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.