Yves here. I’m featuring a MacroBusiness post, “What If the GFC is Permanent?” despite its being a bit meandering, because it asks some Big Questions, and therefore will give readers something to chew over.
The headline doesn’t quite get at what the post is about. Its focus is a recent paper by Robert Gordon questioning whether growth is over. I’ve read the underlying paper; MacroBusiness’s relies on a comment by Martin Wolf that discusses it. Key sections of its abstract:
There was virtually no growth before 1750, and thus there is no guarantee that growth will continue indefinitely. Rather, the paper suggests that the rapid progress made over the past 250 years could well turn out to be a unique episode in human history…
The analysis links periods of slow and rapid growth to the timing of the three industrial revolutions (IR’s), that is, IR #1 (steam, railroads) from 1750 to 1830; IR #2 (electricity, internal combustion engine, running water, indoor toilets, communications, entertainment, chemicals, petroleum) from 1870 to 1900; and IR #3 (computers, the web, mobile phones) from 1960 to present. It provides evidence that IR #2 was more important than the others and was largely responsible for 80 years of relatively rapid productivity growth between 1890 and 1972. Once the spin-off inventions from IR #2 (airplanes, air conditioning, interstate highways) had run their course, productivity growth during 1972-96 was much slower than before. In contrast, IR #3 created only a short-lived growth revival between 1996 and 2004. Many of the original and spin-off inventions of IR #2 could happen only once – urbanization, transportation speed, the freedom of females from the drudgery of carrying tons of water per year, and the role of central heating and air conditioning in achieving a year-round constant temperature.
Even if innovation were to continue into the future at the rate of the two decades before 2007, the U.S. faces six headwinds that are in the process of dragging long-term growth to half or less of the 1.9 percent annual rate experienced between 1860 and 2007. These include demography, education, inequality, globalization, energy/environment, and the overhang of consumer and government debt. A provocative “exercise in subtraction” suggests that future growth in consumption per capita for the bottom 99 percent of the income distribution could fall below 0.5 percent per year for an extended period of decades.
I’m a bit dubious of tying the underlying problem of growth to getting out of the global financial crisis, although they certainly interact in nasty ways. If you look at our last big financial crisis, the Great Depression, it occurred in what Gordon would characterize as an underlying period of growth. Peter Temin has argued, and his analysis is persuasive, that the Depression came out of a breakdown of a paradigm that had performed well in terms of promoting trade and international stability, that of the gold standard. It was suspended in World War I and Temin contends that the efforts in the 1920s to restore it led directly to the Great Depression. A 31 year crisis (from 1914 till a new financial order was negotiated in Bretton Woods in 1944 and was implemented in 1945) is well nigh permanent from the perspective of those living through it. So even before you get to Gordon’s reasons for doubting that past rates of growth can be restored, a global financial crisis can be a symptom of the end of a set of a financial arrangements, and the time it takes to accept that and implement new arrangements can be protracted. As we warned in ECONNED:
All these factors play a role in the hesitance to impose tough reforms, but the most intractable and least recognized is the last, the difficulty of seeing that the failings of the current system are deeply rooted and not amenable to simple remedies. Any resolution of the major problems facing the financial system would take a good deal of time, care, and persistent effort, and would simultaneously be highly politicized. That makes it very likely that the financial services industry will derail or blunt reform efforts. That in turn means the current paradigm
will be patched up and restored to service only to fail again. This pattern will replay until the breakdown is beyond repair.
By Michael Feller, an investment strategist. Cross posted from MacroBusiness
While Europe may be reaching a deal of sorts between Teutonic lender and Latin borrower, and while pre-election America may appear to be regaining momentum in the form of lending and employment data, economic turbulence has merely moved eastwards in its slow, global orbit.
With the Asian Development Bank cutting regional growth forecasts from 6.9% to 6.1%, and Future Fund chief David Murray warning of an external finance shock in Australia, IMF chief economist Olivier Blanchard seems right when he forecast on Wednesday that the world would not recover from the financial crisis until at least 2018.
But what if Blanchard were wrong? What if his premise was incorrect? Certainly, there is a very real structural slowdown in China, a pause in the consumption rates of South Asia and Indonesia, and a continuing malaise in Japan, but what if we didn’t look at this as a crisis, but as statis? What if our obsession with economic growth and measures of growth turned out to be an illusion.
The Financial Times’ Martin Wolf opened this can of worms on Tuesday, asking if unlimited growth was a thing of the past. Citing research on historic rates of productivity by economist Robert Gordon, Wolf questioned whether our current third industrial revolution – that of information, rather than steam and mechanisation in the 19th, or urbanisation and middle class expansion in the 20th century – was really all that profound.
Who, for instance, would trade Facebook or an iPhone for indoor heating or a flushing toilet? What economic gains could broadband have over the original subsea telegraph? Could the benefits of green energy really compare to the discovery of alternating current or the invention of the turbine?
These are questions others have asked as well, ranging from the longue durée historians of the Sorbonne, who are attempting to pinpoint capitalism’s demise by 2100 (economic systems, like those of feudal Europe or the Roman Empire, apparently last 600 years), to UBS strategist Andy Lees, who last year provocatively claimed the world had hit its innovation peak in the 1840s.
Furthermore, these questions are not new. William Morris, better known for his wallpaper designs, wrote of a cashless society in late Victorian England. In 1516, philosopher Thomas More described the isle of Utopia where gold and silver were cast aside for pursuits of real prosperity, the metals only used for the “humblest items of domestic equipment”.
And of course, there was John Stuart Mill, who in 1848 would advance the notion of the ‘stationary state’, where objectives of economic quality were to be pursued over objectives of economic quantity. This no-growth model would later have appeal for Kibbutzniks, survivalists, and environmentalists such the authors of the 1972 Club of Rome report – who reintroduced Mill’s concept of the limits of growth to a new Malthusian audience. Even John Meynard Keynes, an admirer of Mill, would at times lament the obsession politicians would come to have with GDP, an instrument of measurement he helped devise for limited use during the Second World War.
Yet Mill’s legacy is perhaps most relevant today with global populations now stabilising, the risks of catastrophic climate change becoming ever more apparent, technology supplanting labour and productivity seen by many economists as the last great hope for growth. Indeed, outside of canonising modern liberalism or the idea of falsification in the scientific method, Mill’s most important contribution to political economy was arguably his theory of development: that growth was a function of capital, labour and land (or natural resources). Mill felt that sustainable development was only possible if growth in labour was exceeded by growth in land and capital productivity, rather than debt. With middle class wages stagnating and the so-called 99% seeing few of the economic gains that we are supposed to have made since the economic deregulation of the 1980s, Mill’s dictums speak a remarkable truth across the gulf of time.
In a week where prominent fund manager Bill Gross likened America’s credit-based economic model to a crystal meth addiction (like any ‘hopium’ or narcotic, debt borrows the benefits of tomorrow for the enjoyment of today) and when central banks, from Australia to Russia, are joining peers in Europe, Britain, the US and Japan in pushing down rates or pump-priming markets with liquidity, one can see another of Mill’s classic warnings – the tyranny of the majority – coming true, with quick fixes and short-term solutions the order of the day.
Yet no country is as perhaps as apt for Mill’s analysis than China: a country that is in a self-imposed demographic decline, where utilitarianism and capital factor productivity have been warped into a fixed-asset bubble and where land is quite literally denuded of soil, drained of moisture and acidified by the detritus of industrialisation.
In an oped for the New York Times last week, economist Richard Easterlin described China’s belief it could purchase social stability through rapid economic growth as a “Faustian bargain”; a phrase also used recently by Bundesbank chief Jen Wideman’s in criticising the European Central Bank’s outright monetary transactions.
In a survey of opinions on life satisfaction scored between 1990 and 2011, Easterlin and his colleagues found that the average Chinese is no more satisfied today than they were in the aftermath of Tiananmen Square. Moreover, scores on satisfaction for urbanites actually declined for most of the period, as old social safety nets – China’s so-called ‘iron rice bowl’ – were removed in the name of productivity, efficiency and, ultimately, economic liberalisation, and as the competitive urges of capitalism overtook the cooperation, forced as it was or not, of socialism.
Yet unlike other post-Enlightenment political philosophies – both the capitalism of Adam Smith or the communism of Karl Marx – Mill saw growth as more than material. Borrowing from its classical antecedent – the Ancient Greeks spoke of humanity’s goal aseudaimonia, or flourishing – modern society is built on the ideal of improvement, development, growth and expansion, but it needn’t be so mono-dimensional. Indeed, Aristotle considered an essential pillar of eudaimonia, or one of the four cardinal virtues, to be moderation.
The problem is that in many ways we may have already reached the limits of growth. Politicians like to talk about half-glass full and half-glass empty, yet ultimately we’re still drinking from the same poisoned chalice. By relooking at John Stuart Mill there may be a more refreshing alternative.
The crisis really will be permanant if the only explanations people can come up with are post-modern 20th centrury montages. Some of this reads like a sci-fi novel.
We’ll solve the crisis with three things: System wide defaults, liquidations, and bankruptcies; a redistribution of misallocated wealth via 90%+ taxation rates; and a vast, peacetime-unprecedented reduction and restructuring of government spending.
These things will be very, very painful. But they will work, and then the crisis will be over. You won’t have a pension, but your children will have a future. Or you can choose to live in this limbo forever, all to keep the undeserving ascendancy in paradise.
What is an “undeserving ascendancy in paradise”?
You have to ask the Ori
I’ve wondered also if our tech cycle rely compares – from an incremental advance standpoint – with historical Great Leaps Forward.
I noticed that the article didn’t mention that “we” went to the moon. Guess it didn’t leave much of an impression.
But I got a buddy that spent as much as an iPhone on a Japanese Power Flushing toilet. He says his toilet is pretty cool, but his iPhone is cooler. I said, but isn’t it cool that the toilet connects to something? He said “Oh yeah, when you put it that way…”.
So we have the info superhighway and the virtual world (and they claim the real one shrunk too!), but at this point I always prefer to have craazyman take it from here and do the value and spiritual comparisons.
But if we need growth to fix the financial system, then we would have to assume the USG and Federal Reserve have something really cool up their sleeves for us. I can’t guess what it may be.
Bert, priceless comment. Thank you. Especially “well, if you put it that way.” If he hadn’t seen the light, you might have tried calling the special toilet an “iToilet” and that might have gotten his attention where straight forward presentation of reality failed :)
Cool” written French ==? “cul” = butthole.
It sounds as though the financial crisis is causally related to the lack of growth. If our financial system has been operating in an environment where overall growth was a given, expectations regarding returns were based on this assumption. One would expect that if overall growth entered a period of virtually no overall growth, there would be an adjustment period in which people took ever-increasing risks to maintain their historical rates of return.
Notice how decreasing regulations allow for greater risk-taking, yet the investors are not seeing rewards commeasurate with the higher risks? (Yes, the brokers are seeing great returns – but these returns are not trickling down to the “brokees” (the average investor).
The whole real economy and financial system is of course very complex, and has all sorts of feedback loops and people monkeying with the “controls”.
But if you wanted to try and compress an explanation into a nutshell, it might look like this:
2000-2003 recession needs fixing-> consumer debt low/corporate debt high -> Create housing boom thru cheap credit with lower and lower underwriting standards -> ensure supply of cheap credit thru securitization -> keep that going by allowing obfuscation of the risk and implied USG/Fed backstop of everything -> when the financial system realized they have to buy the crap they made, have banking regulators look the other way and say sure that’s AAA stuff and your balance sheet looks fine and off balance sheet probably looks even better!
2008: Great recession needs fixing -> consumer debt is 30 year mortgages on twice the house price or 2nds for the porsche –> create cheap credit for banks……->??????
If you reduce goverment spending in this leveraged monetary envoirment you will have a UK like Grot economy that will not even work like the UK post “Big Bang” as not every country can go into massive current account deficit so as to import Grot.
The article orbited around investments and what might possibly work in the future…..
In the 1840s they were big into the rail thing….with some massive bubbles in that technology in the late 19th century.
Now we are big into the road thing.
Autobahns & motorways seem to be the trigger for modern Imperial overstretch events.
Meanwhile the BMW 3 was the biggest selling car in Austerity Ireland this september…..
The NAMA enginners who probally buy these cars are entropy enginners……..they just run down systems.
The crisis in the heart of Europe orbits the UK which went into a truely massive real goods deficit of $100 billion in Y2011.
These events go as far back as the Jenkins labour /IMF Attacks on the UK boffin culture in the 60s….
During the 80s of course the stripping of Londons hinterland both locally and in its wider Euro Hinterland became insane….
With the complete destruction of the UKs ability to make PWRs with also Italys and Spains rejection of Nuclear after the “Big Bang”.
The Euro crisis is really a Anglo investment crisis – projected outward toward its vassal states.
A Norman lamontisation of Europe with truely devastating results.
The real goods trade deficit (inc oil) of the UK was a record £100 billion in 2011.
Trade of goods balance : – 88,505m
Trade of oil Balance : – 11,509m
Is Europe a victim of unsustainable international trade /energy connections which reduces rational internal / national demand and rational investment ?
If you compare this to the year 2000 in the UK (really London as londons local hinterland is stripped clean already)
Trade of goods balance : -39,512 m
Trade of oil balance :+6,536m (peak)
Trade of goods balance : -11,497m
Trade of oil balance : + 1,274m
And Q2 2012
UK Q2 period in its balance of trade and current account figures.
Current account Net
Trade in Goods : £ -28.1 Billion ( largest deficit ever recorded)
Trade in Services : £+ 17.9
Income : £ -5.2 Billion (largest deficit ever recorded)
Transfers : £ -5.5 Billion
Current balance £ -20.8 Billion (largest deficit ever recorded)
Notice the negative yield income…..which means they must drive us into current account surplus by whatever means.
Ireland posted a record 3 Billion + euro current account surplus in Q2 and even Greece posted a current account surplus in July.
Now some of the deficit is works of Art , precious stones and even silver with appeared on the top 30 goods imported and exported for the first time in a long time but the net trade balance from these goods is merely a negative of a few Billion.
(Gold is top secret of course)
However the total trade of silver , works or Art and Precious stones is approx half of the UKs Motor trade now.
In the words of Steve from Virgina…
Steve from Virginia:
“Credit money expansion (Banks) replaces a great debt with another, greater debt. There is never a net reduction in the debt, only a perpetual increase. (we are reducing our debt by exporting our debt/symbolic wealth via goods- export elsewhere destroying internal commerce)
Treasury money expansion is repudiation of debts => repudiation of (pre-existing) money, institutionalized default (expansion includes purposeful inflation).
Finance offers fiat debt then demands repayment in circulating currency (gold clause effect). Fiat currency offered by the government to retire fiat debt: both the debt and the currency are extinguished at once.
The creditor says, “You owe us, you must pay with circulating money!”
The debtor says, “There is no circulating money, the creditors refuse to lend …”
The creditor says, “We will seize your property instead and destroy your economy!”
The government (which is also a debtor) says:
– “We will create money without borrowing and repay the loans as they come due. We can do this because we are the government, our money is paid to our army.”
– “The loans are fiat — they were created by the lender with the stroke on a keyboard, they were not made from circulating currency. To act as if they were is a crime, a false claim. The lenders will be repaid by a stroke of the keyboard, in the same form as the debts were issued. If you or other lenders touch our property or our citizens we will throw you into prison and decide later whether to feed you or not.”
– “Because lenders have impoverished our country with endless false claims we will punish you severely whenever we can get our hands on you. You are our enemy and we will destroy you if we can, because you have sought to destroy us!”
Dork – If the Credit Industry serves no productive purpose other then extraction then its a Goverments sworn duty to do the above.
This is because we fail to comprehend the existence of a national monetary system as the vehicle for accomplishing ‘finance’ and funding economic prosperity.
Those who view money “as” debt are incapable of seeing the proper roles for the sovereign in assuring our well-being.
The basic argument against this paradigm continuing for another generation can be found in this IMF research paper on the 1930’s proposal by Chicago School economists to FDR.
The Chicago Plan Revisited.
To the Money System Common.
Since your departure from Irish Economy it has become devoid of perceptive comment on transportation and energy.
Your comments here are appreciated nonetheless.
Thanks Mick ,
My last contribution on the Irish economy blog was questioning these guys false logic
Fiscal Responsibility Bill
18th July 2012
make of it what you will.
My most lasting impression was a summer spent down in Glandore village back in 1990…..(a hang out for the not so rich and famous of Cork city)
This was after the fiscal austerity / credit inflation of the Mac the Knife years…..
My understanding of the privatised nature of money comes from that time.
The Gaff was full of Volvos , Mercs , BMWs and Audis and this was a year when people were still leaving Ireland.
That first phase of the credit hyperinflation was limited to a certain small connected segment of Irish society cut short by the second Gulf war of 1991 and the EMU crisis of the early 90s.
Looking at the Car reg for this year it is showing some pick up in the BMW / Audi section of the market.
Trying to figure out why BMW only really sell Diesel cars in Ireland now.
Finance of course…..they only seem to offer credit for their BMW 1 & 3 series diesel…….
So the BMW stuff at least for the 1 & 3 series is not cash , with the6 & 7 series sales very low in Ireland.
http://www.bmw.ie/ (BMW Ireland)
I would imagine its hard for Americans to understand the scale of diesel use.
Y2007 (Jan -Sep) BMW sales Petrol :3,690 , Diesel : 3,320
Y2012 (Jan – Sep) BMW sales Petrol : 38 ,Diesel : 3,236
So they are simply refusing to give credit for petrol cars given their generally higher tax band and higher fuel use especially in these heavy high powered cars.
Low income people are not given credit of any description , therefore you get a very unusual car market of high end sales and lower relative basic car sales.
It is why BMW are doing so much better then Ford and Toyota for the moment at least…….they are selling the cars to Doctors and high end civil servents who retain some credit capacity……but if the ship of state defaults ?
A BMW 316 ES
35,030 Euros on the road or 38,936 after 37 months……….
In the semi national economy of Ireland in the 80s people would be buying 3 *1 litre petrol cars for the price of a single BMW….
So we get a sort of Albaniaisation of the car fleet where normal people buy a second hand BMW off the local doctor after maybe 5 Years of use….
Interesting dynamics…..BMWs are not too reliable but Mercs keep going and going and going.
Irish Market share (Jan -Sep)
BMW Y2012 : 4.27% Y2007 : 3.88%
Audi Y2012 : 4.67% Y2007 : 2.89% (rich mens toys increase market share)
Ford Y2012 : 10.8% Y2007 : 11.42 %
Toyota Y2012 : 12.54% Y2007 : 15.22 % (everyman cars decrease ? )
Volkswagen Y2012 : 12.66 % (number 1 brand 2012) Y2007 : 11.41%
Withen a few years the Fords of Y2007 will be scrapped….
