Sunday, August 28, 2011
Today, in the face of circumstances that Solon would recognize, the case for widespread debt forgiveness has only recently been made. Stephen Roach, a longtime Wall Street economist, has called for lenders to bear considerable pain for the questionable loans they made during the previous boom. The trouble, as he points out, is that such forgiveness would require federal leadership which means that members of the U.S. Congress would have to penalize one of their most lucrative sources of campaign donations--the financial industry. The Athenian assembly had similar problems which is why they chose to give Solon autocratic powers.
Roach is acknowledging that many loans, especially those made to consumers, will not be paid back. An orderly process of debt forgiveness would spread the pain more evenly, speed up the debt deleveraging process that is depressing economic activity and provide more certainty about the results than would merely letting people default. Keep in mind that under new U.S. bankruptcy laws it is much harder for consumers to discharge debts, especially student debt. Doing nothing will guarantee us a generation of student-debt-laden college graduates who will be little better off than the debt slaves of Athens which Solon had to rescue from a life of despair.
Debt forgiveness is of special interest to those like myself who are concerned that society may be approaching or may have passed peak net energy. (For a more complete discussion of this, please see my piece Is Net Energy Peaking?) To recap briefly, net energy is what is left over for the non-energy sectors of society after we subtract the energy needed to extract, transport, refine and deliver energy to where it's needed. We may continue to extract more and more energy on a gross basis from the Earth for some time to come. But since the remaining energy resources are becoming harder and harder to get, we'll be spending more and more energy just to get them, leaving less and less for the rest of society. The day when net energy starts to decline will be a crucial turning point, and that will occur long before gross extractions of energy peak.
How is this related to debt? Well, energy is the motive force in the economy. Nothing gets done without it. Cheap energy makes modern economies hum. Expensive (and therefore scarce) energy makes them sputter. When they sputter, loans made when energy was cheap and the economy growing become more difficult to pay back. In fact, those loans are premised on the idea of perpetual economic growth which is simply not possible without perpetually growing energy supplies. That's two impossibilities in one sentence. If the necessary growth doesn't arrive--and it is not arriving now--the economic activity required to produce the flow of funds to pay back every loan won't be available. In aggregate loans made by the modern banking system are simply a bet on future growth.
The sooner we can admit that a large portion of the loans now outstanding will never be paid back in full and move on, the sooner we will be able to invest in the steps we need to prepare ourselves for a future marked by limits on resources. However, if no acknowledgement is forthcoming, then we are likely to face a long-term stagnation that will starve society of the capital it needs to make important investments in a more sustainable world.
What we need now more than ever is a leader or group of leaders who can tell us honestly and without alarm what is wrong and what we must do--and not be made to bow to the all-powerful financial interests. A few voices from the monied class are now saying that people at the top will have to make sacrifices for the good of society. Will a Solon for our age or several Solons across the world emerge--preferably not dictators as Solon was asked to be? Will they be able to exploit the growing awareness that debt must be reduced and that those who lent too much must bear some responsibility and some losses? Will there be a broad public consensus behind them that will allow them to act?
Solon began his great work when Athens was on the brink of revolution. Will we too arrive at the brink before modern Solons begin their work?
Sunday, August 21, 2011
For most of human existence, we lived as hunter-gatherers, leaving one place when the easy food had been exhausted to find new grounds for hunting and gathering. Only very recently in the human journey have we lived as farmers. The move from nomadic hunting and gathering to the settled life of farming must have seemed radical indeed. As Jared Diamond points out in his 1987 article "The Worst Mistake in the History of the Human Race," farming arose because of increasing population pressures. Whereas some groups chose farming over limiting their numbers, others stuck with hunting and gathering. But the vastly superior number of people in farming communities eventually led to the extinction of all but a few remaining hunter-gatherer communities on Earth.
Contrary to what we have been led to believe, the hunter-gatherers lived longer, healthier lives than their farmer successors. A varied diet and small group size guarded hunter-gatherers from the poor nutrition and epidemics that were constant companions to civilized humans. A flat social structure implied a rough equality or at least not much of a differentiation since wealth was in the forests and not in the hands of individuals.
Almost 10,000 years after the invention of agriculture, humans discovered fossil fuels. This, of course, vastly increased their ability to extract wealth from the land and the seas. And, it allowed for increasingly specialization which led to technical breakthroughs that would have seemed akin to magic only a few generations ago.
There were those at the beginning who protested the effects of this newfound power. The Luddites regarded the new deskilled world of industrial labor as a radical step away from the craft economy they had known. And, even today craft objects are often prized far beyond those made in factories and tend to last longer and work better than their manufactured counterparts. (Certainly, there are exceptions to this, but they only point out the extra cost of producing something of quality and durability meant to last not just a few years, but one or more lifetimes.)
