Sunday, January 19, 2020
A Rising Tide
written 12 January 2020
published 19 January 2020
Trump and his Republican chorus keep pointing out that the economy is strong, the stock market is high, and unemployment low; proof that everything is fine. "A rising tide floats all boats". This comforting old capitalist aphorism suggests that economic growth is a benefit for everyone, assuming you own a seaworthy boat. However, increase is not always good. If your weight increases every year, you eventually experience morbid obesity, with diabetes and other health risks, and shortened life expectancy.
Metrics like the stock index are easy to quantify, but being broad averages, they smooth out important details, and are of little help in illuminating the condition of our society. What does it mean that the stock market is at a record high? Has real value increased, or is the dollar worth less each year, requiring more dollars to buy the same thing? We bought our house 8 years ago and the "value" has increased by 50%. We are grateful to live here, but nothing real has changed about the house, except that we couldn't afford to buy it today. What is the social benefit of this value increase?
Another smoothing metric is the unemployment rate, which ignores the social, or economic, value of the job a person holds. In 1962, my widowed mother, a new teacher in San Diego with a starting salary of $8K, was able to buy a modest home for $15K. A starting teacher today earns more than $45K, but the median home costs over $500K. The fact of employment says nothing about the quality of life that employment can support. A significant portion of the homeless are employed.
In the last two decades, the Gross Domestic Product (GDP) has more than doubled from $10T to $22T, but the national debt has quadrupled, from $5.6T to $24T, now more than the GDP. This debt fueled growth bailed out a fraudulent banking industry and funded the endless wars in the middle east and Afghanistan, all of dubious social value. It is easy to look flush running up debt, but it is ultimately unsustainable.
In the last decade, massive investment in the fracking industry made America a global leader in oil production for the first time since 1972. This looks great on paper, and seems to indicate that America is energy independent. But like much else in this economy, the process is not sustainable. Fracking is a desperation extraction technology, used only when other forms of recovery have failed. It is extremely energy and material intensive, going after very thinly distributed oil reserves. From an energy perspective, it returns about 4 barrels of oil for every barrel of oil expended in the recovery. That is less energy efficient that burning firewood, and much less than the minimum energy return of 10:1 needed for a modern industrial economy. The result has been an economic loss of more than $250B since 2010. Investors have been sinking money into the ground on the promise of good returns, but the best fields have already been developed and are declining, with no profitable payout on the horizon. When economic reality finally hits, America will once again be at the mercy of foreign oil suppliers, many of whom we have infuriated with our incompetent operations in the middle east.
Another way to make a sick economy look good is to defer costs and critical maintenance. The fire situation in California is a glaring example of deferred maintenance eventually destroying parts of the entire society. The health and environmental costs of inadequate waste disposal in the agribusiness, mining, and power industries keep increasing, while the corporate bottom line tries to look good. In another case of denial of reality for short term economic gain, the Trump administration is now eliminating consideration of climate change in future economic development, despite the fires in Australia, or Pentagon concerns that climate issues threaten national security. This is like designing a building while pretending that gravity doesn't apply; resulting in inevitable collapse.
"A rising tide floods all homes" is the new aphorism coming from Florida. But even that image implies only gradual change. The real image of downside risk of capitalist collapse comes from Super Storm Sandy; "a storm surge destroys all homes".