The Current Mess: Economic (Part I)

by Bernard Brandt

In case you haven’t noticed lately, the economic situation these days pretty much sucks. This suckitude varies from the gentleman’s irritation that it’s not as easy as it once was to found a landed estate, to the concern of most of the rest of us that ‘the rent is too damn high’.

Sorry to have to break it to you, folks, but for the reasons which follow, in the words of the poets, “you ain’t seen nothin’ yet.”

While I could phrase all of what follows in the terms used by economic experts, I have found that stating things as simply as I can helps me to think a bit more clearly about those things.

So, let’s take apart the pieces of the mess, use simple words as much as possible in doing so, and then try to put the mess together again in a form that we can understand and deal with. Luckily for us, there are only five pieces that are large enough to put together to make the thing look a bit more like the Ming vase, and less like the mess which resulted when the cat bumped it off the mantelpiece and down to the marble floor below.

Fortunately, if you have something above a room temperature IQ and have spent even a modicum of time looking around and figuring things out, you’ve probably already pieced together some of the puzzle. Let’s just go ahead and see what we can see, shall we?

A. Fractional banking. Whoops! Sorry! I didn’t mean to spring so much econ-speak on you at one time. Let’s take that bad boy down a word at a time, starting with the noun. Banking is just the process by which banks do business. Now, in Lower Slobobia, in the tiny village of Nihil Obstadt, there is the First Slobobian Bank. There are about twenty families in the village, in the main farmers, with a doctor and a lawyer in the bunch, and each of those families has invested ten thousand tum-tums, for a total of two hundred thousand tum-tums in the Bank. Now so long as the banker does nothing with those tum-tums, everything is fine. Think of it as a granery for tum-tums, and you’ve got the general idea. The bank’s customers can leave their money in the bank, or not, as they wish, and everything is hunky-dory.

Of course, that’s not how bankers get rich. That’s where the adjective ‘fractional’ comes into the phrase. This sort of banking means that bank leaves only a fraction of its assets in the bank, and has invested the rest of the money it holds in other businesses. The good side of fractional banking is that Nihil Obstadt now has investments in a barley field, a vineyard, a brewery (in case you haven’t noticed, the banker likes to drink) and a rail spur connecting the village to the Imperial Slobobian Railway. In short, depending on the the investments made, both the Bank and the Village can get a genuine increase in wealth, in terms of the villagers’ actual property, as well as the number of tum-tums they have in the bank.

On the other hand, the effectiveness of fractional banking depends on the wisdom of the investments made. Say that the banker has fallen under the influence of King Ludwig the Mad of Lower Slobobia, as a result of a ‘friendship’ during their years at the Universität, and has decided that a nail boutique, an artist’s atelier, a coffee house, and a bath-house with a ‘select’ clientele is more worthy of investments. Oh, and the banker has nixed the rail spur because he was frightened by a steam train when he was a child. Or say that it is not the banker, but King Ludwig himself, who has decided by presidential order, er, imperial decree, to impose all of the above investment requirements himself. (We will pursue this train of thought later).

The other problem is that the game of fractional banking can only work if all of the customers are confident in how the bank is doing things. In short, fractional banking is a confidence game. Eventually, though, there will come a time when the customers need to withdraw more from the bank than the bank has readily available to give to them. I don’t even need to describe this scene: anyone who has seen the motion picture, It’s a Wonderful Life can recount it. Of course, in the movie, George Bailey is there to distribute the money he was planning on spending on his honeymoon to keep the people from performing a run on his bank.

In real life, however, what happens is that the villagers meet in front of the bank and demand an accounting. If the banker can present an impressive enough list of investments, then he might survive the accounting. But if all the banker can provide is a list of boutique businesses, but without the rail line which would make those businesses going affairs, then the traditional way of dealing with things was tar and feathers. Since we live in degraded days, when the old remedies have long been forgotten, I will remind you of the way of it: first, you pour molten tar over the miscreant, making sure that he is completely covered with it; then, you roll the miscreant in feathers; goose feathers work particularly well, but chicken feathers will work if nothing else is available.

If you are simply peeved over the dereliction of the banker, you leave him to figure out how to get the tar and feathers off him (hint: kerosene or turpentine work particularly well), and maybe even how to recover from the scalding he has received. But if he has been particularly naughty, or if he has managed to lose your life’s savings, then there is a third step that some have taken: torches, directly applied to the flammable feathers and tar. Just think of it as porc flambe a la financière.

By the bye, one reason I had little regard for “Occupy [your city here]” was that the inmates of those particular Bedlams seemed to be more interested in drumming than they were in charcutierie. I seem to recall that G. K. Chesterton once remarked, “It is terrible to contemplate how few politicians are hanged.” And equally, I think it a great pity that so few financiers, especially these days, have been flambéed.

But I digress. Let us go then, you and I, to find the next piece of the current economical mess.

B. Human tribal behavior and the boom and bust cycle.

In case you haven’t been following the course of science for the past century and a half, we’ve pretty much figured that the so-called human race is a primate species, with several breeds or variants on that species. While there is wild variation as to how human families form, one constant that anthropologists have noted among humans is tribal behavior.

One aspect of that behavior is a fancy word called mimesis, which roughly translates into “monkey see-monkey do”. The upside of mimesis is that it is the experiencial process by which human beings learn new behaviors, particularly in tool making and tool using. The downside of mimesis is that once a set of behaviors is learned in a tribe, considerable effort is spent by the tribe in maintaining those behaviors, regardless of whether said behaviors remain useful. Another name for this form of mimesis is “social conformity”.

The second human tribal behavior has a great deal to do with how human beings think. In fact, we have two processes of thinking: fast and slow. The fast form is pretty much automatic, and operates quickly to assess threats and to respond quickly to them. In the old world, where one could be attacked by predators, and even in the new world, where one can be run down by automobiles, this fast form of thinking is often the difference between life and death.

The downside to this fast form of thinking is that it is often the only form of thinking that most humans perform. The slow form (usually associated with dilated pupils or the “staring off into space” look) is the basis for any prolonged, disciplined, calculative, or creative thought among humans.

The particular problem with fast thought is that in tribal (or if you would prefer) social settings, it is the only form of thought used. This is fine for a hunt, or a sport like soccer or football, or anything requiring immediate action. But it is not such a good idea for anything involving long term thinking. Like investing or trading in a market.

Combine fast thinking and social conformity and you get a large number of people buying or trading on tulips in Holland, or buying shares in the South Sea Company, or investing in blue-sky shares in non-existent companies, or buying stocks. And eventually losing their collective shirt in the process.

This, my friends, is what we call the boom-bust cycle. It has been inherent within market systems since the days of the agorai of ancient Greece. And until humans change their monkey-boy ways (the probabilities of which resemble those of the panther changing its spots), this process will continue. But wait! There’s more!

C. Governments’ tendencies to debase currencies and multiply laws

As long as human groups remain at the tribal level, somewhere between 50 to 300 critters per group, as they generally had since we became human, government by the tribe run pretty much on automatic, on a two-poled continuum which goes from the unspoken rules of social conformity, to the will of the strongest in the group.

But somewhere between five and ten thousand years ago, three developments in human culture changed everything: 1) sustained agriculture and husbandry got to the point where large groups of humans could feed themselves and settle in one place, rather than the former perennial process of hunting and gathering; 2) humans started using locations and materials to build homes for themselves; and 3) humans started inscribing and writing down symbols that represented words, numbers, and ideas.

As a result of these three developments, humans started living in larger and larger groups, called villages, towns and cities. Two social processes began as result of these more stable and larger gatherings: markets and governments. While we have already spoken about markets, one additional factor about them is that as they become larger, the participants in such markets go from direct exchange, or barter, to the use of a common medium of exchange. That medium can be something like a particularly valuable item of exchange, like cattle (which is why such words as ‘buck’ or ‘pecunia’ [from latin pecus, or cattle] have come into our language).

That medium of exchange can also be precious metals, like gold, silver, copper, or bronze. But more usually, especially these days, it is an agreed upon unit called a ‘chit’, or a ‘credit’, or an ‘IOU’, or a ‘dollar’. In other words, it is a sign or symbol that has a more or less agreed upon value, which can be exchanged for goods or services.

Now this concept of currency has a lot going for it. It’s a way that people can carry and exchange a great deal of value without having to have anything larger than a wallet or a checkbook or an iPhone. But every so often, there are people who get the temptation to print or create a lot more of these ‘credits’ or ‘dollars’ than there are things of value to buy with them. When amateurs do this, they are called ‘counterfeiters’. When professionals do this, they are called the Reserve Banks of the United States.

But regardless of whether it’s done by amateur thieves or professionals, the result is much the same: more units of credit are being created than there are things of value to buy with them. And eventually, the people in the market catch wise, and start raising their prices to match the reduced value of the ‘credits’ or ‘dollars’. This process is called ‘inflation’. If the process continues, with thieves pumping more and more ‘dollars’ into the system, it becomes ‘hyper-inflation’. But the really bad thing is that the process of ‘inflation’ works as a force multiplier upon the boom and bust cycle, pushing the ‘booms’ higher and the ‘busts’ lower and longer. If such a bust lasts long enough, it is called a ‘recession’ or a ‘depression’. Or if the thieves also have control over those who report the news, it is called a ‘recovery’.

Now most governments, being either unacknowledged or obvious kleptocracies (which is a fancy word meaning ‘rule by thieves’), seem to enjoy both racking up debt and hiding it in the money supply. At least, they seem to do it an awful lot. Why, our present government has racked up seventeen trillion dollars and counting. I’m sure that will end well…

But governments have plenty of other ways of causing mischief. One way they do this is by the law of unintended consequences. At times, I think it is the only law which applies to Congress.

But let me explain, using a recent example. Once upon a time, about twenty years ago, Congress in its finite wisdom decided that the constitutional protections for religion were not sufficient under the First Amendment, and so it created the Religious Freedom Restoration Act. Briefly, that Act states that if there are several ways of implementing a law, and that law would negatively impact a person’s First Amendment rights, the least intrusive way of implementing that law is to be used, absent a clear and compelling reason by the Government. But the Act failed to define what or who a ‘person’ is.

Fast forward twenty years to the last few months. Our current President, Senate and Congress passed the Affordable Care Act, which was intended to give healthcare to all Americans. For some reason, those who passed the ACA included contraception as ‘healthcare’, and included several abortifacients as contraception covered by the ACA. Several corporations, including one named Hobby Lobby, objected to providing abortificients on religious grounds, and asked the responsible governmental agency, HHS, to permit them to cover everything but the abortifacients, and for the government to finance those drugs. HHS refused, and the fight was on. It reached all the way to the Supreme Court.

When it got there, John Paul Stevens and the Supremes (or at least five of them) wrote a 90 page opinion which translated into: “WTF! You clowns in Congress who earlier wrote the Religious Freedom Restoration Act could have defined what a ‘person’ is under the Act. Hell, you could still amend the Act now to add a definition excluding or including corporations as persons. As it is, though, since you bozos screwed the pooch, we gotta do your job for you. So we’re going to use the Dictionary Act (1 USC sec. 1) to make use of the standard definition of ‘person’, which under U.S. law, and Roman law before it, has for the last two or so millenia held that a corporation is a person. Hobby Lobby wins. Have a nice day.” If you don’t believe me, and if you can wade through the legalese, here it is. Read it yourself. And weep.

And Congress, of course, rather than accepting the blame, or even attempting to correct the law, is militating for a constitutional amendment declaring that, in spite of two thousand years of precedent to the contrary (from Republican Roman law to that of the present), corporations are not to be considered as persons. But I digress.

The problem that I am attempting to delineate with the law, however, is that in my experience, lawmakers, whether they are the many (democracy), the few (the Senate or the House of Representatives), or the one (the President) tend to draft their laws or orders on the basis of fast, automatic thinking, rather than slow, deliberative thinking. Then they make more laws to correct the unintended consequences of the first set of laws. And then they make yet more laws…

I have a website for you: Go to the professional part of the site, and start looking at Federal law (United States Code) and Federal Administrative Code. Start digging and seeing how much law there is. Then go to state law, to look at what the fifty states have wrought. I suggest holding your nose while you do so. But let’s go on now to the next part of the mess:

D. the depletion of strategic resources, and the cascade of consequences therefrom. So far, the first three topics under discussion have been, like love and herpes zoster, as perennial as the grass. They have been a part of the human condition for as long as world civilization has existed. In short, folks, they ain’t going away any time soon. But this, and the next topic, are game-changers.

