Wednesday, August 31, 2011

How To Buy A Politician

From Bloomberg, this story about how easy it is to buy influence, in the mould of the Pam Bondi scandal in Florida. The part I like best is how government regulators get well paid jobs immediately after they vote in favor of the crooks.

By Alison Fitzgerald

When Texas billionaire Harold Simmons wanted to build a radioactive waste dump, one data point that would loom large in the permitting process wasn’t required on the application: He is a major donor to Governor Rick Perry.

“Everybody was aware that this was an important item for the people that were seeking the license as well as for the governor’s office,” said Larry Soward, a Perry-appointed, Republican member of the Texas Commission on Environmental Quality at the time of Simmons’s permit application.

Simmons, who has donated more than $1.2 million to Perry’s campaigns, was granted the permit over the objections of some TCEQ staffers concerned the site threatened the Ogallala Aquifer, a water source for much of the plains.

At least three commission employees resigned in protest and Soward voted against the permit. Meanwhile, a state employee who advanced the permit became a lobbyist for the company a month after it was approved.

The permit process for the site, run by Simmons’s company Waste Control Specialists LLC, a subsidiary of the publicly traded Valhi Inc. (VHI), is one example of how Perry’s donors’ close ties to the governor can influence government grants, appointments and permits.

Perry’s Aug. 13 entry into the 2012 Republican presidential primary is casting new light on his record and adversaries are using it to challenge his candidacy.

“As Americans look past his swagger, they’ll see he represents more of the same lobbyist-run politics as usual that they despise,” said Rodell Mollineau, president of American Bridge 21st Century, a Washington-based Democratic opposition research group. Perry spokesman Mark Miner didn’t respond to requests for comment.

Jim Henson, project director at the Texas Politics Project at the University of Texas at Austin, said it isn’t unusual in the Lone Star State for governors to favor business allies.

“Perry’s accumulated a long list of these stories,” said Henson. “It’s always discomforting to look at these things, when somebody is on one spreadsheet for campaign donations and then shows up again on another spreadsheet for government contracts or political appointments,” he said.

Waste Control Specialists spokesman Chuck McDonald said no favoritism was shown and the review was more rigorous to avoid any appearance of impropriety.

“Since the owner of the company is a well-known, longtime, multi-decade contributor to all conservative office holders, that made everybody want to make sure that the process was thorough and complete,” McDonald said.

Perry has a public record of rewarding his political donors with jobs and state contracts. He has appointed about 4,000 people -- including many donors -- to commissions, boards and other posts, according to Texans for Public Justice, an Austin- based, nonpartisan group that tracks state political donations.

Last week, Perry named James Lee, president of JHL Capital Holdings, to the Texas Higher Education Coordinating Board. Lee, who served on Perry’s 2011 inaugural committee, has donated more than $190,000 to Perry’s campaigns during the last decade, according to Texans for Public Justice.

The governor also appointed Dan Friedkin, chief executive officer of The Friedkin Group, chairman of the Texas Parks and Wildlife Commission. Friedkin is the third most generous individual donor to Perry, contributing more than $750,000 during the last decade.

In addition to appointments, the governor controls two business development funds to lure companies to Texas, help them grow, and develop new industries. The funds are administered by the governor’s office and Perry has final approval of all awards.

The Texas Enterprise Fund has distributed more than $400 million in grants to 71 companies since 2004, according to a state auditor report. Perry donors have been recipients, including an April 2006 $500,000 grant to Sanderson Farms, whose Chief Executive Officer Joe Sanderson has given Perry $165,000 in campaign contributions.

Simmons, chairman of Contran Corp., a holding company that owns Waste Control Specialists, is the governor’s second largest individual donor.

In addition to giving more than a million dollars to the governor’s campaigns, Simmons, 80, donated at total of $600,000 to the Republican Governors Association when Perry served in its leadership in 2007, 2008 and 2011, according to data compiled for Bloomberg by the Center for Responsive Politics, a Washington-based group that tracks political money. As Perry faced both a primary and general election challenge last year, Simmons gave the RGA $1.1 million, funds the organization used to help re-elect its members.

Simmons has been a Republican political benefactor for years. He donated $4 million to the Swift Boat Veterans for Truth that questioned Democratic nominee John Kerry’s Vietnam war service in the 2004 presidential election. Last year, he gave $1 million to American Crossroads, a group founded with help from former Bush adviser Karl Rove, according to the center.

Simmons’ expansion into radioactive waste storage began in Texas in 2003, when his company urged state lawmakers to pass legislation allowing a private company to build and run a low- level disposal site that would be owned by the state, according to McDonald. Perry signed it into law on June 20, 2003.

A year later, Waste Control Specialists, which ran an existing hazardous waste site in Andrews County in West Texas, applied for three permits to dispose of radioactive waste.

The plan was to build three facilities on the 1,300-acre site in Andrews County. One facility would take waste from federal government national labs and military bases; another would take waste from nuclear plants, hospitals and other sites in Texas and Vermont, as part of a joint disposal agreement; and a third site would dispose of radioactive “by-products” from anywhere.

The permits had to be approved by the Texas Commission on Environmental Quality, whose three commissioners were all appointed by Perry.

Environmentalists raised concerns because the site was near the Ogallala Aquifer, which provides water for drinking and agriculture from Texas to Nebraska. The engineers and geologists reviewing the application for the commission said it didn’t address those water contamination concerns. Glenn Lewis, part of the TCEQ team that reviewed the permit, called the initial application “laughably deficient.”

According to Lewis, the initial maps from the Texas Water Board -- where five of the six members were appointed by Perry - - showed the proposed disposal site was on top of the aquifer. Waste Control Specialists drilled 560 borings and 450 monitoring wells mapping the water and shared the data with the water board. In 2006, the water board changed the maps, moving the Oglalla’s boundaries away from the Waste Control Specialists’ site.

The new maps didn’t resolve the issue for the commission’s engineers and geologists, who were still unsure the facility could prevent radiation contamination of groundwater.

On Aug. 14, 2007, the review team wrote a memo explaining their concerns that concluded, “Issuance of a license for the proposed facility cannot be recommended.”

Two months later, the executive director of the agency, Glenn Shankle, drafted the first permit and recommended commission approval. Two agreed, and Soward voted no.

In an interview, Soward said he hadn’t concluded the facility shouldn’t be located in Andrews County. He was opposed because of outstanding questions about the geology and the process.

“There was an overriding issue out there that the agency had somehow improperly handled the applications,” Soward said. “I thought this whole matter should be subject to a very open and involved contested case hearing to shine the brightest possible light on these issues.”
Three members of the technical review team, including Lewis, resigned or took early retirement to protest the permit approval. Soward, who had served as a deputy to Perry when the governor was agriculture commissioner, didn’t seek another appointment to the commission and said he is no longer close to Perry.

Shankle said he never saw the staff memo that recommended against permit approval, and he said he was wasn’t pressured by the governor to advance the permit. He began talks with Waste Control Specialists about a job during the permitting process. The commission approved the permits six months after he left, he said. A month later, he became a lobbyist for the company.

“We agreed that we would not come to an agreement about whether I was going to work with them until after the commission decided on the permit. There was no influence whatsoever in this matter,” Shankle said in an interview.

Tuesday, August 30, 2011

The Real President Obama

By Matt Stoller, a fellow at the Roosevelt Institute. He is the former Senior Policy Advisor to Rep. Alan Grayson, the Progressive Florida Voice until he was thrown out by his short sighted constituents. This essay on who President Obama actually is come to us from naked capitalism. For myself this President has put me off voting more than any other elected official.

A lot of people have asked why New York Attorney General Eric Schneiderman is going after the banks as aggressively as he is. It’s almost unbelievable that one lone elected official, who happens to have powerful legal tools at his disposal, is doing something that no one with any serious degree of power has done. So what is the secret? What kind of machinations is he undertaking that no one else has been able to do?

I’ve known Schneiderman for a few years, back when he was a state Senator working to reform the Rockefeller drug laws. And my answer to this question is pretty simple. He wants to. That’s it. Eric Schneiderman is investigating the banks because he thinks it’s the right thing to do. So he’s doing it. This guy has thought about his politics. He wrote an article about how he sees politics in 2008 in the Nation, and in his inaugural speech as NY AG he talked about the need to restore faith in both public and private institutions. Free will still counts for something, apparently.

In all the absurdly stupid punditry, the simple application of free will to our elected officials goes missing. Yeah, Obama got money from Wall Street. But Obama is choosing to pursue a policy of foreclosures and bank bailouts not because of any grand corporate scheme. He just wants to. He thinks it’s the right thing to do, and he’s doing it. If you don’t think it’s the right thing to do, then you shouldn’t be disappointed in him any more than you might have been disappointed in Bush. Obama is not trying to do the opposite of what he’s doing, he’s not repeatedly suckered by Republicans, and he isn’t naive or stupid. Obama is simply doing what he thinks is right. So is Eric Schneiderman. So is Tom Miller. So are any number of elected officials out there.

In positions of power, the best expression I heard is that “up there the air is thin”. That is, you have enormous latitude, if you want to use it. Power can be wielded creatively and effectively on behalf of whatever it is the wielder wants. Now of course there are constraints, plenty of them. Smart politicians spend their time working to maximize the constraints they want to impose and weakening the ones they want to overcome. But the basic Reaganite liberal argument defending supplication towards Obama these days is that Obama is “disappointing”. In this line of thought, powerful corporate interests and Republicans are preventing him from enacting what his real agenda would be were he unfettered by this mean machine. Eric Schneiderman, who is in a far less powerful position as New York Attorney General, shows that this is utter hogwash. Obama is who he is, and anyone who thinks otherwise is selling something.

