Last week on Democracy Now I saw Krugman talking about why he did not believe the Fed monetary stimulus was enough and that we needed much bigger QE, but he’s been saying this for some time now. The problem with this view and Keynesian philosophy(and for that matter any mainstream economic ideology) is that it does not take into account resource depletion, namely the now blatantly evident constraint of industrial civilization’s keystone resource – oil. The lack of easy to get black gold now represents a real yoke on future growth as evidenced by persistently high gas prices and unemployment rates as well as national debt defaults:
…the economic and geopolitical turmoil we’ve been observing is exactly what Peak Oil would look like. Oil production has stagnated, ceasing its endless growth that we were used to in previous decades. Economic growth rates have also stagnated, causing problems with debt financing that have brought the Euro zone to the brink of collapse. Austerity plans cause even more economic pain and fail to alleviate the debt problem, while stimulus plans fail to result in sufficient growth to overcome debt burdens, although they do mitigate the impact on the lower classes who suffer most. Any amount of world economic growth feeds directly into an increased global demand for oil, which quickly runs into our inability to increase global oil production, raising oil prices. With great respect for Krugman’s opinion that Keynesian economics offers the way out of our current mess, he has not yet addressed the negative feedback loop between stimulus, growth, and oil prices.
And over at Steve Keen’s Debt Watch, Dick Burkhart sums up the situation nicely:
Hudson is right on the need for debt write down, but he misses what is really driving this. Namely, the imminent end of global economic growth due to the maxing out of critical resources like oil (peak oil) and other resource and ecosystem degradation. It is growth that pays back debt; otherwise debt just means a redistribution of consumption to the wealthy. This was why usury was once a mortal sin, because it meant debt slavery. We are getting perilously close to that already and the solution is exactly as it was in biblical times: the “jubilee year” (the ancient version of debt forgiveness).
Peak Oil means that the situation will only get worse, so that the debt crisis in Greece will be but a foretaste of much bigger crises to come. The solution will be either inflation or default or some combination of these. The 1% would prefer inflation but the 99% will revolt against inflation or its austerity equivalents, as in Greece. Default, though causing disruption and hardship in the short run, is also far better economically in the long run because it frees the workers to use the fruits of their labor to support better things for society , both personal and public goods, than luxuries for an affluent minority.
In the future GDP should be downsized by design, to match decline in productive capacity, but chaotic downsizing seems more likely at this point, as the powers that be are so afraid that they don’t even want to talk about it.
This is why we humans will really have no choice but to live within our means as that pertains to the limits of the earth’s natural capital. Peak oil, as well as the peak of other resources, has set a yoke on all future growth in the industrialized countries. The elite who run the economy already knew this, hence the call for austerity, but since that has been getting push back from the 99%, they are now trumpeting a different path: growth.
Without restructuring a society run by global neoliberal capitalism funneling all wealth up to the 0.1 percentile, there can be no long-lasting resolution to this conundrum of peak oil, peak debt, and the disenfranchised 99% who are quickly falling into a life of no upward mobility, 1000 plus applicants for any available job, and a future of abject poverty and collapsing social services. For these reasons, friction between growing social unrest and an escalating authoritarian State seems inevitable.