The World is Flush With Excess Money

          An interesting sidebar to the recent run up of oil prices has arisen. Fundamentally, in the long run, scarcity will jack up prices to astronomical levels, that’s a given. However, it turns out that hedge funds are doing a lot of crude transactions and their speculations are impacting prices. Something like half the crude oil futures contracts, that is, contracts for delivery of product at a certain date, aren’t parties who are actually going to use the oil, but these funds who are in it purely for speculation.

          Hedge funds, for the uninitiated, are financial playgrounds for the superwealthy. They have huge amounts of money to play with so they buy and sell by ‘hedging’ for very small percentage advantages. A one hundreth of one percent gain on a 10 billion dollar bet still amounts to a hundred thousand dollars. Even the fattest cats don’t look askance at that kind of money.

          The money players will assure you that price is a function of supply and demand, but there’s something else happening here - it’s also related to how much money is available to spend. As long as the superrich are awash with moolah, they will have to do something with it. Their fun and games is speculation; therefore, one way to avoid wild swings in prices is to take away their money.

          It seems unbelievable now but back in the Eisenhower years, incomes in America in the highest tax bracket were taxed at 91%. Of course, there were loopholes; there always are some. One involved tax-free municipal bonds. Invest in the community and you didn’t have to pay taxes on the income. Municipalities payed lower rates because of the tax exempt nature of the bonds. Exemptions also encouraged charitable giving.

Those were the economic good old days when nearly all incomes were rising and society was advancing. The wealthy may have complained about their plight, but they kept on working and accumulating. If high tax rates had a dampening effect on the desire to gain wealth, it clearly did not affect the country’s growing prosperity.

          Even when Reagan took office the nominal tax rate stood at 70%. Today, it’s 33%. Clinton raised it to 38% to bring the deficit under control. Not all that far back corporations paid half of American income taxes, today it’s around 10%. The effect of throwing all that money at the wealthy, the ownership class, is to raise the cost of everything, for everybody.

          Supply and demand may work fine when incomes are distributed relatively equally, but breaks down completely when large numbers of people are priced out of the market. There’s plenty of demand for housing under $1000 per month in cities like San Francisco or New York, but no supply. People with resources have taken all the available places. If there were less money overall, all rents would go down and people on the bottom would have relatively greater purchasing power.

          Back in 1970, I visited a friend who lived right on the Oregon Coast just south of Newport. His place was on a bluff with a 180 degree view of the ocean. It was a funky house to be sure, but his rent was only $50 a month. Rising population and wealth and growing income inequality have combined to price the vast majority of people out of those types of markets. Today only the elite get to enjoy ocean views.

          Which brings up a situation related to me by an old friend that is emblematic of the problems brought on by the social disease of excess wealth. He’s a landscape designer for the superwealthy in Santa Barbara but the story goes back to the mid-eighties. For those of you unfamiliar with the city, it’s on the southern California coast, which means it has what most would consider a near perfect climate. It’s nearly always warm but never hot. Annual rainfall is light, which means it gets lots of sun. It also experiences few storms.   

          It’s small and pleasant compared to the behemoth freeway-choked LA to the south or the equally traffic-challenged Bay Area in the north, but still close enough to easily take care of business in the big cities. It has beautiful beaches and backs up against picturesque mountains. In other words, a highly desirable place to live. As such, competition for space makes its housing very expensive. It’s also been the place to be for those with deep pockets for a long time so that view properties are very hard to come by. What does a poor fat cat who must have a view do in those circumstances?

My friend did a job for a man who purchased a property with a 20-year-old, 7000 square foot (about 700 sq. m.) house on it. It came replete with tropical hardwoods, hand painted ceramics and all the fineries that go with a domicile of the elite. A 20-year-old house is practically new; well-built it could easily last centuries. However, it wasn’t good enough for the purchaser because it wasn’t his own style and, evidently, wasn’t big enough because he bulldozed it and replaced it with a 20,000 square footer. He essentially bought a house worth millions of dollars so he could have the land under it.

          I was especially stunned by the grossness of the story since at the time I was working as a recycler, using personal energy to save scraps of paper, tin can lids, plastic yoghurt containers. I was taking small actions which I considered good for the world (but in fact were money losers since the American economy has always been oriented towards waste, not conservation) while this guy was nonchalantly trashing an almost new mega-house.

