# The Archdruid Report

Druid perspectives on nature, culture, and the future of industrial society

## Thursday, October 05, 2006

### Economics: Hallucinated Wealth

As last week’s Archdruid Report post argued, prophecies of catastrophe don’t accurately reflect the economic terrain on the downslope of Hubbert’s peak. Mind you, the reassuring fictions of those who insist that business as usual will go on forever won’t fare any better. I’ve suggested that the future we face is an age of economic, social, and technological decline as industrial civilization slides down the long and bumpy slope to the agrarian societies of the deindustrial future. The economic dimension of that decline is crucial, but those who expect it to show up in obvious ways in the markets and crunched numbers of today’s official economics may be missing a central facet of what’s going on.
I have no idea if kids still do this, but in my elementary school days in the late 1960s it was common practice to write IOUs for “a million billion trillion dollars” or some equally precise sum, and use those as the stakes in card games like Old Maid and Go Fish. Some of those IOUs passed from hand to hand dozens of times before being accidentally left in a pocket and meeting their fate in the wash. Kids who were good card players amassed portfolios with a very impressive face value, especially compared to the 25 cents a week that was the standard allowance in my neighborhood just then. If I recall correctly, though, nobody ever tried to convert their IOU holdings into anything more substantial than cookies from a classmate’s lunchbox, and that’s apparently the one thing that kept me and my friends from becoming pioneers of modern finance.
It surprises me how many people still seem to think that the main business of a modern economy is the production and distribution of goods and services. In point of fact, far and away the majority of economic activity today consists of the production and exchange of IOUs. The United States has the world’s largest economy not because it produces more goods and services than anyone else – it doesn’t, not by a long shot – but because it produces more IOUs than anyone else, and sells those IOUs to the rest of the world in exchange for goods and services.
An IOU, after all, is simply a promise to pay a given amount of value at some future time. That describes nearly every instrument of exchange in today’s economy, from bonds and treasury bills through bank deposits and government-issued currency to credit swaps and derivatives. All these share three things in common with the IOUs my schoolmates staked on card games. First, they cost almost nothing to issue. Second, their face value needn’t have any relationship at all to the issuer’s ability to pay up. Third, they can be exchanged for goods and services – like the cookies in my example – but their main role is in exchanges where nothing passes from hand to hand except IOUs.
It’s harsh but not, I think, unfair to call the result an economy of hallucinated wealth. Like the face value of those schoolroom IOUs, most “wealth” nowadays exists only because everyone agrees it does. Outside the social game of the market economy, financial instruments have no value at all, and the game continues only because the players – all of them, from the very rich to the ones with scarcely a million billion trillion dollars to their name – keep playing. They have to keep playing, because access to goods and services, not to mention privilege, perks, and power, depend on participation in the game.
The resulting IOU economy is highly unstable, because hallucinated wealth has value only as long as people believe it does. The history of modern economics is thus a chronicle of booms and busts, as tidal shifts in opinion send various classes of IOUs zooming up in value and then crashing back down to earth. Crashes, far from being signs of breakdown, are a necessary and normal part of the process. They serve the same role as laundry day did in the schoolroom IOU economy, paring down the total number of IOUs when an excess emerges, and thus maintaining the fiction that the ones left still have value.
All this leaves us in a historically unprecedented situation. Economies based purely on hallucinated wealth existed before the 20th century, but only for brief periods in the midst of speculative frenzies – the Dutch tulip mania, the South Sea bubble, and so on. Today’s hallucinated wealth, by contrast, has maintained its place as the mainspring of the global economy for more than half a century. Social critics who point to the housing bubble, the derivatives bubble, or the like, and predict imminent disaster when these bubbles pop, are missing the wider picture: the great majority of the global economy rests on the same foundations of empty air.
Those who have noticed this wider picture, on the other hand, are fond of suggesting that sometime soon, given a suitable shock, the entire structure will come cascading down. Those of you who were reading the alternative press at the time of the 1987 stock market crash will recall predictions of economic collapse in the wake of that vertiginous plunge. Similar predictions have accompanied each of the notable fiscal crises since then – the Japanese stock market debacle of 1990, the Mexican debt crisis of 1995, the Asian currency crash of 1998, the tech-stock crash of 2000, and so on. Similar claims are now being made about the housing bubble, the US trade and credit deficit, and of course about peak oil as well.
Plausible as these claims are, I suspect they’re missing the core of the situation, as well as the lessons taught by twenty years of violent economic gyrations. It’s a mistake to expect hallucinations to obey the laws of gravity. It’s doubly a mistake when the institutions charged with keeping them in midair – the Federal Reserve Board in the US and its equivalents elsewhere – have proven tolerably adept at manipulating markets, flooding the economy with cheap credit (that is, more IOUs) to minimize the effects of a crash, and inflating some other sector of the economy to take up the slack of a deflating bubble. It’s triply a mistake when the American middle class and, to a lesser extent, its equivalents in other industrial countries display a faith in speculation so invulnerable to mere reality that their response to a crash in one market is invariably to go looking for a new speculative bubble somewhere else.
To say that the economic empire of hallucinated wealth will continue to exist, though, does not imply that it will continue to produce the goods and services and provide the jobs that people need. Arguably, it doesn’t do that very well now. The “jobless recovery” of recent years saw most economic statistics rise well into positive territory, while most people saw their expenses rise and their income shrink when their jobs didn’t simply fold out from under them. Things could go much further in the same direction. It requires no particular suspension of disbelief to imagine a situation where the stock market hits new heights daily and other measures of economic activity remain in positive territory, while most of the population is starving in the streets.
Partly, as Bernard Gross pointed out several decades ago, economic indicators have morphed into “economic vindicators” that promote a political agenda rather than reflecting economic realities. The dubious statistical gamesmanship inflicted on the consumer price index and the official unemployment rate in the US show this with a good deal of clarity. Partly, though, most of the common measures of economic well-being only track hallucinated wealth, and the markets whose antics fill so much of the financial news are IOU markets disconnected from what remains of the real economy, where real people produce and consume real goods and services.
Thus trying to track the economic impact of peak oil, global warming, and other aspects of our predicament by watching markets and financial statistics may well turn out to be as misleading as trying to track the supply of cookies in a schoolroom by watching the exchange of IOUs in card games. As for the theory that a massive market crash triggered by peak oil will bring down the economy, this is, to be frank, naive. Crashes there will certainly be, and some of them may be monumental, since volatility in the energy markets tends to play crack-the-whip with the rest of the economy. Crashes aren’t threats to the system, though; crashes, and the recessions and economic turmoil that follow them, are part of the system.
The economy of markets and statistics has aptly been compared to a circus, and like any other circus, it serves mostly to distract. While interest rates wow the crowd with their high-wire act and clowns pile into and out of various speculative vehicles, the real story of economic decline will be going on elsewhere, in the non-hallucinated economy of goods and services, jobs and personal income, all but invisible behind a veil of massaged numbers and discreetly unmentioned by the mainstream media. There's good reason for that to be tucked out of sight, too, because it won't be pretty at all.
As the boom and bust cycle continues and accelerates, we can expect each recession to push more people down into poverty, and each recovery to lift fewer out of it. As industries dependent on cheap abundant energy fold, we’ll see jobs evaporate, lines form at the doors of soup kitchens, and today's posh suburbs slump into tomorrow’s shantytowns. Rising transport costs and sinking median incomes will squeeze the global trade in consumer goods until it implodes; shortages and ad hoc distribution networks will be the order of the day, and wild gyrations in currency markets could easily make barter and local scrip worth a good deal more than a million billion trillion dollars of hyperinflated IOU-money. Poverty, malnutrition, and desperation will be among the very few things not in short supply.
It’s not a pretty future, no, but there are straightforward ways to cope with it, proven in equivalent economic crises in recent history. I’ll be discussing some of those in next week’s post.

#### 25 comments:

Eligere said...

  I look forward to your discussion of measures that we can take toward constructing a non-illusory economy.
  I was reading an interesting article on M. King Hubbert's economic theories. Hubbert had, as he said, a ringside seat for the depression of the 1930s. He pointed out that it was a time when the United States enjoyed abundant resources (more than we have now) and abundant willing man power, but we shut down the country. We shut it down because we didn't have sufficient IOUs, so we believed we were poor. Mass hallucinations are quite powerful.
  I would certainly welcome a new currency based on something other than non-renewable, ecologically harmful mineral extracts on the one hand, and thin air on the other.

  10/5/06, 1:44 PM
Adrynian said...

  You articulate an interesting and valuable perspective. However, I would like to concentrate on a particular phrase: "As for the theory that a massive market crash triggered by peak oil will bring down the economy, this is, to be frank, naive."
  I'm trying very hard not to be naive about this, and so last week, I asked about it as a question, rather than stated it as fact, b/c, quite frankly, I just don't know. I accept that booms and busts are part of a market system; typically, from what I understand, the less regulated the markets are, the bigger the booms and busts can become.
  I'm just wondering if a situation with rolling recessions and recoveries, as I've seen postulated for post-peak economies, where each recession is worse and each recovery is smaller than the previous, might be just the right environment to break people's hallucinated faith in our debt-based currency.
  That is my primary focus: debt-based currency. I suppose if a recession drives the economy below its physical capacity (and here I want to include energy-supply capacity), then a recovery could enable enough confidence in future growth (at least for a while) to justify people's willingness to borrow under the expectation that that future growth will enable them to pay back the interest they're forced to accept as the terms for the loan.
  But if crashes keep getting worse and recoveries get less and less significant - especially if the majority's daily experience is one of suffering - could this not be sufficient to jolt people into consciousness of their mass hallucination? And wouldn't this provide fertile breeding ground for an alternative form of currency?

  10/5/06, 2:13 PM
ljr said...

  But if crashes keep getting worse and recoveries get less and less significant - especially if the majority's daily experience is one of suffering - could this not be sufficient to jolt people into consciousness of their mass hallucination? And wouldn't this provide fertile breeding ground for an alternative form of currency?
  Not unless that currency is backed by a stick and a gun - like the present one. All money is debt - gold just as much as paper. One accepts and holds money in the belief that it can be later exchanged for something of value. Money functions in two different ways - as a currency for day to day transactions and as a store of value over time. Gold is an historically validated commodity money in the sense that it has held value well over long periods. However, gold functions not at all as a currency. Try buying a quart of milk with it. One has to first exchange the gold for the fiat currency of the day.
  The reason the dollar is the only significant currency in the realm is simple enough: the US government only accepts dollars in payment of taxes. And if one doesn't pay taxes on earnings one is thrown in jail. Hence the stick and the gun. If you believe for a moment that the government will allow another currency to take root and flourish you are indeed naive.
  A good example of what WILL take root and flourish is to be found in Sao Paulo, Brazil currently or in Sicily not so many years back. Mafia type organizations that provide for the comparative safety of the lower classes are usually the first to rise out of social unrest. We tend to think of the Mafia as an evil to be overcome but it can actually be of social benefit in the right circumstances. But, parasite that it is, even the Mafia relies on its host country to provide money.
  However, I surmise the rise of a Mafia is not your imagined and desired outcome.
  The breaking of one hallucination will simply give rise to another. Culture is an hallucination - a mythos that corresponds closely enough to a given but unknowable reality that it can take root and become a surrogate until the conditions of the unknowable reality change enough to break the myth.
  The truest wealth in the coming years will be an ability to quickly and accurately judge character. We must wean ourselves from the collective tit of corporate entertainment and reintroduce our individual selves to the satisfactions and protections of community life on a smaller scale.

  10/5/06, 5:54 PM
Adrynian said...
  This comment has been removed by a blog administrator.
  10/5/06, 10:23 PM
Adrynian said...