The banking system is really at the heart of our politics, which is why it’s such a great test of one’s political theory of change. I’ve been following the foreclosure fraud story for a few years now, because it’s the tail end of a massive economy-wide fraud scheme that started as early as 2003. The securitization chain failure can’t be put back in the bottle, the housing system it collapsed is simply too big to bail. So elites keep trying to patch this up the way they have everything else. It isn’t working. And their scheme has been obvious and obviously dishonest. Along with Obama (who I criticized as empty as early as 2004, ratcheting this up to dishonest and authoritarian by 2006-2007), I pointed out that Iowa Attorney General Tom Miller was engaged in serious bad faith only a few months after the negotiations started.

I’m no genius, I just listened to what these people actually said and did. Obama mocks the idea that he is an honest politician, overtly, lying about NAFTA and FISA very early on in power. Miller lied to activists about being willing to put bankers in jail, and then said he was negotiating with banks in secret. It was overt. For Miller, as with Obama, few people really picked up on the lies until recently. Iowa activists who heckled Miller got it, as did Naked Capitalism readers. Now it’s becoming more and more obvious. That’s just how it is, I suppose, people in the establishment are paid to not notice corruption until the harsh glare is too bright.

The crazy thing is that robosigning is apparently still going on. Right now, the “settlement” talks are the equivalent of law enforcement negotiating with a serial killer over whether he’ll get a parking ticket, even as he continually sprays bullets into the neighborhood. Even having these “settlement” talks when the actual crimes haven’t been investigated or a complaint hasn’t been registered should be example enough that this process is rigged as badly as Dodd-Frank. It should not be a surprise that the administration is putting pressure on Eric Schneiderman, that Tom Miller is kicking him out of the club house. That’s who these people are. It’s what they believe in. Just as it should not be a surprise, though it is laudable, that Schneiderman isn’t knuckling under to the administration. I suspect he probably is laughing at the idiocy of Miller’s pressure tactic. I mean, this is a guy going up some of the most powerful entities in the United States: Bank of New York Mellon, Bank of America, the New York Fed, etc. And the Iowa Attorney General isn’t going let him on conference calls? Mmmkay.

When you look closely at most significant areas of government, it becomes clear that the President and his administration are enormously powerful actors who get a lot done. Handing over our national wealth to the banks and to China is not nothing. These people are reorganizing the economy and the political system so that there are no constraints on the oligarchical interests that fund and pay them. That is their goal, it has been their goal from day one (or even before that), and anyone who says otherwise is just wrong or deluding him or herself. Obama spoke at the founding of Robert Rubin’s Hamilton Institute, and his first, and most important by far policy initiative, was his whipping for TARP, a policy that was signed by Bush but could not have passed without Obama getting his party in line. That was his goal, and he’s still pursuing it. The numerous “what happened to Obama” wailing editorials overlook the consistency of his policy agenda, which stretches back years at this point.

If someone worked or works for the Obama administration, or the Department of Justice, or any other executive branch agency, they need to remember their service as a mark of shame for the rest of their lives. Remembering how they participated in this example of how to govern is literally the least they could do for the damage they have caused. I would leave out the small number of people who are there to overtly prevent as much damage as possible, and those who resign or are fired in protest.

For the rest of the Democratic Party, well, reality is just beginning to intrude into the fantasy-land of partisans, even though the 2010 loss should have delivered a searing wake-up call to the failure Obama’s policy agenda. From 2006-2008, the Bush administration’s failures crashed down upon conservatives, and they in many ways could not cope. But their intellectual collapse was bailed out by Obama. Faux liberals are seeing their grand experiment in tatters, though right now they can only admit to feeling disappointed because the recognition that they have been swindled is far too painful. And the recognition for many of the professionals is even more difficult, because they must recognize that they have helped swindle many others and acknowledge the debt they have incurred to their victims. The signs of coming betrayal were there, but in the end it all comes down to judging people based on what they do and who they choose as opponents. And this Democratic partisans did not do, choosing instead a comfortable delusional fantasy-land where foreclosures don’t matter and theft enabled by Obama (and Clinton before him) doesn’t matter.

Eric Schneiderman’s willingness to go after the banks and stand up to the corruption of the Bush and Obama administrations should be a reminder to all of us of this. We have free will. He is doing the right thing for no other reason than because he wants to, because he believes in it. He is going to face serious consequences for this, very nasty stuff. Eliot Spitzer was taken down and his name dragged through mud because of who he took on. Paying ugly costs for standing up is routine, unfortunately, in modern America. And the least powerful among us face far worse consequences than politicians who are embarrassed. But integrity exists, and Schneiderman is showing that free will can be exercised in its service. This fact is true of many people, not just Schneiderman; Bill McKibbin, Jane Hamsher, Dan Choi and others just got arrested in front of the White House to register dissent. So next time someone tells you that you have no choice but to support one of the two branches of the banking party, just remember, you also have free will. And the only person who can take that away from you, is you.

Sunday, August 28, 2011

Cuban Oil

HAVANA, (Reuters) - A new, Chinese-built drilling rig was expected to depart Singapore yesterday or later this weekend on its way to Cuba where it will be used to usher in a new era in offshore oil exploration for the communist-led island.

The Scarabeo 9, owned by Italian oil giant Eni SpA’soffshore unit Saipem and contracted in Cuba by Spanish oil firm Repsol YPF, was anchored in Singapore and ready to leave on what an Eni spokesman said would be an 80-day voyage.

A Western diplomat in Havana said the rig would stop in South Africa and Brazil before reaching Cuba in November, with the expectation it will start drilling shortly after arrival.

Oil experts on the island say Cuba may have 20 billion barrels of oil in its still-untapped portion of the Gulf of Mexico, although the U.S. Geological Survey estimates reserves are a more modest 5 billion barrels.

Repsol drilled a well in Cuban waters in 2004 and found oil there, but for various reasons, including the longstanding U.S. trade embargo against the island, has not drilled again.

For Cuba, a big oil find will give its struggling economy a boost and reduce or eliminate its dependence on oil-rich leftist ally Venezuela, which ships 113,000 barrels a day to the island at reduced prices.

Opponents of the Cuban government fear that if significant oil reserves are discovered, it will only further entrench the communist system and its leaders.

Cuban President Raul Castro, 80, is in the midst of liberalizing the Soviet-style economy with the goal of assuring the survival of communism once he and his elderly leadership group are gone.

The Scarabeo 9, which has the latest technology and is capable of drilling in up to 12,000 feet (3,600 metres) of water, was built in Yantai CIMC Raffles Shipyards in Yantai, China, but after a number of delays was shipped to the Keppel FELS shipyard in Singapore last fall for completion.

Thursday, August 25, 2011

Bank Bailouts Exposed

zero hedge published this graph and expose of the true cost of the bank bailouts by the Fed. Depressing reading despite their best effort to joke about it.

While Bloomberg has done a tremendous job of digging through 29,346 pages of FOIA data, its discovery is not at all surprising: that Wall Street's (not to mention the rest of the world's) biggest banks received a total of $1.2 trillion in previously secret Fed loans, in addition to the trillions in public backstops and loans from the US Treasury. As a reminder, "denominated in $1 bills, the $1.2 trillion would fill 539 Olympic-size swimming pools." The best summary of this ongoing collusion between the Fed and Wall Street, in which it once again for the nth time becomes clear that all the Fed cars about is making sure its banking masters are never impaired, is from the article itself: "Even as the firms asserted in news releases or earnings calls that they had ample cash, they drew Fed funding in secret, avoiding the stigma of weakness." And there you have it: everything that come out of Wall Street is and has always been a lie: either courtesy of 30 years of great interest rate moderation, in which only cheap money adds to banks' top and bottom lines, or due to the Fed making sure the same banks never suffer a dollar loss when central planning fails, such as it does increasingly often lately (and forget about 10(b)-5 violation charges coming from the corrupt regulators: after all they are all in bed together). That Morgan Stanley, Dexia and Citi are, and have been since 2008, dead men walking, is by now known to all financially literate readers: additional confirmation can be found in the Bloomberg article, which we won't paraphrase because it has all been said over and over. That said, Bloomberg has done a great visual interactive chart summary of who got what, when, how much, over peak and average metrics and so forth.
zero hedge suggests this graph be borne in mind any time anyone gets the mad idea that investing in this system might possibly be a good idea.

Wednesday, August 24, 2011

Rating Ratings Agencies

From Business Insider, Henry Blodget reports on a new angle in the take down of ratings agencies. Until S & P downgraded US debt these obscure agencies, who failed to properly rate mortgage backed securities, have been entirely out of the limelight, speaking as though from behind an Oz-like curtain. Not so anymore:

A former senior analyst at Moody's has gone public with his story of how one of the country's most important rating agencies is corrupted to the core.

The analyst, William J. Harrington, worked for Moody's for 11 years, from 1999 until his resignation last year.

From 2006 to 2010, Harrington was a Senior Vice President in the derivative products group, which was responsible for producing many of the disastrous ratings Moody's issued during the housing bubble.

Harrington has made his story public in the form of a 78-page "comment" to the SEC's proposed rules about rating agency reform, which he submitted to the agency on August 8th. The comment is a scathing indictment of Moody's processes, conflicts of interests, and management, and it will likely make Harrington a star witness at any future litigation or hearings on this topic.

