By Michael C. Feltham
The father of motivational psychology, Abraham Maslow, developed his “Triangle” to explain man’s basic core motivations.
- Understandably, the triangle commences with air: without it, mammals do not live too long.
- Next comes water: mammals can live only for a small time-span without access to clean potable water.
- Next, logically, comes food: with the three essentials forming the base of the pyramid, life is sustained.
- In hostile environments, thereafter, man needs shelter: and fire to keep warm in winter, then clothes.
At this point, let’s pause and think for a wee bit.
We are assured, by the proponents of capitalism and more critically, Free Market Theory, that creating market driven economies perfect the imperfections of the natural economic world.
I posit that this oft stated justification in its current guise, in its present incarnation, is utter nonsense! Balderdash! Tripe! Piffle! Good old PR and marketing bullshit, by the truckload!
Well, at least, thus far, man hasn’t worked out a way to sell us all air: give ‘em time!
Water has fallen prey to big business: European water and utility companies have rushed over to South America, for example and have managed to tie up concessions with corrupt governments allowing them to control water and sell a natural resource to Indian and Mestiza peoples at a price these struggling poor cannot afford.
That’s rich really, isn’t it! Go to another nation state, and sell a natural resource back to those who owned it in the first place!
The Mafia in Sicily of course, have controlled the artesian wells since the 1700s. No peasant can quench his thirst or irrigate his land without paying tribute to his local Capo. Control of the water economy thus translates into control of life itself.
It is now becoming abundantly clear that the rapidly rising cost of food in the West is due to two discrete realities: the first is the big supermarket chains. They are insidiously destroying the smaller retailer on the grounds of hyper-efficiency: and driving the food producer into bankruptcy with their incessant greed!
The guilty party, so Big Food promotes through their highly paid PR and Spin agencies is the Third World! Countries like China, with increased personal wealth, are eating far more “Western” style foods, such as beef. And it takes far more grain to feed cattle than to feed people.
OK so far.
Hang on! A central plank of free market theory and economics is the old primary law of Supply and Demand! This happenstance with China et al, didn’t occur overnight. The Chinese didn’t wake up one morning and rush out and all buy beef!
China, like Japan and later Korea, gradually escalated their standard of living. It happened over finite time. Therefore, according to the core diktats of economic theory, as the market for beef and the grain to feed the beef on expanded, supply ought to have expanded in lockstep with demand.
So either we are compelled to conclude that economic theory is fallacious or we must conclude that other insidious and covert forces are in play.
What caused animal feed to escalate in price by 300% in just two years?
Well, what has happened in fact is that the hidden forces of this wondrous free market, this background smoother of imperfection is in dire panic mode!
The owners of vast capital are running scared: having created a totally false global financial world, they are now panicking as their created world is rapidly tumbling and their capital is threatened.
As their siren call promises and visions of monetary utopia are seen in their true light – smoke and mirrors and sheer greed, disguised and neatly packaged in Madison Avenue hype - they themselves, amorally, are running for cover, with not a thought about who suffers and who starves and who dies this coming winter from hypothermia, simply because they cannot afford to heat their humble dwelling and cannot afford to eat sustaining food.
Big Capital is furiously buying food futures: grain, rice, maize, whatever they see that can, by holding the poor to ransom for their very lives, turn a profit!
Next comes shelter: again a big hmmm.
Time was when early man lived where food was easy; he built a shelter where he pleased.
Land is now owned or controlled by the big battalions of capital: to live in a house or hut, no matter how humble, man has now to go cap in hand to the modern equivalent of a Bad Baron and beg his indulgence.
Or, as we have recently seen, sell one’s soul to a grasping banker, who is willing to lend a miserly sum at usurious rates of interest, so man can buy some land with a token dwelling upon it.
In not much more than 100 years, from the end of the great Western expansion in America, the vast tracts of land have been hog tied, swapped, secured and stolen. It is most sobering the read the history of this period and how, for example, the Land Ordinance of 1785 was used as the template for “Fair” allocation of free land, but as always, human perfidy and federal incompetence and political chicanery created an environment where the honest poor suffered from the depredations of the unscrupulous rich.
Since Henry Ford pioneered the concepts of mass production, the assembly line and cheap gasoline-powered personal transport for all, modern life has been predicated around the automobile: towns and cities have changed. Smaller businesses in town centres have all but vanished. Huge corporations have specialised in out-of-town mega-markets. People now tend to commute considerable distances each and every day.
The Role of Petroleum and Big Capital
Crude oil has been the foundation stone upon which modern 20th and 21st cent. Society, commerce, employment and life have been built.
It transports us and our goods: it feeds us, warms us; cools us; generates our electricity.
Post World War Two, Western governments have bought in to the Post-Keynsian concept of ever expanding economies, necessary only to debt service government’s own profligate fiscal overspends.
An economy without a certain de minimis level of growth is in fact an economy in recession. Central to this erroneous plank of ersatz economic diatribe has been oil.
The Sherman Antitrust Act of 1890 sought to limit the rapidly expanding power and corruption of the railroad barons. In 1911, the US Federal Government used this law to limit the anti-competitive and monopolistic actions of John D Rockefeller’s Standard Oil. Rockefeller succeeded in totally controlling US refining capacity and thereafter, sought to reverse-integrate his operation by buying up oil fields, potential oil fields and exploration companies. In his day, JDR was the wealthiest man in the World and in comparison, in real terms, far wealthier even than Bill Gates.
Standard Oil of New Jersey, became Esso: and of course Esso and Exxon- Mobil are now as one and the single dominant force globally.
Now, undoubtedly, without American dominance of the oil and gas industry and the post WWII economic expansion, the USA would not have reached the dizzy heights of growth and industrial success achieved until the turbulent economic and political realities of the 1980s and 90s.
That said, global hydrocarbon fuel reserves are now rapidly depleting, yet global consumption grows apace.
This business has to be seen therefore as a One Trick Pony!
Along with shuttered industrial manufacturing, nothing is on the commercial horizon waiting to replace either: gloomy economic weather ahead, then.
Meanwhile, Joe Public still has to work, eat and live somewhere. With oil futures rocketing towards the $200 threshold, then the American Dream has not only turned into a nightmare, the lights are dim and the show’s nearly over.
Well, according to that good ol’ rule book, the much vaunted Free Market Theory, what ought to have happened is that as peak oil approached (and let’s face it, it’s been on public record since the early 1970s, so the reality is hardly new!), a rush of entrepreneurs and inventors ought to have emerged with all sorts of weird and wonderful new designs for motive force and energy.
That’s the theory, anyway: and a very nice theory it is too.
Unfortunately, in this harsh realistic and spavined world in which we live, what happened in practice was the oil giants used their immense muscle to block the adoption of any and every alternative energy concept they could: they schemed with congress and they co-schemed with the equally powerful automotive giants, themselves with huge vested interests in churning out the same old product, not much changed from Henry Ford’s Model T, with the exception of more bells and whistles.
According to that doyen of management strategists, Theodore Levitt, they forgot what businesses they were in. In terms of simple truism, the oil giants are in the energy, not the oil biz: and the auto companies are in the transportation biz.
Could they not have put their separate heads together and invested some of their ill gotten billions in leading R and D and by now emerged with the answer? After all, they have the capital (well, had, in the case of Detroit!) and if they wish to enjoy some continuum then they have the reason.
Now in 2006, an average price per barrel for crude oil was circa $58/barrel.
Since apparently, the Spot market indicators are now more than double this figure, has retail gas at the pumps doubled? Even extracting taxes the clear answer is no! If one looks at a co-comparison of actual historic data it soon becomes clear that when crude prices dropped, significantly, then pump fuel prices lagged considerably. And since in basic terms of simple arithmetic if the feedstock cost for any industrial process doubles, then the sales price has to at least double for the manufacturer to stand still.
Well, there is something very wrong with the equation: not only has the direct price-cost linkage moved out of direct relationship, but at the same time and over the past three years, the oil majors have recorded record profit upon record profit, on only a slowly increasing volume. In many cases in point of fact, volumes have reduced.
The major oil companies seem to have fallen into a trap of believing their product is now so essential, that they can command any price. Unfortunately, a basic law in business economics sets out the direct relationship between Price and Volume: as price is increased then volume falls off. Temporary equilibrium or even advantage can be maintained by ensuring that the net revenue flow and thus profitability stay the same despite price hikes since volume is at a higher demand price.
Your writer posits, however that the demand price of petroleum product, such as automotive fuels, heating oil, natural gas, jet fuel etc have now reached the tipping point: the level at which volume falls off so sharply, that net revenues and thus profits start falling. Greed just killed the Golden Goose and the eggs are rotten!
What they forgot was simple: affordability.
Greedy governments are equally culpable in this insanity, since their tax take tends to be based on an ad valorem equation: i.e. according to value; thus as demand price increases then tax take increases in lockstep.
In common with food speculators, it is increasingly clear that the three main petroleum exchanges, in New York, London and Singapore, have become the secret tools of the four oil majors, working in covert concert with the producers. Spots, as they are called (small cargos of oil and product) emerge from the majors’ surplus: very occasionally they will come direct from the producers. Thus it is the majors, again, using panic and the greed-fuelled frenzy of hedge funds, big capital and even now a new beast, Sovereign Risk Funds as the major’s secret weapon to raise oil prices behind the scenes and manipulate the global economies as they wish.
Interestingly, looking at the results of futures trading in the main world exchanges, their volumes on oil and gas and foods have all gone up by between 30-60% in the past year alone. Coincidence?
The Western World now stands on a precipice: a knife-edge where established economies will plunge evermore quickly into economic and social chaos.
Just consider this: with emergency services (and here is meant police, ambulance and paramedics fire service etc) budgets already deeply strained as government’s fiscal incompetence shows its true colours, large price hikes in fuel cost means an increasing cut in services: and this at a time when social unrest has rapidly increased. Add to this melting pot increasing numbers of people unable to feed themselves and their families properly; unable to pay for heating and transport. And with tight budgets, regular trips to the out of town mega-stores become a thing of the past and the already struggling family budget is strained yet further by inability to take advantage of the very people who destroyed the local community shops!
Perhaps the post-hurricane civil unrest in New Orleans, was a taste of what is to come.
Anarchy just around the corner? Probably yes.
From the late 1970s onwards, increasingly global capital became evermore closely harnessed. Increasing application of technology, particularly satcom created a rapidly globalised financial market: by the late 1980s, this financial village, working 24/7 365 was a reality. The advent of the World Wide Web and evermore powerful and versatile computers have refined, smoothed and homogenised the global capital markets into what we now see.
Unfortunately, however, the vary nature of trading rooms and the sterile concepts promoted by greedy rapacious bankers have divorced both management and traders from the results of what they are doing. They do not think in terms of increasing the world’s starving: or placing kids onto the street as they lose their home. These narrow focus cybernauts think purely in terms of their end-of-year bonus and the extra glittering trinkets their amoral and totally obscene greed will afford them.
The insanity of capital markets has now reached the point where all too often, money is being bet on bets! Not, as Market Theory avers in support of some actual real world physical event, but on bets.
To fully understand this, let’s look at an easy example. In Britain the national sport and consuming passion is Football or if you prefer, Soccer.
Now for many years, people have gambled each week on a Football Pool: this is simply a legal bet where the punter selects which teams he believes will win or lose in a certain way. The permutations are endless, hence the fun!
If some cataclysmic event, such as heavy snow prevents the weekly games from taking place, then a committee of nice chaps who are members of the organising body the Football Association - or FA - meet and decide which teams would have achieved what result. The results are then used to pay the winner if any, something like $2,000,000.
Now let us imagine that for some silly reason, government banned football: it could never ever be played again.
But let us also suppose that these doddery old gaffers in the FA still met each week and decided which non-existent football club team, beat another non-existent football club team and by how many goals!
Each and every week in the season, this group of guys meets and decides the outcome, the pools companies accept it and the gamblers stake their cash and each week, mainly, one or perhaps two lucky punters win big!
Sheer nonsense and of course, very open to corruption and fixing, since the “Result” is not a real happening.
Well, this is what the capital markets are doing: they have invented so many new and wonderfully arcane “Products” and derivatives no one can accurately compute what is real and what is imaginary anymore: worse, no one can forecast the actual true downside value, worst case.
There is one huge flaw within the core of all this financial flim flam: capital emanates from someone, somewhere actually doing something physically productive, not sitting in front of a screen and chasing illusory reality.
As banks and Big Capital have asset stripped plants, fired thousands, stolen pensions, raided other companies and generally focused on leveraging nothing to make something, which kind of tries to rewrite Quantum Laws, in pursuit of their greed, they have lost sight of one critical reality.
The more people they throw onto the scrap-heap of poverty, then the less consumers there are to make any fresh new money for them to play with!
Traditionally, money market and financial centres relied on fresh funds inflow from such as pensions, savings, life assurance and the little guy’s hard won savings. The textbook states roughly 85% of all new funds inflows are vicarious investments from consumer’s financial product investments.
Well, I have some unpleasant news for you Big Capital!
You’ve deprived so many of a reasonable living standard and, in your insane and blinkered greed, many more millions are now heading, irreversibly, into precisely the same chasm.
It is then no wonder that few if any can afford to save: or buy a pension: or insure their life!
What these billionaires seem to have disconnected from, safely ensconced in their penthouses, is that whilst they might take a value hit and find their two billion is only worth one and they consequently have to put off buying that new yacht for a tad, the majority, struggling to survive on the breadline, vainly endeavouring to balance rapidly diminishing income to ever-rising costs of living, can easily be wiped out by just a 5% reduction in their income!
America boasts it is the richest most successful state in the World: some boast. Why is it, therefore, that poverty and homelessness has risen exponentially during the Bush years? Despite various Federal Housing programmes, the homeless increasingly crowd the street of the capital. Various common diseases, such as TB, earlier eradicated by antibiotics are now once again raging through poor areas, caused by inferior diet, poor sanitation and fundamentally, poverty. And as new strains of such as Koch’s Bacillus, the causer of Tuberculosis become evermore resistant to even the latest wide spectrum antibiotics, even the rich aren’t as immune as they might like to believe.
So let’s all hope that these smart guys can dream up another new range of products, which add nothing to nothing and come up with something: perhaps we can then eat it, sandwiched between an imaginary bun!
The New Wave incarnation of Free Market Theory Capitalism is dead: we must be on our guard this time around to ensure we send it to the crematorium rather than simply bury it!
© Copyright 2008 by AxisofLogic.com
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FELTHAM ON THE ECONOMY