  Since you're probably from the US, I'll forgive you for calling me naive, and I'll just point out that I'm in Canada, where alternative, local currencies are indeed already taking hold, to some extent. The biggest is probably now the Toronto Dollar, although the first successful one, a LETS, was started in a one-industry logging (or mining?) town in British Columbia after the local industry imploded. As a side note, there are several successful local currencies even in the US, although their names currently escape me... oh, Ithaca Hours is one, for example.
  Which brings me to a second point: there does need to be some kind of trust mechanism for people to accept the currency; you mentioned "the stick and the gun", which is how most nation states and governments ensure compliance for everything, generally. Most local currencies function on an alternative: the currency serves a local community in which people actually start rebuilding social connections with one another, and so come to trust one another (a foreign concept in most large cities, I know, but it does happen). Also, the gatekeepers of the currency will often, except for some LETS, restrict the quantity of currency in circulation, either by having people use "real" money to "buy" local currency (appealing to community spirit and whatnot), or by actually physically limiting how much of it they print (or both).
  On another note, you completely missed the point when I used the phrase "debt-based currency". I understand that currency is effectively 'a promise to exchange' at a later date, but that's not the same as "debt". "Debt-based currency", as I was using the term, is currency that is loaned into existence, almost always at some nominal (and often even real) rate of interest greater than zero. The consequence is that at any given moment, as I understand it, more money is owed to the banks than actually exists in circulation because they only create the principal, but never the interest. Hence, anyone who wants to pay back their loan with interest has to capture someone else's principal to do so. Thus, there is always a shortage of currency relative to debt, and so we function within a structurally competetive economic system. (Funny, we speak of humans as inherently competitive, but we seem rather quite good at behaving according to our social and economic circumstances: competition, cooperation, or even parasitism, depending on which is most effective at the time.)
  My preference, which I partially articulated in comments last week, is actually strictly a medium of exchange. You would have to use it to buy something else if you wanted a "store of value". It would be spent into existence, as well as backed, by the local government (or a coalition thereof). Presumably, they would also accept it as payment for municipal taxes (or a portion of them, at first). Its key mechanism is a demurrage charge - a tax on the money itself, rather than its circulation - which would effectively devalue the currency in proportion to how long you held on to it (last week, I suggested ~2%/week). This acts as an incentive to circulate the currency, but it makes the currency "bad money", which means it requires backing by some kind of official authority to keep people using it.
  Actually, you can read about this: look up "Silvio Gesell" and "The Natural Economic Order"; he wrote about it in the late 19th or early 20th century. It was successfully tried during the Great Depression (although, as you suggested would happen in the US, the German national government got scared at how successful it was and banned all local currencies; as a sidenote, that particular local demurrage currency was backed by a privately owned coal mine in the community, which provided an energy-backing, though this isn't essential; Bernard Lietaer talks about it, just google him).
  As a final conciliatory note, I agree that, "We must wean ourselves from the collective tit of corporate entertainment and reintroduce our individual selves to the satisfactions and protections of community life on a smaller scale." I just think that we can do this while holding on to the benefits of an official medium of exchange; only, a more local/regional one operated by governments that can be more easily held accountable by the people, which I think would probably parallel your position.

  10/5/06, 10:30 PM
Gareth Doutch said...

  (Yaay, it looks like I can comment now!)
  John,
  I think you (and reader of this blog) might be interested to see an elegant solution to moving from a false economy of funny money, hallucinated wealth, and poverty to monetary and environmental justice.
  It is called the Simultaneous Policy, and you can read about it on here.

  10/6/06, 1:46 AM
RAS said...

  I think you're spot on about our economy, and how you can have positive economic indicators while people are starving on the streets. (Such indicators are, afterall, designed to measure the status of the wealthy and not that of the average citizen.)
  Eventually however, such things reach a critical tipping point wherein so many people are starving and/or homeless and can't take it anymore. Then they will act out of desperation, and there are only so many options the government has for stopping them. At a certain point all bets are off. To put in simpler terms, tell people to eat cake long enough and sooner or later they're going to storm the Bastille.

  10/6/06, 9:46 AM
ljr said...

  Adrynian - Thanks for the cordial, civil and thoughtful response to my previous post.
  Since you're probably from the US, I'll forgive you for calling me naive, and I'll just point out that I'm in Canada, where alternative, local currencies are indeed already taking hold, to some extent.
  Alternative currencies may take hold, so to speak, but as soon as they become successful enough to attract the attention of the state, they will be taxed and that tax will be paid in state dollars. The tax is much like an interest charge against the local currency and creates interest like conditions for it. In other words, the issuing agency will have to print more dollars of local currency to cover the tax bill resulting in the same old inflation problem. The problem is that the state will have the key currency and all these local currencies will have to dance to whatever jig the state band decides to play. There is no real freedom because the state will see that the local currency is subjagated once it shows up on the state's radar.
  I will research Toronto Dollars (TD's) a bit but you might answer a question or two in advance. Are these dollars primarily exchanged for goods or for services? If services, how are the TD's scaled to reflect varying values for different classes of service? May I collect fifty TD's an hour for my services as, say, an M.D. while a friend might charge ten TD's an hour for housecleaning services? Are those TD's exchangeable in any manner for Loonies? If so, does that exchange become a taxable event?
  In my opinion the authority to print the money of the realm is a primary power of the state that it won't give up because that is its primary funding mechanism as well as its fundamental full nelson on the economic life of the nation.
  Even the nominal dimwitted beaurocrat can understand that once a significant portion of economic activity is being coordinated by a currency outside the control of the state his paycheck and his authority are being threatened.
  Regarding "debt based currency" I'll just say that debt means to "owe" and doesn't imply interest. The problem with fiat currency isn't that the issuers charge interest but rather that they can print it at no cost - in our case the Federal Reserve consortium of banks. Interest, in my opinion, isn't necessarily a bad thing. It sharpens the borrowing transaction since it requires an increase in productivity to pay the interest.
  Take a sewing machine, as a simple minded example. A sewing machine allows a person to dramatically increase productivity over hand stitching. Borrowing money to buy such a device would produce additional income that should easily cover reasonable interest charges.
  If you gave me a choice between a "currency" that loses 2% a week and a "store of value", such as gold, that holds its value, I would surely keep all my "wealth" stored and only convert to currency when necessary to make a transaction. Not so different from the scheme that lets one hold money in an interest bearing savings account until a check is presented for payment. To my way of thinking a currency that loses 24% of its value per year is worthless.
  Keep in mind, too, that money is an hallucination. You and I and most others have grown up, and in some cases grown old, with the idea of money pretty much as it is. Convincing people to hold money that loses value over time would be a very hard sell.
  You are correct that I am from the US and tend toward what many call a cynical view. Of course I call it realism.

  10/6/06, 11:38 AM
Gareth Doutch said...

  Ras,
  You are spot on about the fact that if things get to the point that too many people can't take any more, then the elites will have to either make some kind of compromise, or face their likely destruction.
  So what will it be when the time comes? A few crumbs off the table, or true freedom and justice?
  Citizens across the world are setting the agenda for change at the grass roots level. To find out more see here.

  10/6/06, 1:01 PM
Adrynian said...

  ras: that's what I was trying to articulate!
  ljr, you make some interesting points, and I'll try to answer/comment on them as I can.
  As regards tax: In Canada, at least, the government doesn't regulate local currencies in any way, but, as you suggested, they do demand that income tax be paid on earnings in local dollars (not sure about sales taxes) equivalent to what the earnings would have been if they had been in $C. As far as I know, $1-Toronto is equivalent and convertible to $1-Can (so, actually, it's backed by the Canadian dollar; people can convert their $T into $C with a slight conversion charge, which gets used to fund local community services: gardens, soup kitchens, shelters, that sort of thing; i.e. appeal to community spirit, etc.).
  You make an interesting point that tax creates conditions similar to interest (i.e. where people are trying to capture enough money to pay for these charges). I'm not sure I agree that you have the same "inflation problem", however, when the government spends the money back out. If the government were spending out more than the economy needed, this might be the case, I suppose, although currently, I think that the fractional reserve system probably creates much larger swings in the currency supply - and thus has a much larger potential inflationary effect - than direct government spending into the economy.
  Hmmm, on the "debt" topic, I would just like to point out that one of the primary features of a functional currency is high value relative to cost-of-creation, and so the ability to "print it at no (sic) cost" is a actually necessary function of a medium of exchange, because then it can be expanded (& contracted?) to easily meet the economy's liquidity needs.
  "Interest, in my opinion, isn't necessarily a bad thing. It sharpens the borrowing transaction since it requires an increase in productivity to pay the interest." I realize this might seem like a good thing, and in the past, it has served our economy well, but I think it will become a liability in the future (especially one with energy shortages, which will impact our ability to operate our productive machinery). Here's how: since all currency is loaned into existence, the basic functions of exchange (including, for example, me being able to sell the product of my labour to purchase the product of yours - say food to stay alive) is beholden to essentially a continual increase in productivity in various sectors of the economy (to justify the loans that create the currency that I need to capture to trade with you). I have read (and I wish I could source this - I'll go looking for it; maybe someone knows the writings of which I speak?) that we have very nearly hit the limits to productivity in many cases: robotics technology combined with advanced information processing to control it, and advanced organizational techniques combined with very cheap 3rd-world labour has, or so I've read, pushed us very nearly to the asymptotic limit of productivity (I say asymptotic because, as it is argued, nothing can be produced in no-time or for no-cost, so while we can get very close to zero, we can never actually hit it). Now, the robotics revolution isn't over yet; in fact, in some sectors, it's just beginning, but I think you get the point: once it had become ubiquitous, where would the potential productivity increases come from to justify the loans to create the currency?
  "If you gave me a choice..." That's just it, I shouldn't give you a choice (hence the comment about "bad money"; check it out on Wikipedia: "bad money drives out good" - only works when an authority demands equivalence b/n a good and bad currency). Besides, if you read what Bernard Lietaer writes about demurrage currencies, the use of a med.-of-exch. that can't act as a store of value is a good thing because it alters the discount function such that it becomes rational/economic for me to invest in capital now that will reduce my costs or boost my income in the future. This is in contrast to the present-day discount function, where, for example, I shouldn't pay for the more expensive insulation, etc. because the extra continuous cost I would incur would diminish to zero out into the future (because of inflation), and I should instead put the money in a bank where I'll earn interest on it. If you read about it, you'll see how crazy the current shape of the discount function is; it *encourages* the short-term pillaging of the environment, among other things.
  Oh, as a final note, at 2%/wk, the currency would lose 100% of its value in 50 weeks. Take a time-stamped scrip, for example: it would have little dated squares on one side where stamps (in this case, costing 2% of the face-value of the bill) would be placed, one for each week the currency is in circulation. Every, say, Wednesday, the holder of the bill would have to buy one of these stamps in order to keep the currency up-to-date, or people wouldn't accept it on Thursday (alternatively, they could try to find someone willing to accept it on Wed. night and let them pay the stamp-cost to be able to use it on Thurs.). Thus, e.g., over the course of 52 weeks, a $100 bill would have 52 $2 stamps put on it (or $104 worth of stamps); this money would be recirculated by the issuing authority to pay for public services such as education, health, garbage-collection, fire & police, etc. However, if that $100 bill was circulated, say, once per week on average then it would actually generate $5200 in income/economic activity within the community (which, being "realistic", would probably also be taxed by the gov't). Anyway, this would mean the average demurrage (tax rate) for that bill (not including sales & income taxes), is actually $104/$5200, or 2% of the economic activity it participated in.
  I have to go, now, so I'll stop there, but I'm finding this exchange interesting. Keep posting if The Archdruid isn't getting annoyed with me for such long posts/for coopting his comments section (I do appologize for that).

  10/6/06, 2:12 PM
John Michael Greer said...

