Sunday, July 23, 2017

In the Footsteps of Rome: Is Renewal Possible?

Once the shared memories of these values are lost, the Empire ceases to exist; there is nothing left to reform or renew.
Is renewal / recovery from systemic decline possible? The history of the Roman Empire is a potentially insightful place to start looking for answers. As long-time readers know, I've been studying both the Western and Eastern (Byzantine) Roman Empires over the past few years.
Both Western and Eastern Roman Empires faced existential crises that very nearly dissolved the empires hundreds of years before their terminal declines.The Western Roman Empire, beset by the overlapping crises of invasion, civil war, plague and economic upheaval, nearly collapsed in the third century C.E. (Christian Era, what was previously A.D.) -- 235 to 284 C.E., fully two hundred years before its final dissolution in the fifth century (circa 476 C.E.).
Meanwhile, the Eastern Roman Empire (Byzantine Empire) faced similar crises in the seventh and eighth centuries, as its capital of Constantinople was besieged by the Persians in 626 C.E. and the Arab caliphate in 674 C.E. and again in 717 C.E. The invasions which preceded the sieges stripped the empire of wealthy territories and the income those lands produced.
In both cases, the Empire not only survived but recovered a substantial measure of its former resilience and stability. Fortune delivered strong leadership at the critical moment: leadership that was able to protect itself from petty, self-aggrandizing domestic rivals, force the reorganization of failed, self-serving bureaucracies, inspire the populace to make the necessary sacrifices for the common good, win decisive military victories that ended the threat of invasion, and generate a moral claim to leadership via personal rectitude and/or participation in a religious revival.
Absent such strong, stable, legitimate leadership, neither empire would have survived their existential crisis.
But strong leadership alone isn't enough. A strong military leader can win battles, and a strong political leader can aggregate power, but these are merely steps to the ultimate goal of strong leadership, which is to reform the Imperial system so it once again serves the needs of the entire Empire rather than just the greed of the few at the top of the wealth-power pyramid.
The system itself must still hold the potential to be reformed. If the systems of communication, trade, control and finance have all eroded beyond the point of no return, then the victories of a strong leader die with that leader.
The army must still have the means to recruit new legions, the Treasury must still have a system to collect tax revenues, the central leadership must have a way to communicate with far-flung commanders and local leaders, and so on.
The collective shared memory of imperial cohesion and competence must still exist in the general populace. Any political group identity, be it tribe, village, nation or empire, is anchored by a shared awareness of membership, i.e. the rights and responsibilities of belonging, and a collective memory of the group / empire as a functioning whole that served the many and not just the few.
Once the shared memory of the Empire as a functioning whole is lost, the entire notion of empire is lost.
The leadership in these existential crises of the third century C.E. in the West and the eighth century in the East could still draw upon a collective memory of a functioning empire. Residents had not yet lost the shared memory of serving in the army, of paying taxes, of stable trade protected by the Empire, of a stable Imperial currency, and so on.
Once the shared memories of these values are lost, the Empire ceases to exist; there is nothing left to reform or renew.
We are far down the road to a system that serves the few at the expense of the many. The collective memory of a system that once served the common good is fading. Strong leadership can still wrest popular political power from the self-serving elites atop the wealth-power pyramid and wield this political power to reform the system so it serves the many instead of just the few, but the window for such reform /renewal is closing fast.
In another decade, a living system that served the common good rather than just the interests of a few will be as distant as the shattered monuments of ancient Rome.


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Thursday, July 20, 2017

When We Can No Longer Tell the Truth...

Lies, half-truths and cover-ups are all manifestations of fatal weakness.
When we can no longer tell the truth because the truth will bring the whole rotten, fragile status quo down in a heap of broken promises and lies, we've reached the perfection of dysfunction.
You know the one essential guideline to "leadership" in a doomed dysfunctional system: when it gets serious, you have to lie. In other words, the status quo's secular goddess is TINA--there is no alternative to lying, because the truth will bring the whole corrupt structure tumbling down.
This core dynamic of dysfunction is scale-invariant, meaning that hiding the truth is the core dynamic in dysfunctional relationships, households, communities, enterprises, cities, corporations, states, alliances, nations and empires: when the truth cannot be told because it threatens the power structure of the status quo, that status quo is doomed.
Lies, half-truths and cover-ups are all manifestations of fatal weakness. What lies, half-truths and cover-ups communicate is: we can no longer fix our real problems, and rather than let this truth out, we must mask it behind lies and phony reassurances.
Truth is power, lies are weakness. All we get now are lies, statistics designed to mislead and phony reassurances that the status quo is stable and permanent. The truth is powerful because it is the core dynamic of solving problems. Lies, gamed statistics and false reassurances are fatal because they doom any sincere efforts to fix what's broken before the system reaches the point of no return.
We are already past the point of no return. The expediency of lies has already doomed us.
Honest accounts of hugely successful corporations that implode share one key trait: in every case, managers were pressured to hide the truth from top management, which then hid the truth from investors and clients.
This is the key dynamic in failed oligarchies as well: if telling the truth gets you sent to Siberia (or worse), then nobody with any instinct for self-preservation will tell the truth.
If obscuring the truth saves one's job, then that's what people do. That this dooms the organization is secondary to immediate self-preservation.
A distorted sense of loyalty to the family, community, company, institution, agency or nation furthers lying as the "solution" to unsavory problems. Daddy a drunk? Hide the bottle. Church a hotbed of adultery and thieving? Maintain the facade of holiness at all costs. Company products are failing? Put some lipstick on the pig. The statistical truth doesn't support the party's happy story? Distort the stats until they "do what's needed." The agency failed to fulfill its prime directive? Blame the managerial failure on a scapegoat.
Pathological liars and cheats rely on self-preservation and misplaced loyalty to mask their own failure and corruption. A hint here, a comment there, and voila, a culture of lying is created and incentivized.
Obscuring the truth is the ultimate short-term expediency.Now that it's serious, we have to lie.We'll start telling the truth later, after everything's stabilized.
But lying insures nothing can ever be truly stabilized, so there will never be a point at which the system is strong enough and stable enough to survive the truth.
We are now an empire of lies. The status quo--politically, socially and economically- depends on lies, half-truths, scapegoats and cover-ups for its very survival. Any truth that escapes the prison of lies endangers the entire rotten edifice.
In an empire of lies, "leaders" say what people want to hear. This wins the support of the masses, who would rather hear false reassurances that require no sacrifices, no difficult trade-offs, no hard choices, no discipline.
The empire of lies is doomed. Lies are weakness, and they prohibit any real solutions. Truth is power, but we can no longer tolerate the truth because it frightens us. Our weakness is systemic and fatal.



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Wednesday, July 19, 2017

The Death Spiral of Financialization

Each new policy destroys another level of prudent fiscal/financial discipline.
The primary driver of our economy--financialization--is in a death spiral. Financialization substitutes expansion of interest, leverage and speculation for real-world expansion of goods, services and wages.
Financial "wealth" created by leveraging more debt on a base of real-world collateral that doesn't actually produce more goods and services flows to the top of the wealth-power pyramid, driving the soaring wealth-income inequality we see everywhere in the global economy.
As this phantom wealth pours into assets such as stocks, bonds and real estate, it has pushed the value of these assets into the stratosphere, out of reach of the bottom 95% whose incomes have stagnated for the past 16 years.
The core problem with financialization is that it requires ever more extreme policies to keep it going. These policies are mutually reinforcing, meaning that the total impact becomes geometric rather than linear. Put another way, the fragility and instability generated by each new policy extreme reinforces the negative consequences of previous policies.
These extremes don't just pile up like bricks--they fuel a parabolic rise in systemic leverage, debt, speculation, fragility, distortion and instability.
This accretive, mutually reinforcing, geometric rise in systemic fragility that is the unavoidable output of financialization is poorly understood, not just by laypeople but by the financial punditry and professional economists.
Gordon Long and I cover the policy extremes which have locked our financial system into a death spiral in a new 50-minute presentation, The Road to FinancializationEach "fix" that boosts leverage and debt fuels a speculative boom that then fizzles when the distortions introduced by financialization destabilize the real economy's credit-business cycle.
Each new policy destroys another level of prudent fiscal/financial discipline.
The discipline of sound money? Gone.
The discipline of limited leverage? Gone.
The discipline of prudent lending? Gone.
The discipline of mark-to-market discovery of the price of collateral? Gone.
The discipline of separating investment and commercial banking, i.e. Glass-Steagall? Gone.
The discipline of open-market interest rates? Gone.
The discipline of losses being absorbed by those who generated the loans? Gone.
And so on: every structural source of discipline has been eradicated, weakened or hollowed out. Financialization has consumed the nation's seed corn, and the harvest of instability is ripening in the fields of finance and the real economy alike.



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Check out both of my new books, Inequality and the Collapse of Privilege($3.95 Kindle, $8.95 print) and Why Our Status Quo Failed and Is Beyond Reform($3.95 Kindle, $8.95 print, $5.95 audiobook) For more, please visit the OTM essentials website.

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Tuesday, July 18, 2017

The Over-Quantification of Life

The idea that all endeavors can be distilled down to statistics has put us in the Over-Quantification Box.
Correspondent Chad D. recently submitted a thought-provoking commentary on the Over-Quantification of Life:
"I think you could constructively explore the over-QUANTIFICATION of the US. Or we could call it the Wal-Martization of the US. The only that that counts is a number (i.e. price, sales, clients, patients, tickets, arrests, convictions, fines, sex partners, scores, averages, etc.).
What is missing is quality. I think you've mentioned something similar before talking about junk products with a short lifespan, but this way of doing things pervades our society.
I would argue that in nearly every area of society, quantity rather than quality rules the day. In the Criminal Justice system, officers and their immediate supervisors are evaluated based on how many tickets/arrests are made and/or how many complaints are answered. Prosecutors are judged by how many defendants go to jail. Judges are judged by how many cases they clear and how many cases are on their docket. Prisons want more prisoners. Legislators are rated on how many laws they passed. I remember Ron Paul was castigated for not passing many if any laws while in office.
I could go on with banking, investing, medicine, education, sports, farming, etc. Quality has been left in the dust by the system. The quality that remains is due to the good people who are still in the system. I don't know what really drives this phenomena, but I would say that usury is part of it. Usury demands that the system go ever faster to 'produce' more and more to feed its ever hungry stomach.
But there must be something more to it than that. Ideas/thoughts?"
Thank you, Chad, for an insightful introduction to a profound topic we all experience in daily life.
Let's start with Chad's reference to usury, i.e. interest on debt. When we borrow money, the interest we pay over the term of the loan can add up to far more than the sum borrowed, depending on the rate of interest and the duration of the loan.
Over time, indebtedness and the interest due on all the debt diminishes the net income remaining to pay for everything other than interest, and the household/ state / economy is hollowed out.
This is one reason for the biblical notion of debt jubilees, in which all debts are periodically forgiven to remove the drag of debt on debtors and the economy at large.
The only way to sustain expanding debt is 1) inflation, which enables borrowers to pay interest with "cheaper" money and 2) expanding income.
Let's say I owe $10,000, and my annual wage is $30,000. With modest but sustained inflation, my wage eventually doubles (assuming it keeps up with inflation) while my debt remains $10,000 minus whatever principal I've paid.
Alternatively, if inflation is near-zero but my wage rises by 10% a year, eventually my wage will double to $60,000, while my debt remains $10,000 minus whatever principal I've paid.
I think Chad is describing something rather subtle but very real: expanding debts require an equivalent expansion of income, i.e. productivity, to provide debtors with enough income to service the rising debt loads and have enough left to pay the rest of their obligations and to fund the consumption the economy depends on for growth.
This is a driver of demand for increased productivity that is rarely if ever recognized. This demand for increased productivity then drives the over-quantification of the processes and outcomes of every sector and endeavor.
If we think back to the early days of industrialization, a key tool to identify bottlenecks in production and improve productivity was breaking down the entire process into discrete steps that could be measured and quantified.
Quality control was also quantified, which enabled the gradual improvement not just of production but of the quality of the output. This is the foundation of the Deming Prize for Development of Quality Control/Management in Japan, which recognizes contributions to Total Quality Management (TQM).
The prize honors Dr. W. Edwards Deming, who taught that "by adopting appropriate principles of management, organizations can increase quality and simultaneously improve productivity."
It was all too natural, if fundamentally false, to reckon that these same statistical tools of quantification could be profitably applied to every field, from education to criminal justice to healthcare.
While certain aspects of these endeavors might benefit from being measured, counted and quantified, the idea that all endeavors can be distilled down to statistics has put us in the Over-Quantification Box Chad described: by relying solely on quantification, we've lost a truly useful sense of quality and outcome.
There are multiple problems with quantification. I often mention the key flaw: we only recognize what we measure. If it isn't measured, it simply ceases to exist in a quantified world.
Another flaw: many activities and endeavors cannot be distilled down to statistics. We can go through the motions of counting something or other, but this process misses the essence of the endeavor or process.
We're also tempted to invoke flawed methods of measure. Take the system many colleges now use in which students are invited to rate (quantify) their professors.
Any such survey method is self-selecting, i.e. the students who choose to rate their professors are self-selected. So if the 20% who dislike a teacher complete the survey while the 60% who liked the teacher do not, the teacher's rating will be harmfully inaccurate.
Students are not unbiased observers. Those who received poor grades might seek a form of payback by giving the offending professor low marks.
There are even subtler flaws in what we measure and how we measure. In a previous Musings Report, I discussed the World War II-era damage reports on aircraft returning from bombing missions over Nazi Germany. The idea was to study the damage inflicted by fighters and flak with an eye on strengthening the aircraft's weak points.
Mathematician Abraham Wald hit on a profound flaw in the methodology: the really important damage reports could not be filed, because it was the bombers which had been shot down that held the vital clues to the aircraft's weaknesses. The aircraft that had been shot down could not be studied, so they effectively ceased to exist. This fatally distorted the results of the statistical analysis.
Here is a link that describes the study: Survivorship Bias
The goal of improving productivity is laudable, but justice (and many other aspects of human society) cannot be reduced to counting convictions. This dependence on quantification creates perverse incentives to game the system and push up the numbers to evoke a success that is phantom.
The infamous "body counts" of the Vietnam War come to mind, as do prosecutors' heavy reliance on plea bargaining to up their conviction count.
Students are now slavishly instructed to serve one goal: to improve their scores on tests that like the WWII bomber study, ignore what cannot be measured easily, yet is actually vital.
Quantification is easier than actually studying complex problems and situations, and it can generate an illusion of knowledge and insight. This is the danger of over-quantification and Big Data, that is, the over-reliance on over-quantification to make assessments and judgments about endeavors in which the key dynamics and meanings cannot be captured or illuminated by quantification alone.
This essay was drawn from Musings Report 27. The Musings Reports are emailed weekly to major contributors ($50 or more annually), subscribers and patrons ($5 or more monthly).


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Monday, July 17, 2017

Why 2017 Is Like 1969

1969-2017: and here we are again, in so many ways.
A deeply polarizing new president, a disastrously misguided official narrative that the political Establishment doggedly supports despite a damning lack of evidence, and an economy teetering on the edge of recession--and worse.
Sound familiar? Welcome to 1969 redux. The similarities between the crises unfolding in 1969 and the present-day crises are not just skin-deep--they're systemic.
Consider the basic parallels.
1. Nixon was if anything more polarizing than Trump. If there was any politician Democrats loved to hate, it was Nixon. Yet Nixon won a close race against an Establishment Democrat, at least partly because he ran as a "peace candidate" and because he spoke to the Silent Majority who disagreed with the nation's direction. The Silent Majority was mocked and ridiculed by the mainstream media as racist, close-minded deplorables.
2. The Democratic Party had become the Establishment bastion of war-mongering. The Democratic White House had been obscuring its devastating strategic and tactical miscalculations behind a slick PR campaign and a pervasive and often illegal program of suppressing dissenters and whistleblowers.
3. At the behest of the Establishment, an immense propaganda machinery had been running full-tilt to paper over foreign-policy failures and tragedies (including but not limited to the Vietnam War). In 2017, this immense propaganda machine is focused on discrediting the Trump presidency by unearthing or fabricating evidence of collusion with our default Bad Guy, Russia.
4. The political Establishment had decided to tamp down discontent with the Vietnam War by borrowing vast sums to pay for both "guns" (the war) and "butter" (the Great Society social welfare programs). Paying for the war and a military capable of fighting one-and-a-half other wars (at that time, the Pentagon was geared to fight 2.5 wars) would have required some sacrifice in domestic spending, and that would have further inflamed popular resistance to the Vietnam War. The expedient (and predictably disastrous) choice was to ramp up deficit spending so no domestic sacrifice was needed to pay the crushingly high costs of the Vietnam conflict. In 2017, U.S. public debt basically doubled during the Obama/congressional guns and butter borrowing spree from $10 trillion to $20 trillion.
5. The U.S. economy had by most measures topped out in 1966 or 1967, and by 1969 the veneer of permanently rising prosperity was shredding. The first wave of globalization washed ashore as our enemies and allies in World War II had built powerful export economies that had the advantage of cheap currencies via a vis the U.S. dollar.
6. China was a potentially destabilizing force that threatened U.S. hegemony in the Pacific. In 1969, China was deep in the chaotic throes of the Cultural Revolution which decimated its educated and leadership classes and destroyed much of its physical cultural heritage. In 2017, China's monumental economic growth is losing steam even as its designs to establish hegemony in the South China Sea increasingly threaten its Asian neighbors' security.
7. The Cold War with the U.S.S.R. was heating up in numerous places around the world, including the Mideast and Southeast Asia.
8. Beneath the relative stability of the Cold War geopolitical stand-off, the global economy and social order was changing in profound ways. Technological advances were poised to fatally disrupt many established and supposedly permanent centers of power. Trade and capital flows were shifting in ways that undermined the Bretton Woods currency order, and social/cultural revolutions were spreading around the globe like wildfire.
9. The mainstream media parroted the official narratives and "facts" until the counter-evidence was too overwhelming to ignore.
And here we are again, in so many ways. A deeply polarized nation, angry over rising expectations that no longer match economic realities, an Establishment that doubles down on failed policies and narratives rather than admit catastrophic errors of judgment, a political order that pursues public relations and "signaling" over substance, a political/ financial Elite that chooses political and economic expediency, kicking the can down the road rather than tackle thorny problems head-on, a stagnating economy that is poised on the precipice of profound technological and social disruption, and a global order that is fraying and coming apart at the seams.
The decade following 1969 was one of multiple global disruptions in the political, social, energy, geopolitical, currency and economic spheres. The difference now is that the buffers that existed in 1969 are now paper-thin, and so the potential downside of disruption and instability is much, much greater.
Our Financial Buffers Are Thinning


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