Peak Oil

For the doomsday crowd that follows regular predictions of gloom-and-doom, the "peak oil" story has been a good one.

The typical "picture of doom" is something like this from Wikipedia:

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That picture is pretty convincing. We are on the slide to perdition. Only a bleak and hopeless future awaits us...

But wait a second. Here is a more recent graph from an article in the Houston Chronicle:

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The article goes on to report a "new peak" in production:

North America appears headed for an oil renaissance, with crude production expected to hit an all-time high by 2016, given the current pace of drilling in the U.S. and Canada, according to a study released by an energy research firm this week.

U.S. oil production in areas including West Texas' Permian Basin, South Texas' Eagle Ford shale, and North Dakota's Bakken shale will record a rise of a little over 2 million barrels per day from 2010 to 2016, according to data compiled by Bentek Energy, a Colorado firm that tracks energy infrastructure and production projects.

Canadian crude production is expected to grow by 971,000 barrels per day during the same period, with much of the oil headed for the U.S.

Combined, the U.S. and Canadian oil output will top 11.5 million barrels per day, which is even more than their combined peak in 1972.

Goldman Sachs has estimated the U.S. could move from being the No. 3 oil producer behind Saudi Arabia and Russia to the No. 1 spot by 2017.

It's a reversal of the steady downward production trend that started after 1971, when U.S. oil production peaked around 9.5 million barrels per day.

I know this is a shock and disappointment to the end-of-days crowd. But this is an old story. If you followed the Club of Rome with its best seller in the early 1970s, the book "Limits to Growth" you've seen this tale before. It is so convincing. The end is nigh! Repent!

But human ingenuity keeps foiling that tale of gloom and despair. It is so seductive to believe that there is no hope and we must give up our sinful "modern ways" and go back to our pastoral past when we were disease ravaged and lived an average of 34 years. But those pesky scientists and technologists keep ruining out return to a "golden age" by creating new techniques or helping us conserve or producing a new substitute. This story is older than civilization. But the siren call of "repent! the end is nigh!" keeps winning because it appeals to our dark side that expects us to be punished for "having it too good".

The Club of Rome pessimists are still in business and no doubt still selling their siren song of "the end is nigh!". But you are better off reading "The Ultimate Resource" by Julian Simon. Unlike the Club of Rome, Simon has been right more than wrong. But unlike the Club of Rome, Simon is ignored by the press. It is so much easier to sell papers with the story of doom-and-gloom. Nobody wants to hear that we will "muddle through" or that we can count on "human ingenuity". We want morality plays. We want punishment for sinful ways, the excesses of the past. Nobody wants dull fact, reasoned judgement, and a scientific attitude. It doesn't sell.

Oil and Technology Opening the Door to Energy Self-Sufficiency for the US

Here is a bit from a press release by the American Chemical Society:

New technology that combines production of electricity with capture of carbon dioxide could make billions of barrels of oil shale — now regarded as off-limits because of the huge amounts of carbon dioxide released in its production — available as an energy source. That’s the topic of the latest episode in the American Chemical Society’s (ACS) award-winning “Global Challenges/Chemistry Solutions” podcast series.

Adam Brandt, Ph.D., notes in the podcast that almost 3 trillion barrels of oil are trapped in the world’s deposits of oil-shale, a dark-colored rock laden with petroleum-like material. Brandt and colleague Hiren Mulchandani are at Stanford University.

The United States has by far the world’s largest deposits in the Green River Formation, which covers parts of Colorado, Utah and Wyoming. The domestic oil shale resource could provide 1.2 trillion to 1.8 trillion barrels. But concerns over the large amounts of greenhouse gases — mainly carbon dioxide — released by current methods prevent many companies from trying to extract oil from shale.

Brandt’s answer is EPICC — a self-fueled method that generates electricity, as well as the heat needed to produce that electricity from shale. The report, which appears in ACS’ journal Energy & Fuels, describes how EPICC could generate large amounts of electricity without releasing into the atmosphere carbon dioxide from burning the shale. That carbon would be captured and stored underground as part of the production process.

The new podcast is available without charge at iTunes and from www.acs.org/globalchallenges.

The gloom & doom crowd is going to be seriously disappointed. It reminds me of those in the 15th century gnashing their teeth about the disappearance of old oak forest just as Britain was rising to be the world's sea power. Or those doom & gloomsters who have been rushing about for the last 50 years warning about "peak oil". It is always very popular to linearly extrapolate from the past and discover doom awaits us. But their requires a steadfast ignorance about human ingenuity and technological change. The doom & gloom crowd always ignore "the ultimate resource" as they weave their tales of resource shortages and the doom that awaits us.

A Walk Down Memory Lane

Here is a documentary series on the 2008 financial crash entitled "Meltdown: The Secret History of the Global Financial Collapse".

This was done by the CBC (Canadian Broadcasting Company) and the homepage for the documentary is here and provides more information about the series.

Enjoy being an eyewitness -- from a Canadian perspective -- to the end of the world as we know it...

Part 1:


Part 2:


Part 3:


Part 4:


If you need an antidote to the above grim story, here is a bit from a post by Mark Thoma in his Economist's View blog:

It seems to me that the current crisis is, to a large extent, reversing the economics of hope. When workers look forward today, what do they see? Technical progress that will make them better off -- change that will elevate their standard of living -- or do they see a future where they'll be lucky to keep the job, benefits, and wage rates they currently enjoy (if they have a job at all)? Much of the rhetoric from the right -- from opposition to government trying to help to the age old worry that the rate of technological progress is slowing -- has been about "what you couldn't change," and pessimism about the future is as high as I can ever remember.

