Guest blogger Tim Anderson is founder of Z Corporation, maker of rapid prototyping machines. He writes the “Heirloom Technology” column for MAKE magazine and has contributed over 200 projects to Instructables.
Asleep at the Wheel. M3 is the portion of the money supply that includes various privately created financial instruments. In 2006 the Federal Reserve Bank stopped measuring it. That’s why this graph comes from shadowstats.com instead of the Fed.
After the crash of 1929 and the great depression, people said “never again” and created safeguards such as the SEC (securities and exchange commission) and regulations for banks to keep them from over-leveraging into another 1929 crash. The safeguards worked so well for so long that smart people invented theories that markets regulate themselves. They campaigned for de-regulating markets. That’s just gotten us into a bigger crash than 1929.
Right now our un-regulated CLIMATE is headed for a 1929 crash.
Theories that the climate regulates itself are very popular.
The climate crash catastrophe will be far worse than the financial crash.
This current financial crisis has reminded us about how bubbles and crashes work. The strangest thing about crashes is the collective intellectual failure that makes the trip up to the edge of the cliff possible.
Writing today in the aftermath, it turns out we know a lot about what just happened.
The 1929 crash, the Asian Financial crisis of 1997, the Japanese “lost decade”
of the 1990s, the Swedish crash of 1992, and our current Global Financial Crisis (GFC). All were leveraged speculative bubbles followed by a crash and a crisis. And each time, the “perverse incentives” and “career risk” to prudent financial managers meant that they were only too willing to go along with the crowd. As an investment manager, are you unwilling to participate in the “new economy?”
Not interested in “growth investing?” You’re fired! Or perhaps your investors will sell their shares to buy another investment with more “growth” and then you’ll get fired.
In the 1990s I bought some shares of a very disciplined “value fund” in a “growth economy.” At the behest of investors, the fund manager got fired for missing out on “opportunities.”
A few cassandras got fired or quit their jobs and wrote some mumbo-jumbo about history going to repeat itself. But if they were so smart, why weren’t they rich? “New era” theories predominated. “Buy what’s going up” was the rule of the successful investor. Bankers bundled mortgages and resold them over and over again. In essence, the wisdom market, the “marketplace of ideas,” was very distorted by the financial market.
Consider the competing ideas about climate protection. Consider the huge short-term profits that can be made by ignoring the problem. We just learned how easily the wisdom market went wrong concerning finance, despite all the bubbles and crashes in recent memory.
What could happen when the climate crashes is worse than what’s happened before.
Right now the atmosphere is a free dumping ground for everyone’s waste. The weather and the air we breathe is the single most important thing to all of us. Like fish who are ignorant of water, we are passing our waste into the air we breathe with barely a thought. Our eyes like those of other animals have evolved to see through air, not look at it. And unlike the other animals we have discovered fire. We’re having a huge party with it.
Soon we’ll hit the “tipping point” of the climate crash. The tundra will melt, dumping methane into the air. Methane is 20 times worse than CO2 as a greenhouse gas. The polar ice cap will melt in the summer.
The darkness of the pole will soak up solar heat like never before.
The melting water from the Greenland and Antarctic glaciers will undercut them and lubricate the smooth rock slides that lay under them. As more dark land and tundra is exposed, the process runs away out of control.
The hotter tropical ocean waters will spawn mega storms that will destroy cities. Want to modify your house to survive winds of 200 miles per hour? Good luck. Want to harvest crops after that wind hits them? You’ll have to eat the corn out of the mud like a pig. After two years of bad harvests, what will you eat? When someone offers you food, a gun and a uniform, will you care whether you’re about to fight in World War Three?
After a financial crash there is a temporary shortage of money and credit,
but the recovery comes pretty quickly. Eventually there is a complete recovery to the pre-crash long-term growth trajectory as if the bubble and crash never happened. That’s what’s happened in every recent crash except Japan, which was slowly and gracefully recovering from an extremely severe bubble when the current global crash happened.
There was no “act of God” in the recent economic crashes. There was no plague, famine, earthquake, or storm that destroyed all that wealth in a few weeks. We did it all ourselves.
The climate crash will be different.
Look at the fossil record and see what happens to living things when their climate changes. They are “struck down,” “cut off,” and taste Biblical-type wrath of all kinds. Mother Nature’s wrath, the “acts of God” that wipe out cities and species, is not just numbers on a stock ticker. It is some serious shit. And unlike previous dominant species that wait around chewing cud ’til a meteor or volcano hoses their climate, we are doing it ourselves.
“Economic activity” is what we do for a living. “Economic activity” is another name for “primates burning stuff into the air.” The good news for today is that economic depressions slow the “burn rate” down for a few years. And we realize what kind of idiots we are for a while. And good ideas like “social security” and “climate protection” are easier to get implemented.
So let’s say we manage it, we save the climate. Maybe we figure out how to make carbon into diamonds and make electricity without burning things. Actually, those are both easy already. Anyway, the North Pole stays frozen and we don’t all have to move to Siberia as “guest workers” to grow rice.
That will be really great. We’ll be driving quiet electric cars and living close to work and drinking clean water right out of the river and fishing for organic fish on our lunch break right in town. There will be giant parks full of nut trees all around. We’ll go there to shoot organic rabbits and deer with giant air-rifles while driving 4 wheel drive electric monster jeeps. On Wednesdays, that is. The rest of the week the Buddhists will be feeding them tofu for us. It’ll be a big party that will last 70 years.
But after 70 years, I guarantee you there will be an “efficient climate theory”. We’ll hear “The climate is self-balancing. We should de-regulate the climate.” “A free climate is the most efficient climate,” “New Era,” etc. etc.
Unfortunately human wisdom is not a durable thing. It depreciates on a fixed schedule just like everything else made by humans. And we can expect the same sort of wisdom that caused the financial crisis to re-emerge in 70 years after we’ve solved the climate change problem.
And once again we’ll have an opportunity to learn the same old lessons. That ignorance of the laws of nature is no defense against them. And eternal vigilance is the cost of everything, including freedom.
p.s.
Want to understand what’s going on just as well as I do? Listen to every lecture podcast from the London School of Economics.