Twisted Times (Part 1)

Abe: “You should go to China.”

Joe: “I’m going to France.”

Abe: “I’m from the future. You should go to China.”
Looper

In Rian Johnson’s Looper (2012), the city of Shanghai reaches back across 30 years to draw people in. Over these decades it feeds itself based on what it is to become: the city of the future. When compared to this, everything else that happens in the movie is mere distraction, but we won’t get there for a while.

Strangely enough, ‘everything else’ was to have been simply everything. Joe was going to Paris, and Shanghai wasn’t even in the picture. That was before Chinese authorities told Johnson that they would cover the cost of the Shanghai shoot, making the film a co-production, with convenient access to the Chinese cinema market. The Old World stood no chance.

For American audiences, Looper played into the trend of opinion, through its contrasting urban visions of a grim, deteriorated, crime-wracked Kansas City and the splendors of a ‘futuristic’ Shanghai. The movie doesn’t answer the question: How did America lose the future? It nevertheless accepts the premise, as something close to a pre-installed fact.

Yet if Looper confirmed the direction of American popular attitudes, it marked a shift on the Chinese side. Only a few years before, Western media reported with amusement that the Chinese broadcast authorities had banned time-travel fictions from the nation’s airwaves, apparently concerned that the country’s citizens were defecting into a pre-republican past, under the influence of narratives that “casually make up myths, have monstrous and weird plots, use absurd tactics, and even promote feudalism, superstition, fatalism and reincarnation.” Now a time-travel story was being actively recruited to close an urban promotion loop, linking Shanghai’s international image to a portrayal of retro-chronic anomaly. The Shanghai time-travel industry had arrived.

Before proceeding to a multi-installment investigation of Topological Meta-History tangled time-circuitry, which ‘time-travel’ illustrates only as a crude dramatization, it is worth pausing over Looper’s ‘monstrous and weird plot’. Time-travel has a uniquely intimate, and seductively morbid, relationship to both fiction and history, because it scrambles the very principle of narrative order in profundity. If Western media authorities assumed the same role of cultural custodianship that has been traditional among their Chinese peers, they too might have been compelled to denounce a genre that flagrantly subverted the foundational principle of Aristotelian poetics: that any story worthy of veneration should have a beginning, a middle, and an end. If time-travel can occur, it seems (at least initially) that order is an illusion, so that fiction and reality switch places.

From a conservative perspective, therefore, comfort is to be found in the blatant absurdity of time-travel stories (insofar as this can be confined to a reductio ad absurdam of the time-loop structure itself, rather than spreading outwards as the index of primordial cosmic disorder). In this respect, Looper is a model of tranquillization.

The Looper time-travel procedure is monopolized by a criminal syndicate, which utilizes it exclusively for one purpose: the disposal of awkward individuals, who are returned 30 years in time to be murdered, execution-style, by professional killers (yes: “This sounds pretty stupid”). The exorbitant absurdity of this scenario might exempt it from further critical attention, were it not the symptom of more interesting things, and the doorway onto others.

The symptom first: Non-linear time-structures are shaken to pieces almost immediately, once they allow for the transportation of stuff backwards in time. Looper economics exposes this with particular clarity. The killers of 2044 are paid in bars of silver for ‘ordinary’ hits, and in gold for ‘closing loops’ or executing their retro-deposited older selves. The bars are sent back from 2074, and circulated through an internal exchange operation, which swaps bullion for (Chinese) paper currency. Whilst this crude time-circuit is presented as a payments system, the process described actually functions as an under-performing money-making machine. By using it, one realizes the ultimate Austrian economic nightmare by printing precious metals, because an ingot sent backwards in time is doubled, or added to its ‘previous’ instance (which already exists in the past). Mechanical re-iteration of the process would guarantee exponential growth for free. We’re not told what the 2074 criminal organization sees as its core business, but it must be seriously lucrative — exciting enough, in any case, to distract them from the fact that their murder-fodder machine is really a bullion fast-breeder. They could have shoveled it full of diamonds, doubling their fortune each ‘time’, but they decided instead to duplicate human nuisances in 2044. The movie asks us quietly to suspend our impertinent disbelief, and trust that they know what they’re doing.

Mike Dickison’s excellent Looper commentary succinctly describes this implicit procedure for unlimited wealth, among other incredibly missed opportunities. It surely has to count as a criticism of the movie that its rickety framework of plot coherence is dependent upon the imbecility of its significant agents, who stumble blindly past the prospect of total power in their ruthless pursuit of a miserable racket. This absurdity, as already noted, serves a conservative purpose: The potential of the loop has to be suppressed to sustain narrative drama and intelligibility. The basic flaw of the movie is that far too much was given, before most of it was clumsily taken away.

In the absence of controlling censors, Johnson’s story represses itself, messily, comically, and unconvincingly. “This time travel crap, just fries your brain like a egg,” the elder Joe (Bruce Willis) confesses on Johnson’s behalf. Unleashed time-travel is an anti-plot, inconsistent with dramatic presentation. (If you’re not willing to take Aristotle’s word for that, watching Primer a few dozen times should sort you out.) Narrative wreckage is what time-travel does.

Time-travel absurdity is a choice. It is a decision taken, at least semi-deliberately, for conservative or protective reasons, because the alternative would be ruin. Even the representation of (radically nonlinear) time anomaly by ‘time-travel’ is indicative of this, since it is programmed by the preservation of a narrative function (the ‘time-traveler’), regardless of conceptual expense. Far rather the incoherent jumble of matter duplication, time-line proliferation, immunized strands of personal memory, and the arbitrary inhibition of potentialities, than utter narrative disorder, fate loops, the annihilation of agency, and the emergence of an alien consistency, subverting all historical meaning.

If the mask of time-travel has slipped enough to expose some hint of the intolerable tangle beneath, we’re ready to take the next step …

(This will help.)

[Tomb]
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Lure of the Void (Part 2)

The right stuff in the rough

… it’s important to understand what Apollo was, and wasn’t. It was a victory in the Cold War over the Soviets, but because we were at war, we waged it with a state socialist enterprise. What it was not was the first step of opening up the frontier to humanity, and it was in fact a false start that has created a template for NASA and a groove in which we’ve been stuck for over four decades now, with many billions spent and little useful progress.
Rand Simberg

The opening of the American west in the first decades of the 19th century and the opening of the space frontier in these first decades of the 21st century are very similar.
Mike Snead

Fascism makes our heads spin, which is unfortunate, because an inability to gaze unwaveringly into the dominant ‘third way’ model of political economy (corporate nationalism) makes the history of the last century unintelligible. For amateur space historians, dropping in briefly on the Moon Nazis is simply unavoidable.

SS Sturmbannführer Wernher von Braun, Deputy Associate Administrator for Planning at NASA Headquarters, Washington DC (1970-2), helps with the introduction. Technical director of the Nazi rocket program at Peenemünde, which culminated in the creation of the A-4 (V-2) ballistic missile, von Braun was brought to America in 1945 as the top prize of Operation Paperclip. His contribution to US rocket development, through Redstone to Apollo (and the moon), was central and indispensable. NASA Socialism was born on the Dark Side of the Moon. (This probably isn’t the right time to wander too deeply into Pynchon territory, but, roughly speaking, that’s where we are.)

