My comrade-in-outrage Mish Shedlock has also taken a swipe at the World Economic Forum report More Credit with Fewer Crises, and pointed out a key weakness that I omitted reference to: their inability to understand exponential growth.
Mish’s post is here:
World Economic Forum Endorses Fraud; Steve Keen Mocks the WEF Report, So Do I; The Purported “Need to Double Credit in 10 Years”
Mish attacks the report on many fronts, but the one that I’ll highlight here is the following: its statement that:
“This means that the world’s stock of credit outpaced GDP growth by less than 2 percentage points a year – not a wide margin. In theory, there is nothing unsustainable about this picture: as long as credit grows broadly in line with economic growth, the credit is put to good use and borrowers can meet interest obligations and repay principal.”
The American mathematician Andrew Bartlett claims that “The greatest shortcoming of the human race is our inability to understand the exponential function”, to which I’d add that that shortcoming almost defines neoclassical economics. 2 percent per annum doesn’t sound like a lot, but over 36 years that means the ratio doubles, over 72 it quadruples, over 144 it becomes 8 times what it was, and so on.
Mish provides some nice graphs to illustrate this process:
For the record, the actual rate of growth of the private US debt to GDP ratio was roughly 2.9% p.a. from 1945 till 2008. That means that the ratio doubled every 25 years, from 45% in 1945 to 90% in 1970, 180% in 1995, and if it had kept going, it would have been 360% in 2020.
Instead it fell over in 2008, and is now going backward at a rate of knots. Here’s an extrapolation of the trend that the WEF says is “nothing unsustainable about”, from the time period they should have started their analysis—not 2000 but 1945—and focusing on the key problem—private debt:
“Nothing unsustainable about” it, eh? This naivety by neoclassical economists about growth and exponential processes in general is positively dangerous for the human race. I’ll let Mish take over from here.
Inflation is theft. Theft of the time, intelligence, thought and effort of those who spend their days doing productive work in exchange for money. Money which is later devalued by the inflation (theft) of a corrupt government.
For a government or anybody to target a rate of theft of anything above zero should result in them being locked away.
I can’t for the life of me understand how so many people can be fooled by the real nature of inflation. Our jails are full of people who try to steal, destroy or misappropriate someone else’s wealth or property, but when the government does it, well that’s just fine as long as it’s only a little bit (2%).
Mr Bartlett may well have been right if it wasn’t for the deception that is inflation.
I was perfectly specific in my definition: “when commodities and food both go up in price, that’s more commonly known as inflation.”
If you are so big on specific terms, why use a phrase like “old chestnut” which means nothing whatsoever?
As for the definition on money, perhaps this is a little more complex but money is whatever people use as a medium of exchange. Of course, many things can be money, depending on the people and depending on the circumstance. There is no particular reason why money must be one particular thing only, other than it must be widely accepted amongst people who wish to trade. Precious metal has by far the longest history of fulfilling this function, has the widest acceptance, is very difficult to cheat on and is highly resistant to inflation.
Credit is a promise, I will give you something you want in the future if you give me what I want now. There is a place for this, but not to be confused with money. Money settles debts, credit defers the settlement into the future.
“I’m sorry but that article is pure techno-optimist vapourware”
Yes it is optimistic to assume that our car centric way of life can be easily converted to one powered by hydrogen fuel cells/batteries.
However long distance mass transport of goods and people is still possible and proven through electric rail. Electric rail benefits not only from using multiple energy sources (and so can adapt to changing availability of renewable or fossil resources) but also use something like one tenth of the energy as conventional internal combustion engions to do the some job.
To assume we can transition to an era of electric cars/trucks continues the dream of exponential growth of extraction finite resources in a world on the brink of severe resource/energy contraction.
We could equally take a page out of China’s book, and make a change to electric bicycles. Using one myself in my daily transit to work uses 0.5kWhrs for 45km, or about the same as the energy my computer uses in 2 hours. An electric car on the other hand would use about 5kWhrs (or roughly 100 times the energy of the bike), to cover the same distance.
Once you realise how inefficient and costly it is to move 1000kg of battery and vehicle as opposed to 20kg of electric bicycle, you see that if you are hooked on independent transport, in the century of terminal declines, you might have to look at the alternatives.
Aviation as we know it will die with the end of cheap oil, and return to being a privilege of wealthy elites. Shipping on the other hand has many alternatives it can use, like coal, oil, or even dare I say it wind/sail power.
Another option is the SkyTran proposal for combining low cost magnetic levitation with computer bus design to provide an urban transport network with a cost of US$10 million per mile (one tenth that of light rail).
The website http://www.unimodal.com is down right now but this archive still has info:
http://web.archive.org/web/20080729054058/http://www.unimodal.com/
Wikipedia has an entry:
http://en.wikipedia.org/wiki/SkyTran
This old link contains info on the economics of the project:
http://www.skytran.net/03Economics/s14.htm
And a colleague of mine Trond Andresen will present a seminar on the concept at the Sydney Uni Institute of Transport and Logistic Studies on Tuesday 22nd, for anyone who can attend uni seminars and has the time for this one.
The SkyTran looks exciting! Perhaps you would appreciate this post on ‘The Energy Bulletin’
Its all about the history of ropeways, and their possible rediscovery in an energy/environment challenged world.
http://www.energybulletin.net/stories/2011-01-26/aerial-ropeways-automatic-cargo-transport-bargain
Maybe we will all fly one day!