A look at the new world – after the downturn

Summary:  We can only guess at the outlines of the new world that lies beyond the post-WWII geopolitical regime whose death-throes dominate the headlines.  This post explains why we can only guess, and gives a list of my guesses.

The end of this downturn will be like a singularity in astrophysics, where the rules break down.  We cannot see beyond it because we do not understand the choices that will determine our fate – let alone how we will choose.  It also resembles a singularity in that what lies on the other side is unimportant until (or unless) one survives the passage through it.

Here are some guesses about the new world order — and America.  Each of these is described in detail in one or more posts.  This is just a brief review (1200 words), nothing coherent or integrated.

Contents

  1. Far less risk-taking in America
  2. Our financial system swings from disintermediation to re-intermediation
  3. The government becomes obviously insolvent
  4. Government controls not just the risk-free rate of interest, but also risk premia
  5. The end of the US dollar as the reserve currency
  6. The end of the US empire
  7. The US dollar declines in value so that our trade deficit goes away, and we can pay our foreign debts
  8. Afterword and where to go for more information

(1)  Far less risk-taking in America

After this downturn a majority of Americans will see the government as the ideal employer.  Usually with pay equal to that of private sector equivalents (except for the top tier), usually with superior benefits, and — most important — always far better job security. 

People in America (us) were fools not to realize that job security is the key to building wealth for most workers.   There are few people laid off in the private sector.  Most are fired, never to be re-hired at that firm.  To be fired in one’s late 50’s is involuntary retirement for most people, at a time when civil servants are accruing retirement pay at their peak wages.  Hence for most Americans civil service offers both greater security and superior income, looking at the results of a lifetime of work.

This downturn might lead to greater understanding of this harsh fact.  Sirens like Daniel Gross will write articles like “Jump! – If the economy is going to recover, Americans need to start taking risks again” (Slate, 14 March 2009), but increasingly Americans will realize that for most of us the risk-reward odds favor civil service.

The effect of this on our society will be large, in many dimensions.  It will be a big change in our culture, with effects difficult to foresee.

(2)  Our financial system swings from disintermediation to re-intermediation

The “ownership society” was the last gasp of the post-WWII order, an adaptation to a stable regime that was even then fading away.  In a period of unpredictable change, direct ownership of financial assets is to risk for any but the rich.  People will return to guaranteed investments, where stable business act as intermediaries who absorb the risk of direct ownership.  For more on this see

(3)  The government becomes obviously insolvent

Our government is already broke.  We are like the coyote in the Road Runner cartoons, running off the cliff for several yards before looking down.  The debt — the bill from past spending — is six trillion, That’s roughly $60,000 per household (not including state and local debt).  The liability (past spending plus promises of future benefits) is aprox $54 trillion,  over a half million per household.  That’s in addition to the already crushing household debt of Americans, with the bottom 60% de facto insolvent.

At some point we will wake from our dreamtime to confront this reality.  Then the world will learn about the nature of America. 

For more on this see:

(4)  Government controls not just the risk-free rate of interest, but also risk premias

Today we can only guess at the shape of the post-recession world.  Prof Delong said that the 1930’s led to government control of riskless rate of interest (the price of money), and the current crisis will result in government regulation of the risk premium (the price of risk).   A long global recession will drive changes in beliefs, behavior, and capital structure that we can only imagine today.

(5)  The end of the US dollar as the reserve currency

It’s a trust and responsibility which we have ruthlessly exploited in order to borrow vast sums we probably can never repay.  We cannot see what will replace the US dollar as a medium of exchange for trade and as a storehouse of value.  But when the need is realized something will be found, as it is hardly an insurmountable problem.  Perhaps a basket of currencies.

(6)  The end of the US empire

The transition from American hegemony to a multi-polar world is perhaps the most obvious — and most widely forecast — result of this downturn.  For more on this see:

  1. Prof Nouriel Roubini describes “The Decline of the American Empire”, 18 August 2008
  2. The foundation of America’s empire: our chain of bases around the world, 8 September 2008
  3. “A shattering moment in America’s fall from power”, 19 November 2008
  4. “End of Empire” by David Roche, 29 November 2008
  5. The transition between Imperial reigns: what will it mean for America?, 16 December 2008
  6. To understand the Imperial Unconscious, Tom provides the Dictionary of American Empire-Speak, 6 March 2009

(7)  The US dollar declines in value so that our trade deficit goes away, and we can pay our foreign debts

How will this recession end? My guess: with re-balancing of the global economy and a decline of the US dollar so that the our goods and services are again competitive. No more trade deficit, we can pay our debts, and there will be no serious outflow of jobs.

(8a)  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.

(8b)  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:

Posts about the Implications for the future, about structural changes to America and the world:

  1. Treasury Secretary Paulson leads us across the Rubicon, 9 September 2008
  2. Say good-bye to the old America. Welcome to our new socialist paradise!, 17 September 2008
  3. Another voice warning about the nationalization of AIG, 18 September 2008
  4. Another step away from our Constitutional system, with applause, 19 September 2008
  5. America appoints a Magister Populi to deal with the financial crisis, 21 September 2008
  6. Legal experts discuss if the Paulson Plan is legal, 21 September 2008
  7. German Finance Minister Peer Steinbrück explains how the world is changing, 30 September 2008
  8. America has changed. Why do so many foreigners see this, but so few Americans?, 1 October 2008
  9. America is changing. Read some chillling words from a liberal economist, 2 October 2008
  10. Does this economic crisis make the State stronger – or is it another step in the decline of the state?, 16 January 2009
  11. This financial crisis is the transition to a new world; like birth, it is painful, 11 February 2009
  12. Everything written about the economic crisis overlooks its true nature, 24 February 2009

34 thoughts on “A look at the new world – after the downturn

  1. “Far less risk taking in America” is inconsistent with “The government becomes obviously insolvent.” Just because solvent governments provide relatively secure employment does not mean insolvent ones also can.

    “It’s a trust and responsibility which we have ruthlessly exploited in order to borrow vast sums we probably can never repay.” and “No more trade deficit, we can pay our debts, and there will be no serious outflow of jobs” are inconsistent. Let’s get real. We never are going to repay the current debt. One way or another, we are going to repudiate it.
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    Fabius Maximus replies: These reflect different time horizons. Just because the government becomes insolvent does not mean it cannot pay its bills. A current account surplus, so that we can interest and principal on our debts, does not mean that they will not eventually be defaulted in some form (about which I strongly agree with you).

  2. Actually, Fabius, if you want a concrete illustration of my point, consider the Spanish in the Netherlands under Philip II. Employment in the Spanish army was far from secure. Payments were typically in arrears; troops, who were reduced to beggary, pillaging, starvation, and disease, actually mutinied on several occasions. Such could well be the lot of future American government employees.

    Nor were Spain’s finances secure. Philip II repudiated his debt several times. So a government’s repudiating its debt – while undesirable – is by no means taboo.

    None of this was good for Spain. It marked the beginning of its decline. But Spain’s experience demonstrates that my points are possible and illustrate how they might work out.
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    Fabius Maximus replies: I don’t see your point. Nations do default on their debt. Frequently. For more on this see “This Time is Different: A Panoramic View of Eight Centuries of Financial Crises“, Carmen M. Reinhart and Kenneth S. Rogoff, April 2008 — one of the best studies about governments getting in over their heads and the inevitable consequences that follow.

    As I have so often written, there are only a few ways to work out of too much debt. I suspect default will be the method we choose, not the more widely expected option of deflation. For more on this see section #5 in …
    * A situation report about the global economy, as the flames break thru the firewalls, 26 January 2009

  3. Although all of your points are rational, Fabius, I suspect we’re going to go in something of the opposite direction when it comes to risk assessment by the average American.

    America is becoming more and more a country of gamblers and I suspect we’re going to see a lot of people doubling down on their debts regardless of the risk because they believe that is the only way to pay their debts.
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    Fabius Maximus replies: As I have so often said, we cannot see what will happen because it involves choices that not only we have not yet made — but that we do not yet understand. Hence in speaking of the future I speak of my guesses. They are intended to illuminate the alternative paths rather than forecast a fixed future.

  4. (1) Far less risk-taking in America
    (2) Our financial system swings from disintermediation to re-intermediation

    Would it make sense for the government to create a new kind of “partially-insured fund” — something like the way FDIC insures bank accounts, but for mutual-fund-type investments? Under fairly strict regulation (but not as strict as bank deposits), these would be insured to, say, 75% of the value at which they were purchased, and would incur additional tax load for appreciation above, say, 150% to pay back the cost of insurance. Fund managers would still have an incentive to do as well as they could, within the regulations. Small investors would have a chance at significant gains without risking intolerable loss — and, should the value drop to 75%, there would be no reason to sell (and increase the chance that the fund would fail) because that value would be guaranteed, and could only get better, never worse. The government would reserve the right to force a cash-in at 75% if regulators believed the fund could not recover.

  5. The wanting of a thing is not the having of a thing. You can want less risk. No doubt, many will strongly desire this after being wiped out by current events. But the goodies we want are made by risk takers and risk managers. Unfortunately, these people are shown by history to be frustratingly intelligent. Not to go all Ayn Rand on you, but getting the goodies that only come from risk takers without paying the risk takers enough to induce them to take risks is a bankrupt notion. Study Argentina to understand how the wheels come off a nations economic wagon, and then stay off for a long time.
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    Fabius Maximus replies: While pleasing to the ear, this seems dogmatic to my mind. By taking less risk we would become more like Western Europe. The comparison to Argentina seems bizarre, whose problems were far beyond tolerence and rewards for risk. Argentina fell because of complex ills, among them an unequal division of wealth and freedom, plus a collapse of social cohesion.

