Monday, January 26, 2009

2009 - Selfishness Disguised

Last week I reviewed my predictions from 2008. Suffice to say that I didn't have a very good record. Now it's time for predictions for 2009. While my ego would like to be more accurate this year, in reality I'd like nothing better than to be wrong:

1. The economy will muddle along. We won't clearly "emerge" from our economic troubles, and we won't enter a true "crash" or depression either. There will be good signs (revival in the real estate market in some areas) and bad signs (unemployment will keep rising, it will become increasingly clear that some regions of the US will never regain their former glory). My overall prediction is based on my belief that our economy is facing two sets of challenges. The first set are truly fundamental: diminishing energy availability and the fact that our economy is predicated on an assumption of perpetual growth despite our residence on a finite planet. These, however, are not the source of our current troubles. The second set is the result of short-sighted hubris and greed: sub-prime mortgages, the belief that housing prices can perpetually rise faster than the general rate of economic growth, the belief that we can create real wealth out of thin air through the "magic" of complex financial derivatives, etc. These second set of mistakes created a bubble that popped (or, more accurately, is still rapidly deflating), and we're riding it on the way down. There is a critical distinction between these two sets of problems, however. Our economic engine, our fundamental blend of capitalism and fascism (what else do you call a controlling government-industrial interface?), will continue to grow and generate wealth (at least for some) until it collides with the fundamental problems in "Set 1." That means that it will deal with, and overcome, the problems presented by the second set. We'll realize the sources of our short-term problems and we'll fix the system. Then we'll get back to business and growth. Bottom line: the economic problems we're currently facing can and will be fixed. We probably won't turn things around in 2009, but we'll lay the groundwork for a recovery in 2010.

2. This 2010 recovery will, however, come just in time to collide with the more fundamental problems in "Set 1" that will have been gathering steam while we focus on fixing our short-term problems. This is the larger theme of 2009: we will be so focused on fixing our immediate problems that we will fail to effectively address our true, long-term problems. To make things worse, we'll be squandering our last, best opportunity to effectively, proactively deal with these fundamentals. We'll be squandering arguably an amount of surplus energy that simply won't be available in the future, energy that we could use now to build a truly sustainable infrastructure to provide energy and food for our planet. Instead, we'll use this energy to try to make sure we can keep driving our SUVs, keep moving up into larger houses filled with more trinkets, etc. I'm calling this "selfishness" because I can think of no more accurate term. Many people will argue that most people aren't aware of our long-term problems, so they can't be blamed for not acting to solve them. I think this is, at most, conscious ignorance. It's so much more fun, at least in the short-term, to squander our inheritance. This won't be a function of Obama and the Democrats or the Republicans--it is far more fundamental than that. It is far more ingrained than that--in the stories we tell ourselves about progress and in our faith in the continuation of the recent past perpetually into the future. I think we'll see just enough success in the short run--an economic recovery in 2010, a return to global growth and wealth, to destroy any chance (small to being with) that we may have had to make fundamental changes.

3. Oil prices. Most of my recent predictions have addressed the issue of oil prices, and this post won't disappoint. I don't think we'll regain the highs seen in 2008, but I think we'll spend a few months in the $30s and $40s and then end the year between $60 and $70/barrel. This will not be because of any recovery in demand, but rather because of a much more troubling decline in production caused by decreased investment due to low oil prices. We'll see many of the megaprojects, scheduled to come online over the next few years to stave off serious production declines, delayed indefinitely. While it won't make many (any) headlines in 2009, we'll lay the groundwork for precipitous production declines to hit just about the time we experience a last-gasp economic recovery in 2010-2013 (so, while it's far into the future, my prediction will be for a true spike in prices in the area of 2012).

4. Geopolitics: we'll continue a similarly selfish course of action in 2009. While I'd like to think the Obama administration will take a bit more far-sighted tack than his predecessor(s), I think Obama will be too fixated on trying to create an immediate economic recovery to expend any political capital on diplomacy. Hopefully I'll be wrong here, as well. What will this look like? It will mean continuing to support dictators, strong-men, and corrupt regimes in the name of near-term stability and security, and at the long-term expense of continually grieving the world's poor and oppressed. As I noted a few weeks ago, people don't hate America "because of our freedom," rather they hate us because we support their oppression in our own self-interest. We'll continue that trend in 2009. I'll go out on a limb and make at least one bold prediction here: Pakistan will succumb to another military coup, and Obama will take sides with the new military ruler in the name of expediency in the "War on Terror."

