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).


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!


Introducing Urban Future

What can readers expect from this blog? Since it promises to be oriented towards the future, it makes sense to begin with some preliminary forecasting about itself.

Most basically and predictably, Urban Future has been programmed by its name. Its principal topic is the intersection of cities with the future. It aims to foster discussion about cities as engines of the future, and about futurism as a dynamic influence on the shape, character, and development of cities. More particularly, it scavenges for clues, and floats speculations, about the Shanghai of tomorrow. It anticipates a global urban future in which Shanghai features prominently, and a coming Shanghai that expresses, both starkly and subtly, the transformative forces of global futurism. This is to get quite far ahead of ourselves, which is where we shall typically be.

For some readers, ‘futurism’ will invoke the early 20th century avant garde cultural movement crystallized by Filippo Tommaso Marinetti’s 1909 Futurist Manifesto. Futurism, they might reasonably object, has been defined and even closed by the passage of time. Like modernism, it now belongs to the archive of concluded history. What exists today, and in the days to come, can only be a neo-futurism (and a neo-modernism): no less retrospective than prospective, as much a repetition as a speculation. Such considerations, corrections, and recollections, with all their attendant perplexities, are extremely welcome. The time to address them will soon come.

Since Shanghai is cross-hatched with the time-fractured indices of historico-futuristic ambiguity, from paleo-modernism to neo-traditionalism, the blog will have every opportunity to discuss such things. For the moment, casual reference to the strangely-twinned architectural icons of such time-tangles, the Park Hotel and the Jinmao Tower – each a retro-futurist or cybergothic masterpiece – has to substitute as a mnemonic and promissory note.

Also, in time, the obstacles to forecasting need to be thoroughly addressed: such topics as historical catastrophism, the efficient-market hypothesis (EMH), Karl Popper’s critique of historicism, Knightian uncertainty (or Rumsfeldian “unknown unknowns”) and the Black Swan theory of Nassim Nicholas Taleb. In order to get up and running, all these complicating thoughts have been temporarily bracketed, like cunning and ferocious beasts, but they will not remain caged forever, or even very long.

Because there’s something irresistibly twisted about starting with the future, the first flurry of posts will head straight into tomorrow, with topics becoming increasingly city- and Shanghai-focused as things progress. An initial series of interconnected posts will outline futuristic thinking in broad terms, including preliminary sketches of principal way-stations on the mainline techno-scientific tradition that supports it.

Ultimately, nothing relevant to the future of Shanghai is alien to this blog’s purpose. It will draw upon Shanghai history, geography, and culture, traditional Chinese philosophies of time (Yijing and Daoism), theories of modernity and urbanism, evolutionary biology, science fiction, techno-scientific discussions of complex systems and emergence, the economics of spontaneous order, long waves, technological trends, robotics research and developments, models of accelerating change, and anticipations of Technological Singularity. Things should get continuously weirder.

Tomorrow, it begins.