Can Anything Be Done?

I’m sorry I haven’t posted in several days. I’ve been struggling with both computer problems and a fugue of doubt over the general historical situation. I guess there’s no point griping about the computer, so I’ll move on to history.

It seems like the situation is bad enough. The economic fundamentals present a grim aspect, yet thanks to the even more grim political situation we’re now sustaining insanity on top of insult on top of injury. It wasn’t bad enough that a gang of criminals brought down the economy and have so far been rewarded with, in the form of the Bailout War, an even more expeditious conveyance of plunder from the people to the treasure hoards of the banksters.

Now we must endure the indignity of a new propaganda campaign which claims the big banks have been restored to profitability. These are ficticious “profits”, possible only through accounting tricks like pretending losses don’t exist and Goldman’s causing December to magically disappear from its books.

Even these bogus pseudo-profits are postable only because the insolvent banks have been propped up completely with taxpayer money. Now we have the so-called stress tests. These are also propaganda exercises, meant to propagate the two lies that the bailouts so far have worked to reconstitute bank solvency, but that we must stay the course and continue handing over the cash.

So the banks and the administration are coming together with a basic lying political narrative to justify this waging of class war from above. The administration continues to uphold the interest of a handful of gangsters over and against that of the people and the country. Amazingly, in spite of all the talk about how we’re going to have a regulatory resurgence, what we’ve had so far instead is a continued successful assault on regulation. Backed by their congressional flunkies, the banks achieved another victory in getting mark-to-market accounting gutted. Now they can claim the worthless toxic paper they hold is worth anything they want, for purposes of their books. This is one of the accounting tricks which has helped produce Potemkin solvency and profitability figures.

While the victory of “mark-to-management” accounting, as one would-be regulator caustically called it, is in itself just one smelly ingredient in a truly rancid stew, it’s more important as a signifier of the continued, indeed resurgent political power of the bank cabal.

Incredibly, even after having been caught red-handed perpetrating one of history’s monumental robberies, not only are these criminals still alive and at large, not only do they still retain all that they’ve stolen, not only do they still have their jobs, and not only are they, with the connivance of the government, continuing the robbery, now in plain sight, and at an accelerated pace; after all this, they so completely remain the darlings of the political elite that not only do they feel existentially secure, they feel strong enough to mount a political counterattack.

Thus we’ve been subjected to the most disgusting round of self-justification and loutishness from this scum. First it was self-pity and playing the innocent, and now increasingly it’s a return of arrogance and aggressive, entitled “attitude”. Wall street cadres feel emboldened by their assurance that Too Big To Fail guarantees them long lifetimes as obscenely paid professional criminals at best, well-paid welfare parasites at worst. So far all the evidence is that so long as Bush/Obama, and by extension the existing Washington system, is in charge the operating concept of the American economy will be that astronomical bank welfare is the overriding priority. The entire economy, and by extension all of society, are to be reconfigured around this principle.

That’s the essence of corporatism, the modern feudalism. Secure in this political guarantee, personally vouched for by Obama (who has promised to focus his presidency above all on protecting the bankers from the pitchforks, by which he meant help them impale us all on their pikes), Wall Street is now at the cutting edge of reaction, a feudal retrenchment which gathers strength and confidence with every passing day. If they momentarily feared for their profits*, let alone their safety, those brief moments are past.

Their focus is now on restoring business as usual, and stepping up the assault. But Peak Oil dictates that from here on “business as usual” (i.e. the usual business of wealth and power concentration) will be conducted in a somewhat different way.

From here on I intend to analyze the new forms of the historical struggle, and how humanity can fight back even as we must adapt to energy descent.

I started out titling this post “Can Anything Be Done” yet I see I’ve only begun to formulate the problem. Well, while I won’t bother calling this “part one of two” (or three of however many…), that’s the way I’ll look at it for now.

In the next post I’ll have more to say on how Peak Oil, in addition to its physical and economic implications, has an important historical, philosophical, even spiritual implication for all we’re now seeing.

[*I imagine that when I refer to “profits” on this blog it’ll more often than not be the kind of bogus gangster profits I wrote about today: a gain for the criminal or welfare parasite, but a loss to society, and therefore not a legitimate profit. Corporatist/feudal profit rather than real capitalist, real social-value profit.

So I hope to avoid confusion in using the word “profit” without always having to prefix it with “pseudo-” or “alleged” (though I’ll probably sometimes still do that too), while I hope the times I do mean legitimate, real profit, the context will provide the distinction.]

The Crash and the Future

 

America’s economic and geopolitical position has certainly become precarious in recent years, and there’s no reason to believe the empire can be sustained in the long run. However, it’s striking how the financial crisis, extending into general economic crisis, has temporarily strengthened imperial America’s relative position.

 

Let’s look at the situation a year ago. Oil price was surging, while supply was tightening, with almost no spare capacity. This created lots of space for geopolitical disruption or blackmail. Petrostates could have strong domestic spending and assertive foreign policies. In the parlance, they could have both guns and butter. Russia and OPEC were feeling strong. Venezuela was talking tough about replacing the dollar as reserve currency. The dollar was weak, and yet the trade deficit was huge.

 

Meanwhile in the domestic campaign, where the electorate was clear on the absolute failure of Bush, corporatism, and neoconservatism, all the talk was of the new space for progressive ideas and progressive policy. “Yes we can!” was the watchword.

 

And today? Oil is in a price doldrum, with ample spare capacity. There’s little geopolitical space for anti-globalism for the time being. The trade deficit has been dampened. The dollar has become relatively stronger, and its status as reserve currency temporarily reaffirmed. Russia and OPEC have been chastened by the plunging oil price, Venezuela is domestically scrambling, Europe and China are in disarray.

 

In America, although a nominally progressive president was elected, his agenda shifted immediately to “continuity” and appeasement. Obama’s main goal has been to continue the two quintessential corporatist policies: an imperial neocon foreign policy, branded the Global War on Terror (though they want to change the brand name); domestically, class war from above, intensified and accelerated wealth redistribution upwards through the Bailouts. In terms of general politics, Obama’s project has been to appease the Republicans and give them the breathing space they need to try to regroup. That they’ve been inept at this so far is not for lack of Obama giving them an opportunity.

 

(Why is Obama doing this? Like Clinton, he believes “it’s the economy stupid”, and he is basically a right-of-center corporatist. Therefore he sees the real foe as being not Republicans but true progressives. If you’re interested in 20th century European history, compare it to post-WWI Germany, where the new republic under a Majority Socialist government made an alliance with the hard core reactionaries against the real socialists (the Independent Socialists and Spartacists). Though here today the Right is currently in disarray, and there’s little to no coordination among true progressives, the political fundamentals are similar.)   

 

What has changed? The crash and the crisis: by generating demand destruction and letting off steam from the oil market, this has temporarily alleviated Peak Oil pressures and reduced the intensity of America’s basic position as oil addict in a world of surging prices and constricting supplies. America is in a vice, but the pressure has been ratcheted down a bit. Meanwhile the producing regimes who were riding high, throwing their weight around internationally and justifying themselves domestically by trickling some of the oil wealth downward, are having to retrench on every front.

 

Whose positions have been shored up? America’s in general (I refer to the “America” of the power elite, not Main Street), in particular that of the Republicans, the neocons, the FIRE trust, who are being coddled, appeased, bailed out, and in general given time to regroup for the intensified struggle ahead.

 

Who has been weakened? In a word, everyone else. America’s disaster has become the world’s disaster. Everyone is confounded in the economic turmoil. Meanwhile oil’s death grip has been temporarily weakened. While this has somewhat alleviated the stresses for the American consumer, it’s not enough to offset the disaster befalling him as jobs, investments, pensions, social programs, social contracts, hope for the future in general, are vaporized.

 

(Always remember that “demand destruction”, like “adaptation” in climate crisis policy, may look like a kind of solution on paper, but its real life meaning is tremendous hardship and misery for the non-rich, and especially the global poor. These are always political fig leaves for the Western power structure and its attempt to prop up the consumption/car/sprawl dystopia. They are always tools of disaster capitalism.)

 

The main effect of the crash has been to buy some time and political space for the elite to prepare for the post-Peak resource hunt. This will mean a fully corporatized economy and an authoritarian society. It means a more overtly Social Darwinist civilization. The carrot will be aggrofuels, tar sands syncrude, and whatever other “alternative” fuels can be wrested through ever-intensifying environmental and political violence. This will be meant to let the American consumer keep his precious car and McMansion sprawl as long as possible. For dissenters, the sticks will be many and severe.

 

So when we look at the plan for America over the next twenty, thirty, fifty years, however long the zombie system can be propped up before energy descent definitively kicks in (however long it will be until “peak empire”, “peak zombification”), we should perhaps look to China as a model. There the goal of society has been to keep the Communist Party in power and enrich the coastal elite. The social stability necessary for this comes from trickling some crumbs downward to the peasantry in the form of factory jobs. Dissent, meanwhile, is ferociously suppressed.

