Economics

Mismodelling Human Beings

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Published on Credo Economics on July 21, 2017

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“rational economic men” in love, politics and everyday life

This chapter explores the assumptions about human nature on which mainstream economics is based. The description of “rational economic man” ignores most psychological and psychotherapy understandings of people.

Key to the conceptual confidence trick are assumptions about what people in general are like. It is all based on an implicit modelling of human beings. Certain types of behaviour (the type that allows economists to model people and markets) are called “rational”. Now, you might think that this description of people is meant by economists to be applicable only to economic and market activities. Certainly this was the point of view of one of the founders of the famous Chicago school of economics, Frank Knight. Although committed to the alleged virtues of the market, Knight was not naive about how far you could take economic analysis. In his book Risk, Uncertainty and Profit he concluded that economics only applied to the satisfaction of wants, and that this business of satisfying wants by no means accounted for all of human activity. Indeed Knight questioned how far one could go with a “scienti c treatment” of human activity and wrote of his own views:

In his views on this subject the writer is very much an irrationalist. In his view the whole interpretation of life as activity directed towards securing anything considered as really wanted, is highly artificial and unreal. (Backhouse, 2002, p. 204)

Some contemporary economists of the Chicago school don’t see it this way. If people are calculating their individual self interest in their economic dealings why should one assume that they do not do the same thing in their political, their social and their interpersonal dealings? Should we not also assume that government ocials are calculating their interests too? At the very least, why should contact between business and government not lead to a cosy relationship, particularly if people can leave government posts and get lucrative jobs with industry? What about bribes and kickbacks from business for special favours?

As I argued earlier, we can take the idea from Anaïs Nin that we do not see things as they are – we see things as we are. There is likely to be a loop in which a theory which describes how people are assumed to be, when powerfully propagated in textbooks as “social science”, will have an influence on how people behave. With economics we have a theory which argues that if people just look after their own interest that’s OK because “an invisible hand” described by wizard intellectuals delivers an approximation to an optimal allocation of resources. Under the influence of a view like this, concern about what is in a wider interest is not likely to blossom. It is unlikely to figure as a motivation or concern. As individualists people will look no further than themselves. They do not need to look further than themselves because the “invisible hand” will do the rest.

It is quite logical to believe that if people are actually like this then their attitude to the community and to the state will be framed in the same terms. Such people, customers of the state, rather than citizens and members of communities, will then have an interest in getting the best deal from the state to pursue their own individual agendas.

the context of Keynesian economics

When I studied economics at the end of the 1960s, the textbooks, for example by Paul A Samuelson, pictured a world where the state was essentially benevolent and independent from business. A democratic process determined what policies the state would adopt and economists were the technical advisers making clear what the policy options were. There was an implied idea that governments, politicians and public offcials would regulate markets without being contaminated by the self-interest motivation of those markets. The idea that the state could be captured by business interests while the majority of the people were effectively excluded from real influence was not expressed in the textbooks.

At that time, at the end of the 1960s, experience of the depression and then of the war had left an effect on public consciousness, including the consciousness of the elite itself – and it left its mark on economics. Fighting the war had been a massive common project which was collectively transforming. The values of British people shifted as a result of the equalising effect of the Second World War – rationing, conscription, the abolition of first class carriages in trains, evacuation and sharing bomb shelters. Military outlays as a per cent of national income in the UK went from 15% of national income in 1939 to 44% in 1940 to 53% in 1941 and as high as 55% in 1943. (Harrison (ed), 1998) After the war, the sense of what could be done when people worked together and decided what was a priority was quite different and there was a collective rejection of the idea of returning to the politics and economics of the 1930s. (Addison, 1975)

This was the context in which the welfare state and Keynesian economics was adopted. The allocation of resources mobilised for, and by, the state was something that a majority of ordinary people believed in. The mood was little different in the United States too, albeit that the US, having won the war, went straight into the cold war, involvement in Korea and the anti-communist hysteria of McCarthyism. Nevertheless there was a different context for textbooks like that of Paul Samuelson.

But by the late 1960s things were beginning to change again. Young people like myself took the welfare state for granted and chafed under the authoritarian paternalism of the elite. These conditions created the basis for a valid questioning of the disinterestedness of the state and its o cials. This idea evolved into “the new left ” but also towards the political right. A very different analysis to that of Samuelson in regard to the relationship between business and the state took hold in economics.

the rise of the chicago school

The idea that the state could be, and was captured by interest groups was valid. The hostility to the communist planned economy, the personal libertarianism born in cynicism about the paternalism and corruption of officials, as well as by backlashes against politicians, officials and the state, led to the growth of fervent market fundamentalism spearheaded by economists at Chicago University. Their ideal was to go all the way and for the state to be driven out of market activity to the maximum extent possible.

Milton Friedman and Arnold Harberger welcome the boys to class at the Chicago school of Economics. https://www.flickr.com/photos/donkeyhotey/4396155916/ https://creativecommons.org/licenses/by-sa/2.0/
Milton Friedman and Arnold Harberger welcome the boys to class at the chicago school of Economics.
https://www.flickr.com/photos/donkeyhotey/4396155916/ https://creativecommons.org/licenses/by-sa/2.0/

To a new generation of Chicago economists, the rational utility calculating individual was a description that could be applied to the understanding of all human behaviour, not just that in the market place.

For example, to Gary Becker at Chicago, racism is a preference choice of who you want to live near and who an employer might want to employ. Note, Becker did not see himself as endorsing or condemning – he merely saw himself explaining and drawing out the consequences.

The model of “rational economic behaviour” was used by Becker and another theorist, Richard Posner, to explain “love”, marriage and prostitution in a utilitarian framework. Marriage is a relationship involving “reciprocal service provision” which saves on the transaction costs like pricing each “service” that a couple provide for each other, as in removing the need to keep accounts for these services. In this way of thinking prostitution is, by contrast, thought of as a “spot” sexual transaction where it is “more efficient” to pay for the service in money.

The same approach is used by Becker to explain crime. Most people don’t steal because it would not be profitable but in the life circumstances of criminals, the rational maximisation of costs and bene ts of crime does make it pay. This is another form of the redistribution of income in the same broad category as government welfare programmes. (Nelson R. H., 2001, pp. 166-189)

The trouble with this view is that it is at best tautologically true in a sense that is banal. People do things because they want to and thus, they must get satisfaction or utility from doing and deciding what they do. However, it makes little sense of the many actions taken by people where they are con icted; where they act in ways that involve self-sacrifice for moral reasons; where there is genuine anguish about their difficult decisions and where they do things because they think they ought to, not because it gives them any satisfaction at all. They act altruistically, get depressed, act out of compassion, and do crazy things. None of these fit into the model.

a faulty view of humanity

As Kalle Lasn puts it, in the book Meme Wars: The Creative Destruction of Neoclassical Economics “Neoclassical economics has achieved its coherence as a science by amputating most of human nature.” (Lasn, 2012)

This amputation is done on the assumption that unless some internal measure of happiness or freedom from pain – utility – acts as a common yardstick, it is not possible for human beings to evaluate between options and make their choices. However, as philosopher Alan Holland points out:

Happiness is not a homogenous item, but a mosaic of heterogeneous elements. There is just no common substance – no utility – by which to compare, for example, the suffering experienced by an experimental animal with the understanding gained by the experiment. Nor is this a point about moral reasons only but about reasons generally. The determined egoist, confronting a chocolate bar that will ruin his or her waistline, will soon find that he or she has to decide between vanity and greed, and will just as surely fail to find an appropriate value in terms of which to compare the alternatives. Self-interest is not such a value as it is as heterogeneous an objective as happiness. (Holland, 2002, p. 27)

As the example of Britain after World War II shows, values shift according to social, economic and political conditions. This alone makes nonsense of the idea that people are driven by personal utility calculations in the manner described by neoclassical economists.

Rather, psychologists have looked at what motivates people all around the world in different cultures and have come up with a more complex picture. Decades of research and hundreds of cross-cultural studies have identified consistently occurring human values which can be grouped into ten broad categories: universalism, benevolence, tradition, conformity, security, power, achievement, hedonism, stimulation and self-direction. (PIRC, 2011, pp. 12-20)

Each of us is motivated by all 10 of the value categories, albeit to varying degrees – and the ten groups of values can be divided along two major axes:

1. Self-enhancement (based on the pursuit of personal status and success) as opposed to self-transcendence (generally concerned with the well-being of others)
2. Openness to change (centred on independence and readiness for change) as opposed to conservation values (not referring to environmental or nature conservation, but to “order, self- restriction, preservation of the past and resistance to change”) (PIRC, 2011, p. 17)

Mainstream economists have identified a part of what motivates people but mislead because they have too narrow a view. The values that economists describe as motivating people are best described as “extrinsic”. Values that are centred on external approval and rewards e.g. wealth, material success, concern about image, social status, prestige, social power and authority. However, people are motivated by intrinsic motivations too. One of the themes of this book is to show that we get a clearer picture of reality when we describe actions and economic consequences arising from different starting motivations – some of which are anti-social and some of which are pro-social.

Navigating 21st Century Hopelessness

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Published on The Doomstead Diner July 16, 2017

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Is our techno-industrial way of life fundamentally benevolent?  Is it advisable to continue perpetuating a civilization that is predicated by non-renewable fossil energy sources as well as unsustainable rates of renewable resource extraction?  Our civilization requires an ever growing GDP to be considered healthy.  This is a measure of production in terms of consumption.  Our literal benchmark for the health of our society is based on how much we can consume in a year as a nation.  The reason for this is to create monetary profit for the individuals of this society whom have shares in the corporations controlling this production.  The actual physical wealth of the world is subjugated to the tune of dollars and cents.  To make this pathway possible it requires a proletariat class willing to sell their lives for an hourly rate.  This hourly rate is the lowest possible rate so as to not reduce the profit that’s stolen from the resources of the Earth and the energies of its peoples.  This hourly rate is about making money and not about stewardship of any kind.  It does not have to be like this, but that is a delusory sentiment based on idealism. 

The road to ruin for our species began with agriculture.  Before agriculture emerged there was no need for money, and so it did not exist.  Agriculture allows for civilization which requires money to function.  With the creation of money we stratify into economic classes of people.  Once money is created life becomes about servicing this need for monetary acquisition.  Before money life is about engaging with nature to acquire food, fuel, fiber, medicine and shelter.  In aggregate these actions create a healthy human culture.  Agriculture allows for money and removes the limiting factors for our numbers.  Before agriculture the limiting factor is the amount of food that can be sustainably hunted and gathered.  The hunter/gatherer life is mostly nomadic as we follow the animals and plants through the seasons which define their lifecycles.  Our lives are imbued with rich somatic meaning as we engage with the body of nature.  We are from this Earth, and we inhabit it as a corporeal being made of the elements.  We evolved both physically and spiritually within the framework of our physical Earth.  Our health depends on engaging with nature to create life and its meaning.  The fall from paradise began with domestication which is nothing less than the taming of wild nature.  Domestication is tandem to agriculture and literally creates civilization.  What is being civilized if not the opposite of wild?  The two are anathema to one another. 

Agriculture means that we stop moving around.  It means that we domesticate ourselves as well as the wild beasts of nature.  It sets up the conditions that allows for a great competition between us and nature.  All of a sudden our culture becomes one of domination and control rather than harmony.  Being rooted in one place we begin building monuments to hubris.  We get bored and invent competition.  We stockpile food and create war and plague.  We set up the conditions for disease and famine and warfare (although nomadic people still do occasionally fight with opposing tribes).  We argue and debate and create inequality amongst our people.  Life becomes a struggle to create meaning and avoid boredom.  Eventually, as we move further and further from our natural origin, habitat, and culture the enchantment of being evaporates. We are left with a driving urge to consume to fill this void of meaning that emerges due to our domestication.  Time continues forward and our habits create technologies to service convenience.  We become lazy and our bodies grow fat with our sedentary nature which arises from our domesticated captivity.  No longer do we need our bodies for anything more than acquiring money.  We then want pleasure to fend off boredom and meaninglessness.  Life is no longer about dancing in the wild where we are from and where we return to.  Civilization is nothing more than something to do in the great illusion that we create for ourselves.  This is the way that it is.  The Matrix was born with the first surplus of cereal grain. 

Is there anything that can be done about this?  It seems to me that we are at the end of this failed experiment in hubris.  There is no harmony in domination and control and consumption.  There is only waste, disease, and poison by way of ecocide and genocide.  Our quest for the production of unlimited energy against the gradient of entropy has created cancer.    In the end we cannot dominate nature.  Aside from money the quest for domination  is the great fallacy of civilization.  We cannot think our way out of the limiting factors of ecology.  Our modern techno-industrial civilization will run out of the fossil blood that sustains it.  We will lose the capacity to safely maintain the nuclear power plants that liter the surface of the Earth.  They will spew out DNA damaging clouds of radioactivity as they have already begun doing.  The rain will become poisonous to life.  As we fight to continue this failing technotriumphalism we will continue increasing the CO2 in the atmosphere which will continue heating the human supporting biosphere.  Natural disasters will continue increasing in number and severity.  Our hubris has metastasized into a cancer that will shrink our settlements as the habitable regions atrophy.  Nothing is going to stop this process now.  All that remains is answering the question of what to do about this inevitability.  We have entered into the age of doom. 

There is no escaping this destiny that we have perpetuated.  The most unfortunate aspect about this hopelessness is that man cannot live without hope.  Hope makes life worth living.  Is hope itself a delusion?  What are we to hope for?  The nature of existence is a destiny with death.   The time we have between birth and death needs to be animated by meaning.  Meaning is derived from a harmony with all life.  Our civilization is marked by domination and control.  There is no harmony in control.  The great struggle is finally about the nature of life because life wants to live.  We must maintain ourselves within the boundary of our skin while we are here walking the Earth.  The overwhelming desire is to do this devoid of pain and misery.  The tragedy of man is to think that he can avoid his own nature by the creation of a technological utopia.  Life cannot be about domination and control, but that is what man forces it to be.  We are teetering in a suspended animation just before the moment of expiration.  We are flailing about in denial of this process of resolution.  Maturation as a species must culminate in an acceptance of suffering and death.  We must accept our temporary nature, stop struggling, and lie down in the great current of life.  We swim against this entropic process everyday as we participate in this civilization.  We collectively attempt to keep the center from flying apart under the pressures of our own technologically created centrifuge.  We struggle in vain against the pressures of physical dissolution.  We create illusions to fight against the natural process of becoming to fall apart. 

The first act was rife with physical struggle within the framework of existing in harmony with nature.  Hubris arose and we thought we could become gods using the power of physical manipulation.  We thought we could master the universe with our cleverness.  We are collectively a breaking wave, and nothing will stop the pull of gravity as we are recycled back into the void which we originally manifested from.    Idealism is nothing more than the ravings of a mental lunatic.  Idealism is a delusion that is born from the struggle to acquire more than we need.  Fighting against entropy is finally not worth it.  Yet this fight is what it means to inhabit a physical body. 

In the final analysis life must be about observing beauty.  Without beauty it is not worth living.  We have made a mess of this beautiful blue/green orb that’s floating about the universe.  We have partied our way to desolation.  Yet the Earth keeps spinning around in outer space in its dance with the sun that sustains us.  Every morning the sun reemerges to give us another day of life.  Our great challenge is to honor this life by creating beauty and not it’s opposite.  We have created a lot of ugliness.  Maybe the secret to this 21st century hopelessness is to learn how to make beauty out of malevolence.  Or maybe we should just stop struggling and accept the final act of misery which we have written for ourselves?  Or maybe we can simply embrace our collective ugliness with grace?  Without love and beauty this great struggle that is life is not worth it.  The greatest challenge that we face is learning to love and observe beauty even as love and beauty vanish under the oppression of our own collective delusions. 

The nature of a body is to act.  How are we to act?  We should act to minimize suffering for all sentient beings while honoring our bodily nature.  Every day is a new day to make the right decisions.   Yet every day requires a certain amount of money.  This is why my conclusion is that a lifestyle that requires no money is the only truly benevolent lifestyle.  That lifestyle is a fiction in this world we have created.  This world is quite literally hell on Earth.  Therefore we must learn to love and find whatever beauty we can while in hell.  We must not resist as we realize our ultimate destiny of assimilation with the machine we have created.  I’ve tried finding work arounds to the truth that life is suffering, but the only way to win is to let go, stop resisting, and accept the nature of this great delusion.  Manifestation is transience in action, and our resistance arises within that transience only to dissolve back into the void that is death.  All that is created within that resistance is more suffering.  Yet still we must act in the world, and how should we act when our actions only serve to create more suffering?  The heart of our civilization is the creation of suffering, and to participate only adds to this toll.  Not participating in this civilization can be our only spiritual redemption.  For the life of me, and my children, I cannot figure out how to not participate. 

Doughnut Economics

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Published on Cassandra's Legacy on June 17, 2017

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Doughnut Economics:a step forward, but not far enough


Doughnut Economics, by Kate Raworth (Chelsea Green, 2017) is an interesting book that goes in the right direction in the sense that it promotes a circular economy, But it leaves you with the impression that it missed that extra step that would have lead it to define the goal in the right way. Bridging the gap between standard economics and biophysical economics is still far away.

So, what is this "Doughnut" that gives the title to the book? Initially, I had imagined that it was supposed to be a sort of mandala representing the concept of circular economy. But that doesn't seem to be the case: circular mandalas often represent the cyclical movement of a wheel, but the doughnut doesn't (as, indeed, most doughnuts are not supposed to be used as wheels). Here is how it is represented in the book:
 


It is described as "a radically new compass for guiding humanity this century." Ambitious, to say the least, but how is that supposed to work, exactly? Maybe I am missing something, but I not sure I can understand why the numerous concepts appearing in the figure should be arranged in a "doughnut."

The problem with the doughnut is not so much understanding why it is shaped like a doughnut, but what it lacks. Look at the outer ring; you will see 10 sectors, all related to pollution: climate change, ocean acidification, chemical pollution, etc. Something is conspicuously missing and it is not a minor element of the overall picture. It is natural resources and, in particular, non-renewable resources (*)

Natural resources, their depletion, and the related concept of "overshoot" are not just missing from the doughnut, they go mostly unmentioned and unnoticed in the whole book. To give you an example, Raworth mentions only once the 1972 study "The Limits to Growth" that was the first to pinpoint the resource problem. In a discussion of less than than two pages, I think her position can be summarized by the following statements:

Mainstream economists were quick to deride the model's design on the basis that it underplayed the balancing feedback of the price mechanism in markets. If non renewable resources became scarce, they argued, prices would rise, triggering greater efficiency in their use, the wider use of substitutes, and exploration for new sources. But in dismissing World 3 and its implied limits to growth , they too quickly dismissed the role and the effect of what the 1970s model simply called pollution … World 3's modeling of pollution turned out to be prescient…. recent data … find that the global economy seems to be closely tracking its business-as-usual scenario.

As it is often the case in this book, Raworth's statements need some work to be interpreted because they are always nuanced; if not vague, as when she says one should be "agnostic" about economic growth (**). Here, the interpretation seems to be that The Limits to Growth may have been right, but only because it took into account pollution. Instead, its treatment of non-renewable natural resources was wrong because depletion can be completely neutralized by market factors. Raworth doesn't seem to realize that she is contradicting herself, here: if the "business as usual" scenario produced good results in terms of comparison with the real world's economy, it is because it contained depletion as a major constraint. World 3 could also be run in the hypothesis of infinite natural resources, with pollution the only constraint, but the results would not be the same.

That's the thread of the whole book: natural resources are not a problem; we should be worried only about pollution. Raworth doesn't link the concept of the circular economy to recovering non-renewable resources; she proposes only in relation to abating pollution, with the corollary that it also brings about also better social equality. This is not wrong; it is true that a cyclical "regenerative" economy would be able, in principle, to reduce or eliminate pollution. Still, it is curious how the question of mineral resources is so conspicuously missing in the book.

Kate Raworth is described in the book flap as a "renegade economist", but she still reasons like an economist. The idea that the price mechanism will make depletion always irrelevant is old and it goes back to the 1930s, when the so-called "functional model" was presented, stating exactly what Raworth describes. The idea is that market factors will always re-adjust the system and magically make depletion disappear. By now, the functional model is deeply entrenched in the standard economic thought and there seems to be no way to dislodge it from its preheminent position.

The interesting point is that not only economists tend to dismiss depletion as irrelevant. In recent times, the whole "environmental movement" or the "Greens" have taken exactly the same position. All the debate about climate change is normally based on the supposition that minerals, and in particular fossil fuels, will remain cheap and abundant for the current century. If this is the case, it makes sense to propose to spend untold amounts of money for carbon capture and sequestration (CCS) rather than for renewable energy. It goes without saying that, if this assumption turned out to be wrong, the whole exercise of CCS, if it were undertaken at the necessary scale, would turn out to be the greatest resource misplacement of resources in human history, possibly even worse than nuclear energy.

Why is that? As a puzzle, it is difficult to solve. In principle, resource depletion and its negative effects would seem to be easy to understand. Easier than the complex chain of physical factors that leads from the emission of greenhouse gases to disastrous events such as sea level rise, heat waves, hurricanes, and the like. Maybe it is just a question of the lifetime of memes. The meme of depletion started before that of climate change and it is now in its downward trend. Whatever the case, we seem to be locked in a view of the world that misses some fundamental elements of the situation. Where this special form of blindness will lead us is all to be seen. 

Getting back to Raworth's book, despite the criticism above I can also say that it is worth reading for its broad approach and the wealth of concepts it contains. Its discussion on how the science of economics came to be what it is nowadays is, alone, worth the price of the book. Although it misses part of the problem, it may open up new views for you.

(*) You may also have noticed that the concept of "overpopulation" is missing in the doughnut. On this point, Raworth maintains in the text that if people are given the possibility of having a life free of deprivation, they won't reproduce like rabbits – a concept on which I tend to be in agreement; even though its practical implementation in the current world's situation is problematic, to say the least.

(**) The idea of a "zero growth" or "steady state" society would seem to be a fundamental feature of a circular economy, but it is barely mentioned in the book

Using Energy to Extract Energy – the Dynamics of Depletion

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Published on FEASTA on June 21, 2017

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The “Limits to Growth Study” of 1972 was deeply controversial and criticised by many economists. Over 40 years later, it seems remarkably prophetic and on track in its predictions. The crucial concept of Energy Return on Energy Invested is explained and the flaws in neoclassical reasoning which EROI highlights.

The continued functioning of the energy system is a “hub interdependency” that has become essential to the management of the increasing complexity of our society. The energy input into the UK economy is about 50 to 70 times as great as what the labour force could generate if working full time only with the power of their muscles, fuelled up with food. It is fossil fuels, rfined to be used in vehicles and motors or converted into electricity that have created power inputs that makes possible the multiple round- about arrangements in a high complex economy. The other “hub interdependency” is a money and transactions systems for exchange which has to continue to function to make vast production and trade networks viable. Without payment systems nothing functions.

Yet, as I will show, both types of hub interdependencies could conceivably fail. The smooth running of the energy system is dependent on ample supplies of cheaply available fossil fuels. However, there has been a rising cost of extracting and refining oil, gas and coal. Quite soon there is likely to be an absolute decline in their availability. To this should be added the climatic consequences of burning more carbon based fuels. To make the situation even worse, if the economy gets into diffculty because of rising energy costs then so too will the financial system – which can then has a knock-on consequence for the money system. The two hub interdependencies could break down together.

“Solutions” put forward by the techno optimists almost always assume growing complexity and new uses for energy with an increased energy cost. But this begs the question- because the problem is the growing cost of energy and its polluting and climate changing consequences.

The “Limits to Growth” study of 1972 – and its 40 year after evaluation

It was a view similar to this that underpinned the methodology of a famous study from the early 1970s. A group called the Club of Rome decided to commission a group of system scientists at the Massachusetts Institute of Technology to explore how far economic growth would continue to be possible. Their research used a series of computer model runs based on various scenarios of the future. It was published in 1972 and produced an instant storm. Most economists were up in arms that their shibboleth, economic growth, had been challenged. (Meadows, Meadows, Randers, & BehrensIII, 1972)

This was because its message was that growth could continue for some time by running down “natural capital” (depletion) and degrading “ecological system services” (pollution) but that it could not go on forever. An analogy would be spending more than one earns. This is possible as long as one has savings to run down, or by running up debts payable in the future. However, a day of reckoning inevitably occurs. The MIT scientists ran a number of computer generated scenarios of the future including a “business as usual” projection, called the “standard run” which hit a global crisis in 2030.

It is now over 40 years since the original Limits to Growth study was published so it is legitimate to compare what was predicted in 1972 against what actually happened. This has now been done twice by Graham Turner who works at the Australian Commonwealth Scientific and Industrial Research Organisation (CSIRO). Turner did this with data for the rst 30 years and then for 40 years of data. His conclusion is as follows:

The Limits to Growth standard run scenario produced 40 years ago continues to align well with historical data that has been updated in this paper following a 30-year comparison by the author. The scenario results in collapse of the global economy and environment and subsequently, the population. Although the modelled fall in population occurs after about 2030 – with death rates reversing contemporary trends and rising from 2020 onward – the general onset of collapse first appears at about 2015 when per capita industrial output begins a sharp decline. (Turner, 2012)

So what brings about the collapse? In the Limits to Growth model there are essentially two kinds of limiting restraints. On the one hand, limitations on resource inputs (materials and energy). On the other hand, waste/pollution restraints which degrade the ecological system and human society (particularly climate change).

Turner finds that, so far it, is the former rather than the latter that is the more important. What happens is that, as resources like fossil fuels deplete, they become more expensive to extract. More industrial output has to be set aside for the extraction process and less industrial output is available for other purposes.

With signficant capital subsequently going into resource extraction, there is insufficient available to fully replace degrading capital within the industrial sector itself. Consequently, despite heightened industrial activity attempting to satisfy multiple demands from all sectors and the population, actual industrial output per capita begins to fall precipitously, from about 2015, while pollution from the industrial activity continues to grow. The reduction of inputs to agriculture from industry, combined with pollution impacts on agricultural land, leads to a fall in agricultural yields and food produced per capita. Similarly, services (e.g., health and education) are not maintained due to insufficient capital and inputs.

Diminishing per capita supply of services and food cause a rise in the death rate from about 2020(and somewhat lower rise in the birth rate, due to reduced birth control options). The global population therefore falls, at about half a billion per decade, starting at about 2030. Following the collapse, the output of the World3 model for the standard run ( figure 1 to figure 3) shows that average living standards for the aggregate population (material wealth, food and services per capita) resemble those of the early 20th century. (Turner, 2012, p. 121)

Energy Return on Energy Invested

A similar analysis has been made by Hall and Klitgaard. They argue that to run a modern society it is necessary that the energy return on energy invested must be at least 15 to 1. To understand why this should be so consider the following diagram from a lecture by Hall. (Hall, 2012)

eroei

The diagram illustrates the idea of the energy return on energy invested. For every 100 Mega Joules of energy tapped in an oil flow from a well, 10 MJ are needed to tap the well, leaving 90 MJ. A narrow measure of energy returned on energy invested at the wellhead in this example would therefore be 100 to 10 or 10 to 1.

However, to get a fuller picture we have to extend this kind of analysis. Of the net energy at the wellhead, 90 MJ, some energy has to be used to refine the oil and produce the by-products, leaving only 63 MJ.

Then, to transport the refined product to its point of use takes another 5 MJ leaving 58MJ. But of course, the infrastructure of roads and transport also requires energy for construction and maintenance before any of the refined oil can be used to power a vehicle to go from A to B. By this final stage there is only 20.5 MJ of the original 100MJ left.

We now have to take into account that depletion means that, at well heads around the world, the energy to produce energy is increasing. It takes energy to prospect for oil and gas and if the wells are smaller and more difficult to tap because, for example, they are out at sea under a huge amount of rock. Then it will take more energy to get the oil out in the first place.

So, instead of requiring 10MJ to produce the 100 MJ, let us imagine that it now takes 20 MJ. At the other end of the chain there would thus, only be 10.5MJ – a dramatic reduction in petroleum available to society.

The concept of Energy Return on Energy Invested is a ratio in physical quantities and it helps us to understand the flaw in neoclassical economic reasoning that draws on the idea of “the invisible hand” and the price mechanism. In simplistic economic thinking, markets should have no problems coping with depletion because a depleting resource will become more expensive. As its price rises, so the argument goes, the search for new sources of energy and substitutes will be incentivised while people and companies will adapt their purchases to rising prices. For example, if it is the price of energy that is rising then this will incentivise greater energy efficiency. Basta! Problem solved…

Except the problem is not solved… there are two flaws in the reasoning. Firstly, if the price of energy rises then so too does the cost of extracting energy – because energy is needed to extract energy. There will be gas and oil wells in favourable locations which are relatively cheap to tap, and the rising energy price will mean that the companies that own these wells will make a lot of money. This is what economists call “rent”. However, there will be some wells that are “marginal” because the underlying geology and location are not so favourable. If energy prices rise at these locations then rising energy prices will also put up the energy costs of production. Indeed, when the energy returned on energy invested falls as low as 1 to 1, the increase in the costs of energy inputs will cancel out any gains in revenues from higher priced energy outputs. As is clear when the EROI is less than one, energy extraction will not be profitable at any price.

Secondly, energy prices cannot in any case rise beyond a certain point without crashing the economy. The market for energy is not like the market for cans of baked beans. Energy is necessary for virtually every activity in the economy, for all production and all services. The price of energy is a big deal – energy prices going up and down have a similar significance to interest rates going up or down. There are “macro-economic” consequences for the level of activity in the economy. Thus, in the words of one analyst, Chris Skrebowski, there is a rise in the price of oil, gas and coal at which:

the cost of incremental supply exceeds the price economies can pay without destroying growth at a given point in time. (Skrebowski, 2011)

This kind of analysis has been further developed by Steven Kopits of the Douglas-Westwood consultancy. In a lecture to the Columbia University Center on Global Energy Policy in February of 2014, he explained how conventional “legacy” oil production peaked in 2005 and has not increased since. All the increase in oil production since that date has been from unconventional sources like the Alberta Tar sands, from shale oil or natural gas liquids that are a by-product of shale gas production. This is despite a massive increase in investment by the oil industry that has not yielded any increase in “conventional oil” production but has merely served to slow what would otherwise have been a faster decline.

More specifically, the total spend on upstream oil and gas exploration and production from 2005 to 2013 was $4 trillion. Of that amount, $3.5 trillion was spent on the “legacy” oil and gas system. This is a sum of money equal to the GDP of Germany. Despite all that investment in conventional oil production, it fell by 1 million barrels a day. By way of comparison, investment of $1.5 trillion between 1998 and 2005 yielded an increase in oil production of 8.6 million barrels a day.

Further to this, unfortunately for the oil industry, it has not been possible for oil prices to rise high enough to cover the increasing capital expenditure and operating costs. This is because high oil prices lead to recessionary conditions and slow or no growth in the economy. Because prices are not rising fast enough and costs are increasing, the costs of the independent oil majors are rising at 2 to 3% a year more than their revenues. Overall profitability is falling and some oil majors have had to borrow and sell assets to pay dividends. The next stage in this crisis has then been that investment projects are being cancelled – which suggests that oil production will soon begin to fall more rapidly.

The situation can be understood by reference to the nursery story of Goldilocks and the Three Bears. Goldilocks tries three kinds of porridge – some that is too hot, some that is too cold and some where the temperature is somewhere in the middle and therefore just right. The working assumption of mainstream economists is that there is an oil price that is not too high to undermine economic growth but also not too low so that the oil companies cannot cover their extraction costs – a price that is just right. The problem is that the Goldilocks situation no longer describes what is happening. Another story provides a better metaphor – that story is “Catch 22”. According to Kopits, the vast majority of the publically quoted oil majors require oil prices of over $100 a barrel to achieve positive cash flow and nearly a half need more than $120 a barrel.

But it is these oil prices that drag down the economies of the OECD economies. For several years, however, there have been some countries that have been able to afford the higher prices. The countries that have coped with the high energy prices best are the so called “emerging non OECD countries” and above all China. China has been bidding away an increasing part of the oil production and continuing to grow while higher energy prices have led to stagnation in the OECD economies. (Kopits, 2014)

Since the oil price is never “just right” it follows that it must oscillate between a price that is too high for macro-economic stability or too low to make it a paying proposition for high cost producers of oil (or gas) to invest in expanding production. In late 2014 we can see this drama at work. The faltering global economy has a lower demand for oil but OPEC, under the leadership of Saudi Arabia, have decided not to reduce oil production in order to keep oil prices from falling. On the contrary they want prices to fall. This is because they want to drive US shale oil and gas producers out of business.

The shale industry is described elsewhere in this book – suffice it here to refer to the claim of many commentators that the shale oil and gas boom in the United States is a bubble. A lot of money borrowed from Wall Street has been invested in the industry in anticipation of high profits but given the speed at which wells deplete it is doubtful whether many of the companies will be able to cover their debts. What has been possible so far has been largely because quantitative easing means capital for this industry has been made available with very low interest rates. There is a range of extraction production costs for different oil and gas wells and fields depending on the differing geology in different places. In some “sweet spots” the yield compared to cost is high but in a large number of cases the costs of production have been high and it is being said that it will be impossible to make money at the price to which oil has fallen ($65 in late 2014). This in turn could mean that companies funding their operations with junk bonds could find it difficult to service their debt. If interest rates rise the difficulty would become greater. Because the shale oil and gas sector has been so crucial to expansion in the USA then a large number of bankruptcies could have wider repercussions throughout the wider US and world economy.

Renewable Energy systems to the rescue?

Although it seems obvious that the depletion of fossil fuels can and should lead to the expansion of renewable energy systems like wind and solar power, we should beware of believing that renewable energy systems are a panacea that can rescue consumer society and its continued growth path. A very similar net energy analysis can, and ought to be done for the potential of renewable energy to match that already done for fossil fuels.

eroei-renewables

Before we get over-enthusiastic about the potential for renewable energy, we have to be aware of the need to subtract the energy costs particular to renewable energy systems from the gross energy that renewable energy systems generate. Not only must energy be used to manufacture and install the wind turbines, the solar panels and so on, but for a renewable based economy to be able to function, it must also devote energy to the creation of energy storage. This would allow for the fact that, when the wind and the sun are generating energy, is not necessarily the time when it is wanted.

Furthermore, the places where, for example, solar and wind potential are at this best – offshore for wind or in deserts without dust storms near the equator for solar – are usually a long distance from centres of use. Once again, a great deal of energy, materials and money must be spent getting the energy from where it is generated to where it will be used. For example, the “Energie Wende” (Energy Transformation) in Germany is involving huge effort, financial and energy costs, creating a transmission corridor to carry electricity from North Sea wind turbines down to Bavaria where the demand is greatest. Similarly, plans to develop concentrated solar power in North Africa for use in northern Europe which, if they ever come to anything, will require major investments in energy transmission. A further issue, connected to the requirement for energy storage, is the need for energy carriers which are not based on electricity. As before, conversions to put a current energy flux into a stored form, involve an energy cost.

Just as with fossil fuels, sources of renewable energy are of variable yield depending on local conditions: offshore wind is better than onshore for wind speed and wind reliability; there is more solar energy nearer the equator; some areas have less cloud cover; wave energy on the Atlantic coasts of the UK are much better than on other coastlines like those of the Irish Sea or North Sea. If we make a Ricardian assumption that best net yielding resources are developed first, then subsequent yields will be progressively inferior. In more conventional jargon – just as there are diminishing returns for fossil energy as fossil energy resources deplete, so there will eventually be diminishing returns for renewable energy systems. No doubt new technologies will partly buck this trend but the trend is there nonetheless. It is for reasons such as these that some energy experts are sceptical about the global potential of renewable energy to meet the energy demand of a growing economy. For example, two Australian academics at Monash University argue that world energy demand would grow to 1,000 EJ (EJ = 10 18 J) or more by 2050 if growth continued on the course of recent decades. Their analysis then looks at each renewable energy resource in turn, bearing in mind the energy costs of developing wind, solar, hydropower, biomass etc., taking into account diminishing returns, and bearing in mind too that climate change may limit the potential of renewable energy. (For example, river flow rates may change affecting hydropower). Their conclusion: “We nd that when the energy costs of energy are considered, it is unlikely that renewable energy can provide anywhere near a 1000 EJ by 2050.” (Moriarty & Honnery, 2012)

Now let’s put these insights back into a bigger picture of the future of the economy. In a presentation to the All Party Parliamentary Group on Peak Oil and Gas, Charles Hall showed a number of diagrams to express the consequences of depletion and rising energy costs of energy. I have taken just two of these diagrams here – comparing 1970 with what might be the case in 2030. (Hall C. , 2012) What they show is how the economy produces different sorts of stuff. Some of the production is consumer goods, either staples (essentials) or discretionary (luxury) goods. The rest of production is devoted to goods that are used in production i.e. investment goods in the form of machinery, equipment, buildings, roads, infrastracture and their maintenance. Some of these investment goods must take the form of energy acquisition equipment. As a society runs up against energy depletion and other problems, more and more production must go into energy acquisition, infrastructure and maintenance. Less and less is available for consumption, and particularly for discretionary consumption.

hall

Whether the economy would evolve in this way can be questioned. As we have seen, the increasing needs of the oil and gas sector implies a transfer of resources from elsewhere through rising prices. However, the rest of the economy cannot actually pay this extra without crashing. That is what the above diagrams show – a transfer of resources from discretionary consumption to investment in energy infrastructure. But such a transfer would be crushing for the other sectors and their decline would likely drag down the whole economy.

Over the last few years, central banks have had a policy of quantitative easing to try to keep interest rates low. The economy cannot pay high energy prices AND high interest rates so, in effect, the policy has been to try to bring down interest rates as low as possible to counter the stagnation. However, this has not really created production growth, it has instead created a succession of asset price bubbles. The underlying trend continues to be one of stagnation, decline and crisis and it will get a lot worse when oil production starts to fall more rapidly as a result of investment cut backs. The severity of the recessions may be variable in different countries because competitive strength in this model goes to those countries where energy is used most efficiently and which can afford to pay somewhat higher prices for energy. Such countries are likely to do better but will not escape the general decline if they stay wedded to the conventional growth model. Whatever the variability, this is still a dead end and, at some point, people will see that entirely different ways of thinking about economy and ecology are needed – unless they get drawn into conflicts and wars over energy by psychopathic policy idiots. There is no way out of the Catch 22 within the growth economy model. That’s why degrowth is needed.

Further ideas can be extrapolated from Hall’s way of presenting the end of the road for the growth economy. The only real option as a source for extra resources to be ploughed into changing the energy sector is from what Hall calls “discretionary consumption” aka luxury consumption. It would not be possible to take from “staples” without undermining the ability of ordinary people to survive day to day. Implicit here is a social justice agenda for the post growth – post carbon economy. Transferring resources out of the luxury consumption of the rich is a necessary part of the process of finding the wherewithal for energy conservation work and for developing renewable energy resources. These will be expensive and the resources cannot come from anywhere else than out of the consumption of the rich. It should be remembered too that the problems of depletion do not just apply to fossil energy extraction coal, oil and gas) but apply across all forms of mineral extraction. All minerals are depleted by use and that means the grade or ore declines over time. Projecting the consequences into the future ought to frighten the growth enthusiasts. To take in how industrial production can hit a brick wall of steeply rising costs, consider the following graph which shows the declining quality of ore grades mined in Australia.

mining-australia

As ores deplete there is a deterioration of ore grades. That means that more rock has to be shifted and processed to refine and extract the desired raw material, requiring more energy and leaving more wastes. This is occurring in parallel to the depletion in energy sources which means that more energy has to be used to extract a given quantity of energy and therefore, in turn, to extract from a given quantity of ore. Thus, the energy requirements to extract energy are rising at the very same time as the amount of energy required to extract given quantities of minerals are rising. More energy is needed just at the time that energy is itself becoming more expensive.

Now, on top of that, add to the picture the growing demand for minerals and materials if the economy is to grow.

At least there has been a recognition and acknowledgement in recent years that environmental problems exist. The problem is now somewhat different – the problem is the incredibly naive faith that markets and technology can solve all problems and keep on going. The main criticism of the limits to growth study was the claim that problems would be anticipated in forward markets and would then be made the subject of high tech innovation. In the next chapter, the destructive effects of these innovations is examined in more depth.

The Future Monetary Ecosystem

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Published on FEASTA on June 8, 2017

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Over the next generation or two, there will be increasingly visible turf wars between money-suppliers with four very different motivations. It’s not really a fair fight, but it isn’t as one-sided as it used to be.

The spoils

The general term for the benefit associated with the issuance of a currency is seigniorage. Historically, the term has been associated with the profit made by a government from issuing currency, especially the difference between the face value of coins and their production costs. At the risk of outraging pedants we can use the term more broadly to include a wide range of benefits accruing to the issuer.

The spoils may be in the form of direct financial benefit (like the interest charged on credit-money created ex-nihilo). Or they may be indirect, in the form of influence that can in due course be traded or cashed-in (for example preferentially allocating credit to favoured partners).

There is, however, a further dimension. Money congeals as wealth. The location of wealth signals the ‘revealed preferences’ of the underlying money-system. Sure, there’s luck, inheritance and sometimes energy, enterprise and hard work. But mainly there’s the money system.

The motivations

a) OneWorld. The cherished belief of a certain section of the international elites that governance is best left to those who know best (i.e. them), and that societal and economic diversity is somewhat of a nuisance, entailing the never-ending energy-sapping suppression of a series of hare-brained ‘alternatives’. If this seems like a conspiracy-too-far for you, feel free to skip this section but remember that just because you’re paranoid doesn’t mean you aren’t being persecuted.

This direction of travel can be portrayed as a natural extension of monetary scope – if money is ideally a universal lubricant of exchange, then the more universal the better. Focal points for monitoring progress of this ideation are: Bilderberg, the future of the euro, and (most importantly) the evolution of the SDR (Special Drawing Rights) [1,2], the IMF’s ‘international reserve asset‘.

b) National Sovereignty. The nation state is the traditional home of the fiat currency, and indeed gives those currencies their primary raison d’etre – the compulsory requirement to pay your taxes in them. Unfortunately national governments have had a well-documented history of abusing their money-issuance privilege – usually via the simple expedient of issuing tons of it before elections to create a feel-good effect; occasionally in more subtle ways.

The current arrangement of outsourcing money-as-credit creation to the banks is at the subtle end of the spectrum (see The Bank-State Bargain [3]). It obviates the need for governments to have to bother much with real national strategies (typically characterised as ‘picking winners’ rather than ‘sustaining the planet for future generations’). They can concentrate on tinkering.

It’s not quite as attractive as printing money and putting it straight into your own account, but the revolving doors arrrangement ensures that political apprenticeships can often be traded for corporate gravy. Put it into your mates’ accounts and wait for payback. The arrangement is underpinned by a sense of inmpotence as national governments race to the bottom (regulation, tax) in response to corporate threats of absenting themselves. TINA.

But this gradual diminution of sovereign influence does beg the question – can’t corporations do the money thing themselves and cut out the sovereign middle man.

c) Private Money. As is often said, anyone can create money – the problem is getting it accepted as payment. Private entities cannot coerce quite like a government, but they increasingly have huge market power that can be brought to bear if they think they can profit from operating a currency. They can use this power to construct unique value propositions. And are likely to do so.

The potential for the likes of Amazon, Facebook, Apple and Google to operate their own currencies has been given a boost by the cryptocurrency phenomenon. All are already actively looking at payment systems and it seems likely that the next generation competition for commercial banks will come primarily from out of sector. The crypto-angle has opened up the possibility of currencies that cannot easily be closed down by the state, as many of the successful alternative currrencies of the 1930s eventually were. Of course private for profit currencies are unlikely to make use of the fully distributed consensus model of Bitcoin, being more interested in permissioned blockchains with the gatekeepers being – yes Google, Facebook, Apple or Amazon. But the possibilities of the blockchain are encouraging disruptive thinking.

One starting point for initiatives in this area is Hayek’s writing on the denationalisation of money [4]. Hayek generally thought that competition was the answer to everything, and he saw money as no exception. He thought monetary policy to be ‘neither desirable nor possible’, and identified government as the major source of economic instability. And while his writing predates our current over-financialised economy, he certainly anticipated the ‘parasitic’ secondary activities that could attach themselves to a monetary monopoly and saw competing currencies as a solution to that.

So while Hayek’s for-profit currencies generally come from a very different political place than value-based Intentional Currencies [5] and today’s complementary currencies, they share the core belief that ‘A money deliberately controlled in supply by an agency whose self-interest forced it to satisfy the wishes of the users might be best.’

d) Peer-controlled money. It is difficult to title this section. The vision is similar to Hayek’s but the ‘wishes of the users’ are determined in a co-operative way and the money is controlled not by a for-profit ‘agency’ but by the users themselves through various forms of co-operative institutions and governance mechanisms (including platform co-ops). I have previously expressed dissatisfaction with the adjectives ‘alternative’, ‘complementary’ and ‘community’; and ‘intentional’ can include a for-profit motive if objectives are explicitly set out, as can ‘value-based’. It can be argued that this form of money is the purest because it is directly controlled by its users; by the people who give the currency value by accepting it in exchange.

The Battleground

We can indulge the late Mr Hayek a bit further by exploring the competitive landscape, both between and within currency models . If we plot on a matrix the reaction of an *established* money-type to an *emerging* (or re-emerging) money-type we can surface a wide range of conflictual issues, including the regulation of private currencies (b/c),acceptable units of account for national taxation (c/b), national debt slavery as political influence (a/b) and the use of currencies as weapons in financial wars (b/b). Interesting stuff but far too much for a short article.

What follows therefore is a summary of two key battleground issues affecting peer-controlled money, (which is a category of special interest to Feasta).

The Ultimate Potential of Shared Value (c/d)

The core idea behind Intentional Currencies [5] is that the value-set shared by the relevant user community should be made explicit and will act as a cohesive force as a currency and its governance institutions develop side by side. However experience with intentional communities in general leads us to be a little cautious not to overstate the power of this idea. All too often communities that on the face of it have strong shared values can fracture and fragment because of personality clashes and power trips. Against this background the ‘honest profit’ metric has its attractions, (as has hierarchical decision-making). Profit is a hard verifiable metric, reassuringly value-free. From this perspective old money provides a service for us – it enables economic interaction with people we dont want to break bread with. It absolves us from social interactions.

Thus if this group of money-systems is to scale and replicate sufficiently to become a central progressive economic and societal force, the evolution of thinking around shared value is a critical success factor. Somehow it has to translate integral fellow-feeling into pragmatic mechanisms for exchange and do so authoritatively but in a co-operative fashion.

Selectivity vs Universality (b/d)

A related issue is that the restricted scope of a value-led currency – the potential preferencing of certain transactions – prejudices the variety of the portfolio of goods and services that are available. The concepts of the Preferenced Domain [6] and the Deprecated Domain [7] are attempts to flesh out this line of thinking. It is possible there will need to be an Intermediate Domain where we are relatively neutral about some goods and services and want to find ways to include them to enrich the offering, but may not want to extend full community benefit to their providers.

Conclusions

Activists in the Peer-Controlled currency space will generally welcome an increasing diversity in the developing monetary ecosystem. Thus the exchange of ideas about how value-led currencies can develop should in itself be a key factor in their progress.

There is certainly a window of opportunity. Decision makers in the higher reaches of international financial institutions will be more concerned with the power relationship with national currencies, so peer-controlled money will be somewhat off radar for while. An ‘offgrid money’ mindset may be helpful. But the same window is open for private for-profit moneys, and multinationals are already fluent in international finance.

One factor working to close the window is the increasing appreciation of the significance of digital/ crypto currency which is already sensitising established international institutions to potentially disruptive developments. Whether more democratic user-controlled currencies can establish a secure foothold before they are re-challenged by a new breed of national/ international digital moneys remains to be seen. No doubt many of the ICOs [8] coming to market now will turn out to be Ponzi schemes, but some are already seeking to differentiate themselves via value-statements (as opposed to get-rich-quick statements) and there may well be one or two that show us the shape of the peer-controlled currencies of the future.

References

[1]: IMF Factsheet: Special Drawing Rights (SDR)
http://www.imf.org/external/np/exr/facts/sdr.htm
[2]: One World, One Bank, One Currency : Jim Rickards on the SDR
https://dailyreckoning.com/one-world-one-bank-one-currency/
[3]: The Bank-State Bargain : Graham Barnes. How commercial banks facilitate deniability, debt-peonage-management and financial warmongering in return for massive anti-capitalist subsidies.
http://www.zerohedge.com/news/2015-04-05/bank-state-bargain-breaking-basic-rules-capitalism
[4]: Denationalisation of Money: The Argument Refined. An Analysis of the Theory and Practice of Concurrent Currencies. F.A Hayek published by IEA in 1990 and reissued by The Mises Institute 2009
[5] Intentional Currencies : Graham Barnes
http://www.resilience.org/tag/intentionalcurrencies/
& Designing an Intentional Currency : Graham Barnes
http://www.feasta.org/2016/07/13/designing-an-intentional-currency/
[6] Designer Currencies and the Preferenced Domain : Graham Barnes
http://www.feasta.org/2013/11/19/designer-currencies-and-the-preferenced-domain/
[7] The Deprecated Domain: the pros and cons of designed exclusion : Graham Barnes
http://www.feasta.org/2014/07/10/the-deprecated-domain-the-pros-and-cons-of-designed-exclusion/
[8] Initial Coin Offerings
https://en.wikipedia.org/wiki/Initial_coin_offering

 

 

Economists as Priesthood

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Published on Credo Economics on May 22, 2017

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Economists as priesthood – a religion based on assumptions

Some of the ridiculous assumptions on which much of mainstream economics is constructed are explored in this chapter – for example the methodology that stresses individual decision- making, the assumption that decision-makers have the information that they need, the assumption of honesty, the default assumption of competition. (TEXT BOX: Labour market competition as an alternative to corporal punishment according to Hayek).

Today’s leading economic textbook writer, Greg Mankiw, has compared non-economists to “mere Muggles”, the ordinary people without magical powers described in the Harry Potter novels. His implication is that economists are “wizards”. (Mankiw, 2008)

Perhaps they are. However, people with magical abilities are not always to be trusted.

the conjuror - school of Hieronymous Bosch c1550 Public Domain image Wikimedia commons
the conjuror – school of Hieronymous Bosch c1550 Public Domain image Wikimedia commons

The ideas of the economists are important because they frame the way we understand the world, sometimes distracting us from understanding and living in the world in other ways. e economists claim that they describe the world as it is, rather than describing it as it should be, but there is an entire value system implicit in economics. It is implicit in their de nition of what it is to be “rational”. Implicitly, economists are making a truth claim about how human beings are, what makes them tick.

Unaware of the criticism of their model of rationality (or ignoring the criticism) it seems reasonable to economists to theorise human beings as if they act in a predictable way. Calculating their individual self-interest to maximise their utility and then acting accordingly. This makes possible a deterministic view of human action that allows economists to model markets as fundamentally positive social institutions which can solve virtually all problems.
In actual fact, economists are there as advocates for a particular kind of value system. They are not unlike priests whose job it is to argue that their beliefs should be guiding principles for life.

Some economists are well aware of this. Robert Nelson describes debates about economics as having a “theological character“. He worked as an economist in the US Department of the Interior with responsibility for the upkeep of national parks and landscapes in the USA:

If economists had any influence—which they sometimes did, if rarely decisive—it was seldom as literal “problem solvers”. Rather, the greatest influence of economists came through their defence of a set of values. Much of my own and other efforts of Interior (Ministry) economists were really to persuade others in the department to act in accordance with the economic value system, as compared with other competing priorities and sets of values also represented within the ranks of the department. (Nelson R. H., 2001, p. xiv)

Ridiculous assumptions

In other sciences ideas evolve by testing hypotheses against the facts. In economics what mostly happens is that simple models are created which have this kind of form:

Assuming human beings behave in a particular kind of way e.g. as consumers seeking to maximise their level of satisfaction through purchasing

And assuming their behaviour takes place in a particular set of conditions e.g. they are fully aware of all their consumption options available with their purchasing power

Then faced with a particular change in conditions it is possible to state how they will adapt, as well as to quantify this adaptation e.g. faced with a price change they will change how much that they buy by so much

This appears to be an exercise in logic rather like this – All men are mortal, Socrates is a man, therefore Socrates is mortal. The premises of this argument are things asserted to be true which in this case are that “all men are mortal” and that “Socrates is a man”. The conclusion that follows automatically is that Socrates is mortal. This conclusion does not really add any new information to the premises that have been proposed, it only draws out the consequence. In a sense, the conclusion is already contained in the premises.

In an apparently similar way the conclusions of economics follow from the starting points of their modelling analyses. However, the starting points of economic models are not premises asserted to be true but assumptions. These assumptions do not have a truth value status based on evidence but, on first impressions, appear to be plausible. (Bardsley, Cubitt, Loomes, Mo at, Starmer, & Sugden, 2010, p. Chtp5)

If many people do not realise that this is a fraud, it is partly because the mathematics, the symbols and the diagrams with which the models are expressed enable economists to distance themselves from ordinary people. Rather in the manner that speaking Latin enabled priests to put themselves above the common people.

Consider this proposition:

If Socrates is assumed to be a woman, and if all women are assumed to live forever, then it can be assumed that Socrates will be immortal.

It is obvious what is wrong with this proposition. Nevertheless, the falsity of economic propositions are not always so obvious. This is partly because some of the assumptions have a superficial plausibility and sometimes because the assumptions remain implicit, unstated and unexamined. The most important point here, however, is that there is no evidence for these assumptions. Read any economic textbook and you will find it rich in numerical examples that were made up by the author. They are neither taken from real life nor based on evidence. This is an ideal basis for a self-serving ideology in which this kind of “logic” can prove anything that is wanted according to the starting assumptions. Economics like this is not falsifiable because evidence is implicitly deemed to be unnecessary in the first place.

If you assume no problems at the start of the theory you will conclude that the economic world works without problems. For example, if, as was the case for many years, you assume that there are no problems in getting the information that you need to take economic decisions, then all the uncertainties, the dishonesty, the misinterpretation and the errors that take place in the real world disappear from the theory. The conclusions of models that do not draw on real world evidence are only as accurate as the assumptions they start with – no more and no less. A good deal of textbook economics is a description of what economists assume the world is like.

Even worse, the construction of models based on assumptions enables the imagination of a world akin to the one that Dr Pangloss believes he lives in. He is the character in Voltaire’s satire, Candide, who at every misfortune reassures everyone that all is for the best in the best of all possible worlds. Nothing will go wrong in the world of the mainstream economists because growth, technology, innovation, markets and entrepreneurial zeal together have the mechanisms for fixing all problems for ever. The message is perpetually upbeat and reassuring – which it can be when you construct a model of the world with assumptions that don’t include the problems.

Thus, markets are “efficient” and welfare outcomes are “optimal” when the starting assumptions contain none of the real life issues that would make them otherwise. In order to arrive at these optimal and efficient outcomes what is needed above all is “competition”. This is another very handy conclusion. It enables neoclassical economists to convince themselves and successive generations of students that, as long as the state minimises its involvement in markets, we live in this best of all possible worlds.

Competition is an idea which has many useful ideological functions. Instead of being a place of shambolic chaos, a competitive market is portrayed as having its own kind of order without a single big player – state or monopoly – needing to take all the decisions for overall coherence. With a set of assumptions that portrays this competitive market order as “optimal”, here is an argument that can be used as a default presumption against co-operation; against state regulations; against taxation; against trade union combination in the labour market. Competition is an idea that stands for general “freedom” from interference for powerful economic actors, against any limitation on their rights to act – and therefore for a general understanding of what “freedom” means for everyone else in society too. It can be used by those who are the strongest to prevent support for weakest, and generally in a self-celebratory way praising “success” as the result of “efficiency”.

But let’s look at some of the most common assumptions that underpin the key idea.

Methodological individualism

To take the first issue – in the textbooks, markets are places where there are lots of actors and, to get
a collective picture of what happens, you simply add up the actions of all the separate individuals. Of course, this does not rule out the idea that the separate individuals have previously influenced each other, but that is not what is explored. This is a version of what is called “methodological individualism” and there is no place in it for applying the insights of group psycho-dynamics. This is not because methodological individualists necessarily deny that the “preferences” that form people’s choices can be formed by social, interpersonal or community processes – it is rather because they take the “preferences” that give rise to choices as givens. They see themselves as modelling rational behaviour about what people will do with a pattern of preferences, a certain amount of purchasing power when faced with a set of prices. As economists, they are not concerned to delve further. In that sense, methodological individualism is a choice to ignore why people prefer and choose what they do. It is a choice to ignore and thus a choice to remain ignorant.

It is no wonder that, when criticising their teachers a few years ago, French economics students described neoclassical economics as “autistic”. Autism is a psychiatric disorder where a person is unable to recognise other people as people, as acting subjects. The autistic person is, thus, unable to form meaningful reciprocal relationships. Of course, in their private lives even neoclassical economists recognise that people act in groups in which they interact and have a reciprocal influence on each other – in families, in clubs, in associations, in societies, in crowds. A lot of what happens in markets is driven by crowd psychology. What is “fashion” if not a form of collective psychology? Arrangements made by producers try to influence and steer fashion processes which are only partly under their control.

When I go into supermarkets or department stores at the weekend it is full of families who are taking group decisions about purchasing. At other times, there are mothers who are taking decisions for partners and children. But that is not what most of the theories assume.

Ignoring ignorance – the myth of perfect information vs the thinking of the herd

Let’s look at another assumption. It is only in the last few decades that a new approach of “information economics” has evolved out of the recognition that access to information is crucial to decisions and market outcomes. Many of the textbooks from which today’s elite were taught assumed that markets had all the information that market actors needed. Indeed, some of the more elaborate models that “proved” the superiority of markets to allocate resources assumed that market actors had god like powers because they could make accurate assessments of the future too.

In fact the market is almost always shot through with a lack of information and/or information asymmetry. Perhaps in the world of Adam Smith’s small town butcher, baker and brewer, people could pick up gossip about their suppliers and even know them personally. But how does information work in a global market? How does it work with products made out of hundreds of components made out of hundreds of materials supplied by global supply chains? How does this work with meat products in the freezers of supermarkets? People buy what they think are beef products and are dependent on public health authorities to discover that they have been eating horse meat.

A very powerful reason why people have so much influence on each other lies in the absence of information and the uncertainty in which many economic decisions are taken. When you don’t know, you ask and/or you take your cues from other people.

Margaret Thatcher once famously said that “there is no such thing as society” which is one of those monumentally stupid things that powerful people can say and get away with because they are surrounded by sycophants. A very powerful person like Thatcher could doubt the existence of society because she had little need for the ideas and inluence of other people as she would have known that she was always right. By contrast mere mortals are influenced by others because we live in a world of uncertainty and inadequate information. Allowing ourselves to be in uenced by what others are doing and saying is a rough and ready way of coping with the information that we lack. Thus, we come to be influenced and swayed by social trends.

One cannot possibly understand the mentality of what are called “bubbles” in asset markets and speculation, except through collective psychology. Whether and how much of a commodity, or an asset, is purchased depends powerfully not just on current prices but on what people expect will happen to prices in the future. When they try to gure out what is likely to happen to future market valuations, perhaps the most powerful in uence of all is what other people are saying and thinking. Anyone who reads a newspaper like the Financial Times will be struck by the way it is full of reports which convey to the readers what the “market sentiment” is, that is, what others think will happen.
Up to a point, movements in market sentiment are exercises in self-ful lling prophecy. If a rise in price is taken to be indicative of an ongoing trend, which will lead to even higher prices later, then many traders will follow each other and be tempted to buy more now, before prices go higher. Possibly also to make money in the “rising market”. Perhaps speculators imagine that they can sell what they buy now on a rising price for an even higher price later. We have already seen how speculation drove up rising grain prices in the famines of India, taking food out of the mouths of the poor even in areas of good harvests.

Honesty and Dishonesty

Other, sharper, market actors seek to play these movements in a devious fashion. is brings us to
the third of our assumptions about why competitive markets deliver wonderful outcomes. It assumes that market players are honest when a lot are not. If people are only motivated by individualistically calculated self-interest why should they not resort to fraud and opportunism, to secrecy and misleading accounts of product quality?

This kind of duplicity affects what happens during speculative manias. For example, if you know that the shares of a company are going to lose value because you have insider information that a company or an industry is heading towards a big loss, if you have no commitment to the company or the industry, and if you no scruples, you will want to sell the shares at a high price before the truth gets out. So you might launch a PR campaign to hype the company or industry that you know is heading for a loss. at way you seek to create a rising market in order to offload your otherwise worthless shares on the people who get taken in. The game being played is to let other suckers take the losses.

That happened at the end of the subprime boom where bank traders sold what they referred to privately as “toxic waste” to unsuspecting customers as if these assets were of real value. A similar thing is happening at the time of writing in the gas fracking industry. All over the world, articles are appearing about the incredible potential for gas fracking. Meanwhile, industry insiders are pointing out the rapid depletion of the wells, the number of wells that come up dry and the high cost of drilling. If you believe the former narrative you put up money to enter the industry – and allow the insiders in the know to get out.

So here you have it. If we assume that most actors do not know what it going on and are able to influence each other, along with insiders who do have the best information acting as crooks trying to mislead and defraud other people, this gives us a far better fit for understanding what actually happens in markets. Instead, we have models which assume the reverse and this is what is taught to students.

Perfect competition

To be fair, neoclassical economists do get rather cross when businesses seek to accumulate monopoly power. is is paradoxical because competitive success leads to the weaker companies being driven out and/or taken over by the stronger ones thereby accumulating more monopoly power. Without competition the bracing Darwinist struggle between businesses does not deliver the benefits advertised in the textbooks, such as, cheaper products for all of us. For that reason some capitalist countries have “competition” policies and police against secret agreements between companies that “restrain trade” in favour of higher prices at the consumer’s expense. However, a closer examination of some of these policies often reveals that the intended result is the opposite of the stated one. As already mentioned, the ideology of competition through free trade is intended to clear the field for those companies in those countries that are already in the globally dominant position. It is about preventing competition emerging in the first place and consolidating global dominance. Throughout economic history the ideology of competition has been used to open up markets to the strongest market players and enable them to accumulate further market power. These are the players who will be most influential in political lobbying in the corridors of power. These are the very private sector players who will be influential in university departments of economics.


 

 

 

 

 

Text Box– Labour market competition as an alternative to corporal Punishment according to Hayek

Where neoclassical economists can be expected to get indignant if competition is limited is in the labour market. If workers form trade unions to create for themselves a countervailing power over and against their employer then economists are rarely sympathetic and almost always take the side of employers. Not many infants are born because their parents decided to do their bit to supply the future labour market. However, that does not excuse these infants, when they grow up, from their duty to compete in the labour market for work and take the going price. When there is full employment, this gives employees far too much “market power” for “optimality”. As Hayek puts it
in his book The Road to Serfdom, without unemployment, managers lose their ability to discipline workers and take on or lay off workers according to their plans.

“… there should be a place from which workers can be drawn, and when a worker is fired he should vanish from the job and from the payroll. In the absence of a free reservoir discipline cannot be maintained without corporal punishment, as with slave labour.” Quoted in (Smith & Max-Neef, 2011, p. 35)

Note the verb “should”… at the beginning of most textbooks there are usually little homilies that say economists describe the world as it is and not as it should be – but that’s not for Hayek. The labour market needs an alternative for corporal punishment if the workers is to be managed as an input to be used and disposed of as required. Workers are a means to the ends of employers.

At the risk of going off on a tangent, I cannot help but wonder what Hayek would have said about this famous principle from the philosopher Kant:

“Act in such a way that you treat humanity, whether in your own person or in the person of any other, never merely as a means to an end, but always at the same time as an end.” (Kant & (Tr.)Ellington, 1993, p. 30)

I’ve already claimed that human relationships are not the strong point of economists – neoclassical or Austrian. Hayek’s requirement for some kind of discipline derives as a self-fulfilling imperative from the mind-set of employers who use people merely as means, for example, as “factory hands”. If you treat and regard people only as means to your end is it surprising that their commitment to those ends is less than enthusiastic? Why should they feel committed? People do not take well to being used without consideration. It has a cost to their self-esteem, although, if one has no choice, if one is “disciplined” by unemployment, one may have to do it.

When you look at the world using economic concepts you are looking at the world as “snakes in suits” see it. They don’t get this idea that “human resources” are actually people with feelings and emotions. They don’t get the idea that most people are happy to co-operate with each other if they are treated with respect and their feelings acknowledged. This why they need alternatives to corporal punishment to maintain discipline and so they opt for unemployment to “create competition”. (In Britain the snakes are then disconcerted when they get a group of people who become long term unemployed. Rather than resort to corporal punishment for this group they intend to resort to psychological torture – making this group do completely futile time-wasting things for their benefits, like looking for employment when there is none).


Garbage hidden in mathematical formulas

I digress from the topic of unrealistic assumptions made by neoclassical and Austrian economists… If you assume away the real world in your model then the model will deliver a picture of ideal allocation outcomes – on the blackboard. Because the conclusions are arrived at in very sophisticated mathematics “mere Muggles” don’t understand the fraud that the wizards have perpetrated.

What “the mere Muggles” understand… or think they do… is a simplified version of the ideas of the wizards, or parts of these ideas. If the economists are akin to a priesthood who are trained in the theological details, then the mass of the general public are like a congregation who stitch together a vaguer and partial patchwork quilt of ideas from what they read in the newspapers, hear on the news, or perhaps pick up in books or even in introductory courses in economics. The more general “congregation” does not know all the ne details but knows bits that they adapt to their lives and local circumstances. is is what Richard B. Norgaard calls “economism”:

The mix of popular, political and policy mythology as well as practical beliefs that help us understand and rationalise the economy and how we live in it. People share some of those beliefs globally; other beliefs people adapt to fit particular national and regional situation; while yet others serve particular groups, including economists. (Norgaard, 2009, p. 80)

As Norgaard expresses it – a half of the global population is deeply immersed in the global economic system and like fish trying to grasp the nature of water, each of these individuals, playing their specialised roles, seeks to some degree or other to understand the bigger system of which they are a part. As the economy has become the window on which they see the world they use economism as “a set of beliefs constituting a secular religion guiding the remnants of our modern hopes for human progress: material, moral and scientific.” (Norgaard, 2009, p. 79)

John Maynard Keynes was, I believe, saying much the same thing when he wrote that:

The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually slaves of some defunct economist. (Keynes 1936, p. XX)
What I am not saying here is that the priesthoods are supposed to have the correct version while the congregation more often have it wrong because of their simplifications and misunderstandings. It is more complicated than that. The mainstream theory always was “defunct” even in the form that is written out in difficult looking equations. You don’t need to understand the equations to understand that. You just need to examine the foundations of the subject. That said, the priesthood are a little more aware of the nuances in their theories.

Limits to Economic Growth

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Published on FEASTA on April 16, 2017

Discuss this article at the Economics Table inside the Diner

This lecture was presented at the University of Nottingham on April 4, 2017. Please click on the slides to enlarge them.

On April 3 in the Guardian there was an article about Christine Lagarde of the IMF concerned that the growth of productivity in many “developed countries” has been falling. There is a problem for the finance sector if growth falls away since additional income is needed for people to be able to service and repay their debts. Without growth the finance sector is destabilised and, indeed, it has been necessary to bring down interest rates to manage the situation.

But the problem is not only a practical one. Growth of production is central to the core ideology of the current economic system, to the idea of “development” and “progress”. It is central to the legitimacy of the people who run the global economy. Without it there is a legitimacy crisis.

 

Slide One

 

The idea of “progress” primarily emerged in what was called the European enlightenment of the 18th century and involved the idea that science and technology would enable the increase of material production and economic activity and it was this that made the “age of commerce” the highest point in human evolution. Basically technical progress and increased production was equivalent to moral progress because the chief problem facing humanity is want or “scarcity”.

 

The new heroes for humanity were now innovating entrepreneurs who risked money to back the production and marketing of machines that they had invented.

 

Slide Two

Graph by Krausman published by UNEP and available at: https://www.brookings.edu/blog/planetpolicy/2015/04/22/refocusing-earth-day-on-the-big-issues/

 

 

 

 

 

Graph by Krausman published by UNEP and available at:
https://www.brookings.edu/blog/planetpolicy/2015/04/22/refocusing-earth-day-on-the-big-issues/

 

 

 

 

 

At first production increased was not measured comprehensively. However from the post world war two period onwards it became the practice to keep national income accounts and to keep track of economic growth figures as the chief measure of “progress”.

Extraction. This form of development led to a massive increase in the volume and weight of materials extracted out of the planet – over time a greater proportion being construction materials, minerals and energy minerals.

Magnitude…. Recent research from the University of Leicester calculated the total mass of all the artifacts produced by human society – buildings, cars, computers – a large part of which is now rubble and waste in dumps. They found it to be 30 trillion tons. That represents a mass of more than 50 kilograms for every square metre of Earth’s surface.

By contrast, the total amount of living matter, including people, plants, animals, insects and bacteria is estimated to be around 4 trillion tons of carbon = about 9 trillion tons.

 

Slide Three

Source: Malcolm Slesser and Jane King Not by Money Alone. Economics as Nature Intended Jon Carpenter Publishing 2002

 

 

 

 

 

Source: Malcolm Slesser and Jane King Not by Money Alone. Economics as Nature Intended Jon Carpenter Publishing 2002

 

 

 

 

 

From the 19th century onwards artistic visions of the future saw it as being one in which lots of clever powered machines would become available to transport people and products, to produce goods and to generally make life easier. Indeed while text books of economics describe a world of land labour and capital – a different description would have been people using and guiding machines and infrastructures powered by a succession of energy carriers – coal, oil, gas, electricity.

 

Slide Four: Human output as a measuring rod – concept of energy slaves

One link to a collection of links and resources on the concept: http://energyskeptic.com/2014/energy-slaves/

 

 

 

 

 

One link to a collection of links and resources on the concept:
http://energyskeptic.com/2014/energy-slaves/

 

 

 

 

 

Energy slaves The result is a society dependent on ever increasing volumes of energy to power the machines and technical infrastructures. To put this in perspective we need some measurements and numbers. One way of measuring is by using the power capacity of the average human body as a unit of account. If we take an averagely healthy person and get them to peddle all day long on a peddle generator then they can, with their muscles, generate 3kWh a day – if they can stay awake for 24 hours. This would keep a light bulb lit all day.

The concept of energy slave was developed by Buckminster Fuller in the 1940s to describe how much human labour would be required to sustain a particular activity in the absence of fossil fuels. For example if would take 11 energy slaves to power a toaster. Thus since the average north american consumes 24 barrels of oil a year, and because a barrel of oil contains the energy equivalent of 8.6 years of human labour it would take 204 energy slaves to sustain an average US lifestyle and a 110 energy slaves to sustain an average Western European lifestyle.

Here’s another statistic to consider. If we were to try to power the (2012) internet with pedal-powered generators, each producing 70 watt of electric power, we would need 8.2 billion people pedalling in three shifts of eight hours for 365 days per year. (Electricity consumption of end-use devices is included in these numbers, so the pedallers can use their smartphones or laptops while on the job). 1,815 TWh equals three times the electricity supplied by all wind and solar energy plants in 2012, worldwide.”

 

Slide Five

 

The painting is by Lowry. On D H Lawrence: http://www.griseldaonline.it/temi/ecologia-dello-sguardo/lawrence-ecological-consciousness-pissarello.html

 

 

 

 

 

The painting is by Lowry.
On D H Lawrence:
http://www.griseldaonline.it/temi/ecologia-dello-sguardo/lawrence-ecological-consciousness-pissarello.html

 

 

 

 

 

Progress or a gilded index of ruin? Ideologists of right and left bought into the idea of progress as technological change but disagreed over issues of social justice, distribution and how and who should manage the process of change.

 

Nevertheless there were always some critics of industrialism itself and not everyone accepted the narrative that economic growth was per se some kind of moral good. For example 19th century thinks like John Stewart Mill saw the possibility that growth could become uneconomic, denied that bigger was necessarily better and foresaw a case for an eventual “steady state economy” while John Ruskin wrote about uneconomic growth as “A gilded index of far reaching ruin” and how increasing wealth often went together with what he called increasing “illth”. Artists and writers like D H Lawrence were appalled at the “tragedy of ugliness” brought about by industrialism.

Some critics later in the 20th century had another message. The challenged the very idea that growth would be able to continue – according to Kenneth Boulding – ‘Anyone who believes that exponential growth can go on forever in a finite world is either a madman or an economist.

 

Slide Six

The original book, The Limits to Growth, is available as a scanned document at: http://www.donellameadows.org/wp-content/userfiles/Limits-to-Growth-digital-scan-version.pdf Different model runs are on chapters 3 and 4 on different assumptions.

 

 

 

 

 

The original book, The Limits to Growth, is available as a scanned document at:
http://www.donellameadows.org/wp-content/userfiles/Limits-to-Growth-digital-scan-version.pdf
Different model runs are on chapters 3 and 4 on different assumptions.

 

 

 

 

 

Denied continued possibility of growth. In the early 1970s the famous Limits to Growth study was conducted by system scientists at the Massachusetts Institute of Technology under commission by a business group called the Club of Rome. The MIT group ran a computer model of the world economy in the world ecological system with basic variables being growing food and industrial output feeding a growing population. The growth of industrial production would however lead to increase pollution and wastes as well as to resource depletion. It would be these two processes that would feed back and eventually lead to a decline in both industrial and food production. Eventually the pollution and declining food and industrial production would lead to a increase in death rates and fall in birth rates.

Overshoot and collapse…. Unless anything was done there would be a period of overshoot and collapse. Production could grow at a rate that was unsustainable – that could not last, just as an individual or a company can spend more than its income by borrowing, by running down savings and by not fixing the roof – however that would lead, eventually to a collapse. So the global economy could grow at more than a sustainable rate but it would eventually lead to collapse.

Economists declare the study discredited. This study created fury among economists who declared the study discredited because, they argued, markets and technology would anticipate and solve any problems. But the LtG theorists had never denied that technological options were available and that alternative and substitute arrangements could be found. Their argument was that the alternative arrangements and technological options would themselves claim an increasing proportion of energy, material resources and time – in work-arounds and attempts at technical fixes. In the words of more recent authors there are technical alternatives but are they affordable in the context of keeping the rest of the economy going?

We will see that this is a serious problem for many purported solutions for ecological and environmental problems.

 

Slide Seven

The depletion diagram is of the Australian mining industry and used in my book Credo (Feasta Books 2015)

 

 

 

 

 

The depletion diagram is of the Australian mining industry and used in my book Credo (Feasta Books 2015)

 

 

 

 

 

So what is the evidence 45 years later? Let us look, first of all, at the dynamic of depletion. Resources are of different kinds – most biotic resources are renewable but they must not be taken at more than a sustainable rate. Trees that are cut down can regrow and fish that are taken out of the sea will breed – but not if the trees and fish are taken at too high a rate.

People who understand depletion rarely say resources are going to run out in any absolute sense – although biotic resources can be unsustainably harvested and drive species to extinction as is threated to various fish species.

With many mineral resources there is limited scope for any kind of renewal. They can often be re-used and recycled but that takes more energy and some of the resource will inevitably be lost. That means that with mineral resources what more normally happens is that lower and lower grade resources have to be used and this makes extraction more and more expensive. You can see this in the following chart of the grade of a variety of ores tapped in Australia.

Now the point is that if as is shown here, say with copper, the ore grade falls from a 25% to a 5% copper content then 5 times the energy has to be used to extract and smelt it – and it leaves 5 times the tailings. That becomes a problem if the cost of energy is high or if the economy cannot afford to pay more for the product.

 

Slide Eight

Depletion of Energy Minerals and Fracking – See my presentation to the Degrowth Conference, Budapest, September 2016 https://scriptum.degrowth.net/system/event_attachments/attachments/000/000/113/original/DegrowthandFrac king.pdf?1472027087

 

 

 

 

 

Depletion of Energy Minerals and Fracking – See my presentation to the Degrowth Conference, Budapest, September 2016
https://scriptum.degrowth.net/system/event_attachments/attachments/000/000/113/original/DegrowthandFrac king.pdf?1472027087

 

 

 

 

 

Fossil fuel depletion. This problem of having to use progressively inferior resources as depletion occurs is also especially true of fossil fuels because once they have been burned they cannot be re-cycled or re-used. Use of energy mineral resources involves an entropy change. The energy converted during use for human purposes is still there afterwards as heat but dissipated in the environment and no longer available for further use.

The depletion of non renewable energy resources makes it necessary to extract them from more sources that are more difficult, and expensive, to access. The greater resort to unconventional oil and gas – using fracking – is an example.

What you have in fracking or, more generally, the resort to so called “unconventional oil and gas” are technologies to extract fossil fuels from harder to access geological sources. When oil and gas is extracted from conventional wells it is being tapped from porous reservoir rock – the oil flows underground to the well and thus a single well can draw from a wide area. In unconventional wells the oil and gas is trapped in an impervious rock so it is necessary to create an artificial or engineered porosity. That involves a lot more use of energy, lot more work, a lot more wells, a lot more opportunity for accidents and things to go wrong and a lot more money cost too. Of course, the technology changes over time – with longer well lengths, bigger fracks and multi well pads. The fracking companies learn through experience. But this is still an expensive and limited resource that is resorted too because conventional wells are depleting.

That explains why unconventional gas is more expensive to extract and has struggled to make a profit. When oil and gas prices are low they do not cover these high costs and US oil and gas producers and many producers have made a loss. What keeps this show on the road is faith – belief that prices will recover and profits are possible

 

Slide Nine

Steffen et al “Planetary Boundaries” Science, Feb 2015 at: http://science.sciencemag.org/content/347/6223/1259855 Kevin Anderson “Duality in Climate Science” - about recognising unpalatable realities in climate science http://www.nature.com/ngeo/journal/v8/n12/full/ngeo2559.html Eriksen M et al “Plastic Pollution in the World's Oceans” PLOS One 2014 http://journals.plos.org/plosone/article?id=10.1371/journal.pone.0111913

 

 

 

 

 

Steffen et al “Planetary Boundaries” Science, Feb 2015 at:
http://science.sciencemag.org/content/347/6223/1259855
Kevin Anderson “Duality in Climate Science” – about recognising unpalatable realities in climate science
http://www.nature.com/ngeo/journal/v8/n12/full/ngeo2559.html
Eriksen M et al “Plastic Pollution in the World’s Oceans” PLOS One 2014
http://journals.plos.org/plosone/article?id=10.1371/journal.pone.0111913

 

 

 

 

 

Much discussion about the environment takes place as if the only problem is climate change and reducing carbon emissions. While climate change is a serious problem other pollutants and wastes are also serious problems – to the point of being describable as “planetary boundaries” which is is dangerous to cross. These are problems like ocean acidification, biodiversity collapse with pesticides killing many beneficial species like bees. In recent years there has also been a realisation that we have a major problem of pollution of the oceans – and also the atmosphere – from large amounts of plastic trash. This does not biodegrade but it does eventually break up into smaller and smaller pieces and is ingested by marine animals. The impact of plastic has now been documented on over 600 species.

As regards climate change the problem is not only caused by CO2 but also N2O caused by overuse of fertilisers, hydroflurocarbons and methane from rice paddies, land use change, cattle and from leakages during the operations of the global oil and gas industry.

Probably at 1.5 degrees C increase over pre-industrial runaway process – release of methane clathrates in arctic tundra and arctic seas – releasing methane

On current trends it looks likely that global temperature rises will be way above 2 degrees C compared to pre-industrial times. The likely result of this will be the melting of Antarctica and Greenland – the melting of Greenland alone will raise global sea level by 7 metres – or 21 feet which means flooding all the world major coastal cities and large areas of farm land – close to home we are talking of Hull and the Lincolnshire coastline going under the sea.

 

Slide Ten

 

 

 

 

 

Article by Mike Aucott and Charles Hall: Does a Change in Price of Fuel Affect GDP Growth? An Examination of the U.S. Data from 1950–2013 Energies, October 2014
https://www.researchgate.net/publication/270904271_Does_a_Change_in_Price_of_Fuel_Affect_GDP_Gro wth_An_Examination_of_the_US_Data_from_1950-2013

 

 

 

 

 

Both fossil fuel corporations and companies producing and promoting green technologies have developed and are promoting responses to depletion and pollution –there are technical fixes – but the key issues are whether these fixes are economically affordable for the rest of the economy plus whether they are acceptable to the public given what often turn out to be wider social, health and other concerns (so called externalities).

In recent years we have seen examples of “technical fixes” that have stalled and not got beyond the early phase of development – because the money cannot be found to develop them further. An example is carbon capture and storage.

All such fixes typically mean that energy costs more to supply – but because energy underpins all economic activity that is a serious matter. It takes money out of people’s pockets that they cannot then spend on other things. Studies have suggested that in the USA if the amount of national income spent on energy exceeds 5.5% the economy crashes.

To the extent that these costs are money ones the issue of unaffordability can be temporarily masked masked by debt where there is an expectation that the affordability problem is temporary. Debt can work in this way. Individuals, families, companies and government may assume that current difficulties and unaffordability is a temporary problem and the future will be brighter. For example companies may assume that technologies like fracking will improve and bring down extraction costs – or they may gamble that energy prices will rise in the future after all. So they borrow. This borrowing is helped by central banks keeping official interest rates low or even below zero.

 

Slide Eleven

 

 

 

 

 

Renewable Energy
Patrick Moriarty and Damon Honnery ‘Can Renewable Energy power the Future?’ Energy Policy 2016
http://www.academia.edu/22664620/Can_renewable_energy_power_the_future Our Renewable Future by Richard Heinberg and David Fridley, Island Press, 2016 – see: http://www.resilience.org/stories/2016-06-02/our-renewable-future-introduction/
Critique
http://www.resilience.org/stories/2017-02-14/questioning-our-renewable-future/
Critique by Ted Trainer http://energyskeptic.com/2015/tilting-at-windmills-spains-solar-pv/
– links to acrimonious discussions of Hall and Prieto's landmark analysis of Spanish solar voltaic industry

 

 

 

 

 

But what about renewables? Can they fill the gap left by depleting sources of fossil fuels – and can they do so without greenhouse gas emissions and accumulating wastes?

Composition of renewables. First of all we should note that nearly half of the global renewable energy supply is what is called “traditional biomass”. For example this will include firewood from rainforests and marginal land harvested by indigenous people or cow dung which is burned in India.

In addition to this quite a high proportion of so called “modern renewables” is biomass from plantations and agriculture grown as an energy crop – either for burning for heat, or for burning to generate electric power or for coverting into biofuels. Hydro power is next in size.

By contrast, what many people immediately think of when they think of renewables – solar voltaics or wind power – or even smaller tidal or wave energy – is very small indeed. It is growing incredibly rapidly but it has a very long way to go.

Will the growth of renewables be sufficient to sustain economic growth and sustain a consumer society? Some people think so. But among experts there is a huge gulf in opinion and the debate has sometimes been acrimonious.

On this there is a great gulf between what I would term the cornucopians and those who are more sceptical to the point of being described as doomers. The distance in estimates of future potential is really huge. A recent article in the journal “Energy Policy” pointed out that estimates of the global technical potential for renewables vary by up to two orders of magnitude – in other words the optimists think there is 100 times more available energy than the pessimists.

How do we account for these huge differences?

1. Counting energy costs – it is net energy that matters. Optimists often do not calculate the energy inputs needed to tap their renewable energy source. They give estimates of gross potential but net potential is what is needed. This is not just the energy cost of the solar panels and wind turbines but the costs of building the factories to built them, the cost of the transport and installation, the cost of maintenance, the energy cost of the administration – and being realistic about how long they will last.

2. Infrastructure costs Properly speaking the calculations should include additional energy inputs like those involved in (a) a need to extend grids and infrastructures – where the sun shines and the wind blows is not necessarily where you want the power that it generates – so connections must be built.

3. Costs of buffering intermittency…. To allow for the fact that one day the wind may be blowing north of you, the next day east of you, the next day south of you, and the next day west you may decide that to be reasonably sure that you can tap some wind energy you need to put turbines north, east south and west. But in this case your greater security of supply would be purchased by 4 times the capital cost compared to a single fossil fuel fed power station. (b) you may need your energy in the evening rather than midday when the sun is shining strongest so you put in battery storage – but what if the wind does not blow for several days? In the UK the solar energy coming in is 9 times more powerful in July compared to December when it is very dark – but you need more energy for heat in December – battery storage between July and December would be a hugely expensive undertaking.

4. When non electrical energy carriers are needed. Another point is that renewables that are electrical don’t answer your needs when you ultimately want heat, or a liquid fuel for vehicle transport. Yes, you can convert electricity into heat or into battery storage for vehicles or into hydrogen. However there are conversion losses when that happens. A further major consideration is that you not only have the costs of making, installing and connecting wind turbines or solar panels. There is also the cost of developing and manufacturing differently designed vehicles or heating systems that run on a different basis.

5. It is not just fossil fuel minerals where it is necessary to resort to progressively inferior sources. An anaologous problem besets renewable sources of energy too. After the best locations for wind speed, sun, water flow etc have been taken – to continuing expanding capacity it it necessary to resort to the inferior places with lower energy return yield next.  

6. Potential short supply for materials needed for the manufacture of some technologies – rare earths.

7. Some technologies give rise to emissions themselves – e.g. hydro power leads to increased methane emissions when vegetation is submerged. 

8. Climate change may lead to a decline in renewable energy yield and costs – eg changing rainfall impacting hydro power, climate change reducing biomass and wind and cloud cover impacting wind or solar – though that may be in either direction, wind speeds may be higher in a warmer world…

 

Slide Twelve

LtG Background to Current Conflicts Nafeez Mosaddeq Ahmed 'Failing States, Collapsing Systems. Biophysical Triggers of Political Violence' Springer Briefs in Energy, 2017 pp 49-52

 

 

 

 

 

Hopes re Negative Emissions:
James Hansen et al “Young People’s Burden. Requirement of Negative CO2 emissions” Earth System Dynamics Journal at:
http://www.earth-syst-dynam-discuss.net/esd-2016-42/
Also on negative emissions see:
http://www.nature.com/ngeo/journal/v8/n12/full/ngeo2559.html
Moriarty and Honnery “Review. Assessing the Climate Mitigation Potential of Biomass” in: http://www.aimspress.com/energy/2017/1/20

Land and Water Grabbing
https://www.researchgate.net/profile/Maria_Cristina_Rulli/publication/234040421_Global_land_and_water_ grabbing/links/5481de440cf2e5f7ceaa723d.pdf
Source of Africa map:
https://ejfood.blogspot.co.uk/2012/06/new-enclosures-africa.html

 

 

 

 

 

Bio-energy as renewable energy resource…. An important part of this whole debate relates to the role of bio-energy – wood that can be burned directly or other crops that can be turned into fuels. Biomass is a renewable energy source in that the ground on which it has been grown can be used again using the solar energy that proceeds the next harvest. Unlike wind or solar energy biomass is stored energy that can be combusted at a time of choice – so it does not have the problem of intermittency that wind and solar do. So there is a lot of hope that biomass – or bio-energy – can provide energy in forms that wind and solar cannot. Bio-energy has come to seen as a source for surface transport on sea and land – as well as a fuel for airplanes. On top of that some scientists see it as a feedstock to replace petroleum based chemicals and other materials.

BECCS….. There is even a hope that biomass and bioenergy can provide a carbon negative energy source – this is called BECCS. The argument goes plants take CO2 out of the atmosphere and embody it in their cellular structures. This returns to the atmosphere when they are burned and thus, so the argument, biomass based energy is carbon neutral. It then….supposedly….becomes a carbon negative energy form if burned in power stations specially equipped to take the CO2 out of the combustion gases, liquify them and then pump them underground for the next tens of thousands of years. All we need is to plant up an area one to three times the area of India to use for their fuel

But where is the land and the water to come from for all of these hopes? So where do we find the area?

Displacement of other land uses….. The point is that growing bio-energy crops will either displace food crops or crops used for fibres (clothing) or for building material – or alternatively it will involve displacing vegetation on what is called marginal ground and displacing communities who use that land but in a low impact way. In addition, “wild” areas like the rain forests have other important eco-system functions and cannot be cut down, ploughed up of converted into urban areas and flooded by dams without different kinds of negative consequences. When Brazil cuts down its rainforests it reduces rainfall and that has knock on consequences for its hydropower and for indigenous communities living in the forest…in their forest.

Generating food, fiber and other biomass-based products that people currently consume utilizes roughly 75% of the world’s vegetated land. Over 70% of the water withdrawn from rivers and aquifers is used by agriculture and fertiliser use has doubled the amount of reactive nitrogen in the world, leading to large-scale pollution of aquatic ecosystems, extensive algal blooms and bodies of waters with low levels of oxygen. Even so, agricultural and forestry practices have not, on balance, increased the total quantity of biomass production: they have merely transformed natural ecosystems to produce goods and services for human consumption. Humans cannot increase at will the global amount of biomass or the proportion of that they take.

Feeding the world in the future will be difficult enough already… A study by the University of Reading modelled scenarios for global food production and nutrition by mid century based on current technologies and inequality of access to food. The found that 31% of the global population would be at risk of malnourishment by 2050 with no climate change and 52% of the global population (an extra 1.7 billion people) were at risk of malnourishment when climate change is taken into account.

Not only is climate change negatively impacting harvests but there are also problems of depleting aquifers and soil erosion. Many pesticides are losing their effectiveness and there is competition for farm land from non agricultural uses like for urban building land. Depletion of oil and natural gas will make fertilisers more expensive and more difficult to supply.

Land and water grabbing……. The drive of corporations to develop bio-energy sources is in competition with food security in many countries. There is a corporate land and water grab across the entire world and much of this takes place to grow biofuels and biomass, particularly in Africa. Multinational corporations make deals with national governments and at the local level people find that land their families have been using for generations is taken away from them for “development”.

Is Bio-energy really carbon neutral? Although the growth of bioenergy crops absorbs carbon, using the land to grow bioenergy crops sacrifices the sequestration of carbon in land that is left to revert to forest. This foregone carbon sequestration, which is not considered in current GHG accounting related to bioenergy, may be substantial. For example, in the western Ukraine forest growth following abandonment of farmland resulted in a net carbon sink of almost one ton of carbon per hectare forest and year

 

Slide Thirteen

LtG Background to Current Conflicts Nafeez Mosaddeq Ahmed “Failing States, Collapsing Systems. Biophysical Triggers of Political Violence” Springer Briefs in Energy, 2017 pp 49-52

 

 

 

 

 

LtG Background to Current Conflicts
Nafeez Mosaddeq Ahmed “Failing States, Collapsing Systems. Biophysical Triggers of Political Violence” Springer Briefs in Energy, 2017 pp 49-52

 

 

 

 

 

So what does a LtG future look like? Of course everywhere will be different but we have some frightening examples. Let us take Syria for example.

Up until the mid 1990s Syria was a good example of “development” – there was growing oil production sold on the world market that gave the Syrian government revenues that it could use to subsidise food and fuel as well as spend on armaments.

After 1996 Syrian oil production began to fall and by 2010 was only one half its 1996 level. This had a drastic financial impact on the government and forced it to cut fuel subsidies.

2002- 2008 water resources dropped by a half due to waste and overuse. That was followed by a drought between 2007 and 2010 which was the worst on the instrumental record – widely judged by climate scientists to be the result of climate change. Tens of thousands of people – whole villages of Sunni cultivaters abandoned their homes in the countryside and moved into the cities like Aleppo, dominated by Alawite communities, leading to rising ethnic tensions. Between 2010 and 2011 the global price of wheat doubled. Assad was unable to maintain food subsidies because of falling oil revenues.

In the rising tensions outside powers have intervened with their own agendas – and those agendas have been rival oil and gas pipeline routes – either from Iran to Europe or from Qatar and Saudi Arabia to Europe. In this Russia has allied with Iran to defend the Assad regime and the US and UK are covertly allying with fundamentalist Sunni rebels to topple Assad and establish their own regime for their pipeline routes where there would be a role for Halliburton and Exxon.

In a number of other countries there has been a convergence of food, energy and water crises.

 

Slide Fourteen

Environmentalism of Poor and Environmental Justice http://www.ejolt.org/ and https://ejatlas.org/ Martinez Alier, et al “Trends in Social Metabolism and Environmental Conflict- a comparison between India and Latin America” chapter 9 in Gareth Dale et al (ed) “Green Growth” Zed Books 2016.

 

 

 

 

 

Environmentalism of Poor and Environmental Justice http://www.ejolt.org/ and https://ejatlas.org/
Martinez Alier, et al “Trends in Social Metabolism and Environmental Conflict- a comparison between India and Latin America” chapter 9 in Gareth Dale et al (ed) “Green Growth” Zed Books 2016.

 

 

 

 

 

Oppositional and resistance struggles against environmental impacts have occurred the world over. The latest in the global north is a movement against fracking that has sprung up internationally.

Conflicts about environment have also been documented and studied by academics – for example with the Environmental Justice Atlas which has details of about 1,000 environmental conflicts world wide – against land grabbing, against resource extraction, against toxic waste dumps and pollution processes, against deforestation and plantations including biofuel plantations. Although activists in the global north and global south are increasingly networked there are clear differences between movements in the global north and south.

Environmentalism of the Poor….Joan Martinez Alier refers to a Environmentalism of the Poor in the global south. In this case the poor are often defending the eco-system on which they rely for vital resources like firewood or food in a subsistence economy. Indigenous communities are often struggling to defend ancestral homes and sacred sites. For these communities the eco-system is more than a resource store. It is integral to their spirituality and cultural identity as a community rooted in a particular place occupied by their ancestors since time immemorial. The place does not belong to them but they belong to the place – nature is not a store of resources but part of their being. They have a kinship with the species of plants and animals. Nature is Pachamama – mother earth in a very real sense.

The data in the Env Justice Atlas shows that indigenous communities are playing a disproportionate role defending nature in India, South America and Africa.

Some parallel movements also exist in the Global North – like movements by the First Nations in Canada and the USA to defend their ancestral lands – as for example against oil and gas pipelines recently in Dakota with the high risk or leakage and spillage.

There is also an Environmental Justice Movement. Concern and influence by the wealthy in the global north ensures that polluting and toxic industries as well as waste dumps are located away from rich communities. They are sited near poor ones, often where ethnic communities live. It is such communities that will get sick from the toxins or from fracking and they have organised to defend themselves.

 

Slide Fifteen

 

 

 

 

 

Brian Davey “Credo. Economic Beliefs in a world in crisis” Feasta Books 2015 Chapters 40 and 49 Available for free download at www.credoeconomics.com
D’Alisa G., Demaria F and Kallis G. “Degrowth. A Vocabulary for a New Era” Routledge, 2015 http://transitionnetwork.org/
http://www.smart-csos.org/

 

 

 

 

 

Not all green activism is reactive and oppositional. There have been many pro-active and experimental projects on a small scale to pioneer and develop examples of green economy, green lifestyle and a complementary style of politics.

The words ecology and economy originate from a greek word oikos – the household – so effectively meaning the management of a household – many green pre-figurative experiments and projects are about the transformation of household, garden and wider neighbourhood to make them more self sufficient and efficient in providing for human needs.

In the last few decades typical projects like community gardens have sprung up all over the world – including in decaying urban areas and rust belts or in refugee camps.

Thousands of Eco-villages have been developed too – although one can argue that they are the normal way of living for countless thousands of communities in the global south, in the global north are intentionally established and often have multi-functional purposes – as therapeutic and mental health projects, as art projects and to experiment with ecological gardening and cultivation, the promotion

There are likewise community energy, community transport and cycling and recycling projects whose aim is to help their members participate practically in a green transition.

From isolated projects/struggles to a movement with a narrative for the future of society. Many activists have realised the need to network and make alliances and need for political representation to combat the way that the toxic economy uses the state to advance its own purposes and agenda. To combat this the green movement must be more than a collection of isolated struggles and projects but needs to come together as a movement with its own ideological narrative for the future of society. This has included challenging the desirability and critiquing the prospects for the growth economy. Many groups therefore share an overarching vision of the need for a Great Transition – and for “Degrowth”.

 

 

 

 

 

 

The Economy is like a Circus

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Published on the Our Finite World on April 17, 2017

Dicuss this article at the Economics Table inside the Diner

The economy is like a circus. It comes to town, and eventually it leaves town. We get paid in tickets to this circus. As long as the circus stays in town, we can use our tickets. Once the circus leaves town, we are pretty much out of luck.1

The reason the circus stays in town is because the economy stays in sufficient balance that the economy can go on. This is much like the way many other self-organized systems function. For example, our bodies continue to function as long as there are suitable balances in many different areas (oxygen, food, water, air pressure). Ecosystems continue to function as long as there is sufficient rain, adequate temperatures, and enough sunlight.

There are many different views as to what limits we reach in a finite world. Some people think we will “run out” of oil, or of energy products. Some think that the energy return will fall too low, as measured in some manner. I see the adequacy of the energy return as being very much tied to the financial system. Thus, the forecast by US Atlanta Fed GDPNow indicating that first quarter 2017 US GDP growth will only be 0.5% is likely to be a problem, assuming it is correct.

Our economy operates on economies of scale. Once we get too close to shrinking, or actually start shrinking, we reach a point where the economic circus starts to leave town. At some point, we will discover the circus is gone. The economy we thought we had, will have left us. If some people are survivors, they will need to pick up the pieces and start over with an entirely new system.

What the Economy Needs to Do to Keep Functioning

For our economy to continue functioning, a number of variables are important:

 

  • Prices of commodities – Prices cannot be too high for the consumer to afford goods made with them. They also cannot be too low for producers. If prices of oil and other commodities are too low for producers (as they are now), producers need to keep raising debt levels to stay in business. There is a risk that production will stop from lack of adequate new investment, or from the bankruptcy of producers.
  • Wages of non-elite workers – These wages need to be high enough so that workers can afford goods made with commodities, such as cars, homes and computers. These big purchases tend to use commodities even after they are made, adding to “demand” for commodities. If commodity prices such as oil are too low (as they are now), it is likely related to the inadequate wages of non-elite workers.
  • Mandatory payments required of non-elite workers, such as taxes, health care, and education – It is not just wages of non-elite workers that are important. So are required payments, such as payments for taxes, healthcare and education. Clearly, the lower these payments are for non-elite workers, the better the economy functions.
  • Interest rates – Low interest rates are helpful for some parts of the economy, while high interest rates are good for other parts. Low interest rates help create affordable monthly payments for goods such as homes and cars. If interest rates decline, the market prices of assets such as real estate, shares of stock, and bonds tend to rise. These rising values are of great benefit to owners of these assets, since they can sell these assets and use the proceeds to add to current consumption. Conversely, high interest rates are important to pension plans and to others depending on investment income. Banks have a problem if there is not a big enough “spread” between short and long interest rates.
  • Increase in debt – An increase in debt indirectly makes the economy “look” much better. Increasing debt acts to raise wages, since some of this growing debt adds to funds available for wages. The higher wages tend to increase demand for goods, and thus indirectly raise commodity prices. A virtuous circle starts, pushing up economic growth, provided an adequate quantity of very cheap energy products is available (under $20 barrel oil, for example) that can be used to make goods and services. Increased debt works less and less well, as the price of energy products increases.
  • Inflation rates – The higher the inflation rate, the easier it is to repay debt with interest, since most debt is not adjusted for inflation. Also, high inflation rates help keep prices of homes and other buildings from falling as they age, making the use of mortgages more feasible. If the price of a commodity, such as oil or coal, is high and then falls, debt based on the prior high value of the commodity is likely to become a problem.
  • Quantity of energy products affordable by economy – It takes energy products to produce goods and services. If the price of commodities is low, it is possible for buyers to purchase a large quantity of these products, even on a low budget. Current relatively low prices tend to help the economy, even if producers cannot afford to make adequate investment in new production with such low prices. Thus, today’s low energy prices make the economy look good for at a short time. Afterwards, the outlook is less rosy.

Ultimately, the issue at hand in determining whether the “circus will leave town” is whether non-elite workers are able to adequately make a living. We know from biology that the return on the labor of animals must be adequate (animals must be able to get enough food by walking, swimming, or flying) or their populations will collapse. The same thing is true for humans. We also know that prior civilizations that collapsed often had wage disparity problems. When this happened, non-elite workers were no longer able to pay adequate taxes. Their nutrition became poorer. They tended to become more susceptible to epidemics. These were things that pushed the economy toward collapse.

The goods and services that non-elite workers can buy with their wages represent the benefits of our fossil fuel powered energy system, as distributed to the most vulnerable workers in the system. Once these benefits start falling too low, the system can no longer function.

There are some indications that benefits are already too low for the economy to keep functioning in a “normal” manner. A major such indication is the fact that energy prices have remained far too low since mid-2014. It is becoming increasingly clear that there really is no oil price which is both high enough for producers and low enough for consumers. We may be living on “borrowed time,” using an increasing amount of debt to support energy producers.

Thus, world economic growth rates may already be too low to keep the world economy operating. Regulators who consider only the US do not seem to understand the world situation. Because of this, they can easily make moves that make the situation worse, rather than better. For example, they have already started raising interest rates and are planning to sell securities currently held by the Federal Reserve.

A Few Graphs Giving Hints of Our Problem

Economists have not understood what our problems really are, so they have tended to omit some important issues from their analyses. I put together a few graphs that might give a little insight as to what is happening.

Interest Paid by Households 

Interest paid by households is important because this money is transferred to banks, insurance companies, and pension plans. It leaves the households who paid this interest poorer. Buying goods using debt is convenient, but it has a cost involved.

BEA Table 7.11 shows a category called, “Interest Paid by Households.” If we compare this to BEA “Wages and Salaries,” we find the relationship shown in Figure 1. Admittedly this is not an exact comparison; there are some people who are not wage earners who are making interest payments, for example. I have not tried to offset “interest paid by households” against “interest received by households,” because the households benefiting from interest payments are likely very different households from those making interest payments. They are likely richer, and at a later stage in their lives.

 

 

Figure 1. US Household Interest Paid (from BEA Table 7.11 Interest Paid and Received by Sector and Legal Form of Organization) divided by Wages and Salaries from BEA Table 2.11, “Personal Income and its Disposition.”

The pattern might be described as follows:

  • A rapid run-up in interest payments that took place until about 1986
  • A general flattening, with new peak in 2007
  • A rapid fall starting in 2008

It seems to me that the pattern up to 1986 reflects the general run-up in consumer debt levels during this period. The amount of interest paid is also affected by interest rates, such as ten-year treasury rates.

 

 

Figure 2. US Federal Bonds 10 year interest rates. Graph produced by FRED (Federal Reserve Economic Data).

Interest rates started falling in 1981. These higher rates only gradually worked their way into the system because many people had bought houses earlier and were able to keep their existing mortgages at low interest rates. The amount of debt outstanding continued to rise, allowing the total amount of interest paid to continue to rise until 1986.

After 1986, rising debt amounts and falling interest rates came closer to offsetting each other (Figure 1). By 2008, the economy was in a severe recession. In order to help get out of the recession, interest rates were lowered through Quantitative Easing. These lower interest rates, besides helping the economy in general, helped oil prices gradually increase back to the $100+ per barrel price level that they needed to be profitable. Oil prices had temporarily dropped below $40 per barrel in December 2008.

Figure 1 shows that interest payments for several years amounted to about 12% of wages for households. Interest payments are now down to 8% of wages. Even at this level they are significant. They are likely higher than this for those with low wages and high debt. If interest rates rise significantly, the most vulnerable are likely to find their discretionary income reduced.

Rising Healthcare Costs 

Figure 3 shows a comparison of US healthcare costs to GDP and to wages. A huge increase in costs is evident in the 2001-2005 periods, and also in the 2008-2010 period, especially compared to wages.

 

 

Figure 3. US Healthcare costs as a percentage of GDP and as a percentage of wages. Healthcare costs from cms.gov. Wages and salaries and GDP from BEA.

The increase in healthcare costs since 2008 is one of the costs putting pressure on the economy, and leading to a need for lower interest rates.

The Affordable Care Act should be affecting amounts for the latest years, since the ACA started increasing the number of people with insurance starting about 2014.

 

 

Figure 4. Kaiser Family Foundation chart of percentages of non-elderly people without healthcare insurance, from this Source.

A person might wonder why 2014 and 2015 costs didn’t rise more, with so many more people added to the system. Perhaps care that was being given “free” by hospitals is now being charged back to patients. Or perhaps many of the people choosing to purchase coverage through the program were already insured elsewhere in the system, so were not really added to the healthcare system through the Affordable Care Act.

One very recent US healthcare change is the addition of an automatic penalty for not having healthcare insurance. This penalty began for tax year 2016, filed in the beginning of 2017. This provision particularly hurts young people, because rates are structured in such a way that the rates for young people subsidize the rates for older people. Thus, young people often find that buying health insurance is far more expensive than their out of pocket costs for health care would have been, without insurance.

Young people who are affected by this new requirement will find that they need to cut back on other expenditures (such as restaurant visits), if they are meet the requirements of the law–either buy healthcare insurance or pay the mandated penalty. This change will begin to adversely affect the economy in 2016. Bigger impacts are likely in early 2017, when taxes are filed.

Falling Wages Relative to GDP, and Rising Wage Disparity

The path to lower wages as a percentage of GDP has been a bumpy one. The general pattern is that when the economy is booming, wages tend to grow as a percentage of GDP. Recession tends to send wages down as a percentage of GDP. US wages seem to have increased somewhat since 2013, perhaps because the price of oil is down, and the US dollar has risen to a relatively high level. This is part of what allows some people to talk about the “tightening labor market,” and gives them confidence in the economy.

 

 

Figure 5. US wages and salaries divided by US GDP, based on BEA data.

There has been significant growth in wage disparity since about 1980, both in the US and in many other developed countries. Figure 6 shows some data for the US.

 

 

Figure 6. United States Income Distribution_1947-2007 in 2007$. The data source is “Table F-1. Income Limits for Each Fifth and Top 5 Percent of Families (All Races): 1947 to 2007”, U.S. Census Bureau, Current Population Survey, Annual Social and Economic Supplements. Graph is from Wikimedia Commons http://en.wikipedia.org/wiki/File:United_States_Income_Distribution_1947-2007.svg

As the economy becomes more “complex,” in other words, “specialized,” wage disparity tends to be more of a problem. Work that could previously be done by manual laborers is done by machinery, or is transferred to low wage countries. Many people lose their jobs, and have difficulty finding good-paying replacement jobs. All of this contributes to inadequate wages for non-elite workers.

Role of Inflation and Rising Commodity Prices in the Economy

We rarely stop to think how important inflation is to the economy. For example, if inflation is sufficiently high, it will slightly offset normal depreciation in values of homes and business properties. Thus, home and business property values will tend to slightly rise over time. If banks can count on values of structures rising, rather than falling, over time, lenders can assume that mortgage loans are fairly risk-free, because the lender can count on getting its money back through the sale of the property, if the mortgage-holder defaults.

This same principle holds when energy properties, such as coal mines and oil fields, are financed. As long as energy prices keep rising, there is a good chance loans can be repaid. Once energy prices fall, debt defaults become a problem. Oil exporting countries also find that the taxes they can collect fall significantly. As a result, energy-exporting countries are in a far worse economic position once energy prices fall. Exporters of other commodities, such as metals, have a similar problem if prices fall.

In the last two paragraphs, I mentioned the impact on lenders and governments of rising or falling prices. Owners of properties are also affected by rising or falling prices. If prices rise, these owners can sell their assets, and make a profit. In fact, these owners have often purchased their properties with debt. If the price of the property rises, but the amount of debt is unaffected by inflation, the owner of the property can often get a disproportionate benefit of the price rise. Of course, if the value of a property falls, the property-owner is disproportionately affected by the fall of the price.

We are so used to a rising-price scenario that we have little understanding of how a flat or falling price scenario might work.

To get a little idea of how much inflation has in the past been working through to asset prices in the United States, I looked at some information provided by the US Bureau of Economic Analysis. I compared these amounts to GDP, rather than asset prices, to get an idea of how much impact they have, relative to each current year’s activities (Figure 7). There is about $3 of assets of the types BEA analyzes for every dollar of GDP, so the impact, relative to GDP, is about three times as high it would be, relative to the asset prices themselves.

If this same relationship holds elsewhere, a person can see why a commodity-producing country might have a big problem, if the price of that commodity suddenly falls. There is huge “balance sheet” impact that doesn’t directly affect current GDP as reported (since GDP has to do with current goods and services produced). But it can have a major impact on the country, as it goes forward, because affected loans are much less likely to be repaid. Countries often try to be lenient with lenders, hoping that commodity prices will rise again. But if the drop in prices is permanent, countries must use more and more extreme measures to hide the problem of loans that have a low probability of repayment in a low-priced commodity environment. Eventually, these loans seem likely to default, if prices do not rise sufficiently. China and many commodity-exporting countries seem to be affected by this problem.

 

 

 

Figure 7. Changes to US Fixed Assets, based on BEA Table 5.10, Changes in Net Stocks of Produced Assets.

BEA shows three amounts of interest with respect to US assets (Figure 7):

  1. Inflation – Changes in asset values based on changes in the general price level
  2. Re-evaluation total – Changes to asset prices in particular; includes changes because assets are taken out of service because of disaster or because a business is no longer profitable. Note the spikes related to the housing bubble of the 2003-2006 period and the corresponding dip during the Great Recession of 2007-2009.
  3. Depreciation – Expected amount of new investment needed to offset “consumption of fixed capital.” This rate is quite high, (about 15.7% of GDP recently) because the asset base includes fairly rapidly depreciating assets, such as cars and computers, besides buildings of all types, and intellectual property such as computer programs.

The last year shown is 2015. Inflation (relative to GDP) was only 1.2%, and the re-evaluation total was only 0.3% of GDP. (Calculated as percentages of the assets involved, these inflation rates would be only a third of these amounts.) These low inflation rates make it very difficult to operate a debt-based economy. A shift from inflation to deflation would be a major problem. Unfortunately, it is very difficult to get much inflation, if the wages of non-elite workers remain very low.

Conclusion

We have kept our economy expanding through growing debt use and growing energy use. I described this process in my post, What has gone wrong with oil prices, debt, and GDP growth?

Now we seem to be reaching the end of the line. The economy is getting very close to shrinking. When this happens, we are getting close to economic collapse–the economic circus is starting to “leave town.”

People who think our only problem is “running out” and “high oil prices” don’t see the problems the economy is developing right now. These problems are much more subtle, but they can have a devastating effect. The Federal Reserve talks about inflation rates above 2% being too high, but inflation rates below 2% are at least equally problematic. Somehow, the debt system needs to keep operating for the whole system to work.

We are now at the point where the economy is decidedly unstable. Little things can affect it, like the Affordable Care Act requirement that uninsured people buy healthcare insurance, or pay a penalty. Low commodity prices make debt repayment more difficult in countries producing those commodities.

We should not be too surprised if the economic circus starts to leave town. There are simply too many pieces that are now unstable. The US Government is facing a shutdown in the near future, unless its debt ceiling can be raised and funding can be enacted. The world is depending on China for economic growth, but China’s debt is becoming unmanageably high. Japan’s debt is also unreasonably high. Oil exporters are becoming increasingly unstable, with continued low prices. We can find problems in almost every country of the world. It looks like it is only a matter of time, until one of these problems starts a downward spiral.

 

Note:

[1] Thanks to commenter “Lastcall” for this analogy.

 

Entrepreneurship in the Social and Solidarity Economy

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Published on Credo Economics on February 22, 2017

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Co-operatives have been described as freshwater fish in a saltwater environment. In the 1930s, the co-operative sector in many countries was very powerful but it was destroyed by fascist and communist regimes. What was it that the authoritarians found so threatening in co-operation? Alternative economic models like co-operatives and social enterprises are explored, together with the arrangements that can help sustain them, like co-operative federations and support networks. However, there are no panaceas – co-ops and social enterprises fail too.

As I have been at pains to point out, the role of the entrepreneur is an idealisation and there is not a simple picture. While a very large proportion of entrepreneurs are crooks, especially in elite positions, this is by no means true of everyone. For example, a book by Claudio Sanchez Bajo and Bruno Roelants shows that, during the economic problems of the last few years, co-operatives have had fewer problems. This is because there are less perverse incentives and co-operatives have less scope for control fraud by their managers because of the shared ownership, participative management and better integration with communities and other stakeholders.

Cooperatives tend to have a longer life than other types of enterprise, and thus, a higher level of entrepreneurial sustainability. In [one study], the rate of survival of cooperatives after three years was 75 percent, whereas it was only 48 percent for all enterprises… [and] after ten years, 44 percent of cooperatives were still in operation, whereas the ratio was only 20 percent for all enterprises. (Bajo & Roelants, Capital and the debt Trap. Learning from Co-operatives in the Global Crisis, 2011) (p. 109)

The fact is then, that entrepreneurs are of many different types, with many different motivations
and standard economic theory tells us almost nothing that would help to understand them. In a study based on 26 Czech and 45 British social enterprises, Nadia Johanisova finds that the most important success factor is motivation. The motivation of social entrepreneurs is not for money or fame but more for self-fulfilment, commitment to place where they have roots and an opportunity to make a difference. Johanisova comments:

This casts doubt on economic theory which assumes financial motivation to be the principal incentive for work….The social enterprises profiled in this report defy conventional economic wisdom in other ways as well: (1) by definition their remit stretches beyond the financial to the social and/or environmental, (2) they are need as well as market driven and may juggle diverse activities instead of specialising, (3) more than half do not particularly wish to grow beyond their current size… Yet they survive and sometimes thrive in an unforgiving environment. (Johanisova, 2005, p. 93)

Co-operatives would have been a lot further forward had not their gains been brutally repressed, particularly in the 1930s and 1940s, by the fascist and communist governments. In her book, Johanisova describes the incredible achievements of the Czechoslovak co-operative movement up to the 1930s. Over decades, small credit co-operatives in rural areas called Kampelika had become an important
part of village life. Despite the voluntary and amateur nature of the administration of the Kampelika, they were efficiently run and were able to eliminate rural usury, educate farmers about accounting and thrift, purchase farm machines for members, install scales in villages to check weights, plant trees and organise cultural events. They complemented other co-operatives i.e. marketing, processing, flour mills, distilleries and so on. They also played a major role in the development of an electric grid connecting 15,000 villages. (Johanisova, 2005, pp. 28-29)

The psychopaths strike back – what they find so threatening in co-operation

This entire movement then disappeared almost without trace because of the Nazis and then, subsequently, the communist regime. Pat Conaty and Michael Lewis draw on a book by Johnston Birchall to describe how similar set-backs occurred in other countries in the interwar period. In Italy, Mussolini seized the assets of 8000 Italian co-ops and took them over, killed leaders and burned shops. In Russia, Lenin repressed them but allowed them to revive before Stalin destroyed agricultural co- operatives (providing 65% of food provisions) in favour of forced collectivisation. Urban co-ops were then closed in 1935. In Germany, Hitler seized their assets and nationalised 1100 consumer co-ops, 21,000 credit unions, 4000 co-op savings banks and 7000 agricultural co-ops. In Austria, where one out of every 3 three households had been members of consumer co-operatives, Hitler’s invasion led to the leaders of the co-ops being replaced by fascists while their assets were seized and handed over to private business owners. In Spain, Franco arrested and killed many co-op leaders while many others took exile in Latin America. (Conaty & Lewis, 2012, pp. 220-221)

One may ask why this happened. One answer, when co-operative assets were seized and passed over to private owners, or to the fascists, was that the co-operatives had been too successful for the private economy and the real basis of economic power in society was being revealed – violence was being
used to re-stabilise the private sector. There is a deeper answer too. All entrepreneurial activity, all business activity, is based on an ethical and a value system, and that ethical and value system, whether consciously or not, implies a vision for society. As regards Czechoslovakia, the co-ops were a threat to the dictators – fascist and then communist – because they represented a self-organised society where people took decisions for themselves and were well-organized to do so.

A form of economic organisation and entrepreneurship that tries to embody and embed democratic principles implies a deeper form of political democracy too. Not least in the sense that co-operatives imply practical participation in economic decision-making by ordinary people who thereby develop skills for a genuinely participative political democracy. John Stewart Mill realized the implications when he wrote:

We do not learn to read or write, to ride or swim, by being merely told how to do it, but by doing it, so it is only by practicing popular government on a limited scale, that the people will ever learn to exercise it on a larger. (On Liberty)

This is why this movement has always been an anathema for autocrats who reserve for themselves alone the power to decide what they deem in the best interests of society. On the other hand, Mill’s insight helps to explain why generations of heretical economic thinkers and social philosophers have tried to revive the social justice tradition of the guilds, recreating the commons and an economics based on co- operation and community.

Alternative economic models in india

The attempt has been international – and not just confined to Europe or the Anglo Saxon world. Gandhi’s vision for economic development for an independent India was as a co-operative path promoting self-sufficiency and self-rule (Swaraj). In his vision, economic activity involved people “developing themselves”, including in a spiritual, self-transformative dimension. (Schroyer, 2009, pp. 82-85)

After Gandhi’s death in 1947, Vinoba Bhave and JP Narayan organized a Bhoodan (land gift) and then a Gramdam (village gift) movement because, without land, there was no way that the village poor in India could be self-sufficient and participate in economic life. The basic idea of both movements was therefore to urge large landlords to gift part of their land to the rural poor. Although significant acreage was donated, the movement ran up against the problem that the rural poor did not have enough money or access to low cost finance. When recipients of the land gifts borrowed, using the land as collateral, much was repossessed.

The village gift movement learned from the repossessions. The amended idea envisaged gifted land organized through village trusts to overcome the risk of repossession. Overall Bhoodan and Gramdan secured 5 million acres over 20 years. The idea spread internationally. Experiments like these inspired Martin Luther King and then a Community Land Trust movement in the United States and elsewhere. (Schroyer, 2009, p. 85) (Conaty & Lewis, 2012, p. 87)

Co-operatives and social enterprises today

At the present time, at least one billion people on the planet are members of co-operatives, though you would never know that from mainstream economic textbooks. In over 800 pages, Mankiw and Taylor’s economic textbooks never discuss co-operatives at all. They only mention “co-operation” as an economic phenomena that they consider is unlikely to happen but which does so occasionally nevertheless. If you are educated in Harvard where Mankiw teaches, you might never find out, therefore, that co-operatives employ more people than the multinationals and provide services to 3 billion people weekly. That is about 40% of people on the planet.

Co-operative federations and support networks

There are remarkable success stories. In the Basque country in Spain, the Mondragon Corporation
has evolved from small beginnings in 1956 to a business group with 80,000 employees, operating transnationally in finance, the manufacture of industrial goods, retail and knowledge – the latter being linked to the Co-operative University of Mondragon. Mondragon is a network that has evolved its own federated support institutions and infrastructure which is crucial to the success of the associated co- operative businesses.

The fact is, that for hundreds of years, and in our own time, huge numbers of people have tried to organise business on ethical, community focused and co-operative principles. However, they have operated in a hostile business environment. As Professor Jaroslav Vanek of Cornell University puts it:

If you go to a bank and ask for a loan to start a co-op, they will throw you out. Co-ops in the West are a bit like sea water fish in a freshwater pond. The capitalist world in the last 200 years has evolved its own institutions, instruments, political frameworks etc. There is no guarantee that another species could function if it had to depend on the same institutions. In capitalism, the power is embedded in the shares of common stock, a voting share. This has no meaning in economic democracy. Economic democracy needs its own institutions for one simple reason. Workers are not rich. Let’s face it, most working people in the world today are either poor or unemployed. They do not have the necessary capital to finance democratic enterprises. Hence, we need some instruments and institutions which make this possible. Why? Because we know that once democratic firms are organized, or even if they have all the elements of democratic principles, they work far better than capitalist enterprises. (Vanek, 1995)

However, while the Mondragon Corporation as a network is a powerful example of what is possible when communities and workers federate, it does have its problems. At the time of writing, Fagor, one of the largest of the Mondragon co-operatives, has had to file for protection against its creditors as it tries to re-organise. The co-operative Bank in the UK has also been in difficulties at the time of writing. It took over the Britannia Building Society that had too many bad debts.

It is therefore necessary to inject a note of caution into the discussion of co-operatives – and into thinking about the whole social economy.

There are no panaceas – co-ops and social enterprises fail too

Co-ops and social economy enterprises fail too. Nothing is eternal, conditions of uncertainty apply to co-ops too and poor decisions are taken by people no matter how ethical or community orientated they are. Nor are the motivating values and ethical systems that apply in co-ops and social economy enterprises always what they seem to be. One may think that the social entrepreneurs are motivated by the ideals of co-operation, the love of their fellow human beings and the environment, indeed they can loudly proclaim that they do. Yet, in practice you sometimes find people who are actually motivated to be seen to be virtuous – and a lot more virtuous than anyone else. These top dogs and leading experts in co-operation may turn out to be condescending micro-managers who always know what is in everyone else’s best interests. Now and then, unfortunately, one meets virtuous people who see themselves as so much better at co-operation than anyone else. Stated values may not align with realities when people
are lacking in self-awareness about their holier than thou stance. Such narcissists may be inclined to petulance and even vindictiveness if and when challenged – as can easily happen because they are such a pain to work with or under.

No organisational form, no ownership regime, is a cure all. It is impossible to design a system that will solve all problems. Karl Marx once wrote that we make our own history but not in conditions of our own choosing. Some of the conditions that may not be of our own choosing include the personalities of our colleagues and co-workers. As therapists will tell you, people’s personalities can be changed slowly – but it takes time. People need to want to change and they are rarely open to therapeutic suggestions from their colleagues.

Freshwater fish in a saltwater environment

Other conditions constraining organisations in the social and ecological economy are those kind
of institutional mismatches that Jaroslav Vanek refers to. It does not help that co-operatives, social enterprises and not for profit organisations exist in a market, institutional and cultural environment that is not set up for them. It is clear, for example, that the current difficulties of Fagor of Mondragon are related to the Eurozone financial crisis and the catastrophic economic conditions in Spain. (Written early 2014). These, in turn, were largely the result of real estate speculation pumped up by the Spanish banks, which are hardly the fault of Fagor, though it is now a victim of the fall out.
There is a deeper lesson here. Co-operatives and social economy organisations can be pulled down
in the collapse of the general economy. Indeed, the closer they are aligned with and integrated into the economic mainstream, the more likely this is to happen. Workers’ ownership and control will not prevent this happening on its own.

This brings me to the example of the John Lewis Partnership. This is the largest worker owned company and third largest private business in the UK with over 70,000 partners. It is sometimes held up as wonderful example to show how successful a trusteeship model for a business can be. For example,
by Lewis and Conaty in their book The Resilience Imperative (Conaty & Lewis, 2012, pp. 280-283) or by Marjorie Kelly in her book Owning our Future (Kelly, 2012, pp. 177-184). As with the Mondragon Corporation, the gains of the John Lewis Partnership are shared between the worker partners.

The Partnership has mechanisms to hold management accountable, to debate and suggest policies in a transparent and accountable system, while power is shared in a federated system of councils which Lewis and Conaty describe as “reminiscent of the guilds”. Like Mondragon, the Partnership has secured its growth through self-financing thereby avoiding the instability and speculation of the capital markets.

Yet for all of these successes, there is a tremendous paradox with the John Lewis Partnership. In an era of consumer capitalism where the economic system is banging up against the Limits to Growth and millions of people are groaning under unsustainable debts, the John Lewis Partnership runs a chain of stores that are veritable temples to consumerism. There is no doubt about it – the partners do sell these consumer goods very successfully, but are these purposes a contribution to sustainability and the future of humanity? According to Marjorie Kelly, the JLP are stepping up their environmental commitments. Under pressure from Greenpeace, the JLP recently backed down from a tie up between its associate company, Waitrose, and Shell. Despite this, the JLP focus on growth means that its carbon emissions are still growing in absolute terms.

In her book, Kelly describes asking someone from the JLP the very pertinent question: “How can a department store chain shift into a low-consumption, no growth economy?” and says of the person that she asked “He doesn’t have an answer. Maybe none of us do.” (Kelly, 2012, p. 184)

Indeed! The purpose of department stores simply does not match a future of energy descent and degrowth, whether they are owned by their staff or not.

Perhaps a better model for the future is provided in Italy, where there has been a 20 year explosive growth of co-operatives providing social services in ways that integrate the participation of disadvantaged groups. In 2013, these Italian co-operatives employed 360,000 paid workers including 40,000 people from disadvantaged groups, with over 31,000 volunteers. They now provide for almost
5 million people and have a turnover of 9 billion euros. These co-operatives also illustrate again the importance that has developed at Mondragon – a level of supportive “enterprise ecology” where there is co-operation among co-operatives – networks and an infrastructure shared between organisations with common values and purposes. (Conaty & Lewis, 2012, pp. 251-257)

The specific client focus of the Italian co-ops is relevant too. In an era of stagnation and even collapse in the so called “developed countries”, when a bulge of elderly people are reaching retirement and will have plenty of needs in their last years, in an era when many others are being thrown into unemployment, poverty and ill health, what the Italian co-operatives are doing will need to be a major direction for the social economy.

The central point is this – companies that focus solely on return on capital alone cannot do a number
of jobs, despite all the “invisible hand” clap-trap. The ethos of extrinsic motivations gives rise to types of enterprise culture that are antithetical to authentic care for people and places. Co-ops and social enterprises can be formed to work for intrinsic motivations, rather than for monetary rewards – but that does not mean, of course, that they can neglect attention to covering their costs. They are not necessarily profit focused if they are trying to make a surplus in what they do so as to ensure their long run financial stability.

Further, much more radical models exist which turn away from consumerism. Throughout Germany, one can find centres set up with equipped workshops which people can use to develop skills to make things DIY. There are also “repair centres” and networks so that people can give away or exchange used products, not to mention community gardens to grow your own food – all a little bit different from John Lewis and its associate organisation, upmarket supermarket Waitrose. (HEi, 2014) (Verbund Offener Werkstaetten (Association of Open Workshops), 2013)

You Owe $21,714

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Published on The Economic Collapse on March 12, 2017

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$21,714 For Every Man, Woman And Child In The World – This Global Debt Bomb Is Ready To Explode

According to the International Monetary Fund, global debt has grown to a staggering grand total of 152 trillion dollars.  Other estimates put that figure closer to 200 trillion dollars, but for the purposes of this article let’s use the more conservative number.  If you take 152 trillion dollars and divide it by the seven billion people living on the planet, you get $21,714, which would be the share of that debt for every man, woman and child in the world if it was divided up equally.

So if you have a family of four, your family’s share of the global debt load would be $86,856.

Very few families could write a check for that amount today, and we also must remember that we live in some of the wealthiest areas on the globe.  Considering the fact that more than 3 billion people around the world live on two dollars a day or less, the truth is that about half the planet would not be capable of contributing toward the repayment of our 152 trillion dollar debt at all.  So they should probably be excluded from these calculations entirely, and that would mean that your family’s share of the debt would ultimately be far, far higher.

Of course global debt repayment will never actually be apportioned by family.  The reason why I am sharing this example is to show you that it is literally impossible for all of this debt to ever be repaid.

We are living during the greatest debt bubble in the history of the world, and our financial engineers have got to keep figuring out ways to keep it growing much faster than global GDP because if it ever stops growing it will burst and destroy the entire global financial system.

Bill Gross, one of the most highly respected financial minds on the entire planet, recently observed that “our highly levered financial system is like a truckload of nitro glycerin on a bumpy road”.

And he is precisely correct.  Everything might seem fine for a while, but one day we are going to hit the wrong bump at the wrong time and the whole thing is going to go KA-BOOM.

The financial crisis of 2008 represented an opportunity to learn from our mistakes, but instead we just papered over our errors and cranked up the global debt creation machine to levels never seen before.  Here is more from Bill Gross

My lesson continued but the crux of it was that in 2017, the global economy has created more credit relative to GDP than that at the beginning of 2008’s disaster. In the U.S., credit of $65 trillion is roughly 350% of annual GDP and the ratio is rising. In China, the ratio has more than doubled in the past decade to nearly 300%. Since 2007, China has added $24 trillion worth of debt to its collective balance sheet. Over the same period, the U.S. and Europe only added $12 trillion each. Capitalism, with its adopted fractional reserve banking system, depends on credit expansion and the printing of additional reserves by central banks, which in turn are re-lent by private banks to create pizza stores, cell phones and a myriad of other products and business enterprises. But the credit creation has limits and the cost of credit (interest rates) must be carefully monitored so that borrowers (think subprime) can pay back the monthly servicing costs. If rates are too high (and credit as a % of GDP too high as well), then potential Lehman black swans can occur. On the other hand, if rates are too low (and credit as a % of GDP declines), then the system breaks down, as savers, pension funds and insurance companies become unable to earn a rate of return high enough to match and service their liabilities.

There is always a price to be paid for going into debt.  It mystifies me that so many Americans seem to not understand this very basic principle.

On an individual level, you could live like a Trump (at least for a while) by getting a whole bunch of credit cards and maxing all of them out.

But eventually a day of reckoning would come.

The same thing happens on a national level.  In recent years we have seen examples in Greece, Cyprus, Zimbabwe, Venezuela and various other European nations.

Here in the United States, more than 9 trillion dollars was added to the national debt during the Obama years.  If we had not taken more than 9 trillion dollars of consumption and brought it into the present, we would most assuredly be in the midst of an epic economic depression right now.

Instead of taking our pain in the short-term, we have sold future generations of Americans as debt slaves, and if they get the chance someday they will look back and curse us for what we have done to them.

Many believe that Donald Trump can make short-term economic conditions even better than Obama did, but how in the world is he going to do that?

Is he going to borrow another 9 trillion dollars?

A big test is coming up.  A while back, Barack Obama and the Republican Congress colluded to suspend the debt ceiling until March 15th, 2017, and this week we are going to hit that deadline.

The U.S. Treasury will be able to implement “emergency measures” for a while, but if the debt ceiling is not raised the U.S. government will not be able to borrow more money and will run out of cash very quickly.  The following comes from David Stockman

The Treasury will likely be out of cash shortly after Memorial Day. That is, the White House will be in the mother of all debt ceiling battles before the Donald and his team even see it coming.

With just $66 billion on hand it is now going to run out of cash before even the bloody battle over Obamacare Lite now underway in the House has been completed. That means that there will not be even a glimmer of hope for the vaunted Trump tax cut stimulus and economic rebound on the horizon.

Trump is going to find it quite challenging to find the votes to raise the debt ceiling.  After everything that has happened, very few Democrats are willing to help Trump with anything, and many Republicans are absolutely against raising the debt ceiling without major spending cut concessions.

So we shall see what happens.

If the debt ceiling is not raised, it will almost certainly mean that a major political crisis and a severe economic downturn are imminent.

But if the debt ceiling is raised, it will mean that Donald Trump and the Republicans in Congress are willingly complicit in the destruction of this country’s long-term economic future.

When you go into debt there are consequences.

And when the greatest debt bubble in human history finally bursts, the consequences will be exceedingly severe.

The best that our leaders can do for now is to keep the bubble alive for as long as possible, because what comes after the bubble is gone will be absolutely unthinkable.

 

 

 

 

 

 

 

 

 

 

 

 

Crumbling Infrastructure

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Published on The Economic Collapse on February 16, 2017

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11 Deeply Alarming Facts About America’s Crumbling Infrastructure

 

 

 

 

 

No matter what your particular political perspective is, if there is one thing that virtually everyone in the United States can agree upon it is the fact that America’s infrastructure is crumbling.  Previous generations of Americans conquered an entire continent and erected the greatest system of infrastructure that the world had ever seen, but now thousands upon thousands of those extremely impressive infrastructure projects are decades old and in desperate need of repair or upgrading.  The near catastrophic failure of the Oroville Dam is a perfect example of what I am talking about.  We should be constructing the next generation of infrastructure projects for our children and our grandchildren, but instead we are in such sorry shape that we can’t even keep up with the maintenance and upkeep on the great infrastructure projects that have been handed down to us.

Once upon a time nobody on the entire planet could even come close to matching our infrastructure, but now our crumbling infrastructure has become a joke to much of the rest of the industrialized world.  Sadly, this is just another symptom of our long-term economic collapse.  We simply are not able to put as much of our money toward infrastructure as previous generations of Americans did, and as a result we have a giant mess on our hands.  The following are 11 deeply alarming facts about America’s crumbling infrastructure…

#1 According to the American Road and Transportation Builders Association, nearly 56,000 bridges in the United States are currently “structurally deficient”.  What makes that number even more chilling is the fact that vehicles cross those bridges a total of 185 million times a day.

#2 More than one out of every four bridges in the United States is more than 50 years old and “have never had major reconstruction work”.

#3 America does not have a single airport that is considered to be in the top 25 in the world.

#4 The average age of America’s dams is now 52 years.

#5 Not too long ago, the American Society of Civil Engineers gave the condition of America’s dams a “D” grade.

#6 Overall, the American Society of Civil Engineers said that the condition of America’s infrastructure as a whole only gets a “D+” grade.

#7 Congestion on our highways costs Americans approximately 101 billion dollars a year in wasted fuel and time.

#8 According to the U.S. Department of Transportation, over two-thirds of our roads are “in dire need of repair or upgrades”.

#9 In order to completely fix all of our roads and bridges, it would take approximately 808 billion dollars.

#10 Federal spending on infrastructure has decreased by 9 percent over the past decade.

#11 According to Bloomberg, it is being projected “that by 2025, shortfalls in infrastructure investment will subtract as much as $3.9 trillion from U.S. gross domestic product.”

The quality of our infrastructure affects all of our lives every single day.  For instance, we all simply take it for granted that safe, clean drinking water is going to come out of our taps, but recent events have shown that is not necessarily always going to be the case.

Just ask the residents of Flint, Michigan.

Water pipes, sewer systems and water treatment facilities all over the nation are aging and are in desperate need of repair.  Of course the exact same thing could be said about our power grid.  It was never intended to handle so many people, and on the hottest days of the summer the strain on the grid is very evident.

And of course the power grid is exceedingly vulnerable to an electromagnetic pulse event, and this is something that I covered in my book on getting prepared.  It has been projected that it would only cost a couple billion dollars to harden the grid against an EMP event, but our politicians refuse to spend the money.

Meanwhile, President Trump is completely correct when he says that our airports look like something that you would see in a third world country.  Most of our airports are at least several decades old, and they are definitely showing their age.

But things are even worse when you look at other systems of mass transit around the country.  While other nations such as Japan and China are investing huge amounts of money into high speed rail, we are doing next to nothing even though what we currently have is absolutely pathetic.

I could go on and talk about our ports, schools, waterways, parks, etc. but I think that you get the point.

President Trump’s instincts are right on the money when he says that he wants to spend a trillion dollars on infrastructure.  Without a doubt, we desperately need it.

The problem is that we are flat broke.

We are 20 trillion dollars in debt, and we are adding more than a trillion dollars to that total every year.

So where are we going to get the money?

It is easy for liberals to say that we should raise taxes, but how much more are you going to squeeze out of U.S. consumers?  Two-thirds of the country is living paycheck to paycheck, and we just learned that U.S. household debt has risen to a grand total of 12.58 trillion dollars.

Once upon a time, America was the wealthiest nation on the entire planet and we could afford to construct bold, new infrastructure projects from sea to shining sea.

But today we have the biggest mountain of debt in the history of the world and we can’t even afford to repair what we already have.

When I speak of our long-term economic collapse, this is precisely the sort of thing that I am talking about.  We have clearly been in decline for a very long time, and anyone that would suggest otherwise is simply not being honest with you.

 

Civilization and Collapse

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Published on Momentum Institute on Fenruary  11, 2017

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Inside the Diner: Getting a Handle on Wealth

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Published on The Doomstead Diner on January 15, 2017

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In response to my recent article The First Law of Wealth, one of the regular Diners JRM began a thread to discuss the nature of Wealth and how we define it.  Below you will find some of the differing perspectives on what Wealth is or is not, and how they define the concept.

Note:  As with all Inside the Diner compilations, the Napalm has been edited out for a smoother read.  Full version is available Inside the Diner for those wearing fireproof BVDs.

———————–

From JRM:

This thread is for discussion of a tangent which appeared recently in RE's thread, The First Law of Wealth. The basic theme was and is the question, What is wealth, really?  I take this to be basically a philosophical question.  My contention has been that Adam Smith's definition of wealth, which has been the accepted mainstay of modern economics, is deeply inadequate and problematic — both formally within the field of economics and less formally in everyday usage outside of this field.

Smith defined wealth as "the annual produce of the land and labour of the society".  The concept is further elucidated by Smith in his writings, of course. The Wikipedia article on Wealth, in attempting to be more specific or clear, states, "This "produce" is, at its simplest, that which satisfies human needs and wants of utility."  The concept has always been a bit contentious, rough and ambiguous.

I have proposed that wealth is better understood as well-being. This concept is also a little vague, but I find it more clear than Smith's.  I proposed that we in the contemporary world should seek to gather together a more thoroughgoing theory of well-beinga General Theory of Well-being derived from various sciences, physical and social, as well as of relevant sub-fields within philosophy such as ethics and aesthetics. 

The notion that wealth is better understood as well-being (synonym: health) occurred to me when I read the etymology of the word, which roots the word "wealth" in the Old English word weal.
 

Quote

weal (n.1)

"well-being," Old English wela "wealth," in late Old English also "welfare, well-being," from West Germanic *welon-, from PIE root *wel- (2) "to wish, will" (see will (v.)). Related to well (adv.).

http://www.etymonline.com/index.php?term=weal&allowed_in_frame=0

 


The English word "health" has a different Old English root, but the concepts are intertwined. ( http://www.etymonline.com/index.php?allowed_in_frame=0&search=health )  I take health to be at least roughly synonymous with well-being, if not a perfect synonym, and treat these as synonymous here.

A General Theory of Well-being (health) can (hypothetically) be derived, with some time and effort, from a study of the application of the concept of health and well-being as it appears in various sciences, be it medicine, biology, ecology, psychology, etc.–, but also in philosophy such as in ethics and aesthetics.  No such General Theory seems yet to exist, and so any progress in defining wealth in these terms may well depend first on such a General Theory.

I believe a very potent key to unfolding this inquiry into a possible General Theory of Well-being, and thus of wealth, may be found in the concept and science of resiliency — which is an important topic in systems science and theory.  Resiliency is a principal concept wherever health and well being are discussed philosophically and scientifically. This is so in psychology, ecology, medicine and so on, and I believe this is hardly a coincidence.  Resiliency and fragility are more than merely philosophical concepts; they are fundamental attributes of all systems.  And systems can be found … nearly everywhere, be they natural systems or artificial ones.

I believe that if a General Theory of Well-being should emerge from its current incipience, not only would this precipitate an inevitable re-framing of economic theory on the level of a paradigm shift in the field, but it would constitute the basis of a re-framing of our entire modern world view as a whole.  This would transform the entire field of education, of commerce, of architecture, of design generally….  The result would be a revolution in nearly all academic disciplines and a return to the unity of knowledge which pre-modern people had always taken for granted.

 

From JRM

Hypothesis:  Resiliency is a concept with applications across many disciplines, scientific and beyond.

Evidence:

http://www.ecologyandsociety.org/vol12/iss1/art23/table1.html

I'll compile a list of online resources which discuss resilience across various disciplines over time, and invite you to add to this list. 

Speculation:

I strongly suspect that when we gather together functional definitions and descriptions of the concept of resiliency in many fields of knowledge, in their simplest terms, we can set these next to one another and discern what is common to each, thus constructing a universal concept of resiliency alongside a general theory of resiliency.  I further speculate that the association of knowledge of resiliency from many fields will result in cross-fertilization between disciplines (subject areas). 

I believe some of the weaknesses of theory in, say, economics (e.g., in economic resiliency theory) may be revealed by association with the concepts and applications of resiliency theory in other disciplines, with psychology and economics, medicine and ethics/aesthetics, politics and history informing and enriching one another via this association and an associated interdisciplinary dialogue.

This is necessarily a critical inquiry, in the sense that a critique of disciplines and their theoretical orientations is likely to emerge with such a rich, interdisciplinary investigation. 

Inevitably, the philosophical concepts of fact and value will come into play here.  These two have been strangely at odds with one another vis-a-vis the fundamental division of the academic realm (education) into "the humanities" on one side (and associated "soft-sciences" such as social science generally …)  with "hard" physical sciences on the other.

Further speculation:

Until recently, most people have been fairly comfortable discussing wealth as "material wealth" (tangible, thus amenable to scientific analysis and with a clear definitional boundary) as if it were wholly "material," and thus a discrete concern in relation to "non-material wealth" (which has oftentimes been treated as an "aside" in economics).  My hunch is that this is largely due to the traditional popularity of a "fact/value" distinction in philosophy.
( https://en.wikipedia.org/wiki/Fact%E2%80%93value_distinction ) This also relates to our cultural habit of assuming that science cannot directly address ethical and aesthetic questions … and that ethical and aesthetic questions ought not be allowed to "muddy" or "muddle up" scientific ones.

(Edit:  In the near future, I hope to demonstrate why it is that material, tangible "wealth" can neither be conceptually, theoretically or practically be sharply segregated from non-material aspects of wealth.  These "two" are interdependent to the core.)

This is all rote habit in the dominant culture, so finding a bridge which all sides would be comfortable with will certainly present a challenge. 

I believe that bridge is near at hand, and not so "impossible" as we tend to suspect.

Doomer Context:

This being the Doomstead Diner, you may be wondering what any of this has to do with Doom or Collapse.

My basic answer is …

(a)  At least some of the challenges and risks in Collapse can be at least partially addressed or ameliorated by altering maladaptive, dysfunctional and inappropriate systems  and habits, before, during and after Collapse.

(b) Doing so will likely require a more thorough comprehension of just what it means for systems and habits to be maladaptive, dysfunctional and inappropriate.

(c) "Prepping" should not be an isolated, purely individualistic (or familial, or tribal…) activity, because…

(d) We're all in this together.

(e) Etc.

 

From JRM

Those with an interest in Collapse should be interested in the complex systems theory concept called "adaptive capacity." Note that in the following definition of that term the principles are applicable across disciplines.
 

Quote

Systems with high adaptive capacity are more able to re-configure without significant changes in crucial functions or declines in ecosystem services. A consequence of a loss of adaptive capacity, is loss of opportunity and constrained options during periods of reorganization and renewal.
Adaptive capacity in ecological systems is related to genetic diversity, biological diversity, and the heterogeneity of landscape mosaics. In social systems, the existence of institutions and networks that learn and store knowledge and experience, create flexibility in problem solving and balance power among interest groups play an important role in adaptive capacity.

http://www.resalliance.org/adaptive-capacity

 

"In social systems, the existence of institutions and networks that learn and store knowledge and experience, create flexibility in problem solving and balance power among interest groups play an important role in adaptive capacity."

These are broad, general terms, of course!  This is just a beginning to understanding how what is true about ecosystems is similarly true about social systems.  What does "learn" mean in this context?  This sounds like a simple question, but its deceptively simple.  Real learning, if you think about it carefully, must necessarily be in accord with the facts, with what is real and true.  Otherwise, it's not really learning at all.

Facilitating real learning (genuine education) has a kind of value which Smith's definition of wealth simply does not take into account.  This is but one of probably thousands of examples in which the richness which is true wealth has no accounting in Smith's definition of wealth.  Only economism is so reductive in this way as to measure "an education" in tuition fees or future earning potential to ascertain its 'value'.  Economism, here, bears similarities with scientism, which is not science but ideology.  Both are illusory ideologies, artifacts of simple-minded reductionism.

It's also worth noting in this context that the essentially economistic modern economic world-system, rooted as it is in a "thin" value reductionism, can readily be shown to shore itself up through a kind of parasitism, or expropriation of "wealth" through the consumptive reduction of values external to itself: e.g., resilient and regenerative systems, genuine education, social well-being, etc.  These are food for the hyperindusrial system. Its waste product is fragility.  You might say it eats good things and poops out shitty things — or fragile, shallow, empty things.  It therefore must reduce real learning to pseudo-learning, real education to a farce.

Thus the popular culture term for it: "death culture".

 

From Ka

I don't think I see the point of this. First, I can't see treating 'health' and 'wealth' synonymously. Suppose you were in solitary confinement, fed three bland but nutritious meals a day, and had an hour a day in the exercise yard, you would be healthy, but would you say you were wealthy?

Secondly, in usual talk, people call people "wealthy" if they have the money to buy the things that (they think) will make them happy, and "poor" if they can't. I take it you want people to stop thinking that way. Well, yes, but rather than go through complexity theory and talk of resiliency, wouldn't it be simpler to just point to the Sermon on the Mount, or the Eightfold Path?

 

From Surly

Ts is a very thought-provoking post. For a good while I've been trying to put together disconnected thoughts about the ideology of "growth" and the morality of the spreadsheet. This kicked some of those ideas good and hard.

I'm gonna need a bigger boat.

From Eddie

I've been reading the thread, and I'll have to admit JRM loses me at times, but I agree that wealth amounts to more than money in the bank, or gold or diamonds.

But I have to distinguish wealth from "well-being"…..wealth implies a store of value, which would include JD's example of a pantry full of homegrown food. It might even include a well-exercised and well fed body that gets adequate sleep, because that prevents illness. But the general idea of physical health? I'm not so sure. It gets complicated.

Some people are born with defects that mean they live their entire lives with diminished health, even though they try hard to be healthy. Some people abuse their bodies terribly, and yet remain generally healthy. That's a karmic thing, in my book.

In any case, health can go from great to really bad, really quickly. Once you're at the age where bodies naturally decline, no amount of good behavior and good diet guarantees health.

There are so many valuable things we put little or no value on in our culture….like the air we breathe, which is literally life  itself, from moment to moment. Don't think so? Try holding your breath for a few minutes.

Time….the wealth of youth. Time to do so many things, yet most of us, me included, waste time like it was unlimited. But once again, karma plays a role in how much time we get in a lifetime. An accident can snuff out the healthiest, youngest person…and they're just….gone. When you get older, you become more appreciative of time, I think. But young people? Not so much.

So, those things are valuable to me. But I've never figured out a way to store time in a bottle. According to some experts I like, like Ugo Bardi, we won't lose air before climate makes it impossible to grow food and live….so I think putting air in a bottle is probably not much of a strategy either.

The greatest wealth of all might be in good DNA. That's intergenerational wealth of the best kind in my book. Whoever it was who decided all men were created equal didn't know much about genetics. But that's a karmic crapshoot too. You get what you get.

Another kind of well-being is self-image. If you are born with DNA that gives you a healthy psyche, and you have the right kind of parenting (like before age four) that shapes you into an individual with good self-esteem. Growing up with a parent or parents who are your strong advocate in the world outside the home. Growing up with happy siblings and parents who love each other gives a child wealth that they will carry with them every day of their life. But you get that or you don't. You can't lose it once you have it, and if you don't get it early, it's damned hard to get at all.

Things that make us physically comfortable and protect us from the weather. Housing, heating and cooling,  a decent mattress to sleep on…all those things contribute to well-being. Whether you can stockpile comfort? Some things maybe.

What I'm getting around to is that I think of wealth as some kind of stored value. And most stored values are physical world values. Values of well-being are largely not amenable to being deliberately stored for future use.

Money, as long as the system functions, is a store of wealth…and then, when the fiat currency dies, it no longer is. So fiat money and digital dollars in an account of some kind are fragile. But they are really convenient in the world that now exists. The problem is the future.

Gold has a host of issues, but it's durable. Silver is too. How to buy metals and store them is a subject for a different thread. They do represent wealth,in my opinion, all arguments to the contrary fly in the face of history.

Food is very storable these days…but the ability to grow food into the future is really valuable too. To me food resilience is real wealth. Stored food, seeds, a place to plant them, food animals…all those things are tangible wealth.

Stored fuel is real wealth, but it's expensive. But a propane refrigerator and a 3000 gallon propane tank will give you refrigeration for more than five years. Fragile? Only if war breaks out.

Solar PV panels are a form of real wealth. You need knowledge about how to use them. There's a lot to know. Fragile? Definitely. But durable too, good for decades if they aren't broken.

Transportation. A sailboat, fully provisioned, could be a ticket out of war zone. We've written a lot about that. Wealth, yes, but a boat consumes wealth too. I wouldn't have one unless it was also my house. Too much ongoing cost and too much maintenance required.

Tiny house, like Dr. Chia, with all its well thought-out systems. Definitely a form of wealth, to me.

 

From JRM

I don't think I see the point of this. First, I can't see treating 'health' and 'wealth' synonymously. Suppose you were in solitary confinement, fed three bland but nutritious meals a day, and had an hour a day in the exercise yard, you would be healthy, but would you say you were wealthy?

 


Let's begin with the simplest Venn diagram.
https://d2gne97vdumgn3.cloudfront.net/api/file/RXqIbx54RTKarFp7Bv4F

In the leftmost circle section write the word health.  In the rightmost circle section, write the word wealth.  In the center section of overlapping circles, write a question mark.  Under that question mark place an H. H, here stands for "hybrid concept".  Cats can't breed with dogs, but take a moment to imaginatively visionalize what the outcome may look like if a rat terrier bred with an abyssinian cat.

Tough, isn't it!

Now imagine that wealth and health have much more in common than this rat terrier and this abyssinian.  (They most certainly do!)  What you're beginning to do here is to re-frame both terms in the middle section of the Venn diagram. The trick here is to allow each term to modify the others a little, to re-contextualize it, to bring it into another meaning which is both health and wealth.

This task is impossible if the concept of wealth you're employing is very shallow, rigid and narrow.  And it's NOT EASY to make something shallow deep, something rigid supple, something narrow wide.  It's an act of imagination — but what we're imagining here is not something like a fiction, a unicorn, say.  We're imagining what's really there in order to see what is really there.

In this context, let's examine the typical bundle of carrots we find in our grocery store today in relation to the typical carrot found in a grocery store in 1950. 
 

Quote

fruits and vegetables grown decades ago were much richer in vitamins and minerals than the varieties most of us get today. The main culprit in this disturbing nutritional trend is soil depletion: Modern intensive agricultural methods have stripped increasing amounts of nutrients from the soil in which the food we eat grows. Sadly, each successive generation of fast-growing, pest-resistant carrot is truly less good for you than the one before.

https://www.scientificamerican.com/article/soil-depletion-and-nutrition-loss/

 


Through profit-driven breeding practices and profit-driven farming practices much of our food has become less beneficial to us, less nutritious. Less "healthy" (conducive to sustaining our well-being, our health).  The soil is less valuable than it once was. The food is less valuable than it once was. 
if "value" in this context is roughly equivalent to wealth, we're all less wealthy than we once were because of these practices meant to produce wealth.

Our pursuit of wealth, more often than not, results in a reduction of wealth.  Once you get that basic concept you can then examine most anything in our society and economy and find out whether and how this same thing is happening in that context.  It will shock your pants off if you look carefully. These are not a few isolated incidents but a whole way of life.  "Death culture".
 

Secondly, in usual talk, people call people "wealthy" if they have the money to buy the things that (they think) will make them happy, and "poor" if they can't. I take it you want people to stop thinking that way.

 


… and talking that way…

Actually, no. Not in everyday, ordinary life.  Not yet.  I think that will come if the paradigm shift continues to unfold and deepen.  In the mean while, just expect that the word "wealth" is much less clear in its meaning than it was yesterday.  Or last year. Or fifty years ago.

What I'm doing here is enriching the concept of wealth by attempting to remove it from its abstract context and to set the concept back down in the actual world in which we live–this concrete world.  A thing is abstract, in the philosophical sense, when it doesn't exist in the world of time and space. It is concrete when it does.  I'm talking about concrete wealth, and that breaks all the unwritten rules about wealth which economists and politicians (etc.) prefer us to utilize.

It's one of the many ironies here that when I speak of concrete wealth, as defined above, I seem to be making something very tangible less tangible!  After all, Adam Smith's "wealth" seems to be as tangible as could be!  No one could doubt that potatoes and barns and houses are both tangible  and of utility (which two components is the essence of Smith's concept of wealth).  But there is a method, and reason, for my madness!  As a careful observer and student of human ecology, ecological philosophy and ecological design over many decades, when I brought (and bring) my conceptual tool kit to things happening in our real, concrete, tangible world I keep seeing the same damn thing wherever I look!  One begins to notice a freaking pattern after a while. And the pattern is this: We modern, contemporary people, caught as we are in the fact and ideology of hyper-capitalism (a.k.a., hyperindustrialism)  have been plundering wealth as well-being like there's no tomorrow.   More often than not, we are reducing the well-being of living systems — personal/individual (our own bodies),
ecosystems (ecological, environmental), social (social health/well-being), emotional, aesthetic, spiritual…. Anything we are apt to call good or valuable is at risk or is being severely eroded in the name of "wealth production" — and it's about time for us to open our eyes and see what the hell is really going on here in the name of creating wealth!

We went so far astray because we have cultural blinders on. It worked out relatively okay for a while to use Smith's version of "wealth" as a guide, but now the consequences are much too severe to be ignored.  Let's stop ignoring it then!   I'm attacking the heart of the matter here. I want to pull those blinders off and show the naked world as it is. After all, we cannot honestly address a problem we cannot comprehend.

When I talk about "the naked world, just as it really is" I am talking not about objects, usually — which are real but only in a secondary sort of way.  I'm asking you to see everything as processes and flows, movement and relation.  Processes and relations.  This is my ontological frame of reference.  For me, processes and relations are primary, central.  Objects are real on in that they are fundamentally a matter of processes and relations.  This is why when I speak  of "the concrete" in relation to "the abstract" I sound a bit mad.   When I look at a thing, I see a flow.  Flows reveal a crucial aspect of relations.  All things are processes and relations.  (Smith, being an Early Modern, would not know what I mean.)

Also, I take disciplinary boundaries in knowledge fields as, at best, a heuristic device.  All useful knowledge, as I see it, is inter- or trans-disciplinary.  The field of knowledge is one.   Nothing so befuddles us as the perverse concept that we should stick to a discipline (subject area, e.g., economics, philosophy, psychology, anthropology, physics).

 

From Eddie

All good things come from Mother Earth, and we treat her rather abysmally. I personally doubt that we humans can collectively get over the extraction economy paradigm. You have to see the big picture, and you have to be interested in something besides how much money you can get from selling scarce resources. You have to look out for the welfare of future generations.

For the most part, the people who do recognize the problem are not the people making decisions on what gets done.

And it's very, very late in the game.

It's the bottom of the ninth, and the bases are loaded with fat cat billionaires.

 

From JRM

Oh, gawd, thank you!  This is precisely why I like dialogue, conversation…. If we stay with it we can, as RE puts it, "drill down".

I want to really drill down on this quote from you, Eddie. 

I've barely begun to give clear shape and specificity to the world-shaking insight which occurred to me when I learned the etymology of the word "wealth," which links wealth to well-being.  My whole view of the world began to dramatically re-orient, because I finally had the key which allowed me to fully see, understand…, comprehend what I'd be learning about since I was a kid. It was the Super Decoder ring that resulted in my own personal paradigm shift.  And there's no better way to give clear shape and specificity to a very complex insight than to write about it.  But I can't write about it meaningfully without a dialogue! It's too lonely an endeavor for me, sitting all day at a desk, thinking and writing all alone.  The writer/philosopher's life is too lonely for a gregarious guy like me.  And, besides, I need to test what I'm thinking about.  I don't want to go down blind alleys and get lost.  You fellas are helping me keep my path lit.  (We have some extraordinary people gathered here!  I feel very blessed by that.)

Anyway, a great place to Drill Down is around the concept of wealth as "stored value".  I love that! It's a very deceptively simple concept, because both terms, unbeknownst to most people, are wildly vague and ambiguous.  I consider this ambiguity to our advantage, here.

The term "value" is ambiguous and vague because when the word sits there all alone it's not qualified or characterized, as it would be if it had the modifier "utility (utilitarian?) value" — though even that is rather vague!  What we see here is that the word "value" has a great deal more dependency on particular context to have any meaning at all.   That said, I'm fully aware that in today's market economy a thing has "value" only in exchange, and the currency of that value is generally money (even gold is purchased with money).

So I've begun to examine the term "value" in "stored value".  Now let's look at "stored".  This term too is wildly context dependent to have much meaning.  As we all know, some "wealth" is "stored" exclusively in digits in a computer somewhere (in the cloud?)…. When that "wealth" suddenly evaporates, it does not evaporate in a literal sense, like water (which can be stored wealth).  Then there is the storage of vegetables, another kind of wealth.  Yes, we can see the vegetables in the pantry jars as wealth, but do we see the soil, air, water … the flows in those jars?  If we do not, we will miss the storage of seeds, the stored up knowledge and skills of the gardener… and we may miss the fact that those veggies were grown by someone who COULD have used those same hours (a form of wealth, hours) to earn thousands and thousands more dollars at another skilled activity.  Industrially grown vegetables are "dirt" cheap. But they do not store the knowledge and skills of growing them, the joy and freedom of doing so… They do not store the seeds of heirloom species. They do not store the social relations value which can only emerge in a community garden. They do not store food security.  They do not store the comfort of knowing that one has food security in a fragile food system (fragile mostly because 
of the fragility of the financial / economic system.)  They do not store the regenerative practice of caring for the soils nutrient value.  And I hope I'm making my point here, because, quite honestly, I could list the things not stored in industrial food until I am blue in the face.

And that's just one tiny fragment of all I have to say about storing wealth.  I'm all for storing wealth!  In fact, that's what this whole topic is about! But we cannot meaningfully discuss the storage of wealth without pointing out the immense gaping hole in our collective storage facility, out of which wealth is gushing much like the oil and gas gushing up out of the ruptured pipe in the Gulf of Mexico following the Deepwater Horizon calamity.

But I intend to go several steps beyond familiar ecological economics critiques in my exploration of the gushing waste and destruction of wealth which our society's wealth destroying death culture system is producing.  For when I turn my gaze away from the ecological and environmental ruin, I see also social ruin, emotional ruin, spiritual ruin spewing up out of that rupture. The very same rupture!  I want to stop this madness! Now.

But first we must understand why it is spewing up waste in the pursuit of "wealth".  And we can't do this without taking all forms of wealth into account, and seeing how they are all linked together. 

To do THAT is to usher in a paradigm shift not only in economics, but also in the very worldview which "runs" our world.

 

From Eddie

I see also social ruin, emotional ruin, spiritual ruin spewing up out of that rupture. The very same rupture!  I want to stop this madness! Now.

That would be nice. I do agree with this assessment.

 

From JRM

I don't think I see the point of this. First, I can't see treating 'health' and 'wealth' synonymously. Suppose you were in solitary confinement, fed three bland but nutritious meals a day, and had an hour a day in the exercise yard, you would be healthy, but would you say you were wealthy?

 


Eddie and I have begun to discuss the notion of the storage of wealth, and of wealth as something stored.

Here, Ka, you are in some sense — perhaps unwittingly — addressing this very same topic.  I would suppose that it is for the sake of simplicity that your question was directed at an individual person's wealth.  By starting with simple things, oftentimes, we can acquire a concept which we may later apply to more complex things.  So starting with an individuals wealth seems to make sense.  But this is a problem for us here because the dominant paradigm, which I seek to illustrate an alternative to, is focused on the accumulation (or storage) of wealth (as defined by A. Smith) in units smaller than the whole system.  Focusing on an individual perpetuates this atomistic approch.  Specifically, the focus on the isolated individual, as in your case illustration, seems very likely to be requesting of us to examine wealth in social atomism terms.  Social atomism assigns the individual as the basic unit of analysis for all implications of social life. It's a form of reductionism as applied to social systems.  Our prisoner is himself being "stored" (bound, contained) — but away from various kinds of wealth which are outside of his storage container. 

I'm attempting here to further develop the notion of storage, which I see as containment.  People can be "contained" in relation to — with — wealth, or  away from wealth.  Examples of being contained away from wealth are in prison, outside of a "wealthy" gated community, … or anywhere where food is stored with limited access (e.g., grocery store for those without job/money,  family pantry).  Containers have boundaries.  Boundary is our fundamental concept here.

For you to understand what I'm getting at about the proposed alternative paradigm of wealth, we have got to look at it without a social atomism filter on our goggles. If social atomism assigns the individual as the basic unit of analysis for all implications of social life, what would be the characteristic of it's "opposite" … out on the other end of a spectrum?  I will propose the term "social holism" as the contrast term.

I did not find a good, succinct definition and explanation of social holism on the web right away, so I settled upon offering this explanation of holism versus reductionism insteadhttps://www.youtube.com/watch?v=h_kbt7h1YRw  I only watched a few minutes in, so i don't know if it eventually gets into social holism, per se.  But if you grasp the holism / reductionism distinction you should have the basic idea.

The economic paradigm proposal I'm proposing takes a holistic perspective on all things: wealth, health, value, society, individual people — everything — even money.  I have no interest in atomism of any kind other than for the purpose of contextualizing the "atoms" in a holist perspective.

I do not believe in atomistic wealth at all. Nor do I see true wealth as fully containable — because wealth, like all things in the real world, are process, flows and relations.  Even the five gallon bucket of dried pinto beans, to be "wealth" must eventually become unsealed, cooked and served.  And the use of gold for exchange implies and constitutes a flow and a relation.  It is not fully contained.  But neither is a cell, nor an individual — in biological terms.  In the cell, health and function depend upon a semi-permeable membrane.  The same is true of whole organisms, in some sense. And of whole communities…. Even Earth is not a fully closed system.  It requires its relationship to the sun, for example, as a whole living system.

Flow. Process. Relation.               Not static, rigid, fully internalized objects.

 

From RE

When you talk about wealth, you have to first consider the hierarchy of needs.

Before anything else as a Homo Sap, you need Food, Shelter, Water, Breathable Air and Clothing.  These are all material things.  The first 4 are absolutely essential, the last could be optional in a climate warm enough year round.  However, even in quite warm climates with primitive people they don't usually go around buck naked.

In Industrial society, the first 2 always cost money.  Water has in the past been free, but now Water bills if not paid directly are paid with taxation.  Air is still generally free, but in quite a few places is now not fit to breath.  Clothing always costs money.

Now, here in the FSoA, before you can even start to think about Wealth enough to afford Health Care, you have to have enough to cover all those basics, plus a few more now necessary like transportation and communication.  The problem here is that for half the population, they only have enough to cover the basics.  If you don't have enough for food or shelter, you're not going to be very healthy.

Now, once above the median income, you start to have enough money for some Health Care, but depending on what your health issues are, it can get quite expensive to try to stay healthy.  Insurance itself is quite expensive, so you're now moving up the ladder of costs you have to pay out each month before you can even begin to think about saving some material wealth for security, whether that material wealth is measured in canned foods, dollars or gold coins.

Only after you have covered all these material things and health coverage and some savings can you begin to start to look at other sorts of wealth, like spiritual wealth or environmental wealth.  People in India for example are too busy just trying to get enough food to eat each day to be able to do much in the way of enhancing their spiritual wealth or the environmental wealth.

The problem here is that all the essentials of living have been thoroughly monetized.  So the general definition of wealth is how much money you make or have piled up in savings.  Until we can run a society that is free of money, this will continue to be the general definition of wealth.  A lot of money buys you good healthy food to eat, you can afford to shop organic at whole foods.  A lot of money buys you health, you can afford 7 heart transplants like David Rockefeller.  A lot of money buys you a relatively clean local environment to live in, you can build a beautiful McMansion in the Rocky Mountains overlooking a river full of fish with clean air to breathe.  The only form of wealth money does not buy directly would be Spiritual Wealth, but even here having all the other things well covered gives you time to contemplate existential questions.  Not to say you can't do this even if you are materially poor, since it doesn't cost any money to dwell on the nature of existence, but usually if you are worried about where your next meal will come from that is more at the forefront of your thinking.

So anyhow, when I use the word "Wealth", because of the nature of a society that is run on money, I'm talking about monetary wealth, not all the other types of wealth which you might define.  I think most people use this definition when talking about wealth.  If you want to avoid confusion, it would probably be a good idea to create a new term for the other areas.

 

From JRM

I think most people use this definition when talking about wealth.  If you want to avoid confusion, it would probably be a good idea to create a new term for the other areas.

 

 

Quote

"Edward S. Herman, political economist and media analyst, has highlighted some examples of doublespeak and doublethink in modern society. Herman describes in his book, Beyond Hypocrisy the principal characteristics of doublespeak:

What is really important in the world of doublespeak is the ability to lie, whether knowingly or unconsciously, and to get away with it; and the ability to use lies and choose and shape facts selectively, blocking out those that don’t fit an agenda or program."

https://en.wikipedia.org/wiki/Doublespeak#Origins_and_concepts

 


I'm concerning myself here mainly with how the word "wealth" is used in doublespeak, and especially as it is used "unconsciously".  If we do not understand what real wealth is, we are subject to other people's use (and abuse) of the word.

It is good that we keep in mind that "wealth," as the term is now popularly used, is "generated" through the clear-cutting of intact, old growth forests — which are "replanted" as tiny monocrop saplings … and through the dropping of bombs on towns and cities full of innocent non-combatants….  It is "produced" by damming wild rivers, fracking the hell out of oil and gas fields, and blasting the hell out of mountains under which coal can be surface mined.  It is created through the destruction and replacement of locally owned businesses with corporate giants….  And if a child gets asthma from the burning of coal, that creates "wealth" in the hands of those doctors who "treat" the asthma.  (I put "treat" in scare quotes because if a doctor wants to "treat" coal-caused asthma she will seek to shut down the coal burning plants. That will be the principal treatment method.)

Undoubtedly, the world's largest store of "wealth" is in the form of fossil fuels, which, if burned, would surely result in the mass extinction of most currently existing Earth species.

That's doublespeak, and doublethink.  It is, in other words, false.

I will not allow the word wealth to be misapplied for the sake of convenience.

All true wealth must be produced via either sustainable (thus good) or regenerative (better) practices.  Anything else is doublespeak and doublethink. 
And that's just the start, because man cannot live on bread alone.  We have more than merely material needs, such as our need for belonging, connection and community.  It is not enough that we be merely sustainable or regenerative in ecological terms. We must also become sustainable and regenerative in social terms. Etc.

 

From RE

I will not allow the word wealth to be misapplied for the sake of convenience.

 


Your problem here is that you can't communicate with people if your definition of wealth is radically different from theirs.  You have to use commonly accepted definitions of a word to be understood.  For Wealth, according to Merriam-Webster, the definitions are:

Definition of wealth

    1
    obsolete :  weal, welfare

    2
    :  abundance of valuable material possessions or resources

    3
    :  abundant supply :  profusion

    4
    a :  all property that has a money value or an exchangeable value b :  all material objects that have economic utility; especially :  the stock of useful goods having economic value in existence at any one time <national wealth>

It's not a lot different than your beef with the fact the righties have the word "Libertarian" sewn up.  You want to try and "take back" this word from them.  Now you want to redefine what the commonly held notions are of "Wealth", to take that word back.

I don't think you will be too successful with getting back either word.  Define a new one, and you might communicate the ideas better.  Using a word most people use differently than you do just spawns confusion.

 

From JRM

"Your problem here …."

 

No, actually. It's not my problem alone. It's also your problem, and the problem of anyone and everyone subject to the misappropriation of words. 

Curiously enough, your post began with

"1
    obsolete :  weal, welfare" (a.k.a., well-being)

Along come some people who decide to hijack the word wealth removing its original meaning from back when it was "weal" (well-being).  Adam Smith writes a voluminous text with a voluminous title, "An Inquiry into the Nature and Causes of the Wealth of Nations" in which he redefines wealth as so much personal, familial or national property-stuff.  He gets folks to buy into his definition, and pretty soon dictionaries are calling the earlier definition "obsolete".  If in twenty, fifty or a hundred years Smith's version is decided to be "obsolete," as well it may, it will begin to look like a tennis match, the ball flying back and forth across the net.  So who's right, then, over the long haul?

I say I am.  So I'll keep the original meaning of the word, thanks.

My argument is much better than Smith's.  He didn't understand complex systems half as well as I do.  I'm standing on the shoulders of giants.

https://youtu.be/kleqF3X1_l4

 

From RE

I suggest using the word Weal then to get back to the original meaning you wish to communicate.


Weal seems to me to be precisely what you are talking about, and it's a word already in the dictionary!  So you don't even have to define a new word here!  You've already GOT one to use!

I could write a whole blog on this with no problem whatsoever.  I'll start a paragraph…

Here on the Diner, we are concerned not so much with the "Wealth" of society as the "Weal" of society.  It's not a word commonly used anymore, but it should be.  The word and concept of Wealth that developed from Weal is destructive to our society and our planet…

 

From Palloy

In English as spoken by the English, "weal" is not obsolete, and is almost always qualified as "the common weal", and hence British Commonwealth, etc., meaning the welfare of the nation/Empire.  I suppose there could also be "the personal weal" and "the family weal".  Since I think you want to compare/contrast "personal weal" with "personal wealth", it would definitely make sense to use another phrase. 

The family weal has implications of giving value to family relationships, which can be paramount in peoples' lives – if you have a good, loving relationship betweens spouses, and between them and their children, poverty of wealth can be endured/overcome.  "When I were a lad, …"

https://www.youtube.com/embed/Xe1a1wHxTyo

From Lucid Dreams

Currently I'm reading one of JMG's latest books Dark Age America.  He talks about wealth and money, and he points out that money is not the norm in terms of our species time on Earth.  However, the arrangement without money, from a western POV, seems to be feudalism. 

Another idea that seems to work against money, I don't know too much about, and that is anarchy as a political movement.  I've never read any books on the subject, but I suppose I will soon because I have been growing interested in it lately.  Yet, it seems to me like just another idealistic movement that won't work simply because of it's composition of idealism.  I've learned that too much idealism just equals delusions.  There is maybe room for a smattering of idealism in daily life, but beyond that and you are setting yourself up for agitation, friction, and needless strife.  I'm well qualified as I have spent my entire life wallowing in idealism.  Even now, having identified this problem of mine, I still find it hard to ascend up out of the pit of idealism.  Idealism works in the realm of spirituality, and that is it's proper place it seems to me. 

JRM, this idea of yours is one of idealism.  On the one hand we have the empires practice of Newspeek to deal with.  They take over words all of the time and change their meanings, and they typically change them to their opposite meaning…which is what Newspeek is.  Not just words, but ideas and institutions."  "The Ministry of Health" being the place one would go to get tortured.  "Freedom is Slavery" and the like.  On the other hand, the idea of wealth is central to a corporeal existence, and it's defined as stuff and how much stuff you have, and what that stuff is. 

Yet there is the usage of wealth such as "he has a wealth of knowledge."  That means he has a lot of knowledge and knowledge is not a physical good.  It just means there is a lot of knowledge in his possession.  There is also spiritual wealth.  There are different types of wealth.  The common wealth, however, is money and and the things that money can buy. 

In this case, you cannot claim Newspeek because everybody uses the term "wealth" to mean material abundance.  The definition of the word has not been changed, you, JRM, are trying to change it, and so I agree with RE that you should just use another word.  This is similar to the debate we had about the word "cult."  Here on the Diner I believe the dictionary is judge and jury in these cases.  We rely solely on words to communicate via this forum.  The dictionary's purpose is to define words, and so we must acquiesce to those definitions.  The meaning and usage of words is a very nuanced thing, but in this case it is even less so than with the word "cult." 

There is a world of difference between the ideas of "wealth" and "value."   "Quality" is another word that comes to mind. 

You can't force spiritual ideas onto people.  It just doesn't work that way.  That's why the great spiritual practitioners simply point in the direction that leads to enlightenment.  You have to go their yourself or it doesn't work.  I'm of the opinion that real wealth comes from a spiritual place because in the end we all die and we can't take our "wealth" with us.  Doesn't stop us from trying.  The real wealth we are here for is an intangible wealth that is made of experience and knowledge.  I believe when we die we can take that with us, if only to help navigate our way back to source. 

 

From JRM

The dictionary's purpose is to define words, and so we must acquiesce to those definitions. 

 


Good, comprehensive dictionaries include the usage of the word wealth as I'm using it here.  And words are always changing.  They change when people use them differently.  And there's no reason why a person cannot call for, suggest, a change in usage. 

My purpose here, in part, has been to reveal how the popular use of the word wealth in economics terms is flawed and should be altered.

If what I'm saying here is "idealism," that's fine.  I have often been called an idealist. It's not a word I prefer to use to describe myself, actually.  I see myself as an intelligent person who despises falsity and ignorance being employed in "official" places as part of a system of deception, foolishness, destruction and oppression.   I will not stop sharing my thoughts about such things because it's supposed to be "idealism" which is supposed somehow to be ridiculous, silly or irrelevant.  Of course, if no one here is interested in some part of what I have to say, they can just ignore that part — this thread, for example.  It's not everyone's cup of tea, obviously.  But it matters to me.

 

From Lucid Dreams

The dictionary's purpose is to define words, and so we must acquiesce to those definitions. 

 

 

 

 

Good, comprehensive dictionaries include the usage of the word wealth as I'm using it here.  And words are always changing.  They change when people use them differently.  And there's no reason why a person cannot call for, suggest, a change in usage. 

My purpose here, in part, has been to reveal how the popular use of the word wealth in economics terms is flawed and should be altered.

If what I'm saying here is "idealism," that's fine.  I have often been called an idealist. It's not a word I prefer to use to describe myself, actually.  I see myself as an intelligent person who despises falsity and ignorance being employed in "official" places as part of a system of deception, foolishness, destruction and oppression.   I will not stop sharing my thoughts about such things because it's supposed to be "idealism" which is supposed somehow to be ridiculous, silly or irrelevant.  Of course, if no one here is interested in some part of what I have to say, they can just ignore that part — this thread, for example.  It's not everyone's cup of tea, obviously.  But it matters to me.

 


From one idealist to another, I understand your frustration. 

It's not that your ideas are ridiculous, silly, or irrelevant, it's just that they are ideal.  Economics is a "science" that can never be ideal.  It's made of statistics (lies), propaganda, lies, theories, and finally the reality that results from the combination of all of those things.  The truth is that economics is a lie.  It's just the science by which the men at the top stay at the top.  They are at the top because they want all of the wealth for themselves and they are vile enough to do whatever it takes to ensure it stays that way.  They are perfectly happy with their wealth, and they want the rest of the world to see things exactly the same way that they do.  They want us in competition with one another for wealth. 

No matter how you slice it, corporeal wealth is made up of materials.  Wealth is just having a lot of something desirable. 

I don't know…kinda feels like I'm pissin' in the wind here. 

 

From RE


You're not pissin' in the wind, because the word "wealth" is used commonly to describe the material world, generally speaking.  JRM wants to REDEFINE the word to encompass more than just material things.  As long as $MONEY$ rules the world, this is not going to happen.

Money will rule the world until the Monetary System Collapses, which it will eventually.  They always do collapse.  Neal Stephenson called the monetary system the "System of the World" in his trilogy The Baroque Cycle.  I highly recommend it for a read.

 

For still more on Wealth, including all the Napalm, join us inside the Diner!

2017: The Year When the World Economy Starts Coming Apart

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Published on the Our Finite World on January 10, 2017

Dicuss this article at the Economics Table inside the Diner

Some people would argue that 2016 was the year that the world economy started to come apart, with the passage of Brexit and the election of Donald Trump. Whether or not the “coming apart” process started in 2016, in my opinion we are going to see many more steps in this direction in 2017. Let me explain a few of the things I see.

[1] Many economies have collapsed in the past. The world economy is very close to the turning point where collapse starts in earnest.  

Figure 1

 

 

 

 

Figure 1

The history of previous civilizations rising and eventually collapsing is well documented.(See, for example, Secular Cycles.)

To start a new cycle, a group of people would find a new way of doing things that allowed more food and energy production (for instance, they might add irrigation, or cut down trees for more land for agriculture). For a while, the economy would expand, but eventually a mismatch would arise between resources and population. Either resources would fall too low (perhaps because of erosion or salt deposits in the soil), or population would rise too high relative to resources, or both.

Even as resources per capita began falling, economies would continue to have overhead expenses, such as the need to pay high-level officials and to fund armies. These overhead costs could not easily be reduced, and might, in fact, grow as the government attempted to work around problems. Collapse occurred because, as resources per capita fell (for example, farms shrank in size), the earnings of workers tended to fall. At the same time, the need for taxes to cover what I am calling overhead expenses tended to grow. Tax rates became too high for workers to earn an adequate living, net of taxes. In some cases, workers succumbed to epidemics because of poor diets. Or governments would collapse, from lack of adequate tax revenue to support them.

Our current economy seems to be following a similar pattern. We first used fossil fuels to allow the population to expand, starting about 1800. Things went fairly well until the 1970s, when oil prices started to spike. Several workarounds (globalization, lower interest rates, and more use of debt) allowed the economy to continue to grow. The period since 1970 might be considered a period of “stagflation.” Now the world economy is growing especially slowly. At the same time, we find ourselves with “overhead” that continues to grow (for example, payments to retirees, and repayment of debt with interest). The pattern of past civilizations suggests that our civilization could also collapse.

Historically, economies have taken many years to collapse; I show a range of 20 to 50 years in Figure 1. We really don’t know if collapse would take that long now. Today, we are dependent on an international financial system, an international trade system, electricity, and the availability of oil to make our vehicles operate. It would seem as if this time collapse could come much more quickly.

With the world economy this close to collapse, some individual countries are even closer to collapse. This is why we can expect to see sharp downturns in the fortunes of some countries. If contagion is not too much of a problem, other countries may continue to do fairly well, even as individual small countries fail.

[2] Figures to be released in 2017 and future years are likely to show that the peak in world coal consumption occurred in 2014. This is important, because it means that countries that depend heavily on coal, such as China and India, can expect to see much slower economic growth, and more financial difficulties.

While reports of international coal production for 2016 are not yet available, news articles and individual country data strongly suggest that world coal production is past its peak. The IEA also reports a substantial drop in coal production for 2016.

Figure 2. World coal consumption. Information through 2015 based on BP 2016 Statistical Review of World Energy data. Estimates for China, US, and India are based on partial year data and news reports. 2016 amount for "other" estimated based on recent trends.

 

 

 

 

Figure 2. World coal consumption. Information through 2015 based on BP 2016 Statistical Review of World Energy data. Estimates for China, US, and India are based on partial year data and news reports. 2016 amount for “other” estimated based on recent trends.

The reason why coal production is dropping is because of low prices, low profitability for producers, and gluts indicating oversupply. Also, comparisons of coal prices with natural gas prices are inducing switching from coal to natural gas. The problem, as we will see later, is that natural gas prices are also artificially low, compared to the cost of production, So the switch is being made to a different type of fossil fuel, also with an unsustainably low price.

Prices for coal in China have recently risen again, thanks to the closing of a large number of unprofitable coal mines, and a mandatory reduction in hours for other coal mines. Even though prices have risen, production may not rise to match the new prices. One article reports:

. . . coal companies are reportedly reluctant to increase output as a majority of the country’s mines are still losing money and it will take time to recoup losses incurred in recent years.

Also, a person can imagine that it might be difficult to obtain financing, if coal prices have only “sort of” recovered.

I wrote last year about the possibility that coal production was peaking. This is one chart I showed, with data through 2015. Coal is the second most utilized fuel in the world. If its production begins declining, it will be difficult to offset the loss of its use with increased use of other types of fuels.

Figure 3. World per capita energy consumption by fuel, based on BP 2016 SRWE.

 

 

 

 

Figure 3. World per capita energy consumption by fuel, based on BP 2016 SRWE.

[3] If we assume that coal supplies will continue to shrink, and other production will grow moderately, we can expect total energy consumption to be approximately flat in 2017. 

Figure 5. World energy consumption forecast, based on BP Statistical Review of World Energy data through 2015, and author's estimates for 2016 and 2017.

 

 

 

 

Figure 4. World energy consumption forecast, based on BP Statistical Review of World Energy data through 2015, and author’s estimates for 2016 and 2017.

In a way, this is an optimistic assessment, because we know that efforts are underway to reduce oil production, in order to prop up prices. We are, in effect, assuming either that (a) oil prices won’t really rise, so that oil consumption will grow at a rate similar to that in the recent past or (b) while oil prices will rise significantly to help producers, consumers won’t cut back on their consumption in response to the higher prices.

[4] Because world population is rising, the forecast in Figure 4 suggests that per capita energy consumption is likely to shrink. Shrinking energy consumption per capita puts the world (or individual countries in the world) at the risk of recession.

Figure 5 shows indicated per capita energy consumption, based on Figure 4. It is clear that energy consumption per capita has already started shrinking, and is expected to shrink further. The last time that happened was in the Great Recession of 2007-2009.

Figure 5. World energy consumption per capita based on energy consumption estimates in Figure 4 and UN 2015 Medium Population Growth Forecast.

 

 

 

 

Figure 5. World energy consumption per capita based on energy consumption estimates in Figure 4 and UN 2015 Medium Population Growth Forecast.

There tends to be a strong correlation between world economic growth and world energy consumption, because energy is required to transform materials into new forms, and to transport goods from one place to another.

In the recent past, the growth in GDP has tended to be a little higher than the growth in the use of energy products. One reason why GDP growth has been a percentage point or two higher than energy consumption growth is because, as economies become richer, citizens can afford to add more services to the mix of goods and services that they purchase (fancier hair cuts and more piano lessons, for example). Production of services tends to use proportionately less energy than creating goods does; as a result, a shift toward a heavier mix of services tends to lead to GDP growth rates that are somewhat higher than the growth in energy consumption.

A second reason why GDP growth has tended to be a little higher than growth in energy consumption is because devices (such as cars, trucks, air conditioners, furnaces, factory machinery) are becoming more efficient. Growth in efficiency occurs if consumers replace old inefficient devices with new more efficient devices. If consumers become less wealthy, they are likely to replace devices less frequently, leading to slower growth in efficiency. Also, as we will discuss later in this  post, recently there has been a tendency for fossil fuel prices to remain artificially low. With low prices, there is little financial incentive to replace an old inefficient device with a new, more efficient device. As a result, new purchases may be bigger, offsetting the benefit of efficiency gains (purchasing an SUV to replace a car, for example).

Thus, we cannot expect that the past pattern of GDP growing a little faster than energy consumption will continue. In fact, it is even possible that the leveraging effect will start working the “wrong” way, as low fossil fuel prices induce more fuel use, not less. Perhaps the safest assumption we can make is that GDP growth and energy consumption growth will be equal. In other words, if world energy consumption growth is 0% (as in Figure 4), world GDP growth will also be 0%. This is not something that world leaders would like at all.

The situation we are encountering today seems to be very similar to the falling resources per capita problem that seemed to push early economies toward collapse in [1]. Figure 5 above suggests that, on average, the paychecks of workers in 2017 will tend to purchase fewer goods and services than they did in 2016 and 2015. If governments need higher taxes to fund rising retiree costs and rising subsidies for “renewables,” the loss in the after-tax purchasing power of workers will be even greater than Figure 5 suggests.

[5] Because many countries are in this precarious position of falling resources per capita, we should expect to see a rise in protectionism, and the addition of new tariffs.

Clearly, governments do not want the problem of falling wages (or rather, falling goods that wages can buy) impacting their countries. So the new game becomes, “Push the problem elsewhere.”

In economic language, the world economy is becoming a “Zero-sum” game. Any gain in the production of goods and services by one country is a loss to another country. Thus, it is in each country’s interest to look out for itself. This is a major change from the shift toward globalization we have experienced in recent years. China, as a major exporter of goods, can expect to be especially affected by this changing view.

[6] China can no longer be expected to pull the world economy forward.

China’s economic growth rate is likely to be lower, for many reasons. One reason is the financial problems of coal mines, and the tendency of coal production to continue to shrink, once it starts shrinking. This happens for many reasons, one of them being the difficulty in obtaining loans for expansion, when prices still seem to be somewhat low, and the outlook for the further increases does not appear to be very good.

Another reason why China’s economic growth rate can be expected to fall is the current overbuilt situation with respect to apartment buildings, shopping malls, factories, and coal mines. As a result, there seems to be little need for new buildings and operations of these types. Another reason for slower economic growth is the growing protectionist stance of trade partners. A fourth reason is the fact that many potential buyers of the goods that China is producing are not doing very well economically (with the US being a major exception). These buyers cannot afford to increase their purchases of imports from China.

With these growing headwinds, it is quite possible that China’s total energy consumption in 2017 will shrink. If this happens, there will be downward pressure on world fossil fuel prices. Oil prices may fall, despite production cuts by OPEC and other countries.

China’s slowing economic growth is likely to make its debt problem harder to solve. We should not be too surprised if debt defaults become a more significant problem, or if the yuan falls relative to other currencies.

India, with its recent recall of high denomination currency, as well as its problems with low coal demand, is not likely to be a great deal of help aiding the world economy to grow, either. India is also a much smaller economy than China.

[7] While Item [2] talked about peak coal, there is a very significant chance that we will be hitting peak oil and peak natural gas in 2017 or 2018, as well.  

If we look at historical prices, we see that the prices of oil, coal and natural gas tend to rise and fall together.

Figure 6. Prices of oil, call and natural gas tend to rise and fall together. Prices based on 2016 Statistical Review of World Energy data.

 

 

 

 

Figure 6. Prices of oil, coal and natural gas tend to rise and fall together. Prices based on 2016 Statistical Review of World Energy data.

The reason that fossil fuel prices tend to rise and fall together is because these prices are tied to “demand” for goods and services in general, such as for new homes, cars, and factories. If wages are rising rapidly, and debt is rising rapidly, it becomes easier for consumers to buy goods such as homes and cars. When this happens, there is more “demand” for the commodities used to make and operate homes and cars. Prices for commodities of many types, including fossil fuels, tend to rise, to enable more production of these items.

Of course, the reverse happens as well. If workers become poorer, or debt levels shrink, it becomes harder to buy homes and cars. In this case, commodity prices, including fossil fuel prices, tend to fall.  Thus, the problem we saw above in [2] for coal would be likely to happen for oil and natural gas, as well, because the prices of all of the fossil fuels tend to move together. In fact, we know that current oil prices are too low for oil producers. This is the reason why OPEC and other oil producers have cut back on production. Thus, the problem with overproduction for oil seems to be similar to the overproduction problem for coal, just a bit delayed in timing.

In fact, we also know that US natural gas prices have been very low for several years, suggesting another similar problem. The United States is the single largest producer of natural gas in the world. Its natural gas production hit a peak in mid 2015, and production has since begun to decline. The decline comes as a response to chronically low prices, which make it unprofitable to extract natural gas. This response sounds similar to China’s attempted solution to low coal prices.

Figure 7. US Natural Gas production based on EIA data.

 

 

 

 

Figure 7. US Natural Gas production based on EIA data.

The problem is fundamentally the fact that consumers cannot afford goods made using fossil fuels of any type, if prices actually rise to the level producers need, which tends to be at least five times the 1999 price level. (Note peak price levels compared to 1999 level on Figure 6.) Wages have not risen by a factor of five since 1999, so paying the prices that fossil fuel producers need for profitability and growing production is out of the question. No amount of added debt can hide this problem. (While this reference is to 1999 prices, the issue really goes back much farther, to prices before the price spikes of the 1970s.)

US natural gas producers also have plans to export natural gas to Europe and elsewhere, as liquefied natural gas (LNG). The hope, of course, is that a large amount of exports will raise US natural gas prices. Also, the hope is that Europeans will be able to afford the high-priced natural gas shipped to them. Unless someone can raise the wages of both Europeans and Americans, I would not count on LNG prices actually rising to the level needed for profitability, and staying at such a high level. Instead, they are likely to bounce up, and quickly drop back again.

[8] Unless oil prices rise very substantially, oil exporters will find themselves exhausting their financial reserves in a very short time (perhaps a year or two). Unfortunately, oil importers cannot withstand higher prices, without going into recession. 

We have a no win situation, no matter what happens. This is true with all fossil fuels, but especially with oil, because of its high cost and thus necessarily high price. If oil prices stay at the same level or go down, oil exporters cannot get enough tax revenue, and oil companies in general cannot obtain enough funds to finance the development of new wells and payment of dividends to shareholders. If oil prices do rise by a very large amount for very long, we are likely headed into another major recession, with many debt defaults.

[9] US interest rates are likely to rise in the next year or two, whether or not this result is intended by the Federal reserve.

This issue here is somewhat obscure. The issue has to do with whether the United States can find foreign buyers for its debt, often called US Treasuries, and the interest rates that the US needs to pay on this debt. If buyers are very plentiful, the interest rates paid by he US government can be quite low; if few buyers are available, interest rates must be higher.

Back when Saudi Arabia and other oil exporters were doing well financially, they often bought US Treasuries, as a way to retain the benefit of their new-found wealth, which they did not want to spend immediately. Similarly, when China was doing well as an exporter, it often bought US Treasuries, as a way retaining the wealth it gained from exports, but didn’t yet need for purchases.

When these countries bought US Treasuries, there were several beneficial results:

  • Interest rates on US Treasuries tended to stay artificially low, because there was a ready market for its debt.
  • The US could afford to import high-priced oil, because the additional debt needed to buy the oil could easily be sold (to Saudi Arabia and other oil producing nations, no less).
  • The US dollar tended to stay lower relative to other currencies, making oil more affordable to other countries than it otherwise might be.
  • Investment in countries outside the US was encouraged, because debt issued by these other countries tended to bear higher interest rates than US debt. Also, relatively low oil prices in these countries (because of the low level of the dollar) tended to make investment profitable in these countries.

The effect of these changes was somewhat similar to the US having its own special Quantitative Easing (QE) program, paid for by some of the counties with trade surpluses, instead of by its central bank. This QE substitute tended to encourage world economic growth, for the reasons mentioned above.

Once the fortunes of the countries that used to buy US Treasuries changes, the pattern of buying of US Treasuries tends to change to selling of US Treasuries. Even not purchasing the same quantity of US Treasuries as in the past becomes an adverse change, if the US has a need to keep issuing US Treasuries as in the past, or if it wants to keep rates low.

Unfortunately, losing this QE substitute tends to reverse the favorable effects noted above. One effect is that the dollar tends to ride higher relative to other currencies, making the US look richer, and other countries poorer. The “catch” is that as the other countries become poorer, it becomes harder for them to repay the debt that they took out earlier, which was denominated in US dollars.

Another problem, as this strange type of QE disappears, is that the interest rates that the US government needs to pay in order to issue new debt start rising. These higher rates tend to affect other rates as well, such as mortgage rates. These higher interest rates act as a drag on the economy, tending to push it toward recession.

Higher interest rates also tend to decrease the value of assets, such as homes, farms, outstanding bonds, and shares of stock. This occurs because fewer buyers can afford to buy these goods, with the new higher interest rates. As a result, stock prices can be expected to fall. Prices of homes and of commercial buildings can also be expected to fall. The value of bonds held by insurance companies and banks becomes lower, if they choose to sell these securities before maturity.

Of course, as interest rates fell after 1981, we received the benefit of falling interest rates, in the form of rising asset prices. No one ever stopped to think about how much of the gains in share prices and property values came from falling interest rates.

Figure 8. Ten year treasury interest rates, based on St. Louis Fed data.

 

 

 

 

Figure 8. Ten year treasury interest rates, based on St. Louis Fed data.

Now, as interest rates rise, we can expect asset prices of many types to start falling, because of lower affordability when monthly payments are based on higher interest rates. This situation presents another “drag” on the economy.

In Conclusion

The situation is indeed very concerning. Many things could set off a crisis:

  • Rising energy prices of any kind (hurting energy importers), or energy prices that don’t rise (leading to financial problems or collapse of exporters)
  • Rising interest rates.
  • Defaulting debt, indirectly the result of slow/negative economic growth and rising interest rates.
  • International organizations with less and less influence, or that fall apart completely.
  • Fast changes in relativities of currencies, leading to defaults on derivatives.
  • Collapsing banks, as debt defaults rise.
  • Falling asset prices (homes, farms, commercial buildings, stocks and bonds) as interest rates rise, leading to many debt defaults.

Things don’t look too bad right now, but the underlying problems are sufficiently severe that we seem to be headed for a crisis far worse than 2008. The timing is not clear. Things could start falling apart badly in 2017, or alternatively, major problems may be delayed until 2018 or 2019. I hope political leaders can find ways to keep problems away as long as possible, perhaps with more rounds of QE. Our fundamental problem is the fact that neither high nor low energy prices are now able to keep the world economy operating as we would like it to operate. Increased debt can’t seem to fix the problem either.

The laws of physics seem to be behind economic growth. From a physics point of view, our economy is a dissipative structure. Such structures form in “open systems.” In such systems, flows of energy allow structures to temporarily self-organize and grow. Other examples of dissipative structures include ecosystems, all plants and animals, stars, and hurricanes. All of these structures constantly “dissipate” energy. They have finite life spans, before they eventually collapse. Often, new dissipative systems form, to replace previous ones that have collapsed.

The one thing that gives me hope is the fact that there seems to be some type of a guiding supernatural force behind the whole system that allows so much growth. Some would say that this supernatural force is “only” the laws of physics (and biology and chemistry). To me, the fact that so many structures can self-organize and grow is miraculous, and perhaps evidence of a guiding force behind the whole universe.

I don’t know precisely what is next, but it seems quite possible that there is a longer-term plan for humans that we are not aware of. Some of the religions of the world may have insights on what this plan might be. It is even possible that there may be divine intervention of some type that allows a change in the path that we seem to be on today.

The First Law of Wealth

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Published on The Doomstead Diner on January 8, 2017

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The First Law of Thermodynamics:

Energy is neither created nor destroyed, only transformed from one form to another.

 

How is wealth created?  Is it created at all?  An important idea in capitalist epistemology is that the capitalist system creates wealth, and that those who become wealthy within the system do so by creating that wealth.  Do they really?

The issue here is the idea that some people are "Wealth Creators".  Bill Gates, Elon Musk, Mark Zuckerberg, they all got incredibly wealthy, right?  So they must have "created" wealth, right?  This concept depends a whole lot on whether you view the idea of "wealth" from the POV of the Individual or from the POV of the System as a whole.  Which lens you use on this microscope on makes a HUGE difference on how you view the distribution of wealth in the society at large.

In order to better elucidate my POV, I am going to use 3 different examples of biznesses that supposedly  "create wealth".  I will look at my own last bizness of the many I have been involved with first, the Gymnastics Bizness.  Then I will look at the Dental Bizness, which is my friend Eddie's type of biz.  Then I will look at Tesla, Elon Musk's really BIG bizness, currently creating tons of wealth for Elon. lol.

The Gymnastics Bizness

Now, in the case of the Gym Biz, what the Gym Owner does is to insert himself in between well to do parents of kids who can afford a pretty high price tag of around $400/mo to be on the Team and coaches who know how to teach gymnastics.  Then there are lots of recreational gymnasts who come for 1 class a week for around $100/mo.  The typical gym has between 500-1000 gymmies running through it at any given time.  Because it is such a pricy sport to be putting your kid into and it is an optional thing to do (you don't absolutely NEED to do gymnastics like you need to have your teeth drilled when you have a toothache), the clientele has a pretty high average income.  Poor people do not send their kids to a gymnastics school.  So I put the average income for the Victims here at around $100K.

Now, if out of the 1000 Gymmies you have 200 on Team, that is $400 X 200 =$80K/mo income, x12 = $960K/year.  Your 800 other Rec gymmies are paying $100/mo for another $80K/mo, another $960K/year.  Total gross income here around $2M for a well organized gymnastics school.

On the outflow end of this conduit, the gym owner has the cost of his facility, equipment, salaries for coaches and the taxes & insurance he has to pay.  Facility costs can vary tremendously from old warehouses to custom buildings.  Equipment also varies from old beat up stuff bought used to brand spanking new stuff from Spieth-Anderson or AAI.  Coaches are almost universally paid low wages, often teenage ex-gymnasts are used as coaches at Min Wage before they even go to college.  You gotta be a really first class coach to get out of this Min Wage level and actually make a living at coaching the sport.  Even so, you never get into 6 figures as a coach unless you own the gym and run the conduit scheme.

Depending on the market they insert themselves into, Gym Owners can both become exceedingly rich or they can fail miserably, I've known both types over the last 30 years.  In neither case though did anyone "create" any wealth.  All they did was sieve wealth from one end, the victims, on the way to it's other end downhill in this process.  The gym owners who got rich were the ones who were best at soaking their victims, but they never created any wealth here.

Where did that wealth come from?  Well, many of the parents here are professional, doctors, dentists, lawyers and so forth.  They in turn were using their own conduit schemes to sieve wealth from their victims.  They have nice big paychecks incoming, so they can afford to pitch $400/mo after tax income to keep gymmie happy.  In fact it costs a good deal more than that when you include all the meet fees, team leos and warmups, private lessons etc.

The Dental Racket

So now let us look at one of the Victims of the Gym Biz, the Dentist with his prized young daughter with this quite rare talent of extreme coordination, strength and flexibility  and also pychological qualities of fearlessness and a drive to succeed, who sees Simone Biles/Mary Lou Retton/Shannon Miller/Shawn Johnson/Nadia Comanice on TV at the Olympics and wants to make her a STAR!  How is he "creating wealth" to do this?

In order to analyze the Dental Biz in detail,, I made a new Infographic to examine how the Dental Conduit Scheme works!

There are 3 basic Nodes here, the Dental Victims, The Dentist and the higher level extractors taking profit from the Dentist, which makes him a second level Victim.

I used some average numbers here, giving the low level Victims an average take home salary of $50K (which is probably a high estimate) and the Dentist an average take home salary of $250K (which is probably a low estimate).  I put the tax bill for the Dentist at a 50% rate, so it costs also $250K in taxes for the dentist every year.

For the wage slaves working for the dentist answering the phones, filling out the medical records and dealing with regulations and insurance companies, I figured 8 employees each making around $60K average, for around a total of $500K.  A dental hygenist might make a bit more, a records clerk less.

The dentist also has to buy a lot of expensive stuff to run his bizness, those gold fillings don't come cheap these days you know!  Nor does the hardware for implants or aything else.  You also gotta upgrade all the time and buy those expensive new Digital X-Ray Cameras, and you gotta fly all the time all over the country to Utah and other spots for getting your continuing education credits to maintain your license.  Then there are the Malpractice Insurance bills.  ::)

So, in order to maintain a $250K/year income here in this Conduit Scheme, the Dentist needs a Gross Income of around $2M before expenses, taxes, insurance, materials etc etc etc.  All of that money has to come from the Victims of the Dentist, each making an average of $50K.

So one way to look at this is how many Victims the Dentist needs to cover $2M in costs, and how much they have to pay him each year?  If the Dentist has 100 Victims, then each Victim would need to pay the Dentist $20,000 every year to keep this conduit scheme going.  Obviously, people making $50K a year cannot afford to pay $20K of that to a Dentist!  So really the Dentist needs more like 1000 Victims to be successful with the conduit scheme.  Now you are down to $2000 per victim, which is a bit more affordable at a $50K salary.  BUT, can a single dentist really drill the teeth of 1000 different people every year? 

I Googled the cost of Dental Fillings in TX.  :icon_sunny:
 

Quote

On average, a silver filling costs between $50 and $150 for one or two dental surfaces. However, the price increases to the $120 to $300 range, if three or more surfaces require a filling. The good news is that dental insurance covers a majority of the cost since a filling is considered a necessary procedure.Sep 20, 2013

Mansfield, TX Dentist Explains the Cost of Dental Fillings | Mansfield, TX
mansfielddental.com/2013/09/the-cost-of-dental-fillings/

 


Call the average cost $200.  To work up a $2000 bill, each patient of the 1000 needs 10 fillings every year.  So the dentist needs to drill 10,000 teeth each year, in 250 working days.  That's 40 a day, 5/hr in an 8 hour day.  So he has to drill & fill a tooth every 10 minutes, with a 10 minute break every hour to check for Doom on the Diner. lol.

Another way to look at it is how much money the Dental Biz needs to bring in each day to cover those $2M in bills.  If you figure the dentist works 5 days a week 50 weeks out of the year, he has 250 days of extracting money from the Victims.  That means that every last day of that 250 days, he has to bring in $8000 from the Victims.  If he is working 8 hour days, that works out to $1000/hr!

Now, since I do not have PRECISE numbers on this to work with, these are all just estimates.  BUT, even if you knocked my numbers down by half, you can see why it is not sustainable.  The folks who pay the bills at the BOTTOM cannot retire the debt and costs that the Dentist has!  They just don't make enough money to do that!  Somebody somewhere is working up a nice debt bill.  No wealth has been created, just an ever increasing pile of debt!

The only way this shit gets paid for these days is through ever increasing debt, and the asset in this example goes on the side of the Dentist and the liability goes on the side of the Victim. That is straight economics.  You cannot make something from nothing.

Clearly here, the Dentist has created no wealth, all he has done is insert himself into a position where he can serve as a conduit between people who have dental pain or issues and those free of dental pain or issues.  Unlike the Gymnastics Biz, it is not optional to visit or not visit a Dentist when you have a bad enough toothache. You have no options here within the borders of the FSoA, you MUST pay whatever the Dentist will charge to relieve your pain.  Unless you cross the border into Mexico, you will bankrupt yourself if you make an average salary trying to pay off the dentists for fixing your teeth.  I have visited at least a dozen different dentists over the course of my life trying to repair teeth here in the FSoA that other dentists in Brazil ruined in my childhood and adolescence.  Every root canal and every cap cost me $thousands$ on a very average salary of median income for the time period. You are talking at least a dozen of these things over the time period.  In the end, all that money went to waste, every single one of those teeth had to be pulled out of my mouth by a Mexican Dentist, who did it at the Bargain Basement price of $25 a tooth, whereas a Dentist here in Alaska would have charged me $300 a tooth to do the same job.  It's a great racket here in the FSoA if you can get licensed to do it.  Every last Dentist that I ever visited owned a Mercedes and had a nice huge McMansion to live in.  I paid for that, along with all the other Dental Victims.

Why can dentists here in the FSoA charge such high prices for these tasks?  Because they run a gated profession with few Dental Schools relative to population size and they make it EXTREMELY difficult for a foreign trained dentist to get licensed to practice dentistry in the FSoA.  So there exist a LARGE pool of victims (basically everyone since everyone has some kind of dental problem at some point), and a relatively SMALL number of dentists licensed to do the job on your teeth that needs to be done.  So they can pretty much set the price as they please, the only constraint on this being what the other local dentist will charge, since most people will not cross the border into Mexico.  As a Dental Pain Sufferer, you are over a barrel if you cannot make the border crossing to Mexico, you MUST pay whatever the Dentist charges or else suffer agonizing pain until you figure out how to yank the offending tooth out of your mouth yourself.  This is called a contract under DURESS, and it is illegal in Tort Law.  In reality, you are not obligated to pay any of these charges by tort law.  In reality, all dental patients shoudl file a Class Action Lawuit against all Dentists and strip them of their criminally stolen money and property.

The Elon Musk Flim-Flam

OK, we have now moved through 2 types of Small Biz, the Gymnastics Biz and the Dental Biz.  To finish off for the day here, let us look at BIG BIZNESS, Elon Musk's Tesla, Gigafactory Battey facility and Rocket Ship Biz.

Not a single one of these biz makes any profit at all, but they have a Market Cap of $BILLIONS$  WTF did all the money come from so Elon could build his toys without making a dime of profit for YEARS?  Can you imagine going for years with a negative net income and still getting credit to keep going?

Like all of the really large corporations and big biz of our society, it is all run on CREDIT, and if you are well enough connected the credit has been quite endless.  The "money" flowing down through the society into all the small biz like Gymnastics Schools and Dental Offices actually begins with these very large corporations and their associated banking industry, they are all created through the massive issuance of debt in the form of corporate bonds.  The other big money creation mechanism is from Goobermint bonds, debt which the population is supposed to retire through paying their taxes.  The debt of corporate bonds is supposed to be retired by profits from the industry, again which the population at large is supposed to provide the money for by buying the products.  In reality, in neither case can the population ever make enough money to retire the debt either created by the corporations or by da goobermint.  This can be masked for a long time, but if you notice just about every large corporate entity eventually goes bankrupt.  The railroads all went bankrupt, the big automotive companies like GM and Chrysler went bankrupt, and the airlines like TWA and PanAm also went bankrupt.  Then new ones pop up with new issuance of debt and reorganizations, mergers and acquisitions, but they too will all go BK in the bye and bye.  No wealth was created here in any of these industries, only an ever increasing pile of debt along with a lot of landfill.

Similarly, Da Goobermint never created any wealth either by issuing out its vast quantities of debt.  While certainly Goobermints have built many roads, bridges, tunnels, power plants, sports stadiums etc, the maintenance cost on all of it is always greater than the revenue brought iin through taxation to pay for it.  So the only way to keep going with it is to issue out still more debt. Which they do as long as they can, but eventually smaller countries like Greece get cut off from the bond market, at which time their economy immediately tanks.  Similarly, any large corporation cut of from the corporate bond market immediately goes BK.

The "wealth" Elon creates is simply a bigger pile of debt somewhere else, bur unlike the gym owner or dentist, he has inserted himself into the very TOP of the food chain, getting his debt money directly from the folks in charge of manufacturing money, the TBTF banks.  Elon hardly needs Victims to bilk at all selling Teslas, hell he's only sold around 150,000 of them since 2008!  In the end, he's really bilking the taxpayer, who will end up with all the bad debt he has created on their balance sheet.

Nobody in this whole chain of events ever creates wealth.  They only sieve wealth in various types of schemes and rackets on it's way down the thermodynamic hill.  So where then IS the wealth "created"?

It's not created, it's EXTRACTED.  The wealth is the resources of the earth, and all that debt money that is created are little tickets (or now digibits) which allow you to buy some of the resources, most particularly the energy resource of oil.  Those little tickets trickle down through the rest of the economy, and various types of biznesses and rackets insert themselves along the way as the energy moves its way down the thermodynamic hill.  Who gets the privilege of creating these little debt tickets?  The folks who control the energy of course, which is why the Energy Industry and Bankstering Biz are so closely related.  It's why the Rockefellers who controlled Standard Oil ALSO founded the Chase Manhattan Bank, now JP Morgan Chase.  They issue the credit to buy the Oil, and it gets burned up all the way down the line in various stages as it moves through all the rackets.  The BEST rackets are at the very top of the food chain here, like Elon Musk or Mark Suckerbug's rackets.  Neither one creates any wealth though.

By the time you get down to small time rackets like the Gym Biz and Dental Biz, you're getting close to the end of the line on the way down to the final stop, the end consumer of everything that happened above in the chain.  The end consumer DEFINITELY creates no wealth, but rather destroys what is left of it on its way to its final destination as waste in the landfill or CO2 in the atmosphere.

What wealth there was in the Earth was captured over billions of years by photosynthetic organisms collecting energy from the sun.  Animal life just extracts that energy from the plant, then eventually both die and sequester carbon, and then after that Homo Saps evolve to burn up all that energy, and develop an economic system which does that.  Very rapidly too!

How long does the game last?  Only as long as there is a big enough thermodynamic gradient to support a downhill flow of the energy.  It appears we are getting quite close to the point where no work can be done exploiting the energy flow left.  At least not on the scale globally we have been doing it anyhow.

Going Cashless

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Published on The Doomstead Diner on December 22, 2016

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One of the hottest topics in Collapse Economics these days is the prospect of the "Cashless" society.  Denmark is flirting with being the first country to go completely cashless, along with the other Scandinavian countries of Sweden and Norway.

In debates about the future of cash money, Denmark is often cited as the possible World’s first cashless society. Is that true? An investigation on the current state of cash in Denmark. 

Cash is dirty.
Cash is expensive to print.
Cash is for criminals.

Opponents of paper money, such as established economists Bofinger and Haldane, have declared the war on cash. In 2016, this is more apparent than ever before. The European Commission for instance currently assesses a potential ban of the 500 Euro banknote, as “these notes are in high demand among criminal groups.”

More so the finger is often pointed to Scandinavia, to show how some countries are already on the move to become ‘cashless societies’ – to eliminate cash whatsoever. And Denmark could be the World’s first. Hold up – is that true?

http://www.matoska.com/catgraph/3005-001b.jpg Money is symbology for a credit system that allocates the resources available in a society. It can be just about anything, as long as what you choose as the physical symbol is hard to counterfeit.  In Africa for a long time, Cowrie Shells were used as money.  They were relatively rare and about impossible to counterfeit.  Similarly, Gold and Silver have been used as the symbol, the metals themselves are elements and can't be counterfeited.  However, they can be alloyed with other metals, thus debasing the coinage made with them.  This was what the Romans did as their civilization collapsed.  They weren't able to keep bringing in enough gold and silver to keep coining up to have enough money in circulation.

The metals are in relatively short supply for a growing population, and they tend to be hoarded as well taking them out of circulation.  So in the modern era, paper money which was hard to counterfeit was developed as the currency and means of exchange.  The way paper money is traditionally made hard to counterfeit is through fine engraving and special paper and ink.  However, modern scanners made the engraving easy to duplicate, and if you have enough scientific expertiese and a big enough budget, the paper and ink can be duplicated as well.

http://www.accountingformanagement.org/wp-content/uploads/2016/01/balance-sheet.png Money originates in the banking system as credits and debits on a balance sheet.  Then the bills get printed up, and each one has a Serial Number on it.  At the origin point when it first gets handed out over the counter with fresh bills, the bank has a record of the serial numbers and the person that money was handed to.  After that though, there is no keeping track of where those bills go or to who.  In theory you could track it if in every transaction the serial numbers were recorded, but in practice that is never done, it's too cumbersome.

Because it can't be tracked, cash is very useful in the Black Economy, for things like drug deals and making bribes to politicians.  Its also useful to hide your transactions from the Tax Man.  If you begin to believe your banking system is untrustworthy or unsafe (they always are, but sometimes more than others), people start taking their money out of the banks and stuffing it in mattresses instead.  This can make a bank insolvent, because it needs deposits as part of its capital.  When you deposit your money in the bank, it becomes an unsecured loan to the bank, which they will then use as the basis for making other loans.  Making loans and originating money is how banks MAKE MONEY.

So, as far as Da Goobermint and the Banksters are concerned, paper money is not very good.  Da Goobermint wants to be able to track all transactions so they can be taxed and the Banksters want your money in the bank as much of the time as possible so they can use it for more lending. How can we solve these problems, they wonder?

https://historyinlivingcolor.files.wordpress.com/2013/11/westernunion803kanawhastreetcharkanawhablv_edited-1.jpg?w=670 Well, until the advent of the modern computer and the internet, it was basically an insoluble problem.  However, once the communications systems were in place and enough places where transactions take place were wired into it, the possibility of being all electronic balance sheet transfers became possible.  It goes back as far as the Telegraph and Western Union and the ability to "Wire Money".  It further expanded with the Telephone, which made Credit Cards possible.  If you remember back to the early days of American Express, if you used your card at a restaraunt they would call AMEX to get a verification, and once verified the transaction was cashless, going from your credit line over to the restaraunt's bank account.

At first, these credit cards were available only to the very rich, and few people used them.  The verifications were done manually and when the restaraunt called for verification, there was a live person on the other end of the line who did the verification of your account, on a big old clunky IBM Mainframe at the Amex Headquarters.  However, as the computer systems and communications systems improved and you could put Point of Sale (POS) terminals in stores, it became possible to issue Credit Cards to many more people.  Thus Master Card and Visa were born, and banks began issuing out Debit cards as well.

http://blog.couponrani.com/wp-content/uploads/2013/12/creditcard.jpg This brings us up to today, where at least in the FSoA pretty much everybody has Plastic of some kind, and over 90% of all transactions are done this way, so cash has become unecessary, at least as far as the Banks & Goobermint are concerned anyhow.  They would like to see cash eliminated entirely, because this is good for them.  Not so good for the average J6P though who is worried his money isn't safe in the bank and one day it will just be…GONE!  Also not good if he currently runs some type of cash bizness and wants to hide some of the income from the tax man.

What's the PROBLEM with taking cash out of the system entirely then?  Well, as long as you have complete faith that your computer systems will be up and running 100% of the time, communications up 100% of the time in 100% of locations and the system won't be hacked, there is no problem.  Unfortunately, none of those conditions are true even in the 1st World countries, and definitely not true in 3rd World countries.

http://www.telegraph.co.uk/content/dam/news/2016/11/13/113589873RupeesNEWS-small.jpg In places like India, vast areas of the country aren't even wired for electricity, much less have full internet coverage available 24/7.  Many in the population don't even have bank accounts or ID.  The only way they function in the society is with cash.  They get paid in cash, they buy their groceries with cash, they pay their rent with cash.  When India recently took its two largest denomination bills out of circulation, it created instant HAVOC, and is still causing havoc.  They may very well never recover from this poorly planned and executed monetary experiment.  It's already created a massive deflation in their housing market, as people simply don't have working money to pay the rent with.  Getting replacement bills out into circulation also has been a clusterfuck and goods are becoming hard to come by whether you have working money or not, because the supply chains are breaking down.

Now, in a place like Denmark where just about every square inch of the country is wired up, you wouldn't have this same kind of problem if you went cashless, although even in Denmark there are people who live off the official economy and depend on Cash to work.  Besides that though, you run into all sorts of problems on occassions where you have a power outage or communications outage or the computers with all the account information go down, even for short periods of time.  All of a sudden, everyone in the checkout line at the grocery store can't pay for their food.  Everyone commuting home from work can't pay the fare on the light rail.  Everyone whose gas gauge is on empty can't fill up on gas at the pump.  etc, etc, etc.  Anyplace that does go 100% cashless is going to run into these problems, and I think TPTB have to know this.

Even though I use Plastic almost all the time myself, I always do carry enough cash to buy groceries or buy gas if the debit card doesn't work.  At my local grocery store this has occurred twice due to the system being down itself, and then a couple of other times because my account at the bank was "frozen" due to suspicious charges being dropped on the card number.

http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2016/02/09/500%20euro_0.jpg What is more likely than 100% cashless is that just the large bills will be taken out of circulation, but how large is large?  In Europe, they have a €500 note, that one is just about certain to go the way of the Dinosaur.  Here in the FSoA, the largest note is a $100 Ben Franklin.  This would be harder to get rid of, because even just for buying groceries a family can spend $300 in the checkout line, I see that all the time with overflowing baskets of food.  You would need 15 Andrew Jackson's or Harriet Tubman $20s to cover this, which makes your wallet uncomfortably thick.

What you may have noticed however is that recently, in about the last year a new $100 note on new paper with more "security" devices has been substituted for the old $100 note.  My suspicion is these notes can be run through a reader and their serial numbers tracked.  All stores will be required to have the readers, which will probably be part of the POS terminal, and anytime you use such a bill, it will be recorded in the transaction.  You'll need your Goobermint ID to spend the bill.  So, similar to plastic transactions, the bill can be traced back to you.

http://www.usagold.com/images/coinstack.gif In the Black economy what may occur to circumvent this problem is a system of Barter may arise, and for this purpose such as large Drug Deals, Gold WOULD be very useful.  After the large exchange is done this way, then the street level exchanges are all done with the small bills still in circulation.  However, then when the drug dealer spends his money, he has to account for where he got it.  If he can't account for it, it's a criminal offense.

Because Gold and to a lesser extent Silver could be used in the black economy and to try and store wealth outside the Banking system, it will either be made illegal and confiscated, or any official transactions done with it heavily taxed.  So if you went to the Coin Dealer to exchange it for some of the paper currency, there might be a 50% tax on that transaction.  In the case of the Great Depression, Gold ownership was made illegal and the Gold confiscated and then revalued.  No reason to believe that would not occur again here as things further spin down in the Bankstering system.

http://www.knology.net/~bilrum/goldverbot-4128.jpg What you have to remember here is that "your money" doesn't belong to you, it's part of a very large and complex system of credit that has been evolving in this iteration since the Medici Banking era.  That system gradually spread its tentacles around the entire globe, and now most of the 1st World countries at least are fully wired up with the communication system necessary for all electronic transactions, fully recorded with everything bought and sold and by who to who.  It's the ultimate means of control over everything that goes on in the society, and as long as these systems are up and running, TPTB that run the system are going to use every means possible to maintain this control.  Even if a 100% Cashless society is not achieved, in the 1st World countries it will reach close to that goal before the system crashes in it's entirety.

The reasons it will crash in its entirety are many.  First of all, whether the money being moved around here is cash or digibit, the entire system is horrifically insolvent, and even if ovenight 100% of all depositors money was confiscated to recapitalize the banks, it still would be insolvent.  There's more debt out there than there are credits to balance it, because of the interest charges on all the loans.  On top of that you have trillions to quadrillions in derivative bets which can't be paid off.  Then you have the problem that either cash or digibit, money is not flowing through the system to the end consumer to buy the products of industrialization. Some still have access to the credit, but fewer all the time as people drop out of the work force.  Finally, what the money actually REPRESENTS, the resources available to the society are depleting, especially measured against the increasing global population size.  So you can't make it work long term no matter what you use for money.

What the conversion to (mostly) cashless can do is stretch out the Extend & Pretend a while longer, so it's likely to be undertaken in 1st World countries, at least if the monetary system doesn't reach critical mass and crash before a further changeover can be implemented.  The possibility such a system could be implemented in India or other 3rd World countries is exceedingly small, thus the reason they attempted to exchange one paper bill for another, and in the process took themselves one step closer to complete collapse.

The mostly unanswerable question is just how long the the Extend & Pretend game can be extended out here?  All you can say for sure is that it will crash at some point in the future, but pegging a date to it is quite difficult, if not impossible.  You have another variable in the equation, which is the political instability that arises as more people lose more purchasing power, whatever the money is that is being used.  You also have the geopolitical instability as different countries jockey for position trying to control what is left of global resources, mainly China, Russia and the FSoA there.  There are inumerable possible Trigger Events that could set off a cascade failure at any time, so any kind of mathematical prediction is useless because of a discontinuity in the function.  WAG though, it's hard to see how it holds together more than another 5 years, but it's just a guess.

So, even if the Banksters and Da Goobermint get their wish and convert to all digimoney, don't sweat it too much because it won't last all that long.  When it does crash, you'll have much bigger problems than trying to hide income from the Tax Man or keep your wealth safe from thieving Banksters.

http://playgrad.ru/uploads/posts/2012-07/1342419304_zombie_wallpapers-39.jpg

F is for Frugality, G is for Get the Fuck out of Dodge…?

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Published on the 22 Billion Energy Slaves on October 24, 2016

money_flowers

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F is for Frugality

 

Being frugal, according to dictionary.com, means being:

economical in use or expenditure; prudently saving or sparing; not wasteful.

Living frugally means imposing austerity on yourself in order to have better control over your life. It means wresting control away from the exploitative systems that govern the world we live in. Frugality is not a competitive sport to be boasted about online; it's more of an aspirational art form.

There are endless ways of being frugal without incurring any loss of life quality. In fact, most people report that their lives feel more grounded once they begin practicing frugality.

There are many good reasons for being frugal. In his 1970s book Muddling Towards Frugality, Warren Johnson lays out a whole philosophy regarding living well by focusing on what you need rather than what you want. One of the best reasons, however, is that it might save your life. Living in a state of permanent entitlement is a  psychological achilles heel for many. Watching middle class people lose things they consider themselves entitled to is usually a very sorry spectacle. Frugality, or voluntary simplicity, or voluntary poverty is about jumping off the work-to-consume treadmill and getting onto the (much slower) work-to-live one.

Living frugally does not mean living in poverty. Poverty is a trap that can be impossible to escape from. The systems of our industrialised technocratic psychopathically-designed society are set up to funnel wealth upwards from the masses to a few people at the top. Those caught in the trap often find they have no way of escaping it: they are literally powerless.

Some people have the good fortune to be able to practice frugality before it is thrust upon them by outside forces. If you are one of them you should count your lucky stars. It's no fun going from being comfortably middle class to being without a place to call home and unable to afford even a cup of coffee (as I can attest) but if you get enough practice in you can at least salvage the basics of existence and then fill the upper levels of your hierarchy of needs pyramid with things that are free, or very cheap. These things are free (presently):

– Going for a walk
– Keeping fit
– Singing
– Creating works of art
– Making love
– Meditating
– Talking with friends
– Stroking kittens
– Joining a fight club

We live in a time where, in some ways, it is easy to be frugal. Our societies are awash with cast-off clothes, toys, electronics and materials that nobody wants. 90% of our fossil fuels end up as waste heat, and about half of the all the food we produce ends up in landfill. There is plenty of room for frugality at either end of the scale.

But that window is rapidly closing. Within ten years we're likely to have witnessed the end of industrial civilisation as the EROEI of oil drops below 1. At this point those who do not know how to live very cheaply and simply will be – let's just say – at a considerable disadvantage.

If you want some ideas, have a look at Britain's most frugal pensioner.

Published on the 22 Billion Energy Slaves on November 1, 2016

G is for Get the Fuck out of Dodge…?

 

Homelessness is already spiking in cities across the USA


Should disaster strike, being located in a large city is likely to present a number of problems specific to the urban denizen. Due to their concentrated nature, any large scale and ongoing outage in electricity and/or fuel is likely to put the city dweller at a considerable disadvantage to those living in less heavily populated areas. Urbanites often say they feel safer in cities. It's what they know, and often it is where they grew up. And to a certain extent they may be correct: relief efforts during the initial stages of a cataclysm are usually focused on large metropolitan areas where the largest number of people can be serviced via centrally-located distribution points. The shops may all be empty as just-in-time distribution systems enter a state of paralysis but it's a reasonable expectation that there will be an aid agency on hand to give out some food and bottled water to anyone willing to queue up for hours or days. What's more, cities contain much of the most valuable infrastructure in the country, including government offices and centres of finance, so it is likely that much of this will be secured from chaotic elements by the Army.

That was the good news.

The bad news is that due to the concentrated and hyperconnected nature of cities a crucible effect will take place and collapse will be a lot speedier and lethal than in non-urban settings. In a recent report the Pentagon states that by 2030 the world's megacities will be ungovernable hothouses of urban decay filled with rioting youths, collapsing infrastructure and chronic levels of crime. Here's a quote from OffGuardian (link):

"According to a startling Pentagon video obtained by The Intercept, the future of global cities will be an amalgam of the settings of “Escape from New York” and “Robocop” — with dashes of the “Warriors” and “Divergent” thrown in. It will be a world of Robert Kaplan-esque urban hellscapes — brutal and anarchic supercities filled with gangs of youth-gone-wild, a restive underclass, criminal syndicates, and bands of malicious hackers."

 
In large cities, rich and poor live cheek by jowl, meaning the wealthy and even the reasonably well-off are likely to be easy targets for gangs of looters. Should an economic collapse occur at the same time it is likely that the police, ambulance and fire services will not be paid, meaning they will be less willing to risk their lives by entering 'no go' areas—if they even bother to turn up to work at all. Forced acquisition of housing will also likely occur in this scenario as squatters and the dispossessed exploit the lack of law and order.
 
Even on a very basic level, surviving in a large city in which the power has been shut down is likely to be very difficult—if not impossible—for most. Without access to land to grow or catch food, city dwellers will find themselves unable to feed themselves in short order. Climate will also be an exacerbating factor, with apartment dwellers in cold regions finding it impossible to heat their living spaces, and those living in very hot regions unable to use air conditioning. Without power, water will not run from taps, and toilets will not flush. Backed up sewage systems will spread disease, as will the exploding rodent population feeding off the mounds of uncollected garbage and unburied bodies. People who have not prepared for such eventualities by gathering food and equipment to help them through such a period of turmoil will be at a considerable disadvantage and may find the psychological pressure alone too much to bear under the circumstances. 
 
With urban dwellers having invested in very little in social capital it's likely to be a case of 'every man for himself' within a matter of days of disaster striking. And disaster could strike in the form of a natural cataclysm, such as a tornado or a flood, or it could be man-made, such as a grid outage caused by computer hackers, or a nuclear or chemical strike. It could even be something as mundane as a sudden currency devaluation, sending the economy into a tailspin. Furthermore, it is worth bearing in mind that large cities present easy targets for state and non-state terrorists.
 
Of course, escaping to the countryside will also present its own set of challenges, and it would be wishful thinking to assume that the majority of the urban population could easily move out to grow vegetables and raise chickens. A potential half-way house might be the sprawling suburbs that surround many cities (especially in America). It is not beyond the scope of our imagination to see that many of the houses could be retrofitted to provide better protection against the elements, and the extensive lawns surrounding them turned into food producing spaces. Due to their large size many so-called McMansions could house several families at a time, assuming the materials they are made from hold together, and new localities would form in this way.

This Week In Doom: The “Hamilton Elector” edition


That-Was-The-Week-That-W-That-Was-The-Week-473964gc2smFrom the keyboard of Surly1
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Originally published on the Doomstead Diner on December 11, 2016

“In a hundred years time, perhaps, a great man will appear who may offer… a chance at salvation.   He'll take me as a model, use my ideas, and follow the course I have charted."
–As quoted in “Der Führer als Redner,” Adolf Hitler, by Joseph Goebbels


On December 19 of this year, the 538 members of the electoral college will meet to cast their votes to actually decide the outcome of the election of 2016. Those people appalled or mortified by the election of Donald J. Trump as President are hoping that "Hamilton Electors" will rise up and in a fit of conscience serve as a deus ex machina to deliver the US from inaugurating a president who lost the national popular vote by somewhere north of 2.6 million votes.

What these people are hoping for is an electoral college revolt. I'm not liking their chances. We have to remember that the framers of the Constitution didn’t trust direct democracy, period. The Electoral College is a fail-safe to protect the presidency from a candidate who’s popular but unfit for office. The name "Hamilton Electors" stems from Alexander Hamilton's explanation of the need for a check upon the popular passions. Writing in Federalist 68 , he said the body would consist of 

A small number of persons, selected by their fellow-citizens from the general mass, will be most likely to possess the information and discernment requisite to such complicated investigations.

In other words, anything BUT a rubber-stamp for the popular will, a second level of discernment, to ensure that

"…the office of President will never fall to the lot of any man who is not in an eminent degree endowed with the requisite qualifications."

In other words, a "break glass in case of emergency" device to prevent panderers, prevaricators and pussy-grabbers from ascending to the office of mountebank-in-chief.

To which I say, "good luck with that." I rank second to none in my loathing for Trump and the gaggle of foxes he has assembled to guard the public henhouse.  Yet, in a recent article in The Atlantic on the subject, College of Charleston political science professor Claire Wofford explained

“there is no explicit federal or constitutional ban on electors selecting candidates as they wish, even if that means departing from the popular vote of the state.”

Past practice enables us to believe we have voted for a slate of electors who will faithfully deliver votes in the "winner take all" fashion followed by most states. In almost every other presidential election in history, members of the electoral college have voted in accordance with the popular vote. With notable exceptions. The election of Rutherford B Hayes over Samuel Tilden 1876 provides an instructive example of our nation's capacity for electoral skulduggery.

The 1876 election was a "reform" election. The administration of Ulysses. S. Grant was one of the most extraordinarily corrupt administrations of all time, even given low 19th century standards. In 1868 Grant was swept to electoral victories by a nation grateful for victory. But he made the mistake of appointing an assortment of military and business cronies to important offices in his administration at a time of unparalleled growth, western railroad expansion, booming manufacturing, and abundant opportunities for corruption.

The list of Grant era scandals is impressive: the "Gold Ring" and the Black Friday Gold Panic of 1869, (starring Jay Gould at the center of a plot to corner the gold market), the New York Custom House ring, the Star Route postal ring, a treaty breach to allow gold mining in the Black Hills, the Whiskey Ring of 1876 (a tax evasion scam) and many more. Grant appointed reformers, but the public had had enough. Grant's personal reputation remained untouched by scandal. Yet In 1931, authors Frederic Paxson and Christian Bach wrote that 

personal scandal has not touched Grant in any plausible form, but it struck so close to him and so frequently as to necessitate the vindication of his honor by admitting his bad taste in the choice of associates.

In the conventions of 1876, the Rs nominated Governor Rutherford B. Hayes of Ohio, a reformer. The Ds nominated Governor Samuel J. Tilden of New York, setting the stage for the most contested election in US history.

In a voting result that resonates today, Tilden outpolled Hayes in the popular vote with 4,284,020 votes to Hayes' 4,036,572. But Tilden's 184 electoral votes were still one short of a majority, while Hayes' 165 electoral votes left him 20 ballots shy.

These 20 electoral votes were in dispute in four states: in Florida, Louisiana, and South Carolina, and Oregon. Each party claimed its candidate had won the state:  Democrats had won the state elections, and Republicans claimed the Democrats' used fraud, violence, and intimidation in the Southern states and "threw out" enough Democratic votes for Hayes to win in those states. Grant directed Congress to resolve the competing claims.

In January 1877 a 15 member Electoral Commission (comprised of eight Republicans and seven Democrats) met and voted to resolve the competing slates of electors. The result was the Compromise of 1877: the Electoral Commission ruled that the disputed votes belonged to Hayes, in return for which the last troops were withdrawn from Southern capitals. Quid pro quo: Hayes was awarded the White House with the understanding that Hayes would remove the federal troops whose support was essential for the survival of Republican state governments in South Carolina, Florida and Louisiana.

The departure of Federal troops meant Reconstruction was over. The net result was the abandonment of American blacks, civil rights, and the effect of federal law in the South. Political power in the Southern states devolved to the Democrats. Jim Crow was born, and hard won civil rights gained by blacks disappeared for generations. And to enforce the new order, "strange fruit" hung from southern trees. 

So in the same way that George W. Bush a 5-4 vote of a stacked Supreme Court to stop the Florida recount in 2000, Hayes won a presidency having lost both the popular vote and the Electoral College. But he did win the 8-7 vote of the Electoral Commission. Proving that laws are as perfectly elastic as they need to be.

So absent Hamilton Electors, an alien invasion or proof that the Russians hacked the election, we will have to deal with the horror of a Trump Presidency and his Chamber of Horrors cabinet whose members seem chosen precisely for their opposition to the premises of the agency they have been chosen to lead. This ought to be good for the doom industry.

When Reagan's "Sagebrush Rebellion" looks like a polite exercise in manners in comparison, what will "normal" look like? These people have, in Charlie Pierce's phrase, "a sweet tooth for authoritarian solutions to the inconveniences of democratic government." The game will be to get the feds out of the regulation business and send responsibility back to the states, who will avoid the responsibility like cancer and force it onto already broke localities, where it will disappear for lack of money.

Want an abortion, too bad, so sad, goodbye. Not a choice you get to make. Freedom from government regulation only applies to corporate persons and their owners and does not apply to use of your private parts. 

As Paul Ryan turns Medicare into a voucher system, and the voucher pays about fifty per cent of the premium, Trump-voting Uncle Fud will have to decide whether he can live on kibble and cat food in order to pay the premiums. 

As Trump-voting rural whites on disability suddenly have to work and there is no work to be had because automation took their jobs, who will they blame? They didn't realize those moochers and takers they threw under the bus during the campaign were themselves. Time to start cooking meth again.

As Betsy DeVos gets that hated federal money diverted from your local district, and public schools become charter schools where the voucher covers a fraction of the tuition, they'll at least have a choice as to which religious affiliation they choose for their kids. Snapping the spines of public teachers' unions is just an added bonus!

As the roads stop being paved, streetlights stop being replaced, as trash collection becomes occasional, as the drinking water becomes a fetid hellbroth of god-knows-what (a la Flint), as the bills mount and when people lose their homes, as we "Make America Great Again" by rediscovering the family values of three generations living together in a two bedroom house, who will they blame?

Trump voters will savor the satisfactions of having "gotten the government off their backs."  

 


banksy 07-flower-thrower-wallpaperSurly1 is an administrator and contributing author to Doomstead Diner. He is the author of numerous rants, screeds and spittle-flecked invective here and elsewhere, and once quit barking and got off the porch long enough to be active in the Occupy movement. Where he met the woman who now shares his old Virginia home and who, like he, is grateful that he is not yet taking a dirt nap, and who, like he, will be disappointed to not be prominently featured on an enemies list compiled by the incoming administration.

Roadmap to Currency Collapse

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Published on The Doomstead Diner on December 7, 2016

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Discuss this article at the Economics Table inside the Diner

One of the main questions those of us who have been observing collapse since the 2008 Financial Crisis have always tried to answer is just how a banking collapse would play itself out?  Lately, there have been ever more clues on the shape it will take as it moves around the globe.

The first indication came with Cypress and the "bail-in" of the depositors there, and Greece shutting it's ATMs down and then only allowing small daily withdrawals of cash.  In the last month, we've seen India declare all it's old "large" denomination Rupee notes declared void, issuing out new Rupees to take their place.  Ahead of us, we have the imminent failure of the Italian banks on the horizon along with the possible failure of Germany largest bank, Deutchbank.  Coming at some point even IF somebody loans more money to the Italian Goobermint to bail out Monte dei Paschi di Siena over the weekend.

DEFINITION of 'Bail-In'

A bail-in is rescuing a financial institution on the brink of failure by making its creditors and depositors take a loss on their holdings. A bail-in is the opposite of a bail-out, which involves the rescue of a financial institution by external parties, typically governments using taxpayers money. Typically, bail-outs have been far more common than bail-ins, but in recent years after massive bail-outs some governements now require the investors and depositors in the bank to take a loss before taxpayers.

http://doomsteaddiner.net/blog/wp-content/uploads/2014/05/Money-Spigot-3-300x186.jpg Now, in the 2008 crisis in the aftermath of Lehman, the solution was a "bail-out" of the banks by pulling out Hank "the Skank" Paulson's "Big Bazooka" and charging it all up to the Taxpayers, as opposed to bank depositors in a Bail-in.  Of course, none of the taxpayers are too happy about that, so at least in Eurotrashland rules were set in place to do bail-ins.

Once you deposit your money in a bank, you have made an UNSECURED loan to the bank.  They're supposed to pay you back on demand, but of course if they go belly up and don't have the money and can't borrow it from someone else, your money essentially vanishes to the same place it came from, thin air.  Obviously, depositors who have this occur to them will be even more pissed off than the taxpayers, since your tax bill is spread out incrementally over time.  You don't instantly lose everything overnight, you just go broke more or less gradually as your taxes keep going up.

What bail-ins also do though besides pissing off a lot of depositors is they take a whole lot of money out of circulation, which of course is highly deflationary. Similarly, the exchange of the Rupee notes also is highly deflationary, because Da Goobermint is planning on taxing or confiscating the money that is deemed "suspicious".  That means the Indian whose money was taken no longer has it to spend on goods and services in the economy.

https://i1.wp.com/www.washingtonpost.com/blogs/ezra-klein/files/2012/08/weimar-mutilated-300x236.jpg So rather than the inflation so feared by folks like John Williams and Speedy Gonzalo Lira back in 2008, it now is looking more like an end game of deflation as both banks and goobermints confiscate money in order to try and balance their unbalanceable books.  Even if they confiscated all the money in circulation and on deposit in digibits though, the whole system is still net negative due to the interest charges that have accrued and there are so many NPLs (non-performing loans) out there.  Italy is in the worst shape there, with something like 20% NPLs, which is why their banking system is likely to topple first.

The problem after that becomes one of CONTAGION, because the Italian Banks are indebted to mainly the German banks, so if they go belly up the assets held by German banks are no longer assets, and they also become instantly insolvent.  Well'they're already insolvent, but at this point it becomes undisguisable with fraud and accounting rule changes.

If the ECB won't print fresh Euros to recapitalize the Italian banks, where's the money going to come from for this?  "Investors" (aka other TBTF banks) aren't going to buy $5B worth of equity and bonds, because they have already lost $BILLIONS$ down that rat hole.  So will there be an 11th hour Stick Save by the ECB to bail OUT again these banks, which generally puts the bill for it on the backs of the German taxpayer?  That's not very politically acceptable in Germany these days, they'd rather see the Italians go down the toilet, not really grasping they will follow the Italians shortly thereafter, possibly within nano-seconds.

http://www.leftovercurrency.com/Resources/banknote-5000-italian-lire-bernini.jpg Anyhow, given this rather deflationary trend and the likelihood that "your" money currently in your checking and savings account will get confiscated in a bail-in, it's pretty hard to see why any typical Italians right NOW at least are keeping any Euros in the banks in Italy.  The Italians also currently have the very real threat that once Beppe Grillo's  5 Star Movement (M5S) gets into power, they have vowed to return to the Lira.  If you have Euros in an Italian bank, POOF, overnight they magically convert to Liras, and then quickly devalue against the Euro and Dollar, while those currencies are still standing anyhow.  The ew Lira currency would be close to worthless for buying anything from outside of Italy, most importantly imported energy.  I would bet on a 50% devaluation within a month, and maybe 10 cents on the Lira in a year.

So as logical as it seems to take your money and run now, this is not so EZ for the typical Italian.  Setting up an account in another country is tough even if you are a Eurozone member, and then making your daily withdrawals and deposits not so EZ either.  If you are a small biz owner and have payroll accounts and such, using a foreign bank is also impractical.

On a small enough level of savings, say a few 1000 Euros, for the individual stuffing this in your mattress seems like a safer idea than leaving it in the bank at this point, but as the Indian example shows your paper Euros could be made worthless overnight and you would need to exchange them for "New Euros".  However, you still have the issue that it is not practical to pay many of your monthly bills in cash, around here they won't even TAKE cash at the power company.  They also won't take cash for my rent either.  All these payments MUST be done through the banking system.

http://vignette4.wikia.nocookie.net/theshatareu/images/2/29/10g_gold_bar_actual_size.jpg/revision/latest?cb=20120503095033 So where does this leave you with trying to protect "your" wealth in a serious banking crash and sovereign debt crisis?  For this, many people believe Gold is the safest way to store your wealth, particularly "Possessible" gold like collectible coins and tiny 10 gram slips.  "Paper Gold" is not looked on much better than Fiat Money since it is essentially the same kind of Ponzi scheme.

The problems this has are very similar to your paper money though.  First off, it's not very good for currently paying your bills.  I couldn't go over to the leasing office and pay my rent in Gold Coins any more than I could go in and pay in cash.  If I was running a small business, I couldn't pay my employees in Gold either.  You then also have the problem that every time you exchange Gold for some cash to go buy food at Safeway, you first have to stop in at a coin dealer and you have to pay a transaction fee of some amount.  Finally, your coin dealer himself actually has to have the cash to give you in return for the Maple Leaf or teensy-weensy Gold Chip.

https://www.overthinkingit.com/wp-content/uploads/2012/03/cortmok1-300x300.jpg There is a further critical problem with using gold as money, which is that over the millenia it has become highly centralized.  It began as deposits sprinkled out all over the earth and was gradually mined up, for ornamental jewelry and then used for coinage.  Over time, generally by some form of theft like the Spanish Conquistadores ripping off the Aztecs, all this gold got hoarded up and ended up going right back where it came from, in a hole in the ground.  Now though, the gold was "owned" by a few people, in the olden days a few Monarchs and a few Banksters.  Nowadays it's Sovereign Wealth Funds, TBTF Banks and a few filthy rich Hedge Fund managers who are also Gold Bugs.  Then you have another small cadre of people who have gold in the form of coin collections, and some with jewelry.  Most of the population though has no gold whatsoever.  So if you want to use it as money, what is the mechanism for getting it out of the hoarded piles and back into circulation for the population at large?

The answer to this dilemma often proposed is that the Banks then issue Notes on the gold, which would then be used as money.  The problem there is that unless the gold is redeemable for the note, the note is not really "gold-backed", thus you are right back to the fiat money problem.  In such a system, banksters ALWAYS print more notes than they actually have in gold bars in the safe.  That's the principle behind fractional reserve lending and also modern rehypothecation, where the same pile of gold is used as collateral for layers of loans on top of it.

http://static.wixstatic.com/media/f20e17_232aa51b70e2483d81bc605daae98fe6.jpg_256 At some point these Ponzis based on gold always collapse, and a few people get gold back for their notes and the rest are left with a piece of paper.  In general, the ones who end up with the gold are the guys with the combination to the vault.  Back in the mining towns of the Old West, this happened all the time.  The miners would go and have their gold assayed, then deposit it in the local bank where it was supposed to be safer than keeping it in your mining shack or carrying it in a pouch on your belt.  In return, you would get notes from the bank that you could use to go buy a haircut and a bath, a nice steak and bottle of whiskey at the saloon and spend the night in Miss Kitty's Cat House.  Then one morning you wake up and the local bankster has skipped town with the gold, and all you got left in your pocket are worthless notes.

All in all, this makes a system utilizing gold proxied by paper notes no better than the fiat system.  Unless you actually are using the coins themselves as currency, then all the same problems of bankster dishonesty remain.  If you do hoard your own gold at home and carry it around as currency, then you are vulnerable to theft from the other end of the spectrum, the highwaymen.

This is just your issues at the consumer level though, the much bigger issues come at the wholesale level, because once the banking lockup hits, stores can't pay their suppliers, suppliers can't pay the shippers etc, so whether you have either Cash or Gold, the products simply don't make it to the shelves to buy with money of any type.  If the problem goes on for any length of time, people start to get desperate, as has occured already in India as people raid warehouses for food.  That's only a one time solution though, because once the warehouse is emptied, it won't get resupplied until some new system is dropped into place.  Anything more than a week long "Bank Holiday", and you are in the Deep Doo-Doo..

Most places in the world still highly dependent on cash are hard pressed to get any kind of new currency regime going, again India is the Canary in the Coal Mine for this. To get a complete exchange done takes a month at least, and meanwhile tons of people have no money whatsoever to work with.  Farmers can't get seed, truckers can't get diesel, electric companies can't buy coal, etc.

http://media2.intoday.in/indiatoday/images/stories/round-up-story_647_111416014638.jpg

Here in the FSoA where most exchange is all digital now and most people have some kind of plastic card, debit, credit or a SNAP card, as long as it was pre-planned and ready, an alternate regime could be dropped in place overnight.  What this might entail would be a nation-wide bail-in of all depositors, taking 50% of everyone's savings and then using that to recapitalize the banks.  This of course is also highly deflationary.  It also would be EXTREMELY unpopular and you would be sure to see the Pitchforks and Torches surrounding Trumpty-Dumpty at the White House.

http://www.gabankruptcylawyersnetwork.com/files/2014/06/foreclosure-bank-owned.jpg Besides that though, it wouldn't really solve the problem, because in fact even after doing this these banks would still be insolvent.  Since the people just had half of their money stolen, now they don't have this money to pay their car loan and mortgage which means more NPLs and less assets for the bank.  Real Estate prices drop precipitously as people no longer have the money to buy the McMansions and more people go into foreclosure.  Rinse and Repeat.

The only advantage to this type of solution is it might allow the economy to function a while longer without complete breakdown that a paper system has to deal with on a virtually immedite basis.  So rather than complete havoc occuring within a week or two it might take a few months. Maybe.

Returning to the individual, what can you do here to in some way prepare for this eventuality to occur?  Well, as always you should be Prepped up with enough food to last through what hopefully is a temporary disruption of a few weeks to a couple of months.  You should have a reasonable amount of cash, again a couple of months worth of your bills, and hopefully they will take your cash at the gas company office if the banking system is down.  If you have enough money left over after this and think Gold is a good store of your wealth, go ahead and buy some.  Personally, I would not start buying Gold as a Hedge until I had at least 6 months in Cash and Food Preps, but 2 months is a minimum here.

Far as your digibit money in the banks is concerned, Credit Unions are probably somewhat safer than banks, but not by much.  Definitely keep the money in Federally Insured account and don't have more in any account than the insurance limit, which I think is around $250,000.  That's a lot and most people do not have near so much, in fact most people are lucky if they have one month of bills in savings.  Also, splitting up your savings to a couple of different banks might be a wise precaution.  How well the FDIC progam will work in a systemic crash is open to question of course, but it's better than nothing.

https://4.bp.blogspot.com/-QH93E9M2A9M/VvJRWUgpkNI/AAAAAAAABBM/mufh80pzoPAixMprKstmGMA6NMjXRUnEg/s320/thegeektools%2B%25282%2529.jpg The other digimoney many people support as a way to store your wealth are the Crypto-Currencies like bitcoin.  I don't recommend those at all.  In a systemic banking crisis I think those digibits will be worthless and not exchangeable for whatever the new currency regime is in your neghborhood.  Besides that, in all likelihood after a month of disruption, the Internet will go Dark and none of your cryptomoney will be available.

Now, if you are really loaded, there are only 3 other places you might try to preserve your hoarded wealth, the traditional investment vehicles of Stocks, Bonds and Real Estate.  In this type of deflationary crash, it's hard to imagine how any of the paper investments would hold much value, and they also generally suffer from the problem of being extremely illiquid.  It would be hard to sell them to get any new cash being offered up by Da Goobermint, certainly you could not unload them fast enough to use the proceeds for hopping at Walmart for more Preps..

Real Estate presents probably the best of these investments for the well-to-do, but you definitely don't want to be buying it with credit on a mortgage.  In a deflationary crash, it's likely to be underwater rapidly and you probably will lose your job and be unable to pay the mortgage.  So you need to have enough money to buy the property in cash, and few people have enough to do that, at least no more than a few acres of raw land in a cheap area of the country anyhow.

To wrap it up here, there aren't any real fullproof solutions to preserving all that much wealth in a systemic monetary crash, particularly one which goes global.  This crash will come at some point, the system has been patched together with spit, duct tape and bailing wire for almost a decade and it is teetering on the edge of the precipice.  Keep your fingers crossed that the "Smartest Guys in the Room" have a Plan B here to keep things running a while.  If not, we'll see the End of Industrial Civilization occur over a very short period of time.

https://collapseofindustrialcivilization.files.wordpress.com/2013/06/954819_597315660288355_1848092541_n.png?w=529&h=353

Finally, why do you think this problem devolves FIRST to Monte dei Paschi di Siena, the OLDEST bank there is in this system, chartered even before Columbus discovered invaded Amerika in 1492?  Monte dei Paschi start date 20 yers earlier.  Buehler?

 

If nobody comes up with a good rationale on this, I will pitch mine out.  To me, it is obvious, but do not know how others see this.  So I ask for some speculation here.

Modern Slavery

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Published on The Doomstead Diner on November 27, 2016

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I was reading today an article about the economics of the Fishing industry around the Pacific ocean, specifically around Hawaii.  Apparently according to an AP investigative report, aboard at least some of the Amerikan flagged vessels run by Amerikan companies, they have aboard undocumented workers who are not even allowed to leave the ship every 3 weeks or so when it docks in Hawaii or California to offload the latest cargo of frozen Ahi Tuna.

Hawaiian Seafood Is Caught by Undocumented Workers Confined to Ships Like Slaves

 HONOLULU (AP) — Pier 17 doesn't even show up on most Honolulu maps. Cars whiz past it on their way to Waikiki's famous white sand beaches. Yet few locals, let alone passing tourists, are aware that just behind a guarded gate, another world exists: foreign fishermen confined to American boats for years at a time.

Hundreds of undocumented men are employed in this unique U.S. fishing fleet, due to a federal loophole that allows them to work but exempts them from most basic labor protections. Many come from impoverished Southeast Asian and Pacific nations to take the dangerous jobs, which can pay as little as 70 cents an hour.

With no legal standing on U.S. soil, the men are at the mercy of their American captains on American-flagged, American-owned vessels, catching prized swordfish and ahi tuna. Since they don't have visas, they are not allowed to set foot on shore. The entire system, which contradicts other state and federal laws, operates with the blessing of high-ranking U.S. lawmakers and officials, an Associated Press investigation found.

I'm not terrifically shocked by this, since exploitation of 3rd World people by international capitalists has been ongoing for a long time in many industries, just look at the child labor in Indian clothing factories for example.  It is a bit surprising that they are flying under Amerikan flags though on these ships, I would have more expected them to flag the ship in Liberia or some other place in order to avoid this type of nasty publicity, but apparently whoever is running these companies feels invulnerable and simply doesn't care what the publicity is.

Now, 70 cents/hour may sound like a low wage to you and the fact these guys are confined to the ships for months if not years at a time may seem a bit like slavery (it is), but the reality is that most of these guys are probably glad to have this job.  Recall that in many of the places they come from, they live on $2/day, and that includes their families.  If they are on board the ship making $.70/hr and get paid for probably a 10 hour day, they are making $7/day!  They also have room & board, no cost there so the entire amount can be sent home to family as remittances, improving the standard of living for their children.  Essentially, they sacrifice their own lives to hopefully improve the chances for their children in the future.

This is the nature of Wage Arbitrage, and why the explicit slavery system was abandoned in the industrial era.  It simply was not necessary as long as there were vast numbers of people globally not yet on the industrial bandwagon who could be fed for peanuts through the industrial Ag system, which could provide their food at a much cheaper price then they themselves could produce it for.  In this way, the living of the subsistence farmer was undermined, and he HAD to join the industrial system in order to start getting the MONEY required to buy food from the industrial system.

In many cases after the "Green Revolution", food was simply GIVEN away to 3rd world nations as "Humanitarian Food Aid".  What this served to do was to keep upping the population size and then commensurately devaluing the value of labor.  Meanwhile, all the Perks of Industrial culture were being sold, like TVs and later I-phones, not to mention wiring up Electricity for your Village to power all those toys.  Globally, virtually everyone got sucked into this paradigm this way.

http://www.causemarketingforum.com/atf/cf/%7B4DE6F364-56AF-4866-A8D6-BE166D012F35%7D/TRU-UNICEF%20Poster%201.jpg I remember back to my own childhood, when during Halloween you could go "Trick or Treat for UNICEF, the UN Agency which supposedly is concerned with the humanitarian needs of children.  Then there were the Ads on TV for the Christian Children's Fund, with pictures of some sad eyed child from Guatemala, and you were told that for jusT $1/day, you could sponsor that child and make a difference in her life.  Tugs at your heart strings of course, and Lord Only Knows how many people signed up for a $30/month sponsorship of some child.  Most of the money in the end got eaten up by the bureaucracy behind the CCF, or the Red Cross, or whatever Humanitarian Agency it was you made your tax deductible contribution to.

For the whole system to work, it was always in need of expansion, and always in need of a source of cheap labor of some type.  In the beginning, this was explicit slavery, and the population of non-slaves got to live well on the backs of the population of slaves.  With the advent of the Industrial Revolution, a whole NEW source of slavery was accessed, the energy of the 22 Billion Energy Slaves contained in all those barrels of Oil that have been pumped up and burned over the last century.  Whoever "owned" this oil became far richer than any king or plantation owner in all the millenia before, and over time as more things became mechanized, more and more human labor became unnecessary.  As we reach the end of this cycle, now Robotics is the next "great invention" that allows products to be made without the input of human labor, thus further depressing the wage a given person can earn.  At the same time though, the population still continues to increase, and the now unemployed people cannot afford the cost of the products being made by the Robots! lol.  So it's already not a real succesful economic paradigm because of that.

The problem of course now in the Wage Arbtrage model is that no matter how low the price of oil goes or how high, the people who consume the oil and all the products made from it can't afford them anymore.  If the price of Oil keeps going down, then more jobs are lost, wages are depresssed, rinse and repeat until the banksters finally stop issuing credit to the extraction industry.

helicopterbenThe only way to get money to the consumers to burn the oil now is to truly GIVE it away in true "Helicopter" fashion, but they'll never do that.  Helicopter money is only for the corporations at the top of the pyramid.  Even if they DID start handing out free money to everyone, all that would do is create Price Inflation, so no matter how much free money you got, it would never be enough to keep up with the rising prices.

The way credit flowed through the economy in the early years of the Industrial Revolution was through the growth and build out of the system designed to burn the first the coal, then the oil resource.  The railroads were built, making possible new large cities in places in the interior of the FSoA not on large navigable rivers or coastlines.  That took a lot of workers, and so credit to buy all the new products of industrialization flowed down to those workers in the form of wages.  The development of the automobile and build out of the interstate road system opened up still more territory for still more growth, requiring still more workers.  There was a steady downhill flow of the credit from the creation point of the International Banking Cartel to the end worker/consumer, and the economy chugged along fairly well, albeit with some credit collapses along the way, many during the "Free Banking" period in the post civil war 1800s, and then in the 1930s with the Great Depression.

What salvaged the industrial model after the Great Depression was WWII, with enormous amounts of credit issued out to all sides to fight this war, which really was a resource war for hegemony over the necessary commodity to make it all work, Oil.  The War employed millions of men as soldiers, and millions of women back here as "Rosie the Riveters" in factories making the tools of modern warfare, the tanks, battleships, planes and aircraft carriers, and of course the gunz and bombz necessary to level as much destruction as possible on "the enemy".

Out of the ashes of that conflict, pretty much the entirety of Europe had to be rebuilt and a new Credit line was established for that, the Marshall Plan.  Again you had the downhill flow of credit from its creation point to the end worker/consumer, and the industrial economy was humming once again. Right up through the 1970s the build out continued as now cheap oil was being pumped from the desert sands of Saudi Arabia into the voracious maw of capitalism.

http://crudeoilpeak.info/wp-content/uploads/2013/10/US_crude_oil_imports_and_production_to_Jul2013.jpg By the end of the 70s, two things occured which began to slow down this machine.  First, the FSoA turned from a net Oil exporter to a net Oil importer.  The money circulating here to buy the energy for the factories no longer stayed inside the FSoA and recirculated, rather it began to flow outward toward other petroleum producing countries.  As muh as we became addicted to Oil, all these countries became addicted to the constant inflow of dollars, which had to be created in some manner.  So this required that the FSoA always run a trade deficit and keep expanding its credit balance sheet, partially on the books of the Federal Reserve, but mostly on the books of the TBTF Banks that own the Federal Reserve.

The other thing that occured is that for the most part, the original build out of the system was pretty complete in the FSoA by the late 70s early 80s.  Sure new subdivisions kept popping up on the ring roads of the new cities, but the real money to be made for the capitalists at the top of the pyramid was to further build the system out into the 3rd world.  Power Plants and electrical grids for EVERYBODY!  Roads and Carz to drive on them for EVERYBODY!  The whole WORLD could live the techno-cornucopian dream!

So the credit began to flow outward, not inside the FSoA for maintenance of what had already been built, but to new development and new mega-cities all over the world, from Mexico City to Delhi to Lagos, but most particularly to China, the Big Oyster ripe for development in the 1970s.  A HUGE population of workers who would accept slave wages together with a corrupt Goobermint that could care less about any of the environmental problems that come along with industrial development that had already spawned the environmental movement here in the FSoA as such tragedies as Love Canal and then the Exxon Valdez began to reveal the hidden costs of "progress".

The FSoa turned from being an industrial economy into a financialized economy in the bizness of exporting dollars to the 3rd world for further development.  Where the money was to be made here was in the interest charges on the dollars loaned to all these countries so they could pursue this type of development also.  This worked for a while too, particularly well in China which EXPLODED producing cheap products for ever more poorly paid FSoA workers to keep buying, even as their inflation-adjusted wages decreased.

https://www.businessblogshub.com/wp-content/uploads/2010/11/credit_card_debt.jpg At the same time that there was deflation in these products, from cameras to walkmans to TVs and Laptops, there was at the time vast inflation in housing prices, education prices for college, basically anything "made in Amerika" necessary for living and succeeding in this economy became ever more expensive.  Increase in prices in these areas counteracted any gains made from cheaper products being imported from overseas.  In addition, with the exception of the financial economy, any job you might take from manufaturing to teaching saw a stagnation in wages, and overall the purchasing power for the Amerikan consumer began to decrease steadily.  This was compensated for by offering up still more credit to the consumer in the form of Credit Cards, LIAR Loans for carz and sub-prime mortgages.  An accident waiting to happen, and happen it did in 2008.

The last decade has seen one spit, duct tape and bailing wire fix to this clusterfuck after another, from every Central Bank on the globe from Da Fed to the ECB to the BoJ to the BoE to the PBoC and beyond, to the International Banking Cartel organs of the IMF, the World Bank and the Bank for International Settlements, the "Central Bank of Central Banks".  If you have not noticed, nothing these folks have done over the last decade has done Jack Shit to improve the Global Economy, we sink further down the toilet every day.  On the way to a Tipping Point that will occur eventually, one that make 2008 look like a Sunday Picnic.

What is not grasped or talked about in public discussion for the most part is that the Techno-Cornucopian dream is just that, a DREAM.  All the great expansion of the Capitalist-Industrial system to the 3rd World did was to exhaust the resource on which it depends, OIL, that much faster.  So a resource which was SUPPOSED to laat 500 years from textbooks I read in 3rd grade got burned up inside around 30 as the population expanded exponentially and the quantity of energy needed to support such an expanding population also increased exponentially.  In 1900 the amount of energy required to keep the average Amerikan alive was a fraction of that required to do the same thing today, and there are many more Amerikans now than in 1900.  The same is true all through Europe, and all over the world really.  We depend on this stuff to run all the systems we created, and it becomes ever more expensive to dig up by the day.  At some point you reach an inflexion on the global level, and by all measures, we appear to have reached that inflexion point now.

http://1.bp.blogspot.com/_AoBmM_isubo/TREADv5bsUI/AAAAAAAARGs/sgefQenX294/s1600/standard.jpg The question now is just how we will manage this spin down and move our way back to a lower per capita energy future, and a lower population of Homo Saps running around the planet?  On the grand scale, at the moment things do not look too good in this regard.  There are Wars and Rumours of Wars just about everywhere.  Conflicts pop up daily like Mushrooms on a cold damp morning in Kennett Square, PA.  Leadership everywhere are clowns who all buy into further "growth".  The Chinese and Ruskies want to build a "New Silk Road" across the vast expanse of the Eurasian Continent.  It is not going to happen, the cheap energy to do such a thing is long gone already.

The only future for Homo Sap now is one which is much smaller, with less Hubris that we can not just rule the world and transform the planet to our desires but also populate the Universe wih our species in Interstellar Travel.  This dream began in Sci-Fi with folks like H.G. Wells and Jules Verne in text, and moved into the video era with narratives like Star Trek and Star Wars, and now we get this same narrative coming from people in Industry like Elon Musk, and even theoretical scientists like Stephen Hawking.  This is all BULLSHIT, and we must recognize it as so. Our future if there is to be one is much smaller, and we must re-learn the means and methods to provide for ourselves more locally on this planet, the only home we have or ever will have, for so long as it lasts in such a form that it can support higher level eukaryotic organisms like Homo Sap.

This can be DONE.  It can be done equitably as well, it does not require international war and nuclear weapons because resource constraints will take their toll everywhere, and civil wars will take down the population as they always have.  Pestilence and Disease will take down the population also.  Famine, Hunger and Drought also will be a feature of the coming tomorrow.  The Four Horsemen of the Apocalypse are coming on here now, for sure.  We do not need to help them with Nuclear Weapons, destroying our one and only home in this universe.

Humanity is much more than the things we have created from fossil fuels.  Humanity is the thoughts and ideas that all have, the observation of beauty in nature and beauty in thought and writing annd ideas.  This is SENTIENCE, which insofar as we know exists here and only here at this time in this universe.  At some point, this Bright Light of sentience here on this planet will be extinguished, that is a guarantee just as the death of all living things is a guarantee.  But it does not have to be TOMORROW, or even the day after tomorrow when this occurs. We can hold on a bit longer, if we try, if we work together, if we do not QUIT.

Know in your heart that Death is inevitable for all living things. You are destined for death and so is planet Earth.  All you can ever do is the best you can to extend the timeline between birth and death.  Fight the Good Fight with SUN☼, and make it last just as long as you can.

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