Taking a short break - no post this week

I'm taking a short break this week and expect to post again on Sunday, May 1.

Resource limits and our strange game of musical chairs

With a wide range of commodities in limited supply, various regions of the world are now  behaving as if they are engaged in simultaneous games of musical chairs when it comes to commodity shortages.

The games differ by commodity and by region, but they all share one characteristic: As in a game of musical chairs, someone will have to go without. And, as in a game of musical chairs, available supplies are shrinking (as represented by the removal of chairs).

An interesting twist on this game is that now some chairs are being transferred from one game to another. For example, the Biden administration has declared that U.S. liquefied natural gas (LNG) exports to Europe will be stepped up in order to displace natural gas from Russia—which has become a suspect source due to the conflict between Russia and Ukraine and the broad economic sanctions against Russia. The gas still flows for now. But will Russia use a gas cutoff as a weapon? That is a question agitating all of Europe.

Taking a short break - no post this week

I'm taking a short break this week and expect to post again on Sunday, April 17.

Easier said than done: National self-sufficiency in a changed world

In the wake of a rapidly evolving realignment of the world trading system resulting from the economic equivalent of World War III, President Joe Biden last week took the first of what are likely to be many steps toward building greater self-sufficiency for the United States.

Biden called for increasing U.S. production of key minerals used in the manufacture of electric vehicle batteries. He invoked the Defense Production Act which allows the government to support production of certain materials and goods deemed essential for national defense and even to order industry to mine minerals and make machinery including vehicles such as tanks and bombs.

For the Biden administration its first small step toward U.S. self-sufficiency consists of making companies which mine minerals key to electric vehicle batteries such as lithium, nickel, graphite, cobalt and manganese eligible for direct subsidies or purchase commitments to incentivize increased production. The applicable program (called Title III) has about $750 million to spend, not that much to rectify what is a huge deficit.

Hoarding is suddenly in, "lean" operations are out as shortages ripple across the globe

Ukraine, a major exporter of grains and other food crops, announced soon after the Russian invasion of the country that it would ban exports of many food crops to ensure that Ukraine has enough to feed its population.

Russia, another major exporter of grain, especially wheat, curtailed its exports of wheat, rye, barley, and corn. It also curtailed sugar exports.

The list of countries banning or reducing exports of foodstuffs is now increasing so quickly that it is starting to look like a pile-up on the freeway:

1. Argentina, a major soy exporter, has halted exports of soy oil and soy meal.
2. Hungary has banned grain exports.
3. Moldova has halted exports of wheat, corn and sugar.
4. India, the world's second largest sugar producer, is contemplating capping sugar exports through the end of September. The 8-million-ton cap would effectively cut off sugar exports after May.
5. Indonesia, the world's largest exporter of palm oil, has curtailed exports to keep local prices in check as they have risen 50 percent so far this year.
6. Serbia will stop exporting wheat, corn, flour and cooking oil.
7. Turkey has halted the re-export of grains, oilseeds, cooking oil and other agricultural commodities sourced from other countries that are now sitting in warehouses and were bound for other countries until the ban.
8. Jordan has banned export or re-export of rice, sugar, powder milk, dried legumes, fodders, wheat and wheat products, flour, yellow corn, ghee and all types of vegetable oil.

World War III is here, but it's not what we expected

Movies and books have often portrayed World War III as either the final chapter of the human epoch or as a new but primitive restart for those who survive the nuclear conflagration. We cannot know if such prophesies will ultimately come true. For now World War III appears to have started with Russia's attack on Ukraine, but without nuclear missiles so far.

Make no mistake. The battlefield for this war is worldwide; it's just that it is primarily an economic battlefield. When Russia attacked Ukraine, the other great powers did not send soldiers and tanks. Instead, they orchestrated one of the most comprehensive economic warfare schemes ever devised.

Measures included cutting Russia out of the international payments system called SWIFT, blocking Russian exports (except most commodities) and discouraging commerce of many kinds with Russia. Many countries froze accounts owned by Russia's central bank and also accounts owned by prominent wealthy Russians. Wealthy Russians targeted by sanctions also saw yachts moored outside Russian territory seized. The value of the yachts runs into the billions of dollars.

In the wake of these unprecedented sanctions, many non-Russian companies have reduced, suspended or eliminated operations in Russia. Here is a list of over 400. Not all were forced to take action because of the sanctions. But companies expected that doing business inside Russia would become extraordinarily difficult and also did not want to get on the bad side of governments around the world participating in the sanctions.

'Rogue states' and the necessity of oil

There is nothing like a sudden decline in available oil supplies to bring out forgiveness in what is dubbed in and around Washington, D.C. as "The Blob." This term refers to an amorphous, but powerful group of think-alike U.S. foreign policy actors both inside and outside of government who have influenced every U.S. administration since the end of World War II. The main tenet of The Blob is that America knows best how to lead the world and it must do so.

The Blob seriously penalizes those whom it regards as a threat to American power and security. The Blob likes to use words such as "rogue" and "pariah" to describe those countries which get on its wrong side. (Many are admittedly run by truly odious regimes.) To get a sense of who has violated The Blob's sensibilities, one needs only to glance at the U.S. Department of Treasury website page entitled "Sanctions Programs and Country Information." On it you will find The Blob's who's who of rogue and pariah states.

With the abrupt drop in oil supplies from Russia in the wake of the Ukraine/Russia conflict, the list of rogue and pariah states is about to get shorter as the necessity of obtaining ready oil supplies trumps any concern about previous challenges to The Blob's narrative.

Ukraine conflict may portend end to current world trading system

At the beginning of nearly every war including the current one in Ukraine, there are those who loudly declare that it will be over shortly and then business-as-usual can resume. They are rarely right. While no one can say for certain what the trajectory of the Russian-Ukrainian conflict will be, the economic warfare that is going on alongside it is very likely to destroy the current global trading system.

The last time a worldwide trading system was destroyed was just over a century ago. From the late 1800s up to the eve of World War I the dominance of the British fleet on the high seas and the reach of the British Empire created an era of stability and interconnection highly favorable to worldwide trade.

Then, World War I blew that stability and interconnection apart. Later, the Great Depression led to a global trade war that finished off the remnants of the international trading system. The world did not achieve a trading system that spanned the globe unhampered again until the end of the Cold War—which had split the world into two trading blocks for nearly 50 years.

It is unlikely that Russia will simply back down even in the face of crippling economic sanctions. Things have gone too far and the Russian leadership has staked too much on its position that Russia must have its own sphere of influence free from NATO soldiers and rockets. What the Russians have historically called "the near abroad" must not harbor threats to Russian security, they say. Think of this as Russia's Monroe Doctrine.

The Mars obsession: Are two planets better than one to ensure human survival?

One of the rationales suggested for going to Mars is that given all the vagaries of the universe, human culture would have a better chance of surviving far into the future if humans settled on two (or more) planets. In the abstract, this statement seems axiomatic.

Before accepting this proposal, however, it might be worthwhile to ask where else we might use resources devoted to establishing a permanent human colony on Mars. First, let's examine the logic behind the "two planets" idea.

The logic is simple. If humans have established cultures on two planets, the separation between the planets will generally keep a major catastrophe including an extinction event on Earth—say, a highly lethal pandemic or the eruption of several supervolcanoes—from affecting the other planet. In the case of Mars the separation at its closest is about 34 million miles. At its farthest, the separation is 250 million miles. It is this isolation which offers protection.

So, the question arises then whether something approximating this isolation might be achieved right here on Earth. The answer is that it has already been tried, and it works. The isolation of peoples across the globe was a longstanding fact in prehistory and even in historical times until relatively recently.

Avocado interrupted: Why having enough isn't always enough

The news that the Biden administration shut down imports of avocados from Mexico in response to threats made against U.S. safety inspectors had restaurants and consumers contemplating both higher prices and possibly no avocados at all sporadically.

By the end of the week, Mexico and the United States had resolved the situation to the delight of avocado lovers in the United States and elsewhere. But, the incident illustrates why having enough of something doesn't always translate into ready availability. One incident involving threats to inspectors brought an entire supply line to a halt.

Avocados, of course, have a limited shelf life and so must move quickly from field to consumer. It doesn't make sense to stockpile avocados as they will simply ripen and then rot if unused. And yet, the supply lines for most other things—including ones that have a long shelf life such as computer chips—have become increasingly fragile as manufacturers and retailers have practiced what is known as just-in-time (JIT) delivery. JIT means arranging delivery of what one needs just in time to use it, say, in an assembly process or to restock shelves. Essentially, it eliminates or at least dramatically reduces inventories.