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>Crisis in California

2009/12/31 3 comments

>Everything Touched by Capital Turns Toxic

by Gifford Hartman

The United States’ most populous state, California is the world’s eighth largest economy. The state has some of the planet’s most productive farmland and in the 1990s enjoyed an extensive real-estate boom. But intensive, industrialised agriculture has polluted much of the environment and now, with more foreclosed homes than anywhere else in the world, it is also home to a growing number of tent cities. Gifford Hartman takes us on a road trip through California’s Central Valley to witness the toxicity: of mortgages and ecosystems, houses, drugs and human relations.

“I should be very much pleased if you could find me something good (meaty) on economic conditions in California … California is very important for me because nowhere else has the upheaval most shamelessly caused by capitalist centralisation taken place with such speed”.
– Letter from Karl Marx to Friedrich Sorge, 1880

Shantytown USA

In California toxic capitalist social relations demonstrated their full irrationality in May 2009 when banks bulldozed brand-new, but unsold, McMansions in the exurbs of Southern California.

Across the United States an eviction occurs every thirteen seconds and there are at the moment at least five empty homes for every homeless person. The newly homeless are finding beds unavailable as shelters are stretched well beyond capacity. Saint John’s Shelter for Women and Children in Sacramento regularly turns away 350 people a night. Many of these people end up in the burgeoning tent cities that are often located in the same places as the ‘Hoovervilles’ – similar structures, named after then President Herbert Hoover – of the Great Depression of the 1930s.

The tent city in Sacramento, California’s state capital, was set up on land that had previously been a garbage dump. It became internationally known when news media from Germany, the UK, Switzerland and elsewhere covered it. It featured in the French magazine Paris Match and on The Oprah Winfrey Show in the US. Of course this publicity necessitated that Arnold Schwarzenegger, California’s governor, and Kevin Johnson, mayor of Sacramento, shut it down. When we visited in March 2009 to investigate, we met Governor Schwarzenegger and Mayor Johnson there by chance. Johnson told us the tent city would be evacuated, saying, ‘They can’t stay here, this land is toxic’.

Almost half the people we spoke with had until recently been working in the building trades. When the housing boom collapsed they simply could not find work. Some homeless people choose to live outside for a variety of reasons, including not being allowed to take pets into homeless shelters or to freely drink and use substances. But most of the tent city dwellers desperately wanted to be working and wanted to be housed. In many places people creating tent encampments are met with hostility, and are blamed for their own condition. New York City, with a reputation for intolerance towards the homeless, recently shut down a tent city in East Harlem. Homeowners near a tent city of 200 in Tampa, Florida organised to close it down, saying it would ‘devalue’ their homes. In Seattle, police have removed several tent cities, each named ‘Nickelsville’ after the Mayor who ordered the evictions.

Yet in some places, like Nashville, Tennessee, tent cities are tolerated by local police and politicians. Church groups are even allowed to build showers and provide services. Other cities that have allowed these encampments are: Champaign, Illinois; Saint Petersburg, Florida; Lacey, Washington; Chattanooga, Tennessee; Reno, Nevada; Columbus, Ohio; Portland, Oregon. Ventura, California recently changed its laws to allow the homeless to sleep in cars and nearby Santa Barbara has made similar allowances. In San Diego, California a tent city appears every night in front of the main public library downtown.

California seems to be where most new tent cities are appearing, although many are covert and try to avoid detection. One that attracted overflowing crowds is in the Los Angeles exurb of Ontario. The region is called the ‘Inland Empire’ and had been booming until recently; it’s been hit extremely hard by the wave of foreclosures and mass layoffs. Ontario is a city of 175,000 residents, so when the homeless population in the tent city exploded past 400, a residency requirement was created. Only those born or recently residing in Ontario could stay. The city provides guards and basic services for those who can legally live there.

Toxic Tour along Highway 99

“And so, for all the bravado about the state’s leading industry [agriculture] – about the billions of dollars that it adds to the economy and the miracles of production and technical ingenuity that it has accomplished – California’s farming is on the way out, as the rising value of its soil produces more in [real estate] lot sales than in cotton, cattle, or almonds. A linear city of shopping malls, housing developments, and office parks spreads from the Bay Area to Sacramento and beyond, and another along Highway 99 from Sacramento to Bakersfield on the east side of the San Joaquin [Valley].”
– Gray Brechin, Farewell, Promised Land: Waking from the California Dream (1999)

California’s Central Valley is 720 kilometres long and eighty kilometres wide, sitting between the Sierra Nevada and Coast Range mountains. Its two main rivers are the Sacramento and the San Joaquin, which run through the northern and southern parts, giving their names to the valley’s two sections. The two rivers join in a massive delta that flows into the San Francisco Bay. It is the most productive agricultural region in the world where, since the 1970s, developers have been paving over fertile soil to build massive tract-style suburban and exurban housing.

For years, the monocultural practices of highly centralised agribusiness have been polluting ecosystems with a toxicity that spreads environmental damage beyond the region. More recently, the mortgages financing the new homes have become the toxic assets polluting social relations. In the midst of the world’s richest farmlands, the Central Valley probably has more foreclosed homes than anywhere else in the world. Historically, some parts of the Valley have had the lowest wages in the US and some of the highest rates of unemployment outside the Midwestern ‘Rust Belt’. The Valley competes with the Los Angeles basin for the worst air quality in the US. According to the Environmental Protection Agency, the town of Arvin – immortalised in John Steinbeck’s Grapes of Wrath (1940) for the government-funded migrant workers camp called ‘Weedpatch’ – has the dirtiest air in the country.

Interstate 80 is the second-longest highway in the United States, traversing the country from San Francisco in California’s Bay Area to the suburbs of New York City. Driving east along Interstate 80 from the Bay Area, chaotic, unplanned suburban sprawl has replaced farmland for nearly all of the 140 kilometres to Sacramento. There are a few breaks when the terrain is hilly and a few crop fields have survived, but otherwise all you see are longs strips of suburbanity: shopping malls, endless rows of tract homes, automobile and recreational boat dealerships (many now just empty lots), office parks and billboards.

Running south of Sacramento, through the heart of the Central Valley, is Highway 99. For decades the towns and cities of the Central Valley have been amongst the fastest growing in the US, and as you drive along the highway you pass through all these places that until recently had all the garish optimism of boom towns. The first big city you reach after Sacramento is Stockton, home to a deep-water sea port that connects major rivers with the San Joaquin Delta, the Bay and trans-Pacific trade. In the earlier years of the decade, Stockton was at the centre of the speculative housing bubble. In 2008 it had the highest rate of foreclosures in the country. It also has one of the highest unemployment rates and Forbes magazine recently rated it the ‘most miserable city in the US’. Further south there is more of the same American consumer culture: shopping malls surrounded by massive parking lots and a huge Christian high school in the town of Ripon. In places railroad tracks and changing yards run alongside 99, but many of the tall grain silos and food processing facilities have been abandoned. The next big city is Modesto – the number one city in the US for car thefts and number five on Forbes‘ ‘most miserable’ list. Here the fertile farmland has been concreted over to build ‘affordable’ housing for commuters, some of whom endure a two-hour each-way drive to the Bay Area. Continuing south through Merced – with the second highest ‘official’ unemployment rate of any US city – there’s yet more malls and chain stores, but also reminders of the agricultural industry: a few orchards and livestock pens along the highway, as well as dealers in tractors and other farm machinery. You can also see the plentiful irrigation canals that move water from the wet north to the Valley’s dry southern end. What is striking is how much of the industrial and agricultural infrastructure appears to be rusting away. Many plants display huge ‘For Sale’ signs.

Two hundred and seventy kilometres south of Sacramento, you reach Fresno, California’s fifth largest city, with a population of half a million. Fresno is the hub of the San Joaquin portion of the valley and it always seems to be in a haze of brown smog, especially during the stiflingly hot summer months. It is the ‘asthma capital of California’, a result not only of vehicle and industrial pollution, but also the airborne pesticides and other toxic chemicals used in agriculture. Fresno County is the most productive and profitable agricultural county in the US. Until recently it was also home to three large downtown tent cities, as well as other smaller encampments scattered throughout the city and along the highways.

The first tent city, on Union Pacific railroad property, was evicted in July 2009. It was literally toxic: sludge was discovered oozing out of holes in the ground in the summer of 2008, possibly due to the site’s previous use for vehicle repair. ‘New Jack City’ – after the 1991 film about violent crack-dealing urban gangs – earned its name because two murders have already occurred there. The third tent city is more like a shantytown because many of the living spaces are built with scavenged wood. It is called ‘Taco Flats’ or ‘Little Tijuana’ because of its many Latino residents. These are mostly migrant agricultural labourers, unemployed because of the economic crisis and because a three-year drought has severely reduced the number of crops being planted.

Farm work has always been seasonal and unstable, and it has relied on migrant labour since the Gold Rush of 1849. Right now 92% of agricultural workers are immigrants. Chinese workers – often derogatorily referred to as ‘Coolies’ – were brought in to build the railroads. Once the transcontinental railroad was completed in 1869, they worked in mining until racism and declining yields drove them off. Many ended up labouring in the fields until the Chinese Exclusion Act of 1882, which prevented further immigration, and also resulted in many Chinese being driven out of rural areas and into urban ghettos. Growers then turned to Japanese, Filipino, Armenian, Italian and Portuguese immigrants, as well as Sikhs from the Punjab region and beyond. During the Great Depression of the 1930s they employed ‘Okie’ and ‘Arkie’ refugees from the Dust Bowl – native-born white migrants, mostly former sharecropper or tenant farmers from Oklahoma and Arkansas. Mexican immigrants have also been used for this work and they, along with Central Americans, have become the overwhelming majority of agricultural workers today.

One Big Union

Fresno also has a history of struggle. It’s where the Industrial Workers of the World (IWW or ‘Wobblies’) waged a successful six-month Free Speech Fight in 1910-11. The battle attracted several hundred Wobblies and other migratory workers from up and down the West Coast to support the right to organise on public streets and to ‘soapbox’. The guiding force was IWW organiser Frank Little, who arrived from a free speech fight in the agricultural area around Spokane, Washington. (Little, who was half-Indian, was lynched in Butte, Montana in 1917, whilst helping organise a copper workers’ strike and arguing that working men should refuse to fight a World War on behalf of their oppressors.) At the time, Fresno called itself the ‘Raisin Capital of the World’ and at the end of each summer, 5,000 Japanese workers and another 3,000 hobos would arrive in Fresno for the grape harvest. Much like the tent cities today, workers camped out downtown and looked for work in what was known as the ‘slave market’. The Japanese were often very united and willing to strike for higher wages and better conditions. Knowing that the IWW tried to organise all workers, regardless of race, nationality, ethnicity, gender or sector, the local elites were terrified that the Japanese might align themselves with the IWW. They resorted to violent harassment and mass arrests of IWW soapbox orators, frequently using vigilantes. The struggle continued in the courtroom where the Wobblies took up as much time as possible, seeking to make their trials political and agitating for class struggle. This fight for free speech was victorious, although its main effect was Fresno’s political leaders and local farm owners becoming more tolerant of the conservative American Federation of Labor (AFL) and its attempts to organise farm workers.

The next major IWW confrontation took place in 1913, in the Sacramento Valley’s hop-growing region. The Durst Hop Ranch in Wheatland advertised in newspapers throughout California the need for 2,700 workers. In fact they needed only 1,500. The intention was to create a surplus of workers to push down wages. The advertisements eventually drew 2,800 workers of 24 ethnicities, speaking two-dozen languages. It was extremely hot, there was no clean water and there were only nine outdoor toilets. People had to sleep in the fields if they did not want to pay Durst for a tent and, without clean drinking water, the only alternative was paying Durst’s cousin five cents for lemonade. Stores in town were forbidden to come to the ranch to sell to the workers, forcing them to buy supplies at Durst’s own store. With no garbage removal or sanitation, many workers became sick. Durst withheld ten per cent of wages until the end of the harvest, hoping that the filthy conditions would drive many to leave without collecting them.

A hundred or so of the men had some connection to the IWW and they quickly called a meeting, more to discuss the deplorable living conditions than the pitiful wages. About 2,000 people gathered to hear the Wobbly organisers speak, but the meeting was broken up by the sheriff and his men. Four people were killed in the resulting riot, two workers and two from the sheriff’s posse. Most of workers fled the Durst Ranch and scattered. A reign of terror then began. All over California radicals were targeted in the hunt for the Wobblies judged responsible for inciting the riot. But the state’s investigation of the unhealthy conditions at the ranch that followed led to new laws to improve the living conditions of agricultural workers.

Even so, fifty years later almost nothing had changed concerning the creation of a ‘reserve army of labour’, or the use of racism to keep workers divided and weak. The appalling conditions under which workers continued to labour, as many still do today, encouraged Cesar Chavez to lead a farm worker organising drive in Delano in the San Joaquin Valley in the 1960s. It resulted in the formation of the United Farm Workers union.

Gold, green gold, black gold: California’s capitalist development

Gold was discovered in California in 1848. The Central Valley grew with the rest of the state as capitalism appeared seemingly out of nowhere, practically overnight. California gold enabled the world economy to recover during the age of revolution in Europe and it fired the rapid urban industrial expansion across the United States. The San Francisco Bay Area became one of the most dynamic regions of capitalist accumulation in the late 19th Century, a role that the area of Southern California around Los Angeles continued to play throughout the 20th. California’s later expansion was based on ‘green and black gold’: agricultural commodities and oil. From the early 20th Century, several counties in California began to lead the US in the production of both.

Agriculture is much like any other form of capitalist production. With increasing mechanisation, the concentration of capital and centralisation of production (and now with the use of genetically modified crops), higher yields can be achieved with fewer workers, who labour on a smaller number of larger farms. California’s Central Valley was the first region in the US to develop this system of industrial agriculture on a mass scale: agribusiness. As capital tightened its control of farm work – in a move from its ‘formal’ to ‘real’ domination over labour – the resulting highly productive agricultural sector was able to take advantage of advances in transportation to sell its products on the world market. This in turn threw weaker producers into crisis. In Europe, millions of peasants were driven off the land, and many were forced to emigrate to places like the US. Globally, cheaper food meant workers could feed themselves and their families more cheaply, allowing wages to fall, even as working class living standards – in some countries – rose.

The novel The Octopus: A California Story (1901), by Frank Norris, paints a vivid picture of this process of the proletarianisation of the Central Valley’s agricultural labour force in the 1880s. A generation later, John Steinbeck described the completion of the process in The Grapes of Wrath (1939), as internal migrants – the dust bowl refugees – trekked from Oklahoma to the Central Valley during the Great Depression seeking work. This agribusiness system of market-driven, centralised production resulted in the violent and brutal industrial exploitation of agricultural workers. These conditions are still apparent today, as an army of mostly Mexican and Central American farm and ranch workers roam throughout California toiling for low wages and under equally precarious conditions. The main difference is that the increasing reliance on petrochemicals in agriculture exposes farm workers to a wider variety of deadly toxins.

Water has become a commodity critical for California’s development. Most rain falls in the state’s northern part, but eighty per cent of the agricultural and urban demand is in the south. An enormous, now creaking infrastructure of interconnected canals, dams, reservoirs and pumps moves water from sea level in the north to an elevation of 150 metres in the south, allowing vegetables, fruit and nuts to be grown in the San Joaquin Valley. But California’s development has always been rooted in an ideology of endless growth and the idea that soil is real estate. From the 1980s onwards, water distribution across the state has become more deregulated, whilst influence over the bureaucracies managing water has shifted from agribusiness to property developers. As farmland has been paved over, water once used to irrigate crops has become available to property developments as far afield as Orange County in southern California, Las Vegas in Nevada and Phoenix, more than 1,000 kilometres away, in Arizona’s rapidly developing sunbelt. Water, freed from its obligations to Central Valley agribusiness, was part of the fuel that fired the massive housing boom throughout California and the south-western US. But as demand for water outstripped supply, the conditions for future droughts were created.

At the same time as much farmland has made way for development, other farms and ranches have centralised and concentrated even more as they have shifted to a narrower range of more lucrative cash crops and livestock production. Between 1996 and 2006, dairy production increased by 72% and almond acreage by 127%. An amazing eighty per cent of the world’s almond crop comes from 250,000 hectares of orchards in the Central Valley. This form of monoculture has its toxic effects. There are simply not enough bees in the Valley to pollinate all the almond trees, so over forty billion of them are brought in for the three weeks the trees are in bloom in February: some are trucked all the way along Interstate 80 from New England and others are flown from as far away as Australia. En route the bees are fed what amounts to insect junk food: high-fructose corn syrup and flower pollen imported from China, causing Colony Collapse Disorder. As many as eighty per cent of bees have left their hives, never to return. Since bees pollinate nearly two-thirds of plants that end up as food, this could have disastrous consequences for humans.

The ‘rationalisation’ of agriculture, coupled with property development, has already had disastrous consequences for humans in Mendota, a town fifty kilometres due west of Fresno. Mendota’s population is just under 10,000; 95% of its residents are Latino and most work in agriculture. Mendota claims to be the ‘cantaloupe capital of the world’, but the crop requires irrigation and the drought has prevented planting, putting many people out of work. The town now has a second title as the ‘unemployment capital of California’, with a 41% jobless rate. As alcoholism runs rampant and the social fabric breaks down, the nearby Mendota Federal Prison offers one of only a few future employment possibilities. Budget problems mean the prison is currently only forty per cent finished, but President Obama has pledged $49 million of stimulus money towards its completion. Once built, it should provide 350 jobs. Prisons are a growth industry in California, where one in six prisoners is serving a life sentence.

At the end of the 19th Century, oil was discovered in Kern County, in the southern, San Joaquin part of the Central Valley. Kern County contains three of the US’ five largest oil fields. With all the refineries in the area adding to the toxic mix, the air is heavy with ozone and other forms of particle pollution. Exposure to industrial chemicals, especially in the workplace, is listed in various reports as a major cause of toxicity in the region. Women’s Health magazine listed Bakersfield, the County seat, as the country’s most unhealthy city for women.

This southern end of the Valley was merely a desert until the irrigation projects brought water. But the soil also contained salt and alkalis from an ancient seabed. A plan was devised for a master drain through the centre of the Valley that would dump these wastes in the San Francisco Bay from which they could be flushed out into the Pacific Ocean. Environmental protests prevented the completion of the project and the drain instead ended up dumping into the Kesterson Reservoir, site of a refuge for migratory birds. In the early 1980s, birds began to die in large numbers, chicks were born with deformities and cattle grazing nearby became sick. The cause was discovered to be selenium, a naturally occurring trace element common to desert soil, toxic in high concentrations. The area became another human-made toxic hotspot, the reservoir was drained and capped with soil, and the wildlife sanctuary closed.

But the poisoning of land, people and animals is not limited to mistakes like Kesterson. Concentrated, high-yield farming is chemical-intensive. A result of this is rapid soil-depletion, salinisation, desertification and outright toxic contamination – by metals such as lead, and salts like selenium. These chemicals include carcinogens that cause cancer, teratogens that cause birth defects and mutagens that cause genetic changes. In 1988, the United Farm Workers union demanded that five toxic pesticides used by grape growers – dinoseb, methyl bromide, parathion, phosdrin and captan – be banned.

Toxic housing, toxic self-medication

California’s housing boom, like that of the US more generally, was fuelled by the creation of collateralised debt obligations (CDOs) that were based on readily available subprime and other risky mortgages. CDOs rapidly became ‘toxic assets’ when the bubble burst. The notion of ‘toxic assets’ is of course something of a metaphor, but the housing boom created hundreds of thousand of homes that are literally toxic. It began with the confluence of the national housing boom and the rebuilding of New Orleans and other parts of Louisiana, Florida and Texas in the aftermath of hurricanes Katrina and Rita in 2005. Massive quantities of drywall – also known as plasterboard or gypsum board – were needed. Builders, especially developers of large-scale housing tracts like Lennar Corporation, the second biggest home-builder in the US, imported 250,000 tons from China. Although this Chinese drywall mostly ended up in Florida and Louisiana, much of it also found its way into Central Valley developments. The material gives off carbon disulfide and carbonyl sulfide, which corrode copper pipes, electrical wiring and appliances like air conditioners. Worse still, people have suffered nosebleeds and rashes, whilst children have been afflicted by ear and respiratory infections.

Owners wishing to sell these toxic new homes are legally required to reveal that they have Chinese drywall, resulting in house prices falling as low as $19,000. Some of the bigger builders, like Lennar, are ripping out the drywall and repairing some of the homes they built. But others have gone bankrupt, or are on the verge of collapse, and have done nothing. Most banks have refused to renegotiate or adjust loans on these toxic homes, leaving their buyers trapped.

Beyond these doubly toxic walls lie the Fresno tent cities, which are plagued by a high level of drug use, particularly methamphetamine, commonly called ‘meth’ or ‘crystal meth’. Across the working class areas of Fresno, the use of this addictive psychostimulant drug has been defined by local health workers as having reached ‘epidemic’ proportions. The Central Valley was the birthplace of the modern illicit form of this drug, originally produced and distributed by biker-gangs like the Hell’s Angels. The biker drug networks were mostly broken by the police in the early 1990s, only to be replaced by Mexican drug cartels using even more rationalised international systems of production and distribution. The Central Valley around Fresno is key to meth production not only because of the large-scale operators, but also the tens of thousand of smaller producers, all of whom use the rural setting to operate clandestine labs and super-labs on farms and ranches. The plague of this commodity of immiseration is growing across the US. As social order breaks down due to the crisis, many turn to self-medicating themselves with this toxic substance.

Social problems in the Central Valley once again attracted international media attention in August 2009, when the BBC aired the documentary, The City Addicted to Crystal Meth. Filmed in Fresno, it details how social breakdown has been accelerated both by the urban sprawl during the housing bubble and by the unemployment and mass foreclosures that have accompanied its inevitable collapse. The resulting desperation spread meth to the working class beyond the Central Valley, making it one of the most popularly abused drugs in the world today. The documentary features meth-users decrying ‘cookers’, those who actually mix the toxic chemicals to produce the drug, as being ‘brain damaged’. Meanwhile, many admit their own brains have been damaged by use of the drug which is sometimes consumed by those as young as eleven. Some families contain multigenerational users, and many have been destroyed with increased incidences of domestic violence, incarceration and premature death.

The chemicals used to produce meth are not only highly toxic, but highly flammable too. Many meth labs have exploded as a result, killing the cookers and burning down nearby buildings. Some cookers produce meth on the run and have ended up burning down whole motels when their rooms have exploded due to inadequate ventilation. Beyond its immediate costs, one of the worst aspects of the manufacture of methamphetamines is the waste. Each kilogram of meth produced results in five to seven kilograms of waste. Inevitably, this frequently gets dumped in remote rural areas, such as the parks and forests in the foothills enclosing the Central Valley.

An image from our future?

Commonplace though it may be: the economic crisis is global. So why focus on California’s Central Valley? Because, to return to Marx, ‘[t]he country that is more developed industrially only shows, to the less developed, the image of its own future’. Because the upheaval most shamelessly caused by capitalist development in California has continued unabated, perhaps even gaining speed. Because the wasteland of devastated eco-systems and toxic lives that we encounter there, where capitalism has contaminated every aspect of human social relations it has touched, may be what lies in store for all of us.

In the Preface to the first German edition of Capital in 1867, Marx suggests we observe ‘phenomena where they occur in their most typical form’. In his day that meant ‘production and exchange’ and the conditions of ‘industrial and agricultural labourers’ in England. If we do this, he said we can confront those who say that in their own country ‘things are not nearly so bad’. In our day, the United States – particularly California – has replaced England as the world’s most advanced capitalist economy. Here we see that violent exploitation of humans is linked to the abusive treatment of the land. That toxic housing, toxic mortgages and the abuse of toxic drugs complement each other. And, in almost impossibly rarified form: the full irrationality of toxic capitalist social relations.

_____

Gifford Hartman works as an English-language teacher, teaching working-class immigrants in the San Francisco Bay Area. He also works in a literacy programme in a public library. Previously he has taught English in South Korea and Greece. He is a member of the Insane Dialectical Posse (whose writings can be found at www.FlyingPicket.org) and helped create the Red & Black Reading Room within Oakland’s Niebyl-Proctor Marxist Library.

http://turbulence.org.uk/turbulence-5/california/

Bill Totten http://www.ashisuto.co.jp/english/index.html

Categories: Uncategorized

>Forecast 2010

2009/12/30 1 comment

>The Center does Not Hold …

But Neither Does the Floor

Clusterfuck Nation

by James Howard Kunstler

Comment on current events by the author of
The Long Emergency
(2005)

www.kunstler.com (December 28 2009)

Introduction

There are always disagreements in a society, differences of opinion, and contested ideas, but I don’t remember any period in my own longish life, even the Vietnam uproar, when the collective sense of purpose, intent, and self-confidence was so muddled in this country, so detached from reality. Obviously, in saying this I’m assuming that I have some reliable notion of what’s real. I admit the possibility that I’m as mistaken as anyone else. But for the purpose of this exercise I’ll ask you to regard me as a reliable narrator. Forecasting is a nasty job, usually thankless, often disappointing – but somebody’s got to do it. There are so many variables in motion, and so much of that motion is driven by randomness, and the best one can do in forecasting amounts to offering up some guesses for whatever they are worth.

I begin by restating my central theme of recent months: that we’re doing a poor job of constructing a coherent consensus about what is happening to us and what we are going to do about it.

There is a great clamor for “solutions” out there. I’ve noticed that what’s being clamored for is a set of rescue remedies – miracles even – that will allow us to keep living exactly the way we’re accustomed to in the USA, with all the trappings of comfort and convenience now taken as entitlements. I don’t believe that this will be remotely possible, so I avoid the term “solutions” entirely and suggest that we speak instead of “intelligent responses” to our changing circumstances. This implies that our well-being depends on our own behavior and the choices that we make, not on the lucky arrival of just-in-time miracles. It is an active stance, not a passive one. What will we do?

The great muddlement out there, this inability to form a coherent consensus about what’s happening, is especially frightening when, as is the case today, even the intelligent elites appear clueless or patently dishonest, in any case unreliable, in their relations with reality. President Obama, for instance – a charming, articulate man, with a winning smile, pectorals like Kansas City strip steaks, and a mandate for “change” – who speaks incessantly and implausibly of “the recovery” when all the economic vital signs tell a different story except for some obviously manipulated stock market indexes. You hear this enough times and you can’t help but regard it as lying, and even if it is lying ostensibly for the good of the nation, it is still lying about what is actually going on and does much harm to the project of building a coherent consensus. I submit that we would benefit more if we acknowledged what is really happening to us because only that will allow us to respond intelligently. What prior state does Mr Obama suppose we’re recovering to? A Potemkin housing boom and an endless credit card spending orgy? The lying spreads downward from the White House and broadly across the fruited plain and the corporate office landscape and through the campuses and the editorial floors and the suites of absolutely everyone in charge of everything until all leadership in every field of endeavor has been given permission to speak untruth and to reinforce each others lies and illusions.

How dysfunctional is our nation? These days, we lie to ourselves perhaps as badly the Soviets did, and in a worse way, because where information is concerned we really are a freer people than they were, so our failure is far less excusable, far more disgraceful. That you are reading this blog is proof that we still enjoy free speech in this country, whatever state of captivity or foolishness the so-called “mainstream media” may be in. By submitting to lies and illusions, therefore, we are discrediting the idea that freedom of speech and action has any value. How dangerous is that?

Where We Are Now

2009 was the Year of the Zombie. The system for capital formation and allocation basically died but there was no funeral. A great national voodoo spell has kept the banks and related entities like Fannie Mae and the dead insurance giant AIG lurching around the graveyard with arms outstretched and yellowed eyes bugged out, howling for fresh infusions of blood … er, bailout cash, which is delivered in truckloads by the Federal Reserve, which is itself a zombie in the sense that it is probably insolvent. The government and the banks (including the Fed) have been playing very complicated games with each other, and the public, trying to pretend that they can all still function, shifting and shuffling losses, cooking their books, hiding losses, and doing everything possible to detach the relation of “money” to the reality of productive activity.

But nothing has been fixed, not even a little. Nothing has been enforced. No one has been held responsible for massive fraud. The underlying reality is that we are a much less affluent society than we pretend to be, or, to put it bluntly, that we are functionally bankrupt at every level: household, corporate enterprise, and government (all levels of that, too).

The difference between appearance and reality can be easily seen in the everyday facts of American economic life: soaring federal deficits, real unemployment above fifteen percent, steeply falling tax revenues, massive state budget crises, continuing high rates of mortgage defaults and foreclosures, business and personal bankruptcies galore, cratering commercial real estate, dying retail, crumbling infrastructure, dwindling trade, runaway medical expense, soaring food stamp applications. Meanwhile, the major stock indices rallied. What’s not clear is whether money is actually going somewhere or only the idea of “money” is appearing to go somewhere. After all, if a company like Goldman Sachs can borrow gigantic sums of “money” from the Federal Reserve at zero interest, why would it not shovel that money into the burning furnace of a fake stock market rally? Of course, none of this behavior has anything to do with productive activity.

The theme for 2009 – well put by Chris Martenson – was “extend and pretend”, to use all the complex trickery that can be marshaled in the finance tool bag to keep up the appearance of a revolving debt economy that produces profits, interest, and dividends, in spite of the fact that debt is not being “serviced”, that is, repaid. There is an awful lot in the machinations of Wall Street and Washington that is designed deliberately to be as incomprehensible as possible to even educated people, but this part is really simple: if money is created out of lending, then the failure to pay back loaned money with interest kills the system. That is the situation we are in.

The inertia displayed by our system – especially its manifest ability to keep stock markets levitating in the absence of value creation – is strictly a function of its size and complexity. It is running on fumes. I thought it would finally crash and burn in 2009. The Dow Jones industrial average certainly fell on its ass last March, bottoming in the mid-6000 range. But then it picked its sorry ass off the ground and rallied back up again thanks to bail-outs and ZIRPs and really no other place to look for returns on the accumulated wealth of the past two hundred years, especially for large institutions like pension funds that need income to function. I’d called for a Dow at 4000. A lot of readers ridiculed that call. Was it really that far off?

A feature of 2009 easily overlooked is what a generally placid year it was around the world. Apart from the election uproar in Iran, there were few events of any size or potency to shove all the various wobbly things – central banks, markets, governments, et cetera – into failure mode. So things just kept wobbling. I don’t think that state of affairs is likely to continue. With that, on to the particulars.

The Year Ahead

Just about everything which evaded fate via gamed numbers, budgets, and balance sheets in 2009 seems destined to hit a wall in 2010. To pick an arbitrary starting point, it is hard to see how states like California and New York can keep staving off monumental changes in their scale of operations with further budget trickery. Those cans they’ve been kicking down the street have fallen through the sewer grate. What will they do? They can massively raise taxes or massively lay off employees and default on obligations – or they can do all these things. The net result will be populations with less income, arguably impoverished, suffering, and perhaps very angry about it. Welcome to reality. Will Washington bail the states out, too? I wouldn’t be surprised to see them pretend to do so, but not without immense collateral damage in everybody’s legitimacy and surely an increase in US treasury interest rates.

But backing up a moment, I’m writing between Christmas and New Year’s Eve. The frenzied distractions of the holidays ongoing for much of fourth quarter of 2009 are still in force. In a week or so, when the Christmas trees are hauled out to the curbs (and it turns out that municipal garbage pickup has been curtailed for lack of funds) a picture will start to emerge of exactly how retail sales went leading up to the big climax. My guess is that sales were dismal. Reports of such will start a train of events that sends many retail companies careening into bankruptcy, including some national chains, leading to lost leases in malls and strip malls, leading to a final push off the cliff for commercial real estate, leading to the failure of many local and regional banks, leading to the bankrupt FDIC having to go to congress directly to get more money to bail out the depositors, leading again to rising interest rates for US treasuries, leading to higher mortgage interest rates for whoever out there is crazy enough to venture to buy a house with borrowed money, leading to the probability that there are few of the foregoing, leading to another hard leg down in house values because so few are now crazy enough to buy a house in the face of falling prices – all of this leading to the recognition that we have entered a serious depression, which is only a facet of the greater period of hardship we have also entered, which I call The Long Emergency.

This depression will be a classic deleveraging, or resolution of debt. Debt will either be paid back or defaulted on. Since a lot can’t be paid back, a lot of it will have to be defaulted on, which will make a lot of money disappear, which will make many people a lot poorer. President Obama will be faced with a basic choice. He can either make the situation worse by offering more bailouts and similar moves aimed at stopping the deleveraging process – that is, continue what he has been doing, only perhaps twice as much, which may crash the system more rapidly – or he can recognize the larger trends in The Long Emergency and begin marshalling our remaining collective resources to restructure the economy along less complex and more local lines. Don’t count on that.

Of course, this downscaling will happen whether we want it or not. It’s really a matter of whether we go along with it consciously and intelligently – or just let things slide. Paradoxically and unfortunately in this situation, the federal government is apt to become ever more ineffectual in its ability to manage anything, no matter how many times Mr Obama comes on television. Does this leave him as a kind of national camp counselor trying to offer consolation to the suffering American people, without being able to really affect the way the “workout” works out? Was Franklin Roosevelt really much more than an affable presence on the radio in a dark time that had to take its course and was only resolved by a global convulsion that left the USA standing in a smoldering field of prostrate losers?

One wild card is how angry the American people might get. Unlike the 1930s, we are no longer a nation who call each other “Mister” and “Ma’am”, where even the down-and-out wear neckties and speak a discernible variant of regular English, where hoboes say “thank you”, and where, in short, there is something like a common culture of shared values. We’re a nation of thugs and louts with flames tattooed on our necks, who call each other “motherfucker” and are skilled only in playing video games based on mass murder. The masses of Roosevelt’s time were coming off decades of programmed, regimented work, where people showed up in well-run factories and schools and pretty much behaved themselves. In my view, that’s one of the reasons that the US didn’t explode in political violence during the Great Depression of the 1930s – the discipline and fortitude of the citizenry. The sheer weight of demoralization now is so titanic that it is very hard to imagine the people of the USA pulling together for anything beyond the most superficial ceremonies – placing teddy bears on a crash site. And forget about discipline and fortitude in a nation of ADD victims and self-esteem seekers.

I believe we will see the outbreak of civil disturbance at many levels in 2010. One will be plain old crime against property and persons, especially where the sense of community is flimsy to nonexistent, and that includes most of suburban America. The automobile is a fabulous aid to crime. People can commit crimes in Skokie and be back home in Racine before supper (if supper is anything besides a pepperoni stick and some Hostess Ho-Hos in the car). Fewer police will be on guard due to budget shortfalls.

I think we’ll see a variety-pack of political disturbance led first by people who are just plain pissed off at government and corporations and seek to damage property belonging to these entities. The ideologically-driven will offer up “revolutionary” action to redefine some lost national sense of purpose. Some of the most dangerous players such as the political racialists, the posse comitatus types, the totalitarian populists, have been out of sight for years. They’ll come out of the woodwork and join the contest over dwindling resources. Both the Left and the Right are capable of violence. But since the Left is ostensibly already in power, the Right is in a better position to mount a real challenge to office holders. Their ideas may be savage and ridiculous, but they could easily sweep the 2010 elections – unless we see the rise of a third party (or perhaps several parties). No sign of that yet. Personally, I’d like to see figures like Christopher Dodd and Barney Frank sent packing, though I’m a registered Democrat. In the year ahead, the sense of contraction will be palpable and huge. Losses will be obvious. No amount of jive-talking will convince the public that they are experiencing “recovery”. Everything familiar and comforting will begin receding toward the horizon.

Markets and Money

I’ll take another leap of faith and say that 6600 was not the bottom for the Dow. I’ve said Dow 4000 for three years in a row. Okay, my timing has been off. But I still believe this is its destination. Given the currency situation, and the dilemma of no-growth Ponzi economies, I’ll call it again for this year: Dow 4000. There, I said it. Laugh if you will …

I’m with those who see the dollar strengthening for at least the first half of 2010, and other assets falling in value, especially the stock markets. The dollar could wither later on in the year and maybe take a turn into high inflation as US treasury interest rates shoot up in an environment of a global bond glut. That doesn’t mean the stock markets will bounce back because the US economy will only sink into greater disorder when interest rates rise.

Right now there are ample signs of trouble with the Euro. It made a stunning downward move the past two weeks. European banks took the biggest hit in the Dubai default. Now they face the prospect of sovereign default in Greece, the Baltic nations (Estonia, Latvia, Lithuania), the Balkan nations (Serbia, et al), Spain, Portugal, Italy, Ireland, Iceland and the former soviet bloc of Eastern Europe. England is a train wreck of its own (though not tied into the Euro), and even France may be in trouble. That leaves very few European nations standing. Namely Germany and Scandanavia (and I just plain don’t know about Austria). What will Europe do? Really, what will Germany do? Probably reconstruct something like the German Deutschmark only call it something else … the Alt.Euro? As one wag said on the Net: sovereign debt is the new sub-prime! The Euro is in a deeper slog right now than the US dollar (even with our fantastic problems), so I see the dollar rising in relation to the Euro, at least for a while. I’d park cash in three month treasury bills – don’t expect any return – for safety in the first half of 2010. I wouldn’t touch long-term US debt paper with a carbon-fiber sixty foot pole.

I’m still not among those who see China rising into a position of supremacy. In fact, they have many reasons of their own to tank, including the loss of the major market for their manufactured goods, vast ecological problems, de-stabilizing demographic shifts within the nation, and probably a food crisis in 2010 (more about this later).

Though a seemingly more stable nation than the US, with a disciplined population and a strong common culture with shared values, Japan’s financial disarray runs so deep that it could crash its government even before ours. It has no fossil fuels of its own whatsoever. And in a de-industrializing world, how can an industrial economy sustain itself? Japan might become a showcase for The Long Emergency. On the other hand, if it gets there first and makes the necessary adjustments, which is possible given their discipline and common culture, they may become THE society to emulate!

I’m also not convinced that so-called “emerging markets” are places where money will dependably earn interest, profits, or dividends. Contraction will be everywhere. I even think the price of gold will retrace somewhere between $750 and $1000 for a while, though precious metals will hold substantial value under any conditions short of Hobbesian chaos. People flock to gold out of uncertainty, not just a bet on inflation. My guess is that gold and silver will eventually head back up in value to heights previously never imagined, and it would be wise to own some. I do not believe that the federal government could confiscate personal gold again the way it did in 1933. There are too many pissed off people with too many guns out there – and I’m sure there is a correlation between owners of guns with owners of gold and levels of pissed-offness. A botched attempt to take gold away from citizens would only emphasize the impotence of the federal government, leading to further erosion of legitimacy.

Bottom line for markets and money in 2010: so many things will be out of whack that making money work via the traditional routes of compound interest or dividends will be nearly impossible. There’s money to be made in shorting and arbitrage and speculation, but that requires nerves of steel and lots and lots of luck. Those dependent on income from regular investment will be hurt badly. For most of us, capital preservation will be as good as it gets – and there’s always the chance the dollar will enter the hyper-inflationary twilight zone and wipe out everything and everyone connected with it.

Peak Oil

It’s still out there, very much out there, a huge unseen presence in the story, the true ghost-in-the-machine, eating away at economies every day. It slipped offstage in 2009 after the oil spike of 2008 ($147 per barrel) over-corrected in early 2009 to the low $30s per barrel. Now it’s retraced about halfway back to the mid-$70s. One way of looking at the situation is as follows. Oil priced above $75 begins to squeeze the US economy; oil priced over $85 tends to crush the US economy. You can see where we are now with oil prices closing on Christmas Eve at $78 per barrel.

Among the many wishful delusions operating currently is the idea that the Bakken oil play in Dakota / Montana will save Happy Motoring for America, and that the Appalachian shale gas plays will kick in to make us energy independent for a century to come. Americans are likely to be disappointed by these things.

Both Bakken and the shale gas are based on techniques for using horizontal drilling through “tight” rock strata that is fractured with pressurized water. It works, but it’s not at all cheap, creates plenty of environmental mischief, and may end up being only marginally productive. At best, Bakken is predicted to produce around 400,000 barrels of oil a day. That’s not much in a nation that uses close to twenty million barrels a day. Shale gas works too, though the wells deplete shockingly fast and will require the massive deployment of new drilling rigs (do we even have the steel for this?). I doubt it can be produced for under $10 a unit (mm/BTUs) and currently the price of gas is in the $5 range. In any case, we’re not going to run the US motor vehicle fleet on natural gas, despite wishful thinking.

Several other story elements in the oil drama have remained on track to make our lives more difficult. Oil export rates continue to decline more steeply than oil field depletion rates. Exporters like Iran, Mexico, Saudi Arabia, Venezuela, are using evermore of the oil they produce (often as state-subsidized cheap gasoline), even as their production rates go down. So, they have less oil to sell to importers like the USA – and we import more than sixty percent of the oil we use. Mexico’s Pemex is in such a sorry state, with its principal Cantarell field production falling off a cliff, that the USA’s number three source of imported oil may be able to sell us nothing whatsoever in just 24 months. Is there any public discussion about this in the USA? No. Do we have a plan? No.

A new wrinkle in the story developing especially since the financial crisis happened, is the shortage of capital for new oil exploration and production – meaning that we have even poorer prospects of offsetting world-wide oil depletion. The capital shortage will also affect development in the Bakken play and the Marcellus shale gas range.

Industrial economies are still at the mercy of peak oil. This basic fact of life means that we can’t expect the regular cyclical growth in productive activity that formed the baseline parameters for modern capital finance – meaning that we can’t run on revolving credit anymore because growth simply isn’t there to create real surplus wealth to pay down debt. The past twenty years we’ve seen the institutions of capital finance pretend to create growth where there is no growth by expanding financial casino games of chance and extracting profits, commissions, and bonuses from the management of these games – mortgage backed securities, collateralized debt obligations, credit default swaps, and all the rest of the tricks dreamed up as America’s industrial economy was shipped off to the Third World. But that set of rackets had a limited life span and they ran into a wall in October 2008. Since then it’s all come down to a shell game: hide the giant pea of defaulted debt under a giant walnut shell.

Yet another part of the story is the wish that the failing fossil fuel industrial economy would segue seamlessly into an alt-energy industrial economy. This just isn’t happening, despite the warm, fuzzy TV commercials about electric cars and “green” technology. The sad truth of the matter is that we face the need to fundamentally restructure the way we live and what we do in North America, and probably along the lines of much more modest expectations, and with very different practical arrangements in everything from the very nature of work to household configurations, transportation, farming, capital formation, and the shape-and-scale of our settlements. This is not just a matter of re-tuning what we have now. It means letting go of much of it, especially our investments in suburbia and motoring – something that the American public still isn’t ready to face. They may never be ready to face this and that is why we may never make a successful transition to whatever the next economy is. Rather, we will undertake a campaign to sustain the unsustainable and sink into poverty and disorder as we fight over the table scraps of the old economy … and when the smoke clears nothing new will have been built.

President Obama has spent his first year in office, and billions of dollars, trying to prop up the floundering car-makers and more generally the motoring system with “stimulus” for “shovel-ready” highway projects. This is exactly the kind of campaign to sustain the unsustainable that I mean. Motoring is in the process of failing and now for reasons that even we peak oilers didn’t anticipate a year ago. It’s no longer just about the price of gasoline. The crisis of capital is making car loans much harder to get, and if Americans can’t buy cars on installment loans, they are not going to buy cars, and eventually they will not be driving cars they can’t buy. The same crisis of capital is now depriving the states, counties, and municipalities of the means to maintain the massive paved highway and street system in this country. Just a few years of not attending to that will leave the system unworkable.

Meanwhile President Obama has given next-to-zero money or attention to public transit, to repairing the passenger railroad system in particular. I maintain that if we don’t repair this system, Americans will not be traveling very far from home in a decade or so. Therefore, Mr Obama’s actions vis-a-vis transportation are not an intelligent response to our situation. And for very similar reasons, the proposal for a totally electric motor vehicle fleet, as a so-called “solution” to the liquid fuels problem, is equally unintelligent and tragic. Of course something else that Mr Obama has barely paid lip-service to is the desperate need to retool our living places as walkable communities. The government now, at all levels, virtually mandates suburban arrangements of the most extremely car-dependent kind. Changing this has to move near the top of a national emergency priority list, if we have one.

Even with somewhat lower oil prices in 2009, the airlines still hemorrhaged losses in the billions, and if the oil price remains in the current zone some of them will fall back into bankruptcy in 2010. Oil prices may go down again in response to crippled economies, but then so will passengers looking to fly anywhere, especially the business fliers that the airlines have depended on to fill the higher-priced seats. I believe United will be the first one to go down in 2010, a hateful moron of a company that deserves to die.

My forecast for oil prices this year is extreme volatility. A strengthening dollar might send oil prices down (though that relationship has temporarily broken down this December as both oil prices and the dollar went up in tandem for the first time in memory). So could the cratering of the stock markets, or a general apprehension of a floundering economy. But the oil export situation also means there is less and less wiggle room every month for supply to keep pace with demand, even in struggling economies if they are dependent on foreign imports. Another part of the story that we don’t pay attention to is the potential for oil scarcities, shortages, and hoarding. We may see the reemergence of those trends in 2010 for the first times since 1979.

Geopolitics

The retracement of oil prices in 2009 took place against a background of relative quiet on the geopolitical scene. With economies around the world sinking into even deeper extremis in 2010, friction and instability are more likely. The more likely locales for this are the places where most of the world’s remaining oil is: the Middle East and Central Asia. The American army is already there, in Iraq and Afghanistan, with an overt pledge to up the ante in Afghanistan. It’s hard to imagine a happy ending in all this. It’s increasingly hard to even imagine a strategic justification for it. My current (weakly-held) notion is that America wants to make a baloney sandwich out of Iran, with American armies in Iraq and Afghanistan as the Wonder Bread, to “keep the pressure on” Iran. Well, after quite a few years, it doesn’t seem to be moderating or influencing Iran’s behavior in any way. Meanwhile, Pakistan becomes more chaotic every week and our presence in the Islamic world stimulates more Islamic extremist hatred against the USA. Speaking of Pakistan, there is the matter of its neighbor and adversary, India. If there is another terror attack by Pakistan on the order of last year’s against various targets in Mumbai, I believe the response by India is liable to be severe next time, leading to God-knows-what, considering both countries have plenty of atom bombs.

Otherwise, the idea that we can control indigenous tribal populations in some of Asia’s most forbidding terrain seems laughable. I don’t have to rehearse the whole “graveyard of empires” routine here. But what possible geo-strategic advantage is in this for us? What would it matter if we pacified all the Taliban or al Qaeda in Afghanistan? Most of the hardest core maniacs are next door in Pakistan. Even if we turned Afghanistan into Idaho-East, with Kabul as the next Sun Valley, complete with Ralph Lauren shops and Mario Batali bistros, Pakistan would remain every bit as chaotic and dangerous in terms of supplying the world with terrorists. And how long would we expect to remain in Afghanistan pacifying the population? Five years? Ten Years? Forever? It’s a ridiculous project. Loose talk on the web suggests our hidden agenda there was to protect a Conoco pipeline out of Tajikistan, but that seems equally absurd on several grounds. I can’t see Afghanistan as anything but a sucking chest wound for dollars, soldiers’ lives, and American prestige.

What’s more, our presence there seems likely to stimulate more terror incidents here in the USA. We’ve been supernaturally lucky since 2001 that there hasn’t been another incident of mass murder, even something as easy and straightforward as a shopping mall massacre or a bomb in a subway. Our luck is bound to run out. There are too many “soft” targets and our borders are too squishy. Small arms and explosives are easy to get in the USA. I predict that 2010 may be the year our luck does run out. Even before the start of the year we’ve seen the attempted Christmas bombing of Northwest-KLM flight 253 (Amsterdam to Detroit). One consequence of this is that it will only make air travel more unpleasant for everybody in the USA as new rules are instated limiting bathroom trips and blankets in the final hour of flight.

As far as the USA is concerned, I think we have more to worry about from Mexico than Afghanistan. In 2009, the Mexican government slipped ever deeper into impotence against the giant criminal cartels there. As the Cantarell oil field waters out, revenue from Pemex to the national government will wither away and so will the government’s ability to control anything there. The next president of Mexico may be an ambitious gangster straight out of the drug cartels, Pancho Villa on steroids.

Another potential world locale for conflict may be Europe as the European Union begins to implode under the strains of the monetary system. The weaker nations default on their obligations and Germany, especially, looks to insulate itself from the damage. Except for the fiasco in Yugoslavia’s breakup years ago, Europe has been strikingly peaceful for half a century. For most of us now living who have visited there, it is almost impossible to imagine how violent and crazy the continent was in the early twentieth century. I wonder what might happen there now, with more than a few nations failing economically and the dogs of extreme politics perhaps loosed again. History is ironical. Perhaps this time the Germans will be the good guys, while England goes apeshit with its BNP. Wouldn’t that be something?

One big new subplot in world politics this year may be the global food shortage that is shaping up as a result of spectacular crop failures in most of the major farming regions of the world. The American grain belt was hit by cold and wet weather and the harvest was a disaster, especially for soybeans, of which the USA produces at least three-quarters of the world’s supply. Crops have also failed in Northern China’s wheat-growing region, in Australia, Argentina, and India. The result may range from extremely high food prices in the developed world to starvation in other places, leading to grave political instability and desperate fights over resources. We’ll have an idea where this is leading by springtime. It maybe the most potent sub-plot in the story for 2010.

Conclusions

The Long Emergency is officially underway. Reality is telling us very clearly to prepare for a new way of life in the USA. We’re in desperate need of decomplexifying, re-localizing, downscaling, and re-humanizing American life. It doesn’t mean that we will be a lesser people or that we will not recognize our own culture. In some respects, I think it means we must return to some traditional American life-ways that we abandoned for the cheap oil life of convenience, comfort, obesity, and social atomization.

The successful people in America moving forward will be those who attach themselves to cohesive local communities, places with integral local economies and sturdy social networks, especially places that can produce a significant amount of their own food. I don’t think that we’ll be living in a world without money, some medium of exchange above barter, but it may not come in the form of dollars. My guess is that for a while it may be gold and silver, or possibly certificates issued by bank-like institutions representing gold-on-hand. In any case, I doubt we’ll arrive there this year. This is more likely to be the year of grand monetary disorders and continued shocking economic contraction.

Political upheaval can get underway pretty quickly, without a whole lot of warning. I’m still waiting to hear the announced 2009 bonuses for the employees of the TBTF banks. All they said before Christmas was that thirty top Goldman Sachs employees would be paid in stock instead of money this year, but no other big banks have made a peep yet. I suppose they’ll have to in the four days before New Years. I still think that could be the moment that shoves some disgruntled Americans into the arena of protest and revolt. Beyond that, though, there is plenty room for emotions to run wild and for behavior to get weird.

President Obama will have to make some pretty drastic moves to salvage his credibility. I see no sign of any intention to seriously investigate or prosecute financial crimes. Yet the evidence of misdeeds piles higher and higher – just this week new comprehensive reports of Goldman Sachs’s irregularities in shorting their own issues of mortgage-backed securities, and a report on the Treasury Department’s issuance of treasuries to “back-door” dumpers of toxic mortgage backed securities. And on Christmas Eve, when nobody was looking, the Treasury lifted the ceiling on Fannie Mae and Freddie Mac’s backstop money to infinity. Even people like me who try to pay close attention to what’s going on have lost track of all the various TARPs, TALFs, bailouts, stimuli, ZIRP loans, and handovers to every bank and its uncle in the land.

Good luck to readers in 2010. To paraphrase Tiny Tim: God help us, every one …

(c) 2009 All Rights Reserved.

http://kunstler.com/blog/2009/12/forecast-2010.html

Bill Totten http://www.ashisuto.co.jp/english/index.html

Categories: Uncategorized

>Steady state economy

>by Brian Czech

The Encyclopedia of Earth (February 19 2007)

The phrase “steady state economy” originated from ecological economics, most notably the work of Herman Daly, but its roots are in classical economics, most notably the “stationary state” as touted by John Stuart Mill. The steady state economy is often discussed in the context of economic growth and the impacts of economic growth on ecological integrity, environmental protection, and economic sustainability. Therefore, use of the phrase “steady state economy” requires a clear definition of economic growth.

Economic growth is an increase in the production and consumption of goods and services. For distinct economic or political units, economic growth is generally indicated by increasing gross domestic product (GDP). Economic growth entails increasing population times per capita consumption, higher throughput of materials and energy, and a growing ecological footprint. Economic growth is distinguished from “economic development”, which refers to qualitative change independent of quantitative growth. For example, economic development may refer to the attainment of a more equitable distribution of wealth, or a sectoral readjustment reflecting the evolution of consumer preference or newer technology.

The size of an economy may undergo one of two trends: growth or recession. Otherwise it is stable, in which case it is a “steady state economy”. As with many phrases, however, different connotations may apply in different contexts. In neoclassical economics, the hyphenated phrase “steady-state economy” is used to refer to an economy with steady ratios of capital to labor. Therefore, in neoclassical economics, a steady-state economy may be growing, receding, or stable, in which case it constitutes the steady state economy of ecological economics. Sometimes, however, the hyphenated “steady-state economy” is also used in the ecologically economic sense of a non-growing, non-receding economy. (In some cases this reflects the editorial style and tradition of a particular journal.) This linguistic inconsistency is not a major communications problem in broad circles because the neoclassical “steady-state economy” is a relatively abstruse concept used primarily within the jargon of neoclassical economics, whereas the ecological “steady state economy” is a technically simpler concept and has achieved a certain amount of vernacular status.

Yet regarding linguistics, the issue of hyphenation has some import. It is appropriate to use the unhyphenated phrase “steady state economy” to describe an economy of stable size because “state” (as in political state) is an adjective of “economy” (as in a state’s economy), and “steady” is an adjective of this state economy. In other words, “steady state economy” typically refers to a national economy of stable size, although it may also refer to an economy of a city, province, or other political unit. (It may also refer to a regional economy or the global economy, and in such cases political units are aggregated.) In neoclassical economics, “steady” is not an adjective of “state economy”. Rather, the conjoined “steady-state” is a heuristic tool to imply the stable ratio of capital to labor and, linguistically, is an adjective of “economy”.

Theoretically and temporarily, a steady state economy may have a growing population with declining per capita consumption, or vice versa, but neither of these scenarios are sustainable in the long run. Therefore, “steady state economy” connotes constant populations of people (and, therefore, “stocks” of labor) and constant stocks of capital. It also has a constant rate of throughput; that is, energy and materials used to produce goods and services.

Within a given technological framework these constant stocks will yield constant flows of goods and services. Technological progress may yield a more efficient “digestion” of throughput, resulting in the production of more (or more highly valued) goods and services. However, as emphasized in biophysical economics (which may arguably be classified as a subset of ecological economics), there are limits to productive efficiency imposed by the laws of thermodynamics and therefore limits to the amount and value of goods and services that may be produced in a given ecosystem. In other words, there is a maximum size at which a steady state economy may exist. Conflicts with ecological integrity and environmental protection occur long before a steady state economy is maximized.

“Constancy” of population and capital stocks does not imply absolutely unchanging population and capital stocks at the finest level of measurement. Rather, “constant” implies mildly fluctuating in the short run but exhibiting a stable equilibrium in the long run. Long-run changes reflect evolutionary, geological, or astronomical processes that alter the carrying capacity of the Earth for the human economy. Dramatic examples include atmosphere-altering volcanoes and massive meteorite collisions.

Just as economic growth is the predominant macroeconomic policy goal identified or implied by neoclassical economics, the steady state economy is the predominant macroeconomic policy goal identified or implied by ecological economics. To the extent that ecological economics is a normative transdisciplinary endeavor rather than a purely analytical framework, its three main concerns are sustainability, equity, and efficiency, each of which may be served via public policy. Neither economic growth nor economic recession are sustainable; therefore, the steady state economy remains the only sustainable prospect and the appropriate policy goal for the sake of sustainability.

The steady state economy may be pursued in the policy arena with the same policy tools that have historically been used to facilitate economic growth. These include fiscal policy tools such as government spending and taxation, and monetary policy tools such as money supplies and interest rates. Certain institutional adjustments are also entailed. For example, some have posited that a fractional reserve banking system may not be reconciled with a steady state economy and that fee-service banking is the most feasible alternative. Other public policies pertaining to ecological integrity and environmental protection may also be conducive to a steady state economy. For example, some have posited that the Endangered Species Act of 1973 was an implicit prescription for a steady state economy balanced with an economy of nature characterized by numerous threatened and endangered yet stabilized species.

Further Reading:

The Neoclassical Growth Model – http://cepa.newschool.edu/het/essays/growth/neoclass/solowgr.htm

_____

Brian Czech has a BS from the University of Wisconsin-Madison, an MS from the University of Washington, and a PhD from the University of Arizona. An active member of The Wildlife Society, he is a Certified Wildlife Biologist with twenty years of public service in federal, state, and tribal governments. He currently serves as Conservation Biologist in the national office of the US Fish and Wildlife Service.

Czech is also a visiting assistant professor at Virginia Tech and teaches ecological economics and endangered species policy and management at the Northern Campus in Falls Church. He is also an adjunct professor with the University of Idaho. He has had more than fifty articles published in over twenty scientific and professional journals, indicating the transdisciplinary nature of his research interests. In recent years his emphases have been the ecological macroeconomics of biodiversity conservation, using theoretical and empirical approaches, and the political economy of environmental protection.

Czech is also the president of the Center for the Advancement of the Steady State Economy (CASSE), a non-profit organization based in Arlington, Virginia. The mission of CASSE is to educate the public and policy makers on the fundamental conflict between economic growth and (1) environmental protection, (2) economic sustainability, (3) national security, and (4) international stability. Czech is the author of Shoveling Fuel for a Runaway Train: Errant Economists, Shameful Spenders, and a Plan to Stop Them All (2002), which calls for replacing the national goal of economic growth with the goal of a steady state economy and a paradigm shift away from conspicuous consumption. He is also the author (with Paul R Krausman) of The Endangered Species Act: History, Conservation Biology, and Public Policy (2001), a textbook for graduate courses on the Endangered Species Act and a primer for policy makers.

http://www.eoearth.org/article/Steady_state_economy

Bill Totten http://www.ashisuto.co.jp/english/index.html

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>The Political Ecology of Collapse

>Part Three: The Bomb at the Heart of the System

by John Michael Greer

The Archdruid Report (December 23 2009)

Druid perspectives on nature, culture, and the future of industrial society

The outcome of the Copenhagen climate change talks last week could not have been better suited to illustrate the points I have been trying to make in the last two posts. After all the high hopes and overheated rhetoric, as I (and of course a great many other people) predicted some time ago, what remains in place as the dust settles is business as usual.

The United States and China, who head the main power blocs in the negotiations and also generate more carbon dioxide than anyone else, minted a toothless accord that furthers nobody’s interests but theirs, and proceeded to tell the rest of the world to like it or lump it. A few climate activists are still gamely trying to find grounds for hope in the accord; others are shrilly accusing Barack Obama of betraying the messianic expectations they projected onto him; and a certain amount of stunned silence, in response to the failure of climate activism to have the slightest effect on the proceedings, is also being heard.

It’s probably worth pointing out that the results would not have differed noticeably if John McCain had won last November’s election. The consensus that has been fixed in place since Ronald Reagan’s first term, in other words, still dominates American politics. Despite increasingly desperate efforts on the part of both mainstream parties to appeal to an increasingly disaffected electorate via increasingly overheated rhetoric, it takes a micrometer to measure concrete differences in policy between the parties. Each party has its captive constituencies, to which it makes appropriate noises come election time; Republicans claim they want to ban abortion, Democrats claim they want to protect the environment, but neither party ever gets around to turning any of this talk into action.

The most popular explanation for all this relies on the sheer hypocrisy of politicians, and such a case is not too hard to make, not least because it’s rare for politicians to be any more ethical than the people they represent. Some versions of the case insist that politicians are cynical beasts who are in it purely for the money, and find shilling for various corrupt interests more lucrative than serving the public. Other versions, in the ascendant these days, insist that politicians are puppets of some sinister elite pursuing a totalitarian agenda, and then try to find reasons why every turn of events furthers that agenda.

Now of course it’s tolerably easy to find examples that can be used to support these claims. Some politicians are blatantly corrupt and self-serving; others just as blatantly put the interests of their allies in the business world ahead of the people they are supposed to serve. It furthers many political narratives to portray the situation as an episode of Dudley Do-Right, with some wicked elite or other in the role of Snidely Whiplash, tying the American people to the train tracks, as Dudley Do-Right scoops up an armload of protest signs and position papers and gallops off to the rescue. Still, I’m by no means certain this is really all there is to the matter.

The counterexample that comes to mind is Afghanistan, and specifically Obama’s decision to send another 30,000 troops (and an undisclosed number of “civilian contractors”, the modern military version of disposable temp labor) into that quagmire. To call this decision self-defeating is to understate matters considerably. Afghanistan is where empires go to die; the debacle of the Russian occupation a few years back was only the latest in a long and unbroken history of failed attempts to conquer Afghanistan. Not even Alexander the Great managed the trick, and whatever the personal qualities of the airbrushed machine politician in the Oval Office and the camo-clad bureaucrat who manages his war might be, I confess to a reasonable doubt that anybody in the future will call them Obama or McChrystal the Greater.

Leave aside moral issues for a moment, and it’s tolerably clear that only two strategies could prevent total US failure in Afghanistan. The first is to reinstate the draft, conscript half a million new soldiers, shift the US economy over to a wartime footing, and go into Afghanistan with the same overwhelming force the Chinese deployed successfully on similar terrain in Tibet. The other is to declare a victory and get out. Any other choice means the United States will keep on spending money it doesn’t have and prestige it can’t spare on a war it isn’t going to win.

I doubt that any of this is invisible to the experienced military planners in the Pentagon, or the politicians who give them their marching orders. Why, then, the futile gesture?

The hard fact of the matter is that neither of the two potentially successful strategies is politically possible to an American government today. Exemption from forced military service was part of the price the American middle class exacted in exchange for their abandonment of the radicalism of the 1960s, and no politician is willing to risk the backlash that would follow an attempt to tamper with that bargain. Furthermore, it’s by no means certain that America has the economic strength left to fight a real war at this point, and it’s not hard to name hostile powers who would be happy to use any such opportunity to push us over the edge into national bankruptcy.

Declaring a victory and getting out is a good deal more viable, and it’s the option that Obama’s successor in 2013 will likely be forced to embrace. Accepting it now, though, would offend many constituencies, not all of which have financial motives for supporting the war, and it would require America to give up on intervening in the Great Game of geopolitics now being played in central Asia – a goal many factions in the American political class are unready to abandon.

Behind the decision to send an inadequate force to prop up a losing struggle, in other words, lies the complex nature of political power in contemporary America. A great many people nowadays seem to think that because they don’t have the power to impose their agendas on the country, someone else must have that power, and the increasingly self-defeating decisions coming out of Washington must result from deliberate policy on the part of that someone else. Comforting as that belief may be, the facts don’t support it. A century of political reforms have diffused power so broadly in American society that no one group has a monopoly on power, and any group of would-be leaders has to build alliances and garner support among a great many independent centers of power with agendas of their own.

Now of course it’s quite true, as the left is fond of pointing out, that a great many of these power centers are interested primarily in pursuing their own interests, and are perfectly willing to do it at the expense of the common good. It’s also true that this indictment can be applied to the left as much as to the right. Still, behind the inevitable chicanery found across the political spectrum lies the insoluble dilemma in which the American political system has been caught since the 1970s – the inevitable failure of government by pork barrel in an age of decline.

Like most of the nations that call themselves representative democracies these days, America operates by means of a system not too different from the one that graced, if that’s the right word, the twilight years of the Roman Republic. The ultimate mandate for power comes from popular vote, and so every possible means is used to make sure elections come out as desired. Vote fraud is one such means; propaganda is another; but the most effective is to buy the loyalty of voting blocs with cold hard cash. From defense spending to entitlements to economic stimulus programs, that’s the name of the game, and it pays off handsomely come election time.

There are, however, at least two massive problems with this sort of pork-fed politics. First, the number of groups to be placated tends to rise as the size of the pork barrel increases. In today’s America, any group that can organize and raise money effectively enough to influence elections can usually elbow its way to a place at the feeding trough. (That today’s radicals of left and right alike are, by and large, inept at organizing and fundraising goes a long way to explain their insistence that power is being kept out of their hands by a malevolent elite.) It’s not hard to respond to a changing world when the interests that have to sign on to policy changes are few and clearly defined, as they were fifty years ago, but it becomes much harder when power is diffused through scores of competing factions, and it takes an alliance of a dozen disparate interest groups to get anything done at all.

This happens in the life of nearly all republics, and it plays an important role in the political breakdowns that afflict them at regular intervals. Still, another factor will be familiar to regular readers of this blog: the mismatch between growth and the limits of the environment that provides the basis for growth. In societies that use resources at a steady rate, those limits are always close at hand, and struggles between interest groups over the distribution of pork are recognized as zero-sum games, in which somebody has to lose for somebody else to gain; thus the multiplication of factions tends to be limited by the fixed size of the feeding trough.

In a society that relies on rapidly expanding production of resources, on the other hand, this can be evaded for a time. The first two-thirds of the 20th century thus saw an explosion of factions that spanned the entire upper half of the American class structure, from the ultrarich to unionized labor. The result was a vast number of people who all expected to get financial benefits from the government. Yet the end of America’s real economic expansion in the 1970s meant that these demands had to be paid out of a dwindling supply of real wealth.

One result has been a drastic narrowing of the options available to politicians. A great many simple and necessary reforms that could be enacted without harm to anyone – for example, putting a means test on social security pensions – are completely off the table, because nobody can put together a governing coalition without the support of groups that oppose such measures. Equally, a great many ghastly policies – for example, deliberately inflating financial bubbles – have become political necessities, because they allow governments to get away with the pretense of paying off their supporters. Meanwhile any sector of society not organized enough to defend its interests can basically count on being thrown to the wolves.

The rising spiral of crises that threaten the survival of industrial society might be expected to trump such matters. The problem here, of course, is that prophecies of imminent doomsday have been standard political theater in American public life for more than a century, and most people in politics have long since stopped listening to them. There are plenty of people in politics who still remember, for example, the widespread insistence that the energy crisis of the 1970s was supposed to be permanent; the fact that there were plenty of less shrill predictions that have proven to be much more accurate in retrospect is nothing like as memorable.

Behind all of this lies the central political fact of the limits to growth: the reduction of First World nations to a Third World lifestyle that will be the inevitable result of any transition to a postpetroleum world, whether that transition is deliberate or unplanned. Metaphors about elephants in living rooms don’t begin to touch the political explosiveness of this fact, or the degree to which people at every point on the political spectrum have tried to pretend that it just isn’t so. Still, set aside delusions about miraculous new energy sources that show up basically because we want them to, and it’s impossible to evade.

Let’s walk through the logic. The most reasonable estimates suggest that, given a crash program and the best foreseeable technologies, renewable sources can probably provide the United States with around fifteen percent of the energy it currently gets from fossil fuels. Since every good and service in the economy is the product of energy, it’s a very rough but functional approximation to say that in a green economy, every American will have to get by on the equivalent of fifteen percent of his or her current income. Take a moment to work through the consequences in your own life; if you made $50,000 in 2009, for example, imagine having to live on $7,500 in 2010. That’s quite a respectable income by Third World standards, but it won’t support the kind of lifestyle that the vast majority of Americans, across the political spectrum, believe is theirs by right.

That’s the bomb ticking away at the heart of America’s political system. When it goes off, the entire system of government by pork barrel will explode messily, and it’s only in the fantasies of reformers that what replaces it will likely be an improvement. (My guess? Anything from a military coup followed, after various convulsions, by a new and less centralized constitution, to civil war and the partition of the United States into half a dozen impoverished and quarreling nations.) In the meantime, we can expect to see every possible short term expedient put to use in an attempt to stave off the explosion even for a little while, and any measure that might risk rocking the boat enough to set off the bomb will be quietly roundfiled by all parties.

A meaningful political response to the growing instability of global climate is one such measure, and a meaningful political response to peak oil is another. No such project can be enacted without redirecting a great deal of money and resources away from current expenditures toward the construction of new infrastructure. The proponents of such measures are quick to insist that this means new jobs will be created, and of course this is true, but they neglect to mention that a great many more existing jobs will go away, and the interests that presently lay claim to the money and resources involved are not exactly eager to relinquish those. A political system of centralized power could overcome their resistance readily enough, but a system in which power is diffused and fragmented cannot do so. That the collapse of the entire system is a likely long-term consequence of this inability is simply one of the common ironies of history.

_____

John Michael Greer, The Grand Archdruid of the Ancient Order of Druids in America (AODA), has been active in the alternative spirituality movement for more than 25 years, and is the author of more than twenty books, including The Druidry Handbook (Weiser, 2006) and The Long Descent: A User’s Guide to the End of the Industrial Age (New Society, 2008). He lives in Cumberland, Maryland.

http://thearchdruidreport.blogspot.com/2009/12/political-ecology-of-collapse-part.html

Bill Totten http://www.ashisuto.co.jp/english/index.html

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>Copenhagen Has Given Us The Chance

>To Face Climate Change With Honesty

by James Hansen

The Observer (December 27 2009)

Last weekend’s minimalist Copenhagen global climate accord provides a great opportunity. The old deceitful, ineffectual approach is severely wounded and must die. Now there is a chance for the world to get on to an honest, effective path to an agreement.

The centrepiece of the old approach was a “cap-and-trade” scheme, festooned with offsets and bribes – bribes that purportedly, but hardly, reduced carbon emissions. It was analogous to the indulgences scheme of the Middle Ages, whereby sinners paid the Church for forgiveness.

In today’s indulgences the sinners, developed countries, buy off developing countries by paying for “offsets” to their own emissions and providing reparation money for adaptation to climate change. But such hush money won’t work. Yes, some developing country leaders salivated over the proffered $100 billion per year. But by buying in, they would cheat their children and ours. Besides, even the $100 billion hush money is fugacious. The US, based on its proportion of the fossil fuel carbon in the air today, would owe $27 billion per year. Chance of Congress providing that: dead zero. Maybe the UK will cough up its $6 billion per year and Germany its $7 billion per year. But who will collect Russia’s $7 billion per year?

Most purchased “offsets” to fossil fuel carbon dioxide emissions are hokey. But there is no need to flagellate the details of this modern indulgences scheme. Science provides an unambiguous fact that our leaders continue to ignore: carbon dioxide from fossil fuel burning remains in the climate system for millennia. The only solution is to move promptly to a clean energy future.

The difficulty is that fossil fuels are the cheapest energy, if the price does not include the damage they do to human health, the planet, and the future of our children. “Goals” for future emission reductions, whether “legally binding” or not, are utter nonsense as long as fossil fuels are the cheapest energy. The Kyoto Protocol illustrates the deceit of our governments, which have not screwed up their courage to face down the fossil fuel industry. As the graph here {*} shows, global fossil fuel emissions were increasing 1.5% per year prior to the 1997 Kyoto accord. After “Kyoto” emission growth accelerated to three per cent per year. A few developed countries reduced their fossil fuel use. The only important effect of that was to slightly reduce demand for fuel, helping to keep its price down. The fuel was burned in other places, and products made were shipped back to developed countries.

{*} http://www.guardian.co.uk/environment/2009/dec/27/james-hansen-copenhagen-agreement-opportunities

As far as the planet is concerned, agreements to “cap” emissions, such as the Kyoto Protocol and the imagined Copenhagen Protocol, are worthless scraps of paper. As long as fossil fuels are the cheapest energy, they will be burned somewhere. This fact helps define a solution to the climate problem. Yes, people must make changes in the way they live. Countries must cooperate. Matters as intractable as population must be included. Technology improvements are required. Changes must be economically efficient. The climate solution necessarily will increase the price of fossil fuel energy. We must admit that. But in the end, energy efficiency and carbon-free energy can be made less expensive than fossil fuels, if fossil fuels’ cost to society is included. The solution must have honesty, backbone and a fair international framework. We need a rising price on carbon applied at the source (the mine, wellhead, or port of entry). The fee will affect all activities that use fossil fuels, directly or indirectly. The entire fee collected from fossil fuel companies should be distributed to the public. In this fee-and-dividend approach people maintaining a carbon footprint smaller than average will receive more in the dividend than they pay via increased energy costs. The monthly dividend, deposited electronically in their bank account or on their debit card, will stimulate the economy and provide people with the means to increase their carbon efficiency. All that governments need do is divide the collected revenue by the number of shares, with half-shares for children, up to two children per family.

Some economists prefer a payroll tax deduction over a dividend, because taxes depress the economy. The problem is that about half of the public are not on payrolls, because of retirement or involuntary unemployment. I suggest that at most fifty per cent of the collected carbon fee should be used for payroll tax deduction.

Cap-and-trade is the antithesis of this simple system. Cap-and-trade is a hidden tax, increasing energy costs, but with no public dividend. Its infrastructure costs the public, who also fund the profits of the resulting big banks and speculators. Cap-and-trade is advantageous only to energy companies with strong lobbyists and government officials who dole out proceeds from pollution certificates to favoured industries.

Fee-and-dividend, in contrast, is a non-tax – on average it is revenue-neutral. The public will probably accept a rise in the carbon fee rate, because their monthly dividend will increase correspondingly. As fee-and-dividend causes fossil fuel energy prices to rise, a series of points will be reached at which various carbon-free energies and carbon-saving technologies are cheaper than fossil fuels plus the fee. The market place will choose the best technology. As time goes on, fossil fuel use will collapse, coal will be left in the ground, and we will have arrived at a clean energy future. A rising carbon fee is essential for a climate solution. But how to achieve a fair international framework?

The critical requirement is that the United States and China agree to apply across-the-board carbon fees, at a relative rate to be negotiated. Why would China agree to a carbon fee? China does not want to be saddled with the problems that attend fossil fuel addiction such as those that plague the United States. Besides, China would be hit extraordinarily hard by climate change. A uniform rising carbon fee is the most economically efficient way for China to limit its fossil fuel dependence.

Copenhagen discussions showed that China and the United States can work together. Europe, Japan, and most developed countries would very probably agree to a similar status to that of the United States. Countries refusing to levy an across-the-board carbon fee can be dealt with via an import duty collected on products from that nation in accord with the amount of fossil fuel that goes into producing the product. The World Trade Organisation already has rules permitting such duties.

The international framework must define how proceeds from import duties are used to assure fairness. Duties on products from developing countries will probably dwarf present foreign aid to those countries. These funds should be returned to developing countries, but distributed so as to encourage best practices, for example, improved women’s rights and education that helps control population growth. Fairness also requires that distribution of the funds takes account of the ongoing impacts of climate change. Successful efforts in limiting deforestation and other best practices could also be rewarded.

_____

James Hansen is director of Nasa’s Goddard Institute for Space Studies and adjunct professor in the department of earth and environmental sciences at Columbia University. He was the first scientist to warn the US Congress of the dangers of climate change and writes here as a private citizen.

(c) Guardian News and Media Limited 2009

http://www.countercurrents.org/hansen271209.htm

Bill Totten http://www.ashisuto.co.jp/english/index.html

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>Something New Under the Sun

>An Environmental History of the Twentieth-Century World

by Heather Streets, Washington State University

historycooperative.org (May 2004)

McNeil, John R, Something New Under the Sun: An Environmental History of the Twentieth-Century World (New York and London: W W Norton & Company, 2000), 421 pages. $16.95.

Thanks to the work of historians like Al Crosby – The Columbian Exchange (1969, 2003), Ecological Imperialism (1986) – most World History textbooks now address the massive ecological consequences of contact between the “old” and “new” worlds after 1492. Those of us who teach World History often include at least one lecture about the highly unequal spread of disease that marked this new relationship, not to mention the exchange of edible plants, weeds, and animals that transformed both the Americas and Afro-Eurasia. Beyond this attention to the ‘American’ or ‘Columbian’ exchange, however, it seems safe to say that both texts and teachers of World History tend to give ecological concerns rather short shrift. At best, most of us treat the natural environment as a stage on which the real stuff of history politics, cultural developments, warfare, intellectual movements happens. John McNeil’s Something New Under the Sun, however, helps us understand that such an approach is just not good enough. Indeed, the environmental changes wrought by contact in 1492 pale in comparison to those changes caused by humans in the twentieth century. Now more than ever, the history (and future) of humanity and the history (and future) of the planet are so tightly interwoven that they are nearly incomprehensible in isolation.

The reasons for this, according to McNeil, lie in the massive environmental changes humans produced in virtually every ecological sphere during the twentieth century – changes that have affected the planet’s soils, air, waters, and its living plant and animal organisms. The main engine for these changes was an “enormous surge of economic activity” in the last century, which itself was fueled by rapid population growth around the world and the exploitation and use of energy based on fossil fuels (356). Each of these causes of environmental change were in turn caused and sustained by social and political preferences that favored rapid industrialization, production for national protection and war, and the accumulation of wealth by the world’s most powerful nations.

The book is divided into two main sections, preceded by an introductory chapter and followed by an epilogue. Part One, “The Music of the Spheres”, chronicles the astonishing changes humans have caused to the lithosphere and pedosphere (chapter 2), the atmosphere (chapters 3 and 4), the hydrosphere (chapters 5 and 6), and the biosphere (chapters 7 and 8). Part Two, “Engines of Change”, explores the human causes for these changes in terms of population growth and urbanization (chapter 9), energy use and economic expansion (chapter 10), and political and ideological regimes (chapter 11). The epilogue, called “So What?”, both recaps the book’s major arguments and seeks to identify the lasting significance of these changes in terms of the human future.

The net result of so much environmental change, according to McNeil, is that our current situation represents “an extreme deviation from durable, normal ecological circumstances” (326). For example, in the twentieth century alone, humans likely used more energy than in all of previous human history (15). Whereas natural forces (that is, wind, water) were once responsible for the majority of soil erosion, in the twentieth century that role was assumed by humans (35). Now, nearly a third of the world’s land surfaces suffer from soil degradation (48). But that’s only the tip of the iceberg. Human pollution of air and water by fossil fuel combustion and chemical and organic contamination has resulted in the deaths of millions of people, not to mention countless plants and animals. Forests on the scale of the Indian subcontinent have disappeared (236). And although some wealthy countries have taken impressive steps to clean their air and water and to slow deforestation, these efforts have come at the cost of increasing exploitation of natural resources in poor countries. Likewise, while humans have had some successes in increasing food surpluses and fighting both pests and microbes, these successes have come at the cost of decreasing biodiversity and increasing pest and microbe resistance. In fact, we have evidence that human actions have brought us to the verge of what may be the sixth mass extinction of plants and animals in the history of the Earth (262). As all of these examples indicate, McNeil hopes to show that our current ecological situation shaped as it was by the historical processes, choices, and preferences of the last century is fundamentally unsustainable over the long term. More ominous still, it seems certain that many of the consequences of environmental change wrought by humans in the twentieth century (global warming, ozone depletion) will only become fully apparent in the future.

Something New Under the Sun is written in a style that is accessible to teachers and college-level students at all levels, and perhaps even to advanced high school students. As a result, its possibilities for use in a World History classroom are several. At the very least, teachers can use the book to provide background reading for specific information about the ecological consequences of modern, industrial economies in the twentieth century. Lectures about the social and political consequences of the World Wars, the Cold War, or globalization, for example, could be supplemented by attention to the ramifications each had for the environment. Alternatively, teachers could use selections from the book to augment textbook readings as a means of spurring discussion about the relationship of humans to the environment. While any of the chapters could work well for this purpose, chapter four (“The Atmosphere: Urban History”) is particularly suited to framing the long-term consequences of the Industrial Revolution in a global, ecological context; while chapter eight (“The Biosphere: Forests, Fish, and Invasions”) makes an excellent complement to readings and discussions about the effects of globalization in recent history. Whether used as background reading or as a classroom text, teachers may do well to consider McNeil’s prediction that the colossal scale of human-induced change to the natural environment in the last century may turn out to be of more historical importance than anything else that occurred in the same period more important, even, than “World War Two, the communist enterprise, the rise of mass literacy, the spread of democracy, or the growing emancipation of women” (4). If nothing else, this idea may attract the interest of students who might otherwise feel disengaged from the past, for this view of history places their own futures squarely at stake.

(c) 2004 by the Board of Trustees of the University of Illinois

Presented online in association with the History Cooperative. Content in the History Cooperative database is intended for personal, noncommercial use only. You may not reproduce, publish, distribute, transmit, participate in the transfer or sale of, modify, create derivative works from, display, or in any way exploit the History Cooperative database in whole or in part without the written permission of the copyright holder.

http://www.historycooperative.org/journals/whc/1.2/br_streets.html

Bill Totten http://www.ashisuto.co.jp/english/index.html

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>Can We Redefine Prosperity?

>Towards a Steady State Economy

by Herman Daly

theoildrum.com (December 17 2009)

As the holidays approach we will probably be highlighting some of our better content from years past. The below essay, on the day of Fed Chairman Bernanke’s reappointment, is perhaps an apppropriate example of such. Originally from May 2008 {1} the essay is written by Herman Daly {2}, who popularized the term “Steady State Economy” over three decades ago. (Professor Daly subsequently contributed another TheOilDrum essay {3} on the credit crisis). Just as Paul Volcker’s recent comments {4} are a refreshing departure from the garbage of Greenspan (who has been saying that market reflation creates its own wealth).

Somedays I think TheOilDrum would have had more impact on education, change and understanding if all we did was post essays and thinking from folks like Herman Daly, Catton, Hubbert, Hardin, et al. Though the analysis here is fresh, most of the ideas being put forward for significant change of our socio-economic system have been circulating for decades, or longer. It is doubtful we can adequately inform energy policy without addressing the linkages between equity, the environment, finance, and our end goals. I post this on TheOilDrum not only because Herman is one of my tribal elders {5} but because his eloquence, courage and foresight on these issues have historically been, and continue to be, ahead of the curve. During his resignation speech {6} from the World Bank, Herman recommended the Bank take “a few antacids and laxatives to cure the combination of managerial flatulence and organizational constipation giving rise to such a high-pressure internal environment”. To improve interactions with the external world he prescribed “new eyeglasses and a hearing aid”.

Nearly fifteen years later, here is Professor Daly’s current synopsis of the state of economics and his prescriptions for change. As with most guest essays, I don’t agree with all of the prescriptions but with most (for example, I’m not sure a steady-state is in our nature). Herman has been writing these ideas for forty years – would that todays leaders had the courage and wisdom to implement some of these changes, instead of going back to the same policies that brought us to this precipice. Elinor Ostrom won the Nobel award for economics this year – I expect such mainstream recognition for Herman Daly isn’t far behind …

A Steady-State Economy

by Herman Daly

Sustainable Development Commission (April 24 2008)

A failed growth economy and a steady-state economy {7} are not the same thing; they are the very different alternatives we face. The Earth as a whole is approximately a steady state. Neither the surface nor the mass of the earth is growing or shrinking; the inflow of radiant energy to the Earth is equal to the outflow; and material imports from space are roughly equal to exports (both negligible). None of this means that the earth is static – a great deal of qualitative change can happen inside a steady state, and certainly has happened on Earth. The most important change in recent times has been the enormous growth of one subsystem of the Earth, namely the economy, relative to the total system, the ecosphere. This huge shift from an “empty” to a “full” world is truly “something new under the sun” {8} as historian J R McNeil calls it in his book of that title. The closer the economy approaches the scale of the whole Earth the more it will have to conform to the physical behavior mode of the Earth. That behavior mode is a steady state – a system that permits qualitative development but not aggregate quantitative growth. Growth is more of the same stuff; development is the same amount of better stuff (or at least different stuff). The remaining natural world no longer is able to provide the sources and sinks for the metabolic throughput necessary to sustain the existing oversized economy – much less a growing one.

Economists have focused too much on the economy’s circulatory system and have neglected to study its digestive tract. Throughput {9} growth means pushing more of the same food through an ever larger digestive tract; development means eating better food and digesting it more thoroughly. Clearly the economy must conform to the rules of a steady state – seek qualitative development, but stop aggregate quantitative growth. GDP increase conflates these two very different things.

We have lived for 200 years in a growth economy {10}. That makes it hard to imagine what a steady-state economy would be like, even though for most of our history mankind has lived in an economy in which annual growth was negligible. Some think a Steady-State Economy would mean freezing in the dark under communist tyranny. Some say that huge improvements in technology (energy efficiency, recycling) are so easy that it will make the adjustment both profitable and fun.

Regardless of whether it will be hard or easy we have to attempt a Steady-State Economy because we cannot continue growing, and in fact so-called “economic” growth already has become uneconomic. The growth economy is failing. In other words, the quantitative expansion of the economic subsystem increases environmental and social costs faster than production benefits, making us poorer not richer, at least in high consumption countries. Given the laws of diminishing marginal utility {11} and increasing marginal costs {12} this should not have been unexpected. And even new technology sometimes makes it worse. For example, tetraethyl lead {13} provided the benefit of reducing engine knock, but at the cost spreading a toxic heavy metal into the biosphere; chlorofluorocarbons {14} gave us the benefit of a nontoxic propellant and refrigerant, but at the cost of creating a hole in the ozone layer and a resulting increase in ultraviolet radiation. It is hard to know for sure that growth now increases costs faster than benefits since we do not bother to separate costs from benefits in our national accounts. Instead we lump them together as “activity” in the calculation of GDP.

Ecological economists have offered empirical evidence that growth is already uneconomic {15} in high consumption countries (see ISEW, GPI, Ecological Footprint {16}, Happy Planet Index {17}). Since neoclassical economists are unable to demonstrate that growth, either in throughput or GDP, is currently making us better off rather than worse off, it is blind arrogance on their part to continue preaching aggregate growth as the solution to our problems. Yes, most of our problems (poverty, unemployment, environmental degradation) would be easier to solve if we were richer – that is not the issue. The issue is: Does growth in GDP any longer really make us richer? Or is it now making us poorer?

For poor countries GDP growth still increases welfare, at least if reasonably distributed. The question is, What is the best thing for rich countries to do to help the poor countries? The World Bank’s answer is that the rich should continue to grow as rapidly as possible to provide markets for the poor and to accumulate capital to invest in poor countries. The steady state answer is that the rich should reduce their throughput growth to free up resources and ecological space for use by the poor, while focusing their domestic efforts on development, technical and social improvements, that can be freely shared with poor countries.

The classical steady state takes the biophysical dimensions – population and capital stock (all durable producer and consumer goods) – as given and adapts technology and tastes to these objective conditions. The neoclassical “steady state” (proportional growth of capital stock and population) takes tastes and technology as given and adapts by growth in biophysical dimensions, since it considers wants as unlimited, and technology as powerful enough to make the world effectively infinite. At a more profound level the classical view is that man is a creature who must ultimately adapt to the limits (finitude, entropy, ecological interdependence) of the Creation of which he is a part. The neoclassical view is that man, the creator, will surpass all limits and remake Creation to suit his subjective individualistic preferences, which are considered the root of all value. In the end economics is religion.

Accepting the necessity of a Steady-State Economy, along with John Stuart Mill and the other classical economists, let us imagine what it might look like. First a caution – a steady-state economy is not a failed growth economy. An airplane is designed for forward motion. If it tries to hover it crashes. It is not fruitful to conceive of a helicopter as an airplane that fails to move forward. It is a different thing designed to hover. Likewise a Steady-State Economy is not designed to grow.

Following Mill we might define a Steady-State Economy as an economy with constant population and constant stock of capital, maintained by a low rate of throughput that is within the regenerative and assimilative capacities of the ecosystem. This means low birth equal to low death rates, and low production equal to low depreciation rates. Low throughput means high life expectancy for people and high durability for goods. Alternatively, and more operationally, we might define the Steady-State Economy in terms of a constant flow of throughput at a sustainable (low) level, with population and capital stock free to adjust to whatever size can be maintained by the constant throughput that begins with depletion of low-entropy resources and ends with pollution by high-entropy wastes.

How could we limit throughput, and thus indirectly limit stocks of capital and people in a Steady-State Economy? Since depletion is spatially more concentrated than pollution the main controls should be at the depletion or input end. Raising resource prices at the depletion end will indirectly limit pollution, and force greater efficiency at all upstream stages of production. A cap-auction-trade system for depletion of basic resources, especially fossil fuels, could accomplish a lot, as could ecological tax reform, about which more later.

If we must stop aggregate growth because it is uneconomic, then how do we deal with poverty in the Steady-State Economy? The simple answer is by redistribution – by limits to the range of permissible inequality, by a minimum income and a maximum income. What is the proper range of inequality – one that rewards real differences and contributions rather than just multiplying privilege? Plato thought it was a factor of four. Universities, civil services and the military seem to manage with a factor of ten to twenty. In the US corporate sector it is over 500. As a first step could we not try to lower the overall range to a factor of, say, one hundred? Remember, we are no longer trying to provide massive incentives to stimulate (uneconomic) growth! Also, since we are not trying to stimulate aggregate growth, we no longer need to spend billions on advertising. Instead of treating advertising as a tax-deductible cost of production we should tax it heavily as a public nuisance. If economists really believe that the consumer is sovereign then she should be obeyed rather than manipulated, cajoled, badgered, and lied to.

Free trade would not be feasible for a Steady-State Economy, since its producers would necessarily count many costs to the environment and the future that foreign firms located in growth economies are allowed to ignore. The foreign firms would win in competition, not because they were more efficient, but simply because they did not pay the cost of sustainability. Regulated international trade under rules that compensated for these differences (compensating tariffs) could exist, as could “free trade” among nations that were equally committed to sustainability in their domestic cost accounting. One might expect the IMF, the World Bank, and the WTO to be working toward such regulations. Instead they vigorously push both free trade and free capital mobility (that is, deregulation of international commerce). Protecting an efficient national policy of cost internalization is very different from protecting an inefficient firm.

The case for guaranteed mutual benefit in international trade, and hence the reason for leaving it “free”, is based on Ricardo’s comparative advantage {18} argument. A country is supposed to produce the goods that it can produce more cheaply relative to other goods, than is the case in other countries. By specializing according to their comparative advantage both trading partners gain, regardless of absolute costs (one country could produce all goods more cheaply, but it would still benefit by specializing in what it produced relatively more cheaply and trading for other goods). This is logical, but like all logical arguments comparative advantage is based on premises. The key premise is that while capital (and other factors) moves freely between industries within a nation, it does not move between nations. If capital could move abroad it would have no reason to be content with a mere comparative advantage at home, but would seek absolute advantage – the absolutely lowest cost of production anywhere in the world. Why not? With free trade the product could be sold anywhere in the world, including the nation the capital just left. While there are certainly global gains from trade under absolute advantage there is no guarantee of mutual benefit. Some countries could lose.

Now comes the problem. The IMF preaches free trade based on comparative advantage, and has done so for a long time. More recently the IMF has started preaching the gospel of globalization, which, in addition to free trade, means free capital mobility internationally – exactly what comparative advantage forbids! When confronted with this contradiction the IMF waves its hands, suggests that you might be a xenophobe, and changes the subject.

The IMF-WB-WTO (Washington Consensus) contradict themselves in service to the interests of transnational corporations. International capital mobility, coupled with free trade, allows corporations to escape from national regulation in the public interest, playing one nation off against another. Since there is no global government they are in effect uncontrolled. The nearest thing we have to a global government (IMF-WB-WTO) has shown no interest in regulating transnational capital for the common good. Their goal is to help these corporations grow, because growth is presumed good for all – end of story. If the IMF wanted to limit international capital mobility to keep the world safe for comparative advantage, there are several things they could do. They could promote minimum residence times for foreign investment to limit capital flight and speculation, and they could propose a small tax on all foreign exchange transactions (Tobin tax). Most of all they could revive Keynes’ proposal for an international multilateral clearing union that would directly penalize persistent imbalances in current account (both deficit and surplus), and thereby indirectly promote balance in the compensating capital account, reducing international capital movements.

One problem for the Steady-State Economy already raised by the demographic transition to a non growing population is that it necessarily results in an increase in the average age of the population – more retirees relative to workers. Adjustment requires either higher taxes, older retirement age, or reduced retirement pensions. The system is hardly in “crisis”, but these adjustments are surely needed to achieve sustainability. For many countries net immigration has become a larger source of population growth than natural increase. Immigration may temporarily ease the age structure problem, but the steady-state population requires that births plus in-migrants equal deaths plus out-migrants. It is hard to say which is more politically incorrect, birth limits or immigration limits? Many prefer denial of arithmetic to facing either one.

The Steady-State Economy will also require a “demographic transition” in populations of products towards longer-lived, more durable goods, maintained by lower rates of throughput. A population of 1000 cars that last ten years requires new production of 100 cars per year. If more durable cars are made to last twenty years then we need new production of only fifty cars per year. To see the latter as in improvement requires a change in perspective from emphasizing production as benefit to emphasizing production as a cost of maintenance. Consider that if we can maintain 1000 cars and the transportation services thereof by replacing only fifty cars per year rather than 100 we are surely better off – the same capital stock yielding the same service with half the throughput. Yet the idea that production is a maintenance cost to be minimized is strange to most economists. Shifting taxes from value added to throughput would promote this minimizing effort. One adaptation in this direction is the service contract that leases the service of equipment (ranging from carpets to copying machines), which the lessor/owner maintains, reclaims, and recycles at the end of its useful life.

Although the main thrust of reforms for the Steady-State Economy is to bring newly scarce and truly rival natural capital and services under the market discipline, we should not overlook the opposite problem, namely, freeing truly non rival goods from their artificial enclosure by the market. There are some goods that are by nature non-rival, and should be freed from illegitimate enclosure by the price system. I refer especially to knowledge. Knowledge, unlike throughput, is not divided in the sharing, but multiplied. Once knowledge exists, the opportunity cost of sharing it is zero and its allocative price should be zero. International development aid should more and more take the form of freely and actively shared knowledge, along with small grants, and less and less the form of large interest-bearing loans. Sharing knowledge costs little, does not create unrepayable debts, and it increases the productivity of the truly rival and scarce factors of production. Existing knowledge is the most important input to the production of new knowledge, and keeping it artificially scarce and expensive is perverse. Patent monopolies (aka “intellectual property rights”) should be given for fewer “inventions”, and for fewer years.

What would happen to the interest rate in a Steady-State Economy? Would it not fall to zero without growth? Not likely, because capital would still be scarce, there would still be a positive time preference, and the value of total production may still increase without growth in physical throughput – as a result of qualitative development. Investment in qualitative improvement may yield a value increase out of which interest could be paid. However, the productivity of capital would surely be less without throughput growth, so one would expect low interest rates in a Steady-State Economy, though not a zero rate.

Would it be possible to have qualitative improvement (for example increasing efficiency) forever, resulting in GDP growth forever? GDP would become ever less material-intensive. Environmentalists would be happy because throughput is not growing; economists would be happy because GDP is growing. I think this should be pushed as far as it will go, but how far is that likely to be? Consider that sectors of the economy generally thought to be more qualitative, such as information technology, turn out on closer inspection to have a substantial physical base, including a number of toxic metals.

Also, if expansion is to be mainly for the sake of the poor it must be comprised of goods the poor need – clothing, shelter, and food on the plate, not ten thousand recipes on the Internet. In addition, as a larger proportion of GDP becomes less material-intensive, the terms of trade between more and less material-intensive goods will move against the less material-intensive, limiting incentive to produce them. Even providers of information services spend most of their income on cars, houses, and trips, rather than the immaterial product of other symbol manipulators.

Can a Steady-State Economy maintain full employment? A tough question, but in fairness one must also ask if full employment is achievable in a growth economy driven by free trade, off-shoring practices, easy immigration of cheap labor, and widespread automation? In a Steady-State Economy maintenance and repair become more important. Being more labor intensive than new production and relatively protected from off-shoring, these services may provide more employment. Yet a more radical rethinking of how people earn income may be required. If automation and off-shoring of jobs increase profits but not wages, then the principle of distributing income through jobs becomes less tenable. A practical solution (in addition to slowing automation and off-shoring) may be to have wider participation in the ownership of businesses, so that individuals earn income through their share of the business instead of through fulltime employment. Also the gains from technical progress should be taken in the form of more leisure rather than more production – a long expected but under-realized possibility.

What sort of tax system would best fit a Steady-State Economy? Ecological tax reform, already mentioned, suggests shifting the tax base away from value added (income earned by labor and capital), and on to “that to which value is added”, namely the throughput flow, preferably at the depletion end (at the mine-mouth or well-head, the point of “severance” from the ground). Many states have severance taxes. Taxing the origin and narrowest point in the throughput flow induces more efficient resource use in production as well as consumption, and facilitates monitoring and collection. Taxing what we want less of (depletion and pollution), and ceasing to tax what we want more of (income, value added) would seem reasonable – as the bumper sticker puts it, “tax bads, not goods”. The shift could be revenue neutral and gradual. Begin for example by forgoing $x revenue from the worst income tax we have. Simultaneously collect $x from the best resource severance tax we could devise. Next period get rid of the second worst income tax, and substitute the second best resource tax, et cetera. Such a policy would raise resource prices and induce efficiency in resource use. The regressivity of such a consumption tax could be offset by spending the proceeds progressively, by the limited range of inequality already mentioned, and by the fact that the mafia and other former income tax cheaters would have to pay it. Cap-auction–trade systems will also increase government revenue, and auction revenue can be distributed progressively.

Could a Steady-State Economy support the enormous superstructure of finance built around future growth expectations? Probably not, since interest rates and growth rates would be low. Investment would be mainly for replacement and qualitative improvement. There would likely be a healthy shrinkage of the enormous pyramid of debt that is precariously balanced atop the real economy, threatening to crash. Additionally the Steady-State Economy could benefit from a move away from our fractional reserve banking system toward 100% reserve requirements.

One hundred percent reserves would put our money supply back under the control of the government rather than the private banking sector. Money would be a true public utility, rather than the by-product of commercial lending and borrowing in pursuit of growth. Under the existing fractional reserve system the money supply expands during a boom, and contracts during a slump, reinforcing the cyclical tendency of the economy. The profit (seigniorage) from creating (at negligible cost) and being the first to spend new money and receive its full exchange value, would accrue to the public rather than the private sector. The reserve requirement, something the Central Bank manipulates anyway, could be raised from current very low levels gradually to 100%. Commercial banks would make their income by financial intermediation (lending savers’ money for them) as well as by service charges on checking accounts, rather than by lending at interest money they create out of nothing. Lending only money that has actually been saved by someone reestablishes the classical balance between abstinence and investment. This extra discipline in lending and borrowing likely would prevent such debacles as the current “sub-prime mortgage” crisis. 100% reserves would both stabilize the economy and slow down the Ponzi-like credit leveraging.

A Steady-State Economy should not have a system of national income accounts, GDP, in which nothing is ever subtracted. Ideally we should have two accounts, one that measures the benefits of physical growth in scale, and one that measures the costs of that growth. Our policy should be to stop growing where marginal costs equal marginal benefits. Or if we want to maintain the single national income concept we should adopt Nobel laureate economist J R Hicks’ concept of income, namely, the maximum amount that a community can consume in a year, and still be able to produce and consume the same amount next year. In other words, income is the maximum that can be consumed while keeping productive capacity (capital) intact. Any consumption of capital, manmade or natural, must be subtracted in the calculation of income. Also we must stop the asymmetry of adding to GDP the production of anti-bads without first having subtracted the generation of the bads that made the anti-bads necessary. Note that Hicks’ conception of income is sustainable by definition. National accounts in a sustainable economy should try to approximate Hicksian income and abandon GDP. Correcting GDP to measure income is less ambitious than converting it into a measure of welfare, discussed earlier.

The logic of the Steady-State Economy is reinforced by the recent finding of economists and psychologists that the correlation between absolute income and happiness extends only up to some threshold of “sufficiency”, and beyond that point only relative income influences self-evaluated happiness. This result seems to hold both for cross-section data (comparing rich to poor countries at a given date), and for time series (comparing a single country before and after significant growth in income). Growth cannot increase everyone’s relative income. The welfare gain of people whose relative income increases as a result of further growth would be offset by the loss of others whose relative income falls. And if everyone’s income increases proportionally, no one’s relative income would rise and no one would feel happier. Growth becomes like an arms race in which the two sides cancel each other’s gains. A happy corollary is that for societies that have reached sufficiency, moving to a Steady-State Economy may cost little in terms of forgone happiness. The “political impossibility” of a Steady-State Economy may be less than it previously appeared.

Nevertheless it is one thing to imagine the possibility of a Steady-State Economy, but something else to chart a transition thereto from a failed growth economy. Can one transform an airplane into a helicopter without first landing, or perhaps crashing? In order even to take such a task seriously one has to realize that the growth economy is heading for a big crash. Whether the measures suggested above are sufficient to convert the growth airplane to a steady-state helicopter is hard to say, but I do think they are probably necessary, and at a minimum would be useful guides for reconstruction after the crash. They also may prove capable of being applied gradually in mid air. For example, a cap-auction-trade system could begin with a generous cap followed by a gradual pre-announced schedule of tightening. The limits to income inequality could begin far apart, and be gradually tightened. Ecological tax reform could substitute at first only the worst value added taxes by the best throughput taxes, as mentioned earlier. Compensatory tariffs to protect national cost-internalization policies could be imposed and raised gradually. Reserve requirements for banks could be raised gradually to one hundred percent. Patent monopolies could be gradually reduced and knowledge gradually restored to its proper status as a non rival good. Downsizing of the IMF-WB-WTO from a servant of global integration in the interests of transnational capitalist growth to something closer to Keynes’ nation-based multilateral clearing union for international payments – this would be more difficult to do gradually. But nations may begin individually to withdraw from these institutions as it becomes more evident that they have abandoned the federated internationalist nature of their Bretton Woods Charter in favor of an economically integrated globalist vision of capital-dominated growth, and are as yet incapable of conceiving the possibility, much less recognizing the reality, of uneconomic growth.

While these transitional policies will appear radical to many, it is worth remembering that, in addition to being amenable to gradual application, they are based on the conservative institutions of private property and decentralized market allocation. They simply recognize that private property loses its legitimacy if too unequally distributed, and that markets lose their legitimacy if prices do not tell the whole truth about costs. In addition, the macro-economy becomes an absurdity if its scale is structurally required to grow beyond the biophysical limits of the Earth. And well before that radical physical limit we are encountering the conservative economic limit in which extra costs of growth become greater than the extra benefits.

Ten Point Policy Summary

1. Cap-auction-trade systems for basic resources. Cap limits to biophysical scale according to source or sink constraint, whichever is more stringent. Auction captures scarcity rents for equitable redistribution. Trade allows efficient allocation to highest uses.

2. Ecological tax reform – shift tax base from value added (labor and capital) and on to “that to which value is added”, namely the entropic throughput of resources extracted from nature (depletion), through the economy, and back to nature (pollution). Internalizes external costs as well as raises revenue more equitably. Prices the scarce but previously unpriced contribution of nature.

3. Limit the range of inequality in income distribution – a minimum income and a maximum income. Without aggregate growth poverty reduction requires redistribution. Complete equality is unfair; unlimited inequality is unfair. Seek fair limits to inequality.

4. Free up the length of the working day, week, and year – allow greater option for leisure or personal work. Full-time external employment for all is hard to provide without growth.

5. Re-regulate international commerce – move away from free trade, free capital mobility and globalization, adopt compensating tariffs to protect efficient national policies of cost internalization from standards-lowering competition from other countries.

6. Downgrade the IMF-WB-WTO to something like Keynes’ plan for a multilateral payments clearing union, charging penalty rates on surplus as well as deficit balances – seek balance on current account, avoid large capital transfers and foreign debts.

7. Move to 100% reserve requirements instead of fractional reserve banking. Put control of money supply and seigniorage in hands of the government rather than private banks.

8. Enclose the remaining commons of rival natural capital in public trusts, and price it, while freeing from private enclosure and prices the non rival commonwealth of knowledge and information. Stop treating the scarce as if it were non scarce, and the non scarce as if it were scarce.

9. Stabilize population. Work toward a balance in which births plus immigrants equals deaths plus out-migrants.

10. Reform national accounts – separate GDP into a cost account and a benefits account. Compare them at the margin, stop growing when marginal costs equal marginal benefits. Never add the two accounts.

Herman E Daly
School of Public Policy
University of Maryland
College Park Maryland 20742 USA

Editor’s Note: the Sustainable Development Commission {19}is a body set up to advise the UK Government on sustainable development. Herman’s essay was commissioned as part of their ongoing ‘Redefining Prosperity’ efforts.

Links:

1. http://www.theoildrum.com/node/3941
2. http://en.wikipedia.org/wiki/Herman_Daly
3. http://www.theoildrum.com/node/4617
4. http://www.bloomberg.com/apps/news?pid=20601109&sid=aDbxsIHM30H8
5. http://en.wikipedia.org/wiki/Green_economics
6. http://www.whirledbank.org/ourwords/daly.html
7. http://www.eoearth.org/article/Steady_state_economy
8. http://www.wwnorton.com/catalog/spring01/032183.htm
9. http://www.sustainableeconomics.org/Vocabulary.htm#Throughput
10. http://www.mkbergman.com/wp-content/themes/ai3/images/2006Posts/060727a_HistoricalGDPGrowth.gif
11. http://www.investopedia.com/terms/l/lawofdiminishingutility.asp
12. http://en.wikipedia.org/wiki/Marginal_cost
13. http://www.runet.edu/~wkovarik/ethylwar/
14. http://en.wikipedia.org/wiki/Chlorofluorocarbon#Chloro_fluoro_compounds_.28CFC.2C_HCFC.29
15. http://en.wikipedia.org/wiki/Uneconomic_growth
16. http://en.wikipedia.org/wiki/Ecological_footprint
17. http://en.wikipedia.org/wiki/Happy_Planet_Index
18. http://en.wikipedia.org/wiki/Comparative_advantage
19. http://www.sd-commission.org.uk/pages/who-we-are.html

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Bill Totten http://www.ashisuto.co.jp/english/index.html

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