 

China’s ruling elite has of course for a long time now been communist only in name. Rather, seeing how world communism had become a dead end, in the 80s the Chinese elite made the decision to shift to a corporatist globalization model. Similarly, America has for decades been shifting from capitalism to corporatism. Since unlike China America didn’t commence this shift as a de jure authoritarian society, the transition has taken longer and had less central planning. But in the end, from these different directions, America and China are ending up in the same place.

 

So like China America will have a “fortress system”, dedicated to keeping the elite in power and the rich in their riches. The main detail which is different is that while China seeks to trickle down enough factory jobs to satisfy the peasantry, America will try to prop up a nominal suburban middle class: commuting, McMansion-dwelling, lawn-mowing, flat-screen TV-watching. Since this middle class has no economic basis for existence, the system will try to zombify it through new debt bubbles. It will exist in a state of ever greater financial tension, as its wages and social protections become ever more attenuated. Every middle class family will be existentially closer and closer to being one lost paycheck away from literally living in a box. This will dovetail nicely with a more overtly fascist and authoritarian political system. Such will be the socioeconomic balance of terror which props up the elite’s power foundation.

 

But evidently, for the American consumer, it’s all worth it for the sake of low prices at Walmart.     

 

While all this doesn’t mean the crash was consciously premeditated (since exponential debt always had disaster “priced into it”, it’s more likely the power elite were always ready to shift opportunistically into disaster capitalist mode at any time), it does mean the suffering of Americans and of people around the world is being used and intensified for the advantage of America’s rich.

Directions

 

Here in New Jersey budget problems are at least as bad as anywhere else in America, and after years of fiscal recklessness which if anything were even worse than at the national level, governor Corzine is desperately looking for something, anything to cut.

 

While all sorts of monster boondoggles are politically untouchable (there NJ is exactly like the federal government), Corzine seems to have a knack for cutting pennies for what are by far the most cost-effective state programs, and the ones most symbolic of where we need to head as a country.

 

The Jersey Fresh  initiative is a state program to publicize local growers. With a budget of just a few million, it has contributed significantly to a surge of interest in Jersey-grown produce. While it’s not focused on organic growers and does not stem from a broader relocalization principle, it has still helped create the environment from which relocalization must embark, the special valuation of locally grown crops in the mind of the public. So whatever its nominal purpose, it’s a step in the right direction.

 

What’s more, state farmers and food advocates are unanimous that for its modest budget Jersey Fresh has had a huge multiplier effect on the farmers’ bottom line, the establishment of farmers’ markets, nutrition and public health, energy security, and helping to lay the infrastructure for the regional and local food distribution which will soon be not a consumer choice but a historical necessity.

 

In the same way, cutting this modest amount is expected to have a multiplied detrimental effect, depressing all the benefits which have been flowing so inexpensively. Yet amid gargantuan budget travails, where NJ is insolvent to the tune of nobody knows how many $ billions (and the federal government, trillions), Corzine has zeroed in on cutting $250 thousand dollars from this universally popular and extremely fruitful program. (A year ago he wanted to shut down the state Agriculture Department completely, to save a measly few million, but was forced to back down.) This is clearly an extraordinary example of being penny wise, pound foolish.

 

Even more importantly, it’s a stark example of how, at one of history’s ultimate pivot points, where it is absolutely imperative that we tack hard and travel in an entirely new direction, and where all policy must be redirected, the system’s inertia is instead carrying it in exactly the wrong direction.

 

Jersey Fresh is perhaps a perfect microcosm of how at the policy level everything we should and must be doing is trounced by the effort to prop up a zombie system. What is the right direction? Where it comes to food, it means local farming for local markets, local and regional distribution, CSAs, community and victory gardens, seed banks, libraries, and exchanges, and land reform. More broadly the right direction is toward smallness, deconcentration, simplicity, resiliency, robustness. That means localized crafts, small banks, revitalized and decentralized manufacturing, shipping, and shopping. These, their encouragement and the programs to help organize them, are the kinds of things government should be focused on in these times of crisis.

 

But even as pennies for such programs are cut, the orgy of government-waged war on the public interest continues with rampageous spending and other effort toward propping up big agriculture, globalized trade, big banks, big military, big war, more suburbanization (in NJ we also have the Highlands Act , which could have served as a regionalization vehicle beyond its stated intent toward land use reform, but instead nobody seems to be taking even its original purpose seriously – just a week ago the state Department of Environmental Protection overrode the Highlands Council in granting a development permit which completely flouts the Act’s whole purpose, both in principle and in detail), most of all more cars and other luxury things with engines (even erstwhile environmentalists want the car civilization, they just want them to be electric or PHEVs; everybody of course wants not just repair of existing roads but above all ever more roads).

 

[This trend of propping up and bailing out giant decrepit structures while gutting worthy programs is not just inertia. There’s a conscious disaster capitalist agenda as well. Henry Paulson and others have publicly said that a fringe benefit of the huge sums being spent on the bailouts is that such numbers, where cited in political contexts demanding more budgetary responsibility, can help create the political environment for further cuts to social and productive spending.]

 

The basic collective attitude (among big government, big politics, big business, big media, big academia) was best (that is, most insanely) expressed in a recent NYT Bob Herbert column where he wrote that the best thing America can do is synthesize temporary makework jobs by continuing to build worthless monumental architecture while destroying what little wealth we have left.

 

In this case , they want to help prop up the zombie airline industry by building a giant mausoleum (AKA an airport expansion) south of Chicago. Where should it be built? Herbert reaches heights of superciliousness as he describes how the prospective site is currently just farmland. He actually writes, “You can get a glimpse of what’s wrong in this country” when you see how the area is growing crops or lying as pasturage. In his eyes, just wasted land doing nothing productive.

 

Yes, from reading this column we do indeed “get a glimpse of what’s wrong in this country”. (In skimming the comments, I was gratified to see that he was getting a lot of blowback on just this point. I don’t think he learned anything, though .)

 

So there we have complementary examples which crystallize the insanity of the system and the complete intellectual, moral, and spiritual bankruptcy of the leadership. Take pennies away from a real “green shoot” which, however small, was heading toward the sun. Instead throw those pennies into the glutton maw already sucking in endless trillions of dollars for all the now-zombie things which are big, worthless, ugly, and doomed. Vaporize that vestigial wealth, and while you’re at it keep destroying farmland.

 

That’s the “solution” being peddled and enacted by the current power structure. There’s only one system which can exist, which must exist, and which will exist if we simply keep on with business as usual. These propositions directly defy reality and instead inhabit an ever more scabrous delusion.

 

Only the people can redeem themselves and what used to be their civilization, and they can only do it from the grass roots up. But to keep following the existing leadership is simply to follow unto destruction.  

Toward farms

 

I spend so much time analyzing the crimes and stupidities of the world today that I sometimes lose touch with the need for an affirmative action and thought. Nietzsche, who always calls for psotive action as one’s baseline, would not approve.

 

But I’m finally feeling better about my personal course of action now that I’m starting a vegetable garden. I have no experience with this, and not much in the way of resources, but I’m learning what I can. With any luck, the results this first try might be OK. (I’m keeping my expectations modest.)

 

It’s a good feeling. Even if I’m still badly unprepared if collapse were to happen tomorrow, at least I’ve finally started on a lifetime path of becoming prepared, self-reliant, resilient. It’s great to see how more and more people are doing this individually, and how organizations dedicated to relocalization are springing up.

 

A personal garden is therefore the best start both personally and politically.

 

When I look at my incipient garden I think, if I do turn out to have a green thumb, this is something I’d love to get more serious about. I could see myself being happy as a large gardener or small farmer. (I’m still not sure what the difference is, but I do know some people get ornery about the terminology.)

 

I think many people are having the same awakening, and not a moment too soon. America needs new farmers; it needs many millions of them. The globalized food distribution system based on cheap, plentiful fossil fuels cannot long provide food security. One of the key imperatives of relocalization is regions and localities becoming self-sufficient in food staples.

 

It’s great to see the progress already being made with victory gardens, community gardens, CSAs, and farmers’ markets, with an increasing impetus toward organic methods and localized distribution. This is the core organizational structure already. Really all that’s needed is to expand and further coordinate it.

 

The main problem is how we soon run up against the calcified, atavistic barriers of the old system. (Which should be seen as a zombie system, just as the insolvent banks being propped up only by government bailouts are zombie banks.) I think the two main barriers are the current state of land distribution, and the existence of feudal industrial agriculture. (An especially pernicious aspect of the latter is the ethanol racket.) These two are intertwined, of course.

 

For a moment I’d like to toss politics aside and picture what a desirable post-Peak society would look like. I think it would most of all have the victory garden and the small farm as its core elements. This is clearly the only way to redeem the land currently imprisoned in suburbia. It should also be the successor distribution as industrial plantations are broken up.

