Tuesday, August 30, 2011

489. Where Does Your Locally Produced Food Come From?

By John Tierney, The New York Times, August 30, 2011

Charles C. Mann has faced up to the locavore’s dilemma. At his home in the Berkshires, he likes to eat food that has traveled directly from his own garden: heirloom tomatoes, eggplant, bell peppers, kale, chard, lettuce and other foods for his table. He and his family belong to a farm-share program in which they advance money each year to a farmer a few miles away in return for the farm’s crops. He loves local food, but he knows too much about it to be a truly devout locavore.

Mr. Mann realizes that none of the foods in his garden or at the local farm originated within 1,000 miles of his home. They grow today in the Berkshires only because of farmers and plant breeders and traders throughout the world. While today’s locavores worry about the sustainability of the globalized modern system of agriculture, Mr. Mann sees today’s food system as nothing new.
The foods we consider local are results of a globalization process that has been in full swing for more than five centuries, ever since Columbus landed in the New World. Suddenly all the continents were linked, mixing plants and animals that had evolved separately since the breakup of the ancient supercontinent Pangaea.
What resulted, Mr. Mann argues in his fascinating new book, “1493: Uncovering the New World Columbus Created,” was a new epoch in human life, the Homogenocene. This age of homogeneity was brought on by the creation of a world-spanning economic system as crops, worms, parasites and people traveled among Europe, the Americas, Africa and Asia — the Columbian Exchange, as it was dubbed by the geographer Alfred W. Crosby.
“The Columbian Exchange,” Mr. Mann writes, “is the reason there are tomatoes in Italy, oranges in the United States, chocolates in Switzerland and chili peppers in Thailand. To ecologists, the Columbian Exchange is arguably the most important event since the death of the dinosaurs.”
The consequences were devastating for many ecosystems and people conquered by Europeans. Before the exchange, Beijing was the world’s largest city, and nearly all the other large ones were in warm regions outside Europe. Columbus was seeking a new route to Asia because of the technologically advanced economies that were thriving there.
After the Columbian Exchange, the cities of Europe became the planet’s boom towns, and it wasn’t just because of the Europeans’ culture and guns. Europeans prevailed by changing ecosystems, often in inadvertent ways that have only recently been measured by scientists.
The earthworms that traveled with the English settlers to Jamestown played havoc with the forests and the crops of the Indians. The island of Hispaniola was overrun by fire ants after the Spanish arrived. Throughout the Americas, the settlers introduced organisms that spread horrific epidemics of malaria, yellow fever, smallpox and other diseases.
Meanwhile, people in Europe were reaping nutritional benefits from the Columbian Exchange. Europeans’ diets improved radically from the introduction of potatoes and what Mr. Mann calls the first green revolution: the widespread use of fertilizer, made possible by the importing of guano from Peru.
As always, there were trade-offs. In China, the introduction of maize and sweet potatoes to the highlands provided vital sustenance — and erosion that flooded rice paddies. A ship carrying guano fertilizer to Europe was probably also the source of the organism that blighted the potato crops in Europe and led to the great famine in Ireland in the 1840s.
Mr. Mann has come to sympathize with both sides in the debate over globalization. The opponents of globalization correctly realize that trade produces unpredictable and destructive consequences for the environment and for society, he says, but globalization also leads to more and better food, better health, longer life and other benefits that affluent Western locavores take for granted.
“There are these huge catastrophes that constantly threaten the gains, but I think they only threaten the gains,” he said in an interview. “The lesson of history is that the costs are high — and higher than the advocates of free trade often admit — but the gains are higher still.”
That lesson, though, has always run counter to the intuition of people all over the world. Like today’s locavores, monarchs in Spain and China during the 16th century were deeply suspicious of becoming dependent on foreign food (although the rulers kept failing in their attempts to restrain trade). The monarchs also resented parting with their own crops, a feeling that persists today.
“People in Brazil still talk bitterly about the Brits stealing their rubber seeds and planting them in Asia,” Mr. Mann said. “Brazilians will denounce this horrible ‘bio-piracy’ while they’re standing in front of fields of bananas and coffee — plants that originated in Africa.” Two other leading crops in Brazil, soybeans and sugar, he noted, are from Asia.

Of course, the 19th-century rubber barons of Brazil had good personal reasons to resent losing their monopoly. But those seeds transplanted to Asian plantations increased the world’s supply of a product essential for the belts and gaskets in machines.
“There’s no way the Industrial Revolution could have so occurred so quickly and so widely if the world had depended solely on Brazilians tapping rubber trees,” Mr. Mann said. Indeed, the Asian plantations proved crucial when Brazilian trees were struck by blight.
“On the whole, there are lots more winners than losers from the Columbian Exchange,” Mr. Mann said. “I don’t want to tell Italians they can’t have tomatoes, or people in Sichuan they can’t have peppers. People have a way of taking things and making them their own. I know nothing in my garden is native, but I still have this idiotic feeling that it’s my home.”
How does he reconcile this feeling with this book? What’s a locavore to do? Mr. Mann doesn’t presume to dictate anyone’s food preferences, but he does offer one piece of advice for locavores: go easy on the preaching.
“I’m willing to pay more to get fresh vegetables grown by nice people farming nearby,” he said. “It’s incredible to eat lettuce an hour after it was picked.
“But if your concern is to produce the maximum amount of food possible for the lowest cost, which is a serious concern around the world for people who aren’t middle-class foodies like me, this seems like a crazy luxury. It doesn’t make sense for my aesthetic preference to be elevated to a moral imperative.”

Monday, August 29, 2011

488. Wind Farms Under Fire for Bird Kills

Birds are attracted to turbines and some get killed by them

By Darrel Fears, The Washington Post, August 28, 2011

Six birds found dead recently in Southern California’s Tehachapi Mountains were majestic golden eagles. But some bird watchers say that in an area where dozens of wind turbines slice the air they were also sitting ducks.

The U.S. Fish and Wildlife Service is investigating to determine what killed the big raptors, and declined to divulge the conditions of the remains. But the likely cause of death is no mystery to wildlife biologists who say they were probably clipped by the blades of some of the 80 wind turbines at the three-year-old Pine Tree Wind Farm Project, operated by the Los Angeles Department of Water and Power.

As the Obama administration pushes to develop enough wind power to provide 20 percent of America’s energy by 2030, some bird advocates worry that the grim discovery of the eagles this month will be a far more common occurrence.

Windmills kill nearly half a million birds a year, according to a Fish and Wildlife estimate. The American Bird Conservancy projected that the number could more than double in 20 years if the administration realizes its goal for wind power.

The American Wind Energy Association, which represents the industry, disputes the conservancy’s projection, and also the current Fish and Wildlife count, saying the current bird kill is about 150,000 annually.

Over nearly 30 years, none of the nation’s 500 wind farms, where 35,000 wind turbines operate mostly on private land, have been prosecuted for killing birds, although long-standing laws protect eagles and a host of migrating birds.

If the ongoing investigation by the Fish and Wildlife Service’s law enforcement division results in a prosecution at Pine Tree, it will be a first. The conservancy wants stronger regulations and penalties for the wind industry, but the government has so far responded only with voluntary guidelines.

“It’s ridiculous. It’s voluntary,” said Robert Johns, a spokesman for the conservancy. “If you had voluntary guidelines for taxes, would you pay them?”

The government should provide more oversight and force operators of wind turbines to select sites where birds don’t often fly or hunt, the conservancy says. It also wants the wind industry to upgrade to energy-efficient turbines with blades that spin slower.

The lack of hard rules has caused some at the conservancy to speculate that federal authorities have decided that the killing of birds — including bald and golden eagles — is a price they are willing to pay to lower the nation’s carbon footprint with cleaner wind energy.
But federal officials, other wildlife groups and a wind-farm industry representative said the conservancy’s views are extreme. Wind farms currently kill far fewer birds than the estimated 100 million that fly into glass buildings, or up to 500 million killed yearly by cats. Power lines kill an estimated 10 million, and nearly 11 million are hit by automobiles, according to studies.

“The reality is that everything we do as human beings has an impact on the natural environment,” said John Anderson, director of siting policy for the wind-energy association.
Another reality is that some wind farms are far more deadly to birds and wildlife than others. One of the nation’s largest wind farms, the Altamont Pass Wind Resource Area near Livermore, Calif., has killed an average of nearly 2,000 raptors annually, including more than 500 eagles, over four years, according to federal agencies and bird watchers.
Developers in the early 1980s placed the farm’s 5,000 turbines in an area where several species of raptors hunt. The blades of the early model turbines spin faster to generate power. Critics say it was a blender that cut down birds as they focused on prey.

NextEra Energy Resources, which operates the farm, resisted demands to upgrade and relocate equipment for years until its opponents seemed to be on the verge of prevailing in court. It recently settled a lawsuit filed by the Marin Audubon Society and other interest groups and is now making changes that officials say other operators should notice. They include retrofitting and replacing fast-moving turbines with new turbines that generate energy more efficiently with slower-moving blades.

Anderson defended Altamont, saying it was built at a time when developers were ignorant about siting and animal habitats. Wind farms get more publicity than other things that cause bird deaths because the birds die where they’re struck, Anderson said.

Cars hit them and drive away. And birds fly away from mountaintop mining operations that create conditions that can lead to their demise.

A Fish and Wildlife Service official said that there’s no doubt that birds will continue to be killed by wind turbines as they proliferate on land and water, but the trick is to work with the industry to decrease the number of deaths.

The Interior Department convened a Federal Advisory Committee on wind farms three years ago as a first step in that process. In March 2010, the 22 members from government agencies, a few advocacy groups and the industry and their lawyers came up with a set of recommendations.

The Fish and Wildlife Service took the recommendations and spent a year creating guidelines. A draft presented in February called on wind-farm developers to consult with the agency before deciding on sites, and to make significant changes if animal habitats are greatly disturbed.

The industry viewed the changes as onerous, Anderson said.

“Under the guidelines, it would be harder to get loans without proving compliance with the guidelines, and with approval from Fish and Wildlife,” Anderson said. “State agencies also had a role. In those instances a state could say, ‘Have you complied with Fish and Wildlife guidelines?’ It was really bad for us.”

When Fish and Wildlife revised the guidelines to address the industry’s concerns, the conservancy claimed that the agency had capitulated by watering down the strong oversight role it would play in protecting wildlife by deciding where to place turbines.
“The professional scientists at Fish and Wildlife got rolled over,” Johns said.

But Dan Ashe, the director of Fish and Wildlife, said voluntary guidelines and cooperation are the way forward. It “will help conserve birds and bats, and ensure responsible development of our wind-energy resources.”

Others agreed. Regulations that would excuse operators from protecting non-endangered species like bats, and protecting all wildlife “is an important step,” said Aimee Delach, a senior policy analyst for Defenders of Wildlife and a member of the committee.

As for the conservancy’s concern that the industry might not comply, “The threat of prosecution does remain,” Delach said.

“We’re not against wind power,” said Johns of the conservancy. “It’s clean and it’s better than blowing the tops off mountains. But we are not willing to overlook the problems that come with it. If you’re going to do it, do it right so that you don’t have to look up one day and say, ‘Hey, we’ve killed all the birds.’”

Sunday, August 28, 2011

487. Wine Industry Is Killing Wild Life in Sonoma, California

By Jacoba Charles, The New York Times, August 26, 2011
The Russian River is among the Sonoma County
waterways used by vineyard owners.

The dense forests of redwood, oak and Douglas fir that once covered much of Sonoma County have for many decades been giving way to pastures, orchards, subdivisions — and vineyards.

A nonprofit, nonpartisan news organization providing local coverage of the San Francisco Bay Area for The New York Times. To join the conversation about this article, go to baycitizen.org.
Now, those vineyards are emerging as yet another threat to a fish that would go just perfectly with the region’s signature pinot noir: the coho salmon.
Battered by a long history of habitat loss, logging and development, a dwindling number of coho struggle to survive in the rivers and streams where they return every year to spawn. Now they must contend with water-hungry vines, and especially a frost-prevention method that involves spraying plants with 50 gallons of water per acre, per minute. In smaller tributaries, the technique can literally suck stretches of a stream dry.
“There are a lot more grape vineyards than there really is water for,” said Brian Cluer, a scientist with the National Marine Fisheries Service.
The acreage planted in vines has increased as much as 50 percent in some parts of the county over the last decade, and Mr. Cluer said the county was still issuing permits for new vineyards without requiring proof of an adequate water supply.
“It’s a water-scarce area,” Mr. Cluer said, “and permitting and regulation hasn’t addressed that. It’s been a big mistake.”
Though salmon are the biggest concern, vineyards’ water use has effects that ripple through local ecosystems and communities.
In the last three years, the fisheries service has documented more than 60 vineyard-related deaths of juvenile coho, an endangered species, and steelhead trout, a threatened species, in three streams. It estimated that in one of the events more than 25,000 fry, or baby fish, were probably killed.
Sonoma County enacted an ordinance last year that asks vintners to register with the county if they use water from streams, but it imposes no limits on such use and allows landowners to monitor stream flows themselves. The State Water Board is now preparing to step in with much stricter rules to protect fish.
The proposed rules, along with sporadic efforts to sanction vintners after the fact, have met with vociferous objections from an industry that views itself as environmentally conscious.
Green Pastures Valley, a 10-acre vineyard outside Healdsburg that boasts of its conservation ethic, is disputing a $115,000 fine levied last year by the fisheries service , which said it killed young coho by pumping too much water for frost protection.
“The small farmer is the endangered species here,” Eric Stadnik, a co-owner of Green Pastures Valley, wrote in an e-mail. “I hope we can avoid bankruptcy over this ordeal.”
The Sonoma County Winegrape Commission also objects to the idea that vineyards are responsible for serious environmental harm. “I don’t think the scale of the problem is nearly as large as has been assumed,” said Nick Frey, the commission president.
The fisheries service disagrees. “Common sense tells us that there likely are more events that we aren’t aware of,” said Dan Torquemada, chief investigator with the agency’s Office of Law Enforcement in Santa Rosa.
Environmental organizations have increasingly begun to monitor vineyards’ behavior.
“If we see something out of the ordinary, we initiate the complaint process,” said Steve Krimel, co-chairman of Save Mark West Creek.
Mr. Krimel blames viticulture for a steady decline in the stream that flows through his backyard near Santa Rosa. “The local vineyard and the local winery up the road are sucking it dry from the headwaters,” he said.
Chris Poehlman, president of Friends of the Gualala River, describes seeing oddly fluctuating streamflows in areas where vineyards and other heavy water users are found.
“In the summertime,” Mr. Poehlman said, “there’s been severe drawdowns with no correlation to the weather. The water level goes up and down, and that takes water from pockets where fish are trying to survive.”
Water levels are only one of the issues worrying Mr. Poehlman’s organization, which has spent years opposing vineyard proposals in Annapolis, a remote town west of the Russian River valley. More viticulture means interrupted wildlife corridors and less biodiversity, the group says.
“Once one project gets approved it will set a precedent for others,” said Dave Jordan, a member of the group, adding that he has seen the tide of vineyards overtake neighboring landscapes. “Now all of the trees are gone, and it’s just grapes from one side of the hill to the other. We want to avoid that same fate here.”

Saturday, August 27, 2011

486. Fearing a Planet Without Apes

By John C. Mitani, The New York Times, August 20, 2011

VIEWERS of this summer’s Hollywood blockbuster “Rise of the Planet of the Apes” may be surprised to learn that before our earliest ancestors arrived on the scene roughly seven million years ago, apes really did rule the planet. As many as 40 kinds roamed Eurasia and Africa between 10 and 25 million years ago. Only five types remain. Two live in Asia, the gibbon and orangutan; another three, the chimpanzee, bonobo and gorilla, dwell in Africa. All five are endangered, several critically so. All may face extinction.

A decade ago, Congress stepped forward with a relatively cheap but vitally important effort to protect these apes through innovative conservation programs in Africa and Asia that combined taxpayer dollars with private money. But attempts to reauthorize the Great Apes Conservation Fund have gotten stuck in Congress and may become a victim of the larger debate over the national debt.

Hollywood’s depiction of apes as cunning — if not conniving — creatures comes close to reality. Fifty years ago, Jane Goodall’s observations of chimpanzees’ using tools and eating meat demonstrated just how similar apes are to humans. Subsequent fieldwork has underscored this point.

Gibbons, long thought to be monogamous, occasionally mate with individuals outside their group. Orangutans fashion tools to extract seeds that are otherwise difficult to obtain. Gorillas engage in conversational vocal exchanges. Bonobos appear to have sex not only to reproduce but also to relieve stress. Male chimpanzees form coalitions to kill their neighbors and take over their territory. If all of this seems human, there is a good reason: The apes are our closest living relatives, and in anatomy, genetics and behavior, they are much more similar to us than they are to other animals.

Apes fascinate and captivate us like no other species. They are prime attractions at zoos, and scientists from disciplines ranging from anthropology to biology and psychology study them closely in captivity and in the wild. As our first cousins in the primate family, apes help us to understand what makes us human.

I have been lucky to study all five kinds of apes during 33 years of fieldwork in Africa and Asia. When I look into the eyes of an ape, something stares back at me that seems familiar. Perhaps it is a shock of recognition, or a thoughtfulness not seen in the eyes of a frog, bird or cat. The penetrating stare makes me wonder, “What is this individual thinking?”

But as the human population expands, ape numbers continue to dwindle. In previous versions of the “Planet of the Apes” films, greed and consumption by humanlike apes threatened the world. In reality, it is these all-too-human traits that imperil apes.

Habitat destruction because of human activity, including logging, oil exploration and subsistence farming, is the biggest concern. Hunting is another major problem, especially in West and Central Africa, where a thriving “bush meat” trade severely threatens African apes. Poachers are now entering once-impenetrable forests on roads built for loggers and miners. Recently, periodic outbreaks of deadly diseases that can infect humans and apes, like Ebola, have begun to ravage populations of chimpanzees and gorillas.

The Great Apes Conservation Act, enacted in 2000, authorized the spending of $5 million annually over five years to help protect apes in the wild. The act was re-authorized in 2005 for another five years. The program matches public with private dollars to maximize the impact. Since 2006, for example, $21 million in federal dollars spent by the Great Ape Conservation Fund generated an additional $25 million in private grants and support from other governments.

The federal money may not sound like much in this era of “big science.” But those dollars have gone a long way to protect apes in countries that are desperately poor and politically volatile. The money pays for protecting habitat, battling poachers and educating local populations about the importance of these apes.

For instance, in Indonesia, where habitat loss threatens the few remaining populations of orangutans, money has been earmarked to block the conversion of forests to commercial oil palm and rubber plantations. In Congo, home to the extremely rare mountain gorilla, alternative fuels have been introduced to discourage the cutting of forests for charcoal production. In Gabon, the program has paid for law enforcement training for park rangers battling poachers. The list goes on. In all, last year, the Great Apes Conservation Fund helped to underwrite more than 50 programs in 7 Asian and 12 African countries. If Congress does not reauthorize the act, it could make it much harder to continue even the modest appropriations the great apes fund now receives.

A planet without apes is not sci-fi fantasy. If we do not take action now, sometime in the future, as Hollywood continues to produce sequels to the classic 1968 film, our children and our children’s children will ask with wonder, and perhaps a certain amount of anger, why we stood by idly while these remarkable creatures were driven to extinction.

John C. Mitani is a professor of anthropology at the University of Michigan.

Thursday, August 25, 2011

485. Cuba Attacks $1.5 Billion World Arms Spending

By Morning Star, August 24, 2011
Cuba assumed the presidency of the Geneva-based Conference on Disarmament on Tuesday, insisting that the $1.5 trillion (£910 billion) currently squandered on military expenditures and war each year should instead be used to promote social development.
Addressing diplomats from the conference's 65 member states new president Rodolfo Reyes Rodriguez, who is one of Cuba's deputy foreign ministers, said it was "unacceptable that almost 23,000 nuclear weapons still exist, including 7,560 ready to use."
Abelardo Moreno Fernandez, also one of the country's deputy foreign ministers, contended that the paralysis currently affecting much of the international community's "disarmament machinery" is a result of "a lack of political will of certain states."
The Conference on Disarmament, which was set up in 1979 to negotiate multilateral arms control and disarmament agreements, includes all known nuclear-weapon states.
Mr Moreno urged conference members to begin their work without delay in order to "guarantee the right of human beings and peoples to live in peace and in a world without nuclear weapons and interventionist wars."
Mr Reyes, who is also Cuba's permanent ambassador at the UN Human Rights Council, said today that Havana rejects any manoeuvring aimed at undermining Syria's independence, sovereignty and territorial integrity and accused Washington and other superpowers of meddling in the developing country's internal affairs.
"Israel and the United States are trying to destabilise Syria and achieve a change of regime in that country as their strategic objectives," he said.
Mr Reyes expressed confidence that the "people and government of Syria can solve their domestic problems without foreign interference."

Wednesday, August 24, 2011

484. Understanding the Present-Day World Economic Crisis: An Eco-Socialist Approach

Financial crisis of 2008

By Saral Sarkar, August 28, 2010

The current economic crisis that, roughly speaking, began in January 2008 and is, in July 2010, still going on, has shaken the world. Politicians, economists, and publicists are using superlatives to describe it, It has been described as the severest economic crisis since the Great Depression of the early 1930s. Seen superficially, similar, though not equally severe, crises have also taken place in the past few decades. There have been share market crashes, bank failures, crises in the finance market, credit crunches, strong recessions, state insolvencies etc. I have described them in my book Die Krisen des Kapitalismus (2010). But the scale, depth and spread of the current crisis has been so great, that all concerned got panic Many observers feared for the survival of capitalism. The question came up: is it only another crisis in capitalism, or is it the crisis of capitalism that Marxists, communists, socialists and other critics of capitalism have been waiting for since long. At least on one point all agree. Capitalism will never be the same again as it has been before the crisis, i.e. unbridled globalized neo-liberal capitalism will henceforth be bridled, more or less. That work has already begun.
    I assume that the readers of this essay are well informed on the main facts and events of the crisis. Here I only intend to present a deeper and comprehensive understanding of the crisis and do not want to repeat in detail the currently available superficial analyses and speculations about the future perspective.

I. Superficial Explanations

Economists belonging to the various present-day schools of standard economic thought did not differ much in explaining the crisis. Their explanations, which I consider to be superficial, are surely also well known to my readers. Nevertheless, I present below the main elements of their explanations in order to show the contrast between them and my explanation.

    (1) The main element in their explanations is that the greater part of the huge number and amount of bad debts that were the root cause and starting point of the crisis in the USA were the so-called subprime mortgage loans. Such loans were granted by commercial and mortgage banks to house buyers, who in normal circumstances would not qualify for those loans because they were people with low income and/or insecure job. Those risky credits were nevertheless granted because of the faulty structure of the US finance market. The local banks did not hesitate to give such risky credits, because they knew that they would very soon sell them away to the huge mortgage banks (Freddie Mac and Fannie Mae). The latter in turn issued securities based on bundles of such subprime credits, which were sold to banks all over the world who wanted to invest their surplus liquid cash for some profit.
    (2) The Federal Reserve (the central bank of the USA) kept the prime interest rate very low over a long period and thus made it easy for banks to borrow from it huge amounts of money and lend them further to undeserving borrowers as well as to speculators, who were attracted by low interest rates. This is how a real estate boom and then a bubble came up.
    (3) Bankers were greedy. Since a large part of their remuneration consisted of bonus payments, which depended on results, they were extra keen to take risks – both in lending business and in speculative transactions.
    (4) There was too little regulation of the finance and banking industry, and also the globalization of the same had happened in an uncontrolled way. As a result of these two facts, a huge amount of highly risky, highly complicated and barely understandable securities were sold all over the world, mainly to banks
    These elements do not refer only to the situation in the USA, but also to the situation in most leading industrialized countries.

I find these explanations superficial and unconvincing. No doubt, they were facts when the crisis broke out, but they do not give a satisfactory answer to the questions why the crisis became so severe, so widespread and so long-drawn, and why it could not be overcome as easily as the previous similar crises: the stock market crash of 1987, the East Asian crisis of 1997–98 and the crisis of 2001–03 (for details see Sarkar 2010). They do not explain why the crisis is still persisting, and why the outlook is still so gloomy.

    Moreover, two of the facts are really banal. That bankers were greedy does not explain anything, because greed is an essential pillar of the capitalist economic system. All participants in this system are expected to be greedy, more or less. And deregulation of the finance industry is only an essential element of globalized neoliberal capitalism, which is in place since the 1980s.

    The other two elements were indeed somewhat unusual. Bankers have always given some credits that were a little risky, and some of such credits have always had to be routinely written off. But this time, the extent of the subprime credits was so huge that business could not go on as usual when in the USA the housing boom ended, house prices began to fall and thousands of mortgagors defaulted. The creditor banks could not, as before, recover their money by selling off the houses.

    The Federal Reserve's policy during the period in question was also unusual. Generally, the Fed (and, in the neoliberal capitalist regime, almost all central banks) starts tightening money supply as soon as the economy starts heating up, which can be manifested as an above-average inflation or the emergence of a bubble in the stock exchange or the housing market. The usual instrument for this purpose is to cause the market interest rates to rise, which it generally achieves by raising the prime interest rate. In the period in question, however, the Fed let the bubbles continue to grow by keeping its prime interest rate low.

    Both the banks and the Fed have been criticized for pursuing these unusual policies, which, according to their critics, were the main causes of the severe crisis. But to blame the crisis only on them is unjustified, it is an obstacle to finding the true causes and understanding the true nature of the crisis.

    It has been reported that the ruling politicians, in fact, wanted a real estate boom. Greed is not a character trait of only bankers and speculators. Also ordinary people, especially ordinary Americans, want to become wealthy. That belongs to the so-called "American dream". And owning a house, as showy as possible, is an ordinary poor man's way of becoming wealthy – especially because it was said that house prices, unlike stock prices, can only go up. Politicians, naturally, wanted to promote the fulfillment of this dream. After all, from poor to middle class citizens made up the majority of the voters. Particularly the Democrats had a special interest in pursuing this policy, because they thought workers and other poor Americans belonged to the group of their (potential) voters. In 1997, the administration of the Democratic president Bill Clinton got a law passed which made profit from selling real estate exempt from taxation. This encouraged speculation...

