A Contrarian Post on the Keystone XL Pipeline

I'm going to say some things in this post about the Keystone XL Pipeline that are likely to irritate liberals and conservatives. So let me begin with some premises about what's going on in the world.

1) Global warming is a real threat. Exactly what will happen in the next 100 years is not certain at this time. Maybe global warming won't be so bad. Maybe it will be our worst nightmare. The potential downside, however, is enormous if we do not take steps to control global warming. I'm reminded that we were told by industry experts and hotshot conservatives that nuclear energy poses no significant problems. The accident at Fukushima was supposed to be a once in a thousand year incident. It's rather odd how once in a hundred year events or once in a thousand year events keep happening. The worst case scenarios for global warming are too dangerous not to be taken seriously.

2) The fossil fuels we're using today are not only more expensive, but they are much dirtier and more prevalent than they were sixty years. Even if global warming were not an issue, it is pretentious to think that pollution from fossil fuels is not an issue. The growing acidification of the oceans is a major issue. The sulfurous clouds hanging over Asia are also an issue. These issues concern everyone, particularly the U.S.

3) The exploitation of tar sands, despite many measures taken to address environmental concerns, is proof that we're in trouble if we have to turn to such a dirty and expensive fuel. Light sweet crude is in decline and has been for several years.

4) The oil industry has convinced millions of Americans that global warming is not real, that alternative energy is a job killer and that oil can continue indefinitely to solve our energy needs. All three assertions are lies and are propaganda paid for by the oil industry, with considerable help from the people who control the Republican party.

5) The hour is late. We have put off the inevitable since the 1970s. Given the lateness of the hour, it will take an enormous amount of investment and work to create an economy based on alternative energy. And it will take time. I have seen very little that puts a number on how long it will take to cut our use of fossil fuels worldwide by 50%. Here I do not have the facts, but my guess is that it will take 15-30 years.

6. To power the transition, we will need a strong economy. It very likely will take the burning of more fossil fuels to power the transition to that economy. If we abruptly stop burning fossil fuels, the transition probably will not happen. Of course, as the use of alternative energy goes up, the use of fossil fuels can go down, but the consumption of fossil fuels cannot decline too fast.

7. The use of fossil fuels may possibly drop rapidly due to declining reserves of usable fossil fuels. Though the oil industry is beginning (just barely) to admit that fossil fuels other than coal will soon become much more difficult to bring to market, we again have wasted decades by not turning to alternative fuels sooner.

8. If by chance, or through incompetence of the far right, the economy of the U.S. collapses, or even if it simply declines, it is likely more fossil fuel will go to power the economy of Asian countries. Countries like India and China show no signs that they will be cutting the use of fossil fuels any time soon. The leadership role, by default, goes to the United States. It's true that Europe can be helpful but the continuing monetary crisis in Europe shows how difficult it can be for the Europeans to lead. Keep in mind, however, that over the last thirty years, Europeans have done a much better job than the U.S. of turning to alternative energy. But they are vulnerable to swings in the oil and natural gas markets. Europe has twice the population of the U.S., and if one does not count Russia, their oil reserves are considerably less.


Okay, here it goes.

I have very mixed feeling about the Keystone XL pipeline. Despite everything, we may need it. Republicans have handled our energy problems with such extraordinary incompetence that they have threatened our future.

I find it curious that some proponents and critics of the pipeline say the building of the pipeline won't significantly bring down the price of oil. Actually, the pipeline will bring down the price a small amount—not necessarily something to cheer about. It is politically not feasible, but I believe we need to make sure the price doesn't come down too far. Better yet, we need to slowly raise prices to match the real cost of oil, including clean up and CO2 emissions. We need to stop passing on the real cost of fossil fuels to our children and grandchildren. And Republicans need to stop indulging in the fantasy that some scientist will come up with some magic solution—this is ironic given how little Republicans have faith in science and how little they are willing to pay for major buildup in research. Right wingers cannot keep cutting the budget for science while expecting miracles.

Republicans have been bad-mouthing Detroit for almost four years, but Detroit is actually moving more and more toward efficient cars. What Republicans fail to understand is that Americans need both jobs and more efficient cars and transportation (don't anyone pretend that the pipeline will create a huge number of jobs; they will create some, but that's all). That the current Republican leadership would let Detroit go under says a great deal about the incompetence of Tea Party Republicans and other right wingers.

It is ridiculous, as some 'experts' have argued, that the building of the pipeline will make us dependent on Canada. Oil from Canada is a far safer bet than depending on keeping the Straits of Hormuz open. Yes, our navy can keep the straits open and probably will have to continue to do so. But having a secure supply of oil should not be discounted. There are going to be energy disruptions in the next twenty years. I despise the tar sands, but we may need those reserves to fuel the transition.

Now I'm going to really be contradictory. To a large extent, I support the protests against the pipeline. It is disgusting that we are relying on tar sands and talking as if oil is forever and that global warming is of no concern. The protests are a sign that Americans are at last waking up to concerns about our future. The obstructionism and incompetence of Republicans will continue for some time to come until somebody starts rebuilding the party on more pragmatic lines. In the meantime, I would like to see the protests geared more towards actually getting more green energy projects installed. But no one should pretend that we can quickly go without oil.

In some respects, I find it more urgent to start going after coal. Coal is tar sands in its worst form. If Congress had any sense, no more coal plants would be built. Again, it will take time to transition, but coal plants that go offline should not be replaced. This is where green organizations should be focusing. Not just closing coal plants, but replacing them with green energy. The money is potentially there. If progressives can raise money for political causes, they can raise money to build windmills, solar roofs and other forms of alternative energy.

UPDATE:    Jan. 21, 2014

It's two years later and much has change. The only thing useful about the tar sands is that it's proof that the fossil industries are dying. The energy return on the tar sands is criminal. Why? A high energy return on fossil fuels generates wealth for society as a whole. A very low energy return, as is the case with tar sands, only helps the very rich.

The other problem is that fracking is a bubble, nothing more. One can already see major problems in North Dakota. Production will continue to climb, in some months, but the number of months when production actually falls is continuing. North Dakota is simply running into a wall. Every land owner receiving money from the oil companies should look seriously into wind turbines and the necessary power lines to send electricity to out of state markets.

Secretary of State John Kerry should not approve the pipeline. That pipeline is not in the interest of our future.

President Obama should be doing as much as he can to get alternative energy moving along as quickly as possible. Prices in alternative energy are falling. As they continue to fall, alternative energy is America's best hope for an energy future and a healthy economy.

Fossilized Leaders Mislead Americans About Fossil Fuels

Most Republican leaders and a few wayward Democrats fail to recognize several straightforward facts:

1. Fossil fuels are no longer cheap.

2. Besides fossil fuels no longer being cheap, if we take away subsidies from fossil fuels, Americans would really feel the cost.

3. But it gets worse. If we include the total costs of the damage that fossil fuel development and burning has on our country, and also the planet, the real cost of fossil fuels is in fact prohibitive. Our children and grandchildren will be paying the costs for generations to feed today's dangerous hunger for high profits by the fat cats in the fossil fuel industry.

4. If the United States began tomorrow on a massive alternative energy program, it would probably be decades before the United States would stop producing coal, natural gas, and oil. Why? Because it will take time to build up the alternative energy infrastructure. It takes time to build the factories, hire the people, train them as the technology changes, mine rare earth metals essential to alternative energy and again hire the people who will do the mining.

5. Jobs in the fossil fuel industries will take years to disappear. Why? Because as alternative energy grows, the jobs that will be lost are not the ones here at home but the ones overseas. The first thing that alternative energy will do is make the U.S. more energy secure and less dependent on the volatile politics of international oil.

6. And this is the most important: while fossil fuels are becoming more expensive, alternative energy is becoming less expensive.

Mary of The Left Coaster points out that high technology companies are increasingly turning to alternative energy. The trend towards alternative energy, despite the political fossils in Washington, is underway.

Paul Krugman in a recent column in The New York Times points out that that the costs of alternative is dropping. It's economics folks. It's capitalism the way its supposed to work.

For all the noise that Republicans make on Fox News, on the Rush Limbaugh comedy hour, and in Congress, they no longer much care about the kind of capitalism that made America great. Keep in mind this isn't the first time our country has lost its way. We lost our way in the 1890s and we lost our way at the end of the 1920s. When capitalism no longer works for a majority of Americans, something has gone very wrong.

Republicans, the ones who run the Republican Party, are the party of bankers and the wealthy. They have lost sight of why Americans usually like capitalism. Usually, and it certainly hasn't happened lately, capitalism is at its best when people pay less and less for more. Lately, for perhaps 30 years, or more, Americans have been paying more and more for less. Capitalism as today's conservative Republicans define it has failed.

Think of it: the cost of alternative energy is generally falling. Solar panels are cheaper. Windmills are cheaper. Batteries are cheaper. The price of alternative energy will continue to fall for many years to come. That's capitalism at its best. But the cost of most of other things, the real cost, including fossil fuels, are climbing—and the money that pours into the pockets of the top 1% gets larger and larger while jobs get sent to foreign countries. That is not capitalism at its best. If our democracy is to remain relevant, Washington needs to focus a great deal less on the privileges and wealth of the top 1%, and a great deal more on the creation of more jobs, productive jobs, jobs that ensure a future for a large majority of Americans.

