[A-List] McKillop, Part 5

["bon moun" <sherrynstan@xxxxxxx>]

Posted: Sunday, July 13, 2003
By: Andrew McKillop
1929-style Stock Exchange crash likely this October 2003? - Part 5
RECAP ON CYCLES
What are "cycles" anyway? Who do they affect?
Unbelievable quantities of theory exists about economic waves, cycles or
periodic variation. Yet the economists who first wrote about cycles ...
Kondratiev, Schumpeter, Slutsky (apologies to any others who should have
been mentioned) ... had very different spins on "what cycles mean".
During the 1950s and 1960s there was a concerted attempt by Young Turk
mostly American economists, later on called Neo-liberals, and after that
New Economists (most of them being over 70 years age, now) to deny,
disprove or more simply reject any existence of economic cycles.
Business cycle ... yes. Economic cycle ... no.
Schumpeter can be mentioned in the presence of a Neo-lib/New Economist
without having your ear filled with postillons (spittle). Schumpeter is
the 'Father of the Business Cycle'. His name can be mentioned in front
of MBA fodder in upmarket, fee-paying universities, without you being
shown the door. But dont bother with Kondratiev, that is 'freaky' stuff
and ... hilariously ... Kondratiev is sometimes called "the Marxist
economist" by eager right wing creatures formerly called Yuppies.
Kondratiev died in a Stalin forced labor camp for Thought Crime.
Schumpeter didn't have much against, or for Kondratiev. Their slant was
different. Schumpeter had no problem in deciding if Long Depressions can
happen. His answer was Yes.
Economic cycles mean periodic recessions and crises and even
depressions.
Even here, those 3 words have 'special meanings'. What the 1980-82
period showed in the civilized world is that what happens in dozens of
countries, right now, and in accelerating fashion since the 1980s, all
over the uncivilized world ... that is economic meltdown ... can and
does happen in the squeakiest clean, modern, hi-tech business-oriented
societies. That is strong contraction.
Already we have a nice shiny new word for this: demand destruction. This
is a lousy term! Contraction is much better. Demand will and can be
UNdestroyed anytime. Pay $80-a-barrel for oil and you will see (just a
few) Angolans riding in Mercedes Benz with several additional bodyguards
wearing Taiwanese Rayban lookalikes. At $100/barrel they might have real
Raybans
Un-destroying demand is pretty much like creating demand, and that takes
us way back to Keynes and a whole lot further (to Turgot, for example).
Contracting demand doesn't mean the same at all ... it means that demand
shrivels away, the interest wasn't there anymore, people die-off or get
pissed off. In polite words, this is "secular change" or "attitudinal
change".
1929 triggered the Long Depression or Great Depression. In plenty of
countries (Russia for example, most African countries, most of South
America) the Long Depression has been about 1986-2000. Through the 1990s
things only got worse. And worse.
The 1929-36 sequence made World War 2 inevitable. The Mussolini campaign
of 1936 in Abyssinia (Ethiopia) bears plenty of resemblance to the
Bush-Blair Iraq war. That is hysterical, racist, instant imperialist,
with absolutely no concrete economic bottom line. Mussolini got nothing
out of Destroying the Desert Dictator (or Negus) of Abyssinia, and the
Bush-Blair crowd are doing a great job in destroying Iraqi oil
production and export capacities (so far, a reduction from about 2.6 Mbd
exports, to about 0.25 Mbd). We still await the Hitler lookalike, today.

The meltdown of country after country in Africa through the 1980s and
1990s has led to a Pan African War that rumbles around a large part of
the continent, every day. Asking those guys to pump Cheap Oil as well as
massacre each other may be stretching things for infrastructure
destroyed, very poor countries which have - deliberately - been
subjected to 'austerity cure' since the mid-1980s (called 'structural
adjustment'. Try articles by Greg Palast)
The message of what will happen IF there is an October 03 Crash can be
summarized by this old dicton:  NEVER REAWAKEN A SLEEPING DOG (some
non-Western sayings use 'dragon' instead of dog)
Possible and likely impacts from an Oct '03 crash: One to three years on

Geopolitical and multi-polar seismicity - those fault lines already so
clear under the surface can open up and swallow the Old World (the
1945-2000 world that the GWB regime is trying, insanely, to save or
prevent collapse of, rather than de-energize it, transit to
sustainability, and stop dancing on the cliff edge).
Readers of die-off don't need details on the Breakup of the Postwar
Pangean World, I am talking about mechanisms.
An Oct '03 Crash will aid that de-Globalization and Increased
Multipolarity because any classic bourse crash will first-and-most
impact the First World of US-Europe-Japan- traditional NICs (S Korea,
Taiwan, etc).
You can easily check that by energy intensity per capita. Take out all
the high energy economies, measured by (say) more than 5 to 7
barrels/head/year. These are the only economies and societies where
there is enough cash left around to play bourse casino, the 'What If'
paper flutter with electronic chips. Other economies and societies don't
have the spare dimes or time for that.
That means The Rest, and that rest accounts ... already ... for at least
50% of world GNP
An October '03 Crash would have little impact on The Rest. Its a classic
of 'Liberation Economics' (e.g. Samir Amin, Gunder Frank, I Wallerstein,
etc), that is/ When the First World does badly, The Rest does well.
In fact, the analytic base of this is 1930s and 1940s colonial struggle
and emerging Cold War standoff between US/Europe/Japan and the
'traditional Marxist block' ... USSR and China ... with a bunch of
bystanders vaguely called the 3rd World (India, Indonesia, Pakistan, the
Arab world, Africa, Latin America, and a few others). At the time, all
these economies were below about $400/capita annual GNP in dollars of
today. Their oil consumption was virtually zero.
In economic terms, the Long Depression of the 1930 was very good news
for plenty of the 3rd World. Not all but plenty.
This will be exactly the same again if an Oct '03 Crash happens and it
is 1929-style, it will penetrate those outer shells, right through to
the neutronic core, and economic contraction will happen, that is not
only 'demand destruction' but also elimination of needs for, desires of,
and equipment, buildings and infrastructures used in so-called "gainful
economic activity". In other words: a self-feeding or high gain feedback
demand and supply contraction process. A very Long Depression could
generate inside the OECD, former rich-world.
There is almost no limit at all on the DOWNside, just like on the
UPside! Cycles work really well in BOTH directions. Through 1929-36
there were 60-90% contractions in "key business and activity
indicators", in plenty of civilized world countries. Plenty of The Rest,
that is countries that were soon going to 'detach' through
decolonization, experienced steady if not spectacular economic growth
right through 1929-39 and into World War 2.
China, India, Brazil, Pakistan, Iran, Turkey - to name some very key
players ... will have a Sink-or-Swim choice. Go down with the First
World, or separate.
They will separate. They will get autarchic. They will keep their own,
internal-domestic economies going through Keynes-type programs, probably
with a hard military edge. They will trade between themselves. Likely,
too, the traditional NICs will break ranks with the Fist World OECD
doing its Long Depression remake, and save their own economies by
rejigging their manufacturing base to needs and opportunities of the
Alternative First World (China, India, Brazil, etc)
Cycle abort
Just as probable, this sequence shorts out. The Alternate First World
will save the Old First World like it already did in the 1980s through
setting a floor to how much the First World can destroy demand (at the
world level).
In other words: No real contraction. This could lead on to 'economy and
social restructuring', which must come if only because of Peak Oil, but
is not the subject of this discussion.
Back in the early 1980s, the Reagan-Thatcher duo set out to destroy
anything and everything that even smelled of "inflation". Money had to
be 'saved', pronto. So they naturally turned their beady eyes on
destroying the economy.
To their New Economics advisers 25% unemployment was a tiny price to pay
for "stability" . People who still had a job, and even a few fools
without flocked to vote for this hunky dory policy.
Despite that cute bit of Frankenstein Economics (also called Voodoo
Economic at the time), and in lightning speed in the one year 1983-84
the world economy turned around and pulled out of a Long Depression
entry sequence. No Long Depression happened. There were floors to the
falls in First World economic activity. One hard and certain floor was
the Alternative First World. It was bashing metal consumer products, and
later on electrons, that the former Rich-world had ... temporarily ...
decided was a yucky thing to do, while its Consumer Citizenry piled back
into personal consumption like it was going out of style - which it is!
Bottom line to all this/ It is unlikely a 1929-style crash can happen
because there will NOT be a Long Depression after the October 2003
crash. I could be wrong! The OECD Rich-world could slide into permanent
recession (0%-1% annual real GDP growth, falling to -1% to -2% per year
and staying there). This could go on long enough to join up with Peak
Oil, incipient global economic collapse could be realized. But I doubt
this a lot.
HOW TO MEASURE
This brings us back to one measuring rod ... fossil energy supply and
consumption.
Any economic crash sequence can be measured by world oil and energy
demand. We could have low annual oil and gas demand growth, even slight
falls as we get to 2010. Prices, however, will go UP as world demand
hits against physical limits on supply, and low oil and energy prices
disenable investment in energy transition (to a low energy economy and
society) and in developing non-oil/non-gas alternatives on a serious and
committed base.
On the question of 'Did dirt cheap oil and low fossil energy prices
disenable investment in alternatives to fossil fuels?' anybody who wants
can check what has happened to investment in nuclear power since the Oil
Price Crash of 1986.
How are construction trends for nuclear power plants over the last 15+
years?
The industry is dying on its feet!
There is no time left left to create the Nuclear Nirvana ... which is
perhaps the sole thing we can be really thankful about.
Andrew McKillop  is a former expert, policy and programming, Divn A -
Policy, DG XVII-Energy, European Commission, founder member, Asian
Chapter, Intl Assocn of Energy Economists. You may contact Mr. McKillop
by email at andrewmckillop@xxxxxxxxxxxxx