If video won’t play go to https://www.youtube.com/watch?v=amRrz2jog_U

Richard Heinberg of the Post Carbon Institute visited New Zealand, where he has a large following, at the beginning of October. Two hundred fifty people attended his presentation at the Tauranga (pop 121,500) Environment Centre on October 1^st.

The main focus of Heinberg’s talk was his recent book, The End of Growth. In it he challenges the mythology surrounding economic growth – specifically assertions that growth is a longstanding and essential cornerstone of human economic activity that needs to continue indefinitely into the future.

His talk starts with some really interesting graphs revealing that global GDP (gross domestic output) was virtually static prior to 1871, when the harnessing of fossil fuels made the industrial revolution possible. Even then, global GDP increased at a minuscule pace until 1980, when it suddenly rocketed upward. Heinberg shows other graphs linking this sudden uptick with a spike in both world population and energy consumption.

He goes on to praise the Club of Rome’s controversial 1972 Limits to Growth, which he describes as the best selling environmental book of all times. The book makes predictions, confirmed by more recent studies, that world industrial and economic output will begin to decline during the first half of the 21^st century. Heinberg himself sees major economic disruption occurring before the end of the decade for three main reasons: energy scarcity, debt and an epidemic of extreme weather events (like the Midwest drought and now Hurricane Sandy).

He follows a lucid and compelling explanation of why high oil prices always suppress economic activity with data linking the high price per barrel with stagnant production (since 2005) in the face of increasing global demand.

However his discussion of the origins of the debt crisis, which he separates into household and government debt, is the most interesting part of the talk. It’s Heinberg’s belief that consumer credit was almost as important as cheap fossil fuels in enabling the 20^th century economic boom.

I highly recommend that people watch the entire video. Heinberg has a gift for presenting complex technical concepts in ordinary language, and has some excellent suggestions for how communities can prepare for the bumpy economic road ahead. Be sure to watch the question period, where he describes humankind’s 24 civilizations. All but the current one have collapsed, owing to depletion of water and topsoil. He stresses that the current rapid depletion of these resources is far more ominous than fossil fuel depletion.

If you go to the Tauranga Environment Centre page, there’s a PDF of the slides he presented.

IMF chief Christine Lagarde

(This is the second of three posts about the new female head of the IMF, which the business press is promoting as a “rock star of the economic world,” and how we are being deceived about the real cause of the debt crisis in Europe)

LaGarde isn’t without her critics. Former IMF chief economist Simon Johnson refers to her appointment as “the fox guarding the henhouse.” Johnson, like former World Bank economist Joseph Stiglitz, has been highly critical of the extreme concentration of financial power and it threat it poses to the global economy. This is the subject of Johnson’s recent book, Thirteen Bankers.

His criticism of Lagarde centers mainly around her proposal to solve the Eurozone crisis by issuing additional loans to the debt-ridden “peripheral” countries (Greece, Spain, Italy, Portugal and Belgium). He maintains all these countries are looking at a default scenario, no matter how much money she throws at them. He accuses her of allowing EU leaders to use the IMF to conceal from their voters major flaws in the Eurozone structure. As senior fellow at a Washington DC think tank (Peterson Institute for International Economics), he also complains about the unfairness of expecting US taxpayers to bail out the IMF for the sake of European politicians (and Greeks “who don’t like to pay taxes”). In Johnson’s view instead of spending other peoples’ money on struggling Eurozone economies, the EU leadership needs to make some a hard choice – either to integrate their fiscal systems in a way that allows fiscal transfers to poorer, less competitive countries or to create two tiers of Eurozone participation, in which only tier 1 members can borrow from the European Central Bank (see Fox in the Hen House and The Problem with Christine Lagarde).

Lagarde Gets the Cold Shoulder

Thus far Johnson’s arguments have resonated with most non-European IMF member countries. Despite Lagarde’s aggressive lobbying to add $500 billion to the IMF rescue fund at the recent G20 meeting in Mexico City, she came away empty handed. Most finance ministers agreed with the response U.S. Treasury Secretary Timothy Geithner gave her: the European Central Bank must make a much larger financial commitment before asking other G20 countries for money.