The spread of the automobile and the construction of roads on which to run them eventually led to a whole new way of life labeled as suburban, far outside city centers and completely unrelated to rural life. Those who criticize the suburbs as an ahistorical aberration, contrary to the historical precedent of small villages and compact major cities, are proclaimed radicals by those who do not understand just how radical--and likely transitory--their suburban existences are.
All those in city and suburb alike are now fed by an agriculture powered by fossil fuels and modeled after the factory--and thus the term "factory farm." But farmers who run these factory farms often style themselves as "conservative" despite the rapid and radical change in farming methods in the last half century. But the term factory farm has in some circles become a term of derision as many seek out artisanal food processed locally from ingredients grown on small farms, often organically. Are these the new Luddites?
Of course, the burning of fossil fuels has now put the globe on a path to highly disruptive climate change. But the corporate boardrooms of the very industries most responsible for the burning of those fuels are supposedly filled with "conservative" businessmen and businesswomen. Naturally, they would not succeed at this colossal task of changing the climate without the assent of the consuming public which now enjoys an unparalleled standard of consumption. (I refuse to call it "standard of living" anymore.) And, many in that public consider themselves "conservative." But, ask yourself, What could be more radical than risking the wholesale decimation of the Earth's species including ourselves? We risk all this for a level of consumption that is far beyond our needs--I'm not including people in most poor countries--and which actually creates so-called "diseases of civilization."
I have tried to categorize America's political parties along a continuum not of conservative to liberal, but rather of conservative to radical. By this I mean that conservatives would want to preserve a way of life that ensures the long-term continuity and survivability of human communities. But I find only radical political parties in America. Therefore, crowded on the radical end of the spectrum I characterize the following groups in decreasing order of radicalness (with only tiny distinctions between them):
- Libertarians - They champion allowing unfettered radical change to the Earth's surface, oceans and atmosphere and unfettered exploitation of its resources. Their distinguishing characteristic from other parties is that they--I mean the real Libertarians--believe government should favor no particular group in this process.
- Republicans - Like Libertarians they champion allowing unfettered radical change to the Earth's surface, oceans and atmosphere and unfettered exploitation of its resources. But they tend to rail against the evil of cities and laud the totally unsustainable and ahistorical hypertrophy of the suburbs. Unlike Libertarians they are eager to use government to steer public resources toward favored constituencies, primarily the wealthy.
- Democrats - Democrats believe that radical changes to the Earth's surface, oceans and atmosphere and exploitation of its resources should proceed at a slightly slower pace than Republicans do, and that there should be a minor appearance of public spiritedness by inconveniencing some industries with health and safety regulations and by redistributing some wealth via the tax system and government services from the wealthy to the middle and lower classes. Not surprisingly then, like Republicans Democrats see government as a way to steer public resources toward favored constituencies, primarily, but not exclusively, the wealthy.
- Socialists - Socialists are like Democrats used to be. Socialists continue to see government as a way to share society's wealth very broadly with the entire population, primarily through publicly-funded education, health care, transportation, pensions and a variety of social services. They tend to believe that government control of and/or stringent regulation of large parts of the economy are the best way to serve the public interest. Some socialist governments have embraced the idea that radical changes to Earth's atmosphere are unwise and have taken modest, but hardly adequate steps toward curbing those changes.
- Greens - We must distinguish between what I call the techno-optimist Greens and the ecologically-grounded Greens. The techno-optimists feel that technology will allow us to repair radical changes we've made to the Earth's surface, oceans and atmosphere and prevent new ones while radically reducing our exploitation of resources. We'll do all this without missing a beat when it comes to living modern, technological lives. Our use of resources may go down, but we won't have to give up any of the things we've come to expect. They believe that government will have a major role in this transition through regulation, incentives and taxation. One cannot dismiss their ideas as completely without merit. But they certainly partake of the radical catechism of the four previously mentioned parties. On the other hand, ecologically-grounded Greens accept that the modern industrial way of life cannot succeed. They sometimes offer a vision of what I'll call a craft-based, agriculturally-oriented society retaining some of the key technical benefits of industrial society.
Certainly, I haven't exhausted the list of political parties in America. But this sampling provides an idea of just how radical all modern political agendas remain. If one works backward in time from today, the mark of true conservatism would be a honest belief in and embrace of the hunter-gatherer way of life. What I am trying to point out is that today we are all, by virtue of our position in history, radicals. True conservatives are non-existent--except perhaps for a few hunter-gatherers. We are forced then by circumstances to choose which brand of radicalism to practice.
Sunday, August 14, 2011
And, I'm not talking about the United States. I'm talking about France. The downgrade of U.S. government debt by one ratings agency was more political theater than careful, cold calculation. U.S. Treasury bonds rallied on the news. But in France it is a different matter. French banks are known to be heavily exposed to the sovereign debt of what are now infamously called the PIIGS, that is, Portugal, Ireland, Italy, Greece and Spain. What changed this week was that market participants began to think that this matters. They think the problem is so big that it could impair the credit of the French government which will ultimately be saddled with cleaning up the mess. And, who wants to stick around for that?
Nicole Foss, part of the duo who write for the popular financial site The Automatic Earth, once explained to me that liquidity and confidence are the same thing. Liquidity means I'm willing to part with my cash to lend it to you or to buy something from you. When my confidence in you is shattered, I won't lend to you. When my confidence in my own future prospects is shattered, I won't buy from you because I think I may need the cash later. That, it seems, is where much of the world finds itself today.
But the problem for French banks isn't necessarily that they are in worse shape than many other banks in the world. It's that people believe this to be so. And, as that belief spreads, it will become a self-fulfilling prophesy. At first, one, then two, then 10, then 20 banks and so on will refuse to lend to French banks. And, with each withdrawal of a source of funds French banks will become less creditworthy.
But if this loss of confidence isn't stopped soon, it will spread to non-French banks that have large financial ties to French banks. A cascade of financial ruin will be unleashed. We have built of world of huge financial institutions with heavily incestuous relations. They are like rafts all strapped together which doesn't help much if all the rafts are sinking.
Certainly, there are other factors at work. Persistently high oil prices have been draining the pockets of already beleaguered consumers. I was listening to CNBC one day to catch up on the excitement when investment show host Jim Cramer explained to me that falling oil prices were going to be good for the economy. That would be true if prices were falling because there is a glut of oil. In fact, oil prices have been falling in the face of falling production meaning that demand must be falling even faster. That can only happen when the economy is headed for the ditch.
I have people telling me that fundamentally the economy isn't all that bad. Maybe not now, I respond. But we are facing a potentially vicious feedback loop in which our huge, unwieldy, out-of-control and risk-laden financial sector destroys confidence in the real economy which will then make the economy decline, which will then make loans on bank balance sheets seem even more shaky.
One problem is very little transparency. A bank is like a black box. It's hard to evaluate what's on the balance sheet. And, it is especially hard now that banks have been released from the requirement that they mark their portfolios to market prices. They can now do what many skeptics call "mark to fantasy." In such an environment the only thing one bank doing business with another has to go on is reputation. And, this is where things get tricky. Supposedly, a rumor got started that a major French bank, Société Générale, was about to go under. The bank immediately denied it. But the taint and the fear are still there. Who really wants to do business with Société Générale just in case the rumor is true? Under different circumstances the rumor might have been easily dismissed. But the bank is believed to be holding a lot of dicey sovereign debt from countries that may not be able to pay the bank back in full. Anyway, it's a black box. Who really wants to trust a black box, especially when others are questioning the reputation of the black box?
Sovereign debt troubles are the last stop on the way to the endgame for the global bull market that has persisted for almost two years or perhaps more correctly for the last 30. Governments that might take on additional debt to goose the economy by spending on various public priorities such as new infrastructure are now busily reducing their expenditures to shore up their sagging long-term financial prospects. Several central banks have lowered interest rates to near zero to spur borrowing in the real economy. But all they've gotten is speculation in the financial markets which has only made matters worse.
There are really no good options from here on out. And, there's bound to be a lot more pain. The main issue now is who will be made to bear it. On past form the rich--who today so dominate the halls of government everywhere--will once again be exempted.
Friday, August 12, 2011
Sunday, August 07, 2011
Breivik distributed a 1500-page manifesto right before his rampage, a grab bag of conspiracy theories that comports neatly with type of individual described in Richard Hofstadter's 1964 essay "The Paranoid Style in American Politics." A considerable amount of the manifesto was taken from other sources, and so it isn't a coherent piece of argumentation. Before I even scanned the document I was sure there would be a section on the threatened Norwegian way of life, or at least an equivalent. There was, and it came in the form of an essay by another writer referring to the so-called "Swedish model," described as a third way between capitalism and communism. While I can't be sure Breivik embraces this idea completely, I'm relatively certain he wouldn't have included it unless he had considerable affinity for it.
I couldn't help contrasting this to America's so-called Tea Party whose members sought to derail health care reform which is designed to provide universal health care coverage. This group seems fully to have embraced the American mythology of the self-reliant man (and woman). Government control of anything is thought to mean less "freedom" for the individual. I put "freedom" in quotes for in this case it means less access to education, health care, old age benefits and a variety of public services which can actually enhance a person's range of choices. Whether many of the Tea Party members will embrace a constriction in the availability of such opportunities and services may now be tested given the recent deal in Congress for cutting spending.
My belief is that many of the Tea Party members are being perniciously misled by the billionaire backers of the movement. These backers are getting their hapless followers to advocate policies that simply reduce the tax burden on the rich while undermining services critical to the functioning of a complex industrial society and ones needed for basic social equity and harmony. It's a movement that can only be called anarchical. It is trying to disassemble the accomplishments of American society achieved through Franklin Roosevelt's New Deal and Lyndon Johnson's Great Society. It is a movement focused not so much on protecting American society from outside forces, but insulating the individual from society's reach and therefore also from its aid.
Breivik offers a significant contrast. He is certain that immigrants, specifically Muslim immigrants, don't share the values necessary to sustain the "Swedish model" in Norway. In a sense Breivik is protecting his "tribe" of Norwegians against outsiders who he believes would upset and ultimately destroy the established arrangements of his society. To that end in his manifesto he advocates energy independence through development of alternatives to displace oil completely (despite the fact that Norway is one of the world's largest oil producers). This independence would free countries from the tyranny of Arab oil and thus Muslim influences. He also believes global corporations should be nationalized in order to make them serve the needs of their host countries and peoples. Nothing could set him apart from America's Tea Party more than this.
From news reports we can deduce that Breivik is a disturbed personality, but not a marginalized person. Although he was from a broken home, he grew up in a comfortable flat with his mother and received all the benefits that any child receives in Norway. Breivik's rampage wasn't meant to bring down Norwegian society. On the contrary, he believed he was trying save it and its third way.
The public's revulsion for Breivik stems not just from the audacity of his deed and the number of people he killed and maimed. The context in which those deeds took place is also a factor. He abandoned normal political means for advancing his views--something he had previously engaged in at least minimally--and he chose to advance his goals as a self-appointed vigilante for the Norwegian people. His actions smack of klan-on-klan violence, something modern nations condemn because only the state ought to be empowered to dispense justice. Anything else is private justice, essentially a family or ethnic feud, which is antithetical to order and stability.
This is the message of the ancient Greek trilogy penned by Aeschylus, the Oresteia. After Orestes' mother kills his father, Agamemnon, in order to allow her lover, a cousin to Agamemnon, to gain Agamemnon's throne, Orestes kills his mother and the new king in vengeance. Plagued by the Furies for his terrible deed, Orestes only finds relief after a criminal trial in which he is found not guilty--a statement not about his actions, but a symbolic verdict designed to put an end to the perpetual blood feud that had cursed the House of Atreus for generations and had thus interfered with the establishment of an orderly state. The supremacy of the state in dispensing justice is also symbolically affirmed, and this affirmation becomes the path to a more peaceful society, the kind that Norway represents.
Breivik's delusions led him to "defend" his society through means that undermine it and could potentially destroy it. One need only look at societies such as Afghanistan, where private justice is still practiced, to see what it means. Although Tea Party members do not explicitly espouse private justice, their broad-ranging attempts to delegitimize the public sphere have the potential to split America into a thousand pieces. It is precisely because America has so much diversity that it sorely needs a strong public sphere to bind its people. Breivik was concerned that Muslims would destroy Norway's expansive and durable public sphere which afforded its native residents so many advantages. By contrast, the Tea Party believes that the public sphere which nominally binds us ought to be weakened in favor of individual action.
And now, finally, I reveal the reason for this line of investigation. The Breivik shootings reminded me that in the last year two acquaintances have urged me on separate occasions to purchase firearms as a measure to protect myself from what they see as emerging anarchy in the United States. One cited the possibility of a race war. After some clarification, what the person seemed to be talking about was an anarchical uprising of the poor against the rich, and many of the poor in urban areas are African-American and Latino. Another cited the depredations associated with the post-peak-oil era which this person suggested was already upon us. My response to both was the same: I don't want to live in a society in which carrying firearms becomes a daily necessity.
"But what if it does become a necessity?" each acquaintance asked in his or her own way.
"Then, perhaps it will be time for me to go." Both acquaintances were suitably astonished by my answer. "Look, even in Dodge City they made people check their guns at the city line before entering," I added.
For me firearms smack of klan or private justice. Nevertheless, I condemn no one who chooses to own guns for the protection of his or her home. But I deplore the notion that guns ought to be carried in public as a matter of course. I would prefer to empower my local authorities with the necessary resources to keep the public sphere safe. I desire private justice neither from those who fire the first shot nor from those who fire the second.
Vigilante, klan, family and private justice, all are the path to barbarism today just as surely as they were when Aeschylus wrote the Oresteia. I will stand on the side of civilization for as long as I am able. The only alternative I see is what philosopher Thomas Hobbes called "a war of all against all."