150 comments on Economic Impact of Peak Oil Part 2: Our Current Situation
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P, I don't know where that idea comes from, but it's pretty wild. A quick look at exponential functions says it's doomed from the start. It simply forms the basis for a consumer society, I would think, and that's not going very well.
As long as people have not fulfilled their (basic) needs, they will spend in order to do so. When they have, why entice them to spend more? As all money is issued as debt, they will only get deeper into debt, so who benefits from that 3% inflation? Not the people.
It will bring down the banks as well, or at least I can't see how it couldn't. The entire system is neck-deep invested in derivatives.
Then there is the obvious connection to a growing population. Picture a village with a fixed number of people and you could conceive of a steady-state economy with no inflation. Keep adding people and this triggers all the other pressures to adopt 'inflationary' systems such as resource extraction and fiat money. Population expansion must, I believe, be seen as the fundamental driver behind expansionary economics.
No it's not. In periods with very low inflation or even deflation like around 1900 other mechanisms were used to achieve the same effect, for instance the Woergl stamp scrip. This currency was used to rejuvinate a small city and it worked by causing money to "rust" by forcing people who held the cash to pay to keep it valid.
This practically forced investment and usage of the money rather than hoarding, as people are wont to do when a currency is deflating. It had an amazing affect on the town, by all accounts.
These days inflation is used to achieve the same thing. Rather than sit on piles of cash waiting for them to get more valuable, people invest. They do this even if they don't realise it - by holding their money in savings accounts or pensions.
It's widely accepted that a small amount of inflation "greases the wheels".
Why entice them to spend more? Perhaps because people spending money is how things get done? If everybody bought only the minimum they needed to survive and hoarded the rest our civilisation would grind to a halt. Nothing new would be created, infrastructure would decay, our society would become a pathetic joke.
You want money to circulate, you want investment. What you don't want is too much new money entering the system because that can cause nasty feedback loops.
Also, whilst it's true that the money system is based in "debt" that's not necessarily a bad thing. The word has many negative connotations, but having money be issued via bank loans has both pros and cons when weighed against alternatives (like full reserve banking or Ripple-style mutual credit systems).
Why entice them to spend more? Perhaps because people spending money is how things get done? If everybody bought only the minimum they needed to survive and hoarded the rest our civilisation would grind to a halt. Nothing new would be created, infrastructure would decay, our society would become a pathetic joke.
Sounds like a prescription for exactly what we need. (although, I do believe our society is already a pathetic joke for holding on to growth as one of its core values)
Anyone touting inflation as a good thing doesn't understand exponential functions.
Inflation does one thing only: it depreciates the value of your assets, while debasing the value of your currency.
And you wish to make the point that that is a positive thing, and our civilization would even grind to a halt without it.
That may be true for a civilization based on American Idol, McMansions and Cheese Doodles, but why would we wish to save or maintain that? Aren't the limits sufficiently clear yet? How much longer will it take?
Of course. if what you have loses value all the time, and what you need gets more expensive at the same time, you will have to go and work and dig holes and what not, in order to make up for that loss, and you'll get mighty active, but that’s good for who exacttly? For you? Who do you think collects as profit what you are losing?
The early 1900's are not a case pro inflation, they were a time where an inflation based economy was showing the same cracks that we see around us now. Fight the evils of inflation with more of the same. Real promising.
.
Inflation ultimately can only destroy societies. And my, look around you.
Inflation reduces the value of currency, which makes sustainable investments more compelling.
Consider a forest that I own. If there is no inflation ... if there is deflation, in fact ... then it's in my best interest to clear cut the forest straight away. I'll get a lot of money up front and that money will become more valuable year after year! But if there is some mild inflation, then it's in my best interest to run the forest sustainably, because I get a guaranteed income each year (the price of wood will rise along with the price of everything else to match the increase in money supply). In other words I invested and produced value rather than hoarding currency and eliminating value.
You're right that inflation can destroy societies - just like deflation can, if allowed to get out of control. Your position on the early 1900s don't make any sense - the Great Depression was a time of deflation, not inflation.