  6. Yes, in my economic board game of the future, we do not pass “unequal division of wealth and freedom” and do not pass “collapse of social cohesion”. I guess I am channeling Ayn Rand here. Indeed, she would say these are the next two unavoidable consequences of our foolishness.
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    Fabius Maximus replies: I still do not understand. Are you saying that conditions in the US are like those of Argentina before its long decay? If so, I would like to see some data on that. Also, how does this relate to your earlier comment about innovation and entrepreneurship?

  7. The confounding variable is culture. You can get away with a lot more stat ism in Germany and Japan, than you can in Latin America. Even Germany had her breaking point though. I believe a fundamental problem continues to be the disconnection of our political class from our wealth creators. As Germany and Japan well demonstrate, you can get your engineers to work hard without making them rich. If you go beyond that however, and vilify the private sector while amply demonstrating you are clueless about how and why they produce what is, let’s face it, essentially all the wealth, you may reach a breaking point where production collapses and is then very hard to re-start due to human nature. Investors aren’t the only ones who, once burned, are twice shy, this is true for risk takers of all stripes, including entrepreneurs.
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    Fabius Maximus replies: Perhaps, but I suspect that is a long-term evolution. Small changes in regulatory and tax regimes seem unlikely to have large effects on the economy exept over long periods of time. Almost certainly not a “production collapse.” Do you have any data to suggest otherwise?

    Also our current regulatory regime is so large that tweaking might not even be noticed. Now the New Deal, both the regulations and encouragement of cartels and large corporations, was a large step.

  8. FM:”While pleasing to the ear, this seems dogmatic to my mind. By taking less risk we would become more like Western Europe. ”

    As far as being like Western Europe, well, they made huge loans into eastern Europe, and also housing bubbles in Spain and Ireland which are now going bad. Their banks are more leveraged than ours even. There’s no answer over there. Actually it’s Japan zombie banks that were less affected by this — that they’d been through the wringer already in the 90’s. (I concede, it’s possible Japanese banks were just at a different phase of the cycle, and given a few more decades would have bubbled up just like everyone else.)

    One of the problems was that companies were taking risks that they didn’t believe were actual risks. Nobody thought that everything could go bad all at once, or if they said anything they were shouted down by group think. It was bad but clever science leading to a mass delusion about the nature of risk. To fix this requires, less of a determination to not take risks, but more an understanding of the extent that we don’t understand risks.

    The ‘too big to fail’ problem figures into risk. Big risk * big company = massive disaster. The future products of the world are all big risks, and we do need that, but those bigger risks need to be made by smaller companies. I believe right now, we should consider not having large banks. Even if we legislate that they should take no risk, there’s still a possibility of them taking unknown risks due to some future misunderstood correlation, and then the whole problem starts over again.
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    Fabius Maximus replies: You have to read the text, not just the headlines. Number 1 — “taking less risk” referred to individuals, as in prefering government jobs to those in the private section (and, by extentsion, going for wages rather than entrepreneurship. It has nothing to do with bank lending practices, a totally different subject (in this case probably due to the difference between US and EU regulatory metrics).

    Please try to stick to the topic, which this comment does not. I hate to snip, but will if necessary to keep the discussion on track.

  9. To be sure, it’s complicated. The latch-up hysteresis I describe due to human nature is, however, something I have not seen dealt with by economic theorists. If important, it belies the notion of smoothly elastic movement of capital dependent only on cost of capital and marginal return on investment. The notion is that there are things societies can do, mistakes I suppose, that alter the state of mind of the individual. Keynes was perhaps getting close when he noted the loss of “animal spirits” in the risk taking community. In engineering, hysteresis is a bedrock principle, powerful in its application and in it’s ability to explain complex non-linear systems’ behavior.
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    Fabius Maximus replies: What evidence do you have that economists believe in “the notion of smoothly elastic movement of capital dependent only on cost of capital and marginal return on investment”? That is a simplification sometimes used for modeling, but fully understood as such. Ans what is “latch-up hysteresis” in economics (I see references to it re CMOS chips)?

  10. The first of your predictions, “Far Less Risk-Taking in America,” notes that government positions may become the preferred sector of the economy for secure employment. Given the relative permanence of bureaucracies, a reasonable enough conclusion – provided that the future mirrors the past half century or more. The coming public entitlements tsunami – social security, medicare, medicaid, pensions and benefits to retired military, public safety and other employees – threatens to destablize if not topple the system. The actuarial assumptions upon which it was based come from the industrial age, and do not necessarily fit our current circumstances.

    My second point is that the federal government has engaged in a form of deficit spending with the military and certain other classes of employees. Pay for members of the military (especially enlisted personnel) often lags behind that of the private sector, a situation improved somewhat by different benefits (housing and educational assistance, etc.), Implicit in the bargain is that in return for lower pay than your civilian counterparts at the same point in their careers, you will receive a pension plus medical benefits for 20 or more years of service. Essnetially, what the federal government is doing here is writing a promisory note, for future payment for current services rendered – in other words, borrowing against today’s labor. The relationship is highly leveraged, just like so many other things in our society these days. The larger point is that anyone in the employ of the government who expects to receive future benefits of any kind in lieu of payment in their next paycheck is gambling… which would qualify as risky behavior to thses eyes.

