Here is a transcript of my conversation with James Howard Kunstler for C-Realm Podcast episode 498: Everything's a Racket.
KMO: You're listening to the C-Realm Podcast. I'm your host KMO and I'm joined once again by James Howard Kunstler. Jim, welcome back to the C-Realm Podcast.
James Howard Kunstler: It's a pleasure to be here with you, KMO.
KMO: We're running out of C-Realm Podcast, actually.
JHK: So, I hear.
KMO: It's not gonna end, but it's going from 52 episodes a year to 12. So, the real estate is about to get precious.
JHK: Well, you've carried on heroically for the past, I don't know, five, seven years. How long has it been?
KMO: I started in 2006.
JHK: Yeah. Well, you've done a yeoman service for all of us and I thank you for it.
KMO: Well, thanks for appearing on the podcast. I don't remember the exact date of your first appearance but it probably would have been in 2007 or 2008.
JHK: Yeah. Somewhere after The Long Emergency came out.
KMO: Yeah. I remember, I had checked it out from the library and somebody else had a hold on it, and I hadn't finished it by the time it was due back. So, I've never actually finished The Long Emergency.
JHK: Well, that's alright. The Long Emergency is gonna finish us, so.
[laughter]
JHK: There you go. [chuckle]
KMO: Well, you recently published your annual longer than usual blog post for your review of the year gone by.
JHK: Well, it's my forecast really.
KMO: Your forecast. Well, it starts there with a look back, doesn't it?
JHK: Sure. You're right.
KMO: Yeah. And then your look forward... And I don't have it up in front of me, as I tend not to look at web pages while I'm talking to people. But well, what to say about this past year, 'cause back when I first started talking to you in 2008 or so, it really seemed like The Long Emergency was coming down on us fast. And it was a good time to stock up on camping supplies and such.
JHK: Yeah. I think what happened was that a certain brand of authority in our culture managed to levitate what remained of our economy and many of the institutional functions in it. And they just managed through legerdemain and chicanery, especially in the financial realm, to levitate this leviathan, so that it would just keep on existing for a while. And it did for the last eight years, and it was quite a feat. It was mostly smoking mirrors. I think it had a lot to do with share momentum, and the size of our economy, and the complexity that our civilization had attained. There was a certain amount of inertia connected with it that assisted the authorities in their efforts to levitate things. And they did. It seems to me that, just in the first week of 2016 that the wheels are really coming off in a pretty serious way globally. But as far as the past year, the past year was a topping process, not just in finance, I think, but really in our faith that these things could continue. And I've said many times in my own blog and in my books that we depend on a number of complex systems to make up this metasystem of complexity. And the system that is the most fragile is the financial system because it's the most abstract and it's the one that is dependent most on faith and our belief in its credibility. And lately, that has translated into the... Our credulity that central banks can keep on artificially propping up economies.
KMO: I do wish I had your piece up for one sentence because it was really well worded, and it packed in a lot of meaning into a short space, but it was something to the effect of an economy that is based on debts that will never be repaid back is not long for this world.
JHK: Well, that's exactly... Well, pretty close enough to what I said. And we're in a peculiar situation that... I suppose the main device that the cabal of business, the Federal Reserve, and the government used was the manipulation of interest rates in order to conceal the fact that we had attained peak maximum credit or debt, and that we had reached the point that we really couldn't manage it anymore. And by that I mean, we could no longer manage the interest payments and the servicing of all that massive monumental debt we'd racked up. And we had racked it up in the first place to borrow from the future to keep all our systems running in the present. And by that, I mean our trade systems, our manufacturing systems, the huge government systems that make payouts to both their employees and the various people who don't do anything who get paid. We reached the end of the line with the debt. And from my mind, a lot of it had to do with the relationship between energy and the economy, and that whole story got very, very confused especially over the last five years with the rise of the shale oil effort.
JHK: I published a book in 2012 called, Too Much Magic, and the subtitle was, Wishful Thinking, Technology and the Fate of the Nation. And it was strategically, as a writing professional, it was an unfortunate move because I wrote a book about wishful thinking just when the nation entered about a five year period of extreme wishful thinking. And the last thing they wanted to hear was a criticism of wishful thinking. But at the center of a lot it was the shale oil, the so called miracle, which persuaded people that the Peak Oil story was false, and that we didn't have a problem with the primary resource that we needed to run industrial economies. That is turning out to be violently untrue now as the shale oil industry starts to shake apart. First, financially, and soon to follow in terms of productivity.
JHK: But that allowed people to think that we didn't have a problem, and that we would be able to continue all of the rackets that we had rigged up. And I think that the term racket, and the idea of racketeering is also very central for people to understand what has happened to us. And a lot of the activity that goes on in our economy now and in our culture has turned into racketeering. And by that, I mean, to be precise, the unethical and criminal pursuit of money grubbing.
JHK: And you can see it in endeavors, like medicine and education where racketeering used to be the last thing that they would be interested in doing or able to do. These were professions that really relied on the cardinal virtues of humankind, on duty and diligence, and honesty, and qualities like that. And they've become among the most dishonest industries in our culture right now. You don't have to go far to understand the college loan racket and how it has changed education. Or anyone who's tangled with the medical establishment in recent years knows what a dishonest racket it is, and how untransparent the cost of this stuff is and how absurd the charges are. I mean, you go to the emergency room with needing five stitches in your scalp, and five weeks later, you end up with a bill for $7,000. This is a very common thing, right?
JHK: So, racketeering has taken the place of honest endeavor. And it's one of the side effects of living in a culture that engages in continuous lying and pretending. And when you're constantly lying about everything, you've unfortunately entered a place where anything goes and nothing matters. And that's the bottom line.
