Saturday, February 14, 2009

Can’t Raise A Keynes Back Up When He’s In Defeat

"We have not yet owned up to the failure of our unlimited growth economic model to come to grips with the idea of sustainability within a finite planetary ecology. "

How bad how good does it need to get?
How many losses how much regret?
What chain reaction
What cause and effect
Makes you turn around
Makes you try to explain
Makes you forgive and forget
Makes you change
Makes you change
— Tracy Chapman, Change

“The laws of economics are like the laws of engineering. There's only one set of laws and they work everywhere.
"There are no... limits to the carrying capacity of the Earth that are likely to bind any time in the foreseeable future. There isn't a risk of an apocalypse due to global warming or anything else. The idea that we should put limits on growth because of some natural limit, is a profound error and one that, were it ever to prove influential, would have staggering social costs.”
— Lawrence H. Summers (1994)

I have been going back and forth about the stimuli being applied to get the global economy, which went off the rails 14 months ago, or perhaps a few decades ago, or even 10,000 years ago, depending how you look at it, back on track. The problem is that I am not even convinced that the track is the best place for it to be.

Still, it may be helpful to break it down a little more and get at some core principles.

I have to admit that the dedicated obstructionists in the minority party in the US might even be right, if for the wrong reasons. Shoveling money down a black hole is something to do when there are no other ideas. It won’t fill up the hole. The Republicans’ proposed alternative, cut taxes, would be laughable if it weren’t as pathetic as cutting interest rates. The 4 million people thrown out of work in the past year or so won’t be paying taxes. I suspect a lot of people who are not being counted in the statistics won’t either. It is hard to track down someone when they no longer have a home, a car, a job, or a bank account.

John Maynard Keynes’ big idea was that if no-one has money left to buy anything, and credit is dead, you can “shock” the national corpse back to life by copious government spending. Only after trying everything else did Franklin D. Roosevelt try Keynes’ advice, and then — with the help of the Second World War — manage to put the industrial engine back on the tracks. The George Marshall and Douglas A. MacArthur commands applied the same serum to devastated Europe and Japan, with favorable result.

So successful was Keynes debut in the 1940s that the International Monetary Fund and World Bank were set up at Bretton Woods in 1944 to provide Keynesian financing to any distressed countries. The post-war period was a Keynes-on-steroids example of unbridled optimism: the War on Poverty, the War on Crime, and the War on Terror replacing World War II spending with steadily diminishing effect. “Deficits don’t matter” became the political grail.

However, there is an important change in the game now, and it is one that White House Economy Czar Larry Summers apparently doesn’t get, assuming he has not had a “come to Jesus” moment in the 15 years since he sneered at the “risk of an apocalypse due to global warming.”

USGS geologist and forecaster Marion King Hubbert expressed the difference most eloquently when he testified to Congress in 1983:
“I was in New York in the 30’s. I had a box seat at the depression. I can assure you it was a very educational experience. We shut the country down because of monetary reasons. We had manpower and abundant raw materials. Yet we shut the country down. We’re doing the same kind of thing now but with a different material outlook. We are not in the position we were in 1929–30 with regard to the future. Then the physical system was ready to roll. This time it’s not. We are in a crisis in the evolution of human society. It’s unique to both human and geologic history. It has never happened before and it can’t possibly happen again. You can only use oil once. You can only use metals once. Soon all the oil is going to be burned and all the metals mined and scattered.”
The track we are attempting to lift our growth engine onto was left by the Wild West’s iron horse, laid with golden spikes when much of the fertile surface area of the planet was being opened to exploitation and was soon to be responsible for 70% of the world’s economic growth. We are prisoners on that train. Billions of Chinese and Indians are prisoners on that train.

We have not yet owned up to the failure of our unlimited growth economic model to come to grips with the idea of sustainability within a finite planetary ecology. We have spent our billion-year starlight savings account on predator drones and cattle feeding operations while not thinking seriously about ways to live on the daily income that arrives for free. And so we rode our train right off a cliff, still accelerating. We were just following that track.

Seven years ago, in March, 2002, Colin Campbell, the retired petroleum geologist, predicted with amazing precision precisely where we would find ourselves now. He said:
“Initially it will be denied. There will be much lying and obfuscation. Then prices will rise and demand will fall. The rich will outbid the poor for available supplies. The system will initially appear to rebalance. The dash for gas will become more frenzied. People will realize nuclear power stations take up to ten years to build. People will also realize wind, waves, solar and other renewables are all pretty marginal and take a lot of energy to construct. There will be a dash for more fuel-efficient vehicles and equipment. The poor will not be able to afford the investment or the fuel. Exploration and exploitation of oil and gas will become completely frenzied. More and more countries will decide to reserve oil and later gas supplies for their own people. Air quality will be ignored as coal production and consumption expand once more. Once the decline really gets under way, liquids production will fall relentlessly by five percent per year. Energy prices will rise remorselessly. Inflation will become endemic. Resource conflicts will break out.”
Many of those things have come to pass, and the rest of them we can look forward to seeing sooner, rather than later. We also have the consequences of population growth and climate change to look forward to.

