Tuesday


subsistence agriculture

One of the most memorable passages in political philosophy, quoted by many who do not know the source, is Thomas Hobbes’ description of life in a state of nature:

“Whatsoever therefore is consequent to a time of war, where every man is enemy to every man, the same consequent to the time wherein men live without other security than what their own strength and their own invention shall furnish them withal. In such condition there is no place for industry, because the fruit thereof is uncertain: and consequently no culture of the earth; no navigation, nor use of the commodities that may be imported by sea; no commodious building; no instruments of moving and removing such things as require much force; no knowledge of the face of the earth; no account of time; no arts; no letters; no society; and which is worst of all, continual fear, and danger of violent death; and the life of man, solitary, poor, nasty, brutish, and short.”

Thomas Hobbes, Leviathan, CHAPTER XIII OF THE NATURAL CONDITION OF MANKIND AS CONCERNING THEIR FELICITY AND MISERY

For Hobbes, the state of nature was no idyllic peaceable kingdom, but the arena of the war of all against all — a violent vision of anarchy at odds with many subsequent romanticized visions of anarchy.

There has always been an undercurrent of dissatisfaction with civilization that leads to a romantic and idyllic of life without civilization — Freud devoted a famous essay to this, Civilization and its Discontents, and I dedicated a significant portion of my essay “The Moral Imperative of Human Spaceflight” to what I call the hostile argument against civilization. During the Enlightenment Rousseau was perhaps the most famous critic of civilization who celebrated the state of nature, but not everyone was convinced:

“We were favoured with Sir James Colquhoun’s coach to convey us in the evening to Cameron, the seat of commissary Smollet. Our satisfaction of finding ourselves again in a comfortable carriage was very great. We had a pleasing conviction of the commodiousness of civilization, and heartily laughed at the ravings of those absurd visionaries who have attempted to persuade us of the superior advantages of a state of nature.”

James Boswell, The Life of Samuel Johnson, LL.D: Including a Journal of His Tour to the Hebrides – Vol. 2, NEW YORK: DERBY & JACKSON, 119 NASSAU STREET, 1859, p. 449

From the point of view of indoor plumbing and modern conveniences, we might today look at the condition of Boswell and Johnson as being little raised above the state of nature, but even with all our creature comforts the seductive idea of a simpler life that is better because it is simpler continues to haunt us. The appeal is not universal, but some are so enthralled by the idea that they can only conceive of the good as the destruction of the civilized order that we have built up over the past ten thousand years. I discussed the source of this some time ago in Fear of the Future, in which I argued that, “apocalyptic visions graphically illustrate the overthrow of the industrial city and the order over which it presided… While such images are threatening, they are also liberating. The end of the industrial city and of industrial civilization means the end of wage slavery, the end of the clocks and calendars that control our lives, and the end of lives so radically ordered and densely scheduled that they have ceased to resemble life and appear more like the pathetic delusions of the insane.”

Kenneth Clark added his voice to those who question the pretensions to preferring a state of nature to civilization:

“People sometimes tell me that they prefer barbarism to civilization. I doubt that they have given it a long enough trial… they are bored by civilization; but all the evidence suggests that the boredom of barbarism is infinitely greater. Quite apart from the discomforts and privations, there was no escape from it. Very restricted company, no books, no light after dark, no hope.”

Kenneth Clark, Civilisation: A Personal View, New York, et al.: Harper & Row, 1969, p. 7

A distinction should be made among the detractors of civilization, between those who look upon a violent convulsion in which civilization is brought to an end as a necessary purging of contemporary wickedness, and those who look rather to the peaceable kingdom they believe will follow after the work of the destruction of civilization is completed; these are two very different motives for welcoming the end of civilization.

Those who wish to fight in a cosmic war in order to be part of the grand work of destroying our wicked civilization — whether it be judged wicked for its wealth, its lack of religious piety, its industrialization, its pollution, its tolerance of individuals who where not tolerated in traditional regimes, or any other reason — have a distinct set of motivations from those who want to inhabit the post-apocalyptic peaceable kingdom, and I will not address these former individuals or their motivations at present, as I have dealt with them elsewhere (e.g., in Kierkegaard and Russell on Rigor).

For the rest, for those who look forward to the peaceable kingdom of a post-apocalyptic, post-industrial world in which human beings will live in harmony with nature (not, presumably, the nature of Hobbes, but rather the nature of Rousseau), what satisfactions will they expect to derive from the restoration of a subsistence economy lacking the creature comforts that we today take for granted, like flushing toilets, hot showers, clean clothes, and our choice of foods made available from the entire world?

Looking around the surrounding world of nature, what will natural man — the noble savage — do in order to seek satisfaction? He may attend to his bodily needs, using his mind and his hands to build shelter, sew clothing, hunt or gather food, and perhaps preserve some part of that food for a future time when the supply of food is less certain. When his bodily needs are met, he may choose to amuse himself, making up stories, or singing, perhaps using his mind and hands again to create a musical instrument or a painting or a piece of sculpture.

In short, natural man in search of satisfaction will begin to transform himself into unnatural man, and thus begin the long process of creating civilization. In the midst of the plenitude of nature, natural man draws upon his own resources to go beyond nature. In other words, he creates civilization as a natural response to his desires. This process, iterated over generations, gives us the traditions of agrarian-ecclesiastical civilization.

Recently in David Hume and Scientific Civilization I quoted from an essay by Susanne K. Langer, “Scientific Civilization and Cultural Crisis.” Here is the passage I quoted:

“There is no denying that the spearhead of this ruthless social revolution is something we all… honor and desire: science. Science is the source and the pacemaker of this modern civilization which is sweeping away a whole world of cultural values.”

Of this scientific civilization Langer further observed:

“It is only rather recently that we are realizing what it has destroyed, and also the very grave fact that in its advance it is still destroying many things of undoubted and irreplaceable value — social orders of rank and status built up by a long national or local history, religious faith and its institutions, arts supported by solid and good traditions, ways of life in which people have long felt secure and useful. Such losses are not to be taken lightly.”

It would be an interesting exercise to parse the above quote in detail, as contains so many interesting assumptions, but I will desist for the time being, except to note that the “social orders of rank and status built up by a long national or local history” closely resemble the traditions described alike by Marx and Edmund Burke (and which I discussed in Globalization and Marxism).

For now, I only want to observe that the satisfactions of life in a subsistence economy — really, a subsistence economy for the great mass of humanity, and a luxury economy for the privileged few, since agrarian-ecclesiastical civilizations invariably take the form of a mass of peasantry working the land and living hand-to-mouth while elite culture is reserved for the small fraction of the population with the leisure for art and literacy — are precisely those cultural institutions slowly built up over the course of ten thousand years of agricultural civilization, and rudely brought to an end by scientific civilization.

I do not doubt that, given enough time, humanity could be re-acculturated to these institutions, but I suspect that this process would require generations to become effective, and that individuals acculturated in the world today would largely reject these satisfactions of life specific to a subsistence economy — frequent religious festivals, occasional spectacular entertainments (theater, jousts, processions, etc.), etc. — as insufficient compensation for the loss of modern plumbing and the re-imposition of heavy physical labor.

Of course, what I have elsewhere called neo-agriculturalism (in Another Future: The New Agriculturalism) need not necessarily be so technologically rudimentary. I recently considered something like this in Ash Wednesday and Identity Politics, in which I quoted from one of my unpublished manuscripts:

Let us suppose, merely for our private amusement, that human civilization lasts long enough for the pendulum to swing completely, and that our civilization is slowly transformed into its opposite, from its present decadence into renewed, post-modern medievalism. This new epoch of medievalism would be an age with technology superior to our own and a more complete record of the past than we possess. Would these medievals look back upon us as the Golden Age, or upon the Middle Ages as the lost Golden Age? Would they nod while reading the Scholastics and react with horror to the existential excesses of the nineteenth and twentieth centuries? Would they want to preserve our pagan learning, or would they feel entirely justified in extirpating it? Upon such twists of fate do our efforts enjoy success or come to grief.

Perhaps the satisfactions of life in a subsistence economy might be rendered more acceptable if we could retain some of our creature comforts. But supposing the transition could be made with plumbing intact but our intellectual horizons severely constrained, would this be any better? If the great mass were kept more or less comfortable but deprived of the possibility of expanding their horizons intellectually, and living in a society without expanding intellectual horizons, would this be easier to accept than a straightforward return to idyllic primitivism? This is a question that could only possibly be settled by a social experiment on a civilizational scale. And it suggests another experiment: suppose we preserve the open intellectual horizon but take away the creature comforts — how would this fare as a form of social organization? And of any of these social experiments, we could ask whether they really would restore us to some sense of the presumed satisfactions of a subsistence economy, or whether this has become strictly unimaginable to us.

. . . . .

signature

. . . . .

Grand Strategy Annex

. . . . .

project astrolabe logo smaller

. . . . .

Thursday


capital in the 21st century

I‘ve just finished Thomas Piketty’s much talked about book Capital in the Twenty-First Century. There is much that could be said about this rather long book, but I will not attempt a review. Piketty’s theme is the concentration of capital at the top of the income hierarchy. Income inequality has become a political issue of some importance, and Piketty’s book speaks directly to this interest, which partially explains its popularity.

One point that Piketty does not make explicit in his book, but which could be said is implicit throughout, is the transition to an economic paradigm that could only be called a “winner-take-all” model. Many have commented on this. Skyrocketing executive pay is only only symptom of this social transition. It is arguable that the upward skewing of income and expectation is a function of what has been called the “attention economy” (and which in terms of the internet specifically is sometimes called “clickbait”). In a world flooded with a cacophony of voices competing for attention, those who can best capture the interest of others have an advantage. In each field of endeavor — music, sports, entertainment, industry, government, media, etc. — there are a handful of superstars who disproportionately command public attention and the rewards that follow therefrom. They are the winners, and they have scooped up the pot and left nothing on the table.

Kevin Kelly discussed the winner-take-all aspect of contemporary society in The Technium: A Conversation with Kevin Kelly [2.3.14] (I previously discussed this interview in Science, Knowledge, and Civilization). Kelly said in this interview:

Another point about this winner-take-all phenomenon is that at first we have a natural reaction saying, “Well, winner take all; there can only be one winner,” but here’s what technology is doing: technology is increasing the number of races in which you can win. There are more and more niches and more and more places in which the technology creates new ways in which one can win. There isn’t a finite number of winners, there’s an infinite number of winners as long as you’re not trying to win someone else’s race. The way everybody can become a winner is to continue to increase the number of ways to play, even though you have these winner-take-all phenomena. There’s only going to be one search winner, but there are so many other ways to race and to win other than in, say, search. In most cases, trying to compete against a winner is not going to succeed in this kind of dynamic. What you want to do is make up a new way to win.

