Energy, Economics, and the Global Bust

This is a complicated topic that I am not sure I totally understand. But reading this blog post by Kevin Drum, and the comments section as well, helped chrystalize a few things that I at least want to get down before I forget them again.

1. An available supply of cheap energy has fueled the globalization that has made possible the last 100 years of greater wealth in human society. However as we enter a world of more expensive energy, the whole edifice of what we call modern free market thought tumbles down.

2. From the 1990s through today, due to cheap energy and globalization the rich have become ridiculously rich and have more money to invest than ever before. Rationally, they want to earn as high of a rate of return on their investments as possible. Investing in the kind of small, local businesses and infrastructure(or education, or building water plants, or growing local agriculture) that create jobs for everyday people has a very low rate of return compared to the financial shenanigans and internet bubbles and housing bubbles that can be created to earn a 20%, 30% rate of return. Following their rational economic interest, they will go with the higher rate of return.

3. In a world of globalization and expensive energy, the disparity between the rate of return for investments in local economies and the rate of return for financial shenanigans has grown. $100 a barrel oil generally makes local investments less profitable, so the globalized rich have a greater incentive to invest in financial shenanigans. Eventually the financial bubble built by the rich will always pop and, combined with terrible middle class wages due to lack of local investment, we enter a period of economic crisis. During economic crisis the rich get richer and everyone else gets poorer, because the rich can swoop in with their cash flow and pick up everyone's foreclosed properties and houses. Thus, we began the cycle anew, as the rich have more money to invest and everyone else is poorer for it......

4. Governmental taxation of the rich (to a reasonable degree, I'd say we raise it from the current 38% to about 50%) and using that money to invest in the infrastructure of society is the only way out of this destructive cycle. This is not to say that the rich are evil, they are only following their individual economic incentive to look for the highest rates of return. The investment in society that makes middle class life possible(the interstate highway system, social security, subsidized agriculture) have rarely been done by the rich because it is not profitable. Governments can make investments that will not pay for twenty, thirty years, and when they do only pay at 3%. Now, that doesn't mean we have to have centralized planning. But it means that government supplies the funding in the form of subsidies, incentives, and other public-private initiatives.

5. The average conservative American does not agree with this. They believe that the free market is the only thing that can create wealth. This way of thinking became a religious doctrine during the Post WWII cheap energy boom. But the free market was only good at creating wealth for the average person in a world of cheap energy and broad middle class prosperity, which it made it profitable for the rich to invest more in local economies. But that world is over now, and its time we all woke up to that fact. Liberals typically make arguments that are based on what is "fair", I wish they would start making arguments based on what is necessary to keep a stable, non-feudal society.