Friday, February 26, 2010

Tuesday, February 23, 2010

New and Noteworthy (T-50, Climate Change and Conflict)

In today's edition:

* A piece in Aviation Week by David A Fulghum, Maxim Pyadushkin and Douglas Barrie on the public appearance and first test flights of the prototype of the Russian T-50 fighter-the country's first fifth-generation fighter plane, and the first such plane to be produced outside the U.S..

The new fighter is purported to have "supercruise" capability (specifically, cruising in the Mach 1.7-Mach 1.8 range), three-dimensional thrust-vectoring and a phased array radar, as well as an infra-red search-and-track system. It is also supposed to be stealthy, Sukhoi quoted as promising that
the T-50 will demonstrate unprecedented small cross section in the radar, optical and infrared range owing to composites and innovative technologies applied in the fuselage, aerodynamics of the aircraft and decreased engine signature.
This is on the vague side, but Aviation Week, examining the design, noted the "chined forward fuselage, planform edge alignment, internal weapons bays and small vertical tails." However, the magazine's writers also noted that
The prototype has a number of features that are not stealthy, including the infrared-search-and-track ball on the nose, the canopy frame, gaps around the inlets, and various unshielded intakes and grilles. There are [also] no signs of any low-observable coatings and materials . . .
In any event, the plane is still years away from actual service, and it's hard to say at this point what changes will be made by then, though Aviation Week's writers believe the plane is close to the finished product.

* A "Reading Radar" round-up from The New Security Beat covering three new studies examining the potential of climate change (which is, contrary to the protests of the simple-minded, affirmed rather than called into question by the bizarre weather the Northern Hemisphere has seen this winter) as a driver of conflict.

While the piece on the T-50 (the best I've seen so far) is well worth checking out, my guess is that the latter item will prove to be of greater relevance to international security in the years to come.

Saturday, February 20, 2010

Book Reviews

This page presents a full listing of my reviews of books on history, economics, social science, security studies and international affairs, including those that took the form of a review essay, organized by topic.

Economics and Economic History
"Dangerous Currents: The State of Economics, by Lester Thurow." Nader Elhefnawy September 30, 2013.

"The Crisis of Vision in Modern Economic Thought, by Robert Heilbroner and William Milberg." Nader Elhefnawy September 30, 2013.

"The New Industrial State, by John Kenneth Galbraith." Nader Elhefnawy October 16, 2012.

"The Affluent Society, by John Kenneth Galbraith." Nader Elhefnawy October 16, 2012.

"The General Theory of Employment, Interest and Money by John Maynard Keynes." Nader Elhefnawy February 20, 2010.

"Freefall: America, Free Markets and the Sinking of the World Economy, by Joseph Stiglitz." Nader Elhefnawy February 20, 2010.

More . . .

"Business Civilization in Decline, by Robert Heilbroner." Nader Elhefnawy June 11, 2013.

"The Final Fall: An Essay on the Decomposition of the Soviet Sphere, by Emmanuel Todd." Nader Elhefnawy October 2, 2011.

"The Next Decade: Where We've Been . . . And Where We're Going, by George Friedman." Nader Elhefnawy June 1, 2011.

"A Brief History of the Future: A Brave and Controversial Look at the Twenty-First Century, by Jacques Attali." Nader Elhefnawy August 3, 2010.

"The Rise of the Meritocracy, by Michael Young." Nader Elhefnawy August 1, 2009.

"The Next 100 Years: A Forecast for the 21st Century, by George Friedman." Nader Elhefnawy July 19, 2009.

More . . .

Military History and Science
"Gangs, Pseudo-Militaries and Other Modern Mercenaries by Max G. Manwaring." Joint Force Quarterly 67 (Oct. 2012), p. 109.

"Peter W. Singer's Wired for War: The Robotics Revolution and Conflict in the 21st Century." Strategic Insights 8.5 (Winter 2009/2010).

"Century of War: Politics, Conflict and Society Since 1914, by Gabriel Kolko." Nader Elhefnawy October 4, 2009.

"Rethinking Military History, by Jeremy Black." Nader Elhefnawy November 1, 2008.

"The Utility of Force: The Art of War in the Modern World, by General Rupert Smith." Strategic Insights 6.4 (June 2007).

More . . .

Political Science and International Relations
"The Politics of Rich and Poor, by Kevin Phillips." Nader Elhefnawy December 1, 2012.

"Pity the Billionaire, by Thomas Frank." Nader Elhefnawy March 3, 2012.

"Death of the Liberal Class, by Chris Hedges." Nader Elhefnawy February 4, 2012.

"After the Empire: The Breakdown of the American Order, by Emmanuel Todd." Nader Elhefnawy October 2, 2011.

"The Second World: Empires and Influence in the New Global Order, by Parag Khanna." Nader Elhefnawy April 19, 2011.

"A Review of The Upside of Down: Catastrophe, Creativity and the Renewal of Civilization, by Thomas Homer-Dixon." Strategic Insights 6.1 (January 2007).

More . . .

"White Collar: The American Middle Classes, by C. Wright Mills." Nader Elhefnawy March 30, 2012.

"The Final Fall: An Essay on the Decomposition of the Soviet Sphere, by Emmanuel Todd." Nader Elhefnawy October 2, 2011.

"The Power Elite, by C. Wright Mills." Nader Elhefnawy August 13, 2011.

"The Organization Man, by William H. Whyte." Nader Elhefnawy October 3, 2010.

"The Rise of the Meritocracy, by Michael Young." Nader Elhefnawy August 1, 2009.

"The Theory of the Leisure Class: An Economic Study of Institutions, by Thorstein Veblen." Nader Elhefnawy January 19, 2009.

More . . .

New and Noteworthy (ABL, Moon Race Hype)

In today's edition:

* Aviation Week on the testing of the long-delayed AirBorne Laser last week.

* From this week's edition of the Space Review, Dwayne Day's scrutinizing of the baseless claims for a race to the moon on China's part.

Freefall: America, Free Markets and the Sinking of the World Economy, by Joseph Stiglitz

New York: W.W. Norton & Co., 2010, pp. 361.

As the title of the book makes clear, Joseph Stiglitz tells the story of the housing bubble's emergence and bursting.

Stiglitz points out now-familiar problems, and in particular runaway securitization in a lack of transparency, an excess of complexity, poor corporate governance, the "too big to fail" syndrome and the rest. He also notes the lax regulation that permitted such things as "questionable" accounting, massive information asymmetries, predatory lending and of course, the conflicts of interest in the inclusion of commercial banking and investment banking in the same firm-in cases a matter of regulation failing to keep up with innovation in the development of financial devices, though in others a matter of the financial community's effective resistance to and reversal of regulations, such as the Gramm-Leach-Bliley Act of 1999 which repealed Glass-Steagall), and the irresponsibility of the Federal Reserve as overseen by Alan Greenspan and Ben Bernanke. (Stiglitz also provides effective and accessible critiques of the intellectual background to the situation, in the orthodox teaching of economics.)

He then moves on to analyze the Federal government's response to the mess. Just as the Clinton administration continued along the economic course set under Reagan-Bush I (as Stiglitz noted in his earlier book, The Roaring Nineties), he finds continuity rather than rupture in the transition from the Bush administration to Obama's tenure-which symbolically saw the return of right-winger Larry Summers to the Treasury, but not more liberal figures like Robert Reich, or this book's author.

In the chapter titled "The Great American Robbery" he details the story of how the bail-outs essentially pumped money into the system with too few strings attached, let alone the absence of the kinds of meaningful reform that would resulted in a sounder financial system over the long term, while the Federal Reserve massively expanded the money supply. (Stiglitz discusses alternative approaches to the problem, such as a "trickle-up" bail-out approach which would have helped the banks by helping homeowners meet their obligations. He also offers a wide array of ideas for reorganizing the financial system on a more sustainable basis, not least the restoration of Glass-Steagall "in some form," as well as the establishment of an Electronic Funds Transfer System that would enable everyday financial transactions to occur outside the banks, and a Financial Products Safety Commission to facilitate tighter regulation of activities like mortgage lending and the packaging and selling of derivatives.) Stiglitz also examines the stimulus program and finds it to be too slow in arriving, too small, too short-term and too poorly directed-especially in the parts going into tax cuts, and the others that are (incompletely) filling in the holes in state budgets rather than launching new initiatives-or doing anything meaningful about the mortgage problem.1

Stiglitz is a Keynesian, and the influence of Keynesian theory on his thought is not merely acknowledged but quite apparent. However, a prior knowledge of it is not essential for understanding the book, Stiglitz's concern being practical rather than theoretical, and Stiglitz quite ably explains the relevant concepts in what is overall a lucid and useful account of the story as it recently stood-as well as some real ideas about what might plausibly be done to avoid a repeat.

