Recessional One

Economics as it is taught and practised is an odd thing, a mixture of utopianism and prejudice. There is nothing wrong with the desire to understand the world rationally, of course, but I suppose that I wish that people did so with an eye to the reality of human experience and some historical knowledge.

For several decades now, most economists have been exposed to history-free and tendentious presentations of their subject, which tend to settle around the rarefied microeconomic logic of things like Paul Samuelson's textbook, or the Cobb-Douglas production function. The latter is often used to explain growth in the same breath as the cheerful admission that it bears little relationship to reality, but is mathematically sound.

These works bear only a little relation to the real world. They mathematicise human existence, and aided and abetted by the work of people like Robert Lucas, they tell the young and those seeking after truth that people have rational responses to the world, and that equilibria can be found that balance resources properly. Economists indulge in century-long arguments over whether Pigouvian or market responses are better responses to problems, they ignore disproofs and contradictions of their interpretations from the likes of Adam Smith or John Von Neumann; and then, they carry on. A few reflect on the absurdities, but their words are spilled over rushed coffees and toilet breaks, and used to entertain rather than to sponsor thought.

Yet look at the catastrophe to which we have come.

It's easier to explain disaster and to question the calibration of predictions after the event, of course, than to ask questions that everyone decries. It was 1597, after all, when continental drift was proposed, but 1960 until it was accepted as a theory, and if climategate tells us anything, its that there is a premium in not looking too closely into dominant lies, lest promotion and tenure be denied. There's a network externality to consensus, as it were.

I do think, however, that any informed citizen needs to recognise three facts that economists seem to want to obfuscate. Because the world is now run by bankers and multinational corporations and rising powers who understand them, they will define our future in the west.

Firstly, the consequence of a whole globe dedicated to the market, with growth returning to an Asia that has no currency of its own, is that a massive imbalance has developed in the currency markets.

China, India, Korea and Japan and most of Asean have grown used to using a currency, the dollar, which is not their own, for many transactions. They have built up a great surplus in it, collectively. They assure themselves of new dollars by lending the Americans money, and accepting its return in payment for their goods as well as in payment on their debt yields.

The Americans have grown used to this cheap credit, but have overspent wildly, have not paid down their debt, and have convinced themselves that they and their mighty economy can live on the deficit forever. They have no mechanism for understanding what this is doing to their economy other than a very flawed democracy full of rich men and a media that swiftly isolates dissonant voices.

The necessary consequence of all of this is that the impoverishment of the United States is proceeding beneath the eyes of its rich and its media classes, in cities, states, and county environments at an astonishing pace. Citizens of Detroit, Las Vegas and Kansas can now all look each other in the eye, and in the gutter. The Chinese government seem to have realised this. They are stepping back from investments in American bodies that cannot be made to pay back.

The euro, to an extent, was an attempt supported by all to stabilise the picture by offering a supplemental reserve backed by regional weight, which would also function as security when the dollar's reality met with its Dorian Grey appearance. So, to an extent, was the Khaleeji.

If these projects should fail, and if as will almost always be true no world currency can replace the dollar--and the Chinese currency certainly cannot--then currencies or economies will cluster into regions and be grouped together by things like the Bank for International Settlements surreptitiously. The alternative is the massive decline and destruction of financial value, of the credit industry that runs our lives, and a mad race for resources paid in the vehicles of that credit, unless one side or the other can get out technologically and politically.

So that imbalance is the first fact that will dictate our politics for the next decades. The second is that the west has been on borrowed time for around thirty years. We have disguised the destruction of our value, and the loss of our manufacturing, in a variety of ways.

The non-economic reason that we have disguised this, of course, is that the English-speaking media is now run more or less by a cartel of rich men, bankers and second rate wannabes, and it is ruthless in suppressing the view that their debts and mechanisms and needs don't matter and that their slavering desire for carbon derivatives, bail outs and more individual slavery in false markets run by corporate socialism does. That's not, however, what I want to focus on.

Principally, we have invented credit instruments based on the individual delusion that equity in a house shared with a bank mortgage is real ownership, and that house prices are so much guaranteed to go up that we can build derivative industries on the back of our delusion. This has led to crashes either in housing or in sectors funded by loans and credit and speculation tied to the financial boom in 1987, 1991, 2001, 2007, 2008 and 2009. This delusion was further fuelled by cheap oil and by globalisation 1.0. The crash of these credit instruments is now interacting with the first fact of global currency imbalance. We are all going to be impoverished unless the debts run up under this delusion, even for those who did not own houses, can be destroyed.

The third fact is that we built ourselves, in the west particularly, a world in which others did not seem to matter unless their suffering meshed with out narcissistic pathology so that we could seem rescuers whilst never encouraging people to look after themselves or allowing them a chance to develop their own industries and talents. In the name of elite meritocracy, we destroyed traditional institutions and apprenticeships and honourable manufacturing and families; in the name of a credit-driven equality, we funded lifestyles and trade that could only have been achieved with the exploitation of labour, either immigrant or abroad, and the mad rush to all perceive value where there was none.

We allowed statistics to be corrupted, and fascists fixed on violence to redraw themselves as liberal monists out to liberate with bombs and atheism. We ignored tradition and paid good money for economic academics to waste time reinventing the insights of Augustine, Hobbes and Hume in the dry language of social science. We ignored the bankruptcy of the world around us until it manifested itself financially, and by that time people were so brainwashed by models of markets and sterile debates that we could go nowhere.

I feel increasingly like some mad mix of a character in The Wanting Seed and the Watcher as the west burns. In our political debates, we ignore the bankruptcy of the United States, the mad volatility of the dollar, the pressures on oil, the real menace of wasted lives and pollution, the unsustainability of industrial welfare models and the genuine evil of regimes that a demented west takes on after first having built up and funded.

We make more, and greater tributes to pirates who have basically stolen all our possessions, and to mad cults. We refuse to look at the unprecedented levels of information with which we have been overwhelmed, and we put our trust in spineless former drug abusers, men of little fixed background or none, and people whose life and magnificent potential has been spent in pursuit of dust.

It's easy to criticise; but, really, something has to give, soon. Can we rediscover our senses and our energies before it is too late?


Peter said…
We are all of us a prisoner of our time and place, and our perspective comes directly from it - but your new subjective reality is interesting.
Martin Meenagh said…
Thank you for the comment, Peter. We are all behind our eyes, but I don't think that we are necessarily prisoners.

You can have faith in a tradition that connects you with the past; you can believe in God, and in the love that can connect you with others; you can reason and work out what others who can reason could agree with you on; you can, through words or observation or learned behaviour, be connected with the mind of people long gone.

This world wants you to be a slave to its nostra and consensus and to your senses, and to think of everything as equally valid and equally passing, but I think that we can rise above that.

And, on a more mundane level, we are done for economically unless we realise that economics is really political economy and a functional representation of a society, for good or ill.

This one, in Britain and America, looks hollowed out and bankrupt, but people still get up in the morning and can still save themselves and others.