Shamelessly stolen from sage commentator "Numerian" over at The Agonist...posted in response to the question "where's the outrage" among the US public over, oh, the greatest environmental disaster in US history, and the public's blase response. Nicely done, fellow.
It all began in 1980
Or right around then, with the election of Ronald Reagan and the opportunity for right-wing extremists to begin reshaping society. Undoing this work will take ten years or more, and that is if society has a brutal awakening regarding what has happened. That is by no means a sure thing considering what was done. Here is a list of "20 Theses" showing what the right wing has wrought, and how difficult it will be to undo all this:
1) The elevation of the corporation as the supreme social structure in society, superior to the political process, and in possession of rights normally restricted to the people.
2) The creation of an oligarchical command structure consisting of prominent and wealthy businessmen, politicians, media figures, military leaders, intellectual and other consultants, and religious entertainers, who can use political, economic and social power to advance their personal interests over those of society.
3) The abolishment of the death tax as society's best and last means of preventing dynastic wealth, and the use of nepotism to advance the careers of the children of oligarchical figures.
4) The development of crony capitalism, whereby the oligarchy can exert its corporate power to protect their personal wealth.
5) The glorification of the markets and mercantile capitalism as a means of allocating society's wealth and resolving social problems, along with data mining and equity extraction as tools to collect rents from the markets for the benefit of the oligarchical class.
6) The rise of the cult of the individual, and the use of personal wealth and conspicuous consumption as a measure of individual merit.
7) The identification of poverty and want as personal failures.
8) The identification of the government as a source of problems, rather than as a protector of the needy and regulator of the powerful.
9) The embrace of globalization as a way to open vast new consumer markets to corporations, despite the cost in living standards to the average individual in developed economies.
10) The discovery of debt as a means of ensuring economic growth and masking the deterioration in living standards of the people.
11) The suborning of the media by placing them under the control of large corporate and oligarchical powers.
12) The use of the big lie and hypocrisy as tools to achieve and wield political or economic power.
13) The marginalization of the voting process through gerrymandering of Congressional districts, the use of opaque computer vote-counting techniques, the emphasis on candidate personalities rather than issues, and the dramatic escalation of campaign costs so that only corporate-sponsored candidates may compete.
14) The establishment of "enemies within" - liberals, minorities, women, gays, immigrants and others - to replace the external enemy of Communism as a vote-getting device, at least until a new external enemy arose in the form of Islamic extremism.
15) The abandonment of historic civil rights, such as habeas corpus, protections against illegal searches, or torture, all in the name of providing "security", as well as the relegation of the Constitution to the status of "a piece of paper", and the rule of law as an outmoded legal construct.
16) The elimination of the draft, and the use of mercenaries, to allow for the pursuit of war without inconvenience to the people at large, and for the creation of a military empire abroad.
17) The use of patriotism to prevent any questioning of military actions, and the introduction of military techniques on domestic soil, including the creation of a surveillance state.
18) The attack on science and rationality, in pursuit of religious and political agendas.
19) The development of a celebrity culture as a means of distracting the people from real social problems.
20) The hijacking of religion to advance the interests of the powerful and wealthy, including use of the "prosperity gospel" to promote mercantile capitalism, and social markers such as abortion and gay marriage to obtain votes from religious sects.
Sunday, May 30, 2010
Monday, May 17, 2010
Oil Spill In The Gulf: Chris Hedges
Well, it could be the greatest environmental disaster in the history of humans...but even if it's not, it's still worth getting some perspective from Chris Hedges. If you haven't read War is a Force That Gives Us Meaning, you're missing out. Well, here's his latest, quoted in full:
BP and the ‘Little Eichmanns’
http://www.truthdig.com/report/item/bp_and_the_little_eichmanns_20100517/
Posted on May 17, 2010
By Chris Hedges
Cultures that do not recognize that human life and the natural world have a sacred dimension, an intrinsic value beyond monetary value, cannibalize themselves until they die. They ruthlessly exploit the natural world and the members of their society in the name of progress until exhaustion or collapse, blind to the fury of their own self-destruction. The oil pouring into the Gulf of Mexico, estimated to be perhaps as much as 100,000 barrels a day, is part of our foolish death march. It is one more blow delivered by the corporate state, the trade of life for gold. But this time collapse, when it comes, will not be confined to the geography of a decayed civilization. It will be global.
Those who carry out this global genocide—men like BP’s Chief Executive Tony Hayward, who assures us that “The Gulf of Mexico is a very big ocean. The amount of oil and dispersant we are putting into it is tiny in relation to the total water volume’’—are, to steal a line from Ward Churchill, “little Eichmanns.” They serve Thanatos, the forces of death, the dark instinct Sigmund Freud identified within human beings that propels us to annihilate all living things, including ourselves. These deformed individuals lack the capacity for empathy. They are at once banal and dangerous. They possess the peculiar ability to organize vast, destructive bureaucracies and yet remain blind to the ramifications. The death they dispense, whether in the pollutants and carcinogens that have made cancer an epidemic, the dead zone rapidly being created in the Gulf of Mexico, the melting polar ice caps or the deaths last year of 45,000 Americans who could not afford proper medical care, is part of the cold and rational exchange of life for money.
The corporations, and those who run them, consume, pollute, oppress and kill. The little Eichmanns who manage them reside in a parallel universe of staggering wealth, luxury and splendid isolation that rivals that of the closed court of Versailles. The elite, sheltered and enriched, continue to prosper even as the rest of us and the natural world start to die. They are numb. They will drain the last drop of profit from us until there is nothing left. And our business schools and elite universities churn out tens of thousands of these deaf, dumb and blind systems managers who are endowed with sophisticated skills of management and the incapacity for common sense, compassion or remorse. These technocrats mistake the art of manipulation with knowledge.
“The longer one listened to him, the more obvious it became that his inability to speak was closely connected with an inability to think, namely, to think from the standpoint of somebody else,” Hannah Arendt wrote of “Eichmann in Jerusalem.” “No communication was possible with him, not because he lied but because he was surrounded by the most reliable of all safeguards against words and the presence of others, and hence against reality as such.”
Our ruling class of technocrats, as John Ralston Saul points out, is effectively illiterate. “One of the reasons that he is unable to recognize the necessary relationship between power and morality is that moral traditions are the product of civilization and he has little knowledge of his own civilization,” Saul writes of the technocrat. Saul calls these technocrats “hedonists of power,” and warns that their “obsession with structures and their inability or unwillingness to link these to the public good make this power an abstract force—a force that works, more often than not, at cross-purposes to the real needs of a painfully real world.”
BP, which made $6.1 billion in profits in the first quarter of this year, never obtained permits from the National Oceanic and Atmospheric Administration. The protection of the ecosystem did not matter. But BP is hardly alone. Drilling with utter disregard to the ecosystem is common practice among oil companies, according to a report in The New York Times. Our corporate state has gutted environmental regulation as tenaciously as it has gutted financial regulation and habeas corpus. Corporations make no distinction between our personal impoverishment and the impoverishment of the ecosystem that sustains the human species. And the abuse, of us and the natural world, is as rampant under Barack Obama as it was under George W. Bush. The branded figure who sits in the White House is a puppet, a face used to mask an insidious system under which we as citizens have been disempowered and under which we become, along with the natural world, collateral damage. As Karl Marx understood, unfettered capitalism is a revolutionary force. And this force is consuming us.
Karl Polanyi in his book “The Great Transformation,” written in 1944, laid out the devastating consequences—the depressions, wars and totalitarianism—that grow out of a so-called self-regulated free market. He grasped that “fascism, like socialism, was rooted in a market society that refused to function.” He warned that a financial system always devolved, without heavy government control, into a Mafia capitalism—and a Mafia political system—which is a good description of our corporate government. Polanyi warned that when nature and human beings are objects whose worth is determined by the market, then human beings and nature are destroyed. Speculative excesses and growing inequality, he wrote, always dynamite the foundation for a continued prosperity and ensure “the demolition of society.”
“In disposing of a man’s labor power the system would, incidentally, dispose of the physical, psychological, and moral entity ‘man’ attached to that tag,” Polanyi wrote. “Robbed of the protective covering of cultural institutions, human beings would perish from the effects of social exposure; they would die as victims of acute social dislocation through vice, perversion, crime, and starvation. Nature would be reduced to its elements, neighborhoods and landscapes defiled, rivers polluted, military safety jeopardized, the power to produce food and raw materials destroyed. Finally, the market administration of purchasing power would periodically liquidate business enterprise, for shortages and surfeits of money would prove as disastrous to business as floods and droughts in primitive society. Undoubtedly, labor, land, and money markets are essential to a market economy. But no society could stand the effects of such a system of crude fictions even for the shortest stretch of time unless its human and natural substance as well as its business organizations was protected against the ravages of this satanic mill.”
The corporate state is a runaway freight train. It shreds the Kyoto Accords in Copenhagen. It plunders the U.S. Treasury so speculators can continue to gamble with billions in taxpayer subsidies in our perverted system of casino capitalism. It disenfranchises our working class, decimates our manufacturing sector and denies us funds to sustain our infrastructure, our public schools and our social services. It poisons the planet. We are losing, every year across the globe, an area of farmland greater than Scotland to erosion and urban sprawl. There are an estimated 25,000 people who die every day somewhere in the world because of contaminated water. And some 20 million children are mentally impaired each year by malnourishment.
America is dying in the manner in which all imperial projects die. Joseph Tainter, in his book “The Collapse of Complex Societies,” argues that the costs of running and defending an empire eventually become so burdensome, and the elite becomes so calcified, that it becomes more efficient to dismantle the imperial superstructures and return to local forms of organization. At that point the great monuments to empire, from the Sumer and Mayan temples to the Roman bath complexes, are abandoned, fall into disuse and are overgrown. But this time around, Tainter warns, because we have nowhere left to migrate and expand, “world civilization will disintegrate as a whole.” This time around we will take the planet down with us.
“We in the lucky countries of the West now regard our two-century bubble of freedom and affluence as normal and inevitable; it has even been called the ‘end’ of history, in both a temporal and teleological sense,” writes Ronald Wright in “A Short History of Progress.” “Yet this new order is an anomaly: the opposite of what usually happens as civilizations grow. Our age was bankrolled by the seizing of half the planet, extended by taking over most of the remaining half, and has been sustained by spending down new forms of natural capital, especially fossil fuels. In the New World, the West hit the biggest bonanza of all time. And there won’t be another like it—not unless we find the civilized Martians of H.G. Wells, complete with the vulnerability to our germs that undid them in his War of the Worlds.”
The moral and physical contamination is matched by a cultural contamination. Our political and civil discourse has become gibberish. It is dominated by elaborate spectacles, celebrity gossip, the lies of advertising and scandal. The tawdry and the salacious occupy our time and energy. We do not see the walls falling around us. We invest our intellectual and emotional energy in the inane and the absurd, the empty amusements that preoccupy a degenerate culture, so that when the final collapse arrives we can be herded, uncomprehending and fearful, into the inferno.
BP and the ‘Little Eichmanns’
http://www.truthdig.com/report/item/bp_and_the_little_eichmanns_20100517/
Posted on May 17, 2010
By Chris Hedges
Cultures that do not recognize that human life and the natural world have a sacred dimension, an intrinsic value beyond monetary value, cannibalize themselves until they die. They ruthlessly exploit the natural world and the members of their society in the name of progress until exhaustion or collapse, blind to the fury of their own self-destruction. The oil pouring into the Gulf of Mexico, estimated to be perhaps as much as 100,000 barrels a day, is part of our foolish death march. It is one more blow delivered by the corporate state, the trade of life for gold. But this time collapse, when it comes, will not be confined to the geography of a decayed civilization. It will be global.
Those who carry out this global genocide—men like BP’s Chief Executive Tony Hayward, who assures us that “The Gulf of Mexico is a very big ocean. The amount of oil and dispersant we are putting into it is tiny in relation to the total water volume’’—are, to steal a line from Ward Churchill, “little Eichmanns.” They serve Thanatos, the forces of death, the dark instinct Sigmund Freud identified within human beings that propels us to annihilate all living things, including ourselves. These deformed individuals lack the capacity for empathy. They are at once banal and dangerous. They possess the peculiar ability to organize vast, destructive bureaucracies and yet remain blind to the ramifications. The death they dispense, whether in the pollutants and carcinogens that have made cancer an epidemic, the dead zone rapidly being created in the Gulf of Mexico, the melting polar ice caps or the deaths last year of 45,000 Americans who could not afford proper medical care, is part of the cold and rational exchange of life for money.
The corporations, and those who run them, consume, pollute, oppress and kill. The little Eichmanns who manage them reside in a parallel universe of staggering wealth, luxury and splendid isolation that rivals that of the closed court of Versailles. The elite, sheltered and enriched, continue to prosper even as the rest of us and the natural world start to die. They are numb. They will drain the last drop of profit from us until there is nothing left. And our business schools and elite universities churn out tens of thousands of these deaf, dumb and blind systems managers who are endowed with sophisticated skills of management and the incapacity for common sense, compassion or remorse. These technocrats mistake the art of manipulation with knowledge.
“The longer one listened to him, the more obvious it became that his inability to speak was closely connected with an inability to think, namely, to think from the standpoint of somebody else,” Hannah Arendt wrote of “Eichmann in Jerusalem.” “No communication was possible with him, not because he lied but because he was surrounded by the most reliable of all safeguards against words and the presence of others, and hence against reality as such.”
Our ruling class of technocrats, as John Ralston Saul points out, is effectively illiterate. “One of the reasons that he is unable to recognize the necessary relationship between power and morality is that moral traditions are the product of civilization and he has little knowledge of his own civilization,” Saul writes of the technocrat. Saul calls these technocrats “hedonists of power,” and warns that their “obsession with structures and their inability or unwillingness to link these to the public good make this power an abstract force—a force that works, more often than not, at cross-purposes to the real needs of a painfully real world.”
BP, which made $6.1 billion in profits in the first quarter of this year, never obtained permits from the National Oceanic and Atmospheric Administration. The protection of the ecosystem did not matter. But BP is hardly alone. Drilling with utter disregard to the ecosystem is common practice among oil companies, according to a report in The New York Times. Our corporate state has gutted environmental regulation as tenaciously as it has gutted financial regulation and habeas corpus. Corporations make no distinction between our personal impoverishment and the impoverishment of the ecosystem that sustains the human species. And the abuse, of us and the natural world, is as rampant under Barack Obama as it was under George W. Bush. The branded figure who sits in the White House is a puppet, a face used to mask an insidious system under which we as citizens have been disempowered and under which we become, along with the natural world, collateral damage. As Karl Marx understood, unfettered capitalism is a revolutionary force. And this force is consuming us.
Karl Polanyi in his book “The Great Transformation,” written in 1944, laid out the devastating consequences—the depressions, wars and totalitarianism—that grow out of a so-called self-regulated free market. He grasped that “fascism, like socialism, was rooted in a market society that refused to function.” He warned that a financial system always devolved, without heavy government control, into a Mafia capitalism—and a Mafia political system—which is a good description of our corporate government. Polanyi warned that when nature and human beings are objects whose worth is determined by the market, then human beings and nature are destroyed. Speculative excesses and growing inequality, he wrote, always dynamite the foundation for a continued prosperity and ensure “the demolition of society.”
“In disposing of a man’s labor power the system would, incidentally, dispose of the physical, psychological, and moral entity ‘man’ attached to that tag,” Polanyi wrote. “Robbed of the protective covering of cultural institutions, human beings would perish from the effects of social exposure; they would die as victims of acute social dislocation through vice, perversion, crime, and starvation. Nature would be reduced to its elements, neighborhoods and landscapes defiled, rivers polluted, military safety jeopardized, the power to produce food and raw materials destroyed. Finally, the market administration of purchasing power would periodically liquidate business enterprise, for shortages and surfeits of money would prove as disastrous to business as floods and droughts in primitive society. Undoubtedly, labor, land, and money markets are essential to a market economy. But no society could stand the effects of such a system of crude fictions even for the shortest stretch of time unless its human and natural substance as well as its business organizations was protected against the ravages of this satanic mill.”
The corporate state is a runaway freight train. It shreds the Kyoto Accords in Copenhagen. It plunders the U.S. Treasury so speculators can continue to gamble with billions in taxpayer subsidies in our perverted system of casino capitalism. It disenfranchises our working class, decimates our manufacturing sector and denies us funds to sustain our infrastructure, our public schools and our social services. It poisons the planet. We are losing, every year across the globe, an area of farmland greater than Scotland to erosion and urban sprawl. There are an estimated 25,000 people who die every day somewhere in the world because of contaminated water. And some 20 million children are mentally impaired each year by malnourishment.
America is dying in the manner in which all imperial projects die. Joseph Tainter, in his book “The Collapse of Complex Societies,” argues that the costs of running and defending an empire eventually become so burdensome, and the elite becomes so calcified, that it becomes more efficient to dismantle the imperial superstructures and return to local forms of organization. At that point the great monuments to empire, from the Sumer and Mayan temples to the Roman bath complexes, are abandoned, fall into disuse and are overgrown. But this time around, Tainter warns, because we have nowhere left to migrate and expand, “world civilization will disintegrate as a whole.” This time around we will take the planet down with us.
“We in the lucky countries of the West now regard our two-century bubble of freedom and affluence as normal and inevitable; it has even been called the ‘end’ of history, in both a temporal and teleological sense,” writes Ronald Wright in “A Short History of Progress.” “Yet this new order is an anomaly: the opposite of what usually happens as civilizations grow. Our age was bankrolled by the seizing of half the planet, extended by taking over most of the remaining half, and has been sustained by spending down new forms of natural capital, especially fossil fuels. In the New World, the West hit the biggest bonanza of all time. And there won’t be another like it—not unless we find the civilized Martians of H.G. Wells, complete with the vulnerability to our germs that undid them in his War of the Worlds.”
The moral and physical contamination is matched by a cultural contamination. Our political and civil discourse has become gibberish. It is dominated by elaborate spectacles, celebrity gossip, the lies of advertising and scandal. The tawdry and the salacious occupy our time and energy. We do not see the walls falling around us. We invest our intellectual and emotional energy in the inane and the absurd, the empty amusements that preoccupy a degenerate culture, so that when the final collapse arrives we can be herded, uncomprehending and fearful, into the inferno.
Thursday, May 13, 2010
Complexity and Sustainability: Joseph Tainter
This paper, quoted in its entirety, deserves a much larger audience. Too bad Chaos has been so lax lately, that readers have probably fled! Oh well...anyhow, here is the eminent authority of collapse, on sustainability:
Human Resource Use: Timing and Implications for Sustainability
Joseph A. Tainter
Department of Environment and Society, Utah State University, Logan, Utah 84322, U.S.A.
____________________________________________________________________________________________________
Few questions of history have been more enduring than how today’s complex societies evolved from the foraging bands of our ancestors. While this might seem of academic interest, it has important implications for anticipating our future. Our understanding of sustainability depends to a surprising degree on our understanding of the human past. My purposes today are to show that the conventional understandings of cultural evolution are untenable, as are assumptions about sustainability that follow from them, and to present a different approach to assessing our future.
Cultural complexity is deeply embedded in our contemporary self image. Colloquially it is known by the more common term “civilization,” which we believe our ancestors achieved through the phenomenon called “progress.” The concepts of civilization and progress have a status in the cosmology of industrial societies that amounts to what anthropologists call “ancestor myths.” Ancestor myths validate a contemporary social order by presenting it as a natural and sometimes heroic progression from earlier times.
Social scientists label this a “progressivist” view. It supposes that cultural complexity is intentional, that it emerged through the inventiveness of our ancestors. Progressivism is the dominant ideology of free-market societies. But inventiveness is not a sufficient explanation for cultural complexity, which requires facilitating circumstances. What were those circumstances? Prehistorians once thought they had the answer: The discovery of agriculture gave our ancestors surplus food and, concomitantly, free time to invent urbanism and the things that comprise “civilization”–cities, artisans, priesthoods, kings, aristocracies, and all of the other features of early states.
The progressivist view posits a specific relationship between resources and complexity. It is that complexity develops because it can, and that the factor facilitating this is surplus energy. Energy precedes complexity and allows it to emerge. There are, however, significant reasons to doubt whether surplus energy has actually driven much of cultural evolution.
One strand of thought that challenges progressivism emerged in the 18th and 19th centuries in the works of Wallace (1761), Malthus (1798), and Jevons. The economist Kenneth Boulding derived from Malthus’s essay on population three theorems: the Dismal Theorem, the Utterly Dismal Theorem, and the moderately cheerful form of the Dismal Theorem. The Utterly Dismal Theorem directly challenges the progressivist view:
Any technical improvement can only relieve misery for a while, for as long as misery is the only check on population, the improvement will enable population to grow, and will soon enable more people to live in misery than before. The final result of improvements, therefore, is to increase the equilibrium population, which is to increase the sum total of human misery (Boulding, 1959: vii [emphases in original]).
The implication of this strain of thought is that humans have rarely had surplus energy. Surpluses are quickly dissipated by growth in consumption. Since humans have rarely had surpluses, the availability of energy cannot be the primary driver of cultural evolution.
Beyond a Malthusian view, there is another factor that undermines progressivism. It is that complexity costs. In any living system, increased complexity (involving differentiation in structure and increasing organization) carries a metabolic cost. In non-human species this is a straightforward matter of additional calories. Among humans the cost is calculated in such currencies as resources, effort, time, or money, or by more subtle matters such as annoyance. While humans find complexity appealing in spheres such as art, music, or architecture, we usually prefer that someone else pay the cost. We are averse to complexity when it unalterably increases the cost of daily life without a clear benefit to the individual or household. Before the development of fossil fuels, increasing the complexity and costliness of a society meant that people worked harder.
The development of complexity is thus a paradox of human history. Over the past 12,000 years, we have developed technologies, economies, and social institutions that cost more labor, time, money, energy, and annoyance, and that go against our aversion to such costs. Why, then, did human societies ever become more complex?
At least part of the answer is that complexity is a basic problem-solving tool. Confronted with problems, we often respond by developing more complex technologies, establishing new institutions, adding more specialists or bureaucratic levels to an institution, increasing organization or regulation, or gathering and processing more information. While we usually prefer not to bear the cost of complexity, our problem-solving efforts are powerful complexity generators. All that is needed for growth of complexity is a problem that requires it. Since problems continually arise, there is persistent pressure for complexity to increase.
Cultural complexity can be viewed as an economic function. Societies and institutions invest in problem solving, undertaking costs and expecting benefits in return. In problem-solving systems, inexpensive solutions are adopted before more complex and expensive ones. In the history of human food-gathering and production, for example, labor-sparing hunting and gathering gave way to more labor-intensive agriculture, which in some places has been replaced by industrial agriculture that consumes more energy than it produces. We produce minerals and energy whenever possible from the most economical sources. Our societies have changed from egalitarian relations, economic reciprocity, ad hoc leadership, and generalized roles to social and economic differentiation, specialization, inequality, and full-time leadership. These characteristics are the essence of complexity, and they increase the costliness of any society.
In the progressivist view, surplus energy precedes and facilitates the evolution of complexity. Certainly this is sometimes true: There have been occasions when humans adopted energy sources of such great potential that, with further development and positive feedback, there followed great expansions in the numbers of humans and the wealth and complexity of societies. These occasions have, however, been so rare that we designate them with terms signifying a new era: the Agricultural Revolution and the Industrial Revolution. It is worth noting that these unusual transitions have not resulted from unbridled human creativity. Rather, they emerged from solutions to problems of resource shortages, and were adopted reluctantly because initially they created diminishing returns on effort in peoples’ daily lives.
Most of the time, cultural complexity increases from day-to-day efforts to solve problems. Complexity that emerges in this way will usually appear before there is additional energy to support it. Rather than following the availability of energy, cultural complexity often precedes it. Complexity thus compels increases in resource production. This understanding of the temporal relationship between complexity and resources has implications for sustainability that diverge from what is commonly assumed. I will explore these implications shortly. It is useful first to present a historical case study, the Western Roman Empire, that illustrates these points.
The Roman Empire collapsed in the mid 5th century A.D., but its last 200 years of existence had been a reprieve. It had been nearly destroyed in the 3rd century. In the half-century from 235-284 the empire was repeatedly breached by invasions of Germanic peoples from the north and the Persians from the east. When these invaders were not being repelled, Roman armies were fighting each other in the service of would-be emperors. Many cities were sacked and productive lands devastated. For a time, rival empires broke away in the east and the west. It seemed that the Roman Empire would not survive much longer.
The Roman government had a clear sustainability goal: the survival of the empire. In response to the crises, the emperors Diocletian and Constantine, in the late third and early fourth centuries, designed a government that was larger, more complex, and more highly organized. They doubled the size of the army. This was very costly. To pay for this sustainability effort, the government taxed its citizens more heavily, conscripted their labor, and dictated their occupations.
With the rise in taxes, population could not recover from plagues in the second and third centuries. There were chronic shortages of labor. Marginal lands went out of cultivation. Faced with taxes, peasants would abandon their lands and flee to the protection of a wealthy landowner. The Roman Empire survived the 3rd century crisis and achieved two centuries of sustainability, but at the long-term cost of consuming its capital resources: producing lands and peasant population. When crises emerged again in the late 4th century, the empire lacked the resources to respond adequately and in time collapsed.
The Roman Empire is a single case study in complexity and problem solving, but it is an important and representative one. It illustrates the basic process by which societies increase in complexity. Societies adopt increasing complexity to solve problems, becoming at the same time more costly. In the normal course of economic evolution, this process at some point will produce diminishing returns. Once diminishing returns set in, a problem-solving institution must either find new resources to continue the activity, or fund the activity by reducing the share of resources available to other economic sectors. The latter is likely to produce economic contraction, popular discontent, and eventual collapse. This was the fate of the Western Roman Empire.
This understanding of complexity and resources has implications for understanding sustainability. Both popular and academic discourse commonly assume that (a) future sustainability requires that industrial societies consume a lower quantity of resources than is now the case, and (b) sustainability will result automatically if we do so. Sustainability emerges, in this view, as a passive consequence of consuming less. Thus sustainability efforts are commonly focused on reducing consumption through voluntary or enforced conservation, perhaps involving simplification, and/or through improvements in technical efficiencies.
The common perspective on sustainability follows logically from the progressivist view that resources precede and facilitate innovations that increase complexity. Complexity, in this view, is voluntary. Human societies become more complex by choice. By this reasoning, we should be able to forego complexity and the resource consumption that it entails. Progressivism leads to the notion that societies can deliberately reduce their use of resources and thereby achieve sustainability.
The fact that complexity and costliness increase through mundane problem solving suggests a different and startling conclusion: Contrary to what is typically advocated as the route to sustainability, it is usually not possible for a society to reduce its consumption of resources voluntarily over the long term. To the contrary, as problems great and small inevitably arise, addressing these problems requires complexity and resource consumption to increase. As illustrated by the Roman Empire and other cases, this has commonly been the case.
Many advocates of sustainability will find it disturbing that long-term conservation is not possible. Naturally we must ask: Are there alternatives to this process? Regrettably, no simple solutions are evident. Consider some of the approaches commonly advocated:
1. Voluntarily Reduce Resource Consumption. While this may work for a time, its longevity as a strategy is constrained by the fact that societies increase in complexity to solve problems. Resource production must grow to fund the increased complexity. To implement voluntary conservation long term would require that a society be either uniquely lucky in not being challenged by problems, or that it not address the problems that confront it.
2. Employ the Price Mechanism to Control Resource Consumption. This is currently the laissez-faire strategy of industrialized nations. Since humans don’t commonly forego affordable consumption of desired goods and services, economists consider it more effective than voluntary conservation. Both approaches, however, lead eventually to the same outcome: As problems arise, resource consumption must increase at the societal level even if consumers as individuals purchase less.
3. Ration Resources. Because of its unpopularity, rationing is possible in democracies only for clear, short-term emergencies. This is illustrated by the reactions to rationing in England and the United States during World War II. Moreover, rationed resources may become needed to solve societal problems, belying any attempt to conserve through rationing. Something like this can be seen in the fiscal stimulus programs enacted recently.
4. Reduce Population. While this would reduce aggregate resource consumption temporarily, as a long-term strategy it has the same fatal flaw: Problems will emerge that require solutions, and those solutions will compel resource production to grow.
5. Hope for Technological Solutions. I sometimes call this a faith-based approach to our future. Members of industrialized societies are socialized to believe that we can always find a technological solution to resource problems. Technology, within the framework of this belief, will presumably allow us continually to reduce our resource consumption per unit of material well-being. Conventional economics teaches that to bring this about we need only the price mechanism and unfettered markets. The flaw here was pointed out by William Stanley Jevons: As technological improvements reduce the cost of using a resource, total consumption will actually increase.
In conclusion, sustainability is not the achievement of stasis. It is not a passive consequence of having fewer humans who consume more limited resources. One must work at being sustainable. The challenges that any society (or other institution) might confront are, for practical purposes, endless in number and infinite in variety. This being so, sustainability is a matter of solving problems.
In the conventional view, complexity follows energy. If so, then we should be able to forego complexity voluntarily and reduce our consumption of the resources that it requires. This approach to sustainability implicitly sees the future as a condition of stasis with no challenges.
In actuality, major infusions of surplus energy are rare in human history. More commonly, complexity increases in response to problems. Complexity emerging through problem solving typically precedes the availability of energy, and compels increases in its production. Complexity is not something that we can ordinarily choose to forego.
Applying this understanding leads to two conclusions. The first is that the solutions commonly recommended to promote sustainability–conservation, simplification, pricing, and innovation–can do so only in the short term. Secondly, long-term sustainability depends on solving major societal problems that will converge in coming decades, and this will require increasing complexity and energy production. Sustainability is not a condition of stasis. It is, rather, a process of continuous adaptation, of perpetually addressing new or ongoing problems and securing the resources to do so.
It is useful to think of sustainability in the metaphor of an athletic game: It is possible to “lose”–that is, to become unsustainable, as happened to the Western Roman Empire. But the converse does not hold. Because we continually confront challenges, there is no point at which a society has “won”–become sustainable in perpetuity, or at least for a very long time. Success, rather, consists of staying in the game.
Human Resource Use: Timing and Implications for Sustainability
Joseph A. Tainter
Department of Environment and Society, Utah State University, Logan, Utah 84322, U.S.A.
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Few questions of history have been more enduring than how today’s complex societies evolved from the foraging bands of our ancestors. While this might seem of academic interest, it has important implications for anticipating our future. Our understanding of sustainability depends to a surprising degree on our understanding of the human past. My purposes today are to show that the conventional understandings of cultural evolution are untenable, as are assumptions about sustainability that follow from them, and to present a different approach to assessing our future.
Cultural complexity is deeply embedded in our contemporary self image. Colloquially it is known by the more common term “civilization,” which we believe our ancestors achieved through the phenomenon called “progress.” The concepts of civilization and progress have a status in the cosmology of industrial societies that amounts to what anthropologists call “ancestor myths.” Ancestor myths validate a contemporary social order by presenting it as a natural and sometimes heroic progression from earlier times.
Social scientists label this a “progressivist” view. It supposes that cultural complexity is intentional, that it emerged through the inventiveness of our ancestors. Progressivism is the dominant ideology of free-market societies. But inventiveness is not a sufficient explanation for cultural complexity, which requires facilitating circumstances. What were those circumstances? Prehistorians once thought they had the answer: The discovery of agriculture gave our ancestors surplus food and, concomitantly, free time to invent urbanism and the things that comprise “civilization”–cities, artisans, priesthoods, kings, aristocracies, and all of the other features of early states.
The progressivist view posits a specific relationship between resources and complexity. It is that complexity develops because it can, and that the factor facilitating this is surplus energy. Energy precedes complexity and allows it to emerge. There are, however, significant reasons to doubt whether surplus energy has actually driven much of cultural evolution.
One strand of thought that challenges progressivism emerged in the 18th and 19th centuries in the works of Wallace (1761), Malthus (1798), and Jevons. The economist Kenneth Boulding derived from Malthus’s essay on population three theorems: the Dismal Theorem, the Utterly Dismal Theorem, and the moderately cheerful form of the Dismal Theorem. The Utterly Dismal Theorem directly challenges the progressivist view:
Any technical improvement can only relieve misery for a while, for as long as misery is the only check on population, the improvement will enable population to grow, and will soon enable more people to live in misery than before. The final result of improvements, therefore, is to increase the equilibrium population, which is to increase the sum total of human misery (Boulding, 1959: vii [emphases in original]).
The implication of this strain of thought is that humans have rarely had surplus energy. Surpluses are quickly dissipated by growth in consumption. Since humans have rarely had surpluses, the availability of energy cannot be the primary driver of cultural evolution.
Beyond a Malthusian view, there is another factor that undermines progressivism. It is that complexity costs. In any living system, increased complexity (involving differentiation in structure and increasing organization) carries a metabolic cost. In non-human species this is a straightforward matter of additional calories. Among humans the cost is calculated in such currencies as resources, effort, time, or money, or by more subtle matters such as annoyance. While humans find complexity appealing in spheres such as art, music, or architecture, we usually prefer that someone else pay the cost. We are averse to complexity when it unalterably increases the cost of daily life without a clear benefit to the individual or household. Before the development of fossil fuels, increasing the complexity and costliness of a society meant that people worked harder.
The development of complexity is thus a paradox of human history. Over the past 12,000 years, we have developed technologies, economies, and social institutions that cost more labor, time, money, energy, and annoyance, and that go against our aversion to such costs. Why, then, did human societies ever become more complex?
At least part of the answer is that complexity is a basic problem-solving tool. Confronted with problems, we often respond by developing more complex technologies, establishing new institutions, adding more specialists or bureaucratic levels to an institution, increasing organization or regulation, or gathering and processing more information. While we usually prefer not to bear the cost of complexity, our problem-solving efforts are powerful complexity generators. All that is needed for growth of complexity is a problem that requires it. Since problems continually arise, there is persistent pressure for complexity to increase.
Cultural complexity can be viewed as an economic function. Societies and institutions invest in problem solving, undertaking costs and expecting benefits in return. In problem-solving systems, inexpensive solutions are adopted before more complex and expensive ones. In the history of human food-gathering and production, for example, labor-sparing hunting and gathering gave way to more labor-intensive agriculture, which in some places has been replaced by industrial agriculture that consumes more energy than it produces. We produce minerals and energy whenever possible from the most economical sources. Our societies have changed from egalitarian relations, economic reciprocity, ad hoc leadership, and generalized roles to social and economic differentiation, specialization, inequality, and full-time leadership. These characteristics are the essence of complexity, and they increase the costliness of any society.
In the progressivist view, surplus energy precedes and facilitates the evolution of complexity. Certainly this is sometimes true: There have been occasions when humans adopted energy sources of such great potential that, with further development and positive feedback, there followed great expansions in the numbers of humans and the wealth and complexity of societies. These occasions have, however, been so rare that we designate them with terms signifying a new era: the Agricultural Revolution and the Industrial Revolution. It is worth noting that these unusual transitions have not resulted from unbridled human creativity. Rather, they emerged from solutions to problems of resource shortages, and were adopted reluctantly because initially they created diminishing returns on effort in peoples’ daily lives.
Most of the time, cultural complexity increases from day-to-day efforts to solve problems. Complexity that emerges in this way will usually appear before there is additional energy to support it. Rather than following the availability of energy, cultural complexity often precedes it. Complexity thus compels increases in resource production. This understanding of the temporal relationship between complexity and resources has implications for sustainability that diverge from what is commonly assumed. I will explore these implications shortly. It is useful first to present a historical case study, the Western Roman Empire, that illustrates these points.
The Roman Empire collapsed in the mid 5th century A.D., but its last 200 years of existence had been a reprieve. It had been nearly destroyed in the 3rd century. In the half-century from 235-284 the empire was repeatedly breached by invasions of Germanic peoples from the north and the Persians from the east. When these invaders were not being repelled, Roman armies were fighting each other in the service of would-be emperors. Many cities were sacked and productive lands devastated. For a time, rival empires broke away in the east and the west. It seemed that the Roman Empire would not survive much longer.
The Roman government had a clear sustainability goal: the survival of the empire. In response to the crises, the emperors Diocletian and Constantine, in the late third and early fourth centuries, designed a government that was larger, more complex, and more highly organized. They doubled the size of the army. This was very costly. To pay for this sustainability effort, the government taxed its citizens more heavily, conscripted their labor, and dictated their occupations.
With the rise in taxes, population could not recover from plagues in the second and third centuries. There were chronic shortages of labor. Marginal lands went out of cultivation. Faced with taxes, peasants would abandon their lands and flee to the protection of a wealthy landowner. The Roman Empire survived the 3rd century crisis and achieved two centuries of sustainability, but at the long-term cost of consuming its capital resources: producing lands and peasant population. When crises emerged again in the late 4th century, the empire lacked the resources to respond adequately and in time collapsed.
The Roman Empire is a single case study in complexity and problem solving, but it is an important and representative one. It illustrates the basic process by which societies increase in complexity. Societies adopt increasing complexity to solve problems, becoming at the same time more costly. In the normal course of economic evolution, this process at some point will produce diminishing returns. Once diminishing returns set in, a problem-solving institution must either find new resources to continue the activity, or fund the activity by reducing the share of resources available to other economic sectors. The latter is likely to produce economic contraction, popular discontent, and eventual collapse. This was the fate of the Western Roman Empire.
This understanding of complexity and resources has implications for understanding sustainability. Both popular and academic discourse commonly assume that (a) future sustainability requires that industrial societies consume a lower quantity of resources than is now the case, and (b) sustainability will result automatically if we do so. Sustainability emerges, in this view, as a passive consequence of consuming less. Thus sustainability efforts are commonly focused on reducing consumption through voluntary or enforced conservation, perhaps involving simplification, and/or through improvements in technical efficiencies.
The common perspective on sustainability follows logically from the progressivist view that resources precede and facilitate innovations that increase complexity. Complexity, in this view, is voluntary. Human societies become more complex by choice. By this reasoning, we should be able to forego complexity and the resource consumption that it entails. Progressivism leads to the notion that societies can deliberately reduce their use of resources and thereby achieve sustainability.
The fact that complexity and costliness increase through mundane problem solving suggests a different and startling conclusion: Contrary to what is typically advocated as the route to sustainability, it is usually not possible for a society to reduce its consumption of resources voluntarily over the long term. To the contrary, as problems great and small inevitably arise, addressing these problems requires complexity and resource consumption to increase. As illustrated by the Roman Empire and other cases, this has commonly been the case.
Many advocates of sustainability will find it disturbing that long-term conservation is not possible. Naturally we must ask: Are there alternatives to this process? Regrettably, no simple solutions are evident. Consider some of the approaches commonly advocated:
1. Voluntarily Reduce Resource Consumption. While this may work for a time, its longevity as a strategy is constrained by the fact that societies increase in complexity to solve problems. Resource production must grow to fund the increased complexity. To implement voluntary conservation long term would require that a society be either uniquely lucky in not being challenged by problems, or that it not address the problems that confront it.
2. Employ the Price Mechanism to Control Resource Consumption. This is currently the laissez-faire strategy of industrialized nations. Since humans don’t commonly forego affordable consumption of desired goods and services, economists consider it more effective than voluntary conservation. Both approaches, however, lead eventually to the same outcome: As problems arise, resource consumption must increase at the societal level even if consumers as individuals purchase less.
3. Ration Resources. Because of its unpopularity, rationing is possible in democracies only for clear, short-term emergencies. This is illustrated by the reactions to rationing in England and the United States during World War II. Moreover, rationed resources may become needed to solve societal problems, belying any attempt to conserve through rationing. Something like this can be seen in the fiscal stimulus programs enacted recently.
4. Reduce Population. While this would reduce aggregate resource consumption temporarily, as a long-term strategy it has the same fatal flaw: Problems will emerge that require solutions, and those solutions will compel resource production to grow.
5. Hope for Technological Solutions. I sometimes call this a faith-based approach to our future. Members of industrialized societies are socialized to believe that we can always find a technological solution to resource problems. Technology, within the framework of this belief, will presumably allow us continually to reduce our resource consumption per unit of material well-being. Conventional economics teaches that to bring this about we need only the price mechanism and unfettered markets. The flaw here was pointed out by William Stanley Jevons: As technological improvements reduce the cost of using a resource, total consumption will actually increase.
In conclusion, sustainability is not the achievement of stasis. It is not a passive consequence of having fewer humans who consume more limited resources. One must work at being sustainable. The challenges that any society (or other institution) might confront are, for practical purposes, endless in number and infinite in variety. This being so, sustainability is a matter of solving problems.
In the conventional view, complexity follows energy. If so, then we should be able to forego complexity voluntarily and reduce our consumption of the resources that it requires. This approach to sustainability implicitly sees the future as a condition of stasis with no challenges.
In actuality, major infusions of surplus energy are rare in human history. More commonly, complexity increases in response to problems. Complexity emerging through problem solving typically precedes the availability of energy, and compels increases in its production. Complexity is not something that we can ordinarily choose to forego.
Applying this understanding leads to two conclusions. The first is that the solutions commonly recommended to promote sustainability–conservation, simplification, pricing, and innovation–can do so only in the short term. Secondly, long-term sustainability depends on solving major societal problems that will converge in coming decades, and this will require increasing complexity and energy production. Sustainability is not a condition of stasis. It is, rather, a process of continuous adaptation, of perpetually addressing new or ongoing problems and securing the resources to do so.
It is useful to think of sustainability in the metaphor of an athletic game: It is possible to “lose”–that is, to become unsustainable, as happened to the Western Roman Empire. But the converse does not hold. Because we continually confront challenges, there is no point at which a society has “won”–become sustainable in perpetuity, or at least for a very long time. Success, rather, consists of staying in the game.
Tuesday, March 30, 2010
An Interview With Dr. Bartlett
Here's a nice interview with our favorite Malthusian, Dr. Albert Bartlett, Professor Emeritus, Physics, University of Colorado at Boulder. Enjoy!
I have to thank Jeremy Grantham for referencing Albert Bartlett’s talk, “Arithmetic, Population, & Energy”, in his semi annual letter to partners. It inspired me to track down Professor Bartlett and interview him for our readers.
Introduction/Background
Professor Albert Bartlett Emeritus Professor of Physics at the University of Colorado at Boulder. In the public space Professor Bartlett is most well known for his lecture titled Arithmetic, Population, and Energy. A Lecture he has given over 1,600 times since September, 1969. Bartlett joined the faculty of the University of Colorado in Boulder in September 1950. His B.A. degree in physics is from Colgate University (1944) and his M.A. and Ph.D. degrees in physics are from Harvard University (1948), (1951). In 1978 he was national president of the American Association of Physics Teachers. He is a Fellow of the American Physical Society and of the American Association for the Advancement of Science. In 1969 and 1970 he served two terms as the elected Chair of the four-campus Faculty Council of the University of Colorado.
Question & Answers (Copyright 2009-2010 Miguel Barbosa & Albert Bartlett)
You have become very famous for your talk, “Arithmetic, Population, and Energy.” What motivated you to create this talk?
In the late 1960’s I began to realize that people didn’t understand the large numbers that result from steady growth rates. So, forty years ago I developed the talk; I’ve given it an average of once every 8.7 days for 40 years.
Why do you think people have such difficulty understanding (compounding) growth rates?
It’s arithmetic; people don’t like arithmetic. You hear it at cocktail parties. People say, “Oh, I’m terrible at arithmetic.” You never hear anyone say “I can’t read or write.” My impression is that after my talk people understand it very quickly. Years ago I gave it very slowly and in two parts to junior high school students. After the second part, two little kids came up and said, “We can understand it, why can’t grownups?”
You’re a physicist; how did you become interested in physics? And how did you land a job at Los Alamos?
I had a high school physics course that I enjoyed very much. After high school I went to college, but dropped out to work on steamboats in the Great Lakes. After working for a while, I transferred to Colgate University, took my first college physics class, did well, and stuck with it. Richard Feynman once said, “If there was anything more fun than physics I’d be doing it.”…He couldn’t seem to find anything more fun. The same applies to me.
Did you meet Richard Feynman?
Yes. I was at Los Alamos during the war…whenever he would lecture the entire lab would stop to listen to him. He was simultaneously a great physicist and a great clown.
What about Niels Bohr? Tell us about your experiences meeting with him.
“I was sitting at the lunch counter and Niels Bohr sat down beside me. I was amazed.” What was it like being around these scientists? I was in constant awe. I’d often ask myself how ended up in such a place. I barely had a Bachelors degree. But that was sufficient to get me into these secret meetings. I went religiously to those meeting and one thing led to another.
Do you think most politicians understand growth rates, but prefer to look the other way?
These are chamber of commerce types: promoters, builders, architects. Their business is promoting growth. But the single thing to note is that, both at the community level and national level, growth doesn’t pay for itself. The more you grow the greater your debt load. Colorado has had decades of wild and largely uncontrolled growth and is now practically bankrupt. People become fed up with the constant increases in taxes needed to pay the costs of growth and they vote for tax limitation measures. Unfortunately, the growth promoters seem to find ways around these limitations, so the growth continues and the consequent problems escalate rapidly. We can see this happening in California and we have a similar situation brewing in Colorado.
What you are implying is that true growth would lead to profitability and thus state governments could accumulate reserves?
Rational people (leaders) would have reserves for lean years. In fact this reminds me – there’s a little book called, “Better Not Bigger” by Eben Fodor. He looks at the municipal costs of growth in various communities. He estimates that every new house built in Oregon costs the Oregon taxpayer something in the order of $25,000 in costs not paid by taxes on the construction of the home itself.
This reminds us of utilities companies…
Utilities right now are fighting around the country to get more coal and nuclear plants around the country. What they are really fighting for, and what they normally get, is the right to tax customers for the costs of planning and construction. . In a more rational world the investors would bear these responsibilities, and when the plant was finished you could figure the cost into the rate system- so that the people that built it would be reimbursed. Now, rather than going out and borrowing money they want to get money from rate payers while they are planning. Often state regulators are allowing utilities to charge payers for planning costs- and it isn’t even clear that the plants will be built. This is a perpetual growth promoting situation.
If companies grew for very long periods at high rates (say 15% plus) within a matter of years we would all be working forthem.
Some investors fail to realize that growth eventually undoes itself. That is to say growth is mean reverting. For you or me any additional physical growth would either be; obesity or cancer. There’s a time to grow, yet when you reach maturity any further growth is detrimental.
Your book titled, “The Essential Exponential for the Future of our Planet,” contains a chapter called, “Democracy Cannot Survive Overpopulation,” in which you argue convincingly that overpopulation, by raising the number of constituents per elected official, makes it harder for individuals to gain access to representatives and have a voice in politics. Also, overpopulation breeds government regulation to cope with problems caused by population pressure.
Yes, this is a very important issue. To be exact, I took the title of the chapter from Issac Asimov. Here’s an example: When I moved to Boulder Colorado (in 1950) the population was 20,000 and there were 9 city members on the council. Today the population is 100,000 and there are still only 9 city members on the council. So in effect today we only have 20% of the democracy we use to have in 1950.
In essence, it’s harder for the individual to have access to a representative?
Of course. In the decade of the 1990’s the US population grew by 13.1%, while the number of members in the House of Representatives didn’t grow at all. So we can say that at the national level, democracy declined by 13.1% Furthermore, the Constitution requires that the government perform what is called redistricting. This happens after every census. Redistricting ensures that the populations of districts are equal across the country. In our example, the average district needed to have 13.1% more constituents after the 2000 census than after the 1990’s census. This means that every district went from approximately 600,000 constituents to approximately 700,000 constituents. Compare that with the first Congress where the makeup was 30,000 constituents per member of Congress. It’s true that women didn’t vote and thus the electorate makeup was different, but you can imagine one person in Congress representing 30,000. It’s much harder to imagine one person representing 700,000 people. Every district in the country had to grow by 100,000 people. There’s no way you can represent that many people. So it’s much easier as a politician to take your ideas from the lobbyist who has plenty of money. As a result we now often get one dollar-one vote versus what use to be one person-one vote.
Are you suggesting there’s a crowding out effect? That is to say, in a time of many important issues (global warming, health care, and financial crises) people are alienated?
Yes, that’s right.
You say the terms “sustainable” and “sustainability” are popularly used to describe “activities that are ecologically laudable,” but unsustainable. How can the average reader interested in learning about sustainability decide whether publications are seeking to illuminate or obfuscate? Slogans are seemingly designed to “sustain” optimistm and vagueness.
There are a few organizations devoted to alert people of the dangers of population growth. There’s a group called Californians for Population Stabilization. There’s a real good group in Washington called Negative Population Growth; they have the best series of monographs of any group I’m aware of. You can find them on the web at npg.org.
How do you approach reading periodicals that present confusing growth rates?
I approach periodicals with skepticism and look for absurdities. Remember that politicians will try to claim that there isn’t a conflict between saving the environment and smart growth. Unfortunately, both smart growth and dumb growth destroy the environment. The only difference is that smart growth destroys the environment with good taste. It’s like buying a ticket on the Titanic, if you’re smart you go first class. But the outcome is the same…the boat still sinks.
Well if the outcome is the same, then most sustainable solutions are pseudosolutions. Tells us about pseudosolutions…
It’s so discouraging when you see Al Gore’s book & film, “An Inconvenient Truth.” Early in his book he says population growth has changed our whole way of life. With those words he is saying that he understands that population growth is the cause of the problem. Unfortunately at the end of his book when outlining the things you can do to avoid environmental problems (changing bulbs etc), Gore never mentions curbing population growth. This behavior is what Mark Twain would call a “silent lie.” If you have information that would help other people if you shared it, but you kee it hidden. Then you are guilty of what Mark Twain would call a silent lie.
In 1994, you wrote “In the manner of Alice in Wonderland, and without regard for accuracy or consistency, ‘sustainability’ seems to have been redefined flexibly to suit a variety of wishes and conveniences.” How are you seeing sustainability used by current politicians and businesses? Has it gotten worse? And what are the most recent clear examples of misuse of sustainability by politicians?
I couldn’t quantify it, but I believe so. Everything now is called “sustainable.” It’s the “in” thing to do, whether it’s sustainable or not.
According to your interpretation of the Tragedy of the Commons (Hardin 1968) your writings suggest that there will always be large opposition to programs of making population growth pay for itself. Those who profit from (uneconomic)growth will use their considerable resources to convince the community that the community should pay the costs of growth. How does the tragedy of the commons relate to launching wars?
The world’s oceans are a perfect example of the tragedy of the commons. By and large they are unmanaged commons and they are destroyed by high tech fisheries. This is tragic for local fishermen who have lived off the oceans for centuries. Small conflicts over resources can lead to wars.”
When it comes to war… look at Iraq. The poor GIs getting shot and killed are paying an enormous cost. Bush seems to think there is a law of conservation of terrorists, that is to say, “There are a certain number of terrorists in the world and you kill them all and you solve the problem.” Unfortunately, this doesn’t solve the problem at all. We aren’t reducing terrorism; rather, we are increasing it.
Where does the role of economist, Kenneth Boulding, play into the topic of population growth?
He’s one of the few economists that I can respect. He was a colleague at the University of Colorado. He is known for saying that, “Anyone who thinks that steady growth can continue indefinitely, is either a madman or an economist.” I once asked Boulding if he said that, he gave me a funny smile and said, “Yes, I think so.” Boulding’s three laws are related to sustainability. In fact, in my opinion, they say it all. The second law is the important one. It says, the solution to problems create more problems. “The main source of problems is solutions.
Excerpt of Boulding’s Three Laws:
First Theorem: “The Dismal Theorem” If the only ultimate check on the growth of population is misery, then the population will grow until it is miserable enough to stop its growth.
Second Theorem: “The Utterly Dismal Theorem” This theorem states that any technical improvement can only relieve misery for a while, for so long as misery is the only check on population, the [technical] improvement will enable population to grow, and will soon enable more people to live in misery than before. The final result of [technical] improvements, therefore, is to increase the equilibrium population which is to increase the total sum of human misery.
Third Theorem: “The moderately cheerful form of the Dismal Theorem” Fortunately, it is not too difficult to restate the Dismal Theorem in a moderately cheerful form, which states that if something else, other than misery and starvation, can be found which will keep a prosperous population in check, the population does not have to grow until it is miserable and starves, and it can be stably prosperous. Until we know more, the Cheerful Theorem remains a question mark. Misery we know will do the trick. This is the only sure- fire automatic method of bringing population to equilibrium. Other things may do it.
This is reminiscent of Eric Sevareid’s Law – The Chief Cause of Problems is Solutions. In a society as complex as ours is there a way around this issue?
I don’t believe there is a way around this issue. In a society as complex as ours it’s impossible to anticipate the interaction of all agents. It’s very much like the operation of the National Electric Grid. No one knows exactly how it operates. So if a squirrel crosses the wrong power line the east coast can go without power. These things do in fact happen. More importantly, because our system is so complex it’s vulnerable. If we are talking about a war on terror we wouldn’t want such a vulnerable system.
In preparation for this interview you sent us a book review. My favorite quote from this review is the following: “A society that is totally dependent on high tech for the functioning of every aspect of the lives of its people is vulnerable to disruption by acts of God and acts of people. The complexities of our pres¬ent infrastructure predictably lead to unpredictable failures. More complex infrastructures anticipated for the future will probably experience larger unpredictable failures.”
There is big talk in Europe right now about putting large fields of solar collectors in the Sahara Desert and then transmitting the power under the Mediterranean Sea to Europe. It looks good on paper, but the long extended transmission lines will be vulnerable to the forces of nature and to terrorists. A small group of individuals could deprive Europe of a big fraction of its electricity for long periods of time. “Insanity” is the only word I can think of to describe plans to build this incredibly expensive system that is so transparently vulnerable to sabotage.”
In other words, complex infrastructure(s) translate into unpredictable failures. When it comes to alternative energy, most solutions are complex. What’s your opinion of alternative energy sources?
If alternative energies are to replace existing technologies very sizable investments would be required. I often wonder if there is enough capital in the world to replace this existing energy production, that is, to go from coal & natural gas to geothermal, wind or or solar. I don’t know the answer to the investment question.
What I do know is that it’s very difficult to manage wind energy. Currently, coal plants provide base loads and then natural gas (or hydroelectric) turbines are used to meet peak loads. But when you factor wind into your management scheme things become very difficult. You don’t know where the wind is blowing, how much, when, or in what direction it’s blowing. Then you have to factor this into your management. With 5% of your electricity coming from wind this “might” be manageable but to increase it to 50% or 60% it’s very difficult. Most people don’t pay attention to the difficulties of managing electrical demand.
Is the culprit of global warming population growth? Are you suggesting that unless we have major breakthroughs in technology population growth will undermine most current energy initiatives?
Al Gore understands that population growth is the problem. But he doesn’t recommend doing anything to reduce overpopulation which is the cause of the problems.. It is politically incorrect to talk about population growth. The last US president that worried about population was Richard Nixon. He charted a major study called “The Rockefeller Commission Report.” This study was put together by some very talented people. Their conclusion was simple; they couldn’t see any benefit to further population growth in the US. Unfortunately, the study was put on the shelf and forgotten.
This reminds me of the Red Queen…the more she runs the more the walls/scenery catch up. What can we do?
This is something Malthus understood years ago. We still have economists and politicians that claim that Malthus was wrong. This is nonsense. I’ve read Malthus three times and he presents population problems very clearly. The message of Malthus, translated to today’s problems would be something like this: “Population growth has the potential to outstrip the growth in production of any of the resources that are necessary to sustain our population. This is as true today as it was a hundred years ago when he wrote his essay.
I’d like to ask you a question from the title of your own piece, “Why have scientists succumbed to political correctness?”
I don’t know. I think there is a widespread feeling amongst scientists and certainly among the population that science and technology will save us, so why worry about it? Here’s a story… I was once met with a state senator; he said to me “I’m not worried about running out of petroleum, you (pointing to me) scientists will figure out what ever we need.” So I asked him what was the last new source of energy scientists found? He didn’t have an answer,
so I suggested nuclear power – the process was discovered in Germany in 1939. Enrico Fermi had a reactor operating in 1942. By 1956 we had first commercial nuclear power reactor in this country. Since then, we have spent billions of public and private dollars and we only receive 20% of our electricity from nuclear power. Innovation on the large scale required by our overpopulated society will take time and costs billions of dollars..
Even if science/technology develops the appropriate energy solutions. These solutions would have to be developed and implemented at the same rate as the population growth?
What you must realize is that technological improvements by design allow for and encourage more growth. This is like prescribing aspirin for cancer. As for the timing you’re absolutely right: while technology develops populations keep compounding. And because the scale is so large it’s impossible to implement changes quick enough. In other words, it’s very difficult to get 30% of the population using hybrid electric cars in anything short of 20 years.
Let’s talk about employment. Does growth solve unemployment problems?
If creating jobs reduced unemployment, Colorado would have negative unemployment (or whatever that means). For decades we have been creating jobs and we still have unemployment. No matter how many jobs you create you can’t get off unemployment. This is a consequence of people moving around – a constitutionally protected right.
Newly created jobs in a community temporarily lowers the unemployment rate (say from 5% to 4%), but then people move into the community to restore the unemployment rate to its earlier higher value (of 5%). Yet this is 5% of the no larger population, so more individuals are out of work than before.
What’s your opinion of national unemployment rates and the recent crisis?
For years, we have promoted an insane policy of exporting jobs and importing people. So now it’s catching up with us. Any country that has to import people to do the work of the country is unsustainable. One cannot sustain a world in which some regions have high standards of living while others have low standards of living. All countries cannot simultaneously be net importers of carrying capacity. World trade involves the exportation and importation of carrying capacity.
Tell us more about carrying capacity and trade.
Carrying capacity is a measure of how many people can be supported indefinitely. Therefore if any fraction of global warming is due to the actions of humans, this alone proves that human populations are larger than the carrying capacity of the earth. Sustainability requires that the size of the population be less than or equal to the carrying capacity of the ecosystem for the desired standard of living.
Many economists have raised concerns over countries particularly European countries which have experienced zero population growth rates (or negative population rates). They claim that these rates will burden “entitlements” such as social security… So clearly the answer is to have higher birth rates…unfortunately this only exacerbates the problems of “sustainability.” What’s your take?
Social Security and such projects are Ponzi schemes. They depend on having more and more people paying every year or they collapse. In effect, Social Security will collapse when there aren’t enough young workers. Getting the population back on the growth curve isn’t a long term answer. That makes all the other problems more difficult. So what you have to do is refinance social security – by raising taxes, reducing benefits, or altering the retirement age.
It’s so sad to see European politicians offering bonuses to couples to have more children because they are afraid of slowing growth rates. What people don’t realize is that declining growth rates are the way to sustainability.
You talk about how zero or negative population growth rates translate into higher standards of living. Can you comment on this?
Thirty years ago when the Chinese put their one child per family policy, there statement of justification was that population growth interferes with economic development. In 30 years, they have proven this is true. We in the U.S. haven’t learned this lesson – if you spend all your resources to take care of new people you have no resources to take care of existing citizens.
That’s interesting; we look at China as an economic miracle. Not many attribute much of this success to controlled population growth. This brings me to my next question: many population problems will not be solved unless Americans are consistently implementing plans for the next 70 years. How do we manage this given our political structures? Does China have an advantage?
That’s a great difficulty. Planning horizons in a democracy are based in term years (2, 4, 6 years). Unfortunately, if you change fertility rates it can take 50-70 years before you see the full effects of a change in fertility. This is called population momentum which is a mismatch to our democracy. Politicians implement changes that benefit us in the short term over the long term.
Have you ever calculated the required population for all countries to enjoy the standard of living experienced by Americans?
I haven’t done that, and there isn’t any specific formula. It depends on the standard of living. The most I can do is quote David Pimentel who is a global agricultural scientist at Cornell University. He says that a sustainable world population living at current US dietary level would consist of two billion people. Furthermore, he suggests that a sustainable US population at current dietary levels would have to be around 130-150 million people, which is the population of the US around World War II.
So, how do we get there? My answer is that the government should bring the issue to the forefront and ask; how large do we (as a nation) want to be and what benefit is there from population growth. Then, we need to set goals and plan accordingly. The key is to make family planning available widely throughout the US and the world – with the goal that every child is a wanted child.
You’ve written that, “The benefits of population growth accrue to a few; while the costs are borne by all of society.” Let’s enumerate some of the costs borne by society and a potential solution.
Individuals who benefit from growth will continue to exert strong pressures supporting and encouraging both population growth and growth in rates of consumption of resources.
The individuals who promote growth are motivated by the recognition that growth is good for them. In order to gain public support for their goals, they must convince people that population growth and growth in the rates of consumption of resources are also good for society. [This is the Charles Wilson argument: if it is good for General Motors, it is good for the United States.] (Yates 1983) As for the costs borne by society – with increased growth you have to provide police, fire, schools, waste removal, clean water, and a variety of other infrastructure projects. These services have to be paid for – but they aren’t paid for by growth. Schools in particular suffer. The school systems get their operating expenses from the taxes and to get capital expenses they have to issue bonds. Thus, all tax payers have to pay higher taxes to accommodate schools for new kids.
The solution is to tax growth, put a tax on real estate transactions (both at local levels and state levels) and use this tax to fund new projects.
Where are most economists confused on this issue of growth rates & consumption?
Economists think of infinite substitutability. They cite the example of shifting out of whale oil to petroleum or from wood to coal. Economists suggest that this can continue indefinitely. Unfortunately there are no close substitutes for petroleum. Furthermore, we already know which substitutes exist and they are very costly to access. The substitutability age is no longer as prominent.
What books would you recommend we read to understand population growth rate issues?
I recommend reading Richard Heinberg’s books, “Peak Oil” and “Peak Everything.” He clearly understands the issues.
Is there any hope given the actions of the current administration?
I certainly welcome the new administration, but the problem is we have the same Congress. This Congress enjoys the status quo, they are protective of their own interests, and tey listen to lobbyists. So as someone once said, “we have the best government money can buy.”
Growth never pays for itself. One of the biggest culprits is the federal government. Almost all states have requirements for a balanced budget. The federal government does not have this requirement. As a consequence the federal government is now paying for state schools, highways, sewage systems, bridges. This has happened because the local economy can’t support local population growth. Therefore, the main responsibility of members of Congress is to bring home federal grants to pay for the results of population growth in their representative district.
Another thing to remember is that inflation is a tax on everyone. So if the federal government issues bonds to pay for the consequences of growth (infrastructure, etc) this is likely to result in inflation. Thus, we will all bear the costs. Having looked at our national debt levels, I’m worried that the inflation could be very severe.
That said, stopping population growth is a necessary condition for sustainability, but it isn’t a sufficient condition.
