Some Chicago Boyz know each other from student days at the University of Chicago. Others are Chicago boys in spirit. The blog name is also intended as a good-humored gesture of admiration for distinguished Chicago School economists and fellow travelers.
Anthony Kronman, a professor of law at Yale, writes about how an obsessive focus by academia on ‘diversity’ (as that term is now used) is destructive of individuality and the search for truth.
Victor Davis Hanson observes that the Robert Muller’s “dream team,” loaded with Ivy Leaguers, was expected to devastate Trump’s legal team, which had scarcely a Harvard man or woman in sight.
Electricity problems in Sweden – looks like these are being driven by the closing of nuclear plants, the increased reliance upon wind, and the failure to build adequate transmission capacity to collect the wind turbines with the loads.
It’s become something of a regular occurrence for the American mainstream media to blow a foreign policy story because of their Trump Derangement Syndrome. Yet they seem to have greatly sunk to new lows in missing the real importance of events leading to the 19 June 2019 Iranian shoot down of an American drone.
RQ-4N BAMS-D (Broad Area Maritime Surveillance-Demonstrator)
President Trump has ended the 1980 Carter Doctrine!
The free flow of oil from the Persian Gulf is no longer a “Vital Interest,” thanks to frac’ing, for a near energy independent USA.
BACKGROUND
CENTCOM confirmed Last Wednesday night of 19 June 2019, in international air space over the Strait of Hormuz, an Iranian surface to air missile (SAM) battery shot down a US Navy RQ-4N BAMS-D (Broad Area Maritime Surveillance-Demonstrator) Global Hawk. The ~$120 million drone in question was a navalised version of the USAF Global Hawk, used as proof of concept for the production MQ-4C Triton. It was essentially an unarmed, jet powered, sail plane with the wing span of a 737 jet liner and several tons of sensors. The drone fills the mission of the U-2, at similar altitudes, without the risks of a human pilot in the event of a shoot down.
Pentagon RQ-4N Shoot Down Map with Drone and SAM launch battery location.
Iran has claimed it used it’s ‘Third of Khordad‘ domestically built SAM system, operated by the IRGC, to shoot down the drone. This SAM system is described as a copy or derivative of the Russian Buk M3 / SA-17 GRIZZLY that incorporates the Bavar 373 missile that, in turn, appears to be a derivative/copy of the Soviet 5V55/SA-10B with additional controls. If you think of it as a late model Raytheon MIM-23 Hawk medium-range surface-to-air missile battery firing an early version of the MIM-104 Patriot PAC 1 missile, you would not be far wrong.
Press TV Tweet of Iranian SAM
It was this lack of a human pilot, either as a death or a prisoner of war, that saw President Trump jump off Iran’s scripted “escalation ladder.” Instead of destroying a SAM battery and converting 150 odd IRGC missile operators into another “Martyr blood sacrifice” for the Mullah regime to celebrate. Pres. Trump responded with cyber-attacks on Iranian missile control systems to remind the Mullah’s of the West’s technological “Black Magic” and additional economic sanctions that will cause further payroll cuts to both the IRGC and it’s over seas terror networks. (Truth be told, the new economic sanctions threaten the Mullah’s power far more than any set of tit for tat military strikes.)
And in a move treated as an afterthought, if the MSM mentioned it at all, President Trump ended an era in American Middle Eastern Foreign Policy.
END OF AN ERA
It has been almost 39 & 1/2 years — 10 years before the Cold War ended — that President Carter pronounced access to Mid-East oil a “Vital Interest” that the United States would go to war to protect.
Our two wars in Iraq both have that date, and that policy, as their starting point.
Now that era is over.
Last week Pres. Trump forged a completely new Middle East Foreign policy for America. Specifically, Pres. Trump took the opportunity Iran’s military escalations leading to the shooting down of the RQ-4N to end the January 23, 1980 “Carter Doctrine” expressed as follows —
“…An attempt by any outside force to gain control of the Persian Gulf region will be regarded as an assault on the vital interests of the United States of America, and such an assault will be repelled by any means necessary, including military force.”