 

If we had land reform such that distribution was on a food stewardship basis, not only would we reachieve the food security which modern “civilization” has so perversely thrown away. For the first time in history, we’d achieve a just, fulfilling society where it really was true that anyone willing to work hard and be responsible could prosper as his own boss. (I’m focusing here on gardens and farms, but also picture parallel relocalized workshops and craftsmen.)

 

Contrast that with the system we now have, where the hardest working, most responsible people have become serfs, while the worst thieves, thugs, and parasites are the most prosperous. They’ve even corrupted language to the point that words like “talent”, “innovation”, “entrepreneurship”, “best”, “brightest” have been hijacked to simply mean, the most talented and innovative scam artist.

 

[To emphasize one nasty example which directly impinges upon food, we have the ethanol “industry” which is a pure parasite. It has never turned one cent of legitimate profit. It is based 100% on collecting four kinds of rents: direct government welfare, government-created captive markets (the RFS and the 10% blend requirement), government social engineering which encourages the personal car, and parasitism on oil prices.

 

Now that its oil price dependency has left it crippled, its only possible “innovation” is to lobby for an increase in the other rents, especially an increase in the blend well to 15%. That is, the government should use further force to expand a “market” which was generated by force in the first place.

 

This of course comes at the expense of food production. It’s a clear example of a feudal abuse of the land which has no basis in any coherent concept of “property”, capitalist or socialist.

 

While this is the most extreme example, it is nonetheless characteristic of agribusiness in general. We need a liberation movement.]

 

So while we can conceive where we must go, that still leaves us with the problem of how to get there. One thing that’s for sure is that we should not count on getting much action or even encouragement at the federal level anytime soon. While the Obama administration is in many ways much better than Bush (though in other ways just as bad), it’s still mired in the reactionary mindset, and just as it is propping up the zombie banks, so it wants to prop up the zombie system as a whole.

 

So as we begin to more broadly coordinate, I think most of the action will at first be at state, regional, and local levels, which is logical since that’s where we want power to reside anyway, and that’s where energy descent dictates that it will reside. I know I’m not saying anything new with this, except perhaps that even as a national network comes into focus, it should still serve mostly to identify, train, and encourage cadres at regional and local levels, and facilitate their networking on interlocal and interregional bases. Terms like cell and rhizome help capture the idea.

 

In the same way, just as we have the excellent direct action of urban guerrilla gardening, so amid an industrial food production and distribution system all victory gardeners are in a sense guerrilla gardeners, just as saving and exchanging freedom seeds is a radical political action.

 

So we’re off to a good grass-roots start, and we have a basic idea of where we want to go. Now it’s a matter of charting our course, first and always through our direct preparatory actions as individuals and communities, and second through whatever level of formal political activism seems tactically sound, according to a strategy we must still formulate.  

Folly Marches On

 

Barbara Tuchman’s The March of Folly is one of my favorite history books. Her thesis is that folly, defined as a systematic policy which works against one’s own interest, has played a significant role in history.

 

The iconic ur-instance from mythology is the Trojan Horse. Clearly, taking the Horse inside the walls of Troy was against the interests of the Trojans. This incident also exemplifies the three criteria Tuchman requires for something to qualify as historical folly:

 

1. The policy has to be the policy of a broad spectrum of decision-makers, not just the capricious dictate of an autocrat. In this case the near-hysterical will to bring in the Horse was almost unanimous.

 

2. At the same time, there has to have been a vocal, articulate dissent from the policy, identifying it as folly at that time (it can’t have been recognized as folly only in hindsight). Among the Trojans, both Laocoon and Cassandra warned that it was a trick, but were disregarded.

 

3. There has to have been a viable alternative. Here the alternative was obvious: don’t bring the Horse in! Or at least open it up first. Indeed at one point Cassandra grabs a hammer or something and runs toward it meaning to break it open, only to be restrained.

 

I think Tuchman’s treatment of this theme offers a perspective on our current predicament, and the policies our “leaders” have embarked upon.

 

First let’s look at how she treats the sequence of events nearest our own time, and most redolent of it: the Vietnam war. It’s clear that the escalation of the war in Vietnam was against America’s “interest”. The premises upon which the war was fought were both false and pernicious. The domino theory and the specter of a monolithic world communist conspiracy of aggression were both quickly disproven by events. The notion that “signaling” was an effective war-fighting tactic also quickly came to grief, while the notion that the calculus of attrition, counting body bags, favored America was always idiotic on its face even before events disproved it. 

 

So the alleged interests at stake were fictive, while the operational concept could not work. And what did America lose? Domestically, it lost any sense of national faith, in government, “country”, that America is a “good” place (what has passed for such faith since then has just been loutish pseudo-patriotism, the worst kind of flat earth flag-waving, and cynical manipulation of it by rich right wing elites). Internationally it lost face, it lost the perception that America was a prudent, reasonable player, it lost the sense of military awe, it lost the “credibility” which by the 70s was the only rump objective left for the war.

 

And the entire Vietnam involvement had been undertaken in the first place for the sake of colonialism and probably racism, and was therefore a direct betrayal of America’s alleged founding principles. 

 

Fulfilling Tuchman’s criteria, these events spanned a broad elite: two administrations (actually going back way beyond that, but I’ll just stick with Johnson’s escalation) and the congressional delegations of both parties; the foreign policy, press, and business elites; at first a significant majority of public opinion.

But the policy also quickly faced growing dissent. First the anti-war movement, then gradually congressmen, press luminaries, and eventually top insiders, and then Democratic primary challengers, turned against the war, all during the Johnson administration.

 

The alternative should have been clear from the start: Do not bolster French colonialism, do not blithely believe in the worst fantasies of Neanderthal Cold Warriors, do not seek to impose a foreign system by force on an unwilling people, and especially don’t continue to try to do all this when all the evidence contradicts both your premises and your practices.

 

Beyond these basics of folly, Tuchman identifies four areas of foolish action:

 

1. overreacting (the belief that “losing” Vietnam would directly lead to a red invasion of the California coast, in one of the more dire scenarios);

 

2. delusions of omnipotence (seeming to contradict paranoid overreaction, yet in practice easily coexisting with it, this was the notion that America could easily impose its will on a silly little non-white peasant country);

 

3. “wooden-headedness”, or going with ideology and prejudice over evidence-based reasoning (thus the interminable fetishizing of discredited concepts like the domino theory, signaling, attrition, Vietnamization, “credibility”; also Johnson’s delusion that domestic politics required him to be tough in Vietnam even after the 1964 election, which had been the entire political rationale going back to Kennedy at least as far as spring 1963 – even after Johnson had ended up running as the peace candidate, which completely invalidated the political rationale even prior to the election);

 

4. “working the levers” – mechanical activity rather than creative thought (thus once the Vietnam policy, as alleged domestic political necessity, as alleged foreign policy necessity, as well as the actual tactics used, was set in motion, its inertia became inviolable, and no amount of contrary evidence could cause any fundamental rethinking of the assumptions and dogmas).

 

So where today do we see parallel examples of historical folly? On the broadest level, that man believed he could forever expand this “growth” civilization of exponential debt and ever higher impacts, all the while depleting non-renewable resources and destroying the environment, has to be history’s greatest folly ever.

 

For now I’d like to analyze as historical folly two specific policy manifestations which have followed from the overarching insanity: the Bailout War and the Global War on Terror (GWOT). Let’s consider each from the point of view of folly.

 

The basic truth today is clear: civilization based on cheap, plentiful fossil fuels and exponential debt is finished. At most TPTB may be able to waste whatever wealth and what little time we have left to zombify it for awhile, prop it up and ambulate it, have it stagger around and wreak more destruction in its death throes. For anyone who is not either terminally psychologically committed to this ideology or seeking to profit from disaster, our interest is clear: we must to a large extent relocalize food production, energy, transportation, health care, education, government, and culture. Therefore we should dedicate most of our resources to activity and policy which heads in this direction, little to that which does not, and nothing to that which heads in the wrong direction. Yet the American administration has chosen with precision to try to throw away all resources and time chasing what’s a pipe dream at best.

 

Peak Oilers, relocalizers, and in varying ways many among the food, energy, environmental, and labor activist communities are the voices protesting this self-destructive insanity and identifying this alternative.

 

Yet the administration insists on squandering trillions of dollars waging an imperialist war and maintaining a far-flung imperialist presence America cannot afford, to try to somehow keep the oil magically flowing, while at the same time it throws away more trillions, by now tens of trillions, trying to prop up the zombie banks which are to somehow magically blow up more bubbles to keep the exponential debt magically flowing.

 

Even in the details the parallels are there. We have overreaction: “the banks are Too Big To Fail”. This is an ideological construct first of all: TBTF from an ideological point of view. And even from that point of view, it’s still an assumption, not a fact, and therefore perhaps not worth blowing over $10 trillion.

