Leverage Points for Positive Change   (October 17, 2008)

The end of a tumultous week in which our contrarian theme was "the positives" seems like the right time to address some key leverage points of change.

(Cue the shameless self-promotion spot . . . and . . . go!)

In my new little book Weblogs & New Media: Marketing in Crisis I list three sources of leverage in any system:

1. Add an information feedback loop

2. Change a goal

3. The most powerful leverage point, and the one most culturally and institutionally resistant to change, is a paradigm or worldview (weltanschauung).

We are all part of macro information feedback loops. Every time you buy something, you are providing feedback to the seller. Not buying something is also a form of feedback: it's too costly, the marketing didn't convince you of its value, etc.

An election is also a feedback loop. By voting, and then by voting for one candidate over another, we provide inputs which feed back into our lives via "the same old incumbents won" or a "new face is in charge."

Unfortunately, the global economy is now entering a complex self-reinforcing feedback loop in which reduced borrowing leads to reduced spending by consumers and businesses which reduces sales and profits which then leads to job cuts which then further reduce consumer spending . . . .

Feedback loops come in two flavors: positive and negative:

Negative feedback loops tend to mitigate worst-case scenarios. I know this sounds like a contradiction, but "positive feedback" is when a trend is self-reinforcing: Positive Feedback.

The effect of a positive feedback loop is not necessarily "positive" in the sense of being desirable. The name refers to the nature of change rather than the desirability of the outcome. The negative feedback loop tends to slow down a process, while the positive feedback loop tends to speed it up.

Embedded in a system of feedback loops, a positive feedback does not necessarily imply a runaway process. Combined with other processes, it may just have an amplifying effect.

One common example of positive feedback is the network effect, where more people are encouraged to join a network the larger that network becomes. The result is that the network grows more and more quickly over time.

Self-reinforcing systems can lead to "runaway" meltdowns, for instance, a global financial system based on borrowing and opaque derivatives in which borrowing gets more costly which created more fear which drives costs higher, and so on until the unstable system freezes or blows up.

Negative feedback on the other hand, provides inputs which counter the trend. For example, if food prices skyrocket, people start growing more of their own food, reducing demand for costly food and thus acting to lower the price.

New Media/the blogosphere is a new information feedback loop. Just a few short years ago, we had to depend on the canned/controlled/"manufactured consent" "news" provided by a oligopoly of Mainstream Media outlets. Now we can obtain a much broader, freer spectrum of analysis and opinion via the blogosphere.

This has helped create new levels of political feedback, as the massive grassroots campaign to stifle the Paulson-Buddies Bailout illustrated. (Most congressional offices confessed that email and phone calls were running about 200-to-1 against the bailout. Our Fearless Leaders chose to ignore our views, and so please don't forget to provide some meaningful feedback to them via a vote for their opponent in whatever party strikes your fancy. I would recommend the Green Party Candidate on general principle.)

A growing number of citizens are waking up to the positive aspects of choosing a new goal--sustainability, not just in energy but in food and water--what I call the FEW resources (food, energy, water). We might also add sustainability would be a new goal for our deranged financial system, as opposed to its current goal of exponential/infinite growth of money supply and debt.

Beyond changing goals lies the Big One: changing an entire worldview. Many have written about how "advanced" civilizations regardless of locale and time viewed their natural resources as infinite or exploitable without limit. In other cases, weather patterns changed and the reduction of rain and thus of food doomed the civilization which was "living beyond its means."

The era of cheap oil is over, and that requires a new worldview. Though conservation is certainly the easiest way to reduce energy consumption (that old fridge used a lot more electricity and yet it didn't keep your groceries any colder), some see a future with rising energy production--it just won't be from oil: Using the Internet's History to Develop Clean Energy's Future. (Scientific American)

Others see a time in which we finally face "The Limits of Growth": Cassandra's curse: how "The Limits to Growth" was demonized. (The Oil Drum: Europe).

Faced with this reality, a great ferment of alternative systems and ideas is bubbling away. The Oil Drum sites have a staggering array of thought-provoking ideas and data as well as sharp comments by readers. For everyone who believes that oil is set to plummet straight to $30/barrel, consider this from theoildrum.com:

Despite the dramatic drop in oil prices during the last three months, recent developments have only made the supply and demand situation worse. Oil consumption in the U.S. has fallen by 1.8 million barrels a day (b/d) or nearly 9 percent as compared to last year due to a combination of high prices, a slowing economy, and the shortages resulting from the hurricanes that tore up Gulf coast production and refining last month. During September, however, Chinese imports increased by 2 million b/d as Beijing took advantage of the low prices to start building its strategic reserves -so much for falling American demand. The major oil forecasting agencies are now saying that the increase in worldwide demand for oil will slow from rates seen in recent years, but that worldwide oil consumption is still forecast to increase this year and next.
So much for a "return to the good old days of cheap plentiful oil."

The site also hosts discussions of ideas such as A Long Term Solution to Our Financial Crisis: The Other Forms of Capital and Revisiting an April 2007 Forecast Regarding The Connection Between Peak Oil and the Collapse of the Monetary System among others.

Old ideas gain new purchase as the existing worldview's inadequacies shrivel in the harsh light of reality. Longtime correspondent/essayist Steven R. recently recommended two books, both of which can be read entirely online. Steve writes: "One is new, 2006, the other is from 1906. They are both timely in the extreme!"

As I think you and others have pointed out, the crises in which we are embroiled offer a once in a lifetime opportunity to perhaps finally get it right as a society. (emphasis added, CHS) Our eyes have been hurt wide open, our flight-or-fight awareness keened.

The books both deal with something that I think most of us have intuited at some point in our individual struggles for security--the paradox of want amidst plenty. Neither book makes wild speculation about a Utopia at hand but for some simple oversight. Both are pragmatic and unsparingly analytical.

The first The Natural Economic Order (out of print) by Silvio Gesell is a eloquent response to Marx and Prudhon. I suppose it could be summarized as a proposal to insure that money be made only as valuable as the goods for which it can be exchanged. This seems a modest proposal, and indeed most of the macro-economic and central bank monetary policy seems to have already been accepted in modern theory and practice.

It would be disingenuous of me to pretend that this book is not, in many ways, revolutionary. But the revolution is not what you might think. He is not advocating centrally planned economies or free market capitalism. His insight into the problem of price stability and fiat currency manipulation is an exponential leap in understanding the boom bust cycles that dog all economies whether metal or fiat based. He proves that it is the accumulation of currency for the purpose of collecting interest that creates supply imbalances that can only be worked through by generational currency collapses. You have to read it yourself. I am still too dumfounded by its genius to explain. Here is the link: appropriate-economics.org.

The other book I have not thoroughly read as yet. But, in its erudition and the thoroughness (Thoreauness?) of its research, it is reminiscent of Naomi Klien's The Shock Doctrine: The Rise of Disaster Capitalism (which I also recommend). This book also points a way out of the current crisis, but is more of a philosophical treatise. It is The Ascent of Humanity by Charles Eisenstien and can be purchased or read online here The Ascent of Humanity.

This book also speaks to that intuition within us that, the solutions to our current crises will involve, as with all crises from which we have emerged, the currency of cooperation.

I hope you will add these to your list if they are not already on it.

I have to add too, that as the TARP concept has been evolving, I has been less and less concerned about its details or what it means. I do not know whether it is because I see the ensuing decay as inevitable, beneficial or insignificant relative to other developments. In some ways I am amused and almost comforted by the fact that the Bush Administration has head to embrace socialist fixes for the crises. It means that the US has had to play the role of listener in the G7, G20, dialogue on the global crisis--it is about time. It also validates Naomi Klien's observations that Friedmanism always ends with nationalization. This justice, as in, as the US sows so shall we reap, is the final and best evidence that her thesis is correct.

The Web itself offers all three leverage points: new feedback loops, new goals and the enabling of new worldviews. For example, correspondent I.V. sent in a fascinating online game set in a complex, overlapping-crisis-plagued future:

You may find interesting this game that makes participants live in the future you predicted, too:

Join a Mass Experiment in Futurist Speculation with the Game "Superstruct".

In the context of "gee, isn't it amazing what gets posted on the Web" I hesitantly offer up an interview which correspondent/media maven Richard Metzger conducted with yours truly on the phenomenally popular BoingBoing: Of Two Minds: An Interview with Charles Hugh Smith.

Thank you, Richard, for the opportunity to spout off on my usual tangents, and thank you, Steve and I.V., for the book and game recommendations.

I am skeptical of many proposed whizbang technological solutions (Live to 200! Algae-powered vehicles for everyone!) for the simple reason that they introduce no new feedback loops, offer no new goals and are always designed for the world of today which they endeavor to extend rather than transform.

Reader Essays:

(all essays by Zeus Yiamouyiannis, Ph.D., copyright 2008)

Part I: A 70 Trillion Dollar Counterfeiting Ring
(Zeus Y., September 23, 2008)

According to several sources the market for so-called "credit default swaps" last year alone was nearly equal to the total global GDP, around 70 trillion dollars by some estimates. Yet these derivatives have no discernible "origin" or value.

Part II: How the Credit Default Swap Scam Works
(Zeus Y., October 13, 2008)
Instead of asking the obvious, complex, and obscuring question, "What value DO they have?”, one should ask the elegant and simple question, "What value COULD they have?" Even a cursory examination would seem to indicate that the answer is either zero or less-than-zero.

Part III: Credit Default Swaps Create Less-Than-Zero Value
(Zeus Y., October 13, 2008)
Now, how can a supposed "asset" like credit default swaps have a “less-than-zero” (negative) value. First, credit default swaps were insuring debt. Debt is not an asset as I explained in previous essays, but a liability. Mistake number one was to confuse asset and liability.

Part IV: There Is Ultimately No Gaming the System: When the Micro Crash Reflects the Macro Crash
(Zeus Y., September 29, 2008)
The proposed 700 billion dollar bailout cannot really “work” from a system level. I know it’s real intention is to cover the butts of Wall Street investors, but you have the same problem in macro that homeowners have in micro. Nobody knows what homes are worth right now, so buyers are sitting it out. It isn’t about restricted credit (even though that is a factor). It isn’t about being too cash strapped to make a down payment (though that too is a factor). It’s about not wanting to be suckered into buying something that may still be overpriced.

And for your listening pleasure/amusement: Patriot Express (in disguise) sings Sarah Palin, Queen of the Red party. The lyrics helpfully pop up for your reading pleasure.

"This guy is THE leading visionary on reality. He routinely discusses things which no one else has talked about, yet, turn out to be quite relevant months later."
--An anonymous comment about CHS posted on another blog.

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