The Bat Signal

SUBHEAD: Examining the gusher too closely is dangerous, it leads to examining the consumption/waste context that it inhabits.

By Steve Ludlum on 15 June 2010 in Economic Undertow -

Image above: The bat signal spotlight on roof in Gotham. From (

While the oil gusher in the Gulf of Mexico attracts attention away from finance and the gangrenous Eurozone economy the overall situation quietly and steadily deteriorates. The Yanks, the Brits, the Chinese and the Euro bosses have all painted themselves into the same policy corner. The reaction to any steps administrators take is going to make things worse.

On display is the collective lack of imagination on the part of economic policy makers. Blindly repeating 'Keynes Lite' is not making policy.

 The reflation of aggregate demand has morphed into support for the monetary elite! The best the brain trust can come up with is deflation; crush the little guy while pampering the rich. People have the gall to call this out- and- out bank robbery Keynesianism.

Nobody can think of anything else to do. If the money plug is pulled the scaffolding of overextended credit will collapse. Our credit regime is a ponzi dynamic. It constantly requires new money to survive. If the plug is not pulled, the money cost becomes ruinous. There are no simple solutions to the dilemma, no easy middle ground. 

What is absurd is that thousands of highly educated, highly paid specialists are poring over the same small patch of middle ground with magnifying glasses looking for that magical easy solution. It's like the locked- out man looking for his house keys under the streetlight:
"Why are you looking here when your house is over there?" "Because this is where the light is."
The Gusher in the Gulf illuminates the lack of courage and imagination of US policy makers. Heaven forbid that any suggest that Americans begin the process of getting out from behind the wheel, to abandon their daytime roles as dumb machine operators.

The policy is bent toward hiding the truth about the Gusher as much as possible; this policy being shared by BP, the government and the consumers of BP's products.

To examine the gusher too closely is dangerous, it is but a small step toward examining the consumption/waste context that the gusher inhabits. A conservation plan would cut the drain of currency flowing away from the developed world toward the energy producers (and energy marketers like BP).

These funds could be diverted toward more remunerative investments that don't issue waste as the primary product. The US has a lot of low-hanging energy consumption fruit. Cutting 10% of energy use would be little more than an inconvenience.

A conservation plan would ironically be the easy way, the step leading toward greater efficiencies, the development of 'conservation industries' and would show the rest of the developed world a way out of its hopeless corner. The president does not mention conservation. It's ridiculous!

 If the Americans were serious about the Gusher, they would boycott BP products. Hit 'em in the wallet while they are down. Consumers must realize that they - not anyone else - will be saddled with the massive and expanding cleanup costs, as well as costs associated with the moratoria- driven decline of available deepwater crude. Since prices cannot rise - everyone is broke - allocation away from goods and services toward fuel will take place. Less goods and services sold means fewer jobs, declining demand and ... the vicious cycle of deflation intensifies. We are in a situation where the choice is to work at a good job ... or drive a car. How can this be a choice? What's deflating is our 'Blessed way of life'. In keeping with the President's tepid address yesterday the efforts at keeping appearances are returning less and less. Stoneleigh observes the turning of the screw:
Fannie Mae and Freddie Mac are to be delisted from the NYSE. Stocks on the exchange must either act to boost the share price or delist if they show an average share price below $1 for over 30 days, which has been the case for Fannie Mae. It's hardly surprising that the companies should be perceived as virtually worthless, considering that they preside over about half ($5.5 trillion) of a mortgage market in terrible trouble. Moving away from even the limited accountability of public listing is also no surprise. Confidence games require reality to be obscured for as long as possible. While the move is being spun, especially in the case of Freddie Mac, as compatible "with a goal of conservatorship and the preservation and conservation of assets", in reality there is little future value to protect. Taxpayers have pumped in $145 billion already, as the alternative would have been a property price collapse. That is still clearly on the cards if support were to be withdrawn, hence the unlimited nature of the guarantee that has been offered, meaning unlimited liability for the taxpayer. Again, brain lock on the part of administrators, who are terrified of asking bankers to take their lumps. Of course, as bankers are intertwined into all aspects of modernity - credit being the lubricant of the future pulling time machine - they hold the productive parts of the economy hostage: As John Stuart Mill observed, "Panics do not destroy capital, they merely reveal the extent to which it has already been destroyed by betrayal into hopelessly unproductive works." The construction of much of suburbia has been a giant exercise in the creation of negative added value. It is this decades-long commitment of resources to living arrangements with fatal structural dependencies that has been destructive of value, and there is a limit to how long we can stave off the day when that will be generally recognized. That is all we are doing in supporting Fannie and Freddie.
The American Way is houses spread all over the landscape with the necessary infrastructure 'improvements. The freeways, the box- stores, the distribution centers, the junkyards and the toxic waste dumps. Stoneleigh is the soul sister of James Howard Kunstler, Kunstler's point of departure is the absolute soullessness of the auto habitat, the brutal dead- ness of it, its inhuman scale, the evil of banality.
Author and cultural commentator, James Howard Kunstler, has called The American suburbs "the greatest misallocation of resources in the history of the world". This grandiose claim struck some as a massive exaggeration when he first made it several years ago. But since then we have seen oil prices zoom up to $100, and US real estate prices have gone into serious decline. Assuming these ominous trends continue, Kunstler's pronouncement will be seen to be correct, and we may be headed towards "the Long Emergency" that he has warned us about. America's investment in the suburbs, will need to be restructured or written off, in order that we can find a new and more sustainable future for our children and grandchildren.
Here's Herman Daly who cautiously suggests there is no free lunches:
With regard to the question of uneconomic growth in theory, we started with a pre-analytic vision. Let's take a first step towards analysis of that vision. The continuous curve represents welfare or marginal utility or the benefits of growth. Q on the horizontal axis is, let's say, GDP. As we go out the horizontal axis we have diminishing marginal utility. I think that's a very fundamental law of economics which is well established.
I've put a dotted curve in the bottom which is the cost of GNP growth - in other words, the social and environmental sacrifices made necessary by that growing encroachment on the eco-system. I've named that a Jevonian view in honour of William Stanley Jevons, a great economist of around 1870 or so, who used that kind of diagram for a different problem but the logic is very much the same. In this diagram what is uneconomic growth? Well, economic growth is out to point B on the horizontal axis. At point B, line AB is equal to BC. The marginal benefits of further growth are just equal to the marginal costs. Growth beyond point B is uneconomic growth. It is growth for which the distance from the horizontal down to the dotted curve is greater than the distance up to the continuous curve, growth which makes you poorer than richer. And so there's the definition of uneconomic growth, growth beyond point B.
I've distinguished several different limits to growth. One is Point B, the economic limit where marginal utility equals marginal disutility. Another is Point E, where marginal utility falls to zero. I've called this the futility limit because when you are there you have so many goods to enjoy you that don't have time to enjoy any of them Consequently, adding more isn't going to do you any good because you can't use all the stuff you've already got. It's just futile no matter how little they cost. The third is Point D, where the dotted curve takes a nose dive straight down to infinity. I call this the catastrophe limit, the ecological catastrophe limit. That's the nice scenario where you invent some marvellous new product which has an unpredicted side effect which absolutely ruins the capacity of all green plants to photosynthesise and suddenly zap. Well, the nice thing about economic limit is that it is the limit we encounter first.
Which is the limit we have been hitting for the past several years. The effects are felt in Fannie and Freddie, the Gulf and cheapskate BP's lethargic efforts to stem the flow of goo and in Greece, Portugal, Ireland, soon Spain then Italy and the rest. Dance as fast as you can, the heat generated might lead to forgetfulness. Who remembers Dubai? Things apparently haven't gotten any better but nobody is paying attention:
Dubai’s sale of a flagship corporate asset has been dealt a blow after prospective bidders learned of an investigation they believe the US Department of Justice is conducting into the business.
Dubai World has been seeking to sell Inchcape Shipping Services, a port and shipping agent, as the state-owned conglomerate seeks to raise cash as part of a restructuring of its $23.5bn of debt. But several private equity groups dropped out of the bidding for the business after discovering during due diligence what they believe is an investigation by the DoJ over its contract to service the US Navy’s Fifth Fleet in the Middle East.
US private equity groups General Atlantic and Carlyle and Canadian pension fund Omers all decided not to submit second-round bids, according to people familiar with the matter.
The world goes broke, the center does not hold, whaddya going to do? The 'Bat signal' has been turned on, but nobody's home.

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