The Decline of the World’s Greatest Nation State

Two hundred and thirty-two years ago, our forefathers declared independence from a distant monarch and parliament to preserve their liberty.

Who can we rebel against? We have no tyrant on the far side of a vast sea to blame our troubles on. The oppressors reside among us. Indeed, perhaps it can be said that we are our own oppressors.

Such are the thoughts I have on this Fourth of July, having recently finished reading “Supercapitalism” by Robert Reich. (So many others affiliated with this blog have read the book that I felt compelled to do so, too.)

Reich offers a simple but compelling thesis: Since the Not Quite Golden Age of the 1950s, an era in which industrial oligopolies and labor unions created a stable, growing economy in which the wealth was widely shared (excluding African-Americans, of course, which was why he calls it the Not Quite Golden Age), various economic forces have created more competition and eroded the power of the cartels and unions. Consumers have benefited from better, cheaper consumer products, and shareholders have profited from higher-performing investments. But those gains have come at the expense of Americans in their roles as employees and citizens. Incomes for all but a few have stagnated, and Americans are losing faith in democracy.

While some might differ with his core thesis — for instance, the prosperity of the Not Quite Golden Age may have owed more to America’s preeminent position in the world following World War II than to its oligopolistic industrial structure — I find aspects of Reich’s book very persuasive. In particular, I found myself agreeing with his analysis in the chapter “Democracy Overwhelmed,” in which he describes how the political process has been taken over by moneyed interests.

Business competition has become so intense, Reich argues, that “competition has spilled over into politics, as corporations have sought to gain competitive advantage through public policy.” The vast influx of money into Washington, D.C., has transformed the once-dowdy city into an imperial capital with the highest incomes in the country and all the trappings of wealth and excess. The number of lobbyists has increased, the money spent on lobbying has increased, the amount of money spent on campaign contributions has increased. Politically, businesses are nonpartisan. It’s all about gaining the power to influence the machinery of legislatio and regulation to maintain competitive advantage.

I find this description to be right on target. I differ only in assessing how it came to be. Reich blames the trend on increasing business competition, or supercapitalism. “The demands of corporations seeking to influence the policy process have grown as competition among them has intensified. It has been like an arms race: The more one competitor pays for access, the more its rivals must pay in order to counter its influence.”

That’s accurate as far as it goes, but it leaves out one important consideration: The business takeover of Washington, D.C., occurred only after the national political class had accrued unprecedented power over the economy. Since the New Deal of the 1930s, government has inserted itself into one economic sphere after another. The political class was a critical enabler to the takeover. Politicians and their minions and hangers on gain prestige and wealth through brokering the transfer of wealth from one industry to another, from one segment of society to another. The rise of Big Government was paved by legions of apologists and justifiers who moved public opinion to accept the need for intrusive government, as well as a multitude of judicial rulings that tore down traditional barriers to the accretion of government power.

Be that as it may, the biggest “industry” in the United States today is indeed politics. For the most part this industry does not create wealth — it brokers wealth. Unfortunately, the trends that are so grotesquely on display in Washington, D.C., have filtered down to state capitals and courthouses across the country as well. The main difference between politics in Washington and Richmond is the size of the political class, and the constituencies that ply the politicians for favors.

The corporate and professional interests that dominate the system at the state and local level correspond neatly with the array of legislative and regulatory powers that have accrued to state and local governments. At the top of the list is the cluster of businesses — developers, home builders, Realtors, construction and engineering firms — that make their living through the development of real estate and building of infrastructure. This is the “growth” lobby that we have discussed before on this blog.

Close behind in power and influence are the electric and gas power companies, whose profits are regulated by the State Corporation Commission. Then comes the financial and insurance industries, the legal profession, the health care industry, and the educational profession. To see who the key players are in Virginia and how much they spend on influence the political process, you need go no further than the Virginia Public Access Project list of top donors by industry.

As businesses take their marketplace competition into the political sphere, and as the political class enlarges the scope of its powers, the national preoccupation of America becomes the transfer or protection of wealth, not the creation of it. Rather than focusing on innovation and productivity, the real sources of prosperity, we collectively turn to government for what we want, and we battle over who pays for it. Our institutions are increasingly archaic, unable to adjust to the emerging Knowledge-era wealth creating system, and our national character is enervated. Once a nation of entrepreneurs, we hold out the tin cup. I can see no countervailing trend that will change this.

