Will the Depression Make Everyone Poor?

If the World finds itself a good deal poorer in the coming years it will not be because the Depression made it thus. The Depression is only revealing the fact that everyone is poorer than they thought they were.

This is an important distinction that is lost on almost everyone. The Depression is happening because incomes are declining. Incomes are declining because the productive capacity of society is not as large as people imagined it to be.

Allow us to present a simple metaphor: Suppose you owned an apartment building. Suppose further you had two tenants: your hairdresser, and your stockbroker. Now suppose that instead of fixing the soft spot in the roof and the crack in the foundation, you took the rent and spent half of it on expensive haircuts and the other half on penny stocks. Then comes the day that the rain came in through the roof and through the foundation.

No problem, you say, as you've been creating a rainy day fund with your stockbroker by investing in penny stocks. Oops! The stock market crashed. Uh oh. Well, you'll just have to do all the work yourself, and get money for supplies by using the rent money, skipping the haircuts and further stock purchases.

Now the bad situation gets worse: because your stockbroker isn't making the commissions (largely on account of you) she once was, she is getting behind on the rent. So too your hairdresser - you were his best client - is also getting behind. This means you can't buy the supplies... so the rain will just keep pouring in.

We hope this metaphor isn't too obscure. It really does describe to an extent the pickle the world's economy is in. There are a complexity of reasons why capital and spending has gotten grossly misallocated for a long time before the consequences were revealed. It is well past the scope of this little post, but we plan to touch on some of it in the coming months.

Energy Independence the Hard Way, Part 1

The Year of Our Depression 2008 is quickly grinding towards a smouldering ruin of finality, and already we sense that there is great hope that 2009 will be the turn-around year. Great faith seems to be place in President-elect Barack Obama's multi-hundred-billion-dollar make-work programmes. It seems to us that Mr. Obama is considered the man who can lead this nation to a better future.

Mr. Obama's transition website paints a starry, starry picture of energy independence: 1 million plug-in hybrids purring about by 2015; 10% renewable energy by 2012; 5 million jobs and $150 bullion over ten years. How lovely, but we point out to the President-elect that $150 billion is chump change; the Federal Reserve has 'injected' over $1 trillion, and that hasn't done squat. What can a measly $150 billion do for energy?

We posit a different scenario for energy independence, although it won't be appearing on change.gov anytime soon. In a decade, the government will have spent more money than we have the vocabulary to describe - but all for naught; infrastructure programmes will have been started, and abandoned. In essence, the United States will be so poor, its domestically-produced oil (currently about 25% of supply) will be all that is needed.

Cliffhanger? You bet. Part 2 tomorrow.

What is Poor?

As one of the biggest shopping day of the year dawns, we look out the window and -- to quote the archetypal priest -- we think of those less fortunate. No, dear Reader, we don't mean those who couldn't buy their family a new plasma TV. We refer to those in the world are inconceivably poor: they cannot even afford proper nourishment.

For example, take Haiti. 80% of Haitians live on $2 or less a day -- making them part of the 2.4 billion or so who live on the same budget. Mind you, Reader, than isn't $2 for food a day, that's just $2 a day. They are so poor they are eating baked mud, potentially ingesting various toxins or parasites. This mud they eat is euphemistically referred to as a cookie.

Mmmm, cookies.

We have no ethical axe to grind, one way or the other. We merely feel greatly irked at people who worry when they cannot blow large amounts of money on the holidaze. For instance, a worker at a recently-reopened cookie manufacturer in Ohio said, after getting a $1,500 gift card, 'I can give my kids a Christmas.'

Really? No kidding. We can see a couple ounces of gold dancing in our eyes if someone handed us $1,500. A person in Haiti would have probably screamed for joy, since they could then have eaten on $5 a day for about a year... but this person instead saw Wal-Mart, or possibly Toys-R-Us.

No one in the West quite understands what it truly means to be poor. We certainly don't, and we don't want to, either. The poor of Haiti have little-to-no hope of improving their financial situation, because they cannot even afford to live hand-to-mouth. In the West, one still has the potential to improve one's finances, even in this Depression. If one gets a windfall, like the worker and her $1,500, one must think long and hard about spending it wisely. Use it for a lasting improvement in one's living conditions: pay down debt; shore up investments; buy some precious metals. To fritter away a windfall, time and time again, launches one on the road to perfect understanding of just how poor the average Haitian really is.