This is why the US can’t have nice economies. Story 1, Thesis:
The FTSE All-World equity index rose 0.5 per cent, just shy of a fresh 18-month high, and commodities rallied after reports showed manufacturing in China during March continued to expand and a survey of Japanese business confidence was less downbeat than forecast. Factory activity in europe also registered faster growth.
Oil prices surged on Thursday to a fresh 18-month high, near $85 a barrel, bolstered by signs of strong growth in manufacturing across the world, particularly in China.
Almost $85/barrel, and this isn’t a good economy yet, not even close. Last time, as oil pushed $150, the economy cracked under the pressure.
Notice also that China is getting the recovery far more than the US.
It is not, and will not be possible for the US to have an actual good economy for any length of time, or even at all (as opposed to a mediocre economy) until the oil bottleneck is broken.
Period.
myiq2xu
China is getting the recovery far more than the U.S. because they have a manufacturing base. We used to make stuff. Now we just buy it – on credit.
Howard
Now that Obama (cynically to get out in front of the likely crisis) has primed the pump for the oil market to break the all important $85 /barrel barrier, is a run up to $140 + oil combined with a wildly exuberant stock market inevitable? Is this the beginning of the real collapse?
Ian Welsh
Depends on how much of a real recovery we get. I don’t think the recovery this year will be sufficient for $140, but I could be wrong.
BC Nurse Prof
The name of the game now is demand management. As we saw during this little “recession” – when demand falls, oil prices fall. We are past Peak Oil and the pumps are running flat out. The planet is shuffling along so close to the balance of supply and demand that a few drops of oil not used means the world price drops. If you can get demand to fall, then the price of oil for the elite (who are doing quite well, thank you very much) and the price of oil for the military economy (the last remaining economic driver in the U.S.) stays reasonably low, but not too low that traditional energy multi-nationals take a hit. The price of oil and gas must not be allowed to fluctuate wildly. The emission of carbon and carbon equivalents must not be reduced because the good life of the elite runs on fossil fuels and the buying and selling thereof. Strategies for reducing demand among the non-elite of the world include:
1) Manage the declining standard of living in the U.S. Just keep it sliding slowly and complaining will be kept below the level of violent rebellion. This strategy may backfire. I don’t think the elite realize how close the U.S. is to an outright fascism takeover.
2) Bomb a few oil producing nations into the stone age. This eliminates their rising domestic demand and allows the U.S. to drill anywhere in their country, use slave labour to get it out of the ground, and import it into the U.S. cheaply. This keeps the U.S. military economy chugging along and employs the most desperately poor people at poverty wages. The most important work of the military is done by mercenaries on contract, anyway. They come from all over the world and operate without any rules of engagement.
3) Pressure allies to go along with economic sanctions on countries that would be too dangerous to invade. This reduces their domestic demand and leads to internal breakdown which leads to further reduced domestic demand for fossil fuels. Use lies and foment religious antagonisms. These nations cannot be allowed to become prosperous.
4) Assassinate leaders and otherwise interfere internally with countries that have rising demand or represent threats to trade. Sell them lots of military hardware and ammunition to keep tensions in the countries mounting. If the country implodes, so much the better. Invade immediately in the name of security.
5) Make sure that countries with a rising standard of living due to selling things to the U.S. get less for their goods. Keep contraception away from the women, so that the birth rate is high and the young people that survive have no future. This creates valuable internal conflicts and regional wars against neighbouring countries for land and water. Sell munitions to both sides so as to collapse both populations.
6) Participate only minimally in the re-building of nations that have collapsed due to environmental, physical, military or economic catastrophes. Dispense suitable promises and refrain from following through.
7) Mouth “green energy” slogans, but keep the lid on development so that alternative energy sources don’t actually crash the price of oil or create massive swings in energy prices because this messes up currency markets. Alternative energy is an industry that is very dangerous to the status quo and ordinary citizens must be prevented from starting up small companies that make use of these technologies. When it happens, buy the company and shut it down.
8) Send millions of dollars into oil and gas producing countries like Canada to support political parties that support U.S. dominance and deep integration. If other parties win elections anyway, threaten the new government with trade sanctions, currency crashing financial moves, more NAFTA-type unilateral “agreements” and, if necessary, “security” legislation that will paralyze trade. They’ll come around soon enough. When their economies are under U.S. control, reduce their standard of living, as well.
These strategies are not without risk, but U.S. dominance is at stake and all ideas are being considered and implemented until proven unreliable.
BC Nurse Prof
I’m sorry – I don’t know how that emoticon got into my post above. It should have been 8).
Ian Welsh
Software does it automatically, sorry.
b.
>Failure to put in place policies to break this [oil] bottleneck
For all the idiocy of Obama’s “pay the perp” approach to government-enabled corpocracy, what policies do you have in mind?
We can spend all day arguing about “smart powergrids”, Desertec CSP in Arizona, NGNP nukes, but the time to address the domestic dependecy on oil “just in time” has come and gone long before the current crop of profiteers was elected.
Obama’s trademark dithering will add 4 more years to 40 years of response lag. Yes, it would be smart to do all of the above (and to cut National Security Budgets drastically to support the energy security expenditures required to support any upcoming “War On Blackouts”), and it would be exactly the right stimulus, too, but with Mexico set to become a net importer possibly as early as 2020, the “bottleneck” looks more like a funnel to me – or maybe a mincer.
I am not into the Rapture Of Kunstler, but this is going to be a prolongued and tightening emergency of 1973 sorts eventually, stretching over a decade or two at best. The Obama response is pretty much summed up by Duncan Black today: accepting the “unacceptable”.
At some point the brainless and spineless conglomerate that is the political-military-corporate complex will realize that tanks and aircraft require fuel, and then will get more of this
http://www.acq.osd.mil/nsso/solar/SBSPInterimAssesment0.1.pdf
With any luck, by then there is not enough excess energy available to supply the heavy lifter investment required to “get it off the ground”. Otherwise we have a still-insance US polity in charge of the world’s largest magnifying glasses to burn all those “ants” down below.
http://www.eschatonblog.com/2010/04/so-uh-stop-accepting-it.html
Marsha
I love the emoticon – and actually thought it was on purpose since it talks about sending millions to Canada.
Can we go with those millions, too?
Ian Welsh
1) 4 day work weeks.
2) push to digital commuting
3) actual rationing would work fine, and in fact, at this time its use is indicated.
4) Speed limit decreases.
I would also have spent at least half the stimulus on refitting every building in the US to be at least energy neutral. There are a variety of ways to organize this. I would also move to high speed rail in a big way, spend a lot of money on rapid transit, and would introduce congestion price in metropolitan centers.
Ending the wars would also reduce petroleum use significantly
There are other ways as well.
b.
>4 day work weeks
I lived through the “35 hour /week” attempts in Germany, and this gets you right in the middle of wage deflation/overtime vs. unemployment reduction. You can go from 20% wage cut to 25% wage increase. I agree that this would be a worthwhile policy in its own right (increased productivity combined with decreasing demand marks a Peak Labor of sorts, and automation does make for structural unemployment, just slower than we though 40 years ago).
But in the Grand Nation Of At Will Exploitation And Unpaid Overtime, I don’t see this happen. Just strictly enforcing 40h/week and/or making overtime pay mandatory would be a major shift.
>push to digital commuting
I think that’s BS. Mind you, I believe a Japan/Korea-style broadband infrastructure and the national policies and financing that goes along with it is the right kind of stimulus and an investment in the future, but the jobs that can commute can digitally outsource – and those that can not are the ones that are needed most. Digital commuting is a buzzword from the same mindset that brings us “cloud computing” and other exploitation architectures – it is possible mostly for elite jobs, and merit elite productivity is worth physical co-location.
