Take a look at the 30 year chart for USD:
We do see the 5-year moving average coming down to 0. No growth, just like Keynes postulated in 1930. Combine this with Janet Yellen’s revelation that if poor people would just get with the program and accumulate more assets things would be grand and guess what?
We have arrived at Bliss. Doesn’t it feel great?
ALL PROGRESS IS CYBERNETIC
What anybody who actually examines the issue realizes is that all progress is cybernetic in nature. What this means is that all self-sustaining systems or processes (like an economy or an ecology) employ methodologies for self-regulation, and they rely heavily on evolution in one form or another.
Maxwell Maltz, in his groundbreaking (albeit largely uncredited) antecedent to which the entire modern self-help movement owes it’s existence, Psycho-Cybernetics, stressed that a big component of any system’s progress is that it relies primarily on feedback loops both positive and negative.
The process simply doesn’t work without both negative and positive consequences of past-actions to inform present decisions toward future goals (the original title of this post was “The Extinction of Consequences”)
Gogerty’s “The Nature of Value”, shows a chart of a cybernetic process:
The dots indicate dead ends – negative feedback “this doesn’t work” while the arrows indicate paths of “so far, so good”.
What modern economic interventionism attempts to do is eliminate all the dots (and then make sure all the arrows are “equal”). Policy makers and political fixers hold a mechanistic view of the macro economy, implementing “fixes” and managing it because in their minds, it’s just an algorithm.
As Gogerty observes:
“[..]mechanical theories still have adherents, however, and can be dangerous if pursued aggressively using monetary or political force. The only economic systems today that are truly at or close to equilibrium are nearly dead economies. A cow that achieves equilibrium is called a steak, and the economy closest to achieving equilibrium today is North Korea circa 2013?.
The reality is that the economy is a complex adaptive system and thus inherently “unmanageable”.The system itself adapts so you will never come up with anything that achieves “perfect equilibrium”.
Any attempt to do so suppresses the built-in signaling mechanisms and thus all system participants begin to make choices based on “facts” which are increasingly and iteratively distorted by the overlaying policy attempts at eliminating negative feedback.
“Keynes and other economists ignored, dismissed, or seriously misunderstood growth, innovation, value, and adaptive economic processes. Economists mathematic models created the economy like a linear or probabilistic machine.” (ibid.)
And the centrally planned attempts at running the economy as if it were such a linear, probabilistic machine that could be steered shy of recessions or downturns has instead created an escalating sequence of severe dislocations.
- In 2008 had there been no bailouts and the insolvent banks were allowed to die, the economic malaise would have been cleared out within a year or so and a genuine economic recovery could have commenced. (As Stockman exhaustively detailed in The Great Deformation)
- In 2000 had the .COM bubble simply been allowed to burn itself out, with a not-so-bad recession, we would never have had The Housing Bubble in 2008 (which Krugman demanded)
This pattern of intervening to avoid recessions and economic downturns goes all the way back to Nixon’s existential crisis of 1971, perhaps even further – to 1913, when the Fed was created to ensure economic stability for all time.
Today the distortions are now so far advanced that all market signalling is for the most part, totally broken. The stock market reaches new highs on diminishing volume, it costs you money to save your money and there is no official inflation – despite the fact that everything either costs more or it comes in a smaller package for the same price (shrink-flation).
The global financial system is flashing bright red warning lights and yet complacency rules the day and the official policy and media pundit line is that the recovery (now in it’s 5th year) actually exists.
One of these days all of the market signalling mechanisms are going to snap back into functionality and most likely overshoot the mean in a non-linear, disorderly way.
When that happens, the best possible course of action is to not be in the path of one of the gigantic elastic forces snapping back into place at extremely high velocity. Stay out of debt, avoid counter-party risk, be diversified, and have a bug-out plan.