Inflation1923 We have been discussing the possible future course of American and world economic affairs.  Let us expand this discussion to include the political effect that various economic "futures" might have on the development of history in the next decades.  pl,0,892360.story

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22 Responses to Scenarios

  1. lina says:

    The good news about all the bad news is a political opening is created for someone (Obama, et. al.) to drive a bulldozer through it.
    I recommend a reading of Van Jones:
    “. . .we’re sort of at the end of an era of American capitalism, where we thought we could run the economy based on consumption rather than production, credit rather than creativity, borrowing rather than building, and also, most importantly, environmental destruction rather than environmental restoration.
    . . . We now have to move in a very different direction. And key to that will be basing the US economy not on credit cards, but based on clean energy and the clean energy revolution that would put literally millions of people to work, putting up solar panels all across the United States, weatherizing buildings so they don’t leak so much energy and put up so much carbon, building wind farms and wave farms, manufacturing wind turbines. We argue you could put Detroit back to work not making SUVs to destroy the world, but making wind turbines, 8,000 finely machine parts in each one, twenty tons of steel in each wind tower, making wind turbines to help save the world.
    So we think that you can fight pollution and poverty at the same time. We think that you can actually power our way through this recession by putting people to work, but we’re going to have to start building things here and re-powering, retrofitting, retooling America, and that that’s the way forward both for the economy, for the earth and for everyday people.”

  2. Dave of Maryland says:

    The future never turns out the way you think it will. Myself, I have a weakness for nightmare scenarios. The more unrealistic, the better.
    It’s been noted that falling demand in the US implies domestic unrest in China. Which seems true to me, but it’s possible that at some point the Chinese will abandon their overseas markets, cash in their chips (ie, sell their hoard of USD) & attempt to buy their way out of their troubles, rest of the world be damned. China, unlike the US, has ready cash for gigantic public works projects.

  3. dilbert dogbert says:

    This mornings NYT had an article on the good economy of North Dakota. One of the reasons for it was wind turbine construction. Your proposal would end that good news for North Dakota.
    I don’t think there is anything on the manufacturing horizon that would fill the shoes of the Detroit car manufacturing business.
    I hope someone can correct my thinking on that.

  4. Keith says:

    If you asked this question at the low point in 1979, what would the answers look like? Conversely, how utopian would the answers have been if you asked the same question less than a decade ago at the peak of the tech bubble?
    My guess is that most predictions of radically different futures will be overstated quite a bit, no matter how dire things appear today.
    I remember the commercial real estate market collapsing in Houston in the 1980’s because of the collapse of the price of oil. Property owners were offering 6 months to 1 year of free rent for new tenants, and getting no takers. Roughly a decade later, people were breaking ground on new ultra-expensive skyscrapers.

  5. Ormolov says:

    lina’s comment definitely describes the best-case scenario, and I am very hopeful our future lies that way. But even though the green revolution has moved from fringe wishful-thinking to mainstream policy in under a year, and we can even entertain halcyon days ahead for the first time in eight years, it may be more useful to describe what the world looks like if this policy fails.
    We have seen commentators begin to describe our happy green future, and I’m willing to do everything I can for it, but what if the new policy is committed to and correctly implemented, and it still doesn’t work?
    What if, instead of vanquishing the federal deficit and airborne hydrocarbons, we do all we can against this avalanche of bad news and, as experts in both economics and climate science have repeatedly told us, it still isn’t enough?
    Some might throw up their hands at that point. But even though we cannot control our destinies as much as we like in this version of events it is definitely a viable scenario to discuss, and one we have a good chance of living through.
    Catastrophic weather events, coastal flooding, massive upsurges in disease and famine, drought and the melting of snowpacks worldwide, the loss of half our habitable land and the extinction of half Earth’s species. Coupled with a bankrupt U.S Treasury, the holding by China of a massive hollow debt and the worldwide decline in production of all material goods, the loss of global infrastructure and trade, etc.
    And now the follow-on effects: the water wars, the rise of extremist and fundamentalist sects worldwide, the survival politics of a nightmare century…
    I consider it a realistic forecast to see the USA in this worst-case scenario world as an isolationist fortress, once again relying on its oceans to shield it from threats. We may be identified, as we are already, as one of–if not THE–prime culprit behind both catastrophes and the suffering world may turn their military attentions on us even more.
    Fortunately, we remain blessed with all the resources we need here. I could only advocate at that point a return to the Jeffersonian ideal of 40 acres and a mule and I, for one, would be pretty damn happy.
    Apart from the facile tone, I thought it would be helpful to describe this worst-case scenario in a bit of detail before we start getting more sophisticated models on the table. I would be willing to bet that the 21st Century historians write about will contain about 90% of her future and 10% of mine.

