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Modern Money Blog – Number Twenty Eight

Government Spending with Self-Imposed Constraints

by L Randall Wray

New Economic Perspectives (December 18 2011)

In the Primer we discussed the general case of government spending, taxing, and bond sales. To briefly summarize, we saw that when a government spends, there is a simultaneous credit to someone’s bank deposit and to the bank’s reserve deposit at the central bank; taxes are simply the reverse of that operation: a debit to a bank account and to bank reserves. Bond sales are accomplished by debiting a bank’s reserves. For the purposes of the simplest explication, it is convenient to consolidate the treasury and central bank accounts into a “government account”.

To be sure, the real world is more complicated: there is a central bank and a treasury, and there are specific operational procedures adopted. In addition there are constraints imposed on those operations. Two common and important constraints are (a) the treasury keeps a deposit account at the central bank, and must draw upon that in order to spend, and (b) the central bank is prohibited from buying bonds directly from the treasury and from lending to the treasury (which would directly increase the treasury’s deposit at the central bank). The US is an example of a country that has both of these constraints. In this blog we will go through the complex operating procedures used by the Federal Reserve (“Fed”) and US Treasury. Scott Fullwiler is perhaps the most knowledgeable economist on these matters, and this discussion draws very heavily on his paper. Readers who want even more detail should go to his paper, which uses a stock-flow consistent approach to explicitly show results.

First, however, let us do the simple case, beginning with a consolidated government (central bank plus treasury) and look at the consequences of its spending. Then we will look at the real world example of the US today. Readers have asked for some balance sheet examples, so I am using some simple T-accounts here. It might take some readers a bit of patience to work through this if they have not seen T-accounts before. (Note: these are partial balance sheets – I am only entering the minimum number of entries to show what is going on.)

Let us assume government buys a bomb and imposes a tax liability. This is shown as Case 1a:

http://1.bp.blogspot.com/-hnEDmGmqxRU/Tu7EwDEVg6I/AAAAAAAAAS0/jBMXCk1FnrQ/s1600/1.png

The government gets the bomb, the private seller gets a demand deposit. Note that the tax liability reduces the seller’s net worth and increases the government’s (after all, that is the purpose of taxes – to move resources to the government). The private bank gets a reserve deposit at the government.

Now the tax is paid by debiting the taxpayer’s deposit and the bank’s reserves:

http://4.bp.blogspot.com/-mQmv8hUq8vs/Tu7E_WuflYI/AAAAAAAAAS8/84JOufyrpj8/s1600/2.png

And so the final position is:

http://2.bp.blogspot.com/-xvJl-eEZwf4/Tu7FFyRNeJI/AAAAAAAAATE/1NzPN3sUFBI/s1600/3.png

The implication of “balanced budget” spending and taxing by the government is to move the bomb to the government sector – reducing the private sector’s net worth. Government uses the monetary system to accomplish the “public purpose”: to get resources such as bombs.

Now let us see what happens when government deficit spends. (Don’t get confused – we are not arguing that taxes are not needed; remember “taxes drive money” so there is a tax system in place but government decides that this week it will buy a bomb without imposing an additional tax).

http://4.bp.blogspot.com/-M8U8tdpwnsQ/Tu7FN0Saz8I/AAAAAAAAATM/bCSvMIC3MFQ/s1600/4.png

Here, the bomb is moved to the government, but the deficit spending allows net financial assets to be created in the private sector (the seller has a demand deposit equal to the government’s financial liability – reserves). However, the bank is holding more reserves than desired. It would like to earn more interest, so government responds by selling a bond (remember: bonds are sold as part of monetary policy, to allow the government to hit its overnight interest rate target):

http://1.bp.blogspot.com/-3JOJ4IOChIY/Tu7Gk_Oe_7I/AAAAAAAAATk/FsW76ejz_qo/s1600/5.png

And the end result is:

http://3.bp.blogspot.com/-Pz3AqKZPerA/Tu7GpoVEo9I/AAAAAAAAATs/cpunjo63odc/s1600/6.png

The net financial asset remains, but in the form of a treasury [bond] rather than reserves. Compared with Case 1a, the private sector is much happier! It’s total wealth is not changed, but the wealth was converted from a real asset (bomb) to a financial asset (claim on government).

Ah, but that was too easy. Government decides to tie its hands behind its back by requiring it sell the bond before it deficit spends. Here’s the first balance sheet, with the bank buying the bond and crediting the government’s deposit account:

http://2.bp.blogspot.com/-C2NkNEaQplI/Tu7Gx7Kn46I/AAAAAAAAAT0/AJlvT3Dm_c4/s1600/7.png

Now government writes a check on its deposit account, to buy the bomb:

http://3.bp.blogspot.com/-nQbmubtdbjo/Tu7G6qH_KXI/AAAAAAAAAT8/UZqOZkyNFOo/s1600/8.png

The bank debits the government’s deposit and credits the seller’s. The final position is as follows:

http://2.bp.blogspot.com/-ArRbJju-6O0/Tu7HCn6EKII/AAAAAAAAAUE/RYmHxriphJE/s1600/9.png

Note it is exactly the same as case 1b: selling the bond before deficit spending has no impact on the result, so long as the private bank is able to buy the bond and the government can write a check on its deposit account.

That, too, is too simple. Let’s tie the government’s shoes together: it can only write checks on its account at the central bank. So in the first step it sells a bond to get a deposit at a private bank.

http://4.bp.blogspot.com/-ttmHMFxnGeY/Tu7HIJBNidI/AAAAAAAAAUM/tc6EoV2HF2U/s1600/10.png

Next it will move the deposit to the central bank, so that it can write a check.

http://3.bp.blogspot.com/-JpIyq6D3T2c/Tu7HN469F7I/AAAAAAAAAUU/r-Lu2C5MRV4/s1600/11.png

We have assumed the bank had no extra reserves to be debited when the Treasury moved its deposit, hence, the central bank had to lend reserves to the private bank (temporarily, as we will see). Now the treasury has its deposit at the central bank, on which it can write a check to buy the bomb.

http://3.bp.blogspot.com/-ovfjqO0wDSM/Tu7HWCtIBhI/AAAAAAAAAUc/tDyT-MPYLaA/s1600/12.png

When the treasury spends, the private bank receives a credit of reserves, allowing it to retire its short term borrowing from the central bank (looking to the private bank’s balance sheet, we could show a credit of reserves to its asset side, and then that is debited simultaneously with its borrowed reserves; I left out the intermediate step to keep the balance sheet simpler). The private bank credits the bomb seller’s account. The final position is as follows:

http://3.bp.blogspot.com/-FeJfcqZ4ERA/Tu7HbjrqMaI/AAAAAAAAAUk/PFZzQ_kdhLw/s1600/13.png

What do you know, it is exactly the same as Case 2 and Case 1b! Even if the government ties its hands behind its back and its shoes together, it makes no difference.

Okay, admittedly these are still overly simple thought experiments. Let’s see how it is really done in the US – where the Treasury really does hold accounts in both private banks and the Fed, but can write checks only on its account at the Fed. Further, the Fed is prohibited from buying Treasuries directly from the Treasury (and is not supposed to allow overdrafts on the Treasury’s account). The deposits in private banks come (mostly) from tax receipts, but Treasury cannot write checks on those deposits. So the Treasury needs to move those deposits from private banks and/or sell bonds to obtain deposits when tax receipts are too low. So let us go through the actual steps taken. Warning: it gets wonky.

Note: The following discussion is adapted from Treasury Debt Operations – An Analysis Integrating Social Fabric Matrix and Social Accounting Matrix Methodologies, by Scott T Fullwiler, September 2010 (edited April 2011), http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1874795.

The Federal Reserve Act now specifies that the Fed can only purchase Treasury debt in “the open market”, though this has not always been the case.  This necessitates that the Treasury have a positive balance in its account at the Fed (which, as set in the Federal Reserve Act, is the fiscal agent for the Treasury and holds the Treasury’s balances as a liability on its balance sheet).  Therefore, prior to spending, the Treasury must replenish its own account at the Fed either via balances collected from tax (and other) revenues or debt issuance to “the open market”.

Given that the Treasury’s deposit account is a liability for the Fed, flows to/from this account affect the quantity of reserve balances. For example, Treasury spending will increase bank reserve balances while tax receipts will lower reserve balances. Normally, increases or decreases to banking system reserves impact overnight interest rates. Consequently, the Treasury’s debt operations are inseparable from the Fed’s monetary policy operations related to setting and maintaining its target rate.  Flows to/from the Treasury’s account must be offset by other changes to the Fed’s balance sheet if they are not consistent with the quantity of reserve balances required for the Fed to achieve its target rate on a given day.  As such, the Treasury uses transfers to and from thousands of private bank deposit (both demand and time) accounts – usually called tax and loan accounts – for this purpose.  Prior to fall 2008, the Treasury would attempt to maintain its end-of-day account balance at the Fed at $5 around billion on most days, achieving this through “calls” from tax and loan accounts to its account at the Fed (if the latter’s balance were below $5 billion) or “adds” to the tax and loan accounts from the account at the Fed (if the latter were above $5 billion). (The global financial crisis and the Fed’s response, especially “quantitative easing” has led to some rather abnormal situations that we will mostly ignore here.)

In other words, timeliness in the Treasury’s debt operations requires consistency with both the Treasury’s management of its own spending/revenue time sequences and the time sequences related to the Fed’s management of its interest rate target.  As such, under normal, “pre-global financial crisis” conditions for the Fed’s operations in which its target rate was set above the rate paid on banks’ reserve balances (which had been set at zero prior to October 2008, but is now set above zero as the Fed pays interest on reserves), there were six financial transactions required for the Treasury to engage in deficit spending.  Since it is clear that current conditions for the Fed’s operations (in which the target rate is set equal to the remuneration rate) are intended to be temporary and at some point there is presumably a desire (by Fed policy makers) to return to the more “normal” “pre-crisis” conditions, these six transactions are the base case analyzed here (though the “post-crisis” operating procedures do not significantly impact conclusions reached).

The six transactions for Treasury debt operations for the purpose of deficit spending in the base case conditions are the following:

A. The Fed undertakes repurchase agreement operations with primary dealers (in which the Fed purchases Treasury securities from primary dealers with a promise to buy them back on a specific date) to ensure sufficient reserve balances are circulating for settlement of the Treasury’s auction (which will debit reserve balances in bank accounts as the Treasury’s account is credited) while also achieving the Fed’s target rate.  It is well-known that settlement of Treasury auctions are “high payment flow days” that necessitate a larger quantity of reserve balances circulating than other days, and the Fed accommodates the demand.

B. The Treasury’s auction settles as Treasury securities are exchanged for reserve balances, so bank reserve accounts are debited to credit the Treasury’s account, and dealer accounts at banks are debited.

C. The Treasury adds balances credited to its account from the auction settlement to tax and loan accounts.  This credits the reserve accounts of the banks holding the credited tax and loan accounts.

D. (Transactions D and E are interchangeable; that is, in practice, transaction E might occur before transaction D.)  The Fed’s repurchase agreement is reversed, as the second leg of the repurchase agreement occurs in which a primary dealer purchases Treasury securities back from the Fed.  Transactions in A above are reversed.

E. Prior to spending, the Treasury calls in balances from its tax and loan accounts at banks.  This reverses the transactions in C.

F. The Treasury deficit spends by debiting its account at the Fed, resulting in a credit to bank reserve accounts at the Fed and the bank accounts of spending recipients.

Again, it is important to recall that all of the transactions listed above settle via Fedwire (T2).  Also, the analysis is much the same in the case of a deficit created by a tax cut instead of an increase in spending.  That is, with a tax cut the Treasury’s spending is greater than revenues just as it is with pro-active deficit spending.

Note also that the end result is exactly as stated above using the example of a consolidated government (Treasury and Central Bank): government deficit spending leads to a credit to someone’s bank account and a credit of reserves to a bank which are then exchanged for a treasury [bond] to extinguish the excess reserves. However, with the procedures actually adopted, the transactions are more complex and the sequencing is different. But the final balance sheet position is the same: the government has the bomb, and the private sector has a treasury [bond].

http://neweconomicperspectives.blogspot.com/2011/12/mmp-blog-28-government-spending-with.html

Categories: Uncategorized

The Daily Losses from Unemployment

by Bill Mitchell

billy blog (January 13 2010)

I have been doing some work again on the costs of unemployment and this blog gives a snapshot of part of that research. One of the strong empirical results that emerge from the Great Depression is that the job relief programs that the various governments implemented to try to attenuate the massive rise in unemployment were very beneficial. At that time, it was realised that having workers locked out of the production process because there were not enough private jobs being generated was not only irrational in terms of lost income but also caused society additional problems, such as rising crime rates. Direct job creation was a very effective way of attenuating these costs while the private sector regained its optimism. In fact, it took about fifty years or so for governments to abandon this way of thinking. Now we tolerate high levels of unemployment without a clear understanding of the magnitude of costs that that policy position imposes on specific individuals and society in general. The single most rational thing a government could do was to ensure that there were enough jobs to match the available labour force. Mostly, they fail badly to achieve this level of sophistication.

In the growth period before the current crisis few countries had returned to the full employment states that they achieved in the Post World War Two period up until the mid-1970s when the OPEC oil shocks led to a paradigm change in macroeconomic policy setting. The neo-liberal approach emphasised fiscal austerity to support an increasing reliance on monetary policy for counter-stabilisation.

So already in this period of relatively better economic growth there were substantial losses being recorded both in terms of lost GDP (production and income foregone) and the additional personal and social costs that accompany persistent unemployment.

It is well documented that sustained unemployment imposes significant economic, personal and social costs that include:

* loss of current output;

* social exclusion and the loss of freedom;

* skill loss;

* psychological harm;

* Ill health and reduced life expectancy;

* loss of motivation;

* the undermining of human relations and family life;

* racial and gender inequality; and

* loss of social values and responsibility.

These costs are enormous and dwarf the measures that various governments have come up with to estimate losses arising from so-called microeconomic inefficiencies (such as transport systems not running on time et cetera).

In the past I have done work on this with a colleague Martin Watts and you can see an early working paper {1}, subsequently published but the working paper is free, which outlined the sort of method we used to compute the “costs of unemployment”.

Even before the crisis hit, these costs in most countries were huge and they are irretrievable every day that the economy remains above full employment. It shows the powerful hold that neo-liberal thinking has had on policy makers that these massive losses have largely been tolerated. Policy makers began using unemployment as a policy tool rather than a policy target as the obsession with inflation-targetting took hold.

To some extent these losses are a mystery to society in general. While the unemployed and their families are certainly aware of them, the remainder of the society are less aware. For example, we might notice rising crime rates in our neighbourhoods but do not associate it with unemployment.

Neo-liberalism has also changed the way we think about unemployment. In the past we understood clearly that it arose as a result of a shortage of jobs. In recent decades, we have been conditioned by a relentless (lying) press and government statements to perceive unemployment as an individual problem.

So the unemployed are lazy; have poor work attitudes; refuse to invest in appropriate skills; are subject to disincentives arising from misguided government welfare support, and all the rest of the arguments that mainstream uses to obfuscate the social problem. In Australia, this sort of “blame the victim” approach was accompanied by a new nomenclature that entered our daily public discourse and was promoted by government ministers including successive prime ministers.

We were told that the unemployed were bludgers, job snobs, cruisers and worse. Television current affairs programs targetted unemployed families and lured them into looking as though they didn’t want to work.

All of this despite the overwhelming evidence from studies in most countries that the unemployed were highly motivated to find work and were victims of a shortage of jobs.

The dominance of the neo-liberal ideology led governments in most countries to eschew the adoption of policies of direct job creation to reduce the rate of unemployment and to minimise these massive costs. Fiscal policy became geared to the achievement of budget surpluses as some sort of token of prudent financial management.

Employment policy shifted from a demand-side emphasis to a supply-side focus (active labour market) which targetted individuals with futile training programs divorced from a paid-work context and pernicious welfare-to-work rules.

What was going on with respect to the deregulation of labour markets and the retrenchment of the Welfare State in the face of persistent unemployment was being mirrored in the approaches governments were taking to financial markets. The lack of oversight of the latter has been the fundamental reason we are now enduring the worst crisis in eighty years.

Given the costs of unemployment are so large and irretrievable, one would think that at the very least direct macroeconomic intervention should have been a priority in these years – that is, direct job creation.

In 1978 while still a student at the University of Melbourne and in recognition of the then rising economic and social costs of unemployment, I formulated an early model of what I now call the Job Guarantee {2} approach to full employment.

The Job Guarantee would work under the principles of a buffer stock mechanism and the jobs would be designed to increase per capita social welfare by satisfying social needs that are not met by the private sector in areas including environmental services, community and social services, health and education.

Thus this increase in public sector employment would contribute to the reduction in the negative externalities that tend to increase with increasing levels of production by increasing the share of final output that is associated with green, public sector employment.

With the current crisis, it should be clear to everyone that the neo-liberal construction of unemployment is (and always was) patently false – just an ideological gimmick to transfer power away from workers to ensure a greater share of national income was available for capital.

Now it is clear – six or so percent of the US labour force; or ten per cent of the Spanish labour force; or two per cent of the Australian labour force didn’t suddenly get lazy; or were waylaid by government welfare benefits; or lost their skills – in the space of a year or so.

The crisis should make it obvious that unemployment arises when there are too few jobs being created (net) relative to the available labour force. There should be no mystery about that now for anyone.

But despite the transparency of the causes of mass unemployment, governments have failed to use direct job creation as a way of dealing with the rising costs associated with the joblessness. The vestiges of neo-liberal ideology are proving hard to shake.

If governments had have had a Job Guarantee in place there would be hardly any discernible rise in official unemployment and the costs of the crisis would have been significantly reduced. Yes there would have been some skills-based structural underemployment (high skills workers taking Job Guarantee jobs) and some obvious loss of income.

But overall these losses would have been attenuated and some of the other costs would have been mostly negated. Of significance, which shows you how ideologically-blinded our policy makers have become – their budget deficits would not have risen by nearly as much as they have. While I don’t pay much attention to the actual budget deficit figure, you might have thought a government facing a chorus of squawking neo-liberal mouthpieces (the media) would have found the lower deficits to be something of a political advantage.

Anyway, today I was doing some updated calculations on the daily costs of persistent unemployment as a consequence of the economic crisis. In this blog, I will report some results for Australia and the USA.

While the previous work I have done on this topic has sought to compute the broadest possible measure of costs, in this blog I just focus on lost GDP income.

In focusing on the foregone output resulting from unemployment and underemployment you have to decide a benchmark to measure the current situation against.

In the work that follows, I used the low-point unemployment rate prior to the crisis – for the US 4.5 per cent in March 2007 and Australia 4.0 per cent in March 2008 and the high-point participation rate prior to the crisis – 66.3 per cent for the US and 65.5 per cent for Australia.

The high-point participation rate allows us to adjust the labour force to eliminate the cyclical decline that occurs in a crisis as the discouraged workers who stop looking for work are not counted by the statistician as being unemployed. Economists call these people the hidden unemployed – they would work immediately if a job was offered to them.

The use of the low-point unemployment prior to the crisis is just a convenience and does not presupposes that this level was a full employment state. The question being asked is: What are the daily GDP losses arising from the increases in the unemployment rate as a result of the crisis?

For Australia, I also compute the daily GDP losses that arise from the economy being away from full employment (which I assume would occur at an unemployment rate of two per cent – the so-called frictional level of unemployment). So the question that is being asked then is: How has the divergence from full employment which has been exacerbated by the crisis impacted on daily GDP losses.

I also ignore underemployment in this analysis. So the estimates that follow are underestimating the true costs of the fiscal austerity. I use the term fiscal austerity because even though governments are running relatively large (historically) budget deficits as a proportion of GDP, they are still inadequate to effectively deal with the unemployment problem. The austerity reflects an overhang of the destructive neo-liberal ideology.

Method

First, I computed potential employment – so this can be computed as the employment level that would have existed given population growth had the crisis not occurred. In this way we fix the participation and unemployment rates at the peak of the last growth cycle as described above (we do this for the US and Australia).

Also for Australia, I computed the potential employment level which would exist if the unemployment rate was two per cent (that is, the full employment unemployment rate).

Second, I computed potential GDP using the potential employment levels multiplied by actual labour productivity (real GDP per person employed). So this series tells us what real GDP would have been if employment was at its potential level (defined above) and those workers were producing the average GDP per unit. Note that the concept of potential in this case does not mean the maximum GDP that could be produced.

Remember the selective way I am defining potential employment – as a departure from the maximum achieved prior to the crisis. For Australia the full employment employment potential is more accurately thought of as the highest employment level one could attain given other parameters.

Further, some will ask – why use average productivity when it is obvious that the unemployed are typically drawn from the lowest productivity pool? Surely putting these people back to work will not generate average productivity per person. That is true but not relevant in this case. By using actual labour productivity series I am actually understating the production gains that would occur.

Third, I calculated the daily real GDP losses in billions of dollars per day for the US and millions of dollars per day for Australia by dividing the gap between actual and potential real GDP by the number of days in each quarter.

This approximates the daily loss (never to be regained) in real income that is foregone by allowing unemployment to remain either above the level that was achieved immediately prior to the crisis (in US and Australia) or in the second case for Australia, by allowing unemployment to depart from its true full employment level of two per cent. The first estimates (deviations since the start of the crisis) understate the true costs by a greater margin than the second estimates for Australia (the departure from full employment).

Given the results are terrible as they stand and demand immediate policy attention, the fact the true results are in fact worse than these estimates just adds to culpability of our national governments.

Finally, I also computed as a standalone exercise a simulated real GDP series for the US and Australia based on the assumption that from the respective peaks (June 2008 for the US and September 2008 for Australia) real GDP continued to grow at the average rate of real GDP that had held for the eight quarters prior to the peak – 2.4 per cent per annum for the US and 3.6 per cent for Australia.

These simulations converted into index numbers to allow for comparability are shown in the first graph below along with the actual path of real GDP for each country.

The comparison gives you a good idea of the relative depths of the crisis in each country.

Results

The following graph shows the indexed time series for actual real GDP and the simulated potential GDP (if potential employment was achieved) where the base = 100 was the GDP peak quarter (June 2008 for the US and September 2008 for Australia). The horizontal axis represents the quarters after the peak up until September 2009 (the last available national accounts data). The index numbers allow us to compare the evolution of the two economies.

So actual US real GDP went from 100 at the peak to 96.2 at the trough and in September 2009 was 96.7 (index number values). Over the same period, its potential GDP rose from 100 to 103 leaving a huge gap of 6.3 percentage points.

For Australia real GDP went from 100 at the peak to 99.1 at the trough and in September 2009 was 100.5 (index number values). Over the same period, its potential GDP rose from 100 to 103.7 leaving a smaller gap of 3.2 percentage points.

So the cumulative GDP losses have been much smaller in Australia’s case but still significant.

Real GDP and Potential real GDP indexes, Australia and US
http://bilbo.economicoutlook.net/blog/wp-content/uploads/2010/01/US_AUS_GDP_YPOT_indexes.jpg

The daily GDP losses that the US economy is enduring as a result of the decline in economy activity below it previous peak are shown in the following graph. You can see that in the September quarter these stood at 10.3 billion per day.

Just say it to yourself – every day the US government is allowing $10.3 billion to go down the drain in lost income just because they are too stupid to implement sensible direct job creation strategies.

There has been a marked unwillingness by the US government to engage in direct job creation. How can these deadweight daily losses be justified? The policy inaction is culpable in the extreme in this regard.

US: Daily GDP losses $US billions
http://bilbo.economicoutlook.net/blog/wp-content/uploads/2010/01/US_daily_losses.jpg

For Australia, I compared the daily losses that have occurred since the crisis began in Australia with the actual losses that have been on-going for some 35 years as a result of the contrived departure from full employment that has been imposed on us by the free-market ideological dominance?

One of the reasons I didn’t do this for the US is because I am less sure what the frictional unemployment rate is. The point is that it is probably below the 4.5 per cent benchmark I used so the daily losses I report are likely to seriously understate the actual losses.

There was also no point comparing the US and Australian losses in equivalent units because the relative costs for Australia are very small when you convert into billions of USD. But relative to each economy the respective losses are enormous.

The following Table shows the calculations. Relative to our recent best unemployment rate we are now losing $A74 million every day as a result of allowing the unemployment rate to rise. When considered against the current departure from true full employment unemployment rate (two per cent) we are foregoing $147 million every day.

Just say it to yourself – every day we are throwing $A147 million down the drain because of our neo-liberal policy obsessions. No one in their right mind could justify that. It is the ultimate con of the mainstream economics profession.

The average daily loss since June 2006 as a result of the Australian government allowing unemployment to persist above the full employment level of two per cent was $A95.5 million.

Those losses are enormous and as noted above understate the true cost of the policy failure in allowing the unemployment rate to rise in the current crisis and also maintaining a fiscal regime that has stopped the economy achieving full employment.

http://bilbo.economicoutlook.net/blog/wp-content/uploads/2010/01/Australia_daily_losses_4_2_percent_table.jpg

The following graph shows the comparison for Australia (that is, just graphs the data in the Table above).

Australia: Daily GDP losses $A millions for different unemployment benchmarks
http://bilbo.economicoutlook.net/blog/wp-content/uploads/2010/01/Australia_daily_losses_4_2_percent.jpg

Conclusion

Even under conservative assumptions, the economic and social costs of sustained high unemployment are extremely high. The inability of unemployed individuals and their families to function in the market economy gives rise to many forms of social dysfunction, in addition to output loss.

The apparent failure of neo-liberal supply side policies to reduce unemployment prior to the crisis is now highlighted during the crisis. There is now an urgent need to address the large pools of unemployment in world economies.

The daily income losses alone are enormous and overwhelm other inefficiencies notwithstanding the productivity heterogeneity that exists across the workforce.

There is no financial reason why the government should not deal with this problem directly by introducing a Job Guarantee. If the Government had the political will, it could readily overcome the problem of persistently high unemployment.

Tomorrow – the Australian Labour Force survey for December comes out and so I will surely have something to say about that data.

Links:

{1} http://e1.newcastle.edu.au/coffee/pubs/wp/2000/00-04.pdf

{2} http://e1.newcastle.edu.au/coffee/job_guarantee/JobGuarantee.cfm

http://bilbo.economicoutlook.net/blog/?p=7308

Categories: Uncategorized

Bail-out Bombshell

Fed “Emergency” Bank Rescue Totaled $29 Trillion Over Three Years

by J Andrew Felkerson

AlterNet (December 15 2011)

Speculation about the the Federal Reserve’s (Fed’s) actions during the financial crisis has made headlines on and off again over the last several years.  The latest drama occurred on November 27 when Bloomberg published an article, “Secret Fed Loans Gave Banks $13 Billion Undisclosed to Congress”, which gives an account of the news agency’s struggle to bring to light the details of the Fed’s emergency programs. Bloomberg throws out some very large numbers, revealing that as of March 2009, the Fed lent, spent, or committed $7.77 trillion worth of aid to the financial system and that banks used the low interest rates charged on these loans to make an estimated $13 billion in income.

On December 6, the Fed struck back, issuing a four page unsigned memo intended to correct recent “egregious errors and mistakes” found in various reports of its emergency lending facilities.  The Fed argues that the “total credit outstanding under liquidity programs was never more than about $1.5 trillion”.  While Bloomberg wasn’t mentioned explicitly in the Fed memo, it was fairly clear to whom the response was directed.  The following day Bloomberg defended its reporting, and the Wall Street Journal’s David Wessel came to the Fed’s defense, characterizing Bloomberg’s methodology as a “great story”, but ultimately not “true”.

All this may sound like controversy, but it’s little more than a tempest in a teacup.

Here’s the hurricane: In reality, no less than $29.616 trillion is the total emergency assistance provided by the Fed to foreign and domestic entities during the Global Financial Crisis. Let’s repeat that: $29 trillion. This astounding number is over twice US gross domestic product, the nominal value of all goods and services produced for the year 2010.  This is the total of the bailout as calculated by Nicola Matthews and myself as part of the Ford Foundation project, A Research And Policy Dialogue Project On Improving Governance of the Government Safety Net in Financial Crisis.  We will be presenting the results of our analysis in a series of papers published by the Levy Economics Institute, the first of which, “29,000,000,000,000: A Detailed Look at the Fed’s Bailout by Funding Facility and Recipient”, is already available here: http://www.levyinstitute.org/publications/?docid=1462.

The results we have calculated are presented below, and it is important to note that the totals are cumulative and in billions of US dollars. (The numbers in parentheses indicate amounts still outstanding as of November 10 2011).

Wray Table 1

I want to be clear. These are the totals of Fed lending and asset purchases actually undertaken since the bail-out began. There is no double-counting. And we do not include any credit facilities created by the Fed unless they were actually used. These figures accurately reflect the cumulative totals over the approximately three years actually used by the Fed to prop-up domestic and international banks, shadow banks, central banks, and even some non-financial institutions.

Banks in the Shadows

The programs above constitute the crisis prevention machinery rolled out by the Fed to combat the worst financial panic since 1929. All the programs above were designed and implemented to target domestic financial and non-financial corporations or foreign central banks or markets, or both. Only one of the facilities, the Term Auction Facility, can be viewed as being consistent with the Fed’s mandate to protect the commercial banking system from systemic failure. The rest are the result of the increasing relevance of the “shadow banking” to our economy  –  and of the Fed’s attempt to rescue the shadow banking sector.

Shadow banks are highly leveraged financial institutions that perform functions historically relegated to the commercial banking system. It is important to note that these financial concerns do not have access to the conventional means of Fed support. Nor were they ever really regulated or supervised by the Fed. They engaged in extremely risky behavior that in large part led to the global financial crisis. And when it hit, the Fed spent and lent $29 trillion, much of it devoted to rescuing the shadow banking system.

