in grasping the concept of a law of science. Let us dwell on this point and its relation to economic laws.
It is not that our knowledge of natural laws is not based on observed regularities. The point, rather, is that these regularities are not found in nature. They are found in closed systems, elaborately designed experimental circumstances found in laboratories. Yet, we correctly believe that what we learn in experimental situations gives us knowledge that is not confined to these situations. We believe that what we learn from observations of repeated patterns in experiments gives us not only knowledge of the behavior of objects in laboratory circumstances, but also knowledge of these same (kinds of) objects as they behave in nature, in the open systems of everyday life. But scientifically significant repeated patterns are not found in the world of daily life. This raises profound epistemological and ontological questions.
The most significant epistemological question arises from the following consideration: Were it not for the intervention of the experimenter, closed-system regularities would not obtain. Hence, the experimenter is a causal agent of the pattern of regularities observed in the laboratory. It is these contrived conjunctions which we invoke to justify our belief in (usually causal) laws. And while these regularities are the (partial) result of the intervention of the experimenter, we do not believe that the experimenter in any way originates the laws whose existence is attested to by the contrived regularities. The question therefore arises: What justifies our (correct) belief that knowledge obtained in closed laboratory systems designed by an agent applies also in open systems, i.e. in nature, which of course is not designed by scientists and does not evidence the regularities found under designed experimental circumstances?
I want to suggest that this question comes to the same as the following question: What must nature be like, and what must experiment reveal, in order for experimental knowledge to be able to be legitimately extended to the world outside of the laboratory, i.e. to nature? Note that this is a Realist question: it asks what we must presuppose about the constitution of the world in order that our experimentally-based scientific beliefs be justified. This is the precise Realist counterpart to Kant's Idealist question: What must we presoppose our minds –as opposed to nature or the world- to be like in order for scientific knowledge to be possible? I will argue that the answer to our Realist question provides the conceptual resources to elucidate the general nature of economic laws and economic theory, and the nature of the subject matter investigated by economists.
I will argue that since we believe that what we learn by experimental observation justifies our claim to knowledge of the experimental objects as they behave in nature, we must assume that these objects possess natural structures, similar to what Aristotle and the scholastics called "natures" or "essences." A natural structure must be conceived as what Critical Realists call a generative mechanism (hereafter, GM). The latter is a specific mode of material organization. What GMs generate are tendencies or dispositions to behave in characteristic ways. The statement that a physical thing or a social institution or structure tends to generate characteristic regularities is a statement of a law. The natural structure of salt, expressed in chemistry as HCl, is such that when it is mixed with water, whose natural structure or organization is expressed as H2O, it tends to dissolve. Gases tend to expand when heated and falling bodies near the surface of the earth tend to accelerate at a constant rate. These are statements of chemical and physical laws. We shall see that precisely the same kind of analysis can be made of laws in economics.
Tendencies are not the same as trends. The latter are merely observed regularities; there need be no implication that an underlying structural feature of the thing in question generates the regularity. This feature of laws is reflected in ordinary language in non-scientific contexts: we might say "He has a tendency to exaggerate." We mean that a disposition to exaggerate is a natural expression of his underlying character. We do not usually mean that he exaggerates whenever it is possible for him to exaggerate. This is part of the meaning of 'tendency.' Thus, tendencies can exist without being exercised. This happens when, e.g. salt is not mixed with water. Salt's nomological tendency to dissolve in water remains its categorical property even in the absence of circumstances in which its tendency to dissolve can be exercised. In addition, tendencies can be exercised without being realized. This is the case in the natural sciences when we observe, in non-laboratory situations, falling bodies accelerating at different rates. Indeed, no falling body in open systems is observed to accelerate at a constant or the same rate. But of course this is not taken to falsify the law of falling bodies. In nature, GMs continue to act in their characteristic ways without producing the patterned outcomes observable in closed experimental systems. This is so because in nature a multiplicity of GMs combine, interact and collide such as to result in the (scientifically irrelevant) flux of phenomena of the everyday world. The realization of a natural tendency can, in other words, be offset by counteracting forces. Thus, empiricism's mistake is to fail to recognize that GMs operate independent of the effects they generate. That is, GMs endure and go on acting (in the way that experimental closure enables us to identify) in nature, i.e. in open systems, where patterned regularities do not prevail. Statements about tendencies are not equivalent, salva veritate, to statements about their effects. Laws may exist and exercise their tendencies or powers even though no Humean "constant conjunctions" are observed. (This would be the case if it happened that the practice of creating closed experimental conditions had never been engaged in, i.e. in a world without science.)
LAWS, GENERATIVE MECHANISMS AND TENDENCIES IN ECONOMICS
GMs are not confined to the natural world. Natural structures are not the only structures there are. Plainly, there are humanely constructed structures. Capitalism is one such structure. Structures of this kind, GMs, that are dynamic by nature, i.e. which are characteristically diachronic, be they natural or socially constituted, share the same ontology. This should not be confused with the radical empiricist (positivist) claim that the natural and the social sciences share the same method. Clearly they do not: closed experimental situations exist but are not typical i istic outcomes ceteris paribus, ie. other things being equal, i.e. ceteris absentibus, other things being absent. When we identify the tendency of a thing, we specify what will happen, as a matter of course, if interfering conditions are absent. That is the point of vacuums in the closed systems created in laboratory experiments: they permit exercised tendencies, i.e. tendencies in operation, to be realized. If we want to know what gases tend to do when acted upon by heat, we eliminate all potential counteracting forces by creating a vacuum in the chamber, so that both gas and heat can express their natures unimpeded.
Thus, implicit in both physical- and social-scientific practice is the crucial distinction between the exercise and the realization (or manifestation) of a tendency. This distinction is essential to structural analysis in economics because of the impossibility of creating the social equivalent of a vacuum in the social sciences, which deal with the open systems of everyday life, where a great many forces and tendencies collide. Accordingly, just as the law of the tendency of falling bodies to accelerate at a constant rate is not falsified by the failure of falling bodies to behave accordingly in open systems, so too, e.g., the law of the tendency of the growth of productive capacity to outpace the growth of profitable investment opportunities -the thesis of secular stagnation theory- is not undermined by the remarkable growth rates of the Golden Age. In both cases, the presence of offsetting factors prevents the structurally generated tendency from being realized or manifested. I argue that the same can be said for any putative economic law.
In social science –and this is most conspicuous in economics, the most theoretically developed of the human sciences- we compensate for the absence of experimentally closed systems by constructing their functional equivalent, which we might call, in terms redolent of Weber, an ideal-typical theoretical model. It is an unfortunate habit (perhaps a tendency in the above-elaborated sense…) of mainstream economists to employ these models as if they described the open-system observable facts of economic life. This is, I suspect, a consequence of the economic empiricist's mistake referred to above, namely to think that GMs, if they must be spoken of at all, are to be conceived as reducible to their effects. (Recall Hume's claim, inspired by his reading of Newton, to expunge all notions of "power", "generation" and "production" from his analyses.) But, as noted above, GMs in both the social and the natural sciences employ unrealistic models, i.e. models which do not pretend to offer the equivalent of a photographic representation of the world. In both natural-scientific experiments and social-scientific ideal-type models, an attempt is made to abstract from the nonessential. We seek to place the spotlight of theory on what is necessary to the situation, system or institution under investigation, and to prescind from the arbitrary and accidental. In economics we seek to identify those features of capitalism that make it what it is. This enables us to identify capitalism's distinct and characteristic tendencies, and to describe what will happen as a result of the exercise of these tendencies, ceteris absentibus.
That there are such tendencies seems to me to be uncontroversial. We all know, for example, that cyclical downturns are not mere empirical contingencies of capitalist development, but structurally generated tendencies which follow inexorably from the specific mode of organization (structure) of capitalism. And like all tendencies, their realization can be offset, as we have seen above, by counteracting factors, such as fiscal and monetary policy. Other examples would be what Marx called the tendencies of capital to concentrate and centralize. The tendency, and corresponding law, with which I will be primarily concerned in this paper is constitutive of the theory of secular stagnation, and is far more likely than the immediately foregoing examples to generate controversy. I refer to the tendency of mature capitalism to suffer from a chronic paucity of profitable industrial investment opportunities, relative to the great magnitude of its investable surplus. Let us look more closely at this tendency.
THE THEORY OF SECULAR STAGNATION
It is worth mentioning that the view that the continuous accumulation of capital is both essential to the normal development of capitalist societies and essentially self-limiting was held by virtually all of the major modern political economists, in the form of one version or another of the doctrine of the falling rate of profit. Adam Smith explained the secular decline of the profit rate by the increasing abundance of capital in a developing capitalist society. Ricardo and Mill believed that the rate of profit would be depressed by the diminishing productivity of the land which would drive up the price of wage goods and therefore of the wages of labor, and so drive down the profits of capital. Marx pointed to the increasing capital-intensity of industry and the paucity of working-class purchasing power relative to the productive capacity of the economy, as the principal threat to the profit rate. And Keynes held that in mature capitalist economies the "marginal efficiency of capital", i.e. the expected rate of return (over cost) on an additional unit of a given capital asset, would tend to decline. All these thinkers had an at least intuitive appreciation of the fact that the growth of capital tends to be terminally self-limiting. (It is worth citing a remark of Joseph Shumpeter at this point:
"Though Keynes's 'breakdown theory is quite different from Marx's, it has an important feature in common with the latter: in both theories, the breakdown is motivated by causes inherent to the working of the economic engine, not by the action of factors external to it.")
In my estimation, no one understood the underlying dynamics of the tendency to stagnation better than the Polish economist Michal Kalecki, who is known to have developed the essentials of Keynes's General Theory before Keynes himself (and to have produced far more elegant mathematical formulations thereof). Perhaps the best way to understand Kalecki's thought is to see him as having argued that certain features of a not-yet-mature industrializing economy persist after the process of industrialization has been accomplished, with the effect that the developed capitalist economy is saddled with a problem of chronic excess capacity. Let me sketch this train of thought.
In the course of their natural growth capitalist economies reach a level of industrial development characterizable as maturity, a point beyond which growth must either cease, or be sustained by exogenous (in a sense to be elucidated below) means. Straight away we are confronted with a rejection of an assumption that is implicit in mainstream neoclassical theory, viz. that both the supply and the demand curves shift, virtually automatically, to the right. On the stagnationist conceptualization of growth or development, the process of development is not everlasting, but rather is at some point accomplished. There is the period, industrialization, during which the economy is developing, and which culminates in a (finally) industrialized or developed infrastructure. At this stage there will have been built up, or "accumulated", a complement of plant and equipment in steel production, machine tools, power stations, transport systems, etc., that is capable of satisfying a level of consumption demand consistent with the moral limits of a reasonably civilized style of life, the constraints imposed by a finite fund of natural resources, and, most importantly for stagnation theory, the limited possibilities of what Marx called "expanded reproduction" imposed by the accumulation process itself.
This account point can be expanded as follows. During any period of industrialization, the growth of the capital goods industry (hereafter, following Marx, Department I, or DI) must outpace the growth of the consumption goods industries (hereafter, again following Marx, Department II, or DII). Indeed, it belongs to the nature of the process of industrialization that the demand for the output of DI cannot be a function of the behavior of consumption demand; during industrialization, investment demand is both rapid and relatively autonomous. For if the principal project is to develop the means of production, then a disproportionate share of national wealth must be devoted to investment/accumulation at the expense of consumption. Strategic capital goods such as transport and communications networks and steel mills cannot be built bit by bit. This is clear with respect to railroads (Recall Keynes's remark that "Two pyramids are better than one, and two masses for the dead better than one; but two railroads from London to York are not necessarily better than one."), but perhaps not as clear with respect to steel facilities.
Suppose 1) that the efficient production of steel requires equipment with the capacity to produce 200,000 tons of steel, and 2) that demand turns out to be for 300,000 tons. The investor has two alternatives, either to forgo an extra market or to take a chance and add another 200.000 tons. On the second alternative, the one virtually assured in a period of (rapid) industrialization, the manufacturer is left with a surplus capacity of 100,000 tons. Here we see, writ small, a crucial source of two basic tendencies of capitalist development, the unrelenting pressure to expand markets, and the tendency to overproduction of a specific kind, namely the overproduction of capital goods, the tendency to overaccumulation. Each of these tendencies is the basis of a corresponding law of economics: Wherever we find a competitive, profit-driven market economy, we must also find a system-driven tendency to expand markets, and: Wherever we find a competitive, profit-driven market economy, we must also find a system-driven tendency for the growth of productive capacity to outpace the growth of effective demand.
As we have seen, all the major classical political economists anticipated the stationary state; they all assumed that the period of development or industrialization would come to an end. Basic industries would be in place, and DI would be capable of meeting all the replacement and expansion demands of DII. Prescinding for the moment from the emergence of new industries, DI would no longer be a source of substantial expansion demand for its own output; most of DI's internal expansion demand would be extinct.
But this is not th hread of classical (and perhaps neoclassical) theory contains the assurance that the capitalist economy provides a mechanism that in the long run counteracts the tendency of the demand for the products of DI to peter out. As one might expect, this is the price mechanism, which brings about, in the circumstances described above, a falling rate of profit (or interest) and thereby a simultaneous check on accumulation and spur to consumption. The causal chain is simple: the fall of the profit rate would lower capital's share of national income, i.e. it would transfer income from capital to labor. Thus, the demand gap created by the sharp waning of DI's expansion demand would be made up by the increase in consumption demand, which would of course mean an expansion in the demand for the output of DII. Moreover, an immediate expansion of DII at the expense of DI in order to assure a rapid transition out of the stationary state would be entirely feasible given the adaptability of certain key industries in DI to new market conditions resulting from the newly-expanded purchasing power of the working class. The construction of new factories could, for example, yield to the construction of new homes.
The theoretical elegance of this scenario is impressive -almost inspirational- but, alas for illusions, the price mechanism does not work this way. For the above-mentioned transfer in national income from capital to labor is supposed to happen when industrialization comes to an end by virtue of its having been accomplished. But from the capitalists' perspective, it is as if nothing counts as industrialization coming to an end. New industries, for example, can create a situation functionally equivalent to industrialization. "Accumulate, accumulate, that is Moses and the prophets."
We have at this point arrived at a picture of a developed capitalist economy which is in a state of permanent industrialization. Excess capacity prevails and working-class income is stagnant or declining. Interestingly, this has in fact been the state of both the U.S. and the global economy since 1973. According to the foregoing analysis, this reflects the fact that the U.S. and global economies are now instances not merely of the exercise of the law of the tendency of mature capitalism to stagnate, but of its realization. To put it differently: these economies are now in their natural state.
But important questions immediately arise. Why are these economies in their natural state now? And if there is a structurally generated tendency for capitalist economies to stagnate, how shall we account for the historically unprecedented growth rates of the Golden Age? I have barely sketched an outline of a response to these challenges above: if there is indeed a tendency for capitalism to stagnate, then there must have been in operation during the Golden Age what I called "counteracting forces and tendencies" which had spent themselves by the mid-1970s. In the absence of new offsetting forces, the tendency to stagnate has, as we should expect, re-asserted itself. These claims require further elaboration, and it is to this task that I now turn.
SECULAR STAGNATION AND TRANSFORMATIONAL GROWTH
In order to account for the actual pattern of capitalist growth in the context of stagnation theory, we must reflect on the kind of growth required by capitalist economic arrangements. Mainstream theory does not distinguish between kinds of growth if and when it addresses the specific requirements of capitalist growth at all. This is, I believe, a serious error. I will begin by introducing the notion of transformational growth, which transforms the entire way of life of society and absorbs exceptionally large amounts of the investible surplus. My point shall be that a capitalist economy cannot sustain growth merely by producing more and more different types of widgets, in the absence of pervasive structural change. Growth sustained in the latter manner is transformational growth.
We are forced to introduce the concept of transformational growth for reasons related to my earlier discussion of the structural features of mature capitalism which generates a chronic tendency to stagnation. I will now embellish this analysis. It should be clear that capitalism cannot grow in the way in which a balloon grows: its growth cannot leave its proportions intact, i.e. such that there are no new products and no new processes of production. This is to say that a capitalist economy either undergoes transformational growth or it stagnates. The argument is as follows.
Investment expands productive capacity, which in turn requires that demand increase at the same rate as potential production. Without the required rate of demand growth, underutilization/excess capacity will discourage further investment or capital accumulation and the result will of course be stagnation. Let us not address this issue in the manner of the neoclassical economist, who seems to assume that both supply and demand curves can be counted on to perennially shift to the right (absent, of course, undue government interference). But this quaint assumption is belied by the enormous literature on the development and indispensability to capitalism of the marketing and advertising industries, which we might view as massive efforts to counteract Keynes's declining marginal propensity to consume by deliberately creating among the consuming masses a full panoply of "manufactured" consumption desires. These considerations point to the need constantly to exogenously stimulate consumption demand in order to narrow the demand gap generated by the tendency to overaccumulation. But they do not yet establish the need to generate a broad, nation-wide pattern of demand required by structural change and transformational growth.
What is needed at this point are concrete examples of the generators of transformational growth, and of exactly how these generators accomplish one of the fundamental features of transformational growth, the mobilization and coordination of the economic resources of the entire country into a grand national project which stimulates demand not merely for this and that consumption good, but for crucial commodities and institutions such as oil, steel rubber, and other primary products, and communication and transportation facilities. What this requires are what Paul Baran and Paul Sweezy termed, in their influential Monopoly Capital (Monthly Review Press, 1966), "epoch-making innovations". Edward Nell and Robert Heilbroner have characterized these same innovations as "transformative innovations". Let me approach transformative innovations by looking at the tendency to stagnation from yet another perspective, one which focuses on the role of competition as a major force behind the growth of both investment and consumption.
Competition reduces the need for investment by tending to increase both productivity and savings. Let us see how this happens. As a result of competition business is under continuous pressure to cut costs and produce more efficiently. To the extent that business succeeds in these respects, productive potential is increased. At the same time, competition also requires business to hold down wages and salaries and to pay out dividend and profit income relatively sparingly. Together, these pressures hold back both worker and capitalist consumption. The result is a tendency for productive capacity to expand faster than consumption. This means that there is no reason for investment to grow, for capital to achieve the required rate of accumulation, unless there are major pressures transforming the way people live. In the absence of such pressures, we may expect stagnation.
There are two dimensions of transformative innovations which are in fact two aspects of the same phenomenon. One dimension is solely technological, and the other points to changes in a population's entire way of life. Neither of these is part of a process of steady, balloon-like growth, nor is either automatically, or normally, generated by the fundamental capitalist dynamics identified by the mainstream textbooks. For this reason I have called the stimulus imparted by these innovations 'exogenous'. Let us look first at the technological dimension of transformative innovation.
This can be identified, after the owl of Minerva has spread its wings, by reflecting on some of the requirements of ideal-typical capitalism. Neoliberals correctly remind us that the bottom line is of course "freedom", primarily the freedom of capital to roam the world seeking markets, sources of cheap labor and investment opportunities. Microecenomic textbooks in fact tend to assume the perfect mobility of both capital and labor.
Let us focus on sources of power, which became especially important after the industrial revolution. Technological development resulted in the virtually total replacement of human and animal muscle power by inanimate sources of power, mainly water and steam. But reliance on water as a source of power places extreme limits on the mobility of capital, and hence on the possibilities of capitalist growth. Water power is site-specific, and the number of rivers and streams is limited. Moreover, the water had to be fast-running and productive facilities had to be located as far downstream as possible. And of course water power is only seasonally available. These restraints alone place an intolerable obstacle to the free and ongoing accumulation of capital. Here we find an overwhelming incentive to switch from water to steam power. This constitutes a huge stimulus to the accumulation of capital on a national scale.
Capitalism requires sources of power that are independent of nature and can be applied constantly wherever they are needed. And these are precisely what steam power made possible. It was now possible to set up productive facilities virtually anywhere; a major fetter to the accumulation of capital was removed. The universal mobility required by capital was now much more fully realized. At this point I want to emphasize that this technological /economic transformation was necessarily accompanied by profound social and cultural changes. For the steam engine's reduction of the seasonality of water power made possible a feature of work that is increasingly common on a global scale: the emergence of modern year-round work habits. With this change comes a dramatic transformation of our notions (and practices) of work and leisure, with all the consequences these have for the felt experience of everyday life. That is an instance of the second dimension of transformative innovation, i.e. its introduction of dramatic cultural changes, changes in the way populations live.
Much the same can be said for the subsequent shift to electrical power, which makes possible trolley cars, refrigerators (as opposed to what used to be called, in the U.S., "ice boxes"), ranges, toasters, radios, washing machines, fans, et al.
The railroad too is a transformative innovation par excellence. Consider the spectacular effects of railroad expansion: internal transport costs are sharply reduced; both new products and new geographical areas are brought into commercial markets; it is now possible to deliver exports to port with unprecedented efficiency, thereby encouraging the extensive development of the export sector; and impetus is provided to the development of the coal, iron and engineering industries. As with the steam engine, these technological and economic benefits wee necessarily accompanied by profound social and cultural changes. The railroads changed the way of life of the people by binding them as never before. The possibility now existed for mass production, mass consumption and indeed mass culture.
And of course the establishment of a national rail network absorbed massive amounts of investible capital, thereby spurring sustainable growth and offsetting the realization of the economic law that capitalist economies tend to stagnate. Apropos: in the latter third of the nineteenth century, railroad investment in the U.S. amounted to more than all investment in manufacturing industries.
And who can doubt that the transformative effects of the introduction of the automobile were epoch-making? The expansion of the automobile industry was the single most important force in the economic expansion of the 1920s. Car production increased threefold during this decade. (The automobile industry produced 12.7% of all manufactured output, employed 7.1% of all manufacturing workers, and paid 8.7% of all industrial wages.) Immediately after World War II the auto industry continued what was to be its breakneck expansion, and the possibilities created thereby constituted what was perhaps the most extensive transformation of the country's way of life in its history.
Consider the stimulus to capital accumulation and employment constituted by the following, each and all a consequence of the increasing automobilization of American society and culture: the migration of the population from the central city to the suburbs and exurbs (first made possible by the streetcar, before the major streetcar operations were bough and then quickly dismantled by the auto companies); the need for surfaced roads, road construction and maintenance, highway construction and maintenance (which had already accounted for 2% of GDP in 1929); the suburbanization of America, with the attendant construction of housing, schools, hospitals, workplaces, and more; the growth of shopping malls; the expansion of the credit industry; the spread of hotels and motels; and of course the growth of the tourism/travel industry. Never before had any population's way of living been transformed so profoundly in so short a period of time. And of course no one has failed to recognize that Americans' main symbol of their most precious possession, their personal freedom/liberty, is their ability to drive, solo, cars that have increasingly come to resemble tanks. Americans' liberty, embodied in the automobile, has become, literally, a commodity.
The long-term growth of the U.S. economy cannot be adequately explained or described without reference to these transformative innovations. None of these are required by the models of capital accumulation found in neoclassical, Keynesian or Marxian growth theory. After the civil war, growth in the last third of the nineteenth century was spurred primarily by the railroads. This stimulus fizzled, as railroad expansion began to slow down, around 1907, when, in spite of extensive electrification of urban (and even some rural) areas, the U.S. economy began a stretch of slow growth, which lasted until the outbreak of World War I. After the end of the War, the economy experienced a brief slump, which was followed by a period of fairly sustained expansion in the 1920s. The latter, as we have seen, was spurred mainly by the growth of the automobile industry. But the rate of growth of the automobile industry slowed down after 1926, and with it the rate of growth of almost all other manufacturing industries. And wages and employment had not risen as rapidly as production, productivity or profits.
In fact, the economic situation in the U.S. at the end of the 1920s bore a remarkable resemblance to the current economic situation in America. After 1926 overcapacity emerged in many key industries, the most significant of these being automobiles, textiles, and residential construction. Contractionary forces are cumulative: excess capacity caused business confidence to decline, with resulting cutbacks in spending on productive capacity in the consumer durables and capital goods industries. The economy was intensely unsound at the end of the 1920s, and the indications at the time were clear. Consumer demand was held down by a steadily growing inequality of income. Thus, an increasing percentage of total purchases were financed by credit in order to foster purchases of consumer durables. About seventy-five percent of all cars were sold on credit. Accordingly, both home mortgages and installment debt grew rapidly. This was the extension of a trend that had begun as early as 1922, when total personal debt began rising faster than disposable income. Thus, underconsumption and traces of excess capacity, key indicators of stagnationist forces, were in effect from the very beginning of the "roaring '20s". These tendencies became increasingly foregrounded over the course of the decade.
Excess capacity in key manufacturing industries was displacing workers from capital-intensive, technologically advanced sectors to industries relatively devoid of technological advance, i.e. service industries such as trade, finance and government. With capital unable to find sufficiently profitable investment opportunities in high-productivity industries, rampant speculative activity ensued, fostered by the growing concentration of income and therefore savings during the decade. More than two thirds of all personal savings was held by slightly over two percent of all families. The wanton optimism of the 1920s led those with substantial savings to want to get richer quickly, and with little effort. The stock market bubble that materialized at the end of the decade seemed to justify the expectations that fortunes could be made overnight in real estate and the stock market. When investors acted on these expectations, the existing bubble became bigger and hence more fragile. To those familiar with the current state of the U.S. economy, the present situation presents itself as history repeating itself -contra Marx- yet again as farce.
FROM GREAT DEPRESSION TO GOLDEN AGE TO NEOLIBERALISM
The mounting instabilities of the economy of the 1920s led to a Depression that was unresponsive to the Roosevelt administration's elevenfold increase in government spending. When U.S. entry into World War II finally brought about a resumption of growth, there was nonetheless an abiding fear among economists that once War spending ceased, the forces and tendencies that had generated the Depression might reassert themselves and exceptionally slow growth could resume. Instead, much to the surprise of many economists, American capitalism began the most sustained period of expansion in its entire history. The period from 1947 to 1973 has come to be called "The Golden Age", and appears, on the face of it, to be a fatal anomaly with respect to secular stagnation theory. After all, if the causes of the Great Depression were structural, and the exogenous stimulus provided by the War was what produced a resumption of growth, how was it possible that the economy, in the absence of powerful exogenous stimulus, exhibited an historically unprecedented period of long-term growth?
I have suggested that sustained national (as opposed to intra-national regional) growth has been engendered by the emergence of transformative innovations, and it is this kind of consideration that I believe offers the most plausible explanation both of Golden-Age expansion and of the petering out of this growth period and the resumption of (global) stagnation. Five stimuli to long-term growth were set in motion after the War, and these were for the most part exogenous in the sense indicated, and essentially limited. I will construe these stimuli as forces counteracting the tendency to stagnation. Once most of these stimuli had spent their potential, stagnationist tendencies re-asserted themselves, and overinvestment became evident once again. With profitable industrial investment opportunities in short supply, the economic surplus was invested instead in what became a vast proliferation of financial instruments. When the bubble created by this process finally burst, it was replaced with a housing bubble. Indeed a variety of bubbles, in financial assets, in housing, in credit, and a substantially overvalued dollar now threaten an historically unparalleled reassertion of the tendency to stagnation. But let us look first at the counteracting forces.
After the War, and as a result of wartime rationing, Americans had accumulated a very large fund of savings, and the time had come when these could finally be spent. This accounted for an immediate surge of consumption spending which temporarily averted the onset of recession. But the effectiveness of this source of spending was soon spent. What truly impelled the sustained growth of the Golden Age was 1) the resumption of a vast expansion of the automobile industry, and with it the stimulation of the broad range of investment and employment opportunities discussed above in connection with automobilization; 2) large-scale economic aid to Europe, which stimulated export demand; 3) a nationwide process of suburbanization, which, in tandem with the expansion of auto production, expanded significantly the demand for the output of every other major industry; 4) the emergence of what president Eisenhower christened the "military-industrial" complex, which provided additional stimulus to the industries most vulnerable to economic instability, the industries of DI, the capital goods sector; and finally 5) the steady and growing expansion of business and especially consumer credit, which in recent years has assumed elephantine proportions.
Three of these factors bear the two most important features of epoch-making innovations. The expansion of the auto industry, suburbanization, and the ever-increasing expansion and extension of credit all absorb massive amounts of investible surplus, and transform the mode of life of the entire population. In so doing they impart a massive push to the macro-growth process. The first two of these have their initial direct effect on investment. The third factor, the growing importance of credit, affects both investment and consumption, but the long-term trend of the credit industry in the U.S., evident now in hindsight, is much more significant in relation to consumption. There is now in the States a credit bubble of menacing proportions, with consumers now in debt to the tune of about107% of disposable income. The Marshall Plan (number 2 above) affected mainly and directly investment and employment, with boosts to consumption following thereupon. By the mid- to late-1970s, the employment-generating capacity of the military had declined. Washington determined, in the light of the defeat in Vietnam, that hi-tech warfare, which is of course technology- rather than labor-intensive, must replace traditional forms of subversion and aggression, in order to render less likely a repeat of the "Vietnam Syndrome."
It is worth mentioning that the military-industrial complex and the vast extension of consumer credit were what constituted what Joan Robinson called "bastard Keynesianism" in the United States. Recall that Keynes had insisted that fiscal and monetary policy were necessary but not sufficient conditions for avoiding stagnation. The tendency to stagnation could be offset for the long run only if some key industries were nationalized, and income redistributed. Nationalization would allow the State to offset lagging demand by providing cheap inputs to the private sector, thereby enabling lower prices. And redistributing income would transfer liquidity from those who had more than they could either consume or invest to those whose consumption demand was severely constrained.
American policymakers saw it as their challenge to reap the effects of nationalization and redistribution without actually nationalizing industries or redistributing income. The solution was ingenious: the military-industrial complex would be the functional equivalent of state-owned industries, and would, as noted above, stimulate the demand for the output of those very firms that produced capital goods. And the extension of consumer credit would allow working people to mortgage future years' incomes and spend more without a corresponding increase in either their private or their social wage.
As mentioned earlier, these forces counteracting the tendency to stagnation were all inherently limited and temporary. By the late 1960s, the automobile industry had achieved maturity, suburbanization had been accomplished, and aid to Europe had not only long ended, but had apparently created for America the economic equivalent of Frankenstein's monster. Europe and Japan were now formidable threats to U.S. economic hegemony. (Germany, for example, has overtaken the U.S. as an exporter of capital goods.) These three colossal absorbers of surplus were now no longer in operation. In the mid-1960s social spending had overtaken military spending as the larger share of government spending. And credit had begun to function as a supplement to declining real income, rather than a further addition to growing income.
These combined developments rendered the post-War counters to the realization of the tendency to stagnation obsolete. The result was the onset of stagnation not only in the U.S. but also worldwide. In America there has been overcapacity in autos, steel, shipbuilding and petrochemicals since the mid- to late-1970s.
This general picture is widely reflected in the business press. Business Week noted that "..supply outpaces demand everywhere, sending prices lower, eroding corporate profits and increasing layoffs" (Jan. 25, 1999, p. 118). The former chairman of General Electric claimed that "..there is excess capacity in almost every industry" (The New York Times, Nov. 16, 1997, p. 3). The Wall Street Journal noted that "..from cashmere to blue jeans, silver jewelry to aluminum cans, the world is in oversupply" (Nov. 30, 1998, p. A17). And The Economist fretted that " the gap between sales and capacity is "at its widest since the 1930s" (Feb. 20, 1999, p. 15). At this time excess capacity in steel is exceeding twenty percent, in autos it has fluctuated around 30%. And these figures look good in comparison to unused capacity numbers in the "industries of the future" of the "New Economy", semiconductors and telecommunications. Not long ago, ninety-seven percent of fibre optic capacity was idle.
MAINSTREAM ECONOMICS AND STAGNATION THEORY
Let us begin with the indisputable fact that the regime of neoliberalism has brought with it a substantial decline in economic growth. The most widely cited study on this issue, produced for the IECD by Angus Maddison, shows that the annual rate of growth of real global GDP fell from 4.9% in 1950-1973 to 3 % in 1973-1998, a drop of 39 %. Theoretical commitments can guide perception: neoliberal economists either denied or ignored the decline in global growth because of their reliance on Say's Law, that it is not possible for total demand to fall below full-capacity supply over the long run. In my earlier remarks I offered an explanation of sluggish growth rates since 1973. Many orthodox economics have done something similar: they have offered explanations of the initial rise in excess capacity. But what has not been explained is why global supply did not eventually adjust itself to the slower rate of demand growth, with the result that in the mid-1970s the global economy would enter a period of sluggish expansion. And it is worth mentioning that even Keynesian macro-theory is inadequate in this regard. It assumes that slow growth in aggregate demand will result in a proportionate decline in the growth of aggregate supply through its effect upon investment and therefore productivity.
An adequate explanation of the sustained character of excess capacity can be constructed from insights from Schumpeter, Marx and the contemporary economist James Crotty. The analysis that follows should be understood within the framework of the version of secular stagnation theory sketched above.
Before the shift to neoliberal policies by Jimmy Carter, Reagan and Thatcher, the global economy was already subject to downward pressures on demand growth resulting from two oil price shocks and the restrictive macro policy imposed in response to oil-price induced inflation. These impediments to demand growth were exacerbated by neoliberal policies. In combination, these forces led to a sharp rise in excess capacity in globally competing industries. At the same time competitive pressures were further intensified by the reduction of the market power of national oligopolies caused by the removal of protectionist barriers to the free movement of goods and money across national boundaries. Accordingly, competitive pressures between nations rose dramatically. In this context, normal stagnationist tendencies operated to further constrain global demand growth and further reproduce industrial capacity faster than either neoclassical or Keynesian theory could comprehend.
The Achilles Heel of neoclassical theory with respect to its inability to account for the persistence of overcapacity during the neoliberal period is its account of competition. So-called "perfect competition" is alleged to lead to maximum efficiency and the elimination of excess capacity. This claim appears inconsistent with the history of real-world, pre- and post-oligopolistic competition. Textbook-like competition has led to periodic market gluts or overproduction crises, price wars, plummeting profits, unbearable debt burdens and violent labor relations. Neoclassical theory banishes these demons with the aid of two assumptions which appear designed explicitly to make them impossible. The first assumption claims that production cost per unit rises rapidly as output increases, and the second that exit from low-profit industries is free or costless. If these assumptions were indeed true, then pure competition could not be shown to have stagnation- or depression-inducing effects. But these assumptions are, I shall suggest, false.
I will begin with the least plausible of these two assumptions. It states that there is free or costless exit from low-profit industries. But productive assets are typically immobile or irreversible, i.e., they are not liquid, and this forces a sizeable loss in the value of a firm's capital should it choose to leave an unprofitable industry. Whether they are sold on a second-hand market or reallocated to a different industry, productive assets will lose substantial value. Capital flowing out of the aerospace industry has been found to sell for one third of its replacement cost. Insolvent telecom firms in the U.S. have sold their assets for 20 cents on the dollar. And isn't this what one would expect? For it is usually poor profit prospects and/or great excess capacity that heighten a firm's incentive to leave an industry. But it is precisely those circumstances which deeply depress the price of industry-specific assets on the second-hand market, since the supply of these assets grows even as the demand for them has collapsed.
Before I turn to the slightly more plausible (yet still false) assumption -that unit production cost rises dramatically as output increases- I will outline the corollary of neoclassical theory itself which neoclassical economists seek to evade by introducing this assumption. The theory tells us that pure competition will force price down until it covers marginal cost. Now if unit production cost remained constant irrespective of the output level, then marginal production cost and average production cost per unit would be equal. When perfect competition forces price to equal marginal cost, total revenue will be equal to total production cost. But in this case there will be no revenue left over either to pay the "fixed" cost of maintaining capital stock in the face of depreciation or obsolescence, or to pay interest and/or dividends to investors. Thus, perfect competition is seen to cause the representative firm to suffer, in each production period, a loss that is equal to fixed costs. Keeping in mind that most important global industries have huge fixed costs, no industry could long survive the consequences of intense competition.
We seem to have found a tendency to stagnation or complete system breakdown where we would least expect to find it - in neoclassical theory itself. But the theory claims to have a response to this embarrassment. It simply denies the claim that appears to entail the undesired consequence, namely the claim that unit production cost remains constant no matter what the output level. Armed now with the (false) assumption that unit production cost rises rapidly as production increases, the conclusion is drawn that marginal cost and price are greater than average unit production cost. Thus, in equilibrium, the gap between price and average production cost is sufficiently large to cover all fixed costs. Let competition be as fierce as you wish, the typical firm will not lose money. Voila!
I have claimed that each of the rescuing assumptions discussed above is false. What would realistic assumptions about marginal cost and the reversibility of invested capital look like? To answer this question we must recognize the distinctive character of the dominant industries of global trade and investment. These industries include steel, autos, aircraft, shipbuilding, petrochemicals, consumer durables, electronics, semiconductors and banking. Studies of this type of industry suggest that marginal cost does not typically rise with output, with the rare exception of cases when the industry is producing near full capacity output. Marginal cost behaves as we would expect in cases of economies of scale: it remains constant or declines as capacity utilization rises. It follows that if free competition forces price to equal marginal cost in these industries, we should count on an ensuing wave of bankruptcies. Here again we see that neoclassical theory, corrected for unrealistic assumptions, seems to commit us to conceptualize mature capitalism as subject to the law of an inherent tendency to stagnation or worse.
The issue I am focusing on here turns on the dynamics of unrestricted competition among oligopolies in the context of economies of scale. The importance of economies of scale underscores the crucial similarity of all the dominant industries, including the new information-technology and telecommunications (ITC) industries. I stress this point because influential neoclassical economists have wanted to claim a significant difference, with respect to overcapacity problems, between the ITC industries and the other dominant industries. For purposes of explaining the persistence of excess capacity under neoliberalism, we want to remember that as scale economies grow, marginal costs fall as fixed costs per unit rise. Thus, the greater the economies of scale, the more destructive becomes the marginal cost pricing required by intense competition. With this in mind, we can more easily see that 1) these dynamics in especially conspicuous operation in the ITC industries, and 2) that such differences as there are between ITC and the other dominant oligopolies are insignificant for the analysis of secular stagnation theory, and of capitalist growth in general.
The key issue right now, recall, is the highly destructive consequences of the tendency of free competition among dominant industries to force price to equal marginal cost. That this is the case is easier to see in the ITC sector than in the other dominant industries. This is because in ITC marginal cost is often close to zero. Producing another copy of software or adding another customer to eBay is virtually costless. This has led many mainstream economists to argue that ITC industries are exempt from the laws of the neoclassical theory of perfect competition. Since ITC firms have marginal costs much lower than their large fixed costs, the argument goes, the possession of at least temporary monopoly power is the only guarantee of an incentive to produce anything at all. Without monopoly pricing power prices will be competed down to marginal cost and fixed costs will be unable to be covered. Thus, the motor of the "new economy" is said to be the constant pursuit of monopoly power. But, contrary to the neoclassical claim, none of this distinguishes significantly between ITC and other key industries. The drive to monopoly power is characteristic of all large corporations in the present age.
As Paul Sweezy argued in his Marshall Lectures, the typical firm in an oligopolized industry strives to be a monopolist. Each firm does this individually, and they all do it collectively. Individual firms seek monopoly status through the sales effort, where the firm's product is put forth as the best in the industry and as different from all the others. Firms within the same industry seek to approach monopoly status by collusion with respect to pricing policy, especially by agreeing to refrain from cutthroat price competition. For reasons developed at length above, therefore, all dominant firms, whether old- or new-economy operations, will tend to achieve monopoly status and to be chronically saddled with excess capacity.
A SCANDALOUSLY BRIEF LOOK AT SLOW-GROWTH CAPITALISM
We are in the midst of another unparalleled period of historical capitalism. Since the onset of stagnation, the median wage in the States has not changed at all for the vast majority of wage workers. Over the past six quarters the gowth of wage income has been negative. A brief sketch of the state of the U.S. economy toward the end of last year highlights features whose most plausible explanation may lie in the fact of secular stagnation. If stagnation theory is accurate, what follows is precisely what we would expect to find. The current state of the U.S. and the global economy is best understood, I believe, against the background too briefly elaborated above. Here is a picture of the U.S. economy today. The key to a healthy economy is job- and income-creating investment in capital goods, which in turn generates a virtuous cycle of further growth in investment, jobs and income. Ominously, the investment, growth, employment and income pictures are unprecedentedly dismal.
Compared to cyclical recoveries between 1949 and 1973, recoveries during the neoliberal period have been weak. Indeed, one or two of the post-1973 upturns has been weaker than some downturns during the Golden Age. Since the stock market collapse of four years ago, the situation has worsened. Growth rates since 2000 have been half their previous average. Even this weak performance required historically unprecedented fiscal and monetary stimulus: 13 rate cuts, three tax cuts, massive government deficits and record growth in money and credit.
Official figures mask the economy's most serious problems. Growth figures are annualized by U.S. statisticians. Thus, the much-touted 7.1% growth rate in the third quarter of 2003 was the one that would emerge after twelve months if the current trend were to continue. The same growth rate would have been reported in the eurozone as 1.8%. This is an uncommonly weak performance.
Investment data are equally misleading. Since the mid-1990s the Bureau of Economic Analysis (BEA) has adjusted upward actual business dollar outlays on computers and related equipment to take into account quality improvements (faster processors, bigger hard drives, more memory). BEA calls this "hedonic adjustment." Accordingly, the BEA estimates that business high-tech investment quadrupled between 1996 and 2002, from $70.9 to $283.7. But in actual dollars spent, the increase was only from $70.9 billion to $74.2 billion, very low by historic standards. The high-tech boom was both greatly exaggerated and misleading. After all, neither profits nor wages are taken in "hedonically adjusted" dollars.
The difference between real and hedonic outlays explains what would otherwise be a paradoxical feature of the years 2000-2003: government was reporting big increases in high-tech investment, while manufacturers were bemoaning declining sales.
Hedonic pricing has accounted for a steadily rising percentage of all reported capital investment. But if we look at actual dollars spent, we find that since 1998 the growth rate of business fixed investment has actually been declining. Real capital investment has in fact not been this weak since the Great Depression.
The fudging of investment figures also obscures the sorry state of the jobs market. The Commerce Department's figures on nonresidential investment for the third and fourth quarters of 2003 reported increases of, respectively, 12.8 and 9.6%. A closer look reveals that the "adjusted" hi-tech sector is the only bright spot, with production and capacity rising, respectively, 24.6% and 11.1% over the past year. But hi-tech is not where significant jobs increases are found. Employment in hi-tech has declined steadily through the so-called "recovery" since its 2001 peak.
In non-hi-tech manufacturing, where investment figures are not adjusted, production from January 2003 to January 2004 rose only 0.9%, while capacity actually declined -0.2%. This represents a record nineteen-straight-month decline in mainline manufacturing capacity. Since it is mainline manufacturing which employs almost 95% of all manufacturing workers, it comes as no surprise that for the first time since the Great Depression the economy has gone more than three years without creating any jobs.
The jobs crisis is even worse than it appears. Here again statistical sleight-of-hand, this time by the Bureau of Labor Statistics (BLS), obscures economic reality. Based on data gathered employing the "net birth/death adjustment," BLS announced in April, 2004, that the long-awaited jobs recovery had finally arrived. Nonfarm payrolls had allegedly surged by a whopping 308,000 in March, 2004. The birth/death model uses business deaths to "impute" employment from business births. Thus, as more businesses fail, more new jobs are imputed to have materialized through business births. This improbable statistical artefact accounts for about half of the reported 308,000 March, 2004 payroll increase.
The birth/death model is based on statistics covering 1998-2002. This was a period of explosive telecom and dot.com startups, quite unlike today's flat economic landscape. Thus, two thirds of the 947,000 new jobs BLS "imputed" for March-May, 2004, were never actually counted by BLS and never reported by any firm.
BlS's household and establishment surveys tell a more sobering story. March employment by private industry actually fell by 175,000, and the number of self-employed workers declined by 288,000. Without the simultaneous increase of 439,000 government jobs, the March job announcement would have been a calamity. And both average weekly hours and total hours worked declined markedly, even as (according to the dubious birth/death findings) the work force increased. This is the first time in U.S. history that net job growth has been negative 26 months into a recovery.
The wage and salary picture has also set grim records. During the current recovery, wage and salary growth has actually been negative, at -0.6%, in contrast to the average increase of 7.2% characteristic of this point into each of the other eight post-War recoveries. In fact, median family income in the post-War period exhibits an ominous trend. From 1947 to 1967, real median family income rose by 75%. But since 1967, it has grown by only 30%.
Labor's losses have been capital's gain: since the peak of the last recovery, in the first quarter of 2001, corporate profits have risen 62.2%, compared to the average of 13.9% at the same point in the last eight recoveries. Never in American history has any recorded recovery had such a lopsided balance in the distribution of income gains between labor and capital.
Given the dismal investment, wage/salary and employment pictures, how has it been possible for consumption to have risen to 71% of GDP in the early nineties, from its prior post-War average of 66%? The answer is a growth rate of consumer debt never seen before in America. For the first time ever, in March 2001, overall debt levels (mortgage debt plus consumer debt, mainly credit card debt and car loans) rose above annual disposable income. And from 2001 to 2004 consumer debt rose from 101% to 116% of disposable income. In the first half of 2004, consumer borrowing has been at its highest ever. It has declined slightly in the meantime. So has consumer spending. Should Americans decide to significantly increase their saving and service debts, while lowering correspondingly their consumption expenditures, the global economy could experience a major disruption.
Up until very recently, consumers had stepped up their borrowing to compensate for slowing income growth. Thus, such growth as the U.S. has experienced in recent years has been almost entirely consumption- and debt-driven. More fundamentally, it has been bubble-driven, fueled principally by bubbles in home values and credit.
Since the collapse of stock market/hi-tech bubbles in 2001, the illusory "wealth effect" has been sustained, and consumer spending thereby encouraged, by another bubble, the enormous inflation of house prices. The biggest increase in household debt came from home mortgage debt, especially home mortgage refinancing. With mortgage rates low and home prices rising, households' home equity ballooned. Bloated home equity then provided rising collateral to underwrite still more borrowing.
What makes this especially problematic is that over the last ten years, the average family has suffered under large increases in health premiums, housing costs, tuition fees and child care costs. As a result, households' and individuals' margin of protection against insolvency has dramatically declined. Filings for personal bankruptcy are approaching a record high.
There are indications that these weaknesses and imbalances in the economy are reaching a critical mass. The mortgage refi boom has fizzled, and consumer spending is beginning to decline. Two years ago the Fed's quarterly Beige Book reported a disturbing shift in the composition of credit spending: more and more families are using their credit cards to finance spending on essentials, such as food and energy.
It is no exaggeration to say that both the U.S. economy and the global economy are hugely dependent on the American consumer's increasing willingness to spend more than (s)he makes. (Imported goods have been a rising proportion of all goods purchased here.) Thus, a decline in U.S. consumer spending portends further declines in investment, jobs and income. From January to July of 2004, consumer spending rose at an annual rate of 2.8%, down from 3.3% in 2003 and 3.1 % in 2002. For perspective, during the boom years 1999-2000, growth rates were 5.1% and 4.7%.
Spending on consumer durables is the most significant indicator of healthy growth, and the drastically lower spending in this area is cause for alarm: spending for consumer durables was down to $23.5 billion in the first seven months of this year, in contrast to $71 billion on 2003 and $58 billion in 2002.
Should consumer spending continue to decline, the economy faces the genuine likelihood of a severe recession. Of course not a single American politician addresses this issue.
What is required is a shift from bubble-, debt-, and consumption-driven growth to investment- and income-driven growth. This in turn necessitates a decline in Americas principal export, jobs. Domestic job growth, a higher minimum wage, tax cuts aimed predominantly at low- and middle-income families, a sharp reduction in defense spending and a redirection of these funds to long-neglected and pressing social needs such as health care reform, the provision of universal pre-school, and across-the-board repair and upgrading of America's deteriorated infrastructure of roads, highways,tunnels and bridges, all these should be at the forefront of a Democratic administration's agenda. The restoration of infrastructure is especially labor intensive, and would generate an enormous number of productive jobs. And as a national project spearheaded by government initiative, government would emerge as a major employer.
All this si entirely incompatible with the overwhelming neoliberal bent of even the most "liberal" political leaders. It was after all Bill Clinton who urinated on the grave of Franklin Roosevelt when he proclaimed "the end of welfare as we know it".
As unfashionable as it is to suggest such a thing at a conference of economists, the only hope for the world's majority seems to be the revival of the kinds of mass movements witnessed here in May of 1968, and throughout the world during the 1960s. And time may be short.
Alan Nasser is Professor emeritus of Political Economy and Philosophy at The Evergreen State College. His book, The “New Normal”: Persistent Austerity, Declining Democracy and the Globalization of Resistance will be published by Pluto Press in 2013. If you would like to be notified when the book is released, please send a request to email@example.com
Thomas Palley » Blog Archive » Explaining Stagnation Why it Matters
John Bellamy Foster and Fred Magdoff clearly identify stagnation in their 2009 book The Great Financial Crisis: Causes and Consequences (HERE). They conclude with a section titled “Back to the real economy: the stagnation problem” and they write:
“It was the reality of economic stagnation beginning in the 1970s, as heterodox economists Ricardo Belliofiore and Joseph Halevi have recently emphasized, that led to the emergence of “the new financialized capitalist regime,” a kind of “paradoxical financial Keynesianiasm” whereby demand in the economy was stimulated primarily “thanks to asset-bubbles” (Foster and Magdoff, p.129).”
My own 2009 New America Foundation report, “America’s Exhausted Paradigm: Macroeconomic Causes of the Financial Crisis and Great Recession”, concluded (HERE):
“The bottom line is macroeconomic failure rooted in America’s flawed economic paradigm is the ultimate cause of the financial crisis and Great Recession…. Now, there is a grave danger that policymakers only focus on financial market reform and ignore reform of America’s flawed economic paradigm. In that event, though the economy may stabilize, it will likely be unable to escape the pull of economic stagnation. That is because stagnation is the logical next stage of the existing paradigm.”
That report became a core chapter in my 2012 book, From Financial Crisis to Stagnation, the blurb for which reads (HERE):
“The U.S. economy today is confronted with the prospect of extended stagnation. This book explores why…. Financial deregulation and the house price bubble kept the economy going by making ever more credit available. As the economy cannibalized itself by undercutting income distribution and accumulating debt, it needed larger speculative bubbles to grow. That process ended when the housing bubble burst. The earlier post–World War II economic model based on rising middle-class incomes has been dismantled, while the new neoliberal model has imploded. Absent a change of policy paradigm, the logical next step is stagnation. The political challenge we face now is how to achieve paradigm change.”
The big analytical difference between Foster and Magdoff and myself is that they see stagnation as inherent to capitalism whereas I see it as the product of neoliberal economic policy. Foster and Magdoff partake of the Baran-Sweezy tradition that recommends deeper socialist transformation. I use a structural Keynesian framework that recommends reconstructing the income and demand generation mechanism via policies that include rebuilding worker bargaining power, reforming globalization, and reining in corporations and financial markets.
Larry Summers’ story of serial bubbles delaying stagnation has substantial similarities with both accounts but he avoids blaming either capitalism or neoliberalism. That is hardly surprising as Summers has been a chief architect of the neoliberal system and remains committed to it, though he now wants to soften its impact. Instead, he appeals to the black box of “secular stagnation” as ultimate cause and suggests fiscal policies that would ameliorate the demand shortage problem. However, those policies would not remedy the root cause of stagnation as they leave the economic architecture unchanged.
Though Summers and Krugman are relative late-comers to the stagnation hypothesis, they have still done a great public service by drawing attention to it. Now that stagnation has been identified, the real debate can begin.
The questions are what caused stagnation and what must be done to restore shared prosperity? There is no guarantee we will answer those questions correctly (my prior is mainstream economists will continue their track record of getting it wrong). But it is absolutely certain we will not get the right answer if we do not ask the right question. So thank you Larry Summers and Paul Krugman for putting stagnation on the table. Let the debate begin.
Tha means the major defeat for “stabilization policies” that were supposed to smooth the capitalist industrial cycle and abolish panics. And the problem preceeds the 2008 panic itself.
The highly misleading unemployment rate calculated by the U.S. Department of Labor notwithstanding, there has been a massive growth in long-term unemployment in the U.S. in the wake of the crisis, as shown by the declining percentage of the U.S. population actually working.
