After Thursday’s stock market crash, we find ourselves staring into the abyss of a potential double-dip recession. Republican’s, having ignored the history lesson of the business lobby 1937 Austerity Push, which managed to push America back into depression, seem to be clueless to the fate of most Americans. Of course, As the New York Times reports, their financial base is doing very well and luxury spending is reaching new highs. But America’s economy lives and dies on the confidence of the average consumer. In the go-go years of the late 1990’s the concept of “mass affluence” and “affordable luxury” dazzled marketers into believing that “aspirational marketing” was the path to the streets of gold in which the majority of citizens would have 60” inch flat screen TV’s running 500 channels of cable TV and 100 MBPS Broadband services, even if they had to hock their house to get it. But, as a new White Paper from Ad Age entitled, “The New Wave of Affluence” points out, “In 2011 however, in the wake of a massive reset, it appears that mass affluence may be a thing of the past.” Ad Age goes on to suggest that marketers concentrate their attention on the 3% of the American population earning more than $200,000 per year, “who account for almost 50% of consumer spending.” The esteemed Telecom analyst Craig Moffett, in a report titled “How the Other Half Lives” chose to look at the darker side of this picture. “After paying for food, shelter, and transportation, the average bottom-40% family is left with…. wait for it…. just $1,215 per year, or $100 a month, for everything else. That’s $100 per month for all discretionary purchases, telecom services, cable or satellite TV, movies… and everything else. Indeed, after Healthcare, the number drops below zero.” A recent report on consumer discretionary spending from the Federal Reserve Bank of New York shows “this time is different.” Going back decades, such spending had never fallen more than 3 percent per capita in a recession. In this slump, it is down almost 7 percent, and still has not really begun to recover.” Continue reading
In their groundbreaking essay, The Death of Environmentalism (2004), Ted Nordhaus and Michael Shellenberger called for an end to enviro-scare tactics and the beginning of a positive vision of a low carbon energy future.
Martin Luther King, Jr.’s “I have a dream speech” is famous because it put forward an inspiring, positive vision that carried a critique of the current moment within it. Imagine how history would have turned out had King given an “I have a nightmare” speech instead.
I think Liberals (including Liberaltarians) need to put forth an inspiring, positive view of the future that will provide a counter-narrative to the “I have a nightmare” vision of Glenn Beck and his Tea Party cohort. Having just posted George Carlin’s rant that ends with the phrase “Thats why they call it the American Dream, because you have to be asleep to enjoy it”, I can rightfully be accused of a bit of blarney. But I defend my sequencing in the following way. Continue reading
Gov. Schwarzenegger will sign the California budget today after an 85 day stalemate brought about by the truculent blackmail of a minority Republican cabal. California state law requires a 2/3rds majority to pass the state budget. There is a growing revolt among California progressives to overturn this law which allows the minority so much power. The Courage Campaign is about to call for a Constitutional Convention next spring to overturn this law. They need support. If we are ever going to realize the benefits of the New Federalism, this is where we start.
If the Paulson manages to push through the Bank Bailout, the Federal budget deficit is going to cripple the kind of innovative government programs that can help transition our economy to an Energy Technology (ET)resurgence. California, where much of the innovation is being invented and financed, will need to be much more independent from the Federal Government in order to thrive.
As any reader of this blog knows, I am a fan of charts. I find they reveal truth in an instant. This chart is one of the scarier forecasters of just how severe the global economic slowdown is becoming. It is the Chinese Purchasing Managers Index of inventories to new orders. Any reading below 1.0 means that there are more orders than inventory on hand. In July the index broke above 1.0 for the first time in 10 years. That means Chinese producers already have more than enough finished goods on hand to fill their order book. Many forecasters, including myself six months ago, felt that the U.S. recession was a local matter, and that Asian growth would continue–the decoupling theory. It is now clear this has not happened.
In 2001, large American companies that disclosed foreign revenues logged about a third of their sales abroad, according to an analysis by Howard Silverblatt, senior index analyst at Standard & Poor’s. By last year, the foreign take had climbed to 46 percent. Europe made up 29 percent of the total.
So how is it that such a small piece of the world economy, like sub prime home lending in the United States, can lead to a world wide recession? My best answer comes from the chart below, which shows how bubbles are just forward indicators of larger “overvaluation problems”.