If fascism sounds unduly harsh, more comfortable terminology lies within easy reach. ‘Technocracy’ will do fine. The name is less important than the essentials, which were already clearly formulated in the work of a previous German immigrant to the United States, Friedrich List, who devoted an influential book to outlining The National System of Political Economy (1841). According to List, the ‘cosmopolitanism’ of mainstream (Smithean) political economy was insufficiently attentive to the collective national interest. Industrial development was too important to be surrendered to the interplay of private economic agents, and should instead be considered a strategic imperative, within the context of international competition. Only by leveraging the power of the state to regulate trade, foster modern industries, and drive the development of critical infrastructure, could a country hope to advance its interests in the international arena. Development was war by other means, and sometimes the same ones.

When eagerly embraced by Henry Clay, who connected List’s ideas with the founding tradition from Alexander Hamilton, these ideas became the basis of the American System. Economic nationalism was to be pursued along the threefold path of managed trade (tariffs), state-controlled finance (central banking), and state-directed infrastructure development (especially transportation systems). Such policies were already ‘progressive’ or fascist technocratic in that they subordinated private-cosmopolitan economic interests to national purposes, but this took place flexibly, without the more recent encrustations of anti-business class warfare, large-scale entitlement spending, or Cathedralist cultural policing. Capitalism was to be steered, and even promoted, rather than milked, deliberately ruined, or replaced. Due to its patriotic direction, elitism, and affinity with militarization, this technocratic progressivism could easily be understood as a phenomenon of ‘the right’, or at least (in Walter Russell Mead’s words) the “Bipartisan Establishment.”

Apollo perfectly exemplified American technocratic progressivism in the teutonized, neo-Hamiltonian tradition. A small step for a man, and a substantial leap for mankind, it was a colossal high-jump for the US Leviathan, marking an unambiguous triumph in the structured competition with its principal geo-strategic and ideological rival. The Apollo program wasn’t exactly part of the ballistic missile arms race with the Soviet Union, but it was close enough to contribute to its symbolic, mass-psychological, and deterrent purpose. Landing a man on the moon was a type of overkill, relative to landing a nuke on Moscow, and it expressed a super-abundant payload-delivery capability that had won a war of messages.

In an article originally published in The American Spectator (November 10, 2010), Iain Murray and Rand Simberg describe the moon race as Big Government’s Final Frontier, remarking that:

There’s something about space policy that makes conservatives forget their principles. Just one mention of NASA, and conservatives are quite happy to check their small-government instincts at the door and vote in favor of massive government programs and harsh regulations that stifle private enterprise.

They conclude:

It is time for conservatives to recognize that Apollo is over. We must recognize that Apollo was a centrally planned monopolistic government program for a few government employees, in the service of Cold War propaganda and was therefore itself an affront to American values. If we want to seriously explore, and potentially exploit space, we need to harness private enterprise, and push the technologies really needed to do so.

Whilst it would be pointlessly upsetting to translate this into a call for the denazification of outer space, it would be equally misleading to read it as nothing of the kind. Progressive technocracy, in a range of national flavors, is the only effective space politics the world has ever seen, and it is still far more likely — in the near-term — to be modernized than radically supplanted. Space development poses such an immense collective challenge that it sucks even liberty-oriented conservatives such as Simberg towards accommodation with the activist, catalytic, neo-Hamiltonian state. At least initially, there’s simply no other place where the clanking machinery of Leviathan is more at home.

Popular culture has picked up on this well. Among the many reasons for the ecstatic reception to Ridley Scott’s Alien (1979) was appreciation for its ‘realistic’ tonal portrait of practical space activity. Science and commerce played their parts, but the leading edge was dominated by quasi-military heavy metal, funded by massive budgets based on gravely obscure strategic objectives, directed and crewed by hard, obedient, buzz-cut types who did whatever it took to get things done. Weapons research trumped all other considerations. Breaking out into the deep frontier required a rigid, armored-bulkhead seriousness that civilians would never quite understand.

When suddenly stripped of its Cold War context, the proxy warfaring of the rocket-state lost coherent motivation, and immediately veered off course into increasingly ludicrous pseudo-objectives. By the closing years of the 20th century, all pretense of a big push outwards had been dissipated amongst commoditized LEO satellite maintenance, unconvincing zero-gravity science projects, ritualistic space-station diplomacy, multicultural astronaut PR, and even cynical make-work schemes for dangerously competent ex-Soviet technicians. Clever science continued, based on robot probes and space telescopes, but none of that even hinted at an impetus towards space settlement, or even manned spacecraft, and typically advised explicitly against it. Despite all the very real ‘right stuff’ heroism, putting people in space was a circus act, and perhaps it always had been.

Whatever else outer space may be, it’s a place where the right goes schizoid, and the more that it’s thought about, the more jagged the split. The seemingly straightforward, dynamic-traditional, and extremely stimulating ‘image’ of the frontier illuminates the point. The frontier is a space of attenuated formal authority, where entrepreneurial, ‘bottom-up’ processes of social formation and economic endeavor are cultivated amongst archetypal ‘rugged individualists’, its affinity with libertarian impulses so tight that it establishes the (‘homesteading’) model of natural property rights, and yet, equally undeniably, it is a zone of savage, informal warfare, broken open as a policy decision, pacified through the unremitting application of force, and developed as a strategic imperative, in the interest of territorial-political integration. By fleeing the state, in the direction of the frontier, the settler or colonist extends the reach of the state towards the frontier, drawing it outwards, and enhancing its ferocity, or roughening it. The path of anti-governmental flight confuses itself with a corresponding expansion, hardening, and re-feralization of the state, as the cavalry learn from the Indians, in a place without rules. Then the railroad comes. The Moon Is a Harsh Mistress meets Starship Troopers.

“A strategy for achieving economic benefit from space must involve both government and industry, as did the development of the American West,” argues Martin Elvis, and no one seriously disagrees. Whenever realism is prioritized on the extraterrestrial horizon, some variant of rough-and-dirty technocratic progressivism always waits on the launch-pad, ready to piggy-back business off-planet on patriotic, Leviathan-funded, first-stage boosters. Over-hasty denazification is strictly for earth-bound softies The neo-Hamiltonian jump-leads work too well to drop. As usual, Simberg expresses this best:

The United States should become a spacefaring nation, and the leader of a spacefaring civilization.

That means that access to space should be almost as routine (if not quite as affordable) as access to the oceans, and with similar laws and regulations. It means thousands, or millions, of people in space — and not just handpicked government employees, but private citizens spending their own money for their own purposes. It means that we should have the capability to detect an asteroid or comet heading for Earth and to deflect it in a timely manner. Similarly it means we should be able to mine asteroids or comets for their resources, for use in space or on Earth, potentially opening up new wealth for the planet. It means that we should explore the solar system the way we did the West: not by sending off small teams of government explorers — Lewis and Clark were the extreme exception, not the rule — but by having lots of people wandering around and peering over the next rill in search of adventure or profit.

