New World Order: Labor, Capital, and Ideas in the Power Law Economy

Foreign Affairs
By Erik Brynjolfsson, Andrew McAfee, and Michael Spence

Robots at the “Hannover Messe” trade fair in Hanover, Germany, April 2014. (Morris Mac Matzen / Courtesy Reuters)

Recent advances in technology have created an increasingly unified global marketplace for labor and capital. The ability of both to flow to their highest-value uses, regardless of their location, is equalizing their prices across the globe. In recent years, this broad factor-price equalization has benefited nations with abundant low-cost labor and those with access to cheap capital. Some have argued that the current era of rapid technological progress serves labor, and some have argued that it serves capital. What both camps have slighted is the fact that technology is not only integrating existing sources of labor and capital but also creating new ones.

Machines are substituting for more types of human labor than ever before. As they replicate themselves, they are also creating more capital. This means that the real winners of the future will not be the providers of cheap labor or the owners of ordinary capital, both of whom will be increasingly squeezed by automation. Fortune will instead favor a third group: those who can innovate and create new products, services, and business models.

The distribution of income for this creative class typically takes the form of a power law, with a small number of winners capturing most of the rewards and a long tail consisting of the rest of the participants. So in the future, ideas will be the real scarce inputs in the world — scarcer than both labor and capital — and the few who provide good ideas will reap huge rewards. Assuring an acceptable standard of living for the rest and building inclusive economies and societies will become increasingly important challenges in the years to come.


In the future, ideas will be the real scarce inputs — scarcer than both labor and capital.

Turn over your iPhone and you can read an eight-word business plan that has served Apple well: “Designed by Apple in California. Assembled in China.” With a market capitalization of over $500 billion, Apple has become the most valuable company in the world. Variants of this strategy have worked not only for Apple and other large global enterprises but also for medium-sized firms and even “micro-multinationals.” More and more companies have been riding the two great forces of our era — technology and globalization — to profits.

Technology has sped globalization forward, dramatically lowering communication and transaction costs and moving the world much closer to a single, large global market for labor, capital, and other inputs to production. Even though labor is not fully mobile, the other factors increasingly are. As a result, the various components of global supply chains can move to labor’s location with little friction or cost. About one-third of the goods and services in advanced economies are tradable, and the figure is rising. And the effect of global competition spills over to the nontradable part of the economy, in both advanced and developing economies.

All of this creates opportunities for not only greater efficiencies and profits but also enormous dislocations. If a worker in China or India can do the same work as one in the United States, then the laws of economics dictate that they will end up earning similar wages (adjusted for some other differences in national productivity). That’s good news for overall economic efficiency, for consumers, and for workers in developing countries — but not for workers in developed countries who now face low-cost competition. Research indicates that the tradable sectors of advanced industrial countries have not been net employment generators for two decades. That means job creation now takes place almost exclusively within the large nontradable sector, whose wages are held down by increasing competition from workers displaced from the tradable sector.

Even as the globalization story continues, however, an even bigger one is starting to unfold: the story of automation, including artificial intelligence, robotics, 3-D printing, and so on. And this second story is surpassing the first, with some of its greatest effects destined to hit relatively unskilled workers in developing nations.

Visit a factory in China’s Guangdong Province, for example, and you will see thousands of young people working day in and day out on routine, repetitive tasks, such as connecting two parts of a keyboard. Such jobs are rarely, if ever, seen anymore in the United States or the rest of the rich world. But they may not exist for long in China and the rest of the developing world either, for they involve exactly the type of tasks that are easy for robots to do. As intelligent machines become cheaper and more capable, they will increasingly replace human labor, especially in relatively structured environments such as factories and especially for the most routine and repetitive tasks. To put it another way, offshoring is often only a way station on the road to automation.

This will happen even where labor costs are low. Indeed, Foxconn, the Chinese company that assembles iPhones and iPads, employs more than a million low-income workers — but now, it is supplementing and replacing them with a growing army of robots. So after many manufacturing jobs moved from the United States to China, they appear to be vanishing from China as well. (Reliable data on this transition are hard to come by. Official Chinese figures report a decline of 30 million manufacturing jobs since 1996, or 25 percent of the total, even as manufacturing output has soared by over 70 percent, but part of that drop may reflect revisions in the methods of gathering data.) As work stops chasing cheap labor, moreover, it will gravitate toward wherever the final market is, since that will add value by shortening delivery times, reducing inventory costs, and the like.

The growing capabilities of automation threaten one of the most reliable strategies that poor countries have used to attract outside investment: offering low wages to compensate for low productivity and skill levels. And the trend will extend beyond manufacturing. Interactive voice response systems, for example, are reducing the requirement for direct person-to-person interaction, spelling trouble for call centers in the developing world. Similarly, increasingly reliable computer programs will cut into transcription work now often done in the developing world. In more and more domains, the most cost-effective source of “labor” is becoming intelligent and flexible machines as opposed to low-wage humans in other countries.


If cheap, abundant labor is no longer a clear path to economic progress, then what is? One school of thought points to the growing contributions of capital: the physical and intangible assets that combine with labor to produce the goods and services in an economy (think of equipment, buildings, patents, brands, and so on). As the economist Thomas Piketty argues in his best-selling book Capital in the Twenty-first Century, capital’s share of the economy tends to grow when the rate of return on it is greater than the general rate of economic growth, a condition he predicts for the future. The “capital deepening” of economies that Piketty forecasts will be accelerated further as robots, computers, and software (all of which are forms of capital) increasingly substitute for human workers. Evidence indicates that just such a form of capital-based technological change is taking place in the United States and around the world.

In the past decade, the historically consistent division in the United States between the share of total national income going to labor and that going to physical capital seems to have changed significantly. As the economists Susan Fleck, John Glaser, and Shawn Sprague noted in the U.S. Bureau of Labor Statistics’ Monthly Labor Review in 2011, “Labor share averaged 64.3 percent from 1947 to 2000. Labor share has declined over the past decade, falling to its lowest point in the third quarter of 2010, 57.8 percent.” Recent moves to “re-shore” production from overseas, including Apple’s decision to produce its new Mac Pro computer in Texas, will do little to reverse this trend. For in order to be economically viable, these new domestic manufacturing facilities will need to be highly automated.

The United States has one of the world’s highest levels of real GDP per capita — even as its median income has stagnated.

Other countries are witnessing similar trends. The economists Loukas Karabarbounis and Brent Neiman have documented significant declines in labor’s share of GDP in 42 of the 59 countries they studied, including China, India, and Mexico. In describing their findings, Karabarbounis and Neiman are explicit that progress in digital technologies is an important driver of this phenomenon: “The decrease in the relative price of investment goods, often attributed to advances in information technology and the computer age, induced firms to shift away from labor and toward capital. The lower price of investment goods explains roughly half of the observed decline in the labor share.”

But if capital’s share of national income has been growing, the continuation of such a trend into the future may be in jeopardy as a new challenge to capital emerges — not from a revived labor sector but from an increasingly important unit within its own ranks: digital capital.

In a free market, the biggest premiums go to the scarcest inputs needed for production. In a world where capital such as software and robots can be replicated cheaply, its marginal value will tend to fall, even if more of it is used in the aggregate. And as more capital is added cheaply at the margin, the value of existing capital will actually be driven down. Unlike, say, traditional factories, many types of digital capital can be added extremely cheaply. Software can be duplicated and distributed at almost zero incremental cost. And many elements of computer hardware, governed by variants of Moore’s law, get quickly and consistently cheaper over time. Digital capital, in short, is abundant, has low marginal costs, and is increasingly important in almost every industry.