“Terrorism is an existential threat to America”. This, like the Vietnam attrition imbecility, is patent crap. The only way terrorists could be anything more than a nuisance would be if they got hold of some superbug. The threat of this is far greater coming out of a corporate lab, yet you don’t see the terror warriors all that worried about the likes of Monsanto, do you?

 

(There is one exception to this. Terrorism poses an existential threat to American liberty, as homegrown totalitarians and panicky moderates collaborate to strip away all civil liberties and barriers to tyranny. Of course the real threat to Americans has always come from within, not without. Here we see the real “threat”, and the real way terrorists have won: they’ve provided an assist to our domestic terrorists.)

 

We have delusions of omnipotence: American debt and growth are infinite. This is god-given. So obviously any economic disaster is purely accidental and temporary. Certainly we can, must, and will restore the banks. They’ll be bigger and better than ever. They’ll fire up the infinite growth machine again, and we’ll party harder than ever. Oh yeah, I almost forgot – we’ll never run low on oil. And if we do, god will provide.  “Technology will save us”.

Similarly we have the classical imperial overreach delusion: America’s infinite military might can maintain a far-flung empire, hundreds of bases, as many theater wars as we want, keep the sea lanes open to infinite trade, and we can accomplish our will, any will, anywhere we want, anytime we want. Oh yeah, we can sure afford it all. We’ll just print money. (The “dollar” is another delusion altogether, though of course entangled with these.)

Never mind that the evidence contradicts all of this. Never mind that America can’t even keep a handful of ragtag pirates from grabbing one of its ships. The “higher truth” is that America is omnipotent.

 

These delusions stem from American wooden-headedness. The bailouts and the terror war provide lots of such notions. American debt is infinite and sustainable. Same for “growth”. There’s no such thing as Peak Oil or resource limitations, or the climate crisis. Private concentrated mega-banks must forever be the core structures of our civilization. (In official circles, no post-TBTF can even be envisioned.)

9/11 was unprovoked. They hate our “freedom”. They’re jealous of our “prosperity”. All people want to replace their society with an American-style Sodom. In Iraq they’ll greet us with flowers. Torture is useful and moral, while habeas corpus is useless and immoral. And today we can have paradise forever if we just seal the Pakistan border.

Never mind that many have tried this and all failed. You keep forgetting, this is the omnipotent America.

 

Wooden-headedness also shows in Obama’s politics. Just as Johnson hypnotized himself into believing he needed a war platform to compete in 1964, and continued in this delusion even as he ran as the peace candidate vs. the (allegedly worse) warmonger Goldwater, and even after he won in a landslide, at which point he definitely should have felt politically free, so Obama has come into office laboring under a welter of dubious political propositions which seem completely self-imposed. That appeasement and phony “bipartisanship” are politically necessary; that the bank bailouts are politically necessary; that the GWOT is politically necessary; that the people won’t stand for nationalization of the banks. (Yet a new poll shows, if nothing else, that the people aren’t so hostile to the dread word “socialism”. I’ve long argued, on this blog and elsewhere, that even leaving aside the practical and moral superiority of nationalization as a policy, it can also play better politically than bailouts, which the people have intuitively understood right from the start as looting.)

 

Obama’s appeasement politics become all the more baffling when you consider how he ran as the Change candidate and came into office with a tremendous mandate to effect real change. (For purposes of this post I’m giving Obama the benefit of the doubt and assuming he’s sincerely trying to do the best thing for the people. But as I’ve indicated in other posts, the evidence for this is not looking so good. If he is a dedicated corporatist himself, then he is in fact acting in the interest of his masters, and the folly thesis would be invalid. My point is, by now we are certainly dealing with either betrayal or folly. At any rate, beyond the administration itself there is a large policy constituency for the bailouts, most of whom probably are thinking in deluded good faith. So America as a whole would still be plunged in folly.)

 

Finally, we have working the levers, thoughtless mechanical activity. The government’s monetary and fiscal policies have been ad hoc, following the same textbooks and adhering to the same old politics that got us into this mess. The stimulus was just cobbled together with little guiding thought, again all the same political logrolling, backscratching, and pork. If you rule out intentional plunder then neither the bailouts nor the bailout mission creep (life insurers seem to be on deck) make much sense. Nothing has any underlying principle except propping up the status quo, and this “principle” itself is simply flat earth dogma, mechanically believed in.

Things are similar with the GWOT. The imperialist program is unquestioned in principle. (Though they now say they want to rename it. Yippie, it’s “change”! – why don’t they hold a contest?) What the point of it is, no one knows. What is the objective in Afghanistan? They’ve belatedly said it’s to go after al Qaeda. And why is that so important by now? No one can say. It’s just religious dogma by now, and all that’s left is to work the levers and try to carry out the policy, no matter how much effort and wealth is thrown down the rathole.

By now the GWOT is simply taken for granted, and if it were physically and economically possible we perhaps would see a new Hundred Years’ War as McCain offered.

 

I imagine both the bailouts just like the GWOT will simply be enshrined as a permanent feature of the American existence, for as long as they can be sustained.

 

All this can accomplish is to further wage class war from above while destroying our last chance for a constructive devolution toward a more beautiful, rational, human world.

 

So we have the insane policies counter to national and indeed human interest. We have a clear, practicable alternative. We have dissent pointing the way toward that alternative.

 

Now, since there’s little to no hope of seeing any sanity or reason from the top down anytime soon, all we can do is try to organize from the bottom up, do what we can for our own families and communities, and try to create a larger public space for the truth and ideas and action stemming from it.   

Economics of Ethanol

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   .

The bad news keeps rolling in on how bad the environmental fundamentals are for ethanol. A new study confirms existing findings that the nitrous oxide emissions from corn farming by itself have been underestimated by a factor of 3-5, canceling out any alleged greenhouse gas benefit from biofuels. Another study finds that aggrofuel production may use up to 3X as much water as previously believed.

 

As for the economics of aggrofuel, the CBO estimates that the diversion of corn to ethanol production was responsible for 10-15% of the big US food price runup in the year ending 4/08. The cascade of effect is typical: this diversion of food to fuel drove up the price of livestock feed and therefore of meat and dairy products, which in turn drove up the price of all foodstuffs.

 

This is just the tip of ethanol’s malevolent food price influence, which last year led directly to mass shortages, hunger, malnutrition, food riots, and state violence all around the Third World. While an American consumer may have the right to decide to pay more for food so he can continue filling the tank of his SUV, he has no such right to make that decision for his neighbor, let alone to starve the world poor. The moral economy of ethanol is even less sustainable than its fiscal, energy, and environmental economies. Yet so far the American government has chosen to subsidize all of these, to convey to a kept industry however much money and unaccountability is necessary to force zero minus one to equal two.

 

The ethanol industry is currently in a precarious position. It is not a capitalist but a feudal operation, 100% dependent on the rent-seeking opportunities afforded by government handouts, government-generated captive markets, and high oil prices. It needed all of these to turn a profit, and since oil prices plummeted last year, the business, which had bet contango on Peak Oil price effects and had been building new plants at breakneck speed, found itself overextended and unviable even with massive government assistance. One of the top producers, VeraSun, went into bankruptcy and the others are hurting.

 

So what can a parasitic industry do when one of its hosts is no longer available? It must seek to feed more on the other, in this case the government. Sure enough, what we’ve been seeing is a frenzy of anti-capitalist, anti-market, rent-seeking lobbying.

 

The main effort is to get EPA to increase the ethanol/gasoline blend wall from the current 10% to 15-20%. There is no economic or practical basis for this whatsoever, just as there no longer is even for the 10%, now that we know that corn ethanol’s energy and environmental promises were lies. Rational policy would dictate that we do away with the existing requirement, and with all ethanol RFS standards. But of course reason has no place in a corporatist system, which is based on distortions, riggings, and rackets. No one in industry or environmental circles wants this blend wall increase. Every kind of machinery maker fears that a 15% blend could damage its products (true to the system, the 2007 energy bill absolved the ethanol racket from any liability for engine damage from ethanol products, so any such damage would be completely externalized onto the consumer and product manufacturer).

 

What’s odd is how even the ethanol gang doesn’t bother trying to argue that a blend wall increase would benefit anyone but themselves. Clearly they’re simply so confident in their congressional (and presidential) flunkies that they think they can just demand whatever they want, at whatever cost (for everyone else).

 

So both the “industry” and the DoE are saying, “the free market was wrong before, and it’s wrong now; we must mandate a higher blend wall”. Perhaps by now we must suspect, where it comes to corn ethanol, the free market will always be wrong.

 

They’re also stepping up demands for more welfare, and for this to be extended into the indefinite future. The argument originally was that “first-generation” biofuels, i.e. corn ethanol, needed temporary government support. This would allegedly lead to a self-reliant first-gen industry and more importantly show the way toward the “second generation” of cellulosic ethanol which would be even more cost-effective and environmentally sound.