We should have massively parallel exploration — and not just exploration, but development, as it has worked on every previous frontier.

Which brings us to ‘NewSpace’…

[Next]

[Tomb]

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.

[Tomb]

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).

[Tomb]

Suspended Animation (Part 4)

Playing for time

By the beginning of the second decade of the new millennium, the world had begun to adapt itself to a problem that had tortured it in the 1930s, and deformed it subsequently — that of sub-optimal equilibrium. The practical significance of this idea is difficult to exaggerate.

As a rigorous economist, Henry Hazlitt was theoretically entitled – and even compelled – to savagely deride the Keynesian model of ‘low-employment equilibrium’, and to painstakingly explain that it did not describe an equilibrium of any kind (in economic terms). Yet such attacks, like those of the Austrians more generally, have been of slight consequence, since Keynes was not in any strongly defensible sense an economist, but rather a political economist, in both of the obvious ways this expression can be understood. His bad equilibrium did not reflect the operation of market forces, but rather, the workings of the market under a specific conception of politically realistic circumstances, and the ‘analysis’ of the General Theory was less a technically rigorous description of events than a political prescription for action, keenly attentive to the opportunities and constraints affecting its application, or transition into policy.

Keynes defined the political spirit of the second half of the 20th century, first in the West, and later more widely, by normalizing the pre-eminence of the state in economic affairs, and by subordinating the idea of economic self-correction to political considerations. The role of the new political economy, now technocratically mainstreamed as economic policy, was to route around labor markets, which could never be expected to work efficiently, since downside corrections were judged politically unacceptable. Pure economics was ended, or at least utterly marginalized, by the recognition that labor could opt out of the game, kick over the table, and refuse to play the commodity. Market-clearing labor pricing became an abstract (and, for Keynesians, risible) conception, oblivious to the realities of popular democratic politics, and – in extremis – the potential for Marxian revolution.

Hence the consensus-building sympathy for the Keynesian approach on the establishment right, where it was interpreted as a bulwark against Marxist temptations, and also the deep antipathy it elicited on the anti-establishment right, where it was (no less realistically) understood as a pre-emptive concession to socialism. On the left, a comparable schism was evident, between those who embraced it as a curtailment of capitalism, and those who denounced it as an ersatz socialism, designed for conservative convenience. The Keynesian ‘middle’ has been the decisive political reality of the 20th century, and its multiple ideological meanings still organize every major axis of socio-economic controversy.

When labor markets are locked on the downside – through macroeconomic recognition and political petrification of their ‘stickiness’ – some kind of socio-economic ratchet mechanism is automatically produced. To an extent, capital can flee into informalization (for instance illegal immigrant labor), or international labor arbitrage, intensifying the trend to out-sourcing and globalization. More central, however, are the twin macro-tendencies Keynes focused upon: towards fiscal and monetary compensations, based on demand management and the exploitation of ‘money illusion’ (or attachment to nominal income). Fiscal stimulus can be undertaken in an attempt to elevate demand, until it reaches a point of artificial equilibrium commensurate with labor price levels (thus clearing unemployment). Alternatively, or in concert, money supply can be expanded – and currency degraded – to facilitate real wage decreases despite nominal stickiness.

Essentially, that’s it. There’s no other ammo in the macroeconomic arsenal. This is remarkable given the fact that both fiscal and monetary adjustments are mere tricks, and not even sophisticated tricks, but quite straightforward attempts at confidence manipulation that anybody with ‘rational expectations’ sees through immediately, thus neutralizing them. On the monetary side this is especially obvious — and well-attested historically. Once inflationary expectations have become entrenched, they become the staple topic of wage negotiations, as was seen in the 1970s. There is no evidence whatsoever to suggest that workers are indifferent to inflationary wage depreciation. ‘Money illusion’ – insofar as it exists at all – is basically a one-off scam, harvested in the brief period when a long-established reputation for responsible currency management is thrown in the trash. Fool me once, shame on you, fool me twice isn’t going to happen. Basing economic policy on this is the cheapest kind of street hustle (and few would any longer admit to trying it in public).

Stimulus isn’t much better. Real demand is ultimately exchange, and thus derivative from supply. Nobody can (economically) demand anything, without having something to offer in return – that’s Say’s Law, and it’s theoretically impregnable, because it’s elementary common sense. The only way to steer around it is conjuring, by extracting demand from one part of the economy invisibly, and re-inserting it conspicuously somewhere else. This kind of magic can get quite Byzantine, so it tends to reach exhaustion more slowly than monetary abuse, but its foundations in sustainable economic reality are no more secure. Once taxpayers acknowledge government debts as liabilities (future tax payments) that have already been virtually deducted from their spending power, the game is over. Since a plausible model for (expansive) fiscal policy exhaustion is sovereign debt crisis, it is not unreasonable to begin drawing the curtains already.

Given the exponential trend of social history, most of what has ever happened has taken place since the Great Depression began, and during this time the world has inhabited — more or less consciously — a deliberately constructed system of illusion, or confidence trick. Whether analyzed from the left or the right, the most striking feature of this situation has been inadequately apprehended, or even interrogated: how has it persisted? How can something that is transparently [insert epithet] unworkable last for over 80 [insert triple epithet] years?

Eighty years is a pretty good human life-span. Someone could easily expend their life within the Keynesian dream-palace, literally living a lie, with the implication that whatever importance ‘reality’ might have in theory, it need have almost nothing to do with us. We can miss it completely, caught up in a magic show that exceeds our longevity, half-hypnotized by illusions that no one really believes in, but which suffice to put things off, and off, and off, and … in the long run we are all dead. Who cares about a truth that never arrives? A magic trick that lasts your whole life is your life. Scarcely anybody alive today has known anything else.

And it’s all going to be over real soon … honestly …

[Tomb]

Suspended Animation (Part 3)

The dead hand of the state

I wish I was saying it’s going to happen soon… this is the longest running crisis in which people have been giving false dates, people turning up for summits saying it has to be resolved, nothing happens and people go away and the sky doesn’t fall in… sooner or later the sky will fall in, I’m just not clever enough to know when it’s going to be.
— Anthony Fry, UK Chairman of Espirito Santo Investment Bank (to CNBC)

Europe will adopt the American solution. The ECB will not allow large banks to default. It will inflate to buy the bad assets or else buy the bonds of the governments, so they can make payments. Then the bankers will put this money into excess reserves. New lending to businesses will cease. The West will go into permanent recession or no-growth stasis. The governments will absorb an ever-larger percentage of the region’s capital: bond sales. Private firms will not be able to borrow at low rates. Capital development will crease.
— Gary North (here)

The new millennium is teaching us vastly more about zombies than anybody could have anticipated. Long gone are the virile, predatory vampires that once populated horror stories about capitalism, sucking out the vital essence of the proletariat in gothic fortresses of ‘dead labor’. Instead, shambling worm-eaten wrecks mill about aimlessly, whilst augmenting their numbers in obscure cannibalistic circuits that defy rational comprehension and which are, in any case, too hideous to steadily contemplate. Fiends have degenerated into ghouls, who do not hunt and feed to strengthen themselves, but only to carry on, prolonging their putrescent decrepitude.

