News Flash for Paul Krugman

SUBHEAD: News Flash! At this point nothing anybody can do can really create jobs.

 By George Mobus on 11 July 2011 for Question everything -  

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In his column today in the New York Times, (neo) economist Paul Krugman lambasted the government for not ‘creating jobs’, “No, We Can't? Or Won't?”.

He advanced a theory that the government could create jobs and that this would be the solution to the economic woes of the country, but they won't because of all of the political hoopla surrounding the budget deficit and debt load. All we hear in the news these days is about the wrangling between Republicans and Democrats about how to reduce the deficit and start paying off our debt. Krugman, and many progressivist economists see that as a distraction to the immediate problem that they feel is keeping the economy from growing again (or growing at an acceptable rate in their views). Here is a list of the excuses he thinks are being used.
  • “Excuse No. 1: Just around the corner, there’s a rainbow in the sky.”
  • “Excuse No. 2: Fear the bond market.”
  • “Excuse No. 3: It’s the workers’ fault.”
  • “Excuse No. 4: We tried to stimulate the economy, and it didn't work.”
With each one he gives reasons why these excuses are false.

Here is a news flash for Professor Krugman. Nothing anybody can do, not government, not the financial markets, not corporations sitting (supposedly) on cash, and especially well-intentioned economists, NOBODY, can create jobs. Certainly not the kinds of jobs that pay so-called living wages. And basically, no jobs period.

A job is where a person does some work to create something or some service of value to someone else who is willing to pay for it. Jobs entail the use of resources to produce those products and services. When the costs of the resources go up they become a more significant part of the overall cost of production and would, in times of plenty, simply be countered with an increase in prices paid by the customers.

Customers have to have the cash to buy the goods or services. If they are paying out more cash for necessities like food and shelter, for example, they have less to buy the extras that are produced by most jobs in the US. We have become a service-based (read: retail) economy, remember? Customers have not gotten incrementally more cash from their own jobs (i.e. pay increases) and so can't actually afford to keep buying the same stuff.

Well, actually they did try that for a little while, didn't they? Instead of more cash from higher wages they borrowed. They borrowed on credit cards and they took out additional mortgages on their appreciating real estate! But that didn't really work out for them, did it? It is time to pay the piper. Just ask the Greeks and now, it seems, the Italians (Spain, Ireland...).

The central problem for all economies throughout the world is that energy is the absolute basis of work. It is the single common input to all work regardless of types of material inputs used. It is what is needed to even extract and process the material inputs. It is what is needed to produce enough food to feed the workers. In short, it is the fundamental basis of the economy (see: “Yet Another Look at Cost Inflation”)

And the reason that no jobs are getting created, why nobody is significantly investing in projects that will really provide the number of jobs needed to keep the unemployment rate down and the GDP growing is very simple. The amount of energy consumed in extracting more energy has gotten to be such a huge percentage of the total that the net energy available to the economy is now shrinking and by my estimates has been in that mode since the late 1970s. 
Less actual energy available to do work means less work. Even after you factor in any gains that have been made over the last 30 years in efficiency (not to be confused with the economic measure called ‘productivity’) the fact is that we have now reached a point where the loss of net energy is being felt increasingly with each passing day.

The price of oil is an indicator of this phenomenon. Prices have been steadily rising over this same time period. Moreover, they have been highly volatile on a daily/weekly or even monthly basis, indicating tremendous nervousness in the markets which in dynamical systems is a sign that something important is about to happen. We will see the same thing happening with coal and natural gas. It is inevitable.

Let me make this as simple as I possibly can. To obtain the energy we need to do even the most efficient work we can do in, say, converting natural resources to human use, it takes increasingly more energy, meaning that it costs more in dollars. Since energy goes into EVERYTHING, then everything will be more expensive as time goes on. 
The economies of the world will cease growing (actually after you factor out of GDP the phony money created from financialization, they are already in decline), even China, and the idea of jobs being created, by any means possible, will be dead. This is happening now, today, already! And there is absolutely nothing that Obama, or Congress or any government in any nation can do to change the course of the future (save magically inventing an entirely new replacement fuel for fossil fuels).

What should governments be doing. For starters they need to tell the truth about how the world actually works. Of course this is unlikely for two reasons. One, most politicians haven't any real clues because the vast majority of them never took physics (or if they did the lessons obviously didn't stick). Two, politicians are in the business of getting elected and telling people the bad news is not going to work very well for that.

And, of course, capitalist corporate enterprises suffer from the same stupidity/myopia so they can't allow governments to tell the truth. The whole kerfuffle over global warming is the quintessence of this massive blindness and stupidity. It is a perfect model for why we will never get from government what we really need.

After telling the truth, governments need to organize around a simple, but difficult principle. They need to consolidate, even nationalize, energy infrastructure and adopt rules of commerce that forbid profits (yes I am saying there needs to be an end to capitalism as we know it) and support enterprises whose products and services are geared toward efficient energy production. Most of all, and as a key example of what I am talking about, governments need to focus on food security. 
As our industrial agriculture system is utterly dependent on fossil fuels to produce the amount of food needed to feed the population, governments need to be working right now on plans for rationing fossil fuels toward food production while at the same time investing in a completely new food infrastructure based on organic (permaculture) approaches. Food is not going to merely get more expensive (and by the way, economists, what is the substitute for food?) it will become scarce to the point that many more people will be malnourished or starve.

Governments will need to heavily tax or even confiscate the real resources of the current day rich. The rich are rich mostly on paper (or in computer memories). Their assets are largely imaginary, but as long as the financial system based on fiat money is in play, they can leverage their supposed holdings for whatever real assets (like yachts and jets) they want. But that fiat money system is going to come to an astonishingly rapid end in the not too distant future. So the rich will not have the leverage they now enjoy. 
The Lloyd Blankfeins and Wall Street Wonders of the world will end up just as poor as the rest of us. And if governments don't act quickly to advantage whatever remaining leverage exists, say to invest in old fashioned railways and building sailing ships for international trade (no more freeways please), and to convert those frivolous hard assets into plowshares (metaphorically speaking) then you can bet that when the SHTF, the poor people will simply take what the Blankfeins possess and do it themselves. But I suspect not in an orderly way.

OK. I've told you what should be done to avoid the worst-case scenario, or at least minimize the pain we will all feel in the throes of a shrinking economy. Now the question is what could be done? Or more to the point, what will be done? You probably already know where I would go with this. While experts like Krugman wail about jobs creation as the path to the return of growth and Obama's economic counselors get in bed with the ideologues in the Republican/Tea Party, governments like the US will do all of the wrong things to actually serve their populations. 
They will waste resources trying to make things the way they used to be and completely miss the fact that things can never be that way again. They will, in short, make matters worse rather than better.

Those of you who read through this tirade nodding your heads in the affirmative and I are helpless in terms of doing anything to stop this train wreak. The momentum and mass stupidity is simply too overwhelming. Our only recourse is to use our understanding of what is really happening, what is really causing our economic woes, to help us think through what each of us can or should do to prepare for the worst (and of course always hope for the least worst!) I've offered my opinions in past blogs (see: “What is a Feasible Living Situation for Future Humans” and “A Feasible Living Situation - Cont.” for example ideas). Good luck to you all.

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