The evidence for a long-term economic decline

This blogger thinks the economy is into a long-term down trend. It could be that not everyone sees this; it may depend upon the color of hat you wear. If you are retired with a good defined benefit pension it may be more difficult to see a down trend than if you are a young person trying to find an unskilled job that pays enough to cover rent, food, entertainment and a little saving to get married and buy a house.

Some of the evidence relates to the resource base. There are lots of energy and mineral resources left on the planet. The problem is that we have used up the easiest accessible resources and what is left is difficult to extract and will take so much energy they are useless. Another type of evidence is geographic and long-term in nature. This includes famine, epidemic, uncontrolled migration, state failure and climate change.

dog-3277416_1920One of the difficulties is that we are used to seeing the economy as a straight line going up. Economics students learn about regression analysis which takes a number of data points and calculates the best straight line that indicates their direction. Using the slope of this line one can project the trend into the future. It is assumed the trend is up.

Another approach about which I did not learn until after I had completed my formal study of economics is fractal analysis. Fractals are lines that go up and down with a series of ups an downs within each. Like a seashore. Fractal analysis tries to identify major turning points in the ups and downs. The mathematics is not well-known. It involves the concept of fractal dimension which can be calculated by the formula two minus the Hurst exponent. If economists used this approach it would be much easier to accept the possibility our economy is going into a long-term down trend and their forecasts would be more accurate but not always what most people want to hear.

What then is the evidence for the long-term future?

In economic theory changes in prices are signals to producers to increase or decrease production. Increasing prices also indicate a shortage of a good and we have been experiencing a lot high prices for some basic goods. It may be that we need more information about prices relative to each other. Maybe our economic data collection has been to support our views on economic growth and is not sufficient to give us a clear picture of relative prices.

In recent discussions about energy a lot has been said about peak oil and solar. Maybe we do not have to worry about oil shortages because the cost of solar has been coming down and will soon be able to replace oil. This may well happen and it may have an interesting effect on economic decision-making. We as individuals will be able to make the basic decisions about solar use in place of bankers who now decide what oil projects go ahead and who gets to do them. The down side of this is that if a lot of oil infrastructure becomes obsolete and has to be written off a lot of the money supply will disappear and the lack of money will cause a lot of suffering to a lot of people.

In spite of all the talk about a service economy we still need lots of minerals for food, shelter and transportation. High prices indicate we have used up the most easily available mineral resources. The future may depend upon recycling and here the picture is cloudy. Recycling takes a lot of energy and the high cost may force us to reduce our use of minerals. Water is another issue. There are parts of the world where water shortages are becoming a serious problem.

Another indication of a declining economy is the trend to tiny houses, shared accommodation, young people continuing to live with their parents and even homelessness. It used to be that non-union working people could expect to live in a detached house with a front and back garden.

Most of the evidence for a down economy identified in the first part of this post has to do with the availability of energy and mineral resources. There are also some long-term geographic trends which could also cause mankind some serious problems.

The guideline here comes from a book by historian Ian Morris called Why the West Rules – For Now: The Patterns of History, and What They Reveal About the Future.

Morris’s book is a good summary of the long-term history of the world. Using evidence from a number of disciplines he shows how geography has influenced the rise and decline of civilizations. His perspective is much longer than most of us are familiar with.

He identifies what he calls the five horsemen of the apocalypse – famine, epidemic, uncontrolled migration, state failure and climate change and shows how these have combined to produce disastrous, centuries-long collapses and dark ages. Are we exempt from the consequences of these problems?

We are already familiar with these trends. The question is are they strong enough to cause us problems or are they gaining strength?  For me, a retired person living in Canada, they are mostly academic but for many people around the world they are very real and very serious.

Some people argue this planet is capable of providing enough food for the current population, especially if we reduce waste. Even so the situation is rather precarious and we should be paying a lot more attention to what is happening in agriculture. Monoculture, factory farming of animals and the use of pesticides could easily threaten our food supply.

The threat of epidemics is always with us and the more people are crowded onto this planet, the greater is the threat. We are lucky public health practitioners have been able to quickly control recent outbreaks.