Ireland will be a island full of Volks.
Remember you can buy 3* 1 litre petrol Volks “UPS” for the price of 1 BMW3
Both have roughly the same fuel burn.
So we are getting a aging of the irish car fleet as people are forced to buy second hand Mercs and BMers rather then new 1 litres as happened during the early 80s depression.
The truely Absurd Nissan Qashqai
is the number 2 top selling “car” model in Ireland so far this year with 3,256 units sold (2,611 Jan -Sep Y2011)
Who the hell is buying these capital & fuel intensive cars ?
Back in the early 80s depression people were buying cheap 1 litre petrol cars…..
We are truely living withen a non optimum monetary envoirment where we import useless stuff which on a holistic level extracts from rational domestic demand.
Given the circumstances half of the new car regs should be 1 litres…..but it is a tiny niche market with more Qashquis sold then the entire 1 litre segment !!!
the Toyota Yaris dominates the small Irish 1 litre petrol segment.
With 1,908 units sold out of a total of 3,175 units (Jan to Sep)
Volks UP : 248
Opel Corsa : 240
Kia Picanto : 186
Toyota AYGO :124
Skoda citigo : 69
goodmorning ..i like what you write .i have to say we make crisis ..we make eazylife ..so futuro is for next generation who will be ROBOT (iam sorry for that) because ..lose tuch ..lose sentiment soul.lose sens of work hart to get what you want..all this will come one decade the people (maybe ) live better of us but not simple of us this important they will lose the” simple ”CRISIS conomic politice we make to have one step front in highe tech to us human mind not for peace not for love not for simple but for war soul (who can ..be more ”(anapticmeny)”will survive SO law of robot ..machine …
this is really saddeness..
i know sens of humanis (never is arceta) but this be come LAW …….
IF” WE”(POLITCE) WANTED CAN CHANGE THIS SITUATION .YES OF COURS BUT NOT they have a mission to send the world (sto agirista)..
this is lipiro..
we forget simple……..
thank you is not out from the topic if some one understand the sens ..
The future is friendly.
Tom Murphy at
Makes the important point the economic growth based on increased energy use is simply not feasible because no energy process is 100 percent efficient, there is waste heat so just a few percent growth in energy use in only a few centuries would be enough for this waste heat to make the surface of the Earth hot to boil water. Therefore economic growth on Earth will have to be based not on increasing energy use, which is another way of talking quality, not quantity in growth.
You could continue to increase energy usage for a while as long as you increase efficiency fast enough that you cut out waste heat from existing energy usage faster than you add waste heat from new energy usage.
Also, do wind and solar really release waste heat? Are they capturing energy that would otherwise go directly to waste heat in the first place?
Exactly. My intuitive sense is that solar/wind/tidal etc. (they’re all solar derived) renewables are thermodynamically neutral. If harvesting them increased heat in the biosphere, not harvesting them would necessarily have that same heat energy go… where? The idea that one could increase total system temperature by converting solar/solar knock ons to electrical power with no new heat inputs is thermodynamic alchemy.
To the two commenters above, I can only say that you would benefit from a course in thermodynamics (especially the part about the second principle). Be careful that it may shatter the beliefs that you may have in any “free lunch” theories, economic or otherwise.
To answer your question : all the electricity that we produce is ultimately consumed in the form of heat : for instance, the electricty in the battery of an electric vehicle will be transformed as heat by :
– aerodynamic friction on air molecule to overcome the drag
– tyre friction (raise the temperature of the tyre)
– brake friction
– aircon compressor heating (an aircon produces more heat outside that cold inside)
I would also add that a lot of the inefficiency and hence conversion of energy to waste heat in electrical generation occurs during the transmission of electricity along power cables.
It’s not alchemy. The infalling energy would, on average, be reflected back into space at a greater rate than if falling on a solar panel. The solar panel will result in a far slower and less efficient path of return to space.
“In a week where prominent fund manager Bill Gross likened America’s credit-based economic model to a crystal meth addiction (like any ‘hopium’ or narcotic, debt borrows the benefits of tomorrow for the enjoyment of today) and when central banks, from Australia to Russia, are joining peers in Europe, Britain, the US and Japan in pushing down rates or pump-priming markets with liquidity, one can see another of Mill’s classic warnings – the tyranny of the majority – coming true, with quick fixes and short-term solutions the order of the day.”
Whoah there. This is a reflection of the tyranny of a minority. A credit-based finance economy in the place of well-paying jobs, relative equality in wealth across an economy, real economic and social security, broad-based autonomy and so on is barely the choice of the majority.
This is like the furphy of mob-rule. Mobs don’t rule. Ever! Small elites rule and mobs react. Right down to street level. When people act within structures that cripple the ability for the dominant voice to coral them through fear and greed people don’t act like mobs, they act like people.
Mills the Liberal utilitarian, like Burke the Conservative was a product of upper-middle class British thinking. British utilitarian and economic philosophy of the 18th and 19th century reflected class interest and what Mills was deriding threatened that interest. He believed his own drivel, but of course he would, wouldn’t he? It’s partially a matter of projection.
Scratch a liberal (in the English sense – Americans having knee-capped the meanings of ‘liberal’, ‘left’, ‘middle class’ and so on) and you’ll generally find someone in fear of a mob, because liberalism succeeds – whether the liberal consciously realises it or not – on the near and absolute liberty respectively of the middle and upper classes (money being the key to leveraging your rights) vouchsafed by the wage enslavement of both the local working class and distant populations in colonised lands (ie long distance trade which Adam Smith referred to in terms of being an unnatural path to development).
The problems with credit are the result of continuing elite manipulation; of their tyranny. It has nothing to do with majority tyranny.
The good thing about credit is that we can opt out.
“Whoah there. This is a reflection of the tyranny of a minority.”
That was my immediate reaction too. To the point where I wondered whether this doozy was planted on purpose to test the level of inattentiveness of the reading public.
But here’s a thought. Let’s go with the credit-debt system (that is destroying the fabric of society) being a “tyranny of the majority.” Since the Bill of Rights is a set of restraints on the tyranny of the majority, then we must demand from Congress an Amendment X(a) to those restraints, along the lines of: “Congress shall make no law (directly or indirectly) furthering the oppression of the people by the needs of the Financial Classes in the furtherance of speculation and the oppressive creation of debt.”
This is a a first draft intended to spur the drafting skils of Naked Capitalism’s august readership! Or if Obama finds it inspiring he is also invited to join the effort.
the bill of rights to exclude oppression and subjugation to the growth of the financialization crowd….AMEN
Spot on, Mr. Bracewell. The majority of the people of Greece had no idea about the secret deals their elites were crafting with Goldman and co. Nor were the people of Ireland and Spain, countries formerly in surplus, responsible for the games banksters played. The debt trap, Libor and all, was devised in Romney’s ‘quiet rooms’ by a sociopathic minority. Likewise it is the strangle-hold of these predatory benighted few on the global economic system that will forestall equitable and meaningful solutions to the existential problems of inequality and eco-destruction we are facing. Which brings us round to Mills ‘harm principle’ and the point that these extraordinarily powerful few have become so pernicious to the rest of us – we have the right, nay the duty, to stop them…
Thanks for pointing out that crucial aspect of the central thesis of Mill’s “On Liberty;” it’s as often left off the proclamations of self-described liberty-lovers as the second part of the 2nd Amendment is to self-denying gun-lusters.
A majority of people actually prefer quick fixes to a thorough but painstaking solution. If not, I want to know where to find such an enlightened crowd…
The need to predict or pontificate about the future is not new. Our media spends a lot of time telling us what will happen (while misunderstand the past and the present). Simpson/Bowls know that we are approaching Greece. They have their own vague model that brought them to their prediction. Of course, enriching the rich while impoverishing everyone else is their model.
It is common to hear how bad the current generation of kids is. All they do is play video games. They are awful. That, as most baseless predictions, is simply baseless. Today’s young people are better than us. Young women, in particular, are also much taller.
The world will probably continue its cyclical road show. The “rapid productivity growth between 1890 and 1972” had the great depression and two world wars. Quite cyclical.
Productivity kills capitalism because it eliminates consumers; growth tries to make up the difference by killing the environment for profit; untethered debt kills growth because profit is a diminishing return. Three paradoxes. Everyone says the opposite – that productivity is good and promotes a system of capital (debt mostly) reinvested for more growth elsewhere and more productivity. Until productivity hits the wall. But nobody sees it coming and the debts based on future growth expectations crash. At which point the financiers blame the producers and demand their money back. And the credit cards sue their unemployed customers. Which prevents the system from ever coming back. Good riddance. No need to liquidate and go bankrupt – the system is a farce. It was all an illusion in the first place. What we need now is a solutions based economy which provides lots of high-skill “low productivity jobs of high social value.” And a money commons. And our own public priorities. Tyranny of the majority my ass.
Yes thanks Susan for the comment. There’s a stubborn quality to our woes these days and I suspect its due to a massive secular shift. We have produced unbelievable technologies that drive productivity growth, why are we surprised they are levelling the world’s standard of living and driving people out of work. I mean look at every single piece of enterprise software ever sold, it’s designed to make companies more efficient. Read: employ fewer people. And the internet deflates everything it touches, where there used to be value chains now there are just endpoints, and all the middlemen are out of business.
It’s too bad the banksters won’t let us have our deflation, they insist we must have inflation so they can sell more of their product (debt). So we get stuck with bi-flation: the stuff you need going up in price, but the money you need to buy it with going down.
