Friday, September 14, 2012

Trials and Tribulations: The Contingency Plan

By Walter Libby

In the realm of the ideal: 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 in indoor farms, 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's currency is used to provide for the general welfare. To meet that end The Treasury that previously only supplied The Federal Reserve--the underwriter of banks--with Federal Reserve notes now also funds, via the printing press, the Federal government as well. 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.

While the industrial revolution has produced technology that borders on the magical, it has also produced historical forces that threaten civilization: peak oil, global warming, and globalization. And while each has their own scenario of catastrophe, it is globalization that appears to be the immediate concern. 

What is globalization? In capitalist terms it is the global spread of ideas, products, and culture. Free markets at work, all to the good. This is one side of the ideological coin; other side being Marxism. And the historical flip has apparently come up on the side of Marxism.

While history has introduced some buts in Marxism, nonetheless, his analysis of capitalist is largely intact.

Marx begins 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 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, the constant advance of technology (automation) and globalism eventually 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? Not quite. The world has changed significantly. 
Marx did not foresee the rise of multinationals and their eventual abandonment of their countries of origin. They are driven not so much by their quest for new markets, but  by competition as they chase each other across the globe in a race to the bottom for cheaper labor, fewer regulations, and lower taxes. And when they nestled in communist China, a new market with a billion people, they changed the dynamics of Marxism in a number ways.,
As multinationals offshored  manufacturing  to communist China, China became the so-called factory to the world, while leaving in their wake rising unemployment in their countries of origin.  

Here, in the erstwhile developed countries, rising unemployment naturally leads to less global demand for China's factories. As the world demands less from China, China in turn demands less from the world (resources), who in turn demands less from China. It's not global overproduction that leads to the collapse of capitalism, it is the lack of global demand; deflation. Somewhere down the road the global economy will collapse. What arises in the free world from the rubble?
Certainly not communism. The workers cannot rise up and seize what is not there. And revolution in Marx's time was a numbers game. That reserve army of employed would have to only go up against muskets and cannons.

But what happens today when the system breaks down? Socioeconomic chaos. 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.  This is the threat; a quasi-Orwellian world on the edge of the abyss.

A little history: 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. And the United States was the immediate beneficiary. 
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. Ronald Regan became a conservative hero. Anti-government and anti-unions 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 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. And their obstructionism is only going succeed in advancing the looming collapse.
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. The European Central bank cannot fund individual countries and so fund stimulus packages, what it can do is guarantee their bonds that finance their governments; keeping them from defaulting on their debts. So the European Central Bank continues to adapt to the crisis; the unlimited funds of its printing press are now in play. Nomally it is meant assure bond buyers and lower yields. In reality central banks are market makers—without them there is no market. So, the Euro zone nations are granted a lingering reprieve.
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. While fiscal and monetary policies do effect demand,  and in the short term further boost employment, the jobs being creating mostly pay subsistence wages, they just add up to a lingering worsening decline.
That Orwellian world may be just around that corner. While the United States, due to it's fiscal and monetary stimulus can limp along, the Euro zone is on the edge of financial collapse. That Orwellian world may be just around the corner. It would be a good idea to have a contingency play.
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. 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. Not only are we on our own, in pursuit of the ideal--self-reliance and sustainability--but the death of the marketplace 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 speed up the printing press and fund government expenditures.

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.
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.

These are hard times. The manufactured consumer have mostly been off shored. But we now have a solid foundation.
 From here we can move towards sustainability and self-reliance. Now we can vigorously pursue renewable energy and reindustrialization.  
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.

Having a contingency plan is inherently a good thing. And it may be the only way to achieve the ideal; the end of history. 

And what of communist China?
Being communists they fully understood the historical force in play, and so it was a simple matter to direct it their way and capture the mode of production. 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.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. Could be that they are ready. But getting ready, building those ghost cities and infrastructure demanded significant amount of the world's resources  and there is a limit to ghost cities. So here too China is going to demand less from world.

It's only going to get worse.