Wednesday, October 8, 2008

The Bailout, Energy, and Nukes — Failure of the Elites and the Populists Part 1

Recently, the Website Culture 11 noted the failure of the populist forces to affect the debate significantly on the Wall Street Bailout, $700 billion and climbing. But what is just as notable is the failure of the elites to head off the danger, and provide any means to fix the economy in the first place. America, and the West, face a crisis: their elites are incapable of action, stasis-loving, and incapable of being removed by the populists.

The cause of the crisis, like so much else, is demographics.

First, the elites have been in power for a long time. Take say, Harold M Ickes, former White House Chief of Staff for Bill Clinton, and son of FDR's Secretary of the Interior Harold L. Ickes. Or perhaps TV/Movie writer-producer Joss Whedon, son of Tom Whedon, "Golden Girls" and "Benson" writer-producer, and grandson of John Whedon, writer of "The Andy Griffith Show" and "The Dick Van Dyke Show." There is also John McCain, son and grandson of US Navy Admirals, and CNN's Anderson Cooper, grandson of Gloria Vanderbilt.

Politics, entertainment and media, finance, and corporate executives suffer from stagnation. Sons and daughters of inter-connected elites, occupy most of the limited slots available, the problem getting worse, not better. A good example being the contrast between Jack Welch, son of a railroad conductor and housewife, who received his MS and Phd from University of Illinois at Urbana-Champaign, and his successor as the head of GE, Jeffrey Immelt, son of the manager of the GE Aircraft Engine Division, Dartmouth BA and Harvard MBA.

Connections, of course, always matter, but they matter the most when the slots in executive power of one sort or another are limited, and advancement is through these connections, not producing value to organizations by means of new politics, new products, or new entertainment.

Part of this stagnation and interlocking, nepotistic networks, is due to the extraordinary success and wealth created in the post WWII period. The chart below, found on the St. Louis Federal Reserve Website shows how GDP simply exploded after WWII, particularly from the mid 1980's onward, despite the recessions (the shaded areas).

A rising economy can make even the most incompetent strategy seem worthwhile as fools and shrewd operators alike are buoyed by a rising economy. As Furious D notes on his website, Hollywood has a habit of making it's own production system even more costly, by constantly cheating it's creative people out of residuals. What Furious D calls a "self-fulfilling idiocy," where creative people, knowing they will be cheated out of residuals, demand the same monetary value up-front in salaries. A strategy so idiotic, and guaranteed to cause problems, that only an inbred elite, unchallenged by others, would follow it. Because a rising economy has fueled an increased appetite for entertainment, along with all other consumer goods. Even periodic recessions have not dampened this appetite, and looking at the growth curve, it's easy to see why.

But even more important, there have been few challenges to the establishment, allowing outsiders and non-connected people to move into the elites, and challenge established ways of doing things and long-held conceptions. In Hollywood, the current TV and Movie production models, with their high capital requirements and limited pool of distributors, have shut out those who would challenge orthodoxy, and as a side-effect, made films and television very, very liberal. In finance, in large corporations, and in particular, politics, the same people sit in "safe" positions, year after year. Joe Biden, for example, has been in the US Senate since 1972, a total of 36 years. A certain set of assumptions shared by Liberals oozes around all these institutions, like a toxic cloud: the US Military is generally bad, or incompetent, or war-mongering, or all three; Third World peoples and dictators are "noble savages" who want to "resist" US technology and modern industrial life. Christianity and Judaism are hopelessly corrupt, while other religions, including Islam but also Animism, Voodoo, etc. are spiritually enlightened and "pure." Certain "pure" White protagonists in movies and television show their spiritual superiority by throwing over the established, existing belief structure of Western Judeo-Christianity in favor of the more "authentic" native beliefs.

At it's worst in entertainment, this produces the sort of film or television production that Spike Lee dubbed "the Magical Negro" where a "magical" yet somehow crippled Black character (such as Michael Clarke Duncan in "the Green Mile" or Will Smith in "Legend of Bagger Vance") appears magically to save or spiritually enlighten a conflicted White protagonist.

The only directly bad short-term outcome with entertainment elites being stuck in amber, unchallenged by newcomers lacking connections, and hungry, is bad entertainment. In politics and business, however, it is deadly. Hollywood will eventually face, through high-speed internet connections, a global English speaking talent pool, and various cheap portals, productions like Felicia Day's The Guild that will eventually grow to direct challenges to their profits. At worst, Time-Warner and GE stockholders will lose money, probably lots of it. When the future of the US automotive industry or Wall Street is question, however, not to mention the US economy, that's a different story.

Energy prices, as shown in the graph below from WTRG have a fairly direct relationship to recessions, given how large an input energy costs are to the basic needs of a global economy, in the US or in Europe: production, transportation, etc. all depend on cheap energy, as does consumer spending. Dollars spent to travel to work and back, and heat and cool houses cannot be spent on consumer goods like televisions and DVDs, or durable goods like houses or cars.

However, if the theories about peak oil are correct, even with a global recession or depression, oil will not become significantly cheaper. Even worse, "Global Warming" fears can restrict oil and fossil fuel substitutes, creating a world of expensive energy under cap and trade schemes that only make money for middlemen and subtract rather than add to economic efficiency. Much of the post-war boom was fueled by cheap oil, the micro-computer revolution (increasing efficiency), and far better transport networks, including global ones, that made the costs of manufactured goods far lower and more affordable.

The elites grew up in a time of near uninterrupted economic growth, and cannot literally conceive of anything that could challenge it. People such as Barney Frank, or Charles Dodd, or Chuck Schumer, or Barack Obama, cannot literally conceive of the notion that the US government may not be able to bail out Freddie Mac and Fannie Mae, long term, and keep it's other obligations, because the economy might cease to grow constantly as it has in the post-War era, and might even contract. They cannot understand that the money just might not be there. That the government could be broke. Hence the irresponsible, non-serious approach to the economic crisis and the bailout. Words by Schumer and others to spark panic, pork-laden approach to the bailout, and tacking on all sorts of things to radical groups like ACORN and La Raza, in the billions, in a time of crisis.

The two greatest challenges that the US faced in the post-Cold War era, after 1991 when the USSR fell apart, has been securing a cheap global supply of energy, to keep the global economic system in place, and creating deterrence for itself and it's allies against nuclear proliferation and use of nukes by non-state actors.

Over and over again, new sources of energy, be they coal, oil, nuclear power, or wind farms off Martha's Vineyard (killed by Ted Kennedy), have been delayed, stopped, or hobbled by elites who simply assume that cheap energy will always be available. As the US and the world imports more of it's oil from the volatile Persian Gulf, cheap isolationism and moralizing overcome the US's real interests in keeping oil flowing, cheaply, from that vital region, including Iraq. Meanwhile, no new significant oil refineries have been built in the US since 1979, and drilling is severely restricted. Since Three Mile Island in 1979, no new nuclear power plants have been built.

Meanwhile, no strategy for dealing with the threat of nuclear proliferation by failed states. Pakistan is a nation where raw sewage floats by on the street in front of the Presidential palace during monsoons. A set of squabbling tribes, factions, and various jihad organizations, with a flag, Pakistan also has 100 + nukes. Under fairly dubious control, by the jihad-riddled Pakistani Army. Delivery by shipping container, is a real possibility, to places like Copenhagen, or New York City. With Iran racing towards nukes, the problem only gets worse. Once Iran has nukes, everyone else in the region will get them too.

Nuclear proliferation won't stop by negotiations, or sanctions, or anything else. Even military invasions at this point are likely useless, since there are simply far too many nations that want and are developing nuclear weapons. The basic technology is 63 years old, well understood, and merely a matter of time and money. Nations such as China, Russia, and North Korea, not to mention Pakistan, will sell to those who have the cash.

This is particularly dangerous since various factions can gain power by attacking the US. Khomeni gained absolute power in the aftermath of the Tehran Embassy hostage crisis, and shot his opponents. A small price to pay for Saddam's war. A mindset that Jimmy Carter and his administration never understood. But one evident in Osama bin Laden (who hoped to raise an exile Jihad Army to take over Saudi Arabia in the aftermath of 9/11), the "Blind Sheik" Omar Abdel Rahman (the 1993 WTC bombing mastermind and convicted of follow-on attacks), and many others.

The Washington elites refuse to even consider that nuclear destruction of US or allied cities (such as Copenhagen, home to the Danish "Mohammed" cartoonists) is a real threat. Even Rand Corporations Bryan Jenkins, in a recent Wall Street Journal article, was quoted as saying he felt that any threat to the US from nuclear proliferation was "remote." When for forces aligned with Osama bin Laden, it is merely a question of suborning the guardians of Pakistani nukes, and smuggling one or two out of the country, to New York City or other places. Something difficult, but no more conceptually difficult than 9/11. After all, the nukes are already built!

Which comes to the real failure of the elites. Our leaders, throughout the West, have not faced serious challenges, and either been re-invigorated, or swept away and replaced with new blood, in generations. Difficult measures, which require domestic and foreign losers and winners, are avoided because nearly 60 years of uninterrupted good times have allowed the path of least resistance.

Fannie Mae and Freddie Mac were allowed to fester, financing bad loans with government guarantees, because tackling the problem would have produced political pain, and there was little perception of long-term political disaster. Oil prices have been allowed to rise, and futile fantasies of "green" energy that has no environmental or social costs predominate energy policy, despite the clear link to US domestic and international prosperity and cheap energy. No new sources of energy to replace oil and gas have been created, and US and international dependence on the volatile Persian Gulf region only increased,while moralizing dominates the discussion of our forces there. Elites even now wish to abandon Iraq, now that it's oil production has been secured for the West, and give the Iranians defacto control over Iraqi oil production. Part and parcel of a campaign that produced both the statement by Barack Obama that he would like to see gas at $10 a gallon, and lack of any response by his rival John McCain, or the press.

But just as bad, and perhaps even worse, is the failure to articulate a set of policies designed to deter attack by forces essentially "hijacking" existing nuclear arsenals. What does Al Qaeda need to build it's own nukes if it merely "borrows" a few from Pakistan's existing arsenal, either without the government's or Army's knowledge, or with tacit backing by factions inside either one. How does the US deter Iran from using Hezbollah to nuke ourselves or an ally, to advantage one faction over another?

The seriousness of the situation, the equalizing effect of nuclear technology, allowing tribal leaders, or Revolutionary Guard faction leaders, the ability to decide if New York City and six million Americans live or die, simply has not been grasped by an inbred, aging, and fundamentally unserious and incompetent elite.

In my next post, I will explain why the populists have not been able to sweep the elites out of power.


Joshua said...

But just as bad, and perhaps even worse, is the failure to articulate a set of policies designed to deter attack by forces essentially "hijacking" existing nuclear arsenals. What does Al Qaeda need to build it's own nukes if it merely "borrows" a few from Pakistan's existing arsenal[...]

...or, in the case of France and the UK (and possibly Russia), simply inherits the entire nuclear arsenals of those erstwhile nation-states upon their ultimate collapse. That is also a distinct possibility within a generation.

Anyway, I have my own hypotheses as to why populism has failed, but I will wait for your next post to spell them out. I wouldn't want to beat you to the punch - after all, your punches tend to be harder and more on-the-mark than mine...

Whiskey said...

Thanks Joshua.

Although, the danger of a place like Pakistan is the very unpredictability. It's probable that a slow-motion decay into Islamism in current Western nuclear nations in the West could be foreseen and "steps taken" to render nuclear weapons useless or transferred to US control.

The danger of Pakistan is that tribal ties can outweigh that of military discipline, when the military itself is fractured along those lines, and unable to control the whole country. In that sense, it's impossible to know where and when a tribal chief or would-be leader poses a threat. The US advises, but does not (understandably from Pakistani positions) control the security of Pakistan's nuclear arsenal.

Thanks for your kind words. See my next post for the reasons why.

Anonymous said...

Yes, the Western elites are profoundly rotten. How to get out of this problem, though?

Minor correction:
Gloria Vanderbilt is Anderson Cooper's mother, not his grandmother.

Anonymous said...

Brilliant, even though depressing. I concur completely in your assessment of the corruption of the elites in our times (I am 4 months older than the Hiroshima bomb), and I'm gratified that someone else is seeing this and stating it clearly.

A quibble, however - "it's" means "it is". Always. ;)

Thanks for your work

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