Worker unrest in the workers' purgatory

FRONT PAGE: "Murder Bares Worker Anger Over China Industrial Reform," by Sky Canaves and James T. Areddy, Wall Street Journal, 31 July 2009.

China's steel industry has something like 800 companies. Naturally, as production has boomed, consolidation has occurred, encouraged by the government (I don't know why the WSJ calls it "reform" here).

And with consolidation comes job cuts.

And with job cuts comes a lot of worker anger, which China is none too adept at defusing.

"The fix for one problem becomes the cause for my next problem," Sir Carlos Iatrogenia, after several ales, 1624

SCIENCE LAB: "For Better, and Worse: The chemicals that replaced ozone-depleting gases have caused their own problems," by David A. Fahrenthold, Washington Post National Weekly Edition, 27 July-2 August 2009.

Gist: the hydrofluorocarbons (HFCs) we intro'd to replace ozone-depleting gases are now becoming this super source of greenhouse gases. Thus, you can still get rid of all sorts of CO2 and still face this big upward pressure from these "super greenhouse gases" (they have a heat-trapping power that dwarfs CO2) that today account for roughly 15% of the problem.

Worst, it's the emerging markets that are supplying the bulk of these, somewhere between 5 to 9 times as much as developed markets by 2050.

Man, and you thought getting New Core agreement on CO2 was going to be hard . . ..

More ex-cons on the street, but somehow less crime

GOVERNMENT & SOCIETY: "'Experts Did Not See This Coming at All': Crime rates have plummeted in major U.S. cities, but no one can explain why," by Allison Klein, Washington Post National Weekly Edition, 27 July-2 August 2009.

Over the years I've had the opportunity to talk to a lot of big metro police officials who've likened my particular version of Gap analysis to their own regarding depressed inner-city environments, and one thing I heard a lot over the years was that America's crime rate was destined to rise as the three-strikes and other lengthened prison term initiatives eventually timed out, meaning the first wave of such sentencing played out in full and prisons started dumping tons of ex-cons back on the streets. A rough figure I heard was that we'd continue to sentence 500k a year but that we'd soon hit about 600k released a year.

Well, the prediction now seems to be wrong, and nobody's quite sure why. The recent economic downturn doesn't exactly equate to the social dynamics of the 1930s, which were mild, crime-wise, compared to the Roaring 20s. And yet, comparing the 2000s to the 1990s does make you consider similar arguments: harder economic times breeds social conservatism to include less tendency toward crime.

Another possible explanation? PDs are getting a lot better at catching murderers.

'Peak Oil' tapped out

OP-ED: 'Peak Oil' Is a Waste of Energy, By MICHAEL LYNCH, New York Times, August 24, 2009

Ouch! This one rips quite a few new ones among the alarmist crowd.

The basics:

Let's take the rate-of-discovery argument first: it is a statement that reflects ignorance of industry terminology. When a new field is found, it is given a size estimate that indicates how much is thought to be recoverable at that point in time. But as years pass, the estimate is almost always revised upward, either because more pockets of oil are found in the field or because new technology makes it possible to extract oil that was previously unreachable. Yet because petroleum geologists don't report that additional recoverable oil as "newly discovered," the peak oil advocates tend to ignore it. In truth, the combination of new discoveries and revisions to size estimates of older fields has been keeping pace with production for many years.

A related argument -- that the "easy oil" is gone and that extraction can only become more difficult and cost-ineffective -- should be recognized as vague and irrelevant. Drillers in Persia a century ago certainly didn't consider their work easy, and the mechanized, computerized industry of today is a far sight from 19th-century mule-drawn rigs. Hundreds of fields that produce "easy oil" today were once thought technologically unreachable.

The latest acorn in the discovery debate is a recent increase in the overall estimated rate at which production is declining in large oil fields. This is assumed to be the result of the "superstraw" technologies that have become dominant over the past decade, which can drain fields faster than ever. True, because quicker extraction causes the fluid pressure in the field to drop rapidly, the wells become less and less productive over time. But this declining return on individual wells doesn't necessarily mean that whole fields are being cleaned out. As the Saudis have proved in recent years at Ghawar, additional investment -- to find new deposits and drill new wells -- can keep a field's overall production from falling.

