The ticking clock.

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President Obama and the Democratic majority began his first term by launching a stimulus bill and creating a national health insurance system.[1] Both had failings, real and purely imaginary. Many voters responded to the ravings of the Tea Party and mainstream Republicans had little choice but to fall into line. The 2012 elections began to movement toward a Republican majority in Congress that culminated in the elections of 2014. Along the way, the Republican majority in the House not only blocked any further stimulus spending, but actually forced spending cuts through the sequester. Americans are still paying for that foolishness. By November 2014 President Obama and the Democrats were facing a two year-long march through the desert. Republican majorities can block any policy initiatives from the White House just as effectively as the White House and the Senate blocked the policies of the Republican House for the last four years. Aides are beginning to leave the White House to prepare for future campaigns on behalf of others or to cash in their chips by becoming consultants.

By early January 2015 the unemployment rate was down to 5.6 percent and falling, and the deficit had shrunk to 3 percent of GDP. This seemed to some observers to open a new “post-recession, post-panic era.” What will be the political themes of this new period? The mainstream of the Democratic Party is intellectually exhausted, while the left-wing (Elizabeth Warren, Bernie Sanders) is filled with enthusiasm.[2]

Betes noire of the Democratic Party (to judge by my cousins’ posts on FB) include big banks and inherited wealth and money earned from assets. The bêtes blanche are the middle class working Americans.[3]

In part, the President appears to have said “OK, I’ll do what I wanted to do from the start—govern the country like I’m the king.” He used his “prosecutorial discretion” to temporarily amnesty millions of illegal immigrants”; he dumped the policy of pretending Communist Cuba is just going to go away. In part, the President appears to have decided to lay down markers for the course his Democratic successors should follow.[4] In his state of the union address President Obama pitched a new tax plan. The plan proposed to raise the tax on capital gains, force people to pay when they inherited assets, and put a stop to 529 education savings plans because well-off people use them more than do lower-income people. The additional revenue would be used to fund a $500 tax credit to families where both parents work, and to cut taxes on families with children.

Right now this plan is going nowhere. It’s just more hot air from a guy who has always believed too much in the efficacy of speech. Republicans are philosophically opposed to high taxes on assets because the economy needs investment to grow. Still, going forward, it sets up a straight fight between Capital and Labor as the basic issue in the 2016 election. Whether that’s the best solution to the current American problems is open for debate. (See: Inequality 1.) Whether Democratic candidates will feel bound by Obama’s speeches also is open for debate.

[1] Neil Irwin, “Obama’s Tax Proposal May Help in Setting a Framework for 2016,” NYT, 18 January 2015.

[2] This same pattern led to disaster in the 1970s and 1980s. One can’t help but wonder if the Democratic Party is headed down the same road as the British Liberal Party in the early 20th Century. See: George Dangerfield, The Strange Death of Liberal England (1935).

[3] This loose terminology sets academics to grinding their teeth for its lack of “rigor,” but the meaning is clear enough: pissed-off people who actually vote.

[4] Given the way Hillary Clinton and Leon Panetta have rushed into print with memoirs of their service under a still-serving president, you can understand his indifference to the effect on subsequent candidates. I’m leaving Robert Gates out of this because he’s in a different category of public “servant.”

Sahel of a good song.

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Coulibaly is a common West African name.[1] A couple of ambitious hustlers named Coulibaly set up a Bambara “kingdom” in the 17th and 18th Centuries on the Niger River. The village of Segou served as the capital. Another ambitious hustler named Ngolo toppled the last of the Coulibalys in 1750. He and his son built up a larger and more solid kingdom that lasted until the late 19th Century, although bits and pieces were falling off for decades. In 1861 a jihadist hustler named El Hadj Umar Tall added the remnants to his own empire. Then, in 1890 an ambitious French hustler named Louis Archinard showed with troops, shot a bunch of opponents, and added the whole thing to the French Empire. Segou today has about 130,000 people living in and around it. There’s farming and fishing and crafts that are sold in the markets. There are a great many low lying buildings constructed of mud-block. Pretty much what one would expect a very arid land adjacent to a river. There’s a big steel bridge over that river. Poorly maintained roads run south to Bamako and north to Timbuktu.

