The West’s economy is afflicted by uncertainty, housing troubles, foreclosures, global shifts, and the aftermath of the epidemic, all of which contribute to instability. There’s a confluence of too many negative factors for this to continue. The economy is terrible and the political system is a disaster. There’s no social cohesion, no great project, no real reason to live other than basic survival. We’re isolated and alienated. And we’re told it’s all our fault, and constantly gaslit on tons of other issues as well. Depression and anxiety are through the roof. Most people aren’t happy. George Orwell’s 1984 is the single most terrifying book of the last century. Not because of its brutality, authoritarianism, or hopelessness, but because Orwell knew something about humans that almost nobody else seems to understand… for the vast majority, perception of reality is dependent on consensus. The sheeple’s hivemind NEEDS social acceptance to function, and that means they will always be easily manipulated by whoever understands this and has the means to exploit it. For someone capable of perceiving reality independently, it means you’ll always be subject to the stupidity of the mob, and there’s nothing you can do about it. You are forever forced to witness the gaslighting and indoctrination but can do nothing to save society from itself.
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FOREWORD WRITTEN AND ARTICLE(S) EDITED BY THE INTERNATIONAL CHRONICLES / WRITTEN BY CHARLES HUGH SMITH ON SUBSTACK
The Anxiety Economy
We’re told to stop being so darn negative even as the tsunami of inequality washes away the beach chairs of the bottom 90%.
The disconnect between the happy story of the economy is growing healthily, so all is well and the insecurity and stagnation experienced by the bottom 90% of wage earners has been widening since the wheels fell off in 2008. One would be forgiven for assuming that a smartly growing economy would increase the general sense of security and reduce the general awareness of precarity. But alas, this assumption is false: the sense of precariousness is rising as the sense of security has slid off a cliff.
Welcome to the Anxiety Economy, a term coined by longtime correspondent Bart D., who describes the term thusly:
“By my reckoning the Anxiety Economy is an adjunct to (and perhaps to some degree a product of) the Landfill Economy model.
There was a time when the economy was designed to provide surety and stability. Jobs were stable, opportunities to create increasing wealth (particularly small business creation) were uncomplicated and products were designed to be genuinely better and longer lasting with every iteration. I think this typified the late 1800s to the early 1970s.
Since the 1970s we’ve seen stable jobs drastically reduce along with the durability and usefulness of new product iterations and trying to comply with the massive regulatory burden of businesses as simple as washing dogs or growing vegetables has become mind bending and expensive.
We get bombarded in news and other media with stories of house fires, chronic illnesses and car crashes in places very far away and disconnected from us (interspersed with, and no doubt sponsored by, marketing for insurances of every kind) that make us feel that the risks we face of loss of assets and health are waaaay bigger than they actually are. So that we buy expensive insurances.
All of this means we feel far less certain about long term income, our ability to run business and create wealth, we understand that everything we buy will fail pretty fast and needs to be replaced and we have a wildly over exaggerated sense of the need for expensive insurances.
These things make for very high anxiety about sustaining our lifestyle. Adding to this is the shift in economic activity from making things of merit to commodifying (and rendering taxable and insurable) the things families once did for each other–most significantly child rearing and aged care. We feel we can’t rely on family to care for us or are made to feel guilty/a burden on family if we lean on them to look after us in old age.
The economic system is now designed to make people feel:
–Uncertain about our ability to meet the cost of future needs
–Locked into a constant and ever shortening cycle of replacement for what should be ‘durable goods’
–Inadequate in their abilities to do business and make wealth
–Over-exposed to risk
–Unsure about their future health and care.
You mentioned the need to simplify our lives–Amen to that! And this is a growing sentiment I’m hearing from many people. The issue is the Anxiety Economy makes it very hard to achieve that simplification. It actively blocks people from disengaging. Because once that movement takes hold, the power of wealth will decline dramatically.”
In other words, the Anxiety Economy benefits the few at the expense of the many–the definition of a broken, exploitive economy that is optimized to generate enormous asset-inflation wealth for the top 10% who own the vast majority of income producing assets while sapping the purchasing power and security of wage earners.
The status quo’s high-profile, highly paid cheerleaders have a quiver full of tricks to mask the Anxiety Economy’s soaring inequality. One old trick that still works on the unwary is to tout average household income and average household wealth. This is a trick because stupendous sums of income and wealth accrue to the very top of the wealth pyramid in the U.S., and this massively distorts the average income.
Median income also fails to capture the extremes of income inequality that characterize the American economy, but it’s less distorted than average income.
In 2022, the average US household income was $105,555, while the median was $74,580.
As this St. Louis Federal Reserve chart shows, the top 0.1% of households–130,000 households out of 130 million–own 15% of the nation’s financial wealth.
This wealth is highly concentrated within the top 0.1%. While I cannot vouch for the accuracy of the statistics cited in this graphic, the general idea is simple math: strip out the apex of the income-wealth pyramid, and the average income-wealth numbers plummet to Earth.
According to the Bureau of Labor Statistics (BLS), “Real average hourly earnings increased 0.8 percent, seasonally adjusted, from May 2023 to May 2024. The change in real average hourly earnings combined with a decrease of 0.3 percent in the average workweek resulted in a 0.5-percent increase in real average weekly earnings over this period.”
Assuming the official inflation statistics are actually accurate (try not to bust a gut laughing), that’s a mighty thin dime of additional earnings for those earning $20/hour. Whoopie. Now consider the completely unprecedented enormity of the debt-funded stimulus (never mind the Federal Reserve’s $4 trillion in stimulus and open-ended goosing of the stock market via proxies) since 2020–$22 trillion in new borrowing since Q1 2020–and we see just how paltry the gains were for wage earners. Here’s Federal debt, up $12 trillion:
And here’s total debt, up $22 trillion.
And to show how sustainable income increases failed to materialize, here is a chart of real (adjusted for inflation) median personal income. Note the collapse that occurred after the Global Financial Meltdown of 2008, and that personal income never recovered the trendline other than a brief pandemic-stimmy-induced spike that quickly faded.
In summary: wage earners never recovered from the 2008 meltdown. No wonder the gap between the cheerleaders’ delusional insistence that we’re all getting richer in every way, every day and the lived reality of the work force who didn’t have the means to buy stocks at the 2009 bottom or buy a portfolio of rental houses in 2010.
We’re told to stop being so darn negative even as the tsunami of inequality washes away the beach chairs of the bottom 90%. The Anxiety Economy is remarkably profitable for the top few and remarkably unhealthy for everyone else. They’re pleased to prescribe us meds to take the edge off the Anxiety Economy, but meds won’t fix what’s broken in our economy or social order.
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BUT WHAT IS REALLY GOING ON?! In a nutshell, the answer is the startling decay of everyday life. Why my writing strikes so many as negative is I am reporting from my direct experience and then pursuing a relatively simple query: do the institutions and systems that dominate our everyday lives have any formalized self-correcting mechanisms, and if so, why aren’t they working? If they lack such mechanisms, then they’re running to failure and this is not a positive outcome for all of us who depend on these systems and institutions.
Let’s stipulate a few things before we proceed.
1. If we can’t be honest, then why bother? If we can’t bear to face the visible, obvious realities in daily life, then what’s the point? If the real world I’m experiencing is instantly declared “negative and depressing,” then how do we actually make any progress? We can’t.
2. The secular religion of America is “you must always be positive, upbeat, and talk up hope.” A positive mental attitude is definitely a plus when compared to indignation, entitlement, resentment and passivity, but realistic appraisals are the essential foundation of actual problem-solving. Feeling inspired because “we’re going to Mars!” qualifies as upbeat but there is absolutely no connection between going to Mars and reversing the decay of our everyday life–none. The decay can’t be reversed by upbeat inspiration or some new gadget or app. The problems are far deeper and far more interconnected.
3. The source of hope is to face these realities directly rather than declare anyone who addresses them without sugarcoating a “doomer.”
4. The decay of everyday life is depressing because there are no easy fixes, and that there are no easy fixes is depressing, too. That’s part of the reality we wish to avoid. But that doesn’t mean there are no ways to improve the situation, and the path to improvements, both systemic and personal, are what I write about.
5. We all need a break from depressing realities. I strictly limit my exposure to the media and social media as an essential means of retaining some shred of sanity. I focus on the real world, and the workings and consequences of the systems we rely on.
6. Where you stand matters. Many of my readers are older, and therefore likely to have bought a nice home for $45,000 decades ago at the start of their careers, worked hard, earned a pension or accrued a 401K fattened by the relentlessly rising stock market and are now worth $2 million. From where they stand, life in America looks good, and focusing on the decay of everyday life somewhere other than their neighborhood strikes them as negative and depressing.
7. Abstractions don’t reverse the decay of everyday life. Waving a chart of the GDP around–it’s rising, so everything’s great!–has no connection to real-world decay or institutional dysfunction. That household wealth rose $20 trillion doesn’t means the problems are magically going away on their own; it simply means the system is optimized to make the already-rich richer. Waving a chart of GDP around doesn’t actually solve anything. It’s the functional equivalent of waving photos of cute kittens and puppies around and saying “everything’s going great!”
8. All this is evidence that we’re losing the will to actually reverse decay and are choosing to change the narrative as the “solution”. In other words, if we stop talking about the negative, depressing decay of everyday life, then we can get on with being upbeat and positive–look at GDP and household wealth, they’re going up! This desire to change the narrative rather than actually tackle difficult problems is understandable, but fatal to actual problem-solving. It is the equivalent of the Roman upper class reassuring themselves that Rome was eternal, so everything would sort itself out on its own because it had always been sorted in the past.
Here’s my direct experience in the real world: a 21-year-old today cannot have what I had 50 years ago: a part-time job that paid for my college tuition and books, a studio apartment, ownership of a car and spending money. I didn’t have to borrow a dime to work my way through college, have my own apartment and car and have a life beyond classes and work. I have documented this in detail: We Feel Poorer Because We Are Poorer: Here’s Proof (December 4, 2023).
Let’s not over-complicate what’s straightforward: we’re becoming more prosperous when our wages / labor buy more goods and services, especially the essentials of life: shelter, food, energy, utilities, transportation, higher education, healthcare and childcare. If the money we have left after paying for essentials buys more discretionary goods and services, we’re getting more prosperous.
If the essentials are consuming a greater percentage of our earned income, we’re becoming less prosperous, i.e. we’re poorer. Those tasked with persuading us that gradual impoverishment is actually soaring prosperity have near-infinite statistical means to obscure this straightforward measure of prosperity: the purchasing power of labor / earnings.
If our hours of work buy fewer goods and services, we’re getting poorer.
Fifty years ago, tuition at a four-year state university was $233 a year. That’s about $1,400 in today’s dollars. Today, the tuition at my alma mater is $14,500, a ten-fold increase. The same goes for rent and other expenses. If wages for 21-year-olds had risen by more than ten-fold, then everyday life would actually have improved. But this simply isn’t the case.
I could afford my own small studio apartment, an old car and some spending money and pay all my tuition, fees and books out of my part-time earnings. Granted, I was frugal and made more than minimum wage, but still–what I did was not impossible or unusual. Yes, it required working a lot of hours but it was certainly within reach. (I lived in Honolulu, one of the most expensive cities in the U.S. It would have easier virtually anywhere else.)
Can anyone claim this is true today with a straight face? If it’s true, then show me by doing it yourself. Go get a job at the same wages paid to a 21-year old, work fewer than 30 hours a week, and then rent your own flat, pay for your own car, pay all tuition and fees at a four-year state university and have a bit left over for the occasional bowl of ramen or movie or saving for a vacation.
If it’s still within reach, then why isn’t it the norm of everyday life for 21-year-olds today as it was two generations ago? If we’re honest–and we’re still able to be honest, aren’t we, or have we lost that, too–then we have to admit this isn’t progress, it’s the opposite of progress: life is harder now, not easier.
That cars have rearview cameras and apps do this or that and now we have electric cars–none of these reverse the startling decay of affordability, purchasing power and thus prosperity.
Here’s my direct experience in the real world: America is awash with refugees from what must be a great conflict or natural catastrophe. We call these refugees “the homeless.” I lived in the San Francisco Bay Area for 32 years. Tech capital of the world, beautiful people, scenic, nice weather, home to the smart, ambitious, wealthy, and so on.
Around eight years ago, empty stretches of roadways suddenly filled with dozens of vehicles–encampments of the homeless. Patches of lawn near freeway offramps were suddenly filled with tents and trash. A tent encampment arose a block from our house–not in a “bad neighborhood,” just not a protected enclave in the hills.
A homeless individual–does it really make us feel better to call this person “unhoused”?–started sleeping right beneath our bedroom window. I had to hose human excrement off our somewhat sheltered (and therefore ideal to use as a toilet) front entry. (We moved away in early 2019. Some solutions are systemic, some are individual initiative.)
Charts of GDP–it’s going up!–aren’t really relevant when you’re hosing human excrement off your front porch. Neither are rising sales of EVs–we’re saving the planet by stripmining it to make two billion unrecyclable batteries! These are abstractions, and they do nothing to reverse the startling decay of everyday life.
What caused this enormous flood of domestic refugees? We like simple answers and simple solutions, but there aren’t any. The unaffordability of essentials such as shelter are certainly a factor, but the decay of family, social ties and the economy all play a part.
How can we claim with a straight face that “life is getting more prosperous” when half the populace owns essentially zero financial wealth? Trillions in stimulus has piled up tens of trillions in financial wealth, but how has so little trickled down to the 170 million Americans who comprise the bottom 50%? Can we declare “this is an increasingly prosperous nation” after pondering this chart? That 170 million Americans own a grand total of 2.6% of the nation’s enormous financial wealth? That’s statistical noise, not prosperity.
Yes, this is negative and depressing. Why? Because it’s fact, and there are no easy, one-size-fits-all fixes. If we’re looking for a conflict or natural disaster that unleashed a massive reversal of progress, we might want to look at how wages have fared versus capital: capital skimmed $149 trillion from wage-earners.
Here’s my direct experience in the real world: the quality of appliances and other everyday life products has declined precipitously. My first apartment in the SF Bay Area in 1987 had a 40+-year old refrigerator, still humming along. In the early 1990s, a neighbor gave us his old 1960s era fridge when he bought a new one. The point here is that appliances routinely lasted 30 or even 40 years two generations ago, and now they fail within a few years.
This is not an abstract data point like GDP or federal debt. This is the real world. I have personally replaced the motherboard in a name-brand dryer that failed in a few years. The plastic part had a few cheap circuit boards and commodity chips, total value $20 at the most, and it cost $180 plus shipping. Add in labor (if I hadn’t been able to do the task myself) and the cost equaled the price tag of a new dryer.
Our name-brand washer and fridge both expired within the last year after less than a decade of service. If you talk to the staff in a big-box appliance department, they’ll tell you 7 to 8 years is about the norm now. In many cases, that’s not reality. We have many firsthand reports from family and friends of expensive, fancy fridges failing within three years.
Is this progress? No. The collapse of durability and quality is a catastrophic decay of progress and prosperity. Waving charts of GDP or photos of rockets doesn’t reverse this decay of everyday life.
Here’s my direct experience in the real world: a building permit that once took a day to issue now takes six months. Same basic plans for a modest starter house as forty years ago when I dropped the plans off in the morning and picked them up, stamped and approved in the afternoon, so what changed?
It’s certainly not the way houses are built. That hasn’t changed enough to affect the permit process. What changed is the functionality of the institution issuing the building permits. The functionality has fallen off a cliff. This is not progress or prosperity. It is a startling decay of everyday life.
Is declaring the real world negative and depressing part of a productive problem-solving process? I don’t think so. I agree that knotty, interwoven problems are difficult to tease apart and reverse. Many of these problems are embedded deep inside institutions, where they are difficult to see.
