Understanding Our Oil-Related Fiscal Cliff

The United States’ fiscal cliff is very much related to several changes we have been going through recently, and will likely continue to experience:

  1. High oil prices (more than triple their level ten years ago). High oil prices cause people to cut back on discretionary spending, leading to layoffs in discretionary industries and debt defaults. Governments get less revenue in taxes at the same time they need to increase spending for unemployment benefits, bailing out banks, and stimulus funds. Result: financial problems for governments of oil importing countries, including many Eurozone countries and the United States.
  2. More free trade with Asian countries starting about 2001, when China joined the World Trade Organization. This change sent many jobs to Asia, and also holds down wages in US industries that compete with companies using overseas labor.
  3. Lots of baby boomers becoming eligible for Medicare and Social Security, starting about 2011. This is a problem because taxes, in practice, need to cover the cost of  benefits on a cash flow basis, which is the way US handles its financial accounting. As a practical matter, this is the way the world economy works as well–the goods and services used today are created by today’s workers, with resources pulled out of the ground today. Carryovers in terms of goods are very limited–mostly a little grain.
  4. A health care industry that is able to charge fees that are increasingly out of line with the wages of common workers.

None of these issues looks likely to improve in the near future, suggesting that we are encountering a long-term problem that is only likely to get worse.

In this post, I provide charts showing that if the US funding problem is fixed through higher taxes on individuals (including proprietors), the needed fix would require additional taxes averaging approximately 15% of each person’s wages. If oil production remains relatively flat, as it has since 2005, additional tax increases even above this level will likely be needed later, as higher oil prices lead to more layoffs, and more need for government spending.

I also discuss three approaches other than higher taxes on individuals that might be used to try to fix the problem:

  1. Send programs back to the states
  2. Fix health care costs by emulating the Japanese using severe caps on medical charges
  3. Rethink taxes on imports

The first approach is being considered by others. I see drawbacks to it that others may have overlooked. The second two approaches are admittedly nonstandard, but need to be at least considered.

I am not very optimistic that a way can be found around the fiscal cliff. The problems are too much “baked into the cake”. But if we don’t understand what the magnitude of the problem is, and what is causing it, it is hard to make good decisions.

The Magnitude of the Problem

The “standard” way of looking at government income and expense is as a percentage of GDP. As a practical matter, though, about 80% of federal taxes relate to individuals, so it makes more sense to me to use a wage base for comparison, especially if there is concern that wages aren’t keeping up with GDP.

Also, while the issue at hand is federal taxes, from a taxpayer point of view the real issue is total taxes–Federal, State, and Local, including Social Security and miscellaneous taxes. If we compare total government expenditures to estimated taxpayer wages1, we see that in calendar years 2009 through 2011, expenditures exceeded 65% of wages (Figure 1). Total government receipts have averaged around 50% of wages, currently slightly less than this benchmark.

Figure 1. Government expenditure and expenses for all levels of US government combined (including federal, state, and local and Social Security), based on Table 3.1 of the Bureau of Economic Analysis. See Note 1 for definition of wage base used.

Based on Figure 1, we either need to raise taxes by a little more than 15% of wages, and keep raising taxes in the future to keep up with an escalating problem, or we need to cut back on government benefits, such as unemployment insurance, Social Security and Medicare.

Either of these actions can be expected to have a very adverse impact on the economy. If citizens need to pay much higher taxes, they will cut back on discretionary spending. Such a cutback is likely to lead to more layoffs in discretionary sectors, and more recession. If benefits are reduced, those directly affected will be very unhappy. There may even be civil disorder. In addition, those with reduced benefits are likely to cut back on their spending, leading to recession. They may also default on loans, leading to bank problems.

Of course, the Fiscal Cliff discussions are about fixing only a little bit of the problem now, and making plans to fix small amounts in the future. The real issue, if we understand the four problems listed at the beginning of this post, is that we are facing an escalating problem. This is especially the case if world oil supply remains relatively flat, as it has been since 2005.

Breakdown of the Deficit

Figure 1, shown above, showed a combination of Federal, State, and Local government income and outgo (including Social Security, Medicare, etc.) as compiled by the US Bureau of Economic Analysis. Figure 2, below, shows the corresponding figures for State and Local Governments.

Figure 2. State and Local Government Revenue and Expenditures based on Table 3.3 of the Bureau of Economic Analysis, expressed as a percentage of the same wage base as described in Note 1.

A person can see from Figure 2 that Income and Outgo are fairly well in balance for State and Local Governments, but there is a problem with both taxes and benefits rising over the long term. This contributes to the long-term unhappiness citizens feel about taxes in general, even if the problem is not federal taxes.

While it may seem surprising, the Federal deficit discussions relate to all government spending other than State and Local government.2 Thus, besides regular budgeted spending, the Fiscal Cliff discussions consider Social Security, Medicare, the Federal Government’s portion of Unemployment Insurance, and un-budgeted military expense. If the Federal Government should become obligated in the future to bail out government organizations, such as the Pension Benefit Guaranty Corporation or the Federal Deposit Insurance Corporation, these costs would presumably need to be considered as well in determining whether there is a balance of income and outgo.

Probably of the biggest areas of funding shortfall is Medicare (Figure 3, below).

Figure 3. Medicare Revenue and Expenditures by Fiscal Year, based on Tables 2.4 and 11.2 of the Historical Data of the White House Office of Management and Budget.

Medicare, besides providing health care for those ages 65 and over, also provides coverage for some disabled workers. The program has always needed supplemental funding, but the amount of the deficit has become greater in recent years, and is forecast to get even worse in the future. (On all of the charts, the forecasts I show are those provided in the White House Office of Management and Budget reports.)

Social Security is better funded, or was, until a decision was made to cut employee contributions by 2% of wages, for calendar years 2011 and 2012. This was done as an off-budget stimulus to the economy.

Figure 4. Social Security receipts and outlays, based on Tables 2.4 and 4.1 of the Historical Tables of the White House Office of Management and Budget.

The current plan seems to be to return to the original tax rate effective January 1, 2013. This return to the original tax rate does not seem to be reflected in the White House Office of Management and Budget (OMB) figures I am showing in Figure 4. Even if this change is made, it is my understanding that there is still some need to raise Social Security taxes.

Another grouping on budget reports which has some revenue associated with it is Income Security, shown as a functional category on OMB report 11.2. This grouping seems to include the federal portion of unemployment compensation. It probably also includes Food Stamps. It too shows a shortfall.

Figure 5. Federal Income Security receipts and outlays from Tables 2.4 and 11.2 of the Historical Data of the White House Office of Management and the Budget.

