Great Decisions 2011 by yh1s7G

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									Responding to the financial and
      economic crisis.
             John Abell
       Professor of Economics
          Randolph College
                Definitions
• Oikonomia:
1. The wisdom of household management.
2. The art of efficiently producing and
  maintaining concrete use values for the
  household and community over the long run.
• Chrematistics:
The art of maximizing the accumulation by
  individuals of abstract exchange values in the
  form of money in the short run.
                                        Aristotle
First Bank of
Berne, Indiana
-Ranked best
performing bank in
Indiana in 2009 by
Financial Mgt.
Consulting Group
-Founded: 1891
-Assets: $415 million
-Employees: 115
-Shareholders: 322
-2009 earnings: $8.9
million, a bank record
Washington
Mutual Bank
-September 2008:
Collapsed. $180
billion in failed
mortgage-related
loans.
-Seized by federal
regulators. Sold to
JPMorgan for $1.9
billion, 5% of its peak
value a year earlier.
-Company policy?
Issue loans to anyone
or anything real-
estate related,
especially sub-prime
loans.
State of the economy
                                                        RGDP vs. Potential RGDP (1949:I - 2010:IV)
                                   16000.0
                                                      The economy in 2010 is over 7x as large as in 1949.
                                   14000.0

                                   12000.0
Billions of Chained 2005 Dollars




                                                                                                                               Mid-late '90s boom
                                   10000.0
                                                                  Potential RGDP
                                    8000.0
                                                                  RGDP                                                                                                                         Early '00s recession
                                    6000.0
                                                                                                                                                                     Early '90s recession
                                    4000.0
                                                                                                                                          Early '80s recession
                                    2000.0
                                                                                           Mid '70s oil crisis
                                       0.0
                                             Jan-49




                                                                                           Jan-64
                                                       Jan-52
                                                                Jan-55
                                                                         Jan-58
                                                                                  Jan-61


                                                                                                    Jan-67
                                                                                                             Jan-70
                                                                                                                      Jan-73
                                                                                                                                Jan-76
                                                                                                                                         Jan-79
                                                                                                                                                  Jan-82
                                                                                                                                                           Jan-85
                                                                                                                                                                    Jan-88
                                                                                                                                                                             Jan-91
                                                                                                                                                                                      Jan-94
                                                                                                                                                                                               Jan-97
                                                                                                                                                                                                        Jan-00
                                                                                                                                                                                                                 Jan-03
                                                                                                                                                                                                                          Jan-06
                                                                                                                                                                                                                                   Jan-09
                                                                                                               Source: CBO, Economagic.com
                                                    ((RGDP-Potential RGDP)/Potential RGDP)*100




                                                                                    0
                                                                                        2
                                                                                            4
                                                                                                 6




                                       -8
                                                               -6
                                                                          -4
                                                                               -2
                              Jan-49
                              Jul-51
                              Jan-54
                              Jul-56
                              Jan-59
                              Jul-61
                              Jan-64
                              Jul-66
                              Jan-69
                              Jul-71
                              Jan-74
                              Jul-76
                              Jan-79
                              Jul-81
                              Jan-84
                              Jul-86

Source: CBO, Economagic.com
                              Jan-89
                                                                                                     GDP Gap (1949:I - 2010:IV)




                                            2009:III




                              Jul-91
                              Jan-94
                              Jul-96
                              Jan-99
                              Jul-01
                                            Gap: -7.8% or $1.1 trillion




                              Jan-04
                              Jul-06
                              Jan-09
                                                                                            RGDP Growth 1960:I- 2010:IV
                                20                                                                                                                                                                                                                   100000000
                                                                                   Long-term growth rate: 3.4%                                                                           2010:IV 3.2%
                                                                                                                                                                                                                                                     90000000

                                15
Annualized Quarterly % Change




                                                                                                                                                                                                                                                     80000000


                                                                                                                                                                                                                                                     70000000
                                10
                                                                                                                                                                                                                                                     60000000


                                 5                                                                                                                                                                                                                   50000000


                                                                                                                                                                                                                                                     40000000

                                 0
                                                                                                                                                                                                                                                     30000000


                                                                                                                                                                                                                                                     20000000
                                 -5
                                                                                                                                                                                                                                                     10000000
                                                                                                                                         Recessions shown as shaded areas.
                                -10                                                                                                                                                                                                                  0
                                                                                                     Oct-75
                                                                 Oct-66




                                                                                                                                         Oct-84




                                                                                                                                                                             Oct-93




                                                                                                                                                                                                                 Oct-02
                                                                                            Jul-73
                                                        Jul-64




                                                                                                                                Jul-82




                                                                                                                                                                    Jul-91




                                                                                                                                                                                                        Jul-00




                                                                                                                                                                                                                                            Jul-09
                                      Jan-60
                                               Apr-62



                                                                          Jan-69
                                                                                   Apr-71



                                                                                                              Jan-78
                                                                                                                       Apr-80



                                                                                                                                                  Jan-87
                                                                                                                                                           Apr-89



                                                                                                                                                                                      Jan-96
                                                                                                                                                                                               Apr-98



                                                                                                                                                                                                                          Jan-05
                                                                                                                                                                                                                                   Apr-07
                                                                                                                   Source: Economagic.com
                                                                   Real Consumption Growth 1960:I-2010:IV
                                15                                                                                                                                                                                                                    100000000
                                                                                                                 Note: Consumption growth
                                                                                                                 remained positive during                                                                        2010:IV 4.4%                         90000000

                                                                                                                 2001 downturn!
Annualized Quarterly % Change




                                10                                                                                                                                                                                                                    80000000


                                                                                                                                                                                                                                                      70000000


                                 5                                                                                                                                                                                                                    60000000


                                                                                                                                                                                                                                                      50000000


                                 0                                                                                                                                                                                                                    40000000


                                                                                                                                                                                                                                                      30000000


                                 -5                                                                                                                                                                                                                   20000000
                                                                                                                                   2008-9 recession: Consumption growth
                                                                                                                                   was negative 5 of 6 quarters!                                                                                      10000000


                                -10                                                                                                                                                                                                                   0
                                      Jan-60
                                               Apr-62




                                                                                                                                                                                                                           Jan-05
                                                                 Oct-66
                                                                          Jan-69
                                                                                   Apr-71


                                                                                                     Oct-75
                                                                                                              Jan-78
                                                                                                                       Apr-80


                                                                                                                                         Oct-84
                                                                                                                                                  Jan-87
                                                                                                                                                           Apr-89


                                                                                                                                                                             Oct-93
                                                                                                                                                                                      Jan-96
                                                                                                                                                                                               Apr-98


                                                                                                                                                                                                                  Oct-02


                                                                                                                                                                                                                                    Apr-07
                                                        Jul-64




                                                                                            Jul-73




                                                                                                                                Jul-82




                                                                                                                                                                    Jul-91




                                                                                                                                                                                                        Jul-00




                                                                                                                                                                                                                                             Jul-09
                                                                                                                   Source: Economagic.com
                                                    Personal Savings/Disposable Personal Income




                                                0
                                                      2
                                                             4
                                                                    6
                                                                           8
                                                                                  10
                                                                                                       12
                                                                                                            14
                                      Jan-60
                                      Feb-62
                                      Mar-64
                                      Apr-66
                                      May-68
                                      Jun-70
                                       Jul-72
                                      Aug-74
                                      Sep-76
                                      Oct-78
                                      Nov-80
                                      Dec-82
                                      Jan-85
                                      Feb-87
                                      Mar-89
                                      Apr-91

Soucrce: Economagic, NIPA Table 2.1
                                      May-93
                                      Jun-95
                                       Jul-97
                                                                                                                 Personal Savings Rate (1960:I-2010:IV)




                                      Aug-99
                                      Sep-01
                                      Oct-03
                                      Nov-05
                                                                                       2010:IV: 5.4%




                                      Dec-07
                                      Jan-10
                                               Household Debt vs. Personal Income (1988:I - 2010:III)
                                           16000
                                                                        Debt/Income Ratio (2007:III): 114%
                                           14000
Billions of $ (Debt; NSA) (Income: SAAR)




                                           12000
                                                                                                                                                          2003:III
                                           10000
                                                                 Personal Income                                                                                                                                      2010:III: 107%
                                            8000

                                            6000
                                                                                                                                                                                               Household Debt
                                            4000

                                            2000
                                                                                                Debt/Income Ratio (1988:I): 68%
                                               0
                                                   Jan-88
                                                            Jan-89
                                                                     Jan-90
                                                                              Jan-91
                                                                                       Jan-92
                                                                                                 Jan-93
                                                                                                          Jan-94
                                                                                                                   Jan-95
                                                                                                                            Jan-96
                                                                                                                                     Jan-97
                                                                                                                                              Jan-98
                                                                                                                                                       Jan-99
                                                                                                                                                                Jan-00
                                                                                                                                                                         Jan-01
                                                                                                                                                                                  Jan-02
                                                                                                                                                                                           Jan-03
                                                                                                                                                                                                    Jan-04
                                                                                                                                                                                                             Jan-05
                                                                                                                                                                                                                      Jan-06
                                                                                                                                                                                                                               Jan-07
                                                                                                                                                                                                                                        Jan-08
                                                                                                                                                                                                                                                 Jan-09
                                                                                                                                                                                                                                                          Jan-10
                                                                                                Source: Economagic.com, Fed. Flow of Funds z.1/L.1; NIPA Table 2.1
Arrows : + Y%                                              Unemployment Rate 1948:1- 2011:1
                                                  7.7 million additional unemployed since 2007 (15 million total unemployed.)
                      12
                                Avg time from peak                                   P 1982:11 10.8%                                                               P 2009:10 10.1%
                                UN to 5%: 58m
                      10
                                    P 1961:5 7.1%                                                                                                                                     P 1992:6 7.8%
                       8
((LF - Emp)/LF)*100




                       6


                       4
                                                                                                                                   T 1989:3 5.0%
                                                                                                                                   76m
                       2
                                        5%: 1964:7                               T 1968:4 3.5%                                                    5%: 1997:5                               T 2000:4 3.8%
                                        38m                                      83 m                                                             59m                                      96m
                       0




