The current economic situation is in many ways better than what we have experienced in years. Against that background, we have stuck to the rebalancing scenario. Our central forecast remains indeed quite benign: a soft landing in the United States, a strong and sustained recovery in Europe, a solid trajectory in Japan and buoyant activity in China and India. In line with recent trends, sustained growth in OECD economies would be underpinned by strong job creation and falling unemployment.
OECD Economic Outlook 2007
GNP growth will average around 3.75% per annum between 2008-2015 — even if there is a down- turn and US instability.
Economic & Social Research Institute (Ireland) Medium-Term Review No. 11 2008
The above quotes might give one cause for derision. How could such acknowledged experts, well resourced, stuffed with economists and consulted by governments, get things so wrong? Especially when the risk at issue, the popping of a credit bubble, was about as vanilla as an economist could get. So precisely wrong too, certainly not 3.5% or 4%!
In reality quite a few people saw the risk of the bubble bursting, some not even professional economists, but they tended to operate on the fringes of established consensus, and by extension, a social periphery. Thus their views could be dismissed precisely because they represented a fringe view. In such a way consensus defends itself.
A consensus becomes established out of the persistence of what it attempts to describe. It is inherently retrospective. It tends to assume that what has been, must continue. A couple of decades of low interest rates and stable global economic growth, and well, it becomes the natural order of things. Here’s Ben Bernanke in 2005:
“We’ve never had a decline in house prices on a nationwide basis. So, what I think is more likely is that house prices will slow, maybe stabilize….”
Of course subsequent events proved that just because something never happened before does not mean it could never happen.
Because bubbles tend to be pleasurable, consensus can be so much harder to break. The public wills the same consensus, and when it is refracted in our social worlds we make it our own. Who wants a great party terminated by a tug on the arm saying “it’s time to go home now, work tomorrow!”
When the conditions that underpinned the consensus change, it can be very difficult to acknowledge and let go of our attachment. For acknowledgement means rejecting not only the familiar but something that may have embodied our status, past efforts, our hopes and even our collective mythology.
Defending the dominant consensus is always reasonable, confident and considered, for it is born out of the cosmology or world-view of the age. But world-views shape their own perceptions and contain the narratives of their own defence. The defenders of the status quo invariably point to self-aggrandizing statements about the consensus (we’re better central bankers now…… our financial networks have dispersed the risks of old… new technologies have transformed how economies work). Or when challenged they might use what philosophers refer to as arguments from authority: Prof X, Nobel laureate says… the IMF says… or, it’s the trivial outcome of The Big Complicated Theory You Clearly Don’t Understand!
Consensus offers status and reward for those who can navigate its waters. Further, status salutes status. We warm to those who confirm our attachment to our understanding of the world and all that we have invested in it. A respectable institute conscious of its status will desire to work with someone of equal or higher status; or a government will deem it appropriate to only work with high status advisors (usually the most expensive). So consensus is re-enforced….and Ireland gets Merrill Lynch.
There is wisdom here too. It’s far better to be wrong in a consensus crowd than wrong on one’s own. Better to say: “don’t blame me, everybody else, even the best advisors, got it wrong”, rather than “OK, I’m sorry, they were cheap and hairy, but they seemed to make sense at the time”.
So what might we learn from the inability of this consensus view to adapt to the reality of the growing credit bubble?
The easy answer might be to be very sceptical of economists, especially when they are telling you what you want to hear. Actually, one should just be wary of economics, left, right or green. Amid some insight, it’s a dodgy mix of contingent assumptions treated as laws, and myth and ideology peddled under the cover of mathematics and wishful thinking. Further, it’s not good for economists or society that they seem to have been transformed into universal commentators hooked to a hokum science making them the true inheritors of the astrologer-astronomers of the papal courts declaiming an earth-centric universe.
But a better and more honest answer might be to acknowledge that consensus is a feature of the tribal nature of all human societies. To be part of a community is to share consensus, not one but many – dynamic, interacting and often contradictory. Consensus is of our nature, our tribal glue. Some are shared by few, some are so deeply and widely permeating that we barely notice their presence. Some may be very good or useful descriptions of reality, at least for a period, but some may not be (as our opening example attests). But it’s good to remember we’re all deluded about something or other.
So our next question presents itself. Since we are unlikely to have banished forever delusions buttressed by consensus; could we at this very moment be sharing a world-view or deep consensus that might soon be shattered by a reality far more challenging than what we now call a ‘crisis’? Could there indeed be a critique on the fringe, dismissed of course, that might be, if not quite correct, at least a more realistic view of our contemporary predicament, given the uncertainty in all things?
First we might ask, who might be holding the prevailing consensus that may also be a delusion? Well, if I may:
Those who think economic growth will return, that technology will continue to get more complex, or that China will rise. Those who think our complex societies can be maintained; those who think we will again be as rich as we are now; or who think starvation could not return to Europe in the coming decade. Those who think their jobs, their standard of living, their water and sanitation, their health-care, and their pensions are a right rather than dependent expressions of a moment in history. Those economists and politicians of all political hues who fill the airwaves with ‘solutions’. Those who think Angela Merkel, ‘the Bankers’, the Fed or ECB, the US president, or ‘the Elite’ or ‘the People’ are in control, rather than just co-dependent parts of an immeasurably complex and uncertain system coming to the end of its life. Those who think that if only those in power were replaced by someone as caring and wise as, well, they are, all could be made well. Those who think fracking or the development of new oil production will last much longer. Those who think Germany and the United States could never go the way of Greece, or worse. Those who think this, this is austerity, rather than the ripple before the storm. Maybe also those who haven’t been paying attention.
And what if a fringe makes such claims, for there is a cacophony of voices? Our current consensus view may indeed be correct, and the fringe view ludicrous. But as we have seen, it’s not axiomatic. And because risk is a combination of the chance of an occurrence and the severity of impact, a warning of a major impact – even if relatively low chance of happening – should make us concerned. What’s more, the root warnings have re-appeared repeatedly, from diverse sources, over decades and increasing in more recent times.
But, very briefly and acknowledging some contention, the conditions for concern might be summarized as follows.
We are trying to comprehend our world within the world-views and economic orthodoxies developed over an extra-ordinary, two-hundred year period of compound economic growth. This growth was coincident with increasing wealth, complexity and globalized integration. Part of our dominant consensus is that this trend will continue. Much of what is important to us, how we live, our expectations, what we value and hold dear, was shaped by this process. And we, the global 10%, have done well out of it.
The fringe view is that this growth is over – we are at the limits to growth, now. At issue is the stability of the globalized economy. We are moving into a deepening global deflationary depression, interspersed with dangerous and possibly irreversible shocks to the systems that support our basic welfare. We will lose much of what we take for granted and things we have come to call our own. We are entering an era of real danger and unpredictability.
This is because we are at an historic point of convergence. Firstly, we have reached the limit in the credit backing of our financial, monetary and banking system. We are at the same time hitting profoundly destabilizing ecological limits preeminent at this time is that we are almost certainly at the peak of global oil and food production. Put another way, we are at the limits of the system of trust and solvency that underpins the trade upon which we depend. We are at the limits of the least substitutable energy source that, by the laws of physics, is necessary for economic maintenance and growth. We are at the limits of our most fundamental human sustenance. They are the three most critical structural pillars of the globalized economy. Like a three-legged stool, the whole system can become destabilized by the buckling of just one.
In addition, and almost completely unacknowledged is that the changing nature of the globalized economy – increasing integration, complexity, speed and inter-dependence – has made us very much more vulnerable to this convergence. Further, such complexity makes it very difficult, or even dangerous to try and ‘fix’ its parts.
If we were to acknowledge such a fringe view we would be urgently preparing for profound change – for when real change is forced upon us we may have much less room for manoeuvre. We would be embracing austerity because of its inevitability, and in doing so, transform it. From top to bottom, we would be working on our food security, the resilience of critical services such as sanitation, monetary systems, governance, and re-working work. We would have begun the personal and collective psychological processes that might allow us avoid some of our species most destructive passions that can emerge in a time of crisis, and instead use it as a source of creative and positive change.
Of course, no detailed explanation for such a fringe view has been provided here. For most though, none is needed. They already know this view is nonsense. Why worry, it’s a fringe view… why with shale gas, technology, markets, stopping austerity, green growth, changing the monetary system, getting rid of the ‘wrong’ people….so many options! Anyway haven’t people been saying such stuff since the time of Malthus, and they’re still wrong! Aren’t the experts in control?! But an economist said…! Quite….quite.
Featured image: Pages from 1550 Annotazione on Sacrobosco’s Tractatus de Sphaera, showing the Ptolemaic system.
