Monday, December 6, 2010

The Third Storm: Why the bubble economy affects Transition


If all economists were laid end to end, they [still] would not reach a conclusion. - George Bernard Shaw

The Transition Movement focuses on energy and environment; but it doesn’t pay as much attention to economics. Perhaps it is because economists never seem to agree. For years, economists have variously: declared an economic recession; denied that any recession existed; admitted in hindsight that a recession had been happening after all; claimed to observe signs of a ‘green shoots’ recovery; repeatedly predicted a growth economy recovery “just around the corner” [every 6 months]; declared a ‘jobless’ economic recovery; officially declared in September, that the recession had ended in June of 2009; argued both for and against a ‘double dip’ recession; predicted a Second Great Depression; and predicted a collapse of Capitalism.

How could there be such a wide range of opinion about our economy? Economists make such conflicting observations because many rely on government economic statistics and contradictory theoretical models.

Let’s expose the lie behind official economic statistics: politicians limit economic data to a tolerable level of bad news by defining their own terms. So for instance they define unemployment in a way that only measures less than half the actual unemployed. Thus the Obama administration claims the unemployment rate is only “10%”. Their official definition excludes anyone unemployed for longer than a year; and those who gave up job hunting; and those who settled for part time work. They also make questionable assumptions about population growth and death rates.

So if you really want to know the unemployment rate, don’t ask the Bureau of Labor Statistics. Instead, follow a research economist like Walter J. Williams of the website Shadow Government Statistics. According to Williams, the actual U.S. unemployment rate is closer to 22%!

By comparison, the unemployment rate during the Great Depression was 25%. So we are nearing those levels of joblessness again in America. The question is, will it get worse or will it get better?

Again, the politicians would have us believe the rosier picture. It is in their best interest to talk “green shoots”, rising stock market values, GDP growth, and recovery. The Bush administration had repeatedly denied the official start of this recession for over a year. So it is no surprise that the government recently announced that the current recession had already ended over a year ago. The Obama administration would have us believe, during the mid-term election campaign, that happy days are here again. But are they?

Consumption drives our “service” economy and rising personal debt financed consumption. Homeowners borrowed against rising home values to finance: home upgrades and redecorating; new cars; multiple vacations; private school and college tuition; and credit card balances. As long as home values rose, all was well.
But the housing bubble finally burst: the home ATM shut down and consumer spending dropped. Soon, auto companies needed bailouts; airlines merged and cut routes; private school enrollment dropped; furniture companies disappeared; unemployment rose; home foreclosures made headlines. Banks lost asset values on risky mortgage-backed “securities”. Small banks are still being closed, but the “too big to fail” banks with government connections were given taxpayer money to remain open. But they still remain insolvent. They have stopped lending in order to boost their asset values. Our economy has entered a long credit crisis.

Credit had kept consumption going and consumption drives the economy. So without credit, it is impossible for the recession to have ended. In fact it is just getting started. Soon, despite government “stimulus” spending, the official unemployment rate will resume rising above “10%”. The real unemployment rate is already hovering near 1930’s levels. As consumption drops, we are more likely to enter a second Great Depression than to see an economic recovery.

So what does this situation have to do with the Transition Movement? Whether we realize it or not, our Transition plans are based on certain assumptions about our economy. Transition literature focuses on transcending the negative impact of two storms: Peak Oil and Climate Change. Economic crisis is seen primarily as the end result of our unrestrained use of scarce energy. Under this assumption, economic worst case scenarios, similar to planetary over-heating, are considered avoidable if enough energy usage were voluntarily conserved now.

But Peak Oil and Climate Change are not the only storms on the horizon. The current Economic storm must now be considered as we estimate the impact of these crises. Proposed Transition solutions may fail without considering the changing economy. At the very least, an unanticipated arrival of a second Great Depression would severely restrict our financial ability to prepare for Peak Oil and Climate Change. Therefore we must pay attention not only to fundamentals of Energy and Environment but also to Economics as we plan for Transition.

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