Category Archives: Institutional Analysis

Jamie Galbraith explains his interesting life



Watching the career path of James Galbraith has been a minor hobby of mine ever since I discovered that my interest in economics was directly related to how many of his father's books I had read. The fascination with whatever Galbraith's economics was called was based in my mind on the fact that papa John Kenneth (Ken) Galbraith grew up on a working farm in Ontario and entered the economics profession through the door of agricultural economics. He gave speeches for the Farm Bureau when starting out.

I believed this was important because:
  1. I trust the intellectual habits and practices of those really smart farm kids. Farming is an Ur profession. Providing for the community’s nourishment is a LOT harder than it looks. It is the basis of civilization itself. Out of this scramble came the people who literally built the country. And they created social structures as enlightened as any in human history.
  2. Yea, for the home team. While I envied the childhood of James and wished I could have sat in a corner as JKG discussed the affairs of the world with the best educated economic minds of his generation, I could not. Northwest North Dakota is a LONG way from Harvard. What I could do, however, was recreate the education the farm kid from Ontario got watching his parents and neighbors as they sought to invent a way to get farming to pay the bills out at the thin edge of civilization. Products of this struggle have a reality base that informs the rest of their thoughts. Done right, the resulting thinking can be quite spectacular.
And so, while I avidly read JKG’s books and articles and tried very hard to emulate his thought processes, I was really interested in Jamie’s life because, after all, he is only three years younger than I. If the economics that JKG and friends had been perfecting since the earliest days of Roosevelt’s New Deal was to survive, the next generation of economists would have to learn the institutional practices that actually pushed forward the project of eliminating grinding poverty while attempting to overcome the Great Depression. It is not beyond reasonable speculation that JKG would want at least one of his sons to follow in his intellectual footsteps. And so Jamie would become the crown prince of JKG’s explanations for how the American Industrial System actually worked.

If you read James’ memoir below, you will see that he got a training that was the product of JKGs best ideas. Harvard AND Yale. Professors with international reputations and probably a friend of the family. A “visiting scholar” appointment at Brookings when it was still relevant. And finally he wound up at University of Texas—Austin. This school had enthusiastically embraced all the neoliberal rationalizations in its school of economics so of course, young Jamie would not be welcomed there. However, UT-Austin had long been home to the best Institutionalists in the land led by the spectacular Clarence Ayres. Their wisdom was no longer welcome in the economics department either but they knew a fellow creature of the New Deal so gave him the job of Lloyd M. Bentsen Jr. Chair in Government/Business Relations at the LBJ School of Public Affairs.

The career contrasts between JKG and James are extremely interesting. JKG was by the end of the 1960s arguably the most famous face the economics profession would ever have. His books were read in dozens of countries. He wrote for Henry Luce’s Fortune magazine. He taught at Harvard and had acolytes all over the world. His 10-part video series on economics called The Age of Uncertainty (some episodes can be found on YouTube) was co-produced by the CBC, BBC and PBS. His breed of economic thought was accepted as the rational middle because the practitioners had done a mostly excellent job of running things—post-WW II reconstruction being the best example.

By comparison, James had a modest career that was useful. The man did not waste his life. But he was not the titan like his father—mostly because he had about 1/100 the opportunities to do a good job. In my humble opinion, the factor that explains this most simply was the change in zeitgeist. The economic theories of JKG had ceased to be cool. Where I come from, the enlightened, passionate Keynesians who had run the economics department at the University of Minnesota since the glory days of Alvin Hansen in the 1920s had long since forgotten the reason why Hansen was so enthusiastic about activist government economic intervention. Where he came from (Viborg South Dakota) such economic policy was literally a matter of life and death. This passion also informed JKG.

But Jamie did not grow up on a working farm, he grew up in a splendid home large enough to entertain a steady stream of guests eager to swap ideas with the leading light of what was coming to be called Keynesianism. Jamie's childhood economic demonstrations taught him that economics was this delightfully difficult problem to be solved, not a dangerous test against arctic-like winters and you must be clever enough to still have food in the spring.

Jamie's also suffered wrong intellectual turns even (or especially) considering his gee-whiz educational paths. Economics was changing through the addition of computing power. The math geeks would pose the big questions for the high-powered mainframes to crunch and suddenly, the great mysteries would be revealed through the statistical wisdom of regression analysis. Analysis as modeling guided by machine-perfect math sure sounds like a good idea.

Personally, I was not impressed. I wasted much of my youth building model airplanes and learned a profound lesson. The reason that model airplanes don't look or fly like real airplanes is that all sorts of problems are introduced when you try to scale the outcome. There are guys who want their scale models so authentic, they even want the rivets in the right place. Unfortunately, if the rivets get too small, they no longer can work as fasteners so they are reduced to decoration. Worse, there are physics problems that cause small airplanes to fly differently than large planes. For example, the governing bodies who make the rules for judging scale models have modified those rules so that models are still considered authentic even if the tail surfaces are oversized. Why? Because a WW II fighter with accurately-sized tail surfaces will barely fly—if at all. Oh those Reynolds numbers.

Then there are the problems of predicting behavior using mathematical formulas. Try, for example, to animate the walking behavior of a small toddler in a 3D animation. Using math formulas to predict such random behavior is virtually impossible. In fact, realistic cartoon behavior is really only possible if one puts markers on a real child, let him walk across the floor, take those marker locations and attach them to the model and animate the result. And yet, there are economists from around the world who actually believe they can predict large-scale human motion like market behavior with a few elegant math formulas. I am reminded of that arrogance when I watch just how difficult it is to make a self-driving car. And this is an EASY problem. There are states in USA that issue driver's licenses to 15-year olds.

When Jamie Galbraith lists the learning experiences that were mostly a waste of time he includes learning matrix algebra. (See paragraph #4 below.) So essentially he learned the same lessons as I only in a Harvard classroom. Unfortunately, this mislearning sunk the whole econ profession for at least 50 years. Worse, because this mislearning was so difficult and time consuming, other necessary things had to be dropped. The most serious is the fact that one can now get an advanced degree in economics without knowing the history of the subject. It's no wonder that economists have gotten almost everything wrong for the past 50 years.

So here's to James K. Galbraith who devoted his life to recreating the methods employed by the economists who guided the industrialized west to the greatest prosperity in human history. Historians are important too.

James Galbraith’s memoir of lifelong struggles to make economics a force for good

James Galbraith, 06/01/2020

Economics is sometimes portrayed as a contest between saltwater and freshwater, between the coastal pseudo-Keynesians and the Great Lakes neo-Walrasians, between the flaws-and-friction model-builders and the free-market hard-liners. As evolutionists know, both habitats are fairly sterile. Evolution occurs in the backwaters, in the mudflats, bogs, lagoons, cypress swamps and wetlands, in the shadows of perpetually endangered habitat. In this article I will sketch my personal journey through the backwaters. Intellectually they are my home, as they have been for every other recipient of the Veblen-Commons prize, with just one exception.

The exception was my father, who lived and worked on high ground, which he reached out of nowhere or more precisely Southern Ontario and Giannini Hall, by a unique combination of gifts including practical knowledge of price control and strategic bombing, the principled and imaginative use of state power under emergency conditions, and surpassing grace in command of the English language. But the high ground was barren ground. John Kenneth Galbraith’s influence spread around the world but it could not take root at home.

My father’s lasting gift to me has been a solid sense that an economist is either a practical player in policy battles or nothing at all. Economics is not a theology of the human condition. Nor is it a branch of pure logic, however much the attempt to make the notion into grist for undergraduates may warm academic seats. Catherine the Great had it right in 1765 when she chartered the Free Economic Society of Russia, suppressed in 1917, revived in 1982 and of which I’m the only known American member, and endowed it with the logo of a beehive and a one-word motto: “Useful.”

At Berkeley in 1969 one lecture, by Abba Lerner, did not deflect me from French literature and the anti-war movement. Then at Harvard I took my first economics course from Wassily Leontief, from whom I absorbed a fascination with hierarchical category schemes and matrix algebra, two misleading guides to the field, which spent thirty years in remission before breaking out to decorate a research agenda. I also became, uselessly, an expert on the production of ammunition for the Vietnam war.

In a year at Cambridge I saw Sraffa on his bicycle, absorbed enough capital theory to be inoculated against production functions, skirted the theatrics between Hahn and Robinson as much she inspired reverence and terror, drew close to Kaldor on the eve of his great last stand against Thatcher and monetarism, was amused by the geometric pyrotechnics of Richard Goodwin, entranced by the beautiful matching of Sraffa to Keynes in Pasinetti’s lectures, and admired Adrian Wood’s quasi-Galbraithian theories of profit and wages. Adrian, my tutor, to whom I owe a deep debt, also sensed the barrenness of high ground, and soon gave it up for the World Bank and China.

Henry Reuss extracted me to Washington in June 1975, just in time for two great events. One was the invention of the Conduct of Monetary Policy hearings, soon re-christened Humphrey-Hawkins, the first formal and regular congressional oversight of the Federal Reserve. They were my baby for five years, and they led to the “dual mandate” – full employment and price stability – the most Keynesian and most successful charter of any central bank. The other was the New York City financial crisis, the dawn of disaster capitalism, three weeks into my Hill career. I was thrown into it at 23 and never emerged, a life-long ambulance chaser of debt debacles.