If it were somehow possible to erase the problems with these three programs (Medicare, Social Security, and Income Security), there would still be a federal revenue shortfall, but a manageable one. In several periods, there has been a surplus on this basis (Figure 6).

Figure 6. Comparison of Receipts and DIsbursements for Federal Programs excluding Medicare, Social Security, and Income Security, based on Historical Data of the White House Office of Management and Budget.

We can break down the remaining federal spending (as shown in Figure 6) into some major groupings.

Figure 7. Allocation of Federal Spending, other than that for Medicare, Social Security, and Income Security, based Historical Data of the White House Office of Management and Budget.

Health, at the bottom of Figure 7, would seem to include federal funding related to state Medicaid programs. The bulge for future years reflects the new federal healthcare program. Defense, shown in red, is very large in recent years, but is forecast to shrink in the budget forecasts of the OMB.

Net interest is reflects a netting out of interest paid and received. This is a different accounting treatment that a person sometimes sees, with Social Security being credited with some portion of interest payments. Here, all interest is in one location. Recent interest payments have been very low, thanks to the artificially low interest rates now in effect. Interest payments are forecast to more than double by 2016.

Figure 7 shows that the “All Other” category is quite small, compared to the $1 billion+ in deficit that we are facing on an ongoing basis, if funding stays as in the recent past. This would correspond roughly to federal government programs where the expenses are mostly salaries of government employees, rather than transfer payments to citizens. I calculated this amount by subtraction of the selected pieces from the total.

Federal Revenues and Outlays Compared to the Selected Wage Base

If we use the same wage base as with Figures 1 and 2, the ratios of income and disbursements to wages are as shown on Figure 8 below.

Figure 8. Federal Government Revenue and Expense (including Medicare, Social Security, etc.) as percentage of Wage Base described in Note 1.

The current high outgo doesn’t look as high relative to prior years, as it does in Figure 1, but looks can be deceiving. Figure 2 near the beginning of the post shows that state and local taxes have been increasing–from roughly 20% of wages in the late 1970s to 25% (or more) now. So total taxes “feel higher,” even if the federal part doesn’t rise by much. The federal government has paid for some of this rise in state programs, through federal funding of local programs. The temptation now will be to cut back on federal funding.

If there is a goal to keep total state and local taxes to less than 50% of the wage base, then it would make sense to get federal spending down to 30% of wages, or below 30%, if there is a cutback in federal funding of state programs. If federal payments look to be headed for 45% of wages, this would mean that federal spending for all programs combined would need to be cut back by one-third (=(45%-30%)/ 45%).  Alternatively, of course, taxes can be raised–but with the caveat that taxpayers get very unhappy about taxes over a certain level.

If we look at individual programs “stacked up” as a percentage of wages, this is what we see:

Figure 9. Federal spending as a percentage of wages, broken out by category, in stacked chart. Spending based on White House OMB data; wages as described in Note 1.

The biggest run-away program is Medicare. It will be difficult to fix it without making a lot of people unhappy. Defense can be cut back even more than it has been, but that leaves a lot of unemployed military people as well as unemployed people who work in defense industries.

Other Ways to Fixing Funding  Besides Higher Taxes

Send programs back to states. Perhaps the easiest way for the Federal Government to reduce spending is to turn programs over to the states, offering some sort of small “block grant” to fund them. Then, if the program is unsatisfactory, it is the problem of the state, not the federal government. Richer states will be able to provide better programs than poorer states. The federal government’s role will gradually be reduced.

The downside of this approach is that programs are likely to be greatly reduced in scope. The federal government will become less and less important in the whole scheme of things.

I have written about the tendency of countries with financial problems to break into smaller pieces, as with the possibility of Catalonia seceding from Spain. The problem with reducing the government’s role is that it tends to push a country more in this direction. The view may become, “If the individual states are doing everything, who needs the expensive federal government, with all of its debt?”

Fix Health Care Costs. US healthcare has been on its own track for a long time. It is far more expensive than the systems of other developed countries, and the quality of results is not very good, according to studies such as this one by Commonwealth Fund.

Figure 10. International Comparison of Healthcare Spending, from Explaining High Health Care Spending in the United States: An International Comparison of Supply, Utilization, Prices, and Quality, by David A. Squires, The Commonwealth Fund, May 2012.

The high cost of the Medicare program and the high anticipated cost of the new healthcare program for the uninsured are both related to this issue. David Squires, author of the study linked above, points out that Japan has a health care system that shares similar features to the US system: it is a fee for service system with unrestricted access to specialists and hospitals. Yet its cost is near the bottom of the chart, and Japanese have the longest life expectancy in the world. The major difference in the Japanese health care model is that the Japanese government aggressively regulates health care prices. The report indicates that if the US were to spend the same share of GDP on healthcare as Japan, the saving would amount to $1.25 trillion. This would be enough to pay for our annual spending deficit, if it could be channeled in that direction. (Of course, it can’t, but it would help.)

Perhaps a change closer to the Japanese system of regulation could be coupled with more emphasis on healthy eating and exercise. The major losers in such a change would be surgeons and other specialists earning very high salaries, investors in very high-priced devices, pharmaceutical companies who charge US customers more than elsewhere, and hospitals that need to scale back services to be more in line with what other developed countries provide.

Rethink Foreign Imports. Economists have told us globalization is the only solution. Yet, we cannot compete on a level footing with countries with very low labor costs, especially if their primary fuel is (cheap) coal. We find that we have more and more laid-off workers, at the same time their economies are growing rapidly. (I describe this more in  this post.)

It seems likely that over the long-term, globalization is going to shrink, as the cost of importing goods increases, and as financial problems of countries increasingly get in the way of signing longer-term contracts. (Who wants to sign a contract to make products for a country whose currency may radically drop in value before the goods are produced?)

A partial solution might be to penalize companies that outsource jobs to parts of the world with lower wages (but this would be hard to enforce, and likely run afoul of free trade agreements). It would theoretically be possible to re-impose tariffs on selected categories of imported goods and services, to try to encourage more local hiring, even if it means higher production costs. Again, this has free trade agreement issues.

A  related issue is the idea of businesses being able to incorporate offshore, and escape US taxation. I know my work as an insurance actuary involved a lot of work for “offshore captives“. Somehow, we should be rethinking whether allowing US companies to take the benefit of these offshore services, without tax, inside the United States, is in the United States’ best interests. Shouldn’t we be taxing goods and services produced elsewhere, to avoid US taxation?

