Click on the headline (link) for the full text.
Many more articles are available through the Energy Bulletin homepage
ASPO’s Dave Cohen: Should We Save General Motors?
Dave Cohen, ASPO-USA
Should we save General Motors? Let me rephrase that. Suppose we must choose between salvaging American International Group (AIG) or General Motors (GM) but we can’t save both. Put that way, there is no choice—clearly we must save the automakers, though not in their present form. I am going to take the long way around through the global derivatives market to explain how our priorities got so out of whack. This is a follow-up to last week’s analysis No, We Can’t?
… Investing In Productive Works
So should we salvage AIG? And Citi and other banks? Or should we save General Motors? My assumption is that we can’t save everybody who needs saving. Otherwise 1) the Fed will have to print so much money that you’ll need to carry $5000 to the store to buy a loaf of bread; or 2) the Treasury will create deficits so large over and above our entitlements debt—assuming the Chinese, Japanese, and Saudis continue to buy that debt—that your great-great-great grandchildren will still not be able to pay it off.
General Motors, as incompetent and unethical as their leadership has been, actually manufactures things of value, or at least they could. I’m not talking about the clowns who introduced the Hummer, although people are still buying them. And I’m not talking about manufacturing in general, which does not make the crucial distinction shown in Figure 2.
Capital expenditures put toward manufacturing Chevy Volts is an investment in productive works, as opposed to spending money on making granite counter-tops or, God Forbid, issuing credit default swaps. This is such a simple point that I am almost embarrassed to make it.
I say “almost” because there is now so much confusion in a world that has been dominated by Finance, Insurance, and Real Estate for the last 30 years that few seem able to grasp the crucial distinction between a mortgage-backed collateralized debt obligation and a fuel-efficient battery-driven car.
(12 March 2009)
What stops us from acting more boldly on economic and environmental policy
Gar Lipow, Gristmill
A lot of energy is expended on Grist showing that good environmental policy is good economic policy — to show that green pays. But it is just as important to show the same thing from the other direction. Economic policy will only pay if includes strong environmental features. Let’s look at the current responses to our economic crisis from that perspective. We’ll start by comparing what we are doing as compared to what we should be doing, and then move on to explaining the difference.
Let’s start with the economic stimulus package that was just passed. It is not nearly big enough. It was structured on fighting a smaller unemployment rate than we already face, let alone the rate at which unemployment will peak. Those radical leftists in the World Bank are noticing that the recession is worldwide, which would indicate a deeper recession than Obama’s stimulus was intended to fight. Though you would not know it from the corporate media, quite a number of respected economists predicted from the beginning that this was too small a stimulus. Even intelligent conservatives are starting to say we need a second, bigger stimulus.
Where to put the money from a second stimulus? Keeping public transit going, which otherwise loses subsidy revenue during downturns, gives a double return in not only saving jobs and demand that would otherwise collapse, but also reducing oil use, greenhouse gas emissions, and traffic congestion. In general, making up for losses in state and local revenues reduces pro-cyclical job losses that otherwise make a recession worse.
But we have good reason to consider long-term investment in infrastructure as well. Much necessary infrastructure spending is “shovel-ready.” For example, suppose we decide to put $450 billion into upgrading our freight rail system to move 85 percent of long-haul trucking miles to rail? We can invest immediately into the planning this will entail. And we can stockpile parts and materials we know this upgrade will require. And we can implement already proposed unfunded short-term projects that will be needed components of such an upgrade: new switch yards, new freight yards, and various other log-jam breaking proposals.
The key is that we have a tremendous opportunity to borrow money at close to zero interest rate for infrastructure investment. Right now 10-year bonds yield 3 percent and still attract capital. It is not so much that U.S. government bonds are a great investment as that every other opportunity is worse. But if we keep borrowing money and giving it away to bankers and hedge funds, not only will the 3 percent borrowing opportunity end, but we may also end up with interest rates much higher than the normal 4 to 5 percent yield expected from 10-year bonds. If we want to maintain credit worthiness, putting that money into purposes that are widely recognized as both sensible for business and socially worthy will reassure lenders than money lent to the U.S. government is not being poured down a rathole.
(11 March 2009)
Throwing capitalism into the dustbin of history
Andrew Leonard, How the World Works, Salon
How should we interpret the remarkable declaration of the end-of-capitalism-as-we-know-it produced this week by by Martin Wolf, the chief economics commentator of the Financial Times?
