Here comes the boom

November 27, 2012 § 8 Comments

Economic pessimism is a booming business among political conservatives. The reelection of Barack Obama has reinvigorated conservative predictions of doom and gloom right around the corner; but that is just amplifying a pre-existing sentiment. Conservatives and also antifeminist “manosphere” bloggers are predicting a great collapse in the next decade or two based on their theories of economics.

I think they are wrong.

Mind you, it isn’t that the sudden collapse of civilization is not possible. It certainly is, and in my view we came precariously close to it happening in 2008. But I think the conventional reasons why conservatives think collapse is coming – too much debt, too few producers and too many consumers, etc – are wrong.

One of the reasons why so many people are wrong (in my view) about debt and economics is misunderstandings about currency. Currency has no value in itself: it merely facilitates the exchange of actually valuable things. Saving dollars is the height of folly: if you want to store up value you should store up actually valuable things, not notional exchange paper. Government does not have a monopoly on the issuance of currency: all sorts of different currencies are issued by all sorts of different public and private entities. There is plenty to critique in modern monetary theory; but one thing it gets right is that what makes government currency unique is the fact that (mandatory) taxes must be paid in it. Other than that it is just one kind of paper in a great ocean of paper. Currency stability is primarily a function of the annual tax cycle, and the fact that the government doesn’t want to rip itself off by being paid in debased dollars for year-old transactions.

Another reason why so many people are wrong (in my view) about debt and economics is misunderstandings about the relationship between labor and value. I don’t know if that relationship can in principle be adequately captured by an economic theory; but I am virtually certain that it hasn’t in fact been adequately captured by any actual economic theory. As with many aspects of the modern world, we are more comfortable with bad theories than we are conceding ignorance.

Still another reason why so many people are wrong (in my view) about debt and economics is that they have assumed that economic theory has more influence than it actually does have. It is hard to describe what I mean here abstractly, so let me make it more concrete.

Many economic conservatives assume that rising debt and an increasing ratio of consumption to production (more welfare queens, fewer productive workers) will lead to some sort of short term (next few decades) collapse. Predictions range from Greater Depression to Mad Max.

The unstated assumption here is that the great majority of real value is created primarily by labor. That is far from obvious. Some of the wealthiest-per-capita nations on earth have very unproductive labor forces. What they do have is enormous resources. Saudi Arabia has fantastic oil reserves; but the latest numbers being noodled by the oil guys show the US surpassing them in oil production and becoming a net exporter of oil in a decade or so. The US has an incredible store of natural resources. The lack hasn’t been natural resources: it has been the technological capability to exploit those resources in a way which is economically competitive with just shipping “easy” oil over from the Middle East. That is changing. We could easily see decades of solid economic growth on the back of a technologically enabled resource boom; and such a boom would be independent of welfare-state inefficiencies. That is just one of many “upside” economic scenarios I can imagine, especially keeping in mind that physical resources are not the only kind of resources.

This is a perhaps roundabout way of getting to my main point: conservative pessimism is in a sense a form of optimism, because it brings with it the expectation that liberalism’s vision for society will run into cold hard reality some time very soon, and fail. But that isn’t obvious to me. It is perfectly possible that the liberal vision of a society of unrestricted hedonistic freedom and equality supported by murder and cannibalism of the weak and unfit, financed by endless public wealth, is sustainable for centuries. Rex Mundi, and all that: evil gets far more mileage out of modern prosperity than it ever got out of material deprivation.

§ 8 Responses to Here comes the boom

  • Scott W. says:

    Yep. There is no extra food stores in my pantry, I own no gold, and the kids are still probably getting Lego Helm’s Deep for Christmas. 🙂

  • Paul J Cella says:

    Gold doubles as a commodity with native value, so I’d say wise portfolios ought to hold some, including very informal portfolios like the antiques and jewelry stored up by families.

    I’m with Zippy, though: the culture of death welfare state has the means to carry on for some time to come, especially given fracking boom. And Europe may well provide a model for papering over, so to speak, the debt imbalances induced by generic welfare states.

    But the demographics are not improving, and off at the end they do suggest the doom of the steadily-growing economy.

  • tz2026 says:

    What is consumed must first be produced.

    China under Mao and the USSR and satellites under Stalin and his successors were very poor countries although they had mineral wealth. It takes creativity and initiative to transform potential wealth into actual wealth. And you can borrow it for a while, especially if it is “war-time”. These are your ideal and they were starving for the decades they existed, and didn’t last even one century.

