Wednesday, October 17, 2012

Evaluating Where We are and the Future to Come

This was first posted elsewhere in January, 2012. There have been minor comments added today.

Background to this Post

For the last six weeks, I've been reducing a pile of paper, some 8000 printed pages from the Internet, collected over the last year, into something I can organize and understand. I promised my wife Carolyn to clear away the pile before Christmas.

Now I've now got about 500 pages in six or seven categories. I'm full to overflowing with detail, having read and re-read this material; I'm still trying to make the best sense of it.

The World Economy

The triumph of modern economics was the apparent ability to intervene in business cycles, and to "fine-tune the economy," as a New Zealand Prime Minister, Mr. Robert Muldoon used to say. For all of my adult life when unemployment threatened to rise, we've found ways to pump up the cash supply, and make the big bad wolf go away. For sixty years most countries have been creating a debt bubble that they can't sustain today.

In 1972, we heard about OPEC for the first time, and we suffered the first oil shock, with car-less days, and higher fuel prices. It's recently been argued that real wages stopped rising about the same time, and that the two events are connected. Certainly, the neo-liberal economic reforms that swept the world under Reagan and Thatcher, or with Douglas and Richardson here in New Zealand, were an attempt to deal with changing times, by letting the market play a dominant role. At the time, it was necessary change, in my view. Those reforms bring us our present problems, where the success of markets, combined with the failure of markets, threatens to destroy the world.

Today, most of the developed world has financial obligations that can't be met unless the economy grows at a much faster pace. But in all the developed countries economic growth seems to be impossible to achieve. If there is no growth, the debt can't be repaid and the interest on the debt is also in doubt. The only way out for Europe and the USA, but not only them, is to promote inflation, to devalue the currency in real terms. That's a form of fraud, which meets the letter of the law, but steals from both creditors and savers. Look at the price of gold and silver, for evidence that people with cash reserves, prefer to hold much of that in metal, rather than in bank deposits.

The financial leaders of the world are working overtime to prevent riots in the street, and collapse in the markets. There's no way to tell how that will turn out, there are simply too many variables and unknowns. The status quo can't continue, but perhaps we can find a new solution if we hang in there for long enough.

Is "collapse" likely?

At any time, the financial failure of a nation state, or a major company (or bank), or a strong rise in the price of oil, could tip the economy of a country, probably many countries, into economic collapse. We can go from normal to unsettled in a month, and from unsettled to collapse in two days. By day three the banks are closed. By day five the shops are empty, and many people are out of a job. People agree to work for nothing just to get the system restarted.

Look at the economic history in Argentina and the many Russian Republics for what happens next. Years of struggle made worst by political and economic corruption. People work for months without pay. People with bank savings find they cannot access those savings months or even years later. Billions are made in speculative markets, by insiders, or criminal gangs. as the value of assets plunges. and control of the counties wealth is stripped away. Perhaps in little new Zealand we can do better than that.

The New Zealand Political Scene

Here in New Zealand, today, such a collapse looks impossible. I worry that the face of the smiling Prime Minister, John Key; the man who is troubled by nothing, might be setting NZ up for a fall. I prefer Bill English's more firmly set jaw. I worry that we are borrowing too much now, just to keep political promises made. The National Party (And the Labour Party, for that matter.) are committed to future growth in the economy. For them borrowing makes sense. I'm suggesting that for reasons beyond our control, future growth won't happen, and that the debt we are creating will become a future problem. We should be taking some more pain now.

I expect the price of oil to be volatile this year. Over US$140.00 a barrel at some stage. (Because of the Global Financial Crisis continuing, that prediction was wildly wrong.) This will depress the world economy. The price of oil will fall, but it will rise again. The economy will grind along without growth, perhaps with some depreciation, especially in house prices and commercial rents. The economy can limp along in this way indefinitely, as Japan has for the last 20 years, but always threatened by the possibility of shifting from unsettled to collapse almost overnight.

Commodity prices are currently falling, but they will rise. Inflation will become an everyday reality, but your income won't rise, and may fall. People will become more and more disenchanted with the way things are going.

There are great new business opportunities in this uncertain and cloudy environment, but there are few people with the resources and the courage to take the risk.

We could easily have a change of government in 2014, but to switch from a National led to Labour led coalition is no answer unless someone understands what the problem is. Unless we all understand what the problem is.

