Growthiness, growthiness, the grossest gift that I possess

We are in a very tricky situation, economically speaking. Not just globally but also here in Jersey. The foreseeable and inevitable clamp down of the UK on LVCR will shortly lead to more job losses locally. Today’s UK budget may also clamp down on those who hold their properties etc in companies to avoid personal taxation, the administering of which is one of the legs of our finance industry stool.

Globally, we have probably arrived at the point where further economic growth as prescribed by Finance Minister Ozouf, Economic development Minister Maclean, Osborne, Obama etc is not just unlikely but should be recognised as very undesirable.

Economies are limited by the availability of cheap, easily and economically available energy. Here’s a graph of oil prices in “real” dollar equivalents (click image for a larger version).



As you can see, adjusting for inflation, we are at round about the same real price that oil got to during the peak of the 1970's oil shock. Clearly it shows that we are at or beyond a similar situation to the 1970s when the oil price shock first manifested which was regarded as the first event since the Great Depression to have a persistent economic effect. It was associated with (coming soon after) the stock market crash of 73-74.

Some measures of well-being reckon that, at least in the developed world, human well-being peaked in the 1970s and has been declining more or less ever since. This was one of the themes behind Life on Mars where Sam Tyler finally chose to go back to the 70s rather than stay in the here and now.

Study the graph and what it shows about the world and why future growth is so unlikely that those who blindly continue to prescribe and work towards trying to engender it, should just get real and tell everybody that they are trying to chase a mirage.

We are at, or past, peak oil. New reserves being found are not keeping up with the demand. The giant oil fields (such as those in Saudi Arabia) found in the past are declining fast already and it now takes more and more energy to get each barrel up from the depths. EROEI (Energy Returned On Energy Invested) is the reason.

From Wikipedia (although there is naturally some argument about the figures):

"when oil was originally discovered, it took on average one barrel of oil to find, extract, and process about 100 barrels of oil. That ratio has declined steadily over the last century to about three barrels gained for one barrel used up in the U.S. (and about ten for one in Saudi Arabia)"

Some people believe that there will always be more to find if we just drill deeper or go further out to sea - they are sort of correct, but the view is not sensible. There is no point. As the EROEI falls to approach one barrel of oil needed to extract one barrel of oil, the benefit approaches zero and the carbon footprint of net usable extracted energy approaches infinity!

Things are going to go rapidly downhill unless you all start ignoring the Geoff Cook's and the Ozouf's and the Osborne's and their functionally insane belief that "growth" will be our saviour - start paying more attention to those talking about a genuinely sustainable strategy.

At the root of all the problems we have, and those problems yet to manifest fully, is one word -  growth. The superstar of the ecological economics movement, Herman Daly, has pointed out that economies have an optimum size. When they are small and the world is empty and the resources available to them are large compared with the demand, then growth has really beneficial effects at making people better off by generating wealth and employment etc. When an economy continues growing, however, a point is reached when the available space to expand into and the availability of economically extractable resources starts to peak, then plateau and eventually starts to decline. This peaking is the moment when the graph of benefits versus further growth starts to decline too – further economic growth leads to decreasing benefits. Daly himself somewhat clumsily calls this increasing “illth”.

We are at this point now. Further conventional economic growth, of the type which has worked well for us in the past, will not achieve the same results as all the conventionally educated experts and economists still expect – in fact it would achieve exactly the opposite. The more “they” try to restart growth in the global economy, the worse will be the eventual effects. One of the problems with conventional economics is it does not discriminate between desirable outcomes, such as increasing health and contentment and undesirable outcomes, when it measures the overall success or growth in an economy. Anything that generates money is counted as “good”.

An economy that has to spend a lot on the military because they are fighting a war or preparing for one as an eventuality, or has to expand spending on medicine and health care because the population is increasingly unhealthy can appear, by conventional measures, to be economically healthy whereas the economy of a peaceful, healthy, contented population not so wedded to ever increasing purchases of material goods to provide consumer satisfaction could appear as if it was flat-lining. Which society would you prefer to live in, though?

People may think these ideas are a recent invention but they have actually been part of the evolution of economic thought almost since the beginning. Even that darling of hard line right wingers Adam Smith - who wrote “The Wealth of Nations” – was aware of the ultimate limits to growth, but his ideas have been cherry picked for centuries. He theorised and observed that people trading in free markets leads to production of the right quantities of commodities, division of labour, increasing wages, and an upward spiral of economic growth. But he also recognized a limit to economic growth. He predicted that in the long run, population growth would push wages down, natural resources would become increasingly scarce, and division of labour would approach the limits of its effectiveness.

Other famous economic names were aware of the limits to growth too:

John Maynard Keynes, one of the most influential economists of the twentieth century, currently enjoying  a bit more popularity, after the Milton Friedman type policies of the past few decades start to look a bit "tired" now as the economic system faces collapse,  also considered the day when society could focus on ends (happiness and wellbeing, for example) rather than means (economic growth and individual pursuit of profit).
He wrote:

...that avarice is a vice, that the exaction of usury is a misdemeanour, and the love of money is detestable… We shall once more value ends above means and prefer the good to the useful.

and

The day is not far off when the economic problem will take the back seat where it belongs, and the arena of the heart and the head will be occupied or reoccupied, by our real problems - the problems of life and of human relations, of creation and behaviour and religion.

John Stuart Mill, pioneer of economics and one of the most gifted philosophers and scholars of the 19th century, also anticipated the transition from economic growth to a "stationary state." In his Principles of Political Economy, he wrote:

...the increase of wealth is not boundless. The end of growth leads to a stationary state. The stationary state of capital and wealth… would be a very considerable improvement on our present condition.

and

...a stationary condition of capital and population implies no stationary state of human improvement. There would be as much scope as ever for all kinds of mental culture, and moral and social progress; as much room for improving the art of living, and much more likelihood of it being improved, when minds ceased to be engrossed by the art of getting on."

The problem is that the cherry picking of the great economists’ thoughts has had the effect of only publicising that part of their work that supports unrestrained expansionism. It has been promoted by those who seek to accumulate ever greater wealth and personal power – in short, greed – without them seeming to understand the inherent limits to that way of being. As Simon and Garfunkle, in “The Boxer”, sung –

“a man hears what he wants to hear and disregards the rest”

 
More recently than those old time economists I mentioned, Bobby Kennedy expressed the basic ideas behind sustainable or ecological economics ideas on 18 March 1968, in an address to the University of Kansas at the height of the Vietnam war. This speech has just resurfaced, thanks to Youtube.   



So, why did I call this post “growthiness, growthiness”? It’s a reference to the Ken Dodd song “happiness”. In it he never once mentions getting a new IPad or the FTSE hitting 10,000!



We’ve all led ourselves to believe that happiness and contentment is largely achievable with continued economic growth. The idea is hard wired into the minds of most politicians, businessmen, civil servants, classical economists. It permeates the very fabric of human society. People who question it are sidelined or ignored by the powers that be, as if the vast majority are all operating under post hypnotic suggestions to avoid considering the very obvious and exponentiating flaws in the dream.

The advertising and P.R. industries that first mushroomed in the 1950s, as psychologists inspired by Edward Bernays started to consolidate how to really influence people by exploiting their inner unconscious fears and desires, are largely responsible for the hypnotic suggestions we have been swamped with that make unending growth and the consumer lifestyle it promises seem desirable, indeed “the way”.

It’s time to wake up.

Relying on the Chinese economic miracle? You’ll have to have another one shortly afterwards to keep you going

Our local economic geniuses, such as Senators Terry le Sueur, Philip Ozouf  Alan Maclean and Geoff Cook, seem to rate the joys of attracting finance industry business from China/Asia. Here’s an account from the BBC of their recent (June) £20,000 trip to China, which they seemed to think was a jolly good wheeze!

They were, as the road to hell is well known to be paved with, full of good intentions because the purpose of the trip was to proactively address local unemployment, declining tax receipts and economic slowdown. What’s not to love? Fat tail risk chance!! - that’s a clever economic joke, BTW. What Le Sueur and co have just done, all bright eyed, bushy tailed and full of yuppie over-confidence, was the equivalent of going to Wall Street looking to drum up new finance business. In 1929. Before October 24th…

If anyone promoting the joys of unending exponential growth (which anyone with their heads screwed on should realise is a sure recipe for disaster) directs you to look at the Chinese economic “miracle” to back up their ideology, consider that it is always brightest before the storm.

Perhaps the following might be the proverbial “cloud no bigger than a man’s hand” that foreshadows that storm.

A US hedge fund manager has just (November 2010) launched a fund (Corriente advisors) that bets on the imminent implosion of the Chinese economy - click for link to Telegraph article.

Most of the Chinese GDP is in fact spending on building infrastructure such as new cities, airports etc. This article from the New York Times (July 6th) lays the true nature of the “miracle” bare. With all the apparent success of someone with access to a huge credit line that enabled buying fast cars and foreign holidays, jewellery and mansions just before the bills came in and their house of cards collapsed, Chinese municipalities have taken out gigantic debt obligations, kept discretely off their balance sheets using arcane financial instruments.

As municipal projects play out across China, spending on so-called fixed-asset investment — a crucial measure of building that is heavily weighted toward government and real estate projects — is now equal to nearly 70% of the nation’s GDP. It is a ratio that no other large nation has approached in modern times. In absolute terms, it’s an Armageddon amount that, as far as I am aware, the world has never seen before.

How might things start to collapse? The collateral for many loans is local land valued at lofty prices that would collapse if China’s real estate bubble burst. As an example, in Wuhan - China’s ninth-largest city - land prices have tripled in the last decade. But the land is only highly valued because there is an expectation that there will always be new building projects to initiate. It is widely documented that there are shopping malls and even whole cities that are virtually empty, with no-one to live in them or use them. Click here for the ghost cities of China. Clearly one of the biggest bubbles ever blown. Probably the loudest bang is due.

According to businessinsider.com the following rather mixed messages will blow your minds…

China’s dominoes of destruction

15 factoids about China that will blow your mind

15 more factoids about China that will blow your mind

When China falls, probably Australia will be the first domino (scroll down the page about half way) in the rest of the world to directly collapse. Après moi le deluge, cobber.

But no, Nick, I hear you cry with all the yuppie uber-confidence shared by our glorious leaders, surely the glass must be half full – we’ve lived our lives – we’ve built our lives - quoting this – all our friends know this is the attitude to have because we live in Jersey – we have a charmed and cushy life – nothing can puncture our happy optimistic bubble? Can it?

Sorry to burst your bubbles. Reality is starting to intrude.

 

The answer!

Ever since I saw the original information passed on in my recent post – we’re ***’ed – I’ve been  a bit subdued in an “it’s too late already” sort of way.  Just to attempt to show willing by spreading some worthwhile ideas further, I am posting a copy of an essay by Rob Dietz about the potential a “steady state” economy has to fix just about all the current problems we have. Its basic thesis is that unending growth is no longer desirable, probably disastrous, despite virtually all mainstream economists taking it as a article of faith that growth must continue to grow…

As a consequence of the century old obsession with unending growth by the top level advisers to governments, we now have a situation where virtually all the people with power over our lives accept, and are being fooled by, a system that is long past its use by date. The 7 billion innocent bystanders, who hope that governments will get things right, have an unjustified faith that, because the system appears to have worked so well for more than their lifetimes, that it will continue to work indefinitely. Familiarity bred confidence. Pride goeth before a fall.

Newton’s laws of motion etc needed to be added to by the theories of Einstein to explain why the motion of objects at extreme speeds (nearing light speed) differed from that predicted by basic Newtonian mechanics. In an interesting parallel, the standard theories of “growth economics” work OK in what can be described as an empty world – one in which there is a relatively slow economy with apparently endless space to expand into and pollute and endless resources to exploit, such as when there were far fewer than 2 billion people around (who also had a modest environmental footprint).

Nowadays our economy, our demands and the numbers of us have expanded exponentially and we are bumping up against the environmental and resource availability limits of the planet. We are metaphorically approaching the speed of light economically where the well worn ordinary laws of economics clearly start to break down. Using Newton’s laws to plot a high speed course amongst the planets would lead to failure to get where one wanted. So too if standard economic theory and advisers are used to cope with economic meltdowns, climate change etc. We need the equivalent of a theory of relativity to light the way. Ecological economics is it. Developed by Herman Daly almost 40 years ago, it is “the answer”.

The following article was posted on the Post Growth blog which reposted it from the original source on the ”The Daly News”, which is part of the CASSE (Center for the advancement of the Steady State Economy.

_____________________________________________________________________

Economics of the Story of Stuff

by Rob Dietz on May 15, 2010

We’re pleased to introduce our first guest contributor, Rob Dietz, Executive Director of the Center for the Advancement of the Steady State Economy. This is a cross-posting of his most recent work on The Daly News, CASSE’s blog.

Annie Leonard’s The Story of Stuff, the explosive online video (now also expanded into a book), provides an entertaining explanation of a glaring economic flaw.  The Story of Stuff takes a look at the economy’s linear system that runs from extraction to production to distribution to consumption to disposal. As Annie says, “… you cannot run a linear system on a finite planet indefinitely.” You especially can’t grow the size of that linear system indefinitely. But that’s the misguided aim of current economic goals and policies. Misguided as it is, however, we know why politicians and economists push economic growth and consumer spending. As soon as we slow down our shopping and buy less stuff, the economy spirals into a recession. That’s when we start hearing about and experiencing real problems – problems like people losing their jobs, their homes, and even their ability to take care of basic needs.

What a dilemma! The planet can’t sustain our pattern of consumption, but people get steamrolled in the economy when consumption slows down. The solution is to figure out how to structure the economy so that people can meet their needs without trashing the planet. But restructuring the economy is no simple task. Even gathering the will to take a shot at it is difficult.

The main reason is that economics is a subject most of us avoid. The majority of people understand that it’s good to have money in their pockets, but they don’t necessarily want to get involved in the policies of the Federal Reserve, the inner workings of the Treasury Department, or banking regulations. That’s the job of economists, right? But 99% of economists are entrenched in the old way of thinking. Their training and their methods are aimed at growing the unsustainable linear system. Economists are always talking about growth. Growth, growth, growth. They seem to believe that getting bigger is the only recipe for getting better. It’s worked for them in the past and it’s what they know. And they mostly haven’t studied ecology or physics or other fields that would help inform them about the effects of their policies on the planet.

