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Hot, Flat, and Crowded

Why We Need a Green Revolutionâ"and How It Can Renew America

Picador

Why Citibank, Iceland's Banks, and the Ice Banks of Antarctica All Melted Down at the Same Time

On June 15, 2005, as the global economy was booming, the satirical newspaper The Onion carried the following story about Chinese workers and all the stuff they make for Americans. Though a fake story, like many in The Onion it actually spoke some essential truths:

FENGHUA, CHINA — Chen Hsien, an employee of Fenghua Ningbo Plastic Works Ltd., a plastics factory that manufactures lightweight household items for Western markets, expressed his disbelief Monday over the "sheer amount of [crap] Americans will buy."

"Often, when we're assigned a new order for, say, 'salad shooters,' I will say to myself, 'There's no way that anyone will ever buy these,'" Chen said during his lunch break in an open-air courtyard. "One month later, we will receive an order for the same product, but three times the quantity. How can anyone have a need for such useless [crap]?"

Chen, 23, who has worked as an injection-mold operator at the factory since it opened in 1996, said he frequently asks himself these questions during his workweek, which exceeds 60 hours and earns him the equivalent of $21.

"I hear that Americans can buy anything they want, and I believe it, judging from the things I've made for them," Chen said. "And I also hear that, when they no longer want an item, they simply throw it away. So wasteful and contemptible."

Among the items that Chen has helped create are plastic-bag dispensers, microwave omelet cookers, glow-in-the-dark page magnifiers, Christmas-themed file baskets, animal-shaped contact-lens cases, and adhesive-backed wall hooks.

"Sometimes, an item the factory produces resembles nothing I've ever seen," Chen said. "One time, we made something that looked like a ladle, but it had holes in its cup and a handle that bent down 90 degrees. The foreman told us that it was a soda-can holder for an automobile. If you are lucky enough to own a car, sit back and enjoy the journey. Save the soda beverage for later."

Chen added: "A cup holder is not a necessary thing to own."

Chen expressed similar confusion over the tens of thousands of pineapple corers, plastic eyeshades, toothpick dispensers, and dog pull-toys that he has helped manufacture.

"Why the demand for so many kitchen gadgets?" Chen said. "I can understand having a good wok, a rice cooker, a tea kettle, a hot plate, some utensils, good china, a teapot with a strainer, and maybe a thermos. But all these extra things — where do the Americans put them? How many times will you use a taco-shell holder? ..." Chen added that many of the items break after only a few uses.

"None are built to last very long," Chen said. "That is probably so the Americans can return to buy more ..."

The Onion's satire captured in caricature form the most important engine pulling up living standards across the planet for the last three decades — the intimate relationship between American consumers and Chinese savers and producers. At its core, the China-America growth engine worked like this: We in America built more and more stores, to sell more and more stuff, made in more and more Chinese factories, powered by more and more coal, and all those sales produced more dollars, which China used to buy more and more U.S. Treasury Bills, which allowed the Federal Reserve to extend more and more easy credit to more and more banks, consumers, and businesses so that more and more Americans could purchase more and more homes, and all those sales drove home prices higher and higher, which made more and more Americans feel like they had more and more money to buy more and more stuff made in more and more Chinese factories powered by more and more coal, which earned China more and more dollars to buy more and more T-bills to be recirculated back to America to create more and more credit so more and more people could build more and more stores and buy more and more homes ...

This relationship, so critical in inflating the post–Cold War credit bubble, was so intimate that when Americans suddenly stopped buying and building in the fall of 2008, thousands of Chinese factories went dark and whole Chinese villages found themselves unemployed. Consider the Chinese artist colony Dafen, north of Hong Kong. Dafen's roughly nine thousand art academy graduates have made the colony the world's center for mass-produced artwork and knockoffs of masterpieces — the oil paintings that hang in motel rooms and starter homes across America. Some 60 percent of the world's cheap oil paintings are produced within Dafen's four square kilometers. "A reasonably skillful copy of Van Gogh's 'Sunflowers' sells for $51," Spiegel Online reported (August 23, 2006). "Buy 100 and the price goes down to $33 ...The 100 paintings, guaranteed to have been produced by art academy graduates, ship within three weeks." Not surprisingly, Dafen was devastated by the bursting of the U.S. credit bubble. "American property owners and hotels were usually the biggest consumers of Dafen's works," Zhou Xiaohong, deputy head of the Art Industry Association of Dafen, told Hong Kong's Sunday Morning Post (December 14, 2008). "The more houses built in the United States, the more walls that needed our paintings." And we in America sure did create a lot of new walls for a lot of Chinese watercolors. Overconsuming, overbuilding, overborrowing, and overlending all became the new normal during our post–Cold War credit bubble.

One of my favorite examples comes from my own hometown of Minneapolis. I was visiting there in the spring of 2009 and talking about the problem of runaway consumption with my childhood friend Ken Greer when he said to me, "There is something I have to show you." We drove out to a small strip mall off Shady Oak Road and the Crosstown Highway. "OK, look at this," Ken said as we turned in to the entrance. This "something" was hard to miss. On both sides of the entrance were Caribou Coffee shops, the Minnesota version of Starbucks.

How could one small strip mall need two Caribou Coffees?

We went into the one to the right of the entrance. I ordered my skim latte and asked the barista: "Explain something to me. You're Caribou Coffee and there's another one right over there. I can see it from here. Why are there two Caribou Coffees here less than a hundred yards apart?" Well, she explained, it was very simple. "There were long lines here every morning, so we needed another one."

"I see," I said to myself. Because people had to wait in line a little longer at rush hour in the morning, the Caribou Coffee folks couldn't just add another coffee machine and a couple more baristas. They had to build a whole carbon copy coffee shop on the other side of the mall entrance. Hey, why not? Money was cheap, resources were available. Why not have two of the same coffee shop in the same strip mall ...

With all due respect to Dafen and Caribou Coffee, I hope that we never return to the days of Americans just borrowing more and more money to buy more and more stuff with more and more credit fueling more and more Chinese factories or more and more coffee shops powered by more and more coal. Of course, I am not against global trade and economic growth, but our growth needs to be more balanced — economically and ecologically. We cannot just be the consumer and China the producer, and neither of us can allow the goods produced and consumed to be made or used in ways that harm the environment on the scale that we have been. This way of growing standards of living is simply unsustainable — economically unsustainable and ecologically unsustainable.

And that is why the Great Recession that began in 2008 was not your grandmother's standard recession. This was not just a deep economic slowdown that we can recover from and then blithely go back to our old ways — with just a little less leverage, a little less risk, and a little more regulation. No, this Great Recession was something much more important. It was our warning heart attack.

Fortunately, it was not fatal. But we must not ignore what it told us: that we have been growing in a way that is not healthy for either our markets or our planet, for either our banks or our forests, for either our retailers or our rivers. The Great Recession was the moment when the Market and Mother Nature got together and said to the world's major economies, starting with the United States and China: "This cannot continue. Enough is enough."

Indeed. The way we were creating wealth had built up so many toxic assets in both the financial world and the natural world that by 2008/9 it shook the very foundations of our markets and ecosystems. That's right, while they might not appear on the surface to have been related, the destabilization of both the Market and Mother Nature had the same root causes. That is why Bear Stearns and the polar bears both faced extinction at the same time. That is why Citibank, Iceland's banks, and the ice banks of Antarctica all melted down at the same time. The same recklessness undermined all of them. I am talking about a broad breakdown in individual and institutional responsibility by key actors in both the natural world and the financial world — on top of a broad descent into dishonest accounting, which allowed individuals, banks, and investment firms to systematically conceal or underprice risks, privatize gains, and socialize losses without the general public grasping what was going on.

Of course, not all growth in America or elsewhere was fraudulent in these ways — far from it. We did improve productivity and create new companies, like Amazon.com and Google; new products, like the iPod and the iPhone; and new services, like online advertising and open source software, which collectively made people's lives better, easier, more enjoyable, and more productive. But, in America at least, too much of our economic growth was borrowed from our children's piggy banks and from Mother Nature's reserves, not invented. Therefore, we as a society wound up living beyond our collective means.

It all lasted — until it didn't. Or as my friend Rob Watson, the environmental consultant who founded EcoTech International, likes to say: "You know, if you jump off the top floor of an eighty-story building, you can actually feel like you're flying for seventy-nine stories. It's the sudden stop at the end that gets you."

The Great Recession was our sudden stop. The question is: Can we learn from it? As the Stanford economist Paul Romer has said: "A crisis is a terrible thing to waste." I believe we can learn from this crisis and we must learn from this crisis, and the purpose of this book is to provide one pathway for doing so.