It’s obvious that much of the, faster than normal, growth of America since Reagan has been built on bubbles, but this is not a new phenomena. Look at the years of The Long Depression (1873-1896) or the Great Depression (1929 -1941), both of which we triggered by speculative bubbles. In the 1870′s the problems were the cost of war and the stability of money.
The primary cause of the depression was a shortage of available money to facilitate trade. The most immediate cause, and the date that is often used as the start of the Depression, was the collapse of the Vienna Stock Exchange on May 9, 1873. Others have argued the depression was rooted in the 1870 Franco-Prussian War that hurt the French economy and, under the Treaty of Frankfurt (1871), forced that country to make large war reparations payments to Germany. 5 milliard (billion) francs in gold, or £200 million, “financed mainly through London”. Germany went on to gold and the price of silver started to fall causing considerable losses of asset values.
The Great Depression was set off by a stock bubble that burst in the Crash of 1929 on Wall Street, which then, in an earlier version of globalization, led to a collapse of most major stock Markets in the developed world, especially England, Germany and France–the three great colonial powers.
So if both the previous Worldwide depressions were initiated by a bubble in a small part of a huge market, why did the worldwide economy fall? Because the worldwide economy is financed by a relatively small number of global financial institutions. It has been this way since the Days that the Rothschild Bank needed to sign on with the financing before many countries could go to war. Today it’s firms like Citibank, HSBC or Goldman Sachs. Put it this way, the CEO’s of these institutions could all easily fit around the large conference table at the Federal Reserve Bank of New York. And right now, these people are scared and they are not lending as much as they used to. They are trying to rebuild leaky balance sheets.
This phenomena of choking off credit to rebuild equity is called a “negative feedback loop”. Businesses unable to get financing will fire workers, who in turn lose their house, which means that Home Depot’s inventory builds up, so they stop ordering from China and China’s inventory builds up… Quite frankly, I’ve said since February that this was going to be a slow motion crash, but it’s going to be crash.
That is why I think anyone who thinks the Obama-Biden ticket can’t win is just denying the economic facts that will be present on that first Tuesday in November. Four more years of this Republican economic mismanagement is just not tolerable. The Change Message will find many of these Hillary fence sitters coming down on Barack’s side.
For myself, I’d like to develop some ideas with you about whether allowing the country to grow at a slower rate (say 2.5%), by emphasing investment and not consumer spending, would ultimately put us back on the path of sustainable development and balance that we have been talking out here for the last few weeks. I think that Fritz Schumacher really had something in his book Small is Beautiful and I think it’s time to go back to work on The New Federalism agenda. The last week the blog had the most hits in the last few months. I think we are capable of doing some policy innovation here around these issues of devolution.
Eighteen months ago, I gave a lecture at USC about The New Federalism, in which I made the outrageous claim that within five years WalMart’s sourcing model would collapse. The cost of bringing cheap goods from China with $100 per barrel oil would not work. Turns out, we didn’t have to wait five years.
The cost of shipping a 40-foot container from Shanghai to the United States has risen to $8,000, compared with $3,000 early in the decade, according to a recent study of transportation costs. Big container ships, the pack mules of the 21st-century economy, have shaved their top speed by nearly 20 percent to save on fuel costs, substantially slowing shipping times.
The study, published in May by the Canadian investment bank CIBC World Markets, calculates that the recent surge in shipping costs is on average the equivalent of a 9 percent tariff on trade. “The cost of moving goods, not the cost of tariffs, is the largest barrier to global trade today,” the report concluded, and as a result “has effectively offset all the trade liberalization efforts of the last three decades.”
The effect of this on globalization is profound. Ikea recently opened their first American factory and I think that almost any company making consumer durables is going to have to consider moving their production closer to the world’s largest consumer market. I have written recently about the deindustrialization of America, but the possibility of the re-industrialization of our country is a far more optimistic story. As many of the correspondents on this blog have pointed out, a new ethic of manufacturing quality goods that last could be a complete break with the “planned obsolescence” history of recent American manufacturing.
The second key break needed is clean power for all these new plants that could spring up across the country. Obviously we have talked a great deal about the Moore’s Law type power gains in solar and wind technology that are doubling output at the same price in the 18 month cycle. Because of this, money is flowing from both Silicon Valley VC’s like Kleiner Perkins as well as reformed oil men like Boone Pickens. What is needed is the storage medium for these “spiky” power sources. Although we have had some questions already about new breakthroughs, I am reasonably confident that these efforts will bear fruit.