Migration has been a big problem for Asia, Africa and Europe. It is also an enough of an issue for some Americans to want to build a fence and take children from their parents.

Climate change was a major issue until we realized how many plastic straws we are using. Stopping the use of plastic straws will be a lot easier than dealing with climate change but will not stop the changes from taking place. At least people will be doing something.

This blogger has found the concept of state failure difficult, fascinating and intriguing. It is a complex issue because justice is one of the most important functions of government. At the same time many people demand of government legislation that is exploitive because it restricts competition. This is a conflict of government responsibilities in which the exploiters tend to win. The balance between the two is by degrees and changes through time.

You will notice I said justice rather than law and order. I believe one of the indicators of state failure is that so many people, including The Economist and the Supreme Court of Canada, talk of law and order rather than justice. Law and order is easier to define and enforce. If some government were to pass legislation saying police are required to kill a thousand people at random each year, would we still be supporting law and order. The president of the United States has been quoted as encouraging police brutality and to me this sounds like encouraging them to kill at random. Maybe Trump is an indicator of American state failure.

There are lots of laws that are not just. Anything that tries to force the values, morals or religion of one group on everyone has to be unjust. There are lots of laws that are not written but which are enforced ruthlessly by the public, the media and the courts. For example, men are evil and any expression of male sexuality should be punished. Fathers are expected to walk away from their children without emotions. Men should not be emotional under any circumstances.

Governments like to reward their supporters and to purchase votes and/or support. It is easy to get governments to pass exploitive economic legislation and to get them to provide handouts to protect people from natural disasters and their own stupidity. A lot of government is supporting and encouraging special interests, often at the expense of everyone. Some people want minimum government but want their own interests protected,

As the economy goes more and more into decline it will be more and more difficult to provide handouts and this will be seen as state breakdown. Governments around the world are facing riots as fuel and food subsidies become difficult to maintain.

This conflict between justice and the exploitive demands of special interest may be pushing all governments into a state of failure.

In this post we have looked at a number of resource based and geographic indicators that the economy is on a down trend.

Here are some other indicators:

Unemployment

High public debt

The rise of radical left and radical right political movements

High interest rates

Non-performing loads held by banks

Falling standards of living – however one defines them

Expensive education

High crime rates

Crowded public transportation

Homeless people

People are losing confidence in their banks

Business people are will to exploit their customers for the sake of profit

Every time I read a news report at least one item supports the idea that the whole world is going into a long-term down trend. There are loads of problems with the resource base and if we go short we will not be able to sustain the standard of living to which we have become accustomed.

There are always positives and negatives. In terms of economic growth the negatives appear overwhelming. This guy has read about hunters and gatherers and believes it is possible for people to arrange their production of goods and services for long-term sustainability. It will require a major rethink of values. It will be a challenge.

 

 

 

 

This blogger thinks the economy is into a long-term down trend. It could be that not everyone sees this; it may depend upon the color of hat you wear. If you are retired with a good defined benefit pension it may be more difficult to see a downtrend than if you are a young person trying to find an unskilled job that pays enough to cover rent, food, entertainment and a little saving to get married and buy a house.

Some of the evidence relates to the resource base. There are lots of energy and mineral resources left on the planet. The problem is that we have used up the easiest accessible resources and what is left is difficult to extract and will take so much energy they are useless. Another type of evidence is geographic and long-term in nature. This includes famine, epidemic, uncontrolled migration, state failure and climate change.

One of the difficulties is that we are used to seeing the economy as a straight line going up. Economics students learn about regression analysis which takes a number of data points and calculates the best straight line that indicates their direction. Using the slope of this line one can project the trend into the future. It is assumed the trend is up.

Another approach about which I did not learn until after I had completed my formal study of economics is fractal analysis. Fractals are lines that go up and down with a series of ups an downs within each. Like a seashore. Fractal analysis tries to identify major turning points in the ups and downs. The mathematics is not well-known. It involves the concept of fractal dimension which can be calculated by the formula two minus the Hurst exponent. If economists used this approach it would be much easier to accept the possibility our economy is going into a long-term down trend and their forecasts would be more accurate but not always what most people want to hear.

What then is the evidence for the long-term future?

In economic theory changes in prices are signals to producers to increase or decrease production. Increasing prices also indicate a shortage of a good and we have been experieincing a lot high prices for some basic goods. It may be that we need more informtation about prices relative to each other. Maybe our economimc data colllection has been to support our views on economic growth and is not sufficient to giive us a clear picture of relative prices.

In recent discussions about energy a lot has been said about peak oil and solar. Maybe we do not have to worry about oil shortages because the cost of solar has been coming down and will soon be able to replace oil. This may well happen and it may have an interesting effect on economic decision making. We as indiivuduals will be able to make the basic decisons about solar use in place of bankers who now decide what oil projects go ahead and who gets to do them. The down side of this is that if a lot of oil infrastructure becomes obsolete and has to be written off a lot of the money supply will disappear and the lack of money will cause a lot of suffering to a lot of people.

In spite of all the talk about a service economy we still need lots of minerals for food, shelter and transporttation. High prices indicate we have used up the most easily available mineral resources. The future may depend upon recycling and here the picture is cloudy. Recycling takes a lot of energy and the high cost may force us to reduce our use of minerals. Water is another issu. There are parts of the world where water shortages are becoming a serious problem.

Another indication of a decling economy is the trend to tiny houses, shared accommodation, young people continuing to live with their parents and even homelessness. It used to be that non-union working people could expect to live in a detached house with a front and back garden.

Most of the evidence for a down economy identified in the first part of this post has to do with the availability of energy and mineral resources. There are also some long-term geographic trends which could also cause mankind some serious problems.

The guideline here comes from a book by historian Ian Morris called Why the West Rules – For Now: The Patterns of History, and What They Reveal About the Future.

Morris’s book is a good summary of the long-term history of the world. Using evidence from a number of disciplines he shows how geography has influenced the rise and decline of civilizations. His perspective is much longer than most of us are familiar with.

He identifies what he calls the five horsemen of the apocalypse – famine, epidemic, uncontrolled migration, state failure and climate change and shows how these have combined to produce disastrous, centuries-long collapses and dark ages. Are we exempt from the consequences of these problems?

We are already familiar with these trends. The question is are they strong enough to cause us problems or are they gaining strenth? For me, a retired person living in Canada, they are mostly academic but for many people around the world they are very real and very serious.

Some people argue this planet is capable of providing enough food for the current population, especially if we reduce waste. Even so the situation is rather precarious and we should be paying a lot more attention to what is happening in agriculture. Monoculture, factory farming of animals and the use of pesticides could easily threaten our food supply.

The threat of epidemics is always with us and the more people are crowded onto this planet, the greater is the threat. We are lucky public health practitioners have been able to quickly control recent outbreaks.

Migration has been a big problem for Asia, Africa and Europe. It is also an enough of an issue for some Americans to want to build a fence and take children from their parents.

Climate change was a major issue until we realized how many plastic straws we are using. Stopping the use of plastic straws will be a lot easier than dealing with climate change but will not stop the changes from taking place. At least people will be doing something.

This blogger has found the concept of state failure difficult, fascinating and intriguing. It is a complex issue because justice is one of the most important functions of government. At the same time many people demand of government legislation that is exploitive because it restricts competition. This is a conflict of governement responsibilities in which the exploiters tend to win. The balance between the two is by degrees and changes through time.

You will notice I said justice rather than law and order. I believe one of the indicators of state failure is that so many people, including The Economist and the Supreme Court of Canada, talk of law and order rather than justice. Law and order is easier to define and enforce. If some government were to pass legislation saying police are required to kill a thousand people at random each year, would we still be supporting law and order. The president of the United States has been quoted as encouraging police brutality and to me this sounds like encouraging them to kill at random. Maybe Trump is an indicator of American state failure.

There are lots of laws that are not just. Anything that tries to force the values, morals or religion of one group on everyone has to be unjust. There are lots of laws that are not written but which are enforced ruthlessly by the public, the media and the courts. For example, men are evil and any expression of male sexuality should be punished. Fathers are expected to walk away from their children without emotions. Men should not be emotional under any circumstances.

