Transition Whatcom

Economy

[This page is adapted from TransitionUS.org]


The financial crisis that began in 2007-2008 is still with us, and there is a very real possibility that the global financial system will collapse completely, which would throw the world into an unprecedented state of chaos and confusion.

Why is this happening? Why is it happening now? And what can be done?

In order to answer these questions it is important to understand a little economic history. Economies grow and contract, sometimes in cycles, and this has been going on since the beginning of civilization. But during the past century the world has seen growth on an unprecedented scale—and this steady, rapid growth has coincided with the increasing availability of cheap energy (principally oil).

Once it is understood that growth in economic activity (the production and distribution of more goods, more travel, and so on) depends on increasing supplies of energy, it becomes clear that a decline in the availability of cheap oil is likely to result in the end of economic growth as we have known it. True: improvements in efficiency, the introduction of new technologies, and the shifting of emphasis from basic production to provision of services can enable some economic growth to occur without an increase in energy consumption, but such trends have inherent bounds. Over the long run, static or falling energy supplies must be reflected in economic stasis or contraction.

However, with proper planning, there is no reason why, under such circumstances, an acceptable quality of life cannot be maintained—if communities willingly engage in a transition from fossil-fueled consumerism based on debt to a different kind of economic system.

As world oil prices spiked in 2005 through the first half of 2008, peaking at $147 a barrel, the auto and airline industries buckled. With gasoline prices so high, homeowners who had bought houses at inflated prices now found it difficult to make mortgage payments.

During the previous few years, the financial industry had built a house of cards using complex, obscure new leveraging schemes, based on the assumption that housing prices would continue to rise. The oil spike helped to puncture this bubble—perhaps the biggest in history. Government efforts to prop up the auto makers, banks, and other major financial institutions by borrowing and loaning enormous sums of money have not been as successful as hoped to revive the economy, and over the long run those efforts could result in worse problems, such as hyperinflation, that will destroy savings and cause even more hardship.

While details are complicated, the basic outlines of what is happening were foreseeable and are easy to understand. Modern economic theory sees the environment as merely a subset of the economy (a source of useful resources), whereas in reality the economy is a subset of the environment—and so if the environment becomes depleted, the economy will wither. Some will say that growth can go on indefinitely, while in fact growth in consumption cannot continue indefinitely on a finite planet.

The economy grew until it couldn’t. We may have reached the limits to growth, at which point no amount of borrowing or spending will return us to “business as usual.” A new economy must emerge—one that fits within Earth’s long-term ability to support the human enterprise. One idea is of a steady-state economy in which “growth” is measured not in terms of dollars spent or the amount of goods purchased, but by the health, happiness, and intelligence of the people, the safety of communities, and the integrity of ecosystems.

Transition Whatcom is supportive of new local economies where neighbors once again know and look after each other, where we know where our food was grown (and grow much of it ourselves), where we invest in our friends’ and neighbors’ businesses, and where we participate in the basic productive and administrative activities that make community possible.

 

Resources

Towards a Steady State Economy, by Herman Daly (blog post at The Oil Drum, 2008)
 http://www.Theoildrum.com/node/3941

How Questioning Economic Growth Left Me Feeling Like a ‘Pilgrim From the 25th Century’, by Rob Hopkins (2011 blog post at Transition Culture)
http://transitionculture.org/2011/09/20/how-questioning-economic-growth-left-me-feeling-like-a-pilgrim-from-the-25th-century/

The End of Growth: Adapting to Our New Economic Reality, by Richard Heinberg (2011)
http://www.postcarbon.org/end-of-growth-chapters/

Economics Unmasked: From Power and Greed to Compassion and the Common Good, by Phillip B. Smith and Manfred Max-Neef (2011)
http://www.energybulletin.net/stories/2011-09-12/economics-unmasked

Ecological Economics: Principles and Applications, by Herman S. Daly (2003)

Local Money: How to Make it Happen in Your Community, by Peter North, 2010

Small is Beautiful: Economics as if People Mattered, by E.F. Schumacher (1973)

The Wealth of Nature: Economics as if Survival Mattered, by John Michael Greer (2011)

Fleeing Vesuvius: Overcoming the Risks of Economic and Environmental Collapse, by Richard Douthwaite, et. al (2011)


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