What I write about are solutions, but to write about solutions first requires making realistic assessments of the problems. That we respond to difficult problems by feeling they’re negative and depressing is understandable. But we have a choice: do we follow the elite Romans in placing our faith in the comforting idea that difficult adaptations made in the past will magically manifest now without us having to do anything? Or do we set aside our emotions and reluctance and start doing the hard work of dealing with polycrisis?
I think it’s more productive to go with Plan B: set aside our emotions and reluctance and start doing the hard work of dealing with polycrisis. I am hopeful about reversing the decay of everyday life, and I’ve written books about how to do so. But please don’t think that waving charts of GDP or EV sales is doing anything other than distracting us from the tasks at hand.
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The Illusion of “Growth” in a Social Depression
“Growth” as measured by Gross Domestic Product (GDP) and household wealth are the universal indicators of “progress”: everything’s getting better in every way, every day because economic activity and wealth are expanding.
But this “growth” and the “progress” it supposedly generates are entirely illusory if the “growth” is limited to the wealthiest 10% and the social order is unraveling in a Social Depression that is completely missed by GDP and wealth metrics.
The facts of inequality are beyond dispute. The top 10% of U.S. households own 90% of financial assets and the vast majority of all income-producing assets such as family / professional businesses and rental housing, and the top 10% account for roughly 40% of all consumption / spending. The bottom 50% of U.S. households own a negligible 2.6% of the nation’s financial assets.
The Top 10% Are The Main Beneficiaries Of Globalization
If all the “growth” in consumption and wealth is concentrated in the top 10%, and the rest of the populace is stagnating or losing ground, is this “growth” and “progress,” or is it the opposite of positive growth and real Progress? Clearly, it’s the opposite of positive growth and real Progress.
The decay generated by the drivers of this extraordinarily destructive inequality–hyper-globalization and hyper-financialization–is visible not in easily manipulated economic statistics but in observations and metrics of social opportunity and stability.
The conventional metrics (GDP, etc.) do not recognize, much less measure, Social Depression, i.e. the social costs of economic stagnation and wealth inequality.
Some commentators attribute this erosion of the social contract to rampant individualism and overstimulated consumerism, while others point to the commodification of child care and women entering the workforce en masse to prop up household incomes. Poverty is explicitly rejected as a causal factor, hence the term “social recession.”
This concept of social recession was aptly described by Robert E. Lane, author of the 2000 book The Loss of Happiness in Market Democracies:
“There is a kind of famine of warm interpersonal relations, of easy-to-reach neighbors, of encircling, inclusive memberships, and of solidary family life… . For people lacking in social support of this kind, unemployment has more serious effects, illnesses are more deadly, disappointment with one’s children is harder to bear, bouts of depression last longer, and frustration and failed expectations of all kinds are more traumatic.”
Lane found that “the main sources of well-being in advanced economies are friendships and a good family life and that, once one is beyond the poverty level, a larger income contributes almost nothing to happiness. In fact, as prosperity increases, there is a tragic erosion of family solidarity and community integration, and individuals become more and more distrustful of each other and their political institutions.”
The core dynamic of social recession described by Lane is what he terms the “Economistic Fallacy”: that rising wealth and consumption automatically translate into greater happiness.
I use the term Social Depression to describe a very different phenomenon: the economic, social and cultural consequences of structurally stagnant, increasingly distorted-by-vast-inequality economies.
Here are the conditions that characterize social recession:
1. High expectations of endless rising prosperity have been instilled in generations of citizens as a birthright.
2. Part-time and unemployed people are marginalized, not just financially but socially.
3. Widening income/wealth disparity as those in the top 10% pull away from the shrinking middle class.
4. A systemic decline in social/economic mobility as it becomes increasingly difficult to move from dependence on the state (welfare) or one’s parents to financial independence.
5. A widening disconnect between higher education and employment: a college/university degree no longer guarantees a stable, good-paying job.
6. A failure in the Status Quo institutions and mainstream media to recognize social recession as a reality.
7. A systemic failure of imagination within state and private-sector institutions on how to address social recession issues.
8. The abandonment of middle class aspirations by the generations ensnared by the social recession: young people no longer aspire to (or cannot afford) consumerist status symbols such as luxury autos or homeownership.
9. A generational abandonment of marriage, families and independent households as these are no longer affordable to those with part-time or unstable employment, i.e. what I have termed (following Jeremy Rifkin) the end of work.
10. A loss of hope in the young generations as a result of the above conditions.
Once we reach an unpredictable but very real socio-economic Event Horizon, social recession becomes Social Depression: a black hole of deteriorating social mobility and opportunity for the younger generations which leads to social-economic decay and eventual collapse if left to “run to failure.”
Japan has managed to maintain its status quo for the past 34 years–those with the wealth and power have retained the wealth and power–at the cost of social vitality. Younger Japanese, their expectations permanently downsized, are increasingly opting out of the rigid social systems on which Japan, Inc. was built.
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SO ARE WE STAGNATING OR “PROGRESSING” ?! I have long pondered a thought experiment reflecting the stagnation of “The New”, the core dynamic of Modernism: there’s always something new and exciting speeding toward us.
Consider this timeline. The Beatles released their “final song” last year, 54 years after they recorded their last album in 1969. Both surviving Beatles–Paul McCartney and Ringo Starr–continue performing and selling music in their 80s. As recently as 2020, The Beatles were ranked #8 in Billboard’s Top Paid Musicians, earning $12.7 million. (The pandemic lockdown cut touring short, so total industry earnings were down. Taylor Swift topped the list with a paltry $23 million.)
In 2021, The Strolling Bones–sorry, The Rolling Stones–earned $55 million, just behind Taylor Swift’s $65 million. That’s impressive, given the Stones have been recording songs since 1963–61 years ago.
Now consider these timelines transposed back to these bands’ heyday in 1969. Imagine a band that last recorded an album in 1915 causing a media sensation 54 years later in 1969 by releasing a new song, and another band from that era placing #2 on the Billboard top earning acts in 1969. (1969 – 54 = 1915)
James Bond first appeared on the silver screen in 1962, 62 years ago. Transposing the timeline, this is equivalent of a film series that started in 1900 still raking in money in 1962.
Star Trek launched in 1966 and continues to be a durable film franchise, 58 years later, the equivalent of a 1908 film series still being a “tentpole” franchise for the industry in 1966.
Star Wars took the world by storm in 1977, and the franchise continues pumping out films 47 years later, the equivalent of a film franchise that started in 1930 still bringing in the big bucks in 1977.
Can we imagine anything from the 1910s, 1920s or 1930s continuing into the 1960s and 1970s as relevant cultural currency given the surplus of “new and exciting” in that era?
That we’re still paying attention to the acts, music and film franchises from the 1960s and 1970s (and constantly mining as-yet unexploited tropes from that era) certainly suggests a culture bled dry of anything authentically new and exciting.
It suggests a culture that worships at the altar of low-risk profits via retreads and recycling of whatever was profitable in the past, jerking it back to life by emptying a needle of marketing stimulant into the comatose corpus of popular culture.
Jokes about Jurassic World #17 are now as limp as the worn-out franchises they lampoon, for they’re no longer much of an exaggeration: Marvel Movie #72, coming soon!
Turning our attention to economics, we’re still scratching marks in our dreary rat-infested Bastille cells under “Marxism” and “capitalism,” beside graffiti etched in the plaster eons ago: the invisible hand, Theses on Feuerbach. “Adam Smith hath spoken” may even date from the late 1700s.
The political sphere is not merely stale, it has decayed to the point of being morbidly tedious. Tattered posters of Soviet-era slogans–the functional equivalent of today’s politics–would at least provide a glimmer of nostalgia. The only excitement left is the announcement of how much Senator Pelosi skimmed in the stock market this quarter: only $20 million, hmm, she must be losing her touch….
In the categories of Hackneyed Plots and Stale Narratives, there is nary a bone that hasn’t been picked clean. Even the World Economic Forum (WEF) is tapped out; slapping it around is as tiresome as watching a disaster film for the 15th time. The villains are boring, the cardboard heroes and heroines are boring, the metrics of “growth” that are ginned up every quarter are no longer risible–they’re boring, too.
In summary: our institutions, ideas, plots, narratives and memes can no longer be parodied because everything has become a parody of its previous incarnation–a clueless self-parody, endlessly self-referential, endlessly copying a threadbare facsimile of itself in a tightly scripted parody of authenticity.
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A Most Dangerous Assumption: Mining the Future to Spend More Today
What the cheerleaders are actually claiming is the process of adding zeroes to “money” is limitless, but there are limits on the utility of devaluing currency, too.
How prosperous would the world be if we hadn’t collectively borrowed and spent $315 trillion—-333% of global GDP? We all know the answer–not very prosperous at all, for production, consumption and profits would all be mere fractions of their current totals if we could not borrow money and could only spend cash on hand. Global Debt Hit $315 Trillion In Q1 2024.
All this money that’s been spent/invested has effectively been mined / extracted from future resources, labor and capital. The basic idea is that the interest that must be paid on this debt will be paid out of earnings generated by the productive use of resources, labor and capital in the future. Once the debt matures and the principle must be returned to the lender / bond purchaser, this principle must also be mined / extracted from assets available in the future.
Mining / extraction is the appropriate analogy because nothing is unlimited in the real world. Imagination–yes, it’s unlimited. Denial and delusion: yes, both are limitless. But tangible resources that can be recovered at costs the economy can bear, productive labor and capital are not limitless. If we mine the future too intensively, there won’t be enough left in the future to spend/invest at the level we enjoy today.
The fundamental assumption behind mining the future is that the pool of resources, labor and capital will continue expanding forever, effortlessly funding the interest and principle due on today’s borrowing and leaving more than enough to consume and invest in the future.
But what happens when the resources, labor and capital available to mine in the future shrink? If the productive economy contracts, there will be fewer resources and less labor and capital available to split between servicing the ballooning debt and the consumption / investment needed to support the future economy.
Two mind tricks enable our faith in the sustainability of ever-expanding debt to fund our spending / investing today. One is the inaccurate assumption that Moore’s Law–the constantly accelerating advancement of technological / digital mojo and efficiencies–apply to the entire real world: just as computing power has risen 10-fold every few years, so too will all other technologies.
This leads to the comforting but false belief that there will never be any resource constraints because technology will leap every boundary: we’ll simply dig deeper and more efficiently to extract the minerals and energy we need to fund debt, consumption and investment.
This conveniently ignores the chemical and physical limits of the real world. A rocket powerful enough to lift a payload into orbit and on to the Moon is not 100 times smaller now than it was in 1969, or even 10 times smaller: it is roughly the same size due to the chemical / energy density limits of the liquid fuels needed to power the rocket.
Engineering advances do not cancel out the fact that digging / drilling deeper in remote, hostile environments costs more in energy, labor and capital than the easy-to-extract resources we’ve already consumed. Setting aside the mind trick of “money,” it takes more energy and physical materials to extract resources far from paved roads and deep-draft harbors, in remote, difficult terrain and far deeper than easy-to-extract minerals and energy we’ve already taken and consumed.
As the productive labor force shrinks, there are fewer workers and wages to support debt service. If the resources, labor and capital we’re mining are contracting, that will not only constrict additional borrowing in the future, it will also leave insufficient reserves to fund both debt and consumption.
The second mind trick is adding a zero to all “money” via currency devaluation / inflation. Here’s how devaluation magically reduces the burden of debt: say household income is $10,000 per year and the home mortgage is $100,000. Add a zero (over a few decades, of course, so nobody notices the trick) to the income, which is now $100,000 a year for performing the exact same hours of labor as in the past. Now the mortgage has shrunk from 10 times income to 1-to-1. That makes servicing the debt much less of a burden on the household, and on the economy,
If the interest earned over the decades exceeded the rate of inflation / devaluation, the owners of the debt made up for the stupendous decline in the purchasing power of their principle when it is finally paid in full. The mind trick of reducing the burden of debt service by adding a zero to “money” ceases to work if the interest paid to lenders falls under the rate of inflation/devaluation, as lenders catch on and refuse to originate loans that destroy capital, albeit slowly enough few notice in the short-term.
As this chart of total debt in the US (public and private) shows, devaluing the currency soon outpaces the expansion of the real-world economy that’s being mined to fund our spending today. Over time, the expansion of “money” accelerates inflation/devaluation into a self-reinforcing feedback that pushes interest rates above the point at which the economy can support both debt service and consumption and investment: something has to give, and that something isn’t debt service–it’s consumption and investment.
Welcome to the world of stagflation, a world in which mining the future is no longer sustainable as the pool of future earnings and resources available to mine is shrinking, even as our voracious appetite for borrowing more now to fund more spending today expands.
Many people reckon there’s a third trick that’s completely painless: a debt jubilee that wipes out all debts and re-sets the system so we can start mining future earnings and resources again with gleeful abandon. But this isn’t how reality actually functions. Every debt is somebody else’s income-producing asset, and in a world of $315 trillion in debt, that’s a lot of assets that will be written down to zero by the debt jubilee and a lot of income that will drop to zero.
That money goes to money Heaven, never to return. In the happy story, lenders and bond buyers pile right back in and start funding trillions in new debt to start the cycle anew–no harm, no foul, right? Not quite.
We seem to be forgetting that the $315 trillion in assets and trillions in interest income went to money Heaven. Where is all the cash going to come from to fund new issuance of debt? And who would be dimwitted enough to loan money at low rates of interest, knowing that when things get iffy–which they inevitably will– another debt jubilee will wipe out all of one’s debt-based assets overnight?
The short answer is no one. Interest will be set high enough to offset the risk of a future debt jubilee sending all the money that was loaned out to money Heaven.
The net effect is borrowers will have to mine even more from the future to afford the higher interest. As resources become costlier to extract and the demographics already set in stone reduce the workforce that supports all future debt service, consumption and investment, all the mind tricks no longer work.
The future will need all the available resources, labor and capital for its own use, leaving little to none for us to mine today to fund our profligate consumption and gambling (sorry, “investing”). Cash will be King, and borrowing from the future to spend freely today will no longer be possible.
Impossible! Shout the cheerleaders of mining the future: the real world will always expand in endless growth. Sorry, but there are no guarantees that the limits of chemistry and physics can be jumped. What the cheerleaders are actually claiming is the process of adding zeroes to “money” is limitless, but there are limits on the utility of devaluing currency, too.
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10 Geopolitical / Financial Risks to the Global Economy
Perhaps the most apt metaphor to describe the decade ahead is that investors, consumers and taxpayers will all be rafting whitewater rapids with ever-briefer stretches of calm.
Geopolitical / financial risks are proliferating and becoming more difficult to predict or hedge for a very basic reason: the era of global integration and accord has ended and the era of global disintegration and discord is heating up. In historian Peter Turchin’s terminology, when everyone finds reasons to cooperate, the result is an era of accord; when everyone finds reasons not to cooperate, the result is an era of discord.
Beneath the chaotic swirl of complex dynamics and risk, two core drivers emerge: de-globalization and de-financialization.
The 30-year era of increasing globalization has reversed, reducing the influence of markets and increasing the influence of national security. Where the globalization era led to global trade agreements which served at least a few of every participants’ core interests, the de-globalization era will be characterized by fragmentation and deals being cut between nations outside of traditional alliances and ideological camps.
In the neoliberal worldview, markets are solutions to virtually every problem: open up markets and let price discovery and innovations solve all problems. This construct is ideologically appealing, but in the real world, markets generated extremely risky supply-chain dependencies on unreliable offshore sources: yes, these dependencies were efficient and profitable, but when things fall apart, they cause dominoes to fall far beyond what “markets” anticipated or could hedge.
The 50-year era of increasing financialization has also reversed. In a nutshell, financialization optimized capital at the expense of labor / wage earners, and optimized speculation via the vast expansion of credit and leverage, enabling finance to commoditize virtually everything in the global economy: labor, capital, goods, services and yes, even risk.
But commoditized risk that can be hedged only includes the risks that are visible and known. When extremes become more extreme, the potential for risk to escape the neatly fenced corral of hedged risk increases in ways that cannot be quantified and hedged.
I tend to think many observers focus too narrowly on risks arising from financial crises, for example a crisis in the multi-trillion dollar shadowy derivatives market that could cascade as holders of derivative contracts with claims on underlying collateral (for example, the homes underlying mortgages in a mortgage-backed security) start seizing the collateralized assets embedded in the derivatives chain.
While I make no claim to understanding “The Great Taking” scenario and cannot vouch for its accuracy, the basic idea is well-established: derivatives (such as CLOs and CDOs, as well as many even more exotic concoctions) can include claims on the underlying collateral of debt-based assets such as homes or vehicles.
The risk few seem to be discussing is not the seizure itself but the political firestorm any such seizure would ignite. The public has tolerated a stinking mass of self-serving bailouts and insider dealings under the threat of “if we don’t do this, the entire system collapses in a heap” for the past 15 years, but their patience with financier stripmining may run out more quickly than the political elites imagine.
History suggests that social revolutions often start spontaneously from an apparently trivial event: the deadwood of a corrupt system rigged to funnel asymmetric rewards to the few at the expense of the many finally catches fire, and quickly becomes a conflagration.
While many commentators have noted China continues reducing its holdings of US Treasuries (UST) and the general trend of de-dollarization, i.e. offloading Treasuries and seeking payment mechanisms that do not include the US dollar (USD), few seem to ponder what risks might arise in other currency flows, for example, the capital sloshing around the global economy as Direct Foreign Investment (FDI), money that flows into an economy as investments in assets such as manufacturing, mining, housing, tourism, etc.
Just as capital flowing in or out of sovereign bonds reflects the interests of each participating nation, so too do FDI investment flows and the sales and purchases of Strategically Significant Commodities.
I would characterize this vast reshuffling of global capital flows as a direct consequence of two factors:
1. The ascendence of national security over market incentives (i.e. profits, mercantilist exports, etc.)
2. The fragmentation of broad trade agreements in favor of special deals with trading partners that include not just tariffs but access to Strategically Significant Commodities and investment capital flows.
In other words, trade is no longer about opening new markets for mercantilist exports and parking surplus dollars in Treasuries, it’s about securing essential commodities and capital flows in exchange for access to supply chains and financial markets.
The mercantilist era has ended: so-called free trade (there is no such thing) that created critical national-security-related dependencies on frenemies is now something to avoid and reverse at all costs. Mercantilist nations that have depended on increasing exports as the source of their economic growth will find markets restricted as relocalization and glocalisation become priorities. (This includes China, Germany, Japan and other export-dependent economies.)
We can foresee deals that include access to commodities, guarantees to buy sovereign bonds, opening previously closed sectors of mercantilist economies and access to direct investment, not just trade and tariffs. In other words, the fragmentation of global trade opens the door to deals brokered between individual nations, tailored to their own interests, that cover not just interests in trade per se but in securing commodities, essentials and capital flows.
Globalisation is not dead, but it is fading: ‘glocalisation’ is becoming the new mantra.
Risk also rises when established processes break down as multiple crises emerge and reinforce each other–what’s known as polycrisis. When established mechanisms no longer resolve crises or conflicts, then leaders will naturally be tempted to try ever more extreme measures to regain control (or the illusion of control).
Every leader is prone to miscalculation, but authoritarian regimes with highly concentrated nodes of decision-making are more prone to making catastrophically bad decisions because they’ve suppressed dissent and open debate as threats to the regime’s political and narrative control.
The global trend toward authoritarianism concentrates decision-making in the hands of the few, increasing the risks of fatal misjudgments or miscalculations.
Amidst a disconcertingly expanding universe of risks, Richard Bonugli and I discuss these ten which were assembled by the consortium at CedarOwl. CedarOwl’s Table of Geo-Political Investor Risks. This graphic can be understood as a risk matrix. (My own list of 10 risks would be different, of course, but this is a worthy place to start.) Podcast: 10 Geopolitical / Financial Risks to the Global Economy:
1. Financiers Seizing Collateral in a Derivatives Crisis, a.k.a. “The Great Taking”
2. Cyber attacks
3. Tariff wars
4. Confiscation of other nation’s financial assets
5. Selling / Boycott of US Treasuries
6. Imposition of Central Bank Digital Currencies (CBDCs)
7. Russia’s ban of uranium exports to the West
8. Restrictions on Strategically Significant Commodities
9. Private cryptocurrencies forcibly folded into CBDCs
10. Escalation of Ukraine war
Where does our risk assessment take us? Perhaps the most apt metaphor to describe the decade ahead is that investors, consumers and taxpayers will all be rafting whitewater rapids with ever-briefer stretches of calm.
So what do we do as individuals? De-risk our lives as much as possible and focus on increasing our problem-solving skills. This is my definition of Self-Reliance.
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We’re On Our Own
The key takeaway here is: don’t count on a simplistic ideology or reform or a “supreme leader” to save the status quo from internal failure.
Humans prefer simplicity to complexity. This is why mythologies still resonate with us, despite our hubristic claims to rationality and “following the science.” What we actually crave isn’t the challenge of teasing apart highly complex systems of interconnected dynamics in which each subsystem influences every other subsystem.
What we crave is a simplistic explanation / answer and a leader who we can follow because they keep repeating the simplistic answer. So we boil complicated systems such as societies and economies down to “capitalism” or ‘socialism,” and cling to simplistic versions of these ideas as the explanation of human nature and the answer to all our problems.
When these simple ideas fail to map reality, we’re forced to say things such as “ah, capitalism / socialism works wonderfully and perfectly, but we don’t have true capitalism / socialism,” with the unstated cause of this troublesome imperfection being, well, the pesky humans in the otherwise perfect system.
Which leads us to the present. A great many people cling to a simple reform which they believe will either solve all our problems at the root, or at least go a long way to setting the course that will solve all our problems. These reforms include: hard money / return to the gold standard; adopting bitcoin as the universal currency; seeking “market-driven solutions” to every problem, more regulatory oversight to make sure bad things stop happening, and so on.
If simple reforms / “getting back to basics” actually worked, history would be composed of well-run, boring utopias interrupted every so often by spots of bother that were quickly vanquished by one of the tried-and-true simple reforms. But this doesn’t map the historical record, which tends to exhibit long periods of stability characterized by complex city-states / empires establishing a system of governance and economic organization that is productive and adaptive to the predominate conditions of the era.
These stable system are eventually fatally disrupted by one or both of these forces:
1. The predominate conditions change dramatically, demanding adaptations that are beyond the capacity of the system that had worked so well for hundreds of years. These externalities include epidemics, long-term droughts, depletion of vital resources and invasion.
In some cases, these external forces overlap, generating a Polycrisis in whih each external challenge reinforces the others or depletes the system’s reserves to the point there is nothing left to deal with the last set of crises.
(To borrow a phrase from correspondent T.D., we can say that these crises got inside their OODA Loop–observe, orient, decide, act–leading to a fatal inability to react fast enough and decisively enough to meet the challenges successfully.)
2. The system’s internal limitations–invisible to the participants–fatally restrict the flexibility and adaptability needed to recognize and respond to gradually-developing weaknesses generated by the internal limitations. The weaknesses are papered over by underlings fearful of reporting the troubling truth–“everything’s perfectly all right now. We’re fine. We’re all fine here now, thank you”–or narrative control–the empire is forever, no worries–or the system responds by doing more of what’s failed spectacularly: the gods are angrier than we thought, sacrifice ten times more captives next time, that should do the trick.
Here is how Ray Huang, author of 1587, A Year of No Significance: The Ming Dynasty in Decline summarized the internal limits of the Ming Dynasty’s system 57 years before its final collapse in 1644:
“The year 1587 may seem to be insignificant; nevertheless, it is evident by that time the limit for the Ming dynasty had already been reached. It no longer mattered whether the ruler was conscientious or irresponsible, whether his chief counselor was enterprising or conformist, whether the generals were resourceful or incompetent, whether the civil officials were honest or corrupt, or whether the leading thinkers were radicals or conservatives–in the end they all failed to reach fulfillment.”
The status quo has already reached its limits and reform on any scale beyond the usual incremental “policy tweaks” is impossible, and it no longer matters who’s nominally in charge, if rulers are competent, officials are honest or corrupt, or thinkers are radicals or conservatives–the system is beset by forces it fostered but no longer controls, and indeed is incapable of controlling due to the intrinsic limits of the system’s core structures, limits which were invisible during the Boost Phase of rapid expansion.
The Ming Dynasty’s highly centralized system of governance was unified and guided by a Confucianist moral code rather than a highly developed system of laws and regulations. The current global status quo is unified and guided by a code based on a specific definition of Progress: the eternal growth of production and consumption of goods and services, and the eternal growth of the credit needed to fuel this growth in a permanent economic expansion in which whatever is labeled “innovative” is reckoned better than whatever it replaced. Any evidence to the contrary is dismissed as “negativity,” “Luddite,” and other derogatory labels: new is by definition the epitome of Progress.
It is now clear that “Progress” defined as whatever is “new” and “innovative” is in many cases the opposite of actual Progress–what I term anti-Progress–and so this simplistic ideological underpinning of the status quo is crumbling.
The “innovation” may well be highly profitable–financialization, globalization, social media, etc.–but its impact may be disruptive to the point that the system is internally incapable of responding fast enough and decisively enough to correct the resulting run to failure.
We can visualize the system reaching internal limits and the resulting decay of adaptability / run to failure as an S-curve:
Given the internal, structural limits, the entire system has only one pathway: decline to the point that a seemingly modest crisis disrupts the last shreds of coherence in an increasingly nonlinear system and the resulting asymmetric effect collapses the system.
The Ming Dynasty took 57 years to decay and collapse from 1587. Given the nonlinear dynamics and the inherent fragility of the status quo’s many dependency chains, this timeline could be reduced by an order of magnitude to 5.7 years. We won’t know until a crisis that would have been controllable in decades past generates asymmetric effects the system can no longer control.
The key takeaway here is: don’t count on a simplistic ideology or reform or a “supreme leader” to save the status quo from internal failure: we’re on our own, and it’s far better to face this daunting reality now rather than place our faith–and our passive inaction–on the altar of false gods.