At $1,500 per car per year that is $300,000,000,000 per year. Our economists say nothing about it because they have DEFINED depreciation as applying to CAPITAL GOODS only. Cars purchased by consumers don’t qualify. This involves NDP, Net Domestic Product not GDP, Gross Domestic Product. Those consumer cars got added to GDP but never subtracted. And this happens in every country around the world.

The laws of physics don’t care about economic systems or philosophies. But the machines all wear out regardless. Our economists are too dumb to figure out how physics applies to technological economies.

psik

Admin has it backwards, mainstream economics doesn’t assume a closed system but an open system. Modern economics believes in the myth of infinite substitution (when one resource becomes scarce or rendered too expensive, just “hot swap” with another one — we are soon going to learn how well this works with oil and water, to name but 2 peaking resources). Modern economics believes economies — and the number of human primates — can grow to infinity and beyond within a closed and limited biosphere. However, Admin is right in that this mythical, open system does exist in a theoretical closed system. Which is to say, mainstream economists’ open-system-theories exist in an alternate bubble of reality best exemplified by this laughably stupid quote:

“The world can, in effect, get along without natural resources”
- Robert Solow, Nobel Prize-winning US economist

So much for the credibility of the Nobel Prize.

On December 1st of this year, The New York Times’ DotEarth Blog — in a rare, fleeting moment of perceptive clarity — acknowledged the blatantly obvious:

“Climate change is not the story of our time. Climate change is a subset of the story of our time, which is that we are coming of age on a finite planet and only just now recognizing that it is finite.” [tinyurl.com/5d3xzx]

And, on December 16th, Peter G. Brown and Geoffrey Garver, authors of, Right Relationship: Building a Whole Earth Economy, expounded on this hidden-in-plain-sight reality [tinyurl.com/7j29l6]:

“The ecological budget – on which all life, and consequently the human economy, depends – is already in dramatic deficit, and balancing it should be a high priority for nations around the world, even as the financial meltdown seizes headlines.

“Why is this budget just as pressing as the fiscal budget? September 23, 2008, was Earth Overshoot Day [tinyurl.com/e9bbz]: when the human species used up what the Earth, fuelled by the sun, will make available in 2008 to provide for and clean up after us and the Earth’s millions of other species.

“The period after that date represents the time in which the human population causes an ecological deficit, using up the Earth faster than it can regenerate. We have run this deficit since at least the 1980s, and every year Earth Overshoot Day comes earlier.

“The story behind this moving date is one of a global environment that is rapidly losing its ability to support life: accelerating climate change, greater numbers of species and habitats in peril, fisheries in decline, the proliferation of ocean dead zones, declining fresh-water resources and more. Ecological overshoot is climate change on steroids. It is happening right now, and it is worse than we have imagined.”

The problem is, of course, that there is no “we” as asserted by the Times. We do not realize that we live on a finite planet. It is this profound misunderstanding — coupled with healthy amounts of indifference, gluttony and greed — which essentially caused the current financial crisis (which is nothing compared to the coming “eco-crunch”: tinyurl.com/3ftjlu). Cornucopian mythology is in our blood. It is all around us morning to night, cradle to grave. It is an emergent property of our cultural way of being. To pierce the veil of this consensus trance is to fundamentally question who we are; a formidable, daunting and atypical discipline for any human being.

We are not encouraged to understand (nurture), and we are not generally hardwired to fathom (nature), the detrimental and ecocidal consequences of our seemingly innocuous daily lives.

Contrary to the wishful thinking of the Times (pun intended), we have precious little stomach for reality. Let alone the will or capacity to act on it.

We live in a culture of make believe:

“This country’s political and cultural institutions are not equipped to deal with this coming collapse, and there is very little chance that political organizing rooted in the necessary radical analysis, in the time available, can alter that to any significant degree. We are not prepared for the coming shift out of the current high-energy/high-technology phase, and nothing in recent institutional responses (or non-responses) to the clear signs of this suggests we will be prepared in time.”
Robert Jensen, Real hope: Facing difficult truths about an uncertain future [tinyurl.com/7l6yhc]

–

Additional Resources:

http://www.storyofstuff.com
(20 minute video and resource-rich website)
[Yes, I know, her example of planned obsolescence is simplistic -- the CPU is not the only thing which changes: which is actually more proof, not less -- but the underlying concept and the overall example are 100 percent sound]

The absurdity of endless economic growth
[tinyurl.com/6zzmb4]

Just what planet are economists on?
[tinyurl.com/5vw7hr]

An Overlooked Detail – Finite Resources Explain the Financial Crisis
[theoildrum.com/node/4770]

–

Postscript: When I was in high school, I was a devout Randroid. Then I grew up.

And Admin is also right about the pseudo-scientific quality of economics. I think Hazel Henderson said it best:

“The problem is, of course, that not only is economics bankrupt but it has always been nothing more than politics in disguise …economics is a form of brain damage.”

The reason I was picking on Friedman was for historical reasons, having grown up at the beginning of this period under Thatcher and Reagan. Coverage in the UK press (where I no longer live) has dwelt on the subject of the death of monetarism and more generally, Thatcherism, the closest thing politically to libertarianism that has existed in Britain.

With the direct nationalization of banks rather than Paulson’s sleight of hand, with debt being dressed up as equity, the end of this period is clearer there.

The US will do OK in the long run, if it nips ideological extremism such as libertarianism, in the bud. This should have been the only good thing to have come out of this fiasco, however, even from this comments thread, the prognosis does not look good. There are still people that will argue till they are blue in the face that this crash has nothing to do with attachment to peculiarly American (and to some extent British, through Thatcher) libertarian ideology.

China is the big change to the global economy that fundamentally changed the eco-system. China’s growth was the dynamite, US debt the timer, and the sub-prime crash the fuse. China’s Treasury purchases (albeit smaller than Japan’s) mean that they will hurt themselves in the explosion, and look to better protect themselves in future.

I invoke Occams razor on your explanation. Even if you eliminate China, you have a vast morass of overleveraged banks searching for a bubble. You also have the fact that reckless investors and banks were able to find such a bubble right in the land of Apple Pie and Chevrolet. It will be to the eternal chagrin of the US that in the run up to the bubble it decided to go all Hud on the rest of the world, turn its back on international agreements and generally cause other countries to begin to question even its financial leadership. You don’t need any more than this to explain the current crisis.

There’s really only one good reason to diagnose a cause for a problem: to help solve it. It’s true that everyone has gotten a little bit crazy with the acronyms recently, CDS, CDO, SIV, TARP, ABCPMMMF (I love that one!), and yes they are trying to confuse us, and yes Hank Paulson is extremely cozy with the Chinese (search for his recent Foreign Affairs article). But….but…the problem really did start here at home, and can be remedied with effective regulation that accurately targets the root cause: primarily overleveraging, excessive credit and overconfident risk managers.

The analogy with the Soviets is good, but I’d put it like this: The Soviet system rotted from the inside, allowing the West to push it over fairly easily when the time came. We aren’t at 1989 yet, but the US is treading uncomfortably close to a future where it will share a similar fate, with Asia playing the role of vanquishing hero this time.

http://www.lewrockwell.com/orig9/recession-reader.html

What brought the world’s economy to the place it’s at now is not “an extreme form of laisser-faire capitalist economics,” but rather the Western iteration of the command economy. Libertarians have consistently ranted against fiat money, the fractional reserve system and the deliberate manipulation of “the economy” by the Fed.

The other cause of the current woes is careless incompetence and outright fraud committed by people who knew — after the S&L and LTCM bailouts — that Uncle Sucker would rescue them. You call that capitalism. I call it crony socialism.

If you think now that things will turn around with the governments in the US and elsewhere taking control of the banking system, you got another think coming.

That being said, I have been recommended the following as economics reading that doesn’t ignore the current understanding of how systems work:

Paul Omerod: Butterfly Economics

Benhabib and Baumol: Chaos and Economics, the Journal of Economic Perspectives, 1989

Arthur and Durlauf ed; “The Economy as an Evolving Complex System.”

Evolving Institute Sciences Complexity Proceedings: http://www.amazon.com/Evolving-Institute-Sciences-Complexity-Proceedings/dp/0201156857