Graph by Jerome Guillet, from http://www.eurotrib.com/story/2011/12/19/121933/16Long Introduction
Macroeconomics is so important, and generally so misunderstood, especially by right wing economists and associated business types. But rather than launch into the topic full tilt, there are a few important aspects of it that are relevant to Western New York, the US and the world at the present time, especially since we are still stuck in the effects of The Great Recession that George "Evildoer" Bu$h and Alan "Bubbles" Greenspan helped bring in and which metastasized in such spectacular and undesired fashion in the fall of 2008.
1. The present period is characterized by a lack of economic demand (alias macroeconomic demand). Increasing the supply of stuff (labor, materials, etc) will do little good and may do more harm. When the workers who make (or in our case, used to make) things cannot afford to buy them, you've got trouble, big time.
2. Our society runs on energy, among other things, and especially oil based energy (oil is used for almost all forms of transporting people and things). At present, replacement of oil usage is very difficult compared to coal, natural gas and nuke replacement, but, "ya gotta do what ya gotta do". The price of oil has been rising at an average rate of 14.6%/yr for that last 14 years, and there is no logical or truthful reason to believe this trend will do anything but get worse. And we export close to $400 billion a year to import about 10 million bbls/day. This acts as an additional regressive sales tax (and increasingly onerous one, too) on lower and middle income people. World oil prices (and US domestic oil prices) are set not by the total oil produced in the world but by the fraction of oil available for export (about 50% of total oil produced). Global Net Oil Exports are declining (a drop of 10% in the last 5 years) and this rate will accelerate as time marches on... Natural gas prices can also act like regressive sales taxes on most people, but for now, prices have collapsed. However, that situation will not last for too long, and so the more we can avoid getting hooked on natural gas (especially for electricity), the lower the demand will be and thus the lower the price will be. Lower demand is the way to keep gas prices down.
3. At the present time, if you tax rich people more and spend the money on infrastructure or in transfer payments to the poor, this will stimulate the economy.
4. If present spending levels by governments (federal, state, local) are decreased without a corresponding increase in spending by the private sector in this country, that will depress our economy; doing the opposite (increased government spending on poor and middle class people) while private spending/investment stays the same will stimulate our economy, especially since we are "macroeconomic demand deficient" these days.
5. If you tax poor and middle income people (in effect, the bottom 95% and especially the bottom 80% of the income distribution) more, or do things like raise the cost of the oil and natural gas they buy without also raising their income, this will depress the economy.
6. Income and wealth distribution does affect macroeconomic performance. A more equitable/less unequal income distribution will lead to a better performing economy (less unemployment, more GDP/person, more stability in economic performance), and a more unequal income distribution leads to a lower GDP/person ratio, higher unemployment and a more unstable economy. Greater inequality will eventually produce drastic "corrections" - more severe recessions/depressions than would happen with more equitable income distributions, and more often, too.
7. These "lack of macro demand" recessions and depressions can actually INCREASE inequality, setting up the next recession/depression, and also increasing the likelihood it will be worse than the preceding one. Bummer!
8. When income and wealth distribution become too obscene, stuff hits the proverbial fan. Drastic inequality can only be maintained by brute force and strenuous media control (Remember the book "1984"? Well, there are corporate versions of a totalitarian state, too - for example, see Naomi Klein's book "Shock Doctrine"). After all, do you want to live in abject poverty, work like a slave or worse so that some freeloading parasite of a corporate overlord can indulge in their wildest luxury fantasies (food, intoxicants, choice selection of "pleasuring opportunities", etc) just because they are a member of what radio and TV show star Ed Schultz calls "the lucky sperm club"?
9. Inequality tends to produce more inequality, especially on the rich side of the ledger. For example, when major money buys media access as well as media ownership, the media/money arrangements buy and/or rent political power, and political power helps determine income as well as wealth capture/distribution/retention, this sets up a positive (for the well off) feedback loop. In addition, when the vast majority of societal wealth is captured by a small minority for an extended period of time, well... do the math .... that means there is less for the vast majority of people.
10. People tend to resist getting further impoverished. Generally speaking, getting poorer is not one of the main ambitions in life for most people, especially since getting poorer means an increasing probability of dying earlier (medical, type of food, crime, etc) than for the wealthy, as well as a higher probability of a less pleasurable life. And if presented with the option of decreasing real wages/standard of living or taking out a loan to maintain current/prevailing living conditions, people often go the loan route, at least until they cannot pay back the loan or even just pay the debt service (interest portion of the loan).
11. When the vast majority of the population are also debtors and when they can no longer even pay the interest on those loans, those who were doing the loaning (the wealthy) have to get hosed, eventually. It's just simple math..... Unless debtors are allowed to earn more money (and hence the vast majority of the population are allowed to earn/collect a larger fraction of the national economic output), the math result will come home to roost with a rip roaring recession or depression, or worse. While most people associate the Rwanda and Bosnia civil wars and genocides with tribal and religious disputes, there also were intense economic causes for the squabbles over the local resources that may have been MORE important that the "surface cause" of religious/ethnic bigotry. After all, the "winners" get to keep the land, while the "losers" lose it all, including life itself.
12. Real wealth is created through farming, mining and manufacturing; stealing only works until the "distant hosts" have been pillaged to the point where there is nothing left to steal. Financial activities do not create wealth, they only rearrange wealth, and too much of this activity and too little real wealth creation is eventually unstable. And that appears to be where our country is at at the present time.
Short Discussion
Point #1 should be as obvious as the nose on your face. If you have problems with that one, perhaps medical help is in order, though this does PERSONALLY affect different people in varying ways. Some people are getting by remarkably well, and some businesses may be experiencing a high demand for their goods and/or services - cool. Unfortunately, for our society as a whole, we could be doing SO much better.
The data for Point #2 (and the graph below) is from the U.S. Government Energy Information Agency, and it is based on the "West Texas Intermediate" (WTI) oil price (now artificially lower than most other oil prices for some pipeline related issues). In general, most crude oil prices (especially the Brent index, which is made possible via an exchange operated by BP (British Petroleum) and Goldman Sachs) are now higher than WTI by at least 10%. The starting year (1998) is somewhat arbitrary, but prices from 1984 to 1998 were remarkably flat, and from then on, that is no longer the case. The growth rate in price is obtained by getting the slope of the best fit equation of the natural logarithm (Ln) of the price versus the year:
First Order Oil Price Rise Rate Calculation (for those not engineers or math savvy)The lower graph is the conversion of this growth rate equation into a "normal" format, in this case price (y axis) versus time (x axis), and then projecting this onwards. On average, a 14.6%/yr growth rate for crude oil prices means that they double every 5 years. And now you can't say you were not warned! And while the graph is a bit noisy, keep in mind that it is the long term effect that you have to worry about...
Next, here is an excellent article documenting Points 3, 4 and 5. It's just plain awesome:
http://www.dailykos.com/story/
Of course, such facts are heresy to the present Republican "economic belief system" (alias bogus psuedo-religion, and which seems to trump even the hard core Christian fundamentalism of many of them). Bottom line - taxing the wealthy while not taxing the non-wealthy at the present time is the smart thing to do. It will get more people employed, raise more tax revenue, lower Federal debts, and allow many businesses to make more profits, hire/retain people.
Next comes the income distribution problem , especially in the aftermath of asset bubble burstings - "It's the Class War, Stupid!": http://www.eurotrib.com/story/2011/12/19/121933/16. The graph at the top is from this excellent article. It shows how the asset bubble process transfers wealth from average people to the "upper echeloners". And that process as also not a good thing.
Another, more lengthy examination of this effect can be seen in a paper published by, of all entities, the International Monetary Fund (IMF), who have a long history of afflicting the afflicted/poor/working class and enriching the rich. Well, irony abounds, no doubt about it, and this is a great example of this. In general, they (the IMF and "friends") tend to fleece second, third and fourth world countries something fierce, but nowadays, looks like they are about to help impose "Austerity" on much of Europe, which will only make things worse, and further increase the debts of countries like Greece, Spain, Portugal, Ireland and Great Britain. However, maybe the ruling apparatchiks of the IMF don't read the research papers that they publish.... See http://www.imf.org/external/pubs/ft/wp/2010/wp10268.pdf. A brief description of this 30 page paper (hint: avoid the equations, stick to the writing and graphs) can be found here:
http://www.declineoftheempire.
Conclusions
So how do we stimulate demand while at the same time not stimulating significantly greater oil imports and natural gas consumption? Well, things like mass US manufacture of and subsequent installation of wind turbines, construction of pumped hydroelectric energy storage systems and installation of additional grid transmission capacity would be a start. In general, this will displace natural gas usage, but after a while, even coal and nukes will get replaced with wind. At the end of 2011, both South Dakota and Iowa were supplying an average of 20% of their electricity supply, and in parts of Colorado, more than 50% was supplied by wind for significant periods. But, that trend needs to be replicated for big load centers/population centers.
Another thing to do is making alternatives to gasoline consumption, and hence oil importation needs. This would include both electric mass transit for urban centers and also electrified freight rail for long distance freight lines (and which also provides the long distance transmission corridors from the Great Plains to the east, west, south and north coast population centers). And building new roads (for more car traffic) should not be encouraged. The prime strategy for eliminating oil imports should be to use less oil (domestic AND foreign) - less diesel for trucks, less gasoline for cars and less kerosene for jet aircraft. While domestic oil extraction and renewable fuels production is helpful, the best bang for the buck is better fuel efficient cars and avoidance of using gasoline consuming cars and diesel consuming trucks.
And finally, there is the replacement of natural gas usage. As stated earlier, the electricity generation part can be replaced by wind turbines, but what about the heating issue? It turns out that wind turbines (electricity) can replace gas used for room temperature space heating via heat pumps - groundwater sourced ones are preferable (more heat "pumped" per kw-hr consumed in the compressor). Over half of the natural gas consumption in this country can be avoided by any combination of heat pumps, passive solar thermal, better building insulation and solar hot water heaters. And that will insure that natural gas prices stay low, and thus do not add more economic woe to poor and middle income people.
Residential and commercial building heat pump manufacture can be like the car industry, too. Maybe that should be the next Buffalo target - an auto plant sized heat pump factory....
There are millions of jobs to be had for the next two decades or more with just these few examples. But to be effective, the manufacturing part can't be off-shored; imports of these need to be viewed as morally repugnant, as well as economically "stupid on steroids". The solar PV industry in particular needs to be based on made in USA PV cells/modules/systems; using Chinese slave labor and mercentilistic capital to provide "cheapies" is so unpatriotic, and such a job killer, when job creation in THIS country needs to be stressed.
And while some will stress replacement of coal burners and nukes, that can be done after the gas based plants (also most expensive) get replaced. After all, very few new coal and nukes are being installed, and are likely to be installed. Nukes are just too expensive, and they CAN go Fukushima on us. New coal burners are also expensive, and the price of coal on the east coast is just no longer predictable (Chinese and Indian purchases have added at least $30/ton onto prices in the last year). The combination of affordable electricity and job creation pretty much targets wind, geothermal, tidal, biomass and biogas as to how the bulk of our electricity needs to be made.
Oh well, that's at least two cents worth of advice. What's your opinion(s) on this? After all don't forget to
the public conversation as we certainly cannot leave that to the corporate owned media around here. Talk about a proven to be a brain deadening concept...
DB
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