Still, at the end it struck me that Stiglitz provides rather modest grounds for optimism about corrective action to address the situation-certainly in contrast with Keynes's earlier confidence about the chances that ideas had against the power of vested interests (even as Keynes famously owned up to the influence those vested interests had on the "marketplace of ideas"). Stiglitz assumes the inevitability of change, given the alternatives, in fact comparing the collapse of Lehman Brothers to the fall of the Berlin Wall, what the latter spelled for Communism marking the same for neoliberalism. Nonetheless, it still seems to me that the latter still has rather a long life ahead of it.

1. It may seem odd to describe an $800 billion stimulus as "too small." However, divided over two years, it pumped a mere $400 billion into a $14 trillion annual economy-equal to about 3 percent of GDP. The New Deal, even while falling far short of the initial vision, saw a much greater (and more sustained) rise in government spending, the size of the Federal government relative to GDP quadrupling between 1929 and 1940.

The General Theory of Employment, Interest and Money by John Maynard Keynes

John Maynard Keynes's work has been receiving renewed attention these last two years. Much of what has been said about Keynes's work has, of course, been wildly inaccurate, and a reappraisal of Keynes's ideas as he expressed them himself only too timely.

Keynes's key book is, of course, The General Theory of Employment, Interest and Money, which I suspect is yet another of those old, large books routinely mentioned but rarely read-all the more so given its reputation for difficulty. In the preface Keynes informs the reader that he is chiefly addressing his fellow economists, even if he hopes "that it will be intelligible to others." His intellectual starting point, in his presentation of his argument, and indeed, his thought process, is the neoclassical state-of-the-art as it stood in the 1930s, much of it recognizable to anyone acquainted with marginalism, but many of his references and much of his terminology is comparatively obscure now, especially to non-specialists.

Nonetheless, the difficulty of Keynes's manner of presentation is not a reflection of some great obscurity on the part of the book's ideas, which are actually fairly simple, and it should be noted, presented quite accessibly at a number of points inside the text itself (such as the outline offered in chapter three, and the summary in chapter eighteen).

Essentially, Keynes's argument is that the classical, "Ricardian," supply-side view of economics, is wrong. Consumption is the end of all economic activity, and without consumption-without "effective demand" (a concept Keynes borrows from Thomas Malthus)-there is no incentive to produce. Demand depends on income, but not only income, because of a crucial, previously unconsidered factor-that the "propensity to consume," both that of the community and the individual, declines with increasing wealth, making society vulnerable to shortfalls in this area. The money in the hands of working people is the money most completely and reliably spent on consumption, making effective demand dependent on employment, which in its turn is dependent on investment, while investment is dependent on the incentive to invest (purchases of capital assets out of income). This, in turn, depends "on the relation between the schedule of the marginal efficiency of capital and the complex of rates of interest on loans of various maturities and risks."

In other words, businessmen have to expect that the return on their investment will be higher than the cost of the capital involved for investment to appear worthwhile - and this confidence a fickle thing because of two related aspects of life economics had previously tended to overlook in its fixation on the idea of unfailingly rational, utility-maximizing Economic Man. This is the reality that human beings make decisions in conditions of uncertainty, one result of which is "that a large proportion of our positive activities depend on spontaneous optimism rather than on a mathematical expectation, whether moral or hedonistic or economic." And that, in turn, means that "economic prosperity is excessively dependent on a political and social atmosphere which is congenial to the average business man," and also that "slumps and depressions are exaggerated in degree" - as was the case with the Depression during which Keynes was writing.

This image of economic life naturally led to certain prescriptions, perhaps the most famous of which is the pursuit of a low interest rate, so that the marginal efficiency of capital, and with it, employment-creating investment, are attractive. (Indeed, Keynes specifically suggests in chapter twenty-two the path of remedying the trade cycle by lowering the interest rate, ideally "abolishing slumps and keeping us permanently in quasi-boom.") However, as he states in the final chapter (where he offers his most focused treatment of his theory's implications for policy), it also seems to him that merely tinkering with interest rates would be inadequate to attain that goal, and so he called for "a somewhat comprehensive socialisation of investment . . . [as] the only means of securing an approximation to full employment." (Indeed, a drastic redistribution of income is a step governments might take to stimulate consumption as booms go on-again, rather than putting an end to growth.)

Keynes makes very clear in his book that he did not anticipate the abolition of inequality or private initiative, let alone economic individualism (even if he viewed the reduction of inequality as an object that was both desirable and achievable). He also anticipated the socialization he described as coming about slowly, and still leaving the economy relatively decentralized.

Contrary to popular misconceptions, Keynes also recognized the limits of his ideas. There was, as he noted in chapter fifteen, limits to what the monetary authorities could do-cases where governments could do little to increase or decrease liquidity. Similarly, there is virtually no discussion of deficit spending in this book. (Indeed, this only gets one mention in chapter eight, where it is discussed as a situation in which governments might find themselves while providing unemployment relief in hard times, not as some cornerstone of his theory.) Given the emphasis on putting money into the hands of those who have least and therefore can be counted on to spend what they can get, it is also quite clear that upper-class income tax cuts are a dubious form of economic "stimulus" from the standpoint of his theory.

Why all the confusion, then? Given how often ideas like these are received secondhand, a measure of distortion was inevitable, especially given the hostility they have attracted in some quarters. This would seem to have been exacerbated by the broader inattention to macroeconomics common in the field, the fact that the synthesis of Keynes's thought with the neoclassical thinking he set up his theory against became so pervasive, and the subsequent evolution of Keynesianism into successor schools (some quite far removed from the initial theories). When all that is taken into account, the errors seem tiresomely predictable rather than surprising.

Thursday, February 18, 2010

A Russian Resurgence (Part Two)

By Nader Elhefnawy
Originally published in the SPACE REVIEW, November 17, 2008

The Russian boom
In place of the basketcase of the Yeltsin years, Russia commonly figures as the tenth or eleventh largest economy in the world when its gross domestic product (GDP) is measured in nominal terms (just ahead of India, and behind Brazil), the sixth or seventh when those economies are measured using purchasing power parity (making it about equal to the United Kingdom). This is due to strong rates of growth for nearly a decade, about seven percent a year, with the result that Russian GDP has doubled since its low point in the late 1990s.

This growth is widely expected to continue into the future, and those bullish on the Russian economy can much more easily point to reasons for it than they were able to ten years ago. An energy exporter rather than importer, Russia is benefiting rather than suffering from high oil prices, which have helped the country turn its trade deficit into a trade surplus (Russia’s current account balance is $76 billion, while the US’s is $738 billion in the red), pay down its public debt (a mere 5.9 percent of GDP to the US’s 60.8 percent), and amass the world’s third-largest reserve of foreign currency ($476 billion to the US’s $70 billion). In fact Russia, like China, has become an important financier of the US national debt, as Raj M. Desai and Itzhak Goldberg point out in their recent study, Can Russia Compete? A comparably formidable producer of metals, only Japan compares with it as an exporter of steel (the price of which has also trended upward). Where earlier Russia had seen dramatic capital flight, it is now receiving considerable foreign investment.

And all of this seems to be apparent not just in the statistics, but on the ground. In recent years it has been a commonplace that wages are no longer in arrears, the pensions are being paid, the unemployment rate falling, prisons emptying, the poverty rate receding, the middle class expanding. The higher incomes and rising consumption, in their turn, have led to booming activity in retail (Russia has recently been reckoned the world’s tenth biggest consumer market), as well as construction, real estate and other "non-tradables."

However, when looked at in other ways, the country’s situation seems less impressive. Russia may well have the sixth largest economy in the world in the aggregate, but when looked at on a per-capita basis, it falls to seventy-fifth place in the current edition of the CIA’s World Factbook, behind Latvia, the Seychelles, and Trinidad and Tobago. (Indeed, the figures it posts here are not much higher than the estimates of Soviet income taken for granted two decades ago.)

Also testifying to this contradictory situation is Russia’s comparatively low ranking in the human development indexes. While doing comparatively well in the area of education, the state of public health in the country is a disaster. Russia ranks an appalling 161st out of 223 states surveyed by the CIA in the area of life expectancy (with male life expectancy down to fifty-nine years), with a higher mortality rate than Somalia. Russia’s combination of a First World birth rate and a Fourth World death rate has resulted in its population shrinking at the rate of one half a percent a year, despite net immigration (mainly from other former Soviet republics). The country’s infrastructure is also in need of a trillion-dollar overhaul.