One of the many attractions of Segou is the “Festival on the Niger” held in February each year.[2] If you want to hear the best of Sahelian music live, the Segou festival is second only to the annual “Festival of the Desert” held west of Timbuktu.

About three years ago a joint rebellion by Tuareg tribesmen and a small number of local Islamists swept over the northern part of Mali. The Islamists turned out to be against guitars (as well as many other things). Half a million people fled from the northern part of the country. The French—channeling Louis Archinard—weren’t taking this guff. A bunch of heavily-armed hard cases from the Marines and Foreign Legion paratroopers showed up. Soon thereafter, the leaders of the Tuareg-Islamist rebellion decided to take in the sights in remote areas of Libya or Algeria.

Meanwhile, the “Festival in the Desert” got cancelled for several years, what with the danger of getting shot and all. The “Festival on the River” took place in February 2014. Then the West African Ebola outbreak briefly edged into Mali in Fall 2014. So, that was concerning. In December 2014 the World Health Organization (WHO) declared Mali Ebola-free. Deep sighs of relief followed among many people. Among them were the producers of the “Festival on the River.” They announced that the show was on for February 2015.

One of the people in the audience in 2014 was Josh Hammer (1957- ). Hammer got a first-rate education (Horace Mann School, BA in English from Princeton University), then went into journalism. He did well at this and became the bureau chief for Newsweek in a series of places: Nairobi (1993-1996), South America (1996–1997, Los Angeles (1997–2001), Berlin (2000–2001), and Jerusalem (2001-2003). In 2001 he and his cameraman were “detained” (i.e. kidnapped) by Hamas gunmen. He has written about a wide range of subjects and places in a sensitive way.[3] One of his interests is the music of the Sahel. So, having made the pilgrimage to Segou, who does he recommend?

Ten minute film giving views of Segou, with a nice sound track. https://www.youtube.com/watch?v=Ob-Rc-IZ5Ps

 

Salif Keita. https://www.youtube.com/watch?v=9ZVzWsyGzRc&list=PL759F989C11E57C86

Khaira Arby. https://www.youtube.com/watch?v=_C85F6TJ3gI

Achmed Ag Kaedi and Amanar. https://www.youtube.com/watch?v=B3B2R7GHWyE

Tinariwen (band). https://www.youtube.com/watch?v=gINDDDo3do8

Sekouba Bambino. https://www.youtube.com/watch?v=lj3cxsCjRBg

Stelbee (Burkina Faso). https://www.youtube.com/watch?v=41GsivXUhf4

[1] If you’re scratching you head trying to place the name, Amedy Coulibaly was the Frenchman of Malian origins who shot a police woman and seized hostages in Paris a little while back.

[2] Joshua Hammer, “Along the Niger, the Beat of the Sahel,” NYT, 18 January 2015.

[3] A lot of biographical detail is hard to find. Bits and pieces found on the internet suggest that his father also was a foreign correspondent; that the parents’ marriage broke up; and that the life itineraries of human beings can take odd courses. His book about his younger brother’s journey to intense religious belief sounds fascinating.

Playing Chicken.

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Architects of the Euro-zone sought a stronger, more prosperous, and more harmonious union.[1] The inauguration of the Euro in 1999 began a period of low interest rates for member countries. Low interest rate led to heavy borrowing by both public (Greece) and private (Spain, Ireland) sectors. When the world economy slowed down after the American financial crisis, debt-service became a problem.

The architects had not then—and have not yet—resolved all of the problems. One worm in the apple is that the single currency serves 19 sovereign states. Those states do not pursue uniform economic policies. Nor do all national cultures celebrate the same values.[2] German hostility to budget deficits closed off large-scale counter-cyclical spending as a policy tool. Instead, states were to pursue limiting deficits as a share of Gross Domestic Product (GDP).

The pursuit of austerity policies has had different effects in different countries.[3] The GDP of Germany has risen about 10 percent from 2009. The GDP of Portugal, Spain, and Italy are all down about 10 percent. The GDP of Greece is down more than 20 percent. The decline in GDP has increased the burden of the government debt financed by taxation. Government debt as a share of GDP has risen from about 30 percent to about 70 percent in Spain; from 90 percent to about 110 percent in Italy; and from 60 percent to about 120 percent in Portugal. Greek government debt as a share of GDP has risen from about 110 percent to about 170 percent. (Thus, austerity has pushed Italy and Portugal into the same territory from which Greece began.) This raises the danger that bigger, more severe crises lie over the horizon.

The the creditor countries could pursue expansionary policies that might fuel demand for goods from the debtor countries. Once again, different national politics and cultures come into play. The northern creditor countries don’t want to abandon the policies that they associate with their own success, least of all to bail out the improvident.[4]

The concept of the Euro-zone was that—like Mr. Lincoln’s theory of the Union—the members had formed an indissoluble bond.[5] The Greek crisis threatens that idea. If Greece was to be forced out, then any other country that got into serious financial difficulty in the future might suffer the same fate. Countries at risk would have to pay extremely high risk premiums for financing public debt. The whole Euro-zone could unravel from the bottom like a sweater. Crisis after crisis would gnaw at a union that seeks the benefits of stability.

Hard-liners have not said so, but it might turn out to be a way of finally enforcing the economic doctrines of the northern creditor countries on the southern debtor countries.[6] Any country that did not wish to pay high risk premiums to lenders would have to pursue “sound” finances. That, in turn, could force a reform of social and economic policies.

The Greek “Syritza” and Spanish “Podemos” parties have drawn strong support for demands to end austerity and for debt repudiation. Many American observers seem to think that the Germans and other creditors should be happy to get robbed by the Greeks and other debtors for the greater good. The long Republican counter-attack against high taxes since the Reagan Administration shows something different. People who feel victimized will fight back. Right now, the focus is on angry Greeks and Spaniards. In the future it’s likely to be angry Germans.

[1] Eduardo Porter, “Local Politics Are Fracturing European Unity,” NYT, 3 February 2015.

[2] Flexibility, thrift, and probity, for example.

[3] See the charts in Porter, “Local Politics.”

[4] The limited historical knowledge of many economic commentators leads them to make frequent references to the post-First World War inflation as a formative experience. They ignore the “cigarette economy” that flourished after the Second World War and the heavy burdens carried by West Germans after absorption of the defunct German Democratic Republic in 1989. Germans today have a far more vivid set of memories shaping their behavior.

[5] Stephen Fidler, “Europe Weights Costs of Casting Greece Aside,” WSJ, 6 February 2015.

[6] As Voltaire quipped after the Royal Navy executed Admiral John Byng, “They shoot one to encourage the others.”

 

Stuff my President says.

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“They cling to guns or religion.” (April 2008.) Trying to explain why he was having difficulty getting traction with small-town and working-class Americans, Obama blamed the effect of hard economic times. Taken either in context or out of context doesn’t change the meaning: people who believe something different from Barack Obama do so because they are irrational.

“If you like the [health insurance] plan you have, you can keep it.” (June 2009.) This didn’t come back to bite him until early 2014, when insurance companies started cancelling “sub-standard” policies that many of the policy-holders said suited them just fine. There is no way to spin this one other than a) he was lying all along, or b) he didn’t understand his own plan.

“The Cambridge Police acted stupidly.” (July 2009.) Taken out of context, the quote sounds bad, like he was prejudging the case after confessing his ignorance of the facts. In context, it still doesn’t sound good because the police had arrested Henry Gates for “disorderly conduct,” not for breaking and entering, and because he linked it to historic patterns. He seemed to be trying to have his cake and eat it too.

Iraq is “sovereign, stable, and self-reliant.” (December 2011.) This came back to bite him in mid-2014. Seen in context, however, it was more of a prediction of what Iraqis could make of the situation left to them by the Americans. Almost immediately, however, Maliki and the Shi’ites began to mess-up everything.

