January 19, 2013
I thought then, and think to this day, that economics is not in any sense a science (dismal or otherwise), but is rather a loosely-constructed discipline that looks at lots of numbers that are involved in economic activity. Thus, economics considers such matters as the employment rate, productivity, GDP, the money supply (the various M measures), money velocity, rates of interest and so forth. Its practitioners, of course, became jealous of the scientific stature of academics in real sciences (math, physics, chemistry, for example), and in the natural course of events economists began to promulgate rules and "laws" which governed their "science," and then divided themselves into various theoretical camps which savagely attack each other for perceived heresies of one kind or another. Thus, we have "Keynesians" and "Austrians" and "Neoclassical Keynesians" of the Keynes-Hicks variety with IS-LM modeling of the economy, and "freshwater schools" (around the Great Lakes, such as the University of Chicago) and "saltwater schools" (as at Princeton and the Haas Business School at Berkeley).
Economics cannot be science for one very simple reason: it fails the first and simplest of scientific tests. One cannot reproduce the results of an experiment testing an hypothesis on a reliable basis. Economic activity takes place in the real world, which presents millions of variables changing and mutating at all times, and many of these variables are psychological in nature (fear, greed, ignorance of outcomes). In such a situation, a discipline such as economics can be little better than heuristic; it gives you a general idea about what's going on, but a slavish adherence to notional "laws" is just as likely to lead the economist to error as to enlightenment. Worse, it tempts the academic economist to look at theories to explain what would be immediately apparent if he simply looked out the window.
Thus, this is yet another reason that I like Jeff Rubin's book, The Big Flatline. He's not an academic economist; he is simply looking at the sky-high costs of fossil fuel energy (particularly the most important fuel, petroleum) and drawing a series of logical conclusions from this data point. The United States, for example, has built an economy which is dedicated, consecrated to the principle that gasoline-powered cars shall not perish from the earth. We have 2.7 million miles of paved roads in the U.S. and A. (as Borat says). It kinda blows my mind when I think that if I walk to the end of my driveway, I come to an asphalt road on which I could drive a car from that point to Bangor, Maine, and the wheels would never touch anything but asphalt, and there would never be an interruption of any kind in the continuity of the roadway. We have to have cars, in most places, to get around. If it gets expensive to get around because of the high cost of petroleum, then every form of business begins to suffer. All of the input costs of market items increase, at the same time that American "consumers" (we used to be "citizens" until we were reclassified by economists) are loath to spend money because of the increased costs of living brought about by higher energy costs.
The effect of high petroleum prices (the world marker, Brent Crude, remains consistently over $100 per barrel) has shown up in American gasoline usage, which has fallen precipitously over the last five years, as much as two million barrels per day. The best news about this is that American carbon emissions are actually falling, year over year. This is a triumph; this offers real hope. The United States, as a matter of federal policy, has done essentially nothing about global warming (I prefer James Lovelock's terminology: global heating). The Waxman-Markley bill to curb emissions has gotten precisely nowhere, yet the American recession has accomplished what the bill could not. American carbon emissions now are better than the projections made by the Waxman-Markley legislation.
This is wonderful news. America is headed in the right direction on energy usage. True, we went broke in order to accomplish this milestone, but in the long run that will be okay. Because there will be a long run this way, whereas the desperate attempts to "reflate" the economy and bring back the consumerist fiesta through money-printing and borrowing humongous sums of money under "Keynesian" theory simply leads back to the same fatal trajectory we were on before. Naturally, the "liberal" economists (another telltale sign of the unscientific nature of their field of study - are there liberal and conservative mathematicians?) hide behind the crocodile tears of their professed concern for the Little Guy, the American commoner, and his unemployed, impoverished state. But what they are urging is a return to the status quo ante, the one that is built upon an environmentally unsustainable premise.
And now we see, thanks to the broader perspective of writers such as Jeff Rubin and Gail Tverberg, that it's economically unsustainable as well. We can't afford to live like that anymore. It's true that these writers share a hidden bias (one that James Kunstler and Dmitry Orlov also share): they don't want to live like that anymore. It's a disgusting, ugly rat race. Modern American aesthetic values (the Big Box stores, the strip malls, the cinema multiplexes, the 18-lane boulevards, the sprawling suburban ghettoes of Malvina Reynolds's "Little Boxes" and giant vinyl-sided McMansions, the crap imported from China, the billboards, the decaying store fronts once housing small businesses, the giant agribusiness farms producing monoculture non-food, the obese and diabetic populace, the reality TV shows, the chains of hotel, fast-food and franchised everything else) - it's all shit, and those left with any sensibility all know that. The collapse of this pile of trash can't come soon enough for many people. It's a kind of societal death wish, a death necessary to make way for something else.
The unaffordability of the present mode of living, brought on by the inability to afford the cost of powering it the way we have, is the quickest way out, and there's nothing that can be done about it. We have to change. Everything must become more efficient. We have to conserve energy in all of its forms. We have to develop the alternative energies of wind and solar, as Northern European countries are doing. Houses have to become smaller and more energy efficient. Mass transportation has to be developed, along with bike lanes. Supply lines have to be greatly shortened to reduce the cost of transporting food and goods to market. No more apples from Argentina during the winter. No more everything from China. Local orchards, local farming, relocalized everything.
But first things first, and as Shakespeare almost said: the first thing we do is, we kill all the economists.
January 16, 2013
It takes a while to develop an intuitive sense for why the price of oil means so much in terms of economic growth, but I have read much the same thing, from different angles in the writings of such deep thinkers as Richard Heinberg (The End of Growth), Gail Tverberg (in her excellent Our Finite World blog) and, of course, the take-no-prisoners, Russian enfant terrible, Dmitry Orlov. Essentially, an economy runs on energy. An economy has to be powered: it doesn't just happen.
In the West and Japan, petroleum has served as the basic energy source since the development of the internal combustion engine. Virtually all transportation in the United States (which uses about 19 million barrels of oil a day, 20% of the world's total production) is based on oil, by car, plane and ship. Agriculture, pharmaceuticals and the military are all heavily petroleum-dependent (the U.S. military, as an organization, is the single largest user of petroleum in the world). Thus, the high cost of petroleum finds its way into the final price of just about everything we buy, or think about buying.
The idea is related to, but is not the same thing as, Peak Oil. It is not that the world is running out of oil at the present moment; it's more that the low-hanging fruit has been picked, the easily accessible "Spindletop" kind of gusher that simply requires drilling down into dry earth and waiting for Black Gold to come fountaining up in a Beverly Hillbillies-type jubilee. Now it's more like using a fleet of icebreakers to make one's way out into the Arctic towing a giant drill rig, then in the blackness of unending night and freezing temperatures drilling down for miles through a frozen sea bed into ancient rock formations. Or digging up huge amounts of tar sands in the wilderness of northern Alberta so that bitumen oil can be squeezed out through a complicated and expensive process.
We do all this because oil is marvelous stuff. It's a liquid at room temperature and thus easily piped and shipped, it's energy-dense (it has twice the power per volume of natural gas), and it used to be very plentiful and easy to get to. Especially in the United States, it used to also be reasonably cheap. These days, however, you may be like me and have become "gasoline price conscious." In the good old days, when gasoline cost so little that you could fill your tank for twenty bucks, it probably did not affect your conscious decision-making all that much. When it gets to the point where it costs fifty bucks to fill your tank, and you need a tank of gas per week to get to your job in the urban center which used to seem conveniently close to your suburban home, one's perspective begins to change.
This is the essence of the problem the United States now faces. We are a "consumer economy" which relies on a kind of assumed "surplus" to keep all of our "discretionary" businesses going: the restaurants and bars, the tanning salons, the yoga and Pilates studios, the party planners, all of the "consultants," the plastic surgeons, all of those take-it-or-leave it lines of work which begin to disappear when the surplus goes away. The "surplus" gets spent on running your car and heating your house, and paying the increased costs for food which must be fertilized, harvested and hauled to market using the same high-priced oil.
Politicians and mainstream economists do not like discussing things in this way (that is, in a realistic manner). The Keynesians, such as the Grand Poo-Bah of economics at the New York Times, Paul Krugman, justify deficit spending by the government in anticipation of renewed growth (as a "kick-start" to the economy, as it gains "traction"); thus, so the reasoning goes, the current deficits (and the interest thereon) will be manageable in the future because growth will again provide a fiscal surplus through increased government revenues. However: suppose this entire theory is wrong? Suppose we are mired in economic stagnation and future growth sufficient to handle the increased debt service is not in the cards?
The political establishment wants even less to do with such an outlook. It's vaguely "un-American." What are we, Danish or something?
There's a lot more food for thought in Mr. Rubin's book, such as the international "zero sum" aspects of the oil market and the contours of a "post-growth" economy. I'll write about those matters soon.