Economics and global trends - Jan 12
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How the Recession Changed Us (graphic)
Timothy Lavin and Amanda Buck, The Atlantic
Officially, the Great Recession lasted from December 2007 to June 2009. A mere 18 months... Yet if the trauma this time feels deep and lasting, that may be because, as the figures on these pages show, so many disruptions have upended national life at once.
... as the economy begins its slow and stuttering recovery, the vast changes wrought by this recession will continue to reverberate for many years - in ways predictable and otherwise.
Great graphic at original. -BA
Oil Limits Overview and Links to Some Posts
Gail Tverberg, Our Finite World
Where does a person start when reading about oil limits and their impact? I tried to answer this question with respect to my own writings, in a new tab I added on the top called Getting Started. Here I summarize my version of the peak oil story and offer links to some of my posts. I thought I would repeat it as a post, to call attention to it, and offer a chance for comments.
We live in a world that is finite. While there are huge amounts of oil, gas, coal, and minerals (such as uranium, gold, silver, copper, and lithium), we tend to extract the easiest to obtain, highest quality resources first. Eventually, we find it is more and more expensive to extract additional quantities of these items. Aquifers that are slow to replenish become more and more depleted. Top soil tends to erode faster than it is replaced. Pollution tends to be a problem too, with the most obvious example being carbon dioxide added to air and water.
Economists have set up their economic models as if we would never reach limits. In fact, we seem to be reaching limits now, especially in the area of oil supply. World oil production has been approximately flat for six years now (since the beginning of 2005), even as producers have strained to raise production. OPEC claims to have a huge amount of spare capacity, but there is little evidence that this is really the case. They also claim to have very high oil reserves, but the reserves have never been audited, and are believed by many to be seriously overstated.
There is great confusion regarding what happens when we reach limits in oil supply. People expect that if oil starts hitting limits, the symptoms will be high prices and shortages. In fact, the symptoms as often as not seem to be recession and an inability of would-be purchasers to afford the goods that are being produced with the high priced oil. This at times looks like an over-supply of oil–the opposite of what people expect.
The issue is not a lack of oil, but a lack of cheap, affordable oil. If oil prices could rise high enough (and people’s pay checks could rise to accommodate this increase in price), there would likely not be a problem–we could just extract more higher priced oil. The fact that things seem to work in this manner helps solve the mystery regarding how there could be a huge amount of oil still in the ground, but oil supply still not be growing.
(12 January 2011)
The Japan Myth
Daniel Gros, Project Syndicate
... the key argument was the need to avoid a repeat of Japan’s “lost decade.”
Policymaking is often dominated by simple “lessons learned” from economic history. But the lesson learned from the case of Japan is largely a myth. The basis for the scare story about Japan is that its GDP has grown over the last decade at an average annual rate of only 0.6% compared to 1.7 % for the US. The difference is actually much smaller than often assumed, but at first sight a growth rate of 0.6 % qualifies as a lost decade.
... But this picture of stagnation in many countries is misleading, because it leaves out an important factor, namely demography.
How should one compare growth records among a group of similar, developed countries? The best measure is not overall GDP growth, but the growth of income per head of the working-age population (not per capita). This last element is important because only the working-age population represents an economy’s productive potential. If two countries achieve the same growth in average WAP income, one should conclude that both have been equally efficient in using their potential, even if their overall GDP growth rates differ.
When one looks at GDP/WAP (defined as population aged 20-60), one gets a surprising result: Japan has actually done better than the US or most European countries over the last decade. The reason is simple: Japan’s overall growth rates have been quite low, but growth was achieved despite a rapidly shrinking working-age population.
Daniel Gros is Director of the Centre for European Policy Studies.
(6 January 2011)
Cited by Kevin Drums at Mother Jones, with additional comments: Demographics and Destiny. -BA
East and west converge on a problem
Martin Wolf, Financial Times
... For Prof Morris, “social development” is an amalgam of four factors: energy use; urbanisation; military capacity; and information technology. The first is fundamental: the capture of energy is a necessary condition for existence; the more complex and advanced the society the more energy it captures. This is why “industrial revolution” is a misnomer for what happened two centuries ago. It was an energy revolution: we learnt how to exploit fossilised sunlight. Energy and ideas are the twin bases of our civilisation.
Prof Morris’s measures of social development and “energy capture” closely coincide with each other (see charts). We can notice three other things. First, western energy capture was the same in 1700 of the common era as it had been in 100, while China’s reached its pre-modern apogee in the 12th century. Second, energy capture and social development have exploded over the past two centuries. Finally, the east’s use has been rising very rapidly.
An analysis, from the development centre of the Organisation for Economic Co-operation and Development, argues that convergence has been changing the global balance of supply and demand for resources.** This is shown in recent rises in the real prices of metals and energy.
... A rising east must alter the balance of global power and the abundance of cheap resources.
On the latter, it is an irony of intellectual history that Thomas Malthus, prophet of overpopulation, worried about the lack of resources just as these pessimistic assumptions became untrue. The biggest question of the 21st century may be whether resources prove to be binding constraints once again, as they so often proved to be, prior to 1800.
(11 January 2011)
Also see a previous column by Martin Wolf about the growing economic might of China and India vs the US and Europe: In the grip of a great convergence -BA
Global Crisis - A Russian Perspective (Boris Kagarlitsky interview)
Lawrence Surendra, Frontline (India)
Interview with Boris Kagarlitsky, Director of the Institute of Globalisation Studies and Social Movements in Moscow.
... The forest fires of this summer were really in a way the moral and cultural turning point. They revealed the state of permanent disaster into which Russian society has moved in the past 17 to 20 years. It will be absolutely wrong to present these fires purely as a natural disaster, which, of course, the government tried to do. Interestingly, no one in Russia was prepared to accept it. Ultimately and ironically, even the government had to accept that it was a man-made disaster. The fires did not result from global warming or climatic change and higher temperatures. Forest fires are common and happen everywhere, but the fact that it spread on such a large scale and became uncontrollable was because of privatisation. Neoliberal legislation in the form of a new liberal forest code led to the privatisation of Russian's forest resources. This also meant that the state or its agencies could not intervene in these forests. As a result of the privatisation of forests, structures that existed to deal with such situations had been dismantled and the management structure, technology and equipment that existed earlier were no longer available. Worse, in the current privatised context the fire brigades and fire-fighting agencies under state control could not enter the forests unless invited by the private owners. So you had a situation where once the forest fires started they were not, and could not be, brought under control, a fact that was not at all highlighted in the international media coverage of the forest fires.
Whole villages were wiped out in the range of 2 or 3 km of the fires. People were simply running away and some of them crossed to the Belarus side of the border and discovered that on the Belarus side, where the climate was the same, the temperatures were the same, there were no forest fires and even if there were some incidents they were extinguished immediately, maybe even in minutes. This is because, people discovered, they had retained the old Soviet system of state control over forests, and this meant that the forests were being monitored regularly and managed by personnel from the state forest services, and a close watch was being kept on preventing any such disasters.
Q: n your book “The Empire of the Periphery: Russia and the World System” you say that even before the collapse of the Soviet regime, under perestroika itself Russia was being reduced to a mere raw materials exporter and its economy was reduced to dependence on raw materials. This was because in the years leading up to the years of perestroika the Soviet Union had already been reduced to a very indebted country.
A: Actually, the huge debt was the turning point. Many people see perestroika as the turning point, but I am trying to show in my analysis that the turning point happened much earlier, in the second half of the 1960s and the early 1970s. In the 1960s it became very clear to society and to the leadership that the Soviet society was in a deep need of transformation, and my point of view is that, ironically, the Soviet system was facing challenges not because of its failures but because of its successes. The system was heading towards what seemed a collapse not only because of the lack of democracy and so on but actually because of its successes and achievements. This is the kind of dialectics of history.
The Soviet system was designed to develop the country rapidly into an industrialised society and economy. So, actually within less than two generations the Soviet society had been transformed from a rural, agricultural, backward and, in many ways, weak society into a tremendous industrial power. By the way, this achievement of becoming an important industrial power was also realised by investments in science and technology and important breakthroughs in this field, including, very interestingly, the successes of Soviet geological science, which was able to show how rich the country was in terms of minerals and raw materials. The latter happened precisely because under the conditions of the Cold War the former Soviet Union had to prioritise access to and supply of raw materials and mineral resources. In the period beginning with the 1930s and into the war period and especially in the 1950s, there was an enormous effort to turn the country into a rich country in terms of resources.
This, however, could not continue running on the lines similar to those of the 1920s. So, in the late 1960s the bureaucracy made a conservative choice to consolidate the system, which needed to be backed by some kind of material feasibility. It was the crisis in 1973 that changed the situation, with an increase in the price of oil and the growing demand for raw materials in the West and around the world. With the sudden income and short-term prosperity due to the oil resources available within the Soviet Union, the Soviet leadership believed it could buy everything the country could not produce. For example, in matters relating to Soviet science and technology outside of defence and the military, the policy of the government was: if there was a problem with technology, simply buy it from abroad for oil; if society is short of consumer goods, get them from abroad, and so on.
The problem at that point was that the Soviet Union was reintegrating into the global capitalist economy not as a successful industrial country with high scientific development, which it was, but as a producer of raw material, which meant a semi-colonial type of reintegration.
... the Russian economy suffered both from the open markets and from the policy of financial stabilisation, which inflicted even more damage. We ended up losing 40 per cent of our industrial capacity of the 1990s. A disastrous figure, it was one of the worst-known historical disasters in peacetime; to make matters worse, the lost industrial capacity was never recovered. Even though the first decade of the 21st century was considered a successful decade with a lot of economic growth, it did not lead to Russia recovering much of its industrial capacity.
