Is global economic recession the best thing for mother earth?

That's a hard one to contemplate.

Depends if your on the inside looking out or on the outside looking in.

Will return to this point after I pick up my kids.

 

The media has been talking recession here for a year, and so far the economy has been fair. Not great, but fair, considering the government has done everything it could to screw things up the past few years--deficit spending huge amounts in Iraq "defending" us and letting financial institutions here go wild without regulation.

Now we learn that our big financial institutions are in trouble for passing a lot of paper money between themselves, including bad mortgage money and unregulated fake insurance policies ("swaps") protecting themselves from the same bad money. And all this has suddenly collapsed like a house of cards.

How does this lead to a recession? Well, it has to be connected to credit tightening. If corporations and businesses can't borrow money, people will lose their jobs. If people can't get mortgages, the housing market will collapse (before the latest crisis, it was still going pretty good everywhere except Florida, California and Nevada). The Fed knows that and right now, they are doing what they can to loosen credit--dropping interest rates--which is also being done world-wide. Our corporations are fundamentally strong, but they need cheap credit to grow. Growth means jobs.

The key to avoiding a recession is to keep credit flowing--for businesses, home mortgages and car loans.

 

The drop in commodities prices may be the thing that makes those rate cuts possible. Falling oil prices, due to dropping demand will make a lot of other things cheaper and this will allow the fed to cut rates. OPEC will see the writing on the wall and will probably not throttle back their production too much. They'll be playing a game, feeling out the global economy and adjusting production accordingly.

 

I'd say that it's not clear.

On the one hand, a global depression would likely cut fossil-fuel use somewhat. I saw a statistic (from a completely unreliable source) that worldwide C02 production fell 30% from peak to trough of the Great Depression. That would be roughly in line with the fall in GDP over that period. So, yes, reducing real worldwide GDP would probably have the effect of reducing C02 emissions.

On the other hand, the first thing to go when budgets get tight are luxuries and R&D. So the pool of people willing to pay extra for green products would shrink, and R&D on new green products would shrink even further. To the extent that green products tend to be consumed by people with spare income (think $40K Volt), arguably, that market would shrink. My point is that while you might get some savings in C02 emissions now, 10 years down the road C02 emissions might be higher than they would have been in the absence of a depression, because the depression stops the clock on the development and adoption of items that aren't necessities.

On yet another hand, a true depression, with all the misery that implies, might well shift consumption patterns for generations, as the Great Depression did. If it kills off the current culture of excess in favor of one of frugality, that would probably be worth more than the short-term C02 emissions itself. (On the other hand, if it leads to another world war, probably not.)

You all really should google up the situation in Iceland if you want to see how screwed up things can really get. Looks like they are going to have themselves a real, honest-to-goodness depression there.

On yet a third hand, commodity prices would collapse. Actually, they are collapsing now. IMHO, if our economic rescue plan fails (as I think it will, because the lack of liquidity is not the problem, it's the symptom of insolvency, and nobody is addressing insolvency -- see Iceland to see what insolvency looks like when it plays out), and we get a severe worldwide recession, I expect to see $30/bbl oil again, most likely before the end of 2010. So all the purely economic incentives to switch to alternatives to fossil fuels would come to a screeching halt, because most of the alternatives have costs that largely come from the manufacturing cost and no so much from the raw materials. All other things equal, the price of a barrel of oil would fall far more than the price of a KW of installed solar panel capacity.


So it's tough call. Based on the sketchy facts I can gather about GDP and C02, the short run effect would be an unambiguous reduction in C02 emissions below where they would have been. But the long run impact of a real depression would be hard to gauge. The resurgence of a culture of thrift would pay lasting benefits. Slowing or halting the development of alternatives to fossil fuels would convey lasting harm. I'm not sure you could make any firm judgment.

 

You are wrong, the environment is one of the last things on public's mind right now and the worse this gets the lower the environment gets on the list of important issues.

 

You've got a lot of hands, any relation to Indian deities?

But all other things are not equal. Primarily, Saudi Arabia has already announced cuts in oil production "because of reduced demand". It wasn't too long ago (maybe a year, I think) we were screaming about oil going over $80/barrel and Pres. Bush was telling the Saudi's they need to step up their production. It wasn't too long before that that Saudi Arabia said they didn't want the price of oil to go over $35/barrel because then people would be pushed to conserve oil and seriously pursue alternatives (renewables, Canada's tar sands). Yet about 6 months ago, the King of Saudi Arabia said that after one more year they wouldn't increase production, instead save any excess capacity for their children.

So why this change? I think it's peak oil - they're producing at or very near their maximum, and any excuse they can find to not increase production will save their reputation for at least another 6 months or whatever.

So oil prices won't drop down to where they were before, although they will back off from their high point for some time. (I'm betting low-70's will be their low). There will be a push to use cheap coal unfortunately, but research into alternatives will continue for a few reasons: a new president in town, continued price pressure and widespread acknowledgment that sending all that money to the middle east so they can build the world's tallest buildings (plural), an indoor ski resort in the desert and siphon off a bit for al Qaeda is not in our best interests.

I think a recession will give a short-term drop in GHG (one reason Russia signed the Kyoto protocol - they had gone thru a recession in their transition to democracy (sic), and their emissions were already 12% below 1991 levels, so it wasn't any pain for them to meet the protocol's requirements and they could come out looking like the good guys by saving the global treaty). But just as importantly, it will give us a little more time to prepare for a world of expensive oil.

People will be less likely (or able) to buy expensive cars and government buildings won't be built to the highest LEED standards, but people will see the value of better MPG, more insulation, smaller houses, keeping electronics a little longer, etc. In a lot of cases, saving money and saving energy are one and the same.

 

As the price of oil drops and the economic incentive for new technologies and conservation drops, it will be critical to have the leadership in Washington to continue the r&d which will continue to drop the demand for oil in the future.
Opec will not cut production because the member nations already have the production spent at $60-$100/barrel. Maybe they will have the discipline to really cut production but I think the greed and need for the money will overcome and will to cut production.

 

Nerfer, I'm mostly with you, but I think it'll be an issue of how deep a depression this turns out to be. Oil supply is notoriously inelastic. Always has been a boom-and-bust pricing cycle, right from the beginning. And now we also get the factors Malorn said -- most oil producing countries other than Saudi Arabia have already spent the money.

The US hasn't seen a real recession since 1974. Yeah, Reagan had one with 10% unemployment, but that lasted less than a year. And it occurred against a backdrop of that looks, with 20-20 hindsight, to be one of extreme fiscal stability. The remaining recessions were quite mild. So we've had an entire generation grow up without ever having seen what economic hard times really look like -- or why you need to have a little something in the bank when that hits.

The way I size this up, they're about to see that up close. Other than Warren Buffet, nobody has any reserves, everyone is leveraged. Every ratio of debt to income is at historic highs. Everybody's tapped out, and now we're "de-leveraging", ie., lenders are actually asking to be paid back. Only it turns out that a lot of folks can't. So a lot of what the lenders thought was assets was in fact just imaginary. And all of your assets (other than real goods) are just somebody else's liabilities.

Anyway, this looks like the textbook description of the start of the Great Depression, as the economist Keynes described it. T-bills at 0.18%, T-bills briefly being offered at negative rates, against a strongly positive rate of inflation -- that is the Keynesian liquidity trap. As wealth goes off to money heaven, people feel less wealthy and so spend less. As tax revenues have fallen, governments are cutting back and or raising tax rates, corporate profits have fallen by about 20% so far this year (based on the tax figures). Our exports have begun to fall. Most ominously, consumer credit fell last month. That's quite rare. Put that together, and that's the Keynesian collapse of aggregate demand. Only this time, compared to the 30s, we're not sure whether or not the Feds have finally maxed out their credit card (whereas the last time, the Feds had plenty of scope for borrowing, though were less inclined to.)

And it doesn't feel like we're anywhere near the bottom yet in terms of asset price deflation. Yesterday I tried parking a bit of money in something safe, Duke Power, a well-run utility, dividend yield of 5.5% with a stock price that had been fairly stable through out the chaos so far. I was bottom-fishing, but who wouldn't want to own a regulated monopoly supplier of a staple consumer good that was yielding 5.5%. Today the price fell >10%. Yield is now about 6.2%. Guess that wasn't anything like the bottom. Asset prices aren't just falling on junk and bankruptcy candidates, they're falling in the bluest of blue chips. In large and unpredictable chunks. Maybe that'll turn around tomorrow and maybe not, but I'm not sticking around to find out.

Well, sorry to go on a tangent. I think we're going to see Reagans' 10% unemployment and then some, and it isn't going to be some short, sharp recession either. Those are the circumstances under which I think we'll see a pretty steep drop in oil (and all other) commodity prices.

So, if this were a garden-variety economic blip, yeah, I'm with you. I'm not seeing it that way.

 

The original question is hard to answer. Some people will conserve to save money. Some will take pollution and environmental shortcuts to make money.

One of the things that I consider interesting, is that the whole economic crisis revolves around how bits are set in computers. There is no immediate shortage of food or oil, but since all the bits are out of whack, we have a significant problem.

My stock ownership is computer data
My bank balance is computer data
My debts are computer data
You get the idea.

Maybe if the Y2k disaster did occur, it would have prevented this one (Humor).

 

Uh-oh. I agree.

This became obvious when the price of gas went up so high that even otherwise rational people were clamboring for "Drill baby drill." In desperation, they figured that drilling locally would have to do *something* good for our gas prices. All logic and reality be damned.

 

Recession will delay the urge for long drives and shopping trips (and plastic bag waste).

Maybe we tree-huggers can take advantage:

1. distribute cheap or free cotton tote bags which (psychologically) make shoppers want to buy less (?)

2. cheap hybrid cars like the Prius which have high maintenance costs may become popular, since, afterall, we'll be driving less (?)

 

don't you mean low maintenance costs there on #2?

We'll see how inelastic the price of oil is in the coming year I suppose. Of course, the cheaper oil gets the more people will drive. I wonder what the equilibrium point is.

 

We are now in Peak Everything. The global recession at a minimum is getting a few people to recognize limits to water, air, money, land, investments, etc. Greed will go on, but oil and land are finite. With continuing human population growth, food, living space and possessions will only continue to get more expensive. Solution? Live within our means, think and act long-term. Emphasize conservation and efficiency.

 

It's been underway a lot longer than that. Dec. '07 is the "semi-official" date but when one looks at actual inflation (rather than the adjusted values that don't correlate with actual inflation) it goes back to '05 or so. It's not even clear that we really ever emerged from the previous recession if you factor inflation the way it was historically measured.

When we compare with previous recessions one of the major problems is the inflation fudging which has become more extreme over the past 15 years. There is really no apples-to-apples anymore since inflation is intentionally fudged lower.

There is a similar problem with unemployment accounting. To put it on the same accounting basis as the Great Depression one must use the U6 numbers...and those are scary.