To mention money and metaphysics in the same sentence, as I did at the close of last week’s post, is to invite any number of misunderstandings. The hoary habit of thinking that walls off philosophical questions in a ghetto of abstractions apart from the world of ordinary life gets in the way of clarity here as so often, but there’s an even more basic problem: most people these days have no clear notion of what the word “metaphysics” means in the first place.
The tangled history of the word probably makes that inevitable. A nameless librarian in ancient Alexandria first coined it out of sheer desperation while cataloging the works of Aristotle; most of the treatises got names based on their subject matter – Physics, Meteorology, Poetics, and so on – but one difficult treatise was labeled simply meta phusikoi, “the stuff that comes after the Physics.” Then, as the fourth-grade history paper put it, some other stuff happened – the library of Alexandria burned, Rome fell, what was left of the classical world got tipped into history’s dumpster by a band of helpful Visigoths, and so on. When the dust finally cleared, Aristotle was very nearly the only systematic ancient thinker whose works were still around, and so he became, in Dante’s words, “the master of those who know.”
That meant, among other things, that the labels assigned to his treatises by that anonymous Alexandrian savant became the basic categories of scholarship in the Middle Ages. (Most of them remain basic categories today, which is why your local university has departments of physics, meteorology, and so on.) Metaphysics was no exception, and the philosophical issues Aristotle tackled in that treatise have carried that label ever since.
Those issues are what Aristotle himself called “first philosophy:” an analysis of the basic terms that have to be sorted out before any kind of philosophy can be sure of its foundations. The medieval scholars who blew the dust off Aristotle’s treatise, however, interpreted his work in their own way, which meant that the basic issues of philosophy were redefined in terms of Christian, Muslim, or Jewish theology. By the time the 18th century rolled around, metaphysics as a discipline was almost entirely identified with the theological basis given it by the scholars of the Middle Ages, and so it got dropped like a hot potato as secularism swept the academic world.
By the end of the 19th century even theologians had stopped doing metaphysics in the old style, and most of the people practicing what used to be called metaphysics weren’t using the word. At that point, in a fine display of history’s twisted sense of humor, the word got picked up by the American folk religious movement ancestral to today’s New Age scene, and turned into a label for their own beliefs. The town in southern Oregon where I used to live has a Metaphysical Library, which even had a few books on metaphysics in the philosophical sense of the world, though how they got there I have no idea. The vast majority of the books were on past lives, channeled entities, flying saucers, evil conspiracies, and the rest of the mental furniture of contemporary alternative culture.
Thus it’s probably necessary to point out that when I mention the metaphysics of money, I ‘m not referring to claims that money was invented by a conspiracy of evil space lizards, or that you can get as much money as you want by convincing yourself that money really, really wants to bed down in your wallet. You can find books making both these claims at the library just mentioned, as it happens, but both beliefs – and a good many statements less obviously absurd – are in large part produced by a failure to engage in the other kind of metaphysics, the thoughtful consideration of the basic categories of thought itself.
That sort of analysis seems very abstruse and impractical, until you notice the consequences of ignoring it. Sweeping claims are being made these days about whether certain things exist or do not exist, for example, by people who never seem to have examined their own presuppositions about what it means to exist and how a thing can be known to exist. That’s the problem with the ghettoizing of philosophy mentioned earlier; the philosophical issues you ignore can still sneak up on you while you’re not looking, and turn your best attempts at thinking into gibberish.
This, finally, is where metaphysics and money come together. Last week’s post discussed some of the reasons why you can get better economic advice from a randomly chosen fortune cookie at your local Asian buffet than from the most prestigious contemporary economists. Part of it, as I pointed out, was the way that the boom-bust cycle makes giving bad advice the most lucrative career strategy for economists; another part is due to the attempts of economists to make their field a theoretical science without going to the trouble of grounding their theories in an adequate foundation of historical fact.
Still, there’s a third factor at work, and it’s even more pervasive than the two just named. It’s far from unique to economics – in one way or another, it underlies a great many of the mistakes that are tipping our own civilization into the same dumpster that received the ruins of Rome – but it stands out in the field of economics with particular clarity. Its roots are in a metaphysical error which might as well be called, after one of its most influential practitioners, Descartes’ fallacy.
Rene Descartes is famous nowadays for saying “I think, therefore I am.” Few people these days take the time to find out what he meant by that statement, and fewer still catch onto the radical project that underlay it. Without too much inaccuracy, Descartes can be called the first modern thinker. Certainly he was the first to embrace what has become an automatic presupposition of modern thought, the notion of the individual self as an isolated, independent witness whose thoughts and experiences are entirely its own. What existed, to Descartes, was limited to what he could know, and know precisely, with the same exactness as a geometrical proof.
Descartes was arguing, in effect, that “to be” means the same thing as “to be known,” and “to be known” in turn equals “to be precisely defined.” It’s clear that he recognized, and intended, the sweeping implications of this metaphysical stance. It’s equally clear that a great many of the people who unknowingly follow his lead nowadays either accept those implications uncritically or have never noticed their existence. In the hands of much of modern science, in particular, Descartes’ equation has been blended with a passion for quantitative measurement to produce an even more extreme form of the same logic. To a great many scientists today, what exists is limited to what can be known; what can be known is limited to what can be measured; and what can be measured is treated as though it was identical to its measurements.
You can get away with this in physics, and still do excellent science. The objects studied by physics follow patterns that can be modeled effectively by mathematics, and most of them are so remote from ordinary human experience that anything about them that doesn’t measure easily can be ignored without too much trouble. Try doing this in sciences closer to the realm of everyday human life, on the other hand, and you can count on running into trouble, because in that realm Descartes’ approach is usually a bad idea, and the modern scientific expansion of it an even worse one. What can be measured is only a subset of what can be known, and what can be known, at least in any given situation, is only a subset of what exists; nor does the fact that some properties of a thing can be measured according to some numerical scale prevent it from having other properties at least as important that are not subject to that kind of measurement.
The sort of bad logic that treats quantitative measurements as the only things that really exist is pervasive in the sciences, but its grip is even tighter on those fields of study that want to claim the prestige of science but can’t quite pass muster. Economics could be the poster child for this noxious effect. Down through the generations, against the sound advice of its best practitioners, economists have consistently treated the one thing in their field that can easily and consistently be measured with numbers – money – as though it was the one thing that matters. It’s easy to see how seductive this habit can be, since it seems to allow everything to be measured on a common scale; the problem, of course, is that everything that can’t be flattened out into that common scale gets mislaid, and as often as not these mislaid factors prove to be decisive.
In The Wealth of Nations, Adam Smith criticizes the notion – as common in his time as in ours – that money is the same thing as wealth. The wealth of a country, he points out, consists of the product of its natural resources and collective labor: in modern terms, it’s the sum total of the goods and services produced by a nation’s ecosystems and economy. In another place, though, he defines wealth as anything that can be valued in money. These definitions do not conflict with one another; rather, they make the crucial point that money is not wealth but the yardstick by which modern cultures measure wealth. This ought to be the first thing we teach children about money, though of course it isn’t.
It probably ought to be the first thing we teach economists about money, too, but the power of Descartes’ fallacy stands in the way. Money is a unit of measurement, so it’s inherently easy to define, understand, and quantify. Wealth is much less easy to force into the Procrustean bed of numbers; that’s why we use money as a rough and ready way of sorting out the relative value of different kinds of wealth so they can be exchanged without too much trouble. Money is so convenient as a way of measuring wealth that very often it ends up eclipsing wealth, and this is why most economists nowadays, even when they think they’re talking about wealth, are actually talking about money. This becomes especially problematic when, as so often happens, they start attributing to wealth characteristics that are only true of money.
This habit of thought pervades contemporary economics. For a relevant example, watch the way most economists these days brush aside the immense challenges of peak oil with the assurance that if oil ever does get scarce, the market will come up with alternatives. Implicit in this claim is the assumption that any energy source is as good as any other, and that the total amount in the system is effectively unlimited. This is true of money – one dollar bill is worth exactly the same amount as any other, and the total number of dollars in circulation is as close to limitless, these days, as the printing presses of the US Treasury can make it – but it is emphatically not true of energy resources, or of any other form of wealth.
Compare any two energy resources in practical terms and it’s clear that in most cases they’re not even apples and oranges; they’re apples and orangutans. Take petroleum and solar energy as good examples. A highly concentrated form of chemical energy and a rather diffuse form of electromagnetic energy have very little in common, and even when they can do the same things – you can heat a house with passive solar design, for example, or you can heat it with an oil-fired burner – the technologies are totally different. Easy talk about swapping one for the other thus evades the immense challenge and nearly unimaginable cost of scrapping multiple continent-wide infrastructures geared to oil and building new ones suited to solar energy. (There are plenty of other questions that it ducks, too, but this one will do for starters.)
Presumably an economist would notice something odd if he sat down at a lunch counter, ordered the daily special, and was handed instead a box of socket wrenches, even if the price of the wrenches was exactly the same as the daily special. If the economist was starving on a desert island and a crate that washed ashore proved to contain socket wrenches rather than food, the difference would be a matter of life or death. This latter is uncomfortably close to our position just now, as the world’s energy companies race each other and the clock to extract fossil fuels in nearly unimaginable volumes from the Earth’s dwindling supplies. If we allow ourselves to wait until those supplies start to run short, it will be much too late to start retooling our civilization for some other energy resource, even if one happens to turn up.
Because a subculture of erudite scholars in the economics departments of universities have made a metaphysical error, in other words, our civilization may have missed its chance to dodge disaster. It’s hard to think of a better argument for the importance of metaphysics than that. Still, the problem sketched in this post extends much further than I’ve had space to outline here, and the way in which money has metastatized in our society to become the measure of all things has become a massive though unrecognized barrier in the way of any attempt to improve a rapidly worsening situation. We’ll explore that in next week’s post.
Wednesday, September 30, 2009
Wednesday, September 23, 2009
Why Economists Fail
The last two posts here on The Archdruid Report, while they dealt with issues that are becoming increasingly hard to avoid as industrial society begins its long slide down the slopes of Hubbert’s peak, were something of a distraction from the theme I’ve been trying to pursue for the last few months, the theme of deindustrial economics. I want to return to that theme here, and continue exploring the possibilities and risks of economic life in an age of decline.
Mind you, it may have occurred to many of my readers – and it has certainly occurred to me – that there’s something distinctly odd about an archdruid setting aside his white robe and oaken staff for the chalk and blackboard of the economics classroom. I am not an economist; I don’t even play one on television, and my background in economics consists mostly of extensive reading and study in what nowadays would be considered the fringes of the subject – most notably the writings of the late E.F. Schumacher, which set this sequence of posts in motion.
Yet there’s a case to be made for discussing economics from a standpoint distinct from that of today’s economists – in fact, from nearly any imaginable standpoint other than that of today’s economists. That case could draw its initial arguments from many points, but the most obvious one just now has to be the near-total failure of contemporary economic thought to provide meaningful guidance to the macroeconomic challenges of our time.
This may seem like an extreme statement, but the facts back it up. Consider the way that economists responded – or, rather, failed to respond – to the late housing boom. This was as close to a perfect textbook example of a speculative bubble as you’ll find in recent history. The very extensive literature on speculative bubbles, going back all the way to Mackay’s Extraordinary Popular Delusions and the Madness of Crowds, made recognizing another example of the species easy enough. All the signs were there: the dizzying price increases, the huge influx of amateur investors, the giddy rhetoric insisting that prices could and would keep on rising forever, the soaring rate of speculation using borrowed money, and the rest of it.
By 2005, accordingly, a good many people outside the economics profession were commenting on parallels between the housing bubble and other speculative binges; by 2006 the blogosphere was abuzz with accurate predictions of the approaching crash; by 2007 the final plunge into mass insolvency and depression was treated in many circles as a foregone conclusion – as indeed it was by then. Yet it’s a matter of public record that among those who issued these warnings, economists – who should have caught onto the bubble faster than anyone – could very nearly be counted on the fingers of one foot. On the contrary, the vast majority of the economists who expressed a public opinion on the subject insisted that the delirious rise in real estate prices was justified and that the exotic financial innovations that drove the bubble would keep banks and mortgage companies safe from harm.
These comforting announcements were wrong. Those who made them had every reason to know at the time that they were wrong. No less an economic luminary than John Kenneth Galbraith pointed out decades ago that in the financial world, the term “innovation” usually refers to the rediscovery of the same limited set of bad ideas that always, without exception, lead to economic disaster. Galbraith’s books The Great Crash 1929 and A Short History of Financial Panics, which chronicle the carnage caused by the same gimmicks in the past, can be found on the library shelves in every school of economics in North America, and anyone who reads either one can find every rhetorical excess and fiscal idiocy of the housing bubble faithfully duplicated in the great speculative binges of the past.
If this were an isolated instance of failure, it might be pardonable, but the same pattern repeats itself as regularly as speculative bubbles themselves. Identical assurances were offered – in some cases, by the identical economists – during the last great speculative binge in American economic life, the tech-stock bubble of 1996-2000. They have been offered by professional economists during every other speculative binge since the profession of economics came into being. Take a wider view, and you’ll find that whenever a professional economist assures the public that some apparently risky course of action is perfectly safe, he is usually wrong.
A colorful recent example was the self-destruction of Long Term Capital Management (LTCM) in the early 1990s. One of the two Nobel laureates in economics on LTCM’s staff announced publicly that the computer models the company used for its hugely leveraged trades were so good that they could not lose money in the lifetime of the universe. Have you ever noticed that villains in bad movies very often get blown to smithereens a few seconds after saying “I am invincible”? Apparently the same principle applies to economists, though the time lag is longer; it was, as I recall, some five years after this announcement that LTCM got blindsided by a Russian foreign-loan default that many other people saw coming, and failed catastrophically. The US government had to arrange a hurried rescue package to keep the implosion from causing a general financial panic.
Economists are not, by and large, stupid people. Those who work in some of the less glamorous subsets of the field have worked out a great many useful tools for businesses and individuals, and the level of mathematical skill to be found among today’s “quants” rivals that of many university physics departments. Yet the profession seems to have become incapable of learning from its most glaring and highly publicized mistakes. This is all the more troubling in that you’ll find many economists among the pundits who insist that industrial economies need not trouble themselves about the impact of limitless economic growth on the biosphere that supports all our lives. If they’re as wrong about that as so many other economists were about the housing bubble, they’ve made a fateful leap from risking billions of dollars to risking billions of lives.
What lies behind this startling blindness to the evidence of history and the reality of the downside? Plenty of factors doubtless play a part, but three seem most important to me.
First of all, for professional economists, being wrong is much more lucrative than being right. During the runup to a speculative binge, and even more so during the binge itself, a great many people are willing to pay handsomely to be told that throwing their money into the speculation du jour is the right thing to do. Very few people are willing to pay to be told that they might as well flush it down the toilet, even – indeed, especially – when this is the case. During and after the crash, by contrast, most people have enough calls on their remaining money that paying economists to say anything at all is low on the priority list.
The same rule applies to professorships at universities, positions at brokerages, and many of the other sources of income open to economists. When markets are rising, those who encourage people to indulge their fantasies of overnight wealth will be far more popular, and thus more employable, than those who warn them of the inevitable outcome of pursuing such fantasies; when markets are plunging, and the reverse might be true, nobody’s hiring. Apply the same logic to the fate of industrial society and the results are much the same; those who promote policies that allow people to get rich and live extravagantly today can count on an enthusiastic response, even if those same policies condemn industrial society to a death spiral in the decades ahead. Posterity, it’s worth remembering, pays nobody’s salaries today.
Second, like many contemporary fields of study, economics suffers from a bad case of premature scientification. The dazzling achievements of science have encouraged scholars in a great many fields to ape science’s methods in the hope of duplicating its successes, or at least cashing in on its prestige. Before Isaac Newton could make sense of the planets in their courses, though, thousands of observational astronomers had to amass the raw data with which he worked. The same thing is true of any successful science: what used to be called “natural history,” the systematic recording of what nature actually does, builds the foundation on which science erects structures of hypothesis and experiment.
A great many fields of study have attempted to skip the preliminaries and fling themselves straight into scientific research. The results are not good, because there’s a boobytrap hidden inside the scientific method. The fact that you can get some fraction of nature to behave in a certain way under arbitrary conditions in the artificial setting of a laboratory does not mean that nature behaves that way left to herself. If all you want to know is what you can force a given fraction of nature to do, this is well and good, but if you want to understand how the world works, the fact that you can often force nature to conform to your theory is not exactly helpful.
Economics is particularly vulnerable to this sort of malign feedback because its raw material – human beings making economic decisions – is so complex that the only way to control all the variables is to impose conditions so arbitrary and rigid that the results have only the most distant relation to the real world. The logical way out of this trap is to concentrate on the equivalent of natural history, which is economic history: the record of what has actually happened in human communities under different economic conditions. This is exactly what those who predicted the housing crash did: they noted that a set of conditions in the past (a bubble) consistently led to a common result (a crash) and used that knowledge to make accurate predictions about the future.
Yet this is not, on the whole, what successful economists do nowadays. Instead, a great many of them spend their careers generating elaborate theories and quantitative models that are rarely tested against the evidence of economic history. The result is that when those theories are tested against the evidence of today’s economic realities, they often fail.
The Nobel laureates whose computer models brought LTCM crashing down in flames, for example, created what amounted to extremely complex hypotheses about economic behavior, and put those hypotheses to a very expensive test, which they failed. If they had taken the time to study economic history first, they might well have noticed that politically unstable countries tolerably often default on their debts, that moneymaking schemes involving huge amounts of other people’s money usually end up imploding messily, and that every previous attempt to profit by modeling the market’s vagaries had come to grief when confronted by the sheer cussedness of human beings making decisions about their money. They did not notice these things, and so they and their investors ended up losing astronomical amounts of money.
The third factor driving the economic profession’s blindness to its own mistakes is more complex, and will demand a post of its own. Few things seem less related than the abstractions of metaphysics and the gritty realities of money, but there’s a crucial connection. Underlying today’s economic thought is a specific set of metaphysical assumptions, and those assumptions form the foundation of sand underneath the proud and unsteady towers of today’s economic theories. In next week’s post I plan on taking a hard look at the metaphysics of money, in the hope of finding a less problematic basis for economic life in the approaching deindustrial age.
Mind you, it may have occurred to many of my readers – and it has certainly occurred to me – that there’s something distinctly odd about an archdruid setting aside his white robe and oaken staff for the chalk and blackboard of the economics classroom. I am not an economist; I don’t even play one on television, and my background in economics consists mostly of extensive reading and study in what nowadays would be considered the fringes of the subject – most notably the writings of the late E.F. Schumacher, which set this sequence of posts in motion.
Yet there’s a case to be made for discussing economics from a standpoint distinct from that of today’s economists – in fact, from nearly any imaginable standpoint other than that of today’s economists. That case could draw its initial arguments from many points, but the most obvious one just now has to be the near-total failure of contemporary economic thought to provide meaningful guidance to the macroeconomic challenges of our time.
This may seem like an extreme statement, but the facts back it up. Consider the way that economists responded – or, rather, failed to respond – to the late housing boom. This was as close to a perfect textbook example of a speculative bubble as you’ll find in recent history. The very extensive literature on speculative bubbles, going back all the way to Mackay’s Extraordinary Popular Delusions and the Madness of Crowds, made recognizing another example of the species easy enough. All the signs were there: the dizzying price increases, the huge influx of amateur investors, the giddy rhetoric insisting that prices could and would keep on rising forever, the soaring rate of speculation using borrowed money, and the rest of it.
By 2005, accordingly, a good many people outside the economics profession were commenting on parallels between the housing bubble and other speculative binges; by 2006 the blogosphere was abuzz with accurate predictions of the approaching crash; by 2007 the final plunge into mass insolvency and depression was treated in many circles as a foregone conclusion – as indeed it was by then. Yet it’s a matter of public record that among those who issued these warnings, economists – who should have caught onto the bubble faster than anyone – could very nearly be counted on the fingers of one foot. On the contrary, the vast majority of the economists who expressed a public opinion on the subject insisted that the delirious rise in real estate prices was justified and that the exotic financial innovations that drove the bubble would keep banks and mortgage companies safe from harm.
These comforting announcements were wrong. Those who made them had every reason to know at the time that they were wrong. No less an economic luminary than John Kenneth Galbraith pointed out decades ago that in the financial world, the term “innovation” usually refers to the rediscovery of the same limited set of bad ideas that always, without exception, lead to economic disaster. Galbraith’s books The Great Crash 1929 and A Short History of Financial Panics, which chronicle the carnage caused by the same gimmicks in the past, can be found on the library shelves in every school of economics in North America, and anyone who reads either one can find every rhetorical excess and fiscal idiocy of the housing bubble faithfully duplicated in the great speculative binges of the past.
If this were an isolated instance of failure, it might be pardonable, but the same pattern repeats itself as regularly as speculative bubbles themselves. Identical assurances were offered – in some cases, by the identical economists – during the last great speculative binge in American economic life, the tech-stock bubble of 1996-2000. They have been offered by professional economists during every other speculative binge since the profession of economics came into being. Take a wider view, and you’ll find that whenever a professional economist assures the public that some apparently risky course of action is perfectly safe, he is usually wrong.
A colorful recent example was the self-destruction of Long Term Capital Management (LTCM) in the early 1990s. One of the two Nobel laureates in economics on LTCM’s staff announced publicly that the computer models the company used for its hugely leveraged trades were so good that they could not lose money in the lifetime of the universe. Have you ever noticed that villains in bad movies very often get blown to smithereens a few seconds after saying “I am invincible”? Apparently the same principle applies to economists, though the time lag is longer; it was, as I recall, some five years after this announcement that LTCM got blindsided by a Russian foreign-loan default that many other people saw coming, and failed catastrophically. The US government had to arrange a hurried rescue package to keep the implosion from causing a general financial panic.
Economists are not, by and large, stupid people. Those who work in some of the less glamorous subsets of the field have worked out a great many useful tools for businesses and individuals, and the level of mathematical skill to be found among today’s “quants” rivals that of many university physics departments. Yet the profession seems to have become incapable of learning from its most glaring and highly publicized mistakes. This is all the more troubling in that you’ll find many economists among the pundits who insist that industrial economies need not trouble themselves about the impact of limitless economic growth on the biosphere that supports all our lives. If they’re as wrong about that as so many other economists were about the housing bubble, they’ve made a fateful leap from risking billions of dollars to risking billions of lives.
What lies behind this startling blindness to the evidence of history and the reality of the downside? Plenty of factors doubtless play a part, but three seem most important to me.
First of all, for professional economists, being wrong is much more lucrative than being right. During the runup to a speculative binge, and even more so during the binge itself, a great many people are willing to pay handsomely to be told that throwing their money into the speculation du jour is the right thing to do. Very few people are willing to pay to be told that they might as well flush it down the toilet, even – indeed, especially – when this is the case. During and after the crash, by contrast, most people have enough calls on their remaining money that paying economists to say anything at all is low on the priority list.
The same rule applies to professorships at universities, positions at brokerages, and many of the other sources of income open to economists. When markets are rising, those who encourage people to indulge their fantasies of overnight wealth will be far more popular, and thus more employable, than those who warn them of the inevitable outcome of pursuing such fantasies; when markets are plunging, and the reverse might be true, nobody’s hiring. Apply the same logic to the fate of industrial society and the results are much the same; those who promote policies that allow people to get rich and live extravagantly today can count on an enthusiastic response, even if those same policies condemn industrial society to a death spiral in the decades ahead. Posterity, it’s worth remembering, pays nobody’s salaries today.
Second, like many contemporary fields of study, economics suffers from a bad case of premature scientification. The dazzling achievements of science have encouraged scholars in a great many fields to ape science’s methods in the hope of duplicating its successes, or at least cashing in on its prestige. Before Isaac Newton could make sense of the planets in their courses, though, thousands of observational astronomers had to amass the raw data with which he worked. The same thing is true of any successful science: what used to be called “natural history,” the systematic recording of what nature actually does, builds the foundation on which science erects structures of hypothesis and experiment.
A great many fields of study have attempted to skip the preliminaries and fling themselves straight into scientific research. The results are not good, because there’s a boobytrap hidden inside the scientific method. The fact that you can get some fraction of nature to behave in a certain way under arbitrary conditions in the artificial setting of a laboratory does not mean that nature behaves that way left to herself. If all you want to know is what you can force a given fraction of nature to do, this is well and good, but if you want to understand how the world works, the fact that you can often force nature to conform to your theory is not exactly helpful.
Economics is particularly vulnerable to this sort of malign feedback because its raw material – human beings making economic decisions – is so complex that the only way to control all the variables is to impose conditions so arbitrary and rigid that the results have only the most distant relation to the real world. The logical way out of this trap is to concentrate on the equivalent of natural history, which is economic history: the record of what has actually happened in human communities under different economic conditions. This is exactly what those who predicted the housing crash did: they noted that a set of conditions in the past (a bubble) consistently led to a common result (a crash) and used that knowledge to make accurate predictions about the future.
Yet this is not, on the whole, what successful economists do nowadays. Instead, a great many of them spend their careers generating elaborate theories and quantitative models that are rarely tested against the evidence of economic history. The result is that when those theories are tested against the evidence of today’s economic realities, they often fail.
The Nobel laureates whose computer models brought LTCM crashing down in flames, for example, created what amounted to extremely complex hypotheses about economic behavior, and put those hypotheses to a very expensive test, which they failed. If they had taken the time to study economic history first, they might well have noticed that politically unstable countries tolerably often default on their debts, that moneymaking schemes involving huge amounts of other people’s money usually end up imploding messily, and that every previous attempt to profit by modeling the market’s vagaries had come to grief when confronted by the sheer cussedness of human beings making decisions about their money. They did not notice these things, and so they and their investors ended up losing astronomical amounts of money.
The third factor driving the economic profession’s blindness to its own mistakes is more complex, and will demand a post of its own. Few things seem less related than the abstractions of metaphysics and the gritty realities of money, but there’s a crucial connection. Underlying today’s economic thought is a specific set of metaphysical assumptions, and those assumptions form the foundation of sand underneath the proud and unsteady towers of today’s economic theories. In next week’s post I plan on taking a hard look at the metaphysics of money, in the hope of finding a less problematic basis for economic life in the approaching deindustrial age.
Wednesday, September 16, 2009
Daydreams of Destruction
Last week's post on The Archdruid Report got rather more than the usual number of responses. Most of the comment – no surprises there – focused on my suggestion that the hopes for a better future retailed so freely by all sides in today’s cultural conversations face certain disappointment. At first glance, this may not seem like a controversial statement; one of the crucial facts about the future, after all, is that the fossil fuels that prop up current lifestyles across the industrial world, and provide the basis for survival for hundreds of millions in the Third World, are depleting rapidly with no adequate replacements in sight.
That hard fact pretty much guarantees a future in which poverty, hunger, warfare, and early death will be vastly more common than their opposites, and in which a great many of the comforts and opportunities we now take for granted will no longer be available. That, in turn, would certainly seem to define the future ahead of us as worse than the present, in ways sweeping enough that any benefits to be gained from the changes in store could be considered consolation prizes at best. Still, so straightforward an assessment of our prospects is profoundly unwelcome in many circles these days.
The difficulty here is that faith in the prospect of a better future has been so deeply ingrained in all of us that trying to argue against it is a bit like trying to tell a medieval peasant that heaven with all its saints and angels isn’t there any more. The hope that tomorrow will be, or can be, or at the very least ought to be better than today is hardwired into the collective imagination of the modern world. Behind that faith lies the immense example of three hundred years of industrial expansion, which cashed in the cheaply accessible fraction of the Earth’s fossil fuel reserves for a brief interval of abundance so extreme that garbage collectors in today’s America have access to things that emperors could not get before the industrial revolution dawned.
That age of extravagance has profoundly reshaped – in terms of the realities of human life before and after our age, a better word might be “distorted” – the way people nowadays think about very nearly anything you care to name. In particular, it has blinded us to the ecological realities that provide the fundamental context to our lives. It’s made nearly all of us think, for example, that unlimited exponential growth is possible, normal, and good, and so even as the disastrous consequences of unlimited exponential growth slam into our society one after another like waves hitting a sand castle, the vast majority of people nowadays still build their visions of the future on the fantasy that problems caused by growth can be solved by still more growth.
The distorted thinking we have inherited from three centuries of unsustainable growth crops up in full force even among many of those who think they’re reacting against it. Activists at every point on the political spectrum have waxed rhetorical for generations about the horrors the future has in store, to be sure, but they always offer a way out – the adoption of whatever agenda they happen to be promoting – and it leads straight to a bright new tomorrow, in which the hard limits of the present somehow no longer seem to apply. (Take away the trope of “the only way to rescue a better future from the jaws of imminent disaster” from today’s activist rhetoric, for that matter, and in most cases there’s very little left.)
Still, the bright new tomorrow we’ve all been promised is not going to arrive. This is the bad news brought to us by the unfolding collision between industrial society and the unyielding limits of the planetary biosphere. Peak oil, global warming, and all the other crises gathering around the world are all manifestations of a single root cause: the impossibility of infinite growth on a finite planet. They are warning signals telling us that we have gone into full-blown overshoot – the state, familiar to ecologists, in which a species outruns the resource base that supports it – and they tell us also that growth is not merely going to stop; it’s going to reverse, and that reversal will continue until our population, resource use, and waste production drop to levels that can be sustained over the long term by a damaged planetary ecosystem.
That bitter outcome might have been prevented if we had collectively taken decisive action before we went into overshoot. We did not do so, and at this point the window of opportunity is firmly shut. Nearly all the proposals currently being floated to deal with the symptoms of our planetary overshoot assume, tacitly or otherwise, that this is not the case and we still have as much time as we need. Such proposals are wasted breath, and if any of them are enacted – and some of them very likely will be enacted, once today’s complacency gives way to tomorrow’s stark panic – the resources poured into them will be wasted as well.
This is one of the reasons it seems crucial to me to keep coming back to the hard facts of our predicament: our limited resources and even more limited time need to be directed toward projects that might actually do some good. Still, there’s another side to this repeated insistence on an unwelcome reality, and the best way to explore that is to glance back at one of the responses to last week’s post.
The comment in question came from a reader who signed himself “Tony.” I trust he won’t feel unduly picked on, as I’ve chosen his response as a thoughtful and eloquent expression of a common feeling that many readers of mine, and countless others as well, have expressed in their own ways. While acknowledging the ghastly human toll that will be inflicted by the ending of the industrial age, he argues that life in the modern world, while materially prosperous, is empty and meaningless, and hopes that life after industrialism will be more fulfilling. He comments:
My life is EASY now, but I do not LIKE it. My body may have ease, but not my soul. I also find no soul’s ease in the prospects for many, say, who need modern health care to live. I nonetheless find excitement in the thought that current power structures may soon crumble, finally giving those like myself, and others in my generation, a chance to really live.
Any of my readers who have been in contact with the peak oil scene, or any of the other movements that have predicted the decline and fall of our present civilization, will have heard these same feelings expressed many times. Some of my readers may have had such feelings themselves. The idea that a future of material deprivation and suffering may nonetheless be better in some psychological or spiritual sense echoes tropes deeply rooted in the narratives of our culture. Who among us hasn’t daydreamed about fleeing from the complexities and moral compromises of modern existence to some simpler and more strenuous life where, at least in our imaginations, the sources of life and meaning are closer?
It’s a very old fantasy. The Roman poet Horace, in his Second Epode, put the same sentiments in the mouth of a moneylender, who imagined himself living the simple life of a poor farmer off in the Italian hill country, then turned from such daydreams back to the work of managing his investments. No doubt there were plenty of poor farmers in Horace’s time whose daydreams fixated instead on the high life of a wealthy moneylender in Rome.
Still, there’s a crucial difference. Neither Alfius the moneylender nor the poor farmers of the Italian hinterlands, as far as we know, ever harnessed their daydreams of a better life to fantasies of global catastrophe. Nowadays, by contrast, a great many people do exactly that. From fundamentalist Christians who pin their hopes on the Rapture – “He’s tooting, and I’m scooting,” to quote a popular bumper sticker – straight through to the current crop of utopian true believers who insist that the implosion of the industrial world will be followed by the inevitable triumph of whatever ideology they favor, a great many people nowadays pin their hopes of a better life onto whatever convenient cataclysm comes to mind. Tony’s hope that the fall of current power structures will allow him “a chance to really live” is simply another variation on this theme.
The irony here would be worth savoring if it weren’t so potentially explosive. I’m normally unsympathetic to claims that our civilization is a unique case, but in this context it may just have accomplished something that no other society in all of history can match. Certainly I can’t think of another case in which people faced with the tolerably common human experience of a less than fulfilling life have had so few inner resources to hand, and so little knowledge of past thought about the same problem, that the only option a great many of them seem to be able to find is to sit around and wait for the world to end.
I try to wear my archdruid’s hat lightly in discussions in this blog, but it’s hard to think of any way to speak to this situation that doesn’t wade fairly deep into the waters of philosophy, not to mention spirituality. The fact that a life lived in material comfort can be unsatisfying does not mean that the comfort is what makes it unsatisfying. Life can be every bit as barren of meaning to someone who is starving to death in a burned-out basement, or scratching out a bare living from a few acres of mud and manure around a squalid hovel. The choices we make in response to our surroundings affect our relationship to the sources of meaning far more powerfully than the surroundings themselves, and those choices depend on the quality and content of our inner lives, not on outer factors. None of this ought to be news to anyone; it can be found in every tradition of human wisdom and spiritual teaching from the dawn of history right up to the present, and it remains as valid today as it ever was.
If Tony and his countless equivalents want “a chance to really live,” in other words, nothing is holding them back. If they feel their present comforts are obstacles to a better life, nothing prevents them from getting rid of those comforts. If they feel that danger and deprivation would make life more real for them, those can also be had easily enough by those who actually want them. Of course that’s the rub. Alfius could have gotten out of the moneylending business, donated his wealth to charity, moved to a farm and made his rural fantasy real, but of course he didn’t actually want to do that; he simply wanted to daydream about it. I admit to a strong suspicion that the same is true of Tony and his peers.
Alfius’ daydreams, mind you, were relatively harmless. I am not sure the same thing can be said of the fantasy of redemption through catastrophe that underlies Tony’s comments and the feelings of a great many other people just now. As industrial civilization begins to come apart around us in the decades ahead, the mismatch between that fantasy and the bitter realities of life in a dying civilization will stand out in increasingly stark colors, but in the meantime those who indulge in daydreams of destruction are a good deal less likely to take the practical, positive steps that could make the time of troubles ahead of us less harrowing than it could be.
Thus I think it’s crucial to come back to the hard fact that we are not heading toward a happier future in any sense that matters. We are moving into a troubled, difficult, dangerous age in which most of us stand to lose a great many of the things that matter to us. Those troubles may encourage some of us to pursue a relationship with the sources of meaning in our lives, granted, but they are at least as likely to keep others too busy scrambling for survival or grieving over their losses to find time for that challenging process. When we project our fantasies of a better life onto the inkblot patterns of catastrophe, then, we’re kidding ourselves, and the sooner we grasp that – the sooner we come to terms with the bleak predicament facing us, and turn our attention to figuring out what might still be saved and then trying to save it – the more likely we are to make a positive difference in a bitter time.
That hard fact pretty much guarantees a future in which poverty, hunger, warfare, and early death will be vastly more common than their opposites, and in which a great many of the comforts and opportunities we now take for granted will no longer be available. That, in turn, would certainly seem to define the future ahead of us as worse than the present, in ways sweeping enough that any benefits to be gained from the changes in store could be considered consolation prizes at best. Still, so straightforward an assessment of our prospects is profoundly unwelcome in many circles these days.
The difficulty here is that faith in the prospect of a better future has been so deeply ingrained in all of us that trying to argue against it is a bit like trying to tell a medieval peasant that heaven with all its saints and angels isn’t there any more. The hope that tomorrow will be, or can be, or at the very least ought to be better than today is hardwired into the collective imagination of the modern world. Behind that faith lies the immense example of three hundred years of industrial expansion, which cashed in the cheaply accessible fraction of the Earth’s fossil fuel reserves for a brief interval of abundance so extreme that garbage collectors in today’s America have access to things that emperors could not get before the industrial revolution dawned.
That age of extravagance has profoundly reshaped – in terms of the realities of human life before and after our age, a better word might be “distorted” – the way people nowadays think about very nearly anything you care to name. In particular, it has blinded us to the ecological realities that provide the fundamental context to our lives. It’s made nearly all of us think, for example, that unlimited exponential growth is possible, normal, and good, and so even as the disastrous consequences of unlimited exponential growth slam into our society one after another like waves hitting a sand castle, the vast majority of people nowadays still build their visions of the future on the fantasy that problems caused by growth can be solved by still more growth.
The distorted thinking we have inherited from three centuries of unsustainable growth crops up in full force even among many of those who think they’re reacting against it. Activists at every point on the political spectrum have waxed rhetorical for generations about the horrors the future has in store, to be sure, but they always offer a way out – the adoption of whatever agenda they happen to be promoting – and it leads straight to a bright new tomorrow, in which the hard limits of the present somehow no longer seem to apply. (Take away the trope of “the only way to rescue a better future from the jaws of imminent disaster” from today’s activist rhetoric, for that matter, and in most cases there’s very little left.)
Still, the bright new tomorrow we’ve all been promised is not going to arrive. This is the bad news brought to us by the unfolding collision between industrial society and the unyielding limits of the planetary biosphere. Peak oil, global warming, and all the other crises gathering around the world are all manifestations of a single root cause: the impossibility of infinite growth on a finite planet. They are warning signals telling us that we have gone into full-blown overshoot – the state, familiar to ecologists, in which a species outruns the resource base that supports it – and they tell us also that growth is not merely going to stop; it’s going to reverse, and that reversal will continue until our population, resource use, and waste production drop to levels that can be sustained over the long term by a damaged planetary ecosystem.
That bitter outcome might have been prevented if we had collectively taken decisive action before we went into overshoot. We did not do so, and at this point the window of opportunity is firmly shut. Nearly all the proposals currently being floated to deal with the symptoms of our planetary overshoot assume, tacitly or otherwise, that this is not the case and we still have as much time as we need. Such proposals are wasted breath, and if any of them are enacted – and some of them very likely will be enacted, once today’s complacency gives way to tomorrow’s stark panic – the resources poured into them will be wasted as well.
This is one of the reasons it seems crucial to me to keep coming back to the hard facts of our predicament: our limited resources and even more limited time need to be directed toward projects that might actually do some good. Still, there’s another side to this repeated insistence on an unwelcome reality, and the best way to explore that is to glance back at one of the responses to last week’s post.
The comment in question came from a reader who signed himself “Tony.” I trust he won’t feel unduly picked on, as I’ve chosen his response as a thoughtful and eloquent expression of a common feeling that many readers of mine, and countless others as well, have expressed in their own ways. While acknowledging the ghastly human toll that will be inflicted by the ending of the industrial age, he argues that life in the modern world, while materially prosperous, is empty and meaningless, and hopes that life after industrialism will be more fulfilling. He comments:
My life is EASY now, but I do not LIKE it. My body may have ease, but not my soul. I also find no soul’s ease in the prospects for many, say, who need modern health care to live. I nonetheless find excitement in the thought that current power structures may soon crumble, finally giving those like myself, and others in my generation, a chance to really live.
Any of my readers who have been in contact with the peak oil scene, or any of the other movements that have predicted the decline and fall of our present civilization, will have heard these same feelings expressed many times. Some of my readers may have had such feelings themselves. The idea that a future of material deprivation and suffering may nonetheless be better in some psychological or spiritual sense echoes tropes deeply rooted in the narratives of our culture. Who among us hasn’t daydreamed about fleeing from the complexities and moral compromises of modern existence to some simpler and more strenuous life where, at least in our imaginations, the sources of life and meaning are closer?
It’s a very old fantasy. The Roman poet Horace, in his Second Epode, put the same sentiments in the mouth of a moneylender, who imagined himself living the simple life of a poor farmer off in the Italian hill country, then turned from such daydreams back to the work of managing his investments. No doubt there were plenty of poor farmers in Horace’s time whose daydreams fixated instead on the high life of a wealthy moneylender in Rome.
Still, there’s a crucial difference. Neither Alfius the moneylender nor the poor farmers of the Italian hinterlands, as far as we know, ever harnessed their daydreams of a better life to fantasies of global catastrophe. Nowadays, by contrast, a great many people do exactly that. From fundamentalist Christians who pin their hopes on the Rapture – “He’s tooting, and I’m scooting,” to quote a popular bumper sticker – straight through to the current crop of utopian true believers who insist that the implosion of the industrial world will be followed by the inevitable triumph of whatever ideology they favor, a great many people nowadays pin their hopes of a better life onto whatever convenient cataclysm comes to mind. Tony’s hope that the fall of current power structures will allow him “a chance to really live” is simply another variation on this theme.
The irony here would be worth savoring if it weren’t so potentially explosive. I’m normally unsympathetic to claims that our civilization is a unique case, but in this context it may just have accomplished something that no other society in all of history can match. Certainly I can’t think of another case in which people faced with the tolerably common human experience of a less than fulfilling life have had so few inner resources to hand, and so little knowledge of past thought about the same problem, that the only option a great many of them seem to be able to find is to sit around and wait for the world to end.
I try to wear my archdruid’s hat lightly in discussions in this blog, but it’s hard to think of any way to speak to this situation that doesn’t wade fairly deep into the waters of philosophy, not to mention spirituality. The fact that a life lived in material comfort can be unsatisfying does not mean that the comfort is what makes it unsatisfying. Life can be every bit as barren of meaning to someone who is starving to death in a burned-out basement, or scratching out a bare living from a few acres of mud and manure around a squalid hovel. The choices we make in response to our surroundings affect our relationship to the sources of meaning far more powerfully than the surroundings themselves, and those choices depend on the quality and content of our inner lives, not on outer factors. None of this ought to be news to anyone; it can be found in every tradition of human wisdom and spiritual teaching from the dawn of history right up to the present, and it remains as valid today as it ever was.
If Tony and his countless equivalents want “a chance to really live,” in other words, nothing is holding them back. If they feel their present comforts are obstacles to a better life, nothing prevents them from getting rid of those comforts. If they feel that danger and deprivation would make life more real for them, those can also be had easily enough by those who actually want them. Of course that’s the rub. Alfius could have gotten out of the moneylending business, donated his wealth to charity, moved to a farm and made his rural fantasy real, but of course he didn’t actually want to do that; he simply wanted to daydream about it. I admit to a strong suspicion that the same is true of Tony and his peers.
Alfius’ daydreams, mind you, were relatively harmless. I am not sure the same thing can be said of the fantasy of redemption through catastrophe that underlies Tony’s comments and the feelings of a great many other people just now. As industrial civilization begins to come apart around us in the decades ahead, the mismatch between that fantasy and the bitter realities of life in a dying civilization will stand out in increasingly stark colors, but in the meantime those who indulge in daydreams of destruction are a good deal less likely to take the practical, positive steps that could make the time of troubles ahead of us less harrowing than it could be.
Thus I think it’s crucial to come back to the hard fact that we are not heading toward a happier future in any sense that matters. We are moving into a troubled, difficult, dangerous age in which most of us stand to lose a great many of the things that matter to us. Those troubles may encourage some of us to pursue a relationship with the sources of meaning in our lives, granted, but they are at least as likely to keep others too busy scrambling for survival or grieving over their losses to find time for that challenging process. When we project our fantasies of a better life onto the inkblot patterns of catastrophe, then, we’re kidding ourselves, and the sooner we grasp that – the sooner we come to terms with the bleak predicament facing us, and turn our attention to figuring out what might still be saved and then trying to save it – the more likely we are to make a positive difference in a bitter time.
Wednesday, September 9, 2009
A Terrible Ambivalence
I’d meant to spend this week’s report talking about scarcity industrialism, the kind of economy that will be defined for us in the near future by the conjunction of resource scarcity with the immense mass of embodied energy we call an industrial civilization. There’s a great deal to be said about the forms such an economy will likely take, and the harsh challenges and unexpected opportunities that it will bring to a world still far too used to getting as much energy as it wants whenever it happens to want it.
Still, that necessary theme will have to wait a week or two. Last month the online edition of The Guardian, one of the leading (or at least surviving) British newspapers, featured a debate about the future of industrial society between journalist, poet and cofounder of The Dark Mountain Project Paul Kingsnorth, and the sturdy radical George Monbiot, who's most recently made a name for himself as a tireless advocate for drastic measures to counter global warming. It was refreshing to see the possibility of the collapse of our civilization debated on so public a forum, and of course it didn't hurt my feelings any to be cited as an authority of sorts by one of the participants. Still, the debate left me with a deep sense of disquiet, which has only become stronger. in the days that followed and finally made this point unavoidable.
At some risk of oversimplification, the argument between Monbiot and Kingsnorth may be summed up more or less as follows. Both agree that industrial civilization faces imminent collapse. Monbiot argues that collapse might still be prevented if we all pull together, that the only alternative is letting total collapse happen, and that this is unthinkable because billions of people will die horribly. He argues that the only alternative to preserving modern society in some improved form is a cataclysmic process of mass dieoff ending in a new dark age ruled by petty warlords, with some new earth-ravaging society likely to rise on the ruins of the old unless his preferred political solution gets put in place to control our species' ecocidal tendencies.
Kingsnorth rejects all this. He insists that collapse can't be prevented, and in any case should be allowed to happen, because industrial civilization is a "planetary weapon of mass destruction" and letting it collapse is less destructive than allowing it to continue. He cites my concept of the Long Descent to argue that the end of industrial civilization could be a lot less traumatic than Monbiot thinks it must be, insists that ecocide is inherent in our present society rather than in humanity as a whole, and suggests that whatever replaces our society is bound to be less dreadful than what we have now.
Anyone who has listened to debates about the future of industrial society at any point in the last fifty years or so will surely find both these arguments familiar. Since the limits to growth first became visible on the horizon of our civilization's future, the great majority of those who took the time to notice them either insisted that humanity can and must do something about them, and offered some plan for reaching a better future, or insisted that nothing at all could be done about them, and claimed that the arrival of those limits would bring a better future.
To be fair to Monbiot and Kingsnorth, their stances in the debate expressed moderate and nuanced versions of these common tropes. It wouldn't be hard at all to find examples much further out in either direction – out well past Monbiot, say, one of the current technofantasists or political zealots who believe that a world teetering on the edge of doom can be transformed into Utopia if only their pet project were to be adopted by all; out well past Kingsnorth, perhaps, one of the neoprimitivists who daydream about the carefree life in the bountiful lap of nature that would surely arrive if only six billion inconvenient people would hurry up and die.
The arguments in the Guardian debate are far less extreme, and far more reasonable, than these. So why do they leave me shaking my head, convinced that neither one has grasped what's most essential about the predicament before us?
The places where Monbiot misses the turning, as I see it, stand out clearly, and longtime readers of this blog will likely have no difficulty at all anticipating my disagreements with his views. To begin with, his call to arms is an epic case of locking the barn door when the horse has not only left but mailed back a forwarding address from another state. The end of industrial civilization would almost certainly have been forestalled if sensible policies had been put in place in the 1950s; there was arguably still some hope of success if all-out efforts had been launched in the 1970s; at this point, with Hubbert's peak already past, CO2 piling up in the atmosphere and the world's human population approaching seven billion, the chances of preventing collapse compare unfavorably with those of a snowball in Beelzebub's back yard.
Now it could be argued that any possibility is worth pursuing if the alternative is dire enough, and this is basically the argument Monbiot makes. Unfortunately his plan of action is simply to dust off the same toolkit of protest methods that activists have been using with diminishing returns, and governments have been brushing aside with increasing success, since the dawn of the twentieth century. The handful of successes achieved by those methods many decades ago have imposed a bizarre astigmatism of the imagination on the left; the stereotyped methods of protest have become so sacrosanct, or so automatic, that the mere fact that they have failed consistently for years never quite seems to register.
All this invites comparison with Don Quixote, even if Monbiot is fighting for windmills rather than against them. Woeful countenances aside, though, insisting on the pursuit of an unreachable goal through ineffective methods is not normally a productive way to prepare for a difficult future. There's nothing in Monbiot's proposal that hasn't been tried repeatedly since the 1950s without having the least impact on the trajectory of industrial society, and as the saying has it, if you always do what you've always done, you'll always get what you've always gotten.
All this may seem like support for Paul Kingsnorth's side of the argument, and of course it parallels a number of the points he makes in the debate and elsewhere in his writings. It seems fair to say that my views are much more in sympathy with his than with Monbiot's, and I suspect that Kingsnorth would agree with that assessment, as he's the one who cited me to support one of his arguments. Yet there's a sour note running through his contributions to the debate, and it comes out forcefully every time he finesses the human cost of the transformation ahead of us.
Monbiot, to give him his due, calls him on this repeatedly. A deindustrial world, as Monbiot correctly points out, will be able to support maybe two billion people at most – my working guess, for what it's worth, is that this is too optimistic by a factor of four – and this means that in any future that doesn't include the survival of the industrial system, a lot of people are going to die. Now of course he goes from there to imply, more or less, that yet another round of protest marches is the only way to keep five billion human corpses from hitting the ground in a single planetwide thud, and this doesn't exactly follow. Still, the basic point is valid, and Kingsnorth's efforts to evade it are troubling.
Yet that evasion is inseparable from a central theme of Kingsnorth's argument, which is that a better world can be expected to rise out of the wreckage of the present. That Monbiot's argument also hinges on his hopes for a bright new tomorrow adds a rich irony to the debate. Both men are proclaiming the gospel of a better future; their disagreements are simply about what form that future will take and how we will get there. Both assume that we can have, and ought to have, a future that's even shinier than the present. It's a very common assumption, so common that many of those who are reading these words may share it, but it's also the place where the worm gets in and rots the apple to the core.
We are not going to have a future better than the present: not in our lifetimes, and not in those of our grandchildren's grandchildren. We collectively closed the door on that possibility decades ago, and none of the rapidly narrowing range of choices still open to us now offers any way of changing that. If this sounds like fatalism, it may be worth remembering that once a car goes skidding off a mountain road into empty air, it requires neither a crystal ball nor a faith in predestination to recognize that nothing anybody can do is going to prevent a terrific crash.
It's nonsense to claim, as some inevitably do, that this realization makes taking action pointless. Our efforts, given hard work, wisdom, and a substantial dollop of luck, may well succeed in making the future less difficult than it will otherwise be. It may be possible for us to save a few things worth saving that would otherwise be lost, to stem some little of what will be an immense tide of human suffering, to do what we can to help stabilize a damaged biosphere so Nature doesn't have to rebuild it entirely from scratch. All of these things are profoundly worth doing. None of them will change the fact that the future ahead of us will be a profoundly difficult time in which many of the things that are most meaningful to each of us will inevitably be lost.
We do no one a favor, least of all ourselves, by trying to sugarcoat that very unpalatable reality. Nor do we gain anything by playing the fox to industrial civilization's grapes, and insisting that the extraordinary gifts the recent past has given us are sour because they are about to pass out of our reach. During the age that is coming to an end, the billion or so of us who have lived in the industrial world have enjoyed comforts and opportunities that our species had never known before and almost certainly will never know again. Those could never have been anything but temporary, they were distributed no more fairly than anything else passed around by human hands, and a wiser species would likely have had more common sense than to launch itself on the trajectory we followed, but it's as distorting to dismiss the extraordinary achievements of our age as it would be to ignore the terrible cost for those achievements that will be paid by us and our descendants.
So many of us want things all one way or the other, all good or all evil, without the terrible ambivalence that pulses through all things human as inescapably as blood. So many of us want to see today's civilization as humanity's only hope or as ecocide incarnate, and long for a future that will be either the apotheosis or the final refutation of the present. It's far less popular, and arguably far more difficult, to embrace that ambivalence and accept both the wonder and the immense tragedy of our time. Still, it seems to me that if we are to face up to the challenges of the future that's bearing down on us, that difficult realization is an essential starting point.
Still, that necessary theme will have to wait a week or two. Last month the online edition of The Guardian, one of the leading (or at least surviving) British newspapers, featured a debate about the future of industrial society between journalist, poet and cofounder of The Dark Mountain Project Paul Kingsnorth, and the sturdy radical George Monbiot, who's most recently made a name for himself as a tireless advocate for drastic measures to counter global warming. It was refreshing to see the possibility of the collapse of our civilization debated on so public a forum, and of course it didn't hurt my feelings any to be cited as an authority of sorts by one of the participants. Still, the debate left me with a deep sense of disquiet, which has only become stronger. in the days that followed and finally made this point unavoidable.
At some risk of oversimplification, the argument between Monbiot and Kingsnorth may be summed up more or less as follows. Both agree that industrial civilization faces imminent collapse. Monbiot argues that collapse might still be prevented if we all pull together, that the only alternative is letting total collapse happen, and that this is unthinkable because billions of people will die horribly. He argues that the only alternative to preserving modern society in some improved form is a cataclysmic process of mass dieoff ending in a new dark age ruled by petty warlords, with some new earth-ravaging society likely to rise on the ruins of the old unless his preferred political solution gets put in place to control our species' ecocidal tendencies.
Kingsnorth rejects all this. He insists that collapse can't be prevented, and in any case should be allowed to happen, because industrial civilization is a "planetary weapon of mass destruction" and letting it collapse is less destructive than allowing it to continue. He cites my concept of the Long Descent to argue that the end of industrial civilization could be a lot less traumatic than Monbiot thinks it must be, insists that ecocide is inherent in our present society rather than in humanity as a whole, and suggests that whatever replaces our society is bound to be less dreadful than what we have now.
Anyone who has listened to debates about the future of industrial society at any point in the last fifty years or so will surely find both these arguments familiar. Since the limits to growth first became visible on the horizon of our civilization's future, the great majority of those who took the time to notice them either insisted that humanity can and must do something about them, and offered some plan for reaching a better future, or insisted that nothing at all could be done about them, and claimed that the arrival of those limits would bring a better future.
To be fair to Monbiot and Kingsnorth, their stances in the debate expressed moderate and nuanced versions of these common tropes. It wouldn't be hard at all to find examples much further out in either direction – out well past Monbiot, say, one of the current technofantasists or political zealots who believe that a world teetering on the edge of doom can be transformed into Utopia if only their pet project were to be adopted by all; out well past Kingsnorth, perhaps, one of the neoprimitivists who daydream about the carefree life in the bountiful lap of nature that would surely arrive if only six billion inconvenient people would hurry up and die.
The arguments in the Guardian debate are far less extreme, and far more reasonable, than these. So why do they leave me shaking my head, convinced that neither one has grasped what's most essential about the predicament before us?
The places where Monbiot misses the turning, as I see it, stand out clearly, and longtime readers of this blog will likely have no difficulty at all anticipating my disagreements with his views. To begin with, his call to arms is an epic case of locking the barn door when the horse has not only left but mailed back a forwarding address from another state. The end of industrial civilization would almost certainly have been forestalled if sensible policies had been put in place in the 1950s; there was arguably still some hope of success if all-out efforts had been launched in the 1970s; at this point, with Hubbert's peak already past, CO2 piling up in the atmosphere and the world's human population approaching seven billion, the chances of preventing collapse compare unfavorably with those of a snowball in Beelzebub's back yard.
Now it could be argued that any possibility is worth pursuing if the alternative is dire enough, and this is basically the argument Monbiot makes. Unfortunately his plan of action is simply to dust off the same toolkit of protest methods that activists have been using with diminishing returns, and governments have been brushing aside with increasing success, since the dawn of the twentieth century. The handful of successes achieved by those methods many decades ago have imposed a bizarre astigmatism of the imagination on the left; the stereotyped methods of protest have become so sacrosanct, or so automatic, that the mere fact that they have failed consistently for years never quite seems to register.
All this invites comparison with Don Quixote, even if Monbiot is fighting for windmills rather than against them. Woeful countenances aside, though, insisting on the pursuit of an unreachable goal through ineffective methods is not normally a productive way to prepare for a difficult future. There's nothing in Monbiot's proposal that hasn't been tried repeatedly since the 1950s without having the least impact on the trajectory of industrial society, and as the saying has it, if you always do what you've always done, you'll always get what you've always gotten.
All this may seem like support for Paul Kingsnorth's side of the argument, and of course it parallels a number of the points he makes in the debate and elsewhere in his writings. It seems fair to say that my views are much more in sympathy with his than with Monbiot's, and I suspect that Kingsnorth would agree with that assessment, as he's the one who cited me to support one of his arguments. Yet there's a sour note running through his contributions to the debate, and it comes out forcefully every time he finesses the human cost of the transformation ahead of us.
Monbiot, to give him his due, calls him on this repeatedly. A deindustrial world, as Monbiot correctly points out, will be able to support maybe two billion people at most – my working guess, for what it's worth, is that this is too optimistic by a factor of four – and this means that in any future that doesn't include the survival of the industrial system, a lot of people are going to die. Now of course he goes from there to imply, more or less, that yet another round of protest marches is the only way to keep five billion human corpses from hitting the ground in a single planetwide thud, and this doesn't exactly follow. Still, the basic point is valid, and Kingsnorth's efforts to evade it are troubling.
Yet that evasion is inseparable from a central theme of Kingsnorth's argument, which is that a better world can be expected to rise out of the wreckage of the present. That Monbiot's argument also hinges on his hopes for a bright new tomorrow adds a rich irony to the debate. Both men are proclaiming the gospel of a better future; their disagreements are simply about what form that future will take and how we will get there. Both assume that we can have, and ought to have, a future that's even shinier than the present. It's a very common assumption, so common that many of those who are reading these words may share it, but it's also the place where the worm gets in and rots the apple to the core.
We are not going to have a future better than the present: not in our lifetimes, and not in those of our grandchildren's grandchildren. We collectively closed the door on that possibility decades ago, and none of the rapidly narrowing range of choices still open to us now offers any way of changing that. If this sounds like fatalism, it may be worth remembering that once a car goes skidding off a mountain road into empty air, it requires neither a crystal ball nor a faith in predestination to recognize that nothing anybody can do is going to prevent a terrific crash.
It's nonsense to claim, as some inevitably do, that this realization makes taking action pointless. Our efforts, given hard work, wisdom, and a substantial dollop of luck, may well succeed in making the future less difficult than it will otherwise be. It may be possible for us to save a few things worth saving that would otherwise be lost, to stem some little of what will be an immense tide of human suffering, to do what we can to help stabilize a damaged biosphere so Nature doesn't have to rebuild it entirely from scratch. All of these things are profoundly worth doing. None of them will change the fact that the future ahead of us will be a profoundly difficult time in which many of the things that are most meaningful to each of us will inevitably be lost.
We do no one a favor, least of all ourselves, by trying to sugarcoat that very unpalatable reality. Nor do we gain anything by playing the fox to industrial civilization's grapes, and insisting that the extraordinary gifts the recent past has given us are sour because they are about to pass out of our reach. During the age that is coming to an end, the billion or so of us who have lived in the industrial world have enjoyed comforts and opportunities that our species had never known before and almost certainly will never know again. Those could never have been anything but temporary, they were distributed no more fairly than anything else passed around by human hands, and a wiser species would likely have had more common sense than to launch itself on the trajectory we followed, but it's as distorting to dismiss the extraordinary achievements of our age as it would be to ignore the terrible cost for those achievements that will be paid by us and our descendants.
So many of us want things all one way or the other, all good or all evil, without the terrible ambivalence that pulses through all things human as inescapably as blood. So many of us want to see today's civilization as humanity's only hope or as ecocide incarnate, and long for a future that will be either the apotheosis or the final refutation of the present. It's far less popular, and arguably far more difficult, to embrace that ambivalence and accept both the wonder and the immense tragedy of our time. Still, it seems to me that if we are to face up to the challenges of the future that's bearing down on us, that difficult realization is an essential starting point.
Wednesday, September 2, 2009
The Dawn of Scarcity Industrialism
Two bits of news circulating on the internet in the last week or so offer a useful glimpse at some of the currents of change that are setting the future into motion around us. One of them caused a modest flutter in the dovecotes of the internet and the mass media, and the other passed almost unnoticed. So far, though, the sweeping implications of both of these news items seem to have been missed by most observers.
The first bit of news was a report that the Chinese government is planning to ban the export of rare earth elements. Those of my readers who don’t track the latest fads in technology may not know that these have become crucial to many cutting edge technologies. Lanthanum, for example, is used in high-tech batteries, and neodymium goes into the permanent magnets used in electric motors and wind turbines. The innards of the Prius and other hybrids, to say nothing of the as-yet-imaginary electric cars being hyped by what’s left of the American auto industry, depend on rare earth elements, and China currently produces well over 90% of the world’s supply of most of them. The report thus sparked claims of an imminent shortage in these minerals and, predictably, a flurry of speculative interest in (and hype-ridden articles about) mines outside of China that can produce the same minerals
A couple of details of the proposed restrictions somehow failed to make it into most media and internet accounts, and they are by no means minor issues. The first is that there’s nothing that new about this news; in each of the last three years, the Chinese government has cut the export quotas for rare earth elements from China’s mines. More important is the fact that the Chinese are not preventing the export of products containing rare earth elements; they are simply moving to ban the export of the raw materials. In effect, what the Chinese are saying is that they are no longer willing to accept the Third World’s designated role as a source of raw materials and cheap labor to be exploited for the benefit of somebody else; if the future is going to run on technologies based on rare earth elements, those technologies are going to come out of Chinese factories, and the wealth produced by them is going to be concentrated in Chinese hands.
As this reality sinks in, we will doubtless hear more denunciations of “resource nationalism.” You’ll notice that nobody denounces “resource nationalism” when the United States imposes political controls on the control of its own strategic resources, as of course it does. The problem arises, as some wag or other put it, because a lot of our resources these days have unaccountably turned up underneath somebody else’s real estate.
Now to some extent the rise of “resource nationalism” is simply one of the consequences of the decline of America’s global empire. Page back a century or so to the time when Britain was the global superpower, with troops garrisoned around the globe, and the same debates took place in very nearly the same terms. Britain’s Parliament and press trumpeted the virtues of free trade, meaning by that comfortably vague phrase a system of unequal exchanges that concentrated the bulk of the world’s wealth in London, while other countries – among them, ironically, the United States – used politically imposed trade barriers and tariffs to nurture their emerging industrial economies at Britain’s expense. As the British Empire waned, so did the global economy of the late 19th century, until the First World War finally pushed it over the brink into oblivion.
We are arguably in a similar situation now, with America playing the role of declining empire and China, among other countries, imposing strategic trade barriers by political fiat as a means of building up its own industrial might at our expense. All other things being equal, we might reasonably expect a troubled transition lasting several decades and punctuated by a series of spectacular wars, not unlike the 1914-1945 transition period that saw Britain’s global empire replaced by America’s. Still, all other things are not equal, and the second bit of news I want to discuss here points up one of the differences.
This was the announcement a few days back that the world derivative market has now reached a total paper value in excess of one quadrillion dollars. The conventional wisdom has it that such sums are beyond the capacity of the human mind to grasp, and in this case, the conventional wisdom may well be right. (If you have the sort of fashionable lifestyle that costs you $2000 a day, for example, and you started spending it when multicellular life first evolved on Earth, you wouldn’t yet have spent one quadrillion dollars.) Still, it’s important to grapple with such figures if only to grasp the fantastic absurdities that have created them.
In thinking about this particular version of the unthinkable, two things should be obvious. The first is that there isn’t a quadrillion dollars worth of nonfinancial goods and services anywhere on our planet. The second, which derives necessarily from the first, is that those derivatives aren’t actually worth a quadrillion dollars in any meaningful sense, since it’s impossible to cash them in for anything other than more financial paper. In terms introduced in an earlier Archdruid Report post, derivatives exist solely in the tertiary economy, the economy of abstract numbers that started out as a representation of real wealth and has now gone spinning off into a hallucinatory Wonderland of its own.
As I am not sure how many of my readers understand derivatives, a few words on the subject might be useful. A derivative is essentially a bet regarding some asset, index, cash flow, or the like, which is called the “underlying.” In the early days of derivatives, cash changed hands when the bet was settled – for example, a derivatives contract might obligate me to buy a hundred carloads of steel next October at a price fixed in advance, and the price of steel when the contract came due determined who profited and who lost. More recently, though, derivative contracts themselves have become hot speculative properties, subject to all the usual vagaries of bubble economics. Since they can quite literally be conjured out of thin air when needed, with no cash down, they are in many ways the perfect speculative instrument.
It will be interesting to see just how long the current bubble in derivatives – for that is what it is, of course – can continue to run. Substantial gaps already exist between the speculative economy and that other, dowdier economy where nonfinancial goods and services are produced and consumed; nowadays the main connection between these two economies is credit, which is manufactured in the speculative economy but partly exported to the real economy. The late housing bubble and its aftermath offers a good demonstration of this; vast amounts of credit produced in the speculative economy flooded the real economy until 2007 or so, causing apparent prosperity; when the speculative economy crashed and all that credit dried up, so did the real economy’s prospects. Derivatives have less contact with the real economy than mortgage-backed securities did, and since nearly all the quadrillions of dollars in the derivatives bubble have been minted out of twinkle dust by processes even more arbitrary than those used by the US government to conjure the funds for its recent stimulus programs – and that is saying something – it’s not completely impossible that the bubble will go zooming off into a realm of pure abstraction full of quintillion-dollar deals as irrelevant to the real economy as the money traded in a game of Monopoly.
Yet there is another potential connection between the etherial realms of speculative finance and the gritty world of matter where goods and services are produced and consumed, and China’s tightening grip on its rare earth elements points toward that connection. Economics does not exist in a vacuum, and the power of high finance can find itself suddenly overmatched when it has to contend with the sort of power that grows out of the barrel of a gun.
This is the mostly unlearned lesson behind the collapse of Long Term Capital Management (LTCM), that poster child of 1990s speculative hubris. Founded by some of the brightest minds in the market, with two Nobel laureates on its staff, LTCM made money – for a while, lots of it – by a set of complex mathematical models that, according to one of its founders, could not fail within the lifetime of this universe or two more like it. The universe ended early; LTCM had been in business for all of five years when the Russian government unilaterally suspended payments on its foreign loans. LTCM had a lot of money in Russian loans, but the prospect of a default wasn’t included in the models, and by the time the rubble stopped bouncing LTCM was so deep in the red that a consortium of banks had to be strongarmed by US government officials into stumping up billions of dollars to prevent a run on securities markets.
The lesson the founders of LTCM learned the hard way is that politics trumps economics. It’s a lesson that has been repeated many times over the last century, but it’s one that very few people seem willing to notice. If I’m right, though, it may just be the key to understanding the next fifty years or so of history.
In previous posts here, I’ve suggested that the world is in the midst of a transformation between the kind of society and economy familiar to us over the last century or so, which I’ve called “abundance industrialism,” and a new kind that may as well be called “scarcity industrialism.” Where abundance industrialism was defined by the ready availability of cheap abundant natural resources, especially but not only fossil fuels, scarcity industrialism will be defined by the scarcity of such resources. One of the implications of this shift is that those nations and regions that control significant amounts of important resources will find those resources becoming a potent source of political leverage. The same sort of clout OPEC gained from its oil reserves in the Seventies, and may reclaim in the not too distant future, will become accessible to countries or cartels of countries with large amounts of any economically vital resource.
If this is correct, the Chinese are not just using trade barriers to build their industrial plant at America’s expense; they’re doing that, of course, but it’s not all they’re doing. They are also taking advantage of the opportunities opening up as the age of scarcity industrialism dawns. They may well have recognized that in a world that will increasingly be shaped by resource scarcities, those who act to secure their own resource bases can thrive while others falter. It’s a lesson that Russia has already learned – witness the successful efforts of the Russian government to seize Russia’s fossil fuel assets from the handful of American- and British-backed billionaires who walked off with them during the chaos and corruption of the Yeltsin years – and other nations are beginning to learn it as well.
The dawn of the age of scarcity industrialism thus promises to stand many of the assumptions of the recent past on their heads. It may not be out of place, therefore, to discuss some of the ways that societies might, if they were minded to do so, deal with some of these new realities, and next week’s post will try to peer ahead into this territory.
The first bit of news was a report that the Chinese government is planning to ban the export of rare earth elements. Those of my readers who don’t track the latest fads in technology may not know that these have become crucial to many cutting edge technologies. Lanthanum, for example, is used in high-tech batteries, and neodymium goes into the permanent magnets used in electric motors and wind turbines. The innards of the Prius and other hybrids, to say nothing of the as-yet-imaginary electric cars being hyped by what’s left of the American auto industry, depend on rare earth elements, and China currently produces well over 90% of the world’s supply of most of them. The report thus sparked claims of an imminent shortage in these minerals and, predictably, a flurry of speculative interest in (and hype-ridden articles about) mines outside of China that can produce the same minerals
A couple of details of the proposed restrictions somehow failed to make it into most media and internet accounts, and they are by no means minor issues. The first is that there’s nothing that new about this news; in each of the last three years, the Chinese government has cut the export quotas for rare earth elements from China’s mines. More important is the fact that the Chinese are not preventing the export of products containing rare earth elements; they are simply moving to ban the export of the raw materials. In effect, what the Chinese are saying is that they are no longer willing to accept the Third World’s designated role as a source of raw materials and cheap labor to be exploited for the benefit of somebody else; if the future is going to run on technologies based on rare earth elements, those technologies are going to come out of Chinese factories, and the wealth produced by them is going to be concentrated in Chinese hands.
As this reality sinks in, we will doubtless hear more denunciations of “resource nationalism.” You’ll notice that nobody denounces “resource nationalism” when the United States imposes political controls on the control of its own strategic resources, as of course it does. The problem arises, as some wag or other put it, because a lot of our resources these days have unaccountably turned up underneath somebody else’s real estate.
Now to some extent the rise of “resource nationalism” is simply one of the consequences of the decline of America’s global empire. Page back a century or so to the time when Britain was the global superpower, with troops garrisoned around the globe, and the same debates took place in very nearly the same terms. Britain’s Parliament and press trumpeted the virtues of free trade, meaning by that comfortably vague phrase a system of unequal exchanges that concentrated the bulk of the world’s wealth in London, while other countries – among them, ironically, the United States – used politically imposed trade barriers and tariffs to nurture their emerging industrial economies at Britain’s expense. As the British Empire waned, so did the global economy of the late 19th century, until the First World War finally pushed it over the brink into oblivion.
We are arguably in a similar situation now, with America playing the role of declining empire and China, among other countries, imposing strategic trade barriers by political fiat as a means of building up its own industrial might at our expense. All other things being equal, we might reasonably expect a troubled transition lasting several decades and punctuated by a series of spectacular wars, not unlike the 1914-1945 transition period that saw Britain’s global empire replaced by America’s. Still, all other things are not equal, and the second bit of news I want to discuss here points up one of the differences.
This was the announcement a few days back that the world derivative market has now reached a total paper value in excess of one quadrillion dollars. The conventional wisdom has it that such sums are beyond the capacity of the human mind to grasp, and in this case, the conventional wisdom may well be right. (If you have the sort of fashionable lifestyle that costs you $2000 a day, for example, and you started spending it when multicellular life first evolved on Earth, you wouldn’t yet have spent one quadrillion dollars.) Still, it’s important to grapple with such figures if only to grasp the fantastic absurdities that have created them.
In thinking about this particular version of the unthinkable, two things should be obvious. The first is that there isn’t a quadrillion dollars worth of nonfinancial goods and services anywhere on our planet. The second, which derives necessarily from the first, is that those derivatives aren’t actually worth a quadrillion dollars in any meaningful sense, since it’s impossible to cash them in for anything other than more financial paper. In terms introduced in an earlier Archdruid Report post, derivatives exist solely in the tertiary economy, the economy of abstract numbers that started out as a representation of real wealth and has now gone spinning off into a hallucinatory Wonderland of its own.
As I am not sure how many of my readers understand derivatives, a few words on the subject might be useful. A derivative is essentially a bet regarding some asset, index, cash flow, or the like, which is called the “underlying.” In the early days of derivatives, cash changed hands when the bet was settled – for example, a derivatives contract might obligate me to buy a hundred carloads of steel next October at a price fixed in advance, and the price of steel when the contract came due determined who profited and who lost. More recently, though, derivative contracts themselves have become hot speculative properties, subject to all the usual vagaries of bubble economics. Since they can quite literally be conjured out of thin air when needed, with no cash down, they are in many ways the perfect speculative instrument.
It will be interesting to see just how long the current bubble in derivatives – for that is what it is, of course – can continue to run. Substantial gaps already exist between the speculative economy and that other, dowdier economy where nonfinancial goods and services are produced and consumed; nowadays the main connection between these two economies is credit, which is manufactured in the speculative economy but partly exported to the real economy. The late housing bubble and its aftermath offers a good demonstration of this; vast amounts of credit produced in the speculative economy flooded the real economy until 2007 or so, causing apparent prosperity; when the speculative economy crashed and all that credit dried up, so did the real economy’s prospects. Derivatives have less contact with the real economy than mortgage-backed securities did, and since nearly all the quadrillions of dollars in the derivatives bubble have been minted out of twinkle dust by processes even more arbitrary than those used by the US government to conjure the funds for its recent stimulus programs – and that is saying something – it’s not completely impossible that the bubble will go zooming off into a realm of pure abstraction full of quintillion-dollar deals as irrelevant to the real economy as the money traded in a game of Monopoly.
Yet there is another potential connection between the etherial realms of speculative finance and the gritty world of matter where goods and services are produced and consumed, and China’s tightening grip on its rare earth elements points toward that connection. Economics does not exist in a vacuum, and the power of high finance can find itself suddenly overmatched when it has to contend with the sort of power that grows out of the barrel of a gun.
This is the mostly unlearned lesson behind the collapse of Long Term Capital Management (LTCM), that poster child of 1990s speculative hubris. Founded by some of the brightest minds in the market, with two Nobel laureates on its staff, LTCM made money – for a while, lots of it – by a set of complex mathematical models that, according to one of its founders, could not fail within the lifetime of this universe or two more like it. The universe ended early; LTCM had been in business for all of five years when the Russian government unilaterally suspended payments on its foreign loans. LTCM had a lot of money in Russian loans, but the prospect of a default wasn’t included in the models, and by the time the rubble stopped bouncing LTCM was so deep in the red that a consortium of banks had to be strongarmed by US government officials into stumping up billions of dollars to prevent a run on securities markets.
The lesson the founders of LTCM learned the hard way is that politics trumps economics. It’s a lesson that has been repeated many times over the last century, but it’s one that very few people seem willing to notice. If I’m right, though, it may just be the key to understanding the next fifty years or so of history.
In previous posts here, I’ve suggested that the world is in the midst of a transformation between the kind of society and economy familiar to us over the last century or so, which I’ve called “abundance industrialism,” and a new kind that may as well be called “scarcity industrialism.” Where abundance industrialism was defined by the ready availability of cheap abundant natural resources, especially but not only fossil fuels, scarcity industrialism will be defined by the scarcity of such resources. One of the implications of this shift is that those nations and regions that control significant amounts of important resources will find those resources becoming a potent source of political leverage. The same sort of clout OPEC gained from its oil reserves in the Seventies, and may reclaim in the not too distant future, will become accessible to countries or cartels of countries with large amounts of any economically vital resource.
If this is correct, the Chinese are not just using trade barriers to build their industrial plant at America’s expense; they’re doing that, of course, but it’s not all they’re doing. They are also taking advantage of the opportunities opening up as the age of scarcity industrialism dawns. They may well have recognized that in a world that will increasingly be shaped by resource scarcities, those who act to secure their own resource bases can thrive while others falter. It’s a lesson that Russia has already learned – witness the successful efforts of the Russian government to seize Russia’s fossil fuel assets from the handful of American- and British-backed billionaires who walked off with them during the chaos and corruption of the Yeltsin years – and other nations are beginning to learn it as well.
The dawn of the age of scarcity industrialism thus promises to stand many of the assumptions of the recent past on their heads. It may not be out of place, therefore, to discuss some of the ways that societies might, if they were minded to do so, deal with some of these new realities, and next week’s post will try to peer ahead into this territory.
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