Brilliant analysis, as usual, David. Let me add two sledgehammer issues that could make the next 30 years unlike anything humans have faced in the past: the enormous, worldwide impact of climate change, causing huge migrations, famines, floods and other catastrophes that humans have never dealt with on this scale; and the use of nuclear weapons by desperate leaders that escalates beyond our imagination.
To me, the one piece of the analysis that is missing is that the acceleration of our technological capabilities is not linear, it's exponential. We are not just incrementally improving our capacity to produce products that are more valuable than the energy invested in them, we are building the capability to have effectively unlimited energy, and both physical and algorithmic robots (AI) that can do most of the labor required to create abundance. Very few people, I think, appreciate how dramatically greater our technological capabilities are likely to be in a decade or two if current trend lines continue (Azeem Azhar is good on this, as is Dario Amodei, link below).
The second piece that is missing is that the conditions in which the exploited working class are working in the developed world are far less dire than they were a century ago, before the great depression. And conditions in the developing world have been improving at a pace that is faster than most of our liberal brethren acknowledge, causing people in the developing world to be far more optimistic about the future than wealthy liberals.
A third note is that we have more sophisticated (though still imperfect and limited) methods for managing economic cycles than we did a century ago.
I am not suggesting that societal collapse for the reasons your outline is not possible -- it IS a scary time, and the combination of anti-democratic populist leaders and ever more powerful surveillance technology (Harari's new book Nexus is good on this), poses a dire threat to our future.
But what I am saying is that our current conditions are far different from the conditions that lead to the great depression some 95 years ago. I am not convinced by the argument that an economic collapse is immanent.
Where I do agree with you, however, is that this is another historical moment when the oligarchs and political leaders must decide to make fundamental changes to how wealth is distributed in order to stabilize our future and shore up the future of democracy. Because just as the tools available for productivity enhancement are growing more powerful exponentially right now, so to are the tools available to autocrats. Tech companies are becoming entities with the power of nation states, and the quality of their cultures and leadership may prove to be almost as important as those of our governments. (More on that here for those curious - https://bookoftheday.nextbigideaclub.com/p/the-dawn-of-superintelligence-is)
Thank you for this and I look forward to the next installment!
Rufus, I appreciate your insightful comment and hasten to reply at length.
The exponential changes in technology certainly bear mention. A variant of “building our capacity to produce products that are more valuable than the energy invested in them,” is that many new products consumers are willing to pay for today require less energy to produce (such as online content or real estate in online games), thereby improving the reward-to-effort ratio. Alvin Toffler well observed the acceleration in the rate of change in technology in The Third Wave. (1980)
We also agree on “building the capability to have effectively unlimited energy, and both physical and algorithmic robots (AI) that can do most of the labor required to create abundance.” I mention the possibilities of unlimited physical energy in Part IIIB with hydrogen fusion and geologic hydrogen replacing fossil fuels. The likelihood of AI robots doing most of the labor raises interesting questions about how the abundance they create should be distributed to populations whose labor is no longer required.
I’m not sure there’s much comfort to be derived from the observation that “conditions in which the exploited working class are working in the developed world are far less dire than they were a century ago, before the great depression.” I doubt that homeless people living under a bridge in North Face tents feel much better than their counterparts in Hoovervilles a century ago. Or, for that matter, that tenants in rat-and cockroach-infested urban tenements feel much better than dirt farmers living in dusty shacks in Oklahoma before the Great Depression. I smile when I remember Will Rogers quip: “We are the first nation in the history of the world to go to the poorhouse in an automobile.” Maybe things weren’t so bad before the Great Depression, after all. I do mention the condition of the exploited working class in Part IIIA: “A distressing number of workers experience the Dickensian “starvation wages” of their forbears; living paycheck to paycheck; spending nearly everything they earn; not saving much, if anything; living under the threat of medical bankruptcy and homelessness (thankfully they’ve done away with debtors’ prisons); struggling to pay down student loans, mortgages, and credit card debt bearing usurious rates of interest . . .” Still, Poverty is poverty, never pleasant.
I also draw little comfort from the notion that “we have more sophisticated (though still imperfect and limited) methods for managing economic cycles than we did a century ago.”
Admittedly, as I point out in Part IIIB, Hoover, relying on Alfred Marshall’s impractical classical economics, had little or no understanding of how to deal with the Great Depression, beyond building the Hoover Dam. Roosevelt, however, grasped the practicalities of implementing Keynesian stimulus through deficit-financed fiscal policy complemented by what is today called “quantitative easing” monetary policy. Today, I have zero confidence that the incoming administration has any grasp of sound Keynesian fiscal policy to deal with the predicted economic/financial calamity, so determined are the oligarchs in avoiding government investment in projects that might require that they pay for them with higher taxes. Recall that the first Trump administration promised but never delivered wondrous infrastructure projects.
As for monetary policy, Burns and Volker, were effective in rolling back oil prices in 1986 to combat inflation by flattening the demand for oil by inducing two major recessions with tight money in the 1970s and early 1980s. Thereafter, Greenspan and Bernanke, on the other hand, implemented a policy of “perpetual prosperity” by attempting to head off any approaching recession by helicoptering “easy money” into the banking system. They succeeded in lengthening the intervals between recessions, and ameliorating the severity of the recessions in 1990-91and 2001, avoiding another in 1994. However, in so doing the Fed short-circuited the beneficial effects of more frequent moderate recessions produced by free markets regulating interest rates, instead of by a highly fallible Fed seeking to avert them. The beneficial effects I refer to are the periodic curtailment of credit during recessions, either by banks curbing lending or households curbing borrowing. Without the dampening effect of free-market recessions, the amount of debt simply continues to grow without restraint, as I demonstrate in the graph In Part IIIB. And since TOO MUCH DEBT is the fundamental cause of stock market crashes and deep recessions, as we learned in the Great Recession of 2007-2009, the policy of perpetual prosperity trades of a series of more frequent, small, manageable, market-regulated recessions for less frequent, Fed-regulated mild recessions followed by a “great” one. Bottom line: In the long run, Fed regulation of economic cycles is inherently destabilizing.
Since TOO MUCH DEBT is the problem, and the total debt level today is about it was during Bush’s Great Recession, the stage is still set for another Great Recession at a minimum, and more likely a Great Depression, given a Hoover-like, do-nothing mentality for fiscal policy prevailing in the incoming administration.
And finally, there are limits to what the Fed alone can accomplish to ameliorate a major economic downturn. The Fed’s only tool amounts to a guy sitting at “The Desk” at the New York Fed pumping a significant digit followed by lots of zeroes into the banking system to lower short-term interest rates by buying up a lot of Treasurys and bad debts held by banks. The market still controls long-term rates. And at some point, just pumping money into the banking system becomes ineffective, either by producing inflation or “pushing on a string.”
As for the oligarchs, please refer to my End Note in Part IIIB.
Happy to continue the dialog. We might make a post out of our online conversations for our respective Substack accounts. (?) Best regards, David
Thanks David for the opportunity to continue my ranting. Last April my daughter moved to Baltimore and took my two granddaughters and my son in law with her. There was no way, at that time,would we ever travel to the east coast from Seattle for Christmas. Baltimore is really fine this time of year. We've been here a week now and I must say, never again, will we do for only a week next year! Just before we left Seattle last week, I planted over a hundred bulbs of tulips and hyacinth and I fully expect to see those blossoms in a couple of months. That's what hope is. You do the right work now when conditions are not ideal and you wait expectantly for the answer to show itself soon! Today I see the same darkness politically that held many people captive 8 years ago. All I have to say is to look to the garden for possible answers to today's problems and pay attention to the spider. There's a web in the garden at all times of the year because for a spider you know only one thing, build your web and something will happen. Happy days will come again.
I hope I've finally found the way through the maze of my life to just find someone who could understand a little perspective from a 76 year old (Moana hearted) voyager into a new world. After reading your piece on the Megacycles, I am starting to see a very murky but tiny place to set foot on. Like Chris Columbus finding some land. During my short time on this incredible blue planet, I feel like I'm starting to see some of the border pieces of a giant puzzle that was dumped in front of me. Just like Chris, I'm totally dumb founded by the number of pieces that have to fit perfectly into place before anyone can identify the picture of what was created as a picture of ME. My girlfriend, and partner for 54 years, is a master of the PUZZLE!! 2000 pieces! She spits on that and says, Got anything worthy of my time? She found an answer to that question when her heart said, become a TEACHER!! After spending a few years floating in the Doldrums, do sailboats without a motor need wind? Who knows the answer to that question when you are the physical representation of a sailboat in this sea of humanoids? The reason I bring my partner into all of this is not to point a finger and say, You got me here , where are we? Don't know much about history( hey that could be a song) but I'm sure those were some possible thoughts going through Chris's head(you know I'm talking about Columbus right?) Any way, a wind started to fill her sails, (I didn't do it as one says in an elevator) and that breeze comes from somewhere unidentifiable and can only be captured in a humanoids heart and spirit. I'm part Indian and so I'm familiar with the dream catcher being made form feathers. You can't hold dreams with feathers as they breeze through your life, you can only go in it's direction and fly! Well she started to feel the power fill her sails and there was the beginning of her life's work and the finish to her outside border and the beginning of the work to fill in the middle of that beautiful puzzle! The only reason that took so many words to explain? She is the other half of my brain and I seem to have resisted having her telling me the pieces, in her opinion, that are missing. Men? I don't know the rules to this sight but I feel like I'm going to get a delay of game penalty so I must stop, but I'll continue if my new coach David tells me to get back in there kid. Later?
You are feeling what we all are now. And you just said you are "starting to see a very murky but tiny place to set foot on". This is a great description of me too at this moment.
We always seem to muddle through somehow and come out stronger on the other side. Nukes change the equation, either forestalling global war or, EOD, as you say. All we can do hunker down to survive hard times and work toward the former alternative. I have a lot more to add in future posts. Stick around..
Brilliant analysis, as usual, David. Let me add two sledgehammer issues that could make the next 30 years unlike anything humans have faced in the past: the enormous, worldwide impact of climate change, causing huge migrations, famines, floods and other catastrophes that humans have never dealt with on this scale; and the use of nuclear weapons by desperate leaders that escalates beyond our imagination.
Spot on, Alan. Two “black swan” events we should not lose sight of and incorporate into any analysis of the future.
Great stuff, David, thank you for this.
To me, the one piece of the analysis that is missing is that the acceleration of our technological capabilities is not linear, it's exponential. We are not just incrementally improving our capacity to produce products that are more valuable than the energy invested in them, we are building the capability to have effectively unlimited energy, and both physical and algorithmic robots (AI) that can do most of the labor required to create abundance. Very few people, I think, appreciate how dramatically greater our technological capabilities are likely to be in a decade or two if current trend lines continue (Azeem Azhar is good on this, as is Dario Amodei, link below).
The second piece that is missing is that the conditions in which the exploited working class are working in the developed world are far less dire than they were a century ago, before the great depression. And conditions in the developing world have been improving at a pace that is faster than most of our liberal brethren acknowledge, causing people in the developing world to be far more optimistic about the future than wealthy liberals.
A third note is that we have more sophisticated (though still imperfect and limited) methods for managing economic cycles than we did a century ago.
I am not suggesting that societal collapse for the reasons your outline is not possible -- it IS a scary time, and the combination of anti-democratic populist leaders and ever more powerful surveillance technology (Harari's new book Nexus is good on this), poses a dire threat to our future.
But what I am saying is that our current conditions are far different from the conditions that lead to the great depression some 95 years ago. I am not convinced by the argument that an economic collapse is immanent.
Where I do agree with you, however, is that this is another historical moment when the oligarchs and political leaders must decide to make fundamental changes to how wealth is distributed in order to stabilize our future and shore up the future of democracy. Because just as the tools available for productivity enhancement are growing more powerful exponentially right now, so to are the tools available to autocrats. Tech companies are becoming entities with the power of nation states, and the quality of their cultures and leadership may prove to be almost as important as those of our governments. (More on that here for those curious - https://bookoftheday.nextbigideaclub.com/p/the-dawn-of-superintelligence-is)
Thank you for this and I look forward to the next installment!
Rufus, I appreciate your insightful comment and hasten to reply at length.
The exponential changes in technology certainly bear mention. A variant of “building our capacity to produce products that are more valuable than the energy invested in them,” is that many new products consumers are willing to pay for today require less energy to produce (such as online content or real estate in online games), thereby improving the reward-to-effort ratio. Alvin Toffler well observed the acceleration in the rate of change in technology in The Third Wave. (1980)
We also agree on “building the capability to have effectively unlimited energy, and both physical and algorithmic robots (AI) that can do most of the labor required to create abundance.” I mention the possibilities of unlimited physical energy in Part IIIB with hydrogen fusion and geologic hydrogen replacing fossil fuels. The likelihood of AI robots doing most of the labor raises interesting questions about how the abundance they create should be distributed to populations whose labor is no longer required.
I’m not sure there’s much comfort to be derived from the observation that “conditions in which the exploited working class are working in the developed world are far less dire than they were a century ago, before the great depression.” I doubt that homeless people living under a bridge in North Face tents feel much better than their counterparts in Hoovervilles a century ago. Or, for that matter, that tenants in rat-and cockroach-infested urban tenements feel much better than dirt farmers living in dusty shacks in Oklahoma before the Great Depression. I smile when I remember Will Rogers quip: “We are the first nation in the history of the world to go to the poorhouse in an automobile.” Maybe things weren’t so bad before the Great Depression, after all. I do mention the condition of the exploited working class in Part IIIA: “A distressing number of workers experience the Dickensian “starvation wages” of their forbears; living paycheck to paycheck; spending nearly everything they earn; not saving much, if anything; living under the threat of medical bankruptcy and homelessness (thankfully they’ve done away with debtors’ prisons); struggling to pay down student loans, mortgages, and credit card debt bearing usurious rates of interest . . .” Still, Poverty is poverty, never pleasant.
I also draw little comfort from the notion that “we have more sophisticated (though still imperfect and limited) methods for managing economic cycles than we did a century ago.”
Admittedly, as I point out in Part IIIB, Hoover, relying on Alfred Marshall’s impractical classical economics, had little or no understanding of how to deal with the Great Depression, beyond building the Hoover Dam. Roosevelt, however, grasped the practicalities of implementing Keynesian stimulus through deficit-financed fiscal policy complemented by what is today called “quantitative easing” monetary policy. Today, I have zero confidence that the incoming administration has any grasp of sound Keynesian fiscal policy to deal with the predicted economic/financial calamity, so determined are the oligarchs in avoiding government investment in projects that might require that they pay for them with higher taxes. Recall that the first Trump administration promised but never delivered wondrous infrastructure projects.
As for monetary policy, Burns and Volker, were effective in rolling back oil prices in 1986 to combat inflation by flattening the demand for oil by inducing two major recessions with tight money in the 1970s and early 1980s. Thereafter, Greenspan and Bernanke, on the other hand, implemented a policy of “perpetual prosperity” by attempting to head off any approaching recession by helicoptering “easy money” into the banking system. They succeeded in lengthening the intervals between recessions, and ameliorating the severity of the recessions in 1990-91and 2001, avoiding another in 1994. However, in so doing the Fed short-circuited the beneficial effects of more frequent moderate recessions produced by free markets regulating interest rates, instead of by a highly fallible Fed seeking to avert them. The beneficial effects I refer to are the periodic curtailment of credit during recessions, either by banks curbing lending or households curbing borrowing. Without the dampening effect of free-market recessions, the amount of debt simply continues to grow without restraint, as I demonstrate in the graph In Part IIIB. And since TOO MUCH DEBT is the fundamental cause of stock market crashes and deep recessions, as we learned in the Great Recession of 2007-2009, the policy of perpetual prosperity trades of a series of more frequent, small, manageable, market-regulated recessions for less frequent, Fed-regulated mild recessions followed by a “great” one. Bottom line: In the long run, Fed regulation of economic cycles is inherently destabilizing.
See: https://fred.stlouisfed.org/series/GDPC1
Since TOO MUCH DEBT is the problem, and the total debt level today is about it was during Bush’s Great Recession, the stage is still set for another Great Recession at a minimum, and more likely a Great Depression, given a Hoover-like, do-nothing mentality for fiscal policy prevailing in the incoming administration.
And finally, there are limits to what the Fed alone can accomplish to ameliorate a major economic downturn. The Fed’s only tool amounts to a guy sitting at “The Desk” at the New York Fed pumping a significant digit followed by lots of zeroes into the banking system to lower short-term interest rates by buying up a lot of Treasurys and bad debts held by banks. The market still controls long-term rates. And at some point, just pumping money into the banking system becomes ineffective, either by producing inflation or “pushing on a string.”
As for the oligarchs, please refer to my End Note in Part IIIB.
Happy to continue the dialog. We might make a post out of our online conversations for our respective Substack accounts. (?) Best regards, David
Thanks David for the opportunity to continue my ranting. Last April my daughter moved to Baltimore and took my two granddaughters and my son in law with her. There was no way, at that time,would we ever travel to the east coast from Seattle for Christmas. Baltimore is really fine this time of year. We've been here a week now and I must say, never again, will we do for only a week next year! Just before we left Seattle last week, I planted over a hundred bulbs of tulips and hyacinth and I fully expect to see those blossoms in a couple of months. That's what hope is. You do the right work now when conditions are not ideal and you wait expectantly for the answer to show itself soon! Today I see the same darkness politically that held many people captive 8 years ago. All I have to say is to look to the garden for possible answers to today's problems and pay attention to the spider. There's a web in the garden at all times of the year because for a spider you know only one thing, build your web and something will happen. Happy days will come again.
I hope I've finally found the way through the maze of my life to just find someone who could understand a little perspective from a 76 year old (Moana hearted) voyager into a new world. After reading your piece on the Megacycles, I am starting to see a very murky but tiny place to set foot on. Like Chris Columbus finding some land. During my short time on this incredible blue planet, I feel like I'm starting to see some of the border pieces of a giant puzzle that was dumped in front of me. Just like Chris, I'm totally dumb founded by the number of pieces that have to fit perfectly into place before anyone can identify the picture of what was created as a picture of ME. My girlfriend, and partner for 54 years, is a master of the PUZZLE!! 2000 pieces! She spits on that and says, Got anything worthy of my time? She found an answer to that question when her heart said, become a TEACHER!! After spending a few years floating in the Doldrums, do sailboats without a motor need wind? Who knows the answer to that question when you are the physical representation of a sailboat in this sea of humanoids? The reason I bring my partner into all of this is not to point a finger and say, You got me here , where are we? Don't know much about history( hey that could be a song) but I'm sure those were some possible thoughts going through Chris's head(you know I'm talking about Columbus right?) Any way, a wind started to fill her sails, (I didn't do it as one says in an elevator) and that breeze comes from somewhere unidentifiable and can only be captured in a humanoids heart and spirit. I'm part Indian and so I'm familiar with the dream catcher being made form feathers. You can't hold dreams with feathers as they breeze through your life, you can only go in it's direction and fly! Well she started to feel the power fill her sails and there was the beginning of her life's work and the finish to her outside border and the beginning of the work to fill in the middle of that beautiful puzzle! The only reason that took so many words to explain? She is the other half of my brain and I seem to have resisted having her telling me the pieces, in her opinion, that are missing. Men? I don't know the rules to this sight but I feel like I'm going to get a delay of game penalty so I must stop, but I'll continue if my new coach David tells me to get back in there kid. Later?
Go for I, Larry. You’re on a roll.
You are feeling what we all are now. And you just said you are "starting to see a very murky but tiny place to set foot on". This is a great description of me too at this moment.
We always seem to muddle through somehow and come out stronger on the other side. Nukes change the equation, either forestalling global war or, EOD, as you say. All we can do hunker down to survive hard times and work toward the former alternative. I have a lot more to add in future posts. Stick around..