Empires like buffer states

I am only going to put in the title and subheading on this link.

Japan military 'needs marines and drones'
BBC News, 26 July 2013 (hat tip: NC)
Japan should bolster its marine force and introduce surveillance drones, a defence review paper says, highlighting concerns over China and North Korea.

Why would British and U.S. sources be so interested in the Japanese building up their military?  Didn't that kind of go wrong the last time?

 

Now from the Japanese point of view, there is some sense to it. A big military buildup is a perfectly fine sinkhole to through money at if you want to kick start an economy.  And unlike, digging and refilling ditches, you have shiny new ships and missles to show off after your done.  Granted, the upkeep on weapons is a little higher than on refilled ditches, but.....look how shiny they are!

 

The easiest comparison is to look at the British Empire when it began to get over extended.  Mind you it was not over extended because it was doing all that poorly, but was having problems with rising powers stretching their resources.

 

One of the British reponses was to pull out of some areas, and get new allies to help them in this area.  One primary area they pulled out of was the Far East.  And the ally was Japan.  And it worked very well in World War One.  At the cost of letting the Japanese take over some obscure German possessions, the British were able to concentrate their fleet against the more serious threat.  What would have been a slight edge over the Germans in home waters, became a major advantage.

 

Of course, as we know, this was not working very well for the British by World War 2.  Granted some of the problems with the Japanese were pushed by their Americans, but their weakness in Asia, and death match with the Nazi's left them far too vulnerable.

 

So, we have the United States, as the dominant world power, trying to reduce its fleet size, at the same time that you have a new competitor coming into place.  Fortunately the Chinese don't nearly have the aggressive history that the Japanese did, the Chinese already have their place in the sun to some degree, but competition is competition.

 

Supporting yourself with strengthened allies is an old strategy.  In this case it is even better because it involves a buffer state (Japan is between us and China to some degree) so we don't have them on some far off undefended flank.  Of course that strategy has had its problems in the past:  just ask the Romans about those barbarians, or for that matter the British about American Colonists.

Shocking oil shocks ahead?

Let's start with the source:

The world might be drifting into an oil price shock
Paul Stevens, Financial Times, 25 July 2013 (hat tip: NC)

Not the usual way to look at an article at FT is to do a search of the title, click on the link, and then fill out a little survey.

There are two new dimensions to international oil markets that are creating a dilemma for Opec and may be sowing the seeds of an oil price shock. The first is the fallout from the Arab uprising, which began in 2011. The second is the development and application of shale technology – horizontal drilling and hydraulic fracturing or “fracking” – to oil production.

A significant consequence of the upheaval in the Middle East and north Africa is that oil-producing governments need more revenue to pay for social policies that will assuage popular unrest. This requires higher prices. For example, in 2008 it was estimated that Saudi Arabia needed about $50 a barrel to balance the books. Last year estimates put the figure closer to $95. 

Such high prices will produce market responses and this is where shale technology comes in. This relatively high-cost technology has led to a dramatic increase in oil production, most obviously in the US. The new Review of World Energy Statistics from BP shows that 2012 recorded the highest single-year increase in US oil production ever.

 

What they seem to be arguing, is that the unsustainable demographic pressures in the Middle East are contributing to higher prices, which will open the doorway to new (higher cost) resources, which will simultaneously cause supplies to be flush, and a crash in demand due to the initially high prices.

 

They are making the reasonable presumption that Saudi Arabia is not in a position to act as the oil price regulator: keeping prices low enough to inhibit competition, while high enough that they can make money.

 

All of which strikes me as a reasonable wild ass guess.  It is not at all unusual for there to be cycles within cycles.  The obvious, large question is the price of this new extraction.

 

What I find interesting is the last paragraph, which brings in a sort of secondary effect of this scenario:

If prices do drop, it could lead to further unrest in oil-producing nations, spooking the markets. The result would be much greater oil price volatility. In that case, security of supply concerns – based on fears of physical disruption – would be overtaken by concerns about the macroeconomic impact of oil price volatility. At the very least, this would increase pressure to further regulate the paper markets. 

For producers it would bring to the very top of the agenda the need to diversify their economies away from oil dependence. This has long been an aim but for the most part with very disappointing results which will, in turn, feed the consequent political upheavals. Overall, oil markets are in for a rough ride.