The primary conflict of interest at Moody's is well known: The company is paid by the same "issuers" (banks and companies) whose securities it is supposed to objectively rate. This conflict pervades every aspect of Moody's operations, Harrington says. It incentivizes everyone at the company, including analysts, to give Moody's clients the ratings they want, lest the clients fire Moody's and take their business to other ratings agencies.

Moody's analysts whose conclusions prevent Moody's clients from getting what they want, Harrington says, are viewed as "impeding deals" and, thus, harming Moody's business. These analysts are often transferred, disciplined, "harassed," or fired.

In short, Harrington describes a culture of conflict that is so pervasive that it often renders Moody's ratings useless at best and harmful at worst.

Harrington believes the SEC's proposed rules will make the integrity of Moody's ratings worse, not better. He also believes that Moody's recent attempts to reform itself are nothing more than a pretty-looking PR campaign.

We've included highlights of Harrington's story below. Here are some key points:

Moody's ratings often do not reflect its analysts' private conclusions. Instead, rating committees privately conclude that certain securities deserve certain ratings--but then vote with management to give the securities the higher ratings that issuer clients want.
Moody's management and "compliance" officers do everything possible to make issuer clients happy--and they view analysts who do not do the same as "troublesome." Management employs a variety of tactics to transform these troublesome analysts into "pliant corporate citizens" who have Moody's best interests at heart.
Moody's product managers participate in--and vote on--ratings decisions. These product managers are the same people who are directly responsible for keeping clients happy and growing Moody's business.
At least one senior executive lied under oath at the hearings into rating agency conduct. Another executive, who Harrington says exemplified management's emphasis on giving issuers what they wanted, skipped the hearings altogether.
Harrington's story at times reads like score-settling: The constant conflicts and pressures at Moody's clearly grated on him, especially as it became ever clearer that his only incentive not to "cave" to an issuer's every demand was his own self-respect.

But Harrington's story also makes clear just how imperative it is that the ratings-agency problem be addressed and fixed. The current system, in which the government blesses organizations as deeply conflicted as Moody's with the power to determine sanctioned bond ratings is untenable. And the SEC's proposed rule changes won't fix a thing.

Harrington's story is startling, both in its allegations and specificity. (He names many Moody's executives and describes many instances that regulators and plaintiffs will probably want to take a closer look at.)

Given this, we expected Moody's might want to say it has full confidence in its processes or denounce Harrington as a disgruntled ex-employee or something. Instead, Moody's did not return multiple calls seeking comment.

Tuesday, August 23, 2011

Euro End Times

I don't think it's easy for Europeans to think about the end of the Euro, this despite the fact that many Europeans grumble about the Union. In some ways the twelve year old currency has ingrained itself in the psyche of European Union members.. Nowadays it's hard to remember Europe at war, or individual states at economic loggerheads. Yet, as Marshall Auerback discusses here, from naked capitalism, the Euro nations failed to make provision for a widespread and general downturn in the economy. Their inability to respond individually to a collective crisis may doom the future of the unified currency:

Forget about the S&P downgrade, which has had ZERO impact on the global equity markets. The downgrade was supposed to mean that it would be more likely that the US government would not be able to pay its debt than previously assumed. IF the markets took this warning seriously, then they would have attached a higher risk premium to US government bonds. Of course, the opposite occurred. US bonds soared in price. In other words, investors, both here and abroad, voted with money as loudly as possible that they view the US government debt as a very safe haven in a time of financial turmoil

So if it wasn’t the S&P downgrade which caused this downward cascade in the global equity markets, then what was it? By far, the most important factor currently driving the market’s bear trends is Europe or, more specifically, the future of the euro and the European Monetary Union. Systemic risk has migrated across the Atlantic to the euro zone.

And after the recent joke of a summit between German Chancellor Merkel and French President Nicolas Sarkozy, it appears yet again that Europe’s policy makers have comprehensively blown it. Their persistent reluctance to get ahead of the looming systemic ticking bomb at the heart of the euro project has reached the point where it is likely to doom the euro’s existence. Their repeated “rescue plans” (and equally fatuous statements about new committees and “euro solidarity”) can no longer mask the central problem, which is that countries with very different economies are yoked to the same currency in the absence of a fiscal transfer union which would otherwise facilitate growth, not ongoing economic depression and political turmoil.

Rather than attempting to stave off a double-dip recession by easing fiscal and monetary policy, the European Central Bank (ECB) has gone careening off in the opposite direction. The euro project is consequently being turned into a Hooverian instrument of economic torture from sado-monetarists, such as Jean-Claude Trichet, who see each bailout as a way for irresponsible nations to offload their liabilities onto their fitter neighbors, rather than considering the flawed institutional structures which created the need for these stop-gap measures in the first place. Interest rates have been raised, and member states have been forced into self-defeating austerity programmes which, by destroying growth, have made underlying debt dynamics even worse. It is hard to imagine a more tragic and self-defeating type of policy mix. It is 1937 writ large.

How long will voters in rich countries stand for this? Perhaps not much longer as the Germans in particular appear to have no stomach to withstand the costs required to save the currency union. So what is this problem at the heart of the euro project?

Let’s go back to first principles: it is important to recognize the difference between sovereign and non-sovereign currencies. A government with a non-sovereign currency, issuing debts either in foreign currency or in domestic currency pegged to foreign currency (or to a precious metal, such as gold), faces solvency risk. However, a government that spends by using its own floating and non-convertible currency cannot be forced into default, unless they willingly choose to do so (such as the US Congress almost prepared to contemplate during its recent debt ceiling negotiations). It is why a country like Japan can run government debt-to-GDP ratios that are more than twice as high as the “high debt” PIIGS, while enjoying extremely low interest rates on sovereign debt. A nation operating with its own currency can always spend by crediting bank accounts, and that includes spending on interest. Thus, there is no default risk in terms of a capacity to pay (as opposed to political WILLINGNESS to pay).

But as has been noted by many critics of the common currency project, the relation of member countries to the European Monetary Union (EMU) is more similar to the relation of the treasuries of member states of the United States to the Fed than it is of the US Treasury to the Fed. A country like Ireland is more like New York within the EMU than a sovereign state. This means it has little domestic policy space to use monetary or fiscal policy to deal with crisis. The upshot has been that in the face of the first large negative demand shock to hit the region, the nation states have quickly found they cannot use fiscal policy in a responsible way to protect its economy from rising unemployment and collapsing income. In a normal federation, the national government can always ensure the solvency of the constituent parts via fiscal transfers. In the legal design of the EMU, there is no such role specified and attempts by the member states to cushion the demand collapse quickly raised the ire of the Euro elites with the ECB leading the charge to impose austerity on errant governments.

In the US, states have no power to create currency; in this circumstance, taxes really do ‘finance’ state spending and states really do have to borrow (sell bonds to the markets) in order to spend in excess of tax receipts. Purchasers of state bonds do worry about the creditworthiness of states, and the ability of American states to run deficits depends at least in part on the perception of creditworthiness. While it is certainly true that an individual state can always fall back on US government help when required (although the recent experience of the debt ceiling negotiations makes that assumption less secure), it is not so clear that the individual countries in the euro zone are as fortunate. Functionally, each nation state operates the way individual American states do, but with ONLY individual state treasuries.

The euro dilemma, then, is somewhat akin to the Latin American dilemma, such as countries like Argentina regularly experienced during the time that they operated currency pegs. Given the institutional constraints, deficit spending in effect requires borrowing in a “foreign currency”, according to the dictates of private markets and the nation states are externally constrained. That’s why Ireland and Latvia are in a mess and suffer from solvency issues. It’s also why California suffers from a solvency issue or Italy or Spain. Not the US or Japan, which explains why the latter has been able to borrow money at around 1% for the past two decades, despite a public debt to GDP ratio about twice the US or the euro zone.

At this juncture, however, there isn’t enough time to create a “United States of Europe”, which is why the ECB has resumed its bond buying operations to put a floor on the bonds and alleviate concerns about the solvency issues of the individual nation states. The ECB has received a lot of criticism for this. In one sense, the criticisms are legitimate: The ECB is in effect playing a “fiscal role” for which they are ill-suited. They buy time by buying the bonds.

But the bond buying attacks the symptoms, rather than the underlying problems. And it’s fundamentally undemocratic: In taking up this role – by way of the ad hoc bailouts and secondary bond market purchases the ECB has become a sort of fiscal tsar unanswerable to any national electorate.

The hope is that by backstopping the bonds, the ECB can persuade the markets that countries like Italy and Greece are not insolvent and that these countries will resume funding them. Even with Italian and Spanish bonds now dipping below 5% recently, this has proved to be a fatuous hope because the contagion has now spread into core countries such as France. Europeans still have to get the institutional arrangements right and the ECB, as the sole issuer of euros, is the only instrument that today can play this role, albeit imperfectly, but there is a better way.

Immediate relief can be provided by the ECB, which should be directed to create and distribute several trillion euros across all euro zone nations on a per capita basis. This would not constitute a “bailout” as such as Germany (with the largest per capita economy) would be the largest recipient. Each individual eurozone nation would be allowed to use this emergency relief as it sees fit. Greece might choose to purchase some of its outstanding public debt; others might choose fiscal stimulus packages. While this might sound much like the current bail-out, in which the ECB buys government bonds in the secondary markets from banks (assuming the risk of a default by Greece, for example), the emergency package outlined here (first proposed by Warren Mosler) would be under the discretion of the individual nations.