    But also the Republicans wanted a real estate boom. President George W. Bush (2001–08) said he wanted every American to become a house owner. Politicians in general, therefore, applied pressure on the banks, directly or indirectly, to give housing credits to the poor.

    It would however be wrong, if one concluded from these facts that only narrow electoral considerations of self-interested politicians led to the massive expansion of subprime housing loans. It also made macro-economic sense. We have to remember that both in the early nineties and in the early years of the new century, the USA suffered a recession. The GDP growth rate fell from 3.5% in 1989 to -0,5% in 1991. In 2000 and 2001 the so-called new economy broke down. Along with a long-drawn stock exchange crash, also the real economy suffered a recession, The GDP growth rate fell from 4.4% in 1999 to just 0,8% in 2001. Between 2000 and 2002 the telecom companies retrenched half a million workers. The official unemployment rate increased from 4% in 2000 to 5.8% in 2002 (figures from OECD 2000, OECD December, 2004, and Brenner 2003). Confronted with this recession even the Republican president George W. Bush had to take typically Keynesian measures to stimulate the economy, which also started to recover in 2003–2004. A housing boom promoted through subprime credits perfectly fitted such Keynesian efforts. It promoted growth and employment at a time when more and more American companies in the manufacturing industry were relocating their production in cheap-wage countries or even closing up shop. Producing houses for Americans cannot be relocated in cheap-wage countries, nor can they, unlike e.g. cars, be imported wholesale from abroad. They had to be built in America. Moreover, a house is an essential commodity. Yet, around 2006, observers started warning about a housing bubble and soon thereafter, the market began to cool down.

II. Why Did the Housing Bubble Burst?

It is too simplistic to say any bubble will burst sooner or later. It is necessary to differentiate between a housing bubble and a stock exchange bubble, which too burst in America in October 2008, i.e. after the former had burst.

    It was said that in the first seven days after the stock exchange crash, wealth amounting to 2.5 trillion dollar was lost, and since the stock exchange peak of one year earlier, stock owners lost 8.4 trillion dollar (Wall Street Journal, 10.10.2008). But what does that actually mean? One says in such cases, the wealth vanished into thin air. But in reality, nothing concrete vanished, no house, no car. What vanished into thin air were only some numbers on paper, some zeros after a digit. The 8.4 trillion dollar were only fictitious wealth. A year before the stock prices peaked, the same stocks were valued much lower. Only speculation had driven the market value of the stocks upward. After the crash, what was in any case fictitious wealth ceased to exist.

    The real value of a stock ultimately depends on how much demand in the market there is for the product(s) of the company in question. In case the company has to be wound up for lack of sufficient demand for its product(s), the price of its stocks can fall to zero. Houses are however very concrete things with eminent use value. Generally, there is no dearth of demand for them because almost all over the world population is growing and people are desiring better housing (only particular houses may not find any taker).

    In our concrete case, the subprime mortgage crisis in the USA, it is not as if the mortgagors lost the desire to live in the houses they had bought on credit. They, at least the great majority of them, were not speculators. It so happened that under changed circumstances beyond their control hundreds of thousands of them could not service their debts any more. When they defaulted, they were evicted by the creditor banks and the houses were offered for sale, which set off a chain reaction leading to falling house prices and a falling number of new houses being built. The crucial question for understanding the present crisis is, therefore, why the ordinary people who had bought houses on credit lost their ability to service their debts.

    When the crisis in the housing market caused a contagion in the stock market, and the tumbling stock prices in turn reduced, through the negative wealth effect, the borrowing capacity and purchasing power of millions of stock holders, the total effect of this downward development worsened the recession in the real economy, which, according to American economists, had already begun in December 2007. Like houses, cars, inter alia, are concrete things with eminent use value. It is not as if Americans suddenly lost the desire to own and drive big cars produced by General Motors etc. It was simply the case that many people lost the ability to pay the high price of such cars, and rising petrol prices increased the cost of driving them . They simply could not afford such cars any more.

III. The Deeper Causes of the Crisis

We then have to understand the changed circumstances under which the ordinary people who had bought houses on credit could no longer service their debts.

1. Limits to Growth

Despite several similarities, the present economic crisis differs from the previous ones in one very important respect. The present crisis developed and is continuing against a fundamentally different kind of background. Whereas the crises of the past were addressed by the powers that be with a consciousness occupied by the belief that limitless economic growth is possible – I call it the growth paradigm –, the present crisis has broken out in an intellectual atmosphere and against the background of a public discussion in which even the leading politicians of the world and government leaders are greatly worried about the ecological balance of our planet and the dwindling resource basis of industrial societies. Of course, the authors of the first report to the Club of Rome, Limits to Growth, had forecast the coming of such a situation already in 1972. But humanity could ignore this warning for a long time. Now, however, many political leaders seem to have woken up. Thus, Al Gore, the former vice-president of the USA, has made it his life's work to motivate humanity to seriously try to stop global warming. And the new president of the USA , Barak Obama, in his very first speech after winning the election, on 4th November 2008, spoke of the "planet in peril".

    The planet is in peril not only because of global warming. The ecological balance of the earth is being undermined since long, e.g. through progressive deforestation, especially through the progressive destruction of the rain forests, through progressive decline of biodiversity, through increasing environmental pollution of various kinds.

    The contraction of the resource base of industrial societies is most clearly manifested in the fact that oil extraction has, according to most experts, peaked or even crossed the peak. That is why the price of crude oil, by far the most important resource of modern industrial societies, had been rising continuously in the few years before the present crisis broke out. In July 2008, it reached over $140 per barrel. Also the price of other important resources – the energy resources coal, gas and uranium as well as industrial metals like copper, zinc, iron and steel, tantalum etc. – rose sharply. Even the prices of foodstuffs, for hundreds of millions of people all over the world the main source of energy for recreating their labor power, rose exorbitantly. After the recession began and deepened, the prices of these resources fell again, but they never reached the low level in which they were, say, in 2000. Today, in July 2010, despite the fact that the recovery from the recession is very slow, crude oil price is fluctuating around $80.

    Also the environmental services provided by nature for us are important resources for any kind of society: its ability to absorb a certain amount of man-made pollution, its ability to regenerate the fertility of arable land, the health services provided by clean air and water etc. The costs of maintaining such resources in an industrial society have also increased along with the costs of extracting important resources like the ones mentioned above
    The rising costs of extracting or conserving these resources mean that less and less of them are available to most people. Only those fortunate few, whose real incomes are rising or are not falling despite these circumstances, can consume the same amount of these resources as before. Nobody can know exactly how much of these resources are being consumed by particular persons. But if one says that a person has lost his job or is working only part-time, if one says that a person's real income is going down, then it is tantamount to saying that this person is getting less and less resources, which include the labor power and services of other people (e.g. that of a doctor or railway workers).

    This exactly is happening today in most parts of the world. Even in Germany, one of the richest and economically most successful countries of the world, the real income of the average working person is falling for several years now. In 2006, just a year before the present crisis began in the USA, German official statistics confirmed that since a few years earlier, real standard wages in Germany had been falling (Frankfurter Rundschau, 29.07.2006). Moreover, a large and growing number of workers are finding only temporary and part-time jobs. On the situation in the USA in 2006 it was said by three authors that also there, the real wages of the majority of the workers had fallen despite satisfactory economic growth (cf. Krugman 2006; Luce and Guha 2006). The middle class felt this national-economic growth personally as a descent down the social ladder. A trade union leader described the material situation of workers as a "race to the bottom" – more work for less pay, bad health care etc. But what roused his ire more was the fact that the good jobs were being slashed and that highly qualified technicians were being compelled to take up lowly jobs in Burger King, Wal Mart etc.(CNN, 3.09.2006; my personal notes.)

    It should not, therefore, surprise anybody that in 2007, in the USA, the housing boom came to an end and home-owners began defaulting. It began with the subprime mortgagors, but soon also the established working class and then the middle class started loosing their ownership homes.

    Trade-unionists and all kinds of leftists may blame the current misery of the working people on brutal capitalist exploitation, on the weakness of the working class, on speculators without any conscience, on greedy bankers, on globalization that has caused the relocation of many production units in cheap-wage countries etc. Of course, at first sight, all these explanations are partly correct. But on closer look one cannot but realize that when, on the whole, there are less and less resources to distribute because it is getting more and more difficult to extract them from nature (think of oil exploration at the west coast of Greenland!), then, even in a better capitalist world with a strong working class, at best a fairer distribution could be achieved, not more prosperity for all. It is now necessary to think in totally new terms; a paradigm shift is necessary, a shift from the former growth paradigm to what I call the limits-to-growth paradigm.

    We can further explain the matter in the following way: Workers in the broadest sense produce goods and services by using resources (including energy resources), tools, and machines, which are also produced by using resources. If due to diminishing availability of affordable resources a growing number of workers lose their job or are forced to work only part-time, then they are producing no goods and services or less of them than before. Now, since most goods and services are, in the ultimate analysis, paid for by (exchanged with) goods and services, it is unavoidable that these workers can get less goods and services from other people.

    We know that today, because of a higher level of automation and rationalization, less (or less full-time) workers are necessary to produce a given quantity of goods and services from a given quantity of resources than, say, twenty years ago. It is possible to employ more part-time workers for the same amount of production. That would ensure a fairer distribution of the required quantity of paid labor among those who can and want to work. But the capitalist system of production may constitute an obstacle to this idea.

2. Illusion of Growing Prosperity – False Indicator GDP

In his article referred to above, Krugman (2006) speaks of a "disconnect" between wage stagnation, even fall in real wages, on the one hand, and satisfactory national economic growth on the other. The term "disconnect" seems to suggest that it is inexplicable, or that the trade unions are too week to take advantage of the national economic growth. I, in contrast, have said above that the limits to growth have been reached. This is certainly confusing. So let me try to clarify the matter.

    Just as it is possible that real wages are falling while nominal wages are rising, so it is also possible that real national income is falling while real GDP is growing. Real GDP is generally understood as a measure of a nation's prosperity. But, strictly speaking, it neither measures a nation's real income, nor does it indicate a nation's level of prosperity. What it measures is only the real value (i.e. value after correcting the distortion caused by inflation) of all, and all kinds of, goods and services produced in a country in one year. Of course, goods and services produced but not exchanged through the market – for instance, the services of a housewife given to her family – are not included in GDP because they are not sold for a price. But they can be included, if one wishes to do so. Statisticians could impute some reasonable value to them, estimate the total, and add it to the official GDP. Then the same GDP will be expressed through a higher figure. That's all. But that is not the point here.

Defensive and Compensatory Costs

When one wants to think of real income, prosperity, wealth, wellbeing or welfare of a nation, and not just of the formal GDP, one has to examine the nature of the goods and services produced. A large part of them do not add anything to the income or wealth of a nation, in contrast to those of an individual or individual firm. For instance, the work of a soldier, who is getting paid although there is no war, the work of thousands of people who are producing weapons, the work of doctors who are treating patients, the work of those who are rescuing flood victims – such elements of the GDP are, for the nation (in contrast to the individuals involved, i.e. the soldiers, doctors, rescue workers etc.) actually expenditures, not incomes or additional wealth. They are costs. They are called "defensive costs" by economists who do not want to be victims of an illusion.

    When a house that has been destroyed by a flood is replaced by a newly built one, then that is no addition to the national wealth. Only the loss has now been compensated for. The energy, materials and labor involved in this process are really costs. The same has to be said of all repairs. They are called "compensatory costs". All defensive and compensatory costs are included in the GDP. The 32 billion dollar, that are estimated to be the cost of repairing the pollution-damages caused by BP's oil spill in the Gulf of Mexico, will also be added to America's and Britain's GDP in 2010. The GDP thus loses some of its value as an indicator of prosperity.

    In our context, the damages caused by ecological degradation are more relevant, because they happen mostly as a consequence of the same process that is supposed to be generating prosperity, i.e. industrial production. In China, officials of the national Bureau of Statistics estimated that in 2004 the costs arising from ecological damages in their country amounted to 3% of the GDP of that year. They estimated that it would cost the country 106 billion euro to remove (or repair) the environmental damage. This sum amounted to 7% of the GDP of 2004 (Financial Times, 8.09.2006) The report is a bit unclear. 7% of the GDP of 2004 may have been necessary to remove the environmental damage  accumulated over past years and not only that caused in 2004. (My Chinese readers may do a little research and find out the facts.) The point I want to make here is that all the glorious growth percentages are not really growth in real income.

    The huge damages that have been caused in China this year (2010) by the extreme weather events– prolonged drought, incessant heavy rain causing devastating floods and landslides – are most probably results of global warming. How much it has cost China will be estimated by statisticians only later. But it is safe to say now that these and other similar costs would reduce the real national income substantially.

    But costs arising from single events or in one particular year are not so important for our inquiry. More important is the trend. In 1971, K. William Kapp, the first scholar to study this phenomenon, thought that it is necessary to enlarge the concept by adding to it the costs of damages inflicted by industrial production on the social environment: costs arising from occupational diseases, death, damage to health, physical and psychological suffering etc. due to bad work conditions, all of which, like ecological damages, can also be irreversible. Kapp came to the conclusion that "in spite of the problems that … render estimating social costs difficult, it is justified to say that the dangers to environment and the costs arising to society from that show, both in absolute and relative terms, a rising trend parallel to growth in production and consumption" (Kapp 1979: XIII: retranslated).

    Krugman (2006) wrote in his article that in the USA, wage stagnation and falling real wages in spite of satisfactory GDP growth began already in the 1970s. That was roughly also the time when Kapp came to his above-quoted conclusion. Costs arising to society at large must be borne by members of society. Since in capitalism the rich are powerful and the workers are poor and weak, it is unavoidable that the workers and the poor have to bear the greater part of such costs. Krugman wrote further that the allowances paid by employers to their workers began to be reduced already in the 1980s. The correlation between growing social costs and stagnating or falling real wages is obvious.

    In Germany, the country I know better, a similar phenomenon can be observed today. To take just one example, health care costs are rising continuously(a growing part of such costs arise from mental and psychical sufferings.). While, on the one hand, employers are refusing to increase their contribution to the statutory health insurance system, pharmaceutical companies are refusing to reduce the prices of medicaments, and doctors are regularly demanding and getting higher remunerations, workers' contributions, on the other hand, are being increased by law. That is part of the explanation for the falling real income of the workers and the poor.

    Let me finish this section with a statement of the government of Great Britain, in which it presents a perspective on the future and gives an example of defensive costs. It says that Britain must reduce its emission of green house gases by 80% in the coming 40 years and that it must therefore use more nuclear, solar and wind power. But then citizens must be prepared to pay 300 pound Sterling more per head per year so that the lights remain on (The Daily Telegraph, 28.07.2010)

IV. Obsolete Profound Crisis Theories –
     Marxist, Keynesian, Schumpeterian

If the readers realize that my argumentation presented above gives a deeper explanation for the present-day crisis and for the fact that the world economy is having great difficulty in coming out of it, then they must also realize that all the other crisis theories that were formerly regarded as profound, namely those of Marx, Keynes and Schumpeter, are now no longer relevant, however illuminating they might have been in the past. Those theories were indeed profound, although in parts wrong. But they were all conceived within what I have called the growth paradigm. As long as this paradigm was seen as an axiom, a self-evident truth, these theories were valuable. But today the growth paradigm has become only a very dubious belief, just as the Ptolemaic geocentric paradigm of astronomy became obsolete after Copernicus convincingly presented his heliocentric theory of planetary movements.

    The earliest of these profound theories, those of Marx and his followers, were propagated with strong conviction by generations of socialists, communists and trade- unionists. Yet, even before anybody spoke of the limits to growth, many doubts were raised about the validity of the Marxist crisis theories – not only by establishment theorists, but also by a few Marxists, Paul Sweezy, for example (see Sweezy 1942).

    The more important among the Marxist crisis theories consists of two interconnected statements: (1) that economic crises regularly plague capitalism because the average rate of profit has a tendency to fall and (2) that this is caused by the rising tendency of the organic composition of capital. Marx and the Marxists thought that all new value is created by labor (variable capital) only, and that machines and raw materials (constant capital) do not create any new value. In this short essay it is not possible to go into the details of the complex arguments (for which see Sarkar 2010, chapter 1 & 10). Suffice it to say that this thought led to the failure to realize the importance of availability of easily accessible, and hence cheap, natural resources, especially energy resources, for the creation of wealth.

    Both Marx and Engels could observe the ecological devastations caused by the industrial mode of production. But in a famous passage in Capital, Vol.1, Marx, attributed this to "capitalist production", which saps "the original sources of all wealth – the soil and the labourer" (Marx 1954: 506f.;emphasis added). One could conclude from this that once capitalism is overcome, the problem would be solved. Faith in the immense power of scientific and technological development caused one to generally think that all material problems could be solved sooner or later. That is why also Marx and Engels were not overly worried. Engels, who even spoke of the "revenge" of nature, also wrote:

"… after the mighty advances made by the natural sciences in the present century, we are more than ever in a position to realize and hence to control even the more remote natural consequences of at least our day-to-day production activities." (Marx & Engels 1976, Vol. 3: 74f.)

    So far as the resource problem is concerned, in Marx's days, and also until a few decades ago, a shortage of important natural resources was no serious topic of discussion. Nobody even thought of such a possibility. So Marx and his followers had no reason whatsoever to question the growth paradigm.

    We, who are today observing the massive oil spills in the Gulf of Mexico and the Yellow Sea near Dalian, and the ravages of droughts, forest fires, and deluge-like floods in America, Russia, China and Pakistan, all caused by global warming, and those who have experienced the catastrophic blow-out of the nuclear power plant in Chernobyl and the pesticides plant in Bhopal, can only shake our head in disbelief when we read the sentences of Engels quoted above. But Marx and Engels lived in the 19th century. We cannot criticize them for not knowing things we know today. However, we cannot forgive those Marxists, communists and socialists of our times who have not understood yet that there are limits to growth and that there are limits to the power of science and technology (for the latter point see Sarkar 1999, Ch. 4 & Sarkar 2010, Ch. 10).

    Another failure of Marx, Engels and their followers was their refusal to accept the basic truth of the assertions of Malthus on the population question. Marx considered Malthus's essay to be a "libel on the human race". Engels wrote that "economic laws are … [only] historic laws which arise and disappear". Engels and Lenin declared that the limitless advance of science and technology nullified the law of diminishing returns, on which one part of Malthus's theory was based. (This summary of the views of Marx, Engels and Lenin is based on quotations contained in Meek 1971). That population growth and falling or stagnating per capita resource availability, the most important of which is food and water availability, are contributing to all aspects of the present-day crisis of mankind have today become obvious. If the peoples of the world have to spend more of their income on food and water – that is again the case in August 2010 – , then no wonder that demand for other, less important goods cannot rise, and then also the present economic crisis cannot end.

    Another Marxist theory of crisis in capitalism is the underconsumption theory, which can also be seen as an overproduction theory. Keynes's crisis theory is similar to this. He too sees the cause of recession, depression and, more importantly, secular stagnation essentially in deficient aggregate demand. According to Keynes, the more people in industrial societies become richer, the smaller is the proportion of their income they spend on consumption, which consequently discourages investment by entrepreneurs. His witty phrase "paradox of thrift" is a call on the state and the people of rich industrialized societies to consume more and save less. They can make debts and consume more and pay off the debts later from future income that is then expected to rise. Unfortunately, Keynesians of today still adhere to this policy recommendation. But how can more income be generated in future if resources are declining and becoming ever costlier?

    Today, Keynes's theory as well as the Marxist underconsumption (or overproduction) theory must be rejected on two grounds. Firstly, they are not convincing as an explanation of the present crisis. It is, since long, simply not true that the people in the rich industrialized countries are consuming too little and saving too much. In the USA, before the present crisis broke out, the savings rate had fallen to below 1 percent, and even workers and poor people had been, since long, indulging in high consumption with borrowed money. As we have seen, they were even buying on credit showy houses they could not really afford. The same had been the case in all rich industrialized countries, although the savings rate had nowhere been as low as in the USA. The crisis in the US housing market (2006/2007) did not arise from overproduction of houses. All houses produced were also sold to eager buyers.

    Secondly, standard Keynesians as well as standard Marxists have not realized even today that it is the high consumption level of the peoples of the rich countries that is the main cause of global warming and other ecological degradations and damages. Fortunately for mankind, if it is not already too late, the resource crunch and the resulting long stagnation in the world economy will mitigate the ecological crisis a little. We have experienced it already. When, in the first half of the 1990s, industrial production almost totally broke down in the former Soviet Union and the East European countries, their emission of green house gases and other pollutants also went down. There indeed is a contradiction between the industrial mode of production and the health of the earth's environment.

    Schumpeter had accepted economic crises and depressions as an integral part of the process of economic development. Unlike Keynes, he did not recommend any policy for preventing economic crises. On the contrary, he even thought they had a positive function, namely that of "creative destruction", without which economic development and growth of prosperity would not be possible. Present-day Schumpeterians, therefore, see in the current crisis a great opportunity. They hope that the "destructions" would start off a wave of creativity, a wave of innovations pioneered by visionary and dynamic "entrepreneurs", as Schumpeter had defined them. And that, they hope, would be the beginning of a new "long wave", the first phase of which would be one of high growth rates and rising prosperity.

    They particularly address the twofold problem with fossil fuels serving as the main energy basis of industrial economies: the problem of their exhaustion (peak oil, rising prices) and the problem of CO2 emissions as the main cause of global warming. They believe that soon, thanks to further research and development as well as to initiatives of dynamic entrepreneurs, renewable sources of energy – solar, wind, biomass, geothermal etc.– would rapidly replace the conventional sources. There is already much talk about the coming green industrial revolution.

    In our concrete case of the current crisis, when, about a year ago, the three great US car companies, particularly General Motors, were in danger of going bankrupt, Schumpeterians with their credo of creative destruction advised the US government to let them go bankrupt. A German publicist, Thomas Steinfeld, wrote:

"Schumpeter helped us realize that crises belong to capitalism just like wheels belong to a car. … In the past, hundreds of great companies have perished, often with very bad consequences for their employees. But then, till now, again and again, new companies have taken their place. Then why should now a few companies get an existence guaranty? And why particularly these ones, and why now?

At the end of his article, referring to the greatest worry of the car industry, namely the supply and price of oil, Steinfeld wrote:

"Whole sectors of the economy will now have to reinvent themselves. Politicians should not hinder them in that process. … capitalism does not need any particular resource. It needs just resources. Maybe it would not even need oil, but would be ready, without any problem, to switch over, with the money earned in oil business, to alternative energies if only the profit is satisfactory. In this complete indifference of capitalism towards the materials entrepreneurs deal in lies a lot of hope." (Steinfeld 2008)

I shall come back to this point further below.

V. The Current Keynesian Dilemma

The way the governments of the major industrialized countries reacted to the current crisis was typically Keynesian. It was not only that the central banks poured money into the finance sector to provide urgently needed liquidity to the banks and other financial companies, which had also been the case after the stock exchange crash of 1987. This time the state too became directly involved. It put hundreds of billions of dollar and euro at the disposal of companies, which were in danger of going bankrupt, and also allocated billions for spending (in the USA 790 billion dollar) in order to stimulate the economy and thus avert a catastrophic recession. In some cases, the state, in effect, also temporarily took over some large corporations which stood on the brink of bankruptcy: e.g. Fannie Mae, Freddie Mac, the AIG and General Motors in the USA, the Royal bank of Scotland in the UK, Hypo Real estate in Germany etc.

    This has been usual practice even in earlier decades, albeit at a smaller scale. This time, however, there are two new and big problems: Firstly, the immensity of the amounts of money thus provided raised fears of unacceptably high inflation, because much of the money was newly created by the central banks (in old jargon, printed). And secondly, this came at the top of already existing mountains of public debt. In May 2010, to give only a few examples, the ratio of total public debt to GDP stood in Germany at 76.7%, in the USA at 92,6%, in the UK at 78.2%, in Greece at 124.1%, in Japan at 227.3% (Süddeutsche Zeitung, 19.05.2010).

    A state can go bankrupt, although it cannot be wound up easily like a company, especially if a large part of its debts is owed to foreigners and if simultaneously its economy is in a bad shape. This has happened many times in history, even in recent history. In the case of Argentina in 2001, one could say it was an especially bad case of mismanagement. But this time even Greece, a member of the EU and the Euro-zone with their strict rules and regulations, stood in May 2010 on the verge of bankruptcy and is still not out of danger. Because of too high public debt, 99% of which are owed to foreigners, and bad economic fundamentals with a budget deficit of 8.9% (ibid), the credit-worthiness of the country in the world finance market was recently downgraded to junk status. Also the credit-worthiness of Portugal, Spain and Ireland, who too are a member of the EU and the Euro-zone, has been downgraded. They all have difficulty getting their new state bonds sold and rolling over old bonds falling due for repayment. They must therefore offer high effective interest rates.

    All this means that states can no longer spend their way out of a recession. They must cut spending in order not to go bankrupt. But if they cut spending in a recession, they deepen it. Spain, for instance, suffering from a deep recession with unemployment rate standing at 20%, has thus been forced to cut public spending, because its budget deficit, 7.3 percent, is too high (ibid) . But this has not helped her in the world finance market. The rating agencies downgraded her credit-worthiness again; this time with the argument that the massive cuts in public spending dim the hope of a recovery from the recession.

    This intractable dilemma has led to a controversy between the policy makers of the USA, who want to pursue the Keynesian policy of increasing public spending for some more time, i.e. until a convincing recovery has started, and those of the EU, led by Germany, who are afraid of the other, long-term consequences of growing public debt in the member countries. They are especially worried about loss of investors' confidence. The Europeans have now decided to pursue a policy of reducing budget deficits. Keynesian economists are, so to speak, campaigning against this conservative austerity policy of the EU. Paul Krugman, for instance, wrote recently: "We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression [of 1873–1896] than the much more severe Great Depression [of the 1930s]. But the cost – to the world economy and, above all, to the millions of lives blighted by the absence of jobs – will nonetheless be immense" (Krugman 2010). David Leonhardt wrote: "The world's rich countries are now conducting a dangerous experiment. They are repeating an economic policy out of the 1930s – starting to cut spending and raise taxes before a recovery is assured … " (Leonhardt 2010). Another critic commented: if now many states simultaneously dig holes in their budget, they will dig themselves together into a deeper hole.

    The severe austerity measures that have already been imposed on the Greek people have led to massive protest demonstrations, violent riots and strikes that are further crippling the economy. In Spain too there have been demonstrations and strikes. But the majority of the people in these countries seem to understand that their governments have no alternative, that they must tighten their belt. They are only demanding that the necessary sacrifices be distributed fairly, that also the rich bear their share of the burden of the austerity policy.

    The American policy makers are, of course, hoping that the worst will soon be over, that a strong recovery and then an upswing will set in. But this hope of the Americans is unfounded. In the middle of 2009, the US economy indeed started to grow again. But after growing in the first quarter of 2010 at the annualized rate of 3.7%, it could grow only at the rate of 2.4% in the second quarter.* And no new jobs were created (Süddeutsche Zeitung, 2.08.2010). The unabated high unemployment (9.5% at the time of writing) have disappointed all concerned.

    It is now obvious that a people cannot indefinitely go on living well by spending money they have not earned. There is a limit to private borrowing. Similarly, a state cannot go on stimulating the economy by borrowing and/or printing money. At some point, the old public debts due for repayment cannot be repaid because would-be lenders would not give new loans to a state the economy of which is stagnating or even suffering from a recession. And if there is only modest and uncertain growth, which is today, in July 2010, the case in several countries (there are a few exceptions, e.g. China, India, Brazil etc.), the state cannot increase taxes out of fear of stifling the growth, nor can it hope that the modest and uncertain growth will generate enough tax revenue, so that new borrowing would not be necessary. A modest growth, moreover, is not enough to create new jobs, as the US data quoted above show.

    Early Keynesians had even hoped that growth brought about through implementation of their recommendations would generate so much tax revenue that also accumulated past debts could be paid off or at least reduced. But their recipes work only if real growth potential was earlier remaining unutilized. That is no longer the case today. They were (today's Keynesians still are) totally unaware of the limits to growth and the defensive and compensatory character of much of GDP growth. They did not face them in their days. Today, however, we can not only see these limits, but are also feeling the pinch. Of course, there have been some cases of prosperous and newly prospering countries that could in some years boast a balanced or even a surplus budget, but there is no case of accumulated public debts having been fully paid off.

    There is, of course, a difference between the USA and Greece. Because the USA is by far the largest economy of the world and because the US-dollar is the number one world currency, it will be able to attract people with money to invest, who will for some more time buy US state securities. And because Greece does not have a currency of its own, it cannot solve its problems by devaluing its currency or by simply printing new money. The USA can do both. But even the USA will one day face the problems that Greece is facing today. (For a detailed discussion and my critique of Keynesianism see Sarkar 2010: Ch. 3, 5, and 7.)

VI. Perspective

Let us now try a little intelligent speculation on the shape of things to come.

    As I have argued above, in the ultimate analysis, it is the limits to growth that are today preventing the world economy from coming out of the present crisis. Since the objective limits to growth cannot be overcome, it is most likely that the rich industrialized countries would suffer from a long period of stagnation (anemic growth or no growth) like Japan in the 1990s. I am not saying here anything very new. Even many establishment economists are nowadays saying that. For the immediate future, some economists are even seeing the danger of deflation (International Herald Trubune, 7.08.2010), which is worse news for the economy than inflation. In Japan it is already the case, and policy makers don't see any option for them to utilize (Süddeutsche Zeitung, 3.07.2010; International herald Tribune, 24.8.2010). Of late, among economic experts, the number of "doomsayers" is increasing and they are being seriously listened to (Thomas Jr. 2010). The difference is that while these experts are mostly speaking of a decade or so of stagnation, I think it will be a continuous contraction until at some point a steady state will have been reached. That is the logic of limits to growth. Those who do not explain the present crisis with this logic, i.e. those who think that a clever mix of various policies could ultimately overcome it, they are naturally looking forward to a new long period of growth and prosperity.

    Many among them, the optimists, are hoping that soon a new "green" industrial revolution will begin that will generate a strong economic growth, which will be sustainable – both ecologically and in respect of resources. If that hope materializes, then not only would the present crisis be over, but capitalism would also get a very sound basis for eternal growth. For then there would be no problem any more with energy supply and availability of other resources. After all, the sun will shine for a few billion years more and give us everyday, gratis, 15000 times as much energy as the world consumes today, a great part of which is claimed to be already economically usable. And with this much renewable energy available, nearly 100% recycling of all materials could be possible.

    In two of my books (Sarkar 1999 & 2010) I have presented my arguments for not sharing this hope. They cannot be repeated here, But three facts can be mentioned that strongly indicate that the powers that be also cannot share this hope: Firstly, nowhere is any great effort being made to recycle all waste materials, except in very poor countries where labor is damn cheap, and except in case of the very highly priced metals gold and silver. On the contrary. For example China, not a rich country as a whole, is making great efforts for several years now to build up in Africa and Australia a solid source of all kinds of minerals. To use the title of a book that appeared in 1975 in German, the planet is being plundered. Secondly, despite all the din about renewable energies, massive investments are being made all over the world to build conventional power plants including dangerous nuclear ones. And the search for oil and gas is being extended to deeper and deeper ocean bottoms including at the North Pole. Thirdly, the giant oil company BP, which for some time changed its name to "Beyond Petroleum" in order to say that it is beginning the transition to renewable energies, has now decided to bore for oil in the deep waters near the Libyan coast instead of building solar power plants in the Libyan desert. And that soon after the oil spill catastrophe in the Gulf of Mexico.

    This being the situation today, there is little probability that Obama's big talk of last year about the USA coming out of the crisis stronger than before will come true. It is proving more and more to be empty talk. I have mentioned above the job crisis in the USA. The growth rate in the second quarter of 2010 has fallen short of the minimum growth rate of 2.5%, that, according to US economists, is necessary to just hold the unemployment rate constant (Süddeutsche Zeitung, 5.08.2010). How high must the growth rate be to reduce the unemployment rate, say, by half? What is worse, the job crisis is threatening to become also a bad social crisis. 6.6 million Americans are looking for a job, without success, for more than 27 weeks. They are defined as the long-term unemployed. About one million of them are unemployed for more than 99 weeks, the limit after which the state stops giving them any aid. These people will now become destitute. Many of them will land on the streets (Süddeutsche Zeitung, 5 & 7.08.2010).Also the finance industry has not yet overcome the crisis fully. In the first seven months of 2010, another 103 banks, albeit smaller ones, went bankrupt. This leads to big banks becoming bigger. This shows that the government has failed to attain its declared goal not to allow any bank to become too big to fail. All in all, today, the spectre of a second financial crisis and a double-dip recession is haunting both America and Europe.*

    Also in Germany, the much vaunted welfare state is on the decline. I have mentioned above the higher health insurance costs that working people have to bear alone. As for the unemployed, the poor and people with low pensions, several benefit payments to them have been cut or are being proposed to be cut. For example, it has been proposed by politicians that unemployed people who get their accommodation paid for by the welfare office must now accept a smaller (up to 25 square meter only) apartment than the 48 square meters they are entitled to at present. This can be easily explained in macro-economic terms. The gross profit expectation of business (e.g. that of Deutsche Bank) is at present 25%. If real GDP grows at the rate of only 2% and real national income – after deducting the continuously rising defensive and compensatory costs (see section III.2 above) – not at all or at a still lower rate, then the aspirations of business can only be fulfilled by depriving the poor and the weak.

    The situation of the welfare state is equally bad, if not worse, in the other countries of Western Europe. One observer, Steven Erlanger, writes:

"Europeans have boasted about their social model, with its generous vacations and early retirements, its national health care systems and extensive welfare benefits, contrasting it with the comparative harshness of American capitalism". But now, he continues: for western Europe, "the lifestyle superpower, the assumptions and gains of a lifetime are suddenly in doubt. The deficit crisis … has also undermined the sustainability of the European standard of social welfare, built by left-leaning governments since the end of World War II (Erlanger 2010).

This is not an ephemeral phenomenon. As to the future, Erlanger concludes: "The deficit crisis in Europe spells doom for the welfare state" (ibid). I agree. To take a concrete country as an example, Spain, reporter Sebastian Schoepp writes: "The crisis has spoilt their wish to beget children. Compared to the previous year, the birth rate fell in 2009 by five percent. Three out of ten Spaniards look without hope into the future" (Schoepp 2010).

    There is also one good news, for the Germans. In the last one year, Germany has recovered much lost ground in the area of exports and the further prospects, at least in the short term, are now very good. But in the media reports and comments celebrating this strong recovery two facts had also to be mentioned: Firstly, Germany's strong export-driven recovery is taking place at the cost of its EU partners. The French Economy and Finance Minister recently reproached Germany for letting its economy grow at the expense of its neighbors. Subsequent data corroborated her criticism. In contrast to Germany's strong recovery – the GDP grew there in the second quarter of 2010 by 2.2% – the economy of the whole euro-zone grew in the same period by only 1%, that of France by only 0.6% (Süddeutsche Zeitung, 14.8.2010). Secondly, the leaders of the German economy are worried about the world-wide shortage of raw materials (Süddeutsche Zeitung, 10.08. 2010). What should be added here is that while the German managers are again looking forward to better business, especially abroad, and while the share market index is rising, private bankruptcies are also rising. More than six million Germans are recognized as too heavily indebted (Süddeutsche Zeitung, 23.6.2010).

    Up to now I have concentrated my attention mainly on the rich industrialized countries. The picture is the opposite in some newly industrialized countries: China, India, Brazil etc. The growth rate in these countries is very high. But we should not forget that much of it has been possible because, since long, labor-intensive industries are being relocated from the rich industrialized countries to these low-wage countries. China has been (and still largely is) the "factory" of the world, India the back-office. Part of the prosperity of these countries is only the result of a zero-sum game. Moreover, the reason why the Chinese economy is booming despite the stagnation in Europe and America, its main export market, is the great real-estate bubble, which has been created by the state through its 450 billion euro stimulus packet at the height of the crisis and which is now threatening to burst (cf. Wagner 2010). Moreover, nobody thinks here of the horrendous social and ecological costs of growth, although they cannot be hidden. Only the recent prosperity of Brazil is not much dependent on these phenomena. Brazil is a vast country with a (relatively) very small population, an enormous area of fertile land and enormous natural resources. That is an exception.

    The social costs of the of prosperity of the middle class of China and India are escalating and manifesting themselves in some or the other kind of class struggle. In China, for several years now, it has taken the form of local revolts, sometimes violent, against the authorities and the entrepreneur class. Recently, it has also taken the form of some (till now) successful strikes for higher wages. But it also took the form of physical violence against doctors in hospitals where poor patients were neglected (International Herald Tribune, 10.08.2010), and even deadly attacks on school children of the urban middle class, presumably perpetrated by losers in the struggle for existence. Some recent cases of suicide of frustrated factory workers may also be interpreted as a form of protest against the prevailing situation.

    In India, in a large underdeveloped swathe of the country, called by the media "the red corridor", "Maoists", i.e. the ignored or exploited local people, who are moreover being threatened with eviction from their land, have taken to arms and are fighting against the state. In the more peaceful regions of the country, in the last ten years or so, about 200,000 bankrupt small farmers committed suicide. In Bangladesh, the country with the cheapest labor, textile workers, who produce garments for the rich of Europe and America, have had to resort to violent strikes to get a slightly better deal.

VII. Conclusion

It is now time to come back to the question whether this is just another crisis in capitalism or the crisis of capitalism. Already in October 2008, in San Francisco, an international conference of some selected left and liberal intellectuals discussed the question: will capitalism be soon over? In the last quarter of 2008 and a few months thereafter, due to the severity of the international financial crisis then, it seemed to many that capitalism might breakdown, others thought it would not be able to recover from this crisis. I was not convinced. I argued, its financial system is only one of the more important mechanisms through which capitalism functions, it is not the system's foundation. A defect mechanism can be repaired, but not an irrevocably eroding foundation. If the foundation remains strong, the system will survive. The foundation of today's capitalism is its material resource base. And I think it is eroding fast and irrevocably.

    The manifestations of class conflict mentioned above – including those in Greece and partly in Spain – hearten traditional Marxists and communists. But they do not yet understand that this crisis is not simply the crisis of capitalism. It is the crisis of industrialism altogether, in whichever socio-political frame it might be packed. Happily, it is also dawning on some of them that they cannot simply hark back to the good old conceptions of communism or socialism. The severity of the ecology crisis and the limits of resource availability cannot be denied by them any longer. And some among them are no longer convinced that further progress of science and technology would enable mankind to carry on with the quest for ever more prosperity through the development of "green" technologies. They now feel compelled to make the necessary adjustments in their theory as well as in their practical politics. They now call themselves eco-socialists, sometimes eco-Marxists. I welcome this development very much.

    It is beyond the scope of this essay to present the views of the eco-socialists (other than me) and eco-Marxists. There are, moreover, different degrees of ecological radicalness among them.. But I think it is necessary to briefly say why I consider the term "eco-Marxism" inappropriate for the contents of eco-socialism. The term "socialism" is very much open and amenable to the revisions necessary today. In contrast, "eco-Marxism" is, and logically has to be, connected with Marx's thoughts as laid down in his texts written in the 19th century. That can hinder our theoretical and practical work. Marx's works are, after all, no holy scripture!

    I am aware that prominent Marxologists, e.g. John Bellamy Foster, have taken pains to prove that it is "possible to interpret Marx in a different way, one that conceived ecology as central to his thinking, …" (Foster 2000: vi, emphasis added). After painstaking study, Foster even "came to the conclusion that Marx's world-view was deeply, and indeed systematically, ecological (in all positive senses in which that term is used today), … " (ibid: viii).

    Whereas it takes a lot of painstaking study and interpreting to come to the conclusions that Foster has come to, there are many clear words of Marx himself that show that Marx's conception of emancipation of humanity was "Promethean" or "productivist". For example, the following famous words:

" The development of the productive forces of social labour is capital's historic mission and justification. For that very reason, it unwittingly creates the material conditions for a higher form of production." (Marx 1981: 368)

Obviously referring to such words of Marx, Ted Benton concludes that Marx's vision of capitalism as "preparing the conditions for future human emancipation" shares "the blindness to natural limits already present in … the spontaneous ideology of 19th century industrialism" (quoted in Burkett 1999: 148). He interprets Marx as follows:

"Modern industrial production … is a precondition for the future communist society. The 'historical task' of capitalism is precisely to transcend the conditional and limited character of earlier forms of interaction with nature. … Elsewhere there is a recognition that some element of 'struggle' with nature for the necessaries of life is inevitable, the content of emancipation being given in the reduction to a minimum of the time taken up in this struggle. Either way, the possibility of human emancipation is premissed upon the potential for the transformative, productive powers of associated human beings to transcend apparent natural limits, and to widen the field of play for human intentionality." (quoted in: ibid.)

Burkett, who wants to defend Marx against such criticism, argues "that Marx's belief in the historical progressivity of capitalism is not based on an anthropocentric preference [of Marx] for material wealth over nature" (ibid: 149).

    Be that as it may, it is not our duty to defend Marx, nor is it necessary to criticize him for not having said things in the 19th century that it is our duty to say today. It is our duty to make a convincing synthesis of socialism and the ecological insights that science has achieved. And that is possible, as follows:

    Under capitalism, but also under the Soviet model of socialism, development of the productive forces has gone so far that the latter have become destructive, for nature as well as for humans. Therefore, generally speaking, not only must this development be stopped, but also, again generally speaking, the world economy must be brought down to a level that is truly ecologically, and in respect of resources, sustainable. In other words, world economic production must contract. But such a contraction is not compatible with capitalism with its growth compulsion. That is why it must be organized through a planned economy with socialized means of production. Moreover, this would definitely entail sacrifices in material standard of living. In any society, it would be rejected by the majority of the people of the lower strata, who constitute the majority of the population. In an egalitarian society – that is the defining characteristic of a socialist society – the necessary sacrifices would also be distributed equally and would, hence, be more likely to be accepted by the majority. That is why our vision should be eco-socialism, with or without Marx.

    As stated above, we have seen that in Greece and Spain the majority of the demonstrators against the recent austerity measures of the government have realized that they must accept cuts in their standard of living, but they are demanding that the necessary sacrifices be distributed fairly, that also the rich must sacrifice part of their income and profit and thus bear their share of the burden. The present world economic crisis is thus preparing the ground for the vision of an eco-socialist society. Our duty is to utilize this situation.


* After closing the text and sending it off to the editor, I received the information (CNN, 28.08.2010) that the US growth rate for the second quarter of 2010 has been revised down to only 1.6%. This naturally increases the fear of a second recession.


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Written in July–August 2010. Manuscript closed on 28.08.2010.