I believe that ilargi was referring to
You seem to be fixated on 1929. Before 1929 but still very much a part of the early 1900s (part of that same 20th century), we saw numerous financial events that demonstrated the hazards and folly of inflation.
"The greatest shortcoming of the human race is our inability to understand the exponential function." -- Dr. Albert Bartlett
Into the Grey Zone
While I understand the point Mike was making, it does provide a valuable counterpoint: The way in which this forest is *considered* is from a purely economic standpoint, and that's the tragic rub of our whole economic way of life -- EVERYTHING is reduced to its pure economic value regardless of any other value ethic!
IMHO this all encompassing capitalist economic meme is our ruination as a species. We need a land ethic that supports our basic communal ecologically based survival needs first and foremost. In other words, the forest is valuable as an intact healthy ecosystem that supports our life and all the other living things that contribute to the same! As soon as we diminish this land ethic valuation and substitute it with an economic one we devalue and diminish our own survivability.
Hence the lesson we are soon to learn as a species: Nature does not make economic compromises with anyone!
1. What is economy but the mathmatical analysis of scarcity of resources?
2. Why are you considering an entire math science to be "bad" just because humans used it to understand better how to destroy Earth? Economy isn't bad and that's the issue we face. The problem is that it worked too well, not too bad.
3. Isn't morality only a traditional-based "economy" of things? We all have learned by moral that we should be in more of a harmony with the environment (the greens), but isn't that a purely economical stance of sustainable existence? Aren't you confusing "Economy" with "PR using economical terms to rape the Earth"?
I'm not against what you're saying. I'm against the way you're saying it. The program you present (get the ecological issues back to politics, aka society, from the economics) has some problems, but essentially I agree with it. Society should decide what is best for the ecossystem first, and only thereafter what is best for particular economies.
But this kind of thought will be referred to as "communist" or "extreme left nugget thinking", and so I wouldn't bet on it.
I'm sorry but I do not accept your definition of "economy" as a "mathematical analysis of scarcity of resources." I do believe this is way too narrow a definition of what should constitute a healthy and life sustaining *economy* and our understanding of it.
Secondly, I did specify the particular economic analysis system I was referring too: "all encompassing capitalistic" one. Your suggestion that I was inferring all economic (or math based) analysis "bad" is a misguided interpretation of your own making.
However, as to your suggestion that such an economy as you conceive it, as a mathematical abstraction, "worked too well, not too bad" in *destroying the earth* only serves to prove my point!
Without an ecological ethic (or however else one wants to call it) to guide us, all our scientific and mathematical genius can not save us from continually doing harm via these lofty methodological abstractions -- they need to be grounded in earth based limits and our acceptance of them. In short we need to accept that we aren't demi-gods over this earthly creation but mere caretakers, and very ignorant and fallible ones at that.
Finally, I don't care what anyone may think to negatively label such thoughts as representing. We don't have as much choice in this matter as we pretend we think we do and/or will have. The way we are going about accounting the economy of the world is without a doubt leading us to ruin. Ultimately, earthly reality and the very real limitations that rules the natural world here and within ourselves will prevail over our ecologically unhinged abstract economic conceits.
Whether we make amends before our civilized destruction is complete is *the bet* we are wagering and it is the only one none of us can predict with certainty, but make no mistake we are betting against ourselves daily with our unethical economy as is!
Thus my assertion stands: Nature does not make economic compromises with anyone!
Mike Hearne:
If the Woergl stamp script worked so well, then why wasn't it revived during the Great Depression at least in Woergl? Why are there no more examples of this system working in the years after this one experiment?
When I'm looking at an idea for an oil well one of the first things I look for is evidence that other people or companies are doing a similar type of prospect.Its confirmation that my idea isn't too outlandish. And its the same with other ideas, I don't mind being fairly original but if I'm too original its not a very good sign. Bob Ebersole
Bob,
Democratic forms of government were invented by the Greeks several hundred year before Christ. After a relatively brief period of experimentation these forms of government disappeared from the world for over a thousand years. Did this disappearance constitute 'proof' that democracy was a bad idea?
And, by the way, the Woergl was deliberately suppressed at the request of the Austrian central bank. The case was fought up to the Austrian supreme court which ruled in favor of the central bank. What a surprise.
Roger