Energy Independence the Hard Way, Part 1

The Year of Our Depression 2008 is quickly grinding towards a smouldering ruin of finality, and already we sense that there is great hope that 2009 will be the turn-around year. Great faith seems to be place in President-elect Barack Obama's multi-hundred-billion-dollar make-work programmes. It seems to us that Mr. Obama is considered the man who can lead this nation to a better future.

Mr. Obama's transition website paints a starry, starry picture of energy independence: 1 million plug-in hybrids purring about by 2015; 10% renewable energy by 2012; 5 million jobs and $150 bullion over ten years. How lovely, but we point out to the President-elect that $150 billion is chump change; the Federal Reserve has 'injected' over $1 trillion, and that hasn't done squat. What can a measly $150 billion do for energy?

We posit a different scenario for energy independence, although it won't be appearing on change.gov anytime soon. In a decade, the government will have spent more money than we have the vocabulary to describe - but all for naught; infrastructure programmes will have been started, and abandoned. In essence, the United States will be so poor, its domestically-produced oil (currently about 25% of supply) will be all that is needed.

Cliffhanger? You bet. Part 2 tomorrow.

The Sovietisation of America

A recent article in Bloomberg discusses galloping statism around the world. All theoretical concerns aside as to subpar growth, and suboptimal investment decisions - we see the core problem being this: Beyond the domain of rudimentary public services, central planning creates bogus livelihoods in bogus industries. Take airline luggage inspectors. In the USA, the TSA employs about 45,000 screeners, slightly more people than the number of people killed each and every year on USA highways. We wonder how many lives the screeners have saved. Is this truly a good use of scarce economic resources in a contracting economy?

How will real needs be met if jobs are only created within or by the hands of government bureaucracies, and lost elsewhere? If the proposed make-work programs were along the lines of say, public transportation, truly affordable housing, or even beautification for heavens sake, we would not grumble so much. There is, after all, much to be done to make a smooth transition to a less affluent society. But why the largess for roads, auto makers, and ethanol? Soon enough all the highways will be to nowhere, as private motorised transportation becomes impossibly expensive for all but the wealthy.

In the waning days of the Soviet Union "people pretended to work, and the government pretended to pay them." Meeting real needs was largely left to the informal economy. Why do the government of the USA and its imitators want to recreate this tragedy?

Mania and Depression

Mania and depression refer at once both to psychological states and to economic conditions. The parallel has long been observed, and is somewhat apt. The primary divergence between economy and psychology lies in the depression phase. Economically, the depression itself is primarily the consequence of actions taken during the mania. Or put differently, economic mania and depression are related as cause and effect. Psychological mania and depression, also referred to as bipolar disorder, are merely two phases of mood, related by a common underlying cause.

What was the mania that caused the 2007 Depression? Obviously, the 'housing bubble' was part of it, with its attendant mortgage-backed securities - a classic case worthy of Extraordinary Popular Delusions and the Madness of Crowds. But could the whole of the collapse be pinned on housing?

We propose that several structural economic flaws introduced during the 1929 Depression created an unbalanced economy and several long-lasting manias, the consequences of which will now need to be dealt with. Failure to reform these flaws will result in further economic collapse. Successful reformation will set the stage for economic recovery. We will be discussing these flaws and their resultant manias in this and future posts.

As an example, one flaw we would call Make-Workism. Among developed nations, this is most acute in the USA, as it does not officially believe in socialism. Where socialism would create public-owned enterprises to provide essential services (railroads, sanitation, water, electric power, low-cost housing, and so on), in the USA, government tends to avoid competing with private business and instead provides services that provide little or no economic benefit, e.g. shoddy education, prisons galore, unimaginably bloated military-industrial complex, airline luggage inspectors. The make-work strategy really took off during the 1929 Depression, and now employs a substantial portion of the population.

Make-Workism created a mania in government-directed activity because, like all manias, it seemed to work for a time, and gathered great popular support, largely as a result of generous pay packages, and well-funded lobbyists. Hardly anything valuable has been created by this mania, and much that is destructive. With the prospect of collapsing tax revenues, and the imminent bankruptcy of several US states and many municipalities, this mania may well be at an end. Do not look to see the public sector shrink gracefully though.