It begins with a bang — “Another ideological god has failed. The assumptions that ruled policy and politics over three decades suddenly look as outdated as revolutionary socialism” — and continues in that vein for some 2000 words.
It is impossible at such a turning point to know where we are going. In the chaotic 1970s, few guessed that the next epoch would see the taming of inflation, the unleashing of capitalism and the death of communism. What will happen now depends on choices unmade and shocks unknown. Yet the combination of a financial collapse with a huge recession, if not something worse, will surely change the world. The legitimacy of the market will weaken. The credibility of the U.S. will be damaged. The authority of China will rise. Globalization itself may founder. This is a time of upheaval.
“The deepest, broadest and most dangerous financial crisis since the 1930s,” writes Wolf, entails nothing less than a: “The proposition that sophisticated modern finance was able to transfer risk to those best able to manage it has failed”; b: the bankruptcy of the idea of “maximization of shareholder value as the way to guide business”” and c: “the legitimacy of the market process itself is damaged.”
That’s some strong stuff.
… But here’s what’s so funny. Martin Wolf is preaching the gospel of gloom now for entirely understandable reasons. We happen to be experiencing a global economic catastrophe. But Wolf hasn’t always been a “panjandrum of economic doom.” His 2004 book, “Why Globalization Works” offers a pretty ringing defense of capitalism as it has been practiced over the past few decades. Until quite recently he was far more of a defender of deregulated markets than a doom-monger.
But what makes Wolf interesting is that he has allowed his views to be shaped by events, rather than attempted to force those events to fit into his preexisting box.
(11 March 2009)
Article by Martin Wolf in Financial Times: Seeds of its own destruction.
Martin Wolf is chief economist commentator and associate editor of the Financial Times and author of the book “Why Globalization Works” (biography)
Financal Times series: The Future of Capitalism
Financial Times (UK)
A major new series, including:
The credit crunch has destroyed faith in the free market ideology that has dominated Western economic thinking for a generation. But what can – and should – replace it? Over the coming weeks we will conduct a wide-ranging debate on this dominant political issue of the day.
– Mar 5 2009
Analysis: A need to reconnect
The Future of Capitalism: With lavish executive pay, inadequate boardroom expertise and a short-term shareholder focus all blamed for bringing about the crisis, Anglo-Saxon business approaches are likely to face wrenching changes – Mar 12 2009
Opinion: Read the big four to know capital’s fate
The Future of Capitalism: What might we imagine the four great political economists – Adam Smith, Karl Marx, Joseph Schumpeter and John Maynard Keynes – would say about our present economic crisis? Paul Kennedy urges US president Barack Obama and his fellow leaders to study their writings – Mar 12 2009
Analysis: The audacity of help
The Future of Capitalism: By intervening to rebalance incomes as well as prop up America’s economy, Barack Obama aims to make the crisis the beginning of a new era of progressive politics – Mar 11 2009
Analysis: Agitation as middle-class Europe struggles to cope
Economics is convulsing European politics, but the spasm of unrest was hardly expected when the crisis broke in 2007 – Mar 11 2009
(March 2009)
Surviving the Great Collapse
Robert Kuttner, Boston Globe
THIS ECONOMIC CRISIS doesn’t have to be a second Great Depression – if government does nearly everything right, and soon. But if government doesn’t do more, and fast, this could be worse than the 1930s. Why? Three big reasons:
Finance: A Doomsday Machine. The financial system is in far worse shape than it was when the stock market crashed in October 1929. …
Wealth, Deficits, and Demand. The economy now bears all the hallmarks of a depression. Between the housing collapse and the stock market crash, American households are out several trillion dollars (in the 1920s, there were no 401(k) plans and less than 2 percent of Americans owned stock). …
A Debtor Nation. America in 1929 was a major international creditor. Today, we are the world’s biggest debtor. The financial bubble created the illusion of prosperity.
During the bubble years, the foreign borrowing disguised domestic weaknesses, such as our much-diminished manufacturing sector. For now, foreigners are still willing to lend us vast sums, but that may not continue indefinitely.
All these economic calamities have solutions, but each is more radical than what’s currently on offer. The government will have to temporarily nationalize major banks, sort out good assets from bad ones, and then return banks to responsible private ownership. To cure the housing collapse, government should directly refinance mortgages, rather than bribing banks to ease terms.
Deficits will have to be a lot larger before they can get smaller.
(12 March 2009)