I refuse to give up. It's distribution, not production that has failed us over the last 30 or 40 years. We produce far more than we ever have, and we will continue to increase our ability to squeeze more and more out of the resources we have. We have the ability to produce enough stuff. But the distribution of the things we produce has been tilted toward the top. Instead of wages rising with productivity as our textbooks say they should, wages have stagnated and the rewards have gone elsewhere. Thus, while the pessimism of the past was about production not being able to keep up with population -- many classical economists looked forward to a long-run outcome of a dismal, stationary state with most people struggling at subsistence wages -- the pessimism of the present is driven largely by a failure of distribution. The haves get more and more, and the have nots get less and less even though overall output is rising. And to make it worse, those in power have successfuly promoted the idea that intervening to ensure that workers get to keep the share of output they've earned will harm our long-run growth prospects.

Pessimism about breaking through the wealth and power structures that stand in the way of change is understandable, as is the desire of the winners in our increasingly two-tiered society to keep the focus on growth rather than distribution. However, this outcome is not pre-ordained, it is not etched in stone, it's something we can fix without sacrificing our long-run growth prospects. But only if we refuse to buy into the narrative that the "it can't be changed so suck it up and deal with it" crowd is peddling.

Finding Excuses

Here is a bit from an article by Martin Wolf at the Financial Times:

One objection – laid out by Harvard’s Kenneth Rogoff in the Financial Times in August – is that people will fear higher future taxes and save still more. I am unpersuaded: household savings have fallen in Japan. But there is a good answer: use cheap funds to raise future wealth and so improve the fiscal position in the long run. It is inconceivable that creditworthy governments would be unable to earn a return well above their negligible costs of borrowing, by investing in physical and human assets, on their own or together with the private sector….

Another noteworthy objection – grounded in the seminal work of Prof Rogoff and Carmen Reinhart of the Peterson Institute for International Economics in Washington – is that growth slows sharply once public debt exceeds 90 per cent of GDP. Yet this is a statistical relationship, not an iron law. In 1815, UK public debt was 260 per cent of GDP. What followed? The industrial revolution.

What matters is how borrowing is used…. Contrary to conventional wisdom, fiscal policy is not exhausted. This is what Christine Lagarde, new managing director of the International Monetary Fund, argued at the Jackson Hole monetary conference last month. The need is to combine borrowing of cheap funds now with credible curbs on spending in the longer term.

I especially like the jab of pointing out that the UK overcame its "big" debt by... initiating the Industrial Revolution. Yep, the future is full of promise. If only the leaders would lead instead of hiding in their inner sanctums terrified of what might be in the future.

Pseudo-Science and the Subversion of Science

Magical thinking is wonderful. It lets me be all powerful, it lets me be the centre of the universe, it lets me find meanings behind the appearances. Unfortunately it isn't science. But it is very popular. Not just religious people but narcissist and the lazy minded enjoy developing their "understanding" of the universe via magical thinking.

Here a bit from a post by Carl Zimmer on his Discover Magazine blog talking about viruses and how magical thinking has gone from simply ignoring the science to trying to control the science:

A few months ago I was asked to give a couple talks to the skeptic community. Since I had just published a book about viruses, I decided to talk about the way myths so often crop up around them, and how a properly skeptical person should think about viruses. Over the centuries, viruses have been encircled by urban legends, superstitions, and conspiracy theories. The name “influenza” dates back to a time when European physicians believed the flu was due to the influence of the stars. More recently, HIV has been subject to all sorts of myths, from stories that it was created by the CIA to claims that it is not the cause of AIDS. The autism-vaccine controversy has been fueled in part by myths about viruses–namely, that the risk from vaccines is far greater than the risk from viruses like measles.

In my talks, I speculated that the very nature of viruses makes it easy for people to grab onto these kinds of explanations, and to reject scientific evidence that might argue against them. Viruses are the smallest living things on Earth, and yet they can have worldwide effects. They may only contain a few genes, yet they can hold their own against all of modern medicine. And the reality of viruses can seem downright unbelievable. Rabbits with horns may sound like yet another myth–but there’s some truth at the core of it. So it may be psychologically easy to endow viruses with extraordinary powers, or to deny them any power at all.

At the end of my talk, I told my audiences that we might be at the beginning of another one of these viral episodes. I described how a virus called XMRV had been recently linked to chronic fatigue, a debilitating condition that may affect 60 million people worldwide. Since the initial report, there had been some attempts to replicate the link, but they had failed. ...

... And today in the Guardian, Robin McKie reports that XMRV proponents are now issuing death threats to scientists who have done this research.

The scientists he talks to have some pretty startling things to say. A protestor shows up at a talk by a scientist, armed with a knife. A scientist backs out of a collaboration for fear of being shot.

I should say I take this article with a grain of salt. McKie writes that “according to the police, the militants are now considered to be as dangerous and uncompromising as animal rights extremists.” But the catalog of harassment he presents made up mainly of obnoxious emails. No one’s bombed a lab. And even if there are some people who are sending XMRV-related death threats, they could well just be a handful of people, rather than any sort of broad movement. In other words, I really hope that my prediction turns out to be wrong.

Go read the original article to get the embedded links and additional text.

Science is a great accomplishment of the modern era of civilization. It is the equivalent of the Egyptians building pyramids and of the Middle Age western Europeans building cathedrals. It is even more important because it provides real beneficial results. But like earlier cultural artifacts, it can disappear. The magical thinking crazies can bring it all to an end like the pyramids and cathedrals.

I worry a lot about the US. They have more religious nuts and extremist per square mile than any other country. I expect if science is to be snuffed out, it will first occur there.

Declaring War on the People

This video paints the current economic situation in very, very stark hues:



I'm not as pessimistic as the author of this video. So I don't accept the vision of the future. But it is helpful to consider this viewpoint to understand the worst-case threats that are out there. I agree that banks can be bad, but I don't think they have to be an unmitigated evil. I believe in reform and evolution, not apocalypse and doomsday thinking.

