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Sunday, February 01, 2009

System Reboot

Like most people, I assume, a good chunk of what I've been reading, thinking, and writing about lately involves the economy, and what to do about it. Obviously it's just about impossible to be optimistic about any aspect of it all, but holy crap. And here I thought Kunstler was a pessimist.

The amount of debt that is currently held in public and private hands (corporate and consumers) is estimated to be 350% of GDP....Historically, it appears that sustainable debt levels are approximately 150% of GDP (there has been lots written that Greenspan's "Great Moderation" fundamentally changed that ratio, although I think those arguments are now deprecated)....A good assumption is that $20 + trillion in excess US debt (200% of GDP), mostly in private hands, must be wrung out of the system before it stabilizes.


Robb has been on a serious roll lately in general, carefully (and in a non-partisan, largely apolitical style) describing the various security issues confronting an increasingly interdependent world. From the dangerously hollowed-out state entities in Mexico and Pakistan, to the major SCO powers getting snakebit (China by the drop in US consumption; Russia by the drop in oil prices) by our economic situation, there are a lot of serious issues building -- indeed, already in progress -- that don't make the nightly news.

Each of those factors and situations tends to highlight the fact that "security" is more comprehensive than it has been conventionally defined. It's more than preventing another 9/11, and more than the severe moral transgressions committed in that effort. Other factors which were dismissed as soft or secondary -- energy, finance, infrastructure, institutional integrity -- these are all critical to the daily security we take for granted.

Significant parts of Mexico, for example, have become veritable free-fire zones run by drug cartels, frequently using highly trained former military and paramilitary personnel as muscle. The government does not have the means to successfully combat or even contain them; indeed, probably only a demand-side economic shift -- like what's happening -- would really put a dent in them. Even then, there's so much built-in profit that a price-point adjustment would be easily done. So, high levels of economic stratification and income disparity, an increasingly desperate civilian population caught in the middle with nowhere to turn, and a bankrupt state that cannot even keep its personnel from jumping over to where the money is.

Now go across the border to California, where we are in the process of racking up a $40bn budget deficit. Property values have plummeted, and with it revenues. So the state is having to pay its employees with IOUs, and is proposing to release criminals early and cut police levels. In a state where the nominal unemployment rate is pushing 10%, and the population is estimated at nearly 37 million, that's a security issue, albeit one that doesn't involve planes and skyscrapers. And the only thing being offered that might help alleviate the situation is if Obama dedicates a fat chunk of his public works proposal to California.

But that's a temporary gain, with limited benefits. Creating jobs by repairing an infrastructure, much of which is not sustainable long-term, ultimately in order to service the massive, arcane debt of the shadow finance system. It's a nice carrot to dangle to a state that has been getting financially hosed ever since Kenny Boy Lay slithered out of his hole, shook down the state and fucked up our political system for a few years. But it perpetuates a system that is operating past its shelf life as is, and anything that is not used for innovation will in some respect be simply going to re-inflate the bubble to sustain a broken and corrupt financial system.

What Robb and others have been proposing makes sense, especially in terms of beginning to disempower this gang of thieves and bookies who have burned our house down and demanded that we pay them to slap another one together. It's going to take some time, and it's going to be ugly in some respects, though it really needn't be. Fairly simple concepts: stop rewarding the thieves; innovate systems and processes; decentralize and disaggregate where possible; encourage and build localized systems. There's always been enough to go around, the problem is always with distribution, and who's in charge of it.

Unfortunately Bush and now Obama have already in part rewarded (or at least not sufficiently disincentivized, which is just as bad) them, as expected. (Not to beat on Obama just yet; after all, he's only had a couple weeks, and they've been decent. Still, so far this is an area where the notion of "change" should be regarded with some skepticism.)

The way out of this is not to pump up the bubble again, so the same clowns can give each other eight-figure retention bonuses and find new loopholes to exploit at our expense. Technology has superempowered individuals to an extent that if they have sufficient ideological or practical reasons, they can circumvent official channels, in small but potent organized groups. Obviously it's impossible to expect centralized power to undermine itself by supporting such groups, but what it can do is facilitate local functions and organizations, streamlining its own central functions in the process. The "resilient community" movement seems to be growing, and eventually should serve at least as an option for some people, complementing or even supplementing roles traditionally taken by government entities.

1 comment:

Joe Blow said...

"demand-side economic shift -- "

err yeah..just legalise pot in the US and the gangs would lose 60-70% or their profit.....

and Cali could have a new industry!