The US Bureau of Labor Statistics offers the possibility to create graphics from databases and some of the series now go back almost 100 years. You can get an overview of the Consumer Price Index since 1913, which looks like this:

The CIA was charged with accurately assessing the threat to national security posed by enemies of the United States, principally the Soviet Union. The agency was staffed by professionals whose careers were served by having to confront a powerful enemy, armed with lots of tanks. But neither their training nor their general perspective on life equipped those in the so-called intelligence services to see the real weaknesses of the Soviet system, such as the impossibility of finding a decent hairdresser or car mechanic. So they were unable to predict the fall of communism.

The financial services industry in the Anglo-Saxon countries is the most lightly regulated across all the developed economies. The public authorities allowed the leaders of this industry to opt for a self-serving approach dignified with the epithet of “self-regulation.” In fact it amounted to turning a blind eye to imprudent practices which were making many punters obscene amounts of money. Everyone, including the regulators, were riding the same bull market, cashing-in on the same up-escalator, blowing up the same unsustainable bubble. Nobody stopped Bernard Madoff before he had defrauded billions of dollars using the oldest trick in the book. Nobody thought to point out that lending money to people who would not be able to pay their mortgages could only lead to tragedy. Are you surprised therefore that the financial services industry triggered a global crisis which led to the worst economic downturn since the Great Depression?

When you rely for information and clear judgement on those who have a material interest in looking at the world in a particular way, would you expect to get good advice? Why then ask the International Energy Agency to be the guardian of truth when it comes to figures about oil production and reserves.? Who stands to gain from pedalling inflated figures for future oil production and “proven” reserves? Oil companies? Leading oil-producing countries. Dominant oil-dependent economies? So take more than a pinch of salt when you try to digest predictions from the International Energy Agency. And get ready for the downturn now. We only need a few quarters of falling production when demand is rising to give us a clear picture. The oil ecomony is over the hill and we are very soon going to be treated to a terrifiying ride on the downside.

http://www.guardian.co.uk/environment/2009/nov/09/peak-oil-international-energy-agency

Free (financial) markets have brought us to the brink of disaster. The current crisis is largely of our own making. The next will be all the more so. If we continue in the mistaken belief that free energy markets can smoothly manage the Great Weaning from oil, then we are in for a major shock. A shock which will certainly push our societies over the brink. No one can say where they will end up.

Until the middle of 2008, despite clear evidence that the financial cummunity had screwed up on a monumental scale, oil was still trading at around $140 per barrel. Since then, the price has collapsed to about $40 per barrel, due to the economic cirsis. This price fall may be of some help to struggling consumers but it is a catastrophe for the Great Weaning. Alternative energy sources, which were economic at $140 are simply impossible at $40. The price of oil has little to do with its real value or the strategic role it plays in modern economies. Unless we rectify this market blindness, we will all pay an extraordinarily high price.

 

There is only one way out of this mess, the price of oil has to be administered on a global basis. Agreement needs to be reached by 2010 at the latest, to set the global price of oil at $100 per barrel. Each year it would be increased by 10%, giving under 8 years for the price to double to $200. In fact, the price should not be set using any individual currency. Its price should be set using a common basket of currencies, which reflects the national share of gloal GDP.

Nobody enjoys an economic crisis, apart from the vulture professions of liquidators and receivers, the undertakers of the business world. But the current crisis is not only the worst since the 1930s. It also comes at the worst possible time. And for two reasons. The first is that governments are borrowing heavily from the future to support economic activity now. Funds are being channelled particularly into the automobile and banking industries, largely to compensate for past failings in terms of strategy and regulation. Public deficits are ballooning. The margin for manoeuvre is tightening for the years to come and little of what is being done now will help us through the massive structural change we will have to make over the coming decade. The bet is that recovery will arrive in the next year or two, allowing debts to be repaid. But what if recovery does not come? What if today’s economic crisis drags on for years, even decades?

The flustered retort of conventional wisdom is that this kind of thing has never happened in the past. Market economies have always rebounded from recession with renewed growth. Well perhaps so, but growth in industrial economies was underwritten throughout the past couple of centuries by cheap energy, largely fossil fuels. This era has now come to an end. Don’t be fooled by the collapse of the price of crude since the middle of 2008. This is the result of the slowdown in economic activity and the bursting of a speculative bubble that was anticipating oil at $200 per barrel. And why was a market populated by the people who know most about oil supply expecting oil to stay dear? Because for the first time in history we are confonted with the immediate prospect of a decline in the supply of oil which is structural, not circumstantial. No one can say with any certainty when exactly oil production will peak and begin its inexhorable descent. But the earliest possible date is February 2008, when oil production hit its previous peak at just over 80 barrels per day. The current crisis may be be obscuring the fact that oil production is already in decline. This unfortunate conjunture of events will make the necessary adjustment even harder to achieve.

So in any case, we are in for the long haul, the tunnel that may one day see us emerge from our dependence on cheap energy. Or not. If decline is oil output is now structural, then it is already too late to begin the trainsition in any coherent manner. The process will be chaotic at best. At worst, the future does not even bear thinking about. Which should please a large number of people who are already adept at living this way.

Human infants are evolved to feed on mother’s milk for the first crucial months of life. Once they cut their teeth, they largely leave liquids behind, moving on to something a bit more solid. This transition is known as weaning. It is a huge physical and psychological shock for the growing child. Everything up to that point had been easy. After the break, things will never be the same again. Our modern, industrial societies are pretty much in an analogous position. Their early and spactacular growth has been driven by a liquid resource, very high in energy content. Oil production is about at its peak right now. Mother Earth cannot furnish more. The future will witness an ineluctable decline. This coming transition I call The Great Weaning.

 

The shock will be terrible. We know we have to go down this road. But we are about as prepared to manage it as the startled rabbit in the lane at night, dazzled by the oncoming headlights.

The G20 conference in Washington to be held this weekend will amount to little. George W. Bush is not just a lame duck president; he hasn’t got a leg to stand on, webbed or otherwise. And his successor, Barack Obama has decided rightly, to stay away from the meeting, as he has no legal authority to intervene, on any subject until January 20th. Without the man who will run the United States for the next four years, at the very least, no meaningful discussions can take place. The conference will no doubt be masssaged to announce some measures to further stabilize the financial crisis, but nothing of real importance will be decided.

Some time early in 2009, another attempt will be made, this time with all the players who are in power. But nothing much will come of such an attempt either. Yes, the worst excess of the finance sector will be prevented in the near future. That is, until the next speculative bubble emerges and finds a way round the barriers that have been put in place. If generals are always preparing to fight the last war, financial regulators are always looking for better bolts for their stable doors.

But the real problems of the global ecomony are insoluble. They stem from the fact that markets have globalized but political power has not. And this is unlikely to change any time soon. Forty years of progress in European integration did not permit a co-ordinated response of European political leaders to the financial crisis. At the global level, nothing comparable is even imaginable. Free trade is part of the problem, but collapsing back to protectionist blocks would be even worse. Welcome to the frying pan of globalization.

We are condemned to crisis, it is not a bug in the system. It is a feature.

The ghost at the capitalist feast, (or one of the most frequent presences, in any case), is the roller-coaster of boom and bust. Also known in polite circles as the business cycle. This pest plagues even the best-run economies. There is no way round the problem, because investment leads growth, which in turn gives rise to growing confidence, exhuberance, hubris and thus eventually slump. Virtuous circles inevitably turn vicious in time.

 

Overlain on top of the normal beating of the economy’s heart, there are the errors of particular policy-makers in particular contexts. We are currently living through a disasterous mix of mis-calculation, cupidity, greed and outright lunacy. To understand how difficult it will be for the global economy to dig itslef out of the present hole, it is worthwhile taking a brief historical trip through the great Japanese deflation of the end of the twentieth century.

 

Just to recap. On December 29th 1989, the Nikkei stock index in Japan reached its all-time high of 38,957.44. Real estate prices in Tokyo’s Ginza district reached the dizzy highs of US$1.5 million per square metre. It would be more than 13 years before the stock index eventually bottomed out in April 2003 at 7603.76. Tokyo is still, neraly twenty-years later, one of the most expensive places in the world to buy property, even if prices have become much more reasonable.

The victory of BarackObama in the US Presidential election has inspired an immense wave of hope which continues to reverberate around the world. The achievement is historic and no matter what transpires in the future, it can never be erased from the record of history. What Obama himself styled as America’s original sin has been forgiven by history. The immense suffering inflicted in the past can never be undone. Racism will continue to cause hurt in the present, generating resentment and conflict. The struggle for equality will go on too, but is can no longer be said that the American political process is incapable of representing all its citizens. That era is gone forever, buried by hope become reality.

What an incredible lesson in democracy the country has demonstrated over the past year. A primary battle for the Democtaric nomination which has never been equalled and will live long in many memories. A perfect campaign to bring a young, dynamic, brilliant, charismatic candidate to the most powerful public position. The contrast with Obama’s predecessor could not be greater. And herein lies the biggest challenge.

We have become accustomed to expecting nothing but the worst from the world’s leading nation. Now the very opposite is the case. It is not really possible to imagine a better president of the United States. We will see over the coming weeks what kind of team he will build around him. But the challenges have never been greater, neither. George Bush failed miserably when challenged by the Al Caida terrorist attack attack in 2001. He misread the situation, fell into the trap of declaring a War on Terror, dragged his country via lies, fear and duplicity into a disasterous war in Iraq, from which Obama has vowed to extract the United States within 16 months.

And if it is not Obama, what will this signify for the United States?

Firstly, that the white soul of the country is deeply, irredeemably racist. Given that Obama is streets ahead of McCain in terms of competence and charisma. Given that after eight disasterous years of Bush at the helm (or at least practicing his putting in the Oval Office), capped with the worse economic crisis since the Great Depression, everyone must be convinced that the neo-liberal course has no future. Given that the American people have been offered an historic choice to give their country another, final chance.

If this opportunity is not taken, it can only mean one thing. America is finished.

And if Obama is elected? It will give Americans a brief glow of satisfaction before they have to get down to the real job of digging themselves out of the hole they are in. It will be a decade before we really know if they have succeeded. I hope they make it. And their best hope is that Barack Obama is their president for the next eight years. Of course the real nightmare, is the Kennedy nightmare. That they succeed in electing their first black president and then they shoot him.

 

Marx was the best critic that capitalism ever had. His insights into how nineteenth century capitalism functioned still ring true and merit study today. But on all the major questions concerning how capitalism would develop and how history would unfold, he was wrong. The workers did not inherit the Earth, though they did lose some of their chains on the way. Today, capitalism is facing its most serious crisis for eighty years, since the Great Depression. At the point where capitalism has won the global battle for supremacy, it has lost the war for the hearts and minds of the people. There is widespread resentment at the failure of financial markets to act responsibly, disgust that political leadership has been so inept, dismay that economic managment has so blatantly been used to serve private interests. The crisis is also taking place against a background of growing disenchantment with untrammelled consumerism, the growth-at-all-costs conventional wisdom which will destroy our planet and the inability to deal with the transition to renewable energy, apart from blind panic in the face of oil at $300 per barrel.

With no coherent alternatives in sight anywhere on the horizon, welcome to the Even-Greater-Depression.