Part of that is an obvious swing at the American Bankers (J.P. Morgan and Goldman Sacks come to mind) who have been accused of manipulating the commodity markets to their advantage.  After J.P. Morgan was hit with massive penalties they have decided to get out of the business, so talking about regulation after the horse has left the stable is safe for a captive news source.

But even in a rose tinted scenario, the up side has a pretty nasty down side.  My wild ass guess is that oil won't get all that cheap, and we will still have a lot of instability: but that's just me being gloomy.   Supposedly post-Japanese melt down, a number of countries are supposed to be abandoning their nuclear reactors.  That is a lot of energy for sustainable sources to make up on their own, and even the sustainables require fuel inputs on the front end.

Old Timey Farming: reality check

People are always making a lot of assumptions about early agricultural practices. I found this to be of interest.

Energy in Nature and Society
Vaclav Smil, MIT Press, 2008

The most important difference between commercial agriculture, with its assured food surpluses, and vulnerable peasant farming, is not surprisingly, in their divergent energy conservation strategies. As Seavoy (1986)  argued, this difference is perhaps best elucidated by posing a seldom asked question: Why do peasant societies increase their populations to the maximum carrying capacity during normal crop years and expose themselves periodically to seasonal hunger of famine during consecutive harvest failures?  Moreover, why has this happened even in societies with low population densities, high soil fertilities, and fairly elaborate farming techniques? Despite enormous cultural differences, traditional peasant societies shared a strong preference for subsistence compromise,  in which minimum levels of material welfare and food safety were acquired with the least expenditure of physical labor.

The predilection is confirmed by the persistence of shifting agriculture [I take it he means what we would call "slash and burn"] and by the reluctance to expand permanently and adopt more intensive cultivation.  As already mentioned, shifting cultivations, with its absence of tillage, fertilization, and animals, requires relatively low and largely non-specialized energy inputs, and it has been a preferred way of food production in all thinly populated forest regions.  There it included even those populations that had long contacts with settled farmers...

The villages of Carolingian Europe [~early middle ages] were overpopulated, and their grain supplies were constantly insufficient, but except in parts of Germany and Flanders few efforts were made to create new fields beyond the most easily cultivable soils.  Later European history is replete with waves of German migrants from densely populated western regions opening up farmlands in areas considered inferior by local peasants (Bohemia, Poland, Russia) and setting the stage for violent nationalist conflicts for centuries to come.  A similar reluctance can be seen in Asia... (p 166-167).

Little House on the Prairie was a polemic peace and should not be a basis for our ideas on pre-industrial farming.

Peak Oil Failure

There is a lot of crowing about the demise of peak oil.

The Death of Peak Oil: End of a Flawed Theory
John Kemp, Fiscal Times, 22 July 2013 (hat tip: Big Picture)

Failed predictions about peaking oil supplies, and steep rises in the price of other commodities, all stem from the same error: assuming a world of roughly constant technology, rather than one where technology is constantly changing, sometimes slowly, at other times in large disruptive jumps. Malthus, Jevons, Beal, Hubbert, the authors of Limits to Growth, Hirsch and the modern peak-oilers all failed to see how technology was already changing the world even as they wrote, and would alter it beyond recognition within just a few years.

There is no doubt that some in the "peak" crowd, underestimate potential reserves because of a misunderstanding of the technology out there.

 

But I have to guestion the mathematical ability of those who say we are out of the woods.  Demand has been flat worldwide because of bubble driven economic growth collapsed.  Since some hydrocarbon fuels are not easily stored, a lot of the pricing is very elastic.  Small drops in demand up or down, can have radical changes in prices.  Construction has similar problems.  You can't store construction workers to be used at a later time.  Right now, construction costs, where you haven't been running into material price competition with bubble-driven Chinese expansion, have been low.  If demand were to pick up, the price would go up dramatically.

 

The very inability of the World Economies to get themselves out of their bubble driven mess should give people pause about the common model used for economic growth.  Yes the 1970s population/resource alarmists overstated their case, and I think the NTE (near term extinction) folks are very likely doing the same thing now.  But being wrong in the short term is not the same as being incorrect overall.

We'll see.

If we used these new resources as wiggle room to get away from our reliance on limited supply fuel sources, I would be a lot more impressed.

