Sunday, January 29, 2023

Here's How "Prosperity" Ends: Global Bubbles Are Popping

So here we are: the global credit-asset bubbles are popping, and the illusory "prosperity" generated by the bubbles is about to tumble off a cliff.

There are two kinds of prosperity, one fake, one real. Bogus "prosperity" depends on credit-asset bubbles inflating, magically creating "wealth" not from labor, production or improving productivity, but from the value of assets soaring as bubbles inflate.

This bubble-generated "wealth" then fuels a vast expansion of credit and consumption as assets soaring in value increases the collateral available to borrow against, and the occasional sale of soaring assets generate capital gains, stock options, etc. which then fund sharply higher consumption.

When the value of a modest home skyrockets from $200,000 to $1,000,000 in a few years, that $800,000 in gain was not the result of any improvement in utility. The house provides the same shelter it did when it was worth 20% of its current value. The $800,000 is gain is the result of the abundance of low-cost credit and the global search for a yield above zero.

Eventually, this vast expansion of "money" chasing yields and seeking places to park all the excess cash trickles into the real economy and the result is inflationary. Consider how soaring home prices affect rents.

When an investor bought the modest home for $200,000, the costs of ownership were low due to the costs being linked to the value: the property tax, insurance and mortgage were all based on the valuation. (The costs of maintenance were unrelated to valuation, of course, being based on the age and quality of construction.) Let's say the modest house rents for $1,500 per month.

The investor who buys the modest home for $1 million has much higher costs, even if they bought the property with cash and din't need to borrow money (i.e. obtain a mortgage). The property taxes and insurance are much higher, and the comparable market rent of similar houses reflects the expected yield on investing $1 million: if investors expect a 3% yield after all expenses, then the rents have to rise so the investor/owner nets $30,000 annually.

Due to the valuation increasing in a bubble, the rent is now $4,500 per month, even though the house hasn't materially gained any utility at all. The rent has to be high to justify the purchase price of $1 million.

This is why all credit-asset bubbles are self-liquidating: once the cost of credit drops to near-zero, there's no discipline left: any loan for any investment can be justified by the "guaranteed" increase in value / collateral. Since everything will rise in value, then it makes sense to leverage up as much debt as possible to gain control of as many assets as possible, as the means to maximize gain.

This leads to marginal borrowers over-extending, borrowing more than is prudent.

All this nearly free money sloshing around seeps into the real economy, jacking up prices (such as rents) without increasing the production of goods and services or improving productivity. Costs rise solely as a result of the bubble, pressuring wage earners and enterprises.

Central banks are eventually forced to raise interest rates and reduce credit expansion to put the brakes on the bubble's inevitable offspring, an inflationary spiral. Once credit is no longer expanding rapidly, the air starts leaking out of the asset bubbles. Marginal borrowers can no longer roll over their debt based on ever-higher collateral (as valuations rise, so does the collateral to support new loans) and default become inevitable once markets tighten.

For example, those willing and able to pay outrageous rents thin out, and commercial / residential properties are vacant, generating zero income.

But inflation generated by bubbles is "sticky." Landlords are reluctant to drop rents, as they've been trained by central bank bailouts and decades of easy money/credit to expect a prompt resumption of the bubble's expansion. This mentality permeates the entire economy.

Once valuations stop rising like clockwork, the bubble "prosperity' is revealed as illusory. All the "wealth" was illusory; it wasn't generated by improvements in productivity or the production of more goods and services; it was all based on soaring valuations driven by cheap, abundant credit and the bubble-mentality faith that bubbles never pop and so the "wealth" created by soaring stocks, bonds, collectibles and real estate would only continue expanding forever.

The inflation generated by bubbles remains as collateral crashes and credit expansion reverses into contraction. Suddenly, there's fewer greater fools willing to pay bubble prices for assets. The smart money sold long ago, but the not-so-dumb money finally awakens to the potential downside of bubbles popping: rather than reaping huge gains, assets might become illiquid (i.e. there are no buyers at any price) or valuations might fall faster than anyone believed possible in the heady bubblicious decades.