Greenspan Rewriting His Legacy—With Help Perhaps?

For more than two years, Republicans, including George W. Bush and Dick Cheney, have been working overtime to buff up their legacy, usually with imagination and some departure from the facts. The latest p.r. effort is by former Fed Chairman Alan Greenspan. Instead of offering a four or five page apology for his blunders, short-sightedness and his adherence to market voodoo, Greenspan offers a 66 page tome of excuses, might-have-beens and who-could-have-imagineds.

In the fall of 2008, Alan Greenspan was honest for a few minutes in a hearing before Congress. Let's remind ourselves what Greenspan said:

“I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the firms,” ...

At the time, Greenspan was clearly on the right track. He was beginning to recognize the colossal failure of a 28 year experiment in deregulation. But he waffled a little even then by saying he did not fully understand what happened. Hence, Greenspan now treats us to 66 pages of what is largely Republican nonsense. So much for the dismal science, at least according to the Ayn Rand/Milton Friedman crowd.

Fortunately, there are economists who not awed by Greenspan. Here's what James K. Galbraith writes in The Huffington Post (and just why aren't more of his views in places like The New York Times or The Washington Post? He certainly has more credibility that the conservative think tanks sponsored by Rupert Murdoch.):

In 66 pages [pdf], Mr. Greenspan fails to use the word "responsibility" even once. The word "blame" does not appear. The word "mistake" occurs once; financial firms made them. The word "failure" appears 14 times. None of them are self-referential. To have expected the phrase "mea culpa" would of course be asking too much.

(snip)

The most telling omission in this paper is that the word "fraud" does not appear. But the world knows that the collapse of the financial system had, at its core, the largest financial fraud of all time. That fraud was in the origination, the rating, the underwriting and the issuance of credit default swaps against sub-prime mortgages issued largely by private originators and securitized by the largest banks.

The FBI knew this in 2004, when it warned in public of an "epidemic of mortgage fraud."

So, do we have financial reform yet? For all their jawboning and waving their arms and jumping up and down, we can expect no reform from Republicans any time soon. They might have seized the initiative during the Bush years since they had the votes but they chose, like the president, to sit on their hands and let the good times roll, as corrupt as they were with little oversight. At the end of the day, all Republican politicians are really interested in is lowering taxes for their rich clients, including the same people who created the crisis.

We might expect reform from the Democrats but that's not always a sure thing. It's not easy bucking the conservative economic bromides and myths of the last thirty years, particularly when Democrats aren't exactly as liberal as they once were—say back in the 1960s. Even many older Democrats have a hard time understanding that it makes no sense to tinker with failure by making minor changes in an economy that is still far more deregulated than it has any business being. Even under Republican presidents, it is possible to get businesses to follow the law, but only if the law exists in the first place and only if there is a degree of oversight reasonably free of political interference (and it would help to have a Supreme Court that doesn't so quickly genuflect to big corporations).

Paul Krugman is worried. It seems Barack Obama is not the only one who tries too hard to be bipartisan. Krugman writes on his blog:

So what does this have to do with financial reform? The pre-1980 system was, I’d argue, pretty robust. Bank regulators didn’t have to be all that smart, because the rules were simple — and besides, the large franchise value of banks, the fact that they faced limited competition and were almost guaranteed to be profitable, made bank executives unwilling to take big risks of killing the goose that laid golden eggs.

By contrast, the regulatory proposals now on the table ... rely on regulators identifying systemic risk and the actions to combat it. The Frank (House) bill is more [robust] than the Dodd (Senate) bill, in that it sets some firm, nondiscretionary limits on leverage and other stuff; there’s an awful lot of leaving things up to the judgment of the Fed and others in the Dodd proposal.

Others? Those others included any number of people appointed by Bush to make sure as little as possible was done to protect the American people from the predations of Wall Street and the mortgage brokers.

Between now and the fall elections, Obama and other Democrats need to do three things. First, stimulate the economy in a way that creates real jobs. Second, they need to cut Wall Street down to a manageable size that works for the American economy and not against. Third, make it absolutely clear to the American people that the bright Republican ideas of the last thirty years do not work, they are profoundly flawed and they are directly responsible for the meltdown and the high unemployment rate.

If Republicans return to office in their current mood, we are going to see more economic nonsense such as the privatization of social security, more bonuses for rich bankers by way of tax cuts and more loss of jobs overseas. These are not slogans or propaganda. They are on the Republican agenda.

Let's return to Greenspan for a moment. He endorsed John McCain during the 2008 election. McCain was erratic during the economic crisis. He had no idea what he was doing. So much for Greenspan's judgment. But the Countess of Wasilla, she of the $150,000 wardrobe, $100,000 speeches and $10,000 a plate dinners, is campaigning for McCain, buffing up his right wing creds. Does anyone believe that the Countess does anything for free? Like so many Republican leaders these days, she sees dollars signs for herself and not much for the American people. But she would like to lead. The Democrats already have somebody better, not just in the White House, but in both houses of Congress.

A Dose of Economic Reallity from James K. Galbraith

The is the weekend of the Mad Hatter Tea Baggers who started off their weekend with Tom Tancredo who gave a racist speech which he proceeded to explain wasn't racist but anti-immigration. Perhaps it was Tancredo's attempt to kill two birds with one stone. Something like that. What Tancredo has to do with the original revolution is beyond me.

Saturday night, Sarah Palin spoke as a member in good standing of the know-nothing club. At one point she may have been looking at her left hand to read crib notes. Maybe that was an accurate perception of her and maybe it wasn't but it is utterly consistent with what we know of the way she operates. In the meantime, when the tea baggers are almost coherent they advocate many of the very same policies that caused the economy to fall off the cliff in the first place.

The problem with the presidency of George W. Bush was obvious 15 months before he took office. In 1999 Republican candidates were dropping out of the race for one simple reason: George W. had the big conservative money as well as corporate money locked up before the first primary. Have the Tea Baggers forgotten so quickly that one of Bush's biggest boosters was Kenny Lay of Enron? Lay drove Enron over a cliff. George W. Bush drove the nation over a cliff. What did Kenneth Lay do that Bush didn't do for eight years?

We have had corporate presidents before—a handful have been Democrats—but Republican presidential candidates have always been the favorite candidate of big business and big favors. For some reason, the Mad Hatter Tea Baggers don't want to notice. Admitting failure, I suppose, is a hard thing to do even for a political party, a.k.a., the Gilded Age Party (GAP), that once prided itself on pragmatism. Far right Republicans are no longer able to recognize when their own ideas don't work. (I wish that Obama would keep that in mind; if you're a pragmatist, stop turning to a Republican leadership bought and owned by businesses always looking for a favor to give them an edge over their American competitors; how many soldiers, for example, have to be electrocuted by Halliburton's incompetence before a better contractor can be found?)

I may be overdoing it but I want to quote extensively from a German interview with James K. Galbraith, an American economist who actually ties economics to the real world and not to some ideological fantasy about pie-in-the-sky market forces philosophy. It's easy, by the way, to spot people with reactionary pie-in-the-sky notions: explain to them just one of the growing problems the world is facing and they'll tell you that at any moment rising prices will encourage someone to invent a magic bullet. Often the magic bullet is some new form of energy or maybe some huge new oil discovery in Dreamistan. Mind you, I've been hearing this stuff for decades, and that was before India and China started demanding their share of the world's energy supply.

Anyway, here's part of the interview with Galbraith:

In a recent interview for MMNews, Hans-Olaf Henkel, who was once the head of the Federation of German Industries as well as IBM Europe, said two things that I would like to confront you with because Mr. Henkel is an influential opinion-maker here in Germany.[v] The first thing he said was that basically no one saw this crisis coming and that he laughs himself to death whenever someone says that this crisis was foreseen. Can you give Mr. Henkel some names in this respect? How about Dean Baker for example?

I’ve written a long article on not just the individual economists, but groups of economists who saw the crisis coming very clearly.[vi] Dean is one certainly with a strong claim. Dean follows a very simple method. He looks at critical ratios, such as the ratio of house prices to rental rates. When these deviated very far from their historical norms, that generates an expectation that they would revert. People should have been looking at that evidence and taking Dean’s predictions far more seriously than they did. But on the other hand, what Dean is pursuing is a very simple method and couldn’t be described as a school of economic analysis.

There are at least three traditions in economics that were warning about what was coming in ways which were very coherently related to a formal analytical program.

There is a group associated with the Levy Economics Institute and led by Wynne Godley, former senior advisor to the British Treasury. This group was working with national balance sheets -- with the national income accounts -- and warning very emphatically that the debt-burden of the household sector was unsustainable..

There are people working in the tradition of Hyman Minsky, who of course were trained to expect financial instability. They were making similar points from a substantially different conceptual basis.

And then there are people working broadly in the tradition of my father, who look at the structures of economic power, and who were warning that the supervision of the banking system was going to cause an epidemic of fraud. There was a group of what we call “white-collar criminologists”, who were examining these issues, and they are developing a new political economy of crime.

This group had the experience of what happened in the Savings and Loan crisis of the 1980’s, when certain patterns of behaviour, which are relatively standard in criminal financial activity, were very clearly present. These patterns re-emerged in the early 2000’s in the Enron, Worldcom, and Tyco scandals, and they were re-emerging again in the housing sector. To these people it was entirely obvious that a massive problem was developing.