The current situation also refute the key tenet of neoclassical economy (which is pseudo-religious doctrine, so that only increase fanatic devotion of its well-paid adherents). Neoclassical economists insisted that since a “free market economy” naturally tends toward an equilibrium with full employment of both workers and machines, the economy should should quickly return to “full employment” after a recession. This is not the case. See also Secular Stagnation Lawrence H. Summers
There were several uncessful attempts to explaint his situation from neoclassical positions. In Secular Stagnation, Coalmines, Bubbles, and Larry Summers - NYTimes.com Paul Krugman emphasized the liquidity trap – zero lower bound to interest rates which supposedly prevents spending from reaching a level sufficient for full employment.
Larry’s formulation of our current economic situation is the same as my own. Although he doesn’t use the words “liquidity trap”, he works from the understanding that we are an economy in which monetary policy is de facto constrained by the zero lower bound (even if you think central banks could be doing more), and that this corresponds to a situation in which the “natural” rate of interest – the rate at which desired savings and desired investment would be equal at full employment – is negative.
And as he also notes, in this situation the normal rules of economic policy don’t apply. As I like to put it, virtue becomes vice and prudence becomes folly. Saving hurts the economy – it even hurts investment, thanks to the paradox of thrift. Fixating on debt and deficits deepens the depression. And so on down the line.
This is the kind of environment in which Keynes’s hypothetical policy of burying currency in coalmines and letting the private sector dig it up – or my version, which involves faking a threat from nonexistent space aliens – becomes a good thing; spending is good, and while productive spending is best, unproductive spending is still better than nothing.
Larry also indirectly states an important corollary: this isn’t just true of public spending. Private spending that is wholly or partially wasteful is also a good thing, unless it somehow stores up trouble for the future. That last bit is an important qualification. But suppose that U.S. corporations, which are currently sitting on a huge hoard of cash, were somehow to become convinced that it would be a great idea to fit out all their employees as cyborgs, with Google Glass and smart wristwatches everywhere. And suppose that three years later they realized that there wasn’t really much payoff to all that spending. Nonetheless, the resulting investment boom would have given us several years of much higher employment, with no real waste, since the resources employed would otherwise have been idle.
OK, this is still mostly standard, although a lot of people hate, just hate, this kind of logic – they want economics to be a morality play, and they don’t care how many people have to suffer in the process.
But now comes the radical part of Larry’s presentation: his suggestion that this may not be a temporary state of affairs.
2. An economy that needs bubbles?
We now know that the economic expansion of 2003-2007 was driven by a bubble. You can say the same about the latter part of the 90s expansion; and you can in fact say the same about the later years of the Reagan expansion, which was driven at that point by runaway thrift institutions and a large bubble in commercial real estate.
So you might be tempted to say that monetary policy has consistently been too loose. After all, haven’t low interest rates been encouraging repeated bubbles?
But as Larry emphasizes, there’s a big problem with the claim that monetary policy has been too loose: where’s the inflation? Where has the overheated economy been visible?
So how can you reconcile repeated bubbles with an economy showing no sign of inflationary pressures? Summers’s answer is that we may be an economy that needs bubbles just to achieve something near full employment – that in the absence of bubbles the economy has a negative natural rate of interest. And this hasn’t just been true since the 2008 financial crisis; it has arguably been true, although perhaps with increasing severity, since the 1980s.
One way to quantify this is, I think, to look at household debt. Here’s the ratio of household debt to GDP since the 50s:
There was a sharp increase in the ratio after World War II, but from a low base, as families moved to the suburbs and all that. Then there were about 25 years of rough stability, from 1960 to around 1985. After that, however, household debt rose rapidly and inexorably, until the crisis struck.
So with all that household borrowing, you might have expected the period 1985-2007 to be one of strong inflationary pressure, high interest rates, or both. In fact, you see neither – this was the era of the Great Moderation, a time of low inflation and generally low interest rates. Without all that increase in household debt, interest rates would presumably have to have been considerably lower – maybe negative. In other words, you can argue that our economy has been trying to get into the liquidity trap for a number of years, and that it only avoided the trap for a while thanks to successive bubbles.
And if that’s how you see things, when looking forward you have to regard the liquidity trap not as an exceptional state of affairs but as the new normal.
3. Secular stagnation?
How did this happen? Larry explicitly invokes the notion of secular stagnation, associated in particular with Alvin Hansen (pdf). He doesn’t say why this might be happening to us now, but it’s not hard to think of possible reasons.
Back in the day, Hansen stressed demographic factors: he thought slowing population growth would mean low investment demand. Then came the baby boom. But this time around the slowdown is here, and looks real.
Think of it this way: during the period 1960-85, when the U.S. economy seemed able to achieve full employment without bubbles, our labor force grew an average 2.1 percent annually. In part this reflected the maturing of the baby boomers, in part the move of women into the labor force.
This growth made sustaining investment fairly easy: the business of providing Americans with new houses, new offices, and so on easily absorbed a fairly high fraction of GDP.
Now look forward. The Census projects that the population aged 18 to 64 will grow at an annual rate of only 0.2 percent between 2015 and 2025. Unless labor force participation not only stops declining but starts rising rapidly again, this means a slower-growth economy, and thanks to the accelerator effect, lower investment demand.
By the way, in a Samuelson consumption-loan model, the natural rate of interest equals the rate of population growth. Reality is a lot more complicated than that, but I don’t think it’s foolish to guess that the decline in population growth has reduced the natural real rate of interest by something like an equal amount (and to note that Japan’s shrinking working-age population is probably a major factor in its secular stagnation.)
There may be other factors – a Bob Gordonesque decline in innovation, etc.. The point is that it’s not hard to think of reasons why the liquidity trap could be a lot more persistent than anyone currently wants to admit.
4. Destructive virtue
If you take a secular stagnation view seriously, it has some radical implications – and Larry goes there.
Currently, even policymakers who are willing to concede that the liquidity trap makes nonsense of conventional notions of policy prudence are busy preparing for the time when normality returns. This means that they are preoccupied with the idea that they must act now to head off future crises. Yet this crisis isn’t over – and as Larry says, “Most of what would be done under the aegis of preventing a future crisis would be counterproductive.”
He goes on to say that the officially respectable policy agenda involves “doing less with monetary policy than was done before and doing less with fiscal policy than was done before,” even though the economy remains deeply depressed. And he says, a bit fuzzily but bravely all the same, that even improved financial regulation is not necessarily a good thing – that it may discourage irresponsible lending and borrowing at a time when more spending of any kind is good for the economy.
Amazing stuff – and if we really are looking at secular stagnation, he’s right.
Of course, the underlying problem in all of this is simply that real interest rates are too high. But, you say, they’re negative – zero nominal rates minus at least some expected inflation. To which the answer is, so? If the market wants a strongly negative real interest rate, we’ll have persistent problems until we find a way to deliver such a rate.
One way to get there would be to reconstruct our whole monetary system – say, eliminate paper money and pay negative interest rates on deposits. Another way would be to take advantage of the next boom – whether it’s a bubble or driven by expansionary fiscal policy – to push inflation substantially higher, and keep it there. Or maybe, possibly, we could go the Krugman 1998/Abe 2013 route of pushing up inflation through the sheer power of self-fulfilling expectations.
Any such suggestions are, of course, met with outrage. How dare anyone suggest that virtuous individuals, people who are prudent and save for the future, face expropriation? How can you suggest steadily eroding their savings either through inflation or through negative interest rates? It’s tyranny!
But in a liquidity trap saving may be a personal virtue, but it’s a social vice. And in an economy facing secular stagnation, this isn’t just a temporary state of affairs, it’s the norm. Assuring people that they can get a positive rate of return on safe assets means promising them something the market doesn’t want to deliver – it’s like farm price supports, except for rentiers.
Oh, and one last point. If we’re going to have persistently negative real interest rates along with at least somewhat positive overall economic growth, the panic over public debt looks even more foolish than people like me have been saying: servicing the debt in the sense of stabilizing the ratio of debt to GDP has no cost, in fact negative cost.
I could go on, but by now I hope you’ve gotten the point. What Larry did at the IMF wasn’t just give an interesting speech. He laid down what amounts to a very radical manifesto. And I very much fear that he may be right.
A secret question hovers over us, a sense of disappointment, a broken promise we were given as children about what our adult world was supposed to be like. I am referring not to the standard false promises that children are always given (about how the world is fair, or how those who work hard shall be rewarded), but to a particular generational promise—given to those who were children in the fifties, sixties, seventies, or eighties—one that was never quite articulated as a promise but rather as a set of assumptions about what our adult world would be like. And since it was never quite promised, now that it has failed to come true, we’re left confused: indignant, but at the same time, embarrassed at our own indignation, ashamed we were ever so silly to believe our elders to begin with.
Where, in short, are the flying cars? Where are the force fields, tractor beams, teleportation pods, antigravity sleds, tricorders, immortality drugs, colonies on Mars, and all the other technological wonders any child growing up in the mid-to-late twentieth century assumed would exist by now? Even those inventions that seemed ready to emerge—like cloning or cryogenics—ended up betraying their lofty promises. What happened to them?
We are well informed of the wonders of computers, as if this is some sort of unanticipated compensation, but, in fact, we haven’t moved even computing to the point of progress that people in the fifties expected we’d have reached by now. We don’t have computers we can have an interesting conversation with, or robots that can walk our dogs or take our clothes to the Laundromat.
As someone who was eight years old at the time of the Apollo moon landing, I remember calculating that I would be thirty-nine in the magic year 2000 and wondering what the world would be like. Did I expect I would be living in such a world of wonders? Of course. Everyone did. Do I feel cheated now? It seemed unlikely that I’d live to see all the things I was reading about in science fiction, but it never occurred to me that I wouldn’t see any of them.
At the turn of the millennium, I was expecting an outpouring of reflections on why we had gotten the future of technology so wrong. Instead, just about all the authoritative voices—both Left and Right—began their reflections from the assumption that we do live in an unprecedented new technological utopia of one sort or another.
The common way of dealing with the uneasy sense that this might not be so is to brush it aside, to insist all the progress that could have happened has happened and to treat anything more as silly. “Oh, you mean all that Jetsons stuff?” I’m asked—as if to say, but that was just for children! Surely, as grown-ups, we understand The Jetsons offered as accurate a view of the future as The Flintstones offered of the Stone Age.
Surely, as grown-ups, we understand The Jetsons offered as accurate a view of the future as The Flintstones did of the Stone Age.
Even in the seventies and eighties, in fact, sober sources such as National Geographic and the Smithsonian were informing children of imminent space stations and expeditions to Mars. Creators of science fiction movies used to come up with concrete dates, often no more than a generation in the future, in which to place their futuristic fantasies. In 1968, Stanley Kubrick felt that a moviegoing audience would find it perfectly natural to assume that only thirty-three years later, in 2001, we would have commercial moon flights, city-like space stations, and computers with human personalities maintaining astronauts in suspended animation while traveling to Jupiter. Video telephony is just about the only new technology from that particular movie that has appeared—and it was technically possible when the movie was showing. 2001 can be seen as a curio, but what about Star Trek? The Star Trek mythos was set in the sixties, too, but the show kept getting revived, leaving audiences for Star Trek Voyager in, say, 2005, to try to figure out what to make of the fact that according to the logic of the program, the world was supposed to be recovering from fighting off the rule of genetically engineered supermen in the Eugenics Wars of the nineties.
By 1989, when the creators of Back to the Future II were dutifully placing flying cars and anti-gravity hoverboards in the hands of ordinary teenagers in the year 2015, it wasn’t clear if this was meant as a prediction or a joke.
The usual move in science fiction is to remain vague about the dates, so as to render “the future” a zone of pure fantasy, no different than Middle Earth or Narnia, or like Star Wars, “a long time ago in a galaxy far, far away.” As a result, our science fiction future is, most often, not a future at all, but more like an alternative dimension, a dream-time, a technological Elsewhere, existing in days to come in the same sense that elves and dragon-slayers existed in the past—another screen for the displacement of moral dramas and mythic fantasies into the dead ends of consumer pleasure.
Might the cultural sensibility that came to be referred to as postmodernism best be seen as a prolonged meditation on all the technological changes that never happened? The question struck me as I watched one of the recent Star Wars movies. The movie was terrible, but I couldn’t help but feel impressed by the quality of the special effects. Recalling the clumsy special effects typical of fifties sci-fi films, I kept thinking how impressed a fifties audience would have been if they’d known what we could do by now—only to realize, “Actually, no. They wouldn’t be impressed at all, would they? They thought we’d be doing this kind of thing by now. Not just figuring out more sophisticated ways to simulate it.”
That last word—simulate—is key. The technologies that have advanced since the seventies are mainly either medical technologies or information technologies—largely, technologies of simulation. They are technologies of what Jean Baudrillard and Umberto Eco called the “hyper-real,” the ability to make imitations that are more realistic than originals. The postmodern sensibility, the feeling that we had somehow broken into an unprecedented new historical period in which we understood that there is nothing new; that grand historical narratives of progress and liberation were meaningless; that everything now was simulation, ironic repetition, fragmentation, and pastiche—all this makes sense in a technological environment in which the only breakthroughs were those that made it easier to create, transfer, and rearrange virtual projections of things that either already existed, or, we came to realize, never would. Surely, if we were vacationing in geodesic domes on Mars or toting about pocket-size nuclear fusion plants or telekinetic mind-reading devices no one would ever have been talking like this. The postmodern moment was a desperate way to take what could otherwise only be felt as a bitter disappointment and to dress it up as something epochal, exciting, and new.
In the earliest formulations, which largely came out of the Marxist tradition, a lot of this technological background was acknowledged. Fredric Jameson’s “Postmodernism, or the Cultural Logic of Late Capitalism” proposed the term “postmodernism” to refer to the cultural logic appropriate to a new, technological phase of capitalism, one that had been heralded by Marxist economist Ernest Mandel as early as 1972. Mandel had argued that humanity stood at the verge of a “third technological revolution,” as profound as the Agricultural or Industrial Revolution, in which computers, robots, new energy sources, and new information technologies would replace industrial labor—the “end of work” as it soon came to be called—reducing us all to designers and computer technicians coming up with crazy visions that cybernetic factories would produce.
End of work arguments were popular in the late seventies and early eighties as social thinkers pondered what would happen to the traditional working-class-led popular struggle once the working class no longer existed. (The answer: it would turn into identity politics.) Jameson thought of himself as exploring the forms of consciousness and historical sensibilities likely to emerge from this new age.
What happened, instead, is that the spread of information technologies and new ways of organizing transport—the containerization of shipping, for example—allowed those same industrial jobs to be outsourced to East Asia, Latin America, and other countries where the availability of cheap labor allowed manufacturers to employ much less technologically sophisticated production-line techniques than they would have been obliged to employ at home.
From the perspective of those living in Europe, North America, and Japan, the results did seem to be much as predicted. Smokestack industries did disappear; jobs came to be divided between a lower stratum of service workers and an upper stratum sitting in antiseptic bubbles playing with computers. But below it all lay an uneasy awareness that the postwork civilization was a giant fraud. Our carefully engineered high-tech sneakers were not being produced by intelligent cyborgs or self-replicating molecular nanotechnology; they were being made on the equivalent of old-fashioned Singer sewing machines, by the daughters of Mexican and Indonesian farmers who, as the result of WTO or NAFTA–sponsored trade deals, had been ousted from their ancestral lands. It was a guilty awareness that lay beneath the postmodern sensibility and its celebration of the endless play of images and surfaces.
Why did the projected explosion of technological growth everyone was expecting—the moon bases, the robot factories—fail to happen? There are two possibilities. Either our expectations about the pace of technological change were unrealistic (in which case, we need to know why so many intelligent people believed they were not) or our expectations were not unrealistic (in which case, we need to know what happened to derail so many credible ideas and prospects).
Most social analysts choose the first explanation and trace the problem to the Cold War space race. Why, these analysts wonder, did both the United States and the Soviet Union become so obsessed with the idea of manned space travel? It was never an efficient way to engage in scientific research. And it encouraged unrealistic ideas of what the human future would be like.
Could the answer be that both the United States and the Soviet Union had been, in the century before, societies of pioneers, one expanding across the Western frontier, the other across Siberia? Didn’t they share a commitment to the myth of a limitless, expansive future, of human colonization of vast empty spaces, that helped convince the leaders of both superpowers they had entered into a “space age” in which they were battling over control of the future itself? All sorts of myths were at play here, no doubt, but that proves nothing about the feasibility of the project.
Some of those science fiction fantasies (at this point we can’t know which ones) could have been brought into being. For earlier generations, many science fiction fantasies had been brought into being. Those who grew up at the turn of the century reading Jules Verne or H.G. Wells imagined the world of, say, 1960 with flying machines, rocket ships, submarines, radio, and television—and that was pretty much what they got. If it wasn’t unrealistic in 1900 to dream of men traveling to the moon, then why was it unrealistic in the sixties to dream of jet-packs and robot laundry-maids?
In fact, even as those dreams were being outlined, the material base for their achievement was beginning to be whittled away. There is reason to believe that even by the fifties and sixties, the pace of technological innovation was slowing down from the heady pace of the first half of the century. There was a last spate in the fifties when microwave ovens (1954), the Pill (1957), and lasers (1958) all appeared in rapid succession. But since then, technological advances have taken the form of clever new ways of combining existing technologies (as in the space race) and new ways of putting existing technologies to consumer use (the most famous example is television, invented in 1926, but mass produced only after the war.) Yet, in part because the space race gave everyone the impression that remarkable advances were happening, the popular impression during the sixties was that the pace of technological change was speeding up in terrifying, uncontrollable ways.
Alvin Toffler’s 1970 best seller Future Shock argued that almost all the social problems of the sixties could be traced back to the increasing pace of technological change. The endless outpouring of scientific breakthroughs transformed the grounds of daily existence, and left Americans without any clear idea of what normal life was. Just consider the family, where not just the Pill, but also the prospect of in vitro fertilization, test tube babies, and sperm and egg donation were about to make the idea of motherhood obsolete.
Humans were not psychologically prepared for the pace of change, Toffler wrote. He coined a term for the phenomenon: “accelerative thrust.” It had begun with the Industrial Revolution, but by roughly 1850, the effect had become unmistakable. Not only was everything around us changing, but most of it—human knowledge, the size of the population, industrial growth, energy use—was changing exponentially. The only solution, Toffler argued, was to begin some kind of control over the process, to create institutions that would assess emerging technologies and their likely effects, to ban technologies likely to be too socially disruptive, and to guide development in the direction of social harmony.
While many of the historical trends Toffler describes are accurate, the book appeared when most of these exponential trends halted. It was right around 1970 when the increase in the number of scientific papers published in the world—a figure that had doubled every fifteen years since, roughly, 1685—began leveling off. The same was true of books and patents.
Toffler’s use of acceleration was particularly unfortunate. For most of human history, the top speed at which human beings could travel had been around 25 miles per hour. By 1900 it had increased to 100 miles per hour, and for the next seventy years it did seem to be increasing exponentially. By the time Toffler was writing, in 1970, the record for the fastest speed at which any human had traveled stood at roughly 25,000 mph, achieved by the crew of Apollo 10 in 1969, just one year before. At such an exponential rate, it must have seemed reasonable to assume that within a matter of decades, humanity would be exploring other solar systems.
Since 1970, no further increase has occurred. The record for the fastest a human has ever traveled remains with the crew of Apollo 10. True, the commercial airliner Concorde, which first flew in 1969, reached a maximum speed of 1,400 mph. And the Soviet Tupolev Tu-144, which flew first, reached an even faster speed of 1,553 mph. But those speeds not only have failed to increase; they have decreased since the Tupolev Tu-144 was cancelled and the Concorde was abandoned.
None of this stopped Toffler’s own career. He kept retooling his analysis to come up with new spectacular pronouncements. In 1980, he produced The Third Wave, its argument lifted from Ernest Mandel’s “third technological revolution”—except that while Mandel thought these changes would spell the end of capitalism, Toffler assumed capitalism was eternal. By 1990, Toffler was the personal intellectual guru to Republican congressman Newt Gingrich, who claimed that his 1994 “Contract With America” was inspired, in part, by the understanding that the United States needed to move from an antiquated, materialist, industrial mind-set to a new, free-market, information age, Third Wave civilization.
There are all sorts of ironies in this connection. One of Toffler’s greatest achievements was inspiring the government to create an Office of Technology Assessment (OTA). One of Gingrich’s first acts on winning control of the House of Representatives in 1995 was defunding the OTA as an example of useless government extravagance. Still, there’s no contradiction here. By this time, Toffler had long since given up on influencing policy by appealing to the general public; he was making a living largely by giving seminars to CEOs and corporate think tanks. His insights had been privatized.
Gingrich liked to call himself a “conservative futurologist.” This, too, might seem oxymoronic; but, in fact, Toffler’s own conception of futurology was never progressive. Progress was always presented as a problem that needed to be solved.
Toffler might best be seen as a lightweight version of the nineteenth-century social theorist Auguste Comte, who believed that he was standing on the brink of a new age—in his case, the Industrial Age—driven by the inexorable progress of technology, and that the social cataclysms of his times were caused by the social system not adjusting. The older feudal order had developed Catholic theology, a way of thinking about man’s place in the cosmos perfectly suited to the social system of the time, as well as an institutional structure, the Church, that conveyed and enforced such ideas in a way that could give everyone a sense of meaning and belonging. The Industrial Age had developed its own system of ideas—science—but scientists had not succeeded in creating anything like the Catholic Church. Comte concluded that we needed to develop a new science, which he dubbed “sociology,” and said that sociologists should play the role of priests in a new Religion of Society that would inspire everyone with a love of order, community, work discipline, and family values. Toffler was less ambitious; his futurologists were not supposed to play the role of priests.
Gingrich had a second guru, a libertarian theologian named George Gilder, and Gilder, like Toffler, was obsessed with technology and social change. In an odd way, Gilder was more optimistic. Embracing a radical version of Mandel’s Third Wave argument, he insisted that what we were seeing with the rise of computers was an “overthrow of matter.” The old, materialist Industrial Society, where value came from physical labor, was giving way to an Information Age where value emerges directly from the minds of entrepreneurs, just as the world had originally appeared ex nihilo from the mind of God, just as money, in a proper supply-side economy, emerged ex nihilo from the Federal Reserve and into the hands of value-creating capitalists. Supply-side economic policies, Gilder concluded, would ensure that investment would continue to steer away from old government boondoggles like the space program and toward more productive information and medical technologies.
But if there was a conscious, or semi-conscious, move away from investment in research that might lead to better rockets and robots, and toward research that would lead to such things as laser printers and CAT scans, it had begun well before Toffler’s Future Shock (1970) and Gilder’s Wealth and Poverty (1981). What their success shows is that the issues they raised—that existing patterns of technological development would lead to social upheaval, and that we needed to guide technological development in directions that did not challenge existing structures of authority—echoed in the corridors of power. Statesmen and captains of industry had been thinking about such questions for some time.
Industrial capitalism has fostered an extremely rapid rate of scientific advance and technological innovation—one with no parallel in previous human history. Even capitalism’s greatest detractors, Karl Marx and Friedrich Engels, celebrated its unleashing of the “productive forces.” Marx and Engels also believed that capitalism’s continual need to revolutionize the means of industrial production would be its undoing. Marx argued that, for certain technical reasons, value—and therefore profits—can be extracted only from human labor. Competition forces factory owners to mechanize production, to reduce labor costs, but while this is to the short-term advantage of the firm, mechanization’s effect is to drive down the general rate of profit.
For 150 years, economists have debated whether all this is true. But if it is true, then the decision by industrialists not to pour research funds into the invention of the robot factories that everyone was anticipating in the sixties, and instead to relocate their factories to labor-intensive, low-tech facilities in China or the Global South makes a great deal of sense.
As I’ve noted, there’s reason to believe the pace of technological innovation in productive processes—the factories themselves—began to slow in the fifties and sixties, but the side effects of America’s rivalry with the Soviet Union made innovation appear to accelerate. There was the awesome space race, alongside frenetic efforts by U.S. industrial planners to apply existing technologies to consumer purposes, to create an optimistic sense of burgeoning prosperity and guaranteed progress that would undercut the appeal of working-class politics.
These moves were reactions to initiatives from the Soviet Union. But this part of the history is difficult for Americans to remember, because at the end of the Cold War, the popular image of the Soviet Union switched from terrifyingly bold rival to pathetic basket case—the exemplar of a society that could not work. Back in the fifties, in fact, many United States planners suspected the Soviet system worked better. Certainly, they recalled the fact that in the thirties, while the United States had been mired in depression, the Soviet Union had maintained almost unprecedented economic growth rates of 10 percent to 12 percent a year—an achievement quickly followed by the production of tank armies that defeated Nazi Germany, then by the launching of Sputnik in 1957, then by the first manned spacecraft, the Vostok, in 1961.
It’s often said the Apollo moon landing was the greatest historical achievement of Soviet communism. Surely, the United States would never have contemplated such a feat had it not been for the cosmic ambitions of the Soviet Politburo. We are used to thinking of the Politburo as a group of unimaginative gray bureaucrats, but they were bureaucrats who dared to dream astounding dreams. The dream of world revolution was only the first. It’s also true that most of them—changing the course of mighty rivers, this sort of thing—either turned out to be ecologically and socially disastrous, or, like Joseph Stalin’s one-hundred-story Palace of the Soviets or a twenty-story statue of Vladimir Lenin, never got off the ground.
After the initial successes of the Soviet space program, few of these schemes were realized, but the leadership never ceased coming up with new ones. Even in the eighties, when the United States was attempting its own last, grandiose scheme, Star Wars, the Soviets were planning to transform the world through creative uses of technology. Few outside of Russia remember most of these projects, but great resources were devoted to them. It’s also worth noting that unlike the Star Wars project, which was designed to sink the Soviet Union, most were not military in nature: as, for instance, the attempt to solve the world hunger problem by harvesting lakes and oceans with an edible bacteria called spirulina, or to solve the world energy problem by launching hundreds of gigantic solar-power platforms into orbit and beaming the electricity back to earth.
The American victory in the space race meant that, after 1968, U.S. planners no longer took the competition seriously. As a result, the mythology of the final frontier was maintained, even as the direction of research and development shifted away from anything that might lead to the creation of Mars bases and robot factories.
The standard line is that all this was a result of the triumph of the market. The Apollo program was a Big Government project, Soviet-inspired in the sense that it required a national effort coordinated by government bureaucracies. As soon as the Soviet threat drew safely out of the picture, though, capitalism was free to revert to lines of technological development more in accord with its normal, decentralized, free-market imperatives—such as privately funded research into marketable products like personal computers. This is the line that men like Toffler and Gilder took in the late seventies and early eighties.
In fact, the United States never did abandon gigantic, government-controlled schemes of technological development. Mainly, they just shifted to military research—and not just to Soviet-scale schemes like Star Wars, but to weapons projects, research in communications and surveillance technologies, and similar security-related concerns. To some degree this had always been true: the billions poured into missile research had always dwarfed the sums allocated to the space program. Yet by the seventies, even basic research came to be conducted following military priorities. One reason we don’t have robot factories is because roughly 95 percent of robotics research funding has been channeled through the Pentagon, which is more interested in developing unmanned drones than in automating paper mills.
A case could be made that even the shift to research and development on information technologies and medicine was not so much a reorientation toward market-driven consumer imperatives, but part of an all-out effort to follow the technological humbling of the Soviet Union with total victory in the global class war—seen simultaneously as the imposition of absolute U.S. military dominance overseas, and, at home, the utter rout of social movements.
For the technologies that did emerge proved most conducive to surveillance, work discipline, and social control. Computers have opened up certain spaces of freedom, as we’re constantly reminded, but instead of leading to the workless utopia Abbie Hoffman imagined, they have been employed in such a way as to produce the opposite effect. They have enabled a financialization of capital that has driven workers desperately into debt, and, at the same time, provided the means by which employers have created “flexible” work regimes that have both destroyed traditional job security and increased working hours for almost everyone. Along with the export of factory jobs, the new work regime has routed the union movement and destroyed any possibility of effective working-class politics.
Meanwhile, despite unprecedented investment in research on medicine and life sciences, we await cures for cancer and the common cold, and the most dramatic medical breakthroughs we have seen have taken the form of drugs such as Prozac, Zoloft, or Ritalin—tailor-made to ensure that the new work demands don’t drive us completely, dysfunctionally crazy.
With results like these, what will the epitaph for neoliberalism look like? I think historians will conclude it was a form of capitalism that systematically prioritized political imperatives over economic ones. Given a choice between a course of action that would make capitalism seem the only possible economic system, and one that would transform capitalism into a viable, long-term economic system, neoliberalism chooses the former every time. There is every reason to believe that destroying job security while increasing working hours does not create a more productive (let alone more innovative or loyal) workforce. Probably, in economic terms, the result is negative—an impression confirmed by lower growth rates in just about all parts of the world in the eighties and nineties.
But the neoliberal choice has been effective in depoliticizing labor and overdetermining the future. Economically, the growth of armies, police, and private security services amounts to dead weight. It’s possible, in fact, that the very dead weight of the apparatus created to ensure the ideological victory of capitalism will sink it. But it’s also easy to see how choking off any sense of an inevitable, redemptive future that could be different from our world is a crucial part of the neoliberal project.
At this point all the pieces would seem to be falling neatly into place. By the sixties, conservative political forces were growing skittish about the socially disruptive effects of technological progress, and employers were beginning to worry about the economic impact of mechanization. The fading Soviet threat allowed for a reallocation of resources in directions seen as less challenging to social and economic arrangements, or indeed directions that could support a campaign of reversing the gains of progressive social movements and achieving a decisive victory in what U.S. elites saw as a global class war. The change of priorities was introduced as a withdrawal of big-government projects and a return to the market, but in fact the change shifted government-directed research away from programs like NASA or alternative energy sources and toward military, information, and medical technologies.
Of course this doesn’t explain everything. Above all, it does not explain why, even in those areas that have become the focus of well-funded research projects, we have not seen anything like the kind of advances anticipated fifty years ago. If 95 percent of robotics research has been funded by the military, then where are the Klaatu-style killer robots shooting death rays from their eyes?
Obviously, there have been advances in military technology in recent decades. One of the reasons we all survived the Cold War is that while nuclear bombs might have worked as advertised, their delivery systems did not; intercontinental ballistic missiles weren’t capable of striking cities, let alone specific targets inside cities, and this fact meant there was little point in launching a nuclear first strike unless you intended to destroy the world.
Contemporary cruise missiles are accurate by comparison. Still, precision weapons never do seem capable of assassinating specific individuals (Saddam, Osama, Qaddafi), even when hundreds are dropped. And ray guns have not materialized—surely not for lack of trying. We can assume the Pentagon has spent billions on death ray research, but the closest they’ve come so far are lasers that might, if aimed correctly, blind an enemy gunner looking directly at the beam. Aside from being unsporting, this is pathetic: lasers are a fifties technology. Phasers that can be set to stun do not appear to be on the drawing boards; and when it comes to infantry combat, the preferred weapon almost everywhere remains the AK-47, a Soviet design named for the year it was introduced: 1947.
The Internet is a remarkable innovation, but all we are talking about is a super-fast and globally accessible combination of library, post office, and mail-order catalogue. Had the Internet been described to a science fiction aficionado in the fifties and sixties and touted as the most dramatic technological achievement since his time, his reaction would have been disappointment. Fifty years and this is the best our scientists managed to come up with? We expected computers that would think!
Overall, levels of research funding have increased dramatically since the seventies. Admittedly, the proportion of that funding that comes from the corporate sector has increased most dramatically, to the point that private enterprise is now funding twice as much research as the government, but the increase is so large that the total amount of government research funding, in real-dollar terms, is much higher than it was in the sixties. “Basic,” “curiosity-driven,” or “blue skies” research—the kind that is not driven by the prospect of any immediate practical application, and that is most likely to lead to unexpected breakthroughs—occupies an ever smaller proportion of the total, though so much money is being thrown around nowadays that overall levels of basic research funding have increased.
Yet most observers agree that the results have been paltry. Certainly we no longer see anything like the continual stream of conceptual revolutions—genetic inheritance, relativity, psychoanalysis, quantum mechanics—that people had grown used to, and even expected, a hundred years before. Why?
Part of the answer has to do with the concentration of resources on a handful of gigantic projects: “big science,” as it has come to be called. The Human Genome Project is often held out as an example. After spending almost three billion dollars and employing thousands of scientists and staff in five different countries, it has mainly served to establish that there isn’t very much to be learned from sequencing genes that’s of much use to anyone else. Even more, the hype and political investment surrounding such projects demonstrate the degree to which even basic research now seems to be driven by political, administrative, and marketing imperatives that make it unlikely anything revolutionary will happen.
Here, our fascination with the mythic origins of Silicon Valley and the Internet has blinded us to what’s really going on. It has allowed us to imagine that research and development is now driven, primarily, by small teams of plucky entrepreneurs, or the sort of decentralized cooperation that creates open-source software. This is not so, even though such research teams are most likely to produce results. Research and development is still driven by giant bureaucratic projects.
What has changed is the bureaucratic culture. The increasing interpenetration of government, university, and private firms has led everyone to adopt the language, sensibilities, and organizational forms that originated in the corporate world. Although this might have helped in creating marketable products, since that is what corporate bureaucracies are designed to do, in terms of fostering original research, the results have been catastrophic.
My own knowledge comes from universities, both in the United States and Britain. In both countries, the last thirty years have seen a veritable explosion of the proportion of working hours spent on administrative tasks at the expense of pretty much everything else. In my own university, for instance, we have more administrators than faculty members, and the faculty members, too, are expected to spend at least as much time on administration as on teaching and research combined. The same is true, more or less, at universities worldwide.
The growth of administrative work has directly resulted from introducing corporate management techniques. Invariably, these are justified as ways of increasing efficiency and introducing competition at every level. What they end up meaning in practice is that everyone winds up spending most of their time trying to sell things: grant proposals; book proposals; assessments of students’ jobs and grant applications; assessments of our colleagues; prospectuses for new interdisciplinary majors; institutes; conference workshops; universities themselves (which have now become brands to be marketed to prospective students or contributors); and so on.
As marketing overwhelms university life, it generates documents about fostering imagination and creativity that might just as well have been designed to strangle imagination and creativity in the cradle. No major new works of social theory have emerged in the United States in the last thirty years. We have been reduced to the equivalent of medieval scholastics, writing endless annotations of French theory from the seventies, despite the guilty awareness that if new incarnations of Gilles Deleuze, Michel Foucault, or Pierre Bourdieu were to appear in the academy today, we would deny them tenure.
There was a time when academia was society’s refuge for the eccentric, brilliant, and impractical. No longer. It is now the domain of professional self-marketers. As a result, in one of the most bizarre fits of social self-destructiveness in history, we seem to have decided we have no place for our eccentric, brilliant, and impractical citizens. Most languish in their mothers’ basements, at best making the occasional, acute intervention on the Internet.
If all this is true in the social sciences, where research is still carried out with minimal overhead largely by individuals, one can imagine how much worse it is for astrophysicists. And, indeed, one astrophysicist, Jonathan Katz, has recently warned students pondering a career in the sciences. Even if you do emerge from the usual decade-long period languishing as someone else’s flunky, he says, you can expect your best ideas to be stymied at every point:
You will spend your time writing proposals rather than doing research. Worse, because your proposals are judged by your competitors, you cannot follow your curiosity, but must spend your effort and talents on anticipating and deflecting criticism rather than on solving the important scientific problems. . . . It is proverbial that original ideas are the kiss of death for a proposal, because they have not yet been proved to work.
That pretty much answers the question of why we don’t have teleportation devices or antigravity shoes. Common sense suggests that if you want to maximize scientific creativity, you find some bright people, give them the resources they need to pursue whatever idea comes into their heads, and then leave them alone. Most will turn up nothing, but one or two may well discover something. But if you want to minimize the possibility of unexpected breakthroughs, tell those same people they will receive no resources at all unless they spend the bulk of their time competing against each other to convince you they know in advance what they are going to discover.
In the natural sciences, to the tyranny of managerialism we can add the privatization of research results. As the British economist David Harvie has reminded us, “open source” research is not new. Scholarly research has always been open source, in the sense that scholars share materials and results. There is competition, certainly, but it is “convivial.” This is no longer true of scientists working in the corporate sector, where findings are jealously guarded, but the spread of the corporate ethos within the academy and research institutes themselves has caused even publicly funded scholars to treat their findings as personal property. Academic publishers ensure that findings that are published are increasingly difficult to access, further enclosing the intellectual commons. As a result, convivial, open-source competition turns into something much more like classic market competition.
There are many forms of privatization, up to and including the simple buying up and suppression of inconvenient discoveries by large corporations fearful of their economic effects. (We cannot know how many synthetic fuel formulae have been bought up and placed in the vaults of oil companies, but it’s hard to imagine nothing like this happens.) More subtle is the way the managerial ethos discourages everything adventurous or quirky, especially if there is no prospect of immediate results. Oddly, the Internet can be part of the problem here. As Neal Stephenson put it:
Most people who work in corporations or academia have witnessed something like the following: A number of engineers are sitting together in a room, bouncing ideas off each other. Out of the discussion emerges a new concept that seems promising. Then some laptop-wielding person in the corner, having performed a quick Google search, announces that this “new” idea is, in fact, an old one; it—or at least something vaguely similar—has already been tried. Either it failed, or it succeeded. If it failed, then no manager who wants to keep his or her job will approve spending money trying to revive it. If it succeeded, then it’s patented and entry to the market is presumed to be unattainable, since the first people who thought of it will have “first-mover advantage” and will have created “barriers to entry.” The number of seemingly promising ideas that have been crushed in this way must number in the millions.
And so a timid, bureaucratic spirit suffuses every aspect of cultural life. It comes festooned in a language of creativity, initiative, and entrepreneurialism. But the language is meaningless. Those thinkers most likely to make a conceptual breakthrough are the least likely to receive funding, and, if breakthroughs occur, they are not likely to find anyone willing to follow up on their most daring implications.
Giovanni Arrighi has noted that after the South Sea Bubble, British capitalism largely abandoned the corporate form. By the time of the Industrial Revolution, Britain had instead come to rely on a combination of high finance and small family firms—a pattern that held throughout the next century, the period of maximum scientific and technological innovation. (Britain at that time was also notorious for being just as generous to its oddballs and eccentrics as contemporary America is intolerant. A common expedient was to allow them to become rural vicars, who, predictably, became one of the main sources for amateur scientific discoveries.)
Contemporary, bureaucratic corporate capitalism was a creation not of Britain, but of the United States and Germany, the two rival powers that spent the first half of the twentieth century fighting two bloody wars over who would replace Britain as a dominant world power—wars that culminated, appropriately enough, in government-sponsored scientific programs to see who would be the first to discover the atom bomb. It is significant, then, that our current technological stagnation seems to have begun after 1945, when the United States replaced Britain as organizer of the world economy.
Americans do not like to think of themselves as a nation of bureaucrats—quite the opposite—but the moment we stop imagining bureaucracy as a phenomenon limited to government offices, it becomes obvious that this is precisely what we have become. The final victory over the Soviet Union did not lead to the domination of the market, but, in fact, cemented the dominance of conservative managerial elites, corporate bureaucrats who use the pretext of short-term, competitive, bottom-line thinking to squelch anything likely to have revolutionary implications of any kind.
If we do not notice that we live in a bureaucratic society, that is because bureaucratic norms and practices have become so all-pervasive that we cannot see them, or, worse, cannot imagine doing things any other way.
Computers have played a crucial role in this narrowing of our social imaginations. Just as the invention of new forms of industrial automation in the eighteenth and nineteenth centuries had the paradoxical effect of turning more and more of the world’s population into full-time industrial workers, so has all the software designed to save us from administrative responsibilities turned us into part- or full-time administrators. In the same way that university professors seem to feel it is inevitable they will spend more of their time managing grants, so affluent housewives simply accept that they will spend weeks every year filling out forty-page online forms to get their children into grade schools. We all spend increasing amounts of time punching passwords into our phones to manage bank and credit accounts and learning how to perform jobs once performed by travel agents, brokers, and accountants.
Someone once figured out that the average American will spend a cumulative six months of life waiting for traffic lights to change. I don’t know if similar figures are available for how long it takes to fill out forms, but it must be at least as long. No population in the history of the world has spent nearly so much time engaged in paperwork.
In this final, stultifying stage of capitalism, we are moving from poetic technologies to bureaucratic technologies. By poetic technologies I refer to the use of rational and technical means to bring wild fantasies to reality. Poetic technologies, so understood, are as old as civilization. Lewis Mumford noted that the first complex machines were made of people. Egyptian pharaohs were able to build the pyramids only because of their mastery of administrative procedures, which allowed them to develop production-line techniques, dividing up complex tasks into dozens of simple operations and assigning each to one team of workmen—even though they lacked mechanical technology more complex than the inclined plane and lever. Administrative oversight turned armies of peasant farmers into the cogs of a vast machine. Much later, after cogs had been invented, the design of complex machinery elaborated principles originally developed to organize people.
Yet we have seen those machines—whether their moving parts are arms and torsos or pistons, wheels, and springs—being put to work to realize impossible fantasies: cathedrals, moon shots, transcontinental railways. Certainly, poetic technologies had something terrible about them; the poetry is likely to be as much of dark satanic mills as of grace or liberation. But the rational, administrative techniques were always in service to some fantastic end.
From this perspective, all those mad Soviet plans—even if never realized—marked the climax of poetic technologies. What we have now is the reverse. It’s not that vision, creativity, and mad fantasies are no longer encouraged, but that most remain free-floating; there’s no longer even the pretense that they could ever take form or flesh. The greatest and most powerful nation that has ever existed has spent the last decades telling its citizens they can no longer contemplate fantastic collective enterprises, even if—as the environmental crisis demands— the fate of the earth depends on it.
What are the political implications of all this? First of all, we need to rethink some of our most basic assumptions about the nature of capitalism. One is that capitalism is identical with the market, and that both therefore are inimical to bureaucracy, which is supposed to be a creature of the state.
The second assumption is that capitalism is in its nature technologically progressive. It would seem that Marx and Engels, in their giddy enthusiasm for the industrial revolutions of their day, were wrong about this. Or, to be more precise: they were right to insist that the mechanization of industrial production would destroy capitalism; they were wrong to predict that market competition would compel factory owners to mechanize anyway. If it didn’t happen, that is because market competition is not, in fact, as essential to the nature of capitalism as they had assumed. If nothing else, the current form of capitalism, where much of the competition seems to take the form of internal marketing within the bureaucratic structures of large semi-monopolistic enterprises, would come as a complete surprise to them.
Defenders of capitalism make three broad historical claims: first, that it has fostered rapid scientific and technological growth; second, that however much it may throw enormous wealth to a small minority, it does so in such a way as to increase overall prosperity; third, that in doing so, it creates a more secure and democratic world for everyone. It is clear that capitalism is not doing any of these things any longer. In fact, many of its defenders are retreating from claiming that it is a good system and instead falling back on the claim that it is the only possible system—or, at least, the only possible system for a complex, technologically sophisticated society such as our own.
But how could anyone argue that current economic arrangements are also the only ones that will ever be viable under any possible future technological society? The argument is absurd. How could anyone know?
Granted, there are people who take that position—on both ends of the political spectrum. As an anthropologist and anarchist, I encounter anticivilizational types who insist not only that current industrial technology leads only to capitalist-style oppression, but that this must necessarily be true of any future technology as well, and therefore that human liberation can be achieved only by returning to the Stone Age. Most of us are not technological determinists.
But claims for the inevitability of capitalism have to be based on a kind of technological determinism. And for that very reason, if the aim of neoliberal capitalism is to create a world in which no one believes any other economic system could work, then it needs to suppress not just any idea of an inevitable redemptive future, but any radically different technological future. Yet there’s a contradiction. Defenders of capitalism cannot mean to convince us that technological change has ended—since that would mean capitalism is not progressive. No, they mean to convince us that technological progress is indeed continuing, that we do live in a world of wonders, but that those wonders take the form of modest improvements (the latest iPhone!), rumors of inventions about to happen (“I hear they are going to have flying cars pretty soon”), complex ways of juggling information and imagery, and still more complex platforms for filling out of forms.
I do not mean to suggest that neoliberal capitalism—or any other system—can be successful in this regard. First, there’s the problem of trying to convince the world you are leading the way in technological progress when you are holding it back. The United States, with its decaying infrastructure, paralysis in the face of global warming, and symbolically devastating abandonment of its manned space program just as China accelerates its own, is doing a particularly bad public relations job. Second, the pace of change can’t be held back forever. Breakthroughs will happen; inconvenient discoveries cannot be permanently suppressed. Other, less bureaucratized parts of the world—or at least, parts of the world with bureaucracies that are not so hostile to creative thinking—will slowly but inevitably attain the resources required to pick up where the United States and its allies have left off. The Internet does provide opportunities for collaboration and dissemination that may help break us through the wall as well. Where will the breakthrough come? We can’t know. Maybe 3D printing will do what the robot factories were supposed to. Or maybe it will be something else. But it will happen.
About one conclusion we can feel especially confident: it will not happen within the framework of contemporary corporate capitalism—or any form of capitalism. To begin setting up domes on Mars, let alone to develop the means to figure out if there are alien civilizations to contact, we’re going to have to figure out a different economic system. Must the new system take the form of some massive new bureaucracy? Why do we assume it must? Only by breaking up existing bureaucratic structures can we begin. And if we’re going to invent robots that will do our laundry and tidy up the kitchen, then we’re going to have to make sure that whatever replaces capitalism is based on a far more egalitarian distribution of wealth and power—one that no longer contains either the super-rich or the desperately poor willing to do their housework. Only then will technology begin to be marshaled toward human needs. And this is the best reason to break free of the dead hand of the hedge fund managers and the CEOs—to free our fantasies from the screens in which such men have imprisoned them, to let our imaginations once again become a material force in human history.
Jan 21, 2018 | peakoilbarrel.com
John x Ignored says: 01/18/2018 at 9:12 pmWill be interesting to see US shale production in response to increasing frac hits, increasing costs, mounting debt wall. These are all legitimate issues which IEA seems to overlook when issuing rosy predictions. Three Stooges thought they could repair a hole in a pair of pants by cutting it out .same logic as IEA.Guym x Ignored says: 01/19/2018 at 5:20 pmYeah, it's those items and more. The biggest they overlook is declines from production. The past two years, they have concentrated in sweet spots, to keep their chins above water. In doing so, they have miraculously brought production back up to 2015 highs, and not much more, although the EIA is reporting imaginary oil. Underneath all that production, wells are declining at a rapid rate. The biggest rates are what they drilled last year. Those wells will produce less than half of what they produced last year. So, how many wells would need to be completed to increase production over a million barrels in 2018? More than current capacity, that's for sure.Dennis Coyne x Ignored says: 01/19/2018 at 6:40 pmHi Guym,Guym x Ignored says: 01/19/2018 at 7:48 pm
Although tight oil output has increased at an annual rate of close to 1000 kb/d over the past 12 months (Dec 2016 to Nov 2017), I doubt that rate of increase will continue, probably about half that unless oil prices rise more than I expect (and I expect we might get to $85/b by Jan 2019).I'd say it's a crap shoot as to whether it goes up, or down with about the same number of completions in 2018 as 2017. Ok, let's say we have more completions, I still can't say it will go up 500k barrels. While people place statistics on depletion rates, I haven't seen a well, yet, that can comprehend statistics. As a matter of fact, they defy statistics.
There are 180k producing wells in Texas. There were about 5400 completions in 2017. That's about 3% of total producing wells.
Jan 19, 2018 | peakoilbarrel.com
x says: 01/19/2018 at 9:55 amRon is absolutely right about the creaming issue. Major oil producing countries, Saudi Arabia chief among them, are using technology to stave off production declines. These YouTube videos are a perfect example of the extreme lengths being employed to continue production:Michael says: 01/19/2018 at 10:12 am
These videos underscore how uniquely valuable oil is as an energy source and how no other substitute will ever come close to matching its utility.
When the decline kicks in, these technologies will ensure that the cliff will be steeper. While I believe we are living at the absolute peak of world production and that decline will kick in soon, I'm not so concerned about specific predictions. It will happen soon enough and when it does the impact will be severe.
I think of this problem in personal terms -- my son was born in 2000. He will live to see a world of diminishing oil production (as well as sea level rise, resource conflicts, and many other problems). Does anyone doubt that by the time he is 30 (2030) world oil production will be in decline? Does anyone doubt by the time he is 50 (2050) the world will be a drastically different place than it is today? I have lived through the peak period. I cannot envision what comes after. I can only hope that my son finds a way through it.
"Does anyone doubt that by the time he is 30 (2030) world oil production will be in decline? Does anyone doubt by the time he is 50 (2050) the world will be a drastically different place than it is today?"
Perhaps. But such sentiments were very common ten, fifteen years ago, and they were directed toward today, not 2030. So, yes, I do "doubt" it, but that's not saying much, as it's a subject I find interesting but useless to speculate about.
I'm checking in here for the first time in about 9 years. I'm an old-time peaker, who jumped ship in 2009 when it became clear the dire predictions of Campbell, Deffeyes, et al., were failing to materialize.
This doesn't mean I think oil is infinite or anything. I do think our capacity to predict doom is much more circumscribed than our abilities to avoid it.
(I like the new editing feature on this site.)
Jan 16, 2018 | peakoilbarrel.com
SouthLaGeox Ignored says: 01/12/2018 at 7:11 pmInteresting BOEM report attached – their prediction of GOM oil and gas production from 2018-2027.George Kaplan x Ignored says: 01/13/2018 at 3:14 am
They predict oil production will increase from 1.65-1.67 mmbopd in the 2017-2019 window to 1.74-1.77 mmbopd in the 2023-2027 time frame. They include future production from current reserves, contingent resources and undiscovered resources. Contingent resources are mainly field expansion projects, new fault blocks, new reservoirs, and resources from discoveries that have not been put on production.
They have initial production from undiscovered resources occurring already in 2019 – suggesting that a few discoveries will be made and be on line by the end of 2019. Seems rather ambitious even for subsea tiebacks.
Given the lack of GOM exploration success in the last few years, my biggest challenge to these predictions are their estimates of production coming from new discoveries. They show about 1 BBO of production comes from currently undiscovered resources in this 10 year window.
https://www.boem.gov/BOEM-2017-082/SLG – hope you are well and had a good holidays. Here is my updated effort at the same thing. I've added some new discoveries, but not as big or developed as fast BOEM show. I've included all qualified fields as named entries except a few discovered in 2016 and 2017, and for a lot I've had to make guesses for reserves based on the expected development size (numbers in brackets show nameplate capacity). I might be able to improve things a bit when BOEM reserve numbers for end of 2016 come out, but it's still not going to look much like their estimates. It's noticeable that there's a lot of activity in short term, small tie backs now – but these only add about 5 to 10 kbpd and immediately start to decline. So like you I don't know where they are getting such high contingent resource production additions from unless it is all on existing developments – I guess if a lot of fields get to grow like Mars-Ursa has and Atlantis might this year then there'd be enough, but that seems unlikely to me, especially at the rate they show it.SouthLaGeo x Ignored says: 01/13/2018 at 8:47 am
Thanks George, and same to you for the new year.George Kaplan x Ignored says: 01/13/2018 at 11:53 am
I've made a stab at comparing numerous production profiles for the 2018-2027 window – your's from above, my midcase and downside estimates from a little over a year ago, and BOEM's estimates – both their total estimate, and their total estimate minus any new resources/discoveries.
I plan to expand on this in a future post – including revised EUR estimate ranges.
They are all models with something worthwhile to add to the discussion, which is not what I would say about the EIA projections. They just add have some kind of growth rate, with no basis in actual numbers, and make it look fancy by adding a hurricane effect – and yet this is the number usually quoted in the MSM. I think their predictions a couple of years ago had an exit rate for this year of 2.2 mmbpd – miles off, and when they do try to provide bottom up justification they look ridiculously ill informed.Fernando Leanme x Ignored says: 01/15/2018 at 4:49 am
Maybe they have a higher oil price forecast? Or they don't bother to see if what gets put on line is worth developing? I know this is hard, but try preparing a forecast with prices increasing 3% per year above inflation for 30 years, and you will get a higher forecast.Dennis Coyne x Ignored says: 01/15/2018 at 10:28 amhttps://www.eia.gov/outlooks/aeo/data/browser/#/?id=12-AEO2017®ion=0-0&cases=ref2017&start=2015&end=2030&f=A&linechart=ref2017-d120816a.3-12-AEO2017&sourcekey=0 \
The BOEM probably uses the EIA AEO 2017 reference price forecast.
