Gail Tverberg and "Our Finite World"

The website I find the most informative these days is a fairly obscure blog maintained by Gail Tverberg, an actuary, under the masthead "Our Finite World."  It's written in deceptively simple language, but her ideas are profound and always relevant.  She doesn't really go in for much doomsaying; she just lays out the facts and lets them speak for themselves (http://ourfiniteworld.com).    I think Gail's blog is one of the really good things about the Internet; since being a rock star economist (in the style of Paul Krugman, for example) is beyond her, and no one is going to hire her as a columnist for the New York Times or Washington Post (because she's not sensationalist enough), without the Internet, she would have no forum.  She'd just be a numbers-crunching actuary.  Her motivation for writing, she says, is that she's "interested" in the issues she writes about, like human survival, resource depletion, Peak Oil and other matters.

I don't see her precise kind of analysis anywhere else.  For example, her latest piece is about those parts of the world which are still growing economically.  In her characteristic, homespun way, she calls these countries "the growing part of the world" and then explains why they're growing.  They're growing because they're largely poor and have a long way to go to catch up to the consumerist West, and they're using coal as an energy source at an astonishing pace (increasing their coal-burning at more than a 5% per year rate).  The "growing part of the world" is essentially everything that isn't Japan, the United States, Europe or the former Soviet Union bloc, and includes China, India, Africa, Australia, Canada and South America.

The West (ncluding Europe and Japan) and the FSU are economically stagnant, probably for different reasons among them.  In the case of the West, the assumption of huge public and private indebtedness over the last 30 years as the West sought to maintain a luxurious lifestyle (relatively speaking) despite being embedded in a globalized economy (where the hard work and manufacturing were increasingly done elsewhere, particularly in Asia) has at last caught up to these favored specimens of the Homo sapiens species.  I think that's the true Big Picture; I've always considered the possibility that blaming everything on the "housing bubble" was a case of whistling past the graveyard.  The true significance of the housing bubble, and the havoc wreaked by its popping, was simply that the very homes that Westerners lived in, the "housing stock," was sort of the last thing that Americans, Europeans and others had left to hypothecate in order to get another loan.  The loans, "secured" by houses, were what enabled the economy to appear so much more vibrant than it really was.  Lines of credit, re-fi, gains on sale, all that dough poured into the economy and made possible such dubious pastimes and careers as party and wedding planners, "life coaches," tanning salons, all kinds of strange occupations which depend on large surpluses of cash flow in order to be viable.

And then - poof!  It was all gone.  Americans were forced to fall back on, of all things, the actual income they could earn through employment, and real earnings have been stagnant for decades. It is as if the economy needs to reset itself to a 1973 standard of living, adjusted only for modest annual inflation, and move forward from there.  Of course, that isn't the American Way.  Progress is our most important product.

Naturally, there have been many technological improvements in the intervening four decades, so that life in many (certainly not all) respects appears more productive, convenient and efficient.  A great deal of this progress has been achieved by way of the integrated circuit and electronics in general.  In this sense, life seems considerably "richer" to the average citizen.  But in the West this is misleading.  In point of fact, many aspects of life, such as education, housing, energy costs, and food, have gotten a great deal more "expensive," as measured by the proportion of real income (inflation adjusted) necessary to fund these essentials.

To take a personal example: when I entered Berkeley in the fall of 1966, there was no tuition for in-state students.  There was a "Reg Fee" of $81 per quarter, or $243 for the full year.  Berkeley was rated the top academic institution in the country at the time.  After I arrived and settled in, I discovered that you had to buy books in college, so I got a job at Cowell Hospital as an orderly, making (if I remember right) $2.35 an hour.  My mother had been sending me ten bucks a week up to the point when I got the job (about two months after I started), but then discontinued the stipend once I was working.  I don't mention this as a hardship story; it wasn't that way at all, and I never missed the money from home.  I didn't need it.  I sold my books at the end of each quarter and bought new ones.  No big deal.

A country that can afford that sort of an educational institution without strain or pain for anyone involved is a very rich country indeed.  While $243 seems like nothing compared, say, to the $20,000 per year currently charged by UC campuses for tuition for in-state students (and much more for the professional schools - my own law school now charges something on the order of $40,000 per year for an education given to me for $1,500), that $243 in 1966 would have been, I know, a princely sum in Mexico in 1966.  You could have lived in Mexico for a year on $243, including margaritas.

Gail points out that in the West generally gasoline usage is falling backwards to levels not seen since the mid 1990's.  This is especially true in the United States, which thought of cheap gasoline as a national birthright.  The decline is not because Americans have suddenly become paragons of conservation and climate change activists.  Not a chance.  It's because we're broke.  Resources are becoming scarcer and more expensive, and the global competition for something as critical as petroleum results in a very tight fit between supply and demand.  

The rock star economists such as Paul Krugman insist that the economy is "not a morality play," but I think they're essentially wrong.  There is a deep moral element to economic activity, and we approached that ethical responsibility by borrowing the future in order, at all costs, to maintain the lifestyle of the present.  Borrowing is essentially the anticipation of future income, and the future income never really arrived.  But the crushing debt remains.

As cities now declare bankruptcy throughout California, what we're seeing is the dawning realization that budgets were established on the unrealistic expectation that "income" founded on or derived from borrowed money represented an inexhaustible source of revenue.  Real property values, income derived from all those marginal business ventures (the party planning, the bronzed bodies), all of that was ephemeral and based on piling up debt.  I actually think this is the essential malaise of everything going on now economically in the United States, from Social Security, to Medicare, to the public pension crises.  All of the projections were based on unrealistic expectations of continued, uninterrupted growth, and now, as Gail points out, America is no longer in the "growing part of the world."