Does this add to Obama’s leadership credibility? Well, let us examine his bungling of the Libya situation for comparison. Obama waited a long 10-14 days after the rebels had gained the upper hand before entering the fray, despite the support of many allies to provide air support for the antii-Ghaddafi forces. In those 10-14 days, Ghaddafi retook most of the ground he had lost and killed many of the rebels. Now it appears the situation is a quagmire. One wonders whether things might have turned out differently if Obama had acted decisively when the rebels had Ghaddafi back on his heels, rather than waiting until he had restored his position. The situation might already therefore be resolved instead of being yet another time and resource suck on our already burdened military. Bungling incompetence is the phrase that fits Obama, not decisive leadership.

China was closed to the west until Nixon “opened” it some 3 decades ago.  But what really set the current state of affairs was its accession to the WTO in 2002, a scant 9 years ago.  Their inclusion in the global trading framework of low tarriffs is what allowed China to become the producer to the world and creditor to America, resulting in what some now call Chimerica.  There are serious arguments that China has gotten the better of this deal.  They have been able to start building a middle class.  Note that other internal reforms aided this transformation, but trade with the US and Europe was the sine qua non for lifting a billion people out of poverty and creating massive wealth in Asia.  In the US, we have been able to have low prices and greater availability of goods for consumption.  But we have also offshored a great deal of labor, resulting in downward pressure on wages and a downward adjustment to the quality of labor available to workers here.  We have also had very low interest rates as a result of the recycling of trade dollars into US Treasuries.  As a result we have had asset bubbles that have subsequently burst and our profligate leaders have run up the US debt to staggering levels.

One wonders whether the tradeoff between sending jobs involved in the making of stuff abroad and being able to pay less for consumer goods is a good one.  That is the gamble the West made in the creation of Chimerica.  As the high-paying work is now more and more intellectual in nature, we are witnessing a widening rift between those who have and those who have not.  This is not a healthy development.  Is there enough mental firepower in our population, or any population, to provide meaningful standard of living when the jobs that provide such livings pass some high threshold of requiring mental acuity rather than physical?  The early results are not promising.

Finally the other positive outcome that was supposed to result from the gamble of engaging an authoritarian state like China was that increasing wealth there would lead to liberalization.  How long will we run this experiment?  Will it take more than a generation or two to assess whether such liberalization has occurred?  For it has not occurred to date.  I said at the time (2002) that rewarding a state like China with GATT membership was not going to end well.  In fact there has been an dangerous emerging concensus that maybe China has the better system, as opposed to the United States.  And the world is less free.  Is this a blip down which will resolve into greater freedom once China reaches some threshold of wealth?  Or have we passed the peak.  Time will tell.

Now it is also pretty obvious that much of the gas you burn in your car is used in overcoming the inertia represented by the sizable mass of your vehicle at a full stop. So it stands to reason that if you did not come to a full stop where possible, you would use much less fuel. And if everyone did this, we could save millions of barrels of crude oil annually. Therefore we would send many fewer dollars abroad annually to people who want to kill us. It therefore seems that we should, as a matter of policy and law, treat all stop signs as slow down signs where possible.

Some may object that this would increase the number of accidents. It might. But I think people are smart enough that they will stop at intersections that pose a danger but can keep some of their momentum at intersections where there is clearly no other car or bike or pedestrian approaching. In any event, police departments could be trained not to issue rolling stop citations unless the motorist actually presented a danger to someone else.

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I have been meaning to write about this for about 5 years, but the installment of the Obama administration with what should be a compliant Congress is as good a time as any.  In the sweep of history as viewed from the scale of years to a few decades, we are about 8 to 10 years into a swing away from increasing levels of freedom globally and toward greater statism, or state control of economies and of people’s personal lives.

While there are a few notable exceptions like China which maintained momentum toward greater market orientation, most instances from Asia to Latin America have been swinging the other way.  Like markets, these things do not go in a straight line, but oscillate, sometimes waxing, sometimes waning.

At close scales the change from waxing to waning (if plotted as a curve this would be when the slope of the curve went from positive to negative, not the inflection point from more positive to less positive, ie the change in convexity) is chaotic, messy and jagged, but if you zoom out sufficiently far, it becomes smoother.  I place the changeover in late 1998 with the election of Hugo Chavez in Venezuela.

Prior to 1999, it was clear that there was something magical happening in the world.  The first sign was perestroika in the late 1980s, then the fall of the Berlin Wall in 1989 and the coup in Moscow in 1991.  In 1994 the Uruguay Round of GATT talks concluded, setting the stage for expanded world trade.  In 1995, the Internet became available to a large part of the public.  Large numbers of countries in Eastern Europe, Asia and Latin America were adopting western democratic institutions and opening their economies along market lines.  By 1998 the Internet was a phenomenon, energy was cheap and productivity was galloping forward.  You could find music in any genre from classical to hard core by  any artist on services like Napster and Audiogalaxy.  Open source software blossomed; multitasking operating systems allowed computing to become mainstream.  Prices of things seemed to fall as labor was globalized and living standards around the world brought more people out of poverty than ever before.  It seemed anything was possible as the world headed into the millenium.

Some warning signs had already started to appear.  Late in 1998 Hugo Chavez was elected in Venezuela and started down the path of his self-styled Bolivarian socialist revolution.  At the end of 1999, Putin became President of Russia.  Early in 2000 the asset bubble in technology and other stocks burst.  The major labels put an end to open access to music when Napster was forced to shut down.   The RIAA started suing people for sharing music.  9/11 happened.

After a brief recession, it seemed as if things were going to get back on track.  Home ownership and home prices rose to incredible levels as the stock mania was transmuted by the Fed and a world awash in wealth into the housing bubble.  Commodities began an incredible 6 year bull run in late 2002.  Saddam fell in 2003.  Prices continued falling as manufacturing and service labor was rationalized.  However the forces of statism were resurging and eclipsing the brief flowering of freedom.

Russia jailed Mikhail Khodorkovsky in late 2003.   It was this that really set Crude Oil prices on fire.  Russia also reinstated the practice of sponsoring the murder of political critics.  Russia has returned to a state in which elections are held but they are pretty meaningless as the outcome is known in advance and largely controlled by the party in power, methods that Hugo Chavez and others in Latin America are now also seeking to employ.  More states in Latin America have also turned left;  Bolivia, Argentina, even Brazil.  Other states have also become less free in the last 8 years such as Zimbabwe and Burma (Myanmar).

Now with the bursting of the housing and commodities bubbles and the implosion of the world financial system, even America has elected a congress and a president who are more sympathetic to statism than it has had since Reagan beat Jimmy Carter in 1980.  On the Sunday talk shows this weekend, I heard some idiot (probably Stiglitz) say with relief how the nightmare of the last 25 years has finally come to an end.  Yes.  The ‘nightmare’ that was the greatest period of global wealth creation ever known has finally come to an end.  The question is, is this really the end?  Will the curve of freedom (change) continue below the abscissa?  Or is this a downstroke that will soon reverse?  In other words, will we discard the lessons of history and embrace increasing state control over every aspect of political and economic life?  Or will we remember, pull ourselves together, and return to the path of progress we were on?

It is very simple.  If you want to bring down the price of oil, boost the value of the dollar in such a way that it is expected to be permanent and ongoing.  The way to do this is to raise the Fed Funds rate immediately by 50bp.  (This will not help in the case that Israel attacks Iran, but is the way to bring the price down permanently.)

And now you hear talk of intervention.  This should already have been done.  When Bernanke went on TV on Tuesday, there should already have been a plan in place to defend 1.5600 or so versus the Euro – where the pair was when Bernanke started speaking Tuesday morning.  The Treasury should have directed the Fed to intervene until the Fed got their act together and raised the Fed Funds rate.  And the Treasury should be pressuring the Fed to raise the rate as well.  Or you fire Bernanke the dove and replace him with a hawk.  This would be unsettling to markets unless you specified that a dove was being replaced with a hawk, so you would have to specify that.

Pack a lunch and walk or bike over to the nearest park with the kids.  Clean the house.  Just do not do anything that requires the use of fuel.  Do not drive anywhere.  Do not drive to work or use public transportation.  Stay home and enjoy the day.

This is the only way to really say “Hey W, STOP buying oil on the open market to fill up the SPR, which is already 97% full.”  Or, “Hey W, ethanol madates!?  Hmm. Looks like that is a bad idea.”  Or, “Hey Saudi Arabian mysoginists, you will have to wait another day to sell us those 8 million barrels of oil.”  Or, “Hey idiots in Congress, maybe we ought to start looking to see what energy resources we have off the coasts or in Alaska.”

So make the decision to stay home, and pass the idea along to your friends.  People CAN make a difference.