economics

Last night I went to a talk by Michael Shuman, author of SmallMart and a number of other books on building local economies. He had some fantastic arguments and ideas on why focusing on local economies is far better than focusing on globalization. Key pieces of his argument were items of which most people reading this site are already aware: Peak Oil, global warming, and collapse of the global economy. But he has a very fresh and nuanced view with some incredibly solid arguments that crush the hopes and assertions of even the most die-hard globalist. I intend to get his latest book in the near future so I can speak more intelligently on local economic issues.

This weekend Shuman is also hosting, in conjunction with the Yellow Springs Smart Growth committee (which contains a few Peak Oilers), a workshop focused on analyzing the "leakage" from the Yellow Springs local economy, brainstorming ways to refocus on the local economy, and building an executable plan for the community. I'm not able to attend but several friends of mine are. It's a very exciting prospect.

Shuman discussed last night that one key reason that locally-owned businesses are held at a disadvantage is that people can't invest their pensions locally due to obsolete securities laws. Apparently, he had conversations with the Obama transition team on Wednesday and they were very receptive to rewriting these laws. This could truly be a key piece of building post-Peak Oil economies and is very encouraging with regards to the Obama team's economic mindset. I'll be staying tuned.

In the media, the current financial calamity is constantly referenced to problems during the Great Depression. But an article posted by aboutime on LATOC points out, this comparison falls exceedingly short. A much more apt comparison is to the Greater Depression, otherwise known as the Panic of 1873. Read this description of the conditions leading up to the Greater Depression:

The problems had emerged around 1870, starting in Europe. In the Austro-Hungarian Empire, formed in 1867, in the states unified by Prussia into the German empire, and in France, the emperors supported a flowering of new lending institutions that issued mortgages for municipal and residential construction, especially in the capitals of Vienna, Berlin, and Paris. Mortgages were easier to obtain than before, and a building boom commenced. Land values seemed to climb and climb; borrowers ravenously assumed more and more credit, using unbuilt or half-built houses as collateral. The most marvelous spots for sightseers in the three cities today are the magisterial buildings erected in the so-called founder period.

But the economic fundamentals were shaky. Wheat exporters from Russia and Central Europe faced a new international competitor who drastically undersold them. The 19th-century version of containers manufactured in China and bound for Wal-Mart consisted of produce from farmers in the American Midwest. They used grain elevators, conveyer belts, and massive steam ships to export trainloads of wheat to abroad. Britain, the biggest importer of wheat, shifted to the cheap stuff quite suddenly around 1871. By 1872 kerosene and manufactured food were rocketing out of America's heartland, undermining rapeseed, flour, and beef prices. The crash came in Central Europe in May 1873, as it became clear that the region's assumptions about continual economic growth were too optimistic. Europeans faced what they came to call the American Commercial Invasion. A new industrial superpower had arrived, one whose low costs threatened European trade and a European way of life.

While the eventual end effects of the Great Depression and the Greater Depression have some parallels, the entry conditions were far different. To understand what we face economically in this first phase of The Great Decline (our current crisis), we need to focus on prior events where the entry conditions more closely match. If we ignore this prior example, we may not prepare ourselves accordingly for the fallout.

In the beginning, it was all so simple. Rub two sticks together, get a fire. Stick a pipe in the ground, get some oil. Trade a cow, get a llama. Simple systems require only straightforward applications of engineering, with little need to examine precisely how individual components might interact. But as our global production system has evolved, so too has the level of complexity amongst the various components. Our society, based on ever-advancing technology of all kinds, has become a seething morass of indecipherable interactions between mind, body, finance, and resources.

What was once a world of isolated simple systems is now what we (so creatively) call a complex system. Complex systems don’t have straightforward relations between cause and effect (input and output) because there are such high numbers of interactions within the system. As such, complex systems fail in complex ways.

I tend to stay away from specific financial predictions about the future, as I lack the expertise for accurate in-depth analysis (even assuming the data is out there). PeakOilDesign is a site more about preparing for crises than predicting them. But, as the saying goes, it doesn't take a rocket scientist to see where the economy is headed in the very near future.

I've mentioned before that there is a whole host of problems we face aside from Peak Oil and global warming, as dire as those issues are. There are dozens of other, more subtle (read: unreported) catastrophes that could yield equally devastating economic effects, depending on your personal situation. Most immediate among those is the ongoing housing collapse; while it is frequently a topic in the news, the media usually try to put a positive spin on it.

In truth, there is no room for positive spin:

I'm an engineer and physicist, not an economist, but in my casual studies of economics I've learned that there are many parallels. Most important among them: exponential growth is not sustainable. CNN reported with some jubilation on Friday that the Dow Jones Industrial Average has risen for 23 of the past 26 weeks, nearly matching the 24/27 record from 80 years ago. This should have given the CNN writers pause: what shortly followed this record rise 80 years ago? Ah yes, the Great Depression.

Investing in self-sufficiency is expensive, both in time and money. At first glance it seems that by the time we’re done building our house, we’ll have no money left over for purchasing so much as a chicken, let alone a barnful of critters. What about including solar panels, a cistern, or a composting toilet?

That’s why I am all about approaching Peak Oil preparations in an organized manner using tools such as Systems Engineering. We must have a structured plan on we risk making mistakes in allocating our scarce resources.

At the end of this post is a rough list I compiled for the cost of many of the major components of a home. This list is by no means inclusive, but serves to give an idea of the cost of typical items you might choose to include in a house. I based the estimates off of the 1700 sq. ft. home size used in the Peak Oil Homestead Project.

An article at LiveScience today discussed the results of a study showing that even thinking about money can lead to a reduction in selfless behaviors, even when the selfless activity has nothing to do with competition for wealth. It's unfortunate that we're wired this way, but it's something to consider when trying to build community. How can we encourage our neighbors to emphasize cooperation over competition?