The First Death Rattle of Our Unsustainable Economy (Part II)

In our last blog we wrote about some of the inherent contradictions of neoclassical economics that make it a bad fit for our civilization in the long run. To recap these fallacies briefly:

- Infinite increases in consumption are possible in a finite world;
- Capitalism is efficient at making our lives better off; and
- Capitalism is fair

We promised to take a look at what a sustainable economic system might look like, and we'll do that in our next blog, but there are at least two other contradictions inherent to our current economic system so glaring they deserve a quick mention. The first of these is similar to the primary problem bedeviling the "wizards" down on Wall Street, and that problem is that if something can't be traded then it appears to have no value. Where the inherent value resides in a Credit Default Swap we aren't quite sure, but honestly we're a lot more concerned with things like the environment, renewable energy, personal independence, our relationships with our family and friends, and time to relax in our garden with a glass of homebrew.

A beautiful forest teeming with wildlife surely has value, but according to our economic system it is worthless until we take some aspect of it, the trees or the wildlife or the property itself, and sell it to another human. Unfortunately, at that point its original value will most likely be compromised by removing some of the resources: whether trees for logging, wildlife to protect crops or livestock, or just bulldozing wholesale for replacement with a new McMansion or Burger King.

This first contradiction -- the lack of perceived economic value -- has led to massive distortions in our conversation about renewable energy. It is much easier and cheaper to take solar energy and use it for things that need to be heated up rather than to turn that same solar energy into electricity. While solar water and solar air heaters can achieve efficiencies of 60%, a typical solar electric (photovoltaic or PV) panel will be only around 15% efficient. You might think that since our economy is so "efficient" we would not be embarking on huge solar electric projects until we've used solar energy to directly heat our homes and our water. But this isn't what happens. Instead, since solar generated heat is not usually traded, according to our economic system it has little or no value. Indeed, when we install a solar air heater on someone's home, they will actually use less traded energy (typically coal or natural gas generated) and our so-called "economy" will shrink, even though they are now polluting less and using solar energy as efficiently as possible, not to mention having achieved a degree of energy independence.

The second huge contradiction goes back to Adam Smith and The Wealth of Nations. Not many folks we know have actually read this book, it's a hefty tome and the lengthy digression on silver incomprehensible, but since it supposedly underpins our economic system it's worth referring to every now and then. Many folks would be surprised to find how vociferous Mr. Smith is in his call for government regulation of markets, and his belief that ultimately the wealth of a nation should be measured by the living standards of its people, not by the height of accumulated piles of material goods. Mr. Smith points out that, as we all know, division of labor increases productivity. But what Mr. Smith passes over is that this increased production of material goods comes at a hefty price: tedious, repetitive work often isolated from our surrounding natural environment. Since satisfaction in our work declines as it becomes more isolated from the whole and more repetitive, it becomes necessary for us to gain our satisfaction in life away from our work and instead we often look for satisfaction via the things we consume. Unfortunately, it is impossible to find any lasting satisfaction through consuming things (just ask your belly), and, the physical world being finite, we eventually run out of things to consume.

Since our current economic system is riddled with contradictions that are forcing its implosion as it abuts the physical limits of our planet, what do we do next? Fortunately some very smart people have been ruminating on this subject for the last few decades, and we'll take a look at what they have to say in our next entry.

Comments

[GavinK9]

Adam Smith defined wealth as the ‘annual production of the necessaries, conveniences, and amusements of life’, i.e., the total output of goods per year.

Rebekah and Stephen write: “ But what Mr. Smith passes over is that this increased production of material goods comes at a hefty price: tedious, repetitive work often isolated from our surrounding natural environment.”

In fact, Smith wrote:

“The man whose whole life is spent in performing a few simple operations ...has no occasion to exert his understanding or to exercise his invention in finding out expedients for removing difficulties which never occur. He naturally loses, therefore, the habit of such exertion, and generally becomes as stupid and ignorant as it is possible for a human creature to become. The torpor of his mind renders him not only incapable of relishing or bearing a part in any rational conversation, but of conceiving any generous, noble, or tender sentiment, and consequently of forming any just judgment concerning many even of the ordinary duties of private life." [Wealth Of Nations, Book V, pp 781-2]

Adam Smith wrote in Moral Sentiments (1759), Book IV, p 181) a parable of the ‘poor man’s son, whom heaven in its anger has visited with ambition’, which criticises ambition to acquire the ‘conveniences of life’ and finding ‘at last to find that wealth and greatness are mere trinkets of frivolous utility’.

It is not clear that Rebekah and Stephen are familiar with the works of Adam Smith.

[Rebekah and Stephen Hren - Huffpost Blogger]

The phrase "passes over" was chosen with care. It is frustrating that Mr. Smith acknowledges the problem of the banality associated with the division of labor, but has no solution to it. It is a fundamental flaw in his thesis which he never addresses substantially.

So far as Mr. Smith's definition of wealth, we can either be generous and assume these are not all commodities, or we can be miserly and assume he meant only material goods, in which case his sanity is suspect.

[larry278]

sorry about punctuation errors & other typos-leisury should read leisure.

[sposton]

If we need to identify the main umbrella of solutions it would be Locally Based Economy. We ought to make a transition from the globalist "free trade" economy to the one in which consumers live much closer to producers. That does not mean the end of world trade but it does mean a diminution of the incredibly stupid trade that we have been engaging in. If there is a principle that might encompass this it might be, "buy everything locally and if the product or service does not satisfy you for whatever reason (price, quality,..), continue searching outward in concentric circles." A locally based economy is a much more robust economy, more resistant to disruptions than the thousands of miles long supply chains entirely relying on the cheap fossil fuels. (BTW, one ship can pollute more than 350,000 cars!) A locally based economy is more likely to keep the wealth local instead of shipping it to far away "financial centers". This would reduce the the power of large financial center. No wonder the fat cats are for the globalist agenda and against the local economy. Who knows, such an economy might even help bring back our democracy. ;-)

[Chavez08]

"Supply-si­de"/Friedm­an economics was tried and the results were catastrophic and we're not even close to seeing the long-term damage done by this organized crime and consolidation of wealth.

Obama promises new ideas and a sea-change in Washington and I am hopeful that we will see something very similar to the New Deal/Keynesian ideas that had worked for most Americans for over 60 years until Reagan and his mindless worshippers severely damaged our country with long failed neo-classic, "supply-side" economics and neo-fascist domestic policies.

The "Free Market" slavery chapter is soon coming to a close. It can't end soon enough for 300(+-) million Americans.

OBAMA-08!!!!!

[RoloTomassi]

"None of this, however, will happen without huge public pressure placed on politicians in this key period. And not polite lobbying but a return to the streets and the kind of direct action that ushered in the New Deal in the 1930s. Without it, there will be superficial changes and a return, as quickly as possible, to business as usual."

--Naomi Klein

Link:

http://www.naomiklein.org/articles/2008/09/free-market-ideology-far-finished

Have no illusions my friend, the financial ideologues spouting CSE dogma will not lie down and roll over for popular sentiment, and our legislators will defy us at every turn in order to keep this RELIGION afloat.

my belief is that CSE policies will be stripped from the US financial industry [you notice that I did not use the word economy] when the government has fallen, or we truly unite in opposition.

They will likely try to crushed for our efforts--that has been the fate of all those who have resisted from within so far--but that doesn't devalue the fight. It's worth the effort.

[DuganS1]

Obama hasn't promised any new concrete ideas, just vague rhetoric of doing such. About "supply-si­de/Friedma­n economics", it seems to have worked extremely well considering we've just had 26 years of significant economic growth with only two short and shallow recessions, high employment levels, and low inflation. We could go back to pre-supply-side days like in the 70s, but I don't think a single person would want to go back to high unemployment, high inflation, and much less availability of consumer goods and services.

[RoloTomassi]

Put down the idiot GOP talking point DuganS1 and read a book; your financial market gurus from CSE got every aspect of there model wrong, and there most pure models failed miserably. If you consider the many crashes brought about by the huge and persistent bubbles that always accompany CSE policies a success, then you need your head examined.

We most certainly need to go back to a Keynesian mode of financial operations, as the success of that model gave us every substantial gain made by the middle class. Your so-called successes benefit no one the the upper most 10%, the top 1% benefiting most.

Stop preaching/­practicing a nonsensical economic RELIGION and use your head; any one with half a brain should now realize that markets DO NOT regulate themselves over time, an unregulated free market model is not perfection in any sense, the only significant benefit is to a small percentage of the poulation, and said benefits DO NOT TRICKLE DOWN to enrich or build the economy. THe CSE model is good at transfering the majority of wealth to the top--and nothing else.

The GOP mantra that the economy is still in good shape and has had significant growth during BushCo rule is utter nonsense.

[watchTVgetSTUPID]

THE NEW WORLD CAPITALISM


Step 1, suspend short selling in Banking stocks for period of a week

Step 2, organize friendly hedge fund traders with billions of dollars in capital to Break a pre-coordinated set of Key Stocks to result in Climax Event

Step 3, Friday Market Opens to Massive NAKED SHORT SALE, hitting all stops on small investors and mutual funds of retirees.

Step 4, Engineered hoopla Friday as friendly hedge fund traders in 2 instances execute the Paulson Plan and scoop up the stopped out small investors to cover their NAKED SHORT SALE and Double and Tripple down on INSIDER INFORMATION PROVIDED BY TREASURY SECRETARY PAULSON.

Step 5, Announce buying stock directly in Banks with 250,000,000,000 1/2 the budget for the Department of Defense

Step 6, Insider friends who have Temporarilly Cornered the FLOAT for PAULSON gap market up monday morning for massive short squeeze.

Step 7, Insider friends of Paulson distribute their weekend gain to covering shorts while 'FRONT RUNNING' the TRADE on the Government Money's comming into the market.

Net result

About a $50,000,000,000 Gain for 'Several' Individual pre-selected Hedge Funds.

Some good ol USA Patriot Act, eh?

Protecting People and Property, eh?

The next time they do it their Greed will be bigger and will attempt an enormous 'TAKE'. Give the entire US Treasury to Criminals, they are bound to make a few hundred billion in a few days.

[Henry]

An esteemed banker once told me that there was a discernable problem when you have 25 separate banks financing suburban real estate development in one area. They build themselves into an oversupply (supply-side economics) where there gets to be homes that cannot be sold. This causes a defalut on the construction loan, and unemployment of construction workers etc. This filters into their personal lives and causes defaults on their pickups and their own home loans. And so it goes.
It does seem more effecient for the community to alot spaces on a projected need and tolerance than to have the separate banks chasing profit to run up to the successive bursts of the bubble.

[January]

An old professor told us students that democracy depends on "general interest" groups. Those are people who work for what is in the general interest, as opposed to special interest groups who work for their self-interest. His study was done on how Nazi Germany became corrupt even though it had the usual run of special interest groups. There were no general interest groups working for the interests of all the people.

When I asked him what the motivation would be for someone to join a general interest group (e.g., Public Citizen, ACLU, support public television, etc.) he said we can recognize that we have "a vocation." How did "vocation" come to mean just earning a living?

I think of that since you describe how autonomous home energy sources are not tradeable and yet answer so many of our needs. It is our vocation (and while in this case it also serves our self-interest) to preserve life to be passed on better to coming generations. Too bad we have to be forced to the wall to see the truth.