The steady success of ISIL in carving out a secure territory in Syria and Iraq is upsetting some old geopolitical equations. Iran, seen by some as the likely “savior” of Iraq (or, at least, of its current government), is lobbing threats at the Kurds. Turkey, meanwhile, long fearful of a Kurdish state, now considers embracing an independent Kurdistan to serve as a buffer against Iraqi violence and Iranian power. The offshore power broker – the US – does not know what to do, because what might turn out to the best choice is also unthinkable: Iran is currently the greatest threat to American interests in the region, and the force most likely to take the fight to the Iranians and to halt their geostrategic progress is, in fact, ISIL. ISIL is closely (if complexly) affiliated with the al Qaeda organization with which the US has been at war since 9/11/2001 (and, arguably, for much of the decade prior to that as well). It would be a nearly impossible sell to the American public – especially to the veterans and their families who have sacrificed so much for the last decade and a half – but at some point it may well be in America’s best interest to throw its support behind ISIL in order to thwart Iran.
Russia’s resurgent geopolitical power is dependent on it’s vast energy wealth. That makes the Russian energy sector a juicy target for policies aimed at punishing Russian machinations in Ukraine.
However, America’s European allies are dependent on Russia as their primary energy source. That creates a dilemma – how to get European support for meaningful sanctions that won’t end up hurting themselves as much or more as the intended targets?
The US is trying to thread the needle by targeting Russia’s energy future while keeping its current productivity intact. Although it remains a major exporter, Russia’s reserves of conventional oil are in steady decline. However, as reported here in the past, Russia has immense shale reserves. Shale oil has resuscitated the US oil industry (oil production in the US hit a 26 year high last year and the Energy Information Agency projects continued growth to a 40 year high next year). No other nation has been able to leverage their shale resource as effectively as the US, and Russia needs access to US experience and technology if they want to similarly extend their own energy industry.
Therefore, the Atlantic allies are crafting sanctions that will prohibit participation in Russian shale (and Arctic) energy development by Western companies. Of course, there is nothing preventing the Kremlin from retaliating by squeezing current exports to the allies, anyway. It would end up just being a test of wills. And, so far, Putin has demonstrated ownership of much more of that particular resource as well.
In response to resurgent Russian militarism in Ukraine, two recent analyses have laid out the need for both Sweden and Finland to join NATO. First, in the online edition of the journal Foreign Affairs, Jan Joel Andersson, a senior research fellow at the respected and influential Swedish Institute of International Affairs (SIPRI), laid out the case for both Nordic nations to finally join the Atlantic Alliance. This week, Andrei Akulov from the Russian think tank Strategic Culture Foundation, has detailed a number of military and political signals from within the Swedish government that indicate a renewed willingness to examine NATO membership.
According to new figures (and an alternate formula to typical GDP comparison) from the World Bank, China is expected to pass the United States as the world’s largest economy sometime later this year. The World Bank is comparing Purchasing Power Partity (PPP), which is intended to standardize GDP across currencies and make direct comparisons of how economies work internally. However, GDP is still the better measure of how economies compare in the globalized world because it takes differences in exchange rates into account.
In any case, China is going to pass the US sooner or later, but what that means remains to be seen. In the two previous cycles of the world system, France’s GDP likely surpassed England’s in the late 18th/early 19th century and Germany surpassed the United Kingdom in the late 19th/early 20th centuries (see Angus Maddison for reconstruction of early GDP levels) , yet both still lost their challenge for hegemony.
Even after China becomes the world’s largest economy, it may not hold that position for very long. China is facing a severe demographic crisis and, like Japan, will face an declining work force supporting an ever growing retiree population. Indeed, it may fall off the demographic cliff even before the largest waves of retirees hit – last year, the working age population declined for the first time in history, a decline that will continue. As the Financial Times notes:
Unless the country can keep lifting the labour force participation rate (for example by getting more women into the workforce or persuading older people not to retire), China will struggle to expand its labour force by even 1 per cent per year. To sustain economic growth of more than 7 per cent, productivity would need to grow by 6-7 per cent a year across the entire economy. This would be a tall order in any country. In China, where the labour-intensive services and agriculture sectors make up half the economy, it is well-nigh impossible.
