The Inflection Is Near?

New York Times

By THOMAS L. FRIEDMAN
Published: March 7, 2009

Sometimes the satirical newspaper The Onion is so right on, I can’t resist quoting from it. Consider this faux article from June 2005 about America’s addiction to Chinese exports:

FENGHUA, China — Chen Hsien, an employee of Fenghua Ningbo Plastic Works Ltd., a plastics factory that manufactures lightweight household items for Western markets, expressed his disbelief Monday over the “sheer amount of [garbage] Americans will buy. Often, when we’re assigned a new order for, say, ‘salad shooters,’ I will say to myself, ‘There’s no way that anyone will ever buy these.’ … One month later, we will receive an order for the same product, but three times the quantity. How can anyone have a need for such useless [garbage]? I hear that Americans can buy anything they want, and I believe it, judging from the things I’ve made for them,” Chen said. “And I also hear that, when they no longer want an item, they simply throw it away. So wasteful and contemptible.”

Let’s today step out of the normal boundaries of analysis of our economic crisis and ask a radical question: What if the crisis of 2008 represents something much more fundamental than a deep recession? What if it’s telling us that the whole growth model we created over the last 50 years is simply unsustainable economically and ecologically and that 2008 was when we hit the wall — when Mother Nature and the market both said: “No more.”

We have created a system for growth that depended on our building more and more stores to sell more and more stuff made in more and more factories in China, powered by more and more coal that would cause more and more climate change but earn China more and more dollars to buy more and more U.S. T-bills so America would have more and more money to build more and more stores and sell more and more stuff that would employ more and more Chinese …

We can’t do this anymore.

“We created a way of raising standards of living that we can’t possibly pass on to our children,” said Joe Romm, a physicist and climate expert who writes the indispensable blog climateprogress.org. We have been getting rich by depleting all our natural stocks — water, hydrocarbons, forests, rivers, fish and arable land — and not by generating renewable flows.

“You can get this burst of wealth that we have created from this rapacious behavior,” added Romm. “But it has to collapse, unless adults stand up and say, ‘This is a Ponzi scheme. We have not generated real wealth, and we are destroying a livable climate …’ Real wealth is something you can pass on in a way that others can enjoy.”

Over a billion people today suffer from water scarcity; deforestation in the tropics destroys an area the size of Greece every year — more than 25 million acres; more than half of the world’s fisheries are over-fished or fished at their limit.

“Just as a few lonely economists warned us we were living beyond our financial means and overdrawing our financial assets, scientists are warning us that we’re living beyond our ecological means and overdrawing our natural assets,” argues Glenn Prickett, senior vice president at Conservation International. But, he cautioned, as environmentalists have pointed out: “Mother Nature doesn’t do bailouts.”

One of those who has been warning me of this for a long time is Paul Gilding, the Australian environmental business expert. He has a name for this moment — when both Mother Nature and Father Greed have hit the wall at once — “The Great Disruption.”

“We are taking a system operating past its capacity and driving it faster and harder,” he wrote me. “No matter how wonderful the system is, the laws of physics and biology still apply.” We must have growth, but we must grow in a different way. For starters, economies need to transition to the concept of net-zero, whereby buildings, cars, factories and homes are designed not only to generate as much energy as they use but to be infinitely recyclable in as many parts as possible. Let’s grow by creating flows rather than plundering more stocks.

Gilding says he’s actually an optimist. So am I. People are already using this economic slowdown to retool and reorient economies. Germany, Britain, China and the U.S. have all used stimulus bills to make huge new investments in clean power. South Korea’s new national paradigm for development is called: “Low carbon, green growth.” Who knew? People are realizing we need more than incremental changes — and we’re seeing the first stirrings of growth in smarter, more efficient, more responsible ways.

In the meantime, says Gilding, take notes: “When we look back, 2008 will be a momentous year in human history. Our children and grandchildren will ask us, ‘What was it like? What were you doing when it started to fall apart? What did you think? What did you do?’ ” Often in the middle of something momentous, we can’t see its significance. But for me there is no doubt: 2008 will be the marker — the year when ‘The Great Disruption’ began.

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At last! Only three hours ago, in comments on another column, I asked why the Times wasn’t addressing the big question – what will a sustainable economy look like? Now here, for the second time in two days (the first was “Job Losses Hint at Vast Remaking of Economy”), someone at the Times is approaching the real issue.

It’s not just the environment – it’s the entire economic model, based on principles a 7-year-old can see through. In 1929, it wasn’t just about rampant greed and financial manipulation – the buying power of the populace was simply inadequate to sustain the productivity of the capitalist engine. After WWII, the solution implemented was the consumer economy – make staples less durable and convince people to buy things they don’t need: “Throw it away and buy a new one, and we’ll all have jobs.”

We were able to sustain this for awhile, but ultimately we had to start borrowing to continue buying things we didn’t need. From Reagan to Bush II, we borrowed more and more – against our future earnings, and then our children’s – to maintain the illusion of prosperity. In 2007, I believe household debt rose by more than household income; i.e. we were spending twice as much as we earned.

Meanwhile, the Fed was printing more money each year than the economy grew in real terms. Couple that with implementing mechanisms for the rich to rake off ever more money, and the middle class fared worse and worse.

Checkpoints:

1. In 1968, my Ivy League tuition and fees were $2,400. This year it’s $36,504 – 15 times as high.

2. In 1968, I bought my first car – a 6-year-old Chevy Biscayne with 84,000 miles, for $200. A quick search finds a 6-year-old Camry with 80,000 miles currently goes for around $11,000. It’s a better car, but still – that’s 55 times as much as I paid in 1968.

3. The house I moved into in 1970 was worth about $24,000. Now it’s worth $850,000 – 35 times more.

4. My starting engineering salary in 1969 was $7200. Latest Dept. of Labor statistics say that the current equivalent starting salary is $45,000 – an increase of 6.25.

The car has gone from 2.7% of a first year’s salary to 25%; tuition and fees has gone from 33% of a years’s salary to 81%; the house has gone from 3-1/3 times a year’s salary to 19 times a year’s salary. Worse, after 40 years of various engineering and management roles (including Managing Director of a small firm), in my current very senior engineering position I’m earning only a fraction more than twice the salary of a 21-year-old, fresh out of school. Cut the current percentages for a starting salary in half, and you’ll get the amount of purchasing power I’ve lost in the last 40 years of work.

In other words, there’s not going to be a “recovery”. We can talk about energy efficiency and independence (remember we started that in 1978, but Reagan killed those programs and instructed the Department of Energy to concentrate on nuclear weapon development), but energy to do what? It takes far too few people to produce the food, shelter and clothing we require; the rest of us are engaged in making, buying and selling things we don’t need. Only we stopped being able to afford them 15-30 years ago, and now we have to pay the bills. Car sales are down 30-45% just in the last few months; they’re not going back to prior levels in the foreseeable future, if ever. The stores which are being shuttered are not going to come back, and surviving competitors are not going to take up the slack – there isn’t any. We’ve killed the goose; demand was unsustainable, propped up by enormous debt, and it’s not coming back.

So where are the jobs going to come from for a sustainable economy? The less energy we use, the more the energy companies will have to charge (and the government – see today’s articles about new taxes to make up the decline in gas tax income, as people drive less and cars become more efficient). Any attempt to return to buying rubbish just to keep the economy turning over is doomed. Where’s the tax base going to be?

What will a sustainable economy look like?

— Don Duncan, Cambridge, MA