24 Aug 09 Eddie's Blog Global

Market Capitalism

Markets are always interesting. They are both a product of and one of the important outcomes of democracy. They are an input to and a product of democracy. They are the collective opinion of thousands of commentators and players of businessmen, bankers, of politicians and of financiers. One of the great collectors of market opinion is the Federal Open Market Committee of the United States.

Their opinion on the current state of affairs is “the pace of decline appears to have slowed significantly ……… monitoring policy remains focused on fostering economic recovery”.

Mr. Bernanke said that financial markets remained stressed and household spending was an important risk to the outlook because of continued job losses and declines in home value.

Markets are tremendous at both describing the here and now and anticipating events that will happen within a 6 month to a year ahead period.

I believe that Mr. Bernanke is a sure footed keeper of the keys on monitory policy in the United States. He has studied the Great Depression and is brave enough and strong enough to pump money into the economy to defeat deflation.

It isn’t his job to propose an alternative vision for the future of the free enterprise economy. He has to assume that as a given. He assumes that if he manages the financial side, the monetary aspects if you will, that the system is capable of piloting it itself towards a normal tomorrow.

I want to question this assumption.

Market capitalism is a very effective means of creating wealth and of distributing it through employment. For the most part and certainly up to now in history it has worked. Like any system it is particularly bad at stating the assumptions on which it is based.

Just to examine a few of the assumptions:

Assumption No. 1:

The environment is infinite and capable of being used as an unpaid for dump. This assumption is slowly being brought into question as the population of the planet passes through 6.5 billion people. The limitations of the rivers and oceans are becoming tragically manifest. The biggest threat however, is to what Shakespeare called this “great oer hanging firmament the air look you”.

We have already heated up the atmosphere from an average of 6 to 6.5 degrees and nothing we can do will stop it proceeding upwards to 8 degrees, a rise of 2 degrees.

This rise in temperature is scientifically proven to be caused by anthropogenic forcing by greenhouse gases. In other words human activity is releasing mainly too much CO2.

We have no idea what devastation we are setting loose.

Assumption No. 2:

If we sold all the issues around monitored policy and get our banking systems back in order that we can continue with business as usual. There is one enormous reason why this is not true and it concerns energy.

Free enterprise has been built on fossil fuels, on cheap and freely available fossil fuels.

This assumption is rubbish: it has been rubbished by events and it has been rubbished by markets. The collective wisdom of the market has shoved the price from $20 to $147 to $32 to $72 and who knows where tomorrow? You can’t run your business, your economy or ultimately your household with such wildly fluctuating prices of the primary input.

The great oil fields of the world have been at the peak since 2005 at 74 million barrels a day.

The North Sea is in huge decline. Mexican oil output is in decline of 15% a year. Some of the smaller Gulf States have rapidly declining outputs.

Before this finance driven recession the previous three recessions were caused by escalations in the oil price.

Markets have given us the signals and those charged with short term correctors like Mr. Bernanke are doing a good job.

But where is the vision of a new tomorrow coming from? We elect politicians to introduce policies to deal with fundamental root causes. However great markets are, they can’t give you a vision of a radically different long term tomorrow.

This has to be done by a charismatic leader who diagnoses the root causes, mobilizes the people and gives them a new dream, who deals with the vested interests who will continue doing things as they are being done now and writes the laws that empower new groups to begin creating the new vision.

It is absolutely imperative that the President of the United States along with the Congress chart a pathway to a world without fossil fuels.

That is what’s coming, whether they like it or not.

No more fossil fuel generating plant after 2030. There is a great line from the Master, Bob Dylan and it goes:

“Come senators, congressmen
Please heed the call
Don't stand in the doorway
Don't block up the hall
For he that gets hurt
Will be he who has stalled
There's a battle outside
And it’s ragin'.
will soon shake your windows
And rattle your walls
For the times they are a-changin”.