MERS-CoV Coronavirus - attending the pligrimage

I have seen a fair amount of news off and on about the new Middle Eastern pandemic scare, but it quieted down (as pandemics often do).  This newest report looked alarming, but not necessarily alarmist.

Potential for the International Spread of Middle East Respiratory Syndrome in Association with Mass Gatherings in Saudi Arabia PLOS Current Outbreaks, 17 July 2013 (hat tip: NC)

A novel coronavirus (MERS-CoV) causing severe, life-threatening respiratory disease has emerged in the Middle East at a time when two international mass gatherings in Saudi Arabia are imminent. While MERS-CoV has already spread to and within other countries, these mass gatherings could further amplify and/or accelerate its international dissemination, especially since the origins and geographic source of the virus remain poorly understood.

This is what pandemics, including the 1918 Spanish Influenza look like.  They weave and dodge, never effecting all areas at the same time, and often come in waves.  You don't get 99% death rates depopulating whole countries in a week.  Or more exactly, nothing like that has come close to happening.

A short break in the action

My primary computer went out of action, so I have had limited time for finalizing posts.   On top of that I have been doing a fair amount of reading, so maybe I will get together some reviews shortly.

Farming for cash

Farmers get their food from the grocery store.

Pulling this from a review of Dimitry Orlov's new book:

Dmitry Orlov’s Excellent New Book
James Howard Kunstler, Kunstler.com, 9 June 2013

By contrast in the USA even farmers don’t have kitchen gardens. This is not a myth. I live in an agricultural backwater of upstate New York where dairy farming modeled on industrial agri-biz reigned for decades (it’s in steep decline now) and as a rule the farmers do not grow gardens. They buy balloon bread, Velveeta, and Little Debbie Snack Cakes at the supermarket, just like the insurance adjusters and other office drones, and whatever leftover part of their farm is not planted in corn is occupied by an above-ground pool, or the carcasses of retired all-terrain vehicles, or the miscellaneous plastic crap associated with raising children in a “consumer” culture. When even  farmers don’t grow any of their own food, you can bet that a lot of knowledge has already been lost. American supermarkets operate on a three-day resupply cycle. The system is much more fragile than most Americans probably suppose. My guess is that few even think about it.

This not even all that new.



Farming in Texas 1938 (Dorothea Lange: source)

Here we have one from North Carolina, near Chapel Hill

Sharecroppers 1939 (Dorthea Lange)

It is not a shot you see that often, because usually other issues are being explored, but you will notice in both cases, crops are planted right up to the very edge of the home.  There is no home garden.  In the case of share croppers, this was often "encouraged.".  It forced the farmer to buy his food from the owner, and maximized the cash output of the land.  But in the difficult times of the depression, small landowners often felt they needed the cash, often to pay (pre-deflationary) tax rates.

 

Farming for cash started very early in North America.  It was noted that King Philips War (1676) kept the New Englanders from being able to sell their food crops to the cash crop (tobacco) growing Virginians.  George Washing was unusual in switching away from cash crops, and going to cereal crops to sell to his fellow Virginians.  But it was a choice he made based on the availability of cash in the system because of tobacco production. So even farmers that were growing subsistence crops in the colonies were in effect part of the cash crop system, and had to look at the opportunity cost of a garden, versus raising more cash crops.  In the Soviet Union (related to the extended quote above) they had large gardens because it was the only portion of their output that the collective farmer was allowed to keep, and it was their major source of additional cash.  Obviously there is a middle ground.  Transportation costs can make the price of shipping food high enough that it may very well be worth while for the farmer to have a garden.  But it is a dangerous assumption to think that our farming forefathers were not involved in the cash economy.

Predictions of war

The Archdruid was talking about making predictions that were based on historical data, rather than thought experiments.

A not very bold prediction:

Since the 18th Century there has been at least one major world war in each century. The big ones include French Indian/7 Years War, Napoleonic, WW1 and WW2.

Only in World War 2 was any restraint shown in weapon types used - the Germans did not use nerve gas, but both nuclear and biological weapons were used.

Except for WW2, which is often argued to be WW1 part 2, the initiation of conflict came from a very unexpected direction, to the extent that the start of the "big one" is highly unpredictable.

So my prediction is that there is a high possibility (to the point of a probability, but not a certainty) that we will face a global conflict where nuclear weapons are put into play sometime in this century.