Fairy Tale Economics

The problem with mainstream media coverage, which continues to center around Lagarde and her “rock star” persona is that it’s a fairy tale – complete with a fairy princess – that never addresses the fundamental structural problems that caused the world economic collapse. The corporate media never tells the back story – that fossil fuel scarcity has effectively ended global economic growth, rendering our debt-based monetary system totally inoperable. Richard Heinberg convincingly makes the case that Peak Oil is responsible for the global economic collapse in his 2011 The End of Growth, as do Richard Douthwaite David Korowicz, Chris Vernon and Tom Konrad in Fleeing Vesuvius (see Will Peak Oil Spell the End of Capitalism?).

Instead the mainstream media promotes cruel myths about lazy Greek workers and a Greek middle class that refuses to pay taxes, obscuring the reality that much of the Greek debt is likely “odious; and fraudulently incurred.

To be continued.

Richard Heinberg

Book Review (Part 2 of 2)

The End of Growth: Adapting to Our New Economic Reality

by Richard Heinberg

(New Society Publishers Aug 2011)

***

Heinberg’s analysis of the 2008 economic collapse starts with an introduction to classical economic theory, as outlined by Adam Smith, Ricardo, Malthus and Marx. He goes on to describe the “financialization” of the US economy that occurred in the 1980s, the various financial derivatives investment banks and brokers devised to entice investors, and the financial deregulation that led to a decade of worsening “debt” bubbles. Beginning with the dot com boom in 2000 (quickly followed by the real estate boom and the subprime/derivative boom), large amounts borrowed money was speculated on supposed growth industries, which plunged the entire economy into recession when they collapsed.

Heinberg talks in detail about the TARP bailouts and the secret $12.5 bailouts Bernie Saunders exposed in December 2010. He stresses that they have merely postponed total economic collapse. They are incapable of restoring economic expansion to pre-2007 levels.

The End of Growth in China

He then presents a painstaking analysis of why the China’s current phenomenal growth rate (7-8% per year) and somewhat slower growth rates in India, Thailand, Malaysia and Vietnam also represent “bubbles” that will eventually pop and cause severe recession. As well as outlining the absolute limits resource scarcity will impose on Chinese growth, he argues that China is pursuing the same economic strategies that caused the Japanese economic miracle to collapse in the 1990s – resulting in a two decade long recession.

Chinese economic growth is entirely dependent on cheap coal and electricity, and Heinberg lays out strong evidence that world coal production peaked earlier this year. This means coal will soon undergo the same steep rise in prices that oil did after oil production peaked in 2005-2006. He also shows how the current Chinese growth spurt is driven by same economic policies – an export driven economy where Chinese consumers must sacrifice and save to protect export industries – that drove Japan’s post-war growth. The outcome of such policies is to crush consumer demand. This, in turn, results in rapid economic contraction when global demand for exports drops.

Heinberg concludes by describing China’s current real estate bubble (which translates into hundreds of empty malls, factories and cities), which was created by two factors 1) a stimulus package the government enacted when the 2008 global collapse triggered a drop in Chinese exports 2) a clear preference the Chinese middle class shows for real estate investments, owing to a notoriously unreliable (and unregulated) share market.

As China is one of New Zealand’s trading partners, we’re already seeing evidence that the Chinese growth rate has peaked and is beginning to decline. There has been a significant drop in Chinese demand for our dairy and lamb exports – dairy exports and prices have declined by 10% and lamb by 20%.

Life in a Steady State Economy

Obviously the end of economic growth and continuing loss of wealth and jobs means that people in most industrialized countries will be forced to massively downsize their lifestyles. However, as Heinberg emphasizes, there are a number of ways government can intervene to make this transition less painful. He gives examples of countries (Japan, Sweden, Denmark, Japan, Norway) who openly acknowledge that they have Steady State economies and enact policies to ensure the welfare of their people as they adjust to new economic realities. Sweden, for example, has transformed depressed industrial towns into “ecomunicpalities,” by “dematerializing” their economies. They have made them into fossil fuel-free towns with organic farming, public transportation and alternative energy projects – while simultaneously fostering social equity.

Although Finland and Germany had modest GDP increases last year, they are adopting similar measures to protect their citizenry as global economic wealth continues to decline. In addition to preserving scarce natural resources and reducing carbon emissions, these measures also address the serious income inequality that is so harmful to the social well being of communities. They include, among others:

• Requiring corporations to pay fairer prices on mining and fossil fuel extraction
• Taxing resource depletion, pollution, speculation and financial transactions instead of income
• Legislating limits on income inequality
• Government subsidies to help sustainable businesses become competitive with non-sustainable ones
• Pigovian taxes on corporations equal to the negative, externalized costs they impose on society.
• Defining property rights in a way that guarantee citizens rights to clean air and water
• Breaking up investment banks, and eliminating of debt-based lending (to government, businesses and individuals) through the creation of national and state banks
• Government support for cooperatives and local currencies
• Downgrading the World Bank and IMF to clearing houses
• Corporate law reform
• Replacement of GDP with the Gross National Happiness Index
• Publicly subsidized health care

Book Review (Part 1 of 2 parts)

The End of Growth: Adapting to Our New Economic Reality

by Richard Heinberg

(New Society Publishers Aug 2011)

The basic premise of The End of Growth is that the world economy has flat-lined. Not only is it contracting, rather than expanding as many politicians claim, but there are important reasons why it will never return to the pre-2007 growth rates that characterized the last century.

Now that #OccupyWallStreet has seized control of the narrative around the banks that control the US government, the End of Growth will likely be the most important book of 2011. As well as making an ironclad case that the era of perpetual economic expansion has ended – that the US, like most western nations, has become a Steady State economy – Heinberg also gives examples of far-sighted governments (Japan, Sweden, Denmark, Norway and Finland) who have enacted policies to ensure the welfare of their citizenry as they confront the massive downsizing required by this new economic reality. Beyond organizing to end to corporate rule, #OccupyWallStreet also needs to pressure the US and other western governments to abandon the pretense and enact similar measures.

Heinberg and others in the Peak Oil/climate change movement have always argued that infinite economic expansion is mathematically impossible, given that we live on a planet with finite natural resources. They point to the massive ecological devastation caused by this reckless obsession with economic growth and warn that we are depriving our children and grandchildren of natural resources (fossil fuels, water, industrial fertilizers, fish stocks, top soil) that are essential for basic survival.

Why Capitalism Hit the Wall in 2008

In Heinberg’s previous work on resource scarcity, he envisions a timeline of a decade or more before the scarcity and prohibitive cost of natural resources (oil, coal, water, etc.) cause the capitalist economic system to hit the wall. In The End of Growth, he argues that it has already happened – when global economic expansion ended in October 2008. His data shows that while a few countries can claim an occasional quarter of increased GDP, aggregate global economic growth is either stagnant or slowly contracting. Even China’s so-called economic “miracle” hasn’t been sufficient to generate a genuine increase in total global wealth.

Heinberg’s new book is unique is that it combines his extensive research into resource depletion with an analysis of our flawed fractional reserve banking system. He is also the first, to my knowledge, to factor in the immense cost of the growing epidemic of natural disasters. Most (the floods, droughts, wildfires, landslides, etc.) relate to climate change. However some, like last year’s Gulf oil spill, relate to the depletion of global oil and gas resources and the adoption of riskier methods of fossil fuel extraction.

In addition to quoting a number of highly placed financial business experts, like Microsoft CEO Steve Bollmar, who agree that global economic expansion has permanently ended, Heinberg also presents a wealth of statistical data. This includes graphs from John Williams of www.shadowstats.com, who argues that the US government is misrepresenting the true Gross Domestic Product (GDP), just like they misrepresent the true unemployment rate – which is really 16-18%. According to Williams, after government figures are adjusted for inflation and methodological reporting changes, 2010 GDP actually decreased by 1%.

The Ultimate Ponzi Scheme

Even a look at conventional World Bank and IMF data leaves the clear sense that the American public is being systemically lied to. Although we are told that total global wealth has nearly returned to its 2007 high of $63 trillion, this figure doesn’t take account of the $40 trillion owed by the US and other governments nor the $60 trillion of debt owed by banks, businesses and households. Even if global GDP does increase by 3% per year (which, as Heinberg clearly shows, it won’t), 3% of $63 trillion barely covers interest payments on a $100 trillion debt, much less paying down the original loans.

Yet as Heinberg points out, none of these numbers represent true wealth. Under the fractional reserve lending system, this debt has been invented out of thin air by banks to generate interest payments. As he points out, it’s the ultimate Ponzi pyramid scheme. It only works so long as suckers keep putting money into it. In a global monetary system where money is created through bank loans, there is never enough money in the system to pay back all the debts with interest. This type of system can only continue to function so long as there is continued growth. It’s precisely because economic expansion has stopped, Heinberg argues, that the world confronts its current massive debt crisis.

To be continued, with a discussion of what’s really happening in China.