Tuesday, September 27, 2022

Chart a Course To Self-Reliance

Self-reliance in the 21st century is uniquely challenging because we've become overly dependent on globalization abd financialization.

As things unravel, the one surefire strategy is to chart a course for greater self-reliance. Improving self-reliance has no downside, only upside, and everyone can increase their self-reliance incrementally in small ways.

Self-reliance isn't the same as self-sufficiency. Even Thoreau on Walden Pond used manufactured tools and supplies sourced from afar. The basic idea of self-reliance is to reduce our dependency on long, fragile supply chains and the hamster-wheel landfill Economy of planned obsolescence and waste is growth consumption, and increase what we can do for ourselves and those we care about.

Self-reliance isn't going it alone, it's assembling trusted personal networks as a producer as well as a consumer, as a means of reducing the number of links in your personal supply chain and increasing local sources of life's essentials.

Self-reliance increases as we acquire skills and capital in all its forms. Self-reliance isn't the same as money; what's truly valuable can't be bought: trust, reciprocity, integrity. Those are the foundations of self-reliance.

Self-reliance in the 21st century is uniquely challenging because we've become overly dependent on globalization and financialization--not just on traditional supply chains and finance, but a near-total dependence on hyper-globalized supply chains and hyper-financialized credit-asset bubbles that are inherently unstable and unsustainable.

There's no downside to becoming more self-reliant and enormous upside. If the Landfill Economy continues chewing through the planet's dwindling resources, it doesn't diminish the value of being able to do more for ourselves and those we care about.

But if long, fragile supply chains break and hyper-financialization blows a gasket and sinks, the self-reliant will have a much easier time than those with minimal self-reliance. We're only powerless if we cede all power over our lives to others. Self-reliance is all about taking control of our own lives rather than relying on unsustainable global supply chains and centralized authorities to provide us with essentials.

I address all this in my new book Self-Reliance in the 21st Century (96 pages). I'm offering it to my readers at a 20% discount for the Kindle edition ($7.95) and 15% discount for the print edition ($17).

You can read the first chapter for free (PDF). In later chapters, I cover the mindset of self-reliance and the nuts and bolts of self-reliance.

I wrote this book not as someone on the peak looking down but as someone on the trail looking up. Self-reliance is a work in progress, not a destination. I'm constantly improving my self-reliance, too, and have a long way to go. I wrote this book to offer a few pointers on charting your own course to greater self-reliance.





My new book is now available at a 20% discount ($7.95 ebook) 15% discount ($17 print) this week: Self-Reliance in the 21st Century.


My recent books:

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 $1.29 Kindle, $8.95 print); read the first chapters for free (PDF)

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


Become a $1/month patron of my work via patreon.com.




NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, Melissa B. ($50), for your marvelously generous contribution to this site -- I am greatly honored by your steadfast support and readership.

 

Thank you, Jeff W. ($5/month), for your superbly generous pledge to this site -- I am greatly honored by your support and readership.

Read more...

Monday, September 26, 2022

Loonshots and Collapse

The momentum of franchise success and centralization of power are fatal.

Loonshots are like moonshots, only crazier and trickier to commercialize. Author Safi Bahcall titled his book on how to nurture change-the-world innovations Loonshots: How to Nurture the Crazy Ideas That Win Wars, Cure Diseases, and Transform Industries.

But as Bahcall persuasively argues, loonshot innovations aren't enough. You also need to nurture franchises that commercialize the innovations into products and services that pay the bills and fund the search for loonshot.

Bahcall identifies two kinds of loonshots: product and system. One of his examples: the 747 Jumbojet was a product innovation, the SABRE airline reservation software was a system innovation. Both are essential.

The book has much to say about structuring organizations--corporations and agencies--to encourage the fragile emergence of loonshots and commercialize them into change-the-world products and services. Organizations that excel at fostering innovations often fail to capitalize on their discoveries, and Bahcall identifies two sources of this failure: the supreme leader who leads the organization astray with hubristic self-confidence, and the organization lacking managers with the means to push the innovation into production / adoption.

Near the end of the book, Bahcall explores a topic that has engaged historians for decades: why didn't China capitalize on its vast trove of change-the-world innovations? Why didn't China leverage its monumental technological advantages from 1500 to 1800 to dominate the world?

This has long been of interest to me, and I found the book The Man Who Loved China: The Fantastic Story of the Eccentric Scientist Who Unlocked the Mysteries of the Middle Kingdom helpful in providing context. It's the story of Joseph Needham and Lu Gwei-djen's assembly of the multi-volume Science and Civilisation in China.

Setting aside the many specifics of China's culture and history, we can identify general principles for this systemic failure to capitalize on innovation within organizations. These principles are scale-invariant, meaning they operate at the level of small enterprises, corporations and nations.

When the organization's franchises are successful, there's little selective pressure to gamble on innovations. Scaling innovations up (i.e. commercializing to ubiquity) is tricky and failures are the norm. Taking chances on new ideas and products is risky. As the Loonshots book explains, there are false start failures where the initial product is tossed aside as a failure but the problems were fixable.

When the franchise of an empire or movie studio is running smoothly, the risks of investing in loonshots are daunting. The inevitable failures will not only hurt the bottom line, sucking up capital, they are risky for managers promoting the innovations.

Even worse, the innovation might morph into a threat to the core franchise and thus the organization's dominance and leaders. Some folks in the lab invent digital cameras while the franchise's dominance and revenues are based on selling film--hmm, what to do? How about burying the innovation as needlessly risky?

The greater the centralization, the stronger the risk aversion and the greater the odds of the supreme leader making a catastrophic error of judgement. As the supreme leader moves from success to success, critics are dismissed as naysayers and the inner circle fears being cashiered / sent to Siberia, so over time the supreme leader is surrounded by sycophants and toadies who serve their own ambitions by praising the supreme leader's every move and elevated self-glorification.

In this self-reinforcing feedback loop, the decay of the core franchise is rationalized, ignored or discounted. Bad news is unwelcome, and anyone who gives voice to the news risks elimination from the leadership pool. All the system incentives favor downplaying the decay of the franchise or cloaking it with massaged statistics.