KMO: Well, Smedley Butler, a US Marine Corps General, famously said in his autobiography in the first half of the 20th century, that war is a racket.
JHK: Oh, yeah.
KMO: And rackets, they don't seem to be new, although particularly with the medical establishment as you just mentioned, it's grown to an unbelievable level. A couple of years back. Well, it's been a few years now, but in 2009, I had sinus surgery.
JHK: Oh, you had your brush with the medical industry?
KMO: Yeah. And I had a job at the time with medical insurance, so it was mostly all good. But when I came out from one of the anesthesia, I basically couldn't pee. The anesthesia had made my prostate swell up so much, there was just no passing urine. And so they kept me, just basically for observation and catheterization overnight. And just basically having a bed, I wasn't... This is not the cost of the surgery. This is just the cost of staying in the hospital overnight was $10,000.
JHK: Oh, hey dude, I had a hip replacement in 2013, one of many. And I got a one line bill from St Peter's Hospital in Albany that just said, "Room and board, 36 hours, $23,000." Say what? All they really did was take my blood pressure 20 times and my pulse. $23,000?
KMO: Yeah, exactly.
JHK: Hello?
KMO: Yeah, so that doesn't seem like it can last. But you mentioned, debts that are unpayable.
JHK: Yeah.
KMO: And a few years back, David Graeber published his book, Debt: The First 5,000 Years, which is really an amazing read. And people in power figured out how to control other people with debt a long time ago. And there is always a perpetual moral hazard. There's always the temptation to create more debt than can actually be paid back. So, this has happened many times before. And typically, what happens is, and this is what's different from us, typically in the past, the debts have been owed to the sovereign. And eventually, the sovereign realizes they're unpayable. And he just says, "Okay, jubilee, we've wiped the slate clean. We're starting to accumulate new debts starting today." And that basically fixes the problem. And we're in a situation now where the debts aren't owed to a sovereign or even to a government that can declare jubilee. And as long as the system is running, the moral hazard is in place to just keep cranking up the debt overhang.
JHK: Yeah. Well, there are some differences. And I think it has a lot to do with the fact that the technoindustrial economy and civilization that we developed has some slightly different rules and procedures. And one of them is that... And we saw an early example of that was, what happened in Weimar, Germany in 1923 which is that, you manufacture a jubilee by other means, namely, hyperinflation. They didn't mean it to go that far, but it got out of hand. And what's happened in the USA for the last couple of decades is an attempt to inflate just enough to eventually erase the debt and the magic number is supposedly like 2% or 3% a year which doesn't seem very much but if you do it over time, you end up not having to pay back an awful lot of money in dollars that are worth the same as what they were originally borrowed at.
JHK: But that's exactly what the Federal Reserve has tried to do, especially since the crash of 2008. But they've been completely unable to do it through all of their chicanery. They haven't been able to manufacture a 2% inflation rate. And instead, what we find ourselves in, is a compressive deflationary environment. And that the reason for that is, because as debts are not paid back, and as loans are not repaid, and as interest is not repaid, money actually disappears from the system. And as money disappears from the system, there's less of it and that's a classic deflation.
JHK: So we're not gonna get that kind of jubilee that you got in an old monarchical society in the olden times. What we're gonna probably get is either, or probably both, first a tremendous compressive deflationary bust, followed by desperate attempts to reflate the economy and then, ultimately destroying currencies.
KMO: Well, you mentioned that the financial aspect of the current economy is the most abstract, and a few years back Dmitry Orlov wrote his Five Stages of Collapse essay which he then
expanded into a book, and one of his arguments is, there are different types of collapse, and collapse can precede in different orders and the financial system can collapse without the rest of the economy collapsing. And at our present state of debauchery, that would probably be a good thing, if the financial system were to collapse.
JHK: Well, yes. Although, I would argue that, I think Dmitry did actually intend them to be sequential. His classic view of it, there would be a sequential progress from financial to commercial to social to cultural collapse, etcetera, etcetera. But what's happened here is like what happened in Cuba when the Soviet Union fell apart. You and I probably get a lot of notes from people who are always saying, "Look how well Cuba managed its transition from being a vessel of the Soviet Union to being a world made by hand economy," right? You've heard that, right?
KMO: Oh, certainly, yeah.
JHK: Yeah. But the thing that they never take into account is that it happened against the background of a world that was still humming along in the background; they were still functioning. And in particular, what was happening was, the Cubans were receiving remittances from the people outside of Cuba, namely, from a lot of Cubans who had move to the United States, who were living in Florida, and they were sending money back to Cuba. So, if that happens against the background of a world that's still largely intact, there's a cushion there. To a certain extent, the same thing might be said of the Soviet Union collapse that, yeah, it was a mighty fall and it had some pretty terrible resounding consequences, but when all was said and done, the rest of the world was still humming along, and they could, for example, depend on Jeffrey Sachs coming over from the USA and trying to retool their economy into a capitalist economy. And they could depend on the fact that the global economy was actually building up at the very time that the Soviet economy was falling. And that was a cushion for them that kept them from going all the way to cultural and social collapse where nothing works and you're living, basically, in a anarchic society with no law or no safety. So, they didn't get all the way down.
JHK: This time, the whole global system is wobbling, and there isn't gonna be the cushion for any of the players. When the United States gets into the trouble that it's now entered, all of the other nations will be going through a similar thing. And all the trade relations that we depend on to keep this behemoth going, they're gonna get in trouble, and they won't be there for us anymore, and we'll be thrown back on our own devices. And what it basically means is we're gonna have to reset to a much lower level. And of course, the major question is, how do you make that journey without a lot of destruction and without a lot of social disorder, and hardship, and cruelty, and all the bad things that come with a badly upset culture?
KMO: And that's a question I don't expect we will answer in this podcast but I think, experience...
JHK: No.
KMO: Will show us the answer, over time.
JHK: Well, it's an emergent process, and it will be a self-organizing thing, and there isn't... I think that there are clues and historical cultural roadmaps that can inform us about what we face, but it's an emergent process, and it's gonna be full of weird surprises. And for example, who would have thought that a buffoon, a dangerous buffoon like Donald Trump would emerge as a serious possibility for winning the nomination of a major political party? Like I said in my forecast, I consider Trump to be Hitler without the charm or the brains. But the fact that, so many people actually take him seriously is to me a huge danger sign. And who would have expected that? And you can predict other things arising out of that. Now, I'm inclined to make wild-ass guesses about things, and I do that in my forecast, sometimes just to be cute, and sometimes because I also really mean it. But one of the things that seems plausible to me is we end up in a situation where Donald Trump, for one reason or another, gets elected, and I think that there would be a serious effort by other authorities in America to remove him from office, after not a very long period of time. And that would be sort of farewell to our constitutional system, or a welcome to a constitutional crisis.
JHK: And it's not unthinkable, countries go through political crisis, and we've had a good run for about 230 years as the constitutional USA. But if a clown like him were to get in office, a guy with very poor impulse control, [chuckle] and some rather dangerous ideas about how the world works, I can see a bunch of Pentagon generals kicking back and saying, "You know, we're patriots and we just can't let this happen, we gotta get this guy out of there." And who knows, maybe they'd say, "Okay, we're gonna have a new election in eight months and we'll start all over again and this time Trump won't be a candidate and we'll try to find some better people." That might happen too. But that's just an example of the weird things that will, or could, emergently pop up.
KMO: Science fiction author David Brin is fond of saying that the George W. Bush administration demonstrates just how resilient the professional governmental bureaucracy is, in the United States, that a president that catastrophic could sit in the White House for eight years and not destroy everything just bespeaks what a solid foundation the US has in terms of it's professional bureaucratic class, and I could imagine the US surviving a Trump presidency, as well. What I find really interesting about Trump is that he is already making signals that he wants to be buddy buddy with Vladimir Putin, and I've been very disturbed by the Obama administration's steady creep back into a cold war doing everything they can to stoke old cold war animosities and provoke Putin at every turn.
JHK: Yeah, me too. No, I completely agree with you about that. And there have been many times in the last couple of years where Vladimir Putin seemed like the only grown up in the room full of world leaders, and he explained himself actually very well in his speech to the UN General Assembly last fall, where the question of Syria had come up, and he basically said, "It's not a good idea to go around destabilizing all of the institutions of a society," which is what the US did in Iraq, and Libya, and Somalia, and all kinds of other places. And he said, "Actually, we probably would be better off if we could support some of these institutions, so these people could govern themselves." And that's the kind of thing that oughta get the attention of intelligent people.
JHK: I'm not necessarily reassured by the fact that Donald Trump feels similarly about that because there are other things about Trump that I just find odious, but it must be said that, above all, Trump does represent something that's really going on in this country and that is a real revulsion
against the establishment, and a revulsion against the elites that have been running things. And I think that's legitimate. I'm just sorry that Trump ended up being the one to represent that consensus.
KMO: There is another candidate who seems to be doing well, who also seems like somebody that would never have been a serous candidate in the past, and that is Bernie Sanders, so what are your thoughts there?
JHK: Well, I think Bernie has... He's really an admirable figure in so many ways. It's interesting 'cause I interviewed him about 20 or 25 years ago for a Vermont newspaper called 'Seven Days', and I spent a day with him in his office when he was Mayor of Burlington, and I was pretty impressed with the guy, just his energy and his charisma. And I think, we should all be glad that he's been there, mainly because he's opposing another odious character on the scene, Hillary Clinton, who I can't stand because I think that she's just thoroughly corrupt and dishonest. And that's not an original idea, but it's an idea that's shared by a certain part of the population.
JHK: I happen to be a registered Democrat, although not a very enthusiastic one in recent years, and I object to her being the candidate for president. I'm glad Bernie's there. I think, Bernie has been a heroic force as an independent senator, and really kind of a great figure of our time. My problem with Bernie is that, I think that he's basically an economic redistributionist. Being the self-proclaimed socialist that he is, I'm afraid that he would be interested in creating larger schemes for taking people's money and choices away from them. And another side effect of that would probably be increasing the size of the government. Now, it happens to be my belief that we're in a situation where government is going to get smaller, whether people like it or not. It's already become hugely ineffectual and impotent at carrying out a lot of its basic functions. And the things that it does do well now, are things that are not very encouraging, like spying on people and collecting information about citizens. That's something that we don't want government to do.
JHK: So, when all is said and done, I'm afraid that what Bernie would support would end up being an attempt to keep big government big and to keep on giving free money to people and endeavors that really ought not to get it. I would not really be happy about voting for Bernie, but I do appreciate his independent voice and his heroism. Does that make any sense to you, KMO?
KMO: Sure. And if it came down to a choice between Bernie Sanders and Donald Trump, I would think that would be a no brainer.
JHK: I'd vote for Bernie Sanders.
KMO: Yeah. Although, apparently...
JHK: Yeah, no question about it.
KMO: Apparently, if you select the poll questions right, there's a significant percentage of Democrats who would crossover and vote for Trump before they would vote for Hillary Clinton.
JHK: That's what I hear. That's what I read in what used to be called "the papers."
