Friday, November 14, 2008

The Times, They Are A-Changin'

Twenty years ago communism collapsed with little apparent warning, in the process destroying the political, intellectual, and economic paradigms of generations. In a flash, one of the world’s two superpowers disintegrated. In a flash, the Iron Curtain rusted away and the geopolitical map was radically remade. In a flash, the intellectual counterbalance to free-market capitalism fell completely off the scale. Communism as a political system, communism as an economic system, communism as an intellectual framework, communism as a world power, was bankrupted, discredited, repudiated, and exposed as a fraud.

Twenty years on and suddenly it is we - the triumphant victors of last century’s epic struggle of the “isms”- who watch in horror as our economy fails in spectacular fashion. And make no mistake: We are witnesses not merely to a deflated real estate bubble or to Wall Street excess or to the unintended consequences of derivative financial instruments, but to an unfolding systemic failure resulting from what Wendell Berry calls our “credo of limitlessness:”

In keeping with our unrestrained consumptiveness, the commonly accepted basis of our economy is the supposed possibility of limitless growth, limitless wants, limitless wealth, limitless natural resources, limitless energy, and limitless debt. ("Faustian Economics: Hell Hath No Limits," Harper's, May 2008)

The implications of the present crisis remain lost on most observers, particularly the chatterboxes bickering over whether we are a center-right or center-left nation. Capitalism, as we have come to know and mythologize it, is dying as surely as communism died – from sheer unsustainability. Consider the evidence:

  • A culture of deregulation and laissez-faire not only permitted, but encouraged the creation of mortgage-backed securities that although poisoned with mortgages made to high-risk borrowers, were rated AAA investments by corrupt rating agencies. To mitigate the risk of these securities, a $60 trillion market developed for insurance contracts that were not called insurance contracts and therefore were not backed by appropriate capital reserves. All these “investments” were apparently bought and sold with the assumption that home values could only go up. Thus, complicated instruments devised by physicists using advanced math and high-horsepower computing were rendered “toxic” and nearly brought down the entire world economy because they ignored the law of supply and demand.
  • The government has intervened to prop up banks and insurance companies in a desperate attempt to stave off financial Armageddon. The initial sum pledged of $700 billion (which at this writing seems likely to be far from the eventual tally) exceeds what we spend on our gargantuan military and is nearly a fourth of the entire federal budget. Call it socialism, call it welfare, this astonishing act ridicules our professed faith in free markets.
  • The investment banking industry, the storied flagship of American finance, has completely disappeared.
  • The automotive industry, an iconic mainstay of our economy for a century, teeters on the brink of collapse, government welfare its only hope for survival. The cause of its collapse is its failure to plan for a rise in the price of a diminishing non-renewable resource largely obtained from volatile regions controlled by our enemies.
  • The institution of a comfortable paid retirement, long thought of as the just deserts for a suitable tenure in the workforce, has suddenly become a mirage for many, most noticeably the large generation of baby boomers whose imminent retirements have been threatened or indefinitely postponed by tanking markets.
  • Iceland, a first-world nation long possessed of enviable economic and social stability, has been ruined, its economy effectively wrecked by a decline in the American housing market.
  • The doctrine of globalization, under which countries were advised to abandon all economic activities except those that offered them a comparative advantage, has resulted in nations that can no longer feed themselves nor afford to provide their people with food grown by others.
  • The health of the global economy has come to depend on the insatiable consumption of the American consumer. Since American incomes have not risen to match the imperative of ever-increasing consumer spending, ballooning debt has financed our expenditures. The bubble has finally and cruelly burst. With credit now tight and incomes threatening to spiral downward, the engine of global economic growth has been thrown into reverse.
  • In the race for ever more of everything, the world’s arable land has been decreasing at an alarming pace in order to make room for subdivisions, big-box retailers, and other “developments.” This madness has occurred at the same time world population has been growing, justified by a naïve faith that technology (currently exemplified by the petrochemicals that make industrial agriculture possible) will somehow find a way to compensate.
  • The largely unrecognized foundation on which the entire “growth” economy exists is cheap energy, particularly cheap liquid fuels. Without cheap energy virtually every feature of modern life would cease to exist, from car-based suburbs, to global supply chains, to air travel, to strawberries in February. Yet the evidence is mounting that the era of cheap energy has ended, notwithstanding the recent dramatic drop in oil prices (what James Howard Kunstler refers to as the great “fakeout”).
  • The very world in which we live has been imperiled to a frightening degree. Global warming, shrinking biodiversity, widespread monocultures, etc. are evidence that we are playing roulette with our very survival as a species.

In short, our society is undergoing a tectonic shift. If history is any guide, we can be sure that too few will recognize what is happening and appreciate its significance until too late. Tragically, this applies not only to the commentariat, but also to the technocrats and political leaders who develop and implement our policies.

1 comment:

Joel said...

Very good, Larry. I have always thought of this limitless growth idea as "The Greater Fool Theory", the notion that when one buys aomething that by any rational standard is grossly over priced, his expectation is that at some time in the future he will be able to sell it to an even greater fool.