Guest Post: Why Things Are Falling Apart... And What We Can Do About It

Tyler Durden's picture

Submitted by Gordon T. Long of,

To understand the reasons why our financial system, our economy and our present policies are unsustainable, we need to come to grips with two simple truths. First, the economy and government are an interconnected system. As such the party attempting to steer it does not have controlling power over it. The second fact is that “faster, better, cheaper” always wins, replacing the inefficient and unsustainable. This is the reality within which the system operates.

The present foundation of the system, and our economy, is Financialization. This is not by design but rather by Darwinian evolution. It has unfortunately, become the basic engine of consumer growth through its' leveraging of collateral into debt and phantom assets, such as derivatives and bubble valuations. The limiting fact to this system is that ever-rising debt and leverage is unsustainable, once household assets and incomes stop rising.

Uncontrolled financialization & unsound money, without historic exception, consistently leads to:

  • Malinvestment in the Private sector - In the private sector cheap money will naturally flow into high-risk, low-return investments. This leads to “McMansions in the Middle of Nowhere”
  • Crony Capitalism in the Public sector - In the public sector, crony capitalism secures low risk, high-return investments. This leads to “Bridges to Nowhere.”

The system in its present form has become too complex, fragile and insufficiently robust, that it is realistically unsustainable and un-governable. The unsustainable will collapse and be replaced by an arrangement that is sustainable. Creative destruction and “faster, better, cheaper” is the only sustainable system; the alternative is to cling to failed models until the system collapses.

"Any intelligent fool can make things bigger and more complex... It takes a touch of genius and a lot of courage to move in the opposite direction." (Albert Einstein)

Additionally, our economy and state are unsustainable for converging and disruptive systemic reasons, that go beyond the financial:

  • Demographics—our aging populace and the impossible entitlements promises made
  • Decline of Paid Work—automation and the Web are destroying more jobs than they create
  • Diminishing Returns of Centralization—the more power the State grabs, the more broken the system becomes
  • EROEI (energy returned on energy invested): energy may be abundant but expensive
  • Healthcare in Crisis—our health declines as we spend 2X more per capita than our competitors
  • The End of Consumerist Growth—if debt and income aren’t growing, neither can consumption
  • Globalization—the genii cannot be put back in the bottle

What We Can Do about It

“There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things. For the reformer has enemies in all those who profit by the old order, and only lukewarm defenders in all those who would profit by the new order, this lukewarmness arising partly from fear of their adversaries… and partly from the incredulity of mankind, who do not truly believe in anything new until they have had actual experience  of it.” (Machiavelli, 1532)

The better choice is to embrace technological and social innovations and “faster, better, cheaper.”, since it eventually wins, regardless of our preferences.

This means GLOBALLY accepting and INNOVATIVELY moving RAPIDLY towards a DATA System:

    D- Decentralized

    A- Adaptive

    T- Transparent

    A- Accountable

We don’t get to choose, it is the natural order!

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F. Bastiat's picture

Actually, Christianity is the foundation of Western civilization.  Without that foundation, the structure implodes upon itself.

Spastica Rex's picture

Don't you mean collapse? A foundation has little to do with preventing an implosion.

CH1's picture

Snarkiness is not a contribution.

Grow up.

Spastica Rex's picture

Sorry - I didn't know the ZH Comment Value Committee was watching. I'll be more careful next time. Thanks.

F. Bastiat's picture

Forgive him, he knows not much.

F. Bastiat's picture

Implosion paints a better visual picture, methinks.

There's no real visual that can be painted with vague, imprecise, meaningless words like "collapse", "capitalism", "society", etc.

Lack of language precision, resulting from slovenly thinking, is but one of the challenges facing the remnants of Western civilization.

Spastica Rex's picture

OMG. Best comment all day. +1

darteaus's picture

It becomes a bunch of feral materialists ruled by an aristocratic elite playing demographic groups off against each other.

F. Bastiat's picture

That's certainly close to being a correct description.

blunderdog's picture

If you're correct, "Western civilization" is already over, and it has been for centuries--we're just savages in fancier cars.  There's nothing wrong with Christianity, but it does seem a pity none of the current power-institutions have any use for it.

F. Bastiat's picture

Probably peaked in the late 18th, early 19th centuries.  What we're in now isn't "Western civilization" per se, but something else. Modern barbarism, perhaps. That's not exactly it, but it's closer to the truth than Western civilization. Post-Western-Civilization, Ameritopia - as some like to call it.

rustymason's picture

What we are living in now is called, "Idiocracy." Watch the movie again. It's not funny anymore -- it's all too real.

F. Bastiat's picture

It's definitely not funny. It's serious fucking business.

nufio's picture

nor did they ever in history.

blunderdog's picture

You're right, I should amend my "none" to "almost none" above.  There have been a few virtuous organizations which have existed here and there over the centuries.

Peter Pan's picture

I think you are stretching things a little to say that Christianity is the foundation of western civilization. One of its pillars perhaps and even then the breakdown of many churches is evident despite the beauty of the Christian message. Consumerism, money and something for nothing are the new gods.

Spastica Rex's picture

I did not up-vote myself on that.

blunderdog's picture

Keep in mind, just because MOST of the pre-selected for Heaven are successful, it doesn't logically follow that they ALL are.  So even some black hobo with an iPhone may be predestined for eternal paradise after subsisting an entire lifetime on the fruits of others' labors.

Karma's a bitch, that's fo'SHO.

Spastica Rex's picture

Hey, blunderdog: thanks for the Calvanism refresher!

blunderdog's picture

We need SOME kind of cultural memory, now that we've abandoned books.

JLee2027's picture

I don't think it's a stretch. It's a message from the Bible. When a society falls away from God, it goes downhill. The only way to "fix" things is a return to God. 

akak's picture

Yes, I pine for the days of public hangings, witch burnings, Inquisitions and the torture of heretics.

Spastica Rex's picture

Well, as long as you're not a witch, or heretic... what's the problem?

Cloud9.5's picture

It's all in the labeling.

JLee2027's picture

Yes, I pine for the days of public hangings, witch burnings, Inquisitions and the torture of heretics.

And did that society survive? No. I rest my case.

F. Bastiat's picture

It's the foundation of the ideas and institutions.  The scientific method, which arose in Christendom, and applied science are the other two key pillars.  Reference JO Gassett's "Revolt of the Masses", for one.

e.blair's picture

Where did you go to school?  Are you unaware that Homer, the Greek tragedians, Socrates, Plato, and Aristotle, really all of Western philosophy, Thucydides, Athenian democracy, the Roman Republic, Roman Law all came before people started worshipping a god who looked like a man and who had been nailed to a cross?  Maybe Western Civilization went wrong when it took such a wimp for a god.

F. Bastiat's picture

Plato has nothing to do with Western civilization, silly. 

In fact, Plato's superstitions are the tenets worshiped by counter-civilization totalitarians the world over.  Reference Popper's "Open Society and Its Enemies, Volume I", (The Spell of Plato) among others.  Igor Shafarevich has also done brilliant work in/on the "Socialist Phenomenon".

Similarly, Thucydides simply established a method for historical narratives. He didn't actually make any contributions to the ideas and institutions of Western civilization.

If your going to make silly claims, at least make plausible ones.

e.blair's picture

"Plato has nothing to do with Western civilization."  This is the most astonishing and easily the stupidest thing I have read in a very long time.  Plato wrote more than one dialogue.  And for better or worse he was more influential than Shakespeare.  Indeed, Plato had more to do with Western civilization than any other thinker.  As for Thucydides, if all you can say about him is a four word platitude about historical narrative, then I doubt you have read him.  You better quick run to Wikipedia and find a bit more detail because you really look extremely foolish.  What else can we say about Thucydides?  Come on now.  Hurry up.  You might still be able to fake it.  What's Thucydides lesson?  

F. Bastiat's picture

Look, I'm not claiming that Plato wasn't influential - Plato's notions were the basis of the superstitions conjured up by Hegel and Marx.  What's not clear to me is how you're equating Plato, Hegel, and Marx with Western civilization.  They're the counter-civilization yin to Western civilization's yang.

Reference Popper's work, cited prior, along with Igor Shafarevich's brilliant works "Socialism in our Past and Future" and "The Socialist Phenomenon".

Here's a link to some of Plato's work, as documented by Shafarevich in "The Socialist Phenomenon":

e.blair's picture

Nice duck on Thucydides.  So pretty clearly we have established that you haven't read him.  Just like to pretend so on forums.  I couldn't care less about your links.  You've taken a few sociology courses.  Woopty doo.  I really don't need a sociologist to explain Plato to me. 

And Plato was just one of a list of people and things I mentioned.  Do you even know whom I was responding to?  You do know I was responding to somebody don't you?  Maybe you don't.

F. Bastiat's picture

Well, I can lead you to information but I can't make you think.  I'm not that impressed by Thucydides, frankly. Other than his method, which was revolutionary at the time.  I doubt Wikipedia's going to change my mind about that.

What's shocking, but perhaps not surprising considering the dilapidated condition of education today, is that you're implying Plato, Hegel, and Marx to be the key pillars of Western civilization. No wonder we're in such a pickle.

We may agree, however, that "Politics and the English Language" should be required reading. Along with "The Gods of the Copybook Headings".  There's more useful information in the 512 words of TGotCH than the entire body of work conjured up by Plato, Hegel, and Marx.

booboo's picture

Only if you are a trinitarian does God "look(ed) like a man, well, most of chritianDUMB. The Unitarians, like many of the founding fathers thought he was the Son of God, go figure. It was a pretty good trick to get the pagans and the christians all wrapped up in one neat ball and stop fighting. "ok guys, you can have your female goddess shit, we make jesus a man god and you can worship his mommy, badda boom, badda bing, everyones happy, lets go screw some women and furry animals and drink some vino"

mdtrader's picture

The only thing falling apart is the bear's argument!

Peter Pan's picture

Time will show that the bull is full of bull......

Pareto's picture

This is a true statement.  Too often we hear on ZH how bad the fundamentals are, and that this market has only 1 direction it can go.  Well, ater the fib retracement and 3 years later, we're still hearing the same mantra.  Shorting this market has led to only 1 meaningful event: having your hat handed to you every time they blow out your stops.  Since the Mays highs, if you were not nimble on the short side, you got creamed plain and simple.  Just ask anybody trading the vxx.

I am in total agreement with ZH and its readership on most analyses.  However, sometimes you have to change your strategy when the story changes, even if the story is fucked.  Right, or wrong, there is still too much negativity in the market place.  Have we reached a market top?  ZHers will tell you "hell ya".  But this, in and of itself, is a losing proposition.  Negativity has to all but disappear before calamity or market events can cause a material move in the market.  Deep corrections depend on no more buyers.  But, so long as CB's keep expanding their balance sheet, means there will always be a floor and the vxx goes to zero.  Negative real rates (soon to be negative nominal) will only accentuate and acccelerate what seems like a contradiction.  The Bernanke "put' is on, and since this is all one big fucking science experiment in various carry trades, you have to go with what you know, and not with what you think you know is right, IMO.

One day, this will end bad; on this there is no doubt.  But, since we don't know when that it is, I think an open mind is warranted.  I appreciate the ZH position.  Always have.  Its why I come to this site.  ZHers are the smartest people in the world.  However, I think I have personally frittered away a number of opportunities on the long side because of a bias that is materially not justified.  At least not yet. cheers 

Peter Pan's picture

People have through debt built themselves bigger treadmills which have now become mouse traps with the loss of well paying jobs.

Abrick's picture

You cannot possibly trust someone on a treadmill. Working harder and harder to stay in the same place is, by my definition, insanity.

booboo's picture

I thought all good things come from the beenviolent er I mean benevolent) government.

Element's picture

Entropy and jack-shit

tickhound's picture

I find your use of entropy here confusing, yet stimulating... fucking chemists.  ;)

Back in the day, wasn't it systemic equilibrium or somethin'?

Element's picture

Not a chemist ... geo ;)

tickhound's picture

How the hell can "faster, better, cheaper" fix anything under the same faulty money creation premise in which we currently operate.

The author sees most of the problem, but his solution is just a "faster, better, cheaper" way to the same result.

He doesn't come close to fixing shit.  He just wants to TIDY UP a faulty money creation premise that he actually freaking thinks is NATURAL!?!? 


GeorgeHayduke's picture

I agree. We both noticed this statement as a problem about the same time.

tickhound's picture

Yeah and I don't even want to go this far, but as one of our fellow bitchez recently said regarding "natural".......

"Nature doesn't need money, money needs man."

GeorgeHayduke's picture

"The second fact is that “faster, better, cheaper” always wins..."

This is a mantra from most economic dogmas of our time. However, I am not sure the "better" part of this phrase is always true. The other parts might not be true either. As for "better" the owners have been able to manipulate a higher tolerance for lower quality, the sheople have become more tolerant of it on their own. Veblen's Theory of the Leisure Class also proposes that image is more important than "better". The superficial lives many attempt to lead, by perhaps buying more than they can afford, can lead to where we are now.

Anyway, I am not sure this assumption always holds true and other factors may be at play. I also know that speaking against any of the mainstream economic dogmas is blasphemy to the true believers.

F. Bastiat's picture

For many who subscribe(d) to socialism, nuclear armageddeon is considered its triumph.  Igor Shafarevich has done brilliant work on the topic: