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Economics - Aug 25

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The Erosion of America's Middle Class

Thomas Schultz, Spiegel
While America's super-rich congratulate themselves on donating billions to charity, the rest of the country is worse off than ever. Long-term unemployment is rising and millions of Americans are struggling to survive. The gap between rich and poor is wider than ever and the middle class is disappearing.

Ventura is a small city on the Pacific coast, about an hour's drive north of Los Angeles. Luxury homes with a view of the ocean dot the hillsides, and the beaches are popular with surfers. Ventura is storybook California. "It's a well-off place," says Captain William Finley. "But about 20 percent of the city is what we call at risk of homelessness." Finley heads the local branch of the Salvation Army.

Last summer Ventura launched a pilot program, managed by Finley, that allows people to sleep in their cars within city limits. This is normally illegal, both in Ventura and in the rest of the country, where local officials and residents are worried about seeing run-down vans full of Mexican migrant workers parked on residential streets.
But sometime at the beginning of last year, people in Ventura realized that the cars parked in front of their driveways at night weren't old wrecks, but well- tended station wagons and hatchbacks. And the people sleeping in them weren't fruit pickers or the homeless, but their former neighbors.

Finley also noticed a change. Suddenly twice as many people were taking advantage of his social service organization's free meals program, and some were even driving up in BMWs -- apparently reluctant to give up the expensive cars that reminded them of better times.

Finley calls them "the new poor." "That is a different category of people that I think we're seeing," he says. "They are people who never in their wildest imaginations thought they would be homeless." They're people who had enough money -- a lot of money, in some cases -- until recently.

"The image of what is a poor person in today's day and age doesn't fly. When I was growing up a poor person, and we grew up fairly poor, you drove a 10-year- old car that probably had some dents in it. You know, there was one car for the family and you lived out of the food bank," says Finley. "In the past, you got yourself out of poverty and were on your way up."..
(19 August 2010)

Death by Growth: What the Climate-Bill Autopsies Missed

Keith Harrington, The Huffington Post
By now the corpse of the climate bill has been so thoroughly autopsied, that examining it any further seems almost inhumane. A whole army of coroners have weighed in, suggesting an array of possible causes of death: Republican obstructionism, failed presidential leadership, a weak climate movement, the wrong policy approach, the recession.

Each one of these problems no doubt played a role in finishing the bill off. But ultimately they weren't much more than complications associated with the real killer - the disease which for all their poking around, the coroners somehow managed to miss.

It's the killer that shall not be named. The killer the coroners don't see because they don't want to see it, even though it's almost impossible to miss. It's the biggest force in politics. It's the top issue in almost every election, and especially this one. It's mentioned in every stump speech. Top world leaders meet several times a year to discuss how to promote it.

It's the economy stupid. And, no, not the recession. Not the lack of growth, but growth itself. Or, rather, the government's unwavering devotion to advancing it. I'm not going to spill any ink here explaining how the paradigm of unending growth is incompatible with preserving life, prosperity and security on a finite planet. Far more authoritative voices such has Bill McKibben and Gus Speth have already articulated that argument far more eloquently than I could. But for the purposes of doing a proper postmortem on the climate bill it needs to be said that as long as growth remains the number one priority of governments worldwide any effort to by those governments to seriously address climate change will be doomed to end in failure.

And forget about "green growth." That's the biggest oxymoron since "clean coal." Sure with efficiency and clean energy we can create less pollution per unit of economic output. But getting to the point where we can even maintain our current economic output without cooking the planet will already be an economic and technical challenge of incredible proportions; never mind trying to fuel an economy twice as big.

...The government's devotion to economic growth entails a devotion to the ultimate drivers of economic growth: corporations. And passing a carbon cap or a carbon tax means going up against the biggest, baddest corporations in the history of corporations: fossil fuel companies. Their formidability lies not just in the fact that they have tons of money to buy political favor but that they constitute the very life blood of the growth based economy; they literally and figuratively fuel the engine of growth. They are the holiest of holies in the corporate temple. Smiting them means smiting the entire growth model; it means blaspheming the Gods of Growth.

In short, the fossil fuel industry is not just another powerful special interest; it is arguably the greatest power in history, backed by enormous wealth, profound dogma, and the power of the global political system. It quite literally is the world order. Displacing it isn't a matter of piecemeal reformation, but wholesale transformation - in other-words, a revolution...

...Of course to get people to disavow a dogma as strong as the growth dogma, we have to do much more than shake their confidence in it. We have to offer them an alternative paradigm that provides what the growth dogma promised but was never really designed to deliver on: true, abiding, globally shared prosperity. An economic system that focuses not on growing GDP, but on growing the things that matter: security, opportunity, education, health, happiness, community, democracy. An alternative that transcends the old false dichotomy between capitalism and command-and-control communism. It's a model top economists have been developing for years, but whose brilliance has long been obscured by the mirage of endless growth. It's called the steady-state economy.

As defined by the Center for the Advancement of a Steady State Economy (CASSE), a steady-state economy is one "with stable or mildly fluctuating size...[which] may not exceed ecological limits." In other words it's an economy that's perfectly suited to a world beset by the bursting bubbles and ecological crises of uneconomic growth. It's the only economy compatible with real climate solutions...
(16 August 2010)
We cross-post the CASSE weekly blog every week on EB. -KS

The Federal Reserve Enters Decline

The Federal Reserve is an artifact of the Abundance Economics that have governed Western economies over the past 250 years. For nearly 250 years exactly we have climbed the ladder of ever increasing energy density, and ever increasing energy supply. That era has now come to an end. You can see that view, the end of the abundance era, expressed by a number of different writers, whether it’s today’s longish piece from Matterhorn Management, last year’s piece by Richard Heinberg on the End of Growth, or some of the shorter (free) posts I write here at Gregor.us. To keep things simple, oil is no longer available to fund world growth. Oil is certainly available to fund existing systems as they are currently set up, but not new growth. You can only fund new growth with an energy supply that is growing. That’s why the developing world has turned to coal, not oil, to fund its growth. Based on the most recent data, let’s update the chart of global crude oil production...

...The credibility of the United States Federal Reserve is closely aligned with its ability to induce economic activity, by the provision of money and credit. But you can see the problem: if there is not an expanding supply of energy, credit is less useful as credit cannot be paid back very easily in a future of either flat, or declining growth. Now that the return on the Fed’s credit provision has gone into decline, then its incumbent on the Federal Reserve to rethink its approach. But the Fed, governed by post-war economists, is apparently unable to learn from new information.

There is another limit to the Fed’s provision of money and credit: and that is the quantity of debt already being carried in the economy. As debt levels rose in the US economy over past decades, the Federal Reserve simply kept repeating itself in a kind of argumentum ad infinitum, providing ever more money and credit as though completely unaware of the levels to which debt was rising. Now, presently, the Fed has declared a war on debt-deflation. But, the Fed indicates no understanding of the core thrust of debt-deflation. I’ll help out: there can be no kick-starting of economic activity, until debt levels are reduced significantly. What the Fed is looking for is not the effects of more credit provision, but instead, debt jubilee...
(16 August 2010)

Deflation and you: Acting perfectly sensibly

Aaron Wissner, the automatic earth
Deflation and You: A Guide to Understanding this Peculiar Economic Model

I just wanted to share a little bit about deflation. Deflation is when the combined amount of money and credit in an economic system is shrinking, and the velocity of money is stagnant or drops.

Once deflation begins, it is self reinforcing. To see how this works, first think of your own recent spending decisions.

If you are like me, your spending behavior and patterns have probably changed quite a bit since the housing bubble started to bust, and especially since the Dow Jones Industrial Average hit its all time high on October 11, 2007 and then started its wild ride down.

Before you begin to think about your spending behavior, though, one thing must be understood: Money is created by people when they take out loans. People offer up an asset or a promise, which the bank takes and files, and then the bank simply increases the number in their account. That is all there is to it. This might be hard to accept at first, but this is simply how it works in this economic model.

The amount of coins and dollar bills in the economy are a very, very small fraction of the total amount of money out there. Most of what we see as "money" is actually bank credit, which is created when people go to banks, are approved for a loan, and then spend that "money". If you imagine all those loans, all of them in the country, all at once, that is basically the money supply.

Behind each "dollar" (or bank credit) in a bank account, there is a loan document somewhere that was used to bring that "dollar" (or bank credit) into existence. If the size of all of those loans, let's just call this the "public debt" for simplicity, if that starts to shrink, for whatever reason, then that means there is less money in the economy. Less money to spend. Less money to earn.

At the moment, the money supply is shrinking because people are behaving perfectly sensibly. They see what is going on with the rising unemployment rate, the falling housing prices, the unstable stock market, the inability of the government to fix it, and the bad economic news that comes out on the TV, the radio, the internet, and in print.

What does a reasonable person do?...
(16 August 2010)

Forget the 'big society'; we just need a co-operative one

Molly Scott Cato, the ecologist
Claims that we need a 'big society' to fix our 'broken' one are just Victorian throwbacks - we have the business tools to survive; we just need a co-operative attitude to go with them

The debate over the nature of society is not a new one. The sort of moral panic we are witnessing today, with claims about a ‘broken society’, are a dim echo of the horrors conjured up by Victorian social commentators and novelists who witnessed the brutality human beings were capable of when uprooted from their familiar culture and packed into over-populated, under-serviced industrial towns.

The most lasting and effective response to this dislocation and disempowerment was the rise of the co-operative movement, growing from the demand for wholesome food by the celebrated Rochdale Pioneers in 1844, and rapidly expanding until all areas of social and economic life were encompassed.

In the last half of the twentieth century, the co-operative movement struggled to maintain its identity against the onslaught of market ideology, but it has been in resurgent form in recent years and has demonstrated particular resilience in the face of financial crisis, largely the result of its alternative business model that does not focus primarily on capital.

Individualism wins out

The pressure of individualist, financialised motivations squeezed the mutual sector, and especially the financial mutuals. This began with the demutualisation of the building societies, allowing current investors to raid the savings of the generations who preceded them. Next came a competition for savings between the steady and secure building societies and the online and offshore ‘banks’, whose high interest rates were based on riskier and less ethical investments that were outside the remit of the mutuals. Fortunately, there were enough people committed to the mutual ethic to keep the building societies afloat until the competitive economy fell under its own weight...

...Forgetting the commons

Individualism was the hallmark of the market ideologues, and was made a tenet of faith by the Conservative governments that dominated UK public policy for nearly 20 years from 1979. The disfiguring consequences are still clear in the widely held but mistaken belief that selfishness and greed are necessary characteristics of a successful businessperson. This destructive worldview has surfaced again and again in my local work to propagate the Stroud pound. Many of our small shopkeepers feel that engaging in a scheme that benefits the community at large would itself constitute bad business. In reality their attitude serves only the corporations, who are now free to pick off the local traders one by one...
(16 August 2010)
Green Economics

Chinese scholar: Will Chinese workers challenge global capitalism
(video and transcript)
Paul Jay, The Real News
Minqi Li interview

Minqi Li is an Assistant Professor at the University of Utah specializing in Political Economy, World Systems and the Chinese Economy. He was a political prisoner in China from 1990 to 1992. He is the author of "After Neoliberalism: Empire, Social Democracy, or Socialism?"

Part 1 of the interview: While Chinese Workers Challenge Global Capitalism?

Part 2 of the interview: Corruption Counters China's Planning

... in a few years, I would expect that because of the oil demand in Asia and other parts of the world continue to rise, and, on the other hand, it will be more and more difficult for the world to increase oil production, so we arrive at this peak oil moment, and that's going to cause global energy crisis. That will kill the global economy.

JAY: Because oil prices will go through the roof.

LI: Yes, similar to 2008.

Part 3 of the interview: China and the "End of the End of History"

LI: ...it's not exaggerating to say that global capitalism right now is in a structural crisis. And, of course, in some previous historical periods, we know that capitalism has similar structural crises and that later managed to survive. So the question is whether we are going to see a similar restructuring of global capitalism, and so that capitalism would be back to some kind of normal expansion in the coming decades.

But my own understanding is that this is not likely, because on the one hand, capitalism, unlike in previous historical periods, has exhausted its historical space for social reform. So, for example, after World War II, capitalism was able to restructure itself, undertaking some social reform, introducing welfare state, and then return to social and economic recovery. But now, basically, in all the Western countries [inaudible] we see that it's not possible to combine a redistribution to the favor of the working people with the requirement of capitalist accumulation.

On the other hand, in the past, capitalism has been able to rely upon the exploitation of cheap labor force in the non-Western world, especially in places like Asia. But in the future I expect that the Asian working classes are going to have more organization, they will demand more economic and political rights, and that will reduce capitalist profit rate and undermine global capitalism.

But probably the most important limit is that after centuries of accumulation, capitalism has exhausted the environmental space, so that the global ecological system now is literally on the verge of collapse.

JAY: So by that you're talking a climate change crisis.

LI: That is just one among many aspects of global environmental crisis.

JAY: What other aspects do you think are so serious that are threatening to the system itself?

LI: Well, you have the water shortage, water pollution that is pervasive. The United Nations predict that by 2025 maybe 70 percent of the population in the world will live in areas of water stress. And we have soil erosion, and we have desertification, we have deforestation, ocean acidification. So all of these aspects are threatening the global ecological system.

(20 August 2010)
Leftist specialist in China is concerned about climate, energy and ecological crises. -BA

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