Month: July 2022 Page 2 of 4

Russia Turns Up the Pressure (and Turns Off the Gas) on Germany and the EU

On July 18, 2022

Well, well…

Russia’s Gazprom has told customers in Europe it cannot guarantee gas supplies because of “extraordinary” circumstances, according to a letter seen by Reuters, upping the ante in an economic tit-for-tat with the west over Moscow’s invasion of Ukraine.

Dated 14 July, the letter from the Russian state gas monopoly said it was declaring force majeure on supplies, starting from 14 June.

Known as an “act of God” clause, a force majeure clause is standard in business contracts and spells out extreme circumstances that excuse a party from their legal obligations.

So, Europe and Germany get gas in exchange for rubles. But Russia can’t spend those rubles for most of what it needs from the West.

The question is, does Europe, especially Germany, need gas more than Russia needs rubles and an increased exchange rate (not always a good thing)?

Everyone has been concentrating on the winter and assuming Germany didn’t need much gas until then, but a great deal of Germany’s electrical grid is supplied by natural gas plants, and as you may have heard, there’s a heat wave in Europe and most of the rest of the world.

So much for air-conditioning. And if much of Germany’s industry will have to shut down as well.

Germany can lose a huge chunk of its industrial base if this continues. The whole “keep buying gas from Russia until we can transition off of it” idea was always dubious, because other gas is much more expensive, but it also rested on the idea that Russia was desperate to keep selling; that there was a symmetry of needs.

But Russia will suffer a lot less without sales than Europe will without gas, and in any case, a shutoff will likely increase the price of gas they are selling elsewhere, making up some of the losses.

The fact is that Germany, an industrial state without a lot of resources, and Russia, a resource state, are natural economic allies, but Germany needs Russia more than Russia needs Germany.

The companies who have been given notice that of force majeure are saying they don’t accept it, but what are they going to do?

The grace period for payments on two of Gazprom’s international bonds expires on 19 July, and if foreign creditors are not paid by then the company will technically be in default.

This is a non-threat threat, because Russia has already defaulted on loans, as it is largely shut out from the Western banking system and thus can’t even transfer the money. (As happened to Argentina.) More defaults theoretically mean that Russia will be unable to access Western loans and so on, but they already can’t, and they have access to the Chinese banking system, which is larger than any Western country’s and perfectly capable of keeping Russia and Russian companies afloat.

Understand clearly that most Germans and Europeans support the anti-Russia sanctions. This is a popularly backed policy: Europeans are paralyzed by fear of Russia and were long before Ukraine. I had a friend in Austria tell me how he scared he was of Putin back in 2016.

We will, however, see what the result of this is. I would guess that in the short-term, it will stiffen opposition to Russia, but I’m less sure about the medium- and long-term. German elites, especially, will feel a need to end the Ukraine war and get back to a steady Russian supply.

No matter what, however, it highlights the price Europe is paying for its anti-Russia stance.

As the Sun Sets on the United Kingdom

On July 18, 2022

In Peter Hall’s Cities in Civilization, there’s a long chapter on the destruction of the Port of London. Hall doesn’t call it that; he is more impressed by the change from a decaying port which was close to a slum, which was losing importance to a new neighbourhood, headlined by the huge Canary Wharf complex, which is 97 acres with 16 million square feet of indoor space.

The port of London had been the greatest port in the world in the 19th century, but had slipped into decline in the 20th century, especially after WWI and II. The problems seemed intractable and the fact was that London was no longer the center of the world by 1980; it was New York. The Empire was gone, and when Britain joined the EU it abandoned its emphasis on economic and trade ties with the Commonwealth, made up of former members of the Empire like India, Australia, South Africa, Canada, and many more.

I remember the Commonwealth world, if barely, and my parents lived the prime of their lives in it. There was a lot of trade and travel and an entire class of people who moved easily between Commonwealth nations. But Britain, post-WWII had been de-industrializing, and Thatcher’s policies, economically, amounted to a “Fuck it, we’re giving up industry and pivoting entirely to finance.”

I recently saw someone mention the debate in England right now between the policies of Thatcher and Reagan (there wasn’t that much difference) but this is insane.

