The Impossible Task

Pity the poor American Consumer. She has to buy a new car to restore automobile production. She has to buy cheap plastic crap to jump start world trade. She has to buy a new house to revive the housing market. And all this on a shrinking income, and with significantly less credit available.

Any way you look at it, near-term recovery seems improbable. Lurking in the background are any number of serious problems which make any kind of lasting economic growth seem remote: resource constraints; massive financial and contractual liabilities; stocks of capital which are being run-down instead of maintained; government diktat which allocates scarce resources to non-productive use - to name a few.

Against this backdrop, we ask: Is collapse - economic and social - inevitable? Sadly, we have to answer, yes. Inevitable, not because of technical incapacity to adjust to new economic realities, but because of lack of will to do so.

The fact of the matter is that people want things to go 'back to the way they were'. Political leadership reflects this. If people wanted to move on to the future as it needs to be, the leadership would reflect that.

Over 35 years ago a book called Limits to Growth was widely read and discussed. It modelled the overshoot and collapse of Industrial Civilisation which would occur in the 21st Century unless remedial action were taken. The World was warned, but few listened. Instead, population continued to explode; economic growth and expanding materialism were taken for the end-all of human existence.

Now the very crisis that Limits to Growth foretold is upon the world, and yet actions which could be taken even now to ameliorate the effects of the impending decline find voice only on the margins of society. The mass of people and its leaders are, in the words of Mr. James Kunstler, attempting to sustain the unsustainable.

Exactly what is unsustainable? Simply put: A growing population with an economy that requires growing flows of money and physical goods. An affluent, comfortable lifestyle for all is sustainable only when it can be maintained on ever-decreasing flows of resources - i.e., continuously more efficient.

Speaking of new cars, Mr. Obama wants 14 to 15 million new cars sold per year to replace those "old clunkers." Time to go shopping!

The Ragged Future

What does a Depression look like and sound like? Obviously there are the abandoned houses, factories, offices, and stores. But even the occupied buildings are starting to look rougher, and the cars on the road are both looking rougher, and sounding squeakier. Yesterday we saw a first for us: a car with foam insulation blown into holes that rust had made.

We happen to live in a part of the world with a long Winter. A lot of maintenance is deferred over the Winter, and in the Spring things look pretty awful. A Depression is an economic Winter, and a whole lot of maintenance is not going on at present.

As the Depression grinds on for years, things will look pretty ragged. There will be few new cars on the road, and most cars will be rusty and dented. The roads themselves will become ever more potholed, and have grass growing out of cracks in the pavement. Abandoned cars will litter the highways, and twisted guard rails will go unrepaired. There will be more detours due to unsafe bridges, and washed-out culverts.

Occupied houses will go unpainted, with windows cracked or boarded-up, and roofs rotting. Their tenant's clothes will get more frayed, and their hair dishevelled. As government assistance programs become more meagre, people will also become quite lean, and their teeth will show more signs of neglect.

Just as growing old gracefully means accepting one's ageing appearance and avoiding the hair dye and plastic surgery, so growing poorer gracefully will mean choosing one's battles carefully in the fight against pervasive decay. It is best to give up on the idea of having more than a few new things. What you own can be patched, cleaned, and tidied to maintain mere shabbiness instead of decrepitude.

Shabby things can be appreciated as well their new counterparts, perhaps even better - was there a time in your childhood when you had a ratty old blanket that you loved? Newness of things destroys history. Society is entering an era where it will be living with a history which leaves its scratches and stains all around. This heightened experience of time will likely help burn deeper memories in these, the defining years of those now living.

What is Productive Capacity?

Arising from yesterday's post is the question of what wealth really is. Well, this is frankly very difficult to answer. Perceptual wealth is the name of the game right now, it seems: houses in and of themselves are worth 'something;' credit cards are seen as money; various corporations and banks are 'too big to fail.' These are all things which are teetering on the brink of major market revaluations (downwards), all the while desperate attempts are made to prop up their present, unsustainable valuations.

In ye oldie days, economies were predominately run from a mercantilist perspective. Mercantilism generally held that wealth was embodied in money (i.e. gold and silver). Prosperity and productivity flowed from the active hoarding of money, which thereby enriched the nation.

Anyone who has ever owned physical gold or silver should know this is hogwash. We have placed a bar of silver upon a table, and stared at it for quite a while, but as it sat it generated no wealth. Sure it was pretty, but it was only a store of value, not a productive investment. It could never produce wealth by our passive holding of it. To this we add the ideas that stocks, bonds, or houses are wealth: they are mercantilist delusions of the 20th and 21st Centuries, for their hoarding will never create wealth.

Towards the end of the 18th Century, mercantilists were superceded the physiocrats. Physiocrats held that wealth did not come from hoarding money (i.e. bullion), but came from productive capacity. At the time, the physiocrats equated 'productive capacity' with 'farming,' but we will broaden the definition, thanks to UNCTAD:

"...the productive resources, entrepreneurial capabilities and production linkages which together determine the capacity of a country to produce goods and services."[source]

Note that nowhere is 'money,' 'the stock market,' 'real estate,' or any other such silliness mentioned. Productive capacity is what makes the stuff that people need or want, and the services that people need or want. It is what Marx called labour, although that is a bit oversimplified because productive capacity does include machinery and other such complex systems.

Creativity; optimisation; ingenuity; making do; these are all part of productive capacity. However, productive capacity cannot be reduced to any of these things: it is a complex system which must be regarded as a cohesive whole, and guided by human thought. As long as you, dear Reader, are a creative person and know how to do things, you have productive capacity. Nurture this ability; it will certainly come in handy in the Depression.