re: Simon Johnson’s IMF Advice (to a collapsing world of finance)
Atlantic Monthly http://www.theatlantic.com/doc/200905/imf-advice/1
I think Simon Johnson’s view in the May Atlantic is as balanced and remarkably insightful a banker’s view of social forces as one can get. How he misses the larger change occurring is visible in his summary statement:
“To paraphrase Joseph Schumpeter, the early-20th-century economist, everyone has elites; the important thing is to change them from time to time. If the U.S. were just another country, coming to the IMF with hat in hand, I might be fairly optimistic about its future. Most of the emerging-market crises that I’ve mentioned ended relatively quickly, and gave way, for the most part, to relatively strong recoveries. But this, alas, brings us to the limit of the analogy between the U.S. and emerging markets.”
Throughout the article the oligarchy he details so well is described as the problem, but that oligarchy , misjudged its own limits, and as a banker Johnson repeats the same mistake. The banker’s phrase “strong recoveries” means a return to limitless growth. The error is not theoretical. It’s that depleting resources can’t produce multiplying returns for everyone, and so stimulating growth stimulates growing internal conflict instead. When the earth seems to provide endless multiplying returns to share it is sometimes tolerable to share them with people using their financial power to multiply their financial power. Without growth that becomes quite intolerable. We can’t maintain stability while letting people invest in sure bets to then add their winnings to their future sure bets like we have for so long. It now creates conflict and delusions about the future, not bounty.
I do like and agree with his final conclusion, though, which is remarkable for its clarity, that we need to let these facts sink in. “Under this kind of pressure, and faced with the prospect of a national and global collapse, minds may become more concentrated.”
Some readers may know I discovered this perverse necessity of financial system overshoot at the same time as physical environment overshoot 30 years ago. The consequences of that happening seem to be what is really going on here, not just a repetition of the ancient human habit of grand scale chicanery. We’re also being transformed by adapting to the limits of the earth. A great many kinds of trusted old rules are and will necessarily change. There is more to do than follow the sound and serious advice of a banker preparing for triage, cutting out what is dragging down an otherwise healthy growth system.
The same data showing the development of the failed financial culture also shows we’re at the natural end of multiplying investments providing multiplying returns as a rule. The reason the financial culture turned to creating fictional profits is that investment in real growth was running into all sorts of complications, conflicts, new costs and shortages. It new world completely conflicts with the economic model of endless growing bounty, that all our institutions and government finances are built around. In nature what growth if for is to BEGIN things, and if you don’t complete the work and make them self-sustaining before your non-renewable seed wealth is gone, you have to stop work before finishing it. That’s the choice. Either we lose the false promise of endless multiplying wealth and finish what we started *making this a new kind of earth* or nature takes away the option.
Phil Henshaw ¸¸¸¸.•´ ¯ `•.¸¸¸¸
NY NY www.synapse9.com