          So then the real question is, ‘How many conscientious citizens does it take to compensate for one arrogant fat cat bastard?’. And further, ‘As long as the philosophy that governs the world encourages everybody to aspire to filthy-richism, why should anyone bother doing things right?’

          Well, I do things right because it’s my way, but I don’t get fanatic about it because until the paradigm changes, the recycling of tin cans, etc., is an empty gesture. As long as waste and profligacy is exalted, let alone carries no penalties, the planet is doomed. Ok, doom is pretty strong. How about simple everyday calamity?

We, the collective planetary we, aren’t reducing our CO2 emissions by 60%, which is the minimum necessary to avert total climate catastrophe; neither are we complying with the Kyoto reductions of a few percentage points. Instead we are increasing our emissions at a fast rate. Even those countries who are paying lip service to the need for change, who say they really care, are increasing their pollution.

The world can’t continue on it’s present course. Here’s another example of retrograde movement. Back when Portland’s first light rail line was being planned in the early 80’s it was decided that air-conditioning wasn’t needed. For those of you unfamiliar with Portland’s climate, many consider it to be naturally air-conditioned. It gets hot for sure, but not very often. In an average year the temperature goes over 90F (32C) only 11 times. Moreover, it’s a dry heat. It’s almost never hot and sweaty the way it is here in Cambodia or in America’s east. It also cools off very fast when the sun goes down. Here in Phnom Penh when it’s 90F at 2 PM, it’s still 86F at midnight. In Portland, 90 turns to 75 at 8PM and 64 (18C) at midnight and of course it’s cool in the morning.

Though I personally never prefer it – I’d much rather sweat – a case can be made for artificial cooling here in the steamy tropics. In Portland, in contrast, for the cost of a little discomfort, a large expenditure of energy can be avoided, not to mention the cost of the machinery itself. Air-conditioners also create much greater noise levels than fans. Ah, but from the time the first trains were put into service in 1986 and the year 2000, there were great changes in Americans’ attitudes. Less than total comfort is no longer acceptable. This was abetted by the epidemic of obesity – all that excess insulation sure can heat a person up. As a result, they installed air-conditioners on the old trains. Now, on an ideal 75 degree day (24C), it’s a bone chilling (I’m exaggerating a little) 66 in the train. Now we use energy to make people uncomfortable when it’s perfect, or near perfect, outside.

We can not mindlessly, arrogantly increase our energy consumption and still create a sustainable planet. The US cannot continue to export its profligate lifestyle to the developing world without dire consequences. There are no energy substitutes capable of maintaining America’s wastrel ways. It simply cannot be done.

That does not mean we have to go back to living in caves. Solar building design can tremendously reduce energy consumption. For instance, I had a house in Portland which was naturally cooled. You wouldn’t call it air-conditioned because you couldn’t set the temperature to your taste but it was consistently 15 degrees F cooler than outside. Here’s how it was done. First I built a greenhouse in the attic. I also included a lot of venting in the greenhouse to the effect that there was little difference in temperature between inside and out. Still, it was hot up there on a summer day. Next I merely opened the basement door and created a vent between the basement and the first (ground) floor and additional small vents between first and second floors.

The greenhouse created hot air on top. As we know, hot air rises. We also know that it’s always cool in a basement in a temperate climate no matter how hot it is outside. So, very simple, the hot air on top rises, creating a draft which pulls the cool air up from the basement. Voila, cooling for free. Also in this case, you keep the windows shut because you want the air to come from the cool basement rather than the warm outside. It’s also good to have shade trees on the south side of the house to keep it from the sun’s direct rays (only in the northern hemisphere, of course). Yes, it was pretty warm inside on the few days a year when the temperature rose up above 95F, but if you want perfection, you must also take responsibility for climate catastrophe.    

           We are not building solar houses, we are filling the American countryside - and a lot of other places - with energy-hog mcmansions. We have no desire to adapt to the planet, we insist on exploiting it to placate our wasteful ways. We are going backwards. In conclusion, face reality, it’s folly to worry about the planet; your efforts in that regard are futile. The small incremental changes you make as an individual cannot possibly compensate for the gluttony of the wealthy.

At the same time, I don’t want to discourage anybody out there from being a good citizen. We all know what we need to do; moreover, we have to live with ourselves and our personal impact on the Earth. Most importantly, if your concern leads to greater self-sufficiency, then your steps will be well taken. Until we can bring back that 91% tax rate and simultaneously instill in the elite a sense of responsibility and community and shared future, the most you can do is take care of yourself and those who are close to you... and prepare for the worst.