  6. Sky News says:

    Lina, it’s too late for your optimism.

  7. Stormcrow says:

    We could also do with a little work on basic security controls for the network infrastructure. It’s cheese. Those “Chinese hacker” stories that make the news aren’t 1/1000 of what’s really happening.
    Windows monoculture as far as the eye can see.
    Software vendors shutting their eyes and pretending everything’s OK with their hideously flawed products.
    Corporate executives who use their information security organizations as nothing more than checkoff items.
    The present model used by the entire antivirus software industry is broken, and we have nothing to replace it with.
    And the underworld just keeps on growing and feeding, growing and feeding, year by year.
    What’s the government doing? The Common Malware Enumeration project is closed, as of two years ago. The National Infrastructure Protection Commission vanished into the DHS turkey farm cum gigantic pork barrel, and was never seen or heard of again. That was seven years ago.

  8. EL says:

    As I wondered in my last post, what does the cliff diving plunge (11,550+ to 660) in the Baltic Dry Index say about where the global economy is headed (see for the BDI)? If it is as indicative of the world’s future economic activity as some economists think, then we will live through the truly Great Depression. Optimism, anyone? Time to march off to bed…at half time.

  9. NYIrish says:

    We need to stop fantisizing about the rosy future for the world that a wholesale embrace of the soft technologies of solar, wind and biofuels will bring.
    The number of calories generated by an energy source is irrelevant, the concentration of energy,or it’s energy flux density is what counts. It is for this reason that one thousand candles may produce the caloric equivalent of an acetylene torch, but the candles are a poor substitute for the type and amount of work that the torch can do. The progress of mankind has been in part made possible by the development of energy sources that operate at an increasing higher temperature (Carnot’s engine efficiency). The progression of technologies developed and subsequently replaced follows the path of windpower, waterpower, wood, coal, coke, oil, and nuclear, and for reasons of efficiency. We must go to a rapid expansion of nuclear power generation in the country. We’re on the verge of an ecological holocaust for not having done this forty years ago. If we had then, the idea of burning
    fossil fuels today would be considered downright medieval.
    The auto industry needs to be saved because of it’s machine tool capability, not to let it continue making gas burning automobiles the world is already flush in. We need to rapidly re-tool auto, using the example of WWII as a precedent, to leapfrog American manufacturing into a hydrogen economy. The auto sector can be retooled to create the next generation of nuclear plants, hydrogen fueled autos and maglev rail. These nuclear plants can desalinate seawater to hydrate parched portions of the country, split water to create hydrogen fuel for autos, and power the national maglev network that will revolutionize the transport of people and goods.
    Don’t say we don’t have the money, we’ve already given trillions to the banks.

  10. LeaNder says:

    This is slightly off topic. But some years ago somebody asked me to find out the funding behind a seemingly well-connected enterprise (leisure industry chain) I encountered my first Hedge Fund. For whatever reason it surfaced again over here in a really peculiar scenario. And for another strange reason, I found out by chance, whom it sold the Bundesdruckerei (Federal Printing Press) to for 1€ to. Waiting for better days? Too transparent German Commercial Register laws? I decided to not satisfy my curiosity by ordering all the documents. But I would have never expected I could look that closely into their dealings.
    Thus a couple of days ago this article about Hedge Funds in the London Review of Books drew my attention. Maybe someone is interested?
    My favorite English proverb:
    Every cloud has got a sliver lining.

