Exponentially stuffed

Couple of interesting and insightful pieces in recent
days on the same theme, an important one for all of our lives and those of our kids. One today by Alan Kohler, Waiting for the safety bubble to pop, and one by Paul Wallbank, Redefining affluence, post-credit.

A short paragraph from the Kohler piece summarises nicely what this is all about:

How did all this come about? Because for 30 years or so, consumption was financed by debt, something encouraged by politicians and central bankers pushing cheap money. A generation of bankers and borrowers discovered the glories of leverage in 80s before coming unstuck in 1990, and then a new generation reinvented leverage after 2000, before once again coming unstuck.

Since the Second World War what we might loosely call the developed world has congratulated itself on increasing prosperity. So it goes even further back than the 1980s Kohler mentions, although our debt addiction certainly goes into the stratosphere from about that time. And now it's becoming clearer to more people that this has been a castle largely built on sand - it's mostly been a lie. Most of that wealth has been borrowed from the future, because it's been funded by debt.

That future is now. The "Global Financial Crisis." Even a basic understanding of mathematics should have made it obvious right from the start that this was inevitable. Take for example how we've come to talk about returns on investment. Today if you said you had money invested with a 4% p.a. expected return, people would say you weren't making your money work hard enough. In the 1990s and 2000s people came to expect return figures of 10, 15, even 20% on their investments, in housing, superannuation, and more generally.

The problem with this absolutely lunatic thinking is that even 2% annual growth of something is exponential growth. Growth that goes 'off the scale' in a very short time. Completely unsustainable growth. The green line in the graph above, heading straight up. Even a 'paltry' return of 2% on any investment is a fairy tale over the longer term, because as you can see from the graph, in not too much time the return disappears into space. So the expected returns of 10+% are worse than a fairy tale, they're almost criminally insane. (Which is one reason I don't trust superannuation and think it's a ticking time bomb, but maybe another day.)

So we've been merrily trotting away this past 50-60 or so years congratulating ourselves on our cleverness and growing wealth, all the while completely fucking the future, which has been funding our stupidity and excess. All that greed has come home to roost, the debt funding all of those lovely investment returns has now got to the off-the-scale exponential point, and we're screwed.

It gets worse. You could almost mount a defence for this self-largesse if we'd been using all of that debt to build useful things, like new infrastructure and critical services. But mostly we haven't. Most of it has funded gratuitous consumption. We've lived it up. Everybody can point to crumbling public infrastructure and services, schools and hospitals, railways and roads that are crumbling, with no money to upgrade them. That's another part of our disgusting legacy to future generations.

Because everybody in the developed world seemed relatively flush with money and things over this period, at least compared to earlier generations, it also allowed the cynical destruction of many hard-won achievements, such as workers' rights and conditions. While the debt-fuelled binge was underway workers themselves didn't think they needed unions any more, because they had a well-paid job and everything seemed rosy. But as many are now discovering in the US, and Europe and earlier Japan (as the Wallbank article talks about (see link above)), once the debt hits the fan the average worker is back to begging for their supper. Neo-liberals have been triumphantly gloating about falling union membership over the past decades, pointing out how splendidly everybody is doing without them. Well, were doing without them. Increasing numbers of those workers are now screwed. These same neo-liberals and the powerful interests they represent have been looting entire countries under cover of this false prosperity, slashing taxes on these same powerful interests, crippling unions and destroying basic public services. And having the absolute gall to get these same workers to bail them out when the crash happened, while they walked away with fat severance pay cheques. Now that public is increasingly having to try to fund all of those old services and rights themselves, and they can't. So many years of hard slog and fight and basic human decency trashed.

It really is time people got angry again. The problem with any sort of binge is that the brain tends to turn off when you're in the middle of it. The same people now up shit creek without even a canoe are the ones who applauded as unions and public services were stripped away, under cover of the neo-liberal mantras of "wasteful government, corrupt unions, opportunity for all...". All self-serving bullshit. Now there's only barely enough, if there is enough, to cover basic needs like education and energy. And "user pays" is increasingly the solution, even when the user has nothing to pay with.

Our debt binge also let us forget the basic political point that progress is a fight. That doesn't have to mean nastiness - a fight can be funny, compassionate and respectful. But rights aren't given away, you have to win them. And there are always losers in this ongoing fight. We've been seduced into believing the meritocratic neo-liberal ideal of "how well you do is up to you - how hard you work" (usually strongly promoted by people who have inherited vast sums of money and have barely worked in their lives). So that all of the disaster described above is apparently (for neo-liberals) the result of individual moral failing, not looting. Which is why they always go on and on about values - it's the only thing left that might possibly explain the actual outcomes of their ridiculous ideas.

In the past this fight was conceived as being between 'classes', and while it's debatable whether classes exist, there are definitely always winners and losers, and the losers didn't just lose because it was their fault, more often than not they lost because the winners screwed them.
We should be angry, but we should then do something about it. We're soft, necessary arguments are pushed away in favour of the glorious peace of individual opinion. It's time to tackle greed, and inequality, and hate, and all of the vices we've known about for thousands of years and chose to pretend had been washed away in our great orgy of spending. We shouldn't lose our sense of humour or sense of balance, but we should have a fire in our bellies about the shit that has happened, and we should do something about it. Something smart, and hopefully fun, but with real guts.


  1. Perhaps indicative of our electoral options, that you can say 'neo-liberal' or 'neo-conservative' and still be talking about the same bunch of people.

    Though it seems to me that, while comfortable with a lack of social liberalism, the neo-liberals seem to lack what Adam Smith or John Stuart Mill (or even Bob Menzies) would consider fiscal liberalism.

  2. So right on both counts. They're actually not conservatives, they're more moral reactionaries with a taste for taxpayer dollars.


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