[R-G] [BillTottenWeblog] Rx: Depression

[Bill Totten]

by John Michael Greer

The Archdruid Report (September 24 2008)

Druid perspectives on nature, culture, and the future of industrial society


By the time you read these words they will have been sitting on my
computer for most of a week; the chance to attend the annual ASPO peak
oil conference in Sacramento was too good to pass up, and I'll be on the
road during the window of time I normally use to compose these essays.
It's an interesting time to be second guessing the future, too, for as I
type these words, the world's financial markets are in chaos. The
collapse of Lehman Brothers, one of the longest established brokerage
houses in the New York market, followed by the forced sale of Merrill
Lynch and the near-collapse of insurance giant AIG, seem finally to have
made it clear to the world's investors that the mountain of unpayable
debt weighing on the global economy is a problem that can no longer be
ignored.

Just how bad that problem will become is anybody's guess. Stock markets
worldwide are down steeply but, at least as of this writing, not yet in
freefall, and massive government intervention in the credit markets has
staved off a liquidity crunch. Over the longer term, though, investments
supposedly worth trillions of dollars are going to have to be written
off, and companies that padded their balance sheets with those
investments are now facing a scramble for survival that many will fail.
An entire economy built around the exchange of exotic IOUs is coming
apart at the seams, and the economic structures that will replace it are
not yet in sight.

A growing number of voices are proclaiming that the current crisis marks
the beginning of a major economic downturn; the word "depression", until
recently taboo in polite financial company, is even being heard. Now
it's worth pointing out that we have as yet no way of knowing whether or
not things will get that bad. The 1987 "Black Friday" crash, which saw
the Dow Jones Industrials lose 22% of their value in a single day of
trading, was followed by the same sort of proclamations; so was the
unraveling of the tech boom in 2000. Both slumps, severe as they were,
led to relatively modest recessions. It's possible - though admittedly
not very likely - that the same thing could happen this time.

Yet it also has to be remembered that not too long ago, economic
depressions were simply a fact of life. In the 19th century, before
government regulation restrained the excesses of the business cycle,
major economic depressions happened every twenty or thirty years on
average; most people could expect to live through two or three of them.
The New Deal reforms of the 1930s, which restricted the vagaries of the
business cycle, made depressions a thing of the past; still, those
reforms were tossed aside in the deregulatory frenzy of the 1980s and
1990s, and unless they get put back in place, we will all likely have to
get used to depressions again.

Counterintuitive though it may seem, furthermore, a serious depression
right now may just be the best thing that could happen to the United
States. I don't say this by way of passing judgment, or in the spirit of
schadenfreude that seems to surround so many predictions of social
catastrophe. Rather, a good many of the dysfunctions that are dragging
America to ruin will be immediately unsustainable in a time of
depression, and a certain amount of economic suffering now could spare
the American people a far worse experience later on. Here are some examples.

1. The End of American Empire

Right now America is as addicted to empire as any inner-city crackhead
to cocaine. We support the world's most bloated military, with troops
and bases in more than a hundred countries, in order to enforce a global
economic order that allows the five percent of the world's people who
live in the United States to use roughly a third of the world's
resources. At the same time, empires are costly pets, and ours - like
every other empire in history - is becoming an economic burden our
nation can no longer support; at the same time, the drastic decrease in
US living standards that would follow the end of American empire is a
political time bomb nobody wants to touch. Caught in that dilemma, the
United States seems determined to follow the usual course of past
empires, allowing its imperial commitments to drag it down.

A depression, however, would force the issue. In the midst of economic
collapse, the United States would be no more able to maintain a global
military presence than Russia was after its own collapse. The troops
would have to come home - not just from Iraq and Afghanistan, but from
the whole far-flung web of US military bases - and resources now being
drained by the incubus of empire would be available for more
constructive tasks, such as preparing for the onset of peak oil.

2. Energy Availability

A serious depression would also have predictable effects on energy use.
The economic troubles of the 1970s and early 1980s, mild as they were by
depression standards, played a noticeable role in causing energy use to
drop sharply during those same years; when people don't have money, they
don't spend it on unnecessary energy, and they are also likely to take
conservation measures that cut into energy use even further.

