Welcome Eric JanszeniTulip, and Scott Reynolds Nelson, William and Mary.

[As a courtesy to our guests, please keep comments to the book.  Please take other conversations to a previous thread.  - bev]

The Postcatastrophe Economy: Rebuilding America and Avoiding the Next Bubble

Scott Nelson, Host:

Many current books on this crash describe in detail the manufactured financial instruments that contributed to the collapse of the high-interest bond market, the real estate market, and the stock market. Eric Janszen asks us to look deeper because our situation is still dire. Worthless assets bought by the U.S. for over a trillion dollars are worth a tiny fraction of that. European states continue to throw good dollars after bad rescuing banks, but we are still on a precipice. What to do?

In The Postcatastrophe Economy, Janszen finds the sources of our difficulties over thirty years ago. He describes the troubling emergence of what some economists have called a FIRE economy in the United States, one that rewarded the Financial, Insurance, and Real Estate sectors at the expense of manufacturing and infrastructure investment. This unbalanced system grew out of the 1970s period of double-digit inflation. While high interest rates pulled capital in from around the world, they unbalanced the relationship between firms and the larger economy. Earning on high-interest loans became a kind of mania for manufacturers and retailers. GM’s profits came not from cars, but from GMAC financing for the crushing debt issued to car buyers. Only productive industries with tiny costs per unit – like software – could easily survive. The rest of our industries rusted and declined, outsourced around the world. As the FIRE industries boomed they gained complete control of the federal institutions that were supposed to regulate them, in what economists call regulatory capture. It created a third-world style system of corruption that has given us Congressional gridlock, and blocked any meaningful attempts to restructure the debt or address the fundamental problems that created toxic debt in the first place.

Yet Janszen is no pessimist. Even as the FIRE economy grew a continuing strain of entrepreneurial innovation has provided value for American consumers and investors. How can we protect that innovation and rescue the nation from the ashes of the FIRE economy? Janszen’s solution is to focus on the nation’s core competencies, on its entrepreneurial innovators. He suggests reorienting American investment towards Transportation, Energy Efficiency, Communication, and Infrastructure (TECI). This would not be a large-scale socialization but real investment based on public-private partnerships. The key investments should focus on sources of energy inefficiency, particularly in power distribution. Safer next-generation nuclear reactors built close to population centers, hybrid and electrical vehicles, bulbs that expel light but not heat, all built with infrastructure convertible bonds ought to be at the center of this operation. As Janszen points out, this is not a brave new world of imagination but one that harks back to the successful endings to depressions in America’s past like the Erie Canal that ended the panic of 1819 and the transcontinental railway that helped lead us out of 1857.

82 Responses to “FDL Book Salon Welcomes Eric Janszen, The Postcatastrophe Economy: Rebuilding America and Avoiding the Next Bubble”

BevW January 9th, 2011 at 1:56 pm

Eric, Welcome to the Lake.

Scott, Thank you for Hosting today’s Book Salon.

Scott Reynolds Nelson January 9th, 2011 at 1:57 pm

Thanks Bev, it’s great to be here. I’m looking forward to the discussion.

rickg January 9th, 2011 at 1:59 pm

Eric, welcome. The book isn’t an altogether pleasant read, but in the vein of the new economy, I would be interested in knowing how you think some of the financing may evolve, and your view on when.

I have tried to read up a bit more on the pebble bed nuclear technology, but most of what I am finding a stories about abandoned projects. Are you still as optimistic, and how far out into the future do you believe is this technology?

egregious January 9th, 2011 at 2:01 pm

Welcome to Firedoglake – so glad you could join us!

dakine01 January 9th, 2011 at 2:01 pm

Good afternoon Eric and Scott and welcome to FDL this afternoon.

Eric I have not had an opportunity to read your book but do have a question 9based on Scott’s intro) – how do you see the economy recovering when so much fo the software and technology infrastructure has been off shored?

My career field is Software Quality Assurance and Testing yet I can almost guarantee that any software work associated with your ideas would be done elsewhere because “Americans are not technologically competent” even though there are hundreds of thousands of people with varying software backgrounds looking for meaningful work.

Eric Janszen January 9th, 2011 at 2:04 pm

Thanks for having me!

eCAHNomics January 9th, 2011 at 2:06 pm

How do you get this pie-in-the sky program effected when FIRE has all the dough & complete control of the pols (well, except for that part controlled by energy, MIC, PhRMA, med insurance). I.E. all the malfunctioning parts of the economy now own the political system.

