Image Credit: Dilmen (cropped) Wikimedia Commons
We need a map for uncharted territory as we enter this New Year, as the realization is dawning we are dealing with an economic crisis of an entirely different character than ever before. Our industrial civilization is reaching limits to growth, and we don't know how to live with that.
Part I of this series of three articles addressed the four major challenges we now face, there dubbed "The Four Horsemen of the Economic Apocalypse": 1) Too Much Debt; 2) Resource Limits; 3) Destruction and Decay of Infrastructure; and 4) Greed. Bottom line: this crisis is much deeper and more permanent than we've been led us to believe. "Recovery" to former patterns of growth simply won't happen. We must now adapt to new realities, as individuals and as a society.
Part II of this series, "Out With The Old", discussed the end of seven "Dead End" unsustainable practices that will falter and decline. We won't pay our unpayable debts or keep impossible promises. We can't keep importing more than we export and borrowing the difference. Our Empire will shrink back. Our use of fossil fuels will decline as we experience Peak Oil and Peak Coal . We must cure Sick Care. We will repeal laws that mandate opulence and forbid prosperity. Finally, we will "drop the shopping" for worthless junk and refocus on the best of what it means to be human.
In With The New: Seven New Ways of Living That Will Work. In this third and final article in this series, we will discuss seven new ways of living which we can adopt as economic growth fails. They are not revolutionary (revolutions never achieve their utopian visions because of something called "human nature"). Rather, they may allow us to "muddle through" the best we can right now with what we already know how to do.
We will do these things because they will work -- and we certainly need to stop doing things that don't work, and find new ways that will work:
For decades we have used more, and more, and more debt for consumption, allowing us to live beyond our means, consuming more than our income and kicking the can down the road to be paid later. We even rationalized that our houses were investments rather than consumption. Now it is "Later" -- and we have to pay the price. Taking on more debt allowed us to live above our incomes, but now we must live below our incomes to pay it down.
Like the post-Depression generation that avoided debt like the plague that it had turned out to be for their parents, we are now losing our desire for and ability to take on more consumption debt. Our equity has vanished, and we can't count on ever-increasing (or even steady) earnings for families or businesses. Simply put, most of us are no longer a good "credit risk". Many bank failures and contractions will also occur and reduce the availability of credit. European banks are already reducing their lending in many sectors because they must build reserves.
Whether we like or not, therefore, we will borrow less for consumption. More of us will pay up front for consumer goods, buy used cars (or no cars), and even build our own small houses, debt-free. Debt for consumption, the "bad debt", must decline, and of course this also means we are likely to see a Deflationary spiral of lower consumption, failing businesses, failing banks, and a decreased money supply as our debt overload goes back into the thin air from whence it came.
Like the cook who used too much salt, we are experiencing the bitter taste of Too Much Debt. This does not mean, however, that all salt, or all debt, is bad.
Investments that allow us to reduce our expenses, or produce more income, pay for themselves. Like "good cholesterol", in the right proportions, "good debt" can be good for us. For instance, an energy investment that saves $100/month but has a loan payment of only $50/month frees up funds. The investment also creates jobs in the local community.
Many commenters rightly point out, however, that the current financial crisis is crippling our ability to finance such needed energy conversions. The average homeowner in our example, for instance, cannot today mortgage their house to finance energy improvements.
This situation is reminiscent of the tales from the Great Depression of productive capacity going unused because of a shortage of credit. It is happening again -- projects which make perfect economic sense, would create jobs, and would more than pay for themselves are once again not happening because there is no connection of these projects with available funding. Like the small town of Bedford Falls, we need a lender like George Bailey to extend credit where it can do some good, or we risk ending up in Pottersville.
Image: Wikimedia Commons Public Domain image.
Fortunately, we already have mechanisms in place that can solve this. Did homeowners directly finance all the power, natural gas, water and sewer lines that run into their homes? How about the streets and sidewalks? Those capital costs, and the central facilities that serve those networks, were financed by public utilities, or tax districts, with no thought of individually testing the credit worthiness of each occupant to borrow their individual share of the cost.
Whenever society has experienced a need for large capital investments that serve the public good -- such as construction of an electric or water supply network -- we have used utilities or tax districts to make them happen. They finance the infrastructure and customers pay for it through monthly bills.
