The following essay originally appeared in Valeurs actuelles on April 2, 2020, and is published here in English translation by permission of the author. Translated by Russell A. Berman.
History is always open, as everyone knows, and this makes it unpredictable. Yet in certain circumstances, it is easier to see the middle and long term than the near term, as the coronavirus pandemic shows well. For the short term, one surely imagines the worst: saturated health systems, hundreds of thousands, even millions of dead, ruptures of supply chains, riots, chaos, and all that might follow. In reality, we are being carried by a wave and no one knows where it will lead or when it will end. But if one looks further, certain matters become evident.
It has already been said but it is worth repeating: the health crisis is ringing (provisionally?) the death knell of globalization and the hegemonic ideology of progress. To be sure, the major epidemics of antiquity and the Middle Ages did not need globalization in order to produce tens of millions of dead, but it is clear that the generalization of transportation, exchanges, and communications in the contemporary world could only aggravate matters. In the “open society,” the virus is very conformist: it acts like everyone else, it circulates—and now we are no longer circulating. In other words, we are breaking with the principle of the free movement of people, goods, and capital that was summed up in the slogan “laissez faire,” i.e., let it go, let it pass. This is not the end of the world, but it is the end of a world.
Let us remember: after the implosion of the Soviet system, every Alain Minc of the planet announced a “happy globalization.” Francis Fukuyama even prophesied the end of history, convinced that liberal democracy and the market system had definitively won the day. One was going to transform the earth into an enormous shopping center, suppress all obstacles to free exchange, dissolve borders, replace countries with “territories,” and establish the “universal peace” that Kant had predicted. “Archaic” collective identities would be progressively eradicated, and sovereignty would become obsolete.
Globalization rested on the imperative to produce, to sell and to buy, to move, to circulate, to advance, and to mix in an “inclusive” manner. It depended on the ideology of progress and the idea that the economy would definitively replace politics. The essence of the system was the end of limits: always more exchanges, always more goods, always more profits to permit money to feed on itself to transform into capital.
Following the former industrial capitalism that still had some national anchorings, a new capitalism, more and more disconnected from the real economy, entirely deterritorialized and functioning in zero time, has taken off by demanding that states, now prisoners of financial markets, adopt “good governance,” susceptible to serving its interests. Privatizations spread, as well as delocalizations and international contracts, leading to deindustrialization, declines in revenue, and rising unemployment. The old Ricardian principle of the international division of labor was used and abused, which led to a competition, under dumping conditions, between the workers of Western countries and those in the rest of the world. The Western middle class began to decline, while the lower classes expanded, becoming increasingly vulnerable and precarious. Public services have been sacrificed on the altar of grand principles of liberal budgetary orthodoxy. Free exchange became more of a dogma than ever before, and protectionism its foil. If it didn’t work, one never backed off but instead pushed the accelerator.
But now, on top of that, collapse! While one once boasted of movement and deracination, everything now has stopped. While the imminent disappearance of borders was expected, one instead sees everywhere: the European Union is closing its borders (which turns out to be possible!)—borders are being placed between cities and regions, between buildings and individuals. One after another, all the countries are reestablishing control of their frontiers—and everyone is applauding.
The order of the day yesterday was to live together in a society with no borders; today it is “stay at home” and do not mix with others. The yuppies of the metropoles are fleeing like lemmings to find safety in the France of the periphery that they used to disdain. The time is long gone when one only spoke of a “sanitary cordon” to maintain a distance from nonconformist thinking! In the “maritime” world of fluctuation, one suddenly faces the return of the telluric—of the place that binds.
Thoroughly deflated, the European Commission looks like a frightened rabbit: bewildered, stunned, paralyzed. Incapable of understanding the state of emergency, it embarrassingly suspended what it previously held most important: the “principles of Maastricht,” that is, “the stability pact,” which limited state budgets to 3 percent of the GDP and the public debt to 60 percent. Following that, the European Central Bank unblocked 750 billion euros, allegedly in order to respond to the situation but in reality in order to save the euro. However, the truth is that in an emergency, each country decides and acts for itself.
In a globalized world, norms are supposed to allow for addressing every eventuality. Yet that forgets that in a state of exception, as Carl Schmitt showed, norms can no longer be applied. To listen to the good apostles, the state was the problem, but now it becomes the solution, just as in 2008, when the banks and pension funds appealed to the public powers, which they had previously denounced, to protect them from going under. Macron himself previously said that the social programs cost an insane sum, but now he declares ready to spend whatever it costs to get through the health crisis, without limits. The more the pandemic spreads, the more the public costs will have to grow. In order to cover the costs of unemployment and fill the breaches in the companies, the states are going to tap hundreds of billions, even though they are already deep in debt.
Labor law is being softened, the reform of pensions is being delayed, new plans for unemployment compensation are postponed indefinitely. Even the taboo of nationalization is gone. Apparently, one will find the money that used to be unfindable, but suddenly everything is possible that used to be impossible.
They are also now pretending to discover that China, which had become the factory of the world (in 2018, China represented 28 percent of the value added of global manufacturing production), produces all sorts of things that we have decided not to make ourselves, beginning with our medicine (since 2008, Europe does not produce a single gram of paracetamol!), and this turns us into the historical object of others. The head of state—what a surprise!—has stated that “it is a folly to delegate to our others our food, our protection, our capacity to care for ourselves, our way of life.” “The coming weeks and months will require decisions of rupture,” he added. Will it therefore be possible to relocalize entire aspects of our economy and to diversify our supply chains?
Nor should we ignore the anthropological shock. The understanding of man promoted by the dominant paradigm was one of the individual severed from his peers, thoroughly in ownership of himself (“my body belongs to me!”), intended to contribute to the general equilibrium by permanently seeking to maximize his own interest in the midst of a society thoroughly ruled by legal contracts and commercial relations. It is this vision of homo oeconomicus that is in the process of collapsing. While Macron calls on everyone’s responsibility, the solidarity of proximity, and even “national union,” the health crisis has recreated sentiments of belonging. Our relationships to time and space have been transformed: our relationship to our way of life, the reason for our existence, and to values that are not exhausted by those of “the Republic.” Instead of complaining, people admire the heroism of the health care workers. The importance is being rediscovered of what we have in common, the tragic, war, and death—in short, everything we wanted to forget: it is a fundamental return of reality.
And now, what is before us? First of all, surely an economic crisis, which will have the severest social consequences. Everyone anticipates a very strong recession, which will affect Europe as well as the United States. Thousands of businesses will fail, millions of jobs are threatened, and a drop of GDP up to 20 percent is expected. States are going to have to go into debt again, which will make the social tissue ever more fragile.
This economic and social crisis might lead to a new financial crisis even greater than 2008. The coronavirus will not be the key factor, because the crisis has been awaited for years, but it will surely be the catalyst. The stock markets have begun to collapse, and the price of oil has tumbled. A stock market crash does not only affect stockholders, but instead impacts the banks whose value depends on their active holdings: the hypertrophic growth of the financial holdings has resulted from speculative activity on the market that they pursued to the detriment of the traditional banking activity of savings and loans. If the stock market crash is accompanied by a crisis of the debt markets, as was the case with the subprime crisis, the spread of payment defaults in the center of the banking system points to a general collapse.
The risk then is having to respond simultaneously to a health crisis, an economic crisis, a social crisis, a financial crisis, and, not to be forgotten, an ecological and migrant crisis. A perfect storm: this is the coming tsunami.
There will also be political consequences, in all countries. What is the future of the Chinese president after the collapse of the “dragon”? What will happen in the Arab Muslim countries? What about the impact on the American presidential election, in a country where tens of millions lack medical coverage?
As for France, right now people are closing ranks, but they are not blind. They see that the epidemic was first met with skepticism, even indifference, and the government hesitated to adopt a strategy: systematic testing, herd immunity, or confinement. Procrastination and contradictory statements lasted for two months: this illness is not serious, but it causes many deaths; masks do nothing, but health care workers need them; screening tests are useless, but we will try to carry them out on a massive scale; stay at home, but go out to vote. At the end of January, Agnès Buzyn, French Minister of Health, assured us that the virus would not leave China. On February 26, Jerome Salomon, Director General of Health, testified at the Committee on Social Affairs of the Senate that there was no problem with masks. On March 11, Jean-Michel Blanquer, Minister of Education, saw no reason to close schools and colleges. On that same day, Macron bragged that “We will renounce nothing and certain not liberty!” after having demonstrably gone to the theater a few days before because “life must continue as normal.” Eight days later, a change in tone: universal seclusion. Who can take people like this seriously? In the language of the Yellow Vests, one might translate this by the slogan: the confined are being ruled by the cons.
We are at war, the head of state tells us. Wars require leaders and means. Yet we only have “experts” who do not agree with each other and our weapons are cap guns. As a result, three months after the start of the epidemic, we still lack masks, screening tests, disinfectant gel, hospital beds, and respirators. We are missing everything because nothing was anticipated, and no one hurried to catch up once the storm hit. According to many doctors, the responsible parties should be called to account.
The case of the hospital system is symptomatic because it is at the center of the crisis. In accordance with liberal principles, the public sector hospitals were to be transformed into cost centers, so as to encourage them to earn more money in the name of the sacrosanct principle of profitability, as if their work could be treated simply as a matter of supply and demand. In other words, a non-market sector was to be subordinated to market principles by introducing a managerial rationality resting on the sole criterion of just in time, which pushed the public hospitals to the edge of paralysis and collapse. Is it known that the regional health guidelines, for example, set a limit to the number of resuscitations as a function of the “health map”? Or that France eliminated 100,000 hospital beds during the past 20 years? That in Mayotte there are currently 16 ICU beds for 400,000 inhabitants? Health professionals have been talking about this for years, but no one listened. We are paying the price now.
When all this is over, will we return to the normal disorder, or will we find, thanks to this health crisis, an opportunity to start with better foundations, far from the demonism of the commercialization of the world, productivism, and consumerism at all costs?
One would hope so, except that the same people have shown themselves to be incorrigible. The 2008 crisis might have served as a lesson, but it was ignored. Old habits prevailed: priority of financial profits and the accumulation of capital to the detriment of public services and employment. When things seemed to be going better, one rushed again into the infernal logic of debt, and the “bulls” began again to gain, toxic financial products circulate, stockholders insisted on the full returns on their investments, while under the pretext of reestablishing an equilibrium, a politics of austerity was put in place that ravaged the people. The “open society” followed its natural inclination: one more time!
For the moment, one could make use of the confinement to reread or rediscover the formidable work of the sociologist Jean Baudrillard. In a “hyperreal” world, where virtuality has surpassed reality, he was the first to speak of the “invisible, diabolical, and elusive alterity that is the virus.” The informatic virus, the epidemic virus, the stock market virus, the virus of terrorism, the viral circulation of digitalized information: all that, he argued, obeyed “the same protocol of virulence and irradiation with a viral power over the imagination.” Virality, in other words, is the contemporary grand principle of the contagion of deregulation.
As I write these lines, the residents of Wuhan and Shanghai are rediscovering that in its natural state, the sky is blue.
Alain de Benoist is a writer, philosopher, and specialist in political philosophy and the history of ideas. He is the editor-in-chief of the journals Nouvelle Ecole and Krisis, as well as editorialist of the magazine Éléments. A collection of his writings, Democracy and Populism: The Telos Essays, was recently published by Telos Press and is available in our store.
I have a lot of sympathy for young(er) people who are upset about what has happened, and still is happening, to the planet they were born on, during their lifetime and that of the generations before them. I have less sympathy for the “climate movement” even if those same young people thinnk it represents them, because it has grown too big and too diverse, and has come to rely (for no reason) too much on hype and exaggeration. Don’t feed your opponent or enemy.
The movement also has too little attention for what younger people themselves contribute to the descent into chaos. If you don’t start with yourself, how are you ever going to tell others what to do? How many phones and gadgets and cars do you have? Do your clothes also say Made in China? Personal question.
Naming one’s movement “Extinction Rebellion” strikes me as odd, because the movement appears to be, from what I can see, based almost exclusively on the deleterious effects of carbon emissions, though these have -at least so far- played just a small part in the actual extinction of -far too many- species, much less than the use of chemicals, the loss of forest, and land use in general, just to name some examples.
I have a lot of sympathy for Greta Thunberg, and I’m sure she means very well. But I have no sympathy for the PR people that she allows to surround her, and who make millions of dollars off of her name and appearances. Nor do I think Greta had grasped at age 16 the full complexity of the systems that have led to what she protests against. Very few adults have either, so that’s hardly her fault.
I still think, just like I said a year ago when she was first unloaded upon the Davos conference by those same PR people, that not only is there nothing for her there, but her time would be better spent trying to educate herself about that “full complexity”. Because today, it all appears to me to be too much about what she does not want, rather than about what she does, and to a large extent that’s because she simply doesn’t know. Protesting for something is harder than protesting against it.
Because of all these things, the climate movement is actively though unwittingly helping the rich, who got rich through their use of fossil fuels, to get richer still off of society’s adaptation to a world in which fossil fuels play a smaller role.
Yes, there are enormous amounts of irony involved in this. People like the idea of a green economy. They like the sound of it. But if you would ask them what it means in practice, they would picture something very close to the present economic system, just green, i.e. powered by electricity instead of fossil fuels.
And that is nonsense. In the same way that “fossil free” living is utter nonsense, but nevertheless it’s terms like that which are most prominent in headlines. Carbon neutral, carbon free, fossil free, those terms all describe fantasies; they are terms straight out of a PR campaign book. There’s even carbon negative. But who among the activists understand what this means? You got to be careful guys, because the way this is going, you will all end up being accomplices of the very people you should be protesting.
Here’s what going to happen (and already has), Greta and all of you Greta fans.
You’re getting to Davos and meet with all these rich people, and they all already have their plans ready. They’re going to tell you that they agree with just about everything you have to say. But they do and they don’t at the same time.
The fossil fuel industry, along with carmakers, governments et al, have solved the riddle: what appeared at first to be a huge threat to them, now turns out to be their next golden goose: they’re going to get paid more to move away from fossil fuels and emissions than they previously did to produce them. Pretty smart, right?
Only you will find out not even that is true. Do you know what an electric car produces in pollution, in CO2 emissions? I read the other day that an electric car has to drive 30,000-50,000 km a year over its “lifetime” to pollute less than a petrol one. Details are not terribly important there, it sounds kind of right. Unless you’re in Poland or certain parts of Germany or Eastern Europe, than it’s much higher still. Brown coal.
How did the rich and the worst polluters do it? How did they solve the riddle? By promoting Greta and the entire climate movement, with the help of the media they own, and then steering their priorities to be in line with their own. Piece of cake for them. They have been among the most powerful forces in western society forever, and it wasn’t too hard for them to figure this one out.
And that’s why these days, and increasingly as Davos has started (timing is everything), climate is a well advertized topic, and why the likes of BlackRock and Microsoft -and many others- just days ago announced that they will “go green”, divest out of fossil fuels etc.
They do this because they see a profit to be made. So don’t flatter yourselves, it has nothing to do with you. Or rather, it does, but not the way you thought and wanted. Your worst adversaries are using you for their promotion and advertizing platforms. The more banners you fly, the more words Greta utters, the more governments will make trillion dollar promises, ane the more Big Oil will make profits. Like this one today (just one example in fat growing long row):
UN Decarbonisation Target For Shipping To Cost Over $1 Trillion
At least $1 trillion of investment in new fuel technology is needed to enable the shipping industry to meet U.N. targets for cuts in carbon emissions by 2050, a study published on Monday showed. The global shipping fleet, which accounts for 2.2% of the world’s CO2 emissions, is under pressure to reduce those emissions and other pollution. About 90% of world trade is transported by sea.
A trillion euros for 2.2% of CO2 emissions. We can all do the math here, right?! And yes, Greta and her fellow schoolkids contributed a lot to that amount by seeking publicity, but also by being promoted by other interests. Only to become part of a giant publicity machine.