  All,
  I have my doubts about alternative currencies, partly from watching two of them flop in Seattle in the 90s, but it wouldn't surprise me a bit to see communities develop their own internal currency during the economic gyrations of the next few decades. In particular, I'd expect to see a lot of scrip, of the sort issued by so many local governments in the US during the Great Depression.
  But the idea that we can fix things by tinkering with monetary policy seems dubious to me, if only because it's been tried so many times before -- Adrynian, as a Canadian you've got to know about Social Credit! As Macchiavelli pointed out, even the best reforms usually fail, because the people who gain from the status quo usually have more to fight with, and more incentive to fight, than the ones who might gain from reform.
  To get a negative-interest currency in place, you have to overcome the resistance of everyone whose wealth is in the form of interest-bearing capital, from the biggest capitalists to the guy pushing sixty who has a bit set aside for retirement. These are also the people who have the great majority of power and influence in Canadian (and American) society. Are they going to embrace a reform that means their wealth goes away? Not likely.
  As far as the idea that a big enough crash, or a drastic enough series of crashes, will pop people out of their obsession with IOUs -- well, it's a great notion but it fails the test of history. In the Great Depression, one of the most common responses to the stock market crash was to seek some other way of getting rich quick -- chain letters, lotteries, you name it. For that matter, one of the main driving forces behind the 1928-1929 stock market bubble was the Florida real estate boom and bust earlier in the decade; when that went down, a lot of people who got soaked went into stocks in the hope of recouping their losses, just as many people burned in the 2000 tech stock crash piled into the current real estate bubble.
  Also, if I may speak briefly as a Druid, you don't get people to wake up from a collective hallucination by putting them under massive stress. That's why we practice meditation -- it's when your mind is calm and still and there's nothing hammering on you that you have the chance to wake up. If you put people under stress, in fact, a lot of the time they regress back to some less awake state.
  That happens collectively as well as individually; I probably don't have to cite 1930s Germany as an example. If I'm right and we're headed into a period of severe economic stress, I doubt people will be inspired to embrace some elegant new economic theory; it's unfortunately much more likely that they'll be hunting (and murdering) scapegoats instead. They may storm the Bastille, or its equivalent, but it's worth recalling that what followed the storming of the Bastille included the Terror, military dictatorship, and the Napoleonic Wars.
  All of which is to say that I'm dubious of attempts to redefine our predicament as an opportunity for Utopian reform. What we need isn't grand plans for sweeping reforms, I'm convinced, but rather the humility to think small, and make the simple and incremental changes in our own lives that will lay solid foundations for the deindustrial cultures to come.

  10/6/06, 2:19 PM
John Michael Greer said...

  All of which doesn't change the fact that this is a great discussion, BTW, and one that I'm enjoying.

  10/6/06, 2:25 PM
Adrynian said...

  I think I've heard of "Social Credit", but I haven't read anything about it and I'm too young to have lived through it - although I do remember the Social Credit party - they imploded right around the time I became a teenager. I'll spend some time looking it up.
  Oh, I had something I wanted to add to that last bit I was saying, b/c I was going somewhere with it: Essentially, the demurrage-tax *rate* you pay is optional, and this follows from what I already wrote: the total amount of tax paid per year on any given dollar is always the same (as a function of the demurrage rate): (52wks)X(%/wk)X(face-value), but the amount any one individual pays is a function inversely proportion to how long they hold on to the money (exactly, in a continuous-count system; roughly so in a discrete-count system like the scrip I described, where any money you spent before crossing the upkeep day you wouldn't pay any tax on at all - although someone is always holding on to the money, so someone is always paying the tax, and some of the time, on average, that'll be you). The consequence of this is that the faster the money circulates, the smaller the demurrage charge is in proportion to the total income the money has generated (given the above example, if the $100-bill circulated faster than once per week on average, the income generated by it would increase and so the demurrage (still =$104 for the year) as a fraction of income generated (now >$5200) would be less than 2%, and vice versa). And because this type of money does devalue over time, it encourages people to increase the rate of circulation (i.e. spending), tending reduce the demurrage rate per person. (Another way of phrasing this is that it makes the money more efficient as a medium of exchange.)
  At the same time, because it alters the discount function, it encourages people to spend their income on productive uses. For example, Ancient Egypt (before Rome conquered them and abolished it) had such a currency, backed by grain; farmers stored their grain in gov't granaries, for which they were issued receipts (the currency). The older the receipt was, the less grain it could be traded in for (b/c of loss to rats, paying for guards, etc.). As a result, or so Bernard Lietaer writes, farmers would frequently spend their money on investments in their equipment and farm capital, paying to keep it in tip-top condition, which had the consequent effect of improving yields, while providing blacksmiths, carpenters, labourers, etc. with regular work. Europe in the Middle Ages apparently had something similar - local-lord issued demurrage currencies - and this just happened to coincide with the most frenzied couple of centuries of cathedral building all across Europe (cathedrals effectively acted as tourist destinations, bringing a pilgrim's - and even a modern tourist's - money into the local economy, but they took years, even generations, to complete; now that's long-term thinking!).
  The Archdruid is right, however. I'm not sure that it's possible to convince our elite that this system would work in their favour. Forget the fact that they're facilitating the impoverishment of billions while destroying the long-term viability, for almost all species except the weedy ones (including their own descendants), of the only known habitable planet in the universe. (And the prospects of surviving outside the protective magnetic fields surrounding Earth don't look so good; Scientific American recently published an article questioning whether astronauts could even survive a trip to Mars and back without dying of radiation poisoning or having their immune system so suppressed that common bacteria could kill them - space does weird things to the human body, not to mention the drugs in medkits, which they suggest probably wouldn't survive the round trip, either.)
  The alternative I've been trying to articulate (admittedly, by borrowing heavily from others), would not be friendly to the banking system, nor to the big capitalists who make their money by investing the already huge sums they have at their disposal (unless they converted it to hard assets, like productive land, which actually seems to be the historical source of wealth for the elite for as long as we've had "civilization"). I guess I'm hoping to just bypass them: start out as a local currency (as I suggested last week, make it optional for businesses to participate, but if they don't, they lose out on this revenue stream; as economies relocalize and national currency becomes either scarce or worthless in recessions and hyper-inflationary periods, this could be a big incentive to join). Then, make sure it's operated by local or small-regional governments, which are more responsive to communities (and are also less influenced by big money - at least in the sense that grassroots organizing at the local level can negate many of the advantages that big-money has when operating over larger regions). Finally, do everything possible to articulate to people why it's valuable/useful; hold community meetings, pamplet in the streets, get on the radio, whatever it takes. For example, show people a graph of income-from-interest-charges for every decile of the population: the bottom 80% pay more interest over their lifetimes than they will ever earn on all their investments - and this includes the 60-year old retiree, who I admit would need community support under this system, but in the future that'll be true anyway, whether or not we implement a demurrage currency. Meanwhile, the top 20%, and even then, almost exclusively the top 10%, earn more money from interest over their lifetime than they ever pay.
  As far as I'm concerned, the elite are not my friends or allies, nor yours, either. In fact, they prosper off other people's hard work and suffering, and like it that way. In their mind, we're not worthy of respect or dignity, but rather are just the dirty, unpredictable masses. I don't feel any particular hostility towards them, but I'm intellectually and ethically opposed to the world they've been instrumental in creating and I hope to do what I can to undermine and counteract their influence (although I'm still working on the practial how-to of it). I know they're powerful and I know they'll fight like cornered badgers because they have so much to lose, but quite frankly, I don't give a damn... I'm opposed to them anyway. I'm not happy in this world, I can imagine a better one, and I want to figure out how to get from here to there - and I hope to invite as many people as I can to come with me, including the elite, as long as they behave themselves (not that I really expect them to).
  Archdruid, you make a valuable observation about people's awareness when stressed. I hadn't really considered it in this context before, but people do regress to those animal instincts we all possess when pushed hard. Reflexive, empathetic responses seem to be the first thing to go in times of stress; people revert to their training/socialization, whatever that might be (that's why it's important to practice, practice, practice before a recital or test!). Counteracting attempts to "get rich quick" or visceral reactions of "kill the bastards" could be very difficult.
  However, from a dynamic systems perspective, which is my primary paradigm for viewing most systems, including social ones, times of crisis (aka: those chaotic moments when a system is fluctuating wildly in an attempt to order itself around another strange attractor) are also times of opportunity, where the system could go almost anywhere, and maybe even somewhere we want if given the right push (at least, within limits, since any given strange attractor tends not to order more than 2 or 3 dimensions at a time, from what I understand). John Ralston Saul articulates something similar in his recent book, "The Collapse of Globalism and the Reinvention of the World", in which he notes that the new path that a society follows is often determined as a combination of circumstance and the choices of reactionary and visionary forces (or something like that). I can't help but feel that the peak-oil & climate-change nexus is an opportunity, if only we can figure out how to push on the system in the right way. (In parallel with your view, Archdruid, that we should be working to "lay solid foundations for the deindustrial cultures to come", most such pushing on the system seems (from people's observation & analysis of past social movements) to require a great deal of preparation and hard work so that everything is ready for when the opportunity arises; and given the complex & frequently unpredictable nature of such systems, one never really knows when such an opportunity will present itself, so there's no time like the present!
  Anyway, that was a really long post, so I'll give someone else the chance to put in their two cents.

  10/6/06, 4:45 PM
John Michael Greer said...

  Adrynian,
  Well, by all means keep at it -- I could always be wrong about the potential for systemic change. I won't be pursuing that tack on this blog or elsewhere, as I think the limited time and resources we have left need to go to other preparations, but that's just one druid's opinion.
  BTW, you can call me JMG or John if you like -- not even members of the druid order I head address me as "Archdruid," except in a very few bits of formal ritual.

  10/6/06, 11:07 PM
Adrynian said...

  Sure, JMG. Sorry 'bout that, I wasn't comfortable using your first name since it seemed too familiar, and I was trying to be respectful, but I realized it was rather formal/stilted.
  I wasn't trying to suggest that you should be pursuing systemic change on your site... I was just trying to articulate my perspective. I know systemic change isn't easy; my g/f and I have talked about it alot lately (she's doing her masters in sociology) and she's somewhat pessimistic about the possibilities for it. Basically, we've both sort of come to the conclusion that the best opportunities for change are times when the order of the day starts to already show its cracks and weaknesses; the rest of the time, the elite tend to have too tight a grip on the levers of control. I'm just simultaneously hoping and noticing that the current set of crises might be a time to further upset that control.
  I'm also just hoping that if I can point out to enough of the bottom 80% all the myriad ways in which they're being fleeced by the top 10-20%, eventually it won't matter what the elite want b/c I'll have left them behind. (Kind of like the "pick the low hanging fruit, first" metaphor that is often used in the context of oil production, except in this case, the fruit are people's minds.)

  10/7/06, 11:50 AM
chirotic said...

  Fabulous conversation! Currencies have fascinated me ever since I learned that they are artificial constructs and are limited in design only by peoples' imaginations.
  Just want to add another dimension to the discussion -- I dont' think anyone who seriously proposes an alterative currency thinks it would, or could, or would be desirable to supplant the existing national currency. Alternative currencies work at the local level, to address the particular needs of a community.
  A currency's structure is determined by whatever problem it is designed to address in the community. For example, negative-interest/demurrage type currencies have historically been issued as a temporary measure for the purpose of kick-starting economic activity in a localized area, because this type of currency increases the velocity of money substantially and immediately.
  IMO, the biggest problem facing most communities with regard to energy decline is that the vast majority of goods people need for everyday life, and I mean the very basics -- food, soap, clothing, toilet paper -- is trucked in from far away, or from overseas. A community currency can facilitate relocalized manufacture of these things, and re-establishment of local economic infrastructures that have been destroyed by the likes of Wal-Mart, so that the community has some stability with regard to available necessities.
  Given this goal, nearly any community currency will do. If a community has other goals then some more specific currency structure is in order. For example, a community interested in protecting its collective wealth against inflation (hyperinflation even) may design a currency that is revalued periodically against the local CPI, or some other measure of inflation.
  Anyway, all that is to say that no alternative currency is going to replace a national currency, and no one particular currency structure is better than another in an absolute sense -- a currency structure is better or worse only with regard to the community's goals.

  10/8/06, 9:59 AM
taran said...

  In peak oil, the hallucinated economy becomes readily apparent. But more than anything else, it raises a philosophical question: what constitutes wealth? In fact, all wealth can be understood as being inherently "hallucinated". Be it gold,diamonds or paper currency, these can all suffer the same fate. Thus, we have great spiritual teachings, from Shinto to Buddhism, from Shiva to Jesus, and now even, from Druids. What is truly wealthy can only be understood within the spiritual dimension. This is the great teaching of the ages, and as the sands of time sweep the temporal world aside again and again, we face the same dilemmas posed to human societies since the beginning.
  As peak oil continues to define our future, are we Shylock or something better?

  10/8/06, 7:58 PM
Adrynian said...

  I recently read about various psychologists who are working in the relatively new field of "happiness studies". Several independent researchers essentially came up with similar conclusions.
  "The Happiness Hypothesis" by Jonathan Haidt is a good example of this. He proposes what are essentially three keys to happiness: (1) strong, supportive social networks, incl. friends & family; (2) work that interests, engages, and challenges you (i.e. is more than just a paycheck); & (3) connection with something larger than yourself (e.g. one or more of religion, teaching, science, political campaigns, etc.). Here's a link to a sort of "how-to" of it.
  Regardless of what your genetic predisposition is, the more one has of these things, the happier one tends to be. I think that if our society ever comes to appreciate and facilitate people's acquisition of "true wealth", sooner or later it's going to have to end its exclusionary focus on infinitely increasing rates of consumption (duh!), which are actually predicated on *reducing* our sense of well-being so that we consume as compensation, and get back to helping people reconnect with their surroundings, incl. natural, artificial, and social (i.e. ecosystems, cities, and people, respectively).

  10/9/06, 12:09 AM
Adrynian said...

  Oh, chirotic, you make some very relevant points about currency. I admit a bias towards demurrage currencies, but many designs will serve, as well. I just advocate demurrage in part because I like how nicely it meshes with the idea of local governments using it to pay for social services and larger infrastructure investments, and partly because the demurrage acts as a tax that actually encourages economic activity while inverting the discount function so that people have "rational" incentive to do what's "wise", i.e. reduce waste, invest in productive ecosystems, etc. In particular, the altered discount function seems valuable in post-growth economies where "natural interest rates" (i.e. dividends from growing trees, agriculture, and other living things) are one of the only avenues available for investment in future income streams. (I'm thinking of what Bernard Lietaer means when he describes people planting some valuable trees that can be harvested years down the road to pay for a grandchild's education, or retirement or whatnot; i.e. investment in truly productive assets: living organisms.)
  It seems self-evident to me that the economy really is only as good as the ecosystems it's embedded in. We are parasitic on the productivity of nature, in the same way the predator is parasitic on the productivity of its prey; in moderation, it can be beneficial to the entire ecosystem, but we left moderation behind us a long time ago and look at where that got us: into overshoot and on the way to collapse.

  10/9/06, 12:33 AM
John Michael Greer said...

  Taran, IMO you're spot on about wealth as a hallucination across the board. What we actually need is pretty modest -- food, drink, warmth, shelter, companionship, and a sense of meaning basically finish the list. It's only in the complicated social game of a market economy based on imaginary needs that things spin far enough into delusion that people think they need SUVs. One of the real needs of the present moment, to my mind, is a renewed awareness of the difference between real needs and delusional desires!
  Adrynian, Chirotic, et al., I suspect you're quite right to suggest that local currencies can have a role in helping to manage the slide down from industrial civilization. One point I'd suggest, though -- and will be developing in this week's post -- is that another crucial factor is unhooking as much "economic" activity as possible from the money economy altogether. Dependence on an exchange economy is not a good thing when the economy in question is coming unglued. Not that long ago, historically speaking, much of what we now buy in stores was produced at home, as part of a thriving home economy that probably contributed half or more of all economic value (but was not measured, because no money changed hands). But more on this on Wednesday.
  One other thing -- it's very easy, and of course very popular, to blame "the elites" for the current situation. I'm suspicious, though, of any attempt to claim that Group X (any "Group X") is personally responsible for the evils of the world. After the current series is finished, I'll address this in detail in a post, but for now I'll just toss out the question: are the "top 20%" really the only people who have benefited from the current system, and thus have a vested interest in its continuation? More on this later, too.

  10/9/06, 10:27 AM
Eligere said...

  One of my teachers used to say, "You have a teabag; you have a teabag's worth of trouble." Surplus belongings become burdensome pretty early in the game, but most of us don't notice the amount of time we put into upkeep, or the distance we have to travel around them, or the affect of clutter on our mindstates, until we have to hire other people to clean and organize it, or renting storage for the bits we no longer use but can yet bear to give away.

  10/9/06, 8:39 PM
Adrynian said...

  Interesting thought, eligere. I find myself to be a packrat, mostly for books, so I can appreciate the perspective.
  JMG, there are one or two things I'd like to respond to. I know it's easy to 'blame group X' for all our troubles and believe, "If only we got rid of them, things would be better..." etc. and so I try very hard not to give in to that all too human temptation. However, people also all too often miss the structural inequalities embedded in our socioeconomic and political systems.
  To answer your question, the top 20% aren't the *only* beneficiaries of our current economic system, but they *are* the *biggest* beneficiaries by far. (As I mentioned in a prev. post, most of our current economic system functions to spread dissatisfaction among the working populace while convincing them that if they only bought X the they'd be happy; if I can afford to buy X, thanks to this system, but afterwards still feel unhappy, like there's something missing in my life, because I've been manipulated by advertising every day of my existence, am I still a beneficiary of this system? Maybe a little - I'm thinking that someone who can't even get clean water would probably like to trade places, at least, but I'm still being screwed. And if at every step of the way my knowledge and skills are being exploited to make someone else extraordinarily wealthy while I have to live in over-crowded, polluted, and anti-social conditions, how much of a beneficiary am I then?)
  And when it comes to the financial system, I would argue that they *are* the only beneficiaries: they're pretty much the only ones making money off it. Granted, some average people made some money off the housing boom you just experienced by being able to access oceans of private credit (Canada is still in the middle of ours, for those of you looking for some "quick cash", *wink*), but then look at all those people who bought homes with no-money-down, interest-only mortgages who would currently be facing bankruptcy if only your political elite hadn't slammed shut the door to financial reprieve via bankruptcy a year or two ago. There are a lot of really screwed people in the US right now (the first interest-only loans have just been offered by a private bank in Canada as of this week, so I expect in a few years we could be in a similar boat re: screwed borrowers).
  I find it really interesting that people in our societies can't seem to talk about class; we definitely have it, but the propaganda machines have been so effective they've convinced almost everybody that we live in "free" and "equal-opportunity" societies when all the empirical and statistical evidence shows otherwise (the socioeconomic class you were born into will, with almost certainty, be the one you die in, unfortunately). Now, compared to some places in the world, we're doing okay, but then again, compared to others, we could be doing a hell of a lot better. Why aren't we? I would argue that it's because money has an inordinate influence on our political systems (I hate to say it, but US is even worse for this than Canada) and what's good for the gander, as the saying goes, isn't necessarily good for the goose.
  On the other hand, you're right, we all have a stake in the status quo relative to peak-oil; at least in the sense that things are about to get a lot harder and nobody likes it when things get worse (it's one of the few things that really does seem to be human nature: we dislike losing something far more than we like gaining it in the first place, or so psychologists have found again and again). But there are people who primarily have the means to participate in the political system, and they do so generation after generation (your Bushes are a perfect example, but there are others), and they're also the ones who have the financial means to insulate themselves from their decisions (at least temporarily - I'm thinking of Jared Diamond's discussion of elites in past collapses: usually, they just bought themselves the right to die last). And these people have different economic interests from your or me, largely because they're the ones investing in and managing and owning companies rather than working for a paycheck in them, so they have the incentive to cut your pay or offshore your job because they benefit from it, and bedamned to its effects on a community they don't even live in anyway: that's just the price of doing business (and who cares that they're not the ones paying it).
  We've globalized capital without globalizing labour (as Adam Smith argued we should - although, frankly, I doubt it'll ever happen; people are too sensitive to the other when it affects their livelihood: e.g. if you look at the last couple hundred years of immigration policy for just about any country in the west - since they were the industrialising ones - it was made easier or harder to enter almost in lockstep with how much or little, respectively, cheap labour was needed in that country). The consequent effect of this imbalance is that the people making the big economic decisions for a community almost never live anywhere near it, so they don't even *see* the effects, let alone feel them, when they externalize the costs of their decisions on to other people.
  I'm sorry, JMG, but the elite in both our countries, and around the world in fact, really do have a lot to answer for. As I said, I don't hold any particular hostility towards them, but I'm intellectually and ethically opposed to the decisions they continue to make, even to this day. I don't think their behaviour is necessarily a result of any particular hostility towards you or me or the underprivileged, either, but rather I suspect that it's as I said: a result of being able to insulate themselves from the effects of their decisions, to the point where they don't even have to be made aware of the consequences, let alone feel it themselves - and this is another all too human temptation.

  10/10/06, 1:15 PM
John Michael Greer said...

  Adrynian,
  Oh, I'm certainly aware of the ways that the upper reaches of the industrial world's political classes -- a formulation I think fits the situation better than the language of "elites" -- mismanaged our current predicament. You're quite correct, equally, that a combination of self-interest and insulation from realities "on the ground" lies behind the bulk of their mistakes. My reason for quibbling is simply that very often, when people blame "the elites" for what's wrong with the world, they are trying to dodge their own complicity in the situation.
  One of James Howard Kunstler's blog posts talks about how, during the run-up to the current Iraq war, one of his neigbors put signs on her lawn saying "War Is Not The Answer." This same neighbor had two SUVs in her driveway. Kunstler commented that he wanted to go shake her until her teeth rattled and say, "If you insist on a lifestyle that requires two SUVs, war is the only answer you're going to get."
  I can't speak to the Canadian situation, but I've seen far too much of this same sort of thing down here in the US. Very often, talk about the wickedness of "the elites" is a way of distracting attention from the reality of middle class privilege. it also distracts attention from the not unrelated challenge of making changes in our own lives -- the place that real social change has to occur, before it can occur anywhere else.
  But all this is fodder for a future post, so I'll leave off here.

  10/12/06, 2:49 PM
Kalpesh Muchhal said...

  @Adriyan
  actually when you consider about it, negative-interest-rates currencies are not better than any other form of currency, they may just help to get out of a slumped economy. For when you give people the incentive to spend and the fear of losing out in the form of taxes if they dont, it will only be a while when they begin to demand products and services just for the sake of it and which do not go towards any productive use. When people begin to spend in absence of a definite purpose, we see the rise of consumerism. Since consumerism favours the industries who have to keep going on to increase their profits and show something to the ever-demanding shareholders, monetary policies align towards it and credit becomes easily accessible. Cheap credit as we all realize by now is the path to hell paved with good intentions.
  Moreover a society which supports itself through consumerism puts an ever greater pressure on its resources which accelerate problems like peak oil, peak coal andclimate change too.
  Any new monetary system, considering the experiences of the past, has to motivate people to spend only as much as is needed, to conserve things, use them as much as possible. Maybe then we can enjoy the some real fruits of an industrialized society(which will keep declining unless it finds alternative and less-energy intensive ways of production) for a long time to come.

  5/21/08, 6:22 AM
Jacques de Beaufort said...

  thanks for directing me here..great thoughts as usual.
  It's interesting that many commentators are still saying that the economy is not "officially" in a recession...and that the last thing investors should do is panic. At what point will reality sink in for the average American? We seem to have a very high capacity for delusional thought and are adept at averting our gazes from the "margin of terror".
  Keep on dreaming America.

  9/15/08, 12:34 PM

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