“If you’ve got a business. you didn’t build that. Somebody else made that happen.” (July 2012.) Torn from its context, the quote sounds worse than it was. Obama sought to emphasize the importance of social capital and infrastructure in fostering economic growth. However, one wonders if he doesn’t believe that all economic growth comes from public initiative, rather than from a combination of social context and private initiative. This suspicion is reinforced by his declaration in the same talk that “Government research created the Internet so that all the companies could make money off the Internet.” In fact, the early form of the internet grew out of the cooperation of several nations with scholarly researchers for reasons unrelated to commerce. The current internet is largely a product of entrepreneurial initiative.

ISIS is a “JV team.” (January 2014.) The President tried to walk this one back by claiming that he was talking about a whole bunch of Islamist groups in the Middle East in general, and not about ISIS in particular. Politico.com fact-checked the White House claim and assigned it four Pinocchios.

Russia is” just a regional power.” (March 2014.) What the President said was “Russia is a regional power that is threatening some of its immediate neighbors — not out of strength but out of weakness.” Here he was pushing back against a Republican claim that Mitt Romney’s assertion in the 2012 Presidential debates that Russia was the most import geopolitical foe had been correct all along.   The President may be correct, but Russia is a “regional power” in the states of the former Soviet Union, in the Far East, in Europe, and—increasingly—in the Middle East.

Some of these “gaffes” are the product of circumstances changing after he made the statement (Iraq). Some reflect his now-evident failings as an administrator (health insurance). Some are conjured up by his opponents (business). Some spring from his habit of trash-talking people who disagree with him (voters, ISIS, Russia).   He’s better when he stays on script.

Your country gets an F.

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In days of old when knights were bold and Nationalism was in flower, the sociologist Max Weber defined a State as a government that maintained law and order within the borders of the country, provided basic services to citizens, managed the economy, and dealt with foreign countries. Some countries do this really well. Who wouldn’t want to be a Canadian, eh? Other countries do this less well. Weber was discussing European countries at the end of the 19th Century.

However, in the 19th and 20th Centuries Western imperialism gobbled up a bunch of territories that had never been countries (notably in Asia and Africa), then divided them in to “nations” when the tide of imperialism ebbed after the Second World War. The imperial powers had not had the time to do very much to turn these places into “nations,” so some of them have come unglued in the years since independence. Tribal or religious loyalties may be stronger than patriotism; corruption may be so bad that the government can’t provide adequate public services; or rebels, war-lords, or terrorists can operate without much hindrance from the government. When these things happen, a country can be called a “failed state.”

The ten worst-off countries in 2011 were: Somalia, Chad, Sudan, the Democratic Republic of the Congo, Haiti, Zimbabwe, Afghanistan, Central African Republic, Iraq, and Cote d’Ivoire (Coat Dee-Vwar). Most of them have made the Top Ten list since 2005. (See: rut.)

You know how people try to cheer you up by saying that there’s somebody in the world with worse troubles than you? Well, Somalia is the last guy in that chain. Somalia is in the “Horn of Africa,” on the east coast across from the Arabian Peninsula. It is close to the equator, arid, with very little land to farm. Herding and fishing are important to the economy. Britain, Italy, and Ethiopia all conquered chunks of the territory in the late 19th and early 20th centuries. (Mogadishu has some Art Deco buildings worthy of South Beach.) Much of it became independent in 1960, although Ethiopia held on to important chunks. An army general named Siad Barre seized power in 1969. He became a Communist, started a war with Ethiopia, and ran the economy into the ground by 1990. Just to get even, Ethiopia stirred up various tribes against the government. Siad Barre got chucked out in 1991, but no one could agree on who to put in his place. Northern Somalia declared its independence, various soldiers tried to seize power elsewhere, and civil war broke out.

The war caused a famine, bandits (called “technicals”) molested the humanitarian aid workers, and the US sent troops to stop the parts of the violence that might accidentally get on American television. This didn’t work out and left a bad taste in everyone’s mouth about intervening in humanitarian crises. (See: “Black Hawk Down”; see: Rwanda a little while later.) Civil war dragged on to the point that government just disintegrated; after 9/11 the US got very hostile to “Islamists,” of whom there are a great many in Somalia and encouraged people to fight them; many Somali fishermen and soldiers turned to piracy on the Indian Ocean; and drought hit the country in 2011. There are probably a million refugees and internally displaced people. Curiously, it has some of the best internet and cell-phone service in Africa. What about Nigeria?

Inequality 1.

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In December 2013 President Obama called income inequality “the defining issue of our time.” He’s agin it. Soon afterward Thomas Piketty, Capital in the Twenty-First Century (2014) garnered many accolades and some readers. This added academic fuel to the populist fires.

Already by Summer 2014, however, there were reasons to doubt the substance behind the passions aroused by the issue. Eduardo Porter raised two issues.[1] First, the problem of income inequality isn’t that important compared to other problems facing the United States. Social scientists have been trying to demonstrate that the rise of the “One Percent” has harmed society. They haven’t been able to prove it. Second, it may not be a problem with a practical solution.

What we think of as “globalization” (technology + open world markets) has polarized people toward the extremes of income: high-earners and low earners, but fewer and fewer people in between. The relationship between one’s job and technology is key. Someone who has a job that is not easily replaced by a machine, but which requires the manipulation of technology, is in a good place. In contrast, anyone with a job that can—or one day could be—done by a machine is in a bad place.[2] Generally, higher incomes are flowing toward people with higher education.[3] That’s true both within the United States and within the global economy. From this perspective, the “defining issue” is how to promote enough economic growth to insure a rising standard of living for the low-earners. Gregory Mankiw, a Harvard economist who served as an economic advisor to both George W. Bush and Mitt Romney, argues that raising the amount of education of American workers offers the best path to higher incomes.

Seen dispassionately, the best solution would be to help the people at the bottom of the income ladder without preventing the people at the top of the income ladder from doing the stuff that generates income for all. Allowing the gains from growth to flow only to those at the top of the income pyramid will not head off political trouble.  More could be done to take the rough edges off the state in which we find ourselves. For one thing, cuts in public aid to state colleges and universities has shifted a heavier burden onto parents and students seeking the higher education that is supposed to allow them to climb out of the pit. Restoring that aid would be a valuable step. Increasing the Earned Income Tax credit is another way. Developing policies to make the urban cores of the dynamic cities affordable to low-income workers by is another way. Still, reducing inequality by higher taxes on the well-off and an ever more generous social welfare system[4] cannot turn back the tsunami of change.

However, dispassionately isn’t how most engaged people are seeing the issue. Both the political parties have a stake in stirring up passions by misrepresenting the realities. The Right sees President Obama as an anti-business zealot. The Left sees Republicans as pawns of corporations.

How long will it take to make a more educated and better educated workforce? In the meantime, how does the country manage the social costs of the transition?

[1] Eduardo Porter, “Income Inequality And the Ills Behind It,” NYT, 30 July 2014.

[2] A 2012 poll of economists showed that the great majority believed that the uneven impact of technological change best explained the rise of income inequality. Reagan, Bush II, “deregulation,” and the other usual suspects didn’t figure

[3] Scholars have compared the college graduation rates for those born in the early 1960s with those for 1979-1982. People in the top 20 percent of incomes rose from 36 percent to 54 percent, while it rose from 5 percent to 9 percent for those in the bottom 20 percent. Furthermore, even the real incomes of people with a BA have hardly risen since the mid-1970s. NB: There is a lot you can do with this basic set of statistics.

[4] “Free sandals for foot fetishists,” as the Democratic columnist Mark Shields once described the policy prescriptions of the Democratic Party of the 1980s.

Annals of the Great Recession IV.

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Recession and recovery are supposed to follow a pattern.[1] Recessions lead to higher unemployment; recovery leads to higher employment. Thus, during the 1990 recession, the share of the working-age population with a job or looking for one fell from just under 67 percent to just over 66 percent. Labor force participation then rose to over 67 percent by 2000. However, since 2000 the pattern has changed. Between the recession of 2000 and the recession of 2007-2008, labor force participation trended downward from 67 percent to just over 66 percent. Since that recession began, the labor participation rate has pursued an even more rapid decline. By September 2014, the rate had fallen to 62.7 percent. It hadn’t climbed any by the end of the year. New entrants to the job market get absorbed, but many of the long-term unemployed remain off the labor market.

Where did the missing 3-4 percent of the potential labor force go? Many of them retired permanently. We can see here the leading edge of the “baby boom” taking up the rocker on the front porch. For anyone born between 1950 and 1954, getting laid off in the recession just sent them into a slightly early retirement. It probably doesn’t make sense to these people to try to fight their way back into a job so that they can work for another year or three. Less than 20 percent of those who are over 65 are still in the work force.

In addition, psychological fragility has replaced resilience as an American character trait. At least, that’s the idea you could get from some economists’ explanations. “Labor market scarring” of workers seems to reflect a belief that job-hunting is a traumatic experience. The unemployed would rather adapt by other means. They move in with aged parents to provide care; they file for disability under the currently easy conditions for gaining it; they probably do a bunch of work off-the-books; and they’re not going to leave anything to their kids.

What are the effects of them not working? The Federal Reserve Bank wants to sustain low interest rates until the labor participation rate rises to “normal.” What if the current rate is the “new normal”? It’s an awful lot of productive labor going to waste. It sets a ceiling on the growth of the economy. Fewer workers paying taxes tightens the screws on federal revenue.

The trend toward a lower over-all labor market participation rate masks other changes.[2] The female labor participation rate has fallen from about 74 percent in 1999 to about 70 percent today. One could conjecture that if over-all labor participation was about 67 percent in 2000 and the female rate about 74 percent, then the male participation rate would have been about 60 percent. Similarly, if the over-all rate is about 63 percent today and the female rate is about 70 percent, then the male participation rate would be about 56 percent.

Certainly, the labor participation rate for men has been trending downward since the 1970s.[3] Back in the 1950s and 1960s, only 10 percent of men of working age were not in the labor force. Another trend masked by the over-all data is the shift of better jobs toward women. That trend springs from the shift away from manufacturing (traditionally male work) toward a knowledge and service economy which requires more education. Men are less likely, women more likely, to stick with school. The quality of jobs held by women has steadily improved.

There’s an old joke about a guy in Maine who lost his job. A friend asked him how he was going to get by. The man replied “Well, the t.v. works and the wife works.”

[1] Josh Zumbrun, “Labor-Market Dropouts Stay on the Sidelines,” WSJ, 29 December 2014.

[2] David Leonhardt, “The Distinct Geography of Female Employment,” NYT, 6 January 2015.

[3] In the 1970s the “oil shocks” disorganized the economy and foreign economic competition first became a serious challenge.

War Movies 8: “American Sniper.”

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Chris Kyle (1974-2013) had a rare talent at shooting, joined the Navy SEALS at the beginning of global terror’s war on us, did four tours in Iraq as a sniper, wrote a book about his experiences, and was killed by a disturbed military veteran he was trying to help.

Warner Brothers bought the movie rights to the book and signed Bradley Cooper to star. First, David Russell (“The Fighter” (2010), “Silver Linings Playbook” (2012), “American Hustle” (2013),) was going to direct; then Stephen Spielberg; and finally Clint Eastwood.[1]

Kyle’s father instructs his son on shooting and in manly conduct: “there are three kinds of people: sheep, wolves, and sheep dogs.” Chris Kyle (played by Bradley Cooper) takes the message to heart. He is determined to use his skill to save the lives of endangered American troops in Iraq. A chance encounter with his younger brother, who had enlisted after 9/11, drives home the importance of this mission. The younger man is skittish and eager to be gone from Iraq. This sense of duty leads him to serve four tours in Iraq. He becomes a legend among the common soldiers and Marines. A dead insurgent plunges off a rooftop into the midst of an American patrol. An officer casually remarks “that’s the over-watch; you can thank him later.” Increasingly, Kyle becomes obsessed with an insurgent master sniper called “Mustafa.”[2] He returns for his final tour in hopes of killing Mustafa. He succeeds and comes home.

The price is very high: Cooper plays Kyle as “calm and confident,” so he doesn’t emote much about stress. He’s just increasingly distant, uncomfortable with the emotions of other people (both his wife’s and those of grateful veterans), with flashes of rage. Eventually, this self-contained man makes his way home by finding a new means to “save” fellow soldiers.

The movie has been criticized from the Left for de-contextualizing Kyle’s story. Eastwood portrays Kyle as motivated by the Al Qaeda attacks on the American embassies in East Africa and by 9/11; then the events in Iraq focus on the effort to kill Al Qaeda in Iraq leader Abu Musab al-Zarqawi. How the United States came to invade Iraq is scrupulously left out. The critics are mad that this wasn’t about the lies that led us to war. That would be a different movie. Indeed, it has been. Several times. All of which were flops. “Rendition” (2007, dir. Gavin Hood); “Lions for Lambs” (2007, dir. Robert Redford); “Redacted” (2007, dir. Brian de Palma); and “Green Zone” (2010, dir. Paul Greengrass) all lost money or fell short of earning expectations. That says something about audiences and what they’re willing to acknowledge. . In contrast, “American Sniper” is well over $200m in the black.

“American Sniper” falls into a different category of war movie from the ones that haven’t succeeded with American audiences. “The Hurt Locker” (2008, dir. Kathryn Bigelow) and “Zero Dark Thirty” (2012, dir. Kathryn Bigelow) became huge hits by focusing on driven individuals, the personal price they pay, and on the shameful American indifference to the human costs of wars waged by their country.   However, “American Sniper” ends on a different note than do Bigelow’s two movies. In her work, the protagonists (played by Jeremy Renner and Jessica Chastain) are lonely souls, estranged from their less-driven colleagues, cut off from home, and unknown to their fellow Americans. “American Sniper” ends with Kyle’s funeral procession across Texas. On a rainy day masses of people line the highway and the overpasses, fire-engine ladder trucks hoist huge American flags, Stetsons and baseball caps come off as the cortege passes. Eastwood is in his eighties. This may be his last movie. Hell of a way to go out.

[1] “American Sniper” (2014, dir. Clint Eastwood).

[2] It’s worth noting that the film portrays Mustafa (played by Sammy Sheikh—who has portraying evil Muslims down to a fine art) as an insurgent version of Kyle: skilled, committed, and with a family that is shut out of his work.

Shock Waves.

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The implications and possible effects of the drop in oil prices are complex and hard to predict.[1]

One effect of falling oil prices is to hammer oil producing countries at odds with the US (Russia, Venezuela, Iran). The fall in oil prices is putting far more pressure on Russia than are the international sanctions imposed over the unpleasantness in Ukraine. Both the Saudis and the Americans are quietly amused by the difficulties being encountered by the Iranians and the Russkies.

At least over the short-term (but likely over the longer-term) the fall in oil prices will reduce the revenues earned by the established oil producers. The effects could ripple through Middle Eastern politics. Saudi Arabia buys off domestic discontent with a high standard of living paid for by oil sales. Less revenue could translate into more discontent. When the United States scaled back aid to Egypt after the overthrow of the Morsi government, Saudi Arabia stepped in with generous assistance. Egypt plowed ahead with its suppression of the Muslim Brotherhood and other dissidents in open defiance of the United States. How long and how generously will Saudi Arabia be able to continue to support Egypt and other conservative regimes if the money stream starts to fall? Other Muslim states—like Algeria—are in something like the same boat in their dependence on oil revenues to fend-off unrest.

What does this suggest about climate politics in the United States? Will falling gasoline prices lead to more driving in bigger vehicles—with more emissions? Will the deflation of predictions about having passed “peak oil” reduce the pressure for the development of alternative energy sources?

What are the implications for the business-government relationship going forward? Eduardo Porter argues that government support for the development of the technology behind “fracking” endorses smart industrial policy. He suggests that this can offer a model for the development of new technologies to limit climate change. In particular, he endorses raising the gas tax during the period of low oil prices. The revenues “could be leveraged into a boon in tax revenues that the government could use to pick some of the winners that will help solve the [environmental] problems.”

The problem with “industrial policy” is that it’s just like other forms of politics. Established interest groups have a stronger position than do rising interest groups. The winners “picked” by the government are likely to be big campaign donors or the pet causes of political leaders. When government picks winners, we get farm subsidies and Solyndra. Porter’s own account of the development of fracking technology emphasizes the importance of research into new technologies paid for by the government, not that government picked winners. One thing that goes unmentioned by Porter is that government labs and subsidies were spread over a wide area. They didn’t focus on one technology or energy source. Continued investment in research certainly sounds like a good idea. So does an increase in the gas tax. Within that framework, however, would it be better to let the market pick the winners?

Why was this a surprise? Between 2008 and 2015 American domestic production of oil doubled. The European economy has been stagnant for a bunch of years. “Fracking” has been a loudly contested issue in American domestic politics for years. These are the key factors in the price decline. Yet markets, media, environmentalists, and politicians all seem equally surprised. Did no one see the rise in production/fall in prices coming? It’s a sort of Pearl Harbor in reverse.

[1] Eduardo Porter, “Behind Drop in Oil Prices, A Federal Role,” NYT, 21 January 2015.

Seismic Shift.

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It’s probably hard for most people to accept this, but economic growth raised incomes all around the world by 28 percent between 2005 and 2013. All that growth required a rise in oil production of 19 percent. That rise in oil production never happened. In large part, it never happened because Saudi Arabia and other major producers never increased their production.[1] They preferred a stable target price of $100 a barrel. Instead, oil prices held steady. By June 2014, West Texas crude was selling for $107 a barrel. Revenues flowed in to oil-producers. But, as the Germans said about the Greeks, “they’ve had their fun.” Nemesis was at hand.[2]

It has been a long time coming. In October 1973 the Organization of Petroleum Exporting Countries (OPEC) launched the first “oil shock” against the industrial democracies. The target countries responded in a variety of ways. Some of the responses were ludicrous, but some had important long-run consequences. In the United States, Congress approved construction of a pipeline from Alaska’s Prudhoe Bay, tried to foster nuclear power generation, first imposed fuel-economy standards on car manufacturers, and created the Energy Research and Development Administration. All these were efforts to prepare a long-term strategy.

Eduardo Porter has argued that federal support for research and development paid big dividends.   In particular, Porter touts the role of government “industrial policy” in the developments that led to the recent shale revolution. The government helped pay for the development of “directionally deviated drilling,” the antecedent to the horizontal drilling that is used in “fracking.” The government pioneered large-scale hydraulic fracturing. The government subsidized the “polycrystalline diamond compact bits” that do the drilling. Micro-seismic imaging, originally developed in government labs to trace coal mine collapses, found application in identifying fracturing sites. The Reagan administration ended obstructive price regulations that had hindered investment.

The shale revolution took decades to develop. Recovering natural gas from shale formed the initial target. When natural gas produced by “fracking” entered energy markets in large quantities a few years ago, natural gas prices started dropping. The drillers’ effort shifted to releasing oil. By 2013 it began to pay off. That year American producers generated 3.5 million barrels of oil derived from shale. From June 2014 to January 2015 the price of oil fell from over $100 a barrel to $45 a barrel.

Why didn’t OPEC cut its own production to push the price back up? Probably because they could not cut back enough to off-set the rise in American production. Cutting production would just cede market-share to the Americans. They are hoping that prices will bounce back up in the future. A revival of world economic growth will increase the demand for energy. This will off-set the expansion of American production to a degree. Shale oil is expensive to produce in comparison to “regular” oil. The current low price will cause many American producers to shut down their operations until prices rise to a profitable level. However, no one now expects oil prices to rebound to anywhere near $100 a barrel. A ceiling of $70 a barrel is more likely.

Falling oil prices have dragged down prices for gasoline, diesel, heating oil, and natural gas. Consumers all around the world are enjoying the equivalent of a tax cut, which in the US amounts to $1,000 a year. That is a valuable prop to growth when strong growth tarries.

[1] Excluding a brief fun-up to counter the 2008 economic collapse.

[2] Eduardo Porter, “Behind Drop in Oil Prices, A Federal Role,” NYT, 21 January 2015.