Other Issues

There are many other issues that deserve a more complete treatment, including further discussion of the four causes of the increasing deficit at the beginning of this post. I have treated some parts of these issues in other posts, such as High Price Fuel Syndrome.

Notes:

[1] Wages used as a base consists of “Wages and Salary Disbursements” for both employees in government and in private industry, plus “Employer Contributions for Government Social Insurance” plus “Proprietors Income” relating to both “farm” and “non-farm”. All of these amounts are from Table 2.1, Personal Income and Its Disposition. For most people, this will be the nominal wages a person receives (before deductions of any kind), plus the amount paid by the employer on behalf of the employee for Social Security and Medicare contributions. I have not included “Transfer Payments” such as Social Security, Medicare, Medicaid, and Unemployment Insurance, since these are likely not to be heavily taxed. For projecting future years wages, I have assumed 3% annual growth (1% increase in labor force and 2% inflation). If there is recession or if the number of jobs fails to rise, this assumption may prove to be too high.

[2] There is a small overlap between federal and state programs. For example, the Federal Government gives State and Local Governments to spend on unemployment benefits, and on Medicaid, and on stimulus projects. The data sources I am using should remove these overlaps correctly.

157 thoughts on “Understanding Our Oil-Related Fiscal Cliff

  1. It seems that health care costs are the biggest problem.

    The two biggest factors here seem to be heroic attempts to extend lives which cannot be extended, and chronic diseases related to obesity.

    I have had personal experience with both. About two years ago a family member had a heart attack after he checked himself into hospital feeling unwell. He never recovered consciousness, but was kept alive for nearly a month in intensive care. Fortunately for the rest of us, his bills were paid by his brother (who is one of the “0.1%”).

    I also have in my immediate family four people with type 2 diabetes, and two who have had, or will soon have to have, joint replacements.

    All of these people are or have been obese, and more than half of them are or have been smokers. Their ages range from thirty to early sixties.

    The solution to the health cost crisis is not cutting money to health care providers, nor rationing health care. It is convincing people to eat more healthily, developing a realistic approach to dying, and getting rid of tobacco completely.

  2. Your ideas are constructive and well thought out but do not address the core causes of our predicament. For starters we need:

    1) One child policy.
    2) Ban on refined carbohydrates.
    3) Phase out of fractional reserve banking.
    4) Severe luxury goods tax.
    5) Revenue neutral carbon tax.
    6) 40 mph speed limit.
    7) Cessation of military presence on foreign soil.
    8) Campaign funding limits.

  3. I see at least three underlying problems; One, our debt and interest based (capitalist) economic system requires continual growth to survive. Two, we live on a finite planet.

    We have been in recession in spite of the fact that we are still growing; we’re just not growing as fast as we need to grow. If the growth stops all together we are headed into a depression. If that continues long enough the system collapses.

    Once our economic system becomes large enough relative to the resource base of the planet, the quantity, quality and accessibility of the remaining resources become a limiting factor. Physical resources have limits and they decline over time; however, financial assets are not similarly constrained.

    We have reached the point where the total value of our financial assets; which is just a claim on physical assets, dwarfs the dwindling physical asset base. We are playing a zero sum game with growth.

    Three, we have more population than the resource base of the planet can support given our high per capita consumption of natural resources. Also, the combination of our population size and our societal complexity are now overwhelming the capacity of the planet to absorb and neutralize the increasing quantity of increasing toxic waste products. This becomes another limit to growth.

    Technology will be of little use because it requires cheap energy to be commercially viable and it suffers from diminishing returns. In order to have technology, we must first have a surplus to fund the increasing specialization that technology requires. Lacking growth our technology will slowly disappear. At least we can hope it will be slow.

    If I understand Gail correctly, our problems are systemic. She used the expression “baked in” to describe it.

    People have suggested many things we can do to slow down our rate of decline, but like it or not, none of them will stop it. As good as many of the suggestions are none of them seem to address the underlying systemic problems which are show-stoppers.

    It’s no wonder people are in denial. But that’s another story; perhaps our genetic predispositions are the real underlying factors, not geology, physics or economics.

    • You are right–our problems are systemic. Perhaps it is possible to get past their manifestation this time, through some slight of hand trick, but over the long term, the situation looks impossible to solve. Some type of collapse appears likely.

      The oil problem is really the very tough one to solve, especially combined with the fact that we live in a system that is so utterly dependent on oil as a transportation fuel. It is very difficult to go to a system that doesn’t use oil as a transportation fuel–even if a little piece can be transferred out (local transportation by electric, say) it still leaves a big piece that is oil based.

      It is also very difficult to go from a system that offers benefits to seniors and disabled persons, to one that offers much less (or no) benefits to them. We don’t have the customs built-in (say, women don’t work outside the home, and instead stay at home and grow vegetables and tend elders) that would accommodate this change.

  4. The only real solution is to get OFF the Money Economy. The systems which have developed around it since Ag came on the scene are all unsustainable and consume resources faster than they get replenished.

    Leaving the Money Economy is difficult but not impossible. A few of the Diners have come close to the goal of independence from it, though nobody is completely removed from it while still chatting on the Internet of course.

    If you are not yet destitute, you do have some control over how you can remove yourself from the money economy, if not in totality at least enough to not suffer the worst of the outcomes. Information on HOW to do this is out there, and it just takes willingness to make the changes in your lifestyle to enhance your survival probabilities, and those of your loved ones.

    This system is currently in CASCADE COLLAPSE. The “Fiscal Cliff” is just one manifestation of that collapse. The ONLY alternative is to remove yourself as much as possible from the Money Economy. Piles of Gold in the Basement Safe will not do jack squat for you as the Conduits fail. Perhaps suh piles of Gold buy you a bit of time, but not much more than that. You must work together to build local communities that can develop snergetically sustaiable systems. It CAN be done, there are Diners who are DOING it now. There is still TIME left to make the changes necessary here, but it is running OUT. Goobermint will NOT make the changes, not in its current form anyhow. So it is up to you as an individual to make the necessary changes to if not isure your survival, at least up the probabilities for it.

    RE
    http://doomsteaddiner.org

    • In my view, the major alternative to the money economy is the gift economy, in which people freely share whatever resources they obtain. People gain status by giving away more, rather than by saving more. Typically, there are strong sanctions built in when someone hoards, and does not play be the rules. This kind of system works best when groups are small enough that everyone knows everyone else. From what I have read, this kind of system has worked around the world, in many places. Family finances are usually operated on this basis.

      An economist explained to me that one function of debt (not the only function) is to distribute wealth from the less wealthy to the wealthy of society, and I can easily believe this, based on how the system really works. Thus, in a way, it is a way of creating a system with higher “Gini Coefficient“. I have talked previously about hierarchical behavior in other mammals being a way of marginalizing those at the bottom of hierarchy, in times of ecological stress, because of overpopulation, trying to push them out. So one function of debt seems to be to contribute to this marginalization. (Arguably, this is too negative view.)

      Research seems to indicate that people are happier and healthier in societies with lower Gini Coefficents. This would seem to be an argument for moving away from debt-based money. But any major change like this would be extremely disruptive. I would not expect such a change to happen until it is forced on us.

      • Gail
        I do not think that an entirely gift based economy will work. Nor do I think that an entirely financialized economy will work. Both are inconsistent with human nature and the ways of the natural world. In my experience, aiming for a rough split is about right. Half our needs are supplied by a home economy, and the other half are supplied by cash facilitated trading.

        A hundred and fifty years ago the farmers around here were probably about 80 percent home and 20 percent cash. The family was the basic unit of production, but they also traded work with neighbors and bought supplies in town and paid taxes in cash. Those who live on that land today have at least reversed the percentages, and many are probably 90 percent cash and only 10 percent home. If they have animals, there is still some work trading as people provide the daily care that animals need. We can see that work trading now is a last resort and fossil fuels have permitted us to pretend to be islands. I see that attitude reversing among the young people who work at the farm.

        In thinking about a potential ‘way down’ we have to solve three problems: we don’t know exactly what is going to happen nor exactly when it is going to happen so we can’t optimize with mathematical precision; we have to be economically competitive in today’s marketplace; and we have to have enough self-reliance to be able to survive an abrupt transition.

        There is also the issue of mental resilience. Those who have lived through collapses say that the death of dreams is more devastating than the physical hardship.

        I have previously named my chosen strategies, so I won’t belabor them: emergency water, gardening, joining in a local food web, getting out of debt, working on the mental angle.

        Don Stewart

        • One other thing people might want to think about is a simple solar PV system. See, for example:
          http://www.suburbsolar.com/products/

          For about 2000 dollars you can protect yourself against some of the consequences of garden variety power outages, the more severe power outages suffered in ice storms and hurricanes, and, in the event of a grid collapse, you will be able to continue to power some of your electrical tools.

          I haven’t bought one of these as yet…so am not an expert. I do know (mostly rural) people who own them.

          Don Stewart

        • Thanks for your insights. Working toward a better balance might very well be the direction to go. But that will mean a reduction in what goes into what economists report as GDP.

    • The Gift economy, better known around these parts as Potlatch is the far superior means of internal distribution of resources than the money economy. The Money economy supplanted it because of its relationship to centralized Ag and the concommitant connection to Militarism.

      Potlatch doesn’t scale up all that well, though at its peak in the Pacific Northwest there were probably around 200,000 people in affiliated tribes all practicing it and trading with each other.

      For such a system to work again on such a scale, we likely have to wait until the collapse of the Nation-States, already well underway now with Secessionary Movements sprouting like mushrooms in Spain and the UK, and here as well. However, while large scale Potlatch is probably at least a generation away, small scale Potlatch can be practiced by any small to medium sized community. Again, this is mainly a matter of will to operate against the cultural conditioning we have been subjected to through the courde of our lives, but this can be overcome. It is only the narrow thinking that all Growth is Positive and that Money is a necessary ingredient to the society of Homo Sapiens that is an obstacle here, and this can be overcome through a variety of means, a source of endless discussion on the Diner as to which ones would be most effective. LOL.

      RE

  5. According to Adam Smith, the economy consists of 3 input factors (Produktionsfaktoren). This is very basic economics.
    1. Labour (quantity and price)
    2. Resources (quantity and price)
    3. Capital (quantity and price)

    Now, for an economy to grow, the quantity of each of these input factors needs to grow as well. If not, the price of the input factor will increase and therefore the equation 1+2+3 will be in inbalance. In that case, the economy cannot grow anymore or, depending on the inbalances will even contract.
    So, what concrete situation are we facing today?
    We have a resource problem. The quantity of the most important resource, conventional cheap and high quality crude oil has been flat or even decreased since 2006. The result is higher prices (roughly 4 times higher as in 2003).
    Therefore the simple economic equation is out of balance. What was or still is the reaction of the policy makers?
    They increased the quantity of capital and consequently its price (interest rates) declined. Interest rates are near zero today. No more can be done to decrease those capital costs. In the meantime, amid peak oil, the price of this ressource will keep rising resulting in a ever increasing inbalance of the economic equation until we reach the point of zero return, which means the inevitable crash or collapse.

    • I agree with all of your comment, but I think you left out the key factor, which is human capital. Human capital is more important than physical capital (buildtings, trucks, machinery, tools, etc.) and more important than financial capital as a constraint on economic growth. Let me give you a specific example. About twenty years ago I had three generations of the same family in my Introduction to Sociology class. The grandmother, who was about sixty five,got the highest grade in the class, and I gave her an A+, which I do very rarely. She had excellent reading and writing skills.
      The mother was in her early or mid forties and got a straight B. The eighteen year old daughter got a charity C-.

      Here is another example, again from about fifteen or twenty years ago. An FBI man came to my office for an interview about a student who was applying to the FBI to work as a secretary. Immediately he wanted to shut the door, but it was my strict policy to always have an open door to my office at all times. Reluctantly, he agreed to the open door and insisted that we talk quietly enough so that nobody could overhear us. He started out with a silly question: Had I ever seen her carrying around “The Communist Manifesto.” Of course not. Then we went on with a series of basically silly questions, until I finally told the FBI agent than under no circumstances should the FBI hire this girl, and I pulled out her final exam from one of the courses she had taken from me and showed it to the agent. He was positively appalled. The writing was at about the fourth grade level–ungrammatical, riddled with punctuation and spelling errors. About half of the students who enter Itasca Community College could not take college-level classes, so they had to take about a year of remedial education. We would start with a freshman class of about 600, and two years later about our graduating class of sophomores was down to about 220. In other words, both primary schools, middle schools, and high schools were totally falling down in their obligation to give good educations to their students. When I was a kid, it was common for a student to fail a class and not be promoted but rather would have to repeat the class. Now the norm is social promotion, because the current dogma of the educationists is that students must stay with their age-mates.

      My second oldest daughter is an elementary education teach–she is tip-top at her job. But now the policy is “fulll inclusion,” which means that students of all intellectual levels must be included along with students with serious EBD (Emtionally Behavior Disorder) problems. Among many other duties, she has to make sure that the EBD students take their medications at the right times. In my opinion, the current educationist dogma is entirely wrong.