  11. MTJ says:

    @Dave of Maryland
    Interesting idea about China turning inward (they do have a track record) but who is going to buy US treasuries right now?
    I’m sort of in agreement with Ormolov, I think the US is going to fare better than many other places in the world.
    My immediate concern is our neighbor to the south and a possible rise of a Narco-State within it’s borders. Low gas prices, a rapidly depleting Cantrell oil field and not to mention a slowing US economy is going to be a big blow to the Mexican governments coffers.

  12. Will says:

    The green revolution, ie, national electric grid to deliver the wind & photo power has had the stuffing knocked out of it, yet again by the collapse of oil prices. Ditto for hybrid cars, electric cars.
    The remedy, a national fuel tax- its proceeds earmarked toward green projects- as others have observed will not pass. So we are left w/ the conservation side, install newfangled light bulbs, insulate schools and Obama’s silliest stuff about tire inflation (not knocking- i check my tires all the time b/ it sounds so doggone silly to hear a prez talking about it).
    i posted in a different thread about deBorchgrave’s “nostradamus-redux“, one Gerard Celente, a gold bug who predicts local tax revolts, the formation of a third party, people digging up their lawns & planting food, exchanging food for gifts instead of metal objects for Xmas gifts and so on.
    Local & state gov’ts now feel a cash crunch. As they lower the tax boom in an contracting economy, i’m with economist Paul Krugamn, the feds should open the money floodgates. They have the printing presses, there is no danger of inflation. We need to put people to work. (Although Krugman was wrong big time on oil prices, I see by back reading his daily blog).
    As far as the hollow chicom debt. They need to get their asses over here, put their rimbinis (currency) to work and start buying real estate and help prop up prices!

  13. We’ll continue moving left towards a “managed” economy. I was originally going to say we will lunge to the left, but since the supposed conservatives in power today have already started moving that way, Obama will just continue the current trajectory.
    The American public will accept, and maybe even demand, a toned down version of the New Deal. Since we still have New Deal safeguards in place, the recession will not reach the same depths as the Great Depression, meaning we will not need to move as far left as Roosevelt did.
    My hope is that my generation and younger will learn the lessons our grandparents and great grandparents had for us, but we ignored – to increase our saving rates, become more conservative in our purchases and stop binging on credit. I’m not so sure we’ll do that, though. The major problem is that our recovery will be based on increased consumption, not production. As the Japanese know all too well, if the saving rates increase too much then the train comes to a screeching halt and we’ll have stagnation. Plus, we’ll be bombarded with Madison Avenue advertisements telling us how much we deserve to spend money on ourselves during hard times to make us feel better!
    As for foreclosure rates, this is a cultural transition that has been underway for decades:
    The Rising Long-Term Trend of Single-Family
    Mortgage Foreclosure Rates (1997 or 1998)

    It really boils down to perception by the voters. Those of us who have lived in 3rd-world countries look around and see things are pretty darned good here even during the “hard times.” But for most Americans, our idea of good times is high. The politicians will do whatever it takes to help us pursue our happiness.
    If the Dems keep us happy, the GOP will be out of power for a couple of decades until the next generation starts forgetting whatever lessons we may have learned this time around – if any.
    And the cycle continues until the Sun engulfs us all.

  14. Cieran says:

    The number of calories generated by an energy source is irrelevant, the concentration of energy, or it’s energy flux density is what counts… The progression of technologies developed and subsequently replaced follows the path of windpower, waterpower, wood, coal, coke, oil, and nuclear, and for reasons of efficiency.
    Ahhh, where to begin with this? So many choices…
    First, you have your efficiency scale backwards. A nuclear power plant is substantially less than half as efficient as a modern wind or hydroelectric facility, and there are no technical fixes available to make up for the decreased efficiency, since the second law of thermodynamics isn’t relaxing its iron grip over energy principles anytime soon.
    Second, what you refer to as “flux density” of energy is nowhere near as important as you suggest. If I’m interested in heating a home (and most of us are, with winter coming on), then I can utilize a very low “density” of energy, and can make my energy investments go further through simple conservation methods that have zero energy density.
    Good lighting requires more of your suggested energy flux density, but end-user efficiencies in that arena have seen spectacular gains of late, and during the daytime, I can open the blinds and use some really low-density free sources of daylight, so we can manage most of those needs using renewables if we try.
    In a similar vein, refrigeration and A/C also require higher-quality forms of energy such as electricity, but these end-uses have seen great efficiencies improvements of late as well, so there’s no need to fire up any breeder reactors just to maintain my ice cube supply.
    And your suggestion that we should have switched from fossil fuels to nuclear energy decades ago misses the all-too-obvious point that nuclear energy is only useful for generating electricity, where fossil fuels (and especially those crude-oil supplies from the middle east) are used in transportation venues where electricity is simply not a participant yet.
    So unless you have some double-secret battery technology up your sleeve, all the nuclear power plants in the world aren’t going to much help power our automobiles or our airplanes, and thus that important component of fossil fuel consumption is still well beyond the reach of nuclear technologies.
    Nuclear power definitely needs to be a high-priority topic for the incoming administration. This technology has some incredible advantages, and some equally-incredible disadvantages, and before we follow your advice to deploy it early and often we need as a nation to have an informed debate about whether this is the right path forward. As someone who has spent much of my professional life in the nuclear-energy field, I’d welcome such a debate, but with all due respect, I don’t think your suggestions are the best way to begin such discussions.

  15. Nancy K says:

    AA talks about the need to hit bottom before an addict realizes the way they are going is not going to lead them anywhere they want to go. Also attributed to AA is the definition of insanity as doing the same thing over and over and expecting a different result.
    I think that our desire for consuming more and more is an addiction and we are rapidly descending to the bottom. I just hope that Obama and his team can come up with something different, because more of the same just isn’t going to cut it.

  16. zanzibar says:

    What are the political implications of our potential economic “futures”?
    Before I get there I need to remind myself of the familiar refrain from my wife to stick to economics and finance and not venture into the realm of politics. As someone who expected Hillary to be the 44th President my grasp of the political psyche of America is not very good. I am constantly surprised at the extent of statism that my fellow countrymen will tolerate.
    From the perspective of economics in the pit of my stomach I have a sense of deja vu. In 2001 as the dotcoms were crashing and the technology capital investment retrenchment was unfolding we heard continuously from our economic and political elite across the ideological spectrum that we needed to pull out all the stops from preventing the disinflation from becoming a deflation. I remember thinking why wouldn’t our financial and political titans be pleased that the productivity gains from our investments in technology were manifesting itself in lower prices and increasing affordability. Our economic thought leaders believed that the government should intervene and ameliorate any discomfort from the correction of the excesses of monetary policy leading up to Y2K and the resulting excess investments in technology that led to the “new paradigm” of the dotcoms. The Greenspan Fed with governor Bernanke known as a deflation specialist began a reflationary campaign in early 2001. The Fed Funds rate came down to 1% by the summer of 2003 and was maintained there until the summer of 2004. Coupled to this easy money Fed policy was extraordinary fiscal stimulus from the “conservative” George Bush administration. Government debt grew from under $6 trillion in 2002 to over $10 trillion this year. Government led reflation met Wall Streets animal spirits of risk taking and their sausage machine of securitization. From year-end 2001 to the third quarter of 2003 total credit market debt outstripped GDP growth by 4.4 to 1; household debt relative to wages grew at a rate of 7.4 to 1; and corporate debt grew around 8 to 1 relative to corporate profits.
    In the Fall of 2005 I closed my private fund and distributed assets to shareholders. In the letter explaining my decision I warned of unprecedented leverage and exceedingly low premiums for risk as well as the conventional wisdom that government and central banks could repeal the downside of business cycles. Through the course of the next 2 years as the credit bubble inflated even further and Wall Street was paying out hundreds of billions in compensation, as many ordinary Americans came to believe that they had found financial nirvana in ever rising home prices – several of my former fund shareholders asked me if I had any regrets, if I had misjudged the new financial reality.
    Today at the depths of our debt deflation I am struck by how pessimistic many are in contrast to how optimistic they were 3 years ago. The financial markets have already wrung out much excess. Financial institutions who believed there was no risk in leveraged asset based securities and wrote credit default swaps at incredibly low premiums have been brought to their knees. Investors are so repulsed by the debt of many non-financial corporations they are discounting scenarios of mass bankruptcies although many of these companies have the cash and resources to survive. While the vast majority of American private enterprise are adjusting on their own to lower demand and more expensive credit as they have done for ages, the politically well connected Wall Street & Big 3 among others are socializing the losses of their mismanagement. The government has begun its third reflation this decade. This time to fight off the next “Great Depression” the government has already pledged more than half our GDP to bailout Wall Street and the credit excesses. The Fed under Bernanke has undertaken the most severe and unprecedented actions since its founding in 1913. They have broken every taboo of central banking. Reserve bank credit has grown at an eye popping rate of over 2,900% the past 3 months. Tbills yield practically zero interest. People are willing to lend to the US Treasury at 2.78% over the next 10 years. There is immense faith in ballooning US Treasury debt and the US Dollar while the debt of real businesses languish in perdition. While unemployment – a lagging indicator – will likely continue to rise throughout much of 2009, valuations are already on the mend. The core of the US economy – the millions of entrepreneurial businesses who can’t feed at the political trough have begun their painful journey of belt tightening and recovery. Its just a matter of time for healing to have reached a point where the velocity of money increases.
    I am afraid however just as we have seen before this decade that we have already planted the seeds of our next economic crisis. There is universal acceptance that any deflation and economic downturn should be met with massive government intervention of easy money and deficit spending as well as bailouts of the well connected. The downside of every credit expansion should be met with even more debt. I believe this is the road for impoverishment of the American people. IMO, we will come out of this misguided reflationary campaign structurally weaker, more indebted and less in control of our destiny. We have confused insolvency with illiquidity. Private debt that cannot be repaid has not been allowed to default. Transparency to foster confidence has been shunned for more opacity. Those with poor judgment have been elevated at the expense of the astute. The profligate have gotten the breaks while the prudent pay. These are not the values of a strong society and economy.
    In conclusion, what are the political implications? I believe we are heading towards a political tsunami when the effects of this unprecedented reflation manifest itself. Either our people will believe that central planners and government are omniscient and what’s good for the plutocracy is good for them and cede what limited “liberty” they have or we have the next Jeffersonian revolution. You all know which side I am on.

  17. Sidney O. Smith III says:

    Zanzibar the wise one:
    You wrote one for the ages and certainly have made a believer out of me.

  18. Curious says:

    Did Condi lost India while trying to do post-mumbai diplomacy fix? …nice going.
    Things are going to be very tough for Obama in afghanistan for sure.
    I guess Condi playing the imperial constable between Pakistan and India wasn’t such a bright idea. Not in countries that knows what colonial diplomacy sounds like.
    In sum, the Mumbai attacks may prove to be a watershed in Indian regional policies. Relations with Russia, China and Iran assume a new level of importance in New Delhi’s regional strategies. The gravitation towards the SCO signifies the new thinking. Not too long ago, India visualized the SCO as primarily an “energy club”. Actually, India’s petroleum minister routinely represented India at the SCO summit meetings. Now, to envisage a crucial role for an SCO-led regional initiative on Afghanistan, New Delhi has indeed come a long way. Surely, Medvedev would have returned to Moscow quietly pleased that he met a long-lost friend.

  19. Curious says:

    “the political effect that various economic “futures” might have on the development of history in the next decades.”
    The basic plot is fairly simple. We enter post-WWII/cold war era. The real one, not the
    “unipolar jibe”
    The economic size of larger countries + european union have reached as such that US simply can’t dictate the game. The recent economic crisis is one example.
    In eurasia, everybody prepares for the return of china as world power, thus the strategic dance done by Russia, India, europe.
    If China can sustain its internal growth at 8%. Than we have the very first confirmation that china is able to have independent economic growth that does not depends on US consumption. (The core growth)
    With this, the world will bet their money differently. Money will be split between Europe, US, and china. US role as sole investment safe heaven is over.
    So, then we have new money center. With that goes different trade pattern and ultimately wealth that support military might.
    This is btw. is not very distant future. If China sustains its growth level, they will surpass Japan next year and US GDP by 2015 ~ 2020. (much earlier than 2050 people talks about. Not after this crisis, incoming asia’s free trade, and the formation of asia’s monetary fund.)

  20. NYIrish says:

    As “someone who has spent much of my professional life in the nuclear-energy field”, I surmise it was in the specialty of non-proliferation.
    I’m a big fan of hydroelectric power too, because although geographically encumbered, it also helps immensely in the areas of flood control, water supply and irrigation. And without the aluminum smelting capacity made possible by the electricity generated by FDR’s Grand Coulee and TVA projects, how else would we have built the Air Force (with a re-tooled auto sector) that helped save the world from Fascism?
    There are tremendous maintenance requirements the advocates of solar and wind technologies always ignore in exhorting their efficiencies. Make sure that you have plenty of WD40 on hand for those offshore windmills, and plenty of Windex for the solar panels. And unless you have some double-secret battery technology up YOUR sleeve, the burden of supplying power on those cloudy, windless days is a showstopper.
    The U.S. Nuclear Navy has a fifty year track record of demonstrating the efficiency, economy, safety, and versatility of nuclear technology. Should’nt we be using this proven technology to address the national infrastructure requirements of a 21st Century economy?

  21. Cieran says:

    My experience with nuclear energy spans a wide range of topics, ranging from the manufacture of weapons to the design and analysis of targets, e.g., nuclear power plants. So thanks to the generosity of the U.S. taxpayer, I’ve gained a pretty good education into the strengths and weaknesses of most things atomic.
    As to this:
    The U.S. Nuclear Navy has a fifty year track record of demonstrating the efficiency, economy, safety, and versatility of nuclear technology. Should’nt we be using this proven technology to address the national infrastructure requirements of a 21st Century economy?
    It’s a compelling suggestion, and if we could remedy a few showstopper problems (e.g., stem the desire for U.S. manufacturers of such systems to export their hardware to every country on earth, figure out how to handle the thorny problem of waste products, insure the competence of all plant operators, rebuild the national electricity grid, etc., etc.), this approach would be a serious contender for production of electricity.
    But since we currently don’t import foreign crude to generate electricity, even the best of such technologies won’t cure our addiction to foreign energy supplies, and one cannot reasonably discuss the topic of fossil fuels without including considerations of crude oil.
    As far as what I think we should do, that’s easy: we should diversify our energy production portfolio, while investing seriously in alternative energy supplies and novel storage techniques. Diversification is always the best way to mitigate risk in the face of uncertainty.
    Hence my earlier comments re: putting all of our energy eggs in one nuclear basket.

  22. Prediction! The basic threats to the US domestic economy are now almost completely off-shore not on-shore. There is almost no one paying attention to off-shore economic events at STATE, Treasury, or the FED. Don’t believe it? Ask for the names, organizations, and funding of those orgs looking at off-shore impacts on the domestic economy? Interestingly, the most capable section still but also the most isolated from the decision-makers are portions of the CIA, but almost none at DOD or DIA. Again to verify, ask for list of names, funding, and organizations assuming you have the correct clearances. Remember Clinton moved the economists out of the NSC to the NEC. HSC never had even one economist nor is their a Chief Economist in DHS or most of the civil agencies or DOD and its subordinate units. I guess it is explained by the Congressional and Executive Branch love of ignorance and secrecy. And incompetence? One remarkable place where international economic impacts on the US is followed closely and is very very competent and started back in 1933 is the Department of Agriculture. I see a second MAD-COW wave is starting in Britain? Imagine the impact here! Ag’s economic unit has the data and details but one of the true STATE SECRETS of the US.

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