This is a revised edition. The hardcover version of this book was first published in September 2008. In it, I argued that America had a problem and the world had a problem. America, I insisted, had "lost its groove" after the end of the Cold War and particularly after 9/11. We had turned inward and begun to export our fears more than our hopes, and we seemed intent on postponing dealing with every big problem weakening our society — from education to Social Security to health care to the deficit to immigration to energy. I argued that we needed to get back to nation-building at home — and I believe it was that sentiment, shared by a majority of Americans, that propelled Barack Obama to the presidency.

But the world also had a problem, I argued. It was getting hot (global warming), flat (the rise of high-consuming middle classes all over the world), and crowded (on track to adding roughly a billion people every thirteen years.) My thesis then, which remains my thesis here, is that America could get its groove back by taking the lead in developing the technologies and policy solutions to address the world's biggest problems — the energy and environmental stresses growing out of a planet getting hot, flat, and crowded.

What has changed? The first thing that has changed is that America's problems and the planet's problems have become more acute. As noted above, the system of growth we have fallen into has destabilized both the Market and Mother Nature to a degree that can no longer be finessed or ignored. The collision of acute financial and ecological distress that made the Great Recession "great" enabled me to see something that was hiding in plain sight — that the problems destabilizing the Market and Mother Nature were rooted in the exact same kind of dishonest accounting, mispricing of risk, privatizing of gains, and socializing of losses.

So I have revised the opening three chapters to explain how and why the Market and Mother Nature hit a wall at the same time. After that, I pick up the narrative of the original book. The remainder of the first half looks at the impact that our reckless behavior has had on the planet, at a time when it is already becoming hot, flat, and crowded. The second half explains how we can use this crisis to reinvigorate and retool America, whose leadership — technological, financial, ethical, and ecological — will be vitally necessary for the whole planet to meet the unique challenges of this moment.

If I had to sum up what this challenging moment means to us, I would put it like this: Our parents were the Greatest Generation, building for us in America a world of freedom, abundance, and opportunity to a degree that no generation in history had ever enjoyed. My generation (I was born in 1953), the baby boomers, turned out to be the "Grasshopper Generation," a term inspired by the writer Kurt Andersen, who in a Time essay devoted to our recent age of excess (March 26, 2009) argued that Americans in the past thirty years let out our inner "grasshopper" and gorged on the savings and natural world that had been bequeathed to us — leaving our children huge financial and ecological deficits. We cannot afford to be grasshoppers any longer. And therefore we and our children are going to have to be the "Re-Generation," and summon the will, energy, focus, and innovative prowess to regenerate, renew, and reinvent America in a way that will show the world a new model for growing standards of living and interacting with nature that is truly sustainable, renewable, healthy, safe, fair, and creative of more opportunities for more people in more places than ever before.

The green revolution is not about the whales anymore. And it is not about "our children's children," a generation so distant it is really hard to get energized about it. This is about us. This is about the world we and our children will inhabit for the rest of our lives and whether we can find a way to create wealth — because everyone wants to live better — without creating toxic assets in the financial world or the natural world that overwhelm us. This is an urgent project, because the way of life we lapsed into in recent years cannot be passed on to another generation without catastrophic consequences. It is a tall order, a great challenge — one that our children did nothing to deserve but now can do nothing to escape.

As I said, the Market and Mother Nature hit the wall at the same time for basically the same core reasons, which we need to understand if we are going to avoid a repeat. I am going to focus on three: the systematic obscuring and underpricing of the true costs and risks of what we were doing; the pervasive application of the worst sort of business and ecological values, embodied by the catchphrase IBG/YBG — do whatever you like now, because "I'll be gone" or "You'll be gone" when the bill comes due; and the privatizing of gains and the socializing of losses.

Underpricing Risk

The meltdown that occurred in the market was triggered by subprime mortgages, which allowed people with low incomes and tarnished or no credit histories to buy homes. At the height of the subprime craze, one Los Angeles mortgage broker told me, mortgages were being handed out by banks and mortgage providers to anyone who could "fog up a knife." People with incomes of $15,000 to $20,000, with no credit ratings, or in some cases without even a steady job or citizenship papers were granted mortgages to buy $300,000 and $400,000 homes — with nothing down. What is staggering is precisely how much we and others binged on these "subprime" mortgages, as though they were U.S. savings bonds, not hugely risky financial instruments. How did this happen?

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Excerpted from Hot, Flat, and Crowded by Thomas L. Friedman. Copyright © 2009 Thomas L. Friedman. Excerpted by permission of Picador.
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