Thatcherism, Reganism, and indeed, neoliberalism, relied on built-up fat of the land. Thatcher’s big bribe to voters was letting them buy their council housing for below what it was worth. Over the neoliberal period, virtually everything owned by the state was sold off to the private sector: water, power, railroads, and as much administrative outsourcing as possible. Regulations were cut as much as possible, held back by the EU, which while neoliberal, prefers to keep some standards.

Industry was sold off to whoever wanted to buy it, often at fire-sale prices, and most of the purchases were moved overseas to places with cheaper labor.

A huge housing bubble, largely in greater London, was created. Housing bubbles always seem like free money at first, but they don’t create productive assets; what they do is make some people rich, let those who own at the beginning or get in early enough gain unearned wealth, and drive up the costs of living, and thus labor costs. This means that housing bubbles actually make a country less productive.

They’re attractive as hell, at first, and the play has been done often. Turkey under Erdogan ran one, and for about 15 years it looked great and a lot of people were made better off. But Turkey had a lot less fat to burn on the fires of housing speculation than the US, Britain, or Canada and when it ran out Turkey went into an economic tailspin. (There’s more to it than that, of course, but you can’t have housing as your engine of growth forever.)

Now, clearly, Britain was not going to regain its position as the greatest industrial nation, but by financializing and running a long housing bubble, and deliberately selling off all the areas of the state which need to be performed with competence, uniformly and at a low, fixed cost, Britain destroyed most of what it had left.

The port of London is symbolic of this. While London didn’t need it, and certainly wasn’t going to need the kind of mega-port it had been earlier, just giving it up meant the wholesale destruction of a myriad of small shipping, logistics, insurance, chandlery, repair, and shipbuilding companies.

It’s easy to destroy a network like that, but it’s hard to rebuild it. The smart play would have been to plan for a smaller port, but do what they could to keep as much of the network as possible. Mercantile policies similar to what Germany followed (or Northern Italy, until the Euro smashed them) were what was required for Britain to have a prosperous future.

What they did, instead, was throw everything productive on a huge fire, and live off what Brits had created for centuries. It worked for about 30 years, for at least a plurality of Brits, and it made a lot of people rich, but it also impoverished the industrial north and created massive distrust for the establishment, which was later parlayed to sell Brexit, as British decline was correlated so strongly with the period of its membership in the EU. (The EU was not responsible, and its policies made doing the right thing possible — if anyone had wanted to. No one did, but even so, EU laws actually slowed down the burn.)

Britain came out of WWII with a very bad hand. The US wanted to replace them, and they put the boots to Britain, doing what they could to ensure the UK would experience no industrial recovery, and that Britain would remain an American satrapy.

But as bad as that hand was, Thatcherism was a self-inflicted wound. There were alternative policies which wouldn’t have sold the patrimony to have a 30-year party.

Britain is in a position now where there is almost nothing left to throw on the fire. The NHS is next, but that’s about all there is.

Corbyn was the last chance to make a turn, but the British elite united against him, smearing him with lies and Labour party operatives actively worked against his election — to the extent of lying to him about what ads were running and making sure his phone would see ads ordinary people didn’t.

So now, the Brits have a situation where “Great Britain” will likely come to an end: Remember that the United Kingdom is Scotland + England + Northern Ireland, and that Scotland is soon likely to go. I expect Northern Ireland as well, and even Wales is possible in a couple decades.

Those who rule England will still be rich, but they will rule over an impoverished nation. They’ll be able to afford servants and estates again, though, and I suspect they want a return to that “kind of life” more than anything else.

If the British, or the English (or the Scottish, etc.), want a future, they need to do something they’ve so far been unwilling to do: Replace their leadership class wholesale, getting rid of their class of public school-educated politicians and businessmen. Without this, it is not possible for the right things to be done — and even if they got rid of those people, they’ll have to rebuild from very close to nothing.

It seems likely that the sun will set on Britain, as it has on every other great empire.

Hail Britannia, and goodbye.

Week-end Wrap – Political Economy – July 17, 2022

By Tony Wikrent

On July 17, 2022

Stunning new Webb images: baby stars, colliding galaxies and hot exoplanets

by Tony Wikrent

[Nature, via Naked Capitalism 7-13-2022]

Strategic Political Economy

The Power Game

W. J. Astore (Lieutenant Colonel USAF ret.), [Bracing Views, via Mike Norman Economics 7-10-2022]

A book that shook my world was journalist Hedrick Smith’s “The Power Game,” published 35 years ago in 1987. It was about “How Washington really works,” and what I remember about it is how it made me feel, as in discouraged and outraged. I learned about the power of lobbyists, the power of money, and what money gains you, which is access. More-or-less legal forms of corruption in 1987 are now most definitely legal, with the Supreme Court decreeing that corporations are citizens and that money is speech….

One thing I really liked about Hedrick Smith is his honesty. He gave a talk on his book, link here:

https://www.c-span.org/video/?3754-1/power-game-washington-works

Where he explained that, if you’re a politician and you accept certain campaign donations, it’s understood between both parties that when the donor needs you to vote a certain way, you will vote that way, no questions asked. Everyone in Congress understands this. It’s why every effort by real citizens to get big money out of politics fails. It fails because the big donors won’t have it. They like to be able to buy politicians, thank you very much. That’s how democracy works, so says the Supreme Court. If you don’t like it, start your own corporation, make a few billion, then you too can buy your own politician.

A revival of democracy in America starts with campaign finance reform, which most politicians say they’re for even as they vote against it. Sounds like a conundrum to me. Can we solve it by explaining to our esteemed justices (John Roberts, can you hear me?) that money is not the same as speech and that corporations really aren’t the same as citizens?

Finally, a rather obvious point, but it bears repeating. Justices like Thomas, Roberts, Kavanaugh, Gorsuch, and Barrett weren’t just selected because they were reliable votes against abortion. They were really vetted and selected because they will always rule with the powerful against the powerless. They are, in a word, pro-corporate.

“Pushed To The Brink”

Jesse & Tyrel Ventura [Die First Then Quit, via Naked Capitalism Water Cooler 7-15-2022]

“From the Police, to the Supreme Court, to Congress, across the board U.S. citizens are losing faith in our vital institutions in record numbers. Notably, the biggest drops in citizen confidence from last year to this year were found in the institutions of the Presidency and the U.S. Supreme Court. They both fell 15 and 11 percent, respectively. This doesn’t come as a surprise given how feckless the Biden Administration has been when faced with the major political, economical, and social challenges we’ve seen over the last year. Rising inflation, Roe v. Wade, Climate Change… just vote harder…. This nose dive cuts across all party lines as well…. How much farther can we fall or maybe the better question is what happens to a populace that loses all faith in its institutions? The answer to that maybe found in a recent polling data collected by the University of Chicago’s Institute of Politics, which discovered that a majority of American’s believe their government is corrupt and rigged against them. Pigging backing on that, the data also revealed that ‘more than one in four Americans are so alienated from their government that they believe it may ‘soon be necessary to take up arms’ against it.’ One in four Americans. That’s a truly frightening statistic. That should make anyone’s blood run cold after reading it. Violent revolution is not the answer. Any student of history will tell you that a political revolution based on violence hardly ever brings actual freedom to a country.”

Polling: Nation Feeling Crisis of Confidence

David Dayen, June 24, 2022 [The American Prospect]

By a 68-10 margin, respondents agree that “the United States is in decline.” Two-thirds of those polled agreed that “The American economy is rigged to advantage the rich and powerful,” with 14 percent opposed. They agree 65-10 that “traditional parties and politicians don’t care about people like me.” And they save some ire for the mainstream media, which by a 70-13 margin they say is “more interested in making money than telling the truth.”

Michael Hudson: The End of Western Civilization – Why It Lacks Resilience, and What Will Take Its Place

{Naked Capitalism, July 12, 2022]

…What distinguishes Western economies from earlier Near Eastern and most Asian societies is the absence of debt relief to restore economy-wide balance. Every Western nation has inherited from Rome the pro-creditor sanctity of debt principles that prioritize the claims of creditors and legitimize the permanent transfer to creditors of the property of defaulting debtors. From ancient Rome to Habsburg Spain, imperial Britain and the United States, Western oligarchies have appropriated the income and land of debtors, while shifting taxes off themselves onto labor and industry. This has caused domestic austerity and led oligarchies to seek prosperity through foreign conquest, to gain from foreigners what is not being produced by domestic economies driven into debt and subject to pro-creditor legal principles transferring land and other property to a rentier class….

