Friday, February 13, 2015

oil prices - a complicated explanation

ourfiniteworld |  (This is Part 3 of my series – A New Theory of Energy and the Economy. These are links to Part 1 and Part 2.)

Many readers have asked me to explain debt. They also wonder, “Why can’t we just cancel debt and start over?” if we are reaching oil limits, and these limits threaten to destabilize the system. To answer these questions, I need to talk about the subject of promises in general, not just what we would call debt.

In some sense, debt and other promises are what hold together our networked economy. Debt and other promises allow division of labor, because each person can “pay” the others in the group for their labor with a promise of some sort, rather than with an immediate payment in goods. The existence of debt allows us to have many convenient forms of payment, such as dollar bills, credit cards, and checks. Indirectly, the many convenient forms of payment allow trade and even international trade.

Each debt, and in fact each promise of any sort, involves two parties. From the point of view of one party, the commitment is to pay a certain amount (or certain amount plus interest). From the point of view of the other party, it is a future benefit–an amount available in a bank account, or a paycheck, or a commitment from a government to pay unemployment benefits. The two parties are in a sense bound together by these commitments, in a way similar to the way atoms are bound together into molecules. We can’t get rid of debt without getting rid of the benefits that debt provides–something that is a huge problem.

There has been much written about past debt bubbles and collapses. The situation we are facing today is different. In the past, the world economy was growing, even if a particular area was reaching limits, such as too much population relative to agricultural land. Even if a local area collapsed, the rest of the world could go on without them. Now, the world economy is much more networked, so a collapse in one area affects other areas as well. There is much more danger of a widespread collapse.
Our economy is built on economic growth. If the amount of goods and services produced each year starts falling, then we have a huge problem. Repaying loans becomes much more difficult.

In fact, in an economic contraction, promises that aren’t debt, such as promises to pay pensions and medical costs of the elderly as part of our taxes, become harder to pay as well. The amount we have left over for discretionary expenditures becomes much less. These pressures tend to push an economy further toward contraction, and make new promises even harder to repay.


Vic78 said...

Pundits just admitted their scam:

ken said...

All these articles make it sound like using drugs is the only non violent crime out there. Like when the article says: " Today, almost half of state prisoners are convicted of non-violent crimes. More than half of federal prisoners are serving time for drug offenses. The system is no longer prioritizing arresting,prosecuting, and incarcerating the most dangerous or habitual offenders. In this case, each additional prisoner will, on average, yield less in terms of crime reduction. We have incarcerated those we should not have."

It almost implies the non-violent crime we are talking about is drugs. Yet state prisons only have about 16% incarcerated for drugs and totally 25% of the US prison population is incarcerated because of drug violations. I can't believe it will be smart for our country to publicize we shouldn't be and won't be incarcerating non-violent offenders, which by definition include: property crimes, theft, embezzlement, buying stolen goods, arson, tax crimes, fraud, and white collar crime, racketeering, prostitution, bribery, gambling, drug and various alcohol crimes.

If the argument is we should let all drug violators go, make the argument for that. But I think it would be helpful to quit using terms like non-violent offenders as interchangeable with drug violators. I think the use of the non-violent term is to make the drug incarceration issue bigger than it really is.