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Charles Hugh Smith

Charles Hugh Smith

Charles Hugh Smith has been an independent journalist for 22 years. His weblog, www.oftwominds.com, draws two million visits a year with unique analyses of global…

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The United States Weakest Link

Any system, organization or device is only as strong as its weakest component. What are the weakest links in the U.S. culture and economy?

The reason why most of the "durable consumer goods" sold in the U.S. now are garbage is that most of them contain cheap components which will fail long before the rest of the "durable" is even close to the end of its usefulness.

The truism is that a chain is only as strong as its weakest link, and the same is true of organizations, systems, organisms, devices and consumer goods.

The fundamental reason for the preponderance of weak components/links is poor engineering. There are countless examples in everyday American life of objects which must be tossed out because of the failure of one cheap component. The $40 lamp goes to the landfill because the 20-cent switch failed. The particle board desk goes to the dump because the cheap paper-thin laminate "desktop" peels or wears off. The computer is either ditched or goes in for costly repair because the cheap power supply failed. The car is junked because the electrical system is unaccountably buggy. The washing machine is dumped because a dollar of cheap electronics in the control panel failed, and the cost of the new circuit board and labor exceeds the value of the appliance. The list is truly endless.

We all know why we tolerate this staggering waste: the cost in dollars to replace the garbage that failed and must be thrown out is lower than the cost of repair, the cost of a quality item or even the "cost" of complaining (I'm too busy, etc.).

Nobody wants to pay the price for furniture made of real wood because it seems "expensive," so instead they buy particle board crap and replace it every time they move, which is every few years.

I live in a university town, and every year at the end of May, when tens of thousands of students leave town, the city peppers the student neighborhoods with huge 20-foot dumpsters for all the furniture, clothing, shoes, etc. which students toss out. The majority of the material thrown away still has utility; entire black plastic bags of barely used shoes are common.

The thousands of particle board desks and bookshelves don't fare as well; most are already broken, others are damaged by the simple act of removing them from the crowded apartments.

Nonetheless, the logic is inescapable: it's "cheaper" (in dollars) to ship wood to Asia, where it is chipped and glued into pulpy particle board, painted and cut into "assemble it yourself" desks, headboards, shelf units, etc., shipped to North America, used for a few months (or maybe years, if extreme care is shown), and then taken to the landfill because repair is essentially impossible and in any case, not worth the cost.

I know there are exceptions, but everyone I know who owns a U.S.-made auto for longer than five years ends up with massive repair bills, often for electrical-system failure or electronic circuit-board failures. The transmission on my Dad's last Lincoln (Ford) failed after the warranty has expired, at around 60-70,000 miles. Ford refused to pay the repair bill, which was thousands of dollars. (This was circa 2005-6.)

No modern car should experience massive failure of major components after a few years of service and less than 100,000 miles of service. Yet they do. My brother-in-law's Chrsyler van was crippled by difficult-to-diagnose electrical problems within five years (it was purchased new).

On an institutional level, we have similar massive failure of components. Regulatory agencies do not regulate, they only offer up a facade of regulation for public relations purposes. New regulations are touted but behind the PR curtain are watered down to meaninglessness. Facsimile and spin reign supreme.

What is our weakest link? The possibilities are many. I would start with these:

1. The subversion of Democracy by concentrations of wealth and political power. I address protected fiefdoms at some length in Survival+ and explain why real reform is fundamentally impossible in the current political system.

Facsimile reforms abound, but nothing really changes. Various minor parameters are tweaked for PR purposes, and grandiose claims made for rearranging the deck chairs in second class on the doomed liner. (The First Class passengers, just as in 1912, are already safely aboard the lifeboats. The teeming majority in steerage is still trapped below deck.)

2. Extreme concentrations of wealth which then wield political power. Once wealth reaches certain extremes of concentration, then a phase shift occurs politically. Normal feedback loops are unable to offer the resistance or counter-pressure which once restrained the political power purchased by highly concentrated wealth.

In the case of public unions, the wealth collected from members is poured into politicians' campaign funds and lobbying; combined with highly motivated memberships dependent on tax revenues, this combination becomes a fiefdom protected by captured/indentured politicos.

Financial wealth buys relentless lobbying and campaign financing. An army of lobbyists, thousands of whom come from through the revolving door of government, know all the tricks of the trade needed to persuade, bargain, and of course threaten.

With extremes of concentrated wealth and power comes stagnation. Flexibility, adaptability and innovation are lost. The grip of the Power Elites will only loosen when the entire system collapses in a heap, as in the Fall of Rome.

3. A deep, pervasive preference for fantasy over hard reality. There is plenty of oil and energy: we only lack the political will to develop it. This is a pervasive fantasy within the entire political spectrum. Those who mock the alternative energy field as financially unsustainable trumpet the "obvious" merits of "mature" technologies such as breeder reactors and shale oil.

Question: if fast-breeder reactors are ready to reap investors billions in easy profits, why, after decades of massive investment, are there only two in operation? Please don't say "Federal regulations." Japan and France are advanced nations which depend heavily on nuclear power. They are not restricted by U.S. regulations. Why don't they have dozens of breeder reactors if this technology is so "mature" and cost-effective?

It will be, say proponents. Yes, perhaps; but then isn't that also true of solar, wind, tidal energy, geothermal, etc. which are so routinely dismissed? Hoist on their own petard, proponents of exotic technologies fall grumpily silent when presented with the financial facts.

If the U.S. has such abundant deposits of shale oil and tar sands and it makes financial sense to convert these to liquid fuels, why hasn't some enterprise exploited this vast wealth? The answer is "obvious": the economics of oil shale extraction don't pencil out.

The Canadian shale oil operations that are so heavily touted produce less than 2 million barrels a day (MBD), which is about 10% of U.S. consumption. (Please note the Chinese and Canadians own/control much of the output.)

The equally heavily touted Bakken Formation of shale oil in the U.S. contain perhaps 2-3 billion barrels of recoverable oil. Exercise: multiply the 19 million barrels a day the U.S. consumes every day by 365. The U.S. consumes 6.9 billion barrels a year. So the entire Bakken Formation if exploited would provide enough oil for perhaps four to five months of consumption.

And of course you can't extract 2 billion barrels of oil in four months. The process and costs are horrendous, and production would likely top out at 2 million BPD--and that's only after years of development and investment.

Preferring fantasies over reality is a severely weak component of U.S. society. One last example: Twitter (200 employees), Facebook (1,200 employees) and Farmville (a few dozen?) --those bright, shining beacons of Social Media--will "save" the 139 million-worker U.S. economy with their incredible "growth opportunities."

Reality intrusion: games and amusements will not employ tens of millions of residents. Second Life Owner Linden Lab to Lay Off 30% of Its Workers. So much for the fantasy of "endless growth" of online amusements.

4. Debt as the lifeblood of the "growth" economy. The way to power up an overindebted economy is to borrow trillions of dollars more. The way to advance is to borrow $120,000 for a degree in whatever field one chooses. Home ownership without any down payment is the "key to middle class wealth." It's all borrowed: the college costs, the home "ownership," the $1.6 trillion the Federal government squanders on satisfying its protected fiefdoms every year, the funds used to renovate the county library and local school, etc.

There is an endpoint to total dependence on borrowed money for paying interest on old debt, on sustaining "growth" and for paying our bills to keep the Status Quo afloat. The road forks just ahead: inflation that destroys all old debt (which is, recall, someone else's asset) or insolvency (debt is written off).

Will you of course have your own candidates for "the weakest link." Unfortunately, there is no shortage of candidates.

Charles Hugh Smith has been an independent journalist for 22 years. His weblog, www.oftwominds.com, draws two million visits a year with unique analyses of global finance, stocks and political economy. He has written six novels and Weblogs & New Media: Marketing in Crisis and just released Survival+: Structuring Prosperity for Yourself and the Nation.




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