Friday, September 14, 2012



Trials and Tribulations: The Contingency Plan

By Walter Libby

 
In the realm of the possible: Someday all nations will be powered by renewable energy, produce their own consumer goods in fully automated factories, grow their own food in year-around indoor farms, and  recycle everything that can be, and along the way their populations  have stablized as modern urban couples choose to have fewer children.  
The net effect is that the global economy—the interdependence of nations—is no more; nations are now economically self-reliant and sustainable.  
Sustainable in that the economic problem is solved: nations consume no more than they replace. More accurately, it is nations composed of sustainable cities that provide their own energy, grow their own food, and recycle back to their own manufacturing plants. What is not feasible locally then is produced at the regional or national level. 
But it is economic self-reliance that is the key to future prosperity. Since their currencies are no longer tied to a global economy they are free to use them as they choose.
Using the United States as an example, it is used to provide for the general welfare. To meet that end The Treasury has merged with The Federal Reserve. Now, the Treasury too has access to the unlimited funds of the printing press. The Fed continues to underwrite banks and the Treasury now underwrites the Federal Government. There are no longer any federal taxes. The Treasury funds the Federal Government, Social Security, healthcare, and education. The marketplace goes about its business; all are still rewarded in relation to what they put in the pot, and people, depending on their ability to entertain themselves, are generally happy. Life is good.
This view of tomorrow is put forward for two reasons: One, while simple, it is profound. This is the end of history: The end of the industrial revolution bringing with it the end of ideological conflict, the global struggle for markets and resources, wars, and environmental degradation. The problem is getting there. Today,things look grim: increasing population is stressing the earth's resources and the consumption of coal, oil, and natural gas are stressing the planet. But it is the ideological battle, not the battle between Republicans and Democrats, as grim and embarrassing as it is, it is a sideshow (to be looked at later), but the historical battle between capitalism and Marxism that dominates; it appears Marx got it pretty much right. His view of history as a historical force is playing out in front us as the global economy continues to contract which means more workers are laid off which means less demand which means more workers out of work which means the global economy will eventually collapse which means it doesn't matter who is the next president which  means ultimately there's only two things we can do: one is do nothing excect to watch events unfold and wring our hands, or we can prepare ourselves. 

So, if we choose to watch, what could unfold in today's world? For that story we have follow Marx on our journey. He starts The Communist Manifesto  with: “The history of all hitherto existing society is the history of class struggles.” And then quickly gets to the gist.
“The bourgeoisie has at last, since the establishment of Modern Industry and of the world market, conquered for itself, in the modern representative State, exclusive political sway. The executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie.” Marx doesn’t quite get it right in a number of places, and this is one them; that exclusive political sway has not gone unchallenged. But what he did get right is this:
The bourgeoisie cannot exist without constantly revolutionizing the instruments of production, and thereby the whole relations of society… Constant revolutionizing of production, uninterrupted disturbance of all social conditions, everlasting uncertainty and agitation distinguish the bourgeois epoch from all earlier ones… The need of a constantly expanding market for its products chases the bourgeoisie over the whole surface of the globe. It must nestle everywhere, settle everywhere, establish connections everywhere… All established national industries have been destroyed or are daily being destroyed. They are dislodged by new industries, whose introduction becomes a life and death question for all civilized nations, by industries that no longer work up indigenous raw material, but raw material drawn from the remotest zones; industries whose products are consumed, not only at home, but in every quarter of the globe. In place of the old wants, satisfied by the production of the country, we find new wants, requiring for their satisfaction the products of distant lands and climes. In place of the old local and national seclusion and self-sufficiency, we have intercourse in every direction, universal inter-dependence of nations…The bourgeoisie, by the rapid improvement of all instruments of production, by the immensely facilitated means of communication [then the telegraph, now the internet], draws all, even the most barbarian, nations into civilisation. The cheap prices of commodities are the heavy artillery with which it batters down all Chinese walls, with which it forces the barbarians’ intensely obstinate hatred of foreigners to capitulate [I put this in just for the irony]. It compels all nations, on pain of extinction, to adopt the bourgeois mode of production; it compels them to introduce what it calls civilisation into their midst, i.e., to become bourgeois themselves. In one word, it creates a world after its own image… It is enough to mention the commercial crises that by their periodical return put on trial, each time more threateningly, the existence of the entire bourgeois society… In these crises there breaks out an epidemic that, in all earlier epochs, would seemed an absurdity—the epidemic of overproduction… society suddenly finds itself put back into a state of momentary barbarism; it appears as if a famine, a universal war of devastation had cut off the supply of every means of subsistence’ industry and commerce seem to be destroyed; and why? Because there is too much civilization, too much means of subsistence, too much industry, too much commerce… And here it becomes evident that the bourgeoisie is unfit to be the ruling class in society… It is unfit to rule, because it is incompetent to assure an existence to its slave within this slavery, because it cannot help letting him sink into such a state that it has to feed, instead of being fed by him.
