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#238. Money and the end of abundance

#238. Money and the end of abundance

A FINANCIAL CRISIS PRIMER

Amongst the world’s decision-makers, French president Emmanuel Macron has come closer than anyone to spelling out the reality of the current economic situation, saying that “we are in the process of living through a tipping point or great upheaval”, and referencing “the end of abundance” (my emphasis).

If his words are taken seriously – as they should be – a major crisis looms. The global financial system is entirely predicated on perpetual economic growth.

As important as what Mr Macron has said is what he didn’t say. He didn’t say that abundance is over ‘for a year or two’, or that we’ll have to live through this ‘until better times return’. He didn’t make fatuous promises of ‘sunlit uplands’ or ‘a new golden age’.

Some of us have long known that an age of abundance made possible by low-cost energy was coming to an end. Until now, though, decision-makers have fought shy of this conclusion, taking refuge in the tarradiddle of ‘infinite growth on a finite planet’ proffered by a deeply flawed economic orthodoxy.

What should concern us now isn’t when, or whether, other leaders will arrive at this same conclusion. The trend of events is going to impose that emerging reality upon them.

Rather, we need to be prepared for what happens when market participants arrive at the same conclusion as Mr. Macron.

The nature of the crisis

Preparedness requires clarity, and we need to be in no doubt that what we’re witnessing now is an unfolding affordability crisis. This means two things – and both of them point towards a major financial slump.

First, the ability of consumers to make discretionary (non-essential) purchases is in structural decline. This spells relentless contraction, not just in obvious discretionary sectors like leisure, travel and entertainment, but in ‘tech’ and consumer durables as well.

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The case for contingency planning

The case for contingency planning

LONG-ODDS BET OR A PORTFOLIO OF SCENARIOS?

An intelligent investor – as distinct from a gambler – doesn’t put all his or her money on a single counter. He doesn’t stake everything on a single stock, a single sector, a single asset class, a single country or a single currency. The case for portfolio diversification rests on the existence of a multiplicity of possible outcomes, of plausible scenarios which differ from the investor’s ‘central-case’ assumption.

This isn’t a discussion of market theory, even though that’s a fascinating area, and hasn’t lost its relevance, even at a time when markets have become, to a large extent, adjuncts of monetary policy expectation. The concept of ‘value’ hasn’t been lost, merely temporarily mislaid.

Rather, it’s a reflection on the need to prepare for more than one possible outcome. Sayings to this effect run through history, attaining almost the stature of proverbs. “Hope for the best, prepare for the worst” is one example. Others include “strive for peace, but be prepared for war”, and “provide for a rainy day”. There’s a body of thought which has always favoured supplementing hope with preparation.

Dictionaries might not accept the term “mono-scenarial”, but it describes where we are, working to a single scenario, with scant preparedness for any alternative outcome. The orthodox line is that the economy will carry on growing in perpetuity. Obvious problems, such as the deteriorating economics of fossil fuels and the worsening threat to the environment, will be overcome using renewable energy and the alchemy of “technology”, with “stimulus” deployed to smooth out any economic pains of transition.

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An economy that does not grow?

An economy that does not grow?

cover of S Lange, Macroeconomcs Without Growth - click for the publisher linkThere is now plenty of evidence that economic growth is highly problematic for human welfare and survival. The evidence comes from three domains. 1) The ecological: continual growth uses up the resources that supply and the sinks that take the waste from human activity globally. 2) The social: economic growth does not correlate well with human welfare and its supposed benefits, rather than being shared, become ever more concentrated at the top of the wealth and income pyramid. 3) The economic: economic systems that rely on perpetual growth are inherently unstable, and meet internal and external constraints (or contradictions) that undermine them.

While it may be clear that the wager on endless growth is a bad one, a more difficult question arises: “what would be the characteristics of an economy that does not grow?”.

In his book “Macroeconomics Without Growth1” Steffen Lange attempts to construct a framework for answering this question, rooted in the three main approaches to theorising the economy, hence the subtitle: “Sustainable Economies in Neoclassical, Keynesian and Marxian Theories”. The book is a valuable contribution to the theory and practice of degrowth and provides a solid grounding for interventions in the policy arena, including those by political parties that seek to construct a coherent alternative, rather than a mishmash wish list of proposals. A strength of the book is its rigorous, formal analysis of the main theoretical approaches and what they say about the preconditions for growth, and the possibilities of zero growth.

As such the book extends to 583 pages, and the detail, with recourse to mathematical formulae to capture the various models and sub-models, will mean that many will not read it. The aim of this essay review, then, is to summarise the book, emphasising the synthesis reached by Lange, and suggesting a few issues that arise.

In search of the macroeconomics of post-growth.

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How the light gets in

How the light gets in

The science behind growth scepticism

The Entropy Law still matters. CUSP director Tim Jackson responds to Michael Liebreich’s essay on the ‘The secret of eternal growth’.

How the light gets in—The science behind growth scepticism | Blog by Tim Jackson
CC.0 :: ipicgr / pixabay.com

It’s probably fitting that Michael Liebreich’s The Secret of Eternal Growth was published so close to Halloween. It’s so full of outlandish bogeymen, it sits perfectly alongside the ghouls and the ghosts of the trick-or-treat season.

The thrust of his article is very simple. Anyone who questions the wisdom of eternal growth on a finite planet is a mindless, anti-capitalistic, left-leaning fraud who has abandoned ‘hard measurement’ and practises ‘fake science’. (I think I captured all the accusations but it’s hard to be sure.) Trash them, one and all, these unruly critics of late capitalism.

It’s a surprising ad personam rant, based on a flagrant disrespect for anyone taking a contrary view. And it’s peppered with an unhealthy dose of outright hubris, typified by a glowing endorsement of Ronald Reagan’s Hollywood B-list mantra: ‘there are no such things as limits to growth, because there are no limits on the human capacity for intelligence, imagination, and wonder’. The music swells, our hero lifts his gaze, the camera pans away, across the wide savannah.

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The Secret of Eternal Growth? It’s Wishful Thinking

I want to believe in eternal economic growth. Given what humanity is facing with climate change and other consequences of our collective consumption, it must be awfully comforting to have faith in a cornucopian future where no one ever goes wanting. Especially if all we have to do is more of the same, sticking to capitalism’s exploitative playbook. I used to have that faith. I was a worshipper of technological progress and its potential to overcome all the social and environmental problems that accompany exponentially increasing population and consumption. I also used to believe in the Easter Bunny. Unlike Michael Liebreich (author of “The Secret of Eternal Growth,” the article I’m rebutting), however, I paid enough attention to the evidence to put aside such fantasies.

I intend to provide a blow-by-blow analysis of Liebreich’s contentions, but I feel compelled to start with a gem near the end of his article. In a one-sentence paragraph that summarizes his thesis, he writes, “The bottom line here is that the world’s most feted scientists and economists have shown that economic growth is consistent with environmental protection and the mitigation of climate change.” Here’s a small point: his use of a financial metaphor (“bottom line”) may reveal something about how much the culture of money influences his thinking. But here’s the bigger point. Really?!? What the hell is he talking about?

Let’s start with his claim about scientists. It’s a safe bet he hasn’t read the World Scientists’ Warning to Humanity. This article appeared in the peer-reviewed journal BioScience in December 2017. In the article, which was endorsed by more than 15,000 scientists at the time it was published, the authors write, “We are jeopardizing our future by not reining in our intense but geographically and demographically uneven material consumption and by not perceiving continued rapid population growth as a primary driver behind many ecological and even societal threats.”

…click on the above link to read the rest of the article…

Epistemology of a Dying Empire: How do Our Leaders Make Choices?

Epistemology of a Dying Empire: How do Our Leaders Make Choices?

Recently, Michael Liebreich published an article titled “The Secret of Eternal Growth.” I have been mulling over in my head if it is appropriate to spend time discussing one more mishmash of legends, including the one that’s by now a classic, the “errors” that the Club of Rome is said to have made with the 1972 report, “The Limits to Growth.” Eventually, I decided that it was worth a post, not so much because the post by Liebreich is especially wrongheaded or silly, but because it illustrates one basic point of our civilization: who, and how, takes decisions? On which basis?

In the end, I think we have a problem of epistemology, the question of the nature of knowledge. In order to make decisions, you have to know what you are doing — at least in principle. In other words, you need some kind of “model” of reality in order to be able to act on it. It was Jay Forrester, the father of system dynamics and the originator of the “Limits to Growth” report who pointed out that, (World Dynamics, 1971, p. 14)

Everyone uses models all the time. Every person in his private life and in his community life uses models for decision making. The mental image of the world around one, carried in each individual’s head, is a model. One does not have a family, a business, a city, a government, or a country in his head. He has only selected concepts and relationships that he uses to represent the real system.

And the big question is where these “selected concepts” come from. My impression is that the mind of our leaders is a jumble of ideas and concepts grafted from haphazard messages that come from the media.
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Our Bonus Decade

“The sense of security more frequently springs from habit than from conviction, and for this reason it often subsists after such a change in the conditions as might have been expected to suggest alarm. The lapse of time during which a given event has not happened, is, in this logic of habit, constantly alleged as a reason why the event should never happen, even when the lapse of time is precisely the added condition which makes the event imminent.”

–George Eliot, Silas Marner

It’s been ten years since the Global Financial Crisis (GFC) of 2008. Print, online, and broadcast news media have dutifully featured articles and programs commemorating the crisis, wherein commentators mull why it happened, what we learned from it, and what we failed to learn. Nearly all of these articles and programs have adopted the perspective of conventional economic theory, in which the global economy is seen as an inherently stable system that experiences an occasional market crash as a result of greed, bad policies, or “irrational exuberance” (to use Alan Greenspan’s memorable phrase). From this perspective, recovery from the GFC was certainly to be expected, even though it could have been impeded by poor decisions.

Some of us have a different view. From our minority perspective, the global economy as currently configured is inherently not just unstable, but unsustainable. The economy depends on perpetual growth of GDP, whereas we live upon a finite planet on which the compounded growth of any material process or quantity inevitably leads to a crash. The economy requires ever-increasing energy supplies, mostly from fossil fuels, whereas coal, oil, and natural gas are nonrenewable, depleting, and climate-changing resources.

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Shuffling The Deckchairs On The USS Perpetual Growth

Shuffling The Deckchairs On The USS Perpetual Growth

The USS Perpetual Growth was picking up speed, steaming over calm seas despite a growing chorus of capital market Cassandras fearing trouble under the surface and further out at sea.

“Full speed ahead” Skipper Yellen barked to her economates, unperturbed by ominous radar images or the uselessness of econometric expertise at the zero bound, unmindful of passenger dysentery because 95.1% of the ship’s births were full.

“Look at all this liquidity!” she likely informed Captain Blithely, her commander in chief on shore, who had spent his presidency too disengaged of economic matters (or too politically astute) to have a cogent public thought on the matter, or perhaps smart enough to figure out everyone in Washington answers to the banks and that fixing their collateral damage social programs would be the best he could hope to do.

Indeed, the Fed Chair had gone rogue among her peers, charting her central bank’s shipping lane on a divergent path from her counterparts, Draghi and Kuroda, who were steering their monetary fleets to port. Captain Yellen seemed oblivious to the economic (and rhetorical) dangers of relying on consumption: an economy should not be beholden to eating its own productive cells.

We have argued there could be only one reason the Fed would want to hike rates: it is now responsible for US dollar policy and it wants a strong one to weaken other currencies, to prop up exporting economies, and to attract global capital and deposits to the US. Alas, the wind just died – not just for the US, but for all ships at sea.

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Recession time bomb ticking faster, louder

Recession time bomb ticking faster, louder

Americans are unprepared for the trillions they will lose again

America is its own enemy, trapped in new irrational exuberance

What’s even more disturbing than the near certainty of Grantham, Cook and the Economist in the dark predictions is what’s driving them, America’s self-delusional narcissism, overoptimism and irrational exuberance from the happy-talking bulls, which sets us up for huge losses, as in the recessions of 2000-2003 and 2007-2009, with trillions in lost market cap.

Individually and collectively, whether Washington, Corporate America, Silicon Valley or Main Street, most Americans, secretly believe in the American Dream, at least for themselves, perpetual opportunity, perpetual growth, perpetual prosperity. When we surveyed Wall Street years ago we found a 93% bias toward positive thinking, and a tendency to ignore or substantially discount bearish signals, to “accentuate the positive, minimize the negative.”

This behavioral tendency puts individual investors, stock markets, even nations at great risk. Harvard financial historian Niall Ferguson, author of “Colossus: The Rise and Fall of the American Empire,” asked rhetorically in a Los Angeles Times column:

“America, a Fragile Empire: Here today, gone tomorrow … could the United States fall that fast?” Yes. America could fall very, very fast, triggering an economic collapse with losses in trillions, the historic game-changer demanding a political course correction, like the 1908 antitrust laws, the 1932 banking and securities laws … or today’s massive takeover of American government by an anarchistic oligarchy of superrich billionaires.

Next crash, an ‘accelerating sports car … a thief in the night!’

The point, it’s sudden, fast, and you won’t see it coming. Nor will America’s leaders. Unprepared, says the Economist, unable to act in time to avoid the recession dead ahead.

Says Ferguson, “for centuries, historians, political theorists, anthropologists and the public have tended to think about the political process in seasonal, cyclical terms … we discern a rhythm to history. Great powers, like great men, are born, rise, reign and then gradually wane.”

 

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With ten billion coming, sustainable is not enough

With ten billion coming, sustainable is not enough

Stephen Emmott is a chief techno-wizard at Microsoft Research in Cambridge, England.  His brilliant young scientists are doing research in complex natural systems.  Their objective is to invent miracles.  They want to program ordinary cells to perform photosynthesis, so we can produce food from sunlight, without plows and seeds.  Agriculture can’t feed ten billion.  The goal is to delay the onrushing planetary emergency, and push aside annoying obstacles to perpetual growth.

Much of the public seems to be paying little attention to the emergency, if they are aware of it at all.  Biking around the university town where I live, I don’t sense a crisis of overpopulation.  I don’t sense that global carbon emissions have increased 400 percent in my lifetime.  The squirrels, opossums, ducks, and blue jays have not gone extinct.  Life seems normal. Everything is OK.  Right?

A wealth of information can be found online, but many internet factoids are generated by slippery gangsters who accumulate riches by accelerating the planetary emergency.  You see their work hundreds of times every day.  Among their favorite tools are magical rubber stamps that imprint [SUSTAINABLE] with subliminal green ink — [SUSTAINABLE] soil mining, [SUSTAINABLE] forest mining, [SUSTAINABLE] fish mining, [SUSTAINABLE] growth, [SUSTAINABLE] development, and on and on.

Emmott’s clan of brilliant scientists is an oddity.  They do not have the rubber stamp.  They are not wearing choke chains that will be jerked if they express ideas that offend the mighty.  They will not lose their jobs if they conclude that we are in the midst of a planetary emergency.  When thinkers are free to learn without blinders and hobbles, they come to perceive reality as an intense whirlwind of out-of-control juju.  This can be a head-snapping experience.

 

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Olduvai IV: Courage
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