      • this dogma is in the west pretty universtal but in USA it seems extreme according to what you are writing here. Being in Germany Id on’t find it so bad but the dogmatic left certainly weakened standards. Only high parental standards at home keep our kids way above theri peers with their smart-phones and computer plus TV in their rooms. Reading is a novel idea for them mostly.

    • Not sure about 1700s but it seems like what we call capital today is an allocating factor and not a true separate input. It determines who gets to use the resources and the labor. If you had the labor and the resources you would not need the “capital.”That’s why having capital distributed by the government and the financial barons is unsettling. But maybe it’s semantics.

      • “Capital” an extremely confusing concept because the word “capital” in economics means something radically different that what accountants and financial analysts call “capital.” In finance and accounting a synonym for “capital” is owner equity. It is financial in its essence and is equal to assets minus liabilities.

        In economics, capital (without a qualification word) means what I said it means–real physical things that you can touch, such as machinery, buildings, computers, tool and other items that are produced in order to produce something else. Capital in economics is radically different from natural resources (also called “land” in classical economics. Oil in the ground is a natural natural resource, a pure gift of nature. Once it is refined into fuel it is capital, and when it is consumed by consumers it is classified as a consumer good.

        Both accounting and economics have excellent clearly defined and agreed upon definitions. But the definitions are quite different in the two disciplines. Economics has a very clear and unambiguous vocabulary. By way of contrast, sociology has a terribly vague, confusing, and ambiguous vocabulary. In sociology there can be five synonyms for the same concept. Also the same word, such as “status” can have two radically different meanings, which, it does. One of the surest ways to get a sociology paper published is to invent a new word or concept. So all the time sociologists keep inventing new terms and using old terms in new ways. Economists just do not do this.

    • Someone pointed out to me that with investors facing virtually 0% interest rates (certainly in inflation-adjusted terms), many people are commit funds to oil exploration and development projects than would otherwise be the case. This leads to more drilling in marginal production areas, and may be behind the bulge in drilling in Eagle Forde and Bakken.

      If this production is not profitable, this becomes clear at some point, and even this goes away. There is evidence that Bakken drilling is down recently. With the delay in getting new wells fracked and into operation, this isn’t yet reflected in production, but may be soon.

      So this may be the corresponding way of reaching a lower and lower return (and eventually zero return) in the investment sector as well as in the bond market.

  6. I had the thought about trade that if you had universal social and environmental standards then cheap imports would be no problem as the whole thing would even out. Only high skilll levels would matter and transport costs of finished goods.

    If you make shoes in Europe or America with union wages and high pollution controls then why should the govt. allow the manufacturer to dump the jobs for workers in Bangladesh for a dollar a day who get burned to death in their factory and use coal and cause massive chemical pollution?

    The two main arguments for free trade have been the striving upwards of the 3rd worlders to riches and a middle class life which almost none of Chinese and other factory workers ever get and that the locals in the West get cheaper goods which is a benefit and that we can always move up the food chain to get better jobs through education and technological innovation. Of course all of these are just rationalizations for businesses wanting to make more profits by wage and regulation arbitrage. They do the same in the United States and Europe switching locales according to lax tax codes and regulation and where the weaker unions are. Bottom line is that business is bigger and more flexible than local and even national governments.

    The social welfare state in all countries is going broke due to demographics – a pyramid scheme based on a permanently young work force will only work in absence of progress in medicine so people die off on average around 65. Perhaps this would be a solution. You cannot invent a wonder drug or technology and then say nobody is allowed to use it. Esssentially we need a stasis in medical technology, a ban on research. We must go back to herbal medicine and “let your food be your medicine”. With proper health prevention (nutrition, sport) people can live “healthily” to very old ages without health care costs or medication. Hi-tech medication will disappear along with containerized refrigerated shipping and electronic gadgets anyway in the mid term future. So people who don’t take care of themselves will die off at around 50-60 from heart attacks and “consumption” or alcohol related dieases. We see the trend in the uneducatied whites in USA already of a lowering of life expectancy. Perhaps post peak oil a social welfare state will work as a state pension for a couple of years for the few long-lived and some traditional medical attention from Chinese style “bare foot doctors” from the Mao era would be sufficient. That and all local manufacture would provide full employment and a sustainable state. The left wing Keynesian social welfare concept is going broke due to the curse of progress in medical technology and the right wing liberal free trade state is going broke due to the job exports, i.e. reduciton in tax base, import deficit country. Together these two make for a fiscal and balance of payments deficit. Wtih a long-term balance of trade and demographics you would have long term stability. In old China they banned new technology and trade with abroad. This worked fine for keeping long-term stability. Then the military would be superflueous as well at least at the level the USA is used to having.

    • I don’t know what a person does to fix the current mess. I ran out of room in this post, or I would have shown a graph showing that in recent years, reported US corporate profits (as a percentage of my wage base) have been rising, at the same time that implied average corporate tax rates have been falling. This is hardly ideal. I expect this result at least in part occurs because of the ability of businesses to use cheap foreign labor.

      When I visited India, I saw some factories, and the situation was not good–light for working coming from a window or hole in the ceiling or a small fluorescent light bulb, and workers working without safety equipment. I heard about some workers sleeping on factory floors–it certainly saves commuting expense. Coal seemed to be the fuel of choice. Restroom facilities were close to lacking. It is hard to compete with this business model.

    • not exactly saying you’re wrong Edward, but what happens when you take one of your kids along to the docs with a serious injury, or a raging infection, and the doc says ”sorry, we only grow herbs now to treat that” Antibiotics are just so ‘yesterdays medicine”
      He tells you to go away and live a healthier lifestyle.
      would you demand to be the exception in your brave new world?
      Or would you accept the early death of loved ones, because there’s just no room for them anymore?
      That is the reality of what you advocate. Prior to antibiotics, and the other life saving research of the last 200 years, 1 child in 5 died before their 5th birthday
      I fear that a ban on research wouldnt include those doing the banning, just the banned

  7. I read a comment by Mr. Sailorman and have to respond, if only because it has the potential to cause people alot of pain.

    Only a madman would invest in TIPS. Inflation numbers are manipulated lower than they actually are, even more so now as an attempt by the government to hide what’s actually going on. Incredibly, neither food nor energy is accounted for in the misleading and corrupted inflation numbers. TIPS have negative yields even as oil prices rebounded from their lows. To invest in any government bond, much less TIPS, is to “financially repress” yourself and guarantee a negative real rate of return. Moreover, you subject yourself to default risk.