Additionally, it is well worth remembering the nature of the economic growth seen to date, which derives so much of its impetus from oil and gas prices, and so little from the rebuilding of Russian industrial power. Russia is actually less industrialized than it was in Soviet times, and it is not the case that a large, uncompetitive base has been traded for a smaller, but leaner and more viable one. The country’s productivity (while rising) still compares unfavorably not only with the advanced nations of North America, Western Europe, and Northeast Asia, but developing economies like China, India, Brazil, and South Africa.

This is evident in the results. The country’s production of energy, steel, and chemicals is admittedly impressive, but even the low-end manufacturing sectors (like textiles) are often underdeveloped. The picture is no better at the high end, as its export profile outside of aerospace, nuclear energy technology, and arms demonstrates. Russian corporate R&D is an area of particular weakness, according to Desai and Goldberg, and the output of the country’s relatively large research establishment dismayingly low when indicators like papers and patents are considered. And predictably, what strides Russia is making in areas like car manufacturing or information technology are a consequence of the limited foreign investment that has taken place so far, rather than the success of the Soviet enterprises privatized under Yeltsin’s watch, or new Russian startups.

Nor is that influx of foreign capital the happy ending to that part of the story. Particularly in the energy sector, that stream suffered as a result of the Yukos affair (which also damaged domestic, private investment in that area). This, combined with the underdeveloped state of the Russian banking system, is blamed by many observers for Russia’s relatively slow rate of overall capital investment, just half of China’s, and well below what one would expect in a booming country at a comparable level of development.

Russian prospects: possibilities and pitfalls
In short, far from Russia being truly "back," it seems that Russia is simply floating atop a sea of oil, at best buying it a window of opportunity through which it might try to stage a comeback—in what must be considered very daunting circumstances.

Some might point to concerns that Russia will alienate the rest of the world with aggressive actions like those it has undertaken in the Caucasus. However, the Tiananmen Square massacre, the occupation of Tibet, and the periodic intimidation of Taiwan have had no discernible effect on China's economic development and trading relationships. Russia also has oil politics working in its favor, as an exporter in what is today very much a seller’s market.

Others worry about corruption. Russia ranks 143rd out of 180 states surveyed by Transparency International with a confidence score of 2.3 (on a scale of 1–10, Denmark, Finland, and New Zealand being the top scorers, each with a 9.4). Nonetheless, the effect of corruption on the prospects of growth is a much more complex matter than generally appreciated, as Ha-Joon Chang argues persuasively in his recent book, Bad Samaritans. It is particularly worth noting that China and India fare only a little better, with a score of 3.5 each. Clearly, corruption as such, while certainly no asset, has not been sufficient to hamper the rapid growth of their manufacturing and service sectors.

More worrisome is the likelihood that Russia has already achieved its easiest gains. The chaos of the Soviet Union’s collapse left it performing well below capacity, something which is no longer the case, making additional growth more difficult. This even extends to the income from energy exports. The demand for Russian oil and gas seems unlikely to slacken, but it is implausible that the price rises seen in past years will continue. Not only is Gazprom chief Alexei Miller likely exaggerating when he predicts $250 a barrel by the end of 2009, but it is unlikely prices could continue even at the rate they have for the last ten years—from their low point in 1998, to their recent peak in July, around 25 percent annually as measured in constant US dollars. (If this did go on, oil would sell for $1,000 a barrel by 2016; the world economy would collapse long before that point.) A more slowly rising, stable, or slipping price for oil could slow Russian growth, and do very serious damage to government finances. Eliminate the oil income, and the Russian government’s budget surpluses turn to very sizable deficits. And while it is hard to tell where things will go from here, it is worth noting that at the time of this writing, oil is going for under $60 a barrel, far below the July price.

Additionally, Russian oil production may be "peaking," which is to say that the output of Russian oil fields will no longer continue to rise, but start to drop. Whether this is due to the diminished attractiveness of the investment environment after the Yukos affair, or geological facts about which little can be done, will not matter very much for several years (getting a new oil field going is a decade-long process), but the loss of sales assuredly will.

This is not to say that Russia cannot hope to maintain or even increase its income from oil exports. It is conceivable that continued rises in oil prices will compensate Russia for the smaller volume of oil it can sell to foreign markets. It is also conceivable that Russia could free up more oil for export by increasing its domestic energy efficiency and its use of alternative energy sources. However, it may be too much to expect that any gains in efficiency can hold down consumption rises as its economy develops. (The figures available from the Energy Information Administration indicate that Russia's oil consumption rose a mere 11 percent from 1998 to 2005, but this is likely due to how little internal development has taken place in that time, despite the high growth rates posted for many of those years.)

On the other hand, the Russian government has shown no intention of passively accepting its country’s current place in the world economy as a natural resource exporter. Indeed, it has actively pursued an industrial policy, identifying key sectors and accordingly acquiring assets where the previous government has privatized them (the Yukos affair only the best known), developing plans for public-private partnerships and special economic zones, and even imposing some classically mercantilist regulations (as in its efforts to discourage the export of scrap metal).

Proponents of orthodox economics, of course, cringe at this unfashionably statist course. Nonetheless, as Chang persuasively shows in his book, the same economic approaches intended to maximize the efficiency of an existing trade system run contrary to those which are best for turning undeveloped countries into developed ones. Tariffs and other trade barriers; regulations on foreign investment; state-owned enterprises—virtually every industrialized state used such devices. Their critics argue that they were incidental to their success, or even a drag on it, rather than a necessary condition of it, but they have yet to point to an example of successful development that did not involve these or other comparable devices.

Nonetheless, this strategy can produce failure as well as success, and Russia in particular faces an obstacle that the success stories generally did not, namely the "resource curse" that has haunted so many developing countries before, their natural resource wealth interfering in manifold ways with their attempts to move up the value-added ladder. The record also suggests that oil exporters like Russia are even more susceptible to such problems than the exporters of other kinds of resources.

Optimists about such situations often argue that a country with high educational levels (which Russia enjoys) need not go down that route. However, the assessment of Russia in the International Institute for Security Studies’ 2006 Strategic Survey indicates Russia is already a textbook case. In the survey, the authors point to such symptoms as the neglect of needed economic reforms, signs of the "Dutch disease" in which the strengthening of the country’s currency by demand for its energy exports undermines other sectors such as manufacturing, and the failure to plow enough income back into the crucial oil and gas sector (evidenced in the lack of oil field development in Siberia).

In short, it remains to be seen that Russia will succeed in following the course traveled by countries like South Korea, rather than returning to something like its earlier stagnation, perhaps softened by the higher oil prices. However, it is worth thinking about what Russia’s situation would look like were that to actually happen.

Russia, 2020: A space superpower again?
Russian Minister of Economic Development and Trade Elvira Nabiullina estimated last year that should her country manage to sustain its current rates of growth, it will have a roughly $5 trillion economy by 2020.

This would make it the third largest economy in the world today (or even second, depending on how it stacks up in nominal terms), and the fifth in 2020, after only the United States and the Asian giants of China, India, and Japan. Russia would be a distant fifth, with about a quarter the GDP of China, here projected to be the leader of the pack. Nonetheless, it would also have a higher per-capita GDP than China and India, over $33,000 a head, on a par with many of today’s First World nations. The country’s greater affluence (and a broad experience of being better off) would leave it in a position to commit a higher share of its national income to projects like exploring and developing space.

Moreover, culture should not be totally ruled out as a factor. The experience of a broad improvement in living conditions' contribution to a willingness to invest in initiatives like space exploration aside, perhaps no country on Earth has derived as much of its national prestige from space as Russia. And perhaps nowhere does a “futurist” streak, especially one bound up with space, run more deeply than in the nation that gave the world Nikolai Fedorov and Konstantin Tsiolkovsky, a point acknowledged by Brian Harvey in his writing on the Russian and Soviet space programs. All of these could well factor into the degree of commitment to a space program in which Russia has historically had no peer, as not only the exceptional Soviet-era investment in that program suggests, but also the survival of that program through the extraordinarily trying times of the 1990s.

As a result, what seems overambitious from the standpoint of 2008 might begin to be practical by 2020 if things go well. Still, a return to Soviet-era funding levels even then (which would come within the realm of the possible if Russia achieves a $5 trillion GDP) is implausible, since the country's developmental problems will inevitably absorb long overdue rubles.

Additionally, the fact remains that even Soviet-era budgets would not return Russia to its earlier standing because the US and China would remain in a position to outspend it in any serious competition (barring a major upset like a sharp economic contraction due to rising energy prices, serious political instability in China, or a debt-and-currency crisis in the case of the US). And of course, even they will not enjoy the stature of the space superpowers of the 1960s, due to the broader diffusion of satellite ownership and space launch capabilities evident since the beginning of the space age. That process would still be more advanced today than it was in 1989, even if the Soviet Union had managed to thrive and survive into the twenty-first century; and it will be that much further along in 2020.

The end result would be that rather than Russia (or any other state) being in a position to pursue clear-cut dominance in orbital space, or settling for being one of two (or three) leviathans surrounded by comparative minnows as remained the case during the Cold War, a successful and aggressive Russia will end up just one of the larger participants in a much broadened arena.

Rather than Russia (or any other state) being in a position to pursue clear-cut dominance in orbital space, a successful and aggressive Russia will end up just one of the larger participants in a much broadened arena. The Russia described here is still likely to be one of the world’s most prolific space launchers (if not the most), and one of the very few to go on operating a manned space program at any level, if dependent on existing rather than new system types and facilities. It is also likely to have a bigger budget and larger portfolio of space assets than India, perhaps leaving it in third or fourth place (depending on whether the European Union is taken as a single power or disparate states, and also the level of effort Japan is willing and able to make). Russia’s constellation of satellites may not be very much larger in total numbers than it is now, but a larger part of it would be functional, operating within their normal service lives.

More importantly, Russia would retain a robust base on which it could build, and a return to something like Russian leadership may not be entirely ruled out should things continue to go favorably after that. This would especially be the case if Russia’s leadership displays more will and insight on the issue at a fortuitous moment than other states—as was the case where rocketry was concerned in the late 1940s and early 1950s, when the United States largely neglected these possibilities. While it is a long shot, the next space age may yet see its own Sputnik moment.

Back to Part One.

Wednesday, February 17, 2010

Long Waves and Space Development

By Nader Elhefnawy
Originally published in the SPACE REVIEW, June 23, 2008

The idea that the world economy has followed a cyclical pattern of activity in “long waves” is not widely known outside the world of the social sciences. It rarely appears outside of books and articles written by and for academics, and even inside the academy, is outside mainstream, “orthodox” economics.

Nonetheless, over the eighty years since its introduction, the concept has attracted interest from highly respected economists all across the ideological spectrum, ranging from Austrian School economist Joseph Schumpeter to Marxist economist Ernest Mandel. It also continues to command attention from numerous reputable economists, economic historians, political scientists and futurists. (A considerable body of research, for instance, holds that there is a connection between the outbreak and intensity of wars and the various stages of the cycle. Professor Joshua Goldstein’s classic book on the subject is actually available online at his personal web site, and Heikki Patomaki offers a compelling study of the issue in this year's The Political Economy of Global Security.)

The theory of economic long waves posits that a forty- to sixty-year-long cycle is discernible in global economic activity.The interest is particularly strong among scholars interested in the relationship of technological innovation to economic booms and busts, and in fact, long wave theory has often been used to explain the effects of “clusters” of innovation on economic history. That being the case, long waves may offer a useful way of looking back at the last half-century of space development. Given the predictive power often attributed to these waves, the theory may also usefully inform considerations of the future prospects of that development. This article will, accordingly, describe the basics of long wave theory; take a look at how space development has reflected the movements of those waves; and consider what long waves suggest about space development in the present and foreseeable future.

A brief guide to economic long waves
The theory of economic long waves, first proposed by Russian economist Nikolai Kondratiev in the 1920s (for which reason they are sometimes also referred to as Kondratiev or K-waves), posits that a forty- to sixty-year-long cycle is discernible in global economic activity. The cycle begins with a generation-long upward wave, followed by a downward wave of similar length, which in its turn is succeeded by the upward wave beginning a new cycle. The upward wave is characterized by booms; the downward wave, by recessions and depressions, and slower overall growth (even if there may be rapid growth during part of the period, or in particular parts of the world economy).

Much about these long waves remains a subject of argument, even among those espousing the idea. There is wide disagreement on how far back such waves can actually be traced in history; the precise beginnings, endings and durations of particular waves; and of course, what exactly stimulates upward turns and provokes downward turns.

Nonetheless, a fairly conventional view is that the first wave began in the late eighteenth century, the second was ongoing by about 1850, the third took off in the 1890s, and the fourth in the 1940s.

Examining the fourth wave more closely, the argument typically goes that the upward wave that marked the end of the Depression constituted the very rapid worldwide growth of the postwar 1940s, 1950s, and 1960s. The turning point was the early 1970s, which saw the collapse of the Bretton Woods monetary system and the onset of the oil crisis of the 1970s, after which it grew much more slowly as a whole.

This may seem counterintuitive given the hype surrounding globalization, the rise of China and India, the boom of the 1990s, and the neoliberal conventional wisdom in general. However, after adjusting the statistics on world Gross Domestic Product published by the World Trade Organization in 2001 for US Census data on population growth, it seems that the world economy grew at a rate of over 3.2 percent per capita a year for the years 1950–1973. By contrast, it grew at a rate of 1.1 percent a year for 1973–2000, barely a third as fast. (Some suggest the disparity is even bigger than that. Economist Alan Freeman calculates that between 1988 and 2002, the planet’s per capita GDP may have actually shrunk.)

The numbers are much easier to account for than one might first assume. After all, there was not only the Asian boom, but also the Asian financial meltdown of 1997–1998, and it seems awfully likely that China’s performance has been overrated all along. According to a report issued by the Asian Development Bank last year, its exaggeration may have led to the overestimation of the size of China’s economy by forty percent. In line with this, the CIA quietly adjusted its estimate of the Chinese economy down from $10 trillion in the 2007 edition of its World Factbook to $7 trillion in the 2008 one—a difference equal to five percent of the world economy, or five years’ high-speed growth for China.

Meanwhile, despite occasional glimmers quickly seized on by the optimists, the prospects of Latin America remain dismaying, the situation of Africa and the Middle East dismal (despite the illusion of wealth created by oil revenues). There was the stagnation of Japan, and the mediocrity of American and European growth compared with their performance in the earlier period, and the total collapse of the Soviet bloc economies (from which many of them have not really recovered, for all the pain of their reforms).

Reexamining the history of spaceflight
Scholars generally regard the beginnings of long waves as multi-causal, but it is notable that each of these coincides with a burst of technological development. The first wave came with the beginning of the Industrial Revolution in Britain. Railroads and steel are widely believed to have played an important role in the second wave of the 1840s, the chemical and electrical industries in the wave beginning in the 1890s. The early 1940s, in turn, saw a rush of new technologies, including jet engines, nuclear energy, electronic computers—and crucial developments in modern rocketry.

It is universally accepted today that the rockets that came out of the early 1940s (in particular the German V-2) were the forerunners of today’s space launch vehicles. Such rockets also played an important role in the postwar economic boom.

Long-range missile programs comprised a large part of the defense spending of the superpowers, and stimulated a great deal of spending on associated systems, from early warning systems, to submarines designed to carry the weapons, to the research and development of lasers. The role of such expenditures in the postwar boom ought not to be trivialized: defense spending at the height of the Cold War often ran to a tenth of US GDP (a situation often described as "military Keynesianism"), and more than that in the Soviet Union.

The related space programs laid the foundations of a space industry that has emerged as a commercial heavyweight, a $250 billion-plus a year global business in 2007. And of course, there are the assorted technological spinoffs that came out of these programs in fields ranging from computing and materials science, to energy production and medicine.

It is also worth noting that the heyday of the space race came in the early, upward part of the cycle, the 1950s and 1960s, not least because of the stronger economic growth that made the major countries more willing to invest in space (the boom the technology helped drive, in turn, sustaining the development of the technology).

This was the period of famous “firsts”—the first space shot, the first man (and woman) in space, the first orbital flight, the first spacewalks and moonwalks, the first space station. There was also a widespread expectation that the development of space would continue at that seemingly rapid pace, epitomized by the writing of futurists like Gerard K. O'Neill in The High Frontier: Human Colonies in Space and G. Harry Stine's The Third Industrial Revolution.

That their visions did not come to pass is often attributed to underperforming technological programs like the space shuttle, typically blamed on bureaucratic mismanagement, or an underestimation of the technical challenges involved in them. While it is hard to dispute the role played by these factors, the receding of the financial resources to support such activity (and with them, enthusiasm for such endeavors) as growth shrank, tax revenues dried up and debt mounted is at least as important.

It is also worth noting that the heyday of the space race came in the early, upward part of the cycle, the 1950s and 1960s, not least because of the stronger economic growth that made the major countries more willing to invest in space.The history of the budget for the National Aeronautics and Space Administration makes the point. NASA’s budget in the mid-1960s, adjusted for inflation, comes to over $30 billion in current dollars. This did not last long, however, and cutbacks reduced it to about a third that level by the late 1970s. Measured as a percentage of GDP the difference is still more striking. The 1966 figure corresponds to about 0.75 percent of US Gross Domestic Product. The budget in 1979, though, was a little more than a fifth that, and the figure has continued to trend downward with the failure of civilian space spending to keep pace with economic growth. The $16.3 billion budget for 2007 represents just 0.12 percent of GDP for that year.

The collapse of the Soviet space program was even more dramatic, of course, and NASA’s shrunken budget is roughly equal to the entire Russian space agency ten-year budget for 2006 to 2015. Despite the proliferation of national space programs in that time (even impoverished Nigeria is planning to launch its own satellites in the next decade), none of these comes close to filling the gap. Even China's, after all, from its first manned space flight to its controversial anti-satellite weapon last year, is based on long-established technology.

Of course, one can point to the expansion of commercial space activity in that same time frame, but as with China’s program, these are essentially living off of 1960s-era technology, ranging from government-funded R&D to the abundance of boosters on the international market left by the end of the Cold War (many Soviet SS-18 intercontinental ballistic missiles, for instance, having found second life as satellite-launchers).

This behavior is not at all aberrant, but the standard operating procedure for business in circumstances defined by the kinds of high costs and prohibitive risks raised by space-related R&D. Indeed, where innovation is concerned, space service providers have had far more success reducing the payload sizes needed to perform a particular task (through miniaturization, and the construction of longer-lasting satellites) than at delivering really cheaper launch services. The goal of a $20–50 a pound orbital launch cost ($120–300 in today’s dollars) of which NASA administrator George Mueller spoke in 1969, on which Stine and others based their visions of space industrialization, remains almost as distant today as it was four decades earlier.

The fifth wave?
Given the expectation of a fifty- to sixty-year cycle, it was widely expected that the fourth long wave would have run its course by the late 1990s or early 2000s, following which a new upward wave would begin. Some observers believe that we are already living through one, but this does not seem to be a majority position. In the view of writers like Patomaki the evidence for a renewed, extended period of economic boom is somewhere between fitful and nonexistent. Accordingly, they argue that we remain mired in the long downward wave that began circa 1973.

Assuming that the theory of long waves has any predictive power, then what might get the world economy humming again like it used to remains unclear. New technologies are likely to be prominent in a new upward turn, but which ones?

It seems only reasonable to wonder if space technology as such will play a role. As Colonel Charles D. Lutes notes in his article "Spacepower in the Twenty-First Century" (which appeared in the Joint Forces Quarterly earlier this year), the primary product of the Cold War space race was prestige, and more recently, information flows. The next will be about wealth creation from space, “a boom in the economic value of space itself.”

Optimists certainly point to signs something is happening, amid heightened international interest in manned space flight and even Moon missions, a turn to space for energy resources in the form of helium-3 mining or solar power satellites, and the rising interest in space tourism.

However, it is too early to tell where all the talk will lead. Proposals are one thing, concrete results another, as longtime space policy watchers know only too well. The hype about space tourism seems particularly dubious. While the conventional wisdom in economics today is to treat tourism and high-tech manufacturing as activities of equal economic value, economic history dictates otherwise. Space tourism will not actually add to the world’s stock of resources, or use already accessible resources in new and more productive ways, as space-based energy production, new space-based manufacturing techniques, and asteroid mining all can. At best, it will simply encourage investment in things that will prove useful to more serious activity later on, like cheaper, more reliable space launch vehicles. Additionally, while entrepreneurs have already launched enterprises dedicated to space tourism (like Richard Branson’s Virgin Galactic), issues of cost, reliability, and safety are likely to constrain the size of their market for years to come (if not decades). Indeed, it is easy to picture a single, highly publicized accident crippling the entire industry.

Space tourism will not actually add to the world’s stock of resources, or use already accessible resources in new and more productive ways… At best, it will simply encourage investment in things that will prove useful to more serious activity later on, like cheaper, more reliable space launch vehicles.At the same time, the breakthroughs likely to make the extraction of significant resources from space economically viable do not appear imminent. Nor does a change in the larger background situation that might accelerate the development of those technologies appear likely in the near term. Where the Industrial Revolution’s steam engines were constructed by talented mechanics, the innovation curve has got steadily steeper, not only in terms of the need for highly specialized knowledge, but the sheer financial and industrial resources necessary to develop and use the technology.

Indeed, large-scale public support may have become more important from one wave to the next. The railroads that drove the circa 1840 upward wave, for instance, were the beneficiaries of land grants and other subsidies on a staggering scale. The naval arms race of the late nineteenth century has been viewed as playing a similar role. The aforementioned rush of technologies that came out of the 1940s was the result of government-funded efforts of World War 2 and the early Cold War period.

Nothing comparable seems plausible today. At the same time, other demands for R&D money appear more pressing (like energy and climate change), or more promising (like information technology or biotechnology). However, it could prove to be the case that investments in these other areas will give space development a shot in the arm. This would be due not only to their stimulating higher rates of economic growth, and so making more money available for such efforts, but direct consequences of those investments. Molecular engineering, for instance, may be the key to lighter space vehicle bodies and more efficient rocket fuel, space-based solar power schemes can only benefit from improvements in photovoltaic cell design, and so on; the list of potential cross-fertilizations is seemingly endless.

It is possible (and perhaps even likely) that the benefits of such advances may not seriously manifest themselves in space development for a long time to come, perhaps even the next upward wave. Nonetheless, technological development is rarely linear, and the greatest mistake of all may have been thinking that the road to the stars would be a straight one.

Tuesday, February 16, 2010

"The Impending Oil Shock": An Exchange

By Nader Elhefnawy

This is an electronic version of my contribution to a Survival Forum in which I responded to the comments of Amy Myers Jaffe and Michael T. Klare to mt April 2008 Survival article, "The Impending Oil Shock," published in Survival 50.4 (August 2008), pp. 61-82. Survival is available online at informaworldTM.

I would like to start by thanking Amy Jaffe and Michael T. Klare for their comments regarding my article. While they agree with many points of my assessment, they also point to a number of items they find problematic. Jaffe argues that I have underestimated the flexibility of the market and the prospects for peaceful adaptation to the new conditions, particularly by the United States. Klare suggests I did not give sufficient attention to the prospects of a Sino-American military competition, to which energy politics is already contributing.

Jaffe observes that 'investors in alternative energy . . . in Elhefnawy's world could invest far more capital without any fear that fossil fuels would fight back.' The article focused on long-term energy security, rather than financial advice to investors, and therefore warranted a more cautious consideration of the issue, extending to an examination of worst-case scenarios. Nonetheless, Jaffe's characterisation of my position is not entirely inaccurate. The flexibility of markets is not infinite, and natural-resource scarcities remain an important limitation on their capacity for generating solutions.1 A return to 'cheap oil' (a problematic concept in itself) is no exception. All the signs-the smaller size of newly discovered deposits, the growing shortfall between new discoveries and the depletion of proven supplies, the emphasis on areas where exploration and extraction are more difficult and costly (like offshore fields), the broadly falling energy return on energy invested (EROEI)-strongly indicate a trend toward diminishing marginal returns on investment in oil production. The relatively slow process of enlarging oil production is also a factor, deferring even the hope of a price drop to a point at which this trend will be even more advanced.

Of course, cutbacks in consumption driven by high prices could help in the interim. However, energy consumption is relatively inelastic, and the energy shortages of the 1970s did not cause consumers to fundamentally reduce their use. Rather, high prices temporarily held down growth in consumption. Substantial, lasting reductions require structural changes like the conversion of infrastructure and vehicle fleets, which tend to be gradual when driven by the market.

