Monday, August 04, 2008

The government will take care of it myth exposed.

Three articles today highlight the erroneous belief that government can and will take care of the problems caused by peak oil and this economic downturn. First, we need to see what's going on with the tax-base: namely, ourselves.
The Heart of the Economic Mess
By Robert B. Reich, Robert Reich's Blog. Posted August 4, 2008.
Most Americans can no longer maintain their standard of living. And the core problem isn't the housing crisis or rising oil and food prices.

The Federal Reserve Board's "beige book" for June and July offers a clear explanation for why the economy has slowed to a crawl. It shows American consumers cutting way back on their purchases of everything from food to cars, appliances and name-brand products. As they do so, employers inevitably are cutting back on the hours they need people to work for them, thereby contributing to a downward spiral...

Reductions in people's income, in company profits, and in sales taxes means government has far less revenue to work with to meet civic needs.

...Most Americans can no longer maintain their standard of living. The only lasting remedy is to improve their standard of living by widening the circle of prosperity.

The heart of the matter isn't the collapse in housing prices or even the frenetic rise in oil and food prices. These are contributing to the mess, but they are not creating it directly. The basic reality is this: For most Americans, earnings have not kept up with the cost of living. This is not a new phenomenon, but it has finally caught up with the pocketbooks of average people....

The "circle of prosperity" is non-monetary means of community cooperation, in the form of free societies, co-ops, home school cooperatives, and other things whereby people band together to get their needs met by contributing to meeting the needs of others - no money changing hands at all.

...If you look at the earnings of nongovernment workers, especially the hourly workers who comprise 80 percent of the work force, you'll find they are barely higher than they were in the mid-1970s, adjusted for inflation. The income of a man in his 30s is now 12 percent below that of a man his age three decades ago.

Dr. Lott and others who insist on the illusion that America's wages and workers are the best off they've ever been due to "globalization" are completely off base. The reality is that we are worse off than we were: wages are relatively lower, and expenses are higher.

...This underlying earnings problem has been masked for years as middle- and lower-income Americans found means to live beyond their paychecks. But they have now run out of such coping mechanisms. As I've noted elsewhere, the first coping mechanism was to send more women into paid work. Most women streamed into the work force in the 1970s less because new professional opportunities opened up to them than because they had to prop up family incomes. The percentage of American working mothers with school-age children has almost doubled since 1970, to more than 70 percent. But there's a limit to how many mothers can maintain paying jobs.

So Americans turned to a second way of spending beyond their hourly wages: They worked more hours. The typical American now works more each year than he or she did three decades ago. Americans became veritable workaholics, putting in 350 more hours a year than the average European, more even than the notoriously industrious Japanese.

But there's also a limit to how many hours Americans can put into work, so Americans turned to a third coping mechanism: They began to borrow...

The result has been a mess - the elderly and the kids are neglected (if benignly), our community, civic and religious duties have largely fallen by the wayside, and people have retreated into a bunker mentality, trusting no one and nothing, and giving loyalty to no one and nothing, not even their own families. The dropout rate for teens is astonishing, the rate of divorce is skyrocketing, and drug and alcohol abuse are rising exponentially - and that's just in frum communities. Society has been torn apart by women working. It was always the women who did most of the community and volunteer work, took responsibility for the elderly and their children, of course. Now the kids are raised in herds by strangers and the elderly are dumped into "homes" where they won't be a nuisance to anyone while they wait to die - their knowledge and experience lost to the younger generation, who fears the old.

As for borrowing, well, that could never last - why did anyone think it would? Eventually you are paying out as much in principal and interest as you can afford to pay. And then what? Once you can't pay anymore, you can't borrow anymore.

So we have no more to give - no more income to give to government, to debt, or to our kids or parents. We are tapped out. And our government is therefore tapped out, too.
New York’s finances In a state of shock
Jul 31st 2008 | NEW YORK
From The Economist print edition
An economic call to arms to offset staggering budget shortfalls

...Costs are rising and revenues are falling fast. In June 2007 the 16 banks that pay the most taxes on their profits remitted $173m to the state treasury. Last month this dropped to $5m, a 97% decrease. This is a frightening fall given how much the state’s coffers rely on Wall Street taxes: 20% of all state revenues come from financial companies.

David Paterson, New York’s governor, delivered an unprecedented special address on July 29th on his state’s deteriorating fiscal condition. Pointing out that the economy’s problems are severe and are likely to get worse, he recalled the state legislature for an emergency economic session. He plans to cut state agencies’ spending and to trim the state’s workforce...

Which means more people without union protection will be tossed into the ranks of the unemployed - and no job market in which they can find comparable jobs.

...But even so the city, which is also heavily reliant on Wall Street for revenue, is facing budget shortfalls. It, too, has seen revenues fall: in its case by a billion dollars since May. The 2009 budget is supposedly balanced, but the city is facing deficits in years to come. Nicole Gelinas, of the Manhattan Institute, says even a partial defined contribution plan for new city workers would help offset the city’s crippling health costs. A 7% property tax cut could be rescinded to offset some of the angst...

Their angst, not yours. You'll be the ones seeing your property taxes go up 7%. But think about this - none of the current budget is going toward the goals of setting every neighborhood with electric trolleys or streetcars to eliminate the needs for private automobiles. Not a penny is going to help homes acquire solar panels or shingles or to install wind turbines. The money the city and the state are raking in are not being spent to plan for the future - they're just planning to spend more money on the failed status quo.

Resource Insights
Sunday, August 03, 2008
The problematic future of U. S. energy investment
Can the current financial system in America help us make the energy infrastructure investment we need for a transition away from fossil fuels?

...The key question about investment is how quickly it must be made to insure a smooth transition away from our fossil fuel energy system. There are those who believe the marketplace will mediate this transition by raising fossil fuel prices to a level that encourages investment in alternatives while reducing demand. To a certain extent this is already happening. But those market believers had better hope that Robert Hirsch, author of what is now commonly referred to as the Hirsch Report, is wrong about the lead time we need to make a transition away from oil-based liquid fuels. He suggests it will be necessary to launch a crash program for alternative liquid fuels 20 years prior to the worldwide peak in oil production to avoid economic disruptions. But the peak is looking much closer than that and right now there is no crash program even being mentioned in the halls of government or corporate power. The market believers must also hope that Hirsch is wrong that our experience with regional peaks in oil production is not a harbinger of what the world peak will look like, namely a sharp, unanticipated peak with a high decline rate. If Hirsch's fear proves correct, the most important market mechanism will be demand destruction for oil even as substitutes remain elusive.

In other words, the 20 years should have started about 15 years ago. We're in deep trouble, up the creek with no paddle. We've talked about demand destruction before, class, and it's pretty ugly for the common guy. You'll be left out in the 'burbs with no gasoline for your SUV and no electric streetcars or trolleys to get to work or groceries, either, since they were never put in.

So, what about government initiatives? Certainly, the U. S. government could provide much greater incentives for say, the installation of wind and solar. It could mandate net metering that is highly favorably to homeowners to encourage them to install wind and solar on their homes. And, it could greatly increase funding for public transit including an vast expansion of intercity rail. But all of this would have only a modest effect on the consumption of petroleum fuels unless transportation is electrified. For that we would need a wholesale transformation of our transportation infrastructure. This would likely mean much more public electrified transport rather than private automobile transportation.

We know this. In fact, we've known it for about 30 years - and done nothing! It's not like any of this is a surprise to anyone in the higher echelons of the energy industry or government.

...But perhaps the most profitable use of government dollars would be to encourage large energy savings at home. Businesses react to energy prices quite a bit more easily than homeowners. Spending money up front makes sense to business owners when the payoff in energy efficiency also means a payoff in financial savings sufficient to fund the efficiency upgrades and create ongoing savings. But quite often homeowners who would like to make their homes more energy efficient simply can't get the needed upfront money. Modest energy efficiency measures may be affordable to many, but a so-called deep retrofit that can reduce energy use by two-thirds can cost $20,000 or more. A reduction of this magnitude would make a huge difference in energy demand since about one-fifth of all energy use in the United States is residential...

Exactly - only a massive government aid program is going to get most homeowners in a position to put up solar panels, etc. If they were put on every home, it might not cover every bit of their electric usage all year round, but it would certainly cover a sufficient adequate percentage to allow the existing electric grid to support the electric trolleys, streetcars, and newfangled electric automobiles that will be coming on the market soon. Right now, only by forcing people to turn off their air conditioning when it is hottest (aka "smart meters") and making people do their laundry in the middle of the night (aka "off-peak usage") is there any hope of even getting close.

...Meanwhile, back at the casino that now passes for the American financial system, average investors have little to say about where their money is invested. This is especially true if they don't manage their own retirement savings. But even if they do manage it, the choices they have are often limited. It is well-nigh impossible for amateur, part-time investors (which is what most Americans with savings are) to know which companies in the alternative energy race will be winners or to be able to invest in them if those potential winners are traded overseas. And, it would be imprudent of these investors not to diversify and especially not to include companies that benefit from the rise of fossil fuel prices, companies that are easy to identify and have a steady, mature base of business.

One thing that average investors can almost never do is invest in socially and economically wise infrastructure development such as the deep energy retrofits described above. There simply aren't institutions set up to make this possible.

So, what we are left with is a federal government fiscally unable to act in ways that respond effectively to the growing energy crisis (even if it now wanted to), a financial system under tremendous stress that is geared primarily to moving funds into investments that encourage further dependence on fossil fuels, and a public that collectively has enormous amounts of capital it cannot effectively move into areas that will reduce fossil fuel dependence or create an infrastructure that runs on renewable energy.

We have in essence a dysfunctional investment system, both public and private, that seems to be providing the equivalent of very expensive end-of-life care to the moribund fossil fuel economy without much consideration for what comes afterward.

Which is why we, ourselves, have to be prepared for the results of government's past shortsightedness and present inability to deal with the emerging reality. Government is far more likely to make things worse by raising your taxes, cutting your services, making more people unemployed, and funding unsustainable goals than actually doing anything useful. So don't be surprised.

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