When their shaky claims on geology are exposed, the peak-oil advocates tend to argue that today's geopolitical instability needs to be taken into consideration. But political risk is hardly new: a leading Communist labor organizer in the Baku oil industry in the early 1900s would later be known to the world as Josef Stalin.

When the large supply disruptions of 1973 and 1979 led to skyrocketing prices, nearly all oil experts said the underlying cause was resource scarcity and that prices would go ever higher in the future. The oil companies diversified their investments -- Mobil even started buying up department stores! -- and President Jimmy Carter pushed for the development of synthetic fuels like shale oil, arguing that markets were too myopic to realize the imminent need for substitutes. All sorts of policy wonks, energy consultants and Nobel-prize-winning economists jumped on the bandwagon to explain that prices would only go up -- even though they had never done so historically. Prices instead proceeded to slide for two decades, rather as the tide ignored King Canute.

Just as, in the 1970s, it was the Arab oil embargo and the Iranian Revolution, today it is the invasion of Iraq and instability in Venezuela and Nigeria. But the solution, as ever, is for the industry to shift investment into new regions, and that's what it is doing. Yet peak-oil advocates take advantage of the inevitable delay in bringing this new production on line to claim that global production is on an irreversible decline.

In the end, perhaps the most misleading claim of the peak-oil advocates is that the earth was endowed with only 2 trillion barrels of "recoverable" oil. Actually, the consensus among geologists is that there are some 10 trillion barrels out there. A century ago, only 10 percent of it was considered recoverable, but improvements in technology should allow us to recover some 35 percent -- another 2.5 trillion barrels -- in an economically viable way. And this doesn't even include such potential sources as tar sands, which in time we may be able to efficiently tap.

Author:

Michael Lynch, the former director for Asian energy and security at the Center for International Studies at the Massachusetts Institute of Technology, is an energy consultant.

Now to receive the emails that dismiss all this as NONSENSE SIR! PURE AND UTTER NONSENSE!!!!!

Giving up the names

ARTICLE: U.S. Shifts, Giving Detainee Names to the Red Cross, By ERIC SCHMITT, New York Times, August 22, 2009

As essential fall-out from the CIA scandal and resulting Justice investigation: the military wants separation from all that.

Mafia-style warfare has its utility

WORLD NEWS: "Killings Rattle Pakistan Taliban: Leadership of Militant Group Falls Into Turmoil Amid Reports of Deaths, Infighting," by Zahid Hussain, Wall Street Journal, 24 August 2009.

We knock off the leader of the Pakistani Taliban (with a drone) and trigger some infighting as successors seek to emerge. Baitullah Mehsud, the leader we killed, was around 40 years old. The new guy, Hakimullah Mehsud, is 29. Naturally, he is known as a ferocious fighter, just less experienced in ruling than his unrelated fellow tribesman (Mehsud tribe). "Analysts said the election of the young and impetuous militant could accentuate divisions in the group." Hakimullah is known as a ruthless enforcer of unity in a loosely knitted insurgency.

Point being, he either spends a lot of effort making unity happen, or the resulting infighting can be quite destabilizing. Either way, resources are wasted on their side.

Mafia-style decapitation strategies never work on their own. But success rarely comes without including that strategy in your tool kit.

This could take a while

ARTICLE: U.S. Mulls Alternatives for Missile Shield, By JUDY DEMPSEY and PETER BAKER, New York Times, August 28, 2009

An easy prediction, and a good call by Obama.

Expect the planning to go on for a very long time.

The return of deficit/debt politics draws nigh

FRONT PAGE: "Deficit Projected To Soar With New Programs: 10-Year Estimate of $9 Trillion Is Latest Hurdle for Obama Agenda," by Lori Montgomery, Washington Post, 26 August 2009.

The article with the numbers: $1.58T (with a T!) in 2009, and about the same in 2010. Then back--or so the prediction goes--to levels that still are way above anything Bush had ($700-750B range, where Bush's '08 was only $459B (a quaint number in perspective.

This year's deficit, as a percent of GDP, would be our highest since WWII.

This is why compromise on health care is inevitable, although it will be fascinating to watch how the second wave of H1N1 alters the national debate.

Interesting times, to say the least.

Nice to see in China: activist lawyer released--under popular pressure

WORLD NEWS: "Beijing Releases Activist Lawyer," by Sky Canaves, Wall Street Journal, 24 August 2009.

ARTICLE: Without Explanation, China Releases 3 Activists, By MICHAEL WINES, New York Times, August 23, 2009

Opening article begins with:

Chinese authorities unexpectedly freed from jail a prominent legal activist on Sunday after an increasingly vocal campaign against his detention by China's growing ranks of citizen activists.

The second story proposes that there is "speculation about whether a crackdown is temporary," referring to the past few weeks and months. It also states that, "Officials offered no reason for the releases, but they occurred one day after the new American ambassador to China, former Gov. Jon M. Huntsman Jr. of Utah, arrived in Beijing."

The guy in question, Xu Zhiyong, heads the Open Constitution Initiative, a collective of lawyers who have taken on cases against the government. Still, "Mr. Xu's detention and later arrest have surprised many here because his Gongmeng center is regarded as among the most cautious and conservative of China's small band of public-interest organizations."

No word if the tax-evasion charges will be dropped or when the center will open again. Xu was released on bail, which is unusual for China.

Something to track, all right.

Open the kingdom's . . . wallet!

FINANCE AND ECONOMICS: "Rebalancing the world economy (China): The spend is nigh; The second article in our series on global rebalancing asks whether China can reduce its trade surplus by consuming more," The Economist, 1 August 2009.

THE TAKE: "Get Out the Wallets: The world needs Americans to spend," by Fareed Zakaria, Newsweek, 10/17 August 2009.

The gist of the series: America must consume less and save more, so the three big surplus exporters of the global economy (China, Germany and Japan) must do the opposite--with China facing the biggest shift.

Good news is that the surplus is already shrinking, says the piece, and dramatically so in terms of merchandising. Some observers suggest China could have a monthly trade deficit within a year or two, as amazing and unbelievable as that sounds.

Meanwhile, China's current growth seems entirely built on domestic demand.

Yes, it's likely that China will have somn surplus for the long haul. Don't forget the 700m or so living on little. But there's enough domestic demand to contemplate China becoming a serious consumption pillar alongside the U.S. Truth be told, only about 10% of China's growth in the last decade was export driven, so we're talking about a tipping point long in coming.

The problem is that most of the domestic demand is investment vice true consumption, so infrastructure is king. Thus, China's capital spending could outpace America's soon event though it's consumption is one-sixth ours.

As Zakaria points out, "U.S. consumption is equal to the economies of China and India added together and then doubled."

It's not that consumption isn't growing in China, because it's growing fast. It's just that it could go so much faster if the savings weren't so high out of fear of catastrophic illness (health care) and the paucity of old age pensions, two huge weak spots for China. Even there, the government doubles such spending since 2005, only to see it account for a mere 6% of GDP instead of the OECD/Old Core standard of 25%. Point being, China won't be eliminating those popular fears any time soon. The gap to be made up is big.

But the article argues that it's the savings of companies that does even more damage. China's rise has made companies far richer than the workers. There's too much capital-intensive growth that does not create enough jobs or enough of the service side of the economy.

Solution? China must stop incentivizing such growth so intensely and encourage other forms. It must also allow the yuan to appreciate.

Both prescriptions will be very hard to fill.

The role America played in the Asian "miracle"

BOOKS AND ARTS: "Asia's quest for wealth: Going for growth; The Miracle: "The Epic Story of Asia's Quest for Wealth, By Michael Schuman, Harper Business; 464 pages; $29.99 and £16.99," The Economist, 1 August 2009.

