On a discussion forum I participate in, the question arose, “if the media blamed the bailout not being passed for the stock plummet that followed, why did it plummet again after the bill was passed?”

The wealth the markets are losing never existed to begin with: All the wildly swinging ups and downs in the stock market are evidence that investment bankers are playing hot potato.  They are looking for a New Bubble that can replace the housing bubble, just as hyperinflated house prices took over from the IT crash, but there is no new bubble anywhere in sight – although there might have been if we had committed to green energy a decade ago.

When house prices return to their real value, projected to bottom out around 2010, all that fictitious wealth – the difference between the real value of housing and the hyperinflated value that resulted from deregulation and bad lending – will just be gone. Until then, investors are madly and pointlessly shifting capital around the world, looking for somewhere it will at least be safe, if not grow – but no such place exists.

What we are seeing is a high stakes game of musical chairs. We all have to to keep running in circles until the music stops and another bank or industry goes down, then the world’s governments borrow a few more trillions from future generations to get the music started and the whole thing starts all over again with one less chair.

A lot of the the economic theory behind my perspective comes from this article by Eric Janszen.  The article contains an anonymous quote from an early 18th century South Sea Bubble pamphleteer that stuck in my head:

One added to one, by any rules of vulgar arithmetic, will never make three and a half; consequently, all the fictitious value must be a loss to some persons or other, first or last. The only way to prevent it to oneself must be to sell out betimes, and so let the Devil take the hindmost.

I googled the quote and came up with a book: The Far East and the English Imagination By Robert Markley.  The quote appears on page 222, along with a few other insights into the whimsical origin of growth based economics, most of which I am too lazy to retype.  Here’s a small morsel:

As early as the 16th century, “stock” became not merely an inventory of existing commodities but a representation of potential wealth, of returns yet to be realized.  What becomes “infinite”… is not the daily or annual production of specific estates or shipyards but the potential for that production to continue indefinitely if it is imaginatively freed from ecological, social and political constraints.

I understand why this model of economics would seem reasonable in the 17th century, when resource-rich virgin territories were being rapidly colonized, but now we must have a reality-based economic paradigm.  It’s time we relegate this fanciful nonsense to the annals of history, where it can live on as a quaint relic of the past – rather than the rope with which we hang ourselves, our planet and our descendants.

0 Responses

  1. “if the media blamed the bailout not being passed for the stock plummet that followed, why did it plummet again after the bill was passed?”

    Wow, I wish I had asked that question. It’s a good one! None of the ‘mainstream’ media are asking it, strangely enough.

  2. That is strange, isn’t it! Considering we have based stock prices on imaginary future wealth for over 400 years, you’d think the pundits would be used to the idea by now, and questioning whether the imagined future returns will ever materialize, and what we as a society can do to gently return to a reality-based economy if they never do. But no, it seems mainstream economic commentators are as likely to question the inevitability of future growth as Catholics are to question the virgin birth of Christ. In the religion of Economism, to which all our leaders and informers of public opinion subscribe, questioning unlimited growth is blasphemy.

  3. Someone somewhere said that if we all understood that economic growth is exponential, and if we all understood exactly what that means, we’d demand a new way of doing things by the next morning. ‘Steady’ growth of, say, 3% is not steady at all: it’s an ever steepening curve.

  4. @ Paul, the documentary “Century of the Self” at http://www.freedocumentaries.org explains exactly how consumerism has come to crowd out citizenship and gives a close look at the people pulling the strings. (You might have seen it – I know I’ve linked to it before at RF a few times.) The underlying philosophy holds that “the masses” (ie us) are an irrational, dangerous mob, incapable of acting in their own best interest. By transforming them into happy, distracted consumers and pandering to their subconscious desires, a wise policy maker can turn the potentially dangerous public into a docile flock of sheep. They’re quite frank about it. You’d like it.

    @ Richard, you must have seen the Youtube lecture I linked to in one of my earlier posts. 🙂 I quite liked the “bacteria in a jar” example of the ultimate fate of any exponentially growing population. Really drives the point home!

  5. Actually, I think it was on The Money Masters – the three-hour film available on Google Video. That’s worth watching. It’s funny how three years ago many people thought I was a conspiracy nut talking about this stuff. Some told me out-right they didn’t believe me. A lot can change in three years!

  6. I’ve lost over $40,000 in the last 6 months — half of it BEFORE the big crisis. I’ve never made a nickel on my “conservative” investment portfolio. Negative “growth”. I just wanted to save for my retirement. I thought I could earn a dollar today and spend it 10 years from now. Silly me. That retirement is now pushed back indefinitely. 70 at the earliest. Maybe never. That’s the a “reality-based economy” for you.