Storing energy is a crucial but expensive component of plans to turn intermittent sources of energy, like wind and sun, into reliable replacements for coal and natural gas. But two new scientific papers show progress in materials science and chemistry that could cut the cost.
The advances apply to the process of converting electricity into hydrogen for storage and then converting the hydrogen back to electricity when needed. The first half is done in an electrolyzer, which splits a water molecule into hydrogen and oxygen, and the second half in a fuel cell, which puts them back together.
Such a process would make a power system based on sources like sun and wind more reliable because it could be counted on regardless of weather or hour.
The great psychologist Erich Fromm, wrote a book in the late 60′s called The Revolution of Hope;Towards a humanized technology. In it he put forth the idea that for societal change to occur we needed hope, faith and fortitude. Fromm writes,”Faith like hope, is not a prediction of the future; it is the vision of the present in a state of pregnancy.” I know the Republicans are spending a lot of money on ads this week mocking “the audacity of hope”, but I think Fromm’s description of the current “state of pregnancy” is quite appropriate. The possibilities of a complete transformation of American society are close at hand. There is no technological barrier to an economy with lots of good jobs, that don’t require a college education at factories run on a totally clean energy system that does not rely on Saudi oil and does not contribute to Global Warming. But as Fromm points out, hope and faith without courage–fortitude–are useless. As an analyst, Fromm believed that it is very hard for individuals to keep hope alive when a general air of hopelessness pervades a society. When 78% of the country believe we are “on the wrong track”, you are defining hopelessness, a condition in which “many lose hope, faith and fortitude and love their servitude and dependence.”
That last phrase jumped out at me when I read it. Here we are, “pregnant” with possibility. The rational mind says that Americans would embrace the hope and faith of a better, more just society, in which the citizen and not the special interest is in charge. The only hope of the ruling elites of the Republican party is to break down your courage for change. John Heilemann recently wrote about Steve Schmidt and McCain’s other managers.
They’ve concluded, in other words, that even if McCain may not be able to win the election in any affirmative sense, he might still wind up behind the big desk if he and his people can strip the bark off Obama with sufficiently vicious force.
Maybe Fromm is right. Maybe many Americans “love their servitude and dependence” on forces seemingly not in their control. Maybe fear rather than hope and faith will triumph in November. But if a society does not grow, it will decay. We have lived through eight years of fear and decay. Will we find the courage to embrace hope and growth?
It has been my contention that out of the coming economic chaos, innovative strategies would emerge that would allow us to build a sustainable new kind of localized economic infrastructure, more appropriate for a world of $6 gas. Meet Tim Fuller, one of the managers of Erehwon Farm, one of 1500 experiments in Community Supported Agriculture that have emerged in the last three years. It is a variation on the old notion of Cooperative Farming.
The shareholders of Erehwon Farm have open access to the land and a guaranteed percentage of the season’s harvest of fruit and vegetables for packages that range from about $300 to $900. Arrangements of fresh-cut blossoms twice a month can be included for an extra $120 — or for the deluxe package, $220 will “feed the soul” with weekly bouquets of lilies and sunflowers and other local blooms. Shareholders are not required to work the fields, but they can if they want, and many do.
As gas prices rise, the whole industrial agriculture system, unique to this country, will have to change. The notion of importing fresh blueberries by air from Peru will begin to be cost prohibitive. The salmonella outbreaks from giant industrial farms in the Imperial Valley that sit next to cattle feed lot cesspools will become less attractive. What Community Supported Agriculture does is allow the local organic farmer to plan his season and run a sustainable local business, supported by local customers.
It is the essence of The New Federalism.
A new survey by the Pew Forum on Religion and Public Life debunks the classic meme of intolerant religious believers.
For example, 70 percent of Americans affiliated with a religion or denomination said they agreed that “many religions can lead to eternal life,” including majorities among Protestants and Catholics.
The findings seem to undercut the conventional wisdom that the more religiously committed people are, the more intolerant they are, scholars who reviewed the survey said.
“It’s not that Americans don’t believe in anything,” said Michael Lindsay, assistant director of the Center on Race, Religion and Urban Life at Rice University. “It’s that we believe in everything. We aren’t religious purists or dogmatists.”
