The Economic Future of Our Communities, Part I

I had written these guest posts for UOJ some time ago - unfortunately, it was literally right before the extradition hearings started in Israel and UOJ got busy and lost the original articles. Then there was some problem with getting the graphics inserted... Etc., etc. You know how it is. We're all really too busy to do this full time. So, since UOJ invited me to contribute to this forum, which seems to be more tuned toward where Judaism is and where it needs to go, I thought I would start here with the first of the three parts I had already written for him. This first one may not seem terribly relevant to Judaism particularly, but hold that thought. It's only really in parts two and three that it all starts to come together. Shalom!

Introduction and Part One

There are some serious issues in the world and in our communities that have put us in an incredibly precarious position economically. There are things going on out in the world and in our own communities that need to be dealt with if we’re going to have a viable future. These concerns of mine are the focus of this article. No one is claiming that this situation will last forever – the business cycle goes up and down. But it will be the reality for probably the next two decades – and we’re going to have to deal with it realistically.

I want to make things as clear as possible, (I hope,) so first and foremost be assured I am not presuming that everyone who reads it is clueless. I am just trying to make sure that everything is explained as completely as I need to explain it, because I don’t want to assume, either, than we’re all experts on everything. I know I’m not. So there’s probably at least one part you also don’t know, and since I don’t know which part that is, I am going to try and explain everything at least enough to be sure we all understand the line of reasoning. So don’t be annoyed, please.

The general outline will be:
Part One: What’s going on out there?
Part Two: What’s going on in here?
Part Three: The collision with the reality train – what can we do?

This is not intended to be a dissertation, so some issues will be glossed over while others will receive increased scrutiny. I welcome feedback from any who believe I glossed over something important – we can add those things to the discussion.

PART ONE: WHAT’S GOING ON OUT THERE?

To make a long story short, three things: globalization, peak oil, and climate change. Each of these affects the others in a feedback loop, but let’s look at each one separately, more or less.

Globalization

Globalization is based on several economic principles that are taken as facts but which are in fact myths. The first is the myth of “comparative advantage.” In this myth, transnational corporations claim that some other country is a “better” place to manufacture goods, and proceeds to take western first world factory jobs and move them to third world countries. What this results in is an advantage, but it can hardly be called “comparative.” In fact, it is by definition NOT comparative. These businesses and factories have moved to places where wage laws, labour laws, child labour laws, environmental laws, safety codes, and laws against graft and corruption do not exist. They are moved to places that have no worker protections or benefits, such as health care, vacation days, or religious days off. They are moved to areas where sweat shops are the norm and not the exception. Naturally, these squalid conditions and sub-living wages allow them to sell their products and services more cheaply than competitors who stay in the first world. But that’s hardly an apples-to-apples “advantage.”

The second myth is that transnational corporation and the robber barons who run them have no moral or ethical obligation to provide living wages or humane consideration to either the people they left behind in their home nations or the people they are intending to hire in the third world. They feel no loyalty whatsoever to western culture except to exploit its commercialism – which they themselves created. They see no need to be shackled with a burdensome conscience. We in the first world, in the first world, have made such practices as those above illegal precisely because of our Judeo-Christian based society – in those pagan places, no such regard for human life and civil rights exists. We as a culture have decided that such laws are for the good of society. So the robber barons move to countries that have no such concepts as “social contract,” or “civic duty.” That’s just the way the transnational corporations want it, of course.

The third myth of globalization is that of the “service economy,” aka “a rising tide lifts all boats.” In fact, just the opposite occurs – the un-comparative advantage of third world governments drags down the wages, benefits, and standards of living for the rest of the world. Supposedly, by moving those “labour intensive” jobs to third nations, westerners are “free” to unleash their creativity and provide services that “everyone” needs and wants. You know: fast food, restaurants, laundry service, lawn service, retail, beauty, and so on. The problem is, without living wage manufacturing jobs to provide the majority of average workers with incomes that can actually afford these services, people are reduced to basically selling such services to all their fellow service worker industry employees - who can’t actually afford them. Only the wealthy can afford to pay other people to do their chores.

This leads directly to the “debt doesn’t matter” myth. Debt does matter, paying interest matters, and this ponzi scheme is also about to come crashing down, as we’ll see below.

Related to this is the myth of “government will take care of it.” All of the benefits and local projects and health care and living wages, etc., that the corporations used to fund are somehow going to be “taken care of” by nationalizing health care, or by government benefits, etc. The problem with this idea is that since wages are falling, government collects less tax income, not more – yet demand is obviously rising exponentially as corporations chuck the ethical and moral considerations of the social contract they owe to their workers and their communities en masse. There’s no way government “can take care of it” under these conditions. For example, in the US, when Social Security was enacted, there were 19 employed persons for every retiree. Now, there are three. Soon, there will be two. How likely is it that the generation y-ers and z-ers out there now are going to be willing to give up half their income, basically, so Mrs. Rockefeller can continue to collect social security? So Chanah Stein and her 10 kids can collect welfare while her husband doesn’t work? Or anyone else, for that matter? Not likely. Things are going to have to drastically change.

The fifth myth of globalization is what I call the “something for nothing” syndrome. This is the state of all the high-paying white collar jobs in western culture. Basically, we’re talking the financial sector of the “service economy.” This ponzi scheme has worked for a while, but it has reached the breaking point. Basically, in this myth, people make a living and/or get rich by continually trading around pieces of paper, such as property deeds, mortgages, stocks, bonds, etc., which supposedly always increase in value. But the “increase in value” is determined by another pesky economic reality: supply and demand. Just counting since 2000, people on average are making less, not more, than they were when inflation is factored in.



And you think that’s bad? How about this: Adjusted for inflation, you probably make less than someone in your exact position did in 1972.

The Empire of Debt
From Adbusters #74, Nov-Dec 2007

…The story begins with labor. The decades following World War II were boom years. Economic growth was strong and powerful industrial unions made the middle-class dream attainable for working-class citizens. Workers bought homes and cars in such volume they gave rise to the modern suburb. But prosperity for wage earners reached its zenith in the early 1970s. By then, corporate America had begun shredding the implicit social contract it had with its workers for fear of increased foreign competition. Companies cut costs by finding cheap labor overseas, creating a drag on wages.

In 1972, wages reached their peak. According to the US department of Labor Statistics, workers earned $331 a week, in inflation-adjusted 1982 dollars. Since then, it’s been a downward slide. Today, real wages are nearly one-fifth lower – this, despite real GDP per capita doubling over the same period…

To put that all in one sentence, the reason we're always broke and in debt up to our eyeballs is that our wages are 20% lower than our parents wage was. So, it's not rocket science - we have less money, and increased demand for goods from growing foreign nations – not to mention our own currency inflation has helped raise the prices of everything. Therefore, we have more debt.

And speaking of inflation, the government has been lying through its teeth about the real inflation rate:







In real life, people can’t just keep refinancing and charging forever. At some point, the payments on these things reach the point where they can no longer afford to “move up” the scale – the consumers/buyers are maxed out. That’s where we are now in western society, as someone recently posted in the comments:

http://www.newsweek.com/id/106778
Times are bleak for the U.S. consumer. The average household owes 20 percent more than it makes each year.

[This is a offshoot and the result of the “debt doesn’t matter” myth above, of course.]

The personal savings rate is in negative territory. Record numbers of Americans are losing their homes to foreclosure, and millions more are struggling to keep up with their monthly bills and obligations. And the nation's economy isn't in much better shape. The Treasury Department has estimated that, with the added costs of the economic stimulus plan passed by the House of Representatives this week in an effort to avoid a recession, the federal deficit could rise to as much as $400 billion this year.

The sixth myth of globalization is related to the fourth: it is the “growth forever” myth. Even the entire planet is a closed system. People only need so many widgets and whatnots, and even if they make them as cheap and crappy as they possibly can so people have to keep on re-buying them, there’s only so much money available in the hands of the consumers – which they have purposefully and knowingly reduced, I might add. Part of the “something for nothing” myth above is that stocks, etc., can always increase in value – but in the real world, an equilibrium will have to be reached between supply and demand, and growth will stagnate. In western nations, this has already happened, basically. So companies cannot continue to “grow.” Even if shake-outs leave only one or two competitors in most industries, they will still just be stealing the same old customers from each other – very little real growth based on actual innovation leading to increased demand. And even if demand is increased for a new product of some kind, that means that demand is lessened for other products. When consumers are counting every dime, it really is a zero-sum game.

The seventh myth of globalization is the strange idea that self-sufficiency is bad. This is related to the “comparative advantage” myth, except that if someplace did have a true, apples-to-apples comparative advantage that would be a good thing. But in the globalization twisting of it, no place should ever have all the manufacturing and agriculture they need for their own population, because that’s “protectionist” or “nationalistic” or “inefficient” or whatever pejorative they try and attach to common sense.

This myth is also based, in part, on the last and biggest myth: The myth of perpetually available cheap energy for long-range transportation. This one is, in fact, the deal breaker that will eventually rip the false paradigm of globalization off of its pedestal and down into the mud where it belongs. It will expose the lie of all the above sub-myths – unfortunately, the process is bound to be painful.

Peak Oil

This bring us to the second major thing going on out there: peak oil production. It is important to understand what peak oil means – it doesn’t mean the world is running out of oil. It means we have passed the equilibrium point of the equation for quality, quantity, and cost. In short, we’ve pretty much got all of the cheap to refine, high quality, easily accessible oil out of the ground. What’s left is the expensive to refine, low quality, hard-to-get-to stuff. We know that oil is a non-renewable resource – no more oil is going to be made for us.

But some people have a strange idea that oil will last forever (Top Blue IEA 2006 line), or else think that oil use can continue to be used at the rate it has been used in the west for the entire planet’s population (the second Pink “ by population” line). The US has about 5% of the world’s population and uses about 40% of total oil production. Obviously, if every other 5% of the world used that much oil, you’d need 700% (19x40) more oil to be produced each year for everyone to have the same level of usage – that is, the same standard of living as we have in the US. Good luck with that.

Once you chuck those two completely impossible scenarios, what’s left is the bottom projections of various theories, which all have one truth in common: There’s only so much high quality, cheap to refine, easily accessible stuff left, and more and more people who want their hands on it.



China and India have recently been noted as having fast-growing middle class populations who want to live the “Western Lifestyle,” including cars and plastics and all that “modern” stuff. Now, you might be thinking, “so what?”

The “so-what” has two components. First and foremost, illegal immigration notwithstanding, western population is in decline. Population in India and China is not. For example:



Oil producing countries who want growth and profits are going to go after the biggest markets – it’s part of the false globalization paradigm. The second problem for us in the west is also related to globalization theory – since living wage manufacturing jobs, factories, and other hard assets have all left American shores and migrated to China and India and other growing third world nations, they can outbid us for available oil resources – by a long shot. All we have is paper assets, devalued currency, and arrogance. They have actual goods and commodities – real wealth. We can’t compete, to put it plainly. The oil resources are going to go to the highest bidders, and that isn’t going to be us, frankly.

If you have a sneaky suspicion that might be why we were suddenly interested in freeing the Kurds from Saddam's poisoned chemical rockets – you’d be right. While the humanitarian issues were real, they were still camouflage to what the western power-that-be consider far more important that the human rights of brown peoples – access to oil. In the US, peak oil production was in the 1970s. We can now produce only a fraction of our own oil needs, and our allies who have production capacity to spare are getting few and far in between. Canada is in the same shape, and soon even Mexico will be. Venezuela is no friend of North America, and the rest of the South American countries have little or no excess production capacity to even sell abroad.

But don’t hold your breath on de-facto ownership of Iraq solving any of our problems. Even now, there are several economist and writers who have already started using the “R” word – rationing – but the government is way ahead of them. The fact is, as production dwindles, allies disappear, and production costs for the lower quality, less accessible oil increases, the price of gasoline and diesel has nowhere to go but up – way up, actually.

Bloomberg reports that the investors buying oil options contracts on the Exchange are making a very scary bet - scary for us, that is. They are buying these option contracts now because they believe in a year's time, the price they specified on the contract will be BELOW the market rate, and therefore they will make money by selling their cheap buy. That's how the options contracts work - buy below the going rate and then turn around and sell quickly to make a profit. So what is the commodity? - and what is the price at which they are legally contracted to buy it by the end of the year?

Oil $200 Options Rise 10-Fold in Bet on Higher Crude (Update5)
By Grant Smith

Jan. 7 (Bloomberg) -- The fastest-growing bet in the oil market these days is that the price of crude will double to $200 a barrel by the end of the year. Options to buy oil for $200 on the New York Mercantile Exchange rose 10-fold in the past two months to 5,533 contracts, a record increase for any similar period. The contracts, the cheapest way to speculate in energy markets, appreciated 36 percent since early December as crude futures reached a record $100.09 on Jan. third….

Hope you're ready for $5-$6-$8 a gallon gasoline - and the heart-stopping price increases of everything else that is made or transported by petrochemical products - because here it comes. But you’ll only have to worry about it for a short time. Remember the fact that state and local government tax revenues have been falling – and the feds are overextended by trillions of dollars of debt as well? Government needs gasoline and diesel – for fire trucks, police cars, ambulances, garbage collection, food distribution, border patrol, necessary infrastructure repair and maintenance, and national guard/military uses, etc. These are undeniable facts.

What is also undeniable is that no alternative yet proposed is viable. Ethanol actually requires more than a gallon of petrochemical inputs per gallon of ethanol produced. Ditto for other forms of bio-diesel. Electric cars would work – except for the fact that our electric grid is already at capacity and can’t take millions of cars being added to the grid. The head of economic development of the state where we live, a personal friend of my husband and myself, told me (while we were chatting at the supermarket one day recently, believe it or not) that I was kidding myself if I thought cars could go all electric. The state was already having businesses fail to locate there or expand because there already isn’t enough electric generating capacity for the demand that currently exists. And in fact, we should expect more blackouts this summer and in the foreseeable future. There is no way more coal, hydroelectric plants, or nuclear facilities could be built economically or in a reasonable quantity in time to forestall the likelihood of rolling blackouts becoming a normal occurrence all over the east coast – right here in America, especially if the summers get hotter. I was surprised, but other sources confirm these words. Electric is not an option for the near term (that is, the next few decades). I wish it was, but I can’t make power plants appear out of the thin blue air, and you can’t, either.

So what will happen is that government will have to lower the price of gasoline/diesel in one of two ways – nationalizing production, refineries, and distribution (not bloody well likely), or, demand destruction. Demand destruction is exactly what you think it is – the government will eliminate serious competition for gasoline and diesel, and the only serious competition for gasoline and diesel in this country is personal automobiles. As one Northern VA area reporter put it:

The peak oil crisis: The future of cars – part 1 by Tom Whipple
Published on 24 Jan 2008 by Falls Church News-Press. Archived on 24 Jan 2008.

...Something has got to give. That something is going to be the affordability and availability of gasoline and diesel for fuel. The problem will be on us within the next five to ten years. When shortages develop and rationing starts, fuel for the private car will be close to the bottom of the priority list along with fuel for lawn mowers, leaf blowers, recreational boats, and my personal favorite as the worst possible use for a precious resource -- sky-diving. So what is going to happen?

In short, all domestic production of gasoline/diesel will be allocated for official government use, food transportation, and other essential services. The public will basically get none, except for special permits which I assure you only the excruciatingly wealthy and politically connected will be able to afford.

Oil Executives concur with this timetable:

Shell chief fears oil shortage in seven years
Carl Mortished, UK Times
World demand for oil and gas will outstrip supply within seven years, according to Royal Dutch Shell.

The oil multinational is predicting that conventional supplies will not keep pace with soaring population growth and the rapid pace of economic development. Jeroen van der Veer, Shell’s chief executive, said in an e-mail to the company’s staff this week that output of conventional oil and gas was close to peaking. He wrote: “Shell estimates that after 2015 supplies of easy-to-access oil and gas will no longer keep up with demand.” The boss of the world’s second-largest oil company forecast that, regardless of government policy initiatives and investment in renewables, the world would need more nuclear power and unconventional fossil fuels, such as oil sands. “Using more energy inevitably means emitting more CO2 at a time when climate change has become a critical global issue,” he wrote.

Climate Change

Climate change is real – it has been going on since the beginning of creation. Our climate changes, sometimes rapidly, based on numerous factors including the wobble of the earth’s orbit, the wobble of the earth’s tilt and the wandering of our magnetic poles, plate tectonics, and especially solar radiation.



Climate change is going to affect us in two ways: one, by shifting weather patterns: places that used to be able to grow food easily or produce hydroelectric energy or get by with little or no air conditioning will have to deal with changing reality. Most of the northern hemisphere will get warmer. I saw one map that one of my sons found for a school report that showed Africa, interestingly, is actually predicted to become milder. Other predictions disagree, but you get the idea. Entire regions and countries are going to have different climates than they have enjoyed so far during this present internecine period.

The second problem is the environmentalist whackos who think “modern life” has caused this, and will have restrictive legislation passed to enforce the economic destruction of western culture (without ever having to explain why there were no ice caps at all in the Jurassic period, or why sea level was so much higher in the past that what is now Saudi Arabia was once an inland sea – hence the oil deposits - or why the medieval warm period had warmer temperatures than we do now, etc. – without petrochemicals!). These are the same guys who aren’t afraid to say that 5/6 of the world’s current population needs to be “eliminated.” They are in this fight for political control, not necessarily for climate change per se – so no amount of evidence will get them to back off. Even in the wildly unlikely event that human activity contributes to global climate change to a greater extent that natural forces have in the past (good luck proving that), all scientists agree that whatever tipping point exists, we are already passing/past it – and it’s not like China and India are going to tell their citizens, “too bad, we missed the party.” So anything the whackos do manage to push through the UN or Congress will be too little too late – it will only detrimentally affect the western economy and provide little in the way of actual results climate-wise, if any.

To summarize Part One – What’s going on out there? We can come up with the following conclusions:

1. Living wage secular jobs are fast disappearing from first world countries, especially America. “Service Industry” sub-living wage jobs will remain stagnant as more and more people cannot afford to hire out services.
2. Increasing numbers of persons are and will be underemployed or lose their jobs entirely, both in secular and religious industries.
3. Wages will continue to fall, benefits will stagnate or disappear.
4. Those with jobs will be required to support more and more people, as elderly parents and adult children cannot support themselves on available benefits and available jobs.
5. Households will reach the point where they cannot take on more debt or refinance the debt they have due to tightening credit standards (actually, most of us are there already).
6. Government assistance/benefits will be stagnant or will be decreased.
7. Charity will be less available as donors have to tighten belts.
8. Prices of household goods and food will continue to rise – and the father they have to be transported to reach us, the more they will rise in price. Long-distance transportation of out-of-season foods from foreign countries will decrease dramatically – and what does arrive will be luxury items ordinary people cannot afford.
9. Secular companies will drop “unnecessary” expenses like kosher certification. Kosher food production companies will take advantage of a captive audience to raise prices.
10. Private school tuition will likewise continue to rise.
11. The value of our homes will be stagnant or continue to fall. We can no longer refinance our homes to pay off credit cards, consumer loans, day-school tuition, and expensive weddings, etc.
12. People trying to sell homes will find they owe more on them than they can get on the market – meaning they will sell only at a loss, if they can sell at all. Going rent rates will also likely not cover already existing mortgage costs – leaving property owners stuck.
13. Climate change will cause our utility and water bills to increase, increase the spread of disease and cause sensitive food plants to be more scarce, driving up prices further for some items.
14. Peak oil will cause gasoline/diesel prices to increase until the government decides it’s had enough, and then private automobiles will be all but banned.
15. People who do not live near their jobs or near mass transit will be forced to sell their homes at a loss or abandon their homes outright to be closer to work or to mass transit.
16. Environmentalist whackos may succeed in banning many products and services they deem “damaging” to the mother-earth they worship, which will disrupt our economy further.

Stay tuned for part two, "What's going on in here?" which will show how various trends in Judaism and Jewish communities have put us in some less than desirable economic positions.