So, Mr. Henkel needs to read a little bit more, He needs to broaden his definition of what constitutes economic analysis, and needs to recognize that the problem is precisely a group of people who insist that nobody outside of their very narrow circle has any insight worth paying attention to. That’s a preposterous position. It’s a completely indefensible position. It reflects fundamental narrowed-mindedness and, as I may say, incompetence which is really on display for anybody to see. So I do not need to hammer the point too hard.

The other thing that I want to know with regard to Mr. Henkel’s statements is this: He said that this crisis was caused by a certain type of “do-goodism” among American politicians who wanted to make sure that every American citizen would have a home of her/his own. What do you think when you hear such a thing?

It is an amusing interpretation of the motives of someone like George W. Bush, who represented one of the most aggressively predatory tendencies in American politics ever to reach the White House. This was a president who turned over regulation -- not just in finance but in everything he got his hands on -- to the most reactionary elements of the business community, to the most anti-regulation elements, so that regulatory structures were run down everywhere. They were run down in consumer protection, they were run down in worker protection, they were run down in trade, they were run down in ways which have significantly degraded the quality of life in the United States.

So, to suggest that this was some naïve altruism on the part of that extraordinarily reactionary Republican administration is, I must say, a view that no one who has actually lived through this period in the United States would recognize.

Now, Mr. Henkel is probably thinking about institutions like Fannie Mae and Freddie Mac which were, in fact, private firms. Fannie Mae had been privatized for forty years, and it had, indeed, become a bastion of Washington cronyism. I think that’s fair to say. Those institutions were drastically mismanaged by the overpaid appointees who were running them, no doubt about that. Ginnie Mae, the Government National Mortgage Association, which was not privatized, did not have the same problems.

But the truth is: this crisis emerged largely first of all in the private-label mortgage sector, that is to say in purely private entities like Countrywide, Washington Mutual, or IndyMac. The loans were securitized through private banks, vetted by private ratings agencies. The point here was not to put people in homes. It was clear to the lenders that the people that they were putting in homes would not be able to stay there.

The point was obviously to do two things. One was to create an enormous stream of revenue for these financial firms -- who were in many cases friends and political supporters of the administration. Second, it was to create a temporary burst of economic activity that would be to the political benefit of the Bush administration. So, to the extent that you had political forces that were explicitly driving the process, those were the motivations. It was certainly not some broad altruism toward a part of the population in which the political leadership of the country at the time never had any interest whatever.

(snip)

And what do you think about the plan of the Securities and Exchange Commission (SEC) to abolish the legal right to redeem money market accounts?[ix]

Do I have a comment on it? I’m not on top of that one.

At the end of “The Predator State” you are explaining the consequences of the breakdown of the Bretton Woods agreement by Richard Nixon in 1971. May I summarize my reading of it?

Sure.

Well, in the chapter “Paying For It” you explain that according to the system established in 1944, the U.S. current account deficit – and by extension its public budget deficit – was limited by an obligation to exchange foreign-held dollars for gold. Richard Nixon abolished that arrangement. You are arguing now that since the early 1980s, the world has held the T-bonds that the U.S. chose to issue. You acknowledge that the system is neither robust nor just, but you insist that so long as it lasts, it doesn't discipline the U.S. budget and therefore doesn't constrain U.S. government spending in any way. Is this right so far?

Correct, sure.

I mention this because this is basically, at least as far as I understand it, the financial backbone of the stimulus package you want to see taken place? And if this is the case how would then a stimulus package look like if you could have it your way?

First of all, it’s very clear that the United States government is not constrained externally, and it’s clear that quite apart from the stimulus package, the automatic stabilizers and the financial rescue, which greatly ballooned the public debt of the United States, have had no effect on the ability of the United States government to fund itself and no effect on the interest rates that the government pays. So, it, I think, follows from that logically and straight-forwardly that we have nothing to fear from additional efforts as long as they are necessary. And they’re obviously very clearly necessary. So the question is: what should be the structure of those efforts?

I’ve always taken exception to the constant reference to “stimulus” as the policy objective, because implied in that word is the idea that all one needs to do is to undertake one or more relatively short term spending sprees, on whatever happens to be available at the moment, and that this will somehow return the economy to its pre-crisis state, putting it on a path of what economists like to call “self-sustaining growth.” I maintain that in the present environment there is no such thing as a return to self-sustaining growth. There will be no return to the supposedly normal conditions, which were in fact, from a historical point of view, highly abnormal, of the 1990s and 2000s.

What one needs is to set a strategic direction for renewal of economic activity. We need to create the institutions that will support that direction. Those institutions are public institutions, which create a framework for private activity. This is the way it is done. It is the way countries have always developed in the past and, to the extent that they are successful, they will always do so in the future or they won’t succeed. Seventy years ago when we were in the Great Depression, they built a national infrastructure: roads, airfields, schools, power-grids – this kind of thing was the priority. In the post-war period, the creation and maintenance of a large middle class with social security, with medical care, with housing programs, universities – these were the priorities of the post-war period.

Now we clearly face an enormous challenge with energy and climate. It’s a challenge that requires us to think in very creative ways, in very ambitious ways about how to change how we live, so as to make life on the planet tolerable a century or two centuries hence. This is a huge challenge. It requires design, planning, implementation, something with enormous potential for providing employment because things have to be done, enormous potential for guiding new public and private investment because one has to provide people with the means of making it realistic for individual activity to support this larger objective. And that is the way to move toward a renewed economic expansion. This strikes me very far from being a stimulus proposal. It is a proposal for setting a new strategic direction for the economy and doing so over a relatively long time horizon with a view that you’re sustaining effort for 15, 20, 30 years. That’s the way I think you need to think about this.

Just to wrap up a long answer to a short question: Why can’t we go back to the pre-crisis period? The answer is that restructuring of the private household debts is an enormous task which necessarily takes a very long period of time. During that time, the pre-crisis pattern of increasing debt will not resume. The asset against which the American household sector collateralized its debt for 15 to 20 years, its housing, has radically fallen in financial value. The houses are still there but you can’t sell them for nearly as much as you could have three years ago. And that is a structural impediment to returning to the previous pattern of economic expansion. And that impediment isn’t going to be removed in any short period of time for the simple reason that the houses remain there as an excess supply on the market and they remain therefore as a drag on housing prices.

Our country has an army of Mr. Henkels who memorize their right wing talking points but who otherwise cannot see the blunders of the last thirty years. The rank and file Tea Baggers are unable to see that they do not represent solutions but only business as usual, the same stuff that has been undermining our economy and the middle class since Reagan became president. As a result of the policies of George W. Bush, the middle class is at its lowest point in decades.



Update: Multiple sources and photos have confirmed that Sarah Palin was using her palm as a high school crib sheet. In a bizarre twist, Fox News says Palin was trying to draw attention to Obama's use of a teleprompter, of course ignoring Obama's masterful non-teleprompter handling of issues in the GOP lion's den. In the meantime, Europe is in a tailspin, we have no real energy policy, joblessness remains high, health care is stalled and the obstructionist GOP has no solutions, no understanding of today's rapidly changing world and no desire to let the Democrats get some real work done. For some time, it has been perfectly clear to anyone paying attention that the Republicans are actively seeking the failure of the Obama presidency. This is unprecedented in American politics.

Meanwhile, Democrats in Congress have forgotten how to lead and are shadows of the Democratic giants who once led the House and Senate. Leadership will have to come from the Oval office. While I appreciate Obama's efforts to seize the initiative, more may be required, including staff changes at the White House.

At the same time, the reality-based community has its work cut out for it. One election will not change this country and it was foolish to think it ever would. But reform has come before and it can come again. But only with persistence.

The Grasshopper and the Ant: The U.S. and China

We're the grasshopper: for years, we've been outsourcing jobs, burning gasoline, building gambling casinos, buying video games and fantasizing that our real estate values were earned. The Chinese are now the ant (we were the ant once when we were building a nation in the wilderness).

The Chinese look at the size of their population, the scarcity of many key resources in their country and the growing resource problems of the world. From their point of view, they need to secure resources for their growing economy. And they've been doing just that. They now consume more iron and coal than any other country. That's the clearest evidence of the economic dynamo they have created in the last thirty years.

Although China has more than 4 times the population of the U.S., they are still far short of our consumption levels in some resources such as oil. Nevertheless, they seem to see the future and they are locking in contracts and also building reserves. Here's an Associated Press story:

Since crude oil and other commodity prices plunged last year - oil tumbled from $147 last July to nearly $33 in December - China has been rushing to build up stockpiles at bargain prices, economists say. That motive, more than a revival in actual industrial demand, has driven its recent import boom of oil, copper and other metals.

(snip)

Ultimately, China aims to have about three months of supply in national reserves. It now has about a month's worth, or about 38.6 million tons of crude oil in both commercial and state reserves, according to state media reports.

The United States also has taken advantage of the drop in oil prices to buy crude for its Strategic Petroleum Reserve, which is far bigger than China's.

The U.S. reserve is about 730 million barrels. China's reserve will be about 170 million barrels. I'm struck by the fact that our reserve, if we include domestic production, is intended to last about 70 days. China's reserve is supposed to last 90 days.

Although one can easily argue that China is making it harder for the U.S. to find oil (along with deliberate production cuts by some members of OPEC), Chinese purchases have helped the price of oil recover. Obviously when oil is $147 a barrel, the price can cripple economies. But a price of $65 to $75 is important. A lot of the oil that is still being found in the world is expensive to produce. If the price of oil falls too low, some of these projects cannot be developed.

The truth is that no one quite knows what's going on with the world's resources—or the world economy for that matter. The Chinese are taking no chances and are planning for the future. In contrast, the free marketeers, including many in the U.S., claim that high prices will naturally develop more resources or at least substitutes. But while we've been waiting for dreamosol to fuel our cars since the 1970s, the events of the last four years tells us that we are in a new era of volatility, an era that means a lot of old thinking and old habits have got to go out the window. With adjustments, capitalism will probably survive. But we have to stop thinking that the markets are some magic bullet. They aren't, as we have seen all too often.

Some people are paying attention and it's not a pretty sight. Here's Paul Volcker's recent comments:

Former Federal Reserve chairman Paul Volcker said the rise of China and other emerging economies has underscored a decline in the comparative economic and intellectual leadership of the U.S.

“I don’t know how we accommodate ourselves to it,” Volcker, an economic adviser to President Barack Obama, said in an interview with PBS’s Charlie Rose taped yesterday in New York. “You cannot be dependent upon these countries for three to four trillion dollars of your debt and think that they’re going to be passive observers of whatever you do.”

Part of the rage of the right wingers over the last year is that they don't understand why the good times don't just keep rolling on (never mind that the good times have been something of an illusion for some years). They blame the government but our government for the last 30 years has not taken the lead. The business sector has and it is failing us. And it will continue to do so until there is real reform in Washington. For too long, the grasshoppers have ruled.

China's Economy Rolls On

At one point last year, the Chinese stock market had lost two-thirds of its value from its high in late 2007. That kind of fall was actually scarier than what we saw with the Dow Jones when it reached its peak in October 2007, sagged for months and then suddenly fell off the cliff last fall. But the Dow Jones in March of this year fell only slightly below half its October 2007 level and only briefly before rebounding to its current level.

Now here's an irony, American stock markets are moving up while the economic news is not good on the job front. Meanwhile, the Chinese stock market is having minor problems but the economy is booming. In China, there is no economy unless workers have jobs. No jobs means enormous unrest.

In the U.S., jobs and the health of corporations have become increasingly disconnected. In recent years the U.S. has repeatedly seen wages stagnate and the real unemployment rate rise while corporations post record profits.

But the Chinese are not succeeding simply because they emphasize jobs. They're also succeeding because they pushed a big stimulus package. Here's the story from The New York Times:

“The whole country’s economy is back on track,” said Shi Yingyi, a 34-year-old housewife who joined the throng. “I feel more confident now.”

The confidence stems from China’s three-pronged effort — a combination of stimulus, liberal bank lending and broad government support for exports.

The Chinese central bank said the country’s economy surged at an annualized rate of 14.9 percent in the second quarter. The United States economy shrank at an annual rate of 1 percent in that period.

There are two main differences between what the Chinese have done in the last year and what Americans have done. First, the Chinese acted sooner than the U.S. while developing a plan. Although Bush gets credit—of sorts—for stopping the recurrence of another Great Depression, he had no plan, and let things deteriorate far longer than he should have. Bush also did nothing once Bernanke and Paulson were able to put the brakes on the economic meltdown.

Actually, Bush, as he so often did on a range of issues during his eight years in office, sat on his hands when economic warning signs showed up in 2005, 2006, 2007 and 2008. Many prominent Republicans are very adept these days at describing what they don't like but somewhere along the line Republican leaders have lost the ability to come up with useful ideas. For most congressional Republicans, a good idea is doing a favor for a useless corporate lobbyist.

Now the second thing the Chinese did is that they pushed a massive stimulus package and made sure banks were loaning money. Obama pushed a stimulus package his first day in office but such a package should have been forthcoming weeks if not months earlier. Unfortunately, given conservative Democrats, uncooperative Republicans and media types who are too dense too realize that Republican economics has failed, the stimulus package that finally did get passed under Obama wasn't quite big enough. It's likely we're going to need more, particularly in terms of stimulating the development of alternative energy. What many Americans, particularly conservatives in the South, do not understand is that we cannot spend enormous amounts of money on foreign oil and enormous amounts of money on Chinese goods and expect the American economy to thrive for long, particularly if we keep destroying good-paying jobs at home. It simply won't work.

I should mention one other problem: American banks are still not loaning money nearly as much as they should. Now banks have a great deal to do with why the economy went sour in the last thirty months. Many of those problems are still not addressed, largely because no one outside the Bush Administration realized just how little anyone in government was minding the store.

In a broader sense, the banking crisis is a function of conservative policies that have been pushed by Republicans with help from moderate to conservative Democrats for the last thirty years. Actually, a more accurate way of describing the problem is this way: for the last thirty years, too many politicians practicing business as usual managed to get themselves reelected year after year. If the American economy is to thrive in the years ahead—and everyone should remember that a lesson of this recession is how key a player the U.S. is in the world economy—we are going to need more reforms from Obama and congressional Democrats. If these reforms do not happen, it is highly unlikely they will happen under the Republicans who currently lead the GOP.

Paul Krugman and the Politics of Reform

Before I get to Krugman, I've been thinking about the person who shouted, "You lie!" to President Obama when he was giving his health care speech last night. For a moment, I assumed the person calling out was probably in the gallery above the members of Congress. I was wrong. A Republican representative from South Carolina did the shouting. It's apparent that 90% of the Republicans in Congress these days have nothing to contribute on any number of fronts concerning the problems our nation is facing.

By the way, it's generally accepted that if you like what the president is saying, you applaud and maybe cheer. If you don't like what he says, you sit quietly and glower. Republicans know this and the representative was dealt with, even if people like Limbaugh are too ignorant and authoritarian to understand.

I don't know how relevant it is, but it's been pointed out that the conservative representative who did the shouting is from a safe district. Safe? As in what? Is ignorance now safe? Is being politically safe supposed to be a good thing? The problems facing our nation face everyone, not just people outside of 'safe' districts. Republicans unable to face our problems only aggravate those problems.

In a roundabout way this is all relevant to Krugman's long magazine article in The New York Times; in a sense, Krugman's point is that the old economics was never as sound as many had led themselves to believe and the proof was the failure to foresee last year's meltdown of the economy. Here's an excerpt:

...in the wake of the crisis, the fault lines in the economics profession have yawned wider than ever. [Economist Robert] Lucas says the Obama administration’s stimulus plans are “schlock economics,” and his Chicago colleague John Cochrane says they’re based on discredited “fairy tales.” In response, Brad DeLong of the University of California, Berkeley, writes of the “intellectual collapse” of the Chicago School, and I myself have written that comments from Chicago economists are the product of a Dark Age of macroeconomics in which hard-won knowledge has been forgotten.

What happened to the economics profession? And where does it go from here?

As I see it, the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth. Until the Great Depression, most economists clung to a vision of capitalism as a perfect or nearly perfect system. That vision wasn’t sustainable in the face of mass unemployment, but as memories of the Depression faded, economists fell back in love with the old, idealized vision of an economy in which rational individuals interact in perfect markets, this time gussied up with fancy equations.

I remember an article from two to four years ago that discussed how certain types of fancy equations didn't last very long in the investment sector. Nevertheless, for more than a decade a class of fancy equations would sometimes prove useful for around a year or two and were lucrative for big firms like Goldman Sachs. Eventually, though, the equations begin to break down, partly because competitors can figure out the same formula, thus taking a slice of the pie until there isn't much money for anyone to make; sometimes conditions simply change until the formulas break down. So the financial whizzes are busy all the time coming up with new formulas. Some formulas work well. Some don't. But the general trend in the last few years is that the fancy equations work for shorter and shorter periods of time. If that wasn't a danger signal, I don't know what is. We're facing several dangers but one of the dangers that these fancy formulas point to is a growing complexity to the world economy that no one seems to fully understand. One way to get the world economy to be a little less complex is to rein in people like Goldman Sachs who have so much activity going on that is hidden from the public. The sliced and diced mortgage derivatives were a classic example of increased complexity that was dangerous and unnecessary. But that requires reform.

So that brings us to the health care issue which is simply just one of the pressing issues that are being handled at the moment. As I've been watching developments over the past few months, my biggest concern is not how much health care the government can somehow bring to the American people, but whether we can truly have reform in the first place. So far, I don't see all that much reform coming out of Washington on any front. I see adjustments. But adjustments are not reforms. We can adjust goal posts, change the uniforms, get better clocks but that's not reform. In many ways, the same games are still being played. It's business as usual. If too many blue Democrats, or weather vane Democrats fail to see the need for reform, we have a problem. It's a problem the progressives might overcome, if they understand how badly we need reform. But if there are too many compromises and the 'reforms' are too watered down, the next Republican president will be free to push the reforms aside. In some respects, that's what George W. Bush did on a number of policy fronts.

In the end, even the Republicans have to come to grips with the fact that their economic policies of the last thirty years have fundamentally failed. We can no longer count on cheap energy and we can no longer afford to believe that the Saudis, Japanese and Chinese, along with others, will prop up our economy looking for safe havens for their dollars.

Health care will make sense only if everyone has to have health care and if every business is somehow involved with providing health care. Businesses need to be put on an even playing field. At the same time, however, health care will still remain an expense for corporations so we need to make sure jobs aren't outsourced as a way of avoiding health care payments. There are a number of ways to deal with both problems, but the only solution that I know of that will work for sure is national health insurance that simply bypasses corporations. Insurance companies might still have a role but that route is only likely to work if we have something that's set up like medicare. So the health care debate, while not a final view of things to come, may say a lot about reform across a wide spectrum during the next couple of years.

If the American people think turning to Republicans is the way to deal with our nation's problems, the United States will probably begin an economic slide that will be difficult to stop. Actually, we've been sliding for most of the last thirty years.

The curious thing about Krugman's study of the current state of macroeconomic theory is that he notes most of the neoclassical economists come from the Midwest. Let's see, Republican governors appoint college heads or create an environment leading to more conservative college heads. Those who lead colleges start looking for economists who fit their own economic views or at least economists who seem to be in their ballpark. Suddenly we have too many economists quoted by journalists who scratch around Washington in places that find jobs for those economists who leave the Midwest: the Heritage Foundation, the Cato Institute, etc. Oh, and as Krugman noted, the Hoover Institute. Hoover was a nice guy who used classical economics to deal with the Great Depression. As my grandfathers taught me, one Republican and one Democrat, that didn't work out too well.

Referring to "Some Critics" and "Critics Say": Lazy Journalism?

I try to be specific when I'm referring to the opinions of others but I'm sure I fail sometimes. What puzzles me is how often I've seen articles lately that do not name their sources when a quoted or paraphrased opinion seems easily attributable. It's not a state secret to have an opinion. Here's an article on the Cash for Clunkers program by Ken Thomas of AP:

... the Cash for Clunkers program encouraged more than a half-million Americans to dump their gas guzzlers for new cars and provided a much-needed, short-term boost to the economy.

Critics say that's hardly the whole story. They view the $3 billion program as the equivalent of a Ford Edsel, a lemon of a policy and an example of Obama administration willingness to cherry-pick winners and stick taxpayers with the tab.

"Ford Edsel, a lemon of a policy" is catchy and sounds like a direct quote to me. But the person who made it wants it off the record? Odd. At the very least, Thomas should say whether the critic is a Republican.

Thomas, however, does quote Chris Edwards of the Cato Institute:

"It increases the government's debt and will probably, like those other temporary programs, produce higher inflation in the future."

Let's see. The United States has had inflation for every year since the 1970s. Republicans in most of the years they have controlled the White House, Congress or both have outspent the Democrats. Under their watch, the real estate bubble, combined with fraudulent financial instruments in the mortgage industry, was the primary cause of the recent economic meltdown. But housing costs were so inflationary during the Bush years they gotten taken off the books. And conservatives were nowhere to be found. In the meantime, meaning today, the auto industry around the world is in a nosedive. The Cash for Clunkers program has put a brake on that nosedive and that's all.

In addition, the purpose of the Clunker program, besides trying to help the auto industry, is to help consumers afford cars with better gas mileage. What, if I can ask a rhetorical question, was another big cause of the economic meltdown? High gasoline prices! Surely it's not hard for Edwards to understand that higher mileage per gallon is not, I repeat, not inflationary. Actually, what the hell is Chris Edwards talking about, anyway? If he's doing anything other than mouthing conservative boilerplate to cover 30 years of failures, I can't see it.


Let's go to another article. It seems conservatives are nervous that China's stimulus package will actually help their economy. So in the last two weeks, with the temporary drop in China's stock market, conservatives have been talking about inflation and employment problems in China. Well, let's take a look at an article titled "China Growth Can't Fulfil Jobs Demand: Ministry":

Some critics have argued that Beijing's 585-billion-dollar economic stimulus, unveiled in November, did not give sufficient support to the labour-intensive sectors and firms that create most jobs.

Now I admit I don't know what continent or even what political persuasion "some critics" adhere too but I have seen conservatives express similar opinions. The simple truth, which has been known for some time, is that China is going to have an employment problem for another 10 to 20 years. It is, after all, an emerging economy. But let's look at another part of the article:

The government has pledged to create nine million new jobs this year and keep the urban registered unemployment rate below 4.6 percent.

Conservatives can throw as many monkey wrenches at that sentence as they want. But the Chinese may deliver on that pledge and there aren't many countries even capable of fulfilling that pledge. In a year when most economies are down or barely raising their GDP more than 1 or 2%, China is having an off year and will have a growth of some 7 to 8%. But if the Chinese stock market slips for a few days, American conservatives are ready to jump.

Let's finish with another article on China, this one from The Wall Street Journal:

While the country might shift benignly to stable levels of economic growth, it faces the risk of a renewed slowdown -- or worse -- next year, asset bubbles, overcapacity in basic industries or a burst of inflation from all the money the authorities have injected into the economy.

Conservative economists (and writers) are raising the specter of inflation. For many reasons, inflation is a real concern but it is trivial compared to an economy dead in the water. We know in the coming 20 to 30 years that we have entered a new era. Fossil fuels, all by themselves, make it likely that a wide range of prices will go up and down and sideways. The world has wasted thirty years ignoring the fact that it has not developed the energy of the future. People in the 1950s were already aware that the oil age was going to have a finite life, one sufficiently short that attention needed to be given to what the next energy source would be for sustaining the modern world.

China is building infrastructure for the future. It shows signs that it gets it. Even Japan is changing its ways. In Japan, the economics of Milton Friedman is dead. What the second and third largest economies in the world realize is that the conservative agenda laid out in the United States is not working. What will work is a combination of government and business working together. What will not work is giving $10 million bonuses to sociopaths and narcissists who could care less about the long term effect of their actions on the economy of their nation.

Will Obamanomics work? I have no idea. In my opinion, Obama is not going far enough. And much still depends on psychology. There can be no question that Republicans are doing their best to gum up the works and bad mouth the results. They do not want Obama to succeed. Ultimately, they do not want America to succeed. If America succeeds under Obama, conservatives will have to do something they would despise: admit they're wrong. Actually, they've been wrong on the economy for a very long time.

China Now More Dependent on Foreign Oil Than US

If there is one rule in 2009 that applies, it's this: the old rules no longer apply. We're in a strange new political and economic era that is largely the result of 30 years of Republican shortsightedness. For thirty years, the US drifted without a significant energy policy. For thirty years, the US allowed good paying jobs to disappear overseas. From time to time, Republicans of course had help from a few dim Democrats. Nevertheless, Republicans were the driving force behind the economic policies of the era now ending.

Here's an article in The Globe and Mail about China's growing dependence on foreign oil:

China's dependence on foreign oil has surpassed that of the United States, as consumers race to the pumps to fill their new cars with gas and the country feverishly stockpiles supplies to take advantage of weak markets.

The country's increasing appetite has driven it to spend billions to acquire foreign oil producers and construct vast storage facilities to safeguard future needs. It also helps explain a rapid rise in oil prices this year, which many attribute to speculators gambling on an economic recovery.

Whatever one may think of China's domestic politics about such issues as Tibet and human rights, the Chinese are thinking about the future. The more oil China stores, the more it can ride out the ups and downs of the markets. And the more time it has to convert to alternative energy sources, both clean and dirty.

Of course oil was cheap seven years ago. At that time Bush and Cheney could have pushed for building up the Strategic Oil Reserve. Instead, they both opted for a war in Iraq. Given that both Cheney and Bush were oil men, many people, with good reason, believe the war in Iraq was about acquiring new oil assets. It's ironic then that we're seeing articles like this one in The New York Times:

Oil companies from China, the world’s second-largest and fastest-growing consumer of oil, bid aggressively on Tuesday as Iraq began auctioning licenses in six large oil fields.

A partnership of BP and the China National Petroleum Corporation, or C.N.P.C., won the first contract awarded, in the latest indication of Chinese interest in Iraq, a country that has until recently seemed to be firmly in the American sphere of influence for natural resources.

Republicans, and many other Americans for that matter, have still not come to terms with the enormous damage that Bush and Cheney have done to our nation. There are consequences to cowboy diplomacy and it's hitting us in the pocketbook. Here's a story from Reuter's:

Sinopec's $7.2 billion bid for oil explorer Addax Petroleum (AXC.TO) is a sign that China's energy giants find it easier to secure reserves in parts of the world where there are fewer hang-ups about Beijing owning local natural resources.

Africa and the Middle East, where Swiss-based Addax has its main assets, are more politically disposed to China than are developed nations such as the United States, where local politicians blocked CNOOC's (CEO.N) $18.5 billion bid for oil company Unocal in 2005, analysts say.

China is and will remain a cipher to many nations for many years to come. For some time, that will give an advantage to China over the US. But ironies are never at an end in this new era. As China drives up the price of oil, we can expect two things. First, the higher price will make it easier for many expensive and sometimes marginal oil projects to move forward. And the higher price will also make it more likely that many people, corporations and nations will continue to push alternative energy projects.

If we are lucky, more oil will be available to help the transition to alternative energy. And high oil prices will provide the motivation to make the transition. If American government officials, business leaders and consumers understand the new paradigm, our economy may enter the new era with reasonable stability and opportunity. If they do not understand how much things have changed, the American economy will sputter from crisis to crisis for many years to come.

Reading the Unemployment Numbers

The Huffington Post carried a McClatchy article on projected employment numbers over the next few years.The numbers look pretty bad. Some areas of California, for example, won't return to "normal" prerecession employment levels until as late as 2014. Ouch. The article is based on a study done by IHS Global Insight. I don't know much about them but they label themselves as a comprehensive forecasting company covering economics, business, etc.

Now here's my problem. Which prerecession numbers is the McClatchy article referring to? Right now, the unemployment rate is about 9.4%. That's bad. Some would argue, however, that it undercounts the unemployed. That could mean the real unemployment rate is somewhere around 12%, give or take a couple of percentage points. In fact, there's been an argument that the unemployment rate has been underestimated for most of the last eight or nine years.

The current recession is said to have started in December 2007. That may be so but it was very clear by June and July of 2007 that the banking industry was in deep trouble. At that time, not only were layoffs already taking place in the mortgage sector but any number of mortgage firms were also permanently closing their doors. This was the famous uh-oh moment among the major banks a full year before the meltdown. Curiously, it took some eight months for the unemployment rate to significant move upward from 4.6% in June 2007 to around 5% in early 2008. Not bad numbers necessarily for an election year. But then the numbers kept getting worse. Of course, we've seen for some time now that unemployment supposedly follows the beginning of a recession by several months and recovery occurs well before employment returns to normal. Maybe so, but the pattern may be breaking down in ways no one is quite admitting yet.

Keep in mind that the unemployment numbers in the last four months of 2000 were as low as 3.9%. This was the last year Clinton was in office. And maybe the last year the United States had a real economy. What happened after that seems curious. Unemployment for the first few years of the Bush era kept floating up despite the tax cuts. There was 9/11 but the reality is that there should have been a dip in employment for no more than two or three months. Slowly, over the next few years, unemployment rose to an official rate of 6.30% in 2003 and fell slowly to about 4.4% in 2006 during the real estate boom. But average wages for most Americans during all that time were stagnant. And health costs were skyrocketing. The total cost of the oil the United States was importing kept rising. We had two wars that were draining the federal budget with little or no economic benefit for most Americans. So where exactly were these prerecessionary levels that economic experts are speaking of? In fact, where exactly were the good times?

Ah, but employment and the economy are no longer related to one another. My proof? Here's a USA Today article based on—surprise!—an analysis by IHS Global Insight:

The May update of the USA TODAY/IHS Global Insight Economic Outlook Index shows increasing evidence that the recession is likely to end in September, with a mild recovery starting in October.

Many areas of the country won't return to 'normal' employment until perhaps 2014. But the current recession will be over in September of this year? That's, uh, three months from now. How does that square with the unemployment rate? How do we explain the 4-5 year gap? I mean, who's recession are we talking about?! Simple. If you're rich, the recession will be over and you can start investing in the next bubble. That's who our economy is currently designed for. That kind of thinking can longer be sustained or justified. In the meantime, if you're not rich, tough luck.

I can't say it often enough: something is very wrong in our nation, and we need to change.

Bill Clinton on the Economic Meltdown

For what it's worth, here's part of Bill Clinton response to accusations that he played a significant role in the economic meltdown:

Now, there basically have been three charges,... one, because I enforced the Community Reinvestment Act for the first time and over 90 percent of all lending done under that law was done when I was president, $300 billion, that part of that was a lot of little banks made loans to people they had no business making loans to to buy houses so they could check the box for the Community Reinvestment Act. That’s the right-wing argument.

Then there’s the argument from the left that I shouldn’t have signed the bill that got rid of the Glass-Steagall law because that enabled banks and investment banks in effect to merge their functions.

And then there’s the argument that I make, which is that I should have raised more hell about derivatives being unregulated. I believe the last one is by far the most valid … although I don’t think that the Congress would have permitted anything to be done because Alan Greenspan was against it.

Republicans right-wingers, including many former Bush Administration figures, being the aggressive authoritarian figures that they are, have been incapable of admitting the blunders the have made for thirty years. Although Greenspan has been a believer in the Milton Friedman school of economic nonsense (it is nonsense since any objective measure shows that implementing draconian Friedman solutions to troubled economies usually aggravates the problems), he at least had the honesty to admit at long last that he's wrong.

Part of the right-wing spiel is that Bill Clinton 'caused' the meltdown some ten years ago. Well, Clinton actually was a major force in growing the economy during the 1990s and did much to create real jobs, particularly in the technology sector. Did Clinton make mistakes? Yes, of course. Every time Clinton behaved like a Republican and kowtowed to Gingrich and the more conservative members of his own administration he indeed made a small contribution to the current meltdown. Poppa Bush made his contribution when he allowed some regulations that made the Enron fiasco more likely. Reagan made his contribution through excessive deregulation (no one should forget the S & L crisis as one example or Bush 41's dismal handling of the economy).

But the person at the helm was George W. Bush. The blunders began with two wars with no end in sight. The blunders continued with the lack of a real energy policy despite the growing crisis of the last six years. A major and arrogant move on Bush's part was touting the business ethics reform package of 2002 and immediately watering down the bill after it was passed with his famous executive signing statements. Another major move was the gutting of the SEC. A Republican Congress eager to cash in on all the goodies was a factor (how many of those Republican clowns wound up working on K Street? (I know, even a few Democrats like Daschle lost their heads)).

Personally, I think there was also a political factor: I believe George W. Bush was hoping he could dump the economic mess on the next president, except the crisis came to a head sooner than he expected. Did Clinton play a role? Sure he did. Whenever he behaved like a Republican. And that's the real point. The conservative economic philosophy of the last 30 years is bankrupt. That bankruptcy began the moment Reagan took the solar panels off the roof of the White House and effectively said let the good times roll. For the wealthy and the well-connected, the last thirty years were good times, but not for the overwhelming majority of Americans. Except briefly, to some extent, during the Clinton years.

The Mail on My Father's Desk

Donkey Path has been on hiatus since the last week of March. My father was sick and I made two trips down to Southern California. He was unable to fight off pneumonia and died at the end of April at the age of 88. We all miss him but he had a good long life and was facing physical problems that were likely to get worse. His death was hard on my mother after nearly 67 years of marriage. But she's a strong woman and will get through it.

Last week I went through my father's papers. Like a lot of elderly people, he was a bit of a pack rat. I managed to toss some twenty bags of papers, some of which went back to the 1940s. His office was a bit like a time capsule.

Something that bothered me though were letters and offers he had received in the last year that he set aside in a pile to deal with later. Although he was beginning to slip, my father was still a sharp man and it's clear that he avoided the usual scams one gets in the mail. But he was elderly and it seems a number of major companies target the elderly with mildly deceptive ads. It's annoying, disappointing and a sign of how much things have slipped in the last thirty years. I disliked, in particular, some companies who send membership cards as if they were asked for. As one example, I felt the AARP has gotten way too aggressive.

My mother is also still reasonably sharp but she has a literal mind and remembers the companies and organizations who have been respected for decades. Some of the letters on my father's desk gave the impression that my father had done business with them. If a widow or her family are not careful, they can be fooled into thinking they have a bill that needs paying. We got through those letters reasonably well. I was just surprised that my father got so many of them. One thing is clear: during the George W. Bush years, con artists and frauds were having a field day and many of them are still walking the streets.

Today, I notice that Senator Schumer has suddenly discovered the expired auto warranty scam that operates by robocall. Uh, that scam has been around for at least three years and probably four or five years that I know of. Newsday has the story:

Sunday, Sen. Charles Schumer (D-N.Y.) announced his effort to get the Federal Trade Commission to crack down on the companies that make haranguing phone calls for bogus auto warranties - after he himself received one of the pestering calls on his own cell phone as he sat in session last week.

The solicitation calls on cell phones can eat up expensive airtime minutes, and less savvy people can be caught up by the scary-sounding pitches, he said.

There's also a similar credit card scam where you're supposed to call to clear up a problem and give the scammers your credit card number. Schumer is just beginning to discover these problems? Well, at least it's a vast improvement over the Republicans who have tended to look the other way when a scammer shows up in a suit and tie. But Schumer is a New York Democrat who has looked too much the other way as the scammers of Wall Street drove our economy into the ditch.

I'm proud that a lot of new progressive Democrats get it. But there are a number of Democrats and far too many Republicans who are kidding themselves if they think we can afford to go back to business as usual. The economic crisis we're in was brought about largely by right wing ideology. But the crisis was also brought about by a crisis in ethics that is exemplified not just by Republicans but by a number of Democrats as well. Without reform, we will continue to face trouble.

President Obama's Press Conference

It was masterful. What a pleasure it was to hear a president again who knows what he's talking about. Some of the media questions were lame and a couple of gotcha moments were caught like a moth caged in the hand and gently released back to the wilds of Washington. Obama knows what he's talking about and it may be time for reporters to start doing their homework again.

Other than the lame Fox reporter, the biggest embarrassment was Chuck Todd. His question about sacrifice was at least six years late and addressed to the wrong president. I happen to like Todd but he's going to have to do better if he wants to give David Gregory a run for his money.

Josh Marshall has a good read of what the press conference meant:

One thing that was clear from tonight's press conference was why the White House keeps wanting to get Obama out in front of the cameras and on TV. Obama has a ready and mainly unflappable command of the issues confronting the country, which I think people find reassuring in itself. In a climate of crisis such as this, I don't think most people's focus is ideological. They're looking for competence and command, a sense that someone is sailing the ship, at helm with a clear sense of where they're going.

There's been a lot of justified anger over A.I.G. and the bonus mess, but our economic crisis wasn't created over a couple of months and won't be solved in a couple of months. I'm not totally happy with Obama's economic team but at the moment I'm more disappointed that some progressives seem to be losing sight of where we are. The Democrats, for example, don't have 61 stalwart progressives in the Senate; instead, on the most crucial votes of a progressive agenda, they have maybe 51 votes they can count on, if they're lucky. We've known that since November. Democrats and their allies should be doing everything they can to add a handful of more progressives by 2010.

If anything, I wish people would work a little harder to turn people like Evan Bayh into more of a 21st century pragmatist instead of being stuck on what a pragmatist was assumed to be back in 1996. Things have changed dramatically. If the United States is to continue to thrive, Obama is right to target energy, education and healthcare. If it were up to me, I would make the focus global warming, energy and education, though I would dearly like to see something done about healthcare as well (for the record, I'm having trouble getting health insurance. The system really is broken).

I could still be wrong but I think I've been right all along that Obama is a pragmatist in a very real sense. If he really is a pragmatist, he has no choice but to address some fundamental changes we have been avoiding in different ways for the past thirty years.

Like most progressives, I'm very angry with the corporate world, more than half of which has seemingly divorced itself from any responsible connection to American society. But the last thing we need is a lot of corporations suddenly setting up headquarters in the Bahamas or any number of other 'friendly' locations around the world in a further effort to pursue a personal wealth agenda. Given how literally crooked the whole real estate boom became, the world can't afford too many more episodes of corporations behaving like what we've seen in the last ten years. Obama understands that. It's Congress I'm not so sure that understands (never mind what passes for the Republican Party these days).

Washington and the media love gossip and that's more what drove the A.I.G. episode than anything else. Progressives can't just be about electing people or critiquing the government. We need pressure put on Congress and we need to help the better people in the media raise their game. We're in trouble, and have been for a very long time. There's a lot more work to be done. Obama's press conference and public appearances in recent days have been major steps in the right direction.

Stimulating the Economy with Energy

The primary reason for the economic meltdown can be traced to the worthlessness of subprime mortgages. But no one should underestimate how $147 a barrel for oil can dampen the world economy in a hurry. Yes, the price of oil dropped down into the 30s and then proceeded to jump more than 20% with Israel's invasion of Gaza. The thing to note is the instability of the world economy at the moment. If there's still any doubt, consider what's happening in Europe with gas supplies from Russia (via The New York Times):

On Tuesday, Aleksei B. Miller, the chief executive of Russia’s natural gas monopoly, Gazprom, said in comments broadcast on Russian state television that if Ukraine blocked the natural gas shipments, Russia would halt all supplies to the border.

By Wednesday morning, Ukrainian gas officials confirmed that all gas shipments from Russia had ceased.

Oleh Dubyna, the chief executive of Naftogaz, the Ukrainian national energy company, said Gazprom had halted all supplies at 7:45 a.m. Wednesday. But Mr. Miller said by that time that Naftogaz had already blocked the last remaining pipeline open to Europe.

Politicians in the United States talk about our dependence on foreign oil and then usually proceed to do nothing about it. Of course, despite global warming, growing scarcity of fossil fuel, rising costs, dependency on foreign oil, etc., a large number of Republican politicians continue to push for oil production while taking large contributions from the oil companies. This will only lead to increased economic instability. Not good.

The way to get off oil dependency is to get off oil dependency. And the way to stimulate the economy is to stimulate the economy. Experts, lawyers and public relations consultants are being paid hundreds of millions of dollars to make it all sound more complicated. This only encourages nonproductive, parasitic and unearned greed. Republicans are not the only ones engaging in this behavior but people like George W. Bush understands it all too well. In the wake of the Enron and Worldcom scandals, Congress managed to pass some business reforms and Bush managed to use his infamous signing statements to water down the bills. He also hired people who watered down or otherwise refused to enforce many of the nation's already existing business laws. The subprime mortgage crisis was not the result of bad business judgment, it was instead the direct result of increasingly criminal behavior in an environment of very little law enforcement. The point is that until Republicans get their house in order and dump most of the people who worked for Bush and most of the people who enabled Bush, anything they have to say about economics isn't worth squat. Hopefully there are a few Republican moderates and a few pragmatic conservatives who finally see the light.

We need to solve the energy crisis. We need to stimulate the economy (the Dow lost over 200 points today as it becomes obvious the economy is continuing to sink). Developing alternative energy and funding an economic stimulus ought to go hand in hand.

Priority number one in the energy sector is research, pure research funded by the federal government mostly through universities. I'm not expert enough to know where renewable alternative energy will go in the future. One of the best prospects at the moment is simply windpower. Because windpower is inconstant and plentiful in some areas and not so in others, we need better ways to store and transmit windpower. Like I said, we need research.

Ethanol has problems and I'm not sure if the problems can be licked. I saw a study awhile back that food for humans, oxen and horses produce an energy return on energy investment of 12 to 1. That's considerably better than anything we're getting from corn ethanol. But we need research in ethanol too.

Solar energy using photovoltaic cells has some serious return on investment problems. Solar reflectors are better but there are also issues. Still, The Oil Drum has an article on solar energy that's slightly encouraging. They discuss a solar energy facility in Arizona that's assumed to convert 15% of the energy from the sun. It's calculated that a fraction of Arizona could supply the entire electrical output of the U.S. Of course, that says little about the transportation needs which require considerably more energy. And then there's the issue that we'll need a great deal more electricity if we're to convert a significant portion of American transportation to electric vehicles.

Actually, another encouraging sign, the article is a year old, comes from Sandia Laboratories, of all places:

On a perfect New Mexico winter day — with the sky almost 10 percent brighter than usual — Sandia National Laboratories and Stirling Energy Systems (SES) set a new solar-to-grid system conversion efficiency record by achieving a 31.25 percent net efficiency rate. The old 1984 record of 29.4 percent was toppled Jan. 31 on SES’s “Serial #3” solar dish Stirling system at Sandia’s National Solar Thermal Test Facility.

The good news is that research might lead to working systems with much higher efficiency than the 15% for the Arizona facility. The bad news is that lack of research money since the early 1980s means it took 24 years to break the old record. We need to do better than that. Much better.

Not only do we need considerably more money for research, but we need to listen to people like Al Gore and start building our nation's new alternative energy infrastructure with the knowledge we already have. It will take money and it will stimulate the economy and begin moving us into the 21st century after eight wasted years.

Bush's Economic Fiasco

Bush's presidency is becoming a spectacular level-five disaster. He denies global warming or tries to ignore it on the days when he acknowledges that it might be true. His environmental policy is a joke. He has no energy policy unless one wants to include the invasion of Iraq. Iraq is a war we did not need but it's making Bush's campaign contributors and friends fairly wealthy. Bush's economic performance has been mediocre at best and has partly depended on playing with various economic indicators. For example, inflation was somewhat low last year because the average price of homes was collapsing (Yes, anything to define 'success').

Bush, of course, has had help from a compliant Republican Congress in his first six years and an obstructionist Repubican bloc in Congress now that the Democrats have been trying to deal with various problems. Then there's Alan Greenspan who has recently lost all credibility despite years of being treated as some kind of economic guru. The current Fed Chairman, Ben Bernanke, is in a deep funk because he knows he screwed up and is a year late in dealing with his screwups. It was his responsibility to keep the president's irrresponsible economic policies from getting out of hand.

The fundamental problem besides corruption, ideological nonsense, privatization, deregulation and a few other examples of greed and stupidity is debt. No one has contributed more to the nation's private and public debt than George W. Bush. First, the president's tax cuts, insane build up of the Pentagon budget and the war in Iraq has burdened Americans with debt for at least a generation or two. Then, there is Bush's hands off attitude toward business which translates all too often into hands off corporate corruption, greed, crime, fraud and general antisocial behavior. During the Bush years, the rule in an administration without rules has been to ignore corporate misbehavior except when business leaders are too stupid to keep their problems off the front pages. Even then, many executives have walked away with a hundred million dollars in the bank.

Bush's friends on Wall Street have done very well for themselves without actually contributing much to the economy. Chris Farrell of Businessweek wonders if the government will hold these Wall Street robber barons accountable; he puts the current situation into perspective (well, not entirely, but we'll get to that further down):

"The Federal Reserve continues to bail out major financial institutions without imposing meaningful conditions to improve their conduct and performance," complains Peter Morici, professor at the Smith Business School at the University of Maryland.

Here's a staggering figure to contemplate: New York City securities industry firms paid out a total of $137 billion in employee bonuses from 2002 to 2007, according to figures compiled by the New York State Office of the Comptroller. Let's break that down: Wall Street honchos earned a bonus of $9.8 billion in 2002, $15.8 billion in 2003, $18.6 billion in 2004, $25.7 billion in 2005, $33.9 billion in 2006, and $33.2 billion in 2007.

