Monday, January 18, 2010

Economics and the Environment (from December, 2008, & with update)

© 2010 Joshua Stark

(I wrote the first half of this piece a little over a year ago, but I think it's important to consider now. I've added more at the bottom)
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WARNING: Contains economics talk.

I titled my blog with a little bit of wiggle room because I enjoy thinking about economics, and also because it's kind of a default thought-process for me, so I knew it would out itself, eventually.

My Bachelor's degree says, "Social Science", which is a misnomer because it ain't science, and most of us with this title have little social lives, but the degree did encompass some economics (or, like the head of the department said, the degree is like the Platte River: A mile wide and an inch deep). Teaching experience sparked additional interest in me around macroeconomics (as my wife will attest), and, to paraphrase a great mind, I now remember just enough economics to screw me up for the rest of my life. The great mind was Steve Martin, and he was talking about philosophy, but never mind.

This brings me to my post.

I won't go into the specifics for how close our economy looms over the edge; that's everywhere nowdays. I want to look ahead, and mention some problems in the near-future, and use a look at the past to inform our decisions.

First, we are in the midst of what would be a market correction, if that market (housing) hadn't been the rock-turned-to-sand upon which so many financial and personal economic choices were built. With stagnating wages, a shift to the service sector, and past gains based upon efficiency increases, people felt very strong social and market pressures in the past ten years to cash in on their largest investment instead of putting pressure on management to pay higher wages. At the same time, institutions changed the nature of that investment in the larger scheme, asking for self-regulation, and then contriving markets out of re-sale and insurance on what had been the safest long-term investment this side of a T-bill, therefore turning it into a ponzi scheme. It's funny that the term 'hedge fund' is a horrible abomination now, when the original meaning was as a way to minimize loss in other markets. As housing prices shot up and up, quickly out of the range of the typical buyer, we built our market foundation on "easy" credit, started juggling mortgages like hot potatoes, and the music started. When both the buyer and the seller want a higher price, markets get unstable. When the music stopped, millions of homeowners were left without a chair, as were almost all of our largest money-movers.

So, how does this apply to the environment?

The emphasis now is going to be getting people to work as soon as possible. This is a good idea, but brings with it two dangers which can damage habitat and long-term environmental and conservation goals: Downward pressure on wages (which deflation can actually do, too), and shoving aside current environmental protections.

Okay, the second one is easy: If we cut current environmental protections, providing exemptions to NEPA (National Environmental Policy Act), for example, then we set ourselves up for big-ticket, long-term infrastructure projects that are inappropriate for our country today and contrary to what the majority of people want for our children and ourselves. We have done these projects better for decades now, and these regulations did not sink our economy.

But, you may ask, how does downward pressure on wages affect the environment? First, understand that we have spent the last ten years basing our combined wealth on debt created by selling our houses back to ourselves (second mortgages). Our economic power should not come from our houses, but from compensation for productive work, ie., wages and earnings. However, because we were making loans on our houses instead of pushing for higher wages, our wages stagnated. Now, consider stagnant wages in light of double digit inflation in health care, postsecondary education, and you guessed it, housing.

Now that people know their true compensation, they are cutting back in spending. This affects the environment three ways: 1) Lower wages mean fewer trips to the outdoors, which translates into fewer dollars for the outdoors, less care for the outdoors, and fewer people with a strong connection to the outdoors (any talk about less impact to the resource from fewer visitors is hogwash, as I wrote here);
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(alright, that is where I'd finished in December of 2008. Here is my contemporary addition)
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2) lower wages mean fewer tax revenues, which especially affects state and regional governments, because they can't (technically) deficit spend, and because they didn't surplus spend (that is, save) during the good years; 3) lower wages mean fewer donations to environmental causes, and since we've largely turned our (collective) back on the outdoors, opting for indoor entertainment over outdoor adventure, those folks are usually the only ones out there trying to get and maintain protections.

Well, now that it is 2010, and in light of the Governor's current proposal to exempt a ton of private projects from CEQA, I thought I should post this entry, and also revisit the notion. I'll admit (looking at the business real estate bubble and the amount and manner that derivatives markets drove direct investment in housing throughout the country) that the housing crisis was caused in larger degree by gigantic investment engines much more that what you see on HGTV.

Today, jobs is the major concern for most voting folks (MVF's). Not (ashamedly) the war to which we commit tens of thousands of young men and women to kill and die for us. Not education. Not the environment. MVF's are now just thinking about work. Meanwhile, our "fix" for the system allowed some gigantically wealthy financial institutions to claim record profits and "pay back" their loans to the government, in the illusion that they are now sound and healthy, and also to "prove" that they really didn't need the money, anyway (only for as long as they needed it, I suppose).

In the meantime, some people understand that a sound environment and economy are not only not mutually exclusive, but are linked. For example, the Sacramento Bee reports this morning on the success of Continuing Education classes on green business at the California State University.

In addition, by piecemeal eliminating the status quo business climate in California, you create uncertainties in markets, which leads to bad long-term economic conditions.

Economies thrive in transparent, open, clean and consistent climates, whether they be financial, regulatory, or environmental. This is especially true in California, whose greatest asset has always been its location. If we ruin the location, we will ruin our future.

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