Living better in 'the finite world'
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Economy Killers. Our trial leap into this void occurred in 2008, when oil prices last soared, and world economic growth collapsed. Steven Kopits, manager with energy business consultancy Douglas-Westwood, has noted the close correlation between past recessions and spikes in oil prices with the economy going into recession when oil expenditures exceeded 4% of GDP (about $80/barrel in today's prices).

Family Budgets Can Only Go So Far. Suddenly paying a lot more for basic items like gas to get to work, and food at the grocery store, left an already struggling middle class with no room for buying extras. When prices for essentials got too high, many could not even pay their mortgages.

The collapse of the credit markets and the Great Recession ensued in very close order behind the spike in oil prices. After the economy was crippled, demand then fell and prices returned to lower levels.

This "yo-yo" of prices for raw materials and fuels first spiking upwards, killing the economy, then falling again is the classic pattern we can expect to see as resource limits are reached. If you cannot grow without bumping up against physical resource limits, economic growth (i.e. jobs, sales, tax revenues) will periodically be strangled.

The Void. The Finite World so clearly described by Krugman means there is a limit to the supply of basic resources. Whenever we reach a point where finite supply cannot keep up with demand, our desires will meet The Void of empty and depleting storehouses. Rationing consumption, to match the amounts actually physically available, is usually accomplished by hiking prices.

Broken Circles. Won't this money just come back around? Economists argue that money is seldom at rest and the money we must pay in higher prices may come back to us. However, the extra money we pay doesn't always work its way back into our own economy. About two thirds of U.S. oil purchases are from other countries, who have no obligation to buy from us. When oil prices rise, Iran will benefit but we will suffer.

Up in Smoke. As resources become more physically difficult to extract, such as the need to drill miles under the ocean to obtain new oil, we must burn more oil to obtain each new barrel of oil. Similarly, the tar sands hailed by many as the supposed salvation of near term oil supply require burning major quantities of natural gas to cook the gooey tar out of the sands. These extra expenditures, for low energy returns on energy invested, will not be returned to us --- they have literally gone up in smoke.

Not Mad Max, But a Regressive Catastrophe. Some who contemplate Peak Oil and other resource limits often spin a picture of a world of rolling power outages and the cutoff of basic services. A societal Collapse is envisaged, where we will all be left freezing in our homes with no water supply or central power. These visions of Doom make great novels, but may be too simplistic.

As a former utility commission staffer, I have known utility managers and I can tell you this idea of utilities shutting down simply won't happen any time soon. The number one priority in the culture of utilities here is to "keep the lights on" -- for those who can pay their power bills.

For those who cannot pay their power bills, however, the Collapse will be real. In many parts of the country, electric utilities are already installing prepaid power meters which -- like prepaid cell phones -- shut off power automatically when the customer payment runs out.

The "rolling blackouts" and cutoffs of basic services will happen -- they are already happening -- but their impact is targeted to those individual families least able to afford the rising costs.

Similarly, when gas hits $5 a gallon, it will be regular families who will run out of gas before their next paycheck. The Mercedes of the oil lobbyists, however, will continue to roll.

Destruction of Middle Class. Instead of a general Collapse of civilization, the prices of food, fuel and supplies are just going to get a lot more expensive, and the middle class will be strained to breaking.

A major erosion of the middle class and growth of the Working Poor has already occurred. Michael Snyder of the Economic Collapse blog has an excellent article detailing the latest results of the Working Poor Families Project, in his article here.

The Working Poor study challenges our TV-sitcom conception of ourselves as a prosperous nation. Currently 30 percent of working families in the U.S. are considered to be "low income". Over 42 million Americans are on food stamps, and one of six are enrolled in at least one anti-poverty government program.

In a "free trade" global economy, economic forces will work in the direction of a global standard of living and a global wage for any work that does not have to be performed locally. That means Americans are on a long ride downward. Snyder concludes:

If you are a member of the working poor I wish I had better news for you. Things are not going to be getting better, and unfortunately millions more Americans will probably be joining you.

The Economic Challenge of Our Time. Learning to cope with the impending limits of The Finite World is the most important economic challenge of the 21st Century. Yet, few main line economists have even acknowledged it. Dr. Krugman is a brilliant economist, who also cares deeply about economic equity, and environmental and resource issues. Public awareness could be raised if he and other economists chose to work seriously on this problem.

Actually developing a workable model for an economy that prospers human welfare under conditions of depleting physical resources, would be worthy of another Nobel Prize.

The answers, however, are likely to come not from Wall Street or the ivory towers of academia, but from those who are already learning to live better..

Living Better in The Finite World. We cannot live without hope. While we may have to learn to live with fewer physical resources from central sources, this is not the same as living a poor life. We can instead learn to live better.

It is better to live in a warm house that uses less fuel because it is well sealed against air leaks.

It is better to eat sumptuous produce from your own garden than to buy tasteless products shipped from thousands of miles away.

It is better to live in smaller houses with less stress, than to slave forever to pay for 3,000 sq. ft. "debtors' prisons".

It is better to live close enough to work to walk or bike and feel healthier for it.

Economists might call all these "better" attributes newly developed economic resources.

We can call them joy.

Have a Happy New Decade.

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