As a result, economists are doing what they can to prop up the old system, and politicians and the public are inclined to listen to them. Politicians are especially susceptible to the spin. They don’t usually know much at all about economics, but they do know they’ll be thrown out of office if people are losing their jobs and their sense of security.

Why do we grant so much latitude to economists, especially when they have proven time and time again that they can’t predict momentous economic events? With few exceptions, they didn’t know the financial and economic crisis of 2008 was coming. We’ve pursued and achieved economic growth for several centuries, and through official policy for over 50 years. If their prescription of continuous economic growth is the answer, why are we facing so many profound environmental and economic problems? Why should we be worried about global warming and losing our jobs at the same time?

It will take a lot of effort to get the ball rolling on changing our economic structure. On the positive side, ecological economists have already developed the foundation for a new economy. A steady state economy provides a real potential for sustainability that simply cannot derive from continuous pursuit of economic growth. A steady state economy respects limits and strives for stability in population, consumption, and overall use of energy and materials. To get a feel for how this works, think of a healthy mature forest. It does not grow in size, but it is a living system with a complex web of parts. Remarkably diverse groups of species cooperate and compete within the forest, and there are opportunities for new species and ecosystem functions to develop over time.

Just like in the forest, stability in a steady state economy is very different from stagnation. Ecological economists actually call this kind of stability a dynamic equilibrium. This fancy term simply means that a steady state economy is dynamic – it changes and develops over time – but it balances with the natural environment. The idea is to right-size the economy, to find that Goldilocks size that’s not too small and not too big, but just right.

The old economy has one major rule: grow or die. Unfortunately, we’re getting to the point where that rule is changing to grow AND die. In contrast, the new steady state economy lives by four main rules described below. It’s very hard to argue against any of these four rules. In fact, as a test, let’s consider the opposite of each rule as well…

Rule 1

Maintain healthy ecosystems. Healthy ecosystems provide the life-support services for the planet. Ecosystems tend to be resilient, so they can handle quite a bit of disturbance. But if economic activities grow too large, they can disrupt the ability of those ecosystems to do their job.

The opposite of Rule 1 is that we destroy healthy ecosystems or maintain unhealthy ecosystems, clearly not a good idea (assuming we want to maintain life on the planet).

Rule 2

Extract renewable resources at a rate no faster than they can be regenerated. Renewable resources, like forests and stocks of fish, provide goods for the economy. The amazing part about them is that they can go on providing goods year after year, so long as we don’t overdo it. If we take only the number of trees and fish that can be regenerated (economists call this sustainable yield), we can keep consuming timber and fish for generations to come.

The opposite of Rule 2 is that we extract renewable resources at a rate faster than they can be regenerated. Following such a course of action would wipe out the forest and drive the fish population to extinction. It would be like killing the goose that lays golden eggs.

Rule 3

Use non-renewable resources at a rate no faster than we can find renewable substitutes. To use a non-renewable resource, like a fossil fuel or mineral, really means to use it up. There will be less of it available for future generations. This condition doesn’t mean that we have to leave all non-renewable resources untouched. But it does mean that there is a clear limit to their exploitation, and we should be working toward replacing them with renewable substitutes as we use them up.

The opposite of Rule 3 is to use non-renewable resources without finding renewable substitutes.

Following this course of action would deplete the bounty of planetary resources in short order. It would be like winning a million dollar lottery, leaving behind a job, and throwing a million dollars’ worth of lavish parties for one year. It might have been one heck of a year, but at the end of it, the money would be all gone, and future prospects wouldn’t be so bright.

Rule 4

Dump wastes into the environment no faster than they can be safely assimilated. Depositing wastes faster than they can break down means that we have to live in our own piles of refuse. It makes for unpleasant and unhealthy living conditions.

The opposite of Rule 4 is to dump wastes as fast as we please. We don’t have to imagine the consequences of this course of action. We’ve seen them in the past – remember when it wasn’t all that uncommon for a river to catch on fire? And we see them today in the form of climate change and rising cancer rates.

Before we can go about building an economy based on these rules, we need to tell our economists and politicians that enough is enough (signing the CASSE position is a good start). We need to stop avoiding the thorny subject of economics and demand a new economic framework — preferably a steady state economy that provides a happy ending to The Story of Stuff.

Image credit: Flickr.com/Adam Crowe. Creative Commons license.

Zeitgeist - trailer

There seems to be a growing realisation (obviously not amongst our Treasury type politicans!) that the current economic woes of the world are not simply a blip or a simple recession or even a “double dip” recession or even a depression. Major thinkers consider that we have come to the end of a period of history and what we are seeing are simply the symptoms of the death throes of the existing economic system. Zeitgeist means the “spirit of the times” and here is a trailer to a movie to be released in January 2011.