    We’ve all been running on fumes for the last decade or two. The banking system allowed us to pay today’s bills out of tomorrow’s prosperity. Well the tomorrow is here and we’re ALL in deep deep shit whether we believe in money or not. This will be devastating for the poor, brutal for the middle class and uncomfortable for the rich.

    The levers of power are no longer connected to the economic engine. They’re cutting interest rates when inflation is about to go through the stratosphere. Banks won’t lend to each other no matter how low the interest rate is. Businesses (not just banks!) are folding for lack of capital. Alll the strategies of the politicians and finance ministers are officially irrelevant. Get set for a crash of cosmic proportions.

  7. Hi, dad, I’m sorry to hear about your losses. I am hoping that the collapse of multinationals and international banking might improve the situation for the world’s most poor. Third world countries that have been subjected to the IMF program of trade globalisation are worse off than ever, but if multinationals can’t find the capital to operate in the third world, those people will have an opportunity to rebuild their local economies. There’s no doubt this will be devastating to the middle classes, though. It can’t be easy to see extra years tacked onto the end of your working life when it’s just around the corner.

  8. It’s true that we don’t have a very good track record when it comes to “rich” nations helping the “poor”. You’re right about the IMF. What they do is basically make sure that when the 3rd world elite borow money the poor pay it back. Another model is to lend money to 3rd world nations to buy stuff we make. But there are other models such as what Clinton, Gates, Bono and others are doing. It makes sense to help out with fundamental problems like health (malaria, AIDS) and safe water.

    I’m worried that hard times will make it even more difficult to pay for the changes needed to fight global warming (In Canada and the US, we refuse to do anything about global warming if it has any short range economic impact). Now, the economy is circling the bowl, making it much more likely that the global warming disaster will actually happen. The economic imipact of that will dwarf any problems we’re having now. Again, the poor will be hit hardest by climate change. It’s what they call a “perfect storm”.

    My strategy is to die before the money runs out 🙂

  9. Die before the money runs out – sounds like as good a strategy as any. 🙂 I’m not big on planning for the long term myself, as you might have noticed by now. The money runs out every month for us, pretty much.

    I think the best chance for the future (climate change, oil depletion and economic collapse) lies in people rebuilding local, self-sufficient economies. The reason I’m hopeful now is that people only seem to do such things out of necessity. We’ve had decades of robust growth that could have been spent paying for changes needed to fight global warming, but we didn’t do it. Now we have maybe a decade of depression ahead where we won’t be able to afford to drive, fill our cupboards with plastic pumpkins or heat our homes.

    Maybe this will work better – I don’t know. I’m pretty sure the old way wasn’t helping though – it never would have happened. Every country in the world could have switched to a green microgeneration scheme like Germany’s by now, and we didn’t. The UK is still building coal plants – maybe now they won’t be able to afford it. Canada is still poisoning the waterways with oil sands extraction runoff. Maybe the process will be too expensive when demand for oil drops off.

    Anyway, I really don’t know what’s going to happen, but there’s sure to be some kind of silver lining in there somewhere.

  10. Although he’s preferable to the alternative (which creates a finite probability that we’ll have President Palin), I think Obama is mainly a terrific orator. He tells us what we want to hear. Tax the rich. Create jobs. Lots of change.

    Not that I disagree with the idea of plowing money into green technologies, creating jobs as a spinoff. But there’s nothing new in that. New technology always creats jobs and renders old jobs obsolete.

  11. I see Obama as a return to “business as usual” in the US, apart from the obviously significant landmark achievement for politicians in North America who don’t happen to be lily-white.

    But “business as usual” (a la Clinton, or even Bush Sr. for god’s sake) in the US would be a HUGE relief after 8 years of PNAC leadership. I liked it better when the US pretended to care about democracy and the rule of law, even though it wasn’t genuine. The body count was lower, and a few civil liberties remained.

  12. Obama strikes me for the most part as a centrist in American politics. I don’t foresee much in the way of fundamental change. But I could be surprised — especially since there appears to be a side to Obama that’s somewhat idealistic.

  13. Hi, Paul. Re. Obama’s “idealism”, I think that’s just integrity. It only seems idealistic because politics is normally such a clown car. That documentary PureX linked to, “The Choice” seemed to indicate he has always been very middle-of-the-road. Particularly in his role as the Harvard whatchamacallit, where he (apparently) chose quality editorial over idealism, to the consternation of his leftist friends.

    Then again, you wouldn’t expect the first non-white leader in the history of the English-speaking world to be anything other than an idealist, in some ways. The guy must have some powerfully motivating dreams.

  14. I think it’s always a bit idealistic in this world to choose truth, quality and merit over ideological purity. 😀 But I’m probably just having a cynical moment.

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