Honorable 8K+ Forum: Another first-rate post slipped in while I was off gawking at the intermountain west of the USA for a month. These folks are right on the money, and this list would do well to think hard about ALL aspects of this "model." I hope that anthropogenic global warming, like "sustainability" does not distract more than interact.
If I am correct about root phenomena, egocentrism is the primary driver--and nothing much seems to be happening with respect to that. I only hope that the reason lies in the core--and that integration of intellect is expanding without prating. I look forward to further discussion anyway. WT ----- Original Message ----- From: "Ashwani Vasishth" <[EMAIL PROTECTED]> To: <[email protected]> Sent: Tuesday, October 14, 2008 4:58 AM Subject: [ECOLOG-L] Feature: A Steady State Economic Perspective On the Global Financial Crisis > http://dotearth.blogs.nytimes.com/2008/10/13/growth-economics-on-a-finite-planet/ > > October 13, 2008, 10:03 am > > Growth Economics on a Finite Planet > By Andrew C. Revkin > > Over the weekend, I asked Herman Daly, the specialist in "ecological > economics" at the University of Maryland, about the recent financial > turmoil. He pointed me to a short piece he wrote that was posted on > the Oil Drum blog a few days ago and that he gave me permission to > post below. It's mostly about economic theory, but does get at one of > the keystone concepts explored here - which is how many people, > consuming how much stuff, can one livable planet support? > > To Dr. Daly, the implosion after the burst of trading and investment > in high-concept paper offerings was inevitable, and simply a > reorientation of the market toward the only real economy - the one > grounded in actual assets. In the end, the only economy that can't be > gamed is one that is grounded in the way the Earth works. That is > where "real wealth," and real limits, lie, he says. > > This relates to the climate challenge. The atmosphere is not an > infinite dump, so if a trading system for carbon dioxide credits - > like the recent financial bubble - doesn't actually lead to progress, > we'll know it. But the consequences are likely to be less reversible > than those from a credit crunch. Carbon dioxide, unlike the kinds of > pollution wealthy countries dealt with in previous decades, is a > persistent gas. It builds like unpaid credit card debt. The longer > societies delay action, the bigger the climatic debt. Maybe it'll all > work out and the greenhouse warming from the buildup will be on the > low end. But maybe not. The world tried a big financial gamble in > recent years and the consequences are clear now. How will the current > climate bet play out? > > Another piece on the financial breakdown that is relevant to Dot > Earth is Joe Nocera's sobering "Talking Business" column on human > nature and speculative bubbles. Are we doomed to irrationality in > weighing risks and payoffs, whether financial or climatological? > Isaac Newton got taken in by a bubble. > > Below you'll find Professor Daly's short piece, The Crisis: Debt and > Real Wealth: > > The current financial debacle is really not a "liquidity" crisis as > it is often euphemistically called. It is a crisis of overgrowth of > financial assets relative to growth of real wealth - pretty much the > opposite of too little liquidity. Financial assets have grown by a > large multiple of the real economy - paper exchanging for paper is > now 20 times greater than exchanges of paper for real commodities. It > should be no surprise that the relative value of the vastly more > abundant financial assets has fallen in terms of real assets. Real > wealth is concrete; financial assets are abstractions - existing real > wealth carries a lien on it in the amount of future debt. > > The value of present real wealth is no longer sufficient to serve as > a lien to guarantee the exploding debt. Consequently the debt is > being devalued in terms of existing wealth. No one any longer is > eager to trade real present wealth for debt even at high interest > rates. This is because the debt is worth much less, not because there > is not enough money or credit, or because "banks are not lending to > each other" as commentators often say. > > Can the economy grow fast enough in real terms to redeem the massive > increase in debt? In a word, no. As Frederick Soddy (1926 Nobel > Laureate chemist and underground economist) pointed out long ago, > "you cannot permanently pit an absurd human convention, such as the > spontaneous increment of debt [compound interest] against the natural > law of the spontaneous decrement of wealth [entropy]." > > The population of "negative pigs" (debt) can grow without limit since > it is merely a number; the population of "positive pigs" (real > wealth) faces severe