Of my PhD years at Yale, 1976-1979, little comes to mind – routine drill on dying topics, logic-chopping whose flaws I already understood. Sid Winter generously lent his protection. With help from Lucy Ferguson, for a dozen years my wife, I explored numerical taxonomy and applied it to budget expenditure categories in a thesis only one person ever read: Paulo Du Pin Calmon, now of the University of Brasilia, who became my first PhD student and would help launch the inequality project. Otherwise I diverted myself, a week each month, by going back to Washington and the Banking Committee to skirmish with the resident monetarists and to harass the central bankers, from Arthur Burns to Paul Volcker, and eventually to Maryland for a year, marked most by a first major paper, a comparative institutionalist study of credit and industrial policies in France, West Germany, Great Britain and Sweden, published by the Joint Economic Committee in 1981.

Then the Revolution came. A dog’s breakfast of damaging dogmas – supply-side economics, monetarism, deregulation and privatisation, each among the rising academic doctrines of the previous decade, softened in ultimate effect only by an aggressive tax-cut and military Keynesianism. The problem of the early Reagan revolutionaries was not that they were academically disreputable as many claimed, but that they actually weren’t. At the Joint Economic Committee we fought them all, cooks and bakers in the front lines, backed by stalwarts like Bob Eisner, Walt Rostow – and also great luminaries, Tobin, Leontief and Klein, who appeared together in 1982. The New York Times ran their picture on the front page with a caption, but no story; I was shattered until my Republican colleagues emerged from their offices, one by one, to offer strictly professional congratulations. A policy triumph followed: the collapse of monetarism, and a political triumph, 26 House seats in the 1982 midterms, aided by ten percent unemployment. It was enough to stall the revolution, for a time.

Thereafter the economy recovered but the damage was done. The rise of finance and technology, disinflation, globalisation, debt peonage and the decline of industry, the rise of bicoastal inequalities, and the rusting away of the Midwest, giving rise first to Clinton and then to Trump – for all of these the course was set by Reagan and Volcker in the early 1980s. And the dogmas too morphed and lived on, shapeshifting zombies reinvented as exportable commodities in the form of the Washington Consensus, inflation targeting and neoliberalism, each eventually squeezed dry of doctrine until only the policy shells remain – tax cuts, central bank independence, fire-sale privatisations, deficit – and debt-aversion, all too useful to require the foundation of thought.

I came to Texas as the Old Institutionalists – Ayres, Gordon, Marshall – were fading out. Yet their ethos lingered even if few could detect it. For me the path forward lay in merging Institutionalist mesoeconomics with Keynes’s monetary-production economic space-time, modelled on Einstein – a thought planted by Skidelsky at Rostow’s poolside – and the lot with Leontief’s matrix-sensibility, eigenvectors and eigenvalues complete, to complement neoclassically-inflected econometrics with a non-parametric paradigm revealing the half-hidden structures in economic data. Peter Albin caught the gist and urged me forward. All this was far beyond my abilities but somehow just the right group of students coalesced at just the right time – from China, Portugal, Korea, Mexico, and later on Spain, Belarus, India, Sudan, Colombia, Argentina, France, Poland, and Iran.

Two currents emerged from this work. One applied numerical taxonomy to time-series vectors, notably wage change, reconstructing industrial and national-income classification schemes to distil the underlying structural affinities revealed by co-evolution through time. Steven Weinberg told me this was “cladistics.” We combined it with the extraction of discriminant functions – eigenvectors and eigenvalues complete (!) – which isolate and rank the dominant forces of economic change in each place and time. A referee reported that “economists do not use these techniques.” Seismologists, I later learned, had worked them out to distinguish earthquakes from nuclear explosions.

The second current was the measurement of economic inequalities from administrative statistics – payroll and employment records, mostly – using a generalised entropy measure, the between-groups component of Theil’s T statistic. The advantages of this Institutionalist approach are depth, range and precision, with results that largely mirror the best household surveys but with dense and consistent matrices of measures, suitable for panel analyses using standard techniques, from which time-and space patterns emerge with great clarity, showing on a global scale how debt and exchange-rate crises and regime changes drive inequality up, and how better export prices, lower interest rates and sustained social-democratic growth can bring it down. After an early presentation to the American Philosophical Society in Philadelphia John Archibald Wheeler came up to encourage me; my circle back toward economic space-time was complete.

Our approach to inequality has proved impossible to ignore entirely – it’s easy, cheap, accurate and replicable. It can be applied to many problems; most recently Jaehee Choi and I have shown how US states with the greatest increases in inequalities drift toward Democrats in presidential elections. But the larger point is the relocation of distributive analysis from labour markets and micro theory to macroeconomics on a global, interdependent scale, driven by structures of financial hegemony and power. Once again extracting information from matrices, this empirical and descriptive work yields a merger in practice of Keynes, Minsky, Galbraith père and Pasinetti, with distributive dynamics and a potential to unify economic analysis under an Institutionalist, Post Keynesian, Structuralist, MMT common front, buttressed by evidence and an expansive research agenda. Charles Saunders Peirce on Kepler comes to mind, that his gift to astronomy lay in impressing on men’s minds that the thing to do was to sit down to the figures and work out what the places of Mars actually were. Once again, the mainstream turns a deaf ear, to this day the macroeconomics of inequality – let alone the global macroeconomics of anything – does not exist in the JEL classification codes.

