The Future of the Economy and Politics

Jul 12, 2017 (San Diego) There are hints here and there, that we are in the midst of a momentous battle, and impending momentous change. If you think this is about President Donald Trump and Russia, or the Democrats, and their civil war, it is partially related. Trump’s denial of science, and his push to develop particular extractive industries (oil and coal) are part of this battle.So is the internal civil war between Clintonistas and Progressives. That war is heating up by the way. 

It comes down to a few things. The most important is what is happening around the world, and not receiving much coverage in the American political press, or for that matter, the business press. Mark my words, that will change in the next decade. Yesterday CNN had one article on the sixth great extinction. They write:

Many scientists say it’s abundantly clear that Earth is entering its sixth mass-extinction event, meaning three-quarters of all species could disappear in the coming centuries.

This event is driven, in the eyes of the study authors by climate change. It is driven by our own actions on the biosphere. Then there is this from the New York Times this morning. An iceberg the size of the state of Delaware just broke off Antartica. They write:

Some climate scientists believe the warming in the region was at least in part a consequence of human-caused climate change, while others have disputed that, seeing a large role for natural variability — and noting that icebergs have been breaking away from ice shelves for many millions of years. But the two camps agree that the breakup of ice shelves in the peninsula region may be a preview of what is in store for the main part of Antarctica as the world continues heating up as a result of human activity.

“While it might not be caused by global warming, it’s at least a natural laboratory to study how breakups will occur at other ice shelves to improve the theoretical basis for our projections of future sea level rise,” said Thomas P. Wagner, who leads NASA’s efforts to study the polar regions.

Under the new political climate in DC there is a certain care with words from NASA scientists, however, there is consensus with 97 percent of climate scientists that it is happening. 

What we are dealing with is something that is not strange to biologist, or environmentalists, but is hardly discussed in standard economics. this is a very real limit to economic growth. With the changes to the biosphere, those limits will not only diminish, but could lead to serious issues with food production as global systems continue to be damaged. 

Economists live in a fictional bubble where there are no limits. Moreover, modern-day capitalism relies on the idea that there are no limits to growth. A healthy economy, with all the resources used, and concomitant pollution produced, is a growth economy. A recession, or worst, an economic depression is understood as a crisis. The costs of pollution are usually externalized from profit ledgers, to governments, while at the same time trying to deregulate all as much as possible. 
Thomas Malthus was one of the first people to foresee a time when we would hit a wall, in his case with population growth. Population control was his method to prevent this disaster, including mass starvation. 

However, his warnings were seen mostly as non serious by many in latter years. Even when population was seen as a potential bomb before the rise of the green revolution. In modern times Paul Ehrlich issued the starkest warning, in 1971.His thinking paralleled Malthus.

The Paris climate agreement was a good step forward. However, the present administration has taken the United States out of it, and is trying to defend those extractive industries which are becoming the equivalent of the horse and buggy. Why? Solar and wind are not just cheap, but the price of that energy generation continues to crash. 

This is partly a libertarian impulse to see government and economy under one lens. This is to maximize profit and property rights at the expense of everything else. Coal and oil are very profitable and leaving it in the ground means abandoning private economic rights. This surrender is anathema to this school of thought. 

The Fourth Industrial Revolution

This is the other shoe. A capitalist economy require growth to be healthy. This requires consumption. However, wth the rise of automatization, many jobs will disappear. Many have already disappeared, such as parking lot attendants. It has been dubbed the fourth industrial revolution, and it will disrupt the economy to the point that it will lead to mass unemployment. 

This is not just in menial work, such as food service, but also in professional fields such as medicine, engineering and accounting. What happens when the economy loses millions of jobs? The first, and second industrial revolution paradigm of capital and workers will be heavily disrupted. Why? When many of those workers are robots, there will be no need for capitalists to invest in human capital. 

This will also disrupt the flow of capital to governments, since many capitalists see automatization as a way to reduce the cost of payroll,, and payroll taxes. The European Parliament and Bill Gates have suggested that those robots (or rather the capitalist that own them) should pay taxes to the state the same way workers currently do.The number of jobs at risk is 80 million in the United States and 15 in the United Kingdom according to Market Watch. 

If current trends continue, automatization will widen that income inequality that is seen as potentially socially explosive. With the end of many white collar jobs, the middle class already under attack could disappear. 

This creates the need to think out side the box. What happens when 80 million workers are without work? If we remain under the economic system we have in place, wide spread poverty will rear its ugly head. However, socialism and communism do not offer a solution either. They are cousins of capitalism, and they also rely on economic growth. Social Democracy in Europe also relies on high income taxes for services. No jobs, no income taxes. 

This is why our economic and political systems are going to hit real barriers. Limits to growth are real, and so is the coming mass unemployment. How we deal with this will test societies around the world. 

The Libertarian right is fighting a rear guard action, well, at this point they are winning, to protect those property rights under a capitalist system. However, the internal battle within the Democratic Party is for a similar reason. The Democratic Leadership is stuck in Clintonism, which relies on the market as the ultimate arbiter of economic activity, ergo they rely on growth. Why the warnings not to go left from a party elite that fears the coming years are coming fast and furious.

Anybody looking at policy with a clear eye can see the wall we are about to hit. However, many in the elite want to delay the reckoning as long as possible.They benefit from the current system. The cost of not doing something now is nothing short of disastrous. 


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