Musings Report #9 02-26-12 Poorer but wiser
You are receiving this email because you are one of the 451 subscribers/major contributors to www.oftwominds.com.
For those who are new to the Musings reports: they are basically a glimpse into my notebook, the unfiltered swamp where I organize future themes, sort through the dozens of stories and links submitted by readers, refine my own research and start connecting dots which appear later in the blog or in my books. As always, I hope the Musings spark new appraisals and insights, and thank you for supporting the site.
Poorer But Wiser
There are three popular scenarios for America circa 2022:
1. Everything's the same only better as the Status Quo "fixes"--more debt fixes excessive over-indebtedness, more moral hazard fixes excessive moral hazard, more deficits fix excessive deficits, and so on--"doing more of what got us in trouble in the first place" magically fix whatever is wrong with the U.S. economy.
2. Systemic collapse and a dog-eat-dog breakdown of social order, transport, etc.
3. Increasing Central State control leads to fascism or the election of a homegrown Hitler.
While I understand the reasoning behind each projection, what I consider most likely is a scenario I call "Poorer but wiser."
We can quickly set the odds of Scenario 1 "doing more of what got us in trouble in the first place" working at zero. The claims on the State cannot exceed the surplus generated by the economy in a sustainable fashion. The gap can be filled by borrowing money (deficit spending) or printing money (quantitative easing), but since neither actually expands the production of goods and services or the surplus generated by the real economy, these are merely forms of officially sanctioned theft from future taxpayers and holders of the debased currency.
As I have noted before, running deficits of 10% of the nation's GDP and printing trillions of dollars are akin to trying to Fool Mother Nature. You cannot "fix" excessive debt, leverage and liquidity by creating even more debt, leverage and liquidity.
Scenario 2 seems to overlook or marginalize America's significant resources in water, soil and energy. While deserts won't bloom if the acquifers have been drained, people can move to water-rich areas (upper midwest, coastal northwest, etc.) The U.S. still has wide expanses of productive farmland, and enough energy from domestic supplies to provide about 40% - 50% of current consumption, though this will requires a shift of consumption from oil to natural gas, and a stricter regulation of fracking.
Cutting consumption of energy in half would blow up the consumerist fantasy but it could be made to work with rationing and high energy costs without destroying the social order.
What is often misunderstood is that humans react quite positively to emergencies once they recognize systemic risk, i.e. everyone will go down if we don't cooperate. This can be witnessed in all sorts of emergencies; people quickly change their notion of self-interest when cooperation and shared sacrifice become the best (and perhaps only) survival strategy. I am writing about this extensively in my next book.
It is easy to see why so many people fear fascism or a homegrown Hitler--the Federal government is recklessly undermining civil liberties and expanding its "legal right" to take away the rights of citizens under the guise of "fighting terror," that wonderful catch-all justification for increasing Central State power at the expense of civil liberties.
Perhaps I am being hopelessly naive, but I discern a still-active anti-authoritarian streak in American culture. While it is possible Americans will docilely submit to domestic jackboots, it is also possible that the U.S. military will refuse to enforce domestic fascism or people reach a threshold beyond which they refuse to obey an increasingly repressive Central State.
If you have lived abroad, or spent serious time with a variety of people from other cultures, you soon conclude there is such as thing as national character. Americans have long been derided as luxury-loving weaklings, and there is abundant evidence supporting that view in the present. Historically, though, Americans have gone through an "attitude adjustment" when core values have been threatened. What is required is a recognition of systemic risk, i.e. that what happened to the other guy can not only happen to us, it will happen to all of us if we don't change the Status Quo.
Is this likely? I don't know, but to dismiss it as impossible is to ignore the national character and history entirely.
In the "poorer but wiser" scenario, the financial fantasies of money-printing and stupendous borrowing implode as they must, and the nation is faced with the reality that it must live within its means, that is, we can only spend or invest the surplus generated by our production of goods and services.
This will remove around 20% from the GDP (the 10% borrowed by the Federal government every year and another 10% borrowed privately and by local government), and the cost of borrowing will rise to reality, that is, an interest rate much higher than the present rate which is artificially low due to Federal Reserve manipulation.
Once the ability to paper over the gap between what we want to spend and what we actually generate in surplus has vanished, then we will "grow up" and have to make adult tradeoffs and prioritize spending.
Hopefully the corrupt regime that is responsible for promoting an unsustainable system--concentrations of wealth can openly buy concentrated political power--will be recognized as the root problem and replaced.
Once money-printing and stupendous borrowing have been repudiated as false "fixes," then the nation will no longer be able to create the illusion of "endless growth and prosperity" based on debt. We will collectively be poorer simply because we will have to live within our means.
Given that happiness has no causal link to consumption beyond the basics of material well-being (Maslow Level 1), then this will be a positive development for the nation and its people.
Like debt addicts who run up credit card debt in frenzied consumption until their credit is maxxed out, the initial collapse of denial that we have a fundamental problem will be difficult for many. But as the addict finds that life goes on without credit-fueled binges, then a more positive uderstanding of life and "prosperity" can finally emerge.
From Left Field
If the most successful people want to leave, what is that saying about the sustainability of the political, environmental and financial status quo in China? I think the number of people who are not wealthy but well-educated who want to leave is much, much higher than the Western media imagines.
Why the super-rich love the UK: It's obviously not for the weather, so what is it about Britain that the obscenely wealthy find so attractive?
An art project house of cards: I wonder how many hours it took to construct this.... (20 second video)
The Miura-ori and how to fold it: (paper folding technique of note) The Miura-ori is a method for folding up a sheet such that it can be opened or closed in one smooth motion. A Miura sheet has only one degree of freedom, and can be thought of as having only two states: fully open, or fully closed.
Thanks for reading--
charles