physical constraints. The dawning realization > that Soddy's common sense was right, even though no one publicly > admits it, is what underlies the crisis. The problem is not too > little liquidity, but too many negative pigs growing too fast > relative to the limited number of positive pigs whose growth is > constrained by their digestive tracts, their gestation period, and > places to put pigpens. Also there are too many two-legged Wall Street > pigs, but that is another matter. > > Growth in U.S. real wealth is restrained by increasing scarcity of > natural resources, both at the source end (oil depletion), and the > sink end (absorptive capacity of the atmosphere for CO2). Further, > spatial displacement of old stuff to make room for new stuff is > increasingly costly as the world becomes more full, and increasing > inequality of distribution of income prevents most people from buying > much of the new stuff-except on credit (more debt). Marginal costs of > growth now likely exceed marginal benefits, so that real physical > growth makes us poorer, not richer (the cost of feeding and caring > for the extra pigs is greater than the extra benefit). To keep up the > illusion that growth is making us richer we deferred costs by issuing > financial assets almost without limit, conveniently forgetting that > these so-called assets are, for society as a whole, debts to be paid > back out of future real growth. That future real growth is very > doubtful and consequently claims on it are devalued, regardless of > liquidity. > > What allowed symbolic financial assets to become so disconnected from > underlying real assets? First, there is the fact that we have fiat > money, not commodity money. For all its disadvantages, commodity > money (gold) was at least tethered to reality by a real cost of > production. Second, our fractional reserve banking system allows > pyramiding of bank money (demand deposits) on top of the fiat > government-issued currency. Third, buying stocks and "derivatives" on > margin allows a further pyramiding of financial assets on top the > already multiplied money supply. In addition, credit card debt > expands the supply of quasi-money as do other financial "innovations" > that were designed to circumvent the public-interest regulation of > commercial banks and the money supply. I would not advocate a return > to commodity money, but would certainly advocate 100 percent reserve > requirements for banks (approached gradually), as well as an end to > the practice of buying stocks on the margin. All banks should be > financial intermediaries that lend depositors' money, not engines for > creating money out of nothing and lending it at interest. If every > dollar invested represented a dollar previously saved we would > restore the classical economists' balance between investment and > abstinence. Fewer stupid or crooked investments would be tolerated if > abstinence had to precede investment. Of course the growth economists > will howl that this would slow the growth of GDP. So be it - growth > has become uneconomic at the present margin as we currently measure > it. > > The agglomerating of mortgages of differing quality into opaque and > shuffled bundles should be outlawed. One of the basic assumptions of > an efficient market with a meaningful price is a homogeneous product. > For example, we have the market and corresponding price for No. 2 > corn - not a market and price for miscellaneous randomly aggregated > grains. Only people who have no understanding of markets, or who are > consciously perpetrating fraud, could have either sold or bought > these negative pigs-in-a-poke. Yet the aggregating mathematical > wizards of Wall Street did it, and now seem surprised at their > inability to correctly price these idiotic "assets." > > And very important in all this is our balance of trade deficit that > has allowed us to consume as if we were really growing instead of > accumulating debt. So far our surplus trading partners have been > willing to lend the dollars they earned back to us by buying treasury > bills - more debt "guaranteed" by liens on yet-to-exist wealth. Of > course they also buy real assets and their future earning capacity. > Our brilliant economic gurus meanwhile continue to preach > deregulation of both the financial sector and of international > commerce (i.e. "free" trade). Some of us have for a long time been > saying that this behavior was unwise, unsustainable, unpatriotic, and > probably criminal. Maybe we were right. The next shoe to drop will be > repudiation of unredeemable debt either directly by bankruptcy and > confiscation, or indirectly by inflation. > > *** NOTICE: In accordance with Title 17 U.S.C. Section 107, this > material is distributed, without profit, for research and educational > purposes only. ***
