Tuesday, June 5, 2012

A must-read warning

As Salem ponders pouring hundreds of million$ down the drain on a pointless third auto bridge, here's a bracing reminder of what a foolish blunder this is from Dmitry Orlov, who observed the collapse of the USSR in frequent visits to his native land.
What does tend to change rather suddenly is commerce. If you have enough financial and political shenanigans, high-level corruption and rule of law going by the wayside, daily life goes on just like before, for a while—until suddenly it doesn’t. In St. Petersburg, Russia, the difference between the summers of 1989 and 1990 was quite striking, because by the summer of 1990 commerce ground to a halt. There were empty shelves in shops, many of which were closed. People were refusing to accept money as payment. Imports dried up, and the only way to procure sought-after items like shampoo was from somebody who had traveled abroad, in exchange for jewelry or other items of value. And that occurred in spite of the fact that the USSR had a better overall business plan: theirs was: “Sell oil and gas, buy everything.” Whereas the business plan of the US has come down to: “Print money, use it to buy everything” (most consumer products, plus ¾ of the oil used for moving them and everything else around). The imported oil is, of course, the Achilles’ heel of US commerce. The US economy was built around the principle that transportation costs don’t matter. Everything travels large distances all the time, mostly on rubber wheels, fueled by gasoline or diesel: people commute to work, drive to go shopping, taxi their children to and from various activities; goods move to stores in trucks; and the end product of all this activity—trash—gets trucked long distances as well. All of these transportation costs are no longer negligible; rather, they are fast becoming a major constraint on economic activity. The recurring pattern of the recent years is an oil price spike, followed by another round of recession. You might think that this pattern could continue ad infinitum, but then you’d just be extrapolating. More importantly, there is a reason to think that this pattern comes to a rather sudden end.

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