While I think there is general consensus that change is a constant, definitions of what growth is take us quickly off into the weeds, IMO.
Change will eventually overcome the global financial crisis and history will focus on other things. Will humans survive the disintegration of society based on ongoing inheritance and private ownership of property, which alternatives to are never allowed to be discussed? The capitalism mythology stemming from the class based, inheritance maintained social organization has a lot of current faith breathers. The 0.001 could financially bleed the depleting masses until Mother Earth rejects our specie’s inherent sickness entirely. IMO, this will occur before society will seriously move to a sustainable social organization.
Yes, lets get rid of private ownership and go visigoth instead. It is a more pure way of nature.
You will still have to battle the government and their service of private property though.
Thank you for your opinion. Please do try again.
Thank you for your comment. Your comments are very important to us. Please feel free to comment again. Preferably after clearing some of the cobwebs cluttering your mind.
Let’s not wheel out the troll artillery in service of polemic, mkay?
Disagreement is one thing; thread maintenance is another.
I don’t know about permanent. Permanent is an awfully long time, however the Fed’s Zero interest policy response to the crisis that is often acknowledged as beginning in 2008 hasn’t seemed to fix anything. ZIRP seems to be creating new problems in pension plans , has created stress on those depending on the income generated from savings and did not work in Japan who is still set on their zero policy. Outside of ZIRP, we never attacked the balance sheet issue that created the crisis, so banks are stil insolvent and bad debts still exist. While not permanent, our economic malaise may be here for quite some time. Our failure to deal with bad debts and balance sheets or downside too big to fail banks may bring about a new crisis in the not too distant future.
Capitalism is based on treating money as a commodity, rather than the contract it so effectively is. So we have an economy largely based on converting all forms of value, social, environmental, technical, etc, into currency and debt bubbles. The result is an enormous financial tumor. If people conceived of value in more organic terms, strong social relations, healthy environment, etc, obviously life would be better, but we are intellectual reductionists and the more we are able to conceive of dangers, the more we want to protect ourselves from them with fat wallets.
Now we have been sold on the idea of using goatherders on the opposite side of the planet for target practice, in order to remain safe.
You know you are at the top of the wave, when it’s more foam than water.
Industrial Revolution #3 (computers etc.) has provided little productivity growth because it is about knowledge, not things, so taking meaningful advantage requires a very different social system. Right now, we are not trying to evolve the new system, but rather those most attached to the old one are dominant. The finance sector as we know it is an opportunistic infection within this fundamental social stagnation.
The new social system will need to both reward those who do the real work of knowledge production and distribution and turn the knowledge completely free to recombine, multiply, whatever.
We will also need a bit of evolution, at least equivalent to the impact of psychology and the diffusion of increased inner understanding. A knowledge based economy will require us to value and reward integrity.
The fact that most of our knowledge creation and distribution systems have been stripped of their integrity so that they can serve the decaying obsolete current system also makes it harder to see all this.
Yes, thanks Jessica. It is a knowledge-based economy we need. Much better term than the old “solutions-based’ which really now sounds like snake oil in view of all the non-solutions it fobbed off on us.
Well, maybe – then there’s the ole’ “To know and not to do is not to know” ….
What is more critical – what we know or what we do with what we know …
“A knowledge based economy will require us to value and reward integrity.” Jessica
Getting there can be as heavenly as being there!
Hmm….not so much “the crisis is permanant” as “bubbles disguise stagnation.” So the tide may no longer be coming in, but there are still waves beating against the pier.
“For the technologies that did emerge proved most conducive to surveillance, work discipline, and social control. Computers have opened up certain spaces of freedom, as we’re constantly reminded, but instead of leading to the workless utopia Abbie Hoffman imagined, they have been employed in such a way as to produce the opposite effect. They have enabled a financialization of capital that has driven workers desperately into debt, and, at the same time, provided the means by which employers have created ‘flexible’ work regimes that have both destroyed traditional job security and increased working hours for almost everyone. Along with the export of factory jobs, the new work regime has routed the union movement and destroyed any possibility of effective working-class politics.”
In other words, our institutions decided progress had to stop, except for that progress that enables greater repression of the working class. And this program has been a stunning, staggering success.
If you want to know why Julian Assange is Public Enemy Number 1, just keep this in mind. (It’s also why they destroyed Kim Dotcom, even though he was just a vulgar capitalist.) Oh, and the harsh crackdown on Occupy as well, because they were a tech savvy mass movement.
Technology must only contribute to repression. Our rulers model of the future is a boot stamping on a human face, forever.
Can a human face learn to bite the boot off? At the knee?
First off, Minsky anyone?
Also, it is kind of funny seeing running water and toilets mentioned as a technological revolution. My understanding is that various Roman homes had that at some point or other.
Flush toilets = double-edged sword…
-they reduced illness, leading to city & population growth.
-they dispose of useful nutrients that should go back into the ground by mixing wiht massive quantities of drinking water, and put the whole mess into the sea.
…all so people don’t have to fret about their bodily functions
There are alternatives to what you describe. The Chinese had toilets that created methane gas. The gas was used to power their stoves to cook their food. Then the food was recycled via human beings into the toilet. Nice little cycle that.
It took something like 1600 years after the fall of the Roman empire for the living standards of the wealthy Romans to be reattained (I’m not using the formal “fall” of 476 AD; the living standards peaked a few hundred years before that and were in decline by 476 AD). And the second time around it was on the way to becoming broadly based and not achieved via (much) slave labor.
Can Yves or anyone else recommend a good book that covers the fall of Rome in those terms, the decline in standard of living, rather than the usual list of invasions, battles, and generals.
“The Fall of Rome” by Ward-Perkins is a short book that covers or emphasizes more than most the decline in the standard of living, based on archeological evidence.
That said, its been awhile since I read it, but I’m not sure if I would go to it as the first book on the fall of Rome if I was new to the subject. Ward-Perkins wrote it to uphold one view in an academic controversy or controversies.
Modern scholarship on “late antiquity” have tended to emphasize the gradualness of the transition and de-emphasized the role of the Germanic tribes. A very impressive and comprehensive account that is more in accord with this is “How Rome Fell” by Adrian Goldsworthy. But Goldsworthy doesn’t talk much about falling living standards. His thesis is more that the Emperors focused in making decisions on maintaining themselves in power against internal rivals at the expense of the overall health of the empire.
Incidentally, Gibbon and Bury are both still excellent places to start.
One problem is that the Roman Empire was, well, big, and the decline from the Middle Empire to the tripatriate division of the Mediterranean World lasted from about 250 to about 650. Perspective really changes depending on which part of the empire and which part of the period you focus on. It happens that the collapse was most complete in northwestern Europe and particularly Britain -in Britain even literacy disappeared- and that is the area Western historians have traditionally been most interested in.
Yes, Ward-Perkin’s book is good. You may be surprised how much one can learn from pottery.
Yeah, it’s tough to theorize a collapse in terms of what we’d consider a “collapse” among modern nation-states when what you’re really dealing with in the Roman Empire is a series of cascading collapses. For one, the Eastern Empire reaped plenty of material benefits from the “collapse” of Western hegemony.
A comparison of Louis XIV in Versailles to a Minoan administrator in a so-called “palace” (a gap of more than 3,000 years) in terms of personal accommodations is enlightening.
Hell, as the good folks at Jacobin pointed out recently, compare a 1930s middle-class “got everything” dwelling with its current equivalent. That’s an eye-opener, especially when considering how Marxism as a historical movement got blind-sided by consumerism.
Perhaps countries can deal with 2% yearly energy consumption decline rates
UK: – 6.1%
Switzerland: -4.9 %
Italy: -3.8 % … it will be a much larger decline in 2012.
Ireland: -9 % … top of the class 2011
Germany: – 6.6%
France: -3.9 %
Denmark: – 8.7%
Japan: -5.1 %
Yeah, in the US of A they can. Just drive into your average suburban housing development. People are heating, air conditioning and lighting about 5 times as much space as they really need.
I’m not trying to tell people how to live, just saying if push comes to shove there’s plenty of slack in the system to respond. And I know it’s cliche, but humans have an amazing ability to adapt and necessity is the mother of invention, and even the status quo will eventually fall if it attempts to stand in it’s path.
There’s hope. Maybe not for tomorrow but certainly for the day after that.
Good news from a AGW viewpoint however.
just outsource dirty energy hungry part of the production processes in “developping” countries. You pay the fruit of these processes by exchanging them against low energy embedded expensive items, usually directed toward the elites of abovesaid emerging countries (think luxury watches or cars).
Or you simply pay by issuing IOU…
Wolf’s response seems to conflate growth, productivity, and innovation. And while I don’t have access to Gordon’s underyling paper, Feller, Gordon and Wolf all seem to (a) only dimly understand the influence of information technology, (b) ignore the biomedical technological revolution, and (c) ignore population growth.
Given the pace and promises (and yes, the threats) of innovation in the biomedical sciences I can only deem as myopic Wolf’s view “that overall innovation is now slower than a century ago”. Then Wolf seems to imply that the information revolution is self-limiting because, “a decade or two from now every human being will have access to all of the world’s information.” What he fails to account for is the growth of information–which must be measured in Shannon’s sense of “information”, not as the glut of redundant “old information” that websites and economists obsessively collect. The growth of this true information is staggering: consider again the growth of true information in the biomedical sciences.
