The California project would provide high-speed trains capable of 220 mph (350 km/h) that link San Francisco and Los Angeles in as little as two and a half hours. The proposed system would also serve other major Calfornia cities, such as Sacramento, San Jose and San Diego.
We could build high speed rail for most of the country for the amount we just sunk. And, if we had spent the money on wind turbines and transmission lines? We would have replaced our oil imports.
We could be building infrastructure with this money.
Instead we have spent the money on the equivalent of financial air.
Thanks to the Oil Drum, here is a part of a piece by Herman Daly that helps you get your hands around it:
The current financial debacle is really not a “liquidity” crisis as it is often euphemistically called. It is a crisis of overgrowth of financial assets relative to growth of real wealth—pretty much the opposite of too little liquidity. Financial assets have grown by a large multiple of the real economy—paper exchanging for paper is now 20 times greater than exchanges of paper for real commodities.
It should be no surprise that the relative value of the vastly more abundant financial assets has fallen in terms of real assets. Real wealth is concrete; financial assets are abstractions—existing real wealth carries a lien on it in the amount of future debt. The value of present real wealth is no longer sufficient to serve as a lien to guarantee the exploding debt. Consequently the debt is being devalued in terms of existing wealth.
No one any longer is eager to trade real present wealth for debt even at high interest rates. This is because the debt is worth much less, not because there is not enough money or credit, or because “banks are not lending to each other” as commentators often say.
Can the economy grow fast enough in real terms to redeem the massive increase in debt?
In a word, no.
As Frederick Soddy (1926 Nobel Laureate chemist and underground economist) pointed out long ago, “you cannot permanently pit an absurd human convention, such as the spontaneous increment of debt [compound interest] against the natural law of the spontaneous decrement of wealth [entropy]”.
The population of “negative pigs” (debt) can grow without limit since it is merely a number; the population of “positive pigs” (real wealth) faces severe physical constraints. The dawning realization that Soddy’s common sense was right, even though no one publicly admits it, is what underlies the crisis.
The problem is not too little liquidity, but too many negative pigs growing too fast relative to the limited number of positive pigs whose growth is constrained by their digestive tracts, their gestation period, and places to put pigpens.
Growth in US real wealth is restrained by increasing scarcity of natural resources, both at the source end (oil depletion), and the sink end (absorptive capacity of the atmosphere for CO2). (clip)
Our brilliant economic gurus meanwhile continue to preach deregulation of both the financial sector and of international commerce (i.e. "free trade"). Some of us have for a long time been saying that this behavior was unwise, unsustainable, unpatriotic, and probably criminal.
Maybe we were right.
The next shoe to drop will be repudiation of unredeemable debt either directly by bankruptcy and confiscation, or indirectly by inflation."
In order to deal with the real problems of climate change and resource depletion, we must begin to build an advanced energy and transportation infrastructure.
If Wall Street is worth saving.
So are we.
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Professor Daly was Senior Economist at the World Bank before leaving to teach Ecological Economics at University of Maryland's School for Public Policy.
Labels: economic philosophy