Governments like to reward their supporers and to purchase votes and/or support. It is easy to get govenrments to pass exploitive economic legislation and to get them to provide handouts to protect people from natural disasters and their own stupidity. A lot of government is supporting and encouraging special interests, often at the expense of everyone. Some people want minimum government but want their own interests protected,

As the economy goes more and more into decline it will be more and more difficult to provide handouts and this will be seen as state breakdown. Governments around the world are facing riots as fuel and food subidies become dificult to maintain.

This conflict between justice and the exploitive demands of special interest may pushing all governments into a state of failure.

In this post we have looked at a number of resource based and geographic indicators that the economy is on a down trend.

Here are some other indicators:

Unemployment

High public debt

The rise of radical left and radical right political movements

High interest rates

Non-performing loands held by banks

Falling standars of living – however one defines them

Expensive education

High crime rates

Crowded public transportation

Homeless people

People are losing confidence in their banks

Business people are will to exploit their customers for the sake of profit

Everytime I read a news report at least one item supports the idea that the whole world is going into a long-term down trend. There are loads of problems with the resource base and if we go short we will not be able to sustain the standard of living to which we have become accustomed.

There are always positives and negatives. In terms of economic growth the negatives appear overwhelming. This guy has read about hunters and gatherers and believes it is possible for people to arrange their production of goods and services for long-term sustainability. It will require a major rethink of values. It will be a challenge.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Self-driving cars: promises and some problems

Self-driving cars will be an incremental but disruptive step into science fiction in that we will be abandoning a major part of the economy and replacing it with something different. Science fiction will become a reality. Do we really want to go there? Probably we have no choice but to drive down this road.

A recent special report in The Economist discusses some of the technology and outlines the promises of autonomous vehicles. There are also some economic problems of which we should be aware – the resource base, marginal cost and potential disruption in the money supply.

driving-clipart-45The promises are mostly based on a continuation of the North American growth economy. We will be continuing to use machines to move individuals or small groups mostly to places of employment. Probably self-driving vehicles will be used in combination with mass transit, especially if vehicle sharing comes into its own. Great benefits will accrue to a lot of people in the form of greater inexpensive mobility which will also allow us to contradict Facebook with more direct social activity.

Self-driving vehicles may add to the over population problem if there are fewer accidents and fewer fatalities.

One of the problems will be the availability of resources. This blogger figures the economy is currently on a down trend because we have used up the most easily accessible energy and mineral resources. Sure, there are lots left in the crust of this planet but the amount of energy required to retrieve them makes them mostly useless.

The exception is solar energy, the cost of which has been dropping and will probably continue to drop. This could mean a major change in economic power as it appears solar will become cheap enough for individuals to make their own decisions about using it. No longer will bankers and governments be deciding which power provision projects go ahead and by whom.

The replacement of the current fleet of internal combustion vehicles with electric and driverless vehicles will probably mean a lot of the current infrastructure will need to be replaced. This will require large quantities of mineral resources which may be very expensive. Henry Ford realized that in order to sell automobiles they had to be inexpensive enough for working people to buy them. Since then we have extracted a lot of the most easily accessible mineral resources. It is not clear we will able to retrieve or recycle enough resources for the transition.

The economic concept of marginal cost creates a couple of problems for the introduction of self-driving vehicles. This states the price of an item is equal to the marginal cost of producing the last item. As the cost of solar energy is falling and is likely to continue falling at some point solar will determine the price of electricity. When that happens all those firms currently producing electricity from hydro, gas or oil will find their facilities and investments worthless. Not good news for bankers or for the rest of us when all that debt has to be written off.

Recycling may be another source of problems. Most of us accept that recycling is a civil responsibility and believe that doing so will help to save the environment and the economy. However we may find marginal cost interferes with some things. Suppose a pound of copper can be recycled for half the cost mining new stuff. Does this mean manufacturers will be able to purchase recycled copper for half the cost and their customers will benefit from the cheaper prices? Not likely. Copper prices will be set by the last pound mined and the recycler will make a windfall. So the benefits of recycling will likely go to the recyclers rather than the rest of us. This is what happened in the oil industry as prices rose. We all paid higher prices and those producers who could extract the stuff at lower cost did very well. Recycling may be a joke on us.

