Unexpected and Unsuspecting

The future confronts us with an impenetrable complexity.  And the future is now.  Hidden within this new reality is an unexpected menace that we can only barely imagine.

In the densely interconnected world of digital networks, instant communication, and global markets we find ourselves arriving in what appears to be a seductively attractive frontier, but which in fact masks entirely new dimensions of danger.

It is a new and unpredictable world, and it hides hazards of unimaginable magnitude.

Exponential population growth and digital connectivity, along with warfare, fragile commercial distribution systems, and the global transmission of deadly diseases, are all contributing to rapidly intensifying complexity.

However, it is the immensity and density of digital networks that is most difficult to comprehend.  And it is here where we are learning that complexity itself can behave in very strange and disturbing ways.

Complex systems are capable of spiraling out of control suddenly and inexplicably.

Living as we do in the instability of today’s world, I think it important that we understand this.

In his book, “Ubiquity”, science writer Mark Buchanan writes that a natural structure of instability is in fact woven into the fabric of the world.

He writes that complex structures and processes – in geology, in rush hour traffic, in financial markets, and in the many intricate networks of human society – have a natural tendency to organize themselves into what’s called a “critical state,” in which they are poised on what he describes as the “knife-edge of instability.”

A critical state occurs when a system is poised for sudden change.

Some mathematicians and scientists now believe that a pervasive instability is a fundamental feature in nature – and in the structures of human societies.

Any event, even a small one, can have an effect that seems far out of proportion to its cause. A single grain of sand, for example, will cause a sand pile to avalanche. But it is impossible for us to know which grain of sand, which individual maneuver in heavy traffic, or which specific circumstance in the financial markets will trigger inevitable catastrophe.

What is the difference between something that is complicated and something that is complex?

James Rickards, who I introduced to you in the previous post, answers this question in his book, “The Death of Money: The Coming Collapse of the International Monetary System”.

Rickards explains: “Many analysts use the words ‘complex’ and ‘complicated’ interchangeably, but that is inexact. A complicated mechanism, like the clockworks on St. Mark’s Square in Venice, may have many moving parts, but it can be assembled and disassembled in straightforward ways.

“The parts do not adapt to one another, and the clock cannot suddenly turn into a sparrow and fly away. In contrast, complex systems sometimes do morph and fly away, or slide down mountains, or ruin nations….

“Complex systems include moving parts, called autonomous agents, but they do more than move. The agents are diverse, connected, interactive, and adaptive. Their diversity and connectivity can be modeled to a limited extent, but interaction and adaptation quickly branch into a seeming infinity of outcomes that can be modeled in theory but not in practice.

“To put it another way, one can know that bad things might happen yet never know exactly why.”

James Rickards goes on to expound on the instability of today’s financial markets and global economy.  He writes: “Bankers’ parasitic behavior, the result of a cultural phase transition, is entirely characteristic of a society nearing collapse.

“Wealth is no longer created; it is taken from others. Parasitic behavior is not confined to bankers; it also infects high government officials, corporate executives, and the elite societal stratum.”

Today the financial markets and monetary system are again poised “on the knife’s edge of criticality.”

My message here is the importance of preparing for severe unforeseen shocks.  It is essential that we not panic when confronted with the unexpected.  We must remain steady on our feet when others are ready to stampede.

Only with a commitment to justice – and the self-discipline for ethical behavior and moral responsibility – will we hold our communities together and begin to rebuild.

Yes, the road to freedom requires courage, but getting there depends on responsibility.

Tom

Please look for the next post on or about October 20: Why the Bankers Are Trapped.

New readers can find a project description, a draft introduction to the forthcoming book, and several chapter drafts on this page.

Rebuilding America Without Bigness

When we begin to think strategically about the future, there are a number of complex challenges and baffling questions to be addressed. I offer one here for your consideration.

Bigness has been a hallmark of American culture and has been said to reflect the spirit of the nation. As an expression of raw power, massive engineering projects have fascinated Americans – and the rest of the world – for a long time.

Great ships, long bridges, tall buildings and world-changing inventions have transformed the material world throughout American history. Many of us recall the awe we felt as we watched Neil Armstrong step onto the moon – live on television.

In recent decades we have watched huge banks and corporations grow ever larger, swallowing up the smaller businesses we used to favor on Main Street and in nearby towns, and dispersing our jobs to far away places. Eventually corporate America decided they did not need Americans at all. Jobs were moved across the sea to places that had less interest in protecting the safety and comfort of working people.

We were told this would be good for us; that the cost of living would fall. They said we could buy the things we need more cheaply – with the money we no longer have. And so we became accustomed to “big box stores” filled with cheapened goods manufactured somewhere else by some other struggling people.

With the success of big business the wealthy have become ever wealthier, and an ever larger portion of personal wealth has been effectively removed from the consumer economy.

Bigness was supposed to be more efficient; it is not. It was supposed to improve the standard of living for ordinary Americans. It has done the opposite. It has destroyed millions of small and medium-sized businesses and the millions of meaningful jobs they once created. Indeed, we now know that with few exceptions large corporations are net destroyers of jobs.

The American middle class, once the engine of American economic ascendancy, has in many ways ceased to exist, unable to envision a better future or even to afford a new mortgage.

You know whereof I speak. A massive and unresponsive government dominates the economy, consuming the national wealth while producing nothing itself. Gigantic and impersonal corporations, for which honesty and responsibility serve no intrinsic purpose, show little concern for the consumer economy, (on which they ultimately depend), much less the integrity of the nation.

As Americans we should be accustomed to asserting our views, but we have allowed this situation to reach an extreme. Indeed, we have fed it with our own rampant materialism and couch-potato lives. And now it has morphed into a monster.

This is not a problem that can be legislated. How are we to turn it around?

Must we wait for economic catastrophe before we can re-order things? Or will American foresight, ingenuity, and determination forge a new economic course despite the power of bigness? We know how to “think-out-of-the-box.” Can we make an end run around the big boys and take America back?

Whether we face the “clean slate” of collapse, or the confusion and disorder of a long grinding depression, it is apparent that ordinary Americans must assert themselves in building the foundations for a new economic order.

And, the place we are given to do this is in our local communities.

I am not an experienced entrepreneur, but many of my readers are. Many of you are inventive; most are smart. It is time to put our creative imagination to work to figure this out. Survival is not a new concept; neither is creating wealth from scratch. These things are certainly difficult – but they have been accomplished successfully over and over again for centuries.

This time is special. We must unite to rebuild America, each making the effort to bring others along with us, teaching, serving, sharing knowledge, skills, and energy – building a future with a safe place for everyone.

Tom

Next week: Walking away from poverty

Dear readers, your ideas and feedback will be helpful to all of us; please join the conversation.

On Our Own

Many of us feel ensnared in the midst of social disintegration and a slowly suffocating economy, a predicament threatening to slide toward disorder. A distressing sense of foreboding can sometimes weigh on the soul. These feelings are not unreasonable, but let’s try to take in the whole picture.

I submit that we are actually experiencing the pain of renewal and rebirth brought about by profound change. A dysfunctional past must collapse before a revitalized nation can turn the corner to reach a principled and productive future.

I do not mean to minimize the severity of the present circumstances, which may become more painful than we can even now imagine. The crisis will be long and hard for the very reason that it is enforcing adjustment to monumental structural change.

While our lives may become increasingly uncomfortable for a time, however, it is apparent that we are at a turning point. A window of opportunity is presenting itself that may not come again, when it will be possible to reaffirm the vision and principles that have made this nation a beacon of hope to the world for 200 years.

The America we love can only regain its balance, recover its integrity and make itself whole, if Americans seize the day.

I have shared with you some of the reasons why I believe we are in trouble. And I have stated my conviction that we must look forward to the future beyond the crisis.

Most readers are aware that I have generally avoided addressing partisan issues for a reason. Certainly I have personal views and opinions. My intention, however, is to call Americans to join with one another despite our great differences, to seek a shared vision and effective means in our determination to rebuild the foundations of the republic.  And, I wish to gain a hearing from every American.

Our responsibility is to ensure that we come through this great turning point with meaningful purpose, committed to building the kind of future we wish to live in. Without a determined effort, based to a sufficient a degree on shared values and unified intent, a secure and civilized future will not be possible.

Looking ahead, we cannot know exactly how things will play out. How long will these fragile conditions continue before an unexpected shock knocks down the house of cards?

We cannot know the extent to which we will be forced to struggle with the remnants of the economic past – or the more frightening but freeing potential of a complete economic collapse. We cannot foresee how social deterioration or the degradation of infrastructure and environmental systems will challenge our resourcefulness.

Whatever comes our way, we are on our own. We can no longer have confidence in government to maintain order or meet emergency needs. Only the strength of local community can be depended on.

The foundations of an America we can believe in will not be reconstructed without individual initiative, community consultation, and unified intent. We must organize our local communities and attend to local needs. This is where we have the power and capacity to take matters into our own hands. And we need to get on with it.

Effecting change on a national level will be far more difficult and the means for doing so far more complex and political. The financial elite will remain in control until they lose control. As long as financial collapse is avoided the global economy will remain trapped by financial interests that have attention only for their own short-term gain and are oblivious to the implications of structural change.

However frightening the disruptions of the near future, we would do well to recognize the unique opportunity that can only come when basic human assumptions are shaken. As I have said, the moment to gather people together, to engage in creative thinking and constructive action, to identify shared values and embrace a shared vision – may not come twice.

Building community with our neighbors will provide safety and security for our families, but also a platform for dialog and problem-solving that will carry us forward.

Tom

Next week: Taking Ownership of the Future

Freedom Road: Vision, Principle, Responsibility

As we turn attention to the future beyond the crisis, we find ourselves confronted with difficult choices. One of the most challenging questions involves the meaning and implications of “perfect freedom” as articulated by Patrick Henry, Friedrich Hayek, Milton Friedman, and others.

Americans have held fiercely to the ideal of “perfect freedom” from the beginning. As Patrick Henry famously said, “Perfect freedom is as necessary to the health and vigor of commerce as it is to the health and vigor of citizenship.”

Those following this blog have, I expect, given thought to the limits to freedom we experience in our personal lives. We live in a reality defined by limitation and constraint, and similar complications confront the nation.

If we are committed to ‘perfect freedom’ in principle, how can we fault business leaders for maximizing profits by moving jobs overseas or mechanizing assembly lines or in using any other means absent of fraud?

What else can we expect? And, how can any alternative possibly be legislated with fairness or practical effect?

In his classic 1962 book, “Capitalism and Freedom,” Milton Friedman wrote that “few trends could so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible. This is a fundamentally subversive doctrine. If businessmen do have a social responsibility other than making maximum profits for stockholders, how are they to know what it is? Can self-selected private individuals decide what the social interest is? Can they decide how great a burden they are justified in placing on themselves or their stockholders to serve that social interest?”

The pure simplicity of this principle seems as reasonable today as it did in an earlier era. To require that businesses divide their loyalties would not only constrain the productive economy, but open a plethora of ethical inconsistencies and confusion.

Yet, today we find ourselves facing the overwhelming consequences of structural economic change brought about, in effect, by free enterprise. The jobs we had are gone for good. Incomes have stagnated – at best. The American economy has lost much of its productive capacity. Perhaps most significantly, many of us have lost our means for living with self-respect.

And, as we have seen, the functional integrity of free markets has been abandoned to the self-centered interests of predatory institutions. Money and economic power now flow in the virtual reality of electronic networks, largely independent of the productive economy. The new network economy is global, while jobs and people, community and responsibility, remain locally constrained in the real world.

Let’s be honest with ourselves. A consistent commitment to free enterprise will require that we adjust to a profoundly re-ordered world. We must rethink our economic lives, and our attitudes.

Making an income influences our sense of self-respect and well-being. Unemployment and poverty are not simply insufficiencies of income. They have a debilitating impact on individual freedom, initiative, and capacity.

Poverty is more than a regrettable misfortune. It is a blight on liberty. And, it inflicts a serious drag on the productive economy.

Local communities can choose to overcome this costly barrier. Individuals with practical experience can share knowledge and skills, assisting others to step out of our old lives to learn new skills, both physical and organizational.

Each of us can look around, think creatively, and take initiative. We need to empower one another, cooperate where there are needs to be met, and build local businesses that address local needs. We can network with people in nearby communities to share ideas and resources, to find (or offer) informal training, and to expand our horizons.

Let’s reach out and test our limits. The road to freedom is built with vision, principle, and responsibility.

Locally and regionally-based economies will need to be reconstructed, transcending the chaos around us and surmounting the stumbling blocks thrown up by government and big business.

Americans are smart, industrious, and resourceful. We can rise to the challenge and free one another from the shackles of limited perspective and inadequate skills.

This is a choice that is ours to make.

Tom

Next week: When we are on our own.

Escape From Insanity

The word “economy” comes from an ancient Greek word meaning “household management.” So much that is important in our lives, from the means to make a living to civil order and social stability, depends on a well-functioning economy.

American communities need systems and institutions that are geared to serve the best interests of society. While our ‘best interests’ are a matter of debate, we depend on honesty and integrity from those in positions of responsibility.

It comes down to trust. And trust is of limited concern in the digital networks that facilitate the flow of money and power in global finance.

Americans cannot raise families or plan for the future without a consistent and dependable environment, whether physical, social, or economic. We cannot participate fully in civil society without confidence that it is safe to do so. Businesses cannot expand and take on risks without confidence in the consistency of law and policy, as well as the free-flowing accuracy of prices provided by the marketplace.

In short, we need our economy to be managed in the interests of the American people as a whole, rather than for certain elite groups. And, we need to trust the managers.

However, the difficulties we face involve more than a problem of simple personal trust. Leadership must acknowledge the uncomfortable fact that it is not possible to control everything, even with the best of intentions. Indeed, the present perplexity leaves little possibility for constructive change without new thinking.

John Taylor’s five keys to restoring America’s prosperity,” (outlined here in the March 20 blog post, “In Pursuit of Economic Stability”), provide reasoned guidelines for policy-making grounded in “a rules-based approach.” His 2012 book, “First Principles”, argues persuasively that the arbitrary application of discretionary policies has led to inevitable imbalances and distortions that feed upon themselves.

Three years later, however, it is difficult to see how the economy can escape the control of people who cannot admit their errors or bear to face the pain of changing course.

The “five keys” will not extricate us from the present mess as long as we remain trapped in the mentality of the past. They will not protect us from the current anarchy of global finance or the massive distortions that now prevail. Short of another major financial crisis, I do not see this changing.

Central bankers will either abandon the illusion of control and the hubris of the past, or it will be wrenched from their hands by a reality reasserting itself. Leaders of government will either awake to the truth or they will find themselves helpless before a calamity of unprecedented proportions.

We must let go of the economy and set it free. The transition will be painful and frightening, because great destabilized forces must re-balance themselves. The extraordinary excesses of recent decades will be wrung from a shuddering world. An instability reaped by ego, greed, and indebtedness has infected both the mind and spirit of the nation.

What does this mean for ordinary Americans?

We will not be saved by self-styled leaders who think they know it all. We’ve been there and done that. Rather, we must rise above our differences and commit ourselves to one another in our local communities – and to a principled integrity.

And, when the ground moves beneath our feet we must trust in the Constitution of the United States.

Ultimately, it will be our compassion and our principles that guide us home.

The most important principles – those that provide the foundations for the future – will also be those that facilitate local problem-solving. As you well know, these are based on the values of true civilization: honesty, trustworthiness, ethical integrity, and moral responsibility.

Healing will take time. But rest assured: the economy will reboot. When we adhere to principle, the economy will reconfigure itself and our lives will be renewed and strengthened.

Our responsibility is to facilitate reconstruction with determination and grace, accepting our diversity and seeking a shared purpose that will guide us back to safety – and sanity.

Tom

Next week: Freedom, Principle and Context

Note to readers: Your ideas and feedback are helpful to me; please join the conversation.

Common Sense

Leaves 2

“We cannot solve our problems with the same thinking we used when we created them.”
–Albert Einstein

“Democracy is finding proximate solutions to insoluble problems.”
–Reinhold Niebuhr

“Society is always taken by surprise at any new example of common sense.”
–Ralph Waldo Emerson

The Wisdom of Free Markets

In recent years we have witnessed the ultimate consequences of failure to protect the orderly efficiency of free markets. Instead, we have seen the marketplace subverted and overwhelmed by the forces of greed and self-interest.

Regulation of markets is essential, no less than the enforcement of traffic laws on our roads and highways. But, the primary purpose of regulation in a complex economy must be to protect the integrity of free markets from manipulation.

Never has this necessity been more apparent than in the recent damage caused by major financial institutions.

It appears to many of us that the self-serving excesses of powerful financial interests have been aided and abetted by the very agencies and institutions that should be responsible for the integrity of the marketplace.

There are some who suppose that recent economic problems were actually caused by free markets. This could not be further from the truth. Indeed, the destruction of free markets in the United States in recent years has been nearly complete. A crippled national economy is an inevitable consequence of this damage.

Free markets are essential for very practical reasons. While the concept has significant philosophical implications, the economic reality is simple and entirely non-political.

To maintain a productive economy, markets must have the capacity to perform accurate price discovery across an immense complexity of activity. That is, markets must be permitted to respond without interference in determining prices and value based on the dynamic aggregate of economic activity in the real world.

When this function is upset, critical information becomes distorted and economic reality is misrepresented. Further, distortions take on a life of their own, projecting themselves broadly in ways that are insidious and often impossible to recognize.

Under present circumstances it is not possible for firms, especially small and medium-sized enterprises, to assess risk and make expansionary decisions. Confidence has evaporated.

This is significant in part because small and medium-sized enterprises (SMEs) have historically generated virtually all meaningful job growth. Large corporations have, with very few exceptions, been net destroyers of jobs.

There tend to be two primary motives for interfering with free markets. One is the good intentions of those in government and academia who think they know best. The other, which has emerged more recently, is the virtually unlimited cunning and greed of powerful banking and financial interests that now dominate the marketplace with their high-powered computers and manipulative genius.

Whether motivated by good intentions or by greed, the manipulation of markets will inevitably produce imbalances and, ultimately, the massive distortions and dislocations that we are now witnessing.

While it is true that markets can be afflicted by unintentional pathologies, these need to be studied and understood as such by stewards committed to protection rather than control.

Why are well-intentioned planners unable to influence markets effectively? As we discussed last week, the answer lies in the immense complexity of a dynamic economy. It is impossible for the human mind to fully comprehend the vast realm of interactive forces and their aggregate implications. There is simply no way.

The ultimate consequences of market interference can take time to manifest visibly, especially to those who are emotionally invested in doing it. But, as we have seen, the consequences can be quite spectacular.

Those who get hurt the most are those who are most vulnerable rather than those most responsible.

Let’s not to compromise the values of free enterprise in reaction to poor judgment and bad behavior. If we are to rethink our economic future intelligently, we must do so with a rules-based approach founded upon economic principles rather than one motivated by a discretionary human agenda.

And, make no mistake! Neither economic principles nor social stability will prevail without a firm foundation in the honesty, trustworthiness, and personal responsibility of real people. Economic reconstruction will not be possible until integrity is understood and confidence restored.

Those who fail to comprehend this truth need to wake up to the destruction around them – and get real. At this writing many in the financial world remain in denial.

Tom

Next week: Escape From Insanity

The Blind Leading the Blind

It impresses me that the vast majority of economists are so consistently wrong. They never see a crisis coming, and they never seem to learn anything when it does. They appear to be locked into “group-think”, exhibiting an orientation closer to religious belief than objective inquiry.

What is most concerning has been that most economists have seemed comfortable with a course of action for decades that could not possibly be sustained indefinitely.

John Maynard Keynes, an economist often blamed for the profligate behavior of governments, certainly did not intend to encourage deficit spending in good years as well as bad. Beginning with the Kennedy administration, however, politicians of both parties (and their economist advisers) have decided that if deficit spending is good in a recession or depression, it must be just as good the rest of the time.

It is my impression that much of what passes for Keynesian thinking today has nothing to do with Keynes. Yet, I quote him here anyway in good humor: “Practical men,” he wrote, “who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.”

This observation can be found on page 383 of his classic text, “The General Theory of Employment, Interest and Money” (1936). I wonder if Keynes ever imagined his words might be used in reference to himself.

In my view, the consequences of Keynesian policies were best described by Yogi Berra when he said: “A nickel ain’t worth a dime anymore.”

Of all the misguided ideas that economists cling to, the strangest it seems to me is their belief that they possess such depth of perception, understanding, and wisdom that they can manipulate the complex dynamics operating in a massive economy without any adverse consequences.

As explained in Wikipedia, “Keynesian economists often argue that private sector decisions sometimes lead to inefficient macroeconomic outcomes which require active policy responses.”

I am not interested in debating the finer points, but we have clearly reached such disastrous extremes deriving from discretionary intervention that the road to recovery appears well nigh impassible.

As John Taylor explains, (see March 20 post, “In Pursuit of Economic Stability”), a productive economy depends in part on confidence in predicting the future, and on the ability of markets to determine prices accurately.

Businesses depend on government policy to defend the integrity of free markets. Without this they cannot judge risks or take initiative. When governments or other financial actors manipulate the conditions of the marketplace, major distortions are inevitable.

There are no free markets today. The information business owners and investors depend upon for reasoned decision-making no longer exists.

An example of this strange myopia is the manipulation by the Federal Reserve of economic indicators that the Federal Reserve itself depends on for decision-making. You read that right. The Fed has actually manipulated some of its own critical guideposts out of existence.

The blind are truly leading the blind.

James K. Galbraith described the intellectual limitations of his colleagues in the economics profession in his 2001 book, “How the Economists Got It Wrong”:

“Leading active members of today’s economics profession, the generation presently in their 40s and 50s, have joined together into a kind of politburo for correct economic thinking. As a general rule – as one might expect from a gentleman’s club – this has placed them on the wrong side of every important policy issue, and not just recently but for decades.

“They predict disaster where none occurs. They deny the possibility of events that then happen. They offer a ‘rape is like the weather’ fatalism about an ‘inevitable’ problem… that then starts to recede. They oppose the most basic, decent, and sensible reforms, while offering placebos instead.

“They are always surprised when something untoward (like a recession) actually occurs. And when finally they sense that some position cannot be sustained, they do not re-examine their ideas. Instead, they simply change the subject.”

James Galbraith’s economist father, the more famous John Kenneth Galbraith, put it more simply: “The only function of economic forecasting,” he once quipped, “is to make astrology look respectable.”

Tom

Next week: The Wisdom of Free Markets

Note to readers: You can support this blog and the book project by suggesting that your friends and associates take a look.

In Pursuit of Economic Stability

If we are to rebuild the foundations of the United States in a manner consistent with the ideas and ideals of past generations, how will that vision guide us at a very challenging time in our history?

What ethical precepts and economic principles will move us toward the goals of freedom, prosperity, and generosity of spirit, which appear to be just now receding beyond reach?

These are questions of utmost importance as we turn our attention to a future beyond the present difficulties.

Each of us has ideas about the America we want to believe in. We have personal principles. If we are to work together to forge a vibrant future for the United States, however, we will have to get ourselves onto the same page, roughly speaking.

And we can be sure that any principles we agree on will be severely tested.

Long-time readers will recognize these questions as central to the purpose of this writing project. It is a call to rise above our differences, to turn away from the venom and deceit of partisan politics and give priority instead to finding practical solutions and caring for the safety and security of our local communities.

Early chapters of the forthcoming book point to the strengths of the United States, both as a constitutional republic conceived in the vision of unity within diversity, and as a nation founded on principles of fairness, religious freedom, and moral responsibility.

Later chapters probe our understanding of freedom, both as a nation and in our individual lives. I am now working on Part 2, where we turn our attention to ends and means, envisioning the potential structure and responsibilities of a better future.

What will be the essential economic principles required to get us where we want to go, avoiding the volatile and unpredictable record of a disastrous past? And, how can we begin anew, building local cash economies to resist the predatory pressures of big money?

Most important, what vision of prosperity do we seek? Other than relative material comfort, what do we really want?

We will begin with the thinking of Stanford University economist John B. Taylor, who writes that “the best way to understand the problems confronting the American economy is to go back to the first principles of economic freedom upon which the country was founded. As these principles developed over the years, we can see periods when careful attention was paid to them and alternating periods when they were neglected. And we can draw clear conclusions from this history.”

Professor Taylor’s book, “First Principles” (2012), is helpful. In my own writing I have used the phrase “first principles” to identify the more fundamental moral principles that I believe undergird all others, including economic principles. I will continue to do so. However, the principles outlined by John Taylor will guide us well as we consider the means for structuring a more stable national economy.

I will add my thinking on the role of moral principle and social responsibility in providing the foundation for economic principles, and we will consider the implications of Professor Taylor’s wisdom when applied to rebuilding devastated local and regional economies.

The professor lists five defining principles for economic freedom, and observes with obvious interest that these five also happen to constitute principles for economic success. They are:

• A predictable (consistent) policy framework
• The rule of law
• Strong incentives
• Reliance on markets
• A clearly limited role for government

“Economic theory and experience,” he writes, “show that [these principles] lead to superior economic outcomes, including strong economic growth and rising prosperity. The principles of liberty that Thomas Jefferson and the other founding fathers first delineated in the Declaration of Independence in 1776 are remarkably similar to the principles of economics that Adam Smith first heralded in the “Wealth of Nations” in the same year, and that remain central to economics today.”

It is essential that we be guided by principle as we reconstruct the future from the ashes of the past. A principled future can only be realized by principled means.

Tom

Next week: Central Planning: Economic Intervention and Instability

Note to readers: Your thoughts and feedback will be appreciated; please join the conversation.

Employment, Adversity and Economic Independence

Structural unemployment has led to material and emotional devastation across America for more than a generation. Relentless change is impacting us in many forms, but unemployment hits hard.

Americans will meet the tests of this turning point as we have all others. But, to respond to structural change with resourcefulness and fortitude we must understand it for the unyielding reality that it is.

We could blame the profit motive, or a lack of patriotic loyalty, or insensitivity to human needs, or runaway greed. All of these things might be involved. But, the causes include major changes in the way the world operates, and these are not going away.

I expect most of us know the headline employment numbers are bogus. Most new jobs added in the past year have been part-time and low paying. Even then, the number of working age Americans employed today is equal to the number employed in the late 1990’s. And, since that time, the population of working age Americans has grown by about 30 million.

Almost none of these people are included in the numbers reported by government, the Federal Reserve, or the press.

I do not expect that this problem can be fixed by changing the leadership in Washington. Right or wrong, the causes are consequences of change that cannot be controlled by any combination of people or institutions.

Most readers are aware of the leading causes of structural unemployment in the United States:

1) The shift from manufacturing to a service economy has resulted in “skill mismatches” for large numbers of people with technical experience.

2) With outsourcing and offshoring, regular fulltime jobs have vanished. Larger businesses have moved manufacturing elsewhere in the world where workers face unsafe conditions, work for far less pay and have no workplace benefits.

3) New technology has displaced large numbers of manufacturing jobs with automated assembly lines and other forms of mechanized fabrication. Robotics is coming of age, and container ships have transformed transport.

4) The fickle and faithless specter of “financialization” now dominates the economy. The increasing flow of profits to banking, investment, and insurance firms, exponentially increasing CEO salaries and bonuses for market traders, and vastly increased financial speculation have all contributed to destabilizing employment.

Financial institutions are taking a huge and unprecedented bite out of the economy as a whole. They now contribute less of productive value than they ever have, and are instead smothering the real economy I wrote about last week.

For those interested in a thorough understanding of structural unemployment in the United States, I recommend a good book: “The Causes of Structural Unemployment: Four Factors that Keep People from the Jobs They Deserve,” by Janoski, Luke, and Oliver (2014).

The authors provide a reasoned analysis and review the resources available for communities and small businesses. Most important, they offer a strategy for preparing American working people, both younger and older, for rapidly changing work environments.

However, their proposals depend on government policies.

As long as current economic conditions continue or improve, this book offers tools for constructive action. If, on the other hand, we experience a worsening crisis, or the capacity of government is reduced still further, the policy recommendations offered here will be of little use.

Regardless of what comes next, I believe we are challenged to rebuild our economic lives locally. And, we cannot afford to wait.

I encourage working Americans and small business owners to work around the obstructions, political gridlock, and social chaos to begin building local and regional economic independence.

We will need to call on American ingenuity and put our minds to it, however limited our material means may be. I will offer a few ideas on the coming pages, but the creative details and determination must come from you.

An effective, workable economy will be based on free market principles and American values. It will need to function realistically in the real world, as a living assertion of the principles at its heart.

Tom

Next week: The Hidden Dangers of Complexity
Note to readers: You can support this blog and the book project by suggesting that your friends and associates take a look.

Reclaiming the Future

There is a fundamental economy of the United States that is grounded in the lives of real people. It is and will always be a living reality, inherent in the entrepreneurial spirit, hard work and productivity of ordinary Americans.

This real and essential economy has been subverted, not surprisingly, by the single-minded profit-making zeal of large scale corporate enterprise. And it is with no little irony that we have seen the corporate world itself subjugated by the wizards of high finance.

It is important that we distinguish the principles of free enterprise, which are essential to a productive economy, from the predatory and destructive forces that have corrupted economic order in the interests of power and greed.

It is also necessary to recognize the complexity of our predicament, which is more than simply economic. A broad range of disruptive forces have led to a disintegrating state of social and economic order.

It is on this storm-tossed sea that we must learn to navigate, and, ultimately, to regain our balance and integrity.

Despite the near total destruction of the real economy, the financial elite have managed to stay alive by co-opting the political order and misrepresenting their importance to everyone else.

This cannot possibly continue. Without a vibrant consumer economy, these people have no foundation upon which to continue their gaming. Without decent jobs there will be no consumer economy of any significance.

Ultimately, the world of high finance requires a productive economy to fuel its activities. One can commandeer a vehicle, but it cannot operate without fuel. Or, to put it another way, when a parasite kills its host it must find another.

And there is no other.

The financial elite, with all its illusions and pompous posturing, is self-destructing. Don’t stress about this; it’s a done deal. The danger will come with the fall-out.

Whether the transition is short and violent or takes a long time, we cannot wait to organize secure communities and rebuild our lives. American working people, including the business owners (past and future) who we all depend upon, need to start thinking in new ways.

Ordinary Americans have been pushed into a corner, but the crisis will generate creative opportunities and new ways of thinking. Big business may or may not survive the long crisis, or it might go away and then come back. Either way we need to find ways to take control of our economic lives. And, it will be in our local communities, and in cooperating clusters of communities, that we can assert our economic independence.

This will depend on our willingness to put our heads together and work well with one another. It will also depend upon our ability to respond to the unexpected.

As long-time readers know, we have been discussing the importance of defining our shared values and adhering to principle if we are to navigate successfully through a rush of new and unexpected circumstances.

If we are to stay upright in this great storm, even with good ship, we must correctly judge changing conditions.  Principles are like the rigging that makes it possible to sail a ship, but even a good ship will be doomed without a crew that is flexible and understands teamwork.

Next week we will take a look at the long-standing dilemma of structural unemployment in the United States, an ever-growing problem that many of us have been living with. Americans have been watching their jobs vanish steadily for more than a generation.

Whether or not the world of high finance and big business implodes and falls on its face, working Americans need to get creative, to take control of our lives and forge a genuinely American future. No one is going to do it for us.

To reach out to our neighbors, both friend and stranger, is to affirm the most essential of American principles.

It is time to start rebuilding the foundations.

Tom

Next week: Overcoming Structural Unemployment

A New Kind of Crisis

Cyclical economic crises are natural. Structural crises, on the other hand, are profound transformational processes that disrupt the natural cycles we are familiar with.

As we have seen, dramatic structural change can be caused by human excess. But, it can also be the result of many other things – including wars, new technologies, deteriorating infrastructure, an aging population, insufficient water supplies for growing cities and essential agriculture, or even (perhaps especially) a societal failure to adequately parent our children.

In addition to everything else, the United States has reached the end of a long and fruitful business cycle. The more fortunate among us have seen a nice stretch of good fortune.

Why are there business cycles?

Well, we human beings assume that each day will be like the last. When things are going well we start new projects and enterprises, borrow money and take on risks because we are confident the the good times will continue.

And the better things get, the more confident we become.

The situation gets out of hand when high expectations (and indebtedness) balloon beyond our capacity to support them. We are often oblivious to danger even when it is staring us in the face.

The resulting climax of bankruptcies, defaulting loans, and insolvent banks is known as the “top” of the business cycle – or a cyclical economic crisis.

If allowed to run its natural course, such a turning point will purge weak businesses, poor managers, and irresponsible banks from the economy, and a strong recovery can grow from a firm base. The pain is severe, but brief.

This allows a prompt turn-around. New and surviving businesses grow quickly and provide good jobs.

But, this time something else happened.

First, policy-makers have refused to let the debt clear. This is a financial millstone placed on the nation’s back. Second, the end of this business cycle has coincided with a much greater turning point: a converging of other societal crises.

Our focus here in the coming weeks will turn to the changes facing us and the ways in which they challenge our customary ways of thinking and doing.

If we are to reconstruct our lives and rebuild the foundations of the American republic, we need to understand why this will be a long crisis, or to be clear – a series of interrelated and interacting crises.

We must try to understand the realities we are dealing with.

None of us can expect to fully comprehend all the multi-dimensional forces embedded in this monumental transition. But, we can think about how we wish to respond and serve – as human beings and as Americans – with courage, creativity, and vision. More than anything else, the future depends on these things.

So, let’s give attention to those aspects of structural change that are likely to impact us most profoundly. I think we would do well, for example, to consider the implications of a devalued dollar for Social Security and Medicare. And, we need to understand that rapidly advancing technology poses great dangers as well as worthy benefits.

Crumbling infrastructure is a growing problem that cannot be addressed by bankrupt governments. This could involve highway bridges, which require refurbishing every 25 years, and the disintegrating condition of municipal waterworks all across the country.

The ancient condition of the national grid is also of great concern. Our dependence on electricity is vulnerable to malfunctioning parts and disjointed integration, as well as to sabotage and cyber attack.

The dangers are varied and they are real. But, Americans are smart and resourceful.

The future confronts us with a world of pain, yes, but also the opportunity to rebuild a society we can respect and believe in. There will be solutions. They await our determination and creativity.

The turning point will require much of us. Most of all it calls us to take responsibility for building trust among our neighbors – a trust endowed with unity, loyalty, and true American grit.

Because we will need to work together.

Tom

Next week: Reclaiming the Future

Note to readers: You may support this blog and the book project by suggesting that your friends and associates take a look.