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Resilient community: energy/food IRA/401K
John Robb, Global Guerrillas
Here's a think piece. Still need to work this through (I suspects some savvy financial types, willing to make amends for preying on their fellow citizens for decades, might be able to work out how to bend the investment legal framework to accomplish this) and the cost structures might still be a little high, but it offers some amazing restructuring possibilities.
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The American consumer is likely dead. A new frugality has swept the nation and debt is being repaid faster than ever before. The question now becomes: what comes after frugality? The answer is based on the following observations/assumptions:

* High debt (up to 375% of GDP, 85% over the peak in 1929, in the US and still growing) and the death of the American consumer will lead to slow or negative growth in GDP for years to come. This means that liquid financial assets will generate low returns for as far as the eye can see.
* Financial markets are only suitable for sophisticated participants (despite claims to the contrary) and not accessible by the average citizen. Scams, booms/busts, and all sorts of bad/evil behavior abounds -- and the government has become completely unable to mitigate it.
* Costs, for most basic elements of life such as food/energy, will rapidly increase over the next decade. Whether it is peak oil (or its cousin, faster growth in demand than supply is able to provide), out of control inflation (the fed attempts to inflate our way out of our debts), a weak job market (which depresses incomes), etc. these costs will likely outpace incomes.

The solution that should be apparent, but maybe not to most, is that the ownership of productive assets (essentially, those assets that generate goods/services) is vastly superior to ownership financial derivatives (stock funds, retirement accounts, etc.).

The judo move to pull this off is the creation of funds/mechanisms that will allow individuals to move a portion of their tax protected savings in IRAs/401ks into accounts that build/own/operate local solar energy production and food consumed by the owner of the account (or sold). Only the long lead time and preferential treatment of tax deferred retirement savings, has the ability to offset the long payoff cycles of local solar/food investments.
(13 June 2009)

Right Sizing the Economy: Can Herman Daly's Prescription for a Steady State Economy Accomplish this Task?
RogerK, The Oil Drum: Campfire
This is a guest post from RogerK, a hardware engineer from San Jose California who thinks and writes about the finite world paradigms which will be needed to replace the 'no limits' paradigm which exists as the cultural norm of modern industrial society. Tonights post expands on a comment he made in last weeks guest essay from Herman Daly on a Steady State Economy. Roger previously has written a related essay on TOD here, and a follow up here.
- TOD editor Nate Hagens

... I am glad to see an economist with Herman Daly's credentials banging the drum for limits to growth. I read Steady State Economics several years ago, and I very much enjoyed Daly's debunking of the "growth men" as he refers to the conventional economists who insist that neither supplies of natural resources or of ecosystem services will put any limits on human economic expansion in the foreseeable future.

... I think that much more radical changes than those envisioned by Daily are required in order to create an ecologically sane economic system. I think that we should create an economic system in which we are attempting to minimize our current exchange income in dollars, consistent with the constraint of producing adequate levels of total income including psychic components. The psychic component of our income needs to be largely decoupled from the formal economy as measured by transactions in large scale exchange media like dollars.

The question of how to accomplish such a goal is a complex one. Maybe the often repeated claim that it is not culturally/genetically possible to create such a society is correct. However, I think that some structural features required to make such a society work are clear whether or not one believes that they can be implemented in practice.

First of all community finance is required. Clearly we need to go on investing in infrastructure. But if we wish to avoid a growth orientation, then the purpose of building such infrastructure should be to preserve the long term productivity of society and not to increase the stash of private financial investors. The return on such investment should be the goods and services produced and not excess purchasing power for people who already have excess purchasing power.

Secondly, mutual support has to be clearly and explicitly recognized as the normal path to long term material security. Of course mutual support is already an objective fact. Aside from some bags of flower or rice in your basement, private savings are largely a delusion. Land is sometimes referred as the most substantial and secure of all stores of value. But in point of fact land, in and of itself, is not a store of value.
(14 June 2009)

Post-Consumer Prosperity
Robert H. Frank, The American Prospect
Finding new opportunities amid the economic wreckage.
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The economic bonfire fueled mostly by consumption in recent years has ended. As we have watched the familiar statistics plummet, with credit cards maxed out and home-equity loans a thing of the past, the reality has slowly become clear: We won't return to the economic world of 2007 anytime soon, if ever.

But would we want to? In the boosterish world of CNBC, life without an ever-rising Dow Jones average and year-to-year gains in holiday-sales figures would self-evidently forecast protracted misery. Yet matters are less hopeless than they seem. There is an easily attainable future in which we consume less than at the peak of the boom and yet still enjoy far better opportunities to construct a fulfilling life for ourselves.

Such optimism is possible if we look past traditional economic models, in which happiness depends primarily on absolute levels of consumption. These models assume, preposterously, that an investment banker remains just as satisfied with his twin-engine Cessna even after learning that his Nantucket summer neighbor commutes to the island in a Gulfstream G200. As all evidence suggests, however, satisfaction depends more on relative consumption than on absolute consumption. Many people, for example, recall being happy during their student days, even though they were living at a much lower material standard. If everyone consumes a little less for a while, most people will adapt pretty quickly.

More important, because much of our current consumption generates harmful side effects, we can gain considerable ground simply by changing the mix of things we consume. One useful step, for example, would be to slow the race for what economists call positional goods -- the things people feel they need largely because others have them. Evidence suggests that across-the-board reductions in the growth of spending for such goods would cause little hardship.

One way to change spending patterns is through our tax code. In the next few years, we will need to revamp the tax system to pay not just for the ambitious plans of the current administration but also for increased debt resulting from the economic-stimulus program and the deficit spending of the previous administration. Taxes do more than pay for public services. Taxing any activity both generates revenue and discourages the activity. Our current system taxes mostly useful activities, such as savings and job creation. Perversely, it also encourages us to build larger houses and drive oversize vehicles. Instead, we could switch to a system that taxes only activities that generate harmful side effects. That step alone would generate more than enough revenue to pay for President Barack Obama's ambitious proposals without requiring difficult sacrifices from anyone.
(24 March 2009)
Wonkish article that suggests a tax system that would help moderate the consumer society. -BA

Demand for arable land should soar
Brian O'Keefe, Fortune
Betting the farm

As world population expands, the demand for arable land should soar. At least that's what George Soros, Lord Rothschild, and other investors believe.
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... A Nebraska farm girl who went on to a globetrotting career as a derivatives trader for Goldman Sachs (GS, Fortune 500) and then as a hedge fund executive in London, Warner, 45, is back on the farm pursuing what she believes is a huge moneymaking opportunity. Two years ago Warner launched an investment firm, called Chess Ag Full Harvest Partners, with a fairly simple underlying strategy: Buy undervalued farmland in the U.S. and profit from the coming global agriculture boom.

Last June she closed her first fund with $30 million from wealthy individuals and institutional investors such as Dow Chemical (DOW, Fortune 500). (See correction, below.) She says her ultimate goal is to take the company public as the first farmland-only real estate investment trust in the U.S. "The returns in agriculture haven't looked sexy for a long time, but I think that's about to change," she says.

Warner is just one of many financiers around the world making that same bet. Over the past few years hedge fund gurus like George Soros, investment powerhouses like BlackRock, and retirement plan giants like TIAA-CREF have begun to plow money into farmland - everywhere from the Midwest to Ukraine to Brazil. Canadian private equity firm AgCapita, which raised $18 million in 2008 to invest in Saskatchewan cropland, estimates that as of the first quarter of 2009, more than $2 billion of private equity money had been raised for farmland investments globally, and another $500 million was planned.

The growing flow of money into farms has persisted despite a major drop in the commodities markets last fall, prompted in part by the global financial crisis.
(11 June 2009)

Paul Krugman's fear for lost decade
Will Hutton, The Observer
As analysts and media hailed the tentative emergence of green shoots last week, Nobel Prize-winning economist Paul Krugman caused international shock with a prediction that the world economy would stagnate just as badly, and for just as long, as Japan's did in the 1990s. In an exclusive interview, he talks to Will Hutton about his anxiety for the future - and how Gordon Brown might have saved Britain from the blight that hangs over the West
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Will Hutton: You are warning that what happened to Japan could happen to the whole world. Japan's GDP at the end of this year will be no higher than it was in 1992 - 17 lost years. You are saying that this is an ongoing risk, certainly for the North Atlantic economy - maybe the world economy.

Paul Krugman: Yes. It's not that the risk of the Japan syndrome has receded very much. The risk of a full, all-out Great Depression - utter collapse of everything - has receded a lot in the past few months. But this first year of crisis has been far worse than anything that happened in Japan during the last decade, so in some sense we already have much worse than anything the Japanese went through. The risk for long stagnation is really high.

... WH: So you remain committed to the key role of fiscal policy?

PK: Yeah. Fiscal policies are best; certainly something to do to mitigate recession. People say that the Japanese fiscal policy on all that infrastructure was wasted. But it did help sustain the economy and avoid a collapse. Fiscal policy can certainly do that: it gives the credit sector time to rebuild its balance sheets. There's every reason to be expansive around the fiscal side now because even if you're not sure that it provides a long-term solution, avoiding catastrophe is a big thing to do.

WH: If you believe that, is Obama doing enough on fiscal policy?

PK: Well we have a stimulus which is a little over 5% of one year's GDP but some of it is not real - something that was going to happen anyway and not very stimulative. So it's really about 4% of GDP of genuine stimulus, but spread over two and a half years. So, it's actually quite a lot less than what I was arguing for.
(14 June 2009)