Lots of Solutions, But for Which Problems?

If the "solutions" being offered are features of self-liquidating systems, they aren't solutions, they're problems.

Problems, problems, problems. No worries, we have solutions. Solutions abound, but the question is: are they actually resolving the core problems, or are they "solutions" that leave the real problems untouched so the status quo remains safely intact?

We've become so accustomed to top-down "solutions" in the contexts of Big Government, Finance and Technology that we risk misdiagnosing the key problems in favor of defining "problems" that are ready-made to be "solved" by the current toolbox of top-down "solutions" offered by Big Government, Big Finance and Big Tech.

By way of analogy, it's like being told the "solution" to our problem is a new prescription for eyewear when the actual problem is a potentially fatal melanoma skin cancer. Yes, maybe getting a new prescription would be useful, but in the context of the problem being left unaddressed--a cancer threatening to metastasize throughout the entire system--this "solution" is revealed as a solution that leaves the real problem in a run-to-failure trajectory.

What are the core problems we face? There are many candidates, but these two top my list. Unsurprisingly, they're not even on the conventional lists of pressing problems needing solutions.

Problem #1: an industrial economy needs most participants to have ample discretionary income left after paying for essentials to consume the vast output of non-essentials produced by the economy. If the lion's share of income and capital accumulation flow to a relatively narrow elite--in the status quo, that's around 5% of households--then the industrial economy collapses as there are not enough consumers with sufficient discretionary income to buy all the goods and services being produced at a profit for the producers.

Such an economy is neofeudal in structure as a nobility can consume luxuries but not the enormous output of an industrial economy. This neofeudal economy is self-liquidating, as producers shut down production due to lack of demand, laying off their workforce, who no longer have insufficient discretionary income to spend freely, further reducing demand.

We've filled the hole of declining discretionary income with money borrowed from future income (debt) and "free money," the pool of liquidity/excess capital created by central and private banks out of thin air that can be lent at interest.

If the rate of interest is near-zero (or better yet, lower than the rate of inflation), consumers can borrow and spend freely despite a decline in their discretionary income because the cost of servicing their rising debt remains low.

Regardless of the rate of interest, the cost of servicing debt eventually consumes the discretionary income. Unable to borrow more, discretionary spending collapses, taking the economy down with it.

Analyst Tim Morgan described an important feedback in his work on Contracting discretionary affordability:

"Contracting discretionary affordability doesn't just mean that the individual has to spend a rising proportion of his or her income on necessities, and can afford progressively less non-essential purchases.

It also puts increasing pressure on the ability of the household sector to carry a greatly enlarged burden of debts and quasi-debts."

These are the dynamics of depressions: debt is substituted for income, fueling speculative demand for assets that pushes asset valuations to the moon, expanding the collateral for more borrowing, which pushes consumption higher. Everything is splendid until:

1) the cost of servicing all this new debt consumes discretionary income, and 2) as this reduces new borrowing, asset valuations fall, reducing collateral and forcing banks to tighten credit, which 3) leads to marginal borrowers defaulting on debt, resulting in loans being called, assets seized and sold off for pennies on the dollar, and the collapse of consumption, asset bubbles and employment.

IN other words, filling the gap opened by declining discretionary income with debt is self-liquidating, as servicing the debt eventually consumes all discretionary income, resulting in the decline and eventual collapse of 1) credit, 2) asset bubbles, 3) income and 4)spending, which leads to the collapse of the industrial economy.

It's unclear how the conventional bag of "solutions" can change the self-liquidating dynamic of declining discretionary income being offset with soaring debt. That this is the core dynamic of our economy is papered over or denied, suggesting that even recognizing this dynamic is potentially destabilizing to the status quo of mainstream economists and pundits.

Problem #2: the cost of extracting, processing and shipping the resources consumed by the Waste Is Growth Landfill Economy is rising as the easy-to-access supplies have been exploited and global demand has soared. History is rather definitive in this regard: all organisms, humans included, expand their population and "economy" to consume all available resources.

The conventional "solution" is clever engineers will find ways to keep extracting more of everything, or conjure unlimited substitutes for whatever has become too costly to extract, process and ship at prices the bottom 80% can afford. If we need 20% more of everything every year to sustain "growth,", we'll find "solutions": we'll go deeper, farther afield, etc. to get 20% more of everything we need to expand consumption indefinitely.

The unspoken corollary to this "solution" is we'll use financial trickery to fund this endless expansion. The core financial trick is to conjure "money" out of thin air by borrowing it into existence. The hitch to this perpetual motion machine is the newly created money demand payments of interest.

The "solution" is to just create the "money" without interest, and the hitch here is when "money" is created in excess of the production of goods and services, the value of the "money" declines accordingly. Again, history is definitive about this, regardless of the claims of Modern Monetary Theory (MMT) that governments can create money in unlimited quantities without any ill effect. No historical examples of this claim exist.

Given the grip of "growth" in our The Mythology of Progress, the idea of having a nice life while consuming less is taboo. By way of example, as an experiment here at home we made a few simple modifications of behavior and reduced our electrical consumption by 20%. We made no sacrifices in comforts or convenience, we simply reduced completely useless waste.

Few seem to ask, growth of what? Is growth of waste, growth of debt, growth of planned obsolescence, growth of forever chemicals and microplastics--are all these forms of growth essential for advancing our quality of life, or are they all manifestations of Anti-Progress that actively reduce our quality of life?

There are no definitive solutions, there are only experiments that generate feedback which we can use to refine adaptions or we can ignore, increasing our peril. Some solutions might help alleviate some problems, but the danger here is we're focusing on getting a new prescription for eyewear and ignoring the fast-growing cancer.

It's not always easy to diagnose first causes, and we can start by asking cui bono--to whose benefit?--of every solution being offered.

If the "solutions" being offered are features of self-liquidating systems, they aren't solutions, they're problems being piled on an expanding mass of inter-connected problems. This graphic depicts the nature of sorting problems from solutions, problems masquerading as solutions, faux solutions, and problems being redrawn to fit "solutions" that leave a self-liquidating status quo profitably intact.



Someone asked how my scribblings help readers. It seems to me that correctly identifying the core problems is helpful, as is an informed skepticism that top-down policies / financial tricks / technologies will fix everything so we don't have to change anything in our own lives.

In conclusion: if the problem is limitless growth, then all the "solutions" are self-liquidating. If the problem is the quality of life, then the set of solutions will be completely different. I think it's helpful to focus on solutions to quality of life issues that are within our control, rather than Anti-Progress "solutions" to the imaginary "problem" of pursuing eternal expansion of consumption.


New podcasts:

SPECIAL REPORT: Did China's DeepSeek Just Pop The AI Stock Bubble? (56 minutes)

CHS on Geopolitics and Empire: Anti-Progress, Resource Constraints, & Digital Neofeudalism (1:29 hrs)

KunstlerCast417: Charles Hugh Smith, Progress and Anti-Progress (1 hour)

Charles Hugh Smith on the Extremes in the U.S. Economy and Markets. (26 min)

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