Double-plus-down-up economy

Helen, a fellow blogger, has just had the following published at the Transition Voice. It is very satisfying for me to see someone such as Helen, who was educated in economics, break free of the modern mold that reinforces the view of economics as “the dismal science.”  There are so few that exhibit the courage to do what she has done.  It is quite a bit easier for someone such as myself who received my education in Engineering to learn classical economics, rather than to de-program the Keynesian garbage she was exposed to and replace it with Austrian School truth.  I for one will be looking for more from her and and from this very interesting website.

Double-plus-down-up economy

October 1, 2010 By Helen Loughrey Leave a Comment

If all economists were laid end to end, they [still] would not reach a conclusion. – George Bernard Shaw

Economists Do It With ModelsThe books are cooked, but they sure look good in a PowerPoint. Image by Neatoshop.com

The Transition Movement focuses a whole lot on energy and environment; but it doesn’t pay as much attention to economics.  Perhaps it’s because economists never seem to agree. For years, economists have variously: declared an economic recession; denied that any recession existed; admitted in hindsight that a recession had been happening after all; claimed to observe signs of a green shoots recovery; repeatedly predicted a growth economy recovery just around the corner (every 6 months); declared a jobless economic recovery; officially declared, this week, that the recession had ended in June of 2009; argued both for and against a double dip recession; predicted a Second Great Depression; and predicted a collapse of Capitalism.

How could there be such a wide range of opinion about our economy? In part because economists make such conflicting observations, with too many relying on convoluted government statistics and contradictory theoretical models.

And that’s getting tiresome.

Little white paper lies

So let’s expose the bogus reporting behind official economic statistics:  the government limits economic data to a tolerable level of bad news by defining their own terms. For instance, it defines unemployment in a way that only measures less than half the actual unemployed. Thus the Obama administration claims the unemployment rate is only 10%. Their official definition excludes anyone unemployed for longer than a year, those who gave up job hunting, and those who settled for part time work. They also make questionable assumptions about population growth and death rates. Meaning that if you really want to know the unemployment rate, don’t ask the Bureau of Labor Statistics. Instead, follow a research economist like Walter J. Williams of the website Shadow Government Statistics. According to this graph, the actual U.S. unemployment rate is closer to 22%:

Alternate Unemployment Chart from shadowstats.comAlternate Unemployment Chart from shadowstats.com

By comparison, the unemployment rate during the Great Depression was 25%. That we are nearing those levels of joblessness again in America begs the question, Will unemployment get worse or will it get better?

Again, the politicians would have us believe the rosier picture. It’s in their best interest to talk green shoots, rising stock market values, GDP growth, and recovery! Woo hoo!

The Bush administration repeatedly denied the official start of this recession for over a year. So it’s no surprise that last week, the government announced that the current recession had already ended over a year ago. The Obama administration would have us believe, during the mid-term election campaign, that happy days are here again. But are they?

Pinching borrowed pennies

Crumpled dollar billWTF. The US Economy is FUBAR. Photo: califrayray.

Consumption drives our service economy and rising personal debt financed our outsized consumption in recent years. Homeowners borrowed against rising home values to finance home upgrades and redecorating, new cars, multiple vacations, private school and college tuition, and credit card balances. As long as home values rose, all was well. But the housing bubble finally burst; the home ATM shut down and consumer spending dropped. Soon, auto companies needed bailouts, airlines merged and cut routes, private school enrollment dropped, furniture companies disappeared, unemployment rose, home foreclosures made headlines, and storefronts across America have shuttered in response. And banks lost asset values on risky mortgage-backed securities (ha!) Small banks are still  being closed, but the too-big-to-fail banks with government connections were given hoards of taxpayer money to remain open. Yet even after that, they’re still insolvent. They’ve stopped lending in order to boost their asset values. Our economy has entered a long credit crisis.

Credit kept consumption going and consumption drives the economy. So without credit, it’s impossible for the recession to have ended. In fact it is just getting started. Soon, despite government stimulus spending, the official unemployment rate will resume rising above 10%. The real unemployment rate is already hovering near 1930’s levels. As consumption drops, we are more likely to enter a second Great Depression than to see an economic recovery. But don’t expect the Orwellian reporting out of Washington to make the matter clear.

The times they are a changin’

So what does this situation have to do with the Transition movement? Whether we realize it or not, our Transition plans are based on certain assumptions about our economy.  Transition literature focuses on transcending the negative impact of two storms: peak oil and climate change. Economic crisis is seen primarily as the end result of our unrestrained use of scarce energy.  Under this assumption, economic worst case scenarios, like planetary over-heating, could be avoidable if enough energy usage were voluntarily conserved now.

But peak oil and climate change are not the only storms on the horizon. The escalating economic storm must now be considered as we calculate the impact of these crises. Proposed Transition solutions may fail without considering the changing economy. At the very least, an unanticipated arrival of a second Great Depression would severely restrict our financial ability to prepare for peak oil and climate change. Therefore we must pay attention not only to fundamentals of energy and environment but also to economics as we plan for Transition. Meantime, you’d better watch those pennies.

This column will address aspects of this third storm, the economic crisis, and its implications for Transition.

shareshareshareshare

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Filed Under: Economy Tagged With: recessionTransitionU.S. Government

About Helen Loughrey
Helen Loughrey researches and analyzes strategic community responses to the peak oil and economic crises. She holds a bachelor’s degree in Economics and a master’s degree in Social Work from the University of Maryland. She practiced for ten years as a licensed clinical social worker specializing in Employee Assistance Programs. An aspiring suburban Transitioner, she is currently pursuing a Permaculture Design Certification. She enjoys food gardening, beekeeping, and playing guitar.

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1 Response to Double-plus-down-up economy

  1. Helen Loughrey says:

    I appreciate your compliments Ron, and thank-you for posting my article here. As for my background in Economics: oh yes, I had to unlearn lots of doctrinal economics BS. I would like to acknowledge the website The Automatic Earth for my post graduate re-education. I recommend it enthusiastically to both Keynesians and Austrians. Thanks for your support! Best regards, Helen Loughrey

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