Moreover, energy efficiency may also be an area of diminishing marginal returns on investment. While the rise in global energy efficiency in the 1990s (measured in terms of the energy input needed to produce a unit of gross domestic product) kept pace with the progress of the 1970s and 1980s (about 10% per decade), the distribution of the gains of the years 1990–2003 is cause for concern.2 It was concentrated not among advanced states, but those rated 'lower middle income' by the World Bank-economies which in the natural course of development did away with very easy inefficiencies, rather than pushing the envelope.3

In fact, the most efficient among the large states saw their improvement stagnate during these years; the progress of Japan and Italy flat.4 The more impressive gains of Germany, Britain and the United States are likely due to how far behind they were to begin with-'easy' gains, as in the case of many developing nations.5 This trend might be attributable to low oil prices affording little incentive to make a greater effort, but that remains speculative.

The booms and busts Jaffe mentions as comparable to this decade's should also be examined closely. The 1956 crisis was due to the closure of the Suez Canal. The oil shocks of 1973 and 1979 involved concerted action by the Organisation of Petroleum Exporting Countries (OPEC). The 1990 shock was a result of UN sanctions taking Iraqi and Kuwaiti production offline.

In short, all four shocks were partly attributable to deliberate political decisions regarding oil production, transportation or price, to which the 2003 shock offers no analogue. It is also worth remembering that prices tended to fall through the 1980s and 1990s despite the Iran–Iraq War, sanctions against Iraq and periodic war scares in the Persian Gulf, and reached their low point in 1998, a particularly anxious year where Iraq's relationships with the UN and the United States were concerned. The ongoing war in Iraq and international tensions regarding Iran's nuclear programme therefore seem insufficient to account for the current prices ($138 a barrel), which exceed the earlier 1981 record by over 40% in real terms.

The real issue is that oil producers have less slack for absorbing shocks of all kinds. Rising consumption in Asia is certainly a factor, but still leaves the question of why producers have failed to keep up: partly due to a fixation on short-term profit-seeking, but also reflecting the diminishing marginal returns that make rectifying the situation more difficult.

This is not to say that oil cannot 'fight back.' Declines rarely follow a straight downward trajectory, but it seems reasonable to expect that those who do fight back will give more and get less, that the curve will get steeper. It only muddles the issue to say that prices will at some point go down. The real issue is how much we can reasonably expect them to go down, and for how long before prices start to go back up again. For instance, will prices return to the low of the 1990s, when they hit $10 a barrel–a drop of 90% from today's prices, after adjustment for inflation? Will they even come close?

That seems unlikely at best. Besides, it is worth remembering that when oil fought back against alternatives in the past, it did so politically as well as through the market. Where renewable energy should have enjoyed the protected status of an 'infant industry' on the grounds of energy independence and ecology, such support was withdrawn in the United States in the early 1980s.6 While this was done in the name of the free market, renewable energy did not compete on a level playing field but one tilted in favour of fossil fuels, the beneficiary of a long and ongoing history of subsidy.7 Fossil-fuel-related R&D was funded by the government at approximately twice the level (and nuclear-related R & D, at four times the level) of renewable energy for the 1972–95 period.8 Such subsidies make the 'cheap' oil to which Jaffe refers illusory in an important sense (even without considering problematic externalities like climate change, which Jaffe rightly raises).

Despite these disadvantages, the cost of renewable-energy production has steadily dropped relative to oil since the 1970s, so that wind is increasingly competitive. Given recent experience, this trend can be expected to continue (though not indefinitely). A true repeat of the late 1980s and 1990s with regard to the energy markets is thus highly unlikely, barring perverse public-policy decisions.

However, while Jaffe characterises my assessment as a 'doomsday scenario' at which future readers will scoff, the parameters laid down here leave a wide range of possibility with regard to the speed with which that scarcity develops, the severity of the resulting problems, and the room for manoeuvre actors will have in which to adapt to the new situation.

Peaceful, progressive responses are conceivable, and one can point to real achievements. Denmark, for instance, derives a fifth of its electricity from wind energy, and reduced its fossil-fuel use by a comparable margin in the 2001–05 period, all while maintaining one of the highest living standards in the world.9 Unfortunately, Denmark is the exception rather than the rule; others are proving slow to follow, and even were the propensity to do so greater, not all countries can adapt as easily. Considerable variation exists in this respect among even the advanced industrial countries.

This brings me to the second major point, the case of the United States. As Jaffe notes, America's status as the world's single biggest consumer of energy and oil positions it to have a greater positive impact on the situation than any other single actor. It is also the world's biggest spender on technological R&D, and has enormous potential to produce energy from photovoltaic solar, wind and other renewable sources.10 All these resources can be mobilised to meet the challenge.

Nonetheless, the United States has further to go than other developed nations, and a number of particularly severe obstacles to overcome. These include the country's overall low energy efficiency, underdeveloped renewable energy industry, and a 'culture of oil' deeply embedded in national attitudes, consumer habits and physical infrastructure. The US economy may not be as robust as it appears, and is already suffering the consequences of its deindustrialisation and trade deficits (possibly coming to a head in a currency crisis), which complicate adaptation.

Meaningful action on all these issues will take considerable political will, extending to a fundamental rethinking of the economic legacy of the 1980s. There is little sign of this as yet, either at the level of federal policy (though many US states and even localities have been more active), nor in public discourse about the issue, which remains mired in inoffensive platitudes. I am not arguing for economic determinism, but taken together these factors threaten America's position as a global power.

The issue of global power status, of course, raises Klare's concern over the risk of military competition between the United States and China. I agree that China, along with the United States, will be the major country most adversely affected by contracting oil supplies. China's robust growth, strong currency and heterodox economic policies have, for the time being, constrained the effect of oil-price rises on its economy (just as they constrained the effects of the 1997–8 Asian financial crisis). However, over the long term, deepening scarcity will take its toll.

Klare is also right to note China's support of its energy policy with diplomacy and arms sales in recent years; the resulting frictions with US interests in Central Asia and elsewhere; and the danger not only of an increased risk of a great-power military clash, but the resulting diversion of resources and attention away from more useful investments. Indeed, the pursuit of energy security through military means has already exacted a high price. What might the United States have accomplished if it put even a small fraction of the money spent on securing the Persian Gulf since 1973 into developing alternate energy sources?

Nonetheless, a few qualifiers are in order, particularly where China's position is concerned. The country's wealth, capabilities and prospects are constantly exaggerated. Despite its lengthy investment in military modernisation, China still lacks the power-projection assets of the United Kingdom, let alone the United States. Additionally, while China's relationships with Iran and Sudan rightly raise eyebrows, it is significant that China has become more cautious in pressing its claims in the South China Sea basin since 2001, a situation much closer to home, and where it is far stronger than in the distant Middle East.

Indeed, China relies much less on its military resources internationally than the softer power brought by its economic standing and its effective diplomacy, exploiting the desire for a counterweight among those discontented with US foreign policy.11 This does not rule out a more militarised and confrontational Chinese policy in the future, but the constraints here are greater than many observers appreciate because the situation will be slow to change, in part because (energy portfolio aside) China's economy, too, is not as strong as it appears.

According to a report issued by the Asian Development Bank last year, the miscalculation of purchasing power parity for China may have led to an overestimate of the size of China's economy by 40%, an assessment now widely accepted.12 In short, China is several years behind the position the most optimistic estimates have given it, and much else about its economic performance is also called into question by this rethinking.

China's economic progress has also exacted an appalling social and ecological price. The sharp cleavages between regions and classes (manifest especially in the rural unemployed migrating toward the cities), as well as the destruction of much of the country's natural resource base (evident in the country's expanding deserts and air pollution, and the fouling of the Yellow and Yangtze rivers), bode poorly for the sustainability of China's current course. Those who criticise Europe's trend toward an older population would also do well to remember that China is one of the most rapidly ageing countries in the world.

Indeed, China's condition not only invites comparison with the rise of great powers like the United States, but frustrated ascents to superpower status, like the 'Brazilian miracle' of the 1970s, which astonished the world (as China astonishes it now) before fizzling out. China's collapse may be a more likely consequence of its reliance on oil than a lengthy arms race, though these unfortunate paths are not mutually exclusive.

The optimal future is one in which, as Jaffe argues, the United States and China (and other economic powers like the EU and Japan) lead the international community in a project to improve energy efficiency, build up production from already viable and increasingly attractive alternatives, and further develop the technological state of the art in energy production and use, while extending the benefits of these to even the poorest nations.

However, the rational response is not the only one possible, or even the most likely. There were wide hopes of a similar venture 35 years ago in the wake of the OPEC embargo, but for all the bold rhetoric of the Nixon and Carter administrations, the results of American efforts in particular were dismal. It would be folly to ignore this dismaying precedent, and unfortunately the policy of the United States and China in recent years has not been much more encouraging. A successful and humane response to the problem is possible, but such an outcome cannot be regarded as assured.

1 Thomas Homer-Dixon, Environmental Scarcity and Global Security (Ithaca, NY: Foreign Policy Association, 1993), pp. 67–8.
2 World Bank, 2006 World Development Indicators (Washington DC: World Bank, 2006), pp. 158–60.
3 Ibid.
4 Ibid., pp. 158–60.
5 Ibid.
6 Nader Elhefnawy, 'Toward a Long-Range Energy Security Policy,' Parameters, vol. 36, no. 1, Spring 2006, pp. 108–10.
7 Ibid.
8 Fred J. Sissine, 'Energy Efficiency: A New National Outlook?' Congressional Research Service Reports, 12 December 1996,
9 In 2005, Denmark was consuming 20% less oil daily than it was in 2001, and 37% less than in 1981. US Energy Information Administration, 'World Petroleum Consumption,' International Energy Annual 2005, 6 August 2007, available at Danish coal and natural gas consumption have also trended downward.
10 Robert L. Paarlberg, 'Knowledge as Power: Science, Military Dominance and U.S. Security,' International Security, vol. 29, no. 1, Summer 2004, pp. 122–51.
11 Chris Zambelis and Brandon Gentry, 'China through Arab Eyes: American Influence in the Middle East,' Parameters, vol. 38, no. 1, Spring 2008, pp. 60–72.
12 See Albert Keidel, 'The Limits of a Smaller, Poorer China,' Financial Times, 14 November 14, http://www.carnegieendowment.
org/publications/index.cfm?fa=view&id=19709&prog=zch. Between 2007 and 2008, the CIA revised its estimate of China's GDP down from $10 trillion to $7tr. See the 2007 and 2008 editions of the Central Intelligence Agency's CIA World Factbook.

Thursday, February 11, 2010

"How Long Till Human-Level AI?"

H+ magazine recently carried an article regarding a small-scale survey of experts (twenty-one of the attendants at the 2009 Artificial General Intelligence conference) on the question of when general artificial intelligence will arrive, and specifically when it will attain four milestones-Turing-level intelligence, the intelligence of a third-grader, the intelligence needed to do Nobel Prize-quality work, and finally the key Singularitarian outcome of superhuman intelligence.

Interestingly, fifteen of the twenty-one-seventy percent-of them predict a computer will pass the Turing test by the 2040s.

A significant percentage answered "never," however, particularly in regard to the question of when a computer would achieve superhuman intelligence-nine of the twenty-one answering in this way, the greatest unanimity the survey finds on any point. However, that still leaves the doubters of that particular outcome in the minority, eleven of the twenty-one predicting this actually happening by the 2040s. (Incidentally, the second most popular guess was that computers would be doing Nobel-quality science by the 2020s, with a full third of the respondents giving that answer.)

Of course, this is a limited examination of the views of a small, pre-selected group (these all being AI specialists rather than a more general sampling of computer scientists), and this is a particularly tricky kind of prognostication, so that my guess would be a likelihood on their part to err on the side of overoptimism rather than the reverse. Nonetheless, that such a view is common is well worth noting, and the discussion (as well as the magazine more generally) well worth a look from those interested in the issue.

The Return of Neo-Medievalism?
$123 Trillion by 2040?
A Kurzweil Reboot?

Wednesday, February 10, 2010

New and Noteworthy (Playstation War, Drone Police, Gambetta and Hertog)

In today's edition:

* By way of Noah Shachtman of the Wired Danger Room, John Lasker's article on "Africa's 'Playstation War,'" a rarely noted conflict over the mineral coltan in the Congo-just one part of the carnage that has raged inside the country since the mid-90s (perhaps the bloodiest conflict the world has seen since 1945, with over five million dead), and which despite a formal conclusion in 2003, still hasn't really come to an end.

* An article in the Guardian last month about an interest on the part of the British government for using drone aircraft for domestic policing on a national basis. (As it happens, the article ignores the aspect of the story which engages the interest of the readers writing in the forum most, namely the implications for civil liberties.)

* The working paper regarding the overrepresentation of engineers among right-wing terrorist groups by Diego Gambetta and Stefan Hertogg that garnered a great deal of pop science attention during the past year, freely available online. (You can check out a short version of their analysis in an article they published in The New Scientist last June.

The Return of Neo-Medievalism?

A piece by Parag Khanna in Foreign Policy magazine (which came to my attention by way of Bruce Sterling, through Paul Raven of Futurismic) makes the case for a "neo-Medieval" vision of the "future that looks like nothing more than a new Middle Ages, that centuries-long period of amorphous conflict from the fifth to the 15th century when city-states mattered as much as countries," with all the disorder such a state of affairs may entail.

Khanna points to the long list of dysfunctional states; the weight of corporations, the absorption of states by international institutions like the European Union-as well as the concentrations of wealth in major cities that may be independent actors for all practical purposes; and the privatization of security implicit in gated communities "from Bogota to Bangalore."

This is quite a lot to think about, of course. Khanna, however, offers little that is new. There was a lot of this sort of talk back in the 1990s, for instance, and not just in post-cyberpunk science fiction novels like Neal Stephenson's Snow Crash and The Diamond Age, or Ken MacLeod's The Star Fraction (and of course, a good bit of Sterling's own writing). Robert Kaplan penned a couple of pieces about the key trends, his well-known "The Coming Anarchy" and his worthwhile but less often cited "Was Democracy Just a Moment?", while Martin Van Creveld penned a book titled The Rise and Decline of the State. And of course, two decades earlier, Hedley Bull raised the point (and used that terminology) in his classic study of international relations, The Anarchical Society (1977).

Still, reading the piece, I wonder: might this sort of talk be making a comeback, along with the declinist rhetoric which also happened to be popular in the early '90s (a fairly fresh example of which Paul Krugman has just given us in the New York Times), shades of the decline of Rome in stark contrast with the "New Rome" triumphalism of the neocons earlier in this decade (not unquestioned, some seeing the seeds of Roman-style decline in Roman-style imperium, but still a predominant note then in a way that it is not today)?

Writing in the Summer 2009 Parameters, P. Michael Phillips, in the article "Deconstructing Our Dark Age Future," argued for a connection, with the worries about a new dark age coming from a link-up of anxiety about American decline with an exaggerated view of the influence of non-state actors.

Phillips struck me as overly sanguine in his assessment, but at the same time, it is easy to exaggerate the sense of rupture (and Bull's discussion, ultimately dismissive of the idea, made plenty of good points about this).

For a start, state dysfunctionality and private violence do not really translate to neo-Medievalism unless power and to some extent, authority and legitimacy, clearly devolve from the state unto actors below its level-a relatively rare and aberrant occurrence today, even if not unknown. Additionally, while private military corporations are justly grabbing headlines, it may be quite a stretch to picture them playing lead combat roles in conventional military operations (though admittedly this may not matter much if such operations are regarded as a thing of the past, with "real" warfare the "low-intensity" stuff where the PMCs can be big players), or exercising primary control over really large tracts of territory. At the same time the "Greater Chinese Co-Prosperity Sphere" and the North American Union of which Khanna writes would seem a long way away from approaching the European Union, an institution which I think will prove more robust than its critics expect, but which also has real limitations. Meanwhile, state capitalism made a big comeback as the resource politics game heated up (natural resources, because of their "placeness," lend themselves to territorial control, and have certainly given statism in nations like Russia more room for maneuver), while those giant corporations came hat in hand to-who else?-the state for trillions of dollars in bail-out money amid the duress of the 2008 crisis.

In short, we're not quite living out Snow Crash. But it's also a mistake to overlook many of the trends (economic privatization, regional economic inequalities, state vulnerability, etc.) involved, which could translate to exactly that if the going gets tough enough-and are already far from trivial.

$123 trillion by 2040?

Robert Fogel writing in Foreign Policy magazine, makes a case for a $123 trillion (that's actually the piece's title) Chinese GDP by 2040. This gives it an incredible $85,000 per capita GDP.

Spectacular claims like this naturally grab my attention, but the article predictably struck me as falling far short of that promise. His supporting arguments contain little that is really new-he points simply to improvements in education and labor productivity, while pointing to ways in which Chinese output, private initiative and consumerist tendencies may have been underestimated. Interesting, to be sure, but hardly a convincing case that China will repeat its performance over the last thirty years in the three decades to come-a questionable proposition given the evidence seen to date, as well as China's considerable internal problems (ecological, social, political) and a little thing called the law of diminishing returns, all of which suggest the curve flattening long before that point (even if China is left with a relatively high standard of living).

