18 September 2019 — The Wolf Report: Non-confidential analysis for the anti-investor
1. Staggering under the weight of its overproduction, capitalism spies in the visage of its recent savior, China, the image of its once and future enemy, China. Every thing that was the producer of “recovery,” “growth,” “expansion,” — fracked oil, microprocessors, corn, soybeans, smartphones, flat screens, container ships, becomes a relation of relapse, decline, contraction.
Behind the trade-wars, the tariffs, the jingoism; behind this grotesque chorus line of little Bonapartist-Rockettes, high-kicking their way through the club version of ” My Way,” are the entrepreneurs, the investors, the capitalists, trying to parlay nothing into something in a world of negative interest rates.
Behind all of this is the impairment and disruption of the dance where time partners money, where time becomes money. Everywhere, every capitalist trembles with anxiety and anticipation, knowing it’s time to change partners.
This is the always immanent trajectory of capital, a trajectory programmed by the conversion of labor into labor-time, labor-time into value, and value into profit.
2. In 2014, jacked on the juice, the juice being the tight oil cracked and squeezed from the Permian Basin in Texas and the Bakken fields in North Dakota, US manufacturing’s operating income improved some 8 percent from the previous year. The operating income ratio, operating income as a portion of net plant, property, and equipment (PPE) reached 35.3 percent, which would prove to be a high for the decade.
Money talks, for sure, but most of the time it says “Good-bye.” Operating income for manufacturing fell back in 2015; fell again in 2016 , the year of the shadow recession (Good-bye to you Barack); and recovered modestly in 2017. In 2018, operating income finally broke the 2014 ceiling (Welcome, Donald!), only to fall back again in the first half of 2019 (check that welcome).
Through all those ups (and downs), however, the operating income ratio to net plant, property, and equipment never reached the 2014 level. Through 2015, 2016, and 2017, the rate declined to an average 31.3 percent Even the 2018 ratio barely met the 2015 mark before declining in the first half of 2019. Operating earnings couldn’t keep up. (Rates calculated from the data published in the US Commerce Department’s Quarterly Financial Reports)
Where the story was one of modest swings in operating income and ratios for all of manufacturing, it was a different story for the petroleum industry itself. There operating income fell by 45 percent in 2015, disappeared almost completely in 2016, reappeared in 2017 at half the size of 2013, rang the bell in 2018 with a mass 25% greater than 2014, only to tumble 47 percent in 2019. Operating ratios measured:
(2014) 8.5%; (2015) 4.3% (2016) .09%; (2017) 3.8 %; (2018) 9.4% (1/2 2019) 4.9%
Even in its “best” years, the petroleum industry’s operating ratio, the return on its net PPE, is barely 30 percent of the return for manufacturing as a whole. While the petroleum industry’s net PPE accounts for 24 percent of the total net PPE for US manufacturing, its operating income amounts to……only 6 percent of the total.
3. As with all things capital, and crude, risk is enshrined as the gateway to reward, as long as that risk can be laid off on other people, other money, other people’s money. The volatility of Bakken crude was just such a risk to be laid off on others, until it couldn’t, until the Bakken crude blew apart Lac Megantic. After that, North Dakota imposed regulations requiring the stabilization of the crude, removing the volatile compounds, prior to shipment, just as had always been done with the oil fracked out of the Permian Basin.
Nothing, however, could be done to stabilize the price of the fracked oil when the very mode of its production depended on its instability, on the immense variation of price from value; when the very process of producing because of and for a target price moved the target, and down; because price is the mechanism by which particular capitals claim a piece of the general pie, the general surplus value, but production always, and always must, throw into the markets more value than it takes out, than can be realized, reproduced, over time.
Overproduction is the default condition of capitalism.
So in aiming at the target price of $114 a barrel, the tight oil producers brought the price down to $70, and then $60, and then $40, and then their dreams were haunted by the waking reality of another go-round of $20 per barrel prices, something which hadn’t occurred since 2002. “What the hell did we invade Iraq for if the price of oil is going to plummet to $20 barrel? Was our noble sacrifice of other people’s lives all for naught? Is their no progress in this world?”
In 1991, of course, in the midst of a recession where oil prices collapsed, taking the US savings and loan industry with it, the US led the noble crusade to liberate poor little Kuwait, and coincidentally, get the price up to $40 a barrel. When prices collapsed again in 1998, again under the weight of overproduction fed by the application of horizontal drilling, 3D seismic imaging, and other additions to the technical composition of the exploration and lifting processes, the US bourgeoisie could be heard muttering about the 3 million barrels a day Iraq was still putting into the markets.
Friend turning to friend, the US turned to Saudi Arabia for the help it needed in the worst way. And it got it. Saudi Arabia went that extra nautical mile to help its great friend, taking steps to restrict the supply in 1999, and seconding 17 of its favorite sons to abbreviated crash courses at US aviation schools: “Skipping the landing part, captain. We’re a little pressed for time.”
The downturn of 2001 was reflected in the 2002 price of oil, $20 a barrel, and the US was on its way to Iraq, again.
4. Sometimes, a capitalist or capitalists appear(s) content with the lower return, arbitraging at higher than higher speeds the smaller margins, the pennies massaged out of thousands and thousands of trades each second. Arbitrage is the dilettante’s butter on the manufacturer’s bread. Sometimes. And sometimes accumulation, the allocation of accumulated surplus value, lives not by bread and butter alone.
Marx maintained that there was only a single rate of profit, a general or average rate of profit that every industry achieved. The petroleum industry, apparently, never got that news, operating at rates of return below that of the average for manufacturing. As with all things Marx, the “average” the “general” is an abstraction, a measure of the totality of capital relations and exchanges that is in fact a product of all the concrete deviations and variations– a product established through competition, predatory pricing, muscle, corruption, fraud, debt, credit, subsidy, “excessive exuberance,” inflation, chronic depression, through violence– all the things that give capital it’s human face, if the human has the face of Dorian Gray.
Which gets us where we are today– with claims that half of Saudi daily production has been removed from the world markets after drone strikes, cruise missile attacks, directed against Aramco’s Abqaiq processing facility and the Khurais field.
[ Which gets us, by the way, where we are today– to a point, a condition, to conditions less than, and worse than accumulation without reproduction, where profit comes at the expense of reproducing the basis for social labor, a condition perfectly expressed at home, in homes, in the mass marketing of opioids to a population deemed disposable]
The US is convinced, but unconvincing, that Iran is the source of the attack. After all, the other two-thirds of the “axis of evil” are now parts of the US boys’ club, with the US doing banana flips to absolve Iraq, in particular, of any responsibility, since the regime in Iraq, or lack thereof, is the direct product of the previous US crusades on behalf of elevated oil prices.
Every generation, and regeneration of capital, needs its 9/11, even if it’s a poor copy of the dismal original, with drones instead of wide-body commercial jets; even if it’s a Saudi processing plant with no structure greater than 30 meters in height instead of 1000 feet tall towers.
Every generation, and regeneration of capital, needs its 9/11, its Gulf War, its operation Ira(q,n)i Freedom.
Every generation, and regeneration of capital, need its shock and awe, even when its unsurprising and insipid.
Every generation, and regeneration of capital, needs its own military officer as Secretary of State, acting out Goebbels’ principles of lying, boldly, repeatedly and baldly.
Every generation, and regeneration of capital, needs its surge, its smart bombs and cruise missiles, its live streaming of targets acquired, targets dispatched.
Every generation, and regeneration of capital, needs to rescue profitability from its obsolescence, its abolition, its overthrow.
September 18, 2019