Hence, the ECB would finance current government operations if national governments chose that course of action. And if they found that a country was abusing the privilege (for example, Greece being deficient in tax collection), it could withhold the payments until compliance was achieved. In effect, the sanction would be more credible as it would constitute the ECB withholding carrots, rather than beating up fiscally stressed countries with a stick and seeking compliance with a country already in dire economic straits. More significantly, the revenue sharing proposal would address the contagion impact, as the ECB could continue the distributions to other countries, even as it punished the “recalcitrant problem children”.

We emphasise that this does not address the problem of deficient aggregate demand, but does address the solvency issue, which is the main systemic threat to the euro zone right now (indeed, to the entire global economy). By persuading the markets that most of the euro zone is creditworthy, the risk of the markets shutting these countries down diminishes considerably. As these countries fund themselves on credible terms in the private markets, they can begin to grow again.

Of course, putting the problem in this context and putting out a figure that has a trillion euro handle on it, makes it harder to believe that it will be politically palatable to the ECB or its stronger creditor nations such as Germany. Which is why we think that our earlier suggestion might become the more likely endgame:

The likely result of a German exit would be a huge surge in the value of the newly reconstituted DM. In effect, then, everybody devalues against the economic powerhouse which is Germany and the onus for fiscal reflation is now placed on the most recalcitrant member of the European Union. Germany will likely have to bail out its banks, but this is more politically palatable than, say, bailing out the Greek banks (at least from the perspective of the German populace).

The question remains: do the Germans ultimately quit the euro to save Germany or do they take the view that their fate is too intertwined with the common currency and that departure imposes an even greater economic and political cost?

If the latter, the Germans have to be made to understand that core problem at the heart of the euro zone is NOT a problem of “Mediterranean profligacy”. Many people, particularly in Germany, express the view that the Italian, Greek or Portuguese governments (and by association their people) are to blame for this crisis – accessing cheap loans from Northern European banks, not paying enough taxes, not working hard enough, etc (this also seems to be a common view amongst readers of this blog).

One thing is clear from the remarks that continue to emanate from Europe’s main policy makers. They do not understand basic accounting identities. They fail to see any kind of relationship between their own export model and their trading partners.

For example, it is ironic (and more than a touch hypocritical) that Germany chastises its neighbors, like Greece, or its trading partners like the U.S., for their “profligacy”, but relies on these countries “living beyond their means” to produce a trade surplus that allows its own government to run smaller budget deficits.

It’s even more extreme within the euro zone in the context of the global economy. The European Monetary Union bloc as a whole runs an approximately balanced current account with the rest of the world. Hence, within Euroland it is a zero-sum game: one nation’s current account surplus is offset by a deficit run by a neighbor. And given triple constraints — an inability to devalue the euro, a global downturn, and the most dominant partner within the bloc, Germany, committed to running its own trade surpluses — it seems quite unlikely that poor, suffering nations like Greece or Ireland could move toward a current account surplus and thereby help to reduce its own government “profligacy”.

The ECB appears to suffer from the same conceptual confusion. They do not appear to make the connection between financial balances and nominal GDP growth -, as in, if the domestic private sector has a high desired net saving position (that is, seeks to save more than they invest, and either net accumulate financial assets or net reduce financial liabilities), nominal GDP growth will slow (or even contract) unless the fiscal balance is reduced, the current account balance is increased, or some combination thereof in sufficient size.

They seem to understand financial balances must balance ex post, and so the sector balances are interconnected. They do not appear to recognize the issuer of money and the creators of credit generally hold the key to the ability of sectors to deficit spend, and that deficit spending is required to generate the increase in income out of which new gross saving can occur. But with the chimera of “expansionary fiscal consolidations” getting revealed with Greece, Ireland, Portugal, and soon Spain all in recession, maybe we have an opportunity to connect the dots for more people on this.

What about the issue of laziness, corruption, poor tax collection, all of the charges usually hurled against the so-called “PIIGS” countries? To this we would simply ask, even if the “Club Med” countries are lazy and don’t pay taxes, why did this crisis come now? As Bill Mitchell has noted, these countries didn’t just become “lazy” when they joined the EMU. Why didn’t, say, the Italian government face insolvency prior to joining the EMU? The point is that it might be sensible if the Italian government could get the high income earners to pay more tax and it might be sensible to raise productivity but, as Mitchell has argued, none of these things are intrinsic to their crisis.

No, the problem is the Euro and it is a shared problem across the Euro zone. And this is what is beginning to dawn on the markets, as the contagion spreads from the periphery into the core.

Until now, the Eurocrats have either remained in denial about the mounting stress fractures within the system, or forced weaker countries to impose even greater fiscal austerity on their suffering populations, which has exacerbated the problems further. And there has been a complete lack of consistency of principle. When larger countries such as Germany and France routinely violated spending limits a few years ago, this was conveniently ignored (or papered over), in contrast to the vituperative criticism now being hurled at the Mediterranean profligates. The EU’s repeated tendency to make ad hoc improvisations of EMU’s treaty provisions, rather than engaging in the hard job of reforming its flawed arrangements, are a function of a silly ideology which is neither grounded in political reality, nor economic logic. As a result, a political firestorm, which completely undermines the euro’s credibility, is potentially in the offing.

And to judge from the flaccid statement that accompanied the conclusion of the Merkel-Sarkozy summit yesterday, it appears that even at this late stage, policy makers don’t get it, or just cannot summon up the political will for the huge conceptual leap forward required to save the euro. The Germans are paralysed politically and things are moving too fast for their policy makers to respond quickly. And their political leadership has neither leveled with the electorate in regard to the magnitude of the problem, nor the costs associated with ongoing punishments of the so-called profligates. Whenever a German political leader opens his/her mouth it is to announce bad news, like the recent statement by German Finance Minister Wolfgang Schauble that the German government was opposed to any increase in the EFSF’s resources, or the creation of a euro bond, even though such a move is essential for the medium-term stabilisation of financial markets.
At this juncture, then, it seems more likely that the Germans will try to save themselves by pulling out of the euro zone (and then they recapitalise their own banks, as they did following German reunification). They take the Benelux countries with them (which have already closely converged with Germany’s economy) and have a “Greater DM” bloc and buy the rest of Europe on the cheap with their newly reconstituted DMs.

The Club Med nations, such as Greece, Italy, and Spain are saved because the euro plunges and they get to export their way out of this. The euro becomes a soft currency country again and these countries go back to living with higher inflation, higher exports and probably a generally more comfortable way of life.

Interestingly enough, the country which really gets screwed in this type of environment is France which is neither a true “Club Med” economy, but has yet to undertake many of the structural reforms of its German counterpart which it is seeking to emulate. Its economy is more akin to that of Italy, but should it seek to become part of the “greater DM bloc”, then its industrial base will likely face a huge competitive threat from Italy. It could well be eviscerated. And the social reaction could be severe. Remember, the guillotine was invented in France.

As for Germany, the irony is that divorce from the euro zone will likely not prove to be the panacea that many in the country now think. As the newly reconstituted DM soars to Swiss franc type levels (the DM likely to be seen as a “hard currency” and a credible repository of savings flows), it is likely that German businesses will use their highly valued Deutschmarks to buy European assets on the cheap. Anschluss economics writ large. They will then move a large proportion of their manufacturing to other European countries, to take advantage of the cheaper labour costs, likely resulting in a lower standard of living for the average German worker. It will prove to be a form of fools’ gold for a large proportion of the German electorate, who will soon realize they were sold yet another bill of goods by their politicians.

In any case, there appear to be no happy outcomes here (although as my friend, Tom Ferguson always reminds me, “If you want to have a happy ending, go see a Disney film”). We therefore appear to be entering most dangerous time for Europe since World War II.

By Marshall Auerback, hedge fund manager, portfolio strategist, and Roosevelt Institute fellow.

Monday, August 22, 2011

Human Exctinction

From Guy McPherson of Nature Bats Last a sobering look at the possibility, probability the author would say, of everyone getting killed off. Its not a startling prediction, as predictions go, and the author's choice of tools for the great kill off are fairly predictable. What would be startling would be if he ended up being correct and human life was extinct by 2030.

Three Paths To Near-Term Human Extinction

About a decade ago I realized we were putting the finishing touches on our own extinction party, with the party probably over by 2030. During the intervening period I’ve seen nothing to sway this belief, and much evidence to reinforce it. Yet the protests, ridicule, and hate mail reach a fervent pitch when I speak or write about the potential for near-term extinction of Homo sapiens.

“We’re different.”
“We’re special.”
“We’re too intelligent.”
“We’ll find a way out. We always do.”

We’re humans, and therefore animals. Like all life, we’re special. Like all organisms, we’re susceptible to overshoot. Like all organisms, we will experience population decline after overshoot.

Let’s take stock of our current predicaments, beginning with one of several ongoing processes likely to cause our extinction. Then I’ll point out the good not quite so bad news.

We’re headed for extinction via global climate change

It’s hotter than it used to be, but not as hot as it’s going to be. The political response to this now-obvious information is to suspend the scientist bearing the bad news. Which, of course, is no surprise at all: As Australian climate scientist Gideon Polya points out, the United States must cease production of greenhouse gases within 3.1 years if we are to avoid catastrophic runaway greenhouse. I think Polya is optimistic, and I don’t think Obama’s on-board with the attendant collapse of the U.S. industrial economy.

Apparently — too little, too late — a couple people have noticed a few facts about Obama. This “awakening” might explain why his political support is headed south at a rapid clip.