The "crucial role" played by America, as paraphrased by The Economist:

Willingly and unwillingly, [America] provided critical technology, from the transistors at the core of Japan's televisions and radios to the semi-conductor designs produced in Taiwan's forges. It accepted products from Japan, South Korea and Taiwan when none of the three showed any reciprocity (something still true in many areas of China's economy today). Moreover, many of America's most dynamic companies were prepared both to open manufacturing operations throughout the region and to place critical initial orders with Asian companies so as to help them launch industries such as India's data outsourcing centers.

Point: it wasn't just the Leviathan work that was crucial.

The greatest analyst of Marxism who ever lived

OBITUARY: "Leszek Kolakowski: Leszek Kolakowski, a Polish-born Oxford philosopher, died on July 17th, aged 81," The Economist, 1 August 2009.

Kolakowski's Main Currents of Marxism, a three-volume set, is the single best critique of Marxism known to man, rivaling in every sense the seminal three-volume work Das Kapital by Marx himself. The two trios sit side-by-side on my bookshelves, and I have to tell you that, after reading both (first) cover to (last) cover, Kolakowski's books are far superior in logic and readability (then again, a good phonebook beats Marx on the latter).

As The Economist argues, Main Currents "calmly and expertly demolished the pillars of Marxist thought: the labour theory of value, the idea of class struggle, historical materialism and the like." As for real world practice, Stalinism was not the exception but the inevitable apogee, says Kolakowski:

"The only medicine communism has invented--the centralized, beyond social control, state ownership of the national wealth, and one-party rule--is worse than the illness it is supposed to cure; it is less efficient economically and it makes the bureaucratic character of social relations an absolute principle."

The guy was no great fan of free markets, as one might expect of a lapsed communist. He just judged the "material and spiritual desolation" of communist rule to be worse than the materialism and religiosity of democratic market states.

His most famous statement:

We learn history not in order to know how to behave or how to succeed, but to know who we are.

Hard to beat that.

I was introduced to Kolakowsky by my Harvard mentor, Adam Ulam, another Polish intellectual who knew well how to dissect communism's many and egregious faults.

The economic collapse translated into falling demand for ag products

BUSINESS: "America's faltering livestock industry: Animal welfare; As exports tumble, America's pig and cattle farmers are stumbling," The Economist, 25 July 2009.

All that rising New Core demand for higher caloric foods quickly evaporated with the crash, resulting in a flood of unwanted Old Core supply. And when that sort of destocking happens in the ag business, it's brutal.

The big shift arriving on Japan

FRONT PAGE: "Rise of a New Era for Japan: A 50-Year Dominance Ends as Voters Oust LDP; Rivals to Spend More, Weigh U.S. Ties," by Yuka Hayashi, Wall Street Journal, 31 August 2009.

FRONT PAGE: "Japan Is Bracing For Power Shift: Long Economic Stupor Is the Spur for Voters," by Martin Fackler, New York Times, 26 August 2009.

WORLD NEWS: "Likely Japan Leaders to Focus on Asian Ties: The Party Poised to Win Sunday's Election Is Expected to Seek Greater Independence From U.S. and Better Regional Relations," by Carlos Tejada and Evan Ramstad, Wall Street Journal, 27 August 2009.

First, Japan is poster child for my observation that many states basically go one-party for about half a century post-revolution/whatever (in Japan's case, it was defeat in WWII and U.S. occupation) as they modernize and connect up with the global economy. The LDP first won in 1956 and has basically ruled uninterrupted since, with the sole deviation being 1994-1998. Being a parliamentary system, we're talking domination in both the executive branch and legislative.

No quick choice this, as the "long economic stupor" goes back to the early 1990s, so this isn't the first time Japan has decided to replace the LDP. It's just that, this time, the shift is more profound and therefore seems more permanent.

China was Japan's biggest trade partner in 2008 at 28T yen. US next at 22T, then Korea, Taiwan, Australia, UAE, Thailand, Indonesia, Germany and HK (also China). So seven of top 10 trade partners are Asian locals.