    I cannot, for the life of me, think of a more dangerous asset to be in than TIPS.

    Gold, on the other hand, is in a solid, 12 year bull market without any signs of a blowoff top. Moreover, the case for gold, with negative real interest rates and governments printing money with no abandon, has never been stronger. Gold is under-owned, comprising less than 1% of financial assets worldwide. Supplies are tight, as ore grades have been on a secular decline.

    Gold at $1700 an ounce may not be cheap, but it’s far from expensive.

    It’s irresponsible and dangerous for individuals like Mr. Sailorman to pimp TIPS and call gold overpriced, and he needs to be called out on it.

    • Check the numbers. TIPs have far outperformed the index of Standard and Poors 500 stocks over any ten year period you look at.

      I have been studying both gold and silver markets since 1961. Without exception, all my investments in gold and silver have been highly profitable. In 1962, a year in which the DJIA went down fifty percent I made a profit of 29% on Pato Consolidated Gold Dredging Limited. I also made a great deal of money on Sisco Mines, a silver mining company. Among my other successful investments are Campbell Redlake (gold) and also Giant Yellowknife (gold).

      I have always been successful in my precious metals investments. What I now recommend is $1,000 face value U.S. silver coins–especially dimes. Dimes are way better than the .99 fine one ounce coins that are widely promoted, because you can make relatively small transactions in dimes, and you just cannot do that with one ounce silver coins and certainly not with one-ounce gold coins. IMHO, gold is currently way way overvalued and is due for a crashdown. Silver, IMO, is much more reasonably priced.

      I think gold will crash down to about half its present price within two years. Gold tends to follow oil, and I think oil is due to decline greatly in price due to weak demand. For some reason, silver tends to follow soybean prices, and it has done this for at least thirty years.

      Before you invest in silver, the one essential book to read is “The Silver Bears” by Paul Erdman, Ph.D. Not only did he write a number of successful books about finance, Erdman served some years in a Swiss prison. Silver is a highly manipulated market, much more so than gold, which tends to be ruled by the forces of supply and demand.

      • To say the precious metals are overvalued today, means you don’t understand the function of the market: It’s very nature is to be a place where EXPECTATIONS are traded. I expect to be hungry tomorrow, so I buy food today. The buy signals for gold and other real assets are as strong today, or even stronger, than they were 10 years ago. Physical gold is for the long term. Inflation can take years to show up, but we are in the end game. I don’t think there will be another deflationary event in the financial world like 2008. Gold won’t crash for good before this is all over. The central banks did their homework, and keep the printing presses ready. Spain and Italy won’t exit the Euro, they will increase debts. People will take their pension funds out to buy real assets. Also with oil, you are hearing so often “the price of oil might crash to 40$ because of demand destruction”. Only that it never looked back to something similar like that, since it startet rising in 2002. There was a little overcorrection after the 150$ spike, that’s it. I will rethink my opinion when Brent goes back under 90$ for more than just a brief time. We have too much liquidity in the system. The economy may contract, but that means just more money printing, and a scramble for real thinks by investors.

        • Gold bullion and gold coins are the worst of all possible investments. During the civil war in Lebanon is was common for gangs to break into the houses where it was suspected that gold would be hoarded. The gang leader would ask the father of the family where the gold was, and typically he would not tell. So the gangsters would take the youngest child and start cutting off fingers. Unless you confessed to where the gold was, they would mutilate to death all the children, then the wife and finally the father. Most of the hoarded gold in Lebanon (and there was a lot) was stolen in this manner.

          Or read about the famous Soviet gold purge of 1937 (am not sure that is exactly the right year) described by Alexander Solzenitsyn where communist cadres stole gold from families in much the same manner as the Lebanese gangsters did.

          In my strong opinion, those who favor holding gold coins or gold bullion just have not studied history. In other words, they literally do not know about risk and have little understanding of the risks involved in owning gold. When I bought about a hundred gold philharmonic one ounce gold coins in 1972 for $37 per ounce, I bought from a souce a hundred and sixty miles from where I lived, then hid them in a safe deposit for many years. I did not even tell my wife anything whatsoever about my gold investment.

          Oh, another good example of the risks of owning gold: In 1933 or thereabouts Franklin Roosevelt made it illegal to own gold and confiscated all gold that government agents could find, then forced the gold owner to accept the government set price of $21 per ounce. When his inquisitors and investigators had confiscated all the gold they could find, Roosevelt promptly raised the price of gold to $35 an ounce in an attempt to stop deflation. From 1933 to 1972 all gold (that could be found by the government) was set at the artificial price of $35 until the U.S. went off the gold exchange standard and allowed people to own gold again. Anybody who has studied the history of gold knows this. Governments have confiscated gold before, they can do it again. I have to conclude that you have studied little or nothing about the history of gold and instead read the news letters sent out by various companies who sell gold. These newsletters are almost always bullish on gold and many claim to be able to predict the future price of gold with “technical analysis” and certain charts. Technical analysis is 100% pure B.S.; it always has been and it always will be. Speculative markets have been chaotic (in the strict mathematical sense) forever and they necessarily must remain so forever.

          • “Gold bullion and gold coins are the worst of all possible investments.”
            As the gold price has outperformed most anything during the last decade, you can only mean a bad investment in the context of loss risks brought about by sovereign crisis, riots and war, like pictured in your anecdotal evidence. Following this argument, any tangible asset would be in the same bad position. Not mentioning “paper” claims which seem to be the most easy to confiscate or default upon. So where do you go?

            “I have to conclude that you have studied little or nothing about the history of gold and instead read the news letters sent out by various companies who sell gold. These newsletters are almost always bullish on gold and many claim to be able to predict the future price of gold with “technical analysis” and certain charts. Technical analysis is 100% pure B.S.”
            Although I’ve been reading quite a bit on the history of gold, that was more for entertainment, not so much in order to make investment decisions. If you entered the gold market at the low in 2008 with a good physical position, you are well in the green now. What more do you want? And following chart analysis works fine, just because everybody else does (especially the computers who run most of the volume). If you play their volatility games without becoming too greedy, you do well in the medium term. As for the long run, there will be signs when to exit and buy something else, keeping a physical position as you see fit. Do you consider yourself smarter than Central Banks and Billionaires piling into gold, right now as we speak?

            • Yes, I am smarter than the billionaires who are buying gold bullion and gold coins today. When I was a student at U.C. Berkeley I took two intelligence tests and got perfect scores on each. One was the Terman Concept Mastery Test, typically used to test for genius, and the other was the Weschler Adult Intelligence Test. More to the point, however, I know way more about history and economic history than the billionaires do. Further, I know far more about weighing risks and uncertainties than they do because of my many years of studying finance and economics at U.C. Berkeley. I bought Berkshire Hathaway for $14 a share, shortly after the initial offering of those shares. Now look at the value of Berkshire Hathaway Class A shares. You do the math.

