Its mid afternoon on election day, I’ve voted, had lunch and am looking at the strong winds waving the trees and the white caps on the sea. A man has just set light to a car on Cuba Street in Wellington to protest Fractional Reserve Banking and this might just be one of the more significant events of the day.
By the time you read this you will know who won the election, and might be happy or sad that your choice did better or worse than expected.
But I’m sorry have to say, that whoever manages to form a Government, it isn’t going to tell us much about how the next year is going to go. Events, as always will overtake Policies. Reality will overtake Theory, and uncertainty will be the driving force in the world for some time to come.
While the media concerned themselves with who said what to whom at a tea party, we were presented with a weak choice between the nice chap, steady hand on the tiller, don’t rock the boat too much, business as usual and the ‘Ditto, but lets move the lever a bit more towards the workers. Hobson’s Choice really.
Meanwhile what we have on the horizon are crises in the 3 E’s Economy, Energy and Environment.
The global economy is in serious trouble. The chickens of neoclassical economic theory have not only come home to roost but have been plucked, processed and are growing salmonella in the limp lettuce salad of European sovereign debt crises, massive US dollar printing, widespread bank failures and debt de-leveraging. However you measure it – things are not looking rosy in the finance world.
Pundits point to a range of possible causes: the sub-prime mortgage crisis, de-regulation, fraud, the Washington revolving door, the greed of the 1%, Real estate and other bubbles. But these are really all symptoms of an underlying problem. The global financial system is based on a false premise: that market forces, left unhindered, will tend to a stable position, an equilibrium, where the value of everyone’s contribution to the economy, labour, capital etc – is optimal. This was the dream of Reagan, Thatcher and Douglas, Government must de-regulate and give the market a free hand.
The problem is however that such an equilibrium does not exist: except in very simple models that bear zero resemblance to the real world. Its like a model that predicts the behavior of an internal combustion engine – so long as there is no fuel in it.
What we have had for the past 30 years is an economic system that appears to work fine so long as it is possible to continue to increase both the amount of debt in the world, and the rate of its increase. This is comparable to someone claiming to be able to fly when they have jumped off of a building – everything is just fine until the very last minute when they hit the ground.
The chap setting fire to a car today – in protest at fractional reserve banking, sort of gets it. but I am afraid he is pointing at just one smoking gun – rather than the team of gunmen.
World debt doesn’t just rely on fractional reserve banking. There are plenty of ways credit can be expanded, and as President Obama found last year, pumping move reserves into the banks won’t expand the money supply if everyone is already over-leveraged and there are no more takers. Its a bit late to complain about peak debt now its about to collapse. Fair enough though to complain (as the Occupy movement does) about the massive transfer of wealth from the poor to the rich that is enabled by the debt process.
Of course in theory there is no upper limit to how much debt the world could sustain, they are just digits in a computer after all. The crash doesn’t come from the falling, or the acceleration, they just determine how much its going to hurt. The crash comes when you hit the ground, that is when the numbers meet real world physical limits and the first of these is Energy.
Now talk of peak oil has been around long enough that I probably don’t have to explain how we are not actually running out of oil, just that we will soon get to a point where to get a barrel of oil out of the ground is going to cost a barrel of oil, and as we even start to get close to that point the price of fuel for transport, and gas for fertilizers, will start to double, and double again until you will look back on two dollar a Litre petrol with the nostalgia we currently reserve for 50c a Gallon. After a while though the price won’t actually matter because before you can consider putting some in your car – someone else will have had first dibs on it.
The massive growth in the world economy has been primarily fueled by cheap oil. It has been a huge boost to our society and has allowed the world population to grow to seven billion people. It has been like a rocket boost propelling us into the stratosphere, now as the rocket shuts down it remains to be seen whether we have actually achieved orbit – or will now start to descend.
This boost though has been achieved at a great cost. The billions of tons of fossil carbon released into the atmosphere is sufficient to change our climate, making it more energetic, less predictable, and we are already seeing an increased frequency of extreme weather events. The same carbon is being absorbed by our oceans, increasing acidity. Together these imply dramatic stresses and changes to the ecosystems upon which all life depends.
So we have a financial crisis that is only just getting going, behind that an energy crisis, and behind that an as yet unknown amount of damage to the environment.
As I said – Uncertainty is going to be the major growth area in the coming year. State Asset sales – unlikely to take place when there are no buyers, due to crashed financial markets. Free Trade deals – pointless when global trade is trashed by doubling fuel prices, Similarly new road building projects. Spending plans? What plan will survive contact with debt-deleveraging, rising unemployment, falling tax takes and failing international markets.
Those levers of power – that our candidates are striving for, I’m sorry to say that they are connected to precious little in this big uncertain world. But NZ is still about the best place one could hope to be. We have resources, we have the wind and the waves, the sun and the geothermal. We are a country that can feed itself, and a country that can still remember what it meant to be resilient, practical, pragmatic and to work together.
Whoever wins tonight I sure hope they have qualities of Flexibility, Integrity and Leadership – we are going to need it.