Thus, we see a host of unconventional programs designed to aid these institutions rather than the Fed’s traditional patrons. The information used to calculate the totals above is freely available (thanks in large part to the valiant efforts of a group of lawmakers led by Senator Bernie Sanders) as the result of an amendment inserted into the Dodd Frank bill. Moreover, this information has been freely available since December 10 2010 on the Fed’s website.

So why didn’t someone else already put the data together in this way?

The Fed’s Secrets

Obviously, $29 trillion is much bigger than the previous estimates of $7.77 trillion (Bloomberg) or $1.5 trillion (the Fed and the Wall Street Journal). An in-depth account of each of the facilities above is a rather lengthy process as the Levy working paper attests. The main difference in our analysis is the variables we identify as essential in understanding the Fed’s response. In our paper we report three measures that we view as critical to capturing the size and magnitude of the bailout. Each of the three measures deals exclusively with programs put into place by the Fed that transcend its conventional “lender of last resort” (LOLR) function. That is, we only include the emergency facilities the Fed created. We agree with the Fed that only facilities which were actually made operational should be considered in any account of the Fed’s actions. But we take the side of Bloomberg regarding the general lack of transparency by the Fed  –  the Fed fought tooth and nail to keep the details of its programs secret.

At any given moment inspection of the amount owed to the Fed resulting from non-conventional lender of last resort actions provides a reasonable account of what the Fed was doing in the period leading up to that time. However, looking at this number over time and in the context of the weekly amount lent provides insight into how the Fed’s efforts evolved over the run of the crisis. These two approaches to measurement (a “stock” or outstanding balance and a “flow” or cumulated amount spent and lent weekly) only provide us with details regarding the scope of the Fed’s bailout. To get a clear picture we need some account of the magnitude. We believe that this is captured by looking at the cumulative totals of all programs.

Perhaps the largest difference in our analysis is that we learned our money and banking theory from the late Hyman Minsky. He taught us that the modern economy is essentially financial, and as such, is prone to systemic financial crises that if left unchecked can lead to “bone crunching depressions”. Therefore it is essential to have a lender of last resort. Thus, any transaction between the Fed and the markets which is not part of conventional monetary operations, such as lending from the discount window or open market operations, represents an instance in which private markets were not able to or were unwilling to engage in the normal financial intermediation process. If it any point in time the private markets were capable (or willing) to carry out business as usual, Fed intervention would not have been required. Thus, we need to account for each extraordinary event, and the best way that we know to do this is by summing each instance – which results in a cumulative total of over $29 trillion dollars.

Who does the Fed serve?

A figure as large as $29.616 trillion should not be taken lightly, but focus on the specific magnitude of the figure diverts our attention from a larger issue that is at stake: how should the “lender of last resort” responsibility to be discharged in the future? With unemployment remaining persistently high and millions continuing to lose their homes to foreclosure as the result of lost income from a poor economy or outright fraud in the mortgage lending and foreclosure process, it becomes increasingly difficult to justify the ability of a single institution staffed by unelected officials to carry out such a targeted commitment of the obligations of the United States citizenry. Thanks to the actions of Senator Sanders and other individuals possessing the temerity to question the authority of the Fed we now have access to much of the data regarding what the Fed did during the recent crisis.

But we still need to go through the data from the past three years of bail-outs to answer the following questions: Who got funds from the Fed? How much did they get? And why did they get them? The Fed has not adequately explained why its emergency lending and asset purchases went on for so long and accumulated to such a large number.

_____

J Andrew Felkerson is a Interdisciplinary PhD student at the University of Missouri – Kansas City

(c) 2011 Independent Media Institute. All rights reserved.

http://www.alternet.org/story/153462/

Categories: Uncategorized

How Germany Builds Twice as Many Cars as the US …

While Paying Its Workers Twice as Much

by Frederick E Allen, Forbes Staff

Forbes (December 21 2011)

In 2010, Germany produced more than 5.5 million automobiles; the US produced 2.7 million. At the same time, the average auto worker in Germany made $67.14 per hour in salary and benefits; the average one in the US made $33.77 per hour. Yet Germany’s big three car companies – BMW, Daimler (Mercedes-Benz), and Volkswagen – are very profitable.

How can that be? The question is explored in a new article from Remapping Debate, a public policy e-journal. Its author, Kevin C Brown, writes that “the salient difference is that, in Germany, the automakers operate within an environment that precludes a race to the bottom; in the US, they operate within an environment that encourages such a race”.

There are “two overlapping sets of institutions” in Germany that guarantee high wages and good working conditions for autoworkers. The first is IG Metall, the country’s equivalent of the United Automobile Workers. Virtually all Germany’s car workers are members, and though they have the right to strike, they “hardly use it, because there is an elaborate system of conflict resolution that regularly is used to come to some sort of compromise that is acceptable to all parties”, according to Horst Mund, an IG Metall executive. The second institution is the German constitution, which allows for “works councils” in every factory, where management and employees work together on matters like shop floor conditions and work life. Mund says this guarantees cooperation, “where you don’t always wear your management pin or your union pin”.

Mund points out that this goes

against all mainstream wisdom of the neo-liberals. We have strong unions, we have strong social security systems, we have high wages. So, if I believed what the neo-liberals are arguing, we would have to be bankrupt, but apparently this is not the case. Despite high wages … despite our possibility to influence companies, the economy is working well in Germany.

As Michael Maibach, president and chief executive of the European American Business Council, puts it, union-management relations in the US are “adversarial”, whereas in Germany they’re “collaborative”.

Does such a happy relationship survive when German automakers set up shop in the US? No. As a historian observes in the article,  “BMW is a German company and it has a very German hierarchy and management system in Germany”, yet “when they are operating in Spartanburg [in South Carolina] they have become very, very easily adaptable to Spartanburg business culture”. At Volkswagen’s Chattanooga plant, the nonunionized new employees get $14.50 an hour, which rises to $19.50 after three years.

The article’s author, Kevin C Brown, asked Claude Barfield, a scholar with the American Enterprise Institute, why the German car companies behave so differently in the US. He answered, “Because they can get away with it so far”.

Read the complete Remapping Debate article here: http://www.remappingdebate.org/article/tale-two-systems

_____

Frederick E Allen is the Leadership Editor of Forbes.

http://www.forbes.com/sites/frederickallen/2011/12/21/germany-builds-twice-as-many-cars-as-the-u-s-while-paying-its-auto-workers-twice-as-much/

Categories: Uncategorized

A Tale of Two Systems

by Kevin C Brown

Remapping Debate (December 21 2011)

American autoworkers are constantly told that high-wage work is an unsustainable relic in the face of a hyper-competitive, globalized marketplace. Apostles of neo-liberal economic theory  –  both in the public and private sectors  –  have stressed the message that worker adaptation is necessary to survive. Indeed, Steven Rattner, President Obama’s “car czar” during the restructuring of General Motors and Chrysler in early 2009, spoke last week of his regret that the federal government had not required the United Auto workers to take a wage cut at that time to enhance the competitiveness of those companies, comments similar to those he made in a recently published book (after the outcry created by last week’s remarks, Rattner yesterday backed away from them, though reiterating his view that more “shared sacrifice” would have bolstered American competitiveness).

Governments, too, the globalists have contended, should not think that markets can or should be controlled. As Remapping Debate reported earlier this year in an article about the role of large consulting firms in the promotion of the notion that national policy can and must allow global capital a free hand, McKinsey & Company was already arguing back in 1994 that “a national government has no choice but to move forward to embrace the global capital market unless it wants to harm its own citizens, its economy and its own purposes”.

But the case of German automakers  –  BMW, Daimler, and Volkswagen  –  tells a different story. Each company produces vehicles not only in Germany, but also in “transplant” factories in the US. The former are characterized by high wages and high union membership; the US plants pay lower wages and are located in so-called “right-to-work” (anti-union) states.

It turns out that “inevitability” has nothing to do with the differing conditions; the salient difference is that, in Germany, the automakers operate within an environment that precludes a race to the bottom; in the US, they operate within an environment that encourages such a race.

Apostles of neo-liberal economic theory  –  both in the public and private sectors  –  have stressed the message that worker adaptation is necessary to survive.

Sales and profitability

In 2010, over 5.5 million cars were produced in Germany, twice the 2.7 million built in the United States. Average compensation (a figure including wages and employer-paid benefits) for autoworkers in Germany was 48.97 Euros per hour ($67.14 US), while compensation for auto work in the United States averaged $33.77 per hour, or about half as much as in Germany, all according to 2007 data from the Bureau of Labor Statistics. For Germany-based auto producers, the US is a low-wage country.

Despite German companies’ relatively high labor costs in their home markets, these firms are quite profitable. An examination of the latest publicly available financial statements of BMW, Daimler (Mercedes-Benz cars), and Volkswagen reveals strong sales and profits even in the midst of the currently weak consumer markets in Europe and the US. In 2010, for example, BMW, produced 1.48 million cars (63 percent of them in Germany), and earned a before-tax profit from its automotive division of 3.88 billion Euros. The Mercedes-Benz car division of Daimler, likewise produced 1.35 million cars (72.4 percent in Germany) in 2010, and earned a before-tax profit of 4.65 billion Euros.

Race to the bottom in the US

Officials in anti-union states have long sought to lure businesses with the promise of free rein in relation to labor (and to regulation more generally). Senator Lamar Alexander (Republican, Tennessee) delivered the weekly Republican Party address this past June, telling his listeners frankly that, when he was Tennessee’s governor in 1979, the state’s right-to-work law was part of his successful pitch in getting Nissan to open an auto plant.

Alexander participated in a ceremony celebrating the opening of a new Volkswagen assembly plant earlier this year near Chattanooga, and again he cited the state’s right-to-work law as among the reasons that Volkswagen chose to come there.

At that Chattanooga plant, according to a company spokesperson, new employees earn $14.50 an hour, with wages gradually rising to $19.50 after three years on the job.

A representative of BMW’s Spartanburg plant declined to divulge wages employees earn in its South Carolina (non-unionized) facility, but the Washington Post reported last year that employees at the plant earned $15 per hour.

It turns out that “inevitability” has nothing to do with the differing conditions; the salient difference is that, in Germany, the automakers operate within an environment that precludes a race to the bottom; in the US, they operate within an environment that encourages such a race.

Workers at American companies have seen their wages eroded. As Remapping Debate has reported, the UAW has made significant concessions on wages, especially through the creation of a permanent “Tier Two” level for all new employees. Whereas incumbent “Tier One” workers earn about $28 an hour, all new UAW hires at the GM, Ford, and Chrysler earn around $15 per hour.

The companies have argued that this new tier is essential. Marci Evans, a Ford spokesperson, told Remapping Debate, “It is our [Ford's] preference to build competitively in the markets we sell in”. She added, “reduced cost through introducing an entry level [Tier Two] workforce” is an important part of that strategy.

Gary Casteel, the Region Eight director of the UAW, the region covering the whole southeast of the country, acknowledged the creation of “Tier Two” as “concessionary”, and said, “It’s never attractive to not have equal pay for equal work, but when you’ve got Nissan hiring in Mississippi for $12.50 … and Volkswagen for $14 … how are we going to maintain a wage level when our competition is doing this?”

The counter-example in Germany

Workers in the German auto industry maintain high wages and good working conditions through two overlapping sets of institutions. First, in the auto industry, virtually all workers are unionized members of IG Metall, the German autoworkers’ union. With such union density, workers have considerable power to keep wages high. German autoworkers have the right to strike, but as Horst Mund, head of the International Department of IG Metall explained to Remapping Debate, they “hardly use it, because there is an elaborate system of conflict resolution that regularly is used to come to some sort of compromise that is acceptable to all parties”.

In addition to high trade union density supporting the power of German autoworkers’ wages, the German constitution itself includes a second mechanism for keeping employees involved in the decisions of the firm for which they work. The Works Constitution Act provides for the creation of Works Councils in each factory. The Works Councils provide a mechanism through which a company’s management must work with employees, whether they are in a union or not, on issues affecting work life, such as shop floor conditions, scheduling shifts, and other issues particular to the factory. This system, according to Mund, institutionalized “direct contact for workers’ representatives with management at various levels, from lower to middle to senior management in daily affairs. So you exercise some kind of dialogue where you don’t always wear your management pin or your union pin.”

According to historian and author Marko Maunula, “There is no real industrial nationality anymore”.

Mund points out that the German example goes “against all mainstream wisdom of the neo-liberals. We have strong unions, we have strong social security systems, we have high wages. So, if I believed what the neo-liberals are arguing, we would have to be bankrupt, but apparently this is not the case. Despite high wages … despite our possibility to influence companies, the economy is working well in Germany”.

Are German unions nice and American unions nasty?

Mund says “there are strong contradictions between the way companies that … are used to dealing with unions in Germany, behave differently when they go elsewhere, not only in the US, but also in other countries”. What accounts for the differences?

Michael Maibach, president and chief executive officer of the European American Business Council, described this apparent difference by saying that union-management relations in the US were “adversarial” as opposed to the “collaborative” German model. J Ed Marston, a spokesperson for the Chattanooga Area Chamber of Commerce, likewise told Remapping Debate that “Workers councils in Germany promote cooperation between workers and mangers and they deliver value and they continue to thrive … Compared to UAW, where there is an adversarial relationship”.

According to Mund, however, “The accusation that American unions are more radical and destructive … definitely has to do with the hostile environment in which the unions have to act. How can they be constructive and friendly if their asses are kicked all the time?” Mund sees the lauding of “cooperation” in the German context as profoundly misleading, saying “they would not talk to us either if they had the choice”.

Mund emphasized the importance of the trade union and works councils in maintaining workers’ participation and high levels of remuneration, and said that the focus was not to maintain the good will of individual firms. He said, “Companies in Germany, while they are bound by law to work with us in works councils, and we are present on supervisory boards, they just have to do this. For most of the companies, not for all, it is not something they would do if they were not forced to do that. The companies are there to make profit, and in the eyes of many managers we are not conducive to making as much profit as possible, but rather a hindrance.”

German union official Horst Mund sees the lauding of “cooperation” in the German context as profoundly misleading, saying companies “would not talk to us either if they had the choice”.

“Because they can get away with it”

Marko Maunula, a historian and author of the book, Guten Tag, Y’All: Globalization and the South Carolina Piedmont, 1950-2000 (2009), told Remapping Debate that foreign-based manufacturers like BMW “are very cognizant of the political climate of communities”, and they behave differently depending on the legal and social context within which they find themselves. Globalization over the last twenty or thirty years, Maunula suggests, has resulted in a situation where “there is no real industrial nationality anymore”. Though “BMW is a German company and it has a very German hierarchy and management system in Germany … when they are operating in Spartanburg they have become very, very easily adaptable to Spartanburg business culture”.

Coming from a very different perspective, Maibach told a very similar story: unlike in Germany, where unionization and high wages are normalized by law and custom, “the US has a different tradition” and “companies have a choice to make” about where to locate their facilities, often deciding on places where the risk of unionization is lower.

Mund relates the initial perplexity of his American counterparts in response to the anti-union stance taken by German automakers in the US: “In the past we frequently had the impression that our American colleagues thought we would just have to talk to management here in Germany in the sense that ‘look, behave decently, you know us, we’re the good guys, our American colleagues from the UAW they are equally good, so behave mutually and everything will be fine’ “.

“But”, Mund said with understatement, “It is not working like this”.

When asked why German firms operate so differently with respect to labor in different countries, Claude Barfield, a resident scholar at the American Enterprise Institute where he studies international trade and globalization, told Remapping Debate that they do so, in part, “because they can get away with it so far”.

Though a Volkswagen-Chattanooga spokesperson told Remapping Debate that “it is up to our production team members to decide” whether to join a union, Barfield points out that all of the German-based auto manufacturers in the US located in right-to-work states are “not unhappy with the situation they have now”, citing the fact that they “have more authority, they have more power” than they would in a unionized context.

Barfield said that factors other than wages brought the German carmakers to right-to-work states. A central reason for their interest in those states, he says, “has to do with not wanting to … get involved with work rules and seniority”. They have, he continued, “a much greater flexibility just in assigning work, and to be able to have plants change as conditions change. So, they’re not unhappy with that. They would not say they are happier with this than the system they deal with in Germany, but they probably are.”

When the Democrats were in [full control of Congress] under Obama, they promised to change”  –  making it easier for unions to organize through a card check system  –  but “that didn’t happen.

– Claude Barfield, American Enterprise Institute

Making choices

Returning to the experience of Germany’s domestic auto industry, Mund says that, while “it is not a law of nature that you have to be non-unionized to be successful”, companies are clearly choosing not to be union where they don’t have to.

Could conditions in the US be changed to produce a structure that, like Germany, protects workers against declining wages and conditions?

Barfield noted that “you’d have to change major state law as well as federal law”. His prognosis is not that it is impossible as a legal matter, but that, as a practical matter, “it will never look like Germany”.

“In the US, there’s no prospect that we will change our laws”, he continued. “When the Democrats were in [full control of Congress] under Obama, they promised to change”  –  making it easier for unions to organize through a card check system  –  but “that didn’t happen”.

More broadly, Barfield said, “It’s a different tradition of business, government, and labor relations. Three pieces of things all together in Germany and the US never had that. So I don’t think it’s just that the laws per se, it’s the attitude of corporate leaders and union leaders and governments. Not because of one specific piece of legislation.”

If he is right  –  and no one we spoke with disputed Barfield’s short-term political assessment  –  conditions for labor in the US auto industry will continue on their current path, a path described by the UAW’s Casteel as “spiraling downwards”.

On the other hand, despite Barfield’s reference to tradition, the “tradition” in the US through the 1970s was having a highly unionized auto making industry, one that paid good wages. Indeed, the tradition was such that the initial forays of German automakers into the US saw them accept unionization in their transplanted factories.

A different beginning

Despite the current differences in auto industry labor practices in Germany and US, German auto firms’ foray into manufacturing in the US initially conformed to the high-wage, unionized mode of German industry. As part of a wave of foreign direct investment in the US by European-based firms, in 1978, Volkswagen opened the Westmoreland Assembly Plant, 35 miles outside of Pittsburgh. At the time, most autoworkers in the United States were members of the United Auto Workers, and Westmoreland became no exception, and the plant rapidly unionized.

Volkswagen’s quick acceptance of labor organizing at its first American plant was apparently not out of the ordinary for newly arrived foreign-based firms. In 1981, two economists asked in the US Labor Department’s Monthly Labor Review, “Do foreign owned US firms practice unconventional labor relations?” Noting that “it is very possible that unionization may pose no great problem for foreign-owned firms, especially those with European parent companies, because they have been dealing with unions successfully for many years”, the authors’ survey of unions and firms in the US concluded that “foreign owned companies do not differ from domestically owned companies in their approach to most labor relations issues”.

Casteel and Mund hope for a return to that tradition, with Casteel saying, “Corporations aren’t going to give back to the workers unless they are made to”. The UAW has said that it is renewing its efforts to organize the southern transplants, but has not released specifics on its strategy or timetable.

_____

Remapping Debate 54 West 21 Street, Suite 707, New York, New York 10010 212-346-7600

contact@remappingdebate.org

http://www.remappingdebate.org/article/tale-two-systems

Categories: Uncategorized

Social Studies

by Thomas Frank

Harper’s Magazine Easy Chair (October 2011)

And now let us check in on the culture wars.

Yes, I know: stock markets have been seesawing wildly, US Treasury notes have been downgraded, unemployment is soaring, and the entire government was recently held hostage. But for some people, that particular end-times scenario isn’t satisfying enough: for them, the real crisis is still the massacre of the unborn and the horror of stem-cell research, and they regard the economic disasters of recent years as an annoying distraction. You and I may fret over the Dow, but they are out there still, fighting tooth and nail against the “culture of death”.

In late July, a handful of the nation’s most prominent anti-abortion leaders descended on Germantown, Maryland, an outerring suburb of Washington, to protest a local clinic operated by Dr LeRoy Carhart. Their plan, as far as I was able to understand it, was to pray and speechify from a spot as close to the clinic as was permissible, and thereby to spark some kind of pro-life revival. They called the gathering Summer of Mercy 2.0, a reboot of the weeks of agitation that Operation Rescue organized in Wichita, Kansas, in the summer of 1991.

As it happens, this was a reference I got immediately, having grown up in the state of Kansas. The original Summer of Mercy started as a standard-issue Operation Rescue protest of that era, which had people blockading abortion clinics, chaining one another to fences, throwing themselves under clinic employees’ cars, and, of course, getting arrested. But it quickly became something very different, a sort of right-wing Pentecost. The number of people involved grew and grew; they came from farther and farther afield to join the scrum; and when it all climaxed, the anti-abortion forces held their final rally in a football stadium. From there, the movement went on to even greater victories, helping to conquer Kansas’s Republican Party and to shift it from Eisenhower-style moderation to the ultraconservative outfit it is today.

For the militant wing of the anti-abortion movement, the original Summer of Mercy was a moment of supreme vindication: here was proof that their strategy of blocking clinics and clogging jails could actually work. But in due time, those tactics also led to a moment of supreme shame: the 2009 assassination of Wichita doctor George Tiller, a favorite bogeyman of the movement since 1991. Regardless of how anti-abortion leaders wriggled around and denied any responsibility, that murder was the obvious culmination of their “baby killer” rhetoric and their decision to personalize the protest. Their failure to face up squarely to their responsibility was as distasteful as any of the atrocities that they themselves ritually accuse the world of condoning.

And what of the Summer of Mercy 2.0? Things got off to an inauspicious start on July 30, when the organizers gathered for a press conference. They set up their podium in the hundred-degree heat on a patch of lawn between the office complex that houses Carhart’s clinic, a Halal House supermarket, and a busy street. I was the only member of the press to show up. But this had little effect on the proceedings, as the speakers took turns at the lectern while a colleague filmed their remarks.

The next few events were better attended. The following day, a Sunday, hundreds of parishioners from a nearby Catholic church marched to the office complex after Mass, stopping to pray near the spot where the press conference had been held. At the head of the procession, a priest prayed into a walkie-talkie, coordinating the prayers that were being recited up and down the length of the column. Photographers and reporters lined the streets this time, while a police cruiser rolled along very slowly, keeping pace with the priest up front.

And then, three times a day over the week that followed, a crowd of people would gather on that same patch of grass to listen to the anti-abortion movement’s heaviest hitters. I went to Germantown repeatedly, curious to see how a choreographed protest catches fire and becomes a thing of genuine grassroots feeling.

It never really happened. In 1991, anti-abortion protesters were able to polarize an entire city; indeed, they sparked a kind of small-scale civil war. This time around, with a few exceptions, the press couldn’t really be bothered to show up after covering the kickoff events on Sunday. Twenty years ago, more than 2,000 protesters got themselves arrested in Wichita. This time around, there were rarely more than 250 people present to begin with, at least at the protests I attended. No one tried to block Carhart’s clinic or throw herself under a car, and there was not a single arrest.

There were plenty of good reasons for this. Today there are federal laws against blockading abortion clinics, not merely state-level statutes that might or might not be enforced. Unlike Kansas, Maryland is a fairly liberal state, and Montgomery County may be one of the most liberal places in the entire nation. Then there’s the murder of Dr Tiller, which has clearly put a dent in the movement’s drawing power. (It couldn’t have helped the cause that someone was spending that week driving around suburban Maryland in a truck decorated with a huge photo of Tiller’s face, with the legend tiller the killer underneath.)

Nor was Summer of Mercy 2.0 getting much of a political tailwind from what many might see as its natural ally: the Tea Party. Most participants in that latest rightwing uprising are explicitly uninterested in the culture wars. When the Washington Post undertook a comprehensive survey of the nation’s Tea Party groups last year, it found almost zero interest in the hot-button topics that had so animated earlier conservative crusades. “Social issues, such as same-sex marriage and abortion rights”, the paper reported, “did not register as concerns”.

In the wake of last year’s sweeping GOP victory (and in a reversal of usual Republican priorities), anti-abortion types in state legislatures did in fact introduce a great many bills designed to make abortions more difficult to obtain. There have been attempts to defund Planned Parenthood and to ban insurance coverage for abortion. And back in Kansas, state lawmakers have decreed that clinics be kept at specific temperatures and that their janitorial closets meet certain capacious dimensions. But even as the movement gains traction at the state level, it seems to be sputtering in the streets – and on the national stage, where politicians might grandstand occasionally but do little to advance the cause.

The obvious enemy of culture warriors everywhere is the economic slump. It is difficult to get people fired up about gay marriage or the absence of school prayer when a far greater menace is romping back and forth across the front page of your newspaper, silencing the construction industry in your town, throwing your spouse out of work, brutally reconfiguring the structure of your world.

During Summer of Mercy 2.0, the contrast between economic disaster and culture-war anxieties was especially sharp. The organizers had had the poor fortune to schedule their events during the worst possible week, when the debt-ceiling fight was in its final throes and when Standard & Poor’s downgraded the credit rating of the United States. I myself would spend my days absorbing the unbelievable news from Washington and Wall Street. Then I would drive out to Germantown, where I would enter a separate universe, a place where people fretted about a coming wave of euthanasia and gave standing ovations as they watched live obstetric ultrasounds on a church’s Jumbotron.

This is not to say that the protesters weren’t aware of the economic mayhem. When I met Troy Newman, the current director of Operation Rescue, he told me that he was nervous about the decline of the dollar. When I met Reverend Patrick Mahoney, a chief organizer of the event, we immediately began talking about the gummed-up congressional negotiations. A few days later, Mahoney made fun of CNN’s debt-ceiling countdown clock from the podium; that was a fake crisis, he seemed to think, while the real deal was going down in that clinic across the parking lot.

I started to realize that the two great fears – of mass infanticide and financial apocalypse – have become interchangeable. One is cultural and mostly intangible, the other economic and very real, but they are increasingly expressed in similar terms. This wasn’t always the case. For years, culture warriors warned against some vague, calamitous crisis that was befalling America. There was always an undertone of class grievance mixed in. It was the “liberal elite” that had subverted our values: a rogues’ gallery of judges, teachers, journalists, lawyers, doctors, and probably any other professional group you’d care to mention.

Today, though, that constellation of villainy has been transferred wholly to the economic realm. Now the cardinal sins of the ruling class are runaway spending, budget deficits, and bank bailouts. And the language of catastrophe invented by the culture war riors has been swiped by the new breed of protesters and applied to the Constitution-shredding “Obamunists”.

The growing mustiness of culture-war whining struck me as I listened to a lecture given in Germantown by anti-abortion stalwart Joe Scheidler on August 1. (Having missed his talk, I watched the instant replay on the Internet.) Dressed in a brown suit, brown tie, and brown hat, Scheidler declared that he was concerned about “the sabotage of society”, a phrase he said he had picked up from a recent book. “What can we say about our country today?” he asked. To answer his own question, he began by quoting Shakespeare: “The time is out of joint”. It sure was! In the days preceding Scheidler’s talk, congressional leaders had enthusiastically torpedoed one another’s debt-ceiling plans, while insisting that they would keep the country from defaulting. The Spanish and Italian and Greek economies were circling the drain. The Dow Jones Industrial Average had shed 500 points in the preceding week and would lose even more in the week to come. That’s what people were worried about in the wider world. But not Scheidler. For him, and for a good many of his listeners, the tape-loop complaint of the Seventies was as compelling as ever. “We have legalized murder”, he insisted. He continued:

 

 

We have legalized sodomy, we are legalizing all manner of immorality because we have lost our morality. Many people do not know right from wrong … The divorce rate’s way up, adultery, pornography on your website, in the movies, in the ads, gay marriage. Unthinkable.

 

 

What was unthinkable for me was that the people of Montgomery County could get worked up about legalized sodomy or scantily clad Internet maidens when there were genuine terrors stalking the land. But surely Scheidler’s old-fashioned rhetoric helped to explain the modest turnout for the week’s events, more akin to a track meet than a popular revolution.

Again, Scheidler’s fulminations were hardly a shock. In my experience, end-of-the-world bombast is a staple of the anti-abortion movement. It’s their own classic rock; it’s what they’ve been singing ever since the days when the firebreathing Randall Terry ran Operation Rescue. I heard snatches of similar talk from Father Marcel Guarnizo, a stylish Catholic priest who compared the Germantown clinic to Auschwitz. And then there was Dr Johnny Hunter, a spellbinding black preacher who denounced Obama fans as pathetic apostates: “If you’re proud of somebody who’d put more homosexuals in a high place, [if] you’re proud of somebody who pushed out abortion as if it was a woman’s precious wonderful thing, if you’re proud of electing something like that, God don’t hear your prayer”.

What did surprise me was that the main organizers of the protest did not talk that way at all, at least when I was around. Pat Mahoney, the veteran activist who orchestrated the event, was an ebullient, charismatic fellow, constantly making self-deprecating jokes about his age, his hair, his spluttering speech, and the lame clothes he wore in Wichita back in 1991. He seemed very far removed from the damnation-slinging, fetus-waving protesters of twenty years ago. “We’re not coming with clenched fist demanding our own way, asserting our own position”, he stated at one meeting, in the midst of a prayer. “We’re coming in brokenness and humility before the Lord”.

Or take Troy Newman. The man who now runs Operation Rescue from its headquarters in Wichita may be as fervent an activist as they come, but in person he’s a genial guy with a Hollywood smile, a perfect tan, and sunglasses perched on the top of his perfect graying hair. When he took the stage at the Covenant Life megachurch on July 30, he spoke with a sort of boyish enthusiasm, and even drew his great metaphor for Dr Carhart from Star Wars, that all-time boy-culture classic. The abortion provider was like Darth Vader, went Newman’s reasoning. He had gone over to the “dark side”, and even though the crowd aimed to vanquish him, they also needed to show him “mercy” and “compassion” once the fight was over. (Newman might have done better to reference the egg-stealing pigs of Angry Birds, that being the game the kid seated in front of me played throughout all the speeches that evening.)

The nightly rallies themselves offered an almost carnivalesque atmosphere. The audience would applaud for a particularly spirited preacher, the cars would honk as they went by, and the kids would be horsing around at the edges of the crowd, holding staring contests or clambering up the concrete entrance marker of the office complex. The mood was friendly, the attendees talkative and courteous. You would almost start to forget what these fine people were here for: to single out a man for performing a perfectly legal medical procedure, and to shame women for seeking to assert control over their own bodies.

The culminating event in the week’s agenda came on the afternoon of Sunday, August 7. The largest crowd yet showed up: 625 total. Everyone wore red T-shirts, Pat Mahoney steered people back and forth with his bullhorn, and the police were on hand to make sure things didn’t get out of control. The excitement was palpable: it looked like a Wichita moment was nigh. And here is what the protesters did: they lined the streets at a big intersection near Dr Carhart’s clinic and formed the shape of a cross. Then they waited for a half hour or so. The instructions were to pray on certain subjects while standing there, but the teenage protesters next to me were more interested in coaxing passing motorists to honk. And then a small airplane flew over and took a picture of the group from the air.

It started to rain. The organizers tried to keep the soldiers in their ranks as the airplane banked and wheeled to take another shot. Then it was pouring. “We are saving lives!” an organizer yelled to her charges as I ran for the shelter of a nearby Indian grocery store. When I looked out the window a few minutes later, the streets were empty.

Categories: Uncategorized

What Should I Do? – Part One

The Basics of Resilience  – Getting Started

by cmartenson

www.chrismartenson.com (July 26 2010)

Note:  This is the first of a series on personal preparation to help you address the question, “What should I do?”

The copy in this series comes from a book chapter I wrote for The Post Carbon Reader: Managing the 21st Century’s Sustainability Crises (2010), edited by Richard Heinberg and Daniel Lerch.

It is being reproduced here with permission.  For other book excerpts, permission to reprint, and purchasing, please visit http://www.postcarbonreader.com.

The point of personal and community preparedness can be summed up in one single word: resilience.

It can feel pretty personally overwhelming to learn about all the economic, environmental, and energy challenges in store for us for the rest of this century.  There’s plenty of work to be done by governments and businesses, sure – but what about preparing yourself and your family for this quickly changing world?  The choices seem overwhelming.  Where does one begin?

Six years ago, I began to address these questions for myself and my family.  I’ll be honest; my first motivation came from a place of fear and worry.  I worried that I could not predict when and where an economic collapse might begin.  I fretted that the pace of the change would overwhelm the ability of our key social institutions and support systems to adapt and provide.  I darkly imagined what might happen if a Katrina-sized financial storm swept through the banking system.  I was caught up in fear.

But I am no longer in that frame of mind.  Here, six years later, I am in a state of acceptance about what the future might bring (although I am concerned), and I have made it my life’s work to help others achieve a similar measure of peace.  While I am quite uncertain about what might unfold and when, I am positive that anyone can undertake some basic preparations relatively cheaply and will feel better for having done so.

I am passionately interested in helping others to gracefully adapt their lifestyles and adjust their expectations to a very different-looking sort of future.  I have no interest in scaring you further, or having you approach the future with trepidation, anxiety, or fear.  Quite the opposite.  I want to let you know that adjusting and adapting can be one of the most rewarding and fulfilling journeys you could undertake.  It has been so for our family.

Just so you have a sense of the scope and the pace of these changes in our lives, I should mention that in 2003 I was a vice president at a Fortune 300 company, forty-two years of age with three young children (the oldest was nine), living in a six-bedroom waterfront house, and by every conventional measure I had it all.  Today I no longer have that house, that job, or that life.  My “standard of living” is a fraction of what it formerly was, but my quality of life has never been higher.  We live in a house less than half the size of our former house, my beloved boat is gone, and we have a garden and chickens in the backyard.

Peering in from the outside, someone might conclude that our family had fallen off the back of the American-dream truck with a thud.  But from the inside they would observe a tight, comfortable, confident, and grounded family.  We owe much of our current state of unity to the fact that we embarked on a journey of becoming more self-sufficient and discovered the importance of resilience and community along the way.

Anyone can do the same.  But first, we must lay some groundwork and address the question, “Why prepare?” After that, we can delve into the details.

THE BASICS OF PREPARING

Becoming Resilient

The point of personal (and community) preparedness can be summed up in one single word: resilience.

We are more resilient when we have multiple sources and systems to supply a needed item, rather than being dependent on a single source.  We are more resilient when we have a strong local community with deep connections.  We are more resilient when we are in control of how our needs are met and when we can do things for ourselves.

We are more resilient if we can source water from three locations – perhaps from an existing well, a shallow well, and rainwater basins – instead of just one.  If we throw in a quality water filter (essential for the rainwater anyway), then just about any source of water becomes potentially drinkable.

We are more resilient if we can grow a little bit more of our own food, rather than rely on a single grocery store.  Our community gains food resilience when we demand local food, perhaps by shopping at a farmers’ market or purchasing a farm produce subscription (also known as “community-supported agriculture”), and thereby increase our local supply of food and farming skills.

We are more resilient when our home can be heated by multiple sources and systems, perhaps wood and solar to complement oil or gas.

For my family, resilience now stretches well beyond our four walls and physical things and deep into our local networks and community.  But it began with focusing our initial efforts within our household.

Resilience, then, becomes the lens through which we filter all of our decisions.  It is a great simplifying tool.  Should we buy this thing?  Well, how does it make us more resilient?  Should we invest in developing this new skill?  Well, how will that help us be more resilient?  Should we plant these trees or those?  Well, which ones will add the most to the natural diversity and abundance around us?

It’s really that simple.  Instead of finding ourselves overwhelmed by all the things we could or should be doing, we find our lives simpler and easier.

The first concept of becoming prepared is resilience.

Insufficient, but Necessary

We must become the change we wish to see.  If we just sit back and wait for a world where people are living with a reduced footprint and in balance with our economic and natural budgets, that world will never come.  It is up to each of us to inspire others by first inspiring ourselves.  The good news is that you are not and will never be alone on this journey.

But let’s be perfectly honest:  Any steps we might take to prepare for a potential environmental, societal, or economic disruption, no matter how grand, are nearly certain to be insufficient.  Nevertheless, they are still necessary.  They will be insufficient because being perfectly prepared is infinitely expensive.  But actions are necessary because they help us align our lives with what we know about the world.  In my experience, when gaps exist between knowledge and actions, anxiety (if not fear) is the result.  So it’s not the state of the world that creates the anxiety quite as much as it is someone’s lack of action.

To put it all together, we take actions because we must.  If we don’t, who will?  We change the world by changing ourselves.  We reduce stress, fear, and anxiety in our lives by aligning our thoughts and our actions and by being realistic about what we can preserve, setting our goals and plans accordingly.

The second concept of preparation is that actions are both necessary and insufficient.

What’s the difference between being zero percent self-reliant and three percent?   Night and day.

Set Targets

When considering preparation, the first question is usually, “How much?”  Here I recommend setting a realistic goal, given the amount of money and time you have to devote.

My family’s goal has never been to be 100 percent self-sufficient in meeting any of our basic needs.  Instead, our goal has been to increase our self-sufficiency to something, anything, greater than “none”.  For example, until we got our solar panels we were 100 percent dependent on the utility grid.  Now we are something laughably less than that, perhaps three percent, but we can manufacture and use our own electricity.  What’s the difference between being zero percent self-reliant and three percent?  Night and day.  We can charge batteries, have light at night, and, most important, prevent our fully stocked freezer from thawing during a power outage.

There’s an enormous difference between being zero percent and ten percent self-sufficient for food production.  In the former case you rely on the existing food-distribution system.  In the latter case you have a garden, local relationships with farmers, fruit trees in the yard, perhaps a few chickens, and a deep pantry.  Developing even a limited percentage of your own food production does not take a lot of money, but it does take time.  So set a realistic target that makes sense for you and your family, and then find a way to get there.

The third concept of preparation is to set realistic goals.

Being In Service

Reducing my own anxiety was reason enough to prepare, but an equally important objective was to be of service to my community.  Should a crisis occur, I expect to find many unprepared people scrambling around in a desperate bid to meet their needs and many others paralyzed by the situation and unable to effectively act.  I feel it is my duty to not be among them.

Some have commented that they think of personal preparation as a selfish act, possibly involving guns and bunkers, but that’s not what this is about.  My experience in life tells me that being a good community member means having your own house in order.  If you do, you’ll be in a better position to add valuable resources and skills to any future efforts.

My expectation is that communities will rally in the face of a disruption, an act I’ve witnessed several times having lived through hurricanes in North Carolina.  But some communities will fare better than others and the difference between them will be dictated by the resilience of their respective citizen populations.  I wish to live in a resilient community, which means I must become more resilient.

The fourth concept of preparation is that your community needs you to get yourself prepared.

Step Zero

Many people, when daunted by the potential magnitude of the coming change, immediately jump to some very hard conclusions that prove incapacitating.  For example, they may have thoughts such as, “I need to go back to school to get an entirely different degree so I can have a different job!” or “I need to completely relocate to a new area and start over, leaving all my friends behind!” or “I need to abandon my comfortable home and move to a remote off-grid cabin!”  These panic-driven conclusions may feel so radical that they are quickly abandoned.  As a result, nothing gets accomplished.  Further, nearly everyone has hidden barriers to action lurking within.

My advice here is crisp and clear.  Find the smallest and easiest thing you can do, and then do it.  I don’t care what it is.  If that thing for you is buying an extra jar of pimentos because you can’t imagine life without them, then buy an extra jar next time you are shopping and put them in the pantry.  I am only slightly joking here.  I call this “step zero” to symbolize something minor that might precede step one.

The point is that small steps lead to bigger steps.  If you have not yet taken step one toward personal preparation and resilience, then I invite you to consider taking step zero.

Examples might be taking out a small bit of extra cash to store outside of the bank in case of a banking disruption, buying a bit more food each week that can slowly deepen your pantry, or going online to learn something more about ways you can increase your resilience with regard to water, food, energy, or anything else you deem important to your future.  It doesn’t so much matter what it is, as long as an action is taken.

The fifth concept of preparation is to start with small steps.

The Importance of Community

My community is the most important element of my resilience.

In my case, I joined up with eight other gentlemen, and, as a group, over the course of a year we went through each and every “bucket” of a self-assessment we designed covering nine basic areas of our lives.  We took a good, hard look at our then-current situations, made plans for preparation and change, and held each other accountable for following through with our plans.  The support we shared was, and still is, invaluable.

My wife, Becca, and our children are deeply hooked into a wider community of people actively engaged in nature awareness, permaculture, native skills, fruit collection, and other pastimes that to them seem recreational, but also offer deeper local connections to people and nature.

I would recommend working with people you trust or with whom you already share basic values.  The closer they live to you geographically, the better.  One of my core values is this:  I have no interest in living in fear, and my plan is to live through whatever comes next with a positive attitude and with as much satisfaction and fun as I can possibly muster.  So it has always been important to me to be in community with others who share this outlook.  And even now that I’ve experienced the pleasures (and joys and frustrations) of working in a group setting on matters of preparation, I would still immediately join or start another one if I happened to move away.

I now count this group as one of the most important elements in my life. I know who I can talk to about next steps, I know who I can count on in an emergency, and I know who will look after my family should I happen to be out of town when something big goes awry.

It is incredibly helpful to find people to join forces with as you step through the basics of self-preparation.  I encourage you to consider seeking like-minded locals with whom to form such a group, if you have not already done so, and to encourage others to do the same.

My preparation group is now working outside of our group and exploring ways to help get our larger community into a more resilient position.  I am only as secure as my neighbor is, and we are only as secure as our town, and our town is only as secure as the next town over.  But it all begins at the center, like a fractal pattern, with resilient households determining how the future unfolds.

The sixth concept of preparation is that community is essential.

Note:  Several individuals have had enormous success in rallying their communities and/or finding like-minded individuals by hosting public viewings of the Crash Course using the special edition three-disc version which we prepared specifically for those purposes.  It works!  You can obtain it here: http://www.chrismartenson.com/marketplace.

If you have not yet seen the other articles in this series on resilience, you can find them here:

What Should I Do? – One: The Basics of Resilience – Getting Started
http://www.chrismartenson.com/blog/what-should-i-do-part-i/42449

What Should I Do? – Two: The Basics of Resilience – Water
http://www.chrismartenson.com/blog/what-should-i-do-basics-resilience-part-2-water/42650

What Should I Do? – Three: The Basics of Resilience – Storing Food
http://www.chrismartenson.com/blog/what-should-i-do-basics-resilience-part-3-storing-food/42765

What Should I Do? – Four: The Basics of Resilience – Growing & Preserving Food
http://www.chrismartenson.com/blog/what-should-i-do-basics-resilience-part-4-growing-preserving-food/42883

What Should I Do? – Five: The Basics of Resilience – Health & First Aid
http://www.chrismartenson.com/blog/what-should-i-do-basics-resilience-part-5-health-and-first-aid/43035

What Should I Do? – Six: The Basics of Resilience – Heat, Power & Communications
http://www.chrismartenson.com/blog/what-should-i-do-basics-resilience-part-6-heat-power-communications/43477

What Should I Do? – Seven: The Basics of Resilience – Protecting Wealth
http://www.chrismartenson.com/blog/what-should-i-do-basics-resilience-part-7-protecting-wealth/43745

What Should I Do? –  Eight: The Basics of Resilience – Community
http://www.chrismartenson.com/blog/what-should-i-do-basics-resilience-part-8-community/44094

What Should I Do? – Nine: The Basics of Resilience – Your Next Steps
http://www.chrismartenson.com/blog/what-should-i-do-basics-resilience-part-9-your-next-steps/47010

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http://www.chrismartenson.com/blog/what-should-i-do-part-i/42449

Categories: Uncategorized

A Conversation About Europe

Premiere publication sur Orbite.info (December 15 2011)

I came upon Dmitry Orlov’s writings – as with most good things on the Internet – by letting chance and curiosity guide me from link to link. It was one of those moments of clarity when a large number of confusing questions find their answer along with their correct formulation. For example, the existence of fundamental similarities between the Soviet Union and the United States was for me a vague intuition, but I was unable to draw up a detailed list as Dmitry has done. One must have lived in two crumbling empires in order to be able to do that.

I must say that my enthusiasm was not shared by those around me, with whom I have shared my translations. It’s only natural: who wants to hear how our world of material comfort, opportunity and unstoppable individual progress is about to collapse under the weight of its own expansion? Certainly not the post-war generation weaned on the exuberant growth of the postwar boom (1945 to1973), well established in their lives of average consumers since the 1980s, and willing to enjoy a hedonistic age while remaining convinced that despite the economic tragedies ravaging society around them, their grandchildren will benefit from more or less the same well-padded, industrialized lifestyle. The generation of their children is more receptive to the notion of economic decline – though to varying degrees, depending on the decrease of their purchasing power and how lethally bored they feel at work (if they can find any).

