More Consumption, More War

While the television news was focused on Bush's Animal Farm-style teleconference  with hand-picked and scripted troops in Iraq, two senior U.S. policy makers were busy ensuring that America's Brave New World is defined by resource wars. In a fascinating split-screen performance yesterday, Treasury Secretary John Snow encouraged China to consume more while Supreme Allied Commander James Jones announced that a major new role for NATO would be industrial security.

The mind boggles.

Ostensibly, Secretary Snow's comments  reflect the conventional macroeconomic wisdom that the only way to reverse the enormous U.S. trade deficit is for Asia and Europe to consume more and America to save more. If we examine this argument at face value, TomPaine.com contributor and former China economic analyst Thomas Palley shows here why that's a recipe for domestic economic recession. In short, if we only shift the location of global consumption (from the U.S. to China) the Chinese will be buying more Chinese goods and the U.S. will be buying fewer Chinese goods, but not necessarily more U.S. goods. The result is a contraction of the U.S. economy. Palley rightly argues that what we need to do instead is to raise the demand for American goods.

But if we look beyond the surface of Snow's prescription and, indeed, Palley's, we get to the connundrum of the hard physical and environmental limits to the expansion of either Chinese consumption or the demand for American goods. The physical limits pertain to the tight markets in raw materials, energy and shipping that are already constraining Chinese growth. China cannot get enough steel, aluminum and wood to satisfy demand and prices for these commodities are skyrocketing. As readers of TomPaine.com know intimately, the global oil market is the tightest in history and many analysts admit that production is no longer able to keep pace with demand. As for shipping, the first years of the new millennium have seen a doubling of shipping rates  as Asian economic production soars.

But there is a more sinister limit to expanding either consumption or demand: the environment. The U.N's Millennium Ecosystem Assessment , released last spring, reports that two-thirds of the worlds ecosystems are being unsustainably managed. That includes our atmosphere (climate change), our oceans, our forests, and our wetlands. Given that China's export-led growth is has created one of the largest mass markets in the world—at 200 million Chinese with 1.1 billion waiting in line to migrate to the cities—consumption growth in China will more likely be from market expansion, not from per-capita gluttony.

The math is dismal. If a global economy comprised of 1.5 billion people leads to the overconsumption of two thirds of the world's ecosystems, increasing the size of that economy—or merely the per capita rate of consumption—will quickly mean that all of our ecosystems are doomed. At the current rate of consumption, we would need at least 2.66 earths to provide all the world's population the level of consumption those 1.5 billion currently enjoy (that rises to five earths if we want to let everyone enjoy an American lifestyle). Even if we limit ourselves to Chinese consumption, if the Chinese consumed as much gasoline as an American, per capita, China alone would account for 118 percent of oil production. Obviously, Secretary Snow's prescription is nonsense.

Enter Gen. James Jones. Apparently, NATO's brief flirtation with a more principled mission based on "human security" has ended. His announcement yesterday that NATO is moving toward a new mission of "Industrial Security" is ominous. By industrial security, Jones' meaning is clear. His priority is energy. Writes UPI chief Martin Walker:

Two immediate and priority projects for NATO officials to develop with private industry are to secure the pipelines bringing Russian oil and gas to Europe against terrorist attacks and to secure ports and merchant shipping, the alliance Supreme Commander, Gen. James Jones of the U.S. Marine Corps said Wednesday.

A further area of NATO interest to secure energy supplies could be the Gulf of Guinea off the West African coast, Jones noted, where piracy, theft, political unrest and tensions between Islam and Christianity combined to present "a serious security problem."

Apparantly, Gen. Jones, a Marine, can do the math as well.

What's a planet to do if it cannot grow itself out of the current problem? Change the meaning of growth, to start. Instead of business as usual, we have to aggressively unllink resource and energy consumption from economic growth. To some extent, this is already happening with regard to energy consumption in Europe and the United States. But we need more.

And the sooner we do so, the sooner American firms can begin competing in a vast new market in the developing world. That's because the developing world needs products and services that it can afford to use. Transportation, energy generation, and basic appliances are good examples. American products in these sectors assume American salaries and American infrastructure. When your annual income is $3,000, you cannot afford a $20,000 car. American material and energy inefficiency leaves 4.5 billion customers out in the cold. They simply cannot use our products or services. Considering America cannot secure its oil or continue emitting so much carbon into the atmosphere, the interests of Americans and the interests of this excluded mega-market begin to coincide.

The way to make that happen is to tax what we don't like, like energy and resource use, and reduce taxes on things we do like, like wages. It's called tax shifting. When implemented using market-oriented techniques (carbon trading is a good one on the energy front) the impact on the consumer can be neutral while achieving a major re-orientation of the market towards sustainability. And that's just good politics: What politician wouldn't like to deliver middle and working-class tax cuts?

In contrast to Sec. Snow and Gen. Jones, we don't have to hit the malls and hunker down. We can do better.

Views expressed on this page are those of the authors and not necessarily those of Campaign for America's Future or Institute for America's Future