This is how Vandana Hari at the Nikkei Asian Review put it:
“U.S. President Donald Trump says he might take military action against Iran to prevent it from acquiring a nuclear weapon. But he has indicated he won’t necessarily jump in to protect international oil supplies from the Middle East if they are under threat from the Islamic Republic.
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The position, articulated by Trump in an interview with Time magazine on June 17, should not come as a surprise, even if it appears to be at odds with the Pentagon beefing up aircraft carriers and troops in the Middle East in recent weeks, citing a threat from Iran.
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As Trump spelt out in the interview, the U.S. is no longer as dependent on oil from the Middle East as it was, thanks to burgeoning domestic production.
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Air Force General Paul Selva, vice chairman of the U.S. Joint Chiefs of Staff, emphasized the message a day later, pointing out that China, Indonesia, Japan and South Korea were heavily dependent on supplies moving through the Strait of Hormuz, and needed to protect their interests. U.S. Secretary of State Mike Pompeo has made similar comments.”
The pronouncement above was the full “Bell, Book and Candle” exorcism of American foreign policy — President, Joint Chiefs of Staff and Secretary of State. And please carefully note that it happened two days beforethe RQ-4N was destroyed.
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While “freedom of navigation” on the high seas over all and the Persian Gulf in particular remains a “major interest” of the United State of America. It is no longer one which America will automatically go to war over.
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In ending the Carter Doctrine, President Trump has fulfilled his 2016 campaign promise of “No More Iraq’s.”
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By changing the cost benefit calculations of Middle-Eastern oil — no more free riding on American protection of Persian Gulf Sea lanes — the only way a nation can “win” internationally now is by “getting close” to the American hyperpower.
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If you are functionally anti-American. You get nothing but higher insurance rates included in your price of oil to cover the political risk premiumof lacking American protection. China is now paying -defacto- and additional American oil tariff via much higher insurance rate on the VLCC tankers moving Mid-East crude oil to the Far East.
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Japan and South Korea could get lower insurance rates if they send naval forces to the Gulf to work with the US Navy. Or they can replace Mid-Eastern oil with exported US oil.
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China, not so much.
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As a correspondent put it in an e-mail to me when I mentioned the above to the list he and I are in —
“You all need to defend YOUR oil shipments through those NASTY Straits of Hormuz. The U.S. don’t need that filthy Middle East blood-oil no more. In fact, if you don’t want to spend the money and lives pounding sand in Iraq, Kuwait and Iran, we have some FINE Texas frackin’ goodness to sell at a SPECIAL price, just for YOU, our friends and allies for SO many years!”
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Snicker, choke, GASP….”
The American Left has finally gotten what it always wanted…no more “Blood for Oil“ in the Middle East.
Somehow, I don’t think President Trump delivering that reality to them will make them very happy.
I’ve written previously in my column “President Trump’s ‘Xanatos Gambit’ Government Shutdown” of President Trump’s tendency for building political strategy trees were every possible outcome is to his advantage. (See the “Xanatos Gambit” strategy tree example in the figure below)
This is a decision diagram example of a “Xanatos Gambit.“ Source: https://tvtropes.org/pmwiki/pmwiki.php/Main/XanatosGambit
It very much looks like President Trump has done the same thing with the Democrats and “China lobby” GOP Senators with the post-NAFTA US-Canada-Mexico (USMCA AKA “You Smack-A”) trade agreement and the US economy.
THE US ECONOMY, NAFTA & USMACA
The key thing you need to understand regards NAFTA and American manufacturing is that NAFTA was geared to allow the “China lobby” of multinational corporations to use Canada and Mexico as an “international arbitrage opportunity” for Chinese slave labor wage manufactured goods to be assembled at Canadian and Mexican production facilities and avoid American tariffs.
Multinational corporations exploiting this “international arbitrage opportunity” was “The Great Sucking Sound” that Ross Perot talked about which killed the US domestic refined metals industry and hollowed out middle class manufacturing jobs in the American economy.
President Trump’s USMCA removes that “international arbitrage opportunity” via original 75% North American manufacturing content requirements for metals and intermediate manufacturing goods as well as a Mexican minimum wage rules on the order of $15 an hour for automotive parts assembly.