Simply said, eventually increasing productivity and emerging competitors creates a global glut of consumer goods leading to layoffs which lead to more layoffs, unemployment reaches a critical mass and the workers rise up, overthrow the existing order, seize the mode of production, and establish a dictatorship of proletariat that oversees the transition from socialism (getting a hold of the productive  reins) to communism: from each according to ability to each according to need.. But does history lead there?
The problem here is that Marx did not foresee the rise of multinationals, their immense political and economic power, and their inevitable abandonment of their respective nations. Yet, here Marx is not alone. From the Wealth of Nations:  “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.”  Domestically, that is all well and true, but Adam Smith’s “invisible hand” is found here:
As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other eases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good.      
 
Adam Smith, the author of The Wealth of Nation, whose economic theory is that markets are self-balancing crumbles as profits override  security as multinationals in their endless  quest for  for new markets, cheaper labor, fewer regulations, and lower taxes have unbalanced the global economy;  and all the king's horses and all the king's men cannot bring it back into balance.  
So back to Marx; a number of things come to mind. As multinationals migrated to China the dynamics have changed. As they offshore production, China became the so-called factory to the world, and in their wake left corresponding unemployment in their respective countries. So the crisis first manifests itself in those countries. What to make of that?
For one, workers cannot rise up and seize what’s not there. And too, “The great age of democracy and of national self-determination was the age of the musket and the rifle.” Revolution is out. Can’t seize and cannot revolt; Marx here, is irrelevant. So what is the probable political outcome?
To put that in perspective, we turn to the origin of the above quote: Orwell’s You and the Atom Bomb  Here we get a glimpse of the future; and that glimpse turned out to be the prologue to 1984.
So, as to the likely political outcome, the prospects for a post-collapse quasi Orwellian world are good: the European Union is destined to fall apart, and when it does, its erstwhile members will have to revert to their former currencies. And fiat currencies are only as strong as their economies; what they throw in the global pot. The euro was their protector, and it’s gone. Europe goes from crisis to chaos and the world follows. So what is chaos? It’s this: the food chain breaks, and everywhere it’s a war of all against all.
In the United States Martial law is imposed. At a time of national vulnerability, the military announces to the world it has gone to DEFCON I; don’t mess with us. And all eyes turn to the Middle East; it’s about capturing oil resources; or denying those resources. In the latter case it is more than scorched earth, the Middle East is turned into a nuclear wasteland.  
The powers that be retreat back into their nuclear fortresses where they all have their finger on the nuclear trigger, while probing with cyber-attacks, waiting for the right opportunity to deliver a killing nuclear blow to their enemies. If so, they’re betting they survive a nuclear winter along with the radiation from nuclear bombs and the following Chernobyl effect.  There is no survival of fittest here; it is the end of all history.
Such a scenario requires some perspective: The Great Depression  was the penultimate crisis; increasing productivity in the United States and Europe could not find a sufficient market in a predominantly agrarian economy and the U.S. responded with the Smoot-Hawley Act that gave teeth to the Great Depression. But it was the reparations demanded from Germany after The Great War that  gave rise to World War II.

  Following World War II was the Golden Age of Capitalism. Enlightened policies towards Japan and Germany played a role in their rebuilding, but a role buttressed as the U.S. turned them into forts to guard against Soviet intrusion; assuring a stable government and their economic development. South Korea eventually fell under our umbrella and became one of the Asian Tigers. All in all, it was a period of huge global demand. But as the world’s largest economy, the United States is the focus.  
While the war pulled the U.S out of the Great Depression, it was the devastation of war that created the boom along with other factors. Conceding the fact that $200 billion in maturing war bonds was a legacy of the war along with the G.I. Bill that provided all veterans with low-cost mortgages, college education, and loans to start a business, and year of unemployment compensation; the real demand was a legacy of the New Deal: the creation of the Federal National Mortgage Association.
This was a big fucking deal.  Prior to its enactment, commercial banks were reluctant to make mortgage loans. To finance their mortgages, borrower’s had to rely on saving and loan associations or mortgage brokers. And since banks were reluctant ( with the creation of the Federal Reserve was the creation of unlimited funds)  cash was limited, the loans, wherever the home buyers obtained them, usually required a large down payment, where short-term (five years) and at rates of interest up to 12 percent.
The Act was created to circumvent the banks by buying and bundling mortgages and selling them on the bond market while providing borrowers with long-term low interest loans with low down payments. Whether or not it was a class warfare thing, finance capitalists weren’t buying the bonds. Undeterred the federal government eventually bought the bonds, and turned a profit. So eventually commercial bankers got on board and residential construction became a significant part of the economy.  In 1968 Fannie Mae was converted to a privately held corporation.
Meanwhile the government played a role, notably in building the interstate highway system, as well as did the military-industrial complex that provided the logistics for fighting the Cold War.
Even so, it’s called the golden age because it’s over. Japan, Germany, along with the Asian Tigers had emerged as formidable competitors. Beginning in 1976 America began running continuous and increasing trade deficits and with them decreasing prosperity, rising deficits and debt.
Competition was already stressing the United States prior to 1976. And so too was oil. The oil crisis of 1973 was geopolitical in origin. And so too was the 1979 oil crisis, but more convoluted; it’s much simpler to avoid cause and look at the effect:  the Federal Reserve, to halt inflation, slammed on the monetary brakes and sent unemployment to above 10 percent—the highest since the Great Depression. Are you better off than you four years ago? It cost Carter the election.  Eventually, conservation of oil and the shift to other markets outside of the Middle East brought down oil prices, and with them low interest rates. “It’s morning again in America.” America was back. It reality the bourgeoisie were making a comeback. Government was the problem and an fettered marketplace the solution.  Yet, under Reagan the national debt increased to $2.8 trillion from $997 billion. This was Reagan’s legacy to Bush and it cost him the 1992 presidential election.
Nonetheless, history continues. China had yet to shock the world, but trade deficits and national debt, hand in hand, continued their march, and technology was unabated; computers had entered the workforce greatly increasing productivity. And productivity is synonymous with technological unemployment.
What to do?  Bill Clinton, in his 1996 State of the Union Address, told the Nation, “The era of big government is over”.  As a Third Way Democrat he embraced neoliberalism and deregulation (signing into law the repeal of the Glass-Steagall Act). Reenacting the Smoot-Hawley Act was never an option.
However, it’s true, the age of big government is over; it’s not a matter of right or wrong, it’s a fiscal reality; the revenues are not coming in to support it.  Yet, all together, Clinton really had no choice, he threw in the towel. Our faith and fate was now firmly in the hands of the marketplace god; the bourgeoisie were firmly back in power. There were no barriers to trade, no barriers to multinationals, and no barriers for China.