But back to climate change, one of three likely extinction events. Well, three I know about: I’m certain there are others, and any number can play. With four months remaining in the year, the U.S. has already tied its yearly record for the most billion-dollar weather disasters. Russia is headed directly for loss of 30% of its permafrost by 2050. Tundra fires could accelerate planetary warming. This year, the Northeast Passage was open as of 27 July. This is a massively dire situation for the Arctic. In fact, we have passed a de facto tipping point with respect to Arctic ice. This latter outcome is stunning, but only to those who follow the horrifically conservative and increasingly irrelevant Intergovernmental Panel on Climate Change.

Nature is responding with hybrid bears, suggesting the near-term loss of all polar bears. Indeed, all Earth’s systems are rapidly declining. Many organisms can’t keep up as they try to stay ahead of an overheating planet.

As the living planet decays, we keep piling on. Examples abound. Here’s one tiny example among thousands, from that pesky BP well at Deepwater Horizon. It’s out of the news cycle, but it’s not done destroying life in the Gulf of Mexico. But perhaps this tidbit belongs beneath the heading of …

We’re headed for extinction via environmental collapse

Nature is bankrupt, just like Wall Street and the USA. Thanks for playing, but you lose. The banksters on Wall Street “win.” But only in the short term. In the long run, we’re all dead (as first stated by John Maynard Keynes).

Among the consequences of taking down more than 200 species each day: at some point, the species we take into the abyss is Homo sapiens (the wise ape). The vanishing point draws nearer every day. Our response, in the industrialized world: Bring on the toys. Burn all fossil fuels. Harvest the rain forests and strip-mine the soil. Pollute the water, eat the seed bank.

And, most importantly, figure out how we can make a few bucks as the world burns.

We have our hand in a monkey trap, and we can’t let go.

We’re headed for extinction via nuclear meltdown

Safely shuttering a nuclear power plant requires a decade or two of careful planning. Far sooner, we’ll complete the ongoing collapse of the industrial economy. This is a source of my nuclear nightmares.

When the world’s 442 nuclear power plants melt down catastrophically, we’ve entered an extinction event. Think clusterfukushima, times 400. Ionizing radiation could, and probably will, destroy every terrestrial organism and, therefore, every marine and freshwater organism. That, by the way, includes the most unique, special, intelligent animal on Earth.

Ready for some good news?

Meanwhile, back on Wall Street

The Securities and Exchange Commission is busily covering up Wall Street crimes, just as they did during the last presidential administration. And, as it turns out, they’ve been performing this trick for two decades. Finally, though, the S&P is taking the U.S. to the woodshed.

The S&P knows what the media and politicians know: U.S. national debt isn’t really $14 trillion and change, as we’ve been led to believe. In fact, it exceeds $200 trillion. And, back when it was a mere $10.5 trillion, it exceeded the value of all circulating currencies as well as all the gold ever mined. It cannot be paid off, ever. The response will be default. With luck, it’ll happen quickly and completely, thus sending us directly to the new dark age (with the post-industrial Stone Age soon to follow).

The ongoing crash of the stock markets differs from prior events because, for one thing, the Fed is about out of ammunition. At this juncture, there are no easy solutions. In fact, there are no solutions at all. We have just about used up all our “rabbits in the hat” as far as fiscal and monetary policy are concerned. Economics pundit Graham Summers agrees: The Fed is about to find itself completely powerless as 2008 redux appears.

Think of 2008 as an economic teddy bear, and 2011 as a grizzly. And I think I mentioned this one already: The hunters are out of bullets.

The all-too-expected political response from the final remaining superpower: ratchet up covert wars. Maybe, while we’re at it, launch another World War.

Sunday, August 21, 2011

Avoiding Collapse

From Matt Stoller in the Nation, this essay critiquing the lack of social involvement by corporations in US infrastructure, and the issue of why are we not making things here at home. It is fashionable to criticize the Government for all ills but we need to ask ourselves why our major corporations aren't stepping up to the plate. Because they are no longer ours and we will pay, once more, for globalization. Not least because our government cannot bring itself to require corporations to bring their operations home- asking either directly or by using the stick of tax incentives.

A few months ago, a friend in the entertainment industry told me of a new business model in Hollywood: hoarding videotapes. Apparently, the earthquake in Japan knocked offline a Sony factory that makes certain types of tape. That factory was also in the tsunami zone, so now there’s a serious tape shortage threatening the television industry. The NBA scrambled to get enough tape to broadcast the NBA finals; one executive told the Hollywood Reporter, “It’s like a bank run.”

In the last few years, economists have spent a lot of time and energy thinking about bank runs. A bank run happens when depositors think a bank is weak and scramble to get their money out before it collapses. “Tight coupling” of financial institutions, like when banks are overly dependent on each other, can create a cascading series of problems for the system itself. We saw this with Lehman Brothers when it went bankrupt. Its AAA-rated debt instruments lost value unexpectedly; that caused money market funds that held those presumably safe bonds to suddenly lose value. A shadow bank run was the result, as investors rushed to withdraw from the money market funds.

Worryingly, there’s been very little consideration of how systemic collapses can happen in another, perhaps more dangerous realm—the industrial supply system that keeps us in everything from medicine to food to cars to, yes, videotape. In 2004, for instance, England closed one single factory, which caused the United States to lose half of its flu vaccine supply.

Barry Lynn of the New America Foundation has been studying industrial supply shocks since 1999, when he noticed that global computer chip production was concentrated in Taiwan. After a severe earthquake in that country, the global computer industry nearly shut down, crashing the stocks of large computer makers. This level of concentration of the production of key components in a globalized economy is a new phenomenon. Lynn’s work points to the highly dangerous side of globalization, the flip side of a hyper-efficient global supply chain. When one link in that chain is broken, there is no fallback.

Lynn has continued to study industrial supply shocks and says, “What I have found most interesting recently is the apparent role supply chain shocks played in triggering a synchronized slowdown of industrial economies in April—production down (in USA, China, Europe, Southeast Asia), jobs down, demand down, GDP numbers down—due almost entirely to the loss of a single factory that makes microcontroller chips for cars.”

Today, the problem manifests as shortages of videotape or auto parts, but the global supply chain is so tangled and fragile that next time it could be electronics, weaponry, or even food or medicine. As Lynn noted in an interview with Dylan Ratigan, China controls 100 percent of the national supply of ascorbic acid, which is a basic food preservative. Leading oncologists are already warning that we are experiencing severe shortages of generic yet pivotal cancer drugs, because there’s no incentive for corporations to make them.

According to Lynn’s groundbreaking book End of the Line, the essential problem is a basic shift in the way that American multinationals operate. In the 1980s, the competitive manufacturing threat from Japan led most large companies to eliminate waste in their production facilities. As a result, they stopped keeping spare parts on hand. Eventually, companies began outsourcing production itself, as profits came increasingly from extractive monopolistic power over an economic system. Walmart is an important example; its profits come from the power it can exert on its suppliers, telling them what to make and how to make it, while the company itself functions as a giant autocratic marketplace and trading operation. Increasingly, this is the model of success in our global economy. Boeing, Cisco, Apple—all of them rely on their power over an ecosystem of production facilities halfway around the world. They have become rent extractive profit-machines, which is a relatively new phenomenon.

It was in the 1990s that American multinationals, spurred by government policy, began outsourcing operations to China. At the same time, the Clinton administration steadily relaxed antitrust enforcement, leading to massive corporate consolidation and the creation of the virtual firm. By the early parts of the last decade, the ideal American multinational made its profits by using its market power to gut labor and supply prices and by using its political power to eliminate taxation. All of this turned giant American institutions against making things. This is why we rely on a British factory to make our flu vaccine, why global videotape production was knocked offline by a tsunami and why that same event slowed the gigantic auto industry. US corporate leaders now see the idea of making things as a cost of doing business, one best left to others. What has happened as a result is that much of the production for critical products and services that make our economy run is constructed by a patchwork global network of suppliers all over the world in unstable regions, over which we have very little control. An accident or political problem in any number of countries may deny us not just iPhones but food, medicine or critical machinery.

Andy Grove, co-founder of Intel, has made the case that America needs to be building things here, investing here and manufacturing here. We need the know-how and the ecosystem of innovation. The more corporate America seeks to push production risk off the balance sheet onto an increasingly fragile global supply chain, the more it seeks to wound the state so there is no body that can constrain its worst impulses, the more likely we will see a truly devastating Lehman-style industrial supply shock.

There’s a good amount of grumbling about the state of American infrastructure—collapsing bridges, high-speed rail, etc. But American infrastructure is not just about public goods, it’s about how the corporations that enforce, inform and organize economic activity are themselves organized. Are they doing productive research? Are they spreading knowledge and know-how to people who will use it responsibly? Are they creating prosperity or extracting wealth using raw power? And most importantly, are they contributing to the robustness of our society, such that we can survive and thrive in the normal course of emergencies?

The answer to all of these questions right now is “no.” And while this may not be hitting the elite segments of the economy right now, there will be no escape from a flu pandemic or significant food shortage. The re-engineering of our global supply chain needs to happen—and it will happen, either through good leadership or through collapse. This means that our government and our society needs to reorient our economy toward manufacturing and rededicate our corporations to productive uses. This will require a new conception of antitrust laws to ensure that monopolistic or oligopolistic practices in pivotal industries aren’t placing our culture at risk. It means understanding the networks of suppliers and sub-suppliers. And it means ending the race to the bottom that pushes deflationary pressures on labor and the social safety net. All of this can insure a more robust culture and economy, one which can withstand national security or environmental challenges. The sooner our leaders, both in public and private institutions, recognize how highly vulnerable we are to a societal collapse, the better chance we have of avoiding collapse.

