The economic trap the 1st world is in

Great post. Reminds me of Sterling Newberry.

I would enjoy hearing what you think w.r.t. “ways around this conundrum” that “require taking steps governments simply aren’t willing to take at this time”. I don’t see any real engines of economic growth on the horizon…

Ian, I totally agree w/ you and the Tom comment. I wonder if you and James Howard Kunstler have ever talked, or at least had fun w/ his two post-fall-out novels – the Witch of Hebron is way better than the first.

You’re right as always – as Krugman’s main revelation of the Japanification sticks, and Matt Taibbi’s Griftopia fills in the gaps, we’re lost. That’s why your pal Marcy (emptywheel) is still a blogger while GWB isn’t in jail. Tom mentioned Stirling, his post over at Corrente bowled me over. QE2 everyone! Savings rate at nil, gogo carry interest!

Solutions, I have none. I guess, rather than fighting over gas or water, we can fight over Beck v Olbermann. Same dif, right?

you have to break the energy bottleneck. I would move move aggressively on high speed rail

The last time that the U.S. broke the energy bottleneck was when the country was not consuming 20+ million barrels of oil per day, that is, at the beginning of the 20th century. At that time, the country had a (relatively) low-energy solution (too low until rural electrification projects were started) back before a gasoline station could be found every quarter mile in every city and town. Just as we have had the economic experience needed to know how to bring the working population back to full employment, we have had the technological experience to know how to power the transportation needs of the country. Hint: it wasn’t “high-speed rail.”

If high-speed rail were to replace airplanes for intracontinental (but not intercontinental) trips, then it would be of some value. (Some people will be shocked to learn that they won’t be able to move from the east coast to the west coast (or vice versa) less than a day.) If high-speed rail is only going to supplement flying then it would be better not to spend even a penny on it.

I would break the telecom oligopoly and spread public open access wifi/broadband across every metropolitan area, allowing anything to connect which doesn’t harm the network itself.

I’m not sure what good this will do to help “break the energy bottleneck.”

I’m not just dim, I think the lights are just about off when it comes to this stuff, but I really do want to understand it. And my query begins with the first and second paragraphs:

“You pretend the banks and the rich aren’t broke. In the Japan scenario, you slowly pay down or write off the bank losses at a pace which doesn’t wipe out the shareholders or bondholders or bank. Japan could do that, because Japan is a net exporter: there is money coming in to Japan.”

“Nations like the US can’t do it, not just because the US is a net importer, but because it’s bleeding all over the place, losing high value jobs, industry and running down infrastructure.”

It seems contradictory. If you are pretending the banks are NOT broke, then why would you have to write off their losses? They aren’t broke, right. And who is writing off the losses anyway. Weren’t we (the left) clamoring for the government to take over the banks and write off the losses? So why is writing off losses a bad thing? And why does trade have anything to do with it? Aren’t the ideas put forth by Wray and Galbraith about the ability of governments to print money to pay debts until there is full employment germain here? So what if we don’t export and no money comes in. We can make the money without being bankrupt, can’t we?

I know I’m horribly confused. Can you help?

Personally, I’d put regular rail before/alongside high-speed – faster ramp-up, using existing rights of way, huge maintenance and infrastructure repair and upgrade job, and rolling stock manufacturing could be brought back with a 20 year commitment. I would also put a cutting-edge nationwide power grid combined with concentrated solar power in the “treason in defense of slavery” South high on the list.

The energy bottleneck is secondary in the short term. The key problem is the funding bottleneck – any type of infrastructure work, including last-mile fiber for SouthKorea-Plus bandwidth and public commons wireless, requires money. There are only two realistic sources of revenue: undo Bush and Reagan tax-cuts and restore post-WW2 top tax brackets, and reduce discretionary military spending. The problem is that both eliminating telecoms from the market and cutting back on weapon purchases causes unemployment, so you need to find ways to re-purpose all those white middle class engineers into something productive – you are engaging in deficit spending to build up infrastructure assets for the next 50+ years, pace Keynes it makes no sense to have everybody dig and fill holes w/o putting something useful down there in-between. National grids and large-scale CSP are a possibility, so is high-speed rail, but you are going to have a hard time handling early deployment vs. R&D for the next gen – infrastructure build immediately with off-the-shelf tech suffers from a generalization of Moore’s Law, which implies it can pay off to hold back on purchases.

