We have all read about the standard “fixes” for a governmental debt problem–(1) inflate your way out of the problem, (2) cut programs and/or raise taxes, and (3) restructure debt, perhaps delaying repayment and giving bondholders a “haircut” on promised payouts.
A fourth one seems to circulate through peak oil circles, namely “debt jubilee”. It seems to me that there is really a fifth option as well, and that is the one that may actually get used more this time around, at least in some parts of the world. The fifth one is “do a disappearing act.” The government in question folds up, and maybe a new government is formed, or maybe not. If debt is really a problem, the new government would not take on the obligations of the previous government.
The country that exemplifies the “do a disappearing act” is the Former Soviet Union, but there are other examples as well. Both Czechoslovak Socialist Republic and the Socialist Republic of Yugoslavia broke up as well, about the same time. In the case of Yugoslavia, a war was involved, but in the other cases the breakup was relatively peaceful.
It takes energy and money to maintain a country that covers a large area. If energy is cheap, then it is easier to provide needed services–economic growth is higher, costs of transporting goods long distances are lower, and collecting taxes works better. As long as a country is growing economically (especially if there is job growth to go with the economic growth), then it is easy to collect rising amounts of tax dollars, because the tax code that is in place provides rising tax revenues simply because of income growth, without formally raising taxes.
When an economy shifts to no growth or actual economic decline, with falling GDP, then it is much more difficult to keep tax revenue from falling. There are theoretical ways of fixing the problem (all of the ways on the list above), but if there is a major imbalance, then solutions (2) and (3) above don’t work well at all, and a government needs to resort to some other approach.
Example of the Soviet Union Breakup
If we look at the example of the Former Soviet Union (FSU), we find that they were faced with falling prices with respect to their major export, oil, and because of this were having major financial problems, prior to their break-up:
Figure 1. Former Soviet Union oil production and oil price (2010$) based on BP Statistical Data
The peak in oil prices came in 1980. The Soviet Union continued drilling. We don’t know what their cost of production was, but presumably, they could continue to make at least some profit at the lower prices in the early 1980s. Wikipedia tells us, “Although statistics of the Soviet economy are notoriously unreliable and its economic growth difficult to estimate precisely, by most accounts, the economy continued to expand until the mid 1980s.” In another Wikipedia article we read, “The dramatic drop of the price of oil in 1985 and 1986, and consequent lack of foreign exchange reserves in following years to purchase grain profoundly influenced actions of the Soviet leadership.”
In 1987, FSU production hit a peak of oil production, presumably reflecting the fact that there was less oil available that could be profitably pumped at the low prices. This would seem to tie in with the lack of foreign exchange reserves, mentioned above. Finally in 1991, four years after oil production fell, the FSU collapsed. It was only when prices started rising again in the 2000s that production began to rise.
Figure 2. Former Soviet Union Oil Production and Consumption, based on BP Statistical Data.
When we look at FSU oil consumption (Figure 2), we find that it did not fall until 1991–the year of the collapse. The actual collapse came in December. Prior to that, oil consumption had remained level, despite falling oil production since 1987 and despite falling revenue from oil production, starting even earlier.
After the collapse of the Soviet Union, both production and consumption fell further. In fact, production and consumption of natural gas and coal fell as well. Even today, consumption of oil is low. Natural gas consumption has risen somewhat, but the FSU uses much less fossil fuels than it did prior to its breakup.
Why a Government Needs to Keep Tax Revenues Growing
A government exists to provide services to its citizens. Some of these services are things that take place on an ongoing basis–road building and repair; operation of schools; police and armies; issuance of patents; operation of parks; and regulation of food and drugs, for example. Some of these are more long-term–for example, Social Security, Medicare, FDIC guarantee of bank accounts, and PBGC guarantee of pension payments.
Maintaining these programs depends on economic growth to a significant extent. Long-term programs especially depend on economic growth, to keep them properly funded. Pension plans are based on the premise that the stock market will keep growing, and that bonds will pay out according to plan. If this is not the case, the government gets left trying to make up the shortfall.
Even on a short-term basis, governments are hit doubly hit by the recessionary impact of high oil prices:
(1) Outgo is higher, because of stimulus costs, bailouts for organizations that need bail-outs, and higher benefit costs, directly or indirectly because of unemployment.
(2) Income is lower, because fewer people are employed and pay taxes. For local governments, there may also be the issue of falling home values making it harder to collect enough tax revenue.
Figure 3. Average quarterly oil price and US Federal External Debt
Governments find themselves quickly going into debt, when recession hits following an oil price spike. Figure 3 shows how quickly this happened for the United States, when oil prices spike in July 2008. It also shows that the increase in debt is continuing. Now we have a second oil price spike, and the possibility of another recession. If the government tries to provide stimulus as in the past, it faces the possibility of a widening gap between revenue and expenditures. If the government cuts benefits and lays off workers, it is likely to send the country further into recession. But sometimes there seems to be no other choice.
Considering Options to Get Out of a Debt Problem
Option 1. A country’s first choice for dealing with debt is to try to inflate its way out of debt. Ben Bernanke is known as “Helicopter Ben” for his speech in which he mentions Milton Freeman’s previous mention of using a helicopter drop of money to prevent deflation.
In order to allow citizens to repay their debts, it seems to me that what needs to be inflating is salaries. Also, enough people need to be working, so that most people are actually collecting the funds needed to repay debt. If salaries are inflating and enough people are working, then business revenues and government revenues will inflate as well, so that repaying debt plus interest won’t be too terrible a task. At this point, there is not even a hint that salaries are inflating, and that the unemployment problem has been solved.
Option 2. If a country has just a “little” debt problem, then option (2) above, raising taxes and/ or laying off workers/cutting programs might work. The downside is that it is likely to send the country further into recession, and will make many voters unhappy. A politician who wants to be re-elected may therefore find this approach objectionable. In most cases, it needs to be combined with cutting longer term programs, something else that voters are likely to find objectionable.
Option (3) above, restructuring debt, perhaps delaying repayment and giving bondholders a “haircut” on promised payouts, would be a shock to financial markets. Governments are accustomed to borrowing increasing amounts of money. Once restructuring of a debt of a major country starts taking place, that country is likely to have a hard time obtaining new debt, except at very high interest rates.
If a country defaults using this approach, the action is likely to be looked down upon by both governments of other countries and by voters. Unless the revenue/expenditure problem was really tiny prior to the default, the government will still faces a major need for austerity–cutting programs and raising taxes, in order to match revenues and expenses, and have enough to repay the debt on the more generous terms. Option (3) only works if the country is in a fairly good financial state prior to the default–that is, on an ongoing basis, can pay for its programs, and still have money left over to pay back debt. There are many OECD countries not doing this well.
Option 4. A debt “jubilee” of some sort, in which all debts are forgiven. I have a difficult time seeing any agreement to this kind of thing happening, because there will always be winners and losers, and the losers will be unhappy. There are assets underlying some of the debt, and the question will be, which of the several possible claimants should get the underlying asset. For example, if a person has paid for 25% of the value of his home, should he get to keep it, or should one of the various owners of the mortgage on the home get possession of the home? Some of these debts will be international. What is to prevent retaliation, in the form of a grab of property of some other property-owner, if there is a default in a foreign country?
There is also the problem that the debt jubilee doesn’t really help with all of the long-term programs that cannot really be funded with declining resources.
Figure 4. Two views of future growth
When programs such as Social Security, Medicare, and guarantees of banks, insurance companies, and pension funds were established, the view was that resource growth /economic growth would continue forever, as in Scenario 1 of Figure 4. If the real situation is more like Scenario 2 of Figure 4, there is a need to rework the whole system–reduce promised benefits, and probably forget the bank and pension guarantees. It is hard to see that these ideas would “sell” well with voters.
Option 5 looks like the easy way out. Just give up, and let a new government come in, and start with new programs and a blank slate. Or a revolution or civil war might produce this same result.
There seems to be a chance that if Option 5 occurs, there will never be a replacement for some governments. No replacement central government came into existence in the case of the Soviet Union break up, or the breakups of Czechoslovak Socialist Republic and Socialist Republic of Yugoslavia.
There are many locations where such break ups would seem to be possible. The European Union is one entity that would seem to be at risk of break up, if things continue to go badly with respect to the debt of individual members. The United States seems solid, but when a person looks at its debt situation, there would seem to be at least a small chance that at some point in the future, it will cease to exist. Canada doesn’t have quite the debt problems of the United States, but it has huge disparities among regions that increase tensions, especially if the US should break up.
There would even seem to be the possibility of breakup at a lower level than country. If the United States should break up (with perhaps some states regrouping to form new unions), it seems as though a state with huge debt problems, such as California or Illinois, could also break up, leaving counties to regroup as they choose.
There are no doubt many countries around the world where this pattern could hold. Many countries were put together by combining people of various ethnic backgrounds. If things go badly financially, and transportation becomes more difficult because of fuel problems, these countries too could be at risk of break up.
Obviously, if this pattern of break-up were to occur, there would be huge ramifications for international trade, for international businesses, and for lives of individual citizens. We can hope that I am wrong, and that our current systems for handling debt problems will somehow work provide solutions for most.
Fascinating discussion. Thanks to all of you.
Owen, based on David MacKay’s excellent book “Sustainable Energy Without the Hot Air” (available for free download) I believe 1000 watts per sq m is the solar energy available under perfect conditions. Factoring normal conditions including tilt, clouds and night, you have access to about 100 watts per sq m. So your excellent points are likely an order of magnitude worse that stated.
Now that was a meaningful reply, Ikon guy.
“The scenario you paint is quite likely to play out.”
This defines everything, and I think perhaps you don’t sign onto the concept of “everything”. It’s nihilism, but it’s not nihilism for nihilism’s sake. It’s nihilism because the math declares it relentlessly inevitable.
