Ed Ellingson's Blog

8. Capitalism is Dead

Capitalism is dead.  The economic system that we’ve known for about 200 years has ended, or is at least coming to an end.  Everything has changed.  Any assumption or “rule” that we have acquired or developed about our economic life is probably wrong.  “Things will get better”, “housing values will always go up”, “buy the biggest house you can possibly afford”, “long-term, the stock market will always rise”, “work hard, save & invest, and you’ll do well and be able to retire in comfort”.  We’ve built up an understanding of what the world is like and how to succeed in it because of our own experiences, and those of our parents and grandparents, and our friends and their parents, the books we’ve read, and all the other people we pay attention to like TV interpreters.  This is all built on the past.  Now that that the fundamental situation has changed, none of the “old” information necessarily applies.

Investment & Payback Typical of Today's Business

We (ie, investors of all sorts, all of us really) are being asked to invest in deep-water oil wells, tar sands, wind turbines, solar panels and solar cells, hybrid cars, electric cars, high-efficiency light bulbs, and a host of other things, none of which “make sense” in the old capitalistic system that we’ve become familiar with.  (In the above chart, an initial investment of $600,000 has a payback of 60 years, assuming the price of oil is at today’s level.  This is not the payback that investors want to see).  So we’re persuaded to do it with incentives of various sorts, basically by appealing to our sense of duty/compassion (go “green”, it’s the right thing to do) and by financial incentives of government-imposed pricing or tax breaks.  The message is being sent, “buy more efficient light bulbs, because if you don’t we’re going to have to build another power plant, and that’s really going to cost you.”  Or, “Buy a more efficient car, or we might run out of gasoline, and then you’ll be sorry.”

The fundamental rules of economics still apply, of course.  It’s just that if we don’t make the investments now, then we’ll run low on the energy sources, the price will spike up, which would then encourage and justify investment in energy, like offshore oil platforms and wind turbines, but it takes time bring these things on-line.  In the meantime, the high prices cause the economy to collapse, companies can’t make money, stock values go down, dividends decrease, businesses close, incomes drop, people can’t make mortgage payments and lose their homes, etc.  Basically, the Economic Engine that was created by fossil fuels has stopped, and the system is just coasting now, with no driving force.  It would spin down rapidly, except that the government has injected money to try to keep it going.

Borrowed Money Can Keep the Engine Going

It can get worse too; not being able to harvest crops and distribute them to feed the population, and people fighting over resources.  The disruption could be huge.

The only realistic option seems to be to “force” the system somehow so that there is a smooth transition rather than an abrupt disruption.  This is not capitalism as we know it.  Things have changed.  This is a new economic order


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