Bubbles liquidate the illusory "wealth" they generated when they pop, and then the bogus "prosperity" dissipates into the air from whence it came. The only source of real prosperity in improvements in productivity which generate more goods and services with fewer inputs of capital, labor, materials and energy.

So here we are: the global credit-asset bubbles are popping, and the illusory "prosperity" generated by the bubbles is about to tumble off a cliff. The $20,000 week at the posh resort was fun, as was the $80 lunch for two (two avocado toast and two beverages), but it was all fake, phony, a fraud: jacking the valuation of a bungalow five-fold doesn't actually improve productivity or create any new goods and services. It jacked up prices and property taxes, but it didn't actually create any real wealth.

It's a long way to the bottom, but it won't take as long as many seem to think.



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A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
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The Adventures of the Consulting Philosopher: The Disappearance of Drake (Novel) $4.95 Kindle, $10.95 print); read the first chapters for free (PDF)

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Friday, January 27, 2023

Heretical Thoughts on Orthodoxies

Heresy evolves, orthodoxy cannot. Plan accordingly. Orthodoxies offer the comforting illusion of solidarity. But in what lies ahead, we're on our own.

In today's world, the key orthodoxies are secular rather than religious: they are economic, ideological, political. Religious orthodoxy is in the spiritual realm. It may have secular ramifications (for example, Galileo being forced to renounce his scientific advances) but it doesn't deal with forecasts of real-world systems.

Economic, ideological and geopolitical orthodoxies are different. They make forecasts about the real world, and they will be right or wrong.

The orthodoxies are roughly divided into two camps: the Establishment/Status Quo orthodoxies and the alternative orthodoxies.

Both are fiercely defended by True Believers, as the orthodoxy is the foundation of the True Believers' identity and worldview.

The two orthodoxies aren't necessarily diametrically opposed. Sometimes they overlap.

Much of what passes for "informed commentary" now is nothing more than True Believers cherry-picking whatever supports their orthodoxy. In this mindset, what's important is that everyone agrees with the orthodoxy. Public fealty to the orthodoxy is all that matters.

In this climate, projecting an outcome that doesn't fit an orthodoxy is heresy and must be suppressed.

I don't see any value in trying to persuade others to agree with me. The analysis goes where it goes, and it doesn't really matter if we like the conclusion or not.

What matters is one forecast will be accurate and the rest will be wrong. If 99.99% of the populace doesn't like the accurate forecast, that doesn't change the outcome.

If the analysis is sound, then the forecast is sound, and it won't change if it offends our sensibilities.

In other words, an emotionally detached analytic view is more likely to generate accurate forecasts than defending orthodoxies.

Put another way, accurate forecasts don't arise from popularity contests.

We might not like the results of a detached analysis, but liking it or hating it isn't the point. The accuracy is the point.

We might disagree with the forecast and hope it isn't accurate, but we understand our opinions and hopes won't change the outcome.

If we want to prepare an appropriate response to what's coming down the pike, we're better served by cultivating a detached view that favors our own independent analysis rather than orthodoxy. In other words, our self-interest is best served by becoming self-reliant.

Consider all the standard-issue orthodoxies, neatly packaged for easy marketing / consumption: Left and Right, Conservative and Progressive, Capitalist and Socialist, etc.

I find all the orthodoxies lacking. None makes sense of the dynamics I see as consequential, so we're forced to assemble our own analysis.

In other words, we're forced to secretly dabble in heresies.

For example, the Status Quo orthodoxy holds that the world is now multipolar and the influence and power of the U.S. / West is in an inevitable decline.

The West's dominance was a bad thing, so multipolarity is a good thing.

The alternative orthodoxy holds that the U.S. / West are doomed not just to decline but to give way to the dominance of China and its partners.

The West had its day, now it's China's turn.

This orthodoxy holds the US dollar will collapse in a heap, replaced by Bitcoin, a gold-backed yuan, or a basket of non-Western currencies.

Questioning these orthodoxies is akin to declaring God is dead in 1500. It doesn't go over very well with True Believers and their enforcers.

These orthodoxies are values/identity-based rather than analytic. They project what we think should happen because it fits our value system and what we identify with.

This is why orthodoxies are so vehemently defended: to question them is to question the moral rightness of the orthodoxy.

The problem with orthodoxy is two-fold: 1) orthodoxies suppress evolution and 2) we're blinded by our emotional attachments to orthodoxies.

We don't get attached to forecasts that don't impact our values or our financial security.

If someone forecasts inflation in Lower Slobovia will rise from 8% to 10%, we don't have any emotional stake in the forecast. If inflation there rises or falls, we don't care. We don't bristle and rush to defend either forecast.

Unless we've staked a speculative bet on inflation rising in Lower Slobovia. Then we care, deeply. We're completely emotionally engaged, and ready to tear the head off anyone arguing that our position is faulty and we're going to lose the bet.

Those with no emotional stake in the issue look on us with bemusement. What's the big deal? Whatever is going to happen is going to happen, so why get worked up about it?

Indeed.

As longtime readers know, I favor looking at everything as a system. There is really only one system dynamic, Natural Selection, i.e. evolutionary success or failure when evolutionary pressure is applied.

Human societies and economies are ecosystems, too, and so their success or failure is Natural Selection at work.

Two things matter in evolution: transparency and variability. Evolution is only possible if the genome / society / economy generates a steady stream of mutations / variations.

Variations / variability are the fuel of evolution: if there are no mutations / variations, then there's nothing new being fed to the system which can offer selective advantages.

Transparency is the mechanism needed to test / select variability. In the genome, mutations that offer some selective advantage are conserved by an automatic process.

In human organizations, transparency means there's a free-for-all churn of variability / dissent, experimentation and sharing of results. New ideas and data flow freely between all the nodes of the system.

Human organizations with weak variability and transparency fail to adapt because they lack the means to do so.

This is scale-invariant. Relationships lacking variability and transparency fail, enterprises lacking variability and transparency fail, nations lacking variability and transparency fail.

Authoritarian regimes, be they relationships, enterprises or nations, fail because there is no other possible outcome other than evolutionary failure. Any success will be illusory / temporary.

Finding this regime attractive or repugnant won't change the inevitability of its failure.

Transparency is not easy. People contest our treasured orthodoxies, upsetting us. We're forced to admit to being wrong far more often than we like. It hurts our pride and we lose face, but the upside is the immense success of the evolutionary churn.

This process is scale-invariant: every argument / disagreement reflects the underlying dynamics of the system, so every negotiation to resolve the conflict reflects these same dynamics.

This process is also evolutionary. The previous negotiation may leave one side dissatisfied, and so the negotiations evolve.

From the perspective of evolutionary churn, we shouldn't grudgingly allow variations, we should elicit them, welcome them not as threats but as essential churn, and then negotiate an outcome that is evolutionary, i.e. contingent and open to being changed as conditions change.

The couple that never argues and always puts on a smiley face isn't the healthy relationship. It's evolutionarily doomed to failure because the facade of unity and happiness is not actual unity or happiness.

The lack of variability and transparency have a cost that the participants and the system pay one way or another. It can be hidden for a while but not indefinitely.

The same can be said of nations. If dissent is suppressed, data is suppressed, communication is shackled by fear of exposure or censure and all decisions are made opaquely, that regime is doomed to evolutionary failure.

The nation where all the dirty laundry is out and everybody is arguing about it is evolutionarily robust. The nation where the dirty laundry is hidden deep in the basement to preserve the illusion of unity and success has been stripped of variability and transparency.

My analytic forecast (laid out in my book Global Crisis, National Renewal) is that evolutionary success demands relocalizing production of essentials and consuming less, and all the systemic changes required to enable and incentivize this evolution.

Evolutionary pressure doesn't go away when you hide the dirty laundry. It builds up. When variability / dissent are suppressed, the system has no evolutionary fuel. Starved, it collapses.

I don't think it matters what we call the world system or what configuration aligns with our values or what we think should happen. Evolutionary pressure is building, and those organizations which choose autocratic suppression of variability / dissent and transparency will fail.

Those that defend the churn of variability / dissent and transparency will evolve, come what may.

Orthodoxies by definition have been of stripped of variability and transparency. That's what makes an orthodoxy an orthodoxy.

For this reason, evolutionary success cannot arise within orthodoxies. Dissent, variability, sharing ideas, proposing solutions and negotiating transparently are all intrinsically heretical.

Orthodoxies have mastered the illusion of adapting to changing times. Orthodoxies introduce updated catch-phrases to mask their inability to evolve.

Heresy evolves, orthodoxy cannot. Plan accordingly. Orthodoxies offer the comforting illusion of solidarity. But in what lies ahead, we're on our own. Orthodoxy is a luxury we can ill-afford. What will prove consequential is Self-Reliance.

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A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
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Thursday, January 26, 2023

The Race to the Bottom Accelerates

When competence, transparency and accountability are all punished, the Race to the Bottom accelerates.

Race to the Bottom describes the process of competitive devaluation, where value is gutted to remain competitive with those who are grabbing market share by stripping out quality, value, durability, transparency, accountability and competence.

We see the global Race to the Bottom in everyday products: the quality of goods has plummeted as manufacturers compete to reduce costs to maintain high profit margins by stripping out the quality and durability of components. We see it in shrinkflation, where the cereal box contains less cereal while the price ratchets higher.

We see it when cereals that once contained no sugar are now sickly-sweet because the manufacturer is losing market share to less healthy sugar-bomb cereals.

We see it in healthcare where costs have been so ruthlessly stripped out to boost profits that it takes months to get an appointment and overworked caregivers no longer have the "luxury" of providing the care they were trained to provide. Routine procedures and hospital stays now carry pricetags equal to four years college tuition or a modest house.

The Race to the Bottom isn't limited to goods and services. Consider the bedrock of the social order, civility. Civility in discourse is now rarer than sightings of UFOs / UAPs.

In politics, scoring cheap points while ignoring the nation's social decay and unsustainable bubble economy is another example of the Race to the Bottom. Is getting to the bottom of the Taylor Swift ticketing "fiasco" really the most pressing issue that politicians need to address? It would seem so.

In macro-economics, the Race to the Bottom is often used to describe currency devaluation: nations seek to devalue their currency to boost exports, ignoring the downside of devaluation, i.e. their citizenry's wealth is also devalued as the purchasing power of their currency is reduced to aid a relatively small cohort of exporters.

The decay of transparency, accountability and competence that manifests across a vast spectrum of public and private life is a profoundly systemic Race to the Bottom. Local governments and corporations alike seek to hide their malfeasance, greed and incompetence and evade accountability by any means available.

It's as if hiding incompetence and insider profiteering is now the most valuable form of competence. Real-world competence has decayed to the point that nobody even knows what competence is, as they've never experienced it. The same can be said of transparency and accountability: nobody's actually experienced actual transparency and consequences falling to those in positions of responsibility.

The "solution" of the incompetent is always the same: throw more money at the problem. But doubling or tripling the budget for housing the homeless or improving public transit never results in doubling or tripling the efficacy or efficiency of the failing systems. Instead, the money is squandered on insider profiteering: studies no one ever looks at, PR displays of "caring," spectacles of some new showcased 'solution" that doesn't actually work and was never intended to be anything more than a PR stunt, and so on.

In this Race to the Bottom, power flows from saying "no", not "yes." The list of "stakeholders" is endless, and every one can stall or cancel a project. Nobody's in charge except to make sure nothing gets done of any consequence.

