Apr 30, 2011

Travis McGee, depressed

Meyer has just returned to Bahia Mar from a conference of economists. Travis welcomes him aboard the Busted Flush with bourbon and ice, one cube.


How did the conference go?  (McGee asks).


These are bad days for an economist, my friend. We have gone past the frontiers of theory. There is nothing left but one huge ugly fact."


Which is?


There is a debt of perhaps two trillion dollars out there, owed by governments to governments, by governments to banks, and there is not one chance in hell that it can ever be paid back. There is not enough productive capacity in the world, plus enough raw materials, to provide maintenance of plant plus enough overage even to keep up with the mounting interest.


What happens? It gets written off?


He looked at me with a pitying expression.  "All the world's major currencies will collapse. Trade will cease. Without trade, without the mechanical-scientific apparatus running, the planet won't support its four billion people, or perhaps even half that. Agribusiness feeds the world. Hydrocarbon utilization heats and houses and clothes the people. There will be fear, hate, anger, death. The new barbarism. There will be plague and poison. And then the new Dark Ages."


Should I pack? 


Go ahead. Scoff. What the sane people and sane governments are  trying to do is scuffle a little more breathing space,a little more time before the collapse.


---

Written in The Green Ripper, 1979,  the Meyer dirge requires appropriate  adjustment for inflation of the debt and of the number of people scrabbling for a mouthful of food and a tank of gasoline. It needs to be read with appropriate homage to the requirements of dramatic exposition in a work of fiction.

Further, his timing was off. Just after the passage above, Meyer predicts the fall will come by 1984, or 1991 at the latest. This puts him in respectable intellectual company. Orwell's own 1984 target date is delayed, not invalidated. The Erlichs notwithstanding, we had not copulated the race into mass starvation by the 1980s. John Galt still bides his time.

---

John D. McDonald  (MBA,  Harvard University, 1939) was a capitalist -- publisher, investor -- as well as a writer of novels. He paid close attention to money for the most common of reasons. He wished to earn some, and he wanted it  to be a reliable store of value, worth the same tomorrow as it is today.

Me too. You?











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2 comments:

Joel said...

Yeah, I've hung with economic doomsayers since at least the mid-seventies. The situation they said back then would bring economic collapse has gotten worse and worse, but the collapse never seems to come. So either a) they're completely wrong and the bureaucrats are right, or b) when the predicted collapse does come, it'll be something really amazing.

Honestly I no longer claim to know which is right, except that I've never met a bureaucrat who knew what he was doing or cared to tell the truth about it.

Peter G. said...

The first-order explanation is pretty simple-- right now, the world's major governments have, on average, borrowed money roughly equal to their annual gross domestic product, some tens of trillions of dollars overall.

Note that they have mostly just borrowed this money from each other plus their own and each other's citizens, since by definition there's nowhere else on Earth where so much money is available.

You wouldn't be far wrong imagining this as a situation where you and 30 friends (all with good jobs) had all loaned each other about as much money as you make in a year. There are two conclusions we can see in this analogy, both of which do apply to the reality as well:

First, even if these loans were suddenly repudiated for some stupid reason, there would be economic chaos but no reason for collapse. There would still be farms and factories and restaurants; everyone could keep working. There might still BE an economic collapse, just because chaos makes people do crazy things, but there wouldn't have to be.

Second, it's entirely possible to repay all of these loans over time if we stop borrowing and wasting. The US economy, like most of the large Western economies, is highly productive, producing net profits of ten or fifteen percent per year.

Note that "wasting" is the more important thing to stop. We could continue borrowing at the same rate if we were investing the money intelligently to improve the productive capacity of our economy. Indeed, given the low interest rates people ask for the money we borrow, we'd almost be crazy to stop taking it.

The root of the problem is that we borrow a lot of money that we spend on stuff that doesn't actually help us repay our loans in the long run. We spend it on ineffective social programs, military protection for other countries, bridges to nowhere, and so on. That's what needs to stop.

This is what I meant by "first-order" earlier: in a stable economy, each year's net productivity is either consumed or invested. If it's invested, we can produce more the next year. The US economy appears to be consuming more than it produces, but the borrowing appears to let us make significant investments anyway.

The devil's in the details, of course, but our elected officials ought to be correct to a first order before they start fiddling with second-order details. I actually have no idea how far we need to shift our spending patterns to correct the situation, but I'm pretty sure we're actually shifting the other way at the moment. That can't be good.

BTW, I've been a huge fan of John D. MacDonald ever since Spider Robinson told me what I was missing. I have as many of MacDonald's books as I've been able to find, not just the Travis McGee books but also the dozens of independent novels, mostly about life in the seedier parts of Florida, and the two books of science fiction. Great stuff. (It's a shame, though, that he made Meyer the type of economist who would think Keynes and Veblen were worth naming boats after.)

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