by Dan Bednarz
You don’t see something until you have the right metaphor to let you perceive it.
Anyone wishing for a more humane and happier future should strive to spread ecological literacy.
William R. Catton Jr.
On October 14th President Bush informed the nation that the government would invest in financial institutions allegedly too big to fail so as to “preserve the free market.” This ideological act of contortion violated a cardinal taboo of American capitalism. Healthcare is too important to fail; yet as currently organized and operated it is flirting with system chaos and – like Wall Street and even insurance companies- susceptible to nationalization as a political and economic expediency.
The exogenous forces coming to bear on the medical community can be explained by fusing two metaphors. The first, Bad Money, characterizes the financial/fiscal dimension of the crisis, which includes the United States’ rise to unparalleled economic power through a once bountiful supply of oil. The second, the image of The Bottleneck,. points to the deep-seated and overlooked ecological forces underlying the crisis, the world’s declining oil supply presently is the most salient ecological limit– with climate change the flip side of the consequence of consuming fossil fuels.
Combining Bad Money and The Bottleneck may appear puzzling or nonsensical to many in healthcare who easily could ask: “What on earth do finance and economics have to do with the ecology -much less healthcare?!” The answer is twofold. First, the spreading financial crisis’s source is not an eruption of venality and corruption or a cyclical misfiring of capitalism; these are the symptoms, not the pathology. Second, a crisis such as this opens the human mind and, most important, institutions –which do most people’s thinking” for them- to alternative understandings, problem structuring, and solutions. In times of great upheaval explanations and actions which formerly appeared fringe or ridiculous can rapidly become pragmatic and commonsensical –like the government intervening in the financial sector, or changing the debate rhetoric in healthcare from “socialized medicine” to “universal coverage” as a matter of “national security.”
The moment for divergent thinking is at hand because conventional economic nostrums and rescue plans derived from them are failing, and actually exacerbating the crisis. (Note that crisis is fertile soil for authoritarianism and demagoguery as well as democratic social progress.)
In Bad Money: Reckless finance, failed politics, and the global crisis of American capitalism Kevin Phillips analyzes how economically powerful nations, as they enter into decline, allow their financial institutions to swell, become reckless, and cannibalize existing wealth:
Money is “bad,” in the historical sense, when a leading world economic power, passing its zenith –before the United States, think Hapsburg Spain, the maritime Dutch Republic… and imperial Britain just before World War I- lets itself luxuriate in finance at the expense of harvesting, manufacturing, or transporting things. Doing so has marked each nation’s global decline.i:20
He contextualizes this to the exploitation of oil in America:
Historically, it is vital to remember the United States as the nation that, beginning 150 years ago, linked its fate to its vast oil reserves… The twentieth century became America’s golden era partly because it was also petroleum’s.i:15-16
Bad Money was written in response to the “acceleration of events” Phillips listed in his 2006 American Theocracy: “a debt-gorged and negligent financial sector, and the vulnerability caused by the nation’s expensive dependence on imported oil.” iv:xii He predicted that the financial meltdown would begin in housing and then broaden systemically. Government is impeached for failing to forthrightly inform the public about the worsening energy situation and its threat to the financial and economic sectors.
The political establishment’s reluctance to acquaint the American electorate with this dilemma involves three particularly glaring problems: (1) unwillingness to speak of the present oil crisis in the full context of geological, economic, and military history; (2) failure to understand the past vulnerability of great but idiosyncratic national energy cultures [like England relying on coal, the Dutch on wind] losing their familiar footing; and (3) refusal to discuss the evidence of oil-field depletions and insufficient new discoveries that shows petroleum production moving toward an inflammatory worldwide shortage…:11
Phillips contends that there has been a fundamental failure of democratic processes and institutional responsibilities. His opening line in Bad Money reads:
The most worrisome thing about the vulnerability of the US economy circa 2008 is the extent of official understatement and misstatement –the preference for minimizing how many problems there are and how interconnected they are.i:vii
· April 2007: I don’t see (subprime mortgage market troubles) imposing a serious problem. I think it’s going to be largely contained.
· July 2007: This is far and away the strongest global economy I’ve seen in my business lifetime.
· March 2008: We’ve got strong financial institutions . . . Our markets are the envy of the world. They’re resilient, they’re…innovative, they’re flexible.
Finally, Phillips notes that the evasions or ignorance of officials make it no surprise that Americans see our economic/fiscal malaise stemming from poor policy choices and disconnected from our energy problems. Moreover, officials are culpable for allowing the public to believe our energy dilemma can be reduced to slogans, “Drill, baby, drill,” or “Innovate, baby, innovate.” Both catchphrases are supply-increasing fantasies that ignore the need for demand-reducing policies. Drilling our way out is not in touch with geological evidence; and innovating, though important, is typically “sold” in a manner that trivializes the laws of physics and, more generally, ecological principles. Further, both imply that there is no role for, negative effects upon, or sacrifices required of the public.
Although he does not consider the problem of growth, Philips fears the economic devastation peak oil might worki:153 and faintly recognizes The Bottleneck with allusions to the portentous dangers of climate change.i:155,176 E.O. Wilson writes of The Bottleneckii:
We have entered the Century of the Environment, in which the immediate future is usefully conceived as a bottleneck…
[We must] settle down before we wreck the planet… The question of the century is: How best can we shift to a culture of permanence, both for ourselves and for the biosphere that sustains us?
To consider why humanity must “settle down” we turn to William Catton’s Overshoot: the ecological basis of revolutionary change. If we conceive of ecology generally as the study of interrelationships among organisms and their environment, then, argues Catton, sociology and biology each have contributions to make to our predicament of The Bottleneck.
Here is the crux of our dilemma -now coming to the fore- and widely misunderstood as only a passing financial and economic malaise:
… our lifestyles, mores, institutions, patterns of interaction, values, and expectations are shaped by a cultural heritage that was formed in a time when [the] carrying capacity [of the Earth’s resources] exceeded the human [population’s consumption of those resources]. A cultural heritage can outlast the conditions that produced it. That carrying capacity surplus is gone now, eroded both by population increase and immense technological enlargement of per capita resource appetites and environmental impacts… All of the familiar aspects of human societal life are under compelling pressure to change…:8.
Catton characterizes the past four centuries of Western history as the Age of Exuberance, which:
… has two meanings. It can refer to an emotional state, as well as to an emotional stage. The two meanings are connected. Some of the near synonyms for exuberance include such words as “luxuriance,” “lavishness,” “effusiveness,” “superabundance,” and “profusion.” These words reflect the ecological meaning of exuberance –lavish exploitation of abundant opportunities. But other near equivalents can be “excitement,” “ebullience,” “effervescence,” and “enthusiasm.” Such words connote emotional exuberance, a mood that can approach euphoria.
What matters sociologically is that the ecological kind of exuberance can produce among humans the emotional kind [emphasis in original]. It did this for Americans, with profound social effects.vi:80
The conviction that perpetual economic growth is inevitable and sustainable is a cultural belief contradicted by ecological science, which informs us that such growth is “…made possible by two non-repeatable achievements: (a) discovery of a second [Western] hemisphere, and (b) development of ways to exploit … fossil fuel.”vi:5-6
Catton’s intellectual project has gone largely ignored because it is so unabashedly logical and grounded in ecological realities. He noted dryly in 1980, “…re-adaptation hurts. It will be resisted.”vi:174
Interpreting evidence through the prism of Bad Money and The Bottleneck, there is a defensible case that peak oil helped to trigger the current fiscal crisis. Most important for the future, however, there is a hypothetical case that peak will place a practically insurmountable check upon a return to business-as-usual economic growth.
It is critical to illustrate the extent to which Bad Money and The Bottleneck runs counter to the mainstream solution of restoring liquidity and “confidence” to “frozen” financial markets. It leads instead to the recognition that a largely undisciplined and unregulated financial sector, creating phantom wealth, has crashed into the overexploitation and depletion of the earth’s natural resources. If this is cogent, the implications for American society, and its healthcare system, are profound and unavoidable: we will have no choice but to reorganize society, including healthcare, at a lower level of energy usage. Further, this mean our nation must rethink the purpose of the economy –is it to support perpetual growth or to allocate dwindling resources that come from the earth?
Standard views of the fiscal/economic crisis with no exception are guided by the premise of permanent economic growth as the normal state of human affairs. This is a core axiom for the epistemology of mainstream economics. Belief in growth also is common to traditional versions of socialism and capitalism, although it is rejected by a small group of commentators from each ideology informed by The Bottleneck. It follows that orthodox economic advice to resolve the current crisis recommends “increasing liquidity” and “restoring confidence” to free-up credit markets to thereby stimulate a return to economic growth. This is accepted without irony as the solution to the gigantic levels of governmental, personal, and business debt now slowly coming into focus, even if it requires going further into debt to do so. Disagreements among mainstream economists concern assigning blame and the strategies and tactics to enact, not the goal (panacea) of reigniting economic expansion. For example, Nobel laureate economist Joseph Stiglitz submits a laundry list of causes with only one cure:
A unique combination of ideology, special-interest pressure, populist politics, bad economics, and sheer incompetence has brought us to our present condition… Confidence in the economy won’t be restored as long as growth is low, and growth will be low if investment is anemic, consumption weak, and public spending on the wane.
To his credit, Stiglitz shows compassion for the plight of average citizens –many of whom are not “shop till you drop” profligates, but the financially desperate who have been borrowing on their home equity to maintain their standard of living – who are –in the immediate sense- trapped in Wall Street, Federal Reserve, Treasury Department, Congressional, and banking blunders and machinations. From the Bad Money/Bottleneck perspective, however, Stiglitz is describing the narrow, proximate rather than the interconnected, ultimate causes of the crisis. Put differently, these people are undergoing an initial squeeze of humanity entering The Bottleneck.
Herman Daly, an ecological economist, is worth quoting at length in contrast to Stiglitz:
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.
Daly’s analysis lays the groundwork to examine evidence through the Bad Money/Bottleneck prism to make the case that peak oil helped to trigger the financial/economic crisis of 2008. In a minor Wall Street Journal article at the end of 2007, Alan Greenspan, commenting on the “surprising” fiscal crisis and economic downturn then gathering force, said without elaboration that the peaking of worldwide oil production was occurring sooner and at a lower volume than he had anticipated. The reporter did not follow up on this indirect reference to the nexus of Bad Money-and-The Bottleneck. I doubt Greenspan would concur with my interpretation, because he practices a calculated vagueness which allows him to claim he has been misunderstood if anyone draws uncomfortable implications from what he says.
Nonetheless, his comment is, I suggest, enlightening. In May 2005, with oil at $40.00 per barrel, world oil production hit a bumpy plateau, where it remains in the fall of 2008. Subsequently, oil prices began to rise (with declines interspersed) and the interest on some types of loans and ARMs (Adjustable Rate Mortgages) began to increase, leading to higher monthly loan payments. Also, the cost of goods, particularly food and energy, began to increase. This is tied to higher oil prices if one accepts the premise that the plateau in supply occurred as worldwide demand continued to increase. In the autumn of 2008 price is falling as economic growth begins to halt or slow in many nations.
Let’s personify this with a report aired on PBS’s NOW October 10th program. Host David Brancaccio featured a couple and their young children living in the exurbs, 72 miles from the husband’s job in San Diego. In March 2009 their ARM will “reset,” increase, by $600 a month; and presently they are slipping into debt. Their home was purchased in 2000 for $399,000 and is currently valued at $189,000. When asked about the beginning of their financial distress they said it started in mid-2005, and, unprompted, cited gas price increases as their budget-buster. Their standard of living is falling: they no longer eat at restaurants, go to movies or do much discretionary driving or shopping. When the mortgage resets in 2009 -barring a deus ex machina- they will turn the keys to their home over to the mortgage lender to avoid total financial ruin.
