Herman Daly: The Disconnection Between Financial Assets and Real Asssets
Posted by nate hagens on December 25, 2008 - 2:07pm
This is a repost of Herman Daly's comments on the credit crisis from October 13 of this year. The original post and comments can be viewed here. Given Professor Daly's association with John Holdren, one can hope these heterodox first principles are being discussed at the highest levels.
Previously, Herman Daly wrote a guest post on the Steady State Economy, outlining core suggestions on how to overhaul our banking, financial (and value) systems. I encourage everyone to read it (if short on time, please read the conclusion). Professor Daly was Senior Economist at the World Bank before leaving to teach Ecological Economics at University of Maryland's School for Public Policy. He was also the catalyst for me to leave my own financial career and return to school to study the real economy (i.e. what we call the human economy is only a small part of a larger closed system). Below the fold are his thoughts on the current crisis (current being defined as last 30-40 years or so). (For comparison, here are links to what 'mainstream' economic icons George Soros, and Bill Gross are saying.)
The current financial debacle is really not a “liquidity” crisis as it is often euphemistically called. It is a crisis of overgrowth of financial assets relative to growth of real wealth—pretty much the opposite of too little liquidity. Financial assets have grown by a large multiple of the real economy—paper exchanging for paper is now 20 times greater than exchanges of paper for real commodities. It should be no surprise that the relative value of the vastly more abundant financial assets has fallen in terms of real assets. Real wealth is concrete; financial assets are abstractions—existing real wealth carries a lien on it in the amount of future debt. The value of present real wealth is no longer sufficient to serve as a lien to guarantee the exploding debt. Consequently the debt is being devalued in terms of existing wealth. No one any longer is eager to trade real present wealth for debt even at high interest rates. This is because the debt is worth much less, not because there is not enough money or credit, or because “banks are not lending to each other” as commentators often say.
Can the economy grow fast enough in real terms to redeem the massive increase in debt? In a word, no. As Frederick Soddy (1926 Nobel Laureate chemist and underground economist) pointed out long ago, “you cannot permanently pit an absurd human convention, such as the spontaneous increment of debt [compound interest] against the natural law of the spontaneous decrement of wealth [entropy]”. The population of “negative pigs” (debt) can grow without limit since it is merely a number; the population of “positive pigs” (real wealth) faces severe physical constraints. The dawning realization that Soddy’s common sense was right, even though no one publicly admits it, is what underlies the crisis. The problem is not too little liquidity, but too many negative pigs growing too fast relative to the limited number of positive pigs whose growth is constrained by their digestive tracts, their gestation period, and places to put pigpens. Also there are too many two‐legged Wall Street pigs, but that is another matter.
Growth in US real wealth is restrained by increasing scarcity of natural resources, both at the source end (oil depletion), and the sink end (absorptive capacity of the atmosphere for CO2). Further, spatial displacement of old stuff to make room for new stuff is increasingly costly as the world becomes more full, and increasing inequality of distribution of income prevents most people from buying much of the new stuff—except on credit (more debt). Marginal costs of growth now likely exceed marginal benefits, so that real physical growth makes us poorer, not richer (the cost of feeding and caring for the extra pigs is greater than the extra benefit). To keep up the illusion that growth is making us richer we deferred costs by issuing financial assets almost without limit, conveniently forgetting that these so‐called assets are, for society as a whole, debts to be paid back out of future real growth. That future real growth is very doubtful and consequently claims on it are devalued, regardless of liquidity.
What allowed symbolic financial assets to become so disconnected from underlying real assets? First, there is the fact that we have fiat money, not commodity money. For all its disadvantages, commodity money (gold) was at least tethered to reality by a real cost of production. Second, our fractional reserve banking system allows pyramiding of bank money (demand deposits) on top of the fiat government‐issued currency. Third, buying stocks and “derivatives” on margin allows a further pyramiding of financial assets on top the already multiplied money supply. In addition, credit card debt expands the supply of quasi‐money as do other financial “innovations” that were designed to circumvent the public‐interest regulation of commercial banks and the money supply. I would not advocate a return to commodity money, but would certainly advocate 100% reserve requirements for banks (approached gradually), as well as an end to the practice of buying stocks on the margin. All banks should be financial intermediaries that lend depositors’ money, not engines for creating money out of nothing and lending it at interest. If every dollar invested represented a dollar previously saved we would restore the classical economists’ balance between investment and abstinence. Fewer stupid or crooked investments would be tolerated if abstinence had to precede investment. Of course the growth economists will howl that this would slow the growth of GDP. So be it—growth has become uneconomic at the present margin as we currently measure it.
The agglomerating of mortgages of differing quality into opaque and shuffled bundles should be outlawed. One of the basic assumptions of an efficient market with a meaningful price is a homogeneous product. For example, we have the market and corresponding price for number 2 corn—not a market and price for miscellaneous randomly aggregated grains. Only people who have no understanding of markets, or who are consciously perpetrating fraud, could have either sold or bought these negative pigs‐in‐a‐poke. Yet the aggregating mathematical wizards of Wall Street did it, and now seem surprised at their inability to correctly price these idiotic “assets”.
And very important in all this is our balance of trade deficit that has allowed us to consume as if we were really growing instead of accumulating debt. So far our surplus trading partners have been willing to lend the dollars they earned back to us by buying treasury bills—more debt “guaranteed” by liens on yet‐to‐exist wealth. Of course they also buy real assets and their future earning capacity. Our brilliant economic gurus meanwhile continue to preach deregulation of both the financial sector and of international commerce (i.e. "free trade"). Some of us have for a long time been saying that this behavior was unwise, unsustainable, unpatriotic, and probably criminal. Maybe we were right. The next shoe to drop will be repudiation of unredeemable debt either directly by bankruptcy and confiscation, or indirectly by inflation.
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why not commodity money?
yes, why not gold and silver as money. All that bullshit bragging that americans do about freedom is funny when they allow their govt to impose on them a fiat currency. Yes ALL countries do that but see where it started and where the center of world's financial system is (world bank, imf etc) which force all govts of world to follow this cruel system of fiat currency.
If gold is in short amount relative to real assets you simply let the market increase its price to its true value. If gold become too expensive for day-to-day use as money (for example buying groceries) you have another cheaper metal silver. Probably this was the reason traditionally there were both gold and silver coins used as money.
Its not wise to give your govt that much power that it can practically destroy all trade and business via hyper inflation as in zimbawe.
The basic problems with a gold or silver standard is that the money supply has an inelastic upper boundry. Gold and silver are very finite. However, commodity money is still very possible and probably the best way to handle valuing our money, we just have to choose the right "commodity."
The best idea I've heard for valuing any money system would be to take a cocktail of commodities and use this group to value money. Commodities such as wheat, and other renewables, do have upper limits from season to season, but managed properly, they can be produced every year. So if money were valued in such a way that $100 will always be worth 50 lbs of wheat, 10 2x4x8" lumber, and one pound of honey, then our money supply can grow and shrink so that we don't have inflation. Further, the money should only be created when these goods have been produced. That way there is a real and tangible asset underlying the money supply. Under our current system our money is only backed by a promise to pay and that promise to pay is dependent on our future always being exponentially larger than our present.
TS
Well, that is the idea. If not by that innelastic upper boundry, commodity currency wouldn't solve anything.
If you have money that can be printed on any amount, you are always subjected to the risk of the press owner leveraging his power to get a short term bonus. Then, when everybody realises what happened, you have deflation, and everybody suffers.
Your logic is a little flawed there. The idea is not to give a hard and fast upper boundry for the money supply. Instead the idea is to match the size of the money supply with the goods available for sale. By using gold, you end up with that hard upper limit and this can cause a shortage of money in the system if there are more goods and services to available for sale than the money supply can handle. The key is to be able to grow OR shrink the money supply in conjunction with the goods that the money will buy.
We've already had a period in our country where there was plenty of resources but not enough money.
TS
TS- My apologies for being a semi-idiot in these things, but I'd be most grateful if you could expand on that concept of a period of not enough money [supply], and why it was a problem (as the words "not enough" imply).
Hey Robin,
No apologies necessary. We're all learning and adapting in real time here.
The following quote is taken from:
http://www.elliottwave.com/deflation/
But there are many other sources of this information out there if you choose to dig out some more.
In most of the world today, the primary monetary system is based on the fractional reserve lending model. Money ONLY comes into existence when debt is incurred. Increasing overall debt is the only way to increase the money supply. When the faith is lost that loans will be repaid, there is a refusal or aversion to further lending. This dries up people's access to money. Money is a tool used to equate the value of certain goods and services amongst all goods and services. This system is what allows people to use their particular skills and resources to obtain their needs. So when the money supply dries up, you haven't taken any skills away from people. There's still the same amount of natural resources as there was just prior to the drought of money...What's changed is that the vehicle to enable transactions has dried up and the skills and resources aren't exchanged in the needed volume. I wish I could find the comment and I think it was here at TOD, but very real fears in the near future are that farmers won't be able to buy the grain and fertilizer needed to work their feilds. This doesn't meen that the seedstocks are low, or that the fertilizer they need doesn't exist. It just means that their societally accepted method for procuring these items is not available because they don't have access to money.
Deflationary depressions, as noted above in that quote, are one way to experience a shortage of money in the system. Another way is to tie the value of your money to a relatively scarce resource. This method works up to a point, but you run into a wall when you realize that there are more skills and goods that are available, just begging to be utilized but the money supply can't grow any further because it's limited due to it's peg against gold. Then the only way to grow the money supply without inflationary effects would be to find more gold. If you're trying to buy food and shelter, you don't care how much gold the world has. You see that there's plenty of food and shelter, you just don't have access to money because there's not enough gold to back it up. It's a real danger. So by tying the value of money to a mix of commodities, you can grow and shrink your money supply as the relative amounts of the commodities increase and decrease. This type of system is always backed by tangible value because the money isn't created until after the goods or services are in existance/performed.
Hope this answers your question. If not, I'll try again ;)
TS
If a market basket that costs $100 today costs $50 in ten years, that would be deflation. Not so good for those with long term contracts unless they are written with some sort of adjustment clause.
Imagine that there isn't enough money to enable all the services and goods to be sold. Wouldn't deflation happen in the ordinary course of events, so that the markets would adjust? Essentially one would have too much of a good or service and therefore the price would fall.
Thinking back to the Greenback movement, wasn't it all about expansion and breaking free of the trusts and banking system of the time? So if we DO NOT want the economy to expand, then locking down the money supply could help. It seems a very blunt instrument, but if the goal is to produce LESS and to keep it LOCAL [scrip], then deflation and some high level of taxation on wealth would seem appropriate. Even some sort of built-in depreciation on the currency. The aim is to encourage people NOT to shop, but to build the commonwealth and minimize private wealth.
Can one get from money supply to something that regulates the scale of the economy? Each unit of currency would then represent that share of economic activity. It doesn't seem to me it would have to be linked to a particular tangible asset.
cfm, confused in Gray, ME
Hey Dryki,
I'm not sure if you're specifically responding to my posts. That said, I'll try to address your points as if you were responding specifically to me. ;)
Under the different financial/monetary system that I've previously described, the money supply is matched with the goods available for sale. If there isn't enough money in the system, government spending can infuse the economy with additional money. If there's too much money, taxes, or interest paid on government loans can reduce the money supply. By having the money supply matched to the available goods, the system will neither be deflationary nor inflationary. Certain care must be made to monitor perishable items and make sure that the available pool of goods doesn't shrink drastically in relation to the money supply. At any rate, this system of currency was used by Abraham Lincoln to completely fund the Civil War.....WITHOUT income taxes. After the North won, Lincoln was preparing to unite the Northern and Southern financial system under his "greenback" style currency. He never accomplished this because he was assassinated. Hitler also used this same monetary system when he rose to power. When you look at the history of just how potent a debt-free monetary system can be, it's staggering. The one thing it does is take power away from the figureheads of the Central Banking/fractional reserve model. The real challenge in implementing this change is to overcome their resistance.
The way I see it, the goal for any new monetary system is to have the flexibility to grow and/or shrink (or to remain constant for that matter) your economy while still retaining a "healthy" economy. Under our present debt based/fractional reserve economy, it's never "healthy" unless it's perpetually growing. I'm not saying that all growth is bad, but to have that be the overpowering motivation is just not wise. It paints ourselves into a corner...Reduces our options. If our economy deflates to the point where people can't buy food, then government spending needs to fill that hole in the money supply. Conversely, if prices are rising because there's too much money in the system, then money taken out through taxes or as interest payments to the government will shrink the money supply. Our economy at our peak was definately too large and in need of shrinking. The ultimate size of a future "healthy" economy must be veiwed in terms of natural resources and how many non-renewables are consumed versus renewables. A stable sustainable economy that doesn't blow through renewables faster than they're renewed, and severly limits the depletion of non-renewables, would be the upper limit, IMHO. The managing of the money supply would be the tool to control the scope/size of the economy in relation to our resources.
Hope this helps explain my position more clearly.
TS
TS - Thanks for replying to my original question (to expand on that concept of a period of not enough money [supply], and why it was a problem (as the words "not enough" imply)).
However your reply (that such a period/problem is one of deflation) seems to be incorrect. There is deflation right now in the US (see Martin D Weiss of Money and Markets), caused by the defaulting on so much debt. That is deflation happening even though the money supply is not rigidly limited by gold and instead the Fed could just print more, indeed is doing so. So it appears that if the state/problem of "not enough" money is deflation, then it is not caused by not enough money and is not exclusively related to a gold/etc standard?
But I guess that respecting of a gold standard could increase the constraint (preventing printing of money), which is perhaps what you had in mind.
Hey Robin,
I agree that deflation is happening now. Yes the Fed is printing more money but you've got to follow all this new money through the economy. It's a pretty short trip so far. The banks which make loans to consumers and businesses are so risk averse right now that they are using the money to plug the holes in their balance sheets. The "trickle-down" effect isn't working and IMHO was never intended to trickle down, although they said that's what the purpose was. One aspect of the problem in the danger that the derivatives market implodes. We'll see a complete financial collapse if that happens. Again, IMO, this is why the Govt. and the Fed wouldn't allow AIG and certain investment banks to fail. Their exposure in derivatives was too great.
Right now, the limiting factor for money to reach the little guys is the risk aversion of the banks to lend. The fed can print all the money it wants and give it to the banks and ailing businesses, but this money can't flow freely through the economy, it might as well not exist. So what we have is a flawed system that has so many holes, that the money isn't finding it's way around.
A gold or silver standard is another way that restrains the money supply, yes. We're not tied to one right now and the primary reason was that it was working against the growth imperative that is a result of the compounding interest in the debt based money creation model. I agree that a gold standard isn't the best choice but not because it prohibits perpetual growth, rather it reduces flexibility of the money supply.
TS
One more comment ;)
I thinks it also bears mentioning that we need to start looking at money as a tool to facilitate transactions, and NOT as a store of value to an end in itself. By only creating money to match goods and services after they have been performed/created, you've implicitly backed the money with a real/tangible value. Compared to our current system where money is created and backed only the promise to repay with interest in the future. There is nothing "real" backing today's money. The idea then is that money used as a tool will allow you to assemble your own collection of goods/services that IS your investment portfolio. It brings us one step closer to understanding Man's place and relation to the natural systems.
TS
A simple but important point. Thanks for bringing that up. Presumably the depreciation in some scrip is exactly for that purpose - some of them seem to automatically devalue at something along the lines of 1% a month.
cfm in Gray, ME
There are many problems with any hard currency and stifling money supply growth is one of them.
- Fiat money centralizes wealth creation power with the central government. Convertible currencies gives wealth creation power to all who possess it or its basis, be that gold, silver or some other valuable material. This decentralization of power has been anathema to all governments.
- Gold or other hard money systems are easy to evade. The history of the gold backed dollar in the 20th century is the history of the US 'going off' gold. At bottom, no system or discipline is better than the persons who use or abuse that system.
- Arbitrage activities tend to undermine gold systems, particularly if they are complex. See Walter Bagehot's description of 'Foreign drain and domestic drain' on reserves; if the price of currency differs in another region, imbalances can rapidly occur and lenders of last resort have the choice of either exhausting reserves or abandoning the hard currency regime and printing.
- Governments have a long history of confiscating gold in private hands, which undermines the confidence in gold- backed currencies. The most famous is FDR's confiscation order upon his inauguration in 1933.
- The single greatest complaint against gold (or other hard currency bases) is that it does not earn intrinsic interest; that is, it isn't fiat- money- like.
- The next great complaint is that gold backed currencies are inherently deflationary ... while they are inflationary at the same time! Since gold currencies have real value, holders hoard it, which is deflationary since there are fewer bills in circulation relative to goods and services. Consequently the treasury is required to print more currency to put it into circulation for daily business, this is against a fixed - or, if currency hoarders are converting their paper to physical gold - a declining reserve basis. As a result, there is a constant increase of currency. This increase in paper is inflationary on its face, although it is a 'concealed' inflation because the increases are hoarded in turn; one does not know exactly the wealth of a neighbor and the total money supply is uncertain. There are times when this hoarded money will appear suddenly in circulation, usually when it is unwelcome since it usually results in devaluation. All of this process describes the matter of the 'bad' - which is the increase in printed currency - 'driving out the good'.
By the end of the 19th century, the European financial powers had ironed out most of the kinks relative to hard money; large and liquid marketplaces and coordination between central banks kept arbitrage to a reasonable minimum and allowed capital to flow to investments that brought a high standard of living to most Europeans.* World War I put an end to this system; perhaps as a result, some blame for that war was directed toward the system that to some degree enabled it. Just as the current fiat system will undoubtedly be held liable for the cataclysm that is unwinding under our feet.
In reality, where hard currency enabled the social and industrial mechanisms that made that war inevitable, it was fiat money - particularly Walter Rathenau's brilliant innovation of fastening credit expansion to industrial output measured by statistics - that allowed the Europeans to prosecute it for as long as they did. After centuries of experience with both systems, it is probably fair to reject the fiat regime as it better rationalizes and rewards anti- social activites.
Can a hard money system work? This topic has been discussed here previously and on other financial/economic websites. While laying out the details of a workable hard currency regime is far beyond the limitations of a comment attached to a post on a website, the main characters are useful to describe:
- A hard currency regime is necessary in order to place value on currently undervalued externalities. Fiat regimes are structurally incapable of doing so, they measure abstract inputs with the end of increasing credit rather than fixing the wealth- value of objects. even abstract objects. This is what hard currencies do; they apply standards of wealth to objects, starting with gold or silver. Fiat systems don't and probably cannot. Gold in a fiat system is another industrial commodity to be 'used' (burned up) in some wasteful manufacturing process. Long- running externalities such as air pollution remain outside the ambit of all fiat regimes. These must be approached indirectly with regulations rather than by incentives inherent to the financial regime, which is where they should be - and most effectively would be - addressed. The idea is to provide incentives for conserving, for keeping the air clean or fisheries whole because clean air or functioning fisheries are more valuable - and useful - than dirty air or non- existant fish. The purpose of keeping the air clean is that it will allow some capitalist to get filthy rich from doing so. Fiat regimes measure all things in relation to their ability to allow credit creation.
- A hard currency regime would be decentralized; it would be done in an organized way with a central oversight mechanism that would keep imbalances from developing and to manage arbitrage. Decentralization would keep the overall structure from being compromised; some banks within it might fail or be ruined, but no single bank 'too big to fail' would not uproot the entire system. Diversity would keep control out of the hands of a few central government apparatchiks. Diversity would provide the structural robustness that centralized credit creation prevents. An example of the structure I have in mind is a Federal Reserve system broken up into fifty or so individual State Federal Reserve banks.
- A hard currency regime would incorporate fixed rates of return on deposits to the currency basis structure. A reasonable statutory rate (of 4 - 5 percent) would keep currency in circulation at all times without the need for printing. A return on all deposits would be subsidized if necessary; it would cost the government much less to do so than to subsidize all credit during a credit expansion then spend much more to rescue the broken system @ collapse. A hard system would be manifest as a robust, high yield billion dollar- scale economy rather than as an insolvent trillion dollar- scale economy, such as we have now.
- The basis structure would be open and available to all, banks would be depository at all levels, including at the highest. The current Federal Reserve system only does business with other banks and is conequently cut off from all hard capital (deposits) except indirectly through client banks. The fatal flaw of the Fed is that its reserves are either Treasury paper or commercial trash; over time, these items become interchangeable. The Fed has to borrow most of its capital from the Treasury. A hard system borrows down the economic food- chain, from depositors, aggregating earned income that is saved, providing a return on that saving.
- In the current fiat system, the central bank is isolated from the people it supposedly exists to serve; it therefore does not serve them. In a hard system, the banks cannot exist without the trust and cooperation of the people whom they would serve. Capital would flow from the public, not be borrowed from the Treasury. There is a great deal more to this feedback loop that would make the hard system more accountable that any fiat system, but I will not go into it here ...
- The basis would not be limited to gold or other metal but would also include such as mineral leases, watershed easements, undeveloped land, productive farmland, oil and gas reserves, forests, etc - all 'things' that can be conveyed by deed or title and other things that cannot easily but have value, nevertheless ... such as fisheries. Public property would be 'depositable' as well. Investments that would increase or improve this reserve base would allow the increase in the money supply, 'Business As Usual' or 'Growth' as it is currently defined - aggregated liabilities in the true sense - would erode the currency basis. Neither 'Depletion' nor externalities would exist in this regime, at the same time, proper husbandry, resource conservation would be rewarded through by an increase in available money and attendant purchasing power. This would accrue both to both the individual depositor and to the system as a whole. The key here is again, yield; the cost of credit. Fixing a yield to 'idle' properties such as farmland would permit that idleness to compete on a level investment playing field with 'development'. The increased cost of credit would require any value added approach to actually add value and to do so over time, to compete with a property as it is, where the currency as a whole is the bearer of value, rather than the 'money- like' individual loan that carries value in the fiat system. 'Investments' such as speculative building schemes would simply not be affordable with property and improvement costs added to expensive credit; this then compared to the return available simply by having the property earning a yield within the system without any development.
- The hard regime would apply financial values to the commons.
I can go on and on; I have a truly marvellous proof of this proposition which this margin is too narrow to contain.
*Many would comment that colonial expansion and exploitation was responsible for the increase in living standards in industrial countries. This would be true only to the extent that the costs of maintaining the colonies did not exceed the returns from them. Most of the European colonies produced losses for their masters, requiring much effort on the part of governments to rationalize maintaining them.
Steve from V - My first thought is of the notion that there are some problems that do not have solutions. My second is that perhaps this one comes into the category of crime (as in you can never stop all crime but it doesn't therefore follow that you should give up all trying).
The fundamental you rightly identify: At bottom, no system or discipline is better than the persons who use or abuse that system.
Anyway, thanks for a magnificent post.
Very insightful post - many thanks.
Two additional points: Hard currency regimes can be misused as well as any fiat currency system. Even hyperinflation was possible, f.i. before and in the early stages of the thirty-year war. Social disruption and loss of confidence in the authorities led the foundation for the atrocities of the war.
Just because the Fed is an ill designed entity with the purpose of maximising the revenue and ambitions of its private shareholders not all fiat systems should be debunked. An independant entity solely targeting price stability and tightly controlling money supply can work pretty well - look at the Bundesbank's track record. Growth and govt debt spending were lower than in other countries but there were no bubbles at all. Of course the suppport of a population which has suffered through inflation and deflation within a generation is helpful.
Well, of course, there is no system better than its participants. I like the think that any system should be - inherently - a teaching tool; as in, "Why do we have a gold standard now, Grandpa Bernanke, when we had fiat money for decades?"
"Hoooommm. I don't know ..."
You see what I mean? Just a bunch of dummies in charge of things, they can't learn anything.
I think in different circumstances, with different institutional memories and personalities and more rigorous fiat system would work and do so a lot better than the current model. Right now, with 'Fiat 1.0' crashing around our ears an alternative that is vastly different (change we can believe in for a change) would be the necessary to beguile some public trust. A 'Fiat 2.0' might be an excellent monetary system, but it would not be considered if 'Fiat 1.0' was still functioning; installing it now is a bit too late as it would likely collapse as well and for the same reasons ...
A replacement or parallel money system would be called on to perform two very difficult and mutually excluding tasks;
- to safeguard the wealth that exists in all forms that is in the hands of the public; this private wealth is the habitat for the capital that is public trust and confidence which must exist for any money system to function. This trust is evaporating very rapidly; banks are considered insolvent even when they are not, the managers who are now proven crooks poison the reputations of the entire lot.
- to render to the best degree possible some defense against the current deflation and any subsequent inflation or currency collapse.
It is utmost importance for the private wealth to be safeguarded as its loss would both impoverish the country completely and end all faith in the government. Authority isn't nefarious ... the time to build lifeboats is before the ship plunges to the bottom! That nobody sees a need to craft lifeboats under circumstances that compel the Treasury Secretary to cry 'Systematic financial collapse!!!' does not give any confidence at all; it speaks eloquently the people in charge are complete idiots or are complete idiots in denial ... or are complete idiots in denial who are also incompetent crooks! A baboon would make correct policy by accident every now and then.
(Beats head against wall!)
I don't know if any fiat system will survive the coming crisis. Only Japan and Hong Kong (I think) have sufficient cash reserves to weather an assault (speculative or otherwise) on their currencies or pay demands made against them or their denominated securities with something other than more securities; at bottom even this melts away. Japan's economic base of high quality manufacturing is valueless without customers with valuable money. Its currency is a set of claims against something whose value cannot be taken for granted under all circumstances. The loss of trust in one currency would likely call into question the trust in the others - and the actions of the electronic marketplace would amplify distress and institutionalize it - and then the very concept of fiat currency itself would be questioned, tremulously and with grave doubts. After this comes the end of the world, the end of the world of money at least for a good while, maybe a year or longer.
The only money would be gold and silver, diamonds and land, then exchange would arise from money based on these things, the hardest currency. Or ... the governments would resort to command economies with fixed prices and wages and rationing. Of course, the situation resolving from 'Command Economy 2.0' would also become very complex indeed, with two levels of 'currency' one being a black market of one kind or another. Here, the 'command' would also be fiat, albeit closely traded; without trust it too would collapse.
Right now, the great danger is deflation. It is imbedded into the innermost workings of the economies, ours and the others, abroad. I don't think the economic masters have thought things through very well, they do not understand deflation which lack of understanding is clear by their actions. Else they would not have chosen their policy tools so poorly.
Steve,
You should submit an article to the editors.
Gail proposed that we need a 2nd sort of money in parallel. My suggestion would be that it be backed by a basket of non-perishable stuff. The stuff would be chosen, and the ratios set, by a decision about what would be valuable to stockpile in the interests of national security. The money people hold in that form wouldn't earn any interest. It would be backed by physical stuff acquired at the time of conversion from fiat money, and the conversion to fiat money would be at market rates for that stuff. At some level (say 10,000 units) you would be able to take money of this type to the Fort Knox equivalent and get: 10 barrels of oil + 1 oz of gold + x amount of NPK + y amount of wheat, etc. You would need some serious transparency for people to trust that the correct amount of physical stuff is being acquired and kept.
If you back a currency with gold then the country ends up stockpiling gold which is not very useful in an emergency. Obviously the country is going to commandeer the stuff and use it in an emergency. There's no point worrying about that: the government is going to do the same with vehicles, crops and everything else if it needs to.
Why not use Energy as a unit of curreny backed by a paper indicator. The MegaWatt Note could be traded but would always have to represent that amount of Energy generation capacity. The only way a country could increase its 'money supply' would be by creating the infrastructure to generate more energy...
As falling Energy output would imply a weakening economy this would be a very strong incentive to tap into the other 99.5% of solar energy currently wasted in order to grow. Another way to grow would be to use existing capacity better -e.g. greater efficiency, another positive feedback...
Merry Christtmas 'n' a happy 2009 btw.
Nick.
Nick, nice idea just one small problem (as the legendary reply to the doomed inventor goes). In this case quite how the community arrives at an agreed measure of how much energy is available. And available at what time under what circumstances, and is wind energy in summer of equal value to diesel energy in a tank?
Herman Daley gets it exactly right, and Nate gets a gold star for re-posting Herman's excellent synopsis. I think it is important that we revisit such basics frequently... as antidote for the stuff clogging the sanitary lines of our 'mainstream' media.
The problem, of course, is that none of Herman's suggested solutions have the remotest chance of being implemented in their present form, under the present circumstances, or by the present or near future Administration.
Seems to me that's a fairly serious problem.
So, what can we do about that?
Further develop the solutions into more palatable steps?
Let the current conflagration burn on out and then use these principles to rise from the ashes?
Take to the streets for regime change in our monetary system of Treasury/Fed/Wall Street?
Hunker down and grow vegetables? (That's a fairly large part of my own personal solution, actually, so I'm not poking fun at this route too sarcastically... only a little)
Just what can or should we DO, exactly?
I think Denninger would agree with this essay. He's been saying the same thing using different words for quite some time.
There have been several other economists who have been raising the alarm for some time; not to mention various Austrians. Peter Schiff and James Grant (Grant's Interest Rate Observer) come to mind.
These published remarks are from Doug Noland. He points out that asset inflation instantly creates a self- reinforcing liquidity cycle and a powerful constituency at the same time. It is this constituency for continued asset expansion that makes up the nations' (all of them) political and economic establishments. Since asset inflation creates 'wealth' out of thin air, it becomes something worth defending at all costs - especially if those costs are carried by others such as foreign investors or taxpayers that haven't yet been born.
http://www.prudentbear.com/dmdocuments/Contemplating_the_Evolution.pdf
http://www.prudentbear.com/dmdocuments/HowCouldIrvingFisherHaveBeenSoWro...
As for a gold standard; the likelihood for a future gold Dollar/Pound/Franc/Yen/ Whatever is great as fiat money edges closer to armageddon. In the end, no one will trust the fiat stuff, so hard currency will be the only alternative that will allow centralized government and economic function.
The other alternative being barter ...
'Hunker down and grow vegetables'
hopefully on land u own; & then be ready to leave all u 'have' if necessary [& not waiting til the last minute]. helluva way to live; but psychologically/spiritually perhaps good discipline.
Absent some miraculous discovery, decreasing energy supply is going to steeply decrease food supplies globally and to most subglobal areas. Thereby we can be sure that the world's population is going to shrink to a third or less of its present, within the next decade or three (insanely-optimistically assuming an organised decline). Ditto the population of many developed countries.
Concurrently, we are faced with the daunting challenge of somehow converting our financial system from an aircraft (constant 'progress') to a helicopter (steady state) while keeping it flying all through.
A lesson of history is that organisations, societies, and especially the dominant elites of decadent societies rarely manage contraction at all well. Dominant elites are made up of people who are blind to the true/false distinction and see the world only in terms of advantageous-to-me versus detrimental-to-me. They contribute negligibly to solving problems, but massively to causing them. It is a waste of time trying to persuade these brilliant idiots. After many decades of clear warnings the uk regime is still obsessed with yet more expansion of air travel, car-making, and international tourism.
So what we have to do is prepare our own lifeboats for a global collapse which we cannot avert. Some of the posters here are working on their particular lifeboats. Here in doomed Birmingham UK I haven't yet found anyone with more than a wisp of energy-crisis sanity, but I am working on my persuasive presentation and hope to be able to get started on successful "marketing" shortly. It does help to have studied scientific copywriting and marketing (as opposed to business school bulltit).
So very, very true.
Add to this the fact that both the US political and economic systems are so badly dysfunctional as to have been rendered incapable of raising up competent, wise leaders - and it has been this way for at least a couple of decades now. Memories are slowly fading and dying off, leaving us with a population that increasingly has never known otherwise.
The people who constitute the top, controlling layer of society are a big part of the problem, and it is a vain hope to look to them for "solutions". We might demand "results" from them, but all that we will be getting are "consequences".
This in no way lets the rest of the population off the hook, though. Some talk as if the majority of the population are innocent victims of the machinations and failures of TPTB. But who is it that voted the politicians into office? Who is it that made the economy what it is today through their dollar votes in the marketplace? Some call them the "Sheeple", but there were individual and collective decisions that led to them being such.
