Progress is Not Guaranteed: The Long, Long, Long-Term View

I have no idea where I originally saw it, or exactly when, but there is a photo I’ve been thinking about for at least 20 years. Shot from a helicopter in an unnamed mountainous region of Europe, the foreground was dominated by the intuitively perfect arc of a Roman aqueduct extending from higher altitudes.  At least 1700 years old, the structure was not only representative of the pinnacle of pre-Christian architecture and engineering but also an excellence in construction that has clearly since faded from modern consciousness.  In the background of the image was a farmer struggling with an ox and plow, a combination that would have been familiar to any medieval peasant. The lesson: human progress does not always move forward.

I am not about to predict a new dark Ages here, although its always psychologically tempting in some weird way,  – religiously unhinged, sandwich board-toting street preachers and Marc Faber are just the physical manifestations of an apocalyptic impulse in all of us.  But even if we’re going to ignore such base, lizard-brain impulses we do have to recognize that changes in the broader sweep of economic history may be in play currently, with a commensurate questioning of previously-consensus “givens”.  Conventional economic projection models based on inventory cycles, using only post-WWII data are currently dying the Death of a Thousand Cuts, modified to the point of irrelevance as the Rogoff-Reinhart  interpretation of the GFC, based on centuries of data, steadily assumes dominance.  (Yes, I saw the Romer editorial. Ii made good anti-Rogoff points but I found it unpersuasive in the end). Investing rules of thumb like the Law of 20 – S&P 500 PE ratios plus CPI should add up to 20 – are also being jettisoned, at least temporarily.

Political assumptions are also at risk along with economic. Frustration with corporate rent-seeking in Congress and the subsequent black comedy of incompetence have left some commentators desperate enough to look to China’s penchant for soul-crushing oppression as a source of socio-economic answers, as Reihan Salam rightly ridicules.  In terms of overall political discourse, technology has enabled a degree of polarity among left and right that all but prevents reasonable discussion. I would also argue that current hyperbolic, inflexible political environment is indicative of tangible, fight or flight, backed-into-a-corner fear. The right is terrified that the forces of modernity have swamped their Cleaver-esque view of the American Utopia. The left sees the potential that the welfare/nanny state, protector and primary implementer of “progressive” ideals, is no longer economically sustainable.

“Shit’s broken” as the great online sage @marketplunger is fond of saying. And unlike the 1930s, where US personal savings were just lying around awaiting to be mobilized by FDR, the White Knight that will make the Western world debt problem go away for a while is less obvious. Certainly the all-purpose, 20th century solution to structural economic problems, “just throw borrowed money at it”, appears exhausted. Even if, as is likely, massive fiscal stimulus is the prudent response to the current output gap, the tipping point where the mid-term marginal utility of more debt is negative can not be too far off in the future unless existing debt loads are addressed in some way.

Proclamations of doom sell newspapers generate page hits but the majority of human history has been a case of more banal “muddling through”.  It is also true that dominant, century-long social and economic trends wax and wane over long, long periods of time. The structural issues of sovereign debt, barring some type of trade-oriented or (less likely) military conflagration, will likely be addressed over the period of at least a generation, certainly longer than our modern, shorter attention spans are used to.

The most likely scenario is a “muddle-through” but we will, I think, have to remain conscious of the broader arcs of history. If, as Barzun and many others have argued, the driving forces of western civilization and its global dominance are waning, the shift to a more Asian-centric world will be a “once every 500 years”-type revolution, with considerable potential for upheaval. We are already seeing pictures of parkland and wild vegetation within the shadow of Detroit’s Renaissance Center, echoing the aqueduct and plow of my remembered photo. Anyone gambling on the same process occurring in sight of the Empire State Building would be a fool but still, in following the ingrained habits of the recent past we should remain cognizant that we are not exempt from history, or the fact that progress is not inevitable.

3 thoughts on “Progress is Not Guaranteed: The Long, Long, Long-Term View

  1. […] future is guaranteed to no one.  (Interloper, Free […]

  2. Mario says:

    great post here. Reminds me of “magic realism” and Carpentier if you know much of that literary movement.

    also have you been reading Warren Mosler lately? You are using buzz words from MMT which is why I ask.

    It’s really not accurate to say that we have ever used “borrowed money” since the gold standard was lifted in ’71. Is a savings account earning interest “borrowed”? No. It’s just a deposit that’s all. Fractional Reserve Lending although accurately explained, does not exist in our economy today. Loans come FIRST then deposits not vice-versa. All that bond investors do is shift cash from a checking account to cash in a savings account with the Fed where the interest is greater. That’s it! No “borrowing” involved whatsoever. The US has a monopoly on all US dollars so it is completely impossible for China (or anyone) to “give us” more US Dollars as a point of logic. We give THEM more US dollars at the said coupon rate, etc. not the other way around. And it should be noted that China’s debt holdings are directly related to their current account balance with the US.

    There is no marginal utility regarding fiscal expenditure in regards to the government’s (creator/spender) side. Of course there can be marginal utility in terms of the people’s side (user/receiver). This is b/c of inflationary pressures that would EVENTUALLY occur and decrease the utility of fiscal expenditure. Also of course the terms by which the fiscal expenditure is rendered can have drastic social impacts. A welfare check functions vastly differently in our society than hiring an employee and both of those are vastly different than a government military contract for example. All three of these are fiscal expenditures (and if assumed they were the same nominal amount), they would still have varying effects on the economy. There are literally unlimited options that can be done to help our economy through proper fiscal expenditure (including tax breaks for those that want less central government). And as you point out we have a very wide output gap, high UE, and low rates so inflation is a far cry of a concern at this time…however EVENTUALLY it would need to be looked at similarly to an oscillator on a trading screen….there’s over-bought and over-sold and it’s all about deciphering WHERE on the spectrum you are.

    It seems you are dovish which is fine either way, but the reality is that both deficit doves and hawks are out of paradigm and don’t operate or understand the functional reality of how government spending, bonds, and taxation truly operates in our non-convertible, floating exchange rate system. Most if not all doves and hawks promote policy that falsely assumes we live in a convertible (or non-convertible) FIXED exchange rate system. Overlooking these functional realities makes for a GIGANTIC BLIND SPOT in nearly every single politician, analyst, economist-trader-blogger (hack or otherwise), and citizen in this nation/world. And frankly it is this blind spot that is the major if not sole reason we are still “muddling through” and could even be the a major social mental block leading to social symptoms the likes of your helicopter photo. The EU for example is a whole different ball of wax than the US or Japan in these regards and is why the US as a point of logic can NEVER become Greece (and the spreads today prove this point BOLDLY….yet even still most everyone is “just waiting” for rates to shoot up in the US…any day now…any day….sigh). We can however quite easily become Japan if we just continue on as we are now in a deflationary malaise. As Warren Mosler states, “In our fear of becoming Greece we are becoming the next Japan.”

    thanks and thoughts?

  3. Mario says:

    and look at what good old Mitt came out with today too no less!!! Perfect timing to exactly what I am saying in this post….which John Carney at CNBC shoots down straight away…with a h/t to Warren Mosler no less.

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