As with most of the doom and gloom scenarios around, I am not saying we’re all doomed. We are not helpless in the face of these things. There are solutions to avoid the worst outcomes and come through to the other side in a better way but people have to listen, be aware of the truth and decide to do something about it. Above all else they have to realise that they are going to have to resist the siren voices telling them that everything will be rosy again if we just plan for more of what has brought us to this point.

 

SYNOPSIS: Zeitgeist: Moving Forward, by director Peter Joseph, is a feature length documentary work which will present a case for a needed transition out of the current socioeconomic monetary paradigm which governs the entire world society. This subject matter will transcend the issues of cultural relativism and traditional ideology and move to relate the core, empirical "life ground" attributes of human and social survival, extrapolating those immutable natural laws into a new sustainable social paradigm called a "Resource-Based Economy". THEATRICAL RELEASE - Zeitgeist: Moving Forward is planned to be released in 60+ countries and in 20+ languages starting January 15th 2011. This large scale release is not associated with any major distributor.

 

Why further conventional economic growth has become a very bad idea

There are quite a few "knowledgeable" pundits who are speculating that we might be heading for a double dip recession - which is where you have a recession then see "green shoots" for a bit but then the recession carries on down. A bit like a "dead cat bounce" in an individual share on the stock market.
We keep hearing about the "green shoots" from our economic advisers, both here and on the UK mainland, and those who trust in them, as they continue to believe, like Annie, that "the sun'll come out tomorra - bet your bottom dollar". Rose tinted spectacles.
The likes of Treasury Minister Ozouf and Economic Development Minister Maclean are wedded to the hope that a resumption in economic growth will solve all ills and they think that it's just a matter of the Island/World bunkering down until the recession ends. However, more significant figures are whispering the "D" word - Depression.

We've got to this point because of centuries of Ponzi scheme-like money systems and vast economic growth, fuelled by relatively easily available and cheap fossil fuels combined with a global population level, and average international "standard of living", that meant that the available resources of Planet Earth appeared ample (ish) and inexhaustible.
We are now at the point where we can say that Peak Everything will dampen the growth party - maybe not today, maybe not tomorrow, but soon and for the rest of our lives (yes, it’s from Casablanca).

The United Nation's Environment Programme (GEO4) identified a few years ago that we we are living at least 25% beyond what the Earth can sustainably supply. The current recession/incipient depression will slow the assault on our planetary life support systems down a bit but the end result will be the same.

Indefinite unending conventional growth in a finite world is not possible. That is not an opinion or an assertion – it’s a statement of a law of the Universe. Ye cannae change the laws of physics, Jim! He’s featured on this blog before but step forward one more time the 9 billion tonne hamster.


Global population is only forecast to stabilise at 9-10 billion using the assumption that a developed world standard-of-living spreads to the "undeveloped" world, as a higher standard of living (=impact on resources) is seen as part of the reason why population growth falls in developed nations. Clearly the "necessary" growth in the undeveloped world that is "needed" to stabilise global population will send us careering wildly even further into ecological overshoot mode.

If we don’t stabilise population, everything must go to hell in a handbasket. What is presented as the way to stabilise population means that, if we do it, we will end up also going to hell in a handbasket.

Tricky, huh?

Further conventional economic growth would be "uneconomic growth" where the bad consequences outweigh any benefits. In short, we cannot afford conventional economic growth any more. We have come to the end of that particular road. Unfortunately, conventional economics says that we need growth to resume to get us out of this current colossal financial mess, let alone the staggering levels of international debt that depend on a huge expansion of the global economy to ever be paid back. If the reader didn’t know what unsustainable meant before, they ought to by now!
Back to the current recession/depression. Here's a couple of sites to make Geoff Cook's (Jersey Finance’s Chief Executive) toes curl. The first - The Energy Report - is relatively optimistic (although you'd never know it until you read the second, much longer, one...). Brace yourselves for The Automatic Earth (which references the first article). It takes a while to get going, but stick with it.

By the way, sustainable or ecological economics shows us a way out of the dilemmas but, until the powers that be acknowledge the grave problems the world faces honestly and in public, nothing is likely to be done. While the general population still have some faith in unbearably stupid irresponsible people, like our glorious leaders and their advisers, the pressure for real sustainable change will never build up. Our leaders will continue to prescribe more of what they think worked in the past. It won’t help. People need to get the rocks out of their heads. Bob Dylan said "Don't follow leaders". Until our leaders start speaking reality, I think we should agree with him.

The 9 billion tonne Hamster – be scared!

Today we are hearing lots of rejoicing in Britain that the recession is over and that the economy is growing once again because we got a tiny bit of "growth" in the last quarter. Leaving aside the Christmas splurge and the car scrappage effect, which are an alternative possible source of the growth which might dampen the celebrations a bit, we have to ask ourselves if the resumption of conventional growth is entirely beneficial.

Yesterday, I sent a version of the text quoted below to our Treasury Minister, the Minister for Economic Development and a couple of greenish States members. I also sent it to the local paper. Unfortunately, I could not include this video from the New Economics Foundation (as I only saw it today) but, as they say, a picture is worth a thousand words and I suppose a video might be worth a million? or maybe a billion... but I'm spoiling the plot...

It demonstrates why economic growth is only a good thing for a certain period. After that time it becomes dangerous - like a larger than natural hamster

Here’s my letter:

“It's time to face up to the situation we are in because it would be irresponsible to do otherwise. As the world struggles with the latest and largest "bust" in the boom and bust economic cycle, many are starting to realise that the very basis of that economy, cheap fossil fuelled growth, is no longer sensible. More economic growth, of the type that conventional economists think will solve all ills, is no longer an option. All the experts that Finance Ministers and captains of industry and such-like rely on must be now regarded as false prophets. Their discipline is, of course internally self-consistent, which gives their pronouncements a spurious gravitas but the dangerous flaw is that it is based upon an oxymoron - an impossibility - unending exponential growth.

Successful as a theory for many decades, we are now coming up against the hard-wired physical limits of the planet and the serious nature of the large holes in the foundations of that theory are starting to show. Rather like Einstein had to come up with Relativity when Newtonian mechanics were no longer adequate to describe what we knew of the physical world, so too does conventional economics have to step aside for something more all encompassing.

The elephant-in-the-room flaw is that conventional economics just doesn't take enough into account when measuring the success or otherwise of businesses or economies. A car designed solely for high miles per gallon may appear, to the naive, to be the most efficient and cheapest to run but without consideration being given to the concomitant expensive maintenance costs, or the longevity of the engine and bearings, it is not a good deal. Similarly, the theories, expectations and prescriptions of conventional economists for the economy are a threat to the much larger natural environmental economy that supports it, supplies it and absorbs its waste.

While further economic growth is no longer desirable, economic development is still possible within the environmental and ecological limits that really should not be ignored or discounted any more. Are our Ministers fully aware of this imperative or are they hiding their heads in the sand?

sincerely,

Nick Palmer”

Ponzi vs. environment – who wins?

The following is borrowed and adapted from greenheartglobal blog

The common understanding amongst too many movers and shakers in our modern world, and those who blindly follow them, is that no matter how much garbage, pollution and climate altering gases we throw at it, the planet can absorb it - the natural systems of biodiversity will absorb the impact of our expansionism without damage and no matter how many resources we use up, there will always be more. Unfortunately, this is a grossly false understanding, the consequences of which will increasingly bite us in the very near future - not that the nibbling hasn't already started... This is why we’re now facing climate change and looming environmental devastation, resource shortages, famine etc.

David P. Barash’s, from The Chronicle of Higher Education had a very interesting article discussing how our relationship to the environment is akin to a Ponzi Scheme.

He makes the case that modern civilization’s exploitation of the natural environment is not unlike the way Madoff exploited his investors, predicated on the illusion that it will always be possible to make future payments owing to yet more exploitation down the road: more suckers, more growth, more GNP, based on the fraudulent idea of hope.

Here is a photo of the man after whom Ponzi schemes are named.

Here is the Wikipedia definition of a Ponzi Scheme to give you some context:

A Ponzi scheme is a fraudulent investment operation that pays returns to separate investors from their own money or money paid by subsequent investors, rather than from any actual profit earned. The Ponzi scheme usually offers returns that other investments cannot guarantee in order to entice new investors, in the form of short-term returns that are either abnormally high or unusually consistent. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors in order to keep the scheme going.

The system is destined to collapse because the earnings, if any, are less than the payments. Usually, the scheme is interrupted by legal authorities before it collapses because a Ponzi scheme is suspected or because the promoter is selling unregistered securities. As more investors become involved, the likelihood of the scheme coming to the attention of authorities increases.

When you have read and digested this definition, see how closely the basic modus operandi of a Ponzi scheme matches that of the ideology of unending, ever-expanding economic growth. This is what our entire civilisation has been based on since the industrial revolution. Everything we know, every mainstream way of doing things is based on a set of beliefs that have passed their “use-by” date. Try reading “Collapse” by Jared Diamond to get an idea of how stupid humans can be in large numbers. To those who scoff at the idea that we could ruin the environment sufficiently to sabotage our civilisation – GET REAL!! Diamond’s book clearly shows that societies have done this very thing many times in the past at their local level. It’s just that now we’re again headed the same way but on a much larger scale that is entraining the whole planet.

Greenheart global finish off by saying:

Economy and Ecology follow the same fundamental principles. And one of those is that growth and development are finite. The naïve assumption of an infinite, resource rich environment is dangerous and must be addressed… It is widely assumed that a healthy, clean environment is affordable only when a country’s economy is strong. The reality is precisely the opposite: A strong economy is possible only when the environment on which it depends is healthy and strong. A related reality is that endless growth is literally impossible, for economies no less than for organisms, just as Ponzi schemes that depend on an endless supply of new subscribers are certain to be unsustainable. No one is innocent, and no one gets off the hook.

In the end, “we are also Ponzis and Madoffs who profit from economic schemes that are fundamentally unsustainable and thus, in the deepest sense, frauds. Madoff eventually got 150 years in the slammer and worldwide derision. What’s in store for the rest of us?”

A good start for President Obama

Back in January, President Obama gave this address on the economy, energy climate and sustainability (yes, he mentioned the magic word!). What he proposes is a snowball which is relatively small potatoes (I just can't help mixing metaphors!) compared with what we have to do to save everybody's skins but if Obama sets it rolling we just might be able to add "the sustainability extras" to the snowball to get it up to a suitable size as it starts to gather speed and the electorate starts to see that altering the way we do things will not be a disaster but just possibly we might end up in a nicer situation.

Too Big to Fail?

Click the following link to go to an article in The Atlantic, by Simon Johnson. He is a professor at MIT’s Sloan School of Management and was the chief economist at the International Monetary Fund during 2007 and 2008.An alternative to the reassuring words of some finance types

Some financial institutions have been said to be too big to fail. If this is true then it seems obvious that a sustainable global economy should never allow them to get this big again. Too big to fail, in future, must mean too big to be allowed to exist.

Page 4 of the article has the following gloomy outlook about the consequences of one of a couple of "options" that the USA now faces, depending on what it does next. Note that the rest of the world does not come off lightly... Remember this guy came from the IMF so he is not financially "illiterate".

"It goes like this: the global economy continues to deteriorate, the banking system in east-central Europe collapses, and—because eastern Europe’s banks are mostly owned by western European banks—justifiable fears of government insolvency spread throughout the Continent. Creditors take further hits and confidence falls further. The Asian economies that export manufactured goods are devastated, and the commodity producers in Latin America and Africa are not much better off. A dramatic worsening of the global environment forces the U.S. economy, already staggering, down onto both knees. The baseline growth rates used in the administration’s current budget are increasingly seen as unrealistic, and the rosy “stress scenario” that the U.S. Treasury is currently using to evaluate banks’ balance sheets becomes a source of great embarrassment.

Under this kind of pressure, and faced with the prospect of a national and global collapse, minds may become more concentrated.

The conventional wisdom among the elite is still that the current slump “cannot be as bad as the Great Depression.” This view is wrong. What we face now could, in fact, be worse than the Great Depression — because the world is now so much more interconnected and because the banking sector is now so big. We face a synchronized downturn in almost all countries"

Remember Gordon Gecko's speech in Wall Street (the movie)? "Greed is good... greed works" that launched a whole generation of yuppies? Not looking so workable now, is it?

Recession 2 - the sequel

Mike Higgins' talk at the Peirson attracted a roomful of people - about 23-24. Without wishing to stereotype, I would say that finance industry types were probably under-represented. I intersperse my own comments and interpretations throughout this piece.

Mike initially "did a Daniel" by discovering that he had forgotten part of his material but he managed to do a very interesting talk, that covered a lot of material, off the cuff - no-one would have realised if he hadn't told us... he wasn't a lecturer in economics for nothing!

He started by saying that Jersey was not technically in a recession yet but soon would be - this was due to the lag of the figures behind reality. A true recession needs two quarters of negative growth. A depression would be a long term 10% fall in growth. He sketched out the basic reasons why the global economy is in the state it is and suggested that one of the reasons for the almost total lack of credit available at the moment is because the banks and institutions are all suspicious of each other - they don't know who it is safe to lend on to, even if they get deposits, because they don't know who to trust with all the unknown amounts of toxic debts floating around on the other party's balance sheets.

With reference to the Jersey States, Mike said that it was proving extremely hard to get information out of civil servants and he suggested that the Island was run by the top civil servants (who are obviously un-elected). I can't see that this is a healthy situation as, let's just assume, if we had a situation where the top civil servants were neither civil nor our servants and their hierarchical organisation meant that anybody who didn't toe the "from on high" party line couldn't progress in (or even stay in the service), then this would have inevitably lead to a self-reinforcing, self-propagating and virtually impregnable system. Not good. If true, it explains an awful lot of what happens in Jersey. Even when we employ new civil servants from outside the Island, clearly the HR processes of the States are constrained to employ people who will fit in, and be cosy with, the existing Mandarins, structures, employees, beliefs and practices. Very not good.

We heard that in England and Wales, up to 1/3 of the shops are empty and it's a similar picture on the industrial estates.

Mike said that he had had meetings with the Fiscal Policy Panel, a high powered group of three national-level economists who advise the States of Jersey on financial matters. He asked them flat out what they thought about the situation and basically the truth of the matter is that absolutely nobody is sure how this will play out - it is an unprecedented situation - there have been recessions before, and also depressions, but there has never been a global depression/recession before. Bear this in mind next time you hear Terry le Sueur and Philip Ozouf metaphorically singing "the Sun'll come out tomorra - bet your bottom dollar".

Perhaps now the architects of globalisation, "efficiency", competition, mergers and acquisitions, consolidation, outsourcing and downsizing etc etc will come to realise the final consequences of their bankrupt philosophy as the sting in the tail of shifting most manufacturing to China and allowing international finance to grow too big, too speculative and too unregulatable comes home to roost (I love mixing metaphors!).

They all thought simple economic growth would lead everybody to prosperity, employment, security and cheap goods. Instead, it has put the world into a highly vulnerable situation for the next few years, not to mention possible environmental calamity. It's possible the world might just be pulling out of this current economic disaster in three or four years but then, waiting in the wings, there will be the colossal hammer blow of Peak Oil which is forecast to start affecting the global economy within five years as the rate of discovery of new oilfields starts to fail to keep pace with the demand. In this case, the price of energy will go up and up and won't come back down again. This will have an almost unimaginably serious impact on world food prices and availability. Conventional economic growth will become implausible, not to mention irresponsible. Listen to the greenies!

Surely some of the responsibility for the instability that is being played out on the world financial markets is down to the activities of hedge funds which promised to make money for their clients whether markets were rising or falling. When economies are in the "inflating bubble" stage, hedge funds tend to amplify that bubble. Unfortunately, due to their tendency to short currencies and industries during periods of weakness or setback, they act to amplify downturns - amplify recessionary and depressionary pressures. Apparently we have about 1600 hedge funds registered in Jersey which were encouraged to settle here by Philip Ozouf and Alan Maclean. One wonders what Barack and Brown and Sarkozy etc will make of this.

Everybody in the room pricked up their ears when Mike mentioned that at some financial meeting he was at, a figure of 10% GST was mentioned as a possibility and that a civil servant behind him gave a sort of "high-five" yesss! as if he had won a bet...

Mike passed on that the Fiscal Policy Panel say that we need to make contingency plans. For example, if we have a major contraction in Financial Services in Jersey, we will all be in serious trouble. Mike speculated that he thought there were probably people in the room who disliked Finance so much that they would be happy to see it go but he warned everybody that, if Finance went, it would not be pretty for those left. I am no fan of "yuppies" but too many ordinary people have built their lives around the presence of Finance for me to want it to fail. I think somehow Jersey needs a managed retreat from having all our eggs in one basket. It's often the ordinary people just trying to make a modest life for themselves who get hurt the most in these situations, while the Fred Goodwin's of this world waltz off into the sunset with their £600,000 pensions and severance pay. The £140 million Stabilisation fund that they're talking about is only for immediate needs and the £500 million Strategic Reserve - the "rainy day fund" - is for situations as serious as if Finance has to "exit Jersey, stage left".

Mike also talked about what is called "regulatory capture" which is another aspect of us having allowed Finance to get too dominant. The "too big to fail" approach has been used to force taxpayers to bail out and prop up ailing banks and financial institutions because, if we didn't, it is said the ensuing financial meltdown would be too horrendous to contemplate. Similarly, "regulatory capture" refers to the banks and institution's excessive power to dictate the terms under which they operate, or to influence the drafting of Laws to benefit themselves, in their chosen area. Basically, if the States don't play ball with them, they threaten to take their ball away and go somewhere else. In essence, Finance has been able to dictate to government. Our States do not appear to have the testicular fortitude to show any poker playing ability inasmuch as they never - ever - seem to call a bluff (q.v. the Les Pas Holdings silliness).

Clearly, the processes of competition, globalisation, rationalisation, mergers and acquisitions and all the familiar "yuppie" philosophy etc have created monsters which are too big and dangerous and arrogant - they have ended up being pathological to the economic and environmental safety of the world. Of course, in the discipline of ecological economics, the dangers of allowing any one financial "species" to get too dominant or too destructive are all too obvious. It's just a shame that the proponents of classical economics do not realise that they are bound by exactly the same fundamental rules as a biological habitat. "Ye cannae change the laws of physics, Jim!"

Attempting (metaphorically) to create a global "rat and cockroach" economy and doing the equivalent of introducing goats or cane toads into vulnerable environments, was always bound to lead to tears before bedtime. It's just a pity that those in power didn't listen. They're not listening still - perhaps they never will.