Eric Janszen January 9th, 2011 at 2:07 pm

The “invented in USA” and “made elsewhere” model has to change. We can’t all be engineers, or work in jobs supported by innovation. The opportunity is to harness the uniquely American full life cycle of invention to financing to liquidity through capital markets to solve our energy inefficiency problem.

Scott Reynolds Nelson January 9th, 2011 at 2:08 pm

Hi Eric, I think I understand that you don’t see putting up borders as the answer to our problems. Can you be a bit more specific about what TECI is?

Eric Janszen January 9th, 2011 at 2:09 pm

Adding to my reply to dakine01, American’s are actually more technically competent than in other countries. One of the major issues is labor cost, and one of the main reasons our labor costs are so high is that housing is so expensive here. Housing is 13% of Personal Consumption Expenditure (PCE) in China and 38% of PCE in the USA.

Scott Reynolds Nelson January 9th, 2011 at 2:10 pm
In response to Eric Janszen @ 10

So inflation in the housing market may be part of the reason for our competitive problems?

Eric Janszen January 9th, 2011 at 2:11 pm

eCAHNomics, my prognosis is long-term hopeful and short-term pessimistic for the reasons you site. FIRE Economy interests still hold the reigns, but the unfolding energy price inflation crisis will change that. Nothing like a good crisis that can’t be fixed with more debt to act as a forcing function for change.

dakine01 January 9th, 2011 at 2:11 pm
In response to Eric Janszen @ 10

As a technical note, there is a “Reply” button in the lower right hand of each comment. Pressing the “Reply” will pre-fill the commenter name and comment number you are replying to and makes it easier for others to follow the conversation.

Note: some browsers do not like to let the “Reply” work properly if you try to press it before a page completes loading after it has been refreshed.

Scott Reynolds Nelson January 9th, 2011 at 2:13 pm
In response to Eric Janszen @ 12

Eric, for folks who haven’t read the book can you describe what you mean by the energy price inflation crisis and what you call ‘peak cheap oil’ for our readers?

Eric Janszen January 9th, 2011 at 2:15 pm

Scott Reynolds Nelson, TECI is a national economic policy platform. The FIRE became became the de facto US economic policy when FIRE Economy interests jumped into in the power vacuum created by fundamentalist free market ideology of the early 1980s. TECI leverages unique US competitive advantages, while we still have it, to solve a global energy problem: not enough cheap oil for everyone who wants it. TECI is primarily about energy conservation because there are no viable alternatives to oil for transportation fuels.

Eric Janszen January 9th, 2011 at 2:17 pm

30 years of government subsidies to the residential real estate market created a massively over-priced housing market.

Scott Reynolds Nelson January 9th, 2011 at 2:20 pm

Eric, In your book you write that economists focus on output and income distribution but know little about finance. What would you suggest that a budding economist who wants to shake his fundamentalism needs to learn about finance generally?

Eric Janszen January 9th, 2011 at 2:20 pm

Peak Oil refers to the peak in oil supplies occurring globally the way US oil supplies peaked in 1975. My theory is that long before the actual peak occurs, the markets price the event in, creating a price spike followed by recession. I believe the first occurrence was in 2008, a collision between peak risk in the private credit markets and the first threshold of global supplies. The price spike and inflation shock triggered the crash. I expect a recurrence this year.

Eric Janszen January 9th, 2011 at 2:24 pm

Finance is usually taught in the business school while economics is taught in economics departments, and never the twain shall meet. The problem is the modern open economies are are least 50% finance, especially cash flows among countries. The closed system models are not very useful. I’d recommend taking a few basic finance courses to help understand how national accounts work, and also the relationship between capital flows and economic growth.

rickg January 9th, 2011 at 2:25 pm

Eric – If I read correctly in the book, nuclear has to be a big part of the “E” in TECI. The pebble bed technology looks interesting, but most of what I have read since your book indicates a trail of failed projects. How far down the road do you believe it will be before we see some projects of size?

Kathryn in MA January 9th, 2011 at 2:26 pm

I’m lobbying my state and federal congresspeeps to legalize cannabis – for the JOBS. Several industries would spring up and put so many people back to work, including me.