>actual rationing would work fine, and in fact, at this time its use is indicated
To do what, resolve the conflict between increasing demand and decreasing supply? Rationing means demand reduction by fiat, not price – unless you mean redirecting leisure consumption to supply industry and government. It is bound to happen, but I fail to see this as a solution.
>Speed limit decreases.
No objection, but possibly counterproductive if not combined with requirements to make low-speed efficienht cars (esp. if frequent braking results). You can either have Stop signs with hybrids, or Yield signs. I would also venture that the goal is to get trucks off the roads, not to make them slower.
>refitting every building in the US to be at least energy neutral
It might be better to just build new buildings in new locations and write the cardboard barracks off. I agree with Kunstler this much: suburbia was a staggering misallocation of resources, no point in trying to fix the windows if the location is dead wrong to begin with. DART and refit with actual city centers might save some of the “projects”, but there are a lot of middle class ghettos bound to be condemned.
>move to high speed rail in a big way
I do not understand the obession with “high speed”. This country has a railroad network unworthy of even the 20th century, and just getting it back to normal speed and useful commuter use would be a big step, yield faster results, and do it at much lower cost. High speed rail is the second step – by that time, hopefully rail carriages and engines can be manuifactured in the US again – and is an alternative to air travel, not the comatose existing rail network. As with broadband, the key to public transport is the “last mile”.
>spend a lot of money on rapid transit
How about any kind of (smart) public transit – it does not have to be fast as much as it has to be frequent, or even demand-driven. I am with Duncan Black on this one – find a hybrid of cab and bus, and integrate it with cell phones and free wireless. As long as waiting times dominate travel times, there is no point in speeding up the bus while introducing speed limits.
>introduce congestion price in metropolitan centers
I have no idea how that is supposed to work, but if it has any kind of digital toll booth infrastructure associated with it, there are at least two good reasons to be opposed to it.
>Ending the wars would also reduce petroleum use significantly
No argument from me. There has to be a point where the US military deployed in the Middle East ceases to be a “net exporter” and consumes as much oil as the occupied territories produce. But then, ending the wars would also free tax revenue (or debt) to invest into actual solutions.
The US has to produce more, and has to invest the resulting products in domestic means of production, if is to survive the next 30 years. Anything that directs military expenditures and debt into domestic infrastructure qualifies. Rationing is just a different lael for the same failure mode, unless it is to enable that crucial investment into domestic infratstructure.
Instead, we are going to get another round of the nuclear singularity – the uranium sinkhole of subsidies, and with it the National Nuclear Security effort to protect the fuel cycle from its detractors, and the unwilling citizenry at large.
Ian Welsh
Rationing works, and the liberal generation understood how to do it. It is not a long term solution, but it makes it possible to push down the use of oil in non-productive ways.
You want high speed trains because you need something that is a timely alternative to planes.
4 day work weeks means 4 10 hour days. Another possibility is 9 days out of 10 (every second friday off). Yes, it requires enforcement, but that’s just another case of the generic “lack of political will” problem, and if you use that as a reason for not doing anything, you will do nothing, because it applies to virtually anything that works.
Digital commuting is simple enough. yes it requires broadband, but broadband is needed anyway. The office complex I used to work in, with over 10K employees could easily of had 2/3rds of them working from home, the same is true of most offices.
Lex
I would dance a happy jig for a four day, forty hour work week. Heaven.
There has to be a stepping stone when it comes to transport, something to ease the transition while public transport and rail is developed.
And it isn’t going to be plug-in electric cars. It could be a vehicle powered with something similar in concept to Chevy’s Volt. Batteries store energy to power the electric motor and a small engine tuned for peak efficiency in the narrow rpm band needed for generating power to charge the batteries. (This also requires significantly less manufacturing complexity than strong hybrid systems like Toyota uses.) It even looks pretty good with gasoline; it would be amazing with either LNG or diesel.
Plug-ins just aren’t going to cut it until population density increases. How many people have a 240v outlet in their garage? Much less two. And you’ll probably need 200 amp service to have multiple electric cars in the household and all the electronic gadgetry we love so much. Can the aging grids handle it?
Houses can be retrofitted pretty well. Even an old plaster and lathe house can have insulation blown in. New windows. A Tyvek wrap, a layer of rigid foam and new siding and you’re golden. I don’t know about everywhere, but in my neck of the woods 2×6 construction has been new building code for quite some time. That’s already pretty strong in terms of insulation (though nothing saves you if you need 2500+ sq feet and vaulted ceilings everywhere).
And the problem with deconstruction of suburbia is that most of the newer developments were built on good farm land, except farming soil is not good building soil…so all that rich top soil that might sustain the residents was carted off and replaced with fill. It’d be one thing if demolishing suburbia could mean regaining farm land, but it doesn’t.
kelley b.
What’s to lose? They raise the price high enough on the Recession is Over mantra, they guarantee another economic crash, and short sell to ensure it.
Failure is part of the plan. How can they be neo feudal overlords without having most people in impoverished serfdom?
beowulf
Very interesting discussion. B. is quite right that our basic rail network is so half-assed, its silly to talk about going to high-speed rail right now. Philip Longman wrote a phenomenal article about US rail infrastructure last year.
Today, the nation’s rail network is just 94,942 miles, less than half of what it was in 1970, yet it is hauling 137 percent more freight, making for extreme congestion and longer shipping times.
http://www.washingtonmonthly.com/features/2009/0901.longman.html
Demand can be regulated by price or by rationing. Of course we had (and the Canadians as well) a first rate price control and rationing system during World War II, but we wouldn’t have to bring back the ration book. Marty Feldstein wrote an interesting op-ed proposing a market-based rationing system. I suppose the low-lying fruit is returning to the 55 mph speed limit.
http://belfercenter.ksg.harvard.edu/publication/1566/tradeable_gasoline_rights.html
http://www.oilempire.us/55mph.html
Speaking of World War II price controls, I just finished reading John Kenneth Galbraith’s memoirs, A Life in Our Times. During the war, he served in Washington as the Deputy Director of the Office of Price Administration. The chapters (8 through 15) about the war years are absolutely riveting. I can’t do it justice here, but if you have any interest in economics or politics or military affairs, its damn interesting (the pdf is up on Pirate Bay if your library doesn’t have it). One thing that’s hilarious is he paints longtime DC wiseman Bernard Baruch as a rich guy busybody and pretty dumb., Baruch’s plan to control inflation( which Galbraith and the economists thought was insane) was to replace the pricing system with a economywide price controls and rationing. Galbraith thought the economy must keep a pricing system to work, so the OPA began the war conrolling inflation by maintaining the free market system but imposing “selective price controls”. Galbraith notes that Canada and Britain went with the Baruch plan from the start, so I suppose the selective price control plan was a, oh what’s the phrase, “uniquely American system”.
The twist is the old bastard Baruch was dead right. The economy was too complex for price inflation (the result of “overclocking”, as hackers say,, the wartime economy beyond its ordinary level of full employment) to be managed by insurance exchang— oops I meant selective price controls. It was too easy for producers to shift their costs to uncontrolled items if the Government wasn’t controlling all prices at once. Within a few months, Galbraith admits he was wrong and Baruch was right. He’s mortified he’ll be a national laughingstock for screwing up the entire US economy, but the gods smiled on him (and on us, the economy was on a rocket sled– in 1944, 1.2% unemployment, 28% GDP growth, with only 3.5% inflation).