Let’s assume we could implement population growth constraints. What else must be done?
Assuming you can constrain population growth rates, you have to implement every possible efficiency improvement (meaning energy, design, etc). In addition, you would have to create an environmental agency to stop polluters and require existing sources of pollution to be removed. The US population growth rate is the highest of any industrial nation. The US can’t preach for other countries to limit population growth unless we are willing to set an example and do so first.
Key Points to Remember: By Albert Bartlett:
When applied to material things, the term “sustainable growth” is an oxymoron. (It is possible to have sustainable growth of non-material things such as inflation.) Perhaps this is why inflation rates are sustainable or as some politicians would say hopefully sustainable in moderate amounts. We have seen how major national and international reports misrepresent and downplay (marginalize) the quantitative importance of the arithmetic of population sizes and growth.
1. One has to ask if it is possible to have an increase in economic activity (growth) without having increases in the rates of consumption of non-renewable resources? If so, under what conditions can this happen? Are we moving toward those conditions today?
2. What courses of action that could be followed to meet the needs of the present, but which, in doing so, would not limit the ability of generations, throughout the distant future, to meet their own needs?
3. The size of population that can be sustained (the carrying capacity) and the sustainable average standards of living of the population are inversely related to one another. “This runs counter to most traditional entrepreneurial myths of sustainable growth and rising standards of living”
I come back to an Eric Sevareid quote: “The chief cause of problems is solutions.” That is so important. For example, as long as there’s population growth, urban planning is bound to make everything worse. Here’s why. Essentially all the problems planners must deal with are caused by population growth. And planners are trained to solve problems. For a planner, a problem is anything that inhibits population growth. So when you solve the problem you are encouraging more population growth, and this makes everything worse.
Professor thank you for taking the time to answer our questions. We will continue to track your progress. I wish you the best of health. For More information about Professor Bartlett visit Albartlett.org
Miguel Barbosa
Founder of
[www.simoleonsense.com]
I have to thank Jeremy Grantham for referencing Albert Bartlett’s talk, “Arithmetic, Population, & Energy”, in his semi annual letter to partners. It inspired me to track down Professor Bartlett and interview him for our readers.
Introduction/Background
Professor Albert Bartlett Emeritus Professor of Physics at the University of Colorado at Boulder. In the public space Professor Bartlett is most well known for his lecture titled Arithmetic, Population, and Energy. A Lecture he has given over 1,600 times since September, 1969. Bartlett joined the faculty of the University of Colorado in Boulder in September 1950. His B.A. degree in physics is from Colgate University (1944) and his M.A. and Ph.D. degrees in physics are from Harvard University (1948), (1951). In 1978 he was national president of the American Association of Physics Teachers. He is a Fellow of the American Physical Society and of the American Association for the Advancement of Science. In 1969 and 1970 he served two terms as the elected Chair of the four-campus Faculty Council of the University of Colorado.
Question & Answers (Copyright 2009-2010 Miguel Barbosa & Albert Bartlett)
You have become very famous for your talk, “Arithmetic, Population, and Energy.” What motivated you to create this talk?
In the late 1960’s I began to realize that people didn’t understand the large numbers that result from steady growth rates. So, forty years ago I developed the talk; I’ve given it an average of once every 8.7 days for 40 years.
Why do you think people have such difficulty understanding (compounding) growth rates?
It’s arithmetic; people don’t like arithmetic. You hear it at cocktail parties. People say, “Oh, I’m terrible at arithmetic.” You never hear anyone say “I can’t read or write.” My impression is that after my talk people understand it very quickly. Years ago I gave it very slowly and in two parts to junior high school students. After the second part, two little kids came up and said, “We can understand it, why can’t grownups?”
You’re a physicist; how did you become interested in physics? And how did you land a job at Los Alamos?
I had a high school physics course that I enjoyed very much. After high school I went to college, but dropped out to work on steamboats in the Great Lakes. After working for a while, I transferred to Colgate University, took my first college physics class, did well, and stuck with it. Richard Feynman once said, “If there was anything more fun than physics I’d be doing it.”…He couldn’t seem to find anything more fun. The same applies to me.
Did you meet Richard Feynman?
Yes. I was at Los Alamos during the war…whenever he would lecture the entire lab would stop to listen to him. He was simultaneously a great physicist and a great clown.
What about Niels Bohr? Tell us about your experiences meeting with him.
“I was sitting at the lunch counter and Niels Bohr sat down beside me. I was amazed.” What was it like being around these scientists? I was in constant awe. I’d often ask myself how ended up in such a place. I barely had a Bachelors degree. But that was sufficient to get me into these secret meetings. I went religiously to those meeting and one thing led to another.
Do you think most politicians understand growth rates, but prefer to look the other way?
These are chamber of commerce types: promoters, builders, architects. Their business is promoting growth. But the single thing to note is that, both at the community level and national level, growth doesn’t pay for itself. The more you grow the greater your debt load. Colorado has had decades of wild and largely uncontrolled growth and is now practically bankrupt. People become fed up with the constant increases in taxes needed to pay the costs of growth and they vote for tax limitation measures. Unfortunately, the growth promoters seem to find ways around these limitations, so the growth continues and the consequent problems escalate rapidly. We can see this happening in California and we have a similar situation brewing in Colorado.
What you are implying is that true growth would lead to profitability and thus state governments could accumulate reserves?
Rational people (leaders) would have reserves for lean years. In fact this reminds me – there’s a little book called, “Better Not Bigger” by Eben Fodor. He looks at the municipal costs of growth in various communities. He estimates that every new house built in Oregon costs the Oregon taxpayer something in the order of $25,000 in costs not paid by taxes on the construction of the home itself.
This reminds us of utilities companies…
Utilities right now are fighting around the country to get more coal and nuclear plants around the country. What they are really fighting for, and what they normally get, is the right to tax customers for the costs of planning and construction. . In a more rational world the investors would bear these responsibilities, and when the plant was finished you could figure the cost into the rate system- so that the people that built it would be reimbursed. Now, rather than going out and borrowing money they want to get money from rate payers while they are planning. Often state regulators are allowing utilities to charge payers for planning costs- and it isn’t even clear that the plants will be built. This is a perpetual growth promoting situation.
If companies grew for very long periods at high rates (say 15% plus) within a matter of years we would all be working forthem.
Some investors fail to realize that growth eventually undoes itself. That is to say growth is mean reverting. For you or me any additional physical growth would either be; obesity or cancer. There’s a time to grow, yet when you reach maturity any further growth is detrimental.
Your book titled, “The Essential Exponential for the Future of our Planet,” contains a chapter called, “Democracy Cannot Survive Overpopulation,” in which you argue convincingly that overpopulation, by raising the number of constituents per elected official, makes it harder for individuals to gain access to representatives and have a voice in politics. Also, overpopulation breeds government regulation to cope with problems caused by population pressure.
Yes, this is a very important issue. To be exact, I took the title of the chapter from Issac Asimov. Here’s an example: When I moved to Boulder Colorado (in 1950) the population was 20,000 and there were 9 city members on the council. Today the population is 100,000 and there are still only 9 city members on the council. So in effect today we only have 20% of the democracy we use to have in 1950.
In essence, it’s harder for the individual to have access to a representative?
Of course. In the decade of the 1990’s the US population grew by 13.1%, while the number of members in the House of Representatives didn’t grow at all. So we can say that at the national level, democracy declined by 13.1% Furthermore, the Constitution requires that the government perform what is called redistricting. This happens after every census. Redistricting ensures that the populations of districts are equal across the country. In our example, the average district needed to have 13.1% more constituents after the 2000 census than after the 1990’s census. This means that every district went from approximately 600,000 constituents to approximately 700,000 constituents. Compare that with the first Congress where the makeup was 30,000 constituents per member of Congress. It’s true that women didn’t vote and thus the electorate makeup was different, but you can imagine one person in Congress representing 30,000. It’s much harder to imagine one person representing 700,000 people. Every district in the country had to grow by 100,000 people. There’s no way you can represent that many people. So it’s much easier as a politician to take your ideas from the lobbyist who has plenty of money. As a result we now often get one dollar-one vote versus what use to be one person-one vote.
Are you suggesting there’s a crowding out effect? That is to say, in a time of many important issues (global warming, health care, and financial crises) people are alienated?
Yes, that’s right.
You say the terms “sustainable” and “sustainability” are popularly used to describe “activities that are ecologically laudable,” but unsustainable. How can the average reader interested in learning about sustainability decide whether publications are seeking to illuminate or obfuscate? Slogans are seemingly designed to “sustain” optimistm and vagueness.
There are a few organizations devoted to alert people of the dangers of population growth. There’s a group called Californians for Population Stabilization. There’s a real good group in Washington called Negative Population Growth; they have the best series of monographs of any group I’m aware of. You can find them on the web at npg.org.
How do you approach reading periodicals that present confusing growth rates?
I approach periodicals with skepticism and look for absurdities. Remember that politicians will try to claim that there isn’t a conflict between saving the environment and smart growth. Unfortunately, both smart growth and dumb growth destroy the environment. The only difference is that smart growth destroys the environment with good taste. It’s like buying a ticket on the Titanic, if you’re smart you go first class. But the outcome is the same…the boat still sinks.
Well if the outcome is the same, then most sustainable solutions are pseudosolutions. Tells us about pseudosolutions…
It’s so discouraging when you see Al Gore’s book & film, “An Inconvenient Truth.” Early in his book he says population growth has changed our whole way of life. With those words he is saying that he understands that population growth is the cause of the problem. Unfortunately at the end of his book when outlining the things you can do to avoid environmental problems (changing bulbs etc), Gore never mentions curbing population growth. This behavior is what Mark Twain would call a “silent lie.” If you have information that would help other people if you shared it, but you kee it hidden. Then you are guilty of what Mark Twain would call a silent lie.
In 1994, you wrote “In the manner of Alice in Wonderland, and without regard for accuracy or consistency, ‘sustainability’ seems to have been redefined flexibly to suit a variety of wishes and conveniences.” How are you seeing sustainability used by current politicians and businesses? Has it gotten worse? And what are the most recent clear examples of misuse of sustainability by politicians?
I couldn’t quantify it, but I believe so. Everything now is called “sustainable.” It’s the “in” thing to do, whether it’s sustainable or not.
According to your interpretation of the Tragedy of the Commons (Hardin 1968) your writings suggest that there will always be large opposition to programs of making population growth pay for itself. Those who profit from (uneconomic)growth will use their considerable resources to convince the community that the community should pay the costs of growth. How does the tragedy of the commons relate to launching wars?
The world’s oceans are a perfect example of the tragedy of the commons. By and large they are unmanaged commons and they are destroyed by high tech fisheries. This is tragic for local fishermen who have lived off the oceans for centuries. Small conflicts over resources can lead to wars.”
When it comes to war… look at Iraq. The poor GIs getting shot and killed are paying an enormous cost. Bush seems to think there is a law of conservation of terrorists, that is to say, “There are a certain number of terrorists in the world and you kill them all and you solve the problem.” Unfortunately, this doesn’t solve the problem at all. We aren’t reducing terrorism; rather, we are increasing it.
Where does the role of economist, Kenneth Boulding, play into the topic of population growth?
He’s one of the few economists that I can respect. He was a colleague at the University of Colorado. He is known for saying that, “Anyone who thinks that steady growth can continue indefinitely, is either a madman or an economist.” I once asked Boulding if he said that, he gave me a funny smile and said, “Yes, I think so.” Boulding’s three laws are related to sustainability. In fact, in my opinion, they say it all. The second law is the important one. It says, the solution to problems create more problems. “The main source of problems is solutions.
Excerpt of Boulding’s Three Laws:
First Theorem: “The Dismal Theorem” If the only ultimate check on the growth of population is misery, then the population will grow until it is miserable enough to stop its growth.
Second Theorem: “The Utterly Dismal Theorem” This theorem states that any technical improvement can only relieve misery for a while, for so long as misery is the only check on population, the [technical] improvement will enable population to grow, and will soon enable more people to live in misery than before. The final result of [technical] improvements, therefore, is to increase the equilibrium population which is to increase the total sum of human misery.
Third Theorem: “The moderately cheerful form of the Dismal Theorem” Fortunately, it is not too difficult to restate the Dismal Theorem in a moderately cheerful form, which states that if something else, other than misery and starvation, can be found which will keep a prosperous population in check, the population does not have to grow until it is miserable and starves, and it can be stably prosperous. Until we know more, the Cheerful Theorem remains a question mark. Misery we know will do the trick. This is the only sure- fire automatic method of bringing population to equilibrium. Other things may do it.
This is reminiscent of Eric Sevareid’s Law – The Chief Cause of Problems is Solutions. In a society as complex as ours is there a way around this issue?
I don’t believe there is a way around this issue. In a society as complex as ours it’s impossible to anticipate the interaction of all agents. It’s very much like the operation of the National Electric Grid. No one knows exactly how it operates. So if a squirrel crosses the wrong power line the east coast can go without power. These things do in fact happen. More importantly, because our system is so complex it’s vulnerable. If we are talking about a war on terror we wouldn’t want such a vulnerable system.
In preparation for this interview you sent us a book review. My favorite quote from this review is the following: “A society that is totally dependent on high tech for the functioning of every aspect of the lives of its people is vulnerable to disruption by acts of God and acts of people. The complexities of our pres¬ent infrastructure predictably lead to unpredictable failures. More complex infrastructures anticipated for the future will probably experience larger unpredictable failures.”
There is big talk in Europe right now about putting large fields of solar collectors in the Sahara Desert and then transmitting the power under the Mediterranean Sea to Europe. It looks good on paper, but the long extended transmission lines will be vulnerable to the forces of nature and to terrorists. A small group of individuals could deprive Europe of a big fraction of its electricity for long periods of time. “Insanity” is the only word I can think of to describe plans to build this incredibly expensive system that is so transparently vulnerable to sabotage.”
In other words, complex infrastructure(s) translate into unpredictable failures. When it comes to alternative energy, most solutions are complex. What’s your opinion of alternative energy sources?
If alternative energies are to replace existing technologies very sizable investments would be required. I often wonder if there is enough capital in the world to replace this existing energy production, that is, to go from coal & natural gas to geothermal, wind or or solar. I don’t know the answer to the investment question.
What I do know is that it’s very difficult to manage wind energy. Currently, coal plants provide base loads and then natural gas (or hydroelectric) turbines are used to meet peak loads. But when you factor wind into your management scheme things become very difficult. You don’t know where the wind is blowing, how much, when, or in what direction it’s blowing. Then you have to factor this into your management. With 5% of your electricity coming from wind this “might” be manageable but to increase it to 50% or 60% it’s very difficult. Most people don’t pay attention to the difficulties of managing electrical demand.
Is the culprit of global warming population growth? Are you suggesting that unless we have major breakthroughs in technology population growth will undermine most current energy initiatives?
Al Gore understands that population growth is the problem. But he doesn’t recommend doing anything to reduce overpopulation which is the cause of the problems.. It is politically incorrect to talk about population growth. The last US president that worried about population was Richard Nixon. He charted a major study called “The Rockefeller Commission Report.” This study was put together by some very talented people. Their conclusion was simple; they couldn’t see any benefit to further population growth in the US. Unfortunately, the study was put on the shelf and forgotten.
This reminds me of the Red Queen…the more she runs the more the walls/scenery catch up. What can we do?
This is something Malthus understood years ago. We still have economists and politicians that claim that Malthus was wrong. This is nonsense. I’ve read Malthus three times and he presents population problems very clearly. The message of Malthus, translated to today’s problems would be something like this: “Population growth has the potential to outstrip the growth in production of any of the resources that are necessary to sustain our population. This is as true today as it was a hundred years ago when he wrote his essay.
I’d like to ask you a question from the title of your own piece, “Why have scientists succumbed to political correctness?”
I don’t know. I think there is a widespread feeling amongst scientists and certainly among the population that science and technology will save us, so why worry about it? Here’s a story… I was once met with a state senator; he said to me “I’m not worried about running out of petroleum, you (pointing to me) scientists will figure out what ever we need.” So I asked him what was the last new source of energy scientists found? He didn’t have an answer,
so I suggested nuclear power – the process was discovered in Germany in 1939. Enrico Fermi had a reactor operating in 1942. By 1956 we had first commercial nuclear power reactor in this country. Since then, we have spent billions of public and private dollars and we only receive 20% of our electricity from nuclear power. Innovation on the large scale required by our overpopulated society will take time and costs billions of dollars..
Even if science/technology develops the appropriate energy solutions. These solutions would have to be developed and implemented at the same rate as the population growth?
What you must realize is that technological improvements by design allow for and encourage more growth. This is like prescribing aspirin for cancer. As for the timing you’re absolutely right: while technology develops populations keep compounding. And because the scale is so large it’s impossible to implement changes quick enough. In other words, it’s very difficult to get 30% of the population using hybrid electric cars in anything short of 20 years.
Let’s talk about employment. Does growth solve unemployment problems?
If creating jobs reduced unemployment, Colorado would have negative unemployment (or whatever that means). For decades we have been creating jobs and we still have unemployment. No matter how many jobs you create you can’t get off unemployment. This is a consequence of people moving around – a constitutionally protected right.
Newly created jobs in a community temporarily lowers the unemployment rate (say from 5% to 4%), but then people move into the community to restore the unemployment rate to its earlier higher value (of 5%). Yet this is 5% of the no larger population, so more individuals are out of work than before.
What’s your opinion of national unemployment rates and the recent crisis?
For years, we have promoted an insane policy of exporting jobs and importing people. So now it’s catching up with us. Any country that has to import people to do the work of the country is unsustainable. One cannot sustain a world in which some regions have high standards of living while others have low standards of living. All countries cannot simultaneously be net importers of carrying capacity. World trade involves the exportation and importation of carrying capacity.
Tell us more about carrying capacity and trade.
Carrying capacity is a measure of how many people can be supported indefinitely. Therefore if any fraction of global warming is due to the actions of humans, this alone proves that human populations are larger than the carrying capacity of the earth. Sustainability requires that the size of the population be less than or equal to the carrying capacity of the ecosystem for the desired standard of living.
Many economists have raised concerns over countries particularly European countries which have experienced zero population growth rates (or negative population rates). They claim that these rates will burden “entitlements” such as social security… So clearly the answer is to have higher birth rates…unfortunately this only exacerbates the problems of “sustainability.” What’s your take?
Social Security and such projects are Ponzi schemes. They depend on having more and more people paying every year or they collapse. In effect, Social Security will collapse when there aren’t enough young workers. Getting the population back on the growth curve isn’t a long term answer. That makes all the other problems more difficult. So what you have to do is refinance social security – by raising taxes, reducing benefits, or altering the retirement age.
It’s so sad to see European politicians offering bonuses to couples to have more children because they are afraid of slowing growth rates. What people don’t realize is that declining growth rates are the way to sustainability.
You talk about how zero or negative population growth rates translate into higher standards of living. Can you comment on this?
Thirty years ago when the Chinese put their one child per family policy, there statement of justification was that population growth interferes with economic development. In 30 years, they have proven this is true. We in the U.S. haven’t learned this lesson – if you spend all your resources to take care of new people you have no resources to take care of existing citizens.
That’s interesting; we look at China as an economic miracle. Not many attribute much of this success to controlled population growth. This brings me to my next question: many population problems will not be solved unless Americans are consistently implementing plans for the next 70 years. How do we manage this given our political structures? Does China have an advantage?
That’s a great difficulty. Planning horizons in a democracy are based in term years (2, 4, 6 years). Unfortunately, if you change fertility rates it can take 50-70 years before you see the full effects of a change in fertility. This is called population momentum which is a mismatch to our democracy. Politicians implement changes that benefit us in the short term over the long term.
Have you ever calculated the required population for all countries to enjoy the standard of living experienced by Americans?
I haven’t done that, and there isn’t any specific formula. It depends on the standard of living. The most I can do is quote David Pimentel who is a global agricultural scientist at Cornell University. He says that a sustainable world population living at current US dietary level would consist of two billion people. Furthermore, he suggests that a sustainable US population at current dietary levels would have to be around 130-150 million people, which is the population of the US around World War II.
So, how do we get there? My answer is that the government should bring the issue to the forefront and ask; how large do we (as a nation) want to be and what benefit is there from population growth. Then, we need to set goals and plan accordingly. The key is to make family planning available widely throughout the US and the world – with the goal that every child is a wanted child.
You’ve written that, “The benefits of population growth accrue to a few; while the costs are borne by all of society.” Let’s enumerate some of the costs borne by society and a potential solution.
Individuals who benefit from growth will continue to exert strong pressures supporting and encouraging both population growth and growth in rates of consumption of resources.
The individuals who promote growth are motivated by the recognition that growth is good for them. In order to gain public support for their goals, they must convince people that population growth and growth in the rates of consumption of resources are also good for society. [This is the Charles Wilson argument: if it is good for General Motors, it is good for the United States.] (Yates 1983) As for the costs borne by society – with increased growth you have to provide police, fire, schools, waste removal, clean water, and a variety of other infrastructure projects. These services have to be paid for – but they aren’t paid for by growth. Schools in particular suffer. The school systems get their operating expenses from the taxes and to get capital expenses they have to issue bonds. Thus, all tax payers have to pay higher taxes to accommodate schools for new kids.
The solution is to tax growth, put a tax on real estate transactions (both at local levels and state levels) and use this tax to fund new projects.
Where are most economists confused on this issue of growth rates & consumption?
Economists think of infinite substitutability. They cite the example of shifting out of whale oil to petroleum or from wood to coal. Economists suggest that this can continue indefinitely. Unfortunately there are no close substitutes for petroleum. Furthermore, we already know which substitutes exist and they are very costly to access. The substitutability age is no longer as prominent.
What books would you recommend we read to understand population growth rate issues?
I recommend reading Richard Heinberg’s books, “Peak Oil” and “Peak Everything.” He clearly understands the issues.
Is there any hope given the actions of the current administration?
I certainly welcome the new administration, but the problem is we have the same Congress. This Congress enjoys the status quo, they are protective of their own interests, and tey listen to lobbyists. So as someone once said, “we have the best government money can buy.”
Growth never pays for itself. One of the biggest culprits is the federal government. Almost all states have requirements for a balanced budget. The federal government does not have this requirement. As a consequence the federal government is now paying for state schools, highways, sewage systems, bridges. This has happened because the local economy can’t support local population growth. Therefore, the main responsibility of members of Congress is to bring home federal grants to pay for the results of population growth in their representative district.
Another thing to remember is that inflation is a tax on everyone. So if the federal government issues bonds to pay for the consequences of growth (infrastructure, etc) this is likely to result in inflation. Thus, we will all bear the costs. Having looked at our national debt levels, I’m worried that the inflation could be very severe.
That said, stopping population growth is a necessary condition for sustainability, but it isn’t a sufficient condition.
Let’s assume we could implement population growth constraints. What else must be done?
Assuming you can constrain population growth rates, you have to implement every possible efficiency improvement (meaning energy, design, etc). In addition, you would have to create an environmental agency to stop polluters and require existing sources of pollution to be removed. The US population growth rate is the highest of any industrial nation. The US can’t preach for other countries to limit population growth unless we are willing to set an example and do so first.
Key Points to Remember: By Albert Bartlett:
When applied to material things, the term “sustainable growth” is an oxymoron. (It is possible to have sustainable growth of non-material things such as inflation.) Perhaps this is why inflation rates are sustainable or as some politicians would say hopefully sustainable in moderate amounts. We have seen how major national and international reports misrepresent and downplay (marginalize) the quantitative importance of the arithmetic of population sizes and growth.
1. One has to ask if it is possible to have an increase in economic activity (growth) without having increases in the rates of consumption of non-renewable resources? If so, under what conditions can this happen? Are we moving toward those conditions today?
2. What courses of action that could be followed to meet the needs of the present, but which, in doing so, would not limit the ability of generations, throughout the distant future, to meet their own needs?
3. The size of population that can be sustained (the carrying capacity) and the sustainable average standards of living of the population are inversely related to one another. “This runs counter to most traditional entrepreneurial myths of sustainable growth and rising standards of living”
I come back to an Eric Sevareid quote: “The chief cause of problems is solutions.” That is so important. For example, as long as there’s population growth, urban planning is bound to make everything worse. Here’s why. Essentially all the problems planners must deal with are caused by population growth. And planners are trained to solve problems. For a planner, a problem is anything that inhibits population growth. So when you solve the problem you are encouraging more population growth, and this makes everything worse.
Professor thank you for taking the time to answer our questions. We will continue to track your progress. I wish you the best of health. For More information about Professor Bartlett visit Albartlett.org
Miguel Barbosa
Founder of
[www.simoleonsense.com]
Monday, March 29, 2010
Catholic Church Update, by Matt Taibbi
We've commented before on this prolific and insightful writer. Here he is at his screamingly funny and accurate best, on the recurrent and endless Catholic church molestation scandal:
The Catholic Church is a Criminal Enterprise
By MATT TAIBBI
The Holy See’s reaction to both stories has been swift. An unsigned editorial this week in the Vatican newspaper L’Osservatore Romano attacked the New York Times by name, accusing the paper of willfully ignoring the “truth” of Ratzinger/Benedict’s record and of attempting “to instrumentalize, without any foundation in fact, horrible episodes and sorrowful events uncovered in some cases from decades ago.” The media, it continued, showed a “despicable intent of attacking, at whatever cost, Benedict XVI and his closest collaborators.”
Earlier in the week, New York’s archbishop, Timothy Dolan, used his blog to dismiss the New York Times reports and defend the pontiff’s record by arguing that authorities outside the church also are culpable. Stories about sexual abuse by priests were “fair” if “unending,” he wrote. But he condemned the media for portraying child sexual abuse “as a tragedy unique to the church alone. That, of course, is malarkey.”
via A pope with a problem – latimes.com.
Anyone who’s interested in losing his lunch should read the above-mentioned blog entry by New York archbishop Timothy Dolan in defense of Pope Benedict; the archbishop’s incredibly pompous and self-pitying rant is some of the most depraved horseshit I’ve ever seen on the internet, which is saying a lot.
One expects professional slimeballs like the public relations department of Goldman Sachs to pull out the “Well, we weren’t the only thieves!” argument when accused of financial malfeasance. But I almost couldn’t believe my eyes as I read through Dolan’s retort and it dawned on me that he was actually going to use the “We weren’t the only child molesters!” excuse. Dolan must have very roomy man-robes, because it seems to me you’d need a set of balls like two moons of Jupiter to say such a thing in public and expect it to fly. But this is exactly what Dolan does; he bases his entire defense of the Church on the idea that others are equally culpable. The relevant section of his piece:
What adds to our anger over the nauseating abuse and the awful misjudgment in reassigning such a dangerous man, though, is the glaring fact that we never see similar headlines that would actually be “news”: How about these, for example?
– “Doctor Asserts He Ignored Abuse Warnings,” since Dr. Huth admits in the article that he, in fact, told the archdiocese the abusing priest could be reassigned under certain restrictions, a prescription today recognized as terribly wrong;
– “Doctor Asserts Public Schools Ignored Abuse Warnings,” since the data of Dr. Carol Shakeshaft concludes that the number of cases of abuse of minors by teachers, coaches, counsellors, and staff in government schools is much, much worse than by priests;
– “Doctor Asserts Judges (or Police, Lawyers, District Attorneys, Therapists, Parole Officers) Ignored Abuse Warnings,” since we now know the sober fact that no one in the healing and law enforcement professions knew back then the depth of the scourge of abuse, or the now-taken-for-granted conclusion that abusers of young people can never safely work closely with them again.
The most revolting part of this response is the last bit about how “no one knew… back then” the depth of the scourge of abuse, or the fact that child molesters cannot be allowed near children ever again once caught. Dolan is trying to get us to focus on the 1962 case, but the truth is that as recently as this last decade, the Church’s doctrinal office elected to proceed with church trials for less than 10% of the 3000 cases of abuse reported to them between the years of 2000 and 2010.
And just a few days after this blog entry of Dolan’s, the Times would come out with another story indicating that the current Pope, then a Cardinal named Joseph Ratzinger, seems to have quashed an effort to bring a serial child abuser named Lawrence Murphy to a church trial. The inaction of Ratzinger’s office resulted in Murphy being allowed to die “in the dignity of the priesthood,” which was his wish as expressed in a letter to then-Cardinal Ratzinger in January 1998.
So while schools, parole officers, judges, lawyers and therapists may have been deficient in their understanding of child abuse back in 1962 (although I’m sorry — it could have been 1562, if someone molested my child and was allowed back in the priesthood, I’d be reaching for an axe), the Catholic church is alone among all of them in continuing to not get it since then. Despite massive public scandal over the course of what now is decades, they continue to deflect and shield child molesters as a matter of institutional routine. The ugliest part of the New York Times story wasn’t even the involvement of Ratzinger in this mess but the fact that three successive archbishops failed to do anything about Murphy, a man who apparently molested upwards of 200 children.
(And not only did he molest these children, but he clearly was not forthcoming about his crimes when examined by experts in sexual abuse . In the notes of one such expert there is a telling notation: “Denies sexual contact with anyone not named in outside complaints, i.e. admits to sexual contact only with those accused of!” The expert included that exclamation point, too.)
So this monster who was known to the highest authorities in the church to be a monster was allowed to die an active priest who was allowed to work with children for 24 years even after he was exposed, until the end of his life. For Dolan then to lay all this off on 1962 mores is disgusting all by itself and totally disingenuous.
But even worse — what does Dolan’s whiny deflecting and excuse-making say about the church as an arbiter of ethical values? These pompous assholes run around in their poofy robes and dresses shaking smoke-filled decanters with important expressions on their faces and pretending to great insight about grace and humility, but here we have the head of the largest Diocese in America teaching his entire congregation that when caught committing a terrible sin, the appropriate response is to blame the media and pull the “All the other kids were doing it, too!” stunt!
I was raised Catholic but stopped going to church at the age of 12. I was a complete idiot at that age with regard to almost every other area of human knowledge, but even I knew back then that the church was a scam. There are good and decent people working as individual priests, but the institution as a whole is a gang of cheap charlatans preying on peoples’ guilt feelings (which of course are cultivated intentionally by the church, which teaches children to be ashamed of their natural sexuality) in order to solicit a lifetime of contributions.
When I see a Catholic priest chanting his ridiculous incantations and waving his holy smoke over someone’s gravesite or at a wedding, the vibe I get is exactly the same as the one I get watching a plumber groan and moan and babble gibberish about all the different things wrong with your kitchen pipes, when in reality all he had to do was replace a washer. It’s the same as picking up your car after an oil change and listening to the mechanic rattle off a list of charges totaling thousands for the nineteen extra things he looked at under your hood, just out of concern for your safety… And when you protest, no, there was nothing wrong with my alternator, I’m not paying for that, he tries to bullshit you — oh, yes there was, trust me, if we hadn’ta fixed that, your car woulda died on the highway within a week.
That’s all the church is. They’re a giant for-profit company using predatory salesmanship to sell what they themselves know is a defective, outmoded, basically unnecessary product. They’ll use any means necessary to keep their market share and if they have to lie and cheat and deflect and point fingers to keep the racket going, they’ll do it, just like any other sleazeball company.
But I think it’s time we started considering that what the church is is even worse than that. It’s possible we should start wondering if the church is also a criminal organization that in this country, anyway, should be broken up using RICO statutes.
One of the few areas where I agreed with George Bush was in the notion that a country providing safe haven to terrorists should itself be treated as a terrorist organization. Morally this isn’t a difficult one to figure out; a country that keeps house for a bin Laden and doesn’t assist other countries in trying to catch him is a rogue state, one that should be booted out of the community of nations.
We don’t permit countries that harbor terrorists to participate in international society, but the Catholic Church — an organization that has been proven over and over again to systematically enable child molesters, right up now to the level of the Pope — is given a free pass. In fact the Church is not only not sanctioned in any serious way, it gets to retain its outrageous tax-exempt status, which makes its systematic child abuse, in this country at least, a government-subsidized activity.
Somewhere underneath all of this there is a root story that has to do with celibacy. The celibate status of its priests is basically the Catholic church’s last market advantage in the Christian religion racket, but human beings are not designed to be celibate and so problems naturally arise among the population of priests forced to live that terrible lifestyle. Just as it refuses to change its insane and criminal stance on birth control and condoms, the church refuses to change its horrifically cruel policy about priestly celibacy. That’s because it quite correctly perceives that should it begin to dispense with the irrational precepts of its belief system, it would lose its appeal as an ancient purveyor of magical-mystery bullshit and become just a bigger, better-financed, and infinitely more depressing version of a Tony Robbins self-help program.
Therefore it must cling to its miserable celibacy in order to keep its sordid business scheme going; and if clinging to its miserable celibacy means having to look the other way while children are serially molested by its sexually stunted and tortured employees, well, so be it.
If you look at it that way, the church’s institutional behavior is far worse than is commonly believed. It’s not just a matter of an intractable bureaucracy responding too slowly or too insensitively to some scattered accidents of fate. This is more like the situation of a car company that continues selling a cheap but faulty brake system because it has calculated that it stands to make more money selling the cars than it does to lose in lawsuits. The only difference is, a car company can fix the brakes if it wants to. What the Catholic church is selling is by definition faulty. It can’t change, or it will be out of business. So even if not changing means kids will be continue to be molested, it doesn’t change.
I think Chris Hitchens said this once, and I agree with him; if I were a person that made that kind of moral choice, I think I’d have to kill myself. But these guys not only don’t kill themselves, they go out in public ranting about how wronged they are and how they’ve been fucked over by the evil New York Times for airing out their dirty laundry. Again, I admire the balls, but seriously, they must know the game is almost up. Sooner or later people are going to catch on, the state is going to make a move, and there’s going to be a hell of a lot of church property going up for auction along with the seized Escalades of DEA-busted drug dealers. Or maybe not in this lifetime — but one can only hope.
The Catholic Church is a Criminal Enterprise
By MATT TAIBBI
The Holy See’s reaction to both stories has been swift. An unsigned editorial this week in the Vatican newspaper L’Osservatore Romano attacked the New York Times by name, accusing the paper of willfully ignoring the “truth” of Ratzinger/Benedict’s record and of attempting “to instrumentalize, without any foundation in fact, horrible episodes and sorrowful events uncovered in some cases from decades ago.” The media, it continued, showed a “despicable intent of attacking, at whatever cost, Benedict XVI and his closest collaborators.”
Earlier in the week, New York’s archbishop, Timothy Dolan, used his blog to dismiss the New York Times reports and defend the pontiff’s record by arguing that authorities outside the church also are culpable. Stories about sexual abuse by priests were “fair” if “unending,” he wrote. But he condemned the media for portraying child sexual abuse “as a tragedy unique to the church alone. That, of course, is malarkey.”
via A pope with a problem – latimes.com.
Anyone who’s interested in losing his lunch should read the above-mentioned blog entry by New York archbishop Timothy Dolan in defense of Pope Benedict; the archbishop’s incredibly pompous and self-pitying rant is some of the most depraved horseshit I’ve ever seen on the internet, which is saying a lot.
One expects professional slimeballs like the public relations department of Goldman Sachs to pull out the “Well, we weren’t the only thieves!” argument when accused of financial malfeasance. But I almost couldn’t believe my eyes as I read through Dolan’s retort and it dawned on me that he was actually going to use the “We weren’t the only child molesters!” excuse. Dolan must have very roomy man-robes, because it seems to me you’d need a set of balls like two moons of Jupiter to say such a thing in public and expect it to fly. But this is exactly what Dolan does; he bases his entire defense of the Church on the idea that others are equally culpable. The relevant section of his piece:
What adds to our anger over the nauseating abuse and the awful misjudgment in reassigning such a dangerous man, though, is the glaring fact that we never see similar headlines that would actually be “news”: How about these, for example?
– “Doctor Asserts He Ignored Abuse Warnings,” since Dr. Huth admits in the article that he, in fact, told the archdiocese the abusing priest could be reassigned under certain restrictions, a prescription today recognized as terribly wrong;
– “Doctor Asserts Public Schools Ignored Abuse Warnings,” since the data of Dr. Carol Shakeshaft concludes that the number of cases of abuse of minors by teachers, coaches, counsellors, and staff in government schools is much, much worse than by priests;
– “Doctor Asserts Judges (or Police, Lawyers, District Attorneys, Therapists, Parole Officers) Ignored Abuse Warnings,” since we now know the sober fact that no one in the healing and law enforcement professions knew back then the depth of the scourge of abuse, or the now-taken-for-granted conclusion that abusers of young people can never safely work closely with them again.
The most revolting part of this response is the last bit about how “no one knew… back then” the depth of the scourge of abuse, or the fact that child molesters cannot be allowed near children ever again once caught. Dolan is trying to get us to focus on the 1962 case, but the truth is that as recently as this last decade, the Church’s doctrinal office elected to proceed with church trials for less than 10% of the 3000 cases of abuse reported to them between the years of 2000 and 2010.
And just a few days after this blog entry of Dolan’s, the Times would come out with another story indicating that the current Pope, then a Cardinal named Joseph Ratzinger, seems to have quashed an effort to bring a serial child abuser named Lawrence Murphy to a church trial. The inaction of Ratzinger’s office resulted in Murphy being allowed to die “in the dignity of the priesthood,” which was his wish as expressed in a letter to then-Cardinal Ratzinger in January 1998.
So while schools, parole officers, judges, lawyers and therapists may have been deficient in their understanding of child abuse back in 1962 (although I’m sorry — it could have been 1562, if someone molested my child and was allowed back in the priesthood, I’d be reaching for an axe), the Catholic church is alone among all of them in continuing to not get it since then. Despite massive public scandal over the course of what now is decades, they continue to deflect and shield child molesters as a matter of institutional routine. The ugliest part of the New York Times story wasn’t even the involvement of Ratzinger in this mess but the fact that three successive archbishops failed to do anything about Murphy, a man who apparently molested upwards of 200 children.
(And not only did he molest these children, but he clearly was not forthcoming about his crimes when examined by experts in sexual abuse . In the notes of one such expert there is a telling notation: “Denies sexual contact with anyone not named in outside complaints, i.e. admits to sexual contact only with those accused of!” The expert included that exclamation point, too.)
So this monster who was known to the highest authorities in the church to be a monster was allowed to die an active priest who was allowed to work with children for 24 years even after he was exposed, until the end of his life. For Dolan then to lay all this off on 1962 mores is disgusting all by itself and totally disingenuous.
But even worse — what does Dolan’s whiny deflecting and excuse-making say about the church as an arbiter of ethical values? These pompous assholes run around in their poofy robes and dresses shaking smoke-filled decanters with important expressions on their faces and pretending to great insight about grace and humility, but here we have the head of the largest Diocese in America teaching his entire congregation that when caught committing a terrible sin, the appropriate response is to blame the media and pull the “All the other kids were doing it, too!” stunt!
I was raised Catholic but stopped going to church at the age of 12. I was a complete idiot at that age with regard to almost every other area of human knowledge, but even I knew back then that the church was a scam. There are good and decent people working as individual priests, but the institution as a whole is a gang of cheap charlatans preying on peoples’ guilt feelings (which of course are cultivated intentionally by the church, which teaches children to be ashamed of their natural sexuality) in order to solicit a lifetime of contributions.
When I see a Catholic priest chanting his ridiculous incantations and waving his holy smoke over someone’s gravesite or at a wedding, the vibe I get is exactly the same as the one I get watching a plumber groan and moan and babble gibberish about all the different things wrong with your kitchen pipes, when in reality all he had to do was replace a washer. It’s the same as picking up your car after an oil change and listening to the mechanic rattle off a list of charges totaling thousands for the nineteen extra things he looked at under your hood, just out of concern for your safety… And when you protest, no, there was nothing wrong with my alternator, I’m not paying for that, he tries to bullshit you — oh, yes there was, trust me, if we hadn’ta fixed that, your car woulda died on the highway within a week.
That’s all the church is. They’re a giant for-profit company using predatory salesmanship to sell what they themselves know is a defective, outmoded, basically unnecessary product. They’ll use any means necessary to keep their market share and if they have to lie and cheat and deflect and point fingers to keep the racket going, they’ll do it, just like any other sleazeball company.
But I think it’s time we started considering that what the church is is even worse than that. It’s possible we should start wondering if the church is also a criminal organization that in this country, anyway, should be broken up using RICO statutes.
One of the few areas where I agreed with George Bush was in the notion that a country providing safe haven to terrorists should itself be treated as a terrorist organization. Morally this isn’t a difficult one to figure out; a country that keeps house for a bin Laden and doesn’t assist other countries in trying to catch him is a rogue state, one that should be booted out of the community of nations.
We don’t permit countries that harbor terrorists to participate in international society, but the Catholic Church — an organization that has been proven over and over again to systematically enable child molesters, right up now to the level of the Pope — is given a free pass. In fact the Church is not only not sanctioned in any serious way, it gets to retain its outrageous tax-exempt status, which makes its systematic child abuse, in this country at least, a government-subsidized activity.
Somewhere underneath all of this there is a root story that has to do with celibacy. The celibate status of its priests is basically the Catholic church’s last market advantage in the Christian religion racket, but human beings are not designed to be celibate and so problems naturally arise among the population of priests forced to live that terrible lifestyle. Just as it refuses to change its insane and criminal stance on birth control and condoms, the church refuses to change its horrifically cruel policy about priestly celibacy. That’s because it quite correctly perceives that should it begin to dispense with the irrational precepts of its belief system, it would lose its appeal as an ancient purveyor of magical-mystery bullshit and become just a bigger, better-financed, and infinitely more depressing version of a Tony Robbins self-help program.
Therefore it must cling to its miserable celibacy in order to keep its sordid business scheme going; and if clinging to its miserable celibacy means having to look the other way while children are serially molested by its sexually stunted and tortured employees, well, so be it.
If you look at it that way, the church’s institutional behavior is far worse than is commonly believed. It’s not just a matter of an intractable bureaucracy responding too slowly or too insensitively to some scattered accidents of fate. This is more like the situation of a car company that continues selling a cheap but faulty brake system because it has calculated that it stands to make more money selling the cars than it does to lose in lawsuits. The only difference is, a car company can fix the brakes if it wants to. What the Catholic church is selling is by definition faulty. It can’t change, or it will be out of business. So even if not changing means kids will be continue to be molested, it doesn’t change.
I think Chris Hitchens said this once, and I agree with him; if I were a person that made that kind of moral choice, I think I’d have to kill myself. But these guys not only don’t kill themselves, they go out in public ranting about how wronged they are and how they’ve been fucked over by the evil New York Times for airing out their dirty laundry. Again, I admire the balls, but seriously, they must know the game is almost up. Sooner or later people are going to catch on, the state is going to make a move, and there’s going to be a hell of a lot of church property going up for auction along with the seized Escalades of DEA-busted drug dealers. Or maybe not in this lifetime — but one can only hope.
Wednesday, March 10, 2010
A Favorite Quote
"The fact that people are poor or discriminated against doesn't necessarily endow them with any special qualities of justice, nobility, charity or compassion."
—Saul Alinsky
—Saul Alinsky
Monday, March 01, 2010
"No One Saw This Coming"
The next time you hear this, think about the following (wonky, with an economic emphasis, but devastating in its own way). Okay, it's fifty-one pages, but well worth reading, at least the conclusions, and you might want to check out the folks who did actually get it right this time, since so so many got it wrong.
Matt Taibbi's Con Games...
Well worth a read. Here's the piece in its entirety:
Wall Street's Bailout Hustle
Goldman Sachs and other big banks aren't just pocketing the trillions we gave them to rescue the economy - they're re-creating the conditions for another crash
MATT TAIBBI
Posted Feb 17, 2010 5:57 AM
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On January 21st, Lloyd Blankfein left a peculiar voicemail message on the work phones of his employees at Goldman Sachs. Fast becoming America's pre-eminent Marvel Comics supervillain, the CEO used the call to deploy his secret weapon: a pair of giant, nuclear-powered testicles. In his message, Blankfein addressed his plan to pay out gigantic year-end bonuses amid widespread controversy over Goldman's role in precipitating the global financial crisis.
The bank had already set aside a tidy $16.2 billion for salaries and bonuses — meaning that Goldman employees were each set to take home an average of $498,246, a number roughly commensurate with what they received during the bubble years. Still, the troops were worried: There were rumors that Dr. Ballsachs, bowing to political pressure, might be forced to scale the number back. After all, the country was broke, 14.8 million Americans were stranded on the unemployment line, and Barack Obama and the Democrats were trying to recover the populist high ground after their bitch-whipping in Massachusetts by calling for a "bailout tax" on banks. Maybe this wasn't the right time for Goldman to be throwing its annual Roman bonus orgy.
Not to worry, Blankfein reassured employees. "In a year that proved to have no shortage of story lines," he said, "I believe very strongly that performance is the ultimate narrative."
Translation: We made a shitload of money last year because we're so amazing at our jobs, so fuck all those people who want us to reduce our bonuses.
Goldman wasn't alone. The nation's six largest banks — all committed to this balls-out, I drink your milkshake! strategy of flagrantly gorging themselves as America goes hungry — set aside a whopping $140 billion for executive compensation last year, a sum only slightly less than the $164 billion they paid themselves in the pre-crash year of 2007. In a gesture of self-sacrifice, Blankfein himself took a humiliatingly low bonus of $9 million, less than the 2009 pay of elephantine New York Knicks washout Eddy Curry. But in reality, not much had changed. "What is the state of our moral being when Lloyd Blankfein taking a $9 million bonus is viewed as this great act of contrition, when every penny of it was a direct transfer from the taxpayer?" asks Eliot Spitzer, who tried to hold Wall Street accountable during his own ill-fated stint as governor of New York.
Beyond a few such bleats of outrage, however, the huge payout was met, by and large, with a collective sigh of resignation. Because beneath America's populist veneer, on a more subtle strata of the national psyche, there remains a strong temptation to not really give a shit. The rich, after all, have always made way too much money; what's the difference if some fat cat in New York pockets $20 million instead of $10 million?
The only reason such apathy exists, however, is because there's still a widespread misunderstanding of how exactly Wall Street "earns" its money, with emphasis on the quotation marks around "earns." The question everyone should be asking, as one bailout recipient after another posts massive profits — Goldman reported $13.4 billion in profits last year, after paying out that $16.2 billion in bonuses and compensation — is this: In an economy as horrible as ours, with every factory town between New York and Los Angeles looking like those hollowed-out ghost ships we see on History Channel documentaries like Shipwrecks of the Great Lakes, where in the hell did Wall Street's eye-popping profits come from, exactly? Did Goldman go from bailout city to $13.4 billion in the black because, as Blankfein suggests, its "performance" was just that awesome? A year and a half after they were minutes away from bankruptcy, how are these assholes not only back on their feet again, but hauling in bonuses at the same rate they were during the bubble?
The answer to that question is basically twofold: They raped the taxpayer, and they raped their clients.
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The bottom line is that banks like Goldman have learned absolutely nothing from the global economic meltdown. In fact, they're back conniving and playing speculative long shots in force — only this time with the full financial support of the U.S. government. In the process, they're rapidly re-creating the conditions for another crash, with the same actors once again playing the same crazy games of financial chicken with the same toxic assets as before.
That's why this bonus business isn't merely a matter of getting upset about whether or not Lloyd Blankfein buys himself one tropical island or two on his next birthday. The reality is that the post-bailout era in which Goldman thrived has turned out to be a chaotic frenzy of high-stakes con-artistry, with taxpayers and clients bilked out of billions using a dizzying array of old-school hustles that, but for their ponderous complexity, would have fit well in slick grifter movies like The Sting and Matchstick Men. There's even a term in con-man lingo for what some of the banks are doing right now, with all their cosmetic gestures of scaling back bonuses and giving to charities. In the grifter world, calming down a mark so he doesn't call the cops is known as the "Cool Off."
To appreciate how all of these (sometimes brilliant) schemes work is to understand the difference between earning money and taking scores, and to realize that the profits these banks are posting don't so much represent national growth and recovery, but something closer to the losses one would report after a theft or a car crash. Many Americans instinctively understand this to be true — but, much like when your wife does it with your 300-pound plumber in the kids' playroom, knowing it and actually watching the whole scene from start to finish are two very different things. In that spirit, a brief history of the best 18 months of grifting this country has ever seen:
CON #1 THE SWOOP AND SQUAT
By now, most people who have followed the financial crisis know that the bailout of AIG was actually a bailout of AIG's "counterparties" — the big banks like Goldman to whom the insurance giant owed billions when it went belly up.
What is less understood is that the bailout of AIG counter-parties like Goldman and Société Générale, a French bank, actually began before the collapse of AIG, before the Federal Reserve paid them so much as a dollar. Nor is it understood that these counterparties actually accelerated the wreck of AIG in what was, ironically, something very like the old insurance scam known as "Swoop and Squat," in which a target car is trapped between two perpetrator vehicles and wrecked, with the mark in the game being the target's insurance company — in this case, the government.
This may sound far-fetched, but the financial crisis of 2008 was very much caused by a perverse series of legal incentives that often made failed investments worth more than thriving ones. Our economy was like a town where everyone has juicy insurance policies on their neighbors' cars and houses. In such a town, the driving will be suspiciously bad, and there will be a lot of fires.
AIG was the ultimate example of this dynamic. At the height of the housing boom, Goldman was selling billions in bundled mortgage-backed securities — often toxic crap of the no-money-down, no-identification-needed variety of home loan — to various institutional suckers like pensions and insurance companies, who frequently thought they were buying investment-grade instruments. At the same time, in a glaring example of the perverse incentives that existed and still exist, Goldman was also betting against those same sorts of securities — a practice that one government investigator compared to "selling a car with faulty brakes and then buying an insurance policy on the buyer of those cars."
Goldman often "insured" some of this garbage with AIG, using a virtually unregulated form of pseudo-insurance called credit-default swaps. Thanks in large part to deregulation pushed by Bob Rubin, former chairman of Goldman, and Treasury secretary under Bill Clinton, AIG wasn't required to actually have the capital to pay off the deals. As a result, banks like Goldman bought more than $440 billion worth of this bogus insurance from AIG, a huge blind bet that the taxpayer ended up having to eat.
Thus, when the housing bubble went crazy, Goldman made money coming and going. They made money selling the crap mortgages, and they made money by collecting on the bogus insurance from AIG when the crap mortgages flopped.
Still, the trick for Goldman was: how to collect the insurance money. As AIG headed into a tailspin that fateful summer of 2008, it looked like the beleaguered firm wasn't going to have the money to pay off the bogus insurance. So Goldman and other banks began demanding that AIG provide them with cash collateral. In the 15 months leading up to the collapse of AIG, Goldman received $5.9 billion in collateral. Société Générale, a bank holding lots of mortgage-backed crap originally underwritten by Goldman, received $5.5 billion. These collateral demands squeezing AIG from two sides were the "Swoop and Squat" that ultimately crashed the firm. "It put the company into a liquidity crisis," says Eric Dinallo, who was intimately involved in the AIG bailout as head of the New York State Insurance Department.
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It was a brilliant move. When a company like AIG is about to die, it isn't supposed to hand over big hunks of assets to a single creditor like Goldman; it's supposed to equitably distribute whatever assets it has left among all its creditors. Had AIG gone bankrupt, Goldman would have likely lost much of the $5.9 billion that it pocketed as collateral. "Any bankruptcy court that saw those collateral payments would have declined that transaction as a fraudulent conveyance," says Barry Ritholtz, the author of Bailout Nation. Instead, Goldman and the other counterparties got their money out in advance — putting a torch to what was left of AIG. Fans of the movie Goodfellas will recall Henry Hill and Tommy DeVito taking the same approach to the Bamboo Lounge nightclub they'd been gouging. Roll the Ray Liotta narration: "Finally, when there's nothing left, when you can't borrow another buck . . . you bust the joint out. You light a match."
And why not? After all, according to the terms of the bailout deal struck when AIG was taken over by the state in September 2008, Goldman was paid 100 cents on the dollar on an additional $12.9 billion it was owed by AIG — again, money it almost certainly would not have seen a fraction of had AIG proceeded to a normal bankruptcy. Along with the collateral it pocketed, that's $19 billion in pure cash that Goldman would not have "earned" without massive state intervention. How's that $13.4 billion in 2009 profits looking now? And that doesn't even include the direct bailouts of Goldman Sachs and other big banks, which began in earnest after the collapse of AIG.
CON #2 THE DOLLAR STORE
In the usual "DollarStore" or "Big Store" scam — popularized in movies like The Sting — a huge cast of con artists is hired to create a whole fake environment into which the unsuspecting mark walks and gets robbed over and over again. A warehouse is converted into a makeshift casino or off-track betting parlor, the fool walks in with money, leaves without it.
The two key elements to the Dollar Store scam are the whiz-bang theatrical redecorating job and the fact that everyone is in on it except the mark. In this case, a pair of investment banks were dressed up to look like commercial banks overnight, and it was the taxpayer who walked in and lost his shirt, confused by the appearance of what looked like real Federal Reserve officials minding the store.
Less than a week after the AIG bailout, Goldman and another investment bank, Morgan Stanley, applied for, and received, federal permission to become bank holding companies — a move that would make them eligible for much greater federal support. The stock prices of both firms were cratering, and there was talk that either or both might go the way of Lehman Brothers, another once-mighty investment bank that just a week earlier had disappeared from the face of the earth under the weight of its toxic assets. By law, a five-day waiting period was required for such a conversion — but the two banks got them overnight, with final approval actually coming only five days after the AIG bailout.
Why did they need those federal bank charters? This question is the key to understanding the entire bailout era — because this Dollar Store scam was the big one. Institutions that were, in reality, high-risk gambling houses were allowed to masquerade as conservative commercial banks. As a result of this new designation, they were given access to a virtually endless tap of "free money" by unsuspecting taxpayers. The $10 billion that Goldman received under the better-known TARP bailout was chump change in comparison to the smorgasbord of direct and indirect aid it qualified for as a commercial bank.
When Goldman Sachs and Morgan Stanley got their federal bank charters, they joined Bank of America, Citigroup, J.P. Morgan Chase and the other banking titans who could go to the Fed and borrow massive amounts of money at interest rates that, thanks to the aggressive rate-cutting policies of Fed chief Ben Bernanke during the crisis, soon sank to zero percent. The ability to go to the Fed and borrow big at next to no interest was what saved Goldman, Morgan Stanley and other banks from death in the fall of 2008. "They had no other way to raise capital at that moment, meaning they were on the brink of insolvency," says Nomi Prins, a former managing director at Goldman Sachs. "The Fed was the only shot."
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In fact, the Fed became not just a source of emergency borrowing that enabled Goldman and Morgan Stanley to stave off disaster — it became a source of long-term guaranteed income. Borrowing at zero percent interest, banks like Goldman now had virtually infinite ways to make money. In one of the most common maneuvers, they simply took the money they borrowed from the government at zero percent and lent it back to the government by buying Treasury bills that paid interest of three or four percent. It was basically a license to print money — no different than attaching an ATM to the side of the Federal Reserve.
"You're borrowing at zero, putting it out there at two or three percent, with hundreds of billions of dollars — man, you can make a lot of money that way," says the manager of one prominent hedge fund. "It's free money." Which goes a long way to explaining Goldman's enormous profits last year. But all that free money was amplified by another scam:
CON #3 THE PIG IN THE POKE
At one point or another, pretty much everyone who takes drugs has been burned by this one, also known as the "Rocks in the Box" scam or, in its more elaborate variations, the "Jamaican Switch." Someone sells you what looks like an eightball of coke in a baggie, you get home and, you dumbass, it's baby powder.
The scam's name comes from the Middle Ages, when some fool would be sold a bound and gagged pig that he would see being put into a bag; he'd miss the switch, then get home and find a tied-up cat in there instead. Hence the expression "Don't let the cat out of the bag."
The "Pig in the Poke" scam is another key to the entire bailout era. After the crash of the housing bubble — the largest asset bubble in history — the economy was suddenly flooded with securities backed by failing or near-failing home loans. In the cleanup phase after that bubble burst, the whole game was to get taxpayers, clients and shareholders to buy these worthless cats, but at pig prices.
One of the first times we saw the scam appear was in September 2008, right around the time that AIG was imploding. That was when the Fed changed some of its collateral rules, meaning banks that could once borrow only against sound collateral, like Treasury bills or AAA-rated corporate bonds, could now borrow against pretty much anything — including some of the mortgage-backed sewage that got us into this mess in the first place. In other words, banks that once had to show a real pig to borrow from the Fed could now show up with a cat and get pig money. "All of a sudden, banks were allowed to post absolute shit to the Fed's balance sheet," says the manager of the prominent hedge fund.
The Fed spelled it out on September 14th, 2008, when it changed the collateral rules for one of its first bailout facilities — the Primary Dealer Credit Facility, or PDCF. The Fed's own write-up described the changes: "With the Fed's action, all the kinds of collateral then in use . . . including non-investment-grade securities and equities . . . became eligible for pledge in the PDCF."
Translation: We now accept cats.
The Pig in the Poke also came into play in April of last year, when Congress pushed a little-known agency called the Financial Accounting Standards Board, or FASB, to change the so-called "mark-to-market" accounting rules. Until this rule change, banks had to assign a real-market price to all of their assets. If they had a balance sheet full of securities they had bought at $3 that were now only worth $1, they had to figure their year-end accounting using that $1 value. In other words, if you were the dope who bought a cat instead of a pig, you couldn't invite your shareholders to a slate of pork dinners come year-end accounting time.
But last April, FASB changed all that. From now on, it announced, banks could avoid reporting losses on some of their crappy cat investments simply by declaring that they would "more likely than not" hold on to them until they recovered their pig value. In short, the banks didn't even have to actually hold on to the toxic shit they owned — they just had to sort of promise to hold on to it.
That's why the "profit" numbers of a lot of these banks are really a joke. In many cases, we have absolutely no idea how many cats are in their proverbial bag. What they call "profits" might really be profits, only minus undeclared millions or billions in losses.
"They're hiding all this stuff from their shareholders," says Ritholtz, who was disgusted that the banks lobbied for the rule changes. "Now, suddenly banks that were happy to mark to market on the way up don't have to mark to market on the way down."
CON #4 THE RUMANIAN BOX
One of the great innovations of Victor Lustig, the legendary Depression-era con man who wrote the famous "Ten Commandments for Con Men," was a thing called the "Rumanian Box." This was a little machine that a mark would put a blank piece of paper into, only to see real currency come out the other side. The brilliant Lustig sold this Rumanian Box over and over again for vast sums — but he's been outdone by the modern barons of Wall Street, who managed to get themselves a real Rumanian Box.
How they accomplished this is a story that by itself highlights the challenge of placing this era in any kind of historical context of known financial crime. What the banks did was something that was never — and never could have been — thought of before. They took so much money from the government, and then did so little with it, that the state was forced to start printing new cash to throw at them. Even the great Lustig in his wildest, horniest dreams could never have dreamed up this one.
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The setup: By early 2009, the banks had already replenished themselves with billions if not trillions in bailout money. It wasn't just the $700 billion in TARP cash, the free money provided by the Fed, and the untold losses obscured by accounting tricks. Another new rule allowed banks to collect interest on the cash they were required by law to keep in reserve accounts at the Fed — meaning the state was now compensating the banks simply for guaranteeing their own solvency. And a new federal operation called the Temporary Liquidity Guarantee Program let insolvent and near-insolvent banks dispense with their deservedly ruined credit profiles and borrow on a clean slate, with FDIC backing. Goldman borrowed $29 billion on the government's good name, J.P. Morgan Chase $38 billion, and Bank of America $44 billion. "TLGP," says Prins, the former Goldman manager, "was a big one."
Collectively, all this largesse was worth trillions. The idea behind the flood of money, from the government's standpoint, was to spark a national recovery: We refill the banks' balance sheets, and they, in turn, start to lend money again, recharging the economy and producing jobs. "The banks were fast approaching insolvency," says Rep. Paul Kanjorski, a vocal critic of Wall Street who nevertheless defends the initial decision to bail out the banks. "It was vitally important that we recapitalize these institutions."
But here's the thing. Despite all these trillions in government rescues, despite the Fed slashing interest rates down to nothing and showering the banks with mountains of guarantees, Goldman and its friends had still not jump-started lending again by the first quarter of 2009. That's where those nuclear-powered balls of Lloyd Blankfein came into play, as Goldman and other banks basically threatened to pick up their bailout billions and go home if the government didn't fork over more cash — a lot more. "Even if the Fed could make interest rates negative, that wouldn't necessarily help," warned Goldman's chief domestic economist, Jan Hatzius. "We're in a deep recession mainly because the private sector, for a variety of reasons, has decided to save a lot more."
Translation: You can lower interest rates all you want, but we're still not fucking lending the bailout money to anyone in this economy. Until the government agreed to hand over even more goodies, the banks opted to join the rest of the "private sector" and "save" the taxpayer aid they had received — in the form of bonuses and compensation.
The ploy worked. In March of last year, the Fed sharply expanded a radical new program called quantitative easing, which effectively operated as a real-live Rumanian Box. The government put stacks of paper in one side, and out came $1.2 trillion "real" dollars.
The government used some of that freshly printed money to prop itself up by purchasing Treasury bonds — a desperation move, since Washington's demand for cash was so great post-Clusterfuck '08 that even the Chinese couldn't buy U.S. debt fast enough to keep America afloat. But the Fed used most of the new cash to buy mortgage-backed securities in an effort to spur home lending — instantly creating a massive market for major banks.
And what did the banks do with the proceeds? Among other things, they bought Treasury bonds, essentially lending the money back to the government, at interest. The money that came out of the magic Rumanian Box went from the government back to the government, with Wall Street stepping into the circle just long enough to get paid. And once quantitative easing ends, as it is scheduled to do in March, the flow of money for home loans will once again grind to a halt. The Mortgage Bankers Association expects the number of new residential mortgages to plunge by 40 percent this year.
CON #5 THE BIG MITT
All of that Rumanian box paper was made even more valuable by running it through the next stage of the grift. Michael Masters, one of the country's leading experts on commodities trading, compares this part of the scam to the poker game in the Bill Murray comedy Stripes. "It's like that scene where John Candy leans over to the guy who's new at poker and says, 'Let me see your cards,' then starts giving him advice," Masters says. "He looks at the hand, and the guy has bad cards, and he's like, 'Bluff me, come on! If it were me, I'd bet everything!' That's what it's like. It's like they're looking at your cards as they give you advice."
In more ways than one can count, the economy in the bailout era turned into a "Big Mitt," the con man's name for a rigged poker game. Everybody was indeed looking at everyone else's cards, in many cases with state sanction. Only taxpayers and clients were left out of the loop.
At the same time the Fed and the Treasury were making massive, earthshaking moves like quantitative easing and TARP, they were also consulting regularly with private advisory boards that include every major player on Wall Street. The Treasury Borrowing Advisory Committee has a J.P. Morgan executive as its chairman and a Goldman executive as its vice chairman, while the board advising the Fed includes bankers from Capital One and Bank of New York Mellon. That means that, in addition to getting great gobs of free money, the banks were also getting clear signals about when they were getting that money, making it possible to position themselves to make the appropriate investments.
One of the best examples of the banks blatantly gambling, and winning, on government moves was the Public-Private Investment Program, or PPIP. In this bizarre scheme cooked up by goofball-geek Treasury Secretary Tim Geithner, the government loaned money to hedge funds and other private investors to buy up the absolutely most toxic horseshit on the market — the same kind of high-risk, high-yield mortgages that were most responsible for triggering the financial chain reaction in the fall of 2008. These satanic deals were the basic currency of the bubble: Jobless dope fiends bought houses with no money down, and the big banks wrapped those mortgages into securities and then sold them off to pensions and other suckers as investment-grade deals. The whole point of the PPIP was to get private investors to relieve the banks of these dangerous assets before they hurt any more innocent bystanders.
But what did the banks do instead, once they got wind of the PPIP? They started buying that worthless crap again, presumably to sell back to the government at inflated prices! In the third quarter of last year, Goldman, Morgan Stanley, Citigroup and Bank of America combined to add $3.36 billion of exactly this horseshit to their balance sheets.
This brazen decision to gouge the taxpayer startled even hardened market observers. According to Michael Schlachter of the investment firm Wilshire Associates, it was "absolutely ridiculous" that the banks that were supposed to be reducing their exposure to these volatile instruments were instead loading up on them in order to make a quick buck. "Some of them created this mess," he said, "and they are making a killing undoing it."
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CON #6 THE WIRE
Here's the thing about our current economy. When Goldman and Morgan Stanley transformed overnight from investment banks into commercial banks, we were told this would mean a new era of "significantly tighter regulations and much closer supervision by bank examiners," as The New York Times put it the very next day. In reality, however, the conversion of Goldman and Morgan Stanley simply completed the dangerous concentration of power and wealth that began in 1999, when Congress repealed the Glass-Steagall Act — the Depression-era law that had prevented the merger of insurance firms, commercial banks and investment houses. Wall Street and the government became one giant dope house, where a few major players share valuable information between conflicted departments the way junkies share needles.
One of the most common practices is a thing called front-running, which is really no different from the old "Wire" con, another scam popularized in The Sting. But instead of intercepting a telegraph wire in order to bet on racetrack results ahead of the crowd, what Wall Street does is make bets ahead of valuable information they obtain in the course of everyday business.
Say you're working for the commodities desk of a big investment bank, and a major client — a pension fund, perhaps — calls you up and asks you to buy a billion dollars of oil futures for them. Once you place that huge order, the price of those futures is almost guaranteed to go up. If the guy in charge of asset management a few desks down from you somehow finds out about that, he can make a fortune for the bank by betting ahead of that client of yours. The deal would be instantaneous and undetectable, and it would offer huge profits. Your own client would lose money, of course — he'd end up paying a higher price for the oil futures he ordered, because you would have driven up the price. But that doesn't keep banks from screwing their own customers in this very way.
The scam is so blatant that Goldman Sachs actually warns its clients that something along these lines might happen to them. In the disclosure section at the back of a research paper the bank issued on January 15th, Goldman advises clients to buy some dubious high-yield bonds while admitting that the bank itself may bet against those same shitty bonds. "Our salespeople, traders and other professionals may provide oral or written market commentary or trading strategies to our clients and our proprietary trading desks that reflect opinions that are contrary to the opinions expressed in this research," the disclosure reads. "Our asset-management area, our proprietary-trading desks and investing businesses may make investment decisions that are inconsistent with the recommendations or views expressed in this research."
Banks like Goldman admit this stuff openly, despite the fact that there are securities laws that require banks to engage in "fair dealing with customers" and prohibit analysts from issuing opinions that are at odds with what they really think. And yet here they are, saying flat-out that they may be issuing an opinion at odds with what they really think.
To help them screw their own clients, the major investment banks employ high-speed computer programs that can glimpse orders from investors before the deals are processed and then make trades on behalf of the banks at speeds of fractions of a second. None of them will admit it, but everybody knows what this computerized trading — known as "flash trading" — really is. "Flash trading is nothing more than computerized front-running," says the prominent hedge-fund manager. The SEC voted to ban flash trading in September, but five months later it has yet to issue a regulation to put a stop to the practice.
Over the summer, Goldman suffered an embarrassment on that score when one of its employees, a Russian named Sergey Aleynikov, allegedly stole the bank's computerized trading code. In a court proceeding after Aleynikov's arrest, Assistant U.S. Attorney Joseph Facciponti reported that "the bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways."
Six months after a federal prosecutor admitted in open court that the Goldman trading program could be used to unfairly manipulate markets, the bank released its annual numbers. Among the notable details was the fact that a staggering 76 percent of its revenue came from trading, both for its clients and for its own account. "That is much, much higher than any other bank," says Prins, the former Goldman managing director. "If I were a client and I saw that they were making this much money from trading, I would question how badly I was getting screwed."
Why big institutional investors like pension funds continually come to Wall Street to get raped is the million-dollar question that many experienced observers puzzle over. Goldman's own explanation for this phenomenon is comedy of the highest order. In testimony before a government panel in January, Blankfein was confronted about his firm's practice of betting against the same sorts of investments it sells to clients. His response: "These are the professional investors who want this exposure."
In other words, our clients are big boys, so screw 'em if they're dumb enough to take the sucker bets I'm offering.
CON #7 THE RELOAD
Not many con men are good enough or brazen enough to con the same victim twice in a row, but the few who try have a name for this excellent sport: reloading. The usual way to reload on a repeat victim (called an "addict" in grifter parlance) is to rope him into trying to get back the money he just lost. This is exactly what started to happen late last year.
It's important to remember that the housing bubble itself was a classic confidence game — the Ponzi scheme. The Ponzi scheme is any scam in which old investors must be continually paid off with money from new investors to keep up what appear to be high rates of investment return. Residential housing was never as valuable as it seemed during the bubble; the soaring home values were instead a reflection of a continual upward rush of new investors in mortgage-backed securities, a rush that finally collapsed in 2008.
But by the end of 2009, the unimaginable was happening: The bubble was re-inflating. A bailout policy that was designed to help us get out from under the bursting of the largest asset bubble in history inadvertently produced exactly the opposite result, as all that government-fueled capital suddenly began flowing into the most dangerous and destructive investments all over again. Wall Street was going for the reload.
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A lot of this was the government's own fault, of course. By slashing interest rates to zero and flooding the market with money, the Fed was replicating the historic mistake that Alan Greenspan had made not once, but twice, before the tech bubble in the early 1990s and before the housing bubble in the early 2000s. By making sure that traditionally safe investments like CDs and savings accounts earned basically nothing, thanks to rock-bottom interest rates, investors were forced to go elsewhere to search for moneymaking opportunities.
Now we're in the same situation all over again, only far worse. Wall Street is flooded with government money, and interest rates that are not just low but flat are pushing investors to seek out more "creative" opportunities. (It's "Greenspan times 10," jokes one hedge-fund trader.) Some of that money could be put to use on Main Street, of course, backing the efforts of investment-worthy entrepreneurs. But that's not what our modern Wall Street is built to do. "They don't seem to want to lend to small and medium-sized business," says Rep. Brad Sherman, who serves on the House Financial Services Committee. "What they want to invest in is marketable securities. And the definition of small and medium-sized businesses, for the most part, is that they don't have marketable securities. They have bank loans."
In other words, unless you're dealing with the stock of a major, publicly traded company, or a giant pile of home mortgages, or the bonds of a large corporation, or a foreign currency, or oil futures, or some country's debt, or anything else that can be rapidly traded back and forth in huge numbers, factory-style, by big banks, you're not really on Wall Street's radar.
So with small business out of the picture, and the safe stuff not worth looking at thanks to the Fed's low interest rates, where did Wall Street go? Right back into the shit that got us here.
One trader, who asked not to be identified, recounts a story of what happened with his hedge fund this past fall. His firm wanted to short — that is, bet against — all the crap toxic bonds that were suddenly in vogue again. The fund's analysts had examined the fundamentals of these instruments and concluded that they were absolutely not good investments.
So they took a short position. One month passed, and they lost money. Another month passed — same thing. Finally, the trader just shrugged and decided to change course and buy.
"I said, 'Fuck it, let's make some money,'" he recalls. "I absolutely did not believe in the fundamentals of any of this stuff. However, I can get on the bandwagon, just so long as I know when to jump out of the car before it goes off the damn cliff!"
This is the very definition of bubble economics — betting on crowd behavior instead of on fundamentals. It's old investors betting on the arrival of new ones, with the value of the underlying thing itself being irrelevant. And this behavior is being driven, no surprise, by the biggest firms on Wall Street.
The research report published by Goldman Sachs on January 15th underlines this sort of thinking. Goldman issued a strong recommendation to buy exactly the sort of high-yield toxic crap our hedge-fund guy was, by then, driving rapidly toward the cliff. "Summarizing our views," the bank wrote, "we expect robust flows . . . to dominate fundamentals." In other words: This stuff is crap, but everyone's buying it in an awfully robust way, so you should too. Just like tech stocks in 1999, and mortgage-backed securities in 2006.
To sum up, this is what Lloyd Blankfein meant by "performance": Take massive sums of money from the government, sit on it until the government starts printing trillions of dollars in a desperate attempt to restart the economy, buy even more toxic assets to sell back to the government at inflated prices — and then, when all else fails, start driving us all toward the cliff again with a frank and open endorsement of bubble economics. I mean, shit — who wouldn't deserve billions in bonuses for doing all that?
Con artists have a word for the inability of their victims to accept that they've been scammed. They call it the "True Believer Syndrome." That's sort of where we are, in a state of nagging disbelief about the real problem on Wall Street. It isn't so much that we have inadequate rules or incompetent regulators, although both of these things are certainly true. The real problem is that it doesn't matter what regulations are in place if the people running the economy are rip-off artists. The system assumes a certain minimum level of ethical behavior and civic instinct over and above what is spelled out by the regulations. If those ethics are absent — well, this thing isn't going to work, no matter what we do. Sure, mugging old ladies is against the law, but it's also easy. To prevent it, we depend, for the most part, not on cops but on people making the conscious decision not to do it.
That's why the biggest gift the bankers got in the bailout was not fiscal but psychological. "The most valuable part of the bailout," says Rep. Sherman, "was the implicit guarantee that they're Too Big to Fail." Instead of liquidating and prosecuting the insolvent institutions that took us all down with them in a giant Ponzi scheme, we have showered them with money and guarantees and all sorts of other enabling gestures. And what should really freak everyone out is the fact that Wall Street immediately started skimming off its own rescue money. If the bailouts validated anew the crooked psychology of the bubble, the recent profit and bonus numbers show that the same psychology is back, thriving, and looking for new disasters to create. "It's evidence," says Rep. Kanjorski, "that they still don't get it."
More to the point, the fact that we haven't done much of anything to change the rules and behavior of Wall Street shows that we still don't get it. Instituting a bailout policy that stressed recapitalizing bad banks was like the addict coming back to the con man to get his lost money back. Ask yourself how well that ever works out. And then get ready for the reload.
Wall Street's Bailout Hustle
Goldman Sachs and other big banks aren't just pocketing the trillions we gave them to rescue the economy - they're re-creating the conditions for another crash
MATT TAIBBI
Posted Feb 17, 2010 5:57 AM
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On January 21st, Lloyd Blankfein left a peculiar voicemail message on the work phones of his employees at Goldman Sachs. Fast becoming America's pre-eminent Marvel Comics supervillain, the CEO used the call to deploy his secret weapon: a pair of giant, nuclear-powered testicles. In his message, Blankfein addressed his plan to pay out gigantic year-end bonuses amid widespread controversy over Goldman's role in precipitating the global financial crisis.
The bank had already set aside a tidy $16.2 billion for salaries and bonuses — meaning that Goldman employees were each set to take home an average of $498,246, a number roughly commensurate with what they received during the bubble years. Still, the troops were worried: There were rumors that Dr. Ballsachs, bowing to political pressure, might be forced to scale the number back. After all, the country was broke, 14.8 million Americans were stranded on the unemployment line, and Barack Obama and the Democrats were trying to recover the populist high ground after their bitch-whipping in Massachusetts by calling for a "bailout tax" on banks. Maybe this wasn't the right time for Goldman to be throwing its annual Roman bonus orgy.
Not to worry, Blankfein reassured employees. "In a year that proved to have no shortage of story lines," he said, "I believe very strongly that performance is the ultimate narrative."
Translation: We made a shitload of money last year because we're so amazing at our jobs, so fuck all those people who want us to reduce our bonuses.
Goldman wasn't alone. The nation's six largest banks — all committed to this balls-out, I drink your milkshake! strategy of flagrantly gorging themselves as America goes hungry — set aside a whopping $140 billion for executive compensation last year, a sum only slightly less than the $164 billion they paid themselves in the pre-crash year of 2007. In a gesture of self-sacrifice, Blankfein himself took a humiliatingly low bonus of $9 million, less than the 2009 pay of elephantine New York Knicks washout Eddy Curry. But in reality, not much had changed. "What is the state of our moral being when Lloyd Blankfein taking a $9 million bonus is viewed as this great act of contrition, when every penny of it was a direct transfer from the taxpayer?" asks Eliot Spitzer, who tried to hold Wall Street accountable during his own ill-fated stint as governor of New York.
Beyond a few such bleats of outrage, however, the huge payout was met, by and large, with a collective sigh of resignation. Because beneath America's populist veneer, on a more subtle strata of the national psyche, there remains a strong temptation to not really give a shit. The rich, after all, have always made way too much money; what's the difference if some fat cat in New York pockets $20 million instead of $10 million?
The only reason such apathy exists, however, is because there's still a widespread misunderstanding of how exactly Wall Street "earns" its money, with emphasis on the quotation marks around "earns." The question everyone should be asking, as one bailout recipient after another posts massive profits — Goldman reported $13.4 billion in profits last year, after paying out that $16.2 billion in bonuses and compensation — is this: In an economy as horrible as ours, with every factory town between New York and Los Angeles looking like those hollowed-out ghost ships we see on History Channel documentaries like Shipwrecks of the Great Lakes, where in the hell did Wall Street's eye-popping profits come from, exactly? Did Goldman go from bailout city to $13.4 billion in the black because, as Blankfein suggests, its "performance" was just that awesome? A year and a half after they were minutes away from bankruptcy, how are these assholes not only back on their feet again, but hauling in bonuses at the same rate they were during the bubble?
The answer to that question is basically twofold: They raped the taxpayer, and they raped their clients.
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The bottom line is that banks like Goldman have learned absolutely nothing from the global economic meltdown. In fact, they're back conniving and playing speculative long shots in force — only this time with the full financial support of the U.S. government. In the process, they're rapidly re-creating the conditions for another crash, with the same actors once again playing the same crazy games of financial chicken with the same toxic assets as before.
That's why this bonus business isn't merely a matter of getting upset about whether or not Lloyd Blankfein buys himself one tropical island or two on his next birthday. The reality is that the post-bailout era in which Goldman thrived has turned out to be a chaotic frenzy of high-stakes con-artistry, with taxpayers and clients bilked out of billions using a dizzying array of old-school hustles that, but for their ponderous complexity, would have fit well in slick grifter movies like The Sting and Matchstick Men. There's even a term in con-man lingo for what some of the banks are doing right now, with all their cosmetic gestures of scaling back bonuses and giving to charities. In the grifter world, calming down a mark so he doesn't call the cops is known as the "Cool Off."
To appreciate how all of these (sometimes brilliant) schemes work is to understand the difference between earning money and taking scores, and to realize that the profits these banks are posting don't so much represent national growth and recovery, but something closer to the losses one would report after a theft or a car crash. Many Americans instinctively understand this to be true — but, much like when your wife does it with your 300-pound plumber in the kids' playroom, knowing it and actually watching the whole scene from start to finish are two very different things. In that spirit, a brief history of the best 18 months of grifting this country has ever seen:
CON #1 THE SWOOP AND SQUAT
By now, most people who have followed the financial crisis know that the bailout of AIG was actually a bailout of AIG's "counterparties" — the big banks like Goldman to whom the insurance giant owed billions when it went belly up.
What is less understood is that the bailout of AIG counter-parties like Goldman and Société Générale, a French bank, actually began before the collapse of AIG, before the Federal Reserve paid them so much as a dollar. Nor is it understood that these counterparties actually accelerated the wreck of AIG in what was, ironically, something very like the old insurance scam known as "Swoop and Squat," in which a target car is trapped between two perpetrator vehicles and wrecked, with the mark in the game being the target's insurance company — in this case, the government.
This may sound far-fetched, but the financial crisis of 2008 was very much caused by a perverse series of legal incentives that often made failed investments worth more than thriving ones. Our economy was like a town where everyone has juicy insurance policies on their neighbors' cars and houses. In such a town, the driving will be suspiciously bad, and there will be a lot of fires.
AIG was the ultimate example of this dynamic. At the height of the housing boom, Goldman was selling billions in bundled mortgage-backed securities — often toxic crap of the no-money-down, no-identification-needed variety of home loan — to various institutional suckers like pensions and insurance companies, who frequently thought they were buying investment-grade instruments. At the same time, in a glaring example of the perverse incentives that existed and still exist, Goldman was also betting against those same sorts of securities — a practice that one government investigator compared to "selling a car with faulty brakes and then buying an insurance policy on the buyer of those cars."
Goldman often "insured" some of this garbage with AIG, using a virtually unregulated form of pseudo-insurance called credit-default swaps. Thanks in large part to deregulation pushed by Bob Rubin, former chairman of Goldman, and Treasury secretary under Bill Clinton, AIG wasn't required to actually have the capital to pay off the deals. As a result, banks like Goldman bought more than $440 billion worth of this bogus insurance from AIG, a huge blind bet that the taxpayer ended up having to eat.
Thus, when the housing bubble went crazy, Goldman made money coming and going. They made money selling the crap mortgages, and they made money by collecting on the bogus insurance from AIG when the crap mortgages flopped.
Still, the trick for Goldman was: how to collect the insurance money. As AIG headed into a tailspin that fateful summer of 2008, it looked like the beleaguered firm wasn't going to have the money to pay off the bogus insurance. So Goldman and other banks began demanding that AIG provide them with cash collateral. In the 15 months leading up to the collapse of AIG, Goldman received $5.9 billion in collateral. Société Générale, a bank holding lots of mortgage-backed crap originally underwritten by Goldman, received $5.5 billion. These collateral demands squeezing AIG from two sides were the "Swoop and Squat" that ultimately crashed the firm. "It put the company into a liquidity crisis," says Eric Dinallo, who was intimately involved in the AIG bailout as head of the New York State Insurance Department.
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It was a brilliant move. When a company like AIG is about to die, it isn't supposed to hand over big hunks of assets to a single creditor like Goldman; it's supposed to equitably distribute whatever assets it has left among all its creditors. Had AIG gone bankrupt, Goldman would have likely lost much of the $5.9 billion that it pocketed as collateral. "Any bankruptcy court that saw those collateral payments would have declined that transaction as a fraudulent conveyance," says Barry Ritholtz, the author of Bailout Nation. Instead, Goldman and the other counterparties got their money out in advance — putting a torch to what was left of AIG. Fans of the movie Goodfellas will recall Henry Hill and Tommy DeVito taking the same approach to the Bamboo Lounge nightclub they'd been gouging. Roll the Ray Liotta narration: "Finally, when there's nothing left, when you can't borrow another buck . . . you bust the joint out. You light a match."
And why not? After all, according to the terms of the bailout deal struck when AIG was taken over by the state in September 2008, Goldman was paid 100 cents on the dollar on an additional $12.9 billion it was owed by AIG — again, money it almost certainly would not have seen a fraction of had AIG proceeded to a normal bankruptcy. Along with the collateral it pocketed, that's $19 billion in pure cash that Goldman would not have "earned" without massive state intervention. How's that $13.4 billion in 2009 profits looking now? And that doesn't even include the direct bailouts of Goldman Sachs and other big banks, which began in earnest after the collapse of AIG.
CON #2 THE DOLLAR STORE
In the usual "DollarStore" or "Big Store" scam — popularized in movies like The Sting — a huge cast of con artists is hired to create a whole fake environment into which the unsuspecting mark walks and gets robbed over and over again. A warehouse is converted into a makeshift casino or off-track betting parlor, the fool walks in with money, leaves without it.
The two key elements to the Dollar Store scam are the whiz-bang theatrical redecorating job and the fact that everyone is in on it except the mark. In this case, a pair of investment banks were dressed up to look like commercial banks overnight, and it was the taxpayer who walked in and lost his shirt, confused by the appearance of what looked like real Federal Reserve officials minding the store.
