The War Between Credit and Resources | Peak Green & Prosperity

Number in Poverty and Poverty Rate: 1959-2011

(Source – The U.S. Census Bureau)

Some observers have commented that the U.S. poverty rate is actually “not as bad as it seems” because of food stamps, various state and federal assistance programs, unemployment insurance, and other financial aid that the government now provides to the poor. These are collectively known as “transfer payments.” However, the income bracket requirements to be placed in the poverty category have such a low ceiling that it seems likely that U.S. poverty remains undercounted. From recent news coverage of the poverty figures at the San Jose Mercury News:

Although the poverty rate didn’t rise, the median household income for all Americans declined 1.5 percent to $50,100 in 2011. That was an 8.1 percent decline from 2007, before the recession began, and 8.9 percent lower than the 1999 peak. To be classified as poor in 2011, a family of two adults and two children would have had to make less than $22,811. Some economists had predicted Wednesday’s annual report would show the poverty rate hitting its highest level since 1965, when President Lyndon Johnson announced his war on poverty. The fact that the numbers instead leveled off after three consecutive years of increase was a relief to some. Still, the persistent poverty is troubling: the 15 percent poverty rate ties with 2010 as the highest since 1993 and one of the highest since the government began measuring poverty.

(Source)

There is a certain unreality to a measurement that deems a family of four with an income above $22,811 to notbe in poverty. How, exactly, could one live as a family of four in these United States with an income of $24,000 or even $26,000 and not be in poverty? For such a household, energy and food prices alone would dictate either a very poor diet, or the need for government assistance in utility and transport costs, or both. Indeed, a newunreality in our accounting now marks many areas of economic life in the U.S. in the post-Abundance era.

Unreality in Energy Costs: The Ethanol Example

Analysts have pointed out for years that a significant portion of the military budget is devoted to the safety of global oil supply, and thus each barrel of oil has “external” costs that the user does not pay at the pump, but instead pays as a taxpayer. This is undoubtedly true.

So what policy has the U.S. pursued in an era when military costs and the price of oil are even more onerous? The policy of mandated ethanol.

Mandated ethanol in the U.S. has done nothing to lower gasoline prices (which are, of course, driven entirely by oil prices) regardless of ethanol content. Moreover, the energy content of all organic material, in this case corn, is so low that by the time the process of converting corn to a liquid is complete, so many other energy inputs have been required that the net energy pick-up is incredibly small. In order to escape the reality of structurally higher oil prices, the U.S. has diverted enormous capital and other resources to a program that is largely symbolic. But billions in tax credits have been devoted to grow and support an industry that could simply not make it without such support, primarily for two reasons: one, because the low energy content of corn does not provide enough profit to pay all entities in the production chain; and two, because ethanol makers are essentially refiners and do not ultimately control the cost of their feedstock (corn).

Ethanol policy has been underway since 2006, when the price of oil had started its price revolution. And aggressive reflationary policy in the US has actually been underway for 12 years, not just the past four years, when the near-zero interest rate policy was first employed (1.00% interest rates). These two policies are an example of how institutions and economies will grapple with both the loss of cheap energy and the tremors such a loss sends out through an economy. Trying to battle, hold back, and generally thwart secular changes in prices and carrying capacity with patchwork solutions not only is destined to fail, but brings with it myriad other consequences.

For example, because the economy was already experiencing energy limits in the early part of last decade, instead of spurring organic growth, reflationary policy simply distributed into the fixed assets of housing. That was confirmation that other barriers to growth were already becoming embedded.

Reflationary policy produced a greater quantity of resources, nor cheaper resources.

Similarly, in ethanol policy, instead of reconfiguring transportation systems or investing in rail, the U.S. foolishly wasted billions trying to produce more liquids when the real problem was the quickly escalating cost of oil supply. As we now understand, agricultural production is not free, but instead tied very much to fossil fuel costs. So the dream of escaping from high oil prices by running large-scale food-to-fuel programs is destined to fail.

No Carbon or Green Solutions at Sufficient Scale Coming

But if you think these measures are desperate, we have only just begun to push energy and financial systems beyond their capability.

The launch of QE3 (and similar measures by the European central bank (ECB) in Europe) is like the crack! of a starting-gun to human psychology that carries the following, urgent message: Hey, humans – go get those resources quickly, before someone else does! Indeed, the most powerful lever for monetary policy remains our capacity for social competition. The open-ended promise to pursue a faster rate of growth at the expense of inflation, mal-investment, bubbles, and the environment places a new and fast pressure on human economies to perform.

Those who are concerned about the environment and climate change should also read the onset of QE3 and the inevitability of NGDP Targeting as the start of the next big leg of resource extraction. And, accordingly, of CO₂production.

While the dream of a green energy transition persists, however, no such transition from fossil fuels to renewable energy is taking place at sufficient scale or speed to effectively shift human economies to new energy architectures. We already have sufficient and clear data in our possession to know with some degree of certainty how energy transition is currently proceeding. In short, while wind and solar resources are growing at near-exponential rates, they remain such a small portion of the global energy mix that even in the best case scenariojust 15% of the global powergrid will be free of fossil fuels roughly 20 years from now.

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