    If and when the money starts to dry up, and paying these obligations becomes tough, we may we see a substantial rift develop between those employed or once employed by the government, and those not.

  11. Interesting point re (1). This suggests laissez faire capitalism self-destructs due to a catch-22. The more competitive and productive capitalism becomes, the more “flexible” the labor force gets and the faster firms rise and collapse. This means that workers no long have any kind of career and job security goes to zero, so workers increasingly see their best option as avoiding the private sector entirely. As a result, capitalism grows less laissez faire and as the government sector increases in size, capitalism grows more regulated. That would suggest that extremes of market deregulation and concentrations of wealth tend to self-correct over time.

    bc claims: “If you…vilify the private sector while amply demonstrating you are clueless about how and why they produce what is, let’s face it, essentially all the wealth, you may reach a breaking point where production collapses…”.

    This offers a superb example of Ayn-Randy-style ignorance and folly. Very little of the output of America’s private sector represents “wealth” in any credible sense. Enron and Bernie Madoff and suchlike con artists (often con artists like Jack Welch, who turns GE into a powerhouse but only by injecting it with the artificial steroids of GE Capital’s predatory loan and subprime loan divisions, which are now blowing up and going broke) are the primary generators of so-called “wealth” over the last 20 years.

    In reality, America’s private sector has increasingly turned into a Madoff economy based on lies, scams and creative accounting games. By contrast, the public sector adds vast amounts of genuine wealth to American society — the Randroids are just too ignorant and too ideologically blind to realize it. The public highways add immense wealth to America by allowing efficient delivery of goods; K-12 public education provides workers able to read and write and do basic math, which adds uncountable wealth to our economy (just imagine if corporations had to educate all workers to read and write and do sums! How much would that cost?), basic scientific R&D adds fantastic amounts of wealth to the American economy (essentially all biogenetic spinoff companies build on research originally financed by the NIH, just as all the Silicon Valley semiconductor companies built on research originally financed by the Pentagon in the Minuteman missile system, which yielded the world’s first integrated circuits). The list goes on.

    Randroids fall to recognize the tremendous amount of wealth added by government investment in things like infrastructure, education, higher education, basic science R&D, public works like dams and the TVA. At the same time Randroids count every idiotic Pet Rock and Enron spewed out by the private sector as “wealth.” As the recent housing collapse showed, much of that so-called “wealth” allegedly generated by the private sector turns out to be illusory. How much “wealth” did Bernie Madoff create?

    The claim that investing in a Madoff stock market in an Enron economy represents “risk” is disingenuous. Anyone investing in the market in the 1990s was not taking a risk: you were sure to lose your life savings. If and when regulators regain control of Wall Street, people will undoubtedly be willing to invest once again. Until then, anyone who invests in Enron-style corporations using Madoff-style accounting is simply stupid.

    This applies to foreign investors, by the way. Foreign investors will have little incentive to buy American stocks or bonds if they realize that the U.S. private sector has turned into Enron, full of phony accounting tricks and devoid of honesty or accountability. “Risk” isn’t the issue. America needs a transparent honest private sector with stiff regulation and diligent regulators and CEOs who operate in good faith. America once had that; now we’ve lost it. If we don’t regain it, our private sector will prove no more attractive to domestic or foreign investors than some third world country where the only way to get anything done is to pay some bakshish to the potentate’s cousin.

  12. Empires tend to only collapse with military defeat. It took two World Wars to destroy the British Empire, and Western Europe in general. As there is no country in the world capable of matching the U.S. military, short of nuclear warfare, I think the U.S. empire is likely to be strengthened by this contraction. However, the condition of an empire’s ruling class (and their hand servants) is quite different than the status of average people living within it. Without a dollar devaluation against other currencies, the U.S. middle class is going to squeezed very tight. But these type of contradictions, and even the contradiction of BW 2 right now, can go on for a long time without a society or order collapsing.
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    Fabius Maximus replies: (1) The 3 major empires of the last 5 years all collapsed from internal decay — the Spanish Empire, the British Empire, and the Soviet Union (aka the “evil empire”).

    (2) “But these type of contradictions … can go on for a long time without a society or order collapsing.”

    I said nothing about “collapse.” Astonishing that so many people see these things in binary terms: thrive or collapse. Absurd.

    (3) “there is no country in the world capable of matching the U.S. military”

    Fred Reed said it best in “A True Son of Tzu, Guderian Was the Mother“ (23 January 2007):

    {the US military is} ready for wars past and future, but not present. The Pentagon does this well. Note that the current military, an advanced version of the WWII force, is ready should the Imperial Japanese Navy return. It also has phenomenally advanced weaponry in the pipeline to take on a space-age enemy, perhaps from Mars, should one appear. It is only the present for which the US is not prepared.

  13. “there is no country in the world capable of matching the U.S. military”

    Umm, try China. They fought the U.S. military to a stalemate in 1953. And could probably do so again.

  14. purple claims: “…there is no country in the world capable of matching the U.S. military…”

    Just the opposite is true: today there is virtually no country on earth that could not defeat the U.S. military. The Tijuana police force could handily defeat the U.S. military at this point. No surprise, given the U.S. military’s pathetic record of nearly continuous defeat since 1945.

    The U.S. military was fought to a standstill by the North Koreans in the 1950s, decisively defeated by the North Vietnamese in the 1970s, decisively defeated by the Lebanese militias in 1983, decisively defeated by a bunch of 15-year-old Somali kids armed with nothing but AK-47s in 1993, and is now being decisively defeated by more 15-year-olds in both Iraq and Afghanistan. These were not great powers. Somalia didn’t even have a government, yet they managed to chase out the vaunted American army like a bunch of little girls running in hysterical panic.

    The U.S. military in 2009 is a pitiful impotent giant, armed with Buck Rogers superweapons like airborne lasers and anti ballistic missile interceptors that don’t work and even if they did, would prove useless to defeat the kinds of enemies we encounter on today’s battlefields. Now that the Mexican drug cartels have defeated the Mexican government in their bid to control Cancun and Ciudad Juarez, evidence suggests that with their stepped-up purchases of military weapons including grenades and RPGs and high explosives (claims that the Mexican cartels are smuggling these weapons from the U.S. are hogwash, you can’t buy these kinds of military weapons here), the cartels are moving on to the task of defeating the U.S. military when we foolishly try to intervene in Mexico. Given America’s essentially constant record of defeat at the hands of illiterate peasants since 1945 (with the sole exception of Desert Storm in 1991), the cartels should encounter little difficulty in wiping the floor with the U.S. military in Mexico. After all, the U.S. military already has plenty of Mexican drug cartel enforcers inside it courtesy of declining enlistement standards…just as the Iraqi army had lots of Mahdi Army fourth columnists in inside it back in 2003, waiting to strike. Sound familiar…?

    What fantasy world do you commenters inhabit? Did you think the 1985 movie Red Dawn was a documentary? Did you really believe the 1968 John Wayne film The Green Berets offered an accurate picture of military history? Did you people actually take the Rambo films seriously?

  15. If you go beyond that however, and vilify the private sector while amply demonstrating you are clueless about how and why they produce what is, let’s face it, essentially all the wealth, you may reach a breaking point where production collapses and is then very hard to re-start due to human nature.

    This illustrates backward, Reagan-era thinking, which asserts that wealth is “produced.”

    As the economy transforms from one that emphasizes capital to one that emphasizes land ( as I previously have discussed ) it will become increasingly clear that wealth cannot be “produced.” It can only be harvested. The source being solar energy ( and geothermal or even tidal, I suppose, to a lesser extent. )

    In all candor, I do not see it as meaningful to debate the above thesis. The proof will be in the pudding, as the saying goes. Far more meaningful would be developments of techniques and strategies better to harvest the caloric inputs that we are actually receiving every day.

  16. “You can get away with a lot more stat ism in Germany and Japan, than you can in Latin America.” — In terms of cultural tolerance, I think this point overlooks the rise of the ‘new left’ in Latin America, esp. Venezuela. In addition, many social movements throughout Latin America are calling for more government involvement in the day to day life as the pendulum swings back from IMF austerity measures. Good or bad? I don’t know, but I suspect the lesson for us here will be that when people understand libertarianism to mean that we suffer the slings and arrows of an economic downturn on our own, they will push for more government intervention as a guarantor and stabilizer of the economy (if we haven’t already reached that). We’re approaching FM’s historical singularity, so I won’t pretend to know whether this is good or bad–people tend to do things imperfectly, esp. as the scale increases (insert Tower of Babel metaphor here), but there don’t seem to be any deus ex machina on the horizon.

    This all points to societal risk aversion, perhaps the most interesting postulate of FM’s hypothesis, and I’m guessing that our timidity will become more apparent as this recession/depression drags on. Irregardless of Ayn Rand (who needs to go to the literary graveyard, by the by, because a. she’s a terrible writer and b. her philosophy spawned from a historical perspective that is less and less relevant to us–we may be going statist, but we are not Soviet Russia) and conservative dissenters, the US government, while viewed as incompetent, is as likely to remain from day to day as the sun will rise in the morning. Name five financial firms today that exude that kind of assurance. Until we can, we’ll be putting a lot of faith in Uncle Sam, so let’s hope for (or perhaps even look for, promote, and vote for) good leadership.

    One point on the late empires mentioned–especially Russia. While I agree that they fell largely due to internal decay, there were outside factors that exposed their weaknesses, i.e. the USSR’s adventure in Afghanistan. I’m pretty sure that most empires can bluff their way through internal discord so long as there are no external challenges to reveal they have no clothes. This would bode well for us, if we didn’t have Afghanistan and Iraq to deal with.
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    Fabius Maximus replies: I am skeptical that the Afghan War contributed much to the fall of the USSR. Historians love wars, and attribute often bizarrely large effects to them. But, as we all know, co-incidence does not prove causation.

  17. Most interesting. In addition, with Russia and China exerting greater influence in Latin America, the US will be more constrained geographically. Past US debt may be $6 or $8 trillion, but Mr. Obama is adding a trillion per year to the total. Future US promises may be $50 or $60 trillion but again, Mr. Obama is expanding that debt rapidly.

    Despite comments above, at this point all nations fear the US military. In a few years that will not be true. The US military under Mr. Obama will begin to resemble the US military under Mr. Carter. Demoralized, and without any conceivable mission that it could hope to achieve. Even Iran is entering Latin America, Nicaragua, as a base of operations within Central America. The anarchy of Mexico is growing very complex, very involved internationally.

    Everything Mr. Obama touches turns to ruin.

  18. In reality, America’s private sector has increasingly turned into a Madoff economy based on lies, scams and creative accounting games. By contrast, the public sector adds vast amounts of genuine wealth to American society — the Randroids are just too ignorant and too ideologically blind to realize it.

    Good to know that the 6 business in our industrial park that do things like install air conditioning ducts, sell sewing machine parts and build and install kitchen cabinets are engaging in a ponzi scheme to defraud customers.

    Obviously, the public sector can increase productivity by making large investments in public infrastructure. The Interstate Highway System is the best example of this. Ditto for K-12 education.

    But, just because the public sector can do this doesn’t mean it has been doing it. Have you been on an interstate lately? Notice all those cracks and bumps everywhere? The IHS is in a state of horrendous disrepair. No new IHS freeways have been built in SoCal in 20 years. Additional lane-miles are added at an excruciatingly slow pace.

    According to the NEA, California spends about $8,000 per pupil. At 25 kids in a class that is $200,000 per classroom. You could pay a teacher $100k a year AND have $100k left over for rent, books, etc. And yet the education outcomes are terrible. Something doesn’t add up.

    As usual, the ‘private sector is bad, public sector is good’ crowd swaps their idealized view of the world with reality. Can public sector investments in infrastructure improve everyone’s lives? It can, but the money has to be spent well.

  19. Fears of Iran in Latin America are overstated. Their real ‘beachhead’ is Venezuela, a fellow OPEC member and one that has been increasingly tarred for warm relations. Second, Iran already has had a negative influence in Latin America that predates Obama and that ‘crazy’ Ahmadinejad–the Argentina bombing being the most high profile incident. Finally, other than the aforementioned act of terror, Iran’s influence in Latin America has not been demonstrated to pose a direct threat to the US–yet anyway.

    Also, what part of the economy and military did Obama inherit that he has ruined? Bush had already run up a huge government deficit, put the government into the middle of the financial crisis, and lowered the readiness of the armed forces by going into Iraq and Afghanistan. The mess in Mexico has its seeds that are decades deep and reflective of US foreign policy that is older than the president.

    To FM on wars: Point taken, wars are easy to make marks by because they have convenient start and end dates. Still, they do put a lot of stress on a nation that certainly exacerbates existing problems.

  20. This is as good a definition of singularity as need for my asking why you insist on using a term from astrophysics that few even comprehend, which has no relevance either for politics or economics.

    What you mean quite rightly is that some kind of “consensus” is breaking down and what will replace it. It is a nice queestion to ask how it emerged and when, when it was first described as eroding, what the beneficiaries of it did to deny that it was failing, creating actions of course to make it fail faster. Those are the best places to look for clues of what is going to emerge in the medium term. As for larger global or regional consensus, if the past is any guide, these have ALWAYS resulted from WAR. And I am not speaking of the wretched wars we have waged sporadically for decades to no benefit of the American people, but to great benefit of the political class and its satellites or planets — the military-industrial complex. Keep it simple and direct FM.
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    Fabius Maximus replies: To see what I mean, perhaps you should read what I say. It’s an analogy, and not a complex one. No, I don’t mean anything remotely like “some kind of ‘consensus’ is breaking down.”

  21. FM: my nomination for funniest comment of the year. Emphasis added in bold.

    Whenever FM wants to bump up traffic on the site, he says “the future is a singularity, from which no one can see beyond; and here are my predicitons.”

    We love to predict the future, like betting on football games, but our predictions are tainted by wish-fulfillment. Presently, radical leftists look for a collapse of capitalism; conservatives see an increase of state-power. Imaginative people like CM and DK see societies based on completely different principles of production, arising, I guess, out of the ashes of the singularity.

    FM’s prediction that the public sector will become the only “safe” employment has a depressing ring of truth to me — the worst possible, most totalitarian, type of outcome — even though certain facts, like the inability of states like California to meet their current payroll and benefits programs argue against it. Probably, the military will be a significant part of that employment, as the US continues to defend whatever foreign interests it can, and keep a lid on domestic discontent.

    This is not a “singularity”, of course, but simply a continuation of present trends.
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    Fabius Maximus replies: Please don’t say things like that; someone might die laughing. You are obviously kidding, as any over 10 can see this site is not run to gather traffic.
    * Long articles — over over 2,000 words vs. the average Internet post of 250.
    * Not only no pictures of hotties, but almost no graphics of any kind (too much work).
    * Often esoteric subjects, frequently iconoclastic perspectives.

    “We love to predict the future, like betting on football games,”

    That trivilizes this vital process. By looking ahead we assess possible futures and direct our actions accordingly. The observation-orientation “phases” of the OODA loop involve project ahead as much as looking about.

    “FM’s prediction that the public sector will become the only “safe” employment”

    You’re a good comic, but a not so good analyst. I said “After this downturn a majority of Americans will see the government as the ideal employer.” I describe a shift in preferences. Today private sector employment is widely seen as superior, with civil service seen by many (not all) as less attractive. I suspect that this relationship will be reversed in the future, becoming more like the situation in France.

    “This is not a ‘singularity’, of course, but simply a continuation of present trends.”

    That is your forecast. Mine is that it is a singularity in that what lies beyond is radically different than today, and a discontinuous change from current trends.

  22. Looking much less far into the future, I wonder what people here think about the idea of a multi-party political system? Clearly, the two-party system has become effectively a one-party system, with no important differences on foreign policy or the economy, and both parties equally subservient to corporate wealth.

    Under the two party system (or one party system with two wings, in Gore Vidal’s words), there is no meaningful discussion of issues, other than the posturing of one side or the other over trivial events like the AIG bonuses, and distracting social issues like abortion. Wouldn’t it be better if greens, and conservatives, and true leftists, and fundamentalists, could get into the public arena and hammer out real programs and real agendas for the future?

    I know, the basic case of Italy — but Italy was always a basket case!
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    Fabius Maximus replies: I have never understood the appeal of multi-party systems, except to politicos — for whom it offers many more opportunities to be “king” (albeit of tiny partisan fiefdoms).

    A two-party system forces the politicos to assemble broad coalitions, with all the trade-offs inherent in that process. The public gets to choose among the coalitions. In a multi-party system the public chooses amonst tiny but ideologically pure parties, but the horse-trading is done after the election and out of public view. IMO not a superior system, in any sense.

  23. Yeah FM, it’s a stinker. After spending the majority of my life in the U.S. and having the chance to travel the world a little, I finally started to appreciate how nice it is to be here in the U.S.

    Regarding the comments on the military. Sure our military isn’t able to impose its will on faraway countries full of desperate guerillas. We’re make lousy imperial occupiers, but I’m okay with that- all I want from our military is to defend against attack on OUR turf. I don’t think any nation would even dream of it. Just look at how badly we wrecked Iraq. As for terrorists… bah. My energy is better spent trying to prevent car/plane accidents or health problems or starvation after losing all my money in the stock market…

    I agree with the poster who said risk taking might go up, as the desperate ‘double down’. That goes along with everything I’ve learned about the executive classes. All too easy when it’s not your money.
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    Fabois Maximus replies: What is a stinker? Also, the comment about “risk taking” grossly misunderstood the text.

  24. seneca: I think more choice is always better, and a party system of crazy right, orthodox right, center right, center left, orthodox left, and crazy left would probably more accurately represent the political spectrum with the parties further out from the spectrum influencing but not dictating policy. This would free the Republicans of the Sarah Palins and give Joe Liberman a political party. That being said, the parties at the center would probably still monopolize (duopolize?) the presidency. They might very well also lead to a steady erosion of the parties out on the wings any how, especially if political/lobbying money continues to follow the likely winner of elections.

    Also, I think the problem with Italy is more than just a proliferation of parties–it’s the nature of them. Many are regional and/or single issue based which makes coalition building a Herculean task. In addition, permanent senate seats, IMO, were what sank Prodi since the communists proved to be ridiculously unreliable. If this were the model we began to follow in terms of political representation, I think things would probably be much worse for us than they are now.

  25. Silly seneca, to think that such simpleminded extrapolation of present trends will mean anything at all. People who depend upon extrapolation of present trends get Madoffed, Enroned, and 9/11d. Extrapolations are reliable until they aren’t anymore. That transition can happen at any f’n time.

    History was never cancelled, no matter what you may have heard. Tumult, calamity, and catastrophe are the order of the day. The US is quickly ripening for an overdue dose of history under its current regime of bottomless corruption.

  26. seneca: about a multi-party political systems:

    I think that to enable that possibility we will first have to abandon winner-take-all elections — see Duverger’s law.

    As a result of the near-total predominance of the two major parties, approaches to lawmaking not well-represented within those parties (such as Green or Libertarian principles) never have a chance to demonstrate what value they might add; hence, they remain odd, untested and suspect. It’s a very inefficient and rigid system — just the opposite of the free-market diversity in economics to which our nation is so deeply committed — but getting that concept past a population raised to regard majority rule as the one true voting system will be an uphill battle.

  27. Nolan Bushnell once told me his approach to evaluating investment opportunities as an Angel investor.
    “It’s PXSXT”, he said.
    “P is the problem being solved, a universal cure for cancer is a 10, a better toe nail clipper is a 2.
    S is the solution proposed, Clinical data showing your cancer cure works 99% of the time is a 10, 10% improvement in toe nail removal is a 2. T is the people on your team. Two Nobel prize winners in Chemistry plus a Steve Jobs is a 10. Two Wayne State drop outs and a dog is a 2.”
    I tell this story because I believe government can affect the quality and quantity of all three inputs. After WWII, our list of problems and solutions was fantastic, and good teams of people took the ball and ran with it. The failure of Venture Capitalists in the 90’s and failure of our banking class in the last decade are symptoms of the fact that PXSXT is too low for too many projects. I have no love for VC’s or bankers, and Ayn Rand’s views are too simplistic, but if government tries to step in and do the job of the VC’s and bankers instead of improving our P’s S’s and T’s, we are screwed.

  28. “Tumult, calamity, and catastrophe are the order of the day.” (bluderwort)

    My point exactly, which is why I fear the growing intrusion of the state (and the military) into our lives.

  29. Re: Duverger’s law

    Instead of changing our first past the post electoral system, why not vastly increase the number of representatives? I think the reason representatives focus on trivial issues for two reasons: 1) gerrymandering. 2) something happens in the news that outrages 0.1% of the constituents, and they proceed to jam the email and phone lines of their reps.

    If we fixed the rep/population ratio to 1 per 100,000, I think you would get a much more responsive house. I think that you would also see a rise of ‘third parties’ – although any one district would only have two viable parties.

    Perhaps we could get this done in a deal that grants PR and Guam statehood something FM mentioned earlier I think).

  30. Here is a link to Wikipedia’s “hysteresis” blurb.

    A latch is an amplifier with its output positively (pro-cyclically) driving its own input. A latch with hysteresis is a latch who’s amplifier has a null or dead zone response to inputs below a threshold value called the magnitude of the hysteresis. The effect of hysteresis is that the latch with hysteresis ignores small input signals, but transitions between two states if the input is forced to swing outside the hysteresis window magnitude.

    The wiki link alludes to hysteresis applied to economic theory, but in regard to how unemployment numbers are sticky due to people giving up finding jobs. I find nothing supporting the notion that risk takers may latch up to a new risk averse state once perceived measures of reward are permanently altered by experience, but I suspect this is the case.

    Also: see the Wikipedia entry on Behavioral Economics, rich with analysis of hysteresis effects in human behavior, it is linked by the reference for hysteresis/economics above.
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    Fabius Maximus replies: Thank you for the links to this material; great stuff!

  31. Re bc’s comment. I was really chuffed to pick up ‘ the money illusion ‘ from your link , because I had been spouting that it was the Gov failing to see this ,that caused the crash in UK consumer confidence last summer .

  32. Fabius Maximus replies to seneca in comment #22: “A two-party system forces the politicos to assemble broad coalitions, with all the trade-offs inherent in that process. The public gets to choose among the coalitions.

    We choose between brands. Campaigning is marketing, only tangentially related to the business of governing; debate focuses on whatever the top two brands choose for product differentiation. Pepsi or Coke? Mountain Dew, Dr. Pepper and Orange Crush are off the table.

    In a multi-party system the public chooses amongst tiny but ideologically pure parties, but the horse-trading is done after the election and out of public view.

    The horse-trading is done out of public view now — that’s a much bigger problem. (“Earmarks” are but the tip of the iceberg.)

    The hope of multi-party proportional representation is a broader range of ideas available after elections, when legislators identify real problems and devise solutions rather than marketing strategies. If no party holds a majority, consensus-building must come case-by-case. Real problems aren’t solved by ideologies — no one has all the best answers for everything, and the less that is “unthinkable” when approaching a new problem, the better.

    Given multi-party proportional representation, a party doesn’t have to gain a majority to have some success; that would hopefully engender public debate on issues and ideas beyond just those useful to the top two parties for brand differentiation. At least some problems will be better addressed with alternative approaches, even if they never gain a majority as comprehensive party platforms.
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    Fabius Maximus replies: I totally disagree with your statement that the trades-offs that build the coalition occur out of public view. The somewhat ad-hoc coalition runs in full view during our long and intense campaign. That is the opposite of multi-party system, where the coalition is built after the election.

    As in all systems now used, after the election the making of deals (about appointments and legislation) happens out of sight. But we know the broad outlines of policy from the election.

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