War in the Labour Markets

The attempts on both sides of the US-Canadian border to bail out the auto industry are a taste of things to come for many other sectors. The cuts that unions will be required to agree to will be very significant, probably unacceptable to the membership, and ultimately will not be sufficient to save the companies in any case. Bailouts can postpone, but not prevent the recognition of losses that have already occurred.

In order to shed light on why the current situation will be so divisive, we return to an important distinction – that between nominal and real terms. During inflationary times (ie where the money supply is increasing relative to available goods and services), people do not notice their purchasing power being eroded, as they only see their pay in nominal terms. They collect their annual wage increases and almost never notice that inflation usually consumes that increase and then some. In real terms, the change in their purchasing power would be the increase minus inflation, where inflation is usually the larger factor, especially if the full effects of credit expansion are factored into the inflation figure rather than just the CPI. Continue reading “War in the Labour Markets”

Energy, Finance and Hegemonic Power

The interface between finance and energy will prove to be the most important determinant of the way the Greater Depression we are rapidly moving toward will play out in practice. For those here who may be unaware of peak oil, the point is that global oil production appears to have reached a production peak that it will not be physically possible to exceed. Oil discoveries peaked decades ago and we have since been increasing production from large existing fields using ever more complicated and expensive technology, in order to supply increasing global demand from decreasing reserves.

The production peak does not mean that oil is imminently running out – in fact there is probably half of all the oil that ever existed still in the ground, but it is the expensive and relatively inaccessible half. We can no longer increase production and production will fall over time as we continue to use up reserves which are not being replaced by new discoveries. Although discoveries continue to be made, they are few and far between, and of much smaller size than the giant fields we have relied on for so long. As they are much more challenging to produce, they rely on high oil prices in order to remain commercially viable. Continue reading “Energy, Finance and Hegemonic Power”

Markets and the Lemming Factor

In recent years, the prevailing financial orthodoxy has been that markets are efficient mechanisms for resource allocation based on the collective expression of rational human decision-making, the implication being that they are grounded in stabilising negative feedback. Markets have been seen as essentially dispassionate and objective arbiters of value, and their constant fluctuations as a random walk with no underlying pattern. It would follow therefore, that market timing would not be possible, and the best one could do would be to buy and hold a diversified group of equities chosen on the basis of perceived undervaluation. In my opinion, this model is simply delusional. As collective human endeavours, markets follow rules of collective, or herding, behaviour that are hardwired in us as they are in other mammals. Continue reading “Markets and the Lemming Factor”