Scott Reynolds Nelson January 9th, 2011 at 2:27 pm
In response to Eric Janszen @ 18

Sorry, I got lost there a bit. So it was clear that prices would rise drastically, then buyers and speculators both increased purchases of oil futures? I’m not sure I see how that aligned with peak risk in the credit markets: the bump in oil prices and the fear of default in credit markets made both markets seize up? Pardon a 19th century historian’s ignorance of market terms here.

Scott Reynolds Nelson January 9th, 2011 at 2:28 pm
In response to Eric Janszen @ 19

thanks. that’s helpful.

Eric Janszen January 9th, 2011 at 2:28 pm
In response to rickg @ 20

Pebble bed nukes offers a long-term solution to the safety and reliability issues of nuclear power. Short term — over the next 20 years — small, modular nuclear power plants will be the model for distributed, non-fossil fuel based electricity generation.

Eric Janszen January 9th, 2011 at 2:31 pm
In response to Kathryn in MA @ 21

I’m based in Massachusetts where pot has for all practical purposes been legalized. The next step is to fully legalize and then begin taxing it. State and local governments can sure use the revenue. Shouldn’t be a hard sell to Congress from a tax revenue perspective in a down economy, and socially the nation is ready.

Scott Reynolds Nelson January 9th, 2011 at 2:33 pm
In response to Eric Janszen @ 19

Eric, we heard a lot of predictions about deflation in late 2008 and then we heard a lot of Austrian-school economists predicting hyperinflation. We seem to have escaped both. Can you talk a bit about why you think that happened?

rickg January 9th, 2011 at 2:35 pm

I was pretty surprised at the quoted energy loss in long distance transmission (something like 70 percent), So I definitely see a make local, use local rationale.

Do you believe that Google and others doing deals for wind etc, are indicative of some corporate activity in TECI investment, or more a factor of hedging energy costs?

BevW January 9th, 2011 at 2:36 pm
In response to Eric Janszen @ 24

Eric, could you give some background as to what pebble bed nukes are and why they interest you.

Eric Janszen January 9th, 2011 at 2:36 pm

The process of the collision was quite complicated. I have a large flow-chart diagram I can send you (not in the book) that models it. The price spike to $147 in June 2008 acted like a giant tax hike on the economy that was in recession since late 2007 anyway because of the housing bust. The dual pricing power hits, reduced credit and high energy prices, hammered the economy into the ground.

SanderO January 9th, 2011 at 2:38 pm

Propose a new paradigm for finance.

perris January 9th, 2011 at 2:39 pm

I think the very first thing we have to do to rebuild this economy is to recognize the contraction caused by the reagan redistribution of wealth, from the middle class to the wealthy, this redistribution of wealth was marketed as some kind of “tax reduction” when in fact it resulted in the largest peace time tax increase in history, and that tax increase was shouldered by the middle class while reducing tax pressure from the wealthy

if we fail to recognize that, fail to educate people of that, then rebuilding is doomed

we cannot recover from the reagan catstrophy until we recognize the flaws of it

then we have to recognize that obama is also a “trickle down economist, that he actually promotes a top down economy when everyone with a brain knows wealth comes from the bottom and migrates up, he makes believe the rain creates the ocean rather then the other way around

Eric Janszen January 9th, 2011 at 2:41 pm

I have since 2006 written many articles on iTulip.com and elsewhere explaining that a deflation spiral is simply impossible under our monetary system. There was only ever one in history anyway, in the US in the 1930s. Since all economies went off the gold standard, zero incidents of prolonged deflation. Japan has drifted in and out of a stag-deflation — never exceeding -2%. But that’s afar cry from the deflation that hit the US for three years, -25% in total, exceeding 15% annual rate in some months. There have been dozens of cases of hyperinflation, but only for smaller economies that had become economically ruined and isolated. The leading cause is war. The US is very, very unlikely to experience a hyperinflation because it is not small or economically isolated. It can, and in my opinion will, however experience a period of high inflation.

Eric Janszen January 9th, 2011 at 2:44 pm
In response to rickg @ 27

The US needs a national energy policy. A re-build of our energy infrastructure cannot occur ad hoc. Not even 100 googles can pull it off. France did it the right way decades ago. More than 80% of France’s electricity is nuclear. Ironically, the plant they use is a Westinghouse light water reactor.

papau January 9th, 2011 at 2:44 pm
In response to Eric Janszen @ 10

I am not an economist – just an actuary – but I thought I understood our GDP calculation – but your “Housing is 38% of PCE” makes me question my understanding.

