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.
TALF Update
When I first posted about the TALF plan, not much was out there in the news or on the blogs, but now the opinion columns are rolling in. You know it’s scary when even Paul Krugman doesn’t like it, and he doesn’t. He calls the plan “cash-for-trash” because he doesn’t understand how the government could sell worthless assets and not lose:
“…the real problem with this plan is that it won’t work. Yes, troubled assets may be somewhat undervalued. But the fact is that financial executives literally bet their banks on the belief that there was no housing bubble, and the related belief that unprecedented levels of household debt were no problem. They lost that bet. And no amount of financial hocus-pocus — for that is what the Geithner plan amounts to — will change that fact.”
According to Mike Shedlock,
“Geithner’s plan is sheer hocus-pocus idiocy. . . . Looking at the details of the program, one might easily assume the sole plan was to enrich executives and shareholders at taxpayer expense.”
The stock market is alternately “leaping” and “plunging” in a spastic reaction to the plan.
My feeling is that the plan is not going to work, the government will shut it down, and the only alternative will be to “go Swedish” and nationalize the banks. Obama’s crew lacked the political will to nationalize, because — duh! — we all know how unAmercan that is. The TALF plan, the private-public partnership plan, certainly is American: leverage taxpayers money to help the really super rich get really super richer, and since the loans are non-recourse, only taxpayers lose.
Another alternative proposed at Marginal Revolution would be to force the banks to close until examiners have hashed out the good banks from the insolvent ones:
“…once all the remaining banks are good and known to be good, the problem of toxic assets no longer seems so paralyzing.
I’m still not sure that the Treasury buying bank assets is to best way to make this sorting, and that’s leaving aside the price tag. In fact maybe Treasury buying postpones this revelation of information.
Of course if eight of the ten banks are bad…”
Charts & Graphs & Flowcharts, Oh My!
My husband and I disagree somewhat on our politics. I believe we’ve entered a stage of “Argentinian Democracy” where the top 1% wealth owners have betrayed the trust of the people by overstepping the boundaries in a greed orgy that lead to big take-home pay for the executives of multinational companies and investors in hedge funds. He believes the people who took out all those mortgages and couldn’t pay them are the greed problem and the reason our economy is in the state it’s in. The sad fact is that we’re both right. What a mess! It’s so complicated that most people can’t grasp the complexity of what went wrong. To the rescue come graphic artists! Check out FlowingData.com for a list of 27 graphics to help us all understand what went down and to visualize how much it costs.
Don’t look if you don’t want to know. The graphics are awesome, but they paint a pretty ugly picture.
Ron Paul Sponsors Bill Requiring Transparency on Bailout
It takes a pissed-off Libertarian to really question the system. Irony abounds because of that “free-market with no regulation thing” the Libertarians back, but never-the-less, you should know Ron Paul is sponsoring a simple, clear bill called the Federal Reserve Transparency Act of 2009 that requires full-disclosure of where federal bailout funds are going and have gone.
Here’s a blog with a draft letter for you to use to contact your Congressional Representative to ask them to support the bill.
TALF: Our Government Bribes Hedge Funds to Return Money to the System
What I don’t understand at this point is why the Obama administration and the Treasury are not instituting a MASSIVE OVERHAUL OF DAMAGING INVESTMENT PRACTICES. Well, I do know why. The entire Federal government is in bed with the ultra-wealthy, who in fact are the very investors that average Americans are now suffering under. They made millions, they lost millions; everyone else lost jobs.
The latest government program, called TALF, offers super low-risk loans to hedge funds and private equity firms to re-invest in America. Did I say hedge funds?! I did. Because, let’s face it, they’re the only ones with any cash around here. And I can’t understand why no one is making a peep about this. Here’s an excerpt from a WSJ article that outlines the program. I’ve added some bold bits:
Hoping to jump-start the financial system, the Obama administration is considering turning to a new program run by the Federal Reserve that has been a challenge to launch and depends heavily on hedge funds. The Term Asset-backed Securities Loan Facility, or TALF, was announced in November after investors stopped buying securities backed by consumer debt. Under the $200 billion program, the Fed will make loans to almost any U.S. firm that is willing to use the government financing to buy securities tied to credit-card, small-business, student and auto loans.
Some hedge funds, which often use borrowed money to boost returns, are lining up to get in on the Fed program, seeing a chance to make high double-digit-percentage returns with little downside using low-cost loans made on easy terms. Some officials inside the Fed are nervous about relying on unregulated hedge funds. But they see it as a trade-off in order to get capital to consumers.
Broader philosophical issues could arise if the program is expanded. The White House has promised more transparency in how its funds are used. But lending to hedge funds may be problematic because their operations are opaque. Moreover, the program depends on many of the practices that helped to fell Wall Street firms in the first place, such as leverage, structured-debt investments and a dependence on credit ratings. Depending on the different types of collateral, investors will get roughly $100 of lending for every $5 to $16 of cash they put up to invest. The rate investors will have to pay will be set at one percentage point over interest rates based on London interbank offered rates.
The loans the Fed makes to investors are nonrecourse, meaning investors can’t lose any more than the money they put upfront on the security. If a hedge fund defaults to the Fed, its collateral is the securities themselves. There also are no margin calls, meaning the Fed can’t demand additional payments of cash from borrowers if the underlying securities fall in value. Investors see these as important inducements to the program. But a Treasury Department inspector general warned that the program was vulnerable to fraud by the private sector.
The activities of hedge funds are another potential issue. Some investors have privately expressed worries that hedge funds could game the system to use cheap Fed financing to fund other trading positions that run counter to U.S. goals. A firm might, for instance, buy debt backed by car loans with Fed financing and use the cash flows from the investment to fund short positions on auto makers that pay off if they struggle.
We are over a barrel here for the very reason that the hedge funds (the ultra-wealthy) still have all the money. In our country, it’s pure blasphemy to suggest that these private persons have too much money. That would be socialist and evil. We’re supposed to support the ultra-wealthy since they are kind enough to open factories and high-tech companies and give us jobs. But let’s call a spade a spade. The government is now offering bribes to these hedge funds to get them to return all the money they’re hoarding so we can have it back in the system, please, pretty please!, to fund our student loans and auto loans. And we’re trusting them not to short-sell on the investments, which they will be horribly tempted to do to hedge their investments. Yeah, hedge-funds.
Hmmm, something is not working here.
p.s. Great write-up about the TALF plan from a blog called Automatic Earth.
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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