Sunday, May 28, 2017

The ruinous history of free trade, Part 1

November 6, 1860. Abraham Lincoln has been made President by a 39.8 percent plurality of votes. The Democratic Party had split in two over the issue of slavery expansion during its national convention in Charleston, South Carolina in late April. Almost exactly one month after the election, Robert Barnwell Rhett, publisher of the Charleston Mercury and the most open proponent of secession, walked along Meeting Street, almost to the southern tip of the peninsula Charleston is built on. He stopped at a house and knocked on the door. Now that secession was being planned, Rhett had come to talk with the Consul of Great Britain, Robert Bunch, about the “commercial prospects” of the South.

Once the two men had exchanged carefully courteous greetings, Rhett got right to the point.
Rhett asked Bunch how he thought Britain would act if ships arrived in its ports that came from the seceding states but did not have clearances from the customs collectors of the Federal government—assuming, of course, the Federal government didn’t object to their sailing and wasn’t going to “coerce the Seceders back into the Union.”
Rhett had represented South Carolina in the U.S. Senate in the early 1850s, so the British consul addressed Rhett with the honorific. “Is that what you believe will happen, Senator?” Bunch asked. Rhett replied:
“The course most likely to be pursued by the President is that he will not acknowledge the right of a State to secede as an abstract question, but practically, he will not interfere with it for doing so…. Foreign nations would be at perfect liberty to consider secession as an accomplished fact and to use their own discretion as to recognizing or making treaties with the new state.”
Bunch answered that he could not provide an official reply, since her majesty’s government had not yet provided him any instructions on the matter, and in fact had probably not even considered the issue yet. Bunch then slyly provoked Rhett by noting that most foreign governments, including his own, would take their guidance from whatever position the President and the Congress of the United States settled on.

This pushed Rhett to go directly to the heart of the matter, according to Bunch’s biographer:
[Rhett] expected the cottons states to form a Confederacy within the next sixty days, and he wanted to make it clear that “the wishes and hopes of the Southern states centered in England”; that they would prefer an alliance with her to any other power; that they would be their best customer; that free trade would form an integral portion of this scheme of government, with import duties of nominal amount and “direct communication by steam between the Southern and British ports.”
This conversation was communicated by Bunch to his superiors in the Foreign Office in London, and are part of the original documents used and quoted by Bunch’s biographer, Christopher Dickey, in his book, Our Man in Charleston: Britain's Secret Agent in the Civil War South (2015, Broadway Books / Penguin Random House, New York, NY, pages 179-184).

Monday, May 22, 2017

If China Can Fund Infrastructure With Its Own Credit, So Can We

The basic truth about money is that it doesn't matter what it is made of compared to what are the mechanisms for making it valuable. Money that can be traded for necessary items such as food and energy is always valuable. Money created to fund human inventiveness also falls into this category. Which is why people who understand this know that so long as it is spent to create necessary items such as infrastructure, the amount of money that can be created without triggering inflation is nearly limitless. The key is spending the new money right away on the products of human genius and hard work.

And so we see that China could build 12,000 miles of high-speed rail in a decade (among a host of other major infrastructure projects) without becoming Zimbabwe. If China had created a massive pile of new money and used it to fund a massive global shopping spree, the outcome would have been dramatically different.

Here's to Ellen Brown who has rediscovered the arguments for why massive amounts of fiat money CAN (under the right conditions) lead to massive increases in prosperity. And because climate change can only be meaningfully addressed by massive amounts of new and significantly redesigned infrastructure, and since this project is absolutely necessary for continued human life on earth, Brown is addressing THE most important topic in all of political economy.

Sunday, May 21, 2017

'Doomsday’ seed vault meant to survive global disasters breached by climate change

Those of us who live in the frozen north tend, I believe, to understand more of the nuances and implications of climate change. We burn FAR more than our share of fuels, we are the folks who made industrialization happen, and even the slowest among us understand that without fuels, the cold will kill us very quickly. The overwhelming majority of the land on earth is found in the northern hemisphere so not surprisingly, most of the more dramatic manifestations of climate change happen where we cold-weather fire-starters set up our civilizations.

But even assuming that, the two stories below are amazing. One concerns how melting permafrost in Norway is threatening the seed vault that was supposed to protect the plant genetics of the planet for "eternity." The other concerns the likelihood that a failed Gulf Stream could leave Europe with the charming weather of North Dakota.

In all fairness, because we cold-weather denizens use an outsized share of carbon fuels, we should be threatened by most of the big climate-change disasters. Once upon a time, not so long ago, we would be just the folks to tackle a solution for such possible catastrophes. Unfortunately, the culture of the North is a shadow of what it was just two or three generations ago.

Wednesday, May 17, 2017

USA auto sales drop for four straight months

Probably the main observation from my Chicago trip was the seemingly huge mismatch between the purveyors of high quality goods at amazingly reasonable prices presented with all the élan the marketing geniuses can muster and the lack of shoppers buying these offerings. There is something definitely weird about the economy that does not seem to be showing up in the big-time statistics such as unemployment and inflation. Yes, there are those who watch retail sales who see some major-league catastrophes but because retailing is so hopelessly overbuilt, these same folks seem to still be overlooking the more general collapse of purchasing power.

And as if on cue, we are seeing the end of the major USA auto boom that has been driven by low interest rates, cheap fuels, and a wide selection of well-built vehicles. Well, interest rates are still low, the cars are still excellent, and fuels are quite cheap yet sales seem to have hit a wall. Apparently the folks who could buy a new car have bought that car with a five year warranty and payment schedule. So this sales slump could last awhile.

There is also an institutional reason why car sales might never see another 17.55 million unit sales year like 2016 again. Electric cars. Compared to electric cars, the  internal combustion (ICE) vehicle suddenly seem hopelessly complex and unreliable. A well maintained 10-year-old EV is a new battery pack and tires from being essentially a new car. A brushless electric motor has almost nothing to wear out and EVs do not even need gearboxes and exhaust systems. But because going electric involves a bunch of lifestyle changes, it is unlikely there will be a massive boom in EV sales even when the day arrives when EVs have become superior in every objective category for a buy consideration.