What I find interesting is that the post apocalyptic fiction that seems the most dated are the nuclear war scenarios.

And just in time for a counterpoint, an article comes out that says that it is unlikely that the United States and China will go to war:  Why the U.S. and China (Probably) Won't Go to War.  It's argument, not a bad one, is that the U.S. and China are unlikely to intentionally blow up the entire world.  My counter argument is that in 3 of the 4 world wars noted, there was not an intention of fighting out a long dragged out, empire destroying war.

Sigh - there is no hope

It is hard enough to convince people as to the appropriateness of our second amendment rights when you have mothers training their autistic (or whatever he was) sons in firearm use, so that the can better go on a rampage in a school yard.  But this one is unbelievable:

Milwaukee: Pair of men with concealed-carry permits engage in shootout
Bruce Vielmetti, Pioneer Press, 12 July 2013 (hat tip: NC)

Two Milwaukee men -- each with a state permit to carry a concealed weapon -- traded dozens of shots in a rolling shootout through two sides of town and down a freeway, the kind of scenario concealed-carry opponents feared would turn road rage incidents deadly. 

No one was killed or injured in the June 26 incident, according to a criminal complaint that charges just one of the men, who says he feels like he's being punished for being a victim, with a crime.

Since it sounds like both participants were firing at moving vehicle, while themselves being in a moving vehicle, it is hard to understand why only one of them was charged.

Most of the gun crime is not caused by the conceal carry crowd, but even a demographic group (citizens with no criminal record willing to go through a lot of paperwork headaches) with a very low crime rate, is not the same thing as having no crime rate.  With gun control becoming more and more of a "Republican-only" issue, it is only a matter of time before there is a swing in party control and their is major changes in the rules.  There will be the usual "out of my cold dead fingers" crowd, but I haven't seen them surface in New York or Connecticut.

Game Change: Corportate Paramilitaries

The police have been turning into a heavily militarized group.  Now corporate security is doing the same.

Rent-a-Paramilitaries Freak Out Wisconsin
Josh Marshall, 8 July 2013 (hat tip: NC)

There’s been a battle royale up in Wisconsin over an effort to establish a big iron mining operation near Lake Superior, to be owned and operated by a company called Gogebic Taconite. The Republican legislature approved the mine in March over environmentalists’ objections. Some protests have been staged since the operation got started. But people started to get freaked out over the weekend when the company brought in what the Wisconsin State Journal calls “masked security guards who are toting semi-automatic rifles and wearing camouflaged uniforms.”

Now two state legislators are asking the company to withdraw the guards/paramilitaries. One of them, Bob Jauch, “said he was especially concerned that the guards are carrying high-powered rifles more appropriate for fighting wars than for guarding construction equipment in a scenic forest that draws scores of hikers and vacationers in addition to mine protesters.”

In general, although they sound rather timid, the legislators are correct.  The amount of violent protest staged within the United States is minimal.  The presence of overly military looking guards is far more likely to cause problems than to prevent them.  It is one of the reasons why, although I don't have any issue with concealed carry permits, I am not overly enthusiastic with the open-carry crowd.  But militarizing conflict has become a popular way to go these days.

Miami as the new Venice

 We just had a post discussing what the Florida Keys are doing with regards to predicted rises in sea level.  Now we will go over to the other side of Florida to see how they are doing.

Whoops.

The subtitle of the article quoted below is:

By century's end, rising sea levels will turn the nation's urban fantasyland into an American Atlantis. But long before the city is completely underwater, chaos will begin

Goodbye, Miami
Jeff Goodell, Rolling Stone, 20 June 2013 (hat tip: NC)

Even more than Silicon Valley, Miami embodies the central technological myth of our time – that nature can not only be tamed but made irrelevant. Miami was a mosquito-and-crocodile-filled swampland for thousands of years, virtually uninhabited until the late 1800s. Then developers arrived, canals were dug, swamps were drained, and a city emerged that was unlike any other place on the planet, an edge-of-the-world, air-conditioned dreamland of sunshine and beaches and drugs and money; Jan Nijman, the former director of the Urban Studies Program at the University of Miami, called 20th-century Miami "a citadel of fantastical consumption." Floods would come and go and hurricanes might blow through, but the city would survive, if only because no one could imagine a force more powerful than human ingenuity. That defiance of nature – the sense that the rules don't apply here – gave the city its great energy. But it is also what will cause its demise.

