The great disconnect

The future is so bright that we have to wear shades. Speculations about the future.
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noddy
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The great disconnect

Post by noddy »

http://www.macrobusiness.com.au/2012/09 ... isconnect/
Imagine you are an historian in the year 2500. Sitting back in your wing-backed chesterfield, if any still exist, and quaffing a snifter of 2480 vintage brandy, your personal favourite, you think back to the first part of the 21st century, the famous age of instability, and consider the perennial historiographical debate of that period: what was it that caused the post-Cold War ‘Brave New World’, in the words of that ancient president, George H W Bush, to so quickly fall apart despite the rapid technological advancement, the relative lack of war, fecund demographics and few natural disasters?

How was it that Pax Americana was so short-lived despite the overwhelming hegemony of the United States? Why did the Western consumer so quickly lose heart despite the abundance of cheap goods, the ease of mortgage credit and the array of options for employment? Who was responsible for the most avoidable economic crisis in history?

Now being an armchair historian with a predilection for fine spirits, you have a tendency to take a broad-brush approach, so forgive yourself for what follows: a bird’s eye view of the past that doesn’t take account of complexities and nuances if they get in the way of a good yarn. But a good yarn it no doubt is and in its own way this impressionistic picture, viewed from afar, gives a clearer image of what went on in those halcyon days than any contemporary reading ever would…

The Great Disconnect, as it came to be known, began in the year 1991 when the Soviet Union dissolved and free market capitalism, in its then form, triumphed gloriously over socialism, promising a new era of peace and prosperity.

Yet the ascendancy of the United States as the world’s sole superpower was made problematic by the very fact that it had no binary. There is no peace without war just as there is no black without white. And capitalism without socialism, or indeed any other alternative philosophy of political economy, ended up like Plato’s Ouroboros, eating itself in an eternal cycle of mutually reinforcing destruction and rebirth. It was not the “end of history”, as a scholar of the time, Francis Fukuyama, put it. It was the beginning of something worse.

Having achieved sufficient technological progress to lift the world out of a Hobbesian poverty, leaders of the time could have created a paradise on earth, with abundant food, water, land and leisure for all the earth’s inhabitants, if only they wanted to share. Yet the now-dominant system of the time, free market capitalism, relied upon a serf class of cheap labour to produce the Veblen goods –Toyota Priuses (a kind of transport vehicle that aspired to saving the earth, but caused above-average ecological damage in the making), Gucci handbags (a strange fashion of the era) and fair trade espressos (a primitive beverage of the time favoured by those who were rich because it was made by those who were poor) – that the elite would conspicuously consume. And the irony was, of course, that the only way to remark on this bizarre situation was to use the discredited theories of Karl Marx’s redundant socialist system.

Yet unbeknownst to the people of the time, capitalism – to paraphrase Marx – had sold itself the rope by which it would hang. It relied on cheap labour, largely from a place that was once called the Third World, yet it also needed new conspicuous consumers to buy that labour’s produce.

Until this contradiction would become apparent however, the so-called Third World, a largely tropical hinterland between the First World of America and Europe and the Second World of Russia and its satellites, had now become known as ‘emerging markets’. Along with the short-lived acronym BRICS – which indicated the largest of these countries (before they imploded under the weight of their own imbalances) – emerging markets would be to the Western-dominated businessfolk of the early 21st century what the spice trade was to the 18th or the crusades were to the 12th: a way to get rich and powerful on the backs of unfortunate foreigners.

But those unfortunate foreigners would bite back, with a vengeance. Using the same economic tools they took the best technology, improved it and worked hard at providing cut-price consumer goods. When these goods sold and took market share they then sold even more on vendor credit. But what started out as trade finance quickly became much larger, thanks in part to the facilitation of the financial industry’s concurrent deregulation, which was not only ideologically fashionable, but sucked the best and brightest workers of the rich world away from competitive manufacturing and into the vocations of investment banking and money market arbitrage. Rarely in world history had the merchant class been more powerful than priests, warriors or lords, yet at the same time been so stupid.