Monday, May 15, 2017

What Exxon-Mobil knew

The story of what the oil companies once knew and promoted on the subject of climate change is deep and complex and for me, endlessly fascinating.
  • I find that the scientists at big oil knew a very great deal about climate change and their role in it as early the 1980s not the least bit surprising.
  • What I find less believable is the notion that big oil spent big money to broadcast their enlightened views on climate change. I know of no one, including me, who has any recollection of those efforts. Like most, I thought climate change was a theory discovered by the heavy hitters at NASA as a spin-off of the explorations of Venus and its CO2-rich atmosphere. My views are a lot more nuanced and complex since James Hanson's testimony in 1988 but the extent of the scientific understanding of big oil is still news to me.
  • The really big story (from my perspective) are the events that made the oil companies change course so dramatically. What happened in those momentous years of the late 1980s—the fall of USSR and the Berlin Wall and end of ideological competition to the most grotesque forms of Robber Baron capitalism? the ideological triumph of monetarism and neoliberalism? the examples of "problem-solving by mandate" in the automobile industry and against Dupont and their Freon? 
  • What made their road from enlightened to irresponsible so short—was their institutional mandate for business-as-usual so powerful?
  • It is possible that even big oil, with all its resources, really did not know what to do about so massive a problem as climate change?
What? It's a damn shame the oil companies did not act to change the world as mandated by their own scientific research. It would have been most interesting to watch them try!

Thursday, May 11, 2017

The Dying Days of Liberalism: Max Forte nicely summarizes Tom Frank's Listen Liberal

Well, of course it would happen that a few days after posting I have yet to see a decent summary of Thomas Frank's new book Listen Liberal, I find one.

First, a tip of the hat to Yves at Naked Capitalism, for linking to Canadian anthropology professor Max Forte's Donald Trump, Empire, and Globalization: A Reassessment, which is a very long but excellent and important article. Because of its length, I will plug it again in another post on Saturday, so people can wade into it over the weekend.

For now, let me point you to Forte's much shorter January 2017 posting, The Dying Days of Liberalism How Orthodoxy, Professionalism, and Unresponsive Politics Finally Doomed a 19th-century Project.

Forte is professor of Anthropology and Sociology at Concordia University in Montréal, Québec, and is a member of the Concordia University Faculty Association (CUFA), the trade union body for full-time faculty, and the Canadian Association of University Teachers (CAUT). His two writings I have perused so far are wonderful essays combining the knowledge and methodology of several disciplines, making for some of the best political economy I have read in a while. And, as I wrote at the beginning, his article includes an excellent summary of Listen Liberal:
....Thomas Frank’s Listen Liberal is worth reading in particular for its chapter devoted to “The Theory of the Liberal Class,” which makes extensive use of the writings of sociologists and political scientists. The book opens with a quote from David Halberstam’s 1972 book, The Best and the Brightest, a quote that speaks of, “a special elite, a certain breed of men whose continuity is among themselves. They are linked to one another rather than to the country; in their minds they become responsible for the country but not responsive to it”.

Rather than focus on “the One Percent,” Frank asks that we look critically at “the Ten Percent,” which includes “the people at the apex of the country’s hierarchy of professional status,” from which the Ivy Leaguer Obama came, as did most of his Ivy League cabinet, explaining the self-justifying and self-flattering slew of comments from Obama about those who are “qualified” to govern and “knowing what you’re talking about”. Professionals value credentialed expertise, and tend to listen mostly just to each other. They monopolize the power to prescribe and diagnose, in consultation with each other: “The professions are autonomous; they are not required to heed voices from below their circle of expertise” (Frank, 2016, p. 23). Professionals emphasize “courtesy” with one another (hence the incessant tone policing), and show high contempt for those of lesser rank, including precarious professionals. Post-industrial technocrats, the ones who hail the “knowledge economy” and “education” as a solution to all social problems, have bred their own ideology: professionalism. Frank notes that as a political ideology, professionalism is “inherently undemocratic, prioritizing the views of experts over those of the public” (p. 24). Though they usually claim to act in the public interest, Frank observes that they have increasingly abused their monopoly power, started looking after their own interests, and increasingly act as a class (p. 25), an “enlightened managerial class” of quasi-aristocrats (p. 26). Frank’s critique outlines how the Democrats became the party of the professional class, disposing of labour along the way (p. 28). As a result, they care little about inequality, because their own wellbeing is founded on it. Inequality is essential to professionalism (p. 31). Meritocracy is opposed to solidarity (p. 32).
I want to emphasize "Inequality is essential to professionalism." It goes a long way in explaining why the devotees of identity politics came unhinged over Bernie Sanders's campaign; they are now vehemently arguing "Minorities are sick and tired of being told that economic equality will fix all the racism, sexism and the social injustices in the world" as someone commented in a recent posting of mine on DailyKos.

On pages 32-33 of Listen Liberal, Frank writes:
There is no solidarity in a meritocracy. The very idea contradicts the ideology of the well-graduated technocrats who rule us…. Leading members of the professional class show enormous respect for one another—what I call “professional courtesy”—but they feel precious little sympathy for the less fortunate members of their own cohort [such as] colleagues who get fired, or even for the kids who don’t get into “good” colleges. That life doesn’t shower its blessings on people who can’t make the grade isn’t a shock or an injustice; it’s the way things ought to be.
Frank identifies the terrible consequences this professional class ideology has for liberalism and democracy. One important consequence is that professionals hold the traditional Democratic Party base—organized labor and the working class—in low regard, bordering on contempt. This contempt surfaces over and over again when a professional class twit points to industrial automation as being the cause of lost jobs, absolutely refusing to even discuss the result of the disastrous policies of globalization and free trade. Here, for example, is the founder of DailyKos a few days after the November 2016 election: Be happy for coal miners losing their health insurance. They're getting exactly what they voted for. Here is an investment advisor who is a minority, indulging in some particularly cruel class consciousness: We are going to outsource your job. And there is Hillary Clinton's use of the label "deplorables" to describe her opponent's working class supporters.