David Korowicz is a physicist and human systems ecologist working on the evolution, stability and collapse of complex socoi-economic systems. He is particularly focused of large-scale risk management and resilience. He has a long association with Feasta and works as an independent consultant. His website is at www.davidkorowicz.com.
The collective cognitive dissonance is becoming increasingly palpable with each passing month. I believe that the majority of the population is aware, on some level, that the consensus view is unsustainable and that our species is approaching its carrying capacity.
In late 2008 I’d expected that the professional economists would have
admitted their mistakes, culled the stupid, raised their game, and
collectively endorsed a workable solution that gave some hope.
I was wrong, and it is high time that everyone acknowleged that
economics is too important to be left to economists.
If questions such as this :
” starvation could not return to Europe in the coming decade”
go unasked, in order that the Status remains Quo, the outcome
may not be starvation, but turmoil on a European scale.
We all have choices, so choose wisely while you can.
The problem is not economists, the problem is experts… and that human being are lazy and don’t think by themselves. So they pay experts to say to them what they want to ear. Experts make a long study to find what to say so they’ll get paid. Experts have just a better knowledge than other people on a specific domain. But if those other people don’t make a little effort to comprehend what all is about, experts can’t help them, they will just try to find an answer that can please them so they’ll get their money.
The problem is not economists… The problem is us : we are becoming really stupid and maybe we’ll get what we’ll deserve. But we can dream also that only politics are stupids and nothing is our fault :-).
@feasta_tweets great post, thank you!
David, the celebrated “Korowicz crunch” was always, in my view, based on too simple an understanding of collective human cognition – at some point the markets would “get it”, they would conceptually “take in” the significance of peak oil, and then go into free fall.
There is some truth in that view but it does not see this enough as a process in which the previous “taken for granted” reality, based on 200 years of experience of cheap energy to solve new problems, would no longer be there. So human ingenuity has been overestimated in the collective narratives spoken by “our betters” the policy makers – their consensus trance.
A key point here is that “even in biological systems, where human intelligence and reflexivity is not present, meaning and beliefs are as important as material constraints to determine the feasibility of patterns of behaviour. Indeed, the behaviour of any living system (not only of humans) is not only constrained by biophysical processes, but also by factors associated with meanings and beliefs, which are key ingredients for the establishment of a semiotic process. A fish expects a ‘reality’ made of water, a horse a ‘reality’ made of green prairies. Each organism has a specific perspective about its ‘own reality’ and the associated anticipatory models.” ((Giampietro, Mayumi and Sorman “The Metabolic Pattern of Societies. Where Economists fall short” Routledge 2012 p 72). These determine how and what diffrent organisms (including human ones) observe – and how they turn their observations into a useable model for interpretation that then guides their actions in “their story”.
Now the point is that when we observe the world, form models and use them to decide, there is a process termed “semantic closure”. This is where all the bits of information and their relationship with each other and correspondence to life purposes make sense with each other. What is happening is that it is no longer possible to create semantic closure with the economic data using the old concepts and using the old relationships between the old concepts to guide action in the new reality.
However, after 200 years of growth you cannot expect that the shared “collective meaning”, the “story” about what life is about, will break down just like that. The old story – the meaning and beliefs are not just embedded in consensus, they are embedded in the design and collective goals of institutions. For example, I noticed some time ago that the British Treasury has written into its terms of reference that growth is what it is trying to achieve. At the same time the training of the staff in that institution and many others assumes growth and so on. So there is a huge inertia on fundamental meanings and beliefs because they are embedded in the working of institutions to correspond to common narratives – something that neither your previous view, nor that of Automatic Earth, seems to allow for sufficiently…
So what happens if “semantic closure” cannot be achieved? The answer is that those aspects of reality which do not fit are simply ignored. Those aspects of reality which appear to fit are grasped for with relief in a process of collective wish fulfillment – eg the coming salvation from shale oil and shale gas. Those aspects of the world are privileged for attention which seem to confirm the mainstream view.
As a matter of fact it is my belief that there is no real difference here from this increasing deviation of institutional behaviour from an all too evident different kind of reality than what happens in insanity. In insanity an individual constructs a set of meanings and integrates them together in a belief system and then uses them to guide action in a way that is clearly non functional. In fact it becomes so non functional that such people sometimes totally lose the ability to cope.
