So, the New York Times has an article on how Venezuelan stores are running out of basic goods, because they import so much, and with the drop in oil prices, they don’t have enough hard currency to buy what they need.
Repeat after me for the 100th time, “all resource booms end.”
All of them. Always. Gold, oil, rubber: it always ends. Period. The question is only when.
Back around 2004, myself and Stirling pointed on the late (and defunct) BOP News that Chavez was screwing up his revolution. That’s not a way of saying I disapprove of his goals, I very much agree with what he was doing in general terms. But in specific, he was not making his country independent of high oil prices.
What a country needs it must either be able to produce, or have product it knows it can sell to someone who can produce what it needs, and who is a reliable partner. (No Western country is a reliable partner to an actual left wing revolutionary government.)
Period.
If you do not, things may go well for a long time, but you are ALWAYS vulnerable to the hegemonic economic state and its allies. Right now that’s the West. For a long time, if the West were jerks to you, you could run to the USSR, but right now there is no complete replacement, though China, as leader of the BRICS, is coming on strong.
Note that when the USSR fell, Russian support for Cuba almost entirely went away.
It was a huge shock, but Cuba survived it.
Chavez was a great friend of Castro’s, but he did not learn from Castro. He did not figure out how his country could survive being cut off from what amounted to essentially it’s only source of support (in his case, oil sales).
Now Venezuelans pay the price.
Learn the lesson.
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Stephen Pinker, in 2011, for the Wall Street Journal, wrote an article on the decline of violence, arguing that it has been decreasing for thousands of years for a number of reasons, including the rise of states. Pre-state periods had a lot of violence (15% according to Pinker.) This sweeps a lot of pre-history into the basket (violence was not that high when humans were far below carrying capacity), but I’m willing to grant the point for the sake of argument.
What I want to say is something different: the decline of violence due to repression has a price. To be sure, a subject of the Pharoahs was much less likely to be killed by their neighbour. But they had a vastly increased incidence of disease, worked far longer hours, lost their teeth by the time they were 40, were forced to labor for their overlords and not allowed to keep much of the proceeds of their own labor, almost certainly died more frequently in childbirth, and didn’t live as long if they avoided a death by violence.
The power of the state is, as Pinker notes, used to reduce violence so that assets useful to the state (people) are not destroyed. But the state’s primary means of reducing violence is that it is much better at violence than individuals or small groups. People put up with living conditions and political conditions they would not put up with if they had recourse to violence. (They also don’t get as involved in feuds and so on, which is a good thing.)
This is visible even in very recent history in the United States. Everyone likes to go on about how violence was reduced in the United States from the 80s on, or so.
So was equality. This is not unrelated. The more powerful the means of repression, the less violence there will be
That doesn’t mean that reductions in violence always mean reductions in equality. But all other things being equal, a reduction in the capacity for non state/government/chieftain violence will generally lead to a reduction of equality, and that loss of equality will lead to an increase in other types of suffering (inequality is correlated with everything bad from heart attacks to depression, even controlling for objective material possessions.)
I will also note two other things, though there is much more one could note about incidental deaths from things like famines and pogroms.
The old Chinese maxim of “too soon to tell” applies. Our capacity for murder is so great now that all it would take is one world war to erase all the gains.
Second: we have displaced the death to the natural world. We may not be killing each other, but we are creating a great die-off. A lot of non-humans are dying for our peace.
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It would have been better if they won last time, Greece is pretty fully looted now. But Greeks thought they were Europeans, and didn’t realize the contempt that French and Germans had for them, and how willing they were to kill and impoverish large numbers of them.
There is a great deal of hand-wringing in conventional circles over the Syriza win. They are worried about the Greeks exiting the Euro (Grexit) and defaulting on their debt.
Greece should do both of these things, or something close to it. (Rolling the debt over into 100 year bonds at 1%, for example.) Greek debt is at a level which is effectively impossible to pay off and has been made much, much worse by all the “aid packages” and “bailouts” given by their “fellow” Europeans. (Aka. they should have defaulted years ago.)
As for the Euro, Greece can’t print it, and Greece will need to print money.
I worry that Syriza is serious about negotiating on the debt. There is essentially no chance the Troika (well, really, Germany) will give them acceptable terms on a writedown. Negotiations should be intended only to go on long enough to demonstrate that a good deal is not possible. While they are ongoing, the Greeks should be preparing for Grexit and repatriating all the resources they can. Since Greek debt is under foreign law, debt vultures will go to the courts to seize all foreign Greek assets once Greece does default or restructure its debt.
Greece needs to recognize that it will effectively be a financial pariah, unable to access Western money markets. It will have almost no hard currency, and no ability to buy goods which require hard currency.
This is a huge problem for Greece because it has neither oil nor the ability to feed itself. Syriza MUST have a plan to deal with both these problems. Neither is insurmountable.
For oil Greece will simply have to make a deal with Russia, Venezuela and/or Iran. Greece will be a pariah state just like them, and they have oil. What does Greece have to offer? Well, sub voce, access to Greece. Greece may be out of the Euro, but it will still have borders with Europe. Once whatever you want into Europe is in Greece, it’s easy enough to get it into Europe. And anything those countries want from Europe, the Greeks can obtain and ship to them. Grey market baby, and grey market finance, as well.
In terms of food, the deal must be made with a food surplus nation. I would suggest Argentina, which has plenty of food.
Remember that Greece has one of the largest merchant marines in the world. It has that to trade, and it has access to Europe to trade.
In addition, currency controls must be put on immediately and the borders must be secured against those trying to move goods out of the country (aka. Greece’s useless rich.)
Given that all this will cause Greece to be completely loathed in Washington, London, Berlin and Paris, they may also wish to consider seizing much of whatever means of production remain in the country. If they want a reason, simply use the Lagarde list of Greek oligarchs who haven’t paid their taxes, and seize their back taxes—with plenty of interest.
The media is playing this as an anti-austerity vote, and it is. But voting anti-austerity for a country like Greece which can’t feed itself, has no oil, and doesn’t have a lot of industry, is one thing: not being austere is another. If the Greeks want a decent life again, they will have to take on some of the most powerful nations in the world and at least fight to a draw.
Many nations are in the same boat as Greece is: Russia, Iran, Venezuela, Argentina. Greece needs to make the necessary alliances with such countries and it needs to align with the rising Chinese block.
Doing this requires a psychological step that Greeks may be unwilling to take: a recognition that their interests do not lie with Europe; an understanding that Europeans are willing to see them impoverished, homeless and dead. Greeks who are living in the past and think the EU is about prosperity for everyone in the EU need to learn otherwise.
If Greeks are unwilling to be coldly pragmatic and give up their illusions about who they are, what their fellow Europeans are willing to do to them, and what their actual assets are, then Syriza will fail, and Greece will continue on their path of impoverishment.
I wish Greeks all the best.
(26/01/15 – There is some dispute over whether the Greeks can leave the Euro and not the EU. See this paper for a discussion — pp 26-29.)
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Granted, I think the evidence points to significant Russian support. Nonetheless, the Ukrainian army is just embarrassing at this point.
Back in 2008 I wrote that Crimea and the Ukraine would be the next likely flashpoint, and that Russia would never tolerate any possibility of losing Sevastapol. The serious people who know how the world works told me how wrong I was—that the Ukraine and Europe and Russia were in a mutually beneficial arrangement.
But arrangements change, and Russia has always been a country with a clear view on what its strategic interests are.
So now we have an economic war against Russia and a shooting war in the Ukraine, encouraged by the Russians (and by the Americans: the first big Ukrainian offensive occurred after CIA chief Brennan visited.)
Sanctions did little to the Russian economy, but crashing oil prices did. Russian currency dropped almost exactly in concert with the drop of oil. Given the consensus that dropping oil prices so precipitously was a Saudi decision, meant in part to take out high cost unconventional oil production, but also in part to damage Russia and Iran, this can only be seen as hostile foreign action by the Russians.
Russia’s vulnerability is due to mistakes made by the Russians. The lack of diversification of the economy, and the vast corruption made Russia a petro-state, reliant almost entirely on oil revenues. Countries which need to import a great deal are always vulnerable to foreign economic action.
