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The post-WWII geopolitical regime is dying

21 November 2007

After fifty years, the post-WWII geopolitical regime has become frail. Chapter One of this series considers the US economy, and what lies ahead for America — the hegemon of the current global order.

Our friend, Smokey the Bear

In the late 19th Century the goal of preventing forest fires gained wide support in the US. The Forest Service was established in 1905, becoming the lead agency in this program. After a century of successful fire prevention much of the western US consists of dense forest with layers of dead wood. Tinderboxes across the West, ready for the next drought to spark uncontrollable fires.

What can be done? Not much. Nature delayed must take its course. Logging permits are difficult to get and logging itself often uneconomic. Thinning and removal of ground cover is prohibitively expense over large areas. Controlled burns often work well. Unfortunately they occasionally become uncontrolled burns. Instead landowners clear the land around their buildings and wait for the inevitable.  Eventually, over years, this process will work itself to a new equilibrium.

We have managed our economy like our forests. The US Federal Reserve has successfully prevented a severe recession for a quarter-century. The early 1990’s saw a slight downturn in GDP; the early 2000’s an even slighter one. The government responded to each slowdown with aggressive monetary policy (easy credit, low rates), aggressive fiscal policy (government spending), and often exchange rate action (devaluing the US dollar to stimulate exports). The Fed has declared war on the business cycle. As Mao said, protracted struggle.

Consequences

“Sooner or later, everyone sits down to a banquet of consequences.”
— Robert Louis Stevenson, perhaps apocryphal

As a result of the Fed’s success the US economy has evolved in an unbalanced manner since 1982. Large, growing trade deficits. Accelerating growth in household debt. Decreased savings. National consumption in excess of national income, financed by foreign borrowing (current account deficits) — resulting in large foreign debts.

We have been warned. Comptroller General Walker. The IMF. High government officials, like former Treasury Secretary Robert Rubin. The major credit ratings agencies. Wall Street. Academia. It is not all boring jargon; here is a paper with an usually catchy title for a Fed publication: Is the United States Bankrupt?

A long list of alarms, ringing for many years. We ignored them as obviously false, since they warned of threats not yet here.

“On September 28 the {Norman invasion} fleet came safely to anchor in Pevensey Bay. There was no opposition to the landing. The local “fyrd” has been called out this year four times already to watch the coast. Having , in true English style, come to the conclusion that the danger was past because it had not year arrived, they had gone back to their homes.”
— Churchill, The History of the English Speaking Peoples

Now we have (perhaps) passed the point at which corrective action is possible, such as the 1980-82 recession Fed Chairman Volker induced to break the inflationary fever that gripped the US. Today the danger of a recession burning out of control is too great.

Exhausted defenses of the US economy

Much research, like that of the Levy Institute, suggests that with the current record-high levels of household debt a recession like 1980-82 would create foreclosures and bankruptcies at levels not seen since the 1930’s. The lower middle class (aka “blue collar” households) are especially vulnerable. Worse, our counter-cyclical economic stabilizers are largely burnt out from overuse.

  • Even at the peak of the expansion in 2006 the Federal government still ran a deficit of aprox $250 billion ($4.6 trillion using real accounting, as corporations must do — including the growth in liabilities). The deficit always increases during recessions, as expenses rise and income fades. This might make massive spending difficult during the next one — without collapsing the US dollar or risking hyperinflation.
  • Monetary policy has become less effective with each cycle, as US debt (government, business, households) approaches our maximum carrying capacity. As debt grows, each dollar of new debt provides less stimulus. That is, the elasticity of GDP with respect to debt approaches zero. Eventually we hit the limit on our national VISA card, and new debt does nothing. That marks the end of the Debt Supercycle, and the start of a new era.
  • Devaluing the US dollar to stimulate exports has become extremely hazardous, risking currency flight and hyperinflation.

The exhaustion of our stabilizers — which provide negative feedback — means that positive feedback might dominate the downcycle. For example, home prices decline => mortgage default increase => consumer spending declines (wealth effect) and housing-related jobs disappear => more home price declines. And so it goes.

Conclusions

How will this play out? The end of the post-WWII geopolitical regime is like a singularity in astrophysics. We cannot see beyond it, because we do not understand the choices that will determine our fate — or how we will choose. It also resembles a singularity in that what lies on the other side is unimportant until one survives the passage through it.

Economic regimes come, and they leave. As do Empires. The post-WWII regime has brought incredible prosperity to most of the world, but that does not make it eternal. As Queen Gertrude says to Hamlet (Act I, scene 2):

Good Hamlet, cast thy nighted colour off,
And let thine eye look like a friend on Denmark.
Do not for ever with thy vailed lids
Seek for thy noble father in the dust:
Thou know’st ’tis common;
all that lives must die,
Passing through nature to eternity.

** The movie “The Matrix” prominently featured a version of this, “All that lives must die.”

A closing note

The next recession will stress our economic and social fabric like nothing we have seen since WWII. Will we rise to these challenges as have our forefathers before us?

I believe that we need not fear the future. America’s strength lies not in our wealth or power. We are strong because of our ability to act together, to produce and follow good leaders. We are strong due to our openness to other cultures and ability to assimilate their best aspects. We are strong due to our ability to adapt to new circumstances, to roll with defeat and carry on.

We will be whatever we want to be. The choices we make in the next few years may reveal what that is.

Afterword

Please share your comments by posting below.  Per the FM site’s Comment Policy, please make them brief (250 words max), civil, and relevant to this post.  Or email me at fabmaximus at hotmail dot com (note the spam-protected spelling).

For information about this site see the About page, at the top of the right-side menu bar.

For more information from the FM site

To read other articles about these things, see the FM reference page on the right side menu bar.  Of esp interest are:

Key posts about the crisis:

  1. Diagnosing the eagle, chapter I — the housing bust, 6 December 2007
  2. Death of the post-WWII geopolitical regime – death by debt, 8 January 2008 – Origins of the 1982 – 2006 economic expansion; why the down cycle will be so severe.
  3. A picture of the post-WWII debt supercycle, 26 September 2008
  4. Debt – the core problem of this financial crisis, which also explains how we got in this mess, 22 October 2008
  5. Causes of the financial crisis (no, its not the usual list), 29 October 2008
  6. Government policy errors and the Great Depession, 1 November 2008

About solutions:

  1. A happy ending to the current economic recession, 12 February 2008 – The political actions which might end this downturn, and their long-term implications.
  2. Slow steps to nationalizing the US financial sector, 7 April 2008 — How this will change our society.
  3. A solution to our financial crisis, 25 September 2008
  4. The last opportunity for effective action before disaster strikes, 3 October 2008 — How to stabilize the financial system.
  5. Effective treatment for this crisis will come with “The Master Settlement of 2009″, 5 October 2008
  6. Dr. Bush, stabilize the economy – stat!, 7 October 2008
  7. The new President will need new solutions for the economic crisis, 9 October 2008
  8. Everything you need to know about government stimulus programs (read this – it’s about your money), 30 January 2009
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47 Comments leave one →
  1. raiserw permalink
    21 November 2007 4:16 pm

    I agree with your “closing note,” but Americans need an accurate picture of the current economic-political situation and a vision of positive alternatives.

    I find the focus MUCH to strong on financials. Much too often money chases money while adding no value to the quality of life of the people of either the US or other parts of the world.

    US agriculture drinks petroleum and exploits the environment to the detriment of current health and future nourishment. (Note The Omnivore’s Dilemma as one popular account.)

    The US manufacturing base has all but disappeared. Key indicator: the US used to dominate the machine tools industry. Now Germany and Japan do, i.e., Europe and Asia, and the US has disappeared. When you don’t make your own tools, you neither understand your industry nor control its development.

    The US depends on external sources of energy. Thus an Iraq war and US global imperialism in a desperate attempt to get by force what it has not gotten by the intelligence of its people.

    Americans do not dominate university science and engineering classrooms. The brains developed in US universities used to stay to provide the basis for US development. Increasingly, once educated and with a little experience, those brains return home to build there.

    Americans are good at selling things to and buying things from each other. Americans used to dominate business management and hire the brains and buy the merchandise of the rest of the world. Americans got rich and the rest of the world served their needs. Now even the weakness of American management practices are becoming increasingly clear and others are developing the new management skills that will create the future.

    The world needs a US awakened with a large dose of reality.

    Like

  2. larrydunbar permalink
    21 November 2007 8:27 pm

    “Everything with a beginning has an end.” The Oracle.

    I think what we need to figure out is: does the ending mean the world, or simply something we used to believe in called the USA. The latter has changed so much from what it was, at the beginning of colonialism, it hardly will notice(ed) an ending.

    Like

  3. gpanfile permalink
    21 November 2007 8:50 pm

    fabius wrote: “We are strong because of our ability to act together, to produce and follow good leaders. We are strong due to our openness to other cultures and ability to assimilate their best aspects. We are strong due to our ability to adapt to new circumstances, to roll with defeat and carry on.”

    I’ll bite. Can anyone cite any single time, electorally, economically, or in foreign policy, in the past seven years, where ‘we’ did any of those things?

    Like

  4. dckinder permalink
    21 November 2007 10:14 pm

    Several points:

    Much of the post-1982 economy has featured the use of derivatives. Derivatives have proven themselves to be vulnerable, as first Enron and now the housing bust have demonstrated. We have no precedents for dealing with collapses in derivatives; so precedents such as the New Deal are not helpful.

    The United States, for reasons stated by Fabius Maximus, is loosing control of its currency. Control of currency is a measure of sovereignty. Gold, as a currency that does not depend upon any sovereignty for its value, stands as a measure of the overall strength of sovereignty. The greater the strength of sovereignty, the greater the relative value of such currencies as the dollar, the euro, the yen, etc.. And vice versa. Gold recently surpassed the $800 / ounce mark.
    The nearest precedent for the decline of the dollar would be the decline of the pound during and after WWI. As a result of the War, England ceased to be a creditor and then became a debtor. Although the British Empire endured for another generation, it faced constant Ghandi – type pressure; its military became increasingly hollow; and it rapidly collapsed once attacked by the Japanese.

    Like

  5. dckinder permalink
    21 November 2007 10:31 pm

    Another point, perhaps we should avoid the term “recession.” The reason: recessions are economic downturns such as occurred in the early 20th century. We might compare them to polio,the great disease of that time.

    The looming downturn, because it involves derivatives, a declining nation-state, a deindustriaized economy, and other differences, likely has different properties. We might compare it to AIDS, instead. It, of course, would be a great mistake to confuse AIDS for polio; yet that essentially would be what we would do should we call the looming downturn a “recession.”

    Regrettably, while those who ignore the lessons of the past are doomed to repeat them; those who heed those lessons are doomed to make yet new mistakes. And that is where we are.

    Like

  6. fabiusmaximus2000 permalink*
    21 November 2007 10:48 pm

    raiserw: You have hit upon several key points from the next few chapters in this series!

    gpanfile: The past 7 years is just a dot in America’s history. It does not define America, or what we are capable of. Perhaps it is the equivalent of the drunken night out for an otherwise competent and sober person.

    dckinder: I strongly agree, the analogy of post-WWI UK holds many lessons for us. That decline was slow, lasting from WWI until Prime Minister Thatcher took over in 1979. Your point about economic history is also powerful. We have such a brief experience with modern economic systems. The global regime differs greatly from that of 1940, and only slightly resembles that of 1914. We must be open to the possibility of new phenomena during the next few years.

    Using you biological metaphor, consider hepatitis. First there was types A and B. Then they found “non-A non-B” hepatitus, now called Type C. We know of inflation and deflation. Perhaps there is a “type C” monetary phenomenon.

    Like

  7. dckinder permalink
    22 November 2007 6:24 pm

    Our discussion should consider not only how, on the macro level, the 21st century is apt to evolve, with the probable decline of the nation-state, the emergence of transnational entities, John Robb’s Global Guerrillas, and such, but also how the warp and woof of daily life may be affected.

    Helpful in this regard is William Ian Miller, Miller, a University of Michigan law professor, is also an expert on Icelandic sagas. He, essentially, is an expert on how we have evolved from those rough-and-tumble poetic times to today’s rationalistic, bureaucratic, legal norms.

    According to the University of Michigan Law School:
    “William I. Miller, the Thomas G. Long Professor of Law, has been a member of the University of Michigan faculty since 1984. His research used to center on saga Iceland from whence the materials studied in the bloodfeuds class and his book Bloodtaking and Peacemaking: Feud, Law, and Society in Saga Iceland (1990). He has also written on emotions, mostly unpleasant ones involving self-assessment, and select vices and virtues. Thus his books The Mystery of Courage (2000), The Anatomy of Disgust (1997), Humiliation (1993), and Faking It (2003), the last of which deals with anxieties of role, identity, and posturings of authenticity. The Anatomy of Disgust was named the best book of 1997 in anthropology/sociology by the Association of American Publishers. In his new book–Eye for an Eye–(to appear fall 2005), he returns to matters of revenge and getting even in an extended treatment of the law of the talion. Professor Miller earned his B.A. from the University of Wisconsin and received both a Ph.D. in English and a J.D. from Yale. He has also been a visiting professor at Yale, the University of Chicago, the University of Bergen, the University of Tel Aviv, and Harvard. ”

    Google Books provides the following blurbs about some of his books:

    . It is this mystery [of courage], just as puzzling in our day, that William Ian Miller unravels in this engrossing meditation.

    . Analyzing the law of the talion–an eye for an eye, tooth for a tooth–literally, William Ian Miller presents an original meditation on the concept

    . In this book polymath William Ian Miller probes one of the dirty little secrets of humanity: that we are all faking it much more than anyone would care to admit

    . This book offers fascinating insights into the politics of a stateless society, its methods of social control, and the role that a uniquely sophisticated and…

    . The five essays making up this book…are about the persistence of the norm of reciprocity in our daily lives, about the ways in which shame and envy and..

    As the polities which enforce – and derive sustenance from – modern mores decay, these mores are apt to be challenged. Miller’s critique would help us respond to these challenges.

    Like

  8. torbenfriis permalink
    22 November 2007 8:12 pm

    The US was created by highly motivated europeans arriving with european culture and technology. This allowed them to kill off the locals and they took over a country with enormous resources and room for expansion. This situation created the US culture we know today. A basic question may be wether this culture is suitable under current conditions with lots of limits and powerful competitors.

    Like

  9. rmhitchens permalink
    23 November 2007 5:51 pm

    Isn’t “foreign borrowing” a rather loaded term for “foreign investment”? I mean, doomsday economists have been proven wrong soooo many times.
    .
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    Fabius Maximus replies: No, most of the foreign borrowing for the past five years consists of foreign central banks buying short- or medium-term US government or Agency bonds. Not “investment” in the usual sense of the term.

    What do you mean by “have been proven wrong so many times”? Many experts have warned that the course we are on would eventually lead to bad outcomes. Those warnings were done several decades ago, when there was time to change public policy — the US “battleship” takes a long time to turn, let alone the time to convince people of the need for a change in course.

    Like

  10. fabiusmaximus2000 permalink*
    23 November 2007 6:18 pm

    rmhitchens: The next chapter covers this specific point. Briefly… 1. No, the bulk of the funds coming in to buy bonds (mostly govt or quasi-govt), short to medium term. Not “investments” in the usual sense. And the folks lending us the money are foreign central banks (of Asian CBs and those of oil exporting nations) — not private investors — whose purchases result from their currency stabilization programs. 2. In what sense have they been proven wrong? These are generational-long trends in a $13 trillion dollar economy. Giving long-term warnings — providing sufficient time to actually recognize and prevent the danger — does not make the warning “wrong.”

    Like

  11. 12 July 2008 10:58 pm

    I didn’t find your use of quotes enlightening, instead self-serving.

    Something tells me that even if the English had been watching that day, the far more militaristic Normans would have stilled kicked their butts. The English are lucky the Normans conquered them, for reasons I won’t go into here.

    I grant that the debt and risk scenes loom darkly on the horizon, from my perspective. Bernanke is being reasonably inventive, allowing first investment banks (like my former employer) and then Fannie and Freddie to reach to the discount window (have to check the burgers on the grill, brb). I’d grant that if we pull out of this, then we won’t be in any better shape until we set down some serious rules, and have an Executive willing to enforce them.

    I’ll leave you alone now, silly person.
    .
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    Fabius Maximus replies: I find your opening line incomprehensible. Self-serving is defined as “interested only in yourself”. How does that apply to what I said?

    You second point seems equally odd. The Battle of Hastings is usually described as a close thing. Williams’ troops were a multi-ethnic collection, not a Norman army. Wikipedia describes the Saxon army as follows: “The core of the Saxon army was made up of full-time professional soldiers called Housecarls. They had a long-standing dedication to the King, and would fight to the last man if necessary.” The Housecarls “were renowned for their superior training and equipment, not only because they constituted a standing army (an ad hoc fighting force of professional soldiers as opposed to militia), but also due to rigorous quality control.”

    Your third point is just bizarre. I am just repeated what a large number of experts have said, both individuals and representatives of leading public and governmental institutions. See “We have been warned. Death of the post-WWII geopolitical regime” for excerpts and links. S&P, a winner of the Nobel Prize in economics, Warren Buffet, two former Treasury Secretaries, a former Comptroller-General of the US, the IMF, etc. Perhaps you should tell them that they are “silly people.”

    If you receive any replies, please tell us about them.

    Like

  12. Barry permalink
    3 September 2008 3:43 pm

    The 300 mile forced march that the Saxon “english” made back from defeating Harold Hardrada after yet another another forced march was a fatal error that probably handed the Normans victory.

    Fabius Maximus, do you have any opinion on the German journalist Gabor Steinhart’s veiws on China (the War For Wealth)? He seems to think that the West has become the “mark” of the Chinese. According to him the level playing field of free trade means that blue collar workers have nothing to offer the market, service jobs will follow the manufacturing sector east if nothing is done.
    .
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    Fabius Maximus replies: A major major issue. I have a treasure-trove of work, all half-finished, on the dangers of globalization to the US. Esp on the mis-reading of Ricardo that forms the foundation for America’s trade policy.

    I suspect that currency movements will in the end “fix” this (rendering the questio moot), as usual. As I explain in “Geopolitical implications of the current economic downturn“, this downcycle will end “with re-balancing of the global economy — and a decline of the US dollar so that the US goods and services are again competitive. No more trade deficit, and we can pay our debts.”

    Like

  13. Barry permalink
    4 September 2008 4:19 pm

    Those who have capital are big winners they may like current trends not think anything needs a “fix”. Der Speigel’s Steinhart says that cheap goods are making the West undermine its own values; buying the products of 100 million child labourers over the West’s own decently treated workers. The former workers are turning into a welfare underclass, a social bomb for the future of democracy he thinks as they tend towards extemist solutions.
    “The only outcome hard to imagine is that nothing happens at all” (White Trash, Fast Food)

    Like

  14. Walter Norris permalink
    7 March 2009 6:55 am

    If you have a chance to elaborate on the ” mis-reading of Ricardo that forms the foundation for America’s trade policy” I’d appreciate it. Links to articles would be fine, if that is easier for you.
    .
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    Fabius Maximus replies: Here’s a link to Ricardo’s discussion of free trade and the mobility of the factors of production. Discussions of “free trade” usually cite Ricardo but ignore his specific statement that this assumes the major factors of production are immobile. They were immobile when he wrote this in 1817, but today communication and cheap transportation have made land the only immobile factor — and land matters not at all (except in agriculture).

    For more on this see Roy J. Ruffin’s article in History of Political Economy (Winter 2002) that sparked this reappraisal: “David Ricardo’s Discovery of Comparative Advantage“. Excerpt:

    “As we indicated earlier, in Chapter 7 he devoted as much space to factor immobility as explaining or proving the law of comparative advantage proper — a proof that is actually introduced by a 192 word treatment of factor immobility and capped by another 293 word analysis of factor immobility.”

    Like

  15. pluto permalink
    7 March 2009 2:31 pm

    Glad to see that you are getting back to the economy. I enjoy reading your other stuff but feel you do your best work on this topic.

    Like

  16. Erasmus permalink
    7 March 2009 3:56 pm

    viz “And the folks lending us the money are foreign central banks (of Asian CBs and those of oil exporting nations) — not private investors — whose purchases result from their currency stabilization programs.”

    You might find this late February article of interest: “Who bought all the Treasuries the US issued in 2008? And who will be the big buyers in 2009?“, Brad Setser, 26 February 2009. Especially the chart showing a surge in ‘private investor’ participation.
    .
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    Fabius Maximus replies: There are many important aspects of the situation in this, all of which have been widely discussed by economists — but not yet absorbed by the general public.

    On a cyclical basis, there are typical trends exhaustively discussed by Setser and other economists.
    * The US trade deficits fades away during recessions. US consumers buy less, and many of our consumer goods come from overseas. A smaller trade deficit means less purchases of US debt by foreign central banks.
    * US private investment shifts from capital goods and risk assets to safe things – like treasuries. We need to borrow less, and the US government can easily finance its deficits with private capital.

    More important, we are in the midst of a major transition — during which longstanding trends reverse themselves.
    * The long decline of the US savings rate is over, and we will reduce consumption and save more. Hence a lower standard of living and less need for foreign loans.
    * The long deterioration of the US trade balance is over, and we will (one way or another) replace foreign borrowing to buy foreign goods with a trade surplus — putting us on the long road to pay back our foreign debts.

    Like

  17. Erasmus permalink
    7 March 2009 4:07 pm

    “The US was created by … europeans [who]… took over a country with enormous resources and room for expansion. This situation created the US culture we know today. A basic question may be whether this culture is suitable under current conditions with lots of limits and powerful competitors.”

    This echoes my long-term view of the US hegemonic role in particular and the current post industrial revolution world economy in general. I am no economist, but it seems to me that the overall system is still essentially mercantilist – with finances being the dominant (and ultimately false) commodity of late in the West unfortunately, such mercantilism being essentially dependent upon three main factors:
    a) wealth arbitrage
    b) military/political arbitrage
    c) continuous population growth providing ever-expanding markets.

    Birth-rates in developed countries tend to indicate that population growth might at some point start leveling off – emphasis on ‘might’.

    But principally as more zones enter the mainstream ‘developed’ circle, the opportunities for wealth and military arbitrage become increasingly restrictive along with perpetual growth models in general.

    Some countries might wish to break out of the trap by expanding territory and populations and therefore also systemic dominance along with captive markets, either to prevent decline or promote new growth. As the old order goes into a profound reshuffle, history suggests that the most likely outcome of all this is another Great War.
    .
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    Fabius Maximus replies: Warning, warning — urban legend alert!

    “Birth-rates in developed countries tend to indicate that population growth might at some point start leveling off – emphasis on ‘might’.”

    Fertility rates have crashed in every developed nation, and are crashing in many emerging nations (from Iran to China). Excluding immigration, population growth already has leveled off in the developed world, except for those nations (like Japan) in which the population is already decreasing.

    For more on this see the FM reference page about Demography – studies & reports.

    Like

  18. 7 March 2009 4:15 pm

    Do you think the deindustrialization of America was the goal of globalization? Was it a policy or is it something that occurred in response to internal changes? If this is an end to an era, I agree that it is, and if it ends our global military activity it would greatly benefit all of us, what do you see as the options for the U.S. We remain a global power, immensely rich and dangerous. Alternative energies are nice but really, how long will it take to wean us from oil? At least one full generation and I do not believe the world is running out of oil. See Thomas Gold, The Deep Hot Biosphere. Whether Global Warming is real or not, the rise in world population is unsustainable, the long supply chains for everything are vulnerable and create huge instablity. Certainly events will determine the path we take, but what do you see as the possibilities as we wrestle with the wreckage for the next decade?
    .
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    Fabius Maximus replies: This looks a bit like a collection of urban legends.

    (1) What do you mean by “deindustrialization” of American? Exports of goods and services have been rising as a % of GDP for over 50 years. See the graph in Can you see the signs of spring in the coming of winter? A note about the recession..

    (2) There is little evidence that Gold’s theory is correct, and massive evidence that it is not. Even if true, it is probably irrelevant. Abiogenic sources might recharge the world’s oil fields, but probably over millennia (at the least). Oil does not move quickly through rock. The Texas oil fields will be gushing again in 50,000 AD, but I doubt our descendants will care. Why not just put your faith in the Blue Fairy, hoping that she will put oil under your home?

    (3) While the world’s population is rising due to the low average age in most emerging nations, fertility rates are crashing everywhere — suggesting that this is a temporary and self-correcting phenomenon. For more about this see the FM reference page Demography – studies & reports.

    (4) Do you have any evidence to support this: “the long supply chains for everything are vulnerable and create huge instablity.”

    I have written several posts looking beyond the end of this crisis. Just fragments, however. Too much to write, too little time.
    * Geopolitical implications of the current economic downturn, 24 January 2008
    * A happy ending to the current economic recession, 12 February 2008 – The political actions which might end this downturn, and their long-term implications.
    * The USA *after* this financial crisis – part 2, a new economy for America, 14 October 2008

    Like

  19. Robert Petersen permalink
    7 March 2009 5:39 pm

    2009 is like 1989 – just in reverse: This time it is the capitalist world that is collapsing. Many people don’t see it because it is simply inconceivable to imagine a future different from the past. President Obama certainly doesn’t get it – he still tries do save the system from total collapse. He doesn’t understand it is like preventing the water from getting through a dam after it has collapsed by throwing money at the hole.

    Just a word about consequences: We are not used to hardship. We are used to life getting better (and we more lazy) each year. At least that is what we have come to expect. I suspect we are in for a rude awakening in the coming years, where we are going to experience real suffering. The collapse of the Soviet Union should be a warning: There was an excess mortality of 4.5 million people in the nineties in Russia due to the social crisis the country expected. Whats more: It was fully expected by the reformers that millions would die in order to change Russia to a capitalist and democratic society. We should study this collapse and see what we can learn so we don’t make the same mistakes.

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  20. 7 March 2009 5:50 pm

    I should have said potential for instability. Famine is largely caused not by lack of food but by hoarding due to interruptions of several kinds. We are opening ourselves up to this big time.
    If we imported in balance roughly with what we export — less weapons — what would Americans do without? Is this not what you are proposing needs to happen, that we be in rough balance?
    Fertility rates may be plunging but look at where populations are exploding. Outside of the U.S. is there not a huge imbalance of young in India, the ME, and China? There are something like 400 million children in India. How is this fertility going to decline without some catastrophic intervention? Same for the M.E.

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  21. Erasmus permalink
    7 March 2009 6:21 pm

    “Excluding immigration, population growth already has leveled off in the developed world.”

    Yes, although only in the short-term context. Compared to only a few centuries ago we are still in a boom. Has the long-term trend changed? Possibly, but a little too soon to be sure although IMO it is reasonable to conclude that we are hitting a ceiling. Does a country the geographical size of Great Britain really want to have several mega-cities of 20 million plus each like London? Does Japan want/need to double its already dense population? It might be good for business in a narrow sense, but in terms of quality of life and culture? I don’t think so and suspect this is why fertility rates go down once a certain density of population has been reached.

    If you extrapolated demographic trends following various plague and famine periods in history in the past, you would never arrive at the current 6-7 billion population figures of today. Until that growth levels off, we are still in rising population modality.

    However, my point about population increase in general referred to the overall world population, namely that as more nations become developed and their population growth tapers off as indeed seems to be the tendency, that perpetual economic growth fueled by perpetual population increase (globally) becomes systemically unworkable as an economic model.

    So either the model is changed to a more fundamentally ‘sustainable’ one, or we start fighting each other again! Ordinary people everywhere favor the former; elites everywhere favor the latter. Again, at least if history is any guide.
    .
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    Fabius Maximus: This seems pretty incoherent to me. In the first part this talks about rising population; in the last 2 paragraphs about flat populations. Nowhere about falling populations.

    To take part (a): While all trends are subject to change, every society entering the modern world has experienced a crash in fertility. That suggests that this is lasting and robust phenomenon. Unless the casual factors — contraceptive technology, women’s education and rights — disappear. Which does not seem likely.

    Hence statements like this are gibberish: “Does Japan want/need to double its already dense population?” Japan is experiencing a severe population crash right now (in slow mo, as usual with demographic trends). There is zero factual basis for worries that this trend will not only reverse, but to a such a degree that their population will double over any foreseeable time horizon. They might as well worry that Godzilla will wreck Tokoyo.

    The fertilty crash is not a common and transitory event, like a plague. The comparison is foolish (do you have examples of people extrapolating in the way you describe?).

    This comment is a fine example of America’s defective OODA loop so often explored on this site. We have a serious problem — in this case declining fertility, which puts great stress on our economic system (which is geared to rising population). Rather than focus on the problem (i.e., adjesting to a different demographic regime), many people focus on the opposite (an imaginary problem) — what if fertility not only reverts up to replacement level, but increases so mch that long-term population growth resumes.

    The last paragraph returns to reality, but appears to understate the problem. While the adjustment to stable population will be difficult, it is a short-term problem (one or two generations) — centered on our retirement system. Whether the we manage it well or not, the boomers in every nation will eventually die. In no other sense does our economic “model” require population growth (this is frequently asserted, but I’ve never seen anything but rhetoric to support it).

    A more reasonable extrapolation to worry about is what if below-replacement fertility is the new norm? That is, what we consider a modern society is structurally unstable without drastic measures to maintain population? What if we are all Japan, in this sense?

    The last paragraph makes no sense to me.
    * In what sense do “Ordinary people everywhere favor” a sustainable economic model? I doubt many people in the developed world have thought about it, and far fewer in the emerging world.
    * Why would “we start fighting each other again”? Aging states might undergo severe economic stress, but seem unlikely candidates for expansionist wars. Esp as more nations get nukes. Wheelchair brigades of French and Germans fighting along the Rhine? Or will they cross the Med to invade African nations with younger populations?

    Like

  22. Erasmus permalink
    7 March 2009 6:36 pm

    “There is little evidence that Gold’s theory is correct, and massive evidence that it is not.”

    He does have an interesting track record, though, of being ahead of the curve in several fields. His theorizing on hearing in this obituary article being just one example. Here is a collection of papers.

    Pages 9-12 in the pdf download provide a synopsis of the two main theories and then cites numerous sources (mainly Russian) of the abiogenic hypothesis.

    Personally, I think there is far less convincing evidence that supports the fossil theory. But I agree that it probably doesn’t matter how it’s made, rather how easy it is to extract; that said, we might change ways of ‘provoking’ fields to yield faster harvests from supplies compressed at lower levels; also there is some evidence that supplies of natural gas could be truly humongous making finding ways of getting at it more attractive, despite initial additional cost, if long-term global economic and cultural stability are more valued than is currently the case.
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    Fabius Maximus replies: None of this provides any evidence for the point under discussion, about abiogenic origin of oil. Rather we have another case of a scientist well-known in one field devising a whacko theory in another field. There are cases too numerous to bother, my favorite being Linus Pauling and the megadose vitamin C theory (which resulted in so much Vit C being peed down America’s drains.

    Like

  23. Erasmus permalink
    7 March 2009 6:50 pm

    FM note: Trivia Alert!

    world population clock. 100,000 more people today – net – and counting… Interesting: we still make more bicycles than cars. I find that surprising.

    Like

  24. 7 March 2009 6:51 pm

    Erasmus comments as so often are provoking and stimulating. Populations have been steadily rising despite massive deaths by war, for only about 1.5 centuries. Europe suffered dramatically as did China, many countries have distorted populations having lost large numbers of young men. Is this the reason why Europe’s population has leveled or declined? China imposed birth control, further distorting gender ratios I believe. Given the disparities how do you conceive stabilization without war? And is war conceivable on the scale implied without nuclear weapons? I mention Gold because of his track record and close friendship with Dyson who I greatly admire. But the core issue is not whether oil is running out or not. If it is, substitutes will be created. If not, we have to deal with the destructive consequences of the car culture we invented and the entire world is intent on having. Simply saying there are too many people on the planet is avoiding the answer. And we have not even addressed the reality that we are moving toward creating designer humans, either in labs or as embryos grown in cows. The possible military-intelligence implications of this are simply staggering.
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    Fabius Maximus replies: The collapse of fertility around the world is one of the most studies events in the social sciences during the last decade. It’s evidence is all around you. Your comments about this are like asking what’s under the hood in cars, and speculating that it is powered by mice.

    As for the rest of this, it has been discussed extensively in the posts about the energy crisis (see the 2 reference pages about energy for more information). i see little analytical basis for your speculation. Take your megadose of Vitamin C (as whacko theories go, Pauling’s is more fun), read up on these things, and relax. The literature of extreme fears is as old as writing, and very few of such nightmares have come to pass.

    Like

  25. 7 March 2009 7:10 pm

    FM:”* The long deterioration of the US trade balance is over, and we will (one way or another) replace foreign borrowing to buy foreign goods with a trade surplus — putting us on the long road to pay back our foreign debts.”

    This is the trend, at least on the US imports side — if you’re actually trying to make items for exports these days it’s pretty rough going. In spite of all the bad news, the safe haven value of the dollar keeps its high as news gets worse, and that means relative wages in the USA become even less competitive. Our potential trade partners are experiencing recessions also, and selling into that isn’t so easy. Government fiscal stimulus overseas is going to favor local industries over imports for political reasons — although there would be some businesses where the USA would be competitive. Our reduction of imports is reducing profits and wages overseas which undermines their ability to purchase anything, but including American goods. Everything is contracting these days.

    The dollar is a large piece of the ‘post-WWII geopolitical regime.’ So if the regime is going down are we talking about an end of the dollar as the dominant currency? That really is going through the looking glass. As of right now, though, it’s not happening. The dollar has no real rivals. With even the EURO rocking a bit, the dollar is remains the world’s reserve currency and this means that overseas nations are going to attempt to build up their reserves of dollars by hoarding them.

    I imagine we might, through foolish policy, murder the dollar, but it hasn’t happened yet.
    .
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    Fabius Maximus replies: It worries me that the comments about economics are largely a collection of urban legends. Citing contrary evidence seems to have zero impact (which is of course characteristic of urban legends, as they are based in people’s fears and dreams, not reality).

