Geopolitics Rule

SUBHEAD: We must reinvent democracy in a way that embraces the concept of less at at all levels. By Steve Ludlum on 21 February 2011 in Economic Undertow - (http://economic-undertow.blogspot.com/2011/02/geopolitics-rule.html) Image above: "Until Libya is Free" photo. From original article. One of the big ideas here at the Undertow is that the economic price limit or upper bound for crude oil is a lot lower than most analysts suggest. The American Way was built on a foundation of unlimited sub- $20 per barrel crude. $18 crude made Hollywood, TV, advertising, Interstate highways, Suburbia, shopping malls and mass consumption. $18 crude created then enabled a massive automobile- industrial complex. $18 crude allowed cheap meals to be had without getting out of a car; cheap crude severed the bounds between humans and nature and substituted company 'values' for all the other kinds. Suburbia would not exist in any form without cheap fuel which is the loss-leader for everything else. Big cars, big houses and long commutes make no sense when fuel is expensive. Neither do chain stores, speed boats, Concentrated Animal Feeding Operations (CAFO's), and air travel for the masses. The writ of suburbia is parking lots stuffed with automobiles as far as the eye can see. Whatever existed before is erased from history, bulldozed in favor of more parking lots stuffed with automobiles. What remains is determined by the marketing departments of multinational businesses which invent what is useful for them. Do you think 'money' is valuable? It is because the businesses have decided this is so. Expensive fuel not only 'strands' capital investment by rendering it unprofitable, it makes any follow- on costs unsupportable. Support and maintenance expenses cannot be serviced by the meager returns suburbia provides in an expensive fuel regime. This is why state and municipal budgets have spiraled out of control. Sprawl is expensive. It requires a lot of people to service it. Unlike what marketing suggests, the inhabitants of sprawl are not rugged individualists facing the future with canned hams, knobby tired all-terrain vehicles and Glock semi-auto pistols. Instead, they are like helpless children who require the attention of thousands of highly paid specialists to make sure the hams, the vehicles and various belt-fed weaponries work as the warranties promise. Heaven forbid that the streets are left unplowed after a snowstorm or that the little nuggets have to walk more than three blocks to school! Hell hath no fury like the neighbor of someone building a barbecue pit without a permit or having an uncovered garbage can! The 'Nanny State' is a product of consumer demand and is geared into the proper function of all the products that make up sprawl. Shrinking government or down- scaling the ability of managers to function strands trillions in capital investment! Shrunken services lead shrinking property values. Instead of fixing problems the stripping of services amplifies them. This is where the neoliberal apologists fail as economists: cutting wages only shifts the costs rather than eliminating them. The 'value' of sprawl shrinks right along with the wages: any savings are an illusion. While support for sprawl will by necessity shrink along with sprawl itself it is necessary to put this shrinkage in the proper context. It must be understood that sprawl cannot support itself: without this understanding nothing about government functions and costs makes sense! Geopolitics rule. What is happening in Egypt and Libya is also taking place in America and for the same reasons. Geopolitics transcends culture. Qaddafi is not an Andy Warhol character. There is no 'escapist fun' about a madman strafing crowds of one's own citizens from helicopters. There is also nothing fun about $110 oil. A couple of more months at this level and the system built on $18 oil surrenders to fate. Signs of breakage/leakage are ominously appearing across the world's economies. High prices have caused the unrest, they are also the first results of it. The world is poised at the edge of a geopolitical compounding price-feedback spiral. The mendacity of the Establishment whether Qaddafi's or Walker's feeds on itself. The first level outcome is the unmanning of the neoliberal order which is itself a collection of false premises that are dependent upon passive acceptance of accumulating outrages in exchange for phantom benefits. The other outcome is the reaction to what the false premises actually represent in real time. The reaction to vicious Qaddafi is a threatened shutdown of Libya's oil fields. The reaction to Walker's bald-faced assault on sprawl-management is the possible suspension of important public services. People are learning fast the vulnerabilities of the system and are starting to take advantage. Even if both Qaddafi and Walker succeed for the instant, the game itself is changed with advantages now accumulating to the neoliberals' putative victims. Right now both the municipal employees as well as the politicians are failing to face reality. The problems in state and local governments are structural and unsolvable without dismantling the high- cost, energy gobbling structures. Refusing to dismantle does nothing but shift the timing of the ultimate bankruptcy somewhat. Bankruptcy is the peak oil outcome: it cannot be outwitted or outmaneuvered by intellectual dishonesty or any other kind! It must be faced and dealt with directly. This is some unreality, from Mike Konczal:

The Less Discussed Part of Walker’s Wisconsin Plan: No-Bid Energy Assets Firesales. Have you heard about 16.896? The fight in Wisconsin is over Governor Walker’s 144-page Budget Repair Bill. The parts everyone is focusing on have to do with the right to collectively bargain being stripped from public sector unions (except for the unions that supported Walker running for Governor). Focusing on this misses a large part of what the bill would do. Check out this language, from the same bill (my bold): 16.896 Sale or contractual operation of state−owned heating, cooling, and power plants. (1) Notwithstanding ss. 13.48 (14) (am) and 16.705 (1), the department may sell any state−owned heating, cooling, and power plant or may contract with a private entity for the operation of any such plant, with or without solicitation of bids, for any amount that the department determines to be in the best interest of the state. Notwithstanding ss. 196.49 and 196.80, no approval or certification of the public service commission is necessary for a public utility to purchase, or contract for the operation of, such a plant, and any such purchase is considered to be in the public interest and to comply with the criteria for certification of a project under s. 196.49 (3) (b). The bill would allow for the selling of state-owned heating/cooling/power plants without bids and without concern for the legally-defined public interest. This excellent catch is from Ed at ginandtacos.com (who, speaking of Madison, took me to the Essen Haus on my 21st birthday, where the night began to go sideways). Ed correctly notes: If this isn’t the best summary of the goals of modern conservatism, I don’t know what is. It’s like a highlight reel of all of the tomahawk dunks of neo-Gilded Age corporatism: privatization, no-bid contracts, deregulation, and naked cronyism. Extra bonus points for the explicit effort to legally redefine the term “public interest” as “whatever the energy industry lobbyists we appoint to these unelected bureaucratic positions say it is.” In case it isn’t clear where the naked cronyism comes in, remember which large, politically active private interest loves buying up power plants and already has considerable interests in Wisconsin. Then consider their demonstrated eagerness to help Mr. Walker get elected and bus in carpetbaggers to have a sad little pro-Mubarak style “rally” in his honor. There are dots to be connected here, but doing so might not be in the public interest.

It’s important to think of this battle as a larger one over the role of the state. The attempt to break labor is part of the same continuous motion as saying that the crony, corporatist selling of state utilities to the Koch brothers and other energy interests is the new “public interest."Regardless of how the politics play out, labor must compete with fuel. Beginning in the 1990's US businesses faced the same cost squeeze that states and localities are facing now. Mexico and China bailed out US businesses by importing jobs that increased costs had rendered unprofitable. Unlike businesses, states and cities cannot export firefighting jobs to China or India. Children must be taught near their homes and the choice is to pay or have stupid children. Stripping labor's ability to negotiate wage and benefit levels is irrelevant. The economy's productive capability sets prices both for both fuel and labor. If the economy cannot support the price of fuel the price will decline to a level that can be supported. This will be accomplished by demand destruction and the unraveling of the 'Automobile State'. Credit and momentum can push an economy to the point where it appears to support a high price but not for very long. The same is true for labor. Regardless of sentiment, the economy cannot support high prices 'out of thin air'. Any given price must allow an organic return. At some level the high prices eliminate returns altogether. High labor costs, like high fuel costs are self-correcting. Oil prices that are higher than nominal $35/bbl are problematic. Allocation takes place at the higher price: fuel can be bought in place of something else like wage increases or business profits. For this reason, high fuel prices are deflationary. Allocations in scale economies are ruinous: input constraints ration individual processes. Should a vital process become non-functional, the scale economy as a whole falters. This is a variation on Leibig's Law of the Minimum. Here, the least well-functioning process hobbles all the other processes. Another way to state this is the slowest boat sets the pace for the convoy. At some point the convoy is too slow to be productive. This is the point where we are now. At the high price there is no other activity allowed but buying fuel or the choice between that and paying wages. What happens then? Like the labor protestors in Wisconsin, the millions whose upward-turning hearts are bent toward democracy and freedom are bound to be disappointed. Democracy is not magic but rather a way to efficiently express demand. The protesters in Madison are making public their desire to have access to a shrinking economic (resource) base. Long silent, the new democrats in Cairo and Benghazi are doing the exact same thing. Along with the freedom from arbitrary detention and abuse, the New Democrats are demanding consumer goods and easy, technology oriented jobs. They want automobiles, houses, luxuries and vacations. They insist the process of democracy give them both the right AND the means to have these things. What they don't understand is that these are in the process of being taken away from the Americans who created the idea of consumption in the first place. The New Democrats are idealists but also hard-headed. They want the slice of the pie, particularly since the slice available is part of the oil production pie which is baked in their kitchen! Since democracy efficiently expresses demand, the more demand overall means less available at a price that anyone but the wealthy can afford. How ironic: adding democracy actually makes things worse for everyone because the one thing it cannot do is make everyone wealthy! If Americans cannot afford the middle-class way of life the Egyptians certainly cannot afford to do so. Egypt stands now a nation of Oliver Twists, lining up for more bowls of poison. Nothing can give them what they are bleeding for other than finance, neoliberalism and property bubbles. The future of the New Democracies is likely more Albanias. Like Egypt in many ways, the US has ceased to be a productive country. It invested foolishly in toys, waste and luxury rather than is workshops and in worker skills. We have smart-ish machines and knuckleheaded citizens who refuse to learn anything. We turn away from reality and hide behind nativist politics and televised circuses. Outside of agriculture and military goods our production does not provide much in the way of return. Without subsidies from our grandchildren our entire economy would collapse. We don't earn enough. Instead of labor, artistry and discipline, we have made gambling the centerpiece of our so-called civilization which is built as cheaply and destructively as possible on a foundation of styrofoam packing peanuts. There is no good outcome to this since the 'Management' chooses not to understand gambling's nature, that it is a zero-sum operation. We do not want to embrace any other way but rather put more coins in the slot machine faster. The New Democrats are faced with a challenge that preceding versions did not have to address. They must somehow reinvent democracy in a way that embraces the concept of less at at all levels. They must find a place in their philosophy that allows nature to provide services other than 'resources' that are strip mined then landfilled. They must create a value system that embraces something outside of 'company values' created by marketing experts and American pop culture. It may be that the current distress in the oil regions may be the end of our gambling way of life. What happens next I do not know. The danger is deleveraging of the massive debt overhang - our gambling debts if you will. Since stimulus has been in effect since 1980 and easy money from central banks is already flowing to catatonic banking sector there is no reserve or 'Plan B' available to stop runs out of securities. It's likely to get 'interesting' for the next week or so. Warfare creates supply uncertainty which is added to actual shortfalls. The situation in Libya -- a major oil exporter -- is opaque. Nobody knows what is actually taking place in Tripoli right now, who is in charge and whether the mechanisms of production will be adversely effected. Oil company personnel are fleeing the country. The risk is that Libya's output might be sanctioned. This uncertainty has pushed Brent to almost $110 per barrel. Geopolitics trumps economics. Events of the past few weeks leaves the entire oil-producing region teetering. No country is secure in the sense that the government is assured of remaining in authority. This is as true of Saudi Arabia's government as well as China's. What is taking place is a demonstration of the limits of indirect coercion as an organizing idea. The two words 'Food Riots" are a figure of speech. Food riots that displace governments mean that the resource constraints that render riots inevitable have to be taken seriously. Resources matter: the action of a disgruntled fruit vendor in Tunis has set in motion what hundreds of reports and media articles have failed to accomplish: insist there are real limits that cannot be compromised. The next group to learn this will be the democracies of the West. .