Rome never was a democracy. And in any case, Aristotle recognized democracies as evolving more or less naturally into oligarchies – which claim to be democratic for public-relations purposes while pretending that their increasingly top-heavy concentration of wealth is all for the best. Today’s trickle-down rhetoric depicts banks and financial managers as steering savings in the most efficient way to produce prosperity for the entire economy, not just for themselves.

President Biden and his State Department neoliberals accuse China and any other country seeking to maintain its economic independence and self-reliance of being “autocratic.” Their rhetorical sleight of hand juxtaposes democracy to autocracy. What they call “autocracy” is a government strong enough to prevent a Western-oriented financial oligarchy from indebting the population to itself – and then prying away its land and other property into its own hands and those of its American and other foreign backers.

Read More

Open Thread

On July 16, 2022

Use to discuss topics unrelated to recent posts.

The Debt Trap That Helped Take Down Sri Lanka Was Not Chinese

On July 14, 2022

Let’s put an end to this nonsense:

The Asian Development Banks is essentially a US proxy and the World Bank is mostly controlled by the US. Market borrowings are almost entirely from Western sources.

The article goes into more detail:

Sri Lankan President Gotabaya Rajapaksa, who spent a significant part of his life working in the United States, entered office in 2019 and immediately imposed a series of neoliberal economic policies, which included cutting taxes on corporations.

These neoliberal policies decreased government revenue. And the precarious economic situation was only exacerbated by the impact of the Covid-19 pandemic.

Facing an out-of-control 39.1% inflation rate in May, the Sri Lankan government did a 180 and suddenly raised taxes again, further contributing to popular discontent, which broke out in a social explosion in July.

Seems that cutting revenues makes you more likely to default on your debts and does not magically improve the economy. And when you do it just before a pandemic, well maybe it doesn’t work out well.

From Reuters, about that tax increase too late.

An increase in Value Added Tax (VAT) to 12% from 8% with immediate effect is among the key tax increases announced on Tuesday, which is expected to boost government revenues by 65 billion Sri Lankan rupees ($180.56 million).

Other measures, including increasing corporate income tax to 30% from 24% from October, will earn an additional 52 billion rupees for the exchequer.

Withholding tax on employment income has been made mandatory and exemptions for individual taxpayers have been reduced, the statement said.

So, the biggest chunk of it was a regressive VAT tax increase.

I’m not an expert on Sri Lanka, but the third world debt trap, which started primarily in the 1970s was based on the idea that you could borrow money and use that money to buy development. The play was to spend the money to turn to exports the West wanted (cash crops, minerals, etc…), which you had a “comparative advantage” in. Problem is that everyone was getting the same advice, so the supply of cash crops and minerals increased in multiple countries and the price crashed. Worse, to grow cash crops you had to get your subsistence farmers off the land. They went into slums, and you now had to feed them, which meant you had to import food.

In Sri Lanka’s case tea, spices and coconuts are key exports. You can only eat one of those three. When Covid happened the market collapsed, incomes were already down, debt load was high and … BOOM. According to the figures Sri Lanka is a net “agri” exporter, but it exports mostly non food agri items and can’t feed its own population.

(Rule #1: if your country can’t feed its own population, you are always vulnerable to outside forces.)

So, anyway, Sri Lanka spent generations servicing debt by selling the developed world luxury agri-goods, but the prices of those weren’t that high, and they didn’t get a developed economy out of their loans, but still had to pay the loans while unable to feed their own population. Pretty normal story, sadly. (Egypt is the saddest, from the cornucopia of the world to a food importer. The Aswan dam should never have been built, losing the Nile’s annual flood was too high a price to pay for its electricity.)

Now, the media is constantly full of stories about the Chinese Debt Trap. They’re bullshit.

African countries owe three times more debt to Western banks, asset managers and oil traders than to China, and are charged double the interest, according to a study released on Monday by British campaign charity Debt Justice.