Good News (Relatively Speaking) from Dean Baker

I like Dean Baker. He keeps a skeptical eye on the media and does yeoman duty spotting misleading and mendacious "reporting".

Here's his take on all the gloom and doom about the latest financial blow to the US economy. From his latest post on his Beat the Press blog:

The NYT told readers that a second recession could be even worse than the first. The reason is that people will have less of a cushion going in and that we are supposedly out of policy tools to get us out. There is some serious confusion here that is worth addressing.

First, it is true that most families have little left in reserve to deal with another layoff, so the NYT is absolutely right that a second downturn would really whack people that are already hurting. But there are two important points to make on this.

First, precisely because the economy is still badly depressed in many ways it is much less likely that we will see a recession. Remember a recession means two quarters of negative growth. To have negative growth there have to be sectors of the economy that are shrinking. Typically this would be construction and car purchases.

As it stands, construction (both residential and non-residential) are seriously depressed. It is difficult to imagine that either sector could fall much more than it already has. This means any negative impact that they have on the economy will be very limited. The auto sector is also still well-below pre-recession levels of sales. If it were to dip by another 10-15 percent (a very large dip), it would not have that much impact on the economy.

Consumption more generally is growing, albeit slowly. This is 70 percent of output, and even modest growth in consumption is likely to keep the economy growing. The government sector is shrinking, but only at around a 2 percent annual rate. So, we have to offset a sector that is about 20 percent of GDP shrinking at a 2 percent rate to stay in positive territory.

That is a pretty low bar. I think the double-dip crowd has not done their homework.

...

Finally, it is 100 percent nonsense to say that the government is out of policy options. We can do more stimulus. The financial markets are yelling at the government at the top of their lungs saying "borrow more money." That's what 2.6 percent interest rate on 10-year Treasury bonds means. There are balanced-budget worshipping politicians who say that the government can't do anything, but this is not true and the NYT has no business repeating it.

The Fed could also do more. For some reason the article does not mention policies that Ben Bernanke has himself suggested: targeting a long-term interest rate (e.g. a 1.0 percent 5-year Treasury rate) or a higher rate of inflation (e.g. 3-4 percent). The former was mentioned by Bernanke at his Jackson Hole speech last summer; the latter in a paper that he wrote while still a professor at Princeton. Both could help to boost demand and create jobs.

The government could also try to create jobs by taking steps to lower the value of the dollar.

...

In short, there is much that the government can do to create jobs. It is understandable that incumbent politicians would want to push the "nothing we can do line" to justify their own failings, however news outlets have no business passing along these excuses which are not true.

There's more. Go read the whole post.

So the news is less bad than the prophets of "doom-and-gloom" are touting. It is not good, but it isn't the end of the world. The US will recover from this. The best way out of the mess is for the US electorate to come out in force in 2012 and throw the Republican fanatics out of office!

Betting on Bankruptcy and Ruin

Here is the lead bit from an article by Barry Ritholtz in the Washington Post:

After a recession, the least rational rise (temporarily) to prominence. Ignore them.

If you are reading this, the previously scheduled end of the world did not occur. Perhaps the date was wrong — next Saturday night? 1994? October?

Despite millennia of Armageddon forecasts, betting on the end of the world has always been a money-losing wager. Given this oh-fer batting record of 0.000 percent, one wonders why people still regularly make this forecast. Wall Street fund strategists, religious zealots and economists seem strangely drawn to it. Never mind that if it were ever a winning trade, no one would be left for you to collect from. (That is called counterparty risk.)

You humans are a hardy breed. No matter how dire the circumstance, your species has managed to prosper.

You survived the Ice Age, the Dark Ages, the Middle Ages, the Age of Aquarius (as well as Disco and Polyester). Mother Nature has thrown floods, earthquakes, droughts, plagues, pandemics, tornadoes, asteroids, tsunamis, hurricanes, melting glaciers and global warming at you. Not to mention world wars and nuclear proliferation.

Economically, you’ve withstood the Panics of 1819, 1825, 1837, 1847, 1857, 1866, 1873, 1884, 1890, 1893, 1896, 1907, 1929, 1933, 1938, 1973, 1987, 1998, 2000, and 2007-09 — and that is just over the past two centuries. You also saw through the Tulip Bubble, the South Sea Bubble, the Great Depression and the Great Recession, the Nifty-Fifty, the Asian Contagion, the Dot-com Bubble, the subprime fiasco and Bernie Madoff.

What is it going to take to kill this species off — or at least to bankrupt it?

Given this long and storied history of survival, why does anyone pay attention to the dang fools predicting the end of the world?

Go read the whole article because at this point he starts explaining why people are such suckers for doom & gloom. He provides a very long classification of the varieties of doomsters and poisonous prophets.

The Enemy of Prosperity

Paul Krugman nails it with this bit from a post in his NY Times blog:

So why is this slump, like most slumps following financial crises, so protracted? Because the usual tools for pumping up demand have reached their limits. Normally we respond to demand-side slumps by cutting short-term nominal interest rates, which the Fed can move through open-market operations. But we now have severely depressed private demand thanks to the housing bust and the overhang of consumer debt, so even a zero rate isn’t low enough.

So what’s the right response? Should we just throw up our hands, and say that having 12 million or so adults who should be working out of work, and roughly $1 trillion per year of output we should be producing not getting produced, is just a fact of life? Or should we be using unconventional policies to deal with an abnormal situation?

The answer seems obvious. We should be using fiscal stimulus; we should be using unconventional monetary policy, including raising the inflation target; we should be pursuing aggressive measures to reduce mortgage debt. Not doing these things means accepting huge waste and hardship.

But, say the serious people, there are risks to doing any of these things. Well, life is full of risks. But it’s simply crazy to put a higher weight on the possibility that the invisible bond vigilantes might manifest themselves, or the inflation monster emerge from its secret cave, over the continuing reality of enormous human and economic damage from doing nothing.

The truth is that we have nothing to fear but fear itself — fear and complacency — the two things we have to fear are — amongst our fears ….

Anyway, seriously, the fatalism that has overtaken economic debate is a terrible thing. It is, indeed, the main enemy of prosperity.

I blame Obama. They guy didn't enter Dodge City like FDR with guns blazing saying that he was elected to clean up to crime and corruption. Instead, Obama has quietly entered town and "negotiated" with the Republicans on every issue, and every negotiation has been mostly a capitulation to Republican demands. FDR said "the only thing to fear is fear itself" and he tried every idea his team could come up with whether the idea was good or bad. He wanted action. He wanted to get America moving again. Obama pretended that his stimulus was "adequate" and hasn't had the guts to admit he made a mistake and demanded more. Obama has wimped out.

Thoughts on American Democracy

Here are some sad, pessimistic thoughts on American democracy by Matt Taibbi in an interview for Vice magazine. I've bolded the key bit:

You were in Russia for several years working for The Exile. Are we beginning to resemble the Russian class system? The wealthy oligarchs who rule everyone yet no one does anything about it?

I think there’s an argument to be made that we’re heading in that direction. That’s certainly not an idea that’s original to me.

It’s just more apparent now.

Sure, sure. There’s a guy at MIT, Simon Johnson, who used to be an IMF executive. He worked with developing third world economies and dealt with the whole issue of third world corruption for a long time. He wrote—from personal experience—about what he saw then and what he sees now with the financial services industry, and he basically says that we’re going down the same path. He sees a lot of the same things happening, such as the co-opting of the mainstream media and the corporate regulatory capture where you have former financial services industry employees running the regulatory agencies. I don’t think it’s on the same scale, but there are characteristics of it for sure.

Your opinion and, quite frankly, your distaste with your subjects comes through very strongly in your writing.

Right. Some journalists think you shouldn’t bring your personal feelings to a story. I definitely see that point of view and that approach, but I don’t follow it. I think one of the ways you can help a reader understand a topic is by first letting them know who you are and what your values are, and then showing them how you respond to the material. So me writing about how much X, Y, or Z pisses me off helps readers understand what’s important and what isn’t.

Do you still follow Russian politics? They’re gearing up for an election. I tend to envision Putin placing Medvedev on a platter and eating him on live television, or something of the sort.

They’re just your basic third-world kleptocracy—which is where everybody is headed. Well, everybody who still has a functioning government.

Elaborate.

I think people are going to realize what a blip on the radar American-style democracy in the 20th century was. A big middle class that had a huge powerbase, financial interests, bosses giving benefits… all those things. It’s just a little blip in history. For the most part, concentrated wealth will make all the decisions and everybody else is dictated to. It’s going to be like that to varying degrees. The more corrupt it is the more it’s heading in that direction, and clearly a place like Russia is a very corrupt place.

I don't share this bleak perspective. I'm an a pessimistic optimist. I believe in democracy in the sense of Churchill: it is a bad system but better than all the rest. I think that with democracy the people will ultimately arise and "throw the bums out". It just takes a long time for a large mass of people to be aroused to the point of anger. It took about eight years for Americans to become disgusted with the Vietnam war. It has taken about thirty years for Americans to become disgusted with Reaganomics "trickle down" theories. That is far too slow for the impatient types. But all "faster" means of change result in worse government, more vile dictatorships of right and left. Only maddeningly slow democracy has a built-in lethargy that has the best promise of ultimately saving individual rights and delivering a true civil society based on justice and dignity and rule of law.

William Black is an Optimist and a Pessimist

Here is are two interviews with William Black famous for helping to clean up the S&L financial mess and famous for his opinion that fraud was rampant in the 2008 financial crisis.

The optimist... In this video he comments on the S&P ratings agency with a comment "downgrading" US federal debt. I find Black to be more optimistic about the Republicans not committing economic suicide by refusing to raise the US debt ceiling. He thinks that is simply impossible, but I see it as somewhat possible but hopefully not very likely:

The pessimist... In this video he expresses his view that the big financial criminals are "untouchable" because of the money under the table from big financial institutions which have bought off the administration as well as Congress. This video deserves close viewing because he points out some real problems in the US and predicts its inevitable consequences.

Inflation and Rising Food Prices

There is a lot of chatter about inflation and how food prices are out of control and how speculators are driving up prices. I suspect speculators are adding to prices, but the chatter over food prices is premature and exaggerated. Here are some graphs from an economics research team at the Bank of Montreal:


That makes it clear that this isn't the "food crisis" of 2008. This is much smaller in scale. They also point out that:

Though market fundamentals differ by commodity, the increase in food prices overall is not likely to be as large as during 2007-08. First, while farm prices have generally risen, the increase is not as broad-based, partly because global stocks of key commodities are expected to be adequate. For instance, prices of wheat, corn, soybean and rice, adjusted for inflation, are still well below their 2008 peaks (Chart 3). Second, whereas a broad global inflationary climate helped to fuel agricultural price gains during 2007-08, the current substantial excess capacity in developed nations should contain prices. The fact that the price of crude oil—closely correlated with farm prices through the bioenergy link—is unlikely to return to 2008 levels also points to a more limited rally.

