Tuesday, February 2, 2010

“We have met the enemy and he is us”: Economic crises, an essential part of consumer capitalism.

The more I read and study about consumer capitalism, the more certain I become that recurrent economic crises and near collapse are an integral part of the capitalist system. These crises are even more essential to economic systems based on personal consumption. These crises act as a sort of “dead person” switch that shuts the engine down when no one is tending the accelerator pedal. Economic crises protect us from ourselves. From the immortal words of Pogo..”We have met the enemy and he is us”

from: http://www.stuartngbooks.com/walt_kelly.html

Wall Steet and Bankers see themselves for the first time! Or is the mirror of Dorian Grey?

Since humans first came down from the trees (or were expelled from Eden, and either scheme works for me), all economic hierarchical systems have been about redistribution of wealth and power. The direction of redistribution cycles between redistribution to the wealthy and then redistribution back to the poor when the economic disparity results in the worker class having too little of the wealth. The workers withdraw  their labor from the system, and eventually the system resets or the wealthy acknowledge that to keep their wealth they need to share it. (Witness the French Revolution in all its parts). True lasting slave systems do not build sustainable economic systems, although slavery can build a temporary aristocracy (see pre-civil war U.S. History and history of the Roman Empire for examples). I look at wage, wealth and power disparities not slavery as teh fundamental economic driver.

Our most recent crisis (that will continue for a least five years) represents a tipping point, I think, towards redistribution towards the worker class. For a generation workers have not been sharing in productivity increases in the western industrialized countries. This is a redistribution towards teh wealth owning classes of society. Right now it looks like bankers are getting away with the same old crap, but that should rectify itself within a short duration by another crisis. (Witness the 1937 economic collapse).

As an aside: Systems seek balance. Astute observers try and predict how systems work so that they can harness the system for a variety of reasons (both good and bad).

Why should we expect a crisis and a reset of our economic system?

In 1962 Ed Thorpe figured out how to beat the Vegas Black Jack Tables. In 1967 he devised a system to beat the stock market, and it works. Others followed and we suffered Black Monday, October 19, 1987 and again we suffered in our most recent meltdown and near collapse of liquidity. However, as Scott Paterson recounts in his book The Quants: How a New Breed of Math Wizards Conquered Wall Street and Nearly Destroyed It. Ed Thorpe is a worrier, he knows instinctually that any time you try to outwit a system, you change the system by your actions. You create a feedback loop that consumes the observer into the system. The observer lives in the fantasy world of the system with the feedback loop providing constant positive reinforcement until the systems blows up and deflates.(Like a bubble)

Essentially all bumble economies are the same, those inside the system are unable to see that the system is failing until it has completely collapsed. Many who live the fantasy of the bubble continue to believe in spite of hard empirical evidence to the contrary. (The present case of Wall Street and Washington D.C.)

As I sit here: Wall Street pundits, economists, and elected officials are living in a fantasy world. They keep telling us that if we would just go out and spend money on things, everything will be all right. That won’t work, Main Street has less to spend and our employers are sending signals that we should expect even less in the future. However, it might be better if we just let the crises continue their trajectory and we reset to a new “post consumer capitalism” system.

Like many, many people on Main Street, my discretionary income is down about 20%, my health care and insurance costs are soaring and my nest egg (life savings) is down 30% or more. I am 58 years old, where am I going to get more money to spend on useless or even senseless consumer products? I am an average person who will get by nicely, I will thrive in the future, but I won’t judge my success by how much I consume beyond my needs for food, medicine and shade and shelter.

I don’t begin to know what our new system will look like. I am pretty sure that the politicians and Wall Street won’t recognize it when it bites them, but as I read history: humans are resilient and we will build a survival system that suits our needs.  I am not sure that the new system will suit the needs of consumerism capitalists or even  support the current scheme of governance in the United States, but it will be interesting to watch for the next twenty years.

No comments:

Post a Comment