Economics & Finance

Labor Day Thoughts

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My discussion question for today: In a world with global and highly-efficient transportation and communications…and billions of people who are accustomed to low wages…is it possible for a country such as the United States to maintain its accustomed high standards of living for the large majority of its people?…and, if so, what are the key policy elements required to do this?

Henry Ford did not establish the five-dollar day out of the sheer goodness of his heart.  He did it because worker turnover had become unacceptably high: people didn’t like assembly-line work, and they had alternatives.  Suppose Ford had then had the option of building the Model T in a low-wage country, say Mexico.  Maybe he wouldn’t have needed to bother with the American $5/day wage and the productivity improvements needed to support it. (Although Ford being Ford, he still might have implemented the manufacturing innovations and process improvements even without strong economic necessity to do so.)

America’s premium wage structure has, I think, been historically enabled by several factors:

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We Need to Talk About Joe

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The fictional mass murderer Kevin is most often described as a psychopath and his mother Eva a sociopath in book and movie reviews, the latter defined the same as the former, but without the insanity defense, i.e., a physical brain disorder rather than a choice. President Biden isn’t suspected of any such brain disorder (although dementia has long been suspected, common for his age). But Bruce Cannon Gibney argues that Baby Boomers, those born between 1940 and 1964, are A Generation of Sociopaths (2017) based primarily on their over-consuming at the expense of future generations, a massive inter-generational injustice. He allows for exceptions, but not among the Baby Boom political leaders, of which Joe Biden was the first on the national scene.

Sociopaths are defined as narcissists with additional characteristics, among which are: superficial charm, glib, manipulative, self serving, grandiose, pathological lairs, without remorse, self-centered, untrustworthy, physically aggressive, impulsive, blaming others, lacking in empathy, break promises, an ability to avoid persecution for illegal acts, and a belief they deserve to rule the world. As a result of the Obama/Biden “Good War” over half the current population of Afghanistan was born under American protection. These and thousands of those who assisted the American occupation and their families have been left behind by Joe to meet repression, and, for many, death at the hands of his captors and other Islamic radicals. His press conferences revealed almost all these sociopathic tendencies, leaving no doubt as to the applicability of Gibney’s diagnosis.

Like Kevin, Joe is competitive among his sociopathic political peers. For sheer narcissism it would be difficult to top former President Trump, and the Clintons are unlikely to ever be surpassed in the team sociopath competition. But Joe Biden, whose first attempt to rule the world over three decades ago was thwarted by a plagiarism scandal, seeks to exceed FDR, the record holder by size of Mall Monument, as a world leader not on his foreign policy experience, but by spending his way to a risky “fundamental transformation” of the US economy and society. Should we trust in Joe, or is he the “Borax Man” (a soap salesman)?

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“Green” Energy: Materials-Intensive–And It Matters

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There is now considerable momentum behind wind and solar power generation.  In addition to the governments pushing these technologies, there are many companies intending to profit by manufacturing and implementing these systems–also companies intending to get “sustainability” points for using them–and a nontrivial part of the financing industry licking their chops at the prospect of raising the necessary capital.

While wind and solar systems do not directly consume fuels, they do consume capital, that capital representing the labor and materials (and also the energy, in various forms) necessary to manufacture and install them.  Some of these materials are relatively scarce at present, and are sourced from problematic locations under questionable conditions.

Here is an interesting and quite detailed study on “green” materials and sourcing options, from the International Energy Agency.  Worth careful reading for anyone interested in energy issues, technologies, and politics.  Note that in addition to China’s development of its internal resources of the relevant materials, that country is developing strong trade and financing relationships…which may evolve to neo-colonial or even full-colonial relationships…with other countries possessing such resources.

And here are a pair of articles arguing that the only way for the US to acquire the requisite materials for a “green” energy transition will require close collaboration with China…that if the two greatest greenhouse-gas emitters on this planet can’t work together, we’re all going to be living in a more or less literal hell. The authors of these pieces don’t seem to be very concerned about the risks of US dependence on China for our energy supply; they seem more concerned about the risks of a cold war (anti-China) mentality.  (It is also interesting that the word ‘nuclear’ doesn’t appear in either article.)

Comes now a Reuters article, which asserts that: The Biden administration is considering a plan to import the bulk of the materials needed to build electric vehicles and the batteries that power them instead of mining them domestically — a nod to environmental groups that make up a key part of the Democratic constituency, according to a report.  The article goes on to quote an administration source as saying, referring to mining, that “it’s not that hard to dig a hole”…a comment which interestingly echoes Michael Bloomberg’s assertions about farming–“I could teach anybody, even people in this room, no offense intended, to be a farmer…You dig a hole, you put a seed in, you put dirt on top, add water, up comes the corn.”  (Bloomberg also made similarly dismissive remarks about manufacturing jobs)

On the other hand, a post at the Seeking Alpha investment blog asserts that Contrary to Rumors, the Biden Administration is Not Abandoning Lithium–that on the contrary, they want to expand both domestic and international supply of this material.  (The author of this piece also notes critically that the Reuters article did not reference a single named source.)

But even if the Biden administration does throw some money at domestic mining and processing, environmental objections and litigation are likely to slow things down considerably…a Trump-style president might be willing and able to blow past such constraints, but Biden/Harris, given their dependence on their party’s extreme Left, will likely find it easier to placate environmentalists by combining a US emphasis on vehicle electrification and “green” energy with a de facto sourcing policy of acquiring most of the relevant materials from outside the United States–including China–which allowing most US mining and bulk processing initiatives to bog down in red tape.

Here’s a follow-up article from Reuters.

As the IEA article notes, “green” energy represents a shift from a fuel-intensive to a materials-intensive energy system.  Few of the prominent/influential advocates of such a shift seem to have given much thought to where those required materials might actually come from.

Wind and solar are more capital-intensive than are fossil-fuel power sources, and mining requires considerable capital as well.  It seems likely to me that the worldwide push for “green” energy and electric vehicles will drive enough capital demands–whether via government or private financing–to have a material upward impact on interest rates.

The America Political Chernobyl

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The meltdown wasn’t caused by engineers but by the Soviet political system’s dogma.

 

Nothing enrages my family, friends and colleagues more than when I assert that contemporary US political divisions are the same as those since the beginning of recorded history: ideology, race, and religion, rather than (easily ignored) Trump tweets (or the political spin thereof). So I will proffer that his tweets were divisive in that they challenged Progressive Democratic beliefs regarding these factors, but neither should be accepted on faith if America is to avoid an economic meltdown.

 

Empires and State Religions

The Soviet System’s accomplishments from Stalin’s time – industrialization and WW II, urbanization, restoration and expansion of Imperial Russia, etc., and the space achievements under Khrushchev were so impressive that American intellectuals generally agreed with Khrushchev’s “we will bury you” right up to Chernobyl in 1986. The plant failed because the Soviet system of top-down authority and suppression of the truth forced operators to ignore the inevitable failure and instead follow orders that guaranteed a meltdown.

 

Gorbachev’s glasnost” (openness) and perestroika (restructuring) in response to the disaster removed the pillars of the Soviet system – adherence to beliefs given the status of religious dogma – causing it to collapse, something  Austrian economists had considered inevitable. Russia restored the Orthodox Church, but without any historical political legacy based on individual sovereignty, it morphed into a kleptocratic autocracy and a return to Russian Imperialism and military aggression.

 

Whether or not China discovered America in 1421 (or had a greater Empire than the Incas) it was a mercantilist empire several centuries ahead of the British in scope, science and technology, requiring “tribute” (kowtow) in return for protection and trade. Religion wasn’t an obstacle to entrepreneurial capitalism until Mao replaced de fact religious freedom with communist ideology in the early 20th century. China’s economic liberalization begun in 1978, that eventually led to a flowering of entrepreneurship in China’s attempt to restore and expand its earlier mercantilist empire, was accompanied by some religious freedom. Had political liberalizations followed, China’s demographics – a population four and a half times that of the US – might have already buried us.

 

Churchill may not have saved the British empire in the world wars, but the Empire saved his little island nation. At its 1920 peak it controlled about a quarter of the world’s land mass and population. Britain is a protestant Christian nation, which most analysts conclude fosters property rights and capitalism. The Church of England seceded from the Roman Catholic Church to eliminate the sovereignty of the Pope common to European empires at the time. The British legacy of democratic government and individual freedom and responsibility, the cornerstone of a market economy (admittedly at times too crony and mercantilist) is the source of its economic success and that of its former colonies, including the United States.

 

Uniting church and state elevates political ideology to infallible dogma accepted on faith. The U.S. Founding Fathers, following Britain’s lead, founded a Christian nation that guaranteed individual freedom of religion but forbade the formal establishment of a state religion.

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