Disclaimer – I am not an economist. Nor am I a scientist. Proceed at your own peril.
Usually I have a sense of purpose – I know what I want to pursue and how I want to do it. But these last few weeks have me at a loss. Suddenly, my projects are in a personal holding pattern, due in large part to the churning rapidity and fluidity in national and world affairs. As a filmmaker, I rely on investment (in whatever form) to get my projects off the ground. But there isn’t a lot of credit to go around these days. Even the banks are afraid to offer credit to each other. (This is a Bad Thing.)
It's easy to predict that unstable systems will change and possibly collapse. It's a lot more difficult to see beyond that threshold. From this vantage point, all that I can say with certainty is that it doesn't look good. Are we witnessing the utter failure of free market conservatism? Definitely. But what comes next?
Much as Hunter wrote
on Daily Kos yesterday, I have lost all faith in our government, directly across the political spectrum. We're getting ready to hand over hundreds of billions of dollars to the same crooks that got us into this mess. The democrats can't find one collective backbone among them. Politicians on both side of the aisle are looking for political cover for the looming November elections. Obama has big plans and little economic chance of implementing them, barring a shock to the system so big that he might be able to ram massively change through while everybody is reeling, a la a progressive approach to Klein’s shock doctrine.
But none of this sound and fury addresses any looming issues beyond the immediate and pressing. Our infrastructure is crumbling. Prices are up. Wages are down. Credit is drying up, which has the potential to start affecting paychecks now. Our delivery system for goods and services is stretched to a brittle breaking point in the name of squeezing every last penny of profits from the removal of expensive safeguards and redundancies. I don't tend to think of myself as an alarmist -- reality tends to fall short of doom and gloom predictions -- but this is, at a minimum, an unqualified mess that corporate socialism has wrought on us. If I had to guess at the root cause of this state of affairs, I would call it two things: short-term thinking and a disregard for entropy.
Let’s talk about short-term thinking. Free market capitalism does not encourage thinking for the long term. It requires quarterly growth. The dysfunction is built into the system. The real movers and shakers make money by taking a cut of interest on credit. (Or credit on credit, on which they speculate, etc.) Everyone else plays by putting money into the system, which is loaned out at higher rates, with a percentage of interest going into the pockets of the intermediary. Without growth, that interest is not created and the people who use money to make more money lose their revenue stream. (Yes, this is an over-simplification. If you want accuracy, see an economist.) So we privilege growth. And we privilege efficiency at the expense of redundancy. And only when things go sour do we notice that we might possibly need that redundancy in order to weather the point at which growth (fueled in large part lately by imaginary derivatives) can no longer continue.
More examples – in order to maintain growth, we extract resources unsustainably. We clear cut forests. We over-farm and exhaust the soil. We borrow against the future, taking profit now at the expense of our children and grandchildren. We give money to the rich, so much money that entire new markets must be created for them to invest in, thus giving them access to their all-important interest, that allows their money to make more money. So much money flowed into the pockets of the ultra-rich over the last eight years (or twenty-eight years, if you prefer) that the banks couldn't find enough cash-strapped people to borrow those funds. So they made credit available to anyone. They created a mortgage market big enough to send interest flowing back to the rich. And they overextended so badly that the entire system risks collapse.
Bush's tax cuts took from the poor and gave to the rich, giving so much money to the rich that they had to take even more from the poor just to keep up with the massive interest that their wealth was generating. This isn't even political ideology any more – it is theft, pure and simple. And the end result? We plan to give $700 billion more that we can't afford to the thieves, the same thieves who are telling us, somehow, that we must pay for our own healthcare (with the majority of those payments going to support the private health insurance bureaucracy, creating the highest per capita expenditure on healthcare in the entire world), that we must shop at big box retailers that drain money from local communities, that we must deregulate everything in order to allow quarterly growth to continue. Is there rocket fuel in our drinking water? Let mid-level political appointees change the science and allow the rocket fuel to continue to cause health issues and birth defects. After all, the system is in such dire straights right now that we can't allow safety concerns to get in the way of the profits that we must have to keep the house of cards from collapsing.
Across the board, we relax regulation in the name of sustaining the system. We overlook off-shore tax shelters in the name of sustaining the system. We tax the poor in the name of sustaining the system (we can't afford to tax the rich, or they wouldn't be able to keep making money!), without ever stating the obvious: the system's entire function is to sustain itself, and to do so it must consume at an ever-greater rate, just to keep the trail of destruction in its wake from catching up to it.
Is it too much to suggest that all of the above is evidence of short-term thinking without regard for consequences? Ladies and gentlemen, there is an elephant in the room!
We do not have infinite resources to extract. Oil will not magically renew itself. The rainforests will not magically regrow overnight. The methane released as the permafrost melts will not magically resequester itself in the ground. The ice will not magically reattach itself to Greenland after it falls off. We cannot magically turn entropy back on itself. We cannot violate simple laws of thermodynamics.
The universe is not a perpetual motion machine. Neither is the fucking economy. So why are we treating it like it is one?
Because when we ignore future consequences, we can make lots of money with the lie that giving money to the rich will improve everyone's life. My little perpetual motion machine works great as long as you guys turn the handle, and you guys drop money in it, and you guys poor in natural resources, and you guys clean up the trail of sludge it leaves behind, and you guys bend the rules to allow it to get bigger, and you guys pocket some blood money, and I take the profits and run. Who in this scenario is guilty of short-term thinking? Every person participating who cares more about money than about the future. We are all guilty.
Of course, there aren't a lot of alternate choices available to the wage slaves, the desk drones, the gas guzzlers, even the counter-culture dumpster divers. We all still rely on this economy and this government to provide jobs, food, resources, and shelter. If this system breaks, we all suffer. But break it will. Maybe not tomorrow. Maybe not for a hundred years, whenever we reach the point where we really do run out of extractable resources.
Can we change course? I doubt it. Our politicians need money to get elected and retain power. Our investors provide the credit that drives the market. We need food, housing, and disposable consumer electronics. We are addicted to a way of life that only functions as long as we are willing to consume the future.
Do we want to fix things? Do we want to stop thinking in the short term and ignoring future costs? Then perhaps we need to eliminate something that's been with us since the Great Enlightenment. We need to eliminate the financial model that assumes constant growth. We need to change the nature of credit and investment.
Is it possible to function without credit? Of course not. Without credit we regress back to feudalism. (The discussion of which being a digression I don't wish to tackle here.)
Credit creates opportunity. But it also creates risk. And when we eliminate (or monetize) risk we find ourselves in the current mess, where the risks taken were so gigantic that we cannot allow those who took them to suffer the consequences of their short-sightedness because we would suffer more than they would.We need a safety valve that allows the value of credit (debt ownership) to depreciate over time. The rules of credit must reflect the rules of reality. Otherwise, we will repeat this boom/bust extraction of resources for the benefit of Robber Barons over and over again.
Of course, what I’m suggesting won’t happen. Too many people would suffer. Too many politicians would deride it. Too many people wouldn’t understand it. But we must recognize that our economy plays according to the rules we have written for it. And if we want to fix it, we need to change the rules.
If we don’t, we risk increased destruction of the environment, increased extraction of wealth from the poor by the rich, increased strain on our crumbling infrastructure, and eventually, hitting the point where the debt we have taken out against the future comes due.
As I wrote above, I am neither an economist nor a scientist. I’m just some guy trying to make sense of a system that ignores the second law of thermodynamics at its own peril. Because any system that so flagrantly violates natural laws and limits looks a lot less like science than it does religion. Perhaps through religion we can look forward to a metaphysical violation of entropy that gives us life after death. But there ain’t no religion that’s going to rescue credit from itself when that debt comes due.