                                                                                                                                                                                                                           Jan-11
                           Jan-48




                                                                                                                                                                    Jan-93
                                    Jan-51
                                             Jan-54
                                                      Jan-57
                                                               Jan-60
                                                                        Jan-63
                                                                                  Jan-66
                                                                                           Jan-69
                                                                                                    Jan-72
                                                                                                             Jan-75
                                                                                                                      Jan-78
                                                                                                                               Jan-81
                                                                                                                                        Jan-84
                                                                                                                                                 Jan-87
                                                                                                                                                          Jan-90


                                                                                                                                                                             Jan-96
                                                                                                                                                                                       Jan-99
                                                                                                                                                                                                Jan-02
                                                                                                                                                                                                         Jan-05
                                                                                                                                                                                                                  Jan-08
                                                                                 Employment Growth (1969:1 - 2011:1)
                                   1250                                                                                                                                                                                                 100000000
                                                                                                                                                       Only 36 thousand jobs                                                            90000000
                                   1000
                                                                                                                                                       created in January 2011
1-month net change, thousands SA




                                    750                                                                                                                                                                                                 80000000

                                                                                                                                                                                                                                        70000000
                                    500
                                                                                                                                                                                                                                        60000000
                                    250
                                                                                                                                                                                                                                        50000000
                                      0
                                                                                                                                                                                                                                        40000000
                                    -250
                                                                                                                                                                                                                                        30000000
                                    -500                                                                                                                                                                                                20000000
                                                                                    Long-term average: 124 thousand jobs/month
                                    -750                                                                                                                                                                                                10000000

                                   -1000                                                                                                                                                                                                0
                                                                                                                                     Jan-85
                                           Jan-60


                                                             Jan-65


                                                                               Jan-70


                                                                                                 Jan-75


                                                                                                                   Jan-80




                                                                                                                                                       Jan-90


                                                                                                                                                                         Jan-95


                                                                                                                                                                                           Jan-00


                                                                                                                                                                                                             Jan-05


                                                                                                                                                                                                                               Jan-10
                                                    Jul-62




                                                                                                                                                                                                                      Jul-07
                                                                      Jul-67


                                                                                        Jul-72


                                                                                                          Jul-77


                                                                                                                            Jul-82


                                                                                                                                              Jul-87


                                                                                                                                                                Jul-92


                                                                                                                                                                                  Jul-97


                                                                                                                                                                                                    Jul-02
                                                                                                                            Source: BLS
                                             DJIA Monthly Close 1950:1 - 2011:2
16000
                                                                                                                    Peak: October 9, 2007 (14,164)
14000

12000
                                                                                                    2007-09 Downturn: -53%
10000

 8000
                          Wed. Feb 9, 2011 DJIA close: 12,240
 6000
                                                                                                                                                                                      Trough: March 9,
 4000
                                                                                                                                                                                      2009 (6547)

 2000

    0
        Jan-50




                                                              Jan-65
                          Jan-55


                                            Jan-60




                                                                                Jan-70


                                                                                                  Jan-75


                                                                                                                    Jan-80


                                                                                                                                      Jan-85


                                                                                                                                                        Jan-90


                                                                                                                                                                          Jan-95


                                                                                                                                                                                            Jan-00


                                                                                                                                                                                                              Jan-05


                                                                                                                                                                                                                                Jan-10
                                   Jul-57
                 Jul-52




                                                     Jul-62


                                                                       Jul-67


                                                                                         Jul-72


                                                                                                           Jul-77


                                                                                                                             Jul-82


                                                                                                                                               Jul-87


                                                                                                                                                                 Jul-92


                                                                                                                                                                                   Jul-97


                                                                                                                                                                                                     Jul-02


                                                                                                                                                                                                                       Jul-07
                                                                                                  Source: Economagic.com
                                            Housing Starts 1989:1-2010:12
                           2500
                                  1991-2006: Average annual growth rate: 7.2%

                           2000
Thousands of units, SAAR




                           1500



                           1000


                                          1991-2006: Average US Population growth rate: 1%
                           500

                                                   2009:1 - 2010:12 annualized growth rate: 4.7%
                              0



                                                            Source: Economagic
                                                              Case-Shiller/S&P National Home Price Index (1987:I - 2010:III)
                                      200
                                                                                                                                                                 January 2006
                                      180
Composite Index :January 2000 = 100




                                      160
                                                        1987 - 2006 Average
                                                        annual increase: 9%
                                      140


                                      120


                                      100
                                                                                                                                                                               2006:I - 2009:I 31% decline
                                       80


                                       60
                                                                       Jan-90




                                                                                                                                                                                                                                Jan-07
                                            Jan-87
                                                     Jan-88
                                                              Jan-89