“Insisting that the US has some kind of right to burn all or most of the world’s remaining oil wastefully is dangerous, myopic nonsense. ”
Might makes right. Pretty much every single time. God fights on the side with the biggest artillery.
It is indeed dangerous, but the point is to make it dangerous to the competition, not your kids. It’s certainly not myopic nonsense. It’s the opposite. It positions to dominate the inevitable.
If . . .WHEN . . .civilization loses the definition of Non Farm Payroll and all payroll becomes farming, soon, and the world has no vote for women (this came from oil’s downshift of the importance of muscles to society), and a locale has landowners who have 50 year life expectancy and serfs working the land with 25 year life expectancy, you’ll want your kids to own the land. Point being, regardless of the level of life, or of society, you will always want your kids to be in the dominant configuration. That’s why it’s not myopic. It positions to dominate the inevitable, regardless of what society that is dominated looks like.
“Furthermore, the US has no pressing need to do so and could maintain a very good standard of living (equivalent to the West European standard) on about a quarter of its current oil consumption. The US (with ample solar and wind resources) could also transition in the long run to 100% renewables.”
We’ll just have to disagree about the idea that 25% of present US consumption could provide an acceptable standard of living. There’s not much slack. The Sunday afternoon drive with the family doesn’t happen anymore. The Indy 500 does, but that’s much more trivial than all families doing (or rather not doing) Sunday afternoon drives. Jet airliners don’t fly empty; they fly because there is demand. Travel budget managers don’t squander their money. You want to ground the airlines, that will be that for academic seminars. Think you can telecommute academic seminars? If you could, that travel budget would not exist. Think Pepsi has its trucks drive farther than they need to for distribution? Think Pfizer does? Anyway, my perspective is oil consumption defines civilization, and human beings will always seek to be more civilized, as it were, than the competition. Pepsi distributing with trucks will defeat Coke distributing on horse drawn wagons, and Coke very properly with its profound responsibility to its shareholders will not permit that, and will buy trucks. There’s not much slack. 25% is rather absurd.
As for 100% renewables, I know rather a lot about solar energy from doing recon spacecraft design studies. Rule of thumb . . . 1000 watts per square meter at the earth’s surface. That’s before you lose anything to friction, solar->electricity conversion efficiency, battery charge/discharge efficiency, and battery failure itself. Just assume perfection.
That’s 1000 watts per square meter. That’s 1.3 lousy horsepower.
Your Camry needs 100 horsepower to do what it does. The 18 wheelers that put food on your Walmart shelf need 400 horsepower. That’s 307 square meters (and just park in the back of your mind that conceivable state of the conversion efficiency art (as opposed to present commercial state of the art) unmagnified is about 18%) to run your truck around bringing food to NYC from Iowa if you had perfect solar panels for it.
There were 1 million people in NYC in 1900, just 100 yrs ago. The horse population was 300,000. A human eats 1.5 pounds of food per day, including packaging and moisture in the food itself. It took those 300,000 horses to haul 1.5 million pounds of food into NYC each day on average from the suburb farms. That’s the distance that holds spoilage down for horse transport. There are now 8 million people in NYC eating 12 million pounds of food a day. There are a now few thousand horses there and no suburb farms.
No, there will be no transition to renewables. It is the N word. NEVER. You will not feed Democrat voting NYC with 20 horsepower engined trucks hauling food from Iowa. It’s not ideology. It’s mathematics. This is everywhere and this is forever. The competition has to be depopulated or your kids are going to die, and soon. You do that by force, or you volunteer your kids to die. Choose.
Owen,
The idea that WalMart would be doing BAU in the scenario Ikonoclast is describing is absurd. Powering inter-state, but intra-state/city may be within reach soon, resource distribution systems such as WalMarts with solar-panels is a complete red herring and you, Owen, know it. Consider micro-biofuels currently being developed as jet fuel extenders. I suppose at one point drilled oil acted as an extender for whale oil…. Mankind is not going to subject itself to mass extermination just to maintain the ability to live in Owen’s WalMartian utopia. Long before people submit to a world something like Owen proposes would it not make much more economic sense just to remove the greater part of people like you Owen using other Owens until they are reduced to a sustainable and safe level ? As you, Owen, advocate murder of others I have to presume you won’t find unreasonable if the same ‘final solution’ is applied to you.
Owen’s message is ugly but it is backed by math and physics. You response is understandable but is backed by emotion. Nature does not care about emotion. Math and physics are the only things that matter in our universe.
Do a little research on the math and physics of micro-biofuels and you will see what I am talking about.
I was reading Robert Rapier’s post What Happened at Choren? Robert talks about the problems of the company he has indirectly been associated with. The company is now filing for bankruptcy.
Even if the technology seems to be there, it takes a huge amount of time and money to scale up the new process to work. Without large government subsidies,it doesn’t work.
It is not even clear that many of these technologies would work for the long term. The issue I have been pointing out is that currently oil is too high priced for the economy to run as it has in the past–the result is recession and debt defaults. The people making alternatives basically haven’t understood this connection. They have assumed that of course oil prices would rise to very high levels, and renewables would suddenly become competitive if they were a little less expensive.
It doesn’t work that way. Oil prices don’t rise to astronomical levels, because of their recessionary influence. Even if these alternatives were perfected, if they were also high priced, that would have the same recessionary influence, so I am not sure that they would be all that helpful. The government doesn’t have unlimited money to spend trying to help get the price of renewables down. More spending by the government just leads to higher taxes for everyone, and a different way of causing recessionary influences. The processes are complex, so the chances that their prices can be brought down to low enough levels where their use would not be recessionary seems remote.
Gail, I heard the EXXON veep in charge of alternative energy explain pretty much what you have just said some years ago. He said EXXON is an energy company, not an oil company, and they intend to dominate the energy market in the future, whatever the energy sources may be. He said that they were ready to go with new technology like hydrogen for vehicles, but without the government mandating it and developing infrastructure, it was too capital intensive for private industry to undertake nationally on the scale required in the time frame required for a switch over. Moreover, he said that the price differential at the beginning would be so great that unless the price of conventional energy were through the roof, the public would not stand for it without some subsidization, not to mention the economy crashing. For automobiles, five years is short period to scale up nationwide and it would take a long time to replace existing vehicles without a subsidy for conversions. But he said that fleets like municipal buses could be converted first and that would get things moving.
I would contend that if scientists showed conclusively today that the consequence would be certain disaster relatively quickly, then the world would mobilize to do what it takes. Then, if we went down, we would at least go down trying. But many scientists are saying that without actual evidence of impending disaster, like some cataclysmic event, a dire warning alone probably would probably not be enough to do it. But the time that obvious evidence emerges, it will be too late to avert disaster and probably too late to mitigate it very much once the tipping point is reached. So we muddle on.
“The government doesn’t have unlimited money to spend trying to help get the price of renewables down. More spending by the government just leads to higher taxes for everyone, and a different way of causing recessionary influences.”
Again, I don’t believe that you are correct in this under the present monetary arrangement. All developed nations other than the EZ members are monopoly providers of a non-convertible floating rate currency of issue and they fund themselves through issuance, not taxes or borrowing, which have other functions than funding, as Modern Monetary Theory explains. See http://mmtwiki.org/wiki/Main_Page for summary and references. There is no affordability problem for these countries. The constraint is that issuance not result in effective demand in excess of the economy to expand production to meet it. There is no intertemporal government budget constraint, as MMT economists have shown.
If you disagree, I would like to hear your economic argument or know what economic literature you are relying on to make this argument for your position.
This is key, because if we think that affordability is the problem, then we are going to think that we are boxed in financially when we are not. Government can creating unlimited financial resources and its cost of capital is zero because it simply issues currency to pay interest on the tsy securities it issues. The government can control interest rates along the yield curve, and it doesn’t even need to issue tsys at all. The are political restraints imposed in the name of “fiscal discipline” that do not reflect operational reality and can be removed at any time. They just create an illusion of the gold standard that is no longer applicable in this monetary regime.
Governments can print money, but they can’t print resources. It is resources that we needed, not money.
Take your money printing to the logical conclusion–stop all taxes, just print money. Every country would do this as well. But this doesn’t fix our basic issue of diminishing resources. If we spend more resources on what we consider to be renewable energy, and it is in fact an energy “sink,” the world will be that much worse off for the energy and other resources wasted on the project. I would think that country would be that much worse off as well, because the frivolously spent resources are not going to be easily made up, just by printing more money, if every other country can do this just as well.
GAil, we agree the problem is real resources. I am saying that there is no affordability problem in funding alternatives sourcing at the federal level, and through international cooperation at the international level. Deficits and debt are not obstacles for currency sovereigns, who can always fund themselves directly through issues and do not need to borrow. No borrowing, no debt. Even now, the US national debt is actually non-government saving of net financial assets provided by issuance through deficits. No borrowing from the private sector involved. At the macro level, it’s a wash and tsys simply switch government liabilities of zero maturity ( reserves created to clear Treasury expenditure to government liabilities of non-zero maturity. This does not affect the amount of net financial assets held by non-government. It just affects the composition and term.
The question facing humanity now is whether sustainable renewal solutions can developed and deployed (scaled up) in time to avert impending disaster. Without a concerted and coordinated effort largely funded by the federal government, this will be not be possible. There is no financial reason not to give our best shot ASAP. At this point, efficiency is not even paramount, effectiveness is. We can burn through some financial resources to allocate available real resources, human and non-human, to the solving the design problem of improving the efficiency and effectiveness of energy resources. If we are not successful in this, we are toast as a species, and if we don’t try, e.g., because we think we can’t afford it, we cannot hope to be successful.
Hi Tom Hickey,
Honestly, I don’t understand the technical aspects of your monetary discussion. However, I do agree that a government can use newly printed money to allocate resources to a particular effort. For example, if we actually faced a military attack the government could use money to marshal all available resources into the production of war material – and few would complain about this. However, ultimately, it comes back to resources – theoretically, once all available resources were used in the war effort, no amount of money would create new resources.
However, I think your argument neglects a much broader point –
I don’t believe there is any combination of efficiency/effectiveness and/or design of new energy sources that will allow us to continue to sustain 7 -> 9 billion humans. Nor can western nations (US in particular) sustain anything similar to our current energy intensive lifestyles – especially the driving of private automobiles as we now do.
It can be argued that the most important need is for the majority of humans to simply understand the problem and take rational steps to mitigate the effects of Peak Everything. Moving beyond efficiency and conservation to actual “curtailment” (including breeding curtailment) could be done without a radical change to our monetary practices. Perhaps we could phase out private autos and redirect money and human talent to more sustainable efforts and thereby buy time with our current oil supply.
I contend that the real issue is that the collective human mind has been mislead by religious, corporate, and political entities. To avoid “toast”, I think our first priority is to regain our natural critical thinking ability – like we had thousands of years ago to survive. I don’t have much hope for this happening, however.
Bicycle Dave,
For an overview of MMT see the MMT Wiki. MMT provides an operational description of how the current monetary system works. In essence, there is no operational limitation on currency issuance under the present system, so no affordability problem. The only constraint is availability of real resources. If this constraint is exceeded then inflation will result.
Of course, currency creation cannot create real resources by itself. But it can fund technology that extends present resources and taps new ones by providing capital that the private sector is either not willing or able to provide. Government can also marshall resources in a coordinated fashion as it does not war time. Many of us see the combined energy and climate crisis that looms as a threat to survival worthy of the same commitment as the threat of foreign invasion. The US managed this very well during WWII. President Lincoln financed the Civil War using “greenbacks.” After WWII the debt to GDP ratio was 120%; yet, the following decades saw huge growth.
James Lovelock has said that his research suggests that we have passed the tipping point. Only comparatively few breeding couples will survive and that this civilization is doomed. Even so, he holds that we have a moral obligation to do what we can to mitigate the now inevitable result of profligacy. I agree. We need to get to work ASAP on a “Manhattan Project.” Sputnik woke America up, and we put a man on the moon in record time. We can do this, and the world leader, the US has to provide the international coordination.
I have no idea what the outcome will be. But I do know that financial resources are not the problem but rather are abundant if we understand how the monetary system operates. Therefore, we are left with our brains and ingenuity to act in a coordinated way to address the challenges raised by real resource availability. Biologically, this is about expanding coordination across populations and increasing the adaptive rate for species survival. It is not about finances. Just as in the face of war, government can provide the capital required to address the challenge with all available resources, human and non-human. Not only can provide, but must provide.
Okay. Let’s assume Owen’s message is “backed by math and physics”, yet it is presented in such a fashion as to appeal to the reader’s emotions. Ironic ? If nature does not care about emotion then why do dogs respond to our emotions ? I must assume we are primarily concerned with human problem sets and so to ignore emotions and emotional responses would be a very dangerous miscalculation on the part of all parties involved (be they humans or dogs :)).
As for physics being one of the only two things that matter in our universe I think I have met a few Chemists that might take objection. Their response might even get a little emotional. As for the Math. Humans DO Math. I suggest you take two math tests. The first test you are well rested and fed in a non-threatening environment with ample time to contemplate your answers. Kind of sounds like school. The second test I suggest you take in the midst of a running fire fight with artillery and automatic weapons as you fight for your life and the lives of those around you, and, of course, you must finish the exam before the fire fight or your life ends (which ever comes first). I leave it to some designated survivor to compare the quality of the results. I nominate Owen.
Coming to your last sentence concerning micro-biofuels I am going to take wild guess and assume your hinting at the scalability problems current researchers appear to be struggling to overcome. Let’s assume something like a world Gail suggests comes about. Then lack of scalability hardly matters. In sooth, the decentralized nature of smallish bio-reactor technology is a profound advantage in the initial stages of then next real technological revolution (one which has already begun). Perhaps worries about scaling micro/DNA/protien-bio tech beyond the ‘village’ size is purely an artifact of the current financial system. If so, then maybe it is the greed (oops, darn emotions!) that is the problem and not the constraints of “math and physics” ? In any event, the cat, (representing knowledge) is out of the bag (representing a bag?). Heck, the cat is so far out of the bag the kittens of it’s kittens, of it’s kittens, of it’s kitten’s, … of it’s kittens is having more kittens. So take heart math and physics geeks, actually all geeks and especially you bio geeks, the high priced oil future will be the Golden Age of Geekdom and the real start of mankind’s all out quest for creating and mastering practical earth-centric technologies of all sorts. We are about to leave the playpen of technology and get grown-up serious. Wether we walk down the stairs or fall down the stairs to Gail’s future world, the only thing we can afford to use surplus high priced oil on is ever increasingly sophisticated technology and knowledge, not plastic doodads, luxury trinkets, or resurfacing roads from one dying town to the next when gas is to expensive to waste driving on them for anything but trade purposes (assuming US doesn’t wake up before it’s to late and initiate protectionism in labor intensive sectors…heh heh :)). There is no going back to the cave for this species. So cheer up RobM.
I almost forgot. Owen, while we are taking Gail’s stairway down let’s get off around 1900 and look at some Farm & Equipment Catalogs. I think we will find some very interesting engines capable of putting out a goodly amount of horsepower that were doing ‘industrial’ farmwork without burning gasoline before anybody even heard of ‘Arabian sweet crude’. I’m not making light of your HP-farmwork equation concerns. Quite the opposite. I thought they were provocative, albeit, somewhat over blown.
On the contrary, guys. You’re completely wrong. Nothing is open ended. It doesn’t need to be.
Global warming is not important to me, nor is it to you.
We only have about 10-15 years before the wars start over oil scarcity. Or less. Libya is a skirmish. I’m talking about proper, serious wars. Phase I is you try to “secure supply”. Phase I is silly and foolish. Phase II is when you interdict supply. Phase III follows quickly. That’s when you suppress consumption. That’s within a decade. And Global warming doesn’t matter with that time frame in play.
No, not wars over energy. Not wars over resources. Wars over oil. Why worry about global warming when you’ll likely be dead that soon, along with 5.5 billion others? And that’s likely. Not possibly. Not conceivably. Likely. The remaining 1.5 billion in Brazil and Indonesia (with three growing seasons a year) won’t care if the ocean rises some, or even a lot. They’ll be properly desensitized to death. And if it got even worse in those wars and killed all 7 billion, I’m still not going to care about it.
So if this dabbling in global warming in a discussion of proportionate response was some attempt to categorize right wing thinking, I think you fail. I don’t deny it. I don’t accept it. I haven’t studied it and don’t care about it. It’s a lot like Artificial Intelligence. One of the most talked about, most written about, most grant proposal engendering concepts of the past 40 yrs, and also the least consequential. The dead don’t care.
Those, the wars, of course, are the overall reason that you don’t want to defund the US military. If you’re an American, your odds (and your family’s odds) are better if America continues its disproportionate burning of oil. America does that more or less only by depopulating the competing oil demand. China’s east coast population has to go, and anyone else challenging our 4% of global population with 24% of annual oil consumption burn will also have to be . . . depopulated. Simply that. Worst mass murder in history. You’ll look at your kids and you will shrug and it will not bother you at all to be labeled such. After a few decades, the history books will forget to include it.
Circumstances that present unthinkable thoughts to you do not care if you do not want to think them. Geology doesn’t care if you’re queasy. You kill the competing oil demand, or you volunteer your family and countrymen to occupy a death slot so that a Chinese family doesn’t have to.
Or you do what you will choose to do. Delude yourself into believing that mathematics is wrong and the indomitable human spirit can triumph over the relentless horror of geology and maybe . . . just maybe . . . pleasant thoughts can substitute for calories. Maybe joyous dreams of 40 mile range electric cars with 30 horsepower will plow 35,000 acre farms before planting season expires, and can harvest those 35000 acres before the crop freezes and rots in November. Those magical batteries will do that in someone’s dreams at John Deere, the company that presently needs 450 horsepower to get that plowing and harvesting done on time.
Mathematics trumps ideology, guys. Death is coming. Volunteer your family to meet the scythe, or fight.
Owen, to some considerable extent you are agreeing with the key premises and conclusions of Gail’s finite world site. That is that resources in general and energy in particular are in finite supply on earth and that scarcity issues will hit us very soon.
The scenario you paint is quite likely to play out. However, to regard it as a complete nihilistic inevitability for the whole globe is possibly taking it a little too far. Fighting over oil is a negative sum game though this fact in itself will not prevent it from happening of course.
Insisting that the US has some kind of right to burn all or most of the world’s remaining oil wastefully is dangerous, myopic nonsense. The US has in fact neither the right nor the might to do this comprehensively. Furthermore, the US has no pressing need to do so and could maintain a very good standard of living (equivalent to the West European standard) on about a quarter of its current oil consumption. The US (with ample solar and wind resources) could also transition in the long run to 100% renewables.
Clearly, this will not maintain the US at current living standards. Clearly, the US like the rest of the world will have to stabilise population or even depopulate to some extent. But a basic acceptable living standard, continued national unity and high relative international power could all be maintained by the US with a more enlightened policy. You seem to want to throw all that away in an orgy of SUV ownership and a fight to the last bullet to defend your right to extravagently waste oil and other resources. That just does not make any rational sense.
It is now perfectly clear that nobody in Russia can be certain about anything at all. ..Today s session of the Duma s subcommittee for budgetary legislation revealed that the volume of percent payments on foreign debt had been miscalculated in the budget and would exceed the sum calculated for the budget.
Owen, it is interesting and revealing to get a military hawk’s response. I presume I may call you a military hawk? You might even consider it a compliment. Since you characterised my views and those like mine as “fringe left… extremism”, and your comments remain unmoderated (which I think is fair enough) then merely characterising you a “military hawk” should be considered a proportionate response.
