Bonfire of the Vanities

The road to hell is paved with good intentions

As an ideological mantra, ‘Never Again’ is associated primarily with the genocide politics of the 1940s, and in this context its effectiveness has been questionable, at best. As a dominating imperative, it has been vastly more consequential within the economic sphere, as a response to the Great Depression of the 1930s. Whilst ethnically selective mass killing is widely frowned upon, its attractions have been difficult to suppress. Deflationary depression, on the other hand, is simply not allowed to happen. This has been the supreme axiom of practical morality for almost a century, uniquely and distinctively shaping our age. We can call it the Prime Directive.

For the Western world, the 1930s were a near-death experience, an intimate encounter with the abyss, recalled with religious intensity. Because the threat was ‘existential’ – or unsurpassable – the remedy was invested with the absolute passion of a faith. The Prime Directive was adopted as a basic and final law, to which all social institutions and interests were subordinated without reservation. To question or resist it was to invite comprehensive disaster, and only a radically uninformed or criminally reckless heretic – a ‘crank’ – would do that. Anything is better than deflationary depression. That is the New Deal Law.

The consolidation of financial central planning, based on central banking and fiat currencies, provided the priesthood of the Prime Directive with everything it needed to ensure collective obedience: No deflationary depression without deflation, and no deflation with a well-oiled printing press. ‘Counter-cyclical’ inflation was always an option, and the hegemony of Anglophone economic-historical experience within the flourishing American century marginalized the memory of inflationary traumas to global backwaters of limited influence. Beside the moral grandeur of the Prime Directive, monetary integrity counted for nothing (only a crank, or a German, could argue otherwise).

The Prime Directive defines a regime that is both historically concrete and systemically generalizable. As Ashwin Parameswaran explains on his Macroeconomic Resilience blog, this type of regime is expressed with equal clarity in projects to manage a variety of other (non-economic) complex systems, including rivers and forests. Modern forestry, dominated by an imperative to fire suppression, provides an especially illuminating example. He notes:

The impetus for both fire suppression and macroeconomic stabilisation came from a crisis. In economics, this crisis was the Great Depression which highlighted the need for stabilising fiscal and monetary policy during a crisis. Out of all the initiatives, the most crucial from a systems viewpoint was the expansion of lender-of-last-resort operations and bank bailouts which tried to eliminate all disturbances at their source. In [Hyram] Minsky’s words: “The need for lender-of-Iast-resort operations will often occur before income falls steeply and before the well nigh automatic income and financial stabilizing effects of Big Government come into play.” (Stabilizing an Unstable Economy pg 46)

Similarly, the battle for complete fire suppression was won after the Great Idaho Fires of 1910. “The Great Idaho Fires of August 1910 were a defining event for fire policy and management, indeed for the policy and management of all natural resources in the United States. Often called the Big Blowup, the complex of fires consumed 3 million acres of valuable timber in northern Idaho and western Montana…..The battle cry of foresters and philosophers that year was simple and compelling: fires are evil, and they must be banished from the earth. The federal Weeks Act, which had been stalled in Congress for years, passed in February 1911. This law drastically expanded the Forest Service and established cooperative federal-state programs in fire control. It marked the beginning of federal fire-suppression efforts and effectively brought an end to light burning practices across most of the country. The prompt suppression of wildland fires by government agencies became a national paradigm and a national policy” (Sara Jensen and Guy McPherson). In 1935, the Forest Service implemented the ‘10 AM policy’, a goal to extinguish every new fire by 10 AM the day after it was reported.

In both cases, the trauma of a catastrophic disaster triggered a new policy that would try to stamp out all disturbances at the source, no matter how small.

At Zerohedge, The World Complex elaborates on the history of fire suppression in the United States:

The forests of the southwestern United States were subjected to a lengthy dry season, quite unlike the forests of the northeast. The northeastern forests were humid enough that decomposition of dead material would replenish the soils; but in the southwest, the climate was too dry in the summer and too cool in the winter for decomposition to be effective. Fire was needed to ensure healthy forests. Apart from replenishing the soils, fire was needed to reduce flammable litter, and the heat or smoke was required to germinate seeds.

In the late 19th century, light burning — setting small surface fires episodically to clear underbrush and keep the forests open — was a common practice in the western United States. So long as the fires remained small they tended to burn out undergrowth while leaving the older growth of the forests unscathed. The settlers who followed this practice recognized its native heritage; just as its opponents called it “Paiute forestry” as an expression of scorn (Pyne, 1982).

Supporters of burning did so for both philosophical and practical reasons — burning being the “Indian way” as well as expanding pasture and reducing fuels for forest fires. The detractors argued that small fires destroyed young trees, depleted soils, made the forest more susceptible to insects and disease, and were economically damaging. But the critical argument put forth by the opponents of burning was that it was inimical to the Progressive Spirit of Conservation. As a modern people, Americans should use the superior, scientific approaches of forest management that were now available to them, and which had not been available to the natives. Worse than being wrong, accepting native forest management methods would be primitive.

Spelling out the eventual consequences of the ‘progressive’ reformation of forest management practices probably isn’t necessary, since – in striking contrast to its economic analog – its lessons have been quite thoroughly absorbed, widely and frequently referenced. Ecologically-sophisticated environmentalists, in particular, have become attached to it as a deterrent model of arrogant intervention, and its perverse consequences. Everybody knows that the attempt to eliminate forest fires, rather than extinguishing risk, merely displaced, and even accentuated it, as the accumulation of tinder transformed a regime punctuated by comparatively frequent fires of moderate scale with one episodically devastated by massive, all-consuming conflagrations.

Parameswaran explains that the absence of fires leads to fuel build-up, ecological drift towards less fire-resistant species, reduction in diversity, and increased connectivity. The ‘protected’ or ‘stabilized’ forest changes in nature, from a cleared, robust, mixed, and patch-worked system, to a fuel-cluttered, fragile, increasingly mono-cultural and tightly interconnected mass, amounting almost to an explosive device. Stability degrades resilience, and preventing the catastrophe-to-come becomes increasingly expensive and uncertain, even as the importance of prevention rises. By the penultimate stage of this process, crisis management has engineered an impending apocalypse: a disastrous event that simply cannot possibly be allowed to happen (although it surely will).

Parameswaran calls this apocalyptic development sequence The Pathology of Stabilisation in Complex Adaptive Systems. It’s what the Prime Directive inevitably leads to. Unfortunately, diagnosis contains no hint of remedy. Every step up the road makes escape more improbable, as the scale of potential calamity rises. Few will find much comfort in the realization that taking this path was insane.

‘Black-boxes’ (or flight recorders) retrieved from air disasters are informative in this respect. With surprising regularity, the last words of the pilot, announced to no one in particular, eloquently express an acknowledgment of unattractive but unmistakable reality: “Oh $#it!” Less common – in fact, unheard of – is any honest address to the passengers: “Ladies and gentlemen, this is your captain speaking. We are all about to die.” What would be the point?

Everything to be realistically expected from our ruling political and financial elites can be predicted by rigorous analogy. This flight doesn’t end anywhere good, but it would be foolish to await an announcement.

Unencumbered by official position in the Cathedral of the Prime Directive, ‘Mickeyman’ at World Complex is free to sum things up with brutal honesty:

We have lived through a long period of financial management, in which failing financial institutions have been propped up by emergency intervention (applied somewhat selectively). Defaults have not been permitted. The result has been a tremendous build-up of paper ripe for burning. Had the fires of default been allowed to burn freely in the past we may well have healthier financial institutions. Instead we find our banks loaded up with all kinds of flammable paper products; their basements stuffed with barrels of black powder. Trails of black powder run from bank to bank, and it’s raining matches.


Signs of Progress

How the modern world lost its senses

The more sophisticated animals become, the worse they get at connecting with reality. As they cephalize, and socialize, stories substitute for reflexes, and the survival value of a story owes almost nothing to its factuality. Believing what everyone else does, or what makes you feel good, counts for vastly more. Wherever it is that discussion leads, it is only very rarely, and accidentally, in the direction of reality.

Science begins with the realization that stories aren’t to be trusted, even – or especially – if they sound credible, conform to prior intuitions, and readily attain social approval. Since narrative satisfaction is the great deceiver, science reaches beyond language into the vast frigid tracts of mathematical signs, stripped clean of all moral and emotional significance. Hardening itself against the temptation to see faces in the clouds, or hear voices from the heavens, it digs determinedly into the test-bed of numbers and quantitative signals, where seductive words are led to die.

Economics has never been a science, but economic behavior, and even theory, has been able to avail itself of a measure of leverage against story-telling. Its great resource in this regard has been the price system, expressed in ‘meaningless’ quantities (without immediate narrative significance) which enable economic calculation to sustain a posture of ideological indifference. An accountant who tells a story is a bad accountant, and most probably a criminal, whilst an entrepreneur fixated upon a story of how things ‘must be’ is subject to market-Darwinian nemesis. That, at least, is how laissez-faire hard money capitalism once roughly worked, as attested for instance by the indignation of Charles Dickens, who insisted upon the right of moral, political, and religious story-telling in the midst of a process that systematically disdained it.

Things have progressed incalculably since then, in a direction that could be confidently described as ‘Dickensian’ if that adjective had not already been settled in its highly-effective polemical purpose. That ‘the Big Story’ (BS) would triumph over calculative Scroogean realism was perhaps entirely predictable, but the near-metaphysical comprehensiveness of its victory – and its revenge — was less easy to anticipate. When attempting to gauge this progress, money is the best indicator, or rather, the destruction of money as an indicator is the most telling sign.

Under the conditions of hard money industrial capitalism, progress follows two, rigorously accounted tracks. Most notoriously, it is measured as a process of accumulation, or the amassing of fortunes through profitable business activity. Economic intelligence is socially dispersed along with the multitude of fortunes, with each unit of capital accompanied by its own (Scroogish) accounting function, weighing revenues against outlays, and estimating the viability of continued operation. This intelligence does not lend itself to convenient or reliable public aggregation.

Accompanying the multiplicity of private progressions (and regressions), there is a second track measuring social advance in strictly quantitative, meaningless, and unambiguous terms. On this track, technical and organizational improvements in business activity overspill private accounts, and take the form of public ‘externalities’. Under any monetary system competent to register reality, such general social advances are expressed as falling prices, cost reduction, or deflation. (A typically insightful Zero Hedge post on the topic can be found here.)

The importance of this point is difficult to over-emphasize, especially since it directly contradicts our carefully fabricated neo-Dickensian common sense: Deflation! Isn’t that kind of like fascism or something?

Deflation can certainly represent a type of socio-economic misfortune, under specific conditions. During business cycle downturns, for instance, it can reflect fire-sale asset or inventory reductions, driven by, and exacerbating, credit crises. The seriousness and typicality of such cases is strongly asserted in the dominant (neo-Dickensian) story of the Great Depression. It is worth noting, however, that even under these circumstances – at the worst – the first-order effect of deflation is to generate a spontaneous increase in affluence, or spending power. When life is at its toughest, it gets cheaper to live.

In the hard money world, chronic mild deflation simply is social progress. The two concepts are effectively indistinguishable. Gentle deflation is the invisible hand out, giving everybody a little more of almost everything, year by year, as it spontaneously distributes a fraction of the ‘social surplus’, or public dividend on rising productivity. Even in today’s radically progressed world of ruined money, the output of the consumer electronics industry still manages to exhibit the deflationary trends that have been obliterated elsewhere (so next time you buy a gizmo, don’t forget to feel appropriately oppressed.)

What the hell in heavens happened? How did modernity’s metallo-monetary senses get turned off, rapturing Scrooge into a Christmas Carol, and eclipsing industrial reality? One obvious neo-Dickensian go-to guy for that is William Jennings Bryan (1860-1925), a politician whose multi-dimensional war against reality – truly astounding in its consistency – represents enthusiasm for the Big Story (or ‘social gospel’) at its most uncompromised. Either Bryan’s anti-Darwinism (the Scopes trial) or his ardent prohibitionism (campaigning for the 18th amendment) would have sufficed to earn him a place in the historical record as a hero of the BS (‘evangelical’ or ‘progressive’) State, but his most enduring legacy rests upon the speech he delivered on July 9, 1896, to the Democratic National Convention in Chicago, in which he declared – as if to Scrooge himself – that “You shall not press down upon the brow of labor this crown of thorns; you shall not crucify mankind upon a cross of gold.”

This is a declaration that is sublimed to progressive universality through the elimination of context. Embedded within the late 19th century debates on bimetallism (price-fixing of gold-silver exchange rates), its present implications are significantly diluted, or at least complicated, by questions about the financial responsibility of central authorities, creditor-debtor class warfare, global economic integration, agrarian-urban tensions, and (East-West) regional politics in the USA. Yet, fundamentally, it can be recognized as ‘Dickensian’: the passionate denunciation of a neutral criterion for economic reality, precisely for its neutrality, or indifference to Big Story moral-historical narrative. Gold is cold. It measures without judgment. Between damnation and salvation it demonstrates no preference or inclination.

Concretely, gold was registering, in economic terms, the social upheaval of American industrial urbanization. Mechanization of agriculture implied falling food prices, ruination of small farmers, and rural depopulation, during a sustained process of massive disruption whose miseries were only exceeded by the socio-economic revitalization in its wake. In its distribution and in its accounting function, gold facilitated the depreciation of rural labor, the bankruptcy of misallocated businesses, and the empowerment of concentrated industrial capital in the nation’s rising urban centers. Bryan articulated the views of those at the sharpest edge of this shift, who found the messenger culpable for the message, the senses guilty for the scene: “If thine eye offends thee pluck it out” (Matthew 18:9). (Even though Bryan lost all three of his presidential elections bids, we’re all totally plucked.)

To make of money a vehicle of moral purpose, rather than a neutral registry of fact, is to make the crossing from liberalism and progress as they were once understood (dynamic industrialism), to the progressive liberalism of today (political evangelism). If money can save us (through ‘demand management’), as the Keynesians insist, then its politicization is a moral imperative, whose neglect is a sin of omission. The senses are transformed into story-tellers. Shut the windows, and listen to the Christmas Carol. It’s progress (honestly).