Jan 12, 2018 | dissidentvoice.org
by Brett Redmayne-Titley / January 11th, 2018So. The US economy is just fine. The post-recession 2010 Dodd-Frank legislation has cured all. Banks have lots of cash. Congress is your friend and that certain-to-pass Tax Cut and Jobs bill will finally allow you, your family and America to MAGA.
... ... ...
Oh, those evil banks! The shadowy corporatist denizens of New York, London, and Brussels, all guilty of a staggering set of every-expanding frauds couched in the beneficent language of greedy short-term materialistic gain. Financial "crimes of the decade," like the Savings and Loan meltdown, the Enron Collapse, and the Great Recession are nowadays reported almost monthly. With metered US justice amounting only to a monetary fine for the offending criminal bank – usually a small fraction of the money it previously stole, hypothecated, leveraged or manipulated – and with criminal prosecution no longer a possibility, these criminals continue to shovel trillions – not billions – into off-shore, non-tax paying accounts of the already uber-rich. There is never enough.
Just in time for Christmas, Americans received the "Tax Cut and Jobs Bill 2017" that, of course, contains not one word about jobs, but sounds so good to the ignorant who are still transfixed on the false mantra of MAGA.
LIBOR, FOREX, COMEX, which used high-speed program securities trading combined with insider manipulation, were the first serious examples of recent bank frauds. Since the Great Recession magically became the Great Recovery, Wachovia and HSBC banks plead guilty to laundering money for Mexican drug cartels, dictators, and terrorists. Wells Fargo and Bank of America were also guilty of defrauding 10's of thousands of homeowners of their properties during the "robo-signing" scandal; that was a scandal until Wells and BA paid the mortdita and all returned to business as usual. Example: In July 2017 it was revealed that more than 800,000 customers who had taken out car loans with Wells Fargo were charged for auto insurance they did not need. Barely a month later, Wells was forced to disclose that the number of bogus accounts that had been created was actually 3.5 million, a nearly 70 percent increase over the bank's initial estimate. Why not? When the predictable result will be a small percentage fine and keep the rest. Now that's MAGA!
If the individual retail – Mom and Pop – investor actually had a choice of where to put their cash money, then no one with better than a fifth-grade education would put a penny into the major stock markets. However, the goal of the many banking manipulations have had one goal: eliminate financial investment choices to one – stocks.
One choice, Gold and silver, the previous historical champion alternative in preserving one's wealth, was deliberately eliminated from short-term, private investment. The banks, issued and sold massive amounts of worthless certificate gold and derivative gold (not bullion), and the same in silver, at a current ratio of 272 paper instruments to one measly ounce of real physical gold. All this has been leveraged against real precious metals, and next used to influence the price of gold-down- by selling huge tranches of these ostensibly worthless gold contracts (1 contract=100 paper ounces) within seconds when the spot price of gold begins to rise. The banks have done this so often that gold has not risen to levels it would likely reach without this manipulation. This has driven massive liquidity that would have gone to precious metals towards stocks. This is likely evidenced by the advent of the meteoric rise in the price of BitCoin, one that-like gold- escapes the bank's control and a super-inflated stock market.
Similarly, thanks to the economic trickery that has been three rounds of Quantitative Easing, the other two conventional options; the bond market and personal bank savings accounts, have been manipulated to also produce a very low rate of return, driving these cash funds to stocks. It is this entire package of criminality – providing no other place for liquidity to go – that has performed as the plot to push a surging world stock market to obscene levels that have no basis in factually-based accounting or economic methods or history.
Banks Are Ready for the Next Crash – You're Not!
The banks know the next crash is coming. Like 2007, they have set in motion the next great(est) recession. Predator banks know that most people, thanks to the aforementioned financial control, media omission and an inferior education system, are "stupid," especially regarding the nuances of financial fraud. As the majority of Americans and Europeans live in the illusion that their financial institutions will protect their savings, they miss their bank's greedy preparations for the next stock market crash slithering through the halls of their Parliament or Congress. This already completed legislation states in plain English, and the language of endemic corruption, that your bank intends to steal your money directly from your savings account. And your government will let them do this to you.
30,000 pages make up the Dodd-Frank post-recession legislation, authored by the banks in the aftermath of the Great Recession. The Dodd-Frank legislation was touted as eliminating the massive bail-outs the US gave virtually every ill-defined too big to fail worldwide bank and US corporation in 2008-9. In reality, Dodd-Frank was as much a fraud against Americans as LIBOR or COMEX manipulation, et al .
Title II of the media-acclaimed 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act provides the Federal Deposit Insurance Corporation (FDIC) with new powers and methods to again guarantee – first and foremost – the massively leveraged derivatives trade once this massive leverage plummets as it did with AIG in 2007-09. However, that collapse was singular. The next will include all banking sectors.
The bank's paid-for politicians made sure a post-crash congress did not regulate derivatives via Dodd-Frank, and thereby encouraged a further increase in this financial casino betting, despite it being the root cause of the original problem. Thanks to Dodd-Frank and its predecessor, the 2005 Bankruptcy Act, Congress made sure these new fraudulent bets on stock market manipulation would surely be paid. But, not to worry; there would be no more "Bail Outs." Next time, these banks would use their depositors' savings, including yours. Meet: the "Bail-In."
All Americans recall the massive "Bail-Outs" of 2007-9 and how their corporately controlled Federal Reserve Bank and an equally controlled US Congress threw several trillions of US taxpayer dollars at US banks, dozens of foreign banks, and any corporation with enough political pull to be defined as "Too Big To Fail" (TBTF). In the aftermath a year later, the banks understood that Americans and European citizens had lost enthusiasm for any future government Bail-Out, most preferring instead that any institution suffering self-inflicted financial duress should enjoy the fruits of their crimes next time, via the reality of formal bankruptcy proceedings.
The will or financial safety of the public is, of course, no concern to criminal corporations, and so easily circumvented via congress and the president. So, the banksters have redefined their criminality using two newly defined methods, both rebranded to be far more palatable to the public.
Currently, "Too Big to Fail," (TBTF) has a very fraudulent and elitist connotation just like, "Bail-Out." To millions across the world who have lost their homes, pension funds, retirement plans, and dreams, this decade-old moniker for financial oppression and fraud has now been conveniently re-branded. The bailed-out TBTF banks now have a far more magnificent definition: TBTFs are now, "Globally Active, Systemically Important, Financial Institutions" (G-SIFI).
This sounds so much better.
But, "Bail-Out"? No No. Would you not prefer a "Bail-In"? Not if you know the details. "Bail-Outs," may have also lost their flavour but in the new world of the G-SIFI, the next one is actually just a "Bail-In," away.
Yes, Bail-Ins, the new "systemically" correct term for publicly guaranteed bank fraud are already named as such in new national policies and laws, appearing in multiple countries. These finance laws, such as Dodd-Frank and its pending UK and European Union version, make upcoming Bail-Ins legal. These Bail-Ins allow failing G-SIFI banks to legally convert the funds of "unsecured creditors" (that's you) into bank capital (that's them). This includes "secured" creditors, like state and local government funds.
With this in mind, I entered the main branch of Wells Fargo. The two checks in hand. On the way in I was greeted warmly, one after the other, by three more fresh-faced and eager proteges, all smartly uniformed to match the Wells décor, and who proffered, "Good morning, Sir!," again, and again and again. Certainly, these little fish were not in possession of authority enough to cash my mammoth checks, so I asked for bigger game, the Branch Manager.
Thus, I explained my plight to a very lovely lass who predicted she "would be glad to help me."
"Cheryl," patiently explained that I had come to the right place and she would be glad to cash both checks. Regarding my previous polite banking experience, she admitted that it was indeed bank policy to have limits on the availability of cash for withdrawals and that different branches had different limits. This was the main branch so my request here was meritorious. Further, she admitted that whatever daily cash coming into the branches in the form of deposits was not available for withdrawal, but was sent from the main branch for daily accounting at a central point common to all area Wells bank branches. Only a prescribed amount of cash was provided with each bank for daily customer cash withdrawals.
"A couple of times your current request," was her cautious response to my question about her branch's limits on check cashing. Not to be put-off, I asked about a hypothetical US$25,000 check. She admitted this would be beyond her branches authority. "But," she smiled, "Today, you've come to the right place."
The financial law firm Davis Polk estimates the final length of Dodd-Frank, the single longest bill ever passed by the US government, is over 30,000 pages. Before passage, the six largest banks in the US spent $29.4 million lobbying Congress in 2010 and flooded Capitol Hill with about 3,000 lobbyists prior to Obama predictably signing its final unread version. No US congressman or senator had read it. But, the bank's congressional minions were told to vote for it. And dutifully they did.
The major cause of the upcoming financial meltdown, as with the pre-2008 conditions, is globally systemic gambling against national economies, called derivatives. Derivatives are sold as a kind of betting insurance for managing fraudulent banking profits and risk. So, why fix systemic banking fraud when the final result allowed these same banks to make even more money in the aftermath of the national and personal financial destruction they originated in the first recession?
Instead, thanks to Dodd-Frank, derivatives suddenly have "super-priority" status in any bankruptcy. The Bank for International Settlements quoted global OTC derivatives at $632 trillion as of December 2012. Naked Capitalism states that $230 trillion in worthless derivatives are on the books of US banks alone. Applied to Dodd-Frank this means that all these bad bank bets on derivatives will be paid-off first before you may have your savings cash. If there's actually any cash left once you get to the teller's counter.
Normally in a capital liquidation or bankruptcy proceeding, secured creditors such as a bank's personal depositors are paid off first because these are hard assets, not investments, and thus normally have a mandated priority. Under these new "Bail-In" Dodd-Frank mandates, your government has re-prioritized your bank's exposure and your cash deposit. Derivatives and other similar banking high-risk ventures are now more highly protected than bank depositor's savings. In the 2013 example of Cyprus, Germany and the ECB also made depositors inferior to other bank holdings leaving depositors with, after many months, a small fraction of their deposits.
And then came Greece.
Selling the lie while using the language of Dodd-Frank, we are told by media whores that banks will not be given taxpayer bailouts next time. True. The preamble to the Dodd-Frank Act claims "to protect the American taxpayer by ending bailouts." But how, then, to Bail-In the G-SIFIs without another taxpayer Bail-Out? No problem.
Enter the FDIC and another new banking term, "cross-border bank resolution." As the sole US agency required to pay back depositors who lose savings up to $250,000, FDIC is armed with a paltry US$25 billion war chest to pay depositors. Under Dodd-Frank, the FDIC will be the mechanism to replace deposits lost or squandered by bank fraud. The public, however, has an estimated total US cash deposits of US$7.36 trillion so, once the banks steal your savings, FDIC will be just a little bit short of funds. How to fix this mathematical shortfall? With, of course, more of your money via emergency taxes or a massive new round of Quantitative Easing (QE). Either way, by the time this happens your money is long gone. And it gets worse.
Say, "Goodbye" to your Savings- Two Greedy Methods
It's [FDIC] already indicated that they will confiscate [savings] funds .
-- US congressman Ron Paul
On December 10, 2012, a joint strategy paper was drafted by the Bank of England (BOE) in conjunction with the Federal Deposit Insurance Corporation (FDIC) titled, "Resolving Globally Active, Systemically Important, Financial Institutions." Here the plot to steal depositor savings is clearly laid out.
The report's "Executive Summary" states:
the authorities in the United States (US) and the United Kingdom (UK) have been working together to develop resolution strategies These strategies have been designed to enable [financial institutions] to be resolved without threatening financial stability and without putting public funds at risk.
Sounds good until you read the fine print; i.e., whose risk are they actually protecting?
While claiming to protect taxpayers, Title II of Dodd-Frank gives the FDIC an enforcement arm, the Orderly Liquidation Authority (OLA) which is similar to its British counterpart the Prudent Regulation Authority (PRA). Both now have the authority to punish the personal depositors of failing banking institutions by arbitrarily making their savings deposits subordinate – actually tertiary – to bank claims for the replacement value of their derivatives. Before Dodd-Frank savings deposits were legally senior and primary to these same claims in a routine bankruptcy.
With the US banks holding only $7 trillion in personal cash savings deposits compared to $230 trillion is US derivative obligations, FDIC's $25 billion will not be enough. The creators of Dodd-Frank knew this before it was signed. As John Butler points out in an April 4, 2012, article in Financial Sense :
Do you see the sleight-of-hand at work here? Under the guise of protecting taxpayers, depositors are to be arbitrary, subordinated when in fact they are legally senior to those claims Remember, its stated purpose [Dodd-Frank] is to solve the problem namely the existence of insolvent TBTF institutions that were "highly leveraged with numerous and dispersed financial operations, extensive off-balance-sheet activities, and opaque financial statements.
Oh, but bank depositors can rest easy in the knowledge that replacing their savings will not come out of their pockets via another bank Bail-Out. Thanks to Dodd-Frank, the first line of defence will allow Congress to instead replace personal savings with a government paid for $7 trillion bail-in to FDIC to "replace" these savings.
But, that's the good choice.
Worse, Dodd-Frank gives new powers to FDIC and its OLA that allow an even more powerful and draconian resolution: any deposited funds in a bank, from $1 to $250,000 (the FDIC limit), and everything above, can instead be converted to bank stock! FDIC has provisions so this can be done, via OLA, quite literally overnight.
An FDIC report released in 2012 ago reads:
An efficient path for returning the sound operations of the G-SIFI to the private sector would be provided by exchanging or converting a sufficient amount of the unsecured debt from the original creditors of the failed company [meaning the depositor's cash] into equity [or stock].
Additionally, per April 24, 2012 IMF report, conversion of bank debt to stock is an essential element of Bail-Ins included in Dodd-Frank.
The contribution of new capital will come from debt conversion and/or issuance of new equity, with an elimination or significant dilution of the pre-bail in shareholders. Some measures might be necessary to reduce the risk of a 'death spiral' in share prices.
For affected depositors to retrieve the value of what was formerly the depositor's account balance, the stock must next be sold. When Lehman Brothers failed, unsecured creditors (depositors are now unsecured creditors) got eight cents on the dollar.
This type of conversion of deposits into equity already had another test-run during the bankruptcy reorganization of Bankia and four other Spanish banks in 2013. The conditions of a July 2012 Memorandum of Understanding resulted in over 1 million small depositors becoming stockholders in Bankia when they were sold without their permission -- "preferences" (preferred stock) in exchange for their missing deposits. Following the conversion, the preferences were converted into common stock originally valued at EU 2.0 per share, then further devalued to EU 0.1 after the March restructuring of Bankia.
Canada has also stated they are planning a similar "Bail-In" program. The Canadian government released a document titled the Economic Action Plan 2013 which says, "the Government proposes to implement a "Bail-In" regime for systemically important banks."
However, don't be getting cute by hiding your cash, precious metals, or passport in a bank safe deposit box. There are no longer safe either. Dodd-Frank took care of that, too.
Under Dodd-Frank the FDIC, using the auspices of Dept. of Homeland Security (DHS) can legally, without a warrant, enter the bank vault, have the manager secretly open any and/or all safe deposit boxes and inventory, or seize the contents. Further, if the manager is honest enough to inform the depositor of the illegal incursion he is subject to criminal charges and termination from bank employ. Independent reports reveal that all of America's safe deposit boxes have already been invaded and inventoried for future confiscation.
This already happened in Greece. Depositors who removed their jewellery or precious metals were met at the bank's door by security, a metal detector and confiscation.
The power of the now remaining G-SIFI banks and FDIC was further evident when, cash finally in hand, I headed to my bank, JP Morgan Chase, right next door to Wells Fargo. The manager confirmed that the cash withdrawal policy at Chase was in keeping with that at Wells; very little cash available on demand. I posed a slight untruth and inquired as to what I should do about my upcoming need for $50,000 in hard cash. No, her bank would not do that on demand, but arrangements could be made to have the cash transferred to her bank. That would only take "about two days." Of course, I would need to fill out a few forms.
What a Difference a Congress Makes!
With the American and UK public again on the hook by law for the anticipated loss of the banks a distressed depositor might think the plot to defraud them now complete. Au Contraire .
In its rush to transfer further wealth upwards to off-shore bank accounts, US president Trump and his recently re-aligned republican bootlickers have left no stone unturned. First, Trump issued a memorandum that sets in motion his plan to scale back the provisions of Dodd-Frank and repeal the Fiduciary Rule.
It should be noted that the only voice of economic reason at the White House, Former Fed Chairman, Paul Volker, divorced himself from this growing scandal of basic mathematics very publicly. As head of Obama's recession inspired, President's Economic Recovery Advisory Board, Volker ran into the headwinds of fiscal insanity for too long, resigning in January of 2011 in disgust. His departure thus coincided with the renewal of the litany of criminal financial manipulation already discussed here. And now
The House approved legislation on February 2, 2017, to erase a number of core financial regulations put in place by the 2010 Dodd-Frank Act, as Republicans moved a step closer to delivering on their promises to eliminate rules that they claim have strangled small businesses and stagnated the economy. Said Trump:
I have so many people, friends of mine, with nice businesses, they can't borrow money, because the banks just won't let them borrow because of the rules and regulations and Dodd-Frank.
Never mind, of course, that these poor banks are holding derivative exposure thirty-five times the total cash deposits of US savers nor that their ill-gotten riches – such as the UBS, Wells Fargo, Bank of America, RBS multi-billion dollar frauds – were taken off-calendar in Federal court for approximately 15% of the total crime. The banks kept the rest.
And they want more?!
"We expect to be cutting a lot out of Dodd-Frank," Trump said further defining the mantra of MAGA. This will likely see the deterioration of the newly created Financial Stability Oversight Council (FSOC) and the Consumer Financial Protection Bureau (CFPB) since these agencies curb further excessive risk-taking and the existence of too-big-to-fail institutions on Wall Street.
Well, depositors, your extreme caution is required. The wording of these new, bank-inspired sets of legislation is silently waiting to be used by many nations to prioritize banks before their citizen's. When the time comes, the race to the bank will be a short-lived event indeed.
With this in mind, I stepped into the bright sunshine outside the walls of JP Morgan/Chase bank, all but $100.00 of my day's take stuffed deep- and securely- in my pocket, its final outcome no one's business but my own.
However, for almost everyone else? Well when YOUR bank fails, don't walk, run! YOU do not want to be second in line.
Brett Redmayne-Titley is an Independent Journalist, Photographer/ World Citizen. He is a former columnist: PRESS TV/IRAN; writer and contributor to: Earth First! Journal; Zero Hedge; Veterans Today; Activist Post; Off-Guardian; Western Journalism; Intellihub; UK Progressive; Fars News Agency; Russia Insider; Mint Press News; State of the Nation; News of Globe; Blacklisted News; Before It's News; Common Dreams; Shift Frequency; etc
Read other articles by Brett .
This article was posted on Thursday, January 11th, 2018 at 8:01am and is filed under Banks , Barack Obama , Cyprus , Deposits/Depositors , Donald Trump , EU , Greece , Money supply , Wall Street .
Dec 29, 2017 | peakoilbarrel.com
Energy News says: 12/29/2017 at 11:54 amEIA 914 Survey, October crude oil production 9,637 kb/day, +167 kb/day m/m. September revised down -11 kb/d to 9,470 kb/daydclonghorn says: 12/29/2017 at 12:00 pm
Texas October 3,767 kb/day, September 3,561 kb/day revised down -13 kb/d
Gulf of Mexico October (Hurricane Nate) 1,449 kb/day, September 1,649 kb/day, revised -1 kb/d
https://www.eia.gov/petroleum/production/#oil-tabEIA estimated Texas production at 3767000 bpd vs Dr Dean's above estimate of 3305000 bpd a difference of 462000 bpd. Wow that is a big difference.Dean says: 12/29/2017 at 12:13 pmYes, it is unreal: either at the Texas RRC they had really HUGE problems in the past months collecting data, or the EIA used only model estimates without any form of revision.Dean says: 12/29/2017 at 1:55 pm
The correcting factors of the Texas RRC have not changed much and they showed they usual variability, so that I cannot explain why there is such a big divergence between corrected RRC data and EIA. They only problem that I can think of (on the part of the RRC) is that the hurricane completely disrupted their work: does anyone know whether the offices and data servers of the Texas RRC were damaged during the hurricane? Thanks for the information.I had a very interesting discussion on Twitter: operators in Texas confirmed me that the RRC offices were not affected by the hurricane and data reporting proceeded normally. At this point the only (legal) reason left to explain the divergence is that the EIA has started including NGL into their numbers:
Dec 21, 2017 | peakoilbarrel.com
George Kaplan, says: 12/21/2017 at 6:55 amhttps://www.rystadenergy.com/NewsEvents/PressReleases/all-time-low-discovered-resources-2017Dennis Coyne, says: 12/21/2017 at 8:14 am
ALL-TIME LOW FOR DISCOVERED RESOURCES IN 2017: AROUND 7 BILLION BARRELS OF OIL EQUIVALENT WAS DISCOVERED
Rystad Energy concluded this week that 2017 was yet another record low year for discovered conventional volumes globally. Less than seven billion barrels of oil equivalent has been discovered YTD.
"We haven't seen anything like this since the 1940s," says Sonia Mladá Passos, Senior Analyst at Rystad Energy. "The discovered volumes averaged at ~550 million barrels of oil equivalent per month. The most worrisome is the fact that the reserve replacement ratio* in the current year reached only 11% (for oil and gas combined) – compared to over 50% in 2012."
According to Rystad's analysis, 2006 was the last year when reserve replacement ratio reached 100%; largely thanks to the giant onshore gas field Galkynysh in Turkmenistan.
Not only did the total volume of discovered resources decrease – so did the resources per discovered field.
An average offshore discovery in 2017 held ~100 million barrels of oil equivalent, compared to 150 million boe in 2012. "Low resources per discovered field can influence its commerciality. Under our current base case price scenario, we estimate that over 1 billion boe discovered during 2017 might never be developed", says Passos.
I think every drilled high impact wildcat well identified by Rystad at the end of 2016 has now turned out dry, with a couple postponed for lack of finance.
Thanks George.SouthLaGeo, says: 12/21/2017 at 8:38 am
It would be great if they gave the gas/liquids split all rolled up. Does it look to your eyes like a roughly 50/50 gas/liquids split in 2017, as it does to mine? (Talking about Rystad chart.)2017 looks likes another very disappointing year for conventional discoveries. I wonder how unconventional resource adds have been over the last few years. I suspect that is how many of our big oil friends are achieving their annual resource add goals.George Kaplan, says: 12/21/2017 at 8:50 amThe EIA reserves are going to be interesting: even before the price crash the extension numbers, which is where all the LTO growth came from rather than discoveries, were starting to fall and reserve changes looked like they might be going negative, which I'd guess is due to decreases in URR estimates; e.g. below for Bakken.George Kaplan, says: 12/21/2017 at 8:50 am
And EF.George Kaplan, says: 12/21/2017 at 8:54 am
About 50/50, maybe slightly more gas because of the big BP find, which I thought was 2.5Gboe but they have as 2.Dennis Coyne, says: 12/21/2017 at 10:54 amThanks George,George Kaplan, says: 12/22/2017 at 3:22 am
Yes reserves decreased in 2015, probably due (in part) to a fall in oil prices from $59/b in Dec 2014 to $37/b in Dec 2015, the price in Dec 2016 was $52/b, using spot prices from the EIA, so perhaps reserves increased a bit in 2016, it will be interesting to see the 2016 estimate.I think they have to use averages for determining economic recovery not spot prices – I can't remember now if it's six month or annual (or other – I think maybe six months to March and September when they reevaluate) – 2016 would be bout the same or a bit lower depending on the time frame.Dennis Coyne, says: 12/22/2017 at 8:59 amHi George,George Kaplan, says: 12/21/2017 at 6:56 am
I am not sure exactly how it works.
I found this:
Initially, SEC rules required a single-day, fiscal-year-end spot price to determine a company's oil and gas reserves and economic production capability. The SEC Final Rule changes this requirement to a 12-month average of the first-of-the-month prices.
Using this I get
So 2016 reserves should decrease further if prices affect reserves.EIA reserve estimates were due at the end of November, but still haven't appeared, maybe they don't look so good?Dennis Coyne, says: 12/21/2017 at 8:15 amHi George,George Kaplan, says: 12/21/2017 at 6:59 am
Last year it was mid Dec, maybe at the end of the year. Not sure why it takes so long as these are 2016 reserves as of Dec 31, 2016.https://www.rystadenergy.com/NewsEvents/Newsletters/UsArchive/shale-newsletter-december-2017Fernando Leanme, says: 12/21/2017 at 10:14 am
EMPIRICAL EVIDENCE FOR COLLAPSING PRODUCTION RATES IN EAGLE FORD
We have recently observed strong empiric evidence for the theory that a positive tendency in initial production rates for shale wells does not always lead to similar improvements in ultimate recovery.
Cabot announced they are selling up in the EF and concentrating on gas (15,000 bpd), maybe more likr them to come.I have had to work hard over the years to explain to management that oil completions have to be optimized, and that seeking the highest peak rate wasn't likely to be the best answer. This of course happens because high level oil company managers are good at sales and PowerPoint, but have opportunities for improvement in key areas.Dennis Coyne, says: 12/22/2017 at 2:38 pmHi George,Ron Patterson, says: 12/25/2017 at 7:00 am
Great article, thanks.
This confirms the suspicion of many that the high peak rates on newer wells (often with longer laterals and more frack stages and proppant, in short more expensive wells) don't boost cumulative output much. In the case of the Eagle Ford, wells in Karnes county (the core of the play) only increased output by about 40 kb over the older wells with less expensive completion methods.
Looking at Bakken data, it is clear that this is the case as well, with about a 10%to 15 % increase in cumulative output over the first 24 months and then similar output to older wells thereafter.
Many observers assume that a higher peak production from a well leads to higher cumulative output of the same proportion. That is if the peak goes from 400 kbo/d for a well projected to have an EUR of 200 kbo to a peak of 800 kbo/d for a newer well, it is often assumed that the new well will have cumulative output of 400 kbo. This is incorrect, in fact the newer well is more likely to have an output of 240 kbo an increase of only 20% rather than the 100% often assumed.Another article citing that same Rystad report:George Kaplan, says: 12/21/2017 at 7:16 am
Shale Growth Hides Underlying Problems
However, Rystad Energy argues that there is some evidence that suggests those higher initial production (IP) rates do not necessarily translate into larger gains in the total volume of oil and gas that is ultimately recovered. A sample of wells in the Eagle Ford showed steadily higher IPs in recent years, but they also exhibited steeper and steeper decline rates.It seems a bit unlikely that Canada is going to continue increasing production as shown above over the next 6 to 8 years (after 2018 ramp ups are complete). There are no major greenfiled developments currently under construction and these take at least 5 years from FEED to production, there are continuing redundancies in the oil patch as some of the large, recent developments move from development to operations, and there is no spare pipeline (or rail) capacity such that the oil is at about $10 to $15 discount which is likely to increase as Fort Hill's ramps up through next year (and new pipeline permitting and construction is likely to take even longer than the actual oil sands project).FreddyW, says: 12/23/2017 at 5:31 am
With Iran and Iraq – they may have oil in the ground, but they need huge,new surface production facilites to process it and supply water/gas for injection – those too take about 5 years to construct, assuming they can find some outside funding.Dennis,Dennis Coyne, says: 12/26/2017 at 2:20 pm
"OPEC has already demonstrated it can produce more, before they cut back in Jan 2017"
Yes OPEC may have some capacity to increase production. But many OPEC countries are in decline and Saudi Arabia does not have any Khurais or Manifa like fields left to develop. If I ruled Saudi Arabia then I wouldn´t produce more than 10 mb/d even if there were shortages. Better to stay on the platau a little bit longer. Iraq is the country with the biggest possibilities for increases. But they will do so when they are able to, not because of shortages. The other countries you mentioned have mainly expensive oil like tar sands in Canada, arctic in Russia and ultra deepwater in Brazil. Sure we can see increases there but it takes a long time to develop.
"I don't think oil producers were struggling at $100/b, they were overproducing so prices dropped."
US LTO increased production. But conventional prioduction not so much (outside OPEC). Remember this?
(google for "ExxonMobil targets $5.5bn spending cuts")
"There's also rail, ridesharing, telecommuting, public transportation etc. High oil prices will lead to changes."
Yes I agree on that. Changes will have to happen.Hi Tech guy,Dennis Coyne, says: 12/27/2017 at 5:12 pm
World real economic growth has been about 3.5% per year since 2012.
For the World Debt to GDP has increased from 226% in 2012 to 243% in 2Q2017, for advanced economies over the same period debt to GDP went from 272% to 275% and for emerging economies over the same period 145% to 190%.
The story is better access to credit for emerging economies from 2012 to 2017.
A major recession is not very likely.
The IMF forecasts real GDP growth of 3.75% for the World from 2018 to 2022.Hi Techguy,George Kaplan, says: 12/21/2017 at 7:25 am
Oil prices at over $100/b were no problem for the World economy from 2011-2014, real GDP grew at 3.5% per year. No reason $100/b oil would cause a recession.
The $160/b (2017$) will only be about 3.3% of World GDP in 2026, assuming medium UN population growth scenario and real per capita GDP growth at 1.5%/year and 84 Mb/d C+C output in 2026.
That's a lower level than 2014.https://www.eia.gov/petroleum/weekly/Jeff, says: 12/21/2017 at 9:05 am
There was another big drop in US crude stocks by the twip – down 6.5 mmbbls with gasoline and diesel up 2 mmbbls combined. The crude level is fast approaching the middle of the 5 year average – how far does it have to undershoot before panic sets in?US SPR drawdown this year is about 21.5 million barrels, this is usually not included when calculating the 5y average. Planned annual sales are similar for the next couple of years ( https://www.eia.gov/todayinenergy/detail.php?id=29692 note that the figure shows fiscal year).Heinrich Leopold, says: 12/21/2017 at 4:49 pm
The story being told is that oil markets should be in balance next year or slight surplus if LTO maintains its pace. KSA low production during end of 2017 and the problems in Venezuela should result in continued stock drawdowns or only a small build during the spring (forties supports this too). Next summer driving season can be interesting, assuming the economy remains healthy. 2019 will be _very_ interesting since it will be revealed how much of the OPEC cuts were made voluntary.As inventories are still way above historical averages, it is important to bear in mind that substantial infrastructure in form of tanks and pipelines have been constructed over the last few years. This increased the necessary working inventory to keep the system functioning. So, the critical inventory level might be much higher than in previous years.George Kaplan, says: 12/22/2017 at 3:26 amThey need a minimum amount of empty capacity to allow for blending and movement, not a minimum amount of stored volume to keep it working. The storage is to cover for upsets and to allow people to make money from arbitrage.FreddyW says: 12/22/2017 at 5:39 amYou are wrong on this point. SeeGeorge Kaplan, says: 12/22/2017 at 3:26 am
The lowest value the commercial oil stocks have been since 1982 was 247 mb in 2004:
It was propably close to the point where it was low enough to cause problems at that time. Why? Because from a commercial point of view, it´s just stupid to have more storage than you need. It´s cost money to store it and it´s better to sell it and get the money instead of just having it in storage. Also there is the SPR from where you can get oil if there is supply problems. So really no need to have large amounts of oil in storage.I was speculating about future undershoot, not current conditions.Dennis Coyne, says: 12/22/2017 at 9:34 amHi George,Longtimber, says: 12/21/2017 at 4:17 pm
Yes that was how I interpreted your original comment. At least for US commercial crude stocks for the current week we are currently about 95 million barrels above the 2012 and 2013 average for the same week of the year, so perhaps another few years before any panic if stocks continue to decrease by 50 Mb per year as they did from 2016 to 2017. I chose 2012 and 2013 because oil prices were relatively high in 2012 and 2013 ($88/b and $98/b in Dec 2012 and Dec 2013 for WTI).
On rereading your original comment, I think when it gets near the lower edge of the 5 year average, panics sets in, it may take a few years.http://www.zerohedge.com/news/2017-12-20/another-governor-demands-state-pension-abandon-fiduciary-duties-sell-fossil-fuel-invtexas tea, says: 12/22/2017 at 8:03 am
A factor in Future production if Pension Shale Patch backing is reduced? A sample position breakout in there."You can just say it is an industry in decline and there are better places to put one's money in." yes you can say "the industry is in decline" but then you would be wrong, not usual for you or many on the board. In this case however, the statement is not only wrong but delusional. Both production and demand are at record highs for oil natural gas and natural gas liquids. Of course why let facts get in the way of your political views, to quote a old line; fat, drunk and stupid in no way to go through life, sontwocats, says: 12/22/2017 at 2:03 pm"Both production and demand are at record highs for oil natural gas and natural gas liquids. "Boomer II, says: 12/22/2017 at 6:40 pm
But profits and stock valuations are terrible over the past five to ten years. Drillers, Explorers, Services, I'd be shocked if you could find an index combo that has come even close to matching S&P, Biotech, Semiconductors, NASDAQ. Not positive but E&P et al might not even have beaten transportation over the past decade. If you've been invested in Oil and Gas you are officially a loser.
Now, high yield bonds might be a different story. But in the wake of all the bankruptcies for the past five years was 100% of all bonds paid? They might have been, not sure.Oil companies themselves have changed the way they are investing. So I take that as a sign they, too, think their best times are behind them.Dennis Coyne, says: 12/24/2017 at 8:44 am
In terms of financial management, there are industries that have done better and are likely to do better than gas and oil. It's simply not a growth industry anymore.Hi Boomer II,David Archibald, says: 12/21/2017 at 10:10 pm
I think oil prices have an effect on investment, especially outside the LTO focused companies. For the LTO players they seem to focus on output growth regardless of profits, not a great long term business model.Regarding the gap, a third of the consumption growth over the last decade was from China. If Chinese consumption plateaus, as it very well might, then consumption growth from here will be less and the gap smaller. But putting in an assumption to change an established trend would just add another point of failure. This piece isn't so much a model as a creation story, trying to figure out why past expectations weren't met and where the known unkowns might come from. A big one of these is what the Permian might end up doing. I think that is why industry is paying up to get into the Permian. If you are not in the Permian you don't have a future. And shareholders will pay any amount of money for you to keep your job.Paul Pukite (@WHUT), says: 12/21/2017 at 10:57 pm
The piece was prompted by Ovi's observation that Non-OPEC less the big three has been in decline since 2004 – very encouraging. There are some systems in which a price rise does not result in an increase in production simply because the resource is clapped out. The gold market last decade for example. The gold price rose at an average of about 17% per annum year after year but gold production fell. That is not supposed to happen. Now some mines are digging up rock with just over one part in a million of gold in it and that pays for turning that rock into mud.Hickory, says: 12/22/2017 at 11:30 pm
David Archibald says
https://www.mediamatters.org/blog/2014/04/14/meet-david-archibald-the-fringe-scientist-predi/198886Thanks Paul. Good to know the bias of the author.Watcher, says: 12/22/2017 at 2:11 amThere was a July report for China imports that extrapolated to another 6.6% consumption growth year for them. No evidence of slow down. Ditto India.Watcher, says: 12/23/2017 at 2:24 am
Reminder to folks because it is a tad obscure. India's consumption growth is 8% but it's concentrated in an unusual way. LPG. They run motors on LPG, mostly motorbikes.https://fred.stlouisfed.org/series/M12MTVUSM227NFWA/OFM, says: 12/23/2017 at 8:23 am
Vehicle miles driven. The increase is relentless as is US population growth. In the big smash of 2008/2009 there was a flattening of the increase but not really any sort of collapse. There was in oil price, but there was no need for it since consumption did not decline more than 5%. A quick look at historical consumption not just miles driven shows essentially the same tiniest of down ticks during that timeframe.
So I would say we need a new theory as to why price declines during recession. Doesn't appear to be less driving to work.Consumption of oil would seem to decline a little bit right across the board during a recession, especially a big one. Construction machinery runs less, people travel less, buy fewer new things. It doesn't take very much by way of falling consumption to reduce the price of oil. The price of oil is highly inelastic, in the short term, and it's like milk.Krisvis says: 12/23/2017 at 10:04 am
The price of milk has to fall a long way before you can find uses for more than the usual amount.
People buy as much milk as they want for their kids, and maybe a little to cook with. NO MORE, even if the price goes down a lot. They don't have any use for it. So .. if it's coming to market, it has to sell cheaper in order for people to FIND uses for it. You can feed milk to the cat, and even to the pigs, if it's cheap enough. Farmers have been feeding excess milk to pigs just about forever, lol. I did so myself when we had more than we could use otherwise when I was a kid.
So . if the price of gasoline falls, maybe you take the ski boat to the lake one extra weekend , which can easily result in burning a couple of hundred gallons, round trip, as opposed to spending the weekend golfing at a cheap nearby course.
Or you drive the old car that's a gas hog more, because it saves putting miles on a newer car. When the price of gasoline bottomed out, I drove my old four by four truck a lot more than I would have otherwise, because I knew I would be retiring it before long, and wanted to get as many miles out of it as I could, saving wear and tear on the car .. which I'm planning on keeping indefinitely.
It broke down yesterday, and while it's not quite dead, I 'm thinking it's time to euthanize it, lol.
I'm also running my big yellow machines a lot more than usual, because when diesel is down close to two bucks, as opposed to four bucks or so, this saves me a hundred bucks a day, or more, if I stay with it, and I've got some pretty big long term projects such as a new lake, which I work on at odd times, whenever circumstances permit.
IF I were hiring out, which I don't , I would be able to offer a neighbor a hundred bucks or more off for a days work, with diesel at two, as opposed to four bucks. That would result in neighbors with cash, and thrifty Scots habits, spending some of their savings, doing long planned work sooner, or maybe going for a new small project.
Overall though construction falls off during a recession.
Most of the increase in total miles happens as the result of people driving new cars, and by and large, new cars and light trucks are far more fuel efficient than old ones.
And people who are broke spend as much on gasoline as they can afford, period. They MUST spend to get to work. If a tank at twenty bucks will get them to Grandma's house and back in their old clunker, they go. A tank a forty bucks often means calling rather than visiting.It is pretty much a given that Permian oil needs export market. This is from PAA conference call.HuntingtonBeach, says: 12/24/2017 at 2:34 am
" PAA comments: If you look at the amount of 45-plus gravity. It's about 300,000 barrels a day now, growing to 1 million plus. So, a lot of those volumes are coming, and that's really the crux of the benefit of a Cactus pipeline being able to take that directly to the water because I think we are going to see a lot of pushback from refiners. We are already starting to see it as far as the lightning of the general stream going up to Cushing.
The refiners don't want any lighter. So, it's an integral part of the strategy and a piece of everything we've been building."
Delaware basin produces 56% oil that is greater than API gravity 50 plus according to Woodmac.
Every week I see announcements to export US oil. Here are some.
https://www.businesswire.com/news/home/20171222005375/en/EPIC-Announces-Approval-New-Build-730-mile-Permian"OPINION-Heinrich Leopold, says: 12/27/2017 at 10:04 am
Don't be taken in by the surge in oil prices
But oil prices have continued to be volatile. They went down from $114 per barrel in June 2014 to $26 per barrel in early 2016 and moved gradually upward to touch $64 per barrel in late November 2017. On the other hand, economic forecasts expect oil prices to continue to rise to a range of between $70 to $80 by the end of the first quarter of 2018. Futurists in the field base their expectations on the following indicators:1) The cooperative program and understanding between the Kingdom and Russia, the two largest producers in the market. 2) The continuation of efforts to reduce oil surplus in the market 3) The agreement among OPEC members and some non-members to continue their programs of production reduction up to the end of 2018. 8. Last but not least, we need to develop a culture of saving to increase our capital buildup for the economy. This is not an easy task, and requires a total rehabilitation of our consuming behavior."
http://www.saudigazette.com.sa/article/524652/Opinion/OP-ED/Dont-be-taken-in-by-the-surge-in-oil-pricesInteresting development for natgas: Iroquois zone 2 spot prices just shot up to over 32 USD per mcf. This is nearly 1000% up from last month. As much depends now on the future weather, it shows how volatile the US gas market can be – despite massive efforts towards more supply.coffeeguyzz, says: 12/27/2017 at 11:07 am
As the industry has completely shifted the supply from the South to the Northeast, hurricanes are no more a threat to supply, yet freeze offs become now a major issue. Previously just the supply of the Rockies has been hampered by freeze offs. As this concerned just 10% of US total production, this has never been an issue for gas supply. However, as currently 70% of supply comes from the Northeast and the Rockies, freeze off could lead to serious supply disruptions, if the freeze continues.
The next weeks could now be very interesting.Not freeze offs, simply lack of pipeline capacity in the face of unprecedented demand. When the receipt figures from the various transfer points are published, they should show 100% capacity utilization.Heinrich Leopold, says: 12/27/2017 at 11:47 am
At this posting, New England is burning oil for 17% of their electricity generation. Wholesale spot price for electricity is $230/Mwh, about 10 times regular pricing. Later this afternoon, demand is expected to increase more.
The supply is there in the pipelines, Mr. Leopold, there just isn't enough of them to satisfy demand during this cold spell.Coffee,coffeeguyzz, says: 12/27/2017 at 12:35 pm
I was expecting your reply. Thanks for your opinion.
Nevertheless, there has been huge infrastructure spending over the last years. The pipelines should be already in place.
However, freeze offs are not an issue just yet. If the gas wells freeze off later in the week (temperatures are going to zero down until Cincinnati) , the shortage of supply may be really a concern. There is just one week left and we know it.
This is one of the structural weaknesses of Shale gas:you probably do not have it when you need it the most.Mr. Leopold
The pipelines that have been completed greatly favor delivery west to southwest from the Appalachian Basin.
The Atlantic Sunrise is being built that will deliver into the NYC area via a hookup with Transco, I believe.
Deliveries to the north, that is New York State and New England have been virtually nil.
Yes, the storage aspects of all gas products is a challenge, and – as you mentioned – the coming cold days will highlight the vulnerabilities of the situation, sadly, at great expense to many.
Jan 03, 2018 | peakoilbarrel.com
says: 12/27/2017 at 8:37 pmSo, is there a big wall of US shale oil coming from Texas that will dash my "happy times" of $55-65 WTI?Heinrich Leopold x Ignored says: 12/30/2017 at 8:12 am
So thankful to get up to this level after 36 months of headaches about the oil price. Seems the only thing that could screw it up is US shale, which apparently is set to explode in 2018.
I saw someone touting Halcon stock today on SA. Making a big deal about having little debt. Too bad they flushed about $3 billion of debt when they went BK. I'm sure Mr Wilson (CEO) is, "still getting his" so to speak.
My brother is griping about why he hasn't been able to draw a salary for the last three years, heck all the shalie management has! Have to remind him we aren't in the shale fantasy land. He knows, he's just blowing like I'm prone to do.
If I don't post anymore this year, happy New Year everyone!! Things are looking up, just hope the shale industry doesn't torch it again!Shallow sand,Energy News x Ignored says: 12/28/2017 at 4:36 am
IN my view you will be sleeping well in the next year. Shale increases mostly the supply of condensate and light distillates, which does little to cover the worldwide shortage of middle distillates. So, the price of 'real' oil will very likely increase over the next future whereas the prices of light distillates (propane, butane, pentane , LPG, NGPL composite .. ) are very likely depressed. Light distillates can substitute middle distillates to some degree, yet the potential is limited. So, in that sense I wish you a happy and successful New Year.INEOS Forties Pipeline System Media Update – 28/12/2017Stephen Hren x Ignored says: 12/28/2017 at 12:59 pm
All restrictions on the flow of oil and gas from platforms feeding into the pipeline system have been fully lifted. All customers and control rooms have now been informed.
https://uk.reuters.com/article/forties-oil/update-1-ineos-sees-forties-oil-flows-back-to-normal-around-new-year-idUKL8N1OS0VUhttps://mobile.nytimes.com/2017/12/27/world/americas/venezuela-oil-pdvsa.html?action=click&module=Top%20Stories&pgtype=HomepageMushalik x Ignored says: 12/28/2017 at 4:37 am
Oil production in Venezuela appears to be in free fall.Shale gas revolution did not last long for BHP – the Fayetteville storyHeinrich Leopold x Ignored says: 12/30/2017 at 6:37 am
http://crudeoilpeak.info/shale-gas-revolution-did-not-last-long-for-bhp-the-fayetteville-storyThere is no question, Shale is a disaster for investors. Nevertheless, it is a blessing for Wall Street as high oil and gas production ensures dollar stability and a growing bond bubble. The only question is when will investors will wake up. As it is perfectly OK for small companies to sacrifice themselves and burn the cash of investors through, big companies are less willing to do so. Who is next? XOM, Statoil , APA ?Energy News x Ignored says: 12/28/2017 at 7:31 amThe ratio of commodities / S&P500 is at a record low, S&P_GSCI / S&P_500Dennis Coyne x Ignored says: 12/28/2017 at 7:33 am
The S&P GSCI currently comprises 24 commodities from all commodity sectors – energy products, industrial metals, agricultural products, livestock products and precious metals.
Bloomberg chart on Twitter: https://pbs.twimg.com/media/DSCfWj6W4AA7xyW.jpghttps://www.bloomberg.com/news/articles/2017-12-27/all-that-new-shale-oil-may-not-be-enough-as-big-discoveries-dropGeorge Kaplan x Ignored says: 12/28/2017 at 9:39 am
Discoveries of new reserves this year were the fewest on record and replaced just 11 percent of what was produced, according to a Dec. 21 report by consultant Rystad Energy. While shale wells are creating a glut now, without more investment in bigger, conventional supply, the world may see output deficits as soon as 2019, according to Canadian producer Suncor Energy Inc.Are we not now near enough to 2019 to say that there just isn't time to bring major new conventional projects on-line before mid to late 2019? The only offshore projects that could be approved and developed earlier than that would be single well tie backs using the wildcat/appraisal well as a producer, probably no more than 5 to 10 kbpd and in immediate (and likely rapid) decline, and would be dependent on there being spare processing capacity on a nearby hub (i.e. production the new production would be mitigating decline not adding output).George Kaplan x Ignored says: 12/29/2017 at 5:00 amBut the issue isn't lack of discoveries this year, as the headline implies, it's the lack of recent FIDs which might be in part because of the drop off in discoveries in 2012 to 2015 (for all oil, but particularly easily developed oil), coupled with high debt loads, and prices that aren't high enough (or at least not yet for long enough) to allow development of what resources there are available to the IOCs. As prices rise and IOCs become more confident and are able to pay dividends as well as fund longer term developments then the really low discoveries in 2015 to 2017 might give them far fewer options than people expect (noteworthy is that any discoveries in that period that have been attractive, like Liza, have been immediately fast-tracked, so there really isn't much of a backlog of attractive projects at all).Dennis Coyne x Ignored says: 12/30/2017 at 7:37 amHi George,George Kaplan x Ignored says: 12/28/2017 at 9:50 am
Headlines are almost always not quite right.
I was basing my comment on what the article said. Many of the companies are aware that discoveries have been low and not many projects will be coming online soon.Mexico may be heading for a period of accelerated decline (above 10%). Their two onshore regions and the southern marine region are falling at 15 to 20%, and the largest producing region (Northern Marine, which includes KMZ and Cantarell) looks like it may be starting to accelerate. The non KMZ nd Cantarell fields had been the only ones increasing, but look to now be in decline or at least on plateau, and by PEMEX forecast KMZ should be off plateau in the next couple of months or so. Mexico has now stopped exporting light oil (which mostly comes from the three smaller regions, with KMZ and Cantarell producing heavy and medium heavy) and will presumably be looking for increasing imports of it, which is probably good for the Texas LTO producers. Operating rigs have recently been declining fast.George Kaplan x Ignored says: 12/28/2017 at 9:53 am
(Apologies if this has already been posted)
ps – for numbers: last month C&C was down 35 kbpd, and overall 210 kbpd y-o-y (almost exactly 10%).Lightsout x Ignored says: 12/28/2017 at 10:11 amHi GeorgeGeorge Kaplan x Ignored says: 12/28/2017 at 11:27 am
Do you have any information on how the ramp up of production is going for the Western isles project following first oil on 15th November.
On a side it looks like the Weald basin myth is starting to unravel.Not yet -first numbers for December start-up should be in March, it's a question of limiting their losses at current prices I think. All the wells were predrilled so ramp up should be fast but I wouldn't be surprised if they get pretty low reliability in the first 6 to 12 months given all the construction problems they had. Also interesting that Catcher started up on time, against most expectations. Wonder if Clair Ridge will make it this year – do you know if there are big tax benefits from depreciation for starting within a given calendar year in the UK (or might be financial yar end is more important)?George Kaplan x Ignored says: 12/29/2017 at 10:19 amThis shows how fast the SW marine region fields are now falling (a lot of small fields were added 2007 to 2015 and are now in steep decline).Greenbub x Ignored says: 12/30/2017 at 1:26 am
There seems no reason this and the two land regions shouldn't continue to fall at current rates (they may even accelerate given how the rig count has dropped), and if KMZ follows the predicted PEMEX curve Mexico could drop around 350 kbpd this year, possibly the same in 2019 in decline (but with 60 kbpd additions due from Abkatun), but maybe approaching as low as 1000 kbpd by mid 2020, which is probably the earliest ENI will be able to get their shallow water field on line if they fast track it.
thanks, GeorgeEnergy News x Ignored says: 12/28/2017 at 1:04 pmDallas Fed Energy Survey – December 28, 2017 – At what West Texas Intermediate (WTI) crude oil price would you expect the U.S. oil rig count to substantially increase?Frugal x Ignored says: 12/28/2017 at 11:11 pm
Above $60, chart on Twitter: https://pbs.twimg.com/media/DSJdl-zX0AAUwD4.jpg
https://www.dallasfed.org/research/surveys/des/2017/1704.aspx#tab-questions$16B Mackenzie pipeline project cancelledGeorge Kaplan x Ignored says: 12/29/2017 at 6:50 am
CALGARY -- Imperial Oil says its much-delayed $16.1-billion project to build a natural gas pipeline across the Northwest Territories from the coast of the Beaufort Sea to northern Alberta has finally been cancelled.IRAQ FORMS PANEL TO OPERATE MAJNOON FIELDHeinrich Leopold x Ignored says: 12/29/2017 at 9:28 am
Originally the plan was to increase Majnoon to over 1 mmbpd. That has now been downgraded to 400 kbpd (from current 220). Shell and Petronas have pulled out and a "government panel" will oversee the development. I'd bet on continued decline rather than any increase, and potential for significant reservoir damage along the way.
Similarly for Nasirya oil field – intend is to increase from 90 kbpd to 200, using a local oil company that also sounds like it has a lot of government input.
To me none of this ever declining brownfield development with IOCs pulling out, and promises of more exploration "coming" is compatible with the claims for their discovered resources (developed or not), or any chance of a quick ramp up if oil prices start to inflate rapidly after 2018.
http://www.ogj.com/articles/2017/12/iraq-forms-panel-to-operate-majnoon-field.htmlSo far, the experiences about freeze off Shale wells are limited. Will glycol also work for Shale wells when there is much water involved? I think nobody knows yet how big the impact of the cold will be on Shale wells. However, it looks like shorts are getting hyper-nervous.Ian H x Ignored says: 12/29/2017 at 7:25 amOil and Gas Producers Find Frac Hits in Shale Wells a Major Challenge
In North America's most active shale fields, the drilling and hydraulic fracturing of new wells is directly placing older adjacent wells at risk of suffering a premature decline in oil and gas production.
The underlying issue has been coined as a "frac hit." And though they have long been a known side effect of hydraulic fracturing, frac hits have never mattered or occurred as much as they have recently, according to several shale experts who say the main culprit is infill drilling.
"It is a very common occurrence -- almost to the point where it is a routinely expected part of the operations," said Bob Barree, an industry consultant and president of Colorado-based petroleum engineering firm Barree & Associates.
He added that frac hits are also an expensive problem that involve costly downtime to prepare for, remediation efforts after the fact, and lost productivity in the older wells on a pad site.
A frac hit is typically described as an interwell communication event where an offset well, often termed a parent well in this setting, is affected by the pumping of a hydraulic fracturing treatment in a new well, called the child well. As the name suggests, frac hits can be a violent affair as they are known to be strong enough to damage production tubing, casing, and even wellheads
FWIW The first SPE paper referenced discusses mediating the negative nature of frac hits. It discusses the refrakking of a six well pad drilled in 2010 in the middle Bakken and three forks, North Fork Field, McKenzie. The six wells have a cumulative oil production to date of 3.6mmboe and 7.7bcf.
