Economics – March 5

Click on the headline (link) for the full text.

Many more articles are available through the Energy Bulletin homepage

Job Losses Show Breadth of Recession
David Leonhardt, New York Times
What does the worst recession in a generation look like?

It is both deep and broad. Every state in the country, with the exception of a band stretching from the Dakotas down to Texas, is now shedding jobs at a rapid pace. And even that band has recently begun to suffer, because of the sharp fall in both oil and crop prices.

Unlike the last two recessions — earlier this decade and in the early 1990s — this one is causing much more job loss among the less educated than among college graduates. Those earlier recessions introduced the country to the concept of mass white-collar layoffs. The brunt of the layoffs in this recession is falling on construction workers, hotel workers, retail workers and others without a four-year degree.

The Great Recession of 2008 (and beyond) is hurting men more than women. It is hurting homeowners and investors more than renters or retirees who rely on Social Security checks. It is hurting Latinos more than any other ethnic group.
(3 March 2009)

A Depression doesn’t have to be Great
Tom Raum and Daniel Wagner, Associated Press
A Depression doesn’t have to be Great — bread lines, rampant unemployment, a wipeout in the stock market. The economy can sink into a milder depression, the kind spelled with a lowercase “d.”

And it may be happening now.

The trouble is, unlike recessions, which are easy to define, there are no firm rules for what makes a depression. Everyone at least seems to agree there hasn’t been one since the epic hardship of the 1930s.

But with each new hard-times headline, most recently an alarming economic contraction of 6.2 per cent in the fourth quarter, it seems more likely that the next depression is on its way.
(2 March 2009)

Food-backed Local Money
Jason Bradford, The Oil Drum: Campfire
… If the financial system is at a risk of collapse, and if so many of our basic goods depend on the financial system, then what, if anything can we do to be more resilient to economic shocks? Below the fold is a description of a project I am working on that may provide some answers.

… As a kid did you ever fantasize about Monopoly game money becoming real? I know I did. Perhaps that’s why I left the printer shop the other day with a sense of bemusement. I had just designed and printed $6000 of money called Mendo Credits. I felt confident that people would accept it, and I also proudly considered that Ben Bernanke doesn’t make money as good as this.

Now before you call the Treasury Department to report me, listen to my story. It may sound funny, but the reality of money is deadly serious. This is perfectly legal and I want you to play copy cat.
(4 March 2009)

Archdruid Report: The End of Retirement
John Michael Greer, The Archdruid Report
… People nowadays invest for many reasons, but one of the most common is retirement. Ever since the American pension system and its government equivalent, Social Security, began to shed their reputation for stability and adequate funding, a growing number of Americans – pushed that way by large and lavishly funded ad campaigns – have placed their hopes for a comfortable old age on investments. The result is a huge fraction of Americans who are emotionally as well as financially invested in the hope that a big payoff from their assets will enable them to have the retirement of their dreams.

If you are among the people who cling to that belief, I’m sorry to say I have bad news. Over the next decade or so, the huge overhang of paper wealth that now floods the world economy is going to lose nearly all its value. As it goes, it will take your retirement funds with it.

… Retirement as a social habit was entirely a product of the zenith of the age of abundance now sliding backwards in our collective rear view mirror. For a brief window of time – rather less than a century – it made financial and political sense for nations in the developed world to pay their elderly citizens to stay out of the work force, in order to keep unemployment down to politically bearable levels. All this unfolded, in turn, from an industrial economy so lavishly supplied with cheap energy that human labor was worth replacing with machines wherever the state of technology permitted, and so greedy for new markets that every part of human life was made subject to market forces.

Before that period began, something less than half of all economic activity even in the industrial world had anything to do with the market at all. Most women, and many men outside the age of regular employment, worked in a household economy governed by custom and intrafamily exchange rather than market forces. This included essentially everyone who would be eligible for retirement by the standards of the age that has just ended. Outside the market but not outside the demand for skilled human labor, elderly people typically provided household goods and services to a household somewhere in their extended family. That was their full-time job; by contributing the value of their labor and skills, they earned their keep.

The end of the age of cheap energy means that such household economies will once again be viable. It also means that they will once again be necessary. When the limited energy and resources of a contracting, deindustrial society have to be prioritized for urgent needs, takeout meals and convenience foods will sooner or later draw the short straw; in their absence, most food will once again be made at home from raw materials. When the energy cost of the global network of sweatshops that keeps Americans clothed can no longer be met, a great deal of clothing will once again be made at home from raw fiber, as it was not so long ago, and so on. All this requires human labor. Thus a society no longer supplied with nearly unlimited amounts of cheap abundant energy will have every incentive to keep elderly people in the household labor force, and neither the incentive nor the resources to keep them in comfortable idleness.

Now of course it’s true that we will not be landing in such a society overnight. It’s also true that the clout of the retiree lobby in most industrial nations is such that public and private pensions will be gutted only when every other option has been exhausted – though in the United States, at least, the vast tide of red ink currently flooding out of Washington DC is likely to bring about this eventuality sooner rather than later. Still, it’s quite possible that at least some of today’s retirees and soon-to-be-retirees will manage to cling to that status, at least for a while.
(4 March 2009)
As someone who has gone through the retirement planning process, maybe I can provide a couunter-point.

Thirdly, John Michael is correct to be pessimistic about the dream of a luxurious retirement. Consistent 10% returns are very unlikely. On the other hand, a modest retirement is still within reach. Some classic references:
Get a Life: You Don’t Need a Million to Retire Well … (on GoogleBooks)
Your Money or Your Life: Transforming Your Relationship with Money and Achieving Financial Independence