But Great Cthulhu, you may say, you are telling us nothing new here: the Reverend Robert Malthus has been singing that song for the past two centuries. And if you want more recent examples, you can go to the authors of The Limits of Growth, The Population Bomb, and most recently, The Crash Course.

Well then, like Ambrose Bierce’s “The Ingenious Patriot”, allow me to introduce you to Malthus 3.0. But that will take a bit of explaining.

I have here in my first pocket Malthus 1.0, which in his own words, can be summed up as follows:

“1. That the increase of population is necessarily limited by the means of subsistence,

“2. That population does invariably increase when the means of subsistence increase, and,

“3. That the superior power of population is repressed, and the actual population kept equal to the means of subsistence, by misery and vice.”

Whole bunches of people, from Paul Ehrlich to the Club of Rome, jumped onto that particular bandwagon, with doomsday predictions of “Hundreds of millions dead of famine by 1975”, and “calls for triage in the face of  genocidal deaths and wars.”

“Yawn,” sez dread Cthulhu, from his lair in deep R’lyeh: “So much sizzle. So little steak.”

There are several reasons why we missed out on those particular doom and gloom scenarios: 1) there was a concerted effort on the part of many to limit the number of  children they had, by various means; 2) while the poor countries could not or would not, in the main, make use of those means, there was a revolution in agriculture, namely ‘the green revolution’, which allowed (for a time) food production to exceed population growth; and 3) too many people had anticipated the event, and had sent aid to the poorer countries to mitigate the effect of the alleged ‘coming famine.’

This can be seen in a number of other alleged modern ‘famines’ or ‘coming dooms’, such as ‘peak oil’, or ‘elimination of earth’s top soil’ or ‘overfishing of the world’s oceans’, or depletion of metals crucial to modern technology: smart humans (mostly male, and largely of that peculiar pinkish-beige skin color ‘racial’ phenotype mistakenly called ‘white’, by the bye) came up with processes like ‘fracking’, or ‘modern hydrocarbon based agriculture’, or ‘recycling’ or ‘modern oceanic pisciculture’, which have largely eliminated, for a time, the dangers of those earlier predicted famines.

So, like the Ingenious Patriot, I remove from my second pocket the crucial element of Malthus 2.0:

“4. Human ingenuity, or applied human action, can for a time increase the means of subsistence, and therefore, for a time, can mitigate the normal effects of misery and vice.”

While loads of people seem to be stuck in Malthus 1.0, including the Sierra Club, doomsday criers of global warming, and the Spotted Owl Society, there are a few very smart people, such as Larry Niven and Dr. Jerry Pournelle, who have gotten as far as Malthus 2.0. In various books, from Fallen Angels, to A Step Farther Out, these two worthy gentlemen have pointed out to the general public (and had quite a bit of fun in doing so, apparently), that what we need are not more attempts by governments to restrict population growth, or “greenhouse gases”, or yet another law-hole’s pet peeve, but more and better expressions of human ingenuity to face and solve the world’s problems.

Far be it from me to rain on Messrs. Niven and Pournelle’s parade, although I do wish that they would write a few more stories these days. But permit me to pull from my third pocket one half of Malthus 3.0:

“5. Human ingenuity, while it can for a time increase the means of subsistence, also creates unintended consequences, which often will themselves decrease the means of subsistence.”

Translated from Malthese into modern English, this means that while we can use fracking to solve the problem of peak oil, fracking itself creates poisonous waste water, which either runs off into the local surface water system, or worse, remains in the oil bearing strata underground, where it can seep permanently into the local water table. Or that modern agriculture (which one wag described as ‘the process by which science turns oil into food’), also further depletes the world’s topsoil, and is a principle reason for our present loss of species. Or that modern oceanic fish farms have the inevitable consequence of monoculturing, which results in increased fish diseases, and the decreased health of the ‘harvested’ fish.

In fairness to Niven and Pournelle, I believe that they have already anticipated this objection. If they will permit me to speak on their behalf (or to put words in their mouths), they would say, “Of course there will be unintended consequences to ANY human solution to problems. This does not mean, however, that we should not attempt to solve them. Rather, we should work by successive approximation to solve these problems, and their unintended consequences, as they occur.”

Personally, I would rather go with this argument. Yeah, modern technology is going to give us problems as well as solutions, but we have enough Ingenious Patriots available to pull rabbits out of their hats, or to keep the metaphor of Bierce’s story going, pulling secret formulae out of their pockets, and saving the day.

Unfortunately for all concerned, I fear that Nature, in the personum of the Emperor, has totted up the total of pockets with secrets in them, given a check for that many millions of tumtums, and sentenced us all to death, together with a decree making ingenuity a capital offense. That death sentence and decree, which is the final part of Malthus 3.0 can be stated thus:

6. One unintended consequence of modern Western civilization is that the consequent reduction in infant mortality has resulted in, and continues to result in, dysgenic mutations, which in turn have led and continue to lead to reductions in aggregate human intelligence.

While I would like to claim full credit for this last element of Malthus 3.0, I’m afraid that my pretenses of intellectual honesty force me to give credit where credit is due. Dr. Bruce Charlton, whose several weblogs may be found here, and who with Nassim Nicholas Talib and Mencius Moldbug, I consider to be one of the three most original and versatile minds currently living and active, provided the data leading to my conclusion, if not my own conclusion.

Briefly, Dr. Charlton noted that while human reaction time has been tested since the time of Sir Francis Galton, or 1884, subsequent studies have shown that that reaction time has substantially slowed since Galton’s time, and continues to slow. If speed of reaction time can be considered as either a marker of or a prerequisite for human intelligence, or g, then it follows that g has been decreasing for more than a century. Dr. Charlton offers the conjecture that this decrease may be a consequence of a cascade of dysgenic mutations, as a result of many children who would otherwise die being saved to grow to maturity. While, for my part, I believe that one should rule out the possibility that this decrease is due to environmental factors such as recent changes in diet, it is possible that Dr. Charlton’s conjecture is quite sound, and can be found to be true.

Some have raised the Flynn Effect, or the fact that aggregate IQ has actually risen for the last century, as a falsification of Dr. Charlton’s conjecture. But Dr. Charlton has an answer: recent studies have indicated that the Flynn Effect is a result of more and more of the testees learning and applying the heuristics of test answers, and using those heuristics to answer the tests. More crassly put, and for but one example, recent SAT scores are more an artifact of private (and expensive) SAT study groups than they are of the native intelligence of larval frat boys and sorority girls.

But whether the Flynn Effect is an artifact of test-itis, or of the human population being educated up to the limits of their potential intelligence, it remains the case that rises in general intelligence in the First and Second worlds have been leveling off. It is therefore entirely possible that the Flynn Effect has been masking a real decline in the actual intelligence of human beings. If that is the case, then we should start seeing real declines in the population’s IQ soon.

Two problems exist with progressive reduced human intelligence: The first is that it will quite probably find us living in the world of The Marching Morons or of Idiocracy; the second is that human intelligence is distributed in a standard ‘bell’ curve, and a reduction in general intelligence will have the effect of more greatly reducing the number of the ‘ingenious’, whose solutions to problems are essential to continuing this little enterprise which we so amusingly call ‘Western Civilization’.

Any one with any doubts as to the reduction of intelligence in those on the right side of the bell curve over the course of the last century are invited to assay the difference in discourse in, say, children’s literature from Mark Twain and Lewis Carroll to Judy Blume and J. K. Rowling (much though I like the latter’s work); or the difference in physics between the giants of the late 19th and early 20th centuries and the current con-men who are stringing us along with their multiferous theories, or the difference between the popular music of the late 19th and early 20th centuries, such as Verdi, Wagner, the Strauss family, Debussy, Faure and Ravel, as opposed to the present offerings by the current flavors of the week. I rest my case.

To sum up, Malthus 3.0 means that humankind will eventually run out of resources, or the means of subsistence, and while human ingenuity would otherwise prevent that from happening, the natural degradation of human intelligence will deprive us of the human ingenuity which would otherwise save us. Have a nice day.

E. The progressive automation of world industry.

And so we come to the last piece of the puzzle. In case you haven’t noticed lately, technology has considerably speeded up and gotten more complex in the last half century or so. Most of that increase, in terms of applications and in direct discoveries, has been from corporations, private or public, who have hired individuals and groups to develop things for corporations. And most of those developments have been for the benefit of those corporations. I do not think that that is a coincidence.

Allow me to give you but one example, concerning fuel cells. I’d read of the technology for converting hydrogen into electrical energy back when I was a sprog, some fifty years ago. They told me that this technology would be implemented ‘Real Soon Now’. They kept telling me that, but with less believability, every ten or so years. And then, just the other day, while I was riding down the road after visiting my aged mother, I happened to spy a Mercedes-Benz which had the words “Hydrogen Electric Vehicle” and ‘F-Cell’ emblazoned on the car’s posterior.

Of course, when I examined the Benz web site, there are only two hydrogen fueling stations in the L.A. area. And only two behind the Orange Curtain. And of course, when I tried to find a price for the new ‘F-Car’, I could not find one anywhere. In short, as J.P. Morgan said, “if you have to ask, you can’t afford it.’

Folks, in case you haven’t noticed yet, there are about seven major corporations in control of most of the motion pictures, news, and entertainment in this country and the world. Similarly, there are seven or eight major corporations in control of the country’s agri-business. The products of both sets of corporations pretty much suck. This should not be surprising: both sets of corporations, having achieved collective monopolies over their product lines, can pretty much put out whatever shoddy products they wish. In the main, we just consume what they give us.

And in case you haven’t noticed, this process of concentration of an effective monopoly has been completed or is in the process of completion for many other types of business as well. There are two effects of this process of monopolization: a) more and more of the country’s capital is being concentrated in the hands of the seven or so largest banking and financing system (notice a pattern here?); b) what new processes and products that are being developed have the result of concentrating yet more capital in the hands of the few.

One primary example of this latter trend is in the recent developments in robotics. Assembly lines these days are having more and more workers replaced by those duck-like arms that are reaching, holding, welding, dancing, and putting more and more human beings out of work. Where I live, near the Port of Los Angeles, in spite of the efforts of the union here, the Port is in the process of automating the entire process of loading and unloading cargo cases, and putting hundreds of people out of work here. So it goes in many other company towns. So much for the blue-collar middle class.

But another, less acknowledged, trend, is the fact that the products of Microsoft, and a number of other corporations, have been and are making superfluous many office jobs as well. With computers, one person can do the job of many. And that one person is rapidly being replaced by computerized expert systems which can go through the heuristics and algorhythms of modern business far faster than a simple ‘wetware’ human being can. And so much for the white collar middle class.

In previous times, technology has put people out of old jobs, but has created new jobs to replace them. As an example, the internal combustion engine put horse stables, buggy makers, and buggy whip makers out of business; but it also created many new jobs, including gas station attendants, car washes, and used car salesmen. But the present trend of technology appears to have the aim of putting the mass of human beings out of economically productive work at their own jobs, but putting the new jobs in the hands, or rather, claws, of the robots, who are currently owned by the corporations. I believe it was Norbert Wiener who said that in the future, the factories will be operated by two living beings, a dog and a man: the man is there to feed the dog; the dog is there to keep the man from pushing any buttons. We appear to be living in that future. Further events do not promise to be very pleasant.

So, the pieces of the puzzle have been set upon the board:

A. Fractional banking;

B. B. Human tribal behavior and the boom and bust cycle;

C. Governments’ tendencies to debase currencies and multiply laws;

D. The depletion of strategic resources, or Malthus 3.0; and

E. The progressive automation of world industry.

We’ll set them in motion on the board in the next section, and see how the game plays out.

(To be continued)