Most of us know how to manage our money but few understand how money is created in our economy. Most of the money we use to exchange goods and services is based on the debt created when bankers make loans. This works so long as the economy is growing and bankers make more and more loans.

Economists seldom if ever talk about what happens when the economy stops growing and loans have to be written off. Loans are being written off all the time but so long as the economy is growing they are replaced with even more loans. However, when large amounts have to be written off such as the recent mortgage crisis the money supply goes down and without money it becomes difficult to exchange goods and services and lots of people lose their savings and their employment. Because of the fractional reserve system we use the money supply goes down with a multiplier effect.

I do not know how much of the current money supply is based on debt to the automotive and energy firms. The introduction of self-driving electric vehicles could hit the banks and us with a double whammy if firms in both industries cannot repay their debts. We could lose a lot of the money supply as well as a lot of people losing their savings and pensions.

A lot of changes are likely to be forced upon us. Some of those changes we may not appreciate.

Through the millenia of history when there have been major economic upheavals up to 90 percent of populations have died. If something like that happens in the near future, the technology of self-driving electric cars will not be lost and the promises may be available to the survivors.

The next economic crisis: financial or real?

A few people are prepping themselves for the next economic crisis and speculating about what will cause it.  This blogger thinks there are several possible causes.  It is about 99.99 per cent certain there will be another crisis.

Even if somebody does make an accurate prediction it will probably do no good because there are so many vested interests there will be no consensus about the cause and about what to do to prevent it.  However, for some of us there is some fun in trying to think out economic problems and we might be able to improve our understanding of economics.  So, here goes.

The possibilities are for the cause to be within the financial system or for the cause to be within the physical or real side of the economy.  As the two are interconnected it may be difficult to determine just what is happening.

Problems within the financial system relate to money. Either there is too much money or not enough.  Ideally the available money supply needs to be just right for the quantity of goods and services exchanged and as this varies it needs to be flexible.  When there is too much money available there is potential for inflation and this is a problem for people with invested savings as they lose some of their purchasing power.  Deflation is a problem for lenders as the money they have loaned out will have less purchasing power when it is returned, if it is returned.

The really serious problem comes when there is not enough money as this curtails economic activity.  Most of the money supply is based on loans made by the financial industry and involves a multiplier.  When the industry has to write off a large quantity of loans, as with the recent subprime housing crisis, the money supply goes down, again with a multiplier effect.  Without money the exchange of goods and services becomes difficult and lots of people lose their jobs. Big time suffering.

Currently it appears there is lots of money floating around the economy.  Lots of firms are reported to have piles of cash on hand and are probably unable to see investment opportunities.

On the real side of the economy, many people assume there are lots of energy and mineral resources available and therefore no physical restraints on the exchange of goods and services.   This may not be true.

A common argument is that as resources are consumed higher prices will bring on a greater supply which happened with oil and lots of minerals.  The problem is that they also require more energy to extract which reduces the energy available for other activities and at some point the value of the energy exceeds the value of the resources.  This blogger figures there are lots of energy and mineral resources available on the earth’s crust,  but the cost of getting them makes them useless.  This could be changed by technology and the decreasing cost of solar energy will make the high cost of oil irrelevant.

Children, workings in a vegetable garden.

However there may be some economic  disruptions in the transition.  How much oil infrastructure will have to be written of and what would that do to the money supply? Also there are all the other minerals for which there are no clear cheap substitutes.

This guy fears the greatest threat to our economic well-being is from resource restrictions on the physical side of the economy.  An even greater threat is that too many people will not see the problem because they analyse problems only in financial terms and will be looking for solutions on the financial side.  Changes in how much money is available or even in the way in which we create money will not add to the resource base or make it cheaper to extract them.

I fear for the future of my grandchildren.

 

 

 

Free Funny Money

Here is a free promotional giveaway of the new ebook Funny Money: Adapting to a down economy.  This book is now available on Amazon Kindle and Smashwords.  The next step is for me to make some formatting corrections so Smashwords can distribute it to a number of book stores.

FunnyMoneyArtPowell-final

Smashwords allows authors to create coupons for discounts and free giveaways.  I have made a coupon to give this book away free for about two weeks. The code is HS63E and it expires on March 19, 2016

The book is available at: https://www.smashwords.com/books/view/620310

The book is also available at the Kindle book store at http://www.amazon.ca/gp/product/B01CH1LF6W?*Version*=1&*entries*=0  

at the regular price of 99 cents. So far as I know Amazon does not allow the free giveaway for the publishing option I have chosen.

This book is critical of some aspects of economics and endorses others. The author, who has also read history and anthropology, questions economic growth and the fractional reserve way of creating money. He has come to terms with the market economic model as a set of guidelines for economic policy. The current economic crisis is resource based in that we have used up the most easily accessible of energy and mineral resouces.  We need a guaranteed income scheme and a new way of creating money.

The future of money: inflation, deflation or disappearance into thin air

The future of money has been getting a little attention lately.  It could go one of three ways – inflation, deflation or part of it could disappear into thin air.  Concerns about money probably reflect concerns and uncertainty about where the economy is going.  Frequently behind these concerns lurk people who want a fixed money supply such as gold or bit coin.

This blogger figures money should be defined as a tool to facilitate the exchange of goods and services.  I do not like definitions that make it a store of wealth or a measure of value because these give money an intrinsic value which it does or should not have.  Money should only have value as a tool. 

One of the most important features of money should be the amount available  in the economy needs to be flexible.  It should be able go to up or down  with changes in the quantity of goods and services we want to exchange.  If the money supply is not flexible then as we change the quantity of goods and services then either prices must go up or down or the velocity, the rate at which money changes hands will change.  It is dangerous to assume there will be only growth.

Inflation happens when the money supply increases faster than the rate of economic growth and deflation happens when the money supply goes not keep up with the rate of growth.    Inflation is good for borrowers as the can repay their loans with money which has less real value.  This is one reason governments and their agents want to see mild inflation.  Deflation is good for lenders as they will be repaid with money which has more value.  The ideal should be price stability so nobody loses.

Our understanding of inflation and deflation has been distorted by the long period of economic growth we have just experienced. Most inflation has happened along with growth and most deflation has resulted from banking authorities trying to restrict the amount of money available.  This happened in the 1930s and todays central bankers have sworn to never again let that happen.

There is some evidence that our time of economic growth has terminated.  It is unclear how this will affect prices.  Quantitative easing which is an attempt to increase the money supply has not led to high inflation.  Past hyperinflations have occurred when governments have increased to money supply faster than the economy was capable of growing.  It appears the money created by quantitative easing has led to inflation in the financial markets rather than consumer markets.

Economists generally understand how fractional reserve banking works to increase the money supply but I am not aware of anyone who has thought out the opposite process.  Money that can be created out of thin air can just as easily disappear into thin air.

In fractional reserve banking banks are required to keep a portion of their deposits as reserves for protection against runs. The rest is loaned out and redeposited with the new deposits subject to the same fractional reserve.  The result is that a large proportion of our money supply is  somewhat precarious.  This blogger and many other people on the internet have explained the process.  Just search “fractional reserve banking.”

Central banks can add money to the system by purchasing financial instruments or by changing the reserve requirements.  The could also reduce the money supply by selling financial instruments or by changing the money supply although it is unlikely they will do either under current conditions.

Another way the money supply could be reduced is if the banks suffer large losses.  Any loans the banks have to write off will directly decrease their available reserves.  (The technical term is high powered money.)  This means they will have to decrease their outstanding loans with the same multiplier effect as the money supply was increased.  We will hear about it as a contraction of credit.

So if the banks experience unusually large losses there could be a drastic decrease in the money supply which could have dire consequences.  ( I have read that a number of Canadian and British banks are highly exposed to the energy industry with unsecured loans.)

If a large part of the money supply were to disappear into thin air in the short term a lot of economic activity would come to a screeching halt.  People have in the past used playing cards or candies as a substitute for money.  In the long term the level of activity would depend upon the physical resources available.

