The Big Energy Story of 2012

by John Brian Shannon

The world energy industry is suddenly transforming into something very different from the industry we have grown accustomed to over the past decades. In those previous decades, it was pump and burn more oil, mine and burn more coal and build more coal-fired burners to produce electricity. More, more and more smokethat is!

Anti-nuclear protesters were a constant feature in the press anywhere a reactor was considered, built or commissioned into use. Urban residents held irregular anti-smog protests outside of City Hall in large cities like LA and Tokyo.

Small-scale and large wars, were fought over control of the world’s oil and gas fields — sometimes affecting the very economic health of those nations.

Welcome to 2013. The world is still reeling from President Barack Obama’s decision to wean America completely off of foreign oil, he also ordered oil and gas production to be dramatically ramped up in the U.S.A. – and he decided to make his country a net oil exporter of oil and gas. Not just any-old net exporter mind you, but the world’s number one exporter of both oil and gas by 2017! That’s in four years.

Heady stuff for a normally ambivalent world.

Remember back in February of 2006, when then-President George W. Bush famously stated in his State of the Union speech that “America is addicted to oil.” That of course, is true. The U.S.A. and the other industrialized nations wouldn’t survive without oil as the entire Western economy is based on petroleum and the products made from it. From transportation and energy fuels, to plastics, medicines, agricultural fertilizers, residential and commercial buildings – virtually everything we live in, drive, wear, buy or use, is a product or by-product of petroleum.

Both Presidents — Obama and Bush, foresaw the importance of lowering overall energy use to improve the health and quality of life for American citizens, to lower international tensions by sourcing oil and gas domestically and to invest in clean technology to improve conservation and efficiency.

It turns out that conservation, green energy and domestic energy extraction is not a Democrat or Republican thing — it’s a leadership thing. And all over the world, it is catching on. Welcome to 2013, indeed!

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Looking Through the Wrong End of the Telescope Won’t Fix the Economy

by John Brian Shannon

Quick, think fast! Why is there a huge liquidity trap in America?

If you can answer that question, then you’re not ‘looking through the wrong end of the telescope’ blaming the symptoms, instead of the root causes of the present American economic problem. Which, some other people (not you and me) are probably doing right now.

Let’s call some of those people 2012 Republican politicians.

The present excess-liquidity situation has come about as a result of some economic policies of the United States, which gained traction during President Reagan’s first term in office. It was a different world then and the 40th President acted swiftly and responsibly to restart the U.S. economy. I quote the New York Times reportage of President Reagan’s inauguration speech.

He said “progress may be slow,” but his “first priorities” would be to “get government back within its means, and to lighten out punitive tax burden,” a reference to his campaign pledge to balance the Federal budget and cut personal taxes to 30 percent in three years. – The New York Times, quoting President Ronald Reagan’s inaugural speech of January 20, 1981.

Personal and corporate tax rates have dramatically fallen since then and the plan to cut the tax rates and add unprecedented billions of dollars of stimulus spending to the economy (much of it went to U.S. defense contractors) worked to grow the American economy and the economies of other Western nations, such as the UK, Canada and Spain. Yes, it was that much stimulus.

Cold War allies such as Canada, received generous NASA and U.S. defense-related contracts from the administration, which in turn helped to boost the economies of Western alliesthereby helping the U.S. economy.

How’s that?

During Ronald Reagan’s terms in office, most cars and trucks registered in Canada were manufactured by U.S. corporations and the same held true for so-called ‘white goods’ (refrigerators, stoves, dishwashers, etc.) and large volumes of many other products — especially construction industry products and materials. Not to mention Canada’s purchase of 110 F-18’s in 1981.

When your allies have money, they place orders with U.S. corporations. When your allies don’t have enough money to purchase American goods and services, sales fall off dramatically.

Of course, there was much more to it than that. America was deep in the economic doldrums in 1980/81 and the American psyche was still reeling from the Vietnam War, a recession and a loss of American prestige following the dual shocks of the Arab Oil Embargo and the American hostages in Iran.

President Reagan stepped up and hit a ‘home-run’ every day for the U.S.A and got America to believe in itself again. The President authorized the Chrysler bailout, other bailouts and some exceptional mergers so that companies would not be forced to shut their doors and take all those middle-class jobs with them.

Economically speaking, by adding significant hundreds of billions of stimulus dollars to the U.S. economy (perhaps as much as 1 trillion dollars, depending on who is doing the counting) and lowering personal and corporate tax rates, the Reagan administration employed a two-pronged approach to foster growth in the American economy. And it worked.

Fast-forward to 2012. Trying to employ those same policies now when we have reached a state of diminishing returns on them (as there isn’t much left to cut without shutting down America) can only be called tinkering with the economy. Back in the 1980’s huge cuts in tax rates were possible and allowed a decade-long spending spree by American citizens and corporations.

Now that personal and corporate taxes are so low and have been for some time, there is no longer room for huge tax cuts of 10% or more. All the juice has been squeezed out of that lemon.

The policies which allowed huge growth in the 1980’s (mega-stimulus and tax cuts) were financed by running massive deficits which were never paid off — as President Reagan had responsibly promised would eventually happen.

When governments run obscene deficits designed to stimulate the economy during times of economic crisis it is an utterly logical thing to do. When successive governments don’t return to balanced budgets and don’t paydown the accumulated government debt during the ‘good times’ as John Maynard Keynes suggested, governments ability to assist in subsequent recessions are constrained (for a telling article on that, read here) – but this time around the constraint is the liquidity trap.

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Now we have people writing to members of Congress, to the media and to each other, asking for fixes to the symptoms of the economic problem, instead of the cause. It gets worse, we now have candidates for high office blaming the symptoms instead of the cause.

Why are we in a liquidity trap? The answer my friend, is right below.

A liquidity trap is a situation described in Keynesian economics in which injections of cash into the private banking system by a central bank fail to lower interest rates and hence fail to stimulate economic growth.

A liquidity trap is caused when people [or corporations] hoard cash because they expect an adverse event such as deflation, insufficient aggregate demand, or war. Signature characteristics of a liquidity trap are short-term interest rates that are near zero and fluctuations in the monetary base that fail to translate into fluctuations in general price levels. – Wikipedia

How can injections of cash into the private banking system by a central bank lower the interest rates when the interest rates are effectively zero?

What we are left with; The banks are full to the top with deposited money from individuals and corporations. There is low demand for goods and services. There is little demand for money to loan. There is little incentive for banks to loan money as there is presently such a small ‘spread’ between prime rate and mortgage rates. There is little room for personal and corporate tax rate cuts — as the largest cuts have already taken place over the past 30 years.

What all of this means is the government has little in the way of actual controls over the economy. When both major levers (monetary and fiscal) don’t work, all that is left is minor tinkering.

When two of the most important economic levers are temporarily out of order, we just can’t stand around blaming the symptoms or wishing for a better day. It is now the time to bring in other levers to spur the economy like a reasonable (export) tariff of say, 5-8% on all raw resource exports, such as petroleum (the U.S. is a net exporter of petroleum) coal, minerals and metals.

This would begin to add cash to the federal coffers from day one and every penny should be used to stimulate actual jobs.

The U.S. could hire 100,000 additional police as President Clinton once did – many of whom are still paying taxes and contributing to their local economies, by the way.

Also, more teachers, or teachers with higher credentials could be educating a better future workforce.

‘Shovel-ready’ national infrastructure programs could create jobs for out-of-work and under-employed labourers.

Want to create demand in the economy? Give a few million Americans jobs! Watch how much tax revenue is generated. Watch the sales of everything from work-appropriate clothing, to cars, gasoline, home appliances and so much more, skyrocket in less than a year and continue to contribute to the economy.

People don’t want food stamps if they have a good-paying job. People don’t want welfare if they have a decent job. And people don’t want to burden social agencies when they can afford to live independently.

Looking through the right end of the telescope, there’s nothing but solutions in all directions. A moderate tariff on raw resource exports is a good place to start.

John Brian Shannon

ABOUT JOHN BRIAN SHANNON

I write about green energy, sustainable development and economics. My blogs appear in the Arabian Gazette, EcoPoint, EnergyBoom, Huffington Post, United Nations Development Programme, WACSI — and other quality publications.

“It is important to assist all levels of government and the business community to find sustainable ways forward for industry and consumers.”

Green Energy blog: http://johnbrianshannon.com
Economics blog: https://jbsnews.wordpress.com
Twitter: @JBSCanada

 

An Unserious Man — MY COMMENT

by John Brian Shannon

Read Paul Krugman’s An Unserious Man.

My comment on Professor Krugman’s article begins.

When 5 Minus 4 Equals 10: Republican deficit cutting

First off, let me say that I like Paul Ryan. Hey, I like Mitt Romney too.

I liked his dad, the great George Romney even more – a true and honourable captain of industry who represented American corporations with class and charisma. Now there was a man who should have been a two-term President.

What is before us this day, is the Paul Ryan plan for deficit cutting, tax cuts and cuts to Medicaid.

The proof is in the pudding as they say and independent groups like the non-partisan Tax Policy Center have declared that the Paul Ryan spending cut and tax cut budget will result in a budget deficit $2.5 trillion dollars higher than the one President Obama’s team is promoting.

And that is after essentially dumping Medicaid onto the states (many of which can’t afford their current spending programs, let alone additional spending) and dramatic cuts to the food stamp program (meaning fewer American’s will be able to eat) and cuts to education funding (meaning fewer American’s will be able to attend college).

Not only spending cuts, but tax cuts for America’s highest income-earners and their sponsor corporations. All of whom, are just doing fine, thank you very much, even without the proposed Ryan cuts!

The Paul Ryan budget plan is to cut, cut, cut — but spend even more, with a total of $4.3 trillion dollars of cuts over the next decade — and still the budget deficit will zoom $2.5 trillion deeper into the red than the Obama budget.

How can $4.3 trillion dollars of spending cuts and tax cuts phased in over the next ten years, result in an unsustainable budget deficit of $2.5 trillion dollars? How can offloading Medicaid onto nearly insolvent states help those Americans who depend on it? How can dramatic cuts to the food stamp program not correspondingly increase the property theft crime rate? And how do tax cuts to wealthy Americans and American corporations help the middle class, not to mention removing grants for more kids to attend college?

We only need to look at the utterly predictable results of this economic plan, to accurately judge it’s merits.

1) Dumping Medicaid onto the states, many of which are near-insolvent already, would have the effect of making some of them fully insolvent. It would push other states which are just managing to hang on, to near-insolvency. Strong states would become weaker. How does this benefit the United States of America?

2) Dramatic cuts to the federal food stamp program in an effort to cut spending, will simply result in greater federal law enforcement spending as many thousands of hungry Americans turn to theft, to be able to eat every day of the year. I’ll just bet that the FBI and city and state police forces don’t love this Paul Ryan plan.

3)  When fewer Americans can attend college, correspondingly more people will be entering the workforce with a lower level of education. How will the ‘dumbing down’ of America help the nation?

4) For those Americans in the top tax brackets and for many American corporations, tax cuts for them means a further concentration of wealth for 1% of U.S. citizens, a lower percentage of wealth for the middle class to share and even less for the lowest income Americans. What egalitarian society?

5) A substantially larger budget deficit allows more control over American policy by those financing American federal debt. For the foreseeable future, China (you know, that big, booming country that Republicans like to poke with a sharp stick at every opportunity) will be financing U.S. federal deficits and accumulated debt. As budget deficits and debt soar in America, the number of nations which can step-up to service that debt drops exponentially. The day is coming when China will be the only nation with the wherewithal to float the U.S. economy — IF they choose to do so.

Paul Ryan’s economic platform would weaken individual U.S. states, increase societal class friction, increase disparity in income and education, increase the national crime rate and allow more Chinese government say in U.S. policy.

If U.S. Republicans are America’s friends, who needs enemies?

John Brian Shannon

ABOUT JOHN BRIAN SHANNON

I write about green energy, sustainable development and economics. My blogs appear in the Arabian Gazette, EcoPoint, EnergyBoom, Huffington Post, United Nations Development Programme, WACSI — and other quality publications.

“It is important to assist all levels of government and the business community to find sustainable ways forward for industry and consumers.”

Green Energy blog: http://johnbrianshannon.com
Economics blog: https://jbsnews.wordpress.com
Twitter: @JBSCanada