                                                                                Jan-91
                                                                                         Jan-92
                                                                                                  Jan-93
                                                                                                           Jan-94
                                                                                                                    Jan-95
                                                                                                                             Jan-96
                                                                                                                                      Jan-97
                                                                                                                                               Jan-98
                                                                                                                                                        Jan-99
                                                                                                                                                                 Jan-00
                                                                                                                                                                          Jan-01
                                                                                                                                                                                   Jan-02
                                                                                                                                                                                            Jan-03
                                                                                                                                                                                                     Jan-04
                                                                                                                                                                                                              Jan-05
                                                                                                                                                                                                                       Jan-06


                                                                                                                                                                                                                                         Jan-08
                                                                                                                                                                                                                                                  Jan-09
                                                                                                                                                                                                                                                           Jan-10
                                                                                                                                  Source: Case-Shiller/S&P
          0
                          2
                              4
                                  6
                                                    8
                                                        10
Jan-89
Dec-89
Nov-90
Oct-91
Sep-92
Aug-93
 Jul-94
Jun-95
May-96
Apr-97
Mar-98
Feb-99
Jan-00
Dec-00
Nov-01
Oct-02
Sep-03
Aug-04
          December 2008




 Jul-05
                                                             Federal Funds Rate 1989:1-2011:1




Jun-06
May-07
Apr-08
Mar-09
                                      August 2007




Feb-10
Jan-11
                              Federal Government Budget Deficit (1960-2010)
                  1800
                                                                                               Obama
                  1600

                  1400
                                                                                              Bush II
                  1200
                                                                                    Clinton
                  1000
Billions of US$




                                                        Reagan, Bush I
                  800
                         Kennedy, Johnson,
                  600    Nixon, Ford, Carter
                  400

                  200

                     0
                         1960
                         1962
                         1964
                         1966
                         1968
                         1970
                         1972
                         1974
                         1976
                         1978
                         1980
                         1982
                         1984
                         1986
                         1988
                         1990
                         1992
                         1994
                         1996
                         1998
                         2000
                         2002
                         2004
                         2006
                         2008
                         2010
                  -200

                  -400
                                               Source: Economic Report of the President
                   Fed. Gov't Budget Deficit as % of NGDP (1943-2010)
30
                                  WWII

25


20


15


10


5


0
     1943
            1946
                   1949
                          1952
                                 1955
                                        1958
                                                1961
                                                       1964
                                                              1967
                                                                     1970
                                                                            1973
                                                                                   1976
                                                                                          1979
                                                                                                 1982
                                                                                                        1985
                                                                                                               1988
                                                                                                                      1991
                                                                                                                             1994
                                                                                                                                    1997
                                                                                                                                           2000
                                                                                                                                                  2003
                                                                                                                                                         2006
                                                                                                                                                                2009
-5
                                               Source: ERP Table 78; Economagic.com; NIPA Table 1.1.5
        Top Federal Income Tax Rate (1916-2010)

100                   Korean War

                                                                "Reagan Supply-Side
90
      WWI                                                        Revolution"
80                                                                       Invasion of Iraq,
                      WWII                                               Afghanistan
70
                         Vietnam War &
60
                         Great Society Programs
                                                                         Clinton
50

40
                Great Depression &
30
                New Deal Programs
20
                                                                       Bush
10
                                                                              Obama
 0



                             Source: Citizens for Tax Justice
                            $/Barrel




                                                                               120
                                                                                                                                    160




                                       100
                                                                                     140




         0
             20
                  40
                       60
                              80
Jan-70
Sep-71
May-73
Jan-75
Sep-76
May-78
Jan-80
Sep-81
May-83
Jan-85
Sep-86
May-88
Jan-90
Sep-91
May-93
Jan-95
Sep-96
May-98
Jan-00
                                             June 2008 - February 2009: -69%




Sep-01
                                                                                                                                          West Texas Crude Oil Prices 1970:1-2011:1




May-03
Jan-05
Sep-06
                                                                                           January 2011 spot price: $89.42/barrel




May-08
Jan-10
                                                        Corn Prices (US Yellow #2) (2000:12-2011:1)
                              350
                                                                                                                                                                                                               Bushel equivalent:
                                                                                                                                                   June 2008
                                                                                                                                                                                                               $7.05/bushel
                              300
US $ per metric ton fob GoM




                              250
                                             2005: China becomes a net importer of food
                                             2006: Ethanol program starts
                              200


                              150


                              100
                                                                                                                                                         2006:1 - 2011:1: Net increase: 163%
                               50


                                0
                                                                                                   Nov-03




                                                                                                                                                                                                               Nov-08
                                    Dec-00




                                                                                                                                                Dec-05




                                                                                                                                                                                                                                                            Dec-10
                                                                                                                                                         May-06
                                             May-01




                                                                                 Jan-03




                                                                                                                     Sep-04
                                                               Mar-02
                                                                        Aug-02




                                                                                                            Apr-04




                                                                                                                                                                           Mar-07
                                                                                                                                                                                    Aug-07
                                                                                                                                                                                             Jan-08



                                                                                                                                                                                                                        Apr-09
                                                                                                                                                                                                                                 Sep-09
                                                                                                                              Feb-05




                                                                                                                                                                                                                                          Feb-10
                                                      Oct-01




                                                                                                                                       Jul-05



                                                                                                                                                                  Oct-06




                                                                                                                                                                                                                                                   Jul-10
                                                                                          Jun-03




                                                                                                                                                                                                      Jun-08
                                                                                                                                Source: Index Mundi
“Fundamental challenges to the
fixation on growth” Bill Mckibben (Deep Economy)
1. Growth produces more inequality than
   prosperity.
2. Growth has not led to a reduction in
   poverty.*
3. Growth is not making us happy.
4. Growth is contributing to an
   environmental crisis.
Reminder of what it is we wish to grow
• GDP (Gross Domestic Product):
• A Dollar measure of all currently produced
  final goods and services.
Inequality
                                                                         Inequality: Gini coefficient (1959-2009)
                                                     0.46
                                                            Note: Gini = 0: Perfect equality.
                                                                  Gini = 1: Perfect inequality.
                                                     0.44
Families (Household data only available from 1967)




                                                     0.42


                                                      0.4

                                                                                                                       2009 Household income:
                                                     0.38                                                              - Top 5% earn 21.7%
                                                                                                                       - Top 20% earn 50.3%
                                                                                                                       - Bottom 20% earn 3.4%
                                                     0.36
                                                                                                      1980

                                                     0.34
                                                            1971




                                                            2009
                                                            1959
                                                            1961
                                                            1963
                                                            1965
                                                            1967
                                                            1969

                                                            1973
                                                            1975
                                                            1977
                                                            1979
                                                            1981
                                                            1983
                                                            1985
                                                            1987
                                                            1989
                                                            1991
                                                            1993
                                                            1995
                                                            1997
                                                            1999
                                                            2001
                                                            2003
                                                            2005
                                                            2007
                                                                                       US Census: Poverty Tables F-4
                            Household Income: Bottom and top quintiles, and top 5% (1967-2009)
                       350,000
                                                                                                                                                        $295,388
                       300,000
                                                              Top 5%
                                                              Top 20%
                       250,000
                                                              Bottom 20%
Current Dollars/year




                                                                                                                                                         $170,844
                       200,000


                       150,000


                       100,000

                                                                                                                                                         $11,552
                        50,000


                            0
                                                                                         1983




                                                                                                                                                                                    2009
                                 1967
                                        1969
                                               1971
                                                      1973
                                                             1975
                                                                    1977
                                                                           1979
                                                                                  1981


                                                                                                1985
                                                                                                       1987
                                                                                                              1989
                                                                                                                     1991
                                                                                                                            1993
                                                                                                                                   1995
                                                                                                                                          1997
                                                                                                                                                 1999
                                                                                                                                                        2001
                                                                                                                                                               2003
                                                                                                                                                                      2005
                                                                                                                                                                             2007
                                                                                   Source: US Census, Table H-3
                                     Non-supervisory and production workers real wage
                                                       (1964-2009)
                             $3.00
                                               1972                                                 Non-supervisory and production workers
                                                                                                    represent 80% of the US work force.
                             $2.90                                                                                Source H. Daly Beyond Growth p. 237.
1964 Constant Dollars/hour




                             $2.80
                                                                                                     $18.60/hr in 2009 (or $2.69 in 1964
                                                                                                    constant dollars) represents only 93% of
                             $2.70                                                                  the purchasing power of 1972.

                             $2.60


                             $2.50


                             $2.40


                             $2.30
                                                                               1976




                                                                                                                                              1994
                                     1964
                                            1966
                                                   1968
                                                          1970
                                                                 1972
                                                                        1974


                                                                                      1978
                                                                                             1980
                                                                                                    1982
                                                                                                           1984
                                                                                                                  1986
                                                                                                                         1988
                                                                                                                                1990
                                                                                                                                       1992


                                                                                                                                                     1996
                                                                                                                                                            1998
                                                                                                                                                                   2000
                                                                                                                                                                          2002
                                                                                                                                                                                 2004
                                                                                                                                                                                        2006
                                                                                                                                                                                               2008
                                                                                 Source: Economagic.com; BLS; ERP Table B-47
Poverty
                                        US Poverty Rate 1959-2009
                                   24
                                                          Note: In 2009 food stamps feed 36
                                                          million Americans, 1 in 8; a record.
                                   22
% All People Below Poverty Level




                                   20
                                           1973: 11.1%             1983              1993
                                   18

                                   16
                                                                                     2009: 14.3%
                                   14

                                   12

                                                          1978                1989            2000
                                   10


                                            Source: US Census: Poverty, Table 2
Happiness
                                                                        Perception of life satisfaction vs. GDP/Capita
                                                              9.0                                                United States
                                                                                Costa Rica
Perception of overall life satisfaction(2006-9) Gallup Poll



                                                                                  Venezuela
                                                              8.0

                                                              7.0

                                                              6.0
                                                                                           Sweden                                          Qatar
                                                              5.0
                                                                                 China                         Hong Kong
                                                              4.0

                                                              3.0
                                                                            Tanzania
                                                              2.0                                                       Correlation Coefficients:
                                                                                                                        Below $20,000: 0.55
                                                              1.0                                                       $20,000 and up: 0.18

                                                              0.0
                                                                    0   10000   20000    30000   40000     50000     60000   70000    80000    90000
                                                                                                 GDP/Capita (2010)
                                                                                                   Source: HDR
   Robert F.
   Kennedy

GDP… measures
everything…
except that
which makes
life worthwhile.

                3/18/68
    University of Kansas
Environmental stress
Econ 101: Circular flow model
Economic growth
               Throughput
• Definition #1: The flow beginning with raw
  material inputs, followed by their conversion
  into commodities, and finally into waste
  outputs.
• Definition #2: Entropic physical flow from
  nature's sources through the economy and
  back to nature's sinks.
                                 Herman Daly
Econ 101: Circular flow model
   The three questions all economic
       systems need to answer:
1. What to produce?
2. How to produce?
3. For whom to produce?
But… Two additional questions that are rarely
   asked in Neo-Classical economics:
4. How much (is optimal) to produce?
5. What is the ecologically sustainable way to
   produce?
Scale I
Scale II
Report on Global Ecosystems Calls for Radical
Changes. Earth's Sustainability Is Not
Guaranteed Unless Action Is Taken to Protect
Resources, Experts Say
By Shankar Vedantam
Washington Post Staff Writer
Wednesday, March 30, 2005; Page A02


  More than 1,300 authors from 95 countries
  participated in the Millennium Ecosystem
  Assessment, whose results are being made public
  today by the United Nations and by several
  private and public organizations.
Global warming? +.9 C (+1.6 F) since
1880; +.5 C (+.9 F) since 1980 alone.




     Source: James Hansen, NASA Goddard Institute for
     Space Studies (Nov 2007)
     http://www.giss.nasa.gov/research/features/200711_
     temptracker/
                                                             CO2 emmissions per capita vs. GDP per capita
                                            60


                                                                                                                                   Qatar
                                            50
CO2 Emmissions per capita (tonnes) (2006)




                                            40


                                            30
                                                                                             United States

                                            20
                                                              China                                          For every $10,000 of
                                                     India                                                   GDP/Capita there are 4
                                            10                                                               additional tonnes of CO2
                                                                                                             emitted per capita.
                                                                                       France
                                            0
                                                 0       10,000   20,000   30,000   40,000    50,000    60,000   70,000   80,000    90,000
                                                                                    GDP/Capita (2010)
                                                                                      Source: HDR
                             CO2 Emmissions (1960-2007: 47 years)
                       35
                                                        World: 67.6 trillion lbs
                       30
                            World: 225% increase
                       25
Millions of Kilotons




                       20
                                                            China:
                                                            14.4 trillion lbs             World
                       15                                   21% of world CO2              United States
                                                            18% of world population       China
                       10
                                  USA: 100% increase

                       5
                                                                                      USA:
                                                              China: 738% increase
                                                                                      12.9 trillion lbs
                       0
                                                                                      19% of world CO2
                            1966




                            1980




                            1994
                            1960
                            1962
                            1964

                            1968
                            1970
                            1972
                            1974
                            1976
                            1978

                            1982
                            1984
                            1986
                            1988
                            1990
                            1992

                            1996
                            1998
                            2000
                            2002
                            2004
                            2006
                                                                                      4.4% of world
                                   Source: World Development Indicators               population
                          US CO2 metric tonnes per capita (1960-2007)
24
                   1973                                                                  Note: A daily 62 mile round-trip car
23                                                                                       commute from Manassas, VA to DC
                                                                                         would generate over 10 tons alone, or
22
                                                                                         over half of this average!
21

20

19

18
                                                                                          The typical US omnivore's diet would
17                                                                                        add another 4 tons.

16

15
                   1964




                                                                                                                            1994
     1960
            1962


                          1966
                                 1968
                                        1970
                                               1972
                                                      1974
                                                             1976
                                                                    1978
                                                                           1980
                                                                                  1982
                                                                                         1984
                                                                                                1986
                                                                                                       1988
                                                                                                              1990
                                                                                                                     1992


                                                                                                                                   1996
                                                                                                                                          1998
                                                                                                                                                 2000
                                                                                                                                                        2002
                                                                                                                                                               2004
                                                                                                                                                                      2006
                                                               Source: World Development Indicators
       The Arithmetic of Growth
• Ehrlich equation:
• I=PxAxT
• I = Impact of human activities (for example,
  CO2 emissions)
• P = Population
• A = Affluence or scale (Income per capita)
• T = Technological intensity of human
  activities (CO2 emissions per $ of economic
  activity)
             Basic concepts…
• I=PxAxT
• I needs to go down. For this to happen:
• Ideally we would like for P to go down as
  well.
• Ideally, we’d like for A to go up, especially for
  the poorest of countries. For A to increase,
  though, then scale must increase as well!
• If we can’t get P to go down, and if A is going
  to continue to go up, then T must come
  down!
Here’s what has to happen…

 I↓ = P↑ x A↑ x T↓↓
Could we even consider…?