In response the “China lobby” has been paying large campaign contributions to both House Democrats and “free trade” GOP Senators to try and keep NAFTA, as well running info-war spots everywhere in the corporate media and “movement conservative” publications/media outlets about the benefits of “free trade.” This has resulted in public statements by Speaker Pelosi that the House does not intend to vote for USMCA.
This is where Pres. Trump’s ‘Xanatos Gambit’ strategy tree kicks in via a macroeconomic and trade policy manipulation of the very simple economic equation of gross domestic product:
GDP = US ECONOMIC ACTIVITY + EXPORTS + FOREIGN INVESTMENT – IMPORTS – EXTERNAL INVESTMENT
The American economy just grew 3.2% in the 1st quarter of 2019. It would have grown another 0.3% but for the 30-odd day federal government shut down. The “markets” were expecting 2.5% GDP growth. The huge half-percent GDP “miss” boiled down to:
1. The USA exported more.
2. The USA imported less and
3. There was more external foreign investment than expected.
All three were the result of a combination of Trump administration policies on oil/LNG fracking, tax & regulatory cuts and trade/tariffs.
First point, the USA will be a net energy exporter — of oil, natural gas & coal combined — in 2020 if it isn’t one already.
Some rough numbers: In 2012 US oil production was ~8 million barrels a day, all for domestic consumption, and in 2019 it is 12.6 million with some exports. Today’s US oil consumption is 20 million barrels a day. That increase in oil production that has reduced imports of oil by a net of 4.6 million barrels a day has also been accompanied by the displacement of coal and oil in both electrical production and manufacturing by cheaper natural gas, thus freeing both the coal and oil not used to be exported. This combined economic change since 2012 alone is worth a 1% increase in GDP growth a year compared to 2012.
Second, the Trump administration’s systematic and sustained attack on Obama era federal regulatory growth is reducing business compliance costs particularly in the energy sector for new infrastructure projects. These are the “anti-green” actions the Democrats accuse the Trump administration of.
Third, the Trump administration/GOP tax bill, in addition to increasing spending power for the middle class, has had a huge -YUGE- reduction in capital gains taxes and a one-time break in repatriating overseas capital holdings. This has made America a much more attractive place to hold and invest money. Particularly for energy companies like Exxon, which are dropping this foreign capital inflow into the Permian basin for oil and natural gas fracking and energy export infrastructure from the Permian to the Gulf Coast.
Finally, in terms of trade and tariffs, President Trump’s tariffs on Chinese steel and aluminum combined with the business implications of USMCA rules have made further investment in Canadian automotive plants a net loss position. American metal content is now economically competitive for energy sector infrastructure and automobile parts such that US Steel among others are reopening US metal plants.
Taken together every part of the GDP equation has been directly affected by the Trump administration macroeconomic policies to get that 3.2% GDP number.
This is where the Xanatos Gambit for USMCA arrives.
Things will be worse for the China lobby without a vote on USMCA than with one.
Short form:
NAFTA is dead regardless of any action or inaction by the House. All the House and Senate can do is not vote on USMCA. The legislative branch cannot revive a NAFTA trade agreement the federal executive has withdrawn from.
This means without a signed USMCA trade deal Pres.Trump can — and will — lay on even more tariffs on the multinational corporations playing price arbitrage in Mexico and Canada between Chinese and American manufacturing.
While such trade sanctions can reduce the American economy like a tax increase, when we are likely at close to 4% economic growth in late 2019 to early 2020 from the accumulated investment in energy projects bringing defacto energy independence, a 3.5% economic growth rate with tariffs is still pretty good.
And when the House refuses to vote in USMCA, NAFTA still dies.
Pres. Trump can and will lay on new massive new anti-Chinese tariffs on Canadian and Mexican front companies for China without USMCA rules. This will be massively popular in the Midwest in an election year and will hurt the income streams of the multi-nationals supporting the Pelosi Dems and McConnell RINOs.
From Trump’s point of view, What’s not to like about America’s manufacturing base employing the Midwestern white working class growing while the “international arbitrage opportunity” of China’s slave labor economy contracts?
So, as of this last week, as per the sparkly new members of the House, the Democrat Party line is now one of unapologetic and hard-line anti-Semitism. Not that this should surprise anyone with a grounding in history: in the 19th century, the Democrat Party was the party of slavery and secession, in the 20th, the party of segregation and Jim Crow. And now, in this faintly-tarnished 21st, they appear to have become the party of socialism, anti-Semitism, and the fanatical belief that OMG-The-Planet-Earth-Is-Gonna-Fry!
The Horrendous Climate Change thing is bad enough on its’ own. Look, I have been paying attention long enough to remember when Massive Global Cooling was all the Panic du jour, then followed by the Massive Global Warming all this human and/or industrial caused. I am so not falling for the scam of the successor to this panic that of Massive Global Climate Change!!Eleventy!! It was warm enough in Roman times to grow wine grapes in England, warm enough in Medieval times for subsistence farming in Greenland, cold enough in the 17th centuries that the Thames froze over at London, enabling midwinter jollities to be held on the ice. The monumental Cliff Dweller settlements in the American Southwest flowered and flourished until the thirteenth century, when widespread drought and subsequent unrest drove the Anasazi from their aeries among the cliffs. The volcanic explosion of Mt. Tambora in 1815 in the East Indies brought about the following “year with no summer” in the northern European continent and the eastern US all this when industry was in infancy and automobiles a dream in the mind of whatever madman was doing science fiction at the time… so, not buying anthropogenic global warming or the Green New Deal for a hot second.
China has the ability to launch cyber attacks that cause localized, temporary disruptive effects on critical infrastructure–such as disruption of a natural gas pipeline for days to weeks–in the United States. Russia has the ability to execute cyber attacks in the United States that generate localized, temporary disruptive effects on critical infrastructure.
Maddow: It’s like negative 50 degrees in the Dakotas right now. What would happen if Russia killed the power today? What would happen if all the natural gas lines that service Sioux Falls just poof on the coldest day in recent memories?
What would happen? Nothing good. These are serious threats, and I doubt that Russia and China are or will continue to be the only entities able to conduct such cyberattacks. And there is also plenty of risk for non-cyber attacks…physical-world sabotage…which could have similarly malign impact on energy infrastructure.
But we don’t need to wait for a foreign adversary or domestic terrorist organization to cripple our energy infrastructure. We can quite effectively do it to ourselves.
In late January, it was very cold in Minnesota. And there wasn’t a lot of wind. Natural gas, also, was in short supply, as a result of pipeline capacity constraints. Xcel Energy urged its gas customers to turn down thermostats and water heaters, and to use electric heaters as necessary. The electricity was coming from primarily coal plants (40 GW) and natural gas plants (about 23 GW)–the gas plants, of course, are also dependent on pipeline capacity.
Solar and wind in most parts of the US are now small enough in proportion to overall grid capacity that shortfalls can be made up by the other sources. What happens if they come to represent the majority of the grid’s power capacity–not to mention the exclusive source of capacity, as demanded by some?
It may be feasible to store a few hours of electricity without driving costs out of sight…but what about the situation in which wind and solar are underperforming for several days in a row? Interconnection of sources and demands over a wide area (geographical diversity) can help, but is by no means a comprehensive solution. So far, the gas, coal, and hydro plants have been there to kick in where necessary.
Almost every day, there are assertions that new solar is cheaper than its fossil-fuel equivalents. This may be true in some areas if you ignore the need to match supply and demand on an instantaneous basis. But if the fossil-fuel plants are there to handle only those periods when wind, solar, and limited battery storage aren’t sufficient to meet demand, then the total energy production against which their capital cost is charged will be much lower, and hence, the cost per unit will go up. (See the California Duck Must Die for a nice visual portrayal of how widespread solar adoption has changed the load curve for the other sources.) In some states with net metering, a home or business owner can sell excess power to the grid when loads are low and buy it back at the same unit price when loads are at their maximum. This becomes especially problematic when “renewables” become a major part of the mix. Unless incentives are intelligently crafted–unlikely, given politics–“renewable” sources will effectively be subsidized by conventional sources and potentially make the construction and maintenance of those conventional sources impossible. See If Solar and Wind Are So Cheap, Why Do They Make Electricity So Expensive?