The question, then, is this: how threatened does Putin and the rest of the Russian leadership feel? Putin is unlikely to survive a leadership change for long unless it is his hand-picked heir who takes over, and maybe not even then. Many others in his government would similarly be in danger.
If they feel endangered, then the traditional thing to do is start a war. This proxy-war in the Ukraine may not be enough.
Keep an eye on the security of Putin’s leadership. If it starts looking insecure, the Americans will think they are close to getting what they want: a new leader, who will understand he rules only so long as they are kept happy. But it will also be the point Russia becomes most dangerous.
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One of the great “mysteries” of the last 7 years or so is why all the money from unconventional monetary policy hasn’t shown up as inflation. Many analysts thought that printing that much money must surely increase prices, but inflation indices in most of the developed world are barely up, and in many cases are flirting with deflation.
The answer is obvious, but you’ll hardly see anyone point it out.
First, who was the money given to?
Rich people and corporations.
Ok then, what do rich people and corporations spend their money on? Stocks, and real estate—high end real estate.
In America as a whole, let alone New York, housing prices have not returned to pre-financial crisis values. But luxury apartment prices now exceed pre-financial crisis prices. Real estate prices, period, in London, are now higher than pre-financial collapse.
Meanwhile, the Dow Jones Industrial Index is up about 175% off its lows of 2009. The annualized gain is therefore about 29% a year. GDP has not risen anything like that, neither have wages. Corporations, however, are flush with money, and they have spent a great deal of it on stock buy-backs, while rich people, of course, have bought stocks.
Inflation has, then, shown up exactly where one would expect, in the assets bought by the people who were given money. Ordinary people did not receive the largesse from unconventional monetary policy, rich people and corporations did.
This is not hard, this is not difficult, this is not complex. The fact that mainstream analysts and pundits do not connect the dots on this is because they do not want to.
That inflation has not shown up in much (though not all) of the rest of the economy is simply based on the fact that no one else except the rich and corporations has received (I can’t call it “earned”) more money. Nothing more, nothing less.
This economy is entirely artificial. It is based on giving money (in various ways) to those who already have a lot of it. This is in no way a competitive market, certainly not a free market, and barely deserves to be called a market at all. It is pure oligarchical abuse of the power of printing money in all its modern guises.
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I have a simple question for those who read this:
Why is it not OK to kill people in the name of a religion, but it is OK to kill people in the name of a nation?
I’ve always had a great deal of trouble with the way most people run their morality and ethics. Objectively, the Iraqi blockade of the 90s killed vastly more people than 9/11. I once got to see an Iraki pediatrician writing in real time about all the children who died in the 90s, whom she could have saved, if she had had the medicine the West was denying Iraq.
The Vietnam war killed more people. The Chechen war killed more people. The (insert war here) killed more people.
I can run through the intellectual arguments, but on a fundamental level I don’t understand: why is it ok for nations to kill on a mass scale but no one else can? (Well, except some corporations. See Bhopal, India and Union Carbide).
The true decline of religion in the West is, in fact, indicated exactly by the fact that many people think it isn’t OK to kill in the name of your religion. The Crusades, and the religious wars of the Reformation and the Counter Reformation would like to chat with you about that.
For that matter, austerity has certainly killed more people in the West than religious-based terrorism has. Heck, practically everything that does kill people, kills more.
Humans are just very odd. Very, fundamentally, stupid and foolish. Barely conscious.
Spend some time thinking about this. Because it’s a question that is more important than it seems (and it should seem important enough as is.)
In light of the troubles the oil price collapse is causing Canada let us revisit the issue of Dutch Disease and explain how the Canadian economy worked for over a 100 years until Prime Minister Harper’s conservatives, by overly favoring resources and letting the Canadian manufacturing be terribly damaged, effectively ended the Canadian mixed economy.
It seems a lot of people don’t know what Dutch Disease is. Here’s the short.
Dutch disease is when you sell a lot of resources and that makes your currency increase in value. So if you discover a lot of oil, or oil becomes a lot more valuable because of a shortage so that you can produce tons of oil from the tar sands, you can experience Dutch Disease.
The consequence of your currency being worth more is that products you manufacture cost more for anyone outside your country. So if Americans want to buy Canadian goods, it costs them more when the US and Canadian dollar are trading at about even than when the Canadian dollar cost only 80 cents American.
If something costs more, people will buy less of it, or they will stop buying from you entirely and buy from someone else who is cheaper.
What happened to the Dutch is that their manufacturing sector collapsed. What NDP leader Thomas Mulcair, in Canada, is saying is that Canada is suffering from Dutch Disease. That we are losing manufacturing jobs because of the higher dollar caused by all the oil from the oil sands we’re shipping out of the country, which raises the Canadian dollar.
I observed, many years ago, that the Canadian dollar had become a petro-currency. It is now inarguable.
It is also virtually inarguable that Canada is losing manufacturing jobs due to the higher dollar. It’s just arithmetic. Unless you think price has no effect on sales, you can’t argue otherwise without excessive contortions.
Does this mean that Canada is suffering from Dutch Disease? Depends where you put the margin. One study, funded by the federal government, found that:
“We show that between 33 and 39 per cent of the manufacturing employment loss that was due to exchange rate developments between 2002 and 2007 is related to the Dutch Disease phenomenon,” says the study.
I am unaware of studies covering the period since then, and I don’t know if the study was correct. Personally, I suspect it’s higher than that, but I haven’t run the numbers myself and I probably won’t (unless the Feds want to pay for my time.)
But, again, the argument is simple enough. Unless you don’t believe in higher prices reducing sales, and reduced sales leading to job losses and company closures, you can’t really argue that the oil sands aren’t hurting manufacturing. It’s just that simple.
The next question is “should we do anything about it?”
Canada has traditionally had what is known as a mixed economy. When it comes to exports, we have manufacturing and we have the resource sector, of which oil is just one part. Resources experience boom and bust cycles. There is always another resource bust around the corner. Always. No resource has its prices stay high forever. When resources are doing well, they support our exports. When they’re doing badly, manufacturing takes up the slack.
As with any such oscillating economy, what should be done is that when one is booming, it subsidizes the other. We don’t want manufacturing destroyed during high resource price periods, because there will always be low resource prices in the future. So we tax the high resource prices and we subsidize manufacturing. When resource prices collapse, the manufacturing sector subsidizes the resource sector.
If we allow the manufacturing sector to be badly damaged, it cannot easily be rebuilt when resource prices collapse. Nations built entirely on resources are and will always be subject to economic collaps when the resource price collapses, and, again, it always does, the question is only when.
Mulcair has also talked about value add and that’s worth discussing. Shipping raw oil, raw logs, unprocessed fish means you get the lowest prices possible and less jobs. Value add means you refine the oil in Canada and sell it. You turn the logs into paper or 2x4s in Canada. You can or smoke the salmon, in Canada. This provides jobs and the end goods sell for more. It may be that processing will increase the price slightly compared to processing in the US or China, but that costs less sales than it would for the equivalent manufactured item.
Why? Because resources are finite. There is only so much oil in the world at any given price point. There are only so many salmon, especially wild salmon. There are only so many trees, especially trees that are good for construction grade timber. Other countries will generally buy anyway, because there is nowhere else to get the product. Sales may decline slightly, but profit often increases and so do the number of jobs in Canada.
When there is a bottleneck, as there is in oil production right now, especially, you can say “no, we’re going to process it here.” If other nations don’t like it, tough. They aren’t going to stop heating their houses and driving their cars to their suburban homes. That is not happening.
So if you can extract a bit less oil, make more money overall, and have more jobs, why not do so? That’s what Mulcair means by “value add”.
Finally, let’s move to cap and trade, which is what Mulcair wants to do with the tar sands. Cap and Trade means you cap the amount of carbon emissions allowed by oil sands extraction, and you allow people to buy and sell the right to make those emissions. You also tax those trades and emissions. You then use the money earned to subsidize manufacturing and research and whatever else will be the future of the country when oil prices collapse, which, again, they will, because resource booms always end, it is an existential certainty.
Once upon a time, the Canadian Maritimes were a resource boom area. They sold fish, but more importantly they sold trees which could be made into masts, an incredibly valuable commodity. Today, with pardon to my Maritime brethren, the Maritimes are in semi-permanent depression.
This is the future that Alberta faces. They should want to be taxed, and they should want that money reinvested in other sectors, because those sectors are Alberta’s future long after the oil boom ends. And the massive environmental destruction is leaving massive costs which will have to be cleaned up for generations to come, long after the boom days are gone.
Canada’s economy has worked, and we have not become Argentina (the country we would have been compared to before WWII) because of our mixed economy. It is worth protecting, it is necessary to protect, if we want prosperity not now, but 10 years, 20 years or 50 years from now. If we care about our children, or even ourselves 20 years from now, we must deal with the effects that massive exploitation of the oil sands is having on our economy and our environment.
Dutch disease is just arithmetic. It is real, and it can devastate the future of a country. Non-renewable resources are the epitome of found money, and what you do with found money is invest it in something productive, something which will support you once the found money runs out.
This is Canada, and this is our future we’re talking about. If we actually care about the children we claim to love, we’ll acknowledge the simple arithmetic of what a high dollar does, and we’ll act to mitigate the damage.
(Update: Antonia Zerbisias had an article in February on Dutch Disease studies which is worth reading.)
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In light of the upcoming Greek elections and the possibility of a Euro exist, this article from 2012 is worth revisiting.
1) Greece is very likely to exit the Euro.
2) When Greece exits the Euro it will be punished severely by the monetary authorities. They intend to let Greeks starve. They will cut off food supplies, and Greeks will not be able to afford food. Oil is also going to be a problem. Greeks will probably not be able to flee to other countries.
3) The reason they will punish the Greeks is because they can. They couldn’t punish the Argentinians (well, they’re working on it) or the Icelanders, because both those countries can feed themselves. They can punish the Greeks. They need to make an example, because they are worried about Spain, Portugal, Ireland and other countries. (Heck, even the Dutch are having problems. The Dutch! If the Dutch can’t make it in the Euro, no one can.) This isn’t, contra Lagarde about “bad Greeks”, while it is true that Greece should never have been let in to the Euro, well, everyone knew that. Including the countries that let Greece in.
4) Greece is going to have get hardcore and creative about creating a new economy. Since the monetary authorities intend to starve them and deprive them of oil, they must retaliate hard. Greece has a number of options, and this is what Greece should do You don’t play nice with people who are trying to cause a famine in your country.
- Greece has a large fleet. Use it to strip mine the Mediterranean of all resources possible. Yes, the Med is a fragile ecosystem. If the other Euros don’t like it, they can not punish Greece, otherwise Greece will have to feed itself. The Euros could send fleets, but as the British-Iceland fishing war proved, that’s prohibitively expensive.
- Start gun-running and other black market activities up. European gun-running currently goes through Albania. Greece has much better ports. If the Euros don’t like it, they can militarize Greece’s borders at a cost much higher than feeding the Greeks.
- Become a full on black-hole for banking. If anyone wants to store money in Greece, they can. No questions asked, no forms needed.
- Make deals with other “pariah” and semi-pariah nations. Start with Iran and Russia for oil (Iran will be happy to give oil in exchange for black market help). Make a deal with various 2nd world nations for food, start with Argentina, they have no reason to love the IMF or the European Union, which promised to “punish” them for nationalizing oil in Argentina. In exchange Greece can offer use of their fleet, for cheap, and port rights for the Russian navy. They’ve wanted a true warm water port for some time. Offer them a nice island in the Med with a 30 year lease.
- Hold on for a couple years. Odds are that soon enough Ireland, Spain, Portugal and maybe others will leave the Euro. They won’t be in any mood to screw Greece for their ex-Euro masters. Heck, odds are 50/50 that there won’t be a Euro zone at all in 3 years, since Germany wants to screw everyone, including France.
- Nationalize basically every industry. It’s unfortunate, but it’s going to be necessary. Hundreds of billions of dollars have fled Greece in the past 3 years, in fact that was one of the main reasons for dragging out the “bailouts” (really, bailouts of German banks), to let the money flee. All Greek assets are going to be frozen overseas, so the Greeks will need to work with what they have.
- No more money goes out of the country. Slap on currency controls, to make sure what money is there doesn’t leave (this is aimed at Greece’s rich). If any banker or anyone else circumvents them, throw them in jail, the sentence should be life, generous, since they are committing treason.
- Seriously change the tax system, and insist on really taxing the rich. Go to heavily progressive taxation, reduce the burden on the poor (a large number of people now), this will buy support.
- A food rationing system, with cards and delivery to every person in the country will be necessary. It won’t be fun, but combined with the above, you can make sure that no one starves.
Greece has been under siege for years now, and traitors within its own country (its politicians) have betrayed it. This means Greeks are in serious danger of suffering a famine. The response to that, by Greeks, will have to be pragmatic and severe. If non-Greeks don’t like it, that’s too bad. When millions of people are in danger of starving, a country does what it has to.
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1) While job growth is decent in the US, the essential job picture remains unchanged. The percentage of adults with jobs is still about where it was after the financial crisis, and wages are flat. The last US job report was good, but wages dropped. That is not an indication of a good job market.
2) The Eurozone is flirting with deflation, and commodities have heavily deflated (almost all of them, not just oil). This is due to reduced demand. Reduced demand is bad. Let me repeat, bad.
3) The reason there is reduced demand is because most people are poorer than they were pre financial crisis, and governments are engaged in austerity.
4) The stock market is a ponzi scheme. Its prices are justified by the fact that corporations are being given essentially free money by the Fed (directly or indirectly) and allowed to engage in oligopoly pricing of services which people must have (like the internet, or phone service). This has led to high profits, and some of those profits are pumped back into the stock market, which is in executives interests, so they can cash out their options at a profit.
5) The entire gain of this business cycle has gone to the top 10%, and by the top 10% we really mean to the top 3% or so, with the .1% and .01% being the real winners. The bottom 90% has lost ground.
6) Rich people buy securities. The middle class and below buy goods.
7) While low oil prices are good for many countries, that they are driven by soft demand is not good.
Predicting this economy remains difficult because it is driven by the decisions of a very few people. Less than a hundred worldwide are key. The people who can create money, as credit, are key. They are almost completely unhinged from the economy as a whole: money creation is fiat, and being treated as such.
The great realization of the financial crisis was “hey, we can just create money and give it to the people we approve of and no one can stop us.” The people they approve of, unfortunately, are rich people playing ponzi games. Giving money to bankers who don’t lend to the regular economy (and why would they, regular people aren’t getting raises and don’t have vastly inflated housing prices) does very little for the economy that most people live in.
This leads to strong relative gains: not only are the rich richer, but everyone else is poorer. Austerity lets them buy up oligopolistic assets at fire-sale prices (see dismantling of the NHS in England for an example.) Their money increases, their relative power increases, and these policies are a win for them.
The thing is, hardly anyone has pricing power except people who are in an oligopolistic position. It makes no sense to loan money right now to anyone who doesn’t have pricing power, because they can’t pay it back.
There will be; there are, ways out of this. But they do require creating actual pricing power for the masses, breaking up oligopolies and dealing properly with the energy problem. The creation of some actual competitive markets (gasp!) combined with allowing anyone but the rich to have pricing power would do wonders for the world economy.
But that isn’t something your lords and masters want. The current situation suits them perfectly—compared to everyone else they are getting richer and more powerful. There is no reason for them to change how they are doing things.
Or is there? The resource barons are hurting, and they will want changes. But I doubt they are willing to see anything like widespread prosperity as a solution, because it would lead to a long term collapse of many of their fortunes, rather than a boom and bust cycle which the smart resource barons are perfectly capable of riding and using to their advantage.
Until the calculus of the powerful is changed, or they lose their power, while there will be ups and down the basic feature of the economy of the developed world (Depression) will not change, and the rest of the world will continue to suffer through huge boom bust cycles.
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The lesson is not that white men should be treated like African Americans or women, but that they should be treated like white men.
Privilege is the wrong word, the wrong framework because what white males have is what everyone should have.
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