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The Bottom Line on the New Energy Economy
As Growth Fails Part II
As Economic Growth Fails, How Do We Live?
Part II: Out With The Old



 Image: Wikimedia Commons (PD)

by Craig Severance
December 22, 2011

There is a growing consensus the world economy is in a lot more trouble than politicians and media talking heads are letting on.  The four major headwinds to growth were covered in Part I of these three articles, and there dubbed "The Four Horsemen of the Economic Apocalype":

1.  Too Much Debt
2.  Resource Limits
3.  Destruction and Decay of Infrastructure
4.  Greed

That article was a brief summary of the extreme challenges we now face.  These next two articles are an attempt to move beyond this understanding of what has gone wrong, to develop a sense of what we can do now, as individuals and as a society. 

We cannot "set things right" in the sense of restoring things to the way they once were, but we must begin now to adapt to the new realities if we are to reduce suffering and continue an advanced culture.  Today's article, "Out With the Old", will discuss the end to seven unsustainable practices.  In the next and final article in this series, "In With the New" will discuss new ways of living we can adopt as economic growth fails. 

Out With The Old -- Seven Outcomes as Economic Growth Fails:

Before we allow our society to sink into a chaos of devastation and deprivation, there are many wasteful, or otherwise doomed, practices that will end.  The "Out With the Old" list is not a proposed agenda for politicians to adopt.  They are too committed to the existing order to voluntarily make these changes.  Rather, the end of these practices will come (and much of this is already happening) as pragmatic realities sink in.  They are unsustainable Dead Ends, so they will not be sustained:

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1.  If You Can't Pay the Debt -- Don't!    Debt that cannot be repaid, won't be repaid.  This is hard for conscientous borrowers to accept, but reality takes hold.  

For those borrowers who wish to avoid default, "not paying the debt" may mean not paying it all oneself, but instead sharing the load. There will be a wave of down-sizing, as the cavernous spaces of McMansions are split into more affordable sized living spaces, through multiple-generation households, taking in housemate tenants, and physically splitting into townhomes and apartments.

Many borrowers who cannot repay, however, will need to get note holders to take losses through short sales, or outright defaults, foreclosures, and bankruptcies.  Rather than help borrowers, the government has chosen to bail out banks, so the only way to access a Debt Jubilee will be to walk away.  Many of those who borrowed during the boom years are now far underwater and asking themselves: what is the point in hanging onto a "debtor's prison", if my equity is wiped out? 


Image Source: The Author

Though many hope the freefall in real estate prices will soon end, consider this: what else can "give" when disposable incomes fall?  If you visit an area of the country where jobs have been lost, is gasoline lower in price? How about food prices?  Look for a home or a piece of commercial real estate in a depressed area, however, and you won't believe the "bargains".  When there is a surplus of inventory compared to buyers who can afford to pay, prices fall. 
 
Governments are now also reaching the point where they cannot repay their debts. Local government bankruptcies are escalating, and there is a move to allow U.S. states to declare bankruptcy.  Insolvent governments such as Greece who do not control their own currency are forcing bondholders to take 50% "voluntary" reductions in principal owed.  However, those insolvent governments (like the U.S.) who control their currency, will always fully repay bondholders -- even if they need to "print" trillions in debased currency to do so! 

Added to contractual debts are unfunded liabilities such as Social Security and Medicare.  Those who paid all their lives into these systems will see promised benefits reduced, or paid "in full" but with debased dollars.

The resolution of this problem of Too Much Debt will be very messy and destructive.  It gets confusing fast trying to figure out if loan defaults and bank failures in the private sector will cause a deflationary Depression, and/or if government money-printing will cause high inflation. 

In the end, we are likely to see what we are already seeing -- patterns driven by supply and demand.  Resources in surplus such as real estate and labor will see their values drop.  Homes will cost less to buy, but workers whose skills are in surplus will earn less.  At the same time, resources in scarce supply such as energy, minerals and food will become less affordable.   This is a very bad scenario if you make your living from wages but have to buy your energy or food -- and it will be even worse if money-printing stokes inflation.

Because there is simply Too Much Debt compared to actual real wealth, the math is clear: trillions of dollars of claims on future real wealth will be voided through default, broken promises, and inflation.  Most politics for the forseeable future will be about who has to absorb these losses (hint: so far, it's been mostly taxpayers and the Middle Class). 

The best way to cope will be to stop making plans to rely on payments that simply won't be made.  Write down debts that won't be repaid, recognize the promises that will be broken, and move on.

