If you donÕt
fundamentally change structure and culture, you are doomed to repeat history.
— Diane
Vaughn, Columbia University; Author: The
Challenger Launch Decision
We
begin this year and this week with a quotation from Diane Vaughn that we used
in our introduction to our September 7, 2011 article on Climax
Entrepreneurs & Entrepreneurial Pioneer Areas. DianeÕs work was again brought to my attention by an
article by Gillian Tett in the Financial Times that appeared late last year and widely reported in
many sources about the potential for another Flash
crash threatens to return with a vengeance. This refers to an episode that happened on May 6,
2010 when US equity markets froze because of unexpected high volumes.
In
the flash crash article ÒNormalcy of DevianceÓ appears, referencing the
Challenger spacecraft disaster and how NASA scientists and engineers truly
believed that such an occurrence was impossible because they assumed they were
essentially too good to allow the impossible to happen.
I
spent some time looking for more information on the normalcy of deviance and
found outside the Challenger incident and the flash crash reporting, ÒnormalcyÓ
and ÒdevianceÓ were seldom if ever linked. I assume that means that ÒnormalÓ is
sort of by definition never Òdeviant.Ó Or perhaps more to the point, we just
donÕt have the guts to look for such a stupendous reality.
As
we begin 2012, it occurs to me that our new normal is totally deviant from
historical standards, at least for a half a century and perhaps a whole lot
longer. For example never before in history, will the Mayan end of the world
prophesy come into play at the winter solstice on December 21, 2012.
In
that perspective, a potential equity flash crash is the least of our worries.
Furthermore it doesnÕt take long to come up with a whole list of potential
economic catastrophes that could basically destroy the world we have all too
long taken for granted. When you get right down to the basics, in the context
of human history, for virtually all of our lifetimes, we have had it pretty
squishy.
By
definition, we have come to believe that the future will always be better than
the past, but that assumes totally that all that we have taken for granted all
of these years, will really continue to function in a sustainable way. Yet only
hardcore Keynesians continue to think that financial debt doesnÕt matter; as do
hardcore financial conservatives believe austerity alone will fix the problem.
Things
rapidly approach the reality of the normalcy of deviance when the federal
government of the United States is essentially now created from both extremes
and seems bound and determined to play the game of chicken during an election
year.
Sadly
that is not the worldÕs most promising normalcy of deviance problem; to that we
have to look to Europe and the euro. Then there is the Middle East, and a
hard-soft landing for ChinaÕs stateism, which essentially leads us to really
the normalcy of deviance as to the future of globalism and the way it is
financed.
There
is no shortage of future seers at this time of year, I even read one that
ignored all that future stuff and just gave his end of 2012 report, effective December
20, 2012, just before the Mayan end of the world. I might have a few
problems with his details, but he seems to mention some problems I forgot, like
the solvency of many of the United States — states.
I
suppose the ultimate form of the normalcy of deviance is that predicting the
future is a little like forecasting the weather, when you get out beyond a few
days, the accuracy gets a little muddled, especially if you attempt to force
that future into your model of climate change, or the lack thereof.
So
rather than look at natural climate change, we will spend some time this week
looking at the worldÕs economic climate. There is one fundamental difference
between natural climate and weather models and their economic equivalents. The
natural models are based on some real world historical data; the problem is
with the time frames involved, the assumptions outside the measured data and
the presumptive paradigms of the interpreter.
In
our current economic world, there is really no tie to the natural world at all,
at best you can make the argument that global commerce is based upon
capitalism, but if you wander back much beyond Adam SmithÕs, Wealth of
Nations, and the simultaneous rise of
representative governments, you are generally adventuring onto an economic flat
earth of sovereigns and tyrants.
More
realistically the economics we know and are growing to loose faith, developed
only about a century ago, with the closing of the physical frontier and our
progressive plans to continue the Age of Discovery in situ, ad infinitum. It
seems that that wishful thinking as become the present roots of our normalcy of
deviance.
Therein
lies the fundamental problem, we talk, and our models predict, a rosy future
based upon a prosperity that was created out of the enlightened wishful
thinking of a world where economic growth was always onward and upward forever.
Within that worldview the Shining City on a Hill, or the New Babylon, were
truly possible with just a more fluid monetary policy, coupled with easy credit,
and a whole lot of consumer products.
The
Road to Serfdom however is paved with the problems of enlightened solutions
that really attempt to simplify or ignore the natural laws that make this
planet function. Money does not make the world go round, actually it is the
physics of energetics that does, and no amount of money, especially fiat money,
created out of bits and bytes of electronic data is going to change this.
Similarly no amount of gold standard coin is going to change natural reality
either.
Our
created financial world is a closed system, a very limited closed ecosystem.
Ancient Babylon failed because it attempted to turn people into mud bricks; our
modern industrial Babylon is failing because we have attempted to turn people
into production and consumptive machines. Both deny the reality of human
potential, especially for individuals outside those who consider themselves the
cultural or more highly evolved elites.
The
Age of Discovery worked so well because we were able to exploit, for less than
true domestic market values, various areas of the world for their wealth,
mostly natural resources, but to a limited and complementary extent, the areaÕs
human assets. The prosperity after World War II was really build by the United
States being the only remaining unscathed economic power on earth and cheap
fossil fuels.
As
we begin 2012 that model is still our only hope, even though that reality has
long ago vanished. Late last year the SaudiÕs finally achieved OPEC consensus
to pump more oil. At that time oil was trading in the $80 range. Most OPEC
members however voiced their desire to get oil back to the neighborhood of
$100. So where are we now? Over $100!
What is the true ÒcapitalistÓ price of oil? $100+! What is the true free
market price of oil and what will that be in the short and long-term future?
There is know way of knowing, because oil for many years has been totally
cartel and speculator priced. However our energy costs all somewhat depend upon
the current economic operations of global consumerism-debt, as well as Middle
East political stability.
Staying
with that post World War economic model, the PLAN has been to give people
stuff, both tangible and intangible and you will create social stability. This
worldwide prosperity was financed, especially in later stages by a housing
bubble in the United States, where basic housing values rapidly doubled over
their historic levels. Normality of deviancy states the sooner we can duplicate
this property reality, the sooner happy days will return again.
This
worked so well that the Irish and Spanish tried the magic also; hence along
with unfunded government intangibles has become the source of the Eurozone
problems. Here, in the United States, we have decided not to do anything about
those government liabilities, except of course follow the kicked can of least
resistance, which is really nothing at all except talk.
The
normality of deviancy states there is nothing wrong with our
globalist-industrialist-debt model that small variations on this theme will not
fix. Yet protests around the world this year and the TEA party and Occupy
protests in the United States, beg to another solution. To paraphrase that 1969
musical hit: Freedom
is just another word for nothing left to lose.
Freedom
is an individual desire created by God in the unique personalities of all
humans. The desire to be given-earned tangible stuff is a substitute, but
underlying these tangibles is our yearning to find meaning in our lives, the
stuff may help provide the security to seek other personal rewards, but in
reality it is just a mechanism towards personal fulfillment. Yet compared to
the Age of Discovery, where there existed a chance by in someway moving to a land
of opportunity, this option is no longer available.
After
World War II and until recently, some possibility existed to achieve something
along this personal success continuum, by getting a good education and a good
job, and then taking a few calculated risks to move up the jobs ladder. Only
the retired, the soon to be retired, conservative pundits, or government
workers see that opportunity as now a viable path ahead.
Transcendentalist
Henry David ThoreauÕs second most popular quotation is probably: Most men
lead lives of quiet desperation and go to the grave with the song still in them. Probably his most popular is: In Wildness is the
preservation of the world.
I
would submit that the two statements really share the wisdom required to create
the successor to the Industrial Age. The Industrial Age is coming to an end
because our economic system as no means other than financial debt to continue;
and through its normality of deviance sees no reason to change.
However
each individual within him or herself inherits a song. People no longer write
songs like, Me and Bobby McGee,
not so much because they lack the creative ability; it is we have created a
world in which songs of the heart have no value. That is true because we have
lost, or been forced to get an inoculation against the disease of wildness and
wonder. The name of this vaccine is called debt.
Another
way to describe it is, why take any risk when there is really no chance for
achieving a substantial reward? This is especially true if you followed that
late twentieth century debt education model and have recently found out that
your song has no market value in the world of global-crony capitalism.
It
seems that with the financial crisis of 2008 and the following great recession,
we bailed out the world of crony bankers, their crony-capitalistic blood
brothers, while governments and unelected technocrats have enlarged the
dinosaur, behemoth, and leviathan universes, while holding taxpayers as the
ultimate resource to fund all failure. Definitely not the Austrian school of the
economic paradigm of creative destruction!
The
reason the Mayans may turn out to be right is the reality that the physical
universe of the dinosaurs, behemoths and leviathans, is extinct and so are
these critters. The problem is not really fiat money, or even the energetics of
our fossil fuel dependent culture; the problem is how and who controls the
money and energy, because without that control these endangered critters can no
longer survive.
Wildness
is driven by the mutual interrelationships between various diverse species and
individuals; each having definable and independent niches. The Industrial Age,
even in agriculture, consists of monocultures and highly subsidized inputs. Our
economic model that defines investment however only includes the paradigm of
investing in, to be kind, mature companies; where institutional investors drive
these markets. For the last decade the true returns on these markets have been
non-existent.
Interesting,
the S&P 500 index closed 2010 @ 1257.64 and at the close of business in
2011 that value was 1257.60, down just four one-hundredth of a point to six
significant figures. The Dow Jones was up 5.5 percent; both, a whole lot of
angst for not much result.
In
our September article, referenced at the beginning, we introduced the concept
of Entrepreneurial
Pioneer Areas (EPAs). So far, to our knowledge nothing anyway related to
such a novel solution has been discussed as a potential solution to our worldÕs
and the nationÕs economic problems. Next week we will take another EPA shot at
AmericaÕs speak brazenly and carry a Salix discolor (pussy willow) twig leadership.
While
we are at it, our Grizzly USA Plan
is also still the only future economic proposal that truly addresses tax
simplification, revenues, debt reduction and entitlement reform; all in just
398 words.
©
2012: All rights reserved.
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