You see, Greta, the message the rich get is not that they must listen to you, it’s that others do listen who control a lot of money, individuals, governments, and so there will be money to be made if they just promote your ideas enough. You’ve been co-opted and pre-empted, so to speak. And what are you going to do now? You’re in cahoots, whether you like it or not, with the likes of Exxon, Shell, and Mercedes.
The oil companies have long rebranded themselves as energy companies (this started when BP’s logo turned green years ago) and invested billions in solar and wind turbines. The carmakers are betting big on electric vehicles. And this is supposed to achieve your goal of carbon neutrality? Let’s get real, shall we?
You’re way out of your league. You’re up against people who represent decades if not centuries-old interests, as well as -aspiring- politicians in every Parliament and even city counsel who know full well their careers will be nipped in the bud if they don’t go along with those interests. And then there’s 10,000 Middle East sheiks.
Davos is not your stage, Greta, and it’s not the stage for the people who believe in you. You’re betraying them by going there, because you have no control over the stage. Still, the other side really want you to think it is, the oil companies do, US and EU governments do, Mercedes and Toyota and Ford, do. Because you are their meal ticket.
They want you to believe that the problem that keeps you up at night can be solved with electric cars and solar panels and wind turbines. Because they have invested heavily in companies that produce all of those.
And now there’s a trillion here and a trillion there, because people listen to you. No government, no chosen official or appointed civil servant at any level, can anymore be forgiven for not budgeting heavily for climate change effects, even if they are ignorant about what those are.
The entire climate change issue is about energy, not about a duscussion of sources of energy. And as I argued late last year in Energy vs DNA and Energy vs Waste, mankind, like any other organism, is driven to use all surplus energy at its disposal as fast as it can. If only so other organisms can’t benefit from it, or even other humans.
And all energy use produces waste, not just fossil fuels. I suggest you read those. In the meantime, Greta, go home, enjoy the snow and the northern lights on your skin, have the youth you’re supposed to have, share your views with your friends, study study study and keep things in perspective. Your fans are not in Davos, but you are; that’s an ego-trip that will backfire on you because you’re being played for a fool.
Also, dump the PR teams; you’re bigger than that.
Much of the U.S. pressure exerted on Iraq’s government with respect to China has reportedly taken place covertly and behind closed doors, keeping the Trump administration’s concerns over China’s growing ties to Iraq largely out of public view, perhaps over concerns that a public scuffle could exacerbate the U.S.-China “trade war” and endanger efforts to resolve it. Yet, whatever the reasons may be, evidence strongly suggests that the U.S. is equally concerned about China’s presence in Iraq as it is with Iran’s. This is because China has the means and the ability to dramatically undermine not only the U.S.’ control over Iraq’s oil sector but the entire petrodollar system on which the U.S.’ status as both a financial and military superpower directly depends.
Behind the curtain, a different narrative for Iraq-US Tensions
Iraq’s caretaker Prime Minister Adel Abdul-Mahdi gave a series of remarks on January 5, during a parliamentary session that received surprisingly little media attention. During the session, which also saw Iraq’s Parliament approve the removal of all foreign (including American) troops from the country, Abdul-Mahdi made a series of claims about the lead-up to the recent situation that placed Iraq at the heart of spiking U.S.-Iran tensions.
During that session, only part of Abdul-Mahdi’s statements were broadcast on television, after the Iraqi Speaker of the House — Mohammed Al-Halbousi, who has a close relationship with Washington — requested the video feed be cut. Al-Halbousi oddly attended the parliamentary session even though it was boycotted by his allied Sunni and Kurdish representatives.
Secretary of State Pompeo, left, walks alongside Al-Halbousi in Baghdad, Iraq on Jan. 9, 2019. Andrew Caballero-Reynolds | Reuters
After the feed was cut, MPs who were present wrote down Abdul-Mahdi’s remarks, which were then given to the Arabic news outlet Ida’at. Per that transcript, Abdul-Mahdi stated that:
The Americans are the ones who destroyed the country and wreaked havoc on it. They have refused to finish building the electrical system and infrastructure projects. They have bargained for the reconstruction of Iraq in exchange for Iraq giving up 50% of oil imports. So, I refused and decided to go to China and concluded an important and strategic agreement with it. Today, Trump is trying to cancel this important agreement.”
Abdul-Mahdi continued his remarks, noting that pressure from the Trump administration over his negotiations and subsequent dealings with China grew substantially over time, even resulting in death threats to himself and his defense minister:
After my return from China, Trump called me and asked me to cancel the agreement, so I also refused, and he threatened [that there would be] massive demonstrations to topple me. Indeed, the demonstrations started and then Trump called, threatening to escalate in the event of non-cooperation and responding to his wishes, whereby a third party [presumed to be mercenaries or U.S. soldiers] would target both the demonstrators and security forces and kill them from atop the highest buildings and the US embassy in an attempt to pressure me and submit to his wishes and cancel the China agreement.”
“I did not respond and submitted my resignation and the Americans still insist to this day on canceling the China agreement. When the defense minister said that those killing the demonstrators was a third party, Trump called me immediately and physically threatened myself and the defense minister in the event that there was more talk about this third party.”
Very few English language outlets reported on Abdul-Mahdi’s comments. Tom Luongo, a Florida-based Independent Analyst and publisher of The Gold Goats ‘n Guns Newsletter, told MintPress that the likely reasons for the “surprising” media silence over Abdul-Mahdi’s claims were because “It never really made it out into official channels…” due to the cutting of the video feed during Iraq’s Parliamentary session and due to the fact that “it’s very inconvenient and the media — since Trump is doing what they want him to do, be belligerent with Iran, protected Israel’s interests there.”
“They aren’t going to contradict him on that if he’s playing ball,” Luongo added, before continuing that the media would nonetheless “hold onto it for future reference….If this comes out for real, they’ll use it against him later if he tries to leave Iraq.” “Everything in Washington is used as leverage,” he added.
Given the lack of media coverage and the cutting of the video feed of Abdul-Mahdi’s full remarks, it is worth pointing out that the narrative he laid out in his censored speech not only fits with the timeline of recent events he discusses but also the tactics known to have been employed behind closed doors by the Trump administration, particularly after Mike Pompeo left the CIA to become Secretary of State.
For instance, Abdul-Mahdi’s delegation to China ended on September 24, with the protests against his government that Trump reportedly threatened to start on October 1. Reports of a “third side” firing on Iraqi protesters were picked up by major media outlets at the time, such as in this BBC report which stated:
Reports say the security forces opened fire, but another account says unknown gunmen were responsible….a source in Karbala told the BBC that one of the dead was a guard at a nearby Shia shrine who happened to be passing by. The source also said the origin of the gunfire was unknown and it had targeted both the protesters and security forces. (emphasis added)”
U.S.-backed protests in other countries, such as in Ukraine in 2014, also saw evidence of a “third side” shooting both protesters and security forces alike.
After six weeks of intense protests, Abdul-Mahdi submitted his resignation on November 29, just a few days after Iraq’s Foreign Minister praised the new deals, including the “oil for reconstruction” deal, that had been signed with China. Abdul-Mahdi has since stayed on as Prime Minister in a caretaker role until Parliament decides on his replacement.
Abdul-Mahdi’s claims of the covert pressure by the Trump administration are buttressed by the use of similar tactics against Ecuador, where, in July 2018, a U.S. delegation at the United Nations threatened the nation with punitive trade measures and the withdrawal of military aid if Ecuador moved forward with the introduction of a UN resolution to “protect, promote and support breastfeeding.”
The New York Times reported at the time that the U.S. delegation was seeking to promote the interests of infant formula manufacturers. If the U.S. delegation is willing to use such pressure on nations for promoting breastfeeding over infant formula, it goes without saying that such behind-closed-doors pressure would be significantly more intense if a much more lucrative resource, e.g. oil, were involved.
Regarding Abdul-Mahdi’s claims, Luongo told MintPress that it is also worth considering that it could have been anyone in the Trump administration making threats to Abdul-Mahdi, not necessarily Trump himself. “What I won’t say directly is that I don’t know it was Trump at the other end of the phone calls. Mahdi, it is to his best advantage politically to blame everything on Trump. It could have been Mike Pompeo or Gina Haspel talking to Abdul-Mahdi… It could have been anyone, it most likely would be someone with plausible deniability….This [Mahdi’s claims] sounds credible… I firmly believe Trump is capable of making these threats but I don’t think Trump would make those threats directly like that, but it would absolutely be consistent with U.S. policy.”
Luongo also argued that the current tensions between U.S. and Iraqi leadership preceded the oil deal between Iraq and China by several weeks, “All of this starts with Prime Minister Mahdi starting the process of opening up the Iraq-Syria border crossing and that was announced in August. Then, the Israeli air attacks happened in September to try and stop that from happening, attacks on PMU forces on the border crossing along with the ammo dump attacks near Baghdad… This drew the Iraqis’ ire… Mahdi then tried to close the air space over Iraq, but how much of that he can enforce is a big question.”
As to why it would be to Mahdi’s advantage to blame Trump, Luongo stated that Mahdi “can make edicts all day long, but, in reality, how much can he actually restrain the U.S. or the Israelis from doing anything? Except for shame, diplomatic shame… To me, it [Mahdi’s claims] seems perfectly credible because, during all of this, Trump is probably or someone else is shaking him [Mahdi] down for the reconstruction of the oil fields [in Iraq]…Trump has explicitly stated “we want the oil.”’
As Luongo noted, Trump’s interest in the U.S. obtaining a significant share of Iraqi oil revenue is hardly a secret. Just last March, Trump asked Abdul-Mahdi “How about the oil?” at the end of a meeting at the White House, prompting Abdul-Mahdi to ask “What do you mean?” To which Trump responded “Well, we did a lot, we did a lot over there, we spent trillions over there, and a lot of people have been talking about the oil,” which was widely interpreted as Trump asking for part of Iraq’s oil revenue in exchange for the steep costs of the U.S.’ continuing its now unwelcome military presence in Iraq.
With Abdul-Mahdi having rejected Trump’s “oil for reconstruction” proposal in favor of China’s, it seems likely that the Trump administration would default to so-called “gangster diplomacy” tactics to pressure Iraq’s government into accepting Trump’s deal, especially given the fact that China’s deal was a much better offer. While Trump demanded half of Iraq’s oil revenue in exchange for completing reconstruction projects (according to Abdul-Mahdi), the deal that was signed between Iraq and China would see around 20 percent of Iraq’s oil revenue go to China in exchange for reconstruction. Aside from the potential loss in Iraq’s oil revenue, there are many reasons for the Trump administration to feel threatened by China’s recent dealings in Iraq.
The Iraq-China oil deal – a prelude to something more?
When Abdul-Mahdi’s delegation traveled to Beijing last September, the “oil for reconstruction” deal was only one of eight total agreements that were established. These agreements cover a range of areas, including financial, commercial, security, reconstruction, communication, culture, education and foreign affairs in addition to oil. Yet, the oil deal is by far the most significant.
Per the agreement, Chinese firms will work on various reconstruction projects in exchange for roughly 20 percent of Iraq’s oil exports, approximately 100,00 barrels per day, for a period of 20 years. According to Al-Monitor, Abdul-Mahdi had the following to say about the deal: “We agreed [with Beijing] to set up a joint investment fund, which the oil money will finance,” adding that the agreement prohibits China from monopolizing projects inside Iraq, forcing Bejing to work in cooperation with international firms.
The agreement is similar to one negotiated between Iraq and China in 2015 when Abdul-Mahdi was serving as Iraq’s oil minister. That year, Iraq joined China’s Belt and Road Initiative in a deal that also involved exchanging oil for investment, development and construction projects and saw China awarded several projects as a result. In a notable similarity to recent events, that deal was put on hold due to “political and security tensions” caused by unrest and the surge of ISIS in Iraq, that is until Abdul-Mahdi saw Iraq rejoin the initiative again late last year through the agreements his government signed with China last September.
Chinese President Xi Jinping, center left, meet with Iraqi Prime Minister Adil Abdul-Mahdi, center right, in Beijing, Sept. 23, 2019. Lintao Zhang | AP
Notably, after recent tensions between the U.S. and Iraq over the assassination of Soleimani and the U.S.’ subsequent refusal to remove its troops from Iraq despite parliament’s demands, Iraq quietly announced that it would dramatically increase its oil exports to China to triple the amount established in the deal signed in September. Given Abdul-Mahdi’s recent claims about the true forces behind Iraq’s recent protests and Trump’s threats against him being directly related to his dealings with China, the move appears to be a not-so-veiled signal from Abdul-Mahdi to Washington that he plans to deepen Iraq’s partnership with China, at least for as long as he remains in his caretaker role.
Iraq’s decision to dramatically increase its oil exports to China came just one day after the U.S. government threatened to cut off Iraq’s access to its central bank account, currently held at the Federal Reserve Bank of New York, an account that currently holds $35 billion in Iraqi oil revenue. The account was set up after the U.S. invaded and began occupying Iraq in 2003 and Iraq currently removes between $1-2 billion per month to cover essential government expenses. Losing access to its oil revenue stored in that account would lead to the “collapse” of Iraq’s government, according to Iraqi government officials who spoke to AFP.
Though Trump publicly promised to rebuke Iraq for the expulsion of U.S. troops via sanctions, the threat to cut off Iraq’s access to its account at the NY Federal Reserve Bank was delivered privately and directly to the Prime Minister, adding further credibility to Abdul-Mahdi’s claims that Trump’s most aggressive attempts at pressuring Iraq’s government are made in private and directed towards the country’s Prime Minister.
Though Trump’s push this time was about preventing the expulsion of U.S. troops from Iraq, his reasons for doing so may also be related to concerns about China’s growing foothold in the region. Indeed, while Trump has now lost his desired share of Iraqi oil revenue (50 percent) to China’s counteroffer of 20 percent, the removal of U.S. troops from Iraq may see American troops replaced with their Chinese counterparts as well, according to Tom Luongo.
“All of this is about the U.S. maintaining the fiction that it needs to stay in Iraq…So, China moving in there is the moment where they get their toe hold for the Belt and Road [Initiative],” Luongo argued. “That helps to strengthen the economic relationship between Iraq, Iran and China and obviating the need for the Americans to stay there. At some point, China will have assets on the ground that they are going to want to defend militarily in the event of any major crisis. This brings us to the next thing we know, that Mahdi and the Chinese ambassador discussed that very thing in the wake of the Soleimani killing.”
Indeed, according to news reports, Zhang Yao — China’s ambassador to Iraq — “conveyed Beijing’s readiness to provide military assistance” should Iraq’s government request it soon after Soleimani’s assassination. Yao made the offer a day after Iraq’s parliament voted to expel American troops from the country. Though it is currently unknown how Abdul-Mahdi responded to the offer, the timing likely caused no shortage of concern among the Trump administration about its rapidly waning influence in Iraq. “You can see what’s coming here,” Luongo told MintPress of the recent Chinese offer to Iraq, “China, Russia and Iran are trying to cleave Iraq away from the United States and the U.S. is feeling very threatened by this.”
Russia is also playing a role in the current scenario as Iraq initiated talks with Moscow regarding the possible purchase of one of its air defense systems last September, the same month that Iraq signed eight deals, including the oil deal with China. Then, in the wake of Soleimani’s death, Russia again offered the air defense systems to Iraq to allow them to better defend their air space. In the past, the U.S. has threatened allied countries with sanctions and other measures if they purchase Russian air defense systems as opposed to those manufactured by U.S. companies.
The U.S.’ efforts to curb China’s growing influence and presence in Iraq amid these new strategic partnerships and agreements are limited, however, as the U.S. is increasingly relying on China as part of its Iran policy, specifically in its goal of reducing Iranian oil export to zero. China remains Iran’s main crude oil and condensate importer, even after it reduced its imports of Iranian oil significantly following U.S. pressure last year. Yet, the U.S. is now attempting to pressure China to stop buying Iranian oil completely or face sanctions while also attempting to privately sabotage the China-Iraq oil deal. It is highly unlikely China will concede to the U.S. on both, if any, of those fronts, meaning the U.S. may be forced to choose which policy front (Iran “containment” vs. Iraq’s oil dealings with China) it values more in the coming weeks and months.
