Sunday, March 22, 2009

Toward A More Honest Accounting

In a well-functioning economy, supply and demand should balance. -- Winston Munn.

In a well-functioning society, people should not be considered a hindrance.

One of the key asymmetries of modern economies, which is rarely accounted for, is the “fossil economy.”

The fossil economy is the rapid and total liquidation and sale of a natural resource which has taken millennia to accrue and will be exhausted within a century or two. The whaling industry is a perfect example. There was no plan to sustain whale stocks. The plan was to literally kill every single whale and convert them into saleable products.

Most of the economies of the world are based on the exploitation of fossil resources like whales, or old growth forests, or enormous swaths of land to build plantations or hydro dams, or to extract oil and natural gas.

These economies are not converting present labor and present productivity into a saleable commodity. They are mining fossil energy and resources that we did not create into, often, “burnable” assets (ie. whale oil and crude oil). These economies are literally based on mining and burning the past.

Our economists’ books have been always skewed to forget that these fossil assets are finite and are not being renewed. But in reality, our entire economic model is based on the continued free availability of these fossil resources.

What we folks are seeing now is, in some sense, that natural bank account being drawn down to the dregs in the bottom of the barrel. This is a rant about "peak oil." Nor is it meant to be apocalyptic -- the Earth is 4 billion years old. This is an accounting question.

I think we need to split our accounting books between what is “newly” created value and what is value that is created on the back of very old natural resources that we are mining and will not last much longer at the rate we are now consuming them.

A more honest accounting book will give us a better sense of what compass heading we need to take tomorrow.


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