I made the claim in the last post that Marxism and Nationalism are enjoying a resurgence at present. I would add that they may well enjoy a bright future if it happens that Liberalism broadly defined is seen to be failing. Liberalism is the ruling regime in the form of democratic capitalism, having emerged victorious from the Second World War and the subsequent Cold War. Liberalism as currently practiced has run into some difficulties with the capitalism part suffering from a form of gigantism, and democracy having come down with a case of disinterest. Like any human system, the perception of its efficacy is of primary importance. If people stop benefiting from or believing in the system of democratic liberalism they will look to alternatives.
By saying that Marxism and Nationalism will gain traction in the 21st century doesn't mean that we will repeat what occurred in the 20th century or that WWIII will be fought with the same ideological mix that WWII was fought over. ( An interesting note: WWIII is not a word according to spellchecker but WWII is.) Also, in saying these ideologies are likely to re-emerge doesn't mean I am advocating either one. What they represent is a fall back position for people when the current system, with all the hopes and dreams it promises, begins to unwind and stops working for people.
What I wanted to describe with the case of North Korea was exactly this fall back ideology, or a fall back means to provide a social order. There they have a primordial nationalism that supplanted Communism over the course of the 20th century. It turns out that communism was great as a revolutionary ideology but proved to be weak tea when it came to holding the fabric of society together. I think something similar happened in all of the communist countries. It's impossible to describe North Korea as a successful country fulfilling its own dreams and aspirations. It's likely that it will either implode or explode due to the psychological hemorrhaging of its collective cognitive dissonance in the coming years. It is only the process of re-emergence of forms of organization around ideological ruling principles I want to point out.
These forms have two aspects we can look at: modern and primordial. Modern nationalism is an expression of a primordial tendency to identify with whatever society you are born into and that your individual chance of survival depends on this identification. The tendency is for people to be willing to subsume their own identity within that of the "nation" warts and all because the "other" is having none of it. Modern forms of nationalism is the stone age mind fitting itself in modern garb (paleoconservatism). This is not a criticism as such. Nationalism is a human tendency lying around that is easy for leaders to exploit when times get tough, or when the nation feels it is under threat. It's not an accident that nationalistic behavior manifests itself during wartime.
Marxism is another matter. It is strictly a modern ideology because it is a critique of a modern system (capitalism) and a proposed self-consciously modern industrial system. It sees itself as taking the baton from capitalism when the anticipated failure of capitalism is apparent. I'm using Marxism as a blanket term which includes communism and socialism, but it's important to realize the differences among them. Contemporary Marxists still believe the prediction that capitalism will destroy itself because of its "internal contradictions. Whether Marxists have it right or not is another story, or if they have it for the right reasons. But I think they have enough that's right, class struggle for example, to offer a plausible explanation for what is happening in the economy.
But Marxism is also a moral philosophy. In this way it has a powerful primordial element which transcends its modern foundation that will appeal in a time of scarcity. Governments will respond in one way or another to falling economic participation and a Marxist upwelling would seek to influence what that response is. But as is commonly said about Marxism is that it's long on analysis and short on prescription, meaning, as I see it, the practical program runs against human's natural tendency to accumulate and to horde. Communes, for example, are generally short lived. The only durable forms of communal living outside the family are religious. All moral philosophies and ethical systems run into the same problem.
Both of these ideologies are present in the world and increasingly active. In the midst of the death throes of the European Union, you are starting to see both nationalism and Marxism increasing in popularity. Greece is having a critical election right now and the left wing Syriza, a radical left party, threatens to default on Greek debt if they take power, which is a real possibility. On the far right side you have nationalistic parties on the rise in France, Britain, Belgium, and anywhere else you care to look as a reaction to the troubles of the EU. This is all just a prologue for what's to come given that the EU can't pay for itself.
Managing decline is a tricky prospect. A lot depends on how people generally understand what's happening. This is a function of ideology. Ideology, though, being based on how people understand what's going on, is likely to be extremely varied and based on old themes. Nationalism and Marxism are two very general descriptors which lay out familiar narratives. But an ideology based on an explanation of the decline, with a program for how to manage decline in a civil manner, might be able to ascend and form the operating principle for managed decline. That will be the subject of the next post.
Tuesday, December 30, 2014
Friday, December 26, 2014
A Non-Comedic Tour of Ideology
When thinking about "ideology boxes", to stay consistent with the idea of a box it's a good idea to talk about the parameters of ideology as a category of thought. There are two ways to approach this. The first is that ideology is a shifting, mutable concept that reflects the times in which it is active, even as it encompasses more time-durable concepts from morality or religion. The second is that ideology is specific to political beliefs, and that recognizing when something in the world; a phenomenon, a fact, a belief, is not in itself ideological is useful to figuring out what an ideology is. This is a point I made in the last post that I want to drive a little further by using a couple of real life examples to show what I mean by it, as well as to showcase a peeve I have about how the media talks about things.
North Korea has been in the news for the past week, which is something I don't need to tell anybody, having been implicated by the FBI in the cyber attack against Sony pictures. The attack preceded the impending release of "The Interview", what looks to be a mediocre film with perhaps some mildly amusing bits occurring in some places during it. As we all know, the plot centers around the assassination of North Korea's leader, Kim Jong-un, a comedic device the North Korean's apparently did not find humorous (the DPRK is, you could say, accidentally funny). The effect has been a geo-political dust-up and some discussion in the U.S. about a basic tenet of a free society. All well and good, but it's not what I'm going to talk about.
What it did was spur me to revisit the subject of North Korea to form some perspective on the country itself and how we in the U.S. are talking about it. North Korea is often referred to as a communist nation, or socialist, which is, maybe, kind of accurate. They call themselves that, after all. During my You Tube investigation, I found a BBC program featuring a journalist who disguised himself and his cameraman as tourists. The two of them took the official state tour of North Korea for non-dignitaries and made a 30 minute program about it. The tour itself as presented by the official North Korean tourism ministry is, as you can imagine, a bizarre look at the happy mask over the Orwellian nightmare that is the DPRK. But there were a few scenes in which they managed to show a glimpse of the true conditions almost all people who live there endure, which led the journalist to ask: What ideology does this represent? What is positive program here? Of course, it's a rhetorical question. There is none beyond the personal power of Kim Jong-un.
It made me think that describing the DPRK as a "communist" country really isn't very accurate or useful in understanding what the government is or to explain how it acts. If you consider all the totalitarian regimes that sprang from the communist revolutions, they turned into something resembling the form of government that prevailed before the revolution. North Korea carried over some major old world, pre-modern elements that now serve to legitimize the current regime. These basic elements of the DPRK are a slightly morphed and extremely brutal monarchy supported by an official state ancestor worship. Kim il-Sung, in their official account of things, is still the leader of that country even though he's been dead for twenty years. This does not represent any tenet of communism that I know of. Ancestor worship is a form of societal organization that can be traced literally to the stone age. So the ruling ideology shifted from a left wing communist to a right wing nationalist one heavily reliant on prevailing myths about the war with the U.S..
Of course, ancestor worship isn't peculiar to North Korea. Japan has the same belief, at least until recently, about their emperor. Mao, whose governance most closely resembles that of North Korea, eventually morphed himself into a Godhead like the emperors before him. So these ancient forms of divinely sanctioned rule go way back. Remember what Marx said about religion? There is nothing in North Korea outside the completely unbelievable claims they make about themselves that has anything to do with Karl Marx or of communism. If anything it's used as a gauge to measure the likelihood a person may live or die after each and every conversation they have with someone in authority. Though, probably even a slip up on doctrine might be forgivable and the real live/die outcome is based on whether you've heaped enough praise on the Dear Leader. And it's useful to remember that it's not possible to praise him too much.
A healthy, sane person finds North Korea a repellent subject, so the next part will feel light hearted and fun in comparison. But to sum up on the Kim dynasty and North Korea's comi-tragedy, one point I want to make is that ideology is a lens through which to make things sensible, and to know what does or doesn't fit the description makes a big difference in how you think about something. Marx's ideal economic form was not to be controlled by a divine leader with supernatural talents whose only use for the national industry is to build extravagant monuments to himself. This affects both how we view North Korea and how we view Marx.
Exhibit B is something I just found mildly revealing about how media people, especially more general interest figures, think about the economy. It is an interview with Jeremy Grantham by Charlie Rose. Jeremy Grantham is a very interesting person. He is an institutional investor for Grantham, Mayo, van Otterloo, which manages some $112 billion in assets. Call him a capitalist par excellence. He is also able to speak to the subjects found in this blog better than I can. In the clip posted below, which is about three and a half minutes long, Grantham describes to Rose what is happening to the economy based on the resource argument and the rising cost of oil.