A second type of information that Wolf and Gordon seem to neglect is the computerized information that drives robotics. Where have all the typists gone? (Gone to work at McDonald’s, every one.) There are no more workers (which is one reason labor unions have become obsolete).
Like yeast, the 99% are now drowning in mankind’s own effluvium, yet there is hardly any attention given to population growth, much less the need to contain it. It is as if, in the economists’ eyes, no growths are cancerous, and productivity can only be measured by how much sh*t we produce.
You are right. Eventually the political debate will shift from “not enough jobs” to “too many people.”
A lawyer buddy of mine who does a lot of tech deals says: What’s the difference between high tech and biotech? The time it takes you to find out you’ve lost all your money.
Please explain how biotech is going to have the impact on productivity that, says, electrification or the auto had. Those were foundational innovations that made a ton of other products and services possible. I don’t see biotech having anywhere near the same level of spillovers.
Biotech is, as far as I can tell in terms of real world applications of any significant economic import, science fiction.
Suppose biotech extends human lifespan at an accelerating rate. Ray Kurzweil, for example, predicts that in a decade or so every year will see a 2 year average lifespan increase.
Somehow I doubt that will be covered under Medicare or Medicaid.
Probably not. But the Tricoder proposed by Qualcomm’s $10 million X- Prize might be.
Depends on where you live, i suppose – i thought i read somewhere that average lifespan in this country is actually decreasing lately, but maybe not …
I chose the term “biomedical science” instead of “biotech” with some thought. Leaving aside bricks-and-mortar “productivity” like Roman aqueducts and Japanese flush toilets, if (bio-) medicine had not nearly eliminated infant mortality and doubled the human lifespan, who would be the consumers of all those products and services that fossil fuels created?
But I guess my larger question (apologies if my question is “Too Big to Ask”) ran to what we mean by “product”, and, hence, “productivity”? I suppose to economists a product is anything one can sell. But by that metric, “knowledge” isn’t a product (until some IP lawyer gets control of it), “health” isn’t a “product” (until it’s is sold by an HMO), and “posterity” isn’t a product (until child labor is deregulated, or other Modest Proposals adopted). Pardon me if I question whether such definitions are productive.
Okay, so medical innovations of the past that increased lifespans provided the human grist that powered the industrial mill that produced the crap that produced the growth. So, it had value to the industrial mill.
But now the question is, given that the industrial mill itself seems to have been powering down, how does contemporary biotech power it up again?
You’re seem to be suggesting that medicine is going to be transformed from a supportive, social services role into the industrial mill itself, itself productive of “economic growth,” as opposed to serving in its traditional supportive role in terms of keeping the human grist at work and going to the supermarket.
People also seem to be proposing that education become a profit center. Personally, and I’m not an economist so I can wrong about this, but I see education as a short term sinkhole and social investment, the long term economic returns on which are anyone’s guess.
So, I’m just curious how you all envision this social services based growth economy coming about.
JT – ” …suggesting that medicine is going to be transformed from a supportive, social services role into the industrial mill itself, itself productive of “economic growth,”
Shucks, hate to mention it, but that is what is already happening to the point where folks have pointed out that reducing medical costs would, ironically, be kicking 17%(?) of the economy in the nuts …. A good bunch of today’s “job creators” are medical/healthcare institutions …
If industrializing medicine mines the human body the way industrialization itself mined the planetary body, then this avenue looks counterproductive to me.
But, I’m not an economist so what do I know.
organs for sale, anyone?
But seriously – insofar as real healthcare would involve prevention, and the current medical model which is “growing” GDP in the economy would be decimated if folks actually didn’t get sick – then i suppose one could argue that the incentive is on the side of mining bodies, the “ore” to be extracted being disease …
I guess that’s kind of a sick interpretation though, isn’t it?
Still, remember those “PSCs” put out by somebody or other re GDP – “Every time another cancer is diagnosed, the GDP grows…”?
The concept of economic productivity is highly overrated.
Productivity is a measure of the efficiency of production. Productivity is a ratio of production output to what is required to produce it (inputs). The measure of productivity is defined as a total output per one unit of a total input.
Worse yet they usually mean labor (only) inputs, not material, and output is the saleable part and excludes waste and associated externalities.
So anything sold for money is an output and you divide that by input labor. You can play with either the numerator or denominator – doesn’t matter.
So selling CDS faster with fewer labor hours involved is a productivity improvement.
biomedical science may be a field where knowledge is being accumulated….but I don’t see an actual translation to economic growth.the entire healthcare system,is in the liability column,to our society.staying healthy is just something people need to do to work and live…
of all the professions in healthcare ,from the doctors,nurses,janitors,research lab assistants,medical product manufacturers and salesmen,and bio waste collectorsand everyone else….they have jobs,that the society should support.
right now, with the profit takin and bloated billing departments,and all the parts of the healthcare system that don’t help anyone but the owners of the companies,they are parasites to our existance.
I see instead of thinking medicine will help grow the economy,we ought to take it away from the private owners, so as to keep actual costs under control, so that these staggering healthcare costs don’t help destroy any real prospect of growth…
I say, the US gov’t ought to use eminent domain to take/buy all the patents/medical device production facilities,hospitals,healthcare training hospitals,research and development labs for pharma….and everything…of course there will be a single payer healthcare system where everyone can get whatever they need,and no more health insurance companies….
why…because we as a nation are being ripped off every way from sunday…and with all the subsidies,grants,tax breaks,tax exempt status,state support at institutions,NIH handovers of publicly funded research,medicaid,medicare funding,public plan recipient care,…etc….we just don’t get a good value.
If we adopted a true socialized healthcare system,most everyone working in any related field would still work.and they should be well paid, and do it because they want to help..and let the entire system be transparent ,so if and when inefficiencies are created,the public can see, and raise their collective voices…most importantly,so we can see what is really happening
this freeedom from heathcare tyranny in turn will free up americans disposable income, and actually give a sense of certainty about the future,rather than worrying how long you will be covered if you get cancer,before your coverage lapses,or you are just killed by the weight of your costs.as you watch your savings fade to dust….
bottom line..healthcare isn’t a growth avenue, it is a cost of doing business.
Depends on how impressive the “breakthrough” is. Sci fi writer Charles Strauss has human consciousness transferred to a networked computer chip. We are no longer meatbags and spend eternity writing programs so we can do whatever we want! But one thing I found disturbing was he didn’t address who were the network engineers left behind?
Consciousness on a chip – is that like beef on a bun or more like S**t on a shingle?
Ah the possibilities are endless …
Bert, would you like to stay behind as a maintenance engineer?
Submitted my app already!
If you honestly believe that’s a possibility then you’ll believe anything.
Another difference between Industrial Revolution 3 and IR1 and IR2 is that because IR3 is basically about creating and deploying knowledge, it is much more difficult to foresee what will be the game changers. Particularly under current conditions, where the knowledge-driven economy is constrained and warped to fit within the rules of a thing economy that is decaying into a rent-centered economy.
One area that clearly could provide massive productivity boost and standard of living boost would be mature energy technology.
By mature technology, I mean one that does not depend on resources we don’t have enough of to use the technology for everyone and that does not create massive problems of its own. Fracking, for example, is an immature technology because it provides energy while massively reducing water supplies.
If research and development could find mature energy technology, we could deploy IR1 and IR2 for the large portion of the planet that has not really reached those levels yet.
If biological technology provided lifespan extension, the impacts would be quite strong. And quite complicated.
“…from a thing economy to a rent-centered economy…”
This reminds me of the new tech obsession with the cloud, where instead of owning a library you pay storage fees online for your library items. This ensures that you have to pysical holdings and that you’re paying more to companies that don’t neccessarily have to hire more workers despite adding services (and service charges), thus adding to this this rent-centered dynamic. It’s conning humans to pay subscription fees for their own life.
“…from a thing economy to a rent-centered economy…”
This reminds me of the new tech obsession with the cloud, where instead of owning a library you pay storage fees online for your library items. This ensures that you have no pysical holdings and that you’re paying more to companies that don’t neccessarily have to hire more workers despite adding services (and service charges), thus adding to this this rent-centered dynamic. It’s conning humans to pay subscription fees for their own life.
And, as you imply, it’s conning people into paying fees that its trends seem to ensure those people will not be able to pay, because they won’t have jobs or jobs that pay enough, while forcing firms to adopt the cloud model to meet temporary efficiency improvements among competitors who have adopted it.
Agreed. I am always surprised when theorists such as David Harvey make sweeping claims about biomedical fields as the new repository of surplus capital.
All the “innovation” of capital nowadays seems to be in the financial sector, which deals with its own surplus through further derivation of financial products . . . until it doesn’t! Which is the important part for those of us who aren’t represented on Wall Street.
Hmmm – is it “information” itself that is growing or our awareness of that which is already encoded in the universe that is growing? We seem to equate “information” with “knowledge” …
No, am not splitting hairs – I contend that everything that can be known is already “known” by someone or something, so real knowledge is an act of discovery, not creation. Why does this matter?
So much of our “science” these days is reductive – reverse engineer MN so we can figure out how to manipulate her into doing what we want instead of using those discoveries to understand how we need to act to properly fit in in a manner which is self-sustaining, the basic design template for life on earth, that old “homeostasis” bit ..
The product of such manipulation we call “information”, but it is not knowledge, IMO – and frankly most of this “information”, ISTM, is noise in the system, pretty useless, and ought to be considered and treated as nuisance instead of “progress” ….
I did read a sci-fi novel where the kids didn’t go to school, but got knowledge shots instead. This was the only way the future world could transfer their vast knowledge to the next generation, and have them still be young enough to enter the workforce.
First, there was the Age of Wood, and for thousands of years, nothing happened. Sure, the time period saw the passing of super-greats like King David and King Darius, Aristotle and Alexander, Cicero and Caesar, Sixtus the 4th and Torquemada the Torturer, but as far as population explosions and GDP performance?
Next, there was the First Age of Coal, and the human species began to make its move. Its population began to rapidly (but not exponentially) grow for the first time, and GDP performance burst into existence, as finally, there was some upward economic movement –a detectable notable of the recently discovered measurables.
Then, after some fits and starts, came the Age of Incredibly Cheap Oil, and all hell broke loose. Exponential hell. Population immediately doubled, then doubled again, then almost doubled again, and GDP followed these doubling patterns (or vice versa, see: chicken and the egg).
Now, as in, right now, we are entering the Second Age of Coal, for the Age of Incredibly Cheap Oil has come to an abrupt end. This changing of the Ages is surprising to some, but not to others (the others, of course, being the ones who look at the fast changing, relative relationship of coal and oil as the two main energy inputs that FUEL the world’s economy –coal about to overtake oil, reclaim the Energy Input Title for the first time since the early 1930s).
So what does this mean, and what have learned? Well, I for one have learned that the Age of Wood was pretty dull from a GDP standpoint, the First Age of Coal occurred when there was 1 billion people and no Global Warming, the Age of Incredibly Cheap Oil was incredibly short-lived, yet it left us with 6 billion more people than we had before, a hot planet, and no new energy inputs,* cheap or otherwise, to power the planet’s future economy. If there is one.
My conclusion is, knowing that (finite) coal can’t even begin to do what (finite) oil can do: The Second Age of Coal is not going to last very long.
*Other than wind and solar, of course, but Mr. Market would rather commit suicide than allow those two access to the “competition.” And Mr. Market the Monopolist rules the world.
Funny timing, you posted this as I was writing the post below it.
Max, best exposition of history in the frame of Resources I’ve ever read. The comparison of what the Wood, Coal and Oil Ages have “given us” really pops. Nicely done. Thank you.
If you haven’t already, ready Jeremy Rifkin’s “Entropy” published in 1980 which basically expatiates on what you just stated.
I claim no originality of thought.
On this site I have linked to dozens of thinkers who have expounded repeatedly on this very same subject, wise men and women like Klare, Kunstler, Heinberg, MacDonald, Nelder, Rubin, Cobb, Greer, Tverberg, Brown and Orlov, to name a few.
I like to give things my own twist, on occasion. My end goal is to align peak oil camp, above, with the brilliance of the MMT camp. That’s where Smith comes in.
Money creation is the only resource that isn’t finite. I would also make an argument, with a caveat, that if used wisely, money creation is easily our most important resource.
But, if we continue to give all the power of money creation to shortsighted bankers, to men who think only in terms of quarters, in the twilight of the oil era, and the dawning of what might be called, the new climate era, then our species will surely perish.
“money creation is easily our most important resource.”
Ya, if you can burn it we’ll be back to the Wood Age.
I havent read it, but the criticism by Drexler linked to in the wiki does not encourage me to take the time.
Yves, I was going to add the two cents I had forgotten yesterday regarding feedback about the site. Since it’s very much related to this post, I’ll do it here.
First off, I agree with the many commenters that NC is an incredibly valuable site. So, in general, my suggestion is just the unoriginal “keep it up.” However, it does seem there is one blind-spot, and a very big one at that. I’m talking about peak oil, and limits to growth more broadly. Now, I know this is not a peak oil blog, for that there’s theoildrum.com. But, since it has clear and strong implications for political economy and capitalism, I can’t but see leaving it out as a big mistake.
As an analogy: consider that this blog includes coverage of environmental issues including global warming. Why is that? It’s because global warming affects us all, because its effects are and will be felt in the economy, and because the economy will itself affect global warming. The second two, in particular, are a reflection that production is not just the coming together of labor and capital, but involves myriad types of physical things such as soil, air, species, etc. Now, all these points are also true regarding peak oil. If we’re considering the state of capitalism now, and wondering whether it will get back to ‘normal’ growth, physical limits such as peak oil simply cannot be left out of the discussion. In this way, our condition now is completely different than it was in the 30s, and it will not do to ignore this.
For example, here is a perspective that we should all seriously consider if we haven’t already: http://www.foreignpolicy.com/articles/2011/01/02/unconventional_wisdom
Now, perhaps you or others might object that peak oil is controversial or that not everyone accepts it. But (a) the same goes for global warming: it is controversial, just not among people who are educated about the topic; and (b) it’s importance is such that anyone who hasn’t looked into the facts really ought to. If you or other contributors to this blog have some reasons for thinking peak oil is not important or not related to the subject matter of this blog, I would like to see them laid out, to see if they’re valid or fallacious.
Oops, sorry, I meant to link to Wallerstein’s article rather than the whole unconventional wisdom series. The correct link is:
In 1975, when I was 15, my older, wiser, brilliantly twisted brother came home from university and ran an experiment on me (something he was wont to do).
He made me smoke some Panama Red, and then he sat me down in front of Hubbert’s Bell Curve, and told me I had one hour to figure out the solution.
I studied. I thought. I panicked. The combination of curve and weed blew my mind. It was right there on paper, civilization was clearly going to end, long before I was slated to die!
But I didn’t give up. I knew history. Especially the history of WWII. I knew the war was about oil. We won easily, because we had all the oil. The Japs attacked, because we cut their oil. Hitler went south in 41, and 42, when he should’ve gone north both times, because he was gunning for the oil.
The Reich had no oil, but they lasted, why? Because … because from the middle to the end they were getting almost all they oil they needed, from coal! That was it! Coal!
I said, triumphantly, “I got it Rich! We’ll make oil out of coal like the 3rd Reich did. I don’t know how it works exactly, but you melt the coal somehow and …
“Shit for brains,” he said, “Think again. Coal has a bell curve too.”
I freaked. “It’s gotta be coal, Rich. If it’s not coal then we need a fucking miracle!”
He raised his hand and nodded, clearly pleased. “That’s right, Little Bro. Very good. We need a fucking miracle.”
“Now let’s smoke a little more. I want you to listen to this group called, Pink Floyd.”
Note: The good stuff is gone. Fracking rocks for oil, drilling deep sea, especially drilling Arctic deep sea, corn ethanol, coal liquefaction, same thing. All last ditch desperation moves.
And all riding bell curves (even corn, in its own way).
Dang, my older brothers didn’t give me either weed or peak oil knowledge.
YVES, don’t do it. It’s a trap (your careful analysis will reveal this).
I think there are a few economists, such as James Hamilton, who have incorporated peak oil into their analysis of the crash. But its rare.
Here is a paper by Jing Chen and James Galbraith that makes an attempt to take into account resource exhaustion. Doesn’t specifically deal with the financial crisis, it’s pretty abstract. But it’s a good sign that someone of Galbraith’s caliber is thinking about the topic (in an interview I saw once he said he thinks peak oil is serious business).
Forgot the link!
MMTers have been thinking about environmental, ecological economics. Mathew Forstater has given a couple of relevant courses- See:
Colloquium On Political Economy Readings
Environment, Resources and Economic Growth
for papers he’s selected or written.
Right off the bat (just started to read this), there’s something wrong about the underlying premise of no growth prior to 1750. Is he asking us to ignore periods such as the merchant expansion of Venice some 400 years prior to steam power?
Then as digi_owl says, there’s always Minsky.
Very good catch.
The underlying paper shows the long-term growth trend prior to 1750 to be only 0.5% per year. It’s a global measure. The impact of Venetian merchant trade was apparently limited.
You can also see this reflected crudely in population levels. Those also were comparatively static over long periods of time and exploded starting with the Industrial revolution.
28 September 2012
“This announcement by ESB is great news for the UK’s energy security, and a recognition that the Government’s approach to encouraging new capacity is increasingly recognised by investors. ”
(Edward Davey, Secretary of State)
In response to the press notice from ESB[External link] announcing investment in a 880MW CCGT gas power plant just outside Manchester, Edward Davey, Secretary of State for Energy and Climate Change said:
“Conventional gas fired power generation needs to remain in the energy mix for some time, even as we seek to develop alternative low carbon technologies such as renewables, nuclear and carbon capture and storage. We urgently need to replace some of our ageing coal power stations and gas is relatively quick to build and half as polluting.
“This announcement by ESB is great news for the UK’s energy security, and a recognition that the Government’s approach to encouraging new capacity is increasingly recognised by investors. It’s also great news for the Manchester area in terms of investment and jobs.”
Dork – what can one say ?
A former state ? (Irish) electrical utility investing in a failed energy system…….
Burning high value Nat gas for electrical production…..
This after a major structual shift in coal this past year or so in the UK.
Why are they doing this ?
Because it is a company expanding into a natural monopoly
Its very cheap to make a large fixed Jet engine as that is what these units are…..
When they are fired up and start burning Nat Gas , the price of Gas goes up like magic…..who would have thought ?
They just say…opps the price of gas is gone up – sorry about that chaps but we must charge you more.
This is the primary reason for the Irish domestic demand crisis…..short term planning to maximise short term profits is the hallmark of the modern market state…
Most of the irish base load outside of one coal plant is base load gas…
The dash for gas continues……despite the economic carnage so far inflicted on the population……they can do this as they can privatise profits on natural monopolies.
