Oh the Scary, Scary Debt. Is Obama to Blame?
The Economist has put together an interactive graphic showing public debt worldwide. While it’s fun and colorful and interesting to play with, it’s also a visual illustration of the state of the world’s economies, especially all the developed countries with massive debt.
If you’re an African country (other than Zimbabwe, whose money is basically fictional) your per capita debt is quite low. Because if you live in an African country, you are receiving very few benefits from the government. And your country has no credit rating to finance a debt splurge. The developed nations, on the other hand, are credit maxed to the hilt. All of them, not just the US.
Obama Had Help
It seems that Obama, while he has made some unwise decisions like proposing a massively expensive healthcare overhaul during a nasty recession, or bailing out failed enterprises including auto companies and badly run banks like so much crack to crackheads, he is mostly the victim of bad timing. Republican antipathy toward Obama is misplaced for the most part. Every conversation I’ve witnessed degenerates into “Obama’s socialist policies are spending us into hell,” followed by, “Well, Bush caused the problem in the first place with an unnecessary war and no bank regulation.”
Truth is, both are accurate. Developed nations have been living like there’s an infinite tomorrow and no limits to what the great machine of capitalism can achieve. Our country is experiencing a massive let-down. For many, the bitterness is transparent. They thought the gravy train would eventually reach their lives. Now, the gravy’s gone and people are pissed.
Good News, Bad News on Economic Recovery
One bit of good news is that Americans are awesomely responsible when they need to be. According to the AP, the personal savings rate “fell steadily from 9.59 percent in the 1970s to 2.68 percent in the easy-money era from 2000 to 2008; from 2005 to 2007, it averaged 1.83 percent. Today, that trend is in reverse. From April to June, Americans’ personal savings rate was 5 percent, and it could go higher if the unemployment rate keeps rising.”
The bad news is that the machine needs capital to churn out GDP growth. Banks are keeping more and refusing to lend (good news for recovery, bad news for business and consumers) despite all those bailout dollars. And unemployment is creeping higher as a result.
Can the US Stay on Top?
One huge question when I look at all the debt represented in the graphic is to whom is all the debt owed? And of course, the answer is to each other, so what does that mean? Here’s where my understanding of global finance breaks down. Naively, I assume that it will all work itself out since everyone owes money to everyone else, therefore, can’t we all just call it roughly even? Fact is, the answer could be radically different. Maybe when all the debt is accounted for, new countries will be left at the top of the heap. Like China. Or India. And the US will be left struggling under a burden caused by too many years of fiscal irresponsibility.
This is where we need to take President Obama to task. Yes, he is the victim of bad timing. The bottom line is, blame can’t fix the economy and reduce the debt. Fiscal responsibility will. Our leaders need to rein in the spend-like-there’s-no-tomorrow habit. A weakness of democracy is the constant chasing after public popularity. When times call for painful policies, Congress and the President need to see past the short term pain and lack of popularity and do what’s right for the country. The country needs to stop expecting handouts and do its part, too.
And About that Healthcare Reform…
A final note, if healthcare reform really does have cost control as its main thrust, I’m for it. If healthcare reform has more coverage to more people as its goal, we can’t afford it. Right now, the message is that both goals are covered. I’m having trouble buying that.
Meet Ray Anderson. He’s got something to teach us.
Ray Anderson spoke at the TED Conference in May. Listen as he describes how his carpet company doubled sales and increased profits while promoting a model for sustainable manufacturing and working toward zero climate impact by 2020. Ray is a humble prophet.
American Sustainability Party
So, right, this is what happens when I start thinking too hard. Bear with me though, because good ideas take some time and a lot of feedback to emerge. I’ve been thinking about an ideal political party. I love the liberty part of Libertarian thinking, i.e., if it doesn’t impose on anyone else’s rights, then it doesn’t need to be illegal. We just went down the wrong path when restricitive laws were passed to “save society money.” This fed into the whole liability as the basis for all social relations. If you aren’t just by me, I’ll sue you and cause you money pain. Hate it! But that’s a bit of a tangent. Liberty and freedom, core values.
I am also deeply committed to the entire concept of sustainability. In fact, we’d do much better to base all of our societal relations on sustainable living. As discussed in past duh pookie posts, traditional economics don’t serve the good of the whole since mainstream economic theory fails to account for externalities, especially unforeseen costs of bad production methods, or just plain insanity like anyone anywhere producing plastic that does not decompose. Permanent garbage, yay! For a real example, antifreeze sells at the gas station for $5.99 a gallon. The price reflects the cost of production and distribution. But, the cost of toxicity to the environment after its use is not accounted for in the original price. This is deeply flawed economics and justifies all kinds of nasty business practices. So, environmentalism would be a core value.
Next, I’m a progressive, so I support the idea of government helping people out. This, to me, is another cost we bear for the good of the whole. Miserable, discontented people lead to instability and disorder. Here’s where my dream party would part with Ayn Rand and the Libertarians. We’d need to provide social services to those unable to help themselves. A critical component would be reasonable, limited social services, not something for nothing, not a free-for-all party. Everyone is capable of performing some kind of community service. Except maybe babies. Okay, no work required from babies!! But some kind of useful participation required from everyone else in order to receive benefits. So, civil service and social service, two more core values.
And the last core value is a little hard to articulate. Community not commercialism might come close. Back to basics. An emphasis on learning, collaborative technologies, humanism. Product obsession replaced with some kind of acknowledgment that we should be humble. A desire to evolve into peaceful, creative, humorous people who live without taking more from the environment that it can give.
Look for the American Sustainability Party on your 2012 ballot. I’m sure it will be just that easy. Anyone wanna join?
Libertarians, Tea Parties, and Economic Plumbing
I’ve been on a zero-growth economics kick for some time now, but it’s led me down a few other related paths: the role of Libertarians, the co-opting of Tea Parties, and the need for patching all the “leaks” in our economic plumbing.
Libertarians
First, Libertarians. Free-marketeers are anti-regulation because they feel that government’s role in regulation is a disruptive mechanism in what should be a self-correcting system. I understand this and agree, to some extent, for the reason I explained in this post. I could never be a true Libertarian because I’m big on wealth redistribution. To the poor and the weak, no less. The problem I have is that the current system favors the wealthy so that they are protected against risk. All those bank bailouts — instead of homeowner bailouts — are a clear indicator that the Fed favors saving the system from the top of the pyramid. As David Harvey points out in this most acute assessment of the current situation, the government could have worked to establish a corporation to buy troubled mortgages from homeowners:
DAVID HARVEY: I would take a lot of that [bailout] money, and I would put it into some kind of a national reconstruction corporation. And I would say, “Look, your first duty is to take care of the foreclosure crisis and the people who have been foreclosed upon. So go into cities like Cleveland and so on that have been devastated, and go into sort of areas in California and so on and take care of the foreclosure crisis.”
AMY GOODMAN: How would you do that?
DAVID HARVEY: Well, I think one of the ways you could do that is to start to buy out all of those houses that are about to be foreclosed on and put them into some kind of, I don’t know, municipal housing association or some collective form of that kind, and then allow people to remain in those houses, even though they’re no longer necessarily owners. So the ownership rights would shift.
Libertarians hated bailouts and wouldn’t have approved of bailing out anyone. Supposedly near to Libertarians on the political spectrum are right-wing Republicans, which brings me to Tea Parties…
Tea Parties
Sadly, the initial urge to protest against the bailouts was probably the voice of the regular citizens who objected to the government bailing out that top tier, the bankers who are already ridiculously rich. But the media machines (also corporations) realized this was a flaming fear-mongering opportunity to generate the type of noise that brings in viewers. So, they co-opted the tea parties and turned them into anti-Obama hate parties. It’s really a shame because our federal government could use some push-back for siding so blatantly with wealthy elites. We do need a citizen movement to rein in the power of the federal government. and especially, of Wall Street. Another quote from David Harvey:
Finance controls both the creation of housing, the production of housing, and also its consumption. You lend money to the developers. They go in and gentrify a neighborhood. You lend them money to the people who are going to occupy it. And even if they don’t have—you’ve got to find that market for the gentrification once that process goes on. And so, the connection there in this, the financial operators are working on both ends of this game
David Harvey calls himself a Marxist Geographer, which sounds a little nonsensical, but the man makes some good points simply by looking at things from an outsider’s perspective. And now, for my final gripe of the day, economic plumbing.
Economic Regulation: Patch the Leaks, Stop the Siphoning
Zero-growth economics has no current working model other than communism. Communism is unrealistic, often really ugly. Huge problem with sharing and our competitive nature or something, eh? But we’ve reached the point where we need to stop consuming, so… can we have growth without consumption? Can we have a .05% growth rate and still have a working system? Is a no-growth system possible with a burgeoning global population? Hmmm, lots of questions regarding viability.
In the meantime it would be great to at least improve our current form of mixed capitalism to ensure stability. If you’d like to see our system support jobs, keep our savings safe, and support homeownership again, we need to close up the places in our economy where investors, traders, and hedge-fund managers live: shadow banking, short-selling, currency trading, credit-default swaps, etc. I do not have deep knowledge of how these things work, but I think I understand that these areas of finance and investment are forms of creating wealth where none actually exists. This creation of false wealth devalues the real wealth of labor and goods, in essence, sucking the health out of our system. The trouble with too much financial liberty, ala Libertarians and strict free market capitalism, is that some jerk always figures out how to game the system and screws it up for the rest of us. Sometimes, like, say since Glass-Steagle was repealed, it’s a whole industry of jerks.
Hence the need for industry regulation. Adam Smith’s invisible hand is just too simple a metaphor. What we need is an even more ridiculous metaphor. Plumbing! Money travels through pipes, yeah. And the pipes leak, see? And then the leak grows into a big puddle and fails to… uh… trickle down. And then a bunch of parasites start to live in the puddle. I could go on and on! But hey, you get the idea. Clean pipes, clear channels with observable paths, a fixed, closed system that’s extensible, and begins at the source: real, actual goods and services. True capital.
We Need a Sustainable Economy
To reach back out of this economic meltdown we have two divergent choices: Go back to the way things have always been, or fix the underlying problems so that we can live smart for generations to come. Guess which view I’d like to see us take?
The Obama Admnistration is about as pragmatic an organization as we ever could’ve hoped for. They’re trying hard to remain centrist and fair, without falling too hard into the pro-WallStreet or pro-MainStreet camps. They have pointed no fingers, but looked only for solutions. While this is all constructive and positive, I feel they have missed a gigantic opportunity to reform a failed system. It fails because it is not sustainable.
Observation from Jim Kunstler, a peak oil advocate:
Perhaps his ease and confidence masks a tragically conventional world-view, an incapacity to imagine “change” outside a very narrow range of possibility. I must say I doubt this is the case. I think, he is going along, for the moment, with a consensus of wishes to prop up life as we know it at all costs. This consensus emanates from the top down and the bottom up. The millions of “Joe-the-Plumber(s)” out there don’t want to rethink the terms of existence anymore than the lords of Goldman Sachs. I also think that circumstances will force Mr. Obama’s hand before long — specifically that a moment will arrive when he goes on TV and tells the American public that things have changed way beyond the scope of what they even imagined when they pulled the levers last fall and voted for an uncharted future.
We now are operating under a fractional reserve economy leveraged to the hilt in debt: personal debt, government debt, and a debt of jobs. Another form of debt? We’re running out of environmental capital with species extinction, peak oil, and loss of habitat.
Yikes. We need a sustainable economy. From the New Scientist:
Most of us accept the need for a more sustainable way to live, by reducing carbon emissions, developing renewable technology and increasing energy efficiency.
But are these efforts to save the planet doomed? A growing band of experts are looking at figures like these and arguing that personal carbon virtue and collective environmentalism are futile as long as our economic system is built on the assumption of growth. The science tells us that if we are serious about saving Earth, we must reshape our economy.
This, of course, is economic heresy. Growth to most economists is as essential as the air we breathe: it is, they claim, the only force capable of lifting the poor out of poverty, feeding the world’s growing population, meeting the costs of rising public spending and stimulating technological development – not to mention funding increasingly expensive lifestyles. They see no limits to that growth, ever.
While we want everything to be peaceful and pretty, sometimes deep change is just necessary. We want to keep eating our Cheetos, but there are almost 7 billion of us now. We have a big impact on our planet and need to start living as if it all matters. I am hoping that Obama has bigger plans for the future than he talks about now, even though I know there are many people who would not go willingly into a “sustainable” future.
Here are some resources for getting educated and imagining a new agenda:
Read the series of articles in the New Scientist on sustainable economy.
Watch the Story of Stuff and make sure to read this section on Another Way.
Check out BlindSpot.org for information on transformation from a linear economy to a circular economy.
A Sustainable No-Growth Economy? Is That Possible?
So, bad news all around for the entire world’s economy despite encouraging words from President Obama last night. When we stop reeling from the overwhelming fact that our economic system just spun out of control (though it will probably come back) we’ve all got to ask ourselves the big questions: How did this happen? Did I personally contribute? Can I live my life in accordance with my values of environmental sustainability and still function in our capitalist system? Yeah, so I know that last question just sent 99% of readers clicking away to the latest Oscar gown mishaps…
If you’ve made it this far, here’s the thing that I’ve been tripping on (because I’m generally tripping on something!): macroeconomics shows us that our capitalist system requires continual growth. Continual consumption of natural resources and environmental degradation as a result. Some authors even call it carbon-based growth to differentiate between a petroleum based economy and… something else. What else?? Here’s a chunky quote about our petroleum-based economy:
Research by the McKinsey Global Institute and McKinsey’s Climate Change Initiative finds that reconciling these two objectives means that “carbon productivity,” the amount of GDP produced per unit of carbon equivalents (CO2e) emitted, must increase dramatically. To meet commonly discussed abatement paths [to stop global climate change], carbon productivity must increase from approximately $740 GDP per ton of CO2e today to $7,300 GDP per ton of CO2e by 2050—a tenfold increase. This is comparable in magnitude to the labor productivity increases of the Industrial Revolution. However, the “carbon revolution” must be achieved in one-third of the time that economic transformation took in the Industrial Revolution if we are to maintain current growth levels while keeping CO2e levels below 500 parts per million by volume (ppmv), a level that many experts believe is the maximum that can be allowed without significant risks to the climate.
What this means is that it may be impossible to correct global warming using our current economic system. We need to examine our economic system in order to support sustainability, living within the means available to us without further damaging our environment. The financial meltdown, global climate change, they’re both symptoms of one REALLY BIG problem: capitalism without sustainability.
We kind of already knew that, but somehow no one seems to ever just say it outright. Back to the finance world, aka the witch’s brewpot of capitalism.
I’ve covered some of the “how it happened” question, and won’t go there with this post because our topic now is the future. The “did I personally contribute” question is valid when we look at how we can change. Do you invest in mutual funds that in turn own stocks from companies you cannot support? How about your 401K? Those greedy-ass investment bankers who tanked our economy were leveraging something: YOUR money. Do the due-diligence and examine your investments to ensure they’re in line with your values. You may own Exxon stock and not even know it. Do you buy too much plastic on a daily basis? Lord knows I do, and it drives me crazy! I hate plastic, but even Trader Joes wraps their veggies in it! (yup, time to go write that email to TJs corporate office…) Okay, so we get it on the environmental impact of daily habits. We’re saving up for the Prius or better yet, the Aptera. But we still participate every day in an economic model that demands continuous expansion to sustain it’s health. We’re hurting now because of shrinkage. Everything we’ve been taught tells us this shrinkage is BAD. People are losing jobs and houses. We haven’t even BEGUN to see the impact on retirement savings that have now evaporated. Life is getting harder.
But the pain is necessary. Until we find a widespread and sustainable form of energy production (beyond resource depletion), the world cannot support a western lifestyle for everyone on earth. What does a sustainable economic model look like?
Maybe socialism, and definitely with a LOCAL emphasis. For us Americans, rugged individualists that we are, there’s always the pain-threshhold question associated with socialism: how much pain would you like to subject your neighbors to before you’ll pay more taxes to help them? How about someone else’s neighbors? How about rude people? How about lazy people who just lie and don’t work? Yup, gets us every time. We cringe at socialism. But I guess my argument is that it provides a cushion against economic contraction, which we need if we are going to try for zero-sum growth, meaning some periods of expansion balanced against some periods of contraction. We need to pull back from globalism and back to local self-sufficiency. My mind reels at how Luddite this starts to sound, but we really do need to stop consuming plastic crap from overseas, and support local economies. Green Party style.
Here’s a quote (my emphases added) from an excellent article on no-growth economics by Stephen Stoll in Harper’s magazine:
“Our trouble lies in a simple confusion, one to which economists have been prone since the beginning of the Industrial Revolution. Growth and ecology operate by different rules. Economists tend to assume that every problem of scarcity can be solved by substitution, by replacing tuna with tilapia, without factoring in the long-term environmental implications of either. But whereas economies might expand, ecosystems do not. They change—pine gives way to oak, coyotes arrive in New England—and they reproduce themselves, but they do not increase in extent or abundance year after year. Most economists think of scarcity as a labor problem, imagining that only energy and technology place limits on production. To harvest more wood, build a better chain saw; to pump more oil, drill more wells; to get more food, invent pest-resistant plants.
That logic thrived on new frontiers and more intensive production, and it held off the prophets of scarcity—from Thomas Robert Malthus to Paul Ehrlich—whose predictions of famine and shortage have not come to pass. The Agricultural Revolution that began in seventeenth-century England radically increased the amount of food that could be grown on an acre of land, and the same happened in the 1960s and 1970s, when fertilizer and hybridized seeds arrived in India and Mexico. But the picture looks entirely different when we change the scale. Industrial society is roughly 250 years old: make the last ten thousand years equal to twenty-four hours, and we have been producing consumer goods and CO2 for only the last thirty-six minutes. Do the same for the past 1 million years of human evolution, and everything from the steam engine to the search engine fits into the past twenty-one seconds. If we are not careful, hunting and gathering will look like a far more successful strategy for survival than economic growth. The latter has changed so much about the earth and human societies in so little time that it makes more sense to be cautious than triumphant.”
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