Belaboring the Obvious

Saturday, July 03, 2010

Just a little musing on the economy and...

... the problem of sustainability.

Even though we try not to act as if energy is a severe long-term problem, it is. The math is there, and it's not pretty. Even with the exploitation of fields that promise to be environmental nightmares (as offshore drilling above the Arctic Circle is certain to be, and as deepwater drilling in the Gulf of Mexico has proven to be), demand only has to increase slightly over current levels to make oil scarcer and scarcer, and, for practical purposes, effectively gone in three or four decades.

A very large part of the problem, of course, is the ostrich syndrome--stick yer head in the sand if the threat won't go away, but, the other part of it is a complete dependency on the so-called "free market."

First off, the "free market" isn't free. Where markets go is highly dependent upon how government seeds and feeds which markets--through outright grants and subsidies--but also in how it treats different industries with regard to tax policy (which encompasses everything from equipment depreciation to outright tax reductions not available to all industries and businesses, such as the oil depletion allowance), and much of that is tied to a macroeconomic philosophy that demands steady and predictable growth of the economy as measured by gross domestic product.

At this point, we don't even know how to measure economic activity that's genuinely productive. The classic conundrum between common sense and economic theory can be seen by the example of a guy getting drunk, smashing his car into a bridge abutment and spending a year either in the hospital or convalescing, and out of work. He consumed large quantities of beer beforehand, so, that's a GDP plus. He's totaled his car, so, eventually, he'll need another one, and that's a GDP plus. The bridge abutment is damaged, so, for the sake of public safety, it will have to be repaired. That's an economic plus, too. Maybe some economist will come along and calculate that the cost of protecting the bridge abutment is less than its repair, and might save lives, as well, so legislation is introduced to protect all bridge abutments with some gizmo, and that will stimulate gizmo production, which is also an economic plus. In the meanwhile, a tow truck and driver were needed to cart off the mechanical remains, a junk yard gets the pieces really cheap and gets to resell what's salvageable, the guy is hauled off to the hospital in an ambulance, where he spends considerable time being put back together, which uses hospital supplies, helps amortize some very expensive equipment, and employs dozens of people in a rather high-rent sector of the economy, as well as justifying the jobs of insurance clerks and actuaries. All those things are seen as adding to the GDP, but, looking at it from the lens of actual productivity, it's a complete waste of time and resources. The only thing that gets subtracted from the GDP is his loss of productivity--the time he spends out of work, and the loss of profit from the insurance company (which isn't entirely a GDP loss, because the insurance company raises everyone's rates to make up for what's paid out for his care). Overall, it's a net gain to the economy that he gets drunk one night and nearly pile-drivers himself. If he had died, much of that GDP gain would still be there, and, as well, the florists would see a dividend, as would the funeral home operator, and, if he has family and friends at a distance, the airlines benefit, too, and so would the aggregate GDP.

Most people would think that's a pretty crazy system, but, still, each and every one of those activities does move money around, does keep people employed, etc. By traditional standards, it's all economic activity. And yet, it's all based on the general destruction or depletion of resources, which, in our system, requires extracting more resources to replace those destroyed--and that's the problem with GDP growth vs. sustainability.

Even if one could somehow magically eliminate this sort of economic waste from society, growth is still necessary to maintain employment as long as the population continues to rise. More people means more cars (in the absence of some radically-transformed transportation system), more housing, literally, more of everything, from food to diapers to clothes to medicine to water to steel and aluminum and plastic, to even energy.

Leaving that up to the markets to provide ensures that resource depletion will continue at a rapid rate, because under our current system, extraction of natural resources is much cheaper than recycling, mostly because the external costs of doing so are absorbed by society and government--either in destruction of the commons or in taxpayer-funding of environmental damage (the polluter no longer pays the full cost of pollution, if it ever has), or in reduced life span and quality of life, or in taxes to pay for the military to effectively seize and control global resources for the benefit of our multinational corporations which depend upon our consumption for their profits, and even then, most of that damage associated with resource depletion is added to the GDP as economic activity.

This doesn't even address another fundamental problem--that, traditionally, 70% of all economic activity in the U.S. is consumer-driven--without maintaining that level of consumption of all available goods, the economy would promptly collapse, and very likely, the global economy with it. Where we once could make sensible economic predictions based upon the percentage of excess manufacturing capacity in this country, we no longer can--supply lines have grown so long now that U.S. firms are dependent in very big ways on manufacturing capacity outside our borders, and that must be factored into the equation. I suspect that even small drops in consumption in this country can result in big changes in global excess capacity, given the way businesses operate today. That a substantial quantity of that 70% was fueled by debt necessitated by the increasingly unequal distribution of income only makes the problem worse.

Anyone making the case today for a sustainable economy runs up against a huge wall made up of the following three big bricks--the system as it is now, the government's perceptions of the problems it faces, and public perceptions. Everything the government is now doing is directed toward achieving a status quo that was and is unsustainable for dozens of reasons, but which is definable and known and quantifiable--and politically safe. Anyone looking at the government's actions over the last two years can see that most of its resources have been directed at insulating the financial sector from its own bad behavior entirely for the sake of returning that sector to stability, because the dominant economic wisdom is that Wall Street and its wealthy patrons drive the country's economic engine. There are myriad ways in which this is no longer true, but, the conventional wisdom prevails.

Second, the status quo of the present system is unsustainable, both in terms of the level of consumption, the means to satisfy that consumption, and the ways in which that consumption is financed.

Last, and probably most profound in its effects, the public perceives any attempt at sustainability as detrimental to its welfare and its status. Every aspect of sustainability is perceived by the public as diminishing its standard of living. Telling anyone that they will have to do with less is political poison--the Carter Effect writ large. Of course, this resistance to change is cultivated by the very system itself, through a modern and psychologically powerful advertising system that plays upon everyone's subconscious desires, along with an equally powerful commercial media which reinforces the advertising upon which it depends for revenues. One can see how dramatic those influences are by how much of consumer consumption has been financed through debt, rather than savings.

If we are a culture demanding instant gratification, sophisticated, psychologically manipulative advertising and easily available credit have made us that way--we weren't of that mind always. As importantly, at precisely the time when a generation suddenly began to question the wisdom of an economic system which depended upon planned obsolescence, manufacturing which encouraged disposal rather than repair, a spendthrift energy policy and fighting wars around the world to secure natural resources at the highest possible profit margin, that's when the right-wing industrialists and financiers began to fight back--funding reactionary think tanks, consolidating news media and entertainment outlets, cultivating public opinion and spending ever more heavily on political campaigns and lobbying. One can see that accumulated power in operation today--even though oil is getting scarcer and prices are going up, even though burning oil and coal are intimately linked to anthropogenic global warming (which will have effects on the food chain, the costs of recovering from natural disaster, availability of fresh water and societal costs due to vast human migrations in relatively short periods of time)--and that power is directed primarily toward convincing the public that maintaining the status quo is of primary importance.

Damned difficult to overcome that. If society collapses because of that determination to maintain the status quo (which is intimately linked with the continuing disproportionate distribution of income and wealth), yes, then the public will demand that the status quo be abandoned. How that happens is anyone's guess. The economic turmoil of Germany in the `20s led to the ascension of the Nazis, who promised to create order out of chaos. To think that the United States, because of some ill-defended principles of democracy, is immune to fascism is to deny what's happening at this moment. More to the point, if we are unable or unwilling to make the changes in the status quo now which will enable a different, more sustainable society and economy, we may well not have the energy resources to make new energy sources. It seems almost silly to have to say that, but, if we expend our dominant energy sources before we have new ones in place, we will have no energy to enable that transition, no matter our level of desperation.

So much of this problem is a distinctive characteristic of our political system. We're more or less unable to consistently maintain necessary policies over many political administrations, and yet, we require exactly that ability to sustain research and development and re-industrialization over generations. There's a tremendous hatred on the part of the right toward anything that smacks of central planning, in part because it is perceived as antithetical to free enterprise and inhibitory of profit, and in part because of the horrible examples set by the Soviet Union, even though the Second World War could not have been won in anything like the time it actually took without some rather widespread central planning to coordinate the utilization of both resources and industrial capacity.

And yet, the multinationals that have a stranglehold on energy production and distribution in this country aren't about to give up an ounce of their current power or profitability for the greater good--especially if that entails some long-term effort. They are doing everything they can to preserve their hegemony over energy, even though that's completely antithetical to sustainability. If they can't own it and the distribution system for it, they don't want it and will fight it (because, as the early railroads demonstrated, if one controls distribution, one effectively controls all pricing).

All this points to a need for some serious changes in how we allocate resources and how we function as a society. I don't have any firm answers on how to do these things, if only because I recognize just how much resistance to change exists in our society, regardless of the reasons for that resistance. However, if we simply strive for a return--in the midst of economic calamity--to the status quo as a means of relieving that economic calamity, we're deluding ourselves. We're simply postponing the inevitable, and as a consequence, will make the inevitable come more suddenly and more dramatically, most likely at the expense of our general welfare and of democracy itself.


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