In this sealed echo-chamber, the supreme leader coasts along, confident everything is peachy while the empire, army, trade and the currency all slide toward collapse. The worse it gets, the greater the danger for those who dare to reveal the true measure of the decline.

Better to game the numbers and announce you met your quota / sales number.

In other words, the momentum of franchise success and centralization of power are fatal. When you're making steady profits from selling typewriters, why invest in some crazy homebrew computer thingy that might sink the company if it fails and kill typewriter sales if it takes off? Since our division lives and dies on typewriter sales, who is dumb enough to support some innovation that has the potential to destroy everything we've built and everything that enables our success?

And what organizations dominate the planet? Hyper-centralized franchises, states and corporations alike. The selective pressure favors protecting the franchise from innovation, because innovation could upset the entire apple cart. So centralized organizations only support innovations that increase the power of centralized authority.

But that's not how innovation works. As the franchise decays and the supreme leaders start believing their own PR and making catastrophically misguided decisions in an echo-chamber of cheering toadies, the whole system slips into a non-linear dynamic that ends in a dramatic phase change, the collapse of the franchise and all those who clung to it as no-risk and permanent.

Stifle decentralization and dissent and you stifle innovation. With potentially threatening loonshots safely buried, the system has only one pathway: decay and collapse.





My new book is now available at a 20% discount ($7.95 ebook) 15% discount ($17 print) this week: Self-Reliance in the 21st Century.


My recent books:

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 $1.29 Kindle, $8.95 print); read the first chapters for free (PDF)

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


Become a $1/month patron of my work via patreon.com.




NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, Rick A. ($108), for your outrageously generous contribution to this site -- I am greatly honored by your steadfast support and readership.

 

Thank you, Elon G. ($54), for your superbly generous contribution to this site -- I am greatly honored by your support and readership.

Read more...

Friday, September 23, 2022

2022-2030: Transformation or Stagnation?

Some decades are easy and expansive, others are painful but necessary to lay the foundations for future progress.

Many people reject the idea of historical cycles due to their imprecision. I understand the appeal of this objection, but it is nonetheless striking that transformative decades tend to manifest in cycles rather than evenly over time.

Compare the decades of the past 70 years: 1952 to the present. How different was the culture and economy of the U.S. between 1952 and 1959?

While there was progress in civil rights and prosperity, the zeitgeist (the look, feel, values, expectations, beliefs, outlook, mood, etc.) of 1959 was not much different from that of 1952: clothing, films, the Cold War, segregation, etc. were identifiably in the same era.

Elvis, Chuck Berry, et al. enlivened popular music, but the overall impact of rock/R&B was limited to entertainment and youth culture.

Now compare the zeitgeist of 1962 and that of 1969. The zeitgeist of 1969 was nothing like the zeitgeist of 1962. It wasn't just clothing and music that changed; the values, expectations, beliefs, outlook, mood, and the political, social and economic structures had been transformed in ways that reverberated for decades to come.

The 1960s were not just tumultuous; the decade was transformative. The civil rights, feminist and environmental movements changed laws, values, culture, politics, society and the economy. Economically, the stagflation of the 1970s was a consequence of changes that occurred in the 1960s, much of it beneath the surface.

In 1969, the popular music from fifty years before (1919) might as well have been the music of a previous century. Yet here in 2022 the music of the late 1960s and early 1970s is still listened to, purchased and influential today, 50+ years later.

Cycles are often the result of the interconnecting forces of wars, economic turmoil, energy/food scarcities and large-scale economic and social forces: the transition from wood to coal, for example, or the mass immigration generated by crop failures and poverty.

The 1920s is another example of a decade of rapid transformation that laid the groundwork for the Great Depression of the 1930s. New freedoms of personal expression made the 1920s different in look and feel from the immediate post-World War I era of 1919-1920.

The 1870s was another decade that transformed economies and societies globally. The investment boom in railroads following the end of the American Civil War, the reparations imposed on France after the Franco-Prussian War of 1870, the end of silver coinage in the U.S., a speculative stock market boom in Europe that crashed in the Panic of 1873--all these dynamics reinforced each other, leading to a global depression that by some accounts lasted into the 1890s.

Yet despite the failure of railroads and banks and widespread unemployment and suffering, the Second Industrial Revolution continued transforming economies as coal, iron, steel, manufacturing, transport and urbanization all changed the underpinnings of global economies.

The western powers' industrial expansion drove colonization and reactions to colonization such as the Meiji Restoration of 1868 transformed Japan.

We can of course detect change in every decade of human history, but Lenin's famous exaggeration ("There are decades where nothing happens; and there are weeks where decades happen") speaks to the way various dynamics build up beneath the surface, interact with other forces and then burst forth.

Could the world of 2030 look and feel completely different from the world of 2022, which is still coasting on the excesses of the waste is growth Landfill Economy of extreme financialization and globalization?

My guess is yes. Previous cycles emerged from financial excesses of either expansion or contraction, the aftermaths of wars, deep economic changes as energy sources expand (shifts from wood to coal and then to oil) or contract (forests depleted) and climate change (the "years without summer" in the 1630s, etc.).

Though many believe the next energy expansion is starting (fusion or other nuclear power, solar/wind), the practicalities of physics, resource depletion and cost provide little support for these projections.

For example, the U.S. would need to build hundreds of nuclear reactors in the next 20 years to make a dent in hydrocarbon consumption, yet only two reactors have been built in the past 25 years.

There is no evidence that the resources, material and financial, and the political will required to build 500 reactors in the next 20 years are available.

If a massive quantity of wind and solar power is installed over the next 20 years, all the systems that are 20 years old will need to be replaced because they're worn out. These aren't renewable, they're replaceable.

Thus we face an energy contraction at the same time as the extremes of financialization and globalization that have driven expansion unravel.

This unraveling won't be linear, i.e. gradual and predictable. It will be non-linear and unpredictable, with apparently modest changes collapsing supply chains and speculative excesses.

Extremes of inequality and repression act as pendulums. Once they reach the maximum endpoint of momentum, they reverse and trace a line to the opposite extreme, minus a bit of friction.

Many of these dynamics are already visible. What's not yet visible is the rapid acceleration and mutual reinforcement of these dynamics.

Eras of expansion may be liberating and fun, but there is no guarantee that the liberation and fun will be evenly distributed.

