Sunday, December 18, 2011

Twilight Nascent (2009)

It is not yet twilight of the carbon age, but, instead, that grinding late afternoon, when heat sits heavily upon even the dragonflies as they stay, seated, on their perches on the bent stems of grass and branches of lilacs, ungazingly waiting for the morsels of the air to spin too close. And so it is with us: we have not run out of day, but the day is running out underneath us. We feel the orange of dusk creeping into every highlight, and infecting every shadow, but the true enfolding dark exists only under the hedges and in the deep corners of buildings that are turned away from the sun. Some of those corners are far away: as those dying in Cayuga d'Oro, where a friend of mine is still among the missing, and some are close by, as poverty seeps into America, after being held at ebb: one American in two is poor, and one in three, in poverty. The darkness is folding the light, and enfolding us, even as the end is unfolding.

The age of soot started farther back than we would like to remember, fire was a god, and the mouth of the Gods, the Vedic Aryans called him Agni, whose Latin cognate is ignis, from which we get our word, ignite. However, for many millennia, humans could only make a local dent in the world, though those dents could be quite large when a land became stripped bare of trees. By steps, the demand for fire grew greater and hotter: bronze, iron, metallurgy, steel. But it was with the adaptation of fire to work, and then transportation that it was loose upon the world. The coming of petroleum came like a shot: wood only replaced muscle after thousands of years as an energy source, and it took coal two centuries to overtake wood, oil from the first internal combustion engine, to becoming the primary power source in America, was less than 70 years, and it has already held on for longer than coal did. The ages of petroleum were first a wild search for it, and then the colonial age, where the producers outside of the industrialized world were occupied, then the imperial era, when they were kept under captive governments, then the hegemonic age, when they were under dictatorial governments that could never the less set their own prices. We are now leaving that age. Each age had a balance to itself: the price for controlling what Yergin called "The Prize." In the hegemonic era, the key to political economy was the "red queen's race." The West had to increase the value of capital faster than the resource exporters could use free cash flow to buy it. Each side had its problem:
  • For the resource importers could never really free themselves from imports, because the power of the rulers over the ruled was precisely that there was no other way to make a living but by the grace of the ruler, whether king, or president.
  • For the west, it was that there was a narrow band of allowable growth, and much of it would be directed by the resource importers.
The deal was that they set prices, and plowed the surplus back into the developed world, which, in turn, was blocked from escaping the orbit of oil. It was a red queen's race: to keep the control of capital in the hands of westerners. Our rich, had to stay ahead of their rich. If one looks back at the direction of the policy, neo-classical thinking in economics, along with neo-imperialist politics, worked perfectly. The problem the West had was very similar to, but not the same as, the late 19th century: to keep an increasingly dissolute elite nominally in charge, while ruling over an increasingly fractious world, with increasingly mobile capital that would, left to itself, bleed all over the globe. And in the end, it will. There will be much more blood.
Looking at neo-classical policy, one can see why the West pursued tax breaks on the wealthy, corporate mergers to consolidate, and unifying the banking system: each step created a bigger hurdle to control. It is harder to get to 51% of 1 large bank, for example, than to 51% in some of several smaller banks. There were choices, but along a spectrum: export oriented balance, such as Germany and Japan, slower growth and less access to energy, in return for more state control as in France, or "Anglo-Capitalism" which was to go full throttle into finance, which as a service could be exported with lower cost to consumption, and manipulated. Each side betrayed the deal: the oil-archies funded terrorism and war, and hobbled growth by insisting on financialization, the west tried to create a bubble and burst cycle which would catch the external investors, first to rush in to the bubble for fear of being left behind, and then in the implosion. Each clean up, however, left both sides at parity again. This was because the western capitalists could have themselves bailed out with taxation and laws that pumped wealth upwards, but the resource barons, as bond holders could dictate the terms of bail outs. 

 The two sided race, however took two turns in the late hegemony. One was the collapse of the Soviet Union, which became an exporter of resource deflation in the 1990's, pushing the price of gold to its replacement cost, and the expansion of China, which exported labor deflation, while not yet creating resource inflation. The play that Clinton ran, was to keep western consumption and growth low and slow, using the need of the former Soviet Republics to get cash. The Washington consensus was to keep the dollar strong, and thus a drought around the world, and then bail out nations when needed. It was a course the required a bi-partisan discipline, which was not really present, the Republicans wanted a different play, one that would attempt to assert neo-imperial, or even neo-colonial power. And Iraq was the target. When Bush came to power, the Republican check on a Democratic President, turned into a Republican supercharger to a run away Republican administration.The play: tax cut to bail out the NASDAQ bust, run a housing "owner ship society" that pumped huge amounts of money into consumption, while starving business credit, and invade Iraq to get the oil that would run the suburban sprawl. It takes no great insight into macro-economics to know that pumping consumption over capital - and this includes building capital that can only produce consumption - at low interest rates, would lead to a financial crisis.