Friday, January 23, 2009

The Crash Course

You may have heard of peak oil, but what about "peak dollars"? Ben McGrath touches on the term in his excellent article in this week's New Yorker on the recent spike in popularity of the doomsayer movement. (Abstract here and an audio interview here.)

In simple terms, peak dollars is the notion that the U.S. monetary system (and by extension, our economy) faces eventual breakdown due to our fairly recent decision (in the seventies) to completely unlink the dollar from the gold standard. This makes it very easy for the U.S. government to issue bonds, many to foreign investors and governments, essentially borrowing more dollars into existence. This can lead to inflation, which erodes the value of individual savings accounts, discouraging saving and forcing people to put their money in risky investments to keep up.

As long as GDP continues to grow exponentially (at some percentage every year), the government is able to service its growing debts, and the economy stays afloat. But the important point here is that the monetary system we've created for ourselves assumes and essentially requires that our economy (and, by extension, our resource use) keep growing exponentially and indefinitely.

The problem, of course, is that natural resources are finite. Some argue we're not even close to running out and that technology will provide the necessary efficiencies to keep up business as usual for quite some time. The doomers, on the other hand, think we're going to run out of resources a lot sooner than we think and that the whole economic system will collapse.

Who's right? I don't know. Dystopians have certainly been wrong in the past, but as McGrath says, "they only have to be right once."

What seems more likely than sudden collapse is a sort of herky-jerky unraveling--a bunch of dips and jumps that trend downward, forcing us to eventually cast a much more critical eye at some of our most deeply held assumptions about our economy.

Whatever direction we think our current economic crisis is going to lead, it's important we learn as much as we can about the conditions that are required for short-term growth to resume and long-term growth to continue. The easiest-to-digest explanation of all this that I've found is a series of videos from economist Chris Martensen called the Crash Course. It's long but utterly fascinating and even a touch optimistic in its own Debbie Doomer way.

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