Dana Blankenhorn

The Stupid Abides

Think of this as Volume 18, Number 43 of the newsletter I have written weekly since March, 1997. Enjoy.

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Every crisis period in American history proceeds in its own way, at its own pace.

What’s remarkable about the current crisis is how relatively non-violent it has been. This has extended the period of crisis.

Yes, there have been small wars, and police killings, and random violence. But we haven’t had a Vietnam, a World War II, or a Civil War. Global prosperity is actually high and rising, with millions in Africa and Latin America leaving extreme poverty every year.

In retrospect, this means Barack Obama will be seen as one of the great Presidents.

Whip Deflation Now

Think of this as Volume 18, Number 42 of the newsletter I have written weekly since March, 1997. Enjoy.

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History doesn’t repeat itself but it rhymes.

Our decade reads like a bizarro version of the 1970s. We’re going through an oil shock, but it’s in reverse.

The 1970s were vulnerable to such a shock due to the nature of the economy. We were a manufacturing economy. Inputs of raw materials and wages determined prices and profits.

But beneath the headlines a new kind of economy was being born, one based on Moore’s Law.

Obama as Reagan

Think of this as Volume 18, Number 41 of the newsletter I have written weekly since March, 1997. Enjoy.

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One of the most interesting history papers I ever read was written by my son, when he was in high school. (He chose to study biology in college.)

His subject was the Cold War. He wrote that John F. Kennedy talked the language of soft power but mainly engaged in hard power, the use of military force, while Ronald Reagan talked the language of hard power while mainly using soft power, diplomacy and economic pressure.

Much of what Reagan accomplished was obscured by his stupidities, like the Iran-Contra scandal. But one thing he did do was convince the Saudis to increase production and tank the price of oil, which fell to as low as $10/barrel in 1986.

This gave the Saudi family far more influence in regional and global affairs, which is something we’re still dealing with. But it also strangled the Soviet Union and helped bring it down. Lower oil prices also collapsed gold and diamond prices throughout the decade, eliminating the party’s means of acquiring foreign exchange and keep itself afloat. The final collapse became inevitable.

Something very similar is happening now, spurred by the diplomacy of Barack Obama, who despite his use of drones, planes, and Internet wiretaps has mainly focused on soft power throughout his presidency.

Once again, the Saud family is in the oil market’s driving seat. Once more, they’re hitting the accelerator in order to damage regional and global foes. The 20% drop in oil prices has hurt Iran, which is its main rival for influence over Iraq and Syria. The drop has also hurt Vladimir Putin, and the Russian economy is now circling the drain for the same reasons it did 30 years ago.

The fall in oil prices has also hurt Obama’s main rivals for power in the U.S., the oil barons. Our recovery has mainly been driven by rising oil production, and the producers are giving the Administration no credit for that. On the contrary, oil barons like the Koch Brothers have been spending hundreds of millions of dollars to take back the Congress and, by 2016, the White House.

The Existential Threat of 2014

Think of this as Volume 18, Number 40 of the newsletter I have written weekly since March, 1997. Enjoy.

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While every real crisis in American history is based in economics, the existential threat behind it remains the same.

That threat is to democracy.

Democracy matters for the same reason capitalism matters, and for the same reason liberty matters. Democracy gives a society flexibility. In times of rapid change, and all times are times of rapid change, flexibility matters a lot.

Flexibility means you can adjust to change. And flexibility always comes from the bottom-up, never the top-down. Incumbent leaders either have a set direction that has always worked for them, or demand a set direction whether it is working or not. They want to stay on top, and that desire will always trump the need for change.

Democracy changes leaders. Capitalism brings change to the mix of products and services offered for sale. Liberty delivers new ideas and concepts to the market, to society, and eventually to leaders.

What drives democracy under is tribalism. When people are aligned by tribe, they stop responding to signals for change that are all around them. They follow their tribal leaders instead.

The Sarah Palin Oil Shock

Think of this as Volume 18, Number 39 of the newsletter I have written weekly since March, 1997. Enjoy.

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Right now the economy is going through what I call the first “reverse oil shock.”

It’s not “the big one.” But it is a foretaste of what is to come, at some point in the next six years, as we harness more of the wind that blows, the Sun that shines, the energy from our molten rock and the cheapest form of renewable energy there is, efficiency.

We know this is not “the big one” because this premature oil shock is the product of our own oil and gas industry. The U.S. refines about 9 million barrels per day and has three new oil production basins, which barely existed five years ago, each producing 1 million or more per day of those needed barrels.

You might even call this the Sarah Palin Oil Shock. It's not a compliment to the half-term Alaska governor. This shock is the product of a “drill baby drill” mentality from relatively small producers that has overrun the industry's willingness to invest in the infrastructure that brings it to market.