President-elect Obama in his economic speech today identified two objectives for his economic recovery plan: job creation and long-term growth. When will some brave politician find the courage to tell the American people that growth is the root not only of our economic problems but of the far more serious problems that threaten human civilization itself, along with stability of Earth’s ecosystems?
The attempts to resolve the financial crisis have so far failed because the problem is seen as a liquidity crisis rather than the solvency crisis that it really is. Attempts to fix our economic crisis will similarly fail because the solutions – including those proposed by Obama in his speech – attack the wrong problem.
Our economic woes are seen as stemming from the slowing down of economic activity, a liquidity problem. The solution then is to stimulate economic activity, to dump huge sums of borrowed money into the system to get people spending and consuming again. Stimulate enough and we can return to business as usual – economic growth. The danger lies in being too conservative, in not spending enough.
But what if the problem is insolvency – inadequate capital resources – rather than illiquidity? The remedy of even more debt and more spending would then make the situation worse rather than better.
Since at least the beginning of the industrial age, what we call economic growth has gone hand-in-hand with increased energy usage. What happens to growth when energy sources can no longer be expanded? If the correlation holds true, economic activity will shrink along with energy consumption. As energy supplies plateau and then begin to fall, the economy as we presently measure it is bound to contract as well.
U.S. oil supplies peaked in 1971. Perhaps not entirely coincidentally, the U.S. abandoned the gold standard in the same year. For a time, the deal we cut with Saudi Arabia and other Middle East oil producers to maintain dollar hegemony enabled the U.S. to maintain its global dominance. But under the mounting pressure from ever-declining U.S. oil production and ever-increasing oil imports, that deal began to become unglued. The U.S. trade balance, which had for years been pretty stable, wavered for a few years then finally began a precipitous decline.

Economists argue that the U.S. economy has become more energy-efficient over the last decades because we get more GDP bang for each unit of energy input. But the reality is that we’ve simply shipped the energy-intensive bits of our economy overseas. That, along with increasing energy imports, is now devastating our balance of trade.
At the beginning of the Great Depression, the U.S. was the world’s largest creditor nation. We had enormous reserves of oil, virtually untapped. The dollar was backed by gold. The Depression was a liquidity problem. What was needed was to lubricate the wheels of commerce to get things moving again.
Today, as the current economic crisis unfolds, we’re the world’s largest debtor nation and import two-thirds of the oil we consume. The dollar is a fiat currency, its value dependent entirely on the confidence of its holders. We’re in far worse shape now than we were then, with depleted energy and other resources, a hollowed-out industrial infrastructure, and deep in debt.
The U.S. is not alone in its energy dilemma. Global oil production appears to have peaked in 2008. Other fossil fuels will follow, natural gas first, coal a bit later, both probably within a couple of decades. The world’s nations all face a future of struggling to maintain energy supplies, with exporting states consuming ever more of their own resources leaving less and less for export to consuming nations.
In a growth environment debt is not too troublesome, as it can readily be repaid out of ever-increasing income. If the economic problem we’re facing is a liquidity problem – the lack of lubrication in the engine of growth – borrowing to get beyond the hiccup is a smart and prudent thing to do.
But if the problem is that the economic engine has run out of fuel, investing in lubricating the engine won’t do any good. And repaying the additional debt out of a shrinking income will become an overwhelming burden, leaving us with few resources to create a different kind of economic system.
It would be understandable and even laudable if Obama gets the big picture but has chosen to use conventional language and messaging to begin to take the citizenry to a place he feels they’re not yet ready to go. But I’m not getting a good feeling. There’s too much talk of “confidence,” of “stabilization and repair” – and then there’s the reiterated emphasis on “long-term economic growth.”
Jobs is the wrong goal. “Jobs” is a crude and indirect measure of what we really care about, which is that everyone has a vocation – an honored place in society that offers the opportunity to do socially worthwhile and satisfying work while living a decent and rewarding life. Over the last decades we have wasted far too much labor doing destructive things, while the distribution of wealth has never been more skewed.
Growth is also the wrong goal. The truth is we are running up against multiple limits to growth. Our goal should instead be prosperity. We need to figure out how to live well while shrinking our economy’s share of global ecosystem.
Many of the pieces of the plan Obama outlined could be applied towards the goals of vocation and prosperity in a world exorcised of the demon of growth. There’s nothing we need more than investment in alternative energy supplies and a radically upgraded electric grid. But instead of exorcising the demon, Obama’s speech, tragically, continues to invoke him.