So in the historical scheme of things, it is not so shocking; but what defined Clinton’s presidency were the dot.com bubble and its demand creation. The paper wealth generated by the stock market was significant, so too the increase in the number of millionaires it generated; including those who worked for stock options. With IPO’s secretaries became millionaires overnight. But the true significance was the ensuing capital gains and the capital gains tax revenue they generated; they played a major role in creating budget surpluses, and when the bubble popped, they disappeared and the economy went into recession. The Fed responded with near rock bottom interest rates, Bush with tax breaks for the wealthy and Republicans in Congress with a spending spree; all in all, quite the stimulus package. Under Bush the national debt doubled.
But it was the housing bubble—from residential construction to cash out refinancing that financed purchases that ranged from electronic gadgets to new cars to home remodeling—that created the bulk of demand. And when that bubble popped, capitalism was on its last legs. There is only one prop left, and that’s Keynesianism.
However, priming the pump cost a lot money and does little when manufacturing—the wealth of nations--has been offshored. Obama’s stimulus has pumped up demand, and that demand is largely supplied by China. What domestic demand the stimulus generates, will eventually be worked through. Obama’s Recovery Act was the changed we hoped would work. It couldn’t. And the Fed really can’t do anything; quantitative easing? Without sufficient demand, the money, largely, just sits there. And really, what is quantitative easing? To finance its debts, and Obama’s stimulus, government sells bonds to banks; the Fed then buys those bonds from the banks providing more cash to buy more bonds. That’s seriously juggling the books. And then there’s the looming fiscal cliff.
So here we are, the Fed propping up our debt and a looming socioeconomic crisis met with political gridlock. Understand that both Democrats and Republicans are free market ideologues. The difference is one says do something and other says do nothing, except cut taxes, government and regulations; that’s their ticket.
Obama’s stimulus plan worked up to a point. But if you think less government is going work, take a look at Great Britain: cutting taxes and government spending there has led to a double dip recession and increasing debt. Take a look at the European Union as austerity is forced on its weaker members who as a consequence only get weaker. So the European Central Bank continues to adapt to the crisis; the unlimited funds of its printing press are now in play. Nominally it is meant assure bond buyers and lower yields. In reality central banks are market makers—without them there is no market.
So, about that tipping point; as previously stated, the dynamics have changed. China has become the contradiction; they got the jobs and the West got unemployment. So, overproduction is no longer the catalyst that collapses capitalism, it is lack of demand. Manufacturing is now falling in China, and as it does, China demands less from the global economy and the global economy demands less from China. It seems  like we are reaching a tipping point
The Eurozone is on the brink of a double-dip recession. And the economy looks grim in the U.S. Just 96,000 were created in August. When Bernanke says that this is a “grave concern” you know we are deep trouble.
That Orwellian world may be just around the corner. You can’t see it, but you can feel in the mounting despair and uncertainty. So, what to do? Democrats and Republicans are trapped within their ideologies, stimulus versus cutting government, that’s all they have, and if left to them; history will sweep us all into the abyss. The 2012 presidential election is academic. Yes, there’s still the audacity of hoping for the best but there is also the logic of preparing a contingency plan.
So what follows is an example, and when all is said and done, it requires an Act of Congress. However, it should be the President who brings together a select coalition from the federal, state, local governments, the private sector, and individuals who get the Act together. So the contingency plan is to have a Recovery Act in place. It just makes sense. Even so, he and Congress just might need a little encouragement. It’s hard for politicians to stand up and say: “just in case we were wrong.” This is a revolution by the people and our numbers needs to reach a critical mass before they will respond. So arm yourself, email them and if they don't  respond, then recall them.
 
One more thing: the plan itself is a paradigm shift. Up to the point that the global economy collapsed, one would be hard pressed to offer an alternative to the global marketplace, but with the death of the marketplace god things change. The marketplace qua marketplace still exists, but it is the Federal Government, a government that not so much guides the economy, but does what the marketplace cannot do. For lack of a better term call it state capitalism. But understand the fundamental change. The death of that god has set us free: our fate is now in our hands. That’s how it should be. So, for your perusal:

The Contingency Plan
Its primary goal is maintaining demand, maintaining a functioning economy, maintaining the food supply chain. To meet these goals it is necessary for the Treasury to merge with the Fed.

As it stands now The Treasury General Account is held at the Federal Reserve Bank of New York. But understand that it is the Treasury that prints the Federal Reserve Notes, and for a fee, supplies the currency to Fed. Since all official payments of the U.S. government are made from this account. And all deposits, since with the collapse there are no taxes, are now made by the printing press, there is no problem funding the federal government along with providing block grants to state and local governments. Whatever needs to done will be; there are no limits to funding governments or subsidies for businesses.
For those out of work the Treasury directly deposits into their checking accounts (it is assumed that the Act requires the people to sign up while evaluating their ability to meet their individual needs), enough cash to buy their food, pay their rent/mortgage, pay their electric, gas, water, garbage bills, along with a little extra to participate in their local economies—from gymnastic lessons, to eating out.
And what goes for the people goes for businesses, large and small, their needs too will have to be evaluated, and they will be paid to stay in, or stand ready to do business. Here the federal focus is on the means of production--the factories, machines, and tools used to produce wealth, and the necessary resources (rare earth metals).
With the loss of foreign oil the Federal Government will be the sole buyer of domestic oil and natural gas—price is negotiable—and resells it to distributors at a subsidized price and rationed for immediate and next stage priorities. Rationing for personal use depends on the math. But overall there is no quick fix.   And while electric cars may be an option for some, most will have to rely on bikes (electric or not), golf carts, or skateboarding
And there may a need to hold large reserves of oil and natural gas
Immediate priorities could include developing algae as a bio fuel. Also they could include the development of high speed and light rail; our highways and streets are mostly empty, how long could it take? And certainly there’s a need to subsidize clean coal.
But its immediate focus is on food and its distribution, the military, railroads (freight and passenger), and essential services: police, fire, medical, garbage disposal, and maintenance. Maintenance includes utilities and such services as air conditioning repair
This is the foundation.  From here we can move towards sustainability and self-reliance. Now we can vigorously pursue renewable energy and reindustrialization. While developers of  renewable energy can be easily subsidized, the government cannot so easily pick winners and losers, so as it casts a brought net, it will be the marketplace that whittles the field—evaluates the technology.
Reindustrialization, identifying those consumer goods lost to outsourcing or global competitors, is also left to the marketplace. No doubt there’s a problem here. The problem isn’t with cell phones and TV’s, it is more like with razor blades, jeans and tennis shoes. Make your own list, whatever; prices are going to shoot through the roof.  And it’s a problem best left to the marketplace; and commercial banks are the best evaluators here.
So too the market identifies the requisite skills; especially those necessary for the production and maintenance of high-tech factories (fully automated factories come about when robots can assemble, for example, cell phones); and pays accordingly (demand and supply) up and down the latter, from the manual laborer to the CEO’s.
The problem is  we  have "a system [of education] that is continually churning out unskilled, unprepared high schools graduates (assuming they even graduate), sending them out into an economy that has no place for them. The outcome is tragic for them as individuals, and deeply worrying for our national future." True, it is more complex than blaming the system, but it is the reality. Getting these tragic souls up to speed is going to challenge them and the system. 
However, that was then, this is now. The crash is going to release a lot of educated people from various professions—from Madison Avenue to Wall Street. It might be a problem for some, lowered expectations and all that, but the smart ones will realize that this is where the better paying jobs are now.
However, there are other priorities that are not so obvious. While droughts induced by global warming—and likely to get worst—are obvious; the idea of taking farming indoors might not be.
A pioneer in indoor farming was Phytofarms of America  developed in the 1980s; and while fairly successful, it had a short run. It was the cost of electricity, not the quality of its produce that led to its demise. And while that cost limited its product—some produce requires more light than others—to herbs and leafy produce, practically anything, with enough electricity, and government subsidies, can be organically grown indoors, with significantly less water and no oil. Here we can recycle office buildings, casinos, big box stores and malls that are no longer in use; not only for indoor farming, but for aquaculture as well; serious recycling. We can and we are; there is resurgence in the marketplace. Indoor farming is making a comeback. So it’s acceptable, doable, and necessary.
Here, I’ve pretty much completed the basics of the plan. But in a larger aspect, the plan includes the end of history. There’s going to come a time when our supply exceeds our demand. Do we then supply the less fortunate nations? One would suppose that depends on the resources they can throw in the pot. To a degree that’s true. To the degree it’s not, we do. Meanwhile we should think about what we can throw in their pot now; do we let others starve? It’s not like we are alone, other nations will develop their own plans, and to the degree they can they should.  You know, its that do unto others thing.
 So all together, we are going to be tested to our core.
Now, I want to turn to communist-led China; the contingency plan has a role here too.
Being communists they fully understood the historical force in play, and so it was a simple matter to direct it their way. And it’s not so much they that deceived us (they are communists), but more that we deceived ourselves.
That said, to begin their story we pick up on China with the Four Modernizations. These were goals first set forth by Zhou Enlai in 1963, to strengthen the fields of agriculture, industry, national defense, science and technology.
There were those who thought the best way to achieved these goals was to take the capitalist road; especially with the spectacular failure of The Great Leap Forward. What followed, though, was the Cultural Revolution: in part to affirm communism, but in practice it was to purge the capitalist roaders and a means for to Mao to regain power after the failed Great Leap Forward.
However, with the death of Mao, Deng Xiaoping, a purged capitalist roader, came back into power and put China on the capitalist road; under the direction of the dictatorship of the proletariat (state capitalism implies democracy). The four modernizations were officially announced as its goals, but in reality it was a means to achieve their ends: seizing the mode of production and overthrowing the existing order. Assuming the contingency plan is in effect they may be disappointed. Yet, without it , in a world gone nuts,they may have reaped the whirlwind.
So, they should be content, it wasn’t so much seizing the mode of production as receiving; and the Central Committee of the Chinese Communist Party, by hook or crook, took full advantage, and having maxed it out, now stands ready to move from the first stage—socialism, gaining control of the mode of production, the economics of which is “from each according to ability, to each according to worked performed”, to the second stage defined as communism, the economic principle which is, “from each according to ability, to each according to need.” How does that play out?
China’s so called ghost cities could possibility have a combined total of a 100 million empty apartments, and they have inventories of consumer goods stacked to the ceiling. They are ready. And being ready doesn’t mean they are stopping. Eco-tourism, building a series of national parks, is part of their recent domestic stimulus plan. And their latest stimulus, the building of more roads, railroads, and urban infrastructure means more cities. That doesn’t equate to more global demand given that multinationals have located there. And doesn’t necessarily mean increase resource demand. It could be a wash as exports continue to decline.
Communist China is, sort of , looking good. Now we understand socialism with Chinese characteristics. And it’s looking even better if the global economy collapses taking the price of resources with it. Russia is going to be hit hard hit along with other left-in the-lurch oil producers. It’s a buyer’s market, and China has options, it is the only viable trading partner;  no matter which way you look at it (those multinationals are stuck in China) China has it all, from cell phones to high speed rail. And they owe it all Marx's genius, a failed civilization, due it's arrogance, were led by a monkey (inside joke) to their current prosperity.
Already self-reliant in consumer goods, the question is will China be satisfied and pursue sustainability in a responsible and peaceful manner?
Of course all this comes after the collapse. So what it comes down to is: what do we do in the present, do we elect Romney, or do we get serious about a contingency plan? If not, we might be the threat to them, and ourselves.