[Byron100]

I'd like to start a new thread discussing the ramifications of a perpetually declining economy induced by the downslope of Peak Oil and how society (specifically here in the US) will rearrange itself to cope with the new reality of permanent depression.

As has been often discussed here on this board, the modern economy is based on perpetual growth, as "wealth" is merely new debt injected into the economy, which requires positive economic growth to pay it back. So, presumably, after some period of contracting GDP, this house of cards will come tumbling down, precipitating an economic meltdown of the ages.

So, going on the assumption that is is what is eventually going to take place, what are the possibilities of establishing a new economy that does not require growth? Personally, I don't have faith in the private sector to generate the jobs needed for it to function, as the money, specifically the "free" wealth that oil has provided for us just isn't going to be there any longer. Even now, companies are raising prices while they refuse to raise salaries...it's not going to be long now before the workers aren't going to be able to afford much of anything. And once the negative spiral starts, it'll just reinforce itself in an ever-tightening fashion...I honestly do not see how the capitalistic economy can ever make any sort of recovery in this kind of environment.

So, that leaves the government to pick up the slack. (yeah, I do hear the howls of protests out there...but this is Peak Oil, so deal with it... ) I know Big Brother Government is bad, evil, horrible, blah blah blah, but I simply do not see any other alternative to a state-run economy. How will the food get from the farm to the dinner table with nobody working any jobs to pay for it? How will the lights stay on when the majority of the people are out of work and cannot pay the bills? How will people remain in their homes and apartments in a world of very little money?

I honestly think the only way we can avoid a total Mad Max scenario is to totally collapse the conventional economy at some point in the future, render all debts invalid, and then make some sort of economic "reboot" from the ashes, based on the providing of the bare necessities to keep the population fed, housed and at least somewhat occupied. How this would be accomplished, I have not a clue...I'll let you folks debate on this.

[Bman4k1]

I assume there will be hyperinflation and therefore money will be worthless. I think after the crash and when everything is in the sh*ter, we should just revert to the bartering economy. Doctors will trade their services not for money but supplies. Gas will obviously be at a premium, and the people who own large truks and semi's will obviously trade their services at a premium, alot of food and supplies. I think it will be absolutly neccesary to go to a bartering system. It will basically rip the balls off major corporations. I can elaborate on some of my theories, but I just wanted to give the jist of it.

I think when things start to somewhat normailize (relative to the obvious hell post PO) I think we have to resist the temptation to start the mess we got ourselves into the first place. Money creatation, the monentary system. We have to learn to live within our means.

[Byron100]

Another thought I've had is that the United States would break up into smaller regions, such as Pacifica, New England, Southeast, Midwest, etc. This way, the residents of these areas would be free from the obligations of the former federal government and be able to set up local-based economic systems with their own currency, etc. Also, if things get really bad, there might just be isolated "city states", where a medieval-type economy is in place...farmers and traders would come into the city to do trade, perhaps in gold and silver. Of course, this would mean the end of ''jobs" and fractional reserve banking, but at least you would have some sort of functioning economy that enables people to carry on in some fashion or another.

Between here and then, however, I do expect a massive crack-up boom of government spending...hey, if you know you're going to have to go bankrupt, you might as well as spend like mad before the financial grim reaper comes along, right?

This leads to another question I'd love to have answered: If the government or some other entity is able to spend huge sums of borrowed money and never pays it back, does that mean that it was really "free money" that was created out of thin air and spent? And if this is really the case, could a government repeat this cycle of borrowing to bankruptcy over and over again, using a new currency each time?

Hmm, I'm beginning to like this idea of borrowing money with the idea of never paying it back...what do you folks think?

[Bman4k1]

At the end of the day, fractional reserve banking is going to be a thing of the past. I think future leaders should realize that it is a flawed system as there is really know way to punish countries who spend spend and spend and then forget about their debts.

And to talk about your first point, the only way to stand up to the big corporations and "evil" government is to give as much power to the people as possible and split up everything. So I agree I see bigger countries like the USA to split up into smaller regions. If there are corporations in the future they will only be able to effect smaller amounts of people.

