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Page added on December 19, 2012
Why Things Are Falling Apart… And What We Can Do About It
To understand the reasons why our financial system, our economy and our present policies are unsustainable, we need to come to grips with two simple truths. First, the economy and government are an interconnected system. As such the party attempting to steer it does not have controlling power over it. The second fact is that “faster, better, cheaper” always wins, replacing the inefficient and unsustainable. This is the reality within which the system operates.
The present foundation of the system, and our economy, is Financialization. This is not by design but rather by Darwinian evolution. It has unfortunately, become the basic engine of consumer growth through its’ leveraging of collateral into debt and phantom assets, such as derivatives and bubble valuations. The limiting fact to this system is that ever-rising debt and leverage is unsustainable, once household assets and incomes stop rising.
Uncontrolled financialization & unsound money, without historic exception, consistently leads to:
- Malinvestment in the Private sector – In the private sector cheap money will naturally flow into high-risk, low-return investments. This leads to “McMansions in the Middle of Nowhere”
- Crony Capitalism in the Public sector – In the public sector, crony capitalism secures low risk, high-return investments. This leads to “Bridges to Nowhere.”
The system in its present form has become too complex, fragile and insufficiently robust, that it is realistically unsustainable and un-governable. The unsustainable will collapse and be replaced by an arrangement that is sustainable. Creative destruction and “faster, better, cheaper” is the only sustainable system; the alternative is to cling to failed models until the system collapses.
“Any intelligent fool can make things bigger and more complex… It takes a touch of genius and a lot of courage to move in the opposite direction.” (Albert Einstein)
Additionally, our economy and state are unsustainable for converging and disruptive systemic reasons, that go beyond the financial:
- Demographics—our aging populace and the impossible entitlements promises made
- Decline of Paid Work—automation and the Web are destroying more jobs than they create
- Diminishing Returns of Centralization—the more power the State grabs, the more broken the system becomes
- EROEI (energy returned on energy invested): energy may be abundant but expensive
- Healthcare in Crisis—our health declines as we spend 2X more per capita than our competitors
- The End of Consumerist Growth—if debt and income aren’t growing, neither can consumption
- Globalization—the genii cannot be put back in the bottle
What We Can Do about It
“There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things. For the reformer has enemies in all those who profit by the old order, and only lukewarm defenders in all those who would profit by the new order, this lukewarmness arising partly from fear of their adversaries… and partly from the incredulity of mankind, who do not truly believe in anything new until they have had actual experience of it.” (Machiavelli, 1532)
The better choice is to embrace technological and social innovations and “faster, better, cheaper.”, since it eventually wins, regardless of our preferences.
This means GLOBALLY accepting and INNOVATIVELY moving RAPIDLY towards a DATA System:
D- Decentralized
A- Adaptive
T- Transparent
A- Accountable
We don’t get to choose, it is the natural order!
9 Comments on "Why Things Are Falling Apart… And What We Can Do About It"
econ101 on Wed, 19th Dec 2012 3:08 pm
Depspite broad-based assumptions that are not entirely true this author does come to a reasonable conclusion.
GregT on Wed, 19th Dec 2012 7:26 pm
Cheap, abundant, excess energy is what has driven our economies. Not government, technology, or globalization.
As energy becomes more expensive and less abundant, with ever diminishing EROEI, our economies will continue to decline. Famine, climate change, decentralization, and wars, are what we can expect our futures to entail.
We could make a choice to voluntarily power down our economies and return to sustainability now, but that is not in our nature.
We will continue to desperately try to hold on to business as usual, until we run out of resources and a planet that is capable of sustaining our populations. It will then be too late.
BillT on Thu, 20th Dec 2012 1:23 am
GregT, you are so right! We as a species in the developed world will go speeding off the cliff of extinction with the throttle wide open.
No mention of what all that energy burning is doing to the climate we need to survive. But, all economists cannot see that dinosaur charging towards them. THAT is by far more important than saving some economy system or even the Western lifestyle. Mother Nature can wipe us out in a decade or less. If even half of the predicted changes happen, we are toast by 2100.
ken nohe on Thu, 20th Dec 2012 1:33 am
Good article which manages to cover a lot of ground and be compact. But I do not agree with the positive conclusion. We can entertain in our minds the possibility of change but social dynamics makes it impossible. Inertia, entrenched interests, conflict of interest prevents changes from happening fast enough. In fact, only crisis can help us face our limits but here too, we have made a lot of progress in avoiding crisis and we are consequently not getting the signals in time…
But the laws of nature are inescapable. I was fascinated to learn recently that climate may be a much better driver of prosperity and fall than we ever expected. Everybody knows the story of the Maya who may or may not have succumbed to a long drought. But what if we could extend this rule to all civilizations? It now looks like Genghis Kan extended his empire during a warm period which gave fodder to his bulging army and disappeared with a cold spell.
As for us; here is the latest news about “Global Warming” Sorry “Climate Changes” Sorry “Global Cooling”… Did I hear Ice Age?
“Down to -50C: Russians freeze to death as strongest-in-decades winter hits”
http://rt.com/news/russia-freeze-cold-temperature-379/
GregT on Thu, 20th Dec 2012 4:26 am
Yes Ken,
Predicted by scientists and posted on NASAs website in 2004. Precisely what was expected to happen as the Arctic warms.
http://science.nasa.gov/science-news/science-at-nasa/2004/05mar_arctic/
ken nohe on Thu, 20th Dec 2012 8:25 am
Well I had a look at the NASA site and sure enough I was aware of this. (Failed Gulf Stream brings cooler weather to Europe.) This is now well known since we have the proof that this scenario indeed took place several times in the past. (The most recent being the Younger Dryas.) But this is not at all what we are observing right now.
Currently the Northern Polar area is still warming but the Globe overall is not and it has been so for over 10 years now. From my point of view and everywhere I have been over the last 3 years: North America, Asia,
Europe, Australia, I have noticed far fewer hot waves but conversely quite significant cold ones. (For what it is worth of course; very little but still. Usual note:
What do you believe? Me or your own eyes?)
So here is what I believe:
Models are models, I build some (not weather related but still very relevant.) They say what you want them to say. Why? Because they are still very, very far from reality. There are no models which are down to even 1km in precision which is still far too large to model anything adequately. Then you take a point: Now. Take many other points: in the past, and make a zillion assumptions until the model looks more or less what the curve over the last few years or decades looks like. Once you’ve done that; Lo, you have a good working model and start looking at what it says for tomorrow. Nothing wrong with that but it still doesn’t mean that we have yet stumbled on the right model. Why: Because there is still so many things we do not know.
One thing which I believe is understated in our current models is the influence of the sun on the atmosphere. Right now we know for sure that the sun was slightly less active during the “little Ice Age”. It is only a few 1/10 of a % but the correlation seems significant although absolutely nobody knows yet what it is.
But strangely, we are observing a very significant diminution of the solar flux right now which is correlated to fewer sun spots (as in the XVII century.) We are also seeing many phenomenons that we cannot yet explain: strong cooling and warming in the upper atmosphere, accelerated variation of the El Nino/La Nina cycles, etc…
This is why I believe, as many scientists do that the “proof” of global warming is not yet overwhelming. (You don’t really hear it because these are “nuances” in a political world which does not have much room for that anymore.) There are some clear signs of warming overall but also some signs as I outlined above which do not fit at all. That is the problem and it is why I believe that, for what we know, the chance of global cooling is at least as high as global warming right now.
I know the “consensus” is for global warming so I do not expect to convince you or anybody else. Sure enough, the sea is “rising” by some mm per year but it is still not significant enough to be “proof”. And the “consensus” for what it is worth can change very quickly. Here’s a proposition: I believe we will see the coldest winter overall in a generation this year. Let’s talk again about it in April and look at what happened.
(And if you want a “real” prediction: here it comes. Then next year or the year after we will get a major volcanic eruption, of a size we haven’t seen recently. The following 2 summers will overall be 2C cooler than normal… and suddenly the chances for global cooling will look far more credible…)
Stephen on Thu, 20th Dec 2012 11:17 am
I think if the human race wants to survive, we will need to put quality of life and basic needs for everyone as a national priority and make meeting this need a much higher priority than protecting corporations and wall street investor profits.
To accomplish this, we will need to:
1) Rethink the motion that homelessness as a consequence of not paying creditors and repeal “creditors take everything away laws”.
2) Relocalize farming
3) Think beyond “big box retail” and “mass scale marketing” and revive localized creations in small shops culture.
4) redesign culture to use less materials, oil, etc that are in decline. If we made the right choices, we could easily reduce consuption of fossil fuels 50% or more by:
* Putting farms back into the cities
* Mandate supermarkets carry fruit from local backyard farms
* Legalize backyard chickens
* restore railroad service to every town
* Flex work hours and locations (pay by productivity – not everyone has to be in the office 5 days a week from 9-5)
* Ban long distance freight transport by solely truck (over a certain distance should mandate a siginificant portion as boat and/or train)
* Tax gasoline up to European prices
* Tax other resources in decline heavily.
* Revive component level repairs to electronic devices
* etc
ken nohe on Thu, 20th Dec 2012 2:00 pm
Stephen, I agree with all your points. Here’s why it won’t happen:
1) Rethink the motion that homelessness as a consequence of not paying creditors and repeal “creditors take everything away laws”.
– Your are attacking the consequences, not the cause. Our credit system encouraging debt is the problem. Wants to change that? Good luck. The ones who profit and the victims will be against you!
2) Relocalize farming
– If only we could. But traditional “local” farming was very hard work. To “relocalize in a modern way would imply a significant loss of purchasing power for most people. It is the right thing to do indeed but it won’t happen.
3) Think beyond “big box retail” and “mass scale marketing” and revive localized creations in small shops culture.
– Small shops are nice. Sure enough. But people shun them. Japan has kept a lot of “small” shops but they are all chain-stores nowadays offering the same junk. Probably not what you have in mind.
4) redesign culture to use less materials, oil, etc that are in decline. If we made the right choices, we could easily reduce consuption of fossil fuels 50% or more by:
– 50%? It would be “misery” for most people. Good idea if you want a revolution!
* Putting farms back into the cities
– Land in the cities cost about 1,000 times what it cost in the countryside. Enjoy your apple slowly, it will be 10$ for one!
* Mandate supermarkets carry fruit from local backyard farms
– If you “mandate” they will but it will be 10 times to current price. We have that in Japan. Surprisingly nobody buys. Go figure.
* Legalize backyard chickens
– Do you know how smelly the critters really are? It is fine in the countryside but as soon as density increase, forget it. Your neighbors will hate much sooner than they’ll buy chicken from you.
* restore railroad service to every town
– We had it in Japan 20 years ago and it’s all on the way out now. It is just not economical to run a modern train on a small line. Safety standards are horribly expensive, keeping a regular schedule at a profit is impossible beyond dense suburbs, etc… What is not possible here is even less so in the US.
* Flex work hours and locations (pay by productivity – not everyone has to be in the office 5 days a week from 9-5)
– Sure enough and some countries have made huge effort to promote this idea. (The Netherlands for example.) That really does work. But the reality is that for most jobs people must build relations and communicate and they definitively do that better when they work at the same time.
* Ban long distance freight transport by solely truck (over a certain distance should mandate a siginificant portion as boat and/or train)
– People have put a lot of though into this idea. It is called inter-modal in the jargon. There are very few case when it is economical because you loose 90% of your cost and time during the transfer. People have tried to put trucks on platforms: the Channel tunnel, trucks directly on rails, etc… Nope.
* Tax gasoline up to European prices
– To tax more when prices are already rising is political suicide. Show me a politician who wants to do that, I’ll show you a “retired” politician!
* Tax other resources in decline heavily.
– Yes but you will increase the pressure and strangle the economy a little more at the wrong time.
* Revive component level repairs to electronic devices
– That’s a good one. If only we could. Try to put “any” component from a 2000 computer on a new computer or vice-versa. It’s impossible. They can’t even “talk” because the technology has changed beyond recognition. People are mad at Apple when they change a connector because they see it for what it is: Milking the consumer. But they are only “pushing” beyond acceptable a trend that is real anyway. I have some “punch-card” from the 1960s. I agree Windows 8 should be able to read them… But you will be stunned by how little they actually code.
That’s it. Not trying to “deflate” your good ideas. Just saying that if things are the way they are, there is a reason. We should indeed change things. But none of the solutions are simple. If they were we would have solved our problems already, believe me.
LT on Thu, 20th Dec 2012 4:01 pm
There is an ancient saying, that goes something like this: “It’s easier to change the course of a river or relocate a mountain than to change a man’s attitude!”
or something like this as well:
“It’s easier to defeat a mighty army than to defeat the ego inside a man.”
What Mr. Stephan suggests is not very difficult to do. What make things seem so difficult is the ego in men today. It’s human ego that will lead to human extinction.