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PaulS's picture

Economists just don't get it

“The depth of the troubles, analysts say, indicates that nations may need to spend more than the billions of dollars already planned on stimulus packages to jump-start their economies, and that a global recovery could take longer, perhaps pushing into 2010.”. Washington Post on January 24th 2009/

Perhaps the best way to understand why the above quote misses the mark is to think of a vintage Model T Ford and to imagine that a trailer with a five ton load is hitched to the back of it. Imagine that the car and its load had been travelling comfortably downhill and had reached the bottom. The car had then continued for a while along the road which had flattened but it is now beyond the foot of the next hill and is starting to labour on the incline. The driver has changed down to low gear but the engine is starting to overheat and the car is struggling to continue up the hill. What are the driver’s options? If he steps on the gas, one of two things will happen. Either the engine will become flooded and stall, or the wheels will lose traction and start to spin. The “problem”, in this case, is that the vintage car has insufficient power to pull the load up the hill.

Now think of the economy. Money supply and government spending are the fuel. The “engine” of the world economy is the set of technologies which was spawned by fossil fuel energies. The “problem” is that this engine is no longer capable of pulling the economic load. We have passed Peak Oil. Coal has spawned “dirty” technologies which the entire world is now arguing will generate CO2 (amongst other things) that will lead to excessive global warming. There is insufficient Natural Gas to enable it to fully replace Oil. Finally, Nuclear Fission, by its very nature, precludes downstream technologies from being developed by Private Enterprise.

With due respect to the monetary theorists, they just don’t get it.

At the extreme, if the authorities drop dollars from helicopters, all that they will achieve is that they will hasten the arrival of an Economic Depression. Perhaps the following example will make it crystal clear: Today, in Zimbabwe, a loaf of bread costs somewhere around half a billion dollars and the unemployment rate is around 80%. How many of the 80% unemployed do we think can access half a billion dollars? At the extreme, when you print too much money, the economy tanks.

Here are two questions that should stimulate some clarity of thought:

1. How are the authorities going to pay for these stimulation activities? When you cut through all the obfuscatory crap, they will have to print the money to pay for whatever they are planning to do.

2. What do they propose to spend the money on to “stimulate” the economy? Bailouts? (Overhauling the vintage cars)? Buying Toxic Assets at a premium to their real value? What kind of cockamamie logic can defend such irresponsible activity?

Re-construction of bridges, power grids and the like? Possibly, but they need to be very careful not to build bridges to nowhere and/or power grids to carry electricity generated by technological dinosaurs such as coal or nuclear power stations.

USA based commentator, source lost (sorry!)
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Comment:
Another possible solution can be summarised in the word LESS.

It is estimated that renewables can generate 30-40% of the energy we use today. If we plan for society that will in 10 years time use say 30% of the energy we have now, all we would need to do is to use existing technologies (wind, solar, hydro, anaerobic digesters) to generate that energy.

And that is eminently achievable. All we have to do is to decide to do it

What did the man say? Yes we can!

Any new technologies come on stream, such as nuclear fusion, would be a bonus, which, hopefully, the next generation will invest rather more wisely than we have done with oil and gas.

The Transition Movement discusses these issues and offers suggestions for personal and community action.