Since I am not in the field, much of the paper went over my head, I merely skimmed through it, however it appears that well communication was observed for horizontal and vertical spacing of 1000 feet.
Dec 25, 2017 | angrybearblog.com
I am going to make a fool of myself by suggesting that a cryptocurrency might actually be useful. Bitcoin et al have negative social utility. They are pure speculative assets which enable people to gamble. Also bitcoin miners use as much electricity as Denmark. The problem is exactly the aspect which has made bitcoin famous and which bitcoin enthusiasts consider a strength -- the enormous increase in the dollar price of bitcoin. This increase, and the recent sharp decline, make bitcoin useless as a means of exchange. Most firms don't want to gamble.
So I (semi-seriously this time) propose botcoin which might have a more stable dollar exchange rate. The idea is to link the blockchain verification program to an official exchange.
Backing up, there are two very different sorts of web-servers related to bitcoin. One set, the bitcoin miners, implements the original idea using the Bitcoin shareware. They keep a copy of the ledger of all bitcoin transactions -- the blockchain, race to create new blocks, and evaluate new blocks and add valid new blocks to the chain. The other servers are bitcoin exchanges in which bitcoin is traded for regular currency. They are not part of the original plan in which bitcoin would be traded for goods and services and function as a means of exchange. They have behaved badly with an unstable value of bitcoin (huge unpredictable Bitcoin deflation damages any use of bitcoin as a means of exchange as much as huge inflation would).
I propose linking the blockchain program to an exchange. So there would be an official botcoin exchange (this means it isn't entirely free-entry shareware libertarian anarchism). If anyone were interested in a new cryptocurrency designed so that speculators can't become rich (and pigs fly) there would be other unofficial exchanges.
The bitcoin program regulates the frequency of creation of new blocks to roughly one every six minutes. It does this by adjusting the difficulty of the pointless arithmetic problem which must be solved to make a new valid block. The idea was to limit the total amount of bitcoin which will ever be created (to 21 million for some reason). This was supposed to make bitcoin valuable. So far it has succeeded all too well (I am confident that in the end bitcoin will have price 0).
It is possible to make the supply of botcoin flexible so the dollar price doesn't shoot up. I would aim at a price of, say, 1 botcoin = $1000. The idea is to make the pointless problem which must be solved to add a block easier if the dollar price of botcoin exceeds the target, and harder if it falls below the target. This should stabilize the price.
Now no one is really interested in cryptocurrency except as a way to gamble and take money from fools. But if anyone were, linking the blockchain program to prices on an exchange would make it more nearly possible to use the cryptocurrency as a means of exchange.
The system is vulnerable to a tacit agreement to trade only on unofficial exchanges. It is necessary that the problem is also made easier if daily trading volume on the official exchange is zero. The problem is the price could shoot up on unofficial exchanges, but this would not affect the price on the official exchange if there were no transactions on the official exchange.
Lyle , December 25, 2017 11:22 pmLongtooth , December 26, 2017 5:01 am
Of course Goldman Sachs and its competitors are doing just this building an options and futures exchange. (it is not really that much different than any other futures and options business)likbez , December 26, 2017 5:27 am
then the entire foundation for Bitcoin's purpose disappears entirely, so what advantage remains?
The basis was and remains to remove any and all national gov'ts across he globe from any influences on values of currencies, thus pure laissez-faire in the extreme .. as you say libertarian chaos.
By making crypto-currency values subject to national currency exchange rates they cease to have any reason to exist at all.
We / globally in fact already use crypto exchange via electronic transactions .. adding block chain to it would be a benefit but a separate cryptocurrency is a worthless redundancy if it is subject to valuation by exchange rates of national currencies.
What am I missing?.rick shapiro , December 26, 2017 10:26 am
Great Article !!! I wish I can write about this topic on the same level. Thank you very much. P.S. Happy New Year for everybody !
There is a much more severe problem with bitcoin. As the number mined asymptotically approaches the pre-determined maximum, the cost of mining approaches infinity. As miners are the ones who validate coins, what will happen to the reliability of bitcoin when it becomes uneconomical for anyone to participate in mining?
Dec 22, 2017 | www.nakedcapitalism.com
by Yves Smith Yves here. This is a terrific takedown of the loanable funds theory, on which a ton of bad policy rests.
By Servaas Storm, Senior Lecturer at Delft University of Technology, who works on macroeconomics, technological progress, income distribution & economic growth, finance, development and structural change, and climate change. Originally published at the Institute for New Economic Thinking website
Forget the myth of a savings glut causing near-zero interest rates. We have a shortage of aggregate demand, and only public spending and raising wages will change that.
Nine years after the Great Financial Crisis, U.S. output growth has not returned to its pre-recession trend, even after interest rates hit the 'zero lower bound' (ZLB) and the unconventional monetary policy arsenal of the Federal Reserve has been all but exhausted. It is widely feared that this insipid recovery reflects a 'new normal', characterized by "secular stagnation" which set in already well before the global banking crisis of 2008 (Summers 2013, 2015).
This 'new normal' is characterized not just by this slowdown of aggregate economic growth, but also by greater income and wealth inequalities and a growing polarization of employment and earnings into high-skill, high-wage and low-skill, low-wage jobs -- at the expense of middle-class jobs (Temin 2017; Storm 2017). The slow recovery, heightened job insecurity and economic anxiety have fueled a groundswell of popular discontent with the political establishment and made voters captive to Donald Trump's siren song promising jobs and growth ( Ferguson and Page 2017 ).
What are the causes of secular stagnation? What are the solutions to revive growth and get the U.S. economy out of the doldrums?
If we go by four of the papers commissioned by the Institute for New Economic Thinking (INET) at its recent symposium to explore these questions, one headline conclusion stands out: the secular stagnation is caused by a heavy overdose of savings (relative to investment), which is caused by higher retirement savings due to declining population growth and an ageing labour force (Eggertson, Mehotra & Robbins 2017; Lu & Teulings 2017; Eggertson, Lancastre and Summers 2017), higher income inequality (Rachel & Smith 2017), and an inflow of precautionary Asian savings (Rachel & Smith 2017). All these savings end up as deposits, or 'loanable funds' (LF), in commercial banks. In earlier times, so the argument goes, banks would successfully channel these 'loanable funds' into productive firm investment -- by lowering the nominal interest rate and thus inducing additional demand for investment loans.
But this time is different: the glut in savings supply is so large that banks cannot get rid of all the loanable funds even when they offer firms free loans -- that is, even after they reduce the interest rate to zero, firms are not willing to borrow more in order to invest. The result is inadequate investment and a shortage of aggregate demand in the short run, which lead to long-term stagnation as long as the savings-investment imbalance persists. Summers (2015) regards a "chronic excess of saving over investment" as "the essence of secular stagnation". Monetary policymakers at the Federal Reserve are in a fix, because they cannot lower the interest rate further as it is stuck at the ZLB. Hence, forces of demography and ageing, higher inequality and thrifty Chinese savers are putting the U.S. economy on a slow-moving turtle -- and not much can be done, it seems, to halt the resulting secular stagnation.
This is clearly a depressing conclusion, but it is also wrong.
To see this, we have to understand why there is a misplaced focus on the market for loanable funds that ignores the role of fiscal policy that is plainly in front of us. In other words, we need to step back from the trees of dated models and see the whole forest of our economy.
The Market for Loanable Funds
In the papers mentioned, commercial banks must first mobilise savings in order to have the loanable funds (LF) to originate new (investment) loans or credit. Banks are therefore intermediaries between "savers" (those who provide the LF-supply) and "investors" (firms which demand the LF). Banks, in this narrative, do not create money themselves and hence cannot pre -finance investment by new money. They only move it between savers and investors.
We apparently live in a non-monetary (corn) economy -- one that just exchanges a real good that everybody uses, like corn. Savings (or LF-supply) are assumed to rise when the interest rate R goes up, whereas investment (or LF-demand) must decline when R increases. This is the stuff of textbooks, as is illustrated by Greg Mankiw's (1997, p. 63) explanation:
In fact, saving and investment can be interpreted in terms of supply an demand. In this case, the 'good' is loanable funds, and its 'price' is the interest rate. Saving is the supply of loans -- individuals lend their savings to investors, or they deposit their saving in a bank that makes the loan for them. Investment is the demand for loanable funds -- investors borrow from the public directly by selling bonds or indirectly by borrowing from banks. [ .] At the equilibrium interest rate, saving equals investment and the supply of loans equals the demand.
But the loanable funds market also forms the heart of complicated dynamic stochastic general equilibrium (DSGE) models, beloved by 'freshwater' and 'saltwater' economists alike (Woodford 2010), as should be clear from the commissioned INET papers as well. Figure 1 illustrates the loanable funds market in this scheme. The upward-sloping curve tells us that savings (or LF-supply) goes up as the interest rate R increases. The downward-sloping curve shows us that investment (or LF-demand) declines if the cost of capital (R) goes up. In the initial situation, the LF-market clears at a positive interest rate R0 > 0. Savings equal investment, which implies that LF-supply matches LF-demand, and in this -- happy -- equilibrium outcome, the economy can grow along some steady-state path.
To see how we can get secular stagnation in such a loanable-funds world, we introduce a shock, say, an ageing population (a demographic imbalance), a rise in (extreme) inequality, or an Asian savings glut, due to which the savings schedule shifts down. Equilibrium in the new situation should occur at R1 which is negative. But this can't happen because of the ZLB: the nominal interest cannot decline below zero. Hence R is stuck at the ZLB and savings exceed investment, or LF-supply > LF-demand. This is a disequilibrium outcome which involves an over-supply of savings (relative to investment), in turn leading to depressed growth.
Ever since Knut Wicksell's (1898) restatement of the doctrine, the loanable funds approach has exerted a surprisingly strong influence upon some of the best minds in the profession. Its appeal lies in the fact that it can be presented in digestible form in a simple diagram (as Figure 1), while its micro-economic logic matches the neoclassical belief in the 'virtue of thrift' and Max Weber's Protestant Ethic, which emphasize austerity, savings (before spending!) and delayed gratification as the path to bliss.
The problem with this model is that it is wrong (see Lindner 2015; Taylor 2016 ). Wrong in its conceptualisation of banks (which are not just intermediaries pushing around existing money, but which can create new money ex nihilo ), wrong in thinking that savings or LF-supply have anything to do with "loans" or "credit," wrong because the empirical evidence in support of a "chronic excess of savings over investment" is weak or lacking, wrong in its utter neglect of finance, financialization and financial markets, wrong in its assumption that the interest rate is some "market-clearing" price (the interest rate, as all central bankers will acknowledge, is the principal instrument of monetary policy), and wrong in the assumption that the two schedules -- the LF-supply curve and the LF-demand curve -- are independent of one another (they are not, as Keynes already pointed out).
I wish to briefly elaborate these six points. I understand that each of these criticisms is known and I entertain little hope that that any of this will make people reconsider their approach, analysis, diagnosis and conclusions. Nevertheless, it is important that these criticisms are raised and not shoveled under the carpet. The problem of secular stagnation is simply too important to be left mis-diagnosed.
First Problem: Loanable Funds Supply and Demand Are Not Independent Functions
Let me start with the point that the LF-supply and LF-demand curve are not two independent schedules. Figure 1 presents savings and investment as functions of only the interest rate R, while keeping all other variables unchanged. The problem is that the ceteris paribus assumption does not hold in this case. The reason is that savings and investment are both affected by, and at the same time determined by, changes in income and (changes in) income distribution. To see how this works, let us assume that the average propensity to save rises in response to the demographic imbalance and ageing. As a result, consumption and aggregate demand go down. Rational firms, expecting future income to decline, will postpone or cancel planned investment projects and investment declines (due to the negative income effect and for a given interest rate R0). This means that LF-demand curve in Figure 1 must shift downward in response to the increased savings. The exact point was made by Keynes (1936, p. 179):
The classical theory of the rate of interest [the loanable funds theory] seems to suppose that, if the demand curve for capital shifts or if the curve relating the rate of interest to the amounts saved out of a given income shifts or if both these curves shift, the new rate of interest will be given by the point of intersection of the new positions of the two curves. But this is a nonsense theory. For the assumption that income is constant is inconsistent with the assumption that these two curves can shift independently of one another. If either of them shift, then, in general, income will change; with the result that the whole schematism based on the assumption of a given income breaks down In truth, the classical theory has not been alive to the relevance of changes in the level of income or to the possibility of the level of income being actually a function of the rate of the investment.
Let me try to illustrate this using Figure 2. Suppose there is an exogenous (unexplained) rise in the average propensity to save. In reponse, the LF-supply curve shifts down, but because (expected) income declines, the LF-demand schedule shifts downward as well. The outcome could well be that there is no change in equilibrium savings and equilibrium investment. The only change is that the 'natural' interest is now R1 and equal to the ZLB. Figure 2 is, in fact, consistent with the empirical analysis (and their Figure of global savings and investment) of Rachel & Smith. Let me be clear: Figure 2 is not intended to suggest that the loanable funds market is useful and theoretically correct. The point I am trying to make is that income changes and autonomous demand changes are much bigger drivers of both investment and saving decisions than the interest rate. Market clearing happens here -- as Keynes was arguing -- because the level of economic activity and income adjust, not because of interest-rate adjustment.
Second Problem: Savings Do Not Fund Investment, Credit Does
The loanable funds doctrine wrongly assumes that commercial bank lending is constrained by the prior availability of loanable funds or savings. The simple point in response is that, in real life, modern banks are not just intermediaries between 'savers' and 'investors', pushing around already-existing money, but are money creating institutions. Banks create new money ex nihilo , i.e. without prior mobilisation of savings. This is illustrated by Werner's (2014) case study of the money creation process by one individual commercial bank. What this means is that banks do pre-finance investment, as was noted by Schumpeter early on and later by Keynes (1939), Kaldor (1989), Kalecki, and numerous other economists. It is for this reason that Joseph Schumpeter (1934, p. 74) called the money-creating banker 'the ephor of the exchange economy' -- someone who by creating credit ( ex nihilo ) is pre-financing new investments and innovation and enables "the carrying out of new combinations, authorizes people, in the name of society as it were, to form them." Nicholas Kaldor (1989, p. 179) hit the nail on its head when he wrote that "[C]redit money has no 'supply function' in the production sense (since its costs of production are insignificant if not actually zero); it comes into existence as a result of bank lending and is extinguished through the repayment of bank loans. At any one time the volume of bank lending or its rate of expansion is limited only by the availability of credit-worthy borrowers." Kaldor had earlier expressed his views on the endogeneity of money in his evidence to the Radcliffe Committee on the Workings of the Monetary System, whose report (1959) was strongly influenced by Kaldor's argumentation. Or take Lord Adair Turner (2016, pp. 57) to whom the loanable-funds approach is 98% fictional, as he writes:
Read an undergraduate textbook of economics, or advanced academic papers on financial intermediation, and if they describe banks at all, it is usually as follows: "banks take deposits from households and lend money to businesses, allocating capital between alternative capital investment possibilities." But as a description of what modern banks do, this account is largely fictional, and it fails to capture their essential role and implications. [ ] Banks create credit, money, and thus purchasing power. [ ] The vast majority of what we count as "money' in modern economies is created in this fashion: in the United Kingdom 98% of money takes this form .
We therefore don't need savings to make possible investment -- or, in contrast to the Protestant Ethic, banks allow us to have 'gratification' even if we have not been 'thrifty' and austere, as long as there are slack resources in the economy.
It is by no means a secret that commercial banks create new money. As the Bank of England (2007) writes, "When bank make loans they create additional deposits for those that have borrowed" (Berry et al. 2007, p. 377). Or consider the following statement from the Deutsche Bundesbank (2009): "The commercial banks can create money themselves ." Across the board, central bank economists, including economists working at the Bank for International Settlements (Borio and Disyatat 2011), have rejected the loanable funds model as a wrong description of how the financial system actually works (see McLeay et al . 2014a, 2014b; Jakab and Kumhof 2015). And the Deutsche Bundesbank (2017) leaves no doubt as to how the banking system works and money is created in actually-existing capitalism, stating that the ability of banks to originate loans does not depend on the prior availability of saving deposits. Bank of England economists Zoltan Jakab and Michael Kumhoff (2015) reject the loanable-funds approach in favour of a model with money-creating banks. In their model (as in reality), banks pre-finance investment; investment creates incomes; people save out of their incomes; and at the end of the day, ex-post savings equal investment. This is what Jakab and Kumhoff (2015) conclude:
" . if the loan is for physical investment purposes, this new lending and money is what triggers investment and therefore, by the national accounts identity of saving and investment (for closed economies), saving. Saving is therefore a consequence, not a cause, of such lending. Saving does not finance investment, financing does. To argue otherwise confuses the respective macroeconomic roles of resources (saving) and debt-based money (financing)."
Savings are a consequence of credit-financed investment (rather than a prior condition) -- and we cannot draw a savings-investment cross as in Figure 1, as if the two curves are independent. They are not. There exists therefore no 'loanable funds market' in which scarce savings constrain (through interest rate adjustments) the demand for investment loans. Highlighting the loanable funds fallacy, Keynes wrote in "The Process of Capital Formation" (1939):
"Increased investment will always be accompanied by increased saving, but it can never be preceded by it. Dishoarding and credit expansion provides not an alternative to increased saving, but a necessary preparation for it. It is the parent, not the twin, of increased saving."
This makes it all the more remarkable that some of the authors of the commissioned conference papers continue to frame their analysis in terms of the discredited loanable funds market which wrongly assumes that savings have an existence of their own -- separate from investment, the level of economic activity and the distribution of incomes.
Third Problem: The Interest Rate Is a Monetary Policy Instrument, Not a Market-Clearing Price
In loanable funds theory, the interest rate is a market price, determined by LF-supply and LF-demand (as in Figure 1). In reality, central bankers use the interest rate as their principal policy instrument (Storm and Naastepad 2012). It takes effort and a considerable amount of sophistry to match the loanable funds theory and the usage of the interest rate as a policy instrument. However, once one acknowledges the empirical fact that commercial banks create money ex nihilo , which means money supply is endogenous, the model of an interest-rate clearing loanable funds market becomes untenable. Or as Bank of England economists Jakab and Kumhof (2015) argue:
modern central banks target interest rates, and are committed to supplying as many reserves (and cash) as banks demand at that rate, in order to safeguard financial stability. The quantity of reserves is therefore a consequence, not a cause, of lending and money creation. This view concerning central bank reserves [ ] has been repeatedly described in publications of the world's leading central banks.
What this means is that the interest rate may well be at the ZLB, but this is not caused by a savings glut in the loanable funds market, but the result of a deliberate policy decision by the Federal Reserve -- in an attempt to revive sluggish demand in a context of stagnation, subdued wage growth, weak or no inflation, substantial hidden un- and underemployment, and actual recorded unemployment being (much) higher than the NAIRU (see Storm and Naastepad 2012). Seen this way, the savings glut is the symptom (or consequence ) of an aggregate demand shortage which has its roots in the permanent suppression of wage growth (relative to labour productivity growth), the falling share of wages in income, the rising inequalities of income and wealth (Taylor 2017) as well as the financialization of corporations (Lazonick 2017) and the economy as a whole (Storm 2018). It is not the cause of the secular stagnation -- unlike in the loanable funds models.
Fourth Problem: The Manifest Absence of Finance and Financial Markets
What the various commissioned conference papers do not acknowledge is that the increase in savings (mostly due to heightened inequality and financialization) is not channeled into higher real-economy investment, but is actually channeled into more lucrative financial (derivative) markets. Big corporations like Alphabet, Facebook and Microsoft are holding enormous amounts of liquidity and IMF economists have documented the growth of global institutional cash pools, now worth $5 to 6 trillion and managed by asset or money managers in the shadow banking system (Pozsar 2011; Pozsar and Singh 2011; Pozsar 2015). Today's global economy is suffering from an unprecedented "liquidity preference" -- with the cash safely "parked" in short-term (over-collateralized lending deals in the repo-market. The liquidity is used to earn a quick buck in all kinds of OTC derivatives trading, including forex swaps, options and interest rate swaps. The global savings glut is the same thing as the global overabundance of liquidity (partying around in financial markets) and also the same thing as the global demand shortage -- that is: the lack of investment in real economic activity, R&D and innovation.
The low interest rate is important in this context, because it has dramatically lowered the opportunity cost of holding cash -- thus encouraging (financial) firms, the rentiers and the super-rich to hold on to their liquidity and make (quick and relatively safe and high) returns in financial markets and exotic financial instruments. Added to this, we have to acknowledge the fact that highly-leveraged firms are paying out most of their profits to shareholders as dividends or using it to buy back shares (Lazonick 2017). This has turned out to be damaging to real investment and innovation, and it has added further fuel to financialization (Epstein 2018; Storm 2018). If anything, firms have stopped using their savings (or retained profits) to finance their investments which are now financed by bank loans and higher leverage. If we acknowledge these roles of finance and financial markets, then we can begin to understand why investment is depressed and why there is an aggregate demand shortage. More than two decades of financial deregulation have created a rentiers' delight, a capitalism without 'compulsions' on financial investors, banks, and the property-owning class which in practice has led to 'capitalism for the 99%' and 'socialism for the 1%' (Palma 2009; Epstein 2018) For authentic Keynesians, this financialized system is the exact opposite of Keynes' advice to go for the euthanasia of the rentiers ( i.e. design policies to reduce the excess liquidity).
Fifth Problem: Confusing Savings with "Loans," or Stocks with Flows
"I have found out what economics is,' Michał Kalecki once told Joan Robinson, "it is the science of confusing stocks with flows." If anything, Kalecki's comment applies to the loanable funds model. In the loanable fund universe, as Mankiw writes and as most commissioned conference papers argue, saving equals investment and the supply of loans equals the demand at some equilibrium interest rate. But savings and investment are flow variables, whereas the supply of loans and the demand for loans are stock variables. Simply equating these flows to the corresponding stocks is not considered good practice in stock-flow-consistent macro-economic modelling. It is incongruous, because even if we assume that the interest rate does clear "the stock of loan supply" and "the stock of loan demand", there is no reason why the same interest rate would simultaneously balance savings ( i.e. the increase in loan supply) and investment ( i.e. the increase in loan demand). So what is the theoretical rationale of assuming that some interest rate is clearing the loanable funds market (which is defined in terms of flows )?
To illustrate the difference between stocks and flows: the stock of U.S. loans equals around 350% of U.S. GDP (if one includes debts of financial firms), while gross savings amount to 17% of U.S. GDP. Lance Taylor (2016) presents the basic macroeconomic flows and stocks for the U.S. economy to show how and why loanable funds macro models do not fit the data -- by a big margin. No interest rate adjustment mechanism is strong enough to bring about this (ex-post) balance in terms of flows , because the interest rate determination is overwhelmed by changes in loan supply and demand stocks . What is more, and as stated before, we don't actually use 'savings' to fund 'investment'. Firms do not use retained profits (or corporate savings) to finance their investment, but in actual fact disgorge the cash to shareholders (Lazonick 2017). They finance their investment by bank loans (which is newly minted money). Households use their (accumulated) savings to buy bonds in the secondary market or any other existing asset. In that case, the savings do not go to funding new investment -- but are merely used to re-arrange the composition of the financial portfolio of the savers.
Final Problem: The Evidence of a Chronic Excess of Savings Over Investment is Missing
If Summers claims that there is a "chronic excess of savings over investment," what he means is that ex-ante savings are larger than ex-ante investment. This is a difficult proposition to empirically falsify, because we only have ex-post (national accounting) data on savings and investment which presume the two variables are equal. However, what we can do is consider data on (global) gross and net savings rates (as a proportion of GDP) to see if the propensity to save has increased. This is what Bofinger and Ries (2017) did and they find that global saving rates of private households have declined dramatically since the 1980s. This means, they write, that one can rule out 'excess savings' due to demographic factors (as per Eggertson, Mehotra & Robbins 2017; Eggertsson, Lancastre & Summers 2017; Rachel & Smith 2017; and Lu & Teulings 2017). While the average saving propensity of household has declined, the aggregate propensity to save has basically stayed the same during the period 1985-2014. This is shown in Figure 3 (reproduced from Bofinger and Reis 2017) which plots the ratio of global gross savings (or global gross investment) to GDP against the world real interest rate during 1985-2014. A similar figure can be found in the paper by Rachel and Smith (2017). What can be seen is that while there has been no secular rise in the average global propensity to save, there has been a secular decline in interest rates. This drop in interest rates to the ZLB is not caused by a savings glut, nor by a financing glut, but is the outcome of the deliberate decisions of central banks to lower the policy rate in the face of stagnating economies, put on a 'slow-moving turtle' by a structural lack of aggregate demand which -- as argued by Storm and Naastepad (2012) and Storm (2017) -- is largely due to misconceived macro and labour-market policies centered on suppressing wage growth, fiscal austerity, and labour market deregulation.
To understand the mechanisms underlying Figure 3, let us consider Figure 4 which plots investment demand as a negative function of the interest rate. In the 'old situation', investment demand is high at a (relatively) high rate of interest (R0); this corresponds to the data points for the period 1985-1995 in Figure 3. But then misconceived macro and labour-market policies centered on suppressing wage growth, fiscal austerity, and labour market deregulation began to depress aggregate demand and investment -- and as a result, the investment demand schedule starts to shift down and to become more steeply downward-sloping at the same time. In response to the growth slowdown (and weakening inflationary pressure), central banks reduce R -- but without any success in raising the gross investment rate. This process continues until the interest rate hits the ZLB while investment has become practically interest-rate insensitive, as investment is now overwhelmingly determined by pessimistic profit expectations; this is indicated by the new investment schedule (in red). That the economy is now stuck at the ZLB is not caused by a "chronic excess of savings" but rather by a chronic shortage of aggregate demand -- a shortage created by decades of wage growth moderation, labour market flexibilization, and heightened job insecurity as well as the financialization of corporations and the economy at large (Storm 2018).
The consensus in the literature and in the commissioned conference papers that the global decline in real interest rates is caused by a higher propensity to save, above all due to demographic reasons, is wrong in terms of underlying theory and evidence base. The decline in interest rates is the monetary policy response to stalling investment and growth, both caused by a shortage of global demand. However, the low interest rates are unable to revive growth and halt the secular stagnation, because there is little reason for firms to expand productive capacity in the face of the persistent aggregate demand shortage. Unless we revive demand, for example through debt-financed fiscal stimulus or a drastic and permanent progressive redistribution of income and wealth in favour of lower-income groups (Taylor 2017), there is no escape from secular stagnation. The narrow focus on the ZLB and powerless monetary policy within the framing of a loanable-funds financial system blocks out serious macroeconomic policy debate on how to revive aggregate demand in a sustainable manner. It will keep the U.S. economy on the slow-moving turtle -- not because policymakers cannot do anything about it, but we choose to do so. The economic, social and political damage, fully self-inflicted, is going to be of historic proportions.
It is not a secret that the loanable funds approach is fallacious (Lindner 2015; Taylor 2016; Jakab and Kumhof 2015). While academic economists continue to refine their Ptolemaic model of a loanable-funds market, central bank economists have moved on -- and are now exploring the scope of and limitations to monetary policymaking in a monetary economy. Keynes famously wrote that "Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back." In 2017, things seem to happen the other way around: academic economists who believe themselves to be free thinkers are caught in the stale theorizing of a century past. The puzzle is, as Lance Taylor (2016, p. 15) concludes "why [New Keynesian economists] revert to Wicksell on loanable funds and the natural rate while ignoring Keynes's innovations. Maybe, as [Keynes] said in the preface to the General Theory, "'The difficulty lies not in the new ideas, but in escaping from the old ones ..' (p. viii)"
Due to our inability to free ourselves from the discredited loanable funds doctrine, we have lost the forest for the trees. We cannot see that the solution to the real problem underlying secular stagnation (a structural shortage of aggregate demand) is by no means difficult: use fiscal policy -- a package of spending on infrastructure, green energy systems, public transportation and public services, and progressive income taxation -- and raise (median) wages. The stagnation will soon be over, relegating all the scholastic talk about the ZLB to the dustbin of a Christmas past.
See original post for references
gtggtg , December 22, 2017 at 10:08 amgtggtg , December 22, 2017 at 10:10 am
"Forget the myth of a savings glut causing near-zero interest rates. We have a shortage of aggregate demand, and only public spending and raising wages will change that."
But isn't "a savings glut" just the same as "a shortage of aggregate demand"? Or is Keynes so out of favor that this is outre thinking?MisterMr , December 22, 2017 at 11:58 am
I mean, I just have this image of economists going, "It's the chicken! It's the chicken, I say!" "No! It's the egg, dammit!"jsn , December 22, 2017 at 4:45 pm
I second this.
The point is that the "saving glut" is caused bi unequal distribution of income, so it's a good thing that the "shortage of aggregate demand" is stressed, but still it's just two names for the same thing.
In the end the "money creation" is needed because there is not a "money circulation", IMO.TroyMcClure , December 22, 2017 at 11:49 am
Putting money into the broadest possible distribution and circulation is the key. It could be done with existing money through taxation or with new money through the federal fiscal lever.
Given the "Tax Reform" just passed, odds on the first option look vanishingly long. The second option is what the elites do whenever they want something, normally a war or tax cut. If they want a robust economy, eventually they will pull the fiscal lever.
Feudalism, however, may look better to our depraved current elite crop than any kind of broadly robust economy.Jamie , December 22, 2017 at 12:00 pm
There was a link to an article yesterday called "I write because I hate" that described how incorrect and even dangerous metaphors can be when it comes to understanding the world. Yours is a case in point.artiste-de-decrottage , December 22, 2017 at 1:54 pm
But isn't "a savings glut" just the same as "a shortage of aggregate demand"
I'm not sure I entirely understand your complaint, but at a first glance a savings glut is one kind of demand shortage, but not every kind of demand shortage can reasonably be called a savings glut. In one situation you have plenty of resource but no use for it other than possible future use (savings glut -- you have everything you need so cease purchasing) and in another situation you have insufficient resource (demand shortage -- you cease purchasing because you can't afford to purchase) but no savings glut. You don't even have the resources you need for today, never mind saving for tomorrow.James McFadden , December 22, 2017 at 3:25 pm
Aye, that's exactly how I understand it, so it is not exactly a chicken-or-the-egg conflation to try to distinguish a savings glut from a lack of demand.Skip Intro , December 23, 2017 at 9:30 am
You seem to have missed the point. The problem is wealth distribution. Mainstream economists don't distinguish who has the savings in their simplistic models. When the rich already have a widget in every room of their mansion, they are not going to buy more widgets no matter how low the price of widgets sink. And when the poor have no money, they will not be able to buy the widgets no matter how much they want them. Demand is not just a function of price. To increase demand, we need a more equitable form of wealth distribution.Larry , December 22, 2017 at 12:58 pm
One major difference, according to the author, is that the lack of aggregate demand exists, while the savings glut does not. The fact of companies sitting on liquidity, is detached from investment, for which they borrow. That investment is lacking because they do not see good investments, because of a lack of aggregate demand. if they did invest, it would not be constrained by their 'savings'.John Wright , December 22, 2017 at 1:45 pm
"But this time is different: the glut in savings supply is so large that banks cannot get rid of all the loanable funds even when they offer firms free loans -- that is, even after they reduce the interest rate to zero, firms are not willing to borrow more in order to invest."
That needs some explanation. Banks are not offering US businesses free money (excerpt briefly during the Crash). BBB bonds yields are aprox 4.3% -- and most businesses cannot borrow at that rate (excerpt when posting collateral).
For comparison over long time horizons, the real (ex-CPI) BBB corporate bond rate is 2.5% to 3% -- in the middle of its range from 1952-1980.
https://fred.stlouisfed.org/series/BAAAltandmain , December 22, 2017 at 1:17 pm
Banks are enjoying the privilege of loaning excess deposits to a risk free client, the Federal Reserve.
This is at 1.5% per https://www.federalreserve.gov/monetarypolicy/reqresbalances.htm as of 12-14-2017
Why should banks risk lending money to entities who might not pay it back?
Loan it to the Fed at 1.5%Mike , December 23, 2017 at 10:17 am
The real reason why the political system won't make any effort to address aggregate demand is because it would help the people.
I suspect that the elite know the truth. They just want to pretend to be ignorant to prevent the system from helping the people who need it.
Let's bring up Michal Kalecki again:
We have considered the political reasons for the opposition to the policy of creating employment by government spending. But even if this opposition were overcome -- as it may well be under the pressure of the masses -- the maintenance of full employment would cause social and political changes which would give a new impetus to the opposition of the business leaders. Indeed, under a regime of permanent full employment, the 'sack' would cease to play its role as a 'disciplinary measure. The social position of the boss would be undermined, and the self-assurance and class-consciousness of the working class would grow. Strikes for wage increases and improvements in conditions of work would create political tension. It is true that profits would be higher under a regime of full employment than they are on the average under laissez-faire, and even the rise in wage rates resulting from the stronger bargaining power of the workers is less likely to reduce profits than to increase prices, and thus adversely affects only the rentier interests. But 'discipline in the factories' and 'political stability' are more appreciated than profits by business leaders. Their class instinct tells them that lasting full employment is unsound from their point of view, and that unemployment is an integral part of the 'normal' capitalist system.
In other words, one potential reason for business to oppose any efforts at addressing the problem is that the people would have more bargaining power. The elite are not after absolute wealth or power, but relative power over the rest of us.
Imagine for example if the alternative was passed say some form of social democracy with full employment and MMT policy.
This would undermine in their view their ability to dominate over the rest of us. Now they may arguably be richer (ex: we might see more money for productive parts of society like say, disease research), but they are willing to give that up for dominating us. That is what we are up against.Mark Anderlik , December 23, 2017 at 10:33 am
If what you say is true (re social democracy + MMT policies), how then to consider for even one second the further existence of a business cadre dedicated to upending such an agreement? We always theorize as if an actual resistance to "our" policies will melt away with the displacement of elite political control. I remember Chile and the "strikes" called to bring down Allende.
The innocence of our imaginations is not only disturbing, but dangerous. Once power is gained and capital has been put in its place, the fight begins right there, anew. Unless we wish to fall into Stalinist methods of "resolution", consideration for alternate methods of economic control, and an anticipation of backlash, are in demand if the "people" are to prevail.Cat Burglar , December 23, 2017 at 3:43 pm
In my experience as a union organizer and negotiator the opposition by many employers to unions is not particularily because of money, but because of power and the erosion of the employer's grip of it by the collective action of workers. Many times in my experience employers have spent a boatload more money on fighting workers and hiring union-busting attorneys than whatever wage and benefit increase is being proposed. These employers are acting from their political self-interest rather than the narrow economic self-interest that is commonly assumed.paul , December 22, 2017 at 2:03 pm
Great comments -- the motivation behind the ideas is a need for power and control.
You can look at the first 20 years of the Cold War as a domestic experiment in social control: incomes were allowed to rise for most people, and inequality was moderated in the interest of politically consolidating the country to support arming and fighting the war.
By the early 70s our handlers -- as shown in the Powell Memo, say -- had tired of the experiment. With more income, free time, and education, women, students, non-white people, and the newly prosperous working class were entering into contention on every terrain imaginable -- and that had to reduced to a manageable level. So they "leaned-out the mix", reduced income for most people, and bumped up the level of indebtedness and indoctrination.
Now the fuel-air mix is so lean that the engine is starting to miss (for example, the Trump election and the Sanders challenge to the Dem elite). But it looks like they have no other idea but to double-down on austerity. I guess they assume they can maintain global financial and military hegemony on the backs of a sick, unfit, indebted, and politically fractious population -- an iffy proposition. No wonder they seem desperate.Paul Hirschman , December 22, 2017 at 2:46 pm
unemployment is an integral part of the 'normal' capitalist system.
That is both the long and short of it.
To engineer the scarcity of the ability to sustain is the the greatest sinredolent , December 22, 2017 at 8:14 pm
The Trump/Republican tax law tells us (if we needed another message) that the link between economic policy and economic theory is so weak as the bring into question the point of theorizing in the first place, apart, of course, from convincing (semi)-smart but fearful people to remain timid in the face of powerful lunacy. Government spending to replace worn out capital, to satisfy basic material needs of the population, and to underwrite investment in an environmental and educational future worth creating is, OBVIOUSLY, a no-no to Wall Street, war profiteers, and the large population of yes-men and women who promote fear among the middle class. We should spend less time contesting economic thinking that is nonsense. Instead why not spend time proposing and explaining fairly obvious fiscal strategies that will promote a better society, as well as the time that will be needed to defend these life-affirming proposals against the scholastic nonsense that our saltwater and freshwater scaredy-cat friends will put out every day to explain why what we propose will wreck Civilization. Let's go on the offense for a change.Jabawocky , December 22, 2017 at 2:50 pm
let's go on the offensive for a change
precisely, but for the forementioned scholastic nonsense of our salty and fresh feline friends, one would need a salient and orchestrated defense, as to why such meddling with traditional economic trajectories, will mean that: by foregoing my 'short sided 2018 increase in my personal deduction', will I actually allow myself to feel benign about the sagging state of civilization, that those 'cats of all breeds', have so eloquently perpetuated upon a 'generation of our peers'.
calling 'message central', the 'greater good awaits'. YesLeft in Wisconsin , December 22, 2017 at 6:33 pm
I still can't get my head around the fact that these models can persist in the economics literature whilst everyone knows they are based on flawed assumptions. In science these would quickly end up as part of some distant history. Someone would publish another model, and slowly everyone would start working with it if it had strong explanatory power. Imagine the grief that climate modellers would get if theirs models were so poorly grounded.Susan the other , December 22, 2017 at 2:57 pm
You could almost think it was ideology trumping evidence.cnchal , December 22, 2017 at 3:07 pm
Thank you for this post. It was as good as Michael Hudson and all the clear thinkers you post for us. Since we got rid of Greenspan (who admitted that interest rates had no effect on the economy but still freaked out about inflaltion), Bernanke and then Yellen have had better instincts – not straightforward, but better. If central banks know the loanable funds theory to be nonsense, the battle is mostly won. MMT will be the logical next step. Public spending/infrastructure is just good grassroots policy that serve everyone. Even dithering goofballs like Larry Summers. And, as implied above, public spending takes care of the always ignored problem of private debt levels which suck productive spending and investment out of the economy, because unemployment. It's hard to believe that academics have been so wrong-headed for so long without any evidence for their claims. Steve Keen's premise, that these academics ignore both the existence of private debt and the importance of dwindling energy sources is also addressed above. Storm's point – also made by both old hands and new MMT – that there is not a problem with inflation (too much) if there are slack resources seems to have morphed into an ossified rule whereby some inflexible academics see slack resources as scarce resources. What is slack is always a political definition. What is slack today is a filthy environment; there is a great surplus of it. Enormously slack. That's the good news.Enquiring Mind , December 23, 2017 at 11:19 am
What are the causes of secular stagnation?
Globalization is a disaster wherever you care to look.
Big corporations like Alphabet, Facebook and Microsoft are holding enormous amounts of liquidity . . .
A better example is Apple, with it's roughly 1/4 trillion dollar cash hoard, beaten out of their Chinese work force in collusion of the Chinese elite. With wages crushed here and there, because they don't want to pay anyone anything anywhere, where will demand come from? The Chinese peasant slaving away on an Apple farm has a few square feet of living space, like a broiler chicken in a Tyson cage so where is she going to put the new furniture she can't afford?
Banks create credit, money, and thus purchasing power. [ ] The vast majority of what we count as "money' in modern economies is created in this fashion: in the United Kingdom 98% of money takes this form .
The banks are the MMT practicing intermediary between the federal government and the peasants.knowbuddhau , December 22, 2017 at 3:22 pm
Was the Tax Cut a Hail Mary to get more aggregate demand? Perhaps the Administration is practicing anti-loanable funds on the sly.knowbuddhau , December 22, 2017 at 4:23 pm
So much goodness, don't know where to start. It's a long post. It's my day (singular) off. I'm going long. Deacon Blues* applies.
Ever since Knut Wicksell's (1898) restatement of the doctrine, the loanable funds approach has exerted a surprisingly strong influence upon some of the best minds in the profession. Its appeal lies in the fact that it can be presented in digestible form in a simple diagram (as Figure 1), while its micro-economic logic matches the neoclassical belief in the 'virtue of thrift' and Max Weber's Protestant Ethic, which emphasize austerity, savings (before spending!) and delayed gratification as the path to bliss.
Now we're talking. This puts the doctrine in the context of its parent beliefs.
The way I see it, beliefs:economics as operating system:application as mythology:religion. So shorter Storm: The LFF is a BS application for a BS OS.
Been dawning on me lately how neoliberalism is the spawn of a degenerate parent belief system, too. I was even thinking of Weber just the other day.
By speaking in apparently objective, pragmatic, "realistic" terms, public figures are notorious for "dog-whistling" their occult beliefs in terms their congregations hear loud and clear. When Her Royal Clinton's even more notoriously damned to hell half the population as "deplorables," she tipped her hand. The obscure term, ephors, is very instructive here.
To refesh the readers memory, "Schumpeter (1934, p. 74) called the money-creating banker 'the ephor of the exchange economy' -- someone who by creating credit (ex nihilo) is pre-financing new investments and innovation and enables "the carrying out of new combinations, authorizes people, in the name of society as it were, to form them."
Not so fast, though. Who were the original ephors?
Herodotus claimed that the institution was created by Lycurgus, while Plutarch considers it a later institution. It may have arisen from the need for governors while the kings were leading armies in battle. The ephors were elected by the popular assembly, and all citizens were eligible for election. They were forbidden to be reelected. They provided a balance for the two kings, who rarely cooperated with each other. Plato called them tyrants who ran Sparta as despots, while the kings were little more than generals. Up to two ephors would accompany a king on extended military campaigns as a sign of control, and they held the authority to declare war during some periods in Spartan history.
According to Plutarch, every autumn, at the crypteia, the ephors would pro forma declare war on the helot population so that any Spartan citizen could kill a helot without fear of blood guilt. This was done to keep the large helot population in check.
The ephors did not have to kneel down before the Kings of Sparta and were held in high esteem by the citizens, because of the importance of their powers and because of the holy role they earned throughout their functions.
Ain't that something. We don't call it "class war" for nothing. More on the crypteia:
The Crypteia or Krypteia (Greek: κρυπτεία krupteía from κρυπτός kruptós, "hidden, secret things") was an ancient Spartan state institution involving young Spartan men. Its goal and nature are still a matter of discussion and debate among historians, but some scholars (Wallon) consider the Krypteia to be a kind of secret police and state security force organized by the ruling classes of Sparta, whose purpose was to terrorize the servile helot population. Others (Köchly, Wachsmuth) believe it to be a form of military training, similar to the Athenian ephebia.
So Schumpeter's metaphor is way too apt for comfort. Gets right under my skin.
For a modern equivalent of the pro forma declaration of civil war, I'm thinking "election cycle." Hippie-punching and all that goes a long way back, eh?
Let's cut to the chase: what's all this talk of econ as religion telling us? ISTM arguing with neoliberals as they frame the debate is like arguing with theologians in their terms. My learning psych professor, Robert Bolles, regarding the dismantling of ascendant BS models, always said, you don't take down an enormous tree leaf by leaf, you go where it meets the ground. Where does neoliberalism meet the ground? And its parent belief system?
Neoliberalism is so poorly grounded, it's shorting out all over the place. This could be easier than it looks. Storm's argument is compelling (at least to this newbie). What are its other weakest links? (Not being rhetorical here. I really don't know. A little help?)
Speaking of Weber, one of the major factors in the Reformation was the utter failure of the Catholic church to be able to produce a valid calendar . The trouble is of course, in their mythos, you have to perform the proper rituals at the proper time and often in the proper place, or you will fry in hell forever and ever amen.
Obviously, then, the calculation of the equinox assumed considerable and understandable importance. If the equinox was wrong, then Easter was celebrated on the wrong day and the placement of most of the other observances -- such as the starts of Lent and Pentecost -- would also be in error.
As the Julian calendar was far from perfect, errors did indeed begin to creep into the keeping of time. Because of the inherent imprecision of the calendar, the calculated year was too long by 11 minutes and 14 seconds. The problem only grew worse with each passing year as the equinox slipped backwards one full day on the calendar every 130 years. For example, at the time of its introduction, the Julian calendar placed the equinox on March 25. By the time of the Council of Nicea in 325, the equinox had fallen back to March 21. By 1500, the equinox had shifted by 10 days.
The 10 days were of increasing importance also to navigation and agriculture, causing severe problems for sailors, merchants, and farmers whose livelihood depended upon precise measurements of time and the seasons. At the same time, throughout the Middle Ages, the use of the Julian calendar brought with it many local variations and peculiarities that are the constant source of frustration to historians. For example, many medieval ecclesiastical records, financial transactions, and the counting of dates from the feast days of saints did not adhere to the standard Julian calendar but reflected local adjustments. Not surprisingly, confusion was the result.
The Church Saves Time
[Doncha just love that succinct bit of myth-making? smh]
The Church was aware of the inaccuracy, and by the end of the 15th century there was widespread agreement among Church leaders that not celebrating Easter on the right day -- the most important and most solemn event on the calendar -- was a scandal.
A functioning mythology tells one how to be human right now. The Catholic church couldn't even tell people what date it was, putting not just ephemeral souls in peril should one die, even more of a daily dread in those days, but lives and property were increasingly at risk.
ISTM we're in an analogous situation. Our two high holies, Wall Street and Washington, DC, are increasingly irrelevant to us helots. They're of no use to us in ordering our daily lives. In fact, they've becoming openly hostile, dropping any pretense of governing for the common good, and I'm not referring only to Trump, eg, whatever happened to habeas corpus ? "If you like your health plan, you can keep it." The betrayals come fast and furious, too fast to keep up.
Others are rejecting science. A schism here, a schism there, pretty soon it all cracks up one day "outta nowhere." And I do mean "one day."
Moving right along, let's look at "the virtue of thrift."
Like the "virtues" of the LF fallacy, it arises from a parent belief system. This is from Some Call for Reclaiming the Virtue of Thrift (emphasis added).
In the formative years of United States history, prominent thinkers such as Ben Franklin promoted a "thrift ethic" that encouraged hard work, frugal spending on self and generous giving to charity, he asserted, maintaining "thrift" was simply the secular term for the religious stewardship principle . And institutions developed to support that ethic, he noted.
That's what I'm saying: secular institutions are the operationalizations, the applications, of belief systems, and further, we can study them instead of just saying "religion = bad = no further analysis required" and then dismissing it all out of hand.
As with LF-supply and LF-demand, secular and sectarian are not the independent variables they're made out to be, as argued so well by Cook & Ferguson right here on NC in The Real Economic Consequences of Martin Luther , eg, "[Henry VIII] did not abolish the papacy so much as take the pope's place." Same goes for today, IMNSHO: Our "secular" leaders are sectarian high priests in mufti.
The Baptist article also goes on to say what the flock people should do: ignore Wall St. and DC. Unsuprisingly, it's also chock full of punching downwards and victim-blaming. Payday lending and lotteries are to blame, they say. People just need to be more thrifty , which apparently means, impoverish yourself for the betterment of your betters. Or else.
When HRC damned half of us to Hell, she was dog-whistling loud and clear in a tradition going at least as far back as the wars of the ephors on the helots. When the high priests of our high holy temples of finance tell us we need more austerity, although they speak in terms apparently objective and especially dispassionate, it's nothing but the failed preachings of the failed priests of a failed church.
Looked at as comparative mythology, and speaking empirically as well (much obliged to the present author and our hosts, sincerely) neoliberalism is no way of being human.
Sure, us nerds get that. But wonky discussions don't move people. The execrable Mario Cuomo is credited with saying, "You campaign in poetry, you govern in prose," and I think it's profoundly true. Telling my friends we've debunked the Loanable Funds Fallacy will get me nowhere.
Oy vey. The immense satisfaction I had been feeling, of seeing through neoliberalism all the way to its core, sure was short lived. Now I need to know what MMT says about being human. This is what happens when you start thinking in words, you know. It never ends!
I've heard Steve Keen's writing won't be much help in popularizing MMT in time. Who's a witty MMTer? Who can express its way of being human in one-liners? Who's punchy?
(Administrivia: "Suppose there is an exogenous (unexplained) *rise* in the average propensity to save. In reponse, the LF-supply curve shifts down ." Shouldn't that be "drop"?)
* This is the night of the expanding man
I take one last drag as I approach the stand
I cried when I wrote this song
Sue me if I play too long
This brother is free
I'll be what I want to beknowbuddhau , December 22, 2017 at 4:23 pm
Oops left out two links https://en.wikipedia.org/wiki/Ephorsusan the other , December 23, 2017 at 12:11 pm
And https://en.wikipedia.org/wiki/CrypteiaJustAnObserver , December 22, 2017 at 5:16 pm
Very interesting rant, Knowbuddhau. Imo all we have to do is get over gold. It made sense before the days of sovereign fiat that you saved your coins before you spent them. How else? But fiat is the essential spirit of money while gold was/is a craze. And the Neoliberals are unenlightened just like the Neocons against whom they pretend to react. But they are reactionaries regardless. That's their problem. All reaction, no action. When Storm refers to Kalecki above saying the original sin of economics was confusing stocks with flows, I take it to mean confusing fiat with gold in a sense. Once upon a time a store of value (a pouch full of gold coins) was the same thing as a medium of exchange. Not any more. Fiat is the only mechanism, spent in advance to promote social well being, that can create an "economy" in this world of zillions of people.ewmayer , December 22, 2017 at 8:11 pm
Isn't a bit of an irony that the academic papers being debunked here were commissioned by the Institute for *New* Economic Thinking ? Sad to see its also been corrupted by the neoliberal virus (political Ebola).Dan , December 23, 2017 at 12:40 am
The author writes about the fuctional LF paradigm: "Banks, in this narrative, do not create money themselves and hence cannot pre -finance investment by new money. They only move it between savers and investors." -- Note that that narrative doesn't even make sense *within* the loanable-funds model, because with fractional reserve banking, even if banks were required to loan against pre-existing deposits, they could amplify each dollar of same into multiple units of newly-created credit money. The fact that what really happens goes even further and entirely omits the need for pre-existing funds from the banks' monetary legerdemain is the reason for my pet term for the "loans create deposits" reality: "fictional reserve banking."Steven Greenberg , December 23, 2017 at 11:29 am
Aggregate demand increases investment only to the extant that it increases profitable opportunities. If costs remain constant, then obviously an increase in demand increases profitability. But an increase in wages doesn't merely increase aggregate demand, it also increases aggregate costs because that's what a wage is to a firm. If aggregate wages were boosted by $1 trillion, consumption will be boosted by less than 100% of that (workers will save some of their increased income) while firms will have to pay the full $1 trillion in increased wages if they are to employ the workers. So how is increasing wages supposed to increase profitability and investment? It seems like it would do the opposite.
We really need to look more at profit. The aggregate profit rate is determined by the cost of the total capital employed in relation to the output. If the costs rise faster than productivity growth, then profitability falls. How do aggregate costs rise? By capital accumulation, by an increase in savings and investment. Thus, it would seem that stagnation can only be reached if too much capital has been accumulated without a corresponding increase in productivity. This hypothesis doesn't rely on the loanable funds theory (it doesn't matter whether the money exists before it is spent), but it is more similar to the savings glut explanation because it is the accumulation of capital that leads to the fall in profitability. The suppression of wages is an effect, an attempt to create profitable opportunities when there are none.Steven Greenberg , December 23, 2017 at 10:42 am
Your model is correct when you limit yourself to the variables in your model. Real life economies are complex, dynamic interactions of many variables. At different times some variable become more important than others.
I think your variable, capital accumulation, is itself a complicated mix of many variables. Sometimes the cost of "capital accumulation" may be controlling, and sometimes not. It also depends on which variables within capital accumulation are having the most impact.Steven Greenberg , December 23, 2017 at 10:55 am
I think one of the major problems of the theory of supply and demand is that it may be true as a static model (all other things being equal), but the economy (and life) are not static. Unless you can take dynamic effects into account, then this static or even quasi-static model will just not represent what actually happens. This is just another way of saying what this article says. Over time, the supply curve and the demand curve interact. There is hardly, if any, point in time when all other things aren't changing.
