October 25, 2013

The negligent slaughter of the US economy

After World War II the United States was, without question, the dominant economic power on the globe. Our industrial base, already huge before the war, had survived the conflict intact while the rest of the industrialized world had been significantly battered. At the end of 1945, America was ready and able to be the manufacturing center of the world. While there were some rough times transitioning from a war economy to a peacetime economy, and a period during which Europe had to be propped up enough to at least be viable as a market, the American economy grew steadily through the 1950’s and 1960’s. We had plenty of smart people and plenty of cheap Texas oil. A generation grew up believing that a gradual improvement in the American standard of living was the inevitable – a god-given birthright or a law of nature, depending on one’s religious views.

There was pollution, of course, in this otherwise rosy world. The air and water were less than ideal. Industrial economy – that is, making goods instead of moving data around – is an inherently dirty process. Steel mills and chemical plants will never be things you want to live near. Inevitably then, the people who had already brought us the New Deal, with its central notion that if there is a problem anywhere of any kind it is the government’s responsibility to fix it, decided to fix the rivers and the sky.

Now, don’t misunderstand me here. There is no question that clean water and clean air are good, wholesome, and laudable things. No one wants dirty air and dirty water, regardless of what the current president may tell you. Even industrialists really don’t like pollution. But there’s a problem. You cannot have your cake and eat it too. If you want to have cheap goods made of plastic then somewhere there has to be a plastics plant full of all sorts of toxic and carcinogenic chemicals. If you want copper to make wiring for electronics and nice saucepans for your local snobby restaurant, you are going to have to put up with huge, unsightly holes in Arizona and gigantic stinking leach piles of copper ore. Most things cannot be made by good-hearted hippies using garden waste and love. There is a whole science of thermodynamics that explains exactly why manufacturing makes some part of the world a great deal grungier, but I think that if you’re smart enough to read this you have probably already grasped the point without the mathematical fuss.

So, here were all these do-gooders out punishing American industry for its sins. Those sins amounted to: making the air and water dirty (by making goods that everybody wanted) -- and making lots of money doing it (and never mind that they provided the jobs that built the middle class). To be fair to the liberal planners, they did alot of good initially. The Cuyahoga River that runs through Cleveland stopped its novel habit of catching fire. Smokestacks began making pretty white smoke instead of dingy black smoke. I am talking about smoke, not people – so spare me any racist accusations. There certainly is a level of cleanliness that leaves industry with a manageable burden, and everyone, for awhile, is happier when that level is reached. Unfortunately, the problem with regulators is that having fixed a problem they will inevitably look for others to fix. If they can’t find any significant problems, they’ll magnify the importance of progressively smaller and smaller ones. They do not call themselves progressives by accident. To give one small example, there are now a number of regulations that deal with the danger posed by chemicals found in upholstery foams – not dangers to workers, but dangers to consumers. My memory may not be what it used to be, but I cannot recall a single instance in my lifetime of seeing a family expired in front of their TV, cut down by the lethal outgassings of their couch. My instinct is that if you lie on a couch long enough for the chemicals in the upholstery to kill you, obesity and heart disease will probably kill you first. It really will be too much Xbox and too many of mayor Bloomberg’s famous 24oz. sodas, and not the polybrominated biphenyls which snuff out junior’s one and only non-virtual life.

The gradual expansion of environmental regulation has had several consequences, probably unintentional. At some point, people who thought that manufacturing things could be a fun and lucrative way to make a living stopped thinking that. People are not naturally inclined to spend their lives in legal battles with Federal regulators, so the ambitious and creative ones ventured into finance, government, and the law – in other words, into occupations not involving smelly chemicals. Being in finance allows you to engage in business without getting your hands dirty in a literal sense. You can just make money buying and selling other peoples’ companies, mortgages, grandmothers, etc. Enron was never an energy company in any physical sense of the word – they were more-or-less an investment bank with a narrowly targeted set of assets. Going into government or the law, on the other hand, is following the adage – If you can’t beat ‘em, join ‘em! Lawyers, bureaucrats and politicians aren’t really in the business of making wealth – which is to say, real, tangible goods – any more than their banker counterparts are. All of these occupations are, for the most part, engaged in a zero-sum game of moving money around – taking from the haves and giving to the have-nots with one hand, and taking from the powerless to line the pockets of the powerful with the other. I sometimes think the processes of taxation, spending, and civil law might be easily replaced with a few traveling roulette wheels. Everyone puts their money in and everybody gets a chance. It would be only slightly less fair than the system we have now, but would be a good deal more honest and cheaper to operate. Like a state lottery only bigger. Any of our recent presidents or presidential candidates, with the possible exceptions of the wooden Al Gore and the grumpy John McCain, could easily serve as charming game show hosts…

Sorry. I digress.