God bless America. I still love this country, even though I despair for it.

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  1. E M Risse Avatar
    E M Risse

    Jim Bacon:

    Well stated.

    A good insight into the role of expanding Agency control set in motion in response to The Great Depression.

    Most of this expansion, although not all the Enterprise intrusion into the Agency realm occoured at the federal level.

    We need Fundamental Transformation in governanance structure as we say over and over.

    That change would make your Cluster Representitive on the Neighborhood board the most important Agency official in your life.

    I agree with your love and your dispare.


  2. Not Ed Risse Avatar
    Not Ed Risse

    Could Ed Risse please show his readers the courtesy of using a spell checker before posting?

    And why do I want a “Cluster Representitive (sic) on the Neighborhood board” controlling my freedom?

    In Risse’s new localized world order, will we have to pay off our neighbors for freedom?

    How is that any different than Transurban “donating” to Kaine, Howell, Connolly and whoever else?

    “Toll Road Firm Made Illegal Contributions
    Transurban Gave $172,000 To 90 Campaigns in 3 Years”

    Pay to Play is wrong, no matter how local the governing entity.

    The only solution to the corrupting influence of money in politics is to get the government at all levels out of the business of regulating the economic activity of its citizens.

    Happy Fourth and cheer up because global competition will create a freer world.

    I see that the Russian President Dmitri Medvedev “vowed to dismantle the Russian corporatist state, cut taxes, and pull back on the Russian internal security apparatus. And last month, he blasted the Federal Reserve for “impoverishing the majority of the people on the planet” and contrasted Russia’s massive expansion of energy resource extraction with America’s food price-spiking ethanol boondoggle.”

  3. Anonymous Avatar

    I read Reich and my take-away is not so much that politics has been superceded by economic interests, but that politics has become increasingly irrelevant in the typical and traditional nation state paradigm. Our economy is now controlled by fast money swashing back and forth and controlled by stateless corporations. Back in the 1950s, when Reich applauds the stability that the GEs and General Motors and US STeels and AFL-CIOs provided, there wasn’t that much competition in the rest of the world. Europe was still rebuilding as was Japan and China was in the middle of its barbarous Marxist internal adventures. India was struggling to find its footing after being freed from British control.
    It’s obviously a different world. The one thing we still have left as Americans is a profoundly strong military which we rent out for other interests from time to time. This setup benefits Virginia enormously. Talking about rh State Corporation Commission and utilities is a largely irrelevant sideshow — a kind of peanut vendor approach. You should focus on defense spending a lot more. We’re the No. 2 defense industry state, for better or worse and its a deal that both Dems and GOPers love.

    Peter Galuszka

  4. Scott Avatar

    Kathy Kelly, for Truthout: “The city of Amman, Jordan, is awash with numerous colorful signs that proclaim independence, ‘Istiklal.’ The word is found on posters and placards in store windows. It names a major thoroughfare, a hospital and a shopping center. Appreciation for independence is palpable, and this could be said for numerous cities and towns throughout the region, including Iraq, where past struggles for independence are commemorated by naming buildings and streets ‘Istiklal.’ It reflects the love of independence and the longing for it. But independence is elusive in a region suffering multiple wars and occupations. Particularly in Iraq, it’s hard to imagine an independent society growing up amid the violent wreckage of economic sanctions, US bombardment and staggering corruption.”

  5. Larry Gross Avatar
    Larry Gross

    I’d be interested in hearing from those who have read Supercapitalism and The World is Flat – how those two models of thinking agree and differ.

    I heard Ombama talking about NAFTA and how that labor relations and environmental issues are not a level playing field.

    The question(s) in my mind are:

    1. – Does NAFTA benefit the average working person?

    2. – Does NAFTA strengthen or weaken the American Middle Class

    3. – If the EU can require benchmark standards for products to be imported to it…. how is that harming them since the conventional wisdom is that requiring things like labor and environmental standards are counter-productive.