I know I tread lightly out here in the blogosphere whenever I raise the issue of spirituality. However, I am convinced that part of the great transformation that must take place in American society–away from a wasteful marketing driven consumption machine that seeks to fill your emptiness at the mall, towards a notion of stewardship of our precious planet–has a spiritual component to it. You don’t have to worship at a church to believe that there is a higher purpose to our life than just “dying with the most toys.” The Pew findings report that people who call themselves spiritual, by large majorities favor government help for the poor, stricter environmental laws and use of diplomacy rather than military strength as a way to ensure peace.
Between 2010 and 2020 America will have a chance to reinvent herself. I believe there are only two possible routes out of our current political impasse I call The Interregnum. One I call Fortress America and the other I call The New Federalism. Fortress America is a centralized, top down, security conscious country-fearful of terrorists, immigrants and the poor. It is a country of gated communities and private security guards, where the gulf between rich and poor enter the level of Rio or Mumbai. The New Federalism is a bottom-up re-imagination of Thomas Jefferson’s earliest notions of America’s unique destiny-where transparency and distributed power (political and electrical) transform our environment, our schools and our approach to the rest of the world. The opportunity to create a world of peace, freedom and sustainability is offered up to us. The tools and technologies are already invented. It will take a certain measure of faith to get there.
The New York Times reported this morning that the oil price spike is creating a major boost for passenger rail traffic in the U.S. But unlike Europe and Asia, we have made no investment in High speed rail transportation.
Amtrak set records in May, both for the number of passengers it carried and for ticket revenues — all the more remarkable because May is not usually a strong travel month. But the railroad, and its suppliers, have shrunk so much, largely because of financial constraints, that they would have difficulty growing quickly to meet the demand.
California’s efforts to create its own High Speed Trains received a major boost last week when the House of Representatives approved a $1.75 billion addition to the Transportation bill to aid High Speed Rail. In November, California voters will hopefully approve a $9 billion bond measure to build the system that would run on Electric powered trains at 200 MPH+ from San Diego to San Francisco and Sacramento. The LA to San Francisco trip would be 2 hours and clearly could be less if our trains could get to the speed of the Japanese or French trains. This could allow us to reduce the ridiculous number of commuter air flights between major California cities, dramatically reduce carbon emissions, cut airport congestion and generally improve the quality of life in California. Imagine by 2020 a solar powered transportation system throughout California that dramatically cut greenhouse gases. This is all within our reach.
This is what the New Federalism is all about. If we lead, other states will follow.
For those of you who are new to this conversation, the issue of a bottom-up, decentralized rebuilding of America has been a regular issue. We are calling it The New Federalism and you can catch up by entering that phrase into this blog’s search engine. In the past, projects like the Interstate Highway System, the invention of real time computing and the Internet, have all been decentralized massive development efforts funded by the tax payers in cooperation with both business and academia. It is my contention that the only way out of the “hollowed-out economy” trap we have put ourselves in is through a massive, decentralized public-private effort at making our economy much more energy efficient. In late February we talked about the possibilities in Solar and wind energy and more importantly the storage of electricity.
Today I want to float another idea–in the transportation sector. In the last ten days, four commuter airlines have gone bankrupt because of the cost of fuel. Compared to Europe, Japan, China and Korea our commuter transportation system is wildly inefficient because we use small jets instead of high speed rail.
Last year a Japanese Mag-Lev train (above) set a world speed record at 581 KM/H. Continue reading
The first task if we are to construct an alternative solution to our political gridlock is to understand what responsibilities of the Federal Government could be returned to the states. For those of you who are new to this debate, an early paper on The New Federalism will help you get caught up. In this work I was aided by the research of Public Agenda a coalition of left and right interest groups trying to tackle the budget problem. They have published a book called Where Does The Money Go? that I found quite useful.
To begin with the current budget situation is sobering. In 2006 the Federal Government spent about $2.7 Trillion and had revenues of $1.6 Trillion. Part of the deficit came out of a social security trust fund and the rest we borrowed. I am not going to try to tackle the entitlement issues here, as they are clearly Federal responsibilities and this exercise is about what could the states take on and how much could we cut the Federal Budget and taxes. I will also not try to deal with the political fallout of these suggestions, because if I did, I would never bother to start the “thought experiment”.