Even as production becomes more capital-intensive, therefore, the rewards earned by capitalists as a group may not necessarily continue to grow relative to labor. The shares will depend on the exact details of the production, distribution, and governance systems. 

Most of all, the payoff will depend on which inputs to production are scarcest. If digital technologies create cheap substitutes for a growing set of jobs, then it is not a good time to be a laborer. But if digital technologies also increasingly substitute for capital, then all owners of capital should not expect to earn outsized returns, either.


What will be the scarcest, and hence the most valuable, resource in what two of us (Erik Brynjolfsson and Andrew McAfee) have called “the second machine age,” an era driven by digital technologies and their associated economic characteristics? It will be neither ordinary labor nor ordinary capital but people who can create new ideas and innovations.

Such people have always been economically valuable, of course, and have often profited handsomely from their innovations as a result. But they had to share the returns on their ideas with the labor and capital that were necessary for bringing them into the marketplace. Digital technologies increasingly make both ordinary labor and ordinary capital commodities, and so a greater share of the rewards from ideas will go to the creators, innovators, and entrepreneurs. People with ideas, not workers or investors, will be the scarcest resource.

The most basic model economists use to explain technology’s impact treats it as a simple multiplier for everything else, increasing overall productivity evenly for everyone. This model is used in most introductory economics classes and provides the foundation for the common — and, until recently, very sensible — intuition that a rising tide of technological progress will lift all boats equally, making all workers more productive and hence more valuable.

A slightly more complex and realistic model, however, allows for the possibility that technology may not affect all inputs equally but instead favor some more than others. Skill-based technical change, for example, plays to the advantage of more skilled workers relative to less skilled ones, and capital-based technical change favors capital relative to labor. Both of those types of technical change have been important in the past, but increasingly, a third type — what we call superstar-based technical change — is upending the global economy.

Today, it is possible to take many important goods, services, and processes and codify them. Once codified, they can be digitized, and once digitized, they can be replicated. Digital copies can be made at virtually zero cost and transmitted anywhere in the world almost instantaneously, each an exact replica of the original. The combination of these three characteristics — extremely low cost, rapid ubiquity, and perfect fidelity — leads to some weird and wonderful economics. It can create abundance where there had been scarcity, not only for consumer goods, such as music videos, but also for economic inputs, such as certain types of labor and capital.

The returns in such markets typically follow a distinct pattern — a power law, or Pareto curve, in which a small number of players reap a disproportionate share of the rewards. Network effects, whereby a product becomes more valuable the more users it has, can also generate these kinds of winner-take-all or winner-take-most markets. Consider Instagram, the photo-sharing platform, as an example of the economics of the digital, networked economy. The 14 people who created the company didn’t need a lot of unskilled human helpers to do so, nor did they need much physical capital. They built a digital product that benefited from network effects, and when it caught on quickly, they were able to sell it after only a year and a half for nearly three-quarters of a billion dollars — ironically, months after the bankruptcy of another photography company, Kodak, that at its peak had employed some 145,000 people and held billions of dollars in capital assets.

Instagram is an extreme example of a more general rule. More often than not, when improvements in digital technologies make it more attractive to digitize a product or process, superstars see a boost in their incomes, whereas second bests, second movers, and latecomers have a harder time competing. The top performers in music, sports, and other areas have also seen their reach and incomes grow since the 1980s, directly or indirectly riding the same trends upward.

But it is not only software and media that are being transformed. Digitization and networks are becoming more pervasive in every industry and function across the economy, from retail and financial services to manufacturing and marketing. That means superstar economics are affecting more goods, services, and people than ever before.

Even top executives have started earning rock-star compensation. In 1990, CEO pay in the United States was, on average, 70 times as large as the salaries of other workers; in 2005, it was 300 times as large. Executive compensation more generally has been going in the same direction globally, albeit with considerable variation from country to country. Many forces are at work here, including tax and policy changes, evolving cultural and organizational norms, and plain luck. But as research by one of us (Brynjolfsson) and Heekyung Kim has shown, a portion of the growth is linked to the greater use of information technology. Technology expands the potential reach, scale, and monitoring capacity of a decision-maker, increasing the value of a good decision-maker by magnifying the potential consequences of his or her choices. Direct management via digital technologies makes a good manager more valuable than in earlier times, when executives had to share control with long chains of subordinates and could affect only a smaller range of activities. Today, the larger the market value of a company, the more compelling the argument for trying to get the very best executives to lead it.

When income is distributed according to a power law, most people will be below the average, and as national economies writ large are increasingly subject to such dynamics, that pattern will play itself out on the national level. And sure enough, the United States today features one of the world’s highest levels of real GDP per capita — even as its median income has essentially stagnated for two decades.


The forces at work in the second machine age are powerful, interactive, and complex. It is impossible to look far into the future and predict with any precision what their ultimate impact will be. If individuals, businesses, and governments understand what is going on, however, they can at least try to adjust and adapt.

The United States, for example, stands to win back some business as the second sentence of Apple’s eight-word business plan is overturned because its technology and manufacturing operations are once again performed inside U.S. borders. But the first sentence of the plan will become more important than ever, and here, concern, rather than complacency, is in order. For unfortunately, the dynamism and creativity that have made the United States the most innovative nation in the world may be faltering.

Thanks to the ever-onrushing digital revolution, design and innovation have now become part of the tradable sector of the global economy and will face the same sort of competition that has already transformed manufacturing. Leadership in design depends on an educated work force and an entrepreneurial culture, and the traditional American advantage in these areas is declining. Although the United States once led the world in the share of graduates in the work force with at least an associate’s degree, it has now fallen to 12th place. And despite the buzz about entrepreneurship in places such as Silicon Valley, data show that since 1996, the number of U.S. start-ups employing more than one person has declined by over 20 percent.

If the trends under discussion are global, their local effects will be shaped, in part, by the social policies and investments that countries choose to make, both in the education sector specifically and in fostering innovation and economic dynamism more generally. For over a century, the U.S. educational system was the envy of the world, with universal K–12 schooling and world-class universities propelling sustained economic growth. But in recent decades, U.S. primary and secondary schooling have become increasingly uneven, with their quality based on neighborhood income levels and often a continued emphasis on rote learning. 

Fortunately, the same digital revolution that is transforming product and labor markets can help transform education as well. Online learning can provide students with access to the best teachers, content, and methods regardless of their location, and new data-driven approaches to the field can make it easier to measure students’ strengths, weaknesses, and progress. This should create opportunities for personalized learning programs and continuous improvement, using some of the feedback techniques that have already transformed scientific discovery, retail, and manufacturing.

Globalization and technological change may increase the wealth and economic efficiency of nations and the world at large, but they will not work to everybody’s advantage, at least in the short to medium term. Ordinary workers, in particular, will continue to bear the brunt of the changes, benefiting as consumers but not necessarily as producers. This means that without further intervention, economic inequality is likely to continue to increase, posing a variety of problems. Unequal incomes can lead to unequal opportunities, depriving nations of access to talent and undermining the social contract. Political power, meanwhile, often follows economic power, in this case undermining democracy.

These challenges can and need to be addressed through the public provision of high-quality basic services, including education, health care, and retirement security. Such services will be crucial for creating genuine equality of opportunity in a rapidly changing economic environment and increasing intergenerational mobility in income, wealth, and future prospects.

As for spurring economic growth in general, there is a near consensus among serious economists about many of the policies that are necessary. The basic strategy is intellectually simple, if politically difficult: boost public-sector investment over the short and medium term while making such investment more efficient and putting in place a fiscal consolidation plan over the longer term. Public investments are known to yield high returns in basic research in health, science, and technology; in education; and in infrastructure spending on roads, airports, public water and sanitation systems, and energy and communications grids. Increased government spending in these areas would boost economic growth now even as it created real wealth for subsequent generations later.

Should the digital revolution continue to be as powerful in the future as it has been in recent years, the structure of the modern economy and the role of work itself may need to be rethought. As a group, our descendants may work fewer hours and live better — but both the work and the rewards could be spread even more unequally, with a variety of unpleasant consequences. Creating sustainable, equitable, and inclusive growth will require more than business as usual. The place to start is with a proper understanding of just how fast and far things are evolving.

Foreign Affairs

US Economy Safety Margin Tested as Oil Prices Go Down

Strategic Culture
by Alexander DONETSKY

Oil prices fluctuations is a routine matter for world economy. After the abrupt fall in 2009 sparked by global financial crisis, the «black gold» spiked to over 100 dollars a barrel to stay stable in February 2011 to September 2014. 

The current 20% price fall with the volume of sales remaining the same results in only 5,8-5,9% profit fall for Russia because in 2013 the oil accounted for only 29, 1% of all its national exports. A large part of oil income does not go straight to the budget but to the National Reserve Fund and the National Wealth Fund. The export duties make up 18-36% of the price. The resource rent from extraction also goes to the funds. As a result, the 20% price results in 2-3 % of the total volume of exports. 

The funds mentioned above are not parts of the state budget. The Reserve Fund (3 544, 83 billion rubles) and the Wealth Fund with 3 276, 79 billion rubles – the both figures as of October 2014 – are fed from the same sources as the budget but the income is nominated in foreign bonds and currencies. In fact, the funds provide Russian investments into other countries’ economies. The fall of prices does not affect the economy of Russia but rather the economies of the countries the funds invest into by buying the bonds. 

The situation has changed a bit recently. President Putin has taken a decision to redirect the income flows from the funds to the Russian state budget to spur the national economy. 

* * *

Normally the fall of oil prices is explained by great powers economic slowdowns, the increase of production by exporters or the forecasts predicting an emergence of a powerful actor able to dump the prices. 

Stock exchange rates immediately react to US economic indexes, but it’s not the case. According to Federal Reserve System’s report issued just a few days ago, the US economy goes through moderate, though not bright, economic growth against the background of much more vibrant rise in other countries. 

The European Union is going through rather hard times sparked by the US-imposed sanctions against Russia. There is no significant economic growth in Europe. The further pressure exerted by the United States and possible retaliatory measures taken by Russia may deteriorate the situation to make another European economic crisis a reality. 

Some time ago China was reported to overtake the U.S. to become the world’s largest economy in accordance with the International Monetary Fund estimates (the analysis is based on one data point that recasts GDP based on consumer purchasing power adjusted for local prices and wages).  It means that one of the largest oil consuming economies continues to make progress, so the exporters of «black gold» have nothing to worry about. 

The increase of Russian oil production could not affect the world prices much because the extraction grew by only 1, 2% during the recent 9 months. In September, when the oil prices fell to the lowest level, the OPEC production increased by only 1, 3%. 

There is one more factor to influence the price – an alleged emergence of a competitor using dumping tactics. In theory there is one – the US companies involved in shale oil extraction. The US oil producers say the reserves are enough to last for 200 years (58 billion tons). The Russian reserves are estimated to be 75 billion tons. In the near future neither Russia, nor the United States with its shale energy boom can increase the volume of sold oil to produce a significant price fall. 

Then there is only one cause left – politics. We saw it in the 1970s. Arab states brought down the oil prices as a result of US pressure inflicting huge losses on the Soviet budget. Almost each and everything became a deficit for Soviet citizens. I wouldn’t like to accuse the United States it is doing the same thing without a substantiated reason, but this situation is pretty similar to what happened then. The Cold War against Russia appears to return, there are attempts made to suffocate it economically by delivering a strike to affect the people’s well-being. 

* * *

Speaking at the ASEM forum in Milan, Russian President Vladimir Putin noted that the world economy will not sustain oil prices at around 80 dollars per barrel. He is confident that in a short time the price of oil settles, adjusts, because «none of the market participants are interested in the price drops below $ 80». Putin also reminded that the Russian budget is planned on the basis of $96 per barrel. «In any case, I want to stress that Russia, the Russian Government, will undoubtedly fulfil all its social obligations. We have enough of a safety margin. Maybe we will need to adjust something in the budget. Maybe. Maybe we will even reduce some of our spending. But this will certainly not involve cuts in social spending. The Government of the Russian Federation will fulfil all its social obligations, and it is capable of doing this without any particular losses», said the President. 

80 dollars a barrel is not only a psychological index. For many OPEC members the further fall of prices may entail significant budget cuts and the following deterioration of living standards. Social instability is a direct threat to a state. 

Of course, China will benefit in case the energy prices go down but it does not serve the United States and Europe’s interests as they have become the consumers of China-produced commodities since a long time ago. It will hinder the plans to re-industrialize the United States and the European Union. 

US shale oil producers will suffer most. According to experts’ estimates, the cost of production is around 80-90 dollars a barrel, 4-5 times more than the traditional oil. It means that the current price – 85 dollars a barrel as of October 17 – makes the companies operate in the red. Some producers will have to suspend operations facing mass bankruptcy in case the oil price falls lower than 80 dollars as shareholders start getting rid of zero profit bonds. The shale oil «soap bubble» will blow like the housing construction industry «bubble» blew in 2008. Of course, as time goes by oil prices will go up but it’ll be a different world with some US oil producers non-existent anymore… 

* * *

The oil has more negative surprises for the US, or the oil dollar to make it more precise. Prominent US trader Jim Sinclair called it the only valuable thing in the world. He believes that Russia can retaliate to badly damage the dollar, «Russia could retaliate in a way that would have a phenomenal impact on the U.S. dollar… Russia has the upper hand. They have it in their ability to turn the U.S. economy upside down and into collapse».  Actually that’s what is happening: the fall of oil price calculated in dollars took place simultaneously with the rise of the dollar rate to ruble benefiting Russian exporters who spend rubles not dollars. They win big. Russia has made the first tentative deals to sell energy in rubles to China. China has concluded a number of agreements switching from dollar to national currencies. The recent BRICS summit decided to switch to national currencies in mutual payments.

Nobody is interested in the impetuous collapse of US economy as a result of the dollar being pushed aside from the position of world reserve currency because the world financial system may go down crumbling. That’s why Russia and China are implementing the plan to create a new world reserve currency without haste and unneeded excitement responding to the US attempts to destabilize international situation by unleashing the full-scale war in Ukraine, making fall the oil prices critically important for Russian budget and staging the unrest in Hong Kong. As the sanctions were introduced, some Russian banks have already switched to Chinese banks granting credits in yuan and supporting the Chinese national UnionPay system as an alternative to US Visa and MasterCard. 

Strategic Culture

Medical Martial Law Has Begun

The Common Sense Show
by Dave Hodges


A soft form of medial martial law has begun in this country. The administration is aligning its forces, revocation of due process and civil liberties is strongly being hinted at and we will not have to wait much longer for nature to take its course.

President Obama refuses to close the borders to possible bioterrorism involving Ebola and possible terrorists crossing our southern border. Obama also refuses to close American airports to travelers from West Africa, despite the fact that over 30 nations have done the same. However, Obama has no problem swat-teaming American citizens suspected of having the deadly virus.

According to the Associated Press, President Obama has announced the CDC respond in a “much more aggressive way” to cases of Ebola in the United States.  The President has ordered to CDC to institute “rapid response teams”.  When we combine this directive with what we are seeing in HHS and DHS documents regarding “isolation” camps, it is very difficult to not conclude that Americans suspected of Ebola, exposure to Ebola are soon going to swat-teamed by the CDC.