Less than a week after the AIG bailout, Goldman and another investment bank, Morgan Stanley, applied for, and received, federal permission to become bank holding companies — a move that would make them eligible for much greater federal support. The stock prices of both firms were cratering, and there was talk that either or both might go the way of Lehman Brothers, another once-mighty investment bank that just a week earlier had disappeared from the face of the earth under the weight of its toxic assets. By law, a five-day waiting period was required for such a conversion — but the two banks got them overnight, with final approval actually coming only five days after the AIG bailout.
Why did they need those federal bank charters? This question is the key to understanding the entire bailout era — because this Dollar Store scam was the big one. Institutions that were, in reality, high-risk gambling houses were allowed to masquerade as conservative commercial banks. As a result of this new designation, they were given access to a virtually endless tap of "free money" by unsuspecting taxpayers. The $10 billion that Goldman received under the better-known TARP bailout was chump change in comparison to the smorgasbord of direct and indirect aid it qualified for as a commercial bank.
When Goldman Sachs and Morgan Stanley got their federal bank charters, they joined Bank of America, Citigroup, J.P. Morgan Chase and the other banking titans who could go to the Fed and borrow massive amounts of money at interest rates that, thanks to the aggressive rate-cutting policies of Fed chief Ben Bernanke during the crisis, soon sank to zero percent. The ability to go to the Fed and borrow big at next to no interest was what saved Goldman, Morgan Stanley and other banks from death in the fall of 2008. "They had no other way to raise capital at that moment, meaning they were on the brink of insolvency," says Nomi Prins, a former managing director at Goldman Sachs. "The Fed was the only shot."
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In fact, the Fed became not just a source of emergency borrowing that enabled Goldman and Morgan Stanley to stave off disaster — it became a source of long-term guaranteed income. Borrowing at zero percent interest, banks like Goldman now had virtually infinite ways to make money. In one of the most common maneuvers, they simply took the money they borrowed from the government at zero percent and lent it back to the government by buying Treasury bills that paid interest of three or four percent. It was basically a license to print money — no different than attaching an ATM to the side of the Federal Reserve.
"You're borrowing at zero, putting it out there at two or three percent, with hundreds of billions of dollars — man, you can make a lot of money that way," says the manager of one prominent hedge fund. "It's free money." Which goes a long way to explaining Goldman's enormous profits last year. But all that free money was amplified by another scam:
CON #3 THE PIG IN THE POKE
At one point or another, pretty much everyone who takes drugs has been burned by this one, also known as the "Rocks in the Box" scam or, in its more elaborate variations, the "Jamaican Switch." Someone sells you what looks like an eightball of coke in a baggie, you get home and, you dumbass, it's baby powder.
The scam's name comes from the Middle Ages, when some fool would be sold a bound and gagged pig that he would see being put into a bag; he'd miss the switch, then get home and find a tied-up cat in there instead. Hence the expression "Don't let the cat out of the bag."
The "Pig in the Poke" scam is another key to the entire bailout era. After the crash of the housing bubble — the largest asset bubble in history — the economy was suddenly flooded with securities backed by failing or near-failing home loans. In the cleanup phase after that bubble burst, the whole game was to get taxpayers, clients and shareholders to buy these worthless cats, but at pig prices.
One of the first times we saw the scam appear was in September 2008, right around the time that AIG was imploding. That was when the Fed changed some of its collateral rules, meaning banks that could once borrow only against sound collateral, like Treasury bills or AAA-rated corporate bonds, could now borrow against pretty much anything — including some of the mortgage-backed sewage that got us into this mess in the first place. In other words, banks that once had to show a real pig to borrow from the Fed could now show up with a cat and get pig money. "All of a sudden, banks were allowed to post absolute shit to the Fed's balance sheet," says the manager of the prominent hedge fund.
The Fed spelled it out on September 14th, 2008, when it changed the collateral rules for one of its first bailout facilities — the Primary Dealer Credit Facility, or PDCF. The Fed's own write-up described the changes: "With the Fed's action, all the kinds of collateral then in use . . . including non-investment-grade securities and equities . . . became eligible for pledge in the PDCF."
Translation: We now accept cats.
The Pig in the Poke also came into play in April of last year, when Congress pushed a little-known agency called the Financial Accounting Standards Board, or FASB, to change the so-called "mark-to-market" accounting rules. Until this rule change, banks had to assign a real-market price to all of their assets. If they had a balance sheet full of securities they had bought at $3 that were now only worth $1, they had to figure their year-end accounting using that $1 value. In other words, if you were the dope who bought a cat instead of a pig, you couldn't invite your shareholders to a slate of pork dinners come year-end accounting time.
But last April, FASB changed all that. From now on, it announced, banks could avoid reporting losses on some of their crappy cat investments simply by declaring that they would "more likely than not" hold on to them until they recovered their pig value. In short, the banks didn't even have to actually hold on to the toxic shit they owned — they just had to sort of promise to hold on to it.
That's why the "profit" numbers of a lot of these banks are really a joke. In many cases, we have absolutely no idea how many cats are in their proverbial bag. What they call "profits" might really be profits, only minus undeclared millions or billions in losses.
"They're hiding all this stuff from their shareholders," says Ritholtz, who was disgusted that the banks lobbied for the rule changes. "Now, suddenly banks that were happy to mark to market on the way up don't have to mark to market on the way down."
CON #4 THE RUMANIAN BOX
One of the great innovations of Victor Lustig, the legendary Depression-era con man who wrote the famous "Ten Commandments for Con Men," was a thing called the "Rumanian Box." This was a little machine that a mark would put a blank piece of paper into, only to see real currency come out the other side. The brilliant Lustig sold this Rumanian Box over and over again for vast sums — but he's been outdone by the modern barons of Wall Street, who managed to get themselves a real Rumanian Box.
How they accomplished this is a story that by itself highlights the challenge of placing this era in any kind of historical context of known financial crime. What the banks did was something that was never — and never could have been — thought of before. They took so much money from the government, and then did so little with it, that the state was forced to start printing new cash to throw at them. Even the great Lustig in his wildest, horniest dreams could never have dreamed up this one.
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The setup: By early 2009, the banks had already replenished themselves with billions if not trillions in bailout money. It wasn't just the $700 billion in TARP cash, the free money provided by the Fed, and the untold losses obscured by accounting tricks. Another new rule allowed banks to collect interest on the cash they were required by law to keep in reserve accounts at the Fed — meaning the state was now compensating the banks simply for guaranteeing their own solvency. And a new federal operation called the Temporary Liquidity Guarantee Program let insolvent and near-insolvent banks dispense with their deservedly ruined credit profiles and borrow on a clean slate, with FDIC backing. Goldman borrowed $29 billion on the government's good name, J.P. Morgan Chase $38 billion, and Bank of America $44 billion. "TLGP," says Prins, the former Goldman manager, "was a big one."
Collectively, all this largesse was worth trillions. The idea behind the flood of money, from the government's standpoint, was to spark a national recovery: We refill the banks' balance sheets, and they, in turn, start to lend money again, recharging the economy and producing jobs. "The banks were fast approaching insolvency," says Rep. Paul Kanjorski, a vocal critic of Wall Street who nevertheless defends the initial decision to bail out the banks. "It was vitally important that we recapitalize these institutions."
But here's the thing. Despite all these trillions in government rescues, despite the Fed slashing interest rates down to nothing and showering the banks with mountains of guarantees, Goldman and its friends had still not jump-started lending again by the first quarter of 2009. That's where those nuclear-powered balls of Lloyd Blankfein came into play, as Goldman and other banks basically threatened to pick up their bailout billions and go home if the government didn't fork over more cash — a lot more. "Even if the Fed could make interest rates negative, that wouldn't necessarily help," warned Goldman's chief domestic economist, Jan Hatzius. "We're in a deep recession mainly because the private sector, for a variety of reasons, has decided to save a lot more."
Translation: You can lower interest rates all you want, but we're still not fucking lending the bailout money to anyone in this economy. Until the government agreed to hand over even more goodies, the banks opted to join the rest of the "private sector" and "save" the taxpayer aid they had received — in the form of bonuses and compensation.
The ploy worked. In March of last year, the Fed sharply expanded a radical new program called quantitative easing, which effectively operated as a real-live Rumanian Box. The government put stacks of paper in one side, and out came $1.2 trillion "real" dollars.
The government used some of that freshly printed money to prop itself up by purchasing Treasury bonds — a desperation move, since Washington's demand for cash was so great post-Clusterfuck '08 that even the Chinese couldn't buy U.S. debt fast enough to keep America afloat. But the Fed used most of the new cash to buy mortgage-backed securities in an effort to spur home lending — instantly creating a massive market for major banks.
And what did the banks do with the proceeds? Among other things, they bought Treasury bonds, essentially lending the money back to the government, at interest. The money that came out of the magic Rumanian Box went from the government back to the government, with Wall Street stepping into the circle just long enough to get paid. And once quantitative easing ends, as it is scheduled to do in March, the flow of money for home loans will once again grind to a halt. The Mortgage Bankers Association expects the number of new residential mortgages to plunge by 40 percent this year.
CON #5 THE BIG MITT
All of that Rumanian box paper was made even more valuable by running it through the next stage of the grift. Michael Masters, one of the country's leading experts on commodities trading, compares this part of the scam to the poker game in the Bill Murray comedy Stripes. "It's like that scene where John Candy leans over to the guy who's new at poker and says, 'Let me see your cards,' then starts giving him advice," Masters says. "He looks at the hand, and the guy has bad cards, and he's like, 'Bluff me, come on! If it were me, I'd bet everything!' That's what it's like. It's like they're looking at your cards as they give you advice."
In more ways than one can count, the economy in the bailout era turned into a "Big Mitt," the con man's name for a rigged poker game. Everybody was indeed looking at everyone else's cards, in many cases with state sanction. Only taxpayers and clients were left out of the loop.
At the same time the Fed and the Treasury were making massive, earthshaking moves like quantitative easing and TARP, they were also consulting regularly with private advisory boards that include every major player on Wall Street. The Treasury Borrowing Advisory Committee has a J.P. Morgan executive as its chairman and a Goldman executive as its vice chairman, while the board advising the Fed includes bankers from Capital One and Bank of New York Mellon. That means that, in addition to getting great gobs of free money, the banks were also getting clear signals about when they were getting that money, making it possible to position themselves to make the appropriate investments.
One of the best examples of the banks blatantly gambling, and winning, on government moves was the Public-Private Investment Program, or PPIP. In this bizarre scheme cooked up by goofball-geek Treasury Secretary Tim Geithner, the government loaned money to hedge funds and other private investors to buy up the absolutely most toxic horseshit on the market — the same kind of high-risk, high-yield mortgages that were most responsible for triggering the financial chain reaction in the fall of 2008. These satanic deals were the basic currency of the bubble: Jobless dope fiends bought houses with no money down, and the big banks wrapped those mortgages into securities and then sold them off to pensions and other suckers as investment-grade deals. The whole point of the PPIP was to get private investors to relieve the banks of these dangerous assets before they hurt any more innocent bystanders.
But what did the banks do instead, once they got wind of the PPIP? They started buying that worthless crap again, presumably to sell back to the government at inflated prices! In the third quarter of last year, Goldman, Morgan Stanley, Citigroup and Bank of America combined to add $3.36 billion of exactly this horseshit to their balance sheets.
This brazen decision to gouge the taxpayer startled even hardened market observers. According to Michael Schlachter of the investment firm Wilshire Associates, it was "absolutely ridiculous" that the banks that were supposed to be reducing their exposure to these volatile instruments were instead loading up on them in order to make a quick buck. "Some of them created this mess," he said, "and they are making a killing undoing it."
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CON #6 THE WIRE
Here's the thing about our current economy. When Goldman and Morgan Stanley transformed overnight from investment banks into commercial banks, we were told this would mean a new era of "significantly tighter regulations and much closer supervision by bank examiners," as The New York Times put it the very next day. In reality, however, the conversion of Goldman and Morgan Stanley simply completed the dangerous concentration of power and wealth that began in 1999, when Congress repealed the Glass-Steagall Act — the Depression-era law that had prevented the merger of insurance firms, commercial banks and investment houses. Wall Street and the government became one giant dope house, where a few major players share valuable information between conflicted departments the way junkies share needles.
One of the most common practices is a thing called front-running, which is really no different from the old "Wire" con, another scam popularized in The Sting. But instead of intercepting a telegraph wire in order to bet on racetrack results ahead of the crowd, what Wall Street does is make bets ahead of valuable information they obtain in the course of everyday business.
Say you're working for the commodities desk of a big investment bank, and a major client — a pension fund, perhaps — calls you up and asks you to buy a billion dollars of oil futures for them. Once you place that huge order, the price of those futures is almost guaranteed to go up. If the guy in charge of asset management a few desks down from you somehow finds out about that, he can make a fortune for the bank by betting ahead of that client of yours. The deal would be instantaneous and undetectable, and it would offer huge profits. Your own client would lose money, of course — he'd end up paying a higher price for the oil futures he ordered, because you would have driven up the price. But that doesn't keep banks from screwing their own customers in this very way.
The scam is so blatant that Goldman Sachs actually warns its clients that something along these lines might happen to them. In the disclosure section at the back of a research paper the bank issued on January 15th, Goldman advises clients to buy some dubious high-yield bonds while admitting that the bank itself may bet against those same shitty bonds. "Our salespeople, traders and other professionals may provide oral or written market commentary or trading strategies to our clients and our proprietary trading desks that reflect opinions that are contrary to the opinions expressed in this research," the disclosure reads. "Our asset-management area, our proprietary-trading desks and investing businesses may make investment decisions that are inconsistent with the recommendations or views expressed in this research."
Banks like Goldman admit this stuff openly, despite the fact that there are securities laws that require banks to engage in "fair dealing with customers" and prohibit analysts from issuing opinions that are at odds with what they really think. And yet here they are, saying flat-out that they may be issuing an opinion at odds with what they really think.
To help them screw their own clients, the major investment banks employ high-speed computer programs that can glimpse orders from investors before the deals are processed and then make trades on behalf of the banks at speeds of fractions of a second. None of them will admit it, but everybody knows what this computerized trading — known as "flash trading" — really is. "Flash trading is nothing more than computerized front-running," says the prominent hedge-fund manager. The SEC voted to ban flash trading in September, but five months later it has yet to issue a regulation to put a stop to the practice.
Over the summer, Goldman suffered an embarrassment on that score when one of its employees, a Russian named Sergey Aleynikov, allegedly stole the bank's computerized trading code. In a court proceeding after Aleynikov's arrest, Assistant U.S. Attorney Joseph Facciponti reported that "the bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways."
Six months after a federal prosecutor admitted in open court that the Goldman trading program could be used to unfairly manipulate markets, the bank released its annual numbers. Among the notable details was the fact that a staggering 76 percent of its revenue came from trading, both for its clients and for its own account. "That is much, much higher than any other bank," says Prins, the former Goldman managing director. "If I were a client and I saw that they were making this much money from trading, I would question how badly I was getting screwed."
Why big institutional investors like pension funds continually come to Wall Street to get raped is the million-dollar question that many experienced observers puzzle over. Goldman's own explanation for this phenomenon is comedy of the highest order. In testimony before a government panel in January, Blankfein was confronted about his firm's practice of betting against the same sorts of investments it sells to clients. His response: "These are the professional investors who want this exposure."
In other words, our clients are big boys, so screw 'em if they're dumb enough to take the sucker bets I'm offering.
CON #7 THE RELOAD
Not many con men are good enough or brazen enough to con the same victim twice in a row, but the few who try have a name for this excellent sport: reloading. The usual way to reload on a repeat victim (called an "addict" in grifter parlance) is to rope him into trying to get back the money he just lost. This is exactly what started to happen late last year.
It's important to remember that the housing bubble itself was a classic confidence game — the Ponzi scheme. The Ponzi scheme is any scam in which old investors must be continually paid off with money from new investors to keep up what appear to be high rates of investment return. Residential housing was never as valuable as it seemed during the bubble; the soaring home values were instead a reflection of a continual upward rush of new investors in mortgage-backed securities, a rush that finally collapsed in 2008.
But by the end of 2009, the unimaginable was happening: The bubble was re-inflating. A bailout policy that was designed to help us get out from under the bursting of the largest asset bubble in history inadvertently produced exactly the opposite result, as all that government-fueled capital suddenly began flowing into the most dangerous and destructive investments all over again. Wall Street was going for the reload.
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A lot of this was the government's own fault, of course. By slashing interest rates to zero and flooding the market with money, the Fed was replicating the historic mistake that Alan Greenspan had made not once, but twice, before the tech bubble in the early 1990s and before the housing bubble in the early 2000s. By making sure that traditionally safe investments like CDs and savings accounts earned basically nothing, thanks to rock-bottom interest rates, investors were forced to go elsewhere to search for moneymaking opportunities.
Now we're in the same situation all over again, only far worse. Wall Street is flooded with government money, and interest rates that are not just low but flat are pushing investors to seek out more "creative" opportunities. (It's "Greenspan times 10," jokes one hedge-fund trader.) Some of that money could be put to use on Main Street, of course, backing the efforts of investment-worthy entrepreneurs. But that's not what our modern Wall Street is built to do. "They don't seem to want to lend to small and medium-sized business," says Rep. Brad Sherman, who serves on the House Financial Services Committee. "What they want to invest in is marketable securities. And the definition of small and medium-sized businesses, for the most part, is that they don't have marketable securities. They have bank loans."
In other words, unless you're dealing with the stock of a major, publicly traded company, or a giant pile of home mortgages, or the bonds of a large corporation, or a foreign currency, or oil futures, or some country's debt, or anything else that can be rapidly traded back and forth in huge numbers, factory-style, by big banks, you're not really on Wall Street's radar.
So with small business out of the picture, and the safe stuff not worth looking at thanks to the Fed's low interest rates, where did Wall Street go? Right back into the shit that got us here.
One trader, who asked not to be identified, recounts a story of what happened with his hedge fund this past fall. His firm wanted to short — that is, bet against — all the crap toxic bonds that were suddenly in vogue again. The fund's analysts had examined the fundamentals of these instruments and concluded that they were absolutely not good investments.
So they took a short position. One month passed, and they lost money. Another month passed — same thing. Finally, the trader just shrugged and decided to change course and buy.
"I said, 'Fuck it, let's make some money,'" he recalls. "I absolutely did not believe in the fundamentals of any of this stuff. However, I can get on the bandwagon, just so long as I know when to jump out of the car before it goes off the damn cliff!"
This is the very definition of bubble economics — betting on crowd behavior instead of on fundamentals. It's old investors betting on the arrival of new ones, with the value of the underlying thing itself being irrelevant. And this behavior is being driven, no surprise, by the biggest firms on Wall Street.
The research report published by Goldman Sachs on January 15th underlines this sort of thinking. Goldman issued a strong recommendation to buy exactly the sort of high-yield toxic crap our hedge-fund guy was, by then, driving rapidly toward the cliff. "Summarizing our views," the bank wrote, "we expect robust flows . . . to dominate fundamentals." In other words: This stuff is crap, but everyone's buying it in an awfully robust way, so you should too. Just like tech stocks in 1999, and mortgage-backed securities in 2006.
To sum up, this is what Lloyd Blankfein meant by "performance": Take massive sums of money from the government, sit on it until the government starts printing trillions of dollars in a desperate attempt to restart the economy, buy even more toxic assets to sell back to the government at inflated prices — and then, when all else fails, start driving us all toward the cliff again with a frank and open endorsement of bubble economics. I mean, shit — who wouldn't deserve billions in bonuses for doing all that?
Con artists have a word for the inability of their victims to accept that they've been scammed. They call it the "True Believer Syndrome." That's sort of where we are, in a state of nagging disbelief about the real problem on Wall Street. It isn't so much that we have inadequate rules or incompetent regulators, although both of these things are certainly true. The real problem is that it doesn't matter what regulations are in place if the people running the economy are rip-off artists. The system assumes a certain minimum level of ethical behavior and civic instinct over and above what is spelled out by the regulations. If those ethics are absent — well, this thing isn't going to work, no matter what we do. Sure, mugging old ladies is against the law, but it's also easy. To prevent it, we depend, for the most part, not on cops but on people making the conscious decision not to do it.
That's why the biggest gift the bankers got in the bailout was not fiscal but psychological. "The most valuable part of the bailout," says Rep. Sherman, "was the implicit guarantee that they're Too Big to Fail." Instead of liquidating and prosecuting the insolvent institutions that took us all down with them in a giant Ponzi scheme, we have showered them with money and guarantees and all sorts of other enabling gestures. And what should really freak everyone out is the fact that Wall Street immediately started skimming off its own rescue money. If the bailouts validated anew the crooked psychology of the bubble, the recent profit and bonus numbers show that the same psychology is back, thriving, and looking for new disasters to create. "It's evidence," says Rep. Kanjorski, "that they still don't get it."
More to the point, the fact that we haven't done much of anything to change the rules and behavior of Wall Street shows that we still don't get it. Instituting a bailout policy that stressed recapitalizing bad banks was like the addict coming back to the con man to get his lost money back. Ask yourself how well that ever works out. And then get ready for the reload.
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