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On Thomas Piketty’s “Capital in the 21st Century”

April 24, 2014

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.

The Four Phases of the Long Cycle . . . We are in the coalitioning phase; macrodecision (previously war but possibly Great Power Collapse) is fast approaching

The Four Phases of the Long Cycle . . . We are in the Coalitioning Phase

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.”

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EnerGeoPolitics update

April 22, 2014

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.

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Oil Shale news: RedLeaf begins mining

April 17, 2014

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.

 

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Military spending up everywhere . . . except in the West

April 16, 2014

The Stockholm International Peace Research Institute (SIPRI) has released its annual report on global military spending, and has found that spending has increased in every region of the globe – except the US and its European allies.

Power, like nature itself, abhors a vacuum.  As the West declines, other powers rush to fill the gap.  The EU, today, sees events in Ukraine as a wake up call and is set to increase defense budgets.  The US, constrained by sequestration, is not – but doesn’t need to.  The US only needs to spend wisely – of course, it takes a kind of seriousness and courage rarely seen in budgeters to hack through all the politically protected items in the Pentagon budget.  We won’t get everything, but hopefully we can get enough.

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US Naval Institute looks at China

April 14, 2014

Proceedings is the monthly journal of the US Naval institute.  The April 2014 issue is focused primarily on the naval challenge that China presents to the US.   Several of the articles are open to the general public, but many require membership with USNI (which includes both a digital and paper subscription to Proceedings – well worth the price of membership for anyone interested in geopolitics).  This issue does a good job of covering many different possible approaches to dealing with China in the Western Pacific.  James R. Holmes argues for a very forward strategy of fortifying and patrolling the First Island Chain, while Milan Vego argues for the less aggressive approach of a distant blockade of Chinese shipping  as it transits from the Indian to Pacific Oceans.

The First and Second Island Chains

The First and Second Island Chains

I strongly recommend reading the entire issue, but these two pieces in particular.  I also read with particular interest the Navy’s dormant plans for transforming Guam into a forward base capable of hosting aircraft carriers.  This would make Guam a clear and early target for preemptive attack . . . which is actually another reason why I believe that Guam should be made a state.  An aggressor would be far more reticent about attacking a US state than it would a territory, IMO.

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Does the stealthy F-35 need a non-stealthy escort to be effective?

April 11, 2014

That is the argument being made by the Navy, which wants to order more EA-18 Growler electronic warfare aircraft.  Boeing, the Growler manufacturer, is also lobbying for increased production.

“The notion they (F-35s)  can go in alone and unafraid is just plain wrong. The threat is doing two things. Their search radars are at VHF [frequencies] and getting lower, and with computer processing power they are getting much better. They (Chinese and Russian radars) can see them [fifth generation attack aircraft] hundreds of miles away, just like any other aircraft.”

The F-35 is the most expensive weapons program in history, and it has been troubled from the start (to be sure, this is often the case – I recall that many of  the new systems during the 1980s defense buildup were troubled, but they amazed the world when they finally saw combat in the Gulf War).

Probably the most fascinating thing about this article is the passionate debate that is being carried on in the comments section.  Read the whole thing – especially the comments.

 

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Is Germany the real target of Russia’s Ukraine adventure?

April 10, 2014

Interesting thoughts from Jan Techau:

Eighty-one percent of (Germans) asked believed that Russia is not a trustworthy partner … (b)ut 58 percent thought the same about the United States … 49 percent of Germans stated that their desired political position is equidistance between the West and Russia … (o)nly 45 percent believed that Germany should be firmly embedded in the West.

Equidistance is precisely the position into which Soviet and then Russian leaders have tried to lure Germany since the 1950s. Attempts have ranged from Stalin’s repeated offer to grant Germany neutrality in return for unification in 1952, to Leonid Brezhnev’s long-term strategy to use energy dependence to bind Germany to Russian interests, to President Vladimir Putin’s masterful psychological exploitation of German fears on issues such as missile defense or Ukraine. In all these instances, Moscow’s aim was to de facto neutralize Germany despite its integration into the West.

These efforts have never been fully successful. But they have been successful enough to make Germany an often wobbly ally and to spread uncertainty and fear, especially among Central European countries, most notably Poland. The Kremlin knows full well that uncertainty and fear are the very ingredients that, if nurtured for long enough, will poison every relationship and even the strongest alliance.

Driving a wedge into Westbindung remains a preeminent goal of the Russian leadership. Moscow’s spokespeople and pundits in the West are in high rotation to increase the spread of propaganda aimed at loosening Germany’s ties with the West. Russia’s representatives are smart, they are in it for the long haul, and they often do their job with considerable skill.

 

Read the whole thing.

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