    “This is the trend, at least on the US imports side — if you’re actually trying to make items for exports these days it’s pretty rough going”

    Nope. As I said in comment #19. Exports of goods and services have been rising as a % of GDP for over 50 years. See the graph in Can you see the signs of spring in the coming of winter? A note about the recession.. The composition of our trade has changed over time, as the world economy continues to evolve.

    I don’t understand the rest of the comment. We have entered a transitional period, with many almost inevitable events ahead of us. As economist Herbert Stein said about the US balance of payments deficit: “If something cannot go on forever, it will stop” (Often rephrased as: “Trends that can’t continue, won’t.”) The most likely (historically common) resolution for this imbalance is that the US dollar declines so that exports become more competitive and imports less so. That will probably (not certainly) end the US dollar’s status as the reserve currency.

    For more on this see:
    * A brief note on the US Dollar. Is this like August 1914?, 8 November 2007
    * Geopolitical implications of the current economic downturn, 24 January 2008

    Like

  26. Erasmus permalink
    7 March 2009 7:40 pm

    Well, I tried finding a good chart and came up short. Here’s one though:

    Jonathan, I wonder about that 1.5 century figure. Are you sure? In any case, the long-term population from, say, the last major ice age to the present shows fairly steady growth even though contemporary developed populations seem to be leveling out.

    FM disputes that our economic system depends upon population growth. I have no proof of anything but find this very hard to accept, i.e. that with the same population as, say, 1200 AD, we would have similar wealth-creation as the past century or two have evidenced. Also, to put it another way: if our current world population went from 6.7 billion back down to ‘only’ 4 billion, how would that effect our economic systems? I suspect we would find it very difficult even though, if as FM maintains our system does not depend upon perpetual growth, it should be no problem.

    FM also feels that because demographic studies indicate a high percentage of gerontologically challenged members of late that countries/nations will be unable to field soldiers. First, developed nations use things called missiles and other technological marvels that greatly reduce the need for large numbers of young males in the field, and second even such a gerontologically challenged population can still field millions of such young men given how large current population levels are. So that is irrelevant.

    An infamous Chinese general’s published remarks about their long-term plans for taking over the US in order to have lebensraum for their 1.4 billion and counting population is the sort of thing that has happened in the past and could happen again, no matter how whacky such a notion might appear to us right now.

    FM: ‘ordinary people’ do not care about geopolitics, massive corporate profits and so forth. They want to lead productive, creative, generous, stable lives. A sustainable model is fine for them whether or not they use the term. A perpetual growth model, however, is guaranteed by its nature to engender competition, winners and losers, and conflict.

    Like

  27. Erasmus permalink
    7 March 2009 7:48 pm

    Small point:
    This is why I query the 1.5 centuries remark:

    “A tremendous change occurred with the industrial revolution: whereas it had taken all of human history until around 1800 for world population to reach one billion, the second billion was achieved in only 130 years (1930), the third billion in less than 30 years (1959), the fourth billion in 15 years (1974), and the fifth billion in only 13 years (1987). During the 20th century alone, the population in the world has grown from 1.65 billion to 6 billion.”

    http://www.worldometers.info/population/

    As FM rightly remarks above: ““If something cannot go on forever, it will stop” (Often rephrased as: “Trends that can’t continue, won’t.”)”

    Personally, I think the population dynamic is an important component of the current economic system. If indeed that trend has or is about to change, it will have enormous effects dwarfing whether or not the CDS market is properly regulated (finally).

    Like

  28. 7 March 2009 7:58 pm

    Do not wish to turn this into private discussion. Believe that nuclear weapons make the liklihood of mass armies unlikely without unforseen development — like invasion from deep space. Economic system that depends on population growth is by definition unsustainable. The US could and will continue to grow, naturally and by immigration for forseeable future when economic crisis eases, but sustainable growth based on stable population is presumably possible unless we believe war is “natural” which it may well be, regardless of economic system. Do believe China is liable to colonize Africa by mid-century. Will we oppose this? Doubt they can send people to their near abroad without conquest.
    Do not wish to get into the Malthus debate here but with establishment of agriculture around 10,000 BC growth appears to have begun in M.E. and northern China. Development uneven but growth in Europe launched by Roman Empire was wiped out by plague. Japan had more people in 15th century than western Europe. So development was uneven but certainly in the 18th century sustained growth began. Obviously dramatic in the last two centuries, an eyeblink even in our relatively short history as a planet-girdling species.

    Like

  29. 7 March 2009 8:53 pm

    FM:”The most likely (historically common) resolution for this imbalance is that the US dollar declines so that exports become more competitive and imports less so. That will probably (not certainly) end the US dollar’s status as the reserve currency”

    This would be the case if the USA was experiencing a recession by itself, but this time the entire planet is declining so currency rates are also affected by problems overseas. I’ve been watching the dollar come back versus the Yen. Yuan is locked to the dollar. The EURO, the most likely dollar alternative, is going to be affected by how their banking/eastern Europe default drama plays out. Also currency rates are affected by flow of capital as well as trade. So even if we have a trade deficit, the dollar might still stay high if the USA is seen as a safe haven to store wealth in the midst of worldwide instability.

    The rumored decline of the dollar hasn’t started yet. Maybe it’s due, but I don’t see it. As of right now, there is no place to store wealth other than the dollar and maybe the EURO.
    .
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    Fabius Maximus replies: You apparently do not see what’s happening over either the short or long term horizons.

    Over the short term, the dollar might spike up or down during the transition process as the incredible stress on the global financial system creates powerful surges of capital. It’s an engineering truism that systems under stress experience wild changes in their operating metrics.

    Over the long term, the large US current account deficit which characterized the past three decades is unustainable, as it means debt grows faster than GDP. This downturn probably marks the end of this era. Even believers in the the Bretton Woods II system saw it only as a temporary phase before the inevitable adjustment.

    One of the great oddities of history is people’s frequent inability to see the end of inherently unsustainable systems — despite experts’ warnings. Even as the ending process begins. This often works out poorly for those societies, as their blindness renders them unable or unwilling to prepare for change.

    Like

  30. 7 March 2009 9:27 pm

    ME:”This is the trend, at least on the US imports side —”

    Oh, I see that this statement came out a little ambiguous. I meant to agree with you that declining imports were the trend right now.

    Declining US exports aren’t a trend, but the recession adds new obstacles to future exports from the USA. To which I’d also add the difficulty getting credit here just makes doing anything impossible these days, let a lone export.
    .
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    Fabius Maximus replies: The near term is uncertain. It’s possible that from here US exports might decline even faster than imports, unlike the usual pattern. But the deficit in dollars seems likely to shrink either way.

    After the downturn I suspect we will see a new world, whose outlines are only dimly visible. Capital controls, pegged currencies, far less ability for nations to run large surpluses and deficits — the dynamics might be very different. Perhaps no reserve currency (the US dollar never well filled the role). The only probably change is that the global casino will remain closed for a generation or so.

    Much of the hysterical response to central bank monetary policy resembles cultists demanding that their children receive no medical attention. Prayer is sufficient, so nothing need be done! Opposition to increasing the money supply is like refusing a transfusion. In both cases ignorance is elevated to a princple.

    Our world is burning. If the flames are not controlled soon they resulting damage might be more widespread than most of you can imagine.

    Like

  31. Walter Norris permalink
    7 March 2009 9:51 pm

    Thank you for the excellent summary of the misinterpretation of Ricardo. I have started reading the links. Your comment about why urban legends don’t go away reminds me of Terry Goodkind’s fantasy novel The Wizard’s First Rule. The novel isn’t that good, but the rule itself is: “People see what they want to see or what they fear is true”.

    Now if we combine this with a discussion of Moore and Gillette’s Jungian psychology book King, Warrior, Magician, Lover which are the four archetypes of the complete masculine. They say that all archetypes have two bipolar dysfunctional shadows. The warrior’s poles (or shadows) are the easiest to explain its about protecting boundaries and the poles are the masochist (passive) and the sadist (active). Picture these at the base of a triangle with the warrior in its fullness at the top. The line of integration runs up the center. People hang out at one pole more than another and swing from one pole to the other. As you move up the line of integration there is less swing until at the top you are perfectly centered, balanced and there is no overreaction in either direction.

    If we apply this to the wizard then the two poles are the pessimist and the optimist and the wizard in his fullness see’s what is really there, not what he fears is true or what he wants to see. Naïve realism says I see what’s really there, others see what they fear or want to.

    Boyd said that orientation was the most important part of the OODA loop. Do you know of any books or methods that explain how to train yourself to see what is really there?

    Like

  32. anna nicholas permalink
    8 March 2009 1:30 am

    Seeing ‘what is there ‘tonight is our UK gov printing invisible money , plus arrival of Son of ?IRA . Giant hailstones and wheat rot tomorrow ? Suggest study Book of Job .
    .
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    Fabius Maximus replies: Yes, the rest of the world is right to consider America as a bunch of drama queens. This kind of downturn is barely front page news in Latin America, and here we have it compared to the Book of Job.

    Like

  33. 8 March 2009 1:43 am

    What will our currency devalue against ? What currency will be stronger ?
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    Fabius Maximus replies: While a natural question, you are looking thru the wrong end of the telescope. We have run up massive foreign debts. A current account surplus is necessary to pay the interest, let alone the principal. The alternative is default (severe deflation, with the destruction it would cause, is a form of default). So ask what changes are necessary to generate a current account surplus.

    This highlights the magnitude of the changes we will see, the transition from the post-WWII economic regime to the next era. There are too many moving parts to say how the pieces will re-arragne themselves. But they will do so, no matter how much we wish the current picture to remain (with its unlimited foreign borrowing by America to maintain our lifestyle). That Americans cannot imagine a new order is not a barrier to it.

    Like

  34. Tom permalink
    8 March 2009 4:22 pm

    I’ve just returned from a week of meetings in Europe with directors from various global business units. These are indeed strange days. The long respect accorded to America for it’s role in the world is depleted. We endure the mockery of the international community for our voracity. Bush was loathed but now Obama is scaring even leftist Europeans. You know you’re in trouble when the Swede’s question the expansion rate of our government. Yet, Europe is about to be ravaged by their own financial blunders, bloated social costs and unassimilated tribes. We may have our problems but I fear Europe’s are perhaps more ominous.

    Ironically, the Chinese are now looked upon as the standards of restraint. Their economy will expand at a slow 6-8% this year and is the envy of the Western world. People speak admiringly of the ability of the Chinese government to act quickly and forcibly to change directions. I heard the common refrain, “the problem with Democracy is we can never do in 10 years what China can do in 10 months because lawyers, politicians and the maze of special interests prohibit action”. The irony is the respect accorded China ignores gross human rights issues, an enormous underclass, poor quality, lack of originality and environmental indifference.

    Personally, as an American I take affront to all this nonsense. What we lack is outrage from the silent majority and a bench of qualified leaders (as opposed to managers and politicians).
    .
    .
    Fabius Maximus replies: How wonderful that America’s mistakes fall from heaven, greeted by your “affront”. Plus criticism at the dearth of “qualified leaders” on our “bench”. Where could they be? How could they decline the privledge of leading such fine folks as us?

    Perhaps a statesman is just a dead politician. We can at best elect only qualifed politicians (a higher calibre of leadership is assigned — not elected — in Heaven). Perhaps we get the politicos were want and deserve, and would mockingly reject homely poor guys like Lincoln.

    Perhaps the source of our problems can be found by looking in the mirror.

    Like

  35. 8 March 2009 4:42 pm

    Hip,hip, hooray for Tom35. The outrage will be coming in a few years, book it. Leaders are a different order, but they will emerge. If 15% of Congress in office in ten years, I will be bitterly disappointed. It will be an unscheduled roller coaster ride through a familiar landscape. Its long overdue.
    .
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    Fabius Maximus replies: This deserves only mockery. The bad times will lead us to sweep out the bad politicos that have deceived us. Our righteous outrage will bring forth the true elect, worthy to serve the wonderfulness of us!

    Bildgewater. Balloonjiuce. Arrant nonsense. We elected politicos to do seek our dreams of unearned wealth. Having enjoyed the meal we are unhappy at the arrival of the check, and seek leaders who will explain why we need not pay. When I see comments on this site discussing our mistakes and how we must change, then it is possible that America has changed course.

    Like

  36. 8 March 2009 6:18 pm

    You miss my point entirely FM. It will be a very rocky ride, involving the creation of a new political vocabulary. It may fail and result in the reinforcement of centralism, your concept of America at the end of its “republican period”. Americans have nobody to blame but ourselves. We failed to create a credible opposition out of the turmoil in the 60s vs. a “criminal war” in Asia. My view is we need a new birth of federalism, close down half the federal government and disperse its powers to regional authorities, much curtailed. We need a complete tax overhaul. Will it happen? What was Obama’s name recognition 24 months ago? We need to close 90% of our foreign bases, close the Pentagon, develop a foreign policy focused on controlling nuclear weapons, defeating religious extremism which will lead to nuclear war if unchecked, abolish NATO and create bilateral relations with nations intent on trade and peace, cut our UN contribution to 5% etc. etc.etc.
    .
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    Fabius Maximus replies: That is a more precise expression, but I wonder if it is accurate. I agree that we “have nobody to blame but ourselves.” That’s an axiom of self-government, we assume responsibility along with the power (failure to use the power is not an excuse). But I suspect (just guessing) that structural change is largely irrelevant. Why will the same people (us) run this wonderful new machinery any better? If we change, perhaps the existing machinery will run better.

    This belief in surface changes seems characteristic of our age. It also fuels the boom in costmetic surgery. A new nose, a new jawline, a new bustline — an new person, a better life! If they had pained the Titanic a different color, perhaps with the furnature arranged differently, surely the voyage would have ended better.

    Like

  37. 8 March 2009 9:18 pm

    Ah, the new age nostrum revealed, “change”. Have you changed recently? Do you know anyone who has “changed”? Not speaking of losing a leg. It is the mantra of how much American bullshit? Yet “change” does occur or is it simply rearrangement we are witnessing, as in that charming experiment you posted earlier? Is it possible to achieve different political and social arrangements without change? Probably not. For example, what would be the result if a movement to restore “sabbath” in American life took hold? A day in which people pledged to not spend one cent, to spend their time with one another, to talk, play games, have sex, read, not watch television or go on their computer, cook, listen, walk. Would that itself be a change, would it produce further change? The relationship between institutional arrangements and behavior is rich with questions certainly. And by the way, how many people have to “change” to produce change? Hitler certainly produced “change” although how enduring that change was remains unclear. How many people did he cause to “change” to produce the change he wrought? Did Americans change because of the Revolution? Well, a large number of Americans left for Canada and Europe, which produced changed arrangements of property and wealth in several former colonies. Did this lead to “changed” people? The destruction of several trillion dollars of “wealth” in front of our eyes, is that producing change?
    .
    .
    Fabius Maximus replies: Are you kidding? Is this Zeno speaking from the hereafter (“movement is impossible”)? Changing attitudes and beliefs drives history, with institutions lagging far behind. The Reformation, the American and French Revolutions, the post-WWII collapse of western colonies — all these occured first in peoples minds. I don’t understand what you are attempting to say, as your comment makes no sense to me.

    Like

  38. 9 March 2009 12:26 pm

    FM Note: This is over the 250 word max. This thread might get high volume, in which case posts over 250 words will be ruthlessly truncated.

    There’s a simple measure of voluntary organizational “sustainability” — it’s called profit. Organizations that have profits are sustainable, and those that don’t might not be.

    Governments are organizations that are not voluntary, so their sustainability is based on force. The rich & powerful elites that control the gov’t, and mostly benefit from it, continue to seek gov’t granted benefits, rather than change the system of granting gov’t benefits.

    Mike Huckabee DID suggest an overhaul of the tax system: replace the IRS / income tax with a National “Fair Tax” (sales / VAT). I’d support that.
    In Europe, like Russia, Estonia, and Slovakia, we have a 19% flat tax — after some small personal deduction, all income is taxed at 19%. We also have a 19% VAT. I’d support that change in the US, where I vote, also.

    China has maybe 60 mil. more marriage-age men than women, based on their long one-child policy, sex-selection abortions, partial-birth abortions, and post-birth abortions (infanticide). They’ve recently had a 20 mil. increase in unemployment. They’ve got huge and terrible ecological problems (ecologists were among the leaders of anti-commie activity in Eastern Europe). Only the delusional would look for leadership to their unbalanced growth for the last two decades; and India’s still simmering caste (neo-feudalism) rules and also too many boys mean the India model is not to be followed. The EU and Euro-zone, which won’t yet even pay for its own defense, might be a US Dollar alternative, but there’s already fears about Italy’s gov’t spending too much and breaking the Euro-zone.

    Without an identified challenger to leadership, the USA will continue to be the top, leading country. But it was always an implicit globalization goal for the rest of the world to be “catching up”, which obviously means a smaller lead. US led globalization is achieving that, and the current wealth destruction of mal-investment in financial paper will lead to a post-crisis world where the US share of global wealth is much less.
    But the houses, cars, TVs, computers, T-shirts, sneakers, Doritos, Big Macs, and other stuff Americans buy will still be bought and “consumed in mass quantities”, tho maybe 5-15% less massively.

    FM challenge: is there any measurable metric of the post-WW II regime which can be tracked that will show when that regime ends? US dollar reserves in foreign central banks? US balance of payments? Foreign Direct Investment? Dow Jones?
    I don’t believe the regime will end, and thus don’t believe any of the metrics will have a discontinuity (flatline) showing an end, nor even a a greater than 80% move outside the 1946-2006 60 year range of values.
    .
    .
    Fabius Maximus replies: It’s always interesting to see a statement of a person’s religious faith. You might find placing such confidence in worldly institutions is unwise. Before anyone gets excited by Grey’s so-confident forecasts, look at his past assertions (there are probably a dozen more, probably most (all?) wrong.

    * “I expect a recessionary-type reduction in real wages, yet with positive, slow growth. Until oil prices start coming down.” 13 June 2008
    * “And even after the huge housing bubble pop, and despite the oil increase, the US economy stubbornly refuses to go into the recession the anti-market/pro-gov’t elite are rooting for” 29 July 2008 {the data suggests that the recession started in Q1}
    * “Still, that will likely mean 18 more months (from Sep 2008) of low GDP growth, and slower income growth — possibly the ‘new’ recession.” 6 September 2008

    As for your specifics, I have discussed these things in considerable detail. If you have not seen the answers yet, probably restating them will do no good. Still, here are some links for others reading this comment.

    * Geopolitical implications of the current economic downturn, 24 January 2008
    * A happy ending to the current economic recession, 12 February 2008 – The political actions which might end this downturn, and their long-term implications.
    * What will America look like after this recession?, 18 March 2008
    * Slow steps to nationalizing the US financial sector, 7 April 2008
    * Effective treatment for this crisis will come with “The Master Settlement of 2009″, 5 October 2008
    * A look ahead to the end of this financial crisis, 30 October 2008
    * A look at out future, 2009 – 2010 … and beyond, 9 November 2008
    * This financial crisis is the transition to a new world; like birth, it is painful, 11 February 2009

    The geopolitical implications are discussed in the posts listed on the FM reference page Military and strategic theory, under section 4 — The American Empire.

    Like

  39. 9 March 2009 12:34 pm

    Great opening post of 21 Nov. 2007! You might have seen how some Australian home owners, whose houses were burnt and who had relatives killed in recent forest fires, have been quite upset at some local council politicians who had been supporting the greenpeace/ green idea of not-clearing the forests of underbrush.

    The “natural way” to take care of underbrush is … an occassional massive forest fire!

    Like

  40. 9 March 2009 12:51 pm

    The only specific I recall from reading many of your links and notes is your claim that US imports will balance with exports.

    So let me use that: if the USA continues to have an imbalance of imports being 10% or more greater than exports, for the next 5 years, I’ll feel comfy that my prediction of the non-death of the post-WW II regime is true, and your prediction did not yet materialize.
    Is 10% too high, too low? 5 years too short, long?
    Do you agree that such a continued import-export imbalance does falsify your (religous?) belief in the (short term) end of the post-WW II regime?

    If not, what metric or parameters would provide such falsification?
    .
    .
    Fabius Maximus replies: So you have a very poor memory. I have provided some links in your previous comment. I don’t have time to write essays in reply to questions.

    Like

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