A day or two ago, Vanguard Funds – the best performing mutual fund system available to ordinary folks like me -- sent out a quick summary of world economic prospects. Not so good. Not recovering as fast as we hoped. As of today, there have been steep declines in stock markets all over the world.
As it happens, just before the main declines started, I posted a piece on the near-term economic risks. My analysis (below) was mainly based on the problem of not enough eocnomic demand. Vanguage says there is a debate about whether the problems are due to demand ort to some supply isssues. Do first I post what I sent on the damend side; below that, I comment on how this analysis fits with supply issues and with what is happening in China.
I agree with Gail that the world economy is very much at risk right now, in the short term, even before any possible changes in the energy system are factored in. It's almost as if the world "wanted" a major depression starting in 2008, and is still hanging on until that impulse is satisfied. I have the impression that the serious top economists are deeply concerned -- but I am amazed at some of the basic points in mainstream economics which are being missed. And yes, I believe that major new actions on energy COULD save the EU, at least, even though they did not at all cause the recent problems. (They had some role in the US experience of 2008, in causing mortgage defaults.)
But -- I say that having had a lot of mainstream economics education at Harvard and LDE, and having built a few major econometric models used by DOE for its Annual Energy Outlook in the 1980's.
Gail mentioned debt. That is PART of the problem. There is scurrilous attack on Bernanke which nonetheless quotes him as saying something very reasonable, like: "Because of legitimate concerns about debt, the three big economies (US, ECU, China) are not stimulating their economies enough to get us out of deep chronic unemployment like Japan's Lost Decade. Monetary people will try to prevent it geting worse, and enable at least a slow recovery, but our capabilities are limited and if you expect us to solve the whole thing, you may be in line for a VERY rude awakening."
So -- the tradeoff between government debt, on the one hand, versus "jobs" (and growth and even sustainability) on the other. Certainly we should all know from the news that the "war" between enemies of debt and enemies of austerity is the number one issue in Europe. A few years ago, I saw figures in the Financial Times showing about the same huge problematic government debt ratios in all three big economies (US, China, EU). It's actually a good thing that the problem is a common one, reducing a little the pressure for nasty downward spirals; however, the recent Chinese devaluation does remind us of the competitive trade things (in Bernanke's PhD thesis!) which were the final trigger of the Grea tDepression. The big drop in the stock market today reminded me of Gail's post.
A side note -- there is a huge amount of misinformation about China out there. Traveling there a lot has been a great eye-opener for me. It turns out -- in some ways there is less economic integration between provinces of China than of nations of the EU. It's fascinating to compare and contrast European nations versus provinces of China over the past 3000 years ro so... but I should resist for now. The key point is that in 2009, the Year of Stimulus, China relied on provinces to do so much stimulus that they continued rapid economic growth -- and ended up with a debt problem as bad as ours.
What I find hard to understand, emotionally, is why the leaders of the profession have not done more to ask about "Pareto optimality," which any serious economist is supposed to know all about. In other words: instead of just fighting about debt versus jobs and growth and sustainability, why can't we focus more effort on analyzing clearly what could be done to get the best of all four worlds? I have seen some insightful stuff from Stiglitz, and recently saw a woman from his Roosevelt Institute, whose startled me with how coherent and serious she was compared to the others parading on TV who look more and more like a parade of clowns. But I haven't followed up.
Maybe part of the problem is that a lot of economists were trained to understand the basics of aggregate demand and monetary policy, but not
on multisectoral models. Back when I worked for DOE, it became brutally clear that decent forecasting required us to break out least the 18 main SIC codes in manufacturing -- something which the Wharton Annual model did, but few others. The possibility of reconciling the requirements of debt versus those of growth and jobs depend a lot on having a kind of fine resolution, going beyond the aggregate seven-variable models they commonly teach in college.
In the US, the main shit on its way to the fan is with sequestration. It amazes me how little sense of reality there seems to be out there about sequestration. Maybe folks don't understand what "8% cut per year" means, both to civilian and to military budgets, and the likely impacts not only on jobs but on security and growth. We are on course for that. The small partial budget agreement two years ago was only a temporary thing, running out even now. It doesn't help that lots of folks would PREFER to just shut down half the government permanently, and would enjoy entertaining us all again in a couple of months.
For space in particular -- I really wonder how the supporters of SLS can possibly fail to understand what a gift they are offering the budgeteers, desperate for ways to accommodate sequestration, by displaying a giant piece of useless pork on a silver platter. No HINT of restructuring it to make it fill more serious technology and national security needs of the US in space.
I also wonder at times why people like the defense contractors do not exploit their clout to build quiet coalitions to break through the vested interests which are blocking the two more serious large-scale opportunities to honestly cu back on the need for sequestration in a way which does not crush aggregate demand: (1) closing big loophole,s not like mortgages, but corporate welfare things, like the billions the oil industry gets as part of the "distressed industry" special break; andor (2) the continued RISE in government medical spending, for example as certain folks think they are entitled to churn out more unnecessary and questionable hip replacements and Caesarians (SOME are useful, but..) and the new bonanza they are hoping for in electrical brain stimulation (a concept similar to "great medical breakthroughs" of the past like frontal lobotomies and cocaine). . Cutting debt that way, instead of some of the awful alternatives some are pushing, would not reduce jobs as much... but still, it's hard to avoid SOME increase in US employment when the net spending cuts kick in.
But the EU has a much better set of options.
The EU is all agog about whether Greece will drop the euro, but they seem to be using that emotionally as a distraction form the much bigger problems they are not working their way out of. With or without Greece using the euro, issues of jobs versus debt are huge in the whole continent, and even Germany won't do well if its main export partners falter. But there is a way out.
At nss.org/EU, we posted a quick summary recommendation, which has direct bearing on SSP as well as ordinary solar farms. The suggestion is that the feed-in tariff system be KEPT STRONG, but REORGANIZED, so that it's EU-WIDE (with investment also demanded for more of an EU grid), so that tariffs for higher-cost options like rooftop solar get cut back to what large solar farms get paid, and expanded to support large solar farms OR RECTENNAS anywhere in the EU. This would NOT call for government investment in SSP! But it would seriously empower the private sector, by providing a solid predictable market. New investment in the energy sector has huge potential, and it's beautiful that it would provide economic demand WITHOUT new government spending. It could soak up the loose cash floating around without a good home. So long as the new feed-in tariffs are no more than 20 eurocents per kwh, it would also be cheaper than what European electricity users are paying today, and reduce dependence on Russian natural gas -- a rather serious problem.
At times, I wonder why EU authorities have not seen this obvious approach, not unlike the "three pillars" strategy of Japan which seemed likely to save their economy before Fukushima hit. Perhaps it is difficult in part because Schroder and Chirac are now funded by the Russian gas industry?
In any case, SSP, solar energy, CO2 emission and the EU economy would all benefit from two parallel efforts:
(1) To get passage of treaties or laws like what is recommended at nss.org/EU;
'(2) Major private sector and R&D efforts to maximize the ability of the private sector to respond to the new opportunities which nss.org/EU would open up. I do see BOTH SSP and new types of large solar farm as a crucial part of that, and would be happy to get into the technical details of either one.
Best of luck to us all. We really need it.
P.S., Speaking of one of the reasons we need faster progress on these technologies...
A couple of days ago, I did a quick google on:
NOAA Antarctic deep ocean oxygen
I have several more detailed papers on the original work somewhere, but the two images below do basically tell the story:
The colors tell how much oxygen is left, and the red numbers how fast it is depleting.
I seem to recall a bit more detail in what I saw before, but you can see which side is the Pacific side, and this should be OK at least as a starting point. I think these sources do cite the originals.
THE SUPPLY SIDE AND CHINA
Vanguard says there is a debate as to whether the faltering of growth worldwide is due to demand side problems (as above) or supply issues – more specifically, the failure of supply side forces to provide worthwhile investment opportunities.
As I think over what Vanguard is saying, I remember of course that THEY have money to invest, that real investment does lead to more economic demand, and that they are struggling to find really productive and promising places to invest their money in.
This is totally consistent with what I have been assuming above, that there is plenty of private sector capital available right now (due a lot to central banks trying to prevent depression), but without a good place to put it. The key idea of nss.org/EU is exactly to CREATE new opportunities for such investment, opportunities which are truly productive in a very serious and fundamental way, on a scale large enough to turn around any economy on this planet. Roughly, if world electricity is about a $2 trillion per year industry – 10 cents per kwh over 20,000 terawatts per year, or more, then the INVESTMENT behind it is even larger. Rebuilding that investment for security and sustainability, saving the customer money, is plenty big enough to reinvigorate the EU economy. The EU is lucky and unique in having SUCH a clear opportunity... if nly they would see it and act on it... but what about other folks?
The question of the week is: what is happening to China?
Thanks to a nice article in Bloomber this week, and some books I recently read about setting up companies in China, I do begin to see what could be a way ahead for them.
In essence, the central government there does have some degrees of freedom we don’t have here, even though the provinces have more power than Americans usually understand. Bloomberg reports how China has been moving towards rpleicating the US script on eocnomics much more than many Americans wuld expect... but it is not working as well as hoped. Under strict banking rules, ruling out shady local investments in real estate based on off-the-book loans, demand and growth do falter. So they are holding up growth, AT THE EXPENSE of letting money flow back into questionable real estate stuff. In a way, it’s just like what Vanguard talks about – using investment to drive a return to growth, but investment in WHAT to WHAT benefit, under what market rules?
Real estate... hey, that’s where I parked my liquid cash this month myself...
But the EU opportunity in renewable energy is much greater, and more reliably something they need. China has also put money into R&D, renewables, grids and energy secure transportation, but they could do a lot more. (Some folks in China at high levels might even understand the IEEEUSA recommendations and ideas for good investment in that area.) There is a lot more to be said about unmet technical opportunities... as I have discussed with Chileans lately. Hina is doing a lot already, but could profitably do more.
IN real estate proper, I remember very vividly a talk at the Internal Fund for China’s Environment (IFCE) a couple of years ago... when a city planner/developer for the US described the challenge of getting maximum value for money in building new cities, avoiding destructive externalities which tend to cause lack of value in the investment in most nations. That too might be a guide to constraints on new real estate investments, to avoid channeling money into waste. Suddenly a variant of their “ecocities” comes to mind, for the primary economic growth and market rules.
There is a possible way forward for China here... and better sustainable, grounded economic growth in ANY of the big three benefits all three, if we don’t shoot ourselves in the foot.