It would be wrong to shoot the messenger who brings bad news. If you read Dmitry carefully, scrupulously separating the factual bad news, which are beyond his control, from his views on what can be done to survive and live in a post-industrial world, you will find evidence of strong optimism. I hope that in this he is right.

Whatever our views on peak oil and its consequences – or our distaste for scary prophecies – we can find in Dmitry Orlov fresh ideas on how to conduct our lives in a degraded economic and political environment, reasons to seek fruitful relations with people you might not normally cherry-pick, or the most effective approach to the frustrating political and media chatter and the honeyed whisper of commercial propaganda (shrug, turn around and go on with your life).

– Tancrede Bastie

TB: What difference do you see between American and European close future?

DO: European countries are historical entities that still hold vestiges of allegiances beyond the monetized, corporate realm, while the United States was started as a corporate entity, based on a revolution that was essentially a tax revolt and thus has no fall-back. The European population is less transient than in America, with a stronger sense of regional belonging and are more likely to be acquainted with their neighbors and to be able to find a common language and to find solutions to common problems.

Probably the largest difference, and the one most promising for fruitful discussion, is in the area of local politics. European political life may be damaged by money politics and free market liberalism, but unlike in the United States, it does not seem completely brain-dead. At least I hope that it isn’t completely dead; the warm air coming out of Brussels is often indistinguishable from the vapor vented by Washington, but better things might happen on the local level. In Europe there is something of a political spectrum left, dissent is not entirely futile, and revolt is not entirely suicidal. In all, the European political landscape may offer many more possibilities for relocalization, for demonitization of human relationships, for devolution to more local institutions and support systems, than the United States.

TB: Will American collapse delay European collapse or accelerate it?

DO: There are many uncertainties to how events might unfold, but Europe is at least twice as able to weather the next, predicted oil shock as the United States. Once petroleum demand in the US collapses following a hard crash, Europe will for a time, perhaps for as long as a decade, have the petroleum resources it needs, before resource depletion catches up with demand.

The relative proximity to Eurasia’s large natural gas reserves should also prove to be a major safeguard against disruption, in spite of toxic pipeline politics. The predicted sudden demise of the US dollar will no doubt be economically disruptive, but in the slightly longer term the collapse of the dollar system will stop the hemorrhaging of the world’s savings into American risky debt and unaffordable consumption. This should boost the fortunes of Eurozone countries and also give some breathing space to the world’s poorer countries.

TB: How does Europe compare to the United States and the former Soviet Union, collapse-wise?

DO: Europe is ahead of the United States in all the key Collapse Gap categories, such as housing, transportation, food, medicine, education and security. In all these areas, there is at least some system of public support and some elements of local resilience. How the subjective experience of collapse will compare to what happened in the Soviet Union is something we will all have to think about after the fact. One major difference is that the collapse of the USSR was followed by a wave of corrupt and even criminal privatization and economic liberalization, which was like having an earthquake followed by arson, whereas I do not see any horrible new economic system on the horizon that is ready to be imposed on Europe the moment it stumbles. On the other hand, the remnants of socialism that were so helpful after the Soviet collapse are far more eroded in Europe thanks to the recent wave of failed experiments of market liberalization.

TB: How does peak oil interact with peak gas and peak coal? Should we care about other peaks?

DO: The various fossil fuels are not interchangeable. Oil provides the vast majority of transport fuels, without which commerce in developed economies comes to a standstill. Coal is important for providing for the base electric load in many countries (not France, which relies on nuclear). Natural gas (methane) provides ammonia fertilizer for industrial agriculture, and also provides thermal energy for domestic heating, cooking and numerous manufacturing processes.

All of these supplies are past their peaks in most countries, and are either past or approaching their peaks globally.

About a quarter of all the oil is still being produced from a handful of super-giant oil fields which were discovered several decades ago. The productive lives of these fields have been extended by techniques such as in-fill drilling and water injection. These techniques allow the resource to be depleted more fully and more quickly, resulting in a much steeper decline: the oil turns to water, slowly at first, then all at once. The super-giant Cantarell field in the Gulf of Mexico is a good example of such rapid depletion, and Mexico does not have many years left as an oil exporter. Saudi Arabia, the world’s second-largest oil producer after Russia, is very secretive about its fields, but it is telltale that they have curtailed oil field development and are investing in solar technology.

Although there is currently an attempt to represent as a break-through the new (in reality, not so new) hydraulic fracturing and horizontal drilling techniques for producing natural gas from geological formations, such as shale, that were previously considered insufficiently porous, this is, in reality, a financial play. The effort is too expensive in terms of both technical requirements and environmental damage to pay for itself, unless the price of natural gas rises to the point where it starts to cause economic damage, which suppresses demand.

Coal was previously thought to be very abundant, with hundreds of years of supply left at current levels. However, these estimates have been reassessed in recent years, and it would appear that the world’s largest coal producer, China, is quite close to its peak. Since it is coal that has directly fueled the recent bout of Chinese economic growth, this implies that Chinese economic growth is at an end, with severe economic, social and political dislocations to follow. The US relies on coal for close to half of its electricity generation, and is likewise unable to increase the use of this resource. Most of the energy-dense anthracite has been depleted in the US, and what is being produced now, through environmentally destructive techniques such as mountaintop removal, is much lower grades of coal. The coal is slowly turning to dirt. At a certain point in time coal will cease to provide an energy gain: digging it up, crushing it and transporting it to a power plant will become a net waste of energy.

It is essential to appreciate the fact that it is oil, and the transport fuels produced from it, that enables all other types of economic activity. Without diesel for locomotives, coal cannot be transported to power plants, the electric grid goes down, and all economic activity stops. It is also essential to understand that even minor shortfalls in the availability of transport fuels have severe economic knock-on effects. These effects are exacerbated by the fact that it is economic growth, not economic decroissance ["de-growth"] (which seems inevitable, given the factors described above) that forms the basis of all economic and industrial planning. Modern industrial economies, at the financial, political and technological level, are not designed for shrinkage, or even for steady state. Thus, a minor oil crisis (such as the recent steady increase in the price of oil punctuated by severe price spikes) results in a sociopolitical calamity.

Lastly, it bears mentioning that fossil fuels are really only useful in the context of an industrial economy that can make use of them. An industrial economy that is in an advanced state of decay and collapse can neither produce nor make use of the vast quantities of fossil fuels that are currently burned up daily. There is no known method of scaling industry down to boutique size, to serve just the needs of the elite, or to provide life support to social, financial and political institutions that co-evolved with industry in absence of industry. It also bears pointing out that fossil fuel use was very tightly correlated with human population size on the way up, and is likely to remain so on the way down. Thus, it may not be necessary to look too far past the peak in global oil production to see major disruption of global industry, which will make other fossil fuels irrelevant.

TB: How is post-collapse Russia doing ? Ready for its second peak ?

DO: Russia remains the world’s largest oil producer. Although it has been unable to grow its conventional oil production, it has recently claimed that it can double its oil endowment by drilling offshore in the melting Arctic. Russia is and remains Europe’s second largest energy asset. In spite of toxic pipeline politics (which have recently been remedied somewhat by the construction of the Nordstream gas pipeline across the Baltic) it has historically been the single most reliable European energy supplier, and shows every intention of remaining so into the future.

TB: Is there hope for a safe, harmless European decline, or is any industrial society just bound to collapse at once when fuel runs out?

DO: The severity of collapse will depend on how quickly societies can scale down their energy use, curtail their reliance on industry, grow their own food, go back to manual methods of production for fulfilling their immediate needs, and so forth. It is to be expected that large cities and industrial centers will depopulate the fastest. On the other hand, remote, land-locked, rural areas will not have the local resources to reboot into a post-industrial mode. But there is hope for small-to-middling towns that are surrounded by arable land and have access to a waterway. To see what will be survivable, one needs to look at ancient and medieval settlement patterns, ignoring places that became overdeveloped during the industrial era. Those are the places to move to, to ride out the coming events.

TB: I remember my grandmother telling me about the German occupation, when urban and suburban dwellers flocked into country towns every Sunday with empty cases, eager too find some food to buy from the local farmers, hopping back in a train the same day. Is there any advantage in living in a city, in a post-collapse era, rather than in the countryside?

DO: Surviving in the countryside requires a different mindset, and different set of skills than surviving in a town or a city. Certainly, most of our contemporaries, who spend their days manipulating symbols, and expect to be fed for doing so, would not survive when left to their own devices in the countryside. On the other hand, even those living in the countryside are currently missing much of the know-how they once had for surviving without industrial supplies, and lack the resources to reconstitute it in a crisis. There could be some fruitful collaboration between them, given sufficient focus and preparation.

TB: Can we grow sufficient food with low technology, low energy methods, out of highly exhausted, highly polluted farmland ? It seems we might end up in a worse farming situation than our ancestors just two or three generations ago.

DO: That is certainly true. Add global warming, which is already causing severe soil erosion due to torrential rains and floods, droughts and heat waves in other areas. It is likely that agriculture as it has existed for the past ten thousand years will become ineffective in many areas. However, there are other techniques for growing food, which involve setting up stable ecosystems consisting of many species of plants and animals, including humans, living together synergistically. What will of necessity be left behind is the current system, where fertilizers and pesticides are spread out on tilled dirt (rather than living soil) to kill everything but one organism (a cash crop) which is then mechanically harvested, processed, ingested, excreted, and flushed into the ocean. This system is already encountering a hard limit in the availability of phosphate fertilizer. But it is possible to create closed cycle systems, where nutrients stay on the land and are allowed to build up over time. The key to post-industrial human survival, it turns out, is in making proper use of human excrement and urine.

TB: If cities or big towns survive collapse, what will be their core activities? What do we need cities for?

DO: The size of towns and cities is proportional to the surplus that the countryside is able to produce. This surplus has become gigantic during the period of industrial development, where one or two percent of the population is able to feed the rest. In a post-industrial world, where two-thirds of the population is directly involved in growing or gathering food, there will be many fewer people who will be able to live on agricultural surplus. The activities that are typically centralized are those that have to do with long-range transportation (sail ports) and manufacturing (mills and manufactures powered by waterwheels). Some centers of learning may also remain, although much of contemporary higher education, which involves training young people for occupations which will no longer exist, is sure to fall by the wayside.

TB: Some Americans view peak oil and collapse as another investment opportunity. You already wrote on the fallacies of the faith in money. That leaves a more useful question: what can people do of their savings during or preferably before collapse? What can you buy that is truly useful? I assume the answer vary greatly according to how much money you still have.

DO: This is a very important question. While there is still time, money should be converted to commodity items that will remain useful even after the industrial base disappears. These commodities can be stockpiled in containers and are sure to lose their value more slowly than any paper asset. One example is hand implements for performing manual labor, to provide essential services that are currently performed by mechanized labor. Another is materials that will be needed to bring back essential post-industrial services such as sail-based transportation: materials such as synthetic fibre rope and sail cloth need to be stockpiled beforehand to ease the transition.

TB: You don’t mention arable land or housing. Do you think some kind of real property may turn out a valuable post-collapse asset, assuming you can afford them without drowning into debt, or is it too much financial and fiscal liability in our pre-collapse era to be of any use?

DO: The laws and customs that govern real property are not helpful or conducive to the right kind of change. As the age of mechanized agriculture comes to an end, we should expect there to be large tracts of fallow land. It won’t matter too much who owns them, on paper, since the owner is unlikely to be able to make productive use of large fields without mechanized labor. Other patterns of occupying the landscape will have to emerge, of necessity, such as small plots tended by families, for subsistence. Absentee landlords (those who hold title to land without actually physically residing on it but using it as a financial asset) are likely to be simply run off once the financial and mechanical amplifiers of their feeble physical energies are no longer available to them. I expect several decades more of fruitless efforts to grow cash crops on increasingly depleted land using increasingly unaffordable and unreliable mechanical and chemical farming techniques. These efforts will increasingly lead to failure due to climate disruption, causing food prices to spike and robbing the population of their savings in a downward spiral. The new patterns of subsisting off the land will take time to emerge, but this process can be accelerated by people who pool resources, buy up, lease, or simply occupy small tracts of land, and practice permaculture techniques. Community gardens, guerilla gardening efforts, planting wild edibles using seed balls, seasonal camps for growing and gathering food, and other humble and low-key arrangements can pave the way towards something bigger, allowing some groups of people to avoid the most dismal scenario.

TB: How can people make preparations for collapse or decline without losing connections with their current social environment, friends, relatives, jobs or customers, and everything around them that still function as usual. That is a question about sanity as much as practicality.

DO: This is perhaps the most difficult question. The level of alienation in developed industrial societies, in Europe, North America and elsewhere, is quite staggering. People are only able to form lasting friendships in school, and are unable to become close with people thereafter with the possible exception of romantic involvements, which are often fleeting. By a certain age people become set in their ways, develop manners specific to their class, and their interactions with others become scripted and limited to socially sanctioned, commercial modes. A far-reaching, fundamental transition, such as the one we are discussing, is impossible without the ability to improvise, to be flexible – in effect, to be able to abandon who you have been and to change who you are in favor of what the moment demands. Paradoxically, it is usually the young and the old, who have nothing to lose, who do the best, and it is the successful, productive people between thirty and sixty who do the worst. It takes a certain detachment from all that is abstract and impersonal, and a personal approach to everyone around you, to navigate the new landscape.

http://cluborlov.blogspot.com/2011/12/conversation-about-europe.html

Categories: Uncategorized

The Future Can’t Pay Its Bills

2011/12/22 1 comment

by John Michael Greer

The Archdruid Report (December 14 2011)

I want to expand here on some of the points raised in last week’s post, because they deal with factors in our situation that operate well below the surface. One of the things that makes the predicament of industrial society so difficult for most people to notice, in fact, is that its effects are woven so deeply into the patterns of everyday life. Over the last decade, for example, crude oil prices have more than tripled; over the last decade, behind a froth of speculative booms and busts, the world’s industrial economies have lurched deeper into depression. Peak oil researchers have pointed out for years that the former trend would bring about the latter, but long after events proved them right, the connection still remains unnoticed by most people.

To be fair, the way most people and nearly all economists think about economics makes this sort of blindness to the obvious hard to avoid. It’s standard these days to treat the circulation of money – the tertiary economy, to use a term from my book The Wealth of Nature (2011) – as though it’s all that matters, and to insist that the cycles of nature and the production of goods and services (the primary and secondary economies) will inevitably do whatever we want them to do, so long as there’s enough money. This is why, for instance, you’ll hear economists insisting that the soaring price of oil is good for the economy; after all, all the money being spent to buy oil is getting spent in turn on other things, right?

What this ignores, of course, is the fact that the price of oil is going up, in large part, because petroleum is getting steadily more difficult to extract as we exhaust the easily accessible sources, and so the cost of oil production is going up while the amount of oil being produced is not. As a growing fraction of industrial civilization’s capacity to produce goods and services has to be diverted into oil extraction in order to keep the oil flowing, the amount of that capacity that can be used for anything else decreases accordingly. Notice, though, that this diversion isn’t an obvious thing; it happens one transaction at a time, throughout the economy, as laborers, raw materials, capital, and a thousand other things go into oil production instead of some other economic sector.

The place to begin making sense of the shape of the process under way, it seems to me, is the intriguing article {1} by green economist Herman Daly, cited in last week’s post, about the way that the World Bank’s pursuit of global growth via the worship of economic orthodoxies ran headfirst into a shortage of “bankable projects” – in plain English, economic projects that would yield the ten per cent or so per year necessary to pay off the loan and also make a profit. The World Bank, as Daly recounts, tried to make up for the shortage by lowering its standards, and pouring money into projects that counted as bankable only in the same imaginary world where Pets.com stock and subprime mortgage-backed securities count as good investments.

The point I’d like to make here, though, is that a shortage of bankable projects has been a problem for some time now in regions not normally consigned to the Third World. The Rust Belt town where I live, Cumberland, Maryland, is one example. Until 1974 it was a significant industrial center, with two large breweries, a tire factory, a fabric mill, and several smaller concerns. 1974, though, was the year that the consequences of America’s first brush with peak oil hit home, and Cumberland was one of the targets. A combination of soaring raw material costs, slumping sales, and competition from overseas shuttered every factory in town, and none ever reopened. Cumberland, like the rest of the Rust Belt, suddenly had a shortage of bankable projects. The shortage wasn’t total – a handful of “big box” stores found construction loans during the retail-empire boom of the 1990s, for example – but rock-bottom real estate prices, favorable tax policies, low labor costs, and two colleges nearby to provide workforce training at state expense couldn’t lure factory jobs back into the region.

That same experience is being repeated now all over America, and for that matter across much of the industrial world. Capital shortage isn’t an issue – with two rounds of quantitative easing and a tacit agreement on the part of bank regulators not to raise awkward questions about the actual value of the paper assets owned by banks, there’s plenty of money available to lend – but loans aren’t being made, and the reason given by bank after bank is that next to nobody who wants to borrow money has a credible plan that will allow them to pay it back. That claim has been rejected with some heat by commentators, but I’ve come to suspect that it may be more accurate than not. That was exactly what happened to Cumberland, after all; in the changed economic environment after 1974, a factory built here wouldn’t have made enough money to pay back the loans that would have been needed to build it, and so the loans weren’t made. Increasingly, that seems to be true of the industrial world as a whole.

All this can be described, in the terms I used in The Wealth of Nature, as a widening mismatch between the tertiary economy of money and the secondary economy of goods and services – or, to put the matter even more simply, a rising tide of paper wealth chasing a falling tide of actual value. Still, I’ve come to think that there’s another way of looking at it – one that unfolds from the perspectives I’ve been discussing here over the last few weeks.

Let’s step away for a moment from the game of arbitrary tokens we call “money”, and look at the economy from a thermodynamic perspective, as a system for producing goods and services by applying energy to an assortment of raw materials. Until the coming of the industrial revolution, the vast majority of the energy that went into human economic systems went from sunlight to crops to human and animal muscle, which produced and distributed goods and services. The industrial revolution transformed that equation adding torrents of cheap abundant fossil fuel energy to the annual income from photosynthesis. Only a small fraction of the labor force and other resources had to be diverted from food production to bring this flood of energy into the economic equation, and only a small fraction of fossil fuels had to be cycled back into the fossil fuel extraction process; the rest of the labor force, other resources, and all that additional energy from fossil fuels could be poured into the rest of the economy, producing goods and services in unparalleled amounts.

Physicist Ilya Prigogine has shown by way of intricate equations that the flow of energy through a system increases the complexity of the system. If any further evidence was needed to back up his claims, the history of the world’s industrial economies provides it. The three centuries that followed the development of the first functional steam engines saw economic complexity, measured by the creation of new job categories, soar to a level almost unimaginably greater than any previous civilization had achieved. The bonanza of wealth produced by adding fossil fuel energy to the sun’s annual contribution spread throughout the industrial economies, and the ways and means by which money sprayed outwards from the pockets of coal magnates and oil barons quickly became institutionalized.

Governments, businesses, and societies ballooned in complexity, creating niches for entire ecosystems of office fauna to do tasks the presidents and tycoons of the nineteenth century had accomplished with a tiny fraction of the personnel; workloads obeyed Parkinson’s Law – “work expands so as to fill the time available for its completion” – and everyone found that it was easier to add more staff to get a job done than to get the existing staff to do it themselves. The result, in most industrial societies, is an economy in which only a small fraction of the labor force actually has anything directly to do with the production of goods and services, while the rest are kept busy managing the sprawling social and economic machinery that has come into being to organize, finance, manage, staff, market, advertise, sell, analyze, tax, regulate, review, praise, and denounce the production of goods and services.

What seems to have been lost sight of, though, is that this immense superstructure all rests on the same foundation as any other economy, the use of energy to convert raw materials into goods and services. More to the point, it depends on a certain level of surplus that can be produced in this way, and that depends in turn on being able to add plenty of fossil fuel energy to the economic system without having to divert too large a fraction of the labor force, resource base, and energy supply into the extraction of fossil fuels. Some sense of the difference made by fossil fuels can be measured by comparing the economies of the industrial age to those of societies that, by any other standard, were near the upper end of human social complexity – Tokugawa Japan and Renaissance Italy are the ones that come to mind. Urban, literate, and highly cultured, each of these societies had the resources to support extraordinary artistic, literary, and intellectual creativity. Still, they did this with economies vastly simpler than anything you’ll find in a modern industrial society.

The division of the labor force among economic roles makes a good measure of the difference. In both societies, the largest economic sector, employing around fifty per cent of the adult population (nearly all adult women and most elderly people of both sexes), was the household economy; a good half of the total economic value produced in each society came out of the kitchen gardens, spindles, looms, and other economic facilities associated with households. Another thirty per cent or so of the population in each society, including most of the adult men, was engaged full time in farming and other forms of direct food production; maybe ten per cent of the adult population worked in the skilled trades; and the remaining ten per cent or so was divided between religious professionals, military professionals, artists and performers, aristocrats, and merchants who lived by buying and selling goods produced by others.

The limited range of categories available in those societies was not the result of inadequate cleverness. If some Italian despot or Tokugawa shogun had decided he needed a staff of human resource managers, corporate image consultants, strategic marketing specialists, and the rest of the occupational apparatus of modern business life, say, he would have been out of luck, and if he tried anyway, he would have been out of a job – the resources needed to train and employ some equivalent of modern office fauna would have had to be diverted from more immediate necessities such as training and employing an adequate force of condottieri or samurai, which was not exactly a viable strategy in those times. This is why Italian despots and Tokugawa shoguns got by with relatively small staffs of clerks, scribes, feudal subordinates, and maybe an astrologer; that’s what their economic systems could afford.

Equally, an aspiring craftsman or merchant faced real challenges in expanding his business beyond fairly sharp limits. In a few cases, a combination of luck, technical skill, and adequate transport allowed one region to take on a commanding role in some specific export market, profit considerably from that, and build up an impressive degree of infrastructure; the golden age of Greece was paid for by the profits from Greek wine and olive oil exports, for example, and the woolen trade brought similar benefits to late medieval Flanders. Far more often, though, local needs had to be supplied by local production, because the surplus energy that would have been needed to power long distance trade on a large scale simply didn’t exist, or couldn’t be spared from more pressing needs. Thus the institutional arrangements that governed economic life before the industrial age were as closely tailored to a world of relatively scarce energy, in which most people worked in the household or farming sectors of the economy, as today’s institutional arrangements are tailored to a world awash in cheap abundant energy.

That last point defines the crisis of our times, however, because we no longer live in a world awash in cheap abundant energy. We’ve still got a lot more energy than Renaissance Italy or Tokugawa Japan had, to be sure, but the per capita surplus is not what it once was, and a growing fraction of what we’ve got has had to be diverted to cover increases in direct and indirect energy costs of energy production. Meanwhile, the institutional arrangements are still firmly fixed in place, and they aren’t optional; try starting a business sometime without dealing with banks, real estate companies, licensing boards, tax authorities, et al, and you’ll quickly discover how non-optional these arrangements are.

The mismatch between the economy we’ve got and the economy we can afford has many implications, but one of the largest is precisely the issue I raised earlier in this post: across the industrial world, there are very few bankable projects to be found, even at a time when there are millions of people who need work, and who would happily buy products if they had the chance to earn the money to do so. Our economy is burdened with an unproductive superstructure it can no longer support. The globalization fad of the 1990s, which arbitraged the difference in wage costs between Third World sweatshops and industrial-world factories, was in effect an attempt to evade the resulting difficulties by throwing the industrial nations’ working classes under the bus, and it only worked for a decade or so; as so often happens in the declining years of a civilization, a short term fix was treated as a long term solution, and a brief remission of symptoms allowed the underlying crisis to worsen steadily.

Over the long run, the mismatch is a problem that will solve itself; once the unraveling of the industrial economy goes far enough, the superstructure will come apart, leaving a great many human resource managers, corporate image consultants, strategic marketing specialists, and the like with about as much chance of finding jobs in their fields as they would have had 17th-century Osaka or 14th-century Milan. In the short and middle term, though, the mismatch will almost certainly continue to show itself in exactly the same way that it’s been visible over the last few decades: more and more often, business ventures simply won’t be able to make enough money to cover startup costs or to stay in business.

Of course there will be exceptions. We are talking about a shift that will appear, as it has appeared so far, as a shifting of statistical averages, and the background of ordinary economic fluctuations will make it more than usually difficult to tease out the signal from the noise. Even in hard times, some ventures make fortunes; what makes hard times differ from boomtimes is that the fortunes are fewer, and the odds of making one of them come more and more to resemble the odds of walking away from a Vegas casino with a six-figure jackpot.

All this has two implications, it seems to me, that are of core importance for the shape of our future. The first is simply that those of my readers whose plans for the future depend on holding down a job may have a very hard row to hoe. The shift under way in the economy will more than likely squeeze the current model of economic life from both ends – as it becomes harder to find, keep, and earn a decent living at an ordinary job, businesses will continue to fold, debase their products, or both, and so it will also become harder to convert the income from an ordinary job back into goods and services worth having. One of the core themes I’ve been discussing here for some time now, the need to move at least one family member out of employment into the household economy, is in part a response to that situation; what you produce yourself for your own consumption doesn’t pay a share of the costs of the economic superstructure. Beyond that, the deterioration of the official economy is accompanied, as pretty much always happens, by the growth of alternative economic networks that allow goods and services to be exchanged outside normal channels; it may be a while before those networks become solid enough to support more than a few people, but taking part in exchanges through these networks even in their early stages may be worthwhile.

The second implication also relates to a core theme of this blog, though it’s on a larger scale. While other economic arrangements are certainly imaginable, the one we have right now is strictly limited in what it can accomplish by what can make a profit: to repeat Daly’s term, it has to be a bankable project, or by and large, it won’t get done. This may just turn out to be a far more dangerous limitation than anybody has yet realized. There are, after all, any number of plans for grand projects in response to the end of the age of cheap abundant energy; each of them would require the investment of a great deal of capital, labor, raw materials, and other resources; and under present arrangements, none of them can go forward unless someone can count on making a profit from making them happen. Under present arrangements, in turn, it’s likely that none of them will be profitable enough to get a construction loan or to cover their operating costs once they get built.

We’ve already seen a solid prefigure of this in the ethanol bubble of a few years ago, in which firms in corn states rushed to build ethanol plants. Even with government subsidies and a guaranteed market, a great many of those plants are now bankrupt and shuttered. It’s an open secret that many recent solar and wind energy projects make money only because of government subsidies. Grandiose plans to turn large swathes of Nevada into algal biodiesel farms or vast solar arrays are arguably even more likely to be subject to the same rule – and the subsidies in these latter cases would be ruinously expensive. Earlier posts here have discussed some of the other reasons why such projects will not be built; if the pattern I’ve sketched here is anything to go by, though, the future these projects imagine won’t arrive, because it won’t be able to pay its bills.

_____

John Michael Greer is the Grand Archdruid of the Ancient Order of Druids in America {2} and the author of more than twenty books on a wide range of subjects, including The Long Descent: A User’s Guide to the End of the Industrial Age (2008), The Ecotechnic Future: Exploring a Post-Peak World (2009), and The Wealth of Nature: Economics As If Survival Mattered (2011). He lives in Cumberland, Maryland, an old red brick mill town in the north central Appalachians, with his wife Sara.

If you enjoy reading this blog, you might want to check out Star’s Reach {3}, his blog/novel of the deindustrial future. Set four centuries after the decline and fall of our civilization, it uses the tools of narrative fiction to explore the future our choices today are shaping for our descendants tomorrow.

Links:

{1} http://www.energybulletin.net/stories/2011-08-15/growth-debt-and-world-bank

{2} http://www.aoda.org/

{3} http://starsreach.blogspot.com/

http://thearchdruidreport.blogspot.com/2011/12/future-cant-pay-its-bills.html

Categories: Uncategorized

North Korea may soon be able to strike USA …

… with ultimate doomsday weapon that deactivates (nearly) all electronics.

by Mike Adams, the Health Ranger, NaturalNews Editor

naturalnews.com (December 07 2011)

Obama administration officials have released new intelligence indicating North Korea is building mobile ICBMs that will soon be able to reach the United States. This was reported in the Washington Times, which states, “New intelligence indicates that North Korea is moving ahead with building its first road-mobile intercontinental ballistic missile, an easily hidden weapon capable of hitting the United States” {1}.

ICBMs typically carry nuclear warheads, and they can easily target cities on the West Coast such as Los Angeles or Seattle. But even this threat doesn’t compare to the “doomsday weapon” that China or Russia could almost certainly launch right now: A high-altitude EMP weapon (HEMP for short, and I’m not joking).

High-Altitude EMP could fry the USA back into the pre-industrial age. HEMP weapons are detonated in the high atmosphere, theoretically as high as 300 miles above the ground (well above the orbits of most satellites, even). Once detonated, the energy released by these weapons interacts with the Earth’s magnetic field, producing an extremely fast and powerful electromagnetic burst that rushes to the ground at 94% the speed of light, slamming everything on the ground with as much as 50,000 volts per square meter at high amps.

Not surprisingly, such a phenomenon would fry virtually every piece of electronics they touch, as today’s electronics are manufactured with delicate circuitry that simply cannot withstand such extreme voltage ranges.

Instantly taken out of service would be many automobiles, televisions, cell phones, air conditioners, airplanes, radios, military electronics, and many satellites. Even more worryingly, such an attack would also take out the backup generators and control electronics for active nuclear power plants, which as we’ve already reported here on NaturalNews, could unleash a wave of nuclear meltdowns across the USA {2}.

As Duncan Long writes on a survival website:

A major area of concern when it comes to EMP is nuclear reactors located in the US. Unfortunately, a little-known Federal dictum prohibits the NRC from requiring power plants to withstand the effects of a nuclear war. This means that, in the event of a nuclear war, many nuclear reactors’ control systems might will be damaged by an EMP surge. In such a case, the core-cooling controls might become inoperable and a core melt down and breaching of the containment vessel by radioactive materials into the surrounding area might well result. {3}

Extensively studied by the government

This is not science fiction. EMP blasts from nuclear weapons have been extensively studied from the very first nuclear tests in the 1940s. Back then, the world didn’t have much in the way of electronics, so the early effects of EMP were barely noted. But throughout the 1960s and 1970s, as more testing was done, it became apparent that the electromagnetic pulse effects of nuclear detonations could be devastating.

Today, with civilization running on computers, electronics, GPS units and mobile phones, such a blast could literally fry a modern nation back into the pre-industrial age.

Well, at least back to the 1800s anyway, where the only tools you could really rely on were shovels, leather straps and shotguns. Firearms, you see, don’t have electronics, so they’ll be fully functional even after an EMP attack. Keep this in mind when you consider how to survive a post-EMP scenario.

Interestingly, governments openly admit that EMP attacks would wipe out all the electronics that keep modern civilization working. The Washington state Department of Health, Office of Radiation Protection explains:

When “detonated”, an EMP weapon produces a pulse of energy that creates a powerful electromagnetic field capable of short-circuiting a wide range of electronic equipment, particularly computers, satellites, radios, radar receivers and even civilian traffic lights. Since EMP is electromagnetic energy traveling at the speed of light, all of the vulnerable electronic equipment in the detonation zone could be affected simultaneously.

Society has entered the information age and is dependent on electronic systems that work with components that are very susceptible to excessive electric currents and voltages. Many of these electronic systems are controlled in some way by semiconductors. Semiconductor devices fail when they encounter an EMP because of the local heating that occurs. Failure of semi-conductive chips could destroy industrial processes, railway networks, power and phone systems, and access to water supplies.

Commercial computer equipment is particularly vulnerable to EMP effects. Computers used in data processing systems, communications systems, displays, industrial control applications, including road and rail signaling, and those embedded in military equipment, such as signal processors, electronic flight controls and digital engine control systems, are all potentially vulnerable to the EMP effect.

Other electronic devices and electrical equipment may also be destroyed by the EMP effect. Telecommunications equipment can be highly vulnerable and receivers of all varieties are particularly sensitive to EMP. Therefore radar and electronic warfare equipment, satellite, microwave, UHF, VHF, HF and low band communications equipment and television equipment are all potentially vulnerable to the EMP effect. Cars with electronic ignition systems/ and ignition chips are also vulnerable. {4}

A single high-altitude detonation could reboot human civilization in North America

If you still think I’m making all this up, by the way, check out the entry on Wikipedia which explains all this in much more detail {5}.

There, you’ll find a fascinating map which shows something rather horrifying: A single burst just 300 miles above the Earth would cover the entire United States (minus Hawaii and Alaska) while also nailing most of Canada and Mexico as well. See that graphic {6}.

This map was created based on testimony given by Gary Smith to the US House National Security Committee on July 16 1997.

That’s right: With one relatively small nuclear weapon detonated high above the Earth, an entire modern nation could be effectively destroyed. Why? Because without electronics, you get runaway starvation, riots, fires, and a complete breakdown of law and order.

A near-instant collapse of modern cities

Imagine Los Angeles, for example, if all the water pumps went out. Imagine Chicago if food deliveries stopped. Many of the rigs on the highway, you see, would be instantly shut down with an EMP burst. Every plane, train and automobile – except for those built pre-1980s or so – might instantly become road kill.

Imagine police trying to function without police radios. Fire and other emergency services are wholly dependent on electronics. Deliveries of food, water, medical supplies and consumer goods are all dependent on electronics. Oil refineries, nuclear power plants, coal-fired power plants and even renewable energy systems are all entirely driven by complex electronics. All these electronics would be vaporized in a nanosecond.

And no, “surge protectors” cannot protect anything. The EMP wave moves far too fast for surge protectors to trip their own relays. So all the surge protectors get blown out before you can even blink an eye, and then the remainder of the pulse fries all the electronics that were supposed to be protected. Only those electronics specifically shielded against EMP attacks will be protected (and only the military bothers with such expensive retrofits).

As the next graphic shows (7}, such a weapon detonated even at just 100 kilometers above the surface of the planet would unleash anywhere from 10,000 to 50,000 volts per square meter. This chart doesn’t cite the amperage of the current, but military experiments have shown it is more than sufficient to fry all electronics that aren’t specifically shielded against EMP. If you happen to be underground at the moment the pulse hits (for example, in a subway station), your cell phone may be spared, but the cell phone towers of course will all be kaput.

Both Russia and China probably already have these weapons

North Korea is undoubtedly working on developing such weapons as a way to bomb advanced nations back to the level of low technology found in North Korea itself. But the real worry here is that China and Russia probably already have such weapons and could launch them at any time.

“The non-lethal nature of electromagnetic weapons makes their use far less politically damaging than that of conventional munitions, and therefore broadens the range of military options available”, explains the Department of Health website for Washington state {8}. “Several nations, with United States at the forefront, are reported to have developed non-nuclear bombs capable of generating EMPs”.

This is a game-changer. In the “old” mode of thinking about nuclear war, bombs were unleashed on targeted cities, then calibrated to detonate just a mile or two above the city in order to maximize the intensity of the nuclear burst. But with the rise of electronics-driven societies, the real weakness becomes not the brick and mortar of buildings but the delicate electronic circuits that keep civilization humming. Take away the electronics, and an advanced nation is far worse off than if it were physically blasted by a high-yield weapon. After all, a physical city can be rebuilt as long as you have the electronics to coordinate rescue operations and shipments of materials to rebuild. But if you take away the electronics, the cities destroy themselves with riots, fires, starvation and disease.

Why America is unable to stop such an attack

No doubt the strategic thinkers at the Pentagon have already realized all this. They don’t talk about it much, and they certainly don’t make it public, because if the public really knew the seriousness of this threat, they might utterly freak out.

You see, America has no capability whatsoever to stop some other nation from launching a nuclear device into high orbit (300 miles, say) and detonating it over North America. There is simply no military capability to halt such a missile or to block the EMP effects. Ronald Reagan’s “Star Wars” defense system never became a reality.

The only real way to stop such an attack is to stop pissing off other nations, and of course America can’t even do that because it’s running around the world interfering in everyone’s business, running secret military ops in Iran right now {9}, overthrowing national governments with CIA-funded terrorist rebels (Libya, for example), unleashing economic hit men to enslave developing nations, and basically running around the global playground like a giant bully.

This is not a way to win friends. If anything, the USA has been building resentment among other powerful nations such as China, which not only holds a shockingly high percentage of the US national debt, but also has advanced rocketry technology and an ability to launch nuclear missiles into high orbit.

Both Russia and China are fed up with the US mucking around in the Middle East, and nearly everyone in the Middle East is fed up with US support for Israel. What all this means is that America is making enemies, not friends, and some of those enemies no doubt have EMP technology already developed that could literally “bomb” America back into the pre-industrial era.

Why the real threats have little to do with individual terrorists

As you can tell if you’re getting all this, the real threats against America have almost nothing to do with lone terrorists trying to bomb a single airplane, for example. The TSA is a cruel joke. It will no more keep you safe than wishing for a magical unicorn to show up and whisk you away from danger.

Even the events of 9/11 would pale in comparison to the total devastation unleashed by a high-altitude EMP device. Beyond a few skyscrapers being leveled, imagine entire cities being zapped into a state of instant electronic death. Such an act would transform cities into death zones from which few would escape alive. (Cities are not designed to sustain life without huge inputs from outside, including food, water, electricity, fuel, raw materials, and so on. Absent those inputs, they become concrete tombs …)

See, most of the US government is wasting its time running roadside checkpoints and trying to entrap gullible teens into acting like terrorists {10}. What the government should be doing is figuring out how to stop acting like the bully of the world and start making economic trading partners instead of making enemies everywhere.

Why international trade is crucial for halting war

The only way to stop Russia or China, for example, from frying North America with a HEMP weapon is to make it more painful for them to lose the USA than keep it around. And that means engaging in two-way trade to create win-win economic ties that would lose a lot of money for some very rich people if bombs started going off. This strategy has worked for China-Taiwan relations, by the way, where China-Taiwan investments are now so commonplace that the two nations are strongly economically dependent on each other. The best “defense” against a military invasion, it turns out, is to have strong economic trading partners who need your nation to stick around so they have viable trading partners.

It’s also effective to have your own HEMP weapons that you can unleash upon your neighbors, should they have any crazy thoughts about bombing you. “Mutually Assured Destruction”, believe it or not, is actually a very wise military tactic for self defense. People may bash the apparent insanity of the idea, but it is one of the things that has kept America relatively safe for generations. If we didn’t have nuclear weapons ready to be unleashed on other nations, do you really think we wouldn’t have already been bombed in the 1960s during the Cuban Missile Crisis? I don’t have a lot of kind words for the military industrial complex, but at the end of the day, I must honestly acknowledge the fact that the US military’s possession of nuclear weapons has effectively countered the nuclear arsenals of other nations.

In the same way, the most polite place in the world you will ever visit is a small town where everybody carries a concealed weapon. You’ll hear a lot of “sir” and “ma’am” in polite conversation. People tend to avoid arguments for precisely the reason you might imagine: Because they’re all armed. “Mutually Assured Destruction” is a deterrent to violence at both the local level and the global level. It may sound insane, but on a practical level, it prevents violence and helps keep the peace.

And that’s why the USA is no doubt also working on its own HEMP weapons. Even China is extremely vulnerable to the EMP destruction of electronics. It’s no longer a developing nation, you see. China left that in the dust decades ago. Today, China is a high-tech, electronically-organized nation in much the same way as the USA. Perhaps only Papua New Guinea would be completely immune to an EMP attack. Nearly all other nations (including North Korea) would be devastated by it.

Solutions: What can YOU do about this right now?

Okay, so if you’re convinced that the threat of EMP weapons looms over all advanced nations today, what exactly can you do about it?

I’ll answer it in three words: Go low tech.

In addition to your high-tech, electronically timed clothes dryer, have a clothesline outside so you can use the sun to dry your clothes.

In addition to your high-tech Toyota Prius that’s packed with high-density electronics, have an old “beater” wagon from the 1970s sitting around in case you need it. Heck, you don’t even need to keep paying the license taxes on it if you don’t drive it day to day.

For every tool you have that’s electronic, have a hand-powered alternative standing by: Hand saws, hand drills and other hand-powered tools are easy to come by. Don’t rely entirely on electronics.

Think about low-tech items that reliably work. Duct tape. Scissors. Shovels. Quality cutlery in the kitchen. And if you can, find yourself one of those antique treadle sewing machines powered by your foot! (I’ve been trying to find one of these for months and can’t dig one up …)

How are you gonna write things down when the electronics are all melted? You’d be amazed how many people no longer have pencil and paper, especially among the younger generation which has entirely abandoned wristwatches, too. (Their mobile phones tell them the time, you see.) Have you ever tried to MAKE a pencil? You’d be amazed how difficult it is. It’s so much easier to just buy a bunch right now and have them stored away. They’re cheap, and for the moment, UPS trucks still operate just fine and they’ll bring these pencils right to your doorstep in a pretty brown box.

Getting back to basics

In a way, a world without electronics might actually be a far more “real” world than the one in which we live today. More peaceful … back to nature … a place where local community would mean something once again. But of course there would also be a huge price to pay for that transition in terms of lost lives in the cities where people are so disconnected from the real world that they are utterly unable to survive in it. Today’s teens are so addicted to texting devices that I’m pretty sure some of them would just flat-out drop dead within 24 hours if the cell towers stopped functioning.

The good news in all this is that getting back to basics is a wise strategy no matter what threats we may be facing in the near future: Nuclear war, police state tyranny, EMP weapons, natural disasters, Earth changes, and so on. The more you can rely on your own two hands – and simple tools that leverage your efforts – the more likely you are to survive the next decade.

It also goes without saying that if EMP weapons are unleashed upon the world, the internet will be destroyed, meaning you won’t be able to search Google to find answers like “How do I grow tomatoes?” You’ll need to either have the knowledge in your head or have the physical books on your shelf which is one of the reasons why I still buy lots of physical books. They don’t break, and they never have to be rebooted.

If there’s one thing I’ve really learned in all these years of analyzing society, history and technology, it’s that technology is fragile, and so are civilizations. The society we take for granted today is far more fragile than you might imagine, and the whole thing could come tumbling down in a microsecond. It wouldn’t even take an act of war to make it happen: just one high-energy solar flare could accomplish much the same effect.

If you want your children to survive and prosper in our world, teach ‘em the basics: How to grow gardens. How to care for animals. How to think for themselves, live off the land and resist buying into the bull being spewed by technocrats. When the electronic heartbeat of modern civilization comes to a screeching halt, all the circuit boards in the world won’t help you in any way whatsoever. You’ll have to save yourself. And you’d better have a little bit of gold, silver, ammo and garden tools packed away if you hope to have any real chance of making it through the transition.

Learn the skills (and gather the goods) while you still can.

If you want some real skills, here’s an online video course I recently filmed with Daniel Vitalis, called “Surthrival”: http://premium.naturalnews.tv/Surthrival_Vitalis_Adams__NN.htm

Learn more about EMP weapons and protection methods at:

http://www.futurescience.com/emp/emp-protection.html

http://empcommission.org/

Read the Critical National Infrastructures Report at:
http://empcommission.org/docs/A2473-EMP_Commission-7MB.pdf

Editor’s note: There is a lot of information about EMPs on the internet, and much of it is flatly false. Beware of all sorts of myths that say things like EMP blasts will “fry your brain” (they won’t) or that you can put your electronic gear in a microwave oven and cut off the cord, making it function like a small Faraday cage. That doesn’t work, as you can clearly test yourself by tossing your cell phone into a microwave and then calling it from another phone. Some people say you can build your own home-made Faraday protection devices by placing cardboard boxes inside galvanized trash cans, but looking around the internet, there is a lot of conflicting information on whether this really works. Overall, there isn’t much reliable, proven information on the internet about how to actually protect valuable electronics from EMP attacks. One of the reasons for this is because virtually no one living today has personally experienced an EMP attack, so practically nothing has been tested against it.

Links:

{1} http://www.washingtontimes.com/news/2011/dec/5/north-korea-making-missile-able-to-hit-us/

{2} http://www.naturalnews.com/033564_solar_flares_nuclear_power_plants.html

{3} http://www.aussurvivalist.com/nuclear/empprotection.htm

{4} http://www.doh.wa.gov/ehp/rp/factsheets/factsheets-htm/fs41elecpuls.htm

{5} http://en.wikipedia.org/wiki/Electromagnetic_pulse

{6} http://en.wikipedia.org/wiki/File:EMP_areas.JPG

{7} http://en.wikipedia.org/wiki/File:High_altitude_EMP.gif

{8} http://www.doh.wa.gov/ehp/rp/factsheets/factsheets-htm/fs41elecpuls.htm

{9} http://www.latimes.com/news/nationworld/world/la-fg-iran-bomb-20111205,0,7550482.story

{10} http://www.naturalnews.com/034325_FBI_entrapment_terror_plots.html

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