This contempt for the working class, Frank writes, has been documented in study after study of the professional-class. For the professional class, unions, factory work, farm work, and most any blue collar occupation “signify lowliness, not status.” This was well understood by Thorsten Veblen: at the very beginning of his 1899 classic The Theory of the Leisure Class (And Frank named his first chapter “The Theory of the Professional Class”), Veblen writes:
the distinction between classes is very rigorously observed ; and the feature of most striking economic significance in these class differences is the distinction maintained between the employments proper to the several classes. The upper classes are by custom exempt or excluded from industrial occupations, and are reserved for certain employments to which a degree of honour attaches… the upper classes are exempt from industrial employments, and this exemption is the economic expression of their superior rank…. Manual labour, industry, whatever has to do directly with the everyday work of getting a livelihood, is the exclusive occupation of the inferior class.
Frank continues:
Professionals do not hold that other Democratic constituency, organised labour, in particularly high regard. This attitude is documented in study after study of professional-class life. One reason for this is because unions signify lowliness, not status. But another is because solidarity, the core value of unions, stands in stark contradiction to the doctrine of individual excellence that every profession embodies. The idea that someone should command good pay for doing a job that doesn’t require specialised training seems to professionals to be an obvious fallacy.
The result is not pretty. As Forte writes near the beginning of his essay:
Liberal democracy has been reduced to a shell, more a name than a fact that deserves the name. For many years, liberalism has been liberal authoritarianism or post-liberalism or neoliberalism, with a high elitist disdain for democracy and a fear of the masses everywhere. Promises of inclusion, fairness, and welfare, were replaced by sensitive-sounding rhetorical tricks and tokenism. Moral narcissism, virtue signalling, identity politics, and building patchwork quilts of diversity were the order of the day....

...It’s not a small thing that has fallen here, not merely the defeat of Hillary Clinton and Americans rejecting Obama’s “legacy”. We are dealing with a series of institutions, an expert class, and a network of political and corporate alliances, that is being shaken beyond repair. We are in the earliest days of a historical transition, so it’s not clear what is coming next, and the labels that have been proliferating demonstrate confusion and uncertainty—populism, nativism, nationalism, etc.
....liberalism will not disappear outright, and not instantly. Ideas don’t ever really die, they’re just archived. [Emphasis mine.]

Tuesday, May 9, 2017

The origins of the Democratic Party's looming catastrophe

It is becoming a constant struggle to combat despondency, as I watch USA Democratic Party leaders shuck and jive, wriggle and squirm, to avoid having to accept any responsibility for their disastrous and destructive neoliberal economic policies of the past half-century. It's a tragedy having Donald Trump as President, with reactionary Republicans in control of the House and Senate. But having Democrats unwilling to address their own role in creating the widespread misery and discontent that is fueling political populism, thus crippling their ability to oppose Trump and the Republicans, is a catastrophe. Because without the Democratic Party in USA renouncing neoliberalism and putting forward a grand vision for a $100 trillion rebuilding of the world economy to stop global climate change, that political populism has no where to go except to the right.

The origins of the Democratic Party's insouciance today is the Party's response to the Republican victories of 1968 and 1980. The latter was an especially severe blow, because the common wisdom held that the Republican Party was on the verge of extinction because of the Watergate scandal. Democratic control of the Senate with 61 seats, flipped to Republican control of 53 seats. The Democratic majority in the House was reduced from 292 Representatives to 242.

The Democratic Party leadership responded to these electoral disasters by abandoning their traditional alliance with organized labor and beginning to shun the working class--explicitly The future of the Party, they declared, lay in embracing instead the rising new “professional class.” This is abundantly documented by Thomas Frank in his most recent book, Listen Liberal. A shorter summary is by Matt Stoller in The Atlantic this past October, just before the election: How Democrats Lost Their Populist Soul. Summaries of Stoller’s article are available on DailyKos here and here. There are a number of reviews of Frank’s book available with a search of the InterTubez, but I have yet to read one that is a truly adequate summary. The book is just too chock full of details, names, and dates, and it packs a wallop. Anyone still thinking in terms of Hillary versus Bernie should be shamed into silence if they manage to read the entire book. Unfortunately, I think most Hillary partisans will find the book much too painful and discomfiting to read in its entirety.

However, the key to understanding why the embrace of a “post-industrial” new “professional class” was such a disaster eludes both Frank and Stoller. First, no modern economy can ever be truly post-industrial. Modern standards of living would simply collapse without the products of industrial mass production. Just think of what would happen if there were no longer so simple a thing as medicine bottles. How would you store and distribute anti-biotics? Pain relievers? The special medications that today keep hundreds of millions of people alive, who a century or two ago would quickly expire because of their illness or disorder? I’d be willing to bet that without continued production of the trillions of medicine bottles each year, about half the human population would die off within five years. The really sick thing is: there are many so called “liberals” and “progressives” who think such a die off is not such a bad thing.

Second, the embrace of one specific class or another directly violates the republican (small “r”, not Republican Party) political economy of the U.S. republic, which is founded on the Constitutional mandate to promote the General Welfare. It is this Constitutional mandate that sets the USA apart from and above all other governments before it—monarchies, aristocracies, oligarchies, and dictatorships. It is what is supposed to distinguish the USA economy from the mercantalist economies of old Europe: all economic activity is supposed to strengthen not the state and the elites who control it (as was the case with mercantalism), but the entire nation—all the people. (And note that conservative and libertarian scholars explicitly attack the General Welfare principle for being the bedrock of the “nanny state.” The Confederacy that split the Union and fought to preserve slavery copied the U.S. Constitution, but deliberately removed any mention of the General Welfare—and conservative and libertarian scholars have written that this was an “important improvement.”)

This second point also directs us toward the reason why many people make the oversimplified argument that there is no difference between Democrats and Republicans, which is implicit in the results of the Washington Post /ABC News poll conducted in mid-April 2017 which that 67% of Americans think Democrats are out of touch with the concerns of average citizens. Embracing one specific class or another—for the Democrats, the “professional class”; for the Republicans, “entrepreneurs” or “job creators” or whatever—must be accompanied by the belief that the prosperity of that favored class will “trickle down” and “lift all boats.” Broken down in this way, it is easily apparent that Democratic economic policies are not that different from Republican economic policies. The major differences between the two parties is in their approach to how much of a social safety net there should be to alleviate the poverty that inevitably results from deindustrialization and an abandonment of the principle of promoting the General Welfare.

Friday, May 5, 2017

Has Putin driven Western politicians insane?

One of the sadder and more crazy outcomes of this fall's election is the Democratic Party's decision to blame their defeats on the Russians. That we are seeing McCarthyism II and Cold War: the next generation only this time perpetrated by so-called Liberals actually makes me feel sick at times.

