The Most Revolutionary Act

Diverse Ramblings of an American Refugee

Dr Stuart Jeanne Bramhall

Dr Stuart Jeanne Bramhall
Location
New Plymouth, New Zealand
Birthday
December 02
Bio
Retired psychiatrist, activist and author with a new young adult novel - A Rebel Comes of Age - due for release on Dec 21, 2013. My 2010 memoir THE MOST REVOLUTIONARY ACT: MEMOIR OF AN AMERICAN REFUGEE describes the circumstances that led me to leave the US in 2002. More information about both books (and me) at www.stuartjeannebramhall.com

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JANUARY 15, 2012 4:51PM

Money and Energy Scarcity

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Ithaca
 
Local currency used in Ithaca, NY

Book Review-Part III

Fleeing Vesuvius, New Zealand Edition

(2011, Feasta and Living Economies)

The second part of Fleeing Vesuvius is entitled “Innovation in business, money and finance.” It draws on the main theme of Part I, describing how the current economic crisis is a direct result of fossil fuel scarcity and spiking energy costs. The second section focuses on the link between energy availability and money.

The late Richard Douthwaite is the author of the first and (I feel) best essay in Part II, entitled “The supply of money in an energy scarce world.” He traces the history of money, with special emphasis on the de-linking of money, production and wealth which occurred starting in the 1970s. This disconnect results from the “financialization” of the economies of the so called “industrialized” north. He points out the irony of calling Europe and North America “industrialized,” when currently most manufacturing takes place in developing countries, to take advantage of sweatshop wages. At present so called “industrialized” countries earn most of their profits through banking and other financial services. They also carry most of the global debt burden. Douthwaite finds it even more ironic that they owe most of this debt to so-called “developing” countries.

Getting Rid of Debt-Based Money

Douthwaite goes on to offer specific alternatives to our current debt based money system (under our current system, the one and only way money is created is by going to the bank to take out a loan – it’s called fractional reserve banking. A debt-based monetary system can only function in the presence of indefinite economic growth (see (http://stuartbramhall.aegauthorblogs.com/2011/10/30/documenting-the-collapse-of-capitalism/). Moreover the end of cheap energy also means the end of continuous economic growth. He also explores a number of strategies to facilitate the transition to a new steady state economy (one that doesn’t grow).

Douthwaite proposes to create inflation to eliminate the massive external debt that is suffocating the economies of Europe, North America and Japan. However he wouldn’t hand the money over to bankers, as the Federal Reserve does when they engage in quantitative easing. Instead Douthwaite would have governments create new money that they would spend directly into the economy to fix decaying infrastructure and provide essential public services. This would ensure that the new money would circulate in the economy to stimulate buying and increase jobs – instead of paying astronomical bonuses to CEOs.

Creating Regional and Local Currencies

He also strongly supports the creation of regional and local currencies. This gives poor people access to money when the national currency is in short supply due to recession and deflation. People only have access to the official currency when their products and skills increase corporate profits. Regional and local currencies, on the other hand, provide access to money to anyone with skills and/or products other community members need or want. In addition to boosting support for local business, by requiring that local currencies be spent locally, a pricing scheduled is created that more accurately reflects the work invested and true value to the community. Food production is an excellent example. Small farmers can easily work 16 or more hours a day. Yet owing to competition from large scale factory farms, the “market” price they receive for their crops is rarely enough to support a family.

Douthwaite also explores the possibility of creating a currency based on future energy production, just as early national currencies were based on gold (which will have far less intrinsic value than energy).

Rethinking Financing, Corporate Structure and Property Taxes

Other essays in part II look at alternative methods (other than borrowing and incurring debt) of financing the new energy efficient businesses, farms, and homes. One model favored by several authors is a “limited liability equity partnership.” In an equity partnership, the landowner, builder, and future occupation finance a home or new business by assuming an equity interest in its construction. “Rethinking Business Structures” looks at new corporate structures that place social and environmental considerations ahead of external shareholders.

“Why Pittsburgh’s real estate never crashes” is an interesting essay on Pittsburgh’s land value tax (LVT). It shows how property taxes that differentially tax land at a higher rate than buildings discourage property speculation. It credits LVT for protecting Pittsburgh from the massive foreclosure crisis other US cities faced in 2008.  Dan Sullivan, the author of the essay, is the education director of Saving Communities, a Pittsburgh- based non-profit.

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To be continued.

***

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Stuart, this is fascinating and doable. my mind freezes over economics but that is what the mystifiers have literally banked on over the years, a lot of us leaving the heavy and what turned out unethical lifting to the likes of Greenspan et al.:

"Douthwaite proposes to create inflation to eliminate the massive external debt that is suffocating the economies of Europe, North America and Japan. However he wouldn’t hand the money over to bankers, as the Federal Reserve does when they engage in quantitative easing. Instead Douthwaite would have governments create new money that they would spend directly into the economy to fix decaying infrastructure and provide essential public services. This would ensure that the new money would circulate in the economy to stimulate buying and increase jobs – instead of paying astronomical bonuses to CEOs."

Now if Obama had used a flick of his executive order pen to do a WPA program, we would really be in business, just as soon as we neutered the corrupt and opaque Fed! libby
The US Government also creates money, and they use it for whatever government spending is needed in the moment, and while it is technically debt based, we don't, as a government, actually owe anything to the Fed at any point in time.

The "debt" is settled at the end of business that day with the now deflated dollar. The best solution in all of this mess is to nationalize the FED (it would be a simple matter if anyone had the balls), take control of the finance industry and bring the ones who are constantly sodomizing the public to the knees and allow the more ethical institutions to survive (under HEAVY regulation). Also, all hedge fund managers should be lined up against a wall and either shot or be forced to stand there while anyone who wanted to was able to kick them in the nuts once per day (just so everyone got a chance...after the lines let up, then that restriction could be eased and multiple berry shots could be opened up to those who felt the need to keep up the ball smashing).

Regional currencies could work, but only if we rid ourselves of a national currency and decoupled the regional economies, otherwise it would be a giant mess that I'd rather not explain (though, one only need look to the Eurozone to understand the reasons why it's a bad idea to have both, or to decouple the economic and monetary policies while keeping the shared currency).

I hate when people who aren't economists (like Marx) try to come up with economic frameworks to fit their philosophies about society. If the philosophies are good (which this one is, in many ways), then these people need to find economists who agree and are willing to work with them, because this is where it all falls apart.

Economics is economics and it works how it works. You can't force it to work some new way without a lot of infrastructural change, and you can't bring on that change quickly or it will all fall apart. This is why straight communism didn't work, it's why supply-side economics didn't work (for being so opposed to one another, the theories were derived in very similar ways) and it's why the ideas in this book you are reviewing won't work.

You need to prepare people for any sort of change, and especially one of this magnitude. None of it will work, or even be considered, until it is the will of the people to consider it and, unfortunately, that won't happen until things get a lot worse. I've been reading about this regional split up/confederacy for a while, and I wrote a couple things a while ago to try to stop the word confederacy from being such a dirty one in American culture, since our was so nasty when it split off into its own nation 150 years ago. I don't know...I think our history is gonna work against us on this one (but, if not, I'm glad I'm in the Pac NW, 'cause we got Trident subs, so the rest of y'all won't fuck with us).
Its pieces like this that make me wonder if my foray into liberal websites is a massive waste of time. I highly encourage you to visit the WSJ and post some of these ideas in their comment section. Please let me know when you do, I would love to read the comments you receive.

I’m not sure it would be helpful for me to pick apart your entire post but there was one line that jumped out at me that pretty much summarizes all of your ideas: “He also explores a number of strategies to facilitate the transition to a new steady state economy (one that doesn’t grow).” If growth is what you despise, let me assure you that these policies you suggest will ensure growth does not occur.
Wow, lots of food for thought in these comments. I think I ought to post some links to some of the original essays themselves. I worry I don't explain them (especially how the economic details) as well as the original authors do. Libby, I think you put your finger on the problem - they mystify the economics and get us to leave it to the experts. Ellen Brown and even some people at the World Economic Forum agree that our problem right now is not recession but deflation. According to the World Economic Forum, the global economy lost $2 trillion in 2009. People are losing their jobs, homes and businesses because there is in sufficient money in circulation to pay for the level of productive activity we had prior to 2008.

Logically you correct deflation by inflating the money supply (by replacing the $2 trillion we lost). But you don't give the $2 trillion to the banks because the money you give to the CEOs doesn't get spent into the economy. As I recall, Libby, that was one of Obama's campaign promises - to create a WPA.

Malcolm, I totally agree with you about nationalizing the Federal Reserve, but your comments about economics puzzles me. Seems to me there are two kinds of economists, the pro-corporate neoliberal kind like Greenspan who says make life better for investment bankers and f**k ordinary people who are hurt by it. And those who make an effort to describe how economic systems actually work. Douthwaite is a trained economist. He just doesn't happen to work for Wall Street.

I also disagree with your comment about local currencies. Lots of American communities, including Ithaca and Vashon Island in Washington State, have local currencies. We have a local currency here in New Plymouth, as part of the Local Exchange Trading System. We have a lot of disabled and retired people who participate in the system. They use it to pay for fresh fruits and vegetables, hand knit sweaters, auto body work and electrical repairs without it - which are really luxuries for people on fixed incomes.

Johnny, I don't hate growth (and Malcolm, I don't hate capitalism, either). None of the authors in Fleeing Vesuvius hate growth (or capitalism). However I think they make a valid point about unlimited growth being a fantasy on a planet with finite resources. The reason they address the issue of growth, is that our debt based monetary system can't function without unlimited growth.

This is the reason why all the industrialized countries are dealing with a massive debt problem now. As long as the world economy continues to grow, you pay off debt by expanding the economy. The problem is that global growth stopped in 2009. Richard Heinberg documents this quite clearly in the End of Growth (see http://stuartbramhall.aegauthorblogs.com/2011/10/30/documenting-the-collapse-of-capitalism/)

Now we just accumulate debt with no way of paying it off.

Here's a link to Douthwaite's essay: http://fleeingvesuvius.org/2011/08/04/the-supply-of-money-in-an-energy-scarce-world/
I am a rare breed of economist...one who is able to see the benefits of Capitalism and Socialism, and also see them as two sides of the same coin...the yin to the other's yang.

I also separate out money and monetary policy out into its own sub-category as it is actually something that I feel falls into the area of finance and not economics itself (because economics works with or without money, but money doesn't work without economics)

Small regional currencies like the ones you speak of in Vashon, or the ones that are even stronger in places like Caesar's Palace or The Trump Taj Mahal, can work just fine under the shadow of a federal monetary system because they are not meant to replace the overarching monetary system, their collapse signals very little outreaching affect to their surround areas or the adjacent economies (assuming, in the case of Caesar's/Trump/et al that it is just the one casino which is collapsing and not the entire industry).

If you do have these larger currencies meant to replace the national currency in each region which has split off into its own mini-confederate state, and one of the currencies fails, then the prospering confederate state, like Germany in Europe, has to come in and bail the failing state out (hopefully everyone would have enough forethought to set up a fund for this in the beginning), or else their currency will also devalue greatly and you end up with a cascading effect like you are in Europe currently. Of course, this isn't before the banks come in and try to rape countries like Greece, Ireland, Portagul and the rest.

I don't think the regional currency thing is a bad idea, but you either need to do it and cut off from the national currency or completely forget about the idea because having economies that strongly tied together with a shared currency but no unified monetary or economic policies is a recipe for complete economic collapse, and quickly.

Also, Vegas and Atlantic City are much better examples of modern regional currencies. Chips from any casino are good at nearly any business in the area and there is even a counterfeiting industry which is booming because it is so much easier to counterfeit chips than federal currency these days.
Bramhall:

“This is the reason why all the industrialized countries are dealing with a massive debt problem now.”

The reason there is a massive debt problem is because countries spend more money than they tax, period.


MalcolmXY:

“hopefully everyone would have enough forethought to set up a fund for this in the beginning”

For starters, it would have been nice if countries like Greece didn’t cook the books in order to gain entry into the Euro. But it wouldn’t have mattered; nothing was implemented to stop Greece from borrowing on the credit worthiness of the strong countries. Yes, it would be nice if there was a pile of money set aside to bailout Greece from the start. But I know of no Government, at any period in time, which has piles of money they don’t need. Even if Germany did have a pile of money set aside, why should they use it to bailout Greece?

“Of course, this isn't before the banks come in and try to rape countries like Greece, Ireland, Portagul and the rest.”

The banks I’m familiar with are interested in loaning money at a higher interest rate than what they pay depositors or what they can borrow from the Government. Greece needed money and banks provided them that money. The difference now is that banks aren’t willing to loan Greece anymore because their credit stinks. So give the rape accusations a rest, if you want to point fingers at someone, look no further than an out of control Government and an electorate that didn’t do anything to stop them.

And one more thing; I would exercise extreme caution when using the word “benefit” and “socialism” in the same sentence, it immediately makes you lose all credibility as an economist.
Johnny, I agree that it makes no sense to borrow more money than you can cover in taxes - except to investment bankers. They make enormous profits from loaning money to governments and charging them interest.

If you haven't read Quigley's Tragedy and Hope you should (he was Bill Clinton's mentor). He traces 300+ years of history dating to the creation of the Bank of England in 1694. The global investment bankers have always been meeting together in secret trying to get national governments to borrow more money.

By the way, the Greek debt was incurred by a bunch of Greek capitalists and bankers to finance the Greek Olympics in 2004. This was something that benefited them a lot and cost the Greek people plenty. Crony capitalism is very much alive and well in Greece. The Greek prime minister sold $1.3 billion in credit default swaps to his wealthy friends in Nov 2009 shortly after taking power. CDS's are a kind of insurance against default. If the Greek government still owned them, they would still be insured against default.
“I agree that it makes no sense to borrow more money than you can cover in taxes - except to investment bankers.”

Investment bankers don’t levy taxes.

“They make enormous profits from loaning money to governments and charging them interest.”

If the Government is unhappy with the interest they have to pay to borrow money they have two choices: don’t borrow the money or improve their financial condition so that the interest rate they have to pay is low (Germany, United States).


“The global investment bankers have always been meeting together in secret trying to get national governments to borrow more money.”

It’s a free country; you should be able to meet however you like. Look, the only reason Governments borrow money is because they spend more than they tax, period. Spare me the left wing conspiracy theories; let me guess, you also think George Bush caused 9/11?


“By the way, the Greek debt was incurred by a bunch of Greek capitalists and bankers to finance the Greek Olympics in 2004”

Capitalists and bankers don’t have the power dictate spending decisions by the Greek Government. Going to sleep, this is a waste of time, I suggest you do the same.
Thank you, Dr., for your illuminating review. People like you give the world a better image. R
"It draws on the main theme of Part I, describing how the current economic crisis is a direct result of fossil fuel scarcity and spiking energy costs."

If this is true we are doomed with the current president. President Obama has stated that energy prices are going to go up. That if you are in the coal business he is going to bankrupt you. Your electric bill is going to "sky rocket". He used the crisis in the Gulf to stop our drilling while getting money into South American companies to do the drilling. The drilling rigs have now left the Gulf of Mexico. They are only giving drilling permits to places that the oil companies know there is no oil they can bring to market at a profit. He is stalling, and appears to be trying to stop, the XL pipeline. Can't drill in the nowhere lands of AK even though they hold vast amounts of oil. He is putting more and more land off limits where there may be oil sands.

What does he want you to do? Use his crony capitalistic friends in the solar industry. Buy into wind energy where they are killing hundreds of thousands of birds every year who see attracted to the blades. They may look slow but the blade tips are turning at 200 mph. Run your vehicle off of corn (our food supply) made into gas. This year the oil industry will pay millions in fines for not mixing enough ethanol into the fuel. It's funny. They are being fined for not using something that doesn't exist.

While people on this website hate the "drill baby drill" slogan that started in the last presidential election cycle it will solve a lot of our problems. To bring oil to market requires huge capital investment in equipment and supplies. It also takes manpower to do the construction work and move the supplies to get it done. It also requires the service industries to house and feed the workers, the vast majority of which are middle class which the president says he supports.

Until the president and his czars change their policies we will not recover. I'm sorry but if President Obama is reelected I only see his energy hit plan making things worse.
Scantlion, Obama is a corporate shill (a polite word for a male prostitute). He isn't on our side. He's on the side of the Wall Street banks that fund his campaign. I'm sure, based on your comment, that I'm not telling you anything new.

You are right that his solar, wind, energy strategies aren't going to solve the energy crisis. The first chapter of Fleeing Vesuvius (I've included some online links at the end of this comment) shows how the numbers don't work out. There is very little return for the enormous energy cost that goes into building solar panels, batteries and wind turbines.

The problem is that the numbers don't really work out for deep sea oil drilling, either - at least not in the long term. There's not really that much oil down there - maybe 5 years at the most - to compensate for the immense energy cost of getting it out. The other major concern is that the technology of doing it safely is very slipshod at most. An serious oil spill like the recent BP oil spill has the potential of putting hundreds of thousands of workers out of work and causing total collapse of ocean fishing stocks - which at present are extremely marginal. Moreover oil companies like BP always seem to find some way to avoid paying for the extreme economic damage they cause.

Coal isn't a panacea, either. At the rate China and India are burning it up, Heinberg and others estimate we will reach Peak Coal (the point where we have dug up all the coal that is easy to reach) in about four years. Plus the fact, it is the dirtiest fuel in terms of carbon emissions. It's probably too late to stop catastrophic climate change - it's clear from the sea level rise in Bangladesh and Pakistan and all the hurricanes, tornadoes, floods, etc that it's already started. However I think the impact can be minimized by trying to reduce CO2 levels.

I agree the ethanol policy is very short sighted. And with the growing global food crisis, converting corn to biofuel for rich people to drive gas guzzling cars is insane.

The only energy policy that makes any sense is one that makes it easier for Americans to use energy more efficiently - compared to the rest of the world we waste an immense amount of energy.

Here's the links I promised you. Check them out. I think you will find a lot here you agree with

http://fleeingvesuvius.org/2011/06/22/future-energy-availability-the-importance-of-net-energy/

http://fleeingvesuvius.org/2011/06/22/calculating-the-energy-internal-rate-of-return/