Many years ago, an economist said, (paraphrase, I forgot his name) Mercantilism was an 18th century attempt to wrap an intellectual structure over what was essentially, chaos. Isn’t this what all global macro economists do?
Spoiler alert: The economy doesn’t give a ***k about your theory.
In fact, all sciences are in the same court. Their superhero skill is in attempting to explain what has already happened, which means they can never be totally right. As new information comes to light, old theories aren’t so much wrong as they’re found to be inadequate.
This is why it’s so easy to rank on economists. Because a professor doesn’t have much street cred if he has nothing to profess, and professing means defending theories that will someday be inadequate.
AI will destroy these distinctions in sciences.
To steal from the American Caesar, Douglas McArthur, old college professors never die… unfortunately.
Economies are systems that cannot be reduced to simple numbers.
As an example, look at housing. From 1990 to 2010, interest rates have generally fallen. So, houses should have gotten “cheaper.”
The world should be so simple. In 1990, the average single-family home was 2000 square feet and cost $149,000. In 2010 (the peak) the average home was 2,600 square feet and cost $270,000. Today the average home is 2,400 square feet and cost $475,000.
What does this tell us? Unfortunately, not much.
A house is no longer a home.
A house is an investment. Americans have a penchant for moving away from each other. This means bigger houses on bigger lots farther from city centers and jobs. This means more expensive sewer systems, more asphalt, streetlights, malls, and longer electricity lines. (Which need more grid power to maintain.)
This also means driving farther. In 1990, it cost about $3,800 per year to operate a car. Today, it’s about $12,000.
And finally, since the systemic cost of a new house is many multiples more than the average wage, housing is built for the rich and literally NO ONE ELSE. It’s not that we have stopped building houses for the poor, we don’t even build houses for the middle class.
But doesn’t this mean capitalism “works?”
I say this with trepidation, but unfortunately even many trained biologists don’t really believe in evolution. Evolution isn’t about things getting better. All systems, whether they be natural or otherwise, act the same.
Evolution is about things expanding into niches. So is free trade economics. The emptier the niche, the faster the expansion. This is why European diseases wiped out native populations and the US became insanely rich.
America is, basically, ghetto rich.
Ghetto rich is an old expression for a person, typically a factory worker or a red neck that lives in a cheap house and drives an expensive car.
Almost all of America’s expansion since free trade let loose by the twin idiots Bill Clinton and Al Gore was the result of buying things the US doesn’t, and has no intention of ever, paying for.
We’re not saying capitalism doesn’t work.
What we’re alluding to is the simple observation that no economic system works because no system works. They expand into niches. America’s niche was empty because no other country had a currency that could be used in trade.
Systems work until they stop working. They often stop working because they become too rigid to evolve and end up collapsing. This is what the mathematician Nassim Taleb refers to as fragility. (His book antifragile explains what fragility means. At Landon Fillmore, we call it systemic rigidity. The inability of a system to change)
Literally every free trade “empire” that’s ever existed has collapsed. These include Lisbon, Venice, London, Antwerp, Rome, and Amsterdam. Today, these cities are tourist attractions. To see how these systems collapsed, let’s look at two.
First, Rome.
Modern Rome was created by Octavian, the man they called Augustus Caesar. Octavian was as close to a genius as ever existed. After beating Marc Antony, he killed Cleopatra and took possession of Egypt and the Red Sea. This gave his new empire two things, the grain tribute and highly profitable spice and silk trade with India.
In short, two-thirds of Romes income came from three sources. The grain tribute which he doled out to Roman citizens for free, taxes on silk and spice from India, and silver from the mines he confiscated in Galicia. (Mined by slaves)
He used this money to control a few things. First, his colonies in modern Germany and England, but more importantly, as well as more costly, the Red Sea trade routes. The entirety of the African coast was overrun with pirates, thieves and other nefarious sorts.
He also created huge infrastructure projects to move water and people.
But what’s seldom recognized is that Romans, rich through trade and free food pissed away their money on consumer products. In other words, they used unsustainable income to buy a fantasy lifestyle for the upper classes. Spending money on things that do not have a rate of return is a concept called capital consumption.
The emperor Constantine finally saw the writing on the wall, moved Rome to a more defensible place, modern day Istanbul, and watched Rome burn.
Then there was England.
England followed the same pattern, only rather than tribute payments, their “empire” was built on the slave trade and opium running. In fact, opium was how 18th and 19th century England financed its trade deficits.
Not only did the King get a cut from Lloyds of London for every ship that ran slaves, but Lloyds had a monopoly on the business. Many if not most of the slave plantations would be by today’s standards, startups. Heavily financed by a flood of UK investor pounds, the big products were sugar and tobacco, commodities that fetched outrageous prices in Europe.
But, like Rome, the trade was not just in commodities, it was in consumer products. English homes were literally stuffed with nicknacks, exotic furniture, expropriated foreign culture and anything and everything.
Like Rome who had to defend the Red Sea, the UK had to defend half the world’s shipping lanes. At one point, the UK had 1,000 “ships of the line.”
Unfortunately, Churchill was no Octavian. He entered into a series of idiotic battles he had no chance of winning, borrowed massive amounts of money, destroyed his country and died as he lived. As a bombastic worthless drunk.
America’s Opium is the US dollar.
Everything else is simply extraneous detail. The US superpower, as I mentioned above, is to buy things they don’t pay for. They don’t have a Constantine. (Or maybe Mr. Trump will be one.) The US grain dole is EBT cards. The US is currently on the hook for defending the world’s shipping lanes and have just lost their first naval battle… to the Houthis.
It seems clear that Ukraine is America’s Gallipoli. In fairness, at least the UK and France fought against a real army in Gallipoli. But as the British know full well, the illusion of power lasts far longer than actual power.
The scalability of free trade.
The most advanced industry in America is not tech, or at least it’s not the most important. In order of importance, they are 1) the oil industry and 2) farming. And the advances of these two industries have caused everything else.
I won’t go into how explosive US oil and gas drilling became after the “green” President Obama let loose the engines, (or at least ignored them) but it’s been staggering. In 18 years, the US went from importing 6 million barrels per day of oil and refined products to exporting 3 million. Natural gas production doubled.
This allowed millions of barrels of cheap oil to be rerouted to Asia. And Obama’s rhetorical bullshit as well as healthy bribes allowed China to ignore climate standards and increase coal use by 500%.
The same is true in farming. John Deere has become the behemoth it once was. Asian farm productivity per acre has gone bananas. One Vietnamese mother who had ½ acre rice paddy once said her sons were a foot taller than her (deceased) husband due to fertilizer.
Free trade is the dollar trade.
Whereas Rome and London experienced wild growth in GDP largely though borrowed money spent on bullshit consumer products like silk, spices, tea, etc., the entire world has done it through the US dollar. When I started traveling through Asia in the 80’s, the middle class was a western thing. Now, huge parts of Asia have a thriving middle class.
Wherever the dollar went the middle class went with it, and that created economies of scale that never existed before. This has led to huge distortions worldwide. 79% of all the world’s 222 countries have budget deficits. 137 countries have trade deficits. Most are funded in US dollars in some way, shape or form.
Everyone is jumping off the same cliff.
Few see the collapse coming.
This is because the cheapness of imports doesn’t make it to consumers. As importing countries get wealthier, they buy “quality” sold at large markups in expensive stores. GDP subtracts imports but that doesn’t matter because 75% of the markup is retail markup at the point of sale.
So, every $400 handbag represents a new GDP gain of $300. It APPEARS as if you’re racing ahead, but you’re really just running off a cliff.
Again, if you aren’t running a massive trade deficit, it doesn’t matter. But a trade deficit is buying things you don’t pay for. This ends in large scale debt defaults.
This is why economics doesn’t exist.
To be sure, economists (Global Macro) know what I just explained. They simply won’t admit it.
This is also why economic historians like Thomas Sowell, Friedrich Hayek and Fernand Braudel are routinely ignored. There’s no money in telling people not to overpay for stupid shit.
Telling people who pay $100,000 for a kitchen remodel, adding a $75,000 outdoor kitchen and ordering takeout 5 days a week they’re stupid is bad for the economy. When Barack Obama criticized people for gambling during the global financial crisis, he was booed off the stage.
Donald Trump gave a tax cut to corporations that couldn’t afford the $400bn a year they were paying in taxes but had no trouble spending $1.2 trillion a year buying their own stock back. Buying a share for $300 that you sold for $15 when you went public is not a $285 capital loss. It’s maintaining shareholder value, especially if you BORROW the money to do it.
Who cares. It’s all GDP growth.
Becoming a fifteen-percenter(er)
The psychologist Ed Bernays claimed that about 15% of the population has the capacity to understand the world in detail. They can only comprehend it as a metaphor. In other words, they don’t know what things are, but what they are like.
If you told a 9-year-old that an atom is like the solar system with the sun in the middle, he’d nod his head. If you said that to a physicist, he’d spit his coffee in your face.
But the thing I think Bernays missed was who is in the 15%. In his world this would be high IQ people, but I’ve found high IQ people, the defenders of old theories, to be the worse. To be in the 15% one doesn’t need to be smart, but to think in systems.
Being an atheist doesn’t make you a fifteen percenter. Understanding how religious belief endured and created western civilization would make you a ten percenter. Joining a church while not believing a word in the Bible would make you a five percenter. (Mainline denominations are filled with five percenters.)
Why?
Because AI is changing the world. AI doesn’t care about theories. In fact, a lot of AI software doesn’t use words to analyze things because words categorize things and simply their essence.
A native American of old would never use the word tree. Each tree has its own essence. You can eat chestnuts but would get sick eating pinecones. Ai will not generalize a tree but combine thousands of traits the tree has even differentiating it from other trees in the same species. This will create a tree map of unlimited detail.
No human could ever do this.
In fact, this used to be how monks and Priests worked. I have been to a lot of monasteries, mainly in eastern Europe. They’re filled with centuries old books on natural science. Today, these people have ben replaced by bickering theologians.
I like to think of AI as a computer bolted to our heads. It’s the greatest tool ever invented. It will move us past economic theory, or frankly any theory. To use it though one has to shut off the computer in our heads. We have to stop constantly theorizing and defending what will soon be old inadequate knowledge.
The people who can, will be one percenters.
In the meantime, why would be good to ignore?
Here’s where you can’t paint a broad brush. My litmus test is how many followers does a person have. Anyone who wants a lot of followers is playing in the D league. There are several sights, for example Palladium, where 5 percenters hang out.
But it’s safe to say university professors and economists are off the list. Anyone who says the words “both sides of the isle,” is probably an idiot. Neither side of the isle has a brain. I would ignore anyone with one of those “Science is real” signs on their lawn but pay CLOSE ATTENTION to the people who produced the sign.
Another place I like are obscure scientific and medical studies which use insider language. Scientists have learned the easiest way to keep weirdos off their backs is to write above the 9th grade level.
That said, if you’ve come this far you don’t need me to tell you how to separate a philosopher from a tent preacher.