I confess that I happen to feel a strong affinity for Russia and its people. Reason A is that as someone who grew up in arguably the coldest state in the continental USA, I have a highly developed sympathy for those who must cope with the nastiest of winters. Cold changes you.

After a short trip to Leningrad in 1972 where I learned a few of the incredible stories of what that city was willing to suffer to save itself during their Great Patriotic War (WW II), I determined to actually learn some of the history of this sprawling and nearly uninhabitable land populated by some of the most courageous humans to have ever walked the planet. Once you open that door, you have stumbled into an infinity of tales of heroic struggles against not only a harsh climate but murderous invaders, evil Tsars, serfdom, Marxist-Leninist crackpots, etc.

Fortunately, it isn't all tragedy. Perhaps my favorite story is about how Anatoly Tarasov figured out how to build an ice hockey program out of the ruins of WW II. Hockey is crazy difficult and very expensive yet out the ashes of near total national destruction, Tarasov invented a version of the game that even today is easily the most exciting to watch.

And these are the people we are supposed to hate. And lie about. And threaten with more warfare (as if the Russian people haven't suffered enough war at the hands of folks like Napoleon and Hitler.) This time though, the Russia-bashers have decided to make it personal. This time we are supposed hate Vladimir Putin above all. This is what makes Cold War II so surreal. The Russophobes would like to topple Putin but are confronted with the fact that he is wildly popular in Russia—mostly because he is arguably the best leader they have ever had (with the possible exception of Peter the Great.)

Hillary Clinton seems to hate Putin with the fire of 1000 suns. She is convinced he cost her the election. She has even called his election meddling an act of war. She is convinced that he hates her. And on that point, she might be right.

Putin has many reasons to detest Ms. Clinton. But in my mind, the one at the top must be her comparison of Putin to Hitler. Putin was the child of two people who actually survived the siege of Leningrad—a siege that killed his older brother.

Now I am pretty sure that Putin understands that virtually no one in the United States of Amnesia has any idea of how horrific the siege of Leningrad really was. After all, MOST 'Merikuns have no idea that Russia even fought in the Second World War. But for those fools, please be reminded that more Russians died due to that siege than all the USA, Brit, and French casualties of WW II combined. Many are buried in St. Petersburg's Piskaryovskoye Memorial Cemetery. According to their official records, from September 4, 1941 to January 22, 1944, 107,158 air bombs were dropped on the city, 148,478 shells were fired, 16,744 men died, 33,782 were wounded and 641,803 died of starvation.

My guess is that as a son of St. Petersburg / Leningrad, Putin has a much clearer idea of the savage nature of Hitler's Nazis than a moronic twinkie like HRC. Apparently, one of the joys of being a Wellesley grad is that it entitles you to compare anyone you don't like to Hitler. Actually knowing some history is not required.

I believe MOST of this Putin-bashing is a nasty combination of fear and impotence. Putin is an amazing fellow. The Russians have PLENTY of experience with shit leadership so when someone like Putin comes along, they respond to the difference. He could win all elections until he dies. He has lavish approval ratings—he may be the most popular politician on earth. The people who think just a few more $ to the NED will bring down his government are quite insane. So not only can Putin thumb his nose at the neocon plotters, he drives them further insane because there is nothing they can do about it.

He is also an excellent example of what happens when someone in the old USSR educational system religiously did his homework. Compared to the dim bulbs we have in USA politics, he so outclasses them intellectually, he almost seems like he is from a different planet. And he sort of is. Bright guy, highly motivated, with a hyper-elite education.

In a saner world, we would have leadership that recognizes the opportunity to collaborate with such a gifted leader to solve some crazy-difficult problems. If we cannot get along with the best leadership Russia has to offer since Peter the Great, perhaps its our fault and not his.

Monday, May 1, 2017

Springtime in Chicago

Tony and I had a good reason to meet in Chicago last week. This is his home town and he offered to give me the "deindustrialization tour" of the Second City. So on a splendid spring day he drove me around while I observed. Not surprisingly, some parts of Chicago have absorbed the economic shock of globalism / neoliberalism far better than others.

Some observations:
  • The number of places to buy or eat good food seems limitless. The large ethnic populations like the Poles or Italians have their own supermarkets with an astonishing variety of offerings. While all this abundance of good eating appears to herald prosperity, the fact was that none of these establishments had many customers. The restaurant / supermarket business seems hopelessly overbuilt.
  • Even the high end retailers along the Miracle Mile seemed to lack sufficient customers.
  • Chicago built some pretty amazing public venues in recent years. One spanking new convention center looked to cover at least 5 city blocks. My guess is that the supply of convention space wildly exceeds the need world wide.
  • Considering all the talk of corruption in the Chicago construction business, some magnificent building has been done (see below). This pretty much validates Veblen theories in his Instinct of Workmanship.
  • The detritus of the South Side steel industry is gone. In its place are large empty fields covered in a lumpy soil that because it is spring, had a pretty good cover of grass. Some of the old industry remains. The Ford Torrence plant was still loading new Lincolns into rail cars. A solitary (but huge) Cargill grain elevator was still operating near the lakeshore—when we drove past it was maybe two miles away separated by a large expanse of grass waving in the wind. If you held your head so you could not see Lake Michigan, it looked astonishingly like North Dakota. One attempt at redevelopment produced a flat and treeless golf course with a overbearing clubhouse built on a hill that was probably the remains of a slag heap.
  • The South Side of Chicago where the housing is, is a scene of near hopeless devastation. Both the housing stock and people appear extensively damaged. The neighborhood businesses are in the beauty salon/tattoo parlor/small markets variety. The auto repair business seems safely in the hands of people advertising that they are Mexicans. Even though it was only 5:30 pm., many of those on the streets looked like they had gotten a head start on being wasted for the evening. Whatever it was, it conveyed an expression of profound aimlessness. What was so distressing was that this urban damage went on for miles.
  • Tony could not resist taking me back to the motel by way of Wrigleyville—the neighborhood surrounding the stadium where the long-hapless Cubs won the World Series of Baseball last fall. This is the North Side, home to an astonishing number of what we used to call Yuppies, and NO, I have no idea what supports such lifestyles. After eating at a sports bar maybe 50' from the entrance to the bleacher section of Wrigley Stadium, we found ourselves blocked in by a police SUV. I cringed a little but soon discovered the young cop was admiring my 21 yo Lexus. In my 67 years on earth, I have never been so kind and gracious to a cop before.
  • Tony stopped at one more sports bar because he has known the owner for years. There we got to watch the Preds-Blues game along with a handful of still-disappointed Black Hawk fans. In spite of the fact that Tony claims this bar serves one of the best pizzas in Chicago, it was also suffering from too few customers.
Chicago's economic ennui is likely shared across the world. But one thing is still abundantly clear—this was once a city of energy, distinction, and vast industrial power. This was a city built by folks of great imagination. Deindustrialization is the proximate cause of the widespread destruction of this city. But more importantly, most of the destruction demonstrates a failure of imagination. Of course, it requires SOME imagination to build a golf course on a slag heap but compared to what was once there, it demonstrates the imagination of a child playing grown-up. In my darker moments I am convinced that we are doomed because we have passed "peak imagination." I hope I am wrong.