[chuckle]
KMO: Do you still subscribe to a daily newspaper?
JHK: Well, I subscribe to the New York Times. I find the New York Times to be enormously annoying. It just bugs the hell out of me the way they cover stuff and fail to cover stuff. But I do subscribe to it as kind of a vestigial duty.
KMO: Well, you mentioned that in relation to Bernie Sanders, the phrase, I think, "Giving money away" or "just giving people money," and...
JHK: He's a redistributionist.
KMO: Well, I've been talking to a lot of people about this notion of technological unemployment because the big digital companies that are displacing the old companies are doing so with a lot fewer... They can service a larger customer base with far fewer employees. And so, there's a lot of jobs that are being destroyed by technology that are not... That that technology is not creating new jobs in equal numbers, and a lot of people are saying, really the conservative response to this is to basically cut everybody a check every month and give the people who don't have jobs money to go shopping; it keeps the consumer economy going.
JHK: Yeah. I believe Finland is one of the first nations to actually propose that concretely in their legislature. And yeah, I've certainly heard that. I think, it's gonna play out differently though. I think that the diminishing returns of that trend of replacing human labor and human thought with just machines and computers, I think it has tremendous diminishing returns and unintended consequences. And one of the more interesting ones is that, among other things, it alienates customers hugely, and we can see that and how things have gone for that last 20 years where corporations have off loaded a lot of their former responsibilities onto their customers by making their customers' lives more difficult. For example, instead of making it easy to contact somebody at a company that you need to do business with, like Apple, or Microsoft, or really any company, they've used the internet not to communicate but to erect a firewall between their customers and them, so they won't be bothered by them. And they offload their own problems by doing things like making you wait 45 minutes to have your call answered on a phone queue.
JHK: And after a while, you get enough of that and people just sign off and say, "Fuck it. I
don't wanna be involved with this company." And I don't think that it's going to work as smoothly as people fantasize about. I think that process of replacing human work with robot work is gonna basically trip over itself and make our... It'll be like an idiocracy of robotic business, and it's not gonna work. At the same time, I think that in reality something else will be happening in the background. And probably, pretty loudly and pretty rapidly, and that will be our journey to becoming a Neomedieval society where a lot of the things that were provided by corporations won't be, and they'll have to be replaced by actual people doing skilled work that requires real skills, like, growing food locally and then finding ways to distribute it locally as things like national chain shopping and supermarkets start to fail, as their supply lines stop working.
JHK: And I think, it's gonna work out hugely different than people fantasize about. In fact, I would put the robotic work society idea in the same folder that I would put the idea that we're going to continue the happy motoring system by electrifying all the cars, 'cause that ain't gonna happen. But it's an amazingly popular and commonly accepted idea that of course that's gonna happen. We'll just have electric cars and that will solve all the problems. Not only that, they'll be self driving. And that's not gonna happen for a lot of reasons. One of the reasons by the way is, something that most people are not paying attention to, and that's the fact that the effect of the crash of the financial system on the way that Americans get cars. Americans are used to buying cars on installment loans. That's how we buy cars, we make payments on them. But what's happened is, the collapse of the middle class has left far fewer people who qualify for car loans and we're going to enter a period of capital scarcity as the debt deflation moves on, which will provide far less capital available for people to get car loans.
JHK: So, the whole motoring thing is gonna probably fail on the financial end before it even fails on the fuel end. Although, those two things could converge fairly rapidly. And what's happened in the last several years is that the smoothies on Wall Street have taken the same model that they used for creating janky mortgage loans and bundles of mortgage loans, like the collateralized debt obligations that went bad in 2008, and they've applied the same principle and the same model to auto loans. So now, they've securitized a lot of really bad auto loans, like six year loans to people who have very poor prospects of making their car payments.
JHK: And we're gonna see exactly the same thing happen with that, those bonds are gonna fail. But as that happens, of course, we're gonna see a whole lot of damage in other parts of the bond world. And it's already happening in the margins of the so called 'junk bonds' or 'high yield bonds.' A lot of those high yield bond were put out by the oil companies and the shale oil companies in particular. They have no prospect of servicing them, paying the interest, or paying their bond holders back, and they're going bad. And in the whole chain of bonds out there, the securitized auto loans bonds are, they're right there behind all that crap, and they're gonna go bad too.
JHK: And the thing after that that we probably have to worry about is, what are the derivative consequences of that? The hedges that these sharpies put in to get paid even if their bonds went bad. And there's a whole lot of wreckage out there waiting to happen. But anyway, getting back to the robotic thing, I put that idea in the same folder as the idea that happy motoring will continue.
KMO: Well, I can certainly see a fairly short term scenario where, because of the reasons you just described, most people can not afford to get a new car and they will either be like me driving a twenty year old car, or they will be dependent on ride-sharing services like Uber, which are about to get a whole lot cheaper 'cause they're about to fire all their drivers and replace them with self-driving cars. Those drivers have basically been training those cars for the past few years. And self-driving cars are not science fiction, and they are not anything that is projected to be developed. They exist today. They travel the roads today and the only thing keeping more of them off the roads right now is regulation.
JHK: Well, I take your point, although, I think, there's room to argue that it's not gonna work as smoothly as people think. For example, there was a similar idea about 10 years ago, or so, that we were gonna have so called 'intelligent highways.' It was, for practical purposes, the same idea as the self-driving car but they had vested the technological part in the roadways themselves. And the idea was, you'd be on board with your computer, and just the car and the road would have a conversation, right? And all these, you'd be able to cram more cars into the limited space of, let's say, the 405 freeway in Los Angeles, and the traffic would move more smoothly because the computers and cars would all be having this conversation.
