I haven’t had much to say about the Japanese Tsunami and the nuclear mess there, but here’s the short and to the point.
First: the reactors in question were not properly built and tested. It is very clear now that the Japanese nuclear industry, as with the American, has been cutting corners to save money. Let this be a warning, there is no free lunch. If you skimp on such features, it will inevitably come back to haunt you. If you want to stop this sort of thing, start sending executives to jail for negligent homicide, otherwise expect it to continue.
Second: this is going to lead to a huge round of the stupids. Contrary to what many on the left think, widescale solar is still not feasible, the production of large solar panels produces huge amounts of toxic byproducts. So if Japan wants to go off nukes, they would most likely go off them to coal, and if you replace all those nukes with that much coal, it’s a complete environmental and health disaster, and a massive downshift in standard of living, to boot.
Third: Japan poured a pile of concrete in the last couple decades, including in the last 2 years. They could have poured concrete over the backup generators in plants like this, instead of making roads to nowhere, but they didn’t. Japan’s technocrats are, fundamentally, incompetent. Perhaps not as incompetent as America’s, but in the same general boat, as are all the developed world’s technocrats.
The choice is being made, today, to deny, deny, deny reality. The reality is that the energy bottleneck has to be dealt with. And the reality is that the only technology ready right now, which can be scaled, which could tide us over the 20 years we need, is probably nuclear. But the plants we have were designed not as civilian plants, but as dual use plants able to produce material for nuclear weapons. They were deliberately designed to not be particularly safe and even the safety features they theoretically have, as with the Gulf disaster, have had corners cut so severely that they aren’t safe.
Nuclear power might be relatively safe, but not built by us, not by this society. But the other options are disastrous as well. As a practical matter, we are going to be moving more and move to coal, shale oil and tar sands oil. And that economy is ugly as hell, and an environmental disaster.
I know a lot of my readers aren’t going to like this, and the anti-nukers are going to freak out in the comments thread, but this is where we are.
Some years ago I worked for a large insurance company. I was originally hired to help deal with a class action suit, but soon found myself working on something different, demutualizing the company. Mutual insurance companies are owned by their customers, not by shareholders. This has a number of advantages, but it means you don’t have shares, and thus buying out other companies requires cash, and you yourself can’t be bought. You also can’t give stock options to your executives (not a small matter, these days).
Mutual companies also have one big social benefit: they provide insurance cheaper, because they don’t have to pay dividends or stock options and they return profits beyond those expected to the policy owners. (Stock options supposedly don’t have a price, but they do in effect, both because of the rampant use of company profits for buybacks and because of how they change company behavior.)
Demutualization requires a vote by the shareholders. There was never any question that it would pass, however, since it amounted to cashing out a lot of money. For big policy owners the take could be in the millions, for smaller ones ten to twenty thousand wasn’t uncommon.
This part is important, so pay attention: this was the first cashing out moment, and what it was was a transfer from the past and future to the present. Going forward every future policy holder would pay more money for their policies in order that the current generation could take out value.
The price of the shares was set at about $18 dollars, as I recall, they fell a couple bucks, then they spent the next two years rising, peaking around $40. The CEO had bought five million dollars of shares at the initial price, which everyone knew was less than the company was worth, he did very well.
But the real change was driven by what is called “market’ discipline”. Suddenly we needed to make 15% profits every year.
Insurance isn’t a business where you should be making that sort of profit. Virtually no business is, but insurance in particular should be stodgy and boring and conservative, because its job is to be there when the customer takes their losses.
Friends would ask me about the company in those years, and I would say “it’s being run reasonably well, considering, but they’re burning down the house to make the profits.”
What do I mean by that? They were pushing out senior junior employees. In the pension department, for example, almost all of the senior customer service reps were gone within two years. Why? Because the new regime expected insane numbers from them. Those numbers could only be produced by, well, lying to management.
Meanwhile, every month the sales numbers were being manipulated more and more, with sales which hadn’t actually completed being moved forward as if they had been. Jobs were taylorized and de-skilled, so that employees had no real knowledge of the process, this in a company with the highest average face amount (amount covered, like a million dollars or 10 million) in the industry.
Products were designed overly fine, so that if customers missed a single payment by even a week, they would likely go into default, but those losses wouldn’t show up for years, since it would take time for the defaults to occur.
And the company went out and bought a big, moribund insurer, with an extraordinarily sick corporate culture and then struggled to make it work.
Bottom line: that company couldn’t make 15% without cutting corners which shouldn’t be cut. You can provide worse customer service to multi-million dollar clients for a few years, but eventually your rep catches up with you. My job was to deal with those customers, and as mistakes and problems occurred, I would burn through my social capital. Most of my clients loved me, but there are only so many problems people will tolerate. The same sort of thing was happening everywhere. Eventually it came home to roost, and they stopped sending us as much new business.
For a few years, heck, for a decade, it mostly looked good to outsiders. The company produced its 15%, the stock did well, and everyone outside the company was happy.
Then the shit hit the fan in 2008, and the company took the shock badly compared to equivalent competitors. All of the corners they had cut came back to haunt them.
When you have a good company, product or service, you can always cash it out. You just cut corners for years, and cruise on your reputation. And for years, it works, until it doesn’t.
Which brings us to this news story, about how the fashion company Hermes doesn’t want to be bought out by a conglomerate.
Family members recoil as they recall an LVMH official’s suggestion that Hermès bolster sales by creating a line of lower-priced bags.“It’s exactly what you shouldn’t do,” Mr. Dumas says. “Because you will make a cheap Hermès bag which will sell like hotcakes for three years, and after three years people will say, ‘Hermès is not what it used to be.’ ”
Mr. Thomas says: “If you tell me I have to double the profit of Hermès, I will do it tomorrow. But then you’d have no Hermès left in five years.”
There’s a man who gets it.
Here’s the rule, whenever greed becomes a primary motivator, and an acceptable primary motivator in a society, the society burns itself down. It extracts money by destroying actual long term value. This has been going on in the West, with its most extreme forms in the US, for over 30 years.
But as a society, what you get is money while destroying actual value. The society as a whole is poorer than it would have been otherwise.
An actual capitalist society (which we do not live in) makes cashing out very difficult. You don’t want people creating money by destroying value, and you don’t want viable ongoing concerns arbitrarily destroyed or weakened. Whenever a company is bought out by borrowing the money, then making that company take on a loan to pay back the original loan and then another loan to pay the buyers even more money, money has been extracted while value has been destroyed (layoffs and other cost cutting inevitably follow).
As a society, allowing this sort of behaviour is death. You must make sure that people do better by adding value than by destroying it. Forceful short term extraction of money destroys value. The only profits that most people should see are long term profits. Want to get rich? Great. Either create something genuinely new under the sun (and no, Facebook is not something genuinely new, it is merely the winner in a market someone was going to win) or stick it out for a good twenty to forty years, taking your legitimate profit each year.
When you make it possible for people to get rich by destroying jobs that actually create value, by destroying companies which are actually viable, you are destroying your own society’s prosperity.
for a week, in a couple weeks. This will be the first time I’ve visited England, since, oh, about 1978. What I remember about that trip: Southampton row houses, a nice open air book market, and Trafalgar square.
So, for those of you who have been to London more recently, or lived (or live) there, thoughts and recommendations?
Update 2: Well, well, well. That is impressive, the police essentially refused the order. My hat is off to them. This is an extraordinarily encouraging sign, in that it indicates that the security apparatus has limits to what it will do. If elites1want real crushing, they’re clearly going to have to ship in outside police/military, like they do in major conventions. The local cops, at least in some places, won’t crush the locals without good reason.
Sad, given the police union has been supportive. Police are obeying an order they know is wrong.
People who are willing to walk are gathering on the ground floor, those who will not cooperate are linking arms on the 1st floor. Some reports of people forming a linked arm barrier outside the capital.
AFL-CIO ustream here.
The next step is to shut something else down (or everything, via a general strike), while recall efforts are worked on.
Update: police seem really reluctant to arrest anyone. This may not be over yet.
People will not ship or produce if the cost to produce+ship is higher than what they can recoup. There is a bottom on prices despite what the idiotic supply and demand curves in textbooks show. Contrary to what they tell you in economics 101 supply and demand is not a law, there are significant exceptions.
In fact, if the price of shipping increases enough to make production uneconomic, then people will be laid off. When this is occurring throughout the world, you get a ripple effect. It’s not self-reinforcing in the sense that it increases the price of oil (in fact, it decreases it), it is self-reinforcing in the sense that it does make the economy worse, because it reduces demand for a wide variety of goods, whether shipped or not.
What happens then is what we’ve seen before, the price of oil drops and you get a “recovery”, which is to say a pendulum from shitty economy to sucky economy and back again. The current economic juggling act is about making sure the economy stays sucky, and doesn’t get to shitty, and you do that by keeping the price of oil from exploding. When it does, you lose.
There can be no good global economy right now. There is not enough oil in the world to do it under current economic models. Cannot be done. You may be able to have a few places doing well, but only a few. The solution to this is to GET OFF OIL, but no one is willing to allow that to happen, because old money wants to control the new economy and isn’t sure they can do that with current technologies. That’s why you have idiots talking about shale oil, or using natural gas, or anything else which keeps an economy where a small group of people provide the energy for everyone else, and make a killing doing so.
So instead you have revolutions, you have unions being crushed and so on. At its base this is all related to the price of oil. Oil in Saudi Arabia costs about $7/barrel to produce. Think about what that means in terms of profit, especially in a country where those profits stick to the hands of a few people. Think about the fact that with all that money they could buy anything, unless the US has rich as rich as Saudi Princes and companies which are so large in terms of market capitalization that they can’t be bought. (Well, or they could do ownership controls, but strangely, they prefer to be stinking rich.)
The rich MUST be kept rich. If they aren’t, the oilarchies buy up everything. That’s not exactly true, but it is true enough because that’s the way the people at the top think. They know that they either stay so big they can’t be bought, or they’re bought.
Of course there’s more to this. We could discuss regulatory and environmental (and labor, but labor is the smallest part of it) arbitrage to China (who refuse to allow outsiders to buy anything that matters, period.) We could talk about the structure of the suburban economy, which is both profoundly unproductive and based on oil, so that any nation which embraces suburbanism can’t boom without driving up oil prices and, at this point, causing oil price spikes. We could talk about financialization, but financialization is just a side-effect of needing lots of rich people and having less and less to sell to the world, which is about suburbanization, which is what the rich bribed the middle class with – you can have your little castle and your unearned unwarranted wealth increase in your unproductive suburb away from brown and black people, in exchange we get to be really, really rich. Like all deals with the devil, of course, most people get cheated, but then when you decide you deserve money you didn’t earn and that being away from black people is important to you, you’ve already sold your soul. The rich will find this out as well.
European leaders draft a “competitiveness” treaty meant to lower wages and cut pensions
No, I’m not kidding. It includes:
- a debt brake which will stop countries from deficit spending beyond a target;
- automatic monitoring which can force pension cuts;
- a requirement to monitor wages and productivity and to then lower wages if they rise “too quickly”
Every one of these are anti-worker. The last is a modern version of the bankers obsessions in the 80s and 90s – wage push inflation, which was the idea that inflation is primarily caused by wages rising faster than inflation, so when they do, you must strangle them. This was a stupid idea at the time, it is even stupider now, when the main inflation problems are commodity price (energy, food, others) driven, and exacerbated far more by huge pools of liquid money at the top than by ordinary citizens having pensions and good wages.
But ultimately the choice is simple: you either tax the top at very high progressive rates or you take it out of everyone else. Since the rich have more control over the political apparatus than the middle and working classes, they chose to strangle everyone else, rather than themselves.
It’s them, or you. They’ve chosen you.
I work for a small freight forwarder. How small? My boss, and myself – that’s it. Last year we shipped over 61,250 million tons of beef, pork, and chicken; mostly to Australia and Hong Kong, but several smaller markets too. You pick up the product, stuff the container, and off it goes. At each point in the transport, whether it’s rail from Chicago to Long Beach, or Long Beach to the actual port, or port to destination, fuel is used and it adds to the total price. Never mind the fuel used in the production of the meat.
In addition to the cost of the space on freight, there is something called FSC – fuel surcharge; on ocean freight it’s called Bunker, or BAF. It was about 18% 2009-2010. Then 21% last quarter of 2010. 23% in January 2011. 26% this month and expected to go up next month from there. So, if your freight rate is 3500 bucks Long Beach to Sydney, you add another 900 bucks for fuel; on every shipment. As the railcars come in to Long Beach, they need to be unloaded and the product transloaded into containers, then dreyed to the ship – that’s about 800 bucks/container – most of that is fuel. So when the P of oil goes from sub-$100 to over $115/bbl (and don’t forget that everyone along the chain is adding their margins), it adds a huge cost. At a certain point the cost of doing business becomes unprofitable to continue doing business – that point is not far off in the shipping world. Have you noticed that the price of a tasty Rib-eye has gone from about $5/lbs to over $10/lbs recently? Most of that is fuel.
In a nut-shell you have the price of product rapidly increasing, resulting in lower demand, resulting in lower quantities ordered/shipped, resulting in product scarcity, resulting in higher prices yet, resulting in lower demand…resulting in lower revenue and therefore workforce reductions…ad naseum… That’s how the price of oil plays out.
I would add, as an aside, that in the longer term this is why I think the big box stores may be a lot less big and you may see a return to more local production. This is especially true the farther you get from the coast, navigable rivers and canals, as ground transport sucks a ton more energy than sea transport.
is learning from other people’s mistakes.
Foolishness is not even learning from your own.
Fools must take at least partial responsibility for the results of their inability to learn.
If it doesn’t drop back down, kiss the economy goodbye. Note that while the proximate cause of this is the civil war in Libya, it was made possible by:
1) extremely loose monetary policy on the part of the US Fed.
2) Pushing growth into China and other developing 2nd world countries. Every dollar of GDP growth in China uses twice the energy used by a dollar of growth in the developed world. In exchange for cheap labor you use energy. Labor is in oversupply, oil is bottlenecked. This is moronic. (This is not to say such countries don’t need to grow, just that doing environmental, regulatory and labor arbitrage into them has huge costs that aren’t recognized.)
3) Refusal to do anything about climate change, which has led to very volatile weather which has led to widespread and unpredictable crop failures which makes food price spikes likely. Those food price spikes make it so that the day laboring class in countries like Libya and Egypt and so on can barely afford to eat. That makes revolutions happen.
4) Refusal to move off of oil in a large way. Trillions of dollars for bankers, but hardly any money to refit western economies to a new energy regime.
5) Refusal to bankrupt rich people when they, actually, go bankrupt, leaving them with tons of money for speculation and to spend on activities and items which actually are using oil now.
Until the West gets serious about climate change, refitting their economies, financial regulation and taxing not only their rich but the rich of the oilarchies, there will be no sustained economic recovery that doesn’t feel like a hangover, and every recovery will be fragile and ultimately limited by resource price runups. The world economy is already running as hot as it can. Any hotter and even without a crisis, oil would have spiked.
The power of the rich will have to be broken. Historically that happens in two ways: war (including real revolutions) and massive economic collapse.
Rumblings of using Wisconsin’s recall provisions to remove Republican politicians who support Walker’s attempt to remove bargaining rights from unions are going around. This is an excellent idea. Destroying the political viability of some politicians, making it so they can never run for office again, making them an object lesson is the only way to make this sort of all-out attack on basic bargaining rights less likely to happen in the future.
It won’t halt such efforts, though, because the Koch brothers and other multi-billionaires whose interests and ideology are served by reducing wages and taxes will continue to fund such efforts, and will make sure the ex-politicians are taken care of.
What will halt such efforts is destroying the people who are really behind them: oligarchs like the Koch brothers. And destroying them requires at least two things: an insistence that rich people actually be subject to the law, and that confiscatory levels of taxation be put back on the rich. 90% taxation on all income over 1 million dollars. Real taxation of corporations on their actual profits with measures put in place to tax all income, so it can’t be hidden overseas, and equally importantly, a reinstatement of the estate tax, so that 70% of estates over 5 million are taxed away. Nothing is worse for and more damaging to both real democracy and to general prosperity than high concentrations of wealth because wealth allows a few individual to buy great power. And in terms of concentration of wealth, the worst type of wealth is inherited wealth, which creates an aristocracy of individuals who did nothing to earn their power or wealth but win the lucky sperm contest. It is beyond ironic that the Koch brothers are libertarians, given that they are parasites who inherited their money.
Capitalism is a game, and games have rules. The first thing that anyone does when they “win” the game of capitalism does is they try and make sure that win is permanent by getting rid of the real free market. In a real free market, for example, banks with negative book values go bankrupt. In a real capitalist society which is functioning properly, executives who engage in widespread fraud go to jail.
Ending the market takes various forms, but one of the forms is reducing the power of other entities to bargain. Unorganized labor can’t bargain effectively. Most workers only have a bargaining position worth squat if they bargain collectively. So getting rid of collective bargaining is important. Public workers with good wages implicitly require somewhat higher taxes, as well, and less tax cuts for the rich.
Ending the market is also aided by controlling the market, and so the news out of Wisconsin, as this blogger who is on the ground details, has been extensively edited as well. Who owns the media, who the publisher is, matters hugely. At the end of the day, it’s a rare publisher whose outfit doesn’t start pushing the interests of the publisher.
If the left wants a nation they recognize, all sorts of things need to be done. Public financing of elections, overturning the money=speech provisions and breaking up the media conglomerates are high in that list. And when you increase progressive taxation radically, you’ll also get a better quality of journalists, because they won’t actually be making millions of dollars a year after tax, and so they’ll suddenly care about how ordinary people have to live, because they’ll be living like affluent ordinary people, not like rich people.
So, a recall effort is a good first start. Make an example of some Republicans. Then move on to maximal demands backed by the threat of general strikes and protests which shut down business as normal: confiscatory taxation on the rich, public financing of political campaigns, an end of speech=money, and a breakup of media oligopolies. In a war, you go after the enemy’s supply lines. Destroy the rich, or they will take everything you have, then reduce you to debt peonage, if you haven’t been so reduced already.
