Point/Counter-point
Hi folks,
I haven't posted on SI in years, usually I lurk and read other people's input. But today's message from SOTB has caused me to come from lurking and step up a minute to make some observations.
1) While Slider has a history of an over-developed sense of self-importance, this was mitigated (to some extent) by the quality of his analysis. But IMO, today's post steps it up a notch from hyper-ego to hubris. As one person noted, this is truly rubbing salt into the wounds of others. It passes quickly from feigned concern into full bore schadenfreude. Today's post is almost religious in nature, in that others were punished for simply not following his divine words of wisdom. This is what happens when one is truly full of themselves (see: Lord Acton's axiom). Systems work until they don't and one day his won't and like Ebenezer Scrooge at his own funeral, I doubt if many will be left to commiserate with Slider when that day comes.
2) Slider, in his analysis reminds me of free marketeers in that all socioeconomic and financial planetary dynamics, revolve about the solar marketplace, they don't. Part of the economic is the social and here it is where we see the error that comes with the limited view offered in wearing market based blinders in one's analysis.
True enough, the money supply did grow during the time frame he placed in question. So, under classical economics (if not all schools of economics) the currency was being debased and it should have shown itself with price inflation. Well, in one extent it did, and that was the Tech and equity bubble during that time. Inflation, does not need to show itself in the price of consumer staples and commodities, to be price inflation. Followed soon thereafter by the housing bubble. Yes? No? Maybe so?
But let's step beyond the economic and look into the social framework to see what was at work to hide currency debasement from consumer staples and commodities. For the uninitiated, I introduce you to Joseph Tainter:
en.wikipedia.org
snippet:
"According to Tainter, societies become more complex as they try to solve problems. Social complexity can include differentiated social and economic roles, reliance on symbolic and abstract communication, and the existence of a class of information producers and analysts who are not involved in primary resource production. Such complexity requires a substantial "energy" subsidy (meaning resources, or other forms of wealth). When a society confronts a "problem," such as a shortage of or difficulty in gaining access to energy, it tends to create new layers of bureaucracy, infrastructure, or social class to address the challenge.
For example, as Roman agricultural output slowly declined and population increased, per-capita energy availability dropped. The Romans "solved" this problem by conquering their neighbours to appropriate their energy surpluses (metals, grain, slaves, etc). However, as the Empire grew, the cost of maintaining communications, garrisons, civil government, etc. grew with it. Eventually, this cost grew so great that any new challenges such as invasions and crop failures could not be solved by the acquisition of more territory. At that point, the empire fragmented into smaller units.
We often assume that the collapse of the Roman Empire was a catastrophe for everyone involved. Tainter points out that it can be seen as a very rational preference of individuals at the time, many of whom were actually better off (all but the elite, presumably). Archaeological evidence from human bones indicates that average nutrition actually improved after the collapse in many parts of the former Roman Empire. Average individuals may have benefited because they no longer had to invest in the burdensome complexity of empire.
In Tainter's view, while invasions, crop failures, disease or environmental degradation may be the apparent causes of societal collapse, the ultimate cause is diminishing returns on investments in social complexity (in contrast, Jared Diamond's 2004 book, Collapse: How Societies Choose to Fail or Succeed, focuses on environmental mismanagement as a cause of collapse). Finally, Tainter musters modern statistics to show that marginal returns on investments in energy, education and technological innovation are diminishing today. The globalised modern world is subject to many of the same stresses that brought older societies to ruin.
However, Tainter is not entirely apocalyptic: "When some new input to an economic system is brought on line, whether a technical innovation or an energy subsidy, it will often have the potential at least temporarily to raise marginal productivity" (p. 124). Thus, barring continual conquest of your neighbors (which is always subject to diminishing returns), innovation that increases productivity is -- in the long run -- the only way out of the dismal science dilemma of declining marginal returns on added investments in complexity."
I submit, that it is difficult not to give Tainter his due and to say his theory is quite applicable to western nation's today, particularly to the United States. So for the sake of argument, let's say what Tainter observed and diagnosed is correct and that currently this dynamic is not only at work but has been with the US for the past two to three decades. What then staved off collapse of the social and economic structure as consumption has now exceeded productive output? Pay attention to the last paragraph above (again):
"However, Tainter is not entirely apocalyptic: "When some new input to an economic system is brought on line, whether a technical innovation or an energy subsidy, it will often have the potential at least temporarily to raise marginal productivity" (p. 124). Thus, barring continual conquest of your neighbors (which is always subject to diminishing returns), innovation that increases productivity is -- in the long run -- the only way out of the dismal science dilemma of declining marginal returns on added investments in complexity."
So during the time frame in question, what happened? Indeed, as Tainter observed, a new input to an economic system was brought on line, with both technical innovation and energy subsidies. During the time frame in question, commodities ended a secular bull market and began a secular bear market, reducing energy cost, this freed up money in the economy for further consumer consumption as the US economy went from being manufacturing driven to being service and consumer driven. Additionally, the oft noted cost reduction of technological efficiencies grew the fastest in history as the information age became ubiquitous and expanded from niche subcultures (corporate and governmental mainframes) into every day lives. This greatly helped to facilitate inventory efficiencies as well, as the concept of "just in time inventory" became not only the mainstay of commerce, but for households as well. These efficiencies also freed up capital and increased the strength of the burgeoning service and consumer based economy. I submit, these efficiencies have now been fully digested and that inflationary pressures can't be hidden as they once were from commodity and consumer staple prices. Of course I haven't even touched on the exportation of manufacturing to those nation's with lower wages, which also helped to mitigate modern inflationary indicators, through wage deflation. But that would be Phillips' curve nonsense to the and we don't need to go there.
All these dynamics, played a role in hiding the currency debasement which was taking place from the eighties into the twenty-first century. We may yet see other forces come into play that perform the same role of staving off socioeconomic collapse (as per Tainter), especially in the energy sector (workable cold fusion as an example), but who sees any such development on the horizon? I sure don't.
3) Finally, the most disturbing aspect of Slider's message, is the implied logical conclusion, that socialism/fascism can work. Economies and societies can be politically managed along with monetary policy. That political rulers, be they tyrants or democratically elected to office, can play social engineer and decide with near perfection the shape of a nation and then pay no price for their folly, excesses and (in some cases) moral depravity (as in unjust wars). No, in Slider's world, it's all good. There exist no alternative, only obedience is excepted, for the system will never fail. For if there is no punishment to be extracted for the decades of (what I find to be) mismanagement, abuse and avarice, then what's the point? Why do we bother? Just submit to the governmental Borg, invest in treasuries and sleep well knowing that the ruling elite can never fail. |