The widespread nature of this family’s dilemma is buttressed by information that extensive defaults in the subprime mortgage market began in 2006 and indications that the largest percentages of mortgage defaults and steepest declines in housing price are taking place in the exurbs and suburbs, where people traded lower housing costs for a long commute in a car until oil prices began to climb.
Another critical oil factor in the fiscal crisis, which Phillips discusses,1:16 is the mounting portion of the trade deficit created by importing oil.
In 2002 we spent $102 billion importing oil… that figure rose to $300 billion in 2006; and to $328 billion last year . Those imports … had to be financed, to the tune of $2 billion a day by last year. We convinced the Chinese, Japanese, and many others that our MBS [mortgage-backed securities] were safe…. We needed the oil, so we needed product [various financial instruments] to sell to [other nations to] finance our “addiction.” … Rising oil import volumes multiplied by rising prices contributed to the crisis we are now experiencing.
Additionally, Petroleum geologist Colin Campbell –who grasps the finiteness of oil- in 2006, offered a prescient conjecture on peak oil’s effects on financial activity and the “real” economy:
Expansion becomes impossible without abundant cheap energy. So I think that the debt of the world is going bad. That speaks of a financial crisis, unseen, probably equaling the Great Depression of 1930; it’s probable we face the Second Great Depression. It would be a chain reaction, one bank would fail, and another one would fail, [thereafter] industries will close…
In summary, a steadily increasing supply of relatively inexpensive crude oil enabled a debt-based “bubble” economy to expand and keep fiscal calamity at bay; as the supply of oil hit a peak prices rose and home mortgage defaults triggered the exposure of the dimensions of America’s –and now the entire world’s- financial vulnerability: trillions of dollars of bad debt and insolvency.
A note on the meaning of debt: banks lend money in the expectation that the borrower will create sufficient surplus wealth to repay the loan with interest. Straightforwardly, debt presumes economic growth to overcome the interest on the debt while leaving the borrower with a net gain –profit. A post-peak oil banking system will be forced to thoroughly reformulate it capacities and socioeconomic functions. This brings us to some closing comments on the future of medicine.
There is no doubt a proactive response from healthcare -if it comes- will be tardy and require enormous and speedy change, not incremental adjustments. Further, as the financial/economic crisis worsens there will be fewer degrees of freedom available to healthcare policy-makers, professionals, and stakeholders to respond successfully.
The strategic management repertoire of virtually all the nation’s healthcare executives does not pay heed to The Bottleneck. As for Bad Money, there is a half-truth conceit in healthcare that “medicine is recession-proof.” In any event, it is entirely true that it is not peak oil proof. Accordingly, as the economy continues to contract, the ironic half-truth is that demand for medical services is “recession-proof” and the need for healthcare is likely to grow if not explode, especially with the Baby Boom generation beginning to retire. Simultaneously, unemployment will rise and revenues -medical industry and governmental tax revenues- will begin to decline. Healthcare strategists will employ temporary or emergency belt tightening tactics to weather the expanding financial and economic storm in the expectation -and hope- that it will be solved by government infusions of “paper money” into the financial system and the economy.
The bitter pill, however, is this: Bad Money and The Bottleneck are forcing all American institutions, including healthcare, toward reconciling the disparity between obdurate ecological realities and cultural values Catton has documented.
As opposed to the automobile and airline industries, which are reeling from their direct link to oil, medicine still may have lead-time to strategically react to Bad Money and The Bottleneck. Taking a clue from Rogers’ study of innovation, we can expect 1-2% of the leaders in healthcare to be the first to recognize the portentous radical socioeconomic changes underway and the unprecedented threats they pose to the healthcare system.
Finally, to answer the question, “Is the nationalization of healthcare inevitable?” It is the most likely outcome of Bad Money and The Bottleneck; other possibilities are a severe degradation of the healthcare system or its bifurcation on the basis of ability to pay, which will reflect an unstable democratic society and possibly contribute to civic unrest and conflict.
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NOW http://www.pbs.org/now/thisweek/archive.html. Hosted by David Brancaccio, PBS, October 10, 2009.
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