Given the underlying economic drivers, no surprise that a new focus on Asia will emerge, reducing the special relationship with America. First Australia with Rudd and now Japan: we see Asian "Western" leaders who see their nation's strategic future being one of managing China's rise versus following America's lead.

Clearly inconceivable, but it happens anyway.

Party-wise, going to the mattresses inside Iran

WORLD NEWS: "Iran's Cabinet Picks Widely Denounced," by Farnaz Fassihi, Wall Street Journal, 24 August 2009.

WORLD NEWS: "Iran Reformists Challenge Supreme Leader: An Open Letter to a Senior Clerical Assembly Demands an Inquiry into Whether Ayatollah Ali Khamenei Is Fit to Rule," by Farnaz Fassihi, Wall Street Journal, 15-16 August 2009.

The Revolutionary Guard and Ahmadinejad are definitely out of the closet on their power plays: a slate of 21 cabinet ministers clearly picked on the basis of political loyalty and not talent. Combined with the show trial of opposition party players, little wonder that even allied factions are speaking out.

But I was stunned to see the letter on Khamenei's fitness to rule. That's like challenging the Pope's infallibility.

Criticizing the supreme leader was once unthinkable, and had serious repercussions. Now, demonstrators regularly chant slurs against Mr. Khamenei and write insults about him in green spray paint on walls in the capital.

So with Ahmadinejad and the Guards suppressing dissent, expect more such open letters, a very Iranian method of expressing dissent (like the one alleging rape of political prisoners).

All good stuff, even as we shouldn't expect any great breaching of the dam any time soon.

Afghani pain continues to teach

ARTICLE: U.S. Sets Metrics to Assess War Success, By Karen DeYoung, Washington Post, August 30, 2009

How Rumsfeldian! Metrics to track progress in Afghanistan.

Crazy and Vietnam-ish when Bush and Co. spoke such nonsense in Iraq, but cool and rational now with Obama and Co. diagnosing Af-Pak.

But it does point up the reality that our doctrinal deficit here is still huge, along with effective MOEs (measures of effectiveness).

So Afghanistan adds to the learning, all right.

China extends its influence for a change

ARTICLE: China Urges Burma to Bridle Ethnic Militia Uprising at Border, By Tim Johnston, Washington Post, August 29, 2009

China, as always, wants the resources but does not care about the impact on the people. One thing to do it in Africa, another thing to do it in a country on your border--thus the rare rebuke.

The coming shock of swine flu

ARTICLE: Swine Flu Could Infect Half of U.S., By Rob Stein, Washington Post, August 25, 2009

The presidential report on H1N1 suggests a System Perturbation in the making: the winter of the flu.

Viva Intellipedia!

ARTICLE: For Intelligence Officers, A Wiki Way to Connect Dots, By Steve Vogel, Washington Post, August 27, 2009

Main idea:

Intellipedia is a collaborative online intelligence repository, and it runs counter to traditional reluctance in the intelligence community to the sharing of classified information. Indeed, it still meets with formidable resistance from many quarters of the 16 agencies that have access to the system.

But the site, which is available only to users with proper government clearance, has grown markedly since its formal launch in 2006 and now averages more than 15,000 edits per day. It's home to 900,000 pages and 100,000 user accounts.

To me, this is the best type of intelligence reform and the sort of intra-community collaboration we should have had all along. We are super-empowering analysts and killing ORCON (originator-controlled).

Iran's ongoing nuclear mission

ARTICLE: Nuclear Agency Says Iran Has Bolstered Ability to Make Fuel but Slowed Its Output, By WILLIAM J. BROAD and DAVID E. SANGER, New York Times, August 28, 2009

Iran's strategy seems unchanged: bolster the capacity but be in no particular hurry to weaponize.

It remains a clever approach that tries not to cross THE line while making it clear that Iran seeks a capacity to deter outside aggressors.

Plus, with Israel teeing up a strike, why put more food on the table?