Sunday, October 9, 2011

Part I: Understanding Economic Contraction

Just like peak oil and global warming, economic contraction is a "game changer." As the economy we now know crumbles, the far-reaching repercussions will sculpt every aspect of our future.

In my opinion, any long-term plan must anticipate that it will unfold amidst a world of long-term economic contraction. We have to plan for it, and put alternative financial tools in place to weather it, or it will undermine all of our other efforts.


"The scale of denial is breathtaking." --Jerry Mander

It might appear that there are very contrasting takes on what is happening in the economy, but remember there are all kinds of commentaries denying peak oil and global warming as well -- and the well-informed can see the gaping holes in the arguments. It takes self study and work to learn to see through the smokescreens that have been painstakingly erected to obscure the stark realities.

Just as in the field of global warming where there are individuals who are well paid to distribute bad science to "prove" that global warming isn't human caused, and just as the companies who stand to profit on oil don't want to admit it has peaked, there is a similarly enormous financial incentive for people to declare that there will be a lasting "recovery" -- that growth will soon resume, and that collapse fears are unpatriotic (so we should all go shopping).

In economics, it takes more than work to see the holes in their arguments -- it takes raw courage. With the economic issue in particular, each one of us is wrapped up in it. It is our bread-and-butter, it is the roof over our heads, and it can be truly horrifying to look deeply.
Perhaps four, maybe five years ago, I followed a link from a piece by Rob Hopkins, the UK founder of the international Transition movement, to an article by a different author who referred to "the triple crisis" of global warming, peak oil, and economic collapse. That was the first time I'd ever heard it put that way. At that time my stomach turned. I actually felt sick for a few weeks.

At that time I was simultaneously reading the work of Robert Prechter, Warren Buffett and Sy Harding. Prechter taught about Fibonacci patterns and the effect that the rise and fall of cumulative human emotions builds into every market -- that after the exhilarating crest, there is an inevitable fall. Buffett’s book taught readers to analyze the underlying fundamentals -- yet in company after company that I was testing at the time, his formulas proved that the companies were already ridiculously overvalued for their underlying worth. At a time when the front pages of the newspapers were celebrating the nosebleed pinnacle of stock gains, Prechter and Harding wrote of preparing for the great bear market.

In my presentations here in Southern California, when I do the part of my talks where I explain the problems we face, I present it as "the triple crisis."

Some people – Rob Hopkins included – are now willing to accept "the end of economic growth" as part of the triple crisis that affects every aspect of our future course. But what we face goes far beyond “the end of growth.” By the end of this piece, I think you will see that the economy as we know it today is inevitably going to contract, grow smaller, "powerdown."

Whether it will be a full-scale collapse into chaos like Jared Diamond writes about or Stoneleigh forecasts, or whether we will be successful in creating locally-managed "surge breakers" in time, remains to be seen. But either way, we'd better try our best to get something in place.