Category Archives: economy

Carbon taxes

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We may think we live in the post-industrial era, but we have actually just moved the smokestacks out of sight.

This entry is inspired by the book The World in 2050, published by The Economist, a magazine I have spoken well of over the years. In its chapter on global warming, the book takes the position that it is already too late to avoid the climate change in 2050, but it is still not too late to avoid multiplying this for the centuries after this. Of course, most people who read this book are probably grownups at the very least, so it may not interest them much how the world will look in 2070.

Climate change literally happens at a glacial pace. And I mean literally literally, not the way people these days have taken to using the world “literally” as an amplifier. The world is dotted with glaciers, and these grow and shrink very slowly, thus the “glacial” speed. The melting of these is a major part of the climate change. As long as there is plenty of ice to melt, the temperature will not increase rapidly, since the process of melting (technically called a “phase transition”) requires a much larger amount of heat than simply warming the same amount of water by one degree.

We have been able to pour large amounts of carbon dioxide (and some methane) into the atmosphere and the temperature has only increased a little. We have literally (literally) “seen nothing yet”, in the sense that all that has happened at any one place on Earth lies within the natural band of fluctuation. Whenever a particular place is extremely warm or cold or humid or dry, someone will usually be able to dig out that it was even more so in 1937 or 1899 or some other time in the past, and conclude that It Doesn’t Really Matter, the more things change the more they remain the same.

Some of my friends, God-fearing men and women, are absolutely convinced that man-made global warming is just a socialist hoax. This is a reasonable thought: When socialists agree on something, it is probably something nefarious. In this case, however, the greenhouse effect has been known since well before the first internal combustion engine. We just never thought it would be a problem. It will be a problem, but as usual not one socialism can solve. It will also be an opportunity, something socialism is spectacularly bad at.

The amounts of carbon dioxide in the atmosphere are in fact quite small even now, by interplanetary standards. Venus has an atmosphere of mostly CO2, while here on Tellus it is less than one tenth of a percent! It is natural to think that this cannot possibly have any noticeable effect. Therefore, the whole climate hysteria is simply a way for the left to introduce even more taxes, now called “green taxes” or more correctly “carbon tax”.

***

In so far as carbon taxes come in addition to other taxes, I am as wary of them as any conservative. Since the panic is still entirely theoretical, if we increase taxes now it is a safe bet that the government will use the money to play Santa Claus and barrel pork to important voters so as to remain in power and live it up. The idea that the green taxes will be used to combat or adapt to climate change is unlikely to actually be practiced until some visible horror arrives, such as water lapping into the streets of London and New York. This is still some years off, thank the Light. Thus, we are not going to do anything, except fly around in jet planes and hold conferences about how to reduce the use of jet planes, stuff like that.

Meanwhile, we continue to pump up oil and gas and dig up coal and tar sand, and burn it off as fuel mostly. Just how much we drill depends in principle on the expected demand, but there is also a time delay because you can’t just sail out in the Arctic Ocean one day and come home with a ship full of oil. It takes several years to make all the installations ready. But in principle, it is the demand that determines the drilling. And it does so by influencing price. The higher the demand, the more people are willing to pay for fossil fuels, and the more money there is to earn from drilling, and the more places people will drill.

Enter the carbon tax. Europe has had such taxes for so long now, it is taken as granted. Here in Norway, gas now costs $2.68 per liter, which is about a quarter of a gallon. So around $10 a gallon, most of it tax. Scientists are still uncertain whether this has had any effect on driving distance at all, but it is thought that people may have switched to modern, fuel-efficient cars slightly earlier than they otherwise might. It is hard to quantify, though, since we don’t have a parallel Norway in which the taxes remained low.

But what if we dared raise taxes to a point where it actually would curb demand? Wouldn’t we save the world through taxation, for the first time? After all, with higher prices, demand would go down; but the higher prices would not transfer to the oil companies as higher profit, so drilling would not increase. Win! Or…?

Well, yeah, to some extent this would work – if the whole world did it. That would require a massive alien invasion, and I think that would be more of a problem than the greenhouse effect. So what happens in the real world when Europe increases its “green taxes”?

The demand for oil goes down just a little. This causes the price to go down just a little too – perhaps a dollar or two, although that may be exaggerating. What happens next? The slightly cheaper oil means the remaining 6.6 billion earthlings can afford to use MORE oil than they otherwise would, and they will do so until a new equilibrium appears, close to the previous.

***

I don’t  think people really have realized that we already may have passed “peak oil” in its original sense, not in the sense of the scare stories where suddenly cars become useless because one day there is no gas. It does not work that way. What happened was that one day we extracted the most oil we had ever done, and the next day we didn’t, because it was so hard to get to. The IEA, which is the closest there is to an official authority on energy, claim that this happened in 2006 with crude oil. However, thanks to technologies for converting oil from tar etc, actual peak oil may have happened in 2011 or even be in the near future. In any case, what really happens is that demand is increasing at a whole other scale, as emerging markets keep growing toward western levels of energy use, while production of fossil fuels (including gas and coal) is rising more slowly and will eventually fall.