Building major towns on swampy land does lead to some challenges, not much doubt about that.

The full story is lengthy and pretty much puts to rest any likelihood that sea level won't be rising.  Due to the expansion of the warming water in place, it's risen 9" since the 1920s; this all coming before any serious polar ice cap melt.

The never dying Mad Max

In an overall interesting piece, Tom Vanderbilt discusses what makes modern story telling seem timeless, and what tends to "date" a piece to within its own time: essentially making it seem overly stale.

His general idea is that works that really too much on the "tropes" (cultural ideas and concepts) of their day tend to get stale pretty quickly.  He contrasts two movies, both set in Australia" Nicolas Roeg’s  “Walkabout" (1971), and George Miller’s “Mad Max (1979).

What Makes a Work of Art Seem Dated?
Tom Vanderbilt, The New Yorker, 1 July 2013 (hat tip: MR)

By contrast, “Mad Max” felt remarkably fresh, as if it could have been made in the nineteen-eighties—or last week. But why? What actually makes a work of art—a film, a novel, architecture, fashion—seem “dated”? The Web site of Merriam-Webster defines dated as “outmoded, old-fashioned.” And yet, this lacks explanatory power; every historical artifact (not to mention some that are new and “already dated”) could fall under that rubric. Why do some things seamlessly slip from their temporal context? When does something cross from historically appropriate to “dated”? And is there a time window for datedness, a kind of reverse statute of limitations, beyond which things are doomed by their historical patina?

“Mad Max” certainly has its historical signifiers, like Max Rockatansky’s 1973 Ford Falcon XB GT coupe, but one secret, I think, is that the movie is not moored to any time. It opens with the vague phrase “A few years from now,” and, rather than any trappings of the fetishized future, “Mad Max” looks backward. At the end of the day, with its lone frontier rider trying to preserve order, it is a Western, with muscle cars. The costumes, the soundtrack, the peculiar mutterings of the outlaws (“Joviality is a game of children”) are at once familiar and slightly out of joint.

What makes a work of art seem dated, I would suggest, is a sort of overdetermined reliance on the tropes, whether of subject or style, of the day—a kind of historical narcissism.

Within apocalyptic literature there are a number of "tropes" that seem to date a work. Some of these tropes even show up in "new" novels: the overly heroic male-dominated action, 1990s UN phobic militia style action, an over concern with inter-familial sex to keep the species going, mutation as a monster generator, reference to recently popular artists or retail goods, and many others.  Stress these items to hard, and your novel is not going to be taken as a serious reflection of future events.  Without great care in using these ideas, the novel is dated before its time.

Local catastrophes

Although we spend more time on global and/or existential threats, there is a fair amount of localized disasters that can seem pretty apocalyptic if you are one of the unfortunates caught in the midst of one of them.

 

The shipment of chemicals, and fuels are one of the larger localized disasters possible.  They happen fairly frequently, but fortunately have tended not to be in the middle of a huge mega city- although that is certainly possible.

The story of the moment is of a town  Lac-Megantic, Quebec.

Quebec derailment (thumbnail of original from Wall Street Journal)

 

Note that the Wall Street Journal, and others had a piece just a few weeks ago that noted that rail shipments of oil were up, and that the flexibility of rail was appreciated, even as it was a more hazardous method of shipment than pipelines.  One suspects that these stories were industry plants, to help with the push for more pipelines, but the "plants" unfortunately were accurate.

Flood Preps at the Florida Keys

One problem with doom and gloom scenarios is that the scenario is often of a "continuing trend" approach:  "If this annual  1% increase in peanut butter and jelly sandwiches continues, all of our arable  farm land will be used for peanuts by 2064."

While trend-line warnings certainly have their place, we might be interested in the idea that the price of peanuts might go up for instance, they usually fall apart because they don't account for a reaction to a changing situation.

Here we have just such a reaction:

Florida Keys Prepare For Sea Level Rise
Associated Press, 2 July 2013 (hat tip: NC)

A tidal gauge operating since before the Civil War has documented a sea level rise of 9 inches in the last century, and officials expect that to double over the next 50 years. So when building a new Stock Island fire station, county authorities went ahead added a foot and a half over federal flood planning directives that the ground floor be built up 9 feet.

Seasonal tidal flooding that was once a rare inconvenience is now so predictable that some businesses at the end of Key West's famed Duval Street stock sandbags just inside their front doors, ready anytime.

"It's really easy to see during our spring high tides that the sea level is coming up — for whatever reason — and we have to accommodate for that," said Johnnie Yongue, the on-site technician at the fire station for Monroe County's project management department.

Note that this does not make the keys hurricane, or flood proof, but they do argue against them becoming immediately uninhabitable.

Kidnapping Presidents

The problem started when Bolivia's President, Evo Morales, made a comment while attending an energy conference in Russia, that he had some sympathy for the National Security Agency leaker/whistle blower, Edward Snowden, and that they would consider offering asylum if it was asked.

Bolivia complains to UN after Evo Morales' plane 'kidnapped'
Sara Shahriari , Jonathan Watts, Dan Roberts, The Guardian (U.K.), 3 July 2013 (hat tip: Early Warning)

Later that day, soon after Morales was bound for La Paz, Spain, Italy, France and Portugal refused to allow the presidential jet to fly through their airspace over suspicions that Snowden was on board, according to the Bolivian government's account.

Bolivia filed a complaint at the United Nations on Wednesday over what it called the kidnapping of its president, Evo Morales, whose plane was diverted to Vienna amid suspicions that it was carrying the surveillance whistleblower Edward Snowden.

Diverted from their planned route, pilots feared they would not be able to complete their journey. The plane was eventually cleared to land in Vienna, where Morales was forced to spend 13 hours in humiliating limbo while officials worked to resolve the dispute.

It later took off after Austrian officials said Snowden was not on board. But it was unclear whether any officials in Vienna had searched the plane. Austria's deputy chancellor, Michael Spindelegger, said Morales "agreed to a voluntary inspection". But the Bolivian defence minister, Ruben Saavedra, later said Morales had refused entry to the inspectors, and that they had only got as far as the door of the aircraft.

The country's ambassador to the UN, Sacha Llorenti, said the enforced rerouting to Austria was an act of aggression and a violation of international law. The US admitted that it had been in contact with other nations over potential flights by Snowden.

Morales is not a huge friend of the United States, but Bolivia is not generally thought of as some sort of rogue outlaw state.

 

Having already been caught out for spying not only on our enemies, but just about everyone else, we are doubling down on our aggression.  It is not as if Snowden doesn't have more than a few supporters within the United States.

Update:  This story, while not being ignored in the U.S., appears to be getting  very large play in Europe:  Some additional links:

So who, exactly, re-routed Evo Morales's plane? Corrente ( all links: hat tip: NC)

Snowden case: France apologises in Bolivia plane row BBC

U.S. Postal Service Logging All Mail for Law Enforcement New York Times
 

Egyptian Collapse

Egypt's military stepped in and removed its President.

My main point of note, is that in spite of all the talk about Muslim-this, and Sharia-law that, it seems pretty obvious why he wasn't allowed to continue on.

Army Ousts Egypt’s President; Morsi Is Taken Into Military Custody
David Kirkpatrick, New York Times, 3 July 2013 (hat tip: Early Warning)

For Mr. Morsi, it was a bitter and ignominious end to a tumultuous year of bruising political battles that ultimately alienated millions of Egyptians. Having won a narrow victory, his critics say, he broke his promises of an inclusive government and repeatedly demonized his opposition as traitors. With the economy crumbling, and with shortages of electricity and fuel, anger at the government mounted.

 

If he had been able to keep the country running, he would still be there.  Arab Spring was a response to population pressures, Middle Class self interests, and an inability to keep subsidizing the lifestyles of people.  When military budgets got cut by former life-time President Hosni Mubarak, the military stepped aside and let things run their course.  It looks like the military has decided to step back int. 

Our economic direction

As we head into the 4th, it is not a bad time to ask just where we are going, at least in economic terms.  I am sure the NSA has listened in on everyone's phone calls and knows where we are headed for the holidays.

 

Are we getting better?

 

There are some signs of it, but the strongest indicator of strength in our current consumer driven economy is per capita growth in real incomes.  It isn't happening in any sort of meaningful way.  From a discussion (U.S: Desperately Seeking Income) by Yves Smith (the quoted section is embedded) at Naked Capitalism:

Notwithstanding these significant signs of improvement, one is left with the feeling that this recovery remains weak and fragile, and hence susceptible to shocks - internal or external.

Annualised real activity growth has averaged a sub-par 2% throughout the recovery and, despite the job gains noted above, the employment-to-population ratio has barely moved off its lows – the discrepancy between this ratio and the unemployment rate being solely due to an ongoing decline in labour force participation rates. The level of payrolls remains 2½ million below the peak. Yes, there has been a degree of healing, but no, the patient is not yet fully cured.

So despite the noted improvement, there is a need for additional momentum. To spur this activity, better outcomes for real household income growth are a necessity; which will require a healthier labour market; which will require a willingness to employ and invest; which will require stronger household demand; which will require heightened consumer confidence; which will require further balance sheet cleansing and a rise in wealth; which will require growth in income. Income is absolutely endogenous, and the chain of logic becomes circular quite quickly. All boats have fallen together, and they must rise in the same fashion.

 

As Yves notes,  real average hourly wages are still 0.5% lower than their June 2009 level, with real weekly wages (inflation-adjusted take-home pay) having grown by only 1.3% over the past four years.   And that's if you buy into the adjustments in the inflation rate as it pertains to a typical household.  In an economy that isn't really doing much in the way of new idea expansionary spending, consumer discretionary spending is the name of the game.  And it can't do much if people are deleveraging, and, in real terms, making less money.

Studen loans: continuing mayhem

Student loan interest rates are set to double soon (my info from WSJ hardcopy) if Congress does not take action.   To which there is an interesting backdrop of information that someone sent me.

Bank Notes: U of Phoenix, Student Loan Debt, Green Dot
Adam Rust, Bank Talk, 26 June 2013

University of Phoenix’s corporate parent reports large drop in enrollments: Apollo Group, the parent of the U of Phoenix and several other for-profit schools, says that new enrollments fell by 25 percent year-over-year.

Interesting comments from Rohit Chopra: Yesterday’s hearing at the Senate Banking Committee produced some interesting commentary on the status of student lending in the United States.

• 81 percent of high debt undergraduate borrowers used private student loans.

• According to the National Association of Home Builders, the share of first time home buyers in today’s market is extraordinarily low relative to historical levels, because student debt is limiting down payment capacity.

• The American Medical Association says that high-debt burdens impact career choices of new doctors.

• 89 percent of veteranian students graduate with more than $100,000 in debt.

1914 redux

redux: brought back —used postpositively

The shadow of 1914 falls over the Pacific (gated)
Gideon Rachman, Financial Times, 4 February 2013 (hat tip: NC)

The flickering black and white films of men going “over the top” in the First World War seem impossibly distant. Yet the idea that the great powers of today could never again stumble into a war, as they did in 1914, is far too complacent. The rising tensions between China, Japan and the US have echoes of the terrible conflict that broke out almost a century ago.

The most obvious potential spark is the unresolved territorial dispute between China and Japan over the islands known as the Diaoyu to the Chinese and the Senkaku to the Japanese. In recent months, the two countries’ aircraft and ships have shadowboxed near the islands.

U.S. emissaries to China have warned the Chinese that an attack on the islands will trigger security guarantees made to the Japanese.  In Ryu Murakami's apocalyptic novel, From the Fatherland, with Love the U.S. backs down on any commitments. That is not happening here. 

The emissaries themselves note the problems of interlocking alliances, and unintended consequences: 

 

The mechanism in 1914 is instructive. Who could imagine that Serbian terrorists could an archduke no had heard of and trigger a great war, at the end of which all contestants were devastated? My view is that the Chinese leadership has no intension of challenging the U.S. military, yet. But what about the hothead nationalists in China or Japan.

They also note that China, much like Germany and Japan earlier, felt barricaded by the existing power structure, and the legacy of history.

What is interesting is what the article does not mention.

The Austrians felt confident that they could go forward with their claims against Serbia because the Germans gave them what is now referred to as the "blank check", in other words, unconditional support.  The Germans appear to have known what they were doing, and were willing to have a war start.  But has not the U.S. given the Japanese a "blank check"?  Is it wise to give such unconditional quarantines when a full blown nuclear war is a possible outcome?  Do the people of Patagonia (remote section of Argentina) merit heavy nuclear fallout because of U.S. commitments?

Perito Moreno Glacier Patagonia (from here)