Need I say the price of Gas in Ireland is going up by I think 8% this month……
Its quite funny in sick sort of way really.
My father is from Offaly, one of six children. He was the only one who left Ireland, so I have actually have more family across the Atlantic than I do here in the US. Anyway, the original family farm is near Clonmacnoise. A fair few of my relations still live in the area and they were telling me that the ESB is gradually outlawing the footing of turf…I was flabbergasted. A small island nation is outlawing the use of a readily available and natural energy source in favor of having to import something else?! But it makes “sense” in your framework…
I suppose I should have actually said its the cutting being outlawed…forgive this young urbanite.
Yes ,it is all very dark – the banking system needs to maximise waste so that they can get a yield off it….
The situation in Ireland in not unlike the economic crisis of the early 1820s ……..which was the biggest since this this one outside of pehaps WW II
after another 20 + years they could afford to exterminate a large section of the population as by then they had no economic value.
The famine of the 1840s was therefore not a large economic crisis as they did not then register on the economic books.
Ray Crotty was so right about Europe…..first they came for the small farmers and fishermen…………
They want all of you – ALL ,and if they can’t take anymore from you they want you dead.
Really, does anything but lies come out of the mouths of UK “Central” nowadays?
What is growth?What are needs?
infite expectation of growth,in a finance capitalism sense,in a quarterly projection sense…sure that could be over….and really,it SHOULD be over.It was a perversion of nature anyway.the finance people always like to feel that their capitalisation is the root of all good things… but really the human mind creates, with what nature has supplied, and what the laws of nature allows.these will never stop growing.the finance capitalists are the ones who need wars, need poverty,vis a vis the ability of the few to keep more than the rest….their model is the one that is abhorant to nature….
the population bomb may be too much for nature to absorb, but growth is a biological condition.It is a matter of opinion.we all grow, and everything always will…
we are not at the end of anything yet, not in real terms. there is so much the human race needs right now, and there are real alternatives to the crappy choices we are offered.If children were to be “unlearned”the garbage their religions, and political handlers teach at the behest of the world economic elites, the entire predicament would seem different….but since the powers that be ain’t going to let anything go. they would rather the ship go down, with everyone on it(except them),then the plebs be allowed to reconstruct a better system….but nature hasn’t yet shown its hand.It might seem like it,because the growth corporations require,is at the expense of the enviroment.and we all will suffer, asd they extract every last penny from our existance…we are like the cows starving in the pens, because our owners don’t want to buy feed, as we look out on the pastureland,thick with hay…as our owners accountants say they should just kill the stock so as to ensure growth for another quarter…
Yves, I really liked your opening. Our elitists really drag us in to day to day arguments and issues when things are really so macro.
I have been looking at our worldly situations from the baby boomer issue. I just see that that population bubble has really influenced so much of the world. But when I consider the context of when it happened from your growth periods, it does appear that technology seems to be the transformative ‘thing’ that changes society.
Just looking back, fire, the wheel, the bronze age, the industrial revolution. Technology is how we have defined our evolution.
So I want to know, what’s next? I am hoping for either AI, like in the movie The Matrix. Or, alien contact, like star trek. I don’t think the elites will allow aliens, because that will create too much equality. Plus, aliens will question why people like Paris Hilton are considered elites while highly intelligent children eat cat food in the ghetto. We can’t ask those questions.
AI? how much more artificial can our “intelligence” get?
Humans are greedy by nature, power makes us more greedy, a good one turns corrupt to some minor degree with any power.
There is no answer. It will go from bad to worse a famous book says of our time. Time for the reset button? Do we have a reset button?
Growth can be from innovation.
Theoretical “growth” can be from predation.
The two are often confused and or intentionally obfuscated through construct.
There is nothing wrong with honest, peaceful, copacetic existence…except…
Man, as an aggressive animal will exercise his amoral aggression and if he can’t win honestly, will take dishonestly.
Law of the jungle/survival of the fittest.
Choice: Are we animals or do we obey laws of morality?
Capititalistic vs Socialistic are the parallels of that question.
Of course human beings get confused over whether to pick self-enhancing behavior over self-transcending. We always have and we always will but we seem to be making progress in putting regulatory restraints in place. By golly we can video-phone each other from one side of the planet to the other and send money to each other on opposite sides too. Of course, the extremist free-loaders keep popping up to make life difficulty for the majority but we learn how to deal with them. We have to because nature codes balance.
This column and the general direction of thought that it illustrates is mostly wrong and obscurantist. Yves gets to the core of the issue in the quote from ECONNED. It is not just though that the banking/financial industry will blunt any initiatives to fundamental change. It is that there is no clear conception as to what the fundamental change should be. It will probably take a tsunami of collapsing institutions (including btw nation states — atready started in Spain, Britian, and Canada — much more to follow) to clear the ground for fundamental change and there is no certainty that the change that will follow will be constructive. While there is plenty to suspect in the ideology of growth (progress), lullabies about the quality of a civilization in the midst of the collaase of that civilization are pointless. Let’s just say that the same daydreams could be indulged after Las Zetas take over the major cities. Actually, they might even rationalize that takeover.
As a constructive addendum, Yves’ concern with tightly coupled systems is the one of the areas to focus on in considering the kinds of fundamental reforms that are needed. Tightly coupled systems are the cause of systemic risk. But clearly there are more solid tightly coupled systems. Every “system” is integrated in some sense and some are reliable. The real question is why is our financial system so fragile and what will it take to make it stronger as quickly as possible. What is it that allows it to be so fragile if not, in part, the belief that every loss will be backstopped by the FED.
“Tightly coupled systems are the cause of systemic risk”
I would suggest that it is the tightly coupled systems invented by humans that are the cause of systemic risk – the tightly coupled systems “invented” by Nature are the cause of systemic stability – confusing them causes no end of mischief …
Most bridges and skyscrapers are pretty tightly coupled. Airplanes too for that matter.
We then must start talking about “stability” and what that means. I think many people would view the means by which pre-Halocene natural systems remained “stable” – uncontrolled overgrowth met with sweeping die-offs, lightning strikes in forests controlling underbrush through flash fires, etc. – as extremely unstable when applied to a world where humans exist and the relatively short length of a human life is considered as a unit of measurement for value. As one can see with the issue of fires and underbrush, humans still struggle to find efficient solutions to the inefficient efficiencies of “nature” in that (purely idealized) sense.
Think about biological evolution itself. A remarkably inefficient process for design, upon which all more efficient processes historically depend!
There do seem to be a lot of folks with reasons to deny the idea presented, could be it is too far from what they want to believe.
Or (and this is probably the same thing) they believe we are too far gone already, and cannot fathom how to deal with that reality.
Who needs growth?
At least in the US, despite growth as measured by the GDP, the majority of the population have not experienced economic growth for more than a generation. The challenge going forward, in a low growth or no growth regime in the developed world, is to halt or reverse the trend of growing inequality. It is not the tyranny of the majority that we need fear in this regard, it is the tyranny of the plutocracy.
This. Growth in a world of finite resources is in any case obviously unsustainable. The industrialized world has plenty of wealth, what it too often lacks are equitable opportunities and distribution of that wealth. The only demographic segment of the population that actually matters is the bottom. If that bottom are adequately served by the society, then that society is a healthy sustainable one; if the bottom is not being served, that society is a failure regardless of growth rate or total wealth.
The next wave in human development will come when we find a way to arrest and imprison warmongerers and arms merchants. Imagine a world free of wars and all of the lives and resources wasted on preparing for and fighting them.
That will require a global system for allocation of resources that is itself enforced.
Revolutions happen simply because people suddenly realize they have the power to change things. They are the power in society, not the elites. The only reason why the elites keep power in their hands for long is simply because most people–the relevant segments of society–accomodate to it, not because they are forced to tolerate it. When the vast majority of people, specially the relevant segments of society–middle classes, intellectuals, etc–have had enough of it, they move ahead and change things, find a new accomodation. This has been the historic norm and so should be this time in History.
True. Unfortunately, revolutions have a pretty bad track record in terms of where they lead. It’s a kind of catch-22 or chicken-and-egg affair: if we had a population that was capable of achieving a revolution with a genuinely good government as a result, it wouldn’t be voting for such hacks as the republicrats in the first place. And if the population does wake up enough to see the republicrats have to go, I’m pretty sure they would just fall prey to another set of tricksters (with Golden Dawn in Greece as a scary example of what’s possible). After all, the current environment and likely future prospects don’t seem favorable to the development of wisdom.
As Bender says, “We’re boned!”
Quite so. But I was just referring to the mechanics of the whole thing. At no point I even suggested that all that was for the better; only that, during a crisis, as the result of it, a new accomodation is found between the relevant segments–or classes-in society. My comment was addressed more to the people who think of Power in almost abstract terms, as something that fell on the laps of the ruling elite at the beginning of time, something coming to them from some supreme authority above, God, the Providence, etc.. Not so, power is actually diluted in society, dwelling here and there, and all it takes for a revolution is for the different segments of society holding it to come to the agreement that the current order cannot last any longer.
Yeah, sorry if that came out wrong. I didn’t mean to object to what you said, but just to express a general sense of doom regarding revolutionary and non-revolutionary prospects.
“There was virtually no growth before 1750, and thus there is no guarantee that growth will continue indefinitely. Rather, the paper suggests that the rapid progress made over the past 250 years could well turn out to be a unique episode in human history…”
In 1750 you had a whole hemisphere + Australia that were sparsely populationed and just needed some cheap, unskilled land to monetize all of the natural resources. Combine that will zero regard for environment protection and nearly practically cost-free fuel from coal and lumber, that equaled lots of EZ growth.
Then from 1915-1955, the US benefited from the fact that its biggest economic rivals were too busy destroying each others industrial base, you have the US post-war boom.
Well duh… Who doesn’t get this yet? As I’ve been saying’ for more than 10 years now as I watch people’s eyes glass over, bringing about 2 billion new people into industrial economies undermines the very basis of industrialization – dear labor. And thinking that China or India can industrialize on a Japanese model (American demand) at a time in which the baby boomers, which have moved through the American economy like a lump in a snake, are through with consumption is even more bonkers. We used to say, “beaucoup dinky-dow”.
“…the difficulty of seeing that the failings of the current system are deeply rooted and not amenable to simple remedies.”
That thought offers wonderful guidance for the future direction of NC.
As we manage to get some gradual clarification as to the deeply rooted causes of our present crisis we may indirectly be constructing a foundation for visualizing the type of political realignment which will become necessary in order to pursue genuine alternative solutions.
Agreed. Revolution has to be rigorously theorized to avoid catastrophe, even as revolution risks another sort of catastrophe, as it always does and always has. This is as good a space as any to do that theoretical work.
I came late to this. We actually have two crises. The first is kleptocracy. The rich and their servant elites have been expanding their control of our society’s resources for 40 years. In most significant ways, they already have everything that can be had, and are now turning their attention to the last bastions of 99% wealth: housing and entitlements. Terms like capitalism, growth, debt, free markets, free trade, GDP, trickledown, etc. are just propaganda points meant to distract attention away from the looting of the 99%. And while I am primarily talking about the US, kleptocracy, though it plays out differently from country to country, and from region to region, is the one and only politico-economic system in the world today.
Kleptocracy cannot be reformed. It can not be negotiated with. It can only be overthrown. Such an overthrow will be violent, whether we in the 99% wish it or not. Those who have stolen trillions and entrenched themselves in positions of power and privilege will not give up their tens of trillions in stolen wealth voluntarily and without violence. Revolution or servitude are our future. It is up to us to decide which.
The second crisis is the crisis of growth. Basically, as population and technological levels increase, resource depletion and environmental damage increase. While this second crisis is not as far advanced as the first, it will dominate the century after about 2030. As it is, we are already seeing the first indications of what is to come in global climate change, the onset of peak oil and peak energy, the growing number of failed states, and growing tensions over control of impaired watersheds.
We need to deal with kleptocracy in order to redistribute the resources we need to confront this second crisis which is truly existential in nature.
If we do not, our current population of 7 billion could well be under a billion by century’s end, with all the death and misery that implies. Again it is up to us to choose.
The big problems–1) how to turn that into a five-word bumper sticker for America’s beloved undecided voter;
2) 40% of the county doesn’t care—as long as culture war issue X (abortion, seperation church/state, immigration, gay marriage, etc) exists.
Don’t like it when people out-pessimist me. But you did. Kleptocracy is not the one and only system. Countries governing 80+ per cent of the world’s population comprise an alternative. It looks exiguous to us because the US permanent government and its satellites cut themselves off from it like COMECON was cut off from Western markets. Our hermit kingdom’s got its population brainwashed in rote, reflex catchphrases, as rigidly programmed as anything Fox news puts out, but more pervasive. The US is fighting this enemy harder than it ever fought communism. The US is not winning. http://www2.ohchr.org/english/law/index.htm It’s out there. It knocked over the USSR and it’s going to knock over America’s criminal state.
I’m not so optimistic. As explored in articles here and elsewhere, the European Union’s ruling class appears ready to suspend or ignore that body’s legislation on the rights of workers to organize – and simply to advance completely temporal measures, tied to a dubious theory about trade imbalance and local productivity that divides even capitalists as to its real-world efficacy (while the rest of us simply accept the fact that such measures have not and cannot stabilize the EU).
International law still faces down powerful national bodies of law (backed by projection of force) which de jure (the United States courts) or de facto (Russia, China, many others) treat international law as only binding on those national governments who constantly agree to be bound by it, moment by moment, rather than binding as agreed in the signature and ratification of treaties. Even many Americans who are strong critics of the U.S., such as Glenn Greenwald, continue to endorse this legal theory.
Paired with constitutions in these countries that include treaties as part of the law of the land, the contradictions appear staggering. The prisoner’s dilemma rears its ugly head; one does not have to be a Charles Krauthammer imperialist to be a “realist” in this sense about international relations under capitalist rule.
In other words, much of international law survives as a means for propaganda by the ruling class, and has a great deal in common with treaties between the United States and native North American tribes in the 19th century.
Thought-provoking. Too much here for comment-scale response but, (1) Your “de facto” guys, Russia & China, are actually two of the most articulate advocates of rule of law. (2) Funny how lawbreaking invalidates international law, but when the US government wipes its ass with the constitution, nobody tells me how the constitution’s pointless. Treaty signature and ratification entail a process of independent institutional review and international suasion. By comparison, US domestic law is completely toothless as a check on overreaching states. (3) The interpenetration of domestic and international law isn’t a contradiction, it’s a conflict that creates external pressure for reform (and public pressure for reform, except where it’s subverted by propaganda, as in the US.) (4) Distortion of rights doctrine is a recognized problem. It’s a violation of the non-interference principle. Using it, China and Russia stopped US overt use of force in Syria. The US, as the leading enemy of rights and rule of law, is naturally the worst offender.
How would we enforce our choice against a kleptocracy which is armed (and arming further) and prepared (and preparing further) to enforce its choice against our choice?
I see two issues here. First, can growth continue, in principle, indefinitely? Second, is it necessary?
To the extent that growth requires knowledge, I think there is a limit. On the one hand, the transmission of knowledge is much like the transmission of a communicable disease. To spread a disease, people must come into contact with one another, the more rapidly, the more quickly the disease spreads. Increasing the rate of transportation has the effect of reducing the distance between people permitting the pathogen to jump to other hosts more quickly. Increased rates of communication also shortens the distance between people, allowing knowledge to be communicated more quickly (and more widely). Thus, as long as people can observe and invent, knowledge can be communicated leading to more inventions. The bottleneck then becomes the ability of the human mind to invent. However, the sheer amount of knowledge also poses limitations. If knowledge is seen as analogous to the surface of a sphere, then growing knowledge expands the surface. If humans are seen as points on the surface of the sphere, then as knowledge and knowledge potential grows, more people are needed to keep the ratio of people to knowledge constant. Without that, the amount of knowledge becomes so vast that there is not enough overlap between areas of local knowledge (the immediate neighborhood of a person on the surface of the sphere) for people to effectively communicate their knowledge. Thus the very growth of knowledge serves to increase the ‘distance’ between people while technological advances may attempt to shrink the same distance. As a result of external communication processes being nearly instantaneous, internal processes have now become limiting. This is increasingly clear when one considers how technical and detailed even closely related disciplines have become. To grasp what is happening in some or other field requires increasingly more time and effort. Thus, IMO, at some point the growth of knowledge will become limited by our abilities to comprehend and communicate. Perhaps a per capita, environmentally supportable, steady state will ensue. Hence I see growth, in principle and as far as predicated on knowledge, plateauing (just need an ‘o’ now…). In practice, there are more limitations: resources to implement knowledge (even if more efficient due to knowledge); capital (even if not allowed to bunch up in some sector like rail cars on one side of the continent), etc.
Now, is it necessary? Is the bunching up of tokens in the hands of a small minority not what _should_ happen from the perspective of the environment? Redistributing tokens simply prevents the race from ending, thus our unwillingnesses to accept our stations in life simply lead to more environmental damage because we refuse to end this tedious competition. What do we really want? A good-enough life or an opulent (but pointless) life like that of the Jones’? Do we not see, on a broad scale, how we are imprisoned, not by the elites, but by our own desires? As long as we engage in this tug-of-war, we will lose it, because the current environment favors the current elites. One day the environment may change, and not favor them or their offspring, but ours.
Back to the original question: is the GFC symptomatic of a change in regime, a change of state? I think so, because we live on borrowed time: we have long ago exceeded the carrying capacity of the planet and the ratio of people to area of knowledge is higher than can be sustained. As the populations decline, the total ‘area’ of knowledge stays the same, thus the distances between individuals increase. This means growth, where it continues, will be local where the population ‘density’ is still high enough.
Eventually some crisis will have to be permanent, given overproduction and underconsumption. As far as a permanent state that fosters crisis, yes, that’s a logical outcome of the reign of capital.
I also want to point out this article’s staggering weak point, a dithering paragraph about the “tyranny of the majority” that seems to serve no purpose except a rhetorical feint to draw in people who will not accept this argument anyway. Effective negative interest rates dictated by the Fed reflect a shift toward mob rule? On what planet?
Also commenting on Robert Gordon’s paper, subject of this blogpost, are a couple of posts by Matias Vernengo from another blog in the Naked family:
Productivity slowdown and and the return of secular stagnation &
Is Growth Still Possible?
See also his earlier A farewell to growth?
He (& I) are less pessimistic.
I notice in these discussions are based on the assumptions that capitalism is responsible for technological innovation and that the solution to problems caused by technology is to create more technology. Are you (and “he”) sure you aren’t saying what you want to believe, which I think is roughly,”Growth has to continue because that is what we believe in”,?
There is some evidence the market is pricing regulations…
The market couldn’t price its way out of a wet paper bag.