2.  Buy American, or Bye-Bye America.  Though economic growth now experiences serious challenges worldwide, there are clear imbalances among countries.  For instance, per-capita GDP in China grew 35% in the same 2007-mid 2011 period that per-capita GDP in the U.S. fell 3.5%. 

A country that buys more imports than it sells as exports, and finances this by borrowing and by selling off its assets to foreigners, is losing wealth.  Averaged out over all Americans, the  U.S. annual balance of payments deficit of $545 Billion equals about $7,000/year per 4-person family.  How long can this go on?

The practice of outsourcing U.S. jobs, leaving us a nation of borrowing consumers, is unsustainable.  If there aren't enough good paying jobs here, we can't afford to keep buying all those imports.  Also, as oil prices rise, no longer will it make sense to ship products back and forth across thousands of miles to access cheap labor sweat shops.  

Since roughly 70% of America's economy is consumer demand, individual choices can matter.  A "Buy American" campaign might actually make a difference if we spread the word and it becomes part of our culture.


Image Source: Author's leather jacket

Americans are now making holiday purchases, and media drones keep telling us it is patriotic to run to the mall and spend money --  but where are those products made?  Checking the tags on where the products are made is likely to be very disappointing but eye opening. 

If you are an American lucky enough to still have a job, consider for a moment why other Americans have not been so lucky, as you peruse the sea of product tags labeled "Made in China".  Then consider how likely it will be you get to keep your own job, if you keep buying this stuff.

Finding any product made in the U.S.A. is a major challenge.  Food, art, quality products, and local services are often American made, and are usually sold by locally-owned businesses.  However, even local "mom and pop" shops typically must now stock some "cheap Chinese crap", as most shoppers do not look at any label but the price tag.  Finding "Made in U.S.A."on many products may counter-intuitively require bypassing most local stores and instead searching the internet.
 
Some mottos to consider for patriotic buying: "Buy quality." (Any product still made here is likely of high quality.)  "If it's made in China, I don't need it."  (Pick something else.)  "I really do need it and it's not Made in U.S.A., so I'll buy it used." (Local resale shops, and internet buying sites will be glad to help.)  "Won't this just add to clutter anyway?"  (Reconsider.)

The very act of avoiding a trip to the big box store is another way to keep money in the U.S.A. -- as money spent on gasoline is sent out of the country to pay for imported oil.  At $100/barrel oil, if U.S. oil imports continue at 2010 levels we will spend about $430 billion/year for foreign oil.

We can also work to increase exports of those products the U.S.A. still does make.  A good place to start would be to stop burning our corn exports as ethanol in our gasoline tanks.

We cannot continue importing more than we export and borrowing the difference. 

3.  The Empire Shrinks Back.  After the failure of the Congressional Super Committee, it is widely believed the Defense budget will suffer huge automatic spending cuts.  In fact, defense spending is still projected to increase -- just at a slower pace.  With hundreds of military bases worldwide projecting the world's largest ever military Empire, the U.S. is still on track to keep spending more than the next 17 countries' militaries combined.  Our military continues to prepare to fight the last war (and the one before that, and the one before that).

While Republicans had traditionally been the ones to cut military spending  (Eisenhower, Nixon, and even George H.W. Bush moderated Defense spending), only one of the major Republican Presidential candidates is taking a stance of fiscal discipline for the military, and both sides of the aisle in Congress can hardly wait to spend more of your tax dollars.

What is the purpose of all this spending?  Increasingly, the answer seems to be "Federal spending in MY Congressional District".  Security contractors have astutely spread their activities all over the country, targeting especially the districts of powerful Members of Congress.   Thus, if military cuts are proposed, the discussion is not about whether cuts will make America less secure (who believes that?), but about the "jobs on the line" in each Congressional District.  Simply put, the military budget is the world's biggest Pork Barrel project.  

If the true purpose of military largesse is to create jobs in each Congressional District, a reallocation of military spending to infrastructure projects would keep the local jobs but actually accomplish something.  Instead of building high technology bombs to be taken to another country and blown up, we can do "nation building" here at home.

The Interstate Highway system was originally justified as a Defense project.  With Peak Oil now making reliance on those highways a security threat, we can make the nation more secure with a National Defense Railway System to rebuild the nation's rail lines.   

Of course, any change to how Federal dollars are spent may raise the question of whether the Federal government actually has so much money to spend.  Will Social Security recipients gladly take cuts to benefits in order to continue the scale of military spending? 
  

Image: U.S. Department of Defense Headquarters (the Pentagon) PD image.

These Federal budget tensions are what have already led both parties to agree (by default) to a moderation of military spending, and will ultimately lead to the Empire shrinking back. 

4.  Stop Heating the Outdoors.  The centerpiece of the 7 unsustainable practices that will soon end is our wasteful use of fossil fuels -- oil, coal, and natural gas.   

When we burn these fossil fuels we "heat the outdoors", by emitting greenhouse gases that are already causing extreme climate disruption resulting in a string of billion-dollar-plus weather disasters.  The wasteful use of fossil fuels is also epitomized by shoddy building practices that leak heat to the outdoors, and inefficient engines that expend a majority of energy input as waste heat rather than useful work.


Infrared Image of Cold Air Leaking Into Uncaulked House Source:Frostbusters

These practices will come to an end, as the bonanza era of cheap fossil fuels draws to a close.  We've known this day was coming since the oil shocks of the 1970's.  If we had not wasted the last almost 40 years our transition could have been much easier, but now we have already waited too long to avoid disruptions to our way of life.  From here forward, our use of fossil fuels will be characterized by fuel shortages and price spikes as production rates for these finite fuels decline.   

It is easy to let that last sentence coast by.  We are talking about, for an ever larger share of people each year:  No. Fuel. Available. That. You. Can. Afford. To. Buy.  This is not the same as a shortage of cheez whiz or the cancellation of your favorite TV show.  Fuel is central to our lives.  As fossil fuels decline, we must urgently "make other arrangements".  

Peak Oil is upon us, so we must finally take actions to End Our Addiction to Oil.  The end of cheap coal is also coming soon, and coal is a massive contributor to extreme climate disruption so its use must be cut anyway.  Since most coal is used for electricity production, implementing a practical and affordable plan to achieve "Clean Electricity" will place us on the least-business-risk path to reduce coal use.  Natural gas will be available for a bit longer as a bridge fuel, but even our natural gas supplies will be in shortfall well before this century's end.  

Successful transition off cheap fossil fuels will not be a "top-down" fix, but must take place at the level where fuels are burned.  This means making our buildings and equipment (e.g. appliances and vehicles) more efficient, and powering the remaining needs with sustainable energy sources.  The sooner we act the better.  At least for now, it will take fossil fuels to build the new equipment and retrofit the buildings, so the longer we wait the more expensive (and less achievable) the conversion may be. 

While frustrating for central policy makers, the distributed nature of our energy use also means that individual households and businesses can get ahead of the curve.  Protecting one's own livelihood and family is a powerful incentive, and many are already taking action to wean themselves off a dependence on disappearing resources.  What better security in today's turbulent times than owning a solar-powered car and a passive solar home?

5.  Cure "Sick-Care".  Like a cancer, the cost of our nation's "health care" system has been growing out of control and is killing its host.  Now at 17% of GDP, this uncontrollable growth is giving employers a powerful incentive to offshore workers, and through Medicare and Medicaid costs, is bankrupting the Federal and state governments. 

Much of this cost is pure transactional waste that contributes nothing to patient care.  A mind-warping complexity of medical billing now burdens the system, requiring up to 30% of staffing in medical offices merely to wrangle with insurance companies (Medicare and Medicaid being the worst).  This waste is doubled by its mirror image, in the claims processors at the insurance companies and agencies.

The meat-cleaver approach to "cost control" so far taken by Congress -- cutting real $ fees paid to all physicians for the last decade -- has been driving primary care doctors out of business and forcing patients to seek routine care at emergency rooms.  So much for "cost control" -- primary care doctors are the very ones who would have saved the entire system money by keeping patients healthy.  

At the same time the primary care shortage has been exacerbated, most specialists and surgeons in the U.S. are still counted among the "1%" of top income earners (those earning over roughly $350,000 per year) -- earning more than they can make anywhere else in the developed world.  If Congress has to cut physician fees, these are the doctors' fees to cut. 

Some insurers and large employers are now pioneering new solutions, such as placing doctors on salary, free of medical billing hassles, and simply allowing them to be doctors.  This common sense idea emulates how doctors are employed in the military and the VA systems.

We have proven we cannot afford our current system that requires enormous waste and spends most of its resources on "sick care".   

6.  Repeal Laws that Mandate Opulence and Forbid Prosperity.  As people are now seeking innovative solutions to adapt to new realities, we are constantly seeing reports of "stupid laws" getting in the way. 

For instance, as the size of our housing spaces must now come in line with our income, there is a growing demand for smaller, more space efficient dwellings.  It will be a prosperous "win/win/win" move for builders, families, and communities to convert devalued McMansions into townhomes and apartments.  Yet, most of the communities where these palaces were built have zoning laws and restrictive covenants against multi-family housing, vainly hoping to wall out lower value housing when lower valuations have already stormed the gates.


Example of suburban townhomes.  Photo by Author

Similar suburban restrictions often forbid homeowners from erecting clothelines to save electricity, and even ban vegetable gardens that can be seen by others.  New families and empty nesters are eagerly seeking the affordability of high quality "tiny houses", but have found that building codes requiring minimum sizes forbid these efficient ways of construction.  

The extremes of our auto culture went to such excess that many cities and counties can no longer afford to maintain the roads they built.  Many are saddled with the cost of maintaining extremely wide roads because of fire chiefs who wanted enough room, even in residential neighborhoods, for two fire trucks to pass at 60 mph!  Such wide streets create heat islands and destroy aesthetic proportions.  These ugly streets could be narrowed and the freed-up land devoted to fruit or shade trees, or community gardens.

Unnecessary tax laws are also acting as a hindrance.  As millions find the best option for available work is their own household-based labor, it would be helpful to exempt a certain amount of barter-economy transactions from taxation.  Is it really worth it to tax neighbors who set up a surplus-eggs for surplus-vegetables swap?  

Small food producers have also seen unimaginable oppression tactics from the USDA.  At the same time the government "works with" large corporate farms even when they are guilty of serious food safety violations, allowing the large agribusinesses to continue operating, it seems hell bent on shutting down small food producers.  Yet it is exactly this more localized agriculture we need to see flourish. 

While government regulation is clearly needed of amoral large corporations who will otherwise recklessly destroy the environment and endanger public health, sanity must rule.  We need to encourage people to do more at the local and household economy level, and "stupid laws" must not forbid this new localized prosperity.
 
7.  Drop the Shopping.  We need to hit the pause button on thoughtless shopping.  Stop the shopping in big-box stores that send profits out of our local communities.  Stop buying poor quality crap made in foreign sweat shops, that falls apart and brings no joy or beauty into our lives.  Block the commercials (hit the mute button -- or better yet cancel the tv and just watch Colbert on-line). 


Image Source: The author

Shopping for worthless junk will decline automatically, as disposable incomes fall.  Another trend that will reduce our shopping will be downsizing to smaller more affordable living spaces.  Though smaller spaces give us more money to spend, there is no space for clutter, so we will avoid buying physical objects we have nowhere to keep.  In a small space, a few beautiful objects of art trump roomfuls of consumer goods. 

A moratorium on shopping for new junk also allows us to focus our minds and resources toward peace of mind, beauty, and joy.   

Regarding peace of mind, each family and business should think about the trends noted in these articles, and consider: are you already prepared for what lies ahead?  Are you ready for your pension and Social Security and Medicare benefits -- and maybe your job as well -- to be voided through broken promises, inflation, and economic turmoil?  How dependent are you on fossil fuels?   When will it be your family's turn to fall from the comforts of the middle class?

If you take stock and find you are not prepared, perhaps brown rice & dried beans, a water filter, wind-up flashlights, caulk to seal wasteful air leaks, a solar hot water heater, and an electric bicycle should be placed higher on your "shopping list" than the latest consumer item.  Knowing you can still eat and drink, have lights, stay warm and clean, and get around town no matter what happens gives peace of mind -- and saves money right now.

Beyond mere sustenance, however, we need beauty and joy. 

If we simply pay attention to how our younger generation finds vibrance in their lives -- as most young people have virtually no physical possessions -- we can relearn how to live well as humans.

Since civilizations began, all people everywhere have found beauty and joy through simple things, none of which require massive energy use, gigantic houses, or truckloads of material possessions.

We share stories (think: movies, books, plays, oral histories such as StoryCorps).  We play games.  We love -- friends, pets, spouses, family.  We experience the ecstasy of music and dance.  We share extraordinary art (including quality craftmanship).   We find meaning in our lives by giving of ourselves to others and to a higher purpose.  We guard and care for our souls.

The unsatisfying tide of soul-destroying ugliness and exploitation from industrial society has shown us This World may have all we could want, but it has nothing that we need.  

Without the distraction of a flood of material objects, we can now return to the rich traditions of thousands of years, focusing more fully on the best of what it means to be human.   
 

Article originally published at www.EnergyEconomyOnline.com
Copyright . Craig Severance CPA. All rights reserved.
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