These same financing structures can now be used to provide the capital for needed energy conversions to existing buildings, such as insulation and caulking, conversion off oil heat, solar hot water heating, passive solar, efficient lighting, and solar photovoltaics. Like a utility or sewer line, energy improvements aren't going to pick up and be moved (and this can be a covenant), so they can reliably be billed monthly to whomever occupies the buildings.
Financing much of our energy conversion can thus be done in the same way we build water mains. On-Bill utility financing or PACE special improvement tax districts can give energy retrofits the opportunity to pay for themselves
Of course, for such a plan to work, it must deliberately apply minimal standards of credit worthiness. Existing energy utilities do not require a minimum percent of equity in one's home or require mortgage liens on property to extend utility service. Disconnection from a basic service has proven a powerful enough incentive for utilities to be able to collect monthly utility bills.
If societal structures break down in future and people stop paying their monthly utility bills, it will still have been no small accomplishment that we managed to keep a sizable portion of the population warm in their homes and offices, and supplied with hot water and a fair amount of self-generated electricity. Buildings consume almost half of all U.S. energy use, as they are where we live and work.
By placing first priority on customer-level projects, we will have financed the most cost-effective energy conversions first -- those that reduce waste, and tap diffuse solar energy to be used where it is collected. We will have created jobs for a great many workers to get this done, using common materials supplied mostly by USA manufacturers.
2. Location, Location, Location. While we have for the last century used cheap oil powering our transportation systems to make distances virtually irrelevant, as oil prices rise it is going to matter a great deal where one is located.
At $5/gallon gasoline (not far in the future), a commuter with a 60 mile round trip and a 25 mpg vehicle would spend about $3,200/year just commuting to and from work. At $10/gallon gas, forget it. That bus pass or commuter rail line will look very good as an alternative -- but only if the routes exist. Many communities never planned for Peak Oil, and they are likely to see stresses on their citizens and a migration away to areas where better transportation options exist, such as near light rail line stations.
It will increasingly make sense for manufacturers and distributors to locate on a rail line rather than near an Interstate Highway, as more freight will move to the rails. Railroads can already move a ton of freight 480 miles on a single gallon of diesel fuel, and require only 5 rail workers to staff a train hauling the equivalent freight that would otherwise require over 200 truck drivers to move. Rail lines can also be electrified so they require virtually no direct oil use. As resources become scarce, railroads can keep us moving.
Fortunately, the U.S. has maintained a robust mainline rail network, though thousands of miles of branchlines were abandoned, and those communities that were abandoned may need to rebuild.
Major Railroad Lines of the United States
Image Source: NationalAtlas.gov
While other transport modes are government owned, U.S. railroads are still privately owned (e.g. Warren Buffett recently bought the Burlington Northern Railroad). As private companies, the railroads must maintain their own rail lines.
Governments, however, now maintain the highway system and due to Pork Barrel Lobby politics, force automobile owners to pay for massive road damage caused mostly by large trucks. If governments simply stop subsidizing trucking (either directly with fees on truckers, or by default by letting highways crumble), we won't need to subsidize the railroads.
The "Global Economy" will also see its share of commerce decline as petroleum supplies become scarce, giving rise once again to the "Land Based Economy" (serviceable by rail transportation). When the price of oil reflects its highest value as the source of complex organic chemicals needed for much of industrial civilization, it will be insane to burn it in freighters churning across oceans.
The trend is clear: the prime "location, location, location" moving forward will be on an electrified rail line.
3. Collaborate and Conquer. As the U.S. military Empire begins to shrink back, the self-appointed role of the U.S. as the world's free-of-charge military security service must end.
5-nation joint naval exercise. Image: U.S. DOD
If the purpose of an extended military Empire is to gather "tributes" to the home country of the Empire, where are the fruits for the U.S.? The first post-occupation Iraqi oil contracts were awarded to Asian and European countries. In Afghanistan, a multi-billion-dollar copper mine is under development, waiting for our soldiers to secure the country. Who is the owner of this copper mine? The Chinese.
The Chinese are proving again and again that a world made safe for free market commerce by the U.S. military can easily be exploited to their advantage with their "checkbook diplomacy". They are simply buying up what we have spent our money and our soldiers' lives to secure.
The U.S. has already demonstrated one way to force contributions from other countries: refuse to take actions unilaterally. Though many question NATO's intrusion into Libya, it was a demonstration of this strategy. The U.S. successfully held back until meaningful participation by other NATO countries was secured.
Another way to share costs is to do joint ventures. The recently announced contingent of U.S. forces to be stationed in Australia will be housed at Australian, not U.S. owned, bases.
If world commerce actually does require protection from a massive military force, the test of this should be if those who benefit from world commerce are willing to pay for this security. If world shipping actually now requires protection by the largest Navy ever floated, the cost of this Navy could be assessed as a shipping fee on all transactions at U.S. ports. If we must protect Middle East oil fields to secure our oil imports, impose a fee on all oil imports to pay for this military presence.
We can work to impose such practical measures to assess the cost of the military Empire on those who most directly benefit from it. In the end, however, it is likely the only way to force collaboration by others will be for the U.S. to pull back. Protect our own borders, and if others want more done, let them step forward and propose collaborations.
4. Go With the Flow. A standard admonishment to the younger generation in families of wealth has always been: Never Spend Your Capital. It's ok to spend the annual Income, but never touch the Capital or you will destroy the family wealth.
We have been spending our Capital -- the wealth of stored solar energy that grew as plant matter and that Nature concentrated in fossil fuels. In a matter of only three hundred years, we've raided this store of wealth that took hundreds of millions of years to create. It is now running down, and we won't be able to keep pretending that raiding the family wealth is the same as making an honest living.
We now have to learn to live on our Income -- the annual Inflow of solar energy that falls upon the Earth and is available in places and forms (direct sunlight, wind and water flows, and plant growth) and at times that we can utilize.
The three key features of this Inflow were noted in the last sentence: the places it flows, the forms it takes, and the times it is available. The annual solar energy Inflow is enormously large and far more than we could ever need for all our energy requirements -- but to tap this Inflow we must work intelligently with its places, forms, and timing.
As an example, I am writing this article from a home that is quite comfortably heated by the sun, but only because my windows face the right place -- South -- to gather winter sunlight. The form of solar heat is diffuse heat energy -- perfect for heating my own house, but not so concentrated that I could pump heat to my neighbor. Finally, while I would love to collect sunlight through the cold winter night, that's impossible so I work with its timing and my home stores heat in ceramic tile floors (which is also why I'm not too hot during the daytime).
Intelligent design, therefore, combined with the use of common enough building materials, has allowed me to work with my solar Income quite effectively. The same principles apply to all other forms of renewable energy. The available Inflow is adequate to our needs, but our projects must use materials we actually have available, and we must respect all the characteristics of the Flow.
The myth that renewable energy is anything like a fossil-fueled engine that can conveniently be "slapped on" to our houses and economy whenever we finally get around to it has never been true. My neighbor's "stupid house" (north-south axis) faces the wrong direction and can never be made into a passive solar house. It can be made much more energy efficient, but if it comes time to hand back some homes to the banks, his would be a better choice than mine.
Similarly, those states with cheap land-based wind power such as the Midwest will have cheaper electricity than states who must adopt more expensive offshore wind power. Some places are better endowed with easily accessible renewable energy Flow than others, and will prosper more.
As utilities transition to supply a majority of our electricity from renewable power, it will be most economical to work with, rather than to ignore, natural flows. For instance, "Smart Meters" and dynamic pricing can give discounts when wind farms are blowing strongest and supplying cheap power. We will need to take advantage of these discounts through smart use, smart appliances, and charging electric cars at the right times, so we can cut power bills and minimize the need for fossil fuel backup or central utility storage of energy.
Another unexpected aspect of living within our annual Income of solar energy is that we may find ourselves once again relying on the form of solar powered plant growth to supply many of our needs -- and this is not a discussion about biofuels. Rather than accomplish some tasks with machines, it may once again prove best to employ people(!). Localized agriculture and quality craftsmanship require manual human labor. This is not a bad thing when so many are unemployed. The "fuel" for manual human labor is food (supplied by Solar Inflow) rather than oil, natural gas, or coal.
Nothing about relying on an Income of renewable power will be the same as spending our stored energy in fossil fuels. However, with the Trust Fund of fossil fuels depleting, we must grow up and get an Income.
5. Patient, Heal Thyself! Rather than heed the sign at the door to the nation's health care system -- "Abandon Hope All Ye Who Enter Here!" --
we must address our health, as this beast is already sucking 17% of our GDP and scheduled to go higher. It's as big as our waistlines and growing just as fast.
The approach of taking responsibility for one's own health is already familiar to the tens of millions who have no health insurance. They cannot buy health insurance, as it is completely out of reach for them, so most of the self-employed I know "do" health insurance. They go to the gym and work out. They work in their gardens. They watch their waistlines. They quit smoking. They monitor their blood pressures, and if they are diabetic they monitor their glucose and eat the right foods.
These same themes are now becoming standard practice in the health plans that place emphasis on primary care medicine. The most progressive employer-based plans require all employees to have annual physicals, and even require participation in "Reach Your Peak" health coaching where employees set goals of peak health with their family doctor, and come in for regular monitoring and coaching. A free gym, next door to the primary care clinic, is available for all employees. One plan in Colorado is even paying people to lose weight.
As the entire nation is about to be forced to buy private health insurance or pay penalties on their tax returns (a Republican idea which Democrats were foolish enough to pass with no Republican votes), resentment over the health care system is at a fever pitch.
Those middle class families who cannot afford health insurance (e.g. $20,000/year family premiums) will still be unable to afford it. However, they will now much more visibly pay into a system (through tax penalties) that gives free health insurance to others, but with no reciprocal benefits for themselves. It is utterly amazing Washington thinks the extra $20,000/year is going to magically materialize in family budgets to allow the middle class to buy health insurance. It is even more amazing Washington doesn't "get it" why people are angry about how this turned out.
Since attention has been so forceably directed to the system, this resentment can be directed to accomplish some good. "What's Good for the (Fat) Goose is Good for the (Fat) Gander" might be a good motto here. If employer-sponsored health plans now require Peak Performance programs, offer free gyms, and pay people to lose weight, such cost-saving ideas should be quickly adopted by government-paid plans. Perhaps the way to do this will be, if we have to keep the health insurance system albatross, at least get some use out of it by moving Medicare and Medicaid recipients into health plans that require participants to do these things.
A little personal responsibility will go a long way to improving our health and saving hundreds of billions of dollars we don't have.
6. Connect the Dots. It is always good to pay attention to broad-based grassroots movements. A "Common Wisdom" -- such as the current idea that it might be better to tax consumption rather than earned income -- may actually be a good idea, even though it flies in the face of "Conventional Wisdom".
The proposal to not tax earned income has its roots in a very sound economic concept: we should tax the things we don't want people to do, and not tax the things we want people to do.
Consider the benefits if the "real economy" productive activity of converting raw materials to goods and services -- i.e. ordinary earned income -- were not taxed (including for Social Security and Medicare taxes) except above a certain high level. Under such a proposal, earned income would not be taxed except above perhaps $250,000/year -- a level that is more reflective of a CEO's influence, or a bald attempt to abusively recategorize other income as "earned", than the true value of hours worked.
If normal levels of earned income were not taxed, American workers would overnight become more competitive with foreign workers, promoting more Made in America production. Local small businesses and home-based labor, including bartering transactions, would flourish without the heavy hand of the IRS attempting to levy taxes. Finally, the middle class, which receives most of its income from working, would receive a much needed boost.
The math has to work, however, to recoup the lost taxes on earned income, by imposing more taxes on other types of activity. These should be things we either don't want to happen, or which give income to their recipients without contributing benefits to the real economy that produces goods and services.
For instance, John Michael Greer, in his book The Wealth of Nature, proposes taxing the depletion of natural resources, which he deems the "Primary Economy" of Earth's resources (because this depletion robs our Trust Fund of real wealth -- and when our store of natural wealth is gone, we're all in big trouble). Greer would not tax the "Secondary", and equally real, economy of producing goods and services. However, the abstract and speculative "Tertiary Economy" of money made by money (capital gains, derivatives, interest, etc.) would be taxed.
In this taxation model, a tax on extraction of nonrenewable natural resources such as fossil fuels and minerals would discourage our depletion of these finite treasures, and also encourage recycling and renewable energies (which would not be taxed). Imported goods would pay the same tax on the nonrenewable content of their products, so they would not gain an advantage over American goods.
There would be no "sales taxes" however -- as shopkeepers, artisans and homebuilders are productive to the economy. A product or building that included a lot of nonreplaceable resources would cost a lot more due to the raw material extraction taxes, but an artisan or builder who created a product from recycled or grown materials would see no taxes imposed either on the raw materials or their work.
In the wake of the financial frauds and explosion of financial "assets" which now lay claim to several hundreds of trillions of dollars more wealth than actually exists in the entire world and which still threaten to blow up the world economy, it is easy to see why taxes on money-making-money should discourage financial speculation.
It was Ronald Reagan who lowered tax rates on earned income and raised the tax rate on capital gains to equal the same as ordinary income, and yet this iconic conservative Republican's ideas have been abandoned by modern neo-conservatives, even as they praise his image.
Image: Reagan Presidential Library
There are many other types of taxes and fees that can fill the tax gap and discourage things we don't want. Tax truckers for the actual cost of damages they do to our highways. Tax junk food as it contributes to public health care costs (several states now have canceled food sales tax exemptions for junk foods). Tax carbon emissions and other pollutants. Tax international commerce for the cost of the worldwide military Empire that protects it.
You get the idea. Connect the Dots. Tax those activities which impose a burden on society, or which place the entire economy at risk through depletion and speculation. Don't tax what we want to see more of, which is productive work.
The Tea Party and the Occupy Wall Street movement might just be able to agree on this, if they could ever meet in the same room.
7. Become Producers Again. Americans should recoil from the label we have so blithely accepted for ourselves: "Consumers". This is not the label of a proud and free people, but a nation of sheep. We are a nation of borrowing consumers, gobbling up about 25% of the world's resources as we consume "bread and circuses". It is a measure of shame and ruin that 70% of our economy is devoted to consumer consumption.
It is no accident that the areas of the country that still produce something (e.g. food, manufactured products, energy) and sell it to others have been least affected by high unemployment. An economy functions by producing something.
Our cash economy will be strengthened if we can adopt many of the ideas in these articles, and create formal jobs. We need to Buy American, as we need manufacturing plants in the U.S.A. to employ Americans. Our agricultural products should be exported as food rather than burned in our gas tanks. Rethinking what we tax can make American workers competitive again.
As the "99'ers" now living on their 99th week of unemployment benefits see their cash income expire with still no jobs, however, none of these things have yet occurred. The cash economy is burdened with an overload of debt and taxes. We still buy almost everything from China. Ask any business owner and you hear the same phrase: No one has any money.
In such times, we have shown in the past that Cash is not necessarily King. If we go back just a century to the household economy of the early 1900's, most families lived and work on small subsistence farms and produced what they needed themselves. Small craftspeople made products by hand and sold or bartered them to the local community. Multi-generational households did not send their kids to daycare centers, but grandparents played an active role caring for children, cooking, and maintaining the household.
If we go back even farther, we are given a detailed example of the productivity of a household economy, in Proverbs 31:
A wife of noble character who can find?
She is worth far more than rubies.
Her husband has full confidence in her
and lacks nothing of value.
She brings him good, not harm,
all the days of her life.
She selects wool and flax
and works with eager hands.
She is like the merchant ships,
bringing her food from afar.
She gets up while it is still night;
she provides food for her family
and portions for her female servants.
She considers a field and buys it;
out of her earnings she plants a vineyard.
She sets about her work vigorously;
her arms are strong for her tasks.
She sees that her trading is profitable,
and her lamp does not go out at night.
In her hand she holds the distaff
and grasps the spindle with her fingers.
She opens her arms to the poor
and extends her hands to the needy.
When it snows, she has no fear for her household;
for all of them are clothed in scarlet.
She makes coverings for her bed;
she is clothed in fine linen and purple.
Her husband is respected at the city gate,
where he takes his seat among the elders of the land.
She makes linen garments and sells them,
and supplies the merchants with sashes.
She is clothed with strength and dignity;
she can laugh at the days to come.
She speaks with wisdom,
and faithful instruction is on her tongue.
That long list of activities reflects a very productive woman who makes useful goods, trades, invests earnings, and "speaks with wisdom and faithful instruction". The woman extolled here was a successful businesswoman in every sense of the word, yet it is likely she rarely traded in cash.
Such was the household economy of our ancestors. A positive benefit of having no other option now but to produce things with our own hands (in the family garden, on the family spindles, etc.) will be that many will rediscover what it means to be a producer.
Image: Nelsen Family Residence Quilts, Wikimedia Commons
Last night I slept under beautiful quilts made decades ago by my aunts who grew up on a small family farm. When I was a child, my mother sewed a lot of my own clothes. No one ever made a lot of money, but they lacked "nothing of value".
If we learn to be producers again, we can be as the woman in Proverbs 31, who "can laugh at the days to come".
Article originally published at www.EnergyEconomyOnline.com