Global Context

If you are planning on being rewarded in a world other than this one, this essay will not do you any good. It pays to have one's thoughts securely glued to this world, not some other.

After many years of following markets and the economy, I am decidedly in favor of taking the long view. Things don't happen that quickly. I believe quick-buck artists are just lucky, not smart, even if they use the latest super-computers to advantage. The main beneficiaries of a yoyo market are brokers and intermediaries, not the final (retail) investors. So, I think all the yoyoing represents useless, wasted effort and a net loss for most people.

If I'm right, then it pays to have an inkling about where things are headed. It is not that hard to figure out where things are headed most of the time. Most of the time, cause and effect works. Most of the time, there is a linear progression from A to B to C. Sometimes there are cyclical progressions: the circle is closed by going from C back to A. These patterns are not that hard to decipher from the historical record. Oddly enough, humans have problems seeing the big pattern in all the events presented, whereas fixing on micro-patterns seems relatively easy.

There some things which are conditioned on other things, which leads to natural progressions over time. It is not hard to see those progressions, if we put aside our emotions, our prejudices. I put forward some examples which I think obvious.

The cost of oil - If the American and Chinese economies continue growing, and other economies do not shrink substantially, the demand for oil will increase. That is simply because most modern economies rely on oil for transportation, heating, cooling and chemical feedstock, and there is no easily available substitute. This unhedged oil dependence is the Achilles Heel of advanced economies, so people will pay almost anything for it. The alternative is giving up their lifestyles. Contrary to ultra-capitalist theology and propaganda, this makes oil markets inelastic. (Somehow it is ignored that even neo-classical economics teaches easy entry and exit are prerequisites of elasticity.) So, if you think economic growth will continue, buy oil.

The cost of natural gas, energy, etc - Ditto. Same argument as for oil. All of these natural energy resources have several features in common. They are randomly distributed, so it is risky (hence expensive) to locate and secure supply. There is seldom accurate knowledge of how much supply is on hand, so resource availability is estimated. (In this respect, drilling for oil is like growing coffee.) Since there is a finite amount of the stuff, drawing down the resource at a greater rate now only insures an earlier depletion, or shortage at a later time. Excepting coal, most energy resources will be entirely consumed within the next century (possibly much sooner) if usage continues at present rates. This implies that, without energy source replacement, industrial society is doomed to failure (everywhere, not just in the U.S.).

Development - A century ago, the United States was a backwater compared to the vaunted style and culture of Europe. Even a half-century ago, shortly after World War II put the United States in the driver's seat, in my childhood I noted that Americans were still in awe of European culture. I think Americans did not realize they were the top dog until Ronald Reagan told them so. Then, that idea became an idée fixé. Most Americans, judging by their elected officials, still think they are #1. But they aren't.

There is a chronic lag of perception behind reality. This, I think, is an incorrigible, natural state of the Universe,. Or, it could simply be a trick of our language, as perception is passive and reactive, awaiting a kick from reality to get started.

I think the international reality is this: China and India are developing fast. They are doing the same sorts of things to the settled, complacent First World that the United States did to Europe more than 75 years ago. Then, the United States became the industrial power house of the world, which eventually developed into the "arsenal of democracy." Later, when the formerly proud Europeans were exhausted, the Americans walked in and took over. While I don't think the Asians are going to land a military force on the shores of California any time soon, they are on track to take over world leadership in a generation or two. (This is done legally, by economic means.)

Meanwhile, speeded up by the Bandit's pose as the Nietzschean superman, Europe is busy detaching itself from American supremacy. Europe has a good chance of re-developing its own identity, qua Europe, something lost in the Reformation and Renaissance.

As I said before, Americans will need to learn they are not Numero Uno. This is an essential lesson, on which most of the other accommodations will rest. How bad things get in the United States depends on how slow Americans are in learning their lessons.

Little Kicks in the Ass - I think it is fair to expect most of the cheap toys, clothes, hardware and all kinds of other stuff will continue to be made in China. Warning: lately, "Made in China" doesn't mean quite what we've come to expect. Now, Chinese capitalists are sending out work to other Asian countries (lower wages there), and then shipping the product to the United States and Europe. According to Business Week (BW), the French and other Europeans are also complaining about Chinese mercantilism¹. (The hypocrisy of First World capitalists is stunning, and possibly racist, since it was OK when they did the same thing to them. Is turn-about fair play?)

The Japanese have assumed a major portion of the American car market - about 30%. GM will soon be displaced by Toyota as the sales leader in North America². Why so? Because the Japanese cars last a lot longer than the Detroit's behemoths, require fewer repairs and get better gas mileage. The majority of cars in California are Japanese made because they met California pollution control standards long before Detroit got around to it. Could Detroit build cars as good as the Japanese Toyotas and Hondas? You bet they could. BUT, first they have to want to do it. That means inducing the consumer to buy a better product, not forcing people into taking on something they don't want. It also means - at least in California - being willing to solve problems, not defending the mistakes of the past. GM and Ford are right in there with the tobacco companies in resisting change and regulation, despite the debilitating and damaging effects of their products.

What this means is that American industrial jobs will continue to disappear. Some will be "outsourced to the past," as Tom Friedman says in his latest book The World is Flat. Some will be outsourced to Asia and elsewhere. Some will be lost to sheer stupidity and backwardness, the result of poor education. For a few Americans, the New World Order now in progress will be an exhilarating success story. For the rest, it will be a latter-day Bataan march, a slog to oblivion.

The Big Picture

None of those unpleasant things is going to go away. They are going to grind down American optimism and wealth. A few lucky people will escape, but most will not.

Maybe it still could be otherwise, although I think it is very late in the game. That means any escape from destiny will require a nearly miraculous come-back. (A useful first step would be impeaching or at least neutralizing the Bandit and his henchmen.)

So, ignore all those gyrations on Wall St. If you are investing, put your money where it will work for you. (I wouldn't have a lot of it in U.S. securities.) If you are young and still working, take note of what is going in the world. (You may need to reposition yourself in the labor force.)

If you are properly invested, and oriented to the world as it is and as it is becoming, you will do well. If not, your life will be a constant complaint filled with woe. If you don't know what I am talking about, it is not too late to crack the books and learn a thing or two. (Turn OFF the TV and the Mush Windblah radio, and TUNE IN to your liberation.)

For those, like me, over the hill and on Social Security, hang on tight. You need to do whatever you can to stop the Bandit from ruining the rest of your life. If you're retired, you better have the time for this. It is, after all, our lives we're talking about here, not some African Bonobos³.
 

1. Mercantilism is the practice of obtaining raw materials abroad, making them into high value products, and then selling those products abroad. This works best when the consumers are subject colonials of the manufacturing country. Mercantilism was the accepted doctrine of foreign trade in the 18^th and 19^th centuries, and is still the core of Chinese and Japanese trade policy. First World countries assume the pose of having given up all that, but the reality is otherwise. The United States is not a mercantilist mainly because it is having a hard time selling its exports.

2. Conflict of interest notice: We own a Toyota Prius. I once owned an American car - a 1962 Dodge Lancer, which I bought used. I spent a fortune repairing it.

3. A relative of the Chimpanzee noted for its outrageously satisfying (anti-Puritanical) sex life. Can we learn something from them?