JHK: Well, the thing is when you really think about it, right now in any given place in America, lets say 7% of the people driving out there are only pretending to have insurance, right? What happens when you're in a situation where 7% of the people are only pretending to be in cars that have a computerized smart car stuff? It assumes that absolutely, all the cars will be capable of doing this, but in fact, it won't be the case. There will always be some rogue cars out there with live humans in them who are capable of making mistakes, especially in a system that's overly computerized that is based on the idea that there will be no mistakes. So, I don't see it happening. I think we're actually gonna leave happy motoring behind. I could see that there could be much more of a ride-sharing thing in the short to medium term that that could be a way of getting around the fact that fewer people will be able to own private cars. That makes a lot of sense, and it's really no different from, or little different from the jitney arrangement that you find in third world countries, where just a lot of people operate in formal taxi services with vans and things. That's what you see in Mexico a lot. So, I think it could easily go to that but I don't think we're gonna have like a George Jetson automatic car system.
KMO: Well, the future I was describing is not utopian in the least. As long as those cars, those Uber cars are still running and they're still making money, there's no real reason to do any unnecessary maintenance on them. I could well imagine you've summoned your next ride and it shows up, of course it's driverless and the door opens up, and you can tell that the last occupants in this car were having sex in it or shooting up.
JHK: Or they threw up.
KMO: Oh, yeah. Exactly.
JHK: When I drove a cab, like every week some drunken guy would throw up in my cab. That was about 30 years ago, by the way.
KMO: But your cab had a driver who could stop and clean up the barf.
JHK: Right.
KMO: But if that car doesn't have a driver and can just go to its next destination and it's going to get paid regardless of the state of the cab then it will. I'm not describing a George Jetson future at all, I'm just saying that automation isn't going away and because of the financial incentive to get rid of human labor whenever possible, I think we're gonna see a lot more automation before things are done.
JHK: Well, I think that we can have a valid difference of opinion on this and just kick back and see how things work out. I'm more inclined to think that we should all become more interested in mules, for instance. But we'll see how it works out.
KMO: You're listening to the C-Realm Podcast. I'm your host KMO and I'm joined once again by James Howard Kunstler. Jim, welcome back to the C-Realm Podcast.
James Howard Kunstler: It's a pleasure to be here with you, KMO.
KMO: We're running out of C-Realm Podcast, actually.
JHK: So, I hear.
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| Detail from The 4th of July by James Howard Kunstler |
KMO: It's not gonna end, but it's going from 52 episodes a year to 12. So, the real estate is about to get precious.
JHK: Well, you've carried on heroically for the past, I don't know, five, seven years. How long has it been?
KMO: I started in 2006.
JHK: Yeah. Well, you've done a yeoman service for all of us and I thank you for it.
KMO: Well, thanks for appearing on the podcast. I don't remember the exact date of your first appearance but it probably would have been in 2007 or 2008.
JHK: Yeah. Somewhere after The Long Emergency came out.
KMO: Yeah. I remember, I had checked it out from the library and somebody else had a hold on it, and I hadn't finished it by the time it was due back. So, I've never actually finished The Long Emergency.
JHK: Well, that's alright. The Long Emergency is gonna finish us, so.
[laughter]
JHK: There you go. [chuckle]
KMO: Well, you recently published your annual longer than usual blog post for your review of the year gone by.
JHK: Well, it's my forecast really.
KMO: Your forecast. Well, it starts there with a look back, doesn't it?
JHK: Sure. You're right.
KMO: Yeah. And then your look forward... And I don't have it up in front of me, as I tend not to look at web pages while I'm talking to people. But well, what to say about this past year, 'cause back when I first started talking to you in 2008 or so, it really seemed like The Long Emergency was coming down on us fast. And it was a good time to stock up on camping supplies and such.
JHK: Yeah. I think what happened was that a certain brand of authority in our culture managed to levitate what remained of our economy and many of the institutional functions in it. And they just managed through legerdemain and chicanery, especially in the financial realm, to levitate this leviathan, so that it would just keep on existing for a while. And it did for the last eight years, and it was quite a feat. It was mostly smoking mirrors. I think it had a lot to do with share momentum, and the size of our economy, and the complexity that our civilization had attained. There was a certain amount of inertia connected with it that assisted the authorities in their efforts to levitate things. And they did. It seems to me that, just in the first week of 2016 that the wheels are really coming off in a pretty serious way globally. But as far as the past year, the past year was a topping process, not just in finance, I think, but really in our faith that these things could continue. And I've said many times in my own blog and in my books that we depend on a number of complex systems to make up this metasystem of complexity. And the system that is the most fragile is the financial system because it's the most abstract and it's the one that is dependent most on faith and our belief in its credibility. And lately, that has translated into the... Our credulity that central banks can keep on artificially propping up economies.
KMO: I do wish I had your piece up for one sentence because it was really well worded, and it packed in a lot of meaning into a short space, but it was something to the effect of an economy that is based on debts that will never be repaid back is not long for this world.
JHK: Well, that's exactly... Well, pretty close enough to what I said. And we're in a peculiar situation that... I suppose the main device that the cabal of business, the Federal Reserve, and the government used was the manipulation of interest rates in order to conceal the fact that we had attained peak maximum credit or debt, and that we had reached the point that we really couldn't manage it anymore. And by that I mean, we could no longer manage the interest payments and the servicing of all that massive monumental debt we'd racked up. And we had racked it up in the first place to borrow from the future to keep all our systems running in the present. And by that, I mean our trade systems, our manufacturing systems, the huge government systems that make payouts to both their employees and the various people who don't do anything who get paid. We reached the end of the line with the debt. And from my mind, a lot of it had to do with the relationship between energy and the economy, and that whole story got very, very confused especially over the last five years with the rise of the shale oil effort.