This is entirely consistent with what I have discovered every time I’ve looked into the issue. It is not that there have never been corrupt high interest Chinese loans, but generally speaking, Chinese terms are far better than Western ones.

The reasons are twofold:

China wants resources. In exchange they are willing to build infrastructure for cheap in countries who will sell them those resources. If you want hospitals and schools or even an entire city as well, they’re happy to build that for you too. This seem similar to Western policies from the 70s but is different in important respects: the West wanted the resources and they wanted to make lots of money off the loans and they wanted to gain control of economic policy in developing countries so they could institute neoliberal policies like getting rid of food subsidies.
China has just spent decades developing its own country. While the job isn’t done, it has slowed down and China found itself with a lot of extra development ability: companies and workers specialized in building infrastructure: from ports and airports and railways, to everything a city needs, including sewage and power. They want to keep that industry running, and not have to get rid of millions of employees and have firms downsize and go bankrupt. So those firms, and often workers now develop countries all around the world. As long as they make some profit, that’s good enough for China. It doesn’t have to be high, especially, again, as they’re getting resources in exchange.

The “developing” world is a mess because of the West, not China. It is our policies which made it nearly impossible for most nations to develop. Those policies were designed to make our coporations and banks rich and to weaken the ability of poorer countries to resist us. They were exactly the opposite of what is required to develop a country, which is almost always done behind trade barriers and by moving UP the value added chain, not by selling raw materials and crops. This is how the US did it, Britain did it and almost every country in Europe did it. It is how Japan and Taiwan and Korea did it.

We sold countries like Sri Lanka advice that was bad for them and good for us, and which put them into a debt trap we refused to let them get out of by pretending that debt default was unthinkable and debts sacrosanct and by hurting any country which tried to default brutally.

This isn’t the historical norm. Previously third world countries defaulted all the time, and they soon floated new debt and yes, investors loaned to them anyway.

People who loan money should not be protected that much from default. Some protection is reasonable, but when a person or country is bankrupt, they should be able to default. Doing so keeps lenders honest: they either don’t lend, or they accept the risks, and they have incentives to keep debt reasonable, since if they don’t, they will be hurt.

When we made it so that default was virtually unthinkable, we changed the incentives (so beloved by economism believer) in ways that made it make sense for investors to lend money which was to be used in ways which crippled entire countries, indeed continents and made it impossible for countries to change course and pursue strategies which would actually allow them to develop.

That’s the story of most of the developing world.

And if you need to borrow money as a third world nation? Borrow it from China, not the West, if they’ll lend to you. As for the IMF, their job is to keep the payments going and keep countries in the debt trap so they can never develop and never have policies independent of the US and the West.

How Standard Media Skews Public Understanding

On July 12, 2022

I recently had a long conversation with a fellow Canadian about current events, especially Covid and the economy. He read a lot of newspapers: he’s well informed by normal standards.

But over the course of the conversation I realized he was terribly informed.

For Covid, he was convinced both that China had only controlled Covid thru very long lockdowns and that they were lying about results. In particular, he remembered Shanghai well, but didn’t realize Shanghai was an exception. Most Chinese cities have locked down much less over the course of Covid than we have.

When I mentioned that other countries had much lower rates than us, he dismissed that as well. He thought travel bans and quarantines were completely pointless, when they have worked very well for those countries which implemented them. Western Australia’s travel ban kept Covid low there for ages, and New Zealand had a wave almost immediately after as they released restrictions.

He believed that not doing zero-Covid style policies was better for the economy and that China’s economy was in free fall. It has issues, to be sure, but it also has a 2% inflation rate, among other advantages.

He was convinced governments could not just find money to support people in lockdowns, believing money comes from taxes (it doesn’t, most money is created of thin air, this is something the MMT people are right about.)

He believed that vaccines are the most effective anti-Covid measure. They aren’t: China has worse vaccines than us and much better performance, and Covid variants have optimized for vaccine and natural immunity evasion. BA.5 in particular laughs at immunity, whether natural or vaccine.

In general he felt that the economy must be prioritized, and that is done best by keeping it open at all times. There was no acknowledgment of long Covid as a factor, or of the fact that each infection increases the odds of long term health damage to victims.