Saturday, April 29, 2017

Tesla's growing pains

From 1974 until 2007, I drove a Saab. My last one had 296k on the odometer when it was destroyed in a tennis-ball-sized hail storm. So I know about driving a car from a niche manufacturer—it's an interesting trip. In 1974, Saab built arguably the most interesting car on the planet—roomy cabin, great driving position, a fold-down rear seat (which allowed me to avoid the dreaded pickup truck even during a major rehab project), good—if not great—mileage, four-wheel disc breaks, great suspension for bad weather and roads, and the big deal—front-wheel drive. In 1974, there were a tiny handful of cars with front-wheel drive and Saab's was easily the best.

Saabs are still being made by a Chinese company. And of course, they are FAR from the most innovative on the planet. In fact, almost every car maker makes some version of the Saab 99. Most are cheaper. Many are better built—the Toyota Camry, for example. It is quite easy to see a quite similar future for Tesla. Yes, Elon Musk has provided the world an enormous gift when he showed the rest of us how to design and build the very cool electric car. But this is manufacturing and there are others who have been making cars a whole lot longer than Musk and are perfectly capable of reducing Tesla to an interesting historical detail.

Toyota could easily build a line of fine electric cars but so far, their big bet on hybrids has seemed to be paying off. They have also built a fuel-cell car so even their electric experiments have avoided the big battery packs. Volkswagen, on the other hand, bet big on "clean" diesels and have clearly lost that bet. They have a huge market in China which is mandating large fleets of EVs. The latest Geneva Auto Show saw Volkswagen's thinking on what their EV fleet will look like—and it just sparkled with innovative thinking. It is very possible that we have already seen "peak Tesla"—the era when the company was redefining parts of the transportation infrastructure may already behind us. From now on, Tesla will be trying to survive in a market where their competitors got his message and will now compete on execution—cost, build excellence, customer support, etc.

But right now Musk hopes to keep building the best cars. And as he is finding out, manufacturing is a LOT harder than it looks. Personally, I think Musk belongs on Mount Rushmore for what he has already accomplished. But the truth be told, he is going to find the going a lot harder when folks like VW start selling an electric Microbus.

Monday, April 24, 2017

Private banks create virtually all money

Do you want to shock, confuse, and probably alienate your friends? Probably the easiest way is to explain what really happens when they sign up for a home mortgage.
  • The bank will engage in a massive invasion of the borrower's privacy in the name of their financial interests. What is really happening is the bank is trying to ascertain if the borrower can actually service the debt—sort of like "hiring" a slave, when you think about it. This step is critically important because without performing loans, banks cannot exist.
  • The bank will then, after the signing of important-looking and expensive documents, create a new balance in the borrower's account. The bank has done nothing except reprogram some computer memory in the bank's electronic books. With a few keystrokes, the bank has put a customer on the hook for a large sum of money payable over 30 years. Roughly 40% of everything the borrower earns in those next 30 years will go to pay off the the creation of those few keystrokes.
This is what actually happens. But because of the massively unequal nature of this transaction, the banking industry has created an amazing body of lies to justify this rip-off. In fact, most of us who subscribe to the above explanation for how banking really works have faced the angry reaction from those who believe the big banking lies should we ever make the mistake of springing too many facts on the credulous.

But now, no less than the Bank of England has come clean and admitted that loans create deposits rather than the other way around. The story of BoE making this amazing admission follows (complete with video.)

Monday, April 17, 2017

The left is finally intellectually bankrupt

The election of 2016 proved to have at least one significant virtue—it fully exposed the corruption and ideological emptiness of the so-called "Liberal" class. None of this gives me a scintilla of joy. When I was young, being a good Liberal was actually something to aspire to—at least that was what I believed after I read Ken Galbraith's The New Industrial State. I believed we were the children of the Enlightenment who were responsible for the overwhelming majority of human progress.

As Thomas Franks and Chris Hedges have so excellently described, those kind of liberals only seem to exist in the memories of us aging coots. If Hillary Clinton and John Podesta are any example, liberals have become amazingly shallow, pathetically ignorant, and corrupt to the bone. Their political ideas are limited to schemes that enrich their friends. Their economic ideas can literally be found in the pages of the Economist. Debbie Wassermann Schultz, the Clinton campaign chair is a hired gun for the payday lending people. They seem to draw the line at actual slavery but that is about the only limit to depths of their neofeudal understanding of economic possibilities.

And in their latest excuse for the pathetic political performance of these thoroughly dislikable charlatans, today's liberals have resorted to actual McCarthyism. The claim that they lost because Russia is childish even by "the dog ate my homework" standards. But that's all they have so they are sticking to their fantasies even though it endangers world peace because in their pinched worldviews, it even makes sense. It made sense to Tailgunner Joe too. So there!

Wednesday, April 12, 2017

"If you build it they will come" and there goes the retailing bubble

One of the great pieces of economic nonsense from the age of Reagan was the "supply-side" notion "If you build it, they will come." The essential idea was that supply creates its own demand. This comforting little nostrum allowed the supply-siders to stop worrying about such "minor" matters as income stability and growth. Soon it also became quite fashionable to stop worrying about the health of local manufacturing. So long as there were goods to sell, who could possibly be concerned about where they came from?

But the ultimate disaster of supply-side thinking is still unfolding. If you actually believe that supply creates its own demand, what's to stop you from building a major mall out in the middle of a lot of nowheres? And so retail outlets multiplied to the point where virtually every person in the land is now near a major distribution of goods. The standard estimate is that we are 'blessed' with nearly 25 sq.' (2.3 sq meters) per capita of retail space (compared to less than 2 sq.' in Japan.)

Unbelievably, much of this retail space was built after it had become blindingly obvious that the internet was going to utterly change the way goods are marketed. It is hard to imagine the staying power of an idea that is mathematically ridiculous but here is the textbook case. Of course the real estate speculators were all excited about turning "empty" land into palaces of greed and envy, but let's not forget the "smart" money like teacher's pension funds that plowed rivers of cash into the idea that there cannot be too many malls.

So now the realization is finally dawning that there is at least 10x too much retail space (and that is even before Amazon eats everyone's lunch.) It it hardly beyond belief that a 2008-style bubble-crash in commercial real estate is virtually inevitable. We still have not figured out how to avoid these bubbles driven by mass stupidity. We are no better off than in 2008.

Sunday, April 9, 2017

Constitutional Foundation of the US Economy: Powers are Implied Not Enumerated

Almost every major advance of the US economy has been nurtured or facilitated at some point by the active involvement and encouragement of the national government. It's been a partnership—sometimes uneasy, sometimes close, but most definitely a partnership—between government and free enterprise, that has led the development of the US economy. This role of the national government was deliberately written into the Constitution, and touches directly on Constitutional issues that the left has ignored, but which the wrong-wing (conservatives and libertarians) have long waged a smear campaign against.

These issues go to the heart of the question: What is the role and purpose of government? They include such specific issues as the General Welfare clause, states rights, implied versus enumerated powers, and the reach and scope of the Commerce clause. Contrary to the idealized wrong-wing myth of the U.S. economy being founded on the principles of laissez-faire, the framers of the Constitution deliberately set out to create a central government strong enough to force the thirteen states into one national economy. To do this, the national government undertook a number of programs and policies to build and strengthen the national economy by encouraging and protecting manufactures and commerce, establishing a national banking system, and promoting and directly assisting the development of transportation.

The first Act of Congress established the administering of oaths of office for federal officials, but the second Act was the imposition of the Hamilton Tariff to protect domestic industry and raise revenue. In 1791, Congress chartered the First Bank of the United States. The Patent Office was created in 1802. Direct federal involvement in the building of transportation infrastructure included projects authorized under the 1807 Coast and Geodetic Survey, and other measures to improve river and harbor navigation, which were formalized and put on a more permanent footing by the 1824 Rivers and Harbors Act. Various Army expeditions to the west, beginning with Lewis and Clark's Corps of Discovery in 1804 and continuing into the 1870s, gathered and disseminated geographical and scientific knowledge that was crucial to opening the West to settlement (see for example, the careers of Major Stephen Harriman Long, Major General John C. Frémont, and Brigadier General Randolph B. Marcy). These expeditions were almost always under the direction of an officer from the Army Corps of Topographical Engineers, an organization that has been almost completely written out of American history, but which comprised the elite of U.S. Army officers. Pursuant to the General Survey Act of 1824, Army officers were assigned to assist or direct the surveying and construction of the early roads, railroads and canals -- whether they were private or state projects did not matter.

Our national government has also played a crucial role in the development of metal-cutting and metal-forming machine tools and mass mechanical assembly, which form the basis of modern industrial economies; the building of a trans-continental railroad system; the application of science to agriculture, and the mechanization of farming; improvements of steam propulsion for maritime transport; development of radio; creation of a nation-wide electricity power grid; creation of a national system of paved roads; development of aviation; development of frozen foods; development of electronics; creation of nuclear power; the creation of computers, and development of the internet.
It is no accident that our national government has played this role of nurturing and facilitating the development of the economy. Such a role was clearly the intent and desire of the Founders—contrary to all the wrong-wing lies about small government and free enterprise. This review of the creation of the Constitution shows that an activist role for government was clearly intended all along. The Republicans and conservatives (I prefer to call them the wrong-wing because so little of what they believe and proclaim about American history is correct) have a directly contrary view of this history.

Monday, April 3, 2017

More on fake news

Perhaps the most interesting story to emerge from the efforts to restore the Veblen farmhouse in Minnesota was the discovery that the Joseph Dorfman biography Thorstein Veblen and His America, long considered the definitive account of Veblen's life and scholarship, was very unreliable. The man who was paying for the restoration had promised, in writing, to the Minnesota Historical Society that he intended to use Dorfman's biography as the definitive word when it came to restoration decisions. But it soon became apparent that the spectacular house that Veblen's father had built on the edge of USA civilization with hand tools did not enhance the narrative that Dorfman was trying to sell. He wanted to Thorstein Veblen to have grown up in a log cabin among barely literate immigrants only to be rescued by the westward advance of Congregational educational institutes like Carleton College. So this monument of ingenuity became a log cabin in his telling.

Needless to say, calling this primo pioneer dwelling a log cabin did not provide much information on how to proceed with the repairs. Fortunately, Dorfman had sent out advance copies to some Veblen family members probably hoping for some sort of endorsement. Older brother Andrew was incensed at the portrayal of the Veblen's economic and social circumstances and wrote several pointed letters trying to get the account changed. Dorfman did NOT want to change his narrative because so much of his bio revolved around the idea that Veblen had miraculously emerged from an impoverished and primitive childhood. After several increasingly exasperated letters where Andrew described in detail the Minnesota farmhouse, he finally sent Dorfman pictures of the house and barn. Not surprisingly, when those letters and pictures were found in the Columbia library, they proved to be VERY helpful in making the restoration as authentic as possible.

But what of the Dorfman biography? The restoration seriously discredited it yet because it hangs around in university collections like so much toxic waste, serious scholars continue to be misled by it to this day. Dorfman was a full professor at Columbia so we  have a situation where someone in a position of trust has seriously poisoned the debate about early 20th-century political thought—mostly because he couldn't be bothered to get the story straight. Personally, I find the real story about Veblen's childhood development at least 100 times more interesting and informative than Dorfman's fairy tale. Dorfman built a comfortable career out of being the go-to expert on Veblen—that he couldn't be bothered to get it right is very troubling to me.

It is clear that fake news has consequences. The kind being retailed for premium prices in academe is especially harmful. It is utterly impossible to make progress or solve problems unless one has a crystal-clear understanding of what's happening. If you have been misled by an Ivy academic, you are really in trouble. You spent a great deal of money and effort to get bogus information so questioning it is especially difficult. Then you must unlearn that bad information in order to replace it with better information. It can take years just to get back to square zero.

Below John McMurtry has written a stunning indictment of fake news and its consequences. He actually believes the problem has become so serious it could even topple the USA empire. Think of it as the consequences of Dorfman's BS multiplied by, oh, a million.

Monday, March 27, 2017

Deaths of Despair

In what is perhaps the least surprising story of the last 40+ years has gotten a bit of traction. Apparently, people object to being thrown on the social scrap heap so much that after awhile, they just give up and do things that lead to their premature deaths. Meanwhile the economics profession actually has the temerity to congratulate themselves on successfully managing the economy and churn out reams of phony, misleading, and ultimately irrelevant statistics to support their claims. That's pretty much their job, after all—to keep the unhappy peasants from hanging the financial classes from the lampposts.

So now we have rising death statistics to refute the claim that everything is just fine out there. So the new answer is to somehow trivialize these stark realities. The essay below from Business Insider has its moments but mostly its an attempt to cover death-inducing hopelessness with some psychobabble and some quotes from Emile Durkheim (please!)

As for me, I always revert to the Institutionalist response to terminal hopelessness—PUT THESE PEOPLE TO WORK at decent jobs that have meaning and purpose. You know, like rebuilding the infrastructure to meet the specifications of a fire-free future. I also believe in the Instinct of Workmanship as described by Veblen and am still swayed by my Lutheran upbringing that taught work was a form of devotion. Regular readers cannot be surprised by any of this.

'Deaths of Despair' are more than a sign of neoliberal incompetence, it demonstrates these fools are also heartless and cold-blooded killers. The ONLY way they can possibly sleep is to comfort themselves with the rationalization that the dying are mostly victims of their failure to 'learn' the principles and 'virtues' of Leisure Class uselessness.

Sunday, March 26, 2017

Moore's law for sustainables?

It's WAY past time to get serious about climate change. Any serious effort will have as its primary goal, the elimination of fire. It's more complicated than that, of course, but in theoretical terms, not much. The real complications will come from trying to implement that strategy.

The worst possible policymaking error was in play when drafting the Paris agreements of 2015. Problem ONE was setting the emission reduction targets for 2050. In most minds, a goal 35 years away says there is plenty of time to organize the project and do it right. This is nuts, of course. We took roughly 6-10,000 years to build and perfect the fire-based civilizations we live in and so we have less than 1/200th the time to replace global energy structure. NO! There is NOT a lot of time for goofing off.

In this piece from Deutsche Welle, a new policymaking framework is being proposed that if nothing else, would at least pump some urgency into the matter. As we know, arguing from analogy is usually a hazardous venture, but here we have some serious thinkers arguing that we should address this HUGE problem by trying to replicate Moore's "Law" with sustainable infrastructure. While this may sound a little pie-in-the-sky it actually makes a great deal of sense. After all, the same innovation path that gave us cheap flat-screen TVs is behind those incredibly cheap solar panels.

The folks who argue that the computer industry set the example for best practices when it comes to innovation certainly have a point.

Wednesday, March 22, 2017

Trump as a Fascist?

Historical illiteracy is so common here in USA that it is usually a good idea to just react like the Animal House brothers who listened as Bluto ranted, "Was it over when the Germans bombed Pearl Harbor?" Otter turns to Boon and asks incredulously, "Germans?" Boon's response was, "Forget it, he's rolling." And mostly I can do just that. I usually only get wound up for two subjects—the misuse of the word Populism and any thoroughly ridiculous statement about WW II and the German role in making it happen.

Lately I have gotten increasingly upset by the careless comparisons lefties are drawing between Trump and Hitler. Now President Trump has a multitude of flaws but Hitler he most certainly is not. For example, from the time Hitler assumed power on 30 JAN 1933 and the opening of the Dachau concentration camp on 22 MAR 1933 was only 51 days. My guess is that the Donald will not have a full cabinet 51 days into his administration. The Nazis were highly organized and had a wide-ranging political philosophy. Where's Trump's Mein Kampf? Where is his political experience? Where is his war-hero record? Where are his willing-to-die followers?

Calling Trump the next Hitler is just plain idiotic. I wish folks would stop it because it is not at all helpful.

Monday, March 20, 2017

The Limitations of Marginal Utility

Marginal Utility is an economic idea that unfortunately refuses to die—mostly because it does have some narrow applications where the theory works.

According to wikipedia, marginal utility is defined as:
In economics, utility is the satisfaction or benefit derived by consuming a product, thus the marginal utility of a good or service is the change in the utility from increase or decrease in the consumption of that good or service. Economists sometimes speak of a law of diminishing marginal utility, meaning that the first unit of consumption of a good or service yields more utility than the second and subsequent units, with a continuing reduction for greater amounts. Therefore, the fall in marginal utility as consumption increases is known as diminishing marginal utility.
The problem isn't that marginal utility has no useful applications, it's that there are those who believe the concept of marginal utility can be applied to everything from labor relations to romantic decisions. The first of the economists who believed that was, arguably, an academic named John Bates Clark. He became a favorite of the Gilded Age rich for these teachings. In 1947, they began to award an economic prize named for him.
The John Bates Clark Medal is awarded by the American Economic Association to "that American economist under the age of forty who is adjudged to have made a significant contribution to economic thought and knowledge".[1] According to The Chronicle of Higher Education, it "is widely regarded as one of the field’s most prestigious awards, perhaps second only to the Nobel Memorial Prize in Economic Sciences."[2] The award was made biennially until 2007, but is being awarded every year from 2009 because many deserving went unawarded.  Named after the American economist John Bates Clark (1847–1938), it is considered one of the two most prestigious awards in the field of economics, along with the Nobel Prize.
A glance at the list of winners shows that not surprisingly most of them were conservative / reactionary when they won. Clark himself was a known reactionary so why not? A couple, like Joseph Stiglitz and Paul Krugman have now evolved into something a bit more progressive and interesting but were doctrinaire neoliberals when they won in 1979 and 1991.