First, the category of “personal consumption expenditures” includes pretty much all of the $2.5 trillion healthcare spending, including the roughly half which comes via government. Indeed that is what makes the common wisdom that “consumer spending is 70% of GDP” so wrong, when what we really mean is that “consumer spending plus government health care spending is 70% of GDP.”

Granted we have perhaps a GDP of $14.1 Trillion and a PCE of 70% of that – or around $10 trillion – so sans healthcare we have 7.5 trillion – and you say that of this 7.5 trillion we spend on rent and on imputed home ownership rent about 3.8 trillion?

It just does not sound correct.

SanderO January 9th, 2011 at 2:45 pm

The aggregation of capital is hardly spent in ways which create jobs. OK some… building villas and mega yachts… but most of accumulated wealth is planted into securities and income earning trading. Oh yeah that creates some jobs on Wall Street.

But really as more wealth is extracted from the bricks and mortar, main street, blue collar and middle class America economy to the world of wealth creation through securities and financial instrument trades… the real economy is starved of oxygen. It’s myth that the wealthy invest their acquired wealth in the “other economy” (trickle down rubbish).

So, unless and until you pry all that un needed wealth from people who don’t even need it.. nothing is going to change and in fact it’s going to get worse and worse.

Eric Janszen January 9th, 2011 at 2:45 pm
In response to BevW @ 28

The best solutions are always the most simple. A pebble bed nuke has virtually no moving parts, and no failure modes. Safe spent fuel transport and recycling remains a problem, but if the French have been able to do it for 30 years I’m sure we can figure it out, too.

papau January 9th, 2011 at 2:47 pm
In response to Eric Janszen @ 24

I agree – there appears from my reading to be little benefit to large size nuke plants hundreds of miles away from where the power will be used.

Eric Janszen January 9th, 2011 at 2:48 pm
In response to Eric Janszen @ 29

Finance needs to SERVE the economy not BE the economy. It needs to return to the role it plays in most Asian and European economies, to facilitate production and consumption. How to do it? Stop subsidizing it.

Eric Janszen January 9th, 2011 at 2:51 pm
In response to papau @ 34

That’s what the BLS data say. 38 cents out of every dollar spent by households is spent on mortgage payments or rent. It’s one of the highest percentages in the world. Germany’s is higher, as I recall.

Scott Reynolds Nelson January 9th, 2011 at 2:51 pm
In response to Eric Janszen @ 38

Can you describe some of the ways in which financial industries have been directly subsidized by the fed?

Eric Janszen January 9th, 2011 at 2:56 pm

The Greenspan Fed played a hand by holding rates far below the inflation rate until well after it was obvious that a housing bubble as in train. But the housing bubble itself merely capped, from 2002 to 2006, a process that started in the early 1980s. The US is as far as I know the only country that has GSEs, now fully nationalized, that provide a guaranteed secondary mortgage market. That kind of loan guarantee is usually limited to industries of key national economic importance. Then there is the mortgage interest deduction. Doesn’t exist in other countries. It is in fact unconstitutional in France, a transfer of tax burden from renters to home debtors. Then there is the $500K capital gain tax deferment.

Eric Janszen January 9th, 2011 at 3:01 pm
In response to perris @ 31

I agree that the skewing of income gains that started in 1980, with the birth of the FIRE Economy, have wrecked havoc on the social contract among wealth groups in the US. Here’s a chart that I recently created from the new Census data that shows distribution of incomes gains from 1967 to 1980 and from 1980 to 2009. As you can see, when the US was a productive economy, incomes gains were evenly distributed, but not since it became financialized.

http://www.itulip.com/images2/incomeinequality1967-2009wtmk.png

Scott Reynolds Nelson January 9th, 2011 at 3:02 pm
In response to Eric Janszen @ 41

That’s interesting because federal guarantees to a mortgage market really go back a long ways in US history, in fact to Jefferson’s first administration in 1800. The Land office provided a 5-year-mortgage to any ‘buyer’ of federal lands. The land itself was the collateral. By 1819 the US had to repossess hundreds of thousands of acres, contributing to the panic of 1819. The Treasury abolished the loans after the panic. Never again, they said.

Scott Reynolds Nelson January 9th, 2011 at 3:05 pm

Can you tell us a little about the failures of the Friedman gospel that “inflation is always and everywhere a monetary phenomenon.”

Eric Janszen January 9th, 2011 at 3:05 pm

Yes, the US has a long history of subsiding real estate, and it’s not a partisan policy issue. From FDR to Ronald Reagan, the short-term benefits of asset price inflation are tough for politicians to resist: jobs, wealth effects, and capital gains tax windfall. The crash happens on the next administration’s watch. After 30 years of this ratcheting of public debt up to bail out the latest private credit market fiasco, we’re about out of credit.

Scarecrow January 9th, 2011 at 3:06 pm

Does the shift you suggest to distributed nukes assume a CO2 tax? Or does it assume that these nukes suddenly become the obvious economic choice without that?

PeasantParty January 9th, 2011 at 3:09 pm

Eric, do you think that nuclear energy production is the only thing on the horizon to move us out of this horrid unemployment situation? I know what they say on the news, but I also know the real numbers are way higher.

Eric Janszen January 9th, 2011 at 3:11 pm

It is a monetary phenomenon except when it isn’t. That’s the closed economy model of inflation. The 20% inflation that occurred in the US in 1947 two years after the end of the War resulted when the banks that had bought half the bonds that the War Bonds that government sold disgorged credit to a populace that was suddenly not interested in holding cash but buying things. The 40% inflation in Argentina in 2002 did not result from a single unit of currency being printed by the central bank. It was a currency crisis, and the US could have such a crisis and inflation in the future.

Scarecrow January 9th, 2011 at 3:15 pm

Eric, can you explain a little more about the transition you envision from where we are today to the more-smaller-nukes future? As I understand it, there are none of these under construction today; the NRC licensing process is focused on a standardized design different from (similar to?) the one you suggest; and the entire industry is stuck awaiting federal loan guarantees. So what happens to all of that?

And the current nuclear operating companies are some of the largest utilities/generation owners in the US, they’re highly centralized, there are a small number of them. Do you assume a small group of developers/owners will lead this transformation? Or is there an industry restructuring you see accompanying this?

And finally, as I understand the French system, it’s highly centralized, massively large central-station beasts owned by a single national monopoly. That may or may not be economically justified, but it’s clear the safety issues require a highly centralized framework to manage the safety/security issues, particularly concerns about securing the spent fuel, reprocessed or not. I don’t see how a decentralized, distributed nuke system can function with those safety requirements, which need a strong central oversight and security system. France has that. We don’t, yet.

eCAHNomics January 9th, 2011 at 3:17 pm
In response to Eric Janszen @ 19

Morris Adelman of MIT said in the 1970s that the world is awash in a sea of oil; stick a straw in anywhere & eureka.

Greg Palast points out that “Peak Oil” was a concept invented by U.S. oil corps in the 1950s as a scare ploy to get the price up, since oil corps make more profits thru higher prices than thru pumping more volume. Simmons’ work on oil supply was strictly related to Saudi’s (at least in his book; don’t know his work after that).

Peeps have been forecasting peak oil for almost longer than my 3 score & 6. I’ll believe it when I see it. And a couple of prices spikes, smaller in real terms than the 1970s’ ones, are not a lot of evidence, esp considering the role of speculators.

PeasantParty January 9th, 2011 at 3:17 pm
In response to Scarecrow @ 49

Great Question! I was just about the ask about a Participatory or Co-Op style economy.

Eric Janszen January 9th, 2011 at 3:17 pm
In response to PeasantParty @ 47

We’re in a stagflationary environment right now. The Fed is in a tough spot. As this chart shows, both inflation an unemployment are high.

http://www.itulip.com/images2/stagflation2011wtmk.png

PPI for finished goods averaged 4.1% in 2010, 7.5% for intermediate goods and 21.3% for crude inputs. All are unusually high for this point in a recovery when unemployment is this elevated.

Eric Janszen January 9th, 2011 at 3:19 pm
In response to Scarecrow @ 46

The French went all-nukes after the 1970s oil crisis left them shivering in the cold and they vowed “never again.” We’ll have a crisis, and nukes will be the solution.

eCAHNomics January 9th, 2011 at 3:20 pm
In response to Scarecrow @ 49

1. French can’t figure out what to do with their nuke waste.

2. Excelon, a large U.S. nuke power plant corp, is one of O’s largest campaign contributors.

SouthernDragon January 9th, 2011 at 3:21 pm
In response to Eric Janszen @ 36

If I recall the French were dumping some of their waste into the waters off the coast of Africa. That’s not a viable solution imo.

Eric Janszen January 9th, 2011 at 3:22 pm
In response to Scarecrow @ 49

It’s hard to see from where we are today, but I’m fairly sure we’ll wind up with a centralized, semi-nationalized (Public-Private) nuclear energy infrastructure. Government will own the safety risk and private companies will be in charge of the building and maintenance. But first we have to get backed into a corner. It’s the only way.

Scarecrow January 9th, 2011 at 3:24 pm
In response to Eric Janszen @ 53

Well, the French responded to the 1970s oil embargoes, etc. Most of the US power industry is thinking natural gas, not nukes (except the big nuke companies), and there doesn’t seem to be a natural gas crisis on the horizon. Are you assuming some several limits being imposed on the new sources that dramatically drive up gas prices . . . and if not, is there a CO2 limits/tax embedded somewhere in this transition. I still don’t see how it happens. I think unexpected stuff will happen, but what? What is the “crisis” you anticipate?

Kathryn in MA January 9th, 2011 at 3:24 pm

Maybe we could grow way the need for nuclear power. U Conn students made diesel fuel, which flows at lower temperatures than petroleum based diesel, from cannabis seeds,

SouthernDragon January 9th, 2011 at 3:26 pm

Unless and until we come up with a safe, viable long-term solution to nuclear waste, no new nukes. Simple as that.

Eric Janszen January 9th, 2011 at 3:26 pm
In response to eCAHNomics @ 54

We have a lot better options for nuclear waste disposal than the French do, because of the size of our land mass.

Campaign finance and economic and energy policy have to be separated. In fact, campaign finance reform is essential before any of these problems can be effectively tackled.

mzchief January 9th, 2011 at 3:27 pm

{ Welcome presenter Eric Janszen, host Scott R. Nelson and participants. }

What are you seeing as regarding nuclear waste disposal?

papau January 9th, 2011 at 3:27 pm

What is your opinion on the movie “inside job” that documents the cause of the meltdown http://www.imdb.com/title/tt1645089/ ?

Scarecrow January 9th, 2011 at 3:28 pm

Eric — what other major economic drivers do you see, beyond the nuke transition. Reason I ask is that replacement of the existing power generation fleet is sorta baked into the cake — we’ll have to replace old, inefficient plants no matter what, and utilities are planning to do that, as they always have — it’s just slowed down because of the recession and lower demand. I suspect, given this, that the amount of the economy and employment devoted to building and operating power plants, centralized or distributed, is not sufficient to be a major drive of the economy? Do you agree?

And if so, what else helps us climb out of this hole and allows us to grow without feeding the looters on Wall Street? What displaces finance?

PeasantParty January 9th, 2011 at 3:30 pm
In response to Eric Janszen @ 60

I for one really want campaign finance to be reformed. However, with the Supreme Courts recent ruling they opened the Dam and money from all over the world is flowing like wild rivers.

Eric Janszen January 9th, 2011 at 3:32 pm
In response to Scarecrow @ 57

The crisis is a rapidly growing gap between oil supply and demand by 2012: “By 2012, surplus oil production capacity could entirely disappear, and as early as 2015, the shortfall in output could reach nearly 10 MBD.” – US Joint Forces Command, Joint Operating Environment, March 2010

Gas is a great buy right now. I agree with Adam Berman’s analysis. The new prodcution technologies have found more gas but they are mostly getting the gas out more quickly. We are depleting gas reserves at an incredible rate and booking the flows as evidence of high reserves so that investment banks can make a bundle off of deals and IPOs. Reserves = $$$ of valuation.

masaccio January 9th, 2011 at 3:34 pm

I don’t see how we can have transition as long as the FIRE economy controls the legislative process, aided by people who don’t believe government has a role to play.

bigbrother January 9th, 2011 at 3:35 pm

Corporations are concerned with profits not employment, market efficiency or the economy. In one of the worst economies in decades corporations have recorded record profits. The global and US economy is at lows.
Where is the motivation for doing the right things?

Eric Janszen January 9th, 2011 at 3:37 pm
In response to mzchief @ 61

I’m an environmentalist. I drive a diesel car that gets 36MPG. My BS is in natural resource economics. My concern is that was oil supplies shocks start to create food shortages, we’ll rip the plant to shreds trying to get at the shale oil. I’ll take the bargain of burying nuclear waster over destroying millions of acres of primordial forest.

masaccio January 9th, 2011 at 3:38 pm

You discuss the solvency of banks, and say that we should put the losses on their creditors. I agree with this analysis, and the horror show you predict around pages 78-9. Actually I might go farther because you don’t take into account the anger most average people feel towards the FIRE sector. Even so I don’t see that we have a way to do solve this problem as you suggest when both parties are beholden to financial interests.

Scott Reynolds Nelson January 9th, 2011 at 3:39 pm

Eric, some of these question seem to circle around your model for how public-private partnerships might pull us out of this trouble. We have a model for private ownership of infrastructure (railroads, networks, utilities) that is rather different than many parts of the world. I tend to see this private system (witness the big railroads or our flagging competitiveness in network bandwidth) as inefficient. You disagree. Can you tell us how you think PPPs might work?

Eric Janszen January 9th, 2011 at 3:41 pm
In response to Scarecrow @ 63

Great question. I spend a fair amount of time looking at start-up company investments and a wide range of early stage technologies, some of which I talk about in my book. Next generation LEDs that are 95% efficient versus 10%, for example. I see large scale projects for transportation and communications that employ millions directly but also indirectly in the competitive development of the technologies that are needed.

PeasantParty January 9th, 2011 at 3:42 pm

Scott, great question. Is this the model where us taxpayers fund the corporation and the corporation reaps the profits? I would rather see a participatory or co-op model.

Scott Reynolds Nelson January 9th, 2011 at 3:46 pm
In response to PeasantParty @ 72

PeasantParty. I agree. I think Keynes called our system ‘lemon socialism’ where taxpayers get to pay for the parts of the economy that are necessary but unprofitable and private owners get to reap the profits of our collective investment in infrastructure.

Eric Janszen January 9th, 2011 at 3:49 pm
In response to masaccio @ 69

About $5 trillion in negative home equity is dragging the economy down. It debt taken out against fictitious value. Bubble value. It has to be written off. But so far is hasn’t been. Again, as with energy policy, given the political antecedents, a public credit and currency crisis is virtually inevitable.

papau January 9th, 2011 at 3:51 pm
In response to Eric Janszen @ 39

http://www.bls.gov/opub/mlr/2006/09/art3full.pdf – Table D-1 shows 1.6 trillion out of 7.3 trillion total for PCE in 2002.

However we may be talking past each other as I am talking about as a percentage of the PCE that is in the GDP, and you refer to “Households” which may imply the household survey or some variation thereof.

In any case a comparison to other countries based on the GDP value would be interesting if you can point me to it (not a big deal as I agree with you that housing in the US – indeed the income available after rent and food and energy – has become a problem).

Eric Janszen January 9th, 2011 at 3:53 pm

To my way of thinking, the risk of Public-Private Partnerships for infrastructure development is that it will morph into privatization of public assets, Thatcher and Argentina style. The only way to guard against it is in the structure of the financing and contracts.

BevW January 9th, 2011 at 3:57 pm

As we come to the end of this Book Salon,

Eric, Thank you for stopping by the Lake and spending the afternoon with us discussing your new book and the future economy.

Scott, Thank you very much for Hosting this Book Salon.

Everyone, if you would like more information:
Eric’s website, book

Scott’s website

Thanks all,
Have a great week!

Eric Janszen January 9th, 2011 at 3:59 pm
In response to papau @ 75

The most important thing to keep in mind that is under the structure of the FIRE Economy, traded goods and services declined as a portion of PCE while non-traded goods — housing, insurance, medical care — grew rapidly. Import price deflation balanced credit inflation and rising economic rents.

http://www.itulip.com/images/personalconsumption10-2007.gif

Scott Reynolds Nelson January 9th, 2011 at 3:59 pm

Thank y’all

Eric Janszen January 9th, 2011 at 4:00 pm

Thanks for the great questions.

mzchief January 9th, 2011 at 4:03 pm

Thanks everybody. Good thread.

papau January 9th, 2011 at 4:10 pm
In response to Eric Janszen @ 74

http://www.gao.gov/htext/d10146r.html

Nationwide, we estimate that the total amount of negative equity (i.e.,
the difference between mortgage balances and estimated property values)
was about $54.8 billion. Among borrowers in a negative equity position,
the median borrower had negative equity of approximately $36,274.

The above is not quite your $5 Trillion in negative equity – but I have seen your number as the “total loan on homes with negative equity” – but is your number based on a forecast drop in value due to the foreclosures coming on the market?

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