Anyway, when industry became a sort of hated, punishable offense the financial people figured out that the perfect thing to do was move production overseas. Americans still wanted the same cheap plastic stuff and it wasn’t too hard to find countries without environmental laws where it could all be made. The boom manufacturing markets have traveled like a stinky circus around the far east for decades, finally settling, improbably, in China. The Chinese “Communists” belatedly concluded that authoritarian central government works pretty well – but central economic planning doesn’t. Here in the enlightened west, we are still trying desperately to accomplish both.

There’s another rub here of course – which none of our best and brightest planners managed to see, or if they did they didn’t take it seriously. As I said earlier, people who grow up getting richer every year tend to be outrageous optimists. They didn’t fully realize that stinking up the air and water isn’t just a way to make Winnebagos and Barbie dolls – it’s a basis for real international power. He (or she) who makes the goods holds power over those who want or need them. We imagined, somehow, that we could let the Chinese make the goods and pollute their countryside, but still walk off with not only a clean environmental conscience but a nice tidy profit. America, in other words, would stop making things and just own everything. China, with its strong central government, has clearly gotten tired of that game. They passed a law declaring that the controlling interest in all Chinese companies will henceforth be Chinese. American business may be infuriated by this – but what else could they expect?

The less material wealth America produces the more it’s international economic standing becomes a conjuring trick. We have gone a long way on the momentum of our own legendary power, but the engine is smoking suspiciously and the fuel is running very low.

Speaking of which, the fuel is running low. All that cheap Texas oil, and most of the Alaskan oil, is gone. Most of the Mexican oil boom is gone. The North Sea oil is merely a trickle. Even Saudi Arabia has sucked out their spare capacity. The price of oil is permanently over $80 a barrel for a reason. That reason is supply and demand.

There is an oil boom in the United States and Canada – of a sort. It is not because there are new major discoveries. The much-talked-about Bakken shale in North Dakota was discovered in the early 1950’s. The Canadian tar sands were discovered by the Hudson Bay Company in 1719. Nor is the boom the product of any breakthrough in technology. Horizontal drilling is 1970’s technology. Commercial hydraulic fracturing started in 1949. What has actually created the boom has been a price of oil reliably above $80 a barrel. When oil was $25 a barrel, recovering it by expensive hydraulic fracturing was a losing proposition. At $80 a barrel, it’s a bonanza. If one levied a tax of $50 or $100 on a $25 barrel of oil, anyone with a non-fantasy understanding of economics could see immediately what a brutal economic burden it would impose. Somehow when the law of supply and demand itself imposes the burden many conservatives imagine it’s a sign of hope!

The environmentalists, of course, are living on a mental planet all their own. My favorite example of this is the part of the green lobby that opposes wind power. Wind turbines have many problems as a power source, but they don’t pollute (apart from the pollution created in manufacturing them) and they are at least in the same ballpark with coal-fired power plants in terms of cost. The ultra-greenies complain, however, that the whirling blades kill birds and make an eerie moaning sound – no doubt the howling of the morally outraged mother Earth. It takes the wind right out of me to think about it. I live near a liberal college town whose lawns and shop windows proudly sport signs proclaiming “No Fracking Way.” No hydraulic fracturing for natural gas, in other words. These people all heat with natural gas of course. I have a feeling a couple of January days without gas in their furnaces might make them reconsider. “Frack It! I want heat!” On the other hand, changing your mind requires at least some rational understanding of the world – so I would probably be disappointed. It is really just as likely that these people would blame the gas company for engaging in a rightwing conspiracy – rich, bigoted, homophobes that the gas company obviously represents.

I believe the economic future of the country would be better guided by conservatives than by liberals. While it is true that conservatives are prone to a certain kind of na├»ve optimism, they are generally practical people who will get up off the floor on their own when reality knocks them down. Liberals will cry that the government needs to do more – and they will beat-up the only people whom a crisis has left standing.

No comments:

Post a Comment