Tuesday, December 30, 2008
How do you define value?
How does our culture define value?
What are the most valuable possessions in your life?
What are the most valuable experiences in your life?
I answered these questions for myself recently, and my responses had me thinking about how value is quantified in the marketplace by pricing goods and services. This of course led to more questions, most of which I won’t bore you with. But there is one question I want to discuss:
Are prices an accurate reflection of value?
The anatomy of price isn’t too complicated. A given commodity is produced at a cost to the capitalist who owns the means of production, and the capitalist sells the commodity at cost plus whatever profit he can get away with in a competitive market. When you add sales tax to the picture, you have a rough equation of price: production costs + profit + taxes = price. It’s pretty simple, maybe too simple.
Price is the most universal and influential market signal in the economy. At the most fundamental level, price is simply value quantified. And participants in a money-based system of trade depend on price to assess relative value in the market. As such, prices must accurately reflect the true costs of production in order to properly inform the decisions of consumers.
To illustrate what I’m describing, here is a concrete example (it’s a bit unrealistic, but bear with me):
Let’s say you go to a market to buy shoelaces, but when you find some, you notice that they are more expensive than a new pair of shoes in the next stall. You immediately conclude that either the shoelaces are overpriced, or the shoes are underpriced, because the shoes are clearly more valuable than the shoelaces, and prices should reflect that. At the risk of pushing this example too far, let’s assume that you do a little more comparison shopping to gain more information about average prices of shoes and shoelaces.
You go to another market and find that with a few exceptions, the shoes at the second market are more expensive than the pair you saw at the first market. But when you look at the shoelaces, you realize that all of them are less than half the price of the ones at the first market.
Now you have a picture that makes sense -- you have found prices that reflect relative value more accurately, and you buy the cheap shoelaces at the second market. I know this example was a bit tedious, but it shows the kind of rational self-interest that lies at the heart of the free market system, and it demonstrates the importance of price as a market signal that informs the decisions of both consumers and producers.
Understanding the Power of Price
Understanding the pricing mechanism (i.e. how prices are assigned) has always been an essential principle of economic theory.
The early political economists of the 18th century observed that price performed a vital function within the capitalist system. They saw that flexible prices maintain a fairly stable balance between supply and demand in the market – high prices ration scarce goods and low prices prevent excess supply. This was a perfectly logical and accurate conclusion. And like any good idea, it was refined by those that followed.
In the early 20th century, for instance, the trust-busting of the Gilded Age was aimed at encouraging competition in the market to prevent price gouging by monopolies. This is an important example of necessary government intervention in the marketplace. Child labor laws, occupational safety, minimum wages, etc. were also necessary interventions. So clearly, government has a crucial supervisory and regulatory role to play in the market. We don’t want a completely laissez-faire economic policy. But that is essentially what we got during the Reagan/Thatcher consensus of the 80s.
For the market fundamentalists informing their policies, price was seen as the ultimate regulator of the market. Little else was needed to regulate the market: so, if the price of oil rises, so too does the incentive to produce more or compete by offering alternatives. In this way the market was always checking itself through competition among businesses and a capitalist economy was seen as a self-regulating system. This thinking became very influential in the 70s and 80s after Milton Friedman won the Nobel Prize for Economics in 1976.
From then on, he and other Chicago School monetarists guided U.S. economic policy toward less regulation, monetary management of business cycles by the Federal Reserve (rather than fiscal management as Keynes suggested), and lower business taxes. At the same time, largely unfair international trade was rapidly expanded through the Structural Adjustment Programs of the World Bank and IMF which opened much of the world up to foreign investment and foreign imports.
It's been called neocolonialism, neoliberalism, and (a little less accurately) globalization; it's even been sugar-coated as free trade! To call the institutionalized exploitation of people and the destruction of the planet 'free trade' is truly to enter the realm of Orwellian doublespeak. We can sugar coat it all day long in the rich world to make ourselves sleep better at night, but globalization has been a jagged little pill to swallow for the poorest in the world. And that's putting it mildly.
I found my rose colored glasses.....finally!
If there is a silver lining in the current economic carnage, it’s that these neoliberal economic policies, introduced to America and the world during the Reagan administration, have at last been exposed for the fraud they truly are. Any pretense that we live and work in a free market has been smashed by a nauseating series of “too big to fail” bailouts. This is corporate welfare on an unprecedented scale.
For the past few decades, the government has privatized corporate profits, while socializing corporate risk. And the whole time our leaders (Republican and Democrat alike) chanted the tired mantra of Milton Friedman and his Chicago School cronies: 'de-regulation and free trade will lift the world out of poverty'--as if these policies were designed to help sub-Saharan Africans or the American taxpayer!
Recent history is our best teacher. Undermining our trust in the guidance of capitalism's venerated 'invisible hand' was the economic reality that average real wages for the American taxpayer were stagnant while the tax codes became increasingly regressive. A glance at the world's news headlines brought home the tragedies of an entire continent crippled by the AIDS pandemic and the predatory lending practices of the World Bank and the IMF. We watched in utter powerlessness, as free trade put millions of small farmers out of business throughout the so-called 'developing world' by exporting the cheap, subsidized cash crops of Europe and North America, thus undercutting the price of local produce in places like Mexico.
This is the ugly side of unregulated economic globalization--speculative bubbles on Wall Street and Main Street, a widening gap between rich and poor, and the transformation of rural, semi-autonomous peasants into urban proletarians beholden to the mercy of unfettered capitalism. In the urban context, these farmers suddenly find themselves without any marketable skills and they are forced to join the ever growing population of unskilled workers.
As the ranks of the urban working class swell around the world, there is a race to the bottom in poor countries in terms of working conditions and wages. The labor market is over stocked and competition is fierce. At the other end of the supply chain, the average Wal-Mart shopper is comfortably oblivious and well insulated from these realities.
So, Wal-Mart shoppers, why the comfortable oblivion?
Why do we continue to delude ourselves about the impact of our consumer choices?
Could it really just be down to those rock bottom prices?
In a word....YES
Pickin' on Wal-Mart....again....cuz they deserve it!
In their single-minded pursuit of their corporate responsibility to keep their shareholders happy, Wal-Mart has found the perfect business model for our time: great quarterly profits with no accountability. Wal-Mart understands that for the average consumer, price is the bottom line when making a purchasing decision. All things being equal, we choose the lowest price. That’s why people still shop at Wal-Mart. Everybody knows that their standards ethically and ecologically inferior to those of most local businesses. But the products are roughly equivalent and MUCH cheaper.
Most importantly, when you walk into Wal-Mart, the heavy problems of the world are conveniently out of sight and out of mind. You aren’t stumbling over an under-fed child laborer busy sewing the seam into your new blue jeans on your way to the check out line. And you don’t have to breathe the air in downtown Shanghai as you push your giant cart around either. That’s the genius of Wal-Mart’s business model!! They have zero accountability! They can exploit people and the environment without paying for it!!
This is the glitch in the system: corporations are allowed to externalize environmental and social costs and therefore prices lie.
What if consumers were aware of the full costs associated with producing the goods they buy?
And what if producers had to purchase the right to use our ecosystem services?
What if they also had to pay living wages to their employees, even in China?
Imagine an economy that fully accounted for the value of our planet and its people -- do you think buying a happy meal would cost more or less in that economy?
There is clearly much of great value that is simply not priced into the market. Think of all the things we depend on our ecosystem for:
-- natural resources including fossil fuels, soil, metals and minerals
-- climate stability via natural carbon sinks such as the algae in the sea and the trees in the forest
-- biological diversity
-- the food we eat, the water we drink and the air we breathe.
These are some of the essential services our ecosystem provides for free. Taken together, the ecosystem services support our very livelihood as a species. Without a functioning ecosystem there is no economy.
So if economists love numbers so much, why haven’t they slapped a price tag on these vital ecosystem services? The easy cop-out answer is that they’re priceless. But the truth is that they’re not priced because you can’t make money buying and selling them. They belong to every living being on the planet, so private property laws simply don’t apply. And as a result, these vital services are invisible to the market.
You can’t own climate stability, but unfortunately you can own a dirty coal-burning power plant that robs it from future generations. This is what is broken. This is why price is not a good enough regulator. Until we figure out a way to price the damage we’re causing to our own life support system, we cannot depend on price to guide markets effectively.
Wednesday, December 24, 2008
This site is intended to empower individuals and communities to take bold action in response to our worsening ecological predicament. Human population and consumption are rapidly outstripping the carrying capacity of the planet. The signs are all around us – every ecological indicator shows that human activity is putting enormous stress on the biosphere.
And we all know the folly of destroying our only life support system....yet we carry on, hypnotized by a million diversions, paralyzed by fear or simply ignorant to the reality that we are all complicit servants of a profligate culture, a culture that has set us on a collision course with mass die off. The time for a mainstream, popular critique of this culture is long overdue.
I firmly believe that such a critique can liberate us from the destructive patterns of habitual consumption that define modern civilization. I want to contribute to that critique. And my goal is for this blog to become a thriving grassroots forum facilitating discussion about local, community action that can make a difference. We have no time to waste!!
Disavowing consumer culture will require that we restructure and rescale our global economy as well. An economy that is driven by feckless consumption, dirty production and supply chains that criss-cross the globe is an economy that’s categorically unsustainable.
Simply put, the global economy is far too large. We need to shift our focus away from the blind pursuit of economic growth, toward the goals of economic downsizing, re-localization, and restructuring. Only then can we collectively engage in an orderly retreat from this peak of population and consumption.
Right now Americans borrow, borrow, borrow, spend, spend, spend – thus lining the pockets of the modern day oligarchs whom we call CEOs. Instead we need to save, invest and produce in America, for America.
It’s time to rebuild a productive domestic economy that can deliver necessities to the masses without reliance upon imports. It’s time for us to voice dissent to power; time to question our most fundamental assumptions about wealth and value; time to push hard for the change we need. The true power in every society lies with the people.
Humanity is currently undergoing a great cultural shift precipitated by a host of ecological constraints. We are living in a time of unprecedented change, and our collective response is critical – it’s evolve or die time.
Will we choose to build stronger communities to share scarce resources? or will we allow civilization to unravel through a series of bloody resource wars?
Will we proactively make the sacrifices required to create a more ethical economy? or will we stand by while famine and disease continue to ravage the poor and while the cancer of economic growth continues to eat away at the scant remaining natural resources of the planet?
How long will we go on stealing from future generations?
These are the most pressing ethical questions of our time, and the only answers that matter are actions. We are the ones we’ve been waiting for.... what will we do now?
Monday, December 22, 2008
Saturday, December 20, 2008
Basically, it’s a glorified cap and trade system resulting in a currency that represents an allowance to emit carbon. To launch the currency, every nation in the world is issued a pre-determined number of credits based on their population. Once the currency is issued, countries can trade their carbon credits freely—the idea being that energy hungry countries would buy credits from poor countries, thus distributing wealth more evenly around the world.
If this was implemented in combination with an Oil Depletion Protocol to prevent wild fluctuations in the price of oil and food, perhaps Africans could keep eating past 2020.
Friday, December 19, 2008
Our economy is so fucked!! I gotta get this out:
Our monetary system is the biggest pyramid scheme in human history. We have inherited and fully embellished a fractional reserve banking system that depends on ever expanding levels of debt in order to stay afloat. Private banks, with the assistance of the Federal Reserve have virtually unchecked power to control the money supply; they create new money every time they make a loan. And since the 70s, a growing proportion of big industrial and corporate loans are made with absolutely NO reserve requirements!!
These loans are being funded with bank CDs and money market deposits, not hard currency held in reserve at a central bank. This has allowed overall loan to reserve ratios (i.e. leverage) in our financial system to skyrocket. Even checking account deposits are overwhelmingly comprised of debt money. Banks are only required to hold 10% of their total checking deposit liability in reserve at the central bank. Further complicating this picture is the market for securitized debt. This enables financial institutions to essentially pass the buck, by selling their liability to a third party, thus getting it off their own balance sheet.
At the same time fractional reserve requirements for FDIC-insured banks were falling to next to nothing, the Federal Reserve was pursuing the most profligate monetary policy in U.S. history under the auspices of the highly revered Alan Greenspan. After the tech bubble burst in 2000, he ramped up the stimulus by slashing the fed funds rate to 1% and kept it there for a year!! The financial services industry had a field day with the easy money and we know the result all too well – a massive credit bubble that inflated housing prices and a wide range of other assets.
But at the time we didn’t recognize this monetary policy as inflationary – we thought it was fuelling real growth because the economy was effectively being subsidized by cheaply imported consumer goods from China. So the Consumer Price Index was stable, and core inflation was within a healthy range. But if you look at the expansion of the money supply over this period, it’s absolutely shocking – we’re talking exponential growth in debt money. And where was the commensurate growth in economic productivity? Was it in the magical financial engineering that created the now infamous slew of structured debt instruments? Was it in the flip-a-house get rich quick scheme out in Calee-fornia? Seriously, what do we have to show for this rapid expansion of the money supply?
Well, we got a massively over-leveraged financial system + a massively indebted federal government + record levels of household debt, which = Peak credit!!
A conversation between me and my evil twin about the implications of peak credit: Enjoy!
ME: Right, so this is peak credit – maybe that’s OK. After all, a little debt deflation is just what the doctor ordered for this bloated economy, right? Loan defaults will rise for a while, but at least it will encourage people to stop borrowing, start saving and pay off their debts if they can. And most importantly, it would allow financial institutions to de-leverage – restoring loan to reserve ratios to more normal levels. What’s wrong with allowing all of that?
MY EVIL TWIN: Did you say you want to encourage Americans to save? We can’t allow that. 70% of our economy depends on them buying shit they don’t need – that’s why they’re called CONSUMERS. Save? Ha, that fell out of fashion back in the 80s. If we saved as much today as we did in the 70s, our economy would hemorrhage jobs, and Starbucks would become an endangered species. And I, for one, like my gingerbread lattes this time of year. So please, get off your “We need to encourage savings” soap box.
ME: Alright I’m off it already – agree to disagree. Let’s talk about how to best stimulate the economy. Obama’s fiscal stimulus sounds promising, but the Fed seems determined to re-inflate the money supply at all costs. This is wrong-headed and reckless to say the least. Any effort to stimulate the economy during the now-unavoidable deflationary recession should come in the form of fiscal investment in projects of real long-term value to the American people. Can anybody say renewable energy infrastructure?!? Why can’t we stick with that? Why do we have to keep pumping money into the financial system? Aren’t they the ones who got us into this mess?
EVIL TWIN: We need both a fiscal and a monetary stimulus because deflation is the Fed’s worst nightmare. Honestly, given the size of the current money supply, unchecked deflation should be everyone’s worst nightmare. We owe it to ourselves to at least try to make an orderly retreat from this debt peak. The value of the dollar will suffer as the Fed prints hard currency to buy government debt (i.e. monetizing debt instead of selling bonds on a market that’s soon to be saturated with too many govt. bonds). Budget deficits will soar. And there will be more layoffs across all sectors of the economy as banks deleverage and credit markets stay tight. There may even be mild deflation. But perhaps we can avoid the worst case scenario of repeating the Great Depression. We’ve already committed to sinking $5 trillion into this money pit, and we still have a threat of deflation – this recession could be far worse than anyone is predicting. That’s why the Fed has to print right now. There’s not another choice.
ME: I hate your evil logic. Damn, our economy is so fucked.
Saturday, December 13, 2008
"We need to end all of these bailouts and allow deflation to happen. The bailouts aren't working anyway, so what's the point? Assuming deflation is a bad thing is a fallacy. It's precisely what the economy needs to purge the bad debts from the system."
O.K. so those were the main points; it's an argument I hear quite a bit these days, and understandably so. The TARP plan keeps morphing into something new every week, and nothing seems to be slowing the collapse of the retail and housing sectors. However, given the levels of debt in our economy, deflation is a dangerous threat and without monetary and fiscal stimulus, it will cripple our economy for years to come.
The Bubble's Deflating...
Assuming that deflation is a bad thing for the economy is not a fallacious premise. An environment of falling wages and prices at a time when we have record levels of private debt will surely lead to a massive spike in defaults, further destabilizing our already fragile financial system.
If nothing is done to prevent this we really won’t have the capital we need to invest in alternative energy infrastructure. That is why I support the coming Fed rate cut, which will likely be 50 basis points, as well as further monetary easing by other methods. The fed funds rate is quickly approaching 0%, so cutting rates will not be an option much longer.
Nouriel Roubini has called for more monetary easing by unorthodox means to avoid a liquidity trap when we reach 0% interest. In a recent op-ed for the Financial Times, he recommends that the Fed begin purchasing commercial paper, mortgages, mortgage-backed securities (MBS) and other asset-backed securities in order to add even more liquidity to the financial system. You can read the full article here:
Believe me, I have my doubts that this will work. I am more of a Keynesian than a monetarist, but given the severity of the contraction in the money supply (which i’m sure you know is just loaned into existence), it seems worth a shot.
More than monetary easing, we need a massive fiscal stimulus in the form of investments in alternative energy infrastructure and electrified rail transport. Check out Van Jones website http://www.vanjones.net/ or his book about a new “green collar” economy for more info. His plan is solid – not saying it’s destined to succeed, but it’s sensible. At the moment, government is the only entity capable of borrowing and investing on the scale we need. This is basically our only choice because the American economy needs to be massively restructured, and fast. Our current role in the global economy is that of the reckless spendthrift of the world, and we just maxed out our credit card. The only line of credit left for us is to issue government bonds.
Unlike some, I don’t think foreign bondholders will dump Treasuries anytime soon. Where else will they park their cash? Gold? Oil? Stocks? Those have all proven to be far more volatile than U.S. bonds.
It's also important to remember that what is good for the U.S. dollar is good for China (currently the largest foreign bondholder in the world). It’s a dysfunctional, utterly destructive relationship from an ecological standpoint. But the fact is that we are co-dependent right now -- we need their exports and they need our custom, which depends on the strength of the dollar. So China can’t afford to dump its dollar reserves; and China just surpassed Japan as the largest foreign holder of U.S. govt. paper. The trend is moving in the opposite direction to that which you suggest: U.S. govt. issued paper is the safest investment out there, you don’t get a return on your money, but at least you’re not going to lose your ass tomorrow. I’m not arguing that the future solvency U.S. govt. is a foregone conclusion. It is not, particularly if we fail to restructure our economy. I’m just saying it’s a better short term bet than anything else out there.
Here’s some brief background info on the inherent, structural vulnerabilities of the U.S. economy (I’m sure you’ve heard it all before :)
The neoliberal economic policies of the Reagan administration ushered in a new era of de-regulation for the financial sector, which over the past three decades has ballooned in size to comprise roughly 20% of GDP.
This boom in finance, what Kevin Phillips calls the “financialization” of the U.S. economy, has occurred as part of the larger trend of globalization opening the world to so-called free trade.
Concurrent to the rise of finance has been another trend of globalization: the decline of America's manufacturing base. In the 70s, manufacturing was twice as large as finance; now it's just the opposite, with manufacturing only accounting for around 12% of the economy. For thirty years these trends have gained momentum, creating an economy that is utterly dependent on convoluted financial transactions, debt, and most of all, consumer spending.
Currently 70% of America’s economic activity is driven by consumption, and everything from energy to fresh produce to shoelaces is imported. Seriously, everything is imported.
Now, having made those points earlier about the dangers of deflation and how to prevent its worst consequences, I want to stress that I understand that we are past ‘peak credit’, if you will. De-leveraging needs to happen right now; the collective private debt burden in our economy needs to be dramatically lower. So some debt deflation is inevitable. That is why the banks have hoarded the bailout money rather than lending it. After watching the value of their assets plummet, they are restoring solvency to their operations, and in the process lowering their risk by making fewer, more careful loans.
All of this adds up to much less debt money circulating in the economy, or as Kunstler puts it – we are hemorrhaging pixel money. I recognize that no amount of monetary or fiscal stimulus will stop the bleeding. But it may slow the bleeding, and that’s important right now. The credit bubble has popped, and there is no re-inflating it. However, properly guided investments aimed at restructuring our economy can slow the rate that the bubble deflates. We can’t reverse it. It had to happen eventually because our total debt (public and private) to GDP ratio had reached an unsustainable level.
The total debt to GDP ratio for the U.S. economy before the subprime crisis was an incredible 3.5 to 1, far higher than it was in the late 20s before the Great Depression. In 2007 the total amount of debt in the U.S. (household, business, financial and govt. sectors) was a staggering $53 trillion. Only about $10 trillion of that is the national debt, so the vast majority was private debt, and a little local and state govt. debt.
I mention these numbers to point out that the credit bubble was largest in the private sector. The government can de-leverage later, right now we need an emergency blood transfusion from the public to the private sector.
Thursday, December 11, 2008
Sunday, December 7, 2008
I do hate to disappoint my loyal fans, but unfortunately I'll have to keep y'all waitin' fur the time bein'. I don't want to just post a bunch of steamy dog crap, so I'm gonna employ the use of the few brain cells in my head that managed to survive my youthful debauchery, and I'm gonna create something truly special. Stay tuned, you won't want to miss it...trust me.
In the meantime this quote from Teddy Roosevelt will have to keep you entertained and inspired. It's a good little nugget of wisdom from a guy who wasn't all bad. He's kinda the Ernest Hemingway of dead presidents -- if nothing else, you gotta love his style.
"It is not the critic who counts, not the man who points out how the strong man
stumbled, or where the doer of deeds could have done better. The credit belongs
to the man who is actually in the arena; whose face is marred by the dust and
sweat and blood; who strives valiantly; who errs and comes short again and
again; who knows the great enthusiasms, the great devotions and spends himself
in a worthy cause; who at the best, knows in the end the triumph of high
achievement, and who, at worst, if he fails, at least fails while daring
greatly; so that his place shall never be with those cold and timid souls who
know neither victory or defeat." --Teddy Roosevelt
I thought this might encourage the couch potato in all of us to cower shamefully into a dark corner so it can curl up and die forever. Peace out.....
Wednesday, December 3, 2008
Off to an ugly start....
Classical economic theory has its roots in European colonialism. As Europeans expanded throughout the world exploiting the resources of newly discovered lands and peoples, massive new wealth began flowing from the colonies into Europe, and the money supply grew rapidly. These were the early days of capitalism. Some powers, such as Spain, extracted raw money, in the form of gold and silver bullion, from their colonies. Others extracted raw materials and then added value through manufacturing (i.e. British furniture makers using American lumber). And of course the most brutal and inhumane colonial enterprise was the institution of chattel slavery in order to maximize profits through the cultivation of cash crops. Regardless of the specific strategy, the goal was simple: to bring wealth back home to Europe.
For the European societies at the receiving end of this epic transfer of wealth, the discovery of the New World must have felt like finding a hidden treasure of inexhaustible abundance. The proverbial ‘land of milk and honey’ had at last been found, and the European powers began hoarding copious amounts of gold and silver to signal their newfound wealth. Resources were there for the taking, and the only factor limiting production was labor.
Not surprisingly, the greedy ambitions of these early entrepreneurs afflicted them with an insatiable appetite for cheap labor. This blinding self-interest is the original sin of the free market and it set capitalism on an unethical and inhumane course which led to the enslavement and subjugation of countless individuals all across the globe. For these unfortunate souls, European expansion and the imposition of merchant capitalism were twin curses that forever changed them. Timeless traditions were banned, languages lost, and entire cultures muddled as the Portuguese, Spanish, English, French and Dutch marched across a world they felt they owned.
A Few Enlightened Souls?
Far from the front lines of colonial exploitation and oppression, the first thinkers to attempt to explain the inner workings of capitalism emerged out of the European Enlightenment. Among them the political economists of the Scottish Enlightenment took the lead. During the late 18th century, as the industrial revolution was just beginning to ramp up in Britain, the world was introduced to the first fully articulated theory of self interest, division of labor and free trade. Appropriately enough, Adam Smith published Wealth of Nations in 1776, the year a bunch of rebellious British transplants in America decided to throw off the yoke of merchant capitalism and make their own money.
Wealth of Nations is widely regarded as the founding treatise of capitalism. In it Adam Smith criticized the restrictive tariffs of merchant capitalism, or mercantilism, and touted the free market as the most efficient mechanism for allocating the resources of society. In the most often quoted and paraphrased excerpt from his magnum opus, Smith employed his now famous metaphor to describe the miraculous efficacy of free markets:
“the invisible hand” of the market ensures that the pursuit of individual self interest in the marketplace will naturally benefit the whole of society. This was clearly written before the age of derivatives markets and credit default swaps and securitized debt. It seems more than a bit naive to assume that the selfish whiz kids on Wall Street who devised these investments were naturally benefitting society.
Among the most incisive observations presented in Wealth of Nations is Adam Smith’s labor theory of value. Smith recognized that in an industrial system, labor was the essential medium of exchange in the economy. In the previous agriculture based system of feudalism, one’s wealth was equal to the amount of productive land one controlled.
But in societies characterized by a high degree of specialization within the work force, where workers depend on the markets to provide for their needs and wants, one’s wealth is measured by the amount of labor one can purchase in the form of goods and services. So for Smith, the value of a given commodity was roughly equivalent to the trouble and toil that went into producing it.
This was a brilliant insight, and in the 18th century, Smith had no way of foreseeing any limits on production other than labor. In his world, it made perfect sense to think of labor as the only significant factor limiting production. But in the modern world, when efficiency improvements are replacing human labor and natural resources are being extracted at unprecedented rates, labor is no longer the key to understanding value in the economy.
In our time, resource scarcity, pollution and population growth comprise a set of unprecedented ecological limits to growth. These are new limits for us, and we need new thinking about how to adapt an economy that fits within them.
Beyond Wealth of Nations
With the publication of Wealth of Nations, the field of economics was born, and later contributors elaborated upon the ideas of Adam Smith. One of the most significant early developments was David Ricardo’s theory of comparative advantage, which presaged globalization.
Ricardo made the observation that if country A was blessed with a tropical climate and a year-round growing season but no fossil fuel, and country B had a massive endowment of coal but harsh winters; then country A should exchange its fresh produce for the coal of country B.
This insight eventually led to a rapid expansion of international trade. International trade of this kind can be understood as simply another type of division of labor; it is specialization between nations rather than workers.
During the nineteenth century, John Stuart Mill was the first economist to write about the value of preserving nature. Like a true Romantic, Mill waxed poetic when lamenting the prospect of watching the whole earth divided and conquered by the capitalists. In Principles of Political Economy, Mill issued a prophetic warning to the future generations of industrial society regarding the environment:
There is little satisfaction in contemplating the world with nothing left to the
spontaneous activity of nature; with every rood of land brought into
cultivation, which is capable of growing food for human beings; every flowery
waste or natural pasture ploughed up, all quadrupeds or birds which are not
domesticated for man's use exterminated as his rivals for food, every hedgerow
or superfluous tree rooted out, and scarcely a place left where a wild shrub or
flower could grow without being eradicated as a weed in the name of improved
agriculture. If the earth must lose that great portion of its pleasantness which
it owes to things that the unlimited increase of wealth and population would
extirpate from it, for the mere purpose of enabling it to support a larger, but
not a better or a happier population, I sincerely hope, for the sake of
posterity, that they will be content to be stationary, long before necessity
compel them to it.
Unfortunately he never fully explained how nature is valuable to the economy, or how a system which depends on processing natural resources might temper its destructive proclivities.
Taken together the ideas of Smith, Ricardo and Mill represent the nucleus of mainstream economic thought to this day. Criticisms and contributions have fallen in and out of favor (i.e. Marxism, Keynesian economics, supply-side monetarism). But the core set of conclusions that emerged from classical economics remain fundamental and unchallenged.
So, we have essentially inherited an eighteenth century economic paradigm. We believe in the efficiency of the so-called free market. We regard division of labor, including international trade, as a net positive for society. And we depend wholeheartedly on prices to balance the supply and demand in the market. Unfortunately, these assumptions don’t make sense in our time.
For example, classical economics fails to acknowledge that growth on a finite planet has limits. In fact a central premise implicit in conventional economic theory is that such limits are illusory. A classical economist would argue that as the natural limits of a given resource are approached the price of the limited resource increases, which creates an incentive for the market to invest in alternatives and/or more efficient productivity. Thus economic growth, albeit in a new direction, can continue in spite of the limit.
However, when the scarce resources in question include everything from fresh water and top soil to crude oil and natural gas, it seems ludicrous to assume that the market can truly deliver enough in the way of alternatives and increased productivity to allow for this hypothetical, perpetual economic growth.
My next essay will focus on how the field of ecological economics proposes to redress the glaring ineptitude of the markets to deal with limits.
Friday, November 28, 2008
From Spendthrift to Thrifty:
An Introduction to Ecological Economics
A couple of weeks ago, I listened to an interview that introduced me to the field of ecological economics. The man being interviewed was Nate Hagen, a doctoral student at the Gund Institute for Ecological Economics at the University of Vermont. I found his insights fascinating and after hearing his brilliant synopsis of the topic, I decided to learn more about it. By the way, you can find several good interviews with Nate and his colleagues by following this link:
Ecological economics represents a fresh new approach to understanding our market system. Central to this approach is the notion that economic activity does not occur in a vacuum; it happens within a rich context of human culture and social behaviour. And like every other human system, it is built upon ecological foundations.
We rarely pause to consider how completely we depend on the ecosystems of our planet. It’s a little like contemplating the miracle of DNA replication – we have a tendency to just take it for granted. This is understandable, particularly when the natural world is so vast and abundant that exhausting its bounty seems impossible.
It must have been difficult for people in past societies to imagine a world in which natural resources are becoming scarce and population is spiralling out of control. But we no longer have the luxury of naiveté. The most grievous oversight of contemporary mainstream economics is the failure to acknowledge the fact that every economic transaction depends on ecological stability.
As the current financial crisis has illustrated so dramatically, our global economic system is in dire need of a major overhaul:
- In our economy, prices lie. The market fails to include the tremendous environmental costs of production in the final price of the goods and services it provides. Prices are determined solely on the basis of cost of production plus profit margin. This dysfunctional pricing mechanism is a dangerous oversimplification of the true costs associated with production and it is misleading consumers.
- We have a broken monetary system of debt-based fiat currency which requires ever expanding amounts of public and private debt to maintain. Watch the video below to learn more about our fractional reserve banking system which essentially loans money into existence.
- We have a regulatory structure that, instead of being updated and expanded to deal with the challenges of globalization, has been systematically dismantled under the misguided tutelage of market fundamentalists like Milton Friedman.
- We have a lop-sided global economy that is driven by the consumption of wealthy nations and the production of poor nations (both of which are ethically and ecologically problematic). This is international trade run riot, and it leads to the notoriously long, wasteful supply chains that we euphemistically call globalization.
- The American economy is particularly vulnerable because so much of our economic activity is based on discretionary consumer spending to buy things that are imported from overseas. And the size of our productive economy has shrunk dramatically relative to the size of the service economy. Basically, we no longer produce our own necessities, we rely on imports for most of them, and what’s left of our economy is largely propped up by the unsustainable spending habits of the addicted American consumer.
So, what happens to our global economy when America realizes it has maxed out its credit card and the international spending spree grinds to a halt?
I think it’s called a CREDIT CRUNCH-cum-ECONOMIC CRISIS-cum-SYSTEMIC FINANCIAL MELTDOWN. At least that’s what they call it in the news.
Maybe this will get our attention.
Maybe we will finally muster the ethical courage to grab the reigns of our economy and guide the markets to deliver what humanity truly needs and wants: a global economy that is both humane and ecologically sustainable.
Maybe we’re ready for....drum roll, please....ECOLOGICAL ECONOMICS!!
**Part 2 of this series will be posted soon. It is a critique of classical economics in light of current ecological challenges.
Thursday, November 27, 2008
The talk I'm sharing today is about geo-engineering as a possible response to climate change. Sounds ambitious, I know. This has to be the ultimate techno-fix dream solution. Half-mad scientists have proposed all sorts of methods for artificially cooling the planet: a host of plans to sequester carbon for instance. I picture them scrambling behind the scenes with their research teams, desperate to patent the great silver bullet that saves humanity from climate chaos. But as crazy as it sounds, if climate change gets too scary too quickly, we may be happy to have an ace in the hole.
We all hope it doesn't come to that. We would love to believe that the human family is capable of coordinated, aggressive action to cut emissions in time to make a difference. But garnering the political will to tackle a problem that does not seem imminent is always difficult. Scores of climate scientists have testified before world leaders at these so-called 'earth summits', and we still lack the sense of urgency required to take bold action. Current evidence suggests we may have waited too late.
I think we are quickly approaching a tipping point with the melting of polar ice. The glaciers in the arctic circle are receding at an accelerating rate, and it's probably too late to reverse that trend by cutting emissions. Losing the polar ice would have all kinds of severe ripple effects, so a tipping point for polar ice melting is effectively a tipping point for global climate. Without the Greenland ice sheet for example, the gulf stream current stops, throwing Europe's climate into chaos.
The tough fact to consider is that CO2 concentration in the atmosphere represents the accumulation of carbon emissions over time. So even if we stopped emitting carbon tomorrow, the amount of CO2 in the air will still be far higher than the 350 parts per million target. And because we are rapidly destroying many natural carbon sinks through deforestation, it will take a while for mother nature to equilibrate. In other words, cutting emissions is a slow process, and it does not reduce the atmospheric concentration of CO2 over night. So, assuming the worst case scenario unfolds, what do we do to save the polar ice and preserve some semblance of climate stability? Support your local geo-engineer!
The method discussed in this video basically involves spraying loads of sulphates into the upper atmosphere to 'shade' the planet from the sun, particularly at the poles. We know that sulphates in the atmosphere have a cooling effect because scientists have observed it after the eruption of major volcanoes. Hypothetically, it could work. It could definitely cool the planet.
The obvious danger is that people assume that geo-engineering is a free pass to emit carbon. It is not. All it does is buy us more time to help mother nature recover balance. We have to reduce the amount of greenhouse gas in the atmosphere for a bunch of other important reasons. Geo-engineering is just a possible way of saving billions of lives in the meantime.
Hope you like the video. Post a comment and let me know what you think.
Monday, November 24, 2008
The real reason I have to share it is that I found her to be so inspirational. This is a truly brilliant and enlightened woman; and she speaks with such passion and hope about solving the most intractable problems of our time. Please take the time to watch this video. Jane Goodall has plenty of wisdom to share.
Thursday, November 20, 2008
In many ways, I am a product of the suburbs. As a middle class white male from Dallas, I am quite familiar with the setting and I’ve spent a large portion of my life either living in or visiting the suburbs. Almost my entire extended family resides there and my hometown is notorious for its sprawling suburban development. I know the suburbs. The suburbs are my home. Nevertheless, I despise what the suburbs represent: a psychological, social and ecological disaster.
More than any other settlement pattern, the suburbs embody the middle class American dream. We are all too familiar with the picture perfect fantasy: the white picket fence, the two story house, the 2 or 3 or 4 car garage, the meticulously manicured chem-lawn, and of course, the anti-depressed family of four with a dog and maybe a cat or three. As lovely as it sounds, this specific form of the American dream has had a ruinous social impact.
It has never been an inclusive dream. Historically, it was largely the dream of white people who desired exclusivity, security, and privacy. These are understandable values when you are raising a family. However, the reciprocal values of strong community, social justice, and mutual trust are equally important. The phenomenon of white flight shows which value set was preferred.
White flight during the decades following World War II was driven both by the pull of the suburbs and by the push of urban decay. These white families were motivated as much by the alluring prospect of suburban retreat as they were by xenophobia. Either way, white flight was an escape strategy; and the suburbs represent the divisive impulse of the majority to socially detach from the uglier side of society: the crime and poverty of deprived urban ghettos, for instance.
Unfortunately as whites fled the inner city, so too did much of the political will needed to address the glaring social inequalities that were at the root of the problem. Once your family had successfully retreated to the comfort of the suburbs, these social ills were out of sight and out of mind. The quality of public education in the inner city no longer affected your kids, so who cares if the city school district is corrupt, or schools are not getting the funding they need.
As a result, the inner city was chronically neglected and these problems were basically ignored. Over time they became more severe, creating an ever-widening achievement gap between privileged, white suburbanites and poor, inner city minorities. So the regrettable social legacy of white flight to the suburbs was a new era of de facto segregation in America.
To illustrate some of the nastier psychological effects of suburban development, let’s take a look at the most exclusive type of sub-division: the gated community. And just a reminder before we begin our tour – humans are social animals. What we call a gated ‘community’ could be more accurately described as a self-imposed suburban ghetto for the privileged with a security fence surrounding it. And for many it is the apex of the suburban American dream: exclusivity, security and privacy.
But there is little true community within these quaint gates of heavy steel. As you enter, you are immediately confronted with a security checkpoint staffed by the community’s very own private security force (usually a bunch of teenaged kids whose patrol duties include tooling around the neighbourhood on golf carts). 8 foot privacy fences, enclosed garages and guard dogs keep the neighbors at a safe distance and ensure that any uninvited outsiders are met with the hostility they deserve. The range of activities within the gates is quite limited: no shopping, no restaurants or cafes, no public life whatsoever. It’s essentially a place for scared rich people to sleep and eat in relative peace; a glorified dormitory with a massive padlock on the front door.
A general mood of suspicion and fear pervades most households because the entire design of the so-called community serves to alienate and isolate individuals, rather than fostering the mutual trust upon which strong communities are built. This is the American suburb in its most extreme form, shockingly similar to the settlement patterns of white South Africans during Apartheid. It’s time to do better.
The ecological impacts of suburban development are equally disastrous. This is perhaps the most obvious downside of the suburban living arrangement. Nearly everything about the suburbs is ecologically damaging. Here is a brief list of the problems:
1. The activities of the typical suburb are strictly zoned so that residential space is distinct and separate from commercial space. Traveling between these zones almost always requires a car because of the long distances involved and lack of pedestrian accommodation.
2. The houses are much larger than they need to be, which wastes building materials and energy. The size of your McMansion is a status symbol in the suburbs.
3. The conventional building materials used in home construction have very high embodied energy, meaning that they require lots of energy to manufacture and transport to the building site.
4. The houses are often very poorly designed and poorly built. A common design feature is the grandiose vaulted ceiling which wastes a ton of energy. Windows are often placed on west facing walls without any shade. In places like Texas, this can turn a room into a solar oven during the summer time.
5. Lawns are little more than grass covered chemical and fresh water sponges of questionable aesthetic value, and they are usually maintained with gasoline burning machines. The suburban lawn is probably the single biggest waste of resources within the typical household. Most lawns don’t even produce any useful food or herbs. They are literally just energy and water sinks.
6. Most suburbanites don’t work in the suburbs. Many drive long distances alone in their SUV just to get to work every day.
7. The predominant culture of ownership in the suburbs values private property over shared use. So everyone owns their own lawnmower and weed-eater, and it’s not uncommon to see 4 or 5 private backyard swimming pools on a given block.
Anyway, I could go on, but most of you have heard it all before. The bottom line is that this whole situation is a huge clusterfuck, and we have to figure out a way to fix it.
The Consummate Critic
James Howard Kunstler is one of the most outspoken critics of the suburban way of life. He has called it "the greatest misallocation of resources in the history of the world" and views the architecture of the suburbs as a symptom of our throw-away society. In his opinion, the massive investment dumped into suburban development after World War II not only wasted resources on a colossal scale, but also created a ‘geography of nowhere;’ a nation full of places that are not worth caring about. In addition he addresses the myriad and subtle ways that living in a landscape littered with strip malls and McMansions affects our attitudes and behaviors.
He has also criticized urban planners and modern architects, whom he dubs 'starkitects' for creating buildings and urban spaces that are scaled to accommodate machines rather than humans. A passionate champion of the principles of traditional architecture and urban design, he supports the emergent renaissance of the time-tested urban planning exemplified by many classic European cities. New Urbanism and the Principles of Intelligent Urbanism are two such approaches to urban design. Both draw inspiration from the cities of Europe and both can do much to revitalize the urban landscape, through an emphasis on creating quality public spaces for the community to gather, and through mixed use, human-scaled buildings which serve to bring the activities of the city together in symbiotic relationships.
Sensible design brings urban places to life – this is what the vibrant cities in Europe have going for them. Even the busiest European cities feel like a network of interconnected villages, particularly when you get off the beaten path. Almost every building is mixed use, with retail on the ground floor and private residences or office space on the floors above. And the settlement is always very dense, making neighbourhoods walk-able. Public space is emphasized and valued in the form of beautiful parks and plazas. This is a decent model for creating more functional, pleasing cities. The question of what to do with our existing suburban infrastructure is more challenging (more on that in future posts).
Kunstler refers to the built environment of America's suburbs as a ‘tragic comedy’; a cultural wasteland which does nothing to edify its inhabitants. The sad fact is that the suburban landscape was built for cars full of consumers, not people. Many of the places we have inherited are characterized by an alienating infrastructure which discourages one from truly engaging with others and enjoying a place.
Instead, we have grown accustomed to the drive thru convenience of our built environment. That peculiar kind of convenience, which is utterly inconvenient unless you drive everywhere, has become the primary value for most Americans when they interact with their urban environment. For them, the convenience of their driving experience takes priority over quality -- so it's more important to get a burger at the drive thru in less than 2 minutes than it is to get a decent burger. Likewise, every major urban development includes a gargantuan multi-story parking garage or a massive slab of asphalt to park the cars, regardless of the aesthetic sacrifice. In this way the built environment is simply a reflection of the deeper values of our throw away culture.
The same culture that is seduced by the glorious efficiency of McDonald's and disposable everything: plates, cutlery, contact lenses, diapers, etc. also accepts expendable buildings which are no longer aesthetically rewarding, but exist solely to facilitate our primary function in modern society, which is to consume. These facilities of consumption do little to foster any other type of activity within the community. They are designed to get you in, get you spending, and then get you out the door again, back into your car.
The Wal-Mart for instance, is not designed to be a particularly warm enriching experience, inviting you to spend your afternoon there. It’s a massive warehouse with bad fluorescent lighting. The irony is that you end up spending your entire afternoon there unintentionally, just trying to get through the gauntlet of diversions and through the check out.
We're quickly turning our cities, and the network of suburban developments between them, into clones of each other; destroying almost everything that is unique and special about a place. We are destroying the precious story of place for the sake of economic development, which all too often takes the form of a strip mall full of corporate retail. Many American cities feel like habitats for corporate retail establishments rather than habitats for humans.
I’ll turn it over to Kunstler now: enjoy! He’s actually pretty funny.
(great example of a developer that's trying to create better human habitats)
(good wikipedia article explaining the Principles of Intelligent Urbanism)
(A San Francisco based non-profit organization that works with architects, developers, and planners, teaching how to implement the principles of New Urbanism)
Tuesday, November 18, 2008
Friday, November 14, 2008
The government is making a complete mockery of the bailout oversight Congress supposedly fought so hard to get. Secretary Paulson and his team of ex-Wall Street bankers effectively have a blank check courtesy of the American taxpayer.
So far he has burned through almost half of the TARP money to sink even more cash into AIG (about $40 billion extra -- above and beyond the original $85 billion bailout) and to buy equity shares in failing banks. None of the money has been used to purchase troubled assets.
Last month Paulson announced that he thinks buying shares will be a more effective way to recapitalize banks than buying mortgage backed securities. This was probably a good idea -- the point is that he's done it with zero congressional oversight. Now he's announcing, rather than requesting, that the second half of the bailout money will be pumped into the ailing consumer credit market.
**News alert!! The private debt bubble in America has a huge hole in it and it's deflating fast -- there is no use trying to re-inflate it!!**
That's exactly the kind of thinking that got us into this mess; after the dot-com bubble burst in 2000, Alan Greenspan revved up the stimulus by slashing interest rates and the cheap money inflated an even bigger bubble in real estate. Our debt to GDP ratio is higher today than it was in 1929. The last thing we need in this country is more consumer debt. We can't borrow our way out of this. We need to accept the recession, end the debt-fuelled spending spree, and invest in a new productive economy.
Wednesday, November 12, 2008
1) TRANSPORT -- The entire American fleet of automobiles needs to be plug in hybrid vehicles designed to run on liquid natural gas or bio-fuel, and the fleet should be drastically reduced in size by lowering demand for cars through massive public investment in local, electrified mass transit, such as light rail systems and streetcars instead of buses.
2) LIQUID FUEL -- Massive investment should be pumped into domestic natural gas production for the hybrids that are on the road, as an interim liquid fuel solution while the electric rail infrastructure is rapidly expanded. Bio-fuels can play a minor role, so long as they derive from cellulosic sources (such as forest waste) that don’t require the cultivation of new land or the misuse of grains.
3) ENERGY -- Of course we also need renewable energy of all kinds: wind and solar in particular, and R and D for new types like tidal. Wind is especially exciting: Lester Brown says we have enough wind generating potential to meet our current domestic electricity demand. Renewable sources of electricity are the long term solution to our energy problem. Electricity is by far the most flexible form of energy we use – it can be generated from a variety of renewable sources and it’s the most versatile form of energy. Electrified transit has to be part of the picture.
4) INCENTIVES -- A completely restructured tax system that creates incentives for people to do the right thing for the environment and discourages people and businesses from wrecking the place. Many (including Al Gore) advocate a carbon tax for economic activities that emit greenhouse gases, and I think that's a good idea. But we also need some government sponsored subsidies for activities such as installing rooftop solar hot water, rainwater harvesting, grid-tied photo-voltaic cells, compact fluorescents, shopping local, buying a hybrid vehicle. We could also lower the speed limit to 55 mph! These measures could dramatically reduce our overall energy demand. Conservation has a huge role to play. We haven’t talked seriously about conservation in America since the 70s, and as a result our energy consumption per capita is twice that of Europe. The good news is that we have a lot of wiggle room to reduce our consumption without sacrificing our basic creature comforts.
5) FOOD -- A brand new government PR campaign aimed at encouraging individual households and neighborhoods to grow their own fruit and veg. To maximize the effectiveness of this campaign, there should be a complimentary, free permaculture education course offered at community colleges throughout the country to teach people about intensive, organic gardening methods. This could save a ton of energy and potentially add to the resilience and security of our nation’s food supply. We need new, 21st century victory gardens! permaculture style.
6) COMMUNITY – One of the greenest things we can do is build strong community wherever we are. Interdependent groups that network, and interact and share are much more resilient to shocks than an individual, and they tend to consume much less per person than isolated households. In a strong community, it is also easier to raise awareness about climate change and fossil fuel depletion while encouraging those around us to respond by shopping less, cycling, sharing, bartering and repairing whenever possible.
**I know most of these suggestions are big picture solutions meant to be implemented at the national level. Obama's election has me waxing patriotic lately. Check out this video for a really cool, local, community-based solution to organize consumers: http://www.karmatube.org/videos.php?id=1310
Monday, November 10, 2008
“We are living at a peak moment in human history, a peak of human innovation, information, wealth and health, but we're also at a peak of population and consumption, with rising temperatures and declining resources as a result.”
The fuel that got us to this peak moment is oil. The incredible abundance of energy released when oil is burned has supplied humanity with the fuel necessary to make unprecedented advances in technology, population, wealth, etc. You can see it very clearly if you look at global population growth over the last century. Since 1900, human population has risen from around 1.6 billion to 6.6 billion (this period also corresponds roughly with the age of oil.)
The early industrial revolution was fuelled by coal, but in the late nineteenth century, we transitioned to crude oil. Ecologist Richard Heinberg says this was "like winning the energy lottery" because oil is such a uniquely energy-dense resource, and it is relatively easy to transport through pipelines. It is also about twice as potent as an equal volume of coal. So burning this marvelous stuff effectively increased the carrying capacity of the planet beyond our ability to comprehend at the time. At the dawn of the industrial revolution, we had no way of knowing that burning fossil fuels would lead to such explosive population growth, let alone climate change; the sky was the limit for the new economic growth made possible by burning oil.
However we have known for a long time that crude oil is a finite, non-renewable resource, and geologists have observed repeatedly the bell-shaped curve of oil field production. In fact, back in the 50's an American petroleum geologist accurately predicted that the peak in U.S. crude oil production would occur between 1965 and 1970. In retrospect, we know for a fact that we peaked in 1970 because despite huge investment in exploration and new discoveries like Prudhoe Bay in Alaska, the U.S. has never been able to produce as much oil as it did in 1970. The U.S. currently produces approximately half as much oil as it did in 1970. Consequently, we've gone from being the world's leading oil exporter (pre-peak) to the world's leading oil importer (post-peak).
Of course the impact of this peak was not felt by most Americans because we were able to import oil cheaply from overseas. This supply of imports has been fairly reliable and stable, with the notable exception of the Arab oil embargo of the 70s, which caused a huge price spike, leading to record prices that were not surpassed until earlier this year. Incidentally, we've not only broken the record, we've shattered it completely -- prices increased another 50% after surpassing the inflation-adjusted high of 1980. We hit the record price of $147 a barrel without an embargo or a hostage crisis!! Imagine what could happen to prices if there was a serious supply disruption.
The cause of the price spike over the summer has been debated ad nauseum by all of the experts. Was it supply and demand or was it speculation? This always struck me as a false debate – it was clearly both. But speculation does not start trends; it reinforces existing trends, so I still feel that the market fundamentals of supply and demand were the main forces driving prices up.
Soaring demand from the emerging BRIC economies (Brazil, Russia, India, China) created an extraordinarily tight market before and during the summer of this year. And most oil exporting countries were producing flat out, meaning that they had no spare production capacity. In fact many key non-OPEC producers, such as Mexico, Britain, Norway and possibly Russia have entered an irreversible phase of declining production. Saudi Arabia and Iraq are the only countries in the world with significant spare capacity. This is a basic description of the supply and demand situation during the summer. And while the oil market was tightening, investors were moving loads of capital out of equities and into commodities to protect their assets from inflation. Oil became the commodity of choice for these investors because of the pre-existing trend in the market.
Prices have fallen sharply from their summer peak as demand slackened and recession fears drove speculators out of the market. But at over $60 a barrel, oil is still pricey relative to historic levels; and the recent price drop shows how volatile the market has become over the past 5 years. It is interesting to note that with the exception of the price spike during the embargo of the 70s, the price of a barrel of crude has stayed below $40 (2007 dollars) since the 1870s, and usually hovered around $25 until 2003.
Since the U.S. invaded Iraq in 2003, oil prices have quadrupled -- rising sharply from around $35 a barrel in 2003 to over $145 a barrel at the peak in July. During this period, the price of oil has risen dramatically and in a non-linear fashion, characterized by huge price swings. The most recent and severe price swing punctuates a worrying trend: increased volatility in the market. This is consistent with the predictions of energy analysts who are concerned about peak oil.
So, when will global oil production peak? Some in the oil industry, including Texas oil men, T. Boone Pickens and Matthew Simmons think it’s already happened; some think it’s happening now; others think it will happen sometime between 2010 and 2030. That covers most of the predictions I’ve seen, although there are a few who don’t believe in the peak oil hypothesis at all (mostly those who have a conflict of interest with honesty, such as OPEC and ExxonMobil).
There are also those who believe that oil is an inexhaustible resource that derives from non-organic sources. I guess, according to them, we should stop calling oil a fossil fuel! The main point is that just as there is a broad scientific consensus that recent climate change is anthropogenic, there is likewise a consensus that peak oil will happen within our lifetime. We can quibble all day long about when it might happen, but it really isn’t important. Just as it isn’t important to predict exactly when we will pass the point of no return with climate change.
The important fact staring us all in the face, but often ignored, is that burning fossil fuels is not sustainable ecologically or economically. Therefore, the energy transition must start now. We are living in a fool’s paradise, and the sooner we begin moving toward fossil fuel independence, the smoother the future will be.
Here is a good overview of peak oil by one of the world's foremost peak oil researchers, Richard Heinberg.
**for more information on peak oil, check out The Oil Drum website. The link is listed in my favorites.
Sunday, November 9, 2008
The response of people around the world to Obama’s hopeful message has been overwhelmingly warm and positive. A day after the election, I watched in awe as Nigerians in the ancestral village of Barack Obama Sr celebrated his son’s historic victory. An Afro-Colombian community on the northern coast of Colombia staged mock elections just so they could cast a symbolic vote for Barack Obama. Children at the school in Indonesia that Obama attended as a youth, watched the returns with eager anticipation. And my personal favorite: In Japan, Obama supporters from across the country, including a few American ex-pats, converged on the town of Obama, Japan for a huge victory party as the U.S. electorate made history. It truly seems that at least for the moment, American voters and onlookers around the world have put cynicism aside and allowed themselves to hope. As Oprah said publicly, “Hope Won!”
This is the first great contribution of Barack Obama – he has made it O.K. to hope again. He has energized a weary people with his enthusiasm and vision. After the duplicity and complicity of the Bush years, even the most die-hard American cynics are starved for something to be hopeful about. When you add the continuing economic crisis, geopolitical tensions over scarce energy resources, and ever more pressing ecological challenges to the picture, it’s clear that the opening decade of the 21st century has not exactly been full of hopeful news.
That is precisely why we need Mr. Obama. The incompetence of George W. Bush bred cynicism, and his fear-mongering tactics paralyzed many Americans. By contrast, Obama’s bold vision for America has inspired hope, and his reassuring, explanatory communication style will mobilize us to create the change we need. Fear paralyzes and hope mobilizes.
For me, this is the great promise of an Obama administration: that his leadership will unlock the collective genius of the American people by engaging citizens on an unprecedented scale to act with a renewed sense of purpose and focus. We cannot afford diversions right now, solving our problems will require ingenuity, foresight, perseverance and sacrifice.
A Time for Action
Given the severity of global resource depletion, climate change, and the pressure of over-population, we are facing an ‘all hands on deck’, ‘all investment capital on deck’ scenario to address these issues. The silver lining of the current economic recession is that there are plenty of idle hands, and the number is growing fast, especially in the construction sector of the economy. But, as you may have gathered from the news lately, in terms of investment capital the outlook is not so sanguine.
At the moment the government is the only entity capable of investing on a scale that could make a difference nationally. And the government has already stretched itself way too thin by funding the $700 billion Troubled Asset Relief Program (TARP) and the war in Iraq (total cost is over $500 billion), not to mention the chump change we dropped on the Fannie and Freddie, AIG, and Bear Stearns bail-outs. These bills are truly enormous, so it’s not surprising that the U.S. Treasury is issuing bonds like crazy, piling debt on top of debt in order to stave off financial apocalypse.
Our fiscal situation is grim – no two ways about that. But if we can get out of Iraq, we will save over $100 billion a year and the best case scenario for our illustrious portfolio of toxic mortgage backed assets is that we recover a significant portion of our money. Assuming the best case occurs, maybe our government won’t go bankrupt. But, regardless of what happens in Iraq or with TARP, we have to pass a massive stimulus package aimed at helping the middle class, even if it means maxing out the national credit card. But we don’t just need checks in the mail, we need real investment. I think that if we fail to do this, we could watch a huge portion of the middle class fall into poverty. Such is the severity of the current recession, and such is the inherent vulnerability of our current economy (more on this in future posts).
We are at the front end of a recession that is likely to be lengthy and severe; now would be a great time for our government to invest in a more ecologically sustainable future. One of the first things President Obama will do is send a comprehensive economic stimulus package to Congress. We need this money to go into new national infrastructure projects. Private industry hates taking on projects like this even in the best of times, because it’s difficult to make a profit short term. But during a recession, government funded infrastructure projects are a win-win: they put people to work and they benefit the country long term.
In the 30s the New Deal’s PWA built bridges, canals, and dams. Today, we need an electrified rail network to move people and goods, and we need renewable energy infrastructure. Taken together these projects have the potential to significantly reduce our national demand for fossil fuel derived energy. Some energy experts are calling for a major outlay for renewable energy, particularly wind, so that we can scale these efforts up to a level that will have an impact. How we respond to these ecological constraints is the issue of our time. If we don’t get this right, social security and health care and education won’t matter.
How does this fit with Obama’s vision for America?
To salute Obama’s election, a British newspaper published a collection of Obama’s speeches, beginning in 2004 when he burst onto the national political stage as the keynote speaker at the Democratic National Convention in Boston. In these speeches, Obama consistently outlines his vision for a more unified American society, motivated and focused by the values we share, and mobilized by hope for a better future. He repeatedly emphasizes his commitment to ensuring that government works on behalf of ordinary people. What a novel concept -- a government that is truly of the people, by the people and for the people!
At present, the speeches exist only as political rhetoric, and I am well aware of how fleeting political promises can be. But in our modern age of excessive corporate power and influence, it’s refreshing to watch a politician address the issues of corporate greed and political corruption – even rhetorically. After all, the words of charismatic leaders can be very powerful. It was the soaring oratory of Martin Luther King that touched off the civil rights movement, and social movements often rally around the words and ideas of a persuasive individual.
Obama’s vision for America is compelling indeed; voters turned out in record numbers to support him. Now it’s time to see what he and his new Democrat-led Congress can do. It will be interesting to see if and/or how his priorities as president differ from his campaign promises. With the specter of the financial crisis still looming and a recession on his hands, something is bound to fall lower on his list of priorities. I personally think it’ll be healthcare, but we’ll see. In his first press conference, Obama indicated that it was high time to set politics aside and start getting things done. Right now it seems that the economy is top priority, and I’m very interested to see what form his economic stimulus package takes. He has talked about investing in renewable energy and re-tooling motown to create green jobs. This would be a good start.
Right now everything is in flux, so there will undoubtedly be many surprises in the coming years. But if Barack Obama can tap further into the reservoir of latent enthusiasm and energy that exists among us, and if his leadership decisions as president reflect the ideals espoused in his great speeches, I believe we may look back at this election as the beginning of a marvelous green revolution in America.
**If you are interested in learning more about a potential Green New Deal, check out this article on the Post Carbon Institute website: http://www.postcarbon.org/green_new_deal
"This recession or depression is appearing at the exact historical moment when action to end our dependence on fossil fuels is required in order to avert the chaotic collapse of the entire human enterprise." --Richard Heinberg
Friday, November 7, 2008
"there are too many of us, using too much stuff too fast."
About This Site
This blog will explore how our collective response to current ecological constraints can build stronger communities, create more ethical economies, and restore balance to our lives. The body of work presented here comprises an ongoing cultural analysis of American life. The main thrust of this analysis is to assess the sustainability of our current life-ways and to highlight more adaptive alternatives to current patterns of resource use. The ethical values underpinning much of this work derive from the deep ecology, voluntary simplicity, and appropriate technology movements.
Because the focus of this site is both an assessment of problems and an exploration of solutions, some posts will simply detail the nature and scale of our environmental challenges. Of the topics discussed in these posts, peak oil and climate change will get the most attention, but I will also cover deforestation and soil erosion, loss of biodiversity, overpopulation, and pollution. However, the majority of my posts will be solution oriented. The chief goal of this site is to empower individual households to take meaningful action in response to the full range of challenges discussed here. So practical solutions will be my central focus.
I believe that the informed action of individual households is a powerful model of change for the larger community. There is great revolutionary potential in the momentum of these changes occurring simultaneously in communities all over the world. This is grassroots social change in action! It all starts with the creation of visible alternative models in the community; the seminal element of every popular revolution in history is activism at the level of the household/local community.
Many useful alternative models of human settlement and resource use already exist. Perhaps the most well known and comprehensive is permaculture design, which emerged in the late 70s with the publication of ‘Permaculture One’ by Australian ecologists Bill Mollison and David Holmgren. Permaculture represents a broad-based holistic strategy of achieving ecological sustainability through observant, thoughtful design. It is a system for constructing human habitats that ‘fit’ into the larger ecosystem in every sense.
Other models include natural building, homesteading/self-sufficiency, ecovillage and cohousing settlements, small scale renewable energy, and voluntary simplicity. On the homepage there are links to learn more about each of these topics. Modern information technology has facilitated the rapid spread of these alternatives by enabling communities to exchange ideas and practical knowledge quickly and easily. My goal is for this website to further that amazing diffusion of ideas, so that more people can jump for joy into this lifeboat called utopia.