Saturday, August 20, 2011

Tax The Rich

From Bloomberg's this commentary Suggesting it's time the rich pay their share, from that noted socialist Warren Buffett. Will anyone
listen? I doubt anything will change, certainly not if our lame President has anything to do with it.

Billionaire Warren Buffett urged Congress to raise taxes on the nation’s wealthiest individuals to help cut the U.S. budget deficit, saying it won’t inhibit investment or job growth.
“My friends and I have been coddled long enough by a billionaire-friendly Congress,” the chairman and chief executive officer of Berkshire Hathaway Inc. (BRK/A) wrote in an opinion article published in the New York Times. “It’s time for our government to get serious about shared sacrifice.”
Buffett’s advocacy of higher taxes for the “mega-rich” may reinforce President Barack Obama’s call for an end to tax breaks for corporate-jet owners. In the op-ed, the 80-year-old investor said his federal tax bill last year, or the income tax he paid and payroll taxes paid by him and on his behalf, was $6,938,744.
“That sounds like a lot of money,” Buffett wrote. “But what I paid was only 17.4 percent of my taxable income -- and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.”
A 12-member panel, formed in the Aug. 2 law that raised the nation’s debt ceiling and averted a possible default, is charged with finding $1.5 trillion in budget savings.
Democratic Representatives James Clyburn, Chris Van Hollen and Xavier Becerra will join Republican counterparts Dave Camp, Fred Upton and Jeb Hensarling. The Senate team includes Republicans Jon Kyl, Pat Toomey and Rob Portman and Democrats Patty Murray, John Kerry and Max Baucus. Murray, of Washington state, and Hensarling, of Texas, will be co-leaders.
Buffett said that for those making more than $1 million -- there were 236,883 such households in 2009 -- he would raise rates immediately on taxable income in excess of $1 million, including dividends and capital gains. For the 8,274 taxpayers who made $10 million or more, he said they should get an additional increase in the rate.
“While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks,” Buffett wrote.
He cited Internal Revenue Service data showing that the tax burden on the nation’s wealthy had fallen for the past two decades.
In 1992 the top 400 American earners had aggregate taxable income of $16.9 billion and paid federal taxes of 29.2 percent on that amount, he wrote. In 2008, while the aggregate income of the highest 400 had soared to $90.9 billion, the rate paid had fallen to 21.5 percent.
Hiring, Investment
Buffett said the notion that high taxes discourage hiring and investment is false.
“I have worked with investors for 60 years and I have yet to see anyone -- not even when capital gains rates were 39.9 percent in 1976-77 -- shy away from a sensible investment because of the tax rate on the potential gain,” he said.
“People invest to make money, and potential taxes have never scared them off,” he said. “And to those who argue that higher rates hurt job creation, I would note that a net of nearly 40 million jobs were added between 1980 and 2000. You know what’s happened since then: lower tax rates and far lower job creation.”

Friday, August 19, 2011

London's Inequality

From the Harvard Business Review this discussion of inequality and riots, and how one may have had a hand in the other. For myself whenever I hear someone say "Why..?" in a tone of astonished disbelief I get thebideanthatbthenspeaker views England not as a breeding ground for misery and hopelessness bit as a pastoral green and pleasant land as portrayed by innumerable writers and of course Masterpiece Theater. Umair Haque presents a very different view:

I grew up a global orphan, and I call London my home today. The simple reason I chose to live there was this: first and foremost, I'd never met a city that let a mutt like me be myself. And yet, over the last several years or so, gradually, almost imperceptibly at first, the tenor of my city has changed. The convulsions of violence that have wracked London and other British cities seem to have exploded overnight, but I'd bet those of us living here know: that fuse has been long burning.

Wracked from end to end by riots and looting, the country is now starting to admit the existence of the hidden faultlines that lie quivering beneath the humdrum everyday blandishments of society as we live it.

Underneath the surface chatter about police brutality and parental responsibility is a deeper fear, and a not unfounded one: that a social contract's been torn up. If you accept the possibility that there are many kinds of violence — not merely physical, but emotional, economic, financial, and social, to name just a few, then perhaps the social contract being offered by today's polities goes something like this: "Some kinds of violence are more punishable than others. Blow up the financial system? Here's a state-subsidized bonus. Steal a video game? You're toast." (To be painfully clear, I don't think any form of violence is justifiable, excusable, or acceptable.)

There are many kinds of looting. There's looting your local superstore — and then there's, as Nobel Laureates Akerlof and Romer discussed in a paper now famous among geeks, there's looting a bank, a financial system, a corporation...or an entire economy. (Their paper might be crudely summed up in the pithy line: "The best way to rob a bank is to own one.") The bedrock of an enlightened social contract is, crudely, that rent-seeking is punished, and creating enduring, lasting, shared wealth is rewarded and that those who seek to profit by extraction are chastened rather than lauded. Today's world of bailouts, golden parachutes, sky-high financial-sector salaries — while middle incomes stagnate — seems to be exactly the reverse. Perhaps, then, our societies have reached a natural turning point of built-in self-limitation; and this self-limitation is causing a perfect storm to converge.

An enlightened social contract is not built on subsidies or "handouts" — whether to the impoverished, or to the pitiable welfare junkies formerly known as "the markets." It's built on a calculus of harm and benefit not just accepted by a plurality of its citizens (versus a tiny Chalet-owning, caviar-gobbling minority at the top) — and also a calculus that can be said to meaningful in the sense that it results in real human prosperity. Without such a bargain to set incentives and coordinate economic activity, even the mightiest, proudest societies will find themselves as bent old men on an endless plateau, searching for a lick of shelter as the typhoon bears down.

For much of the previous economic boom, the bargain on offer in modern Britain could have been abbreviated something like: "Want not merely to get rich — but to get richest, fastest? Then loot, plunder, and enjoy the rewards of conquest." (Consider the eye-popping bonuses for bankers just after the economy went into meltdown.) It was a recipe not for prosperity, but for fragmentation and decline; less a social contract than a sociopathic compact. And though the rioters are guilty of much — and that deserves nothing less than the iron fist of the law — I wonder if, perhaps, the crime inside their crime wasn't perversely, insidiously following the hideous logic of this sociopathic compact through to the fatal end.

Call it the logic of opulence: a paradigm of plenitude centred on more, bigger, faster, cheaper, nastier, now. Its glittering, unattainable fever dream seems to have driven the rioters mad. As one told the Guardian, "Why are you going to miss the opportunity to get free stuff that's worth loads of money?" Indeed: why, given a poisonous compact tattooed into the deeper calculus of everyday culture, not? Hence, as many have pointed out, the mob hasn't exactly been looting bookshops, but the stuff of faux-luxe, mass-designer plenitude: plasma TVs, fast fashion, video games. The vision they seemed to be pursuing, as if their long-denied birthright, is less one of sign-waving activism, fighting against deep-seated social injustice, and more one of raiding a consumerist Disneyland to which they've long been glumly denied a ticket.

If that's the thunder and lightning, then here's what's going on behind the clouds. The eye of this perfect storm is extreme income inequality that makes the Glided Age look Leninist: London's the most unequal city in the developed world. It's a place where seeing dozens of supercars in a row makes tourists gawp, but rarely causes residents to raise an eyebrow; where oligarchs, tycoons, and oil sheiks are whisked around by Rolls-Royces the sizes of small yachts from shadowy members' club to rarefied boardroom — a haven, not by accident, but by careful design, for the very richest of the world's rich. But it's also a city where threadbare ends are more and more difficult to make meet. It's a poster child for the perverse dynamics of a Great Stagnation: a few super-rich get super-richer while incomes stagnate and decline for the vast majority of the "rest." And when the rule of law is visibly, easily flouted by the rich, it usually ends up being seen as laughable by the poor.

London's become a city where many young people feel they're finished before they start. Global economic imbalances (think, crudely, a country with a perpetual trade deficit) ultimately mean that there aren't enough jobs to go around — and entrepreneurship is about as British as fish and chips are American. Being lucky enough to land a job that propels you into the ranks of the upwardly mobile — or at least, that keeps you from the ranks of downwardly mobile — depends, in my experience, not just on having gone to a handful of top schools (Oxford, Cambridge, LSE), but on having the right accent, postcode, and background. And while Americans might say that's unique to Britain, I wonder if in most advanced economies, similar dynamics aren't at work. Top employers, for example, don't exactly recruit heavily from The University of Nowhere. Internships are heavily tilted towards the already-privileged. In fact, the problems of youth unemployment, underemployment, marginalization, and inequality are so pervasive globally, more and more economists are beginning to point to a lost generation.

Another storm cloud looming over the dreary isle is, of course, the grim specter of austerity. Of all advanced economies, the UK proudly passed perhaps the world's most severe shock and awe austerity package — dramatic cuts across the board — to the shock and disbelief of many economists, who predicted that it would throw thousands out of work and cripple demand in the middle of an already precarious economic situation at precisely the time the economy needed it least. The result has been predictable: even for a world beset by reluctant recoveries, the UK's "recovery" has been notably the poorest. Hence, an economy where too many are out of breath, struggling even to tread water. The evidence suggests austerity leads to social instability and violence: uh-oh.