    Public wealth means the minimum someone is forced to produce as there is no incentive to do more. And there is no “public wealth” as such – any wealth must be stolen from an individual who has produced it. It can be explicit, or misnamed, or by inflation if the wealth is in the form of money, or by simple seizure. “The Public” produces nothing. Abstractions or collective labels do not create, nor do objects. Only subjects – workers and thinkers – by the sweat of their brow (Gen 3) – produce things.

    For there to be food, you need farmers and ranchers. Whether paper or gold, money is not a meta-philosopher’s stone that you can just rub and have it transform into clothing, or a banquet, or anything else – even the raw materials assuming you can play tailor, cook, miner, or artist.

    But somehow the magical “Public Wealth” will feed everyone with rich food, cure every disease, give us an abundance of energy too cheap to meter?

    There will be material deprivation because somewhere in the government chain, there will be a gap. In the USSR melons would rot on the truck in Moscow because it was no one’s responsibility to get them to the stores or restaurants. Oil in the ground won’t become fuel for your car. Rich topsoil will go unplanted, lush grasslands ungrazed, or if they are planted, ignored so they don’t grow tall, if grown, unharvested or in such a way as to lose much of the crop, if harvested, not stored properly or distributed so it doesn’t feed anyone. Like turning food into ethanol even at times of record prices and shortages. Feeding our cars instead of our poor is “public wealth” in action.

    Everyone will just “do their job”, collect their pay, and wonder at why there is a shortage of everything – and shortages cause price increases as more people bid for fewer goods.

  • Zippy says:

    I would quibble that gold is not a currency at all: it is a commodity with characteristics that make it convenient for bartering. Gold contracts start to approach the realm of currency.

    On the other hand, maybe I still haven’t thought through the MMT thesis enough yet. Lets suppose that a currency in general is a bearer contract which the issuing entity agrees to redeem for something of value to the bearer. With fiat currency the government agrees to settle tax liabilities in return for its currency: the thing-of-value is settling of tax liabilities. If that is the case I may have to re-think the whole storage-of-value aspect.

  • Cane Caldo says:

    For there to be food, you need farmers and ranchers.

    Gubmint-friendly corporations are happy to pick up the slack.

    ZC, I think you’re right on. What deprivations and oppressions we do experience will be more like one of your RC brothers (father, really) described it here.

  • Zippy says:

    tz2026:
    These are your ideal …

    Careful. If you propose to attribute some ideal to me, you’d better be prepared to show where I’ve actually argued for that particular ideal. I’m arguing against particular false conceptions here, not in favor of some other specific conception(s).

    Keep in mind that I’m very anti-positivist. If we have some list of theories (doesn’t matter how long of a list) that are all bad, it doesn’t follow that the “least bad” theory is “more true” than the others. If all the theories we have are wrong they are all wrong. If Austrian economics is wrong that doesn’t make Keynesian or MMT or Marxist theory right.

    …there is no “public wealth” as such – any wealth must be stolen from an individual who has produced it.

    I think that is manifestly false. Nobody is denying that labor – construed very broadly to include entrepreneurship, risk taking, etc – is necessary in order to extract value from resources. But the oil didn’t get into the ground in the first place by human labor, and even the capacity to produce in individuals is a gift of Providence.

    None of the “boom” scenarios I envision resemble the failed Soviet Union — obviously.

  • Zippy says:

    Cane Caldo:
    Thanks for the link. That article describes perfectly where I think public morality is going. Soft tyranny amidst unprecedented material prosperity has far, far greater resilience than the brittle liberal heresies (marxism, naziism) of the twentieth century.

    I would only add to it that the impending financial collapse that brings it to an end, envisioned by my apocalyptically minded conservative friends, is far from a given. They have assumed that liberalism has learned nothing from the various flameouts and tyrannies of the twentieth century: that it hasn’t adapted.

    They are wrong.

    It isn’t (again) that collapse is impossible. But it would come from some by-definition unpredictable black swan event, not from these supposed debt crises and not from too much expansion of the welfare state.

  • Cane Caldo says:

    @ZC

    Glad you liked it.

    It isn’t (again) that collapse is impossible. But it would come from some by-definition unpredictable black swan event, not from these supposed debt crises and not from too much expansion of the welfare state.

    I actually think it most likely would come from a Muslim terrorist attack. It’s going to happen because we’re not serious about protecting anything except feelings. The real threat isn’t an invasion, but our inability to handle a crisis. No American leader is prepared to handle Katrina or Sandy. How could they handle the on-going destruction of a nuclear bomb? Does anyone seriously believe we have the capability to keep them out of the country? And the fear…our leaders make money off selling fear, not quelling it. A successful nuclear explosion–even small–would spark an implosion of red, white, and blue. The United Girls of America cannot handle such serious matters.

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