Furthermore, the recent signing of the “phase one” trade deal with China revealed another potential facet of the U.S.’ increasingly complicated relationship with Iraq’s oil sector given that the trade deal involves selling U.S. oil and gas to China at very low cost, suggesting that the Trump administration may also see the Iraq-China oil deal result in Iraq emerging as a potential competitor for the U.S. in selling cheap oil to China, the world’s top oil importer.
The Petrodollar and the Phantom of the Petroyuan
In his televised statements last week following Iran’s military response to the U.S. assassination of General Soleimani, Trump insisted that the U.S.’ Middle East policy is no longer being directed by America’s vast oil requirements. He stated specifically that:
Over the last three years, under my leadership, our economy is stronger than ever before and America has achieved energy independence. These historic accomplishments changed our strategic priorities. These are accomplishments that nobody thought were possible. And options in the Middle East became available. We are now the number-one producer of oil and natural gas anywhere in the world. We are independent, and we do not need Middle East oil. (emphasis added)”
Yet, given the centrality of the recent Iraq-China oil deal in guiding some of the Trump administration’s recent Middle East policy moves, this appears not to be the case. The distinction may lie in the fact that, while the U.S. may now be less dependent on oil imports from the Middle East, it still very much needs to continue to dominate how oil is traded and sold on international markets in order to maintain its status as both a global military and financial superpower.
Indeed, even if the U.S. is importing less Middle Eastern oil, the petrodollar system — first forged in the 1970s — requires that the U.S. maintains enough control over the global oil trade so that the world’s largest oil exporters, Iraq among them, continue to sell their oil in dollars. Were Iraq to sell oil in another currency, or trade oil for services, as it plans to do with China per the recently inked deal, a significant portion of Iraqi oil would cease to generate a demand for dollars, violating the key tenet of the petrodollar system.
Chinese representatives speak to defense personnel during a weapons expo organized by the Iraqi defense ministry in Baghdad, March, 2017. Karim Kadim | AP
As Kei Pritsker and Cale Holmes noted in an article last year for MintPress:
The takeaway from the petrodollar phenomenon is that as long as countries need oil, they will need the dollar. As long as countries demand dollars, the U.S. can continue to go into massive amounts of debt to fund its network of global military bases, Wall Street bailouts, nuclear missiles, and tax cuts for the rich.”
Thus, the use of the petrodollar has created a system whereby U.S. control of oil sales of the largest oil exporters is necessary, not just to buttress the dollar, but also to support its global military presence. Therefore, it is unsurprising that the issue of the U.S. troop presence in Iraq and the issue of Iraq’s push for oil independence against U.S. wishes have become intertwined. Notably, one of the architects of the petrodollar system and the man who infamously described U.S. soldiers as “dumb, stupid animals to be used as pawns in foreign policy”, former Secretary of State Henry Kissinger, has been advising Trump and informing his China policy since 2016.
This take was also expressed by economist Michael Hudson, who recently noted that U.S. access to oil, dollarization and U.S. military strategy are intricately interwoven and that Trump’s recent Iraq policy is intended “to escalate America’s presence in Iraq to keep control of the region’s oil reserves,” and, as Hudson says, “to back Saudi Arabia’s Wahabi troops (ISIS, Al Qaeda in Iraq, Al Nusra and other divisions of what are actually America’s foreign legion) to support U.S. control of Near Eastern oil as a buttress of the U.S. dollar.”
Hudson further asserts that it was Qassem Soleimani’s efforts to promote Iraq’s oil independence at the expense of U.S. imperial ambitions that served one of the key motives behind his assassination.
America opposed General Suleimani above all because he was fighting against ISIS and other U.S.-backed terrorists in their attempt to break up Syria and replace Assad’s regime with a set of U.S.-compliant local leaders – the old British “divide and conquer” ploy. On occasion, Suleimani had cooperated with U.S. troops in fighting ISIS groups that got “out of line” meaning the U.S. party line. But every indication is that he was in Iraq to work with that government seeking to regain control of the oil fields that President Trump has bragged so loudly about grabbing. (emphasis added)”
Hudson adds that “…U.S. neocons feared Suleimani’s plan to help Iraq assert control of its oil and withstand the terrorist attacks supported by U.S. and Saudi’s on Iraq. That is what made his assassination an immediate drive.”
While other factors — such as pressure from U.S. allies such as Israel — also played a factor in the decision to kill Soleimani, the decision to assassinate him on Iraqi soil just hours before he was set to meet with Abdul-Mahdi in a diplomatic role suggests that the underlying tensions caused by Iraq’s push for oil independence and its oil deal with China did play a factor in the timing of his assassination. It also served as a threat to Abdul-Mahdi, who has claimed that the U.S. threatened to kill both him and his defense minister just weeks prior over tensions directly related to the push for independence of Iraq’s oil sector from the U.S.
It appears that the ever-present role of the petrodollar in guiding U.S. policy in the Middle East remains unchanged. The petrodollar has long been a driving factor behind the U.S.’ policy towards Iraq specifically, as one of the key triggers for the 2003 invasion of Iraq was Saddam Hussein’s decision to sell Iraqi oil in Euros opposed to dollars beginning in the year 2000. Just weeks before the invasion began, Hussein boasted that Iraq’s Euro-based oil revenue account was earning a higher interest rate than it would have been if it had continued to sell its oil in dollars, an apparent signal to other oil exporters that the petrodollar system was only really benefiting the United States at their own expense.
Beyond current efforts to stave off Iraq’s oil independence and keep its oil trade aligned with the U.S., the fact that the U.S. is now seeking to limit China’s ever-growing role in Iraq’s oil sector is also directly related to China’s publicly known efforts to create its own direct competitor to the petrodollar, the petroyuan.
Since 2017, China has made its plans for the petroyuan — a direct competitor to the petrodollar — no secret, particularly after China eclipsed the U.S. as the world’s largest importer of oil. As CNBC noted at the time:
The new strategy is to enlist the energy markets’ help: Beijing may introduce a new way to price oil in coming months — but unlike the contracts based on the U.S. dollar that currently dominate global markets, this benchmark would use China’s own currency. If there’s widespread adoption, as the Chinese hope, then that will mark a step toward challenging the greenback’s status as the world’s most powerful currency….The plan is to price oil in yuan using a gold-backed futures contract in Shanghai, but the road will be long and arduous.”
If the U.S. continues on its current path and pushes Iraq further into the arms of China and other U.S. rival states, it goes without saying that Iraq — now a part of China’s Belt and Road Initiative — may soon favor a petroyuan system over a petrodollar system, particularly as the current U.S. administration threatens to hold Iraq’s central bank account hostage for pursuing policies Washington finds unfavorable.
It could also explain why President Trump is so concerned about China’s growing foothold in Iraq, since it risks causing not only the end of the U.S. military hegemony in the country but could also lead to major trouble for the petrodollar system and the U.S.’ position as a global financial power. Trump’s policy aimed at stopping China and Iraq’s growing ties is clearly having the opposite effect, showing that this administration’s “gangster diplomacy” only serves to make the alternatives offered by countries like China and Russia all the more attractive.
Feature photo | Graphic by Claudio Cabrera for MintPress News
Whitney Webb is a MintPress News journalist based in Chile. She has contributed to several independent media outlets including Global Research, EcoWatch, the Ron Paul Institute and 21st Century Wire, among others. She has made several radio and television appearances and is the 2019 winner of the Serena Shim Award for Uncompromised Integrity in Journalism.
CYCLES OF CAPITALIST ACCUMULATION
A recession is defined in economics as two or more quarters of negative growth. A depression, on the other hand, comprises a sharp and deep downturn, usually as a result of bursting asset-price bubbles, a weak recovery, and a subsequent prolonged period of sub-optimal growth. This is about where we are at the present time.
Mr Mullan’s book – which I would recommend although my own views don’t always coincide with the author’s – is well-argued, researched and well worth reading.
The title itself is an obvious allusion to the theories put forward by the great Austrian economist, Joseph Alois Schumpeter (1883-1950) although Schumpeter was never part of the Austrian school of Von Mises and Von Hayek.
Capitalism is nothing if not cyclical, but the cycles themselves vary greatly from mild recessions to full-blown semi-collapses and Kondratiev waves. These episodes are necessary to the system; they are the cleansing method whereby all the bad investment decisions, false values and misallocation of productive resources which had grown up in the boom phase of the cycle reach their inflexion point where boom turns to bust.
The crisis was the moment of truth when suddenly all the plans, hopes and inane euphoria which were formed during the upswing were put to the test. Many of them were found wanting and those responsible would have to face the consequences of their actions.
The cycle took no prisoners. If your business failed, well, tough shit. No namby-pamby bailouts for the losers in the great game of rags to riches and back again. All very reminiscent of the film starring Eddy Murphy – Trading Places – a down and out street hustler who was groomed by two eccentric millionaires and became a stock-market player with considerable success.
Moreover:
This process was not just necessary to keep capitalism efficient; it was also necessary to keep capitalism moral. Only if market agents bore responsibility for their actions of prudence, reliability, sound judgement and trust, upon which capitalism was based, would the system be upheld. The crisis of capitalism was in a double sense – both practical and moral.” [1]
This process has undergone a fundamental change as will be discussed later.
THE RISE AND FALL OF BRETTON WOODS
Mr Mullan situated the latest phase of the Kondratiev Wave, or as he determines it, The Long Depression, during the initial upswing which started in about 1944. The period lasted from its early formulations which were implemented by 1945 lasting until approximately 1975. This era became known as Les Trente Glorieuses.
Thus was born the Bretton Woods system.[2] Key to this system was the anchoring of currencies of all of the major western economies to the US$-Gold nexus. The US dollar was linked to gold which held at US$35 per oz and was convertible into gold upon request.
But trouble was brewing. Owing to the costs of America’s wars in Indo-China together with the profligate spending of President Johnson’s ‘Great Society’ programme, surplus dollars began to flow abroad, particularly to Europe.
The Europeans – particularly De Gaulle – saw this as an opportunity to trade in these surplus dollars for payment in gold. This led to an outflow of gold from the US to Europe at which point the then President (Nixon) suspended US$ gold convertibility as of 15 August 1971. Speaking to his fellow Americans on a nationwide TV appearance he stated that this policy involved a ‘temporary’ expedient, but this soon morphed into a permanent arrangement.
This signalled what was in fact the end of the Bretton Woods system, and the beginning of the second phase of the Kondratiev downturn or as Mr Mullan puts it the beginning of the Long Depression. The new world order now rested on the rather dubious moorings of a fiat system – a system in which currencies float in a rather unstable relationship with each other in an increasingly volatile global environment.
THE NEW ORDER & ITS DESIGN FAULTS
This new economic disorder becomes increasingly chaotic as fundamental and seemingly intractable problems became increasingly apparent. Mr Mullan notes:
To maintain a semblance of vitality, western capitalism has become increasingly dependent on expanding debt levels and on the expansion of fictitious capital.[3] This layer of financial assets that are only symbols of value, not real values. For example, company shares are traded like goods and services do not, in the same way, embody value.
They are tokens which represent part ownership of a company and the potential distribution of future profits in the form of dividends. The paper or electronic certificate itself is not a genuine value that can create more value. Rising share/stock prices are often presented as a healthy economy, but the amount of money a share/stock changes hand for says nothing definitive about the value of a company’s assets or about its productive capacity. On the contrary, it is when real capital stagnates that the amount of fictitious capital tends to expand.[4]
Thus, during a property boom prices may reach astronomical levels where those who own their houses feel they are getting richer but come the down phase they wonder what happened to their new-found wealth which seems to have disappeared during the market correction.
The fact of the matter is that it was never there in the first place. It was fictitious.
The chief characteristics of the 1980/90s was the growing reliance on debt, and, in addition, the growth of financialization; this in order to stimulate growth. Debt in all its forms: corporate, household, financial, student loans, car loans and sovereign debt were a function of easy money – QE and ultra-low interest rates – and bore witness to increasing levels of leverage which kept the system going.
Debt was cheap. Its costs had fallen since the 1980s. Interest rates had been declining for over three decades.
The United States shows this clearly – and its rates remain the dominant influence across the mature economies because of the dollar’s role as a world money. Real commercial bank interest rates averaged 7% during the 1980s, 5.5% during the 1990s 4% during the 2000s for the period leading up to the financial crash of 2008 and have been below 2% ever since.[5]
Financialization [6] was the other leg of a system which in, Mr Mullen’s words artificially propped up – a ‘decaying system.’ Free monies from the Central banks was used by banks and other financial institutions to buy up and speculate on various markets including in particular stock and bond markets.
It was financialization and debt which acted as an increasingly counter-balancing force to the long-run tendency of decline in the productive industries.
Unfortunately, the productive sector was the creator of real value whereas the rent-seeking nature of debt-driven finance capital was essentially a parasitic outgrowth on the productive sector.
DIMINISHING RETURNS TO ZERO AND MINUS RETURNS
During the same period debt was and still is rising faster than national income, and indeed growth seemed to be in a long downward trajectory. At the present time growth has come to a stop in Europe. (In alphabetical order).
France GDP Growth
Quarterly: 0.3%
Annual: 1.4%
Germany GDP Growth
Quarterly: 0.1%
Annual: 0.5%
Italy GDP Growth
Quarterly: 0.1%
Annual: 0.3%
UK GDP Growth
Quarterly: 0.3%
Annual: 1.0%
EU area GDP Growth
Quarterly: 0.2%
Annual: 1.2%
(Source: Trading Economics)
10-Year Bond Yields Yearly
France: –0.73%
Germany: -0.54%
Italy: –1.69%
UK: 0.67%
EU Area: 0.3%
(Source: countryeconomy.com)
No ifs or buts, these really are depression figures. European industry is not merely slowing to a crawl but is actually becoming negative. Mr Mullan attributes this decline in value production as systemic under-investment due to the Tendency of the Rate of Profit to Fall (TPRF). No guesses from what source that came.
THE TENDENCY OF THE RATE OF PROFIT TO FALL AND DECLINING INVESTMENT
The Labour theory of value began life with Adam Smith (1723-1790) was subject to further elaboration with David Ricardo (1772-1823) and additional further final touches by Karl Marx (1818-1883).
Briefly stated the theory rests on the thesis that capital or value represents the objectified process of past human labour. Actually, existing value/capital is nothing more than labour which has already been expended.
Thus, a potter will start with a piece of clay on his wheel, and through several stages of moulding, painting, and baking, the piece of clay has become a vase, a commodity, with a value and price. As labour becomes more productive and innovative, output (growth) expands in both a quantitative and qualitative sense.
This process did not simply represent the output of the individual labourer, it involved the aggregated social labour of the economy as a whole which produced goods and services.
In modern parlance – growth qua capital stock. It should be said that the value of a commodity doesn’t always coincide with its price (which is the phenomenal form of value) due to supply and demand pressures. In contemporary economic parlance this process would be described as productivity growth and value-added growth. Goods become cheaper and markets expand to purchase these new goods. We have seen this in the production of among other items, cars, I-Phones and shoes.
Of course, the whole process is underpinned by businesses quest for profit and this is central to the theory of capitalist crisis.
One cycle of accumulation will (I hope!) serve to clarify this.
Let M stand for money capital, C stand for Capital consisting of both living labour, workers, and dead labour, machinery and raw materials, and P for the production process.
Here we go: M – C … P … C’- M’
Let us suppose this is car manufacture.
Money capital is transformed into dead and living capital. M to C. These factor inputs are brought together during the process of production P. Thus, emerges new capital as a Car C’. But what is the significance of the ‘ or C’?
Well the ‘ is the surplus labour time (or value) which is part of total value of ’ which also includes necessary labour time which represents costs to the capitalist i.e., wages. Surplus labour time is the source of surplus value and ultimately money profit. The workers worked for 10 hours but were paid for 8.
The 2 hours were a surplus over and above what was paid to the workers. And this would be the case at any level of production. It is the source of surplus value and profit. Finally: M’ or the transition to C’- M’ This is sometimes referred to as the realisation problem, but simply means how does C’ become M’. This takes place in the final phase of the process where the cars are on sale in the dealership courtyard waiting to be sold.
Having appropriated the M’ surplus value, the business can restart the whole cycle once again, – ceteris paribus. However there maybe problems of transforming the surplus value into prices of production (that is to say converting C’ into M’) due to the level of aggregate demand. (For further discussion refer to Michael Roberts and David Harvey*).
It is essential that profit maximization is the driving force of capital and the accumulation process. If profit starts to undergo a secular decline, this will have serious implications to the system as a whole. This is exactly what Mr Mullan picks up.
Investment is in decline due to the falling rate of profit. And the rate of profit is declining due to the fact that labour input into each successive unit of output has declined. It may sound strange to say but declining profitability is due precisely to the increased efficiency and productivity of the system.
Marx argued that:
(i) each individual capitalist can increase their own competitiveness through increasing the productivity of his workers.
(ii) The way to do this is by using a greater quantity of dead capital —tools, machinery and so on—for each worker. There is a growth in the ratio of the physical extent of the capital to the amount of labour power employed, a ratio that Marx called the “technical composition of capital”.
(iii) But a growth in the physical extent of the means of production will also be a growth in the investment needed to buy them. So, this too will grow faster than the investment in the workforce.
(iv)The growth of this ratio, which he calls the “organic composition of capital”, is a logical corollary of capital accumulation.
(v)Yet the only source of value for the system as a whole is labour. If investment grows more rapidly than the labour force, it must also grow more rapidly than the value created by the workers, which is where profit comes from.
(vi) In short, capital investment grows more rapidly than the source of profit. As a consequence, there will be a downward pressure on the ratio of profit to investment—the rate of profit must therefore decline.
Each capitalist has to push for greater productivity in order to stay ahead of competitors. But what seems beneficial to the individual capitalist is disastrous for the capitalist class as a whole.
Each time productivity rises there is a fall in the average amount of labour in the economy as a whole needed to produce a commodity (what Marx called “socially necessary labour”), and it is this which determines what other people will eventually be prepared to pay for that commodity.
So today we can see a continual fall in the price of goods such as computers or DVD players produced in industries where new technologies are causing productivity to rise fastest.
Thus, according to Mr Mullan, falling profitability is the root cause of curtailed business investment.[7] Moreover, this observation has been observed in a number of authoritative sources.[8]
COUNTERACTING FORCES TO THE TRPF
Although the declining rate of profit is a necessary feature of the capitalist accumulation process there are counter-acting forces.
These include the increase in the mass of profit which offsets the decline in the rate of profit, and the rate of surplus value which also slows down the decline in the rate of profit. The two deep economic slumps of 1974-5 and 1980-2 had sufficiently reduced the value of constant capital. At the same time, the slumps had driven up unemployment and weakened the ability of the labour movement to protect wages (the cost of variable capital).
The productivity of labour rose as new techniques (and hi-tech ones at that) were introduced to many sectors of the economy, while wages were not allowed to rise as much. The wage share in the US economy plunged. The rate of surplus value rose. Additionally, subsidies to business and low interest rates helped to mitigate declining profits but could not stop it in the longer run. (Again, see Roberts and/or Harvey for a more detailed explanation.)
THE LEFT BOTTLES IT
In football parlance a player bottles it when he/she pulls out of a 50-50 tackle. A referee bottles it when he gives a dubious decision to the home team. The political left ‘bottled it’ when they gave up on socialism or communism circa 1989/90. There was a turbulent period of class struggle – the Miners’ Strike in the UK – and the air traffic controllers’ strike in the US, launched and overseen by Thatcher and Reagan circa 1984. This was also a period which bore witness to the collapse of communism in Eastern Europe.
Neoliberalism was to carry the day to such an overwhelming extent that even ‘left’ political parties were seemingly entranced by the new order. Strange they couldn’t tell the difference between revolution and counter-revolution.
One of the first things the incoming Labour government – in the shape of Gordon Brown – did after the 1997 election was to grant independence to the Bank of England! No more fiscal policy! Carry on entrenching Mrs T’s pet projects.
We know the rest. The new order was established from Washington to Moscow being imposed by the IMF, World Bank and WTO. The left had been neutered and was officially declared dead.
Mr Mullan explains:
It was ironic that it was not the strength of the alternatives to capitalism, but their demise that eventually crystallised the elites intellectual crisis. The return to depressed economic conditions had already put the establishment on the defensive. But capitalism’s self-confidence to its next blow came not from the vehemence of its former adversaries attacks but by the reverse. Opposition withered away not just in the Soviet Union as its international enemy, but from the domestic challenges from the left and from organized labour.” [9]
A similar view was put forward at an earlier date by Peter Gowan, who wrote,
We had thought that the interwar capitalist society was a thing of the past, a deviation overcome by post-war social progress. But it turns out that the post-war social gains were a deviation and the inter-war state and society is again the norm. Post-war social progress, was, it seems, a tactical aberrant form of European capitalism made necessary by the challenge of communism.
We now know the second part of the sentence whose first half, so strongly believed in 1989, stated: ‘Western-style welfare capitalism is better than Eastern Communism … ‘ The second half went unnoticed 10 years ago: It reads: ‘But western style welfare capitalism only existed because of communism.’ Europe seems to be drifting towards a divided, turbulent and ugly future.”[10]
THE ZOMBIE ECONOMY
What has seemed to have emerged in the neoliberal era was a wholly unexpected form of capitalist decline. This has been termed a zombie economy.
Low interest rates create zombie companies. Weak businesses survive (when they ought to have gone out of business) directing cash flow to cover interest on loans – but not the principal – that cannot be repaid but that banks will not write off. With capital tied up, banks reduce lending to productive enterprises, especially small and medium sized ones, which account for a large proportion of economic activity and employment.
Firms do not dispose of or restructure unproductive investments. The creative destruction of the slump when businesses of this type go out of existence and debts are wiped out and the reallocation of resources necessary to restore the economy does not take place.
Thus, a zombie economy, where failed businesses are kept artificially afloat is one where the necessary adjustments including liquidation of unproductive enterprises and assets are allowed to continue and the necessary restructuring fails to take place. This thus results in a semi-permanent depressed condition, until the next downturn comes along.
As opposed to Mr Mullan’s enthusiasm for a Schumpeterian policy of creative destruction we have been served up with an ever-deepening economic and social stasis by a brain-dead political and business class.
This has been eerily reminiscent of the British Prime Minster, Stanley Baldwin, who fought the 1929 general election on a “Safety First” ticket. Stabilisation and ‘muddling through’ has become the policy of successive western governments, particularly in the EU still labouring under the Stability and Growth Pact.
Schumpeter writing in Capitalism, Socialism and Democracy (1941) described a bourgeoisie which was losing not just its wealth in the economic crisis but also its sense of purpose. This loss of belief in their own functions, capability and sense of moral leadership is becoming increasingly evident. They are a corrupt and decadent force in society and more and more of them and society at large are beginning to realise it.
This purpose was reinstalled as a result of WW2. National economies of the belligerent nations were cranked up to full capacity and to all intents and purposes ceased to be capitalism and began to be command economies.
In the United States for example Roosevelt’s New Deal actually began to move away from the economic orthodoxies of the 1930s toward a more organized economic system, this process carried on until the US entered WW2 where it was taken even further.
…the war economy did not stimulate the US private sector it replaced the free market and capitalist investment for profit. Consumption did not restore economic growth as Keynesians argued … instead it was weapons of destruction.
In many industries, corporate executives resisted converting to military production because consumer market share would go to competitors who did not. Conversion thus became a goal of public officials and labour leaders.
Auto companies only fully converted to war production in 1942 and only began substantially contributing to aircraft production by 1943 … From the beginning of preparedness to the peak of war production in 1944, the war economy could not be left to the capitalist sector to deliver.
To organize a war economy and ensure that it produced the goods needed for war, the Federal Government created an array of mobilization agencies, which often purchased goods, closely directed those goods manufacture, and heavily influenced the operation of private companies and whole industries.
The US Treasury introduced the first income tax in US history and war bonds were sold to the public. Income tax payees rose from 4 million in 1939 to 43 million by 1945.[11]
Moreover, all types of technological discoveries were part of this process. Radar, aircraft design, chemicals, pharmaceuticals, the jet engine, plastic surgery for treating aircraft crew who suffered burns. And this in the most capitalist of all countries!
So, what couldn’t possibly be done, was done. A revolution had occurred because it was needed. And where there’s a will…
So Mullan’s arguments for a desperately needed change seem all too plausible and necessary even from a common-sense point of view. He argues:
Escaping from the grip of the Long Depression will not be easy, but it is necessary, and it is possible … there are many barriers to economic health, yet none is insuperable. The biggest challenges are not economic constraints. They lie in the realms of, ideas and imagination, culture and politics.” [12]
Agreed, but the ideological hegemony of the ‘Washington Consensus’ permeates all levels of social being smothering any attempt to break out of the template. From globalization and what are called ‘free-markets’, to hyper-individualism and identity politics, the orthodoxy of the power-elites seems escape proof.
It is what Max Weber called the escape proof ‘Iron Cage’ of bureaucracy, or in our own time the iron cage of the deep-state/media/security/corporate matrix. It seems a lost cause. But I wonder? The late-capitalist monolith may not be as powerful and impregnable as it would have us believe and as it really is. We shall see.
La Lotta Continua
[1] The Spectre at the Feast – Andrew Gamble – p.46
[2] The 1944 Bretton Woods agreement was negotiated in the small town of Bretton Woods in New Hampshire. It was to establish a new global monetary system. It replaced the gold standard with the U.S. dollar as the global currency. By so doing, it established America as the dominant power in the world economy. After the agreement was signed, America was the only country with the ability to print dollars. The agreement created the World Bank and the International Monetary Fund. These U.S.-backed organizations would monitor the new global system.
[3] Fictitious capital: Karl Marx made a simple yet profound discovery in the course of his critique of the contemporary political economy. He pointed out that money is not capital; it is only capital’s representation. It is a real representation only when and till there is continuous creation of capital during the production process. Money unrelated to the production process is fictitious as it is valueless
[4] Creative Destruction – Mullan – p.22
[5] Mullen, Ibid., p112.
[6] The term financialization is generally used as a reference to that part of the economy indicated by the acronym FIRE (Finance, Insurance and Real Estate) and its growing importance in the economy in both qualitative and quantitative terms.
Financialization is a process whereby financial markets, financial institutions, and financial elites gain greater influence over economic policy and economic outcomes. Financialization transforms the functioning of economic systems at both the macro and micro levels. Its principal impacts are to…
(A) elevate the significance of the financial sector relative to the real value -producing sector,
(B) transfer income from the real value-producing sector to the financial sector, and
(C) increase income inequality and contribute to wage stagnation
Since 1970 this part of the economy has grown from almost nothing to 8% of US Gross Domestic Product (GDP). This means that one dollar in every ten is associated with finance. In terms of corporate profits finance’s contribution now represents 40% of all corporate profits in the US. This is a significant figure and, moreover it does not include those overseas earnings of companies whose profits are repatriated to their countries of origin.
Thus, the increasing presence and role of finance in overall economic activity and the increase of profits channelled to the financial sector represent the salient indicators as to what has been termed financialization. It is argued by some that financialization may put the economy at risk of debt deflation and prolonged recession.
Financialization operates through three different conduits: changes in the structure and operation of financial markets, changes in the behaviour of nonfinancial corporations, and changes in economic policy. Countering financialization calls for a multifaceted agenda that
(D) restores policy control over financial markets,
(E) challenges the neoliberal economic policy paradigm encouraged by financialization,
(F) makes corporations responsive to interests of stakeholders other than just financial markets, and
(G) reforms the political process so as to diminish the influence of corporations and wealthy elites.
This ongoing transformative process represents a structural change in the nature of the late capitalist economy. Principally the relationship between the value-creating manufacturing sector and the FIRE sector – that is to say, the creative part of the economy and the distributive part.
In the earlier phase of capitalism, the financial sector was much smaller and served to grease the wheels of industry by providing investment capital and credit obtained from depositors. That symbiotic relationship has now ended, and finance has increasingly taken on a life form of its own relegating manufacturing industry to the second tier.
Financialization is a pattern of accumulation that relies increasingly on profit making through financial channels even for firms which are not financial. General Motors in the US, for example, had a trading and finance sector which was to grow larger than the original auto-vehicle operations.
[7] Mullan op.cit., p.116
[8] Mullan op.cit p.116 footnotes -35, 36, 37.
[9] Mullen, Ibid., p.200
[10] The Global Gamble – Peter Gowan, p.319
[11] The Long Depression – Michael Roberts – pp.56/57
[12] Ibid., Mullan – p.265.
One of the things that used to puzzle me, as a very small boy, was why the day after Christmas was called “Boxing Day”.
Did people in the classic “Dickensian Christmas” – in the era evoked by traditional festive icons like snow, holly and robins – really set aside a day for pugilism? It seemed even less likely that a day of fist-fighting contests formed any part of the first Christmas.
All became clear, of course, when it was explained to the very young me that this was the day on which Christmas “boxes” (gifts) were exchanged. In those times, people drew a distinction between the Christian celebration, on 25th December, and the giving and receiving of presents, on the following day.
This distinction is even more pronounced here in Spain, where the exchange of gifts is deferred to the “Night of the Kings”, two weeks after Christmas itself. The festive season is thus more protracted here than in, say, Britain or America, but it’s also markedly less frenetic, and culminates, in most towns and cities, with a thoroughly enjoyable Night of the Kings carnival.
Depending on where you are and how you look at it, the Christmas holidays end, and something like “normality” resumes, at some point between the 2nd and the 7th of January. My view is that the word “normal”, whose definition has, in economic and broader terms, already been stretched a very long way indeed, might soon lose any realistic meaning. A situation in which the Fed is in the process of injecting at least $1 trillion of newly-created money into the system typifies the extent to which abnormality has already become the norm.
In these circumstances, my immediate aim is to produce a guide, comprehensive but succinct, to the surplus energy interpretation of the economy.
This will cover the energy basis of all economic activity, the critical role played by ECoE (the Energy Cost of Energy), and the true nature of money and credit as an aggregate claim on the output of the ‘real’ (energy) economy.
It will move on to discuss how SEEDS models, interprets and anticipates economic trends, and to set out an overview of where we are in energy-interpreted terms. It might also – if space permits – touch on what this tells us about the false dichotomy between environmental challenges and the customarily-misstated concept of “growth”.
What I aim to do here is to close out the year with some observations about where we are as we head into the 2020s.
The best place to start is with the deterioration in prosperity, and the simultaneous increase in debt, that have already destroyed the credibility of any ‘business as usual’ narrative in the Advanced Economies (AEs).
Starting with Japan back in 1997, and finally reaching Germany in 2018, the prosperity of the average Western person has hit a peak and turned downwards, not in a temporary way, but as part of a secular process which conventional economics cannot recognise, much less explain.
This process is now spreading to the emerging market (EM) economies, most of which can expect to see prior growth in prosperity per person go into reverse within the next three years. The signs of deceleration are already becoming apparent in big EM countries such as China and India.
Thus far, global average prosperity has been on a long plateau, with continuing progress in the EM economies largely offsetting deterioration in the West. Once decline starts in the EM group, though, the pace at which the average person Worldwide becomes poorer can be expected to accelerate.
If deteriorating prosperity is the first point worthy of emphasis, the second is that a relentlessly increasing Energy Cost of Energy (ECoE) is the fundamental cause of this impoverishment process. ECoE reflects that fact that, within any given quantity of energy accessed for use, a proportion is always consumed in the access process.
ECoE is a direct deduction from the aggregate quantity of energy available, which means that surplus (ex-ECoE) energy is the source of all economic activity other than the supply of energy itself.
In other words, prosperity is a function of surplus energy.