So, with changed conditions, do Keynes’ prescriptions still make sense? I think they do, but perhaps not in the way Larry Summers intends. We need to re-lay the track, literally. We need to reposition the global human prospect to make it more survival-oriented. That will require us to re-strike the carbon balance so that net sequestration is the prime directive for any new enterprise. That will force us to sponsor a new business model that draws in the neglected externality in all the old economic models — the global commons of atmosphere, ocean, and soil.

We will also need to come to grips with our addiction to growth. We have to cleanse our happiness receptors until we see again the simple pleasures in life that come from activities other than consuming things. We have to deal with our fecundity. We have to save wilderness, other species, the oceans.

A good place to begin would be the U.S.Treasury’s unique management role at GM, Chrysler and Ford. We can transition from cars to mass-transit by building light rail. We can power that mass-transit with next generation renewables engineered in Detroit and elsewhere. We can make organic no-till farming implements and keyline plows. Do you think this is unrealistic, or too late? We are already committed to spending more to bail out the automakers than we spent to put a man on the moon. We had light rail (trolleys and barges pulled by horses) and heavy rail (with engines powered by wood) before kerosene began replacing whale oil in home lighting. This is not rocket science.

One man’s jobs program is another man’s pork barrel, and so there is a huge amount of money about to be thrown down the rat-hole of nuclear energy, “clean” coal, and offshore oil, especially the part under Afghanistan and Iraq. And, there is still a lot of warming in the climate pipeline, no matter what we do now. We could do worse than to sponsor jobs re-greening inland deserts with coastal desalination plants and urban waste-to-biochar, switching to no-till organic farming and reforesting the Mississippi valley.

The stimulus bills will provide tax credits to buy houses, but with no quality controls on their energy or climate impact. They will shore up the sinking FDIC, about to be bankrupted by cascading bank failures, but not invest in the security of regional currencies, which have repeatedly proven themselves in times like these. What is still to come are the next rounds of buying up mortgage-backed securities by Freddie and Fannie, about $500 billion, and distressed bank bailouts — TARP-2 — which Goldman Sachs recently estimated to cost $5.7 trillion, or about 7 stimulus-packages worth.

Of course all this pales when you step back for a look at the big picture. Before the crash, US GDP was 15 trillion, and world GDP was 57 trillion. If you sum the credit default swaps, hedged assets, turbo warrants, and other forms of debt in the world, you quickly get to 1000 trillion. Even if you write off 90% of that as bogus (who wins? who loses? what topples?), you are still left with far more paper debt than our capacity to service it. Welcome to fractional reserve banking.

One of the things that Keynes understood — better than most of his disciples — was that it matters where and on whom you spend the money. He also understood that the whole game is played on a slanted board, with workers at the bottom usually getting a raw deal as investors on the top give new definitions to consumer excess — San Simeon then, Dubai now. Only continuous expansion of jobs — and manufactured hope — has kept workers from rebelling. But now they are beginning to rebel — in France, Turkey, Greece, Ukraine, Russia, Latvia, Lithuania, Bulgaria and Iceland.

The only way to prevent that conflict from enlarging and going viral is with a hand up — real hope. That is what the stimulus has to achieve.

And yet, and here is the telling point, the theme of this blog… we are back to the nexus between population, peak everything and climate change. Take the example of India. India has 9 to 10 million new people joining its labor force each year looking for work. It needs a sustained growth rate of 8.8 percent per year to create those jobs. Projections are that India’s growth will drop to 7 percent this year and 5 percent next. Those projections are probably rosy.

The International Energy Agency, tallying all known production capacities and estimating effects of recent discoveries, puts the average annual decline rate of petroleum production at 9 percent over the next several decades. Negative nine.

China has consistently turned in a 10% growth rate to provide jobs for its burgeoning population. While the proof is sketchy, China says their GDP growth has now fallen to 6.8%.

In the United States, Japan, and many European countries, growth is already in negative territory. Minus 12 for Japan, minus 10 for France, Russia and Germany, minus 15 for Spain, minus 27-29 for Latvia and Ukraine. In the USA, employment growth looks like this:

Ireland lost 36,500 jobs in January – equal to a monthly loss of 2.3 million in the US. And you don’t even want to think about Iceland.

With 20 percent of the world’s population, China has only 9 percent of the world’s farmland and 7 percent of the fresh water. All of the world’s grain exports together provide less than two-thirds of China’s annual demand for food. To avoid famine, China needs exports. As I write this, not a drop of rain has fallen on Beijing for more than 100 days. In the northern provinces, nearly four million people are without safe drinking water. People are returning home from lost jobs in the southern cities, even as their relatives are packing up to leave.

The Obama team’s application of Keynesian stimulus to the US economy is now in full swing, and what you are seeing ain’t the half of it. In addition to $1 trillion in stimulus, $3 trillion in lending to banks and businesses, Congress has authorized $6 to 9 trillion in agreements to provide aid to failing institutions like Fannie and Freddie and the Federal Reserve. How much is that? According to the Congressional Budget Office, it is 13 times what has been spent so far on wars in Iraq and Afghanistan, — enough to pay off every home mortgage loan in the U.S. It is enough send a $1,500 check to every man, woman and child alive in the world. You could make every Iraqi and Afghani a millionaire.

And it still may not be enough. The planet has limits, Mr. Summers.
If everything you think you know
Makes your life unbearable
Would you change?
Would you change?
If you'd broken every rule and vow
And hard times come to bring you down
Would you change?
Would you change?
— Tracy Chapman, Change

Tuesday, February 10, 2009

So Much Hockey Puck

"Reality is merely an illusion, albeit a very persistent one." — Einstein

Lately we have been getting more mail from people who take issue with the whole thesis of global warming, never mind the existential crisis it poses for all living things in this corner of the Universe.

One of the arrows that I find stuck in my door is the notion that Michael Mann fudged his data to come up with the original hockey stick graph of the historic warming trend, and, ergo, since everything written after that has relied on the Mann proxy data set, the entire IPCC house of cards must tumble if Mann is discredited.

University of Virginia climatologist Michael Mann and his colleagues set about, some decades ago, to attempt to reconstruct temperature data for as far back as they could go. The concentration of CO2 and other greenhouse gases is now known quite accurately back to 650,000 years from ice core data, but ambient temperatures during those eons are another story.

In my 1990 book, Climate in Crisis, I provided graphs showing that the Vostok core data was only an approximate match to the temperature data, and that numerous anomalies could be plainly seen. Atmospheric carbon and temperature rise and fall similarly, in tandem, but not identically.

Since actual instrument temperature readings only go back 150 years and are primarily centered in Europe, Mann’s group had to look to other “proxy” data sources: tree rings, ice cores, sediment cores, corals, ocean temperature gradients, borehole temperature data, and the like.

Many studies have been done, and while they differ in details, the common picture is that temperatures were warm during medieval times (1000-1700), cooled to low values in the 17th to 19th centuries, and warmed rapidly after that. Before about 2,000 years ago, we can’t really say much with accuracy, but we can see broad trends. For most of the last 11,600 years global temperatures were cooler than at present. To find temperatures above where we are now, you have to go back 3 million years, when there was much less ice and much more ocean. Between then and now what we see are the gradual temperature changes (4–7°C) between the ice ages and the warmer interglacials, a process that typically unfolded over 5000 years in each direction.

I said all this in Climate in Crisis, but one other thing we can say now is that the present rate of change is profound by any measure. If projections of a 5-degree shift in a single century are realized by our children and their children, it will be unmatched in the 50-million year proxy data record.

As regards Mann’s hockey stick, we can also say with considerable confidence that the warming observed since 1980 is unmatched in the previous 280 years, even putting greater error bands on Mann’s and others’ data. There is indeed a blade on that stick.

Now, the arrows in my door often have scrolls tied to them, directing me to the statement of Dr. David Deming, College of Earth and Energy at the University of Oklahoma. Deming testified to Congress in December of 2006 that Mann was a fraud and a charlatan and one need only look at the Medieval Warm Period during which global temperature conditions were warmer than those at present. Deming said:
“The late 20th century appears to be nothing special by comparison. It is easy to see why this graph was a problem for those pushing the global warming alarm. If the world could warm so much on such a short time scale as a result of natural causes, surely the 20th century climate change could simply be a natural effect as well. And the present climate change could hardly be considered unusually hazardous if even larger climate changes happened in the recent past, and we are simply fluctuating in the middle of what nature regularly dishes out?”
This is, of course, exactly what Republican torture-cheerleader Senator Inhofe and the other climate dunces in the thrall of Exxon/Mobil love to hear. You can be sure that if Deming had not received some fat grants for his department before that, he has all the money he can ever want now.

Of course, I am well aware that the Medieval Warm Period was not warmer than the last decade, and moreover, I am fascinated by the recent hypothesis that the cooling period which followed it, known as the Little Ice Age, may have been caused by the European contact with the Americas, the decimation of the populations there, and the reversion of their farms and cities to forest and jungle, thereby massively shifting the earth-atmosphere carbon equation. Might it not also be possible, I reasoned, that the inverse is also true: that the Medieval Warm Period came from the huge build-up of civilization in the Americas, with their plows and lime kilns, and the destruction of the natural world that accompanied all that? To be fair, one also would have to factor the city-building accomplishments of the Ming Dynasty, the destruction of the forests of Indochina, the Black Plague, and the extension of the Ottomans into Southern Europe in this period.

So imagine my surprise when some of those whose opinions I most respect counted themselves among the Deming Dunderheads. Since I respect these people, I had to actually take the time to revisit the Fourth IPCC Assessment and see if, as the critics make out, the IPCC is either duped or worse, part of the cover-up of Michael Mann’s shoddy science. I was quickly reassured. Deming’s points are now out-of-date, flat wrong, or highly misleading.

At Section 6.6 of Working Group 1’s latest published assessment, the IPCC devotes several pages to the Mann controversy, carefully weighing the claims of his critics, validating their concerns where appropriate, but then trotting out a truly impressive array of confirming research that supports the general hockey stick thesis. The most they could offer the critics was the concession that in some regions, at some times, temperatures in the Medieval Warm Period may have exceeded the current decade. They hasten to say, however, that there is a considerable difference between regional observations and global averages. Ocean heat transport down to depths as deep as 3000 meters has absorbed much of the recent anthropogenic warming, for instance.

All of this reassuring from the standpoint of my previously disclosed Houston moment but not very hopeful from the standpoint of rescuing the human prospect. The deniers can easily whip up sentiments among people recently brought to the brink of acceptance of climate change to discount Al Gore, Jim Hansen and the other town criers, and go back to your consuming ways, it is all going to be okay. And, you know, as a species, we may actually be that dumb.

Monday, February 2, 2009

A Lesson of History

"The only honest government in the world"

This past week I have been working with some small town residents in rural Mexico in their preparations for petrocollapse and naturally my first recommendation is to get out of the way of the peso, because it is coming down. Today it is trading at 15 to the dollar, which is great for people with dollars, but not so good if you are getting paid 150 pesos per day, which many people here consider themselves lucky to get, usually by cleaning bathrooms, waiting tables, digging holes or banging nails.

We designed a complementary currency for this town, which we are calling the Tiburon Ballena (whale shark), with the idea of using it exclusively in the Ejido of Lazaro Cardenas. Touristas (such as those coming to dive with the whale sharks) would exchange their pesos at a Cambio booth, use the Tiburon Ballenas in restaurants and hotels, and then exchange back to pesos when they leave. If they forget to exchange back, or keep the bills as souvenirs, then so much the better, their pesos stay in the Ejido.

As I was photoshop’ing a sketch of a 100 peso bill, I went to the web to get an image of Lázaro Cárdenas, the gentleman from whom the Ejido takes its name. In the restaurants and homes of this small town there are some portraits that recur with remarkable consistency. They are the heroes of this place, and they are easily recognized by most of us from other countries: Emiliano Zapata, Frida Kahlo, Bob Marley, Che Guevara. But also there is Lázaro Cárdenas, and it is kind of surprising in one way, and not so surprising in another, that we of the North know so little of the man who was President of Mexico from 1934 to 1940.

It is a piece of history we should take the time to learn, because it has a lot to do with what is happening now in Washington.

Quoting from Wikipedia:
Lázaro Cárdenas was born into a lower-middle class family in the village of Jiquilpan, Michoacán. He supported his family (including his mother and seven younger siblings) from age 16 after the death of his father. By the age of 18 he had worked as a tax collector, a printer's devil, and a jailkeeper. Although he left school at the age of eleven, he used every opportunity to educate himself and read widely throughout his life, especially works of history.

Cárdenas originally set his sights at becoming a teacher, but was drawn into politics and the military during the Mexican Revolution after Victoriano Huerta overthrew President Francisco Madero. He backed Plutarco Elías Calles, and after Calles became president, Cárdenas became governor of Michoacán in 1928. He became known for his progressive program of building roads and schools, promoting education, land reform and social security.
That may be as far as many texts or encyclopedias written in the USA would take our children, and it is enough for a homework assignment or a class report. But there is much more that has been forgotten.

Cárdenas joined the revolutionary forces with Maderas, Zapata, Pancho Villa and others in 1913 and rose to become a general in the revolutionary army, vanquishing the autocratic regime of Porfirio Diaz. He found himself being put into nomination as Mexico’s ruling party's presidential candidate because he was considered a compromise between those wanting more democracy for the 1934 elections and the vassals and toadies of Mexico’s kingmaker of that period, ex-Presidente Plutarco Elías Calles. According to Wikipedia:
Calles went along with it, thinking he could control him as he had the previous two. This however, was not so. Cárdenas's first move once he took office late in 1934 was to have his presidential salary cut in half. Even more surprising moves would follow. After establishing himself in the presidency, in 1936 Cárdenas had Calles and dozens of his corrupt associates arrested or deported.
Cárdenas ended capital punishment (and it has never been brought back), dropped the armored cars and bodyguards that heads of state usually travel around with, and donated the ostentatious Spanish viceregal palace that had been Mexico’s White House to the National Museum of History. At Frida Kahlo’s urging, he gave refuge to the exiled Leon Trotsky, and empowered and reformed Mexico’s labor unions.

With Mexico sinking into the same Great Depression as other countries of the mid-1930s, He returned to the socialization of industry and agriculture begun with the constitution of 1917. Large hacienda landholdings were broken up and distributed to small farmers in the ejido system, and many foreign-owned properties, especially essential industries and oil fields, were expropriated. Trotsky described the Cardenas’s government as the only honest government in the world.

All this socialist activity was looked on with a jaundiced eye North of the Border, but it wasn’t until Mexico came to the aid of the Abraham Lincoln Brigade and others fighting against Franco’s Facists in the Spanish Civil War that he ran afoul of the powerful men around President Franklin D. Roosevelt. Roosevelt thwarted Mexico’s war aid effort, but when the war ended Cárdenas gave safe haven and protection to all exiles. Into Mexico came tens of thousands of refugees, among them distinguished intellectuals who left a lasting imprint in Mexican cultural life. There is a monument to Cárdenas in Madrid and a street named after him in Barcelona.

In 1938, Cárdenas nationalized the railroads and refashioned them into a worker’s collective. He attempted to negotiate with the major oil companies but Royal Dutch/Shell and John D. Rockefeller’s Standard Oil of New Jersey were having none of it. He appointed a presidential commission to propose an equitable split of the oil revenues, but the companies rejected the solution. So he simply nationalized Mexico's reserves and expropriated their equipment, which he paid for. The announcement inspired a spontaneous six-hour parade in Mexico City. Imagine nationalizing Exxon/Mobil.

The United States and United Kingdom reacted with predictable vengeance, closing embassies and encircling the country with an economic embargo, Cuba-style. With Hitler and Mussolini beating war drums in Europe, Roosevelt and Chamberlain could little afford to send an invasion force to Mexico and take back the oil fields, but they did the next best thing. They denied Mexico the technical knowledge required to run the refineries, especially on how to obtain a critical chemical component needed to obtain gasoline from oil; much the same way they are denying Mexico the technology to produce oil from deep ocean rigs today. Wikipedia reports the Mexican response this way:
On Cárdenas's instructions, an elite team of around 30 engineers and gifted students were tasked to discover how to obtain the needed chemical before the national fuel reserves ran out in a matter of weeks. They were on the verge of achieving their goal when an apparently accidental explosion killed them all. A second team was assembled and they succeeded; Cárdenas sent to each president of the oil companies a little box with a vial filled with the Mexican formula.
And so was created the National Polytechnic Institute and a model other nations seeking greater control over their own natural resources.

Cárdenas relinquished his office at the end of his term, despite popular clamor to remain. He was recalled to national service as Minister of National Defense (1942-45) giving him the opportunity to make amends with Roosevelt in order to deny Mexican oil to Germany and fuel the allied war effort.

He succumbed to cancer in 1970. His son, Cuauhtémoc Cárdenas Solórzano, formed the PRD and ran unsuccessfully for the Presidency three times, losing, it is generally believed, by voter fraud, most recently to Vincente Fox in 2000.

Looking to Obama’s populist ascendance to the American presidency, one could imagine few better role models than the poor meztizo Indian boy, Lázaro Cárdenas, who stood up to the great powers, the fat cat insiders and kingmakers, and the all-powerful and wealthy oil cartels, and made the fate of his people, their food, wage and energy security, and freedom from oppression the first priority for his presidency.




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