Former Federal Reserve Chief Alan Greenspan believes he knows what's best for the U.S. and that is endless growth, as measured by ever rising GDP. ('The Great American Growh Engine And How To Fix It', WSJ, Oct. 13-14, , p. C1). One of his main recommendations for improved growth is:
"Get entitlement spending under control. Putting the system on a more sustainable footing could be done by raising the retirement age by a couple of years, indexing it to life expectancy so that the problem doesn't keep coming up."
Note this is despite the fact that a third of seniors have Social Security as their only income. Also, more than 50 percent of Americans claim their Social Security by age 62. Why are so many doing this? It isn't always a case of not wanting to work but rather, for too many, not being able to last at demanding physical jobs, i.e. landscaping, roof repair, nursing home aide, etc. It is fairly easy to work past 70 when it's all consulting, paper pushing or brain work. But not so much when one is involved in heavy day -to -day labor like a nursing home caretaker moving an elderly patient from bed to chair and back many time a day - not to mention other tasks, such as bathing, toilet use etc. Work that takes its toll on the back, as well as many other parts of the anatomy.
Never mind, Greenspan fantasizes this ongoing rampant growth because well, it's the "American way", i.e. "Today the United States has the most powerful economy in the world. It still accounts for almost a quarter of global GDP."
Well, yeah, given that it also has barely 5 percent of the global population but consumes 25 percent of its resources annually. Greenspan also goes on to blab:
"The key to America's success lies in its unique toleration for creative destruction, the destabilizng force described by the economist Joseph Schumpeter in 1942. Creative destruction reallocates society's resources from less productive pursuits to more productive ones, or from horse and buggies to motorcars."
Creative destruction, irrespective of who conceived it, is one of the most tragic and wasteful aspects of American cowboy capitalism. It entails perpetual waste of energy and investment that ravages precious resources. In Barbados, with few resources, each must be maximized. There isn't the quantity available (on a 166 sq. mile island) to allow duplication or other squandering in wasteful competition. In the U.S., the exact opposite holds. Huge amounts of resources are yearly squandered in competitive games- that have only one or a few 'winners'. There is Alan Greenspan's "reallocation" of resources for you.
By contrast, the endemic socialist, communitarian structure of Denmark- for example - promotes a healthy growth of the social commonweal and the belief that what is done for the benefit of one, or a few, redounds to the benefit of all. E.g.
Oprah got perfect response from Danish woman on their social welfare state
Hence, the imperatives for government subsidized low cost housing, national health insurance for all, free education through college. Enough to make Greenspan and his ilk apoplectic.
Matt Miller in his The Tyranny of Bad Ideas has pointed out that all the so-called European "welfare state" economies (e.g. Denmark, Norway, Sweden etc.) fared much better than the neo-liberal, market dominated U.S. during the financial crisis and Great Recession. They provided the resources for their citizens to be more resilient, and also their higher formal tax structures prevented the sort of macro-scale deficiencies we still see in the U.S. where infrastructure is crumbling, public pensions are under-funded. Does Greenspan factor in the cost of repairing our infrastructure (est. $2 trillion) into his growth delusions? I doubt it.
It's also somewhat ironic the former Fed chief praises "creative destruction" as a major contributor to the growth engine, while invoking the transition from horse and buggy to motorcar. This is given what all those existing 1 billion motorcars around the planet have wrought - putting us on the cusp of runaway warming e.g.
Climate report understates threat
Of course, it's also choice and ironic that it was none other than Alan Greenspan who was actually complicit in creating the financial crisis, though he disingenuously blames a "combination of fear and herd behavior". Adding that this combination "led people to overreact to bad news and to plunge economies into self-reinforcing cycles of decline."
That takes a lot of chutzpah given Greenspan relentlessly pumped ARMs (adjustable rate mortgages) to people who didn't know enough about them and how an initial 3% rate could balloon into an 8 %- 10% rate and ultimately lead to foreclosures. Then there were Greenspan's and other bankers' moves to bundle the credit default swaps into mortgage loans (collateralized mortgage obligations, or CMOs) and peddling them to folks with little or no credit. That set up the immediate collapse of the credit-loan system, especially as the debased loans were awarded AAA or other high ratings by the likes of the credit agencies, such as AIG and Moody's.
Fear on the part of the hoi polloi? How about crass manipulation of an exploitative mortgage market and inadequate oversight of destructive financial devices? See e.g.
Even given the current 3 percent growth of 12 months through September, Greg Ip in his WSJ piece today (On the paradox of 3% growth, p. A2) argues it isn't sustainable. As Mr. Ip writes:
"To keep this up the unemployment rate would have to go negative in eight years, a mathematical impossibility."
Better clue Greenspan in on his fantasies there, Mr Ip.
A further hidden factor damping growth which I've discussed before is the decreasing energy return on energy invested (EROEI) of fuel sources. In other words, our energy-dependent civilization is becoming ever more impoverished as the efficiency of the energy to run it diminishes over time. So no, with conditions like this, and a projected EROEI of 7.7 to 1 by 2030 do not look for more growth.
With such a forecast, energy costs will absorb as much as 15% of GDP by then. So we will be lucky to sustain the growth rate of 0.7% per annum Greenspan bitches about as characterizing the economy the last few decades. Nor is the oil shale -fracking option the way out. As Robert Heinberg observes ('Snake Oil: How Fracking's False Promise Imperils Our Future'), while it may cost less to extract a cubic foot of natural gas or a gallon of oil shale today, it will cost much more in just five years and even more in ten - such that one would have to spend as much or more to get the energy as the benefit it delivers.
Heinberg summons a point that most of the snake oil salesman humping fracking won't tell you, that it costs energy to get energy. And if you are a nation that resorts to employing 15 to 1 EROEI energy to extract 5 to 1 EROEI oil shale energy.....well, can we say 'stupid'?
As Heinberg puts it (p. 116):
"No evidence suggests that the technology of fracking has actually raised the EROEI for natural gas production. It temporarily lowered prices but only by glutting the market."
Greenspan and his growth humpers need to process that lowered EROEI translates to increased debt - nationwide as well as for (most) individuals, since it will cost more and more in the future to obtain the same services, products one currently depends upon. Raise the per barrel oil prices by even 15% - say from $100 to $115, and watch the impact on food prices, not to mention gas, or electricity. Eventually, as Tullet Prebon Strategy Insight notes, the economics becomes "non-viable" and that means the only way people can access the food or services is to go into debt, i.e. using credit cards or other means.
Here's another "stinger" or a reality bite - which is the subject of a forthcoming book by London School of Economics sociologist Mike Savage: It is very likely that, given the Earth's limited resources, there is also a very limited capacity to handle traditional growth. This is easily discerned from the graphic below on how many "Earths" are currently being consumed by humans per year,
At root, the issue is sustainability - especially for water which is needed for crops. NO water, no crops to feed a growing population. Simply put, there simply aren't the resources to support a growing human population which is conditioned to consumption. (Especially in the developed, industrial world - which now includes China and India). The projections now are for at least 10 billion people by 2050, and an 80 percent probability of 12.3 billion on Earth by 2100.
By June, 2030, TWO full Earths - that is, the resources therein - will be needed to support the then population. Already we are at 1.7 Earths. Every year Global Footprint Network raises awareness about global ecological overshoot with its Earth Overshoot Day campaign. I believe even a guy like Alan Greenspan ought to be able to grasp these figures and the graphic, and that his growth ideal is a mirage, a myth or fantasy, if you will.
As sociologist Savage explains (The Nation, October, p. 16):
"If we want to live in a better society, it's not 'How do we grow more?' It's how do we become more sustainable and consider what level of inequality most people might find acceptable and not extreme."
A "rising tide" then - contrary to capitalist myths- might not raise all boats but flood us all out of existence. Of course there will always be economic Pollyannas spreading bollocks, like Tom Gionvanetti , e.g.
who writes, evidently with a straight face (p. A15):
"The back door solution to the entitlement crisis is to make workers wealthy"
Right, even as employers are unwilling to pay their employees a fair wage, or enhance their job benefits - even after being flush with corporate tax cuts. As managing director of Aspen Advisors, Andrew Gadomski (from a January WSJ piece) fessed up, when companies lament they can't find workers to fill key openings, that is code for: "I can find talent, I just don't want to pay them as much as they cost."
Is there an alternative route? The Index of Sustainable Economic Welfare which was first proposed by Eco-economist Herman Daly of the University of Maryland. is a prime alternative . Daly's point was that the GDP was too artificial and narrow an indicator of economic health. He argued that if one incorporates all the "externalities" usually dismissed or ignored by standard economic models, people would be more parsimonious in how they consume. This would then yield a more equitable economic landscape.
Ignoring these externalities leads us into a fool's paradise where we come to believe things are much better than the GDP numbers show. Similarly with energy, conveniently ignoring externalities of cost and demand leads too many to envisage a pie-eyed future of never-ending growth. All this translates inexorably into lower growth and woe betide you if you dare intimate (as Prof. Daly has done) that a zero or negative growth index may be a lot better for humans, if they hope not to outstrip their resource support base
In the meantime, until we get to the Index of Sustainable Welfare, people may wish to consider redistribution of resources to bridge the gap. Why? Well, because 0.1 percent of the world's population currently controls 50 percent of the planet's wealth and resources.
Let those richies go on with their favorite playthings and pastimes e.g.
Then don't come crying if the great 'unwashed' mass of the hoi polloi comes for them with torches and pitchforks in hand. Faced with a choice between starvation or grabbing what they can from the richest, it shouldn't take a Mensa level IQ to figure out what will unfold.