Thursday, November 24, 2011

Tainter's Collapse: Currency Version

I saw an interesting (partial) review of James Rickard's  Currency Wars: The Making of the Next Global Crisis  at Marginal Revolution; from which I lifted this excerpt:
In sum, Chaisson shows how highly complex systems such as civilizations require exponentially greater energy inputs to grow, while Tainter shows how those civilizations come to produce negative outputs in exchange for the inputs and eventually collapse. Money serves as an input-output measure applicable to a Chaisson model because it is a form of stored energy. Capital and currency markets are powerful complex systems nested within the larger Tainter model of civilization. As society becomes more complex, it requires exponentially greater amounts of money for support. At some point productivity and taxation can no longer sustain society, and elites attempt to cheat the input process with credit, leverage, debasement and other forms of pseudomoney that facilitate rent seeking over production. These methods work for a brief period before the illusion of debt-fueled pseudogrowth is overtaken by the reality of lost wealth amid growing income inequality.

I think Chaisson refers to the expansionary evolving civilization prognosticator, Eric Chaisson (example of his work), of whom I am not particularly familiar.

Tainter, is of course, Joseph Tainter writer of The Collapse of Complex Societies, every doomer's (except mine) favorite collapse author.

Any book with an economic slant that mentions Tainter would definitely get my attention.  When I read the kindle excerpt he was discussing wargaming out various future scenarios with a variety of other expert types of in a semi-official capacity.  So of course I was hooked.  As James Turk at Kitco Commentator's Corner noted:

The book is split into three parts, with the first part being almost surreal because it reads more like a novel than non-fiction. It details Rickards’ participation in an exercise at the Warfare Analysis Laboratory near Washington D.C. This group is one of the Defense Department’s leading venues for war games and strategic planning, but in a first-ever event, the game in which Rickards joined was not a war-fighting simulation. Rather, several dozen people from the military, academic and intelligence communities fought a global financial war using currencies and capital markets to support national interests. Rickard and two colleagues were invited to give the simulation some real-world, Wall Street expertise about markets, which they certainly did. 
Note that the book has already start a Twitter War between Rickard's and Nouriel Roubini.  Roubini seems to have lost:  mostly because he is a jerk.  For the record,  the idea that Gold was the key factor in the bubble collapse is a bit suspect.  The announcer talking about the credit bubble of World War 1, the consumption lending  bubble of the 1920s gives much better core reasons.  Combined with manufacturing productivity advances to help keep consumer (versus asset) inflation low, and you complete the necessary ingredients.  Ingredients which were present in much of our own fiasco:  replace WW1 with Vietnam, and productivity with the Chinese Entry into the free trade economy.  I am not a Gold Bug only because I don't think it works:  but I also don't think anything works all the time as a currency, so I don't think the Gold Bugs are any more wrong than the monaterists.

I am not sure if I will get to the book right away though.  I am slowly going through China Tidal Wave: A Novel a very interesting collapse novel written from a Chinese perspective: but not a fast read.  Early in the going there is an environmentalist who espouses focusing society on beauty rather than material- as their is no upper limit to beauty.  I am not sure yet if he is a good guy or bad guy though.

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