What I find interesting is how Rose tries to understand what Grantham is talking about through the lens of politics. Rose bleats out Paul Krugman's and Ronald Reagan's names midway through to get a response from Grantham and Grantham shrugs him off. Grantham, of course, is saying nothing, or doesn't want to, about politics and Rose has a hard time with it.
It's worth reading through the relevant parts of Grantham's newsletter to his investors which is here. In this link are several others to the full newsletter.
All of this typing I have done is to demonstrate a need to think clearly at least about ideology. The world is changing along lines that will be expressed through ideology. Two things pop into the cranial box. The first is that a resurgence of nationalism is already happening. Vladimir Putin is a right wing nationalist, as can be seen by his adoption of the Russian Orthodoxy. Ahmadinejad appealed to a conservative nationalism. But I also see Marxism to make a comeback, and Latin America is the place to look for that. Can't say it will be a big hit in the U.S. but then again, Marx has a big advantage in his ready made class analysis and the Law on the Declining Rate of Profit, all of which fit rather well in today's political wackiness.
North Korea has been in the news for the past week, which is something I don't need to tell anybody, having been implicated by the FBI in the cyber attack against Sony pictures. The attack preceded the impending release of "The Interview", what looks to be a mediocre film with perhaps some mildly amusing bits occurring in some places during it. As we all know, the plot centers around the assassination of North Korea's leader, Kim Jong-un, a comedic device the North Korean's apparently did not find humorous (the DPRK is, you could say, accidentally funny). The effect has been a geo-political dust-up and some discussion in the U.S. about a basic tenet of a free society. All well and good, but it's not what I'm going to talk about.
What it did was spur me to revisit the subject of North Korea to form some perspective on the country itself and how we in the U.S. are talking about it. North Korea is often referred to as a communist nation, or socialist, which is, maybe, kind of accurate. They call themselves that, after all. During my You Tube investigation, I found a BBC program featuring a journalist who disguised himself and his cameraman as tourists. The two of them took the official state tour of North Korea for non-dignitaries and made a 30 minute program about it. The tour itself as presented by the official North Korean tourism ministry is, as you can imagine, a bizarre look at the happy mask over the Orwellian nightmare that is the DPRK. But there were a few scenes in which they managed to show a glimpse of the true conditions almost all people who live there endure, which led the journalist to ask: What ideology does this represent? What is positive program here? Of course, it's a rhetorical question. There is none beyond the personal power of Kim Jong-un.
It made me think that describing the DPRK as a "communist" country really isn't very accurate or useful in understanding what the government is or to explain how it acts. If you consider all the totalitarian regimes that sprang from the communist revolutions, they turned into something resembling the form of government that prevailed before the revolution. North Korea carried over some major old world, pre-modern elements that now serve to legitimize the current regime. These basic elements of the DPRK are a slightly morphed and extremely brutal monarchy supported by an official state ancestor worship. Kim il-Sung, in their official account of things, is still the leader of that country even though he's been dead for twenty years. This does not represent any tenet of communism that I know of. Ancestor worship is a form of societal organization that can be traced literally to the stone age. So the ruling ideology shifted from a left wing communist to a right wing nationalist one heavily reliant on prevailing myths about the war with the U.S..
Of course, ancestor worship isn't peculiar to North Korea. Japan has the same belief, at least until recently, about their emperor. Mao, whose governance most closely resembles that of North Korea, eventually morphed himself into a Godhead like the emperors before him. So these ancient forms of divinely sanctioned rule go way back. Remember what Marx said about religion? There is nothing in North Korea outside the completely unbelievable claims they make about themselves that has anything to do with Karl Marx or of communism. If anything it's used as a gauge to measure the likelihood a person may live or die after each and every conversation they have with someone in authority. Though, probably even a slip up on doctrine might be forgivable and the real live/die outcome is based on whether you've heaped enough praise on the Dear Leader. And it's useful to remember that it's not possible to praise him too much.
A healthy, sane person finds North Korea a repellent subject, so the next part will feel light hearted and fun in comparison. But to sum up on the Kim dynasty and North Korea's comi-tragedy, one point I want to make is that ideology is a lens through which to make things sensible, and to know what does or doesn't fit the description makes a big difference in how you think about something. Marx's ideal economic form was not to be controlled by a divine leader with supernatural talents whose only use for the national industry is to build extravagant monuments to himself. This affects both how we view North Korea and how we view Marx.
Exhibit B is something I just found mildly revealing about how media people, especially more general interest figures, think about the economy. It is an interview with Jeremy Grantham by Charlie Rose. Jeremy Grantham is a very interesting person. He is an institutional investor for Grantham, Mayo, van Otterloo, which manages some $112 billion in assets. Call him a capitalist par excellence. He is also able to speak to the subjects found in this blog better than I can. In the clip posted below, which is about three and a half minutes long, Grantham describes to Rose what is happening to the economy based on the resource argument and the rising cost of oil.
What I find interesting is how Rose tries to understand what Grantham is talking about through the lens of politics. Rose bleats out Paul Krugman's and Ronald Reagan's names midway through to get a response from Grantham and Grantham shrugs him off. Grantham, of course, is saying nothing, or doesn't want to, about politics and Rose has a hard time with it.
It's worth reading through the relevant parts of Grantham's newsletter to his investors which is here. In this link are several others to the full newsletter.
All of this typing I have done is to demonstrate a need to think clearly at least about ideology. The world is changing along lines that will be expressed through ideology. Two things pop into the cranial box. The first is that a resurgence of nationalism is already happening. Vladimir Putin is a right wing nationalist, as can be seen by his adoption of the Russian Orthodoxy. Ahmadinejad appealed to a conservative nationalism. But I also see Marxism to make a comeback, and Latin America is the place to look for that. Can't say it will be a big hit in the U.S. but then again, Marx has a big advantage in his ready made class analysis and the Law on the Declining Rate of Profit, all of which fit rather well in today's political wackiness.
Tuesday, December 23, 2014
Ideological Boxes
At some point it is inevitable that this blog will veer into some kind of comment about politics. Not yet. Not today. I've talked a lot about economics and what's going on in the Market as a proxy for politics because it's more quantitative and is a more fundamental force because of its interaction with the natural world. In other words, it's where the rubber of society meets the road of physical reality. Economics and the operation of the Market has additionally been a huge feeding ground in the development of modern political ideologies, especially in the twentieth century, but at present we have a staid .
Political ideology can be seen as a philosophical set of principles which form the basis for reasoned and consistent political action. A durable ideology includes a plausible description of a reality that informs the political animal. I'll define "a plausible description of reality" as beliefs and convictions about how the world works and how it should work. Thus armed, the political animal engages the world in a manner consistent with being an animal.
It's important to make a distinction between politics, political ideology, and the intellectual feedstock which informs ideology. A good statement on this I read a while back comes from James Howard Kunstler who had this to say about capitalism: I don't really see capitalism as an ideology...I see it more as a set of laws and principles around the allocation and management of surplus. This to me is a refreshingly boring statement. By boring I mean sober. He hadn't smoked anything before he said it. And by "smoked" I mean the statement didn't spring from an overly-impassioned or rigidly adhered to determination of capitalism's existence based on a political ideology. Kunstler is not a closeted Marxist.
This is not to say that capitalism doesn't inform political ideology or that its tenets aren't used as a political platform. By saying this, Kunstler is pointing to an historical observation that hinges on what he means by "surplus". Traditionally capitalism is defined, as Marx observed, as surplus capital. It's why he coined the term "capitalism". The term is purely descriptive based on this feature. Kunstler, however, did not say "surplus capital", he said "surplus". All the extra stuff left over once the producing's done that can be reinvested to produce more stuff. Money represents this stuff, as I've said before, but it is not the stuff. The amount of money rose with the amount of stuff.
Capitalism emerged as the Industrial Revolution literally picked up steam, setting the conditions from which capitalism could emerge. As we all well know, the Industrial Revolution was really an energy revolution. Surplus energy allowed the formation of surplus capital. It isn't an accident that capitalism is new on the historical scene and, by extension, neither is it an accident that modern political ideologies (the biggies of Fascism, Marxism, Communism, Nationalism, Socialism, Libertarianism, Progressivism, etc.) emerged as well over the course of the modern era starting about 200 years ago*. This is a distinct phase of history with distinct political characteristics driven by the interpretations of contemporaneous participants (political animals). Except for maybe Nationalism, all of the above ideologies had a sophisticated position towards and critique of capitalist production.
Every relevant contemporary ideology takes a position on or incorporates capitalism. Capitalism is the water all us fishes swim in. The question of whether it works or is the best system rarely gets asked publicly any more, and is never asked among the ruling elite. The question for all of us in the non-ruling non-elite is whether capitalism as a going concern can really survive the loss of surplus. As the banquet of natural resources get munched down the depletion curve is it possible for a system that is growth dependent to be viable? I say categorically "no". Is this position ideological? Not now, not today. But I think it will be, and the first stirrings are already happening. For example, Naomi Klein in her latest book "This Changes Everything" raises the question in light of climate change. A fair number of Libertarian Market animals believe capitalism is already dead, killed by John Maynard Keynes and the Federal Reserve. My position is that it is a Type II diabetic staggering on to the next sugar buzz.
My position is not ideological partly because it has no current political expression. It is an observation and a prediction. Markets will go on for as long as there is human society, but capitalism will not return in my lifetime once it has left in my lifetime. As the prospects darken for capitalism, the response to it will have major implications for the ruling ideologies, and even the non-ruling ones. New ideologies will form from the interpretations of the most active political animals and these interpretations will likely be varied. But the non-ideological force behind them all, whether they will choose to acknowledge it or not, will be the profoundly impersonal non-human rest-of-existence acting on our most cherished means of production.
So, let's call my position a pre-ideological one. I am deliberately and consciously non-committal regarding political positions in this blog. That may not always be the case but that's what I do now. Somewhere some lunkhead said once "everything's political". I know what was meant by it and he did not mean every tiny motion anywhere in the universe is political. However, this kind of thinking leads to the mentality that the only thing worth doing or considering is political. Things become political when their import is recognized by the society. Climate change is not inherently political. It is the non-human world intruding into the human world. The same holds for resource depletion. Ideologies which do not account for this are doomed to fail, as are societal systems based on the expectation of growth. Capitalism and democracy are the two foundational institutions of the Western liberal tradition. Democracy can live without capitalism and the reverse seems to be true. But can democracy survive the aftermath of the failure of capitalism? I think it depends on how prepared people are. Forming an ideology around this probable outcome is a good place to start.
*Of these listed ideologies, the two that use(d) capitalism systematically as a basis for their respective ideologies are Libertarianism and Fascism, Libertarianism being the purest expression of a capitalistic ethic of probably any ideology.
Political ideology can be seen as a philosophical set of principles which form the basis for reasoned and consistent political action. A durable ideology includes a plausible description of a reality that informs the political animal. I'll define "a plausible description of reality" as beliefs and convictions about how the world works and how it should work. Thus armed, the political animal engages the world in a manner consistent with being an animal.
It's important to make a distinction between politics, political ideology, and the intellectual feedstock which informs ideology. A good statement on this I read a while back comes from James Howard Kunstler who had this to say about capitalism: I don't really see capitalism as an ideology...I see it more as a set of laws and principles around the allocation and management of surplus. This to me is a refreshingly boring statement. By boring I mean sober. He hadn't smoked anything before he said it. And by "smoked" I mean the statement didn't spring from an overly-impassioned or rigidly adhered to determination of capitalism's existence based on a political ideology. Kunstler is not a closeted Marxist.
This is not to say that capitalism doesn't inform political ideology or that its tenets aren't used as a political platform. By saying this, Kunstler is pointing to an historical observation that hinges on what he means by "surplus". Traditionally capitalism is defined, as Marx observed, as surplus capital. It's why he coined the term "capitalism". The term is purely descriptive based on this feature. Kunstler, however, did not say "surplus capital", he said "surplus". All the extra stuff left over once the producing's done that can be reinvested to produce more stuff. Money represents this stuff, as I've said before, but it is not the stuff. The amount of money rose with the amount of stuff.
Capitalism emerged as the Industrial Revolution literally picked up steam, setting the conditions from which capitalism could emerge. As we all well know, the Industrial Revolution was really an energy revolution. Surplus energy allowed the formation of surplus capital. It isn't an accident that capitalism is new on the historical scene and, by extension, neither is it an accident that modern political ideologies (the biggies of Fascism, Marxism, Communism, Nationalism, Socialism, Libertarianism, Progressivism, etc.) emerged as well over the course of the modern era starting about 200 years ago*. This is a distinct phase of history with distinct political characteristics driven by the interpretations of contemporaneous participants (political animals). Except for maybe Nationalism, all of the above ideologies had a sophisticated position towards and critique of capitalist production.
Every relevant contemporary ideology takes a position on or incorporates capitalism. Capitalism is the water all us fishes swim in. The question of whether it works or is the best system rarely gets asked publicly any more, and is never asked among the ruling elite. The question for all of us in the non-ruling non-elite is whether capitalism as a going concern can really survive the loss of surplus. As the banquet of natural resources get munched down the depletion curve is it possible for a system that is growth dependent to be viable? I say categorically "no". Is this position ideological? Not now, not today. But I think it will be, and the first stirrings are already happening. For example, Naomi Klein in her latest book "This Changes Everything" raises the question in light of climate change. A fair number of Libertarian Market animals believe capitalism is already dead, killed by John Maynard Keynes and the Federal Reserve. My position is that it is a Type II diabetic staggering on to the next sugar buzz.
My position is not ideological partly because it has no current political expression. It is an observation and a prediction. Markets will go on for as long as there is human society, but capitalism will not return in my lifetime once it has left in my lifetime. As the prospects darken for capitalism, the response to it will have major implications for the ruling ideologies, and even the non-ruling ones. New ideologies will form from the interpretations of the most active political animals and these interpretations will likely be varied. But the non-ideological force behind them all, whether they will choose to acknowledge it or not, will be the profoundly impersonal non-human rest-of-existence acting on our most cherished means of production.
So, let's call my position a pre-ideological one. I am deliberately and consciously non-committal regarding political positions in this blog. That may not always be the case but that's what I do now. Somewhere some lunkhead said once "everything's political". I know what was meant by it and he did not mean every tiny motion anywhere in the universe is political. However, this kind of thinking leads to the mentality that the only thing worth doing or considering is political. Things become political when their import is recognized by the society. Climate change is not inherently political. It is the non-human world intruding into the human world. The same holds for resource depletion. Ideologies which do not account for this are doomed to fail, as are societal systems based on the expectation of growth. Capitalism and democracy are the two foundational institutions of the Western liberal tradition. Democracy can live without capitalism and the reverse seems to be true. But can democracy survive the aftermath of the failure of capitalism? I think it depends on how prepared people are. Forming an ideology around this probable outcome is a good place to start.
*Of these listed ideologies, the two that use(d) capitalism systematically as a basis for their respective ideologies are Libertarianism and Fascism, Libertarianism being the purest expression of a capitalistic ethic of probably any ideology.
Friday, December 19, 2014
Thinking Inside the Box
So what I try to get at with this blog is to describe contemporaneously the "Really Big Thing" (RBT) in human endeavors. I innately approach this RBT in a way akin to finding pieces in a puzzle, except that the puzzle changes as I am putting it together. This is the wily effect time has on cognitive puzzling. I submit that one needs to be, in fact, has a moral responsibility to be, a Dynamic Cognitive Puzzler (DCP). But that's a bit of an aside. Time changes the structure of the puzzle, and of the puzzler, in many ways. An event (disaster, decision, happy outcome) alters and largely conditions or determines what is possible thereafter, and time has a way of cementing these events so that they cannot be undone. An act of murder is a clear case in point. A less clear but still relevant case is if a nation determines that taking a Cold War-like stance against another power is a good idea. Acts of generosity, malice, stupidity, brilliance, or whatever all change the puzzle.
Attempting to puzzle out the RBT means defining what it is and giving it contours so that you have an idea of what the puzzle looks like. It's like looking at the picture on the cover of the box, except, of course, you want a dynamic picture of what's inside the box. And then you have to think inside that box. The RBT is my box, the box I invented as I wrote the first paragraph. The picture on the outside shows me two main features (at least) of what's inside. The first is that events are historical in nature. The second is that the dimension of time, as a physical feature ruled by the Laws of Thermodynamics, determines these events cannot be undone.* That my box consists of these two things is enough justification to call it RBT.
By forming a Dynamic Cognitive Puzzle (also DCP) you give yourself a perspective on events and a frame with which to make events comprehensible. A third bonus is that it's possible to anticipate, not to predict as such, but to anticipate what is coming. So I may, for example, see the role of energy in an economy as fundamental. Energy has well-known Laws regarding it's nature and behavior (Thermodynamics). Then I consider a particular historical period, say the contemporaneous industrial era, and piece together a little dynamical puzzle. So I throw these things into the box; energy is fundamental, a fundamental feature of energy is that goes in one direction (Time's Arrow) by dissipating through heat loss (it makes sense and I can explain some other time), and then I apply it to industrial production as an historical condition. Then I shake the box (unnecessary).
What comes out should look something like recent headlines. Admittedly, that is a big claim and could possibly be seen as self-serving, or self-congratulatory, or some other self-thing. But the blog I write is for the purpose of presenting and advocating a particular and clearly defined perspective. It's a perspective that reveals what other, say mainstream or commonly held, perspectives do not reveal or do not encompass. Take this headline sent to me by a friend:
A Critical Source of U.S. Jobs has Lost its Mojo
The headline itself isn't especially remarkable, but does point to a basic truth that losing mojo can have critical outcomes. Inside, however, is an astonishing fact that surprised me some but is shocking in what it implies. It is this: If one excludes all the jobs created from the fracking boom since 2007, U.S. job growth is negative. NEGATIVE! Here's the chart:
It means that the only reason the U.S. is outperforming other advanced economies like Japan and Europe post-crisis is because we have enough shale oil around which to form a Fed-fueled financial bubble to make the overall U.S. numbers look comparatively good. It's not really our freedom, or superior economic policies, or the go get 'em attitude that makes U.S. performance better. Or, to be less strident, the particular DCP of a person that has these causal first principles inside might be up for reconsideration. These no longer serve as an effective means by which to judge the reality this way of thinking purports to describe.
What this chart also tells me is that there is no other New Big Thing (NBT) coming out of the American economy. This fits inside my box because, even if the shale revolution has produced jobs, it is too costly in energetic and financial terms to leave anything meaningful for the rest of the economy to use. In fact, it is probably more likely to be draining mojo from the rest of the economy by acting as a paper factory.
This next is another exhibit for how an outcome, even if not predicted, is not surprising if you have an energy perspective. The story is about mishedging the bet on future oil prices, and that it is coming back to haunt new producers of shale oil.
Oil-Led Slump Spurring Fastest Investor Exit Since 2007
This fits the finance-is-connected-to-the-hip-of-oil story that makes this about more than just oil. It is a systemic risk story once it combines with the global ponzi finance story. I anticipate that it will erode the credibility of the America-is-the-lone-superpower story, and will actually erode the credibility of America as a superpower as it shakes out.
All that I've typed out so far in a purposely roundabout way has hopefully been a purposeful sort of roundabout. Perspective is essential in comprehending current events. The quality of your Dynamic Cognitive Puzzle box has to be maintained, upgraded, and honestly assessed regarding it's effectiveness. It's not enough to say things are changing. It's not enough to fit events into what you already think. Getting a reasonable understanding of the nature of the change that's accurate is both possible and essential. And fun. Besides, what else are you gonna do?
*This has two considerations. The first is that, truly, there are no take-backs. If you apologize to someone for calling him/her an idiot, it still happened. The second is the implication that there is no time travel, at least in the fun sci-fi way. Time's Arrow goes in one direction.
Attempting to puzzle out the RBT means defining what it is and giving it contours so that you have an idea of what the puzzle looks like. It's like looking at the picture on the cover of the box, except, of course, you want a dynamic picture of what's inside the box. And then you have to think inside that box. The RBT is my box, the box I invented as I wrote the first paragraph. The picture on the outside shows me two main features (at least) of what's inside. The first is that events are historical in nature. The second is that the dimension of time, as a physical feature ruled by the Laws of Thermodynamics, determines these events cannot be undone.* That my box consists of these two things is enough justification to call it RBT.
By forming a Dynamic Cognitive Puzzle (also DCP) you give yourself a perspective on events and a frame with which to make events comprehensible. A third bonus is that it's possible to anticipate, not to predict as such, but to anticipate what is coming. So I may, for example, see the role of energy in an economy as fundamental. Energy has well-known Laws regarding it's nature and behavior (Thermodynamics). Then I consider a particular historical period, say the contemporaneous industrial era, and piece together a little dynamical puzzle. So I throw these things into the box; energy is fundamental, a fundamental feature of energy is that goes in one direction (Time's Arrow) by dissipating through heat loss (it makes sense and I can explain some other time), and then I apply it to industrial production as an historical condition. Then I shake the box (unnecessary).
What comes out should look something like recent headlines. Admittedly, that is a big claim and could possibly be seen as self-serving, or self-congratulatory, or some other self-thing. But the blog I write is for the purpose of presenting and advocating a particular and clearly defined perspective. It's a perspective that reveals what other, say mainstream or commonly held, perspectives do not reveal or do not encompass. Take this headline sent to me by a friend:
A Critical Source of U.S. Jobs has Lost its Mojo
The headline itself isn't especially remarkable, but does point to a basic truth that losing mojo can have critical outcomes. Inside, however, is an astonishing fact that surprised me some but is shocking in what it implies. It is this: If one excludes all the jobs created from the fracking boom since 2007, U.S. job growth is negative. NEGATIVE! Here's the chart:
It means that the only reason the U.S. is outperforming other advanced economies like Japan and Europe post-crisis is because we have enough shale oil around which to form a Fed-fueled financial bubble to make the overall U.S. numbers look comparatively good. It's not really our freedom, or superior economic policies, or the go get 'em attitude that makes U.S. performance better. Or, to be less strident, the particular DCP of a person that has these causal first principles inside might be up for reconsideration. These no longer serve as an effective means by which to judge the reality this way of thinking purports to describe.
What this chart also tells me is that there is no other New Big Thing (NBT) coming out of the American economy. This fits inside my box because, even if the shale revolution has produced jobs, it is too costly in energetic and financial terms to leave anything meaningful for the rest of the economy to use. In fact, it is probably more likely to be draining mojo from the rest of the economy by acting as a paper factory.
This next is another exhibit for how an outcome, even if not predicted, is not surprising if you have an energy perspective. The story is about mishedging the bet on future oil prices, and that it is coming back to haunt new producers of shale oil.
Oil-Led Slump Spurring Fastest Investor Exit Since 2007
This fits the finance-is-connected-to-the-hip-of-oil story that makes this about more than just oil. It is a systemic risk story once it combines with the global ponzi finance story. I anticipate that it will erode the credibility of the America-is-the-lone-superpower story, and will actually erode the credibility of America as a superpower as it shakes out.
All that I've typed out so far in a purposely roundabout way has hopefully been a purposeful sort of roundabout. Perspective is essential in comprehending current events. The quality of your Dynamic Cognitive Puzzle box has to be maintained, upgraded, and honestly assessed regarding it's effectiveness. It's not enough to say things are changing. It's not enough to fit events into what you already think. Getting a reasonable understanding of the nature of the change that's accurate is both possible and essential. And fun. Besides, what else are you gonna do?
*This has two considerations. The first is that, truly, there are no take-backs. If you apologize to someone for calling him/her an idiot, it still happened. The second is the implication that there is no time travel, at least in the fun sci-fi way. Time's Arrow goes in one direction.
Wednesday, December 17, 2014
Father Insurance
Globalized Civilization has phased into a different fundamental condition defined by the increasing difficulty and expense of it's sources of energy. This has made it costlier to grow in physical terms as well as to maintain past investment. The impact of low economic growth or none at all, which comes about only through growing debt and credit, will be on the very credit markets which enable economic activity in the first place. Imagine a snake eating its own tail. The broad expectation of future growth, i.e., that this new debt would become a thing with a financial return, will someday be put on the chopping block once the expectation of a shrinking economy takes hold.
For the time being, the reckoning of past and present debt fueled investment, not to mention speculation, has been successfully pushed off into the future through the negative feedback of central bank intervention and government deficit spending since 2008. When I say "central bank" I mean all of them, without exception, among the major economies. In this way a national government through all its parts serves as the largest possible financial insurance company a nation can muster. So when a banking system has undergone a speculative credit boom which leads to a debt crisis, the government of that same nation generally feels it has to get involved. As often as not, this leads to a sovereign debt crisis, even if the sovereign chooses not to get involved.
Why intervene? Because at the end of the day, when all the daily functions of society are accounted for, the government is not separate from the banking system. The fortunes of the government are so bound to the fortunes of the banks that it is impossible to distinguish between them as far as their interests lie. For some reason the phrase "privatized gain, socialized risk" just popped in my head. It is the way of the world at this historical moment. The proof is in the pudding, as someone pointed out once for some reason, as the total public (government) debt for the globe exceeds $100 trillion according to a Bloomberg article from March, 2014. That was in March, for God's sake. It's even higher now. This figure does not include central bank "easement" since 2008 amounting to around $15 trillion. This debt is what makes the public/private financial world go round.
These numbers cause the word "risk" to enter my head. It's a word market playas use a thousand times a day. It's a word that produces questions such as "What could possibly go wrong?" "how could I lose?". The way one might answer this type of question depends on beliefs about how the world works. A belief can be based on whether the system is stable or unstable. The answer, of course is, yes, it is. A good place to begin to find an answer is in Hyman Minsky's Instability Hypothesis. Essentially it says that instabilities are formed during and are caused by what happens in the stable periods. Call it a psychological cycle of greed and fear, where confidence born of stability leads to greed and ends with fear. The market from this perspective is irrational and, hence, unstable over the long term. What it means is punctuated crises are built into the system.
If you subscribe to this perspective, then it is no wonder that, according to an IMF working paper, since 1970 there have been 147 banking crises worldwide. Furthermore, there have been 68 sovereign debt crises and 217 currency crises. And the IMF should know because they have either caused these crises and/or have had to bail out many of these crisis nations. What's more, they seem to happen in waves and move around geographically. I think we are moving into a new period of punctuated crisis.
I also think others are thinking this way as well. That the Citibank composed "Swaps Regulatory Improvement Act" (who can argue against improvement?) just passed for the second time through the House of Representatives makes me think, as does Yves Smith, that the banks are just a wee bit worried about the financial situation of oil frackers. This Act is a "reform" of parts of the Dodd Frank bill set to go into effect in 2015 that would bar the federal government from bailing out the shadow banking derivatives market. This probably means that Wall Street banks have ponzied up the high risk junk debt used to finance drilling in the Bakken and Eagle Ford. Now we have a fat new source of systemic risk. Guess Wall Street better ask Dad to cover his gambling addiction. It's unfortunate that the total value of American banks booked derivatives is $303 trillion dollars.
One main function of derivatives is to act as an insurance policy for investment by spreading out risk. It's a very complex system devised largely by MIT trained math and physics smart guys who apparently have nothing better to do than build high tech pyramids of fake value. But that last isn't even quite true. It does have value because it can make a poor prospect like the shale oil revolution seem like a boom for a time. Doing this has enabled the entire economy to function in a way that feels normal by covering with debt the rising cost of resource extraction and the slow erosion Diminishing Returns and Entropy have on value. One of these days we will be talking about "Too Big To Bail" ponzies in the system, when the God of Insurance can't come through anymore.
This is the Maximum Power Principle at work. Oil and money are the means to maximize production as the source and representation of energy. That it (money, power) overextends itself is natural. But Nature isn't just cute baby animals and gorgeous landscapes. It is not reasonable. It just has laws that can never be broken, unlike American laws.
For the time being, the reckoning of past and present debt fueled investment, not to mention speculation, has been successfully pushed off into the future through the negative feedback of central bank intervention and government deficit spending since 2008. When I say "central bank" I mean all of them, without exception, among the major economies. In this way a national government through all its parts serves as the largest possible financial insurance company a nation can muster. So when a banking system has undergone a speculative credit boom which leads to a debt crisis, the government of that same nation generally feels it has to get involved. As often as not, this leads to a sovereign debt crisis, even if the sovereign chooses not to get involved.
Why intervene? Because at the end of the day, when all the daily functions of society are accounted for, the government is not separate from the banking system. The fortunes of the government are so bound to the fortunes of the banks that it is impossible to distinguish between them as far as their interests lie. For some reason the phrase "privatized gain, socialized risk" just popped in my head. It is the way of the world at this historical moment. The proof is in the pudding, as someone pointed out once for some reason, as the total public (government) debt for the globe exceeds $100 trillion according to a Bloomberg article from March, 2014. That was in March, for God's sake. It's even higher now. This figure does not include central bank "easement" since 2008 amounting to around $15 trillion. This debt is what makes the public/private financial world go round.
These numbers cause the word "risk" to enter my head. It's a word market playas use a thousand times a day. It's a word that produces questions such as "What could possibly go wrong?" "how could I lose?". The way one might answer this type of question depends on beliefs about how the world works. A belief can be based on whether the system is stable or unstable. The answer, of course is, yes, it is. A good place to begin to find an answer is in Hyman Minsky's Instability Hypothesis. Essentially it says that instabilities are formed during and are caused by what happens in the stable periods. Call it a psychological cycle of greed and fear, where confidence born of stability leads to greed and ends with fear. The market from this perspective is irrational and, hence, unstable over the long term. What it means is punctuated crises are built into the system.
If you subscribe to this perspective, then it is no wonder that, according to an IMF working paper, since 1970 there have been 147 banking crises worldwide. Furthermore, there have been 68 sovereign debt crises and 217 currency crises. And the IMF should know because they have either caused these crises and/or have had to bail out many of these crisis nations. What's more, they seem to happen in waves and move around geographically. I think we are moving into a new period of punctuated crisis.
I also think others are thinking this way as well. That the Citibank composed "Swaps Regulatory Improvement Act" (who can argue against improvement?) just passed for the second time through the House of Representatives makes me think, as does Yves Smith, that the banks are just a wee bit worried about the financial situation of oil frackers. This Act is a "reform" of parts of the Dodd Frank bill set to go into effect in 2015 that would bar the federal government from bailing out the shadow banking derivatives market. This probably means that Wall Street banks have ponzied up the high risk junk debt used to finance drilling in the Bakken and Eagle Ford. Now we have a fat new source of systemic risk. Guess Wall Street better ask Dad to cover his gambling addiction. It's unfortunate that the total value of American banks booked derivatives is $303 trillion dollars.
One main function of derivatives is to act as an insurance policy for investment by spreading out risk. It's a very complex system devised largely by MIT trained math and physics smart guys who apparently have nothing better to do than build high tech pyramids of fake value. But that last isn't even quite true. It does have value because it can make a poor prospect like the shale oil revolution seem like a boom for a time. Doing this has enabled the entire economy to function in a way that feels normal by covering with debt the rising cost of resource extraction and the slow erosion Diminishing Returns and Entropy have on value. One of these days we will be talking about "Too Big To Bail" ponzies in the system, when the God of Insurance can't come through anymore.
This is the Maximum Power Principle at work. Oil and money are the means to maximize production as the source and representation of energy. That it (money, power) overextends itself is natural. But Nature isn't just cute baby animals and gorgeous landscapes. It is not reasonable. It just has laws that can never be broken, unlike American laws.
Friday, December 12, 2014
Your Money or Your Life
Since I first mentioned likely problems of the falling price of oil, the price has dropped even further. It is at this moment trading at $58.02. down 3.2% since the market opened today. Traditionally, this would be welcomed without reserve since it is a tautology that lower energy prices generates extra income to be spent for nearly everyone involved, which happens to be in fact nearly everyone. Even babies benefit. And though this particular observation about low prices still holds true, the current episode of falling oil prices, dramatically I might add, is almost wholly bad from a market perspective, completely negating the benefits and then some.
There is a building yammer in the financial press as journalists unwind the implications of this rare occurrence. A glance at some headlines from the past couple of days give us a flavor:
IEA cuts 2015 demand growth forecasts, warns on social unrest
Fed Bubble Bursts in $550 Billion of Energy Debt: Credit Markets
The Silent Crash in Commodities- A Warning Sign
This is all pretty grim stuff. Of course, you'll see alongside these headlines something like:
Schwarzman: Energy a 'Wonderful Opportunity"
This last actually doesn't contradict the point I make about falling oil (and every other commodity), Schwarzman just believes in eternal economic growth, so naturally this is an opportunity. In the short term he could still very well be correct to buy up shares of energy companies, the right ones anyhow, and make a fortune because if there is any lesson to be had it's that energy and other commodities need to be priced much higher than they are now so that suppliers can remain in business.
Charles Hugh Smith has had for a couple of weeks now a series of blogs on the problems and risks to the financial system from low energy prices. This subject has a ton of different components and wending your way through all the moving parts takes some time. It's worth reading because he treads where many financial analysts fear to go, which is in the dark shadows of the quasi-legal credit markets which support new American oil production and describes it well. The key phrase he uses is the "financialization of oil", which is to say that Wall Street and the Oil Patch are bound together through debt and collateral. The collateral of course is oil. The debt for this oil often comes in the form of a junk bond, meaning high interest loans that are at high risk for default. But it goes well beyond this.
The bonds used to fund oil projects themselves become collateral for other bonds issued somewhere else. This is because the bond itself is considered an asset and so has a trade value which can be used to support a new loan. In this way, a bond is not so different from money, and in fact, lending is the primary means by which money is introduced into the financial system. The banks try to earn a profit from this market of credit and bond accumulation and trading by playing the yield (interest rate) differentials as well as through fees paid to issue the loan.
So far we're in the realm of the normal. What's different now, well, there's a lot that's different now, but one major difference is the magnitude of the debt held by participants in a magnificent web of creditors and debtors who all have to be "good" to cover their individual nodes of credit in the system. The "dominoes" in Charles Hugh Smith's little essay refers to what's called "counterparties" who have to pay off their debt when asked to. When someone, like a bank or oil company, has 10x or a 100x the amount in loans issued to the amount they have in collateral, then they will probably have to sell something in order to cover what they owe someone else. What is happening now is the original collateral, oil, has lost 40% of it's value since June. A predictable outcome to all of this, which is going on right now as a result, is the high interest, high risk junk bonds are trading at values as low as sixty cents on the dollar. These could very well be on there way to zero cents on the dollar. We shall see.
Even what I've described so far is still within the realm of a fixable norm. If it were simply a phenomenon exclusive to this isolated shale revolution, and there was no other problem with global oil production, then it's impact would be isolated. But because it is tied in with other aspects of global finance, such as currency markets, and revenue for the national governments around the world who export oil (a relative few actually do), it becomes a global problem with huge geopolitical risks.
As for currency risk, a counterintuitive impact is the risk of a stronger dollar (strong=good), but what has been the case for a while now is that the dollar, as the world's reserve currency, is becoming increasingly unavailable to markets around the world who need them to buy things and to pay off dollar denominated debt. This is caused by simple supply and demand. There are fewer dollars in the system and so the increased demand for them drives up its value, making it "stronger". This could end up as what's called a "liquidity crunch" in foreign markets, where there is not enough dollars to go around. In an historical note, a liquidity crunch was in process in the 2008 credit collapse and prompted action by the President and Congress to, in effect, print more dollars. It is the same reason the Fed had been "printing" money up until earlier this year, and might do again before too long.
In a previous post, I posed the question: How many failed states does it take to make a failed world? Nobody knows, of course, but the oil price collapse is testing the limits. Oil revenue which funds all sorts of government programs is dropping well into the red for all sorts of countries. Nigeria, Venezuela, Russia, and Iran, are flirting with the risk of joining the ranks of failed states. Some 370 million people live in these countries. They are all oil exporters. We, as American patriots, maybe wouldn't mind seeing an overthrow of the current regimes in these countries, but nothing is guaranteed once social upheaval is on the dinner plate. Think Iraq or Libya. Or even Egypt, which filled our hearts with so much hope and promise, and is now back to a military dictatorship with no prospect of ever joining the league of free nations. That may sound overly bummerish but I don't see how that ever happens.
What is happening is that the nexus of oil, money, and debt is revealing itself to the market. It's not too simple to say that money is energy, and oil is the most valuable source of energy for the globalized industrial economy. Money and oil share a lot of characteristics, one being they need to be believed in for the market to function. Debt is future money, which is future oil, and a whole lot of future oil needs to leave, or never enter, the future economy because there is no future money in it. Giving that up will be traumatic, though I'll leave on a somewhat optimistic note in that leaving lots of oil in the ground will help future humans a lot by taking the edge off the consequences of a warming planet. What might preclude that benefit is how well we humans deal with trauma.
There is a building yammer in the financial press as journalists unwind the implications of this rare occurrence. A glance at some headlines from the past couple of days give us a flavor:
IEA cuts 2015 demand growth forecasts, warns on social unrest
Fed Bubble Bursts in $550 Billion of Energy Debt: Credit Markets
The Silent Crash in Commodities- A Warning Sign
This is all pretty grim stuff. Of course, you'll see alongside these headlines something like:
Schwarzman: Energy a 'Wonderful Opportunity"
This last actually doesn't contradict the point I make about falling oil (and every other commodity), Schwarzman just believes in eternal economic growth, so naturally this is an opportunity. In the short term he could still very well be correct to buy up shares of energy companies, the right ones anyhow, and make a fortune because if there is any lesson to be had it's that energy and other commodities need to be priced much higher than they are now so that suppliers can remain in business.
Charles Hugh Smith has had for a couple of weeks now a series of blogs on the problems and risks to the financial system from low energy prices. This subject has a ton of different components and wending your way through all the moving parts takes some time. It's worth reading because he treads where many financial analysts fear to go, which is in the dark shadows of the quasi-legal credit markets which support new American oil production and describes it well. The key phrase he uses is the "financialization of oil", which is to say that Wall Street and the Oil Patch are bound together through debt and collateral. The collateral of course is oil. The debt for this oil often comes in the form of a junk bond, meaning high interest loans that are at high risk for default. But it goes well beyond this.
The bonds used to fund oil projects themselves become collateral for other bonds issued somewhere else. This is because the bond itself is considered an asset and so has a trade value which can be used to support a new loan. In this way, a bond is not so different from money, and in fact, lending is the primary means by which money is introduced into the financial system. The banks try to earn a profit from this market of credit and bond accumulation and trading by playing the yield (interest rate) differentials as well as through fees paid to issue the loan.
So far we're in the realm of the normal. What's different now, well, there's a lot that's different now, but one major difference is the magnitude of the debt held by participants in a magnificent web of creditors and debtors who all have to be "good" to cover their individual nodes of credit in the system. The "dominoes" in Charles Hugh Smith's little essay refers to what's called "counterparties" who have to pay off their debt when asked to. When someone, like a bank or oil company, has 10x or a 100x the amount in loans issued to the amount they have in collateral, then they will probably have to sell something in order to cover what they owe someone else. What is happening now is the original collateral, oil, has lost 40% of it's value since June. A predictable outcome to all of this, which is going on right now as a result, is the high interest, high risk junk bonds are trading at values as low as sixty cents on the dollar. These could very well be on there way to zero cents on the dollar. We shall see.
Even what I've described so far is still within the realm of a fixable norm. If it were simply a phenomenon exclusive to this isolated shale revolution, and there was no other problem with global oil production, then it's impact would be isolated. But because it is tied in with other aspects of global finance, such as currency markets, and revenue for the national governments around the world who export oil (a relative few actually do), it becomes a global problem with huge geopolitical risks.
As for currency risk, a counterintuitive impact is the risk of a stronger dollar (strong=good), but what has been the case for a while now is that the dollar, as the world's reserve currency, is becoming increasingly unavailable to markets around the world who need them to buy things and to pay off dollar denominated debt. This is caused by simple supply and demand. There are fewer dollars in the system and so the increased demand for them drives up its value, making it "stronger". This could end up as what's called a "liquidity crunch" in foreign markets, where there is not enough dollars to go around. In an historical note, a liquidity crunch was in process in the 2008 credit collapse and prompted action by the President and Congress to, in effect, print more dollars. It is the same reason the Fed had been "printing" money up until earlier this year, and might do again before too long.
In a previous post, I posed the question: How many failed states does it take to make a failed world? Nobody knows, of course, but the oil price collapse is testing the limits. Oil revenue which funds all sorts of government programs is dropping well into the red for all sorts of countries. Nigeria, Venezuela, Russia, and Iran, are flirting with the risk of joining the ranks of failed states. Some 370 million people live in these countries. They are all oil exporters. We, as American patriots, maybe wouldn't mind seeing an overthrow of the current regimes in these countries, but nothing is guaranteed once social upheaval is on the dinner plate. Think Iraq or Libya. Or even Egypt, which filled our hearts with so much hope and promise, and is now back to a military dictatorship with no prospect of ever joining the league of free nations. That may sound overly bummerish but I don't see how that ever happens.
What is happening is that the nexus of oil, money, and debt is revealing itself to the market. It's not too simple to say that money is energy, and oil is the most valuable source of energy for the globalized industrial economy. Money and oil share a lot of characteristics, one being they need to be believed in for the market to function. Debt is future money, which is future oil, and a whole lot of future oil needs to leave, or never enter, the future economy because there is no future money in it. Giving that up will be traumatic, though I'll leave on a somewhat optimistic note in that leaving lots of oil in the ground will help future humans a lot by taking the edge off the consequences of a warming planet. What might preclude that benefit is how well we humans deal with trauma.
Tuesday, December 9, 2014
Martian Expectations
A monstrously huge symbol of our long-standing cultural expectations has been in the news recently with the successful first test mission of the Orion space contraption over this past weekend. As far as expectations of this kind, this one may be primo, and almost without rival given the magnitude of the questions we hope to answer. Not only that, it represents the spirit of exploration and adventure in a very basic way: We get an idea to go somewhere no one has ever been before; it is intrinsically dangerous as outer space is the least forgiving environment of all; and, though the mechanisms involved in traveling deeper into space are amazingly intricate and complex, the underlying story is simple in that it is a journey. Of course, the cherry on top is the possible resolution to question of whether life exists outside of our modest little sphere, and there seems to be a reasonable expectation that it happened at some point on Mars.
For anyone involved in the mission it can only be the realization of the ultimate personal dream and the most exciting thing they could possibly be doing. For them, the question of it's value is moot. To question it is to simply not understand its grand significance. To doubt it's feasibility is to doubt the entire human spirit to overcome tribulation and achieve ever greater things. The scientists and engineers on the Orion team are some of the brightest bulbs out there and their achievements are also humanity's, bringing us all into the narrative. A trip to Mars represents the culmination of an active centuries-old mythos of human expansion.
That humanity has, in fact, ever expanded over the centuries, or millennia, doesn't preclude calling it a myth. Myth in this sense is used the way an anthropologist would use it, in the same way I use "narrative". Whether it's true or not cannot be proven, but has rather a plausibility based on enough evidence to make it seem true. By definition, though, it cannot be "true" for the fact that it plays into our historical sense and on our expectations of the future, which cannot be proven "true" at all. So, based on the stories of the past telling us of a trajectory towards the future doesn't prove that this or that will happen. We just expect that it will.
Going to Mars is probably technically feasible. I think the world's top scientists and engineers can figure how to do it. Two questions, at least, that are not asked about it that come to my mind are: Is it scientifically necessary to send humans and what do we get out of it materially? On the first question, the cost-benefit of sending people or robots definitely favors robots for the simple reason robots don't have mothers. Someday, maybe, but not today. I suspect at least some part of the motivation for necessitating a return trip is so that the people who go there can bring things back with them. If there is some fossilized life form contained within some Martian rock then scientists would have a Rosetta Stone of Martian natural history.
The second question is the more important in terms of the mission's ultimate justification. What do we get from it as a means to further ever greater expansion? One way to approach this comes from an insight by John Michael Greer thinking about the same thing. He said, and I paraphrase: "Death is not the opposite of life. Space is the opposite of life. Death is the natural end of life and that which has lived must die. Space is what has never been alive and so is the opposite of life." Space can't support life. That we still wonder about life on other planets, meaning we have no proof of it, says something about the absolute necessity and primacy of Earth. This is not just hippy talk. It is first order logic given the incomprehensibly vast anti-life zones of Space.
No trip to Mars and no settlement on Mars could ever sustain itself. All the systems of life support could only be manufactured on Earth at a net loss to Earth and it's materiel. What possible economic return could ever be had from a colony on Mars? Apart from perhaps a few souvenirs which could be auctioned off at Sotheby's, I think there is exactly zero. The whole point hitherto of Earth-based colonization has been to build self-sustaining, economically viable colonies to expand the mother country's trade network, resource base, and population. In other words, they were investments expecting a return. Mars would provide no such return. It would be a one way money and material flow towards an economic wasteland. In the deepest meaning of the word, it would be investing in a "dream".
With the trend lines here on Earth heading where they are, it might behoove us to re-examine our impulses to further expansion. Not out of a sentimental, cuddly feeling for the home turf, but waking up to the zero-sum condition of the cost of human expansion and who bears the cost. With the absolute number of vertebrates living on Earth cut in half since 1970, and with the climate poised to set more record high temperatures, the cost of our own success has been pushed onto nature. In the final accounting, however, there is no difference between ourselves and nature.
For anyone involved in the mission it can only be the realization of the ultimate personal dream and the most exciting thing they could possibly be doing. For them, the question of it's value is moot. To question it is to simply not understand its grand significance. To doubt it's feasibility is to doubt the entire human spirit to overcome tribulation and achieve ever greater things. The scientists and engineers on the Orion team are some of the brightest bulbs out there and their achievements are also humanity's, bringing us all into the narrative. A trip to Mars represents the culmination of an active centuries-old mythos of human expansion.
That humanity has, in fact, ever expanded over the centuries, or millennia, doesn't preclude calling it a myth. Myth in this sense is used the way an anthropologist would use it, in the same way I use "narrative". Whether it's true or not cannot be proven, but has rather a plausibility based on enough evidence to make it seem true. By definition, though, it cannot be "true" for the fact that it plays into our historical sense and on our expectations of the future, which cannot be proven "true" at all. So, based on the stories of the past telling us of a trajectory towards the future doesn't prove that this or that will happen. We just expect that it will.
Going to Mars is probably technically feasible. I think the world's top scientists and engineers can figure how to do it. Two questions, at least, that are not asked about it that come to my mind are: Is it scientifically necessary to send humans and what do we get out of it materially? On the first question, the cost-benefit of sending people or robots definitely favors robots for the simple reason robots don't have mothers. Someday, maybe, but not today. I suspect at least some part of the motivation for necessitating a return trip is so that the people who go there can bring things back with them. If there is some fossilized life form contained within some Martian rock then scientists would have a Rosetta Stone of Martian natural history.
The second question is the more important in terms of the mission's ultimate justification. What do we get from it as a means to further ever greater expansion? One way to approach this comes from an insight by John Michael Greer thinking about the same thing. He said, and I paraphrase: "Death is not the opposite of life. Space is the opposite of life. Death is the natural end of life and that which has lived must die. Space is what has never been alive and so is the opposite of life." Space can't support life. That we still wonder about life on other planets, meaning we have no proof of it, says something about the absolute necessity and primacy of Earth. This is not just hippy talk. It is first order logic given the incomprehensibly vast anti-life zones of Space.
No trip to Mars and no settlement on Mars could ever sustain itself. All the systems of life support could only be manufactured on Earth at a net loss to Earth and it's materiel. What possible economic return could ever be had from a colony on Mars? Apart from perhaps a few souvenirs which could be auctioned off at Sotheby's, I think there is exactly zero. The whole point hitherto of Earth-based colonization has been to build self-sustaining, economically viable colonies to expand the mother country's trade network, resource base, and population. In other words, they were investments expecting a return. Mars would provide no such return. It would be a one way money and material flow towards an economic wasteland. In the deepest meaning of the word, it would be investing in a "dream".
With the trend lines here on Earth heading where they are, it might behoove us to re-examine our impulses to further expansion. Not out of a sentimental, cuddly feeling for the home turf, but waking up to the zero-sum condition of the cost of human expansion and who bears the cost. With the absolute number of vertebrates living on Earth cut in half since 1970, and with the climate poised to set more record high temperatures, the cost of our own success has been pushed onto nature. In the final accounting, however, there is no difference between ourselves and nature.
Tuesday, December 2, 2014
Expectations, Great and Small
Any prediction of a collapse, or of a crisis, made with plausible evidence, inevitably invites the follow-up question of when. You see this a lot with market prognosticators as they form their views based on some model or historical precedent, and confidently declare that a crisis is brewing. Many of these predictions have fallen flat throughout history, especially since 2008, and many of these prognosticators have had to eat, not only crow, but real monetary losses as well, since they so often are players on the market who take their own advice. Of course, market creatures are short term thinkers and maybe look out ten or so years, at best, and rarely. And there is a good reason why this is the case; there is almost no way of knowing what market conditions will be in ten, or five years. Or next year. None of this is to disparage the virtue of the market because of its short-sightedness. All of us live this way to varying degrees.
For this to work, and to obviate the necessity for uncertain, longer term thinking, there has to be an expectation that the future will look like the past. For most of an individual human lifetime, this is a reasonable expectation, and what's true for an individual human can be scaled up to as large an operation as society. Even in the current time, characterized by rapid and increasingly rapid change, there is, at its heart, an expectation of stability, of the normal course of things. In economics, there is a theoretical description of what that looks like, which says there is a baseline trajectory by which an economy unfettered by government intervention will grow at. I call this the "metaphysical rate of growth". Apart from that, as is easy to see, what's good for the economist is good for the politician, of either or any party. The expectation of growth dwells within every politician, and that same cultural expectation also determines the measure of their collective worth.
All of this is to say that an expectation of economic growth is thoroughly entrenched in the way the modern person and culture thinks. Me? I'm different. I'm a bummer that way, and my job is to make more bummers in the world. Now, I say bummer for a couple of reasons. The first is that, to the extent people's emotional states are bonded to a future that growth represents, like Mars colonization, holographic vacations, or space tourism, all of which would require many, many more years of growth, an end of growth would be giving up a certain style of identity centered on future expectations. A much more grim bummer-prospect emerges from the same logic that future whiz-bang, technologically based recreation won't happen, and that is that the present isn't sustainable. Current growth is becoming current opposite of growth as we speak, and it's effects can be seen around the world.
In the quick and dirty explanation I gave in the last post on why I think the seventies was the peak of U.S. power, the main point I wanted to get across is that it was the time at which the Law of Diminishing Returns hit the scene. Before that there was what you might call "organic" growth, meaning the resource base and the build-up of previous capital could support high annual growth rates without an increase in the rate of debt accumulation. If the contemporary debt and deficit is to have any meaning, I think it derives from the expansion of a system destined never to pay for itself. This is not to say that government debt is necessarily a bad thing. It is, in fact, built into how the global system works. However, that the, essentially, incalculably massive amount of debt, which globally for public and private debt holds at a whopping $223 trillion as of last year, and, if you believe shadow banking numbers, the total dollar value of derivatives alone is $710 trillion, is so high that you have to wonder if the debt has any meaning at all.* A useful approach is to think of this debt as an expectation of the future. Apparently people believe the future someday will be on the order of 3-13x bigger than it is today, in terms of GDP and all the oil, coal, iron ore, etc., etc., etc. supplied to support it. What's more, the economy needs to be this much bigger to cover the debt and all these derivative contracts.
Debt can be carried over indefinitely and doesn't so much need to be payed off, especially government debt, but as we've seen, new debt needs to be created, increasingly via the government, in order to squeeze more growth out of the system. Additionally, the ratio between debt and GDP is widening, so you can only expect the differential will continue. From this perspective, it is clear what we are now witnessing is the death of the global system that emerged from the death of the previous system that occurred in the seventies. So what happens next?
Describing what happened in the past is hard enough, and people don't always agree on what happened. Trying to figure out what happens as information wends its way through a human mind, gets interpreted, and then acted on by that human is tough even under laboratory conditions. To say what will happen when trouble of historic proportions is thrown into the mix is nearly impossible. What is clear is that snafus baked into the cake of history are approaching. These can be defined and responded to with thoughtful intelligence and a shared sense of responsibility. On that I'll refer you back to the first three sentences of this paragraph. But, that these snafus can be defined, generally, because it does involve real things we can measure, surmise, and anticipate, then we should be able to, at least, dampen our own individual shock and surprise as the system unwinds. It's a small step, but it is not a small thing.
Somebody somewhere said once: You can either predict what will happen, or when it will happen, but never both. It's impossible to know when a trigger event will occur, or to account for all the events of a complex cause and effect web. What can be known is whether the conditions are ripe for a dramatic change. What I've talked about are two phase changes in the economic life of the industrial world. The 1970's represented the first, and we are experiencing one today. These take time to unfold. Years. Decades, even. We are now in a second phase change that extends from the first. The difference now is that this one takes us on a path down the slope of resource scarcity and an unwinding of the expectations built up from the collective experience of anyone involved in the system as an active participant. And by active I mean alive and buying things.
This system is global. I'll say it again. There is no true delineation between the French economy, the Japanese economy, and the American economy. They are different nodes of one giant financial system that impacts nearly every bit of surface area on the planet. Financial systems periodically collapse. In this way we moderns are no different from anyone in the past. The difference comes from our expectations of the future. In a similar vein, the costs of the system are global. Climate change, species extinction, soil run-off, mineral depletion, energy depletion, are all worsening, degrading the planetary systems economic life depends on. It is happening in a way that jeopardizes the stability of the system well before people really notice why.
*Derivatives are, of course, what gave the housing bubble a particularly nasty flavor and may have been what made it possible. Looked at another way, the housing bubble was simply a manifestation of a much larger global financial bubble that was (is) made possible with derivatives. Add those numbers up and compare it to global GDP of about $72 trillion and you get the sense of how much debt and speculation (or betting) is needed to keep this thing running.
Some updates on the fracking biz in America responding to falling prices.
Capex (investment) for 2015 is starting to fall.
A warning to investors that a lot of debt held by fracking companies is high risk.
Junk Bonds
And one on the high price to achieve climate stability.
Money is consumption
For this to work, and to obviate the necessity for uncertain, longer term thinking, there has to be an expectation that the future will look like the past. For most of an individual human lifetime, this is a reasonable expectation, and what's true for an individual human can be scaled up to as large an operation as society. Even in the current time, characterized by rapid and increasingly rapid change, there is, at its heart, an expectation of stability, of the normal course of things. In economics, there is a theoretical description of what that looks like, which says there is a baseline trajectory by which an economy unfettered by government intervention will grow at. I call this the "metaphysical rate of growth". Apart from that, as is easy to see, what's good for the economist is good for the politician, of either or any party. The expectation of growth dwells within every politician, and that same cultural expectation also determines the measure of their collective worth.
All of this is to say that an expectation of economic growth is thoroughly entrenched in the way the modern person and culture thinks. Me? I'm different. I'm a bummer that way, and my job is to make more bummers in the world. Now, I say bummer for a couple of reasons. The first is that, to the extent people's emotional states are bonded to a future that growth represents, like Mars colonization, holographic vacations, or space tourism, all of which would require many, many more years of growth, an end of growth would be giving up a certain style of identity centered on future expectations. A much more grim bummer-prospect emerges from the same logic that future whiz-bang, technologically based recreation won't happen, and that is that the present isn't sustainable. Current growth is becoming current opposite of growth as we speak, and it's effects can be seen around the world.
In the quick and dirty explanation I gave in the last post on why I think the seventies was the peak of U.S. power, the main point I wanted to get across is that it was the time at which the Law of Diminishing Returns hit the scene. Before that there was what you might call "organic" growth, meaning the resource base and the build-up of previous capital could support high annual growth rates without an increase in the rate of debt accumulation. If the contemporary debt and deficit is to have any meaning, I think it derives from the expansion of a system destined never to pay for itself. This is not to say that government debt is necessarily a bad thing. It is, in fact, built into how the global system works. However, that the, essentially, incalculably massive amount of debt, which globally for public and private debt holds at a whopping $223 trillion as of last year, and, if you believe shadow banking numbers, the total dollar value of derivatives alone is $710 trillion, is so high that you have to wonder if the debt has any meaning at all.* A useful approach is to think of this debt as an expectation of the future. Apparently people believe the future someday will be on the order of 3-13x bigger than it is today, in terms of GDP and all the oil, coal, iron ore, etc., etc., etc. supplied to support it. What's more, the economy needs to be this much bigger to cover the debt and all these derivative contracts.
Debt can be carried over indefinitely and doesn't so much need to be payed off, especially government debt, but as we've seen, new debt needs to be created, increasingly via the government, in order to squeeze more growth out of the system. Additionally, the ratio between debt and GDP is widening, so you can only expect the differential will continue. From this perspective, it is clear what we are now witnessing is the death of the global system that emerged from the death of the previous system that occurred in the seventies. So what happens next?
Describing what happened in the past is hard enough, and people don't always agree on what happened. Trying to figure out what happens as information wends its way through a human mind, gets interpreted, and then acted on by that human is tough even under laboratory conditions. To say what will happen when trouble of historic proportions is thrown into the mix is nearly impossible. What is clear is that snafus baked into the cake of history are approaching. These can be defined and responded to with thoughtful intelligence and a shared sense of responsibility. On that I'll refer you back to the first three sentences of this paragraph. But, that these snafus can be defined, generally, because it does involve real things we can measure, surmise, and anticipate, then we should be able to, at least, dampen our own individual shock and surprise as the system unwinds. It's a small step, but it is not a small thing.
Somebody somewhere said once: You can either predict what will happen, or when it will happen, but never both. It's impossible to know when a trigger event will occur, or to account for all the events of a complex cause and effect web. What can be known is whether the conditions are ripe for a dramatic change. What I've talked about are two phase changes in the economic life of the industrial world. The 1970's represented the first, and we are experiencing one today. These take time to unfold. Years. Decades, even. We are now in a second phase change that extends from the first. The difference now is that this one takes us on a path down the slope of resource scarcity and an unwinding of the expectations built up from the collective experience of anyone involved in the system as an active participant. And by active I mean alive and buying things.
This system is global. I'll say it again. There is no true delineation between the French economy, the Japanese economy, and the American economy. They are different nodes of one giant financial system that impacts nearly every bit of surface area on the planet. Financial systems periodically collapse. In this way we moderns are no different from anyone in the past. The difference comes from our expectations of the future. In a similar vein, the costs of the system are global. Climate change, species extinction, soil run-off, mineral depletion, energy depletion, are all worsening, degrading the planetary systems economic life depends on. It is happening in a way that jeopardizes the stability of the system well before people really notice why.
*Derivatives are, of course, what gave the housing bubble a particularly nasty flavor and may have been what made it possible. Looked at another way, the housing bubble was simply a manifestation of a much larger global financial bubble that was (is) made possible with derivatives. Add those numbers up and compare it to global GDP of about $72 trillion and you get the sense of how much debt and speculation (or betting) is needed to keep this thing running.
Some updates on the fracking biz in America responding to falling prices.
Capex (investment) for 2015 is starting to fall.
A warning to investors that a lot of debt held by fracking companies is high risk.
Junk Bonds
And one on the high price to achieve climate stability.
Money is consumption
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