Friday, September 03, 2010

The Perils of Prediction

Nobody knows the future, so the best we can do is strive for an open mind and flexibility in our thinking and responses.


In 1904, the "fact-based" consensus was that rising prosperity would stretch into the future as far as imagination allowed. The prosperity was so widespread that war, it seemed, had been abolished as bad for business.


In 1904, Imperial Tsarist Russia, though suffering from the usual spot of bother now and again, was stable and enduring. In 1904, Great Britain viewed France as its continental rival.


Ten years later, advanced, peaceful, hopeful Europe stumbled into the Great War, and three years into that war Tsarist Russia fell to revolution.



In 1928, permanent prosperity was again the consensus. Two years later, that hope was reduced to ashes.


In 1930, Germany and Japan were economically troubled, as were the other great nations of the world, but neither were seen as threatening. Less than ten years later, the two nations had declared war on the world.


In 1980, fear of a sudden massive Soviet tank attack on West Germany sparked a series of "what if" books and a push for short-range nuclear-armed missiles in Germany--a U.S. plan which galvanized the Western European peace movement.


Ten years later, the Soviet Empire had crumbled into dust and abandoned gulags.


In 1975, scholars and pundits confidently declared that the "cult of Mao" which fueled China's Culutral Revolution was so entrenched, so pervasive and so central to China' Communist regime that would outlast Mao the mortal and thus into the next century.


Three years later, Mao was dead and the Gang of Four lost power. Ten years after 1975, when the Cult of Mao was universally viewed as a permanent feature of China, that nation was four years into the state-controlled, limited-capitalist model of engaging the world that created its present-day pre-eminence.


I think you see my point: consensus predictions of what the future holds are generally wrong. The consensus in the U.S. about the world of 2020 is that is won't be much different from the world of 2010. All the actuarial tables of Social Security run to 2040 and beyond, as if the road ahead will be an extension of the past sixty years of American global dominance and credit-based prosperity.


That alone tells me 2020 will not be anything remotely like 2010. We--as a nation and as a species--have squandered the past ten years pretending that magical thinking and trillions yuan/dollars/euros/yen in new debt and consumption would create a prosperity as profligate and enduring as the fifty years between 1950 and 2000.


It was a decade of "extend and pretend," and the collapse of the financial New World Order in 2008 only triggered a paroxym of "more of the same": more debt, more obscuring, more obstruction, more lies, more propaganda, more facsimiles of "reform," all launched in the name of sparking more credit-based consumption, as if credit-based consumption was the cure instead of the disease.


Magical thinking abounds, and is offered a substitute for acceptance of reality.Denial is so deep that those in denial deny they are in denial. Nothing can change the status quo because it has endured all sorts of challenges for 50 years and always emerged stronger and more tenacious.


But those challenges never included the end of cheap, abundant oil, or the implosion of a financial system run amok on exponential debt and leverage. The global supply chains were never so long or precarious, the systems never more chained together into nosebleed levels of masked vulnerability. The global demographics of a population which exceeds the carrying capacity of the planet and which is rapidly aging is unprecedented in the history of the species, stretching back 200,000 years.


Political, cultural, religious, material and financial changes are of course intertwined. But it seems to me that financial crises--major declines in financial wealth due to bubbles popping, major increases in income inequality, major declines in upward mobility and opportunity, major reductions in material wealth via drought, exhaustion of resources, war, etc.-- tend to trigger broad political changes (revolutions, wars, etc.) and broad cultural trends (renunciation of debt, fraying social order, rise of egalitarianism, etc.)


For example: while the French Revolution had many causes, it was not coincidental that prices of necessary commodities such as wheat spiked just as the Bastille was stormed; people had reached their limit and were driven by financial necessity to risk political turmoil and revolution.


For a complete analysis of these "long waves" in price, and their political consequences, please read The Great Wave: Price Revolutions and the Rhythm of History by David Hackett Fischer.


Example #2: In the popular imagination, the American Revolution was caused by "taxation without representation." While this was certainly one issue, the deeper causes included rising indebtedness to British merchants and the decline of commodity prices--two forces which put Virginian planters in an inescapable financial vise which threatened to destroy their autonomy and thus their identity and freedom.


This is addressed in depth in Tobacco Culture: The Mentality of the Great Tidewater Planters on the Eve of Revolution.


In New England, other causes held sway, but at the heart of the revolution was the rising certitude that remaining a colony of England not just threatened prosperity but American autonomy. The potential loss of these keys to economic security were sufficient to tip 40% pf the Elites and tradesmen alike into revolutionary uprising. And as we know, that 40% was sufficient to tip the entire country into a new political era.


History suggests that the potential for revolutionary change (which can also be entirely peaceful) triggered by "mere" financial crises is extraordinaraily high. As inequality continues its remorseless advance in the U.S., as broad wealth declines, as the Savior State and its private-sector cartels grab an ever-increasing share of the dwindling national income--the momentum grows for sea changes which few anticipate or even imagine as possibilities.


These are precisely the sort of broad changes in financial security and autonomy that trigger broad, revolutionary political, material, financial and cultural changes.


Anyone who believes 2020 will be more or less like 2010 is ignoring the lessons of history and engaging in what amounts to magical thinking.



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