Temporary Recession or the End of Growth?

Published on Voltairenet.org, by Richard Heinberg, August 13, 2009.

While mainstream economists base their diagnosis of the current economic shrinking on the visible part of the iceberg, Richard Heinberg sustains that what we are witnessing are the devastating consequences of cheap oil depletion and the decline in earth’s resources in general. According to him, it is too late to prepare for Peak Oil – a year too late, in fact [1]. We are in an entirely new economic environment, in which old assumptions about the inevitability of perpetual growth, and the usefulness of leveraging investments based on expectations of future growth, are crashing in flames. Now the name of the game is adaptation and the challenge is to begin a managed transition to a post-fossil fuel society …

… What Not to Do: Prescribe Punishingly Expensive Placebos:   

If the physical scientists who warn about limits to growth are right, confronting the global economic meltdown implies far more than merely getting the banks and mortgage lenders back on their feet. Indeed, in that case we face a fundamental change in our economy as significant as the advent of the industrial revolution. We are at a historic inflection point—the ending of decades of expansion and the beginning of an inevitable period of contraction that will continue until humanity is once again living within the limits of Earth’s regenerative systems.

But there are few signs that policy makers understand any of this. Their thinking appears to be shaped primarily by mainstream economists’ assurances that growth can and must continue into the indefinite future, and that the economic contraction the world is currently experiencing is only temporary–a problem that can and must be solved.

Still, the problem is not a minor one in the eyes of economists and policy makers. Consider the gargantuan size of the Treasury and Federal Reserve bailouts and stimulus packages that have been deployed in the possibly futile attempt to end contraction and restart growth. According to the special inspector general of the U.S. government’s Troubled Asset Relief Program (TARP), in remarks submitted to the House Committee on Oversight and Government Reform on July 21, $23.7 trillion have been committed in “total potential federal government support.” This is expensive medicine indeed. It takes a moment to even begin to comprehend the enormity of the figure. It represents about half of annual world GDP, and is over three times the total amount spent by the U.S. government, in inflation-adjusted dollars, on all wars combined, from 1776 to the present. It is nearly fifty times the cost of the New Deal.

Other nations, including Britain, China, and Germany have committed to paying for stimulus packages and bailouts that, while much smaller in absolute terms, represent an impressive (or should we say frightful?) share of national GDP.

If the Alternative Diagnosis is valid, none of this will work in the end, because existing financial institutions—with their basis in debt and interest and their requirements for constant expansion—cannot be made to function in a context where energy and resource constraints impose effective caps on manufacturing and transport …

Notes (1 to 35): … (full long text).

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