Of course, a decelerating China does not mean the US will regain the top spot . . . India may well pass both nations. And my analysis continues to be that India will be the next global hegemon, either in the next immediate cycle, or following one more term by the US.
The discussion surrounding French economist Thomas Piketty’s new release is invigorating, and I am eager to join in. Let me begin by noting that I am not an economist, and I am not even an interested amateur – I have next to no formal education in the field. Let me next admit that I have only skimmed the book at this point, but I have read the key parts and I think my general understanding of the argument is clear, at least as confirmed by reading some of the more comprehensive reviews.
Piketty’s chief claim is that the rate of return on capital (r) is greater than the overall growth of the economy (g), and when this ratio gets out of balance, it necessarily creates great inequality. As he puts it himself:
If, moreover, the rate of return on capital remains significantly above the growth rate for an extended period of time (which is more likely when the growth rate is low, though not automatic), then the risk of divergence in the distribution of wealth is very high…
I added the bolding, because it seems to me that these are key restrictions on the argument.
r > g is elegant and alluring . . . but instead let’s say that Inequality (I) = r/g
I = r/g
The key element, then, is not the numerator r but rather the denominator, g. any serious policy objective has to be focused in increasing g. Piketty assumes a that g has become, and will remain, very low and nearly constant. This is a symptom of our age, which is terribly pessimistic. His wealth tax solution is focused on the numerator where one could predict it will have a marginal impact on I; indeed, a too strong application could reduce g even further and make I even higher!
Better to focus on g, and that means first of all questioning Piketty’s key assumption that g is destined to remain low for the foreseeable future. But often the phrase “foreseeable future” is an oxymoron, no?
As a student of long cycle theory, I see the regular cyclic phases of roughly a century, but in practice anywhere from 70 to 125 years. Each of these cycles is triggered, in part if not in all, by by some innovation that changes the economic order. The fruits of that innovation are bountiful at first but necessarily wear out over time. We are in the end phase of one such cycle right now, hence the apparent stagnation and resultant pessimism. But if the past is any guide – and it usually is – then the world will experience a new and unforeseen burst from a new innovation, sometime within the next few decades.
As a researcher focues on energy I am biased, of course, but I think that innovation is going to come from the energy sector, and I think it is going to come sooner rather than later. The economic growth of the world has been powered for the last two cycles by fossil fuels, and the general pessimism about future growth is in large part fueled by a widespread belief that fossil fuels are either running out, poisoning us, destroying the climate, or any combination of the three. This is the weltanschaung of our age – the energy which has made us richer as a species than ever before is now in many ways our enemy.
I do not share this pessimism. I am a technological positivist, and I see signs and portents from all over the world that we are on the cusp of an energy revolution. This may mean the discovery and/or perfection of a new energy source, or simply a cleaner and more efficient way of utilizing the still abundant supplies of fossil fuels. But there are going to be breakthroughs – hydrogen, storage capacities for wind and solar, safe thorium nuclear power, hybrid gas-nuclear reactors, the methanol economy – that change the energy equation and open a new century of growth and prosperity. When that happens, when g is annually 3% or greater instead of the 1 to 1.5 assumed by Piketty, his “Capital in the 21st Century,” if it is remembered at all, is going to have to be retitled “Capital For a Brief Moment in the First and Second Decades of the 21st Century.”
I am in a transition period and posting will be both irregular and less frequent for a couple of weeks. I will, however, continue microblogging via Twitter, so you can keep up with my regular interests there.
Red Leaf Resources has begun mining operations at its Seep Ridge property in Utah. This is the demonstration project which will show whether or not crude oil can be cheaply and efficiently wrung from the rocks of the massive Eocene Shale formation of the Rocky Mountain states. Red Leaf asserts that its EcoShale process can produce oil with little external energy inputs and with little water other than that needed to sustain crews (critical in the parched US west). An EROI (energy returned from energy invested) of 10:1 would make it competitive with normally pumped crude. If successful, the US suddenly will have more than twice the total oil reserves of Saudi Arabia. This would radically transform the energy geopolitics of the entire world.