A Basic Lesson in Economics
Heinberg's analysis of the 2008 economic collapse starts with an introduction to classical economic theory, as outlined by Adam Smith, Ricardo, Malthus and Marx. He goes on to describe the "financialization" of the US economy that occurred in the 1980s, the various financial derivatives investment banks and brokers devised to entice investors, and the financial deregulation that led to a decade of worsening "debt" bubbles. Beginning with the dot com boom in 2000 (quickly followed by the real estate boom and the subprime/derivative boom), large amounts of borrowed money was speculated on supposed growth industries, which plunged the entire economy into recession when they collapsed.
Heinberg talks in detail about the TARP bailouts and the secret $12.5 bailouts Bernie Saunders exposed in December 2010. He stresses that have merely postponed total economic collapse. They are incapable of restoring economic expansion to pre-2007 levels.
The End of Growth in China
He then presents a painstaking analysis of why the China's current phenomenal growth rate (7-8% per year) and somewhat slower growth rates in India, Thailand, Malaysia and Vietnam also represent "bubbles" that will eventually pop and cause severe recession. As well as outlining the absolute limits resource scarcity will impose on Chinese growth, he argues that China is pursuing the same economic strategies that caused the Japanese economic miracle to collapse in the 1990s -- resulting in a two decade long recession.
Chinese economic growth is entirely dependent on cheap coal and electricity, and Heinberg lays out strong evidence that world coal production peaked earlier this year. This means coal will soon undergo the same steep rise in prices that oil did after oil production peaked in 2005-2006. He also shows how the current Chinese growth spurt is driven by same economic policies -- an export driven economy where Chinese consumers must sacrifice and save to protect export industries -- that drove Japan's post-war growth. The outcome of such policies is to crush consumer demand. This, in turn, results in rapid economic contraction when global demand for exports drops.
Heinberg concludes by describing China's current real estate bubble (which translates into hundreds of empty malls, factories and cities), which was created by two factors 1) a stimulus package the government enacted when the 2008 global collapse triggered a drop in Chinese exports 2) a preference the Chinese middle class show for real estate investments, owing to a notoriously unreliable (and unregulated) share market.
As China is one of New Zealand's trading partners, we're already seeing evidence that the Chinese growth rate has peaked and is beginning to decline. There has been a significant drop in Chinese demand for our dairy and lamb exports -- dairy exports and prices have declined by 10% and lamb by 20%.
Life in a Steady State Economy
Obviously the end of economic growth and continuing loss of wealth and jobs means that people in most industrialized countries will be forced to massively downsize their lifestyles. However, as Heinberg emphasizes, there are a number of ways government can intervene to make this transition less painful. He gives examples of countries (Japan, Sweden, Denmark, Japan, Norway) who openly acknowledge that they have Steady State economies and enact policies to ensure their populations are looked after as the global economy massively contracts. Sweden, for example, has transformed depressed industrial towns into "ecomunicpalities" by "dematerializing' their economies, making them fossil fuel-free with organic farming, public transportation and alternative energy projects -- while simultaneously fostering social equity.
Although Finland and Germany had modest GDP increases last year, they are adopting similar measures to protect their citizenry as global economic wealth continues to decline. In addition to preserving scarce natural resources and reducing carbon emissions, these measures also address the serious income inequality that is so harmful to the health of communities. They include, among others:
- Requiring corporations to pay fairer prices on mining and fossil fuel extraction
- Taxing resource depletion, pollution, speculation and financial transactions instead of income
- Legislating limits on income inequality
- Government subsidies to help sustainable businesses become competitive with non-sustainable ones
- Pigovian taxes on corporations equal to the negative, externalized costs they impose on society.
- Defining property rights in a way that guarantee citizens rights to clean air and water
- Breaking up investment banks, and eliminating of debt-based lending (to government, businesses and individuals) through the creation of national and state banks
- Government support for cooperatives and local currencies
- Downgrading the World Bank and IMF to clearing houses
- Corporate law reform
- Replacement of GDP with the Gross National Happiness Index
- Publicly subsidized health care
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