In the past, widening geographic reach, economies of scale and technological advance drove ECoEs downwards, to a low-point (of between 1% and 2%) in the immediate post-1945 decades. The subsequent rise in trend ECoEs has been driven by the fact that, with the benefits of reach and scale exhausted, depletion has now become the primary driver of ECoEs in the mature fossil fuels industries which continue to provide four-fifths of global energy supply. The role of technology has been re-cast as a process which can do no more than blunt the rate at which ECoEs are rising.
By 2000, when World trend ECoE had reached 4.5%, Advanced Economies were already starting to face an insurmountable obstacle to further growth. Prosperity turned down in Japan from 1997 (when ECoE there was 4.4%), and has been declining in America since 2000 (4.5%).
SEEDS studies demonstrate that prosperity in advanced Western countries turns down once ECoE enters a band between 3.5% and 5%. EM economies, by virtue of their lesser complexity, are less ECoE-sensitive, with prosperity going into reverse once ECoEs enter a range between 8% and 10%. Ominously, ECoE has now reached 8.2% in China, 10.0% in India and 8.1% in the EM countries as a group.
The key point about rising ECoEs is that there is nothing we can do about it. This in turn means that global prosperity has entered de-growth. The idea that we can somehow “decouple” economic activity from the use of energy is utter wishful thinking – not surprisingly, because the economy, after all, is an energy system.
This presents us with a clear choice between obfuscation and denial, on the one hand, and acceptance and accommodation, on the other. Our present position is one of ‘denial by default’, in that the decision-making process continues to be based on the false paradigm that ‘the economy is money’, and that energy is “just another input”.
This leads us to the third salient point, which is financial unsustainability.
Properly understood, money functions as a claim on the output of the ‘real’, energy-driven economy. Creating more monetary claims, without a corresponding increase in the goods and services against which these claims can be exercised, creates a gap which, in SEEDS terminology, is called “excess claims”.
Since these “excess” claims cannot, by definition, be honoured, then they must be destroyed. There are various ways in which this “claims destruction” can happen, but these mechanisms can loosely be divided into “hard” default (the repudiation of claims) or “soft” default (where claims are met, but in greatly devalued money).
These processes mean that “value destruction” has become an inevitability. This may involve waves of asset market crashes and defaults, or the creation (through reckless monetary behaviour) of hyperinflation.
The likelihood is that it’s going to involve a combination of both.
These issues take us to the fourth critical point, which is the threat to the environment. Let’s be clear that this threat extends far beyond the issue of climate change, into many other areas, which range from pollution and ecological damage to the dwindling availability of essentials such as water and food.
Conversion to renewable energy (RE) isn’t the solution to these problems, if by “solution” we mean “an alternative which can sustain our current level of prosperity”. RE, despite its many merits, isn’t going to replace the surplus energy that we’ve derived hitherto from fossil fuels. RE might well be part of the solution, but only if we take on board the inevitability of degrowth.
This brings me to my final point, which is choice. For well over two centuries we’ve been accustomed to an energy context which has been so favourable that it has given us the ability both to improve personal prosperity and to extend those benefits across a rapidly increasing population.
With this favourable context fading into the past, we have to find answers to questions that we’ve never had to ask ourselves until now.
The faculty of choice requires knowledge of the options, and this we cannot have whilst we persist in the delusion that “the economy is a financial system”. It isn’t, it never has been, and it never can be – but our ignorance about this fundamental point has been one of the many luxuries afforded to us by the largesse of fossil fuels.
This seems pretty depressing fare to put before readers at the start of the festive season. The compensating thought has to be that the connection between prosperity and happiness has always been a falsehood.
A lack of sufficiency can, and does, cause misery – but an excess of it has never been a guarantee of contentment.
In the coming days, Christians will recall with renewed force that Jesus was born in a humble stable. He went on to throw the money-changers out of the Temple, and to instruct people to lay up their treasure, not on Earth, but in Heaven. I hope it will be taken in the right spirit if I add that He never earned an MBA, or ran a hedge fund.
The single most important challenge that we face isn’t deteriorating prosperity, or the looming probability of a financial catastrophe. Rather, the great challenge is that of how to jettison the false notion that material wealth and happiness are coterminous.
‘Value’ may indeed be heading for mass destruction.
But values are indestructible.
In all the press coverage of the “the SNC-Lavalin affair,” not enough attention has been paid to the company’s involvement in Site C – the contentious $11 billion dam being constructed in B.C.’s Peace River valley.
The Liberals say that any pressure they put on Jody Wilson-Raybould to rubber-stamp a “deferred prosecution agreement” for SNC-Lavalin was to protect jobs at the company. But the pressure may have been to protect something much bigger: the Liberals’ vision for Canada’s future. Site C epitomises that vision.
The “Many Lives” of Site C
Birthed in 1959 on the drawing boards of the U.S. Army Corps of Engineers and BC Electric (then owned by Montreal-based Power Corp), the Site C dam has been declared dead, then alive, then dead again several times over the next five decades until 2010, when BC Premier Gordon Campbell announced that Site C would proceed. [1]
Tracking SNC-Lavalin’s involvement in Site C during recent years has been difficult, but Charlie Smith, editor of The Georgia Straight, has filled in some of the missing information.
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Nuclear power costs too much
U.S. nuclear power plants are old and in decline. By 2030, U.S. nuclear power generation might be the source of just 10% of electricity, half of production now, because 38 reactors producing a third of nuclear power are past their 40-year life span, and another 33 reactors producing a third of nuclear power are over 30 years old. Although some will have their licenses extended, 37 reactors that produce half of nuclear power are at risk of closing because of economics, breakdowns, unreliability, long outages, safety, and expensive post-Fukushima retrofits (Cooper 2013. Nuclear power is too expensive, 37 costly reactors predicted to shut down and A third of Nuclear Reactors are going to die of old age in the next 10-20 years.
New reactors are not being built because it takes years to get permits and $8.5–$20 billion in capital must be raised for a new 3400 MW nuclear power plant (O’Grady, E. 2008. Luminant seeks new reactor. London: Reuters.). This is almost impossible since a safer 3400 MW gas plant can be built for $2.5 billion in half the time. What utility wants to spend billions of dollars and wait a decade before a penny of revenue and a watt of electricity is generated?
In the USA there are 104 nuclear plants (largely constructed in the 1970s and 1980s) contributing 19% of our electricity. Even if all operating plants over 40 years receive renewals to operate for 60 years, starting in 2028 it’s unlikely they can be extended another 20 years, so by 2050 nearly all nuclear plants will be out of business.
Joe Romm “The Nukes of Hazard: One Year After Fukushima, Nuclear Power Remains Too Costly To Be A Major Climate Solution” explains in detail why nuclear power is too expensive, such as:
- New nuclear reactors are expensive. Recent cost estimates for individual new plants have exceeded $5 billion (for example, see Scroggs, 2008; Moody’s Investor’s Service, 2008).
- New reactors are intrinsically expensive because they must be able to withstand virtually any risk that we can imagine, including human error and major disasters
- Based on a 2007 Keystone report, we’d need to add an average of 17 plants each year, while building an average of 9 plants a year to replace those that will be retired, for a total of one nuclear plant every two weeks for four decades — plus 10 Yucca Mountains to store the waste
- Before 2007, price estimates of $4000/kw for new U.S. nukes were common, but by October 2007 Moody’s Investors Service report, “New Nuclear Generation in the United States,” concluded, “Moody’s believes the all-in cost of a nuclear generating facility could come in at between $5,000 – $6,000/kw.”
- That same month, Florida Power and Light, “a leader in nuclear power generation,” presented its detailed cost estimate for new nukes to the Florida Public Service Commission. It concluded that two units totaling 2,200 megawatts would cost from $5,500 to $8,100 per kilowatt – $12 billion to $18 billion total!
- In 2008, Progress Energy informed state regulators that the twin 1,100-megawatt plants it intended to build in Florida would cost $14 billion, which “triples estimates the utility offered little more than a year ago.” That would be more than $6,400 a kilowatt. (And that didn’t even count the 200-mile $3 billion transmission system utility needs, which would bring the price up to a staggering $7,700 a kilowatt).
Extract from Is Nuclear Power Our Energy Future, Or in a Death Spiral? March 6th, 2016, By Dave Levitan, Ensia:
In general, the more experience accumulated with a given technology, the less it costs to build. This has been dramatically illustrated with the falling costs of wind and solar power. Nuclear, however has bucked the trend, instead demonstrating a sort of “negative learning curve” over time.
According to the Union of Concerned Scientists, the actual costs of 75 of the first nuclear reactors built in the U.S. ran over initial estimates by more than 200 percent. More recently, costs have continued to balloon. Again according to UCS, the price tag for a new nuclear power plant jumped from between US$2 billion and US$4 billion in 2002 all the way US$9 billion in 2008. Put another way, the price shot from below US$2,000 per kilowatt in the early 2000s up to as high as US$8,000 per kilowatt by 2008.
Steve Clemmer, the director of energy research and analysis at UCS, doesn’t see this trend changing. “I’m not seeing much evidence that we’ll see the types of cost reductions [proponents are] talking about. I’m very skeptical about it — great if it happens, but I’m not seeing it,” he says.
Some projects in the U.S. seem to face delays and overruns at every turn. In September 2015, a South Carolina effort to build two new reactors at an existing plant was delayed for three years. In Georgia, a January 2015 filing by plant owner Southern Co. said that its additional two reactors would jump by US$700 million in cost and take an extra 18 months to build. These problems have a number of root causes, from licensing delays to simple construction errors, and no simple solution to the issue is likely to be found.
In Europe the situation is similar, with a couple of particularly egregious examples casting a pall over the industry. Construction began for a new reactor at the Finnish Olkiluoto 3 plant in 2005 but won’t finish until 2018, nine years late and more than US$5 billion over budget. A reactor in France, where nuclear is the primary source of power, is six years behind schedule and more than twice as expensive as projected.
“The history of 60 years or more of reactor building offers no evidence that costs will come down,” Ramana says. “As nuclear technology has matured costs have increased, and all the present indications are that this trend will continue.”
Nuclear plants require huge grid systems, since they’re far from energy consumers. The Financial Times estimates that would require ten thousand billion dollars be invested world-wide in electric power systems over the next 30 years.
In summary, investors aren’t going to invest in new reactors because:
- of the billions in liability after a meltdown or accident
- there may only be enough uranium left to power existing plants
- the cost per plant ties up capital too long (it can take 10 billion dollars over 10 years to build a nuclear power plant)
- the costs of decommissioning are very high
- properly dealing with waste is expensive
- There is no place to put waste — in 2009 Secretary of Energy Chu shut down Yucca mountain and there is no replacement in sight.
Nor will the USA government pay for the nuclear reactors given that public opinion is against that — 72% said no (in E&E news), they weren’t willing for the government to pay for nuclear power reactors through billions of dollars in new federal loan guarantees for new reactors.
Cembalest, an analyst at J.P. Morgan, wrote “In some ways, nuclears goose was cooked by 1992, when the cost of building a 1 GW plant rose by a factor of 5 (in real terms) from 1972” (Cembalest).
Further topics:
- Nuclear power depends on fossil fuels to exist (Ahmed 2017) ...
- Peak Uranium ...
- Nuclear power is Way too Dangerous ...
- Nuclear power plants take too long to build ...
- A crisis will harden public opinion against building new Nuclear Power Plants ...
- EROEI and decommissioning ...
- Scale ...
- Staffing ...
- Nuclear Proliferation & terrorism targets ...
- Water ...
- NIMBYism ...
- No good way to store the energy ...
- Ramping up and down quickly to balance solar & wind damages nuclear power plants ...
- Breeder reactors. You’d need 24,000 Breeder Reactors, each one a potential nuclear bomb (Mesarovic) ...
Elizabeth Warren has succeeded, I think, in framing an argument as close as anyone is going to get (in the present election cycle) to the progressive position of MMT. Warren acknowledges that she’s proposing goals and undertakings that will “cost” a lot of money. She further acknowledges that everyone asks: “How are you going to pay for it?” And she gives a very specific and simple answer: an “ultra-millionaire tax”—which she details as “two-cents on every dollar of income over $50 million.” She then goes on to list what those “two-cents” will accomplish: The cancellation of college debt; free two-year college education; universal pre-school day-care…etc.
The two-cent message is a powerful framing, I believe, because it gives people “intellectual permission” to support a significant increase in federal spending to accomplish specifically targeted, widely held social goals. By “intellectual permission” I mean this: Even if you remain skeptical and unbelieving of MMT’s message about modern fiat-currency, Warren’s two-cent formula is reasonable because (a) the government won’t be “borrowing” dollars for the spending—your biggest fear!—and (b) because the people being taxed for the spending can hardly claim any harm or hardship: one day they have $50 million in their bank account—way more than they need for even the most extravagant life-style—and the next day they have $49 million. Are they even going to notice?
While MMT will want to explain that federal spending for Warren’s proposed goals does NOT require a tax increase on anyone at all, I believe at this pivotal moment advocates would be better served to momentarily set those arguments aside and applaud those aspects of the two-cent message that are, fundamentally, compatible with MMT goals:
- The two-cent message focuses on the federal government paying American citizens to undertake and accomplish real, specific objectives for improving the well-being of the whole society. Warren’s framing isn’t focused on “taxing the rich” but rather on accomplishing specific objectives for everyone else. This aligns with the fundamental logic of MMT: a currency-issuing sovereign government can and should pay its citizens to undertake and accomplish those things the collective well-being requires.
- While MMT argues that tax dollars are not required to fund federal spending, MMT does argue that taxes are necessary to drive a sovereign fiat-currency—and that since taxes are necessary, the question to be asked is: Can taxes serve purposes other than funding federal spending? One purpose I believe MMT would agree with is using taxes to put some brakes on the astonishing and spiraling wealth imbalance that is straining the stability of America’s socio-economic structure. So, on that score as well, Warren’s two-cent message is a fit with MMT.
Here’s another reason to get behind the two-cent message: It may well be that MMT can never, by logic, reasoning, and relentless argument alone, succeed in altering the deeply ingrained and habitual mental models of the mainstream understanding of “money.” Another path to that end might be required, namely, for Americans first to actually experience, by whatever means necessary, the phenomenon of their federal government spending a large number of dollars to pay American citizens to accomplish a specific collective good—and seeing the benefit in that. (It’s been a long time, I believe, since we’ve had that kind of experience.) The two-cent message might be a strategy for allowing it to happen.
What’s critical, it should be emphasized, is not the spending the two-cent message makes possible, but the results. This is why Warren’s list of goals is so important. First items on the agenda should be highly visible, on-goingly newsworthy, and beneficial to both lower and middle-class families. (My vote, in this regard, is the arena of education and child-rearing: free pre-school day-care programs, forgiveness of college debt, and free college or technical training.)
In the long run, if the targeted federal spending results in real benefits that large numbers of American voters can see and experience, the political dialog—assisted by the continued MMT push to redefine the mainstream understanding of money—can transition from being focused on “where will the dollars come from” to “what are we going to accomplish”? The two-cent message, then, will transition as well: it will no longer be about paying for federal spending, but will be about creating a more equitable society. So Warren’s message might be the best strategy MMT can hope to see in the 2020 elections—and seeing her elected the best of possible outcomes.
HSBC are in the news for attempting to suppress a report into money laundering. This is no surprise as the company’s entire history, right up to the present day, is one of financing drug cartels.
HSBC are not known for their transparency. Britain’s wealthiest company, with a stock market valuation of $215billion, has enough advertising muscle in the British press to ensure that critical investigative pieces have been spiked in both the Sunday Times and the Daily Telegraph – in the latter case, causing that newspaper’s chief political commentator to resign in protest. Then last year, the bank’s friends in the Swiss government sentenced the whistleblower who exposed the bank’s massive facilitation of tax avoidance to five years in prison, the longest sentence ever demanded by the country’s public ministry for a banking data theft case. And back in 2011 HSBC was revealed to be the UK financial sector’s most enthusiastic user of tax havens, with no less than 556 subsidiary companies based in offshore jurisdictions. Tax havens, as leading expert Nicholas Shaxson notes, “are characterised by secrecy…what they are fundamentally about is escape – escape from the rules, laws, regulations of jurisdictions elsewhere. You move your money offshore and you can then escape the laws that you don’t like”. This is clearly an institution with much to hide.
So it should not have surprised anybody when, earlier this month, it was revealed that HSBC are now seeking to block the publication of a report into HSBC’s compliance with anti-money laundering laws. After all, it was only three years ago that HSBC were hit with a massive $1.9 billion fine for laundering around $1 billion on behalf of some of the world’s most vicious gangsters. According to US assistant attorney general Lanny Breuer, “from 2006 to 2010, the Sinaloa cartel in Mexico, the Norte del Valle cartel in Colombia, and other drug traffickers laundered at least $881 million in illegal narcotics trafficking proceeds through HSBC Bank USA. These traffickers didn’t have to try very hard.” This is putting it mildly; in fact HSBC went to great lengths to facilitate the drug cartels. As Matt Taibbi wrote in his definitive piece on the scandal, HSBC “ran a preposterous offshore operation in Mexico that allowed anyone to walk into any HSBC Mexico branch and open a US-dollar account (HSBC Mexico accounts had to be in pesos) via a so-called ‘Cayman Islands branch’ of HSBC Mexico. The evidence suggests customers barely had to submit a real name and address, much less explain the legitimate origins of their deposits.” The bank did have a system in place to identify ‘suspicious activity’; but it routinely flouted it. As Nafeez Ahmed has written, “By 2010, HSBC had racked up a backlog of 17,000 suspicious activity alerts that it had simply ignored. Yet the bank’s standard response when it received its next government cease-and-desist order was simply to ‘clear’ the alerts, and give assurances that everything was fine. According to former HSBC compliance officer and whistleblower Everett Stern, the bank’s executives were deliberately ignoring and violating anti-money laundering regulations.” Taibbi wrote that “In one four-year period between 2006 and 2009, an astonishing $200 trillion in wire transfers (including from high risk countries like Mexico) went through without any monitoring at all. The bank also failed to do due diligence on the purchase of an incredible $9 billion in physical US dollars from Mexico and played a key role in the so-called Black Market Peso Exchange, which allowed drug cartels in both Mexico and Colombia to convert US dollars from drug sales into pesos to be used back home. Drug agents discovered that dealers in Mexico were building special cash boxes to fit the precise dimensions of HSBC teller windows”. HSBC’s customers – cartels like Colombia’s Norte del Valle and Mexico’s Sinaloa – were at the time involved in mass murder and abuse of the most psychopathic variety, including beheadings and torture videos. The official death toll from these groups in Mexico alone is 83,000 over the past decade. That they have the capacity to carry out violence on such a massive scale is the result of the massive financial growth of their industry. And that growth was wilfully facilitated by HSBC.
Given that this has all now been established in court, were the rule of law actually applied, the bank’s Charter would have been revoked, and its directors (including former UK Trade Minister Stephen Green) would now be in jail. The reason this did not happen is that the sheer size of HSBC’s operations make it too strategically important to close down. “Had the US authorities decided to press charges”, explained Assistant Attorney General Lenny Breuer, “HSBC would almost certainly have lost its banking licence in the US, the future of the institution would have been under threat and the entire banking system would have been destabilised.” That is to say, HSBC’s wealth and power put it officially above the law. Even its $1.9 billion fine, massive though it might seem, amounted to a mere five weeks profit for the bank.
But all of this is entirely in keeping for a bank whose roots lie precisely in illegality, drug trading and massive violence.
...
Little wonder, then, that wherever you look – from Afghanistan, to Kosovo, to Libya, to Mexico to Colombia, and even ‘at home’ – the policies of the world’s leading financial centres serve to boost the production, distribution and profitability of the drugs trade. And little wonder that HSBC are still keeping their ‘money laundering checks’ to themselves.
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Global finance appears to be overrun by what Susan Strange called ‘mad money’—money backed by little real collateral but having a very real capacity to increase indebtedness around the world. This is something that would need to be brought under political control and accountability in order for anything approaching justice to be possible in relation to global finance. The issue is about who controls the monetary system. Money is a crucial public good, and yet it is not under public, political, control.
With an increasingly globalized financial system that is expanding in scale and power relative to institutions of politics, economics, and law, there has developed, largely unannounced and entirely unaccountably as far as the global public is concerned, what amounts to a privatized global constitution. A set of binding legal arrangements that bypass and transcend sovereign jurisdictions and even other aspects of international law has been building up in support of the global financial system. Its transnational character is so strong that even at times of war between states, the close cooperation of its members is maintained.
The fact that financial relationships can be maintained even during times of war demonstrates that human beings have collaborative concerns that rise above the conflicts that can occur. It also serves to point up a bitter irony. Of the billions of human beings on this planet it is doubtful that very many actually desire ever to have a war, but few have any opportunity to ‘rise above’ a conflict if it is generated in their vicinity or in their name. The further a person is from the apex of the financial system, the less chance they have of escaping the effects of war when it comes. They are also the people with the least power to decide whether or when there should be a war in the first place.
A fundamental problem is that the profit-driven global financial system geared to the interests of owners of capital has been organized more quickly and completely as a normative framework for global order than any political arrangements aimed at promoting the public interest. It runs counter to the imperatives of seeking justice, ecologically sustainable productivity and peace. Its radical transformation is therefore evidently required. Because the financial system has developed something akin to a privatized global constitution, to secure conditions of social justice for the people of the world and ecological sustainability for the planet requires the constitution of a global normative order guided by public and political decision-making. The achievement of a publicly accountable and responsive constitutional order that is superordinate to the organizations of finance, as these have developed in the service of a global capitalist economy, would amount to a revolutionary transformation.
ECONOMICS, THE ENVIRONMENT AND THE PROBABILITY OF ‘DE-GROWTH’
One of the clichés much loved by business leaders and others is “blue sky thinking”. An implication of this term, it seems to me, is that there’s an infinity of possibility. Although the mainstream press has, in the past, dubbed me “Dr Gloom” and “Terrifying Tim”, I don’t discount the concept of infinite possibility. I’m an incurable optimist – when I’m not looking at the economic outlook, anyway.
However positive you are, though, if you set out on a lengthy expedition, it’s as well to take some wet weather clothing with you, because blue skies can turn dark grey pretty quickly. ‘Hoping for the best but preparing for the worst’ seems a pretty prudent way to think.
Before we address some of the financial, economic and broader issues which might darken our skies, I’d like to draw your attention to an important distinction, which is that ‘situations’ and ‘outcomes’ are different things. ‘Situations’ are circumstances calling for decisions, but, in themselves, they generally contain a multiplicity of possible results. ‘Outcomes’ are determined by the responses made to any particular set of ‘situations’.
This is important, because a lot of what I’m going to discuss here concerns ‘situations’. Many of these look pretty daunting, but the point about a multiplicity of possible ‘outcomes’ remains critical. Bad decisions turn difficult situations into malign outcomes, but wise choices can, at the very least, preclude the worst, and can even produce good outcomes from unpromising situations.
The gloomy non-science
Economics has been called “the gloomy science”. In fact, economics – as currently practised – may or may not be “gloomy”, but it isn’t a “science”. The fundamental flaw with conventional economics is that it assumes that the economy is a financial system, to be measured in dollars, pounds, euros and yen.
This, in reality, is a huge misconception. Throughout history, systems of money have come and gone. A collector might well buy a Roman coin from you, but you couldn’t use it in a café or a shop. Money is simply a human artefact, often of temporary duration, which we can create or destroy at will.
The purpose of money is the facilitation of exchange, something more convenient than barter. Its other often-claimed functions (as “a store of value” and a “unit of account”) are flawed at best. The “store of value” concept is particularly unconvincing. If somebody in a Western country dug up some banknotes buried in the garden by his or her great-grandmother, their purchasing power would be dramatically lower than when the biscuit-tin containing them was interred between the cabbages and the carrots. Measured using the broad-basis GDP deflator, the US dollar has lost 62% of its purchasing power since 1980 alone, and the pound has shed 71% of its value. Moreover, many countries change their notes and coins at frequent intervals, invalidating older versions.
Money does have important characteristics – which we’ll come to – but it’s not in any sense coterminous with a ‘real’ economy that consists of goods and services. All of these are products of the use of energy. Once you grasp this fundamental point, a ‘science’ of economics becomes a possibility, but as a branch of the laws of thermodynamics, and not, as now, as ‘the study of money’.
The energy fundamentals
As regular readers will know, whenever energy is accessed, some of that energy is always consumed in the access process. This divides the totality of energy supply into two streams – the consumed component is known here as ECoE (the Energy Cost of Energy), and the remainder is surplus energy. Because this surplus energy powers all forms of economic activity other than the supply of energy itself, it is the determinant of prosperity.
The SEEDS model calculates that, over the last twenty years, global trend ECoE has more than doubled, from 3.6% in 1998 to 7.9% last year. That’s already taken a huge bite out of our ability to grow our prosperity, and there’s no likelihood of ECoE levelling out in the foreseeable future, let alone turning back downwards.
The ECoEs of renewables are falling, just as those of fossil fuels are rising exponentially. This is a topic that we’ve discussed before, and will undoubtedly return to in the future, but it seems unlikely that a full transition to renewables, utterly vital though it is, is going to stabilise overall ECoE at much below about 10%. For context, back in the 1960s, when real economic growth was robust (and when petroleum consumption was growing by as much as 8% annually, whilst car ownership was expanding rapidly), world trend ECoE was less than 2%.
There are two reasons – one obvious, one perhaps less so – why an understanding of ECoE is critical to the environmental debate.
Obviously, if we continue to tie our economic fortunes to fossil fuels, the relentless rise in their ECoEs is going to carry on making us poorer, so there’s a compelling economic (as well as environmental) case for transition to renewables.
Less obviously, whilst prosperity is a function of surplus (aggregate less-ECoE) energy, climate-harming emissions are tied to total (surplus plus ECoE) energy. Essentially, we need to reduce our emissions from fossil fuels at a rate which at least matches the rate at which their ECoEs are rising if we’re to stand any chance at all of overcoming climate risk.
It’s a dispiriting thought that, whilst energy-based economics could make a powerful contribution to the case for environmental action, conventional, money-fixated economics can only interact negatively, by telling us how much it’s going to “cost”. Unfortunately, mainstream economics can’t really tell us the cost of not transitioning.
These “costs”, to be sure, are dauntingly large numbers. IRENA – the International Renewable Energy Agency – has costed transition at between $95 trillion and $110tn. These equate to between 619 and 721 Apollo programmes at the current-equivalent cost ($153bn) of putting a man on the Moon.
Moreover, the Americans of the 1960s had a choice about whether or not to fund a space programme. In economic as well as in environmental terms, there is no choice at all about our imperative need to transition.
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First, there is a terrific YouTube channel, Mentour Pilot, that I watch, which is hosted by a current European 737 captain. It is not ‘sound bite video’ and is an investment in time but it is thorough and he is a very good presenter. I will try to link in some of his videos.
I wrote this piece for Facebook, a few weeks back. I thought it might be a useful waypoint for the journey the commercial aircraft world is going on, for the rest of this year.
The first Boeing success in passenger jets was the 707, in the late 50s. That was followed by the 727, once ubiquitous as a short haul airliner. The 737 followed in the late 60s. The point here is that all three jets had essentially the same cross section. The 737 had the same engines as the 727 but only two rather than three. They were models of the legendary JT8D, much longer than wide. This allowed for shorter landing gear.
The 737 is the most popular airliner in history. There is one unique feature involving the landing gear. The main gear wheels do not have an outer cover when retracted. The tires are exposed, just like a P-40 Warhawk from WW2. This is due to a design decision that was driven by a predicted need to operate from small airports with few resources. It was done to keep the jet low while on the ground, for loading and maintenance,and it did not leave room for the typical fuselage bulge (fairing) for wheel covers.
So far, 1950s cross section and low to the ground design, assisted by a jet engine that did not have a big fan in front.
The 737-400 got big fan engines. The nacelles (engine covers) are actually flat on the bottom, rather the normal circular shape, to keep the same landing gear and low profile. It works but looks a tad odd. It was a first of other compromises to come.
By 1984, Airbus had designed and began selling the main competitor to the 737, the A319/A320/A321 series. Designed later, from a clean sheet, the fuselage profile is wider. (I prefer this plane as the seats are side to side roomier.) Jet Blue is a big customer. There is a higher stance and the wheels are fully enclosed when they retract. Unlike the 737, there was room for larger, more efficient engines without resorting to tricks with the nacelles or engine placement. The cockpit is more modern. They are outselling the 737, which also still continued to sell very well. The 737 is considered to be at the end of its possible development. The A320 series is clearly not. After several generations of both planes, each sporting incremental improvements in engines and avionics, a new emphasis on even larger, more fuel efficient engines arrived.
As a side note, we enthusiasts kept wondering when or if Boeing would replace the 737 with an airplane even more modern than the Airbus competitors. Like wider, with an up to date cockpit and avionics and lighter structures like the fabulous 777 and 787. The discussion was that the Max was one iteration too much. But they sell all they can make without the unbelievable investment a new airplane would take. It is found money, living on an investment made in the late 60s. Important to understand that the 737 is a huge cash cow, funding much of the rest of the commercial division, including the development of new aircraft. Any drop in sales is a serious matter. The A320 series has the same status with Airbus.
The YouTube channel, Mentour Pilot, explains the technicality of the changes made to the 737 to get to the Max version and what the MCAS system is. I will try to include a link below. The Max has new engines that are so much larger than the original JT8D, that they had to move them forward and upward to make them fit. It changed the center of gravity and gave a pronounced pitch up dynamic when the now more powerful thrust was applied. Excessive pitch up can be very bad, like get into a low altitude stall and crash the jet bad. At too high an nose angle the wings lose lift. No lift, no flying, just a plane dropping from the sky. And the pilot asks for that increased thrust at take off and climb, down low with little altitude to work with.
A serious development factor with the Max was to get pilots to be able to transfer from the prior generations of 737 to the Max with as minimal a training program as possible. A very big selling point. The competitor jet is more comfortable (IMO), a more modern design so you need a competitive edge. The MCAS system was the key. It allegedly made the Max fly like the older generations, preventing the higher thrust from causing a uncontrollable pitch up. One pilot stated that his transition training was 60 minutes on an IPad. Pilots stated they were not aware it was even there, running the whole time. There is no way to “turn it off”.
Things get real technical at this point but the basic system relies on a correct read from a single pitch sensor or AOA (angle of attack) sensor. The jet has two, looking like small vanes on either side of the fuselage, just below the cockpit. Focus on the fact that the safest version of MCAS, using both sensors rather than one, cost more money. And so many airlines did not order it.
Now the story starts going very badly. If the one sensor the basic system is looking at goes bad, MCAS does not know the actual nose pitch of the jet and starts to take over trying to fix a problem that isn’t there. The pilots can not turn it off. As stated, most didn’t even know it was there. Without the sensor working properly it is going to do the wrong things. In Lion Air, the sensor and system was repeatedly found faulty on prior flights. In the Ethiopian crash, there is evidence that a bird strike knocked it off the aircraft. The only thing the pilots can do is turn off the electric motor that controls the horizontal stabilizer (sets pitch or nose angle) and crank the stabilizer by hand. Again, watch the Mentour Pilot video on this.
There is evidence that pilots were reporting issues prior to the Lion Air crash and they absolutely confronted Boeing after it. I have to tell you that this reminds me of the moment after the Challenger accident when we were informed of the outcome of the Rodgers Report and there was undeniable evidence that appropriately placed people knew the infamous O-Rings were leaking all along and were worse as the temperature got colder. We were gutted.
With the Shuttle, IMO, people were allowed to redefine their jobs as “making it fly”, not making it fly safely. The word safely got crushed out. I believe Boeing had all the evidence needed to stop this as early as a year ago, if not further back. Corporate cultures, NASA included, create lethal environments for people who scream STOP! See the Columbia accident for a repeat at NASA. It was bad enough that action wasn’t taken before the Lion Air accident. I fully believe it’s absolutely inexcusable after.
It is not a silly question to ask if Boeing Commercial Aircraft will survive this event. No Lockheed, Douglas or Convair airliners are being manufactured these days. One thing money can’t buy is trust. Airlines are cancelling 737 orders. Airbus is selling large numbers of the A320 family and has the financial backing of European countries. The A380 failure (enormous investment and far too few sales) could have taken out a company but not a group of nations. China has a need for some 7,000 regional planes. They are working hard to develop and make their own competent aircraft and to compete internationally. They are a nation, not a private company that has to make a profit.
I (layperson that I am), do not think Boeing Commercial Aircraft will disappear but it may lose its peer status with Airbus. They will fix the Max. That being said, there are serious issues in resolving the correct training to give to pilots. The sales edge of very little training is gone. There are reports that 737 Max simulators, a very big deal in training pilots, need faults corrected in their software. Getting this model back to flying was thought to be a matter of a month or two. Now August may be the earliest qnd the Paris Air Show, where many new sales are usually announced, is nearly at hand.
Boeing has been trying to make a decision on the all new 797, which would replace 757s and 767s now ageing out of usefulness. The market is estimated at 4,000 aircraft on a global basis. Airbus is pitching an A321 variant as the right answer. Their more modern aircraft, the A321, still has room for development. Boeing has to fund, develop, and launch the 797 aircraft. At that point they will be still left with no replacement for the 737.
There is a saying that a commercial aircraft firm bets the company when developing a new airliner. Did Boeing bet the company on not developing a 737 replacement? It looks like we may find out in the next few years.
Youtube - Why does the Boeing 737MAX 8 need MCAS in the first place?
Youtube - Five questions answered about the Boeing 737MAX
Youtube - How 737 MAX 8’s design history could have influenced the Ethiopian Airlines crash
Money doesn’t grow on trees, and although people can make money out of trees, they cannot make trees out of money. This much may seem platitudinous, but it is worth keeping in mind.
What is true of trees is true of the natural world as a whole, including the human beings that are part of it. Nature is real; money is an abstraction. If money seems real that is because our institutions and practices are so deeply premised on beliefs in it. There is an important sense in which those institutionalized beliefs – in crediting it with a certain value – make money real; but it is not real in the way the natural world is real. If a bank goes bust, if a whole economy crashes, the social upheaval that follows may be immense, but life goes on – people will pick themselves up and start again (and some people, meanwhile, will likely have found a way to profit from it!). By contrast, if a species goes extinct, if an ecosystem collapses, then there is no prospect – certainly not on human timescales – of a recovery. The threat of extinction to our own species is the ultimate threat.
Extinction Rebellion has given publicity to critically important concerns of our time – the ecological crises as exemplified by dangerous climate change and biodiversity loss. But it also gives rise to some perplexity.
A circumstantial puzzle is how an apparently spontaneous social movement of protest comes to have the energetic backing of big business interests and even to receive notable support from influential sections of the corporate media.
On deeper reflection, what does it even mean to stage a rebellion against extinction? Rebellions usually involve a group of people rising up to protest or overthrow another group that wields unjust or illegitimate power over them. How can you ‘rebel’ against extinction? It is not as if you can choose to disobey the laws of nature.
The website that asserts the copyright © Extinction Rebellion, states certain demands directed at government. The moral clarity of their seemingly simple message, however, could be deceptive.
Two key demands are: “halt biodiversity loss and reduce greenhouse gas emissions to net zero by 2025.”
These may sound like goals that any ethically rational person could wholeheartedly endorse, and yet, as a recent critical study by Cory Morningstar has demonstrated, what their pursuit entails does not necessarily correspond to what people might imagine.
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Rebellion is in the air. On November 17 of last year, the “Gilet Jaunes” movement spontaneously erupted in France, in reaction to a planned tax on diesel fuel. Over 300,000 people took part in demonstrations across France, with actions ranging from blocking roundabouts to vandalizing banks, shops and luxury vehicles. As I write these words, the movement is still holding demonstrations across France every Saturday.
Almost as spontaneously, a youth movement calling itself Extinction Rebellion came into being in the UK, and held its first “Rebellion Day” on the same day that the Gilet Jaunes first shook France. This initial action, which blocked London’s five main bridges, was much smaller and lower key than the Gilet Jaunes protests, but by April 2019, non-violent civil disobedience protests brought large sections of London to a halt, and resulted in the arrest of over 1,000 demonstrators.
These movements are superficially diametrically opposed: one was provoked by measures to address climate change, the other is demanding action on climate change. However, they are united by one key detail. The policy action that the Gilet Jaunes oppose, and the policy inaction that Extinction Rebellion deride, are both the products of economists—and most specifically, the economist who was awarded the Nobel Prize in Economics for his work on Climate Change, William Nordhaus.
The Gilet Jaunes rebellion was sparked by the proposed introduction of a carbon tax on diesel fuel—and this is precisely the method that Nordhaus and most economists recommend to use to combat Climate Change.
Extinction Rebellion was sparked by the failure of policymakers to do anything substantive to prevent Climate Change, and are demanding policies that would cause net CO2 emissions to fall to zero by 2025:
Government must act now to halt biodiversity loss and reduce greenhouse gas emissions to net zero by 2025…
The truth is that the climate and ecological emergency poses an unprecedented existential threat to humanity and all life on Earth.
Rapid, unprecedented changes to many aspects of human life – energy use and supply, transport, farming and food supply, and so on – are now needed to avert global climate and ecological catastrophe.
Globally governments have been unwilling to tackle a problem of this magnitude. In 2015, the UN Paris Agreement on Climate Change was signed by world leaders to limit global warming to 2°C above pre-industrial levels. However, scientific evidence now tells us that our leaders have not taken enough action and we are still on a path to reach 3-4°C, which will be catastrophic to all life on Earth. https://rebellion.earth/the-truth/demands/, May 3rd 2019
Nordhaus agrees that man-made Climate Change is happening—he is not a “Climate Change Denialist”. However, his research actually encourages policymakers not to take the action that Extinction Rebellion demands, or anything like it. He instead recommends managing Global Warming so that the Earth’s temperature will stabilize at 4 degrees above pre-industrial levels in the mid-22nd century.
Nordhaus also argued that the policy Extinction Rebellion recommends, of restrict Global Warming to 1.5 degrees—even if it is done over the next century, rather than the next six years as Extinction Rebellion demands—would cost the global economy more than 50 trillion US dollars, while yielding benefits of well under US$5 trillion.
How is it possible that the optimal temperature for the planet is 4 degrees above pre-industrial levels—and that damages from that level of warming would amount to under 10% of global GDP—when it would also be “catastrophic to all life on Earth”? How is it possible that Global Warming of 1.5 degrees would reduce global GDP by a few trillion US dollars—less than 5% of what it would have been in the absence of Global Warming—while the policies to achieve that limit, even if executed over a century rather than just five years, would cost over ten times as much?
It isn’t. Instead, either Extinction Rebellion’s claims are vastly overblown, or Nordhaus’s estimates of the economic damages from Global Warming drastically understate the dangers.
Both are possible, of course. But categorically, Nordhaus’s estimates of the potential economic damage from Global Warming are nonsense. They are also one of the key reasons why policymakers have not taken the threat seriously. If Extinction Rebellion is going to make policymakers take Climate Change seriously, then one of their first targets must be Nordhaus and his DICE model.
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Preface. This is a book review of: Robert Bryce. 2009. Power Hungry: The Myths of “Green” Energy and the Real Fuels of the Future.
This is a brilliant book, very funny at times, a great way to sharpen your critical thinking skills, and complex ideas and principles expressed so enough anyone can understand them.
I have two main quibbles with his book. I’ve written quite a bit about energy and resources in “When trucks stop running” and energyskeptic about why nuclear power and natural gas cannot save us from the coming oil shortages — after all, natural gas and uranium are finite also.
This book came out in 2009. As far as Bryce’s promotion of nuclear power as a potential solution, perhaps he would have been less enthusiastic if he’d read the 2013 “Too Hot to Touch: The Problem of High-Level Nuclear Waste” by W. A. Alley et al., Cambridge University Press. And also the 2016 National Research Council “Lessons Learned from the Fukushima Nuclear Accident for Improving Safety and Security of U.S. Nuclear Plants: Phase 2”. As a result of this study, MIT (Massachusetts Institute of Technology) and Science Magazine concluded that a nuclear spent fuel fire at Peach Bottom in Pennsylvania could force up to 18 million people to evacuate. This is because the spent fuel is not stored under the containment vessel where the reactor is, which would keep the radioactivity from escaping, so if electric power were out for 12 to 31 days (depending on how hot the stored fuel was), the fuel from the reactor core cooling down in a nearby nuclear spent fuel pool could catch on fire and cause millions of flee from thousands of square miles of contaminated land.
Bryce on why the green economy won’t work:
There’s tremendous political appeal in “green jobs,” a “green collar economy,” and in what U.S. President Barack Obama calls a “new energy future.” We’ve repeatedly been told that if we embrace those ideas, provide more subsidies to politically favored businesses, and launch more government-funded energy research programs, then we would resolve a host of problems, including carbon dioxide emissions, global climate change, dependence on oil imports, terrorism, peak oil, wars in the Persian Gulf, and air pollution. Furthermore, we’re told that by embracing “green” energy we would also revive our struggling economy, because doing so would produce more of those vaunted “green jobs.”
These claims ignore the hard realities posed by the Four Imperatives: power density, energy density, cost, and scale.
It may be fashionable to promote wind, solar, and biofuels, but those sources fail when it comes to power density. We want energy sources that produce lots of power (which is measured in horsepower or watts) from small amounts of real estate.
And that’s the key problem with wind, solar, and biofuels: They require huge amounts of land to generate meaningful amounts of power. If a source has low power density, it invariably has higher costs, which makes it difficult for that source to scale up and provide large amounts of energy at reasonable prices.
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Preface. I’ve made a strong case in my book “When trucks stop running” and this energyskeptic website that we will eventually return to wood and a 14th century lifestyle after fossil fuels are depleted.
So if you’re curious about what that lifestyle will be like, and how coal changed everything, this is the book for you.
One point stressed several times is that in all organic economies a steady state exists. Or as economists put it, that there were just three “components essential in all material production; capital, labor, and land. The first two could be expanded as necessary to match increased demand, but the third could not, and rising pressure on this inflexible resource arrested growth and depressed the return to capital and the reward of labor.”
Then along came coal (and today oil and natural gas), which for a few centuries removed land as a limiting factor (though we’re awfully close the Malthusian limits as well, population is growing, cropland is shrinking as development builds over the best farm land near cities, which exist where they do because that was good crop land).
In today’s world, energy set the limits to growth, but in the future land once again will. So will the quality of roads, how many forests exist whose wood can be gotten to towns and cities, and so on. So if you’re in a transition town group or in other ways trying to make the future better, perhaps this book will give you some ideas.
If this world is too painful to contemplate, read some books about the Amish, which would be an ideal society for me minus the religious side of it.
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Real revolutions are taking place not on squares, but in the quiet of offices, and that’s why nobody noticed the world revolution that took place on March 29th 2019. Only a small wave passed across the periphery of the information field, and the momentum faded away because the situation was described in terms unclear to the masses.
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This revolution is called “Basel III”, and it was made by the Bank for International Settlements (BIS). Its essence is in the following: BIS runs the IMF, and this, in turn, runs the central banks of all countries. The body of such control is called BCBS – the Basel Committee on Banking Supervision. It isn’t just some worthless US State Department or Congress of American senators. It’s not a stupid Pentagon, a little Department of the Treasury, which runs around like the CIA’s servant on standby, or a house of collective farmers with the name “White House”.
This isn’t even the banks of the US Federal Reserve, which govern all of this “wealth”. This is a Government of all of them combined. That real world Government that people in the world try not to speak about aloud. BCBS is the Politburo of the world, whose Secretary General, according to rumours, is comrade Baruch, and the underground structure of the Central Committee is even more secret. It has many euphemisms, the most adequate of which is “Zurich gnomes”. This is what Swiss bankers are called. Not even owners of commercial banks, but namely those ordinary-looking men sitting in the Swiss city of Basel who Hitler – who tried to attach the whole world to the Third Reich, and who preserved neutrality with Switzerland during all the war – didn’t dare to attack. And, as is known, in Switzerland, besides Swiss rifleman, in reality there isn’t even an army. So who was the frenzied Fuhrer afraid of?
Nevertheless, the “recommendations” that were made by BCBS on March 29th 2019 were immediately, at the snap of the fingers, accepted for execution by all the central banks of the world. And our Russian Central Bank is not an exception. There is even the statement of the press service of the Central Bank of the Russian Federation posted on the official website of the Central Bank. It is called “Concerning the terms of implementation of Basel III”. The planned world revolution was in 2017 (magic of dates and digits or just a coincidence [a reference to 1917 – ed]?), but it has started only now.
Its essence is simple. In the world the system of exclusive dollar domination established in 1944 in Bretton Woods and reformed in 1976 in Jamaica, where gold was recognised as an equivalent of world money that became invalid, is being cancelled. The dollar indeed became world money, and gold became an ordinary exchange good, like metal or sugar traded in London on commodity exchanges. However, the weather was determined there by only three firms of the “Pool of London” that belong to an even smaller number of owners, but, nevertheless, it’s not gold, but oil that became the dollar filler.
We have lived in such a world ever since. Gold was considered as a reserve of the third category for all banks, from central to commercial ones, where the reserves were, first of all, in dollars and bonds of the US. The norms of Basel III demand an increase, first of all, in monetary reserves. This impeded the volumes of monetary resources of banks that could be used to carry out expansion, but it was a compulsory measure for saving the stability of a world banking system that showed to be insufficient in a crisis.
In Russia pseudo-patriots were very much indignant at this, demanding to reject Basel III, which they called a sign of “a lack of sovereignty”. In reality, this is a quite normal demand to observe international standards of bank security, which were becoming more rigid, but since we [Russians – ed] were not printing dollars, so of course it had an impact on us. And since the alternative is an exit from world financial communications into full isolation, so our authorities, of course, did not want to accept such nonsense that was even designated by pseudo-patriots as a “lack of sovereignty”. To call sovereignty – freedom, to put your head in the noose is, let’s agree, a strange interpretation of the term.

The Basel III decision meant that gold as a reserve of the third category was earlier estimated at 50% of its value on the balance sheets of world banks. At the same time, all owners of world money traded in gold not physically, but on paper, without the movement of real metal, the volume of which in the world wasn’t enough for real transactions. This was done in order to push down the price of gold, to keep it as low as possible. First of all, for the benefit of the dollar. After all, the dollar is tied to oil, which had to cost no less than the price of one gram of gold per barrel.
And now it was decided to place gold not in the third, but “just” in the first category. And it means that now it is possible to evaluate it not at 50, but at 100% of its value. This leads to the revaluation of the balance sheet total. And concerning Russia, it means that now we can quietly, on all legal grounds, pour nearly 3 trillion rubles into the economy. If to be precise, it is 2.95 trillion rubles or $45 billion at the exchange rate in addition to the current balance sheet total. The Central Bank of the Russian Federation can pour this money into our economy on all legal grounds. How it will happen in reality isn’t yet known. Haste here without calculating all the consequences is very dangerous. Although this emission is considered as noninflationary, actually everything is much more complicated.
During the next few months nothing will change in the world. The U-turn will be very slow. In the US the gold reserves officially total 8133.5 tons, but there is such a thing as a financial multiplier: for every gold dollar, the banks print 20-30 digital paper ones. I.e., the US can only officially receive $170 billion in addition, but taking into account the multiplier – $4.5 trillion. This explains why the Federal Reserve System holds back on increasing interests rates and so far maintains the course towards lowering the balance sheet total – they are cautious of a surge in hyperinflation.
But all the largest states and holders of gold will now revaluate their gold and foreign exchange reserves: Germany, Italy, France, Russia, China, and Switzerland – countries where the gold reserves exceed 1,000 tons. Notice that there is no mumpish Britain in this list. Its reserves are less than 1000 tons. Experts suspect that it is perhaps not a coincidence that the dates of Brexit and the date of Basel III coincide. The increased financial power of the leaders of Europe – Germany and France – is capable of completely concluding the dismantlement of Britain on the European continent. It was necessary to get out as soon as possible.
Thus, it seems that it is possible to congratulate us – the dollar era lasting from 1944 to 2019 has ended. Now gold is restored in its rights and is not an exchange metal, but world money on an equal basis with the dollar, euro, and British pound. Now gold will start to rise in price, and its price will rise from $1200-1400 per troy ounce up to $1800-2000 by this autumn. Now it is clear why Russia and China during all these years so persistently decanted its export income into the growth of gold reserves. There is now such a situation where nobody in the world will sell gold.
Injections of extra money will suffice for the world economy for 5-6 months. In the US this money can be used to pay off the astronomical debt. Perhaps this wasn’t Zurich’s last motive for making such a decision. But after all, the most important thing is an attempt to slip out from under the Tower of Pisa that is the falling dollar.
Since the dollar and oil are connected, the growth of the price of gold will directly affect the growth of the price of oil. Now a barrel costs as much as 1.627 grams of gold. A price growth will cause the world economy – where 85% of the money dollar supply turns into stock surrogates like shares, bonds, and treasuries – to cave in. The stock exchange will not be able to bundle together such an additional mass of money any more.

It will be good for oil industry workers – even, perhaps, best of all, but not for long. The economical crash because of expensive oil will become a crash for all oil industry workers too. It is precisely this that is the main reason why our rights for additional emissions can remain unused in full volume, although a gift in such a form will not be completely ignored. The May Decrees of Putin in the current context are being understood completely differently. Russia runs away from the oil-based economic model in all ways. Including by political reforms and changing the elites.
However, why is the decision of Basel a revolution? Because from the autumn the financial flood in the world economy will begin. It will entail the acceleration of Russia and China’s isolation from the dollar system and the crash of the economies that completely depend on the dollar – the vassal countries of the US. It will be worst of all for them. And this means that the reasons for increased distancing between the EU and the US will increase in number manyfold. A redrawing of the map of global unions awaits the world.
And the redrawing of these unions will be carried out not least by military methods. Or with their partial use, but in one way or another, reasoning involving force in the world will increase almost to the level of guaranteed war. “Almost” is our hope for rescue, because the US loses all main instruments of influence on this world. Except force.
But it’s not for this purpose that the “Zurich gnomes” created this world, so that the US is so simply turned into radioactive ashes. The US will be drenched with cold water like a broken down nuclear reactor, while the world has entered the zone of the most global transformations over the past few centuries. The revolution that so many waited for, were afraid of, and spoke so much about has started. Buckle up and don’t smoke, the captain and crew wish you a pleasant flight.
This is a long and very worthwhile article explaining why politics as it is practised is unable to understand and effectively cope with the current world circumstances. Read the comments too.
As regular readers will know, this site is driven by the understanding that the economy is an energy system, and not (as conventional thinking assumes) a financial one. Though we explore a wide range of related issues (such as the conclusion that energy supply is going to need monetary subsidy), it’s important that we never lose sight of the central thesis. So I hope you’ll understand the need for a periodic restatement of the essentials.
If you’re new to Surplus Energy Economics, what this site offers is a coherent interpretation of economic and financial trends from a radically different standpoint. This enables us to understand issues that increasingly baffle conventional explanations.
This perspective is a practical one – nobody conversant with the energy-based interpretation was much surprised, for instance, when Donald Trump was elected to the White House, when British voters opted for “Brexit”, or when a coalition of insurgents (aka “populists”) took power in Rome. The SEE interpretation of prosperity trends also goes a long way towards explaining the gilets jaunes protests in France, protests than can be expected in due course to be replicated in countries such as the Netherlands. We’re also unpersuaded by the exuberant consensus narrative of the Chinese economy. The proprietary SEEDS model has proved a powerful tool for the interpretation of critical trends in economics, finance and government.
The aim here, though, isn’t simply to restate the core interpretation. Rather, there are three trends to be considered, each of which is absolutely critical, and each of which is gathering momentum. The aim here is to explore these trends, and share and discuss the interpretations of them made possible by surplus energy economics.
The first such trend is the growing inevitability of a second financial crisis (GFC II), which will dwarf the 2008 global financial crisis (GFC), whilst differing radically from it in nature.
The second is the progressive undermining of political incumbencies and systems, a process resulting from the widening divergence between policy assumption and economic reality.
The third is the clear danger that the current, gradual deterioration in global prosperity could accelerate into something far more damaging, disruptive and dangerous.
The vital insight
The centrality of the economy is the delivery of goods and services, literally none of which can be supplied without energy. It follows that the economy is an energy system (and not a financial one), with money acting simply as a claim on output which is itself made possible only by the availability of energy. Money has no intrinsic worth, and commands ‘value’ only in relation to the things for which it can be exchanged – and all of those things rely entirely on energy.
Critically, all economic output (other than the supply of energy itself) is the product of surplus energy – whenever energy is accessed, some energy is always consumed in the access process, and surplus energy is what remains after the energy cost of energy (ECoE) has been deducted from the total (or ‘gross’) amount that is accessed.
This makes ECoE a critical determinant of prosperity. The distinguishing feature of the world economy over the last two decades has been the relentless rise in ECoE. This process necessarily undermines prosperity, because it erodes the available quantity of surplus energy. We’re already seeing this happen – Western prosperity growth has gone into reverse, and progress in emerging market (EM) economies is petering out. Global average prosperity has already turned down.
The trend in ECoE is determined by four main factors. Historically, ECoE has been pushed downwards by broadening geographical reach and increasing economies of scale. Where oil, natural gas and coal are concerned, these positive factors have been exhausted, so the dominating driver of ECoE now is depletion, a process which occurs because we have, quite naturally, accessed the most profitable (lowest ECoE) resources first, leaving costlier alternatives for later.
The fourth driver of ECoE is technology, which accelerates downwards tendencies in ECoE, and mitigates upwards movements. Technology, though, operates within the physical properties of the resource envelope, and cannot ‘overrule’ the laws of physics. This needs to be understood as a counter to some of the more glib and misleading extrapolatory assumptions about our energy future.
The nature of the factors driving ECoE indicates that this critical factor should be interpreted as a trend. According to SEEDS – the Surplus Energy Economics Data System – the trend ECoE of fossil fuels has risen exponentially, from 2.6% in 1990 to 4.1% in 2000, 6.7% in 2010 and 9.9% today. Since fossil fuels continue to account for four-fifths of energy supply, the trend in overall world ECoE has followed a similarly exponential path, and has now reached 8.0%, compared with 5.9% in 2010 and 3.9% in 2000.
For fossil fuels alone, trend ECoE is projected to reach 11.8% by 2025, and 13.5% by 2030. SEEDS interpretation demonstrates that an ECoE of 5% has been enough to put prosperity growth into reverse in highly complex Western economies, whilst less complex emerging market (EM) economies hit a similar climacteric at ECoEs of about 10%. A world economy dependent on fossil fuels thus faces deteriorating prosperity and diminishing complexity, both of which pose grave managerial challenges because they lie wholly outside our prior experience.
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The comments are worth reading too.
After more than a decade of worsening economic and financial folly, it can come as no surprise that we’re living with extraordinarily elevated levels of risk.
But what form does that risk take, and where is it most acute?
According to SEEDS – the Surplus Energy Economics Data System – the riskiest countries on the planet are Ireland, France, the Netherlands, China, Canada and the United Kingdom.
The risks vary between economies. Some simply have debts which are excessive. Some have become dangerously addicted to continuing infusions of cheap credit. Some have financial systems vastly out of proportion to the host economy. Some have infuriated the general public to the point where a repetition of the 2008 “rescue” would inflame huge anger. Many have combinations of all four sorts of risk.
Here’s the “top six” from the SEEDS Risk Matrix. Of course, the global risk represented by each country depends on proportionate size, so China (ranked #4 in the Matrix) is far more of a threat to the world economy and financial system than Ireland, the riskiest individual economy. It’s noteworthy, though, that the three highest-risk countries are all members of the Euro Area. It’s also noteworthy that, amongst the emerging market (EM) economies, only China and South Korea (ranked #9) make the top ten.
Risk and irresponsibility
Before we get into methodologies and detailed numbers, it’s worth reflecting on why risk is quite so elevated. As regular readers will know, the narrative of recent years is that prosperity has been coming under increasing pressure ever since the late 1990s, mainly because trend ECoE (the energy cost of energy) has been rising, squeezing the surplus energy which is the source of all economic output and prosperity.
This is a trend which the authorities haven’t understood, recognizing only a vague “secular stagnation” whose actual root causes elude them.
Even “secular stagnation” has been unacceptable to economic and financial systems wholly predicated on “growth”. Simply put, there‘s been too much at stake for any form of stagnation, let alone deterioration, to be acceptable. The very idea that growth might be anything less than perpetual, despite the finite nature of the planet, has been treated as anathema.
If there isn’t any genuine growth to be enjoyed, the logic goes, then we’d better fake it. Essentially, nobody in authority has been willing to allow a little thing like reality to spoil the party, even if enjoyment of the party is now confined to quite a small minority.
Accordingly, increasingly futile (and dangerous) financial expedients, known here as adventurism, have been tried as “solutions” to the problem of low “growth”. In essence, these have had in common a characteristic of financial manipulation, most obvious in the fields of credit expansion and monetary dilution.
These process are the causes of the risk that we are measuring here, but risk comes in more than one guise. Accordingly, each of the four components of the SEEDS Risk Matrix addresses a different type of exposure.
These categories are:
- Debt risk
- Credit dependency risk
- Systemic financial risk
- Acquiescence risk
One final point – before we get into the detail – is that no attempt is made here to measure political risk in its broader sense. Through acquiescence risk, we can work out which populations have most to complain about in terms of worsening prosperity. But no purely economic calculation can determine exactly when and why a population decides to eject the governing incumbency, or when governments might be tempted into the time-dishonoured diversionary tactic of overseas belligerence. We can but hope that international affairs remain orderly, and that democracy is the preferred form of regime-change.
Transcript of 90 minute speech. Read it all and compare and contrast to your own politicians, and any other nations's politicians.
See Gilbert Doctorow's critique of the New York Times article on this speech here.
Members of the Federation Council,
State Duma deputies,
citizens of Russia,
Today’s Address is primarily devoted to matters of domestic social and economic development. I would like to focus on the objectives set forth in the May 2018 Executive Order and detailed in the national projects. Their content and the targets they set are a reflection of the demands and expectations of Russia’s citizens. People are at the core of the national projects, which are designed to bring about a new quality of life for all generations. This can only be achieved by generating momentum in Russia’s development.
These are long-term objectives that we have set for ourselves. However, work to achieve these strategic goals has to begin today. Time is always in short supply, as I have already said on numerous occasions, and you all know this all too well. There is simply no time for getting up to speed or making any adjustments. All in all, I believe that we have already completed the stage of articulating objectives and outlining tools for achieving our goals. Departing from the targets that were outlined would be unacceptable. It is true that these are challenging objectives. That being said, lowering the requirements for specific targets or watering them down is not an option. As I have already said, these are formidable challenges that require us to undertake major efforts. However, they are in step with the scale and pace of global change. It is our duty to keep pushing ahead and gaining momentum.
If someone prefers to work in the business as usual mode, without challenges, avoiding initiative or responsibility, they had better leave immediately. I already hear that some things are “impossible,” “too difficult,” “the standards are too high,” and “it will not work.” With such an attitude, you had better stay away.
Besides, you cannot fool the people. They are acutely aware of hypocrisy, lack of respect or any injustice. They have little interest in red tape and bureaucratic routine. It is important for people to see what is really being done and the impact it has on their lives and the lives of their families. And not sometime in the future, but now. We must not repeat the mistakes of the past decades and wait for communism to arrive. We have to change the situation for the better now.
Therefore, the work of the executive branch at all levels should be coordinated, meaningful and energetic. The Government of Russia must set the tone.
At the same time, I would like to emphasise and repeat: our development projects are not federal and even less so agency-based. They are national. Their results must be visible in each region of the Federation, in every municipality. It is here, on the ground, that the majority of specific tasks is implemented.
Allow me to underscore: thanks to years of common work and the results achieved, we can now direct and concentrate enormous financial resources – at least enormous for our country – on development goals. These resources have not come as a rainfall. We have not borrowed them. These funds have been earned by millions of our citizens – by the entire country. They need to be applied to increase the wealth of Russia and the wellbeing of Russian families.
Very soon, this year people should feel real changes for the better. It is on the basis of their opinion and assessments at the beginning of next year that we will evaluate the first results of our work on the national projects. And we will draw the appropriate conclusions about the work quality and performance at all levels of executive power.
Colleagues,
Let me now share some specifics on our objectives. I will begin with the key objective of preserving our nation, which means providing all-around support to families.
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Fourth, the Government and the Central Bank need to consistently maintain the policy to lower mortgage rates to 9 percent, and then to 8 percent or below, as stipulated in the May 2018 Executive Order. At the same time, special measures of support should be provided for families with children, of course. As a reminder, last year, a preferential mortgage programme was launched for families that have had their second or subsequent child. The rate for them is 6 percent. Anything higher is subsidised by the state. However, only 4,500 families have used the benefit.
The question is why. It means that people are somehow dissatisfied with the proposed conditions. But it is also clear why. A family making a decision to buy housing certainly makes plans for a long or at least medium term, a lasting investment. But with this programme, they take out a loan, start paying the instalments, and the grace period ends. The interest is actually subsidised only for the first 3 or 5 years. I propose extending the benefit for the entire term of the mortgage loan.
Yes, of course, it will require additional funding, and the cost will be rather high: 7.6 billion rubles in 2019, 21.7 billion rubles in 2020, and 30.6 billion rubles in 2021. But the programme is estimated to reach as many as 600,000 families. We certainly need to find the money. We know where to get it. We have it, and we just need to use it in the areas that are of major importance to us.
And one more direct action solution. Considering the sustainability and stability of the macroeconomic situation in the country and the growth of the state’s revenues, I consider it possible to introduce another measure of support for families having a third and subsequent children. I suggest paying 450,000 rubles directly from the federal budget to cover this sum from their mortgage. Importantly, I propose backdating this payment starting January 1, 2019, recalculating it and allocating relevant sums in this year’s budget.
Let us see what we have. If we add this sum to the maternity capital, which can also be used for mortgage payments, we will get over 900,000 rubles. In many regions, this is a substantial part of the cost of a flat. I would like to draw the attention of the Government and the State Duma to this issue. If need be, the budget will have to be adjusted accordingly. An additional 26.2 billion rubles will be required for this in 2019. The relevant figures for 2020 and 2021 are 28.6 billion rubles and 30.1 billion rubles, respectively. These are huge funds but they should be allocated and used in what I have already described as a very important area.
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Colleagues, we are facing ambitious goals. We are approaching solutions in a systematic and consistent way, building a model of socio-economic development that will allow us to ensure the best conditions for the self-fulfillment of our people and, hence, provide befitting answers to the challenges of a rapidly changing world, and preserve Russia as a civilisation with its own identity, rooted in centuries-long traditions and the culture of our people, our values and customs. Naturally, we will only be able to achieve our goals by pooling our efforts, together in a united society, if all of us, all citizens of Russia, are willing to succeed in specific endeavours.
Such solidarity in striving for change is always the deliberate choice of the people themselves. They make this choice when they understand that national development depends on them, on the results of their labour, when a desire to be needed and useful enjoys support, when everyone finds a job by vocation one is happy with, and most importantly, when there is justice and a vast space for freedom and equal opportunity for work, study, initiative and innovation.
These parameters for development breakthroughs cannot be translated into figures or indicators, but it is these things – a unified society, people being involved in the affairs of their country, and a common confidence in our power – that play the main role in reaching success. And we will achieve this success by any means necessary.
Thank you for your attention.
Vladimir Putin