By many estimates, we are only a few years from serious decreases in
world petroleum production. Any significant response to this crisis
will, ironically enough, require more fossil fuel energy - it takes
energy, after all, to manufacture insulation, rebuild railways, and make
wind turbines, and most of that energy will have to come from existing
sources. If energy prices spiral out of sight, many such projects will
be out of reach. A depression, on the other hand, will force down
demand, keeping prices from rising and making it possible to build for
the post-fossil fuel era. Public works projects such as the
Depression-era Civilian Conservation Corps could also be directed toward
energy conservation and renewable resources.

3. From Offshoring to Onshoring

Another likely result of a serious depression would be the rebirth of a
domestic manufacturing economy in America. Right now the US economy
produces very little but debt; that's the way the tribute economy of
America's global empire works. The results have been profitable not only
for the political classes but also for the middle class, which gets to
buy all the consumer goods it wants without having to pay what it would
cost to hire Americans to make them; the poorer two-thirds of the
population, by contrast, has been hammered by predatory economic
policies that replace well-paid factory jobs with minimum wage positions
flipping hamburgers.

The global economy that made offshoring possible, though, will be an
early casualty of a serious depression, and when the US either defaults
on its national debt or hyperinflates its currency - and it will have to
do one or the other of these, sooner or later, to get out from under the
burden of unpayable debt - the unraveling of the global marketplace will
be complete. Once that happens, goods and services for the American
market will have to be produced here, and the rebuilding of domestic
manufacturing capacity will follow. This will make it much easier for
America to survive the transition to the age of scarcity industrialism
now dawning around us.

4. Decreasing Income Disparities

Meanwhile, the huge disparities in income that separate the upper third
of Americans from the rest of the population will unravel. Economic
boomtimes are always periods of increasing social inequality, because
investment income is concentrated in the upper income levels;
depressions are income levelers for the same reason. In the 1920s,
income disparity soared to levels that were not reached again until the
Reagan years; in the 1930s, as investments of all kinds plunged in
value, the gap between the rich and the rest dropped to historic lows.
The same thing is true today; essentially all the exotic investments
that drove the recent boom were available only to the rich, who thus
have earned the privilege of losing their shirts as those investments
unwind.

The narrowing of income disparities isn't simply an issue of class
jealousy; it powerfully affects the functioning of the economy. When the
working classes have money, they spend it on goods and services, helping
to maintain economic well-being. When the rich have money, they are more
likely to invest it in speculative instruments that contribute much
less. Speculation is a parasite on the economy, and it is quite capable
of killing its host; that's essentially what's going on right now. An
economy with lower income disparities is more stable and productive than
one with the drastic disparities we have now, and we need a more stable
and productive economy in order to deal with the instabilities that will
follow the end of the age of cheap fossil fuels.

5. We're Headed There Anyway

The most important impact depression could have is also the one that
most people will enjoy the least: most of us will have to learn to make
do with fewer of the comforts, conveniences, and opportunities that we
have all learned to expect. For the last sixty years most Americans have
enjoyed lives of relative opulence, even as the resource base and
manufacturing economy that made that opulence possible has trickled
away. The last few decades have seen desperate attempts to replace these
losses with exotic financial instruments and an increasingly strident
imperial policy overseas. These measures worked for a while, but now the
bill is coming due.

At the same time, the end of America's age of opulence comes as the
world's ability to supply itself with cheap abundant fossil fuels is
becoming steadily more problematic. In a world of scarce energy, the
opulence of the recent past will no longer be in reach for anybody. The
sooner we begin retooling our lives to deal with that reality, the
better off we will all be in the future. A depression would thus bring
about changes that are going to happen anyway, and would do it at a time
when the world could still devote significant amounts of energy to the
transition.

No matter what we do, the way there won't be easy. Hard times are hard
times, and it's a waste of time trying to sugarcoat that fact. Still, an
economic contraction beginning now - before peak oil has a chance to
force the issue - could give us a crucial margin of lead time.
_____

John Michael Greer has been active in the alternative spirituality
movement for more than 25 years, and is the author of a dozen books,
including The Druidry Handbook (2006) and The Long Descent (2008). He
lives in Ashland, Oregon.

http://thearchdruidreport.blogspot.com/2008/09/rx-depression.html


TO POST A COMMENT, OR TO READ COMMENTS POSTED BY OTHERS, please click
on the word "comment" highlighted at the end of the version of this
essay posted at http://billtotten.blogspot.com/