    4. – Both Clinton and Bush say that NAFTA/CAFTA benefit everyone and it everyone would lose if we re-negotiate them.

    5. – In the end, it appears to me that the philosophy is that the people who have capital and create wealth.. take risks, innovate and are entrepreneurial are the economic rock stars and the rest of us are … unworthy beneficiaries and we get what we deserve….

    In other words.. if all you want is a safe job/career – then just recognize that it may not be as much of a free ride as it appears.

    The rote jobs deliver rote benefits and no guarantees ether.


  6. Anonymous Avatar

    “And why do I want a “Cluster Representitive (sic) on the Neighborhood board” controlling my freedom?”

    Not Ed Risse may not want any control but given his / her rants about private rights vs community responsibilities his / her Dooryarders and Clustermates likely would democratically decide to support his / her rights in the context of his / her support of the community as all scales.

    Anon Zeus

  7. Anonymous Avatar

    “…global competition will create a freer world..”

    Competition within a rational context (market) is a way to allocate resources. However, if there are no resources left, competition is a licence to kill those with resources and take them for their own use.

    Anon Zeus

  8. E M Risse Avatar
    E M Risse


    Good questions re Supercap and Flatearth.

    When you have read the two books we look forward to your compare and contrast

    On the numbered questions: those are good to, it will take some digging to answer them but we look forward to you thoughts there too.


  9. Anonymous Avatar

    Peter’s point about military money & Virginia is well taken, IMO. While good and reasonable people can differ about the current (last 15 years) versions of military activities, I don’t think anyone could question how much the Old Dominion benefits from our military presence, military contracting and, now, homeland security contracting. How many billions and billions have gone into Virginia coffers, both public and private, due to the military activities of the Clinton and Bush administrations? And what would things look like with a large-scale cut-back in these activities?

    I don’t know, but I suspect it is very, very significant to Virginia’s GDP. Great point, Peter.


  10. Not Ed Risse Avatar
    Not Ed Risse

    “if there are no resources left”

    That is the typical blather of a socialist. The economic pie is limited, so we need government to redistribute it fairly.

    Has Anon Zeus joined the Obama cult?

    As I have said before, Ed Risse should cheer up. The resource pie is expanding exponentially as humans discover more creative ways to harness the universal unlimited energy everywhere around us.

  11. James Atticus Bowden Avatar
    James Atticus Bowden

    Jim: An important post, very well done, but the wrong title. The U.S. isn’t in decline -yet. And it is still an ascending idea for many of its citizens.

    The issue about money and politics isn’t new. It isn’t new about business buying power. But, if I may reinforce your points, the power of the government in scale, scope, and reach is new – and the size of investments and gains of money in politics is very high.

    If you get a chance, please look back at my series of posts on the book and see if you disagree.

    PG: You are right about your comments on Defense spending. Interesting, today I was chatting with a fellow in NoVa about the special session etc .. and commented that the tax increase from 04 didn’t have the visible effect of tax increases in NoVa and HR/Tidewater because more money came in from the Feds than went out to Richmond. The places the tax increase hurt the most were Southside and Western Virginia.

  12. Larry Gross Avatar
    Larry Gross

    re: guns and butter

    The richest country in the world has a military that is bigger than the next 5-10 put together.

    Yes.. comparing important economic and social benchmarks between this country and other industrialized countries, is worrisome….

    With Supercap and Flat World, here is my question.

    Does the impact to and the future of other industrialized countries look the same as what we fear in this country as a result of Supercap and Flat World?

  13. James Atticus Bowden Avatar
    James Atticus Bowden

    LG: Fact check your total size of Armed Forces world wide or the comparison of armies. On both you are wrong.

  14. Larry Gross Avatar
    Larry Gross

    I used the word “size” when my intent – which was clear, because I was talking about what we spend on military rather than society:

    no question.

    US 583,283,000,000
    EU 311,920,000,000
    France 74,690,470,000 United Kingdom 68,911,000,000
    China 59,000,000,000 Japan 48,860,000,000
    Germany 45,930,000,000
    Russia 41,050,000,000
    Italy 40,060,000,000
    Saudi Arabia 31,050,000,000 South Korea 28,940,000,000

    We need to distinguish on what we have chosen to spend money on verses what we have chosen to not spend money on.

    Is it a fair question to ask – that with all of our collective hand-wringing and fretting about our economic future in the world – is this much spending on the military helping us be more competitive in the world economy or not?

    guns or butter?

    What is the list of domestic needs that we cannot afford right now?

    When we tax & spend – and we say this hurts our competitiveness – does it matter what we spend those taxes on?

    If we tax&spend for Humvees .. is that any different than spending it instead for HR/TW tunnels?

    I don’t pretend to understand it all or probably even a little of it but I would think that any kind of retrospective view of our place in the world economy that ignores the huge difference in spending for the military is not truly looking at our options.

    We cannot on one hand spend as much as we do on the military and then at the same time moan and groan about how we are falling behind the rest of the world on our things…

    Perhaps.. whether or not a country tends towards military-industrial is not relevant .. I dunno…

    but you cannot deny the amount of money involved…

    does this level of spending for the military harm us or benefit us ..or is a wash – has no effect?

  15. Anonymous Avatar

    “The resource pie is expanding exponentially as humans discover more creative ways to harness the universal unlimited energy everywhere around us.”

    Typical consumptionist blather.

    Humans have not discovered:

    A replacement for cheap stored energy (aka, oil)

    A sustainable way to scatter urban land uses across the Countryside

    A cheap way to travel fast

    A way to send goods (or people) over a wire or wirelessly

    Humans are running out of options. Telling them there is a silver bullet will only make the fall harder.

    Anon Zeus

  16. Not Ed Risse Avatar
    Not Ed Risse

    Ed, Ed, Ed – this whole Zeus complex is a bit much, but you are wrong again.

    “Humans have not discovered:

    A way to send goods (or people) over a wire or wirelessly


    What are cell phones and the Internet, but a way humans have discovered to send information wirelessly which is one of the most valuable “goods” humans produce.

    We download music, movies, books, newspapers, magazines, blogs, etc. wirelessly.

    We teleconference with other people wirelessly. We share work files. We receive and pay bills wirelessly.

    We are on a trajectory to make it easier and more sustainable to live anywhere, to disaggregate ourselves as much as we want, all the while increasing our productivity.

    Did you read the article recently in the Washington Post on getting off the grid?

    “Toward Energy Self-Sufficiency In Some Surprisingly Simple Steps”

    Welcome to the golden age of tapping into the unlimited free energy surrounding us.

  17. Anonymous Avatar

    It would be very useful to know, by region and throughout the entire Commonwealth, how many/what percentage of businesses exist without reliance on federal, state or local government funding (say more than 5%) of revenues either directly or indirectly as a subcontractor?

    I would have not passed this screen for the last two years. My revenues from government sources (as a subcontractor) were more than 5% of my total revenues.

    Similarly, what number/percentage of businesses did not either contact federal, state, or local government directly (or indirectly through a trade association) to advocate some special advantage for itself or to burden competitors with some special disadvantage?

    I’d pass that screen, but also must confess that I made some advocacy efforts to government for clients that were seeking such relief.

    Just how wedded to an activist government are Virginia businesses (or those in D.C., like me)?


  18. Larry Gross Avatar
    Larry Gross

    well.. the Fed largess is sort of a gift horse…

    if the Feds are going to slather money on networking Humvees or lase-guided cluster bombs.. or retrofitting the fleet with UAVs out the wazoooo

    better NoVa/HR/TW Virginia than Ohio or Pennsylvania… right?

    but it seems like hardly a day goes by when we hear that we cannot afford to fix our infrastructure, fix social security or medicare or have some kind of affordable healthcare for everyone, and that transit/rail are ungodly expensive and wasteful…..

    and we point to the grievous tax rates in Europe but Europe has wide/deep transit/rail, universal health care and their kids blow ours away on academics… and seem to get their share of the world economy.

    The European Union is kicking our butts….

    but I don’t hear the Europeans, Chinese, or Japanense or Korea worrying about Super Capitalism or impending Economic disaster from the world becoming flat.

    So I do ask the question.

    is taxing & spending for Humvees and high-tech weaponry just as useful as spending those same taxes on roads and rail and other domestic infrastructure – and has absolutely no relationship to Supercap and flat earth?

    Does spending on guns rather than butter do bad stuff to our ability to compete in world markets?

  19. James Atticus Bowden Avatar
    James Atticus Bowden

    Spending 3% of the GDP on Defense keeps up an Uber-Super Power and doesn’t crowd out domestic production.

  20. Not Ed Risse Avatar
    Not Ed Risse

    Ed – Zeus is wrong again!

    “Humans have not discovered:

    A cheap way to travel fast

    Check out what human engineers at VW have discovered.

    “Laugh at High Gas Prices With a 282-MPG VW”

    “Volkswagen’s had its super-thrifty One-Liter Car concept vehicle — so named because that’s how much fuel it needs to go 100 kilometers — stashed away for six years. The body’s made of carbon fiber to minimize weight (the entire car weighs just 660 pounds) and company execs didn’t expect the material to become cheap enough to produce the car until 2012.

    But VW’s decided to build the car two years ahead of schedule.”

    Oh Ed life is going to be so grand!

  21. Larry Gross Avatar
    Larry Gross

    the basic premise behind the

    “practice more efficient settlement patterns or else watch civilization collapse”

    intrigues …..

    because… it appears to assume that there are no more/better efficient ways of mobility that are conceivable

    ..thus… our only option is to give up fossil-fuel powered vehicles or perish…

    Te VW vehicle – thought a bit far-fetched…does show that it is possible to take a 2000 lb vehicle and cut the weight substantially and weight is a key part of the fuel-burning equation.

    So.. for instance, suppose we make in one giant leap or dozens of smaller leaps.. a transition to vehicles that get “only” twice or three times the mileage of today’s vehicles….

    what effect would that have on settlement patterns?

    let’s put it another way.

    If that happens, will it have the effect of accelerating more efficient settlement patterns or merely continuing the status quo or perhaps worse.. enable folks to live even farther from work?

    Bonus Queston – Let’s pretend that oil goes away tomorrow.

    Would vehicles then go away?

  22. Anonymous Avatar

    “or perhaps worse.. enable folks to live even farther from work?”

    What makes you think that would be worse? I can think of a number of good effects.

    Thomas Jefferson once said the United States would be the first country to legislate itself into totalitarianism. Anon Zeus seems to want to help.


  23. Anonymous Avatar

    “what percentage of businesses exist without reliance on federal, state or local government funding (say more than 5%) of revenues either directly or indirectly as a subcontractor? “

    The answer is none.

    Government is almost 50% of the entire economy. We all depend on subsidies of one kind or another.


  24. Anonymous Avatar

    Consider FAuquier County.

    41,236 EMPLOYED

    5,295 GOVERNMENT



    Figure that retai trade includes the automotive related services, Professional and technical includes the surveyors and other engineers and lawyers associated with development.

    When we wipe out development and automobiles, what are we going to replace those jobs with?

    Hint: Fauquier prides itself on being an agricultural community. The Ag payroll is 897.


  25. Anonymous Avatar

    “Humans have not discovered:

    A way to send goods (or people) over a wire or wirelessly


    What are cell phones and the Internet, but a way humans have discovered to send information wirelessly which is one of the most valuable “goods” humans produce.


    Ordering pizza on line is great.

    Wake me when they can deliver pizza or water or … on line.

  26. E M Risse Avatar
    E M Risse

    “Humans have not discovered:

    A cheap way to travel fast

    Check out what human engineers at VW have discovered.

    “Laugh at High Gas Prices With a 282-MPG VW”

    By fast, we assume he means “fast.” Like faster that the speed of sound or even half that fast cheaply.

    Give it up an stop making a fool of yourself.

    Anon Zeno

  27. Not Ed Risse Avatar
    Not Ed Risse

    It is nice to see that E M Risse is both Anon Zeus and Anon Zeno.

    Ed, the information we now get over the Internet used to require physical delivery.

    This information has vastly more economic value to humanity than all the pizzas ever made!

    Ed, the eco-apocalypse isn’t coming.

    Not in your lifetime, not in mine, not in a hundred generations, not until the sun burns out, and by then we will be in another solar system.

    Even if oil production drops, costs soar, and we have to shift to all electric “autonomobiles”, we have enough known alternative energy sources to last thousands of years at current rates of consumption. Think nuclear, coal, gas, shale, solar, wind, thermal, tidal, etc.

    With increasing efficiency and a transition to entirely renewable energy, your eco-apocalypse is simply never going to happen.

    It is sad to see an otherwise intelligent man in the twilight of his writing career, calling others a “fool” for pointing out the obvious.

  28. Anonymous Avatar

    There is a comment at the end of the 16 Nov 2007 post “Say Goodbye to the Old Power Grid …” that explaines why Not Ed Risse is confused about the Z Team.

    In his / her last post we have a way to determine if Not Ed Risse is making sense or not.

    Not Ed Risse please lock yourself in a room and seal all opening. You can have highspeed wireless connection, electricity and anything else you can trasmit at the speed of light over a wire but nothing else.

    Give us a call in two weeks and tell us how you are doing.

    Anon Zoro and Zora

  29. Anonymous Avatar

    If EMR wants defend his ideas, he should do so, and not pretend to have supporters who are not there.

  30. James Atticus Bowden Avatar
    James Atticus Bowden

    RH: Great stats. It would be great to create a county or city profile with all available stats – many more than you have – for a Bacon article with different representations of the data. It would be descriptive analysis, not causal analysis, but it would be interesting – and,perhaps, illuminating.

  31. Groveton Avatar

    I have read both books. In my opinion, Reich takes a much more “internal US” view. He believes that technology (much developed during the cold war or by NASA) has made busineses far more competitive. This competitiveness has reduced the margins in the products and services we buy. In an increasing cycle of ever more cut throat competition, all of the inouts come under pressure – including labor. However, the costs paid by consumers goes down with competition and the wealth controlled by capital goes up with increased efficiency. So far, so good (for his thesis). However, he then goes on to make a big leap – the increased competition in business makes political lobbying an evermore important battleground since government legislation / regulation is an area for business competition and every area is overheating. Therefore, businesses are putting far more money into lobbying and controlling more and more of government.

    Mr. Reich sees a mixed bag of results. Wage earners suffer as competition takes money and power away from labor. Consumers, including wage earners, benefit from lower priced products provided by the now hyper-competitive marketplace. Capital owners gain as their capital provides higher and higher returns as business grows more competitive. And individual citizens lose ground as business funded lobbyists dominate the time, efforts and focus of government.

    THomas Friedman has a more international view (even though he writes from a very American vantage point). He sees a combination of political and technological events unleashing a large portion of the world’s population as participants in global business. Politically, the failed socialist systems have almost entirely been replaced by more western free economies. Unfortunately for the West, this flattening of the world (or leveling of the playing field) no longer confers special staus on the United States as one of the few large economies operationg in a lightly regulated capitalistic manner. Now, India, Japan, China (somewhat), Russia, etc all operate in a mannner more similar to America’s approach than the approach espoused by the Soviet Union. Capital flows to these countries. Employment for creating worldwide goods and services flows to these countries. Robert Reich’s hyper competitivenes is accelerated by this flattening or leveling. Those who formerlly benefitted from an inefficient world economy (i.e. Americans) benefit less now that world is more economically efficient. Friedman finds technology to be a crucial enabler of this worldwide metamorphisis but he sees political and economic reform in the developing world as the principal driver for the new world order.

    Both authors predict continuing challenges for the United States. Reich has a plan that involves more power for workers, a governemnt sanctioned transfer of wealth, etc to help cure these problems. Friedman sees education as America’s critical future focus – particularly in encouraging children to pursue careers in science, math, etc.

    The question, in my mind, is what happens if the US continues on its present trajectory. I question the propets of doom who envision widespread decay. However, I can easily imagine an America that looks and operates a lot like “old line Europe”. The population concentrated in fewer urban areas, a depopulation (relative to the total) of rural and small town areas. High taxes, less upward mobility and a wider social safety net. The world-beating military would alo be a thing of the past.

    At least – that’s the way I see it.

  32. Anonymous Avatar

    “Both authors predict continuing challenges for the United States. “

    They might both be wrong. Higher transportation costs could e a boon for the U.S. As it reverses years of globalization.

    “The cost of shipping a standard 40-foot container from East Asia to the US eastern seaboard has already tripled since 2000 and
    will double again as oil prices head towards $200 per barrel. Unless that container is chock full of diamonds, shipping costs have suddenly inflated the cost of whatever is inside. And those inflated costs get passed onto the Consumer Price Index when you buy that good at your local retailer.

    As oil prices keep rising, pretty soon those transport costs start cancelling out the East Asian wage advantage. They already have in steel. Soaring transport costs, first on importing iron to China and then exporting finished steel overseas, have already more than eroded the wage advantage and suddenly rendered Chinese-made steel uncompetitive in the US market.”

    “Even back at a $100 per barrel oil price, transport costs outweigh
    the impact of tariffs for all of America’s trading partners, including even its neighbours, Canada and Mexico. Back in 2000, when oil prices were $20 per barrel, transport costs were the equivalent of a 3% US tariff rate. Currently, transport costs are equivalent to an average tariff rate of more than 9%. At $150 per barrel, the tariff-equivalent
    rate is 11%, going back to the average tariff rates of the

    CIBC World maarkets


  33. Groveton Avatar

    RH –

    They might both be wrong. Agriculture is a case in point. As the costs of transporting food increase, the cost of locally grown foods decrease. It would seem to me that this is particularly true of low cost, high weight food items. For example, potatoes. However, this also puts some stress on the mass producers of things like food. A fast food outlet depends on a number of things – one being a supply chain that provides product of a consistent quality and size. They cherish this consistancy for a variety of reasons. For example, automating the cutting fo potatoes into french fries is enhanced through the use of consistent potatoes. And automating the making of french fries reduces the training that a “cook” must have before he or she becomes profecient. Yet locally produced food might result in less consistency in food quality and size. Therefore, the employees in each area’s restaurants might have to improvise with the produce that they are receiving. They might have to tailor the dishes (or, at least, the preparation approach) to the local raw materials they are receiving. These trained employees would be more expensive to replace so it would be worth more to keep them. Wages would rise. Of course, french fries might be more expensive. But maybe not much more than would have been the case if the consistent but distant potatoes were shipped at high costs to untrained employees functioning as human extensions to aoutomated french fry makers.

    So, in this fanciful example, we have:

    1. Local farmers benefitting by selling more of their produce by capitalizing on transportation cost efficiencies even if they continue to suffer from scale inefficiencies.

    2. Fast food employees benefitting from high wages and, perhaps, some training and skill development as they are forced to confront somwhat more variability in the raw materials.

    3. Consumers paying more for french fries but not as much more as would have been the case if the old methods had been followed.

    4. US paying less for oil and, therefore, transferring less national wealth to petroleum exporting countries.

    Everybody’s happy – right?

    Well, not quite.

    1. The truckers who used to haul potatoes to the railways and the people working for the freight rail companies are put off.

    2. The potato farmers in Idaho who had been selling all across the country are hurting.

    What would the government do?

    1. Reregulate the trucking industry so that rates of return were guaranteed despite vastly increased costs in transport (witness Dominion’s re-regulation).

    2. Pass the next Farm Bill with even bigger subsidies for the large scale growers who have been “hurt by skyrocketing fuel costs”.


  34. Anonymous Avatar

    Good one, Groveton.

    I love it. You caught me not drawing the system boundary large enough.


  35. Anonymous Avatar

    “When we wipe out development and automobiles, what are we going to replace those jobs with?”

    I think you answered my question.

    What will we replace those jobs with?

    More subsidies and higher taxes.


  36. Anonymous Avatar

    Let’s see, domestic oil inventories are at historic lows.

    Omigod, the sky is falling, our society is ending.

    Or else refineries are managing more expensive oil inventories more carefully.

    Or else, they are keeping stock low figuring they can buy it cheaper in the near future.

    Speculating, it turns out, works both ways.


  37. Larry Gross Avatar
    Larry Gross

    I’m having a hard time seeing how the things described are American-Only in impact and effect.

    Just thinking… (yes I know that is dangerous)… $8 gasoline and potatoes somehow coexist in Europe – no?

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