In my world of simulating the behavior of integrated circuits, the problem involves non-linear differential equations, not just non-linear algebraic equations.Steven Greenberg , December 23, 2017 at 11:02 am
Here is another problem. " by the national accounts[,] identity of saving and investment (for closed economies),"
Accounting is also a static snapshot of a dynamic system. A bank creates a loan payable in let's say 30 years. The spending occurs immediately. In accounting terms these two items balance. However, on impact on the economy, they do not balance. Why else would capitalism have noticed the value of buy now, pay later?Steven Greenberg , December 23, 2017 at 11:23 am
This is no longer a chicken and egg problem of which came first, the chicken or the egg. In real life, there are lots of chickens and lots of eggs. Which came first is irrelevant. Chickens create eggs and eggs create chickens.Cat Burglar , December 23, 2017 at 3:56 pm
Models are a simplification of reality. They apply best when the things that were simplified away don't matter much. They fail when the things that were simplified away become important. So, when does the loanable funds model apply?
IMHO, the loanable funds model applies when there is a run on the bank. When the fractional reserve banking system is running smoothly, the loanable funds model is irrelevant. That's why banks have reserves and monetary systems have central reserve banks. These reserve systems let us ignore loanable funds models.
These are great comments! You put the whole process in time.
Dec 12, 2017 | www.theamericanconservative.com
On America's 'long emergency' of recession, globalization, and identity politics.
Can a people recover from an excursion into unreality? The USA's sojourn into an alternative universe of the mind accelerated sharply after Wall Street nearly detonated the global financial system in 2008. That debacle was only one manifestation of an array of accumulating threats to the postmodern order, which include the burdens of empire, onerous debt, population overshoot, fracturing globalism, worries about energy, disruptive technologies, ecological havoc, and the specter of climate change.
A sense of gathering crisis, which I call the long emergency , persists. It is systemic and existential. It calls into question our ability to carry on "normal" life much farther into this century, and all the anxiety that attends it is hard for the public to process. It manifested itself first in finance because that was the most abstract and fragile of all the major activities we depend on for daily life, and therefore the one most easily tampered with and shoved into criticality by a cadre of irresponsible opportunists on Wall Street. Indeed, a lot of households were permanently wrecked after the so-called Great Financial Crisis of 2008, despite official trumpet blasts heralding "recovery" and the dishonestly engineered pump-up of capital markets since then.
With the election of 2016, symptoms of the long emergency seeped into the political system. Disinformation rules. There is no coherent consensus about what is happening and no coherent proposals to do anything about it. The two parties are mired in paralysis and dysfunction and the public's trust in them is at epic lows. Donald Trump is viewed as a sort of pirate president, a freebooting freak elected by accident, "a disrupter" of the status quo at best and at worst a dangerous incompetent playing with nuclear fire. A state of war exists between the White House, the permanent D.C. bureaucracy, and the traditional news media. Authentic leadership is otherwise AWOL. Institutions falter. The FBI and the CIA behave like enemies of the people.
Bad ideas flourish in this nutrient medium of unresolved crisis. Lately, they actually dominate the scene on every side. A species of wishful thinking that resembles a primitive cargo cult grips the technocratic class, awaiting magical rescue remedies that promise to extend the regime of Happy Motoring, consumerism, and suburbia that makes up the armature of "normal" life in the USA. They chatter about electric driverless car fleets, home delivery drone services, and as-yet-undeveloped modes of energy production to replace problematic fossil fuels, while ignoring the self-evident resource and capital constraints now upon us and even the laws of physics -- especially entropy , the second law of thermodynamics. Their main mental block is their belief in infinite industrial growth on a finite planet, an idea so powerfully foolish that it obviates their standing as technocrats.
The non-technocratic cohort of the thinking class squanders its waking hours on a quixotic campaign to destroy the remnant of an American common culture and, by extension, a reviled Western civilization they blame for the failure in our time to establish a utopia on earth. By the logic of the day, "inclusion" and "diversity" are achieved by forbidding the transmission of ideas, shutting down debate, and creating new racially segregated college dorms. Sexuality is declared to not be biologically determined, yet so-called cis-gendered persons (whose gender identity corresponds with their sex as detected at birth) are vilified by dint of not being "other-gendered" -- thereby thwarting the pursuit of happiness of persons self-identified as other-gendered. Casuistry anyone?
The universities beget a class of what Nassim Taleb prankishly called "intellectuals-yet-idiots," hierophants trafficking in fads and falsehoods, conveyed in esoteric jargon larded with psychobabble in support of a therapeutic crypto-gnostic crusade bent on transforming human nature to fit the wished-for utopian template of a world where anything goes. In fact, they have only produced a new intellectual despotism worthy of Stalin, Mao Zedong, and Pol Pot.
In case you haven't been paying attention to the hijinks on campus -- the attacks on reason, fairness, and common decency, the kangaroo courts, diversity tribunals, assaults on public speech and speakers themselves -- here is the key take-away: it's not about ideas or ideologies anymore; it's purely about the pleasures of coercion, of pushing other people around. Coercion is fun and exciting! In fact, it's intoxicating, and rewarded with brownie points and career advancement. It's rather perverse that this passion for tyranny is suddenly so popular on the liberal left.
Until fairly recently, the Democratic Party did not roll that way. It was right-wing Republicans who tried to ban books, censor pop music, and stifle free expression. If anything, Democrats strenuously defended the First Amendment, including the principle that unpopular and discomforting ideas had to be tolerated in order to protect all speech. Back in in 1977 the ACLU defended the right of neo-Nazis to march for their cause (National Socialist Party of America v. Village of Skokie, 432 U.S. 43).
The new and false idea that something labeled "hate speech" -- labeled by whom? -- is equivalent to violence floated out of the graduate schools on a toxic cloud of intellectual hysteria concocted in the laboratory of so-called "post-structuralist" philosophy, where sundry body parts of Michel Foucault, Jacques Derrida, Judith Butler, and Gilles Deleuze were sewn onto a brain comprised of one-third each Thomas Hobbes, Saul Alinsky, and Tupac Shakur to create a perfect Frankenstein monster of thought. It all boiled down to the proposition that the will to power negated all other human drives and values, in particular the search for truth. Under this scheme, all human relations were reduced to a dramatis personae of the oppressed and their oppressors, the former generally "people of color" and women, all subjugated by whites, mostly males. Tactical moves in politics among these self-described "oppressed" and "marginalized" are based on the credo that the ends justify the means (the Alinsky model).
This is the recipe for what we call identity politics, the main thrust of which these days, the quest for "social justice," is to present a suit against white male privilege and, shall we say, the horse it rode in on: western civ. A peculiar feature of the social justice agenda is the wish to erect strict boundaries around racial identities while erasing behavioral boundaries, sexual boundaries, and ethical boundaries. Since so much of this thought-monster is actually promulgated by white college professors and administrators, and white political activists, against people like themselves, the motives in this concerted campaign might appear puzzling to the casual observer.
I would account for it as the psychological displacement among this political cohort of their shame, disappointment, and despair over the outcome of the civil rights campaign that started in the 1960s and formed the core of progressive ideology. It did not bring about the hoped-for utopia. The racial divide in America is starker now than ever, even after two terms of a black president. Today, there is more grievance and resentment, and less hope for a better future, than when Martin Luther King made the case for progress on the steps of the Lincoln Memorial in 1963. The recent flash points of racial conflict -- Ferguson, the Dallas police ambush, the Charleston church massacre, et cetera -- don't have to be rehearsed in detail here to make the point that there is a great deal of ill feeling throughout the land, and quite a bit of acting out on both sides.
The black underclass is larger, more dysfunctional, and more alienated than it was in the 1960s. My theory, for what it's worth, is that the civil rights legislation of 1964 and '65, which removed legal barriers to full participation in national life, induced considerable anxiety among black citizens over the new disposition of things, for one reason or another. And that is exactly why a black separatism movement arose as an alternative at the time, led initially by such charismatic figures as Malcolm X and Stokely Carmichael. Some of that was arguably a product of the same youthful energy that drove the rest of the Sixties counterculture: adolescent rebellion. But the residue of the "Black Power" movement is still present in the widespread ambivalence about making covenant with a common culture, and it has only been exacerbated by a now long-running "multiculturalism and diversity" crusade that effectively nullifies the concept of a national common culture.
What follows from these dynamics is the deflection of all ideas that don't feed a narrative of power relations between oppressors and victims, with the self-identified victims ever more eager to exercise their power to coerce, punish, and humiliate their self-identified oppressors, the "privileged," who condescend to be abused to a shockingly masochistic degree. Nobody stands up to this organized ceremonial nonsense. The punishments are too severe, including the loss of livelihood, status, and reputation, especially in the university. Once branded a "racist," you're done. And venturing to join the oft-called-for "honest conversation about race" is certain to invite that fate.
Globalization has acted, meanwhile, as a great leveler. It destroyed what was left of the working class -- the lower-middle class -- which included a great many white Americans who used to be able to support a family with simple labor. Hung out to dry economically, this class of whites fell into many of the same behaviors as the poor blacks before them: absent fathers, out-of-wedlock births, drug abuse. Then the Great Financial Crisis of 2008 wiped up the floor with the middle-middle class above them, foreclosing on their homes and futures, and in their desperation many of these people became Trump voters -- though I doubt that Trump himself truly understood how this all worked exactly. However, he did see that the white middle class had come to identify as yet another victim group, allowing him to pose as their champion.
The evolving matrix of rackets that prompted the 2008 debacle has only grown more elaborate and craven as the old economy of stuff dies and is replaced by a financialized economy of swindles and frauds . Almost nothing in America's financial life is on the level anymore, from the mendacious "guidance" statements of the Federal Reserve, to the official economic statistics of the federal agencies, to the manipulation of all markets, to the shenanigans on the fiscal side, to the pervasive accounting fraud that underlies it all. Ironically, the systematic chiseling of the foundering middle class is most visible in the rackets that medicine and education have become -- two activities that were formerly dedicated to doing no harm and seeking the truth !
Life in this milieu of immersive dishonesty drives citizens beyond cynicism to an even more desperate state of mind. The suffering public ends up having no idea what is really going on, what is actually happening. The toolkit of the Enlightenment -- reason, empiricism -- doesn't work very well in this socioeconomic hall of mirrors, so all that baggage is discarded for the idea that reality is just a social construct, just whatever story you feel like telling about it. On the right, Karl Rove expressed this point of view some years ago when he bragged, of the Bush II White House, that "we make our own reality." The left says nearly the same thing in the post-structuralist malarkey of academia: "you make your own reality." In the end, both sides are left with a lot of bad feelings and the belief that only raw power has meaning.
Erasing psychological boundaries is a dangerous thing. When the rackets finally come to grief -- as they must because their operations don't add up -- and the reckoning with true price discovery commences at the macro scale, the American people will find themselves in even more distress than they've endured so far. This will be the moment when either nobody has any money, or there is plenty of worthless money for everyone. Either way, the functional bankruptcy of the nation will be complete, and nothing will work anymore, including getting enough to eat. That is exactly the moment when Americans on all sides will beg someone to step up and push them around to get their world working again. And even that may not avail.
James Howard Kunstler's many books include The Geography of Nowhere, The Long Emergency, Too Much Magic: Wishful Thinking, Technology, and the Fate of the Nation , and the World Made by Hand novel series. He blogs on Mondays and Fridays at Kunstler.com .
Whine Merchant December 20, 2017 at 10:49 pmWow – is there ever negative!Celery , says: December 20, 2017 at 11:33 pmI think I need to go listen to an old-fashioned Christmas song now.Fran Macadam , says: December 20, 2017 at 11:55 pm
The ability to be financially, or at least resource, sustaining is the goal of many I know since we share a lack of confidence in any of our institutions. We can only hope that God might look down with compassion on us, but He's not in the practical plan of how to feed and sustain ourselves when things play out to their inevitable end. Having come from a better time, we joke about our dystopian preparations, self-conscious about our "overreaction," but preparing all the same.
Merry Christmas!Look at it this way: Germany had to be leveled and its citizens reduced to abject penury, before Volkswagen could become the world's biggest car company, and autobahns built throughout the world. It will be darkest before the dawn, and hopefully, that light that comes after, won't be the miniature sunrise of a nuclear conflagration.KD , says: December 21, 2017 at 6:02 amEat, Drink, and be Merry, you can charge it on your credit card!Rock Stehdy , says: December 21, 2017 at 6:38 amHard words, but true. Kunstler is always worth reading for his common-sense wisdom.Helmut , says: December 21, 2017 at 7:04 amAn excellent summary and bleak reminder of what our so-called civilization has become. How do we extricate ourselves from this strange death spiral?Liam , says: December 21, 2017 at 7:38 am
I have long suspected that we humans are creatures of our own personal/group/tribal/national/global fables and mythologies. We are compelled by our genes, marrow, and blood to tell ourselves stories of our purpose and who we are. It is time for new mythologies and stories of "who we are". This bizarre hyper-techno all-for-profit world needs a new story.Peter , says: December 21, 2017 at 8:34 am"The black underclass is larger, more dysfunctional, and more alienated than it was in the 1960s. My theory, for what it's worth, is that the civil rights legislation of 1964 and '65, which removed legal barriers to full participation in national life, induced considerable anxiety among black citizens over the new disposition of things, for one reason or another."
Um, forgotten by Kunstler is the fact that 1965 was also the year when the USA reopened its doors to low-skilled immigrants from the Third World – who very quickly became competitors with black Americans. And then the Boom ended, and corporate American, influenced by thinking such as that displayed in Lewis Powell's (in)famous 1971 memorandum, decided to claw back the gains made by the working and middle classes in the previous 3 decades.I have some faith that the American people can recover from an excursion into unreality. I base it on my own survival to the end of this silly rant.SteveM , says: December 21, 2017 at 9:08 amRe: Whine Merchant, "Wow – is there ever negative!"Dave Wright , says: December 21, 2017 at 9:22 am
Can't argue with the facts
P.S. Merry Christmas.Hey Jim, I know you love to blame Wall Street and the Republicans for the GFC. I remember back in '08 you were urging Democrats to blame it all on Republicans to help Obama win. But I have news for you. It wasn't Wall Street that caused the GFC. The crisis actually had its roots in the Clinton Administration's use of the Community Reinvestment Act to pressure banks to relax mortgage underwriting standards. This was done at the behest of left wing activists who claimed (without evidence, of course) that the standards discriminated against minorities. The result was an effective repeal of all underwriting standards and an explosion of real estate speculation with borrowed money. Speculation with borrowed money never ends well.NoahK , says: December 21, 2017 at 10:15 am
I have to laugh, too, when you say that it's perverse that the passion for tyranny is popular on the left. Have you ever heard of the French Revolution? How about the USSR? Communist China? North Korea? Et cetera.
Leftism is leftism. Call it Marxism, Communism, socialism, liberalism, progressivism, or what have you. The ideology is the same. Only the tactics and methods change. Destroy the evil institutions of marriage, family, and religion, and Man's innate goodness will shine forth, and the glorious Godless utopia will naturally result.
Of course, the father of lies is ultimately behind it all. "He was a liar and a murderer from the beginning."
When man turns his back on God, nothing good happens. That's the most fundamental problem in Western society today. Not to say that there aren't other issues, but until we return to God, there's not much hope for improvement.It's like somebody just got a bunch of right-wing talking points and mashed them together into one incohesive whole. This is just lazy.Andrew Imlay , says: December 21, 2017 at 10:36 amHmm. I just wandered over here by accident. Being a construction contractor, I don't know enough about globalization, academia, or finance to evaluate your assertions about those realms. But being in a biracial family, and having lived, worked, and worshiped equally in white and black communities, I can evaluate your statements about social justice, race, and civil rights. Long story short, you pick out fringe liberal ideas, misrepresent them as mainstream among liberals, and shoot them down. Casuistry, anyone?peter in boston , says: December 21, 2017 at 10:48 am
You also misrepresent reality to your readers. No, the black underclass is not larger, more dysfunctional, and more alienated now than in the 1960's, when cities across the country burned and machine guns were stationed on the Capitol steps. The "racial divide" is not "starker now than ever"; that's just preposterous to anyone who was alive then. And nobody I've ever known felt "shame" over the "outcome of the civil rights campaign". I know nobody who seeks to "punish and humiliate" the 'privileged'.
I get that this column is a quick toss-off before the holiday, and that your strength is supposed to be in your presentation, not your ideas. For me, it's a helpful way to rehearse debunking common tropes that I'll encounter elsewhere.
But, really, your readers deserve better, and so do the people you misrepresent. We need bad liberal ideas to be critiqued while they're still on the fringe. But by calling fringe ideas mainstream, you discredit yourself, misinform your readers, and contribute to stereotypes both of liberals and of conservatives. I'm looking for serious conservative critiques that help me take a second look at familiar ideas. I won't be back.Love Kunstler -- and love reading him here -- but he needs a strong editor to get him to turn a formless harangue into clear essay.Someone in the crowd , says: December 21, 2017 at 11:07 amI disagree, NoahK, that the whole is incohesive, and I also disagree that these are right-wing talking points.Jon , says: December 21, 2017 at 11:10 am
The theme of this piece is the long crisis in the US, its nature and causes. At no point does this essay, despite it stream of consciousness style, veer away from that theme. Hence it is cohesive.
As for the right wing charge, though it is true, to be sure, that Kunstler's position is in many respects classically conservative -- he believes for example that there should be a national consensus on certain fundamentals, such as whether or not there are two sexes (for the most part), or, instead, an infinite variety of sexes chosen day by day at whim -- you must have noticed that he condemned both the voluntarism of Karl Rove AND the voluntarism of the post-structuralist crowd.
My impression is that what Kunstler is doing here is diagnosing the long crisis of a decadent liberal post-modernity, and his stance is not that of either of the warring sides within our divorced-from-reality political establishment, neither that of the 'right' or 'left.' Which is why, logically, he published it here. National Review would never have accepted this piece. QED.This malaise is rooted in human consciousness that when reflecting on itself celebrating its capacity for apperception suffers from the tension that such an inquiry, such an inward glance produces. In a word, the capacity for the human being to be aware of his or herself as an intelligent being capable of reflecting on aspects of reality through the artful manipulation of symbols engenders this tension, this angst.Joe the Plutocrat , says: December 21, 2017 at 11:27 am
Some will attempt to extinguish this inner tension through intoxication while others through the thrill of war, and it has been played out since the dawn of man and well documented when the written word emerged.
The malaise which Mr. Kunstler addresses as the problem of our times is rooted in our existence from time immemorial. But the problem is not only existential but ontological. It is rooted in our being as self-aware creatures. Thus no solution avails itself as humanity in and of itself is the problem. Each side (both right and left) seeks its own anodyne whether through profligacy or intolerance, and each side mans the barricades to clash experiencing the adrenaline rush that arises from the perpetual call to arms.The scientist 880 , says: December 21, 2017 at 11:48 am"Globalization has acted, meanwhile, as a great leveler. It destroyed what was left of the working class -- the lower-middle class -- which included a great many white Americans who used to be able to support a family with simple labor."
And to whom do we hand the tab for this? Globalization is a word. It is a concept, a talking point. Globalization is oligarchy by another name. Unfortunately, under-educated, deplorable, Americans; regardless of party affiliation/ideology have embraced. And the most ironic part?
Russia and China (the eventual surviving oligarchies) will eventually have to duke it out to decide which superpower gets to make the USA it's b*tch (excuse prison reference, but that's where we're headed folks).
And one more irony. Only in American, could Christianity, which was grew from concepts like compassion, generosity, humility, and benevolence; be re-branded and 'weaponized' to further greed, bigotry, misogyny, intolerance, and violence/war. Americans fiddled (over same sex marriage, abortion, who has to bake wedding cakes, and who gets to use which public restroom), while the oligarchs burned the last resources (natural, financial, and even legal).Adam , says: December 21, 2017 at 11:57 am"Today, there is more grievance and resentment, and less hope for a better future, than when Martin Luther King made the case for progress on the steps of the Lincoln Memorial in 1963."
Spoken like a white guy who has zero contact with black people. I mean, even a little bit of research and familiarity would give lie to the idea that blacks are more pessimistic about life today than in the 1960's.
Black millenials are the most optimistic group of Americans about the future. Anyone who has spent any significant time around older black people will notice that you don't hear the rose colored memories of the past. Black people don't miss the 1980's, much less the 1950's. Young black people are told by their elders how lucky they are to grow up today because things are much better than when grandpa was our age and we all know this history.\
It's clear that this part of the article was written from absolute ignorance of the actual black experience with no interest in even looking up some facts. Hell, Obama even gave a speech at Howard telling graduates how lucky they were to be young and black Today compared to even when he was their age in the 80's!
Here is the direct quote;
"In my inaugural address, I remarked that just 60 years earlier, my father might not have been served in a D.C. restaurant -- at least not certain of them. There were no black CEOs of Fortune 500 companies. Very few black judges. Shoot, as Larry Wilmore pointed out last week, a lot of folks didn't even think blacks had the tools to be a quarterback. Today, former Bull Michael Jordan isn't just the greatest basketball player of all time -- he owns the team. (Laughter.) When I was graduating, the main black hero on TV was Mr. T. (Laughter.) Rap and hip hop were counterculture, underground. Now, Shonda Rhimes owns Thursday night, and Beyoncé runs the world. (Laughter.) We're no longer only entertainers, we're producers, studio executives. No longer small business owners -- we're CEOs, we're mayors, representatives, Presidents of the United States. (Applause.)
I am not saying gaps do not persist. Obviously, they do. Racism persists. Inequality persists. Don't worry -- I'm going to get to that. But I wanted to start, Class of 2016, by opening your eyes to the moment that you are in. If you had to choose one moment in history in which you could be born, and you didn't know ahead of time who you were going to be -- what nationality, what gender, what race, whether you'd be rich or poor, gay or straight, what faith you'd be born into -- you wouldn't choose 100 years ago. You wouldn't choose the fifties, or the sixties, or the seventies. You'd choose right now. If you had to choose a time to be, in the words of Lorraine Hansberry, "young, gifted, and black" in America, you would choose right now. (Applause.)"
https://www.google.com/amp/s/m.huffpost.com/us/entry/us_58cf1d9ae4b0ec9d29dcf283/ampI love reading about how the Community Reinvestment Act was the catalyst of all that is wrong in the world. As someone in the industry the issue was actually twofold. The Commodities Futures Modernization Act turned the mortgage securities market into a casino with the underlying actual debt instruments multiplied through the use of additional debt instruments tied to the performance but with no actual underlying value. These securities were then sold around the world essentially infecting the entire market. In order that feed the beast, these NON GOVERNMENT loans had their underwriting standards lowered to rediculous levels. If you run out of qualified customers, just lower the qualifications. Government loans such as FHA, VA, and USDA were avoided because it was easier to qualify people with the new stuff. And get paid. The short version is all of the incentives that were in place at the time, starting with the Futures Act, directly led to the actions that culminated in the Crash. So yes, it was the government, just a different piece of legislation.SteveM , says: December 21, 2017 at 12:29 pmKunstler itemizing the social and economic pathologies in the United States is not enough. Because there are other models that demonstrate it didn't have to be this way.One Guy , says: December 21, 2017 at 1:10 pm
E.g. Germany. Germany is anything but perfect and its recent government has screwed up with its immigration policies. But Germany has a high standard of living, an educated work force (including unions and skilled crafts-people), a more rational distribution of wealth and high quality universal health care that costs 47% less per capita than in the U.S. and with no intrinsic need to maraud around the planet wasting gobs of taxpayer money playing Global Cop.
The larger subtext is that the U.S. house of cards was planned out and constructed as deliberately as the German model was. Only the objective was not to maximize the health and happiness of the citizenry, but to line the pockets of the parasitic Elites. (E.g., note that Mitch McConnell has been a government employee for 50 years but somehow acquired a net worth of over $10 Million.)
P.S. About the notionally high U.S. GDP. Factor out the TRILLIONS inexplicably hoovered up by the pathological health care system, the metastasized and sanctified National Security State (with its Global Cop shenanigans) and the cronied-up Ponzi scheme of electron-churn financialization ginned up by Goldman Sachs and the rest of the Banksters, and then see how much GDP that reflects the actual wealth of the middle class is left over.Right-Wing Dittoheads and Fox Watchers love to blame the Community Reinvestment Act. It allows them to blame both poor black people AND the government. The truth is that many parties were to blame.LouB , says: December 21, 2017 at 1:14 pmOne of the things I love about this rag is that almost all of the comments are included. You may be sure that similar commenting privilege doesn't exist most anywhere else.tzx4 , says: December 21, 2017 at 1:57 pm
Any disfavor regarding the supposed bleakness with the weak hearted souls aside, Mr K's broadside seems pretty spot on to me.I think the author overlooks the fact that government over the past 30 to 40 years has been tilting the playing field ever more towards the uppermost classes and against the middle class. The evisceration of the middle class is plain to see.Jeeves , says: December 21, 2017 at 2:09 pm
If the the common man had more money and security, lots of our current intrasocial conflicts would be far less intense.Andrew Imlay: You provide a thoughtful corrective to one of Kunstler's more hyperbolic claims. And you should know that his jeremiad doesn't represent usual fare at TAC. So do come back.Wezz , says: December 21, 2017 at 2:44 pm
Whether or not every one of Kunstler's assertions can withstand a rigorous fact-check, he is a formidable rhetorician. A generous serving of Weltschmerz is just what the season calls for.America is stupefied from propaganda on steroids for, largely from the right wing, 25? years of Limbaugh, Fox, etc etc etc Clinton hate x 10, "weapons of mass destruction", "they hate us because we are free", birtherism, death panels, Jade Helm, pedophile pizza, and more Clinton hate porn.John Blade Wiederspan , says: December 21, 2017 at 4:26 pm
Americans have been taught to worship the wealthy regardless of how they got there. Americans have been taught they are "Exceptional" (better, smarter, more godly than every one else) in spite of outward appearances. Americans are under educated and encouraged to make decisions based on emotion from constant barrage of extra loud advertising from birth selling illusion.
Americans brain chemistry is most likely as messed up as the rest of their bodies from junk or molested food. Are they even capable of normal thought?
Donald Trump has convinced at least a third of Americans that only he, Fox, Breitbart and one or two other sources are telling the Truth, every one else is lying and that he is their friend.
Is it possible we are just plane doomed and there's no way out?I loathe the cotton candy clown and his Quislings; however, I must admit, his presence as President of the United States has forced everyone (left, right, religious, non-religious) to look behind the curtain. He has done more to dis-spell the idealism of both liberal and conservative, Democrat and Republican, rich and poor, than any other elected official in history. The sheer amount of mind-numbing absurdity resulting from a publicity stunt that got out of control ..I am 70 and I have seen a lot. This is beyond anything I could ever imagine. America is not going to improve or even remain the same. It is in a 4 year march into worse, three years to go.EarlyBird , says: December 21, 2017 at 5:23 pmSheesh. Should I shoot myself now, or wait until I get home?dvxprime , says: December 21, 2017 at 5:46 pmMr. Kuntzler has an honest and fairly accurate assessment of the situation. And as usual, the liberal audience that TAC is trying so hard to reach, is tossing out their usual talking points whilst being in denial of the situation.Slooch , says: December 21, 2017 at 7:03 pm
The Holy Bible teaches us that repentance is the first crucial step on the path towards salvation. Until the progressives, from their alleged "elite" down the rank and file at Kos, HuffPo, whatever, take a good, long, hard look at the current national dumpster fire and start claiming some responsibility, America has no chance of solving problems or fixing anything.Kunstler must have had a good time writing this, and I had a good time reading it. Skewed perspective, wild overstatement, and obsessive cherry-picking of the rare checkable facts are mixed with a little eye of newt and toe of frog and smothered in a oar and roll of rhetoric that was thrilling to be immersed in. Good work!jp , says: December 21, 2017 at 8:09 pmaah, same old Kunstler, slightly retailored for the Trump years.c.meyer , says: December 21, 2017 at 8:30 pm
for those of you familiar with him, remember his "peak oil" mania from the late 00s and early 2010s? every blog post was about it. every new year was going to be IT: the long emergency would start, people would be Mad Maxing over oil supplies cos prices at the pump would be $10 a gallon or somesuch.
in this new rant, i did a control-F for "peak oil" and hey, not a mention. I guess even cranks like Kunstler know when to give a tired horse a rest.So what else is new. Too 'clever', overwritten, no new ideas. Can't anyone move beyond clichés?Active investor , says: December 22, 2017 at 12:35 amKunstler once again waxes eloquent on the American body politic. Every word rings true, except when it doesn't. At times poetic, at other times paranoid, Kunstler does us a great service by pointing a finger at the deepest pain points in America, any one of which could be the geyser that brings on catastrophic failure.JonF , says: December 22, 2017 at 9:52 am
However, as has been pointed out, he definitely does not hang out with black people. For example, the statement:
But the residue of the "Black Power" movement is still present in the widespread ambivalence about making covenant with a common culture, and it has only been exacerbated by a now long-running "multiculturalism and diversity" crusade that effectively nullifies the concept of a national common culture.
The notion of a 'national common culture' is interesting but pretty much a fantasy that never existed, save colonial times.
Yet Kunstler's voice is one that must be heard, even if he is mostly tuning in to the widespread radicalism on both ends of the spectrum, albeit in relatively small numbers. Let's face it, people are in the streets marching, yelling, and hating and mass murders keep happening, with the regularity of Old Faithful. And he makes a good point about academia loosing touch with reality much of the time. He's spot on about the false expectations of what technology can do for the economy, which is inflated with fiat currency and God knows how many charlatans and hucksters. And yes, the white working class is feeling increasingly like a 'victim group.'
While Kunstler may be more a poet than a lawyer, more songwriter than historian, my gut feeling is that America had better take notice of him, as The American ship of state is being swept by a ferocious tide and the helmsman is high on Fentanyl (made in China).Re: The crisis actually had its roots in the Clinton Administration's use of the Community Reinvestment Actkevin on the left , says: December 22, 2017 at 10:49 am
Here we go again with this rotting zombie which rises from its grave no matter how many times it has been debunked by statisticians and reputable economists (and no, not just those on the left– the ranks include Bruce Bartlett for example, a solid Reaganist). To reiterate again : the CRA played no role in the mortgage boom and bust. Among other facts in the way of that hypothesis is the fact that riskiest loans were being made by non-bank lenders (Countrywide) who were not covered by the CRA which only applied to actual banks– and the banks did not really get into the game full tilt, lowering their lending standards, until late in the game, c. 2005, in response to their loss of business to the non-bank lenders. Ditto for the GSEs, which did not lower their standards until 2005 and even then relied on wall Street to vet the subprime loans they were buying.
To be sure, blaming Wall Street for everything is also wrong-headed, though wall Street certainly did some stupid, greedy and shady things (No, I am not letting them off the hook!) But the cast of miscreants is numbered in the millions and it stretches around the planet. Everyone (for example) who got into the get-rich-quick Ponzi scheme of house flipping, especially if they lied about their income to do so. And everyone who took out a HELOC (Home Equity Line of Credit) and foolishly charged it up on a consumption binge. And shall we talk about the mortgage brokers who coached people into lying, the loan officers who steered customers into the riskiest (and highest earning) loans they could, the sellers who asked palace-prices for crackerbox hovels, the appraisers who rubber-stamped such prices, the regulators who turned a blind eye to all the fraud and malfeasance, the ratings agencies who handed out AAA ratings to securities full of junk, the politicians who rejoiced over the apparent "Bush Boom" well, I could continue, but you get the picture.
We have met the enemy and he was us."The Holy Bible teaches us that repentance is the first crucial step on the path towards salvation. Until the progressives, from their alleged "elite" down the rank and file at Kos, HuffPo, whatever, take a good, long, hard look at the current national dumpster fire and start claiming some responsibility, America has no chance of solving problems or fixing anything."
Pretty sure that calling other people to repent of their sin of disagreeing with you is not quite what the Holy Bible intended.
Dec 16, 2017 | www.nakedcapitalism.com
likbez , , December 17, 7935 at 3:13 pmMy impression is that this a gap (could be intentional) between IEA statistics and predictions and the reality. This is propaganda agency after all, with the explicit agenda of keeping the oil price for Us consumers low. So typically that produce too "rosy" forecasts that later are quietly corrected. Their short-term forecasts are based on oil futures and as such has nothing to do with the reality on the ground. Which is quite disturbing.
It is undeniable that shale boom which played such a beneficial role for the USA allowing to squeeze oil price (with generous help from KSA) for two and half years is dead.
Now is kept artificially alive by junk bonds and directs loans that will never be repaid. In other words, the USA now enjoys a period of "subprime oil. Unless there is a new technological breakthrough there will be an only minor improvement in efficiency of drilling and oil extraction in the next couple of years, but the lion share of those was already implemented, and on the current technological level we are close to the "peak efficiency" in drilling and services.
Those minor efficiencies will be negated by rising prices of service industries, which can't take the current pricing any longer and need to raise prices for their services.
Old "classic" land-based oil fields deteriorate to the tune of 5% per year, while deep sea deteriorate more and subprime wells much more. You can probably double the figure for each, although much depends on particular geology. Infill drilling accelerates depletion, allowing to maintain high production for sometimes so changes can be abrupt.
In any case each year you need somehow to find 5 MB/d of oil, finance new wells in those areas and infrastructure required. All Us shale production is around 6 MD/day. So you get the idea.
Moreover, with each year, "subprime wells" (multi-stage shale well) costs more and now are at a range of n 6-10 million depending on the number and the length of horizontals and number of fracking stages and other factors. Only few area (sweet spots) can recover this capital investment during the life of the shale well at current prices). More at around $80 and almost all around $100 per barrel. The later is also the price that KSA needs to remain solvent (rumored to be in low 90th).
The shale oil produced in the USA is really "subprime" because large part of it has lower energy content (by 20% or more) and different mix of various hydrocarbons that "classic" oil. Especially condensate from gas wells. Which optimally can be used only as diluter for heavy oil. EIA does not differentiate between different types oil and use wrong metric (volume instead of weight). May be intentionally.
So the future remains unpredictable but general trend for oil prices might be up with some spikes, not down. Although many people, including myself, thought so in early 2015 ;-)
Another factor is that world consumption continue to grow and will do so because population in large part of Asia and Africa is still growing and number of cars on the road increase each year requiring on average 1-1.4 MB/d additionally.
So it looks like the situation gradually deteriorate despite all efforts and related technological breakthrough which allow to extract more from the old wells and more efficiently extract shale oil.
The problem is that new large deposits are very hard to find now and several previously oil-exporting countries gradually became oil-importers. Mexico is one, which will be huge hit.
Obama administration screw the opportunity to move US consumers to hybrid cars so the situation in the USA deteriorates too despite rise of percentage of more economical vehicle in the personal car fleet each year. Rumors were that they pursue vendetta against Russia and that was primary consideration - to crash Russian economy and install a new "Yeltsin".
The USA generally is in better position then many other countries as the switch to natural gas and hybrid electric cars for personal transportation is still possible. It already happened in several European countries for selected types of cars, buses and trucks (taxi, in-city buses and "daily round trip or short trips trucks).
But there is no money for infrastructure anymore and for example many miles of US rail remain non-electrified. Burning diesel instead.
As maintenance was neglected for two and half year disruption of existing supply might became more frequent. also mid Eastern war is also a possibility with Trump saber-rattling against Iran. Recently the leak in undersea pipeline removed 0.5 MB/d from the market and caused a price spike to $65 for Brent (WTI remains cheaper and never crosses $60 this time).
Also with a young prince in charge and the revolution against "old guard" KSA became more and more unstable so the next "oil shock" might come from them. They also have problem of depletion which until now they compensated pitting more and more heavy high sulfur oil deposits online. At some point they will be exhausted too. They also pitch for war with Iran, but they would prefer somebody else to do heavy lifting.
The only one or countries still can significantly increase oil production now – Libya (were we have problem because of the civil war after US-sponsored Kaddafi removal and killing), and Iraq where there are still untapped areas that might contain some oil; nothing big, but still substantial in the range of 1 MB/d. Looks like Iran now exports all it could. Same is true for KSA and Russia. In this sense OPEN oil production cuts might an attempt to preserve impression that they are untapped reserved. I doubt that there are much and those cuts are just a reasonable insurance policy against quick depletion of existing wells as higher price gives some space for innovation.
There is also such thing as EBITRA which gradually deteriorates everywhere and can become negative for certain types of oil (for oil sands it depends on the price of natural gas and they are primary candidate if the price doubles or triples from the current level).
Jim Haygood , December 15, 2017 at 7:07 amChrisFromGeorgia , December 15, 2017 at 7:46 am
' The surplus will be front-loaded – the first half of the year will see a glut of about 200,000 bpd. '
That don't square at all with WTI futures being backwardated from Feb 2018 ($57.08) to Dec 2022 ($49.79).
Me so bullishnonsense factory , December 15, 2017 at 11:19 am
By continuing its' easy money policies well past any recession or growth scare, the Fed has created a monster. Most shale companies aren't profitable and are in fact losing money using any kind of GAAP. However, cheap financing allows them to survive and "drill baby drill." The unintended consequences may include destabilizing Saudi Arabia to the point of an economic and political collapse. One can always hopeOctopii , December 15, 2017 at 8:14 am
Economic collapse in Venezuela due to low oil prices – good! Economic collapse in Saudi Arabia due to low oil prices – bad! Solution – extend cheap financing to Saudi Arabia via Aramco IPO!
Meanwhile, China says it will be moving to all-electric cars and trucks to help solve its horrible urban air pollution problem. . . Meaning global demand has nowhere to go but down.
Why do I feel that this will not end well for the American hegemon? Particularly with Trump in office working overtime with boy genius Rick Perry to promote coal and sabotage renewable energy. . .
The 36″ North Sea Forties pipeline is currently shut down for repairs. Short and medium term prices will carry the effect of that supply loss. In the long term, unexpected developments are common. Considering how completely wrong so many oil analysts have been over the past ten years, including the IEA, there is not a lot of credibility in oil market predictions.
Nov 28, 2014 | theguardian.com
wa8dzp:Nichole Gracely has a master's degree and was one of Amazon's best order pickers. Now, after protesting the company, she's homeless.
I am homeless. My worst days now are better than my best days working at Amazon.
According to Amazon's metrics, I was one of their most productive order pickers -- I was a machine, and my pace would accelerate throughout the course of a shift. What they didn't know was that I stayed fast because if I slowed down for even a minute, I'd collapse from boredom and exhaustion.
During peak season, I trained incoming temps regularly. When that was over, I'd be an ordinary order picker once again, toiling in some remote corner of the warehouse, alone for 10 hours, with my every move being monitored by management on a computer screen.
Superb performance did not guarantee job security. ISS is the temp agency that provides warehouse labor for Amazon and they are at the center of the SCOTUS case Integrity Staffing Solutions vs. Busk. ISS could simply deactivate a worker's badge and they would suddenly be out of work. They treated us like beggars because we needed their jobs. Even worse, more than two years later, all I see is: Jeff Bezos is hiring.
I have never felt more alone than when I was working there. I worked in isolation and lived under constant surveillance. Amazon could mandate overtime and I would have to comply with any schedule change they deemed necessary, and if there was not any work, they would send us home early without pay. I started to fall behind on my bills.
At some point, I lost all fear. I had already been through hell. I protested Amazon. The gag order was lifted and I was free to speak. I spent my last days in a lovely apartment constructing arguments on discussion boards, writing articles and talking to reporters. That was 2012 and Amazon's labor and business practices were only beginning to fall under scrutiny. I walked away from Amazon's warehouse and didn't have any other source of income lined up.
I cashed in on my excellent credit, took out cards, and used them to pay rent and buy food because it would be six months before I could receive my first unemployment compensation check.
I received $200 a week for the following six months and I haven't had any source of regular income since those benefits lapsed. I sold everything in my apartment and left Pennsylvania as fast as I could. I didn't know how to ask for help. I didn't even know that I qualified for food stamps.
I furthered my Amazon protest while homeless in Seattle. When the Hachette dispute flared up I "flew a sign," street parlance for panhandling with a piece of cardboard: "I was an order picker at amazon.com. Earned degrees. Been published. Now, I'm homeless, writing and doing this. Anything helps."
I have made more money per word with my signs than I will probably ever earn writing, and I make more money per hour than I will probably ever be paid for my work. People give me money and offer well wishes and I walk away with a restored faith in humanity.
I flew my protest sign outside Whole Foods while Amazon corporate employees were on lunch break, and they gawked. I went to my usual flying spots around Seattle and made more money per hour protesting Amazon with my sign than I did while I worked with them. And that was in Seattle. One woman asked, "What are you writing?" I told her about the descent from working poor to homeless, income inequality, my personal experience. She mentioned Thomas Piketty's book, we chatted a little, she handed me $10 and wished me luck. Another guy said, "Damn, that's a great story! I'd read it," and handed me a few bucks.
Dec 09, 2017 | bonddad.blogspot.com
So U6 is almost 10% of population. Scary...HEADLINES :
Here are the headlines on wages and the chronic heightened underemployment: Wages and participation rates
- +228,000 jobs added
- U3 unemployment rate unchanged at 4.1%
- U6 underemployment rate rose +0.1% from 7.9% to 8.0%
Holding Trump accountable on manufacturing and mining jobs
- Not in Labor Force, but Want a Job Now: rose +53,000 from 5.175 million to 5.238 million
- Part time for economic reasons: rose +48,000 from 4.753 million to 4.801 million
- Employment/population ratio ages 25-54: rose +0.2% from 78.8% to 79.0%
- Average Weekly Earnings for Production and Nonsupervisory Personnel: rose +$.0.5 from a downwardly revised $22.19 to $22.24, up +2.4% YoY. (Note: you may be reading different information about wages elsewhere. They are citing average wages for all private workers. I use wages for nonsupervisory personnel, to come closer to the situation for ordinary workers.)
Trump specifically campaigned on bringing back manufacturing and mining jobs. Is he keeping this promise?
- Manufacturing jobs rose by +31,000 for an average of +15,000 a month vs. the last seven years of Obama's presidency in which an average of 10,300 manufacturing jobs were added each month.
- Coal mining jobs fell -400 for an average of -15 a month vs. the last seven years of Obama's presidency in which an average of -300 jobs were lost each month
September was revised upward by +20,000. October was revised downward by -17,000, for a net change of +3,000.
- likbez December 9, 2017 7:52 pm
There are now large categories of jobs, both part-time and full time, that can't provide for living and are paying below or close to minimum wage (plantation economy jobs). it looks like under neoliberalism this is the fastest growing category of jobs.
Examples are Uber and Lift jobs (which are as close to predatory scam as one can get) . Many jobs in service industry, especially retail. See for example
They should probably be calculated separately as "distressed employment", or something like that.
Also in view of "seasonal adjustments" the number of created jobs is probably meaningless.
Dec 04, 2017 | www.unz.com
@VidiFrom Patrick Armstrong's article (a good one, by the way):@ErebusA Russian threat is good for business: there's poor money in a threat made of IEDs, bomb vests and small arms. Big profits require big threats.Actually, I'd say the Russian threat is necessary to keep the Europeans too frightened to protest while the U.S. steals wealth from them. After all, when the U.S. imports goods and "pays" for them with printed money, it is basically stealing those goods. The U.S. is draining a lot of wealth from Europe (like $150 billion a year), so something must be done to keep them docile. Russia's perfect for that.Well, exogenous events aside, "decline and fall" is necessarily a process. A series of steps and plateaus is typical. A major step occurred in 2007/8, when the money failed. The bankers, in a frankly heroic display of coordination, propped up the $$$ and the West got a decade long plateau. Things are going wobbly again, financially speaking and I suspect the next step function to occur rather soon. Stays of execution have been exhausted, so it'll be interesting how the West handles it, and how the RoW reacts.
"(Failed) West and a multipolar Rest". The latter is what I think will actually happen in the near and medium term.
I think we already have it, except I don't think West has failed yet. Or it has in a way, the process of failing goes on, but the consequences have not been felt much in the West yet.
Europeans have been invited to join the Eurasian Project, to create a continental market from "Lisbon to Vladivostok". Latent dreams of Hegemony hold at least some of their elites back. The USA has also been invited, but its dreams remain much more virile. That is, until Trump who's backers seem to read the writing on the wall better than the Straussians.I don't see any other power than the West (=US) aspiring to 'manage the world'....The fact is that the rise of the West to global dominance is due to a historical anomaly. It was fuelled (literally) by the discovery and harnessing of the chemical energy embedded in coal (late 18thC) and then oil (late 19thC). The first doubled the population, and as first movers gave the West a running start. The second turned on the afterburners, and population grew >3.5 fold. Again the West led the way. To fuel that ahistorical step-function growth curve, control of resources on a global scale became its civilizational imperative.
The other 'powers' have very modest, regional aspirations... US seems to be obsessed with it.
That growth curve has plateaued, and the rest of the world has caught/is catching up developmentally. The resources the West needs aren't going to be available to it in the way they were 100 years ago. Them days is over, for everybody really, but especially for the West because it has depleted its own hi-ROI resources, and both of its means of control (IMF$ System & U$M) of what's left of everybody else's are failing simultaneously. So its plateau will not be flat, or not flat for long between increasingly violent steps.
The West rode an ahistorical rogue wave of development to a point just short of Global Hegemony. That wave broke, and is now rolling back out into the world leaving the West just short of its civilizational resource requirements. No way to get back on a broken wave. In any case, China now holds the $$$ hammer, and Russia holds the military hammer, and they've now got the surfboard. Both of them, led by historically aware elites, know that Hegemony doesn't work, so will focus on keeping their neck of the woods as stable & prosperous as possible while hell blazes elsewhere.IMHO, what's really going on is that the West's problems are simply symptomatic of what "decline and fall", if not "collapse" looks like from within a failing system. A long time ago I read the diary of a Roman nobleman who in the most matter-of-fact style wrote of exactly the same things Westerners complain about today. How this, that or the other thing no longer works the way it did. For all of his 60+ years, every day was infinitesimally worse than the day before, until finally he decides to pack up his Roman households and move to his estates in Spain. It took 170(iirc) more years of continuous decline until Alaric finally arrived at the Gates of Rome. If wholly due to internal causes, collapse is almost always a slow motion train wreck.
What is really going on is that West has over-reached and can barely handle its own problems.
...Actually, it's just stupid. Cold Warrior or not, the view betrays a deep and abiding ignorance of both history and a large part of what drove the West's hegemonic successes. That both militate against anyone else ever even trying such a thing on a global scale can't be seen if you look at historical developments and the rest of the world through 10' of 1" pipe.
'there would be a vacuum' and 'Russians would move in'. This is obvious nonsense and only elderly paranoid Cold Warrior types believe it (peterAUS?).
The idea that Russia wants/needs the Baltics is even more laughable than that it wants/needs the Ukraine or Poland. None of these tarbabies have anything to offer but trouble. Noisome flies on an elephant, it is only if they make themselves more troublesome as outsiders than they would be as vassals would Russia move.
Apr 07, 2010 | Enterprise Networking Planet
What happened to the old "sysadmin" of just a few years ago? We've split what used to be the sysadmin into application teams, server teams, storage teams, and network teams. There were often at least a few people, the holders of knowledge, who knew how everything worked, and I mean everything. Every application, every piece of network gear, and how every server was configured -- these people could save a business in times of disaster.
Now look at what we've done. Knowledge is so decentralized we must invent new roles to act as liaisons between all the IT groups. Architects now hold much of the high-level "how it works" knowledge, but without knowing how any one piece actually does work. In organizations with more than a few hundred IT staff and developers, it becomes nearly impossible for one person to do and know everything. This movement toward specializing in individual areas seems almost natural. That, however, does not provide a free ticket for people to turn a blind eye.
You know the story: Company installs new application, nobody understands it yet, so an expert is hired. Often, the person with a certification in using the new application only really knows how to run that application. Perhaps they aren't interested in learning anything else, because their skill is in high demand right now. And besides, everything else in the infrastructure is run by people who specialize in those elements. Everything is taken care of.
Except, how do these teams communicate when changes need to take place? Are the storage administrators teaching the Windows administrators about storage multipathing; or worse logging in and setting it up because it's faster for the storage gurus to do it themselves? A fundamental level of knowledge is often lacking, which makes it very difficult for teams to brainstorm about new ways evolve IT services. The business environment has made it OK for IT staffers to specialize and only learn one thing.
If you hire someone certified in the application, operating system, or network vendor you use, that is precisely what you get. Certifications may be a nice filter to quickly identify who has direct knowledge in the area you're hiring for, but often they indicate specialization or compensation for lack of experience.
Does your IT department function as a unit? Even 20-person IT shops have turf wars, so the answer is very likely, "no." As teams are split into more and more distinct operating units, grouping occurs. One IT budget gets split between all these groups. Often each group will have a manager who pitches his needs to upper management in hopes they will realize how important the team is.
The "us vs. them" mentality manifests itself at all levels, and it's reinforced by management having to define each team's worth in the form of a budget. One strategy is to illustrate a doomsday scenario. If you paint a bleak enough picture, you may get more funding. Only if you are careful enough to illustrate the failings are due to lack of capital resources, not management or people. A manager of another group may explain that they are not receiving the correct level of service, so they need to duplicate the efforts of another group and just implement something themselves. On and on, the arguments continue.
Most often, I've seen competition between server groups result in horribly inefficient uses of hardware. For example, what happens in your organization when one team needs more server hardware? Assume that another team has five unused servers sitting in a blade chassis. Does the answer change? No, it does not. Even in test environments, sharing doesn't often happen between IT groups.
With virtualization, some aspects of resource competition get better and some remain the same. When first implemented, most groups will be running their own type of virtualization for their platform. The next step, I've most often seen, is for test servers to get virtualized. If a new group is formed to manage the virtualization infrastructure, virtual machines can be allocated to various application and server teams from a central pool and everyone is now sharing. Or, they begin sharing and then demand their own physical hardware to be isolated from others' resource hungry utilization. This is nonetheless a step in the right direction. Auto migration and guaranteed resource policies can go a long way toward making shared infrastructure, even between competing groups, a viable option.
The most damaging side effect of splitting into too many distinct IT groups is the reinforcement of an "us versus them" mentality. Aside from the notion that specialization creates a lack of knowledge, blamestorming is what this article is really about. When a project is delayed, it is all too easy to blame another group. The SAN people didn't allocate storage on time, so another team was delayed. That is the timeline of the project, so all work halted until that hiccup was restored. Having someone else to blame when things get delayed makes it all too easy to simply stop working for a while.
More related to the initial points at the beginning of this article, perhaps, is the blamestorm that happens after a system outage.
Say an ERP system becomes unresponsive a few times throughout the day. The application team says it's just slowing down, and they don't know why. The network team says everything is fine. The server team says the application is "blocking on IO," which means it's a SAN issue. The SAN team say there is nothing wrong, and other applications on the same devices are fine. You've ran through nearly every team, but without an answer still. The SAN people don't have access to the application servers to help diagnose the problem. The server team doesn't even know how the application runs.
See the problem? Specialized teams are distinct and by nature adversarial. Specialized staffers often relegate themselves into a niche knowing that as long as they continue working at large enough companies, "someone else" will take care of all the other pieces.
I unfortunately don't have an answer to this problem. Maybe rotating employees between departments will help. They gain knowledge and also get to know other people, which should lessen the propensity to view them as outsiders
Nov 30, 2017 | oilprice.com
Venezuela's oil production has been sliding for years, but the descent accelerated in 2015 amid low oil prices and a deteriorating cash position for PDVSA and the government. Production dipped below 1.9 million barrels in recent weeks, the lowest level in more than three decades.
The problems will only grow worse, especially because they tend to snowball. Without cash, PDVSA will struggle to import diluent to blend with its heavy oil – the result could be steeper production losses. Again, without cash, existing facilities cannot be maintained, likely leading to an accelerating pace of decline. An array of refineries are "completely paralyzed," the head of an oil workers union told Bloomberg. Defaults on more debt payments could spark retaliation from creditors, which could eventually put oil exports in jeopardy.
In short, the woes in Venezuela's oil industry contributed to the crisis, but the dire economic situation will accelerate the decline of oil production.
A group of analysts told Bloomberg that they expect Venezuela's output to average 1.84 mb/d in 2018, a level that seems surprisingly optimistic given the pace of decline underway. Other analysts predict output will plunge much lower.
Nov 30, 2017 | oilprice.com
Venezuela's oil production has been sliding for years, but the descent accelerated in 2015 amid low oil prices and a deteriorating cash position for PDVSA and the government. Production dipped below 1.9 million barrels in recent weeks, the lowest level in more than three decades.
The problems will only grow worse, especially because they tend to snowball. Without cash, PDVSA will struggle to import diluent to blend with its heavy oil – the result could be steeper production losses. Again, without cash, existing facilities cannot be maintained, likely leading to an accelerating pace of decline. An array of refineries are "completely paralyzed," the head of an oil workers union told Bloomberg. Defaults on more debt payments could spark retaliation from creditors, which could eventually put oil exports in jeopardy.
In short, the woes in Venezuela's oil industry contributed to the crisis, but the dire economic situation will accelerate the decline of oil production.
A group of analysts told Bloomberg that they expect Venezuela's output to average 1.84 mb/d in 2018, a level that seems surprisingly optimistic given the pace of decline underway. Other analysts predict output will plunge much lower.
The National Interest
The rise of technologies such as 3-D printing and advanced robotics means that the next few decades for Asia's economies will not be as easy or promising as the previous five.
OWEN HARRIES, the first editor, together with Robert Tucker, of The National Interest, once reminded me that experts-economists, strategists, business leaders and academics alike-tend to be relentless followers of intellectual fashion, and the learned, as Harold Rosenberg famously put it, a "herd of independent minds." Nowhere is this observation more apparent than in the prediction that we are already into the second decade of what will inevitably be an "Asian Century"-a widely held but rarely examined view that Asia's continued economic rise will decisively shift global power from the Atlantic to the western Pacific Ocean.
No doubt the numbers appear quite compelling. In 1960, East Asia accounted for a mere 14 percent of global GDP; today that figure is about 27 percent. If linear trends continue, the region could account for about 36 percent of global GDP by 2030 and over half of all output by the middle of the century. As if symbolic of a handover of economic preeminence, China, which only accounted for about 5 percent of global GDP in 1960, will likely surpass the United States as the largest economy in the world over the next decade. If past record is an indicator of future performance, then the "Asian Century" prediction is close to a sure thing.
Jun 05, 2015 | economistsview.typepad.comWillem Buiter, Ebrahim Rahbari, Joe Seydl at Vox EU:
Secular stagnation: The time for one-armed policy is over: Stagnation is gripping several of the world's largest economies and many view this as secular, not transient.
This column argues that many economies need both demand-side stimulus and supply-side reform to close the output gap and restore potential-output growth. A combined monetary-fiscal stimulus – i.e. helicopter money – is needed to close the output gap, and this should be accompanied with extensive debt restructuring, policies to halt rising inequality, and additional public infrastructure investment.
Selected Skeptical Comments
Sandwichman -> anne:
Workers, collectively, have a single, incontrovertible lever for effecting change -- withholding their labor power. Nothing -- not even imprisonment or death -- can prevent workers from withholding their labor power! Kill me and see how much work you can get out of me.
This is the elementary fact that the elites don't want workers to know. "It is futile!" "It is a fallacy!" "You will only hurt yourselves!"
Once one comprehends the strategic importance of making the withholding of labor power taboo, everything else falls into place. Economics actually makes sense as a persuasive discourse to dissuade from the withholding of labor power.
Above all, ideology must conceal, denigrate, diminish, slander and distract from the ONE effective strategy that workers collectively have. This is the spectre that haunts all economics.
Good stuff by Buiter et al, but here are some suggested additions to the litany of supply side woes:
1. Ineffective economic organization, both inside corporate firms and outside of them.
a. Many corporations are now quite dysfunctional as engines of long-term value creation – but not dysfunctional as vehicles of short-term value extraction for their absurdly over-incentivized key stakeholders.
b. The developed world societies are facing an extreme failure of strategic economic leadership, at both the national and global level, and at both the formal level of government and the informal level of visionary public intellectuals and industrial "captains". There is no coherent consensus on which way lies the direction of progress. Since nobody is setting the agenda for what the future looks like, risk trumps confidence everywhere and nobody knows what to invest in.
2. Dyspeptic dystopianism. The intellectual culture of our times is polluted by obsessive, nail-biting negativity and demoralizing storylines preaching hopelessness: the robots are going to destroy all the jobs; the Big One is going to bury everything, the real "neutral" interest rate is preposterously negative, etc. etc. etc. With so much doom and gloom in the air, there is no reason to invest wealth, rather than consume it. Robert Schiller touched on this at a recent talk at LSE.
3. The popular culture of 2015 America is – as in so many other areas - a tale of two cultural cities. For many of those who consume the bottom layers of it, what they are ingesting is a barbarous Pink Slime cultural sludge that makes them stupid, frivolous, dependent, impulsive and emotionally erratic – something like perpetual 15 year olds. People like this can be duped by the most shallow demagoguery and consumerist manipulation, and can't organize themselves to pursue their enlightened self-interest. Enlightened artists and cultural custodians need to step up, organize and find a way to seize the American mind back from the clutches of consumer capitalist garbage-mongers and philistine society-wreckers.
4. Laissez faire backwardness. We are struggling under left-right-center conspiracy of Pollyanna freedom fools, who despite their constant kvetching at one another all share in common the view that progress is self-organizing.
On the left we have the Chomsky and Graeber-style "libertarian socialists" who are convinced we could have a functioning and prosperous society in which seemingly every action is voluntary and spontaneous, nobody is ever compelled to do anything that their delicate little hearts don't throb to do, and who seemingly have no idea of what it takes even to run a carrot farm.
On the right, we have the clueless paranoid libertarians who think the whole world should revolve around their adolescent desire not to be "tread on", and seem to have no idea of what it takes – and what it took historically - to build a livable civilization.
In the center, we have the neoliberals, who are convinced that our world will spontaneously and beneficially organize itself if only we turn the macroeconomic tumblers and stumble on the right interest rate, or inflation rate, or some other version of the One Parameter to Rule Them All mindset. They are also too devoted to the religion of demand-goosing: the idea that everything will be all right as long as we generate enough "demand" – as though it makes no difference whether people are demanding high fructose cotton candy or the collected works of Shakespeare.
5. I'm an optimist! This is all going to change. We have nearly reached Peak Idiocracy. We're on the verge of a new age of social organization and planning and a return to mixed economy common sense and public-spirited mobilization and adulthood. This will happen because ultimately all of those teenagers will stop denying reality, and stop struggling to escape the realization that a more organized and thoughtfully planned way of life is the only thing that will work in our small, resource strapped, crowded 21st century planet.
George H. Blackford:likbez:
Since the 80s, US companies have been buying abroad to sell at home as foreign countries used our trade deficits to depress their exchange rates. Profits and income share at the top soared; wages and income share at the bottom fell, and employment was maintained by speculative bubbles and increasing debt until the last bubble burst, and the system collapsed.
There seem to be no more bubbles in the offing. The dollar is overvalued. Debt relative to income is unprecedented, and the concentration of income has created stagnation for lack of investment opportunities.
How is an increasing deficit and QE supposed to solve our problems in this situation other than by propping up a failed system that makes the rich richer and the poor poorer by increasing government debt? Does anyone really believe this sort of thing can go on forever in the absence of a fall in the value of the dollar and in the concentration of income? Who's going to be left holding the bag when this system collapses again?
It seems quite clear to me that it is going to take a very long time for the system to adjust to this situation in the absence of a fall in the value of the dollar and the concentration of income. That kind of adjustment means reallocating resources in a very dramatic way so as to accommodate an economy in which resources are allocated to serve the demands of the wealthy few in the absence of the ability of those at the bottom to expand their debt relative to income.
We didn't smoothly transition from an agricultural economy to one based on manufacturing. That transition was plagued with a great deal of civil unrest, speculative bubbles, booms and busts that eventually led to a collapse of the system and the Great Depression.
And we didn't smoothly transition out of the Great Depression. That was ended by WW II and dramatic changes in our economic system, the most dramatic changes being the role and size of government and the fall in the concentration of income for thirty-five years after 1940.
It was the fall in the concentration of income that led to mass markets (large numbers of people with purchasing power out of income) that made investment profitable after WW II in the absence of speculative bubbles, and it was the increase in the concentration of income that led to the bubble economy we have today that has led us into the Great Recession.
What this means to me is that we are not going to get out of the mess we are in today in the absence of some kind of catastrophe comparable to WW II if we, and the rest of the world, do not come to grips with the fundamental problem we face in this modern age, namely, the trade deficit and the concentration of income.
I think neoliberalism naturally leads to secular stagnation. This is the way any economic system that is based on increasing of inequality should behave: after inequality reached certain critical threshold, the economy faces extended period of low growth reflecting persistently weak private demand.
An economic cycle enters recession when total spending falls below expected by producers and they realize that production level is too high relative to demand. What we have under neoliberalism is kind of Marx constant crisis of overproduction.
The focus on monetary policy and the failure to enact fiscal policy options is structural defect of neoliberalism ideology and can't be changed unless neoliberal ideology is abandoned. Which probably will not happen unless another huge crisis hit the USA. 2008 crisis, while discrediting neoliberalism, was clearly not enough for the abandonment of this ideology. Like in most cults adherents became more fanatical believers after the prophecy did not materialized.
The USA elite tried partially alleviate this problem by resorting to military Keynesianism as a supplementary strategy. But while military budget was raised to unprecedented levels, it can't reverse the tendency. Persistent high output gap is now a feature of the US economy, not a transitory state.
"Top everything" does not help iether (top cheap oil is especially nasty factor). Recent pretty clever chess gambit to artificially drop oil price playing Russian card, and sacrificing US shall industry like a pawn (remember that Saudi Arabia is the USA client state) was a very interesting move, but still expectation are now so low that cheap gas stimulus did not work as expected in the USA. It would be interesting to see how quickly oil will return to early 2014 price level because of that. That will be the sign that gambit is abandoned.
In a way behaviour of the USA elite in this respect is as irrational as behavior of the USSR elite. My impression is that they will stick to neoliberal ideology to the bitter end. But at the same time they are much more reckless. Recent attempt to solve economic problems by unleashing a new wars and relying of war time mobilization so far did not work. Including the last move is this game: Russia did not bite the offer for military confrontation that the USA clearly made by instilling coup d'état in Ukraine.
Now it look like there is a second attempt to play "madman" card after Nixon's administration Vietnam attempt to obtain concession from the USSR by threatening to unleash the nuclear war.
Nov 09, 2015 | resilience.org
by Paul Mobbs, originally published by The Ecologist |
Brian Davey's new book, Credo: Economic Beliefs in a World in Crisis, is an analysis of economic theory as if it were a system of religious belief.
It's a timely book. The simplistic, perhaps 'supernatural' assumptions which underpin key parts of economic theory demand far more attention. It's a debate we've failed to have as a society.
... ... ...
During the two decades following the neoliberal economists' take-over of Western governments in the 1980s, many felt that the almost mystical terms of economics - such as derivatives, hedging, leverage, contangos, etc - were beyond the understanding of most ordinary people.
And without understanding those terms, irrespective of our gut feeling that there was something wrong, how could we challenge the political lobby those theories had put into power? In the end it took the financial crash of 2007/8 to demonstrate that those in charge of this system didn't understand the complexity and risk of those practices either.
They pursued them as a matter of faith in the market and its processes, despite the apparent warning signs of their imminent failure. Those outside 'orthodox' economics could already see where the economy was heading in the longer-term.
Question is, did economists learn anything from that failure? Or, through austerity, have they once again committed us to their dogmatic belief system, unchanged by that experience?
... ... ...However, through simple hubris or optimism bias, the political class has been convinced that 'fracking' is a solution to our economic woes - even though there is a paucity of verifiable evidence to demonstrate those claims, and it has already lost billions of investors money.
Economics is a reflection of power
Ultimately though, as within many custom or belief systems, what economics enshrines is a social order. One where a dominant minority are able to take a small quantity of wealth from each member of the majority in order to maintain their higher status.
This idea of economics as an exploitative mechanism is echoed in the cover picture of the book, Bosch's The Conjurer - where a magician distracts the public with a sleight of hand trick so that they can be more easily robbed by his associate.
Again, in a world where we're hitting the limits to human material growth, political models of well-being based upon wealth and consumption are damaging to human society in the long-term. The evidence that we're heading for a longer-term failure is there, as was the case with the warning signs before the 2007 crash. The problem is that those in positions of power do not wish to see it.
... ... ...
Within its exposition of economics as a quasi-religious theory, Brian Davey's book helps us to understand why economic theory is driving us toward a global system failure - and why politics and economics are incapable of responding to the pressing ecological crisis which the pursuit of economic growth has spawned.
Contrary to the economic hubris of many world leaders, set alongside the reality of ecological limits humanity is not 'too big to fail'.
www.nakedcapitalism.comApril 29, 2016 by Yves Smith An interview by Gordon T. Long of the Financial Repression Authority. Originally published at his website
GORDON LONG: Thank you for joining us. I'm Gordon Long with the Financial Repression Authority. It's my pleasure to have with me today Dr. Michael Hudson Professor Hudson's very well known in terms of the FIRE economy to-I think, to a lot of our listeners, or at least he's recognized by many as fostering that concept. A well known author, he has published many, many books. Welcome, Professor Hudson.
MICHAEL HUDSON: Yes.
LONG: Let's just jump into the subject. I mentioned the FIRE economy cause I know that I have always heard it coming from yourself-or, indirectly, not directly, from yourself. Could you explain to our listeners what's meant by that terminology?
HUDSON: Well it's more than just people getting fired. FIRE is an acronym for Finance, Insurance and Real Estate. Basically that sector is about assets, not production and consumption. And most people think of the economy as being producers making goods and services and paying labor to produce them – and then, labour is going to buy these goods and services. But this production and consumption economy is surrounded by the asset economy: the web of Finance, Insurance, and Real Estate of who owns assets, and who owes the debts, and to whom.
LONG: How would you differentiate it (or would you) with what's often referred to as financialization, or the financialization of our economy? Are they one and the same?
HUDSON: Pretty much. The Finance, Insurance, and Real Estate sector is dominated by finance. 70 to 80% of bank loans in North America and Europe are mortgage loans against real estate. So instead of a landowner class owning property clean and clear, as they did in the 19 th century, now you have a democratization of real estate. 2/3 or more of the population owns their own home. But the only way to buy a home, or commercial real estate, is on credit. So the loan-to-value ratio goes up steadily. Banks lend more and more money to the real estate sector. A home or piece of real estate, or a stock or bond, is worth whatever banks are willing to lend against it
As banks loosen their credit terms, as they lower their interest rates, take lower down payments, and lower amortization rates – by making interest-only loans – they are going to lend more and more against property. So real estate is bid up on credit. All this rise in price is debt leverage. So a financialized economy is a debt-leveraged economy, whether it's real estate or insurance, or buying an education, or just living. And debt leveraging means that a larger proportion of assets are represented by debt. So debt equity ratios rise. But financialization also means that more and more of people's income and corporate and government tax revenue is paid to creditors. There's a flow of revenue from the production-and-consumption economy to the financial sector.
LONG: I don't know if you know Richard Duncan. He was with the IMF, etc, and lives in Thailand. He argues right now that capitalism is no longer functioning, and really what he refers to what we have now is "creditism." Because in capitalism we have savings that are reinvested into productive assets that create productivity, which leads to a higher level of living. We're not doing that. We have no savings and investments. Credit is high in the financial sector, but it's not being applied to productive assets. Is he valid in that thinking?
HUDSON: Not as in your statement. It's confused.
HUDSON: There's an enormous amount of savings. Gross savings. The savings we have that are mounting up are just about as large as they've ever been – about, 18-19% of the US economy. They're counterpart is debt. Most savings are lent out to borrowers se debt. Basically, you have savers at the top of the pyramid, the 1% lending out their savings to the 99%. The overall net savings may be zero, and that's what your stupid person from the IMF meant. But gross savings are much higher. Now, the person, Mr. Duncan, obviously-I don't know what to say when I hear this nonsense. Every economy is a credit economy.
Let's start in Ancient Mesopotamia. The group that I organized out of Harvard has done a 20-study of the origins of economic structuring in the Bronze Age, even the Neolithic, and the Bronze Age economy – 3200 BC going back to about 1200 BC. Suppose you're a Babylonian in the time of Hammurabi, about 1750 BC, and you're a cultivator. How do you buy things during the year? Well, if you go to the bar, to an ale woman, what she'd do is write down the debt that you owe. It was to be paid on the threshing floor. The debts were basically paid basically once a year when the income was there, on the threshing floor when the harvest was in. If the palace or the temples would advance animals or inputs or other public services, this would be as a debt. It was all paid in grain, which was monetized for paying debts to the palace, temples and other creditors.
The IMF has this Austrian theory that pretends that money began as barter and that capitalism basically operates on barter. This always is a disinformation campaign. Nobody believed this in times past, and it is a very modern theory that basically is used to say, "Oh, debt is bad." What they really mean is that public debt is bad. The government shouldn't create money, the government shouldn't run budget deficits but should leave the economy to rely on the banks. So the banks should run and indebt the economy.
You're dealing with a public relations mythology that's used as a means of deception for most people. You can usually ignore just about everything the IMF says. If you understand money you're not going to be hired by the IMF. The precondition for being hired by the IMF is not to understand finance. If you do understand finance, you're fired and blacklisted. That's why they impose austerity programs that they call "stabilization programs" that actually are destabilization programs almost wherever they're imposed.
LONG: Is this a lack of understanding and adherence to the wrong philosophy, or how did we get into this trap?
HUDSON: We have an actively erroneous view, not just a lack of understanding. This is not by accident. When you have an error repeated year after year after year, decade after decade after decade, it's not really insanity doing the same thing thinking it'll be different. It's sanity. It's doing the same thing thinking the result will be the same again and again and again. The result will indeed be austerity programs, making budget deficits even worse, driving governments further into debt, further into reliance on the IMF. So then the IMF turns them to the knuckle breakers of the World Bank and says, "Oh, now you have to pay your debts by privatization". It's the success. The successful error of monetarism is to force countries to have such self-defeating policies that they end up having to privatize their natural resources, their public domain, their public enterprises, their communications and transportation, like you're seeing in Greece's selloffs. So when you find an error that is repeated, it's deliberate. It's not insane. It's part of the program, not a bug.
LONG: Where does this lead us? What's the roadmap ahead of us here?
HUDSON: A thousand years ago, if you were a marauding gang and you wanted to take over a country's land and its natural resources and public sector, you'd have to invade it with military troops. Now you use finance to take over countries. So it leads us into a realm where everything that the classical economists saw and argued for – public investment, bringing costs in line with the actual cost of production – that's all rejected in favor of a rentier class evolving into an oligarchy. Basically, financiers – the 1% – are going to pry away the public domain from the government. Pry away and privatize the public enterprises, land, natural resources, so that bondholders and privatizers get all of the revenue for themselves. It's all sucked up to the top of the pyramid, impoverishing the 99%.
LONG: Well I think most people, without understanding economics, would instinctively tell you they think that's what's happening right now, in some way.
HUDSON: Right. As long as you can avoid studying economics you know what's happened. Once you take an economics course you step into brainwashing. It's an Orwellian world.
LONG: I think you said it perfectly well there. Exactly. It gets you locked into the wrong way of thinking as opposed to just basic common sense. Your book is Killing the Host . What was the essence of its message? Was it describing exactly what we're talking about here?
HUDSON: Finance has taken over the industrial economy, so that instead of finance becoming what it was expected to be in the 19 th century, instead of the banks evolving from usurious organizations that leant to governments, mainly to wage war, finance was going to be industrialized. They were going to mobilize savings and recycle it to finance the means of production, starting with heavy industry. This was actually happening in Germany in the late 19 th century. You had the big banks working with government and industry in a triangular process. But that's not what's happening now. After WW1 and especially after WW2, finance reverted to its pre-industrial form. Instead of allying themselves with industry, as banks were expected to do, banks allied themselves with real estate and monopolies, realizing that they can make more money off real estate.
The bank spokesman David Ricardo argued against the landed interest in 1817, against land rent. Now the banks are all in favor of supporting land rent, knowing that today, when people buy and sell property, they need credit and pay interest for it. The banks are going to get all the rent. So you have the banks merge with real estate against industry, against the economy as a whole. The result is that they're part of the overhead process, not part of the production process.
LONG: There's a sense that there's a crisis lying ahead in the next year, two years, or three years. The mainstream economy's so disconnected from Wall Street economy. What's your view on that?
HUDSON: It's not disconnected at all. The Wall Street economy has taken over the economy and is draining it. Under what economics students are taught as Say's Law, the economy's workers are supposed to use their income to buy what they produce. That's why Henry Ford paid them $5 a day, so that they could afford to buy the automobiles they were producing.
HUDSON: But Wall Street is interjecting itself into the economy, so that instead of the circular flow between producers and consumers, you have more and more of the flow diverted to pay interest, insurance and rent. In other words, to pay the FIRE sector. It all ends up with the financial sector, most of which is owned by the 1%. So, their way of formulating it is to distract attention from today's debt quandary by saying it's just a cycle, or it's "secular stagnation." That removes the element of agency – active politicking by the financial interests and Wall Street lobbyists to obtain all the growth of income and wealth for themselves. That's what happened in America and Canada since the late 1970s.
LONG: What does an investor do today, or somebody who's looking for retirement, trying to save for the future, and they see some of these things occurring. What should they be thinking about? Or how should they be protecting themselves?
HUDSON: What all the billionaires and the heavy investors do is simply try to preserve their wealth. They're not trying to make money, they're not trying to speculate. If you're an investor, you're not going to outsmart Wall Street billionaires, because the markets are basically fixed. It's the George Soros principle. If you have so much money, billions of dollars, you can break the Bank of England. You don't follow the market, you don't anticipate it, you actually make the market and push it up, like the Plunge Protection Team is doing with the stock market these days. You have to be able to control the prices. Insiders make money, but small investors are not going to make money.
Since you're in Canada, I remember the beginning of the 1960s. I used to look at the Treasury Bulletin and Federal Reserve Bulletin figures on foreign investment in the US stock market. We all used to laugh at Canada especially. The Canadians don't buy stocks until they're up to the very top, and then they lose all the money by holding these stocks on the downturn. Finally, when the market's all the way at the bottom, Canadians decide to begin selling because they finally can see a trend. So they miss the upswing until they decide to buy at the top once again. It's hilarious to look at how Canada has performed in the US bond market, and they did the same in the silver market. I remember when silver was going up to $50. The Canadians said, "Yes, we can see the trend now!" and they began to buy it. They lost their shirts. So, basically, if you're a Canadian investor, move.
LONG: So the Canadian investors are a better contrarian indicator than the front page cover, you're saying.
HUDSON: I'd think so. Once they get in, you know the bubble's over.
LONG: Absolutely on that one. What are you currently writing? What is your current focus now?
HUDSON: Well, I just finished a book. You mentioned Killing the Host . My next book will be out in about three months: J is for Junk Economics . It began as a dictionary of terms, so I can provide people with a vocabulary. As we got in the argument at the beginning of your program today, our argument is about the vocabulary we're using and the words you're using. The vocabulary taught to students today in economics – and used by the mass media and by government spokesmen – is basically a set of euphemisms. If you look at the television reports on the market, they say that any loss in the stock market isn't a loss, it's "profit taking". And when they talk about money. the stock market rises – "Oh that's good news." But it's awful news for the short sellers it wipes out. Almost all the words we get are kind of euphemisms to conceal the actual dynamics that are happening. For instance, "secular stagnation" means it's all a cycle. Even the idea of "business cycles": Nobody in the 19 th century used the word "business cycle". They spoke about "crashes". They knew that things go up slowly and then they plunge very quickly. It was a crash. It's not the sine curve that you have in Josef Schumpeter's book on Business Cycles . It's a ratchet effect: slow up, quick down. A cycle is something that is automatic, and if it's a cycle and you have leading and lagging indicators as the National Bureau of Economic Research has. Then you'd think "Oh, okay, everything that goes up will come down, and everything that goes down will come up, just wait your turn." And that means governments should be passive.
Well, that is the opposite of everything that's said in classical economics and the Progressive Era, when they realized that economies don't recover by themselves. You need a-the government to step in, you need something "exogenous," as economist say. You need something from outside the system to revive it. The covert idea of this business cycle analysis is to leave out the role of government. If you look at neoliberal and Austrian theory, there's no role for government spending, and no role of public investment. The whole argument for privatization, for instance, is the opposite of what was taught in American business schools in the 19 th century. The first professor of economics at the Wharton School of Business, which was the first business school, was Simon Patten. He said that public infrastructure is a fourth factor of production. But its role isn't to make a profit. It's to lower the cost of public services and basic inputs to lower the cost of living and lower the cost of doing business to make the economy more competitive. But privatization adds interest payments, dividends, managerial payments, stock buybacks, and merges and acquisitions. Obviously these financialized charges are factored into the price system and raise the cost of living and doing business.
LONG: Well, Michael, we're-I thank you for the time, and we're up against our hard line. I know we didn't have as much time as we always like, so we have to break. Any overall comments you'd like to leave with our listeners who might be interested this school of economics?
HUDSON: Regarding the downturn we're in, we're going into a debt deflation. The key of understanding the economy is to look at debt. The economy has to spend more and more money on debt service. The reason the economy is not recovering isn't simply because this is a normal cycle. And It's not because labour is paid too much. It's because people are diverting more and more of their income to paying their debts, so they can't afford to buy goods. Markets are shrinking – and if markets are shrinking, then real estate rents are shrinking, profits are shrinking. Instead of using their earnings to reinvest and hire more labour to increase production, companies are using their earnings for stock buybacks and dividend payouts to raise the share price so that the managers can take their revenue in the form of bonuses and stocks and live in the short run. They're leaving their companies as bankrupt shells, which is pretty much what hedge funds do when they take over companies.
So the financialization of companies is the reverse of everything Adam Smith, John Stuart Mill, and everyone you think of as a classical economist was saying. Banks wrap themselves in a cloak of classical economics by dropping history of economic thought from the curriculum, which is pretty much what's happened. And Canada-I know since you're from Canada, my experience there was that the banks have a huge lobbying power over government. In 1979, I wrote for the IRPP Institute there on Canada In the New Monetary Order . At that time the provinces of Canada were borrowing money from Switzerland and Germany because they could borrow it at much lower interest rates. I said that this was going to be a disaster, and one that was completely unnecessary. If Canadian provinces borrow in Francs or any other foreign currency, this money goes into the central bank, which then creates Canadian dollars to spend. Why not have the central bank simply create these dollars without having Swiss francs, without having German marks? It's unnecessary to have an intermediary. But the more thuggish banks, like the Bank of Nova Scotia, said, "Oh, that way's the road to serfdom." It's not. Following the banks and the Austrian School of the banks' philosophy, that's the road to serfdom. That's the road to debt serfdom. It should not be taken now. It lets universities and the government be run by neoliberals. They're a travesty of what real economics is all about.
LONG: Michael, thank you very much. I learned a lot, appreciate it; certainly appreciate how important it is for us to use the right words on the right subject when we're talking about economics. Absolutely agree with you. Talk to you again?
HUDSON: Going to be here.
LONG: Thank you for the time.Donald , April 29, 2016 at 7:33 amAlejandro , April 29, 2016 at 9:06 am
Interesting, but after insulting Duncan, Hudson says the banks stopped partnering with industry and went into real estate, which sounded like what Duncan said.
I mention this because for a non- expert like myself it is sometimes difficult to tell when an expert is disagreeing with someone for good reasons or just going off half- cocked. I followed what Hudson said about the evils of the IMF, but didn't see where Duncan had defended any of that, unless it was implicit in saying that capitalism used to function better.Michael Hudson , April 29, 2016 at 9:54 am
Michael Hudson from the interview;
"As we got in the argument at the beginning of your program today, our argument is about the vocabulary we're using and the words you're using. The vocabulary taught to students today in economics – and used by the mass media and by government spokesmen – is basically a set of euphemisms ."Almost all the words we get are kind of euphemisms to conceal the actual dynamics that are happening."
May consider it's about recognizing and deciphering the "doublespeak", "newspeak", "fedspeak", "greenspeak" etc, whether willing or unwitting using words for understanding and clarifying as opposed to misleading and confusing dialectic as opposed to sophistry.Leonard C.Tekaat , April 29, 2016 at 12:19 pm
What I objected to was the characterization of today's situation as "financialization." I explained that financialization is the FIRST stage - when finance WORKS. We are now in the BREAKDOWN of financialization - toward the "barter" stage.
Treating "finance" as an end stage rather than as a beginning stage overlooks the dynamics of breakdown. It is debt deflation. First profits fall, and as that occurs, rents on commercial property decline. This is already widespread here in New York, from Manhattan (8th St. near NYU is half empty) to Queens (Austin St. in Forest Hills.).SomeCallMeTim , April 29, 2016 at 5:23 pm
I wrote an article you might be interested in reading. It outlines a tax policy which would help prevent what you are discussing in your article. The abuse of credit to receive rents and long term capital gains.
The title is "Congress Financialized Our Economy And Created Financial Crisis & More Poverty" Go to http://www.taxpolicyusa.wordpress.comSkippy , April 29, 2016 at 8:33 pm
Thank you for another eye-opening exposition. My political economy education was negative (counting a year of Monetarism and Austrian Economics around 1980), so I appreciate your interviews as correctives.
From your interview answer to the question about what we, the 99+% should do,I gathered only that we should not try to beat the market. Anything more than that?Eduardo Quince , April 29, 2016 at 7:41 am
From my understanding, post Plaza banking lost most of its traditional market to the shadow sector, as a result, expanded off into C/RE and increasingly to Financialization of everything sundry.
Disheveled Marsupial interesting to note Mr. Hudson's statement about barter, risk factors – ?????cnchal , April 29, 2016 at 8:30 am
"secular stagnation" means it's all a cycle
One of the most important distinctions that investors have to understand is the difference between secular and cyclical trends Let us begin with definitions from the Encarta® World English Dictionary:
Secular – occurring only once in the course of an age or century; taking place over an extremely or indefinitely long period of time
Cycle – a sequence of events that is repeated again and again, especially a causal sequence; a period of time between repetitions of an event or phenomenon that occurs regularly
Excerpted from: http://contrarianinvestorsjournal.com/?p=405#MikeNY , April 29, 2016 at 9:57 am
Secular stagnation from http://lexicon.ft.com/Term?term=secular-stagnation
Secular stagnation is a condition of negligible or no economic growth in a market-based economy . When per capita income stays at relatively high levels, the percentage of savings is likely to start exceeding the percentage of longer-term investments in, for example, infrastructure and education, that are necessary to sustain future economic growth. The absence of such investments (and consequently of the economic growth) leads to declining levels of per capita income (and consequently of per capita savings). With the reduced percentage savings rate converging with the reduced investment rate, economic growth comes to a standstill – ie, it stagnates. In a free economy, consumers anticipating secular stagnation, might transfer their savings to more attractive-looking foreign countries. This would lead to a devaluation of their domestic currency, which would potentially boost their exports, assuming that the country did have goods or services that could be exported.
Persistent low growth, especially in Europe, has been attributed by some to secular stagnation initiated by stronger European economies, such as Germany, in the past few years.
Words. What they mean depends on who's talking.
Secular stagnation is when the predators of finance have eaten too many sheeple.digi_owl , April 29, 2016 at 7:44 am
Secular stagnation is when the predators of finance have eaten too many sheeple.
This.Alejandro , April 29, 2016 at 9:18 am
Sad to see Hudson parroting the line about banks lending out savingsEnquiring Mind , April 29, 2016 at 9:02 am
That's not what he said. Re-read or re-listen, please.tegnost , April 29, 2016 at 9:52 am
Hudson saysMarkets are shrinking – and if markets are shrinking, then real estate rents are shrinking, profits are shrinking.
Real estate rents in this latest asset bubble, whether commercial or residential, appear to have been going up in many markets even if the increases are slowing. That rent inflation will likely turn into rent deflation, but that doesn't appear to have happened yet consistently.
Perhaps he meant to say that markets are going to shrink as the debt deflation becomes more evident?Synoia , April 29, 2016 at 10:06 am
I think what it means is it's getting harder to squeeze the blood out of the turniprfdawn , April 29, 2016 at 10:52 am
What Turnip? Its become a stone, fossilized..ke , April 29, 2016 at 10:22 am
Yes, I think we are into turnip country now. Figure 1 in this prior article looks clear enough – even if you don't like the analysis that went with it. Wealth inequality still climbs but income inequality has plateaued since Clinton I. Whatever the reasons for that, the 1% should be concerned – where is the ROI?ke , April 29, 2016 at 12:49 pm
Barter has always existed and always will. Debt money expands and contracts the middle class, acting as a feedback signal, which never works over the long term, because the so encapsulated system can only implode, when natural resource liquidation cannot be accelerated. The whole point is to eliminate the initial requirement for capital, work. Debt fails because both sides of the same coin assume that labor can be replaced. The machines driven by dc technology are not replacing labor; neither the elites nor the middle class can fix the machines, which is why they keep accelerating debt, to replace one failed technology only to be followed by the next, netting extortion by whoever currently controls the debt machine, which the majority is always fighting over, expending more energy to avoid work, like the objective is to avoid sweating, unless you are dumb enough to run on asphalt with Nike gear.meeps , April 29, 2016 at 5:36 pm
Labor has no problem with multiwhatever presidents, geneticists, psychologists, or economists, trying to hunt down and replace labor, in or out of turn, but none are going to be any more successful than the others. Trump is being employed to bypass the middle class and cut a deal. There is no deal. Labor is always going to pay males to work and their wives to raise children. Obviously, the majority will vote for a competing economy, and it is welcome to do so, but if debt works so well, why is the majority voting to kidnap our kids with public healthcare and education policies.Robert Coutinho , April 29, 2016 at 9:29 pm
I'm not sure I heard an answer to the question of what people, who might be trying to save for the future or plan for retirement, can do? Is the point that there isn't anything? Because I'm definitely between rocks and hard placeske , April 29, 2016 at 7:22 pm
Yeah, he basically said there is no good savings plan. Big-money interests have rigged the rules and are now manipulating the market (this used to be the definition of what was NOT allowed). Thus, they use computer algorithms to squeeze small amounts out of the market millions of times. This means that the "investments" are nothing of the sort. You don't "invest" in something for milliseconds. He said that the 1% are mostly just trying to hold on to what they have. Very few trust the rigged markets.Russell , April 29, 2016 at 10:00 pm
If Big G can print to infinity, print, but then why book it as debt to future generations?
The future is already becoming the present, because the millenials aren't paying.cnchal , April 30, 2016 at 4:36 am
Low rent & cheap energy are key to the arts & innovations. My model has to work for airports, starts at the fuel farm as the CIA & MI6 Front Page Avjet did. Well before that was Air America. I wonder if now American Airlines itself is a Front.
All of America is a Front far as I can about tell. Hadn't heard that Manhattan rents were coming down. Come in from out of town, how you going to know? Not supposed to I guess.
I got that textbook and I liked that guy John Commons. He says capitalism is great, but it always leads to Socialism because of unbridled greed.
The frenzy to find another stable cash currency showing in Bit Coin and the discussion of Future Tax Credits while the Euro is controlled by the rent takers demands change on both sides of the Atlantic.
We got shot dead protesting the war, and civil rights backlash is the gift that keeps giving to the Southerners looking up every day in every courthouse town, County seat is all about spreading fear and desperation.
How to change it all without violence is going to be really tricky.Procopius , April 30, 2016 at 8:10 am
Many thanks for the shout out to Canada.
. . . So, basically, if you're a Canadian investor, move.
LONG: So the Canadian investors are a better contrarian indicator than the front page cover, you're saying.
HUDSON: I'd think so. Once they get in, you know the bubble's over.
When one reads the financial press in Canada, every dollar extracted by the lords of finance is a glorious taking by brilliant people at the top of the financial food chain from the stupid little people at the bottom, but when it counts, there was silence, in cooperation with Canada's one percent.
The story starts about five years ago, with smart meters. Everyone knows what they are, a method by which electrical power use can be priced depending on the time of day, and day of the week.
To make this tasty, Ontario's local utilities at first kept the price the same for all the time, and then after all the meters were installed, came the changes, phased in over time. Prices were increased substantially, but there was an out. If you changed your living arrangements to live like a nocturnal rodent and washed your clothes in the middle of the night, had supper later in the evening or waited for weekend power rates you could still get low power rates, from the three tier price structure.
The local utilities bought the power from the government of Ontario power generation utility, renamed to Hydro One, and this is where Michael Hudson's talk becomes relevant.
The successful error of monetarism is to force countries to have such self-defeating policies that they end up having to privatize their natural resources, their public domain, their public enterprises, their communications and transportation, like you're seeing in Greece's selloffs. So when you find an error that is repeated, it's deliberate. It's not insane. It's part of the program, not a bug .
LONG: Where does this lead us? What's the roadmap ahead of us here?
HUDSON: A thousand years ago, if you were a marauding gang and you wanted to take over a country's land and its natural resources and public sector, you'd have to invade it with military troops. Now you use finance to take over countries. So it leads us into a realm where everything that the classical economists saw and argued for – public investment, bringing costs in line with the actual cost of production – that's all rejected in favor of a rentier class evolving into an oligarchy. Basically, financiers – the 1% – are going to pry away the public domain from the government. Pry away and privatize the public enterprises, land, natural resources, so that bondholders and privatizers get all of the revenue for themselves. It's all sucked up to the top of the pyramid, impoverishing the 99% .
Eighteen months ago, there was an election in Ontario, and the press was on radio silence during the whole time leading up to the election about the plans to "privatize" Hydro One. I cannot recall one instance of any mention that the new Premier, Kathleen Wynne was planning on selling Hydro One to "investors".
Where did this come from? Did the little people rise up and say to the politicians "you should privatize Hydro One" for whatever reason? No. This push came from the 1% and Hydro One was sold so fast it made my head spin, and is now trading on the Toronto Stock exchange.
At first I though the premier was an economic ignoramus, because Hydro One was generating income for the province and there was no other power supplier, so one couldn't even fire them if they raised their prices too high.
One of the arguments put forward by the 1% to privatize Hydro One was a classic divide and conquer strategy. They argued that too many people at Hydro One were making too much money, and by privatizing, the employees wages would be beat down, and the resultant savings would be passed on to customers.
Back to Michael Hudson
. . . The whole argument for privatization, for instance, is the opposite of what was taught in American business schools in the 19th century. The first professor of economics at the Wharton School of Business, which was the first business school, was Simon Patten. He said that public infrastructure is a fourth factor of production. But its role isn't to make a profit . It's to lower the cost of public services and basic inputs to lower the cost of living and lower the cost of doing business to make the economy more competitive. But privatization adds interest payments, dividends, managerial payments, stock buybacks, and merges and acquisitions . Obviously these financialized charges are factored into the price system and raise the cost of living and doing business .
Power prices have increased yet again in Ontario since privatization, and Canada's 1% are "making a killing" on it. There has been another change as well. Instead of a three tier price structure, there are now two, really expensive and super expensive. There is no longer a price break to living like a nocturnal rodent. The 1% took that for themselves.
I am so tired of seeing that old lie about Old Henry and the $5 a day. I realize it was just a tossed off reference to something most people believe for the purpose of describing a discarded policy, but the fact is very, very few of Old Henry's employees ever got that pay. See, there were strings attached.
Old Henry hired a lot of spies, too. He sent them around to the neighborhoods where his workers lived (it was convenient having them all in Detroit). If the neighbors saw your kid bringing a bucket of beer home from the corner tavern for the family, you didn't get the $5.
If your lawn wasn't mowed to their satisfaction, you didn't get the $5. If you were thought not to bathe as often as they liked, you didn't get the $5. If you didn't go to a church on Sundays, you didn't get the $5. If you were an immigrant and not taking English classes at night school, you didn't get the $5. There were quite a lot of strings attached. The whole story was a public relations stunt, and Old Henry never intended to live up to it; he hated his workers.
Nov 22, 2017 | www.zerohedge.com
Macro-prudential regulations follow financial crises, rarely do they precede one. Even when evidence is abundant of systemic risks building up, as is today, regulators and policymakers have a marked tendency to turn an institutional blind eye, hoping for imbalances to fizzle out on their own – at least beyond the duration of their mandates. It does not work differently in economics than it does for politics, where short-termism drives the agenda, oftentimes at the expenses of either the next government, the broader population or the next generation.
It does not work differently in the business world either, where corporate actions are selected based on the immediate gratification of shareholders, which means pleasing them at the next round of earnings, often at the expenses of long-term planning and at times exposing the company itself to disruption threats from up-and-comers.
Long-term vision does not pay; it barely shows up in the incentive schemes laid out for most professions . Economics is no exception. Orthodoxy and stillness preserve the status quo, and the advantages hard earned by the few who rose from the ranks of the establishment beforehand.
Yet, when it comes to Central Banking, and more in general policymaking, financial stability should top the priority list. It honorably shows up in the utility function, together with price stability and employment, but is not pursued nearly as actively as them. Central planning and interventionism is no anathema when it comes to target the decimals of unemployment or consumer prices, yet is residual when it comes to master systemic risks, relegated to the camp of ex-post macro-prudential regulation. This is all the more surprising as we know all too well how badly a deep unsettlement of financial markets can reverberate across the real economy, possibly leading into recessions, unemployment, un-anchoring of inflation expectations and durable disruption to consumer patterns. There is no shortage of reminders for that in the history books, looking at the fallout of dee dives in markets in 1929, 2000 and 2007, amongst others.
Intriguingly, the other way round is accepted and even theorized. Manipulating bond and stock prices, directly or indirectly, is mainstream policy theory today. From Ben Bernanke's 'portfolio balance channel theory', to the relentless pursuit of the 'wealth effect' via financial repression under Janet Yellen and Haruhiko Kuroda, to Mario Draghi tackling the fragmentation of credit markets across the EU via direct asset purchases, the practice has become commonplace. To some, like us, the 'wealth effect' may be proving to be more of an 'inequality effect' than much, leading to populism and constantly threatening regime change, but that is beyond the scope of this note today.
What we want to focus on instead is the direct impact that monetary interventionism like Quantitative Easing ('QE') and Negative or Zero Interest Rate Policies ('NIRP' or 'ZIRP') have on the structure of the market itself, how they help create a one-sided investment community, oftentimes long-only, fully invested when not levered up, relying on record-highs for bonds and stocks to perpetuate themselves endlessly - despite a striking disconnect from fundamentals, life-dependent on the lowest levels of volatility ever seen in history . The market structure morphed under the eyes of policymakers over the last few years, to become a pressure cooker at risk of blowing-up, with a small but steadily growing probability as times goes by and the bubble inflates. The positive feedback loops between monetary flooding and the private investment community are culpable for transforming an ever present market risk into a systemic risk, and for masking as peaceful what is instead an unstable equilibrium and market fragility.Positive Feedback Loops create divergence from general equilibrium, and Systemic Risks
Positive feedback loops , in finance like in biology, chemistry, cybernetics, breed system instability, as they orchestrate a further divergence from equilibrium . An unstable equilibrium is defined as one where a small disturbance is sufficient to trigger a large adjustment.
QE and NIRP have two predominant effects on markets: (i) relentless up-trend in stocks and bonds (the 'Trend Factor') , dominated by the buy-the-dip mentality, which encapsulates the 'moral hazard' of investors knowing Central Banks are prompt to come to their rescue (otherwise known as 'Bernanke/Yellen/Kuroda/Draghi put'), and (ii) the relentless down-trend in volatility the 'Volatility Factor').Two Factors Explain All: Trend and Volatility
The most fashionable investment strategies these days are directly impacted by either one or both of these drivers. Such strategies make the bulk of the overall market, after leverage or turnover is taken into account : we will refer to them in the following as 'passive' or 'quasi-passive' . The trend impacts the long-only community, crowning it as a sure winner, making the case for low- cost passive investing. The low volatility permeates everything else, making the case for full- investment and leverage.
The vast majority of investors these days are not independent from the QE environment they operate within : ETFs and index funds, Risk Parity funds and Target Volatility vehicles, Low Volatility / Short Volatility vehicles, trend-chasing algos, Machine Learning-inspired funds, behavioral Alternative Risk Premia funds. They are the poster children of the QE world. We estimate combined assets under management of in excess of $8trn across the spectrum. They form a broad category of 'passive' or 'quasi-passive' investors, as are being mechanically driven by two main factors: trend and volatility.
Source: Fasanara Presentations | Market Fragility - How to Position for Twin Bubbles Bust, 16 th October 2017. The slide is described in details in this video recording.
Extraordinary monetary policies have feedback loops with the asset management industry as a whole, reinforcing the effects on markets of such policies in a vicious – or virtuous - cycle . QE and NIRP help a large number of investment strategies to flourish, validating their success and supporting their asset gathering in the process, and are in return helped in boosting bond and stock markets by their flows joining the already monumental public flows.
Private flows so reach singularity with public flows, and the whole market economy morphs into a one big common bet on ever-rising prices, in shallow volatility. Here is the story of how $15trn of money printing by major Central Banks in the last ten years, of which $3.7trn in 2017 alone, is joined by total assets of $8trn managed into buying the same safe and risk assets across, with leverage, indiscriminately.How Market Risk became Systemic Risk
Let's give a cursory look at the main players involved (a recent presentation we did is recorded here) . As markets trend higher, no matter what happens (ever against the shocked disbeliefs of Brexit, Trump, an Italian failed referendum and nuclear threats in North Korea), investors understand the outperformance that comes from pricing risks out of their portfolios entirely and going long-only and fully-invested. Whoever under-weighs positions in an attempt to be prudent ends up underperforming its benchmarks and is then penalized with redemptions. Passive investors who are long-only and fully invested are the winners, as they are designed to be bold and insensitive to risks. As Central Banks policies reduce the level of interest rates to zero or whereabouts, fees become ever more relevant, making the case for passive investing most compelling. The rise of ETF and passive index funds is then inevitable.
According to JP Morgan, in the last 10 years, $2trn left active managers in equities and $2trn entered passive managers (pag.39 here) . We may be excused for thinking they are the same $ 2trn of underlying investors progressively pricing risk provisions out of books, de facto , while chasing outperformance and lower fees.
To be sure, ETFs are a great financial innovation, helping reducing costs in an expensive industry and giving entry to markets previously un-accessible to most investors. Yet, what matters here is their impact on systemic risks, via positive feedback loops. In circular reference, beyond Central Banks flows, markets are helped rise by such classes of valuations-insensitive passive investors, which are then rewarded with further inflows, with which they can then buy more. The more expensive valuations get, the more they disconnect from fundamentals, the more divergence from equilibrium occurs, the larger fat-tail risks become.
In ever-rising markets, 'buy-and-hold' strategies may only possibly be outsmarted by 'buy-the-dip' strategies. Whatever the outcome of risk events, be ready to buy the dip quickly and blindly. As more investors design themselves up to do so, the dips are shallower over time, leading to an S&P500 that never lost 3% in 2017, an historical milestone. Machine learning is another beautiful market innovation, but what is there to learn from the time series of the last several years, if not that buy- the-dip works, irrespective of what caused the dip. Big Data is yet another great concept, shaping the future of us all. Yet, most data ever generated in humankind dates back three years only, in and by itself a striking limitation. The quality of the deduction cannot exceed the quality of the time series upon which the data science was applied. If the time series is untrustworthy, as is heavily influenced by monumental public flows ($300bn per months), what trust can we put on any model output originating from it? What pattern recognition can we really be hopeful of getting, in the first place? May some of it just be a commercial disguise for going long, selling volatility and leveraging up in various shapes or forms? What is hype and what is real? A short and compromised data series makes it hard, if not possible, to really know. Once public flows abate and price discovery is let free again, then and only then will we be in a position to know the difference.
Low volatility does what trending markets alone cannot. A state of low volatility presents the appearance of stuporous, innocuous, narcotized markets, thus enticing new swathes of unfitting investors in, mostly retail-type 'weak hands'. Weak hands are investors who are brought to like investments by certain characteristics which are uncommon to the specific investment itself, such as featuring a low volatility. It is in this form that we see bond-like investors looking at the stock market for yield pick-up purposes, magnetized by levels of realized volatility similar to what fixed income used to provide with during the Great Moderation. It is in this form that Tech companies out of the US have started filling the coffers of not just Growth ETF, where they should rightfully reside, but also Momentum ETF, and even, incredibly, Low-Volatility ETF.
Low volatility is also a dominant input for Risk Parity funds and Target Volatility vehicles . The lower the volatility, the higher the leverage allowed in such players, mechanically. All of which are long-only players, joining public flows, again helping the market rise to record levels in the process, in circular reference. Rewarded by new inflows, the buying spree gathers momentum, in a virtuous circle. Valuations are no real input in the process, volatility is what matters the most. Volatility is not risk, except for them it is.
It goes further than that. It is not only the level of volatility that count, but its direction too . As volatility implodes, relentlessly, into historical lows never seen before in history, a plethora of investment strategies is launched to capitalize on just that, directly: Short Volatility vehicles . They are the best performing strategy of the last decade, by and large. The problem here is that, due to construction, as volatility got to single-digit territory, relatively small spikes are now enough to trigger wipe-out events on several of these instruments. Our analysis shows that if equity volatility doubles up from current levels (while still being half of what it was as recently as in August 2015), certain Short Vol ETFs may stand to lose up to 75% or more. Moreover, short positions on long-vol ETFs can lose up to 250% of capital. For some, 'termination events' are built into contracts for sudden losses of this magnitude, meaning that the notes would be prematurely withdrawn. It is one thing to expect a spike in volatility to cause losses, it is quite another to know that a minor move is all it takes to trigger a default event.
On such spikes in volatility, Morgan Stanley Quant Derivatives Strategy desk warns further that market makers may be forced to rebalance their exposure non-linearly on a spike in volatility. A drop in the S&P 500 of 5% in one day may trigger approximately $ 400mn of Vega notional of rebalancing (pag.48 here) . We estimate that half a trillion dollars of additional selling on S&P stocks may occur following a correction of between 5% and 10%. That is a lot of selling, pre-set in markets, waiting to strike. Unless you expect the market to not have another 5% sell-off, ever again.
For more details, we describe the role of these different players in a recent video presentation and in our June Investment Outlook and May Investment Outlook.It's All One Big Position
What do ETFs, Risk Parity and Target Vol vehicles, Low Vol / Short Vol vehicles, trend-chasing algos, Machine Learning, behavioral Alternative Risk Premia, factor investing have in common? Except, of course, being the 'winners take all' of QE-driven markets. They all share one or more of the following risk factors: long-only, fully invested when not leveraged-up, short volatility, short correlation, short gamma Thanks to QE and NIRP, the whole market is becoming one single big position.
The 'Trend Factor' and the 'Volatility Factor' are over-whelming, making it inevitable for a high- beta, long-bias, short-vol proxy to disseminate across. Almost inescapably so, given the time series the asset management industry has to deal with, and derive its signals from.
Several classes of investors may move to sell in lock-steps if and when markets turn. The boost to asset prices and the zero-volatility environment created the conditions for systemic risks in the form of an over-compensation to the downside. Record-low volatility breeds market fragility, it precedes system instability.Flows Matter, Both Ways!
We will know soon if the fragility of markets is that bad. The undoing of loose monetary policies (NIRP, ZIRP) will create a liquidity withdrawal of over $1 trillion in 2018 alone (pag.61-62 here) . The reaction of the passive and quasi-passive communities will determine the speed of the adjustment in the pricing for both safe and risk assets, and how quickly risk provisions will re- enter portfolios. Such liquidity withdrawal will represent the first real crash-test for markets in 10 years.
As public spending on Wall Street abates, the risk is evident of seeing the whole market turning with it. The shocks of Trump and Brexit did not manage to derail markets for long, as public flows were overwhelming. Flows is what mattered, above all elusive, over-fitting economic narratives justifying price action at the margin. Flows may matter again now as they fadeSystemic Risk is Not Just About Banks: Look at Funds
The role of trending markets is known when it comes to systemic risks: a not sufficient but necessary condition. Most trends do not necessarily lead to systemic risks, but hardly systemic risks ever build up without a prolonged period of uptrend beforehand. Prolonged uptrends in any asset class hold the potential to instill the perception that such asset class will grow forever, irrespective of the fundamentals, and may thus lead to excessive risk taking, excess leverage, the formation of a bubble and, ultimately, systemic risks. The mind goes to the asset class of real estate, its undeterred uptrend into 2006/2007, its perception of perpetuity ("we have never had a decline in house prices on a nationwide basis'' Ben Bernanke) , the credit bubble built on banks hazardous activities on subprime mortgages as a result, and the systemic risks which emanated, with damages spanning well beyond the borders of real estate.
The role of volatility is also well-researched, especially low volatility. Hayman Minsky, in his " Financial Instability Hypothesis '' in 1977, analyses the behavioral changes induced by a reduction of volatility, postulating that economic agents observing a low risk are induced to increase risk taking, which may in turn lead to a crisis: "stability is destabilizing". In a recent study, Jon Danielsson, Director of the Systemic Risk Centre at the LSE, finds unambiguous support for the 'low volatility channel', insofar as prolonged periods of low volatility have a strong predictive power over the incidence of a banking crisis, owing to excess lending and excess leverage . The economic impact is the highest if the economy stays in the low volatility environment for five years : a 1% decrease in volatility below its trend translates in a 1.01% increase in the probability of a crisis. He also finds that, counter-intuitively, high volatility has little predictive power : very interesting, when the whole finance world at large is based on retrospective VAR metrics, and equivocates high volatility for high risk.
Both a persistent trend and prolonged low-volatility can lead banks to take excessive risks. But what about their impact on the asset management industry?
Thinking at the hard economic impact of the Great Depression (1929-1932) and the Great Recession (2007-2009), and the eminent role played by banks in both, it comes as little surprise that the banking sector captures all the attention. However, what remains to be looked into, and perhaps more worrying in today's environment, is the role of prolonged periods of uptrend and low-vol on the asset management industry
In 2014, the Financial Stability Board (FSB), an international body that makes recommendations to G20 nations on financial risks, published a consultation paper asking whether fund managers might need to be designated as " global systemically important financial institution " or G-SIFI, a step that would involve greater regulation and oversight. It did not result in much, as the industry lobbied in protest, emphasizing the difference between the levered balance sheet of a bank and the business of funds.
The reason for asking the question is evident: (i) sheer size , as the AM industry ballooned in the last few years, to now represent over [15trnXX] for just the top 5 US players!, (ii) funds have partially substituted banks in certain market-making activities, as banks dialed back their participation in response to tighter regulation and (iii) , funds can indeed do damage: think of LTCM in 1998, the fatal bailout of two Real Estate funds by Bear Stearns in 2007, the money market funds 'breaking the buck' in 2008 amongst others.
But it is not just sheer size that matters for asset managers. What may worry more is the positive feedback loops discussed above and the resulting concentration of bets in one single global pot , life-dependent on infinite momentum/trend and ever-falling volatility. Positive feedback loops are the link for the sheer size of the AM industry to become systemically relevant. Today more than ever, they morph market risks in systemic risks.
Volatility will not forever be low, the trend will not forever go: how bad a damage when it stops? As macro prudential policy is not the art of "whether or not it will happen" but of "what happens if", it is hard not to see this as a blind spot for policymakers nowadays.
ebworthen , Nov 22, 2017 10:55 AMLet it Go , Nov 22, 2017 11:49 AM
In other words, it's a Ponzi scheme.Batman11 , Nov 22, 2017 12:47 PM
I have never seen it this bad, the numbers are all moutof wack!
It seems many of us are drawn to a good illusion and this proves true for most people in their daily life as well. In some ways, it could be said that our culture has become obsessed with avoiding what is real.
We must remember that politicians and those in power tend to throw people under the bus rather than rise up and take responsibility for the problems they create. The article below looks at how we have grown to believe things are fine.
http://The Allure Of Ilusions-Five Favorite Financial Myths.htmlBatman11 -> Batman11 , Nov 22, 2017 12:51 PM
The real estate boom features all the unknowns in today's thinking, which is why they are global.
This simple equation is unknown.
Disposable income = wages – (taxes + the cost of living)
You can immediately see how high housing costs have to be covered by wages; business pays the high housing costs for expensive housing adding to costs and reducing profits. The real estate boom raises costs to business and makes your nation uncompetitive in a globalised world.
The unproductive lending involved that leads to financial crises.
The economy gets loaded up with unproductive lending as future spending power has been taken to inflate the value of the nation's housing stock. Housing is more expensive and the future has been impoverished.
Unproductive lending is not good for the economy and led directly to 1929 and 2008.
Neoliberalism's underlying economics, neoclassical economics, doesn't look at private debt and so no one really knew what they were doing.
The real estate boom feels good for a reason that is not known to today's thinkers.
Monetary theory has been regressing since 1856, when someone worked out how the system really worked.
Credit creation theory -> fractional reserve theory -> financial intermediation theory
"A lost century in economics: Three theories of banking and the conclusive evidence" Richard A. Werner
" banks make their profits by taking in deposits and lending the funds out at a higher rate of interest" Paul Krugman, 2015. He wouldn't know, that's financial intermediation theory.
Bank lending creates money, which pours into the economy fuelling the boom; it is this money creation that makes the housing boom feel so good in the general economy. It feels like there is lots of money about because there is.
The housing bust feels so bad because the opposite takes place, and money gets sucked out of the economy as the repayments overtake new lending. It feels like there isn't much money about because there isn't.
They were known unknowns, the people that knew weren't the policymakers to whom these things were unknown.
The global economy told policymakers there was something seriously wrong in 2008, but they ignored it, I didn't.Batman11 -> Batman11 , Nov 22, 2017 1:25 PM
The most fundamental of all fundamentals was unknown.
The relationship between debt and money.
the money supply = all the debt in the system, public and private
M3 is going exponential before 2008, a credit bubble is underway (debt = money)
The FED and everyone else doesn't realise.Batman11 -> Batman11 , Nov 22, 2017 1:31 PM
This is why austerity doesn't work in a balance sheet recession, e.g. Greece.
The IMF predicted Greek GDP would have recovered by 2015 with austerity.
By 2015 it was down 27% and still falling.
Richard Koo had to explain the problem to the IMF.
They had pushed Greece into debt deflation by cutting Government spending with austerity.
It wasn't just the IMF, the Troika all went along with this fatally flawed policy, this means the ECB and EU Commission also didn't know what they were doing.
Richard Koo had watched as Western "experts" told Japan to cut Government spending and seen the fall in GDP as the economy went downhill. The only way to get things going again was to increase Government spending and he has had decades to work out what was going on.
The Troika's bad economics has been wreaking havoc across the Club-Med.
Mark Blythe looks at the data.
It comes out of knowledge that is missing from the mainstream.Radical Marijuana , Nov 22, 2017 3:15 PM
Balancing the budget ............ be careful you might head into debt deflation.
If the private sector aren't borrowing the Government needs to borrow to keep the money supply stable.
You don't want to end up like Greece do you?Muppet , Nov 22, 2017 7:03 PM
Another superficially correct analysis of "Positive Feedback Loops create divergence from general equilibrium, and Systemic Risks." The vicious feedback loops which have the most leverage are all aspects of the funding of the political processes, which have resulted in runaway systems of legalized lies, backed by legalized violence, the most important of which are the ways that the powers of public governments enforce frauds by private banks, the big corporations that have grown up around those big banks.
About exponentially advancing technologies have enabled enforced frauds to become about exponentially more fraudulent. The underlying drivers were the ways that the combined money/murder systems developed, whose social successfulness became more and more based on maximizing maliciousness. From a superficial point of view, those results may appear to be due to incompetence, however, from a deeper point of view those results make sense as due to the excessively successful applications of the methods of organized crime through the political processes, due to the vicious feedback loops of the funding of those political processes.
The only connections between human laws and natural laws are the abilities to back up lies with violence. Natural selection pressures have driven Globalized Neolithic Civilization to develop the most dishonest artificial selection systems possible, while the continuation of the various vicious feedback loops that made and maintained those developments are driving about exponentially increasing dishonesty. Although the laws of nature are not going to stop working, and the laws of nature underpinned the runaway development of excessively successful vicious feedback loops of organized crime, on larger and larger scales, to result in Globalized Neolithic Civilization, the overall results are that Civilization is becoming about exponentially more psychotic. Since Civilization necessarily operates according to the principles and methods of organized crime, while those who became the biggest and best organized forms of organized crime, namely, banker dominated governments, also necessarily became most dishonest about themselves, and yet, their bullshit social stories continue to dominate the public schools, and mainstream mass media, as well as the publicly significant controlled "opposition" groups.
Political economy is INSIDE human ecology, and therefore, the greatest systematic risks are to be found in the tragic trajectory of human ecologies which are almost totally buried under maximized maliciousness. "Public debates" about the human death control systems are based on previously having being as deceitful and treacherous as possible regarding those topics. The most extreme forms of that manifest as the ways that money is measurement backed by murder. Of course, that the debt controls are backed by the death controls are issues which are generally not publicly admitted nor addressed.
Global Neolithic Civilization has become almost totally based on being able to enforce frauds, in ways which have become about exponentially more fraudulent, as the vicious feedback loops which enable that to happen automatically reinforce themselves to get worse, faster. The almost total triumph of enforced frauds has resulted in social "realities" which are becoming exponentially more insane, since the social successfulness of enforced frauds requires the most people do not understand that, because they have been conditioned to not want to understand that. Rather, almost everyone takes for granted deliberately ignoring and misunderstanding the laws of nature in the most absurdly backward ways possible, because of the long history of successful warfare based on deceits and treacheries becoming the more recent history of successful finance based on enforcing frauds, despite that tragic trajectory of vicious feedback loops resulting in about exponentially increasing overall fraudulence.
Various superficially correct analyses, such as the one in the article above, are typical of the content on Zero Hedge , which does not come remotely close to recognizing the degree to which the dominate natural languages and philosophy of science have undergone series of compromises with the biggest bullies' bullshit-based world views, which became the banksters' bullshit about economics. Although it is theoretically possible for human beings to better understand themselves and Civilization, it continues to become more and more politically impossible to do so, due to the ever increasing vicious feedback loops of enforced frauds achieving symbolic robberies ...
Although the laws of nature are never going to stop working, it is barely possible to exaggerate the degree to which Civilization overall is becoming about exponentially more psychotic, due to the social "realities" based on successfully enforcing frauds becoming more and more out of touch with the surrounding, relatively objective, physical and biological facts. The various superficially correct analyses presented on Zero Hedge regarding that kind of runaway collective psychosis, driven by the vicious feedback loops of the funding of all aspects of the funding of the political processes, tend to always grossly understate the seriousness of that situation, especially including the crucial issues of how to operate the human murder systems after the development of weapons of mass destruction, which is unavoidable due to the rapid development of globalized electronic monkey money frauds, backed by the threat of force from apes with atomic weapons.
Those who believe that possessing precious metals, or cryptocurrencies, etc., are viable solutions to those problems are not remotely close to being in the right order of magnitude. Although there is no doubt that exponentially more "money" is being made out of nothing as debts, in order to "pay" for strip-mining the natural resources of a still relatively fresh planet, and so, there is no doubt that the exponentially decreasing value of that "money" is driving the accumulation of apparent anomalies, such as outlined in the article above, the actually crucial issues continue to be the ways that money is measurement backed by murder, as the most abstract ways that private property are claims backed by coercions. Stop-gap individual responses to the runaway fraudulence, such as faith in possessing precious metals or cryptocurrencies, make some relative sense in terms of the public "money" supplies becoming exponentially more fraudulent, but otherwise dismally fail to be in the ball park of the significant issues driven by prodigious progress in physical sciences, WITHOUT any genuine progress in political sciences, other than to continue to be able to better enforce bigger frauds, through the elaborations of oxymoronic scientific dictatorships, which adamantly refuse to become more genuinely scientific about themselves.
Primates with about exponentially increasing physical technologies continue to deliberately ignore and misunderstand themselves as much as is humanly possible, due to the history of warfare making and maintaining the currently existing political economy, whose maliciousness is manifesting through runaway vicious feedback loops, whereby the excessively successful control of Civilization through applications of the methods of organized crime are resulting in that Civilization manifesting runaway criminal insanities. Indeed, in that context, where there is almost nothing but the central core of triumphant organized crime, namely bankster dominated governments, surrounded by various layers of controlled "opposition" groups, which stay within the same bullshit-based frames of reference regarding those phenomena, the overall situation is that society becoming about exponentially sicker and insane.
That Civilization has been driven by natural selection pressures to manifest runaway psychoses is not going to stop the laws of nature from continuing to work through that Civilization. However, that will nevertheless drive the currently dominate artificial selection systems to become increasingly psychotic, in ways whereby their vicious feedback loops are less and less able to be sanely responded to ... Although some human beings have better and better understood some general energy systems, e.g., electric and atomic energy, etc., since warfare was the oldest and best developed forms of social science and engineering, whose successfulness was based on being able to maximize maliciousness, and since those then enabled successful finance to become based on runaway enforced frauds, human beings living within Globalized Neolithic Civilization are so hidebound by adapting to living inside those vicious feedback loops based on being able to enforce frauds that those human beings are mostly unwilling and unable to better understand themselves as also manifestations of general energy systems.
As the report, embedded in the article, begins by quoting Leonardo da Vinci:
"Learn how to see. Realize that everything connects to everything else."
In general, "Asset Managers" are stuck inside taking for granted that everything they do has become almost totally based on being able to enforce frauds, despite some of them noticing the increasingly blatant ways that there are accumulating apparent anomalies in those systems, as vicious feedback loops drive those systems to become about exponentially more fraudulent, and therefore increasingly unbalanced. To come to better terms with those apparent anomalies requires going through series of intellectual scientific revolutions and profound paradigm shifts, which overall become ways that human beings better understand themselves as manifestations of general energy systems. However, since doing so requires recognizing how and why governments are necessarily the biggest forms of organized crime, dominated by the best organized gangsters, the banksters, it continues to be politically impossible to accomplish that.
At each open, algos compute the increase in their AUM from the prior day and their margin reach. They then begin buying. All algos do this. Buying whenever cash/margin exists; selling whenever profit targets exist. On pullbacks, the algos withdraw, volume evaporates, minimizing the drop. The algos collectively increase equity prices without consideration of the value of the money involved. Not valuations. No fundamentals. Just ones and zeroes. Just a program.
Mar 06, 2016 | naked capitalism
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PERIES: James, the Council of Economic Advisors, they put out economic forecasts each year. And there has been some wildly optimistic ones. For example, if you look at the 2010 predictions for 2012 and 2013 they have not quite been attained. And one would say it was done in the interest of trying to make the administration that they were serving more impressive. But what accounts for this particular attack on Friedman's projection and other fellow economists?
GALBRAITH: This was a classic case of professional bad manners and rank-pulling. What we had here were four former chairs of the president's Council of Economic Advisors, and two from President Obama, two from President Clinton, who decided to use their big names and their titles in order to launch an attack on a professor of economics at the University of Massachusetts who had written a paper evaluating the Sanders economic program.
It's likely that the four bigwigs thought that Professor Friedman was a Bernie Sanders supporter. In fact, as of that time he was a Hillary Clinton supporter and a modest donor to her campaign. What he had done was simply to write his evaluation of the economic effects of the ambitious Sanders reform program. The four former council chairs announced that on the basis of their deep commitment to rigor and objectivity, they had discovered that this forecast was unrealistic. And what I pointed out was that that claim was based on no evidence and no analysis whatsoever. And when you pressed down on it you found that it was simply based on the obvious fact that we haven't seen the kinds of growth rates that Professor Friedman's analysis suggested the Sanders program would produce. And for a very simple reason: the Sanders program is bigger. It's more ambitious than anything we've seen in recent years, so it's not surprising that when you put it through a model it generates a higher growth rate.
So that was the basic underlying facts, and these guys, two men and two women, announced that they, that it was a disreputable study, but failed to present any analysis that suggested they'd actually even read the paper before they denounced it. And that's what I pointed out in my counter letter, in a number of articles that have appeared since.
PERIES: James, so in your letter, how do you counter them? What methods did you use to come to your conclusions?
GALBRAITH: Well, I, no need to say anything beyond the fact that I had looked in their letter for the rigor that they were so proud of, for the objectivity and the analysis that they were so proud of, and I'd found that they had not done any. They had not made any such claim, not done any such work.
So that began to provoke a discussion. It's fair to say ultimately, without apologizing for effectively launching an ad hominem attack on an independent academic researcher, one of the former chairs, Christina Romer of President Obama's council, and her husband David Romer, a fellow economist, did produce a paper in which they spelled out their differences with the, with the Friedman paper. But that, again, raised another set of interesting issues which we've continued to discuss at various, various outlets of the press.
PERIES: Now, James Friedman's claim that the growth rate from Sanders' plan to be around 5.3 percent. And some economists, including Dean Baker at the Center for Economic Policy and Research, have claimed that this is unrealistic. What do you make of that?
GALBRAITH: Well, the question is whether it is an effect, let's say, a reasonable projection, of putting the Sanders program into an economic model. And the answer to that question, yes, Professor Friedman did a reasonable job. He spelled out what the underlying assumptions that he was using were. He spelled out the basic rules of thumb that macroeconomists had used for decades to assess the effects of an economic program. In this case, an expansionary economic program. And he ran them through his model and reported the results, a perfectly reasonable thing to do.
Now, one can be skeptical. And I am, and Dean Baker is, lots of people are skeptical that the world would work out quite that way, because lots of things, in fact, happen which are not accounted for in a model. And we've talked, we've basically put together a list of things that you think might be problematic. But the exercise here was not to put everything into paper that might happen in the world. The exercise was to take the kind of bare bones that economists use to assess and to compare the consequences of alternative programs, and to ask what kind of results do you get out? And that's what, again, what Jerry Friedman did. It was a reasonable exercise, he came up with a reasonable answer, and he reported it.
PERIES: Now, Friedman seems to think that the rate of full employment in 1999 is attainable. However, many labor economists seem to think that the larger share of the elderly currently in society compared to 1999 explains some of the lack of labor participation, which creates a lower full employment ceiling that's contradicting Friedman's report. Your thoughts on that?
GALBRAITH: Well, I think it is a fact that the population is getting older. But as, I think, any economist would tell you, that when you offer jobs in the labor market, the first thing that happens is the people who are looking for work take those jobs. The second thing that happens is that people who might look for work when jobs were available start coming back into the labor market. And if that is not enough to fill the vacancies that you have, it's perfectly open to employers to raise their wages so as to bring more people in, or to increase the pace at which they innovate and substitute technology for labor so that they don't need the work.
So there's no real crisis involved in the situation if it turns out five years from now we're at 3.5 percent unemployment, and they were beginning to run short of labor. That's not a reason to, at this stage, say no, we're not going to engage in the exercise and run a more expansionary, vigorous reform program, a vigorous infrastructure project, a major reform of healthcare, a tuition-free public education program. All of those things, which were part of what Friedman put into his paper, should be done anyway. The fact that the labor market forecast might prove to have some different, the labor market might have different characteristics in five years' time is from our present point of view just a, it's an academic or a theoretical proposition, purely.
PERIES: And Friedman's paper, he looks at a ten-year forecast. Did you feel that when you looked at the specifics of that, including college, universal healthcare, infrastructure spending and of course, expanding Social Security and so on, that those categories and his predictions or projections, rather, made sense to you?
GALBRAITH: Well, again, what he was doing was running a program of a certain scale, of a large scale, through a set of standard macroeconomic assumptions. And that, again, is a reasonable exercise. If you ask me what my personal view is, I've written a whole book called The End of Normal in which I lay out reasons for my chronic pessimism about the capacity of the world economy to absorb a great deal more rapid economic growth.
But that's not in the standard models, and it would not be appropriate to layer that on to a forecast of this kind. What Friedman was criticized for was not for putting his thumb on the scale, but for failing to put his thumb on the scale. In fact, that was the reasonable thing to do.
On the contrary, and on the other side, when Christina and David Romer did put out their forecast, their own criticism of the Friedman paper, they concluded by asserting that if this program were tried, inflation would soar. So they there were making an allegation for which, again, they had no evidence and no plausible model, that in the world in which we presently live would produce that result.
So what we had here was a, what was essentially an academic exercise that produced a result that was highly favorable to the Sanders position, and showed that if you did an ambitious program you would get a strong growth response. It's reasonable, certainly, for the first three or four years that that would transpire in practice. And what happened was that people who didn't like that result politically jumped on it in a way which was, frankly speaking, professionally irresponsible, in my view. It was designed to convey the impression, which it succeeded in doing for a brief while through the broad media, that this was not a reputable exercise, and that there were responsible people on one side of the debate, and irresponsible people on the other.
And that was, again, something that–an impression that could be conveyed through the mass media, but would not withstand scrutiny, and didn't withstand scrutiny, once a few of us stood up and started saying, okay, where's your evidence, on what are you basing this argument? And revealed the point, which the Romers implicitly conceded, and I give them credit for that, that in order to criticize a fellow economist you need to do some work.
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Keith , March 6, 2016 at 4:45 amKeith , March 6, 2016 at 6:29 am
The true nature of Capitalism has obviously been forgotten over time. Today we think it brings prosperity to all, but that was certainly never the intention. Today's raw Capitalism is showing its true nature with ever rising inequality. Capitalism is essentially the same as every other social system since the dawn of civilization. The lower and middle classes do all the work and the upper, leisure Class, live in the lap of luxury. The lower class does the manual work; the middle class does the administrative and managerial work and the upper, leisure, class live a life of luxury and leisure.
The nature of the Leisure Class, to which the benefits of every system accrue, was studied over 100 years ago. "The Theory of the Leisure Class: An Economic Study of Institutions", by Thorstein Veblen. (The Wikipedia entry gives a good insight. It was written a long time ago but much of it is as true today as it was then. This is the source of the term conspicuous consumption.) We still have our leisure class in the UK, the Aristocracy, and they have been doing very little for centuries. The UK's aristocracy has seen social systems come and go, but they all provide a life of luxury and leisure and with someone else doing all the work.
Feudalism – exploit the masses through land ownership. Capitalism – exploit the masses through wealth (Capital)
Today this is done through the parasitic, rentier trickle up of Capitalism:
a) Those with excess capital invest it and collect interest, dividends and rent.
b) Those with insufficient capital borrow money and pay interest and rent.
All this was much easier to see in Capitalism's earlier days.
Malthus and Ricardo never saw those at the bottom rising out of a bare subsistence living. This was the way it had always been and always would be, the benefits of the system only accrue to those at the top.
It was very obvious to Adam Smith:
"The Labour and time of the poor is in civilised countries sacrificed to the maintaining of the rich in ease and luxury. The Landlord is maintained in idleness and luxury by the labour of his tenants. The moneyed man is supported by his extractions from the industrious merchant and the needy who are obliged to support him in ease by a return for the use of his money. But every savage has the full fruits of his own labours; there are no landlords, no usurers and no tax gatherers."
Like most classical economists he differentiated between "earned" and "unearned" wealth and noted how the wealthy maintained themselves in idleness and luxury via "unearned", rentier income from their land and capital.
We can no longer see the difference between the productive side of the economy and the unproductive, parasitic, rentier side. This is probably why inequality is rising so fast, the mechanisms by which the system looks after those at the top are now hidden from us.
In the 19th Century things were still very obvious.
1) Those at the top were very wealthy
2) Those lower down lived in grinding poverty, paid just enough to keep them alive to work with as little time off as possible.
4) Child Labour
Immense wealth at the top with nothing trickling down, just like today.
This is what Capitalism maximized for profit looks like. Labour costs are reduced to the absolute minimum to maximise profit. The beginnings of regulation to deal with the wealthy UK businessman seeking to maximise profit, the abolition of slavery and child labour. The function of the system is still laid bare. The lower class does the manual work; the middle class does the administrative and managerial work and the upper, leisure, class live a life of luxury and leisure. The majority only got a larger slice of the pie through organised Labour movements.
By the 1920s, mass production techniques had improved to such an extent that relatively wealthy consumers were required to purchase all the output the system could produce and extensive advertising was required to manufacture demand for the chronic over-supply the Capitalist system could produce. They knew that if wealth concentrated too much there would not be enough demand. In the 1950s, when Capitalism had healthy competition, it was essential that the Capitalist system could demonstrate that it was better than the competition. The US was able to demonstrate the superior lifestyle it offered to its average citizens.
Now the competition has gone, the US middle class is being wiped out. The US is going third world, with just rich and poor and no middle class. Raw Capitalism can only return Capitalism to its true state where there is little demand and those at the bottom live a life of bare subsistence.
When you realise the true nature of Capitalism, you know why some kind of redistribution is necessary and strong progressive taxation is the only way a consumer society can ever be kept functioning.
A good quote from John Kenneth Galbraith's book "The Affluent Society", which in turn comes from Marx.
"The Marxian capitalist has infinite shrewdness and cunning on everything except matters pertaining to his own ultimate survival. On these, he is not subject to education. He continues wilfully and reliably down the path to his own destruction"
Marx made some mistakes but he got quite a lot right.Keith , March 6, 2016 at 1:11 pm
Thanks to Michael Hudson, whose ideas anyone will recognise who has read his book.
"Killing the Host"
If you haven't read it, do so immediately.Keith , March 6, 2016 at 1:17 pm
Perhaps, Western civilization had already cultivated and concentrated psychopathic personality traits in its elite before Capitalism ever begun. Early European history is an endless procession of wars at home and abroad as the elite took their wealth by force and the masses were kept in check by force whenever necessary.
No peaceful group could ever survive this relentless onslaught of millennia. This psychopathic elite then took their warlike ways to every corner of the earth. The wealthy elite from this era then became the wealthy elite of the next Capitalist era. Even today their bloodlust cannot be sated as they look to control a global empire.Vatch , March 6, 2016 at 5:00 pm
"We came, we saw, he died" rinse and repeat for 5,000 years.Jim Young , March 6, 2016 at 12:27 pm
Certainly countless hundreds of peaceful, responsible, inclusive, open, empathetic indigenous societies have been co-opted/overthrown by the western model.
Yes, but it's not just the western model that overthrows peaceful societies. The empires of China, the Japanese monarchies, the empires of India (together with a cringeworthy caste system), the human sacrificing Aztecs, Mayas, and Incas, all prove that tyranny is not a western invention.
When a local population becomes too large to be supported by simple egalitarian hunting and gathering, something else is required. That something is agriculture, and almost inevitably, the organization, specialization, and partial urbanization required by large scale agricultural society leads to exploitation and tyranny. This is seen in the earliest societies for which we have a written record, Sumer and Egypt.Clive , March 6, 2016 at 12:37 pm
Thanks for the explanations of Veblen and Galbraith, which I find enduring basics over more than 100 years of speculation, real investment, and the best way to keep consumer society healthy.
My unschooled, simple, way to measure the health of an economy is in the Velocity of Money in the real economy of useful products and services. It appears to be very far below where it was when we did our best, and lower than when we first started measuring it near the beginning of the Great Depression.Keith , March 6, 2016 at 1:58 pm
Or, pictorially illustrated .
I'm thinking of having my Christmas Cards printed with it on the front this year.For The Win , March 6, 2016 at 5:46 am
In addition ..
By the 1920s, mass production techniques had improved to such an extent that relatively wealthy consumers were required to purchase all the output the system could produce and extensive advertising was required to manufacture demand for the chronic over-supply the Capitalist system could produce.
They knew that if wealth concentrated too much there would not be enough demand.
Of course the Capitalists could never find it in themselves to raise wages and it took the New Deal and Keynesian thinking to usher in the consumer society.Rodger Malcolm Mitchell , March 6, 2016 at 2:08 pm
Colonialism and fiscal conservatism
Fiscal conservatism, which champions a balanced budget and expenditure restraints, is often hailed as a politico-economic philosophy as well as a policy of financial responsibility. In practice, it has been used as an argument against free spending by governments which can lead to high levels of debt and inflation. It has not been a positive philosophy which advocates the pro-growth and stability benefits coming from balanced budgets. Rather, it is a negative one – reacting against excessive spending and its consequences. This is probably why modern examples of fiscal conservatism in the United States and the United Kingdom have not led to sustainable growth or a significant reduction in public debt. Instead, in the case of the Ronald Reagan era in the US in the 1980s, public debt soared as fiscal conservatism and other policies were abandoned.mpr , March 6, 2016 at 9:12 am
A Monetarily Sovereign government does not need to reduce debt. In the U.S. (which is Monetarily Sovereign) federal so-called "debt" is actually the total of deposits in T-security accounts at the Federal Reserve Bank. In short, "debt" is bank deposits.
Why anyone would want to reduce the size of deposits at the world's safest bank is a mystery to me - other than the misleading use of the word "debt."
While all bank accounts are, in fact, debt of banks, most banks boast about the size of their depositors' accounts.
Contrary to popular myth, federal debt (i.e. deposits at the FRB) does not lead to inflation. America's "debt" has grown more than 9,000% in the past 75 years, and the Fed is struggling to create inflation.diptherio , March 6, 2016 at 9:57 am
Galbraith is probably my favorite economist, and eminently reasonable here. It makes me think that Sanders should have used him, or someone like him as an adviser/in house economist, rather than relying on external analyses like Friedman. It would possibly have given his program more gravitas – first amongst elites, and then more generally. At least it would have had a chance of changing the broader discussion. Whether you agree with it or not, right now the general MSM reporting on the Sanders plan is that it doesn't add up.John Zelnicker , March 6, 2016 at 10:25 am
I want to know why he hasn't been prominently featuring Prof. Kelton and her economic policy prescriptions. What's up with that?Rodger Malcolm Mitchell , March 6, 2016 at 2:19 pm
This is speculative, but since Prof. Kelton is actually the economist for the Minority (the Democrats) of the Senate Banking committee, there may be reasons of protocol that Sanders isn't using her policy ideas at the moment.
Another possibility is that trying to introduce a new economic paradigm while running for the nomination may be a bridge too far. If Sanders tried to explain to people that taxes don't fund federal spending, etc., heads would explode.
I'm also not sure how one would use Prof. Kelton's ideas without bringing in a whole bunch of MMT concepts. Maybe if Sanders wins the nomination he can begin to bring some of these ideas into the conversation.Kurt Sperry , March 6, 2016 at 11:48 am
He won't use her ideas simple because the American voter in not yet amenable to the facts of Monetary Sovereignty .
Try explaining even to your best friend that:
1. Unlike state and local taxes, Federal taxes do not fund federal spending.
2. Even if FICA were eliminated, Social Security and Medicare benefits dramatically could (and should) be increased. There are no federal "trust funds."
3. Federal deficits are necessary for economic growth
4. Federal "debt" is nothing more than deposits in T-security accounts at the Federal Reserve Bank.
5. America never has had, and is absolutely in no danger of, hyper-inflation.
Perhaps, if Bernie wins the election, he will be freer to educate the masses, as well as the economics community, but meanwhile he has to claim the popular myth that federal spending has to be "paid for" by taxes.MaroonBulldog , March 6, 2016 at 1:00 pm
Is the American public, trained/indoctrinated to think of the USG budget in terms of a household budget analogy, ready for MMT? I think it's politically OK to use MMT informed policies–"deficits don't matter"–as the Republicans have, but not OK to openly acknowledge doing so. MMT runs head on into bedrock beliefs like the protestant moral virtues of thrift and fiscal responsibility. People cling to this stuff as tightly as they cling to their religion and guns.Yves Smith Post author , March 6, 2016 at 3:01 pm
MMT is a volatile, explosive doctrine. Tell an ordinary off-the-street taxpayer that Federal taxes don't fund Federal expenditures, that Federal taxes destroy the money they collect and so keep inflation at desired levels, and ready yourself to answer this:
"If I'm just paying taxes so the money can be burned, why should I pay taxes? What good does paying taxes for that do me, or people like me?"
And be prepared not to have your answer heard, comprehended, or accepted, after it is given.
It could lead directly and quickly to the end of a system of tax collection based on voluntary compliance. It could ignite a revolution.
MMT is an unpopular doctrine. Whether it is the true theory, or a truer theory than others, of the state of the world–is not the point.Jim Young , March 6, 2016 at 11:56 am
She can't. She's his staffer (on the Senate Budget Committee) so she is now allowed to work on the campaign. It would be a big ethics violation and would produce a scandal. Staffers cannot work on any of their bosses campaigns, including re-elections. Remember, they are government employees, not on Sanders' personal payroll.susan the other , March 6, 2016 at 11:49 am
My old party has worked hard to try discredit James Galbraith. I was faced with some ridicule from a Bush era international negotiator for trying to read "The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too" in an airport waiting area.
To me, too many of the supposed (and actual) intellectuals and high level advisers were experts in rationalizing and explaining the chosen party views, but still employed the Cato Institute suggestion to use "Leninist" propaganda techniques as put forth in the 1996 Newt Gingrich/Frank Luntz GoPac memo, "Language: A Key Mechanism of Control."
I don't oppose them (at that level) expressing their well thought out views, even using the "persuasive" techniques described in the document at http://www.informationclearinghouse.info/article4443.htm but I do fault them for trying to prevent people from freely exploring far more comprehensive information and views.
We left the party ancestors had founded and stayed loyal to for 5 generations, though, because of the lower level dirty tricksters ("opposition researchers") that wanted us to corrupt the processes as one fund raiser told me, "We have to fight dirtier than Democrats."
Galbraith is a voice that must be listened to, just as there may be many others that we should be able to listen to (as I assume we could have under the old "Fairness Doctrine" before the corporate take over of almost all fully accessible media).jack , March 6, 2016 at 1:09 pm
stg Galbraith said casually about the thesis of his new book: This really is the new normal for capitalism – meaning low growth – because there is not much growth left. So maybe we are headed for a no growth world in which stability and sustainability dictate enterprise which is used to maintain a steady state – so that sounds more socialist than capitalist out of necessity. I believe this is our future too. And I think I understand Varoufakis' and Galbraith's "modest proposal" in a clearer light because growth must be used going forward not willy-nilly, but to achieve our ends. And also too – a while back the link that effectively said we had it backwards when we assume that capitalism supports socialism – because capitalism in reality lives off and is only possible under sufficient socialism. And it seems the 4 presidential advisors are more out to lunch than their letter showed.Detroit Dan , March 6, 2016 at 4:49 pm
As somebody asked above, I am still left wondering where Justin Wolfer's NYTimes piece fits into all this?Bernard , March 6, 2016 at 1:22 pm
Can't respond to all the nonsense. I just read Wolfer's piece and it seems to miss the point (as with the Romers), as noted in the following 2 articles. I especially recommend the 2nd one from John Cassidy in the New Yorker.
Bernie Sanders and the Case for a New Economic-Stimulus Package
as usual, i hear a lot "they" failed conservatism, never, Conservatism is just the age old avenue to "scam" the other. Bush "failed" at conservatism, i.e., it was Bush's fault not the ideology of Conservatism. on and on, this self repeated/reinforced "idea" that we have just not "found" the correct "application" of the ideal/reality that is Conservatism.
it does get old, too. all the people killed due to Conservatism and its' perpetrators. Greed, in other words, and the age old scam with "new and improved" tactics. These people have no concept of what "society" is, why we are all interrelated. to scam one is to scam us all. and these people are definitely not Christian in the "Jesus Christ" i've always heard about. Whatsoever you do unto the poor, you do unto me!
i just suppose psychopaths use any avenue for their "crimes." as i've heard, too, any great fortune is usually the result of a great crime.
somethings never change.
Nov 29, 2017 | economistsview.typepad.com
Christopher H. , November 25, 2017 at 12:54 PMhttps://www.nytimes.com/2017/11/22/business/economy/fed-interest-rates.htmlGibbon1 -> Christopher H.... , November 26, 2017 at 04:12 AM
Fed gonna raise rates:
"A minority of Fed officials, however, have become increasingly forceful in registering their concerns. Those officials are more worried about moving too fast than too slow. They fear that the persistence of sluggish inflation could damage the economy, for example, by permanently eroding public expectations about the future pace of inflation.
The minutes said that some of those officials are reluctant to vote for additional rate increases until they are convinced that inflation is indeed gaining strength.
The officials "indicated that their decision about whether to increase the target range in the near term would depend importantly on whether the upcoming economic data boosted their confidence that inflation was headed toward the Committee's objective.""
Some dissents? I hope so.
[sluggish inflation could damage the economy, for example, by permanently eroding public expectations about the future pace of inflation.]RC AKA Darryl, Ron said in reply to Christopher H.... , November 26, 2017 at 11:04 AM
Low inflation means no way to get out from under debt via refinancing. If people won't take debt how will late stage capitalists make money?
"... permanently eroding public expectations about the future pace of inflation..."Christopher H. said in reply to RC AKA Darryl, Ron... , November 26, 2017 at 12:27 PM
[The public, being voting age people at large and all working people and so on, really would rather not expect any inflation at all. It usually does not work out for them all that well since food prices and other headline inflation goods often rise ahead of wages and core inflation goods. The public is not going to bail us out of this one. Poor and lower middle income people do not even have mortgages to refinance. Economic illiteracy among the public is not our friend. The establishment however cannot afford to make the public more economically literate for fear they will understand how the balance of trade over the last forty year has ripped them off.]"It usually does not work out for them all that well since food prices and other headline inflation goods often rise ahead of wages and core inflation goods."Christopher H. said in reply to RC AKA Darryl, Ron... , November 26, 2017 at 12:34 PM
People also don't like being taxed to pay for infrastructure and public services.
Except for older voters, most people in advanced nations have never experienced moderate inflation.
If macro policy was done entirely by fiscal policy/better trade policy and interest rates were left alone, we'd still see higher inflation after years of running the economy hot.
I just think that had the government did more fiscal/monetary policy after the financial crisis and allowed inflation to run over target instead of being paranoid about accelerating inflation, the recovery would have been much quicker and people would have been much happier even with a little inflation. Hillary would have won and inflation expectations would be higher among people who think about such things.RC AKA Darryl, Ron said in reply to Christopher H.... , November 26, 2017 at 01:44 PMOH, I totally agree with you. But getting the public aroused about inflation that is too low is entirely a different thing.ilsm -> Christopher H.... , November 26, 2017 at 02:08 PMInflation means you pay the "loan*" with ever "cheaper" dollars from your fixed labor input receiving higher wages, more dollars.Julio -> ilsm... , November 26, 2017 at 09:05 PM
Also inflation means your "collateral" is worth more dollars than the original note.
That went awry post 2000 for whatever reasons, longer run root causes than we know.
*makes sense not to add to the loan, aka the "American dream"+.
+need post mortem and eulogy!*
*'make America great again' is a eulogy of sorts."*'make America great again' is a eulogy of sorts."cm -> RC AKA Darryl, Ron... , November 26, 2017 at 06:32 PM
[Classic.]When sellers of groceries, household goods, utility services, etc. can successfully raise prices, then shouldn't one think there is still untapped consumer surplus? People with "extra money" will probably pay more, what do people with no extra money do? Buy less, substitute down, forgo other more discretionary expenses? Shift other expenses to loaned money? Furniture and appliances have always had financing programs, not obvious that more is bought on loan.cm -> cm... , November 26, 2017 at 06:34 PM
OTOH where I'm currently shopping, it seems grocery prices were stable over the last year. OTOH "sales" and other frequent short term price variations are of a larger magnitude than inflation, so it's hard to tell. But a number of years ago I have definitely noticed YOY price moves - not so now.RC AKA Darryl, Ron said in reply to cm... , November 27, 2017 at 05:02 AMGrocery stores operate with very thing margins. Retail prices rise when wholesale prices rise. Rising transportation fuel costs can push wholesale grocery prices, but a lot of food prices has to do with supply variances due to weather. Demand is not very price elastic on staples, but luxury demand can fall severely with rising prices. Chuck roast is more of a staple for many people. Filet mignon is a luxury for most people. Or maybe milk is a staple and candy is a luxury most of the time.RC AKA Darryl, Ron said in reply to RC AKA Darryl, Ron... , November 27, 2017 at 05:02 AM"...THIN margins..."
May 20, 2016 | peakoilbarrel.com
Brian Rose , 05/19/2016 at 11:04 pmBig news from Canada today:George Kaplan , 05/20/2016 at 1:36 am
"The joint-venture Syncrude project told customers to expect no further crude shipments for May, trading sources said on Thursday, extending a force majeure on crude production from earlier in the month."
Eventually market sentiment focused on the recency bias of a 2 year glut is going to shift into the realization that disruptions, depletion, and growing demand have thrown the global balance into a dearth where inventories are being drawn to meet demand – such as the news about Saudi's relying on inventory to meet demand, the "missing" 800,000,000 barrels of OECD inventory from Q1 2016, or next weeks inevitable U.S. inventory draw.
Suddenly, an extra outage (like say if anything happens to Venezuela) will cause meaningful rallies instead of being mostly written off.
In fact, judging by the price action on oil over the last 24 hours, I'd say that sentiment is very close to a shift. From 11 AM forward crude oil marched higher relentlessly, even in opposition to dollar strength. Most every single commodity was down, as we're most every stock market except oil.
The best, live, interactive charts I am most fond of are here: https://www.dailyfx.com/crude-oil
I expect one last fight around $50, a few day consolidation move lower. Then market realities will push WTI past $50, and shorts will have to cover pushing it even higher.
Next thing you know were range bound in the mid-$50s at the end of June as everyone questions if shale production will magically skyrocket overnight. Maybe the rig count will go up by 3 or 4, and it'll spark a sell-off back to or below $50 because of the psychological recency bias of a "repeat of 2015".
That is, until rational minds, or the market itself pushes prices back up as it becomes obvious that a slowdown in U.S. production declines will mean little in the face of mounting production declines around the globe, and "surprisingly" strong demand – because apparently predicting that lower prices will cause stronger than average demand growth is beyond the economic capability of the EIA or IEA, and markets tend to take their word as gospel.
I remember looking back on the IEA's 2005 World Energy Outlook and being perplexed that anyone still takes their price or production forecasts with any seriousness whatsoever. Their 2003 WEO is even more hilarious.
Every step of the way analysts and talking heads will be confused that prices aren't dropping back to $30 just like they were for 5 straight years from 2003 to 2008. They'll predict Saudi's will raise production to 12 mbpd any day now, or that shale will magically take off overnight.
They'll never even realize that they don't understand the history of Saudi production, or the logistical and financial complexities of shale production rising as fast as it did before. Instead they'll blame the banks, or speculators, or Big Oil for artificially making oil prices rise (without questioning why they let them fall for 2 years in the first place)
But then again if gas is cheap, which average people are fond of, their brain says "I like this, so it must be right". If gas is expensive their brain says "I don't like this, it must be wrong, what evil force made this happen?!?"
Most people are simply incapable of seeing a bigger picture, and they'll simply never understand the relationship between depletion, economic and population growth, and the long-term fact that this equals higher prices (and probably also, in the long run, higher poverty and unemployment).
Their lives will have ups and down, growth and recession, but they'll know and feel it is generally getting harder. They'll never be aware that this is the "fault" of nothing but physics and thermodynamics, even if told directly and shown all the rather clear evidence (I know every one of you has experienced this as I have). Instead, they'll blame those dang immigrants, or the Chinese, or the Congress, or regulations.
They'll blame anything that fits their paradigm enough to allow cohesiveness so their fragile lives can at least MAKE SENSE. You can't blame physics, and, frankly, I think that is a large psychological barrier for people comprehending what is happening. We need to have some agent to blame for things, and physics has no agency. Blaming something for a problem is settling because it gives us something to focus on to solve the problem, or, at the very least, avoid it. The evolutionarily beneficial need to assign agents as the cause of events is what pre-disposes us to believing that events we cannot easily assign agency to are, nonetheless, the will of a greater, invisible, omnipresent agent.
It is for that exact same reason that so many people we know will simply never get it. Physics doesn't have agency, it cannot be avoided, cajoled, or "blamed". It simply is, and that is so unsettling to our psyche that most people have a strong, unconscious drive to negate and ignore that conclusion even if they will acknowledge it is a sound and true explanation of how economics, growth, employment, wealth, energy (physics and thermodynamics), and depletion are woven of the same fabric.Brian – I think you are closer to reality than EIA or USGS, it will be interesting to see how it plays out against your scenario.
A couple of other impacts are summer maintenance season in North Sea (Buzzard and, I think, Ekofisk have major turnarounds), Alaska and Canada (maybe Russia as well) and increased demand from driving season in USA and AC use in Middle East.
There doesn't necessarily have to be more social breakdown in Venezuela to have an impact – Haliburton and Schlumberger are pulling out and will have immediate effect as the extra heavy oil production needs continuous attention to the wells. I'm surprised Angola and Algeria haven't seen disruptions yet either.
Nov 10, 2017 | peakoilbarrel.com
George Kaplansays: 11/08/2017 at 7:08 amOPEC World Oil Outlook 2017 (just released):Jeff says: 11/08/2017 at 7:59 am
https://woo.opec.orgThank you George. IEA will release their WEO next week (14th).George Kaplan says: 11/08/2017 at 8:13 am
From the OPEC-report:
"Total non-OPEC liquids supply is now forecast to grow from 57 mb/d in 2016 to 62 mb/d in 2022, with the US alone making up 75% of that increase."
The section on decline rates was interesting too (p.184): "the WOO analysis suggests an average implied decline rate of around 4.4 mb/d in the 2018–2028 period, or 7%, of underlying non-OPEC suply. Note that this compares with previous, more in-depth, work done by the Secretariat, which indicated
that underlying observed decline rates in non-OPEC were lower – on average around 5.4% – though with significant regional variations.
On the one hand, this analysis shows the challenge facing the upstream sector, with a requirement for more than 5 mb/d p.a. of new supply, if annual average demand growth of 0.9 mb/d in the Reference Case is added to the implied 4.4 mb/d 'lost' due to natural decline. On the other hand, the calculated implied decline rates and substantial new upstream volumes coming online suggest that overall upstream investment activity is perhaps higher than a quick glance at headline capex numbers would suggest "
"with tight oil making up a substantial and growing share of total non-OPEC supply (around 12% in 2016), and given its innate rapid decline rates after initial production, this may in a sense have accelerated the underlying decline. In other words, the system can said to be coping, with supply growth meeting demand needs at the moment""that overall upstream investment activity is perhaps higher than a quick glance at headline capex numbers would suggest "George Kaplan says: 11/08/2017 at 7:59 am
Nope it would suggest that the developments coming on line now follow a normal project S-curve with the big investment costs in the middle then slowing down during installation and commissioning.
There aren't many projects in the middle of the development so costs are down but the new production coming on line is still fairly high (until the second half of next year). The investment problem isn't going to show up really until a couple of years out, but it can't be halted by anything that's done now, just like the over-investment impact kept running even as oil prices crashed.With all the kerfuffle in Saudi whatever happened to the independent assessments of their reserves? There was a leaked report that said everything was exactly as the Saudi had been reporting, which couldn't possibly have credibility as it came out about a week after the consultants had started work so they wouldn't even have got their computers working properly yet, and then something about the reports being released early next year – and since then nothing.
Oct 24, 2017 | oilprice.com
As much as US$1 trillion of investments has either been deferred or canceled with the lower-for-longer oil prices, and this underinvestment will impact the future of energy, Amin Nasser, the chief executive of Saudi Aramco, said on Tuesday.
"Not much investments have been going into the energy sector... $1 trillion has been either deferred or cancelled," Nasser said at the Future Investment Initiative conference in Riyadh.
Of the US$1 trillion investment, US$300 billion was earmarked for oil exploration and another US$700 billion for project developments, according to the CEO of the state-held oil giant of OPEC's biggest exporter and de facto leader Saudi Arabia.
"This will have an impact on the future of energy if nothing happens," Nasser noted, adding that investments are necessary because of "natural depreciation of fields and normal rise in demand."
"We are witnessing a transformation... But it will be decades before renewable energy takes a major share in the energy mix," the head of the oil giant said.
In July, Nasser said that if the oil and gas industry didn't start investing again, the global oil supply/demand curve will reach a turning point in "a couple of years."
"About $1 trillion in investments have already been lost since the current downturn began," Nasser said in a speech at the World Petroleum Congress in Istanbul in July.
Oct 27, 2017 | www.nakedcapitalism.com
Yves here. Holey moley. One of the good things about working for fancy firms early in my professional life was I saw how much they charged, even when the work was often pedestrian or even dubious. So I was never shy about setting a healthy price for my time. But regardless, how could anyone bid under the minimum wage?
The only time I could see that making any kind of sense would be if you were breaking into a new area and would have reason to expect the client would give you a very valuable reference, or better yet, referrals, if they liked what you did. But my experience has always been that clients who go cheap never appreciate the work done for them.
By Sophie Linden, an editorial assistant at AlterNet's office in Berkeley, CA. Originally published at Alternet
Surround yourself with positivity, exploit all marketing outlets, choose a specialized skill -- this is the repetitive wisdom passed on to every budding creative entrepreneur. Less often do we hear advice like, "increase the price of an invoice," or "make it non-negotiable," especially as it relates to the gendered wages within self-employment.
The freelance market is arguably trending across industries, with some figureheads going so far as to say " freelance is feminist ," mainly because women make up a slight majority. Unfortunately, before feminists get too heady on the issue, we need to look at whether the freelance market is any more "freeing" to the women in it, or if it is liberating any of its entrepreneurial workforce. Right now, it's just another deregulated economy in which workers are underpaid and largely invisible.
A recent study published by HoneyBook gives some visibility to the subject, showing that women in the "creative economy" are actually paid significantly less than their male counterparts, sometimes taking in an average of $5 an hour .
There are many reasons for concern about this wage discrepancy. Not only because HoneyBook found that 63% of men and women believed they were earning equal pay, but also because of the growing workforce within the world of freelance, where there are already 57.3 million freelancers in the U.S .
Industry data from UpWork and the Freelance Labor Union suggests that freelancers will be the majority by 2027, growing three times faster than the U.S. workforce overall, and contributing over $1.4 trillion to the U.S. economy annually. While scenes of cramped coffee shops may be an indicator of this burgeoning workforce, these numbers are still astounding. Without sites like UpWork and HoneyBook, they would also be hard to track.
HoneyBook is the self-employed's business management tool, hosting clients similar to those in the aforementioned study. Labeled under the guise of "creative entrepreneurs," they are working professionals navigating gigs in industries like photography, graphic design and writing. With its niche data, the site analyzed over 200,000 client invoices from October 2016-2017 to look at wage discrepancy, finding that on average women made 32% less than their male competitors . This gap is even larger than the national average, where women earn 24% less than men nationally , 76 cents to the dollar. Troubling news for the largest, opportunist workforce around: that is, women in freelance.
In 2015, women made up 53% of the freelance market . This slight dominance encouraged Sara Horowitz, founder of the Freelance Labor Union, to preemptively call freelancing "feminist." Horowitz argued that the lifestyle of a freelancer was more palatable to the roles women desired, whether that was co-careers or gendered domestic labor. She also argued that freelance work allowed women to avoid male privilege in the workplace, notably the boys club at board meetings .
While some of Horowitz's arguments hold value, we can clearly see how freelance work is still an unequal field, at least if pay is any measure of equality among genders. Women who do enter the field already consider themselves to have less bargaining power . Meanwhile, the majority of invoices in HoneyBook's study quoted a non-negotiable price, meaning women are more likely to charge less for the job. Clearly, the reasons for the gender pay gap are embedded and multi-layered. Nevertheless, the study shows that freelance is not entirely the liberated, equal rights, equal pay landscape Horowitz claims it to be.
Asked why they enter the market, freelancers often cite the flexibility of the work in a number of terms: the ability to be their own boss, as well as the ability to choose their projects and work location. In essence, men and women draw upon idealistic dreams of escaping workplace power-dynamics to find economic independence in their pajamas -- a depiction that has been repeatedly critiqued . Freelancers still enter a labor force that has few congressional protections and is arguably as successful as the social networks you were economically born into. Essentially it is prey to the same laissez-faire ideals that have manipulated structural inequity across generations of workers in the U.S. It just imagines itself differently -- now under the guise of "creative" entrepreneurship.
HoneyBook's research is just one insight into wage gaps. As a largely deregulated economy with unparalleled growth, it is important to make visible the economic and social divides embedded in the independent workforce. We can start by debunking the claim that freelancing is a more equitable field to work in, and with it, the idea that any economy is without prejudice.
ambrit , October 27, 2017 at 8:04 amCrazy Horse , October 27, 2017 at 5:22 pm
I would also argue that so called 'regular' employment is trending towards a "freelance" structure. Job tenures are supposedly shrinking and often going away completely. Now, that salaryman window tribe dweller is often outside of that window, washing it on a piecework basis, with no safety line.
The underlying rationale for the rise of the 'freelance' work structure is to first crapify the freelance 'experience,' with lower wages a must, and then, second, extend the 'neo-crapified' work rules into the previously "safe" 'regular' work world.
The only rational response to managements' claim that "we can get someone to replace you if you do not agree to our demands," is to simply walk away from the "golden opportunity." Sooner or later, all exploitative systems fall apart due to their own internal contradictions. It can be painful, but: No pain (economic micro-dislocation,) no gain (guillotines in Town Square.)