A 2002 Guardian story about “Japan’s zombie economy” prefigures a number of later, and more general, revelations. In particular, it identifies the spreading zombie apocalypse with the slow-motion collapse of Keynesianism, as ‘stimulative’ monetary and fiscal policies (zero interest rates combined with massive government deficit spending) lose their magical powers of revitalization, and instead merely perpetuate an interminable state of undeath. Hyper-stimulation is required just to hang on to the flatline.

Of course, being the Guardian, the solution is obvious: “what the economy needs now is a good dose of inflation.” For undead Keynesians, there’s no malaise too deep for an invigorating wave of currency destruction to solve. This is where the zombie metabolism really gets interesting. By the end of the decade, America had gone full zombie itself, and begun to realize that this wasn’t just some weird Japanese thing it didn’t understand, but an altogether more general and radically mysterious phenomenon. Ben Bernanke’s Federal Reserve pushed US interest rates to the floor (ZIRP) and began to incontinently monetize public debt (QE) whilst nationalizing private debt (TARP), using every available policy instrument to direct the economy in an inflationary direction, at maximum velocity. Nothing much happened. Zombies don’t do fever.

At this point, the questions come flooding in. For instance: why is anybody still buying Japanese or American government bonds? Isn’t it obvious that this paper represents nothing except a slice of unredeemable debt, promising an insulting return, ‘guaranteed’ by a structurally insolvent entity, and associated with policies more-or-less explicitly oriented towards deliberate currency destruction? What are people thinking? To answer that, it’s necessary to venture a little deeper into the zombie world.

The idea of the US Dollar (or Japanese Yen) as a ‘safe haven’ might sound like a joke, and you’ve probably heard it before:

Joe Dollar and Jacques Euro are camping in the woods, when they suddenly hear the terrifying snuffles of a famished carnivore, getting closer. Joe begins hastily pulling on his running shoes. “What are you doing?” asks Jacques. “You can’t out-run a bear market.”

“I don’t need to outrun the market,” Joe replies. “I just need to outrun you.”

At Asia Times Online, Martin Hutchinson envisages a financial crisis endgame that “eliminat[es] the government debt markets that have formed the centerpiece of the last three centuries,” returning the world to the market-based money and free banking regime of 1693, before the creation of the Bank of England. Paradoxically, however, the prospect of collapse raises the financial potency of the state to an unprecedented level, as the ‘safety’ it promises disconnects from questions of economic competence and reverts to something far more atavistic and Hobbesian. Once everything starts to buckle, credibility attaches to the biggest, meanest, and most ruthless provider of mafia-style ‘protection’. Relativistic (zero- or negative-sum) power politics takes center stage.

A pedestrian but informative financial report from Bloomberg sets it out clearly:

Jim Chanos, founder of the Kynikos Associates Ltd. hedge fund, said that while the chances of a recession may be increasing, the U.S. economy is the “best house in a bad neighborhood”

The US Dollar might be nothing more than the “best looking horse in the glue factory,” but once the financial logic of zombie apocalypse takes over, the implications can be far-reaching. Bloomberg continues:

Ten-year Treasuries erased losses after the U.S. sold $29 billion of seven-year securities at a record low yield of 1.415 percent, wrapping up $99 billion of note sales this week. Ten- year yields fell four basis points to 1.88 percent after climbing as much as four points earlier. The rate is up from a record low of 1.67 percent on Sept. 23.

U.S. Treasuries maturing in seven to 10-years have returned 14 percent this year, outperforming a 9.3 percent return for the broader Treasury market, according to Bank of America Merrill Lynch indexes, as of yesterday [Nov. 23]. 

It’s worth taking a moment to digest these numbers. Nobody expects average US inflation over the next seven years to come in under 1.415% p.a., or under 1.88% over the next ten, so the yield is sheer racketeering. Yet this blatant assault on the lower colon of savers has been compatible with a one-year return of 14% (!) — they’re begging for it. Seriously, who cares if Bernanke is lighting up a fat Cuban with a large bill lifted straight out of their pocket? It just makes him look badder, and that’s what they’re paying for. Gold sounds good in theory, but it doesn’t come with its own attached gangster organization, so hanging onto it through the zombie interlude could be difficult. It’s safer, by far, to invest in the alpha state.

Because this Hobbesian zombinomics is political and relativisitic, there are epsilon states at the other end of the trade, as well as a beta state caught in the middle. Europe isn’t a state at all, of course, which is how the (interminable) final phase of zombinomics got started. Before it changed, however, the EU conjuring act seemed to be going pretty well. Every Eurozone member state issuing government debt in the common currency paid yields that were broadly harmonized, as if Europe was a financially sovereign entity, standing united behind its paper. The realization that economic sovereignty remained national, even after the alienation of monetary sovereignty to the European Central Bank, came as something of a shock, and bond spreads gaped accordingly.

The hallucination of ‘Europe’ as a united, honorary alpha state, rapidly degenerated to reality, recoding government bonds as zombie apocalypse security scrip. Suddenly, Greek bonds stopped having anything much to do with the ECB, and started to mumble promises in Greek – ultimately, that the Greek state would do whatever it took to secure redemption, whilst mobilizing its Olympian powers to maintain social discipline if necessary. A flight for the exits immediately ensued. Ditto, with variations of speed and intensity, for all the epsilons (= PIIGS).

Where to flee? That’s the zombinomic question par excellence (searching for the best looking horse in the glue factory). First choice, for the keenest Hobbes readers, was to head straight to Mr. Big, a.k.a. Benny the Yank, wait politely whilst he finished smoking a mirved nuke, and then beg for protection (that’s your 14% one year jump in the value of a 10-year US Treasury bond, right there). The second choice — more appealing to old-fashioned types who thought economics still counted for something – was to look for comparative financial responsibility closer to home.

Briefly, this route led to genuine quality, but zombinomics quickly resumed its grip:

Switzerland sparked fears of a new currency war on Tuesday [Sept. 6] after it pegged the Swiss franc against the euro in an attempt to protect its economy from the European debt crisis.

The Swiss National Bank in effect devalued the franc, pledging to buy “unlimited quantities” of foreign currencies to force down its value. The SNB warned that it would no longer allow one Swiss franc to be worth more than €0.83 – equivalent to SFr1.20 to the euro – having watched the two currencies move closer to parity as Switzerland became a “safe haven” from the ravages of the eurozone crisis.

… which brings us to Germany, and the latest chapter in the zombie saga — comic or tragic, and probably both, ironic to the point of absurdity in any case. Ruined, shrunken, divided, and traumatized by guilt, post-war Germany sought above all to bury its nationalistic aspirations in Europe. What became the EU was for Germany – as Algeria was for the French foreign legionnaires – a place in which to forget. Now the bond ‘market’, in its increasingly desperate search for a big, tough, disciplinary state (a global beta will do fine), is determined to dig the Teutonic Leviathan from its grave.

With twin memories of Weimar hyper-inflation and statist hyper-assertion still vivid, Germany is stubbornly holding out against the full-zombie option of (monetary and fiscal) financial debauchery counter-balanced by Hobbesian security politics. This reluctance to throw itself into the spirit of the age has, naturally enough, exposed it to relentless international vilification, and the pressure will only increase. It could all get unpleasantly interesting.

[Tomb]

Suspended Animation (Part 2)

Whatever happened to hell?

“It can’t carry on like this … but how many weeks have we said that for?”
— Justin Urquhart Stewart, director at Seven Investment Management (via James Pethokoukis here)

To make a protracted topic out of this phenomenon is to offer a hostage to fortune. Everything could go over the cliff tomorrow. Perhaps it already has (and we’re just waiting, like Wile E. Coyote, for the consummating splatter).

Greens have been dealing with exactly this question, for a while. After Paul Ehrlich had his credibility torched by Julian Simon, in the most intellectually consequential wager in history, he responded in frustration: “The bet doesn’t mean anything. Julian Simon is like the guy who jumps off the Empire State Building and says how great things are going so far as he passes the 10th floor.”

If environmental catastrophe is structured like this, according to a pattern of durable unsustainability, or disconcerting postponement, there is no obvious theory to account for the fact. With economics, things are different, to such an extent that the entire political economy of the world, along with the overwhelming preponderance of professionalized economic ‘science’, has been geared over the course of a little under a century to crisis postponement as a dominant objective. If the New World Order follows a master plan, this is it.

For ideological purists on the free-market right, laissez-faire capitalism is the ‘unknown ideal’ (although early 20th century Shanghai approached it, as did its student, Hong Kong, in later decades), but it requires no purism whatsoever to acknowledge that the Great Depression effectively buried it as an organizing principle of the world, and that the system which replaced it found political and intellectual expression in the ideas of John Maynard Keynes. Commercial self-organization, which built industrial capitalism before anyone had even the sketchiest understanding of what was happening, gave way to the technocracy of macroeconomics, guided by the radically original belief that governments had a responsibility to manage the oscillations of economic fortune.

In the words of Peter Thiel (drawn straight from the free-market id):

… the trend has been going the wrong way for a long time. To return to finance, the last economic depression in the United States that did not result in massive government intervention was the collapse of 1920–21. It was sharp but short, and entailed the sort of Schumpeterian “creative destruction” that could lead to a real boom. The decade that followed — the roaring 1920s — was so strong that historians have forgotten the depression that started it. The 1920s were the last decade in American history during which one could be genuinely optimistic about politics. Since 1920, the vast increase in welfare beneficiaries and the extension of the franchise to women — two constituencies that are notoriously tough for libertarians — have rendered the notion of “capitalist democracy” into an oxymoron.

As Cato’s Daniel J. Mitchell puts it, more narrowly:

A vibrant and dynamic economy requires the possibility of big profits, but also the discipline of failure. Indeed, capitalism without bankruptcy is like religion without hell.

Because hell’s a hard sell, political and economic rationality have been heading in different directions for 80 years. Even the tropical latitudes of purgatory have proven to be socially combustible, and popularly sensitized politics – which need not be formally ‘democratic’ – tend (strongly) to flee Molotov cocktails in the direction of macroeconomic management. The crucial Keynesian maxim, “In the long run we are all dead,” is especially pertinent to regimes. Who’s going to regenerate deep economic recovery, if the route to it lies through gulfs of fire and brimstone that are fundamentally incompatible with political survival? History, redundantly, provides the obvious answer: nobody is.

The accursed path not taken, across the infernal abyss, has become so neglected and overgrown with weeds that it is rarely noticed, but it is still graphically marked by the advice that Treasury Secretary Andrew Mellon gave to Herbert Hoover as the way to navigate the Great Depression (advice that was, of course, dismissed):

… liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate… it will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people.

In recalling this recommendation, as an unacceptable option, Hoover commemorates the precise moment that capitalism ceased to exist as a politically credible social possibility. The alternative – which has many names, although ‘corporatism’ will do – was defined by its systematic refusal of the ‘liquidationist’ path. Coming out stronger on the other side meant nothing, because the passage would probably kill us – it would certainly destroy our political careers. In any case, it was a long run solution to a short term problem, scheduled by volatile popular irritability and election cycles, and in the long run we are all dead. Better, by far, to use ‘macroeconomic policy’ (monetary mind-control) to artificially prolong unsustainable economic euphoria – or even its jaded, hung-over simulation – than to plunge into a catastrophe that might imaginably have been delayed.

It doesn’t take a Schumpeterian fanatic to suspect that such ‘creative destruction (but without the destruction)’ is unlikely to provide a sustainable recipe for economic vitality. When evaluated realistically, it is a formula that programs a trend to perpetual stagnation. Stagnation as a choice.

Because money serves as a general equivalent, and thus as a neutral, non-specific, purely quantitative medium of exchange, it is very supportive of certain highly-consequential economic illusions, of a kind that macroeconomics has been especially prone to. It can easily seem as if ‘the economy’ consists essentially of undifferentiated, quantitative aggregates, such as ‘demand’, ‘gross domestic product’, ‘money supply’, ‘land’, ‘labor’, and ‘capital’. In fact, none of these things exist, except as high-level abstractions, precipitated by the monetary function of general exchangeability.

An understanding of Schumpeterian creative destruction requires, as a preliminary, the recognition that capital is heterogeneous. When expressed in a monetary form, it can appear as a homogeneous quantity, susceptible to simple accumulation, but in its productive social reality it consists of technological apparatus – tools, machines, infrastructures, and installations – representing irretrievable investments, of qualitatively distinctive kinds. The monetary equivalent of such industrial capital is derived from the market values attributed its various components, and these are extremely dynamic, virtual, and speculative. Since the value retrievable from liquidation (and ultimately from scrap) is generally a small fraction, or lower bound, of capital asset value, the ‘capital stock’ is estimated with reference to its productive usage, rather than its intrinsic worth. Schumpeter was careful to break this down into two very different aspects.

Firstly, and most straightforwardly, industrial capital is a resource that depreciates at a regular and broadly predictable rate as a function of output. It is consumed in the process of production, like any other material input, but at a slower rate. Creative destruction, however, refers to a second, far more drastic type of capital depreciation, resulting from technological obsolescence. In this case, capital stock is ‘destroyed’ – suddenly and unpredictably – by an innovation, taking place elsewhere in the economy, which renders its anticipated use unprofitable. In this way, large ‘quantities’ of ‘accumulated’ capital can be depreciated overnight to scrap values, and the investments they represent are annihilated. The hallucination of homogeneous capital is instantaneously vaporized, as painstakingly built fortunes are written down to nothing.

Several points suggest themselves:

1. The violence of creative destruction is directly proportional to its fecundity. The greater, deeper, and more far-reaching the innovation, the more colossal is the resulting capital destruction. At the extreme, profound technological revolutions lay waste not only to specific machines and skills, but to entire infrastructures, industries, occupational categories, and financial systems.

2. The cultural implication of creative destruction far exceeds issues of ‘moral hazard’ and ‘time preference’. The victims of industrial change waves – whether businesses, workers, or financiers – are not being punished by the market for imprudence, slackness, or short-sightedness. They are ruined by pure hazard, as the reciprocal of the absolutely unanticipated nature of technological invention (occurring elsewhere). Neither the creation, nor the destruction, is remotely ‘fair’ – or ever could be. (Although Dawinian ‘virtue’ lies in flexible adaptability — Hong Kong always does OK.)

3. Massive capital destruction expresses technological revolution. Macroeconomic analysis (measuring homogeneous aggregates) will always miss the most significant episodes in industrial evolution, since these do not register primarily as growth, but rather the opposite. Hell is a hothouse.

4. A policy environment designed to preserve macroeconomic aggregates (e.g. ‘wealth’ or ’employment’) necessarily opposes itself to the basic historical process of industrial revolution, because destruction of the existing economy is strictly indistinguishable from industrial renewal. For that old stuff to be worth anything (beyond scrap) we have to keep using it, which means that we’re not switching over. To cross the gulf, we have to enter the gulf. (Like most things in this universe: harsh but true.)

5. Real historical advance is now politically unacceptable. Either politics wins (eternal stagnation) or history does (political collapse). Interesting times (or not).

The world couldn’t take the heat, so it got out of the kitchen. There’s cold porridge for dinner, and it’s going to be cold porridge for breakfast. Eventually the porridge will run out, but that could take a while …

… and here’s Ben Bernanke on topic: “I’m not a believer in the Old Testament theory of business cycles. I think that if we can help people, we need to help people.” (via Mike Krieger at ZH)

Cold porridge politics forever. Yum!

[Tomb]

Time in Transition

There has to be a hexagram for this

Isaac Newton’s Philosophae Naturalis Principia Mathematica abstracted time from events, establishing its tractability to scientific calculation. Conceived as pure, absolute duration, without qualities, it conforms perfectly to its mathematical idealization (as the real number line). Since time is already pure, its reality indistinguishable from its formalization, a pure mathematics of change – the calculus – can be applied to physical reality without obstruction. The calculus can exactly describe things as they occur in themselves, without straying, even infinitesimally, from the rigorous dictates of formal intelligence. In this way natural philosophy becomes modern science.

(It is perhaps ironic that the Newtonian formulation of non-qualitative time coincides with a revolutionary break – or qualitative transition – that is perhaps unmatched in history. That, however, is a matter for another time.)

Modern science did not end with Newton. Time has since been relativized to velocity (Einstein) and punctured with catastrophes (Thom). Yet the qualities of time, once evacuated, cannot readily be restored.

Clock technology suffices to tell this story, on its own. Time ‘keeping’ devices produce a measure of duration, according to general principles of standardized mechanical production, so that a clock-marked minute is stripped of qualitative distinctness automatically. Chronometrically, any difference between one minute and another is a mechanical discrepancy, strictly analogous to a production line malfunction.

Time modernization culminates in an inversion of definition, eventually standardizing from a precisely reproducible building block (the atomic second), rather than accommodating itself to a large-scale natural cycle – qualified by variations of luminosity – which generates sub-units through division. Once the second has becomes entirely synthetic, all reference to a qualitative ‘when’ has been effaced. All that remains is quantitative comparison, timing, and synchronization, as if the time-piece was modeled upon the stop-watch. Calendars have become an anachronism.

Modern time intuitions would find plenty of support, even in the absence of mechanical chronometry. Every quantifiable trend, from a stock movement or an unemployment problem to a demographic pattern or an ecological disaster, can be communicated through charts that assume a popular facility at graphic intuition, and thus, implicitly, at algebraic geometry and even calculus. Time is so widely and easily identified with the x-axis of such charts that the principle of representation can be left unexplained, however strange this might have seemed to pre-moderns. Clearly, if time can be read-off from an axis – quickly and intuitively — it is being conceived, generally, as if it were a number line (‘Newtonian’).

Qualitative time, by now, is a scarcely-accessible exoticism. Nowhere is this more obvious that in the case of China’s ancient Classic of Change, the Yijing, a work that is today no less hermetic to Chinese than it is to foreigners.

The Yijing is a book of numbers as much as a book on time, but its numbers are combinatorial rather than metric, exhausting a space of possibilities, and constructing a typology of times. The Yijing speaks often of quantities, but it does not measure them. Instead, it typologizes them, as processes of increase or decrease, rise and fall, lassitude and acceleration, typical of qualitative phases of recurrent cycles, with identifiable character and reliable practical implication.

The point of all this (just in case you were wondering)?

The current time is a period of transition, with a distinctive quality, characterizing the end of an epoch. Something – some age – is coming quite rapidly to an end.

This is not a situation that the modern mentality is well-adapted to, since it violates certain essential structures of our time-consciousness. It eludes our intuitions and our clocks. Our charts register it only as a break-down, as they terminate the x-axis at a point of senseless infinity (hyperinflation, bubble stock p/e ratios, global derivatives exposure, urban intensity, technological intelligence explosion) or in a collapse to zero (marginal productivity of debt, fiat currency credibility, unit costs of self-replicating capital goods). The can clatters off the end of the road. Things cannot go on as they have, and they won’t.

Given the heated political climate surrounding the impending transition of the global economic system, a non-controversial diagnosis is almost certainly unobtainable. Niall Ferguson describes an Age of Global Indignation, or Global Temper Tantrum, in which the objectively unsustainable nature of the established order, whilst widely if vaguely perceived, still eludes sober recognition. Riots, Molotov cocktails, and fabulous conspiracy theorizing are the result.

“What all the Indignant have in common is the refusal to address squarely the problem that nearly all Western countries face. That problem is that the welfare systems that evolved in the mid-20th century are unaffordable under the demographic and economic circumstances of the 21st century. The financial crisis has merely exacerbated what was already a severe structural crisis of public finance, boosting deficits while slowing growth.”

In all probability, Ferguson’s blunt analysis will provoke further paroxysms of indignation. Yet, as the world’s most pampered societies slide ever further into insolvency, such undiplomatic assessments will become ever more common, and the rage they inspire will become ever more unhinged.

John B Taylor emphasizes the senescence and death of Keynesian macroeconomics (drawing on the earlier work of Robert E Lucas and Thomas J Sargent). His research concludes that “the Keynsian multiplier for transfer payments or temporary tax rebates was not significantly different from zero for the kind of stimulus programs enacted in the 2000s.” In other words, stimulus is ceasing to stimulate, and gargantuan public debts have been accumulated for no rational purpose. This is the ‘debt saturation’ that Joe Weisenthal describes as “a phase transition with our debt relationship” graphically portrayed in “the scariest [chart] of all time.”