In addition, here are a few responses to an e-mail interview I gave last week that are essentially predictions for 2009 and beyond:

Q: According to you is the problem of Peak Oil (and the likely impacts of a decline in oil production) a top-priority for the US Department of Defence or is it just seen as an important issue but equal to others?

A: I don't think Peak Oil is really on the DoD's radar, especially not at the highest levels. I know that, within the DoD, there is widespread understanding of the problems that rising (and, more recently, volatile) oil prices create for budgeting, logistics, acquisitions, pre-positioning, etc. There is a lesser understanding of how and where Peak Oil will drive conflict--in my experience, most senior leadership understand that competition for energy resources will make oil exporting regions into conflict areas, but I think there is minimal awareness (at best) of the extent of these conflicts, of the positive feedback loops between geology and geopolitics, and about how declining oil revenues will weaken nation-state structures just as many export-reliant states are facing the peak of their domestic demographic crises.

Q: - As they say in the recent JOE 2008 report "The implications for future conflict are ominous", in this context, do you think the Department of Defence is preparing/planning (e.g. ways to secure oil transport, invasions of producing countries) for the crisis?

A: I think this quote from the JOE demonstrates that, at least within the think-tank side of the DoD, there is some understanding of the scope and scale of problems that Peak Oil will bring. However, there seems to be a widening gulf between this understanding (often isolated in policy and research organizations) and the operational and developmental policies being implemented on the operational side of the DoD. We seem to be stuck, operationally, in a Catch-22 situation. We're preparing to defend regimes against insurgencies and we're increasingly willing to compromise our proclaimed policy of "we support democracies" to achieve the ends of securing energy supplies; we're lamenting our inability to diffuse, at its most basic level, the motivation among "terrorist" groups to attack the US and the West in general; yet we seem incapable of understanding--at least at the senior operational and policy level--that it is our very policy of supporting exploitative regimes (to secure our energy supplies and economic hegemony) that drives the threat against those regimes, ad infinitum.

Q: How do you see major actors (USA, China, Russia, EU, OPEC) reacting to the crisis and oil shortages?

A: I think that, in light of recent US experience in Iraq and Afghanistan, you will see increasing support for non-democratically elected regimes (e.g. regimes that will barter access to energy supplies for third-country military and financial support to stay in power) and an increasing willingness to provoke proxy conflicts and support insurgencies to gain access to supplies otherwise locked down by another power. I don't think we'll see the wholesale occupation of oil producing countries (and even in Iraq I think we'll continue to see US forces drawdown), but I do think we'll see a growth in economic and military deals that can only be described as mercantilist. Unlike past, colonial mercantilism, I think the primary tool here will be long-term bilateral supply contacts paid for up front with regime aid. China, and to a lesser extent India are already doing this, but it will become more pronounced and will be joined by Europeans and America.

Q: Do you rather see an anarchic world or a world of alliances (e.g. NATO vs. Shanghai Cooperation Organisation)?

A: Near-term, I think we'll see a push for strategic aliances. Longer-term, I think the answer will depend on the broader state of the world economy. To the extent that states can fulfill their constitutional (small "c") obligations to their constituent nations, then they will be in a position to make the (wise) long-term investments in strategic partnerships. However, to the extent that states need to show immediate results to hold themselves together, they will sacrifice these long-term prospects for near-term gain achieved by abandoning (or double-crossing) their former allies. OPEC (and the nascent natural gas cartel) is a perfect example: as long as the Saudi monarchy, for example, can continue to buy off its citizens with handouts, then it will be able to hold together some kind of cartel to operate in its long-term best interest. However, to the extent that the Saudis have any true spare capacity, they will bring it online for short-term cash if they need to prop up their domestic spending to stay in power--alternately, they will damage their field geology by overproducing if they are short on cash. Same things is already looming in Venezuela, Mexico, etc. On the consuming-nation side, heavy lifters in NATO and the SCO will grow tired of pulling the weight for others and will be more likely to abandon their alliances if they see it to be in their self interest--and this will largely be determined by whether they have the luxury of looking to their long-term self interest or whether they must, by necessity, look for the quick fix.

10 comments:

Gregory Wade said...

I see the economic fundamentals as much weaker. The two-income mortgage strikes me as a linchpin, and quite vulnerable under current circumstances.

No mention of OPEC cuts. Cuts of 4 million b/d, if they happen, would seem to run ahead of ongoing demand destruction, and in the face of wide-spread attempts to stimulate demand.

tom said...

Jeff,

Though not specific to this post, I thought you might find the discussion at BlueOregon blog interesting. See http://www.blueoregon.com/2009/01/whats-not-being-talked-about-in-the-biofuels-debate.html#comments

Jeff Vail said...

Gregory-

I think the two-income mortgage is certainly problematic. It's part of what got us into this mess in the first place, but it's also a solveable issue: housing values need to decline significntly, and many people need to go bankrupt/get foreclosed, but then the sitaution can turn around (I'm not suggesting we're there yet). We'll have to wait and see, I guess, whether this is something that the broader economy can absorb (I think likely, absent some other ticking time-bomb) or not... As for the OPEC cuts, I think they're really not the issue over the long term. OPEC countries are, largely, desparate for revenue to keep up their social-spending programs necessary to keep their regimes in power, and will continue to adjust production within their capacity to maximize their revenues. So, if the cuts bite a bit deep, they'll quickly ramp up production (though likely outside their unofficial "official" quota system) to bring in more cash. The bigger issue, to me, is the long-term drop in invesetments in replacement production (both OPEC and non-OPEC) that will last well beyond a coming uptick in oil prices. This is what will really hurt--when there is no mitigation in the pipeline for post-peak field declines that will range from 8-20% per year... Just how hard this hits depends on how perfectly this crash in production meets a temporary bounce in demand (I think they both happen in the 2010-2012 time frame).

Jeff Vail said...

Here's an email comment I received:

"Q: According to you is the problem of Peak Oil (and the likely impacts of a decline in oil production) a top-priority for the US Department of Defence or is it just seen as an important issue but equal to others?

A: I don't think Peak Oil is really on the DoD's radar...

what do you think the "global war on terror" is about?"

My response:

Well, not peak oil. I think it's primarily about 1) an attempt to maintain the current mode of petrodollar driven economic colonialism, and 2) an effort to leverage part legitimate security concerns and part overblown and intentionally inflated fears of an attack into a justification for massive military-industrial spending and aggressive foreign policy initiatives to enrich those in power, spread a form of free market practice to the second/third world, and further the forms of economic neocolonialism mentioned in #1.

The GWOT was a near-sighted political expedient and far-sighted (though misguided) attempt to maintain economic hegemony, not an attempt to address peak oil. There is always the potential that it was a secret and almost humorously-off-target attempt to address Peak Oil, but while I'm not one to overestimate the competence of our government, I think Occam's Razor suggests that there are far simpler and compelling more explanations...

Gregory Wade said...

I definitely see the problems beyond 2010; I was thinking in terms of 2009, and circumstances compounding. I guess I'm somewhat dubious about a brief turnaround, but maybe...it looks like housing was up. I can see some thinking the markets bottomed, and jumping back in. Obama has shown the assertiveness one--not me--might desire under these circumstances. Anyway, thanks for the thoughts.

Big Gav said...

I agree with your assessment about the DoD and peak oil above - I think our past record in the middle east shows that we don't need the threat of peak oil to behave the way we have in the GWOT.

Have you given up on your "Mexico will collapse" soon prediction ?

Jeff Vail said...

Gav-

Not entirely... I still think that Mexico and Pakistan will be the key failed states of the next 5 years, but I have a lot of confidence in predicting that Mexico will collapse this year. Rather, I think we will be able to watch in Mexico the kind of slow crash that we'll experience over the next several decades. Their slow crash will be instructive because it will happen faster than ours (not because they are in worse financial/economic shape, but because I think they have a more viable family/hamlet/rural infrastructure to fall back on (meaning they'll fight it less, and to some extent welcome it), as well as the fact that they already have very viable alternative power structure (drug cartels and the strong Mexican tradition of relatively independent catholic parishes) to fill in the gaps. The development that could really speed things up would be if their drug cartels learned to leverage populist PR to convince people out of self-interset, not fear, to take their side. They already have strong traditions of this (Zapatistas and other indigenous groups)...

usofc said...

I'll stand by your predictions. Mine are very similar. After the 'credit crunch' will come the 'eco crunch'. The eco crunch will not have been foreseen by governments any more than they (pretend) not to have seen the credit crunch. Hot on the heels of the eco crunch will come the socio crunch, and so on. The future will be a series of descending plateaus of crisis and energy/resource descent. As you rightly observe, the short-term interests of current configurations of democracy and fascistic self-interest will prevent us taking any collective action through government.

It is as though the global northern 'raising the ladder behind us' is reflected at a different level within our States by the corporate-political elite who also want to gather as much resources and power into their fold as they can and to hell with the rest of us.

Time for non-governmental, non-corporate, grass-roots, decentralised collective action. See the British response: www.transitiontowns.org

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