    • I like to hear diverse opinions from different people. I can understand your view. One issue that people should be aware of, though, is that having gold doesn’t necessarily do anything for your ability to buy a loaf of bread, or for that matter, many other things. Exactly what will happen in the future is not certain, and diversification is not a bad idea. If the US prints its way out of its problems, there is a distinct possibility that the inflation rate will soar. TIPS may not 100% protect the investor, but they theoretically will work better than a lot of other things. In this scenario, the inflation rate might be higher than the oil and food increase.

  8. I too am nervous about TIPS. They may be overpriced?? I am retired, hoping not to outlive mandatory IRA distributions. After metals TIPS have been my largest holding. I regret selling about a third of my TIPS last year. They proceeded to go even higher. Will wait for December interest payments and then decide what to sell..

    • I do not think think TIPs are overpriced. Check the performance of TIPs over the last ten ten or twelve years; use different ten-year periods and compare to the 500 Standard and Poors performance over the same ten year year periods. From the time the TIPs were invented until now, they have invariably had a higher rate of return than the S&P 500 has had. I expect this trend to continue, because at this time, in my well-informed opinion, the stock averages will fall to roughly half their current levels within two or possibly three years. I agree entirely with Gail about the likelihood of a financial collapse that is going to happen within a few years.

    • I certainly agree that TIPS have performed exceedingly well. Some financial experts expect a future financial unraveling to result in an interest rate spike, possibly to high levels. Is this likely? How would TIPS perform in such a scenario?

      • Anything that increases expectations of increasing rates of inflation will increase the real return of TIPs. You can prove this deductively with simple arithmetic. My only worry about TIPs is that the government may default on TIPs. The U.S. has never defaulted on any of its national debt, but that is no proof that it will not do so in the future.

        Perhaps the best investment is a productive farm of 160 acres of arable land on it and a house that was built around 1980. I specify that date because in White Bear Lake I lived in a house built in or close to 1980, and it could be heated without central heating. We had a humungous kitchen stove for both cooking and heating and also hot water. It could be fueled with either wood or coal. During World War II coal was strictly rationed, but we never worried, because we had a huge woodpile, adequate for heating through at least two winters. Sometimes, when the supply of anthracite (My dad always bought anthracite rather than the cheaper bitumenous coal.) ran low we would fire up the woodstove and all hang around in the huge kitchen. We also had a huge pantry/lardor and also small rooms for two servants. In 1880 almost all upper middle class families had two or three servants. Besides, we had a hand pump in the back yard that still worked, and you could clearly see where an outhouse had been. When the water stops flowing, an an old-fashioned outhouse is a great thing to have. Also the house originally had no indoor plumbing and of course no electricity. It also had no insulation. The first thing my dad did when we bought the house in the spring of 1943 was to blow in a lot of insulation. He bought it for $4,500 in 1943 and sold it in 1949 for $5,800. Three years ago I was walking with a real estate agent past my old house, and I asked her what it was worth. Answer: one million three hundred thousand dollars–it had changed hands at that price in 2007. Now, that is inflation!

        You can still buy humongous kitchen stoves that will both cook and also provide hot water and that can be fired with either coal or wood. If memory serves, they cost about $12,000 plus shipping, but I have not looked at prices for such stoves for a few years.

        • hate to mention this, but isn’t coal mining one of the fossil fuel burning problems that got us into this fine mess in the first place?
          And just who is going to get your anthracite? One of the servants?
          Coming from several generations of coalminers, I can assure you that anthracite is the deadliest to human health. You might want to check out lung diseases in the old coalmines, Nasty.
          another teensy detail—if I may? if we all have 160 acres, and we all start cutting down trees, pretty soon we’re going to have 160 farmers swinging at the same last tree with axes.
          there’s also the minor problem of hauling wood. if you do find and unchopped tree, say, a mile away, you might haul it back to your woodshed. But the next unchopped tree is 5 miles away. You might at a push get that one. After that, we’re into EROEI territory.

          • I mean a house built in 1880 or thereabouts. These houses were built before electricity and before indoor plumbing became the norm.

            My friend, Matt Miltich, the one who plows his land with horses has a fully sustainable woodlot–roughly fifteen or twenty acres of hardwood, mostly oak or maple. He also makes his own maple syrup. In the winter he moves his timber on a traditional skidder with his two horses, though oxen actually work better than horses do for this purpose.

            Rather than horses, if I were to buy a farm today I would grow a lot of corn or potatoes or sugar beets to make ethanol to fuel very old tractors. Another good option would be to put about twenty acres of soybeans and modify a newer tractor to run on straight vegetable oil. The very old tractors were all designed to be fixed by the village blacksmith; you can keep them going indefinitely if you have access to a skilled blacksmith.

            My second youngest nephew is a skilled blacksmith with his forge in Berkeley, California, where he grew up. He is extremely successful, makes an income in the six figures every year. Mostly he caters to the wealthy who want the best wrought iron for their balconies or step railings. He can make just about any iron or steel tool from a bar of iron.

            In my opinion, one of the best occupations for the future will be blacksmithing using approximately the technology of 1900. Like it or not, we are going to have to go back to fixing things rather than throwing them away.

  9. Hi RobM,

    Be careful or long-time readers will think you are in cahoots with me 🙂 So, to save your reputation, I’ll quibble with a couple of your points:

    1) One child policy: why one child per couple? I’m not sure what is the right number, but perhaps we should look at this in terms of, as you say, “core causes of our predicament” – or as I would say “root causes”. If the root cause is an imbalance of global human population versus the natural resources needed for a sustainable population level, then this suggests we should try our best to determine what is a sustainable number of humans (considering variations by regions of the planet) and then set some goals. For example, a guesstimate (without proper analysis) might suggest 4B by 2100. Then using actual population growth factors http://en.wikipedia.org/wiki/Population_growth construct a “Planned Parenthood” policy that gets us there. This approach will probably show that the policy should be one child per X couples – and X is probably a double digit number. Such a policy would drive other policies such as totally free birth control, sterilization, and abortion. Along with tax policy to discourage child bearing, encourage homosexuality, and a massive education program – among other measures.

    6) 40 mph speed limit: a 35 mph limit would be better (maybe even a little less). I think the goal is more than lowering fuel consumption – it is also to stop wasteful consumption of natural resources for trivial transportation needs. At some lowered speed limit, we could envision several benefits – no crash protection being needed which then paves the way for Neighborhood Electric Vehicles and Human Powered Vehicles (NEV-HPV) as one no longer has to worry about getting clobbered by a 70 mph, 2-ton SUV piloted by driver who feels almost immune to harm; significant reduction in road maintenance especially if 3/4 of the roads are closed to heavier service vehicles (busses and delivery vehicles); a much greater demand for higher speed public transportation; health improvements as walking and cycling become more practical and less dangerous.

    However, our suggestions are just idle conversation as very few people believe there is any real problem that would justify these drastic measures. And this is the catch 22 – in order for people to be able to grasp the gravity of our predicament, they would have to be free of the political, economic and religious ideologies that prevent them from understanding the simple physics and math of “Limits to Growth” and the limited power of technology once the FF energy supply diminishes. My addition to your list of “solutions” is to make it a criminal offense for anyone (parents included) to indoctrinate children with the equivalent of Dennett’s Lancet Fluke analogy http://www.ted.com/talks/dan_dennett_on_dangerous_memes.html These topics should only be explored in a science based educational setting when the child is older. So, fat chance of this becoming law!

    Hi Don Sailorman,

    As always, I enjoy your thoughtful comments and appreciate the time you put into them. It is equally disappointing to see your rational thoughts pounced upon by people offering more flame than substance. BTW, (off topic) did do the WI MS 150 in August – probably my last one – got my 10 yr jacket, but getting too strenuous for the old body.

    • Hi Bicycle Dave,

      Today in St. Paul the weather was just fine for biking. I love my three speed Brompton folding bicycle and will keep it so long as I can keep my balance on two wheels. Eventually I will change to a recumbant or semirecumbant adult three wheeler, but I am fighting hard against old age and am greatly reluctant to give up activities that have given me great pleasure since the age of six. In the nineteen forties we used to race our bicycles on ice for hours at a time. That is great fun. Nobody wore a helmet and and not once did anybody get hurt enough to go home to mama. Did you ever race bicycles on ice? Once you learn how to do it, it is relatively easy.

      • Hi Don,

        I don’t want to hijack Gail’s thread with a personal conversation, so I’ll just briefly comment that it’s also abnormally warm here a bit north of Milwaukee; no, not many kids biked on the ice in Duluth (think really big hills!); and please consider a recumbent (2 or 3 wheel – we have both) as the body-friendly position can prevent lots of aliments related to aging – I’ve been a bent rider for 10 years and should have switched 10 years before that. If you feel the urge to talk more about recumbents, just ask Gail to send me your email address.

  10. This will try to respond to some claims made about land redistribution, the points made about the Locavore food movement, and the principles of Permaculture…based to a considerable extent on my own experiences.
    http://www.lavidalocavore.org/diary/5233/carrots-are-not-enough-the-limits-of-the-local-food-movement
    http://www.patternliteracy.com/668-what-permaculture-isnt-and-is

    Troutman has three main points: (1) You can’t recreate what never existed (food has usually been traded over long distances by water) (2) Access isn’t the only issue (people will eat chocolate sundaes and corn chips rather than the healthiest spread of local food prepared by a celebrity chef) (3) Localism, as a style, has never succeeded anywhere, on anything. (people go for the cheapest, which is likely traded).

    I agree with the first point…which is why I think Permaculture and Intensive Grazing and perhaps Will Allen’s efforts are part of our solution. All three of these rely on pretty recent discoveries in science. They are not the way your great-grandfather farmed. I agree with the second point. As a society, I think we have a choice…we can restrict the Big Food companies by law or else most people will eat themselves sick. It is very clear to me that we cannot afford, as a society, to keep those who eat themselves sick alive. So…we are probably going to have a Black Death experience. I also agree with the third point partially.

    Now the nuances. The great distances over which non-perishable food was shipped by the Greeks and the Romans was in a much smaller world. Most of the people and most of the farms were close to navigation. It will be a lot harder to manage transportation in a Peak Oil world where vastly more of the agricultural land is far from navigable water and the people near the oceans are in peril from rising sea levels. Which tells me that those of us who live inland, but have access to land for growing food, are probably going to become a lot more Local than the Greeks and Romans. If the railroads and the barge lines continue to work in the US, then the grains which supply a lot of our calories can still be distributed reasonably cheaply.

    What about the localism of the human spirit? Humans are famously capable of conflicted behavior. We can exhibit hatred and love almost simultaneously. It is quite possible to go to the store and buy the cheapest wheat, while dealing with a farmer you know to get tomatoes, while teaching your children how to grow climbing beans in the garden. In short, there is a continuous gradient between the purely economic and behavior motivated by love. I have no faith that the behavior of humans can be ‘designed’ by bureaucracies to fit comfortably along that gradient. Everyone is going to have to find what works for them. The best governments can do is get out of the way–today they strongly support the financialization of everything…which is killing us. (I am not alone in this belief. Many Permaculture practitioners and Charles Hugh Smith say something similar.)

    So is Permaculture the solution to all ills (defined to include intensive grazing a la Alan Savory and perhaps Will Allen’s Growing Power efforts)? If you read Toby Hemenway’s essay, you will begin to understand that Permaculture is an attempt to solve problems in the most efficient ways which also serve both humans and the rest of the ecosystem. Humans are seen as part of the ecosystem, and intelligent participation in that ecosystem is our best hope. Permaculture is thus a contrast to the early exponents of science who talked about ‘dominating nature’. Permaculture is definitely not synonymous with ‘legally organic’.

    Toby does not talk in his essay about the gorilla in the room…how many people would a Permaculture Earth feed in a world of Peak Oil? If you look at the How To Save Humanity But Not Civilization talk he gave at Duke, you will get a clue. In the Q and A, which is not in the video, he said that his guess is somewhere between 500 million and 2 billion. If Big Food succeeds in creating a Black Death experience, it might help us achieve those levels (that is supposed to be said with a wry expression on the face).

    In short:
    1. We really need to keep ocean and river and canal transportation alive. We also need to keep the (probably electrified) railroads running and very probably rebuild branch lines.
    2. We need to implement all the tricks we can borrow from Permaculture in terms of carbon farming, water use, etc.
    3. Each of us needs to find the right combination for us on the gradient from economics to love.
    4. There really is a difference between dry commodity crops and perishables. Understand the difference.
    5. We need to face the power and intentions of Big Food without illusions. If a Black Death experience is the only reasonable outcome, get ready for it.
    6. Against all odds, we need to try to make government helpful rather than destructive.

    Don Stewart

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