[Ludi]

Gift or sharing economy.

[MrBill]

Byron100 wrote:

As has been often discussed here on this board, the modern economy is based on perpetual growth, as "wealth" is merely new debt injected into the economy, which requires positive economic growth to pay it back. So, presumably, after some period of contracting GDP, this house of cards will come tumbling down, precipitating an economic meltdown of the ages.

This topic could have been incorporated into the threads called Our Money System and Oil Depletion; Are they Compatible? or Economic growth with declining energy?

But none the less I disagree with the statement that the modern economy is based on perpetual growth, as "wealth" is merely new debt injected into the economy, which requires positive economic growth to pay it back.

Although it is true that money is lent into existance wealth comes from retained profits. Initial wealth comes from generating an agricultural surplus. All other wealth stems from that basic building block. The agricultural surplus is created by and supports labor.

Primary industry creates wealth from turning natural resources into output. Some of those resources are finite. Some of them are renewable. Secondary and tertiary industry are built upon primary industry, and usually consist of adding-value through skilled labor.

Labor is our basic unit of wealth. The cost of labor is zero. Wealth is created when that labor is used to create something of value. Something that someone else is willing to pay for with their own labor. Money is a scorecard for keeping track of who owes what to whom, and as a medium of exchange. It is also useful for price discovery.

Growth does not have to be unlimited, but we do have to keep generating a profit using our land, labor, capital and know-how. In otherwords earning our daily bread. The size of the economy can both expand and contract as wealth is created and destroyed.

Governments cannot create wealth. They can create the conditions in which a market economy functions better or they can create obstructions that get in the way of the real economy. Governments are a cost to the economy. Sometimes a necessary one. You can take your chances that the government can provide you with your basic needs. I will take my chances with the market economy that has never failed yet.

[Alcassin]

But none the less I disagree with the statement that the modern economy is based on perpetual growth, as "wealth" is merely new debt injected into the economy, which requires positive economic growth to pay it back.

Although it is true that money is lent into existance wealth comes from retained profits. Initial wealth comes from generating an agricultural surplus. All other wealth stems from that basic building block. The agricultural surplus is created by and supports labor.

I agree here, labor is the wealth of nations not money. You can always change financial system and the facade is changed but people will work anyway.
Moreover this system - based on labor exists from the beginning of human culture. The rest is just historical configuration how this system was and is managed.

Labor is our basic unit of wealth. The cost of labor is zero.

I disagree about the cost of labor. It exists, it costs calories and this means food. Even in primary industry now in industrial era you need to have skilled labor and the second cost is education.

Wealth is created when that labor is used to create something of value.

In other words in transforming nature into commodities.

Something that someone else is willing to pay for with their own labor. Money is a scorecard for keeping track of who owes what to whom, and as a medium of exchange. It is also useful for price discovery.

and who owes whom...

Nevertheless, I don't know why so many people have mercantilist belief that money is a source of wealth.

Growth does not have to be unlimited, but we do have to keep generating a profit using our land, labor, capital and know-how. In otherwords earning our daily bread. The size of the economy can both expand and contract as wealth is created and destroyed.

And wealth as you put it is something of value when the value diminishes the wealth is also destroyed. When crop land turns to desert the wealth is destroyed in absolute terms.

I will take my chances with the market economy that has never failed yet.

I'm taking the side of government regulations and mixed economy.
The thing is deregulated economy created conditions of social unrest.

Anyway economy can't fail as long as it is based on labor. It may shrink or grow, but labor will exist as long as there are people and resources.

[Kingcoal]

Although it is true that money is lent into existance wealth comes from retained profits. Initial wealth comes from generating an agricultural surplus. All other wealth stems from that basic building block. The agricultural surplus is created by and supports labor.

Primary industry creates wealth from turning natural resources into output. Some of those resources are finite. Some of them are renewable. Secondary and tertiary industry are built upon primary industry, and usually consist of adding-value through skilled labor.

Labor is our basic unit of wealth. The cost of labor is zero. Wealth is created when that labor is used to create something of value. Something that someone else is willing to pay for with their own labor. Money is a scorecard for keeping track of who owes what to whom, and as a medium of exchange. It is also useful for price discovery.

Growth does not have to be unlimited, but we do have to keep generating a profit using our land, labor, capital and know-how. In otherwords earning our daily bread. The size of the economy can both expand and contract as wealth is created and destroyed.

Governments cannot create wealth. They can create the conditions in which a market economy functions better or they can create obstructions that get in the way of the real economy. Governments are a cost to the economy. Sometimes a necessary one. You can take your chances that the government can provide you with your basic needs. I will take my chances with the market economy that has never failed yet.

Interesting analysis Mr. Bill. I guess you are saying that labor is free because laborers are paid with fiat money and since most laborers don't own any equity in what they are doing, they are being paid in free paper. They are even taxed on the paper they receive - to pay for insurance (social security, etc.) It's also interesting that you say that agriculture is the basis of wealth. That was the case in Medieval England, where the Lords owned the property and indentured the peasants to create wealth for them through agriculture. In other words, it's good to own stuff.

I agree wholeheartedly with your opinion about the government. A lot of socialist leaning posters tend to discount invention and innovation, which is a true wealth generating activity. Governments have a very poor track record inventing and innovating on their own, though government grants to researchers often prove fruitful. In fact, the government screwing around with the economy generally results in nothing more than picking winners and losers, stifling progress.

As far as dealing with the fallout from Peak Oil, it is up to us, the unwashed masses, to invent and innovate. The government can do nothing but hope that new technologies and whatnot surface out of the private sector.

[MrBill]

All other wealth stems from that basic building block. The agricultural surplus is created by and supports labor.

continued

Labor is our basic unit of wealth. The cost of labor is zero. Wealth is created when that labor is used to create something of value. Something that someone else is willing to pay for with their own labor. Money is a scorecard for keeping track of who owes what to whom, and as a medium of exchange. It is also useful for price discovery.

The reason I said that the cost of labor is zero is that it has no intrinsic value and it is a wasting asset.

Of course, labor relies on the input of calories. If labor only produces as many calories as it needs to survive, but otherwise does nothing productive with that labor, then no wealth is created except feces.

Eating and sleeping in order to get up and deficate uses calories, but it alone produces nothing of value. So that potential labor expires worthless.

And a laborer, for example, cannot practically pay himself for his own labor. He can build or grow something of value. But he cannot, for example, pay himself $10 per hour to work for himself.

Therefore, labor has to grow enough calories for support itself. An agricultural surplus. And then trade its excess labor by building or growing something else of value.

The limits of the barter economy are that many of the tasks that we do have become highly specialized. A high degree of specialization has made us highly productive. High productivity has lowered costs while increasing output. Lower costs and increased output have raised living standards.

The secondary and tertiary economies still rely on the primary economy, but the primary economy as a percentage of the total economy have shrunk. Or the 10% of the economy that allows the other 90% to function if you will. But because many of those specialized tasks are hard to value they do not lend themselves well to barter.

It is very hard to trade a cabbage for all the land, labor, capital and technical expertise that it takes to explore, drill, extract, transport, refine and distribute petroleum products or those alternate sources of energy that might someday replace fossil fuels.

The difficulty of trading a cabbage for usable solar panels consisting of many manufactured parts themselves composed of materials that must be mined, processed and assembled using skilled labor should be plain to anyone that thinks seriously about it. How does one practically pay for freight delivered via rail using a cabbage when that train is part of a supply chain stretching over hundreds or thousands of miles? The answer is that if money did not exist, we would have to invent it.

The truth is that due to post peak oil resource depletion we will likely value land, labor, capital and technical know-how quite differently than we do now. Energy may become worth more relative to labor. Excess capital or deployable wealth may become scarcer and therefore more valuable. That wealth may well not be in the form of dollars or any other fiat currency per se, but may be in the form of grain or gold or some other medium of exchange that facilitates trade and investment. Stores of value.

But the market economy will still be functioning as a means of converting our land, labor, capital and technical know-how into usable products to meet our everyday needs for food, shelter, security, heat, clean water and sanitation, education or whatever else we can afford to produce and place economic or social value upon. Our wants.