People who talk up monetary reform often want a return to a gold standard or facsimile (bit coin).  It is not clear that either of these would correct the problems inherent in the fractional reserve way of creating money.  Nor would they provide the flexibility that is needed in the total amount of money available.

We all think we know everything there is to know about money.  That is a part of what our parents teach us. However, it is a complex subject which few people understand and there are a lot of unknowns, especially if we have to deal with an extended period of low or negative growth.

A guaranteed income – another impossible dream

I believe the arguments in favor of a universal income scheme are overwhelming.  The problem is this belief is not shared by everyone.  I would go even further than an income scheme and say there is an urgent need to reform the way in which we create money and the two reforms should be combined.

Our survival and our enjoyment of life depends upon our being able to provide ourselves with food, shelter, clothing and smart phones.  The way in which we do this involves a lot of complex relationships with people we do not know.   As, for the most part,  we do not understand how these relationships work,  any attempt to change them will be a threat and arouse a lot of fierce emotions.  On top of that a lot of people have a vested interest in the current way of exchanging goods and services and will resist change.

It may be impossible to overcome these problems, but is that a good reason to not discuss them and to not try?  With current economic trends it could be that changes will be forced upon us and maybe we should try to influence them rather than just let them happen.

The essay “LETS go to market; Dealing with the economic crisis”  on this weblog deals with a proposal for a guarantee income scheme and how it could be combined with a different way of creating money.  Do have a look at it.

A major question around an income scheme is how much work needs to be done.  Modern technology has reduced the amount of labor needed for survival.  I think we are at the point where a lot of work is just for the sake of working to satisfy the work ethic.  The work ethic allows a lot of people to build empires to fulfill their own ambitions.  The work ethic is unnecessary and makes a lot of people into slaves.

A guaranteed income scheme would be a major transfer of decision-making power to individuals because having money allows people to make decisions.    No longer would people be dependent upon an employer for their total income.  No longer would we be slaves to employers.  We would be able to decide what we want to do with our time.

An income scheme would deal with problems of poverty, inequality and economic inefficiencies.  With an income scheme there would no longer be a case for subsidies to producers and this would remove a lot of price distortions from the economy.  The result would be a more efficient economy.

Value is determined by supply and demand.  As all of us have a limited lifespan time should be the most valuable thing we have.  Therefore we should by trying to use modern technology to give us more time in which to do the things we most enjoy.  Instead it seems modern technology is mostly being used to sell us more smart phones which are used to sell us more junk.  That’s stupid.

The downside of falling oil prices

One would expect lower oil prices to be great economic news.  However there are a couple of problems which could make them the worst possible news  –  our economy does not cope well with deflation and this could indicate the start of a major economic decline.

Oil is such an important part of our economy that lower prices should stimulate economic activity to the point we would easily achieve full employment and all our economic problems would be solved.  Life may be a little more complicated. Most news reports suggest the problem is increased supply from U.S. fracking but there could also a decreased demand for oil.

The first complication is that our economy does  not cope well with deflation.  We can probably cope with falling prices but falling wages are a different matter.  Very few people would willingly take a cut in income.  A further and more serious complication is that most of our money supply is based on debt and it is likely the owners of this debt would want  to be repaid in full in deflated money.  Instead of having economic utopia we could have economic chaos.

The second concern about falling oil prices is with what is happening in the real side of the economy.  Too often we evaluate economics only in financial  terms.  Sometimes this hides problems.

Probably the most serious economic problem is that we have used up the most easily accessible energy and mineral resources.  There are lots of these left on the earth’s surface but they are so difficult  and expensive to extract that it is no longer viable to do so.  This is bound  to have a profound effect on our economy, reduce the potential for economic growth and maybe force us into negative growth.  It could be that high prices for energy and mineral resources have messed up the economy so that we can no longer produce as many goods and services as we  were.   It may be the recent high costs of oil has contributed to its own reduced demand.

If this scenario is correct or even nearly correct then we are in for some serious economic problems.  It could be that falling oil prices are a leading indicator of a crisis.

This has been a difficult post to write because one does not want to witness the human suffering that will come with a prolonged economic downturn.

One further observation: Although headlines show the price of oil has been falling the news has been slow to reach the owner of our local gas bar.

 

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