Published Jun 26 2009 by Energy Bulletin
Archived Jun 26 2009

Green shoots or rotten tomatoes: what are we "recovering" anyway?

by Staff

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World Bank: Whoops!

Joel Bowman, Agora Financial’s Rude Awakening

Wait…scratch that…make it negative 2.9%.

Somebody must have slipped a few Rude pages to the honchos over at The World Bank. It seems the Washington-based lender is hedging its bets. A 2.9% contraction in the global economy this year is a far cry from its March estimate of 1.7%. But growth will be back to 2% next year, the bank assures us, slightly down from the 2.3% they originally expected.

What went wrong during the springtime, we wonder? Didn’t unprecedented levels of stimulus flow from government taps around the world? Weren’t Bernanke and Geithner manning the pumps? Didn’t the global media confirm sightings of green shoots? Or were they recovery saplings? Your editors were too busy “calling B.S.” to keep up with all those flowery euphemisms for delusion. Still, shouldn’t we be smelling the turnaround tulips by now, on our way back towards bull market springs?

Not just yet, says the bank of the world. The following adjustments must be made to the March forecast:

  • Output in the U.S. will drop by 3%…not 2.4%,
  • Japan’s gross domestic product will shrink 6.8%…not 5.3%.
  • The Eurozone will have it a bit tougher too, contracting 4.5%…not 2.7%.
  • And the globe as a whole? Uh…eh…it won’t decline 6.1%, as predicted. Better expect closer to 9.7%.

(22 June 2009)

Economic Recovery: Are Happy Days Here Again?

Wall Street has just seen a two-month rally that included a whopping 39% rise from the recent rock-bottom prices on the Standard & Poor's 500. In addition, during several consecutive weeks, new U.S. jobless claims have dropped. Even quarterly reports from the battered banking sector have given investors some optimism that the worst-case scenarios will not happen.

So does that mean the band can strike up "Happy Days Are Here Again" to herald the arrival of an economic recovery, and the end of America's longest recession -- now 18 months and counting -- since the Great Depression of the 1930s? Most financial experts at Wharton and elsewhere insist that the much-talked about recovery is not here yet, despite some of the first hopeful data in months -- and they remain concerned that the recovery will be weaker and take longer to gain momentum than past slowdowns.

...But if the recent mini-surge in the stock market isn't definitive proof of a recovery, is there any way for the hard-hit classes -- such as investors, consumers, home buyers -- to know for certain that it is the right time to resume aggressive spending? And when this recovery comes, will it be an across-the-board bounce-back -- or will some of the more hard-hit sectors like banks, U.S. automakers and the media continue to suffer for years to come, in a kind of industry-targeted Great Depression?

Several Wharton experts express fairly pessimistic views about the recovery -- predicting that positive growth may not be here yet, and that even when it does arrive, it will probably take several years for employment rates to return to so-called normal levels. Even if the U.S. gross domestic product turns positive by the end of 2009, they note, the American economy will remain close to the bottom of the large trough that began in late 2007, with a long way to climb for jobs, home prices and other key economic indicators just to get back to where they were.

"Many of the underlying problems remain -- and we still haven't seen the worst in terms of consumer problems,"
says Mauro Guillen, Wharton professor of international management and sociology and director of the Lauder Institute at Penn. He lists some of these problems as ongoing mortgage woes for U.S. homeowners -- highlighted by the latest statistics showing about 12% are behind on their mortgages or in foreclosure -- as well as a deepening crisis in consumer credit card debt, looming troubles for commercial real estate, and the ongoing issue of so-called "toxic assets" on the books of larger banks, which may continue to impede their ability to make the loans that would spur a recovery.
(10 June 2009)

Toward a New Sustainable Economy

Robert Constanza, The Oil Drum
The current financial meltdown is the result of under-regulated markets built on an ideology of free market capitalism and unlimited economic growth. The fundamental problem is that the underlying assumptions of this ideology are not consistent with what we now know about the real state of the world. The financial world is, in essence, a set of markers for goods, services, and risks in the real world and when those markers are allowed to deviate too far from reality, “adjustments” must ultimately follow and crisis and panic can ensue. To solve this and future financial crisis requires that we reconnect the markers with reality. What are our real assets and how valuable are they? To do this requires both a new vision of what the economy is and what it is for, proper and comprehensive accounting of real assets, and new institutions that use the market in its proper role of servant rather than master.

The mainstream vision of the economy is based on a number of assumptions that were created during a period when the world was still relatively empty of humans and their built infrastructure. In this “empty world” context, built capital was the limiting factor, while natural capital and social capital were abundant. It made sense, in that context, not to worry too much about environmental and social “externalities” since they could be assumed to be relatively small and ultimately solvable. It made sense to focus on the growth of the market economy, as measured by GDP, as a primary means to improve human welfare. It made sense, in that context, to think of the economy as only marketed goods and services and to think of the goal as increasing the amount of these goods and services produced and consumed.

But the world has changed dramatically. We now live in a world relatively full of humans and their built capital infrastructure. In this new context, we have to first remember that the goal of the economy is to sustainably improve human well-being and quality of life. We have to remember that material consumption and GDP are merely means to that end, not ends in themselves. We have to recognize, as both ancient wisdom and new psychological research tell us, that material consumption beyond real need can actually reduce well-being. We have to better understand what really does contribute to sustainable human well-being, and recognize the substantial contributions of natural and social capital, which are now the limiting factors in many countries. We have to be able to distinguish between real poverty in terms of low quality of life, and merely low monetary income. Ultimately we have to create a new model of the economy and development that acknowledges this new full world context and vision.

This new model of development would be based clearly on the goal of sustainable human well-being. It would use measures of progress that clearly acknowledge this goal. It would acknowledge the importance of ecological sustainability, social fairness, and real economic efficiency. Ecological sustainability implies recognizing that natural and social capital are not infinitely substitutable for built and human capital, and that real biophysical limits exist to the expansion of the market economy.
(25 March 2009)

~~~~~~~~~~~~~~~ Editorial Notes ~~~~~~~~~~~~~~~~~~~

Even if we could recover, or we are recovering, are we trying to recover the right thing? KS