Sunday, May 20, 2012

Penny Wise And Pound Foolish

I've said several times on this blog that our leaders are aware of Peak Oil and it's implications, and that they dare not acknowledge it for the effect it would have on the general public. I came to this conclusion based on on several reasons. 1.) The embracing of austerity seems to be a tacit acknowledgement that future growth will be anemic to nonexistent; of course liquidating civil society and driving down the living standards of your citizenry will not return an economy to growth; any idiot can see that, 2.) The political class has completely merged with the investor class, and this class is increasingly aware of the reality of future resource scarcity and is attempting to profit from it, 3) Military reports have leaked from the world's leading military forces acknowledging Peak Oil and its implications; no military can survive by denying reality and these reports certainly reach the desks of the political class (and by extension, the investor class, see #2), and 4.) Many prominent people who deny Peak Oil have taken steps to mitigate its effects (c.f. diesel generators in the Hamptons, the solar panels on George W. Bush's ranch).

But this makes me wonder. the Republican Party have taken steps to ban the use of biofuels in the military in favor of fossil fuels. This is treated as just another gift to the fossil fuel industry, to whom they are completely in thrall. But surely if they are aware that fossil fuels are going to be increasingly scarce, they would not kill the very programs that would allow the U.S. military to function, and thus keep the world's dwindling resources flowing to the American homeland.

I think the Republican reactionary ideology has taken that critical step taken by both Hitler's Naziism and Soviet Communism in their final days of denying absolute reality in favor of ideology. Put another way, the Republicans have started to buy their own bullshit; their denial of reality has become so ingrained that it must be maintained at all costs. The true believers do not see the folly of fighting wars for oil, only to burn that oil in more wars to secure more resources; they must believe the cornucopian worldview fed to their followers or risk being forced out the way all the other "moderate" Republicans have been. Note that even the supposedly "conservative" U.S. military has championed the use of biofuels, and not just to develop future industries; they know full well it's their only way of functioning as fossil fuels are increasingly shuttled to uses just to prop up the status quo. It's similar to the late Roman Empire, where more and more resources had to be devoted to the military just to maintain the borders of the empire from numerous assaults, but the costs of the army ate up the very society they were defending and hollowed it out (and their rich were able to exempt themselves from taxation too). When Republican reality has become so unhinged that they are not even listening to military commanders, whether from sheer ignorance or venality to their paymasters in the fossil fuel industry, you know we've reached a truly pivotal turning point in the decline of America's empire:
Two items of news caught my eye today. The first is that Republicans in Congress are trying to stop the U.S. military from using biofuels:

    In its report on next year’s Pentagon budget, the House Armed Services Committee banned the Defense Department from making or buying an alternative fuel that costs more than a “traditional fossil fuel.”...if the measure becomes law, it would make it all-but-impossible for the Pentagon to buy the renewable fuels. It would likely scuttle one of the top priorities of Navy Secretary Ray Mabus. And it might very well suffocate the gasping biofuel industry, which was looking to the Pentagon to help it survive.

Now, this sounds like a fairly straightforward narrative: cost-conscious Republicans versus free-spending Democrats who want to push a "green" agenda and protect favored industries. But a moment's thought will reveal that it's not so simple. The "cost" of a fuel source is not entirely reflected in its spot price. Here are purely economic reasons why the military might want to buy some biofuel:

1. Research and development. If the cost of biofuel can be brought below the cost of fossil fuels, not just the U.S. military but the entire human race will massively benefit. However, energy technology must be embodied in actual economic activity - it probably takes a lot of large-scale investment and trial-and-error to advance the state of the technology. Therefore, what looks like expensive biofuel might actually be cheap to a very patient monopsonist. Already, the cost of algae-based biofuel purchased by the U.S. Navy has fallen by a factor of 16 in two years!

2. Idiosyncratic risk. The U.S. Military faces different risks than other fuel buyers. For one thing, the military's budget changes very slowly, so spikes and dips in the price of fuel can interrupt military operations. This provides an incentive for the military to diversify its fuel sources. Also, a successful operation by an enemy military power to temporaily block the international flow of fossil fuels during a war would be annoying for a business, but devastating for our military.

In fact, the Secretary of the Navy made basically these arguments:

    Mabus and his allies countered that...Of course relatively small batches of a new fuel are going to be expensive — just like the original, 5GB iPod cost $400 and held fewer songs than today’s $129 model, which holds 8 GB. That’s the nature of research and development. With development time and big enough purchases, the costs of biofuels will come down; already, the price has dropped in half since 2009...

    What’s more, Mabus added, there’s a value in a more stable, domestic supply of fuel; every time the price of oil goes up by a dollar per barrel, it costs the Navy $31 million. “We simply buy too much fossil fuels from places that are either actually or potentially volatile, from places that may or may not have our best interests at heart,” he said...

    None of those arguments managed to sway House Republicans[.] (emphasis mine)

So do Republicans just have a weak grasp of some of the more subtle points of economics? Or do they have some vested interest in blocking the adoption of non-fossil energy sources?

The other news story that caught my eye may provide some insight into that question. It's about a new campaign by conservative think tanks to block the adoption of solar and wind power...
A Pro-Fossil Fuel Industrial Policy (Noahpinion). See the article for more on that last point. And Slate makes similar points about this jaw-dropping shortsightedness:
The rationale for barring the Navy from buying the 450,000 gallons of biofuels necessary for the experiment is economic: These fuels are too expensive—about four times more costly than conventional fuels.

To hammer home the point, the committee’s Republican leaders passed an amendment barring the entire Defense Department from using any alternative fuels, for any purpose, if they’re more expensive than oil. But then, in a shameless disclosure of who’s paying the tiller, they tacked on a provision exempting coal and natural gas from this prohibition. As Noah Shachtman put it in Wired’s Danger Room blog, they “didn’t put limits on all alternative fuels—just the ones with environmental benefits.”

Even now, in its early phases, solar is a more mature technology than biofuels. In part that’s because there’s almost no market for biofuels—mainly because, as the House committee complained, they’re too expensive. But some of modern history’s most revolutionary devices started out as too expensive; and they would have stayed that way—they might never have got off the ground—had the federal government not created the market. And since, in American politics, the military and space programs have been the federal government’s only sources of manufacturing, it’s the Pentagon and NASA that have created those markets.

Take the microchip. It was first demonstrated at the radio industry’s tech show in 1959, to little fanfare because, at $35 per chip, it was too expensive for any commercial application. The equation changed in 1961, when President John F. Kennedy proclaimed his goal of sending a man to the moon by the end of the decade—and when he and his secretary of defense, Robert McNamara, decided to build the Minuteman II missile. Those acts created a market for the microchip (conventional transistors weren’t adequate for the rockets’ guidance systems); the extra production spawned economies of scale, which brought the costs down to the point where commercial products were feasible, which triggered further demand, which spawned greater economies of scale and competition from other firms, which lowered prices further … and on it went, until 1971, when the price for a chip had plunged to $1.25. (By 2000, it was down to 5 cents.)

Ditto for the computer. The first model cost hundreds of thousands of dollars. Its only customers were the nuclear-weapons labs (to perform the elaborate calculations involved in designing an H-bomb), the Selective Service system (to keep track of draft-age men), and the Social Security Administration (to pay benefits to retirees). After even a few computers were built, the price dropped to the point where large private banks and railroads could afford them, at which point the price dropped further. The rest is history.

Alternative fuels are currently in the same trap. In the long run, they are likely to save money, reduce our dependence on foreign producers (many of them with less-than-stable regimes), and do less damage to the environment. But in the short run, they are too expensive—and, in some cases, their net benefits are too uncertain—for private citizens, or very many companies, to take the plunge.
Why We Need a Greener Military: Congress banning the U.S. military from using biofuels is just plain dumb.(Slate)

Talk about penny wise and pound foolish. So much for America's leadership role in future industries. I think I was giving "conservative" leaders too much credit. The alternative theory - that austerity must be embraced because any government action to ameliorate the crisis fallout will be a camel's nose for socialism - seems to be the more true one based on the above. The good news is the fact that the idea of a system that is both repressive and sustainable, and thus can last forever, which I believe Ran speculated about on his site when discussing the Navy's use of solar and biofuels appears to no longer be as much of a threat.


  1. "I think the Republican reactionary ideology has taken that critical step taken by both Hitler's Naziism and Soviet Communism in their final days of denying absolute reality in favor of ideology."

    Which is what happens to any empire when its grandiose plans runs headlong into reality.

    I recently read an article recently about how in the early 1980s CIA analysts who were correctly reading the tea leaves and reporting that the Soviet Union was in rapid decline were ousted by the Reagan administration despite being dead on with their analysis because the truth didn't fit Reagan's political agenda. That brought to mind the CIA's eerily accurate prediction about Peak Oil made back in 1978, that I wrote about a year ago:

    So do our "leaders" "know" about Peak Oil? Or are they in deliberate denial because it does not fit their agenda? Only they know for sure.

    1. You may be a fake Bill Hicks, but you're a very interesting blogger. I'm following your blog, which will be the subject of my next blog recommendation at Crazy Eddie's Motie News.

  2. "I think the Republican reactionary ideology has taken that critical step taken by both Hitler's Naziism and Soviet Communism in their final days of denying absolute reality in favor of ideology. Put another way, the Republicans have started to buy their own bullshit; their denial of reality has become so ingrained that it must be maintained at all costs."

    There are reasons why Kunstler calls these people "corn pone Nazis" and I have adapted that into "corn pone fascists." You've provided yet another one.

    Also, your conclusion that "austerity must be embraced because any government action to ameliorate the crisis fallout will be a camel's nose for socialism" fits right in with what Greer wrote last week, that he sees a retooled Marxism as a likely response to what the corn pone fascists are proposing. If any government action to help people is socialism, then maybe we should have some real socialism. Mind you, Greer thinks this would be misguided. I have my doubts about this, too. I think Authoritarian Capitalism is more likely and more of a threat than a serious Marxism. Besides, Greer literally believes in magic.

  3. Corn-pone Nazis (or fascists) is a great phrase, and dead-on accurate. The "Heartland" seems to be chock full of them (I know, I live here). they won't be held back forever. What's the matter with Kansas?

    I found JMG's assertions about Marxism making a comeback to be a bit strange, and wrote so in my comments to that piece (under escapefromwisconsin). I think he runs in a different crowd, which may give him a different perspective. Like when he spends time debunking end of the world rhetoric - in his circles people may actually believe that stuff. Among people that I know, it's not really an issue so there's no use even bringing up the subject.

    I think he believes that the demonization of Marxism will cause a counterreacion of people seeking it out, but as I said in my comments, Americans don't have the cognitive capacity, and Marx was speaking to a very European situation in a very specific time. Can anyone imagine Americans sitting through this? Europe and South America might be a different story. For Pete's sake, the leaders of China still self-identify as Communists!

    If there's one thing Americans hate it's bearded intellectuals. If anything, they will go for Huey Long-style populism, but given the control of the media, I find even that hard to swallow.

    P.S. Instead of Marx, they should be reading Thorstein Veblen - similar to Marx's analysis but with an American focus and without all the baggage.


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