Conservatism and Vicious Cycles

Economic big-think over at Smirking Chimp, regarding oil. The authors claim ex-urban growth is but a paradoxical symptom of our basic dilemma: we are addicted to petroleum! Conservatism is a natural reaction to shortage and so as petroleum gets scarce, we see a conservative trend.

But the more I think about this, the more skeptical I'm getting. It's hard to tell exactly where the circular logic fails, though. Even though the consumption of petroleum grew greatly over the 20th Century, at any specific time, there were always limits on the availability of petroleum. Nevertheless, progressives saw their influence grow at the expense of conservatives during the first two-thirds of the 20th Century.

The Depression was caused in large measure to the failure of consumption to keep pace with production. That may be the cause of a future Depression in the U.S.: the middle class is being systematically starved of wage increases commensurate to its production, with wealth gravitating towards the top. It may be that the circular logic fails with the need to grant tax cuts to the rich: that grant only slows, doesn't stop, the process of progressive indebtedness to foreigners, and losing control over the American economy's destiny. I don't think the gang currently in power cares much about the nationality of ownership. Just so long as they are rich!

Nevertheless, here are some selections from an interesting reading:

The competition is not over scarce energy in itself, but over a particular form of energy which can be used to substitute for everything else. There is nothing in this world that one cannot get more cheaply by using more oil to get it ... Americans moved to the suburbs because it was cheaper to drive farther than to work through the problems of urbanization, and one could get a larger house with a larger yard in the bargain. As long as it was cheaper to pay rent to Saudi Arabia for the oil ... people chose to pay rent to OPEC rather than taxes to the government....

But what happens when America buys energy? What does that trade deficit mean? This is the second step of the vicious circle: while many nations sell some energy, a few nations export energy, but import virtually nothing. ... (Oil) profits, rather than going into developing Saudi Arabia, are poured back into the US.

The reason oil causes a particular problem in the world economy is that one can make huge profits in an oil economy, without having the entire superstructure of a cosmopolitan, entrepreneurial, liberal and technological society around it. One cannot manufacture cars, develop technology or develop medicines without a large population of educated people, but one can run an oil economy with a relatively small core of people, many of whom can be imported....This means the trade deficit creates an investment deficit: the US takes in more investment from the rest of the world than it sends out to the rest of the world.

However, with investment pouring in from nations where the investors are also the government, more and more control over the US economy at its highest levels is in the hands of the wealthy of nations like Saudi Arabia. Should they chose to pull their wealth from the US, or even simply stop rolling over their financing, the result would be a rapid drop in the value of US stocks and assets.... To prevent investors in these countries from gaining control, the developed world, and particularly the US, is forced down a particular path: it must cut taxes on our wealthy, so that they match the taxes on the wealthy of Saudi Arabia. The "race to the bottom" starts at the top. This cutting of revenues is what drives the US budget deficit: without the reduction in revenues from upper-bracket tax rates being lowered, and without the interest on the National debt, there is no financial crisis. This means that the trade deficit, combined with the nature of a few energy exporting states, creates the budget deficit.

The money then comes back to the United States at the top of the economy - in the purchase of financial stocks primarily - and then filters downward. This "top down economy," called "trickle down economics," means that America cannot invest in getting out of the energy trap, because the very people who hold the purse strings have no interest in ending it. The only way to slow the process is by, as you should guess, holding real wages flat, because if people earn more, they burn more oil, and make the trade deficit worse.

The reason Reaganomics was put in place then, and remained in place even after the Democrats took back both the Congress and, by 1992, the Presidency, is that no single point on the circle could be broken: raise real wages, and the trade deficit gets worse, raise tax rates by enough to rapidly wipe out the deficit, and face the prospect of foreign ownership of the "commanding heights" of the American economy. Instead of finding a way off of the dependence on foreign oil, and instead of untangling money from oil, Reaganomics used cuts in capital gains taxes and upper-income marginal income tax rates, and the increase in FICA taxes as a regressive tax to reduce consumption as a way of allowing foreign investment to pour into America. The cost was that wages would have to stay flat in real terms, and that corporations and stock wealth would have to grow almost without limit.

This means that the reason Reagan won, and gradually pulled the media and much of the public mood behind him, was that in a world which is zero sum - and the amount of oil being the basis of profit meant it was zero sum - people become conservative, grasping at whatever bits of their bundle of ultimate scarcity they hold. It meant that allowing the rich to become richer was essential to keep America under the control of Americans. It meant that corporations had to be allowed to become larger and larger, so that they were harder and harder to hold accountable through political means. It also created another vicious circle: Americans had more and more of their wealth in their homes, which created more pressure for sprawl, which, in turn, created more and more demand that gasoline prices remain low, so that people could trade cheap energy to pay less for expensive land.

The process became a vicious circle because larger and larger corporations with more and more wealth at the top became the dominant political force. Natural selection of a political kind took over: attempts to change one of these features of the economy met with disaster. Raise wages, and inflation returned; raise taxes, and autonomy was threatened; cut oil consumption, and other nations would consume more oil to sell to the United States. In other words, progressivism ebbed because there seemed to be no single point of attack that did not involve a dramatic energy austerity, and the resulting reduction in American standards of living....

The vicious cycle is this: that a cheap energy deficit created a trade deficit, creating an investment deficit, which then created the political pressure for a wages and wealth deficit, which, in turn, made the cheap energy deficit worse, and even more political pressure for even more inequality of wealth and to keep the one lever Americans still had - the ability to drive further to keep costs down, since they could no longer strike or organize to raise real wages. This started the cycle all over again. This is the key to the move to the right - by creating an economy which is determined by the scarcity of one commodity: oil, and a money system which bends around the dynamics of that one commodity, an environment is fostered in which people think as conservatives first.