Economic “recovery”: Scylla or Charybdis?
October 23rd, 2009Economists James Hamilton and Paul Krugman say that we are now in a “recovery” period.
Economist Jeff Rubin is not surprised:
[W]hen you force-feed a $14 trillion economy $2 trillion of fiscal stimulus and have interest rates at zero, GDP will respond, at least in the short run.
Rubin says the conventional wisdom is that this recession was caused by a financial market implosion. But he thinks the financial crisis was really a sideshow – the true cause of the global recession was triple digit oil prices. He asks, when we see triple digit oil prices again, is the economy going to be able to handle it any better than it was in 2008?
Triple digit oil prices weren’t a freak event, nor was the subsequent abrupt decline in oil prices to the $40 range. Price volatility is one of the predictions of peak oil theory.
David Cohen observes we will have a statistical recovery in GDP even as economic activity stagnates and unemployment rises, despite unprecedented fiscal and monetary stimulus. But nothing has been “fixed.” – We’ve treated the symptom rather than recognizing the underlying problem, the fundamental error in neoclassical economic theory.
Endless growth based on endless debt is impossible.
Servicing debt – pre-existing debt, never mind the unprecedented levels of debt we’re still running up – requires growth. Growth requires increasing inputs and outputs. We’re running into limits on inputs, the most important being energy in general and oil in particular. We’re also bumping up against limits on outputs, the most important being in the ability of Earth’s atmosphere and oceans to absorb greenhouse gasses without catastrophic consequences.
Any recovery which resembles a return to business as usual is impossible. If such a recovery were possible, it would be suicidal. Your choice, Scylla or Charibdys?
We need to blaze a new economic path – if it’s not already too late to avoid the dread strait.