Dec 2 2012

It’s the economy, stupid! Is it about to crash?

Kal @ 19:35

In this post Our Collapsing Economy and Currency we learn:

Is the “fiscal cliff” real or just another hoax? The answer is that the fiscal cliff is real, but it is a result, not a cause. The hoax is the way the fiscal cliff is being used.

And a bit later:

The US economy has two serious diseases, and neither one is too much welfare spending.

One disease is the offshoring of US middle class jobs, both manufacturing jobs and professional service jobs such as engineering, research, design, and information technology, jobs that formerly were filled by US university graduates, but which today are sent abroad or are filled by foreigners brought in on H-1B work visas at two-thirds of the salary.

The other disease is the deregulation, especially the financial deregulation, that caused the ongoing financial crisis and created banks too big to fail, which has prevented capitalism from working and closing down insolvent corporations.

And finally:

The Republicans are determined to continue the gratuitous wars and to make the 99 percent pay for the neoconservatives’ Wars of Hegemony while protecting the 1 percent from tax increases.

The Democrats are little different.

No one in the White House and no more than one dozen members of the 535 member US Congress represents the American people. This is the reason that despite obvious remedies nothing can be done. America is going to crash big time.

Tags:

Category: Accounting | Conventional Economics | Economics | Recession

Nov 6 2012

Its later than you think!

Kal @ 17:38

From Climate Progress:

A new report by PricewaterhouseCoopers finds humanity has its foot on the accelerator as we head toward a cliff. The only hope is very rapid deployment of  carbon-free technology starting ASAP.

If Romney wins we appear to be done for. If Obama wins the chances are somewhat better, but I would not go so far as to call them good.

Tags:

Category: Accounting | Climate Change | Sustainability

Oct 10 2012

Is man-made capital a substitute for nature’s capital?

Kal @ 19:15

Paul Craig Roberts was Assistant Secretary of the Treasury under Reagan and was one of the main proponents of his supply-side economics. I thought those policies were totally ridiculous at the time and paid him very little mind. For the past couple of weeks I have been reading his blog, PaulCraigRoberts.org. He has strong opinions and he knows a lot about economics. At least some of what he says is spot on. On Friday, 5 May he published the text of an interview by World Affairs Monthly. He talks about the evil of offshoring jobs and suggests something that could be done to alleviate it. Good stuff.

He then goes on to talk about the limits of growth, a topic rarely discussed by mainstream economists.

A more fundamental problem than economists’ ingrained misconceptions about jobs offshoring and free trade is the Solow-Stiglitz production function that is the basis of modern economics. The Solow-Stiglitz production function assumes that man-made capital is a perfect substitute for nature’s capital. This assumption means that there are no ecological limits to economic growth. When we run out of natural capital, man-made capital simply takes its place.

As Nicholas Georgescu-Roegen demonstrates conclusively, this assumption, which is the basis of modern economics, is “a conjuring trick.” Man-made capital and natural capital are complements, not substitutes. Production transforms resources into useful products and into waste products. Natural resources are what are transformed, and labor and man-made capital are agents of transformation.

What is happening in today’s world is that nature’s capital is being exhausted, both the resources and the waste sinks–the places that the waste products from production can be deposited. The air, soil, water, and oceans themselves are being polluted by the waste products of economic activities. As these “external costs” from pollution are not included in costs of producing GDP, economists have no way of knowing if an increase in GDP is worth more than its cost….

There is a lot more food for thought in the interview. Give it a read.

Tags:

Category: Accounting | Conventional Economics | Economics | Employment | Politics | Steady-State Economics

Oct 4 2010

Physics Trumps Money

Kal @ 10:31

George Mobus  writing in Question Everything - When what is happening in your world doesn't make sense, when it doesn't conform to your beliefs about how things should work, it's time to ask hard questions.

Work, Exergy, the Economy, Money, and Wealth -- A Sort-Of Tutorial

This is something of a tutorial on the relationship between energy and the economy. I have been dismayed by how often people express their lack of knowledge about that relationship. Such expressions come in the form of beliefs that money is what drives the economy. Or the belief that human desire to accumulate monetary wealth is the motive force for economic growth. Indeed I doubt that most people ever think of physics when they think of the economy. But the reality is that the economy is very much a physical process that requires energy to continue operating. All of the money in the world will not suffice to maintain the motivation of the wheels of industry unless it can be used to exchange for energy flow. Here is a guide to how the real wealth of nations is created and a more concise look at the nature of energy flow needed to do so.

More...

Tags:

Category: Accounting | Conventional Economics | Economics | Resource Depletion | Steady-State Economics | Sustainability

Oct 24 2009

Mules and cows - barnyard humor for the new century

Kal @ 20:48

This e-mail reminded me of a post I did back in February: The Cow Theory of Economics and Accounting.

This e-mail is really pretty clever, even if the point is to take another pot shot at government.  And I believe I saw it before, but do not recall where.

Mule - Check this out.
clip_image001
Hughie & Teddy

Hughie and Teddy saw an ad in the Starkville Daily News Newspaper in Starkville, MS. and bought a mule for $100.

The farmer agreed to deliver the mule the next day.

The next morning the farmer drove up and said, "Sorry, fellows, I have some bad news, the mule died last night."

Hughie and Teddy replied, "Well, then just give us our money back."

The farmer said, "Can't do that. I went and spent it already."

They said, "OK then, just bring us the dead mule."

The farmer asked, "What in the world ya'll gonna do with a dead mule?"

Hughie said, "We gonna raffle him off."

The farmer said, "You can't raffle off a dead mule!"

Teddy said, "We shore can!  Heck, we don't hafta tell nobody he's dead!"

A couple of weeks later, the farmer ran into Hughie & Teddy at the Piggly Wiggly  grocery store and asked: What'd you fellers ever do with that dead mule?"

They said,"We raffled him off like we said we wuz gonna do."

Leroy said,"Shucks, we sold 500 tickets fer two dollars apiece and made a profit of $898."

The farmer said,"My Lord, didn't anyone complain?"

Curtis said, "Well, the feller who won got upset. So we gave him his two dollars back."

Hughie and Teddy now work for the government. They're overseeing the Bailout Program. clip_image002

Tags:

Category: Accounting | Conventional Economics | Politics | wingnuttery

Jun 5 2009

From a Failed Growth Economy to a Steady-State Economy

Kal @ 10:15

Excerpted from a post on The Oil Drum.

A steady-state economy is incompatible with continuous growth—either positive or negative growth. The goal of a steady state is to sustain a constant, sufficient stock of real wealth and people for a long time. A downward spiral of negative growth, a depression such as we are entering now, is a failed growth economy, not a steady-state economy. Halting an accelerating downward spiral is necessary, but is not the same thing as resuming continuous positive growth. The growth economy now fails in two ways: (1) positive growth becomes uneconomic in our full-world economy; (2) negative growth, resulting from the bursting of financial bubbles inflated beyond physical limits, though temporarily necessary, soon becomes self-destructive. That leaves a non-growing or steady-state economy as the only long run alternative. The level of physical wealth that the biosphere can sustain in a steady state may well be below the present level. The fact that recent efforts at growth have resulted mainly in bubbles suggests that this is so. Nevertheless, current policies all aim for the full re-establishment of the growth economy. No one denies that our problems would be easier to solve if we were richer. The question is, does growth any longer make us richer, or is it now making us poorer?

I will spend a few more minutes cursing the darkness of growth, but will then try to light ten little candles along the path to a steady state. Some advise me to forget the darkness and focus on the policy candles. But I find that without a dark background the light of my little candles is not visible in the false dawn projected by the economists, whose campaigning optimism never gives hope a chance to emerge from the shadows.

We have many problems (poverty, unemployment, environmental destruction, budget deficit, trade deficit, bailouts, bankruptcy, foreclosures, etc.), but apparently only one solution: economic growth, or as the pundits now like to say, “to grow the economy”-- as if it were a potted plant with healing leaves, like aloe vera or marijuana.

But let us stop right there and ask two questions that all students should put to their economics professors.

First, there is a deep theorem in mathematics that says when something grows it gets bigger! So, when the economy grows it too gets bigger. How big can the economy be, Professor? How big is it now? How big should it be? Have economists ever considered these questions? And most pointedly, what makes them think that growth (i.e., physical expansion of the economic subsystem into the finite containing biosphere), is not already increasing environmental and social costs faster than production benefits, thereby becoming uneconomic growth, making us poorer, not richer? After all, real GDP, the measure of “economic” growth so-called, does not separate costs from benefits, but conflates them as “economic” activity. How would we know when growth became uneconomic? Remedial and defensive activity becomes ever greater as we grow from an “empty-world” to a “full-world” economy, characterized by congestion, interference, displacement, depletion and pollution. The defensive expenditures induced by these negatives are all added to GDP, not subtracted. Be prepared, students, for some hand waving, throat clearing, and subject changing. But don’t be bluffed.

Second question; do you then, Professor, see growth as a continuing process, desirable in itself-- or as a temporary process required to reach a sufficient level of wealth which would thereafter be maintained more or less in a steady state? At least 99% of modern neoclassical economists hold the growth forever view. We have to go back to John Stuart Mill and the earlier Classical Economists to find serious treatment of the idea of a non-growing economy, the Stationary State. What makes modern economists so sure that the Classical Economists were wrong? Just dropping history of economic thought from the curriculum is not a refutation!

It is well worth reading the full post.

Tags:

Category: Accounting | Politics | Population | Resource Depletion | Steady-State Economics | Sustainability

Mar 13 2009

Dead Banks Walking

Kal @ 20:31

Once again I turn to the straight talking folks at The Institutional Risk Analyst, Stress Test Zombies: Not Too Big Too Fail? Tough Tootsies Little Banks!

Apparently, banks that fail the Supervisory Capital Assessment Program stress test will not be broken up as required by law, but instead given more capital at taxpayer expense.

...

If you include the subsidy required for the GSEs and AIG, the US Treasury could face a collective funding requirement of $4 trillion through the cycle. Do Ben Bernanke and Tim Geithner really believe that they can sell such a program to the Congress? To put it in perspective, the $250 billion in the Obama Budget for additional TARP funds will not quite cover Citigroup (NYSE:C).

...

The way you end the need for public subsidy is by resolving these firms via a restructuring and forcing the bond and equity holders of the bank's public parent company to absorb the cost of marking assets to market. If we establish a hard rule regarding solvency and break up rather than recapitalize zombie firms, then we have started to apply a real solution.

...

Fact is, the Sell Side dealers have leveraged the real economy via OTC derivatives to such a degree that bailing out toxic waste sites like AIG, several large Euroland banks and the world of structured finance could cost trillions of dollars. That is the true cost of the crisis. The only issue is whether we recognize it directly, via a public resolution, or hide the costs via public subsidies and future inflation.

Tags:

Category: Accounting | Conventional Economics | Economics | Politics

Mar 8 2009

Where Taxpayer Dollars Go To Die

Kal @ 19:23

A.I.G., Where Taxpayers’ Dollars Go to Die By GRETCHEN MORGENSON Published: March 7, 2009  - A nice discussion of  why A.I.G. has been so expensive and some thoughts on just how dangerous derivatives (CDS, Credit Default Swaps) are, both to the issuer and to us as the guarantors of last resort.

“DERIVATIVES are dangerous.”

That simple sentence, written by Warren Buffett, begins an enlightening discussion in Berkshire Hathaway’s most recent annual report. Mr. Buffett’s views on derivatives, gleaned from his own unhappy encounters with them, should be required reading for all United States taxpayers.

Why? Because we own almost 80 percent of the American International Group, the giant insurer whose collapse was a direct result of derivatives it sold during the late, great credit boom.

A.I.G. nearly barreled off the cliff last September, when it couldn’t meet its obligations to customers who had bought a version of derivatives called credit default swaps. Such swaps are like insurance policies; bondholders buy them to protect themselves from default on various forms of debt.

More...

Tags: , ,

Category: Accounting | Conventional Economics | Economics | Politics

Feb 27 2009

The Cow Theory of Economics and Accounting

Kal @ 14:00

John Carney at The Business Insider Clusterstock, gets a lot of mileage out of cows. On 5 February:

AIG Implodes: The Two Cows Version

"Still confused about how AIG lost its shirt by going into the securities lending business big time? We understand. It's terribly complex and full of words that make your eyes glaze over."

So we decided to break it down into the simplest terms Wall Street transactions can be explained: the two cows story.

You have two cows.

John Paulson borrows one cow so he can sell it for $100. He gives you $10 as collateral.

You buy your neighbors cow for $100, which you finance by taking out a $90 loan from the bank and use John's $10 to make up the rest.

You brag to everyone about your financial health. You have assets--two cows you own, plus one Paulson owes you--worth $300, and liabilities of just $100.

A third of the country goes vegetarian.

You thought your two cows were worth $200 and now they are worth $140.

You express confidence in your financial health. Your assets are now worth only $200--your two cows plus the one John owes you--but your liabilities are still only $100. If necessary, you could sell the assets at this distressed price and pay off all your loans.

You hold onto your cows because you are sure the market is "dislocated." Some day someone will want to eat beef again.