... Jayati Ghosh made a very important point recently, that China and to a certain extent India are becoming hostages of their own export-oriented economies given the lack of new markets. Their market space is actually shrinking. They are reaching a situation when to continue exporting to the West they have to start subsidising the West directly or indirectly. China can look technically as being in good shape. However, the problem is that it is actually not, and to continue moving in its current economic path China has to do a lot to save the American economy, unless there is a structural change. All the current measures to save American consumption will be short-term and will not solve the problem in the long run.
Ferguson, a conservative English historian, coined the term ‘Chamerica' and said that it was a marriage of convenience. It is like a marriage between a hardworking man (China) and a lazy but prestigious woman (America) who spends the hardworking man's money. Ferguson thinks that this marriage will last. I, however, have my doubts.
(15-28 January 2011 issue)
Also at ZNet
Marx at a book signing, speaks on crisis
Paul Mason, New Statesman
Karl Marx, in London for a book signing, stumbles off the Eurostar and straight into an interview with Paul Mason at a café in King’s Cross. How does the credit crunch fit with the guru’s theory of crisis?
I chose St Pancras to impress him, but he is not impressed. Stumbling off the Eurostar, he barely notices the architecture and thumbs his BlackBerry when I point out the champagne bar.
I've prepared this whole historical decompression briefing for him: the match girls' strike, the petrol engine, cinema, Lenin, the Warsaw Pact, the John Betjeman statue. But he stops me short: "I know, I know all about it. You think we don't have Wikipedia up there?"
“You see everything?"
“Better than you! We see it without sensuous historical experience. It's like watching a slow-motion car crash. Just wait till you get there: it will restore your faith in the objective forces of history."
... “OK," I press him. "There are three recognised causes of crisis in Marxist economics: underconsumption, disproportionality and overproduction. Do you buy that, at least?"
He looks glazed, impatient. I've seen this look in the eyes of the other celebrity profs and hedge-funders who predicted the 2008 credit crunch and have now shot to fame.
He retorts: "OK, but you have got to think of them as layers; they're not competing explanations. They work at different levels of abstraction, like biology, chemistry and physics."
So what's the physics? What's the root cause of this crisis? I push my digital voice recorder closer to him. "All three," he laughs. "That's why it's a whopper. Let's start with the debt issue. Why do you think they were shovelling cheap credit into the hands of poor African Americans and Hispanics who could never pay it back?" Low wages, I answer. "Precisely. They held down the real wages of the working class during a boom. Unheard of since before the 1936-49 war."
... Then: "Company profits are high; profits for savers are low. But companies don't reinvest. They typically bank their profits or pay them out in dividends. What this is telling me is that the rate of profit for capital in general is low.
“So, anyway, this is a profits crisis at root. It's a global profits crisis masked by the incredible returns bankers were earning and all this crazy, childlike, credit-driven consumption." He waves a hand in the direction of everybody and everything in Starbucks.
“So let me recap," I say: "the underconsumption piece of the theory explains the low-wage, high-credit model but it's not the key factor. And overproduction explains the historically low, you allege, returns on capital. What about disproportionality?"
... He trails off into a reverie, mesmerised by the digital recorder; his eyes take on the narrow slant of a cat toying with a mouse. Then he speaks: "Let's make it easy for the Anglo-Saxon audience and put it into two syllables: mis-match. There is an inevitable mismatch between the producer goods sector and the consumer goods sector, and it leads to crisis - only now you don't call it that. You call it the global imbalances."
Between China and the United States?
“Exactly. China produces, America consumes. Chinese workers save, American workers spend. The American state runs up debts, the Chinese state - and Asia in general - holds those debts.
... “Twenty-odd years of solid work and all I could come up with is this - if there is a fundamental driver of crises, it is probably the tendency to overproduction. However, capitalism evolves."
“If there's no synthetic theory, how come your work's so popular again?" I venture.
... “What I discovered is that economic laws operate 'behind the backs of the producers' - Volume I, page 44! They're objective laws but often so deep that you can only experience their secondary effects. I mean" - his face takes on a mock grimace of despair - "it's not f***ing rocket science: we know tectonic plates. Ever seen a tectonic plate? Ever seen one photographed from below, in the magma of the earth? It's impossible, so you need logic."
He leans across the table, animated, as if he's thinking of grabbing my lapel. "What I said, quite simply, to the economists of my time was that their theories were crap, their graphs were crap and that the power of what you would call human agency is very, very limited. And what they've just discovered is that I am right.
“The result is ideological collapse: the psychological shock of realising you're not actually the master of the universe but that the universe hasuniversal laws, some understood, some not, that operate independently of your will. It's that, really . . ."
He shrugs his shoulders and indicates that I should turn the microphone off.
“Did you personally see it coming?" I ask.
He shakes his head. "Up there we have total knowledge of the past but we don't have a fast-forward button."
So, where next?
“... it's only the same as I told the Huffington Post last week: the rise of China; the decline of America; deflation in southern Europe; collapse of the eurozone; state capitalism - and that's before you get to the resource wars and the ageing time bomb."
(6 January 2011)
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