And so these ‘masters of the universe’, as they dubbed themselves (whether this was serious or in jest we have no surviving evidence), operating in their glass and steel temple cities of London, Hong Kong and New York, developed new rules and new techniques to expedite what was already a quickening process of borrowing and lending across political borders. Alongside the development of new information and communications technologies, it was now possible to have a factory manager in China reinvest his profits into a securitised batch of American housing loans within a fraction of a second, instantly accruing fees to the arranger, who was subsidised by the government of those being lent, and, at the same time, giving that factory manager a kind of quasi suzerainty over those who had previously enjoyed a quasi suzerainty over him.

Yet these arrangements were ultimately unwise for borrower and lender alike. The value of those same housing loans evaporated when it was realised that many of them were being extended to people who had no chance of repaying them. The value of other financial instruments, structured on similarly dubious grounds, likewise evaporated, and a global financial crisis would begin.

Starting in America, and then moving to Europe, some wags at the time considered it as heralding a shift in the locus of power and wealth to emerging markets and the BRICS, but before too long these economies too would fall apart like a centrifuge. Amid social unrest – owing to the competing objectives of their own polities – and rising costs of primary resource extraction, a factor of production that had hitherto been ignored and mispriced, what was then supposed to be the Asian Century more or less died before it was born.

A Great Disconnect had been recognised. The earth’s bounty, which had nourished and supported the evolution of man for millennia, had almost been exhausted and it was borrowed against, rehypothecated, securitised and collateralised so many times that nobody knew who owed what, who owned what or indeed who stood behind the quickly-erected facades of so many offshore corporations held in little islands that were at the same time being swamped by rising oceans, another by-product of global capitalism.

Land was depleted. Labour was costly. Capital had been collateralised to the extent that a hundred years of cash flow would never repay. The only factor of production left was technological progress – the hero of this story, if there ever was one – but this would take time to evolve too before cornucopia would return to the world and Malthusian predictions of the limits to growth would again be repudiated.

At the time of the Great Disconnect, those who invested in technology would become the Croesus’s of the age. Like the industrialists of the 19th century, the technologists of the 21st century would accrue inordinate riches at a time of otherwise widespread economic depression, where the skills of workers failed to match the needs of business and the owners of capital – the 1% – almost subjugated the providers of labour – the 99%. Only through the productivity gains offered by technology would business grow, countries become more wealthy and the Great Disconnect be bridged.

Politicians and their sage advisors would attempt to smooth this transition through increased money supply, more debt, economic stimulus and various ‘rescue packages’ but all would ultimately fail. Only time would heal this imbalance and this disconnect between markets and economics, capital and labour, elected and ruled, rich and poor. The attempts to provide cyclical solutions to a structural problem were made in vain. A generation would pass before equilibrium was restored.

The upshot, of course, was that the lack of interim capitalistic growth gave the earth its own time to heal. Fields, left fallow, gave strength to the soil and rivers, left undammed for electricity unneeded, fed forests that helped stall an otherwise rapidly changing climate. A period of ice-free seas was thankfully short-lived and as deserts retreated and smog-filled skies cleared the 21st century looked back and was glad that some progress paused…

At this point you drift off, only to be woken by your robotic valet, an invention of a Mr Zukerberg in the mid 21st century, an itinerant entrepreneur who had spectacularly failed at his first technological venture: connecting friends to each other by pictures on their telephones and expecting to profit.

The valet, Winkelvoss 358X, enquires whether your brandy needs refilling or whether you would care to sample a plate of Neptunian cheese. Thank Google for the discovery of fission energy and warp-speed travel, you think; the colonisation of other planets has done wonders for the palate.

Michael Feller is an investment strategist at Macro Investor.
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Enki
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Re: the great disconnect

Post by Enki »

noddy wrote:http://www.macrobusiness.com.au/2012/09 ... isconnect/
Imagine you are an historian in the year 2500. Sitting back in your wing-backed chesterfield, if any still exist, and quaffing a snifter of 2480 vintage brandy, your personal favourite, you think back to the first part of the 21st century, the famous age of instability, and consider the perennial historiographical debate of that period: what was it that caused the post-Cold War ‘Brave New World’, in the words of that ancient president, George H W Bush, to so quickly fall apart despite the rapid technological advancement, the relative lack of war, fecund demographics and few natural disasters?
II will start here with this completely and factually false narrative.

1) There is not relatively little war right now.
2) Our demographics are not particularly fecund, global birth rates are at an all time low.
3) There are just as many natural disasters as ever, and they are far more destructive due to high population concentrations.

So pretty much every analysis of how things currently are, is wrong.


As to the rest of it, until people realize that we repudiated free-market capitalism in favor of 'winning' the Cold-War, no one will ever really understand the collapse. We had to give up liberty because you know, some of us might be communists. We gave up on free-market capitalism, because you know we can't have those Arab nations trading oil in something other than the dollar. We repudiated the free-market system and became more and more like our hated adversaries the fascists/socialists than ever before. The welfare system being the least of all concerns in this regard. We subsidized entities like General Electric in order to ensure that we had a reserve manufacturing base of advanced electronics. We subsidized domestic oil production to ensure we had a reserve of fuel in case of war. We subsidized food production in case of a famine. In short all of these strategic considerations that were protections against a global war with the Soviet Union turned us into the command economy that we professed we never wanted to be. Until people can understand that the roots of our demise were the very activities that brought us triumph in the Cold War, they'll never understand what happened.

Also, Mark Zuckerberg was not a great inventor. He will never be a great inventor. ;)
Men often oppose a thing merely because they have had no agency in planning it, or because it may have been planned by those whom they dislike.
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Torchwood
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Re: The great disconnect

Post by Torchwood »

I was idly browsing through old threads, sorry to bump this, but felt that Enki's assertions needed to be refuted.

1. The world is indeed very peaceful. At the moment there are wars in Syria, Afghanistan, South Sudan and of course the Congo (the worst death rate in the last twenty years, which as ever the world ignores). That's about it, probably the most peaceful condition in history

2. Global birth rates are indeed at an all time low, but so are death rates. Global population is still increasing, but at a slower rate, which most of us think is a good thing.

3. Natural disasters are about as frequent/infrequent as ever, the death rates are tending to go down e.g Yes, people died from the Japanese tsunami - but the strongest earthquake in Japanese history did not itself kill people outside the tsunami zone, thanks to modern building codes. Cyclones used to kill thousands every year in Bangladesh, they don't anymore. The marked exception was the Boxing Day tsunami of 2004, the deadliest in history, because no one expected such a strong event in the Indian ocean. Damage to property from natural disasters is higher because we are richer and more numerous.

The cold war was bad for those under the heel of Communism, but good for those in the "Free world", as competing with Communism moderated its excesses and developed social democracy (yes, even in America, although not under that name). The collapse of Communism unshackled its constraints and led to turbocharged capitalism, or rather casino pyramid-selling pseudo-capitalism.
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Typhoon
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Re: The great disconnect

Post by Typhoon »

Bump away.
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NapLajoieonSteroids
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Re: The great disconnect

Post by NapLajoieonSteroids »

This sort of quasi-prophesying is an interesting format- how far does it date back? I can't think of any literature outside of the 20th century that tries to project the judgements of posterity back onto the past (and bind the future to the writer/seers concerns.) There must be literature in the 19th century like this, but anything in the preceding generations? I imagine you hit the renaissance and some of the output of the mystical Hermeticians might qualify...but dealing with historical narratives, I dunno here....

My biggest quibble with the article presented is that it makes the same villain of global capitalism that we had at the start of the 20th century.

The right wing social democrats that Torchwood talks about share a lot of the blame. It cannot be overlooked that wealth disparities have again arisen with the death of socialism (which I will gladly argue happened when the Second International disbanded, ) the corruption and collapse of unions, and the replacement of economic class struggle with racial and gender issues that are almost insolvable, irrational, and only reinforce old counter-Enlightenment and reactionary ideas. Instead of living in a world that is universal and cosmopolitan; we have the haute-bourgeoisie who claim "rooted-cosmopolitanism" and dictate to the rest moderation: Moderate nationalism, moderate psychology, moderate religion, moderate capitalism. Anything that cannot be co-opted or challenges the social democratic order is immoderate or extreme; anything that can be used in that order immediately gets absorbed - even if it is contradictory or harmful.

When talking about this era: there will be a great debate on what exactly we meant by moderation, why we were obsessed with it, and who determined what it meant.

I think when the story is told, there will be great interest in how the revolutionaries of the enlightenment, on the eve of victory, dissipated and scattered to the wind almost overnight.
noddy
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Re: The great disconnect

Post by noddy »

good points nap.

i left the article without comment because i didnt really have the energy at the time to deconstruct it - its far too optimistic a viewpoint for me even if longterm it ends up vaguely correct.

as always, its difficult to seperate the big picture long term conversations from the day to day ones, in the long term im dead and in the shortterm this adjustment we are currently living through could be very ugly indeed.
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Nonc Hilaire
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Re: the great disconnect

Post by Nonc Hilaire »

Enki wrote:
noddy wrote:http://www.macrobusiness.com.au/2012/09 ... isconnect/
Imagine you are an historian in the year 2500. Sitting back in your wing-backed chesterfield, if any still exist, and quaffing a snifter of 2480 vintage brandy, your personal favourite, you think back to the first part of the 21st century, the famous age of instability, and consider the perennial historiographical debate of that period: what was it that caused the post-Cold War ‘Brave New World’, in the words of that ancient president, George H W Bush, to so quickly fall apart despite the rapid technological advancement, the relative lack of war, fecund demographics and few natural disasters?
II will start here with this completely and factually false narrative.

1) There is not relatively little war right now.
2) Our demographics are not particularly fecund, global birth rates are at an all time low.
3) There are just as many natural disasters as ever, and they are far more destructive due to high population concentrations.

So pretty much every analysis of how things currently are, is wrong.


As to the rest of it, until people realize that we repudiated free-market capitalism in favor of 'winning' the Cold-War, no one will ever really understand the collapse. We had to give up liberty because you know, some of us might be communists. We gave up on free-market capitalism, because you know we can't have those Arab nations trading oil in something other than the dollar. We repudiated the free-market system and became more and more like our hated adversaries the fascists/socialists than ever before. The welfare system being the least of all concerns in this regard. We subsidized entities like General Electric in order to ensure that we had a reserve manufacturing base of advanced electronics. We subsidized domestic oil production to ensure we had a reserve of fuel in case of war. We subsidized food production in case of a famine. In short all of these strategic considerations that were protections against a global war with the Soviet Union turned us into the command economy that we professed we never wanted to be. Until people can understand that the roots of our demise were the very activities that brought us triumph in the Cold War, they'll never understand what happened.

Also, Mark Zuckerberg was not a great inventor. He will never be a great inventor. ;)
Granted. Great opportunists now sub for great inventors.
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Enki
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Re: The great disconnect

Post by Enki »

Torchwood wrote: 1. The world is indeed very peaceful. At the moment there are wars in Syria, Afghanistan, South Sudan and of course the Congo (the worst death rate in the last twenty years, which as ever the world ignores). That's about it, probably the most peaceful condition in history
Depends on how you define war. As of now we have a civil war in Ukraine, we have insurgencies in Nigeria and several other parts of Africa. We have a divided Colombia which has basically been at war for years. We have the cartels in Colombia murdering people left and right.
2. Global birth rates are indeed at an all time low, but so are death rates. Global population is still increasing, but at a slower rate, which most of us think is a good thing.


Ok, so we agree, no refutation here.
3. Natural disasters are about as frequent/infrequent as ever, the death rates are tending to go down e.g Yes, people died from the Japanese tsunami - but the strongest earthquake in Japanese history did not itself kill people outside the tsunami zone, thanks to modern building codes. Cyclones used to kill thousands every year in Bangladesh, they don't anymore. The marked exception was the Boxing Day tsunami of 2004, the deadliest in history, because no one expected such a strong event in the Indian ocean. Damage to property from natural disasters is higher because we are richer and more numerous.
Indeed.
The cold war was bad for those under the heel of Communism, but good for those in the "Free world", as competing with Communism moderated its excesses and developed social democracy (yes, even in America, although not under that name). The collapse of Communism unshackled its constraints and led to turbocharged capitalism, or rather casino pyramid-selling pseudo-capitalism.
Which was of course brought in under a hail of cold war rhetoric about unleashing the market. By unleashing the market they of course meant giving public money to corporations and picking the winners and losers.
Men often oppose a thing merely because they have had no agency in planning it, or because it may have been planned by those whom they dislike.
-Alexander Hamilton
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Enki
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Re: the great disconnect

Post by Enki »

Nonc Hilaire wrote: Granted. Great opportunists now sub for great inventors.
He was an innovator who built an useful service.
Men often oppose a thing merely because they have had no agency in planning it, or because it may have been planned by those whom they dislike.
-Alexander Hamilton
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