JHK: But that allowed people to think that we didn't have a problem, and that we would be able to continue all of the rackets that we had rigged up. And I think that the term racket, and the idea of racketeering is also very central for people to understand what has happened to us. And a lot of the activity that goes on in our economy now and in our culture has turned into racketeering. And by that, I mean, to be precise, the unethical and criminal pursuit of money grubbing.
JHK: And you can see it in endeavors, like medicine and education where racketeering used to be the last thing that they would be interested in doing or able to do. These were professions that really relied on the cardinal virtues of humankind, on duty and diligence, and honesty, and qualities like that. And they've become among the most dishonest industries in our culture right now. You don't have to go far to understand the college loan racket and how it has changed education. Or anyone who's tangled with the medical establishment in recent years knows what a dishonest racket it is, and how untransparent the cost of this stuff is and how absurd the charges are. I mean, you go to the emergency room with needing five stitches in your scalp, and five weeks later, you end up with a bill for $7,000. This is a very common thing, right?
JHK: So, racketeering has taken the place of honest endeavor. And it's one of the side effects of living in a culture that engages in continuous lying and pretending. And when you're constantly lying about everything, you've unfortunately entered a place where anything goes and nothing matters. And that's the bottom line.
KMO: Well, Smedley Butler, a US Marine Corps General, famously said in his autobiography in the first half of the 20th century, that war is a racket.
JHK: Oh, yeah.
KMO: And rackets, they don't seem to be new, although particularly with the medical establishment as you just mentioned, it's grown to an unbelievable level. A couple of years back. Well, it's been a few years now, but in 2009, I had sinus surgery.
JHK: Oh, you had your brush with the medical industry?
KMO: Yeah. And I had a job at the time with medical insurance, so it was mostly all good. But when I came out from one of the anesthesia, I basically couldn't pee. The anesthesia had made my prostate swell up so much, there was just no passing urine. And so they kept me, just basically for observation and catheterization overnight. And just basically having a bed, I wasn't... This is not the cost of the surgery. This is just the cost of staying in the hospital overnight was $10,000.
JHK: Oh, hey dude, I had a hip replacement in 2013, one of many. And I got a one line bill from St Peter's Hospital in Albany that just said, "Room and board, 36 hours, $23,000." Say what? All they really did was take my blood pressure 20 times and my pulse. $23,000?
KMO: Yeah, exactly.
JHK: Hello?
KMO: Yeah, so that doesn't seem like it can last. But you mentioned, debts that are unpayable.
JHK: Yeah.
KMO: And a few years back, David Graeber published his book, Debt: The First 5,000 Years, which is really an amazing read. And people in power figured out how to control other people with debt a long time ago. And there is always a perpetual moral hazard. There's always the temptation to create more debt than can actually be paid back. So, this has happened many times before. And typically, what happens is, and this is what's different from us, typically in the past, the debts have been owed to the sovereign. And eventually, the sovereign realizes they're unpayable. And he just says, "Okay, jubilee, we've wiped the slate clean. We're starting to accumulate new debts starting today." And that basically fixes the problem. And we're in a situation now where the debts aren't owed to a sovereign or even to a government that can declare jubilee. And as long as the system is running, the moral hazard is in place to just keep cranking up the debt overhang.
JHK: Yeah. Well, there are some differences. And I think it has a lot to do with the fact that the technoindustrial economy and civilization that we developed has some slightly different rules and procedures. And one of them is that... And we saw an early example of that was, what happened in Weimar, Germany in 1923 which is that, you manufacture a jubilee by other means, namely, hyperinflation. They didn't mean it to go that far, but it got out of hand. And what's happened in the USA for the last couple of decades is an attempt to inflate just enough to eventually erase the debt and the magic number is supposedly like 2% or 3% a year which doesn't seem very much but if you do it over time, you end up not having to pay back an awful lot of money in dollars that are worth the same as what they were originally borrowed at.
JHK: But that's exactly what the Federal Reserve has tried to do, especially since the crash of 2008. But they've been completely unable to do it through all of their chicanery. They haven't been able to manufacture a 2% inflation rate. And instead, what we find ourselves in, is a compressive deflationary environment. And that the reason for that is, because as debts are not paid back, and as loans are not repaid, and as interest is not repaid, money actually disappears from the system. And as money disappears from the system, there's less of it and that's a classic deflation.
JHK: So we're not gonna get that kind of jubilee that you got in an old monarchical society in the olden times. What we're gonna probably get is either, or probably both, first a tremendous compressive deflationary bust, followed by desperate attempts to reflate the economy and then, ultimately destroying currencies.
KMO: Well, you mentioned that the financial aspect of the current economy is the most abstract, and a few years back Dmitry Orlov wrote his Five Stages of Collapse essay which he then
expanded into a book, and one of his arguments is, there are different types of collapse, and collapse can precede in different orders and the financial system can collapse without the rest of the economy collapsing. And at our present state of debauchery, that would probably be a good thing, if the financial system were to collapse.
JHK: Well, yes. Although, I would argue that, I think Dmitry did actually intend them to be sequential. His classic view of it, there would be a sequential progress from financial to commercial to social to cultural collapse, etcetera, etcetera. But what's happened here is like what happened in Cuba when the Soviet Union fell apart. You and I probably get a lot of notes from people who are always saying, "Look how well Cuba managed its transition from being a vessel of the Soviet Union to being a world made by hand economy," right? You've heard that, right?
KMO: Oh, certainly, yeah.
JHK: Yeah. But the thing that they never take into account is that it happened against the background of a world that was still humming along in the background; they were still functioning. And in particular, what was happening was, the Cubans were receiving remittances from the people outside of Cuba, namely, from a lot of Cubans who had move to the United States, who were living in Florida, and they were sending money back to Cuba. So, if that happens against the background of a world that's still largely intact, there's a cushion there. To a certain extent, the same thing might be said of the Soviet Union collapse that, yeah, it was a mighty fall and it had some pretty terrible resounding consequences, but when all was said and done, the rest of the world was still humming along, and they could, for example, depend on Jeffrey Sachs coming over from the USA and trying to retool their economy into a capitalist economy. And they could depend on the fact that the global economy was actually building up at the very time that the Soviet economy was falling. And that was a cushion for them that kept them from going all the way to cultural and social collapse where nothing works and you're living, basically, in a anarchic society with no law or no safety. So, they didn't get all the way down.
JHK: This time, the whole global system is wobbling, and there isn't gonna be the cushion for any of the players. When the United States gets into the trouble that it's now entered, all of the other nations will be going through a similar thing. And all the trade relations that we depend on to keep this behemoth going, they're gonna get in trouble, and they won't be there for us anymore, and we'll be thrown back on our own devices. And what it basically means is we're gonna have to reset to a much lower level. And of course, the major question is, how do you make that journey without a lot of destruction and without a lot of social disorder, and hardship, and cruelty, and all the bad things that come with a badly upset culture?
KMO: And that's a question I don't expect we will answer in this podcast but I think, experience...
JHK: No.
KMO: Will show us the answer, over time.
JHK: Well, it's an emergent process, and it will be a self-organizing thing, and there isn't... I think that there are clues and historical cultural roadmaps that can inform us about what we face, but it's an emergent process, and it's gonna be full of weird surprises. And for example, who would have thought that a buffoon, a dangerous buffoon like Donald Trump would emerge as a serious possibility for winning the nomination of a major political party? Like I said in my forecast, I consider Trump to be Hitler without the charm or the brains. But the fact that, so many people actually take him seriously is to me a huge danger sign. And who would have expected that? And you can predict other things arising out of that. Now, I'm inclined to make wild-ass guesses about things, and I do that in my forecast, sometimes just to be cute, and sometimes because I also really mean it. But one of the things that seems plausible to me is we end up in a situation where Donald Trump, for one reason or another, gets elected, and I think that there would be a serious effort by other authorities in America to remove him from office, after not a very long period of time. And that would be sort of farewell to our constitutional system, or a welcome to a constitutional crisis.
JHK: And it's not unthinkable, countries go through political crisis, and we've had a good run for about 230 years as the constitutional USA. But if a clown like him were to get in office, a guy with very poor impulse control, [chuckle] and some rather dangerous ideas about how the world works, I can see a bunch of Pentagon generals kicking back and saying, "You know, we're patriots and we just can't let this happen, we gotta get this guy out of there." And who knows, maybe they'd say, "Okay, we're gonna have a new election in eight months and we'll start all over again and this time Trump won't be a candidate and we'll try to find some better people." That might happen too. But that's just an example of the weird things that will, or could, emergently pop up.
KMO: Science fiction author David Brin is fond of saying that the George W. Bush administration demonstrates just how resilient the professional governmental bureaucracy is, in the United States, that a president that catastrophic could sit in the White House for eight years and not destroy everything just bespeaks what a solid foundation the US has in terms of it's professional bureaucratic class, and I could imagine the US surviving a Trump presidency, as well. What I find really interesting about Trump is that he is already making signals that he wants to be buddy buddy with Vladimir Putin, and I've been very disturbed by the Obama administration's steady creep back into a cold war doing everything they can to stoke old cold war animosities and provoke Putin at every turn.
JHK: Yeah, me too. No, I completely agree with you about that. And there have been many times in the last couple of years where Vladimir Putin seemed like the only grown up in the room full of world leaders, and he explained himself actually very well in his speech to the UN General Assembly last fall, where the question of Syria had come up, and he basically said, "It's not a good idea to go around destabilizing all of the institutions of a society," which is what the US did in Iraq, and Libya, and Somalia, and all kinds of other places. And he said, "Actually, we probably would be better off if we could support some of these institutions, so these people could govern themselves." And that's the kind of thing that oughta get the attention of intelligent people.
JHK: I'm not necessarily reassured by the fact that Donald Trump feels similarly about that because there are other things about Trump that I just find odious, but it must be said that, above all, Trump does represent something that's really going on in this country and that is a real revulsion
against the establishment, and a revulsion against the elites that have been running things. And I think that's legitimate. I'm just sorry that Trump ended up being the one to represent that consensus.
KMO: There is another candidate who seems to be doing well, who also seems like somebody that would never have been a serous candidate in the past, and that is Bernie Sanders, so what are your thoughts there?
JHK: Well, I think Bernie has... He's really an admirable figure in so many ways. It's interesting 'cause I interviewed him about 20 or 25 years ago for a Vermont newspaper called 'Seven Days', and I spent a day with him in his office when he was Mayor of Burlington, and I was pretty impressed with the guy, just his energy and his charisma. And I think, we should all be glad that he's been there, mainly because he's opposing another odious character on the scene, Hillary Clinton, who I can't stand because I think that she's just thoroughly corrupt and dishonest. And that's not an original idea, but it's an idea that's shared by a certain part of the population.
