Energy at home, energy abroad: disaster
Pres. Barack Obama’s war on fossil fuels is adding to world instability already wracked by international debt, demographic bulges and largely unpredictable galloping technology.
Domestic implications of his policies are increasingly apparent: the closing in of prospecting and drilling is costing tens, perhaps hundreds of thousand of jobs. The attempt to choose winners and losers through “green energy” subsidies is producing market distortions, huge losses of taxpayers’ funds and corruption rarely seen since the old Soviet Union’s Gosplan. Using executive fiat for arbitrary environmental rulings after Mr. Obama’s “cap and trade” quietly died in Congress is eroding Constitutional government by creating “precedent” for defying public opinion as expressed through the legislative process.
On the world scene, the impact is equally grim, although as always with intricate politico-economic problems, difficult to quantify.
It is a given, of course, that world energy is, as the economists say, an imperfect market. It runs the gamut: Pres. Hugo Chavez gives 100,000 bbl/da to his ideological buddy Fidel Castro to keep Havana lights on from Venezuela production, a principal source of American imports. Hand-me-down restrictive policies, a heritage of the Carter Administration’s misbegotten Department of Energy and its first head, James R. Schlesinger, dogs natural gas. Cartelization of the industry despite all the legislation and litigation since the Supreme Court broke up John D. Rocekefeller’s Standard Oil in 1911 continues to inhibit competition with the Organization of Petroleum Exporting Countries [OPEC] trying to set production quotas to control prices.
Yet, by and large, world energy is fungible – that is, production, stocks and therefore prices in one region impacts the worldwide market. After becoming a net importer in 1970, then doubling imports since the mid-80s to 50% of total consumption in 2010, the U.S. as world’s No. 1 consumer [and a producer of 25% of the world’s liquid gold] is decisive in establishing price, stocks and supply in other markets.
By impeding U.S. production through its refusal to lift controls, dragging out decisions or initiating or threatening to initiate new controls, the Obama Administration helps put a floor under world prices. That’s despite their erosion by a fall in consumption impacted by the worldwide economic recession, a very “leaky” OPEC struggling to control its 40% of world production, and production in the Persian Gulf for some grades a fraction of costs in North America. At a time of growing worldwide economic stagnation, despite the argument the real price of oil is skewed by a depreciating petrodollar in which most of it is traded, cheap oil remains as it has always been the sine qua non of American prosperity – and probably for world recovery.
Higher prices gorge feudal satrapies with their small backward populations in the Persian Gulf, unable to absorb and efficiently utilize capital. Worse, they indirectly finance world terrorists wherever they may be. For example, Saudi subsidies to mosques and community activities in the U.S. and the West as well as in the rest of the Muslim world carry with them Wahhabbi sect preachers insinuating sharia [pre-modern Islamic law] into Western legal codes, advocating armed jihad against “:infidels” and even fellow dissident Muslim sects or reformers.
Higher prices produce a petroleum bonanza for the increasingly authoritarian and corrupt Russian regime permitting it to avoid basic post-Soviet reforms. They give Moscow’s inefficient producers increasing international political leverage through gas sales to Germany and other Western countries. They reinforce the Putin regime’s efforts to reestablish Soviet hegemony over Ukraine and Central Asia and Moscow’s hope to intervene in a post-U.S. withdrawal Afghanistan.
Higher prices for its meager oil exports has propped up – along with Obama Administration appeasement – the bloody al-Assad dictatorship at war with its own Syrian people.
Not only has the natural gas snafu produced a temporary domestic surplus –with new technology pointing toward vast new production but it prevents potential liquefied natural gas [LNG] exports to high priced markets such as East Asia. U.S. sales to South Korea, for example, would block a proposed Moscow-Seoul gas project whose transit fees through North Korea would bolster the bankrupt, peace-threatening regime in Pyongyang.
Much of this, again, is the Obama Administration’s heritage. But its pandering to environmentalistas within its ranks has exacerbated old problems and invented new ones. With most of the President’s foreign policy initiatives in shambles, the external manifestations of his energy policy could be the straw that breaks the camel’s back.
The Great American Heresy
More than a hundred years ago, the brilliant philosopher and father of modern psychology, William James, warned his American compatriots against “scientism”. James saw an increasing tendency to extend the then budding scientific method of controlled experiments in the physical sciences into intractable social and political problems. He warned it would not work, perhaps as much based on his psychological understanding as his philosophical logic, that is, as the old saying goes, people will be people.
Not too many listened to James then — or since. The old logical fault has taken on new vast proportions since the invention of the computer and the incredible ability to accumulate virtually limitless numbers as well as “soft” information. Now the digital revolution has given us the capacity for virtually unlimited mathematical calculations. Listen to that fountain of politically correct wisdom, National People’s Radio, almost any morning or afternoon, and you will hear another long dissertation on some social or political issue, usually foisted on us by the tenuratti, backed up by voluminous, if often irrelevant, statistics.
Nowhere has the disease taken root more than in the business schools, pickled there by management experts, often practitioners of what has been termed “the dismal science” but more accurately, the pseudoscience. A few years ago, I was flattered to be asked to “lecture” a class at the prestigious University of Virginia business school. A professor had somehow learned I had written a popular [not so popular as I would have wished] biography of Soichiro Honda, the Japanese investor and industrialist.
I sat in on the tailend of the professor’s presentation of Honda as “a case study”. I was worried the gentleman might fall off the edge of his lecture platform when, spelling out Honda’s success, writing an algebraic [?] formula across the blackboard, he began to run out of space. Luckily, he left the room after introducing me. I picked up the monologue, telling my young audience I would possibly be going off on a different tangent since I had written an anecdotal book. There were, I must say, a few knowing smirks, indicating I had underestimated the students if not the professors, in their search for networks of future acquaintanceship in these courses rather than “learning” in the classical sense.
