On Madoff, the Maestro, and Marx: Who Lost American Capitalism?

Was Karl Marx basically right? Are we about to witness the final death knell of global capitalism, as the few remaining big players begin to devour each other in a financial feeding frenzy? I myself am not usually one for that old line of socialist hyperbole, in the tradition of those outdated 20th century critiques of capitalism: the “final crisis,” the “final contradiction,” the “final collapse,” etc. These biblical-sounding, millenarian predictions have typically proved to be somewhat off the mark. Because this was so, there would then have to be some form of “revisionism,” wherein the arrival date that the socialist avatar that would come down to Earth from “egalitarian heaven” would have to be postponed—until the next “final whatever.” And so it went.

Capitalism has repeatedly proven itself to be incredibly adaptive, over time. Subsequent “final” events over the course of much of the last century—initially viewed as “crises”—would typically turn out to be “opportunities” for capitalism to reinvent itself, yet again.

Notions of arcane theoretical modeling aside, the system of accumulation known today as global capitalism does not appear well—not at all now, not anywhere. Since the beginning of the 21st century, the United States of America (still, as of this writing, the largest economic engine in the world system) has experienced what can only be called an epidemic of deep-seated financial corruption, in a broader context of systemic financialization (in a still broader context of gradual class closure, or economic collapse). Pardon me, as I engage in my own type of hyperbole. But this time, I fear, the hype is truly warranted.

This deep-seated corruption was typified, for example, in the Enron scandal (and the subsequent, anthropogenic California energy crisis) that broke at the turn of the century. Not only were Ken Lay, Jeff Skilling and Company engaged in politically authorized, financially deregulated, Ponzi-like malfeasance; they were also supposedly being “audited” by third party, professional accounting firms that were charged with overseeing their activities (remember the now-defunct Arthur Andersen consulting firm?).

In late 2008, we had the Bernard Madoff scandal. To be sure, financial malfeasance is happening all the time—somewhere. Moreover, two prominent financial scandals involving billions of dollars maketh a “final crisis” not. However, it is both the depth and breadth of this particular scandal which is so revealing to us now. In what is being described in the mainstream US media as an elaborate “Ponzi Scheme,” Madoff actually “made off” with approximately $50 billion in “funny money.” Few people are laughing, now, as it appears that Bernard Madoff has defrauded some of the wealthiest or most prominent members of our society.

But what I would like to highlight here is the very nature of the exposure of the crime: it was only as a result of the downturn in the economy that Madoff’s fraudulent activities were brought to the light of day. Had the economy still somehow been in a growth phase, akin to what we witnessed in the US pre-2000, he would have continued perpetrating himself as some kind of financial guru, we would have believed him, and he would have continued perpetrating his Big Lie, defrauding yet more people of yet more billions. Growth in the system, at least in part, appears to have been a part of the problem here. I will make more of this “economic growth problem,” later on.

According to Yahoo! News, of 12 December 2008:

It appears Madoff ultimately was unmasked by the worst financial crisis since the Great Depression. Just like many hedge fund operators, Madoff received a wave of redemption notices in recent months, from investors looking to preserve cash. Authorities say investors sought to pull out some $7 billion from the fund — money Madoff apparently did not have. In the end, most Ponzi schemes collapse when too many investors seek to pull their money out at the same time, and the operator doesn’t have the cash on hand.

But the financial crisis appears to be hastening that unwinding process, as it has dried-up all sources of liquidity. Banks are unwilling to lend and investors are fleeing hedge funds, stocks, bonds, commodities and other asset classes for the safety of cash. In September, another alleged Ponzi scheme collapsed, when federal prosecutors arrested Minnesota businessman Tom Petters. Federal prosecutors allege that much of Petters’ empire, which consisted of buying up distressed businesses, was based on a series of lies.

“Based on a series of lies,” indeed. It seems that Mr. Petters was borrowing ideas from the Madoff book. Again, I want to highlight the fact that as long as the system was able to induce economic growth, the “lies” continued. Only after the system began to collapse, did we begin to see what has really been going on. Now, it appears that The Truth is beginning to set us free.