I’ve thought for a long time that there is no reason why this should not happen collectively. The fact that “the powers that be” have PR machines to routinely massage mass perceptions of reality in order to hide their “mistakes” ( and increasing bewilderment and disorientation) does not help society as a whole realign itself to its predicament. The PR industry and inertia in the media institutions too does not help but delays the development of functional coping mechanisms in the rapidly changing reality.
“Those whom the gods wish to destroy they first send mad.” does not quite express it….but something like that….
RT @feasta_tweets: Ignorance by consensus: post by David Korowicz. http://t.co/wryvw2DP
it is not useful to confine prediction to the discipline of economics. economics is very tied to numbers, and it is natural that all the verifiable numbers in economics are culled from the past.
industrial civilisation will enter a contraction phase – if only because all civilisations do, at some point. read up the history of civilisations. if we expand a civilisation, its population, and its food supply, on the back of ever increasing fossil fuels – then our civilisation will contract, as its underlying basis contracts.
china is not the next superpower, it is a province of the current global industrial civilisation, which faces contraction.
it is almost impossible to ‘call’ the tipping point in advance – so only the pretentious or those who aim to get book deals will ever attempt this. on the other hand our present civilisation includes built in computing, electric supply, unrealistic credit arrangements, and pixel money, all of which might be in danger of translating a contraction into a precipitous collapse.
either way, sudden, gradual, or just a bumpy ride downwards – we may be facing a ‘middle ages’ or ‘intermediate period.’ we may not know in advance when or why. worse than that, the archaeologists and historians of a thousand years hence may still not know why, just as we puzzle over the mayan ruins in the jungle. civilisations collapse because people take them to the limit, there is no record of one being deliberately slowed down, and as civilisations disintegrate, fragmentation and localisation is a natural consequence. trying to talk our way to a new consensus is no more than a procrastination and a fantasy.
Hello David, thank you, there are some new ideas in your article I didn’t had til now.
Now I also understand better, why still intelligent and informed people have consenus about that there is a solution to our global problems.
Every human being can feel inside that we want more, want better things, less pain, less boring work.
But still some believe with some tricks, technology, religion and other stuff we can overcome it. The simple answer is: No, it is not possible. Human nature is like a railroad, no decisions, no new ways. And the railroad leads to .. let’s call it unpleasant times.
So, I think you also are a victim of ‘ignorance by consensus’. It is pursuable, you are also human. The sad truth is too hard to take.
I found out, if a solution is not possible, it’s better to believe in a good lie. You can also call it hope, a vision or religion.
I really appreciate this work. I agree it’s not likely we’re going to see a co-ordinated top down approach to our predicament. In fact let’s just say it won’t happen.
So its up to us individually in our local communities to build our own knowledge and skills. I’m afraid the insights in this article won’t create change on a global scale but they do help provide clarity and motivation for me to push forward with taking action on a personal level.
Consensus economists assume that global supplies of material and energy to support expansion are infinite. To them this is so axiomatic that they never state it as an assumption. Most of their disputes concern the best way to kick start economic growth when it stalls, or restrain it when it overheats, which classically led to currency inflation.
Of course, over the centuries not only financial institutions, this assumption embedded in most other economic institutions as well. The infinite resource assumption permeates social communication too; words and figures of speech depend on it. A sure come-on promoting almost any idea with an executive is to assert that it will help his company grow.
The measurement system is growth biased too. Compound interest is a growth formula. When a person’s mental framework has zero alternatives from which to make sense of anything, she cannot even reach a state of cognitive dissonance. Getting off this requires working through bigger mental map clashes than changing to a new religion.
The basic technical ideas for living in a zero-growth, or negative growth economy are known to a few people, so we take little steps to improve the environment — as long as they do not interfere with other corporate objectives. We might even stretch the ROI hurdle rate to as long as seven years — ten for the really committed.
Then there is the problem of pulling a lot of small efforts and improvement in a common direction. That’s hard to do if well-meaning entrepreneurs each have good “solutions,” but they do not fit well together. We are not used to working for the benefit of much bigger systems (like water supply, or energy generation) that are much bigger than the interests of a lone company. That’s even true of our attempts such as green building projects by committed people. We are deeply affected by our legacy thinking. (Always worked before.)
We have to paint a much clearer picture of how thinking must change to have a decent quality of life in a physically squeezed planet. Much of the fear out there is because people cannot “see a future” with them still in it, but operating by very different set of assumptions.