Those years were the heyday of the hedge fund pirate, the private equity buccaneer, the 9- and 10-figure-salary quant jock, and other financial creatures who created all kinds of complex securities and highly leveraged transactions....

Many of those complex securities and highly leveraged transactions were crooked as hell. This has created a financial crisis based partly on a very simple fact: a lot of these Wall Street types are no longer trusted to handle other people's money. They have lied and, if they were smart enough to squirrel away their money before the meltdown, they have gotten away with it. At least so far.

Without referring to Wall Street crookedness and administration neglect, Steve Waldman of Interfluidity has a simple analogy to explain the essence of the current crisis:

Alice, Bob, and Sue have ten marbles between them. Whenever one kid wants another kid to take over a chore, she promises a marble in exchange. Alice doesn't like setting the table, so she promises Bob a marble if he will do it for her. Bob hates mowing the lawn, but Sue will do it for a marble. Sue doesn't like broccoli, but if she says pretty please and promises a marble, Bob will eat it off her plate when Mom isn't looking.

One day, the kids get together to brag about all the marbles they soon will have. It turns out that, between them, they are promised 40 marbles! ....

But then Alice, who is smart and foolish all at the same time, points out a curious fact. There are only 10 marbles! Sue says, "That cannot be. I have earned 20 marbles, and I have only promised to give away three! There must be 17 just for me."

But there are still only 10 marbles.

A good part of the problem is that too many people were borrowing money either with little money down on the expectation that real estate would continue to rise (shades of the 1929 crash!) or by using collateral that turned out to be worthless (subprime mortgage derivatives that were given mysterious triple A ratings when they should have gotten ratings reflecting their low and precarious worth). There's the added factor, of course, that overseas money has been pouring into American real estate for years, thus driving up real estate values. But sooner or later, money that isn't really earned has a tendecy to bite back, either through inflation or a major economic stumble. We may be facing both inflation and economic hard times. Not that the last seven years have been particularly bountiful for most Americans.

For twenty-seven years, going back to Reagan's mythological and misremembered presidency, Republicans have been undermining America's economic future with games that favor the few. Those few who are growing wealthier and more powerful have a straightforward set of rules: heads I win, tails you lose. These few are the same clowns who pay for focus groups and political consultants who know how to push people's buttons so that they're too angry to notice they've been bamboozled and manipulated against their own good sense.

John McCain, who admits not knowing much about the economy, may become the next president of the United States. Can we survive four more years of Bush economics?

Even if a Democrat wins, Americans may be facing many adjustments in the next few years to come.

President Bush and His Oil Theory Fraud

We have a dishonest president. I don't know how much that has really sunk in with the American people. I could point to a wide range of issues where Bush's dishonesty is blatant and embarrassing. Today, I'll just focus on oil.

Dick and George, our two oil executives, have been lying to the American people for years about oil and energy. But the problem goes deeper than that. It goes back to President Reagan and the failure of his administration to deal with the energy problem. For years, Republican leaders in Congress and the White House have refused to deal with the simple fact that oil is finite. Where once we believed oil might last five hundred years, we know now the oil age will be relatively brief. If we are to sustain our civilization, we need other sources of energy. We knew this long before Global Warming became established as a threat to our world. We know now that fossil fuels emissions are a major cause of Global Warming. We have a problem. What we do not need are games.

Bush is urging Saudi Arabia to increase its oil production. It's a bit like asking your uncle to empty out his bank account for your expensive lifestyle (okay, never mind that the Saudis have been emptying out their own bank accounts for decades to maintain their own lavish lifestyle). I suppose Bush can't help himself. When Bush makes a blunder, his first response is to blame someone else. He has blundered on oil. And he has blundered on the economy. Here's the story from James Gerstenzang of the Los Angeles Times:

Producers should "realize that high energy prices affect the economies of consuming nations," he said. If those economies weaken, he said, they "will eventually be buying fewer barrels of oil."

Energy demand has "outstripped new supply," Bush told reporters. "That's why there's high price."

Saudi Oil Minister Ali Ibrahim Naimi said his country was sympathetic to such economic worries, but he refused to commit to increasing production.

"The concern for the U.S. economy is valid," he said. "But what affects the U.S. economy is more than the price of oil."

The Saudi Oil Minister has it largely right: what affects the U.S. economy is more than the price of oil. But the Saudis are reluctant to admit a more salient fact: their ability to increase production is limited. In fact, the ability of the world's oil producers to increase productivity is limited. This is a problem that cannot be wished away by presidential temper tantrums.

Oil prices have been slowing down our economy for more than two years. But the five year war in Iraq is also slowing down our economy despite the stimulus of war spending. We are engaged in a war we did not need and we see almost no benefit for the American people. Bush's lax attitude towards business ethics has also slowed down our economy. The failure of the Bush Administration to go after crooks in the loan and derivatives sectors is the back breaker that has set the stock markets roiling since summer. But Bush's many failures to protect the American economy can be found elsewhere. When the price of gold jumps 40% in one year, it's an indicator of serious systemic flaws, and those flaws can be traced to the White House. We're in new territory and we have a president and vice president who haven't a clue.


Democratic Primaries Note: I will support whoever wins the Democratic nomination but I still stand by John Edwards. The theme of change was Edwards' theme months before Obama and Clinton jumped aboard (isn't the fact that Romney jumped aboard a bit odd?). In fact, Edwards has driven the vision and policies that the other two major Democratic candidates have been borrowing. Of all the Democrats and all the Republicans, Edwards is the one who sat down and did his homework. He knows what we're facing. So I'm voting for him.

Bush, Pakistan and the Economy

Let's summarize where we are at the end of 2007. By putting Afghanistan on the back burner from 2002 to late 2005, Bush has endangered what may have been a winnable war that was in direct response to the 9/11 attacks. Republicans, on days when it's convenient, keep peddling the myth that Osama bin Laden is irrelevant but Bush let him escape into Pakistan. Al Qaida has somewhat regrouped. Pakistan is in trouble on various fronts. Obviously the assassination of Bhutto makes things more difficult and Condi Rice's Pakistan diplomacy is in tatters. Condi Rice is a foreign policy lightweight just as her replacement as national security, Stephen Hadley, is a lightweight. Both have the advantage, however, of being loyal to Bush. Both are also easy for Dick Cheney to steamroll to some degree. We have a profoundly dysfunctional foreign policy team in the White House.

Much is made of the lessening violence against our troops in Iraq. On one level, there has been some progress. On another level, there is a profound lack of realism in America's media when it comes to understanding Iraq. All we're doing, at most, is cleaning up Bush's mess. It is still a war we did not need. More important, Iraq is an albatross around our necks imposed on us by Rumsfeld, Bush, Cheney and the neocons. Iraq is slowing down our economy and inflation is finally rearing its head. The war has endangered our position in the world. It is also a factor in Afghanistan and Pakistan since we devoted far too much of our resources to Iraq. It is Pakistan that has the bomb, not Iraq or Iran. We knew that when we first went into Afghanistan. Condi Rice has tried to make up for various failures by pressuring Pakistan in ways that obviously have blown up in her face. Cowboy diplomacy, even in Rice's slightly modified form, does not work.

I don't expect Bush to suddenly discover rationality. But every Republican in Congress should stop protecting this incompetent. There are things that can be done. For example, if Cheney can't be impeached or forced to step down, it would not take much to limit the powers of his office. Cheney's powers are defined by Bush, not by the constitution. With help from Republicans in Congress, Cheney's freedom of action could be greatly reduced. Another step would be for Bush to bring into his administration high profile envoys to help the United States regain some leverage in foreign policy before things get too far out of hand. The United States needs people like Colin Powell, Brent Scowcroft, George Mitchell and Madeleine Albright: two Republicans and two Democrats. Will it happen? Probably not. But can our nation afford to drift another 13 months? Probably not.

The stock market went down sharply again today, almost two hundred points, for the umpteenth time in the last six months. Of course, the markets have repeatedly recovered from recent losses. But the turbulence on Wall Street is a sign of danger and weakness in the American economy. Some of that weakness can be traced to the hundreds of billions being wasted in Iraq. They can be traced to the lack of an energy policy for the last seven years. They can be traced to Republican corruption in Washington across a wide front, but particularly in the last two years when it came to holding mortgage companies accountable. Republicans depend too much on donations from the real estate industry and bankers. So obvious problems in lending practices, including outright fraud, were ignored by the Bush Administration.

Sometimes I pick up the paper and I don't know whether to laugh or weep. Today, I laughed when I read the following story by Gary Rivlin of The New York Times:

From the riverboats of the Midwest and tribal casinos scattered across the country to gambling halls in less exotic parts of Nevada, operators are reporting slowing growth rates in recent months. In a number of places, revenues are actually down, sometimes by 5 percent or more.

The differences reflect a wider disparity within the economy.

Businesses in a variety of sectors that attract the most affluent customers and take advantage of foreigners from countries with strong currencies who are drawn to the glitter of Las Vegas and Manhattan are doing very well, while those dependent largely on middle-class buyers are having a harder time.

In Las Vegas, one extra factor has been a booming Chinese economy, as wealthy Asian players are risking -- and losing -- money in record numbers inside the city's most exclusive VIP lounges.

For most Americans, even gambling is in a slump. But we're getting money back from the Chinese! That's a pitiful way to erase some of our red ink. When I started thinking about it, I stopped laughing.