The bottom line is that those of us living in the US are $crewed, and there is nothing we can really do about it, except cope as best as we can. Just maybe some of us can make a positive difference at the local level in our individual communities, thus enabling them to bob on the surface of the flood waters that are now bearing down upon us. That's about the best that can really be hoped for.
Over the years i have posted dozens of articles and thousands of posts related to prepping/survival. I have recently come to the conclusion that the first thing people should DO is read, and understand, Sun Tzu's, The Art of War. It was available at http://www.kimsoft.com/polwar02.htm but I haven't checked it in years. It was part of Project Gutenberg.
Why read an obscure Chinese text related to war, first brought to Europe in the 1700's? Simple, people begin "doing" stuff without the slightest forethought of where they are going or what their purpose is. They have no strategy!! Further, their thinking become locked to such an extent that they lose the freedom to move with the ebb and flow of the moment.
Consider the future: There might be societal collapse leading to anarchy, a dictatorship, corpo-fascism, dissolution of the US, a global plague, WWIII, etc., etc. We cannot know what might play out.
My own position is to prepare and become as self-reliant as possible but be ready to look openly at the situation so as to not become locked into an inalterable strategy.
The same rationales apply to society as a whole. There is no "best" or only answer.
Finally, I'd suggest the next step after Sun Tzu is to read and, again, understand, James Rawles book, Patriots: Surviving the Coming Collapse. It is fiction but it offers many thoughtful paths to consider.
It is at that point that concrete action should be taken, i.e., "doing" something.
Todd
Very wise words Todd. And here's a link that actually works!:
http://en.wikipedia.org/wiki/The_Art_of_War
"Just what can or should we DO, exactly?".
I am no economist, but this is something I was involved in, and something to think about. During the mid 1980's, in response to an awakening of ecological consciousness, an alternative economic exchange was begun in Northern N.S.W, Australia. The LETS (Local Economic Trading System)is a bio regional project where goods and services are exchanged for the equivalent of money-LETS vouchers that have agreed values. It also incorporates a barter system. The system works within a defined area and is only applicable to agreed goods and services in that area.
It enables low income people to live happy, frugal lifestyles within their communities.
I had occasion to briefly examine the L.E.T.S. system in Ottawa in the late 80's/early 90's and thought it to be rather ingenious. Very easily understood by all.
Fiat currency will fail unless we can convince the banks to put their faith in it again and we pretend that the last few months didn't happen.
I understand that F.D.R. invoked 'Parity' laws as one of the means out of the depression which was to guarantee the market for agricultural goods by buying up surpluses. As I understand it this is akin to the milk marketing board in Canada.
If the author is correct or Mr. Kunstler or others then inflation will rear it's ugly head and there will be few hedges against it. The garden this year is key to food next winter. And food for next winter if you want it to keep instead of rotting will need to be organically raised. Put in a root-cellar and source your seeds, before the spring rush.
If everything turns out tickety-boo then you will delay your onset of cancer from eating nutritionally empty food.
If, rather, When there is the social breakdown (of functioning authorities), systems such as LETS will be so much wishful pie-in-the-sky, and the main trading systems will be "our friendly community (aka gang) is bigger than yours", "my biceps are bigger than yours", and "my gun is bigger than yours".
See Todd above.
The carrot LETS and the stick 'My Gun is bigger than your gun". No doubt there are many who use guns now let alone in a 'crisis'. That is a choice. A trading system that enables an honest economy would most certainly not be tolerated by the bourgeoisie who are used to an inequitable arrangement. Gangs I suspect would like the simplicity of lETS. So I guess I would ask you which gangs do you support?
All trading systems depend on trust and LETS especially depends on trusting certain local people to honour their accounts. Gangs I suspect would like the naivety of LETS. Perfect for common good-for-nothings whose rate of exchange is can you help me yet again thanks or I'll get angry at your selfishness. How many people do you trust in your neighbourhood to leave all your savings with? And will you be more confidently trusting when there's a life-threatening crisis?
I know a "community-building" "hero" deeply involved in credit unions in this city who is an A-grade unscrupulous conman. www.2020housing.co.uk . Be warned!
Robin, Do you not believe in taking from the rich and giving to the poor? (sorry I couldn't resist). You bring up a most salient point about trust. What the melt down has so blatantly pointed out that many are not to be trusted. Money especially fiat currency exists only on trust. As long as you accept that my loonie is worth 1/2 a dubloon. Then we can sing the song LETS get along. The value of LETS is that it more properly values contribution of the non monetary kind, but it is clearly vulnerable as are all transactions.
We don't have a currency crisis we have a values crisis. As wncobserver pointed out above.
Why not just give everybody a million dollars and be done with her. We could all quit as millionaires. Of course the morning after the party we might be dismayed to discover that butter had appreciated some 5,000% over night.
WncObserver I like your posts. I don't think that we can count on 'luck' to prove axiomatic. Better to work on building trusting relationships with others and work together on the basics. If you can't grow find find a small farmer who can and support them.
"Perfect for common good-for-nothings whose rate of exchange is can you help me yet again thanks or I'll get angry at your selfishness." Better yet design a credit system within LETS to help curtail these shenanigans. " How many people do you trust in your neighbourhood to leave all your savings with?" What savings?
"And will you be more confidently trusting when there's a life-threatening crisis?" Having not faced one I suspect that they demand the most from us. One thing I have heard others frequently report is that these crisis surprise them in identifying who were those that stood up versus those whose selfishness got the better of them.
If and when it gets to that point, I continue to insist that "survival" is going to mainly be a matter of luck - being in the right place at the right time, etc. I am also inclined to believe that "survival" isn't all as desirable as some are making it out to be, given what we're likely to be left with when the worst of it has passed. More likely, those "lucky survivors" are going to find that their problems have only just started.
I'm hoping for a peaceful and painless exit when my time has come, but I'll consider myself extremely lucky if I can manage that.
Great article. Nice to wake up to this Christmas morning, the first Christmas I made a point not to purchase any gifts for anyone.
As for going back to a Gold standard, I have heard there isn't enough Gold to do this (even if the banks hoarding it for this very reason--to prevent the return of commodity money--were to let it go). True? I don't know. Nonetheless, the author's recommendation of a *better* fiat money system here would work, if only human (banker) greed would get out of the way.
Return money to it's rightful place as simply a holder of value for real goods. No more interest. No more "M-M" profits (in Marxist terms). The man who's birthday many of us are celebrating today would be very happy to see that happen.
Thanks again oil drum. I feel sane when I read this site.
Emanuel
well, there is enough gold, but of course, an ounce of gold should be valued much more than it is now.
price of gold is so low because central banks want it that way. in reality, gold is the real money and fiat in of course just a funny piece of paper.
Energy is the real money, not gold. Gold does not contribute/generate basic needs -food, heat, shelter, power. Energy is what we have to spend. Money is who has the energy, for now.
"Basic" needs for human beings don't amount to much. 1500 calories, maybe 60 grams of protein-- double that for an adolescent, perhaps. Shelter -- pretty basic in most of the world will suffice, maybe 150 sq.ft. per person. Fresh water -- 50 liters/day is generous.
Now I am pretty sure that all of this could be provided to every person on earth, with plenty left over-- under the current energy use regime. That it is not, clearly speaks to a system that purposely creates accumulation of wealth in privileged pockets, and exclusion everywhere else. Fractional reserve banking and fiat money are the means by which that is achieved -- they are the financial wizardry that allows people in "developed" countries to believe that they are "pre-rich" (to believe that if they aren't rich, they could be) and so the system is entrenched in the belief system and basic world view of virtually everyone in the visible part of the world. (The destitute are invisible, and therefore, don't count.)
I don't know what makes people change their world view -- but it doesn't normally happen without a major shock. So I can't really imagine that there will be any smooth transition to a coherent energy-denominated, steady-state economy.
Gold is essentially useless. It merely separates the aristocracy from the peasantry. Rich peasants have existed in history -- peasantry doesn't necessarily equate to poverty. Rich peasants just don't have gold or the other trappings of the elite. Return to a gold-based financial system would simply exclude even more people from the "cash" economy than are already excluded-- it wouldn't of itself make anyone richer or poorer in energy terms.
Right on! Not to put too fine a point on it, but I advocate a monetary policy based on exergy or energy available to do useful work. Such energy is at a sufficiently high potential to drive useful work processes (e.g. prime movers) and of a form that is coupled with those processes. The aggregate exergy for a modern industrial society is the sum Joules of net fossil fuel-based products (energy content of oil less energy required to extract, refine, and deliver to point of use), hydroelectric and nuclear power, and renewables, as well as net calories from agriculture. The net represents all energy ready to be used in economic work, including human/animal labor.
If money were based on an exergy standard then the money supply would be tightly coupled to the aggregate and not subject to creation by financial instruments or fractional reserve banking as currently practiced. There would never be inflation as we experience it now (or deflation). Moreover fiscal policy could be much clearer in the sense that the amount of energy/money invested in infrastructure that technically increases exergy (which actually includes efficiency improvements as well as construction of energy infrastructure) could be readily determined. This would be especially the case in a steady-state economy as advocated by Daly and other ecological economists.
Proposals to base money on emergy, as advocated by Howard Odum, are much harder to implement, and are targeted more at detailed costing of economic output (setting prices). There is much to like about the emergy version of money from a microeconomics perspective. But exergy would be more useful at the macroeconomic level and for national accounts. It represents wealth production potential rather that wealth production, which emergy represents. Ideally we could use both measures to gauge effectiveness of the economic processes. If total emergy could be computed and the economy is operating at maximum efficiency then total emergy + heat losses = total exergy!
See March 25th Question Everything - What is money, really?.
George
Well said George. I agree that Emergy proposals would be difficult to implement and exergy makes more sense, both in theory and quite possibly in practice. However, I think we would still experience inflation using an exergy -available energy -system, as our aggregate Joules available for work would not be static unless we relied exclusively on renewables, and even then would gradually deteriorate as there would be infrastructure costs. In any case, we have a transition on the horizon - it would be great if it could be a wise one, though I expect as Herman points out, marginal costs now exceed benefits of the business as usual trajectory - IOW - we are currently, and likely to continue, pouring good energy after bad.
Still, Holdren's first publications are all about energy - he wrote a chapter on thermodynamics in one of Herman Daly's books - it will be an open question whether the voices of Obamas 'science team' can be as loud as the economists - Lawrence Summers et al....
The Techocracy on a different money:
http://en.wikipedia.org/wiki/Technocracy_Incorporated#An_alternative_to_...
http://technocracy.wikia.com/wiki/Energy_Accounting
It is energy that makes the world go around, not money (credit). However there does need to be a system for the allocation of energy to flow to those who can convert it into things like food, shelter, heat, transport etc. Money is the rationing system for energy and the market economy is simply the struggle for a bigger allocation. The economy can only grow if the energy supply is growing and it follows that it must decline if the energy supply declines. The rationing system has to adjust either way.
While energy is certainly necessary, I would argue that a reasonably functioning economic structure is necessary as well for humankind in general to prosper. Gail The Actuary has done a yeoman job in researching the economics angle of the energy situation. The specter that I fear, and has happened in the past, is that we will see fields of crops going unharvested while people starve in nearby cities, all due to a lack of functioning economy. All the energy and consumable commodities in the world won't make a bit of difference unless we have a functioning economy; and a functioning economy requires a monetary system of some sort and a lot of trust between people.
EDIT: A good example would be the growing supply of empty houses and a concomitantly growing supply of homeless people. A malfunctioning economic system [people] is to blame, not lack of energy.
Is there a concise discussion anywhere of how emergy, exergy or a functioning economic structure differ as the operating principle? I immigrated from a country where fruit were rotting while cities were starving upon the fall of the Berlin wall.
ET, The apparent abundance of homes and homeless may not be all it appears to be on the surface. many of the abandoned suburban tract homes were very energy intensive to live in. It may be easy to install people in these homes but without a constantly cheap energy supply, living in them becomes very hard very quickly. Money won't solve that propblkem unless there is an adeqaute supply of energy to buy with it. In an era of scarcity if your choice is maintain homeless people in dormitory suburbs or grow food on farms to feed the population, both the market and the governing authorities must choose the latter. I'd suggest that the market is making the adjustment and is performing its function quite well. The product is no longer viable.
"Energy is the real money, not gold. "
I don't think so. Money must have some physical characteristics that energy does not have. It must be difficult to create, e.g. gold can be produced through neutron bombardment of other elements, but the cost of doing so is prohibitive. Money must be something that can be captured and put in vaults, and transported from one place to another with little loss of 'value' during the transport. It must be something that bankers can deal with without the aid of physicists, or 'rocket science'.
Actually, I really don't know what the full requirements for a proper new form of money are. I doubt that they will be properly cataloged here.
True to a point Nate - but there is more money than actual energy and so we are looking at hyper inflation; a cash to energy ratio being continually adjusted as energy declines!!
Nate: Hit the nail on the head. The World is indeed upside down as we burn our wealth and feather our nests with monetary lies.
It's better than Yugo money, OK?
When used as a medium of exchange, gold is just that: a medium of exchange. Little pieces of paper can be a more convenient medium of exchange, and these days computer blips frequently serve the same function.
Of course there is more potential for abuse in these convenient forms: in particular the computer blips can rush around at the speed of light. You can be broke in very short order.
AN interesting proposal;
"Global Social Democracy"
http://www.fpif.org/fpiftxt/5765
"Among the key propositions advanced by partisans of GSD are the following:
Globalization is essentially beneficial for the world; the neoliberals have simply botched the job of managing it and selling it to the public;
It is urgent to save globalization from the neoliberals because globalization is reversible and may, in fact, already be in the process of being reversed;
Growth and equity may come into conflict, in which case one must prioritize equity;
Free trade may not, in fact, be beneficial in the long run and may leave the majority poor, so it is important for trade arrangements to be subject to social and environmental conditions;
Unilateralism must be avoided while fundamental reform of the multilateral institutions and agreements must be undertaken – a process that might involve dumping or neutralizing some of them, like the WTO’s Trade-Related Intellectual Property Rights Agreement (TRIPs);
Global social integration, or reducing inequalities both within and across countries, must accompany global market integration;
The global debt of developing countries must be cancelled or radically reduced, so the resulting savings can be used to stimulate the local economy, thus contributing to global reflation;
Poverty and environmental degradation are so severe that a massive aid program or “Marshall Plan” from the North to the South must be mounted within the framework of the “Millennium Development Goals”;
A “Second Green Revolution” must be put into motion, especially in Africa, through the widespread adoption of genetically engineered seeds.
Huge investments must be devoted to push the global economy along more environmentally sustainable paths, with government taking a leading role (“Green Keynesianism” or “Green Capitalism”);
Military action to solve problems must be deemphasized in favor of diplomacy and “soft power,” although humanitarian military intervention in situations involving genocide must be undertaken."
It all sounds good, I call it Kum-BAU-ya. The problem with all these proposals in brief;
President Nicolas Sarkozy of France... “The day we don’t build trains, airplanes, automobiles, and ships, what will be left of the French economy?”
Any one want to tackle that question? ...and no the answer is not electric trains, airplanes, automobiles, and ships IMO.
Cheers
Nate,
This is a very interesting and thoughtful re-post for this quiet Christmas day. After all, this is a day for reflection on what is "really" important in our lives.
This goes back to one of my basic propositions, namely, that the root of all of society's problems lie in the evolved structure of our human brains.
Our brains cannot discern between what is "real" (what is a real asset) and what is a fantasized truth (a financial asset) particularly when immersed in a social situation where everyone around us is saying, for example, "Buy your own home --it's the most valuable asset you will ever own, and it will always appreciate because it always has"; "Go to college and get a degree in finance --it will make you the most valued member of our society"; and so on.
These kind of mainstream messages create the cognitive dissonance that many here at TOD feel when they step out into the "real" world after having immersed themselves momentarily in the TOD world.
Outside, in the "real" world, everyone is sending out signals (messages) of BAU. The gas stations have gasoline (at low low prices). The supermarkets have food. Retailers have lots of inventory (at low, low, super low prices this XMAS). So how can anyone in their right mind be saying that we are in the midst of a collapse? How can anyone say that Merrill Lynch, Goldman Sachs, AIG, etc. are not "real" and worry about Peak Oil and collapse of civilization are "real"? It doesn't connect.
Step Back, you are making simplistic psychology generalisations which fail to take into account individual differences. (Mind you, almost all psy profs are guilty of this too.)
As explained in pages 40-42 of my first book http://www.lulu.com/content/140930 , there are three sources of peoples' ideas.
Some people are more oriented towards reality (scientists, engineers), whereas others are more oriented to imagination/wishfulthinking (silly 'healing' techs such as reiki, homeopathy, etc) and yet others are more oriented towards believing "authoritative" viewpoints / conventional wisdom (authoritarian mentality). In a decadent society there is preponderance of authoritarian mentality, and the people who gain most power are those authoritarian mentalities who excel most in themselves mindlessly believing and telling lesser authoritarian mentalities what they would like to believe anyway. "Property will make you rich too." "The recovery will be here in 2010."
Meanwhile there are still a lot of eminently realistic people (as here) but they are ignored both by the sheeple majority and by the dominant elite of higher-rank sheeple. See re Arnold Toynbee on decadence in my book p 43 onwards. http://www.lulu.com/content/140930 . PS: The main purpose of the book is now redundant as the whole system is about to collapse of its own accord anyway (due to "Resource depletion ..." and "Increasing dependence on a fragile complex..." -p17), but that doesn't make my ideological explanations anyway wrong.
Hi RPC,
I downloaded the free PDF copy of your book and will take a look at it. (No time now.) The diagrams on pages 25-26 look correct. MSM is controlled by advertising interests and thus the messages sent to the masses are filtered to comport with the party line.
I agree with you that some people do succumb to authoritarian domination. I disagree that scientists and engineers are somehow immune to the mental manipulation that all humans are susceptible to. I run into plenty of very bright engineer/scientists (PhD level) who sincerely think Peak Oil is hoax, that AGW is a hoax and that the markets will save us. I can't say who among us, if any, is ultimately correct in their views. I enjoy studying the questions and thinking about them, including the organizational charts such as you present on pages 25-26. Thanks.
I agree with your critique of my categorisation of people into three sorts. The thing is I presented it crudely in the hope that the reader can fill in the grey gradations. In my own experience there are indeed pretty much no persons who are 100% realist or 100% wishful-thinking or 100% authoritarian. Even in myself I see in retrospect the occasional wishful thinking! Even the most silly faith-medicine follower does not assume they are immune to falling off cliffs or crashing into autos. Even the most truth-blind machiavellian can see the truth that a knife can kill them or that lack of food will starve them.
But I think you'll agree that scientists tend to be more reality-grounded than some other sorts.
But I would caution about that use of "bright" (and the notion that having a PhD is a measure of it).
The point is that high IQ is like a faster computer that runs everything faster including spyware and bugs. Far more important is judiciousness, and caution in developing one's conclusions. As a piano player it's no long-term big deal if I play a wrong note. As thinkers, many people make mistakes early on and then build their whole ideology on continuing down the wrong railtrack, getting ever further from wisdom.
More at http://www.zazz.fsnet.co.uk/validmea.htm and also incorporated into my book at p55-60 ("How not to measure competence").
Another comment on "bright" PhDs by Bernard Rimland most famous name in autism research: "..I went to great lengths to recruit psychologists with at least a smidgeon of creativity .... but of the 60 or so I hired over that period, only 3 or 4 showed much ingenuity, originality, and or creativity" .... "Mr Clarke is one of those rare souls...." (even though I don't even have the qualifications for admission as an undergrad).
I consider that a large part of the current malaise lies in an "education" system that mistakes hyperactivity for genius. Many of your PhD colleagues are in so much of a rush that they fail to assign the due amount of time to studying energy supply.
RPC,
Thank you for replying. I enjoy these kinds of discussions even though we may not always see eye to ewe.
Yes. "Scientists" [even those with PhD's and high IQ's] are sheeple.
Politicians, bankers, Wall Street types are sheeple.
I am sheeple.
Even TODders who understand deep Peak Oil are sheeple.
None of us are more than say, 0.001% smarter, better, whatever than those "other sorts".
I was watching a lecture on CSPAN recently by astro-physicist, Neil deGrasse Tyson and I think he nailed on the head by noting that the amount of DNA difference separating us self-proclaimed, "superior" human beings from the less intelligent great apes (i.e. chimps) is perhaps no more than about 1%.
Accordingly, if an alien life form showed up on our door step with say just 1% more of a difference in DNA that increased their intelligence, the whole of humanity (even our most brilliant "scientists") would appear to them to be nothing more than blithering baboons.
And this is perhaps the fundamental limitation that blocks us from responding appropriately to Peak Oil, to Global Warming, to Population Overshoot, and so on. The "realism" is that we are nothing more than freakishly evolved chattering monkeys with, at best, a 1% lead in intelligence over other life forms on Earth. So if the reindeer on St. Matthews Island ate and reproduced like there was no tomorrow, we 2% smarter humans are unlikely to do anything different. We're going to do as the rest of the herd does because, after all, when in Rome one does as the rest of the Romans do!
___________________
Left click on image to see related article re St. Matthews.
stepback (and wnc below) - There's a fair number of errors in your understanding of competence, a subject which I've done quite a lot of studying of.
The discussion of competence in my book at pages 40-64 is based on a lot of others' hard science rather than armchair speculation. http://www.lulu.com/content/140930 .
I'll leave anyone interested to follow that link and put just a few responses here.
The real(est) scientists tend to be scientists by birth, amateurs rather than the people with PhDs, "distinguished" professorships, etc. The latter tend to be just sheeple who chose a fashionable career in the "science" industry. Part of the reason I don't have a degree is that I was far too independent-minded and weighed down with too many original thoughts. (Plus the gold standard of intellectual "excellence" is superficial hyperactive parroting ability.)
All people are indeed to some extent sheeple but some are a lot less than others and that's the main part of what makes a genius. The achievements of such geniuses are vastly greater than the average professor ever manages even when given tons greater privileges.
My book further shows that sheeple are born not made, ditto genuises. Geniuses are no more capable of acting as typicals than typicals are capable of acting as geniuses.
Again false generalisations ignoring huge individual differences. I know of loads of people who are having zero children. See also JP Rushton's research on r/K distinction. The sensible thoughtful people are doomed by the rabbit-breeder types living (and immigrating) among them.
Speak for yourself, but not for me.
WNC - The most salient intellectual deficits are not low IQ but lack of realistic judiciousness (due to authoritarianism, wishfulthinking and paranoia) and inability to unthink the false beliefs one has already acquired (= low neuroticism).
The thing about propaganda is that it has been refined by meme-ic natural selection in capitalism - the trashy propagandists go bust, the effective ones end up owning everything!
RPC,
We are almost in agreement here except that I would replace your phrase a lot less with "marginally less so".
Neil Tyson (Nova astrophysicist) has a number of video presentations. I'm not sure if this one (YouTube-- The Perimeters of Ignorance) is the one. Somewhere he explains that the most genius of apes will probably never be able to do high school trigonometry, the reason being the limits of their DNA. My point is that we humans are equally limited by our DNA --we just can't see our own limits.
step back, you are living up to your name. The word sheeple was/is used not to mean some general limitation of understanding but rather as a slang for high authoritarianism, the mindless conformity and faith in supposed truths declaimed by those presumed to have authority. An excess of this mentality is fatal to original thinking because it leads to the "someone would have already thought of that if it was any good" objection killing all originality at birth.
There is considerable variance of authoritarian mentality. I myself authored my unchallenged theories of autism, dementia, manic-depressive, and excessive mobility, along with numerous equally hot ones I never had the time/energy to publish. No one had ever suggested there might be a simple explanation for these things waiting to be discovered. Let alone suggested that talentless uneducated I should study these things, let alone discover something and publish it. Meanwhile, millions of stupendously-privileged "brilliantly talented" PhDs and professors specialising in the very subject STILL never get beyond parroting the mantra "autism remains an unexplained mystery" (and "Alzheimers is something to do with some very abstruse quirk of amyloid processing"). These same pseudo-excellents are also liable to be assuming that we have "just another" of those economic cycles at present, which our governments will guide us out of in due course.
(Well, I suppose I can just about smile that nowadays many years later (n.b.) one encounters the notion that it is obvious (you prat) that autism has to do with gene-expression. http://cogprints.org/5207 )
Remember that, by definition, half of the population is "below average" - and average intelligence (mean IQ ~100) is not very impressive at that.
The reality is that most people are not very bright - maybe not bright enough to function adequately in an advanced technological society. They were probably adequate for a neolithic society, maybe even good enough for the bronze age. Unfortunately, our technologies and the systems and institutions that have been built with and around them are now beyond the capacity of the AVERAGE person, and probably the MAJORITY of the people, to understand well enough to be able to interact with in a responsible manner. This, I believe, is the underlying reason why, over the course of the past half century or more, the majority of the population has been effectively disenfranchised and marginalized, all in a very subtle way while maintaining the outward facade of an older, more democratic system. Propaganda is employed extensively in schools, mass media and popular culture to flatter the masses into thinking that they actually have any say about anything, and that what is being done is in and for their behalf. The reality is altogether different. They are "Sheeple" because they have been made into sheeple by people who have designed farm equipment and know that sheep are incapable of running it.
This, perhaps, explains why some of the doomers here seem to be looking forward to the supposed collapse of civilization with glee rather than fear.
WNC - Please note my reply two or three above (and above another reply from me).
Hi Robin, Step Back,
I enjoyed your debate and was reminded of the
'Farce of Physics
Its a great paper - by a 'non-professional' scientist. I especially like the quote:
That one rhymes with my own experience with academia - and is a reminder of why I chose not to do a Phd (i.e. become an 'Elma Phud')
I think John Taylo Gatto has it (education/indoctrination) pretty well summed up in his Undergroud History of American Education
from
He goes on to say how 'dumness' is taught:
One should be careful with an analysis that suggests that the majority are only fit for prehistoric life - that life was rich beyond our comprehension in many ways - take the still little understood cave paintings:
Even most 'intelligent' modern people wouldn't survive in the 'real world' including myself - just ask Ray Mears
Robin - I will check out your book, looks interesting.
L,
Sid.
IMO the reason financial assets expand faster than real assets is not some act of human decadence, but a conscious policy of the government that really got carried away beginning with Reagan and reaching a climax under Bush II.
The tax code was the means for carrying out this policy. It has been the case for decades that income is taxed at different rates depending on which class it falls into such as earned income or unearned income like capital gains, rent and interest or dividends.
Warren Buffet and others have long railed against this. There is no objective reason that income should have classes or that it should be taxed at lesser rates if it is unearned.
In the last 30 years taxes on unearned income which primarily goes to the better off who invest or run businesses have been repeatedly reduced by Washington. All the while taxes on earned income primarily wages, which are the form of income of those who work in the real world and provide real services and make things, have stayed relatively constant. Only token cuts and dribbles have been given to those in the real economy.
Overtime this has resulted in the redistribution upward of income and wealth since those who are taxed at a lower percentage can grow faster than those taxed more heavily. Since the wealthy have large financial assets, this is the class that expands. Consumption of real world forms of wealth is physically limited for the wealthy since there are only 24 hours in a day and one can only eat, wear and etc. so much.
Over time this top heavy distribution grew to the point that few credit worthy borrowers were left in the system. And yet the wealth accumulated at the top because of the tax code. To earn a return managers of the large sums sloshing around at the top had to lend to those at the bottom who didn't have rising fortunes like themselves. They did this with all the schemes that are now collapsing IMO.
The solution IMO is to undo the Reagan-Bush era tax cuts though phased in cuts for those on the bottom and selected increases for those at the top. If they balance each other I do not see how it can be argued that the net effect would be harmful to the economy.
It will be harmful for those at the top. But current tax code is harmful to those at the bottom as evidenced by recent events. And IMO those at the top can stand a little harm after 30 years of raking it in.
Yes, a single flat income tax rate on all income, however derived.
For capital gains, index their basis for inflation, but otherwise no special preference.
Transform the corporate tax into a withholding which passes through to the shareholders. Shareholders pay income tax on their proportionate share of the corporate earnings, with credit for the withholding tax paid. This will increase the incentive for corporations to pay out steady dividends.
Instead of a deduction, let people get a tax credit for all state and local taxes paid (up to a certain limit, so as to not unfairly reward places that overtax their citizens) and for all cheritable contributions. Also give them a tax credit for FICA paid; this is what will turn what would otherwise become a very regressive tax into something a bit more progressive.
Instead of personal exemptions and the EIC, have a personal tax credit. This will effectively become a negative income tax for the poorest citizens.
Other than this, cut out all exemptions, deductions, tax credits, etc. This will massively simplify federal taxation.
I wonder ...
I am aware that modern western view of banking and finance is inconsistent with the teachings of Islam, but I don't understand the particulars of the conflict. Is Islamic view of banking useful as a way to run the world financial system, independent of details about belief in Allah as opposed to God?
It's equally in conflict with the teachings of Judiasm and Christianity. Basically all or most major religions have considered the charging of (excessive?) interest to be a crime of usury. The going-on about Islamic finance arises because Judeo-Christendom has largely abandoned this principle. In practice, like most things to do with the "religion" of "peace", modern Islamic finance is largely a matter of pretence; the interest still exists but is just called something else. More historically, Islam never had much difficulty financing itself for reasons that might just about dawn on you when reading the account of the start of the ethnic cleansing of Arabia in Qur'an 59:2-7 - http://tinyurl.com/quran59 (In summary: Allah reveals that chopping down a desert community's food-trees to terrorise them is a commendably ingenious innovation (59:5), making peaceful non-Muslims homeless and destitute is good work (59:2), and the property 'stolen' from them rightly belongs to the Muslims (59:6,59:7). Bear in mind that all Muslims will tell you this is a flawless book written by an all-powerful Allah (hence no communication handicap). But they'll also sincerely tell you that it really means peace and love to all mankind.)
It's equally in conflict with the teachings of Judiasm and Christianity.
And when one finds followers who follow the teachings - let us know.
A great many people have followed the teachings of Christ, huge numbers of them paying for it with their lives. Such people are called martyrs, which means people who are killed for their faith. (The word is only used to mean people who *kill* for their faith by the terrorist personality cult that originated in Arabia.) Your cynicism and ignorance of these great heroes is shameful.
Actually, Jesus of Nazareth did not explicitly condemn interest in all contexts. At least one of his parables (the Three Talents) has one of the servants being condemned because he DIDN'T lend his talent out and collect interest. Jesus understood that within the wider context of the human economy, people lend and borrow, and interest needs to be charged to make that happen.
What is pretty clear from what is recorded of Jesus's teachings, and as further explicated through early church writings, is his expectation that lending from one believer to another, or from the rich to the poor, should not be divorced from any consideration for mercy and compassion. In other words, if you lend to a brother in need, understand that you might need to be prepared to forgive the entire debt, let alone the interest, if the borrower ends up being unable to repay. If you are not prepared to part with the money permanently, don't lend it in the first place. Thus, it is not so much the charging of interest itself, but rather the rigid and unforgiving insistence upon collecting it no matter what, which is really at issue. Later church prohibitions against the charging of any interest under any and all circumstances are a distortion of Jesus's original teachings, and IMHO miss the whole point.
There is a difference between a personal loan and buying something like a government bond. Jesus understood the difference, and his followers should too.
WNC- I think you misrepresent that parable. They did not lend to gain interest, rather they invested ("traded") in an enterprise of their own. For instance you buy some goods from a farmer and carry them to a hungry market that pays more, doing useful work. Or you buy some tools and thereby make goods to sell.
That's why Christ specifically criticises the non-investor as lazy.
The sin of usury was profiting from mere ownership of money without doing any work.
Many years ago, I lived with Eskimos in northern Alaska. At the time they had a type of commodity wealth in the form of meat, skins, ivory, etc. A hunter or trapper could go to the village trading post and "buy" a bag of rice or beans by giving the trading post manager an agreed upon number of seals, arctic fox skins or pieces of carved ivory. The manager credited his account for the trade. The trading post would then either send the skins and ivory to a dealer in some distant place or allow other villagers to purchase the meat and other raw materials for a marginal profit. Locally, cash was in short supply. This hybrid cash/commodity system worked quite well as long as the general standard of living was fairly modest. It is likely that some form of this system will replace the modern make believe financial system.
This is how our own current system started. Except at some point the 'manager' types decided it would be both more profitable if they could extend credit beyond the nominal harvest of skins, ivory, rice and beans. Since there would likely be 'more' the next year, this really wasn't that insidious, IN EACH INDIVIDUAL YEAR. But over time, the gearing ratio (leverage) increased in baby steps that were unnoticeable YoY, until we arrive at a place when the wealth denominated in 'digits' far surpasses our natural capital and corresponding flow rates.
Barter is "the default economy", if you will. It is what humankind started with, and it is what we fall back upon when all else fails.
Barter is quite a hassle, though, and really works in only a very limited and simple context. Having a widely-agreed upon medium of exchange, i.e. "money", makes things a considerably easier.
The big problem, as we have been discussing here, is in setting and preserving the value of money. This may very well be the biggest single economic problem that has confronted humankind since the first forms of money were invented. Even now, we are still struggling to figure it out.
We know the basic solution to the problem: keep the supply of money relatively fixed. There is some debate as to whether the money supply should be allowed to gradually grow along with the rest of the economy, or whether it should be kept absolutely fixed no matter what. There is little real disputing that massive increases or decreases in the money supply is a very bad thing. What we don't really know is how to really keep the money supply under firm control.
I don't think our problems can be solved by simply tinkering with the currency -- fiat, commodity, reserve or whatever. The problem is deeper: nothing can be done that goes against the profit motive. The ruling elite is concerned only to amass greater profits, and is violently opposed to anything else. Of course there are competing blocs attempting to outmaneuver each other.
What's needed is to direct expenditures toward things that help us shrink, retrench I like to call it. Rebuild small dense towns close to agricuture, reconcentrate suburbs, radically reduce long commutes, etc. And of course shrink the military down to the size of Russia's or China's, or even to those two combined, which would mean an 80 pct reduction. None of this can be done because it steps on corporate toes, which are profit toes.
A stable currency is possible if there is a gov't that is making some kind of effort to take care of the people instead of corporations -- and there is no huge outside power trying to destabilize it.
There is no getting around it -- it is going to take some form of socialist gov't, some form of planning that does not put profit in first place to put us on the path to retrenching to sustainability. Shrinking is just not in the perceived interests of capitalism.
The last depression was decisively ended by massive military expenditures. This one can end by gov't spending what's needed to spend on retrenching and making sure no one starves or otherwise drops out the bottom in the process.
Can but won't. But that simply says we need a change in power. That won't happen til people get mad enough and there's political leadership to bring it about.
It's more than just a monetary issue. It's an economic system that is geared to growth, not retrenching. Socialist gov'ts in the past have also been growth oriented, and discovered that capitalism was better at growth, and they switched to capitalism to grow faster. But even little Cuba has some lessons for us in doing a lot, or at least something, with very little. Not all the lessons are positive, but some are.
I'm not gainsaying the relevance of HD's points. I'm only saying it goes deeper.
No one in the comments has yet picked up on this most critical point HD makes:
I'm not sure how much deeper than that one can go - both philosophically and in terms of "deep shit".
Every dollar we spend on economic "growth" results in more harm than good. Here we are on Easter Island, subsidizing the loggers, because their industry is in trouble.
Beyond that, the fact we are on the negative returns portion of the curve, means we are already into collapse. We can, perhaps, choose the type of collapse. Just as the Easter Islanders could have chosen to leave the big trees and put all effort into regrowing the forests, we could choose to back off and rebuild the environment instead of chewing up whatever remains.
cfm in Gray, ME
That sentence also stood out to me. It is so true, yet can't be 'proven' to those using orthodox BAU thinking. Even if it were provable, the sunk cost nature of our economy is going to require us to reboot, as opposed to retool. The sooner we do it, the more resources we can allocate to what matters, if not nationally/globally, then regionally/locally/individually.
What are the differences between a reboot and a die-off?
well, technically we can reboot and have no dieoff. we have PLENTY of resources for basic needs for an even higher population than what we currently have. We don't have resources for 1/5 population with current aspirations. There are paths - difficult to be sure - where economics isn't the modus operandi and people have food, water, heat, and fulfilling lives -somewhere between business-as-usual and a traditional (but large) ecological dieoff. That's part of what we are trying to do here - suss out those paths. (I do fear that as we get further into the monkey trap, the # of politically 'correct' (or mentionable) of these paths will shrink.
Nate,
Now you're finally talking the fundamental hard stuff.
From experience, we know that communism doesn't work.
And from more recent experience, we know that lasizzie faire (sp?) capitalism doesn't work.
So what's left?
Do you see any overlooked pathways?
We don't really know that communism doesn't work. We know that it's next to impossible to figure out how to make it work, at least at a large scale in an industrial society. Industry seems to require hierarchy and too much hierarchy destroys the commonality. And too, if a state tries to finesse inequality via permagrowth, that's not going to work as "communism".
Scale again is important. The natural environment must far exceed the human economy or inequality increases. Common resources have to be large compared to private resources for same reason. And yet not trashed. It sounds almost inhuman, that humans could agree on a scale at which they would operate like that. But then again, if we don't make such decisions about "fairness" democratically in our communities, then we will make them violently and we will all pay the price for cutting down the last trees.
NATE -
That's a seriously important claim in direct contrast to a widespread very credible view that the sustainable food supply can only support at best 1/3 of present population (globally, and in UK etc). I'd very much like to know where you get your capital letter confidence from Nate.
StepBack - Indeed communism failed, and capitalism failed. Yes, but you're looking at it from the wrong angle. *BIG* has failed. Small is the way to go.
A superb metaphor there. Just this week I had a 40-mins chat with my local councillor who was leader of Birmingham council till election changed control. He just could not get it that bailing out Jaguar-Rover was not a good idea, and that Keynsian spending was not going to cure this ill. (Well, no suprise there to those I've been telling for years that talking to these 'leaders' is a waste of time!!!) Pathetic for the city that was once the leader of the industrial world, indeed caused all this industrialisation problem in the first place (said he, looking down on Soho House and the Brindley and Telford main line canals....)
RPC,
Good point.
Not only that. If we look at it from the point of law and consistent order, the latter has failed (collapsed) also. Here on the States side of the pond, our Congress just recently passed a hardened and heartless bankruptcy law that blocks the little guys from getting off the hook if they go into debt over their heads.
Yet at the same time, a completely different set of laws and rules apply to BIG when they go into debt (i.e. union contracts) over their heads. They get BIG bailouts.
The world has become a divided domain of BIGs (big Auto, big Oil, big Finance) and LITTLEs where, as Orwell famously said --all are equal but some are more equal than others.
________________
On the other hand, the sum of all littles can still be BIG. So how does it help us to say that BIG has failed and little will be the answer? The Big/Little dichotomy is there for sure. But how does it help us move forward? Isn't it more true that the Invisible Hand did not come to our rescue and that is why unregulated BIG failed?
The sum of X0,000 small shops does not equal a supermarket corporation.
It helps in that we understand the big model is doomed (by deglobalisation) anyway and that survival comes to those who join small community groups (100-300).
Nate- reboot/die-off. You can do better than this reboot term which is so sloppy it is meaningless. The human race is not a computer system with a reset button.
Reboot comes from a current Tom Friedman article. It IS a terrible metaphor - like your Windows box isn't working so you reboot it. No, what we need is a new kernel, and if the operating system can't handle that, then a new operating system.
cfm, running Linux version 2.6.26-1-686 in Gray, ME
we use 37 times the primary energy than the average person in the Phillipines (BP). Yet by subjective well-being surveys they are happier (World Value Survey). I was more making the point that overconsumption is much more the problem than population. The ecological footprint studies show we have huge overpopulation problem based on how much the average person consumes - but change everyones footprint to a Phillipino or better, a Nepalese, and the global footprint declines more than it would by just a drop in population. This is because a vast majority of resources that churn through our just in time neurotransmitter system are wasted.. If we all stayed in our houses and basic needs were delivered to us by some coordinated means, no one worked or vacationed, etc. we could support a larger population than we do now.
(It was a boundary statement, not implying that we are not already well past overshoot, but that overshoot is defined by both consumption AND population)
Thanks Nate but your answer disappoints in that you don't give either a clear vindication of your grand claim, nor clear untenable basis for it.
The Phillipines is patently unsound comparison because the sun there automatically provides comprehensive space heating and mega-mega 'greenhouse' facilities.
In addition, my question was not whether there was enough energy, but whether enough food could be sustainably supplied for 6M or (you claim) even more.
Would everyone have to migrate to Phillipines-like areas for your sums to work?
Robin
Im sorry my answer disappoints.
My sole point wasn't in defense of our population levels, but that if we were to start from scratch and design a society, we theoretically could sustain many more people than the current high conspicuous consumption/hedonic treadmill model. The amount of resources we 'waste' needs to be considered everybit as much as how many people we have.
I can see the sense of that reasoning --- if we are only looking at energy resources limitations. I haven't studied the reasoning of those who argue we are far beyond carrying capacity but I guess it relates instead to how much food can be sustainably grown, which is a different matter (and also other resources such as drinkable water and co2 sinking capacity). I guess you don't have a pressing view about the food capacity argument (which hopefully I'll get on with studying anyway). Thanks anyway.
Couldn't you make a good stab at proof by going through the calculations of some examples? With a reasonable portfolio of such examples the case would be made.
But it's not clear to me that that quote is true. What are the costs and benefits it entails? Are they measureable or merely subjective? The sentence leaves me incomprehending rather than seeing its truth, perhaps because I'm too thick, or perhaps because the proposition is not well-conceived anyway (and I have a very high bee-ess-threshold).
"Technically, we can reboot and have no die-off." How? I don't see any similar type of event happening anywhere else in the natural, biological world. Every new species generation, for example every time we have children, that's a reboot in preparation for the cellular die-off that occurs in the parents. Something new was created before the inevitable collapse.
We have no such processes or procedures or understandings in place to accomplish such a thing, and the best guide we have is Asimov's Foundation series, a work of fiction.
But then when we talk about "we have PLENTY of resources for basic needs for an even higher population than what we currently have", well then we're not talking about the same system in any way that we have now, not the same infrastructure, social framework, understandings, basic ways of relating to the physical world. In a world of, say, 10 billion people on "basic needs", that's something that's traditionally neither civilized nor tribal. And in a population of only 1 billion, that doesn't generate the same complexity fallout that currently gives us the depth and reach of the Internet or much of the technology we currently enjoy.
If we wanted to suss out those paths, a way to practically do so would be through some genetic algorithm, by having as many different people try as many different social and economic relationships as possible, with the ones that work persisting.
Also, Nate, I changed my email in my profile. Messages weren't coming in or going out. The cable cuts have apparently affected delivery to Yugoslavia where my previous email was hosted.
Nate, did you see those charts of resource exhaustion in The New Scientist that Leanan has linked to a couple of times? Off this article and the associated special section. That, and I think it was a Hall article discussing what happens as energy production falls - also a hockey stick. This question of how to "prove" it has been puzzling me. I don't feel the need to prove it to someone wired for orthodox BAU thinking, but rather to prove it for myself to get a better understanding of what a new paradigm might be. To move "forward", to develop "policies" at state and community political level where I'm involved, I need that underpinning. I don't expect BAU thinkers to change their minds - after all their paycheck is determined otherwise - my aim for now is to help create a consistent and well-thought out "radical green" playbook - an alternative to the piranha's playbook.
cfm, green in Gray, ME
Your point is what Daly said in "limits to growth".
Eventually, as we are going to make externalities to "production" more explicit (a trend which likely is going to pick up speed over the next couple of years - think "carbon credits" and the like) perhaps the financial accounting of production may move closer to the thermodinamic balance (EROEI) of production.
(from memory) I think that one of the examples he has is where a factory makes widgets and pays money to a garbage hauler to get rid of the waste. In current accounting both activities are included in GDP. In reality the "value added" (or cost) of the garbage hauler should be SUBRACTED from GDP to come to the net benefit to society.
That example has really influenced how I view economic productivity.....
WeekendPeak
In previous posts I have said that if a barrel of oil hit $50, we were looking at worldwide recession or depression. Considering where oil was at this summer, versus where it is now, $50 seemed like an (intuitively derived) number that would reflect a severe correction in the system.
Depending upon how you look at the economic problems across the world it is possible to justify blame across generations, political groups, economic models, and so on. However, what we are experiencing was predictable and I would argue that it was unavoidable on the basis of social development vs. scientific development. What I mean by this is that we have made great strides scientifically, but our social hierarchies have not caught up with scientific progress. We can essentially end all life on earth, but we lack the social responsibility to wield such power. For all of our progress, 70% or more of the population lacks any vision for the future.
I'm beginning to change my outlook on a lot of things. I'm way past the hopeless stage now, despite my belief that we're on the precipice of a hard crash. I have a plan now, at least. I'm looking for land that I can buy for cash. At the very worst it will be something to fall back on later in life. At best it will be a fall back point for survival purposes WHEN social unrest becomes a problem. I'm considering fruit bearing trees, nuts, and heirloom veggies of various types. I'm far behind some of the posters' preparations, but I didn't give enough weight to the possibility that a fast crash could happen so soon.
Is there any community-oriented solution to the problem? How can you survive a wave of hungry citizens on your own?
Yeah. More even, a society-based solution. The real problem with survivalism is not the hungry hordes, but a hostile gov't that will take your land, or play hungry hordes off one against the other. Any real solution has to be societal, political. We Americans more than any others are still victimized by the frontier mentality, that we can somehow go off on our own and somehow survive. In other countries, there are revolutionary traditions, memories. "We demand...". We have to get that back, and reclaim power. Prior to that however, we need to figure out exactly what we will do with it. :)
Daveby - You're assuming there will be a government. Think of the situation of the Brits 1600 years ago when they begged the Roman army not to leave them. The rational level of survival planning has to be small concentrated communities of 100-300 people who can get to know one another personally to co-operate with. Preferably organising into a larger federation as things re-develop.
Unsolicited advice: Buy property with a well, or put one in post haste.
Exactly. Global warming is a depletion problem, too. In fact, if we define the climate of the last half century as a climate able to support our current world population, then the absorption capacity of our atmosphere for additional CO2 is already depleted.
And that brings us to the biggest debt problem of all: our CO2 debt. We need to pay back that physical debt by extracting the excess CO2 from the current 385 ppm to 300 ppm, the level found in the last interglacial periods. While financial debt can - in the worst case scenario - be reset to zero in a currency reform, our CO2 debt cannot be repaid so easily.
our CO2 debt cannot be repaid so easily.
Grow plants. Bio-char them. Place char in soil.
This looks a potentially hot idea. I can guess that the energy needed to do the growing and harvesting of the huge amount of plants might generate more CO2 than it saves, but maybe I am wrong. Does anyone have any data/calculations on it?
Seems to me (and I am no economist) that we have a few things to consider at the base of "the problem". Not in order of importance we need to understand how population change and demand for goods and services of population enters in to the equation of currency/legal tender whatever you want to call it - money. People, these days need some medium of value to exchange for the services they require. It needs to have a somewhat stable reliable "value".
Then there's the notion of wealth. Wealth seems to be about having more than you need - the excess that you have is the wealth. Wealth lets you acquire and consume things you don't "need" but my enjoy - jets, yachts, second homes, the list is endlass. It also includes for most - the excess of money.
Then there's the notion of using money to make money. Here is where the notion of interest creeps into wealth. Once you have money which is used to exchange for any and all services you can "sell it" to someone who needs it and make more money - interest. The buyer's of money (credit) believe that they can make enough money in whatever they do, to meet their needs and to pay for the cost of the money they borrowed. So someone will start a business believing that it will create more money than the running of the business will require. This profit or wealth can then be used to repay the loan. But we know that the excess money created is the spread between the operating costs and the selling price of the goods or services offered. So now the cost of raw materials and purchased sub assemblies and the cost of labor enter the picture. If you want to make profit you need to keep costs low enough and this usually means that the profit, the wealth created for the business comes from the labor of the workers. Workers receive compensation for their time and skill, and rarely share in the profits they creae. These always go to the owners who supposedly have taken the risk to run the business, acquire debt and repay it. The taking on of risk entitles capital to make profits and wealth. Or are there other justifications for their taking of profit and accumulation of the "value added" of their workers?
Since we clearly need work to make money to meet our constant needs - food and shelter and so on, we need to do work. And since our population is growing we need more work, more jobs to match the needs of the population to work, and support themselves. This growth is also the model for growth of wealth, growth of credit and how capital justifies what they do. Their pursuit of wealth, is what creates the jobs for workers, the products and meets the demands for them.
How different is a plantation from a factory or a corporation? Slaves had no money, they worked to have a roof over their heads and some food. There was no way out of that. Workers supposedly have the ability to advance, to switch jobs, the even take a shot at capitalism by starting their own business which could be as basic as a marketable skill as an athlete. How does one value such a "product"?
The frenzy for idea wealth creation seems to create a spiral of "inflating demand" and this seems to balanced against the labor force, the raw materials and the currency chasing all this. When you introduce "interest" the spiral of "inflation of wealth of money" takes off. The entire financial sector is all about creation of wealth by marketing money and abstractions, by creating demand and value out of thin air.
Think of a painting. It has only the value of the paint and the canvas in "real" terms. But add some talent, then put a reputation of an "artist" to it and the value multiplies to the point where wealth is created. This wealth is based on one thing DEMAND. When the demand is created the "value" of the product is driven up because many people are chasing few "things". But this type of wealth is usually not about "necessities" but creating wealth on top of wealth. Working class people are not bidding up the value of (high) art. But they do for "popular" art which can be sold it tiny bits with small profit but multiplies millions of times to create some significant wealth. And this wealth creation is shared by many people in the process as "fees" and mark up and commissions and licenses and so forth.
And all this desire for wealth seems to be the need for more and more things - comfort, luxury - great rooms, wide screen TVs, jet skiis, vacations, cars boats,clothes, jewelry. the list of things to acquire is endless. Capitalist will point to this and call it the success of capitalism and without the need for wealth creation none of this would be available to people.
But the fact is that all the fun stuff is available to a small percentage of the people. The vast majority are no better off than slaves on plantations, many worse since no one feeds or houses them to exploit their labor. They simply don't care about them.
So the down side of wealth creation is poverty for the many.
Sandero,
In this article
http://www.usagold.com/whithergold.html
Prof Antal Fekete explains that accululating wealth is not necesarily a negative thing; instead, young working people try to convert current income into wealth, with the intention of converting the wealth back into income when they are past their prime. That current income may be put into children, or land, or gold, depending on one's temperament and expectations for the future.
In this rather long article Prof Fekete also discusses the details of improvement in standard of living despite a steady-state economy using a gold standard. IMO it's worth a read.
Errol in Miami
Errol,
The good professor engages in self-deluding econo-speak.
"Wealth" is a contraction of the longer concept of "well being".
You need to cleanse your mind of the lust for loot and gold. It is not these glittering pirate treasures that make a society "wealthy" (in other words, puts them in a state of well-being) but rather it is the accumulated good works of many smart people all pulling together to promote the general welfare (read the Preamble to the US Constitution) that leads to the "wealth" of nations.
Of course! But one problem in all economies is that they need a currency with is how good and service.. actually everything is "valued". This notion of value is an abstraction as the gold on the island example so well points out.
But in order to trade, which is what economies are about we need to value everything and then have a currency which can have value and be traded or used to purchase "things" - goods and services. A barter economy is simply not practical on all levels.
The value or price is not stable. It is dependent on supply and demand and we don't have a steady population. When it grows they need more goods and services and more currency to trade for these. If the currency is not increased the values will rise, if there is too much currency then there will be inflation.
So we have a fiat currency which is control by the government which is supposed to balance this to mitigate inflation or deflation.
But the fiat currency as best I can understand is introduced by selling bonds to banks at low rates who then lend it at higher rates to the economy. What happens here is that the finance sector which doesn't produce anything has become the largest accumulator of wealth because of the nature of credit, interest, transaction fees and all sorts of wealth sitting there doing little more than grow in accounts and not in the real bricks and mortar economy.
Why does money have to "make money"?
SanderO,
You may be surprised that I agree that "money" is a necessary evil and good for smooth functioning of an economy.
However, money (not exactly the same thing as "currency") is not used to "value" things but rather to "price" things.
After breathable air (generally free), the next most valuable thing people need to stay alive is water. Yet water is often dirt cheap. Why? Because price looks at marginal utility and not at "value".
How different is a plantation from a factory or a corporation? Slaves had no money, they worked to have a roof over their heads and some food. There was no way out of that.
The situation being what it is, and human nature being what it is, we shall return to slave labor as a solution to our economic crash.
I see the elites refusing to give up their supply of luxuries and forcing others to provide them. The bankers and their bought politicians will construct the box:
If you are in debt to a credit card or mortgage lender and you have no job or income to pay it off, the politicians will pass a law that you must pay off your debt to 'society' by providing your labor free of charge in a factory or a farm to keep things BAU for the wealthy cheats to whom you had become indebted in the first place. They will not put up with a general collapse that could threaten their way of life. They'll enslave you first.
I dare say many will be grateful for the food and the shelter and will even accept the societal shame that says they are to blame for their own predicament.