But there was one student of Clark who was appalled with his blatant misuse of marginal utility—Thorstein Veblen. Clark taught Veblen economics at Carleton College—so of course, Veblen decided to spend a lot of his intellectual horsepower attacking the problem of Clark and his really absurd ideas about marginal utility. Below is his most famous effort.

Clark and Veblen were said to have professionally cordial interactions throughout life but as you can see, Veblen thought him completely wrong. And the reason this is interesting is that Veblen was right about this. Even more interesting, the touch of spectacular error seem to fall on those who are awarded the Clark Medal—something to keep in mind when it becomes obvious that while a Krugman can occasionally sound quite progressive, deep down he is the neoliberal swine the folks at Clark Medal so highly prized.

The Limitations of Marginal Utility

Thorstein Veblen
Journal of Political Economy, volume 17. 1909

The limitations of the marginal-utility economics are sharp and characteristic. It is from first to last a doctrine of value, and in point of form and method it is a theory of valuation. The whole system, therefore, lies within the theoretical field of distribution, and it has but a secondary bearing on any other economic phenomena than those of distribution -- the term being taken in its accepted sense of pecuniary distribution, or distribution in point of ownership. Now and again an attempt is made to extend the use of the principle of marginal utility beyond this range, so as to apply it to questions of production, but hitherto without sensible effect, and necessarily so. The most ingenious and the most promising of such attempts have been those of Mr. Clark, whose work marks the extreme range of endeavor and the extreme degree of success in so seeking to turn a postulate of distribution to account for a theory of production. But the outcome has been a doctrine of the production of values, and value, in Mr. Clark's as in other utility systems, is a matter of valuation; which throws the whole excursion back into the field of distribution. Similarly, as regards attempts to make use of this principle in an analysis of the phenomena of consumption, the best results arrived at are some formulation of the pecuniary distribution of consumption goods.

Within this limited range marginal utility theory is of a wholly statical character. It offers no theory of a movement of any kind, being occupied with the adjustment of values to a given situation. Of this, again, no more convincing illustration need be had than is afforded by the work of Mr. Clark, which is not excelled in point of earnestness, perseverance, or insight. For all their use of the term "dynamic", neither Mr. Clark nor any of his associates in this line of research have yet contributed anything at all appreciable to a theory of genesis, growth, sequence, change, process, or the like, in economic life. They have had something to say as to the bearing which given economic changes, accepted as premises, may have on economic valuation, and so on distribution; but as to the causes of change or the unfolding sequence of the phenomena of economic life they have had nothing to say hitherto; nor can they, since their theory is not drawn in causal terms but in terms of teleology.

Thursday, March 16, 2017

Better than the Li-Ion Battery?

Recently I tried to write a small survival guide for finding the good stuff on the internet. I called it Epistemology in the age of "fake news." Considering I spent most of my adult life composing that little essay, that was a remarkably lame title—I tend to forget that epistemology is not everyone's pet idea and to combine that with a trendy notion like "fake news" means that I am open to any better suggestions.

But the idea of fact-bricks is sound and I just found a pretty good example of how they can be used to evaluate a news story like the one below. Essentially the news is that one of the co-inventors of the lithium-ion battery has discovered (invented) a major improvement. The new battery will replace the li-ion's liquid / gel electrolyte with glass—which would be a major improvement in safety. Lithium would be replaced with sodium which is almost infinitely cheaper and easier to access.

Cheaper? safer? Wait there's more! The new batteries supposedly will charge much faster and be three times as energy dense. This means a car with a 200 mile range with Li-ion would have a 600 mile range with a similar-sized pack of the new batteries. This last claim is the most significant and also the one that triggered my BS sensors.

Here are the relevant fact-bricks as I see them.
  1. Historically, batteries have gotten better in small steps. A 300% improvement is an enormous leap. Show me. The producer class is about demonstration.
  2. 94 year-old guys tend to be well past their significant accomplishments in life.
  3. What works in theory or even in a lab is difficult to translate into a mass-produced consumer device. And even those products that make the leap take significant time to work out the kinks—17 years for the fluorescent bulb, for example.
On the plus side.
  1. This is an example of evolutionary improvement. Basically the only kind there is.
  2. It IS possible that someone who has devoted his life-energy to a subject just might have a final creative burst in his chosen field—even at 94.
  3. Storage is the key to making solar energy useful. If the funding is there, commercialization of this technology could happen in a much shorter time-frame than usual.
My conclusion: I will withhold judgment on the validity of the basic idea but because the chemistry is possible I will continue to follow the story. I don't expect to see these batteries for sale at Costco or Home Depot in less than five years even if everything goes right.

Monday, March 13, 2017

Mark Ames explains US / Russia relations

Around 1993, I met an interesting old codger who was living with his wife in a old converted one-room schoolhouse. Almost immediately he got on my good side by expressing his belief that the Vietnam War had been a vicious con on USA's young men. Not long after that, I discovered that in his younger days of employment, he had been a professor of Russian / USSR studies. Russian history is a favorite hobby but living in the middle of the North American continent, I don't meet many people who know anything about the subject. I was quite excited.

Soon the thrill of exchanging ideas was replaced by the disappointing realization that he thought USSR's conversion to "democracy" was going swimmingly, that Boris Yeltsin was a brave patriot who was doing everything in his power to prevent Russia from sliding back into Communism, and that reports of corruption could be easily dismissed as the growing pains of the new order. The fact that USA flew in 88 yo heart surgeon Dr. Michael DeBakey to manage Yeltsin's heart treatment was simply a sign of our willingness to help. About this time someone told me not to be shocked because virtually all Russian Studies profs in USA have significant links to CIA. I have NO idea if this is true in this case but he was pretty steadfast in defending that party line. We lost touch shortly thereafter.

Of course, none of his beliefs about Russia were remotely true. The neoliberals from Harvard who landed the fat contract to re-engineer the USSR were so corrupt that eventually they lost the contract and some were charged with corruption by the Justice Department. Jeffrey Sachs, the wünderkind who had caused major disasters in Bolivia and Poland led their charge. The most serious results of this economics of Predation was that average male life expectancy dropped from 64 to 57 between 1990 and 1994.

Mark Ames, who was living in Moscow during this chaos, relates the story of what happened in the video below. The numbers of those in the USA who know this story is essentially zero. And yet, since the outcome was the rise to power of Vladimir Putin—the current public enemy #1—this is NOT a trivial story. It is also a story that virtually every Russian knows in great detail.