The people at Conflicts Forum, which is directed by former British diplomat and MI6 ‘ranking figure’ Alastair Crooke, sent me an unpublished article by Alastair and asked if the Automatic Earth would publish it. Since I like his work and I (re-)published two of his articles last year already, ‘End of Growth’ Sparks Wide Discontent in October 2016 and Obstacles to Trump’s ‘Growth’ Plans in November 2016, I’m happy to.
His arguments here are very close to much of what the Automatic Earth has been advocating for years, both when it comes to our financial crisis and to our energy crisis. Our Primerssection is full of articles on these issues written through the years. It’s a good thing other people pick up too on topics like EROEI, and understand you can’t run our modern, complex society on ‘net energy’ as low as what we get from any of our ‘new’ energy sources. It’s just not going to happen.
Here’s Alastair:The Automatic Earth
What is this ‘Crisis’ of Modernity?
28 comments:
Geez,what a bunch of cranks. QE has printed so much money that money's value has been severely reduced? What the fuck are these people smoking? Are these like peak oil types? As if energy production is the thing that is holding us back? Man are we screwed with this level of discourse. No serious discussion of the problems that actually face humanity can be had because every single one of the possible participants is a god damned hard money ideologue.
And of course the elites cant fix the problem, its their market uber alles, Govt is only good for shoveling money to and protecting the rich religion that is the problem. How can someone whose religion has gotten us here possibly be expected to find solutions to get us out of this hell hole? They cant.
IOW the first step towards getting answers to our problems is to ditch all the people that got us here. Instead of relying on the same sad group of people, maybe just maybe we should look to people who;ve publicly broken with the status quo to their own personal financial detriment. Look around for people who used to work in finance but left because of their moral revulsion. Someone like Chris Arnade, Alexis Goldstein, Bill Black, Frank Newman, there's probably countless smart, moral people who are informed about their particular subject of expertise, the problem is that you wont find them at the top of the current hierarchy, because these people have rejected that system.
which leads me to the bullshit idea of meritocracy. Like its supposed to be some obviously good thing. If you are invovled in an immoral, corrupt cartel like health insurance, biotech, banking, finance, MIC, Pharma etc, then the people who get to the top arent the best, most moral people. Those arent the traits that are being selected for as meritorious in those institutions, the traits the get selected for are more like who's the psychopath that can make the best imitation of a normal person. Who's the most manipulative? most maniacal? best liar? best grifter? most heartless?
Guess who gets to the top of a mexican drug cartel? The most ruthless, smartest killer, thats who. Who gets to the top of our criminal govt system?
Actually the point he is making a subtler than "printing money."
One of the unstated intentions or QE was to drive up asset prices to create a wealth effect to spur spending, hence, investment, to bolster the recovery. The Fed later admitted this and that it had failed. I was successful in drive up asset price but this did not impact spending as assumed.
Inflation is defined in terms of goods markets and the labor market, but not asset markets. Assets appreciate without inflation in this view.
But increased asset prices are increases capital values and owners demand a "commensurate" return. This adds to the level of rent extraction.
Crooke is right about that.
Arguably, the most important real economic factor if energy. Look at any historical chart of human progress in terms of output per capita and it is obvious that the curve is flat as far back as one can trace it, until the harnessing of fossil fuels to drive industrial technology.
Energy is also the most negative of externalities and not just effluent. I was just talking to an engineer about this, and he said that the overlooked negative externality is heat. Even if humanity discovers a source of unlimited cheap energy like "cold" fusion, the issue in its application will be the amount of heat that is generated by work.
In spite of this, most economists don't take energy into consideration and it is hardly mentioned in discussions of economics.
Add that to ignorance about "money," and most economics is beside the point.
Here is someone that 'takes energy into consideration'.
“Why hasn’t it worked? Because real growth today is constrained by real resource shortages, while in the 1930s traditional Keynesianism’s assumption of unemployed resources was reasonable. There is still unemployed labor to be sure, but not unemployed natural resources, which have become the limiting factor in today’s full world.”
https://rwer.wordpress.com/2016/10/04/negative-interest-rates-or-100-reserves-alchemy-vs-chemistry-herman-daly/
The article says this:
"QE is eating into peoples’ discretionary income by inflating asset balloons, and is thus depressing growth – not raising it."
This is assuming that the problem is insufficient aggregate demand?
Whereas, the decline in the EROI affects the supply side of the economy, effectively reducing the long run productive potential of an economy?
"QE is eating into peoples’ discretionary income by inflating asset balloons, and is thus depressing growth – not raising it."
I took that to mean raising rents as Crooke explained and I summarized.
The problem is that owners of capital have not been investing since the crisis but rather taking advantage of low rates to bid up asset prices as the Fed expected. But instead of "the wealth effect" leading to increased demand by spilling out into consumption spending, the gains were committed to further accumulation of financial assets (saving). As a result there was lagging investment and a slow recovery. This is understandable since the wealthy took a huge hit as asset values collapsed. They were focused in rebuilding their wealth through asset appreciation.
The game shifted from firms investing productively to make profits to increasing rents on ordinary people.
The problem post crisis that firms were driven more by rent-seeking rather than productive investment, like stock buy-backs rather than investment spending.
The competition turned away from getting a piece of discretionary income through sales toward getting a bigger piece of the monthly nut through rents, increasing the size of the nut and thereby reducing discretionary income.
Crooke did not originate this view about decreasing investment and increasing rent post-crisis, and it appears to me to have merit.
Come on Tom, you cant ignore things like this:
"Not only is monetary expansion not working, it is actually aggravating the situation: Printing money simply has diluted down the stock of general purchasing power – through the creation of additional new, ‘empty’ money – with the latter being intermediated (i.e. whisked away) into the financial sector, to pump up asset values."
This is basically all bullshit. QE didnt print any money, all it did was take away $4 trillion in interest bearing securities savings opportunities. The idea being that people would use some of that money for consumption or real investment to expand employment and GDP, and worst case scenario, there'd be a wealth effect from asset inflation.
But how does that lead us to a solution? If the cohort of people this guy represents thinks that QE is "printing money" and its been disastrous then how is he\they going to agree that we need to get regular people (as opposed to the investment class) more incomes and thus more aggregate demand? Are they supposed to get behind "borrowing money" ? Hell, the very next sentence he says:
"It is time to put away the Keynesian presumed ‘wealth effect’ of high asset prices."
Look at all the ignorance and bullshit that needs to be overcome here. This guy needs a compelte overhaul in his understanding of economics and the artificial limits that modern economics places on whats possible. I dont mean to pick on this guy because of lot of the complaints are about the right things in general, but he like every other hard money person cant begin to discuss solutions because they're minds are limited by a gold standard mindset.
Postkey-
Please, the solar system has a practically unnlimited supply of usable natural resources. Spend 2% of GDP on space investment and exploration every year and commercial spaceflight and the benefits therein will be realized by 2050. There are very few problems that millions of people coordinated towards a single goal cant accomplish. the problem is that we coordinate people in our modern society using money and as long as money is in such short supply psychologically we will be a stunted species.
As if profit is the universe's best and only answer to directing research and effort.
Tom-
WRt to the energy and heat problem. It is my understanding that the amount of energy use that would be worrisome with a maximum population of about 10-12 billion (which is all its looking like we'll have on earth) from a heat generation POV is so astronomical that the whole concept is a red herring. All we have to do is figure out how to manage 10-12 billion people living at something likee the US standard of living (for the upper middle class).
1 car per adult
500 sq ft of living space per person
ability to take vacations via plane and auto
2500 calories per person
25000 kwh electricity use per year (more than double the current average US household usage per year)
No reason at all why abny of this would be a problem from a heat generation POV assuming that we get a handle on pollution.
QE was designed to level the yield curve, from ZIRP on out. Low rates were advertised a spurring investment but the actual intention was to put a floor under the housing market and drive equities back to previous levels. It worked fine to do that.
But the ensuing "wealth effect" did not spill over into spending, either consumption or investment in the way that the Fed had expected, increasing investment spending and raising employment. That failed.
Capitalism is not a good system from putting caps on negative externalities or preventing markets from meeting demand.
Could happen, of course, if the will were there, but it won't under "capitalism."
Need an upgrade.
tom
why are you talking to me about QE and its impacts? Im not one of the people you need to explain that to. I see that youre not addressing my point about just how overwhelming our problems are because of the level of magical thinking related to economics, that this guy represents. As his statement about QE and money printing represents.
Dont know what the second comment has to do with what I said Tom. Capitalism is simply private ownership of production. No way that private ownership is going anywhere. thank goodness. There are only two types of organizing systems capitalism (private ownership) and socialism (public ownership) so its no good denigrating "capitalism" as thats just a vacuous slogan.
OH and you didnt address my second comment with your second response. there is no danger that we are going to overheat our plant jsut by using what is a normal level of electricity. So again, its the poolution that comes with the generation, not the amount of energy itself that is the limiting factor. Thats what all the peak oil nuts miss.
Capitalism is based on an absolute (natural) right to private property and doing with it as one freely chooses without government interference. There's little that can be done about the effects of this in terms of negative externality and social asymmetries in a capitalistic system. It requires a managed system that most Americans don't want — because "socialism." This is changing with the younger generation, who poll as more open to socialism, and I would expect US politics to change quite a bit in the future unless they become more conservative as they grow older. But that has not kicked in yet with the US firmly in the grip of the conservative party, from POTUS, both branches of of congress, and soon SCOTUS, to the majority of state governorships and legislatures, and local public offices.
For example, there is an issue with climate change, since as the planet warms, the use of A/C increases and that uses a lot of energy that increases ambient heat as a negative externality in addition to pollution.
I am not sayin that these issues are unsolvable in the foreseeable future, but little is being done to address them at this point and most economists aren't considering this as a real cost.
BTW, the people that do get this in my experience are architects. Cities, especially, are a problem, and the globe is urbanizing fast. Perhaps jrbarch has something on this.
The ‘wealth’ in the skin of the earth, the water, air and fire, belonged to all of humanity and the other inhabitants of the planet – long before any fleeting human ideology or institution came along. In the jungle, people and animals just take what they want because that’s the law of the jungle: - ‘Big fish eat little fish’. If we are to be a ‘civilised’ species, then the Law of Sharing must be adopted – so we have to work out how to divide the bread and fish. That’s what we tell little kids: - “Share”. The wall between the jungle and civilisation is called ‘Peace’. Its foundation stone is ‘Do No Harm’. Its mortar is love and respect, intelligence: - seeing another human being as one see oneseself. That wall symbolises our hope, our gratitude, our self reliance, our identity. It is up to each person.
Oh – posted my comment before seeing your last Tom ...
Cities are huge heat sinks that affect the local climate and inhabitants – I know nature is always trying to wash Sydney clean.
The most potent energy I see at work in humanity today is the potential of kindness: - separates the jungle from the civilisation. Without it, all we have left is the mind .....
Just thinking ...
Besides the effects of long-wave heat radiating from the concrete and asphalt, slowly toasting the good citizens - there are many other stressors.
Am sure the noise of the city will one day prove to contribute quite a bit to the enormous physical and emotional stress city people live under, given the human constitutional sensitivity and response to sound; the 24 hour lighting disturbs the natural rhythm; the music and beat is always many times a factor of the heart rhythm; the focus on sexuality dissipates the higher energies; the focus on $money and materialism increases frustration; the sheer physical volume and energy of all of the moving parts in the city wears people down. I don’t know how to diagnose a modern city but I think people are starting to do it. Crime is an eruption.
People take holidays and go lie out under the stars near a lake. The human body and psyche are a part of nature and nature has rhythms and we forget how to move.
"I took that to mean raising rents as Crooke explained and I summarized.
The problem is that owners of capital have not been investing since the crisis but rather taking advantage of low rates to bid up asset prices as the Fed expected. But instead of "the wealth effect" leading to increased demand by spilling out into consumption spending, the gains were committed to further accumulation of financial assets (saving). As a result there was lagging investment and a slow recovery. This is understandable since the wealthy took a huge hit as asset values collapsed. They were focused in rebuilding their wealth through asset appreciation."
I don't doubt what you say. However, the article doesn't mention investment.
Auburn Parks
I didn't say that I agreed with the article.
May I suggest that you go to
https://rwer.wordpress.com/2016/10/04/negative-interest-rates-or-100-reserves-alchemy-vs-chemistry-herman-daly/
and explain to him where he is 'mistaken'?
Tom
You may not have seen this re the UK.
It appears that investment {productive?} has been the driver of U.K. 'growth'?
“The depth of the crisis was reached in the spring and summer of 2009, and we now have the initial estimates for the economy for the same period in 2015. GDP as a whole increased by £100bn over the period, after allowing for inflation, a rise of nearly 13 per cent. Companies spent an additional £32bn on new investment in 2015 compared to the same period six years ago. In percentage terms, this was by far the fastest growing sector of the economy, up by 26 per cent. By contrast, consumer spending grew by only 10 per cent, less than the economy as a whole. It has been an investment-led recovery, with the role of public spending negligible. “
http://www.cityam.com/231763/ignore-the-gloom-merchants-the-uks-investment-led-recovery-is-sustainable
Those arent the traits that are being selected for as meritorious in those institutions, the traits the get selected for are more like who's the psychopath that can make the best imitation of a normal person.
THIS is the biggest problem humanity has. Our 'filtering' social mechanisms don't escale past small proximal groups. 'Democracy' is a band-aid which needs polishing to work if anything.
Get a group of 30 random people and put them out in the middle of the jungle with no access to civilisation and money. You will get a certain group dynamics going.
Get that same group and put it in a corporate environment which has to operate ina wider context with money and an "external" economy. You will get a totally different sort of group dynamics going.
Guess which will be more balanced, fair, less hideous and will produce better outcomes WITHIN the group (ofc you will get a better material standard in a civilised context) regarding happiness and cohesion? Sure you can answer that one.
I still don't know how to solve this problem with having the proper incentives at every social level, maybe Jefferson was right and every generation needs to spill some blood and a constant revolution, but this is just like Mao's thought and we know permanent violence does not equal progress and 'purging'.
Until we become with peaceful ways to set up and KEEP proper social incentives we will be in a mess.
Before worrying that we don't have enough resources we should worry about the distribution of our current resources. Ghandi put it very simply. Truth is most people don't need or want to have outrageous wealth.
If you think "wealth" (nominal wealth at current valuations) disparity is bad, real wealth consumption is way way worse. There is a good case for taxing and penalising all that outrageous real resource consumption which creates scarcity or inflation with very high marginal rates and work with the space created by all that consumption to provide housing for everybody (for example).
All this requires a certain degree of "socialism!!!" and "governmint interference!!!" so don't expect it to happen with the current crooks-in-charge and all the millions of idiots supporting them.
A balance of power prevents psychopaths and group dynamics from getting out of hand. So for example, capital and labour do not share the same interests, therefore a balance is required between them.
Growth is not a sustainable condition. Economic growth is an oxymoron as growth of one system is dependent upon the consumption of another. As Buddha said, the wealth of the few is made up of the poverty of many.
Money is only one measure of value. For the things I care about it is not a very good measure at all. Quality of life, health, sustainable environment, etc. What we have more than anything else is a crisis of values. We value the wrong things. As Black Elk observed, the white man is very good at making things but he is not very good at distributing them.
Humans are tribal by nature. We get along well in small groups. But we are genetically programmed to compete (for reproduction, for example) yet require cooperation to survive. Wealth (power) reduces or eliminates the need for cooperation. Power structures prevent challenges to their power by preventing cooperation through division.
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