A couple of weeks ago, 300 academics from Oxford and Cambridge issued a statement asking their universities to work with the fossil fuel divestment movement.

Energy scientists such as Sir David MacKay joined professors from across the full range of subjects to ask for “morally sound” investment policies.

Last Friday, a very senior executive from one of the world’s largest oil companies participated in an open and good humoured discussion with undergraduates at one of our leading universities  in a meeting convened under ‘Chatham House rules’. I was present.

The executive, who I will call Harold Schreiber, said that the divestment movement was “anti-industry, emotional and populist.” He said that the role of the “energy producers (is) to produce energy” and that those who worried about climate change should focus their attention on the consumers of energy, not those who extract it.

Schreiber said that oil companies will not respond to outside media pressure but that “constructive engagement” might be more effective. He based this opinion on what he saw as the positive effect of those oil companies that remained in South Africa during the apartheid years working to build the country’s energy system and, in Schreiber’s words, “helping to avoid violence”.

Whether or not the divestment movement succeeded the world would continue to burn large quantities of fossil fuels for the rest of the century, he continued. About 80% of energy needs are met from carbon-based fuels today and in his assessment that number would still be about 25% by 2100.

Oil would have to be extracted and burnt in large amounts, although its role will diminish beyond 2030.

The oil man’s view – net zero may be possible by 2100

Some of his company’s scenarios for the future suggested that it might be possible to get to ‘net zero’ emissions by the end of the century but these were not necessarily the most likely. Moreover, they would require technologies that extracted CO₂ from the atmosphere.

He referenced work at MIT that showed that the best the world could expect is a temperature rise of about 3C above pre-industrial levels, well above the figure of less than 2C agreed in the Paris conference. He implied that he regretted this probable failure but that the energy companies are not to blame. Governments and energy users are responsible.

Faster change is hugely difficult, he implied. One example was the UK’s poorly insulated housing. Although it may be possible to reduce heat losses in homes, people would need “softening up” for a long time before they agreed to have contractors in their homes for six months of insulation work.

More generally around the world, people need proper energy infrastructure to live decent lives and the anti-fossil fuel activists don’t understand that this cannot be provided by “iPhone apps” or other digital tools.

1.3 billion people have no access to electricity at all and these people require the mainstream energy companies to provide them with the means to obtain a reliable energy supply. A decent standard of living demands steel for buildings and the anti-fossil fuel movement has no idea how this might be provided without coal in blast furnaces.

Transport needs liquid fuels and no-one, he said, knew how this would be provided without oil from the ground.

‘Corporations are servants, not masters, of the global economy’

As well as criticising the divestment movement for its anti-commercial and antagonistic attitudes, Mr Schreiber said that politicians were making huge mistakes. The UK’s decision to abandon Carbon Capture and Storage (CCS) was “frankly stupid”.

Obama was wrong to block the Keystone XL pipeline. Sensible policy-making is “paralysed” at the Federal level. More generally, politicians around the world “have to reach beyond grandstanding” and take decisions that are “rational”, not driven by attempts to gather short-term popularity by appeasing climate activists.

When questioned on why the major oil companies operated in countries with poor human rights records, he asked whether the audience would rather the energy extraction in these countries was carried out by small private companies or businesses like his employer’s, which are subject to high levels of scrutiny and requirements for transparency.

In summary Schreiber suggested that companies such as his are the servants of the international economy, not its masters. The role of the international oil company is to organise the efficient deployment of capital for the production of inexpensive energy, not to drive the low-carbon future.

He said that “we are only in the foothills of the move away from fossil fuels” and his company would continue to invest heavily in oil and gas exploration rather than renewables.

So I went home and checked the figures

After listening to Schreiber I went away to look at the latest accounts of some of the major energy companies. They show, of course, reduced profitability in the face of declining energy prices. Nevertheless, the divestment movement has a steep hill to climb.

Few, if any, oil majors  have any need for new outside capital in the next few years. It might make sense for the financial health of pension and endowment funds to get out of fossil fuels but selling oil shares to another investor (‘divesting’) will have no direct impact whatsoever on the speed of the energy transition.

I think it may be more important to continue asking oil companies the question: “is drilling for hydrocarbons the most productive use of your huge resources of available capital?” To suggest an answer, I looked specifically at Shell’s worldwide accounts because these have just been published.

Excluding its new acquisition, BG, the company spent about $29bn on its exploration and production activities last year. That money enabled the company to just about stand still in terms of the total amount of energy to which it has access in its proven oil and gas fields. It produced 1.1 billion barrels of oil from reserves that dipped slightly to about 11.7 billion barrels.

(Note: This is a complex area; Shell has to write down its reserves estimates to reflect that portion of its portfolio that is no longer economic to operate because of low oil prices.)

So, very roughly, $29bn is the amount of money Shell needs to invest in order to continue producing 3 million barrels of oil a day (1.1 billion barrels a year). This money could instead either be returned to shareholders or invested in renewable energy technologies.

Mr Schreiber said that at the start of the discussion that the role of the energy producer was to produce energy. In the case of Shell, as one example of this, is the $29bn going to produce more energy if it is invested in oil exploration and production or, for example, in solar PV?

Oil versus solar – the arithmetic

The numbers are relatively easy to calculate. A barrel of oil represents 1,700 kWh of thermal energy. So Shell’s yearly production of oil has an energy content of about 1,800 terawatt hours. That is, very approximately, the same as the UK’s total consumption of energy from all sources. How much energy would Shell’s $29bn produce if it were invested in solar PV farms?

Assuming a 22% capacity factor (much better than the UK but below the average in the US), an installed cost of $1 a watt and a 35 year panel life, the number comes out just ahead of the energy value of the oil that Shell produces each year.

[Editor’s note: In fact, it gets even better than this. Burning oil produces heat energy, while solar panels produce electrical energy. Battery electric cars can turn that solar energy in to motive power at an efficiency of about 80%, while gasoline-fired cars turn their oil into motive power at only 25% efficiency. So the energy produced by solar panels is worth about three times as much per kWh as oil energy in transport applications.

Likewise if oil or gas is used to generate electricity (typically at ~50% efficiency) then the solar energy is about twice as valuable as oil energy because it’s electricity to begin with.

In a third case, where the solar energy is being used to make hydrogen by hydrolysis, then synthesised into energy-dense fuels and feedstocks like methane, methanol and ammonia, that can be done at an efficiency of around 60%, a figure that will surely increase with R&D investment up towards 70%. That creates a penalty for solar versus oil – but not a very large one, especially as solar gets ever cheaper.

The fact that renewable electricity can be turned into fuels and feedstocks currently based on oil and gas also, in the long term, sets a ‘ceiling’ for future oil and gas prices. As soon as the price of those fuels rises above a certain level – perhaps around $50 per barrel of oil using technologies now becoming available – it will become profitable to built huge solar to methanol plants in the Sahara, or wind to ammonia plants on the Falkland Islands.]

In other words, if Shell really sees its role as producing the energy the world needs, then its $29bn would be better going into exploiting solar energy rather than drilling wells and building pipelines. Rather than trying to destroy Shell, one of the world’s most efficient allocators of energy capital, we need to persuade it to divert its considerable skills towards the renewable economy.

Or take BP. In the UK alone the company spends about £175m on energy R&D. This compares to DECC’s boast of putting about £100m into clean energy research as year, of which half is devoted to nuclear.

Were an oil major to divert its efforts away from fossil fuels and towards the next generation of energy sources, the skill and knowledge in the private sector could make a dramatic difference to the speed of the switch to low-carbon sources.

The oilman saith: ‘it’s outside our field of competence’

I made this point clumsily to Mr Schreiber after the discussion. Wouldn’t his company’s exceptional skills and resources also be better directed towards – for example – using solar energy to make renewable liquid fuels, an endeavour Bill Gates sees as one of the most productive areas for new capital going into energy?

Schreiber disagreed, saying that this area involved a lot of difficult science not within his company’s area of current competence.

Nevertheless Harold Schreiber knows there is an energy transition happening. Renewable sources of energy will eventually become very cheap and strand the existing assets of the major oil companies. Even the CEO of Shell said in September last year that solar would be the “dominant backbone” of the energy system.

This may suggest that outsiders, such as Oxbridge academics mentioned in the first paragraph, need to engage with the oil company to show how they should redirect themselves – and their huge resources of capital – towards those energy sources that are going to be cheaper than oil.

PV already produces more energy per dollar invested than oil. Shouldn’t Schreiber’s company be moving as fast as it can into exploitation of the sun’s energy?

Won’t shareholders’ interests be best served by a rapid redirection of the company toward the most productive new sources of energy, rather than drilling for ever more recalcitrant sources of oil?

Chris Goodall is an expert on energy, environment and climate change, and a frequent contributor to The Ecologist. He blogs at Carbon Commentary. His next book, ‘The Switch’, is due for publication in 2016.

This article was first published on Carbon Commentary. The ideas expressed in this article are explored in far greater details in The Switch, a book about the global transition to solar power, to be published in June 2016 by Profile Books.

A couple of weeks ago, 300 academics from Oxford and Cambridge issued a statement asking their universities to work with the fossil fuel divestment movement.

Energy scientists such as Sir David MacKay joined professors from across the full range of subjects to ask for “morally sound” investment policies.

Last Friday, a very senior executive from one of the world’s largest oil companies participated in an open and good humoured discussion with undergraduates at one of our leading universities  in a meeting convened under ‘Chatham House rules’. I was present.

The executive, who I will call Harold Schreiber, said that the divestment movement was “anti-industry, emotional and populist.” He said that the role of the “energy producers (is) to produce energy” and that those who worried about climate change should focus their attention on the consumers of energy, not those who extract it.

Schreiber said that oil companies will not respond to outside media pressure but that “constructive engagement” might be more effective. He based this opinion on what he saw as the positive effect of those oil companies that remained in South Africa during the apartheid years working to build the country’s energy system and, in Schreiber’s words, “helping to avoid violence”.

Whether or not the divestment movement succeeded the world would continue to burn large quantities of fossil fuels for the rest of the century, he continued. About 80% of energy needs are met from carbon-based fuels today and in his assessment that number would still be about 25% by 2100.

Oil would have to be extracted and burnt in large amounts, although its role will diminish beyond 2030.

The oil man’s view – net zero may be possible by 2100

Some of his company’s scenarios for the future suggested that it might be possible to get to ‘net zero’ emissions by the end of the century but these were not necessarily the most likely. Moreover, they would require technologies that extracted CO₂ from the atmosphere.

He referenced work at MIT that showed that the best the world could expect is a temperature rise of about 3C above pre-industrial levels, well above the figure of less than 2C agreed in the Paris conference. He implied that he regretted this probable failure but that the energy companies are not to blame. Governments and energy users are responsible.

Faster change is hugely difficult, he implied. One example was the UK’s poorly insulated housing. Although it may be possible to reduce heat losses in homes, people would need “softening up” for a long time before they agreed to have contractors in their homes for six months of insulation work.

More generally around the world, people need proper energy infrastructure to live decent lives and the anti-fossil fuel activists don’t understand that this cannot be provided by “iPhone apps” or other digital tools.

1.3 billion people have no access to electricity at all and these people require the mainstream energy companies to provide them with the means to obtain a reliable energy supply. A decent standard of living demands steel for buildings and the anti-fossil fuel movement has no idea how this might be provided without coal in blast furnaces.

Transport needs liquid fuels and no-one, he said, knew how this would be provided without oil from the ground.

‘Corporations are servants, not masters, of the global economy’

As well as criticising the divestment movement for its anti-commercial and antagonistic attitudes, Mr Schreiber said that politicians were making huge mistakes. The UK’s decision to abandon Carbon Capture and Storage (CCS) was “frankly stupid”.

Obama was wrong to block the Keystone XL pipeline. Sensible policy-making is “paralysed” at the Federal level. More generally, politicians around the world “have to reach beyond grandstanding” and take decisions that are “rational”, not driven by attempts to gather short-term popularity by appeasing climate activists.

When questioned on why the major oil companies operated in countries with poor human rights records, he asked whether the audience would rather the energy extraction in these countries was carried out by small private companies or businesses like his employer’s, which are subject to high levels of scrutiny and requirements for transparency.

In summary Schreiber suggested that companies such as his are the servants of the international economy, not its masters. The role of the international oil company is to organise the efficient deployment of capital for the production of inexpensive energy, not to drive the low-carbon future.

He said that “we are only in the foothills of the move away from fossil fuels” and his company would continue to invest heavily in oil and gas exploration rather than renewables.

So I went home and checked the figures

After listening to Schreiber I went away to look at the latest accounts of some of the major energy companies. They show, of course, reduced profitability in the face of declining energy prices. Nevertheless, the divestment movement has a steep hill to climb.

Few, if any, oil majors  have any need for new outside capital in the next few years. It might make sense for the financial health of pension and endowment funds to get out of fossil fuels but selling oil shares to another investor (‘divesting’) will have no direct impact whatsoever on the speed of the energy transition.

I think it may be more important to continue asking oil companies the question: “is drilling for hydrocarbons the most productive use of your huge resources of available capital?” To suggest an answer, I looked specifically at Shell’s worldwide accounts because these have just been published.

Excluding its new acquisition, BG, the company spent about $29bn on its exploration and production activities last year. That money enabled the company to just about stand still in terms of the total amount of energy to which it has access in its proven oil and gas fields. It produced 1.1 billion barrels of oil from reserves that dipped slightly to about 11.7 billion barrels.

(Note: This is a complex area; Shell has to write down its reserves estimates to reflect that portion of its portfolio that is no longer economic to operate because of low oil prices.)

So, very roughly, $29bn is the amount of money Shell needs to invest in order to continue producing 3 million barrels of oil a day (1.1 billion barrels a year). This money could instead either be returned to shareholders or invested in renewable energy technologies.

Mr Schreiber said that at the start of the discussion that the role of the energy producer was to produce energy. In the case of Shell, as one example of this, is the $29bn going to produce more energy if it is invested in oil exploration and production or, for example, in solar PV?

Oil versus solar – the arithmetic

The numbers are relatively easy to calculate. A barrel of oil represents 1,700 kWh of thermal energy. So Shell’s yearly production of oil has an energy content of about 1,800 terawatt hours. That is, very approximately, the same as the UK’s total consumption of energy from all sources. How much energy would Shell’s $29bn produce if it were invested in solar PV farms?

Assuming a 22% capacity factor (much better than the UK but below the average in the US), an installed cost of $1 a watt and a 35 year panel life, the number comes out just ahead of the energy value of the oil that Shell produces each year.

[Editor’s note: In fact, it gets even better than this. Burning oil produces heat energy, while solar panels produce electrical energy. Battery electric cars can turn that solar energy in to motive power at an efficiency of about 80%, while gasoline-fired cars turn their oil into motive power at only 25% efficiency. So the energy produced by solar panels is worth about three times as much per kWh as oil energy in transport applications.

Likewise if oil or gas is used to generate electricity (typically at ~50% efficiency) then the solar energy is about twice as valuable as oil energy because it’s electricity to begin with.

In a third case, where the solar energy is being used to make hydrogen by hydrolysis, then synthesised into energy-dense fuels and feedstocks like methane, methanol and ammonia, that can be done at an efficiency of around 60%, a figure that will surely increase with R&D investment up towards 70%. That creates a penalty for solar versus oil – but not a very large one, especially as solar gets ever cheaper.

The fact that renewable electricity can be turned into fuels and feedstocks currently based on oil and gas also, in the long term, sets a ‘ceiling’ for future oil and gas prices. As soon as the price of those fuels rises above a certain level – perhaps around $50 per barrel of oil using technologies now becoming available – it will become profitable to built huge solar to methanol plants in the Sahara, or wind to ammonia plants on the Falkland Islands.]

In other words, if Shell really sees its role as producing the energy the world needs, then its $29bn would be better going into exploiting solar energy rather than drilling wells and building pipelines. Rather than trying to destroy Shell, one of the world’s most efficient allocators of energy capital, we need to persuade it to divert its considerable skills towards the renewable economy.

Or take BP. In the UK alone the company spends about £175m on energy R&D. This compares to DECC’s boast of putting about £100m into clean energy research as year, of which half is devoted to nuclear.

Were an oil major to divert its efforts away from fossil fuels and towards the next generation of energy sources, the skill and knowledge in the private sector could make a dramatic difference to the speed of the switch to low-carbon sources.

The oilman saith: ‘it’s outside our field of competence’

I made this point clumsily to Mr Schreiber after the discussion. Wouldn’t his company’s exceptional skills and resources also be better directed towards – for example – using solar energy to make renewable liquid fuels, an endeavour Bill Gates sees as one of the most productive areas for new capital going into energy?

Schreiber disagreed, saying that this area involved a lot of difficult science not within his company’s area of current competence.

Nevertheless Harold Schreiber knows there is an energy transition happening. Renewable sources of energy will eventually become very cheap and strand the existing assets of the major oil companies. Even the CEO of Shell said in September last year that solar would be the “dominant backbone” of the energy system.

This may suggest that outsiders, such as Oxbridge academics mentioned in the first paragraph, need to engage with the oil company to show how they should redirect themselves – and their huge resources of capital – towards those energy sources that are going to be cheaper than oil.

PV already produces more energy per dollar invested than oil. Shouldn’t Schreiber’s company be moving as fast as it can into exploitation of the sun’s energy?

Won’t shareholders’ interests be best served by a rapid redirection of the company toward the most productive new sources of energy, rather than drilling for ever more recalcitrant sources of oil?

Chris Goodall is an expert on energy, environment and climate change, and a frequent contributor to The Ecologist. He blogs at Carbon Commentary. His next book, ‘The Switch’, is due for publication in 2016.

This article was first published on Carbon Commentary. The ideas expressed in this article are explored in far greater details in The Switch, a book about the global transition to solar power, to be published in June 2016 by Profile Books.

The US has about 5% of the world’s population but consumes 24% of global energy. On average, one person in the US consumes as much energy as two Japanese, six Mexicans, 13 Chinese, 31 Indians, 128 Bangladeshis, 307 Tanzanians and 370 Ethiopians.

It is able to consume at such a level because the dollar serves as the world reserve currency. This means high demand for it is guaranteed as most international trade (especially oil) is carried out using the dollar. US dominance and wealth accumulation depends on maintaining the currency’s leading role.

The international monetary system that emerged near the end of the Second World War was based on the US being the dominant economic power and the main creditor nation, with institutions like the World Bank and International Monetary Fund eventually being created to serve its interests.

Since coming off the gold standard in the early 1970s, Washington has been able to run up a huge balance of payments deficit by using the (oil-backed) paper dollar as security in itself (rather than outright ownership of gold) and engaging in petro-dollar recycling and treasury-bond super-imperialism.

Like all empires, Washington has developed a system to hitch a ride courtesy of the rest of the world funding its generally high standard of living, militarism, financial bubbles, speculations and corporate takeovers.

With its control and manipulation of the World Bank, IMF and WTO, the US has been able to lever the trade and the financial system to its advantage by various means (for example, see this analysis of how Saudi Arabia’s oil profits enabled Wall Street to entrap African nations into debt).

Based on the US neocons’ objectives for the 21st century war, as outlined by the Project for a New American Century and underpinned by the Wolfowitz doctrine, Washington will not allow its global hegemony and the role of the dollar to be challenged.

Given Russia’s re-emergence on the global stage and China’s rise, we are witnessing a sense of urgency to destabilise and undermine both countries, especially as they are now increasingly bypassing the dollar when doing business.

US strategic objectives and the role of agribusiness

The only real alternative for humanity is to turn away from what Gandhi called a “nine-day wonder” model of development, which strips the environment bare. If we are to avoid ecological meltdown and ultimately what appears to be a possible nuclear conflict, we must reject capitalism and militarism by reorganising economies so that nations live within their environmental means.

Part of this involves a major shift away from the petro-chemical industrial model of agriculture and food production, not only because it leads to bad food, poor health and environmental degradation and is ultimately unsustainable but also because this model has underpinned a destructive US foreign policy agenda for many decades.

Such a shift would however run counter to the aims of the powerful agribusiness cartel, which, despite its propaganda about helping poor farmers and feeding the world’s hungry, regards ordinary people as impediments to commercial gain or as assets to be exploited for profit.

Any talk about ‘helping’ people is a case of the iron fist of capitalism being wrapped up in a velvet glove. We need look no further than Global Justice Now’s recent report on the role of the Bill and Melinda Gates Foundation in Africa to appreciate this.

If this cartel and its compliant politicians and cheerleaders in academia and the media really want to ‘help the poor’, they would be challenging the policies and structures that create hunger and poverty rather than continue to offer the disease as the cure and attack those who are actually spearheading this challenge.

Oil-fuelled monocropping – thanks for that, Rockefellers!

However, the prevailing order exists for the benefit of big agribusiness, which continues to colonise global agriculture and is in effect part of an establishment (for example see this and this) that regards food and agriculture as integral to US strategic objectives.

For instance, the ‘green revolution’ was exported courtesy of the oil-rich Rockefeller family. Poorer nations adopted petrochemical-dependent agriculture that required loans for inputs and infrastructure development. This was underpinned by the propaganda that these countries would earn dollars to prosper (and repay the loans) through adopting mono-crop, export-oriented policies.

It entailed uprooting traditional agriculture and integrating nations into a globalised system of debt bondage, rigged trade relations and the hollowing out and destruction of national and local economies.

Despite the often presented claims that the green revolution saved tens (or hundreds) of millions of lives, speculative assessments must be placed within a suitable context and vehemently contested, not least because of the deleterious impacts on food, health, the environment and farmers’ livelihoods.

But it cannot be denied that some have benefited enormously: oil, financial and agribusiness interests in the West.

GMOs are Green Revolution 2.0

The fraudulent GMO project represents the second coming of the green revolution.

Of course, appropriate frameworks have to be put to uproot indigenous farming and replace it with a corporate-controlled, chemical-intensive industrialised model. We need look no further to see this in action from Mexico to India and beyond, where traditional food production and retail sectors are being hijacked by mainly US corporate interests.

NAFTA set the framework for plunder in Mexico, the Knowledge Initiative on Agriculture is playing a similar role in India and various bilateral trade agreements such as TTIP and TPP will consolidate the process.

Thanks to the interests and demands of global agribusiness, farmers are leaving agriculture in India because it has been deliberately made financially non viable to continue. This, along with the impact of GM cotton (see this report on the direct link between Bt cotton and farmer suicides in rain-fed areas of India), is the main reason why 300,000 have committed suicide in the last two decades.

In attempting to dismiss or play down the link between Bt cotton and farmer suicides, prominent neoliberal apologists should consider the role of the interests they represent (see ‘The Making of an Agribusiness Apologist‘) in causing hardship, hunger, poverty and devastation, instead of setting out to smear the likes of Vandana Shiva or spending their time trying to sideline the issue by attempting to debunk each and every GM-suicide link that emerges.

Although the globalized hijack of food and agriculture by powerful corporations results in poverty, dependency and food insecurity, we are deceitfully informed that we must have more of the same if we are to feed an increasing global population and eradicate poverty.

We are told that the solutions for feeding a projected world population of nine billion are more technical fixes: more petrochemical-dependent agriculture, more GMOs and more unnecessary shifting of food across the planet.

Another bogus ‘solution’ that benefits only the global monopolists

Such a ‘solution’ is bogus: we already produce enough food to feed the world’s population and did so even at the peak of the world food crisis in 2008, and GM crops that are on the market today are not designed to address hunger.

Four GM crops account for almost 100% of worldwide GM crop acreage, and all four have been developed for large-scale industrial farming systems and are used as cash crops for export, to produce fuel or for processed food and animal feed. Of course, throw in a heavy dose of ‘family planning‘ (depopulation) for the ‘third world’ and we will be just fine.

But even if the world would at some stage require increased agricultural productivity, organic methods could fulfil the need. For example, there are agro-ecological approaches like system of rice intensification, non-pesticidal management of crops, integrated farming systems, which have all been shown to increase yields in sustainable ways.

Moreover, many of these systems have demonstrated their capacity for dealing with climate change issues, not least drought.

The current situation is that the likes of trade policies, land takeovers, commodity speculation and strings-attached loans serve to marginalise small holder farmers in the global south, who comprise the backbone of food production, and lead to food insecurity.

The four horsemen of the Apocalypse

There is a prevailing notion that we can just continue as we are, with an endless supply of oil, endless supplies of meat and the endless assault on soil, human and environmental well-being that intensive petrochemical agriculture entails. Given the figures quoted at the start of this article, this is unsustainable and unrealistic and is a recipe for continued resource-driven conflicts and devastation.

The genuine answer is to adopt more organic and ecological farming systems that are locally based and less reliant on petrochemicals. This would also mean a shift away from an emphasis on producing meat that places a massive burden on the environment and is highly land, water and energy-input intensive.

The current economic system suits the interests of oil barons, Wall Street (including land and commodity speculators), global agribusiness and the major arms companies. These interlocking, self-serving interests constitute the four horsemen of the modern-day capitalist Apocalypse (big pharma probably should probably be included) and through their actions have managed to institute a globalised system of war and structural violence that results in poverty and devastated economies.

Through this elite interests’ influence over powerful think tanks, directorships and board memberships and the horizontal and vertical integration of parent/sister corporate entities and cross-ownership, it ensures the corporate media says what it wants it to say, opposition is side-lined, muzzled or subverted, wars are fought on its behalf and the corporate control of every facet of life is increasingly brought under its influence – and that includes food: what is in it, who grows it and who sells it.

Fail to understand the set up described here and you will fail to grasp that companies like Monsanto are but a tentacle of elite interests.

Monsanto is integral to a system of globalisation that benefits the US-Anglo Western elite, whose neoliberal agenda is backed up by a militarism that ensures these interests are served if other means fail (see John Perkins here discussing his time as an economic hitman).

And the result has often been highly profitable on the back of economic and social devastation. Look no further than Michel Chossudovsky’s analysis of Somalia or Ethiopia to see how agribusiness made a killing from policies that destroyed local economies and farming.

The US and its corporations, facilitated by the IMF and WTO, effectively dismantle agrarian economies and then offer the problem as the cure.

Resisting global food imperialism

Ultimately, food and agrarian issues are not about ‘marching against Monsanto’ – as important as that is – it is about understanding the geopolitics of food and agriculture and challenging an increasingly integrated global cartel of finance, oil, military and agribusiness concerns that seek to gain from war, debt bondage and the control of resources.

Concerns about food security, good health and nutrition, biodiversity, food democracy, farmers’ livelihoods in the global south, etc, must be placed within this wider context if we are to fully understand them.

People want solutions for hunger, poverty and conflict but are too often told there is no alternative to what exists. The solution lies in taking manipulated markets and rigged trade rules out of farming and investing in and supporting indigenous knowledge, agroecology, education and infrastructure, instead of inappropriately diverting funds to underperforming sectors.

This involves rejecting the agenda of big agribusiness, whether in Africa, India, South America or elsewhere, and resisting the strategy of using agriculture as a geopolitical tool.

It involves challenging the corporate takeover of agriculture, supporting food sovereignty movements and embracing sustainable agriculture that is locally owned and rooted in the needs of communities.

Colin Todhunter is an extensively published independent writer and former social policy researcher, based in the UK and India.

Support Colin’s work here.

This article is a revised and updated (by the author) version of one originally published on Colin’s website.

Michael Hudson is the best economist in the world. Indeed, I could almost say that he is the only economist in the world.

Almost all of the rest are neoliberals, who are not economists but shills for financial interests.

If you have not heard of Michael Hudson it merely shows the power of the Matrix. Hudson should have won several Nobel prizes in economics, but he will never get one.

Hudson did not intend to be an economist. At the University of Chicago, which had a leading economics faculty, Hudson studied music and cultural history. He went to New York City to work in publishing.

He thought he could set out on his own when he was assigned rights to the writings and archives of George Lukacs and Leon Trotsky, but publishing houses were not interested in the work of two Jewish Marxists who had a significant impact on the 20th century.

Friendships connected Hudson to a former economist for General Electric who taught him the flow of funds through the economic system and explained how crises develop when debt outgrows the economy. Hooked, Hudson enrolled in the economics graduate program at NYU and took a job in the financial sector calculating how savings were recycled into new mortgage loans.

But Hudson really learnt his economics on Wall Street

Hudson learned more economics from his work experience than from his Ph.D. courses. On Wall Street he learned how bank lending inflates land prices and, thereby, interest payments to the financial sector.

The more banks lend, the higher real estate prices rise, thus encouraging more bank lending. As mortgage debt service rises, more of household income and more of the rental value of real estate are paid to the financial sector. When the imbalance becomes too large, the bubble bursts. Despite its importance, the analysis of land rent and property valuation was not part of his Ph.D. studies in economics.

Hudson’s next job was with Chase Manhattan, where he used the export earnings of South American countries to calculate how much debt service the countries could afford to pay to US banks.

Hudson learned that just as mortgage lenders regard the rental income from property as a flow of money that can be diverted to interest payments, international banks regard the export earnings of foreign countries as revenues that can be used to pay interest on foreign loans. Hudson learned that the goal of creditors is to capture the entire economic surplus of a country into payments of debt service.

Soon the American creditors and the IMF were lending indebted countries money with which to pay interest. This caused the countries’ foreign debts to rise at compound interest. Hudson predicted that the indebted countries would not be able to pay their debts, an unwelcome prediction that was confirmed when Mexico announced it could not pay.

This crisis was resolved with ‘Brady bonds’ named after the US Treasury Secretary, but when the 2008 US mortgage crisis hit, just as Hudson predicted, nothing was done for the American homeowners. If you are not a mega-bank, your problems are not a focus of US economic policy.

Tax havens: indispensable for tax dodgers, organised crime, and the federal government

Chase Manhattan next had Hudson develop an accounting format to analyze the US oil industry balance of payments. Here Hudson learned another lesson about the difference between official statistics and reality. Using ‘transfer pricing’, oil companies managed to avoid paying taxes by creating the illusion of zero profits.

Oil company affiliates in tax avoidance locations buy oil at low prices from producers. From these flags of convenience locations, which have no tax on profits, the oil was then sold to Western refineries at prices marked up to eliminate profits. The profits were recorded by the oil companies’ affiliates in non-tax jurisdictions. (Tax authorities have cracked down to some extent on the use of transfer pricing to escape taxation.)

Hudson’s next task was to estimate the amount of money from crime going into Switzerland’s secret banking system. In this investigation, his last for Chase, Hudson discovered that under US State Department direction Chase and other large banks had established banks in the Caribbean for the purpose of attracting money into dollar holdings from drug dealers in order to support the dollar (by raising the demand for dollars by criminals) in order to balance or offset Washington’s foreign military outflows of dollars.

If dollars flowed out of the US, but demand did not rise to absorb the larger supply of dollars, the dollar’s exchange rate would fall, thus threatenting the basis of US power. By providing offshore banks in which criminals could deposit illicit dollars, the US government supported the dollar’s exchange value.

Hudson discovered that the US balance of payments deficit, a source of pressure on the value of the US dollar, was entirely military in character. The US Treasury and State Department supported the Caribbean safe haven for illegal profits in order to offset the negative impact on the US balance of payments of US military operations abroad. In other words, if criminality can be used in support of the US dollar, the US government is all for criminality.

When it came to the economics of the situation, economic theory had not a clue. Neither trade flows nor direct investments were important in determining exchange rates. What was important was ‘errors and omissions’, which Hudson discovered was an euphemism for the hot, liquid money of drug dealers and government officials embezzling the export earnings of their countries.

The financial system is a mechanism for looting the real economy

The problem for Americans is that both political parties regard the needs of the American people as a liability and as an obstacle to the profits of the military / security complex, Wall Street and the mega-banks, and Washington’s world hegemony.

The government in Washington represents powerful interest groups, not American citizens. This is why the 21st century consists of an attack on the constitutional protections of citizens so that citizens can be moved out of the way of the needs of the Empire and its beneficiaries.

Hudson learned that economic theory is really a device for ripping off the untermenschen. International trade theory concludes that countries can service huge debts simply by lowering domestic wages in order to pay creditors.

This is the policy currently being applied to Greece today, and it has been the basis of the IMF’s structural adjustment or austerity programs imposed on debtor countries, essentially a form of looting that turns over national resources to foreign lenders.

Hudson learned that monetary theory concerns itself only with wages and consumer prices, not with the inflation of asset prices such as real estate and stocks. He saw that economic theory serves as a cover for the polarization of the world economy between rich and poor. The promises of globalism are a myth.

Debt slavery

Even left-wing and Marxist economists think of exploitation in terms of wages and are unaware that the main instrument of exploitation is the financial system’s extraction of value into interest payments.

Economic theory’s neglect of debt as an instrument of exploitation caused Hudson to look into the history of how earlier civilizations handled the build up of debt. His research was so ground-breaking that Harvard University appointed him Research Fellow in Babylonian economic history in the Peabody Museum.

Meanwhile he continued to be sought after by financial firms. He was hired to calculate the number of years that Argentina, Brazil, and Mexico would be able to pay the extremely high interest rates on their bonds. On the basis of Hudson’s work, the Scudder Fund achieved the second highest rate of return in the world in 1990.

Hudson’s investigations into the problems of our time took him through the history of economic thought. He discovered that 18th and 19th century economists understood the disabling power of debt far better than today’s neoliberal economists who essentially neglect it in order to better cater to the interest of the financial sector.

Hudson shows that Western economies have been financialized in a predatory way that sacrifices the public interest to the interests of the financial sector. That is why the economy no longer works for ordinary people. Finance is no longer productive. It has become a parasite on the economy. Hudson tells this story in his recent book, Killing the Host (2015).

Western economies – financialized to death

Readers often ask me how they can learn economics. My answer is to spend many hours with Hudson’s book. First, read the book through once or twice in order to get an idea of what is covered. Then study it closely section by section. When you understand the book, you will understand economics better than any Nobel prize-winning economist.

Treat this column as an introduction to the book. I will be writing more about it as current events and time permit. As far as I am concerned, many current events cannot be understood independently of Hudson’s explanation of the financialized Western economy.

Indeed, as most Russian and Chinese economists are themselves trained in neoliberal economics, these two countries might follow the same downward path as the West.

If you put Hudson’s analysis of financialization together with my analysis of the adverse impact of jobs offshoring, you will understand that the present economic path of the Western world is the road to destruction.

The book: ‘Killing the Host‘ is written by Michael Hudson and published by Nation Books (2015).

Dr. Paul Craig Roberts was Assistant Secretary of the Treasury for Economic Policy and associate editor of the Wall Street Journal. He was columnist for Business Week, Scripps Howard News Service, and Creators Syndicate. He has had many university appointments. His internet columns have attracted a worldwide following. Roberts’ latest books are The Failure of Laissez Faire Capitalism and Economic Dissolution of the West, How America Was Lost, and The Neoconservative Threat to World Order.

This article was originally published on Paul Craig Roberts’s website.

A couple of weeks ago, 300 academics from Oxford and Cambridge issued a statement asking their universities to work with the fossil fuel divestment movement.

Energy scientists such as Sir David MacKay joined professors from across the full range of subjects to ask for “morally sound” investment policies.

Last Friday, a very senior executive from one of the world’s largest oil companies participated in an open and good humoured discussion with undergraduates at one of our leading universities  in a meeting convened under ‘Chatham House rules’. I was present.

The executive, who I will call Harold Schreiber, said that the divestment movement was “anti-industry, emotional and populist.” He said that the role of the “energy producers (is) to produce energy” and that those who worried about climate change should focus their attention on the consumers of energy, not those who extract it.

Schreiber said that oil companies will not respond to outside media pressure but that “constructive engagement” might be more effective. He based this opinion on what he saw as the positive effect of those oil companies that remained in South Africa during the apartheid years working to build the country’s energy system and, in Schreiber’s words, “helping to avoid violence”.

Whether or not the divestment movement succeeded the world would continue to burn large quantities of fossil fuels for the rest of the century, he continued. About 80% of energy needs are met from carbon-based fuels today and in his assessment that number would still be about 25% by 2100.

Oil would have to be extracted and burnt in large amounts, although its role will diminish beyond 2030.

The oil man’s view – net zero may be possible by 2100

Some of his company’s scenarios for the future suggested that it might be possible to get to ‘net zero’ emissions by the end of the century but these were not necessarily the most likely. Moreover, they would require technologies that extracted CO₂ from the atmosphere.

He referenced work at MIT that showed that the best the world could expect is a temperature rise of about 3C above pre-industrial levels, well above the figure of less than 2C agreed in the Paris conference. He implied that he regretted this probable failure but that the energy companies are not to blame. Governments and energy users are responsible.

Faster change is hugely difficult, he implied. One example was the UK’s poorly insulated housing. Although it may be possible to reduce heat losses in homes, people would need “softening up” for a long time before they agreed to have contractors in their homes for six months of insulation work.

More generally around the world, people need proper energy infrastructure to live decent lives and the anti-fossil fuel activists don’t understand that this cannot be provided by “iPhone apps” or other digital tools.

1.3 billion people have no access to electricity at all and these people require the mainstream energy companies to provide them with the means to obtain a reliable energy supply. A decent standard of living demands steel for buildings and the anti-fossil fuel movement has no idea how this might be provided without coal in blast furnaces.

Transport needs liquid fuels and no-one, he said, knew how this would be provided without oil from the ground.

‘Corporations are servants, not masters, of the global economy’

As well as criticising the divestment movement for its anti-commercial and antagonistic attitudes, Mr Schreiber said that politicians were making huge mistakes. The UK’s decision to abandon Carbon Capture and Storage (CCS) was “frankly stupid”.

Obama was wrong to block the Keystone XL pipeline. Sensible policy-making is “paralysed” at the Federal level. More generally, politicians around the world “have to reach beyond grandstanding” and take decisions that are “rational”, not driven by attempts to gather short-term popularity by appeasing climate activists.

When questioned on why the major oil companies operated in countries with poor human rights records, he asked whether the audience would rather the energy extraction in these countries was carried out by small private companies or businesses like his employer’s, which are subject to high levels of scrutiny and requirements for transparency.

In summary Schreiber suggested that companies such as his are the servants of the international economy, not its masters. The role of the international oil company is to organise the efficient deployment of capital for the production of inexpensive energy, not to drive the low-carbon future.

He said that “we are only in the foothills of the move away from fossil fuels” and his company would continue to invest heavily in oil and gas exploration rather than renewables.

So I went home and checked the figures

After listening to Schreiber I went away to look at the latest accounts of some of the major energy companies. They show, of course, reduced profitability in the face of declining energy prices. Nevertheless, the divestment movement has a steep hill to climb.

Few, if any, oil majors  have any need for new outside capital in the next few years. It might make sense for the financial health of pension and endowment funds to get out of fossil fuels but selling oil shares to another investor (‘divesting’) will have no direct impact whatsoever on the speed of the energy transition.

I think it may be more important to continue asking oil companies the question: “is drilling for hydrocarbons the most productive use of your huge resources of available capital?” To suggest an answer, I looked specifically at Shell’s worldwide accounts because these have just been published.

Excluding its new acquisition, BG, the company spent about $29bn on its exploration and production activities last year. That money enabled the company to just about stand still in terms of the total amount of energy to which it has access in its proven oil and gas fields. It produced 1.1 billion barrels of oil from reserves that dipped slightly to about 11.7 billion barrels.

(Note: This is a complex area; Shell has to write down its reserves estimates to reflect that portion of its portfolio that is no longer economic to operate because of low oil prices.)

So, very roughly, $29bn is the amount of money Shell needs to invest in order to continue producing 3 million barrels of oil a day (1.1 billion barrels a year). This money could instead either be returned to shareholders or invested in renewable energy technologies.

Mr Schreiber said that at the start of the discussion that the role of the energy producer was to produce energy. In the case of Shell, as one example of this, is the $29bn going to produce more energy if it is invested in oil exploration and production or, for example, in solar PV?

Oil versus solar – the arithmetic

The numbers are relatively easy to calculate. A barrel of oil represents 1,700 kWh of thermal energy. So Shell’s yearly production of oil has an energy content of about 1,800 terawatt hours. That is, very approximately, the same as the UK’s total consumption of energy from all sources. How much energy would Shell’s $29bn produce if it were invested in solar PV farms?

Assuming a 22% capacity factor (much better than the UK but below the average in the US), an installed cost of $1 a watt and a 35 year panel life, the number comes out just ahead of the energy value of the oil that Shell produces each year.

[Editor’s note: In fact, it gets even better than this. Burning oil produces heat energy, while solar panels produce electrical energy. Battery electric cars can turn that solar energy in to motive power at an efficiency of about 80%, while gasoline-fired cars turn their oil into motive power at only 25% efficiency. So the energy produced by solar panels is worth about three times as much per kWh as oil energy in transport applications.

Likewise if oil or gas is used to generate electricity (typically at ~50% efficiency) then the solar energy is about twice as valuable as oil energy because it’s electricity to begin with.

In a third case, where the solar energy is being used to make hydrogen by hydrolysis, then synthesised into energy-dense fuels and feedstocks like methane, methanol and ammonia, that can be done at an efficiency of around 60%, a figure that will surely increase with R&D investment up towards 70%. That creates a penalty for solar versus oil – but not a very large one, especially as solar gets ever cheaper.

The fact that renewable electricity can be turned into fuels and feedstocks currently based on oil and gas also, in the long term, sets a ‘ceiling’ for future oil and gas prices. As soon as the price of those fuels rises above a certain level – perhaps around $50 per barrel of oil using technologies now becoming available – it will become profitable to built huge solar to methanol plants in the Sahara, or wind to ammonia plants on the Falkland Islands.]

In other words, if Shell really sees its role as producing the energy the world needs, then its $29bn would be better going into exploiting solar energy rather than drilling wells and building pipelines. Rather than trying to destroy Shell, one of the world’s most efficient allocators of energy capital, we need to persuade it to divert its considerable skills towards the renewable economy.

Or take BP. In the UK alone the company spends about £175m on energy R&D. This compares to DECC’s boast of putting about £100m into clean energy research as year, of which half is devoted to nuclear.

Were an oil major to divert its efforts away from fossil fuels and towards the next generation of energy sources, the skill and knowledge in the private sector could make a dramatic difference to the speed of the switch to low-carbon sources.

The oilman saith: ‘it’s outside our field of competence’

I made this point clumsily to Mr Schreiber after the discussion. Wouldn’t his company’s exceptional skills and resources also be better directed towards – for example – using solar energy to make renewable liquid fuels, an endeavour Bill Gates sees as one of the most productive areas for new capital going into energy?

Schreiber disagreed, saying that this area involved a lot of difficult science not within his company’s area of current competence.

Nevertheless Harold Schreiber knows there is an energy transition happening. Renewable sources of energy will eventually become very cheap and strand the existing assets of the major oil companies. Even the CEO of Shell said in September last year that solar would be the “dominant backbone” of the energy system.

This may suggest that outsiders, such as Oxbridge academics mentioned in the first paragraph, need to engage with the oil company to show how they should redirect themselves – and their huge resources of capital – towards those energy sources that are going to be cheaper than oil.

PV already produces more energy per dollar invested than oil. Shouldn’t Schreiber’s company be moving as fast as it can into exploitation of the sun’s energy?

Won’t shareholders’ interests be best served by a rapid redirection of the company toward the most productive new sources of energy, rather than drilling for ever more recalcitrant sources of oil?

Chris Goodall is an expert on energy, environment and climate change, and a frequent contributor to The Ecologist. He blogs at Carbon Commentary. His next book, ‘The Switch’, is due for publication in 2016.

This article was first published on Carbon Commentary. The ideas expressed in this article are explored in far greater details in The Switch, a book about the global transition to solar power, to be published in June 2016 by Profile Books.

Michael Hudson is the best economist in the world. Indeed, I could almost say that he is the only economist in the world.

Almost all of the rest are neoliberals, who are not economists but shills for financial interests.

If you have not heard of Michael Hudson it merely shows the power of the Matrix. Hudson should have won several Nobel prizes in economics, but he will never get one.

Hudson did not intend to be an economist. At the University of Chicago, which had a leading economics faculty, Hudson studied music and cultural history. He went to New York City to work in publishing.

He thought he could set out on his own when he was assigned rights to the writings and archives of George Lukacs and Leon Trotsky, but publishing houses were not interested in the work of two Jewish Marxists who had a significant impact on the 20th century.

Friendships connected Hudson to a former economist for General Electric who taught him the flow of funds through the economic system and explained how crises develop when debt outgrows the economy. Hooked, Hudson enrolled in the economics graduate program at NYU and took a job in the financial sector calculating how savings were recycled into new mortgage loans.

But Hudson really learnt his economics on Wall Street

Hudson learned more economics from his work experience than from his Ph.D. courses. On Wall Street he learned how bank lending inflates land prices and, thereby, interest payments to the financial sector.

The more banks lend, the higher real estate prices rise, thus encouraging more bank lending. As mortgage debt service rises, more of household income and more of the rental value of real estate are paid to the financial sector. When the imbalance becomes too large, the bubble bursts. Despite its importance, the analysis of land rent and property valuation was not part of his Ph.D. studies in economics.

Hudson’s next job was with Chase Manhattan, where he used the export earnings of South American countries to calculate how much debt service the countries could afford to pay to US banks.

Hudson learned that just as mortgage lenders regard the rental income from property as a flow of money that can be diverted to interest payments, international banks regard the export earnings of foreign countries as revenues that can be used to pay interest on foreign loans. Hudson learned that the goal of creditors is to capture the entire economic surplus of a country into payments of debt service.

Soon the American creditors and the IMF were lending indebted countries money with which to pay interest. This caused the countries’ foreign debts to rise at compound interest. Hudson predicted that the indebted countries would not be able to pay their debts, an unwelcome prediction that was confirmed when Mexico announced it could not pay.

This crisis was resolved with ‘Brady bonds’ named after the US Treasury Secretary, but when the 2008 US mortgage crisis hit, just as Hudson predicted, nothing was done for the American homeowners. If you are not a mega-bank, your problems are not a focus of US economic policy.

Tax havens: indispensable for tax dodgers, organised crime, and the federal government

Chase Manhattan next had Hudson develop an accounting format to analyze the US oil industry balance of payments. Here Hudson learned another lesson about the difference between official statistics and reality. Using ‘transfer pricing’, oil companies managed to avoid paying taxes by creating the illusion of zero profits.

Oil company affiliates in tax avoidance locations buy oil at low prices from producers. From these flags of convenience locations, which have no tax on profits, the oil was then sold to Western refineries at prices marked up to eliminate profits. The profits were recorded by the oil companies’ affiliates in non-tax jurisdictions. (Tax authorities have cracked down to some extent on the use of transfer pricing to escape taxation.)

Hudson’s next task was to estimate the amount of money from crime going into Switzerland’s secret banking system. In this investigation, his last for Chase, Hudson discovered that under US State Department direction Chase and other large banks had established banks in the Caribbean for the purpose of attracting money into dollar holdings from drug dealers in order to support the dollar (by raising the demand for dollars by criminals) in order to balance or offset Washington’s foreign military outflows of dollars.

If dollars flowed out of the US, but demand did not rise to absorb the larger supply of dollars, the dollar’s exchange rate would fall, thus threatenting the basis of US power. By providing offshore banks in which criminals could deposit illicit dollars, the US government supported the dollar’s exchange value.

Hudson discovered that the US balance of payments deficit, a source of pressure on the value of the US dollar, was entirely military in character. The US Treasury and State Department supported the Caribbean safe haven for illegal profits in order to offset the negative impact on the US balance of payments of US military operations abroad. In other words, if criminality can be used in support of the US dollar, the US government is all for criminality.

When it came to the economics of the situation, economic theory had not a clue. Neither trade flows nor direct investments were important in determining exchange rates. What was important was ‘errors and omissions’, which Hudson discovered was an euphemism for the hot, liquid money of drug dealers and government officials embezzling the export earnings of their countries.

The financial system is a mechanism for looting the real economy

The problem for Americans is that both political parties regard the needs of the American people as a liability and as an obstacle to the profits of the military / security complex, Wall Street and the mega-banks, and Washington’s world hegemony.

The government in Washington represents powerful interest groups, not American citizens. This is why the 21st century consists of an attack on the constitutional protections of citizens so that citizens can be moved out of the way of the needs of the Empire and its beneficiaries.

Hudson learned that economic theory is really a device for ripping off the untermenschen. International trade theory concludes that countries can service huge debts simply by lowering domestic wages in order to pay creditors.

This is the policy currently being applied to Greece today, and it has been the basis of the IMF’s structural adjustment or austerity programs imposed on debtor countries, essentially a form of looting that turns over national resources to foreign lenders.

Hudson learned that monetary theory concerns itself only with wages and consumer prices, not with the inflation of asset prices such as real estate and stocks. He saw that economic theory serves as a cover for the polarization of the world economy between rich and poor. The promises of globalism are a myth.

Debt slavery

Even left-wing and Marxist economists think of exploitation in terms of wages and are unaware that the main instrument of exploitation is the financial system’s extraction of value into interest payments.

Economic theory’s neglect of debt as an instrument of exploitation caused Hudson to look into the history of how earlier civilizations handled the build up of debt. His research was so ground-breaking that Harvard University appointed him Research Fellow in Babylonian economic history in the Peabody Museum.

Meanwhile he continued to be sought after by financial firms. He was hired to calculate the number of years that Argentina, Brazil, and Mexico would be able to pay the extremely high interest rates on their bonds. On the basis of Hudson’s work, the Scudder Fund achieved the second highest rate of return in the world in 1990.

Hudson’s investigations into the problems of our time took him through the history of economic thought. He discovered that 18th and 19th century economists understood the disabling power of debt far better than today’s neoliberal economists who essentially neglect it in order to better cater to the interest of the financial sector.

Hudson shows that Western economies have been financialized in a predatory way that sacrifices the public interest to the interests of the financial sector. That is why the economy no longer works for ordinary people. Finance is no longer productive. It has become a parasite on the economy. Hudson tells this story in his recent book, Killing the Host (2015).

Western economies – financialized to death

Readers often ask me how they can learn economics. My answer is to spend many hours with Hudson’s book. First, read the book through once or twice in order to get an idea of what is covered. Then study it closely section by section. When you understand the book, you will understand economics better than any Nobel prize-winning economist.

Treat this column as an introduction to the book. I will be writing more about it as current events and time permit. As far as I am concerned, many current events cannot be understood independently of Hudson’s explanation of the financialized Western economy.

Indeed, as most Russian and Chinese economists are themselves trained in neoliberal economics, these two countries might follow the same downward path as the West.

If you put Hudson’s analysis of financialization together with my analysis of the adverse impact of jobs offshoring, you will understand that the present economic path of the Western world is the road to destruction.

The book: ‘Killing the Host‘ is written by Michael Hudson and published by Nation Books (2015).

Dr. Paul Craig Roberts was Assistant Secretary of the Treasury for Economic Policy and associate editor of the Wall Street Journal. He was columnist for Business Week, Scripps Howard News Service, and Creators Syndicate. He has had many university appointments. His internet columns have attracted a worldwide following. Roberts’ latest books are The Failure of Laissez Faire Capitalism and Economic Dissolution of the West, How America Was Lost, and The Neoconservative Threat to World Order.

This article was originally published on Paul Craig Roberts’s website.

A couple of weeks ago, 300 academics from Oxford and Cambridge issued a statement asking their universities to work with the fossil fuel divestment movement.

Energy scientists such as Sir David MacKay joined professors from across the full range of subjects to ask for “morally sound” investment policies.

Last Friday, a very senior executive from one of the world’s largest oil companies participated in an open and good humoured discussion with undergraduates at one of our leading universities  in a meeting convened under ‘Chatham House rules’. I was present.

The executive, who I will call Harold Schreiber, said that the divestment movement was “anti-industry, emotional and populist.” He said that the role of the “energy producers (is) to produce energy” and that those who worried about climate change should focus their attention on the consumers of energy, not those who extract it.

Schreiber said that oil companies will not respond to outside media pressure but that “constructive engagement” might be more effective. He based this opinion on what he saw as the positive effect of those oil companies that remained in South Africa during the apartheid years working to build the country’s energy system and, in Schreiber’s words, “helping to avoid violence”.

Whether or not the divestment movement succeeded the world would continue to burn large quantities of fossil fuels for the rest of the century, he continued. About 80% of energy needs are met from carbon-based fuels today and in his assessment that number would still be about 25% by 2100.

Oil would have to be extracted and burnt in large amounts, although its role will diminish beyond 2030.

The oil man’s view – net zero may be possible by 2100

Some of his company’s scenarios for the future suggested that it might be possible to get to ‘net zero’ emissions by the end of the century but these were not necessarily the most likely. Moreover, they would require technologies that extracted CO₂ from the atmosphere.

He referenced work at MIT that showed that the best the world could expect is a temperature rise of about 3C above pre-industrial levels, well above the figure of less than 2C agreed in the Paris conference. He implied that he regretted this probable failure but that the energy companies are not to blame. Governments and energy users are responsible.

Faster change is hugely difficult, he implied. One example was the UK’s poorly insulated housing. Although it may be possible to reduce heat losses in homes, people would need “softening up” for a long time before they agreed to have contractors in their homes for six months of insulation work.

More generally around the world, people need proper energy infrastructure to live decent lives and the anti-fossil fuel activists don’t understand that this cannot be provided by “iPhone apps” or other digital tools.

1.3 billion people have no access to electricity at all and these people require the mainstream energy companies to provide them with the means to obtain a reliable energy supply. A decent standard of living demands steel for buildings and the anti-fossil fuel movement has no idea how this might be provided without coal in blast furnaces.

Transport needs liquid fuels and no-one, he said, knew how this would be provided without oil from the ground.

‘Corporations are servants, not masters, of the global economy’

As well as criticising the divestment movement for its anti-commercial and antagonistic attitudes, Mr Schreiber said that politicians were making huge mistakes. The UK’s decision to abandon Carbon Capture and Storage (CCS) was “frankly stupid”.

Obama was wrong to block the Keystone XL pipeline. Sensible policy-making is “paralysed” at the Federal level. More generally, politicians around the world “have to reach beyond grandstanding” and take decisions that are “rational”, not driven by attempts to gather short-term popularity by appeasing climate activists.

When questioned on why the major oil companies operated in countries with poor human rights records, he asked whether the audience would rather the energy extraction in these countries was carried out by small private companies or businesses like his employer’s, which are subject to high levels of scrutiny and requirements for transparency.

In summary Schreiber suggested that companies such as his are the servants of the international economy, not its masters. The role of the international oil company is to organise the efficient deployment of capital for the production of inexpensive energy, not to drive the low-carbon future.

He said that “we are only in the foothills of the move away from fossil fuels” and his company would continue to invest heavily in oil and gas exploration rather than renewables.

So I went home and checked the figures

After listening to Schreiber I went away to look at the latest accounts of some of the major energy companies. They show, of course, reduced profitability in the face of declining energy prices. Nevertheless, the divestment movement has a steep hill to climb.

Few, if any, oil majors  have any need for new outside capital in the next few years. It might make sense for the financial health of pension and endowment funds to get out of fossil fuels but selling oil shares to another investor (‘divesting’) will have no direct impact whatsoever on the speed of the energy transition.

I think it may be more important to continue asking oil companies the question: “is drilling for hydrocarbons the most productive use of your huge resources of available capital?” To suggest an answer, I looked specifically at Shell’s worldwide accounts because these have just been published.

Excluding its new acquisition, BG, the company spent about $29bn on its exploration and production activities last year. That money enabled the company to just about stand still in terms of the total amount of energy to which it has access in its proven oil and gas fields. It produced 1.1 billion barrels of oil from reserves that dipped slightly to about 11.7 billion barrels.

(Note: This is a complex area; Shell has to write down its reserves estimates to reflect that portion of its portfolio that is no longer economic to operate because of low oil prices.)

So, very roughly, $29bn is the amount of money Shell needs to invest in order to continue producing 3 million barrels of oil a day (1.1 billion barrels a year). This money could instead either be returned to shareholders or invested in renewable energy technologies.

Mr Schreiber said that at the start of the discussion that the role of the energy producer was to produce energy. In the case of Shell, as one example of this, is the $29bn going to produce more energy if it is invested in oil exploration and production or, for example, in solar PV?

Oil versus solar – the arithmetic

The numbers are relatively easy to calculate. A barrel of oil represents 1,700 kWh of thermal energy. So Shell’s yearly production of oil has an energy content of about 1,800 terawatt hours. That is, very approximately, the same as the UK’s total consumption of energy from all sources. How much energy would Shell’s $29bn produce if it were invested in solar PV farms?

Assuming a 22% capacity factor (much better than the UK but below the average in the US), an installed cost of $1 a watt and a 35 year panel life, the number comes out just ahead of the energy value of the oil that Shell produces each year.

[Editor’s note: In fact, it gets even better than this. Burning oil produces heat energy, while solar panels produce electrical energy. Battery electric cars can turn that solar energy in to motive power at an efficiency of about 80%, while gasoline-fired cars turn their oil into motive power at only 25% efficiency. So the energy produced by solar panels is worth about three times as much per kWh as oil energy in transport applications.

Likewise if oil or gas is used to generate electricity (typically at ~50% efficiency) then the solar energy is about twice as valuable as oil energy because it’s electricity to begin with.

In a third case, where the solar energy is being used to make hydrogen by hydrolysis, then synthesised into energy-dense fuels and feedstocks like methane, methanol and ammonia, that can be done at an efficiency of around 60%, a figure that will surely increase with R&D investment up towards 70%. That creates a penalty for solar versus oil – but not a very large one, especially as solar gets ever cheaper.

The fact that renewable electricity can be turned into fuels and feedstocks currently based on oil and gas also, in the long term, sets a ‘ceiling’ for future oil and gas prices. As soon as the price of those fuels rises above a certain level – perhaps around $50 per barrel of oil using technologies now becoming available – it will become profitable to built huge solar to methanol plants in the Sahara, or wind to ammonia plants on the Falkland Islands.]

In other words, if Shell really sees its role as producing the energy the world needs, then its $29bn would be better going into exploiting solar energy rather than drilling wells and building pipelines. Rather than trying to destroy Shell, one of the world’s most efficient allocators of energy capital, we need to persuade it to divert its considerable skills towards the renewable economy.

Or take BP. In the UK alone the company spends about £175m on energy R&D. This compares to DECC’s boast of putting about £100m into clean energy research as year, of which half is devoted to nuclear.

Were an oil major to divert its efforts away from fossil fuels and towards the next generation of energy sources, the skill and knowledge in the private sector could make a dramatic difference to the speed of the switch to low-carbon sources.

The oilman saith: ‘it’s outside our field of competence’

I made this point clumsily to Mr Schreiber after the discussion. Wouldn’t his company’s exceptional skills and resources also be better directed towards – for example – using solar energy to make renewable liquid fuels, an endeavour Bill Gates sees as one of the most productive areas for new capital going into energy?

Schreiber disagreed, saying that this area involved a lot of difficult science not within his company’s area of current competence.

Nevertheless Harold Schreiber knows there is an energy transition happening. Renewable sources of energy will eventually become very cheap and strand the existing assets of the major oil companies. Even the CEO of Shell said in September last year that solar would be the “dominant backbone” of the energy system.

This may suggest that outsiders, such as Oxbridge academics mentioned in the first paragraph, need to engage with the oil company to show how they should redirect themselves – and their huge resources of capital – towards those energy sources that are going to be cheaper than oil.

PV already produces more energy per dollar invested than oil. Shouldn’t Schreiber’s company be moving as fast as it can into exploitation of the sun’s energy?

Won’t shareholders’ interests be best served by a rapid redirection of the company toward the most productive new sources of energy, rather than drilling for ever more recalcitrant sources of oil?

Chris Goodall is an expert on energy, environment and climate change, and a frequent contributor to The Ecologist. He blogs at Carbon Commentary. His next book, ‘The Switch’, is due for publication in 2016.

This article was first published on Carbon Commentary. The ideas expressed in this article are explored in far greater details in The Switch, a book about the global transition to solar power, to be published in June 2016 by Profile Books.

Michael Hudson is the best economist in the world. Indeed, I could almost say that he is the only economist in the world.

Almost all of the rest are neoliberals, who are not economists but shills for financial interests.

If you have not heard of Michael Hudson it merely shows the power of the Matrix. Hudson should have won several Nobel prizes in economics, but he will never get one.

Hudson did not intend to be an economist. At the University of Chicago, which had a leading economics faculty, Hudson studied music and cultural history. He went to New York City to work in publishing.

He thought he could set out on his own when he was assigned rights to the writings and archives of George Lukacs and Leon Trotsky, but publishing houses were not interested in the work of two Jewish Marxists who had a significant impact on the 20th century.

Friendships connected Hudson to a former economist for General Electric who taught him the flow of funds through the economic system and explained how crises develop when debt outgrows the economy. Hooked, Hudson enrolled in the economics graduate program at NYU and took a job in the financial sector calculating how savings were recycled into new mortgage loans.

But Hudson really learnt his economics on Wall Street

Hudson learned more economics from his work experience than from his Ph.D. courses. On Wall Street he learned how bank lending inflates land prices and, thereby, interest payments to the financial sector.

The more banks lend, the higher real estate prices rise, thus encouraging more bank lending. As mortgage debt service rises, more of household income and more of the rental value of real estate are paid to the financial sector. When the imbalance becomes too large, the bubble bursts. Despite its importance, the analysis of land rent and property valuation was not part of his Ph.D. studies in economics.

Hudson’s next job was with Chase Manhattan, where he used the export earnings of South American countries to calculate how much debt service the countries could afford to pay to US banks.

Hudson learned that just as mortgage lenders regard the rental income from property as a flow of money that can be diverted to interest payments, international banks regard the export earnings of foreign countries as revenues that can be used to pay interest on foreign loans. Hudson learned that the goal of creditors is to capture the entire economic surplus of a country into payments of debt service.

Soon the American creditors and the IMF were lending indebted countries money with which to pay interest. This caused the countries’ foreign debts to rise at compound interest. Hudson predicted that the indebted countries would not be able to pay their debts, an unwelcome prediction that was confirmed when Mexico announced it could not pay.

This crisis was resolved with ‘Brady bonds’ named after the US Treasury Secretary, but when the 2008 US mortgage crisis hit, just as Hudson predicted, nothing was done for the American homeowners. If you are not a mega-bank, your problems are not a focus of US economic policy.

Tax havens: indispensable for tax dodgers, organised crime, and the federal government

Chase Manhattan next had Hudson develop an accounting format to analyze the US oil industry balance of payments. Here Hudson learned another lesson about the difference between official statistics and reality. Using ‘transfer pricing’, oil companies managed to avoid paying taxes by creating the illusion of zero profits.

Oil company affiliates in tax avoidance locations buy oil at low prices from producers. From these flags of convenience locations, which have no tax on profits, the oil was then sold to Western refineries at prices marked up to eliminate profits. The profits were recorded by the oil companies’ affiliates in non-tax jurisdictions. (Tax authorities have cracked down to some extent on the use of transfer pricing to escape taxation.)

Hudson’s next task was to estimate the amount of money from crime going into Switzerland’s secret banking system. In this investigation, his last for Chase, Hudson discovered that under US State Department direction Chase and other large banks had established banks in the Caribbean for the purpose of attracting money into dollar holdings from drug dealers in order to support the dollar (by raising the demand for dollars by criminals) in order to balance or offset Washington’s foreign military outflows of dollars.

If dollars flowed out of the US, but demand did not rise to absorb the larger supply of dollars, the dollar’s exchange rate would fall, thus threatenting the basis of US power. By providing offshore banks in which criminals could deposit illicit dollars, the US government supported the dollar’s exchange value.

Hudson discovered that the US balance of payments deficit, a source of pressure on the value of the US dollar, was entirely military in character. The US Treasury and State Department supported the Caribbean safe haven for illegal profits in order to offset the negative impact on the US balance of payments of US military operations abroad. In other words, if criminality can be used in support of the US dollar, the US government is all for criminality.

When it came to the economics of the situation, economic theory had not a clue. Neither trade flows nor direct investments were important in determining exchange rates. What was important was ‘errors and omissions’, which Hudson discovered was an euphemism for the hot, liquid money of drug dealers and government officials embezzling the export earnings of their countries.

The financial system is a mechanism for looting the real economy

The problem for Americans is that both political parties regard the needs of the American people as a liability and as an obstacle to the profits of the military / security complex, Wall Street and the mega-banks, and Washington’s world hegemony.

The government in Washington represents powerful interest groups, not American citizens. This is why the 21st century consists of an attack on the constitutional protections of citizens so that citizens can be moved out of the way of the needs of the Empire and its beneficiaries.

Hudson learned that economic theory is really a device for ripping off the untermenschen. International trade theory concludes that countries can service huge debts simply by lowering domestic wages in order to pay creditors.

This is the policy currently being applied to Greece today, and it has been the basis of the IMF’s structural adjustment or austerity programs imposed on debtor countries, essentially a form of looting that turns over national resources to foreign lenders.

Hudson learned that monetary theory concerns itself only with wages and consumer prices, not with the inflation of asset prices such as real estate and stocks. He saw that economic theory serves as a cover for the polarization of the world economy between rich and poor. The promises of globalism are a myth.

Debt slavery

Even left-wing and Marxist economists think of exploitation in terms of wages and are unaware that the main instrument of exploitation is the financial system’s extraction of value into interest payments.

Economic theory’s neglect of debt as an instrument of exploitation caused Hudson to look into the history of how earlier civilizations handled the build up of debt. His research was so ground-breaking that Harvard University appointed him Research Fellow in Babylonian economic history in the Peabody Museum.

Meanwhile he continued to be sought after by financial firms. He was hired to calculate the number of years that Argentina, Brazil, and Mexico would be able to pay the extremely high interest rates on their bonds. On the basis of Hudson’s work, the Scudder Fund achieved the second highest rate of return in the world in 1990.

Hudson’s investigations into the problems of our time took him through the history of economic thought. He discovered that 18th and 19th century economists understood the disabling power of debt far better than today’s neoliberal economists who essentially neglect it in order to better cater to the interest of the financial sector.

Hudson shows that Western economies have been financialized in a predatory way that sacrifices the public interest to the interests of the financial sector. That is why the economy no longer works for ordinary people. Finance is no longer productive. It has become a parasite on the economy. Hudson tells this story in his recent book, Killing the Host (2015).

Western economies – financialized to death

Readers often ask me how they can learn economics. My answer is to spend many hours with Hudson’s book. First, read the book through once or twice in order to get an idea of what is covered. Then study it closely section by section. When you understand the book, you will understand economics better than any Nobel prize-winning economist.

Treat this column as an introduction to the book. I will be writing more about it as current events and time permit. As far as I am concerned, many current events cannot be understood independently of Hudson’s explanation of the financialized Western economy.

Indeed, as most Russian and Chinese economists are themselves trained in neoliberal economics, these two countries might follow the same downward path as the West.

If you put Hudson’s analysis of financialization together with my analysis of the adverse impact of jobs offshoring, you will understand that the present economic path of the Western world is the road to destruction.

The book: ‘Killing the Host‘ is written by Michael Hudson and published by Nation Books (2015).

Dr. Paul Craig Roberts was Assistant Secretary of the Treasury for Economic Policy and associate editor of the Wall Street Journal. He was columnist for Business Week, Scripps Howard News Service, and Creators Syndicate. He has had many university appointments. His internet columns have attracted a worldwide following. Roberts’ latest books are The Failure of Laissez Faire Capitalism and Economic Dissolution of the West, How America Was Lost, and The Neoconservative Threat to World Order.

This article was originally published on Paul Craig Roberts’s website.

A couple of weeks ago, 300 academics from Oxford and Cambridge issued a statement asking their universities to work with the fossil fuel divestment movement.

Energy scientists such as Sir David MacKay joined professors from across the full range of subjects to ask for “morally sound” investment policies.

Last Friday, a very senior executive from one of the world’s largest oil companies participated in an open and good humoured discussion with undergraduates at one of our leading universities  in a meeting convened under ‘Chatham House rules’. I was present.

The executive, who I will call Harold Schreiber, said that the divestment movement was “anti-industry, emotional and populist.” He said that the role of the “energy producers (is) to produce energy” and that those who worried about climate change should focus their attention on the consumers of energy, not those who extract it.

Schreiber said that oil companies will not respond to outside media pressure but that “constructive engagement” might be more effective. He based this opinion on what he saw as the positive effect of those oil companies that remained in South Africa during the apartheid years working to build the country’s energy system and, in Schreiber’s words, “helping to avoid violence”.

Whether or not the divestment movement succeeded the world would continue to burn large quantities of fossil fuels for the rest of the century, he continued. About 80% of energy needs are met from carbon-based fuels today and in his assessment that number would still be about 25% by 2100.

Oil would have to be extracted and burnt in large amounts, although its role will diminish beyond 2030.

The oil man’s view – net zero may be possible by 2100

Some of his company’s scenarios for the future suggested that it might be possible to get to ‘net zero’ emissions by the end of the century but these were not necessarily the most likely. Moreover, they would require technologies that extracted CO₂ from the atmosphere.

He referenced work at MIT that showed that the best the world could expect is a temperature rise of about 3C above pre-industrial levels, well above the figure of less than 2C agreed in the Paris conference. He implied that he regretted this probable failure but that the energy companies are not to blame. Governments and energy users are responsible.

Faster change is hugely difficult, he implied. One example was the UK’s poorly insulated housing. Although it may be possible to reduce heat losses in homes, people would need “softening up” for a long time before they agreed to have contractors in their homes for six months of insulation work.

More generally around the world, people need proper energy infrastructure to live decent lives and the anti-fossil fuel activists don’t understand that this cannot be provided by “iPhone apps” or other digital tools.

1.3 billion people have no access to electricity at all and these people require the mainstream energy companies to provide them with the means to obtain a reliable energy supply. A decent standard of living demands steel for buildings and the anti-fossil fuel movement has no idea how this might be provided without coal in blast furnaces.

Transport needs liquid fuels and no-one, he said, knew how this would be provided without oil from the ground.

‘Corporations are servants, not masters, of the global economy’

As well as criticising the divestment movement for its anti-commercial and antagonistic attitudes, Mr Schreiber said that politicians were making huge mistakes. The UK’s decision to abandon Carbon Capture and Storage (CCS) was “frankly stupid”.

Obama was wrong to block the Keystone XL pipeline. Sensible policy-making is “paralysed” at the Federal level. More generally, politicians around the world “have to reach beyond grandstanding” and take decisions that are “rational”, not driven by attempts to gather short-term popularity by appeasing climate activists.

When questioned on why the major oil companies operated in countries with poor human rights records, he asked whether the audience would rather the energy extraction in these countries was carried out by small private companies or businesses like his employer’s, which are subject to high levels of scrutiny and requirements for transparency.

In summary Schreiber suggested that companies such as his are the servants of the international economy, not its masters. The role of the international oil company is to organise the efficient deployment of capital for the production of inexpensive energy, not to drive the low-carbon future.

He said that “we are only in the foothills of the move away from fossil fuels” and his company would continue to invest heavily in oil and gas exploration rather than renewables.

So I went home and checked the figures

After listening to Schreiber I went away to look at the latest accounts of some of the major energy companies. They show, of course, reduced profitability in the face of declining energy prices. Nevertheless, the divestment movement has a steep hill to climb.

Few, if any, oil majors  have any need for new outside capital in the next few years. It might make sense for the financial health of pension and endowment funds to get out of fossil fuels but selling oil shares to another investor (‘divesting’) will have no direct impact whatsoever on the speed of the energy transition.

I think it may be more important to continue asking oil companies the question: “is drilling for hydrocarbons the most productive use of your huge resources of available capital?” To suggest an answer, I looked specifically at Shell’s worldwide accounts because these have just been published.

Excluding its new acquisition, BG, the company spent about $29bn on its exploration and production activities last year. That money enabled the company to just about stand still in terms of the total amount of energy to which it has access in its proven oil and gas fields. It produced 1.1 billion barrels of oil from reserves that dipped slightly to about 11.7 billion barrels.

(Note: This is a complex area; Shell has to write down its reserves estimates to reflect that portion of its portfolio that is no longer economic to operate because of low oil prices.)

So, very roughly, $29bn is the amount of money Shell needs to invest in order to continue producing 3 million barrels of oil a day (1.1 billion barrels a year). This money could instead either be returned to shareholders or invested in renewable energy technologies.

Mr Schreiber said that at the start of the discussion that the role of the energy producer was to produce energy. In the case of Shell, as one example of this, is the $29bn going to produce more energy if it is invested in oil exploration and production or, for example, in solar PV?

Oil versus solar – the arithmetic

The numbers are relatively easy to calculate. A barrel of oil represents 1,700 kWh of thermal energy. So Shell’s yearly production of oil has an energy content of about 1,800 terawatt hours. That is, very approximately, the same as the UK’s total consumption of energy from all sources. How much energy would Shell’s $29bn produce if it were invested in solar PV farms?

Assuming a 22% capacity factor (much better than the UK but below the average in the US), an installed cost of $1 a watt and a 35 year panel life, the number comes out just ahead of the energy value of the oil that Shell produces each year.

[Editor’s note: In fact, it gets even better than this. Burning oil produces heat energy, while solar panels produce electrical energy. Battery electric cars can turn that solar energy in to motive power at an efficiency of about 80%, while gasoline-fired cars turn their oil into motive power at only 25% efficiency. So the energy produced by solar panels is worth about three times as much per kWh as oil energy in transport applications.

Likewise if oil or gas is used to generate electricity (typically at ~50% efficiency) then the solar energy is about twice as valuable as oil energy because it’s electricity to begin with.

In a third case, where the solar energy is being used to make hydrogen by hydrolysis, then synthesised into energy-dense fuels and feedstocks like methane, methanol and ammonia, that can be done at an efficiency of around 60%, a figure that will surely increase with R&D investment up towards 70%. That creates a penalty for solar versus oil – but not a very large one, especially as solar gets ever cheaper.

The fact that renewable electricity can be turned into fuels and feedstocks currently based on oil and gas also, in the long term, sets a ‘ceiling’ for future oil and gas prices. As soon as the price of those fuels rises above a certain level – perhaps around $50 per barrel of oil using technologies now becoming available – it will become profitable to built huge solar to methanol plants in the Sahara, or wind to ammonia plants on the Falkland Islands.]

In other words, if Shell really sees its role as producing the energy the world needs, then its $29bn would be better going into exploiting solar energy rather than drilling wells and building pipelines. Rather than trying to destroy Shell, one of the world’s most efficient allocators of energy capital, we need to persuade it to divert its considerable skills towards the renewable economy.

Or take BP. In the UK alone the company spends about £175m on energy R&D. This compares to DECC’s boast of putting about £100m into clean energy research as year, of which half is devoted to nuclear.

Were an oil major to divert its efforts away from fossil fuels and towards the next generation of energy sources, the skill and knowledge in the private sector could make a dramatic difference to the speed of the switch to low-carbon sources.

The oilman saith: ‘it’s outside our field of competence’

I made this point clumsily to Mr Schreiber after the discussion. Wouldn’t his company’s exceptional skills and resources also be better directed towards – for example – using solar energy to make renewable liquid fuels, an endeavour Bill Gates sees as one of the most productive areas for new capital going into energy?

Schreiber disagreed, saying that this area involved a lot of difficult science not within his company’s area of current competence.

Nevertheless Harold Schreiber knows there is an energy transition happening. Renewable sources of energy will eventually become very cheap and strand the existing assets of the major oil companies. Even the CEO of Shell said in September last year that solar would be the “dominant backbone” of the energy system.

This may suggest that outsiders, such as Oxbridge academics mentioned in the first paragraph, need to engage with the oil company to show how they should redirect themselves – and their huge resources of capital – towards those energy sources that are going to be cheaper than oil.

PV already produces more energy per dollar invested than oil. Shouldn’t Schreiber’s company be moving as fast as it can into exploitation of the sun’s energy?

Won’t shareholders’ interests be best served by a rapid redirection of the company toward the most productive new sources of energy, rather than drilling for ever more recalcitrant sources of oil?

Chris Goodall is an expert on energy, environment and climate change, and a frequent contributor to The Ecologist. He blogs at Carbon Commentary. His next book, ‘The Switch’, is due for publication in 2016.

This article was first published on Carbon Commentary. The ideas expressed in this article are explored in far greater details in The Switch, a book about the global transition to solar power, to be published in June 2016 by Profile Books.

Michael Hudson is the best economist in the world. Indeed, I could almost say that he is the only economist in the world.

Almost all of the rest are neoliberals, who are not economists but shills for financial interests.

If you have not heard of Michael Hudson it merely shows the power of the Matrix. Hudson should have won several Nobel prizes in economics, but he will never get one.

Hudson did not intend to be an economist. At the University of Chicago, which had a leading economics faculty, Hudson studied music and cultural history. He went to New York City to work in publishing.

He thought he could set out on his own when he was assigned rights to the writings and archives of George Lukacs and Leon Trotsky, but publishing houses were not interested in the work of two Jewish Marxists who had a significant impact on the 20th century.

Friendships connected Hudson to a former economist for General Electric who taught him the flow of funds through the economic system and explained how crises develop when debt outgrows the economy. Hooked, Hudson enrolled in the economics graduate program at NYU and took a job in the financial sector calculating how savings were recycled into new mortgage loans.

But Hudson really learnt his economics on Wall Street

Hudson learned more economics from his work experience than from his Ph.D. courses. On Wall Street he learned how bank lending inflates land prices and, thereby, interest payments to the financial sector.

The more banks lend, the higher real estate prices rise, thus encouraging more bank lending. As mortgage debt service rises, more of household income and more of the rental value of real estate are paid to the financial sector. When the imbalance becomes too large, the bubble bursts. Despite its importance, the analysis of land rent and property valuation was not part of his Ph.D. studies in economics.

Hudson’s next job was with Chase Manhattan, where he used the export earnings of South American countries to calculate how much debt service the countries could afford to pay to US banks.

Hudson learned that just as mortgage lenders regard the rental income from property as a flow of money that can be diverted to interest payments, international banks regard the export earnings of foreign countries as revenues that can be used to pay interest on foreign loans. Hudson learned that the goal of creditors is to capture the entire economic surplus of a country into payments of debt service.

Soon the American creditors and the IMF were lending indebted countries money with which to pay interest. This caused the countries’ foreign debts to rise at compound interest. Hudson predicted that the indebted countries would not be able to pay their debts, an unwelcome prediction that was confirmed when Mexico announced it could not pay.

This crisis was resolved with ‘Brady bonds’ named after the US Treasury Secretary, but when the 2008 US mortgage crisis hit, just as Hudson predicted, nothing was done for the American homeowners. If you are not a mega-bank, your problems are not a focus of US economic policy.

Tax havens: indispensable for tax dodgers, organised crime, and the federal government

Chase Manhattan next had Hudson develop an accounting format to analyze the US oil industry balance of payments. Here Hudson learned another lesson about the difference between official statistics and reality. Using ‘transfer pricing’, oil companies managed to avoid paying taxes by creating the illusion of zero profits.

Oil company affiliates in tax avoidance locations buy oil at low prices from producers. From these flags of convenience locations, which have no tax on profits, the oil was then sold to Western refineries at prices marked up to eliminate profits. The profits were recorded by the oil companies’ affiliates in non-tax jurisdictions. (Tax authorities have cracked down to some extent on the use of transfer pricing to escape taxation.)

Hudson’s next task was to estimate the amount of money from crime going into Switzerland’s secret banking system. In this investigation, his last for Chase, Hudson discovered that under US State Department direction Chase and other large banks had established banks in the Caribbean for the purpose of attracting money into dollar holdings from drug dealers in order to support the dollar (by raising the demand for dollars by criminals) in order to balance or offset Washington’s foreign military outflows of dollars.

If dollars flowed out of the US, but demand did not rise to absorb the larger supply of dollars, the dollar’s exchange rate would fall, thus threatenting the basis of US power. By providing offshore banks in which criminals could deposit illicit dollars, the US government supported the dollar’s exchange value.

Hudson discovered that the US balance of payments deficit, a source of pressure on the value of the US dollar, was entirely military in character. The US Treasury and State Department supported the Caribbean safe haven for illegal profits in order to offset the negative impact on the US balance of payments of US military operations abroad. In other words, if criminality can be used in support of the US dollar, the US government is all for criminality.

When it came to the economics of the situation, economic theory had not a clue. Neither trade flows nor direct investments were important in determining exchange rates. What was important was ‘errors and omissions’, which Hudson discovered was an euphemism for the hot, liquid money of drug dealers and government officials embezzling the export earnings of their countries.

The financial system is a mechanism for looting the real economy

The problem for Americans is that both political parties regard the needs of the American people as a liability and as an obstacle to the profits of the military / security complex, Wall Street and the mega-banks, and Washington’s world hegemony.

The government in Washington represents powerful interest groups, not American citizens. This is why the 21st century consists of an attack on the constitutional protections of citizens so that citizens can be moved out of the way of the needs of the Empire and its beneficiaries.

Hudson learned that economic theory is really a device for ripping off the untermenschen. International trade theory concludes that countries can service huge debts simply by lowering domestic wages in order to pay creditors.

This is the policy currently being applied to Greece today, and it has been the basis of the IMF’s structural adjustment or austerity programs imposed on debtor countries, essentially a form of looting that turns over national resources to foreign lenders.

Hudson learned that monetary theory concerns itself only with wages and consumer prices, not with the inflation of asset prices such as real estate and stocks. He saw that economic theory serves as a cover for the polarization of the world economy between rich and poor. The promises of globalism are a myth.

Debt slavery

Even left-wing and Marxist economists think of exploitation in terms of wages and are unaware that the main instrument of exploitation is the financial system’s extraction of value into interest payments.

Economic theory’s neglect of debt as an instrument of exploitation caused Hudson to look into the history of how earlier civilizations handled the build up of debt. His research was so ground-breaking that Harvard University appointed him Research Fellow in Babylonian economic history in the Peabody Museum.

Meanwhile he continued to be sought after by financial firms. He was hired to calculate the number of years that Argentina, Brazil, and Mexico would be able to pay the extremely high interest rates on their bonds. On the basis of Hudson’s work, the Scudder Fund achieved the second highest rate of return in the world in 1990.

Hudson’s investigations into the problems of our time took him through the history of economic thought. He discovered that 18th and 19th century economists understood the disabling power of debt far better than today’s neoliberal economists who essentially neglect it in order to better cater to the interest of the financial sector.

Hudson shows that Western economies have been financialized in a predatory way that sacrifices the public interest to the interests of the financial sector. That is why the economy no longer works for ordinary people. Finance is no longer productive. It has become a parasite on the economy. Hudson tells this story in his recent book, Killing the Host (2015).

Western economies – financialized to death

Readers often ask me how they can learn economics. My answer is to spend many hours with Hudson’s book. First, read the book through once or twice in order to get an idea of what is covered. Then study it closely section by section. When you understand the book, you will understand economics better than any Nobel prize-winning economist.

Treat this column as an introduction to the book. I will be writing more about it as current events and time permit. As far as I am concerned, many current events cannot be understood independently of Hudson’s explanation of the financialized Western economy.

Indeed, as most Russian and Chinese economists are themselves trained in neoliberal economics, these two countries might follow the same downward path as the West.

If you put Hudson’s analysis of financialization together with my analysis of the adverse impact of jobs offshoring, you will understand that the present economic path of the Western world is the road to destruction.

The book: ‘Killing the Host‘ is written by Michael Hudson and published by Nation Books (2015).

Dr. Paul Craig Roberts was Assistant Secretary of the Treasury for Economic Policy and associate editor of the Wall Street Journal. He was columnist for Business Week, Scripps Howard News Service, and Creators Syndicate. He has had many university appointments. His internet columns have attracted a worldwide following. Roberts’ latest books are The Failure of Laissez Faire Capitalism and Economic Dissolution of the West, How America Was Lost, and The Neoconservative Threat to World Order.

This article was originally published on Paul Craig Roberts’s website.