The economic impact of free Internet is tightly coupled to other constraints on small businesses – to wit, the preemptive health insurance industry bailout did absolutely nothing to foster self-employment and founding of small businesses. That alone is an indication on how none of this is going to happen. Another constraint is education and training – students and unemployed should not have to pay a dime, the only gateway to education/training resources should be aptitude, exceptional ability and drive should result in government stipends.

I still think that the possibility to re-purpose huge chunks of weapons production and R&D into an orbital infrastructure effort – aka near-space program – would be an interesting twist to give everybody cognitive whiplash. The pay-offs are hypothetical, but in comparison to DoD waste the expenses are negligible, it is inevitably a 50 year effort to acquire experience and skills that might come handy if ground-based CSP turnhs out to be insufficient, and politically, it completely turns the table on the engineer workforce of the military-industrial complex, which is largely both gun nuts and space nuts. You do NOT want pervasive use of nuclear power, esp. not a weapons-grade breeder fuel cycle – the civil rights and national security implications are staggering.

But that’s even farther out. To believe that this nation should set itself a goal to, within the end of the decade, re-invent itself and return to its roots is as correct as it is naive.

This guy nailed it pretty well
http://exiledonline.com/the-rally-to-restore-vanity-generation-x-celebrates-its-homeric-struggle-against-lameness/

Done properly it’s quite a bit cheaper and will become cheaper relatively over time, no legislation is necessary, though you could remove continental air travel subsidies.

This is speculation. It might be correct. Or, it might be that some people would continue to fly, and it would become less expensive and less crowded/less unpleasant as some people moved to rail. Time would continue to be a consideration for many people, and they would continue to fly if it was an option.

Breaking the telecom monopoly is mostly about finding an engine growth, since their oligopoly is strangling it, but cheap real broadband also makes it possible for more people to work from home more.

A large number of people could be doing this today, either part-time or full-time. The reason they are not is not because of lack of supporting infrastructure (although it can be improved), but because of lack of willingness by managers, which comes from their incompetence and insecurity because of that incompetence.

Speaking of running down infrastructure, see Tony Wikrent on machine tools.

Again the misconception that there is a “funding bottleneck.” If they can shower the world with QE2 without raising “funds,” why would the govt need to raise funds to spend on infrastructure? The federal govt can spend money to create jobs whenever it wants. It didn’t wait until tax revenue came in before spending on WW2. So long as the resources exist in the United States to, for example, build a modern rail network, then the govt can fund it. And right now we have massive under-utilization of resources (unemployed people) who can be put to work in govt-funded programs.

You can call it deficit-spending if you like, but the idea that the govt can only spend what it brings in (this is obviously untrue or the govt would’ve ground to a halt long ago) is a political restraint on spending, not an actually-existing restraint. If we accept the terms of austerity proponents (“there is no money!”) then we’ve already lost. The United States is as wealthy as its existing resources, which right now are criminally underused. There is no big pot of gold we withdraw from or deposit into, or borrow to replenish. That is what austerity proponents want us to believe. It has no basis in reality. We went off the gold standard decades ago. To act as if we are still on it places artificial limits on what we can accomplish.

We should be demanding that the govt spend now & spend big on a job creation program (not digging ditches, but creating useful public assets.) With so much un-utilized resources there is zero risk of inflation (despite what the deficit crybabies want us to believe) and every “risk” of the beginnings of an economic turnaround. The govt should work to increase demand, not depress it. From an increase in demand everything else flows — private job creation, increased tax revenues, an eventually balanced budget. We’ll get nowhere by balancing the budget first, lowering interest rates, showering the world with credit. If you don’t create demand nothing will change.

And of course none of this will happen, because everyone buys the idea that we’re “running out of money.” We are not. The wealth of our country is not a pile of cash, but the real resources (people, raw materials) we command. If we don’t use those resources to build something useful & lasting for our future then we’re sunk.

If they can shower the world with QE2 without raising “funds,” why would the govt need to raise funds to spend on infrastructure?

It’s another tangent that I don’t want to go off on, but “showering the world” (the “world” would use another less pleasant description) with QE1 and QE2 has adverse consequences.

If we get rid of parasitic economic sectors through reform, then 1) we get rid of that negative drag on the economy and 2) we free up those resources for productive work. This is the eat-your-spinach way to better health rather than the eat-all-you-want-and-purge way to better health.

The U.S. military is one of the largest users of fossil fuels in the world. Those fossil fuels are needed for repairing the existing infrastructure and building a new energy and transportation infrastructure, along with making existing buildings energy neutral, and so on. If both are done (maintain the military’s usage level and repair/build infrastructure — “eat all you want and purge”), then the net fossil-fuel usage increases. This has multiple effects: 1) fossil-fuel prices rise, 2) more pollution, and 3) fossil fuels are used up faster.

We should be demanding that the govt spend now & spend big on a job creation program (not digging ditches, but creating useful public assets.)

Agreed, but if reform does not also happen, there will be adverse effects. WWII is not a good example in one respect: it was earlier in history — the country had not used up much of its fossil-fuel (and other) resource base and the world had not used up as much of its ecological space. (And the U.S.’s economic history is that from around 1920 to 1980, the U.S. was a net exporter, while from 1980 to present it has been a net importer.)

The best part, politically, is that you could fund this infrastructure work through the defense budget (and as we’ve learned, Republican or Democratic, Congress always approves that).

And they always fund the “defense” budget because it is a source of monopolist profits for the private companies that get the contracts. It continues to be the case that people present practices as “politically realistic” that are physical-world wasteful. Look at how “efficiently” the invasion and occupation of Iraq has been — the military and associated private companies are geniuses of economic and resource efficiency. I’m confident that they would do a marvelous job running the railroads and waterways.

Speaking of spending money to promote the general welfare…this article is making its way around the Interwebz. I found it fascinating.

http://www.commondreams.org/view/2010/11/08

From the Commondreams article:

If one assumes an average cost of one job is $50,000, six million jobs could be immediately created for $300 billion. Twelve million jobs could be created for $600 billion.

This is too conservative an estimate. The median wage in the U.S. is around $26,000* (median household is around $50,000), so the cost of a well-run program paying the median wage ought to be a less than $50,000 per job.

* http://ssa.gov/cgi-bin/netcomp.cgi?year=2009

I’m confident that they would do a marvelous job running the railroads and waterways.

Err, the Pentagon already has authority over the railroads (Strategic Rail Corridor Network) and waterways (US Inland Waterway System), I wasn’t suggesting adding any more legal authority than what the DOD already has, I was simply talking about how the spending is labeled. If we were going to add legal authority to the DoD, I’d suggest tasking the Navy to build out and operate nuclear power plants just as the Army currently operates several dozen hydroelectric plants. The US taxpayer is already on the hook for nuclear plants because of federal risk insurance and loan guarantees, it’d be more cost-effective to simply build and operate them directly.
http://www.professorbainbridge.com/professorbainbridgecom/2010/02/towards-a-navy-corps-of-nuclear-engineering.html

Anyway, the US Government always spends infrastructure money through contractors, it doesn’t really make an difference operationally whether the engineering and construction companies are funded through the DOT budget or the DOD budget (it would likely be the same firms bidding anyway). Where it does make a difference is on Capitol Hill. Since the Pentagon budget is 10 times the size of the Department of Transportation, its easier to add infrastructure money as defense spending instead of as transportation spending.

rent-seeking behavior by elites optimizes for unhappiness because “human resources” who are unhappy are more likely to drive to the mall and buy crap.

Yeah, this.

Insofar as a class behaves as a single entity (which may have ‘thoughts’ that most of the members of the class don’t necessarily) — the Overclass does not want to break the energy bottleneck. Getting off the fossil fuel paradigm could have unpredictable social consequences, ‘unpredictable’ being bad in the sense of ‘We might lose our Power’.

Better to rule in Hell than to serve in Heaven.

Let me be sure I’ve got this: Wall Street–which is now something like 50% of economic activity in America–is basically broke because it gambled most of its money on bad paper like subprime mortgages. So the US government is doing whatever it can to stall for time while it funnels new money back into the investors. Is that right? I’m no economist.

Let me be sure I’ve got this: Wall Street–which is now something like 50% of economic activity in America–is basically broke because it gambled most of its money on bad paper like subprime mortgages. So the US government is doing whatever it can to stall for time while it funnels new money back into the investors.

You might like this (video) explanation by Yves Smith. This discussion is primarily about “quantitative easing” (increasing the money supply without a corresponding increase in the size of the economy). Her metaphor about the 500-pound man in the hospital is colorful (and apt?). Also, Yves misspeaks when she says “over a billion dollars in mortgage-backed securities (MBS).” She meant to say “over a trillion dollars in MBSes.”

Also: complicating this whole, uh, “mess” (crime) is the fraud, leverage, and derivatives.

The Guardian reports on the Irish debt problem, today the rates demanded for bonds was over 9 1/4% for a ten year bond. The Irish too, took to bailing out their “too big to fail” national banks and in the process drove the Irish economy into the ground. In addition the Irish are sitting on an exceedingly large mortgage debt structure. The Bank bailouts look to total over 70 billion Euros for a nation of about 4 1/2 million souls (or about €15,500 per person) in addition to personal, mortgage and public debts. The need to reduce debt has stopped most spending, throwing even further numbers into joblessness and threatening more inability to service debt. The deflationary spiral has taken over the economy in Ireland, turning the country from being one of the wealthiest into a country that has no prospect of servicing their future.

http://www.guardian.co.uk/business/2010/nov/11/eu-ready-ride-ireland-rescue

If there is a projection of the future under a deflationary spiral, Ireland is providing those prognostications with health and social services being severely curtailed as you read. Look away if you don’t want to see the place where unproductive (unemployed) debtors ends up, it is coming to your country soon, whether you are prepared or not.

“It had read to me as though you were suggesting the military would run the railroad and waterways.”

Purely politically speaking, arguing for critical and modern infrastructure as “support [for] the troops”, running the ramp-up through a generalized “defense” budget, and “allowing the military to re-focus” once the infrastructure is established sounds like a good recipe for selling it. This is especially true if you talk about energy. If all fails, you can always de-militarize by privatizing, but the whole idea is that critical infrastructure – critical to economical success – has to be supervised if not provided by the government. Free markets ensure that national infrastructure will be obsolete, dysfunctional, and unsafe.

TVA could have been sold as DoD support structure, without being chartered as part of the DoD. Except back then, collective heads weren’t as far up collective arses, so the whole branding didn’t matter as much.

‘Again the misconception that there is a “funding bottleneck.”’

Any decent infrastructure program will have to run 20+ years. We are not talking accounting tricks or even honest-to-god Keynes-style stimulus spending, we are talking about getting public consensus to commit to a long term effort sustained over many elections. Even if the Fed could effectively intervene in fiscal policy – and it has no mandate to do so – it would neither be democratic nor sustainable for the Fed to step in. Yes, the government can push for more deficit spending, but both as a matter of policy and politics it would appear that we have to start with the admission that the same tax revenue cannot be spent twice – and the biggest chunk of discretionary spending is the National Security State, i.e. “defense” and “intelligence”.

If you can’t get those DoD dollars directed towards critical infrastructure, you will not succeed. You cannot borrow yourself out of a conflict of interest on this scale, and believe me, this blighted nation has tried over and over.