Because energy demand is rising steadily among most of the world’s population, fossil fuels are already becoming more expensive year by year. If we suppress the demand in one corner of the world, this is a godsend for the rest of the planet, since demand there is limited by the high cost. The production remains the same – the prices are already so high that it is the technical challenges that delays production, not waiting for a better price. Even if Europe and the USA both completely stopped using fossil fuels, which would definitely send the prices down, all fossil fuel will still be gone over the course of a generation or so. What remains will be what is ridiculously hard to get to, so that you would need a price of $1000 a barrel or more to make it worth it. Actually, I confidently predict that crude oil WILL reach $1000 a barrel unless something miraculous happens, although at the time it will be used as a raw material in chemistry rather than for fuel.

The upper limit of the fuel price is going to be decided by something entirely different: Alternative energies. When sun power, wind power, wave power etc gradually come online in large enough quantities, the demand for oil will begin to fade. But as I said, it will still be valuable for chemistry. And alternative energy is still dependent on government subsidies even though crude oil now costs over $100 a barrel on a regular basis. There are only a few limited, local uses where renewable energy is profitable today. This will change, but it will take time (and an even higher oil price).

The short of it is, aggressive taxation in the rich nations may delay the End of Oil – the point where almost all of it is in the atmosphere – by somewhere from weeks to a couple years, depending on how extreme the taxes are.  The effect is utterly dwarfed by the ever growing demand and the growth of alternative energies, which will decide the cut-off point of the fossil fuel price and thus the speed of emptying the known reserves. The taxes are almost but not quite irrelevant.

Let us be excessively optimistic, unrealistically so, and grant the remote possibility that Draconian carbon taxes may delay by as much as five years the day when all fossil fuel is converted to CO2. But climate change is a process that continues at a slow, steady pace for several centuries. A handful of years delay (during which we will still have extracted and burned ALMOST all the oil, gas and coal, just not absolutely all) will not be visible in the climate statistics – it will drown in the random noise, the wobbling of the planet, changes in the solar wind and natural fluctuations in the cloud cover, the occasional volcano eruption, stuff like that. We won’t ever notice.

 ***

 So is there any reason at all to have carbon taxes? Oh yes, but on one condition: That they replace other taxes. It is better to tax something that is less useful, such as oil, over something that is more useful, such as work. If we can make people drive a little less, it won’t do much good but it won’t do much harm either. If we make people work less, everyone will suffer.

So moving taxes from production to consumption is generally a great way to make the world a better place without actually cutting the taxes. I guess doing that is too much to hope for. But if we move taxes to fossil fuel use, this will cut itself gradually over time. When the fuels are gone, they are gone. And it will likely happen over the span of a generation or so. At that point, the more of the taxes that are on fossil fuels, the better, since no one will be paying them. Go go green taxes!  ^_^

You forgot the technology

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Staring at cell phones

Seriously? Just how far have cell phones come? A lot further than in the 1970es. But then a lot of things have changed since then.

Economists are none too cheerful about the life of common workers in the USA. The plight of the low-paid wage earners is well known, I think – their work has increasingly been outsourced to other countries, one way or another; and if not, then taken over by new immigrants, some of them illegal. As more and more advanced industry moves to China and elsewhere, the hungry ghost of unemployment nibbles at the toes of even those who used to feel safe.

But salaried workers are not quite as lucky as one may think, either. Adjusted for inflation, they earn approximately the same as two decades ago, but they work longer and harder for it. The standard of living was slowly rising, but largely based on loans and especially mortgage.  In the two decades before that, the family income  was rising for another reason: More women entered into paid work, whereas in the past many married women had stayed at home. This is rare now, and that process is pretty much complete a couple decades ago. Where a man could earn enough to buy a house and feed a family, husband and wife now both work overtime to keep the house – if there is work to find.

Well, it is not always and in all places that bad, but this is the overall trend. While the richest are getting richer, the lower middle class (and not very low either) has to run just to stay in place. Or so it seems, when measured by the standard tools of the economists.

They forgot the technology.

***

I don’t mean the technology at the workplaces. Economists are acutely aware of that. How much productivity has increased because of email, how much is lost to Facebook, stuff like that. This is not what I am talking about.

40 years ago, even if you were filthy rich, you were unlikely to have several million tracks of music. And even if you had such an obsession, you definitely did not bring millions of songs with you in your car. But today, a teenager on the school bus can choose between these millions of tracks while listening to Spotify on his smartphone.

40 years ago, you could not carry hundreds of books with you wherever you went either. And you certainly could not decide that a minute from now you would have bought an uncommon book and begun reading it. Buying a new book required going to the bookstore and pick one from those that were available. If there were other books, you did not know about them, unless you got the help of a librarian or some other scholar. In the case of books that were not broadly popular, it could easily take weeks to procure them. Now, you can do it while waiting for the elevator.

40 years ago, you could not chat with friends on another continent, or call them almost for free, or hang out with them on video chat. International calls were hideously expensive, and of course you had to call at a time when the person was in the house so they could hear the telephone.

The Internet and mobile phones may be the most obvious of the new technologies, but there are many others. I doubt there were pulse watches at all, even for the rich (although we did have digital watches in the 70es, if memory serves). Incandescent light bulbs were the only way to light the house, even during a heat wave, emitting 90% heat and 10% light instead of the opposite.

Medicine has quietly made a lot of progress. This is a good thing, of course: Back then, heart infarcts were common, arrived suddenly, and usually led to death. These days it is more common than not to  spot the warning signs long before an actual lethal infarct, and treat the condition with medication or, if worst comes to worst, surgery. Diabetes can be diagnosed years before it shows symptoms. Several types of cancers can now be treated that could not in the 70es. The downside is that health care costs have exploded. There is some hand-wringing over this, but the main reason for the huge cost is that we can treat rare illnesses that we used to just give up on. It is generally agreed that being rich and dead is not the best possible outcome. Better to be poorer but still alive!

Cars are safer too. Back in my childhood, 40 years ago, safety belts were still fairly new and highly optional. Now, there is a wide range of security measures to prevent collisions and save your life should a collision happen anyway. And by the way, modern cars pollute far less and also use less fuel.

I am sure I could continue this way, but the point is: You may be working more (and maybe you even are not allowed to read this at work) for the same pay, but on the other hand you can perform miracles that were science fiction a generation ago. That is a cause for celebration, surely! Please take a moment to appreciate how lucky we are to be born in the Age of Wonders.

 

Preparing for “poverty”

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Small house in Sims 3

With bedrooms and a second bathroom in the basement, this house in Sims 3 has room for a small family to live very comfortably. Having huge expanses of floor is not something most people will get used to in the near future, if things continue their current course. The bookshelves may also disappear, and the computer be replaced with tablets. Not sure about the mailbox.

For decades now, we who live in the rich world have assumed that we would become richer or richer. OK, perhaps not all of us, but nearly so. Americans have been more accepting of the fact that a society that creates winners must also create losers; here in Europe, we have largely pretended that this only applied to substance abusers. The ordinary Joe and Jane would be better and better off for each passing years, and their children even more so, world without end.

There was a vague sense of guilt because most of the world — the so-called “third world” — seemed lost forever in abject poverty. But that’s what happens when they try to rule themselves, and if it was our parents’ fault, it certainly wasn’t ours, and anyway they supplied us with cheap raw materials so it wasn’t all bad.

While we looked the other way, the developing world actually developed. OK, there are still some few nations mired in unspeakable poverty, usually in a state of war or civil war. But most of the human population isn’t living like that anymore. They still have a long way before they are as wealthy as us, but they are catching up rapidly.

Now the Chinese can do almost all that we can do, only cheaper. And people are understandably getting nervous, when their privileges start to come into question. It is not just theory, either: The income of a single working American is not much different from 20 years ago, and sliding downward. For a while the family wealth increased because both man and wife was working for pay; then it increased because you sold the same houses to each other for ever higher prices. Now that illusion too is broken; people hope that the government will be able to do something, perhaps by confiscating the wealth of the super-rich. But even if you took it all, you would only be able to hold the government debt steady for about a year. There just aren’t that many super-rich, and if you try to sell their stuff all at once you won’t get much for it.

The time may be drawing to a close when we could eat T-bone steak each day and the Chinese ate mostly rice. The steak and the rice are going to be more evenly distributed, so it seems. Not just with the Chinese, but India, Brazil, Indonesia and Nigeria are all huge nations who want their part of the world’s resources. At least the Indians don’t eat cattle… well, most of them don’t. But you get the point. Even though the rising tide raises most of the boats, some of the “super-rich” nations of the world will have to move downward toward the average.

It amuses me when Americans whine about the “1%” rich, and don’t realize that in the eyes of about 6 billion people, they are the 1%. OK, more like 5%, but still. The difference between having a private jet and a car may seem huge, but not when you’re saving up for a cheap bicycle.

***

This was just an introduction, really, but probably necessary because most people in the western world have still not understood with their emotion that their Golden Age has ended, and that lean years are ahead.

***

One trend in the near future of Europe and America should be small, cheap homes. Some of these will be in traditional apartments, but also suburban homes will probably be small, on small plots of land, in order to be affordable. I don’t mean we should tear down the large houses that are still around, I just mean that new homes should be smaller. Young people looking for a place to live will generally not be able to pay a lot, because even if they have a long-term job, it is not likely to be very well paid. There will be exceptions, of course, but their houses are already built, the big ones.

With gas prices set to skyrocket once another billion cars roll onto the roads, the suburbs of the near future should not be just rows of houses with roads to take people to the city. Rather, cities and towns and villages all should have a mixture of residential, shopping and work buildings. Since most work won’t involve smokestacks and the like, there is no reason to have the buildings far apart from the homes. You will not want to drive for an hour for a slightly better paid job, because it will cost you more in gas than you earn. But of course many jobs only exists where there are many people (a neurosurgeon needs a much larger population than a hairdresser). So large cities will continue to be large, but may become more dense and more varied as people seek to live within reasonable distance if they can afford it. Again, small affordable housing near the city or large towns will be highly sought after.

Electric cars will be widespread, but they will remain more expensive than gas or diesel cars, and electricity itself will grow more expensive. At the same time, wages and salaries will continue to shrink. Driving will no longer be something you do thoughtlessly or just because you are bored. And you will think twice about visiting a mall far away, or drive your kids to another town for some trivial activity.

Taking a plane to an overseas vacation will once again be for the rich. In so far as ordinary workers will have vacations, they will mostly spend them at home or at least in their own state, most years. Tourism will continue to grow for a while, because there will be many more tourists from the countries that used to be poor. But it will not grow at a breakneck speed, and not forever. Specifically, travel by plane will necessarily suffer from peak oil and the transportation boom. Planes are fast but not particularly energy-efficient. People will gradually need more and more of a real reason to take them.

With all things electronic continuing to give more value for money, I expect people to gradually switch from skin meetings to video meetings, and relaxing in virtual worlds instead of actual travel. Physical books will also probably become more of a luxury, although this is still a ways off.

The world population is now forecast to peak at somewhere around 9.5 billion, which is within the planet’s capacity to feed, at least for a while. What has changed the most is that most of these people won’t live in dirt poor third world countries, although I fear some will. But most will live in the new “second world”, not the communist world that use to bear that name but rather a compromise between todays first and third world. There are already a good number of such countries, and I expect the rich world to gradually sink to meet them, although not at the same speed as the emerging countries rise.

With a large “world middle class”, food will be expensive but most will be able to afford it. (Again, I expect hard times for the few countries who don’t get up in time.) Luxury food will become luxury again for the ordinary worker in America and Europe. In particular meat will be expensive, since it requires a lot of plant food that could otherwise have been sold to humans. Of course there are many areas that are better suited for grass than for grain, fruit and vegetables. In Scandinavia, for instance, the mountains are suited only for goats and sheep, not for grain or soybeans. I assume the same will hold true for the Rockies and other mountain chains. But overall, meat will become a bit of a luxury. Not something you only taste for Christmas, but perhaps once or twice a week unless you are well off and want to show it.

Again, we are not talking about abject poverty here. I put the word in quotes in the headline because in the eyes of most of the world, it is far from poverty. It is simply sensible living. But for many of us, that will be a rather new thing. We should think ahead and prepare, both individually, as families, and as society.

How not to eat the rich

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Boy sucking girl's finger, from the anime Amagami SS

Eating the rich, one finger at a time!

There is something absurd about the Left’s fantasies about taxing the “super rich” to fix the broken economy. It is not specifically that it is evil – that is a matter of different opinions – but that it is impossible.

As I have mentioned before, the real super rich are not like Disney’s Scrooge McDuck, who has his money in a silo full of coins and bank notes he can bathe in. Rather, their wealth takes two basic forms: Stocks and bonds. Stocks are part-ownership, mostly in running businesses. Bonds are money lent to other. There are also various derivatives of these, such as the option to buy a stock or a bond at a certain price at some future time. But it really boils down to these two types.

Now say you decide your economy is so messed up that you need to grab 10% of the wealth of the super rich. It is not really sad for them, they still have more than they need for a thousand years of comfortable living, which the Light is unlikely to grant them in any case. But let’s look at what happens when they try to pay their taxes.

Alternative one: They try sell enough stock to finance their extraordinary tax. This is done on the stock exchange, as the name implies. Suddenly there is a glut of sellers and a lack of buyers. This is what we usually call a “stock market crash”. We had one in 1929, heralding the Great Depression. We had another heralding the current troubles, which are the troubles that motivate the Left to want to eat the rich in the first place. So the solution is another stock market crash?

Well, this may seem harmless enough if you are 25 and unemployed. Seeing Wall Street crash and burn, figuratively at least, will probably be satisfying. Not so for your parents: All pension funds are heavily invested on the stock exchange, and everyone’s future pensions will start to unravel before their eyes. This is not a good idea to sign into law for a President who plans on a cushy retreat position as, say, anything other than a panhandler.

Well, how about the bonds? Some of these will mature – the loans fall due – over the course of the year, so these at least should be easy. Just take the money and don’t lend it out again, pay your taxes instead. Fine. But credit has become a bit of a cornerstone in society. Factories or shops that don’t get their credit extended  have to close their doors, even if they otherwise run a profit. In fact, the infamous “financial crisis” that threw the rich world into recession recently was caused by a lack of credit, rather than anything else.

Let us quickly mention the fact that states also depend on credit these days, and a credit panic would cause them to be unable to pay civil servants, state pensions, food stamps etc. Of course, they could just compensate by taxing the rich more…

It is not that it is impossible to tax the rich without the world going down the drain. Many countries tax their rich more than the USA (and a few tax them less). That is not the problem. The problem is the time scale. You can’t confiscate 10% of their wealth one year, or the economy will start spiraling toward death and destruction. You could grab 0.5% each year for 20 years and get the same money with no measurable disruption. But the problem with this is that it won’t solve your problem right here, right now. Even shooting every one of America’s super rich and taking all their money – provided you magically could do this without causing a panic – would only be enough to keep the US debt at its current level for a year, rather than the usual skyrocketing increase. Stealing a measly percent or less simply has no noticeable effect, but it will insult the corporate overlords that wines and dines the politician class. Not worth it, in other words.

How do you eat an elephant? One bite at a time. It’s the same with eating the rich. You have to start doing it a generation before you are going to spectacularly mess up your economy. With the current scarcity of time machines, I don’t see a great past for this in America. (Of course, we did it in Norway. We do everything right in Norway. We are simply the best. We were created in God’s image, and then we evolved. Just ask any of my fellow Norwegians.)

Rain and hydropower

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Small waterfall in the computer game Skyrim

This picture is actually from the computer game Skyrim, which is based on Norwegian nature. There’s a lot of water here in real life too, I assure you, but if I were to try to photograph it, my camera would become wet.

It’s been raining… well, I am not sure it is two days out of three, this fall, but I would be very surprised if it was less than one out of two. That is quite rare, even in fall, here on the south coast of Norway. It also rained copiously during summer, more so than in a long time. Nor is this the only part of the country that has received plenty of rainfall this year.

The last couple winters, the hydropower magazines have been near empty, and the price of electricity has been abnormally high here in Norway. Well, abnormal for Norway. Other European countries are used to paying more for their electricity than we are. Hydropower is a quite affordable energy source, once the dams and turbines are in place. And usually rain is plentiful here in Norway. So we have gotten used to even heating with electricity – some modern houses were literally built without chimneys. And then we had several years with very little rainfall, and at the same time Swedish nuclear reactors were down for repairs much longer than expected, so we could not import electricity from there during the winter either.

Now it has rained and rained for months. It hadn’t rained many weeks when people started getting suspicious: Norwegian power companies were exporting large amounts of hydropower to Europe. The prevailing theory on this was that they were worried the dams might not be empty this winter, and then they would not be able to charge extremely high prices as they had done the last couple years. So they had to hurry to get rid of that water during the summer.

The power companies tried to explain that this was not how it worked: The empty lakes were the huge reservoirs up in the mountains, which took many years to refill and many years to empty. The power they now generated were from smaller dams in the lower valleys, which would otherwise overflow and the energy be wasted. This is generally consistent with the structure of Norwegian water reservoirs. But a lot of people still hold on to the conspiracy theory.

This just goes to show that Norwegian too are stupid and ridden by mind parasites, much like our cousins around the world. Well, not quite as badly as some places, where your life is in danger if you are not insane. But still pretty bad.

Of course, power companies are not saints; they seek to maximize their profit. But the best way to do that in northern Europe is to produce as much as possible of your power in winter. Remember, Norway is about as far north as Alaska. That means the neighboring countries we may export to are roughly comparable to Canada. Air conditioning in summer is a luxury, but heating in winter is a matter of life or death in all these countries. There are several countries between here and Spain or Italy, the “south states” of Europe.

Over the last couple decades, new large-capacity power cables have been laid from Norway to neighboring countries, not just Sweden which we border on directly, but also under the sea to the south: the Netherlands, and at least indirectly, Denmark and Germany. But all of these countries also have icy cold winters, so there is a lot more money to gain from producing all of your power in winter, if possible.

But yeah, the ability to export large quantities of hydropower means we will never again have the comfortably low prices on electricity that we had when I was young. We don’t live in that kind of world anymore. Luckily we also have a lot more money than we did back then. And generally better insulated houses.

It will still take many years of rain before the large hydropower reservoirs are filled, if it ever happens. But nature is certainly doing its best on our behalf. And I, for one, am not complaining.

 

Your stupidity, my rent

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Skyrim - Khajiit chopping wood

What happened to honest gold for honest work, or simple, affordable housing? Oh, they both moved to Skyrim, leaving the real world to the money-movers.

If you are reading this shortly after I write it, you can hardly have avoided all the talk about financial crisis. Both the USA and the EU are teetering on the brink of a breakdown, after the governments decided to bail out various large banks and similar institutions. The roots of this goes deep into the past, but it should be obvious around the turn of the century, with the “dotcom bubble”. People invested in shares in companies that barely even existed, much less ran a profit. Some of these companies went on to fame and fortune (Amazon and Google found their place in this time), but most did not.

When the bubble burst, the central banks decided to keep interest rates low to avoid a painful recession. Looking back, a painful recession was probably what was needed. Certainly I predicted it beforehand. But instead, we got permanent low interest rates, and the housing bubble. Now people grew richer simply by selling the same houses to each other. Even a child could have seen that this could not last. But people kept hoping that it would last at least long enough that they could take their profit. It didn’t.

Then came the next misjudgment, in my opinion at least. Governments decided that the economy could not survive if the banks were forced to take their losses from the rotten loans. (You may remember the word “subprime”, loans that would normally not have a chance to get paid back, but were given anyway since everyone thought the rising prices would pay back the loan.) People left their homes or were evicted, but there were few new buyers and prices collapsed. This influenced those homes that were not being sold as well, their value fell dramatically. The governments decided that to avoid disaster, they had to bail out the various banks and such.

They did not have to. There were a couple other alternatives. When Scandinavia met the same challenge in the late 1980es, the State generously offered to buy the failing banks for 20 cent each. Not 20 cent for each share, but 20 cent for each bank. The banks that could in any way refinance without this, did, obviously. There were a number of mergers. Those that couldn’t were bought up by the State, which fired the leadership and slimmed the staff, but kept operations running until the crisis was over. The banks were later partly privatized at a nice profit for the State, which always can use money for one thing or another.

Another alternative is to lend, rather than give, the necessary money. In that case, people would obviously be reluctant to buy stock in the banks for quite some while, since all their profit would go to paying off their loans. But such is life. At least they would have the chance to continue. And at least ordinary people’s tax money would not be given as a gift to people who were used to living in luxury both before and after the crisis.

Now we have, after the “dotcom bubble” and the “housing bubble”, a new “government bubble”. Now it is the governments which are mired in debt and can’t find their way out. And who are they going to go to? Well, Greece is going to the EU, but where will the EU go? Or the USA? In God you trust, but will He lend you trillions of dollars? So far the Chinese, the Arabs and of course my native Norway have had that dubious honor. But it won’t last forever when you show no plan, not even a vague idea, of ever paying back or even to ever stop borrowing and spending on yourself.

So the rich world is in a well-deserved crisis.  And because of this, interest rates are just above zero. And because this is the case among all our allies, we have these ultra low interest rates here in Norway too, even though our economy is overheated and direly needs sky high interest rates to cool things down. But we can’t, because the market would immediately buy up our currency. We may be a rich little country, but we are still a small country, with a population half that of Greater London.  Drawing too much attention would disrupt our economy completely.

And so the interest rates stay ridiculously low while people keep feeling richer, and doing the exact same thing as the Americans and Spaniards did before the crisis: Selling the houses to each other for ever higher prices. This again runs over into the rent market, so I have to pay more and more rent for each passing year for the same standard of housing. For years now, the rent has been taking up more and more of my disposable income, doubling in about a decade. This is to no small extent thanks to the stupidity of people in completely different parts of the world.

I can handle it. I am working longer hours, I have moved further and further from the city, and am ready to move to a smaller apartment or a house out in the woods the next time the rent goes up. My desires are pretty easy to fulfill at this stage of my life. But the irony of the situation is still there. I am paying the price for the stupidity of people around the world. Consider my eyes very, very dry when the USA and the EU get the fate they have been hurrying toward for quite a while now.

Thankful to not be American

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Well, to be honest I am more precisely thankful to be Norwegian and live in Norway, the world’s best country for years now according to the UN. Those who live in Congo, Somalia or even Colombia probably regard the USA as pretty much Heaven on Earth, and not entirely without reason. But the disturbing fact is that for years now, the US has been in decline, while the world as a whole has been growing healthily. Even after the onset of the Financial Crisis, the emerging economies (much of what used to be the Third World) have been growing at a brisk pace.

What is more important is that the growth in the emerging economies is largely real growth, caused by investment in infrastructure such as roads, railroads, education and telecommunication. In contrast, the growth in America has for a long time now been false growth, caused by growing consumption based on borrowing.  The “dotcom” bubble was quickly replaced with a housing bubble, which exploded spectacularly in the so-called Financial Crisis, impacting many other rich countries to some degree. But what is less obvious yet is that this was followed by yet another bubble, which is still growing: The government bubble.

The government is issuing ever more debt, and we are now talking about truly astronomical amounts, where trillions come and go. There is no plan, not even a vague idea, for how to pay back any of this. In fact, there is no plan for how to stop borrowing, ever. In fact, there seems to be no one who sees this as a need, or even a goal, or even a possibility. It is assumed that for the foreseeable future, America and its government will be financed by borrowing.

Unfortunately, that means the foreseeable future is getting shorter.

Unbelievable as it may seem, there are over 6.5 billion humans who don’t particularly think that the US is God’s chosen  country and is entitled to getting money for nothing. But as long as everyone else is also playing along, as long as you can sell American debt or use it as collateral as if it were gold, it is in everyone’s interest to continue to lend. The day someone big throws the cards and back out of this charade, it will be quite unpleasant to live in America for a while.

Not that it is particularly pleasant now, from what my friends there tell me. High unemployment has become a feature and is taking its toll: There are still many people slowly unwinding their life savings while trying to get a new job, even one that pays less than they used to have. There are still people living in houses they cannot really pay the mortgage for, putting off bills and racking up credit card debt while they hope for better times. But the better times don’t always show up, and so people slowly sink down into poverty. Neighborhoods gradually turn into slums. Schools deteriorate and teachers are fired.

Meanwhile, police is beating up protesters on a regular basis, and public parks are becoming like Palestinian refuge camps, permanent spots of squalor and anger.  In several states, recording police brutality has itself become a crime punishable with years in prison. Some of the latest police crackdowns seem to have been organized on a federal level, something that is against the constitution. (Let us leave aside whether or not it is a good idea to beat up leftists, in  principle, if they give the slightest excuse to do so.)

The culture war goes on, with the enmity between “blue” and “red” growing ever stronger, slowly inching toward an actual civil war with blood on the streets. (Not that the streets in America are free from blood even at the best of times, with the violent crime in the country being several times higher than in other first-world countries, and a general acceptance that you choose to risk your life if you walk into areas populated by people of a different skin color.) While the economy is in chaos, and infrastructure falling apart, the political parties are latching on to obscure pet projects that serve little or no useful function, but simply demonstrate their loyalty to their side of the culture war.

It is not that many years since people around the world looked up to America as a shining example of what a modern society should be. But something has gone horribly wrong. I would be surprised if it is not the same thing that always goes horribly wrong with every empire that has a golden age: Hubris. Overweening pride. A sense of being entitled to privilege. Well, at least you had your days in the sun. I hope you enjoyed them. Your golden age is over – so say your analysts.

 

Regulation vs transparency

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Your number one friend is yourself! This is pretty much also the basic tenet of “the dismal science”, economics.

I am mildly surprised to hear demands for “more” regulation of the financial sector, as if that would make things better instead of worse. Some regulation is necessary, but we also have to consider the problem of corruption. As you increase the power of government over business decisions, you increase the benefit of corruption.

Let us take the polar opposite situations. In one scenario, the government has no particular influence on a sector of business. In this scenario, corruption is a waste of money. The various businesses involved could not care less what the government agencies think, and would not spend a dime to influence them.

Now look at the opposite situation, where government has total control over day to day operations. This government sets quota for all kinds of activities, and have nebulous powers to Just Say No to any activity they may find suspicious or not promoting the wellbeing of society, as they see it. In this case, the best investment anyone could do in that branch of business would be to influence the government agencies in any way possible, whether by targeted information campaigns, generous gifts, or good old blackmail. Creativity abounds. But the motivation is certainly there.

By estimating how much influence government has on business operations, we can estimate how strong the pressure toward corruption is. But will this necessarily lead to actual corruption?

The answer to this is that human nature remains human even with the best possible intentions. In other words, corruption WILL happen unless there is a system for watching the watchmen, and then watching the watchers of the watchmen and so on. For each level of overseers it becomes more expensive to corrupt them all. (We must assure that the watchers don’t have the power to actually instruct the executive level, or it would be enough to bribe the watchers.) Of course, adding levels of overseers will cost money which drains society of other resources. Still, it is probably better than corruption.

In other words, what we don’t need is generic “more” regulation. That is worse than nothing. We need more transparency. That is to say, we need to organize things so that correct information is available to as many people as possible.

One way of doing this is to have the participants watch each other. In many countries, sales tax is organized as VAT, Value Added Tax. This means that the final seller collects the sales tax, yes, but also pays sales tax to the previous link in the chain. So a customer may pay sales tax to the retail store, but the retail store pays sales tax to the wholesale business, which again pays sales tax to the factory, and so on. If one of these chains have a completely different set of numbers, something is off. Say the factory and the retailer both sell a lot, but the middleman has much less business. That should ring bells pretty quickly. Same with the other way around, of course.

In contrast, look at the recent financial crisis, the so-called “subprime crisis”. This was caused by packaged loans. What happened was that a few dubious loans were mixed into a batch of pretty solid loans. There was no outright lying about it – probably – but since most of the loans were solid, the total package was considered solid as well. Then such packages were sold again, and each time more rotten loans were added to a package that was deemed “solid”. You can see where this ends. It’s like letting an alcoholic add just a little brandy to the punch. He’ll add a little so often that in the end it is all indistinguishable from brandy.

If one had rules of transparency, so that the content of subprime loans could have been identified at a glance, the crisis could have been averted. But if so, we would also not have had the heady boom years before, when cheap credit was everywhere. Because rotten loans are not cheap. If there is a big risk involved, investors require a “risk premium” to lend you money. This is why, for instance, credit cards have higher interest than mortgages, normally. So the interest rates on loans would have been climbing steadily, and the wild rush into property speculation would not have been possible. People simply would not have been willing to pay that much interest, or conversely, not been willing to lend at that risk.

In this high-transparency scenario, we would not have had the boom of the early 2000s. There would not have been cheap credit to use for consumers, and they would have noticed that their standard of living was not rising (because wages and salaries weren’t). But the thing is, people LIKED to have cheap credit. The banks liked it, but also the government that oversaw the banks liked it, because the voters liked it. Even if the government had been given absolute powers to do whatever they wanted with the financial sector in the year 2000, chances are the result would have been WORSE, since the government not only had the exact same goal (economic growth) but less insight in what was actually going on.

So, not “more regulation”. More transparency. More truth, to put it bluntly.

Subjective wealth

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Let them eat cake!

Still sick, still trying to be short, still trying to not roleplay a holy apostle on the Internet.

Let us talk about money. It is a definitely this-worldly thing, I hope we agree. There may be those who worship it, but hardly in a literal, religious sense. Apart from that, admittedly, all bets are off. People can get really excited about it. Probably more than it warrants.

I have looked at these protest movements in the USA and elsewhere, where people want a change to the current distribution of wealth, where a small minority has most of the money. I do not agree with them. Here is why.

As I see it, there is not a big difference between the rich and the middle class. Not even between the super-rich and the lower middle class. Sure, in absolute numbers the difference is staggering. A single oligarch can have more money than a whole town. But it is still just different levels of luxury. The real difference is down to the actual poor: Those who don’t know where their next meal will come from, or where they will sleep tonight, or when they will find a pair of shoes without holes.

You may have read about Maslow’s Hierarchy of Needs.We often refer to this as a “pyramid of needs”, but I have a revelation for y’all: In terms of money, it is actually an upside-down pyramid. It takes little money to eat, it takes a lot of money to gain social status, and in between there are things like living in a good neighborhood, getting high-quality medical treatment and so on.

But it gets even more convoluted than that. For the highest levels of the traditional pyramid barely need any money at all. To actualize yourself certainly may require some free time (“slack”), but you can also gain that through having a menial job you can do with half your brain. You don’t need to travel the world to grow as a human. But it probably helps to not be so hungry that you don’t know or care where you are and what you are doing.

I think of money as following a Briggsian logarithm, or base 10. That is to say, someone who has 100 dollars is twice as rich as one who has 10. One who has a million dollar is twice as rich as one who has 100 000. Actually I am not sure, it may be fading at higher levels, but it seems to hold pretty well at low levels. If you don’t have money at all, having money to buy a bread makes a huge difference. A bread can provide food for a person for a week. But for a middle-class person, finding extra money of that order is basically worthless. It is barely worth stopping to pick up. For Bill Gates in his prime, it was said that picking up a $1000 bill would cause him a net loss, because his time was so much more worth.

Does this make sense to you?

No more growth

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Find three errors: 1) There is a computer, and yet there is a physical bookshelf. 2) There is a computer, and yet there is a physical chess board. 3) The computer is big and clumsy, instead of just a small tablet you can bring with you everywhere.

It is a matter of great concern to economists, and lately to politicians and society at large, when economic growth slows down. But this may be misguided. Sometimes slower economic growth is a GOOD thing. Let me explain.

If you look at the world economy in 2011, you will notice that growth is rapid in developing countries that are not in a state of war or civil war. It is much lower in mature economies, such as those of western Europe and north America. This is as it should be. People in India and China urgently need new shoes and roads to use them on. These things are easily measured in currency. If the shoes become cheaper, people buy new ones when their kids grow out of them instead of waiting until it hurts. As they become richer, they add more meat to the rice. Eventually they can afford a bike and later a car. All this is easy to measure with the tools of traditional economy, for it was developed under similar circumstances in the West.

But when we switch from buying physical books to e-books, the price eventually comes down (although it took its sweet time, and I’m looking at you Amazon and B&N!). You don’t need to chop down trees, drive lorries with wood to the pulp factory, drive lorries with paper (and occasionally one with ink) to the printing presses, drive lorries with printed books to the warehouses, drive lorries with the same books to the book stores, and have helpful clerks hovering over the gullible-looking customers. Gradually these savings trickle down to the customers. This is economic anti-growth.

Think about it. Up to a point, books are like children’s shoes in a developing country: You wish you could afford more of them. But for most Americans and Europeans today, the number of books is determined by how much time you want to spend reading books. (I suspect this to be even truer when you don’t have a visible bookshelf that other people can see.) There are certainly exceptions to this, and you are one of them: If you did not like long texts, you would not read this right now. But there are still hundreds of millions of people who are Not Like You.

And because of this, we no longer pay to employ the lumberjacks and truck drivers and the guys at the printing press. And, to great lament among fellow book lovers, even the bookstore clerks. Light knows how long even the librarians will have a job to go to. But the thing is, this does not mean people buy fewer books. People buy MORE books, although it is probably just us bibliophiles who make up almost all of that.

The gradual withering of the printed book business contributes negatively to economic growth in the official statistic. That is to say, if there is some growth in other parts of the economy, the sum might still be zero because of this. And because the same thing happens to newspapers. And because the same thing happens to CDs. And DVDs. And banks. And…

Do you see it from this angle now? Do you know what I mean? Sometimes economic anti-growth is a good thing. You get the same thing, or pretty much the same thing, without the middlemen. There is no need to spend that much money and employ that many people.

But the people who lose their jobs! It isn’t their fault! What about them? Well, I suppose we could levy a tax on e-books and use it to employ people to cut down threes, drive them to the factory, drive the paper to the printing press and print book, then drive them to large storage halls in the Nevada desert and store them there until the Internet age ends. Or we could ship them off to the moon where there is no pesky humidity and they remain pristine for a hundred million years, so that future visitors from around the galaxy can see that once, we read books.

Most people are probably not going to pay for this voluntarily, though. They tend to find other ways to spend the money they save on books, or newspapers, or movies. The balance between finding new needs and filling the old needs more cheaply is what determines growth in a mature society. This process of rapid change means some people just can’t hang on. Most lumberjacks can’t get a job at Amazon, and quite possibly not in whatever else people now find to spend their money on.

So we have a growing part of the populace who are not employed. That is to say, they don’t have the skills or the means to do something that makes other people happy. If you find something to do that makes people happier, those people are probably willing to pay you. For instance, people here in Scandinavia and increasingly also in the USA are willing to pay for streaming music that they could have stolen for free on Pirate Bay

The rapid economic growth in the western world after World War 2 was to a large degree caused by women redefining the borders of work. In the past, housewives cooked, cleaned, looked after the sick and elderly, and raised children. They did all this for “free”, or rather for a portion of the husband’s income, mostly without formal transfer of payment. Today women are usually employed outside the home, and those who look after children usually look after other people’s children for a modest pay. The elderly live in institutions, as do the chronically ill. Food is often prepared completely or partially outside the home, and again money is changing hands formally, making it seem like there is more economic activity than it was when the wives did it. But this process has stopped. There is no more pseudo-growth to get out of this, well unless prostitution becomes commonly accepted and part of the ordinary labor force. Then we can do away with families entirely. I am not recommending it, but it would increase “economic growth” in official statistics.

My point is that “economic growth” is not always a measure of something good, and its opposite is not always a sign that something is horribly wrong. The question is how we can deal with this change in the mature economies. Should we send the lumberjacks back to the kitchen, to raise their children and look after their frail mother-in-law while the wife is out earning money as an economist? Or should we, as in northern Europe, offer generous disability pensions to people who are unable to adapt to the changing employment? Or should we, as it seems some Americans favor, “just let them die”? I think what we choose in this regard will define us as a civilization, and our decisions are also based on the kind of culture we already have.

But what we cannot do any longer is grow our way out of all hard choices. We have faked it for a while with bubble economy, selling stocks or houses to each other for every higher price, but this is just mock-up and make-believe. We have to make our choices or face the consequences: For to decide not to make a choice is also a choice, and rarely the best one.