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Musings Report 2025-4 1-25-25 Where We've Been, Where We're Going
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Where We've Been, Where We're Going
Does the study of history give us actionable lessons? Stories such as the one about the wealthy fellow observing shoeshine boys offering stock tips in 1929 prompting him to sell before the crash suggest "yes," if we're alert to the lessons offered, however partially and imperfectly.
My interpretation of this story is that the wealthy fellow understood that human nature--what I call Wetware 1.0--tends to manifest as cycles and waves: human emotions cycle between euphoria and despair, for example, and changes tend to reinforce one another, generating waves that gather momentum, crest and break as they crash onshore.
The difference between waves and cycles is not always obvious. The Austrian School economist Ludwig von Mises observed that the desire to control the economy via lowering interest rates and expanding credit created "wavelike movements" which Russian economist Kondratieff reckoned were cyclical.
"The wavelike movement affecting the economic system, the recurrence of periods of boom which are followed by periods of depression, is the unavoidable outcome of the attempts, repeated again and again, to lower the gross market rate of interest by means of credit expansion." (Mises)
Many observers have noted cycles of history which relate to humans experiencing hardship and the failure of initial solutions, and these lessons being lost once this generation has on, leaving future generations to re-learn the same lesson the hard way.
Historian David Hackett Fischer, author of the book, The Great Wave: Price Revolutions and the Rhythm of History (often recommended here), explained the difference thusly:
"Cyclical rhythms are fixed and regular. Their periods are highly predictable. Great waves are more variable and less predictable. They differ in duration, magnitude, velocity, and momentum. One great price wave lasted less than ninety years; another continued more than 180 years. The irregularities in individual price movements make them no more (or less) predictable than individual waves in the sea.
Even so, all great waves had important qualities in common. They all shared the same wave-structure. They tended to have the same sequence of development, the same pattern of price relatives, similar movements of wages, rent, interest rates; and the same dangerous volatility in later stages. All major price revolutions in modern history began in periods of prosperity. Each ended in shattering world crises and was followed by periods of recovery and comparative equilibrium." (Thank you, Stuart L. for this excerpt)
In other words, what Fischer is describing is the similarities in history may not be periodic as much as in the characteristics and progression of eras.
One advantage of reaching an advanced age is that we understand past eras not from reading accounts but from memories of our own experiences.
For example, many older readers recall their parents' frugality was a direct result of growing up in the Great Depression, when frugality wasn't an option, it was a necessity for most households. As depressions were banished by central bank and fiscal policies, we've collectively lost any sense of frugality as a necessary strategy of survival. As a result, we will relearn this the hard way.
The title "Where We've Been, Where We're Going" intentionally ties the two together: where we've been influences where we're going.
I am old enough to remember the tumultuous 1960s, which saw global revolutions of various types playing out from China to Iron Curtain Eastern Europe to the U.S. and beyond. Those attempting to condense these extremely diverse revolutions down to one cause or cabal are off the mark. The forces behind the global wave of cultural, economic and political changes were many.
Politically, we can discern various waves of sentiment in this era: the youthful Kennedy replaced (in a razor-thin victory that was likely marred by fraud in Illinois) the "old school" of World War II leaders such as President Eisenhower with "The New Frontier," a vibrant Camelot of The Best and the Brightest, which is the title of David Halberstam's book on the Vietnam era.
This euphoric phase wouldn't last its encounters with history. Kennedy's assassination in 1963 undermined the public's trust in the Federal government, a distrust amplified by the propaganda issued to defend the Vietnam War.
President Lyndon Johnson's "Great Society" foundered on the "guns and butter" of a costly, divisive land war in Vietnam and expansive social programs, leading to a sentiment that the nation was off-track and a return to "law and order" was the needed prescription, one dynamic in Richard Nixon's narrow victory in 1968.
As Nixon's era ended in stagflation and Watergate, the hope for a fresh start generated the unlikely triumph of Jimmy Carter in 1976. These hopes fell apart under the pressure of a geopolitical crisis (The Iran hostage crisis), and a sense of an America weakened by diplomatic policies and economic stagnation / inflation.
This led to the sweeping victory of Ronald Reagan in 1980, who came to the presidency with the slogan "It's morning in America," a term we now hear again as the summary of Trump's 2.0 presidency.
As I have often noted here, the story of history is often mis-interpreted and told as a narrative that misses the point. For example, the narrative that "America lost the Vietnam War on the battlefield" runs counter to the actual battlefield results. The Tet Offensive in 1968, a turning point in the war, was catastrophic to the Viet Cong, and it took years for the North and its Russian ally to rebuild forces to the point that a new offensive could be launched in 1972.
This was documented in the book Big Story: How the American Press and Television Reported and Interpreted the Crisis of Tet 1968 in Vietnam and Washington.
The war was lost because it wasn't winnable in the usual sense on the battlefield, a lesson learned the hard way again in Afghanistan and Iraq.
The 1970s have been generally written off as a period of economic and geopolitical decline, couple with domestic terrorism and excesses of fashion. The most important dynamic--the retooling of America's aging industrial base to become less polluting and more efficient and globally competitive--has largely been ignored. That this process took trillions of dollars (in today's dollars) and a decade of effort as the only means to accomplish the monumental goal is not understood, and as a result, an entire decade is essentially "lost to history." I've attempted to present a more accurate narrative in various posts:
The Forgotten History of the 1970s
Here is a photo of Kaw Point in Kansas City, where the Kansas River flows into the Missouri River in the early 1970s. That's a floating pig carcass in the foreground.
The 1970s: From Rotting Carcasses Floating in the River to Kayak Races
Here is Kaw Point in the present, hosting kayak races. Why don't we call the 1970s when this transformation occurred, at great expense, as "Morning in America"?
That Reagan's "Morning in America" thrived largely because American had managed to do all the necessary dirty work in the 1970s is also glossed over / mis-understood.
The other untold story of the 1970s was the emergence of resource constraints in the global economy. These constraints were eased by the exploitation of the last of the supergiant oil fields discovered in the 1960s, in Alaska, the North Sea and West Africa.
Despite all the hoopla of "drill, baby, drill" and untapped oil fields off the coast of California, the reality is these remaining fields are not equivalent to the supergiant fields brought online in the 1970s that are now largely depleted.
What we discern in this brief overview is the rise of enthusiastic euphoria for a New Era before it makes contact with history: a return to the "values that made this country great," and the connection between this euphoria / hope and the realities of resource availability, cost and distribution: how much resources cost to extract, process and transport, and who can afford the lion's share of the goodies.
As Mises pointed out, extremes of credit expansion and low interest rates inflate booms that crash into busts. We are in the tail end of such a boom, in the waning moments before it collapses in a bust, which as Mises observed, is inevitable.
In a similar vein, the modern-day equivalent of shoeshine boys are touting cryptocurrencies and options schemes, already counting the fortunes they'll mint riding the wave of global liquidity, i.e. extremes of credit and monetary expansion.
I often evoke two metaphors for cycles and waves: the pendulum and the keystone. The pendulum swings from extreme to extreme, with the force diminishing due to friction unless energy is applied. We are now at an extreme, in the brief pause when the pendulum seems to hang suspended in time and space before it begins to accelerate toward the other extreme.
Many in the euphoric "Morning in America" camp see the pendulum moving to Super-Abundance and a "New Roaring 20s."
This is where the keystone analogy become actionable, at least to those listening to the shoeshine boys' enthusiasm for stock tips in the summer of 1929.
The economy has a number of keystones, as does society. If the keystones holding up key structures are crumbling, Morning in America will darken very quickly into Moonless Night.
In the 1960s, economic prosperity and a youthful demographic unleashed cultural changes.
As global population and consumption soared, resource constraints emerged in the 1970s. These demanded the exploitation of new resources and a reckoning with the forces of easy money--low interest rates, expanding credit and fiscal deficits funded by borrowing.
We see the potential parallel in the present-day movement to reshore industrial production with the massive retooling of industrial capacity and clean-up of environmental damage in the 1970s. But what's missing in many of these hopeful projections is a realistic appraisal of where we are in the credit cycle/wave and in the availability of the resources needed to support reshoring and Super-Abundance.
However you wish to describe it, we're at the extreme of the pendulum of credit expanding to paper over all the other distortions in the economy. The Grand Super-Cycle of Debt is one description. It doesn't matter what we call it, or if we deny it, or click "like" on the rosy projections. The keystone of cheap credit is crumbling, regardless of who thinks they've won the debate.
High interest rates and tight credit in the 1970s laid the foundation for the low rates and easy credit of the 1990s to 2022. Now the easy credit and low rates have laid the foundation for the pendulum to swing back to high rates of interest and scarce credit.
Pundits who earn their living by promoting euphoric claims about the future paint a rosy picture, and no wonder: this is how they make their living.
Engineers in the field, tasked not with painting rosy pictures but with the dirty work of moving mountains of earth to recover a few pounds of precious minerals, tend not to issue euphoric projections, as they have to deal with the dirty real-world problems AI can't solve: the permafrost is melting beneath the heavy equipment needed to "drill baby drill" in the Arctic, and the earth-movers the size of multi-story buildings still running on diesel, not nuclear energy and batteries, both of which require countless mountains of earth to be shredded to recover the relative handful of minerals needed to fabricate the reactors, uranium fuel and complex batteries made of rare minerals.
And so Chile has projected a peak in the nation's copper production in 2027, two years hence, and a substantial cut in projected production before the peak. This is the real world. We can deny it, and "heart" Super-Abundance, but that won't change the realities that set the course of events.
In summary, the foundations needed to enable "Morning in America," "The new Roaring 20s," and Super-Abundance are simply no longer in place. They're already at the other end of the pendulum, poised to reverse from boom to bust. The keystone of cheap, fast-expanding credit is crumbling.
Is there an actionable forecast of the next decade based in history? I conclude "yes." Listen to today's shoeshine boys, ponder the cycles and waves, the pendulums and keystones, and they will provide actionable lessons--not perfect or complete projections, of course, but an organized lesson plan nonetheless.
Did it matter whether the wealthy fellow decided to sell in August, or September, or in the first days of October 1929? Not really. What mattered was that he sold before it was too late to make a difference when it was easy to do, too late to sell.
Highlights of the Blog
The Power of Our Behavior 1/23/25
The Do-It-Yourself Decade 1/22/25
Extremes Become More Extreme, Then Revert to the Mean 1/20/25
Podcast:
KunstlerCast417: Charles Hugh Smith, Progress and Anti-Progress (1 hour)
Best Thing That Happened To Me This Week
Made progress on my strengthening-this-old-house project. These plywood shear panels in the carport provide resistance to torsion in high winds and help tie the entire structure together to distribute loads more evenly, reducing the risks of one set of connections failing and the roof being torn off.
This post at the entry was held down only by gravity--not enough in hurricane-force winds. This anchor ties the post to the concrete foundation. A metal strap hidden behind the 1X3 trim board ties the roof framing to the foundation, distributing the wind forces that could rip the roof off to the foundation.
There is much more to do but progress is only made one step at a time.
What's on the Book Shelf
Freethinking: Protecting Freedom of Thought Amidst the New Battle for the Mind by Simon McCarthy-Jones (via Tina C.)
From Left Field
NOTE TO NEW READERS: This list is not comprised of articles I agree with or that I judge to be correct or of the highest quality. It is representative of the content I find interesting as reflections of the current zeitgeist. The list is intended to be perused with an open, critical, occasionally amused mind.
Many links are behind paywalls. Most paywalled sites allow a few free articles per month if you register. It's the New Normal.
High-class escort spills the beans on what happens behind closed doors - and how wealthy 'know the world is doomed, so may as well go out with a bang' --UK tabloid, juicy....
‘The reign of terror is over’: my weird weekend partying with the triumphant tech right. --- Camelot all over again?....
‘I have no neighbors’: over-tourism pushes residents in Spain and Portugal to the limit.
‘The nice version of her was manufactured for YouTube’: my mum, the family vlogger who became a child abuser. -- the problem with selfies and avatars--they're fake....
How Much Of The World's Plastic Waste Actually Gets Recycled? --very little....
Japan’s elderly are lonely and struggling. Some women choose to go to jail instead. --woah... is this where demographics are taking us?...
Voters who backed Trump identify new swamp to drain: corporate power. --finally identifying the real enemy....
Can’t Afford a House? Just Build One in the Backyard. --also not cheap...
A sprawling megacity of multi-level madness: why Chongqing in China is my wonder of the world. --he forgot to mention this a "Furnace city"....
High fertilizer use halves numbers of pollinators, world’s longest study finds.
A.I. Will Empower Humanity-- Reid Hoffman makes the case for the Happy Story of AI... --his zillion options that could become billions of bucks might influence his vision...
Stray Dog/High and Low review – Kurosawa lifts crime drama to astonishing new peaks. -- in glorious black and white...
"When two people are at one in their inmost hearts, they shatter even the strength of iron or of bronze." Fu Xi
Thanks for reading--
charles |
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