What should be obvious is that food prices are very volatile, and given the crop failures you would expect prices to jump. But assuming a return to more normal crop conditions, prices should ease back in line over the next couple of years:


So I plan to not get sucked into the gloom-and-doom crowd's excitement about yet another disaster that they see impending. The truth is, food prices are volatile and we just had some bad luck with weather. But there is no reason to extrapolate that into an end-of-civilization-as-we-know-it scenario.

Extrapolating the Future

Right wing nuts extrapolate this graph and run around screaming with their hair on fire that the US will be "eaten alive" by inflation by the crazed policies of Obama which have clearly unleashed a torrent of inflation into the economy:

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Left wing nutes extrapolate this graph and run around screaming with their hair on fire that the UK will be "turned to scorched earth" by the global warming caused by a failure to immediately stop all emissions of CO2:

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I think the fanatical right and the fanatical left deserve each other. Both camps look at innocuous data and extrapolate it into a doom-and-gloom scenario that requires extraordinarily drastic and immediate action.

I have a simple rule-of-thumb for the future: it will mostly be a lot like today. Sure there are trends but if they are real trends then they can be spotted by an ordinary person looking at a simple, honest graph.

But of course there are graphs put out by the fanatics...

The right wing inflation fear mongers would show you:

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The left wing global warming fear mongers would show you:

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Mubarak's "Mini-Me"

The attempt to pass off giving some unspecified powers to Omar Suleiman as "change" in Egypt is laughable. Suleiman is a Mini-Me, a deformed, deferential, duplicate of Mubarak. Here is a bit from an article in Al Jazeera which profiles Omar Suleiman:

According to a US diplomatic cable leaked by WikiLeaks, entitled 'Presidential Succession in Egypt', dated May 14, 2007:

"Egyptian intelligence chief and Mubarak consigliere, in past years Soliman was often cited as likely to be named to the long-vacant vice-presidential post. In the past two years, Soliman has stepped out of the shadows, and allowed himself to be photographed, and his meetings with foreign leaders reported. Many of our contacts believe that Soliman, because of his military background, would at least have to figure in any succession scenario."

In 2009, he was touted by some media outlets as the most powerful spy in the region, topping even the head of Mossad.

Following his appointment, Suleiman appeared to alienate many Egyptians when he said that he wanted to see democracy, but adding quickly: "But when will we do that? When the people here have the culture of democracy."

The White House, which sees Suleiman as a welcome successor to Mubarak, said his remark was unhelpful.

Suleiman is joined at the hip with Mubarak. He is like all the other generals, hand-picked by Mubarak and if Mubarak goes, they lose their meal ticket, so they will do nothing to force Mubarak out.

It is going to take a coup by captains and colonels in the army. But to organize a coup in a police state is very difficult. And even if you do organize a coup, what is to stop the leader of the coup from becoming a Muammar al-Gaddafi, another dictator?

Revolutions like that of the US in 1776 succeeded because it was led by members of the upper class who had turned against others in the upper class. That meant you had an educated elite with a deep political education able to take reins of power. Plus, in the colonies that elite already had tasted power and developed democracy at the local level, so they could act intelligently in building a democratic society. Even so, roughly one-third of the elite in the emerging US became enemies and were either killed, chased out, or fled the country. It was violent.

The French Revolution was less successful because the leadership there came mostly from the upper strata of the middle class with just a tinge of radicals from the lowest levels of the upper class. Hatred flared early and the revolution devolved into class warfare until a lieutenant colonel, Napoleon, rose up and seized power and quashed the revolution. A king was deposed but an emperor, Napoleon, replaced him. The good news was the the corrupt aristocracy had to cede ground to a competent bourgeoisie, but it was still an autocratic regime. Democracy was still born.

The Russian Revolution came in two stages. The first revolution was one led by the democrats. But they were naive and once their had seized power and held their parliament they thought they were done. But in the streets, the real revolutionaries, the Communists, plotted and rose and threw out the democrats in a second revolution. So that "revolution" ended up as a tyranny. No democracy.

So... revolutions are very hard to pull off. I fevently hope that the Egyptians succeed, but history says there are many, many ways for a revolution to be derailed and only a few ways for it to succeed. The Muslim world needs a real revolution to give the middle and labouring classes a say in their government, but it is looking less and less likely that this will happen because the old regime of Mubarak refuses to give way. They are too comfortable with their billions and their power.

I completely agree with this post by ElBaradei on Al Jazeera:

12:34am ElBaradei on Twitter: "Egypt will explode. Army must save the country now."

My only caution is that "the army" means the lower ranks because the generals have shown themselves unable to separate themselves from the money, power, and privilege they get from siding with Mubarak.

Sadly, I think this post on Al Jazeera is going to be the bloody way forward:

11:50pm: Among the chants heard in Tahrir Square:

We're off to the presidential palace. We're going as millions of martyrs.

The Mubarak-Obama Plan Blossoms

From Al Jazeera:

7:50pm Reports of gunshots fired by army into the air near the cordon they set up inside the barricades, near Egyptian museum.

Protesters clashed with army as they try to confine space available to protesters with barbed wire.

The plan to strangle the people's revolt is now well underway. The "concessions" are the lipstick on a pig. And it is already starting to be smudged off.

This bit gives you an idea of just how far you can trust the Obama selected successor to Mubarak:

9:50pm According to Reuters leaked diplomatic cables suggest Omar Suleiman, the Egyptian vice president, has long sought to demonize the opposition Muslim Brotherhood in his contacts with skeptical US officials.

The reality is that the situation in Egypt is ugly. But the ugliness is morphing. A few days ago it was savage fighting:



Now it has become a slow grinding process of "negotiations" and "gestures" while exhaustion destroys the people's movement. I can see the "professional" hand of the Obama's administration behind the scene guiding the thugs of Mubarak's regime telling them to tone down the killings and instead smother the revolt with words and gestures, string things out, people will need to get back to the daily struggle for existence, and the few hours of the impossible dream will be forgotten and the regime of repression will again smother any democratic impulse.