The rest of the country goes vegetarian. Your two cows are now worth $2 each to guys who want to make dog food.

John Paulson buys a cow in the market for $2 and he gives it to you as repayment of the loan. You now have three cows worth six bucks.

John wants his $10 back.

The bank calls. It wants its $90 back.

You call the Federal Reserve and ask for a bailout.

More...

Tags:

Category: Accounting | Conventional Economics | Economics

Feb 17 2009

Finally, Economists Who Know The Earth Is Not Flat

Kal @ 01:15

A story about a new kind of economics based on physical reality. The article that I saw on this is on Greenpeace International's website.

In the future, economists will return to Earth

The year 2009 will witness a tsunami of economic appeals to fix, as disgraced Federal Reserve Chairman Alan Greenspan put it, the 'flaw' in their thinking. Most will get it wrong.

The proposals for bailouts, regulations, and government spending sprees all share one tragic flaw: They assume no physical or biological limits to human growth. Most economists cling to an 18th century mechanical universe that conjured an 'invisible hand' of God, which would allegedly convert private greed into public utopia.

Indeed, a few got rich but the meek inherit an Earth featuring child slavery, sweatshops, a billion starving people, toxic garbage heaps, dead rivers, exhausted aquifers, disappearing forests, depleted energy stores, lopped-off mountain tops, acid seas, melting glaciers, and an atmosphere heating up like a flambé.

Meanwhile, a rigorous sub-culture of scientists and economists have been working to free economics from its eighteenth century quagmire by reconciling human enterprise with the laws of physics, biology, and ecology.

Their time has come. This year, 2009, will signal the birth of a genuinely innovative economics that will eventually displace the patchwork rationalisations for greed. The new ecological accounting is variously called 'dynamic equilibrium', 'steady-state' or 'biophysical' economics. 

What about technology?

Ignoring nature remains the tragic conceit of conventional economists, who presume we can grow our economies forever without regard to quantities of materials, energy, and pollution. Biophysical economics, on the other hand, acknowledges that there exist no cases in nature of unlimited growth.

Dr. Albert Bartlett, Emeritus Professor of Physics at Colorado University, urges economists to learn the laws of nature. Non-material values - creativity, dreams, love - may expand without limit, but materials and energy in the real world remain subject to the requirements of thermodynamics and biology. "Growth in population or rates of consumption cannot be sustained. Smart growth is better than dumb growth," says Bartlett, "but both destroy the environment."

What about technology? Some economists imagine that computer chips or nanotechnology will save us from the laws of nature, but every technical efficiency in history has resulted in more consumption of energy and resources, not less. Remember when computers were going to save paper? That never happened. Computers increased paper consumption from about 50 million tonnes annually in 1950 to 250 million tonnes today. Meanwhile, we lost 600 million hectares of forest.

Nor is the internet a celestial realm where ideas are exchanged for 'free'. Computers require copper, silicon, oil, toxic chemicals, massive energy for server networks, and garbage heaps for techno-trash. In every industrialised nation, energy and material consumption is increasing, not decreasing. Technology is not energy. It costs energy.

.......

In the 1970s, World Bank economist Herman Daly wrote Steady-State Economics to outline the future of ecological economics. Daly makes a distinction between 'sustainable growth', which is 'impossible', and 'sustainable development', which is natural. "The larger system is the biosphere and the subsystem is the human economy," says Daly. "We can develop qualitatively, but we cannot grow beyond the biosphere's limits."

.......

"We are dying of consumption," says Peter Dauvergne, sustainability advisor at UBC and author of The Shadows of Consumption. "The unequal globalisation of the costs of consumption is putting ecosystems and billions of people at risk."

To honestly achieve a "sustainable" economy, humanity must step through a paradigm shift, as profound as the transition in the sixteenth century when Copernicus showed that the Earth is not the centre of the universe. Likewise, ecology teaches us that humanity is not the centre of life on the planet. Just as the Pope's henchmen refused to look through Galileo's telescope, some economists avoid looking out the window to see what keeps humanity alive: photosynthesis, precious materials, and concentrated energy.

"Sooner or later," as ecologist David Abram puts it, "technological civilisation must accept the invitation of gravity and settle back … into the rhythms of a more-than-human Earth."

In the 21st century, human enterprise has reached the scale of the planet. We have to account for ourselves on nature's balance sheet. This is biophysical economics. It appears inevitable. Biophysical culture is what we will make of it.

[emphasis mine]

Tags:

Category: Climate Change | Economics | Politics | Resource Depletion | Accounting