Between financial stimulus and chemical stimulus, there is no distinction of practical significance. Keynesianism and cocaine are both initially invigorating, before stabilizing into expensive habits that steadily lose effectiveness as addiction deepens. By the time bankruptcy and mortality beckons, getting off the stimulus seems to be near-impossible. Better to crash and burn – or hope that something ‘turns up’ — than to suffer the agonies of withdrawal, which will feel like hell, and promises nothing more seductive than bare normality at the end of a dark road. Character decays into chronic deceit, intermittent rage, and maudlin self-pity. Nobody likes a junky, still less a junky civilization.

Keynesianism was born in deception – the deliberate exploitation of ‘money illusion’ for the purposes of economic management. Its effect on a political culture is deeply corrosive. Illusionism spreads throughout the social body, until the very ideas of hard currency (honest money) or balanced budgets (honest spending) are marginalized to a ‘crankish’ fringe and being ‘politically realistic’ has become synonymous with a more-or-less total denial of reality. To expect a Keynesian economic establishment to honestly confront its own failings is to laughably misunderstand the syndrome under discussion. A reign of lies is structurally incapable of ‘coming clean’ before it goes over the cliff (someone needs to do another Downfall-parody, on macroeconomics in the Fuehrer Bunker).

The long Keynesian coke-binge was what the West did with its side of globalization, and as it all comes apart — amidst political procrastination and furious street protests – a planetary reset of some kind is inevitable. The ‘Chimerican’ engine of post-colonial globalization requires a fundamental overhaul, if not a complete replacement. The immense dynamism of the Chimerican Age, as well as its enduring achievements, have depended on systematic imbalances that have become patently unsustainable, and it is highly unlikely that all the negative consequences will have been confined to just one side of the world ledger.

For instance, China’s soaring investment rate, estimated to have reached 70% of GDP, seems to have disconnected from any prospect of reasonable economic returns. Pivot Capital Management concludes: “credit growth in China has reached critical levels and its effectiveness at boosting growth is falling.” For the PRC’s fifth-generation leadership, scheduled to adopt responsibility for China’s political management from 2012, inertia will not be an option. By then, a half-decade of global stimulus saturation, cascading macroeconomic malfunction and serial ‘black swans’ (the new millennium ‘clusterflock’) will have reshaped the world’s financial architecture, trade patterns, and policy debates. Whatever comes next has to be something new, accompanied – at least momentarily – by genuine apprehension of economic reality.

For post-Expo Shanghai, a city stunningly rebuilt in the age of Chimerica, the time of transition is a matter of especially acute concern. This is a metropolis that waxes and wanes to the pulse of the world, rigidly tide-locked to the great surges and recessions of globalization. Will the next phase of world history treat it as well as the last?

[Tomb]

Nemesis

Betting everything that the casino will burn down

Harold Camping’s Family Radio warned its listeners to expect some unusually dramatic spring events:

By God’s grace and tremendous mercy, He is giving us advanced warning as to what He is about to do. On Judgment Day, May 21st, 2011, this 5-month period of horrible torment will begin for all the inhabitants of the earth. It will be on May 21st that God will raise up all the dead that have ever died from their graves. Earthquakes will ravage the whole world as the earth will no longer conceal its dead (Isaiah 26:21). People who died as saved individuals will experience the resurrection of their bodies and immediately leave this world to forever be with the Lord. Those who died unsaved will be raised up as well, but only to have their lifeless bodies scattered about the face of all the earth. Death will be everywhere.

Clearly, prediction can be a perilous business.

Yet, as Karl Popper noted with respect to scientific theories, falsifiable predictions also serve a valuable – even indispensable – purpose. Any model of reality that is able to make specific forecasts earns a credibility that vaguer ‘world-views’ are not entitled to, although at the price of radical vulnerability to devaluation, should its anticipations prove unfounded.

Much like Marxism, the Libertarianism of Austrian School economic theory combines historical expectations (of greater or lesser exactitude) with a core of philosophical, political, and even emotional commitment that is comparatively immunized against empirical refutation. Both Marxism and Austrolibertarianism are large, highly variegated ideologies, with complicated histories, expressing profound discontent with the dominant order of the modern world, and prone to utopian temptations. Both are (often indignant) moral-political doctrines extrapolated in very different ways from Lockean natural-law property rights (to one’s own body and its productive activity). Both attract a wide spectrum of followers, from sober scholars to wild-eyed revolutionary advocates, who see in the unfolding drama of history the possibility of definitive vindication (much as the faithful of millenarian theologies have always done, and – as the Camping case demonstrates – continue to do).

The Western roots of both Marxism and Austrolibertarianism reach down into Jewish redemptive eschatology and Greek tragedy (it is perhaps noteworthy that Karl Marx and Ludwig von Mises shared intriguing biographical features, including highly-assimilated German-Jewish backgrounds, steeped in European high-culture). Statist-Capitalism is portrayed as the Satanic-Promethean antihero of an epic narrative, describing a sustained violation of justice that finds itself held accountable in a final apocalyptic moment giving meaning to history, and a seemingly unconstrained hubris that meets its eventual nemesis. The high is brought low, through a crisis whose mere prospect offers overwhelming psychological satisfaction, and thus extraordinary emotional attachment.

Since the 1980s, Marxism has tended to retreat from the predictive mode. Its enthusiasts no doubt remain committed to the prospect of a terminal crisis of capitalism, perhaps even an imminent one, but Marxist prophecy seems timorous and uncertain today, even under conditions of unusual global economic dislocation. The Austrolibertarians, on the other hand, are being drawn out onto a prophetic branch – possibly despite themselves – with incalculable consequences for their future credibility. Their fundamental assumption, that governments are by essence incompetent and unqualified to run the monetary systems required by advanced economies, leads them to an almost inescapable conclusion: hyperinflation.

Hyperinflation might be the sole economic example of a true singularity: a hyperbolic approach to infinity (in finite time), producing a punctual discontinuity. When hyperinflation strikes, it escalates rapidly towards a hard limit, where money dies. In the economic sphere, it is the unsurpassable example of regime incompetence. How could Austrolibertarians – whose apocalyptic inclinations are matched only by their disdain for political authority – not be irresistibly attracted to it?

John Williams’ Shadow Government Statistics blog is not easily characterized as hardcore Austrolibertarian site (Williams describes himself as a “conservative Republican with a libertarian bent”), but the prognosis outlined carefully in its Hyperinflation Special Report (2011) exemplifies the tendency to predict imminent nemesis for command-control monetary policy. Williams subscribes wholeheartedly to the Austrian certitude that ‘kicking the can’ (up the road) – the central feature of Keynesian macroeconomic policy – guarantees eventual catastrophe, and ‘eventual’ just got a whole lot closer. Nemesis is coming due.