A further and ongoing evolutionary development is an elaboration, with Jing Chen, of the biophysical principles that must underpin a unified, reconstructed economics as they do every living and mechanical system. Only through this lens can economics understand scale, duration, resource costs, climate change and above all the essential role of regulation, without which mammals die, machines break, companies fail and banks and financial systems melt down. Our metaphors are already biophysical, somehow our thought and teaching and research should begin to catch up.

Still and finally, at least for now, an economist must be useful. For an academic like a politician this means taking your chances as they come along. In 1989 I helped to trigger debt default and the Brady Plan in Brazil, making of Luiz Carlos Bresser Pereira a lifelong friend. From 1993 to 1997 I was of some use as Chief Technical Adviser for Macroeconomic Reform and Strengthening Institutions to the State Planning Commission of the People’s Republic of China, my advice was largely to steer clear of Western economists and above all, not to open the capital account. Those results speak for themselves. Economists for Peace and Security kept me busy for twenty years. In 2015 I joined Yanis Varoufakis in Greece’s struggles against debt peonage and neoliberal austerity; we continue to work together on Democracy in Europe, the Green New Deal and the Progressive International. In 2017 I lectured in St Petersburg on the pragmatic economics of John Kenneth Galbraith, on the centennial of the storming of the Winter Palace and the 50th anniversary of The New Industrial State.

And when Bernie Sanders who does not need my advice becomes President next year, I’ll throw in with him for what it may be worth. I have hopes for a better world, free of imperial delusions, maximally demilitarised, authentically democratic, not too unequal, working together on common problems, saving the planet for a while longer. Well, anyway, one can dream.

Thank you very much.

Remarks by James Galbraith on receiving the Veblen-Commons Award of the Association for Evolutionary Economics. More information.
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The Dismal Forecasts of the Dismal Scientists


How economists keep getting things wrong and not learning from their mistakes

by James K. Galbraith
January 10, 2020

No matter where; of comfort no man speak:
Let’s talk of graves, of worms, and epitaphs;
Make dust our paper and with rainy eyes
Write sorrow on the bosom of the earth.
(Richard II, Act III, Scene 2)

So it was in San Diego in early January at the annual meetings among the gathered economists, dismal professionals to a man and (occasional) woman. The New York Times on January 8 aptly summarized the concerns: high deficits and public debt, low interest rates, trade wars, and slow productivity growth. According to the Times, these warnings were echoed by economists from the World Bank, the Federal Reserve, from Washington think tanks and, of course, from Harvard.

Beneath the ominous prognoses lie two impulses. One is the natural human desire not to be embarrassed—yet again—by failing to have warned that things may go bad. The academics quoted in the Times were in several cases architects of past disasters, or at best blind and mute as disasters approached. It would not do to have the same said again, and if a disaster does not occur, few will remember the warnings. The other impulse is intellectual inertia: The economists, like France’s Bourbons, learn nothing and forget nothing; they cast their omens in terms of parables read in textbooks many decades back. To change ideas now would call into question the very foundation of their careers.

Thus we read that trade wars are bad for growth. For a country running a large deficit, the opposite is actually true: Tariffs divert demand from imports and so support domestic expansion, unless the retaliation against exports is even more extreme, which has not been the case. Economists cannot admit this because they are tied to the doctrine of comparative advantage and the virtues of free trade, textbook principles at odds with the whole history of successful industrialization and development, including in the United States.

Low interest rates are said to be a risk because some day they will end. But the Federal Reserve has been trying to raise rates—or at least talking about it—for almost a decade. Every move in that direction brings financial turmoil, here or in the wider world, and the Fed backs off. The reality, at last bleakly admitted by the president of the New York Federal Reserve Bank, is that low interest rates are locked in—in technical terms, by the shallow yield curve. That is, you can’t raise short-term rates without pushing them up above sticky long-term rates, which is perhaps the world’s most reliable recipe for credit market chaos.

But if the likely permanence of low interest rates were fully admitted, then the Congressional Budget Office would have to revise its forecasts for future interest rates, which have for many years projected that they would rise far above current levels. And lowering those forecasts would, to a large degree, make the scary projections of high future federal deficits and rising debt ratios go away. This would undercut the third pillar of the pessimistic case, already weakened by devastating criticism of its feeble theoretical foundation and flawed empirical support. And yet, amazingly, there at the meetings was Harvard’s Kenneth Rogoff yet again, preaching to a large crowd about the public debt.

The Times accurately notes that economists are coming around to the view that even under the best conditions economic growth will remain slow—a position argued at book length by yours truly five years ago, but never mind. Part of my argument in The End of Normal concerned the fourth pessimistic pillar, slow productivity growth. I argued that in our age of technological upheaval capital goods have become cheap, therefore business investment as a share of total output has declined, and so the economy relies more than ever on the strength of consumer demand, bolstered by credit cards and student and automotive debt. The evidence since then bears this out. Alas, this means that otherwise worthy calls for new spending on brick-and-mortar infrastructure and on research and development bear no relation to the supposed problem of low productivity growth.

Recessions happen not when public deficits are large and interest rates low, but when the private sector takes on more debt than it can handle and interest rates rise.

In reality, as an unquoted presentation at San Diego by modern monetary theorist Randall Wray of the Levy Economics Institute showed, recessions happen not when public deficits are large and interest rates low, but when the private sector takes on more debt than it can handle and interest rates rise. This is what happened in the late 1990s and in the mid-2000s, in the run-ups to the NASDAQ crash and the mortgage debacle. It hasn’t happened this time—yet. So far this recovery, thanks to federal spending and to tax cuts, however regressive, the overall private sector in the United States is still solvent. It is so precisely because private saving and public deficits are mirror images, and because lower import prices and surging onshore energy production have kept the trade deficit under control as the economy grew. And while household debt has grown, lower interest rates have kept the burden of that debt manageable, so far.

Does all this mean there are no downside risks? Alas not. It means only that you won’t learn about them from brand-name economists who never outgrew their textbook models. A new paper, “Into the Abyss,” by an obscure young Finn, Tuomas Malinen, should however be considered for a prizewinning doomsday scenario.

Malinen is a financial economist, which means he studies a sector that most mainstream economists pretend doesn’t exist. What he finds, in a nutshell, is over-leveraged banks and hedge funds propped up with increasing desperation by central-bank operations in the repo market—overnight repurchase agreements for Treasury bills—which is today the major source of central-bank liquidity for the financial sector. The over-leverage is the result of inveterate speculative reach-for-yield, an instance of Hyman Minsky’s rule that stability creates instability, and that safe financial practices naturally degrade into Ponzi schemes. On top of this, securitized corporate loans (CLOs) have begun to look shaky, and could lose value massively in a downturn affecting corporate profits.

Those financial losses would in turn trigger bank failures, perhaps starting with Deutsche Bank, a vast operation with, Malinen says, “it is rumored” over $30 trillion in derivatives contracts—a nominal value roughly 40 percent larger than U.S. annual GDP. A failure at DB would quickly lead to bank failures throughout Europe, in countries that lack the will or the capacity to offset the calamity with the vast increases in public spending and reduced tax burdens that would be required, alongside other emergency measures such as capital controls. He further argues that China would be unable to pick up the slack—a point I’ll dispute in a minute.

Malinen has a free-market streak, and his main scenario leans toward an Andrew Mellon–style mass liquidation, followed by recovery of the survivors. He would prefer this, for all the carnage, including physical death and destruction, to a “Green-Left fascism, suppressing both individual rights and unpopular economic activities.” Even if it were true that “Nature could be saved … but at the expense of humanity reverting to slavery and oppression.”

This seems a bit over the top. Europe may well be at extreme risk as Malinen fears; the experience of Greece in the financial crisis shows that the financial and political leadership of the European Union is ruthlessly self-protective and predatory; there is no accountability for the suffering caused or recourse for the victims. China is, however, different. The government may be authoritarian but it responds quickly—and massively—to crisis because otherwise it would not survive. Financial analysts have a bit of a blind spot with respect to China; many see that country’s banking sector through Western eyes. In reality, China’s banks are backed by the government and protected by capital controls, making them essentially inseparable from the Chinese state.

And in the next crisis, the United States may finally be moved to free itself from the deadweight of mainstream economic thought, to retire a worn-out generation of policy advisers, and to move on with the great social, economic, and environmental project known as the Green New Deal. There is a history of radical experiment and popular mobilization in this country, from which democracy emerged stronger, not weaker, than it ever was before. And for many Americans, to escape from the debt trap and from domination by bankers and billionaires into a world of work and public purpose would be the very opposite of slavery and oppression. A better word would be liberation, along with a new freedom, and a new hope. more

James K. Galbraith holds the Lloyd M. Bentsen Jr. Chair in Government/Business Relations at the LBJ School of Public Affairs and a professorship in government at the University of Texas at Austin.

Oil bites back


Well, the laws of oilfield "gravity" are finally kicking back in. They are:
  1. In spite of small motor-efficiency gains, the demand for oil continues to soar. Those people in China and India who finally got a nice car are not about to park it in the front yard and look at it.
  2. It has been a long time since the discovery of a major oil field. At some point, maybe soon, demand will significantly outstrip supplies. The scramble will be on.
  3. Fracking was a diversion. It cannot succeed because the energy gathered through fracking barely exceeds the energy it takes to frack. It's not easy to rearrange underground rock formations.
  4. The sanctions on Iran may prove a significant boost to their national prospects. Keep it in the ground. By the time sanctions are lifted, the price of oil may have doubled or more. In real economic terms, the price of oil can only go up.
The position of USA is very precarious. For over a generation, this nation has waged war on the middle-east oil nations. Spilled a LOT of blood in the process. Mostly to prove that oil was forever. Well, it's NOT. And the people who can control the global production of oil come from places where people seethe with anger at the very mention of our name. No one owes us any favors. And even with fracking, we are still net importers of petroleum products.

Now IF we had put this problem—one that was already well-defined by 1973—on a WWII footing as Jimmy Carter suggested when when he called the energy problem "the Moral Equivalent Of War," the coming events would be so much easier to manage. Instead, official Washington took to calling his quite reasonable suggestion MEOW. Oh Jimmuh! you were such a pussy. Carter discovered that rational argumentation just wasn't butch enough.

Oil surges to 4-year high as investors see no sign of production rise amid Iran sanctions

RT 25 Sep, 2018

Crude oil prices have jumped to the highest level since November 2014 as key producers like Russia and OPEC are not increasing production, while Iran will soon be hit by US sanctions on its energy industry.

Brent oil surged to $81.9 per barrel on Tuesday, while the US West Texas Intermediate rose to $72.44 per barrel. OPEC, Russia and other key producers met at the weekend to discuss a possible increase in crude output, but the so-called OPEC+ group decided not to do so.

While oil production is not rising, it is likely to fall when the US sanctions against Iran’s oil industry come into force on November 4.

“Iran will lose sizeable export volumes, and given OPEC+ reluctance to raise output, the market is ill-equipped to fill the supply gap,” Harry Tchilinguirian, global head of commodity markets strategy at French bank BNP Paribas, told Reuters.

US President Donald Trump has repeatedly demanded that OPEC, Russia and other producers should increase output to offset the fall in Iranian supplies. The International Energy Agency predicts strong oil demand growth of 1.4 million barrels per day (bpd) this year and 1.5 million bpd in 2019. The growth will come at the time when OPEC’s third largest producer Iran has been losing clients.

“South Korea and Japan have completely stopped importing oil from Iran, and India has slashed it almost twice. It means that that in about a month Iran will lose 1 million bpd. This loss in global supplies can become a catalyst for price growth in the foreseeable future,” Anastasia Ignatenko, leading analyst at TeleTrade said in an e-mail to RT. The analyst noted that oil could surge to $95 per barrel in the second half of 2019. more

Oil bites back


Well, the laws of oilfield "gravity" are finally kicking back in. They are:
  1. In spite of small motor-efficiency gains, the demand for oil continues to soar. Those people in China and India who finally got a nice car are not about to park it in the front yard and look at it.
  2. It has been a long time since the discovery of a major oil field. At some point, maybe soon, demand will significantly outstrip supplies. The scramble will be on.
  3. Fracking was a diversion. It cannot succeed because the energy gathered through fracking barely exceeds the energy it takes to frack. It's not easy to rearrange underground rock formations.
  4. The sanctions on Iran may prove a significant boost to their national prospects. Keep it in the ground. By the time sanctions are lifted, the price of oil may have doubled or more. In real economic terms, the price of oil can only go up.
The position of USA is very precarious. For over a generation, this nation has waged war on the middle-east oil nations. Spilled a LOT of blood in the process. Mostly to prove that oil was forever. Well, it's NOT. And the people who can control the global production of oil come from places where people seethe with anger at the very mention of our name. No one owes us any favors. And even with fracking, we are still net importers of petroleum products.

Now IF we had put this problem—one that was already well-defined by 1973—on a WWII footing as Jimmy Carter suggested when when he called the energy problem "the Moral Equivalent Of War," the coming events would be so much easier to manage. Instead, official Washington took to calling his quite reasonable suggestion MEOW. Oh Jimmuh! you were such a pussy. Carter discovered that rational argumentation just wasn't butch enough.

Oil surges to 4-year high as investors see no sign of production rise amid Iran sanctions

RT 25 Sep, 2018

Crude oil prices have jumped to the highest level since November 2014 as key producers like Russia and OPEC are not increasing production, while Iran will soon be hit by US sanctions on its energy industry.

Brent oil surged to $81.9 per barrel on Tuesday, while the US West Texas Intermediate rose to $72.44 per barrel. OPEC, Russia and other key producers met at the weekend to discuss a possible increase in crude output, but the so-called OPEC+ group decided not to do so.

While oil production is not rising, it is likely to fall when the US sanctions against Iran’s oil industry come into force on November 4.

“Iran will lose sizeable export volumes, and given OPEC+ reluctance to raise output, the market is ill-equipped to fill the supply gap,” Harry Tchilinguirian, global head of commodity markets strategy at French bank BNP Paribas, told Reuters.

US President Donald Trump has repeatedly demanded that OPEC, Russia and other producers should increase output to offset the fall in Iranian supplies. The International Energy Agency predicts strong oil demand growth of 1.4 million barrels per day (bpd) this year and 1.5 million bpd in 2019. The growth will come at the time when OPEC’s third largest producer Iran has been losing clients.

“South Korea and Japan have completely stopped importing oil from Iran, and India has slashed it almost twice. It means that that in about a month Iran will lose 1 million bpd. This loss in global supplies can become a catalyst for price growth in the foreseeable future,” Anastasia Ignatenko, leading analyst at TeleTrade said in an e-mail to RT. The analyst noted that oil could surge to $95 per barrel in the second half of 2019. more

Thoughts on the trials of Elon Musk


These days, the most uplifting story concerns the Tesla automotive project. I find it interesting because I have been something of a car nut since grade school. Our next-door neighbor was the local Ford dealer just when Edsel Ford decided to make his company dominant in racing. This was a no-holds-barred land-based space race—the first use of aluminum honeycomb outside of NASA went into Ford's LeMans enduro racers. My neighbor, who was mostly selling trucks and tractors to his farmer customers, would give me the chest-pounding literature of Ford Racing because he found it irrelevant to his business. Then I added to that knowledge base in college working for an auto parts store where I first became aware of the incredible size and complexity of the USA on wheels.

My initial reaction to Musk entering that world was, "Elon baby. Stick to software. Cars are an amazingly difficult and expensive proposition. This a world that eats upstart competition for breakfast." And yet, Tesla still stands as an ongoing concern and its most recent brush with death—the mass production of an affordable EV—seems to be most significant for how much money the "shorts" lost the other day. So what have we learned?

1) There seems to be sufficient expertise in bleeding-edge production techniques so that an upstart can be world-class on its first try. I was pretty sure this could not be done but it was. Tesla has some amazing millwrights.

2) Building electric cars apparently is a lot harder that it looks. The Model S has now been out for 7 years and there is still no realistic competition. Those who were warning, "just wait until Volkswagen (Toyota, the Koreans, etc.) gets serious about EVs, then Musk will fail" have been given a pretty strong demonstration that it was easier for Tesla to solve its production problems than for traditional car makers to overcome their own internal bias towards continuing to make what they already make.

3) Tesla is proving that the switch to EVs is a complex cultural change that relies on software development, direct to customer retailing, and supercharging networks as much as innovative production expertise. The legacy car makers are notoriously deficient in these areas. On the other hand, Tesla's leads on this cultural arena are still quite susceptible to technological diffusion (what they know will soon be common knowledge.)

In other words, stay tuned.

(update 9 AUG 2018)

The shitstorm that Musk created by announcing his desire to take Tesla private is a sight to behold. Musk is hardly the first high-end Producer Class figure to discover that the world of finance is filled with bloodthirsty Predators who do NOT have his, or his company's best interests in mind. To them, he is a cipher whose only interest to them is how much money does he have to rip off.

Here in Minnesota, we had a guy named William Norris who ran a significant computer company called Control Data. During the 60s and 70s, he would get into constant fights with the shareholders. Trust me, Musk is hardly the first to notice that shareholders often get in the way of successful business operations. In fact, Henry Ford once replied to questions about taking Ford public, I would rather take down Rouge brick by brick with my bare hands than let a gang of speculators get their hands on Ford Motor. (or similar) In fact, old Henry had been dead for 9 years before Ford finally went public.

I see the shorts are threatening to sue.

On Class and Climate Change


In 1899, Thorstein Veblen would publish perhaps the most interesting, and misunderstood, book ever. It was called The Theory of the Leisure Class. Many, perhaps most, of the readers of this scintillating tome consider it a wonderful work of satire that highlights the foibles of the idle rich, and those who would emulate their lifestyles. And while I would agree that many parts of Veblen’s analysis are screamingly funny, we miss the point if we assume that Veblen was merely trying to entertain. Because beneath the chuckles, there is a deadly serious class analysis that goes a very long way towards explaining why a problem like climate change doesn’t get treated as seriously as it should be.

In Veblen’s world, there are two basic classes. The Industrial Class organizes the community’s necessary work. The Leisure Classes fasten themselves on the backs of the industrial classes “through force and fraud” in the often successful attempt at getting something for nothing. The Marxists then ask, “Aren’t your industrial classes merely another name for the proletariat?” This is important—the answer is NO.

Back in the day when Marxists preached that they were the friends, advocates, and only true representatives of the Proletariat, there was always something demeaning in their analysis. When someone picks strawberries all day in the hot sun, the Marxist description of the Proletariat and their troubles is still surprisingly accurate. But what do you call an farmer with 2500 acres under cultivation, or an engineer, or a big building contractor, or any number of important and often high paying occupations? They are obviously Industrial Class jobs but they all come with very different problems than face someone doing stoop labor. Obviously, there is an incredible amount of stratification within the occupations that can be found under the heading of “organizing and performing the community’s necessary tasks.”

Just as the Industrial Classes are stratified, so are the Leisure Classes. There is a large gap in income and status between a pickpocket and a hedge fund manager. But while there are hundreds of differences between the two major classes, many quite profound, the most telling is that when the Leisure Classes engage in conspicuous consumption and waste, their highest calling is uselessness. On the other hand, the goal of the Industrial Class is to be useful.

This class analysis is almost universally despised by the academic idea police. The right wing hates it because so many of their elites are little more than well-dressed thieves. The “left” (especially the Marxist varieties) hates it because it opens the possibility that there are enlightened, imaginative, and quite necessary “capitalists.” But it continues to be relevant because it describes the existing social order so much better than probably all the competing class descriptions combined.


The most amazing manifestation of Veblen’s analysis is that while almost everything created by humans demonstrates the existence of an Industrial Class, they are culturally nearly invisible. They almost never appear on television or literature. They are often dismissed as weirdos being called geeks or worse. Their occupations are dismissed or demeaned (usually because they are useful.)

While the Leisure Classes treat the Industrial Classes with contempt and slander—often as part of an ongoing strategy to defraud—the Industrial Classes do a wonderful job of returning those emotions. I know a radiation oncologist who claimed that as an undergraduate physics major at the University of Tulsa, he was part of a group that decided to explore the liberal arts side of his campus in a search for intelligent life. He reported that the search had turned up nothing. I told him that I knew a plumber in a college town who felt the same way about the professors at the local exclusive liberal arts colleges claiming, “Those guys are so stupid, they couldn’t poor piss out of a boot with the instructions written on the heel.”

So the distinctions between the Industrial and Leisure classes are real and generally hostile. But this class analysis is especially helpful when it comes to the problems caused by climate change. Here’s why. The reason that most of us live in societies that require large amounts of fossil fuels to keep running is because that is how the Industrial classes built them. Those streets, and electric grids, and houses, and food bought from a cooler did not fall from heaven—they were built on purpose by people who had every reason to believe they were doing the community’s necessary work.

The Leisure Classes are hardly innocent in this matter. The Industrial Classes can build almost anything. The reason there is so much third-rate building in USA is because the agents of greed insist on doubling the price of everything with the real estate fees and usurious financial arrangements. So the net effect is that almost everything gets built on the cheap, corners are cut—especially in areas of energy conservation. The result is that at least 3/4 of the housing stock cannot be fixed for less than the cost of a complete replacement.

Even worse, since the early 1970s, the Leisure Classes have systematically destroyed much Industrial Class capability. In USA, we call that process deindustrialization. They close down a productive facility and throw the accumulated expertise to the winds. What this means is that we cannot simply give the Industrial Classes new job assignments, we must rebuild much of their institutional capabilities from scratch—which is at least 10 times more difficult and expensive

But nothing is quite as instructive as the difference between the Leisure Class and Industrial Classes in their approach to the climate crises. The Leisure Class approach is to raise awareness, hold conferences, lobby for carbon taxes, and market modern-day indulgences called carbon offsets—if you can afford it, you can continue to sin.

The Industrial Classes don’t need their awareness raised because they believe that climate change is real, the only meaningful solution involves replacing the infrastructure with a zero-carbon alternatives, that this will involve 100s of thousand new parts and devices, and they want to build some of those parts. The folks who figured out how to make solar cells for $0.75 a watt were not the sort who sit around planning the next symbolic gesture.

While it has not been a good time to talk about reindustrialization for at least 40 years, the fact is, the Industrial classes have made real progress in that time-frame—LED lighting, cool electric cars, better batteries, net-zero housing, etc. But because we allowed the economy to be run by thieves, these breakthroughs were markedly more difficult than they needed to be. And IF folks finally decide that they want to accelerate the kinds of progress that the Industrial Classes have made since the wake-up call of Oil Shock #1 in 1973-4, the first order of business is to institute an economics that is geared towards honest enterprise. It’s quite simple—crooks cannot pull the financial levers of any new green society.

See also:
A longer version of this class analysis

The major differences between the two classes