As a footnote to the AP story, there was no mention of patient rights, due process or anything remotely connected personal autonomy and freedom. Yet, it is this President’s policies which allowed Thomas Duncan to travel, unabated from Liberia to the United States with Ebola and infect other Americans with the deadly virus.

aclu ndaaDoes anyone else really think that this practice is going to be confined to the narrow window of only rounding up “suspected” Ebola patients? When we consider the over-arching implications of the NDAA, it is prudent to be suspicious of this President’s every move, especially when the topic centers around loss of personal liberty and freedom. If you are unfamiliar with the NDAA and its un-American provisions related to unconstitutional detainment, you may want to review the ACLU’s review of the NDAA. When I find myself agreeing with the ACLU, on anything, especially on the pitfalls of the NDAA, it is noteworthy.

The dots are connecting faster than anyone can connect them. There is a now a clear direction, even if this administration will say in plain language.  Watch the video below, in which Obama announces the formation of CDC swat teams to round up “suspected” Ebola victims. Watch how the President measures his every word.  This is a man who knows where this crisis is headed, he just does not want you to know, at least not quite yet, that medical martial law is upon us.



The Common Sense Show

Reading The Road Map To A Police State

Zero Hedge
by Aaron Tao

police state usa

There is no crueler tyranny than that which is perpetuated under the shield of law and in the name of justice.” —Charles de Montesquieu

If there was any silver lining to the horrifying events that took place in Ferguson, Missouri which riled the month of August, it has finally brought the issue of police militarization to the forefront. As outrageous as the police shooting death of unarmed 18-year-old Michael Brown was, the brutal law enforcement response in the form of running roughshod over the First Amendment and resorting to quasi-martial law to mostly peaceful protests by local residents and activists was worse. To many observers, what took place in a Midwest suburb was indistinguishable from scenes out of occupied Iraq.

How did this happen? For an answer, the writings of investigative journalist Radley Balko are an invaluable resource. Perhaps more than any other person, Balko has reported substantially on police militarization and injustice across the country for years.

The full details can be found in his book Rise of the Warrior Cop: The Militarization of America’s Police Forces . This important book, which was recently released in its paperback edition, could not have arrived at a better time. Despite going into an intellectually rigorous analysis of law, politics, and history, Balko has a gift for storytelling, which highlights many heartbreaking stories and makes Rise of the Warrior Cop an accessible and gripping read.

In the introduction, Balko begins with the provocative question:

How did we evolve from a country whose founding statesmen were adamant about the dangers of armed, standing government forces — a country that enshrined the Fourth Amendment in the Bill of Rights and revered and protected the age-old notion that the home is a place of privacy and sanctuary — to a country where it has become acceptable for armed government agents dressed in battle garb to storm private homes in the middle of the night — not to apprehend violent fugitives or thwart terrorist attacks, but to enforce laws against nonviolent, consensual activities?

In the first chapter, Balko traces classical history and its lessons on America’s Founders as well their own experiences under British rule. As students of the Enlightenment, they were familiar with how the Roman Republic was overthrown by ambitious military leaders and how the Praetorian Guard in the Empire era, which not only acted as bodyguards for the emperor but also took on many policing roles as well, was responsible for much political intrigue and instability. In the lead-up to the American Revolution, British authorities used the hated writs of assistance to enforce tax laws and to crackdown on contraband in the colonies. This type of general warrant allowed for authorities to “search broad groups of people, for evidence of any number of crimes, sometimes over long stretches of time.” As bad as they were, Balko noted that in contrast to what police can do today, the writs of assistance could not be exercised at night and they required a knock-and-announcement before entry into a private home. Finally, it was the deployment of British soldiers to enforce the law that brought long-simmering tensions to a boil. After the Revolutionary War, with these abuses still fresh on their minds, the Founders framed and ratified a Constitution with a Bill of Rights.

The Fourth Amendment, in particular, was written explicitly to prohibit general warrants and to reinforce the Castle Doctrine, an even older principle carried over from the British common law that can be traced back to antiquity. The Castle Doctrine simply reinforces the timeless idea that “a man’s home is his castle.” As explained by Balko:

Implicit in the sentiment is not only the right to repel criminal intruders but also the idea that the state is permitted to violate the home’s sanctity only under limited circumstances, only as a last resort, and only under conditions that protect the threshold from unnecessary violence. Thus, before entering without permission, government agents must knock, announce and identify themselves, state their purpose, and give the occupants the opportunity to let them in peacefully. … The announcement requirement under English law was not a formality, as it has become in police raids today. It was elemental. Its purpose was to give the homeowner the opportunity to avoid violence, distress, and the destruction of his property.

Balko also goes into interesting detail regarding the Third Amendment, the “runt piglet of the Bill of Rights,” which contains the seemingly antiquated provision that prohibits the quartering of soldiers in private homes. The case law pertaining to the amendment is scant but Balko asks us to consider why the Founders placed such an importance on it. Read in light of the Castle Doctrine, it makes sense that those who revere the principle that “a man’s home is his castle” would not tolerate their homes being occupied by soldiers. But most importantly, “the amendment was a placeholder for the broader aversion to a standing army. … It represented a long-standing, deeply ingrained resistance to armies patrolling American streets and policing American communities.”

Until the Civil War and Reconstruction, active duty troops were rarely if ever used for domestic law enforcement. In the early American republic, law enforcement was left mostly in private hands. Close-knit communities with shared values relied mostly on social stigma and shaming to maintain order. Professional full-time prosecutors didn’t exist, and it fell upon crime victims themselves to initiate the charges before a grand jury, a panel of private citizens who had the power to indict. The citizen militia was called out for only the worst cases that required force. But as urbanization advanced and an increasingly diverse population grew, it brought the need for changes.

One particularly interesting historical fact noted by Balko is that after the fall of Rome, centralized metropolitan police forces were not to be formed for almost another two millennia. In places that developed strong civil liberties traditions such as England and the American republic, people remained suspicious of standing armies, martial law, and powerful executives. In the United States, the New York Police Department (NYPD) was not formed until 1845. Modeled after London’s famous “bobbies,” political leaders had to wage major public relations campaigns to win over the trust of citizens. Major efforts were taken to distinguish the police from soldiers, and to ensure they were responsive to elected officials and the public. But in many jurisdictions, the police became a little too responsive to politicians, acted as corrupt henchmen for anyone who won office, and oppressed minorities and outsiders. The issue of police corruption was serious enough that it became a plank in the progressive movement by the early twentieth century. Reformers introduced the concept of professionalism which “transformed the job of police officer from a perk of patronage to a formal profession with its own standards, specialized knowledge, and higher personnel standards and entry requirements.” Although it helped address the problem of corruption, this new policy began to subtly separate the police from the communities they supposedly served and protected.

The meat of Balko’s story focusing on police militarization began in the 1960s. During this time, the civil rights, antiwar, and counterculture movements became very active while the overall crime rates soared. As the liberal Warren Court expanded the rights of the accused in a number of notable rulings, the law-and-order types became greatly alarmed that society was falling apart. As his critics on the right continued their attacks that he was “soft” on crime, President Lyndon B. Johnson oversaw the creation of two government institutions to fight crime that would have huge future ramifications:

  1. the Bureau of Narcotics and Dangerous Drugs (BNDD), which eventually would become the modern Drug Enforcement Agency (DEA), the leading government agency fighting the War on Drugs.
  2. the Law Enforcement Assistance Administration (LEAA), to “stream the federal funding, equipment, and technology to state and local law enforcement agencies.”

This would go on to set a large precedent for future programs like Byrne grants and the Pentagon’s 1033 program as “Johnson’s successors would quickly discover that introducing a funding spigot like LEAA, then threatening to pull it away, was an effective way to persuade local police agencies to adopt their preferred polices.”

The modern War on Drugs would officially begin under President Richard Nixon after winning on a law-and-order campaign and appealing to the “Silent Majority.” The focus of the Nixon’s administration’s anticrime effort would be on drugs, which they thought was the common denominator among racial minorities, the counterculture, and the antiwar movement that alienated “ignored America.” The Nixonites pushed for massive funding for the BNDD and LEAA, demanded no-knock warrants for federal drug agents, and even temporarily shutdown the U.S-Mexican border in Operation Intercept. In 1969, the first SWAT raid was carried out in Los Angeles against the Black Panthers. Despite the raid being a disaster “practically, logistically, and tactically,” it was a major success in public relations and SWAT teams would spread to nearly every city in America in the following decades. Despite being originally designed for emergency situations where violence was needed to end violence such as bank robberies and hostage scenarios, mission creep was unavoidable and SWAT teams would go on to be used for everything from breaking up neighborhood poker games, enforcing underage drinking laws, and performing regulatory inspections, as meticulously documented by Balko. Fast forward to modern day, it is now estimated that SWAT raids occur up to 40,000 times per year across the United States.

This can be traced back to the Reagan administration when SWAT tactics began to be increasingly used in fighting the drug war. Hardliners in his administration saw a “biblical struggle between good and evil, and in the process turn[ed] the country’s drug cops into holy soldiers.” Noting the inconsistent reverence supposed limited government conservatives have for Reagan, Balko had this to say:

Conservatives had always held the somewhat contradictory position that government can’t be trusted in any area of society except when it comes to the power to arrest, detain, imprison, and execute people. But Reagan didn’t dance around the contradiction, he embraced it. He blamed crime on big government — and in the same breath demanded that the government be given significantly more power to fight it.

Under Reagan, the FBI was brought into enforcing drug laws, health professionals who favored treatment for drug abusers were purged from the bureaucracy, and sweeping new policies such as civil asset forfeiture (the legal theory that property itself can be guilty of a crime and be seized without the owner even being charged) were embraced. Perhaps the most radical action was that Reagan sought to amend the Posse Comitatus Act and bring the military into the Drug War.

Balko notes that:

By the end of the 1980s, joint task forces brought together police officers and soldiers for drug interdiction. National Guard helicopters and U-2 spy planes flew the California skies in search of marijuana plants. When suspects were identified, battle-clad troops from the National Guard, the DEA and other federal and local law enforcement agencies would swoop in to eradicate the plants and capture the people growing them.

After Reagan was succeeded by Vice President George H.W. Bush, the same course continued. Bush Sr. appointed hardliner Bill Bennnet (who once called for beheading drug dealers on Larry King live and even “urged children to turn in their friends who used drugs to the police”) as drug czar and ramped up rhetoric that the drug war was a moral crusade between good and evil. Drug treatment programs were stripped of funding, while additional cash flowed into law enforcement and new prison construction. Perhaps the most significant were the Byrne grants that were created in a 1988 crime bill which would send billions in federal cash to police departments over the next twenty-five years and allow “the White House another way to impose its crime policy on local law enforcement.” But in Balko’s view, the program’s most harmful legacy was the “creation of hundreds of regional and multijurisdictional narcotics task forces” that were often unaccountable and financially rewarded for making many busts in the following decades.

Reformers and activists hoped the election of Bill Clinton would bring changes to the War on Drugs but sadly, that would not be the case. Instead, Clinton “encouraged paramilitary raids against low-level offenders — even users” and cracked down hard on medical marijuana facilities in order to send a political message despite legalization in a number of states. In addition, the Bryne grants picked up steam as they incentivized “police departments across the country to prioritize drug crimes over other investigations.” Perversely, the funds were awarded based on the “number of overall arrests, the number of warrants served, or the number of drug seizures.” As a result, actually reducing crime was not favored and instead, grants were given to police departments that were making lots of seizures regardless of size and easy arrests (e.g., low level drug offenders).

During this time, the Supreme Court continued to whittle away the Fourth Amendment and further militarization was promoted through the creation of infamous 1033 program as relationships between the federal government and local police departments deepened. High-profile tragedies in the 1990s involving heavily militarized law enforcement such as Ruby Ridge and the Waco Siege served mostly as partisan fodder as the right temporarily became critics only to fall silent when George W. Bush became President.

Bush Jr. followed the moral crusade script and continued the paramilitary raids against medical marijuana facilities and patients despite some initial lip service to federalism. After the September 11th terrorist attacks, drug warriors did not fail to waste a good crisis and used the opportunity to attempt to link the new fear of terrorism to drug use. In addition, the new War on Terror created another “ratchet effect” that ballooned an already-growing National Security State and furthered militarized the police. Thanks to generous anti-terrorism grants from the Department of Homeland Security which dwarfed even the 1033 program, police departments across the country upgraded their arsenals with automatic weapons, drones, armored vehicles, and other military equipment. But since terrorist attacks are incredibly rare, police used their new gear for drug raids instead. Meanwhile, the Supreme Court continued its siege on the Castle Doctrine and the Fourth Amendment with its decisions in United States v. Banks and Hudson v. Michigan.

Many people desiring “hope and change” put their faith in Barack Obama for a drug war détente and an overall repudiation of the Bush policies, but as with what happened with Clinton, they were in for a very bitter disappointment. Obama expanded the trend of police militarization by pouring a record $2 billion into the Byrne grants. This was part of his 2009 economic stimulus package, overseeing “more federal raids on marijuana dispensaries in four years than George W. Bush had presided in over eight,” promoting greater forfeiture takings by the Justice Department, and continuing to give away hundreds of millions in federal surplus military equipment to local and state police departments.

Near the end of the book, Balko offers a number of proposed reforms to rollback police militarization and restore the workings of a free society. These ideas include the practical as well as politically unattainable, but at very least, provide a working road map:

  1. Scaling back and ending the War on Drugs.
  2. Halting SWAT mission creep such as prohibiting their use by regulatory agencies.
  3. Increasing transparency such as detailed warrant tracking and requiring the use of body cameras on raids where the videos could then be made public upon request.
  4. Embracing authentic community policing by “taking cops out of patrol cars to walk beats and become a part of the communities they serve” to rebuild trust among the people they serve.
  5. Changing police culture by moving away from “us versus them” combat mindset and toward emphasizing counseling and dispute resolutions for resolving conflict in routine problems.
  6. Increasing accountability and ensuring police are not above the law by imposing stronger liability on officers who make egregious errors (this proposal would most likely be fought tooth-and-nail by police unions).

Even as more people awaken to the realities of a growing police state, the challenges to restoring a free society are vast and likely to be resisted every inch of the way by entrenched interests. As Abigail Hall and Christopher Coyne pointed out in their political-economic analysis of police militarization in the Spring 2013 issue of The Independent Review:

Government agencies’ inherent tendency is to expand beyond their designers’ initial aims and goals. Special-interest groups exacerbate this problem by seeking to expand their power and influence. The onset of crises — whether real or manufactured — begins a long, far-reaching process that erodes the already imperfect constraints on the government’s power … citizens must become skeptical of the possibility of establishing permanent constraints on government power. This skepticism ultimately requires recognition and appreciation of the realities of government power and a rejection of government action as a solution to the perceived crises.

After reading through Rise of the Warrior Cop, if there be a single lesson we should grasp, it is that police militarization and the War on Drugs are intimately tied. The former cannot be reversed unless the latter is ended. Thanks to the War on Drugs, the Castle Doctrine crumbled, the United States ended up with the largest incarcerated population in world history, and the Officer Friendlies of yesteryear have been replaced by a de-facto standing army clothed like Darth Vader.

There is a wide range of opinions among commentators today on what extent the United States is becoming/is a police state. In Balko’s conclusion, “it would be foolish to wait until it becomes one to get concerned.” If you were at all disturbed by the events in Ferguson or wondering why your local police department has an armored vehicle with a belt-fed, turreted .50 caliber machine gun, you owe it to yourself to read this book.

Rise of the Warrior Cop: The Militarization of America’s Police Forces, by Radley Balko, PublicAffairs, 2013

Via Ludwig von Mises Institute

Obama Announces CDC SWAT Teams To Round Up Infected People

The Daily Sheeple


President Obama, who has notably ignored our open Southern border, welcomed illegal aliens, and refused to institute a travel ban from Ebola-ridden countries, has a hardcore solution for Americans who are potentially suffering from Ebola. He’ll just increase the police state another notch.

“What I have directed the CDC to do is that as soon as somebody is diagnosed with Ebola then we want a rapid response team, a SWAT team essentially, from the CDC, to be on the ground as quickly as possible. Hopefully within 24 hours.”.

The Daily Sheeple

Oil Abundance or Oil Curse?

Terra America
by Kirill Benediktov


Editorial Note. At the end of the last year American political press turned out to be full of numerous articles dedicated to the topic of forthcoming oil abundance with U.S. as the main beneficiary and Russia as the main victim of it. Series of these publications seemed to be focused on the Russian middle class the well-being of which depends very heavily on stability of high energy prices. Why, however, did the Russian opposition turn out to be so indifferent to the issues of forthcoming energy resistance of the US and the subsequent crisis of the so-called putinomics? Editor of the department of intellectual investigations of Terra America Kirill Benediktov decided to get outside of this problem.

* * *

The latter half of 2012 was marked by the series of publications published in the English-language, predominantly in the US, focused on the issue of oil abundance.

It is fair to say that the issue of forthcoming energy abundance has been discussed in the US at least from August 2008 when the article “Drilling Boom Revives Hopes for Natural Gas” was published in NY Times [1], as well as analytical contribution by Jon Basil Utley “The Coming Energy Abundance” on[2]. Yet in the latter half of 2008 the world shook by global financial crisis did not care much of huge reserves of shale gas discovered in North America. Therefore this fact did not cause a sensation.

Nevertheless, in 2009 due to operation of unconventional sources of hydrocarbons like shale gas and coal bed methane, the US turned into the global leader in gas production. This phenomenon has been called the shale revolution and became a reason for lowering natural gas prices not only in the US but in the other regions of the world as well.

Yet the prices fell to such extent that supply in the gas market has been essentially outgrowing the demand. The result was that a year ago, in the end of January of 2012 several major gas producing companies announced scale reduction in gas production,[3] and a most active player in shale gas market Cheasapeake Energy Corp. announced the reduction in capital investments in drilling by70 percent. Nevertheless, even after that spot gas prices in the US did not exceed $100 for one thousand cubic meters.

In fact the well-publicized shale revolution in gas field can be compared with the snake biting its tail. Gal Luft, prominent expert of IAGS (the Institute for the Analysis of Global Security) and adviser to the United States Energy Security Council, provided the following answer on the question about perspective of shale gas production asked by Terra America:

“I think that some technologies have been developed up to the level when they can be considered profitable. However, they have been tested solely under specific geological conditions of Pennsylvania or Texas. We still don’t know whether these technologies would work that effectively under other geological conditions. We also know that in some countries they do not work that well. Another problem is that in fact due to the fall of gas prices many producers are losing their money. I predict that they will cut back production just because they won’t be able to receive profits on their investments.”

However, the situation in the market of hydrocarbons changed dramatically and shale did play its role in this change.

2011 became a make-or-break year. While oil production in the Gulf of Mexico was down by 240 thousand barrels a day and in Alaska it was cut by 40 thousand barrels a day, for the first time in a long period gross oil production increased in comparison with the previous year and reached 5.512 million barrels a day. Production of unconventional hydrocarbons including shale oil contributed a lot to this increase which amounts to additional 370 thousand barrels a day. Thus, that exceeded losses by 90 thousand barrels a day.

The most important thing is that in the share of oil imported by the US was down by 45 percent while several years earlier this figure amounted to over 60 percent. That was when in America they started talking about the coming oil abundance in the world.

Two Sides of the Same Coin

Before the summer of 2012 the attention of authors of the publications dedicated to oil abundance was focused mainly on the US national problems. The authors of these articles, particularly Jon Basil Utley, pointed to the fact that reserves of hydrocarbons in America are large enough to reduce dramatic dependence of the US upon the countries importing oil which, as they kept saying, “destroys our trade balance, funds most of our enemies and adds to the exorbitant foreign debt.”

Meanwhile the pipeline 800 miles long transporting oil from fields of North Alaska, reserves of hydrocarbons of which are considered to be as rich as those in Western Siberia, operate at slightly over a quarter of its power. Troubadours of oil abundance blamed for it mainly Obama’s administration that became hostage of its voters, the left alliance including particularly environmentalists. According to Utley, these “environmental extremists” have been doing their best to indefinitely delay the operation of new fields and technology advancement.

It appears probable that some of these publications were biased and met the interests of oil companies that invested considerable funds in development of bituminous sands in Canada and shale coals in Green River Formation. For instance, the publication posted on claiming to be objective leads readers to the thought that while Obama’s administration being under pressure of environmentalists resists implementation of the project of the pipeline 2,673 kilometers long from Canadian province Alberta to the Gulf of Mexico coast, the Chinese invest heavily in the development of bituminous sands of Alberta.

According to Canadian analyst Jeff Rubin, continuous postponement of the decision on Keystone XL pipeline does not mean that bituminous sands of Canada will be given up for lost. However, the largest part of Canadian oil will be delivered to China.

Simply said, tone and trend of these publications were determined mainly by concern for the future of hydrocarbon reserves of the Continent of North America.

“To use identified resources and new technologies for getting rid of energy dependence and minimize access to the competitors’ cake” – that is a brief description of sentiments that prevailed in U.S. expert community in 2009-2011.

Everything changed in the spring of 2012.

One of the first signs was a large article by Steve Levine eloquently entitled “The Era of Oil Abundance: Meet Winners and Losers of the Coming Age of Plenty” in influential political journal Foreign Policy. After repeating arguments in favor of the coming energy independence of United States that are well-known to readers, Levine described the near future for stakeholders on hydrocarbon market with reference to six prominent analysts invited by New America Foundation.[4]

First off, Unites States will win due to increasing employment opportunities and GDP, strengthening dollar, as well as termination of humble worship of authoritarian rulers and feudal monarchs. New petrostates like Cyprus, Ethiopia, French Guiana, Israel, Kenya, Mozambique, Sierra Leone, Somali, Tanzania and Uganda will turn out to ride a high horse as well. Why so? The arguments are too vague. The coming energy boom just offers excellent opportunities for economic exuberance. Mentioning Israel looks rather strange as this country still depends much on external supplies of all petroleum products. The old fields like Heletz and Meged 5 bring rather small income. However, many geologists think that in Israel there are oil fields with general resource amounting to about 1.400 million barrels under the explored gas fields, but due to low level of technology their commercial development is impossible.

Strange as it may appear, China also joined the ranks of “lucky things” mainly due to its willingness to invest in U.S. oil fields that scared so much Bloomberg analysts in case with Canada. According to Levine and analysts of New America Foundation, losers of the coming age of oil abundance are not the countries but their leaders, among which are President of Venezuela Hugo Chaves, President of Turkmenistan Gurbanguly Berdimuhanedov, President of Equatorial Guinea Teodoro Nguemo and the Supreme Leader of Iran Ali Khamenei. The Russian President Vladimir Putin was announced the key loser of the coming era.

The article states with reference to analyst of Council on Foreign Relations Michael Levi that the Russian leader turned out to be incapable of real economic diversification and the budget of Russia will go all to pieces if oil prices will get down below $117 per barrel. Prices have already got down up to $103 per barrel. As in the case of Israel, these expert appraisals are surprising in some degree. The budget for 2012 was processed at the rate of price of Russian oil blend URALS for $100 per barrel while average annual price at $117 guaranteed a balanced budget to Russia. In the spring of 2012 oil prices came up and ranged from $115 to $120 per barrel. Back then target prices of the budget were adjusted up to $115 and hence budget deficit was cut from 1.5 percent to 0.1 percent of GDP. At the end of spring prices were off again and then independent analysts interviewed by Levine came for help.

Today oil prices have gone up again ranged from $108 to $110 per barrel for recent months (URALS). The budget of 2013 has been processed at the rate of the estimated $91 per barrel.[5] Meanwhile budget deficit should not exceed 0.8 percent of GDP. For reference, the U.S. budget deficit of 2012 amounted to $1.089 trillion or 7 percent of GDP. (It is fair to say that this indicator is not as bad as the last fiscal year in the US was closed by deficit of 8.7 percent of GDP, or $1.297 trillions).

Things must change when the era of oil abundance comes. OPEC countries which, according to Shell ex-President John Hoffmeister, cannot imagine how cordially they are hated in the world, will turn out to be in the “losers’ corner” together with Russia.

As is easy to see, the distribution presented by Steve Levine in his article, have been determined not so much by economical as political considerations. The good guys benefit from oil abundance and the bad guys lose all bargaining chips thrown into chaos and hence they stop being key players in the global arena.

The End of Putinomics?

In all prepossession Levine’s article did not lay claim to relative objectivity – at any rate, it concerned all the countries that will be influenced by the wave of prospective oil abundance.

Still the series of articles published in many authoritative English-language media at the end of the last year concerned Russia alone. However, while oil prices have gone up again the key focus was made on gas issues.

For instance, Owen Matthews in his article “The End of Putinomics”states the following:”Two words have already begun rocking Putin’s world: shale gas. The new technologies, which allow natural gas to be extracted cheaply and in previously untapped places, is about to upend not only global energy prices but also the geopolitical status quo – with Russia as the prime loser.”

Although crude-oil prices have stayed firm, Matthews notes with some regret, due to rising Chinese demand and continued unrest in the Middle East, world natural-gas prices have fallen through the floor. In the past five years the United States have overtaken Russia as the world’s largest natural gas-producer, and U.S. domestic prices are a quarter of what Russia’s gas giant, Gazprom, has been trying to charge in Europe. It is no wonder that Gazprom profits fell “by half” in the last quarter of 2012, and its total stock value has plunged from $365 billion in May 2008 to $ 120 billion as of the end of 2012.

The author’s conclusion is that “shale gas and LNG have broken Gazprom’s stranglehold on Europe’s energy supply.”

This is not to say that these figures are spun out of thin air (though capitalization of Gazprom amounted to $128 billion as of the end of 2011 and in 2012 it went up by 14.5 percent, i.e. up to $146 billion). It is worthwhile noting that fall of Gazprom’s stocks in 2008 was the consequence of crash of the Russian stock market but not of “the shale revolution”. In October 2008 capitalization of Russia’s gas giant amounted to $95.9 billion. It means that from 2008 to 2012 capitalization increased by the good $50 billion. It certainly does not mean that Gazprom and other energy companies do not have any problems. It just means that in their zeal to write a story of close and inevitable collapse of putinomics in consequence of changes in the energy market, authors of the articles about hydrocarbon abundance take liberties with facts.

In his article “Russia’s Murky Energy Future” member of the Atlantic Council Robert A. Manning takes advantage of the stereotype stating that Gazprom market value has plummeted from $365 billion in May 2008 to $ 120 billion as of the end of 2012. Gazprom is the object of EU antitrust litigation and therefore it has to pay remunerations by way of backdated discounts to the delivered and paid gas.

The European gas market is really diversifying and Gazprom has been through it. Yet does that mean that Russia should inevitably put up with loss of the status of energy superpower? It seems not, because apart from the Western direction, Russia has the Eastern one. China is the key prospective marketing outlet and the demand in energy constantly grows. Major changes in perspective planning of the company for 2013 prove that Gazprom is ready to reorient. In particular, such priority projects as full-field development in Yamal (capital investments has been reduced almost by half to 163.49 billion rubles); South Stream pipeline (by 27 percent to 90.93 billion rubles) and Shtokman field. The new programs were launched instead, such as the state-run Development Program for an integrated gas production, transportation and supply system in Eastern Siberia and the Far East with account of possible export to China and other countries of  Asia-Pacific Region.[6].

In his article Manning worriedly states that Rosneft took over the Russian-British partnership known as TNK-BP. This is another reason why it deserves attention.

According to Manning, “the $60 billion Rosneft acquisition is likely to shape Russia well beyond the energy industry: it dims the already faint prospects of Russia diversifying and modernizing its economy to become more than a petrostate.”

However, Manning admits that a new model for joint venture is critical for Russian oil industry in terms of “management skills and technology”. What are they if not the elements of modernization? Doesn’t this fact prove that “the petrostate” remains investment-attractive in the extreme?

The Curse or the Blessing?

From a point of view of creators of the new world energy model, Russia being an undemocratic authoritarian state does not have the right to robust economy. The fact that it received leverages over the countries of the ex-Soviet area and even Western Europe is an unfortunate mistake of history which should be corrected as soon as possible.

That is why “shale revolution” is being dished up as manna from heaven for EU that now can crush Gazproms’ position. In fact the share of shale gas consumed by EU countries is not large[7], LNG delivered from North Africa and Qatar as well as solid fuel, coal primarily, are of greater importance.

Farther, if gas prices are really coming down worldwide, it is not the case in terms of oil. In this regard another argument is usually put forth: the notorious “oil curse”. Manning writes that Rosneft-BP deal is likely “to worsen what some call the “oil curse”, reinforcing capitalism and reducing incentives for economic reform.”   Political projection of this “oil curse” is Putin and his power encirclement. The reformers like Dmitry Medvedev, Arkady Dvorkovich and other liberals are trying to resist but their fences are rather weak.

According to Manning, the Russian middle class alone, whose benefits from this political path are minimal, can deliver the goods. The interesting question is whether the middle class will be seriously looking for alternatives when Putin thinks about a second term in 2018.

Well, the part of the Russian middle class, or creative class being a trendy name for it these days, came to think of it back at the end of 2011. It is remarkable though that in all its creativity the opposition have not thought of (or did not want to think?) being armed with an advantageous propaganda story about the doom of putinomics based upon hydrocarbons amidst global oil abundance.

Everything was subjected to criticism, from collapse of the army to the ban on adoption of Russian orphans by Americans. People voice their concerns for the fact that high oil prices do not make a positive impact on their incomes and GDP growth. In addition, they disapprove “the deal of the century” – purchase of TNK-BP by Rosneft (“the government makes the choice in favor of the further socialization of economy” [8]), but for some reason none of Russian oppositionists repeats after American analysts the syllogism carefully made up by them. The syllogism says that the era of oil abundance is coming which means that Putin’s regime is doomed.

We do not have a decisive answer to the question why the opposition does not use oil abundance scenario in their ideological struggle. We do have one assumption though.

Perhaps, the fact is that the key element of oil abundance concept is U.S. energy independence. It means that America will pass from the former scheme “order in exchange for oil” providing military and political presence in the Middle East and Central Asia to a more isolationist model. It is already passing on to it. Apart from everything else, this model includes reduction of support for Israel as well as mending of diplomatic fences and then development of economic ties with Iran.

There is a strong probability that such change in U.S. foreign policy is unacceptable for the majority of Russian liberal opposition.

On the other hand, convergence with China is unacceptable for it either. It obviously makes American political analysts anxious and explains the disapproval of both to Rosneft – BP deal. Such convergence is highly possible in the conditions of possible new configuration of the world energy market.

However, it is just an assumption. Yet the question remains, as well as the question about significance of hydrocarbon resources for our country, whether they are the curse or the blessing. Besides, it is still not quite clear what a new round of the global game on energy resources, for which oil abundance concept is a part of ideological provision, will bring to the world.

Emergence of the concept of abundance of energy resources per se but not, say, refusal or at least reduction of their consumption, prove that in the medium term the big oil and the big gas will remain the key geopolitical factors.

On the other hand, it helps to remember that somebody will have to use a potential “sea” of the new oil; otherwise, as is evident, there is no point in it. Therefore industries and technologies should develop, and new markets for new products should emerge, etc. So if even oil abundance “threatens” the world it will be possible to make the first step to that after ending the worldwide recession. The new energy theories will remain just theories unless this global issue of the XXI century is dealt with.


[1]Drilling Boom Revives Hopes for Natural Gas //


[3]ConocoPhillips company has planned to reduce gas production in Canada by 2.8 million cubic meters per day, while in the contiguous states of U.S. they planned to cut gas production by 1.35 million cubic meters per day.

[4]The Fund founded in 1999 determines its mission as the encouragement of public debates on key issues of today that are not always raised on both sides of political spectrum.

[5]The budget for 2013 has been processed with application of the budgeting rule. The rule takes into account a ten year period of oil pricing. However, from 2013 average oil price for the last five years has been taken into account and further on the period of average pricing will annually be increased by one year. Thus, the budgeting rule presupposes budget calculation for 2013 based on oil price at $91 per barrel and respectively at $92 per barrel in 2014 and $93 per barrel in 2015.


[7]For instance, the French government banned shale gas drilling for environmental reasons. Bulgaria walked in its footsteps.

[8]Ашурков В. «Оппозиция как бизнес-проект». (V. Ashurkov. Opposition as a Business Project)

Terra America

Shadow Facts About Shadow Government

Global Research
By David Swanson


Tom Engelhardt keeps churning out great books by collecting his posts from His latest book,Shadow Government, is essential reading. Of the ten essays included, eight are on basically the same topic, resulting in some repetition and even some contradiction. But when things that need repeating are repeated this well, one mostly wants other people to read them — or perhaps to have them involuntarily spoken aloud by everybody’s iPhones.

We live in an age in which the most important facts are not seriously disputed and also not seriously known or responded to.

The United States’ biggest public program of the past 75 years, now outstripping the rest of the world combined, is war preparations. The routine “base” military spending, not counting spending on particular wars, is at least 10 times the war spending, or enough to totally transform the world for the better. Instead it’s used to kill huge numbers of people, to make the United States less safe, and to prepare for wars that are — without exception — lost disastrously. Since the justification of the Soviet Union vanished, U.S. militarism has only increased. Its enemies are small, yet it does its best to enlarge them. U.S. Special Operations forces are actively, if “secretly,” engaged in war or war preparations in over two-thirds of the nations on earth. U.S. troops are openly stationed in 90 percent of the nations on earth, and 100 percent of the oceans. A majority of the people in most nations on earth consider the United States the greatest threat to world peace.

The U.S. military has brought death, terror, destruction, and lasting damage to Iraq, Afghanistan, and Libya — and spilling out of Libya into Mali, sparked a Sunni-Shiite civil war in Iraq that has spread to Syria, rendered Pakistan and Yemen more violent and insecure with drone strikes, and fueled violence in Somalia that has spilled across borders.

These facts are well-established, yet virtually incomprehensible to a typical U.S. news consumer. So, if they can be repeated brilliantly and convincingly, I say: the more times the better.

We’re rendering the earth uninhabitable, and the October 27, 2014, issue of Time magazine includes a section headlined “Why the Price of Oil Is Falling — And What It Means for the World.” In reality, of course, it means devastation for the world. In Time it means a happy American oil boom, more sales for Saudi Arabia, and a good reason for Russia to rein in its military. Yes, the same Russia that spends 7% of what the United States does on its military. To get a sense of how Russia could rein in that military, here is a video of a Pentagon official claiming that Russia has physically moved closer to NATO (and put little green men into Ukraine).

Years ago I wrote an article for TomDispatch called “Bush’s Third Term.” Now of course we’re into Bush’s fourth term, or Clinton’s sixth. The point is that presidential power abuses and war-making expand when a president gets away with them, not when a particular party or individual wins an election. Engelhardt explains how Dick Cheney’s 1 percent doctrine (justifying war when anything that has a 1% chance of being a danger) has now become a zero percent doctrine (no justification is needed). Along with war today comes secrecy, which encompasses complete removal of your privacy, but also — Engelhardt notes — the abandonment of actual secrecy for “covert” operations that the government wants to have known but not to have held to any legal standard.

The White House went to the New York Times prior to President Obama’s reelection and promoted the story that Obama personally goes through a list of men, women, and children on Tuesdays and carefully picks which ones to have murdered. There’s no evidence that this hurt Obama’s reelection.

The Bush White House went to the New York Times and censored until after Bush’s reelection, the story that the government was massively and illegally spying on Americans.  The Obama White House has pursued a vendetta against whistleblower Edward Snowden for making public the global extent of the spying. While Engelhardt tells this story with the usual suggestion that Snowden let us in on a big secret, I always assumed the U.S. government was doing what people now know it is. Engelhardt points out that these revelations have moved European and Latin American governments against the U.S. and put the fear of major financial losses into Silicon Valley companies known to be involved in the spying.

Engelhardt writes that with the NSA and gang having eliminated our privacy, we can now eliminate theirs by publicizing leaked information. At the same time, Engelhardt writes that dozens of Snowdens would be needed for us to begin to find out what the U.S. war machine is doing. Perhaps the point is that the dozens of Snowdens are inevitable. I hope so, although Engelhardt explicitly says that the shadow government is an “irreversible way of life.” I certainly hope not, or what’s the point of opposing it?

Engelhardt notes that the U.S. government has turned against massive ground wars, but not against wars, so that we will be entering an era of “tiny wars.” But the tiny wars may kill in significant numbers compared with wars of centuries gone by, and may spark wars by others that rage on indefinitely. Or, I would add, we might choose to stop every war as we stopped the Syrian missile crisis of 2013.

Engelhardt pinpoints a moment when a turning point almost came. On July 15, 1979, President Jimmy Carter proposed a massive investment in renewable energy. The media denounced his speech as “the malaise speech.” “In the end, the president’s energy proposals were essentially laughed out of the room and ignored for decades.” Six months later, on January 23, 1980, Carter announced that “an attempt by any outside force to gain control of the Persian Gulf region will be regarded as an assault on the vital interests of the United States of America, and such an assault will be repelled by any means necessary, including military force.” The media took this speech quite seriously and respectfully, labeling it the Carter Doctrine. We’ve been having increasing trouble with people whose sand lies over our oil ever since.

Global Research


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