Both the federal government and the Federal Reserve have demonstrated that they will not tolerate a systemic collapse and a great deflation, as seen during the Great Depression. … those risks are being fought, and will be fought, at any cost that can be covered by the unlimited creation of new money. It was a devil’s choice, but the choice has been made. Extreme systemic interventions, and formal measures to debase the U.S. dollar through the effective unlimited creation of money to cover systemic needs and the government’s obligations, pushed the timing of a systemic collapse — threatened in September 2008 — several years into the future. The cost of instant salvation, though, was inflation. Eventual systemic collapse is unavoidable at this point, but it will be in a hyperinflationary great depression, instead of a deflationary one.

Williams isn’t afraid to lock down some dates, with 2014 proposed as the outer limit of possibility – and sooner is likelier:

At present, it is the Obama Administration that has to look at abandoning the debt standard (hyperinflation) and starting fresh. Yet, the Administration and many in Congress have taken recent actions suggestive of hoping only to push off the day of reckoning for the economic and systemic solvency crises until after the 2012 presidential election. They do not have that time.

As he elaborates:

Actions already taken to contain the systemic solvency crisis and to stimulate the economy (which have not worked), plus what should be renewed devastating impact of unexpected ongoing economic contraction on tax revenues, have set the stage for a much earlier crisis. Risks are high for the hyperinflation beginning to break in the months ahead; it likely cannot be avoided beyond 2014; it already may be beginning to unfold.

It is in this environment of rapid fiscal deterioration and related massive funding needs that the U.S. dollar remains open to a rapid and massive decline, along with a dumping of domestic- and foreign-held U.S. Treasuries. The Federal Reserve would be forced to monetize further significant sums of Treasury debt, triggering the early phases of a monetary inflation.

Under such circumstances, current multi-trillion dollar deficits would feed rapidly into a vicious, self-feeding cycle of currency debasement and hyperinflation. With the economy already in depression, hyperinflation kicking in quickly would push the economy into a great depression, since disruptions from uncontained inflation are likely to bring normal commercial activity to a halt.

What happens next is anyone’s speculation.

The hyperinflationary destruction of the world’s reserve currency would be a decisive event. The mere possibility of such an occurrence divides the set of potential futures between two tracks. On one, in which the US Dollar (FRN) survives, Austrolibertarian alarmism is humiliated, the economic competence of the US government is – broadly speaking – confirmed, and the principles of fiat currency production and central banking are reinforced, along with their natural supporters among neo-Keynesian anti-deflationary macroeconomists. On the other, the Austrolibertarians dance in the ashes of the dollar, precious metals replace fiat paper, central banks come under withering political attack, and the economic role of government in general is subjected to a major onslaught by energized free-marketeers. At least, that’s what a just universe, or a fair bet, would look like.

Betting on a just universe could be the big mistake, however – and that’s a temptation the morally-charged Austrolibertarian grand narrative finds hard to avoid. In a morally indifferent universe, Nemesis is non-redemptive, and the entire bet is an inverse Pascal’s wager, with downside on every side. Make a brave prediction of hyperinflation, and you either lose, or you lose – gloating neo-Keynesians, greater indebtedness, and fatter government on the one hand, or some yet unconsolidated species of neo-totalitarian horror on the other. (It’s noteworthy that a tour through the history of post-hyperinflationary regimes doesn’t pass through many examples of laissez-faire commercial republics.)

So is the dollar going to die? — Quite possibly. Then things could really turn nasty – more Harold Camping than Ludwig von Mises: “lifeless bodies scattered about the face of all the earth. Death will be everywhere.”

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Chimerica

A new world order hits the buffers

“For nearly 30 years we have had two Global Strategies working in a symbiotic fashion that has created a virtuous economic growth spiral. Unfortunately, the economic underpinnings were flawed and as a consequence, the virtuous cycle has ended. It is now in the process of reversing and becoming a vicious downward economic spiral,” writes Gordon T. Long, in a guest post at Zero Hedge. “One of the strategies is the Asian Mercantile Strategy. The other is the US Dollar Reserve Currency Strategy.”

The system that Long sees unraveling has been dubbed ‘Chimerica’ by Niall Ferguson and Moritz Schularick, in reference to the mythical hybrid beast of antiquity. Chimerica emerged through the dynamic coupling of the US and Chinese economies, dominating the wave of globalization in the post-command economy world. It has served as a powerful engine of development, spreading prosperity beyond the narrow enclave of the (Euro-American) ‘First World’ and facilitating the global roll-out of digital network technologies, from personal computing and mobile telephony to the Internet. In recent years, however, its unsustainable features have become prominently visible.

Stripped to its fundamentals, Chimerica amounted to something akin to an informal geopolitical ‘deal’ that simultaneously promoted the international status of the US Dollar and domestic Chinese industrialization. The principal financial mechanism was the recycling of Chinese trade surpluses into US Treasury Bonds, in a process that accentuated Chinese competitiveness (by restraining the rise of the Yuan) and suppressed US inflation (preserving the credibility of the USD). This enabled Chinese industrial expansion to proceed at a far greater speed than its domestic market could have supported, whilst providing US governments with the latitude to run a chronically loose monetary policy immunized against the prospect of currency collapse. The Chinese manufacturing and US banking sectors were the most obvious beneficiaries. Both prospered conspicuously.

As Niall Ferguson wrote in November 2008, in the early days of the world financial crisis:

“At the heart of this crisis is the huge imbalance between the United States, with its current account deficit in excess of 1 percent of world gross domestic product, and the surplus countries that finance it: the oil exporters, Japan and emerging Asia. Of these, the relationship between China and America has become the crucial one. More than anything else, it has been China’s strategy of dollar reserve accumulation that has financed America’s debt habit. Chinese savings were a key reason U.S. long-term interest rates stayed low and the borrowing binge kept going. Now that the age of leverage is over, ‘Chimerica’ — the partnership between the big saver and the big spender — is key.”

Having reached a state of crisis, Chimerica seems certain to unwind. This might occur either through a measured rebalancing that increases Chinese domestic consumption whilst reducing US deficit spending, or as a messy disintegration — involving sudden demand contraction, currency wars, and escalating mutual recrimination. Whatever the eventual outcome, a refashioned world order is an inevitable – which is to say, definitional – result.

Whilst Ferguson hedges his bets, Gordon Long spells out a specific and ominous forecast, in which the virtuous cycle of Chimerican globalization reverses into a vicious ‘death spiral’. As ‘debt saturation’ closes down the option of policy continuity, the actions of the US Federal Reserve become manifestly ineffective, self-contradictory, and ultimately paralyzed. The long-postponed process of currency destruction then begins in earnest. Long offers a useful checklist of milestones on the road to ruin (proceeding from financial, through economic, to political calamity):

1. A deteriorating US dollar

2. Rising US interest rates

3. Sustained and chronic US unemployment

4. Asian inflation, especially in food where 60% of Asian disposable income is spent

5. Pressures on Asian currency pegs

6. Collapsing values of US Reserve holdings

By the end of this process, the world will have been violently catapulted out of a financial architecture dating back 70 years, and a dominant monetary philosophy that has prevailed over the course of centuries.

“The eventuality of a fiat currency crisis is ordained and has been since the early warnings in 2007 of the Financial Crisis,” Long insists. “The roadmap has been clear to all that actually wanted to look.”

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