 

Yet today all of this is looking to be a lie. Corn ethanol remains unviable and a ward of the state. There are lots of plans on paper for cellulosic production plants, but no investors. The only money now available is coming in the form of government welfare. For example, one of the few projects still moving forward, Poet’s Emmetsburg plant, is funded so far only by close to $100 million in federal and state grants. They’re still waiting on a federally guaranteed private loan (that should give you an idea of how dubious these economics are: even with a fed guarantee no one wants to loan them money).

 

According to the 2007 energy bill, 100 million gallons of the biofuel mandate are supposed to come from cellulosic in 2010. It doesn’t look like they’re going to make it. The American Petroleum Institute thinks they’ll dribble out maybe 1-5 million. That’s how much all that government largesse is buying. As API’s cadre said, “We know how to make cellulosic ethanol. We don’t know yet how to make it economically.” (We’re still saying that for corn ethanol as well, and probably always will be.)

 

Renewable Fuels Association president Bob Dineen sums it all up: “The government needs to step in right now to help these companies.” What this means is, the government needs to continue and step up its complete and absolute welfare support for the entire industry. The government has completely subsidized the first generation of ethanol, and will continue to do so for as long as the people allow it. Industry and government promised that this first generation would soon be profitable in its own right and would pave the way for an even stronger second generation. So now, even as corn ethanol remains on the dole, they’re saying cellulosic needs to become a chronic welfare patient as well. Of course they’re making the same claims now that they did about corn: just a little bit of help to get it on its feet…it’ll be better for the climate as well…it’ll pave the way for the 3rd and 4th generations…and so on.

 

We must assume that these are lies now just as much as they were in the past. “Lie to me once, shame on you, lie to me twice, shame on me.” We should not subsidize or mandate any further development of biofuels, and we should strip away the existing subsidies and mandates.

 

(In thinking about all this I was struck by how much of this seemed familiar – massive handouts for well-connected insiders, alleged broad benefits, socializing of costs while only private elites stand to profit – yes. It’s just like the bank bailouts, and so many others. I think Dineen was speaking for a lot more than just the ethanol racket when he said “the government needs to step in right now to help these companies”. That’s all any corporation thinks anymore: the public is a mine and a dump, the government is a conveyor of the extracted loot in one direction, and of the toxic waste in the other. Every corporation and industry either sits feudally in this position, or bribes and lobbies trying to get there. Congress and all recent administrations have been fully complicit in this. This is the key to understanding all business language today such as “talent” and “innovation”. It’s all referring purely to this corporatist insider endeavor.)       

A Not-so-distant Mirror?

Modern history shows that the basic process of growth economies is that they must always seek new frontiers where they can repeat their original “pre-capitalist” accumulation, i.e. plunder. Where the economy runs up against limits to this expansion, it falls into boom-bust cycles. In effect, if there’s nowhere for surplus wealth to go, then wealth must be destroyed so that it can be rebuilt. The old rueful joke about how GDP is all about building a bridge, tearing it down, and then rebuilding it is basically true. Wars are especially fruitful in this regard.

 

Now the globalized economy is running up against the ultimate limits of the Earth’s natural resources. Delusions of space colonization notwithstanding, there’s no frontier left to open up. We can look at the entire Industrial Revolution as a one-time spend-down of the fossil fuel hoard. (For all the delusions of capitalist grandeur, all modernity has really been is one big rent-collecting binge, which is now coming to an end.)

To the extent humanity now moves to unconventional oil and aggrofuels, this means the spend-down is over, and it’s time to recrudesce to the civilization of hard work.

 

To look at an early run-through of the West’s predicament, we may compare the rise of fascism in 20th century Europe. The socioeconomic predicament Europe faced is similar to the resource predicament we now face. The fascists were just premature.

 

As Hitler’s biographer Joachim Fest put it, fascism was trying to formulate a “last-ditch defensive ideology for the bourgeoisie”. Europe had run out of space, was depleting its own resources, while the old-style imperialism had run its course. It was entering “bust” time; the Great Depression was a foretaste of this. Fascism proposed to prop up the system first through military Keynesianism, then internal imperialism, then continental aggression, using violence and slavery throughout. The reason this was necessary, and the reason it didn’t work, was that history had entered an interregnum.

 

To repeat, Europe’s population was at the boom level, while its indigenous resources were constrained. It’s old colonial frontier and plunder grounds were closing up.

At the same time, technology, the globalist form of imperialism, and consumerism were not yet ripe as a new stage of economic intensification.

America and the Soviet Union, still rich in resources, could afford to wait. Europe could not.

 

A crystallization of the dilemma is how Hitler envied Stalin. He was well aware of how time was running out for Germany, while the USSR had all the time in the world, all on account of natural resources – oil, grain, metals, timber. This was the “rational” aspect of Hitler’s Lebensraum  (living space)  ideology. The point of the war was to seize space and resources, and therefore time, from the USSR and for Germany.

 

So what happened:

1. Natural resources won the war for the West and the Soviet Union.

 

2. The war itself spurred development of the technology and the globalization system (Bretton Woods, dollar as reserve currency, the IMF) which would open up the new frontiers, globally and internally, to the new cycle of expansion, expropriation, and accumulation. The old direct colonization would be replaced by the new sublimated imperialism.

 

But all of this, even when leveraged through the financialization of the global economy, which became an exponential debt economy, could still only buy limited time. 

 

These are the terms we must think in when we see Western multinationals, Asian cartels, Mideast sovereign wealth funds making land deals in Brazil or Madagascar or Indonesia; or where we see unholy consortiums of Monsanto and Bill Gates seeking GM biofuel plantations in Africa. It’s at core the same Lebensraum program, just prettified and not so overtly violent. This is broadly true of all of globalization, petrodollar recycling, the whole round of multinational colonization, “outsourcing” and “offshoring”, “free” trade, and the intentional trapping of the global South in the predatory lending/debt/structural adjustment cycle purveyed by the World Bank and IMF.

 

So where are we now? The whole developed world (including the elite strata of the BRIC countries, Southeast Asia, the Pacific Rim, the Mideast and elsewhere) is in the same position as Europe entering the 20th century. We have resource depletion, trade outlets are saturated, population has exploded beyond all rational measure. There is almost certainly no frontier left to colonize. The technophiles still blather about how “technology will save us”, but anywhere we look there is no conceivable technological solution which doesn’t quickly run up against physical (fossil fuel platform) and economic barriers which are insurmountable. Even where it comes to well-established tech like wind or solar, we must face the truth. As Vaclav Smil said, “beware of the scale!” They cannot be scaled.

 

I said a moment ago that the barriers are insurmountable. But there is in fact one option for temporarily propping up a zombie system. The rich and powerful can seek to prop up their wealth and power through a rerun of the old fascist gambit. This time, however much they try to demonize various foreigners or “terrorists”, they won’t really have the old-style fascist “classless” option, since this is a globalized world. Multinationals are completely unmoored from any national anchor, in practical or moral terms. This unanchoring has been with the full consent and active corporatist assistance of so-called “national” governments. Governments, administrations, and corporations are now fully cognizant of their basic thug vagrancy. They will now seek to recolonize the Earth. First on a North vs. South basis, and then on an internal basis within each and every “country”. The process is well advanced in America already, with the shredding of the safety net, rampant privatization, the addiction to consumer debt as the entire basis of physical life, and the complementary expropriation of wealth, more and more of which resides in fewer treasure hoards. The Bailouts and the Global War on Terror are stepped up processes of wealth redistribution upward.

 

In the meantime, the essence of Western life, which must be preserved at all costs, for the sake of which the people will happily throw away all wealth, all power, all spirit, all freedom, is the car. Everything else in American life boils down to this. It’s the basis of the war on terror. In effect, as long as the power elite can keep delivering the fuel, the people will consent to anything and everything.

 

This is how and why the leading edge of the new, temporary accumulation cycle of interior colonization is the “alternative fuels”, unconventional oil and biofuels. You can gauge the progress of tyranny by the progress of their development.        

“Subprime Carbon”

 

Friends of the Earth has released a report written by Michelle Chan entitled  Subprime Carbon: Rethinking the World’s Largest New Derivatives Market (report linked  here ). This refers to the securitization of emissions permits and offsets which are the two most common mechanisms in setting up a cap and trade. Carbon trading in general is futures derivative trading. As Chan says, the seller “promises to deliver carbon allowances or credits in a certain quantity, at a certain price, at a specified date”. The market is small now, but according to CFTC commissioner Bart Chilton it could become “the biggest of any derivatives product”.

 

Chan defines subprime carbon as “futures contracts to deliver carbon that carry a relatively high risk of not being fulfilled, and could collapse in value”. These are most likely to come from offset projects, “because sellers can make promises to deliver carbon credits before credits are issued for a project or even before greenhouse gas reductions have been verified”.  

