Saturday, August 10, 2013

Economic Innovation – Beyond Infinite Growth

Economic systems can be an outward manifestation of confidence and trust – the collective agreement between persons to store and transfer value.  When these systems explicitly acknowledge the full range of costs (the accounting for all values of input) and benefits (the utility derived from interaction and consumption), they can serve as a constant reminder that we are participants within, not lords over, the abundance of our entire ecosystem.  In a human-scaled system we would explicitly acknowledge the values derived from, and expressed through, commodities, customs & culture, knowledge, money, technology, and well-being.  We would commit to honor productive utility rather than the illusion of perpetual and unsustainable growth.  We would define wealth as the state in which maximum utility is accessible while preserving all future options for all future users without degradation or exhaustion.

Time magazine’s August 12 issue declared that Germany must save the Eurozone and the euro by abandoning their restraint on consumption.  With Mittlestand firms continuing to hold on to values of fiscal discipline and persistent quality, the author argued, Germany’s productivity has ‘caused’ some of southern Europe’s contagion and instability.  I suppose in a world where we prefer Twitter fueled street uprisings and infinite expansion of central bank balance sheets tenuously propping up the capitalist illusion that has, in its current manifestation proven its own failure, this assessment makes sense.  However the author’s imposition of a growth-by-consumption paradigm is one of, but certainly not the exclusive, economic model that can be considered. 

Americans (and the rest of the deluded world) forget that the conditions of surrender at the end of the Second World War included massive reparations of German technology (magnetic data storage, dyes and chemicals, aeronautics, encryption, communications, nuclear engineering, medicine) without which we may still be using IBM’s Selectric typewriters and teaching our children how to change the ribbon, listening to our 33 LP vinyl phonographs and answering our land-line phones.  Careless neglect of the memory of Operations Paperclip, Epsilon, Alsos, and Lusty – including the arrests of key scientists and their subsequent rendition-evoking “invitation” to join the U.S. military and industrial research programs – perpetuates our self-determination myth that has no basis in reality.  Time’s Rana Foroohar is not fully culpable of drawing temporally expedient conclusions – I’m sure she hasn’t studied the German expropriation that defined much of the technology of the last 70 years of industrial development – but she does nothing to point readers in the direction of a more complete view.

Why do we need revisionist history as a central tenet of our current economic paradigm?  The answer is quite simple.  Our imperialist form of scarcity-inspired capitalism doesn’t work as advertised.  Why would I conclude this?  Well, that’s easy too.  Without massive price support, our agriculture sector collapses – thus the U.S. Farm Bill and its equivalent throughout the G-20.  Without tax loss harvesting, our venture capital system doesn’t work.  Without Federal Reserve, Central Bank and tax-payer intervention our banks fail.  Without protectionism (including over-ruling decisions made by our protectionist USITC), our innovation can’t stand up to global competitors.  Without tax exemptions, our charity starves.  Without international scientists and graduate students (many of whom come from communist or socialist states who are indentured in labs in exchange for education), U.S. science chills.  Does this mean that there is nothing salutary in our economic paradigm? No.  But it does mean that the illusion requires an awful lot of props that should be anathema to the principles we espouse.

Is it in the principle or the practice where the economic illusion dissociation really emerges?  Well, on that score, the lines get a little blurry.  Our consensus of economics and their essential nature are born of natural philosophy infused with faith.  Faith, you ask?  Absolutely.  From Aristotle to the Confessions of St. Augustine the explication of the universe and its origins assume finitude, “beginnings” and duality.  From Newton to Maxwell to Planck, science emulated religion and set forth dogma and “Laws” around which inquiry was replaced by adherent confirmations and reproducible observations in controlled conditions.  The laws of thermodynamics, for example, explicate the relationship between heat and work in systems defined by boundaries defined by irreversible flows.  Newtonian physics presumes conditions in nature without examination of the essential nature of nature.  Embedded in these catechisms is the precept of statistical equilibrium without consideration of the dynamics and substance of Source.   Economics, our cult du jour, callously thumbs its nose at the Laws defining natural philosophy of the past with the falsifiable paradox of perpetual growth.  Rather than seeing systems as operating cycles of productivity and latency with interchangeable flows, we’ve imposed an ‘ideal’ of linear perpetual growth from which profits are extracted through explicit and implicit friction.  When we don’t see evidence of its success, we change the metrics (current central bank intervention) or fall back on the fable of mystifying booms and busts (the explanation given for unemployment, expansions and recessions, and ‘resource curses’).  

Our adherence to ‘Laws’ limit our capacity for systemic innovation.  And our convenient neglect of evidence that is observable but unquantified in our controlled experiments condemns us to illusion perpetuation.  If we don’t correctly understand systems, we assume a beginning without precondition.  We can haphazardly combust fossil fuels because we presume their existence to be ‘free’.  We rip forests down and carve up the land to extract elements because they’re there and they’re ‘free’.  By the application of ‘work’ (which is why we cannot escape our addiction to ‘labor’ statistics) we render ‘useful’ the elemental commodities which, without our intervention are ‘worthless’.  Yet, despite the irreversibility underpinning our natural philosophical presumptions, we maintain an illusion of perpetual growth to fuel the monster of our own creation – uncorrelated, persistent growth demanding, capricious debt. 

Which brings me back to Germany.  Not surprisingly, Germany’s industrial productivity is heavily informed by natural philosophy underpinnings.  Like the scientists and philosophers who rationalized the observable world in the Holy Roman Empire under the patronage of Friedrich Wilhelm I and Leopold I, German industry has more often used economic utilities as a means, not as the metered ends.  The relationship between capital and industry has been one of liquidity between boundaries of metaphoric and actual thermodynamic processes and states.  Into that reality, deterministic chaos and entropy (in the form of central bank accommodation for profligate States) has been inserted leading to a toxic imbalance.  German industry needs German banks.  German banks, bloated with obligatory exposure to non-creditworthy bonds, are facing existential threats.  Compelled to support unsubstantiated promises of future fiscal discipline (buying sovereign rubbish bonds and having to call them “assets”) while attempting to maintain their role as credit providers to industry, they are now in a precarious and unstable state.  If, on the one hand, they become increasingly the agency of European Central Bank illusions, their capacity to offer credit into industry will be diminished.  Alternatively, if they reduce their complicity in interventions, they highlight a reality that is politically unacceptable in the EU and in the global trading dynamic generally – namely, evidence that Germany is stronger than many would like them to be.

Rather than fearing this, as Rana Foroohar and Time would have us do, why don’t we take a step back and see what essential elements are working in Germany.  Maligned as unhelpful in the consumer-insanity based global economy, Mittlestand attributes like production value over volume, accommodative (including forgone or deferred) profit-taking rather than employment shocks, exceptional value of education and research, actually sound like things to emulate – not fear.  Consumer frenzies fueled by planned obsolescence could be replaced by things working!  Wow, that doesn’t sound too bad!   We may actually encounter and embrace, from time to time, the nearing-extinction principle of “Enough”.  Why wouldn’t We The People desire this?  It wouldn’t fit the patriotic narrative we’ve had indoctrinated into our social psyche.  It would mean that we may be encouraged to be more thoughtful in what and how we consume.  But, in the end, we may just find that credit-worthy productivity (and systems built around that) is more desirable than decadent profits at the expense of the planet and its inhabitants.  And we could certainly profit from such a transformation.

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Thank you for your comment. I look forward to considering this in the expanding dialogue. Dave