Let us go back to first principles. I assume you accept that a robust economy is required to support a robust military. I also assume you accept that there must be a practical maximum to the military budget of any nation, beyond which point the direction of resources to the military will so harm the national economy that, in time, the economy will be unable to support that level of military spending.
We saw the above principle in action immediately before and during the collapse and disintegration of the Soviet Empire. I think we can also see this principle apply in the case of North Korea. No matter what political-economic system is under consideration (communist or capitalist) and no matter how highly or poorly productive that system is, we must accept that it cannot spend without limit on military needs and without regard to the health of the economy as a whole.
In addition, with you being a person military background, I assume you understand the principle of strategic overstretch. A simple definition of strategic overstretch would be that a nation has gone beyond its economic and military capabilites in an attempt to project power strategically, especially in an attempt to achive regional or global hegemony. If the US had infinite power or even an overwhelming majority percentage of the world’s economic power, it might concievably aspire to achieve world hegemony with modern technology.
The US share of world GDP (nominal) peaked in 1985 with 32.74% of global GDP. The US share now comprises about 25% of world GDP. There is clear evidence that the US is now suffering from strategic overstretch. The US have not won and cannot win the wars and occupations in Iraq and Afghanistan even after 10 years. The US economy is suffering badly from many factors, but one factor is the excessive military spending of these hopeless, objectiveless and geostrategically pointless wars.
The US has a stark set of choices ahead of it. Continue the delusion that it can achieve global hegemony, continue over-spending on strategic overstretch and bankrupt and ruin the US economy or contract to a realistic (and still very powerful) regional defence posture whilst rescuing its economy and national debt from its current disastrous position.
So in this context let me explain what cutting your military expenditure by 50% means. It means saving the US from total economic collapse. It means contracting from a delusional position predicated on maintaining global hegemony (while failing to defeat an insurgency in a third rate country). It means contracting to a realistic position of regional defence and saving the US economy from total disaster.
The plain fact is the Chinese leadership is being far more geostrategically wise than the American leadership. The Chinese do not overreach. They simply wait for their opponents to overreach and topple themselves. In relation to your Taiwan example, I think your are over-stating Chinese capability. If taking a fortified island nation with naval (and now air) supremacy in the hands of the defenders and their allies was so easy then I guess both Napoleon and Hitler would have taken Britain.
The US could reduce military spending by 50% by disengaging from the Middle East, North Africa and Europe. There is no need for US military bases in any of these regions. The EU must shoulder the whole burden of countering Russia. The Middle East and Africa can be also be left to EU influence if necessary. A realistic posture for the US is to control the Pacific and guarantee Japan, Sth Korea, and Taiwan.
Please tell me how you think the US can save its economy and militarily police the whole world on 25% (and declining) of the world’s GDP. Do you really think this is realistic? Americans really need to take a big dose of realism. You are not infintely powerful, nor infinitely capable. Belief in maintaining US world hegemony is a delusion which will only do you harm and prevent the US from achieving good things that are realistically possible.
One again I find myself in agreement with Ikonoclast. I can only add a couple of thoughts.
As a person who was drafted into the military for an eight year obligation, it may be understandable that I have a different perspective from Owen. It is always interesting to observe how the fringe extreme right-wing jingoistic perspective sees bombing as a potential solution for most international problems. TV coverage of the Iraq “Shock and Awe” should be viewed as a national disgrace.
Perhaps the disinterest of those congress people is because they were more interested in alternative solutions to geopolitical issues than a detailed presentation on the esoteric aspects of constructing a hangman’s knot. The US military has experienced some outstanding achievements with humanitarian aid but far less with recent wars. It is quite astounding that we learned so little from the Vietnam War. How can anyone justify the Iraq War?
I worry that our jingoism is actually making us more vulnerable to collapse. And yet, it is hard to see how we end our addiction to war making because every state in the union has huge military contracts that depend upon the need to produce more and more military goods and services. Obviously, this money and effort could be used for peaceful purposes – but, this transition is highly doubtful. Once again, it is fairly easy to see how our culture has been manipulated by vested interests to glorify war making and our “war fighters” as the media puts it.
The world is a messy place and the human race has not moved beyond violent aggression as a way to solve problems. I realize we need a military but that does not mean we should abdicate civilian responsibility to develop a balance strategy for international relations – the “commanders on the ground” should be the last folks to develop that strategy.
Let me offer up a reply to both you guys in one post.
1) The left wing extremism label actually wasn’t pointed at you, Ikonoclast guy. I think I had just moseyed over from some other peak oil site where there was an array of folks angry about coal and electricity and oil and electricity, and who bristled in defense against statements like “Solar panels will not power a house”. They then pointed out that theirs does and has since 1943 or whatever, at which point someone challenges it and it becomes clear that it powers some light bulbs in their house but does not power baseboard heat or air conditioning or the fridge or any sort of deep freeze for mass food storage. Or they live in Flagstaff, which is about the only place in the US that might need no overt climate control. Those worshippers at the altar of renewables are simply math challenged.
2) I went thru your post carefully, but I saw no comments in it at all concerning constriction of presidential proportionate crisis response, which was the only point I made.
3) Be careful about cost quotes for deployments. They usually include salaries of all personnel deployed. Those people still get paid regardless of where they are stationed. If you want to slash force size, that is a decision that is region independent.
4) DoD’s 2012 Administration request for budget is 707B. That includes overseas contingency ops. There are other peripheral costs like Veteran’s affairs (medical) which is 70B and Veteran pensions, another 55B, but in general the price tag for “the military” is 707B and the deficit is 1.5T. A 50% cut totaling 350B viewed against 1.5T (a mere 20%) and the overall 15T would not seem to support rhetoric like:
“So in this context let me explain what cutting your military expenditure by 50% means. It means saving the US from total economic collapse.”
5) As far as calling disinterest in tactical detail some sort of virtue, because it means people have more elevated thinking in their heads about the big picture whichness of what . . . let me acquaint you with a recent analysis of the Battle of Britain in the late 1930s. The conclusion is that Hitler, in a non moral sense, should have won. England had no oil. The North Sea fields were not yet discovered. It was all imported, and much from Iraq. If the German high command, and Hitler, had been thinking oil thoughts the way we do now, a fraction of the resources squandered in Russia could have been focused on oil interdiction. After a few months, no Spitfires would have gotten into the sky to oppose the Luftwaffe escorts of the eventual invasion force.
But that’s not the point. The point is that following this analysis, some folks disinterested in military details waved it aside and pointed out that US bombers bombed the Germans’ Romanian oil sources and the eventual outcome would not have changed. German loss of resources and industry would have been decisive, as it was in reality, and moral superiority would triumph.
Of course, the problem with that is that in 1944 there was no air to air refueling.
The flights from England to Romania were just barely within range of Allied bombers. The range from, say, the Azores to Romania was beyond that of those bombers. Or from any other imaginable airfield. With England invaded and no airfields available to US bombers, that bombing campaign would never have occurred. Hitler would have won Europe, but this would have been irrelevant to those disinterested. They would postulate victory derived from morality.
Kinda keep this sort of thing in mind as you shut overseas bases. There are only so many 45 year old KC135s around.
In investigating any problem, it is important not to make a priori assumptions. To provide a quick definition, an a priori assumption is something you assume to be true without critical examination or empirical proof. A common error in philosophy, logic and argument (especially political argument) is to use an a priori assumption or assumptions to prove a subsequent point or provide a basis for a set of rationalisations which is really an ideological or faith position. In some cases, your a priori assumptions are merely unsupported, in other cases they are not only unsupported, they are refuted by empirical facts.
The first issue to consider is AGW (Anthropogenic Global Warming) or climate change. The burning of fossil fuels (oil, gas and coal) releases large amounts of CO2 into the atmosphere. I am sure you aware of the arguments about AGW. Suffice it to say here, that scientific experts in the field have demonstrated to a high degree of probability that this global warming is occurring, is man-made in its current form and will lead to serious negative effects on the environment and our civilisation. Do you accept the validity of this argument? If you do not, I wonder this. Do you ignore the advice of scientific experts in the field of radar technology? I suspect not. On what basis do you selectively accept some expert scientific advice which is based on empirical evidence and repeatable, verifiable laboratory and field experiments and selectively deny and ignore other expert scientific advice which is based on using exactly the same rigorous scientific method?
Fossil fuel resources are also finite. They are not only finite but our extraction of them is even now reaching the peak extraction rate possible. After this peak, there will be a decline. Along with the inadvisability of burning all fossil fuels, the fact is that they will run out in any case. Therefore we will have no choice but to go to renewables and make them suffice as best we can. I am not sure if you accept the anti-science and anti-empirical claims that AGW is false and that fossil fuels will never run out. If you do accept these arguments, then you have ignored the best expert intelligence available based on science and empiricism and succumbed to a disinformation campaign based on factors other than science and reason.
If, on the other hand, you are prepared to accept what science tells us, then you are forced to consider what renewable energy sources may be able to do for us. Fossil fuels will run out and we must make do with renewables; it will be an enforced necessity. It is no good merely saying solar power or other renewables wont power this or that aspect of our high energy use life style. A statement like this is irrelevant compared to the empirical reality. Your statement really contains two inherent a priori assumptions. One is that the maths (or rather the physics) says it’s impossible and the other assumption is that our high energy use life style is non-negotiable and non-modifiable. Those who have actually done the maths and the physics have shown it will be possible to power part of our modern lifestyle by renewables but these possibilities are made problematic by over-population, transition problems, delays in taking action and the propensity to fight destructively over remaining resources.
Owen, you said “I went thru your post carefully, but I saw no comments in it at all concerning constriction of presidential proportionate crisis response, which was the only point I made.” The problem is that you make have made a whole host of implicit, a priori assumptions in this one statement. Your first a priori assumption is that the USA’s capability (as a productive state) to provide the President with proportionate crisis response options is open-ended. It is not open-ended. There is a finite limit to the resources which the USA can provide for military spending without damaging its entire economy. Thus you reach a point where you must say, we would like to provide the president with more options, more capabilities but on a cost-benefit basis it is no longer justified. Domestic economic damage from neglect of civilian spending priorities will outweigh further diminishing returns (if any) of giving the President ever more numerous military response options.
The second important a priori assumption you make, is that is possible, necessary, desirable and cost–effective for the President (and the USA) to continue to intervene militarily, in an ever expanding way, all over the planet. This is an a priori assumption which not only does the greater proportion of earth’s population disagree with, it is also an a priori assumption which disagrees with all the tenets and facts of geostrategy, grand strategy, enlightened self-interest of the USA and the economic and resource limits of the USA.
The geostrategic reality is that US cannot create and maintain world hegemony for itself. The geostrategic reality is that the unipolar world some envisaged has not come about and cannot come about. The geostrategic, economic and political reality is that if growth patterns continue more or less as at present, China will soon become the number economic power. “Recently the International Monetary Fund confirmed what the average Chinese has long anticipated: China will soon have the world’s largest economy, surpassing the United States.” This is the IMF talking, not me.
In trying to continually overreach militarily, in ignoring the imperative to create as good a renewable economy as possible, in ignoring diplomatic grand strategy and realistic regional zones of influence, the US will damage, not enhance, its prospects to remain a prosperous, just nation and a major world power.
Hi Ikonoclast,
Excellent comment, especially your last paragraph. This is my major concern about our current international policies – that we are doing more harm than good with our exaggeration of military capability versus other options. Eisenhower warned about the “military industrial complex” – but we seem to have ignored his advice. I can attest to the power of this phenomena – here in Wisconsin we have contracts to build combat vehicles and it would be political suicide to argue against them. I really don’t know how we extract ourselves from this tar baby. I see very little in Owen’s arguments (and I believe he is very sincere and well meaning) that relate to our geopolitical strategy- it is all about getting government contracts.
While I have many comments, I’ll restrict to what seems to be a particular expertise among those Peak Oil focused, that is I think I may be the only former military officer on these blogs commenting on the largely fringe extremism left wing perspective that is so often present.
First, cut the military 50%. Long ago I happened to be assigned to provide a briefing, along with a naval and army officer, to some congress people, seat holders and staff both, of decidedly anti military persuasion. An invitation had been extended to explain very particular tactics and hardware use to those folks. There was to be no ideological component and certainly no political component to the presentation.
They didn’t last past the third slide.
There is a very powerful disinterest in the details on the part of those opposed. An explanation of ICBM velocities and timing of launch to coordinate with submarine launched weapons was the basis of why certain radars had to be funded. You have to see them coming. Those folks were tuned out by the third slide addressing over the horizon radar and satellite launch detection and why both needed confirmation.
In that context, let me explain what 50% of military spending cut means. It means the President has no other options than nuclear when he’s faced with a crisis. The nuclear forces, strategic or tactical, are cheap. They cost almost nothing. Hardware generally never does. It’s salary that costs money. So when you say you’re cutting 50%, it means you’re grounding 3/4 of all fighter squadrons. You’re going to keep most ships in port. You’re going to put 3/4 of the US Army on the street.
Then go down the list of obvious actions to, if not expect, at least see are more credible.
1) China occupies Taiwan and takes control of all semi conductor factories.
2) China immediately takes control of the Senkaku Islands south of Okinawa for the oil
3) China immediately takes control of the various waters in dispute with Vietnam and Philippines for the oil
For those three, don’t ask “why presume they are that abusive”, ask “what stops them from advancing their national interests?”
4) Russia addresses the pipeline issues with Ukraine by informing them there is no further need for a Ukrainian government
5) China’s influence in Sudan, north and south, asserts itself militarily, and they “negotiate” a reduced price for the oil flowing.
6) Those Chinese troops “supporting” Bashir will move north to support Gadaffi and provide him with thanks for the oil development/operations contracts
7) The Kara Sea drilling the Russians are doing will also move to explore the areas off the coast of Canada
8) There will develop some conflicts in understanding of what leases in the Gulf of Mexico are to be drilled by PetroChina vs Royal Dutch Shell. Those misunderstandings will be resolved by presence of Chinese frigates supporting their legitimate national rights.
Present a president with not all, but ANY of these scenarios. If all he has left are nukes, he has zero capacity for proportionate response.
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Hi Ikonoclast,
I appreciate your general line of thinking and probably agree with all of your suggestions (especially the ones related to our car culture and military). The one topic you seem to have avoided is the unsustainable level of human population. It does not seem to me that any amount of alternative technology, efficiency, conservation or even “curtailment” (per Plan C book) can succeed in avoiding substantial collapse without very aggressive population planning measures (not implying genocide or other inhumane policies).
Other folks here have commented that your suggestions could not succeed for a variety of reasons – too late, resource issues, unintended consequences, backlash, etc. I agree with you that a comprehensive plan could go a long way towards mitigating the worst consequences of our predicament. However, technical feasibility does not automatically translate to political reality. All of your suggestions necessitate the political will to plan and implement – and then modify as events unfold but never losing sight of the basic goals. I can’t foresee any possibility that the US citizens would elect politicians who would support your suggestions (other than a few outliers like me).
I believe the fundamental problem in the US is cultural – the types of belief systems with which we are indoctrinated in the first few years of our life. These belief systems are then manipulated by powerful groups for their narrow interests – sometimes selfishly, sometimes with the best of intentions. Religions, corporations, political factions, and ideologies of all sorts engage in this behavior – there is no legal penalty for disinformation. As you mentioned “ USA’s ideological addiction to …..” A mega church collecting millions of tax-exempt dollars does not have to prove there actually is an afterlife that rewards their special beliefs about supernatural things; energy providing corporations do not have to support their claims about cheap and abundant energy for hundreds of years; politicians are almost expected to utter nonsense (like climate change is a hoax or “terrorists” threats require wars). The end result is a nearly total inability for rational and critical thinking about the really big issues facing mankind and the planet. The majority of US citizens (according to polls) don’t think evolution is true – they hold science to be just another “opinion” that doesn’t differ from religion. How can the facts and implications of FF depletion, climate change, species extinction, ocean acidification, deforestation, etc, be incorporated into the national dialogue when science is discounted and math is ridiculed?
I don’t know if Gail is right with her time frame for collapse – the great majority of US citizens would strongly disagree. I hope she is wrong, but even if it is 20 years off, that is not much consolation for our grandkids. I would love to see your suggestions seriously considered by decision makers who are supported by the general population – I’m not sure what could bring this about.
Bicycle Dave, I fear you are right. Quite frankly, seen from the outside, the USA now looks like a nation totally divorced from reality. It is bizarre and very frightening to watch. Some of the most disturbing foreign policies are (some official and some denied but fully documented and proven);
1. Pre-emptive defence.
2. Extreme rendition.
3. Torture.
4. Regime change.
The USA has entirely lost its way at all levels.
I am 57 and my late teenage children already say I grew up “in the old days.” I grew up in the 1950s and 1960s in Australia. It’s an interesting perspective and compression of perceived time. When I was a child, I did not see my parents’ childhood (1920s and 1930s) as the old days but rather I saw the 1800s as the old days. Yet, my mother still rode 5 miles to a bush school on a horse.
Now, I really am beginning to feel like a person from the old days. More than anything, this is due to the oversized nature and over-use of automobiles. I am astonished by the size of vehicles (huge SUVs) which people think they need to own and by the amount of driving they deem necessary. But even my household exemplifies today’s problems, with 2 automobiles (at least not SUVs), 4 computers, 2 televisions, 3 mobile phones and an air-conditioner for one room.
If my children have children and if this part of the globe is still at least semi-habitable, that new generation will do it tough. The old days will now be the rich, advanced, golden age from which the world has sunk and collapsed. Perhaps the people of the old days will also be reviled as the worst and most profligate users and destroyers of earth, nature and natural resources. More than anything they (that is us) will be correctly reviled for our greed, laziness, selfishness and lack of foresight.
Our children’s children may be as far removed from today’s society as your and my parents, and grandparents are removed from ours. My mother tells that their household got electricity when she was eight year old, and they used a horse drawn sleigh in winter, when there was snow. Things have changed a huge amount, in not very many generations.
I agree, Gail, that the options are few but I would express them even more compactly.
1. Force the population to save through increased taxation or reduced spending. Given the magnitude of our debt problem, a savings approach crashes the system.
2. Share the burden between the population and investors through inflation or restructuring – in either case the population affords less real consumption and investors receive less real return. This is the current approach around the globe and preserves the system.
3. Stiff the investors through outright debt repudiation. Repudiation crashes the system by definition.
We will continue the current course until crashing the system is preferred to maintaining it. In that case, creditors prefer Option 1 while debtors prefer Option 3. The typical sequence is that the Powers That Be introduce Option 1, resulting in popular revolution and adoption of Option 3.
I expect the same sequence here – which means that individuals cannot reasonably expect to maintain conventional wealth that is a product of the current system.
If Option 3 crashes the system, doesn’t the country really end up at my Option 5 –either with a new government, or without one?
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@Gail, I got redirected to your post from TOD. You have mentioned some important points.
IMO the coming collapse is inevitable, although it will only be called a collapse in retrospect. TV has destroyed attention span and our capacity to perceive changes in our environment to such an extent that we don’t notice anything anymore.
Then there’s something that Jared Diamond mentions in his book called the “tragedy of commons” where in the competition for a scarce resource does not decrease but increases ten fold as crisis forces everyone to act in a manner that is beneficial for them but catastrophic to the society as a whole.
Everyone keeps harping about how we switched from stone to wood and then wood to copper and iron and so on and so forth. But even back in those days it wasn’t like we were running out of stone or copper or iron, the age changed because something better was discovered, not because we ran out a resource or were about to run out of it. The current predicament more or less resembles what happened in Easter Island or the Maya or Rome and we know how that ended.
Somehow I am reminded of the last scene from the Planet of the Apes.
You have some important points.
We do not have a television in our home, and it bothers me to walk into a doctor’s waiting room and find the television on. I feel like it interrupts my thinking.
Tragedy of the commons is a real issue and not being addressed. Many want to use more and more wood, but the earth really needs to keep some of its wood, to keep everything working together as nature intended. Also, what we are doing with biofuels is using up our natural gas and coal and topsoil more quickly, so as to be able to have more liquid fuels to burn. Politicians don’t see it this way. They think we are substituting it for oil, which we are “saving.” All the oil that is pumped will be used. Higher price won’t increase the amount of oil pumped by much, in any reasonable timeframe.
We have a TV but do not have access to any broadcast TV or cable TV. We do watch DVDs. I also find objectionable TVs in hospitals, doctors offices, restaurants, bars, etc…
Those who control the US have no loyalty to the US. They have Swiss bank accounts and houses around the planet. So they will not self sacrifice. There purpose is to steal as much as they can even if it destroys the US. The military “over-reach” serves the economic (and some political) interests of ruling class. To the harm of the America people.
Today many Americans are poor and are not materialistic wither by choice or by need.
The government can not build for the benefit of the people. The way it works is taxes from workers pay to build assets for the rich that they own and profit from forever and the workers get nothing. So if you can find a good way to hide the transfer of wealth it might happen. The state of California might do something worthwhile.
To amend the post above. Obviously looming resource shortages are real. But the USA’s ideological addiction to strategic military overstretch and corporate capitalism makes these very real problems ten times harder to deal with.
Don’t worry. Neither of those will exist in 20 years. You’ll get what you want but you best forget about the good things that the USA’s focus on these two things has brought. I do indeed believe that good things from amenities, to science, to a relative order (and for a short time peace) in the world came from our focus on these things. We also lost a lot in terms of human decency, rights, freedoms, overreach, marginalization of traditional skills, reliance on unsustainable practices, etc. No cakes (the good ones at least) are made without cracking eggs. Consequences to everything.
I’ll try a shorter post. Gail, the US budget and economy can be fixed. The obstacles are ideological only and not real in any other sense.
1. Reduce military spending by 50%.
2. Double the taxes on the rich and rich corporations.
3. Spend raised taxes on public and renewables infrastructures.
4. Ensure full employment by public works; a new New Deal.
5. Re-regulate finance and reduce the FIRE sector of the economy.
6. Bring US manufacture home to continental USA.
1) per Gail’s previous points and the ones herein, which I agree with, if you do this you kill jobs which kills GDP and does not help the situation.
2) As much as this continues to be a “social justice” cry that makes everyone feel real good about sticking it to the rich while they simultaneously refuse to pay anything more themselves (it’s always the other guy’s pocket that someone want to reach into to fund the programs they want, a real great human trait that is called theft in most parts of the world) , it is not going to solve problems because we are ultimately faced with a resource crisis, and not a money shortage. Spending the money you take from the rich is only going to drive demand up and oil up until the economy collapses again which then deepens the problems of unemployment and debt.
3) Requires oil we can’t bring to the market because it is not economical to do so. See above.
4) Related problem, see above. Full employment will just mean too many people demanding resources we don’t have causing likely shortages.
5) Too late. Too Big to Fail has been set in. Democrats and Republicans are in the pockets of big banks, hedge funds, private equity, etc. They aren’t doing this. They play smoke and mirror games to piss off each other’s base but neither one of them cares and only represents the elites. Look at what they do, not what they say.
6) Good luck. You going to tell China that and you think they are going to say, oh, okay, cool? They have jobs issues of their own. Their economy is likely going to tank. You propose seizing private U.S. companies and then dictating what they do? U.S. citizens are not going for that.
There are no solutions to stop this. I think Gail tries to put a hopeful picture on this mess. I don’t. We are in for a violent, slow or possible abrupt change in economics, society, law, government, everything and whether or not we keep the good and don’t bring back the bad (which is all an opinion)…I suspect we’ll get a mix of all. I, personally, look forward to a more local, libertarian like existence where you eat what you make, share and help neighbors, friends and family, but aren’t forced to contribute to people 3,000 miles away who might hate you. After the chaos, short of some amenities and health care, I suspect life will actually be better. We have become too materialistic, narcissistic, and selfish. Call it God, the Earth, the balance of science/economics, but this is a correction that is sorely overdue.
“There are no solutions” is a defeatist cry. There is now no complete solution but there still may be some partial solutions. If a ship is going down do you throw up your hands and cry there are no solutions so we all must die? Or do you say if we put out the lifeboats and put the women and children in them, then some of them at least may be saved?
1. You fail to understand that it is about redirecting remaining resources from totally wasteful uses (a bloated military) to useful uses (building the correct infrastructure for a resource constrained world). There are no job losses if this done in a correctly planned fashion. In fact, most likely employment could be increased.
2. The plain fact is that US taxes are low by OECD and especially northern European standards. Germany and Sweden run industrially and socially succesfull economies with high taxes (by American standards) and large public sectors. The plain fact is that the US rich and US corporations pay very low (or no) taxes and that the middle bears a higher relative impost.
3 & 4. Full employment means people are productive and useful and their energy and talents are not wasted. If they work on projects replacing fossil use with renewables use and replacing highly inefficient private transport with public mass transit there is a net gain to the economy and to sustainability.
5. Again this is a defeatist cry that essentially says that the people of a democracy can not take back the power they have ceded to corporate oligarchies
6. China will not like it but frankly that is China’s problem. Even if the US halved its military spend and contracted to defence of mainland US, Alaska and Hawaii, protection of shipping lanes and maintenance of a nuclear deterrent, the Real Politik outcome is that China still could not militarily threaten the US in any serious way.
I am astonished by the abject defeatism. I thought Americans were can-do people.
I posted a long post but it failed to register. Perhaps I exceeded a word limit or a replies limit.
I have a very active spam filter. It gets pretty much all of the real spam, plus a fair number of perfectly fine comments. I see two versions of your comment there. I will rescue one of them.
I’d like to make a reply to some of your points, Gail. You say “the issue is timing” and that we don’t have time to scale up to renewables. This is partly correct and partly (dare I say it?) defeatism. Let me deal with the partly correct aspect first. The original Limits to Growth report of the Club of Rome came to my attention in my first year of university. Once I had absorbed it, I realised its essential thesis was brilliant, simple and irrefutable. I realised we had a little over 25 years (until about year 2000) to halt population growth, moderate capitalism and produce a steady state, sustainable economy. If we did not do that we were in deep trouble.
Now we are in deep trouble, so yes, the issue is timing. We are now 35 years plus too late in doing anything. Much of the world is bound for disaster. I can see little hope for Africa, the Middle East, the sub-continent of India, much of South America and much of China. I will mention, I am an Australian and often (I admit) a strident critic of the USA. The USA, however, is still better placed than most nations to save something significant and worthwhile from the collapse.
Let me ask a question. If the US had not gone to war in 2000 (Iraq and Afghanistan) but instead had spent that 3 trillion dollars (some estimates of the war cost) on a crash program to shift to renewable energy, do you not think that significant progress could have been made?
What is needed now is a total mobilisation of US effort to future-proof itself against resource and energy depletion. I would advocate a return to an enlightened form of semi-isolationism and semi-autarky for the USA. The US should withdraw from all overseas land based military intervention and bases. The US should maintain a reduced but still significant military for continental self-defence and a navy capable of keeping world seaways to America open. The US should also maintain a nuclear deterrent. The savings on reducing US strategic overstretch would go a long way to redressing the US budget deficit.
The US tax system needs reform. Rich people and rich corporations are massively under-taxed in the USA. This is the main source (apart from military over-spending) of the US deficit. Withdrawal of money by taxation is not contractionary if the Government embarks on a large, New Deal type public spending program to build the necessary infrastructure for renewable energy. At the same time, the USA could reduce its consumption of oil and gasoline by 50% by progressively removing private automobiles from the system and building mass transit infrastructure. The US will need to shift from extreme corporate capitalism and oligarchy at the top and extravagant, irresponsible consumerism at all levels. This can be achieved with a change in mind-set. To some extent, early American puritan values and the extolling of self-denial and austerity will have to be revived as US core values. However, this example must, more than anything come from the top and austerity must first be imposed, even self-imposed, by the rich and privileged, on themselves. It must become a badge of honour and a patriotic duty among the rich to pay much more tax to save the nation. This is how it will have to be sold.
The US is well placed to reintroduce a system of semi-autarky. It is a large, continental market capable of self-sustaining healthy economic activity in both manufacture and consumption. The influence of the FIRE (Finance, Insurance, Real Estate) sector must be reduced and manufacture, particularly of public and renewable energy infrastructure must be undertaken in a Federal directed dirigisme fashion. US corporations which manufacture overseas must be directed to bring much factory manufacture back to continental USA. This should be Federally enforced policy. Put in a nutshell, the democratic US Government, of the people and for the people, must rule for all the people and not for the capitalists and the corporations.
I think I would have more faith in renewables, if I saw them as “renewable.” I see them as very much part of the fossil fuel system that we have. They are made with fossil fuel, and they require fossil fuel to be maintained. So I don’t see them outlasting the rest of the system, even if we could scale them up. So a big part of their problem is they don’t serve their intended purpose, unless their purpose is just to act as “fossil fuel extenders” on a temporary basis. So I don’t think spending $3 trillion dollars (or any amount on them) would have been all that helpful. Their purpose is to make people think we are doing something.
Regarding a steady state economy, on a finite world, this is not going to happen for very long. We are exhausting the world’s resources, so the natural trend is down. If we had started when the original Limits to Growth book was written, we could have perhaps managed the book’s “Steady State to 2100” scenario (by switching largely to nuclear), but at this point, we are facing decline. Steady State is beyond what we can maintain. I wrote a post a while back called There is no steady state economy, except at a very basic level.
I agree that quite a few of the things you are talking about would be helpful, but at best they slow resource depletion, they don’t stop it. Tax reform would be good, but there is so much over-promising relative to what is available, I am not sure it would fix the problem.
Gail said, “I don’t see renewables … to be scalable to where they make a very big difference.” This claim is doubtful in my opinion. I think they can make a significant difference but cannot save our bacon entirely. If you do the math (as Americans say), you will see renewables can be significant. In sunny Australia, a 2 sq. meter solar hot water system will give all the hot water the average household wants. As water heating is about 1/4 of a household’s energy consumption, then 8 sq. meters of solar collectors will power a house. Let us round that up to 10 sq. m. for inefficiencies and energy storage for night. Don’t forget, an insulated tank of hot water is your stored energy for hot showers in the morning, so you only need stored (chemical) electric power for electric appliances (as in batteries for example).
My suburb has about 16,000 people in 5,000 occupied dwellings. If an industrial sized solar facility was created it would need 5,000 x 10 sq. m. of collection surface to power my suburb’s houses or 50,000 sq. m. Let us double that to 100,000 sq. m. area to allow for access roads, manitenance, buildings and sub-stations. There are 10,000 sq. m. in a hectare so this is 10 hectares. This is about the size of a medium sized shopping centre or mall and its car park. To my mind, if we have the productive capacity to produce mid sized shopping malls in every suburb then we have the capacity to produce 10 hectare solar collection facilites for each suburb. The USA could do it easily by, for example, halving its insanely wasteful military spending.
This does not solve the problem of a transport fuel and I admit this. As I said above, renewables can be significant. They can’t be written off totally as Gail seems to write them off. On the other hand, fuel for transport remains an issue and the best first step would be to obsolete the family car and all forms of private transport other than bicycles and foot. Instead, we need efficient mass transit systems. This would take concerted government action of nationalisations, New Deal funding and dirigisme direction of transition to a sustainable economy.
The worst thing to do is give up because the market cant do it. Of course it cant. An undirected market cannot rationally “think” or forward plan for these contingencies (based as they are on negative and physical externalities to the market system) but government and people acting with scientific foresight, democratically and in concert can do so. Not everything is savable but part of the situation is possibly salvagable by these actions. Letting the current system run on its momentum in a business as usual fashion is certain presecription for disaster. Making changes to nationalise and socialise the problems and the solutions promises some hope.
The issue is timing. I see our backs up against the wall now. The financial problems for quite a few countries are immediate. If we had 50 years, or even 20 years, for scaling up renewables, then the situation would be different. We are probably talking about something more like 6 months to 2 years. In that time frame, renewables don’t get us very far. There are also very hard to maintain if my “Option 5” occurs, making their high front-end cost hard to justify. Even a solar panel is of much more limited use, if it can’t be hooked up to the grid (because the grid no longer works), and can’t be hooked up to batteries or an inverter (because those are no longer being manufactured).
Now I understand your pessimism about renewables. I have been expecting the financial house of cards to fall for the last 12 years and they keep propping it up so I have no idea how long it can continue. What makes you think finances will change in 6 months to 2 years? I am not disagreeing.
Ikonoclast, you talk about your town, one of the concerns people have about renewables is can they scale to a global level. Well a smart town can go solar now if it chooses to and availability of material will not be an issue for one town. If your town installs PV you may want to make sure your town has a way to disconnect from the rest of the grid if it goes down. Just PV for the town water pump would be a vast improvement over life without water.
I think the governmental debt / imbalance between income and outgo is getting out of hand, and I don’t see a good way to fix it .
You probably read my post, What is behind US budget problems? a while back. Also my post Social Security and Medicare Funding Issues: Even worse when one considers resource constraints.
All of these governmental debt problems are coming out, and I don’t see any way to fix them–hide them too much longer. Layoffs and increases in taxes will make things worse. “Little things” like the Greece debt are even a problem for the system. Now there are plans to raise capital requirements for banks, but this will tend to create problems too, because banks don’t have enough capital to meet the higher standards, and if we start having more defaults as we slip into recession, we will be worse off.
The problem with your suggestion is that lots of people, and I mean a lot, don’t trust government to run any programs based on their history, at least in the U.S., which is seen by many as failing at everything they touch. Even past this, you can’t get people in the renewables community to agree and their is a ton of private-public quasi to outright corruption with VCs like here in Silicon Valley. Probably the largest issues though are:
1) the vast majority has no idea about PO and even when you tell them they think you are crazy and/or won’t do the research themselves
2) global warming/climate change initiatives in the states have largely become a cultural and partisan issue. Now, you can blame whoever you want and call anyone you want stupid for this reality, but it is a reality here in the states and in my opinion was a massive failure on the part of the people who pushed this issue. I think they tied all their other initiatives up with this that were controversial and considered in the basket of “progressivism” and people like me who believe in climate change but are not a huge fan of a lot of other “progressive” initiatives become alienated from the movement entirely.
I do not think things will be okay. I agree with Gail that renewables are really fossil fuel extenders. I expect violence, increasing amounts of hatefulness everywhere between everyone who is different from anyone else (while every group simultaneously calls the other group, racist, sexist, classist, capitalist, socialist, so on and so on). I am not a “gun guy” but I now own a few. I intend to get far away from the big city I live in as soon as I can. There is nothing in history to indicate that people will not act insane like the animals they are when they don’t have food. Many in the U.S. already treat each other terribly so how is it going to be better with less resources? It’s not.
Gail, I like choice five. Business do this today. A business that has liabilities that it wants to shed will buy a shelf corporation (a corporation in name only with no assets just the legal documents filed with the government to make it a corporation). Then they will transfer their assets to shelf company A, then rename their company, then rename shelf company A to the original company name. Now there exists a company with liabilities and no assets (just try to sue them) and a company that has only existed for a short while and has zero liabilities and all the assets. For example IBM UK used this maneuver.
Insurance companies are known for doing something like this too. Put the stuff you don’t want in a “bad company” with hardly any assets.
Debt games won’t solve the underlying issue in the long term. I see two likely outcomes here:
1) we continue to have debt defaults that the governments, IMF (whatever it is), central banks, etc. try to cover up or load bad paper on top of other bad paper. They will likely fail at some points and if they do we will have 2008 Lehman events over and over again bringing us down the stairstep to the bottom.
2) they somehow succeed, in my opinion due to the public’s complacency, ignorance, laziness (if you can’t tell, I’m not a big fan of our current societies…I’d say it is pervasive everywhere now too, not just the western world) you will just continue to see “main street” decline while all the powers that be: government, business, political entities, media all lies through their teeth and try to play BAU. I would argue we have already seen the start of this. Hey, if the people let them…they will. Representatives are just a snapshot of their constituencies.
I except 2, but I think Gail expects 1. Personally, I think Gail underestimates the lengths these people will go to and how complacent the average citizen of the world is right now and how much they believe this wonderful world of resources will last forever. Naive.
There are two real problems and both now appear well-nigh intractable. The first point to make is that these problems are real in different ways. One problem is a physical reality which can be analysed using the known laws of physics. The other problem is the deeply rooted and pathological ideology of our current system.
The first real problem is resource constraints in a finite world. Resource constraints are a (complex) physical reality. The key point is that these limits are physically real and thus immutably enforced by the laws of physics in general and the laws of thermodynamics in particular. We know from physics that there must be a limit to growth in a finite closed system. There are some factors which might give us some wriggle room but sooner or later physical growth of the economy and civilization must reach an end point. Even the complexity of qualitative growth (progress in culture, arts, science and technology) requires energy. The law of entropy tells us that energy must be used to create local complexity (on earth in this case) whilst leading overall to an increase of entropy in the universe.
To clear up a technical point and forestall any fruitless argument, earth is, for all practical purposes a finite, closed system by proper definition. A finite, closed system is one where mass is conserved but energy can flow in and out of the system. (Mass from incoming meteors and from outgoing gaseous loss to space is negligible for our purposes on our timescale.) An open system allows both mass and energy flows. An isolated system is one where neither mass nor energy can flow in or our out. Technically, there are no perfect isolated systems except perhaps for the entire universe. Energy can flow in to the earth in the form of sunlight (insolation) and out in the form of reflection and infrared radiation. This energy source (insolation) is effectively endless for our purposes as it can be expected to last for several billion years.
Notwithstanding the effective endlessness of insolation as a source of energy for humanity, it does not guarantee endless growth, nor obviate the limits to growth. First, there are the limits imposed by the physical size of the earth and the finiteness of all its other (non-energy) material resources. Second, there is the fact that insolation on the earth’s surface has a finite flow rate in energy units per second. Third, there is the fact that insolation is a diffuse energy source (low rate of energy per square meter) and thus the extent of collection infrastructure required (requiring physical materials) will be a significant issue.
Leaving that aside, the second real problem appears to be the financial and economic organisation of our society but more fundamentally the real problem in this arena is ideological. The ruling ideology of corporate, endless-growth, capitalism is empirically wrong. It is in conflict with what the laws of physics tell us is possible and sustainable. This ruling ideology is also morally wrong as it is in conflict with social justice and environmental sustainability. I will assume here (for the sake of argument and hope) that ideology can be modified by education, argument, democracy, decision making, judgements and free choices; in other words by free will. (Whether free will exists and what it actually is, or could be, is a difficult argument that we shall leave aside here.)
Gail correctly identifies the ultimate physical constraints to growth. However, Gail tends to identify (on my reading) the non-physical constraints to adapting realistically to these limits as simply a given set of financial system constraints. She seems to view the financial system and indeed the political-economic system (corporate capitalism and corporate capitalism suborning democracy) as an immutable given, at least before its complete collapse. Corporate endless-growth capitalism must inevitably collapse of course as it cannot defy the laws of physics indefinitely.
What we must argue is this. Change the system (if we can) before a catastrophic collapse. The analogy I use is this. We are like an aircraft running out of fuel and heading straight for a mountain. If we continue on our current course we fly straight into the mountain. If we change course, we lose momentum, altitude and our false feeling of security. Then we face at best a controlled crash-landing as a soft landing is no longer a possibility.
With respect to sovereign debt, whether of Greece of the USA, we have to say that this debt money is, in many ways, already unreal. The goods and assets to underpin and pay off this debt will never be created because of the material limits facing our world economy. Thus, this debt must be repudiated. It is that simple. The simplicity of it is this; repudiate now or default later as it will never be paid off. The financial sector and the rich must be made to shoulder the entire financial loss. Governments can nationalise any essential industry which faces collapse. Governments can guarantee full employment by taking a New Deal, dirigisme approach to switching the economy from exhaustibles to renewables. The approach would be to set up to some extent a war command economy except the war would be on the energy-resource crisis. What is needed is a kind of Sustainable Green Socialist revolution that overthrows Corporate Capitalism. This is the elephant in the room which, with all due respect, I don’t think Gail is acknowledging. Only a revolution (hopefully peaceful and democratic) to overthrow corporate endless-growth, promises any hope. Even then, as I said in my analogy, the best hope is for a controlled crash landing. People still die in those but some of earth’s passengers (maybe 50%) could survive if we carry out a Sustainable Green Socialist revolution NOW! Corporate capitalism MUST be overthrown or basically 90% of the world’s population will die.
I like what you say but I feel you are too rational and idealistic. You have not given enough due to violence, force and greed. The folks in charge know what is happening. They will not accept “The financial sector and the rich must be made to shoulder the entire financial loss.” They choose instead the workers must shoulder the entire financial loss. They are willing to use murder on whatever scale is needed to get their way. They currently control the army, police, DHS, CIA, NSA, etc… So far it looks to me like they will win. They are willing to accept 90% die off if it maximizes their Swiss bank account.
I was happy to see that the people of Iceland will not “shoulder the entire financial loss” for the stupid rich that made bad investments in poorly run banks in Iceland.
I don’t see renewables (I would call them fossil fuel extenders) to be scalable to where they make a very big difference. As fossil fuels go down, they go down, so their benefit is not what one would think. If they are high priced, the contribute to recession.
Fixing the system before catastrophe happens would be difficult. We need a different financial system, where debt does not play a major role, because without growth, we cannot repay debt with interest, to a significant extent. There is no one really working on this. It would probably destroy most of what we think is in our bank accounts, so I don’t think folks would want it.
You said “without growth, we cannot repay debt with interest”. So a possible solution is to lower the entire interest curve down to (near?) zero and then attempt to pay debt off using population growth as our economic engine.
We have already lowered the interest curve down close to zero, and I think it more or less relates to this issue.
The problem with population is that at 7 billion, we are about maxed out, compared to carrying capacity, even with fossil fuels. Having this many people depends on fossil fuels, especially oil. If we have a problem with oil, it is doubtful that the world will be able to support nearly this many. There were less than 1 billion people on earth, before we started using fossil fuels.
Goldman Sachs was allowed to borrow at 0.01% interest rate. So why not everyone? Not much growth needed then.
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I have been predicting the breakup of large countries since 2006: “Large countries, unwillingly led by the US, Russia, and China, began to split into rival regions. Internecine warfare broke out between Southern and Northern Calfornia, New England and the Midwest, and most of all, between the not-quite-poor and the newly poor.”
To me, it’s a no-brainer. Countries the size of the US that lasted for more than the lifetime of one charismatic ruler simply did not exist pre-fossil-sunlight.
I first wrote about it in 2007.
The Nine Nations of North America was written in 1981. It is a good book I recommend it.
Diamond in his book Guns, Germs and Steel suggests that nation break along north south lines and that nation that share a common weather (distributed east and west) hold together better. This seem to match the US with a north/south civil war and your north California versus south California. I do not see what New England and the Midwest would have to fight about.
I think the invention of fast cheap communication will help hold large areas together. Likewise the invention of the train will help hold large areas together. But humans do seem to behave (think?) differently based on latitude. I have no idea why. This will continue to drive large north/south areas apart. Like Chile and maybe Argentina and maybe the US.
Putting aside for the moment what the other would have worth fighting over that can be transported without oil before it spoils . . . just how are the wars to be fought?
The big casualty generator in the history of warfare was artillery. In the north/south conflict proposed, this will be horse drawn. FAR MORE IMPORTANT, food for the horses will be in short supply and food for the humans will be in even shorter supply. You’re talking about a war that presumes, say 160 million people on one side and 160 million people on the other side — both have enough food. They won’t. And Because They Won’t, They Won’t Spare Provisions For Guys Leaving Town To Go Fight. Provisioning an army kills citizenry back home. There won’t be enough calories as is. If you fight, there will be even fewer, and if you think you’re going to take the enemy’s food, he’ll either burn it or it will spoil enroute home.
This war will never happen. Every single one of those guys will be working 24/7 trying to produce food. There are not going to be spare calories laying around to stack on horse drawn wagons and go fight wars. Yes, this is how it was done pre 1860s, but that was when population was coming up from below; not coming down from above. There could be spare calories then because there were fewer mouths that needed them.
It’s a new ballgame, folks. Only nuclear weapons wiping out the competition can provide for a tolerable US future.
There is no debt or deficit problem. Affordability is never a problem for a currency monopolist like the US, UK, Japan, etc (but it for the EZ, in which have relinquished sovereignty).
The only constraint is real, that is, the availability of resources to meet needs. It is then a political decision how to allocate those resources between the public and private sectors.
All this hullabaloo is a canard to mask the hidden agenda, which is elimination the welfare state by starving government and downing it in the bathtub, in Grover Norquist’s words.
The economic rationale for the debt and deficit problem is not based on anything empirical but rather on unrealistic assumptions, especially in light of the currency monopoly that the federal government enjoys as the currency issuer. See the work of Scott Fulliwiler, James K. Galbraith, William F. (Bill) Mitchell), Warren Mosler, Pavlina Tcherneva and L. Randall Wray, for example. There is no intertemporal budget constraint (IGBC) and there are no government “unfunded liabilities.” Failure to realize this reflects a lack of understanding of the modern monetary system.
Sorry I did not include background on my reasoning. I have written several posts related to this question including:
Social Security and Medicare Funding: Even Worse when One Considers Resource Constraints
What is Behind United States Budget Problems?
Release of Oil From the SPR – Desperately trying to Fix the Economy
The monetary system might be the issue, if we did not have so many resource issues. I suggest you read some of these other posts as well.
Yes, I said that the issue is real resources, and that the financial issues that are being raised are largely bogus. We should be focusing on the issue of real resources and sustainability instead of financial pseudo-problems. Concern about leaving our children with a mountain of government debt and unfunded obligations, which are pseudo-problems for a currency monopolist like the US, is distracting attention the actual problems that we are bequeathing, namely, unsustainability with respect to real resources.
In a market economy in which distribution (rationing) is based on price, money is just the grease. If too much is created so that demand is excessive relative to the ability of the economy to expand to meet it, then inflation, If not enough, then contraction, rising unemployment, and deflation. It’s the capacity of the economy to deliver final goods and services that counts, and this is a function of factors of production, chiefly, capital, labor, land, energy, and materials. The problem we are facing is energy and materials, as the emerging world comes on line. This is revealed by the persistence of elevated commodity and energy prices during the crisis, which is different from the past.
Yes, the real issues are resources, but our problem is that the “money” we have has vastly outrun the resources that underly it. We could get along without money, and go back to the underlying resources, but it would be sort of a problem for paying people. What do you give them at the end of the pay period? A bag of grain and a couple live chickens?
My concern is that we will not be able to figure out a financial system that really works, at least on an international basis. Pennsylvania may have its monetary system, and Virginia may have its monetary system, and Georgia may have a third monetary system, and Vermont and New Hampshire may have their monetary systems. If you live in a state and want to buy goods that are made exclusively with inputs from that state, you are probably OK. But if you want to purchase a product that requires inputs from across state lines, and even international inputs, you need to have some interchangeability. This is far from a given, if debt defaults are an overwhelming problem.
So I see the problem as really trying to produce a financial system that works, when we are dealing with long term contraction and debt defaults. One post you might read of mine is one I call Delusions of Finance.
Gail, I greatly appreciate your work, and I recommend that if you want to venture into the field of monetary economics, e.g., as it relates to sustainability, you look into the contributions of Modern Monetary Theory. Do a search on some of the names I provided in my beginning comment above. A good place to start is with Warren Mosler’s The Seven Deadly Innocent Frauds of Economic Policy. It’s a free download (also available as a book through Amazon) and an easy read aimed at the person in the street. Mosler’s “Soft Currency Economics” launched MMT is more professionally oriented. It describes the present system in which the federal government is the currency monopolist. By using it currency monopoly the federal government is able to address most economic issues, even thought have seemed intractable. including those related to sustainability.
http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf
http://moslereconomics.com/mandatory-readings/soft-currency-economics/
Thanks for your thoughts. We certainly need to get our problems with the financial system fixed.
I agree with your statement: “The only constraint is real, that is, the availability of resources to meet needs. It is then a political decision how to allocate those resources between the public and private sectors.”
In a healthy money system money would convey information about available resources but in the current system where money is printed and toxic debt is traded for printed money and inflation is not honestly calculated, etc… money looses its meaning.
In the end the distribution of resources is political.
The 2013 US option, start a war with someone big enough to polarize world leadership to your cause that you know you can beat.