Wednesday, September 1, 2010

Anniversary of start of WW II, Capital as Mass and Energy

The parallels between the Great Depression and the current economic downturn are striking and it makes me wonder if the history that followed 1929 will repeat itself in some general way. Will something like the Iranians sneaking a nuke by boat into Long Beach Harbor and detonating it start the next World War, all driven by the international economic disaster? Who knows. And what about Obama's Economic Recovery Act? Does it have parallels with the New Deal which conservatives argue didn't really help the recovery after the Great Depression as much as the spending to fight the war that followed, beginning 71 years ago today?

In fact the economic sanctions levied on the Germans by agreement in 1918 to deny them, in theory, the power to wage war again, did help extremism in Germany and the rise of Hitler with German rearmament did hasten the arrival of WW II after the world wide depression of 1929. It was what we would regard as Conservative economics, unregulated markets and government deregulation in 1920 that led to the collapse of 1929 and the resulting calamity.

The parallels do not go too far. Truman was wise enough to build up Europe after WW II via the Marshall Plan, including Germany, to not only prevent the advance of Communism from the Soviet Union, but also to prevent the sowing of dragon's teeth through economic neglect. It can be argued that the US involvement in Iraq and Afghanistan is there to counter the economic discontent that fuels the appeal of the Taliban and other Islamic extremists. But it can also be argued that this support is futile as long as the US is a major player in a world economic system that disadvantages much of the Third World, as for example the civil war all but in name that is occurring right at our border with Mexico that has the same kind of causes as the hot war we are involved with in the Middle East: economic collapse of the national economy and government corruption. The intrusion of Mexico into our domestic sphere as illegal immigration and now a drug cartel war is a direct result of global economics acting conservatively on Mexico's economic problems.

Capital as Mass and Energy

There is a parallel between physics and the correct nature of capital. It contradicts the Conservative urge to preserve wealth as tangible assets; the rush to hard commodities in economic uncertainty, or stuff your gold under the mattress. It is why the knee-jerk fiscal tightening of many world-wide legislative bodies is as we speak leading to a double-dip recession if not a depression in parallel with 1931, and sowing the seeds for empowering dictatorships that already exist or will come to power in the near future.

The connection is that like matter and energy in physics, which become interchangeable as you increase the temperature or increase the velocity, capital increases in value once it is on the move and decays in value when it comes to rest. What is more caches of it decay in value as they rest in the hands of hoarders or the wealthy when they do not reinvest wisely to use the momentum of money in motion. It can be argued that this is the main reason for the loss in confidence in the economy today; that investors were given lots of power by the economic and political system set up by the arrival of Ronald Regan to power in 1980 to concentrate wealth into the hands of fewer and fewer people and that they could not reinvest it wisely. The actual efficient use of money you get goes down naturally if more and more of it is beyond the level of need you have to use it, so wealthy investors are like chum to sharks, the con-men in increasingly unregulated equity markets can make wealthy investors take on risk in a way that people who have to account more for what their assets do for them do not. The deregulation of the banks and the markets lead to exploitation of the unwary, of risky borrowers, and of the wealthy backers that don't bother to find the risk or whom slick brokers hide it from.

The credit crunch of 2008 is like all this mass and energy slamming to rest and the capital decaying away. It refutes the scientific basis of economics, even as the loss of assets may or may not get accounted, the decay of assets caused by loss of confidence is intangible and caused by people who are NOT fully rational, so in1932 Franklin D. Roosevelt could say: “The only thing  we have to fear is... fear, itself” as we now face “fear, itself” yet once again, and is a psychological crisis, not fully described by a ledger sheet of assets, nor to be described by something like mismanagement of a currency or a dissertation on the price of Gold, for instance.

The Conservative mistake reduces down to a self-absorption and retreat into a delusion of self-preservation and greed. Its antidote is to realize that all people are interdependent and that what a heroine poppy grower does in Afghanistan does have a local impact which a law-and-order stance cannot prevent. That ignoring the myths invented in a far off place results in more immediate impact because of the Globalism so many thought would make them wealthy. Osama bin Laden could have been radicalized by his encounter with the world economic order of 1995. Something has to explain why a man who came from a wealthy family in construction in Saudi Arabia would plot to crash jets into the World Trade Center and run and hide in  a cave in Tora Bora as a result. It may be misguided at least, but all bad men have the germ of truth in their erroneous logic of response to events. Many people who crave power and influence got laid low in the end by ignoring this, and they cause the death of countless innocents and not-so-innocents in their wake.