 

As we’ve been learning, large, complex, ill-regulated entities and systems which have a free hand in “innovating” financial instruments are the Typhoid Marys of the globalist economy. All reasonable people agree that our main program here must be to downsize and deconsolidate these entities, unwind their complexity, and severely regulate them so that they never again become so large, so trustified, so complex that they can put this gun to our heads again.

 

So where we propose an extensive new system to impose a carbon price and cap, it seems like a no-brainer that we should do so in a way which does not run against the general definancialization of the economy. It should not provide a new way for financial entities to run ponzi schemes and blow up bubbles.

 

While I’m not writing here to attack the concept of cap and trade in principle, I do think that the specific proposals put forward so far have not been sufficiently active in trying to prevent a carbon bubble. This is the subject of the FoE report.

 

After giving an overview of the financial crisis in general and what must be done to prevent a recurrence, the report delves into how reforms should be applied specifically to a cap and trade. With the entry of finance speculators into the carbon market we’re already seeing all the same things we saw in the last bubble: exaggerated or fraudulent promises, derivation, bundling of “assets” of very different putative values, slice and dice, securitization. This speculation already represents most of the world carbon market – over 70%.  They are asset managers, investment banks, carbon funds. Chan says “two thirds of carbon investment funds were not established to help companies comply with carbon caps, but rather for capital gains purposes”. 

 

This is the reason why the 1990s SO2 trading market does not provide an adequate model. The financialization of any trading market is far more complex. Carbon speculators, especially those involved in “offset aggregation”, the bundling and tranching of offset projects, are generating the same opaque and excessive risk as with previous financial tricks. Chan also sees conflicts of interest, as the same investment bank may be involved in rating projects for offset credits even as it is managing or owning carbon portfolios.

 

These speculators, according to the report, will also drive up prices and render them more volatile. They represent a clear danger to effective mitigation policy and general financial stability. While we want a rational carbon price, we don’t want one artificially inflated beyond what’s reasonable or politically sustainable. Most of all we want a stable carbon price, since the whole point here is to rationally cap and rationally mitigate, and that won’t be possible with the market caroming all over the place.

 

According to Chan, because the carbon market, unlike most other financial markets, is being artificially, politically created*, it is therefore more susceptible to the pitfalls of lobbying and regulatory capture, and therefore needs special insulation from the political system. (So the report also affirms that we need real campaign finance reform.) The primary market will lobby for safety valves and off-ramps, for the creation of more offset assets, and for opacity regarding cap compliance. The secondary market will want all this plus the same old deregulated wasteland where it can generate its “instruments”.      

 

[* ALL markets beyond basic barter economies are artificially and politically created by governments. But it’s a core element of the right wing project to deny this and claim governments hinder markets; that markets can somehow exist without the strong hand of strong government assisting them every step of the way. This is of course a lie.]

 

The report is especially skeptical of carbon offsets, which even in principle are close to being junk carbon, let alone in practice. (Joe Romm and others call them “rip-offsets”.) These are prone to the abuses of:

 

1. Just being out and out scams;

 

2. Claiming inflated emissions reductions – even given good faith on the part of everyone involved, it’s very hard to accurately determine how much carbon remains sunk by e.g. foregoing deforestation of a particular tract (and of course everyone involved has a financial, political, and/or emotional incentive to err on the side of inflation);

 

3. Then there’s the seemingly intractable additionality issue. To deserve and under most policies receive offset credit a carbon-reducing project must be such that it would never have been built except to receive the offset credit. But this is fiendishly difficult to ascertain, since almost nothing is going to have only the carbon-reducing benefit; it will have other uses as well, and how do you prorate the multi-levelled motivations that went into something?

 

This is probably impossible to really figure out, and so those opposed to offsets take this as prime evidence for why we shouldn’t have them at all in government carbon policy, while those who are gung-ho (as a rule those who stand to profit from them) say we should just give up on additionality and give credit to everything.

 

Such a promiscuous offset policy would be a rich feeding ground for financial predators on the hunt for derivation opportunities. The more irresponsible and unaccountable something is in principle, and offsets are certainly dubious, the more readily it can be securitized, since the whole point of the finance scam is to become as unanchored from reality as possible and then really get to work manipulating people’s perceptions. They set up a hall of mirrors where each new image more monstrously distorts the last, and they seek to arbitrage the distortions.

 

All of this, as it burgeons, would spread new securitization throughout the financial system, creating new systemic risk. Then when the inevitable carbon crash comes, we’d have the same kind of reverberation as we have today – in this case, first for the compliance buyers (the actual emitters who needed the underlying allowances), and then on through the general economy. (I imagine under those circumstances the first thing to go would be actually having to comply with the cap.) 

 

All of it – first the risk of it, then the actual crash and economic destruction – would be for the benefit of a handful of FIRE sector cadres. Just as with the current crash.

 

Therefore, Chan says, we must not create the new carbon trading system without robust regulation. FoE recommends a hard cap, quarterly auctions (hopefully frequent enough to limit arbitrage opportunities), a published set price, the limitation of participants to regulated entities and those actually able to emit (Chan compares this to last summer’s anti-speculator proposal that oil futures trading be limited to those physically able to receive delivery), and bans on offsets, secondary market trading, and allowance hoarding.

 

The report gives these basic guidelines for regulation:  

 

1. Carbon must be specifically factored into general Wall St reform. The basic problems are the same. We know “self-regulation” doesn’t work (I can’t resist repeating Willem Buiter’s great line, “Self-regulation is to regulation as self-importance is to importance”), yet carbon traders have already called for it. We also need regulatory coordination, not an easily gamed patchwork. Regulatory gaps need to be closed. Much general reform sentiment is focused on CDSs, yet most carbon trades OTC. So as important as it is to fix the destruction wrought by the CFMA, we also need emphasis on shifting carbon trades from OTC to public exchanges.

 

2. Carbon trading also needs its own specific regulation, which must be dealt with in the carbon legislation. Chan surveys the many carbon-trading legislative proposals, with their attempts to find the right policies and  ways of distributing authority among FERC, EPA, CFTC, SEC. (A problem is proposals which want to give EPA the lead authority over trading. This could be fine if we only have a primary market among the emitters themselves. But the EPA is not set up to deal with any secondary derivatives market among finance speculators.)

 

3. The size and complexity of the trading market must be limited and simple, to foster price stability, keep out speculators as much as possible, and prevent the proliferation of subprime carbon. The goal must be to reduce the space available for a carbon bubble to inflate. Since speculation, derivatives markets, and bubbles are based on perceived arbitrage opportunities, measures that seek a stable price like a firm cap and frequent auctions provide a habitat hostile to this bubbling.

 

(I have to add here, since the entire political and economic elite are looking for nothing but the next bubble opportunity, since that’s the only way they can hope to prop up the debt economy a little longer, for them a report like this must read like an advertisement or how-to manual. They’ll just say they can avoid the “abuses” this time around.)

 

This report gives a good rundown on the potential pitfalls awaiting a carbon policy which bulls ahead without properly safeguarding against its own hijacking by the FIRE trust. Although the report doesn’t go into the underlying stability of the cap and trade concept per se, we can infer that the concept seems inherently vulnerable to this kind of abuse, and that where it comes to any cap and trade legislation, we must be vigilant in scrutinizing its trading setup and safeguards. If these are inadequate, this is sufficient reason to reject the bill.

 

That’s not just a general economic concern abstracted from the core focus of mitigating carbon emissions. On the contrary, the more a carbon trading system becomes the playground of the finance sector, the more it will be hijacked toward the goal of maximizing “trade”, and therefore the less firm the cap will be.  

Oil Prices and Peak Oil

 

I wanted to try to get a basic understanding of how oil prices work. I’m not from the industry, but there has been plenty of expert commentary on the subject, so I thought I’d survey a few of these arguments, and try to distill a few basics.

 

I used the following pieces for this analysis: 

 

Robert Rapier The Next Five Years: Peak Lite and the Current Oil Picture

 

Jeffrey Brown A Simple Explanation For Oil Prices

 

Phil Hart The Economics of Volatile Oil Prices

 

Gail the Actuary Why Are Oil (and Gasoline) Prices So Low?

 

Why Are Oil (and Gasoline) Prices So Low – And Where Are They Headed?

 

Jeff Vail Predator-Prey Dynamics in Demand Destruction and Oil Prices

 

Mechanics of Future Oil Price Volatility (A Flubber Cobweb)

 

Dave Cohen The Price is Not Right

 

(There’s plenty of other good writings out there, but these seem like a good cross-section of what’s being written in Peak Oil circles.)

 

All commentary today is informed by the economic crash. During the price run-up of the last four years there was considerable debate over to what extent this was being driven by supply-demand fundamentals, as opposed to above-ground factors, especially speculation. (Thus we had the spectacle of conservatives, who normally deny on principle that there’s any such thing as “speculation” as opposed to the genius of the rational market, suddenly claiming high oil prices were completely the result of nasty speculators. This was because conservatives must obey their higher principle that there’s no such thing as resource limitations.)

 

Oil production stagnated in 2005, and from there we’ve seemed to be on the “bumpy plateau”. Oil prices were therefore rising on account of rising demand and the growing perception of constrained supply in the face of this rising demand, especially in Asia. It was feared that soon demand would reach the supply limit, the economic “growth” needed to fuel exponential debt would stall out, and first the financial system and then the economy at large would crash. This was the position of those emphasizing fundamentals (i.e. Peak Oilers).

 

Those who seem ignorant or in denial of supply fundamentals (most politicians, pundits, the MSM) were more likely to ascribe the price surge to speculators and war profiteering by the oil companies.

 

For Peak Oilers there were several questions. How far off is the acute Peak? Or have we already experienced it? What can producers do in response to the strong price signal they’re receiving? Will the Peak trigger an acute crash or a gradual economic descent?

 

What actually happened confounded most prognostications. There will be debate for a long time over the proximate cause of the mortgage defaults which triggered the avalanche. Perhaps we’ll never have an exact answer (historians tend to wrangle over such proximate causality forever). Among Peak Oilers the question is to what extent constrained supply, by driving up fuel and food prices, helped generate defaults. We can leave aside that question for now (I attempted a short answer in an earlier post, The Bailout War III: Corporatism and Finance). Certainly the exponential debt run-up was unsustainable and highly unstable in itself and could easily crash on its own from any number of things. Fuel prices didn’t help the stability of the situation, but right now it’s not very important to figure out precisely how big a role they played.

 

What’s most important is that whereas Peak Oil expected a supply crunch to trigger the financial crash, and that demand would be forcibly destroyed by the two in synergy, instead the crash came first and accelerated the existing demand response to high prices. Supply ended up having to meekly constrain itself in demand destruction’s wake. So the acute Peak ended up being enforced by above-ground factors after all, and did not dictate the crash but rather was dictated by it. 

 

No sooner had producers, especially Arabia, been able to increase capacity and production to a small extent, than amid financial turmoil the price topped out at $147 in July and began a steep, steady descent. Financial woes and fears drove an unexpected level of demand destruction in the West and even in China. This fed into a bearish perception among traders which further encouraged price descent.

 

This price decline combined with the fierce credit crunch to cause independent and national producers to mothball or cancel many future projects. The first victims of this were alternative projects like the tar sands and some ultradeepwater developments, as well as refinery and pipeline expansions. So while projects already underway will largely be brought to completion, and for a few years new capacity coming online should counteract depletion from existing capacity, in five years or so the lead times will run out, we’ll be up against a void where new capacity was supposed to be, depletion will overtake spare capacity, and the Peak Oil effect will finally shine through, sending prices permanently upward, and in terminally downsizing economic activity.

 

That much seems to be the consensus. The mystery is in how production, demand, and prices will behave during this interregnum between the exponential debt civilization (that is, where pretty much everyone believed in its permanence, and called it the “Great Moderation”) and the post-Peak descent. Can the economy temporarily recover, and even artificially electrify itself into some residual zombie “growth”? How much more debt can the dollar take on? (I don’t think any sane person still believes the debt tower can be salvaged or manageably wound down, let alone keep building. I think they’re just helpless to change course. This might make sense if they were using their last debt push to build a new relocalized economy. But instead they’re using it for the Bailout War and the Global War on Terror, two utterly worthless imperialist projects. Economically speaking, two pure ratholes. So by now the federal debt binge is just a Dance of Death.)

 

It seems that Peak Oilers don’t believe there’s much chance of anything more than a temporary anodyne recovery of growth. There won’t again be enough economic mojo to drive demand up enough for another heroic production push. So it seems that we did see the acute Peak for conventional crude in July at 75 mpd. Whether or not all-liquids might still exceed its current peak of 87 mpd is more questionable, but also seems unlikely. It looks like the bumpy plateau is confirmed, and the only question is how bumpy it will be for the next five years or so, and then how steep and volatile the descent will be.

 

I’ll now give a brief summary of the pieces listed above, each an attempt to figure out where we are now and what’s happening.

 

Back in October Gail the Actuary (Gail Tverberg) asked, “Why are oil (and gasoline) prices so low?” Her answer was an attempt to itemize the factors fuelling demand destruction. She provides the basic rule of oil’s supply-demand fundamentals: that where supply and demand are very close, and supply is tight, such that their curves are nearly vertical, this makes for extreme price volatility, and a small change in either can have a huge effect on price. Until last summer Peak Oilers tended to emphasize the supply curve starting to shift left, but as we saw it ended up being the demand curve instead.

She adds in the effect of slowing Asian growth and demand. Since this has been such a dynamic force driving demand upward, any reversal here is likely to have significant effects.

 

Tverberg also emphasizes the above-ground effect of the credit crunch on intermediaries like suppliers and shippers. Where these become less able to get credit, producers are less confident about doing business with them, and the industry becomes further deflated. (This sounds similar to the banks being “unwilling to lend”.)

However, she also focuses intensively on speculator unwind (indeed 5 of the 8 factors she lists involve trading), to the point that it seems she’s attributing a significant role to speculation in the price run-up and subsequent decline as the speculators have to unwind their positions.

She says this speculator effect is likely to fade away as they are chased out of the market by low prices and the strong dollar.

 

Her predictions in October: continued volatility, while a weakening dollar over the long term, a shakeout of the smaller market players (mostly from inability to borrow money), and supply constriction as a result of the credit crunch and OPEC production cuts, all lead to rising prices in the longer term.

 

In December Tverberg revisited the question and offered a somewhat different prognosis. She says the debt unwind specifically, more than the recession per se, is what’s been driving prices down. This is because according to charts she shows, except for debt-enabled activity, the economy itself has been stagnant for the last ten years, and the alleged GDP growth of that period was really “debt-based pseudo-growth”.

(I highly recommend this chart as an excellent refutation of all the lies about trickle-down and tax cuts and growing wealth for everyone. Clearly the only wealth that was “growing” was financiers’ rent.)

Therefore as America must now try to unravel its debt it faces the end of growth, and from there the end of the wherewithal to keep the oil machine going (here again we see a reversal of cause and effect from what was expected, finances and demand destruction limiting supply rather than the other way around).

 

So here Tverberg says the above-ground factors of demand destruction and the credit crunch are for the time being firmly in command, and therefore we shouldn’t expect the oil price to trend upward again until depletion reaches down far enough to overtake depressed demand (i.e. five years or so).

 

Writing in February, Phil Hart focuses on the same fundamental dynamic of near-vertical supply and demand curves which prevailed up until last summer, and the price volatility which arises under that circumstance. He’s not as concerned with how demand destruction is functioning but rather takes it as given in order to ask, what will be the future effect on supply as new capacity coming online trails off, while demand possibly increases (in the event of a recovery). He sees the supply curve moving to the left with each iteration of the boom-bust cycle, so that Peak Oil will result in extreme oil price and economic volatility for the short to mid-term.

 

Jeff Vail has a similar idea with the “flubber cobweb”. Following up from his analogy of a predator-prey population relationship (with predator populations oscillating in sympathy but at a lower amplitude and lagging behind in time) with that between the oil price and that which it signals (producer investment, political policy, consumer behavior), he sees the boom-bust price cycle causing investment patterns to become ever more conservative, so that the next price boom has to “overexaggerate” in order to induce investment (for example, if in one cycle the producer required a $100 price in order to feel confident in investing such that he’d be able to profitably sell that oil at $50, the next time around, after having seen price crash below 50, he’ll have to see 150 before investing, and so on). Meanwhile, even as investments are made, the overexaggerated price is encouraging overproduction as well as destroying demand and provoking real or perceived policy change such that demand is likely to fall enough below production to overexaggerate the floor where a descending price eventually bottoms out. The result is a vicious circle, such that investment is further restrained each time around, less future capacity becomes available, each demand and price surge sooner runs up against the supply wall, from which it crashes again and finds it harder to recover.  

 

Vail envisions a boom bust cycle continuing however long and at whatever frequency, combining with depletion and growing geopolitical volatility to produce a price volatility which “rapidly accelerates over the next decade”.

 

The feature common to all these boom-bust model concepts under Peak Oil conditions is that each iteration will see higher ceilings and floors, no matter how much the oscillations overexaggerate.

 

This is true of Dave Cohen’s take. He sees continuance of the boom bust cycle; but where he believes the most recent crash was triggered mainly by factors extraneous to the oil price, he thinks in the future this price, along with the strength of the dollar, will pay the major role.

 

(Cohen also takes the most close-in view of day-to-day shifts and finds that here “market sentiment”, market psychology, is the decisive factor. Expectations rule the price, and the market sentiment of the traders dictates the expectations. If the mood is bearish, confirmation bias will tend to operate in selecting the evidence which confirms that mood. Thus last fall, where the mood was that oil prices are down and will keep going down, things like the hurricane shut-ins and announcement of OPEC production cuts, which seemed to indicate future supply restrictions, didn’t phase the mood, while the fall of Lehman was taken as big news, because it confirmed the mood. This dynamic prevailed throughout the rest of 2008 and into 09. Only with the recent news of actual OPEC cut compliance has the sentiment shifted somewhat, and the price showed some signs of life.)

 

One more analysis along these lines is Robert Rapier’s “Peak Lite” concept. Rapier thinks a sustained intermediate term recovery is possible in principle, and that perhaps we will again see a time of increasing demand and supply. But because of investment mothballing, it’s extremely unlikely that future increasing production will be more than at a trickle rate, while demand may temporarily resume robust growth. Under those circumstances Peak Lite is the scenario where demand overtakes even a still-increasing production with the same price effect as is theoretically expected from Peak Oil proper, a permanent rise.

(Rapier expects the historical boom-bust price and investment cycle would end at that point.)

 

There’s one last idea to consider. The foregoing examples, implicitly or explicitly, discount the likelihood of finding a single indicator with a strong correlation with oil price. But Jeffrey Brown claims to have found such an indicator in the export figure for the top five exporters: Arabia, Russia, Norway, Iran, and the UAE, who together represent around 50% of world exports. His figures show this correlation over the last decade, and from that his construction of the 08 price crash is that demand destruction overtook long-term export decline. (Exports, like total production, being largely stagnant since 2005.)

 

Brown predicts that exports from the top 5 will now decline from 24 mpd in 2005 to 12 mpd (middle scenario; range of 7-18) by 2015. This, he thinks, may have a more pronounced effect on prices than the general depletion from cancelled investment (of course these cancellations would play a significant role in export declines). From this he makes the most specific short term prediction which runs counter to the consensus – that on account of diminishing exports 2009 may see a higher average price than 2008’s $100.

 

So that’s a basic rundown. There’s a basic agreement that for the time being, at least during what seems to be the Depression we’re entering, that above-ground factors are playing the more important role, and that supply fundamentals aren’t likely to stand out from the above-ground volatility signal until c. 5 years, at which time new production coming online during those 5 years is overtaken by depletion from existing fields not being replaced on account of all the projects now being mothballed or cancelled.

 

The most important of these above-ground factors are demand destruction from the economic downturn and the related asset deflation and credit crunch. The ability of these to be temporarily reversed depends upon the economy’s ability to experience reflated debt and “growth”. There’s unlikely to be much of an inflationary force coming from this quarter.

 

There’s also the tendency for commodities prices to rise or fall in inverse proportion to the strength of the dollar. If (when) the dollar again weakens, toward its eventual devaluation, this may spur the price upward. Market psychology is the strongest day-to-day factor, and once it has momentum it’s hard for new evidence to change its inertia.

 

There’s also the relation with exports, which may soon be heading inexorably downward, ahead of supply per se. This, according to Brown, will be an upward influence on price.

 

As for supply-demand fundamentals themselves, demand is now further below capacity than at any time in years, and so long as this holds there won’t be as much fundamental-driven volatility or likelihood of a spike (although if an acute event confirms existing market psychology, it can trigger a short-term price spike or plunge).

 

Whether demand recovers (Rapier thinks it possible) and again runs up against the capacity barrier, or stagnates, seeing only an anemic rise at best, while depletion brings supply limits down to it (Vail, Hart, Tverberg), the result is still a price spike. Then the question is whether this spike is permanent (as Rapier thinks) or intensifies the boom-bust cycle through further iterations (Vail and Cohen consider it possible).

 

So to conclude: it’s likely that in five years depletion will exceed production, and the Peak will be complete. From there on price will likely remain permanently high. For the next five years we’ll see more or less volatility in demand and price, depending upon each other, and upon any temporary debt reflation (or further deflation) or dollar crash. If there are more “business cycles” during these five years, they’ll likely run concurrent with boom-bust cycles of oil price and demand.    

Tar Sands

 

A year ago, just as the provincial government of Alberta embarked upon a $25 million advertising campaign to “rebrand” the Alberta tar sands project as eco-friendly, reality dealt their propaganda a major setback when it was reported that a flock of 500 ducks had innocently went to their deaths when they landed upon one of the dead seas euphemistically called “tailings ponds”. There was nothing unusual about waterfowl deaths: workers have attested to a steady attrition of ducks, geese, and wading birds. Only the size of the incident turned it into a PR disaster. Now a year later we learn that this flock was in fact much larger than originally reported, as large as 1600 birds.

 

As horrific as the environmental ravages of the tar sands, the social and economic assaults have been just as bad. The tar sands are a prime example of the drive to compensate for the effects of Peak Oil, that the best and easiest resource has been depleted, by using corporatism, class war, and externalization of costs to render the worst/hardest not as bad or as difficult for a power elite.

 

The Canadian government, in a bizarre display of 3rd worldism, has dedicated the country to becoming an American oil colony. Prime Minister Stephen Harper in a characteristic statement announced Canada as an “emerging energy superpower” with “growing oil deliverability”. What this has really meant is to dump  any concept of the public good, and true capitalism as well, in favor of extractionist rent-seeking.

 

The corporatist master plan for this was laid out in the 1990s “Declaration of Opportunity”, which in classic fashion promised prosperity and self-sufficiency but has delivered only instability, fear, and servitude. The Declaration called for massive subsidies, including extreme deregulation and privatizations, to artificially construct this industry. A gold rush would then heat up the whole economy.

 

What this has meant in practice is the classic colonial petrostate pattern. Canada’s economy and environment are being mined for the export of raw materials, while the gold rush has driven up prices in general. The result has been to further the hollowing out of Canada’s legitimate manufacturing economy, which has faced a sort of stagflation, all for the benefit of tar sands feudalism, a small corporate and political elite merely accumulating wealth they have redistributed to themselves.

 

This has extended to the liquidation of democracy. Under Canada’s current political system (a “two-party” pseudo-democracy much like that of America), where both parties are hard-core tar sands boosters, there is no political space for dissent from the tar sands regime, no way to vote against it.  Secrecy and censorship, the exclusion of public input, as well as the open flouting of the will of the voters (a 2007 Pembina poll found that 71% of Albertans want a moratorium on new projects) have been rampant.

 

NAFTA tightens the stranglehold. Under existing globalist regulations Canada is required to export a set amount of oil to America. (The result has been that Canada must now import oil from the Middle East among other places for its domestic use. This state of affairs is a refutation of the lie that globalization increases capitalist “efficiency” or rationality. Just like with any other capitalist-government nexus, all globalization does is help existing elites concentrate wealth and rig all systems in the interests of themselves.) This is now being extended in the proposed Security and Prosperity Partnership (SPP), whose goal is complete North American energy integration, consolidation of power, placing the energy industry largely outside the law and into the realm of unaccountable bureaucracy, with Canada and Mexico treated as American mines. This is the essence of corporatist autocracy-seeking. It’s an end run around democracy, environmental and labor regulations, in Canada’s case even energy and national security planning, against any kind of public interest. The SPP seeks security and prosperity only for this corporatist cabal, which fully comprises the titular “partnership”.

 

Peak Oilers should recognize how socioeconomically and ideologically the tar sands and aggrofuels represent attempts to consolidate what’s often called the Fortress world or some similar term. The SPP would be a major step toward this.

 

We can say Canada basically exports not just bitumen and syncrude, but water, natural gas, uranium, boreal forest and muskeg, ecosystems, wildlife, clean air to breathe and water to drink, fertile farmland, intact communities, the social and economic security and prosperity of an entire country, all to enrich a handful of glorified gold-panners and fill American SUV tanks.

 

The basic tar sands math: 1. Take all the things just listed, 2. destroy them, 3. all to produce syncrude (and uranium for nuke expansion* necessitated by the diversion of natural gas from power generation to tar sands processing), 4. in order that Americans can fill their gas tanks, 5. which perpetuates America’s oil addiction and energy insecurity and renders Canada’s insecurity even worse (when Canada could easily achieve energy autarchy if it had a rational, responsible plan), 6. all of this, from the inaugural forest and peatland destruction to burning gasoline at the end stage, pumping ever more carbon into the atmosphere.

 

This kind of aggression vs. the earth and society will only get more intense for as long as an elite insists on organizing civilization around these frivolous, destructive cars.

 

[* One of the truly bizarre aspects of the tar sands Tower of Babel is how, as the processing depletes natural gas and spews carbon, nuclear expansion is supposed to magically solve these problems, even as it exacerbates all the others and creates new one. As Canadian journalist and tar sands commentator Andrew Nikiforuk wrote, “Canada may well become the first nation to use nuclear energy not to retire fossil fuels but to accelerate their exploitation.”]