IN MY last article (1), I pointed out some ways in which governments’ reliance on ‘political decision making’ is both inadequate, and dangerous in a complex and highly interconnected world.
This time I’d like to explore how ‘political decision making’ has both created the current ‘financial crisis’ and simultaneously taken away much of the basis for a recovery.
As things become more complex, so more people take what they’re being told on trust. After all, they have no means of figuring out what’s going on.
Political decision making means to take decisions on the basis of some ‘least worst’ outcome between competing interest groups. This becomes dangerous particularly when making decisions in which some element is not represented by anyone (e.g. the climate). Political tendencies have been to ignore independent scientific advice and studies in favour of information from one or more of the parties to a project – ie. People with conflicts of interest. I argue that those tendencies expose us all to severe threats.
The tendency of high level decision makers to make key decisions in areas in which they have no expertise has been well researched and management practicioners understand that decision makers need to delegate decisions to those most qualified to take them. While this is fairly obvious, it has not prevented our politicians from intervening in decisions rather than working with populations to produce better outcomes.
The result has included demotivating others in social decision making, entrenching division into our societies (e.g. Green vs Development); picking winners (e.g. forestry, coal and fossil fuels) and thereby creating ‘losers’ (e.g. agriculture, solar and wind power); coupled with a crippling balance of trade deficit as we drive competitive companies overseas, e.g. by favouring overseas companies with generous tax breaks that are subsidised by Australians. The decisions taken have included attacking distant countries with no relationship to Australia (e.g. Iraq, Afghanistan), destruction of catchments (e.g. MDB), climate policies that are not informed by independent science (e.g. emissions trading).
Errors made include:
1. Failing to value essential products and services
2. Imagining that financial bubbles represent real value and growth
Failing to value essential products and services
This error combines the fantasy that economic indicators are the best, or only, indicators of real value, and a failure to understand how our society is built and operates.
This mistake was epitomised when John Howard played down the importance of agriculture by saying that ‘it only represented 3% of the economy’.
While that percentage may be correct, without food we would have no economy whatsoever consequently although perhaps marginal to Howard’s idea of the economy, it is central to our lives.
Other essentials such as water represent an even smaller fraction of the economy, while oxygen, the most critical of our needs, is worth absolutely nothing to the economy.
Failing to value those aspects of our world that are fundamentally responsible for our existence (e.g. air, water, food, energy, heath/medicine, shelter, transportation etc) represents a huge mistake because it distorts priorities away from essentials and allows our focus to drift onto ‘nice to haves’ instead. The risk is that the important things will disappear or degrade.
One simple case is the priority, subsidies and favours that governments have given to forestry that has provided that industry with unbeatable advantages over agriculture. Favours to forestry include exemptions from many of the laws that apply to agriculture, special tax subsidies to help them acquire land, no charge for water used by tree plantations and so on.
Such actions have helped forestry to gain control of large areas of arable land that was previously available for food production, and to deplete water catchments that otherwise might provide water for irrigating food crops.
While apologists for forestry will naturally want these favours to continue, two global maps (2) demonstrate why allowing our focus to drift away from food production is probably a huge mistake.
The first shows the value of their agricultural output in US dollars at 2006
The second shows areas of drought that are currently impeding food production.
Two thirds of the world’s agricultural production is threatened by drought which is affecting 41% of Australia’s agriculture production as it experiences the worst drought in 117 years of keeping records.
Given the productive losses and the primacy of food in our lives, shifting attention away from food and placing it on trees could be disastrous.
Another result of the drift in focus from essentials is to devalue the activities of those who are productive and who create the possibility for us all to live.
A recent example is the Victorian government’s reliance on a judicial Commission to report on matters of dealing with fire and related disasters. The implication is that firefighters, burns specialists, house designers and military communications experts are not reliable – instead we want lawyers and people in wigs to tell us what to do. Such approaches alienate the very people whose help we need in such emergencies – instead their experience and skill is sidelined from being decision makers (which they must be during emergencies) into mere witnesses.
This same attitude has seen doctors, nurses, tradespeople, food farmers and other essential front line workers diminished in various ways. Tennis players, golfers and media ‘celebrities’ are all paid significantly more than productive workers so that more and more of our young are focussing on ‘service’ professions like accounting, law and journalism rather than learning how to produce the items essential to our social and economic health.
We are now short of front line medical staff and tradespeople while food farmers are giving up and walking away from their properties.
Imagining that bubbles represent growth
As stated above, political parties, politicians and governments have focussed on economic results to build their policies and set their priorities. While superficially important, the descriptions of our ‘economy’ leave out of consideration (externalities), or minimise the importance of, essential resources and activities that make the economy possible in the first place.
Some of the essentials are impossible to value, simply because they are essential (e.g. oxygen). To see why, try to work out the value of your brain for example.
Economic results represent the measures of selected ‘indicators’ of economic activity, such as GDP. These indicators often fail to provide enough detail to allow rational policy making as well as ignoring the essential underpinnings of the economy. The Greens have been making this very point about the environment for many years – no environment – no economy.
The problems accelerate when ‘economic’ activities appear to deliver good economic results, but actually are representative of a meaningless increase in ‘value’ such as occurred when US investment bankers created a huge range of financial derivatives based on debt (e.g. CDOs). As these relatively worthless pieces of paper were created and changed hands, so economic outcomes were ‘seen’ to increase – a classic bubble in the making (3).
As the bubble inflated, so governments persuaded themselves that they were wealthier, that the citizens and businesses were better off. What was really happening was that everyone was being mired in debt that they can never repay. The economic growth recorded was a fantasy but governments still issued new money as if the growth was real, thereby effectively devaluing their currencies.
Governments thus came to believe that the ‘magic pudding’ created by financiers was real, and they started to attend to the ‘needs’ of those financiers to help them make more ‘wealth’. The bubble economy started to shoulder out the real economy – in terms of reported ‘wealth’ and in terms of political priorities.
Of course politicians, whose main skill is manipulating people to believe them, didn’t have a clue what was really going on – after all it’s never in the interests of those making huge money for nothing to reveal their methods (4).
The result was politicians listening to investment bankers instead of listening to people and industries engaged in productive activity. This is, at least in part, an explanation of why our governments have been so relaxed about our loss of productive capacity and our ability to meet our own needs.
There have thus developed 2 distinct schools of thought – one still believing in the idea that economic results transcend all other factors, the other rooted in practical reality that provides real world information that we’re in serious trouble.
Times Online (5) put it this way….
“There are those who perceive that the events since the credit crunch erupted in the autumn of 2007 have radically changed the economic and financial landscape in a way that rules out a return to the previous order. And there are those who believe that, simply by pulling the tried and tested levers of policy, revival will follow recession just as readily as in the downturns of the Eighties and Nineties. As the crisis has progressed, and grown relentlessly more ferocious and intractable, there has been a reluctant but steady shift from the latter camp to the former as the harsh realities have become increasingly undeniable.“
The situation is made more problematic because our governments aren’t listening to the people. According to GetUp, 86% of Australians don’t believe policy is made according to their needs and interests.
Why don’t people rise up? Why don’t they protest?
Probably because people are carrying so much debt that they are afraid. They are in ‘debt bondage’. Here’s previous US Fed Chairman Greenspan on the issue…
As Mr. Greenspan observed in testimony before Congress, a major reason why US wages have not risen is that workers are afraid to strike or even to complain about being worked harder and harder for longer and longer hours (“raising productivity”), because they are one paycheck away from missing their mortgage payment – or, if renters, one paycheck or two away from homelessness (6).
So we have government and political classes who have come to believe in the primacy of economic ‘results’, a people hunched under an affordable level of debt, and large corporations with special tax breaks and favours that effectively raise them above everyone else.
Many of the politicians are also complicit in supporting the financial bubble that is now shattering so many peoples’ lives and savings and are highly defensive as a consequence.
It is the loss of our productive capacities that will make recovery from our ‘financial crisis’ much more problematic.
Because governments have made us almost totally reliant upon other countries for many critical supplies, our ability to pay for such supplies will be in question if our currency collapses due to our high levels of debt.
With our political classes insisting that they must make all key decisions, coupled with their isolation from the real world, it’s very hard to see how they can turn the situation around.
Rudd’s handouts have been something of a shotgun approach and whether the state governments can deliver any, or all, of the supposed benefits is under real question.
Also unknown is whether borrowing from the future to spend money now is an effective way to deal with a crisis that appears to be due to our love affair with debt.
Because of the unreliability of governments, coupled with their evident disinterest in the real welfare of the people, you might want to consider personal strategies to deal with any oncoming recession, climate crisis or other matter that might affect you and your family.
Some possible personal strategies
1. Be aware. Check up on what’s really happening around you and build your ideas on evidence that you can believe. Note those who would mislead you. Use independent sources of news where possible.
2. Eliminate debt. Getting out of debt is an important survival strategy, both to avoid useless interest payments and to avoid the owners of the debt ‘foreclosing’ on you.
3. Get fit. You just cannot tell what’s going to happen and the ability to stay out of hospital and remain mobile could become important.
4. Find alternatives sources of essentials. Governments control essentials like water but are showing that they cannot be trusted. Grow your own food, set up trade co-ops, learn new survival skills, stay under the radar and prepare to protect yourselves. There’s a very strong possibility that governments won’t be able to help you.
5. Get vital imports. If you need imported products, try to buy them while the dollar is strong, and while they’re still available. Expect serious supply chain disruptions as companies around the world go broke in this crisis.
6. Stock up. If you have the space and finance, it does no harm to be ready to stock up on essential items, such as pulses, grains, medicaments and so on.
7. Be independent. Don’t trust governments or politicians. They have shown themselves to be unreliable and uncaring of the needs of Australians. Try to look after your own needs wherever possible. It could be useful to avoid attracting the attentions of government at all – they’re going to want to make up their lost money to keep their benefits so they’ll be looking for any excuse to forcibly relieve us of our cash.
8. Attend to your security. Recessionary conditions can create many desperate people. Consider your situation carefully and secure valuables and essentials in the best way that you can. If you’re investing in tradeables (see 9) make sure that you can secure them.
9. Consider tradeables. If our currency comes under threat, or if government solves our problem by printing money and inflation takes off, your dollar savings could collapse in value. Unless you’re a skilled trader, shares are risky with the market still being very uncertain. Consider acquiring tradable items like bullion, bullets or medicines, just in case you are better off trading such items than using money.
Watch this space
Mike is a complex systems consultant, change facilitator and executive and management coach.
Reprinted from an article in A Better Australia’s newsletter
Download this article as doc: No_back_to_normal.doc
One simple case is the priority, subsidies and favours that governments have given to forestry that has provided that industry with unbeatable advantages over agriculture. Favours to forestry include exemptions from many of the laws that apply to agriculture, special tax subsidies to help them acquire land, no charge for water used by tree plantations and so on. Such actions have helped forestry to gain control of large areas of arable land that was previously available for food production, and to deplete water catchments that otherwise might provide water for irrigating food crops. While apologists for forestry will naturally want these favours to continue, two global maps (2) demonstrate why allowing our focus to drift away from food production is probably a huge mistake.