So there I am, enjoying the latest Stephanie Plum novel, a nice amber ale by my side, when she is suddenly there again. "Oh, hell," I say. "I thought we were through."
"Hades," she corrects me. "Hell is a concept of that other religion."
"Whatever. Look, I got the damn book published, which has gotten zero attention. What else do you want?"
"Well, things just move so fast these days I thought some updates would be in order. Or maybe I just like y'all's company."
"Lucky me," I say. "So just what rays of sunshine are you spreading now?"
"Well, I've been noticing a lot of sniping, by Libertarian/Chicago school types, at your President Obama's stimulus package lately. As y'all know, I'm not a big fan of economists in general, but I've had a few thoughts on the matter."
"Which you're going to lay on me."
"Of Course. Now I believe as far as kick-starting the economy back into growth mode is concerned, the attempt was and is doomed to failure, but not for the reasons asserted by the President's critics and opponents. It is doomed owing to factors beyond his, or anyone's, control. In a nutshell, further extended economic growth has become impossible. The sooner that is recognized, and y'all's expectations and policies adjusted accordingly, the less traumatic the adjustment will be--and it will be traumatic under the best of circumstances.
"Let's first review a bit of history. The last time y'all's economy was in such serious trouble was the depression of the 1930's. And believe it or not, it was a Utah, Mormon banker, Marriner Stoddard Eccles, who put his finger on the problem: "As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth ... to provide men with buying power. ... Instead of achieving that kind of distribution, a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth. ... The other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped."
"Eccles recognized that someone had to take the lead in spending, and the only institution in a position to do so was the Federal Government. The man was anything but a doctrinaire economist; he was simply a very pragmatic banker and businessman. He persuaded President Roosevelt, and the result was the New Deal, with a number of new agencies to promote job creation. And it worked. Despite the attempts at historical revisionism promoted by the Cato Institute and the Heritage Foundation, the record shows the economy began to recover. It fell back into recession only in 1937 when President Roosevelt tried to retrench.
"Incidentally, at the same time in Germany, Hitler solved that nation's unemployment problem also by a huge public works program--only instead of building roads, dams, public buildings, and other infrastructure, most of Hitler's spending went for armaments. But it did put people to work, and it contributed mightily to Hitler's popularity.
"America's entry into World War II caused a quantum leap in Federal spending, and it effectively ended the domestic unemployment problem. It did curtail the provision of consumer goods and services, to put it mildly, but with so much manpower in the armed forces, it brought new workers into the labor force, most notably women and minorities. And with little on the consumer market on which to spend their money, those workers saved it. And service men and women also saved a good portion of their military pay. At the same time, no small portion of war spending went to private contractors to finance construction, expansion, and modernization of their plants and related infrastructure, all of which they owned at the end of the war.
"At the war's end, there was a huge pent-up demand for consumer goods of all kinds, there was money in the hands of those wanting those goods, and since most of the machinery for manufacturing war materials could be turned to making consumer goods, there was the investment in place to satisfy that demand. Physical resources, including oil, were abundant and cheap. The stage was set for a prolonged post-war boom. The war was a calamity; but to argue it had no positive effects on the U.S. economy is plain silly. As Daniel Patrick Moynihan said, one is entitled to one's own opinion, but not to one's own facts.
"Eccles' insight was systematized by John Maynard Keynes, a British economist, in his 'The General Theory of Employment, Interest and Money.' Keynes's ideas were successfully applied in post-war recessions, to the point that when Republican Richard M. Nixon achieved the presidency, he allowed as how "We're all Keynesians now."
"Okay, fast forward to 2012. President Obama has managed to get passed a stimulus package, which, according to Keynesian principals, should kick start the economy. Only the effect has been weak at best, and the recovery, such as it is, has had little impact on ordinary Americans.
"So what's different this time? Why has the stimulus had such a weak effect?
"Most Keynesian economists will say, and did say when the program was passed, that it was too small. There may be some truth to that. But there is a more serious and fundamental problem which seems to go unrecognized.
"There is a tacit assumption underlying Keynesian economic theory, as well as competing theories. That assumption is that physical resources are essentially limitless, and thus economic growth, the provision of ever increasing amounts of goods and services, can go on forever.
"Now this assumption is convenient, to put it mildly, because the entire system depends on continued economic growth. Without growth interest goes unpaid, debts go into default, and the system grinds to a halt. Credit dries up, and farmers can't finance seed, supplies, and equipment. Retailers can't finance inventory. Manufacturers can't finance materials, utilities, and plant. Real estate developers can't finance land acquisition and construction. Few businesses have sufficient capital to finance all their operations, and even those who do rarely put all their capital to such use--it's usually monetarily inefficient to do so. The upshot is that the economy is dependent on ever-expanding credit, i.e., debt.
"To be sure, that is not a problem so long as the expanding provision of goods and services keeps pace. But, unfortunately, that expanded output is dependent on real resources, the primary resource being energy in the form of fossil fuels, and the preeminent fossil fuel being petroleum and it's derivatives. Virtually all the goods and services y'all enjoy, right down to the basics--food, clothing, and shelter--are dependent to a greater or lesser degree on the continuing availability of abundant, cheap oil. Expansion of the output of those goods and services requires an expansion of the oil supply.
"What happens when there's some crimp in the oil supply? The price goes up, wage earners have less discretionary income to spend on non-essentials, business expenses go up, and y'all have recession. Nine of ten recessions since the end of World War II, including that of 2008, have been preceded by a surge in oil prices. Obviously there are other factors which work in concert with oil prices, but that factor always plays a role and a considerable one. If y'all want to know which pin finally burst the real estate bubble of the early 2000's, y'all need look no further than the surge in oil prices of 2008.
"There has been no expansion in the oil supply since 2005. Huh? What about all those discoveries in North Dakota and Texas? Not to mention the deep waters of the Gulf of Mexico? And off Africa and South America? What about the Alberta tar sands?
"Sorry, but the production from those sources has barely kept pace with the decrease in production from older sources. What increase there hass been is in the form of 'other liquids,' which the agencies keeping track (badly) of production lump in with true petroleum. These 'other liquids' lack the energy density of petroleum distillates and, with a couple of exceptions, are not suitable as motor fuel in current vehicles.
'Even more seriously, the oil from the new sources is expensive in energy and money. And the development of the new sources requires substantial lead time--during which production from older sources continues to decline. The stubborn fact is oil production has hit a wall. If demand goes up, so does the price, and that then squashes demand, which precipitates a fall in prices, which discourages further exploration and development. Rinse and repeat. However, the price never falls back as low as it was in the last cycle.
"Oil is not the only physical resource which has or soon will hit a production peak. Coal, yes even coal, production is facing the same barrier, as is copper and many other metals. Phosphorus supply is a serious concern, and so on.
"The point I'm trying to make, strongly I hope, is that continued economic growth is a physical impossibility. The present economic system is simply not structured to deal with that fact. Unless that is recognized soon, and radical steps are taken to change it, the result must be collapse and ensuing chaos.
"But no politician. even if he or she is aware, is likely to come clean about the catastrophe y'all are facing. The last one who tried was Jimmy Carter, and look what happened to him. The impetus for change, if it is to come, must come from the bottom up--from a population informed about the shit about to hit the fan and willing to make the sacrifices necessary to transition to a sustainable civilization. The transition cannot be easy or pain free. But it can be, perhaps, equitable and rational.
"The alternative is chaos and conflict. Starvation, war, pestilence and death."
"Yeah, yeah," I say. "We've been over this."
"Yeah, and y'all don't have much to lose. According to y'all's Bible, y'all are already past y'all's pull date. But it's a different story the next generation and their children. I don't like to think about what they're facing.
"Nearly as I can tell, all y'all's only hope is to get educated about the resource depletion issues I just discussed, as well as the peril of climate change which I have not, and, if y'all find the evidence persuasive , spread the word. If an informed and active populace reaches a tipping point, the politicians must follow.
"So, getting back to Obama, you can only expect him to try and tinker with fiscal and monetary policy as the only levers he has. He, or his successor, may well be in denial as to how futile the efforts are likely to be. But, unfortunately, one of them is likely to find out--along with all the rest of y'all."
I sigh. "So you're going to be showing up regularly?"
"Oh, yes. So y'all just drink that beer and have a nice night." And she was gone as quickly as she appeared.