In this Race to the Bottom, it's a major victory if each unit of homeless housing only costs $300,000 each rather than $600,000 each and a grand total of 42 units will be built--eventually, unless of course a NIMBY group or other "stakeholder" nixes the project via endless judicial filings.

No matter how much money is thrown at the system, the bus service continues its downhill slide.

When competence, transparency and accountability are all punished, the Race to the Bottom accelerates. The worst are advanced, and the race to strip value, quality and quantity out of products and services becomes a free-for-all stripmining that favors the ruthlessly greedy.

"Markets" are nothing but platforms to be manipulated and gamed to benefit the few at the expense of the many. In this Race to the Bottom, regulators are either toothless or asleep at the wheel or bought off. Everything is for sale, and auctioned off to the highest bidder.

From low earth orbit, the Race to the Bottom is accelerating on all fronts because we've lost the ability to solve problems due to the power of entrenched insiders and powerful interests who profit so immensely from keeping the corrupt, unsustainable systems of power glued together for just a bit longer so they can maximize their private gains.

That the system they've hollowed out to maximize their private gain might take them down when it collapses doesn't seem to occur to them. Their "faith" in the power of wealth is absolute, and so they think they'll be safe in their fortified compounds, super-yachts, private aircraft, etc.

But all these forms of power are contingent on the vast system they are busy hollowing out.

So go right ahead and join the race to the bottom in every nook and cranny of public and private life. All your gains will vanish with the system that's been fatally undermined by the pell-mell race to the bottom.

The Ibogaine-fueled fantasy is that we can individually pillage the system by stripping it of value, but magically escape the consequence of everyone stripping the value out to maximize their gains, i.e. systemic collapse.

Nice, until the Ibogaine wears off. That's not how reality works. Actions have consequences, and those consequences have their own consequences.



My new book is now available at a 10% discount ($8.95 ebook, $18 print): Self-Reliance in the 21st Century.

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The Asian Heroine Who Seduced Me (Novel) print $10.95, Kindle $6.95 Read an excerpt for free (PDF)

When You Can't Go On: Burnout, Reckoning and Renewal $18 print, $8.95 Kindle ebook; audiobook Read the first section for free (PDF)

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF).

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake (Novel) $4.95 Kindle, $10.95 print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 Kindle, $15 print)
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Tuesday, January 24, 2023

You Want Truly "Sound Money"? A Thought Experiment

One of the great fictions about money is that it is neutral. It isn't. It's either designed for the elites or for the citizenry.

Many proclaim a desire for "sound money," but "backed by X" currencies are not "sound money" unless they can be converted directly into X. Those proposing gold-backed currencies are trying to secure the promise of "sound money" without actually doing the hard part, which is convertibility to the underlying asset.

The only way a currency can be "as good as gold" is if it can be converted to gold. Without a conversion mechanism, the currency isn't backed by anything but an illusory connection between reserves and the currency being issued.

The only way an oil-backed currency is actually backed by oil is if the currency can be converted into an oil futures contract, i.e. a claim on actual oil. This is what made America's "gold standard" an actual gold-backed currency: other nations could (and did) demand gold in exchange for their surplus dollars.

As I've discussed elsewhere, America's geopolitical goals required running sustained trade deficits to support our allies' economies, which left these exporting nations with surplus dollars they could trade for gold. America's gold reserves were being drained and if the convertibility had been left in place, the reserves would have fallen to zero: with the gold gone, that would have been the end of the gold standard.

Rather than waste our time with illusory "backed by X" schemes, why don't we cut out the intermediary paper-digital currency and just use gold and silver as money directly in coinage? In other words, if we want truly sound money, then use intrinsically valuable metals as money.

So let's run a thought experiment on this very ancient and common-sense sound money. Please withhold your screams that "this can't possibly work!" until the end. On second thought, let's just dispense with all the quibbles right now: gold and silver coinage was "sound money" for millennia, so we know it works. If we can't make it work now, that's our fault, not the fault of precious-metal coinage as money.

Three problems immediately arise:

1. The gold reserves are not large enough at the current price.

The US currently holds 261,500,000 ounces of gold in reserve (8,133 tons). At the current price of gold around $1,900 per ounce, this stash is worth $500 billion--nowhere near enough to equal the current monetary base or money supply. Per the Federal Reserve:

Currency in circulation: $2.292 trillion.

Monetary base (currency in circulation plus reserves): $5.418 trillion.

M1 Money Supply: $9.913 trillion

M2 Money Supply: $21.327 trillion

2. The amount of "money" and "assets" that can be converted to cash floating around the world far exceed the reserves.

World individually held wealth (2022): $480 trillion

According to a report from the Boston Consulting Group, there was $27.5 trillion US dollars worth of electronic money in circulation around the world.

3. This generates the third problem: like every other asset, gold-silver coins will be bought up and hoarded by the wealthy few, leaving none for the the many to use as money.

There is no way to have a currency that circulates if every coin is immediately socked away, mostly by the wealthy both domestically and overseas.

The solution is three-fold:

1. Arbitrarily set the value of gold in the coins at $20,000 an ounce. Thus a coin containing 1/100th of an ounce is stamped with a value of 200 dollars. The value of a coin containing 1/1000th of an ounce is set at $20. The difference between the current price of gold and the $20,000 per ounce valuation in US dollars is the value of the coins being legal tender in the US.

The same mechanism could be used for silver coinage: the value of silver in the coins could be set at $250 per ounce.

This limits hoarding, at least until the global price of gold approaches $20,000 an ounce and the price of silver approaches $250/ounce.

This would set the total value of the dollar amount stamped on the coins of the US gold holdings of 261 million ounces at $10 trillion. This is roughly double the current monetary base.

2. Reverse-split the dollar 100-to-1, so $100,000 is reduced to $1,000. This will reduce the dollar-denominated "wealth" to a number more in line with the currency in circulation. A house that is currently worth $300,000 would be worth $3,000, and so on. A $1 coin would have the same purchasing power as a $100 bill today.

This would reduce total household wealth in the US from $140 trillion to $14 trillion--more in line with the monetary base of $10 trillion.

3. Make holding coins abroad illegal and subject to immediate confiscation. Furthermore, make it a federal crime to hold more than $5,000 in coinage. This limit is necessary to keep the wealthy from buying up and hoarding the nation's coinage. To enforce this, each coin must have its own unique ID stamp so it can be tracked.

This changes the coin currency from an anonymous commodity that can be acquired without limit by criminals or the wealthy to money that is intended to circulate rather than become yet another asset hoarded by the wealthy.

There are other forms of precious metals the wealthy can accumulate in vast quantities, but money for the citizenry is intended for circulation, not hoarding by the wealthy.

One could argue that the difference between the arbitrary value of the coin--a $10 coin would only have 10% of that value in precious metals--is too high for these coins to be "sound money." But this misses the point: "sound money" doesn't require the value of the precious metal set by global markets to equal the dollar value stamped on the coin.

Sound money simply means the money has an intrinsic value that isn't reliant on some intermediary mechanism such as paper or digital money supposedly "backed" by one kind of tangible asset or another--a form of money that has no intrinsic value if it can't be converted to the tangible asset itself.

Any US resident could convert their electronic dollars into coinage with intrinsic value at any bank, with a maximum of $5,000 to disable hoarding by the wealthy. Note that once the dollar is reverse-split, then that $5,000 would be enough to buy a house currently valued at $500,000.

When the electricity goes out, coins are still money.

These coins would have value for 1) containing a defined quantity of precious metals and 2) being legal tender in the US.

As noted, the value stamped on the coins has to far exceed the price of the metal to discourage hoarding. Without this vast premium for being legal tender, precious metal coinage would immediately disappear into the vaults of the wealthy.

One of the great fictions about money is that it is neutral. It isn't. It's either designed for the elites or for the citizenry. Since we've never really had a currency that wasn't designed for the wealthy to accumulate and hoard, no one even knows what a currency designed for the citizenry even looks like.

A monetary base of metal money would place strict limits on the central bank, Treasury and government spending. It would no longer be possible to conjure currency out of thin air to fill every interest group's trough or bail out the banks again. Free money for financiers would not longer be possible. Neither would giving every taxpayer "free money" to spend to support consumption. The Treasury could still sell interest-bearing bonds, but the monetary base could not be expanded by a few keystrokes.

In other words, a stable monetary base would be inconvenient for financial and political elites. There would be limits on their power and predation. But there would also be limits on the citizenry's demands. Promises made to win elections ("I'll give you more free money than my opponent") could no longer be honored with "free money" conjured out of thin air.

Living with constraints is the cost of having sound money.

This is a stone coin on the island of Yap. It's an extreme example of money. Metal coins are certainly more transportable and easier to use.



My new book is now available at a 10% discount ($8.95 ebook, $18 print): Self-Reliance in the 21st Century.

Read the first chapter for free (PDF)

Read excerpts of all three chapters

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A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
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The Adventures of the Consulting Philosopher: The Disappearance of Drake (Novel) $4.95 Kindle, $10.95 print); read the first chapters for free (PDF)

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Sunday, January 22, 2023

The 1970s: From Rotting Carcasses Floating in the River to Kayak Races

If we don't bother measuring national well-being, the health of the nation's commons and resources and advances in the public's interests, then we foolishly call a decade of tremendous advancement "stagflation."

Correspondent J.D. read The Forgotten History of the 1970s and kindly added a graphic example of the remarkable transformation wrought by the federal Clean Water Act and other environmental regulations mandating the clean-up of the nation's air and other public "commons"--the nation's biosphere and resources that we all share as an essential part of the common good and the public trust.

The point of my previous post was to explain that measuring the economy by narrow measures of "growth" and "profits" grossly distorts what's actually happening and what's actually valuable--and despite economists' delusional obsession with "growth" and "profits," it isn't "growth" or "profits."

What's actually valuable are advances in national well-being and security and the common good. These may be advanced by "growth" and "profits," but they can also be diminished by "growth" and "profits."

As Adam Smith took great pains to explain, open-market Capitalism can only function within a moral and ethical social structure. Stripped of moral constraints, "growth" and "profits" become fatal cancers in the economy and society. In and of themselves, "growth" and "profits" have no moral or ethical center; if those benefiting from "growth" and "profits" destroy the public commons and diminish the common good, those costs are ignored.

That's the problem with proclaiming "markets solve all problems." They don't; in fact, left to their no-moral-compass ways, they create horrendous problems for the many subjected to the profiteering of the few, problems that destroy public "commons," the common good and the public trust.

What better way to foster "growth" and boost "profits" than dump offal and carcasses in the public's rivers, rather than bear the costs of proper disposal? This is one manifestation of The Tragedy of the Commons, a concept clarified by Garrett Hardin in his seminal 1968 essay of the same name: if a for-profit private enterprise can offload costs of its own production onto the public, that cost savings enables faster growth and higher profits.

But who benefits from this growth and higher profits? The few who own the private enterprise. Who bears the destruction and costs? The public. Laying waste to public resources is the "market solution," and any corporate manager who dared slash profits and growth to fund proper disposal of offal will be quickly fired and sent to Corporate Siberia, as the howls of outrage from "shareholders" (a.k.a. the top 0.1%) deafen the ears of the management.

This is why America's air and water became increasingly polluted, unhealthy and ugly: dumping private-sector waste into the nation's air and water boosted "growth" and "profits." I've put these words in quotes to denote that they aren't actually expansions of anything remotely beneficial to the national interest or the American public; they were only beneficial to the few who owned and managed the for-profit private enterprises.

There are many ways for-profit private enterprises dump costs onto the public: profits are private but costs are public. Corporations can pay such low wages that their employees need publicly funded food stamps to get by. Financial companies take extraordinary risks to reap immense profits, knowing they'll get to keep the profits and the Federal Reserve and Treasury will bail them out at the public's expense.

Stripped of ethics enforced to defend the public's interests, corporations routinely lie, cheat, defraud and embezzle to boost profits, knowing the fine will be modest: just the cost of boosting profits by any means available. Consider this data base of 6,300 major corporate fines and settlements from the early 1990s to 2015 compiled by Jon Morse. No CEO or other manager paid any personal fines or served any prison time for any of these thousands of violations.

So let's be clear: the "market solution" without any regulations to defend the public's interests is rotting carcasses floating in America's rivers. The public's interests--the nation's commons and the common good--are defended by its representational government. To the degree this government is corrupted by private wealth, it fails its sacred duty to defend the public's interests. When it does its job, then the meaning of growth and profit change.

When the public's interests are defended, "growth" that benefits the few is redefined as advances in public well-being. "Profit" that benefits the few at the expense of the many is redefined as the public commons and resources profiting from wise management for the good of all rather than the few.

If we don't bother measuring national well-being, the health of the nation's commons and resources and advances in the public's interests, then we foolishly call a decade of tremendous advancement "stagflation." This "stagflation" was the direct result of the diversion of hundreds of billions of dollars (in today's money) of private profits and government tax revenues to clean up the wanton destruction of the public commons.

As I pointed out in The Forgotten History of the 1970s, additional vast, sustained investments in re-engineering the nation's industrial base to become more efficient and globally competitive eventually boosted the economy and private-sector profits.

The point here is structural transformations take time and require immense investments, time and investments that demand sacrifices of everyone--including the top 0.1% and "shareholders." If we fail to undertake needed transformations, the result is stagnation and a death-spiral down the black hole of sclerosis, corruption, greed and exploitation.

Here are J.D.'s comments and the photos he submitted:

"Your article on the role of 70s rebuild in Stagflation really hit a note with me. I was born in '58 and watched, and participated in, the transformation. I am a biologist and an environmental engineer and have worked over 34 years for a federal agency in Water Pollution.

You're right, the unmeasured wealth of a cleaner environment is huge. Allow me a single example. Here in Kansas City, the Kansas River flows into the Missouri River draining a huge watershed. For nearly 100 years the slaughter houses of the "East Bottoms" in KSMO discharged with no treatment into the two rivers. KCMO and KCK had no treatment of municipal waste. The Missouri river was foul and had fish kills.

In the 70s and 80s treatment was brought online. I came on board in '88 and have contributed to the rest of the work. Last fall we celebrated the 50th anniversary of the Clean Water Act at Kaw Point, where the two rivers meet. Now a park. We showed a picture of the site from the Nov. 1971 issue of National Geographic. Yep, that is blood, floating fat, and a cow carcass.

For the past 15 years I have worked in a 340 mile kayak race (MR340) that starts at the point. We are up to 450 boats now and thousands participate. KCMO is now building apartments and a huge women's soccer stadium on the riverfront. None of that would have been considered before."


Thank you, J.D. for the striking example. Somehow I doubt there would hundreds of kayakers and spectators anxious to participate in the Dead Carcass and Putrid Offal Regatta, nor many buyers for the Stench of Offal Condominiums.

What's more valuable in the long run? Putrid offal in the river to boost private "profits" by offloading costs onto the public commons, or a clean river? In the long run, the clean river is more valuable by any measure.

Kansas City Sewer History (video presentation, 44 min)





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Podcast with Richard Bonugli: Self Reliance in the 21st Century (43 min)


My recent books:

The Asian Heroine Who Seduced Me (Novel) print $10.95, Kindle $6.95 Read an excerpt for free (PDF)

When You Can't Go On: Burnout, Reckoning and Renewal $18 print, $8.95 Kindle ebook; audiobook Read the first section for free (PDF)

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF).

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake (Novel) $4.95 Kindle, $10.95 print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 Kindle, $15 print)
Read the first section for free


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