Wednesday, October 28, 2009

Why Markets Fail

It’s a safe bet that any public comment on the politics of peak oil, unless it sticks closely to one of a very few widely accepted opinions, will provide a good demonstration of the laws of thermodynamics by turning plenty of energy into waste heat. Last week’s Archdruid Report post was no exception. Between those who thought I was too hard on Cuba, those who thought I was too soft on Cuba, those who insisted America is already a fascist dictatorship, those who thought America would be better off as a fascist dictatorship, and a variety of less classifiable rants, I was well and truly denounced. My favorite for the week was a bit of online splutter that, having exhausted its author’s apparently limited vocabulary of profanity, wound up with the nastiest term he knew: “...you American!”

Those of my readers with a taste for wry humor may well have found all this as entertaining as I did. Still, this week’s essay will leave such amusements behind, and return to the theme I’ve been developing in recent posts, the reinvention of economics that will be necessary in an age of hard ecological limits and deindustrial decline. Vegetarians and animal rights activists take note: a certain number of sacred cows will have to be slaughtered and dissected in the course of that inquiry, and the process is unlikely to be either painless or clean.

Of the sanctified cattle facing a gruesome fate in the years ahead of us, perhaps the most important is that blue-ribbon heifer of modern economics, the belief in the infallibility of free markets. Back in 1776, Adam Smith’s The Wealth of Nations popularized the idea that free market exchanges offered a more efficient way of managing economic activity than custom or government regulation. The popularity of his arguments has waxed and waned over the years; it may come as no surprise that periods of general prosperity have seen the market’s alleged wisdom proclaimed to the skies, while periods of contraction have had the reverse effect.

The economic orthodoxy that has been welded in place in the western world since the 1950s, neoclassical economics, made a nuanced version of Smith’s theory central to its theories, arguing that aside from certain exceptions much discussed in the technical literature, people making rational decisions to maximize benefits to themselves will simultaneously maximize the benefits to everyone. The neoclassical synthesis has its virtues; you won’t find neoclassical economists claiming, as the free market fundamentalists of the Austrian school so often do, that the market is always right, even when its vagaries cause catastrophic human suffering. The concept of market failure is part of the neoclassical vocabulary, and some useful work has been done under the neoclassical umbrella to explain how it is that markets can fail to respond to crucial human needs, as they routinely do.

Still, the great problem with neoclassical economics is the one has already been discussed in these posts: its models have consistently failed to foresee devastating economic disasters that many people outside the economics profession could readily and accurately predict years in advance. The implosion of the world economy in 2008 is only the most recent case in point. One writer who surveyed the economics field in the aftermath of the crash noted with some asperity that fewer than two dozen economists anywhere in the world warned in advance of the gargantuan bubble of securitized debt that exploded that year.

On the contrary, economists by the score lined up during the bubble years to insist that the giddy financial innovations of the previous decade had banished risk from the market and prosperity was assured into the foreseeable future. They were of course quite wrong, and their failure to see disaster as it loomed up in front of them compares very poorly with the large number of people who used historical parallels to recognize what was happening and make uncomfortably precise forecasts of the results. (Keith Brand, who ran the lively HousingPanic blog straight through the bubble, memorably summarized those predictions: “Dear God, this is going to end so badly.”)

I have discussed in several earlier posts some of the reasons why the entire economics profession has been so prone to miss the obvious in such cases. Here, though, I want to focus on a reason for failure that’s specific to neoclassical economics. Since most of the economists who provide advice to governments come out of the neoclassical mainstream, this is hardly irrelevant to our prospects for the future, especially – as I intend to show – because the same blind spot that left so many pundits dining on a banquet of crow in recent months applies with even greater force to the crucial fact of our time, the arrival of peak oil.

The point I want to make here is a little different from the most common critique of neoclassical economics, though there is a connection. Many social critics have commented on the ease with which the neoclassical synthesis consistently ignores the interface between economic wealth and power. Even when people rationally seek to maximize benefits to themselves, after all, their options for doing so are very often tightly constrained by economic systems that have been manipulated to maximize the benefits going to someone else.

This is a pervasive problem in most human societies, and it’s worth noting that those societies that survive over the long term tend to be the ones that work out ways to keep too much wealth from piling up uselessly in the hands of those with more power than others. This is why hunter-gatherers have customary rules for sharing out the meat from a large kill, why chieftains in so many tribal societies maintain their positions of influence by lavish generosity, and why those nations that got through the last Great Depression intact did so by imposing sensible checks and balances on concentrated wealth – though most of those checks and balances in the United States were scrapped several decades ago, with utterly predictable results.

By neglecting and even arguing against these necessary redistributive processes, neoclassical economics has helped feed economic disparities, and these in turn have played a major role in driving cycles of boom and bust. It’s no accident that the most devastating speculative bubbles happen in places and times when the distribution of wealth is unusually lopsided, as it was in America, for example, in the 1920s and the period from 1990 to 2008. The connection here is simple: when wealth is widely distributed, more of it circulates in the productive economy of wages and consumer purchases; when wealth is concentrated in the hands of a few, more of it moves into the investment economy where the well-to-do keep their wealth, and a buildup of capital in the investment economy is one of the necessary preconditions for a speculative binge.

More broadly, concentrations of wealth can be cashed in for political influence, and political influence can be used to limit the economic choices available to others. Individuals can and do rationally choose to maximize the benefits available to them by exercising influence in this way, but the results can impose destructive inefficiencies on the whole economy. In effect, political manipulation of the economy by the rich for private gain does an end run around normal economic processes by way of the world of politics; what starts in the economic sphere, as a concentration of wealth, and ends there, as a distortion of the economic opportunities available to others, ducks through the political sphere in between.

A similar end run drives speculative bubbles, although here the noneconomic sphere involved is that of crowd psychology rather than politics. Very often, the choices made by participants in a bubble are not rational decisions that weigh costs against benefits; it’s not accidental that the first, and still one of the best, analyses of speculative binges and panics is titled Extraordinary Popular Delusions and the Madness of Crowds. Here again, a speculative bubble starts in the economic sphere, as a buildup of excessive wealth in the hands of investors, which drives the price of some favored class of assets out of its normal relationship with the rest of the economy, and it ends in the economic sphere, with the crater left by the assets in question as their price plunges roughly as far below the mean as it rose above it, dragging the rest of the economy with it. It’s the middle of the trajectory that passes through a particular form of crowd psychology, and since this is outside the economic sphere, neoclassical economics can’t deal with it.

This would be no problem if neoclassical economists by and large recognized these limitations. Unfortunately a great many of them do not, and the result is the classic type of myopia in which theory trumps reality. Since neoclassical theory claims that economic decisions are made by individuals acting freely and rationally to maximize the benefits accruing to them, it’s seemingly all too easy for economists to believe that any economic decision, no matter how harshly constrained by political power or wildly distorted by the delusional psychology of a bubble in full roar, must be a free and rational decision that will allow individuals to maximize their own benefits and benefit society as a whole.

Now of course, as mentioned in an earlier post, those who practice this sort of purblind thinking often find it very lucrative to do so. Economists who urged more free trade on the Third World at a time when “free trade” distorted by inequalities of power between nations was beggaring the Third World, like economists who urged people to buy houses at a time when houses were preposterously overpriced and facing an imminent price collapse, not uncommonly prospered by giving such appallingly bad advice. Still, it seems unreasonable to claim that all economists are motivated by greed, when the potent force of a fundamentally flawed economic paradigm also pushes them in the same direction.

That same pressure, with the same financial incentives to back it up, also drives the equally bad advice so many neoclassical economists are offering governments and businesses about the future of fossil fuels. The geological and thermodynamic limits to energy growth, like political power and the mob psychology of bubbles, lie outside the economic sphere. The interaction of economic processes with energy resources creates another end run: extraction of fossil fuels to run the world’s economies, an economic process, drives the depletion of oil and other fossil fuel reserves, a noneconomic process, and this promises to flow back into the economic sphere in the extended downward spiral of contraction and impoverishment I’ve called the Long Descent.

Here again, neoclassical economics is poorly equipped to deal with the reality of noneconomic constraints on economic processes. It thus comes as no surprise that when an economist enters the peak oil debate, it is almost always to claim that there is nothing to worry about, because the market will solve any shortfall that happens to emerge. As shortfalls emerge, expect to hear the claim – already floated by a few economists – that declining production is simply a sign that the demand for fossil fuel energy has decreased. No doubt when people are starving in the streets, we will hear claims that this is simply because the demand for food has dropped.

There are promising signs that the grip of neoclassical theory on modern economics is beginning to weaken. A recent conference on biophysical economics – a field which embraces the heretical concept that the laws of nature trump the laws of money – attracted many attendees and, in a shift of nearly seismic proportions, managed to get coverage in the New York Times. Other alternative viewpoints in economics are beginning to be heard, as they usually are in times of financial woe. Still, what’s needed now is something even more sweeping: an economics of whole systems, perhaps modeled on ecology, in which the entire world of noneconomic factors that influence economic processes is explicitly included in theories and practical analyses. Until that emerges, the advice governments and businesses receive from their paid economists may well continue to make matters worse rather than better.

57 comments:

ariel55 said...

I had a thought regarding the triumph of theory over reality, as originating at the University level of education. Somehow if one loses the common touch with nature, the intellectualizations get bizarre. But I also want to rise to defend my Archdruid friend as being an American who is rising to his full stature and not just running away from seemingly overwhelming problems. Three cheers for JMG!

Publius said...

JMG:
Great explanation of the disconnect between neoclassical economics and reality (of the kind we live and breathe in).

Is it possible, however, that societies choose their economic theories to go along with a deeper, unconscious ethos? In other words, might it not be that the desire for "progress", material advancement, and ever-higher living standards is the basic starting point, and the economic and even political theories are created to help support that?
I know this idea isn't incredibly profound, but if there's some truth to it, how useful will these new biophysical economic theories really be?
Furthermore, how much influence have theories, whether scientific or economic or political, ever had on the course of society? This is an open question, and I know they have had profound effects. Neoclassical economics helped to add legitimacy to our current unsustainable system. However, I believe that an equally unsustainable system would have done a fine job of mucking things up, whatever the ideological basis. Marxism, for example, looked forward to a world with just as much endless, unsustainable material advancement.

Might the problem be more profound than economics, and rooted in the very inner soul of humanity?

I do, however, think that work like yours and all the other theorists of peak oil will help to prepare individuals and communities, but I am pessimistic about the chances of larger social units. I don't think it is possible to steer them away from the shoals of peak oil, probable climate change, and overpopulation in general. Is the best that we can hope for the successful survival, with much struggle, of islands or archipelagos of humane societies that attempt to live within limits (while trying to preserve some of our cultural heritage)?
The Titanic is going down. Perhaps the question is simply how many lifeboats can be built, and what their destinations might be.
To be more brutally honest, I think that abstract scientific theories almost always are developed to the point where they are destructive for human and humane living, because abstraction inevitably excludes much of what makes life worth living, and therefore devalues it, neglects it, or even actively seeks to suppress, control, and annihilate it. Think designer babies and gray goo. Those who pursue such technological feats have drunk the kool-aid.
Let's hope they run out of energy for their labs and computer models before it's too late.

Gene Shinai said...

JMG,

Thanks for this post. I always enjoy what I have come to call your 'Solutions posts'. I think I will look up what I can on Biophysical economics.

Best Regards,
-Gene.

Peter said...

Can't think of anyone I'd rather read with a morning coffee. Clear reasoning, well informed. It makes sense to me.

JimK said...

I was working at a huge corporation when the top executives decided to try a new method for coordinating the activities of the various corporate divisions. The central executive group was not doing such a good job of forecasting how much one division would require of each sort of component, which got sent over to the supplying division as a production goal. Too many shortages or surpluses cut into profits.

So the new method was to establish a market. The divisions would negotiate prices and quantities among themselves.

Whether or not it worked for that huge corporation, it helped me to see that money is just a group decision making tool. One way to think about the problem to be solved is: society maintains lots of processes, each of which takes in one collection of commodities and then generates a new collection. E.g. a screw factory takes in so many feet of steel rod and generates so many boxes of screws. Each of these processes can be run at a variety of different rates - e.g. one can build more screw factories or shut some existing ones down. So the puzzle is: what rates should all these processes be run at?

The basic goal is to keep people thriving as efficiently as possible, i.e. without a lot of waste.

There are classical algorithms for solving such problems, such as linear programming or non-linear optimization. One big problem with any kind of up-front planning is that all kinds of unknowable factors interfere with the various processes - maybe a flood shuts down a screw factory and which creates a screw shortage so the furniture factory can't meet its production goals etc. So what is really required is some kind of on-going control system to keep adjusting the various rates in response to changing conditions.

There are lots of problems with centralized control systems. For example, the control system itself is just another social process subject to breakdown etc. What has been observed across many types of systems is that a distributed control system is much more robust.

That's what markets are, a distributed control system. And money is just a language for communication within and between markets. The control system doesn't change the underlying problem of efficiency and effectiveness of possible rates of various processes maintained by society. One control system might do a better job of picking better solutions to the puzzle, but the set of possible solutions is not a function of the control system.

Half Empty said...

John,

Taking up your last point. Your readers who don't already read George Mobus's blog, Question Everything, may find much to interest them there.

He is currently writing an undergraduate textbook on Systems Science based on the principles of biophysical economics. The chapters to-date, plus his other recent series on sapience and energy are listed here.

Can I also say that, while you are the Archdruid and not a chieftain, I am happy to be influenced by your lavish generosity with ideas and insights.

Oh, why is it so hard to say, 'Great blog'?

RudolfC said...

"It seems unreasonable to claim that all economists are motivated by greed." Well, let's call it rationally deciding to maximize their benefit. - i.e. if they believe their own theory then motivation by greed is in fact a good.
Two asides, if you don't mind...

First, I speculate now and then that the "science" of economics is just an attempt to justify to a sceptical Catholic Church and the civilization it influenced that lending money at interest ("usury") is not an evil. From there, the gospel (sorry) of eternal growth directly follows, as the economy then MUST grow by at least the amount of interest payments if it is not to collapse.

Second, it's interesting that in many fields the era of greatest success coincides with the era of greatest government regulation. (I'm thinking here of of the economy and entertainment in particular.) Perhaps the struggle against limits, even (or maybe especially) when self-imposed, is a spur to greatness.

As always, thought-provoking post. Thank you!

DIYer said...

I think I can see what you're saying ...
In much the way that General Relativity and Quantum Physics include Newtonian Mechanics as a special case, we need an overarching economic theory.

Now that we've mastered supply and demand and the notion of Darwinian competition [with apologies to Darwin], we need to encompass crowd psychology, thermodynamics, and ecology.

And then there's the likelihood that all this hard won wisdom will simply be forgotten in about 70 or 80 years. (note that the current crisis just happens to occur with a few decades' dismantling of regulations put in place in the wake of similar crises 80 years ago)

John Michael Greer said...

Ariel, thank you! You're quite right about the potential for problems with higher education -- when the mind feeds solely on its own productions, things can get very weird.

Publius, of course you're right that theories -- in economics as in any other field -- draw much of their momentum from wider patterns in culture. Spengler, who explored this in quite a bit of depth, pointed out that the core metaphors of Faustian (i.e., modern western) culture can be traced in everything from our music to our bookkeeping. These wider patterns aren't graven in stone, though; sometimes they shift, and opportunities for change emerge. That doesn't mean our society is going to suddenly change course and land in Utopia, as so many people argue these days; it does mean that those who are willing to look at the world in alternative ways may be able to craft intellectual tools to enable themselves and their communities to weather the approaching storm with a little more grace.

Gene, by all means look 'em up -- there's some very useful work being done by that movement.

Peter, thank you.

Jim, well put. Markets are social technologies for accomplishing certain ends; like any other tool, they do some things very well, and others very poorly. It's the uncritical worship of the market, and the insistence that markets can do things they've consistently failed to do, rather than markets themselves, that I mean to critique here.

John Michael Greer said...

Half Empty, thank you! And thank you for the link to Mobus' work -- serious stuff, and well worth reading.

Rudolf, I see the religious ban on usury -- which also exists in Islam, and was also once part of Jewish law (but only applied to Jews) -- as something akin to the Glass-Steagall Act and the other New Deal financial regulations that emerged from the rubble of the 1929 crash. The late Roman world had its own ghastly problems with bankers -- they called them "moneylenders" back then, but the principle was the same -- and the institutions that survived that age drew up sensible protective rules on the basis of their experience. Unfortunately those rules got scrapped, just as Glass-Steagall did, once institutional memory became less powerful than the lure of economic expansion.

As for government regulation, well, I don't know if it's a matter of a maximum being good, but the optimum level of economic regulation does seem to be higher than we have at present, at least here in the US. In the 1950s, when America was as prosperous as it has ever been, the rich paid more than 70% of their income in income tax, banks were tightly controlled by government regulators, and most states had usury laws that banned interest rates above a fairly modest level. As those regulations have been dismantled, in the name of increasing prosperity, the country has gotten steadily less prosperous. I'm beginning to think that this isn't an accident.

DIYer, any legislation that comes out of the current mess will likely be removed right about the time it becomes necessary again, but ideas set in motion in the wake of the present crisis could have a longer shelf life. We'll see.

JimK said...

In my earlier comment I proposed that the function of the economic system is to provide a robust mechanism to select an efficient solution to the problem of how to enable people to thrive.

Georges Bataille in his work _The Accursed Share_ turns this upside-down. He observes that it is ridiculously easy to keep everyone thriving - we are so lucky to find ourselves enmeshed in an abundantly productive ecological system. What the economy has become, instead, is a means to create scarcity, to eradicate the natural surplus. This artificial scarcity forces people to submit to organizational control, since they can only get what they need through the organization.

Generally, the most effective means to create scarcity is war. It is not a accident that the war machine is such a dominant part of economics and politics. It seems like any kind of equitable distribution of wealth and power is unstable and soon enough small differences snowball into big differences.

The danger of attempting to institute a flawless system, fair, just, and equitable, is that the ideology of flawlessness tends to blind folks to the actually flaws that inevitably accumulate in this earthly realm. The wonderful system of checks and balances set up by the American founding fathers was a brilliant approach - managing flaws, instead of pretending to eliminate them. But any system has flaws that ultimately fall into a self-amplifying cycle. The price of freedom is eternal vigilance!

Keith said...

I have found a scarce wisdom in this and many previous posts here. I am curious to know, from what or from where this wisdom emanates?

I suspect that it may come from reading the dusty books, authors old enough (like Spengler or E,F. Schumacher), that truth shines through and the falsehoods fall away. Do we suffer from a tyranny of present information?

I read widely in this area while information is abundant, wisdom remains rare.

Many have been here before us:

“Wisdom is one thing: to understand the thought which steers all things through all things." -Heraclitus of Ephesus
 

"Where is the wisdom we have lost in knowledge? Where is the knowledge we have lost in information?" –T.S. Eliot (1963)

"The disposition to admire and almost to worship the rich and powerful, and to despise, or at least to neglect, persons of poor and mean condition, is the great and most universal cause of the corruption of our moral sentiments. That wealth and greatness are often regarded with the respect and admiration which are due only to wisdom and virtue, and that contempt is often most unjustly bestowed up poverty and weakness has been the complaint of moralists in all ages."
-Adam Smith, Theory of Moral Sentiments.

"Although ecology may be treated as a science, it has greater and overriding wisdom is universal. That wisdom can be approached mathematically, chemically, or it can be danced or told as a myth." –Paul Shepard, The Subversive Science

Thank-you, Archdruid

Loveandlight said...

I am no sort of free-market fundamentalist, but I thought it worth noting that at the height of the bubble, many economists of the Austrian school foresaw the coming economic carnage. The housing bubble was based to a very large extent on debt-leveraging and lending money at a rate lower than the true rate of inflation, and excessive debt and inflation are two of the big boogeymen (not without some justification) of Austrian economists.

hapibeli said...

I am at present a co-chair in an economic and community development committee for one of the British Columbia Gulf Islands. We're looking at ways to expand, modify, or resist expansion and modification, of our current economic posture. Is eco-tourism the very thing, or is it just another part of "neo-classical" economics planning for a future that won't exist?
Are our small businesses being treated fairly? Do we have enough of them? Do we need a bank or credit union on the island? Should any financial institution be homegrown? What if B.C. fails us in time of natural disaster or societal disintegration? Can we feed ourselves, ie., are there enough cows, chickens, goats, pigs, deer, grains, vegetables, fruits, fish, for our approximately 1,200 full time islanders to survive? Is our local bookstore and library well stocked? Are medical, allopathic and alternative sources available to meet our needs? Is high speed internet placed throughout the island? Is it really necessary?
Do we have adequate fire services, and what about water availability?!!! What happens to our well pumps without BC Hydro, our electricity source?? Can we buy enough hand pumps for all of the wells on the island? Do we need a community well?
These are question many communities in North America are or should be asking themselves. I'm sure that most villages and small towns in Central and South America live this on a daily basis.
With passive solar homes built to a truly humble scale, returning to human or animal farm equipment, and relearning to cooperate with our neighbors to achieve larger projects, [ barns, grange buildings [ community halls], there IS past precedent for ways to survive the foolishness of the " free market ideologues" and the mess we have allowed them to create.
The "biophysical economics" seem to make this a necessity.

Joel said...

DIYer wrote:

>In much the way that General Relativity and Quantum Physics include Newtonian Mechanics as a special case, we need an overarching economic theory.

Overarching theories have a bad track record. Completeness seems to come at the price of self-consistency. I don't think a grand unified theory can be made from within the three paradigms of physics we have now, but I'm hopeful that the perspective gained from some new physics that is not consistent with quantum or relativistic or Newtonian physics, might some day allow us to unify the current three paradigms.

But a broader application of the correspondence

panika2008 said...

Mr. Greer, I believe your presentation of Austrian school's take on the markets is wrong and unjust. I am not aware of any serious academic writer that identifies him/herself with this school saying "market is always right".

There is no doubt that the proponents of this school most of the time oppose centralized, constructivist, statist solutions to societal problems, which is far from saying that free market's solutions are in fact the best possible or "right", whatever definition of "right" we could give.

I believe what your rant against is in fact the primitive notion called "efficient market hypothesis" which has been discredited to the point that currently no serious economist, austrian, keynesian, monetarist, what have you, would dare argue in its favor. By the way, the efficient market hypothesis was originally a neoclassic concept and the Austrian school, being radically subjectivist always rebelled against such simplistic, mechanistic and in fact inhumane theoretical treatment of the economy and society.

I would like to recommend your browsing the archive of mises.org, the Austrian school's unofficial tube, and acquaint yourself with vast work on the themes of irrationality of choice, market instability, asset bubbles and so on.

I agree completely with what Loveandlight said, several Austrian economists were in fact raving about the multitude of growing bubbles before they burst.

Ponter said...

Huh?

Good grief, Greer, will you get to the point, already! I'm still waiting for the punchline, for sacred cows to be slaughtered. There's nothing in this post that isn't old hat to those of us who have read you (and others) for a while. Wherever you're heading, this is taking longer than the Oregon trail.

John Michael Greer said...

Jim, there's an extent to which the industrial system functions by creating and distributing scarcity, granted -- but this is a temporary state, which will end as the availability of cheap energy comes to an end. Outside of the brief age of cheap energy, nature produces all the scarcity we need!

Keith, I don't claim to have any particular fund of wisdom. If you're asking where the perspective I use comes from, the core of it is from three decades of training in certain traditions of thought and practice our culture officially condemns and despises.

Loveandlight, the Austrian school has its good points. I just get tired of hearing people who claim to be partisans of it insisting that the solution to all social problems is dismantling government regulation and letting the free market take care of things.

Hapibeli, excellent! These are questions that everybody needs to be asking themselves, and their communities, as soon as possible.

Joel, I think part of your comment got cut off. Myself, I have my doubts about grand unified theories of every kind, but then that's not what I'm trying to explore here; my goal is simply to look at the ways in which present-day economics are failing to deal with present-day problems, and how that might be remedied.

Panika, thanks for the link. I've visited Mises.com in the past, and also read several books from an Austrian perspective. I don't dismiss the school out of hand, but as I mentioned to Loveandlight earlier, there are a tolerably large number of people online who claim adherence to the Austrian school, at least, and whose sole response to any issue is that government's to blame and the free market ought to be deregulated further. If the Austrian School more generally supports sensible government regulation to rein in the self-destructive habits of markets, that's another matter, and I'd be glad to hear of it. (No, by the way, I'm not simply talking about the efficient markets hypothesis, or about rational choice theory.)

Ponter, you may be familiar with all of this; many other people are not; and yes, this exploration of economics is going to take a while. Grab a beer and have a seat.

John Michael Greer said...

By the way, I've fielded several more comments insisting that I'm just running away from the allegedly self-evident truth that the existing economic and political order is evil incarnate, blah blah blah. That point has been discussed here already, and I see no point in rehashing it, so from now on, screeds blaming all the world's problems on the malevolence of "Them" -- whoever "They" happen to be -- will be deleted on arrival.

Vic said...

Would you agree that never in human history had the economy been organized on the principle of individual gain? We know historically that many societies have existed and do exist that have organized successful institutional structures to provision themselves. Our options are far wider than we realize.
Those options, however, must be predicated on sound ecological understanding--to the degree that's possible.

Recently the CBC (canada's national broadcaster)did a news special on global warming.
One of the interviewees was a Harvard economist. Who claimed (with the boiler plate shot of him at his desk with shelves of mighty tomes at his back)that Canada will be o.k. because the agricultural belt will simply shift North. If that is not a shining example of"theory trumping reality" I don't what is. No understanding of the geophysical process,time scale,and so on of creating viable topsoil. The journalist did not even question this wild assertion.

Thardiust said...

This may be slightly off topic, but I find it interesting when antbeds and beehives die off, they let thier queen's spread whatever's left of them to other lands. Chrysanthemums also perform similar death-births without fail. Now, I'm not going to get into the religious side of this but, nature does well at showing us that energy generaly can't stay in one place forever since it flows freely and takes on multiple shapes with varying masses. The big question everyone who reads this blog ponders now probably goes something like this. What form will all the energy powering our economy during the late 90's and early 2000's take in the future? Of course, I'm talking about natural human energy like thoghts, willpower, and effort when I ask this question because, without any of those things, we wouldn't burn energy, dug from deep within the Earth's crust, to dig more of the same fuel from the same location in the same way we've done it in the past by using tools that continually exhaust more and more of what we struggle conserving.

Bootstrapper said...

JMG wrote: "...concentrations of wealth can be cashed in for political influence, and political influence can be used to limit the economic choices available to others. Individuals can and do rationally choose to maximize the benefits available to them by exercising influence in this way, but the results can impose destructive inefficiencies on the whole economy. In effect, political manipulation of the economy by the rich for private gain does an end run around normal economic processes by way of the world of politics..."

Would large accumulations of wealth (in the hands of a few) distort the economy if the catylist for such distortion - government power to intervene/regulate the economy - didn't exist? In the absence of any form of Market intervention/regulation, would such large accumulations even be possible?

John Michael Greer said...

Vic, no, I wouldn't agree with that at all. Read a good history of republican Rome sometime if you want examples that make Goldman Sachs look like Little Orphan Annie. That sort of thing is common enough that Spengler argued for plutocracy as a standard stage in the life cycle of a culture, coming right before Caesarism. On the other hand, you're quite right about the idiot on the CBC -- I take it he flunked Ecology 101. (No, wait, what am I thinking -- why would anybody take a course on something as marginal as the science of the systems that keep us all alive? Silly me.)

Thardiust, that's the 64,000-year question. If a little of that energy can be directed into meaningful preparations for the future, quite a bit could still be done.

mthierauf said...

JMG - I have read The Long Descent and consider your take on our "situation" to be spot on HOWEVER i have to take issue with your on your views toward Austrian School Economics.

you said you have read Economic books from the Austrain perspective but it seems you missed the point. Austrian School isn't trying to save the world from itself like Keynsians or Moneterists, they simply try to explain how economics and the business cycle works. I have NEVER read any Austrian School Economist who says the "market" will just magically invent a new energy source. i, and probably others who read your blog, would appreciate if you include links to papers written by Austrian School economists such as Tom Woods or Lew Rockwell when you make your over-reaching generalizations. many of your contentions regarding economic theory sound like theories presented by Keynsians or Monetarists who it seems are hell-bent on destroying whats left of America

My 2 cents on how the free market does, in fact, help: energy speculation - we all got a real wake-up call when the price of gas shot up to $4.00 a gallon, this caused a lot of people to re-think their "carbon footprint", which is a start to reconfiguring our oil based economy... IMO, the price of oil shot up because of speculators who knew we are close to Peak Oil and saw an opportunity to make a profit (they turned out to be wrong, or did they, is the govt holding down the price of oil?)... so, speculators are helping society to change their habits. Not the greatest argument but i hope you can see where i am coming from. if anything, it is the government who are trying to sell "renewable energy" as our energy savior, go ask Paul Krugman, one of the leading Keynsians, about renewables and he will sing their praises.

So where does that leave you, the government has been bought and sold and will never endorse policies that you or James Kunstler write about even when we are knee-deep in the coming Crisis. So it seems you may want to examine how the "free market" may come in handy as we slide further down the long descent.

Austrian School Economics simply explains the natural order of human action, thats it. They aren't Geologists or Engineers and don't pretend to have an understanding into those fields. What they do know is that when a scarse resource cannot meet demand the price will go up which opens the market to competition. will someone come up with a new cheap energy source to compete with oil? they don't claim to know, only that people will try.

Yeah, i know, and in the mean time we all suffer because no one came up with an energy source and no one planned for a future without oil... well, there is no economic system set up to handle that except maybe fascism and we saw where that got us

ok this has rambled on long enough, thanks for reading as i beat a dead horse

JMG, keep fighting the good fight, can't wait to read your next book

bryant said...

"On the other hand, you're quite right about the idiot on the CBC -- I take it he flunked Ecology 101. (No, wait, what am I thinking -- why would anybody take a course on something as marginal as the science of the systems that keep us all alive? Silly me.)"

Excellent.

Speaking of systems, Donella Meadows' final book "Thinking in Systems" is wonderful (and a good companion to the thirty year update of "Limits to Growth"). Donella talks about the ways in which economists and policy makers "pull on the wrong levers" because they don't understand the way systems really work. If you have time, I recommend it.

Darius said...

it helped me to see that money is just a group decision making tool.

Precisely. Money is information. In the abstract it's a way to represent and measure the relative values of unlike things, but it also functions as a "reciprocity" signal that allows individuals to share and cooperate, even in the absence of trust, or any individual relationship at all.

An epiphany that I had about economics a few years back is that the role of a money in human societies is remarkably similar to the role of colony-specific pheromones among ants. The day-to-day function of money is that it offers a reliable way to signal to someone that if they share some real resource now, someone else from among the group of people who accept the same currency will share some other real resource with them later.

Draco TB said...

In the 1950s, when America was as prosperous as it has ever been,

And, after the implementation of the Breton Woods agreement in 1946 which set up the US$ as the worlds reserve currency, the US also had a huge amount of the worlds wealth poring into it because everyone else had to buy US$ to trade. People in the West still seem to be trying to hold on to this but it's changing slowly.

What the economy has become, instead, is a means to create scarcity, to eradicate the natural surplus. This artificial scarcity forces people to submit to organizational control, since they can only get what they need through the organization.

This is something I've come to realise over the last couple of years. Capitalism isn't about a free-market but about a heavily restricted market.

The housing bubble was based to a very large extent on debt-leveraging and lending money at a rate lower than the true rate of inflation,

http://www.youtube.com/watch?v=rxo_XPdpI_s

And lastly, a spot of humour:
“The analysts were diametrically opposed to the initiative, because despite clear evidence that it was working perfectly in practice, they knew it would never work in theory.”

Unfortunately, no, I don't know who said it.

ChristineStone said...

JMG, you have described how, when weathly people accumulate more wealth or money, they don't just 'spend' it on goods and services, but seek to 'invest' it to create yet more money. I paraphrase - you said it better: "when wealth is widely distributed, more of it circulates in the productive economy of wages and consumer purchases; when wealth is concentrated in the hands of a few, more of it moves into the investment economy where the well-to-do keep their wealth"

However, not all forms of investment have the same purposes and effects. People desire different things when they invest. Publius said; "might it not be that the desire for "progress", material advancement, and ever-higher living standards is the basic starting point". Yes, but whose 'progress'? If I care only for my own personal progress, plus my family who will inherit, I could invest in an oil painting or a so-called 'complex financial instrument'. If I care for the progress of my society, I may invest directly in a factory or other business, which will add to the general wealth as well as my own. If I am less concerned about the financial return and more about reputation and prestige, I may publicly give it to charity. Money can be converted into other intangible assets, such as political power as JMG disucesses.

In this way the character of a society - be it individualistic, socialistic, tradition-loving, future-loving, or whatever - is tied up with the economic decisions of its rich people in a two-way process. Investors are influenced by society, and their decisions shape that society.

Of course this doesn't imply that a society is homogeneous - think of Victorian England, with well-meaning factory creators as well as assorted villains, scams, and bubbles.

It seems to me that financial markets, in the widest sense of the word, fail when participants are no longer 'trading' but 'investing', and doing so in the narrowest and most self-seeking way, i.e. to increase personal wealth above all else.

pfh said...

Continued wealth concentration at the limits to growth have always been the main source of conflict in growth economies. How continued wealth accumulation, at the point physical earnings become a zero sum, drives an economy into conflict within itself and with its environment... is the most obvious ways to characterize the limits of growth.

The first person to clearly understand this, it seems other than Malthus I guess, was J.M. Keynes. He had a brilliant solution too, though, as you might guess, it was called \"the fallacy\" by the group of economists that took what they liked from Keynes' to to make what they then called his theory.

Keynes clearly saw the end of capitalist growth as an approaching overwhelming combined crisis of conflicts, and conceived a way to relieve the growth pressure and provide a \"peace bonus\" of resources to solve the problems of the transition. It would amount to effectively declaring an end to the unwinable wars with nature that naturally erupt as a system overshoots.

It would also ease the impact of the crash if we don't do it untill we push the economy to a yet bigger crash too. It's real. He first called it "the widow's cup", seeing the moral difficulty of needing to give up automatic capital accumulation would look like ending the vitality of the economy...

It's a genuine formula for how economies can become part of nature. with "some fresh thinking required" as well of course. I have medium and short length moderized versions of his strategy...

6 pg http://www.synapse9.com/drafts/NaturalEcons.pdf
2 pg http://www.synapse9.com/issues/NaturalEconsLtr.p

pfh said...

a P.S. - it seems the root problem is how people lose track of changes in scale. If our cultural values for accumulating wealth neglect the consequence of physical changes of scale, our value judgments become worthless in navigating a physical world. There's no better example of this than the world consensus policy that continual economic multiplication is a natural steady state.

It may be culturally,... in some or many eyes,... but that agreement does not alter what successive change in scale does physically. As "things get larger" they end up "getting big" and all the rules for their relationships with other things change, whether you agree to them changing or not...

mthierauf said...

JMG - i have a few more thoughts on "free markets"... the free market provides the best environment for INNOVATION. The innovations of the past 50 years have helped raise the standard of living in the West ALONG WITH cheap oil AND american empire dominance over third world countries. It seems you are able to broadcast your thoughts via that invention called "the internet", do you think the internet would be where it is today if we lived in some kind of hybrid socialist/communist/ecologist market system?

The standard of living we enjoy is poised to go down over the next hundred years and there is no one in the Austrian School writing about this and how the free market will help during the downfall. But if they did i am sure the themes would revolve around individuals being quicker to adapt to changes than the slow-moving, beaurocratic government. If gas rose to $8.00 a gallon i wouldn't wait around for my local government to approve and build up public transportation, i would start riding my bike to work and the grocery store. Similarly, people would probably move closer to the city and organic, sustainable changes might just happen despite the government's best efforts to stop them (just like the bailouts prevented monetary changes that should have occured in the natural order of things).

BTW.. the "economists" who push free trade onto third world countries are stooges for the IMF who are merely trying to exploit those countries, not help them. Similarly, the "economists" who urged people to buy houses during the housing bubble are also stooges for our government. Paul Krugman, a Keynsian, pushed for a housing bubble back in 2001/2002 as was pointed out by a blogger on Mises.org

I am sure my rantings will fall on deaf ears as you seem to be pretty set in your views on economists and their "contributions" to society. As with everything else, there are good economists and bad economists and the bad apples are spoiling the bunch.

Mark said...

We are experiencing (the very beginning of) the results of perpetually ignoring ecological feedback loops, better yet, distancing them (in reality and perception) as far away from those with the power and wealth as possible (using fossil fuel).

The ideas of ecosystem investments, especially perennial agriculture (large and small scale forest gardening/farming), woodland managing and rain catchment (home and large scale) will likely become more and more regarded as forms of wealth.

John Michael Greer said...

Bootstrapper, disparities in wealth tend to be more extreme in less regulated economies, not less so, for reasons that Adam Smith (among others) outlines in detail in The Wealth of Nations. This is why a completely free market would remain that way for about a week; as soon as income disparities emerged, those with more wealth would have every incentive to slant the playing board in their favor.

Mthierauf, yes, you're beating a dead horse. I think I've outlined the background of my comment at ample length in response to the last two Austrian School fans to jump on the point in question.

Bryant, thanks for the reference! I haven't read that book yet, and intend to.

Darius, an excellent analogy.

Draco, thanks for the link.

Christine, all this is worth discussing. The point I'd make, though, is that mainstream economic theories explicitly reject what you're suggesting, and insist that the efforts of each person to gain private benefits work out for the good of all. I'll be arguing at length a little later that the difference that needs to be tracked is between investment in the secondary economy of wealth, on the one hand, and investment in the tertiary economy of money on the other.

Pfh, thanks for the references! These may be quite useful for my project.

Mthierauf, by this point you've just about beaten that dead horse into paste. Btw, if you think what you say will fall on deaf ears, why post it?

Mark, excellent! Yes, investments in what I've called the primary economy -- the ecosystems that keep us all alive -- will also be central to the proposals I'll be making a little further down the line. More on this later.

John Michael Greer said...

There was a hiccup on the moderation queue today and pretty much all the comments sent in -- there were seven or eight of them -- seem to have vanished without a trace. Annoying! If you made a comment and don't see it, please resend it, and if it doesn't violate house rules, I'll put it through.

Kevin said...

...those who are willing to look at the world in alternative ways may be able to craft intellectual tools to enable themselves and their communities to weather the approaching storm...

What would be some examples of such intellectual tools, as opposed to physical tools used for life support and practical needs? Could you tell us more explicitly what characterizes "meaningful preparations for the future" as opposed to those which are not meaningful?

Dave Fryett said...

thx, mr greer, u have just given the best endorsement for anarchism i've ever read.

Doubting Thomas said...

John Michael, I think the rowdy reaction to your post on politics is telling you that you are onto something. While the laws of thermo will set the boundaries, politics will define how the descent happens. A new economics would be helpful, but a brilliant political solution is what we need.

John Michael Greer said...

Kevin, by intellectual tools I mean sciences, philosophies, and other ways of knowledge that help people make sense of their surroundings and choose effective responses to them. Ecology's perhaps the ultimate example -- if our descendants understand how ecosystems work, they will be able to spare themselves a lot of misery. As for meaningful preparations, the main difference I have in mind here is preparations for a future we're actually likely to encounter, rather than futures that are pure fantasy.

Dave, if so, it certainly wasn't intentional.

Thomas, you're certainly right that politics will have a potent influence on how the end of the age of oil works out. Still, I'm not sure we need a brilliant political solution so much as a willingness to abandon Utopian fantasies and the pursuit of scapegoats; to remember that compromise is not a dirty word, and screaming insults at one's enemies is not a useful strategy; and to recognize the value in political institutions that have evolved and survived over time because, while imperfect and fallible, they work better in the real world than the alternatives. Mind you, I'm quite aware that those things will most likely happen shortly after pigs sprout wings and all the trolls on the internet learn manners, but there it is.

Gene Shinai said...

Hey JMG,

Saw this article and considered it to be anecdotal evidence for your theory of the importance of the primary economy over the secondary or indeed the tertiary economies. Enjoy, Gene.

J Gav said...

Well, not really into beating dead horses but our capital markets, in case no-one has noticed, have pretty much become one-trick ponys of late.

Pump and dump it has very aptly been called by various (ex)insiders including Catherine Austin Fitts. Which means there are plenty of people out there (or rather UP there in the elite circles) seeking whatever asset classes may remain to be stripped. Bubbleland, which you who read this site will all be familiar with by now, I suppose.

I don't cheat on my taxes either nor do I "pump and dump." This is not to "scape-goat," it is merely to suggest that 'deep capture' (see the website thus named) of our markets bodes ill for any sort of fair-play regarding movements of capital.

dadaharm said...

JMG,

An economic theory based on ecology exists already in a rudimentary form. It goes by the name of panarchy. More can be found on the website rs.resalliance.org. Also Homer-Dixon's book "The upside of down", which you might know, is based on this theory.

The main idea/concept of it is resilience, which is rather the opposite of neo-classical efficiency. Anyhow the theory views the economy as an ecological system (with evolution based on natural selection).

dennisd said...

On another post some time in the past, I read a comment that said that the inhabitants of Villas, or county estates, at the decline of the Roman empire, were basically the victims of a smear campaign to justify extremely high taxes.Thus the common usage of "villains" became unsavory instead of just "country estate dwellers" As a middle class person on a hobby farm, I fear that the local government assessing ever higher taxes is a bigger threat than random biker gangs or other typical threats. Can you shed any light on the truth of the word change, or is this coincidence? Also, what is your opinion on dealing with predatory local governments? Was abandoning their villas to the tax collector and nature the real option for most?
I have been reading your blog for a couple of years now, and keep checking every Wednesday for your insights, including the comments and replies.

John Michael Greer said...

Gene, thanks for the link! Yes, it's a good data point.

Gav, "pump and dump" is simply an extreme form of what I see as the pervasive problem with today's economies, which is that making money has eclipsed creating wealth, and turned increasingly into a means of destroying wealth. More on this soon.

Dadaharm, thanks for the reference. I've read and enjoyed Homer-Dixon, but should probably take some further time to look at panarchy.

Dennis, as far as I know the pejorative sense of the word "villein" is from the high Middle Ages, rather than late Roman times, and came out of the class prejudices of that time -- but I could be wrong. As for taxation, yes, that could be a problem. A great many provincial Roman farmers and agricultural slaves solved that problem by joining the barbarians or heading for the hills and launching a guerrilla presence of their own; the Romans called these latter bacaudae, and they were a major force in the disintegration of Roman power in some parts of the western empire.

Zach said...

he core of it is from three decades of training in certain traditions of thought and practice our culture officially condemns and despises.

John, I'm confused. Are you referring to Druidry here, or simply to the study of history and the rational use of the intellect? :)

peace,
Zach

John Michael Greer said...

Zach, very funny! You're certainly right that reasoned thought and discourse are very unfashionable these days, but no -- I was speaking, not only of Druidry, but of several other esoteric traditions into which I've put a lot of time over the years. Some of the old Greek Neoplatonists used to say that theurgy, which was their term for the sort of training I'm discussing, was the propaedeutic (love that word -- it means "the thing you have to learn before you learn something else") for philosophy, and they had a good point: until you understand how much of what goes on in your mind is shaped by irrational factors, those factors run amok all through what you believe is your most rational thinking.

das monde said...

JMG, the neoclassical economics is certainly not a more nuanced version of Smith's theory. Contrarily, it is a stark vulgarization of "The Wealth of Nations". Regarding labour and even taxation, Smith was almost a proto-Marxist. It is a little wonder: the classical economists (ending with Marx) were dealing with other kind of governments that we know. Those were no "welfare states" - those were governments of aristocracies, privileged with taxation and rent collection. The new powers of industrialists and merchants were obviously annoyed with that. That was the historical meaning of what "freedom from taxation" meant. Regarding labour, classical economists were not ignorant, but rather reasonable.

What we got now with the "Smithsonian" drive for "freedom" is exactly the pre-classical of excessive rent/credit payments to the privileged class of bankers, as Michael Hudson points out.

One more curious point: Do you know how many times, and in what context, Adam Smith used the famous phrase "invisible hand"? (answer in PDF)

There is much to the estimate that the modern economic practice is more about creation of scarcity rather than wealth. If you have a good innovative product idea now, you better orient yourself exclusively to the people in money; your genius is not for loosers ;-] And most seriously: the credit/money system is a big factor in depriving people from what they otherwise could easily have. The more money there is, the more of it is desperately needed, as more people are in debt then.

A remark for Publius: theories affect our myths more than the other way around. A theory is like a language - it allows you to express and communicate certain thoughts, ideas and visions, perhaps at expense of larger difficulty to comprehend alternative views. It is well know that language affects our personal views profoundly. Once a certain idea is formulated in a theory, people can stick to it so much easier.

Jason said...

pfh, much obliged for those pdfs. They dovetail so well with this stretch of posts.

There is a nice moment with a theoretical justification for 'muddling':

The dilemma for science has been its need to have its
terms well defined. What learning systems might discover as they explore their environments is not
definable.


... and as for the idea that natural systems (unlike our economy) 'stabilize at their peak of vitality', it is if I'm not mistaken nothing other than Spengler's 'being in form'.

joss said...

JMG, This is my first comment here and I'm afraid it's not related to this post.

I just wanted to let you and your readers know that I've created an eBook version of The Archdruid
Report, which allows people to download all of your essays here to their eBook reader and read them offline, in a format more appropriate than the web. Depending on the eBook Reader, readers should be able to simply update the eBook from their reader to ensure they stay up-todate (it works for me using FBReader). The eBook can contain up to 1000 essays (or roughly 20 years of the Report).

Personally, I will be able to devote more time to reading the Report in this way and perhaps others will do so, too, if you provide a link somewhere to the eBook version. It is available in multiple formats for different eBook readers, as well as PDF.

http://www.feedbooks.com/feed/14780

If you have any issues with this or questions, feel free to contact me at joss at josswinn dot org

Thank you for writing. I'm almost finished reading The Long Decent and have been deeply moved by it.

Kevin said...

I've just heard an interview on public radio with an economics professor from Berkeley, one Martha Olney. She responded to questions about the current recession, as follows. She observed that this quarter's 3 1/4 percent GDP growth bump is in part due to car purchases through the cash-for-clunkers program, and to spending from the stimulus package (example: workers filling potholes in El Cerrito, CA, where she lives). Her major point seemed to be that it's too soon to tell whether the economy is genuinely in recovery, and spoke of the possibility of a "double dip" in it. She stated that the best indicators of growth (assumed to be inherently good) are new housing construction and tangible business investment, such as purchase of new equipment or facilities.
I don't know in what school of economics this places Ms. Olney, but she seemed to have a good head on her shoulders and a good sense of humor too ("Go Bears!" were her closing words, a slightly facetious reference to the UCB football team). Her remarks suggested skepticism about Pres. Obama's current claims of economic recovery, and I sensed nothing evasive, circumlocutious or mealy-mouthed about her presentation. Quite the reverse. But she didn't describe this recent economic uptick as the bouncing of a dead cat.

I assume "3 1/4 percent" refers to a one quarter period of what would be annual growth at that rate, were it sustained over one year, as 13 percent per annum would surely be spectacular growth.

10in10Diet.com said...

Intellectual tools that help prepare us for the anticipated descent – yes, sir. I would like to see the spread of a way of life that is AS IF the future were already here. If lots of people adopted it, maybe it would make the shift less unpleasant. My approach gets folks where they feel it most, in the stomach and in the wallet. The motivation is slowing climate change and peak oil, but the real incentive is saving money while still eating tasty, healthy, convenient food.

Lynn Shwadchuck
http://www.10in10diet.com/

Stephen Heyer said...

Hi John,

Really interesting posts recently! In fact there has not been much I could add, so I didn’t. Except, that is, to remind you that one lesson I have learned in my long life is that the future generally either isn’t what you expected, or isn’t when you expected.

So don’t be disappointed if the details turn out different, perhaps very different, from what you are planning for – I think there will still be plenty of excitement for everyone, just different excitement.

Oh! And re your comment :” My favorite for the week was a bit of online splutter that, having exhausted its author’s apparently limited vocabulary of profanity, wound up with the nastiest term he knew: “...you American!””

I’m guessing you might just have to learn to live with that attitude from some non-Americans and not necessarily disregard what that person says because of it.

I’m Australian and Australia has done very well indeed out of it’s relationship with the USA, so we tend to view the USA, including it’s little foibles like Vietnam, Iraqi, Afghanistan or the sequestering of a large slab of the world’s resource base with a friendly and benevolent eye.

After all, as I said, Australia has done very well indeed out of the relationship with the USA, yet still kept our other international relationships and options reasonably healthy: A true win-win situation – for Australia.

However, some other nations seem to think that their relationship with the USA has not been so beneficial – to them.

I first met this attitude in force when I started spending time in temperate South America, mostly Chile, Argentina and Uruguay.

I was astonished at the pure loathing I heard educated (my language teachers, businessmen, IT workers) express for the USA. When I questioned them about it I found that they were convinced that the USA, largely the CIA, was heavily involved in some rather unfortunate episodes in their recent history, especially a couple of really nasty right-wing dictators, the aftermath of which they are still struggling to recover from.

Given that they were there, were tortured themselves, or had relations who disappeared, or fled overseas for a decade or more (quite a few to Australia, more of that later) and given the open USA interference in other South and Central American nations I did not feel qualified to argue the point. What I found particularly disturbing was the number of women who seemed to have had experiences that seemed to be disrupting the rest of their lives and relationships.

Incidentally, I was surprised at how enthusiastic they all were about Australia. Then I found out that many had spent long periods in Australia after being accepted as refugees, often returning to South America with children largely reared in Australia.
As an Australian, that gave me the novel and rather welcome experience of sometimes being greeted as a kind of honorary distant relative in the strangest places.

Anyway, the point I’m trying to make is that a lot of people in a lot of places feel that they have not had the pleasant experience with the USA that Australia enjoyed. I don’t think you can automatically disregard what they say because that bitterness comes through.

Stephen Heyer

Stephen Heyer said...

Hi John,

Re: “Bootstrapper, disparities in wealth tend to be more extreme in less regulated economies, not less so, for reasons that Adam Smith (among others) outlines in detail in The Wealth of Nations. This is why a completely free market would remain that way for about a week; as soon as income disparities emerged, those with more wealth would have every incentive to slant the playing board in their favor.”

Very, very nicely put.

Those of us who see that have been struggling to reduce this, and the related problems of allowing excessive wealth accumulation, from ten pages of graphs and academic argument to a paragraph/15 second sound bite for years. The interesting thing is that this has now been achieved in slightly different ways by a number of people.

Now I think it will start to flow back in common consciousness and start to have political effects.

Stephen Heyer

Avery said...

Your fellow futurist James Kunstler just pondered the possibility of fascist rule on his blog, as you did last week, but he claims to be the first to do so:

http://kunstler.com/blog/2009/11/thinking-the-unthinkable.html

Squiggy said...

John, you said, "...those societies that survive over the long term tend to be the ones that work out ways to keep too much wealth from piling up uselessly in the hands of those with more power than others."

Not being a historian, I'm curious as to whether there are examples of unregulated markets -- ancient or modern -- that succeeded long term. In other words, markets where a)"power" did not intervene and fix the game in favor of the biggest winners and b) traders and investors, overall, were smart enough to spot the fraudsters soon enough and blackball them.

I am careful, here, to distinguish between markets and economies. A market is inherently driven by crowd behavior, so it cannot be expected to act rationally, especially since the crowd can be "played like a violin" by skillful traders and manipulators.

The economy, in contrast, consists of innumerable, unexciting transactions between individuals and/or businesses. This is what you call the primary economy, as I recall, and it tends to behave rationally -- if not sustainably -- as long as favorable conditions persist. Of course, our present consumer economy is a severe distortion, mostly due to maturation of the science of crowd control and its application to ever-evolving mass media technologies.

Wardlaw

jagged ben said...

JMG described: "...a willingness to abandon Utopian fantasies and the pursuit of scapegoats; to remember that compromise is not a dirty word, and screaming insults at one's enemies is not a useful strategy; and to recognize the value in political institutions that have evolved and survived over time because, while imperfect and fallible, they work better in the real world than the alternatives."

Thanks so much for such a concise summary of a reasonable political attitude. (It should perhaps be added that one can maintain such an attitude even while advocating radical policies.)

Then you said: "Mind you, I'm quite aware that those things will most likely happen shortly after pigs sprout wings and all the trolls on the internet learn manners, but there it is."

Don't pull your punch so much, I say. It is always worth calling for good behavior, because by doing so you help bring it about, never completely, but at least partially. That's the nature of moral suasion. In my opinion (and this is not really aimed at you, JMG) one of things we've got to overcome is a level of cynicism that has too many people focused on the fact that they can't make a big difference, rather than the fact that they CAN make a small one.

John Michael Greer said...

Das Monde, I didn't say that neoclassical economics was a more nuanced version of Adam Smith's theory in general; I said that the neoclassical faith in the market was a more nuanced version of Smith's wholesale trust in it.

Joss, many thanks.

Kevin, this is promising to hear. There are a lot of very bright economists out there, and if more of them start to notice that the fundamental preconceptions of their trade are out of whack, some good might come out of it.

Lynn, that's certainly one viable approach.

Stephen, I'm well aware of the way that Americans are becoming the rest of the world's favorite whipping boy -- not that we haven't worked overtime to earn that status! A century ago it was Britain's turn -- "Perfidious Albion!" -- and a century from now it will be the turn of whoever has the dominant global empire then. I hope Australia has the common sense not to go for that status.

Avery, one of the things that makes these discussions so frustrating is that the word "fascist" is not a catchall term for any sort of right wing government one happens to dislike. What Jim was talking about was the possibility of a military coup in the US; military dictatorships usually aren't fascist in the strict sense of the word. (Your local public library probably has some very good books that will explain what fascism actually is.) He's quite right that nobody else in the peak oil scene has been talking about a military coup in the US. I think the prospects of that are quite low, as it happens, and the end of constitutional government is much more likely to happen via some other route.

Squiggy, there have been plenty of market systems that were not regulated by governments, but there have been no unregulated markets. A market system without government regulation quickly becomes controlled by monopolies. Adam Smith said it best: "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices."

Also -- the primary economy is not the economy you're talking about. Nonhuman nature is the primary economy. The secondary economy is the one in which human beings produce and exchange goods and services -- all of which, in one way or another, derive from nature.

Ben, I certainly think people can make a small difference. Just now, though, with political passions so high and scapegoating so popular, I foresee nothing that will improve this particular problem short of some disaster ghastly enough that the survivors tiptoe past the wreckage for quite some time. Before 1933, German political rhetoric was unprintably nasty; after 1945, things quieted down and got amazingly polite. We may have to go through some comparable crisis to learn the same lesson.

yooper said...

Hello John!

http://en.wikipedia.org/wiki/Friedrich_List

Studied this man a bit, this past winter and thought could we here in the U.S., evolve back to something like this?

Thanks, yooper