Sunday, January 29, 2006

Is a Run on the (Resource) Bank Behind Rising Inequality?

How, then, can society tell if it is in overshoot?...[One symptom is] declining respect for the instruments of collective government as they are used increasingly by the elites to preserve or increase their share of a declining resource base.
    ---Limits to Growth: The 30-Year Update, p. 177

Most people alive today have never experienced a genuine bank run. Today, we are nearly oblivious to such a possibility. Beefy construction workers, college students, elderly men and women, and middle-aged executives all respect each other's place in the teller line, confident that their money will be available when they arrive at the counter.

But, how would this scene look if everyone in line believed there wasn't enough money to go around? Would those who are more powerful--either because of their position or physical strength--force their way to the head of the line? Would the business executive call over the vice president of the bank on whose board he sits and ask that vice president to get his money? Would the construction worker stand idly by as the college student in front of him withdraws the last of the bank's money--money the worker needs to feed his family? (In an ideal world everyone in line might agree to divide up what money is left based on who has the most pressing needs. But I digress.)

Rewind to 1980, the year after the last oil shock. Oil and other commodities had been rising in price for more than a decade. The message of books such as "Limits to Growth" and "The Population Bomb" had entered the popular culture. The perception was that critical natural resources were only going to become more scarce over time. For those aware of the implications a run on the resource bank--the basis for all wealth--seemed imminent.

How did this manifest itself? For the middle class and the poor it meant narrowing life choices and declining living standards (experienced as higher prices without a commensurate rise in income). For the rich it must have seemed a mortal threat to their future power and wealth. To maintain their relative position, they sought to get to front of the line and get what they could before it was too late.

Along came a new president with an ideology that meshed perfectly with this desire. He introduced supply-side economics to the American public and assured them that by giving tax breaks to the wealthy, America would return to its former prosperity as those wealthy people invested and created jobs. What took place, however, was the devastation of the industrial economy and continued high unemployment which did not consistently reach low levels until the late 1990s. But the rich got richer, much richer. Through their powerful alliance with government they were able to get to the front of the line and redirect resources financial and otherwise to themselves.

Long after the fears of scarcity abated, the trend toward greater concentration of wealth continued as the influence of the wealthy over government policy increased. It is all too easy to believe that the dramatic shifts in income distribution in the United States and much of the world over the last 25 years are simply related to free market ideology, supply-side economics, globalization or merely greed. But if we view the evolution of economic and social policy during this period as the long tail of an initial response to natural resource scarcity--a response directed by the wealthy and powerful that put them at the front of the resource line--we can see that the contest over who will benefit from the Earth's remaining natural bounty continues to this day.

The logic in 1980 was that even to maintain one's living standard, one had to secure an increasing share of the world's remaining resources. In other words, henceforth one's own well-being would have to come at the expense of someone else's well-being. That turned out not to be necessarily the case as economies eventually expanded and natural resources ultimately glutted world markets.

But those initial policies and practices have remained and even intensified. In 1980 a new economic ideology, supply-side economics, gave convenient cover to the rich to portray their rush to the front of line as a virtuous and selfless act. That ideology is now more than ever deeply embedded in the minds of policymakers and people worldwide (though it is by no means universally accepted or praised). As we enter a new age of resource scarcity, we are already well into the next run on the resource bank. The most visible manifestations are a global contest over energy resources and a new round of tax cuts in the United States for the wealthy aimed at "stimulating" the economy. (Here I must point out that "stimulating" the economy is really nothing more than increasing the rate of drawdown of finite resources.)

Supply-side ideology promised a rising economic tide that would reduce inequality. While many people throughout the world have indeed been raised into the middle class in the last 25 years, inequality has greatly expanded not only between the rich and the poor, but also between the rich and the middle class.

Now, the renewed scarcity of vital natural resources, especially oil and natural gas, has initiated another scramble to get to the head of the resource line. But unlike 25 years ago the policies that make it easy for the rich and powerful to cut in line and grab an increasing share of the world's wealth are already firmly in place. It is a tragic irony that those policies will provide no solution to resource depletion and will ultimately undermine the social and ecological stability upon which the wealth of the world's most privileged depends.


odograph said...

Surely the average citizen is aware that there is far less paper money in the world these days than our electronic accounts show. If everyone wanted to "cash out" it would take years of printing by the Fed.

And I think everyone is aware of "the deal" and that this isn't going to be a problem as long as we have Federal Deposit Insurance. If Bank A goes broke, you get a check from the Fed, and deposit it in Bank B.

I'm afraid your essay is mared by a marrige to paper money.

Also, while supply side theorists have little to be proud about, I think they are small potatoes compared to the mass consumer behavior we've seen in recent years.

"Elites" may be SOBs, but they aren't making people spend that last dollar at Starbucks rather than putting it in a savings account. I mean ye gods, which is the problem, the way banks are run or the fact that no one saves?

Anonymous said...

Mr Odograph: This article is not about conventional banks. The article is about the "bank" of natural resources (like oil, metal ores etc) in the ground. The author suggests that we are witnessing a "bank run" on these resources. The so called "wealthy" are trying to grab as much as possible of these resources. This is certainly true. However, what the author fails to emphasize is that this is not a recent phenomenon. It has been ongoing for centuries. Much of the history of the 20th century is dominated by the competition for natural resources, especially oil. The "wealthy" understand how important these resourcese are and that's the reason why they are grabbing them. Average people do not even think about these matters - that is the reason why they constantly lose.

odograph said...

I think he chose a bad (outdated) bank example, and also relies too much on class conflict in his "run on the resource bank" as well.

"Americans seem to have the feeling that it is wimpish to save," said David Wyss, chief economist at Standard & Poor's in New York. "The idea is to put away money for old age, and we are just not doing that."

(more here)

American consumer culture, at all levels, have made a run on their savings, and the "resource bank" at the same time.

Maybe that is what you are saying when you say "Average people do not even think about these matters" ... but I don't think a round of "blame the rich" is what will wake them up!

Anonymous said...

The real "bank" run will take place when people realize that fiat money, such as the dollar, were created from nothing and have no value. This may be starting as shown by the rise in gold and silver relative to the major fiat currencies.

Anonymous said...

Don't worry about fiat money, everybody has big screen tvs to trade ;-)