I had had considerable exposure to the company and, luckily, despite corporate antagonism toward my project, through a shinseki [a “relative”, the nakahodo, the “in- between-person” who had arranged the marriage of Honda’s eldest son], direct exchanges with Honda, himself. I found Honda a mechanical genius, but no businessman. The evidence was how repeatedly the company had almost bankrupted when he went chasing sometimes valuable, sometimes moonbeam, inventions. [Honda, for example, was virtually the only automobile company to attempt its own automatic gear transmission, later to be abandoned.]
At a certain point in time, as the lawyers say, MITI [Ministry of International Trade and Industry], the all powerful Japanese bureaucracy then overseeing Japan, Inc., intervened. It anointed a production line genius from the wartime Hayakawa aircraft to take over Honda’s “business side”. The rest, as they say, is history. The gentleman in question was an eccentric; e.g., a devoted Wagner fan he annually took a troop of young men to the Bayreuth Festival. But sitting through several drunken evenings in his little gazebo in a palatial house garden hidden away in Tokyo’s Akasakimits’kei neighborhood, I learned many Honda “proprietary” secrets. [I have been amused to see him quoted extensively in more recent books on Honda; he died shortly after our meetings. But then Ouija boards are a common utility in the book writing profession.]
All this was recalled when The Financial Times recently warned of new problems despite all the huffing and puffing over Dodd-Frank , the latest attempted reform of Wall Street by two legislators too associated with political corruption. The FT said “xxx the vast $6,000 billion over-the-counter derivatives market risks being undermined by potential ‘data caps’. xxx” Hmmm. A good, old and close friend, despite being an economics professor but luckily not in a business school, tells me: “”xxx These models tend to ‘work’ until there is some kind of structural shift. xxx” English? These models tend to work until they don’t work.” Hmmm.
Dr. James, here we go: 2007-08 here we come [again]!
The dust has far from settled on the Washington stalemate over setting a new debt limit. As Thomas Sowell pointed out, so logically, were an increase in the debt ceiling only “routine”, held up by pesky Congressional Tea Partiers, as the spenders charged, then what would be the purpose of having a ceiling at all? But while an indecorous debate encapsulated the larger ideological divide, America rapidly moves on, remorselessly, to threatening politico-economic issues cascading in from Europe and Asia as well as at home.
Ironically the current world crisis proved one thing: a continuing overwhelming faith in America’s importance, whether economically or culturally. Proof is “the flight to quality” by investors worldwide into the American Republic’s indebtedness as witness all-time record low interest in U.S. Treasuries auctions. Prime Minister David Cameron’s turn to American police [overcoming the usual our British Greek to your American Roman prejudices] in the face of chaotic English urban rioting is another indicator. But disquieting news from Libya approaching indecisive civil war and tragic events in Afghanistan where withdrawal leaves a highly vulnerable Pakistan indicate just how wanting is continued Obama Administration “leading from behind”.
US economic amelioration and patching up its world role would require extraordinary statesmanship. And as many observers, Pres. Harry Truman for one, have judged, the Constitution and history has made the presidency a very strong executive, and it sometimes matters less what he decides but that he act. “The buck stops here”, Mr. Truman’s pithy saying, remains a call for presidential courage on Pres. Barack Obama.
Here’s the kind of action that might result were that summons answered:
- Send Michelle and the kids off to Martha’s Vineyard while making a seminal Oval Office Labor Day speech on economic affairs. The spin might be: while holding to fundamental beliefs for a new era of economic justice, pragmatism demands that agenda be put on hold to meet the deepening emergency replaced by a program of cooperation with business to produce jobs immediately.
- Ask the Congress to skip vacation and reconvene in special session, if needs be three days a week, to consider economic-political measures necessitating legislative action, or simply as a forum to vent the public’s criticism.
- Call for a summit at the highest level with our allies in Europe and Japan on the world economy — including the simultaneous attendance of all central bankers –to discuss coordinating economic strategies and tactics.
- Begin weekly meetings in closed session with a group of recognized private sector leaders to brainstorm recovery strategies and tactics.
- Call for an immediate minimum two-year extension of the Bush tax cuts, ask Congress immediately to cut capital gains to zero, and begin the examination of longer term tax alternatives including a flat tax.
- Propose a tax reform commission of experts modeled after the Defense Base Closure and Realignment Commission to suggest immediate incremental incentives for small businesses – the fountainhead of jobs.
- Lift all administrative restrictions on discovery and production of fossil fuels, especially in the Gulf and Alaska and Virginia, creating perhaps a quarter of a million jobs immediately.
- Use the extensive administrative powers written into Obamacare to suspend any implementation for at least five years and suggest its review by a body of medical, insurance and regulatory technocrats to be presented to the Congress before November 2012.
- Ask Congress for a one-time tax remission for multinationals to encourage repatriation of an estimated $2.5 trillion in profits held overseas, on condition 25% be invested immediately in an infrastructure fund [highways, bridges, airport, rail reconstruction, etc.], a private sector Reconstruction Finance Corporation administered by those companies in collaboration with local governments.
And then sit back and see the American economy take off!
Alas! I fear we have as much hope for such a program, either thematically or in its specifics, as the proverbial snowball in the nether regions. Hangers-on, leftwing Democrats and the kept mainstream media will continue to hope for victory in next year’s elections, clinging to an agenda designed to enthuse the President’s “politically correct” base, demonize his opponents and flimflam independents by pretending a position of compromise.
Unfortunately, it looks like that indomitable American economy with its incredible history of jobs creation will have to continue to tread water – as it will manfully — against a Washington tide.
Class warfare using the price of gas
The numbers click upward rapidly at the pump. That’s why, as the 2012 presidential campaign issues emerge, gasoline prices competes with missing jobs and limping Obamacare. [With more and more waivers given White House friends, “universal medical coverage” may go the way of “change”.]
But Mr. Obama has decided most of the people can be fooled most of the time.
Instead of “pivoting” on his disastrous energy policies, the President called an Ides of March press conference to boast of booming domestic crude production. In fact, from 10 million barrels a day it’s at seven going toward six.
With worldwide consumption rising despite still bleeding wounds of the 2007-08 financial crisis, supply has maxed out. Our friends, the Saudis, promise more production. But nobody has seen it yet. [Payback for Mr. Obama ignoring their advice on Mubarak and Bahrein?] Anyway there would be quality and delivery complications.
Truth be told, most experts privately admit the convoluted energy muddle defies immediate solution.
True, we are nowhere near “petroleum peak” – that long prophesied moment when unstoppable infinite energy demand meets immovable finite fossil fuel supply. Recent deepwater drilling has turned up humongous new fuel. A good example is Brazil’s South Atlantic finds we are helping to finance as Mr. Obama proudly acknowledged during his recent visit. Then there’s vast North American shale. The Israelis have learned to crack it underground avoiding environmental constraints much like our “no hands” eastern Kentucky pilot underground coal gasification.
But regulations – which Mr. Obama intensified after the Gulf spill – have throttled U.S. production. [Curiously, soon there will be Chinese pumping off Castro’s Cuba near Florida beaches!] The Obamaites also did inherit local environmentalistas’restrictions. [Note: there’s more seepage in California’s Santa Barbara channel than from drilling!]
Reality stubbornly intrudes. Cheap energy has been hallmark of America’s incredible jobs creation for over a century. But Mr. Obama’s self-righteous ideologues want this reversed. It’s never easy to get into others’ minds, certainly not the elite dominating this Administration. But their “green” religion envisages an early end to fossil fuels, vast government subsidies to speed their demise, and higher prices [including more taxes] to help push us toward unproved, expensive alternatives.
High priest of this man-made global warming gospel is John Podesta, Pres. Clinton’s chief of staff. His Center for American Progress provides a hallelujah chorus for their ally, Sec. of Energy Steven Chu. Nobel physicist Chu has a messianic solution: growing and trading tropical glucose as a petroleum substitute, the very stuff of science — science fiction, that is. Nor do these fanatics tell us where costly funding for preserving the environment is to come if not increasing energy market efficiencies. Nowhere in this crew is anyone who ever produced a single BTU except gassing before captive audiences. Furthermore, as in the Gulf disaster, they are as deaf to pragmatic arguments as the muezzin calling to prayer over the cacophony of Cairo traffic.
Honest oil industry people admit not much can be done immediately given growing Mideast instability with its 40% of world production. Even cutoff of Libya’s 2%, while appearing small, hits European refiners supplying New England and Middle Atlantic pumps. Suspending ethanol mandates now, catastrophically exacerbating a world food crisis at taxpayer’s expense, would only make things worse by reducing volume.
But vast amounts of Fed Chairman Ben Bernanke’s “quantitative easing” flows into soaring commodities including oil. Investors have shied away from long-term investment, again because of Administration generated uncertainties about financial regulation, taxes — and energy.
Were the President to take one of his increasing flipflops – messy and inconclusive as they are – and pull out all stops for domestic fossil fuel and electricity production [a hundred plant proposals sitting on the shelf!], prices would not collapse. But jawboning could erode crude prices, so often loaded with surprises in the past. And it would create jobs!
But alas! Pres. Obama has chosen class warfare, so beloved of his leftwing base, over reconciliation with industry. With the help of innocent populists – such as Bill O’Reilly – he will blame it all on the oil companies and their huge profits. That, his gurus plot, is a winner for November 2012 – if not at the gaspump.
Keynes, Keynesianism — and Keynesianitis
Keynes, Keynesianism — and Keynesianitis
By William T Alpert and Sol W Sanders
Few would dispute the claim that John Maynard Milord Keynes was a genius.
He was one of a long line of British writers on the political economy, who revolutionized the sport. He was brilliant if sometimes torturous in seeking to explain the riddle of human economic life. Like his British [mainly Scots] forbears, and like their offspring on the Continent who continued the tradition after it had died in Britain, he was a savant of political, repeat, political economy. For they understood as successive generations of practitioners of “the dismal science” often have not, that it is not a science. They also knew that those who use statistics and, may the Lord help us, the new digital revolution, to build their “constructs”, not only to examine but to predict human behavior, will usually fail. Keynes, certainly, understood the “political” part of political economy well before James Buchanan received his Nobel Prize in public choice theory for its “discovery.”
Torturous? Well, at least more than a bit Machiavellian. He rather quickly left his Cambridge colleagues behind, including a homosexual lifestyle, when he ventured into the world. He had minimum truck with the leaders of the chattering classes of his time, the inbred Bloomsbury Set, and even less with the Fabian Society. The latter, of course, thought they had found the ultimate formula for a several hundred years search in utopian, Christian, anarcho, syndicalist, Marxian and other European socialisms. But unhappily, they were completely derailed by the Soviet heresy. For example, H.G. Wells would write a pamphlet not only endorsing but calling Stalin “beloved” on the eve of the Moscow Trials.
Torturous, too, if you are a layman and have tried to struggle through his General Theory of Employment, Interest and Money, generally acknowledged as his magnum opus or through an incredible array of writing — some of it surprisingly good. See for example his The Economic Consequences of the Peace, in which he predicts the disastrous outcome of the Treaty of Versailles.
Machiavellian? Keynes not only put his stamp on the academic world and excelled in the vicious infighting of government bureaucracy but he made a fortune gambling in commodities. A fund he set up for his Cambridge alma mater despite taking a massive hit during the Stock Market Crash of 1929, produced an average increase of 13.2% compared with the general market in the United Kingdom declining by an average 0.5% per annum until 1945.
His contempt for many if not most of his bureaucratic contemporaries was monumental. After the Bretton Woods agreements were signed, the attempt to reset the world’s economies after World War II over which he presided, he snidely told one of his gophers: “The clerks have got it wrong again. The Bank [International Bank for Reconstruction and Development, latterly to be called The World Bank] should have been called ‘fund’, and the Fund [International Monetary Fund] should have been called ‘bank’.”
In his own way, Keynes could be called the father of Europe’s post-World War II miraculous reconstruction. This time his proposal that modest reparations should be sought, that all the powers should unite in rebuilding and with American credits under the Marshall Plan was accepted. They had been rejected when as a young rising star in the British Treasury he had proposed them as early as 1915 and at the Versailles Conference. But Keynes, alas, was not by any means always right!
“The day is not far off”, he wrote, “when the economic problem will take the back seat where it belongs, and the arena of the heart and the head will be occupied or reoccupied, by our real problems/the problems of life and of human relations, of creation and behavior and religion.”
In 2010 we are still waiting.
His reputation, however, has become omnipresent – – spreading even to his self-acknowledged opponents. In 1999, Pres. Richard M. Nixon, having thrown his own primitive economic prejudices to the winds and instituted disastrous wage and price controls, said, “We are all Keynesians now”. But however politically wily domestically or brilliant at international strategy, it’s unlikely that Nixon knew much about what Keynes had in fact argued.
Things haven’t changed. A Greek chorus of the kind of economists who believe econometric models can predict social and political events is once again invoking the Old Boy’s name to bless profligacy.
It is true that Keynes was an interventionist, that he believed government had a role and should employ it, to curb and limit the business cycles which have dominated modern economic life since The Industrial Revolution began with the advent of capitalism — and perhaps before. But Keynes set strict limits on how governments might borrow and toss capital into the machinery to get it up and going again.
Keynes did believe in something he called “socialized investment”, that is public funds/borrowing that had to be made for the general good beyond the normal functioning of the capitalist system. And, if not lick the business cycle, to at least ameliorate it.
He wanted to set up separate budgets — for current accounts and for longer term capital projects which might require government assistance if not sponsorship. That’s something, by the way, that most corporations do today but which the Congress, which so far hasn’t produced this year’s budget. has never undertaken for one of the largest commercial enterprises in the world, the U.S. government.
But he neither believed in general funding of an amorphous public debt through public borrowing and spending, nor of using the tax tables to work out solutions to social problems.
For a man who could twist the English language until it screamed for mercy, he actually made this point very clearly:
The more socialised we become, the more important it is to associate as closely as possible the cost of particular services with the sources out of which they are provided even when a grant-in-aid is also required from general taxes. This is the only way by which to preserve sound accounting, to measure efficiency, to maintain economy and to keep the public properly aware of what things cost. [CW, vol. XXVII,p p. 224-225] As early as 1931 [although it was hardly early for the British who already had endured a painful decade of restoration of the pound to its pre-war status,], Keynes, in a radio address, said:
“[At] the present time, all Governments have large deficits. For government, borrowing of one kind or another is nature’s remedy… for preventing business loses from being, in so severe a slump as the present one, so great as to bring production altogether to a standstill. It is much better in every way that the borrowing should be for the purpose of financing capital works, if these works are of any use at all than for the purpose of paying doles [or veterans’ bonuses]. But, so long as the slump lasts on the present scale, this is the only effective choice for the one purpose or the other [or a diminished Sinking Fund, which has the same effect] is practically inevitable For this is the case, fortunately perhaps, where the weakness of human nature will, we can be sure, come to the rescue of human wrong-headedness.”
“… My own policy for the Budget, so long as the slump lasts, would be to suspend the Sinking Fund, to continue to borrow for the Unemployment-Fund, and to impose a Revenue Tariff. [Author’s note: Few recognize that his The General Theory was written with the assumption of an economy closed to foreign trade – – unlike our own today, but that is the subject for another time.] To get us out of the slump we must look to quite other expedients. When the slump is over, when the demands of private enterprise for new capital have recovered to normal and employment is good and the yield of taxation is increasing, then is the time to restore the Sinking fund and to look critically at the less productive state enterprises.” [Essays in Persuasion, Norton 1963, pp. 161 and 162]
Perhaps even more to the point:
“I should aim at having a surplus on the ordinary Budget, . . . thus gradually replacing dead-weight debt by productive or semi-productive debt. . . . I should not aim at attempting to compensate cyclical fluctuations by means of the ordinary Budget.” The collected writings of John Maynard Keynes, 1971 by Macmillan, St. Martin’s Press, for the Royal Economic Society in [London], [New York] vol. 27 pp 277 – 278.
Maybe Keynes wouldn’t have been a Tea Party-er. But there is little doubt that his mind and heart would not have been with the Dodd-Frank-Geithner spend-until-we- recover crowd who have taken his name in vain. Pres. Barack Hussein Obama’s stalwarts may think they know what they are doing, throwing “stimulus” about – – mostly in the form of supporting and expanding government through national and regional public sector employment. But their claim that it is all following the philosophy of one of the last of the great political economists [rather than today’s econometricians pretending they are] is false.
His ghost must be screaming about the downs at Tilton in Sussex where his ashes were scattered in 1946.
William T. Alpert, Associate Professor of Economics University of Connecticut is co-founding managing partner of FIDES, Philanthropic Management and Advisory Services, LLC. Formally, Senior Program Officer of the William H. Donner Foundation, he publishes in labor economics. He is Executive Director of the Connecticut Council on Economic Education and Director of the Center for Economic Education at the University. He serves on several not-for-profit boards of directors. Alpert previously taught at Lehigh University (1981-83), Washington University, St. Louis, (1977-81), and Columbia University (1973-77). Alpert earned his Ph.D. M. Phil. and MA degrees (Economics) Columbia University and AB from Lehigh University.
Sol W. Sanders A 60+-year career in writing and political analysis for a wide variety of media and corporate entities, currently columnist THE WASHINGTON TIMES [“Follow the money $£ € ¥ “], website http://www.yeoldecrabb.wordpress.com Author: A SENSE OF ASIA, HONDA: THE MAN AND HIS MACHINES, MEXICO: CHAOS ON OUR DOORSTEP, THE COSTA RICAN LABORATORY, LIVING OFF THE WEST: GORBACHEV’S SECRET AGENDA AND WHY IT WILL FAIL, A MEDIA GUIDE TO THE CANADIAN CRISIS, THE U.S. ROLE IN THE ASIAN CENTURY, [Ed.], TV documentary “The Silent Invasion” (illegal immigration), MITSUBISHI ELECTRIC: THE CHALLENGE OF GLOBALIZATION,executive editor, GLOBAL AFFAIRS, over the decades op‑ed articles in THE WALL ST. JOURNAL, THE CHRISTIAN SCIENCE MONITOR, THE STRATEGIC REVIEW, ASIAN AFFAIRS, THE NEW LEADER, CONFLICT, SURVEY.
I am looking for a bookmaker: I want to place a big bet against Pres. Barack Hussein Obama’s war on the American economy. It’s a calculation from a worm’s eye view, of course — recent personal experiences and tidbits picked hither and yon. But they do have macroeconomic implications.
Truthfully, I am not really a betting man. [I don’t like to lose.] But were I to plunk down this one, the odds would be long. Given the power of the presidency, the possibility Mr. Obama might get a second term – removing all restraints on his ideology – you see the problem of setting the live price.
There isn’t time and space to argue Mr. Obama’s intentions. In any case, one rarely divines those. But it is harder and harder to counter accusations of a great leftwing conspiracy to wreck the Republic’s fantastic economy, one which has given its people more than any regime in history. The President’s economic warfare speaks even louder than his denunciation of American exceptionalism. Whether it is medical arts, energy or financial regulation, Obama economic policy is a big demolition derby.
• Energy With the Mideast and its huge fossil fuel resources near turmoil, the Administration blocks domestic industry’s ability to pick up on offshore deepwater drilling – even when ordered by the courts. The President’s disingenuous press conference statement notwithstanding, regulatory agencies defy Congressional and public opinion adding new impediments to utilizing fossil fuels including new coal technologies, our greatest energy asset. Crippling gasoline prices dooming job recovery will not be talked down by the President, but lowered only by full-fledged operating markets exploiting America’s abundant resources.
• Deficits, regulation and taxes Blithely charging ahead with new “programs” – for example, adding more retraining to the uncoordinated 16 existing programs– the President’s spending cutbacks are miniscule. Another trillion and half dollar deficit is “routine”. Hamstringing a chagrined and immobilized Wall St. at a time when its competitors in London’s City watch HKSBC retreat back to Hong Kong, the White House shirks leadership except to pamper companies exporting technology and jobs to China. Those major miscreants, Fannie Mae and Freddie Mac, are not spanked much less defanged. Surreptitiously supporting “special interests” – including bloated government unions in Wisconsin and other swing states – highlight Administration efforts to cast budget-cutters as Simon Legree.
• Social welfare net Having rammed through a mishmash labeled “comprehensive” restructuring of our ailing medical arts, a sixth of the economy, the Administration is adding insult to injury by waiving protocols in order to buy off selected companies and the medical bureaucracies. [It’s probably unconstitutional but then Attorney General Eric H. Holder, Jr. picks and chooses what laws he will enforce.] Betting pork – insurance coverage for children up to 25 on Poppa’s chit, indeed! – will buy off the electorate, the Administration looks to a 2012 victory with Obamacare’s real bill arriving in 2014.
So? If it looks that bad, why my optimism about the end result?
First off, I am growing my own tomatoes this year. Enough already of those red plastics! I’ve been around to my local farmers’ supply store. And I am flabbergasted. In two decades since last I looked, dozens of new products for fellow amateurs obviously reflect revolutionary agroindustrial research and applications. No wonder American agricultural productivity just doesn’t stop. No wonder warnings about individual crop failures often are premature, sometimes turning into lower prices as they did a season or so back for oranges. This is a country with one big green thumb – and not the one the Obama Administration’s elitist Sierra Club sucks on – reflecting a scientific spirit that will not be squelched.
Then there’s “energy”. There’s little doubt Mr. Obama’s legacy will include new abandoned windfarms from Hawaii to California to New England joining those willed us by the misbegotten effort to thwart the markets under the Carter Administration’s first energy “tsar”, Jim Schlesinger. Yes, subsidies are financing Chinese exports to the U.S. from runaway American windmill manufacturers. But the truth is our proved fossil fuel reserves are growing. “Petroleum peak moment” hysteria may tickle the fancy of academic enviromentalistas. But cold, hard cash – including investments from the Chinese! – will inevitably produce a flood of new LNG/LPG shale oil. The fact installations are on a switch, export or import, tells you more than the media about the industry. And just how long does 1600 Pennsylvania believe the public will wait for “drill, baby, drill” if gas goes to $5?
Oh yes, and then there are peaches. Apparently, the public has lost its appetite for my favorite fruit, with imports hounding our growers. What to do? Seems we have developed a new machine selectively wandering through orchards trimming those magnificent blooms, shortly to be the glory of spring here in the southeast. It thins, mechanically, automatically, cheaply, so we will get bigger and better and cheaper fruit.
Now will somebody do something about those $1.75 hot house pimentos, a spice of life, which we bring from the Netherlands, while I wait for the Obama anti-business warriors to collapse of their own dead weight?
The [Almost] Silent Debate
In a world taken up with wars, terrorism, earthquakes, tsunami, radiation, and rising food prices [and possible famine in North Korea], there’s a quiet fundamental debate. Not many people are participating. In part that’s because nowadays it quickly aborts into esoteric econometrics and philosophical gobbledygook only academics pretend to understand.
Ironically it is so common to every day life it can largely be ignored. However it is fundamental to all daily political, economic and most social decision-making. Its history goes back at least to the 18th century and the beginning of the West’s industrial revolution – and, of course, 200 years earlier with the Protestant Reformation.
Simply stated, the question is how far can life’s events be controlled by human ingenuity?
The financial crisis of 2007-8 has been interpreted in some quarters as requiring rewriting the rules of the road, domestically and around the world. Others saw it as an inevitable revisit of the business cycle – if a more severe manifestation – inherent in a relatively free system producing enormous progress but by its nature implicit with risk.
That “the Washington consensus” – free markets, representative government and human rights – is moribund has been proclaimed far and wide as fall-out from the crisis. [In some benighted quarters the suggestion comes to replace it with “the China model” – state crony capitalism enforced by political repression.]
A garland was laid on the libertarian bier in early April when the International Monetary Fund [IMF] reversed course and blessed national capital controls. In part, it reflects newer players asserting themselves as rapidly growing members of the world economic club. It reinforces their current efforts to cope with the inflow of “hot money” and “the temptation” of foreign direct and indirect investment.
As always politics intrude: IMF chief Dominique Strauss-Kahn, coyly flirts with running next spring as French Socialist presidential candidate against incumbent conservative Nicolas Sarkozy. [His wife, journalist Anne Sinclair, hints he will — perhaps following an earlier ugly IMF sexual harassment scandal.] His annual meeting eve speech advocating “globalization with a more human face” could be seen as the flip side of a just issued French Socialist Party manifesto emphasizing investment. The Socialists, turning their back on traditional French xenophobia, woo foreign money. [That scene, too, gets more complicated with the growing popularity of Jean-Marie Le Pen’s old rightwing party given “a more human face” by his charismatic daughter.]
Earlier, former Fed Chairman Allan Greenspan, seen by some as the villain in the crisis, laid out the current U.S. argument. He detailed how recent Obama-Dodd-Frank efforts to slap new controls on Wall St. had already gone awry. Greenspan summed up: “The problem is that regulators, and for that matter everyone else, can never get more than a glimpse at the internal workings of the simplest of modern financial systems.” http://www.ft.com/cms/s/0/14662fd8-5a28-11e0-86d3-00144feab49a.html#ixzz1IriBgNT0 Rep Barney Frank, left holding the legislative bag while his former collaborator Sen. Christopher Dodd snuggles into Washington’s most plush lobbying sinecure as Hollywood’s representative, responds: transactions can be vetted by the very digital revolution making them possible in the first place. http://www.ft.com/cms/s/0/cd44a3ce-5e22-11e0-b1d8-00144feab49a.html#ixzz1IrjMejvX
Ah! But neither grabs the crux. Any examination of what the Chicken Littles originally thought was world economic collapse traces back to government intervention, not absence of regulation. It was Congressional insistence – originally reluctantly opposed by banks until they saw the green of Fannie Mae and Freddy Mac’s unlimited government backing – to disregard traditional mortgage lending.
And Lehman Brothers’ piquancy for Washington hand-me-down bureaucrats to direct its affairs, rather than old fashion merchant bankers, played a role in its demise tripping the international financial debacle.
Brazil, one of the chief beneficiaries of this past era, faces the issue ahead of others. It’s just announced a second round of capital controls, now indirectly endorsed by the new IMF dictum. Squeezing off inflows to stem its rising Real prices of commodity exports [a large part to China] may simply be encouraging the savage rape by [subsidized Chinese] imports of what has been until now its rapidly growing world class manufacturing by denying it capital access.
Greenspan’s parting shot sums up this essence for Brazil and the rest of us: Given the greatest growth in world [and U.S.] history during a period of relatively laissez-faire capitalism, are we now willing to risk its regeneration by increasing government interference?
Back to basics: food
Brace yourself: the neo-Malthusians will soon be in full cry, warning population is outrunning the world’s food supply. Like Washington dealing with China, there’s no cool approach: either experts tell us we are drowning in surpluses, or humanitarians warn eminent starvation awaits because of diminishing cultivable land, water shortages, unsustainable/unhealthful hybrids, or “peak oil” eliminating cheap petrochemical fertilizers.
Whatever long-term arguments, it’s clear that rather suddenly, rising food prices based on short-term shortages, have become political dynamite. And fiscal policies – “quantitative easing” as the Fed calls it, printing money for the rest of us – have exacerbated the problem by detouring investors and speculators into bidding up commodities, not least food.
You don’t have to be an economic determinist to see geopolitical results:
Mexico, facing near chaos in its effort to control narcoterrorism, last week dived into corn futures. It’s no secret other countries – China, if sneakily – have bought grain futures to assure an adequate supply. But that Mexico announced it was obviously an effort to add propaganda to its insurance against the possibility of a “tortilla crisis”, which almost totaled earlier administrations when corn shortages for that basic Mexican foodstuff pushed inflationary price levels.
India, whose fragile coalition government under that old planner turned marketaraian, Prime Minister Manmohan Singh, under fire for a series of mega-trillion-rupee financial scandals, now faces rising food prices – and an onion shortage! Mumbai’s roaring markets continue producing near double-digit gross domestic product [GDP] growth. But on Indian development’s dark side is 600,000 villages – many of them hardly monetized – still facing food insufficiency. Eleven out of 19 states have more than 80% anemia with children under five suffering stunting and brain damage.
China, too, has had to turn away, from its monomania for creating jobs. One high official [if now retiring] has written what the rest of us knew: among other follies, municipalities just dig holes and fill them in to boost their “required” GDP contribution. Beijing acknowledges an inflationary spiral may be taking hold, led by food prices. And no one remembers inflation’s threat to past regimes as vividly as Chinese officials [and the Germans]. China has been forced to draw down food reserves. Beijing planners’ dilemma is opening up food imports – perhaps by unleashing the undervalued yuan – would help solve the problem. But having starved the agricultural sector of resources, freeing imports would bring disaster to remaining impoverished farmers. [Their Japanese neighbor spends 5 trillion yen –$63 billion — annually to stockpile over 2 million tons of domestic rice with a 778% blocking import tariff; it’s unlikely a new “rice bread” will help with consumption dropped by half over the last 40 years.]
Then there is North Korea [with its miniscule pampered elite] diverting resources to the military. Whatever else Pyongyang’s rambunctious actions are intended to achieve, renewing a magnanimous South Korean, Japanese and American food dole would be part of any bargain – assuming one is possible – to halt their weapons of mass destruction production. Meanwhile, after famine starved more than a million people in the 90s, more than six million of North Korea’s 23 million now exist at near starvation.
Nearer home, any American housewife [or her househusband] will tell you food prices are rising. It’s true most Americans can – if they would avoid obesity – eat better than ever. [My rural Virginia Walmart has everything from Kosher salami to Greek phyllo and I count on their fabled inventory control to know they can sell it along with questionable Chinese frozen fish.] But with no “banana war” between the EU and Central American exporters, our local prices went from 32 cents to 42 cents over the summer. Is rising food prices a harbinger of incipient inflation from gigantic “stimulus” outlays – continued in the Lame Duck Congress despite the cautions of Nov. 2nd elections?
Nor is there sweetness and light on the supply side. Wheat prices on the Chicago grain market advanced 47% this year. That’s because Russian drought spurred the Kremlin to ban exports. Ukraine is dragging its feet with grain export quotas. Weather in Argentina whittled down the corn crop [world’s No. 2 exporter] and soy beans [world’s No. 3 exporter]. Australian wheat production will be half normal because of rains and floods. Market trackers say it’s too early to call but predict an allover “mixed” harvest in the 2011-12 cereal season but guestimates already are affecting 2010-2011 prices.
Insane food subsidy politics, of course, continue. Nothing is as idiotic as the U.S.’ effort to supplement fossil fuel with ethanol, alcohol from corn. Imports rise, of course, because Washington slaps new restrictions on drilling. But one year’s ethanol for the average American car requires 11 acres of farmland, otherwise feeding seven people. Adding injury to insult, some of the new hypereconomical engines reject ethanol as an inadequate fuel. Yet Washington subsidizes ethanol including exports to Europe while maintaining high tariffs against Brazil’s subsidized bagasse [sugar cane byproduct] ethanol imports.
Food problems, like death and taxes, apparently will always be with us – but at times contributing mightily to existing problems.
Unintended consequences: help for Obamanomics?
It’s bitter irony for Democrats but Pres. Obama’s election “shellacking” could help his economic program. Early signs might come in pushing through free trade agreements [FTA] the Bush Administration negotiated with Panama and Columbia.
For while trade issues cut vertically across party lines, the incoming Republican House majority and a chastened Senate Democratic majority [with a quarter up for reelection in two years] is likely to be more “business friendly”. Final touches to a difficult South Korean pact – which could add $10 billion in exports annually to $60 billion bilateral trade – could come during his present flamboyant Asian tour.
Along with paying some protocol debts, Mr. Obama’s ostensible purpose is to push his doubling American exports goal, using the most expensive presidential whirlwind ever through four Asian countries in 11 days and a look-in on three multinational economic conferences. Opening up new markets had been hijacked by the protectionist lobby in his own Democratic Party. But while unions threw tens of millions into the campaign [in many cases backing failed candidates], their Capitol Hill voice will be as shrill as ever but their clout curbed.
Trade pacts and presidential visits notwithstanding – even when accompanied by a huge gaggle of businessmen – will do no more than ice the cake. And nothing along the way promises all that much. Mr. Obama will formally crown Pres. George Bush’s open sesame to technology for the Indians and he will signal some military aircraft sales, hoping for far more. But the Administration has warned India it will continue to try to slow information technology outsourcing. Washington claims
Indian call centers and software are costing U.S. jobs when unemployment proved to be the voters’ chief concern. Never mind that several Indian multinational software companies are grounded in Silicon Valley and have been among the most enthusiastic Obama backers. That won’t make it easier for Prime Minister Manmohan Singh, balancing continuing Indian protectionism in such fields as retailing, or snail-like privatization of huge Indian state companies, both targets for which American multinationals salivate.
The whirlwind tour barely touches down in Indonesia – Mr. Obama’s childhood home where his advisors once hoped a twice postponed nostalgic visit would embellish his international image and reinforce his appeal to the Muslim world. That initiative is on life support – given Islamicist terrorist attempts on the eve of his departure, the intractable Iran nuclear weapons drive, and increasing friction with Turkey. It was in Ankara where he made his ambitious oratorical appeal. The increasingly muddled political outlook in Egypt where he tried rhetoric again is just short of crisis. In Jakarta, repeating platitudes about Moslem “moderation”, Mr. Obama will be lucky if he can get renewed promises against fierce restrictions on foreign investment for the long postponed highly competitive search for new fossil fuels against Chinese competition.
Both the Japan touchdown and his G20 summit participation in Seoul are going to be overshadowed by growing concern over China’s intentions. It is, after all, Beijing’s massive trade and payments surpluses which is the major Washington international economic concern.
Treasury Sec. Timothy Geithner renews his hassle with the Chinese carrying new weapons. Taking a leaf from British economist John Maynard Keynes who tried to wedge it in his original post-World War II Bretton Woods framework [ironically, against American opposition], Mr. Geithner argues that surplus countries as well as deficit economies must shoulder responsibility for international imbalances. He offers a wooly concept whereby surpluses should be measured against national gross product. If an economy ran surpluses beyond that cap, it should be forced to reduce surpluses through, presumably, domestic spending and increased imports.
It was a turn away from a frontal attack on Beijing’s notoriously undervalued currency and export subsidies. At first Beijing coyly welcomed any feint ending currency debate, where they face competing producers as well as the U.S., Japan and the Europeans. But just days before the G20, they furiously attacked it. In any case, Congress’ new hardliners might well ask how such a grandiloquent concept is to be implemented, especially given Beijing’s lackadaisical attitude toward international agreements. Dearer to their hearts is the second U.S. initiative: a welter of complaints filed against China before the World Trade Organization, asking cease and desist orders and penalties.
In another part of the forest, to a chorus of complaints from all the U.S. partners, Federal Reserve Chairman Ben S. Bernanke has again opened the spigot for another half trillion U.S. liquidity through the Fed buying Treasuries. Some call it printing money. The Asians are worried it will loose an avalanche in their direction, further aggravating raising domestic prices and exports. The Europeans, by and large going in the opposite direction for a tightening up, worry too that it may further discombobulate their fragile Euro as the German export boom tapers off and refinancing southern Europe gets more costly by the day. But, if as it has so far, additional “stimulus” further cheapens the dollar, it could make American exports even more a bargain — for those countries willing to let them in.
There are sanctions and sanctions
Surprise! Surprise! Our “multilateralist” European allies – never mind the Chinese and Russians — won’t crank up Iran sanctions.
Hypocrisy has reached new heights: during the annual German-Israeli joint cabinets meeting — deciding whether the Jewish state will again be gifted more submarines – comes a billion-dollar German package to stand up the mullahs’ LNG business. That’s the latest in1700 German companies tripling Hermes subsidized exports to $6.5 billion annually between 2000 and 2007. Some 50 German companies sell nuclear tech for Russia’s Iranian Bushwehr plant. And then there’s non-lethal support for Tehran’s ambitious missiles program. Ditto Italy, France.
Meanwhile, Pres. Obama might shade his eyes to survey the scene with the badly chewed open hand he has been extending the mullahs: a nuclear-clad Tehran would not only test the metal of Israel’s “Never Again”, likely producing new Mideast wars. It would redraw the world strategic map.
Just the threat has sent the Saudis again throwing money at Iranian ally Syria. Riyadh is trying to coax the Gulf minipetrostates into appeasement of Big Brother just across their pond. [They don’t call it the Persian Gulf for nothing.] A whirling idiosyncratic Muslimistic regime in Ankara bites its nails.
With nuclear weapons to dominate Arab oil, the mullahs might even halt the escalating erosion of their failed theocracy. [“Munich” not only armed a Nazi division with Skoda weapons for the attack on Poland initiating WWII but fed German nationalism.] Iranian WMD could help stifle nascent domestic dissidence with dreams of a new Persian empire – especially after latecomer Obama’s tepid endorsement of its martyrs.
In this muddle, conventional wisdom holds American unilateral sanctions won’t work.
That’s patently wrong. As always, the devil is in the details.
When Pres. Bush finally went after Pyongyang’s fronts in Macao – threatening Chinese banks dealing with them – Beijing saw to it that decades of counterfeiting $100 bills stopped, and Kim Jong Il had to look elsewhere for laundered money to cover his Danish pork tab.
NYC District Attorney Morgenthau has got the Treasury after years of dithering to move on flamboyant sanctions violators. Probably working around Presidential Adviser Volcker – the Swiss’ favorite American banker – Credit Suisse forfeited a $536-million fine for helping clients evade sanctions, giving up names. The U.K.’s Lloyds paid $567 to the Treasury and Morgenthau’s prosecution for setting up a special unit to flummox authorities. Barclays is under investigation. Morgenthau hints that Washington should do more, warning against Caracas’ growing ties to Iran.
If U.S. sanctions haven’t worked against Burma’s thugs – Sen. Webb’s endless mantra echoing in Foggy Bottom – it just could be because Chevron [successor to UNOCAL] and Total have poured billions into their pockets [receipts from a gas pipeline to Thailand built with slave labor].
The real question, as more often than not, is whether Obama will act. State has done a soft-shoe dance with California Congressman Berman for a ban on Iran’s petroleum product imports. But the legislation is camouflage. Does anyone really believe the always ambivalent Indians and the fragile Gulf states would halt the lucrative trade or that Washington would jeopardize relations to enforce it?
Furthermore, as George Washington University Professor Askari points out, it might have unanticipated consequences: Tehran’s more serious economic planners would welcome reducing extravagant consumption, saving foreign exchange and trimming monstrous subsidies — all the while blaming it on The Great Satan.
Equally lame is the purported effort to go after accounts of the Revolutionary Guards. Dubai, for example, certainly before its recent near collapse, is happy hunting ground for South Asian embezzling politicians hiding their loot. And what about the VIP thieves running Iran?
But really effective – the operative word — unilateral sanctions against Iran could add one last straw to the mullahs’ camel’s back.
It requires sanctioning the central bank of Iran, cutting off credit lines to other central banks; Malaysia, for example. It means squashing letters of credit from American banks.
Most painfully, it means going after some of the two million Iranian Americans who flout the IRS by not reporting worldwide income. In the former environment no one could blame them – many refugees from the regime itself – for making a buck on the 15-20% interest rates on Iran-based accounts. But the income tax law ought to be enforced, and Berman ought to have a heart-to-heart talk with some of his constituents.
But in Washington, true enough Treasury Secretary Geithner has his hands full. New duty calls in trying to mitigate the scapegoating “populist” strategy of his boss against the banks. Obama now hreatens New York City’s role as the world’s pre-eminent financial center. Nor does it help that the nominee for Treasury international assistant secretary hasn’t taken her seat, apparently because of tax and nannygate delinquencies.
Given the high priority Iran holds in the long litany of U.S. foreign policy issues – not the least its state terrorist maneuvers in Syria, Lebanon, Gaza, Bahrain, Yemen, and most importantly Iraq and Afghanistan – an authentic sanctions route ought to be tried. Tried before it is too late.