Eras of contraction are rarely fun, and the misery is widely distributed. Whether we like it or not, the era of the waste is growth Landfill Economy is ending in what promises to be a non-linear process.

But that doesn't mean the eventual result won't be positive. Tumultuous transformations can set the stage for more widely distributed prosperity and liberation. Some decades are easy and expansive, others are painful but necessary to lay the foundations for future progress. Which will 2022-2030 be? Stay tuned.

The music of the late 1960s was remarkably different from the music of 1962--not to mention 1952 or the popular music of fifty years earlier in 1919.









An essay on this topic was first published as a weekly Musings Report sent exclusively to subscribers and patrons at the $5/month ($54/year) and higher level. Thank you, patrons and subscribers, for supporting my work and free website.


Recent podcasts/videos:

Roundtable Insight: Charles Hugh Smith on the Insanity of Central Banks in Addressing Inflation (38 min.)


My new book is now available at a 10% discount this month: When You Can't Go On: Burnout, Reckoning and Renewal.

If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.



My recent books:

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 $1.29 Kindle, $8.95 print); read the first chapters for free (PDF)

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


Become a $1/month patron of my work via patreon.com.




NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, Sum Dood ($5/month), for your splendidly generous pledge to this site -- I am greatly honored by your support and readership.

 

Thank you, Frank W. ($10.80), for your much-appreciated generous contribution to this site -- I am greatly honored by your support and readership.

Read more...

Wednesday, September 21, 2022

Two Easy Predictions: Wealth Tax and Windfall Tax

Looks like we need another $500 billion or so. Hum baby!

Predictions are hard, especially about the future, but two predictions are easy: 1) governments that do not yet impose wealth taxes will do so within the next five years and 2) governments will impose windfall taxes on all outsized unearned gains, from any source, anywhere on the planet.

Glancing at the chart of federal tax revenues, we note a steep increase--hum baby! Governments have financial commitments, and these never seem to decrease, they only increase.

It's nothing personal, we just need more money. We have responsibilities and we made promises.

A few nations already have wealth taxes: for example, Norway, Spain and Switzerland. In Switzerland, the wealth to be taxed is self-reported, and the top rate is 1%. The Swiss wealth taxes account for 3.6% of tax revenue. It doesn't sound like much but every little bit helps, right?

That 3.6% of tax revenues applied to the U.S. tax revenues equals a cool $108 billion. That's a useful sum.

Self-reporting isn't going to cut it once tax revenues are viewed as inadequate. Third-party reporting will be required so wealth can't be under-reported, and the Foreign Account Tax Compliance Act (FATCA) already requires foreign entities to report U.S. account holders' data.

It really doesn't take much social-media research and forensic accounting to figure out whose reported income and wealth doesn't match their lifestyle and reported assets. Wealthy people tend to avoid going to hellhole prisons, and so tossing a few tax-cheat scoundrels in prison for tax evasion will set a banquet of consequences relatively few will risk being served.

The justification for a wealth tax is obvious: you got rich because the system enabled it, so you owe the system a slice of the wealth you only gained by participation in the system. If you think you can get rich to the same degree (and keep your wealth) in Lower Slobovia, be our guest--move to Lower Slobovia. But please note whatever income and wealth you acquire there must be reported to U.S. authorities.

Windfall taxes were famously applied to oil company profits in the 1973-74 oil price spike. The thinking went: you didn't do anything to earn the extra profits by investing in greater productivity, etc.--you just lucked into a windfall, which you are obligated to share with the system that enabled you to create a big, wealthy corporation. Oh, and the windfall tax is on global earnings and profits.

Hollywood accounting--no movie no matter how big the box office ever makes a profit--is not going to fly. We'll take a flat 15% of all revenues as a back-up and you have the opportunity to prove your legitimate profit was less.

Why limit windfall taxes to corporations? How about all those Bitcoin Whales, mansion-flippers and meme-stock millionaires? These gains were all unearned, and so by definition they're windfalls.

So gold goes to $10,000 an ounce--did you earn those gains? No. So you owe a wealth tax, of course, and a windfall tax whenever and wherever you sell. If you fail to report the sale, you risk a tenner (10-year sentence) in a federal pen. Are you feeling lucky, punk?

We can also imagine a Wealth Hoarding Tax to recover some of the wealth that the wealthy are hoarding by refusing to sell any of it. (Only the wealthy have enough wealth to hoard, by definition.)

Since the world is filled with skims, scams and frauds, we can also imagine a Wealth Protection Plan which transfers terribly at-risk money socked away in pension plans, IRAs and 401Ks into Treasury bonds for safekeeping. You'll thank us later for restricting your gambling addiction.

As for renouncing citizenship to evade taxes--we have a plan for that, too. Anyone who owns any U.S.-based asset, security, collectible or financial instrument--anything that can be bought or sold--has to report that for wealth tax purposes. If you benefit from participating in the system, you have to pay your fair share. This goes for citizens of Lower Slobovia, too.

The lyrics to The Beatles' song Taxman are instructive:

Let me tell you how it will be
There's one for you, nineteen for me
'Cause I'm the taxman
Yeah, I'm the taxman

Should five percent appear too small
Be thankful I don't take it all
'Cause I'm the taxman
Yeah, I'm the taxman


Looks like we need another $500 billion or so. Hum baby!






Recent podcasts/videos:

Roundtable Insight: Charles Hugh Smith on the Insanity of Central Banks in Addressing Inflation (38 min.)


My new book is now available at a 10% discount this month: When You Can't Go On: Burnout, Reckoning and Renewal.

If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.



My recent books:

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 $1.29 Kindle, $8.95 print); read the first chapters for free (PDF)

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


Become a $1/month patron of my work via patreon.com.




NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, Peter L. ($5/month), for your splendidly generous pledge to this site -- I am greatly honored by your support and readership.

 

Thank you, Oilbhe ($1/month), for your much-appreciated generous pledge to this site -- I am greatly honored by your support and readership.

Read more...

Sunday, September 18, 2022

Peering Into the Crystal Ball, We See... Instability Leading to Collapse

We can only choose one: open, dynamic stability (evolution) or autocracy (instability and collapse).

When the fundamentals of life change, every organism must evolve or die. This is equally true of human organizations, societies and economies.

Evolution requires conserving what still works and experimenting until something comes along that works better. We call the fundamentals changing selective pressure and the process of experimenting with mutations / variations natural selection.

In genetic and epigenetics, this process is automatic. In human organizations, those in power influence the choice of what is conserved or replaced and what it's replaced with. Those who benefit from the current arrangement will fight to conserve it as is, while those being weakened by selective pressure and those hoping to gain advantages with a new arrangement will fight for replacing the old with the new.

Longtime correspondent Ron G. recently shared an insightful economic characterization of this dynamic: wealth defense vs wealth creation. Those holding the system's wealth have few incentives to risk changing the system, as those changes could undermine or erode their wealth. They have incentives to limit evolutionary forces that threaten their wealth as a means of defending their wealth.

Those who have lost wealth and those with little wealth have incentives to change the system to favor wealth creation.

We can describe the first as orthodoxy--evolution threatens the stability of the status quo, so limit evolution to the margins--and heretics being the second option that tosses out the status quo in favor of a more advantageous variation.

This isn't either / or, of course. As Ron points out, corporations have incentives to both conserve stability and embrace variations that increase revenues and profits by expanding the markets for the company's products. In Ron's words: "The function of orthodoxy or corporate policy / rigor is to mitigate variations that would decrease stability."

In other words, there's a danger of throwing the baby out with the bath water. Dynamic equilibrium is based on a constant flux of variations and experiments--that is, low-level instability--continually modifying the system to maintain core stability.

Without this constant flux of low-level instability, sources of instability pile up, unnoticed and uncorrected, until they become consequential enough to destabilize the entire system. The system implodes, crashes, unravels, etc.

We can understand this flux of variations and experiments as evolutionary churn, and this churn requires two things: a steady flow of mutations / variations to feed the process of experimentation, and transparency so advantageous variations aren't suppressed. In a transparent evolutionary system, data and information about each variation and experiment flows freely between all nodes in the system.

You see the problem. Those benefiting from the status quo are threatened by variations that could replace whatever is defending their wealth. Those in power benefit from the status quo, so their Job One is to suppress evolution by limiting transparency and variations, which include dissent.

Theoretically, those in power favor evolutionary advances that enhance their power and wealth, but anything that powerful is generally a two-edged sword: modified slightly, it could disrupt the entire status quo and fatally undermine their power.

So the safe bet is to suppress all evolutionary churn except those improvements which can be used to further cement their power. These are by definition autocratic.

You see the delicious irony: autocrats suppress evolutionary churn and transparency as threats, but evolutionary churn and transparency are the essential forces maintaining the system's dynamic equilibrium. Once the system's dynamic equilibrium decays, systemic instability builds up and eventually brings the entire system crashing down.

Because this process is obscured by authoritarian suppression of transparency, "nobody saw it coming."

As those in power adopt ever stronger authoritarian measures to limit the potential threats of evolutionary churn and transparency, they accelerate the fatal instabilities building up within their self-serving, kleptocratic social, political and economic systems.

By suppressing the evolutionary churn and transparency that maintain the system's dynamic equilibrium, they doom their regime to collapse.

The crystal ball isn't cloudy, it's crystal-clear: rising instability leading to collapse. "Nobody saw it coming" except those who understand evolution requires evolutionary churn and transparency.

Collapse is a perfectly good evolutionary solution. Stability is either dynamic or it's not actually stable; it's merely a simulacrum of stability sliding toward instability and ruin.

The better option is to embrace evolutionary churn and transparency and accept the trade-off: we can only choose one: open, dynamic stability (evolution) or autocracy (instability and collapse). Choose wisely, for once systems collapse there's no turning back the clock.



This post was based on an essay published as a weekly Musings Report sent exclusively to subscribers and patrons at the $5/month ($54/year) and higher level. Thank you, patrons and subscribers, for supporting my work and free website.


Recent podcasts/videos:

Roundtable Insight: Charles Hugh Smith on the Insanity of Central Banks in Addressing Inflation (38 min.)


My new book is now available at a 10% discount this month: When You Can't Go On: Burnout, Reckoning and Renewal.

If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.



My recent books:

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 $1.29 Kindle, $8.95 print); read the first chapters for free (PDF)

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


Become a $1/month patron of my work via patreon.com.




NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, Keith B. ($5/month), for your marvelously generous pledge to this site -- I am greatly honored by your support and readership.

 

Thank you, Frank V. ($1/month), for your much-appreciated generous pledge to this site -- I am greatly honored by your support and readership.

Read more...

Thursday, September 15, 2022

The End of Cheap Food

Global food production rests on soil and rain. Robots don't change that.

Of all the modern-day miracles, the least appreciated is the incredible abundance of low cost food in the U.S. and other developed countries. The era of cheap food is ending, for a variety of mutually reinforcing reasons.

We've become so dependent on industrial-scale agriculture fueled by diesel that we've forgotten that when it comes to producing food, "every little bit helps"--even small backyards / greenhouses can provide meaningful quantities of food and satisfaction.

Virtually every temperate terroir/micro-climate is suitable for raising some plants, herbs, trees and animals. (Terroir includes everything about a specific place: the soil type, the climate variations, sun exposure, the bacteria in the soil, everything.)

We've forgotten that cities once raised much of the food consumed by residents within the city limits. Small plots of land, rooftop gardens, backyard chicken coops, etc. can add up when they are encouraged rather than discouraged.

Let's start with how disconnected the vast majority of us are from the production of the cheap food we take for granted. A great many people know virtually nothing about how food is grown, raised, harvested / slaughtered, processed and packaged.

Highly educated people cannot recognize a green bean plant because they've never seen one. They know nothing about soil or industrial farming. They've never seen the animals they eat up close or cared for any of the animals humans have tended for their milk, eggs and flesh for millennia.

Most of us take the industrial scale of agriculture and the resulting abundance and low cost for granted, as if it was a kind of birthright rather than a brief period of reckless consumption of resources that cannot be replaced.

Small-scale agriculture is financially difficult because it is competing with global industrial agriculture powered by hydrocarbons and low-cost overseas labor.

That said, it is possible to develop a niche product with local support by consumers and businesses. This is the Half-X, Half-Farmer model I've written about for years: if the household has at least one part-time gig that pays a decent wage, the household can pursue a less financially rewarding niche in agriculture/animal husbandry. Degrowth Solutions: Half-Farmer, Half-X (July 19, 2014)

Industrial agriculture includes many elements few fully understand. The shipping of fruit thousands of miles via air freight is a function of 1) absurdly cheap jet fuel and 2) global tourism, which fills airliners with passengers who subsidize the air cargo stored beneath their feet.

When global tourism dried up in the Covid lockdown, so did air cargo capacity.

I have to laugh when I read another article about some new agricultural robot that will replace human labor, as if human labor were the key cost in industrial agriculture. (Hydrocarbons, fertilizer, transport, compliance costs, land leases and taxes are all major costs.)

Left unsaid is the reliance of industrial agriculture on soil, fresh-water aquifers and rain. Irrigation is the result of rain/snow somewhere upstream.

Once the soil and aquifers are depleted and the rain become erratic, the robot will be tooling around a barren field, regardless of whatever whiz-bang sensors and other gear it carries.

Global food production rests on soil and rain. Robots don't change that. What few of us who rely on industrial agriculture understand is that it depletes soil and drains aquifers by its very nature, and these resources cannot be replaced with technology. Once they're gone, they're gone.

Soil can be rebuilt but it can't be rebuilt by industrial agricultural methods--diesel-powered tractors and fertilizers derived from natural gas.

Few people appreciate that the dirt is itself alive, and once it's dead then nothing much will grow in it. Whatever can be coaxed from depleted soil lacks the micronutrients that we all need: plants, animals and humans.

Every organism is bound by the Law of Minimums: heaping on one nutrient is useless unless all the essential nutrients are available in the right proportions.

Dumping excessive nitrogen fertilizer on a plant won't make it yield more fruit unless it has sufficient calcium, sulfur, magnesium, etc. All dumping more nitrogen fertilizer on the field does is poison waterways as the excess nitrogen runs off.

Irrigation is another miracle few understand. Over time, the natural salts in water build up in irrigated soil and the soil loses fertility. The drier the climate, the less rain there is to leach the salts from the soil. Irrigation isn't sustainable over the long run.

Plants need reliable conditions to reach maturity. Should a plant or tree be starved of water and nutrients, its immune system weakens and it is more vulnerable to diseases and insect infestations. Yields plummet if there isn't enough water and nutrients to support the fruit or grain.

Extreme weather wreaks havoc on agriculture, even industrial agriculture. A crop can grow oh-so nicely and reach maturity, and then a wind storm or pounding rain can destroy the crop in a few hours.

Most people assume there will always be an abundance of grains (rice, wheat, corn) without realizing that the vast majority of grains come from a handful of places with the right conditions for industrial agriculture. Should any of these few places suffer erratic climate change, then exports of grains will shrink dramatically.

Once cheap grains are gone, cheap meat is also gone, because most meat depends on grain feed.

The scale required to grow an abundance of grain is other-worldly. Much of Iowa, for example, is fields of corn and soybeans, a significant percentage of which becomes animal feed.

American tourists ooh and ahh over artisanal goat cheese in France or Italy without any appreciation for the human labor that goes into the artisanal food, labor that can't be replaced by robots.

Industrial agriculture only works at vast economies and scale and high utilization rates. The 10-pound bag of chicken thighs is only $25 because tens of millions of chickens are raised in carefully engineered factory conditions and slaughtered / cleaned on an industrial scale.

Should the utilization rate and scale drop, the entire operation ceases to be economically viable.

Global industrial agriculture relies on exploiting low-cost labor forces and soil that hasn't yet been depleted. This is why clear-cutting the Amazon is so profitable: hire desperate workers with few other options to earn cash money, stripmine the soil until it's infertile and then move on.

There are many misunderstandings about industrial agriculture and the reliance on cheap hydrocarbons. Many pin their hopes on organic vegetables without realizing every organic tomato is still 5 teaspoons of diesel and 5 teaspoons of jet fuel if it's grown on an industrial scale and shipped thousands of miles via air.

Much of the planet is not conducive to high-yield agriculture. The soil is infertile or depleted, and restoring it is a multi-year or multi-decade process of patient investment that isn't profitable on an industrial scale.

As a means to make money, localized production can't compete with industrial agriculture. But that's not the goal. The goal is to replace dependence on industrial agriculture with our own much smaller, optimized-for-our-locale production, and grow a surplus that helps feed our trusted network of family, friends and neighbors.

As industrial agriculture consumes the last of its soils and aquifers, hydrocarbons and mineral fertilizers are becoming costly, and as climate change disrupts the 50+ years of relatively mild, reliable weather we've enjoyed, cheap food will vanish.

Once the scale and utilization rates decay, industrial agriculture will no longer be viable economically or environmentally. This dependence on scale and utilization rates is poorly understood. We assume that somebody will continue growing our food on a vast scale regardless of any other conditions, but any activity must be financially and environmentally viable or it goes away.

As industrial agriculture decays, food will become much more expensive: even if it doubles, it's still cheap to what it may cost in the future.

Due to our dependence on industrial agriculture, we've forgotten how productive localized (artisanal) food production can be. Small operations aligned with the terroir can produce a surprising amount of food.

The future of sustainable, affordable, nutritious food is in localized production optimized for what grows well without industrial interventions. The satisfaction and well-being this connection with the land and Nature generates is under-appreciated. It is not accidental that the long-lived healthy people among us--for example, the Blue Zones Okinawans and Greek islanders--tend their gardens and animals, and share the bounty of their labor with their families, friends and neighbors.

It's fun and rewarding to grow food. It might even become important. Those who can't grow any food would do well to befriend those who do.

The goal isn't to replace industrial agriculture. The goal is to reduce our dependency on unsustainable global systems by reinvigorating localized production.





This essay was first published as a weekly Musings Report sent exclusively to subscribers and patrons at the $5/month ($54/year) and higher level. Thank you, patrons and subscribers, for supporting my work and free website.


Recent podcasts/videos:

Roundtable Insight: Charles Hugh Smith on the Insanity of Central Banks in Addressing Inflation (38 min.)


My new book is now available at a 10% discount this month: When You Can't Go On: Burnout, Reckoning and Renewal.

If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.



My recent books:

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 $1.29 Kindle, $8.95 print); read the first chapters for free (PDF)

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


Become a $1/month patron of my work via patreon.com.




NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

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Tuesday, September 13, 2022

The Fourth Turn, Turn, Turn

The cycles of The Fourth Turning, Fischer and Turchin are all in alignment at this point in history..

The 1997 book The Fourth Turning: An American Prophecy proposed a cyclical pattern of four 20-year generations which culminate in a national crisis every 80 years. The book identifies these dates as Fourth Turnings: 1781 (Revolutionary War), 1861 (Civil War) and 1941 (global war). add 80 years and voila, 2021.

I use the term Fourth Turning generically to describe an existential crisis that decisively changes the course of national identity and history.

In other words, we don't have to accept the book's theory of generational dynamics to accept an 80-year cycle. There are other causal dynamics in play that also tend to cycle: the credit (Kondratieff) cycle, for example.

While each of the previous existential crises were resolved positively, positive outcomes are not guaranteed: dissolution and collapse are also potential outcomes.

David Hackett Fischer's book The Great Wave: Price Revolutions and the Rhythm of History proposes another cycle: humans expand their numbers and consumption until they've exploited and depleted all available resources.

As resources become scarce, societies and economies unravel as humans do not respond well to rising prices generated by scarcities.

The unraveling continues until consumption is realigned with the resources available. In the past this meant either a mass die-off that drastically reduced human numbers and consumption (for example, The Black Plague), a decline in fertility that slowly reduced population to fit resources, mass migration to locales with more resources or the discovery and exploitation of a new scalable energy source that enabled a new cycle of rising consumption.

The 14th century Black Death reduce Europe's population by roughly 40%, enabling depleted forests to regrow and depleted agricultural land to restore fertility.

Once the human population regained its numbers and consumption in the 17th century, wood was once again under pressure as the key source of energy, shipbuilding, housing, etc.

The development of steam power and the technologies of mining enabled the exploitation of coal, which soon replaced wood as the primary energy source.

Oil and natural gas added to the energy humans could tap, followed (at a much more modest level) by nuclear power. Despite gargantuan investments, the recent push to develop solar and wind energy has yielded very modest results, as globally these sources provide about 5% of total energy consumption. (See chart below)

It's self-evident that despite breezy claims of endless expansion of consumption, the global human population has now exceeded the resources available for practical extraction. Energy, fresh water, wild fisheries and fertile soils have all been exploited and the easy/cheap-to-extract resources have been depleted.

(The chart below of global CO2 emissions is a proxy for energy / resource consumption.)

So once again it's crunch-time: either we proactively reduce consumption to align with available resources, or Nature will do it for us via scarcities.

Peter Turchin proposed another socio-economic cycle of 50 years in his book Ages of Discord: in the integrative stage, people find reasons to cooperate. In the disintegrative stage at the end of the cycle, people no longer find much common ground or reasons to cooperate. Political, social and financial extremes proliferate, culminating in a rolling crisis.

In Turchin's analysis, the previous 50-year age of discord began around 1970, and the current era of discord began in 2020. Those who lived through the domestic terrorism, urban decay, stagflation and political/social/legal crises of the 1970s recall how inter-related crises dominated the decade.

In my analysis, the last period of discord in the 1970s was "saved" by the supergiant oil fields discovered in the 60s coming online in the late 1970s and early 1980s. That oil enabled a 40-year boom which is now ending, with no new scalable source of energy available to replace oil, much less enable an expansion of consumption.

In other words, the cycles of The Fourth Turning, Fischer and Turchin are all in alignment at this point in history. We have proliferating political, social and financial extremes and a forced transition to lower consumption to align with declining energy.

Turn, turn, turn. Right when we need to cooperate on transforming a high-consumption, bubble-dependent "waste is growth" Landfill Economy to declining consumption / Degrowth, we're beset by discord and demographic pressures, as the promises made to the elderly back when it was expected that there would always be 5 workers per retiree cannot possibly be kept now that the worker-retiree ratio is 2-to-1 and there are no limits on healthcare spending for the elderly.

Humans are happy to expand their numbers and consumption and much less happy to consume less. They tend to start revolutions and wars in vain attempts to secure enough resources to maintain their profligate consumption and expansion.

Today's extremes of wealth and income inequality are optimized to spark political discord and revolts. The wealthiest 20% will be able to pay higher prices, but the bottom 40% will not. The middle 40% will find their disposable income, i.e. their income left over after paying for essentials, will drop to near-zero.

When 80% of the populace are crunched financially, revolutions and the overthrow of governments follow.

As I've outlined in previous posts, global inequalities are widening as the Core exploits its built-in advantages at the expense of the vulnerable Periphery.

Core nations will be much better able to maintain their consumption at the expense of the Periphery nations, which will experience sharp declines in purchasing power and consumption.

Previous Fourth Turnings have been resolved one way or another within 5 to 7 years. If this Turning began in 2020, we can expect resolution by 2025 - 2027.

As I explained in my book Global Crisis, National Renewal, those nations that embrace Degrowth will manage the transition, while those that cling to the endless-expansion, bubble-dependent Waste Is Growth model will fail.

This is why I keep talking about making Plans A, B and C to preserve optionality and reduce financial commitments and consumption now rather than passively await crises over which we will have little direct control.

As I've endeavored to explain, those anticipating decades of time to adjust are overlooking the systemic fragilities of the current global financial/supply systems. Tightly bound systems of interconnected dependency chains have been optimized to work perfectly in an era of expansion. They're not optimized to gradually adjust to contraction; they're optimized to break and trigger domino-like breakdowns in interconnected chains.

We don't control these macro-trends, we only control our response.










This essay was first published as a weekly Musings Report sent exclusively to subscribers and patrons at the $5/month ($54/year) and higher level. Thank you, patrons and subscribers, for supporting my work and free website.


Recent podcasts/videos:

Roundtable Insight: Charles Hugh Smith on the Insanity of Central Banks in Addressing Inflation (38 min.)


My new book is now available at a 10% discount this month: When You Can't Go On: Burnout, Reckoning and Renewal.

If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.



My recent books:

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 $1.29 Kindle, $8.95 print); read the first chapters for free (PDF)

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


Become a $1/month patron of my work via patreon.com.




NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, Kenneth L. ($5/month), for your marvelously generous pledge to this site -- I am greatly honored by your support and readership.

 

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Sunday, September 11, 2022

Why This Recession Is Different

All of these are structural dynamics that won't go away in a few months or years.

Let's explore what's different now compared to recessions of the past 60 years.

1. Deglobalization is inflationary. Offshoring production to low-cost countries imported deflation (product prices remained flat or declined) and boosted corporate profits.

Deglobalization will increase costs and pressure profits.

Just as cleaning up the environmental damage of rampant industrialization imposed costs on the U.S. economy in the 1970s that generated stagflation (inflation and stagnant growth), reshoring essential supply chains will impose costs, pushing prices higher.

Everything costs more in developed economies due to their high wages and social costs (pensions, healthcare, disability, etc.), high taxes, strict environmental standards and extensive regulations.

Consumers will pay more as supply chains are onshored / secured.

2. Energy will cost more. The price of oil and natural gas will fluctuate and could drop significantly as global demand drops, but in the long run the easy-to-access energy has been depleted and all energy will cost more.

Consumers will pay more regardless of where the goods and services come from

3. Capital will no longer have zero cost: interest rates may briefly return to near-zero but over time the cost of credit/borrowing will rise.

The 40+ year cycle of credit has bottomed and is reversing. As global risks rise, capital will demand a return.

Global risks are much higher than generally recognized. Each risk factor doesn't just add risk arithmetically: 1 + 1 + 1 = 3. Risk rises geometrically as each risk boosts the possibility of runaway feedback.

Climate change, scarcities, geopolitical tensions, capital flows--each reinforces the negative effects of the others. As risk rises, capital demands a higher return.

4. Definancialization will revalue assets. The hyper-financialization that fueled global growth for the past 40 years depended on the cost of credit falling: interest rates fell for 40 years, rewarding borrowers and buyers of bonds, which increased in value with each click down in interest rates.

These trends are reversing. Credit will cost more and every existing bond loses value with every click higher in interest rates / yields.

As profits from globalization dry up and credit costs rise, asset valuations based on cheap credit and rising profits will be repriced lower

Assets that benefit from scarcity, Deglobalization and Definancialization may increase in value.

But there are many other factors that play a part in revaluing assets:

-- generational selling as the elderly sell assets to fund their retirement

-- global capital flows as money flees insecure Periphery nations for the Core (North America)

-- heightened risk will revalue whatever is deemed safe and secure and what's viewed as risky / speculative

-- unprecedented inequality will drive clawbacks, wealth taxes and expropriations of wealth viewed as illegitimate or excessive.

Any one of these factors could upend conventional expectations of what each asset class will do in the future. All four interacting makes it impossible to predict any future valuation with any certainty.

5. Wealth will take a hit, affecting the top 10% who own almost 90% of the wealth.

If history is any guide, all of the $400+ trillion in private wealth globally will not find a new home that preserves current valuations.

The losses will fall lightly on those who own few assets, i.e. the majority. The heavy losses will fall on those who own most of the assets--the top 5%.

This reverse wealth effect will reduce their ability to spend / consume, shrinking luxury / discretionary spending.

Demand for essentials will remain steady, demand for non-essentials will drop.

6. Labor scarcities will increase. Workforces in most nations are shrinking while the population of retirees' soars.

This undermines the entire social contract established in the postwar era (1950s and 1960s) which are all "pay as you go" programs that were designed for 4 or 5 workers supporting one retiree.

Now that the ratio has fallen to two workers (or less) to each retiree, the programs are unsustainable.

7. The unprecedented inequality of income and wealth has changed perceptions and values, changing societies in ways few recognize.

Young people with average jobs / income have no hope of affording a home, retirement or raising a family. So they've given up.

In China, it's called laying flat. In Japan, it has numerous manifestations, from Hikkomori (withdrawing from society) to arubaito (part-time work).

Since it's hopeless for average people to get all the good things with average effort, people give up and try to enjoy life without sacrificing themselves in the vain hope they'll somehow claw their way into the upper-middle class and be able to afford a family, house and retirement.

This is why pundits are complaining about lazy workers. Why aren't people working hard like they used to? because hard work is increasingly pointless. Just get by and enjoy life.

8. The pandemic changed perceptions of what's important. People gained new appreciation for the here and now and the futility of assuming the future is riskless and predictable.

Rather than sacrifice for an increasingly unstable, unpredictable future, people are pursuing what they want now.

For many younger people, this means ditching the dreams of wealth and conventional success for enjoying life in the here and now.

For those with incomes and assets, they're buying stuff they want now rather than putting it off. They're less concerned about debt. As long as they can swing the payments now, that's all that matters.

For others, work is optional. They found ways to get by without working. Now they may be lured back to work if the work is easy and they control their own schedule.

Employers are frustrated that they can't force employees to exclusively serve their needs.

As workers change what they consider important, this is forcing employers to pay attention to essential workers they took for granted.

9. Non-essential jobs will be slashed. Finding people to clean hotel rooms is hard, and so resorts are cutting services even as they jack up prices.

Enterprises can't cut maids, drivers, waiters, welders, etc., nor can these jobs be automated, despite the robotic fantasies of the intelligentsia.

Who they can cut are all the people spending their days in meetings.

10. Deglobalization will re-order mercantilist economies that have depended on exports for their bread and butter and consumer economies dependent on essentials imported from elsewhere.

Essentials (food, energy, technology) will increasingly be viewed (correctly) as national security priorities. Relying on other nations for essentials will be viewed (correctly) as increasing vulnerability and risk.

This will re-order all economies on a fundamental level. National security and trusted alliances will become higher priorities than increasing corporate profits.

All of these are structural dynamics that won't go away in a few months or years. They will transform the economy and society either positively (for those who embrace Degrowth) or negatively (those who cling to the bubble-dependent Waste Is Growth Landfill Economy).












Recent podcasts/videos:

Roundtable Insight: Charles Hugh Smith on the Insanity of Central Banks in Addressing Inflation (38 min.)


My new book is now available at a 10% discount this month: When You Can't Go On: Burnout, Reckoning and Renewal.

If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.



My recent books:

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 $1.29 Kindle, $8.95 print); read the first chapters for free (PDF)

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


Become a $1/month patron of my work via patreon.com.




NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, Lisa V. ($5/month), for your marvelously generous pledge to this site -- I am greatly honored by your support and readership.

 

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Wednesday, September 07, 2022

The EU's Crisis Is Global: Neocolonialism, Hyper-Financialization and Hyper-Globalization Come Home to Roost

The EU's crisis isn't limited to energy. It is a manifestation of the global breakdown of Neocolonialism, Financialization and Globalization.

The European Union (EU) was seen as the culmination of a centuries-long process of integration that would finally put an end to the ceaseless conflicts that had led to disastrous wars in the 20th century that had knocked Europe from global preeminence.

Wary of the predations of the U.S. and rising Asian powers, European nations sought the economic and diplomatic strength of a confederation that would be greater than the sum of its parts, a union that would restore Europe's rightful place as a global power.

This worthy goal was undermined by the destructive dynamics of the past forty years: Neocolonialism, Financialization and Globalization.

These dynamics are unstable due to their internal contradictions. In classical colonialism, the Core dominates the Periphery with force, extracting economic value by exploiting the subject states' commodities and forcing the colonies to buy the valued-added finished goods produced by the colonial power's domestic economy.

This extractive model was at odds with the liberal worldview of the colonial powers which held self-rule and open markets as necessary to stable prosperity. The contradictions of classical colonialism led to its collapse as colonies broke free and the colonial powers were forced to navigate a more open global economy.

Beneath the glossy vibe of strength through unity, the EU institutionalized a Neocolonial Model in which some EU members are more equal than others, a divide that was starkly revealed in the debt crisis of 2011-2012.

I described the EU's version of the Neocolonial Model in 2012: The E.U., Neofeudalism and the Neocolonial-Financialization Model (May 24, 2012)

In Neocolonialism, the forces of financialization (debt and leverage controlled by State-approved banking cartels) are used to indenture the local Elites and populace to the banking center: the peripheral Neocolonials borrow money to buy the finished goods sold by the Core, doubly enriching the center with 1) interest and the transactional skim of financializing assets such as real estate, harbors, etc. and 2) the profits made selling goods to the debtors.

(China's Belt and Road Initiative (BRI) is another version of the Neocolonial Model in which credit and financialization indebt and disempower the Periphery nations to the benefit of the Neocolonial Power.)

In essence, the Core nations of the EU colonized the Periphery nations via the euro which enabled a massive expansion of debt and consumption in the Periphery. The banks and exporters of the Core extracted enormous profits from this expansion of debt-fueled consumption.

The Periphery's neocolonial status was starkly revealed by the debt crisis: the assets and income of the Periphery flowed to the Core as interest on the private and sovereign debts that are owed to the Core's commercial and central banks.

This was the perfection of Neocolonial Neofeudalism. The Periphery nations of the E.U. are effectively neocolonial debtors of the Core countries' banks, and the taxpayers of the Core nations are now feudal serfs whose labor is devoted to making good on any bank loans to the Periphery that go bad.

In effect, the importing Periphery nations were given the same expansive credit limits of their Mercantilist siblings. In a real-world analogy, it's as if someone prone to financing life's expenses with credit was handed a no-limit credit card with a low interest rate, backed by a guarantee from a credit-averse cousin.

Credit duly expanded oh-so profitably, but the contradictions eventually unravel the utopia: the Periphery borrowers soon borrow more than they can actually support, and the Core has to bail them out without actually writing off any of the debt, as writedowns would crush the profitability of the Core banks.

This is a colonialism based on the financialization of the smaller economies to the benefit of the Core's financial institutions and Mercantilist economies.

In the EU, the opportunities to exploit captive markets were even better than those found abroad, for the simple reason that the EU itself stood ready to guarantee there would be no messy expropriations or defaults by local authorities who decided to throw off the yokes of neocolonization.

The EU attempted to reconcile this intrinsically unstable private-capital/State arrangement-- profits are private but losses are public--by shoving the costs of the bad debt onto the backs of the Core's taxpayers (now indentured serfs).

The profits from the euro arbitrage and Neocolonial exploitation were private, but the costs are being borne by the taxpaying public of both Core and Periphery.

Globalization also has its own set of internal contradictions. Using financialization (credit and all the speculative schemes leverage enables) to boost mercantilist exports and consumerist imports was highly profitable, but both the exporters and importers are now exposed to the inherent vulnerabilities and fragilities of dependency on credit-fueled investment and consumption and the unstable private-capital/State arrangement--an arrangement that's coming apart everywhere from the EU to China.

The Neocolonial-Financialization Model has reached its limits globally. There are no more markets to exploit with financialization, the discretionary incomes of the debt-serfs have stagnated to the point they cannot take on any more debt and the reality that the speculative gains are phantom and the mountains of debt are unpayable can no longer be masked.

As I endeavored to explain in The Global Power Shift Isn't West to East--It's Not That Simple (June 24, 2022), currencies are the bedrock of financialization, and the internal contradictions of the global economy's credit-currency regime are finally unraveling the illusory stability of currency markets.

The EU's crisis isn't limited to energy. It is a manifestation of the global breakdown of Neocolonialism, Financialization and Globalization. No one will be unaffected as the internal contradictions destabilize a global economy that was presented as permanent.

What's the status quo fix? Cannibalization: The System Is Busy Cannibalizing Itself (August 31, 2022). Turning financialization and globalization into Hyper-Financialization and Hyper-Globalization didn't resolve the internal contradictions, it only accelerated their demise.




Recent podcasts/videos:

Roundtable Insight: Charles Hugh Smith on the Insanity of Central Banks in Addressing Inflation (38 min.)


My new book is now available at a 10% discount this month: When You Can't Go On: Burnout, Reckoning and Renewal.

If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.



My recent books:

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 $1.29 Kindle, $8.95 print); read the first chapters for free (PDF)

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


Become a $1/month patron of my work via patreon.com.




NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, Eugene M. ($5/month), for your marvelously generous pledge to this site -- I am greatly honored by your support and readership.

 

Thank you, Thomas S. ($1/month), for your most generous pledge to this site -- I am greatly honored by your support and readership.

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