 I↓ = P↑ x A ↓ x T↓
      CO2 example (2007 data)
• I=PxAxT
• CO2 emissions (I) = Population x Income per
  capita x Carbon intensity
• CO2 = 6.6 billion people (P) x $5900 per
  person (A) x .00076 metric tons (or 760
  grams) per $ of economic activity (T)
• CO2 = 30,000,000,000 or 30 billion metric
  tonnes (global emissions).
                  Past trends
•   From 1990 - 2007:
•   World population increased 1.3%/yr.
•   Average per capita income increased 1.4%/yr.
•   Carbon intensities declined 0.7%/yr.
•   CO2% = 1.3% + 1.4% -0.7%
•   CO2 = 2%/yr for 17 years, taking total CO2
    emissions from 21.7 billion tons to 30 billion
    tons; a total increase of 40%!
          Sustainability goals
• IPCC’s (Intergovernmental Panel on Climate
  Change) 4th assessment recommends a
  maximum of 450 CO2 atmospheric ppm
  stabilization target.
• Bill McKibben and others recommend only a
  360 CO2 ppm target.
• To achieve 450 CO2 ppm, it is necessary to
  reduce annual total CO2 emissions from 30
  billion tons to only 4 billion tons by 2050.
            How to get there?
• Annual CO2 emissions would need to decline by
  4.9%/year, rather than rising at 2%/year to
  achieve this goal!
• UN mid-range population growth rate of .7%/yr
  has us reaching 9 billion people by 2050.
• UN estimate of average per capita income
  growth (business as usual): 1.4%/yr.
• Suppose CO2 intensities decline only at 0.7%/yr.
               Continued…
• Erhlich equation math:
• CO2 = .7%yr + 1.4%yr -.7%yr
• CO2 = 1.4%/yr resulting in an increase of CO2
  emissions of 80% by 2050!
• To achieve the 2050 CO2 goal of 4 billion tons
  (or a reduction per year of 4.9%) requires:
• -4.9% = .7%yr + 1.4%yr - ?
• T = -7%/yr; a 7% reduction per year in carbon
  intensities!
               Continued…
• This would represent a carbon intensity
  reduction from 760g/$ (1.7 lbs/$) to only
  40g/$ (.09 lbs/$), a 19-fold improvement.
• For other scenarios: faster population growth
  or higher economic growth, carbon
  intensities would have to improve to the
  point where nearly all economic activity
  would take place with a zero carbon
  footprint!
               Alternatives?
•   Reduce the scale; reduce the impact!
•   Local: Human and community centeredness
•   Increase happiness
•   Sustainable
•   Organic
•   Reduce, recycle, reuse
•   Dignified work
•   Use tax policy to redirect resources
                                                                   Real Investment Growth 1960:I-2010:IV
                                80                                                                                                                                                                                                                   100000000


                                                                                             Long term growth rate: 5.8%                                                                                                                             90000000
                                60
Annualized Quarterly % Change




                                                                                                                                                                                                                                                     80000000
                                                                                                                                                                                          2010:IV -22.5%
                                40                                                                                                                                                                                                                   70000000


                                                                                                                                                                                                                                                     60000000
                                20
                                                                                                                                                                                                                                                     50000000

                                 0
                                                                                                                                                                                                                                                     40000000


                                                                                                                                                                                                                                                     30000000
                                -20
                                                                                                                                                                                                                                                     20000000

                                -40
                                                                                                                                                                                                                                                     10000000
                                                                      11 negative quarters out of 14 during downturn
                                -60                                                                                                                                                                                                                  0
                                                                 Oct-66




                                                                                                     Oct-75




                                                                                                                                         Oct-84




                                                                                                                                                                             Oct-93




                                                                                                                                                                                                                 Oct-02
                                                        Jul-64




                                                                                            Jul-73




                                                                                                                                Jul-82




                                                                                                                                                                    Jul-91




                                                                                                                                                                                                        Jul-00




                                                                                                                                                                                                                                            Jul-09
                                                                                                                                                                                               Apr-98
                                      Jan-60
                                               Apr-62



                                                                          Jan-69
                                                                                   Apr-71



                                                                                                              Jan-78
                                                                                                                       Apr-80



                                                                                                                                                  Jan-87
                                                                                                                                                           Apr-89



                                                                                                                                                                                      Jan-96




                                                                                                                                                                                                                          Jan-05
                                                                                                                                                                                                                                   Apr-07
                                                                                                                   Source: Economagic.com
                                                   Billions of Chained 2005 $



                                                                                     100
                                                                                                          150




         -200
                -150
                                                               -100
                                                                      -50
                                                                            0
                                                                                50
Jan-95
Oct-95
Jul-96
Apr-97
Jan-98
Oct-98
Jul-99
Apr-00
Jan-01
Oct-01
Jul-02
Apr-03
Jan-04
Oct-04
                   during the 2008-9 recession.




Jul-05
Apr-06
                                                                                                                  Inventory Change 1995:I-2010:IV




Jan-07
                   7 quarters in a row of inventory sell-off




Oct-07
Jul-08
                                                                                           2010:IV $7.2 billion




Apr-09
Jan-10
Oct-10
                        Nominal Exchange Rate (Euro per US Dollar): (1999:1 - 2011:1)
1.2


1.1


 1
                                                                                                                                    18% Dollar Appreciation
                                                                                                                                    (2008:4 - 2011:1)
0.9


0.8


0.7
                46% Dollar Depreciation
                (2000:10 - 2008:4)
0.6
               Jul-99


                                 Jul-00


                                                   Jul-01


                                                                     Jul-02


                                                                                       Jul-03


                                                                                                         Jul-04


                                                                                                                           Jul-05


                                                                                                                                             Jul-06


                                                                                                                                                               Jul-07


                                                                                                                                                                                 Jul-08


                                                                                                                                                                                                   Jul-09


                                                                                                                                                                                                                     Jul-10
      Jan-99




                                                                                                                                    Jan-06
                        Jan-00


                                          Jan-01


                                                            Jan-02


                                                                              Jan-03


                                                                                                Jan-04


                                                                                                                  Jan-05




                                                                                                                                                      Jan-07


                                                                                                                                                                        Jan-08


                                                                                                                                                                                          Jan-09


                                                                                                                                                                                                            Jan-10


                                                                                                                                                                                                                              Jan-11
                                                                                                  Source: St. Louis Fed
                    Nominal Exchange Rate (Yuan per US Dollar): (1999:1 - 2010:11)
8.5



 8
                   17.4% Yuan revaluation
                   2005:6 - 2008:7 ($ depreciates)
7.5



 7
                 Is the Yuan undervaluation a
                 subsidy for Chinese exports?
6.5
                                                                                                              3.4% Yuan revaluation
                                                                                                              2010:5 - 2010:11 ($ depreciates)
 6
               Jul-99


                                 Jul-00


                                                   Jul-01


                                                                     Jul-02


                                                                                       Jul-03


                                                                                                         Jul-04


                                                                                                                           Jul-05


                                                                                                                                             Jul-06


                                                                                                                                                               Jul-07


                                                                                                                                                                                 Jul-08


                                                                                                                                                                                                   Jul-09


                                                                                                                                                                                                                     Jul-10
      Jan-99




                                                                                                                                    Jan-06
                        Jan-00


                                          Jan-01


                                                            Jan-02


                                                                              Jan-03


                                                                                                Jan-04


                                                                                                                  Jan-05




                                                                                                                                                      Jan-07


                                                                                                                                                                        Jan-08


                                                                                                                                                                                          Jan-09


                                                                                                                                                                                                            Jan-10


                                                                                                                                                                                                                              Jan-11
                                                                                                  Source: St. Louis Fed
                                    Retail sales and food services (1992:1 - 2010:12)
                          400,000
                                                      1992:1 - 2007:11 annualized                                                                                                                                                            *
                                                      monthly average: 5.4%
                          350,000
Millions of Dollars, SA




                          300,000



                          250,000
                                                                                                                                                          2008:12 - 2010:12 annualized
                                                                                                                                                          monthly average: 6.5%
                          200,000

                                                                                                                                       * 2010:12 $380.9 billion

                          150,000
                                             Nov-92




                                                                                                   Nov-97




                                                                                                                                                         Nov-02




                                                                                                                                                                                                               Nov-07
                                                                        May-95




                                                                                                                              May-00




                                                                                                                                                                                    May-05




                                                                                                                                                                                                                                          May-10
                                                                                                                                       Mar-01
                                    Jan-92


                                                      Sep-93



                                                                                 Mar-96
                                                                                          Jan-97


                                                                                                            Sep-98




                                                                                                                                                Jan-02


                                                                                                                                                                  Sep-03



                                                                                                                                                                                             Mar-06
                                                                                                                                                                                                      Jan-07


                                                                                                                                                                                                                        Sep-08
                                                               Jul-94




                                                                                                                     Jul-99




                                                                                                                                                                           Jul-04




                                                                                                                                                                                                                                 Jul-09
                                                                                                            Source: Economagic.com; US Census
Climate Change 2007: Synthesis Report
Warming of the climate system is unequivocal, as is
now evident from observations of increases in
global average air and ocean temperatures,
widespread melting of snow and ice and rising
global average sea level.

Eleven of the last twelve years (1995-2006) rank
among the twelve warmest years in the
instrumental record of global surface temperature
(since 1850).
 http://www.ipcc.ch/publications_and_data/ar4/syr/en/spms1.html
Spring comes 10 days earlier in
changed U.S. climate.
By Deborah Zabarenko, Environment Correspondent
WASHINGTON | Tue Apr 20, 2010 2:05pm EDT



(Reuters) - Spring comes about 10 days
earlier in the United States than it did two
decades ago, a consequence of climate
change that favors invasive species over
indigenous ones, scientists said on Tuesday.
       February 8, 2009
       Polar ice caps melting faster.
       Jonathan Leake, Environmental editor


THE ice caps are melting so fast that the world’s
oceans are rising more than twice as fast as they
were in the 1970s, scientists have found.
The effect is compounded by thermal expansion,
in which water expands as it warms, according to
the study by Anny Cazenave of the National
Centre for Space Studies in France.

								
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