Economic Common Sense !
We are now in a global interdependent economy, like it or not. Such economic terms as," housing bubbles", "jobless recoveries", "investment stagnation", are new but they make it clear that different variables may be affecting all the economic calculus.
In an effort to understand our economic condition, can we recognize that a simple notion as "material scarcity", the shortage of food and comfort, or the fear of it, has directed much of mankind’s history. It might seem obvious to most of us, that much of the cruelty and war in our history has been the direct, or indirect response to our individual and group attempts to build security in the midst of material uncertainty and shortages. Our efforts at taking resources from others, before they can take them from us, have been to find material security, both as tribes and as individuals. Our efforts to control territories and material resources, have been the goal of most wars and conflict. Whether it was clean water or waterways, the fertile soils or the crops of others, or even better weather, the willingness of one group to protect from, or over come another, has largely been for the potential to increase its own group’s survival.
Our history, can be seen as the struggle of people to increase their survivability through material acquisition, or , for many, their failure to do so.
It has not always been just tribe against tribe that has caused us survival anxiety, there have also been natural causes for human struggle and suffering. Earthquakes, disease, floods, and other predatory animals, have all contributed to man’s quest for a secure future. It may even be said, from a psychological view, that our collective consciousness has been directed by this goal, as we have sought more and more effective and efficient means to provide a materially repeatable future.
In our efforts to become more secure, we have built cities, and developed mechanized farming and other advances. Our technologies, and our human nature, have lead us to our current globalized economic condition. Has the globalization of communications, and economics all been by accident? Could it have been our collective inner guidance or our “common sense," in our security quest that has brought forth the many technological advances that have shaped our world.
Regardless of what one may choose to believe or assume about how we have arrived at this point in our history, it seems we have found ourselves facing directly into an unexpected, but enviable prospect of a world of peace and plenty. Yes, peace and plenty, not the doomsday many keep predicting.
As strange as this may sound, with wars, hunger, and disease still causing great suffering to many of us, we have also stumbled into another set of material conditions that are barely spoken of, or if publicly considered, are often described with fear rather than relief. I recently "Googled" the phrase "everything for everybody", and up popped a copy of a 1947 Time magazine article with this heading. The article was pointing out how the increase in manufacturing productivity was leading the US economy to the point of having surpluses and full employment, so that" everything for everybody" was really possible. Of course this didn't consider any other nations or their economics, but this thought has appeared multiple times over that past 60 yrs.
As with the 1947 Time article, the enviable global condition I am referring to, is the growing excess of productive capacity, of most everything, and it’s companion, the rapidly increasing efficiencies of production methods through technology, in our current world.
Technology is shaping our future economics.
1st consider Moore’s law - an empirical observation that states that the speed of micro processors will double every 24 months, resulting from the advancing technology of making computer chips. This observation has held true for almost 30 yrs. I point to Moore's law to demonstrate how technology must effect global economics, as productivity is a major single principle of economic expansion. Technology by its nature, is also replacing people as workers. Never mind the old belief that new technology will create replacement jobs for those it eliminates, this has never really been true.
Yes, there have been new discoveries, such as the internet, that many wish to use as an example, but the it is not so much the technology that created jobs, but the expansion of new possibilities. The facts are that after the great expansion with web based jobs, these numbers have been decreasing rapidly for several years, not because fewer people use the net, but because the technology to use the internet requires fewer and fewer workers to make.
A simple principle to remember is that when a robot replaces workers, the support for the robot is, at best 1/6 the manpower that the robot replaces.
I can offer a personal example: my company has had motors produced in China since 2000. When the factories we used, in China, needed to wind copper coils in 2000, they used many workers who wound the coils by hand. In 2008 they have all switched to machines, as their goal was productivity and not employment. These jobs will not return in these factories, as is true everywhere. So, what happens when technology gets so cheap, as with micro processors, that everyone can use it ? What happens when the use of machine brain power and muscle becomes the obvious path for increased productivity, worldwide ?
“Too Much of good thing, is wonderful” (Mae West)
Believe it or not, we can now produce more goods than we can consume. I repeat, we can make more than we (everyone-everywhere) can use, a historical 1st for us humans. This can be seen to be a bad thing by some, as under our current systems of distribution and exchange, too much of everything means that the income from, and the value of products becomes increasingly smaller. It is bad for a business that makes things, bad for the workers who need to get paid, bad for the investors who want increases in value, but it can be good for the future of all mankind. Amazing as it seems, just think about the fact that we now can make as much of everything as we need.
So, does this mean that the China’s of the world are now prospering, as we once did? Yes, but not what we could compare to our boom periods. There are 1.3 billion people in China and similar numbers in India, this is a lot of people to generate paid work for. This growth is not likely to lead to a large employed class, in these "booming" nations, especially as the technologies of our time have shortened the time to make and copy things, and also the number of people required to make them. Large segments of the Chinese and Indian populations are still living subsistence life styles, as there are not enough employment opportunities nor will there ever be, to handle much more than half of the people who wish to work. What we witness all over the globe is rising unemployment. Europe, also has lived with near double-digit unemployment for many years, and long before the most recent recession (epp.eurostat.ec.europa.eu/cache/ity.../3...ap/3.01062010-ap-en.pdf)
This is the global trend that runs deeper than Banking scandals, etc.
We can’t blame our own, or the worlds economic or unemployment position on China, or any one nation. It is however, the inevitable consequence of the system of economic principles of material production and distribution we have largely adopted throughout the earth. Globalization, the great “engine” of economic expansion, is also now the source of economic stagnation and strangulation. We are now witnesses to a large number of national economies fighting for a bigger piece of a shrinking pie.
The pie shares, seem to be shifting, from the US, to the EU and Asia, but each nation seeks to counter its loss of jobs by taking them back by offering cheaper labor or tax benefits. If we subtract the financial economic sectors, the pie has stayed the same of gotten smaller. The GDP of the EU and China has risen over a few years, but the US GDP was almost down by a comparable amount(see epp. above).
Another factor we must consider in understanding the present and our future is this notion of a consumer based economic system.
Please try to realize, that beyond the production of that which is necessary, consumption of the unnecessary, has been the alternative to the economic engine of war. Modern national economies have been driven by unnecessary consumption (things we don't need for survival). However, if one thinks about this for a minute, it is a very silly foundation to base human material success upon (talk about houses built on sand). Now, not buying the unnecessary, as unthinkable as it may be, is also be playing a part in the global slowdown. Some of this slowdown may also be resulting from a change in personal values, from " conspicuous consumption", to a desire for more personal authenticity.
It’s all about the Benjamin’s
Local or global capitalism has a few basic principles: 1st rule is that a capitalist seeks to get the greatest return on investment with the least risk at the lowest cost, and 2nd is, that unless the return is very large on investment (2-300%), risking capital makes no financial sense. Why would anyone take their accumulated wealth and risk it, if the expected return was, let’s say, around 5%. How much sense would it make to risk capital, if a safe investment, like a bond or a loan, would offer close to that return with little or no risk.
If a return on investment is the goal, it becomes obvious that any business, wanting a large return on investment, will always find it in their financial interest to utilize more technology, and fewer people, to increase it's profits.
We all became players in the investment game around 1984.
Remember how proud many of us were when we got our 401K’s or IRA’s. It was our chance to join the private club of the wealthy?
Unfortunately, what we really got was a “sales job” from the financial community and many in the government. This was said to be the smart way to build our personal wealth, and we were shown how wealthy people had been getting richer through the market for many years. We would now, us small people, be receiving at least 7.5% over 7-20 years on our money, while the bank would only give us a measly 4-5%. How’s that working out, so far.
I bring this up, to point out, that even the least knowledgeable business person, would not trade a guaranteed 5% for a risky 7.5%. The “sales job”, to put our earnings into the market, intentionally left out the risk portion of the equation.
So we, little people, were welcomed into global capitalism, but the basic rules were never explained. We got to feel kinship with the upper classes with our mutual funds, and financial planners, while the real capitalists were picking our pockets, making money with no risk, and taking their share of our hard earned money “ investing for us”. When things went bad, we were told, it would all work out in the long term or we just weren’t diversified enough.
This “new opportunity” to increase our wealth, through investment in the market, was another example of how the appearance of economic growth blinds us to a shrinking economic pie. The true capitalists got richer, we, the average worker, got poorer. We worked hard and planned ahead and our small wealth went to those who produce nothing with their labors. Most are simply "bookies", taking their cut for placing our bets in the market. This has been a very efficient system for the systems promoters and managers, but not most of us.
Common sense tells us, that not all businesses succeed, and even fewer survive who are trying to sell the same products to the same customers ( the global market place). We are lead to believe that “my financial guy” is smarter than yours or my investments will grow, even if your’s don’t. Truth be told, most of us have been losers.
Most of us are on the wrong end of this scam, at least in Vegas, we know “ the house always wins.”
When we are not creating anything useful (goods and services), what we are left with are “hustles”. Making money out of others risk taking, is the province of gambling, not investment. Investment means the capitalizing of real goods, but when the return is so small that real investors don't place the same bets, only us suckers become the investors not the real capitalists.
I say all of this to help illustrate how we got where we are – growing global unemployment, and the steady devaluing of goods and income. Unfortunately, as stated before, it is inherent in the global economic system. The mirror (our condition), shows us that the market scams that have taken most of us “to the cleaners”, are a reflection of the shrinking pie. You can see this more clearly, in the poorer nations , as scams become a livelihood for a large percentage of the population. The poorer things get, the more hustles get created.
The available pie shares stopped growing through real manufacturing not long after WWII. It was then that large companies made a move to cheap off shore labor for profit growth, and as cheap labor was no longer a big advantage by the late 80's, new sources of money needed to be found for the real market drivers. Growth from the mid 80’s ‘til now, was spawned by the retirement funds and income of the average worker. The 1st modern economic “bubbles” began with the rebuilding of Europe and Japan. As Europe and Japan “got on their feet”, and then Asia, and we no longer had an exclusive advantage with cheap labor or non industrial needy nations. After stimulating industrial growth and new global competitors in developing nations, it became necessary to seek one of the few growth options available -individual wealth and personal debt. As painful as this may feel, this was no one’s fault. This is what capitalists are suppose to do, exploit opportunity for large returns on investment. Its the free market.
Capitalism is not the enemy !
I don’t want to give the impression of blaming capitalism for what is unfair or exploitative. Individuals have a choice of following the "golden rule", even in capitalism.
As an economic model, it has brought us both the positives of current globalism, including global communications, rapid growth of technology, and also, most systems of democratic rule. We need to thank capitalism for providing our path out of feudalism and the “divine right of kings.” Individual initiative arose from capitalism and a new valuing of the "unique person". So, I’m not the enemy of capitalism, just the jester pointing out the logical limitations that are becoming obvious. Exploitation inevitably runs out of new large areas to exploit, its just happened sooner than most of us would have believed.
I am sure that many would argue that this “down turn” or apparent economic shrinkage, is just a blip in our economic history, and that new technologies will lead to new jobs and a resumed expansion of our individual and collective wealth. They will say that, this is the way it has always been- highs and lows, business cycles, etc. I would sympathize with any who want to hold on to this view, as I understand that underlying what I am saying is that we have reached a dead end to the system that we have all grown up with.
My purpose is not to paint a gloomy picture of mankind’s shortsighted efforts, but to ask this: if we can now make more than we need, and also have the technology to do it, even with natural influences only making a small dent in our capacity, why aren’t we rejoicing ? Why aren’t we planning a new distribution and valuation system that allows all of us to have everything we need as a species? We have finally proven we can make enough for all.
Everything for everybody !
I the late 1950’s, my generation was told of our future by the TV. In this great new future were all electric houses, (as electricity was going to be “too cheap to meter”), we were going to fly in nuclear powered airplanes, and ride in nuclear power cars and trains, and yes, robots would be doing all of the hard work while each of us found other creative and useful pursuits.
In 1964 a group for thinkers issued a proclamation called The Triple Revolution Statement. In it they foresaw the forced change in the society by the elimination of jobs by computer based technology.
These were not futurists, but activists with an ability to read the elements of the present to see the future.
Even Richard Nixon, in the 70's, was seriously considering a guaranteed annual wage so that we would be prepared economically for the large leisure classes soon to come. We had a sense that a time would come when our security and our wages would be independent of each other. Jobs and income would not be connected. So, why would it seem so odd to now understand that what was possible or inevitable in the US in the 60’s? We are all now facing this potentially delightful future.
Yes, we don't have the great, low cost, energy promised to us in the ‘50’s , but believe it or not, we have even better options, in our present time.
Surplus Energy - the key to the future
There is so much free energy given us each day, that we use huge amounts of expensive energy just staying cool and protecting from its abundance. Wind and various other forms of solar energy, arrive in such excess that our energy needs seem puny in comparison (americanenergyindependence.com/solarenergy.aspx).
As stated earlier, most everything keeps getting cheaper because of excess capacity and greater efficiencies in production, solar cells are also one of the items getting cheaper and they are also becoming more efficient. There was a time when the cost of refined silicon and the manufacture of photovoltaic cells and panels was considered expensive, compared to oil and gas, this is no longer the case.
The goal of the .50 per watt solar cell, has been reached and even Citi Bank and others now project .25 cents by 2015-17. Now, most of the cost burden to an individual in Western society, for energy independence, is the installation cost and not the equipment. This is not a matter any longer of value, but of will. No honest or rational scientist will ever claim that we can’t have unlimited Sun based energy on the earth or that we must have oil and gas to meet our needs. We are not even bound to the earth to convert this free energy, as we can even increase the outputs of solar devices radically, by lifting them into space (http://c-sbsp.org), or we can live with low outputs and efficiencies from cheap solar and make panels on our home printer and glue them to our roofs. My point again is, that we can have anything we need and all can have it, if we decide to do it this way.
Another dimension of this shift to clean energy is the wealth creation aspect.
The solar revolution, as was true with the nuclear power path, still requires a large investment. For many years, a reason given for not emphasizing this clean energy path, was the relatively long pay off period of the equipment, compared to power production from gasoline and natural gas that were abundant. Cheap energy needs to really be cheap to generate, and cheap to build. As mentioned previously, we are getting cheaper generation capacity from solar technologies. The amazing part of the economics is that a PV (photo voltaic) panel will provide 15-40 yrs of energy, basically for free, after the cost of manufacturing is subtracted (about 5 yrs). If we solve the installation cost issue, and focus more on more localized grids and distribution models, the normal cost calculations of comparison of various forms of energy, get turned on their heads, as limited costs of distribution and the support required form national and regional grids, now falls to the hands local users who require less complex infrastructure to both generate and distribute.
What this means, is that 80% of the energy production from PV, over its life, is free.
This free energy is wealth, it will in fact make energy and manufacturing even cheaper until there is both excess and little or no value assigned to it. It is self- replicating wealth. Solar, unlike fossil fuels, whose cost are the extraction and conversion of it, has only the initial material and manufacturing costs and then it keeps producing for 30-40 years. Fossil fuels are not only practically finite, but when used must be replaced each use cycle. Sun based system (PV, solar thermal, wind, biomass, etc) are both renewable but aren't replaced for many years.
This may sound very Utopian, but consider what has happened in agriculture. The output per acre, has multiplied every ten yrs or so resulting from technology improvements and farming methods. Farming is another form of solar energy. One seed can produce with each planting 100 or even 1000 seeds, the cost of the crop is mostly the oil based fertilizers, and the fossil fuel to run the equipment.
The essential dynamic of farming is a self generating system, a self multiplying investment fueled by the Sun. Yes, there are other costs not mentioned here, but these are largely connected to the old system of competition/distribution, and not inherent in the basic process of planting and harvesting. The Sun will keep giving in all its forms far into the conceivable future.
A Solar Plan/ Model
I recently researched the existence of solar buying coops or clubs. I found over 150 worldwide. These are people who have joined together to save money and advance solar power. Joining together to buy panels cheaper is common sense and applied for many years to other commodities. What occurred to me was the potential of everyone saving even more money, while more rapidly expanding the number and rate of solar installations. If these existing buyers and others banded together on a global scale to purchase PV panels, all things are possible. This is a significant evolutionary act.
The major sources of PV manufacturing are Japan, China, and Germany. Most of the panels purchased by all and these small groups, comes from an international source. So, purchasing of PV is already engaged in international business.
If 100k co-op members around the world created a purchasing pool, the limitations of a small group, would automatically be done away with. The ability of 100k people willing to buy panels perhaps worth $10k each installation would radically change their options, from now just being purchasers to having the ability to be producers, investors, financiers and evolutionary activist, just by doing more of what they are already doing on a larger scale. The price could become small enough, that an even greater numbers of people, could find the means to become buyers and members.
It could lead to investment in research for bringing to market many of the promising solar cell approaches that could make PV so cheap, everyone(perhaps even make their own and home) could have it. Also many of the newer PV technologies greatly reduce the installation cost
(now larger than the panels themselves). As indicated earlier, there are technologies now, that just need financial support to find their place in the market.
Imagine a system where the cost reductions and the resulting growth of PV installations leads us to a point of having energy costs become such small percentages of the cost of manufactured goods, that goods become too cheap to sell to one another.
Remember, 85-90% of the cost of goods, food included, is energy. The energy to mine materials, transport them, make them into goods, etc. ; its all energy, even the labor to make them.
This can be one of the ingredients to a way of being here.
Another interesting benefit, can be, in this global renewable energy cooperation, the building of a new model of both economics and self governance.
Co-ops, by nature, are one person one vote.
The powers that be will never let this happen ?
Well, I know the unempowered feelings in many of us, will say that it is not up to us, or that it is up to the choices of the corporations, the government or greedy business people and they (the powerful) need to keep things as they are or they must profit from these cheap sources. Maybe, this is so, but maybe not ?
The points being made here are not based on some vision of a utopia, but the stubborn facts of the global economic stalemate, the direct outcome of this very profit directed system. As more and more capitalists and investors began to realize that we are playing in a game of diminishing returns, fewer and fewer of them and us will be making our bets on the current system . As mentioned earlier, if the reward is small and the risk is large, why make that bet. Yes, some will continue to find avenues to make large returns, but most will not, simply because there will be fewer and fewer of such options.This is not because we will stop innovating, or creating new products, but for the foreseeable future, we will need fewer and fewer people to produce these inventions and others will quickly copy them as happens now, leading us back to the same point- fewer incomes, fewer buyers more and more sellers.