I also see that the middle class youth will turn bitter and apathetic and emigrate of simply give up on life. Instead, the fanatics of the Muslim Brotherhood are slowly "taking charge" and the battle lines will move from a dream of universal democracy to a fight between repression and an Islamic revolution. This is the fight that the Obama administration wants. This is the ground on which it can win by justifying brutal dictatorship as necessary for "stability and security". But I believe they are only buying a few years of "stability and security". The Mubarak-Obama strategy will win for 5 or 10 years, but the repression will be broken. But the next time it won't be dewy-eyed idealist young people, it will be bitter revolutionaries who know that simple banners in the street won't win. They will come back with guns and plots and they will crush the remnants of Mubarak dictatorship with an Islamic dictatorship. This is the true legacy of Obama in Egypt.

Whither Goest Thou, oh Stock Market Religion of the US of A?

Here are some interesting tidbits from the Canadian Mcleans magazine article entitled "The Stock Market is for Suckers" by Jason Kirby...

Now there are signs some institutional investors, such as pension funds, are giving up on equities and buying alternative assets like bridges and toll roads instead. No wonder American companies like Facebook are avoiding the hoi polloi of traditional stock markets in favour of raising capital from private, rich investors. “The idea of the stock market was to help businesses raise capital, and to provide people, individuals, with a chance to invest their savings and participate in that growth and have enough money to retire,” says Peter Cohan, president of Peter S. Cohan and Associates, a venture capital and management consulting firm in Marlborough, Mass. “But in the last decade the whole thing seems to have fallen apart.” Where the market once helped investors and companies, now it’s failing both.

And this bit:

Perhaps billionaire Mark Cuban, who made his money off the Internet bubble of the late 1990s and now owns the Dallas Mavericks basketball team, has put it best on his blog and in interviews. “The stock market,” he says, “is for suckers.”

And this:

Were it not for the source and recipients of the email—From: Goldman Sachs, To: Our most outrageously rich clients—it would have read like one of those Nigerian investment scams that slip through spam filters now and then. “When you have a chance I wanted to find a time to discuss a highly confidential and time-sensitive investment opportunity,” the secretive missive began. But this was clearly no shady dispatch from Lagos. What investment bank Goldman Sachs offered by way of the emails, sent out to thousands of its most valuable high-net-worth clients in early January, was the chance for them to buy a piece of the hottest company in America: Facebook.

I don't believe a word of this "the stock market is so over, the future is in pixie dust and fairy wings" stuff. This is simply the age old hype that "investing" is in collectibles and other arcana. Nope. Investing is in the grubby world of business. The world of building, moving, exchanging grungy stuff for money. All the hoopla stuff is just froth and entertainment. But it is fun to read!

The article does raise points that are well worth contemplating:

It’s important to remember why regulators have felt compelled to layer on so many rules. Over the last 40 years there’s been a radical reshaping of the investment world as retail investors rushed into the market. Since the late 1970s American investors have gone from having less than US$100 billion (adjusted for inflation) tied up in equity mutual funds to a staggering US$12.6 trillion in 2007. Where in 1980 fewer than six per cent of households invested, now roughly half do. Analysts have hailed this as the “democratization of finance.” As more people took control of their own retirements, it was generally seen as a good thing for American society. But with last decade’s back-to-back crashes, leaving the market where it was 11 years ago, that also means the pain was democratized, too. Panicked politicians reacted by passing new laws. Now it seems the very rules established to keep regular investors safe may actually shut them out from participating in the growth of many of America’s fastest-growing companies.

But there’s even more to the market dysfunction hurting investors and companies.

In 2004, at the age of 92, the late Sir John Templeton, a pioneer in the world of mutual funds, issued a stark warning to investors. “The stock market is broken,” he said in an interview. He went on to predict the housing bubble would spark the sort of terrible market crash we witnessed four years later. But Templeton saw a bigger problem than just the bubble then emerging. Stock markets are now dangerously short-sighted. “Mass media, especially TV today, is so short-term that few in its audience grasp the lasting damage and corrective impact which will continue to linger from the greatest financial crash in world history,” he said. In the wake of that very crash, short-term thinking is as much a problem as ever before.

But don't throw the baby out with the bath water. Markets are corrupt. They always have been. The answer is not to flee them but to push back against the right wing nuts who yelled "deregulate, deregulate, deregulate". The market is full of thieves. The solution is to put the cop back on the beat. There needs to be a cop on every corner to force the thieves back underground. The political left has to face down the idiocy of the political right and regain the high ground in the government, the market, and the economy. That's the only way that the future will be pulled out of the gutter and put back on a pedestal.

Thoughts on The Limits to Growth and Doom & Gloomsters

I was teaching a high school social studies class in the mid-1970s and we had materials on the "oil crisis". Most of the material was gloomy and predicted that oil would soon run out and that it would be so expensive that the only choice was to cut down our expectations of the future. This was completely in tune with the Club of Rome which published an infamous book called The Limits to Growth. I passed on the sad news to the students because that was the teaching material I had. I hadn't yet realized that doomsters have always been around and they are constantly thinking up new worries that get lots of attention (and big bucks) for them.

The end of oil, the so-called Hubbert's peak oil theory, has been trotted out over the years to sell more gloom and doom. Only when my father pointed out to me that when in was in high school in the early 1930s he was being told that there was only 20 years of oil left did it ding on me... it will always be the case that we will soon run out of any given resource because governments don't go out and find resources, they rely on resource companies to tell them what kind of reserves they know about. And it doesn't pay a resource company to go and find resources that won't be used within a reasonable period of time. So there will always be a problem of "running out of resources in about 20 years".

I've grown much more cynical over time. And I've been convinced by the arguments of Julian Simon and his book The Ultimate Resource. Humanity has always been running out of resources, but we will always find ways around the problem. Sure if you multiplied the current population 5 fold we would be at each other's throats fighting over food. But the Zero Population Growth people who wanted forcible sterilzation and predicted tens of millions if not hundreds of millions would stave in the 1980s were proved wrong by the Green Revolution. Norman Borlaug has been the greatest humanitarian the world has ever seen. He didn't sell "limits to growth" or "population explosion" or "global warming". Nope. He rolled his sleeves up and did research to expand the food supply. Of course the doom & gloom crowd has labeled all this "frankenfood" and spend their effort trying to convince people to not eat the food!

The doom & gloom crowd never look for a silver lining in a cloud. They take a paradise an worry themselves silly trying to find flaws in it, turn up potentially, hypothetically possible future problems with paradise.

As for running out of oil. We haven't hit "peak oil" yet as it continues to be slid out into the indefinite future. I'm sure it will happen some day. But in the meantime, we have a sufeit of riches. Here's a news story about how recent technological advances mean we now have 250 years supply of natural gas!

Supplies of natural gas could last more than 250 years if Asian and European economies follow the U.S. unconventional reserves, the IEA said.

The abundance of shale gas and other forms of so-called unconventional gas discovered in the United States prompted a global rush to explore for the new resource.

The International Energy Agency said Australia is taking the lead in the push toward unconventional gas, though China, India and Indonesia are close behind. European companies are taking preliminary steps to unlock unconventional gas as are other regions.

"Production of 'unconventional' gas in the U.S. has rocketed in the past few years, going beyond even the most optimistic forecasts," said Anne-Sophie Corbeau, a gas analyst at the IEA. "It is no wonder that its success has sparked such international interest."

Shale gas production in the United States is booming and the IEA estimates that unconventional gas makes up around 12 percent of the global supply.

Global supplies of natural gas could last for another 130 years at current consumption rates. That time frame could double with unconventional gas, the IEA said.

I guess the doom & gloom crowd can run around wailing and gnashing their teeth telling us that there is "only" 250 years supply so we need to cut back consumption now because it will all run out far too soon! They will find some way to use this to tell us we can't live a happy life. They will find a way to tell us that this means we have to abandon industrial society and go back to walking behind ox carts. They will only be happy when we get back to the "truly good old days" when 95% of th population was illiterate, most were starving, and pretty well everybody died in the early 40s. Yep... those "good old days"!

The reality is that technology changes the landscape under our feet. Here is a nice graph from a BP study "BP Energy Outlook 2030" that shows how various countries have shifted in the dependence on energy for GDP growth:

Click to Enlarge

And, as you can see, this report predicts that US dependence of imported oil & gas will fall:

Click to Enlarge

Politics by Other Means

The NY Times has published an article on the Stuxnet virus developed jointly by the US and Israel to sabotage Iran's nuclear program:

Over the past two years, according to intelligence and military experts familiar with its operations, Dimona has taken on a new, equally secret role — as a critical testing ground in a joint American and Israeli effort to undermine Iran’s efforts to make a bomb of its own.

...

Though American and Israeli officials refuse to talk publicly about what goes on at Dimona, the operations there, as well as related efforts in the United States, are among the newest and strongest clues suggesting that the virus was designed as an American-Israeli project to sabotage the Iranian program.

In recent days, the retiring chief of Israel’s Mossad intelligence agency, Meir Dagan, and Secretary of State Hillary Rodham Clinton separately announced that they believed Iran’s efforts had been set back by several years.

...

In early 2008 the German company Siemens cooperated with one of the United States’ premier national laboratories, in Idaho, to identify the vulnerabilities of computer controllers that the company sells to operate industrial machinery around the world — and that American intelligence agencies have identified as key equipment in Iran’s enrichment facilities.

Seimens says that program was part of routine efforts to secure its products against cyberattacks. Nonetheless, it gave the Idaho National Laboratory — which is part of the Energy Department, responsible for America’s nuclear arms — the chance to identify well-hidden holes in the Siemens systems that were exploited the next year by Stuxnet.

The worm itself now appears to have included two major components. One was designed to send Iran’s nuclear centrifuges spinning wildly out of control. Another seems right out of the movies: The computer program also secretly recorded what normal operations at the nuclear plant looked like, then played those readings back to plant operators, like a pre-recorded security tape in a bank heist, so that it would appear that everything was operating normally while the centrifuges were actually tearing themselves apart.

The attacks were not fully successful: Some parts of Iran’s operations ground to a halt, while others survived, according to the reports of international nuclear inspectors. Nor is it clear the attacks are over: Some experts who have examined the code believe it contains the seeds for yet more versions and assaults.

“It’s like a playbook,” said Ralph Langner, an independent computer security expert in Hamburg, Germany, who was among the first to decode Stuxnet. “Anyone who looks at it carefully can build something like it.” Mr. Langner is among the experts who expressed fear that the attack had legitimized a new form of industrial warfare, one to which the United States is also highly vulnerable.

...

No one was more intrigued than Mr. Langner, a former psychologist who runs a small computer security company in a suburb of Hamburg. Eager to design protective software for his clients, he had his five employees focus on picking apart the code and running it on the series of Siemens controllers neatly stacked in racks, their lights blinking.

He quickly discovered that the worm only kicked into gear when it detected the presence of a specific configuration of controllers, running a set of processes that appear to exist only in a centrifuge plant. “The attackers took great care to make sure that only their designated targets were hit,” he said. “It was a marksman’s job.”

For example, one small section of the code appears designed to send commands to 984 machines linked together.

Curiously, when international inspectors visited Natanz in late 2009, they found that the Iranians had taken out of service a total of exactly 984 machines that had been running the previous summer.

But as Mr. Langner kept peeling back the layers, he found more — what he calls the “dual warhead.” One part of the program is designed to lie dormant for long periods, then speed up the machines so that the spinning rotors in the centrifuges wobble and then destroy themselves. Another part, called a “man in the middle” in the computer world, sends out those false sensor signals to make the system believe everything is running smoothly. That prevents a safety system from kicking in, which would shut down the plant before it could self-destruct.

“Code analysis makes it clear that Stuxnet is not about sending a message or proving a concept,” Mr. Langner later wrote. “It is about destroying its targets with utmost determination in military style.”

This was not the work of hackers, he quickly concluded. It had to be the work of someone who knew his way around the specific quirks of the Siemens controllers and had an intimate understanding of exactly how the Iranians had designed their enrichment operations.

So... cyber war is now real and prevalent. It isn't just the US and Israel. China has attacked hundreds of sites around the world. There are undoubtedly many, many other attacks that aren't reported because security officials don't want to allow enemies to know of weaknesses. The world has descended just one more step down into the abyss. Every technology ever developed ends up being a weapon. Sad. Humans seem intent on self destruction.

What Does the Future Hold?

You can either be a pessimist (very popular, very profitable in selling swill to the gullible) or an optimist (deeply unpopular, profitable but only at rates that reflect real effort and real risk).

Here is another classic example of this truism by John Tierny in an article for the NY Times:

Five years ago, Matthew R. Simmons and I bet $5,000. It was a wager about the future of energy supplies — a Malthusian pessimist versus a Cornucopian optimist — and now the day of reckoning is nigh: Jan. 1, 2011.

The bet was occasioned by a cover article in August 2005 in The New York Times Magazine titled “The Breaking Point.” It featured predictions of soaring oil prices from Mr. Simmons, who was a member of the Council on Foreign Relations, the head of a Houston investment bank specializing in the energy industry, and the author of “Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy.”

I called Mr. Simmons to discuss a bet. To his credit — and unlike some other Malthusians — he was eager to back his predictions with cash. He expected the price of oil, then about $65 a barrel, to more than triple in the next five years, even after adjusting for inflation. He offered to bet $5,000 that the average price of oil over the course of 2010 would be at least $200 a barrel in 2005 dollars.

I took him up on it, not because I knew much about Saudi oil production or the other “peak oil” arguments that global production was headed downward. I was just following a rule learned from a mentor and a friend, the economist Julian L. Simon.

As the leader of the Cornucopians, the optimists who believed there would always be abundant supplies of energy and other resources, Julian figured that betting was the best way to make his argument. Optimism, he found, didn’t make for cover stories and front-page headlines.

No matter how many cheery long-term statistics he produced, he couldn’t get as much attention as the gloomy Malthusians like Paul Ehrlich, the best-selling ecologist. Their forecasts of energy crises and resource shortages seemed not only newsier but also more intuitively correct. In a finite world with a growing population, wasn’t it logical to expect resources to become scarcer and more expensive?

As an alternative to arguing, Julian offered to bet that the price of any natural resource chosen by a Malthusian wouldn’t rise in the future. Dr. Ehrlich accepted and formed a consortium with two colleagues at Berkeley, John P. Holdren and John Harte, who were supposed to be experts in natural resources. In 1980, they picked five metals and bet that the prices would rise during the next 10 years.

By 1990, the prices were lower, and the Malthusians paid up, although they didn’t seem to suffer any professional consequences. Dr. Ehrlich and Dr. Holdren both won MacArthur “genius awards” (Julian never did). Dr. Holdren went on to lead the American Association for the Advancement of Science, and today he serves as President Obama’s science adviser.

Julian, who died in 1998, never managed to persuade Dr. Ehrlich or Dr. Holdren or other prominent doomsayers to take his bets again.

For those who have been kept in the dark by all the noise from the sky-is-falling crowd, Julian Simon is the economist who wrote the seminal book on how human ingenuity is consistently ignored by the linear extrapolationists known as "the knowledgeable pundit class" and/or "the doomsayers". You can read Julian Simon's text The Ultimate Resource on-line. Go ahead, dare to be different and embrace life and the possibility of a better tomorrow. Dare to be an optimist!

Sadly, an economist I respect, Brad DeLong at UC Berkeley denounces the NY Times and John Tierney for publishing what he views as wrong-headed optimism. Might I suggest that DeLong put his money where his mouth is and make a bet with Tierney for say $50,000 due on Jan 1, 2030 that fossil fuel derived energy for the average consumer will be taking a bigger bit out of the household budget than it now does? Notice, I'm not willing to bet that oil won't go higher, but if you really believe in ingenuity, you expect that some energy equivalent will be discovered or engineered to replace any "expired" oil. But... oil may just surprise us. Take a look here where I report that there are 2 TRILLION BARRELS of oil in the Canadian oil sands. At current rates of use which are well under 100 million barrel per day, that is 20,000 days worth of oil, or roughly 50 years worth of oil. And I happen to know that there has been very little exploration in Canada's North. Who knows what energy resource lie up there. (A more conservative estimate is on Wikipedia. As well as a near 2 trillion estimate here on Wikipedia. Remember, it is not in the interests of the oil companies to find more oil than they can produce in the relatively near future, so there will always be a chronic estimate of "only a few years" of supply available.)

The Outlook for America

Here's a fairly pessimistic outlook from David Cay Johnston...

And more here...

And if you want still more David Cay Johnston, here is an interview of him back in February 2009 as the Obama Stimulus Bill was being debated: