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Musings Report #36 9-3-16 Everything That Is Solid Melts Into Air
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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. Thank you for supporting the site and for inviting me into your circle of correspondents.
A note of Appreciation and Apology
I want to thank new subscribers and everyone who sent me a thoughtful email in the past two weeks. I am hard-pressed at the moment, pushing the Spanish language translation of a "A Radically Beneficial World" forward and drafting my next book. Your understanding and support is greatly appreciated. Today's essay (and next week's) is drawn from work on my next book.
Everything That Is Solid Melts Into Air
Though no one can foretell the future, it is self-evident that the status quo—dependent as it is on cheap oil and fast-expanding debt—is unsustainable. So what lies beyond when the current arrangements break down? Can we predict how-when-where with any accuracy? Or will our predictions be as off-the-mark as mid-20th century expectations of flying cars by the year 2000?
All prediction is based on extrapolating current trends. If we expect more of the same, it’s not too difficult to make predictions about the near future. But history is not always simply more of the same. So we have prognosticators who’ve predicted five of the last two recessions, and others who have been blindsided by every recession, unable to see a downturn even when the storm is already upon us.
Forecasting recessions or elections is run-of-the-mill stuff, predictions with limited accuracy or value, parlor games that create content for a content-hungry media.
But suppose we are in the midst of an era that is as monumental as the first Industrial Revolution or the fall of Rome. What if we're in an era that will compress a century of transformation into a decade? Instead of playing out over decades, it will be compressed into the ten years from 2017 to 2026. In this scenario, predictions will actually matter, as those who get it right will be riding a wave that is crushing everyone who blithely expected more of the same.
It is especially challenging to forecast the outcome of crises that break the status quo. We are carried along by the broad sweep of history with a limited understanding of the larger dynamics that are reshaping the world. We discern these forces, but cannot predict how they will unfold, for we are constantly extrapolating trends that are rapidly evolving As a result, our predictions fail to capture the way these dynamics will transform our world.
As Marx famously noted, “everything that is solid melts into air” as capitalism dismantles old systems and spawns new ones. These forces don’t just shift the economic landscape; they also disrupt the social and political orders, finance, family relations and our relationship with Nature—in other words, our entire mode of production.
Our Mode of Production: Centralized, Industrialized, Globalized, Financialized, Networked, Fossil-Fuel Dependent, Neofeudal and Neoliberal
What is a mode of production? The Wikipedia entry offers a deft summary. A mode of production (in German: Produktionsweise, meaning 'the way of producing') is a specific combination of productive forces (financial capital, labor and the means of production--tools, equipment, buildings, technologies, knowledge, resources and improved land) and social and technical relations of production--the social, legal and political relations governing a society's productive assets.
“According to Marx, the combination of forces and relations of production means that the way people relate to the physical world and the way people relate to each other socially are bound up together in specific and necessary ways. For Marx, the whole 'secret' of why/how a social order exists and the causes of social change must be discovered in the specific mode of production.”
What characterizes our current mode of production?
It is centralized (controlled by central governments and banks that hold monopolies on power and money), industrialized on a global scale (production and labor are commoditized), financialized (dependent on the processes of finance—debt, leverage and the proliferation of financial instruments), networked (dependent on flows of information and feedback loops) and dependent on fossil fuels (roughly 3% of total energy consumption is generated by alternative renewable energy sources).
I have long argued that this mode of production is fundamentally neofeudal, meaning that the few at the top of the power/wealth pyramid benefit at the expense of the many, as the entire system is structured to create and protect privilege, which I define as unearned wealth, power and benefits.
In effect, the current structure of state-finance-capitalism is an updated version of the old feudal model of landed nobility skimming rentier wealth from serfs. In the current version, the employed serfs are fragmented to the point of political powerlessness, and the rentier skim is typically financial (hence my use of the term debt-serfs).
This is the result of the dominance of finance capital over industrial capital: state-cartel pricing that extracts profits by limiting competition, and a dependence on debt for higher education and consumption effectively enforces a financial form of feudal servitude on debtors.
In this neofeudal mode of production, central banking issues newly created capital into the hands of the few who then buy political influence (a.k.a. regulatory capture) and take ownership of value creation in the economy. In this system, power and wealth naturally accumulate at the top of the wealth-power pyramid, and wealth-income inequality naturally rises.
In terms of systems analysis, there is no other possible output of this mode of production.
This neofeudal mode of production is characterized by a neoliberal set of values and cultural traits drawn from game theory: markets exist to maximize narrow self-interest and payoffs to participants, and these markets are the most efficient way to allocate capital and labor.
These neoliberal values and mechanisms corrupt the political process, dissolve social cohesion (defined as the shared purpose that binds the various classes into a unified society) and distort the allocation of capital with perverse incentives.
Forces that Transform the Mode of Production
Though central states and banks appear to be in control of the political, social and economic order, history shows that the forces that disrupt or obsolete the existing mode of production cannot be stopped or even slowed by governmental edict or financial controls.
For example, the advent of the printing press enabled mass distribution of the Bible and other books, which boosted literacy and distributed heretical ideas that soon upended the social order and the medieval mode of production. Heavy-handed efforts to suppress this technology and the spread of new ideas (such as killing those caught distributing Bibles in vernacular languages) all failed.
A variety of forces can disrupt or obsolete existing modes of production and the social order they support:
1. Environmental: resource depletion, population exceeding the carrying capacity of the ecosystem.
2. Commerce: vital trade routes are disrupted or cut.
3. Political: The cost of mobilizing for war, the reshuffling of power after losing a war.
4. Energy: a new higher-density form of energy becomes available.
5. Social: rising income-wealth inequality and shortages of essentials drives an overthrow of the old regime.
6. Technology: new technologies obsolete old state-cartel rentier arrangements and upend labor-capital markets.
7. Organizational innovation: new ways of organizing capital and labor, enabled by new technologies or social innovations.
8. Elite/class hierarchy: Cost of complexity/ privilege/ rentier class bankrupts the system.
Clearly, these forces are intertwined. In many cases, special circumstances within each force must be present to obsolete or fatally disrupt a mode of production. For example, an environmental crisis (poor crop yields, a scourging disease, etc.) might be survivable if the regime was otherwise sound, but combined with a loss of social cohesion, this scarcity of food would be enough to push the regime over the edge.
In other words, modes of production with reserves of resources and organizational ability can weather crises that would sink more fragile, less adaptable social/ economic orders. Weaknesses can pile up for quite some time before a crisis triggers collapse.
Not every disruption triggers the dissolution of the existing mode of production. For example, the invention of eyeglasses spread very quickly around the globe, but it didn’t undermine the social/political order like the printing press.
A nation may lose a war and keep its social order and mode of production intact. A nation may lose one trade route but compensate by expanding an alternative route.
But once a nation or empire loses access to its essential food or energy source—for example, once the Western Roman Empire lost its North African wheat breadbasket—it cannot support a complex social order of vast privileges that skims much of the system’s surplus. Some re-ordering of the mode of production is required for the regime to survive.
There are many examples in history of each of these dynamics. The French Revolution, for example, was triggered by soaring prices for bread and the bankruptcy of the state.
An irreplaceable loss of income can trigger the transition to a new mode of production. Once the East (China) lost its monopoly on silk, tea and porcelain (the French began producing silk, Britain colonized India to secure a source of cheap tea and Europeans began making porcelain), the flow of gold/silver to the East dried up and everyone who had skimmed a profit from the East-West trade lost income.
The rise of large European merchant sailing fleets bypassing the Silk Roads to China was an equally fatal disruption, as this trade eviscerated trading profits earned by all the intermediaries on the land routes.
Losses and crises often trigger transformation, but there are of course positive discoveries that upend the existing mode of production. The development of the steam engine and the exploitation of a higher-density source of energy—coal—famously drove the First Industrial Revolution.
Widespread electrification, the auto industry, the globalization of the oil industry and the development of telephony powered the Second Industrial Revolution.
Digital processors and software (computers) and the initial wave of automation drove the Third Industrial Revolution, and the Internet, artificial intelligence, 3D fabrication and the second wave of automation and robotics are pushing the Fourth Industrial Revolution.
In highly complex societies, losses can dismantle sectors of the system, but gains (such as cheap energy) can power new sectors that replace the disrupted/obsoleted sectors. This has been the fundamental narrative of the Industrial Revolutions: the old modes (buggy whips) vanish but are replaced by something much more powerful, convenient and productive.
But this movement to higher energy densities and more of everything is not a law of Nature. It can be fatally disrupted, too. Indeed, this is precisely what we will be experiencing in real-time in the coming decade.
Next week we'll explore What Triggers the Collapse of the Existing Mode of Production?
Summary of the Blog This Past Week
The High Cost of Honesty in a Sea of Low-Cost BS 9/2/16
The "Secret Sauce" of the Byzantine Empire: Stable Currency, Social Mobility 9/1/16
Dear Millennials: If You Want to Escape Minimum Wage Debt-Serfdom... 8/31/16
Central Banks = Welfare for the Wealthy 8/30/16
Trump By a Landslide? 8/29/16
Best Thing That Happened To Me This Week
Harvested three varieties of apples from Adam Taggart's back yard mini-orchard in Sonoma.
Market Musings: Oil and the S&P 500
Oil and the S&P 500 were correlated in the first half of the year, rising and falling in rough lockstep. But since early June, the correlation has been lost, and the SPX has remained locked in a tight, low-volatility range while oil fell, recovered and is again in decline.
It seems the SPX's scary drop in June changed the character of the market and the correlation to oil. Did the central planners decided to lock the SPX into a narrow range, regardless of what happened to oil (or anything else)?
This extended period of low volatility and tight trading range is extremely peculiar, with few (if any) historic parallels. It fairly shouts "central-planning management," as the global economies are not as stable as this low-volatility trading range suggests.
Some see a concerted effort to keep the stock market high until the coronation of Hillary Clinton in November, and this could well be the game plan of the central planners. Or they may just be scared that a market left to itself might crash like in June, triggering doubts about the narrative that all is well and the US economy is growing nicely.
When stocks ignore Treasury yields, the price of oil, shifts in FX markets and every measure of economic activity, something fishy is going on. Are insiders selling and going short in anticipation of a mini-crash, or are players treading water until the post-election November rally launches stocks higher?
Or are central planners just too terrified of what might happen if they loosen their grip? We cannot know what is extending this unprecedented stretch of low volatility, but we can anticipate that something will break it--we just don't know when.
From Left Field
European 'No-Go' Zones: Fact or Fiction? Part 1: France -- profound social disorder is already baked in, though you won't see it in the mainstream Eurozone media...
How Craigslist's Founder Realized He Sucked as a Manager -- still operates with around 40 employees...
12 Tips for Living a Longer Life -- published last year but worth a re-read...
Superagers with amazing memories have shrink-resistant brains -- no clues as to why yet...
One of the most famous living philosophers says much of philosophy today is “self-indulgent" -- stating the obvious about the perverse incentives in academia....
Why talk up the tech revolution, when Asia’s problems are largely pre-industrial?
Computer Screens In Schools Are a $60 Billion Hoax -- learning attention-deficit-disorder...
Oil Discoveries at 70-Year Low Signal Supply Shortfall Ahead -- sure, oil's cheap now, but look ahead....
Ramen is the new gold standard in prison currency, study says -- wow, the food must be truly awful....
Dogs process language like us and can tell when we praise them -- but we knew that....
Putting the Clinton Foundation in Context: Corruption Plain on the Face of It (Amy Sterling Casil)
Gabor Mate: Attachment, Disease, and Addiction (1:20 hrs)
"I have spent all my life under a Communist regime, and I will tell you that a society without any objective legal scale is a terrible one indeed. But a society with no other scale but the legal one is not quite worthy of man either." Aleksandr Solzhenitsyn
Thanks for reading--
charles |
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