I suppose that you could call this the “long tail” argument for a winner-take-all economy, and Kelly is arguing that technology is increasing the length of the tail and therefore the number of individuals who can find some place to call their own along this long tail. But the long tail is a tail only, and not the bump in the statistics that identifies the explosive growth of attention (and therefore income earning potential) that takes place at the center of things. Sure, if there’s an infinitely long long tail there could be an infinite number of “winners,” and each of these winners will take all that is at stake in the miniscule region they dominate, but the share of society’s total wealth available in the infinitely long sections of the long tail is also infinitesimally thin. Being a “winner” in this sense is like the boast of being “big in Japan.”

What will we do with the losers in a winner-take-all economy? Keep in mind that most of us are “losers” — including those who are “winners” along some thin segment of the long tail. Most of us are neither rich nor famous nor well-connected and influential. What is to be done with us? are we to be quietly forgotten? Are we to go gentle into that good night of poverty and obscurity?

There is a well-known quote from Boswell’s Life of Johnson about the condition of the poor in relation to those better off:

He said, ‘the poor in England were better provided for than in any other country of the same extent: he did not mean little cantons, or petty republics. Where a great proportion of the people,’ said he, ‘are suffered to languish in helpless misery, that country must be ill policed and wretchedly governed: a decent provision for the poor is the true test of civilization. Gentlemen of education,’ he observed, ‘were pretty much the same in all countries; the condition of the lower orders, the poor especially, was the true mark of national discrimination.’

For Dr. Johnson, then, the mitigation of poverty is a civilizational issue. This is, moreover, the differentia that marks the distinction between true and false civilization. The condition of the well-to-do is pretty much the same everywhere. That is still true. Indeed, it is likely to be even more true today than when Johnson said this to Boswell. The technocratic elite of global society have access to similar resources, they shelter their wealth in similar ways, they travel in the same circles, gather in the same hotels, eat at the same restaurants, and send their children to the same schools. What continent they happen to come from is much less important than their bank account, or what tax haven they happen to use as their address — or the address for their offshore bank accounts.

One of the ways in which individuals become impoverished, marginalized, and socially invisible is through unemployment. While growing income inequality is a complex problem with many historical forces driving it, the problem of unemployment — a problem intrinsic to industrial-technological civilization that can never be “solved,” but only managed — may be significantly exacerbated in the near future (by which I mean within the next 50 years). If technological unemployment becomes a major economic factor in the coming decades, this could drive an already widening social gap to dangerous levels that are not socially sustainable. This may happen anyway, but my point is simply that technological unemployment could make this happen more rapidly.

In several posts on technological unemployment (“…a temporary phase of maladjustment…”, Autonomous Vehicles and Technological Unemployment, Automation and the Human Future, Addendum on Automation and the Human Future, Technological Unemployment and the Future of Humanity, and Addendum on Technological Unemployment) I have pointed out that, not only is our society not making the transition to an economic regime in which the structure of employment realistically mirrors the nature of industrialization, but rather the prevailing attitude is punitive. Unemployment is seen as a personal failure, and even as a moral failure — a moral failure deserving of social disapproval. The poor are widely viewed as requiring discipline, regulation, and oversight by the professional classes.

Is it possible to find a way to compensate the losers in a winner-take-all economy when losing is seen as a sign of moral failure and winning is ascribed to meritocratic success? These social attitudes exacerbate rather than mitigate the damage of extreme income inequality. And social attitudes cannot be easily changed. Piketty in his book makes a case for a global tax on capital, but honestly calls it utopian. He probably understands all-too-well that nothing like this is politically possible. But changing policies is much easier than changing social attitudes. Social attitudes do change, but they change with glacial slowness, and while they are ever so incrementally adapting to changed conditions, generations are being effectively lost.

As Dr. Johnson rightly observed, this is a civilizational concern. If we care to pay attention, we can see this before our very eyes. The homeless live the life of nomadic foragers within the interstices of civilization. They have ceased to participate in civilization as we know it; they have given up on civilization, and civilization has given up on them. Of course we know that many of the homeless are mentally ill, and that many are alcoholics and drug addicts. Even today there are a few individuals who devote their lives to trying to help even those who spurn help and who abuse those who seek to help them. This is a thankless task, and it is only done out of love if it is done at all.

That many of these individuals who have gone from merely being unemployed to being utterly destitute have serious deficits that require significant intervention to overcome is an indication that they come at a price that even the destitute are unwilling to pay. We have all heard stories of the indignities visited upon the impoverished and the helpless. Some of these stories are horrific, and, somewhat disturbingly, cultural Foucauldianism is sometimes invoked in order to excuse the failure to intervene in the lives of those who have suffered from the tender mercies of institutionalized “kindness.” I can both understand and sympathize with a desire to live free as an urban forager rather than to be subject to the discipline of some “total institution.” But are these our only choices? Are there not ways to intervene without insisting on control, regulation, and discipline conceived as a moral corrective?

Compensating losers in a winner-take-all society is something that must be done with our eyes wide open, understanding the mistakes that we have made in the past, but understanding also that we are not limited by the mistakes we have made in the past. And if we do not find some constructive way to address the glaring inequity of our society, before the end of the century even the most pleasant lives will not be able to be fully insulated from the growing masses of marginalized and impoverished individuals whose only failing is that they are not good at making money.

. . . . .

signature

. . . . .

Grand Strategy Annex

. . . . .

project astrolabe logo smaller

. . . . .

Wednesday


Greek PM Alexis Tsipras and Finance Minister Yanis Varoufakis

Greek PM Alexis Tsipras and Finance Minister Yanis Varoufakis

Financial crisis or political crisis?

Democracy does not come naturally to the governments of Europe. Europe may have the institutions of democracy, and have them in a stronger form than elsewhere in the world, but democracy has shallow roots in the Old World, and in extremis we are not surprised to see Europe move in the direction of statism or populism. The problem of elite opinion, which I began to examine in The Technocratic Elite, is especially strong in Europe, and it repeatedly encounters the limits of engineering consent.

Because of the strong democratic traditions of the nation-states of the western hemisphere, governments are eventually aligned more-or-less with public opinion, but in Europe the attempt to maintain a facade according to which elite opinion is presented as mass opinion leads to periodic instability in which the distance between elite and mass opinion opens up like a fault line during an earthquake, at time swallowing whole the political order entire. The European press, which is itself split between elite opinion and mass opinion, documents this divide. If you visit a European nation-state you will find highbrow media of a quality far superior to that of the US, but you will also find popular newspapers and magazines pandering to the lowest common denominator (the “yellow press”). The individual who reads the Financial Times (as I do) is likely to never read The Sun, and vice versa.

I do not read the mass opinion press of Europe, so I do not know what it says, but I read quite a bit of the elite opinion media from Europe, and this tells us that Syriza, just elected to power in Greece, is a “radical party” of the left; the press also tells us that the National Front in France is a “radical party” of the right. There is a real concern, rooted in the painful lessons of European history, that Europe might once again turn to radicalism and extremism. How radical are these parties? Is Syriza a front for Stalinism or the National Front a front for fascism? Is Europe truly on a verge of an ugly populism that must be suppressed in order to assure the continuity of democratic institutions in Europe? This, as I read it, is the sotto voce position of elite opinion in Europe.

There are, of course, limits to European radicalism. One of the best explications of these limits that I have heard was to be found in a series of lectures by Jeremy Shearmur, an Australian philosopher and political scientist, who recorded a series for The Great Courses titled “Ideas in Politics.” Like many of my favorite lectures from The Great Courses, these have been discontinued and are no longer available (other discontinued favorites include An Introduction to Archaaeology by Susan Foster McCarter and The Search for a Meaningful Past: Philosophy, Theories and Interpretations by Darren Staloff). Shearmur noted in one of his lectures that if a truly radical government were elected, as soon as it came to power there would serious financial consequences: the currency would be bid down on international markets, foreign investors would seek to take their money elsewhere, and the country would become an international pariah. The leaders of a radical regime would then be forced from financial necessity to try to step in and calm the markets by making moderate-sounding statements. The lesson is that all the advanced industrialized nation-states are tightly integrated into the international financial system, and it would be quite painful for anyone of them–even a smallish economy like that of Greece–to separate themselves from this system.

What I have just described is a mechanism of moderation within elite opinion that guides the international system. It is assumed that political leaders will say radical things to get elected, but as soon as they get elected they will begin to moderate their stance. In fact, we have already seen this with Syriza in Greece, and the deal that Greece struck with the EU was not quite the renunciation of its bail out that Syriza had campaigned on. In fact, this pattern is so predictable that truly radical leaders with little or no concern for pragmatism have been elected on the assumption that, once they came to power, they would moderate their tone and their demands. This was one of the mechanisms that made it possible for Hitler and the Nazi party to come to power.

But this is not Germany in 1933. Conditions have changed. Indeed, we could with greater justification call these changes “radical” that to call contemporary European political parties or their leaders “radical.” The rule of Syriza is not going to initiate a new communist crackdown on Greek society, in which artists and poets will be jailed and Lysenkoism is imposed upon agriculture. Syriza may well effect an economic leveling that makes everyone except the nomenklatura and apparatchiks equally poor (this is, after all, what communist regimes typically do), but making everyone equally poor through economic policies known to be disastrous might be stupid, and it might mean the loss of an enormous amount of human potential, but it is unlikely to be criminal in the way that twentieth century communist regimes were criminal. Moreover, these are the policies that the people have voted for, and apparently it is necessary every single generation that people be taught a lesson on the unworkable nature of socialist economic policies.

If Syriza is communist (and Yanis Varoufakis, e.g., has been very upfront about the influence of Marx on his own views), it is a kinder and gentler form of communism (to borrow a phrase from George H. W. Bush). And if the National Front is fascist, it is kinder and gentler form of fascism. No more than Syriza is going to jail opposition intellectuals is Marine Le Pen and the National Front going to preside over a Kristallnacht aimed at Muslims living in France, though if you read the records of elite opinion in Europe you very clearly get the idea that there is a profound undercurrent of anxiety that extremists will come to power in Europe who will repeat the most brutal episodes in European history. However, this anxiety seems to be almost entirely focused on a right-of-center populist reaction against Muslim influence in Europe, as elite opinion journals seem to have little interest in the rise of an extremist left.

It could be argued that Europe would benefit from some political diversity (not to mention controversy), since monolithic elite opinion since the end of the Second World War has had the practical effect of denying the bully pulpit to alternative views. The election of Syriza in Greece, the rise of Podemos in Spain, the rallies of Pegida in Germany, and the improving poll numbers of the National Front in France are in this sense welcome. In so far as they give the bully pulpit to politicians who do not automatically mouth the euphemisms of elite European opinion, they actually give greater credibility to the EU and its programs.

In so far as the EU and the PR spin doctors of Europe’s elite opinion seek to deny even a voice to radical and marginal parties, they are making the same mistake in relation to politics today that they made with religion in earlier centuries. Instead of a free market of ideas, the attempt to shape a top-down definition of acceptable views has the opposite effect of making the “official” view laughable while piquing curiosity about the other views. In so far as some view is universally condemned in official sources, intellectually alert individuals will take notice and will suppose that there is something of interest and possible even something that is a clear and present danger to the established order in these marginal views.

Of course, the Europeans are not so stupid or as vulgar as to ban minority views outright (although there are a number of laws that make it illegal to make certain claims), but kinder and gentler elite opinion (like kinder and gentler communism and fascism) can be almost as effective in mere disapproval as it can be in outright legal sanction. Again, one need only pay attention to the monolithic on-message character of European politics. If you’re a careerist, you cannot possibly afford to neglect this.

With Round Two of the Eurozone crisis being played out across Europe, and headlines looking a lot like they looked a few years ago, although this time with Syriza in power in Greece, European elite opinion is faced once again with kicking the can down the road or dealing with the problems on the merits. Given the record of European elite opinion being so tightly focused on message, in contradistinction to meaningful action, the likely result seems to be further muddling through while hoping all turns out OK in the end. How many times can Europe lurch to the brink of crisis only to lurch backward from the brink at the last possible moment? European elite opinion worries about the brinkmanship of Europe’s radicals, but it is elite opinion itself that is pushing Europe toward the brink.

. . . . .

During the initial iteration of the Eurozone Crisis I blogged extensively on the problem, including the following posts:

The Dubious Benefits of the Eurozone

Shorting the Euro

Will the Eurozone enact a Greek tragedy?

A Return to the Good Old Days

Can collective economic security work?

Poor Cousins

What would a rump Eurozone look like?

An Alternative to the Euro

The Old World in Turmoil

Gibbon, Sartre, and the Eurozone

. . . . .

signature

. . . . .

Grand Strategy Annex

. . . . .

project astrolabe logo smaller

. . . . .

Tuesday


energy sources

A distinction often employed in historiography is that between the diachronic and the synchronic. I have written about this distinction in several posts including Axes of Historiography, Ecological Temporality and the Axes of Historiography, Synchronic and Diachronic Geopolitical Theories, and Synchronic and Diachronic Approaches to Civilization.

It is common for this distinction be be explained by saying that the diachronic perspective is through time and the synchronic perspective is across time. I don’t find this explanation to be helpful or intuitively insightful. I prefer to say that the diachronic perspective is concerned with succession while the synchronic perspective is concerned with interaction within a given period of time. Sometimes I try to drive this point home by using the phrases “diachronic succession” and “synchronic interaction.”

In several posts I have emphasized that futurism is the historiography of the future, and history the futurism of the past. In this spirit, it is obvious that the future, like the past, can also be approached diachronically or synchronically. That is to say, we can think of the future in terms of a succession of events, one following upon another — what Shakespeare called such a dependency of thing on thing, as e’er I heard in madness — or in terms of the interaction of events within a given period of future time. Thus we can distinguish diachronic futurism and synchronic futurism. This is a difference that makes a difference.

One of the rare points at which futurism touches upon public policy and high finance is in planning for the energy needs of power-hungry industrial-technological civilization. If planners are convinced that the future of energy production lies in a particular power source, billions of dollars may follow, so real money is at stake. And sometimes real money is lost. When the Washington Public Power Supply System (abbreviated as WPPSS, and which came to be pronounced “whoops”) thought that nuclear power was the future for the growing energy needs of the Pacific Northwest, they started to build no fewer than five nuclear power facilities. For many reasons, this turned out to be a bad bet on the future, and WPPSS defaulted on 2.25 billion dollars of bonds.

The energy markets provide a particularly robust demonstration of synchrony, so that within the broadly defined “present” — that is to say, in the months or years that constitute the planning horizon for building major power plants — we can see a great number of interactions within the economy that resemble nothing so much as the checks and balances that the writers of the US Constitution built into the structure of the federal government. But while the founders sought political checks and balances to disrupt the possibility of any one part of the government becoming disproportionately powerful, the machinations of the market (what Adam Smith called the “invisible hand”) constitute economic checks and balances that often frustrate the best laid schemes of mice and men.

Energy markets are not only a concrete and pragmatic exercise in futurism, they are also a sector that tends to great oversimplification and are to vulnerable to bubbles and panics that have contributed to a boom-and-bust cycle in the industry that has had disastrous consequences. The captivity of energy markets to public perceptions has led to a lot of diachronic extrapolation of present trends in the overall economy and in the energy sector in particular. I’ve written some posts on diachronic extrapolation — The Problem with Diachronic Extrapolation and Diachronic Extrapolation and Uniformitarianism — in an attempt to point out some of the problems with straight line extrapolations of current trends (not to mention the problems with exponential extrapolation).

An example of diachronic extrapolation carried out in great detail is the book $20 Per Gallon: How the Inevitable Rise in the Price of Gasoline Will Change Our Lives for the Better by Christopher Steiner, which I discussed in Are Happy Days Here Again?, speculating on how the economy will change as gasoline prices continue to climb, and written as though nothing else would happen at the same time that gas prices are going up. If we could treat one energy source — like gasoline — in ideal isolation, this might be a useful exercise, but this isn’t the case.

When the price of fossil fuels increase, several things happen simultaneously. More investment comes into the industry, sources that had been uneconomical to tap start to become commercially viable, and other sources of energy that had been expensive relative to fossil fuels become more affordable relative to the increasing price of their alternatives. Also, with the passage of time, new technologies become available that make it both more efficient and more cost effective to extract fossil fuels previously not worth the effort to extract. Higher technologies not only affect production, but also consumption: the extracted fossil fuels will be used much more efficiently than in the past. And any fossil fuels that lie untapped — such as, for example, the oil presumed to be under ANWR — are essentially banked in the ground for a future time when their extraction will be efficient, effective, and can be conducted in a manner consistent with the increasingly stringent environmental standards that apply to such resources.

Energy industry executives have in the past had difficulty in concealing their contempt for alternative and renewable resources, and for decades the mass media aided and abetted this by not taking these sources seriously. But that is changing now. The efficiency of solar electric and wind turbines has been steadily improving, and many European nation-states have proved that these technologies can be scaled up to supply an energy grid on an industrial scale. For those who look at the big picture and the long term, there is no question that solar electric will be a dominant form of energy; the only problem is that of storage, we are told. But the storage problem for solar electricity is a lot like the “eyesore” problem for wind turbines: it has only been an effective objection because the alternatives are not taken seriously, and propaganda rather than research has driven the agenda. The Earth is bathed in sunlight at all times, but one side is always dark. a global energy grid — well within contemporary technological means — could readily supply energy from lighted side to the dark side.

Even this discussion is too limited. The whole idea of a “national grid” is predicated upon an anarchic international system of nation-states in conflict, and the national energy grid becomes in turn a way for nation-states to defend their geographical territory by asserting control of energy resources within that territory. There is no need for a national energy grid, or for each nation-state to have a proprietary grid. We possess the technology today for decentralized energy production and consumption that could move away from the current paradigm of a national energy grid of widely distributed consumption and centralized production.

But it is not my intention in this context to write about alternative energy, although this is relevant to the idea of synchrony in energy markets. I cite alternative energy sources because this is a particular blindspot for conventional thinking about energy. Individuals — especially individuals in positions of power and influence — get trapped in energy groupthink no less than strategic groupthink, and as a result of being virtually unable to conceive of any energy solution that does not conform to the present paradigm, those who make public energy policy are often blindsided by developments they did not anticipate. Unfortunately, they do so with public money, picking winners and losers, and are wrong much of the time, meaning losses to the public treasury.

When an economy, or a sector of the economy, is subject to stresses, that economy or sector may experience failure — whether localized and containable, or catastrophic and contagious. In the wake of the late financial crisis, we have heard about “stress testing” banks. Volatility in energy markets stress tests the components of the energy markets. Since this is a real-world event and not a test, different individuals respond differently. Individuals representing institutional interests respond as one would expect institutions to respond, but in a market as complex and as diversified as the energy market, there are countless small actors who will experiment with alternatives. Usually this experimentation does not amount to much, as the kind of resources that institutions possess are not invested in them, but this can change incrementally over time. The experimental can become a marginal sector, and a marginal sector can grow until it becomes too large to ignore.

All of these events in the energy sector — and more and better besides — are occurring simultaneously, and the actions of any one agent influence the actions of all other agents. It is a fallacy to consider any one energy source in isolation from others, but it is a necessary fallacy because no one can understand or anticipate all the factors that will enter into future production and consumption. Energy is the lifeblood of industrial-technological civilization, and yet it is beyond the capacity of that civilization to plan its energy future, which means that industrial-technological civilization cannot plan its own future, or foresee the form that it will eventually take.

Synchrony in energy markets occurs at an order of magnitude that defies all prediction, no matter how hard-headed or stubbornly utilitarian in conception the energy futurism involved. The big picture reveals patterns — that fossil fuels dominate the present, and solar electric is likely to dominate the future — but it is impossible to say in detail how we will get from here to there.

. . . . .

signature

. . . . .

Grand Strategy Annex

. . . . .

Saturday


Dollars funnel.

In my post on why the future doesn’t get funded I examined the question of unimaginative funding that locks up the better part of the world’s wealth in “safe” investments. In that post I argued that the kind of person who achieves financial success is likely to do so as a result of putting on blinders and following a few simple rules, whereas more imaginative individuals who want adventure, excitement, and experimentation in their lives are not likely to be financially successful, but they are more likely to have a comprehensive vision of the future — precisely what is lacking among the more stable souls who largely control the world’s financial resources.

Of course, the actual context of investment is much more complex than this, and individuals are always more interesting and more complicated than the contrasting caricatures that I have presented. But while the context of investment is more complicated than I have presented it in my previous sketch of venture capital investment, that complexity does not exonerate the unimaginative investors who have a more complex inner life than I have implied. Part of the complexity of the situation is a complexity that stems from self-deception, and I will now try to say something about the role of self-deception on the part of venture capitalists.

One of the problem with venture capital investments, and one the reasons that I have chosen to write on this topic, is that the financial press routinely glorifies venture capitalists as financial visionaries who are midwives to the future as they finance ventures that other more traditional investors and institutional investors would not consider. While it is true that venture capitalists do finance ventures that others will not finance, as I pointed on in the above-linked article, no one takes on risk for risk’s sake, so that it is the most predictable and bankable of the ventures that haven’t been funded that get funding from the lenders of last resort.

Venture capitalists, I think, have come to rather enjoy their status in the business community as visionaries, and are often seen playing the role in their portentous pronouncements made in interviews with the Wall Street Journal and other organs of the financial community. By and large, however, venture capitalists are not visionaries. But many of them have gotten lucky, and herein lies the problem. If someone thinks that they understand the market and where it is going, and they make an investment that turns out to be successful, they will take this as proof of their understanding of the mechanisms of the market.

This is actually an old philosophical paradox that was in the twentieth century given the name of the Gettier paradox. Here’s where the idea comes from: many philosophers have defined knowledge as justified true belief (something that I previously discussed in A Note on Plantinga). I myself object to this definition, and hold, in the Scholastic tradition, that something known is not a belief, and something believed cannot be said to be known. So, as I see it, knowledge is no kind of belief at all. Nevertheless, many philosophers persist in defining knowledge as justified true belief, even though there is a problem with this definition. The problem with the definition of knowledge as justified true belief is the Gettier paradox. The Gettier paradox is the existence of counter-examples that are obviously not knowledge, but which are both true and justified.

Before this idea was called the Gettier paradox, Betrand Russell wrote about it in his book Human Knowledge. When stated in terms of “non-defeasibility conditions” and similar technical ideas, the Gettier paradox sounds rather daunting, but it is actually quite a simple idea, and one that Russell identified with simple examples:

“It is clear that knowledge is a sub-class of beliefs: every case of knowledge is a case of true belief, but not vice versa. It is very easy to give examples of true beliefs that are not knowledge. There is the man who looks at a clock which is not going, though he thinks it is, and who happens to look at it at the moment when it is right; this man acquires a true belief as to the time of day, but cannot be said to have knowledge. There is the man who believes, truly, that the last name of the Prime Minister in 1906 began with a B, but who beleives this because he thinks that Balfour was Prime Minister then, whereas in fact it was Campbell Bannerman. There is the lucky optimist who, having bought a lottery ticket, has an unshakeable conviction that he will will, and, being lucky, does win. Such instances can be multiplied indefinitely, and show that you cannot claim to have known merely because you turned out to be right.”

Bertrand Russell, Human Knowledge: Its Scope and Limits, New York: Simon and Schuster, 1964, pp. 154-155

Of Russell’s three examples, I like the first best because it so clearly delineates the idea of justified true belief that fails to qualify as knowledge. You look at a stopped clock that indicates noon, and it happens to be noon. You infer from the hands on the dial that it is noon. That inference if your justification. It is, in fact, noon, so your belief is true. But this justified true belief is based upon accident and circumstance, and we would not wish to reduce all knowledge to accident and circumstance. Russell’s last example involves an “unshakeable conviction,” that is to say, a particular state of belief (what analytical philosophers today might call a doxastic context), so it isn’t quite the pure example of justified true belief as the others.

An individual’s understanding of history is often replete with justified true beliefs that aren’t knowledge. We look at the record of the past and we think we understand, and things do seem to turn out as we expected, and yet we still do not have knowledge of the past (or of the present, much less of the future). When we read the tea leaves wrongly, we are right for the wrong reasons, and when we are right for the wrong reasons, our luck will run out, sooner rather than later.

Contemporary history — the present — is no less filled with misunderstandings when we believe that we understand what it is happening, we anticipate certain events on the basis of these beliefs, and the events that we anticipate do come to pass. This problem compounds itself, because each prediction borne out raises the confidence of the investor, who is them more likely to trust his judgments in the future. To be right for the wrong reasons is to be deceived into believing that one understands that which one does not understand, while to be wrong for the right reason is to truly understand, and to understand better than before because one’s views have been corrected and one understands both that they have been corrected and how they have been corrected. Growth of knowledge, in true Popperian fashion, comes from criticism and falsification.

This problem is particularly acute with venture capitalists. A venture capital firm early in its history makes a few good guesses and becomes magnificently wealthy. (We don’t hear about the individuals and firms that fail right off the bat, because they disappear; this is called survivorship bias.) This is the nature of venture capital; you invest in a number of enterprises expecting most to fail, but the one that succeeds succeeds so spectacularly that it more than makes up for the other failures. But the venture capital firm comes to believe that it understands the direction that the economy is headed. They no longer think of themselves as investors, but as sages. These individuals and firms come to exercise an influence over what gets funded and what does not get funded that is closely parallel to the influence that, say, Anna Wintour, has over fashion markets.

Few venture capital firms can successfully follow up on the successes that initially made them fabulously wealthy. Some begin to shift to more conservative investments, and their portfolios can look more like the sage of Omaha than a collection of risky start ups. Others continue to try to stake out risky positions, and fail almost as spectacularly as their earlier successes. The obvious example here is the firm of Kleiner Perkins.

Kleiner Perkins focused on a narrow band of technology companies at a time when tech stocks were rapidly increasing, also known as the “tech bubble.” Anyone who invested in tech stocks at this time, prior to the bubble bursting, made a lot of money. Since VC focuses on short-term start-up funding, they were especially positioned to profit from a boom that quickly spiraled upward before it crashed back down to the earth. In short — and this is something everyone should understand without difficulty — they were in the right place at the right time. After massive losses they threw a sop to their injured investors by cutting fees and tried to make it look like they were doing something constructive by restructuring their organization — also known as “rearranging the deck chairs on the Titanic.” But they still haven’t learned their lesson, because instead of taking classic VC risks with truly new ideas, they are relying on people who “proved” themselves at the tech start-ups that they glaringly failed to fund, Facebook and Twitter. This speaks more to mortification than confidence. Closing the barn door after the horse has escaped isn’t going to help matters.

Again, this is a very simplified version of events. Actual events are much more complex. Powerful and influential individuals who anticipate events can transform that anticipation into a self-fulfilling prophecy. There are economists who have speculated that it was George Soros’ shorting of the Thai Baht that triggered the Asian financial crisis of 1997. So many people thought that Soros was right that they started selling off Thai Baht, which may have triggered the crisis. Many smaller economies now take notice when powerful investors short their currency, taking preemptive action to head off speculation turning into a stampede. Similarly, if a group of powerful and influential investors together back a new business venture, the mere fact that they are backing it may turn an enterprise that might have failed into a success. This is part of what Keynes meant when he talked about the influence of “animal spirits” on the market.

What Keynes called “animal spirits” might also be thought of as cognitive bias. I don’t think that it one can put too much emphasis on the role of cognitive bias in investment decisions, and especially in the role of the substitution heuristic when it comes to pricing risk. In Global Debt Market Roundup I noted this:

It seems that China’s transition from an export-led growth model to a consumer-led growth model based on internal markets is re-configuring the global commodities markets, as producers of raw materials and feedstocks are hit by decreased demand while manufacturers of consumer goods stand to gain. I think that this influence on global markets is greatly overstated, as China’s hunger for materials for its industry will likely decrease gradually over time (a relatively predictable risk), while the kind of financial trainwreck that comes from disregarding political and economic instability can happen very suddenly, and this is a risk that is difficult to factor in because it is almost impossible to predict. So are economists assessing the risk they know, according to what Daniel Kahneman calls a “substitution heuristic” — answering a question that they know, because the question at issue is either too difficult or intractable to calculation? I believe this to be the case.

Most stock pickers simply don’t have what it takes in order to understand the political dynamics of a large (and especially an unstable) nation-state, so instead of trying to engage in the difficult task of puzzling out the actual risk, an easier question is substituted for the difficult question that cannot be answered. And thus it is that even under political conditions in which wars, revolution, and disruptive social instability could result in an historically unprecedented loss or expropriation of wealth, investors find a way to convince themselves that it is okay to return their money to region (or to an enterprise) likely to mismanage any funds that are invested. The simpler way to put this is to observe that greed gets ahead of good sense and due diligence.

Keynes thought that the animal spirits (i.e., cognitive biases) were necessary to the market functioning. Perhaps he was right. Perhaps venture capital also can’t function without investors believing themselves to be right, and believing that they understand what is going on, when in fact they are wrong and they do not understand what is going on. But unless good sense and due diligence are allowed to supplement animal spirits, a day of reckoning will come when apparent gains unravel and some unlucky investor or investors are left holding the bag.

. . . . .

signature

. . . . .

Grand Strategy Annex

. . . . .

Thursday


televisions for sale

What is the role of the consumer in the economies of advanced industrialized nation-states? The question is not as easily answered as one might suppose. In my last post, Global Debt Market Roundup I mentioned, “It seems that China’s transition from an export-led growth model to a consumer-led growth model based on internal markets is re-configuring the global commodities markets, as producers of raw materials and feedstocks are hit by decreased demand while manufacturers of consumer goods stand to gain.” This is a familiar talking point in contemporary economics, and I will assume that everyone is familiar with the distinction between an export-driven economy and a consumer-driven economy.

China achieved several decades’ worth of year-on-year double digit growth through the pursuit (some might say “single-minded pursuit”) of an export-led economic model, but China was already the largest nation-state in the world by population, so it had enormous resources to bring to bear upon its export-oriented model. As new workers streamed into China’s burgeoning cities to work in factories, China became the workshop of the world. (This is a migration that has produced some nearly apocalyptic images of manufactured landscapes.) China’s workers accepted uncomfortable living conditions as an investment in a better future for themselves and their children. This is a theme taken up by Kevin Kelly in What Technology Wants, in which he quotes Suketu Mehta, author of Maximum City:

“Why would anyone leave a brick house in the village with its two mango trees and its view of small hills in the East to come here?” Then he answers: “So that someday the eldest son can buy two rooms in Mira Road, at the northern edges of the city. And the younger one can move beyond that, to New Jersey. Discomfort is an investment.”

The emerging structure of the global market seemed to offer a series of steps toward accession to global markets, and hence economic growth. A nation-state begins by greatly discounting its labor; investors build manufacturing facilities in the country to take advantage of the inexpensive labor to lower its production costs. As investment enters the country, and an increasing number of persons are earning regular wages, the local population has the resources to invest in education while the local government has the resources to invest in infrastructure (or the infrastructure is gradually put in place by investors). With a more highly educated workforce and improved infrastructure, the nation-state is prepared to move the next step up the value-added chain in manufacturing. With each stage of value-added manufacturing, the workforce becomes more sophisticated and the local infrastructure improves, leading to a virtuous circle.

Moving up the chain of value-added manufacturing, however, remains within the paradigm of an export-driven economy, and while this model served China well for several decades, it also has structural vulnerabilities. The Great Recession reduced the buying power of wealthiest regions of the world (Western Europe and North America), which led to a drop in demand, which led to factories in China being shuttered. This was a big problem, but it was not the only problem. The investment in discomfort mentioned above eventually needs to be redeemed, and the millions of Chinese who have made this investment want more from life. The Chinese communist party is not about to give up its stranglehold on political control, so it has turned to the tried-and-true model of a consumer-driven economy, in which workers will have the opportunity to join the rat race for material abundance.

The consumer-driven economic model would seem to place the consumer at the center of economic activity, but is this the case? Is the consumer central to consumer-driven markets, especially in comparison to export-led markets? Certainly the consumer plays a much more important role in the consumer-led economy as compared to the export-led economy, but it would be misleading to say that the consumer is central to a consumer-driven market, though this is a common misconception. The transition from an export-driven to a consumer-driven model is not a play to make the consumer central to the operation of a market economy, but to shift to an economic model less vulnerable to global demand fluctuation and which sufficiently placates workers that they can be counted on not to riot.

Ideally (from the perspective of the nation-state), the consumer is a ratepayer who receives some infrastructural service in exchange for regular payments to the service provider. The essence of this transaction is its fungibility and anonymity: any ratepayer might contract with any provider to meet the need for goods or services. In practice, the transaction is constrained by so many factors that the market is reduced to Hobson’s choice: the choice between what is offered or nothing.

In late industrialized capitalism we have seen a considerable departure from this ideal model as industry has sought to personally engage consumers and has invested considerable resources into “branding” in order that consumers should develop specific preferences not only for specific products, but also for specific producers of goods and services. The competition among brands for loyal and reliable consumers has led to industries pouring money into studying the buying habits of consumers, and this in turn has led to the idea that the mere idiosyncrasies of consumers and their tastes are what drive the market.

Industries have turned market research into a deceptive fetish, often based on distorted and misinterpreted statistics (sometimes willfully misinterpreted, as consultants, conscious of their own need for an income, need to justify ongoing market research). The most obvious example I can think of to illustrate this is how market researchers systematically look to buying habits among the youngest consumers, on the assumption that these youngest consumers will grow up, get jobs, and then spend real money on goods and services. The result has been to drive the infantilization of consumer products, such that industry produces what teenagers want, not realizing that teenagers grasp at whatever trend happens to be hot at the moment, in adolescent desperation to be part of whatever is “happening” at the moment.

It is this kind thinking that has led to idiotic predictions of the “death of the PC” because many young people use their smart phones and tablet computers, communicating through instant messaging services and not bothering to exchange emails. At one time, if you wanted a computer, you had the choice between a PC or nothing. Now consumers have many choices. That does not mean that PCs will disappear, but they will have a smaller proportion of market share as those who had no need for a fully functional PC turn to smaller, lighter devices for their needs. So don’t expect a diachronic extrapolation of the decline in demand for PCs to continue down to zero. And don’t expect adults in the workplace to abandon email in favor of exchanging messages through Facebook or some other social media site.

It is this kind of limited thinking that has also given us the operating system of Windows 8. Because of the fetish for handheld devices, on which “apps” predominate, the wizards at Microsoft thought that this is the trend that is defining the future of computing. Because teenagers are using apps, that must mean that everyone will be using apps in the future, and that everyone will want their PC set up with a touch screen with the apps being the first thing you see when you turn it on. Recently I read a columnist humorously make the claim that no one over the age of 18 thinks that One Direction is the future of music (I don’t recall who wrote this). We recognize the humor in this, and laugh at it, but it is exactly this kind of thinking that is being taken seriously by software engineers and computer manufacturers, and this may be yet another reason that computers may become completely useless to us.

Microsoft still won’t admit it made a mistake with Windows 8; probably they will never admit it, but there is a humorous photograph making the rounds of the internet of a shop sign advertising the service of “downgrading” a Windows 8 operating system to a Windows 7 operating system. I don’t know if the photograph is for real or if it is Photoshopped, but we understanding the joke immediately, in the same way that we understand the joke about One Direction and the future of music. The only question is how long we will have to suffer from suboptimal products driven by misguided consumer research before the technology industry passes out of its own adolescence, painful and conflicted as it is.

. . . . .

windows-8-downgrade

. . . . .

signature

. . . . .

Grand Strategy Annex

. . . . .

Sunday


zero dollars

A couple of recent articles in the Financial Times about the global debt market caught my attention. On Wednesday 16 April 2014 the FT ran “Risk seekers seize the day in South America: Investors are being drawn to bond issues in Argentina, Venezuela and Ecuador,” by Benedict Mander. Nation-states with very troubled financial histories (such as the three named) are not only able to sell their debt, but the writer says that Argentina, “has admitted to receiving loan proposals from international investment banks after local media reported that it was negotiating a $1bn loan from Goldman Sachs.”

Mander’s article also mentions the return of the “carry trade,” that is to say, borrowing money where it is really cheap and loaning it out again where money comes dear. During those years when Japan was loaning money at an effective zero rate, the carry trade was big business, as that zero percent money could be re-lent at 5 or 6 percent elsewhere. In my previous post, Rhine Capitalism, I discussed German bankers trying to present themselves as humbled and chastened by the past financial crisis, welcoming regulation as the price of stability. But that’s not the message we’re getting from the Financial Times, where we find a detailed record of the reconstruction of spectacularly risky financial schemes that will, in due course, have their day or reckoning.

On Thursday 17 April 2014 the FT ran “Investors get selective as frontier debt rush slows: Buyers of poor countries’ bonds are becoming more careful about risk vs reward,” by Elaine Moore, which discusses the “exotic debt” of nation-states such as Sri Lanka, Pakistan, Ghana, and Nigeria (also called “frontier markets”). Dollar-denominated bond issues in such unlikely places as sub-Saharan Africa find plenty of takers, though rates vary from country to country. The article states:

“Internal conflicts, political instability and poor credit records are all being factored in, but what economists say is really propelling the increasing differential in yields between borrowers is the knock-on effect of China’s economic evolution.”

It seems that China’s transition from an export-led growth model to a consumer-led growth model based on internal markets is re-configuring the global commodities markets, as producers of raw materials and feedstocks are hit by decreased demand while manufacturers of consumer goods stand to gain. I think that this influence on global markets is greatly overstated, as China’s hunger for materials for its industry will likely decrease gradually over time (a relatively predictable risk), while the kind of financial trainwreck that comes from disregarding political and economic instability can happen very suddenly, and this is a risk that is difficult to factor in because it is almost impossible to predict. So are economists assessing the risk they know, according to what Daniel Kahneman calls a “substitution heuristic” — answering a question that they know, because the question at issue is either too difficult or intractable to calculation? I believe this to be the case.

In Monday’s Financial Times (which is already out in Europe, so I have read it over the internet but haven’t received my copy yet) there is another debt-related article, “Eurozone periphery nurses debt wounds” (by Robin Wigglesworth in London). This article mentions, “the high demand for peripheral eurozone debt in recent months,” which would seem to be a part of the above-mentioned trend of seeking out higher rates of return and accepting higher risks in order to get those higher rates.

These are perfect examples of what I recently wrote about in Why the Future Doesn’t Get Funded, namely, that there is an enormous amount of money looking for a place to be invested, and that nation-states are pretty much the only thing on the planet that can both soak up that kind of investment as well as being sufficiently familiar to investors — the devil they know — that the investors don’t balk when offered high returns even in a risky debt market.

What is the lesson here? Is it simple investor greed that sees 8 percent and can’t resist? In the cases of Venezuela and Argentina, we have nation-states that are not only politically and economically unstable, but these countries have governments that have spectacularly mismanaged their respective economies, along with a history of nationalizing private assets. This mismanagement is now being rewarded by the global financial community, not least because investors are so worried that they might miss an opportunity. But if events go south while your money is invested in Argentina, you may well find yourself expropriated of your wealth and excoriated by a populist regime (those holding out for payment on the last defaulted bonds have been called “vulture funds”). What kind of rationalization hamster runs its endless cycles in the investor’s brain, convincing them that they can get a few years of eight percent on a billion dollars — which is nothing to sneeze at, being 80 million dollars a year — before the situation collapses, like it did for earlier investors?

There are all kinds of visionary projects that could be funded with this money — projects that would advance the prospects for all humanity — and perhaps at a rate of return not less than that offered by “exotic debt,” but the Siren Song of nation-state debt issues paying at 8 percent or better is too great of a temptation to resist. So why do uncreditworthy nation-states get billions while business enterprises and private opportunities go begging? It is an interesting question.

It is a bit facile (even if it is also true) to point out that most nation-states fall into the category of “too big to fail,” and that the international community will bail them out time and time again, no matter the level of corruption or mismanagement. (We hear constant talk about the evils of “austerity,” and about the terrible things that the IMF and the World Bank are doing by lending these poor, long-suffering nation-states more money, but very little about the evils of the profligacy that necessitated the austerity.) This is a bit too facile because even small nation-states, the default of which would not be particularly ruinous, often receive similar treatment. What’s going on here?

There is more at work here than merely shoddy lending practices that are opening up entire classes of investors to risks that they do not understand. This is an artifact of the international nation-state system that prioritizes the impunity of nation-states, whether in regard to human rights, economics, or any other measure you might care to apply. Nation-states are not held to account, and because they are not held to account they have become reckless. For the institutional investor looking for a place to park a few billion dollars, even severely compromised nation-states may appear to be the only game in town. I won’t hold my breath for the day when one of these institutional investors will put their money into some more productive, less reckless investment instrument, but I won’t stop hoping either.

. . . . .

Frontiermarkets

. . . . .

signature

. . . . .

Grand Strategy Annex

. . . . .

Rhine Capitalism

18 April 2014

Friday


rhine castle

Thursday’s Financial Times included a special supplement on “Frankfurt as a Financial Centre,” and this supplement included the article “Deutsche Börse hopes that its philosophy has global appeal.” And what is the philosophy of Deutsche Börse AG? According to chief executive Reto Francioni, the philosophy of Deutsche Börse AG is “Rhine capitalism.” So what is Rhine capitalism?

deutsche-borse-group logo

Here is a quote from Reto Fancioni from the Financial Times article that employs this interesting formulation:

“We share the same basic belief that the market economy also has to fulfill a social obligation, and that the ‘Rhine capitalism’ model of an economy buffered by corporations and focused on the long term, with strictly regulated markets — which are free for that very reason — is fundamentally superior to the Anglo-American capitalism model of deregulation.”

Further along in the same article we find the following:

[Deutsche Börse AG] hopes that its philosophy of a capitalism based on long-term careful planning will find a more receptive audience worldwide.

If you take a minute to read the mission statement and core values on the Deutsche Börse AG website you will find the usual corporate platitudes, though the following sentence underlines the quotes above from the Financial Times article:

We stand for integrity, transparency and the safety of capital markets. We support regulation that advances these qualities.

A New Year’s reception speech by Reto Francioni on the Eurex Group site repeats some of his thoughts on “Rhine capitalism” in a slightly different context. After stating his strong support for the European idea — saying that “there are no alternatives” to a united Europe — Francioni goes on to say:

…we share the same basic belief that the market economy also has to fulfill a social obligation and that the “Rhine capitalism” model of an economy buffered by corporations and focused on the long term, with strictly regulated markets — which are free for that very reason — is fundamentally superior to the Anglo-American capitalism model of deregulation.

This very interesting claim, however, was preceded in the speech by this…

I am a fan of good regulation. But I stress the word “good”, meaning professional. After all, we are involved in a global competition in regulation.

…and this…

The US remains a pioneer in many respects… They are ahead of us in re-regulation of capital markets and they made use of the crisis to rapidly create new and effective banks and stock exchange
organisations which have been strengthened through mergers and disciplined through sanctions.

Francioni really sounds like he’s trying to have it two ways here: he acknowledges that the US is ahead of Europe in re-regulation but then also holds that “Rhine capitalism” is distinctive because it does not endorse the Anglo-American model of deregulation. So which is it? Is the US leading in re-regulation, or is it guilty of a reckless deregulation that stands in stark contrast to “Rhine capitalism”?

Francioni is talking like a politician when he talks about Rhine capitalism embracing regulation and being the stronger for it while saying that there is a global competition in regulation so that “good regulation” is called for. I doubt that you could find an Anglo-American banker who would have anything but praise for “good” regulation. For this statement to have any content at all it would need to explain the difference between good regulation and bad regulation, preferably citing actual examples of each.

Setting aside Francioni’s double-speak about regulation, what are we to understand by “Rhine capitalism” on the basis of his public pronouncements? We can include within “Rhine capitalism” at least the following:

1. the market economy has social obligations

2. corporations “buffer” the market economy

3. the market economy should be focused on the long term

4. the market economy should be strictly regulated

5. free markets are free in virtue of being regulated

6. regulation of the market economy should be professional

All of these are nice ideas, but they all beg the question. What are the social obligations of a market economy? Are they the obligation to increase the wealth of a society, or to attempt to impose an elusive “safety” and “stability” on markets? How do corporations “buffer” the market? Are corporations to have privileges over and against sole proprietors and partnerships in their role as market buffers? Or is this rather a veiled criticism of the role of private equity? What is the long term for Rhine capitalism? Are we talking about ten months, ten years, or ten centuries? I certainly don’t see in Europe (not to speak of the Rhineland) any more willingness to fund the future than I see in the US. What is a strict regulation, and how are we to distinguish between good and bad regulation? Between professional or unprofessional (amateurish?) regulation? How much strict regulation means that a market is free in virtue of its regulation?

Although I don’t expect that my questions will be answered, I don’t ask them merely rhetorically. I really would like to know exactly what “Rhine capitalism” is, though I think the key to understanding the idea is this: Rhine capitalism is not Anglo-American deregulation. In other words, whatever the British and Americans are doing, we aren’t doing, but we’re still capitalists.

I worry that, in the wake of a devastating financial crisis, European bankers selling themselves to a suspicious public now focused on resentment of “the one percent” by defining “Rhine capitalism” as a vague alternative — the one thing that is clear is that it is not Anglo-American deregulation — are really selling a bill of goods. Francioni offers all kinds so reassuring ideas about a carefully planned, strictly regulated market that fulfills social obligations, but we are right to be suspicious of this in the same way that the working class is right to be suspicious of wealthy bankers. Bankers who claim to do good usually end up making a mess of things, and the bankers that usually benefit society the most are those than focus on making the most money.

. . . . .

signature

. . . . .

Grand Strategy Annex

. . . . .

Tuesday


future-next-exit

Introduction

Why be concerned about the future? Will not the future take care of itself? After all, have we not gotten along just fine without being explicitly concerned with the future? The record of history is not an encouraging one, and suggests that we might do much better if only provisions were made for the future, and problems were addressed before they become unmanageable. But are provisions being made for the future? Mostly, no. And there is a surprisingly simple reason that provisions are rarely made for the future, and that is because the future does not get funded.

The present gets funded, because the present is here with us to plead its case and to tug at our heart strings directly. Unfortunately, the past is also often too much with us, and we find ourselves funding the past because it is familiar and comfortable, not realizing that this works against our interests more often than it serves our interests. But the future remains abstract and elusive, and it is all too easy to neglect what we must face tomorrow in light of present crises. But the future is coming, and it can be funded, if only we will choose to do so.

hundred banknotes

Money, money, everywhere…

The world today is awash in money. Despite the aftereffects of the subprime mortgage crisis, the Great Recession, and the near breakup of the European Union, there has never been so much capital in the world seeking advantageous investment, nor has capital ever been so concentrated as it is now. The statistics are readily available to anyone who cares to do the research: a relatively small number of individuals and institutions own and control the bulk of the world’s wealth. What are they doing with this money? Mostly, they are looking for a safe place to invest it, and it is not easy to find a place to securely stash so much money.

The global availability of money is parallel to the global availability of food: there is plenty of food in the world today, notwithstanding the population now at seven billion and rising, and the only reason that anyone goes without food is due to political (and economic) impediments to food distribution. Still, even in the twenty-first century, when there is food sufficient to feed everyone on the planet, many go hungry, and famines still occur. Similarly, despite the world being awash in capital seeking investment and returns, many worthy projects are underfunded, and many projects are never funded at all.

safe-as-houses

What gets funded?

What does get funded? Predictable, institutional projects usually get funded (investments that we formerly called, “as safe as houses”). Despite the fact of sovereign debt defaults, nation-states are still a relatively good credit risk, but above all they are large enough to be able to soak up the massive amounts of capital now looking for a place to go. Major industries are also sufficiently large and stable to attract significant investment. And a certain amount of capital finds itself invested as venture capital in smaller projects.

Venture capital is known to be the riskiest of investments, and the venture capitalist expects that most of his ventures will fail and yield no returns whatever. The reward comes from the exceptional and unusual venture that, against all odds and out of proportion to the capital invested in it, becomes an enormous success. This rare venture capital success is so profitable that it not only makes up for all the other losses, but more than makes up the losses and makes the successful venture capital firm one of the most intensively capitalized industries in the world.

risk blocks

Risk for risk’s sake?

With the risk already so high in any venture capital project, the venture capitalist does not unnecessarily court additional, unnecessary risks, so, from among the small projects that receive venture funding, it is not the riskiest ventures that get funded, but the least risky that get funded. That is to say, among the marginal investments available to capital, the investor tries to pick the ones that look as close to being a sure thing as anything can be, notwithstanding the fact that most of these ventures will fail and lose money. No one is seeking risk for risk’s sake; if risk is courted, it is only courted as a means to the end of a greater return on capital.

The venture capitalists have a formula. They invest a certain amount of money at what is seen to be a critical stage in the early development of a project, which is then set on a timetable of delivering its product to market and taking the company public at the earliest possible opportunity so that the venture capital investors can get their money out again in two to five years.

Given the already tenuous nature of the investments that attract venture capital, many ideas for investment are rejected on the most tenuous pretexts, rejected out of hand scarcely without serious consideration, because they are thought to be impractical or too idealistic or are not likely to yield a return quickly enough to justify a venture capital infusion.

temperaments

Entrepreneurs, investors, and the spectrum of temperament

Why do the funded projects get funded, while other projects do not get funded? The answer to this lies in the individual psychology of the successful investor. The few individuals who accumulate enough capital to become investors in new enterprises largely become wealthy because they had one good idea and they followed through with relentless focus. The focus is necessary to success, but it usually comes at the cost of wearing blinders.

Every human being has both impulses toward adventure and experimentation, and desires for stability and familiarity. From the impulse to adventure comes entrepreneurship, the questioning of received wisdom, a willingness to experiment and take risks (often including thrill-seeking activities), and a readiness to roll with the punches. From the desire for stability comes discipline, focus, diligence, and all of the familiar, stolid virtues of the industrious. With some individuals, the impulse to adventure predominates, while in others the desire for stability is the decisive influence on a life.

With entrepreneurs, the impulse to adventure outweighs the desire for stability, while for financiers the desire for stability outweighs the impulse to adventure. Thus entrepreneurs and the investors who fund them constitute complementary personality types. But neither exemplifies the extreme end of either spectrum. Adventurers and poets are the polar representatives of the imaginative end of the spectrum, while the hidebound traditionalist exemplifies the polar extreme of the stable end of the spectrum.

It is the rare individual who possesses both adventurous imagination and discipline in equal measures; this is genius. For most, either imagination or discipline predominates. Those with an active imagination but little discipline may entertain flights of fancy but are likely to accomplish little in the real world. Those in whom discipline predominates are likely to be unimaginative in their approach to life, but they are also likely to be steady, focused, and predictable in their behavior.

Most people who start out with a modest stake in life yearn for greater adventures than an annual return of six percent. Because of the impulse to adventure, they are likely to take risks that are not strictly financially justified. Such an individual may be rewarded with unique experiences, but would likely have been more financially successful if they could have overcome the desire in themselves for adventure and focused on a disciplined plan of investment coupled with delayed gratification. If you can overcome this desire for adventure, you can make yourself reasonably wealthy (at very least, comfortable) without too much effort. Despite the paeans we hear endlessly celebrating novelty and innovation, in fact discipline is far more important than creativity or innovation.

The bottom line is that the people who have a stranglehold on the world’s capital are not intellectually adventuresome or imaginative; on the contrary, their financial success is a selective result of their lack of imagination.

giving_money

A lesson from institutional largesse

The lesson of the MacArthur fellowships is worth citing in this connection. When the MacArthur Foundation fellowships were established, the radical premise was to give money away to individuals who could then be freed to do whatever work they desired. When the initial fellowships were awarded, some in the press and some experiencing sour grapes ridiculed the fellowships as “genius grants,” implying that the foundation was being a little too loose and free in its largesse. Apparently the criticism hit home, as in successive rounds of naming MacArthur fellows the grants become more and more conservative, and critics mostly ceased to call them “genius grants” while sniggering behind their hands.

Charitable foundations, like businesses, function in an essentially conservative, if not reactionary, social milieu, in which anything new is immediately suspect and the tried and true is favored. No one wants to court controversy; no one wants to be mentioned in the media for the wrong reason or in an unflattering context, so that anyone who can stir up a controversy, even where none exists, can hold this risk averse milieu hostage to their ridicule or even to their snide laughter.

Who serves on charitable boards? The same kind of unimaginative individuals who serve on corporate boards, and who make their fortunes through the kind of highly disciplined yet largely unimaginative and highly tedious investment strategies favored by those who tend toward the stable end of the spectrum of temperament.

Handing out “genius grants” proved to be too adventuresome and socially risky, and left those in charge of the grants open to criticism. A reaction followed, and conventionality came to dominate over imagination; institutional ossification set in. It is this pervasive institutional ossification that made the MacArthur awards so radical in the early days of the fellowships, when the MacArthur Foundation itself was young and adventuresome, but the institutional climate caught up with the institution and brought it to heel. It now comfortably reclines in respectable conventionality.

clock with dates

Preparing for the next economy

One of the consequences of a risk averse investment class (that nevertheless always talks about its “risk tolerance”) is that it tends to fund familiar technologies, and to fund businesses based on familiar technologies. Yet, in a technological economy the one certainty is that old technologies are regularly replaced by new technologies (a process that I have called technological succession). In some cases there is a straight-forward process of technological succession in which old technologies are abandoned (as when cars displaced horse-drawn carriages), but in many cases what we see instead is that new technologies build on old technologies. In this way, the building of an electricity grid was once a cutting edge technological accomplishment; now it is simply part of the infrastructure upon which the economy is dependent (technologies I recently called facilitators of change), and which serves as the basis of new technologies that go on to become the next cutting edge technologies in their turn (technologies I recently called drivers of change).

What ought to concern us, then, is not the established infrastructure of technologies, which will continue to be gradually refined and improved (a process likely to yield profits proportional to the incremental nature of the progress), but the new technologies that will be built using the infrastructure of existing technologies. Technologies, when introduced, have the capability of providing a competitive advantage when one business enterprise has mastered them while other business enterprises have not yet mastered them. Once a technology has been mastered by all elements of the economy it ceases to provide a competitive advantage to any one firm but is equally possessed and employed by all, and also ceases to be a driver a change. Thus a distinction can be made between technologies that are drivers of change and established technologies that are facilitators of change, driven by other technologies, that is to say, technologies that are tools for the technologies that are in the vanguard of economic, social, and political change.

From the point of view both of profitability and social change, the art of funding visionary business enterprises is to fund those that will focus on those technologies that will be drivers of change in the future, rather than those that have been drivers of change in the past. This can be a difficult art to master. We have heard that generals always prepare for the last war that was just fought rather than preparing for the next war. This is not always true — we can name a list of visionary military thinkers who saw the possibilities for future combat and bent every effort to prepare for it, such as Giulio Douhet, Billy Mitchell, B. H. Liddell Hart, and Heinz Guderian — but the point is well taken, and is equally true in business and industry: financiers and businessmen prepare for the economy that was rather than the economy that will be.

The prevailing investment climate now favors investment in new technology start ups, but the technology in question is almost always implicitly understood to be some kind of electronic device to add to the growing catalog of electronic devices routinely carried about today, or some kind of software application for such an electronic device.

The very fact of risk averse capital coupled with entrepreneurs shaping their projects in such a way as to appeal to investors and thereby to gain access to capital for their enterprises suggests the possibility of the path not taken, and this path would be an enterprise constituted with the particular aim of building the future by funding its sciences, technology, engineering, and even its ideas, that is to say, but funding those developments that are yet to become drivers of change in the economy, rather than those that already are drivers of change in the economy, and therefore will slip into second place as established facilitators of the economy.

open door on road

What is possible?

If there were more imagination on the part of those in control of capital, what might be funded? What are the possibilities? What might be realized by large scale investments into science, technology, and engineering, not to mention the arts and the best of human culture generally speaking? One possibility is that of explicitly funding a particular vision of the future by funding enterprises that are explicitly oriented toward the realization of aims that transcend the present.

Business enterprises explicitly oriented toward the future might be seen as the riskiest of risky investments, but there is another sense in which they are the most conservative of conservative investments: we know that the future will come, whether bidden or unbidden, although we don’t know what this inevitable future holds. Despite our ignorance as to what the future holds, we at least have the power — however limited and uncertain that power — to shape events in the future. We have no real power to shape events in the past, though many spin doctors try to conceal this impotency.

Those who think in explicit terms about the future are likely to seem like dreamers to an investor, and no one wants to labeled a “dreamer,” as this a tantamount to being ignored as a crank or a fool. Nevertheless, we need dreamers to give us a sense as to what might be possible in the future that we can shape, but of which we are as yet ignorant. The dreamer is one who has at least a partial vision of the future, and however imperfect this vision, it is at least a glimpse, and represents the first attempt to shape the future by imagining it.

Everyone who has ever dreamed big dreams knows what it is like to attempt to share these dreams and have them dismissed out of hand. Those who dismiss big dreams for the future usually are not content merely to ignore or to dismiss the dreamer, but they seem to feel compelled to go beyond dismissal and to ridicule if not attempt to shame those who dream their dreams in spite of social disapproval.

The tactics of discouragement are painfully familiar, and are as unimaginative as they are unhelpful: that the idea is unworkable, that it is a mere fantasy, or it is “science fiction.” One also hears that one is wasting one’s time, that one’s time could be better spent, and there is also the patronizing question, “Don’t you want to have a real influence?”

There is no question that the attempt to surpass the present economic paradigm involves much greater risk than seeking to find a safe place for one’s money with the stable and apparent certainty of the present economic paradigm, but greater risks promise commensurate rewards. And the potential rewards are not limited to the particular vision of a particular business enterprise, however visionary or oriented toward the future. The large scale funding of an unconventional enterprise is likely to have unconventional economic outcomes. These outcomes will be unprecedented and therefore unpredictable, but they are far more likely to be beneficial than harmful.

There is a famous passage from Keynes’ General Theory of Employment, Interest and Money that is applicable here:

“If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.”

John Maynard Keynes, General Theory of Employment, Interest and Money, Book III, Chapter 10, VI

For Keynes, doing something is better than doing nothing, although it would be better still to build houses than to dig up banknotes buried for the purpose of stimulating economic activity. But if it is better to do something than to do nothing, and if it is better to do something constructive like building houses rather than to do something pointless like digging holes in the ground, how much better must it not be to build a future for humanity?

If some of the capital now in search of an investment were to be systematically directed into projects that promised a larger, more interesting, more exciting, and more comprehensive future for all human beings, the eventual result would almost certainly not be that which was originally intended, but whatever came out of an attempt to build the future would be an unprecedented future.

The collateral effect of funding a variety of innovative technologies is likely to be that, as Keynes wrote, “…the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is.” Even for the risk averse investor, this ought to be too good of a prospect to pass up.

vision

Where there is no vision, the people perish

What is the alternative to funding the future? Funding the past. It sounds vacuous to say so, but there is not much of a future in funding the past. Nevertheless, it is the past that gets funded in the present socioeconomic investment climate.

Why should the future be funded? Despite our fashionable cynicism, even the cynical need a future in which they can believe. Funding a hopeful vision of the future is the best antidote to hopeless hand-wringing and despair.

Who could fund the future if they wanted to? Any of the risk averse investors who have been looking for returns on their capital and imagining that the world can continue as though nothing were going to change as the future unfolds.

What would it take to fund the future? A large scale investment in an enterprise conceived from its inception as concerned both to be a part of the future as it unfolds, and focused on a long term future in which humanity and the civilization it has created will be an ongoing part of the future.

. . . . .

signature

. . . . .

Grand Strategy Annex

. . . . .

Saturday


RobotNanny

In my previous post, Autonomous Vehicles and Technological Unemployment in the Transportation Sector, I discussed some of the changes that are likely to come to the transportation industry as a result of autonomous vehicles, which may come to be a textbook case of technological unemployment, though I argued in that post that the transition will take many decades, which will allow for some degree of reallocation of the workforce over time. Economic incentives to freight haulers will drive the use of autonomous vehicles, because of their relatively low costs and ability to operate non-stop, but many people today are employed as transportation workers, and these workers, though today in high demand, may find themselves with greatly changed employment opportunities by the end of the twenty-first century. A whole class of workers who today earn a living wage without the necessity of extensive training and education, stands to be eliminated.

Today I want to go a little deeper into the structural problem of technological unemployment. In my previous post, Autonomous Vehicles and Technological Unemployment in the Transportation Sector, I mentioned the recent cover story on The Economist, Coming to an office near you… The argument in an article in this issue in The Economist, “The Onrushing Wave,” is that automation allows for capital to substitute for labor. I don’t disagree with this entirely, but there is no mention in The Economist of regressive taxation or decades of policies that have redistributed income upward.

The same article in The Economist mentions the upcoming book The Second Machine Age by Andrew McAfee and Erik Brynjolfsson; the authors of this book recently had an article on the Financial Times’ Comment page, “Robots stay in the back seat in the new machine age” (Wednesday 22 January 2014). The authors try to remain upbeat while grappling with the realities of technological unemployment. One answer to “resigning ourselves to an era of mass unemployment” proposed by the authors is educational reform, but we know that education, too (like employment), is undergoing a crisis. The same socioeconomic system that is making it possible for capital to substitute for labor through automation is the same socioeconomic system that has been driving young people to spend ever-larger amounts of borrowed money on education, which has lined the pockets of the universities, transformed them into credentialing mills, and has driven employers to escalate their educational requirements for routine jobs that could just as well be filled by someone without a credential.

Both The Economist article and the Financial Times article cite Keynes, who in a particularly prescient passage in an essay of 1930 both foresaw and largely dismissed the problem of technological unemployment:

“We are being afflicted with a new disease of which some readers may not yet have heard the name, but of which they will hear a great deal in the years to come — namely, technological unemployment. This means unemployment due to our discovery of means of economising the use of labour outrunning the pace at which we can find new uses for labour. But this is only a temporary phase of maladjustment. All this means in the long run that mankind is solving its economic problem. I would predict that the standard of life in progressive countries one hundred years hence will be between four and eight times as high as it is to-day. There would be nothing surprising in this even in the light of our present knowledge. It would not be foolish to contemplate the possibility of a far greater progress still.”

John Maynard Keynes, Essays in Persuasion, “ECONOMIC POSSIBILITIES FOR OUR GRANDCHILDREN” (1930)

It is remarkable that Keynes would so plainly acknowledge technological unemployment as a “new disease” and then go on to dismiss is as “…a temporary phase of maladjustment.” It was Keynes, after all, who penned one of the most famous lines in all economic writing about how misleading it is to appeal to the long run while dismissing the temporary problem:

“But this long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.”

John Maynard Keynes, Monetary Reform, New York: Harcourt, Brace, and Company, 1924, p. 88

Economists would indeed set themselves too easy, too useless a task if they dismiss technological unemployment as a temporary phase of maladjustment. But, to be fair, economists are not social engineers. It is not for economists, in their role as economists, to make social policy, or even to make economic or monetary policy. This is a political task. It is the role of the economist to understand economic policy and monetary policy, and it is to be hoped that this understanding can be the basis of sound practical recommendations that can be presented to policy makers and the public.

It is well worth reading the whole of Keynes’ essay on the economic possibilities for our grandchildren, in which he suggests that human beings have evolved to struggle for subsistence, but that the growth of technology and capital are going to bring an end to this struggle for subsistence, thus marking a permanent change in the human condition (which Keynes calls, “solving the economic problem”). In short, Keynes was a classic techno-optimist, and he thought it would take about a hundred years (from 1930, so 2030) to get to the point at which humanity has definitively solved the economic problem. He does add the caveat that population control, the avoidance of war, and the employment of science will be necessary in addition to economic effort to solve humanity’s economic problem, and presumably, if we fail to heed Keynes’ caveats — as we certainly have since he wrote his essay — we will likely hamper our progress and delay the solution of the economic problem.

What I find remarkable in Keynes, and in the techno-optimists of our own time, is their ability to speak of the coming age of maximized abundance as though it were all but achieved, and to neglect the whole struggle and negotiation that will get us to that point. Keynes effectively consigned a century to being a temporary phase of maladjustment, and recognized that this temporary phase may stretch out over more than a century if matters don’t proceed smoothly. But for Keynes that isn’t the real problem. Keynes feels that, “the economic problem is not — if we look into the future — the permanent problem of the human race.” He then goes on to blandly state:

“…there is no country and no people, I think, who can look forward to the age of leisure and of abundance without a dread. For we have been trained too long to strive and not to enjoy. It is a fearful problem for the ordinary person, with no special talents, to occupy himself, especially if he no longer has roots in the soil or in custom or in the beloved conventions of a traditional society.”

In other words, what bothers Keynes is the troubling prospect of leisure for the working classes. To Keynes and the techno-optimists, I say there is nothing to worry you; that the millennium has not yet arrived, nor are we prepared for it to arrive, since the masses of the people will continue to struggle for subsistence for the foreseeable future. In the contemporary economy, we see no measures put into place that would indicate a shift toward institutions that would ease us into the paradise of maximized abundance promised by automation. There are, of course, the traditional workplace protections put into place throughout the industrialized world in the early part of the twentieth century, which include benefits for the unemployed, protections for those injured on the job, and a minimal stipend for the elderly, i.e., the worker after retirement. None of these traditional protections, however, begins to go far enough to support the unemployed worker for extended periods of time, or eases him into our out of his unemployed condition into sometime sustainable for the indefinite future.

If you lose your job at the age of 50 and have another 15 years to go until retirement (assuming a retirement age, and therefore eligibility for retirement benefits, at age 65), the benefits available to unemployed workers are not going to pay your mortgage for 15 years. And if you sell your house and move into an apartment, those benefits are not going to pay your rent. There are food banks and clothing banks for the destitute, so that in an industrialized nation-state you are not likely to go without some minimal amount of food and clothing. Perhaps, by hook or by crook, you find a way to maintain yourself for 15 years without becoming homeless and ending up as an invisible statistic, begging for change on a street corner. At that time you might get the minimal stipend provided for the elderly, and this might sustain you until you die. But what kind of life is the survival that I have described? It is simply another form of the struggle for subsistence, which Keynes’ thought would be eliminated by the solution of humanity’s economic problem.

While the unfortunate scenario I have outlined above consigns an individual to a relentlessly marginal life, others who have managed to find a more fortunate niche for themselves in the changing economy will have a house or two, a car or two, dinners at nice restaurants, a good education for their children, vacations, and all the things that money can buy in a market economy. The kind of problems that Keynes imagines in his essay, and which techno-optimists ever since have been (implicitly) imagining — that is to say, the problem of what individuals will do with all the time hanging heavy on their hands when they no longer have work to do — would be a kind of situation in which material goods become so cheap that they are simply given away to people. But are we going to give away the kind of good life that the fortunate enjoy?

All you have to do is to drive (or walk) through any large city in the world, and in a recession you will see block after block of empty store fronts, and if you read the classified advertisements you will find countless empty apartments waiting to be rented even as there are homeless people living on the street. We know that the owners of the empty store fronts could rent them out if they were willing to drop their asking price, but there is a limit below which landlords will not drop their price, and they would rather hold on to their properties, paying property taxes and maintenance expenses while their property remains idle, in hopes that a tenant will appear who is willing to meet their price. This situation could be met by government income redistribution, if money collected as taxes were spent to subsidize rentals, to give storefronts to small businesses or to rent empty apartments outright in which the homeless might live. But we already know what government programs like this are like. Individuals have to jump through hoops — in other words, they must be ready to humiliate themselves and to grovel before a functionary — in order to receive the “benefit.” Many people will not do this (I wouldn’t do this), and would thus opt out of well-intentioned programs that would make housing available to the homeless — with strings attached.

Suppose, however, you’re willing to grovel and you get your government apartment. What then? You will still be trapped in an extremely marginal position. You won’t be getting a penthouse suite with a view, you won’t be given a Ferrari to drive, you won’t be given an Armani suit, and you won’t be given an all-expense-paid trip to the south of France to sample the food and wine of the region. Who gets the penthouses and the Ferraris and the Armani suits and the vacations in the Dordogne? In other words, how do we allocate luxury goods in an economy of maximized abundance? Ideally, there would be no limits to consumer goods; that’s what “maximized abundance” means, but we all know that we are not going to be living in a world in which everyone has a Ferrari and an Armani suit.

How far can abundance be stretched? Are we to understand maximized abundance (or what Adam Smith called universal opulence) in terms of equal access to luxuries for everyone, or in terms of freezing social arrangements in a particular configuration so that each level of society receives its traditional share of goods? In other words, are we going to understand society as an egalitarian paradise or a feudal hierarchy? History has many examples of feudal hierarchies, and no examples of egalitarian paradises. Those societies explicitly constituted with the goal of becoming egalitarian paradises — i.e., large scale communist societies of the twentieth century — turned out to be even more stultifyingly hierarchical than feudalism.

There are some rather obvious answers to the rhetorical questions I have posed above, and none of them are particularly admirable. Luxury goods may go to those who are born into great wealth, or they may go to those who are particularly expert in some skill valued by society, or they may be reserved to reward government functionaries for loyal service. All of these arrangements have been realized in actual human societies of the past, and none of them constituted what Keynes called a solution to the economic problem for humanity.

Perhaps you think I am being trivial in my discussion of luxury goods, mentioning Ferraris and Armani suits, but I employ these as mere counters for the real luxuries that make life worth living. By these, I mean the experiences that we treasure and which are uniquely our own. The richness of a life is a function of the experiences that comprise the life in question. In market economies as they are administered today, if you have money, you can afford a wide variety of experiences. And if you are poor, your experiences are pretty much limited to staring at the four walls of your room, if you are lucky enough to avoid being homeless.

Believe me, I could easily elaborate a scenario that would stand with the best of the techno-optimists. I have observed elsewhere that, while seven billion human beings is a lot for the Earth, in the Milky Way it is virtually nothing. With the declining birth rates that characterize industrial-technological civilization, we will need every human being simply for the task of expanding our civilization into the Milky Way, leaving the machines to do the dead-end industrial jobs that once trapped human beings in unenviable circumstances.

There are endless interesting things yet to be done, and we will need every living human being freed from drudgery simply to begin the process of establishing a spacefaring civilization. This is a wonderful vision of considerable attraction to me personally. This is the world that I would like to see come about. The problem is, virtually nothing is being done to realize such a vision, or, for that matter, to realize any other techno-optimist vision. On the contrary, policies being implemented today seem formulated for the purpose of discouraging the kind of society that we need to begin building right now, today, if we are to defy the existential risks with which we are confronted as a species.

We could accurately speak of contemporary economic circumstances as “…a temporary phase of maladjustment…” if we were actively seeking to mitigate the maladjustment and to build an economy that would prepare us for the future. This is not being done. On the contrary, people who lose their jobs are viewed as failures or worse, and are condemned by economic reality to live a life of straightened circumstances. The struggle for subsistence continues, and is likely to continue indefinitely, because despite Keynes’ claim to the contrary, humanity has not yet solved its economic problem, although the economic problem is no longer a problem of production, but rather a problem of distribution and allocation.

. . . . .

sad_robot_came_to_town_by_natdatnl

. . . . .

signature

. . . . .

Grand Strategy Annex

. . . . .

Follow

Get every new post delivered to your Inbox.

Join 388 other followers

%d bloggers like this: