Sunday, February 28, 2016

Food for Thought

With the briefest of introductions and even less commentary I am posting a passage from James Galbraith's "The End of Normal." Read it and draw your own conclusions:

Government policies influence economic performance by affecting the structure of the economic system. A lower interest rate, by making large initial outlays financially feasible and projected cash flows from the distant future more valuable, tends to encourage investments with high initial fixed costs. Higher tax rates also tend to encourage increased fixed costs. Activities involving variable costs (labour) are generally heavily taxed, whereas those that depend more on onetime investments are taxed more lightly. In fact, machinery investment is generally heavily tax-subsidized. For once a building, a piece of machinery, or a dam is in place, the equipment remains in use, but the economic effort to produce it will not be taxed a second time. Labour, on the other hand, is taxed constantly, and the cumulative tax on employment adds up over time. Conversely, low taxes and high interest rates encourage an emphasis on variable costs.

...Technical progress is often achieved by moving to systems with higher fixed cost. Technology enables one to tap into resources that were previously not economical. For example, new horizontal drilling and fracturing technology enables natural gas companies to develop shale gas on a large scale. But at the same time, more advanced technologies are more resource intensive. ...When the rate of consumption of resources becomes higher than the rate of renewal or discovery, resources will become scarce. In a resource-scarce environment, social systems with higher technology require more resources to support the technology., As a result, net resources available for consumption - water, fuel, biofuel feedstocks with food uses, such as corn - may decline. This will lower living standards, and it will do so more sharply if a country hangs on to the technology it can now no longer afford.

If a firm or economy cannot generate a surplus, it will first consume any reserves that may be on hand. Next, scarcity can sometimes be relieved by borrowing from outsiders against future production - incurring a debt. In the case of scarcity or diversion, barring a favourable turn of events, contracts will be broken, and resources promised to outsiders will not be delivered. This is a historic cause of wars.

The final remedy for scarcity is to eat the seed corn, curtailing investment. Then present standards will be maintained for a time, but those in the future decline. It will become ever more clear to those living in the present that the future will be dreadful. Public authority must then choose between maintaining investment by force or allowing the present generation to use up the resources required to keep the future generations alive. There is no reason to believe that the democratic decision made by the living in the face of their present needs and desires will be the decision that would maximize the chance of long-term survival. The unpleasant conclusion is that it is possible for a society to choose economic collapse.

If you don't recognize what you've just read as well underway now, you're whistling past the graveyard. We need Ottawa to implement some drastic changes and sooner rather than later.


Toby said...

While some of have recognized this process for a long time the vast majority of the world's seven billion won't notice until it is way too late.

The Mound of Sound said...

What Galbraith is pointing out, Toby, is that we either take stock of what we're doing and change ourselves or we allow these events to run their course and endure what follows.

It's why we can't get far even if we did tackle global warming without taking effective action on overpopulation and our excess consumption. Each depends on the others. Changing one won't work. Suzuki addresses climate change, consumption and growth but even he falls short of advocating for meaningful action on overpopulation.

If we're bent on growing our population until we need 40% more food and 50% more energy by 2050 then we are choosing collapse. We're already well past Earth's maximum carrying capacity. Madness.

Hugh said...

They seem fixated on endless growth:


"Germany had made it clear it was not keen on new stimulus, with Finance Minister Wolfgang Schaeuble saying on Friday the debt-financed growth model had reached its limits.

“It is even causing new problems, raising debt, causing bubbles and excessive risk taking, zombifying the economy,” he said."