What we should be doing.

First task: understand the issues. In 2010, I got involved with a group called "Four Years. Go." which proposed that the four years 2011, 2012, 2013, and 2014, will be critical years for the future of the planet. They seek, "A Thriving, Just and Sustainable way of life for all." There is no plan to achieve that in four years, just that these four years need to be the turning point, where business as usual stopped and the new economy started to develop. For instance in four years can we agree that GDP is an unsatisfactory measure of economic performance and start to use some more useful tools? Can we see that the continually rising real price of oil, will force each of us to live and work in the same place, and so the way we organize our whole society has to change. Much of what we now do will become impossible in a future with high-priced oil.

One change I expect, for instance, is for small towns of about thirty houses to develop every 20k or so along main highways. Back in the 1920s there may have been towns in those places. They will come back. The new houses will not be like the ones we are now building. They will be small, four rooms and a washhouse, but very well insulated and with solar water heating on every roof. Yes, I expect our cities will tend to get smaller.

Most of us will need to find a way the thrive, without access to a job. You probably won't be able to do that as a consultant, although a few people might. You'll develop a range of practical skills, often learned on the job, helping someone else, or in trying to solve one of your own problems. You may find that you are paid in community hours, rather than in cash.

Try to understand the many different forms of CAPITAL, that are required for business success. Financial capital of two types, first the money to buy and hold land, buildings, and equipment; then the money to run the business from month to month. Then there is the capital resource, managerial skill and experience. And the capital resource, community connections and networks. And the capital resource, of the local natural environment. And the capital resource, of a market that you know and understand, and are a member of. Perhaps finally the capital resource, of the production team who make the business work and sustain the business in changing times.

Local Community

Without formal jobs for much of the year, many of us will work from a home base. Much of the work we will do will be in our local area, often within walking distance from home.

Where we can, most of us will maintain household gardens. I expect that some sort of internal street committee will function in most streets. This won't be too focused on what the street expects from the city council, but more on what do we need to do together and how can we help each other.

I expect it to be commonplace for people to work for community hours and to make payments in community hours. This idea of using a local currency seems very strange, but when there is no cash about, people will create alternatives.

Sustainability - Like it or not

We are all participants in the biggest challenge that's every faced humanity. Are we capable of reorganising our activities to save the ourselves, or will our failure to act responsibly result in the planet reacting against us? Humanity has lived with this sort of challenge ever since WWII. Then it was the threat of two or three powerful politicians starting a nuclear war, that worried us. Today's threat is of a different kind. It's caused by 9 billion people who want nothing more than to live the sort of life I have been privileged to live. In the long run a sustainable earth will be created, the question is about how that balance is achieved.

Humanity either gets the environmental house in order, or the planet will do that for us. 40 years ago we faced the world population challenge. We declined the option to limit the human population on earth. That battle is lost, nature will intervene at some stage. End game for millions, possibly quite soon. Today, we are faced with the threat of human created climate change. Once again, we have declined to act. We're not willing to save the climate. Our children and grandchildren for many generations, will suffer the consequences of that. We will reap what we sow.

I hope that New Zealand is a lucky country. If we can avoid invasion by Indonesia or China, or some similar over-populated country, then what happens to us is largely up to us. We start with many advantages. One of those is our small population.

Many countries in the world will not in future be able to feed themselves. That may also be a problem in some NZ cities, but a problem we can solve. Globally, I expect poverty and famine and disease and riots (war?), droughts and floods and fires will deal to the human population soon enough. We'll reap what we created.

There is hope in the mind of the present government that we'll find significant reserves of oil or gas in the near future. That might be nice, but it would also make us a prime target for an invasion. I don't expect that any alliance with the USA would protect us from that. The USA has problems of it's own.

I suspect that the form of farming we are currently enthusiastically developing is a wrong direction. Given high oil prices it won't be sustainable. I'm picking that within ten years that worm will turn, and we'll be looking for a new way to make a living off the land. What can we do without a lot of mechanisation? As a Child, I saw the last of horse-drawn ploughs, and the mounted drover and his dogs taking sheep through the main street. They may return.

John Stephen Veitch
The Network Ambassador
Open Future Limited - You may comment privately to John S Veitch here:

No comments: