The Value of Money and Joining the Currency Wars

Martin Wolf has an excellent piece in the FT about growing global currency wars and the structural problems beneath, particularly he talks about China and the great problems their economic model will have in accommodating a higher valued yuan. He points as an example to Japan in the late 80s, when they were forced by the US to raise the yen:

It is not hard to see China’s point of view: it is desperate to avoid what it views as the dire fate of Japan after the Plaza accord. With export competitiveness damaged by its soaring currency and pressured by the US to reduce its current account surplus, Japan chose not the needed structural reforms, but a huge monetary expansion, instead. The consequent bubble helped deliver the “lost decade” of the 1990s. Once a world-beater, Japan fell into the doldrums. For China, self-evidently, any such outcome would be a catastrophe.

It's important to point out here that in the 80s money revaluation was used to try and change what were structural problems. The problem got worse for Japan when the money revaluation led to further internal monetary engineering -- the great Japanese financial bubble and its subsequent popping. Wolf concludes,

What is needed is a route to these needed global adjustments. That will demand not just a will to co-operate that now seems sorely lacking, but greater imagination about both domestic and international reforms. I would like to be optimistic. But I am not: a world of beggar-my-neighbour policy is most unlikely to end well.

In his piece, Wolf brings up one of the great quotes of money politics of the last half-century, Nixon's Treasury Secretary John Connally's quip to the Europeans that the dollar "is our currency and their problem." Today, I think it would be better said, the dollar is our currency and our and the world's problem. Just as the Japanese in the 80s tried to avoid necessary reform of structural problems with monetary policy, so did we. Our financial bubble grew larger and lasted longer. Now that it popped, we once again are doing everything we can to avoid necessary restructuring of the real economy and instead using monetary shenanigans. In doing this, we are creating increasingly dangerous volatility in global currency values and removing the value of money increasingly further from the physical economy, thus in turn creating further global structural distortions.

Historically, one would tend to think this monetary problem would show-up with inflation. But, it would seem we are very much entrenched in a deflationary era. While Mr. Bernanke understands this, he doesn't know what to do about it, and instead of solving the problem, which needs to be solved in bringing some balance to the physical economy, he continues to try and bail out a broken global financial system, both distorting the physical economy and in turn further devaluing money in general. Leaving a lot of bad money on the books begins to undermine good money. The easiest way to understand this if the banks are holding paper worth half of what it says, yet the Fed pumps money into the system, allowing the banks to hold the bad money, it begins to put questions on the value of the good debt, and as this debt in many ways values, as much as anything else, the currency in which it is owed, the value of the currency itself increasingly comes into question.

With inflation, the breakdown of money and the economy shows up in ever spiraling prices. However, in this era of at best economic stagnation, deflation, and currency volatility, it shows up in less economic activity, hitting particularly hard the bottom, who don't have inflationary money, but no money, while the top is flooded with money of questionable value, and decreasing economic activity putting into question the value of that money.

Thus what accompanies the currency war, is a growing war amongst finance as to what debt is good or bad, with people continuing to position themselves to keep hold of the good money, while forcing the bad money onto others. This also begins to come straight into politics as policy recommendations try and make sure "good" debt stays good for those who own it and the losses of "bad" debt are forced on everyone else. Right now, our financial aristocracy is the only one in this fight, it's time for us to join and make them take losses, look now folks, the currency wars are raging in your backyard.

Brazilians Get It Wrong, But Are Correcting

FT has a nice piece on the Brazilian Real, Guido Mantega, Brazil’s finance minister states,

“We’re in the midst of an international currency war, a general weakening of currency. This threatens us because it takes away our competitiveness."

The FT adds,

The US dollar has fallen by about 25 per cent against the real since the beginning of last year, making the real the strongest performing currency in the world, according to Bloomberg.

He said central bank intervention was having little impact beyond reducing volatility in Brazil’s foreign exchange market. It resulted in making the real even more attractive for foreign investors, keen to make earnings on the spread between Brazilian government domestic debt, paying at least 10.75 per cent a year, and the cost of borrowing dollars internationally, currently about half a percentage point a year.

Mr Mantega recently said Brazil’s sovereign wealth fund was preparing to make “unlimited” dollar purchases to prevent the real appreciating any more.

Maybe, Mr. Bernanke should help by dumping some Reals, that's what what was learned from the 1930s, a policy of coordinated deprecation would be best. Of course that means the Chinese should depeg so the Yuan can fall too, or am I missing something?

krugman or the economist as charlatan

OK, again, I'm just using Mr. Krugman as a symbol of the profession of modern astrologers he represents. Really, he makes himself the easiest target, but you know, he won the Nobel prize, so he should in someway represent something. I was tooling around last night and I found this on Mr. Krugman's blog:

In the end, I’d argue, what must happen is an effective default on a significant part of debt, one way or another. The default could be implicit, via a period of moderate inflation that reduces the real burden of debt; that’s how World War II cured the Depression. Or, if not, we could see a gradual, painful process of individual defaults and bankruptcies, which ends up reducing overall debt.

Just like that, you contradict everything you've written about debt being no problem and all we have to do is create more. But even better, he does it with our modern astrologers' conventional wisdom that you can just inflate you're way out of the debt problem, after all says Mr. Krugman, that's what WW II was about, right? Never mind the great pain and chaos that goes along with revaluing currencies, or the destruction, our money-wizards just pull the levers and all will be emerald in OZ.

But, lets get to Mr. Krugman's better point, default. Let's start the party, and not with individuals, let's start the process of debt restructuring with our banks, mega-corporations and nations. Let's clean up the books and start the necessary restructuring of the larger economies, indeed, the necessary restructuring of the corporate global economy from which Mr. Krugman and his ilk all made comfortable livings as shills.

Phew, unaccountable power, but that wasn't even the worse of it last week. You also had Bob Woodward release a new book about the power behind the curtains, and it gets to the front page of the NYT, even though his books have proven filled with such unmitigated tripe over the past decade. I suggest better to go back and read his sickly paean to the "Maestro." Though best, you had Mr. Clinton puking on about how the US needed to rebuild its manufacturing base, ho-ho-ho Bubba, this from a politician who based his entire career celebrating its dismantling.

Why won't these people go away?

money volatility -- beggar-thy-neighbor

People should really read Mr. Bernanke's book on the Depression, Essays on the Great Depression. It clearly lays out Mr. Bernanke's thinking, more accurately his misconceptions on the era, and just as importantly, his failed strategies on how to meet the similar, but by no means identical situation we find ourselves in today. I pointed out a year ago in Ben's Bet, Mr. Bernanke's view of the 1930s is monetarist's revisionism first propagated by Milton Friedman. This revisionism's great advantage for Mr. Friedman, in the best tradition of economics, was it could not be proved right or wrong until the next crisis. However in the interim, it would helpfully provide cover for powerful interests, profiting greatly from the doctrine's growth and eventual dominance.

In short, the monetarists' view was the Depression was caused predominantly by the Fed, particularly their failure to drop rates and loose money in response to the popped financial bubble of the 1920s. As this monetarist's view came to dominate the 1980s, one of the accompanying great revisions was the monetary volatility of the late 1920s and early 1930s, which pretty much all who experienced considered a scourge, instead was revised to be a blessing. As Mr. Bernanke writes in his book,

Eichengreen and Sachs argued that depreciation, in this context, should not necessarily be thought of as a "beggar-thy-neighbor" policy; because deprecations reduce constraints on the growth of world money supplies, they may have conferred benefits abroad as well as home..

Thus, the competitive monetary deprecations of the 30s, also known as "beggar-thy-neighbor", were viewed triumphant by the monetarists, with Mr. Bernanke concluding, "A coordinated depreciation presumably would have been better than the uncoordinated sequence of deprecations that in fact took place." It's really no secret to understand the hoped ends of Mr. Bernanke's policies. So, its interesting to see a piece in today's WSJ bringing back the idea of "beggar-thy-neighbor" as scourge, while global currency markets become ever more volatile. The article states,

Beggar-thy-neighbor currency devaluations proved ruinous for the global economy in the 1930s. Is the world setting off down the same slippery slope again?

This is in direct contradiction to both our ruling monetarists' doctrine and more importantly Mr. Bernanke's actions. The queer fact is money, as either fiat currency or connected to some non-utilitarian metal such as gold or silver, has no real connection to the real physical economy. History is quite clear that when you begin to simply manipulate the value of money as the main mean to balance great imbalances in the physical economy, you end up compromising the value of the established monetary system, in turn creating further problems for the physical economy. We need fundamental reform of our monetary system, a rethinking of money's creation, control, and relation to the physical economy, not a continuous tinkering or radical revaluing of established currencies.

Half the world didn't meet at Bretton Woods in 1944 to devise a system of global currency stability because they thought the beggar-thy-neighbor currency volatility of the late 1920s and early 1930s was a good thing. However, if you read Mr. Bernanke's book, this is a lesson lost to him and our ruling monetarist priesthood. So, we will learn it again.

Europa, USofA, and the Global Economy

Something happened in Bremen, I know
Something I don't want to
And it will be a long long long time gone
before my spirit will in accident
go back and come from Bremen Nacht
Ich rausum mach aus Bremen nacht
-- The Fall

A day after the financial press was a flutter that Irish bond sales were met with robust demand with help of the ECB and Fed, it gets hit with the Irish economy contracted in the last quarter. Better have another Guinness Mr. Cowen. Add to that the German export miracle of the past few months may not be all its cracked up to be, "tumbling" the FT states, and suddenly questions about the health of Europe's banks come back to the forefront.

With a broken global financial system, following day to day, month to month, quarter to quarter, and even year to year economic data is fraught with misguidance. Easier to understand that the global economy is tremendously imbalanced, the financial system built atop of it is in disarray, held together by an unprecedented pumping of money by the planet's central banks, further removing ethereal money from any correlation to the physical economy. Where does this all go? Well, as they say, place you're bets, but betting there will be a robust economic recovery based on the failed policies of the past three decades certainly seems the longest shot.

One of the great present imbalances the planet faces was caused by the deindustrialization of America over the course of several decades. Alternet has another excerpt from Jefferson Cowie's Stayin Alive: The 1970s and the Last Days of the Working Class, and it's well worth reading, describing what was really the final death knell of organized labor in this country, Reagan's firing of the air traffic controllers. What's most interesting is Mr. Cowie's description of the disappearance of the working class/labor from American politics, culture, and of course economics. Now, you read about back in the 60s, 70s and 80s the disappearing of political opposition individuals in Central and South America, but leave it to the United States to disappear a whole class of society. The most important point to understand is the political economy element of this country which fought for the interests of working people, was founded in organized labor, which no longer exists, so there is no alternative to our present failing and flailing Wall Street corporate globalization economics. With an understanding of the 21st century, that's what needs to be thought, created, and organized. That's where we are.

the classical

Michael Hudson has a very nice piece from a classical economics perspective on the problems to the economy caused by an out of control financial sector. The nut:

Today’s budget deficits thus have gone hand in hand with over-indebted economies, and with a regressive tax shift that burdens productive labor and industry. The tax systems of nearly all countries today favor debt financing – and hence, asset-price inflation – by permitting interest and financial fees to be tax-deductible, while dividends and earnings must be paid after taxes. This un-taxing of land and rent-extracting monopolies goes against the logic of Saint-Simon and other 19th-century reformers who sought to free markets from debt overhead, not to free bankers and financiers from regulation and taxation.

Today’s financialized world is paying a steep price for its rentier-sponsored reaction against classical economics. This reaction distracted attention from the fact that economies suffer a rising “free lunch” of what J. S. Mill called unearned income and unearned increments in the form of higher land rent and land prices. Rent extraction is the business plan of privatizers of public infrastructure and natural monopolies – and of their financial backers seeking to provide buyout loans. The tragedy of our epoch is that most credit is extended to buy rent-extracting opportunities, not for productive capital formation. Banks prefer to lend against property already in place – real estate or companies – than to finance tangible new capital formation. This poses the threat of globalization taking a corrosive form, ending in debt deflation, privatization and a rentier tollbooth economy rather than becoming a system of mutual gain.

Understand every dollar, Shift-4-Enter or whatever the command he has on his key-board to create dollars, Mr. Bernanke pumps, without first radically reforming our financial system, is simply feeding the beast -- stealing from you and me.

Meanwhile, having been out of power for a couple of years the Reps show they certainly remain the party from funny. I guess just pure criminality is funnier than bumbling incompetent corruption? The Reps put out a call today urging "President Barack Obama to pick a more business-friendly successor to economic adviser Larry Summers." Now, that's funny. Not so funny is Mr. Summers, the personification of our inability to hold power accountable, shuffles off to his cushy tenure at Harvard, having spent over two decades wreaking havoc and despair across the planet. To use one of the Reps best ever punchlines, "Mission Accomplished Larry". Speaking of which, the Reps premier stand-up act, Mr. Rumsfeld, having seemingly had the good taste to disappear after being run out of office, was only writing a book. No doubt the book and tour will be laugh out loud.

cars, rule of law and class

The television man is crazy, says were juvenile delinquent wrecks
Oh man, I need TV when I have T. Rex?
-- All the Young Dudes

Well, file under if you live long enough, one of the most optimistic trends for America in the last several decades,

Selling cars to young adults under 30 is proving to be a real challenge for automakers. Unlike their elders, Generation Yers own fewer cars and don’t drive much. They’re likely to see autos as a source of pollution, not as a sex or status symbol.

They’re more apt to ride mass transit to work and use car sharing services -- pioneered by Zipcar -- for longer trips. And car sharing choices are expanding, with car rental firms moving into the market, making it convenient for young folks to rent with hourly rates and easy insurance. Connect by Hertz, for example, is rolling out its car sharing services in the New York metropolitan area, with plans to eventually expand them to around 40 college campuses nationwide.

Moreover, in survey after survey, Gen Yers say that they believe cars are damaging to the environment. Even hybrid electric vehicles don’t seem to be changing young consumers’ attitudes much.

So, maybe the greatest damage done to brand Obama with the youth vote was the saving of GM? What's most interesting is the politics of cars has yet to make it onto any political platform in America, except your real crackpots. Phew, nothing defined 20th century America more than the automobile -- political economy, culture, and the politics of technology, talk about your revolutions.

At the same time, the counter revolution against the rule of law led by our financial class is in full force. Yves Smith has been out ahead on this issue concerning the paper related to debt, such as liens, which were all lost in the buying, selling and swapping of debt, also known as the American economy for the past couple decades. As foreclosures and other debt collections increased in the past couple years no one seems to have the related paper, so the various industries have expanded their fraudulent activities to simply making things up to file in our various courts of law. I'd suggest following Yves on a very important issue.

Finally, Alternet has good piece on the white underclass, though it should be more accurately called the white part of the American underclass. Of course there is no class in America, just ask the ruling elite, or the cultural left for that matter. Well remember, Marshall McLuhan said old technology becomes art, so we can all soon put a car on the front lawn -- redneck nation. Solidarity brothers and sisters.

Buy My Debt Ben!

As I walk, this wicked world, searching for light in the darkness of insanity
I ask myself, is all hope gone, is there only pain, hatred and misery
As I walk on through troubled times, my spirit gets so downhearted sometimes
Where are the strong, and who are the trusted, where is the harmony, sweet harmony
Each time I feel this inside, it just makes me want to cry
-- Nick Lowe

The world of global finance continues to sail into ever new territory. The WSJ has a good piece about the ever expanding bubble in the bond world headlined, "Bond Markets Growing Riskier":

Last week, prices on high-yield, or junk, bonds hit their highest level since 2007, nearly double their lows of the credit crisis. Nine months into the year, companies have sold $172 billion in junk bonds, already an annual record, according to data provider Dealogic.

The demand for bonds has allowed some of the riskiest borrowers to sell bonds with fewer protections for investors. These provisions, or covenants, prevent companies from taking actions that would hurt bondholders and would protect investors if companies are sold.

The bond boom has so far been a positive for the economy, allowing the U.S. government and major corporations to borrow at cheap rates and giving weaker companies financial breathing room until business picks up.

But continued strong demand by investors can have unintended consequences. Cheap, plentiful debt fueled the housing and leveraged-buyout booms, both of which collapsed after buyers who borrowed too much couldn't repay loans.

The WSJ giving a warning about a bubble? Well, the bond boys, that is people like PIMCO, who just didn't start buying bonds once their ability to make 10%-plus a year on stock market, real estate or other previous bubbly investments popped, seem to be getting more nervous. Mr. El-Erian writes,

Market measures of risk for peripheral European countries (Greece, Ireland, Portugal and Spain) are at or near danger levels… despite exceptional support from the ECB, EU and IMF, and despite the implementation of adjustment measures on the part of some.

The failure to reduce risk spreads means that the public sector bailout is not working. Rather than provide assurances of better times ahead and, thus, encourage new investments, ECB/EU/IMF support funding is being used by existing investors to exit their exposures to the most vulnerable peripheral European countries.

This situation cannot be sustained forever. It undermines any chance that the most vulnerable countries (e.g., Greece) have of limiting the collapse in their GDP and maintaining social cohesion; it contaminates the balance sheet of the ECB; it exposes the revolving nature of IMF resources to considerable risk; and it raises the risk of renewed contagion.

And,

The second issue is even more complex. It pertains to the global configuration of currencies.

Last week, Japan intervened massively to stop its currency from appreciating. It did so in a unilateral fashion and, immediately, faced criticisms from Europe and the US.

Meanwhile, in a sharply-worded testimony to Congress, Treasury Secretary Geithner provided lots of data to those that feel that the US should have already labeled China a currency manipulator. And while China has recently accelerated the rate of its managed appreciation — 1% in the last week compared to just 1.6% since the country declared great “flexibility” back in June — this is proving insufficient to counter growing currency tensions.

These latest foreign exchange developments bring to the fore an inconvenient reality. While not all industrial countries wish to make it explicit, they are happy (indeed eager) to see their currencies depreciate. They see this as helping them address the extremely difficult challenges associated with a protracted period of low growth, high unemployment, and limited policy effectiveness.

The list of industrial countries wishing to depreciate their currencies is not matched by a list of emerging economies happy to let their currencies appreciate significantly. As a result, foreign exchange tensions are mounting, and the price of gold has been driven to a new record level.

Obviously, Mohamed never read Ben's book on the Depression, how the central banks caused it, and the solution was an in tandem devaluation of global currencies. Ok, that's a problematic solution if you own bonds from across the planet, as its pretty much lose, lose, lose, but what price monetary stability...err..something like that.

Anyway Quantitative Easing II is coming and I suggest the start of a campaign called "Buy My Debt Ben!" If you have mortgage, credit card, second car, student loans, whatever, write a letter to the Fed Chairman on why the Fed should buy your debt. Be deferential, and make sure if your debt is held by one of the big banks you point that out, it might help.

the world were you live

Tell me, I don't know where you go
Do you climb into space
To the world where you live?
-- Neil Finn

In your world of big time American political media, you have the NYT and then at a whole other level of inanity and criminality you have the Washington Post. Now the NYT is definitely more amusing, as they write to protect more interests -- the establishment political class, America's haute intelligentsia(such that is), the cultural left, Wall Street, and other various interests. At least you can amuse yourself watching the Times twist and contort trying to come across "objectively" for any given matter which they have an active interest. The Post is less interesting for it only has one interest, protecting the DC establishment, and in case you haven't figured out the interests of the DC establishment and the interests vast majority of this nation don't coincide too well these days.

Both the NYT and Post are arbitrators of acceptable political dialogue in this country, that is if you want to be taken seriously by the political class. However, it gets interesting when the politics of the country outside of DC begins shifting and the political ground starts moving under our self-anointed political censors' feet. The last time this happened was in 1980, with the ascendancy of the Reagan Revolution. As someone unfortunately old enough to remember, at the time, the NYT and Post were filled with stories of how Reagan and his followers were pure nuts, never could they be elected with their radical agenda. Thirty years later, the whole country is so shifted that what was once crazy is now conventional wisdom, and what was radical is now the political center.

So, EJ Dionne's piece entitled, "The End of Moderate Republicanism" might be the most unintentionally funny piece of political analysis written this year. To EJ, moderate Republicanism is the entrenched criminal element known as the DC Republican political class. While 30 years ago, the DC establishment might have been dismissive of the rhetoric of Reaganism, they soon made their peace, for in reality it turned into a boon for DC's bipartisan ambitious and unscrupulous, who made their fortunes with a new New Deal for mega-corporations and the military-industrial complex. But now, in one of the most volatile political environments in this republic's history, the so-called Tea Partiers, whatever they may be, are taking out one "moderate Republican" after the other, to the "moderate Republicans" electoral detriment, or so I've been continually told by the NYT and Post over the past few months.

Well, there's no doubt the DC political class is shook-up, and someone like EJ might be especially confused. Remember, just a few years ago he wrote a book about the rebirth of Democratic liberalism called, They Only Look Dead. Well, after four years of the Democrats in control of both houses of Congress and two years with the presidency, it can be confirmed liberalism in this country ain't just dead, it's buried and peacefully rotting.

The Design Economy

I.

In contemporary economic discussion, the idea of the Industrial Revolution is frequently presented as something bland, neutral, and inevitable. Instead of conveying a sense of historical turmoil, disruption, and the overthrowing of established cultural, political, and economic institutions dating back millenia, we simply throw-off the term, “Industrial Revolution” with little regard that it represented a fundamental re-ordering of human life. In many ways this is understandable, as the Industrial Revolution triumphed, becoming industrial rule, industrial economy, industrial bureaucracy, and industrial life -- the industrial status quo. In large swathes of the world, industrial economy is so dominant, it leaves the sense the world has always been that way and only a fool could imagine it being any different. Most amazingly, this has all been accomplished in less than two-centuries -- an historical blink of the eye.

Today, we confront an era of equal historical change. Further understandings of the natural world and resulting new technologies are beginning to impact industrial society to a degree as fantastic as industrial knowledge and technology transformed agrarian society. While, agrarian civilization lasted over ten-thousand years, the reign of industrial society has been relatively brief, nonetheless, it is being usurped. This transformation is rapidly intruding on our lives, yet still not quite recognized beyond a general trepidation that things don't seem to quite work like they did before. The great collective social anxiety of the Industrial era, never satiated, now confronts a new transition for which the tools, skills, thinking and institutions are little developed, if they exist at all.

Maybe the most essential understanding we can have in such a time is the simple recognition of change. The Industrial era, for many reasons, is transitory. It is inherently unstable, and incapable of truly meeting the challenges and problems it created. For in the end, industrialism tries conforming or forcefully overwhelming life's great diversity into a few narrow homogenous environments, which are unhealthy and unsustainable for both the individual and the system as a whole.

The Industrial era's greatest strength, an uncompromising faith in technology, is also one of its greatest weaknesses. The simplistic adoption of any given technology, without an understanding or systemic feedback mechanisms to track its impact on society, is the ethos of a child, an immature civic morality. To paraphrase the technology thinker Marshall McLuhan, first we shape technology then technology shapes us. We still grasp to understand how technology shapes us, yet, we rapidly transform from industrial technologies to a new era, for lack of a better term, of information technologies.

These new, electronic, information technologies are transforming industrial economies. Technology has been the fundamental shaping force of the modern era, developing an understanding of the power of this shaping, will enable us to meet some of challenges we face as new technologies now reshape industrial society. It is the understanding of this shaping process, call it design, that will be a fundamental force and positive potential of the next economic era. We are leaving the era of industry and embarking on great new experiments of design. To succeed, we will need the active participation of each of us helping shape our individual and collective lives. We must all be active participants in creating the thinking, tools, institutions, politics, and culture of the design economy.

- - -

II.

The cycle of the machine is now coming to an end. Man has learned much in the hard discipline and the shrewd, unflinching grasp of practical possibilities that the machine has provided in the last three centuries: but we can no more continue to live in the world of the machine than we could live successfully on the barren surface of the moon. – Lewis Mumford

There are many components of the Industrial era that differentiate it from the Agrarian era. Among the most important were the great developments in the sciences of physics and chemistry. The thinking in these two areas led to the great technological advances that were the foundations of industrialization; the mass forging of iron/steel and the harnessing of energy gained from the burning of fossil fuels – coal, oil, and natural gas.

In just a hundred-fifty years, these industrial forces transformed the United States. In that time, a matter of just five generations, over three-quarters of the population went from working in agriculture to just one percent today. We went from mostly rural living to urban, and mid-way, with the infrastructure of the automobile in place, to extensively suburban. A republic, founded mainly of small farm landowners and merchants at the end of the Agrarian era, was transformed into a population of mostly wage earners. Economic power initially quite diffuse, gradually became ever more concentrated into fewer and fewer mega-corporations – the great institutional inventions of the Industrial era.

Over the entire era, political economy became increasingly centralized. Industrial production, its implementation with the machine and the assembly line enabled mass production and mass consumption, fostering centralization of production and distribution. Local diversity and knowledge was overwhelmed by the homogeneity of industrial technology. The distributed political economy of a small farm agrarian society was transformed into centralized government in Washington DC and centralized control in the industrial mega-corporation. Not only did government power become increasingly centralized, but, with the introduction and eventual domination of broadcast media, the processes of politics did as well. This centralization led to the techniques of mass manipulation as politics and the growth of bureaucracy for mass control in governance.

Over time, the politics, culture, and institutions of the industrial era took on the appearance of the machines and technologies of industry itself, and this machine has become increasingly unsustainable.

- - -

III.

Unfortunately, once an economy is geared to expansion, the means rapidly turn into an end and "the going becomes the goal." Even more unfortunately, the industries that are favored by such expansion must, to maintain their output, be devoted to goods that are readily consumable either by their nature, or because they are so shoddily fabricated that they must soon be replaced. By fashion and build-in obsolescence the economies of machine production, instead of producing leisure and durable wealth, are duly canceled out by the mandatory consumption on an even larger scale. - Lewis Mumford

As various industrial philosophies and schools of thought were developed, the most important to emerge was the idea of industrial capital and its unquenchable need for growth. Unlimited production and unlimited consumption facilitated infinite growth, becoming the raison d'etre of the entire system. Coupled with the notion of any technology capable of being developed should be utilized, growth and technological innovation became their own necessary ends, dominating any and all others.

The industrial era's great perpetual machine's fundamental product was infinite growth. It created a society divided into two components; production and consumption, in which a person needed a job in the production aspect to gain the benefits of consumption. The system is only considered healthy if it produces more every year. It is only considered beneficial if consumption increases each year. It is a system that values quantitatively, and scarcity is confused with qualitative value.

Just as the end of the Agrarian era did not end agriculture, the end of the Industrial era will see neither the end of industry or its fundamental importance, however it will require increasingly less labor and will rapidly be less defining of the economy, politics, and culture of human society. There are two main reasons for this: 1)The knowledge and the technologies of the sciences of quantum physics and biology are adding to, replacing, and surpassing the impact of earlier technologies developed with the understandings of Newtonian physics and chemistry, 2)The doctrine of unlimited growth, necessitating unlimited production and unlimited consumption is meeting natural resource and ecological systems constraints. Fortunately, the first element can provide solutions for the second.

Knowledge of the planet's material limits, shown in part by growing environmental problems including decreasing biodiversity, collapse of ocean fisheries, and climate change, all instigated by industrial technologies, have in recent years raised important questions on the feasibility of unlimited industrial growth. At the same time, limits are being revealed in supplies of natural resources, particularly oil, the lifeblood of industrial modernity. However, as was recently described in the Financial Times, oil is certainly not the only resource limit,

“The broad story is of depletion. Most of the easily obtainable resource deposits have already been exploited and most usable agricultural land is already in production. Natural resource discoveries, where they continue to occur, tend to be of a lower quality and are more costly to extract. Meanwhile, the dwindling supply of unutilised land faces competing demands from biodiversity, biofuels and food production.”

As technology confronts various environmental constraints, the Newtonian physics and chemistry based paradigm is transforming to one of quantum physics and biology. It is the difference between fossil fuel power and solar energy, broadcast media and the Internet, and chemical farming and bio-knowledgeable sustainability, simply, a greater understanding of natural systems. These sciences and their technologies are rapidly changing industrial society, combined with ever growing environmental challenges, they create the need for a new understanding of political economy. It's a sensibility that rejects the idea of infinite growth and the tyranny of unlimited production rewarded by unlimited consumption, while embracing the transition from the industrial economy to the design economy.

- - -

IV.

Without constant enticement and inveiglement by advertising, production would slow down and level off to normal replacement demand. Otherwise many products could reach a plateau of efficient design which would call for only minimal changes from year to year. -- Lewis Mumford

The steam engine, comprised of steel and coal, both best symbolizes the industrial era and represents what might be considered its quintessential tool for shaping and defining the entire era. With the steam engine, the technology of Newtonian physics fundamentally reshaped the natural landscape in less than two centuries to a greater degree than agrarian technologies allowed humanity to reshape the planet in over ten-thousand years.

In this new era of design, the tool which might both symbolize the era and become its greatest shaping instrument is the networked microprocessor. A technology of quantum physics, and while presently fired by fossil fuels, though soon to be powered by renewable energy sources, the networked microprocessor produces and then communicates the fundamental element of the design economy – information.

The term information is used quite informally, though the most general and widest definition might be the most accurate. The bits, numbers, words, sounds, images, and even touch sensations produced by humanity, our technology, and our systems are all information. We gain value from information using design. That is, information not utilized for some aspect of design, whether it is scientific, economic, political, or entertainment becomes noise, though some people's noise might be valued in others design, but without design – editing, communication and utilization – information basically remains noise.

The creation of information and its design have been fundamental aspects of civilization since its inception, in fact one could argue it is civilization. Power in civilization has always coincided with the control of the creation, editing, and communication of information, particularly that information essential to the society's core functioning. For example, the calendar, necessary for proper functioning of agrarian society was controlled by both government and religious ruling classes.

Five hundred years ago, with the dawn of the modern scientific revolution, the printing press was also birthed, revolutionizing the communication of information. In the 20^th century, the invention of electronic broadcast media again saw a revolution in information creation and communication, having very dramatic impacts on society – economically, politically and culturally. The control of creation, editing, communication, that is the design of information is a fundamental aspect of political economic power in any society. The invention of the printing press helped loose control of the Catholic church and the established aristocracy across Europe, while the establishment of broadcast media helped Washington D.C. and the Fortune 500 gain control in the United States.

The networked microprocessor, again both as symbol and practical tool, brings a new information revolution to our society, allowing the creation, editing, and communication of information at rates exponentially higher than anytime in previous human history. Importantly, information plays an increasingly fundamental role in production processes and the product itself. Only several decades old, this information revolution has initially been co-opted by the industrial era as a means to “better” industrial processes. However, the true value of this information revolution will not be gained via industrial valuations, just as agrarian values and definitions could not give industry its true value. Increasingly, industrial constraints are hindering our ability to obtain the true value in utilizing information – the value of design – which is not gained simply quantitatively by increasing production and consumption, but qualitatively through design. The greatest value gained from design will be in using less resources, less labor, and in many cases less consumption, for these things, industrial society has limited value.

An example of this is the process of automation, removing human labor from the industrial machine, allowing less human labor for the production of the same amount of product. However, in taking the line-worker out of the production process, you are also taking away former and would be future workers from the labor that allows them to consume. While the American economy is much larger than it was 50 years ago, we still produce a similar amount of steel, but due to automation, the American steel industry today uses one-third or less of the labor to produce the same amount of steel. This process is going to continue and eventually, in the not too distant future, remove human labor from most industrial processes. Information is cheaper than labor.

Yet, just as designing fully robotic factories of the future will have a transformational impact on production, it will have an even more important, one could say transcendent, impact on consumption. In many ways, industrial economy's consumption components are primeval. They are based on elemental components of human existence, such as food, shelter, security, and reproduction. These primary elements of existence have deep roots in the human psyche. As the capitalist industrial economy grew, and thus the need for infinite growth, it combined with the 20^th century information broadcast revolution to create a mass consumption economy and culture based on the exploitation of primal urges, creating in many senses a neanderthal economy. One only need watch, listen to, or see a few minutes of most advertising to experience its manipulation of hunger, fear, and sex, most of it having little to do with the product.

It is this playing to primal urges that stokes the growth economy and stokes mass cultural anxiety. For primal urges can never be satisfied so much as only satiated, yet our growth economy disallows even this. In fact, it does just opposite, constantly and incessantly stoking primal urges for the ends of ever more consumption and thus endless growth. It is in fact only the rational mind that can soothe primal urges by understanding them and not allowing them to endlessly dictate behavior.

If we were to borrow from the Ancient Greeks, and separate life into thoughtfulness and primal urges, the American economy would resemble a massive Bacchanalian orgy. We would be wise to remember the Greeks looked at these primal urges as essential and enjoyable aspects of existence, but they also walled-off unmitigated enjoyment into a festival. The idea of the primal as a foundation for society, would be foreign to the Greeks, for civilization by its very definition is thoughtfulness, the smoothing of primal urges with rational thought.

Seventy-percent of the American economy is consumer based and to thrive relies on hundreds of billions of dollars of advertising endlessly triggering deep primal urges – it is literally uncivilized. What we need to do is get more thoughtful about our consumption, that is, to better design our economy on available knowledge using information as a tool. Instead of reward exclusively through consumption, reward will be gained by participating in design. This will lead to less gross consumption, which is not only OK, but essential as we reach the limits of natural resources and the destruction of ecological systems. Paradoxically, the primeval ecological elements which birthed the human species, and on which our survival remains completely reliant, needs to be saved by the uniquely human concept of civilization.

We live in a time where Newtonian physics and industrial technologies need to be transformed by our 19^th and 20^th century knowledge of biology. Most revolutionary is the concept of evolution and natural selection. In nature, life changes continuously through constant reproduction and mutation. It is with natural selection – the choosing process of the greater environment – that new designs move forward or are rejected. We must adopt this thinking for our political economy, with an understanding that each of us our components of the greater human environment known as civilization. We are the selection process in creating the future, both individually and just as importantly collectively. As we continue to reshape our civilization and the planet itself using technologies derived from the processes of rational thought, decisions cannot be left to simply exploiting primal urges. We must use the same thought and deliberation to design the economy, politics, and culture of our civilization. That is the design economy.

The greatest example of how design will become paramount is with energy. The Industrial age was built on the seemingly unlimited supply of cheap fossil fuels, combined with failure to assess the negative costs for the environment. What developed, particularly in the United States, was an economy dependent on massive energy waste. This now immoral waste is apparent in all aspects of energy use, for example lighting, heating, and cooling, however it is most easily exemplified with the U.S. automobile culture. It is the height of inefficiency to take a one-hundred-fifty to two-hundred pound person, encase them in a couple tons of steel powered by a highly inefficient internal-combustion engine, and use that as the main means of transportation, restructuring the entire infrastructure, much of the economy, and the culture itself.

The automobile represents the perfect product for the Industrial era. It is labor intensive, that was before increasing automation, resource intensive in metals and other materials, and requires massive amounts of energy. They also need to be relatively frequently replaced, they are certainly not built to last. Every aspect of the automobile added to the Gross National Product, the industrial era's ultimate barometer of economic fair weather, while its impacts on the greater ecological systems from extraction of resource material to its pollution of air and water systems were at first ignored and then socialized.

Now in direct contradiction to industrial economy, a design economy would look to design transportation using the least amount labor, resources, and energy. It would look at the uses of transportation, and then design processes which would be more efficient. For example, the centralizing of goods distribution in warehouse size grocery and department stores, requiring people drive two ton automobiles to pick up five pounds of foodstuffs or two pounds of clothing is crazily inefficient. Much better would be to design neighborhoods where people could walk and bike to pick up their day to day necessities, allowing most of the physical goods distribution to occur using larger more efficient vehicles.

Now the same inefficiencies, off-book environmental degradation, and resource exploitation occur throughout the industrial economy, in fact, distressingly, such things in many ways define a healthy and vibrant industrial economy. We need to redefine much of this value, understanding if we concentrate on design first, production and consumption second, instead of an economy based on ever greater growth, simply more and more stuff, we will have an economy of enough, providing a quality of life much more satisfying and substantial than that gained by quantitative value.

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V.

The ordinary person senses the greatness of the odds against him even without thought or analysis, and he adapts his attitudes unconsciously. A huge passivity has settled on industrial society. For people carried about in mechanical vehicles, earning their living by waiting on machines, listening much of the waking day to canned music, watching packaged movie entertainment and capsulated news, for such people it would require an exceptional degree of awareness and an especial heroism of effort to be anything but supine consumers of processed goods. -- Marshall McLuhan, The Mechanical Bride: Folklore of Industrial Man

Humanity's great agrarian era produced agrarian government systems, economies, and cultures. Human life and human identity derived overwhelming from the processes of farming. The much shorter two-centuries old industrial era redefined life. The processes of production and consumption became the overwhelming dual identities of individuals and our institutions that evolved to foster the processes of unlimited industrial growth. As we move into the design economy, increasingly the most imperative questions will be what are the roles, identities, institutions, and processes of design.

Design has been part of human history before the beginning of civilization. It has at times played an instrumental role with the designing of hunting tools, farming implements, and industrial technologies. However today, information, the raw material of design, is becoming not simply ubiquitous but fundamental to every aspect of human life. For example, with our knowledge of DNA comes the ability to manipulate the very information codes of life itself.

Presently, many of the processes of design – the creation of information, its editing communication, and finally decision making for its utilization – are in turns both centralized and insufficient. We need to evolve our institutions, organizations, and individual roles to understand that design is increasingly the primary value of political economy, ultimately creating a value shift from industrialization's quantitative value of infinite growth based on unlimited production and consumption to design's more qualitative values of participation, efficiency, elegance, and enough.

If we look at the processes of design today, we see rapid change. Companies, governments, NGOs, and individuals each year produce an exponentially greater amount of information. In the distribution and communication of information, paper is in great decline as electronic media explodes. Creation and communication of news and public affairs, once the exclusive domain of print, was supplanted by electronic broadcast media by the mid-20th century, and is now rapidly being replaced by the networked microprocessor, creating both a plethora of real and potentially valuable information, but also an unprecedented amount of noise, with little or no value. Noise grows as what could be useful information is communicated with no ability for the individual or organization to place it in meaningful context.

Yet, even the gaining of valuable information is hamstrung in utilization as the decision making for political economy remains tremendously centralized. Much of the wealth, and thus the economic decision making of the nation is concentrated in the Fortune 500. At the same time, over the past century as government power became more greatly centralized in DC, political decision making became further and further removed from state, localities and the citizen. As previously noted, information both for consumer purposes and electoral decisions – the only direct role citizens have in political decision making – is overwhelmingly manipulative and based on primal motivations, not the rational decision making necessary for civilized design.

In an information environment overwhelmed with noise, the individual is increasingly at a disadvantage as it becomes ever more difficult to filter or more appropriately edit information so that it might be utilized. Individuals face a tsunami of information provided with little or no context, making it difficult to put any of it to use. In contrast, the industrial organization, be it the Fortune 500 or a federal bureaucracy has advantage in contextualizing much of the information they need to make decisions, not to mention the power to then implement. Thus, they can staff tremendous numbers for simply editing information flows. However, over time, this can also become a disadvantage in large organizations and bureaucracies as information channels become locked-in, leading to stagnation and inability of the organization or bureaucracy to utilize new information. And just as importantly, these large structures play a role in protecting the status-quo, manipulating information flows to suit their self-interests.

We need to begin to evolve our institutions, organizations, and bureaucracies with an understanding that the creation, processing, and utilization of information is not simply an essential component, but the predominant one. This means both changing our institutions and creating new ones. It necessitates reviving the idea of associations, an essential part of the American republic's democratic history. As Tocqueville wrote of the vibrant agrarian American republic, “Americans of all ages, all stations in life, and all types of dispositions are forever forming associations.” Yet, this necessary distributed formation of associations has been lost or replaced by the centralized order instilled by the Fortune 500 and Washington DC.

A design economy needs to birth millions of design associations. They will be both local and geographically based and distributed electronically across global networks. They will stand alone and be distributively tied. These associations will create, edit, communicate, and utilize information, that is they will design. Most importantly, they will provide the individual, the citizen, the consumer a mean to be an active participant of the design economy.

In the end, the foundation of the design economy is not stuff, it's people. And for the design economy to transcend industrial life, people are going to need to be freed from industrial structures, most essentially the processes of unlimited production and consumption. People are going to need the time, and just importantly society is going to have to value the processes of design. Which means people as both individuals and collectively as associations are going to be valued as creators, editors, communicators and decision makers, in short we must revalue the citizen.

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VI.

It would be curious... if an idea, the fugitive fermentation of an individual brain, could, of natural right, be claimed in exclusive and stable property. If nature has made any one thing less susceptible than all others of exclusive property, it is the action of the thinking power called an idea, which an individual may exclusively possess as long as he keeps it to himself; but the moment it is divulged, it forces itself into the possession of every one, and the receiver cannot dispossess himself of it. Its peculiar character, too, is that no one possesses the less, because every other possesses the whole of it. He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me. That ideas should freely spread from one to another over the globe, for the moral and mutual instruction of man, and improvement of his condition, seems to have been peculiarly and benevolently designed by nature, when she made them, like fire, expansible over all space, without lessening their density in any point, and like the air in which we breathe, move and have our physical being, incapable of confinement or exclusive appropriation. Inventions then cannot, in nature, be a subject of property. Society may give an exclusive right to the profits arising from them, as an encouragement to men to pursue ideas which may produce utility, but this may or may not be done, according to the will and convenience of the society, without claim or complaint from anybody." – Thomas Jefferson to Isaac McPherson, 1813.

The great transformation from the Industrial era to an era of design will be pushed by the increasing knowledge of science and its technologies, but one of the great changes will be revaluing of political economy, from an overemphasis on product to a greater valuing of process. After all, life is not product, it is process, an understanding enabling us to greater value that which makes us human. Using knowledge from quantum physics and biology will allow us to create more organic systems, with people not technology, and design not product as the greatest mediators of value. Integral to the whole process will be information and how it is created, controlled and communicated, and in so doing we will revalue information.

Industrial markets pay little value to information, value is predominately gained on physical goods. While we can and must evolve markets to place more value on information content, in many ways what must be revived and placed prominent is the value modern democratic politics places on the free flow of information. This is part of the American system little valued in economic dogma, yet essential to not only the health of the American political system, but just as much to the vibrancy of the American economy. We need to add the political back to the economy.

In the American constitution, you will find certain foundational pillars on the control of information necessary to build the design economy. The ideas of free speech and freedom of the press remain just as important today as then. But they must be defined anew in an era of networked microprocessors, where each individual's speech can be amplified, every person owns a press, while the Fortune 500 and our own government fight to keep ever more information proprietary.

The constitutional questions of copyrights and patents are essential to this new era. As Jefferson pointed out these are not natural rights but societal creations based on fostering innovation. But again, in industrial America, the benefits of copyrights and patents gained through production become more problematic in an era of design, where information in an organic design political economy becomes something like DNA, necessary to build all the physical processes atop it. Limiting the free transference of this information can cause vast mutations in the entire design political economy. Today, the Fortune 500 spends millions on lobbying to strengthen patent and copyright law, not to help innovation, but to stifle and gain further control.

The Internet has given us a few hints on how to evolve design principles. Open distributed networks can create their own order based on an open architecture, that is, allowing all equal access and not discriminating transmission based on content. In the software area, principles such as open source have shown people can create dynamic stable systems where the information is left open to all to freely manipulate and evolve. These are issues of fundamental importance to the design economy, just as questions about labor and control of the railroads and utilities were to the industrial age.

One of the most interesting changes that might occur is to money itself. Money has an information component, a necessary question for much greater probing is if some of this information can be “socialized”, that is, extracted from money and claimed as part of a more robust political culture. An easier way to think about this is how industrial economy in many cases forces information to be turned into product so that it might be valued. However, if we create new associations and evolve our present organizations to understanding the societal value of information, we may gain value from much information without it being monetized. Yet, over years, industrial society and particularly the last few decades has trended in the exact opposite direction, monetizing all aspects of life.

In the end, we must revive and evolve the citizen, our politics, and our government. We need to create value for design, thus valuing the processes of design. Most importantly, we must give value to the citizen, and that means the work of the citizen must be valued. We need to redesign our economy so that production and technology are both second to people.

Chant Down Babylon

Come we go burn down Babylon one more time
Come we go chant down Babylon one more time
For them soft! Yes, them soft!
So come we go chant down Babylon one more time
-- B. Marley

There's an interesting divide in economics, those who understand the importance of industry to industrial economies in an industrial age, and then the vast majority. Now, the first group tend, though certainly not exclusively, to be old New Deal types. Tom Geoghegan is one of them, and he has a piece in The Nation with some very excellent points on the matter. First, when you are in an industrial era and you have deficits of manufactured goods, then you're going to generate more and more government and private debt. Without addressing the first, you're not going to change the second. Tom addresses the problems this causes for those advocating more stimulus most excellently and succinctly,

When we have a big trade deficit, the feds can't run up a debt just to re-employ Americans. As long as we've so much trade debt, we have to figure that a distressing amount of any stimulus will go ultimately to re-employ the workers in China, Brazil, Japan and even Europe, who fill the gap between the "demand" we pump up and what we actually "supply." When we have a big trade deficit, it means that the more we prime the pump, the more we drain out this distressing amount of our national wealth.

Tom also throws in his hand trying to rescue poor old Mr. Keynes from his supposed disciples writing,

Indeed, for every kind of debt—government, consumer, trade—the Democrats have to be the party that gets the country out of debt. That's the only way to bring back a fair and just economy that lifts the middle class. As debt piles up, even our base is freaking out. Deep down, people grasp that America got into this mess with too much private debt. "Hey, if we're all trying to get our own debt down, how does it make sense for the government to run it up?"

"Oh," some of us will say. "These poor unenlightened ones—they don't understand Keynes." Maybe we don't understand Keynes. Keynes would never have happily urged a serious debtor country to go deeper into debt. This is not your great-grandfather's Great Depression. In 1936 Roosevelt could and should have gone into debt—but didn't. We were the biggest creditor country in the world. In World War II we ran up a colossal debt—but it was a debt to ourselves. We baby boomer kids never even noticed. That's why Keynes was so relaxed in 1936 about our going into debt. But otherwise Keynes spent much of his life trying to get debtor countries out of debt—Germany, his own Britain after the war. If one looks at his career, it is clear that Keynes never told a debtor country to go deeper into debt.

As he would point out, much of the debt we pile up in Washington has little or nothing to do with putting people back to work. Much of it is just to balance the books. Because we buy more than we sell, we have a trade deficit. So the books have to balance, right? Someone has to make up the difference. Under Bush we had consumers go into debt to do it. But they're tapped out. So now Washington has to go into debt instead.

He adds,

And why else did the stimulus run out of steam?

It was probably not big enough, but an even bigger one might have run out of steam. The bigger the trade debt, the less punch there is in running up a deficit. You can't just blame the GOP for cutting the stimulus down.

What's more, on this debt to pump up foreign "supply" we also have to pay out interest to foreigners. The deeper in debt we go, the more likely we are to end up in the clutches of foreign creditors. Don't believe me? The time may come on the left that we'll miss the days when we could rail at Goldman Sachs instead of the IMF.

Yes, in ten or so years the renminbi or even the euro (thanks to Germany) could replace the dollar as the world currency in which we denominate our debt, and our fate will be up to central bankers in foreign countries.

This is no joke: a Babylonian-type captivity for our country is but a presidential term or two away.

He calls for increasing exports, but I'd say at this point, the US doesn't need so much to increase exports, as much as simply produce much more of what it consumes, just as the Chinese don't need to import more as much as they need to consume more of what they produce.

Chant down Babylon.

Political Economy of Energy

BBC

The inventor of a low-cost solar cell that could be used to build electricity generating windows has been awarded this year's Millennium Technology Prize.

"Gratzel's innovation is likely to have an important role in low-cost, large-scale solutions for renewable energy." "Natural photosynthesis was the inspiration, and our solar cell is the only one that mimics the natural photosynthetic process."

Gratzel cells rely on nanotechnology to produce power from sunlight. "We are using nanocrystal films in which the particles are so small, they don't scatter light," said Professor Gratzel. "You can imagine using those cells as electricity producing windows. What's very exciting is that you collect light from all sides, so can capture electricity from the inside as well as the outside."

"You could think that the glass of all high-rises in New York would be electricity generating panels," he said.

NYT

This week, in one of several recent breakthroughs merging natural processes and solar technology, researchers at the Massachusetts Institute of Technology described the creation of solar cells just a few billionths of a meter wide that mimic this ability of plants’ chemical engines to self-repair and regenerate.

“We’re basically imitating tricks that nature has discovered over millions of years,” Michael Strano, a professor of chemical engineering who led the team behind the discovery, said in an M.I.T. news release.

The transistor and the photo-voltaic cell were invented at roughly the same time. However, the amount of money spent developing the transistor and the microchip exponentially dwarfs the amount spent on developing the solar cell and all other forms of renewable energy combined. There's important reasons for this and they're essential to understanding the political economy of technology. First, energy from fossil fuels in the early 1950s was relatively cheap, subsidized, and the costs of its environmental impact socialized. Nuclear fission, the military-industrial complex's new energy technology became the designated energy of the future and devoured almost all energy development dollars.

Secondly, energy was monopoly controlled. In the case of electricity, the reform of the electric industry in the 1930s created a system controlled by state sanctioned public and private monopolies. While the oil industry's conglomerates are not officially state sanctioned, they are nonetheless monopolistic. Technologies create their own infrastructures, companies, bureaucracies, and even elected officials, whose most important job becomes protecting the established technology. This creates a problem that is as much political as it is economic or technological in replacing entrenched technologies -- the politics of technology. From an energy perspective, if you add the swapping-out of existing fossil energy sources with renewable sources creates no new net societal wealth, except for in areas of environmental restitution, instead it is a process of wealth redistribution -- taking wealth from established power. In most cases, it is established power intimately entwined with the state. Understanding this in all its facets will give you a better understanding of the political economy of energy.

Labor Day 2010 II

"We came out here to find the American Dream, and now that we're right in the vortex you want to quit." I grabbed his bicep and squeezed. "You must realize," I said, "that we've found the main nerve."

"I know," he said. "That's what gives me the Fear." -- Fear and Loathing in Las Vegas, Doctor Hunter S. Thompson, 1971

The Doctor is missed, especially those long dark nights contemplating American politics. The Doctor was both funny and intelligent in his political analysis, two traits in great deficiency these days. Case and point would be the online publication Salon. It is one of the first web-publications, and over the years has the occasional good article. But its politics are both completely brain-dead and insufferable. It is not only the cultural left as apologists for the Democratic party, but far far worse as proud apologists for the Clintons. So, it comes with a great deal of astonishment and, well, really that best describes it, that Salon's Editor Joan Walsh puts out a piece/interview titled, When Blue-Collar Pride Became Identity Politics: Remembering how the white working class got left out of the New Left, and why we're all paying for it today. Phew, a recognition 40 years in the making, better late than never.

The interview with Jefferson Cowie, who both wrote the NYT op/ed I referred to yesterday and the new book, Stayin’ Alive: The 1970s and the Last Days of the Working Class, is really smart, I can't more highly recommend. It concerns the fall of labor/working class politics in this country and the takeover of the Democratic party by the Reagan Revolution economic capitulators and the cultural left, eventually leaving the Democratic party in the sad state it finds itself today, particularly its having zero ability whatsoever to face the economic challenges facing us, but the Republicans are in the same boat. A recognition of the insolvency of the two parties on these matters is coming, quicker than most believe.

The interesting thing about Mr. Cowie is from his pictures, he looks to be somewhere in his 30s, and that makes sense. His analysis wasn't going to come from the Boomers. One of the Right's critique of the New Left, that it was spoiled and immature, always had value and it was most apparent in the New Left's disregard of economic issues, They were in fact the most massive privileged generation in the planet's history, and they weren't just content with that, they started gorging themselves on the seed corn too. America's great 1960s cultural revolution was founded on American wealth, and that cultural liberalism will vanish with American prosperity, count on it Bubba.

Its time to purge the Boomers from politics, and you young folks remember, they had no respect for the generation that preceded them, so have no hesitancy showing them in-kind. Anyway, it won't be hard, they know nothing about economics and that is the great challenge before us, what is the economy of the 21st century? When we break the constraints of the 20th, the opportunity is vast.

Labor Day 2010 I

The NYT has an interesting piece by someone titled an "associate professor of labor history." Wow! Such a position still exists? It's worth reading, as it recalls the last decade of the American labor movement -- the 1970s. The author writes,

But these are more than just parallels: those late ’70s events are part of the cultural foundation of our own time. Less expressions of rebellion than frustration, they mark the final days of a time when the working class actually mattered

The ’70s began on a remarkably hopeful — and militant — note. Working-class discontent was epidemic: 2.4 million people engaged in major strikes in 1970 alone, all struggling with what Fortune magazine called an “angry, aggressive and acquisitive” mood in the shops.

Most workers weren’t angry over wages, though, but rather the quality of their jobs. Pundits often called it “Lordstown syndrome,” after the General Motors plant in Ohio where a young, hip and interracial group of workers held a three-week strike in 1972. The workers weren’t concerned about better pay; instead, they wanted more control over what was then the fastest assembly line in the world.

Can anyone remember when wages were last an issue in this country, that is besides cutting them, much more the "quality of their jobs"? Comes 1980, and the Reagan Revolution, and that was it for labor. I always remember my dad saying and still does, when Reagan fired the air-traffic controllers, that labor needed to call a national strike. Of course they didn't, as labor and what was left of the New Deal in the Democratic party were in full retreat into irrelevance. Does labor matter today? No, not at all. Can labor be revived? Maybe, but certainly in much different form than the 1930s. It would have to be a movement that defines the economy of the 21st century, just as its forebears helped define the economy of the mid-20th century.

Speaking of the 1930s, we can get rid of the notion that somehow the lack of stimulus has brought us back to 1937 and 1938. Again this is not the 1930s, and its most definitely not 1938. Most importantly, they had actually fixed the banks by 1935 in America, we have yet to do so. Yves Smith reruns a piece from the Spring of 2008 where the Japanese warned not enact "extend and pretend" and keep insolvent institutions running. But that's what we did and why even if a corrupt and degenerate DC could somehow manage to spend money and the right things, the economy would still at best sputter. With apologies to the good Doctor Thompson, "The Financial System is decadent, depraved, and insolvent."

Finally, under mission accomplished, for all you America haters complaining about Afghanistan. It seems we've managed to install our financial system in full. In the biggest bank, the management's on the run with the loot and we're going to be bailing out. Bill Black has good piece:

Kabul Bank is a typical example of a crude variant of control fraud at a major bank. Systems of crony capitalism, such as Afghanistan, inherently create an intensely “criminogenic” environment that produces epidemics of control fraud in the public, private, and non-profit sectors. Kabul Bank, like the (originally Pakistani) Bank of Credit and Commerce International (BCCI) – better known to regulators as the “Bank of Crooks and Criminals International” is reported to have helped everyone – corrupt Afghani government officials, corrupt business leaders, and the Taliban laundering its drug profits to, in part, buy weapons. Like BCCI, Kabul Bank’s managers’ reported frauds and self-dealing blew up the bank by causing massive losses. (If you believe that Kabul Bank is the only bank like this in Afghanistan you are consuming too much of Afghanistan’s leading export.)

The CIA tells us that Afghanistan raised roughly $1 billion in revenues last year and expended $3.3 billion. The shortfall, of course, was funded by us (the West, principally the U.S.). Indeed, that understates the case because Afghanistan raised the $1 billion in revenues primarily through customs duties and the U.S. and other Western nations indirectly or directly funded most of those customs duties.

Oil is Job 1

The IEA announced the world is going to become increasingly reliant on OPEC for oil, more accurately the Persian Gulf, as other members of OPEC will soon enough be formerly petroleum exporting countries. The WSJ writes,

The global dependency on the members of the Organization of Petroleum Exporting Countries for oil will rise in the next five to 10 years as production by non-OPEC nations declines, the chief of the International Energy Agency said Friday.

"We have seen an increase in non-OPEC supplies. But in the mid-term, non-OPEC production will decline," Nobuo Tanaka, the agency's executive director, told reporters on the sidelines of a conference. "So, dependency on OPEC oil will increase."

OPEC's 12 members, who include Saudi Arabia, the United Arab Emirates and Kuwait, account for about 40% of the global oil (production).

So, I guess a trend that's been going on for over three decades is news. The increase in non-opec supply is almost entirely due to the global economic contraction. Here's some better numbers, not that numbers have any relation to economic reality these days, nonetheless, the countries around the Persian Gulf have 60% of known global oil reserves -- speaking of unreal numbers -- while, the EU, the US, China and Japan, who conveniently enough account for 60% of the world's economy have only 9% of the world's remaining oil reserves, and if you cut the US out of that equation it would drop to 3%.

The entire corporate globalization experiment of the past few decades is built on the premise of cheap oil. The entire global "oil market", increasingly unable to provide cheap oil, is built on the American military, and the American military is built on debt, which each year becomes ever more unsustainable. Now, we could go to the EU, China, and Japan and say you guys need to start kicking-in to pay for our military service, but I doubt that would go over well with anyone, no one's going to give money without a corresponding increase in say. Or we can begin to realize that the entire corporate globalization experiment, premised on cheap oil, is at best problematic and more accurately a failure. We as a planet need to begin creating a non-oil based economy, that is, we need to truly become post-modern. But when you have an economy, politics, and culture completely addicted to oil, that's difficult. Instead you get desperation like ethanol and biofuels, which is the equivalent of the addict selling-off the food, furniture, and soon enough the house. Getting off oil is job 1 for any sustained economic revival and that means a complete redesign of our infrastructure.

Viva La$ Vega$

Gonna set my soul on fire
Got a whole lot of money that's ready to burn
So get those stakes up higher
I'm gonna keep on the run
Gonna have me some fun
If it costs me my very last dime
If I wind up broke up, well
I'll always remember I had a swingin time
-- Viva Las Vegas

The WSJ has a must read piece from the currency table, which rolls 24/7. The Journal writes,

Currency trading volume around the world has hit $4 trillion a day,...the $4 trillion mark represents a 20% gain from $3.3 trillion in 2007, the last time the global foreign-exchange markets were surveyed, according to the Bank for International Settlements.

....the continued rise in trading reflects the increased globalization of investing. With the big developed economies of the U.S., Europe and Japan struggling, investors are turning toward other markets for returns and generating more foreign-exchange trading in the process.

Now small investors are increasing their foreign-currency exposure. They are piling into mutual funds which make bets on currencies as a core part of their strategy. More broadly, U.S. stock mutual funds that invest overseas have taken in $42 billion over the past year, according to Morningstar Inc.

In addition, exchange-traded mutual funds, whose shares trade like stocks, are making the currency markets more accessible to small investors. There are now 44 currency ETFs, up from 16 in April 2007, according to Morningstar. In 2004 there was only one.

But it gets better. Can you say leverage? Can you say bubble? Boy, just looking at how currency markets are operating, all you can say is thank god for Frank/Dodd, right?

Currency trading usually involves placing bets with borrowed money. That has regulators concerned about individual investors' ability to handle large amounts of leverage, though action has been limited so far.

On Monday, federal regulators backed off a plan to place stricter limits on how much individual investors who trade currencies can borrow.

Currently, investors can borrow $100 for every dollar they invest. The Commodity Futures Trading Commission, which regulates foreign-exchange trading in the U.S., tried to cut that amount to $10.

But after a wave of protests from brokers and individuals, it settled on $50 for every dollar invested, which is the amount of borrowing many large brokers currently allow.

No, no, baby! This place is hot! You can't cut 100 to 1 leverage down to 10 to 1, where's the fun in that? Hell! You can't make shit in this stock market, even with all Ben's pumping!

Kevin Rodgers, global head of foreign-exchange derivatives at Deutsche Bank in London, says funds of all stripes—hedge funds, mutual funds and sovereign-wealth funds—are seeing the currency markets as a distinct asset class and not just a way to make an investment priced in another currency.

Trading among "nondealers," which includes hedge funds and mutual funds, grew 42% to $1.9 trillion per day...

So, here's the results when the Fed and other central banks started the last bubble by inflating/deflating currency with ZIRP policies, QE, and other methods of pumping money into deflating global assets markets. They are undermining the value of money itself, and more importantly the current structure of currency markets allows them much less control than they think. The question is what happens when this bubble pops? The general answer is economic carnage, what that looks like specifically is the real question, and a money maker, that is if you can figure out how to keep it in a currency with any value.

Viva! Viva! Viva!