Based on our proprietary stress index and the ongoing parade of bank failures, we are coming to the conclusion that the worst off states in the USA are (insert drum-roll, please) Arizona and Nevada. Both of these States are in the top ten of bank-failures-to-population, and losses-to-assets; additionally, unreleased data from our stress index shows that both States have moved into the top ten of stressed states. Further evidence includes the above-national-average unemployment rate in Nevada and house foreclosure rates in both states.
We suggest the acuteness of distress in these two states is a telling commentary on the nature of the present Depression. This Depression is not just about economics, but habitability itself - that is, the very appropriateness of a place for human habitation.
These two, desert states are the quintessence of artifice. They are full of cities that have no business being there and only exist because developers wanted to make a fast buck. Now the easy credit bubble which drove the process of unsustainable colonisation has popped, these states are entering a tailspin faster and harder than the rest of the Union. We posit that the drying-up-and-blowing-away process will be much shorter and more catastrophic than the aforementioned colonisation.
Generally speaking, people appear to have forgotten that Arizona and Nevada are predominantly deserts; indeed, they seem sublimely convinced that those states are somehow permanently sustainable. This can easily be contrasted with, say, Michigan, another severely distressed state, which has an enviable natural endowment - the Great Lakes, ample rainfall, fertile farmland, vast forests.
Simply put, however bleak the future might be, Michigan's population has one. The same can not be said for Arizona and Nevada. As the Federal highway, water, and electric systems upon which these two states are utterly dependent decline, the capacity of these two states to support human population will diminish and the dream of the Desert Paradise in the American Southwest will expire.
We suggest, as part of Depression preparedness, our readers ask themselves how habitable is it where they live? How would you get around without cars and highways? Where is the nearest source of fresh water? of electrical power? In the deserts, how would you manage without air conditioning? In colder climes, what if it cost four times as much to heat your house during winter?
What answers you might derive, dear Reader, informs whether or not any given area will be able to support people. This includes both basic foodways, as well as the economic systems necessary to facilitate their interaction in the larger economy. We feel the national (and global) economy will not have sufficient 'fat,' if you will, to support places which, in the end, contribute nothing of any value or importance.
Showing posts with label economic system. Show all posts
Showing posts with label economic system. Show all posts
Tuesday, September 8, 2009
Sunday, January 4, 2009
The Problem of Economising and Sunk Costs
Today's post may seem a bit technical, but it has everything to do with day-to-day decisions for ordinary people.
This subject came up for us when we were trying to think about ways to save on our phone bill. We pay a fixed charge for our phone service. It is the cheapest plan we can get. We never use all the minutes we are allotted, and if we talk evenings and weekends we can jabber on endlessly if we choose to.
Why is the economic system set up to provide an incentive to consume as much as possible? It is because the cost of much of what we consume is largely in the physical plant and not in the material processed or delivered. For telephone, most of the cost is in sending up all those satellites,laying all that cable, setting up the switching networks, and building those towers. Once the infrastructure is built, servicing and maintaining it all is not as costly. Utility companies recover their fixed, or sunk costs by charging customer fees to be hooked into the network, not so much for their usage of photons, water molecules or whatever. Another way this plays out is in property taxes for municipal services. People do not pay for fire, police, or streets on a per use basis.
A problem arises when one is trying to economise, and one hits the floor cost of a service. With telephone service, we can go to a pay-per-call plan. That option is not available for water, electricity, natural gas. If all you want is a little bit of light or heat, it may well be cheaper to burn kerosene for light and for heat, because it does not require an expensive, special distribution pipeline right to your door. What happens if a lot of people, on account of poverty, drop out of the utility system? That forces up the the connection fees to the remaining users and prompts more drop outs. An adverse positive feedback loop (vicious cycle) is engendered, threatening the very existence of the service.
We suspect such a dynamic will soon be at work in many areas. Highways in particular come to mind. The USA has 4 million miles (6.4 million kilometres) of roads and streets. Even at a conservative estimate of the average cost at $3,000,000 per mile, this assigns a value of $12 trillion to the country's public pavement - on par with the value of all publicly traded companies, or an entire year of GDP. As people begin to abandon their automobiles en masse, who will pay for the hefty annual maintenance of this vast piece of capital? Will mileage rates replace gasoline taxes as the State of Oregon is contemplating? Can property taxes on depreciating property cover street costs? Will general taxes be dubiously and destructively allocated to an obsolescing technology? (Answer: yes - see car maker bailout and Obama infrastructure plan).
Streets are arguably necessary, and will continue to be funded in some form or another as long as humans are civilised. Roads on the other hand, are almost certain to gradually fade away as people relearn to transport themselves and their stuff mostly on navigable waterways. Water transportation, though slow, is and always has been the cheapest, so we may as well plan for it.
This subject came up for us when we were trying to think about ways to save on our phone bill. We pay a fixed charge for our phone service. It is the cheapest plan we can get. We never use all the minutes we are allotted, and if we talk evenings and weekends we can jabber on endlessly if we choose to.
Why is the economic system set up to provide an incentive to consume as much as possible? It is because the cost of much of what we consume is largely in the physical plant and not in the material processed or delivered. For telephone, most of the cost is in sending up all those satellites,laying all that cable, setting up the switching networks, and building those towers. Once the infrastructure is built, servicing and maintaining it all is not as costly. Utility companies recover their fixed, or sunk costs by charging customer fees to be hooked into the network, not so much for their usage of photons, water molecules or whatever. Another way this plays out is in property taxes for municipal services. People do not pay for fire, police, or streets on a per use basis.
A problem arises when one is trying to economise, and one hits the floor cost of a service. With telephone service, we can go to a pay-per-call plan. That option is not available for water, electricity, natural gas. If all you want is a little bit of light or heat, it may well be cheaper to burn kerosene for light and for heat, because it does not require an expensive, special distribution pipeline right to your door. What happens if a lot of people, on account of poverty, drop out of the utility system? That forces up the the connection fees to the remaining users and prompts more drop outs. An adverse positive feedback loop (vicious cycle) is engendered, threatening the very existence of the service.
We suspect such a dynamic will soon be at work in many areas. Highways in particular come to mind. The USA has 4 million miles (6.4 million kilometres) of roads and streets. Even at a conservative estimate of the average cost at $3,000,000 per mile, this assigns a value of $12 trillion to the country's public pavement - on par with the value of all publicly traded companies, or an entire year of GDP. As people begin to abandon their automobiles en masse, who will pay for the hefty annual maintenance of this vast piece of capital? Will mileage rates replace gasoline taxes as the State of Oregon is contemplating? Can property taxes on depreciating property cover street costs? Will general taxes be dubiously and destructively allocated to an obsolescing technology? (Answer: yes - see car maker bailout and Obama infrastructure plan).
Streets are arguably necessary, and will continue to be funded in some form or another as long as humans are civilised. Roads on the other hand, are almost certain to gradually fade away as people relearn to transport themselves and their stuff mostly on navigable waterways. Water transportation, though slow, is and always has been the cheapest, so we may as well plan for it.
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