Economic recovery: Stimulus? or Austerity? How about neither?

This is a video, "300 years of fossil fuels in 300 seconds," produced by the Post-Carbon Institute.  It  summarizes the views of Richard Heinberg whose books, including a new one Beyond Growth: Adapting to Our New Economic Reality, argue the position in full. 

Unfortunately, so far at least, the mass media outlets in America have pretty much ignored the book and its lessons.  Not even a polite NPR feature has bothered to stir the pot.   From the standpoint of conventional economics, mainstream journalists and our political elites, Heinberg's down-to-earth reasoning about a planet in crisis are simply beyond the pale, justifiably excluded from today's "serious" debates about "economic recovery." 

Below is a segment from a recent interview, "How to Talk About the End Growth,"  in which Heinberg lays out the differences between his point of view and those of proponents of economic stimulus (mainly Democrats) and debt obsessed austerity (mainly Republicans).   While I'm  sympathetic to his arguments and conclusions, I do think he ignores a crucially important feature of our current predicament.  I'll explain that briefly at the end. 

He comments:  "Either you’re a political liberal and you think that more stimulus spending will get us back to job creation and consumer spending. Or you’re a conservative and you think the problem is too much debt  — government debt — and all we need to do is cut down on government spending and private enterprise will kick into gear and create more jobs and get the economy back in its traditional growth mode.
"I’m saying both of those arguments are wrong.
"And I think it’s really important that that point of view be out there. Because if all we have are these two failed options — and they have failed; you know, we tried the stimulus and it produced anemic and transitory results.
"And countries around the world are trying austerity packages and that’s not producing economic growth. It’s doing just the opposite. It’s causing economic activity to shrink for pretty obvious reasons. It’s causing people to lose their jobs and it’s just contracting economic activity altogether because the government’s basically the main game in town in most countries right now. ....
"So both of those prescriptions have failed. And they’ve failed for a reason. I explain why in the book. It’s not because these aren’t good people or smart people. It’s because we have been relying on a fundamentally flawed paradigm: the paradigm of continuous economic growth on a finite planet with limited resources. The limits to those resources are catching up with us, very rapidly actually. And that means that there’s no more growth available in consumption of energy and goods.
"So if we’re going to have economies that still support people, economies that don’t crash and collapse, then we’re going to have to start thinking very differently about how we organize our economies, and how we support people in what are inevitably going to be some pretty hard times."
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In both his book and the interview, Heinberg argues forcefully for a vision of economic possibilities beyond the orthodoxies growth, drawing upon conceptions of a steady-state economy adapted from Herman Daly and other thinkers.  He notes that recently there has support for these notions from a number writers.  " Paul Gilding, former head of  Greenpeace has just written a book called The Great Disruption. He’s coming to exactly the same conclusion from the standpoint of somebody who’s really, really at the core of the environmental movements .....Then you have Jeremy Grantham who founded one of the world’s largest investment funds. And he’s come to basically the same conclusion from his point of view."
I  applaud Heinberg for the brilliance of his writing and for the solid evidence he marshals to buttress his case.  What's missing here, however, is any hint of awareness of another dimension of the the economic, political, energy, and environmental mess in which we find ourselves  -- growing INEQUALTY and widening gaps of wealth and power within the world's population.  As Heinberg talks about the transition to a new economy -- local, far less resource demanding, more satisfying in it human relationships, etc. -- he leaves out the part of the story that includes what has actually happened to the dream of prosperity for all, namely, that beginning in the late 1970s (following the energy crises of that decade) those with a privileged overview (e.g., MBA globalist hot shots) settled on a particular proposition:  "Get yours while the getting's good, because the getting ain't going to be good much longer."  
Hence, during the past three decades we've seen the rapid, massive transfer of wealth, nationally and globally, from the lower and middle layers of the economy to the very top. I don't know why Heinberg takes little if any notice of the increasing inequality, plutocracy and landscape of "gated communities" that characterizes the early 21st century.  For readers looking for a more balanced understanding, a  good complement is the poignant essay by late Tony Judt's Ill Fare the Land that faces the situation head on.  For all their clarity and courage, Heinberg's reflections on the drastic transitions ahead seem to overlook the ugly ones carefully planned during the past several decades.

The "Homeland Security" Boondoggle: $75 billion per year welfare for the rich

                              The boys and their high tech toys at a Homeland Security trade fair

While the poor, disabled, elderly, students, and ordinary working people are being clobbered by budget cuts at the federal, state and local levels, America's two exorbitantly costly gravy trains  --  The Pentagon and its twin brother, Homeland Security -- just roll on and on.

Details about the internal features of these Big Government juggernauts remain largely unreported, sheltered from public debate.  Year after year they float above scrutiny, cherished as the nation's citadels of fear.  It seems that our politicians and much of the citizenry would rather drive the country into bankruptcy than confront the irrational policies and staggering levels of waste these institutions involve. 

On rare occasion some in the press corps bother to ask: "How much are we paying for this stuff and what are we getting for it?"  Thus, an article in the LA Times recently surveyed the $75 billion per year spent on the projects (many of then patently absurd) called "Homeland Security."

"Large sums of Homeland Security money, critics complain, have been propelled by pork barrel politics into the backyards of the congressionally connected. Yet the spending has also acted as a cash-rich economic stimulus program for many states at a time when other industries are foundering.

"Utah is getting a $1.5-billion National Security Agency cyber-security center that will generate up to 10,000 jobs in the state. The Pentagon in July launched bidding for a $500-million U.S. Strategic Command headquarters at Offutt Air Force Base in Nebraska, which likes to point out that former President George W. Bush flew here for shelter after the Sept. 11 attacks."

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Few people in public life want to talk about it -- much of the colossal budget for the Pentagon and Homeland Security amounts to welfare for the rich, e.g., lots of six figure salaries and lots of "research and development" on high tech toys.  When it comes to "addressing America's spiraling debt," welfare programs in this category are never "on the table."

Think of them as "entitlements."

The End of Growth -- Has Economic Policy Become a Cargo Cult?

To an increasing extent, today's discussions of economics and public policy resemble the cargo cults  on Pacific islands of the 19th and 20th centuries. After their encounters with travelers from Europe and the U.S., some islanders decided that the material wealth displayed by the visitors was destined to come to them, a blessing guaranteed by their ancient ancestors.  Hence, they built rough wooden models  of ships and, later, airplanes, engaging in elaborate rituals as ways to attract the shower of prosperity that they hoped would come their way.

Among today's economic policy experts, our equivalents of voodoo doctors, there are basically two cults with differing sets of ritual incantations and practices.

On one side we have those who believe that the problem is excessive government "spending" and the spiraling levels of debt the nation has piled up over the years.  Members of this cult demand austerity achieved by slashing federal and state budgets and, of course, by lowering taxes, especially on the "job creators," their equivalent of the beloved but now woefully absent ancestors revered by the cargo cults.

On the other side are those who believe that the basic problem is insufficient "demand" caused by both long and short term developments -- outsourcing of jobs, the housing bubble, foreclosure, job loss, etc.  Priests of this cult insist the renewed prosperity will arrive when government takes steps to pump more money in the economy, creating new jobs and boosting demand for goods and services.

What the two cults share is the view that mana from heaven -- economic GROWTH -- is just around the corner.  With just the right collection of chants, ceremonies and talismans and just enough financial inducement thrown to the most worthy (or needy) members of the tribe, the good times will surely return.  All hail to BIG MAGIC!

Faced with these arguments and programs, my normal preference is usually to side with those who seek to boost the economy by enlarging government programs that might help the poor, unemployed, students, small business.  At the same time, I am more and more haunted by the thought that the diagnoses and remedies of both sides are fundamentally flawed.  What if "growth" has finally become a chimera for modern technological society?

The publication of Richard Heinberg's book, The End of Growth, comes at an appropriate moment.  In the U.S.,  European Union and around the world, the anemic "recovery" following the economic crash of 2007-08 has begun to sputter.  A "double dip recession" or worse may be at hand as the nostrums and hand-waving of both major schools of economic seem impotent to turn things around.  Heinberg's book raises many crucial questions and offers a strong set of arguments backed by impressive evidence.  "Economists insist that recovery is at hand, yet unemployment remains high, real estate values continue to sink, and governments stagger under record deficits. The End of Growth proposes a startling diagnosis: humanity has reached a fundamental turning point in its economic history." 
(from the Heinberg's Post Carbon Institute web page)

The book identifies indelible limits to growth in resource depletion (especially petroleum), environmental impacts (especially climate change) and "crushing levels of debt."  Heinberg ponders the consequences of this nightmare and speculates about new economies and ways of living that could emerge from the wreckage. 

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Update:   This page contains a cartoon video with Richard Heinberg's commentary summarizing some of the book's basic themes.  Watch until the very end to see container cargo ships sailing off the edge of a Friedman-esque "flat" world.