However, reality can be complex. Just as revelations can come from lies, so deceptions can come from truth. I would here like to switch to the interesting-but-sad case of another fallen hero: Dr. Allan Greenspan (a.k.a., The Maestro, for his apparent ability to easily manipulate or control events in the global economy). On 23 October 2008, from the Wall Street Journal, Greenspan stated the following, before the US Congress:

In 2005, I raised concerns that the protracted period of underpricing of risk, if history was any guide, would have dire consequences. This crisis, however, has turned out to be much broader than anything I could have imagined. It has morphed from one gripped by liquidity restraints to one in which fears of insolvency are now paramount. Given the financial damage to date, I cannot see how we can avoid a significant rise in layoffs and unemployment.
(Source: http://blogs.wsj.com/economics/2008/10/23/greenspan-testimony-on-sources-of-financial-crisis/)

It was broader than anything he could have imagined. What was it that had seemingly constrained his imagination so? A part of the answer can be found in the Washington Post, of 24 October 2008:

Alan Greenspan, once viewed as the infallible architect of U.S. prosperity, was called on the carpet yesterday, pilloried by a congressional committee for decisions that contributed to the financial crisis devastating world markets.

The former chairman of the Federal Reserve said the crisis had shaken his very understanding of how markets work, and agreed that certain financial derivatives should be regulated -- an idea he had long resisted.

When he stepped down as Fed chairman less than three years ago, Congress treated Greenspan as an oracle, one of the great economic statesmen of all time. Yesterday, many members of the House Oversight and Government Reform Committee treated him as a hostile witness.

"You found that your view of the world, your ideology was not right, it was not working?" said Rep. Henry A. Waxman (D-Calif.), the committee chairman.

"Absolutely, precisely," Greenspan said. "You know, that's precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well."

Again, as long as the economy was in a long-term growth phase, these concepts would be (superficially) somewhat easier to maintain. The economy was growing, it was true. And with that truth, the deception could be maintained. Once such growth severely slows or stops, however, the curtain is raised, revealing that which exists behind. What has existed behind the mysterious curtain of economic growth has merely been a pre-supposition of more economic growth. In a sense, the entire US economy was based on a more elaborate, highly intricate Ponzi Scheme: as long as there were ever more folks willing to buy in to the ever bigger scheme, everything appeared to be okay.

The Washington Post went on to write:

With the global financial system unraveling, economists and political leaders are coming to doubt some of Greenspan's most closely held views: that markets can exact self-discipline, that central bankers should generally not try to prick bubbles in the price of houses or tech stocks, that a policymaker's most powerful tool to encourage growth is to stay out of the way.

Even Greenspan seemed genuinely perplexed yesterday by all that had happened, hard-pressed to explain how formerly fundamental truths about how markets work could have proved so wrong.
It is indeed a shock, to both individuals and systems, when prevailing ideologies no longer seem to be relevant or true. The Washington Post, in conclusion, went on to say:

The tough talk reflected a widening sense that some of Greenspan's apparent successes in managing the economy from 1987 to 2006 were in fact illusory, that they came at the cost of building the biggest credit bubble in world history.

Okay, so now it’s clear we’ve been bamboozled by neo-liberal economic philosophy for the past 25 years or more. What do we do now? First, we have to adjust our vision. We have to recast and readjust the type of models we deploy, and the time frames in which we deploy them. The time frame used by Greenspan et al. was far to short, in the final analysis. According to an editorial in Monthly Review magazine:

The extreme short-sightedness of building models on “a period of euphoria” and ignoring “historic periods of stress” meant that the historical reality of capital accumulation was simply written out of the analysis. As Marx explained, overproduction of capital inevitably leads to periods of massive devaluation, by which the system prepares the ground for a further expansion. “Business is always thoroughly sound, and the campaign in fullest swing, until the sudden intervention of the collapse” (Capital, vol. 3, chapter 30).

This analysis is okay, as far as it goes; however, I maintain that it does not go quite far enough. Not only must we concern ourselves with medium-term business cycles (typified in the 60-year boom and bust waveform pattern seen in the Kondratieff Wave, or K-wave); additionally, we must also look at the centuries-long patterns of regional and global ecological systems. Such ecological systems provide all of the foundational raw materials which are needed for the process of “material accumulation." Nowhere is this more apparent than in the current global (mis)management of the material and energy resources needed to fuel our old heavy industries. These natural resources—typified by petroleum’s impact on 20th century economic growth—are subject to physical shortage and depletion, which no amount of financial trickery (read, “wishful thinking”) can reinstate.

When viewed in this light, the final contradiction of global capitalism may not lay so much in financial bubbles as it may lie in something far more pernicious. The final contradiction may lie in the increasingly fragile “ecological bubble” in which we all now live. Only a framework that allows for both growth and contraction can be relevant and useful to us, over the long-term.

Dr. Blaine © 2008

Saving the Auto Industry: US Industrial Policy 2.0

Overview

It's now time for a new US Industrial Policy. I am calling it "Industrial Policy 2.0." If you’ve been following the news recently in the US, you’ve noticed that there is some debate afoot as to whether or not the United States auto industry should somehow be “saved” or “rescued” or “bailed-out,” or not. Well, in typically annoying academic terms, I say the answer is both “yes” and “no.” Yes, the US auto industry does need to be saved—based on a rationale I hope to demonstrate below—but, no, the auto industry that comes out of that rescue package should not resemble the one that previously got rescued.

In other words, in the language of the World Bank, it’s now time for some deep "structural adjustment." This structural adjustment should apply to both the US auto industry, as well as to the US economy as a whole. As with any type of significant change, there will be benefits and costs, winners and losers. But before we get to that, let me give some brief background, in terms of how we got into this mess.

Background

- The United Auto Workers (UAW) and auto industry management joined themselves at the hip, strategically (building those stupid “dinosaur” cars!), before painting themselves into the corner in which they now find themselves

- Consumers followed them there, believing the hype that told them they could drive gas guzzling, dinosaur cars indefinitely—even as both global markets and geological conditions were (literally and figuratively) shifting underneath their feet

- Nobody in the US seemed to be paying attention to the fact that rising demand for oil on world markets was driving up prices—thereby raising the price of everything else, but especially fuel prices

- US politicians enabled the entire process, giving incentives to consume, consume, consume like there was no tomorrow . . . and, true to form, there may now not be a tomorrow for some sectors of that industry (and by extension, some other sectors the broader US economy)

Where We are Today

Okay, so what’s done is done. Ours has been (and continues to be) a society-wide affliction, based upon the “evil twin concepts” of minimally-regulated capitalism from the top, and barely-disciplined consumerism from the bottom. The examples are now legion: housing bubbles, credit bubbles . . . you name it. Now, the party’s over. The floor is a mess. All the intoxicating drinks have lost their little bubbles, and have gone flat. Hangovers are setting in.

The socio-economic impact of world oil price spikes have once again run their bloody course. “Demand destruction” has set in. That’s just a fancy economics term for destroying business activities (in this case due primarily—but not exclusively—to the very high energy costs of 2008). Supply and demand economics then go into effect: Since many business activities were killed off, the demand for the energy to run those now-extinct businesses has been reduced, or “destroyed.” Hence, the recent drop in world oil prices.

In the meantime, Europe is now exploding. China (currently our favorite creditor in the world) is looking somewhat fragile. Mexico is spiraling down into its own version of “Mad Max” on drugs. And the US ain’t lookin’ that great either. All of this roughly repeats the same pattern we saw in the 1970s, wherein all the governments of Western Europe fell, and Africa and Latin America went into a deep debt crisis, from which they’ve still not recovered. New York City went broke. All of this came, like clockwork, on the heels of the energy crisis of the 1970s. All of this has returned, once again, like clockwork, in the first decade of the 21st century.

Prescriptions for the Future?

To what extent are we willing (and able) to incur costs today, to lay the foundation for a more stable economic future tomorrow, for our children? That is the key question, I think. That has to be weighed off against simple muddling through, for short-term expediency, which we see so much of today. In the waning days of the Bush Administration (may it burn in Hell for all the evils it has heaped upon our world), we’ve seen a lot of muddling through, recently. This is the natural by-product of an inherited legacy of de-regulation of our markets—a policy of “no policy,” if you will.

Today, we need to do the same thing with the US auto industry (and by extension, the banking and finance industry) that the IMF has done with entire countries in times past: debt for equity swaps. This is a fancy economics term for “Yeah, we’ll loan you enough money for you to stay in your house, this year; but in exchange for that, we get to have a stake in your front lawn, using it as we deem necessary. Political scientists call this “government-controlled industrial policy.” Conservatives in the US call it “socialism.” Socialists (and others on The Left) call it reigning in the excesses of free-market capitalism. I now call it “appropriate.”

The best way to avoid the social costs of major civil unrest (a la Europe, today) is to keep people working at a “livable” wage. Therefore, we need to save the auto industry—if even to save it from its former self. That newer (and lighter and “greener?”) industry needs to build reasonable cars which consume less fuel per unit of distance traveled. Full stop. Furthermore, we should not think that re-tooling the US auto industry will be pain free. The adjustment process will be a cause for some pain, as some workers in old redundant sectors are shifted to newer sectors.

Many displaced auto workers will need to be re-trained in other blue collar (and “green collar”) jobs. This is what I call WPA 2.0. We will need many of them, working in large teams, to repair / upgrade / retrofit our crumbling national infrastructure—for our new, high-performance energy efficiency standards. Investment would come from the newly reorganized banks that would be “directed” by the gov’t. to invest a small percentage of their revenues (as moderately priced loans) in local gov’t-controlled utilities and other public utilities.

This, then, forms just a part of what I would envision as a subset of a New Industrial Policy for the 21st century. The US auto industry would be a part of that new policy. What I am really advocating is significantly changing the rules of the game of American capitalism. This will happen in three time scales, and in three domains, focusing on three overlapping goals. Wresting de facto control of our economic policy from the hands of financial capital would be the short-term goal. Restoration of some power to newly reformed, and more green, industrial capital would be the mid-term goal. The gradual reformation of American society, toward a more “sustainable” and “people-oriented” growth trajectory would be the long-term goal.

Capitalism as we've known it (e.g., capitalism of the high-flying 1990s) is now over. We now have a brief window of opportunity to remake our society in a way that could be more humane, more people-oriented, as opposed to being more greed and capital accumulation-oriented. This process will take time. It will not be easy. But, it must be done.

Ready or not, our future is in our hands. Ready or not, that future started yesterday!

Dr. Blaine

The Myth of the Garden of Eden—An “Eco-Centric” Revision

Environmentalism is not really new. It’s been with us all along—ever since human beings first recognized they had an environment they had to help maintain. What is new to our modern western senses is our ability to see and hear and read the coded ecological messages from the past, once again. The there are many ancient spiritual traditions which speak to this.

From classical mythology within the Abrahamic tradition (Judaism, Christianity, and Islam), there is from within Genesis the story of Adam and Eve in the Garden of Eden. Among the other messages encoded here, an ecological message is not hard to discern. We start at Genesis 2:4:

4Here is a summary of the events in creation of the heavens and earth when the Lord God made them.

5There were no plants or grain sprouting up across the earth at first, for the Lord God hadn’t sent any rain; nor was there anyone to farm the soil.

6(However, water welled up from the ground at certain places and flowed across the land.)

7The time came when the Lord God formed a man’s body from the dust of the ground and breathed into it the breath of life. And man became a living person.

We should also note here that the sequencing of events in the opening sections of Genesis follows a clear "evolutionary" sequence—starting with the Big Bang. Genesis merely collapses and encodes that sequential process into the metaphorical language of myth. This mythical motif enables the compression and packaging of information which can then be shipped across great distances of time and space, while still keeping its essential messages (Eliade, 1954). Such packets of information are often referred to as memes. Sadly, much of the current debate on “evolution” versus “intelligent design” (a.k.a. “creationism”) misses this point entirely.

Each side in that debate has locked on to one side of a false dichotomy, based upon a literal interpretation of the Bible, instead of a far more sublime metaphorical and mythological interpretation. By using an Eco-centric process of seeking out common thematic denominators, based upon humans’ relationship with the Earth, we are able to broaden the hermeneutic horizon, and therefore deepen the subsequent discourse. This enables us to contextualize any discourse on ecology from a framework of what we might now call big history (Christian, 2004).

Genesis then goes on to describe, in the language of metaphor, the creation of the Garden of Eden. There are two especially important features in the Garden: the Tree of Knowledge, and the Tree of Life. By the time we get to Genesis 2:15, we are informed of the position of human beings in relation to the Garden, and to one of those two special trees.

15The Lord God placed man in the Garden as its gardener, to tend and care for it. [emphasis added]

16,17But the Lord God gave man this warning: “You may eat any fruit in the garden except fruit from the Tree of Conscience [a.k.a. “Tree of Knowledge”]—for its fruit will open your eyes to make you aware of right and wrong, good and bad. If you eat this fruit, you will be doomed to die.

Clearly, within the context of staying within the Garden, eating this forbidden fruit would not be a good thing. It is interesting to note, however, that there is no admonition from the Lord God against eating the fruit of the Tree of Life. Why not?

Edinger (1973), in analyzing the same myth in detail from a deep Jewish theological perspective (as well as from a Jungian depth psychology perspective), pointed out that the tree of Conscience/Knowledge is actually hedge which is formed around the Tree of Life. Furthermore, in order to get to the tree of life, one must first work one’s way through the tree of knowledge. Unfortunately, Adam and Eve were expelled from the east gate of Garden, and forced to toil and suffer for the rest of their days, based upon their prior dietary transgression.

If you look at the picture of Adam and Eve’s banishment, as depicted on ceiling of the Capella Sistina (www.wga.hu/html/m/michelan/3sistina/1genesis/4sin/04_3ce4), the action is framed by the tree of knowledge. In the first frame to the left of the tree, the couple is shown yielding to temptation. In the second frame, to the right of the tree, they are shown being banished from the garden.

The metaphorical use of human proximity to vegetation—trees, forests, gardens, hedges—seems to be directed at the same basic message of knowledge of (epistemology) and existence in (ontology) a primeval place and time. Human distance from vegetation implies human separation from that same place and time. It represents a kind of separation from Nature, and therefore movement toward a type of suffering, and a type of (symbolic?) death. Some degree of additional toil, challenge, or hardship (if not outright destruction) is consistently associated with such separation from Nature—based on each the mythical examples presented here.

Humans partook of the tree of knowledge; however, in retrospect, they did so without actually finding their way to the tree of life. When interpreting this myth with an ecological orientation, we might say humans had learned potent knowledge, without learning the life-sustaining responsibilities that go with such knowledge. They ate from the Tree of Knowledge but did not eat from the Tree of Life; hence their banishment from the garden.

According to Rev. Jeff Hutchison (2006), who builds his thesis upon earlier work of Walter Brueggemann (1982) , there are three basic elements in the covenant between human beings and God: a) vocation, in terms of the human calling to tend the Garden; b) permission, in terms of humans existing in the garden by God’s grace; and c) boundaries and limits, in terms God’s grace being bounded by terms of the vocation. These three things constitute the three different facets of the ontological whole that comprises living in the Garden. Life in the Garden can therefore be seen as a metaphor for living in harmony with Nature.

Viewed in developmental and ecological terms, there are inherent dangers in pursuing any form of knowledge that is not also rooted in life-affirming principles; hence the danger, hence the banishment of humans from the Garden. This is the particular danger in partaking of the fruits from Tree of Knowledge minus the fruits of the Tree of Life: This relates to the larger issue of the appropriate social contract in the context of the overall human relationship with the Earth, Nature, and God. At this level of hermeneutic analysis, Earth, Nature, and God may be seen as a kind of Earth-based Holy Trinity, from which the essence of human experience can be derived.

This is but one of many, many examples of coded ecological messaging from ancient mythology. We may also find such messages among other living traditions, including Hindu, Yoruba/Ifa, Native American, Japanese Shinto, and Australian Aboriginal. We should not restrict our understanding of ecology and the environment to the present tense, only. There is a rich tradition of advice-giving on the environment, from our ancestors to ourselves. We have but to learn how to open our ears and our hearts, once again.

Dr. Blaine ©

International Energy Agency Acknowledges Shortfalls in Petroleum Prodcution, Worldwide

The following is from the web site of the International Energy Agency (IEA), which is a sub-division of the Organization for Economic Cooperation and Development (OECD). The OECD is the coordinating body that collects information and suggests policy and standards for the 30 or so wealthiest nations in the world. The IEA was formed by the OECD in the wake of the energy crisis of the 1970s. What follows are snippets, collected by the IEA, from the world press on the current global energy situation. It makes for an interesting read.

This information comes from . . .

http://www.iea.org/journalists/headlines.asp

Below each snippet topic is a brief comment from me. Happy reading!

Blaine

***

China Business Weekly, 01 December 2008 Era of Cheap Oil is Over

During a visit to Beijing to present the results of the World Energy Outlook 2008, IEA Executive Director Nobuo Tanaka noted that the financial crisis is an appropriate time for China to develop clean energy and said that despite diving oil prices, “it is certain that while market imbalances will feed volatility, the era of cheap oil is over.”
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COMMENT BY BLAINE: As usual, we must not get lost in the "Forest of Numbers," as displayed in daily market reports (e.g., as usually depicted on TV). We are dealing with a long-term trend, which is best measured in years and decades. Therefore, we must keep our eyes on the long-term trends in both pricing (after we factor in inflation) and availability (measured in either "barrels" or "tons" of oil). In spite of recent (downward) price fluctuations these past few weeks, energy "prices" are still trending upwards (since the turn of the century), in inverse relation to "availability," which is trending downwards.


The Australian, 26 November 2008 Call to Not Delay Greenhouse Measures

Attending the Clean Energy Council conference IEA Executive Director Nobuo Tanaka urged countries such as Australia not to delay greenhouse measures due to the global financial crisis. "The global financial crisis should not delay measures to mitigate climate change because the cost will only get higher in the future," he said and warned oil prices could soar after the financial crisis and urged governments to spend some of their fiscal stimulus on renewable energy and energy efficiency projects.
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COMMENT BY BLAINE: Although the immediate topic here was "Australia," the basis for the discussion was rooted in "global" trends. We ignore such trends at our peril. What are the implications here for a "new economy?" How would we need to (re)tool our industrial base and (re)train our workforce, in the months/years to come? What are the economic and social justice implications here, if any? Who gains, who loses?


Wall Street Journal (Re: Africa), 22 October 2008

Asked about oil prospects in Africa, which are starting to look dimmer because of the credit crunch, geopolitical problems and price hikes, IEA Chief Economist Fatih Birol sustained the idea that Africa’s days as a supplier of additional oil may be numbered. “We have benefited from additional oil volumes from Africa, but given the production profile of off-shore fields, we need to see significant new discoveries to sustain that trend”, he said and added, “it’s not clear that will happen.”
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COMMENT BY BLAINE: As I've been saying for some time, Africa--long viewed as the last great refuge of concentrated energy supplies outside the Mid-East--may well have been over-hyped. The US foreign policy implications (as well as energy policy implications) are huge. Where will the US (or China or Japan or the UK) turn next? Please note that the situation with US domestic energy supplies is like Africa--only more so. We can still drill for (and still extract) more oil in the US, but only at tremendous cost now (i.e., economic, social, and environmental costs). And then? We could also lean more heavily on foreign sources. But what happens after the global spigot begins to run dry, when we can no longer economically extract oil from the ground, in many more parts of the world? [Hint: Part of the answer lies in the previous paragraph on Nobuo Tanaka’s comments to the Clean Energy Council.]


Arab Oil and Gas, 30 September 2008

On the occasion of the publication of the new IEA Natural Gas Market Review 2008, the Agency’s Head of the Energy Diversification Division Ian Cronshaw voiced his concerns about long-term world gas supplies. In an interview with Arab Oil and Gas he said that there was a “risk” that gas supply may not meet demand and added that, next to more investment, the main solutions were to “increase energy efficiency in the power sector (…), ensure a healthy degree of energy diversification and develop new gas projects, especially liquefied natural gas projects, which offer far greater flexibility.”
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COMMENT BY BLAINE: Reading between the lines—“We have a serious problem here,” and “We’re not really sure of what to do about it, except to do a lot more of the same!” I’ve been following the energy policy statements of the IEA for a few years now, and that’s how I am interpreting these comments. Bear in mind that oil and natural gas are typically co-located in the same pockets, underneath the Earth’s surface. They are both non-renewable energy resources. They are both subject to depletion. Most peak oil advocates will tell you that natural gas depletion is only about a decade (two decades at most) behind oil. Then what? Much of our home heating (esp. in the northeast section of the US) comes from natural gas. That market cannot hold up much longer, after oil. We need a "Plan B," soon.

END

Shock, Denial and Anger: Talking about the Economic Impact of Peak Oil in the Black Community of Southern California

This blog article was not easy to write. It does not fit easily into one specific topic heading. It covers politics, economics, ecology, culture, and even psychology. It is being posted the day after the conclusion Senator Barak Obama’s historic presidential campaign. President-elect Obama has made a great achievement, and we should all wish him well. I say this, in part, because after the usual (abbreviated?) honeymoon period in early 2009, President Obama will face some of the most intractable economic problems facing any US president in living memory.

The most immediate problem is the US economy, in relation to the global economy. What most Americans have so far failed to realize is that—in the long-run—the domestic economy is a direct function of global “ecology.” It is a function of the Earth’s natural processes, which human beings occasionally harness for their own (political and economic) ends.

Most of us have been trained to think in terms of the overlapping domains of “The Market” and “Technology.” Both The Market and Technology have come to be viewed of the creators and saviors of so-called “modern” civilization. However, both The Market and Technology are based upon an ecological and environmental platform that has seldom been acknowledged in either the popular media or the academic media. Nowhere has this problem become more glaringly apparent than in the role of the natural resource oil, in relation to the global economy. And this is, in turn, is captured under the heading of “Peak Oil,” which has to do with dwindling oil supplies, worldwide.

What is Peak Oil?

Peak Oil doesn’t mean running out of all the oil in the world; it merely means running out of all the cheap oil—which is where we are today. Trying to make this idea clear can be tough, sometimes. Considering that neither “the market” nor “technology” will help replenish the Earth’s finite oil supply, Peak Oil is an especially tough issue. Finally, Peak Oil can be a tough sell in the Black community in particular, in terms of convincing some of our leaders of the gravity the current situation presents. Just a few months ago, in an important gathering by a prominent member of our own community here in the Los Angeles area, we were told that “energy and environmental issues are not ‘Black’ issues.” What could be inferred here is that David Miller (my collaborator on this issue) and Blaine Pope might spend their valuable time focusing on “more relevant issues,” like the price of food, housing, and health care in Los Angeles.

What the prominent community member failed to grasp was that the price of food, housing, and health care (along with most other commodities and services) are all directly related to energy prices in general, and world oil prices in particular. Our on-going challenge has been to help our people see that events in oil-producing countries like Saudi Arabia, Nigeria, and Venezuela (and even in the oil-producing regions of the United States) are directly related to the prices of every day goods in Los Angeles, and elsewhere in the State of California.

Shock, Denial, Anger: What Should We Do?

In the summer of 2008, we were “shocked” at the price of both gasoline and groceries. We have been in “denial” as to the root causes (with “Big Oil” conspiracy theories running rampant). And we continue to remain “angry” at a social, political, and economic system which remains at best insensitive to the needs of many of our most vulnerable citizens.

The first thing we have to do is understand. We must understand not only what is taking place around us, but also within us. Human psychology plays an important role. According to the late Dr. Elizabeth Kübler-Ross, human beings will cover a gamut of emotions when confronted with a sudden and profound sense of loss. Many discussions of Peak Oil are often related to a sense of loss, of what we will have to give up. This process, or cycle, is often referred to as “The Grief Cycle.” Involves seven distinct emotional stages which can be broken down as follows[i]:

• Shock: Initial paralysis at hearing the bad news.
• Denial: Trying to avoid the inevitable (reality).
• Anger: Frustrated outpouring of bottled-up emotion.
• Bargaining: Seeking for a way out (often in vain).
• Depression: Final realization of the inevitable (reality).
• Testing: Seeking realistic solutions.
• Acceptance: Finally finding the way forward.

It is also not uncommon for people to move back and forth, between the various stages, in a meandering fashion (a la “three steps forward, two steps back”). This can happen for a while, until the sheer weight of either evidence” or “circumstance” forces the human mind into “acceptance.” As individual people can go through these stages, so can entire communities and societies.Our sense is that American society is now meandering between shock, denial, and anger—with the likes of the lame duck Bush Administration (and conservative media outlets like Fox News Corp.) cynically leading the charge, in both denial and anger over much of the past eight years. Most of us have not yet begun to approach even the bargaining and depression stages, let alone the testing and acceptance of our predicament.Work for Change: Fight the Power!The second thing that must be done is to get at the root of the problem.

The Root of the Problem

The real fight is not against some far off, illusive and shadowy figment called “Al Qaida.” The real fight is also not against so called “Big Oil,” either. The real fight starts with you, me, our relationship with our political leaders--and most importantly--our collective consumption habits. At roughly 4% to 5% of total world population, US citizens consume approximately 25% of the world’s petroleum every year.China, on the other hand, with almost 20% of the world’s population, presently consumes about 8% of world petroleum; moreover, the Chinese say that they are morally entitled to a corresponding 17% to 18% of world petroleum. Sounds fair, doesn’t it? The only problem is that there is not enough extra oil in the world to meet China’s stated or desired goals.

Some nations or regions of the world would have to give up their some of their access to oil. This global situation will likely be the source of much conflict in the near-term future—as region after region, and nation after nation, perhaps even city after city, will vie against one another in a scramble for what’s left in global petroleum reserve.Our main goal in the US should therefore be to efficiently and equitably “Power Down”—both globally and locally. We must learn to do with less and “live normally”, in terms of our energy consumption patterns.

Examples of this would include more aggressive action in the following areas: car pooling; walking and bike riding; urban gardening and patronizing of local farmers markets; recycling of virtually everything possible; canning and old school-type food preservation techniques; and possibly even hand washing and drying our clothes. As unpleasant as these things may seem, billions of people around the world have lived like this for a long, long time. We should not be so naïve to think that this “simplification” of our way of life is impossible. In fact, within the next decade (if not sooner) much of it actually probable!

But, there are also legitimate equity and access issues to be addressed here. Peak Oil is an indiscriminant global phenomenon that will affect both the rich and the poor. However, in today’s hard economic times, can we realistically ask the poor to tighten their belts further, while the US “retools” its infrastructure for a more green and energy-efficient future? This is perhaps another topic for another article; however, we must build in equity issues (and environmental justice issues) into any set of alternative energy proposals and planning.

Planning for an Uncertain Future

We believe that planning at various levels of governance across both the public and private sectors is key. We must begin to think ahead. We must prepare ourselves—our state, city, and individual communities—for not being able to transport or produce the goods and services to which we have become so accustomed.

Approximately a hundred and fifty years ago and more, manual labor of African origin based in the fields of the South helped America become a global power. One hundred years ago as a result of the industrial revolution, and even more so after World War II, America stayed on top because machines that ran on oil made us even more productive. Now we foresee the end of the Age of Oil and it’s time to start doing virtually everything differently in response—and preferably in advance.

Question: If you were living in New Orleans, and you “somehow knew” Hurricane Katrina were coming a month ahead of time, what would you do?

You would either move out of the way or protect yourself and your stuff in every way possible. Why wouldn’t this same rationale be applicable here? As people are beginning to drive less, why aren’t we also building more buses in the City of Los Angeles, for example? Why aren’t we making cars that pollute less and are more fuel efficient? Why aren’t we manufacturing and then installing solar panels all over this city where it seemingly “never rains”? Why aren’t we creating neighborhood cooperatives to barter fruits and vegetables, perhaps in exchange for other people’s trade skills and services?The Storm of Peak Oil Looms on the Horizon

Again, we should all be proud of what we have recently achieved, as a community, in terms of seeing our brother Barak in the White House. As African-Americans, we have a long history of struggle in the political sphere, from which many Americans have benefited. We have been somewhat less adept at linking political factors to economic factors. More challenging still is in making the linkage between economic factors and ecological factors. In these areas we have been woefully blind, silent, and dumb. But we cannot afford to remain blind, silent, and dumb any longer: let Hurricane Katrina be the template for the future, perhaps. The political, the economic, and the ecological are linked. We must now sound the clarion call and warn our people. From the Valley to Compton, from Baldwin Hills to Nickerson Gardens, we have to pool our resources: we must pool our human, material and financial resources alike, and prepare ourselves.

There is No Time to Waste

After the short-term euphoria of Barak’s election wears off, we will still have our long-term economic grief to face. Nelson Mandela’s rise to power in formerly Apartheid South Africa is a potential harbinger of this—wealth and race are still highly correlated.

But no condition is permanent. In terms of our economic “Grief Cycle”, after our shock, denial and anger wears off, we must begin to move past bargaining, through depression, and toward testing and acceptance. Acceptance of our situation is what we must achieve, so as to bring about rational public policy and culture change, focused both on consuming less and sharing society’s burdens more equitably. Call this “socialism” if you will, but the reality is that the neo-liberal, capitalist, free market status quo has failed us (most of us, anyway) quite miserably. Ultimately, in concrete terms, that means we must quickly begin testing new ways of living, and accept the idea that our collective future started yesterday.


Blaine D. Pope

World Energy Crisis = World Financial Crisis

Colleagues:

I recently got my Ph.D., within the past year. What I now see taking place in world financial markets is giving me "PD-PTSD" (post-dissertation post-traumatic stress disorder)! Why? Well, I saw it all coming--again--sort of. At the time, I felt I could not finish writing my dissertation fast enough! The more research I did, the more I saw I was in a race against time. I concluded we were headed toward an energy-induced depression. We are in the early / prelim stages of that process now, I fear.

What does this all mean?

In the final analysis, the "financial system" is based on the "Earth system." One of the best indicators of the financial system (in terms its medium- and long-term trajectories) is human relationship with the Earth system--as seen in the human-built, global energy sub-system. And the chief proxy indicator within that system is medium- to long-term petroleum pricing and availability (year-after-year analysis; daily/weekly price analysis would only confuse). In short, follow the oil resources in order to follow the financial resources. The key is to look at the Big Picture.

The following is extracted from my dissertation, which I completed in December, 2007. Here, I look back to the early/mid-1970s, and the global economic impact of high oil prices at that time.

Ask yourselves, "Might history be repeating itself, once again?

"***William Engdahl (2004) wrote of the impact of unusually high energy prices during the period of the initial global energy crisis, during 1973/74, as follows:

"Most of the governments of Europe fell during this period, victims of the consequences of the oil crisis on their economies.

But for the less developed economies of the world, the impact of an overnight price increase of 400 per cent in their primary energy source was staggering. The vast majority of the world’s less developed economies, without significant domestic oil resources, were suddenly confronted with an unexpected and unpayable 400 per cent increase in the cost of energy imports, to say nothing of the cost of chemicals and fertilizers derived from petroleum. During this time, commentators began speaking of ‘triage,’ the wartime idea of survival of the fittest, and introduced the vocabulary of ‘Third World’ and ‘Fourth World’ (the non-OPEC countries).

According to the IMF, developing countries in 1974 incurred a total trade deficit of $35 billion, a colossal sum in that day, and, not surprisingly, a deficit four times as large as in 1973—precisely in proportion to the oil price increase." (p. 140)

Engdahl—an economist—continues on in the same section to make a strong case for the connection between global oil prices and national debt levels; however, all too often, issues of energy resource pricing and availability have simply not been sufficiently linked to issues of economy by mainstream economists, when addressing economic development (Auer, 2004; Catton, 1980; Hanson, 2001). Why might this be so? This dissertation will explore some of the assumptions that have gone into economic development discourse over the thirty year period under review here.***

End of dissertation excerpt

For more details on the theory behind all of this, please see my Dissertation.

The main idea here is that human "thoughtways" and human-built energy systems operate in symbiosis, forming positive feedback loops. Humans then structure all of their organizational systems (including financial systems) accordingly.

Please feel free to question or critique this work. I welcome your feedback.

Dr. Blaine