On the feminism front, and please remember that this is an older man writing, I would find any situation where the individual allows outside forces to define said individuals self definition, as the opposite of "liberating." Except in rare cases, what else is 'freelancing' but a "race to the bottom?" If one is to accept the 'freelancing' ethos as presently presented, one may as well embrace the 'contemplative life' and accept fasting and privation as a path to communion with the godhead.Arizona Slim , October 27, 2017 at 8:57 am
Freelancers driving the price of their labor down to $5 per hour because they have to compete against all the other people who can't find steady work is not a feminist issue– its a class issue. And that is no less true if males make $2 more per hour because of sexual discrimination. The real enemy is the billionaire who owns the corporation, the politicians, and the enforcers that grind workers down into virtual servitude.
There is always choice. There are always drugs to be transported and sold, money to be laundered, or accounting fraud to be fabricated. There is always choice even if the consequences are severe. It's long been known that the fastest (and only) way for a woman to become a movie star is on her back.
When a fat pig movie director pushes you down on the "casting couch" there has always been the choice to reach for the Mace or the revolver in the purse. Submitting is prostitution, choice is rejecting greed for riches and fame and joining with others to throw the boot off your neck.Robert Murphy , October 27, 2017 at 9:14 am
There is no organization called the Freelance Labor Union. Horowitz's organization is called the Freelancers Union and it is little more than a buyers club. It has yet to call a strike or organize a picket line. Nor does it call out the companies that exploit freelancers.agkaiser , October 27, 2017 at 9:33 am
$583,283.25 – using the annuity formula from Stewart's 4th edition precalc book (it is surely the same formula in all his books ) & taking that 5 bucks an hour TIMES 2080 hours of pay in a year (40*52) = amount to save every year, for 30 years, at 4% interest.
Now, realistically, whoever underpaid you just bought a few more trinkets for today's mansion, jet, yacht or mistress but you could have saved that money!
rmm.Arizona Slim , October 27, 2017 at 11:56 am
When they turn 50, if they survive that long, they'll be replaced by younger cheaper labor. Nothing really changes, except the words we use to describe our sad condition and the lower and lower age at which we're discarded.Livius Drusus , October 27, 2017 at 9:55 am
Which is why I summarize fifty-plus freelancing this way: Too old to get a job and too young and broke to retire.DJG , October 27, 2017 at 10:38 am
Freelancing is much like entrepreneurship in that it has been way oversold to the public. Most people don't do well either as freelancers or as entrepreneurs and would likely be better off as normal employees. The emphasis on "alternative" work arrangements has taken public attention away from improving the lot of traditional employees and contributes to the devaluation of ordinary workers by suggesting that they are lazy or stupid because they didn't become freelancers or gigsters or entrepreneurs of some sort.
Many young people seem to have fallen into the trap of putting too much emphasis on work flexibility over a steady paycheck. These kinds of alternative work arrangements might be fun and cool when you are in your 20s but not so much after 30 and especially if you want to start a family and need a steady and reliable source of income.Arizona Slim , October 27, 2017 at 12:04 pm
I was a free lance in publishing for about twenty-five years. The tell here is the mention of pajamas: Are we still in the world of people who want to work in their pajamas? One thing I learned right away is that you have to get up each morning, dress like an adult, schedule the number of billable hours that you want to charge for, and send in invoices regularly. The successful free lances, male and female, did so. The people who started work at three in the afternoon, after cocoa with marshmallows all day, didn't succeed.
I suspect that hourly charges among free lances are falling: That is part of our friend "right to work," which keeps wages down. It is also part of the massive amount of outsourcing going on. In publishing, responsibilities that always were kept in house and should remain in house are being outsourced.
I'll also note that one of the reasons that I became a free lance, besides knowing what I could charge for my work, is that many offices are toxic environments socially and politically. There is a lot of stress on conformity. There is no concern for original thinking. Inventing the wheel is considered original.
And as someone who has worked in publishing for many years and knows many talented and powerful women in publishing, I left my last job shortly after the head of the division introduced the new editor in chief for books as a woman. That's right. The first words: M.K. is a woman.
M.K. turned out to be a nonentity who exploited the organization for personal ends. She was a great absentee manager! And I no longer had a desire to be around the endless re-runs of resentments of fellow employees.DJG , October 27, 2017 at 12:34 pm
DJG, you're on to something.
I can remember meeting freelancers in the 1980s and 1990s. The good ones were GOOD. As in, they had waiting lists -- you had to book them a couple of months in advance. And they charged accordingly.
These days, that seldom happens. Why? Because there are too many people who can't find jobs, or they only get hired for part-time work, and they have to fill the rest of their time. Such trends do not make for increasing hourly rates.Ned , October 27, 2017 at 10:42 am
Arizona Slim: My dance card was always filled. But as you mention above, after age 50, I kept thinking, Am I a daring American entrepreneur and sole proprietor, or am I just terminally unemployed (and unemployable)?Arizona Slim , October 27, 2017 at 12:01 pm
OK, what's to stop women from charging higher rates? Lower self esteem? Are their lower wages for each hour worked? Or, do they work fewer hours?
"they are working professionals navigating gigs in industries like photography, graphic design and writing ." Clean, no lifting, paid to create gigs where you don't get your hands dirty, or put your body in perilous exhausting situations.
If women want to earn money, learn to be a plumber. Yes, you will get a face full of shit occasionally, will bleed, get burned and will earn $75 an hour, often in cash.
There's a shortage of linepersons to install power lines. Up on that lift bucket, 80 feet in the air, leaning out and ratcheting in 10,000 volt live wires covered with a rubber shock cloth, you can make astounding amounts of money. Why aren't more women up there? Companies go out of their way to hire women.
No mention of the free labor slave pit called "internships." How many of us have gone through that
voluntary servitude?FluffytheObeseCat , October 27, 2017 at 12:27 pm
I have training in the trades and have worked as a bike mechanic. On the positive side, there's a pride of workmanship that you do not get from office work or from freelancing while sitting at a computer. And there's the camaraderie. I never experienced anything like it -- except in that hot, greasy, dirty bike shop.
On the negative side, you can get too old and broken down to do the work. OTOH, you can be a sit-down freelancer until you die.DJG , October 27, 2017 at 12:39 pm
What stops women from negotiating male-equivalent wages varies. Timidity and poor negotiating skills is part of it. As Yves said above, it helps immensely to have been exposed to the billing practices of real winners in this game. And they are disproportionately men, specifically, men who operate like real machers.
The biggest factor is IMO, information deficit. Professional class people throughout many industries are idiots when it comes to freely discussing remuneration with their fellow wage slaves. Everyone acts as though their compensation package were as private and faintly dirty as .. another package.
It's idiotic. The vast majority of us would be better off if we blurted it out over lunch ever few months. And walking away a few tifmes is key. It's good for you. Likewise, if you do need to take a poorly paid gig some times, treat it as slightly less than full time. Keep lining up others. Create the bare minimum of deliverables as swiftly as you can, and get out. Those who underpay you do not deserve your maximum effort, and they're invariably shitty references, so do not anguish over doing only the job they've paid for.
Just don't stiff or cheat anyone lower down the line if you take an underpaid gig. I watched a guy do that recently on a contract job that put him into contact with me, an under-remunerated grad student. He didn't cheat me, he cheated the agency I worked for of some small use fee. Right in front of me. His consulting firm is not one I'll be looking to work for any time soon.
Also, always write a late charge fee in your contract. 120 day "billing cycles" are abusive garbage in the age of computers. After thirty days, the price goes up.
Women who let themselves get stiffed all the time are a real danger to the interests of the guys in their line of work, not just themselves. I wish more guys could see that.cnchal , October 27, 2017 at 12:48 pm
Fluffy: Yes. Know rates, and have a group of friendly free lances who will tell you what they are being offered these days. And what hourly they will turn down.
Firing clients is a necessity. I learned that from a sole proprietor who I worked for in a small typesetting / editorial / graphic design shop. The customer isn't always right. There are psychic benefits to firing a bad customer. And word sort-a gets around that there are people who / companies that you refuse to take work from.D , October 27, 2017 at 1:51 pm
. . . Why aren't more women up there?
I went through an apprenticeship. It was the only time I was trapped by an employer.
I suspect it's utter mythology that women do not attempt to attain far better paying manual labor jobs than they do.
Speaking of high voltage wires, I know a woman who was in the International Brotherhood of Electrical Workers Union (Brotherhood says it all!). She worked on large commercial construction, such as the NUMI Plant (now Tesla). While she endured it through to her retirement she had a horridly abusive (and life threatening on one occasion) go of it. Sexual harassment (made worse by the fact that she had an hourglass figure), an actual physical threat, knife included, while being locked in a room with someone she had already reported as having harassed her, but was forced to work with him anyway; utter resentment of women on the job; and stunning racism (the black males in that Brotherhood , did not fare much better as to the racism) in the tolerant Bay Area.
As to plumbing, the bay area has current and frequent plumbing school ads on TV which feature no women at all, and a real bro-bro atmosphere which all women who've been sexually harassed are familiar with. At one point in my life, despite having a licensed profession, I offered to apprentice to a plumber who just laughed at me (at the time, I was able to do twenty chin-ups).
And, my experience (pre putting myself through college to attain a livable wage), trying to get a job doing manual labor that actually paid a decent wage was utterly unsuccessful. I did have a nursery job, and a very brief job at a thoroughbred stable (the owner was a horrid human being so I quit). At both of those jobs, the only males were illegal immigrants from Mexico, and the wages in both jobs were under regular minimum wage ag wages.
Further, to imply that 'sit' down jobs don't have their fair share of health damage, is like saying that emotional abuse does not exist, and is not deadly when one's spirit is killed in a situation where the other wields far more economic and social power.
Many, unfortunately too many woman included, still feel that a white or non-black male will do a better job, no matter what that job is. For instance (and I don't know what it's like now) I recollect while waitressing that only males were offered high end, far better tipping, jobs in pricier restaurants. At the time, I never saw a female waitress in a high end restaurant.
Oct 25, 2017 | peakoilbarrel.com
Fred Magyar says: 10/25/2017 at 9:03 amThe decisions to not develop these discoveries were made either because of disappointing appraisal, or low oil prices, or a combination the two.George Kaplan says: 10/25/2017 at 9:15 am
Wonder if that might have something to do with this as well?
Oil giant Shell bets on electric cars
One of the world's largest fossil fuel companies is betting on electric cars.
Royal Dutch Shell (RDSA) revealed a deal on Thursday to acquire NewMotion, one of Europe's largest electric vehicle charging providers. NewMotion specializes in converting parking spots into electric charging stations. The Dutch firm has more than 30,000 electric charge points in Europe.
The acquisition, Shell's first in this space, shows how Big Oil is being forced to confront the long-term threat posed by electric cars and efforts to phase out gasoline and diesel vehicles.Or maybe the other way round – there's no oil left to develop so they have to find something else to do – or both supply and demand influences, which is the reality of all economic decisions, not one or the other however much the media feels it has to simplify things to that level.SRSrocco says: 10/25/2017 at 4:15 pmGeorge Kaplan,SRSrocco says: 10/25/2017 at 4:17 pm
Interesting article. I believe we are going to see a more rapid disintegration of the Ultra-Deepwater Drilling Industry when the markets finally correct by 20-50%. The notion that the Ultra-Deepwater Drilling Industry will recover by 2020 or 2024 doesn't take into account that the broader U.S. Stock markets have experienced a 230% increase from the lows without a typical 15-20% correction.
Hell, I believe the S&P 500 just hit a record of not experiencing a 3% correction for more than 453 days.
Regardless I just posted a new article titled U.S. DEEPWATER OFFSHORE OIL INDUSTRY TRAINWRECK APPROACHING: https://srsroccoreport.com/u-s-deep-water-offshore-oil-industry-trainwreck-approaching/
Transocean drilling rig utilization fell from a peak of 95% in 1H 2013 to 37% in the 1H 2017. Of the 17 Ultra-Deepwater rigs currently drilling for oil in the GoM (source: Baker Hughes), one leased by Chevron was terminated early. So, the total will be down to 16 in November.
Again, the wild card of much higher oil prices will only occur if the Fed and Central banks start up the printing press BIG TIME. When the Fed's QE3 program ended, the price of oil plummeted.
However, when the Central banks print like crazy, this won't last long. Thus, it won't be enough to allow the Ultra-Deepwater Drilling Industry to recover.
Here is a link to the Chart I could not post in the comment above:Guym says: 10/25/2017 at 7:11 am
https://dj0s31cxqi9ot.cloudfront.net/wp-content/uploads/2017/10/TRANSOCEAN-Ultra-Deepwater-Rigs-Utilization-768×545.png?x65756Great post. Do you have any idea of the oil price that may bring back a higher level of exploration effort?George Kaplan says: 10/25/2017 at 7:28 amNo idea – I don't do the oil price prediction thing because I'm pretty sure nobody in history has ever got it right for the right reason. For real 'frontier' type exploration to start again then there would have to be a pick up in lease sales and really they have been tailing off even in the high price years (I think I put some charts in a previous post on the GoM showing how the percentage of offered leases taken up has been falling off. I doubt if shallow a lot of the deep lease areas will pick up again though, there's little left.Guym says: 10/25/2017 at 7:41 amYeah, whatever it would have to be, would have to be more stable and higher than current. So, probably no big bidders on the 97 million acres in 2018.SouthLaGeo says: 10/25/2017 at 7:45 amIn my opinion, exploration will not pick up too much regardless of oil price because of the maturity of the basin, as George suggests above. (Actually, exploration may pick up a fair bit with higher oil prices, but significant successes probably won't).George Kaplan says: 10/25/2017 at 10:38 am
Now there certainly are those that would disagree with that, and, since I'm still in the industry, I often hear the message about the tremendous remaining potential in the northern deepwater GOM coming from those in the ra-ra corner.Not much and no. I think, if anything, the future GoM production will be a bit less than I expected about six months ago. As far as STEO goes I think they come up with a future profile once a year and then just bias it up and down to meet this month's production number – I think a new profile must be due soon. There is about a 10% decline per year, which might increase a bit now, so about 170,000 bpd is needed to maintain a plateau, but the STEO has another 100,000 per year of growth. Next year there is only Stampede early on, which has topsides nameplate of 60,000, but only 50,000 planned with the rest available for tie backs and probably only about 70% availability in the first year; plus Constellation – which has maybe 30,000 but depends on decline in the rest of the Caesar-Tonga field to allow capacity for some of it, so not all of that is net gain; the LLOG fields I described above; and Big Foot at the end which won't contribute much in 2018. So from July 2017 to Dec. 2018 they lose maybe 230,000 and add about 90,000 to 110,000 maybe with a bit of brownfield as well. There's also Atlantis North but I think that only maintains a plateau against fast declines from their other wells. But EIA are saying the GoM adds 330,000. Also in 2019 Big Foot isn't going to ramp up fast, contrary to what I previously thought. It has dry trees, only two have been fully predrilled, the others have the top two conductor sections drilled but the on-platform rig will have to complete them. I think the oil is pretty heavy so not huge production from a single well, therefore even with a 70,000 nominal topsides nameplate, the wells and the usual low availability in the first year will be limiting.Watcher says: 10/25/2017 at 11:06 amEIA's monthly production data to end of July says US production vs 2016 is averaging about 3.4 million barrels per month higher. divided by 30 is 114K bpd increase over last year averaged month by month. (not month to month)
For Texas it's 90K bpd increase over last year, as of end of July, averaged month by month. That's most of the 114K.
Don't know if that's far enough back in months for the correction we get here to have moderated.
Oct 15, 2017 | peakoilbarrel.com
FreddyWsays: 10/14/2017 at 10:01 amA bit old so you may have seen it already. But if you haven´t then I highly recommend you to read the global oil supply report from HSBC:
It contains a lot of interesting information. For example on page 15 we can see that oil field discovery rate has dropped from around 20% to only 5% in 2015. Saying that it has fallen of a cliff is not an exaggeration.
Oct 15, 2017 | peakoilbarrel.com
Ron Patterson says: 10/14/2017 at 7:31 amI already picked the peak, 2015. So I was slightly off, but not by all that much as you can clearly see by the chart. I think we are on the peak plateau right now.Dennis Coyne says: 10/14/2017 at 11:39 am
The actual 12-month peak could be anywhere from 2017 to 2019 but no later than that. Well, in my humble opinion anyway.Hi Ron,
The question was about US LTO, you have picked the World C+C peak, but as far as I remember you have not said anything recently about US LTO except that it will be before 2025.
So far the 12 month centered average for US LTO peaked in June 2015.
If US LTO output continues at the August output level (4750 kb/d) for 5 months, then a new 12 month centered average peak will be reached by Aug 2017 (average output from Feb 2017 to Jan 2018). US LTO output has risen about 600 kb/d over the past 12 months so an assumption of no further US LTO output increases over the next 5 months is a conservative estimate in my view.
Oct 15, 2017 | peakoilbarrel.com
Energy News: 10/13/2017 at 1:13 pmUS Baker Hughes Rig Count (Oct 13)
- Oil rigs fall by -5 to 743 and gas rigs fall by -2 to 185 also miscellaneous -1
- Regions: GoM -2, Permian +1, Wiliston +1, Eagle Ford -6, Niobrara -1, Barnett -4
Oct 15, 2017 | peakoilbarrel.com
Energy News: 10/14/2017 at 1:02 pmI was just having a quick look at countries that have come back from outages, sanctions, conflict, wildfires. Not sure if this list is complete?Energy News says: 10/14/2017 at 1:55 pm
Iraq's oil production has increased by 1.4 million b/day since oil prices last averaged $100 in July 2014. More than any other countryFreddyW says: 10/14/2017 at 10:01 am
Chart on Twitter: https://pbs.twimg.com/media/DMHrqLZXkAAFiro.jpgA bit old so you may have seen it already. But if you haven´t then I highly recommend you to read the global oil supply report from HSBC:
The report: https://drive.google.com/file/d/0B9wSgViWVAfzUEgzMlBfR3UxNDg/view contains a lot of interesting information. For example on page 15 we can see that oil field discovery rate has dropped from around 20% to only 5% in 2015. Saying that it has fallen of a cliff is not an exaggeration.
Oct 14, 2017 | peakoilbarrel.com
Energy News says: 10/11/2017 at 4:22 pm2017-10-11 BSEEgov: From operator reports, it is estimated that approximately 32.68 percent of the current oil production in the Gulf of Mexico remains shut-in, which equates to 571,854 barrels of oil per day. It is also estimated that approximately 20.51 percent of the natural gas production, or 660.55 million cubic feet per day in the Gulf of Mexico is shut-in.
Estimate of "Lost" Gulf of Mexico crude production due to Hurricane Nate is 7.82 million barrels of oil.
Also, Genscape GoM production chart: https://pbs.twimg.com/media/DL4r7v6UEAA75uK.jpg
Oct 11, 2017 | peakoilbarrel.com
George Kaplan says: 10/10/2017 at 7:28 amOPEC SECRETARY GENERAL: 'WORLD CAN'T AFFORD SUPPLY CRUNCH'
(Possible paywall, I can't quite figure out how it works on Energy Voice)
"This is particularly evident when we look at investment. While investments are expected to pick up slightly this year and in 2018, it is clear that this is not anywhere close to past levels and it is more evident in short-cycle, rather than long-cycle projects, which are the industry's baseload.
"The issue of a potential investment shortfall was a recurring theme at last week's Russia Energy Week conference, with President Vladimir Putin, as well as many oil and energy ministers making reference to the critical investment challenge.
"As we have all learned from previous price cycles, such pronounced and long-term declines in investments are a serious threat to future supply. But given our projected future demand for oil, with our upcoming World Oil Outlook 2017 expecting demand to reach over 111 million barrels a day by 2040, an increase of almost 16 million barrels a day, the world simply cannot afford a supply crunch."
It's noticeable that OPEC, IEA and drillers/service companies, even the Aramco CEO are raising the lack of investment more and more, but they all stay away from discussing the fall in discoveries and lack of attractive prospective projects. Part of it is real concern, though it's noticeable they don't offer much in the way of solutions, and definitely none that might impact their bottom lines in the short term, but part is pre-emptive arse-coverage.
A lot of factors seem to be lining up for an economic bust next year, but then they have looked like that for a few years (maybe the low oil price has contributed to staving off the problem), if it happens a supply crunch might go unnoticed for some time, and only come appear as the real problem it will be when there is some sort of recovery expected.
Apr 10, 2015 | www.thomaspalley.com
AbstractThe crisis and the resilience of neoliberal economic orthodoxy
This paper examines the major competing interpretations of the economic crisis in the US and explains the rebound of neoliberal orthodoxy. It shows how US policymakers acted to stabilize and save the economy, but failed to change the underlying neoliberal economic policy model. That failure explains the emergence of stagnation, which is likely to endure
Current economic conditions in the US smack of the mid-1990s. The 1990s expansion proved unsustainable and so will the current modest expansion. However, this time it is unlikely to be followed by financial crisis because of the balance sheet cleaning that took place during the last crisis
Revised 1: This paper has been prepared for inclusion in Gallas, Herr, Hoffer and Scherrer (eds.), Combatting Inequality: The Global North and South , Rouledge, forthcoming in 2015.
The financial crisis that erupted in 2008 challenged the foundations of orthodox economic theory and policy. At its outset, orthodox economists were stunned into silence as evidenced by their inability to answer the Queen of England's simple question (November 5th, 2008) to the faculty of the London School of Economics as to why no one foresaw the crisis.
Six years later, orthodoxy has fought back and largely succeeded in blocking change of thought and policy. The result has been economic stagnation
This paper examines the major competing interpretations of the economic crisis in the US and explains the rebound of neoliberal orthodoxy. It shows how US policymakers acted to stabilize and save the economy, but failed to change the underlying neoliberal economic policy model.
That failure explains the emergence of stagnation in the US economy and stagnation is likely to endure.
Current economic conditions in the US smack of the mid-1990s. The 1990s expansion proved unsustainable and so will the current modest expansion. However, this time it is unlikely to be followed by financial crisis because of the balance sheet cleaning that took place during the last crisis.Competing explanations of the crisis
The Great Recession, which began in December 2007 and includes the financial crisis of 2008, is the deepest economic downturn in the US since the World War II. The depth of the downturn is captured in Table 1 which shows the decline in GDP and the peak unemployment rate. The recession has the longest duration and the decline in GDP is the largest. The peak unemployment rate was slightly below the peak rate of the recession of 1981-82. However, this ignores the fact that the labor force participation rate fell in the Great Recession (i.e. people left the labor force and were not counted as unemployed) whereas it increased in the recession of 1981-82 (i.e. people entered the labor force and were counted as unemployed).
Table 1. Alternative measures of the depth of US recessions.
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Table 2 provides data on the percent change in private sector employment from business cycle peak to trough. The 7.6 percent loss of private sector jobs in the Great Recession dwarfs other recessions, providing another measure of its depth and confirming it extreme nature. 2 Over the course of the 1981-82 labor force participation rose from 63.8 percent to 64.2 percent, thereby likely increasing the unemployment rate. In contrast, over the course of the Great Recession the labor force participation rate fell from 66.0 percent to 65.7 percent, thereby likely decreasing the unemployment. The decrease in the labor force participation rate was even sharper for prime age (25 – 54 years old) workers, indicating that the decrease in the overall participation rate was not due to demographic factors such as an aging population. Instead, it was due to lack of job opportunities, which supports the claim that labor force exit lowered the unemployment rate. Table 2. U.S. private employment cycles, peak to trough. Source: Bureau of labor statistics and author's calculations.
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Broadly speaking there exist three competing perspectives on the crisis (Palley, 2012).
- Perspective # 1 is the hardcore neoliberal position which can be labeled the "government failure hypothesis" . In the U.S. it is identified with the Republican Party and with the economics departments of Stanford University, the University of Chicago, and the University of Minnesota.
The hardcore neoliberal government failure argument is that the crisis is rooted in the U.S. housing bubble and its bust. The claim is that the bubble was due to excessively prolonged loose monetary policy and politically motivated government intervention in the housing market aimed at increasing ownership. With regard to monetary policy, the Federal Reserve pushed interest rates too low for too long following the recession of 2001.
With regard to the housing market, government intervention via the Community Reinvestment Act and Fannie Mae and Freddie Mac, drove up house prices and encouraged homeownership beyond peoples' means.
- Perspective # 2 is the softcore neoliberal position, which can be labeled the "market failure hypothesis" . It is identified with the Obama administration, the Walls Street and Silicon Valley wing of the Democratic Party, and economics departments such as those at MIT, Yale and Princeton. In Europe it is identified with "Third Way" politics.
The softcore neoliberal market failure argument is that the crisis is due to inadequate financial sector regulation. First, regulators allowed excessive risk-taking by banks. Second, regulators allowed perverse incentive pay structures within banks that encouraged management to engage in "loan pushing" rather than "sound lending." Third, regulators pushed both deregulation and self-regulation too far. Together, these failures contributed to financial misallocation, including misallocation of foreign saving provided through the trade deficit, that led to financial crisis. The crisis in turn deepened an ordinary recession, transforming it into the Great Recession which could have become the second Great Depression absent the extraordinary policy interventions of 2008-09
- Perspective # 3 is the progressive position which is rooted in Keynesian economics and can be labeled the "destruction of shared prosperity hypothesis" .
It is identified with the New Deal wing of the Democratic Party and the labor movement, but it has no standing within major economics departments owing to their suppression of alternatives to economic orthodoxy. The Keynesian "destruction of shared prosperity" argument is that the crisis is rooted in the neoliberal economic paradigm that has guided economic policy for the past thirty years. An important feature of the argument is that, though the U.S. is the epicenter of the crisis, all countries are implicated as they all participated in the adoption of a systemically flawed policy paradigm. That paradigm infected finance via inadequate regulation, enabling financial excess that led to the financial crisis of 2008.
However, financial excess is just an element of the crisis and the full explanation is far deeper than just financial market regulatory failure According to the Keynesian destruction of shared prosperity hypothesis, the deep cause is generalized economic policy failure rooted in the flawed neoliberal economic paradigm that was adopted in the late 1970s and early 1980s.
For the period 1945 - 1975 the U.S. economy was characterized by a "virtuous circle" Keynesian growth model built on full employment and wage growth tied to productivity growth. This model is illustrated in Figure 1 and its logic was as follows. Productivity growth drove wage growth, which in turn fuelled demand growth and created full employment. That provided an incentive for investment, which drove further productivity growth and supported higher wages. This model held in the U.S. and, subject to local modifications, it also held throughout the global economy - in Western Europe, Canada, Japan, Mexico, Brazil and Argentina.
Figure 1. The 1945 – 75 virtuous circle Keynesian growth model. Wage growth Demand growth Full employment Productivity growth Investment
After 1980 the virtuous circle Keynesian growth model was replaced by a neoliberal growth model. The reasons for the change are a complex mix of economic, political and sociological reasons that are beyond the scope of the current paper. The key changes wrought by the new model were:
- Abandonment of the commitment to full employment and the adoption of commitment to very low inflation;
- Severing of the link between wages and productivity growth.
Together, these changes created a new economic dynamic. Before 1980, wages were the engine of U.S. demand growth. After 1980, debt and asset price inflation became the engine The new economic model was rooted in neoliberal economic thought. Its principal effects were to weaken the position of workers; strengthen the position of corporations; and unleash financial markets to serve the interests of financial and business elites.
As illustrated in figure 2, the new model can be described as a neoliberal policy box that fences workers in and pressures them from all sides. On the left hand side, the corporate model of globalization put workers in international competition via global production networks that are supported by free trade agreements and capital mobility.
On the right hand side, the "small" government agenda attacked the legitimacy of government and pushed persistently for deregulation regardless of dangers. From below, the labor market flexibility agenda attacked unions and labor market supports such as the minimum wage, unemployment benefits, employment protections, and employee rights. From above, policymakers abandoned the commitment of full employment, a development that was reflected in the rise of inflation targeting and the move toward independent central banks influenced by financial interests.
Figure 2. The neoliberal policy box. Globalization WORKERS Abandonment of full employment Small Government Labor Market Flexibility
Corporate globalization is an especially key feature. Not only did it exert downward inward pressures on economies via import competition and the threat of job off-shoring, it also provided the architecture binding economies together. Thus, globalization reconfigured global production by transferring manufacturing from the U.S. and Europe to emerging market economies. This new global division of labor was then supported by having U.S. consumers serve as the global economy's buyer of first and last resort, which explains the U.S. trade deficit and the global imbalances problem.
This new global division of labor inevitably created large trade deficits that also contributed to weakening the aggregate demand (AD)generation process by causing a hemorrhage of spending on imports (Palley, 2015)
An important feature of the Keynesian hypothesis is that the neoliberal policy box was implemented on a global basis, in both the North and the South. As in the U.S., there was also a structural break in policy regime in both Europe and Latin America. In Latin America , the International Monetary Fund and World Bank played an important role as they used the economic distress created by the 1980s debt crisis to push neoliberal policy
They did so by making financial assistance conditional on adopting such policies. This global diffusion multiplied the impact of the turn to neoliberal economic policy and it explains why the Washington Consensus enforced by the International Monetary Fund and World Bank has been so significant. It also explains why stagnation has taken on a global dimension.III The role of finance in the neoliberal model
Owing to the extraordinarily deep and damaging nature of the financial crisis of 2008, financial market excess has been a dominant focus of explanations of the Great Recession. Within the neoliberal government failure hypothesis the excess is attributed to ill-advised government intervention and Federal Reserve interest rate policy. Within the neoliberal market failure hypothesis it is attributed to ill-advised deregulation and failure to modernize regulation.
According to the Keynesian destruction of shared prosperity hypothesis neither of those interpretations grasps the true significance of finance. The government failure hypothesis is empirically unsupportable (Palley, 2012a, chapter 6), while the market failure hypothesis has some truth but also misses the true role of finance That role is illustrated in Figure 3 which shows that finance performed two roles in the neoliberal model. The first was to structurally support the neoliberal policy box. The second was to support the AD generation process. These dual roles are central to the process of increasing financial domination of the economy which has been termed financialization (Epstein, 2004, p.3; Krippner, 2004, 2005; Palley, 2013). Figure 3. The role of finance in the neoliberal model. The role of finance: "financialization" Supporting the neoliberal policy box Aggregate demand generation Corporate behavior Economic policy Financial innovation The policy box shown in Figure 2 has four sides.
A true box has six sides and a four sided structure would be prone to structural weakness.
Metaphorically speaking, one role of finance is to provide support on two sides of the neoliberal policy box, as illustrated in Figure 4.
Finance does this through three channels. First, financial markets have captured control of corporations via enforcement of the shareholder value maximization paradigm of corporate governance. Consequently, corporations now serve financial market interests along with the interests of top management. Second, financial markets in combination with corporations lobby politically for the neoliberal policy mix.
The combination of changed corporate behavior and economic policy produces an economic matrix that puts wages under continuous pressure and raises income inequality.
Third, financial innovation has facilitated and promoted financial market control of corporations via hostile take-overs, leveraged buyouts and reverse capital distributions. Financial innovation has therefore been key for enforcing Wall Street's construction of the shareholder value maximization paradigm.
Figure 4. Lifting the lid on the neoliberal policy box. The neoliberal box Corporations Financial markets
The second vital role of finance is the support of AD. The neoliberal model gradually undermined the income and demand generation process, creating a growing structural demand gap. The role of finance was to fill that gap. Thus, within the U.S., deregulation, financial innovation, speculation, and mortgage lending fraud enabled finance to fill the demand gap by lending to consumers and by spurring asset price inflation
Financialization assisted with this process by changing credit market practices and introducing new credit instruments that made credit more easily and widely available to corporations and households. U.S. consumers in turn filled the global demand gap, along with help from U.S. and European corporations who were shifting manufacturing facilities and investment to the emerging market economies.
Three things should be emphasized.
- First, this AD generation role of finance was an unintended consequence and not part of a grand plan. Neoliberal economists and policymakers did not realize they were creating a demand gap, but their laissez-faire economic ideology triggered financial market developments that coincidentally filled the demand gap.
- Second, the financial process they unleashed was inevitably unstable and was always destined to hit the wall. There are limits to borrowing and limits to asset price inflation and all Ponzi schemes eventually fall apart. The problem is it is impossible to predict when they will fail. All that can be known with confidence is that it will eventually fail.
- Third, the process went on far longer than anyone expected, which explains why critics of neoliberalism sounded like Cassandras (Palley, 1998, Chapter 12). However, the long duration of financial excess made the collapse far deeper when it eventually happened. It has also made escaping the after-effects of the financial crisis far more difficult as the economy is now burdened by debts and destroyed credit worthiness. That has deepened the proclivity to economic stagnation.
Evidence regarding the economic effects of the neoliberal model is plentiful and clear Figure 5 shows productivity and average hourly compensation of non-supervisory workers (that is non-managerial employees who are about 80 percent of the workforce). The link with productivity growth was severed almost 40 years ago and hourly compensation has been essentially stagnant since then.
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Table 3 shows data on the distribution of income growth by business cycle expansion across the wealthiest top 10 percent and bottom 90 percent of households. Over the past sixty years there has been a persistent decline in the share of income gains going to the bottom 90 percent of households ranked by wealth. However, in the period 1948 – 1979 the decline was gradual. After 1980 there is a massive structural break and the share of income gains going to the bottom 90 percent collapses. Before 1980, on average the bottom 90 percent received 66 percent of business cycle expansion income gains. After 1980, on average they receive just 8 percent.
Table 3. Distribution of income growth by business cycle expansion across the wealthiest top 10 percent and bottom 90 percent of households. Source: Tcherneva (2014), published in The New York Times , September 26, 2014. '49- '53 '54- '57 '59- '60 '61- '69 '70- '73 '75- '79 '82- '90 '91- '00 '01- '07 '09- '12 Average Pre-1908 Average Post-1980 Top 10% 20% 28 32 33 43 45 80 73 98 116 34% 92% Bottom 90% 80% 72 68 67 57 55 20 27 2 -16 66% 8%
Figure 6 shows the share of total pre-tax income of the top one percent of households ranked by wealth. From the mid-1930s, with the implementation of the New Deal social contract, that share fell from a high of 23.94 percent in 1928 to a low of 8.95 percent in 1978. Thereafter it has steadily risen, reaching 23.5 percent in 2007 which marked the beginning of the Great Recession. It then fell during the Great Recession owing to a recession-induced fall in profits, but has since recovered most of that decline as income distribution has worsened again during the economic recovery. In effect, during the neoliberal era the US economy has retraced its steps, reversing the improvements achieved by the New Deal and post-World War II prosperity, so that the top one percent's share of pre-tax income has returned to pre-Great Depression levels.
Figure 6. US pre-tax income share of top 1 percent. Source: http://inequality.org/income-inequality/. Original source: Thomas Piketty and Emanuel Saez (2003), updated at http://emlab.edu/users/saez.
As argued in Palley (2012a, p. 150-151) there is close relationship between union membership density (i.e. percent of employed workers that are unionized) and income distribution. This is clearly shown in Figure 7 which shows union density and the share of pre-tax income going to the top ten percent of wealthiest households. The neoliberal labor market flexibility agenda explicitly attacks unions and works to shift income to wealthier households.
Share of income going to the top 10 percent 2013: 47.0% Union membership density 11.2% 0% 10% 20% 30% 40% 50% 60% 1917 1923 1929 1935 1941 1947 1953 1959 1965 1971 1977 1983 1989 1995 2001 2007 2013 Source: Data on union density follows the composite series found in Historical Statistics of the United States; updated to 2013 from unionstats.com. Income inequality (share of income to top 10%) from Piketty and Saez,
"Income Inequality in the United States, 1913-1998, Quarterly Journal of Economics , 118(1), 2003, 1-39. Updated Figure 7. Union membership and the share of income going to the top ten percent of wealthiest households, 1917 – 2013. Source: Mishel, Gould and Bivens (2015). Table 4 provides data on the evolution of the U.S. goods and services trade balance as a share of GDP by business cycle peak. Comparison across peaks controls for the effect of the business cycle. The data show through to the late 1970s U.S. trade was roughly in balance, but after 1980 it swung to massive deficit and the deficits increased each business cycle. These deficits were the inevitable product of the neoliberal model of globalization (Palley, 2015) and they undermined the AD generation process in accordance with the Keynesian hypothesis.
Table 4. The U.S. goods & services trade deficit/surplus by business cycle peaks, 1960 – 2007. Sources: Economic Report of the President, 2009 and author's calculations. Business cycle peak year Trade balance ($ millions) GDP ($ billions) Trade balance/ GDP (%) 1960 3,508 526.4 0.7 1969 91 984.6 0.0 1973 1,900 1,382.7 0.1 1980 -25,500 2,789.5 -0.9 1981 -28,023 3,128.4 -0.9 1990 -111,037 5,803.1 -1.9 2001 -429,519 10,128.0 -4.2 2007 -819,373 13,807.5 -5.9
Finally, Figure 8 shows total domestic debt relative to GDP and growth. This Figure is highly supportive of the Keynesian interpretation of the role of finance. During the neoliberal era real GDP growth has actually slowed but debt growth has exploded. The reason is the neoliberal model did nothing to increase growth, but it needed faster debt growth to fill the demand gap created by the model's worsening of income distribution and creation of large trade deficits. Debt growth supported debt-financed consumer spending and it supported asset price inflation that enabled borrowing which filled the demand gap caused by the neoliberal model. Figure 8. Total domestic debt and growth (1952-2007). Source: Grantham, 2010.V The debate about the causes of the crisis: why it matters
The importance of the debate about the causes of the crisis is that each perspective recommends its own different policy response. For hardcore neoliberal government failure proponents the recommended policy response is to double-down on the policies described by the neoliberal policy box and further deregulate markets; to deepen central bank independence and the commitment to low inflation via strict rules based monetary policy; and to further shrink government and impose fiscal austerity to deal with increased government debt produced by the crisis For softcore neoliberal market failure proponents the recommended policy response is to tighten financial regulation but continue with all other aspects of the existing neoliberal policy paradigm. That means continued support for corporate globalization, socalled labor market flexibility, low inflation targeting, and fiscal austerity in the long term. Additionally, there is need for temporary large-scale fiscal and monetary stimulus to combat the deep recession caused by the financial crisis.
However, once the economy has recovered, policy should continue with the neoliberal model For proponents of the destruction of shared prosperity hypothesis the policy response is fundamentally different. The fundamental need is to overthrow the neoliberal paradigm and replace it with a "structural Keynesian" paradigm. That involves repacking the policy box as illustrated in Figure 9.
The critical step is to take workers out of the box and put corporations and financial markets in so that they are made to serve a broader public interest. The key elements are to replace corporate globalization with managed globalization that blocks race to the bottom trade dynamics and stabilizes global financial markets; restore a commitment to full employment; replace the neoliberal anti-government agenda with a social democratic government agenda; and replace the neoliberal labor market flexibility with a solidarity based labor market agenda.
The goals are restoration of full employment and restoration of a solid link between wage and productivity growth.
Figure 9. The structural Keynesian box Corporations & Managed Financial Markets Globalization Full Employment Social Democratic Government Solidarity Labor Markets
Lastly, since the neoliberal model was adopted as part of a new global economic order, there is also need to recalibrate the global economy. This is where the issue of "global rebalancing" enters and emerging market economies need to shift away from export-led growth strategies to domestic demand-led strategies. That poses huge challenges for many emerging market economies because they have configured their growth strategies around export-led growth whereby they sell to U.S. consumers.VI From crisis to stagnation: the failure to change
Massive policy interventions, unequalled in the post-war era, stopped the Great Recession from spiraling into a second Great Depression. The domestic economic interventions included the 2008 Troubled Asset Relief Program (TARP) that bailed out the financial sector via government purchases of assets and equity from financial institutions; the 2009 American Recovery and Reinvestment Act (ARRA) that provided approximately $800 billion of fiscal stimulus, consisting of approximately $550 billion of government spending and $250 billion of tax cuts; the Federal Reserve lowering its interest target to near-zero (0 - 0.25 percent); and the Federal Reserve engaging in quantitative easing (QE) transactions that involve it purchasing government and private sector securities. At the international level, in 2008 the Federal Reserve established a temporary $620 billion foreign exchange (FX) swap facility with foreign central banks.
That facility provided the global economy with dollar balances, thereby preventing a dollar liquidity shortage from triggering a wave of global default on short-term dollar loans that the financial system was unwilling to roll-over because of panic.3
Additionally, there was unprecedented globally coordinated fiscal stimulus arranged via the G-20 mechanism. 3
The FX swaps with foreign central banks have been criticized as being a bail-out for foreign economies. In fact, they saved the US financial system which would have been pulled down by financial collapse outside
Despite their scale, these interventions did not stop the recession from being the deepest since 1945, and nor did they stop the onset of stagnation. Table 5 shows how GDP growth has failed to recover since the end of the Great Recession, averaging just 2.1 percent for the five year period from 2010 – 2014. Furthermore, that period includes the rebound year of 2010 when the economy rebounded from its massive slump owing to the extraordinary fiscal and monetary stimulus measures that were put in place
Table 5. U.S. GDP growth. Source: Statistical Annex of the European Union, Autumn 2014 and author's calculations.
The growth rate for 2014 is that estimated in October 2014.
1961 - 1970 1971 - 1980 1981 - 1990 1991 - 2000 2001 - 2007 2008 - 2009 2010 - 2014
4.2% 3.2% 3.3% 3.5% 2.5% -1.6% 2.1%
Table 6 shows employment creation in the five years after the end of recessions, which provides another window on stagnation. The job creation numbers show that the neoliberal model was already slowing in the 1990s with the first episode of "jobless the US.
Many foreign banks operating in the US had acquired US assets financed with short-term dollar borrowings. When the US money market froze in 2008 they could not roll-over these loans in accordance with normal practice. That threatened massive default by these banks within the US financial system, which would have pulled down the entire global financial system.
The Federal Reserve could not lend directly to these foreign banks and their governing central banks lacked adequate dollar liquidity to fill the financing gap. The solution was to lend dollars to foreign central banks, which then made dollar loans to foreign banks in need of dollar roll-over short-term financing. recovery".
It actually ground to stagnation in the 2001 – 2007 period, but this was masked by the house price bubble and the false prosperity it created. Stagnation has persisted after the Great Recession, but the economic distress caused by the recession has finally triggered awareness of stagnation among elites economists. In a sense, the Great Recession called out the obvious, just as did the little boy in the Hans Anderson story about the emperor's new suit
Table 6. U.S. private sector employment creation in the five year period after the end of recessions for six business cycles with extended expansions. Source: Bureau of labor statistics and author's calculations. * = January 1980 the beginning of the next recession Recession end date Employment at recession end date (millions) Employment five years later (millions) Percent growth in employment Feb 1961 45.0 52.2 16.0% Mar 1975 61.9 74.6* 20.5% Nov 1982 72.8 86.1 18.3% March 1991 90.1 99.5 10.4% Nov 2001 109.8 115.0 4.7% June 2009 108.4 117.1 8.0% The persistence of stagnation after the Great Recession raises the question "why"? The answer is policy has done nothing to change the structure of the underlying neoliberal economic model.
That model inevitably produces stagnation because it produces a structural demand shortage via (i) its impact on income distribution, and (ii) via its design of globalization which generates massive trade deficits, wage competition and off-shoring of jobs and investment. In terms of the three-way contest between the government failure hypothesis, the market failure hypothesis and the destruction of shared prosperity hypothesis, the economic policy debate during the Great Recession was cast as exclusively between government failure and market failure.
With the Democrats controlling the Congress and Presidency after the 2008 election, the market failure hypothesis won out and has framed policy since then. According to the hypothesis, the financial crisis caused an exceptionally deep recession that required exceptionally large monetary and fiscal stimulus to counter it and restore normalcy. Additionally, the market failure hypothesis recommends restoring and renovating financial regulation, but other than that the neoliberal paradigm is appropriate and should be deepened In accordance with this thinking, the in-coming Obama administration affirmed existing efforts to save the system and prevent a downward spiral by supporting the Bush administration's TARP, the Federal Reserve's first round of QE (November/December 2008) that provided market liquidity, and the Federal Reserve's FX swap agreement with foreign central banks
Thereafter, the Obama administration worked to reflate the economy via passage of the ARRA (2009) which provided significant fiscal stimulus. With the failure to deliver a V-shaped recovery, candidate Obama became even more vocal about fiscal stimulus However, reflecting its softcore neoliberal inclinations, the Obama administration then became much less so when it took office. Thus, the winners of the internal debate about fiscal policy in the first days of the Obama administration were those wanting more modest fiscal stimulus.4 Furthermore, its analytical frame was one of temporary stimulus with the 4 Since 2009 there has been some evolution of policy positions characterized by a shift to stronger support for fiscal stimulus. This has been especially marked in Larry Summers, who was the Obama administration's goal of long-term fiscal consolidation, which is softcore neoliberal speak for fiscal austerity Seen in the above light, after the passage of ARRA (2009), the fiscal policy divide between the Obama administration and hardcore neoliberal Republicans was about the speed and conditions under which fiscal austerity should be restored.
This attitude to fiscal policy reflects the dominance within the Democratic Party of "Rubinomics", the Wall Street view associated with former Treasury Secretary Robert Rubin, that government spending and budget deficits raise real interest rates and thereby lower growth. According to that view, the US needs long-term fiscal austerity to offset Social Security and Medicare Side-by-side with the attempt to reflate the economy, the Obama administration also pushed for major overhaul and tightening of financial sector regulation via the Dodd- Frank Act (2010).
That accorded with the market failure hypothesis's claim about the economic crisis and Great Recession being caused by financial excess permitted by the combination of excessive deregulation, lax regulation and failure to modernize regulation Finally, and again in accordance with the logic of the market failure hypothesis, the Obama administration has pushed ahead with doubling-down and further entrenching the neoliberal policy box. This is most visible in its approach to globalization. In 2010, free trade agreements modelled after NAFTA were signed with South Korea, Colombia and Panama. The Trans-Pacific Partnership (TPP) and the Trans-Atlantic Trade and Investment Partnership (TTIP), two mega-agreements negotiated in secrecy and apparently bearing chief economic adviser when it took office. This shift has become a way of rewriting history by erasing the memory of initial positions. That is also true of the IMF which in 2010-2011 was a robust supporter of fiscal consolidation in Europe. similar hallmarks to prior trade agreements, are also being pushed by the Obama administration
The Obama administration's softcore neoliberalism would have likely generated stagnation by itself, but the prospect has been further strengthened by Republicans.
Thus, in accordance with their point of view, Republicans have persistently pushed the government failure hypothesis by directing the policy conversation to excessive regulation and easy monetary policy as the causes of the crisis. Consequently, they have consistently opposed strengthened financial regulation and demands for fiscal stimulus.
At the same time, they have joined with softcore neoliberal Democrats regarding doubling-down on neoliberal box policies, particularly as regards trade and globalization Paradoxically, the failure to change the overall economic model becomes most visible by analyzing the policies of the Federal Reserve, which have changed the most dramatically via the introduction of QE. The initial round of QE (QE1) was followed by QE2 in November 2010 and QE3 in September 2012, with the Fed shifting from providing short-term emergency liquidity to buying private sector financial assets.
The goal was to bid up prices of longer term bonds and other securities, thereby lowering interest rates on longer-term financing and encouraging investors to buy equities and other riskier financial assets. The Fed's reasoning was lower long-term rates would stimulate the economy, and higher financial asset prices would trigger a positive wealth effect on consumption spending. This makes clear the architecture of policy.
The Obama administration was to provide fiscal stimulus to jump start the economy; the Fed would use QE to blow air back into the asset price bubble; the Dodd-Frank Act (2010) would stabilize financial markets; and globalization would be deepened by further NAFTA-styled international agreements. This is a near-identical model to that which failed so disastrously. Consequently, stagnation is the logical prognosis.VII Déjà vu all over again: back to the 1990s but with a weaker economy
The exclusion of the destruction of shared prosperity hypothesis, combined with the joint triumph of the market failure and government failure hypotheses, means the underlying economic model that produced the Great Recession remains essentially unchanged. That failure to change explains stagnation. It also explains why current conditions smack of "déjà vu all over again" with the US economy in 2014-15 appearing to have returned to conditions reminiscent of the mid-1990s.
Just as the 1990s failed to deliver durable prosperity, so too current optimistic conditions will prove unsustainable absent deeper change The déjà vu similarities are evident
- in the large US trade deficit that has started to again deteriorate rapidly;
- a return of the over-valued dollar problem that promises to further increase the trade deficit and divert jobs and investment away from the US economy;
- a return to reliance on asset price inflation and house price increases to grow consumer demand and construction;
- a return of declining budget deficits owing to continued policy disposition toward fiscal austerity; a return of the contradiction that has the Federal Reserve tighten monetary policy when economic strength triggers rising prices and wages that bump against the ceiling of the Fed's self-imposed 2 percent inflation target; and renewal of the push for neoliberal trade agreements
All of these features mean both policy context and policy design look a lot like the mid-1990s. The Obama administration saved the system but did not change it
Consequently, the economy is destined to repeat the patterns of the 1990s and 2000s. However, the US economy has also experienced almost twenty more years of neoliberalism which has left its economic body in worse health than the 1990s. That means the likelihood of delivering another bubble-based boom is low and stagnation tendencies will likely reassert themselves after a shorter and weaker period of expansion
This structurally weakened state of the US economy is evident in the further worsening of income inequality that has occurred during the Great Recession and subsequent slow recovery.
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Thomas I. Palley, Senior Economic Policy Advisor, AFL-CIO Washington, D.C. firstname.lastname@example.org
Oct 07, 2017 | peakoilbarrel.com
Bob Friskysays: 09/22/2017 at 6:06 pmShale oil entrepreneur Harold Hamm is back doing interviews on the business networks again. Now he is speaking out against how the oil prices are low due to the EIA.shallow sand says: 09/22/2017 at 11:38 pm
Shale Billionaire Hamm Slams 'Exaggerated' U.S. Oil Projections
Billionaire oilman Harold Hamm says the government was way too optimistic with its prediction of more than 1 million new barrels a day in U.S. production, and the snafu is "distorting" global crude prices.
This year's rise is likely to be closer to about 500,000 barrels, far off an initial forecast by the U.S. Energy Information Administration, according to Hamm, the chairman of Continental Resources Inc. and a pioneer in the shale industry.
The EIA projection is "just flat wrong," failing to take into account a new discipline among U.S. drillers, Hamm said in an interview Thursday on Bloomberg TV. "We have capability of producing a whole lot, but you have to get a return on investment," he said, adding, "that's where people have been this last quarter and this year."
The government scenario has contributed to worries about an oversupply that puts U.S. oil at a steep discount to international crude, according to Hamm. "It's distorting," he said . "When we're lagging the Brent world price by $6 a barrel, that's not putting America first, that's putting America last. And that's the result of this exaggerated amount that EIA has out there."
Once it's clear the EIA is off base, prices could rise to $60 a barrel from around $50 now, Hamm said.The EIA is making these projections because knuckleheads in the C suite at US shale companies went hog wild at the first sign of oil price improvement and made these growth projections for their individual companies, and the EIA just totaled them up.George Kaplan says: 09/23/2017 at 2:08 am
Every Shale CEO bashes OPEC. OPEC tried to give shale a break by cutting production, and shale absolutely blew it, just like shale absolutely blew it in late 2014 by not pretty much shutting down. Instead, shale has lied about profitability for 3 years, and the world E & P industry has paid the price.
Too bad Oilpro shut down. Lots of non-US E & P Industry folks posted there. They absolutely could not stand US shale and the US shale CEO smack talk. Hundreds of thousands out of work, because of shale smack talk and Wall Street encouragement of same, which crashed oil prices below $30.
Shale better come through. No one seems to be taking serious the possibility of a supply shock if it cannot.
When shale clearly peaks, what is to keep OPEC and Russia from suddenly making a big cut, driving prices past $200 and crashing Western economies? Why wouldn't they afterthe hubris of US shale CEO's, the Wall Street guys who pull their strings, and the US business media who report everything they say as gospel?I'd guess a lot of the non-US E&P people complaining about LTO would by from offshore, and I think that side has been just as much to blame for boom and bust mentality with rose tinted specs. (see below the UK investment which went nuts when oil went above $100 and now they have nothing much left). I'd question with the jobs are going to come back offshore even with a big price rise. As I keep pointing out, there have to be discoveries before development, and there have to be lease sales before that. We're not seeing either, and though exploration is down compared with 2011 to 2014, there's still a significant amount going on, but wildcat, frontier success rates are what have fallen the most (even with the best seismic methods and computer models we have ever had).