However, it is far from the only questionable stat on offer. Fogel estimates that this would give China forty percent of a Gross World Product of $300 trillion (which would make today's First World income levels the average)-which presumes the sustenance of a scorching hot 5 percent a year global growth rate for the next thirty years.

Fogel offers even less explanation for this more subtly introduced, but almost equally spectacular claim. The world sustained something like this through the 1960s, admittedly, but that was a different and much briefer period, and even before "the Great Recession," the prospects for a repeat were dim. Indeed, he offers at least one good argument against it. While the U.S. also does well in his projection (tripling its GDP to some fourteen percent of the global total he predicts, a feat requiring it to reenact its spectacular post-World War II boom), he predicts European stagnation, actually wasting a quarter of his space rehashing the familiar claims of Euroskeptic conservatism, denigrating Europe's relatively labor-friendly economic policies, and heaping disdain on the Europeans for their preference of leisure time to the more extreme forms of consumerism, and their low birth rates (though to his credit he acknowledges China's demographic issues as well).

For a corrective, one should probably check out Minxin Pei's "Think Again" article, which offers a lucid refutation of the kind of hype Fogel promotes. (Also recommended to those willing to consider Pei's argument is a 2006 piece in the same magazine by Pei on corruption, waste and elite irresponsibility in China.)

Monday, February 8, 2010

A Kurzweil Reboot?

In December 2009 Ray Kurzweil penned an article for the New York Daily News regarding his expectations, complete with a new list of predictions.

Astute readers who recall his list of predictions for 2009-which I tested last year in an article published by The Fix-will notice that he bumped many of his guesses as to what we would have by last year to 2020, if not later, particularly his rather specific guesses about virtual reality (remember that?), and automobiles, too. (Instead of having long-distance driving automated by last year, he now sees self-driving cars as possibly still in the experimental phase in 2020.)

Is Kurzweil more likely to be right this time? These more conservative guesses seem a bit more plausible to me-and it would be nice if he happened to be right about them. I'd certainly like to believe he's on the mark about solar energy production being such a short way away from meeting all our energy needs. (Optimistic as I am about solar energy, though, I think it will actually take longer than that for the full renewable energy portfolio to completely supplant fossil fuels and fissionables.)

Friday, February 5, 2010

Recently in the Space Review

Noteworthy articles from the past two weeks include:

* Jeff Foust on the threat from NEOs (with a focus on the release of the National Research Council's Space Studies Board's report "Defending Planet Earth: Near-Earth Object Surveys and Hazard Mitigation Strategies"-accessible here as a free PDF.)

* Yousaf M. Butt on the widely talked about but generally misunderstood EMP threat from rogue states and geomagnetic storms alike ("real; however, the threat is overblown," he concludes), and outlining practical steps that can be taken to ameliorate the risks. (Part One is available here, and Part Two can be directly accessed here).

* Ryan L. Robrick's review of Christian Frei's documentary Space Tourists-which pays particular attention to its depiction of Kazakhstan, from which the Russian space program of course launches its Soyuz vehicles.

New and Noteworthy (B.A.s and Earning Power, Hyman Minsky, The Return of Declinism?, Micro-Factories)
The Real Unemployment Rate

New and Noteworthy (B.A.s and Earning Power, Hyman Minsky, The Return of Declinism?, Micro-Factories)

In today's rather economics-oriented edition:

* An article by Mary Pilon in this week's Wall Street Journal on the question of a college degree's dollars-and-cents worth-and in particular, the promise of an extra $800,000 to $1 million over a lifetime.

Pilon's article, as the title-"Earnings Gap Between College and High School Grads Small"-makes the case for that extra million dollars being a "million-dollar misunderstanding" due to a host of complicating factors raised by a number of experts she cite, including, as Mark Schneider of the American Research Institute notes, "account deductions from income taxes or breaks in employment. Nor do they factor in debt, particularly student debt loads, which have ballooned for both public and private colleges in recent years."

The result is that the number is more like $280,000, though the average conceals a lot of variation. (One might guess, of course, that a lot depends on the choice of major, but at the same time, it may be a mistake to think only "impractical" arts majors are looking at disappointing results.)

* From back in November, a five-pager in The Boston Globe on Keynesian economist Hyman Minsky, who developed a model of the emergence of financial crises. (Incidentally, this model is the basis of Charles Kindleberger's analysis of the phenomenon in his classic Manias, Panics and Crashes-now in its fifth edition.)

* A pair of articles, one from David Sanger of the New York Times focusing on the U.S.'s massive deficits, and their potential to damage U.S. power over the long run, and another from the New America Foundation responding to the State of the Union speech and comparing the U.S.'s progress toward a sustainable economy unfavorably with that of Germany, India and China.

Between them one can easily walk away with an image of a cash-strapped United States lacking the combination of ability and will to act decisively in regard to the "big problems," even as other countries take substantive steps in that direction, and I find myself reminded of the "declinism" of the kind widespread in the late '80s and early '90s (an example of which I recently revisited in my discussion of Lester Thurow's bestseller Head to Head last September).

In the mention of Germany in particular, it feels we are coming back to that moment to a degree I hardly expected when I speculated along these lines in Parameters five years ago.

* And finally, on a somewhat brighter note, by way of Futurismic, here is a piece from Wired on the technologies (like the 3-D printer) that hold out the prospect of sharply scaled-down, localized manufacturing-"micro-factories" to use one name suggested by the article's author.

This concept captured my attention back in 2002 when I first read about it in Douglas Mulhall's Our Molecular Future, but like so much else coverage of the issue has been intermittent (a check of the articles on this theme catalogued at shows nothing since 2005 on the subject), and progress has been slow. However, especially in a world where rising energy costs put new pressure on planetwide production sharing and long-distance exports via the expenses of transport (and any other diseconomy of scale you may care to name), micro-factories have an obvious attraction, and warrant much more attention than they have received, though I suspect it will be a long time, if ever, before this becomes a routine way of making the things we use in our everyday lives.

The Real Unemployment Rate

The (seasonally adjusted) figures for January have the U-3 unemployment rate at 9.7 percent-a small drop from the previous month's figure of 10 percent, and down further still from the recent peak of 10.2 percent reported late last year (since revised down to 10.1 percent).

The U-6 figure also fell back to 16.5 percent.

In short, the numbers seem slightly better. However, they remain essentially lousy, and a detailed examination of the picture hardly improves its appearance.

For one thing, as Steve Schaefer reports in a market brief at reports, there has been no actual job growth-with the economy overall suffering job losses (20,000, with gains in retail and temp hiring overcome by declines in employment in transport and warehousing).

This is notable, especially in light of a bit of buzz last month regarding reports of a 5.7 percent GDP growth rate in the fourth quarter of 2009-which, as Schaefer notes, was due mainly to the restocking of inventories (3.4 percent of that 5.7 percent increase in output) rather than some revival of consumer demand (where would it come from, with unemployment, anxiety and credit as they are?) or really new investment. In short, it's not likely to last, and a really substantive recovery from "The Great Recession"-even to the mediocre state of things antecedent to 2007 (so easily forgotten given the past-quarter, this-quarter, next-quarter perspective of too much business journalism)-far from realized.

The Real Unemployment Rate
"Unemployment Problems Are Worse Than Meet the Eye"
The Real Unemployment Rate
Second Quarter Growth, 2009
The Real Unemployment Rate-And What It Means
Economic Update (OECD, Joshua Holland, Tim Hanson)
Global Finance Development 2009
More On The Economic Crisis (Eichengreen and O'Rourke on Industrial Output, Wolf on Eichengreen and O'Rourke, Austerity?)
Is the U.S. the New France?
The Human Cost of the Economic Crisis
The Real Unemployment Rate-And What It Means
On Consumer Spending
On the Global Economic Mess

February 2010

New and Noteworthy (T-50, Climate Change and Conflict)
New and Noteworthy (ABL, Moon Race Hype)
Freefall: America, Free Markets and the Sinking of the World Economy, by Joseph Stiglitz
The General Theory of Employment, Interest and Money by John Maynard Keynes
"How Long Till Human-Level AI?"
New and Noteworthy (Playstation War, Drone Police, Gambetta and Hertog)
The Return of Neo-Medievalism?
$123 Trillion by 2040?
A Kurzweil Reboot?
Recently in the Space Review
New and Noteworthy (B.A.s and Earning Power, Hyman Minsky, The Return of Declinism?, Micro-Factories)
The Real Unemployment Rate

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