There was a sense of hopelessness about Covid being international, and that it would just keep going forever as a result, without knowledge of us restricting vaccines for much of the world, not doing travel bans or quarantine properly and not supporting other countries to do the right things (not that we are ourselves.)

He wouldn’t acknowledge that if shutdowns are to be done, they should be done at the point where numbers start going into exponential growth, even though there aren’t a lot of cases then, instead of waiting for hospital ICUs to be overwhelmed, and that by doing so we’d actually have shorter lockdowns and a lot less deaths and disabled and sick people.

This isn’t a badly read guy; he knew about the things the media has covered at length.

And this is the problem with propaganda; it creates a world view among its victims that is simply incorrect, and if you don’t actually know what’s going on you can’t make good decisions or support good decision at the political level.

What I see is that the West, in most cases, is creating circumstances where 15-20%, or more, of our population will wind up disabled in some way. Repeated Covid infections are going to gut us: our society cannot run with that many people with long term health damage.

But the media’s coverage has been of the “what we’re doing is the best way and everyone else is doing it badly.” It’s not that there aren’t exceptions, but that’s the general tone and message, along with a huge push for vaccines at the cost of other measures like masking, quarantines, travel bans, and proper indoor ventilation which actually, in some combination, work better.

One could call this “learned helplessness.” My conversation partner was convinced that everything reasonable had been tried, that zero-Covid policies hadn’t worked where tried and that doing them was tyrannical, bad for the economy and worse than what we had done.

Nothing could be done, so Covid would remain chronic, with wave after wave.

In a sense he’s right, except that so far we have refused to do what works, so Covid will keep going.

How To Think Clearly About Political and Social Issues

On July 11, 2022

One of the most useful things you were probably made to do in school is argue for points of view you disagree with. Make the choice case if you are pro-life, make the pro-life case if you’re anti-abortion.

Write the Palestinian case or the Israeli case, whichever you oppose.

Make the best case you can that Russia was right to invade, or the best case you can that Russia was wrong. Make the case that NATO was responsible, then make the case it had nothing to do with it. Make the case Ukraine is Nazi-infested, make the case it isn’t.

Honestly making the best argument you can for the other side is a very useful exercise. I rarely write such articles any more, but I still do it informally quite often and I couldn’t write what I do if I hadn’t been trained this way.

To really make this work, though, you have to be able to empathize: to feel what people feel. David Ben-Gurion once said that if were Palestinian he would be in the violent resistance. That was a man who wasn’t so caught up in his own world that it blinded him.

And don’t rush to disagree with the case you’re making. Make it first. FEEL the case. Get self-righteous.

It’s not hard to feel self-righteous about being pro-life for example, to feel you’re a paladin for justice and anyone opposing you is evil.

But it’s also easy, as a Russian, to see the Russian invasion of Ukraine as justified and feel righteous about it. If you can’t do it, you don’t really get the argument.

The same can be done for the Ukrainian side (somewhat easier, if you’re a westerner.)

Because some arguments are illogical, you always have to be able to feel. There is no question Israelis took Palestinian land and are still taking it, so you have to feel what makes them think that’s good.

Same with understanding our genocide of natives in N. America.

Or, for that matter, truly understanding the emotions behind the Holocaust (which, remember was not just Jews.)

If you’re authoritarian (most Americans are, most Westerners even) you need to learn how to feel in egalitarian modes.

If you’re egalitarian, you need to learn to think in authoritarian mode (Authority is GOOD, it makes you feel safe and loved and taken care of.)

One problem with all this is that doing this engages the disgust emotion, or even contempt (contempt is the most dangerous emotion to other people, it gives license for violence.) I can’t count the number of times I’ve explained a position I don’t agree with and people have hated me.

This is especially so when you start dealing with questions of “evil”. Why are people cruel? Well, a lot of it is that pushing people around and hurting them engages the feeling of having power, and feeling powerful is enjoyable. To understand this you have to feel it.

But you’ve now felt the emotional drive-train of a certain type of evil, and others will hate or despise you for it (especially if they get a flicker), then deny it.

If you truly want to understand the world and other people, you have to be willing to engage your emotions.

It actually takes bravery, because you will feel things you really don’t want to.