No one– not a single soul — ever asked me to explain my 180-degee change of course. There was no notable comment from Baruch. He assumed, I’m sure, that, sooner or later, we would see the light” (p. 165)
selise
ian, i don’t disagree (at all!) with your statement that we must beak the oil bottleneck. but i’m not a fan of most of your suggestions for short term conservation. i may have asked this before, but what do you think of hansen’s tax and 100% dividend proposal?
http://www.columbia.edu/~jeh1/mailings/2010/20100112_PeopleVersusCap.pdf
also, do you disagree with mike masters et al. that much of the current run up in oil price (and other commodities) is due to index speculators?
http://www.mcclatchydc.com/2010/04/01/91487/whats-driving-up-oil-prices-again.html
a combination of big carbon tax a la hansen and serious regulation of commodities futures might give us the breathing space for the kind of massive national investments (research, infrastructure, etc) via fed deficit spending that would also provide an assist to the economy.
(p.s. omg, if that’s the b. i think it is: it’s great to see you online, b.)
Ian Welsh
Certainly the last run up was due to speculators in large part, an argument I had endlessly with Krugman (and which I was proven right on, imo). I would definitely agree with strangling speculation. I’m not sure this time if it’s speculation (haven’t looked into it) but speculation is bad anyway.
BDBlue
Ian, have you read Yves Smith’s new book. She has a chapter that includes a take down of Krugman’s anti-spectulation argument. She points out that Krugman apparently did not know how oil markets actually work (like most economists, he bases things off models, which may be right, but may be very wrong).
Ian Welsh
BDBlue: I haven’t read it. I explained that Krugman didn’t know how oil markets actually worked July 23, 2008. I’ll repost it here later today.
Krugman’s argument was that it wasn’t possible. It’s clearly possible. The question is magnitude, some of the oil price is speculation driven, the question is how much.
S Brennan
“…our basic rail network is so half-assed, its silly to talk about going to high-speed rail right now.”
I’ve been trying to stay out political discussions for a while now because the average US citizens is so limited in imagination that “freedom” in the US amounts to “choosing” between [A stupid option] or [B stupid option]. Out ancestors were far less limited.
But back to “…our basic rail network is so half-assed, its silly to talk about going to high-speed rail right now.” When we ship common freight across an ocean we use cargo ships, when we ship people we use turbojets….two…wait for it…two entirely different infrastructures. the freight rails are in crappy condition because “economists” say “that’s efficient”. Let the “private” railroads pay for their libertarian fantasy, or come to their senses, people however, need a “ground transport system” that has elements of rail efficiency, but does not have to “look” like rail. Unemployed/underpaid Engineers are standing by to take the GOVERNMENTS call.
FYI, our ancestors figured out ho to stack rail lines atop of one another coming into NY, NY.
beowulf
When we ship common freight across an ocean we use cargo ships, when we ship people we use turbojets….two…wait for it…two entirely different infrastructures.
True enough but if we insisted on using flying boats (a jet-powered flying boat— sounds like something Russia would build) and landing aircraft in the same harbors used by cargo ships, that would be using the same infrastructure.
Of the 29 rail projects that shared $8 billion in Recovery Act stimulus funds, only two – the Tampa-Orlando proposal in Florida and a projected San Diego-Sacramento line in California – qualify as high-speed rail by international standards. The rest can most accurately be called “higher speed rail” or “improving Amtrak on-time performance rail.”
…
The best of these projects… will eventually permit Amtrak trains to achieve 110-mph maximums and 70-mph averages between the two cities… Several other corridor projects funded last month won’t even reach 100-mph speed maximums because they are limited by the curves and congestion on track they share with freight railroads.
http://www.progressivefix.com/the-right-track-improving-president-obama%E2%80%99s-high-speed-rail-program
S Brennan
The problem with sharing the same infrastructure is “heavy rail” ruins the rail bed, when we upgrade commuter rail line we provide a subsidy to freight lines who will run a rail bed into oblivion in a game of “chicken”. They just keep slowing down their cars waiting for a “derailment” of hazardous chemicals to spur the public into demanding that their pols”socialize” the railroads costs.