Saturday, February 20, 2010


The Great Fall-Apart, Continued

In case you were wondering if the Great Fall-Apart, my inelegant name for the deterioration of the world’s infrastructure, is still continuing, the answer is an unqualified yes. “Risks in 2010: Crumbling Infrastructure” informs us matter-of-factly that “Worldwide, some 35 trillion dollars will have to be spent over the next 20 years to meet infrastructure needs, estimates the World Bank” (emphasis mine — as if I needed to emphasize it). Of course this figure includes the construction of new infrastructure as well as repairs to and replacement of existing infrastructure, but the magnitude of that sum is enough to floor even the most optimistic person. All I can say is: Good luck.

Public infrastructure is funded by taxes, bonds, and fees for its use. All face problems now. With usage down, fees are down. Tax receipts are of course flagging badly. We’ll look at bonds below. Here a writer argues that Americans are not taxed as much as people in many other countries, and need to pay more taxes in order to finance “sustainability infrastructure.” Surely building all that new infrastructure will require much more money, and we have to add onto that the funding needed to repair/replace what we already have and is crumbling. Although not explicitly stated, it seems the writer assumes that there will be some kind of recovery which will underpin the economic growth and job creation needed to enable people to pay all these taxes and fees (assuming there is no tax revolt, but that’s another story). But under peak oil, recession is the rule. We cannot expect a return to the good old days, and even economic/finance experts are admitting that any recovery will be “jobless,” meaning that many of the jobs lost since the 2008 crash will never return.

Now on to bonds. Owing to peak oil, debt defaults are getting to be a huge problem that is going to get worse. And it appears we are in for a storm of muni bond defaults. As Warren Buffett has observed, insuring muni bonds is turning into a “dangerous business.” And bonds are another major source of funding for infrastructure projects.

So, where’s all this leading? Peak oil means lower tax revenues (even if taxes are raised), lower fee revenues (because of lower usage), debt defaults (including bonds), and continuing recession that perpetuates and aggravates these. In sum, the world will not even come close to raising that $35 trillion figure stated above. We’ll see less new infrastructure created, and a lot of existing infrastructure deteriorate further. Some infrastructure is already being downgraded, as I noted here.

The Great Fall-Apart is an inevitable consequence of energy decline. Instead of taxing people to death in a vain attempt to save and expand the vast infrastructure that cheap oil built, we should embrace decline and reorder our priorities.

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