But the superstorm's a global one, not just a cloudburst over Camden Lock. From Tahrir Square to Syntagma Square to Puerta del Sol Square, social upheaval's spreading — sometimes in droplets, sometimes in floods, sometimes placidly, sometimes...not so placidly. Each example is very different from the others. Yet, the underlying ruptures might be said to be similar: What happens when a nation willfully ignores perhaps the most fundamental lesson of economics, and hopes rent-seeking will equal real prosperity? This does. What happens when a nation either loses, or prevents, a stabilizing middle class? This does. What happens when a government — any government — gets so out of touch with the governed? This does.

Our institutions are failing — they're failing us; failing the challenge of igniting real, lasting human prosperity. If institutions are just instruments to fulfill social contracts, then ours are shattering because the social contracts at their hearts have fractured.

I call it a Great Splintering — not purely an economic phenomenon, as in "Great Contraction," but a social one: an era when social contracts are being torn up, abrogated, betrayed, abandoned, by accident, by design, by "regulatory capture," or simply by polities too gridlocked to progress. Broken social contracts aren't just tidy abstractions, empty of visibly real consequences, disconnected from the noise and clamor of our messy human lives. As they break, yesterday's ways of living, working, and playing rupture; yesterday's organizations, from corporations to banks to nations, creak and crack.

Here's our challenge: at the heart of 21st century institutions must beat authentically social contracts between every kind of institution — whether governments, corporations, banks, or schools — and people. How might they read? I'd say that a social contract fit for the future has probably got to be eudaimonic, centered on the right to have the capacity to create — and the responsibility to pursue — lives lived meaningfully well. A social contract built not merely on the promise of more, bigger, faster, cheaper, nastier (whose hidden boilerplate terms and conditions include polarization, alienation, and stagnation) — but on the promise of smarter, healthier, fitter, humbler, closer, safer, truer, wiser. It's a lofty goal. But such a contract could well be the rocket fuel that powers the advantage of nations for decades to come.

For many years now, societies have been limping on with broken institutions and splintered social contracts — right into the heart of this perfect storm. And I'd bet most of us have assumed that we'll continue to "get by" — that we can wait for the economy to repair itself, for the next economic boom to provide shelter from the approaching cyclone, for the invisible hand to pick us up and put us back on our feet. Yet, I'd suggest: the upheavals we're seeing now are stark evidence that the status quo's faith-based modus operandi hasn't worked — and isn't working. We're not magically going to "find" shelter from the gathering clouds of this economic whirlwind. We're going to have to build shelter: more resilient, less dysfunctional institutions that can deliver on the promise of real human prosperity that matters, lasts, and multiplies. Because if you didn't know what a lost decade looked and felt like before — well, you sure do now.

Thursday, August 18, 2011

People Are Corporations

From the Al Jazeera English site this essay discussing Republican Presidential Candidate Mitt Romney's assertion that corporations are people. It turns out there is a long history in this nation of fear of corporate power . We the real people appear to be losing the battle:

Thank God for Mitt Romney.

In a moment of candour he likely thought would win him much needed support from the Tea Party wing of the Republican Party, the presidential candidate explained his thinking to a heckler - who asked why he didn't feel corporations should share more of the economic burden of reducing the deficit:

"Corporations are people, my friend ... of course they are. Everything corporations earn ultimately goes to the people. Where do you think it goes? Whose pockets? Whose pockets? People's pockets. Human beings, my friend."

In fact, he's right. Corporations are people, or rather "legal persons", which is not to be confused with "natural persons", or as Romney terms us, "human beings". The original Latin term is actually persona ficta, or artificial person, which I think has an even nicer ring, because it shows that, at the very least, they weren't born the natural way. If you are one of the top one per cent of income earners in the US, UK, Israel or other advanced industrial country where so much of the countries' wealth is distributed to corporate upper management, you might even consider them to have been immaculately conceived.

Ironically, the idea of a corporation as a person, however defined, originated with the need to ensure that the corporations that arose with capitalism - and especially with the growth of larger firms with the industrial revolution - could both assume debts and liabilities and be held legally responsible for them in the same way that natural persons would be.

This was an evolution of common law, where only a person could be sued or sue someone. Corporations began to be defined as people so they could be sued, like people. But the difference was that corporations also provided a shield for the people who owned them - as they were generally not responsible or liable for any debts the corporations incurred.

Traditionally, however, legal persons did not have all the same rights as natural people. They did not have civil rights, nor did they have human rights - they were not, sorry Mr Romney, human persons. In the US, corporations were, in fact, fairly tightly controlled well into the 19th century, when the growth of the railroads and other large industries gave corporations increasing power to shift the rules of the game towards their favour, or rather that of the human beings who controlled them.

The US is the vanguard of the 'Corporate People'

Indeed, the US has long been at the vanguard of granting increasing rights to corporations, first considering corporations as citizens and residents of the states in which they live. By 1886, in the famous Santa Clara County v Southern Pacific Railroad case, Chief Justice Morrison Waite opened the proceedings by declaring: "The court does not wish to hear argument on the question whether the provision in the 14th Amendment to the Constitution, which forbids a state to deny any person within its jurisdiction the equal protection of the laws, applies to these corporations. We are all of the opinion that it does."

Justice Waite neglected to mention that the 14th Amendment was supposed to help protect the rights of freed slaves, not corporations - but twenty years after the Civil War and with the frontier quickly closing, it was money, not people, that those in power most cared about.

Corporate rights steadily increased in the ensuing century to the point that, in 2010, in the (in)famous Citizens United decision that corporations have the same free speech rights as human beings and therefore could not be limited in the amount of money they might wish to spend on advertising for various political purposes. It's worth noting the dissent of Justice John Paul Stevens, which concluded that this view was:

"[A] rejection of the common sense of the American people, who have recognised a need to prevent corporations from undermining self-government since the founding, and who have fought against the distinctive corrupting potential of corporate electioneering since the days of Theodore Roosevelt. It is a strange time to repudiate that common sense."

We are living in strange times indeed, my friends, because, while liberals have already begun to pounce on Romney for his statement of the obvious, most of the audience for whom the remarks were intended will find nothing wrong with it - even though the average white, middle class, bible-belt American has suffered as much from the wholesale corporatisation of American life as have the Democratic Party's base in the minority working class.

Ironically, while conservatives claim fealty to the "founders" in all things related to law, few seem to have read Thomas Jefferson's 1816 letter to Pennsylvanian politician George Logan, when he declared: "I hope we shall ... crush in its birth the aristocracy of our moneyed corporations which dare already to challenge our government in a trial of strength, and bid defiance to the laws of our country."

A product of the imperial age

The first major corporations were in fact geared largely towards colonial exploitation - the Dutch and the English East India companies, for example. The roots of modern corporations as entities - their ontology if you will - is inseparable from the colonial/imperialist roots of capitalism, which brought large swathes under the control of these entities, especially Africa (resources and slaves), the Americas (resources and agricultural products) and South and Southeast Asia (resources and agricultural products) - under the control of a narrow group of Europeans who controlled access to the capital, without which there could be no capitalism.

As Jean and Jane Comaroff explain in their fascinating new book Theory from the South, Africans found the entire European concept of corporations, and their attendant focus on contracts, titles, deeds and other capitalist legal texts particularly distasteful because it ripped people out of the social relations in which they were embedded, making human beings into fragile "paper persons" with much less power or rights than they enjoyed in their supposedly primitive, pre-modern communities.

Not surprisingly, if corporations have since the 1970s - the time of the last great economic crisis in the West, it's worth noting - arrogated ever increasing amounts of economic and political and through them, social power to themselves through the rise of neoliberalism in the US and Europe (Thatcherism, Reaganism, and similar Continental ideologies), the same process has occurred with even greater power and devastation across the global south, leading one of Africa's greatest writers, Ngugi wa Thiong'o, to coin the term "corpolonialism" in his novel Wizard of the Crow to describe how the WTO, IMF, World Bank and corporations, and their local allies have imposed structural adjustment and other policies on the countries of the South.

Such policies have given corporations increasing access to local markets with little ability for citizens to regulate them or prevent them from exploiting them with little regard for the social, economic and environmental consequences for those most affected by untramelled capitalism.

As anyone who has been following the revolts across the Arab world and now Israel knows, the corruption, violence, and gross inegalitarianism and inequalities that corprolonialism have produced, not just in the developing world, but also in the West, are among the primary causes of the intifadas in Tunisia and Egypt. Simply put, the corruption, violence and greed cannot simply be kept safely "over there"; as in the imperial age, eventually it comes home to roost. And so we see not just Arab capitals in flames, but European cities as well.

Romney's confusion, or ours?

If we return to Romney's comment, the confusion within it is illustrative of the larger problem of considering corporations as people. First he argues that "everything corporations earn ultimately goes to the people". The people? As in "We, the People"? That is certainly how the wealthy would like us to imagine corporate wealth being distributed. Indeed, the most basic argument of the neoliberals is that corporations and corporate capitalism is the most efficient and equitable means available for ensuring the widest distribution of wealth and resources among the people.

But of course, as the bounding inequality in the United States makes clear, the wealth is not going to the people. It is going to very, very few people - who use corporations and their fictive personhood to help ensure that skewed distribution of wealth stays that way, no matter what the majority of Americans want. That's why, in the next sentence, Romney inadvertently drops the "the" and just says the money goes in "people's pockets - human beings, my friend". He knows it's not going to the people as a society, just to those with the ability to grab as much of it as they can.

A green future?

For some reason, hearing Romney speak these words reminded me of Charlton Heston's famous line: "Soylent Green is people!" from the dystopian sci-fi thriller movie, Soylent Green. Heston screamed the line after realising that the remains of dead people - forcibly euthanised in the horribly overpopulated, polluted and poverty stricken world of 2022 - were being converted into food to be fed to the living.

When the book, on which the movie was based, was published in 1966 - and even when the movie itself was released in 1973 - such a future was a nightmare that could only be imagined and dramatised, because it still seemed far off and so fantastical that it couldn't possibly come to pass. At least not by 2022.

Today, with people like Mitt Romney and his corporate friends - real and fictive - running the country and the world, 2022 seems frighteningly close indeed. Let's hope the real people have the brains to put a stop to it before it's too late.

(This article was edited 17:25 GMT, 8/12/11)

Mark LeVine is a professor of history at UC Irvine and senior visiting researcher at the Centre for Middle Eastern Studies at Lund University in Sweden.

Wednesday, August 17, 2011

Energy Future

Often I hear that there is no solution to the wind down of oil as our primary and cheap energy source. Which is certainly a doomsday scenario if true. My own view is that things are going to change drastically when Peak Oil bites and prices get out of reach for most of us. That's not a radical opinion but the idea posited here that solar can do us a lot of good if we can sort out the battery and storage issues. It seems to me that if one accepts that oil is peaking and cheap energy is disappearing we need to do something. Even if we can't continue with this life style perhaps we can find a decent alternative and who knows perhaps a more humane and slower paced life may be more enjoyable. I like this essay because it breathes optimism and I could use a little of that however misplaced. the author is Tom Murphy an associate professor of physics at the University of California, San Diego. This piece was on The Oil Drum website.

As we look to transition away from fossil fuels, solar and wind are attractive options. Key factors making them compelling are: the inexhaustibility of the source with use (i.e., renewable); their low carbon footprint; and the independence that small-scale distribution can foster (I’ll never put a nuclear plant on my roof, even if it would make me the coolest physicist ever!).
But solar and wind suffer a serious problem in that they are not always available. There are windless days, there are sunless nights, and worst of all, there are windless nights. Obviously, this calls for energy storage, allowing us to collect the energy when we can, and use it when we want.

Small-scale off-grid solar and wind installations have been doing this for a long time, typically using lead-acid batteries as the storage medium. I myself have four golf-cart batteries in my garage storing the energy from eight 130 W solar panels, and use these to power the majority of my electricity consumption at home.

It’s worth pausing to appreciate this fact. Compare this scheme to the dream source of fusion. Why do people go ga-ga over fusion? Because there is enough deuterium in water (sea water is fine) to provide a seemingly inexhaustible source of energy, and there are no atmospheric emissions in the process. Meanwhile, solar provides a source that will last longer (billions of years), produces even less pollution (no radioactive contamination of containment vessel), and is here today! It’s even affordable enough and low-tech enough to be on my roof and in my garage! People—we have arrived!

Storage works on the small scale, as many stand-aloners can attest. How would it scale up? Can it?

Meeting Requirements

So what would it take? We’re not a nation tolerant of power outages. Those big refrigerators can spoil a lot of food when the electricity drops away. A rule of thumb for remote solar installations is that you should design your storage to last for a minimum of three days with no energy input. Even then, sometimes you will “go dark” in the worst storm of the winter. This does not mean literally three days of total deprivation, but could be four consecutive days at 25% average input, so that you only haul in one day’s worth over a four day period, leaving yourself short by three.

So let’s buy ourselves security and design a battery that can last a week without any new inputs (as before, this is not literally 7 days of zero input, but could be 8 days at 12.5% average input or 10 days at 30% input). This may be able to manage the worst-case “perfect” storm of persistent clouds in the desert Southwest plus weak wind in the Plains.

Let’s also plan ahead and have all of our country’s energy needs met by this system: transportation, heating, industry, etc. The rate at which we currently use energy in all forms in the U.S. is 3 TW. If we transition everything to electricity, we can get by with 2 TW, assuming no growth in demand. Why? Because we currently use two-thirds of our energy supply (or 2 TW) to run heat engines, getting only about 0.6 TW out for useful purposes in the bargain. An electrical system could deliver this same 0.6 TW for only 1 TW of input, considering storage and transmission efficiencies.

Running a 2 TW electrified country for 7 days requires 336 billion kWh of storage. We could also use nuclear power as a baseload to offset a significant portion of the need for storage—perhaps chopping the need in two. This post deals with the narrower topic of what it would take to implement a full-scale renewable-energy battery. Scale the result as you see fit.

Lead-Acid Delivers

I’ll use lead-acid batteries as a baseline. Why? Because lead-acid batteries are the cheapest way to store electricity today. They’re bulky, sloshy, and very heavy, which makes them unsuitable for electric cars or laptop computers. But they’re very efficient, commonly achieving 85% or better energy efficiency in a charge cycle. The technology is well tested, having been around since 1859. And lead is a common element, being the endpoint of the alpha-decay chain of heavy elements like uranium and thorium. Their economic favorability makes lead-acid batteries hands-down the most common battery type in stand-alone renewable systems worldwide.

Large lead-acid batteries occupy a volume of 0.013 cubic meters (13 liters) per kWh of storage, weigh 25 kg/kWh (55 lb/kWh), and contain about 15 kg of lead per kWh of storage.

How do we put this into more familiar terms? A 12 V battery rated at 200 A-h (amp-hours) of charge capacity stores 2400 W-h (watt-hours: just multiply voltage and charge capacity), or 2.4 kWh. 200 A-h means that the battery could discharge a 10 amp current (120 watts) for 20 hours, or a one amp current (12 watts) for 200 hours—though in actual practice the capacity is lower at higher currents.

I can’t resist the temptation to ask: what is the minimum amount of lead that is theoretically needed to build the battery? The chemical reaction for a lead-acid battery is such that each interaction involving the transformation of one lead atom to PbSO4 liberates one electron at a 2.1-volt potential. This electron then is bestowed 2.1 electron-volts (eV) of energy, amounting to 3.4×10−19 J (see page on energy relations). One kilowatt-hour is 3.6 million Joules (1000 W times 3600 seconds), so that it takes 1025 lead atoms (where every one participates). If you remember that Avogadro’s number is 6×1023, we need about 20 moles of lead atoms. At 207 g/mol, this comes out to about 4 kg per kWh of energy, which is a factor of four less than the realized value above. Real implementations always fall short of theoretical ideals, so this isn’t new. We would do well to push for future improvements on this score, although we should bear in mind that lead-acid has had 150 years of development before we get carried away by dreams of perfection.

The National Battery

Putting the pieces together, our national battery occupies a volume of 4.4 billion cubic meters, equivalent to a cube 1.6 km (one mile) on a side. The size in itself is not a problem: we’d naturally break up the battery and distribute it around the country. This battery would demand 5 trillion kg (5 billion tons) of lead.

Get the Lead Out!

A USGS report from 2011 reports 80 million tons (Mt) of lead in known reserves worldwide, with 7 Mt in the U.S. A note in the report indicates that the recent demonstration of lead associated with zinc, silver, and copper deposits places the estimated (undiscovered) lead resources of the world at 1.5 billion tons. That’s still not enough to build the battery for the U.S. alone. We could chose to be optimistic and assume that more lead will be identified over time. But let’s not ignore completely the fact that at this moment in time time, no one can point to a map of the world and tell you where even 2% of the necessary lead would come from to build a lead-acid battery big enough for the U.S. And even the undiscovered but suspected lead falls short.

What about cost? At today’s price for lead, $2.50/kg, the national battery would cost $13 trillion in lead alone, and perhaps double this to fashion the raw materials into a battery (today’s deep cycle batteries retail for four times the cost of the lead within them). But I guarantee that if we really want to use more lead than we presently estimate to exist in deposits, we’re not dealing with today’s prices. Leaving this caveat aside, the naïve $25 trillion price tag is more than the annual U.S. GDP. Recall that lead-acid is currently the cheapest battery technology. Even if we sacrificed 5% of our GDP to build this battery (would be viewed as a huge sacrifice; nearly a trillion bucks a year), the project would take decades to complete.

But even then, we aren’t done: batteries are good for only so many cycles (roughly 1000, depending on depth of discharge), so the national battery would require a rotating service schedule to recycle each part once every 5 years or so. This servicing would be a massive, expensive, and never-ending undertaking.

Who Needs Lead-Acid?

I focus here on lead-acid because it’s the devil we know; it’s the cheapest storage at present, and the materials are far more abundant than lithium (13 Mt reserves worldwide, 33 Mt estimated global resources), or nickel (76 Mt global reserves, 130 Mt estimated land resources worldwide). If we ever got serious about building big storage, there will be choices other than lead-acid. But I nonetheless find it immensely instructive (and daunting) to understand what it would mean to scale a mature technology to meet our needs. It worries me that the cheapest solution we have today would break the bank just based on today’s cost of raw materials, and that we can’t even identify enough in the world to get the job done.

This post does not proclaim that there is no way to build adequate storage to accommodate a fully-renewable energy infrastructure. A distributed grid helps, and an armada of gas-fired peak-load plants would offset the need for full storage. Storage can be augmented by pumped hydro, compressed air, flywheels, other battery technologies, etc.

Rather, the lesson is that we must work within serious constraints to meet future demands. We can’t just scale up the current go-to solution for renewable energy storage—we are yet again fresh out of silver bullet solutions. More generally, large scale energy storage is not a solved problem. We should be careful not to trivialize the problem, which tends to reduce the imperative to work like mad on establishing adequate capabilities in time (requires decades of fore-thought and planning).