JHK: I happen to be a registered Democrat, although not a very enthusiastic one in recent years, and I object to her being the candidate for president. I'm glad Bernie's there. I think, Bernie has been a heroic force as an independent senator, and really kind of a great figure of our time. My problem with Bernie is that, I think that he's basically an economic redistributionist. Being the self-proclaimed socialist that he is, I'm afraid that he would be interested in creating larger schemes for taking people's money and choices away from them. And another side effect of that would probably be increasing the size of the government. Now, it happens to be my belief that we're in a situation where government is going to get smaller, whether people like it or not. It's already become hugely ineffectual and impotent at carrying out a lot of its basic functions. And the things that it does do well now, are things that are not very encouraging, like spying on people and collecting information about citizens. That's something that we don't want government to do.
JHK: So, when all is said and done, I'm afraid that what Bernie would support would end up being an attempt to keep big government big and to keep on giving free money to people and endeavors that really ought not to get it. I would not really be happy about voting for Bernie, but I do appreciate his independent voice and his heroism. Does that make any sense to you, KMO?
KMO: Sure. And if it came down to a choice between Bernie Sanders and Donald Trump, I would think that would be a no brainer.
JHK: I'd vote for Bernie Sanders.
KMO: Yeah. Although, apparently...
JHK: Yeah, no question about it.
KMO: Apparently, if you select the poll questions right, there's a significant percentage of Democrats who would crossover and vote for Trump before they would vote for Hillary Clinton.
JHK: That's what I hear. That's what I read in what used to be called "the papers."
[chuckle]
KMO: Do you still subscribe to a daily newspaper?
JHK: Well, I subscribe to the New York Times. I find the New York Times to be enormously annoying. It just bugs the hell out of me the way they cover stuff and fail to cover stuff. But I do subscribe to it as kind of a vestigial duty.
KMO: Well, you mentioned that in relation to Bernie Sanders, the phrase, I think, "Giving money away" or "just giving people money," and...
JHK: He's a redistributionist.
KMO: Well, I've been talking to a lot of people about this notion of technological unemployment because the big digital companies that are displacing the old companies are doing so with a lot fewer... They can service a larger customer base with far fewer employees. And so, there's a lot of jobs that are being destroyed by technology that are not... That that technology is not creating new jobs in equal numbers, and a lot of people are saying, really the conservative response to this is to basically cut everybody a check every month and give the people who don't have jobs money to go shopping; it keeps the consumer economy going.
JHK: Yeah. I believe Finland is one of the first nations to actually propose that concretely in their legislature. And yeah, I've certainly heard that. I think, it's gonna play out differently though. I think that the diminishing returns of that trend of replacing human labor and human thought with just machines and computers, I think it has tremendous diminishing returns and unintended consequences. And one of the more interesting ones is that, among other things, it alienates customers hugely, and we can see that and how things have gone for that last 20 years where corporations have off loaded a lot of their former responsibilities onto their customers by making their customers' lives more difficult. For example, instead of making it easy to contact somebody at a company that you need to do business with, like Apple, or Microsoft, or really any company, they've used the internet not to communicate but to erect a firewall between their customers and them, so they won't be bothered by them. And they offload their own problems by doing things like making you wait 45 minutes to have your call answered on a phone queue.
JHK: And after a while, you get enough of that and people just sign off and say, "Fuck it. I
don't wanna be involved with this company." And I don't think that it's going to work as smoothly as people fantasize about. I think that process of replacing human work with robot work is gonna basically trip over itself and make our... It'll be like an idiocracy of robotic business, and it's not gonna work. At the same time, I think that in reality something else will be happening in the background. And probably, pretty loudly and pretty rapidly, and that will be our journey to becoming a Neomedieval society where a lot of the things that were provided by corporations won't be, and they'll have to be replaced by actual people doing skilled work that requires real skills, like, growing food locally and then finding ways to distribute it locally as things like national chain shopping and supermarkets start to fail, as their supply lines stop working.
JHK: And I think, it's gonna work out hugely different than people fantasize about. In fact, I would put the robotic work society idea in the same folder that I would put the idea that we're going to continue the happy motoring system by electrifying all the cars, 'cause that ain't gonna happen. But it's an amazingly popular and commonly accepted idea that of course that's gonna happen. We'll just have electric cars and that will solve all the problems. Not only that, they'll be self driving. And that's not gonna happen for a lot of reasons. One of the reasons by the way is, something that most people are not paying attention to, and that's the fact that the effect of the crash of the financial system on the way that Americans get cars. Americans are used to buying cars on installment loans. That's how we buy cars, we make payments on them. But what's happened is, the collapse of the middle class has left far fewer people who qualify for car loans and we're going to enter a period of capital scarcity as the debt deflation moves on, which will provide far less capital available for people to get car loans.
JHK: So, the whole motoring thing is gonna probably fail on the financial end before it even fails on the fuel end. Although, those two things could converge fairly rapidly. And what's happened in the last several years is that the smoothies on Wall Street have taken the same model that they used for creating janky mortgage loans and bundles of mortgage loans, like the collateralized debt obligations that went bad in 2008, and they've applied the same principle and the same model to auto loans. So now, they've securitized a lot of really bad auto loans, like six year loans to people who have very poor prospects of making their car payments.
JHK: And we're gonna see exactly the same thing happen with that, those bonds are gonna fail. But as that happens, of course, we're gonna see a whole lot of damage in other parts of the bond world. And it's already happening in the margins of the so called 'junk bonds' or 'high yield bonds.' A lot of those high yield bond were put out by the oil companies and the shale oil companies in particular. They have no prospect of servicing them, paying the interest, or paying their bond holders back, and they're going bad. And in the whole chain of bonds out there, the securitized auto loans bonds are, they're right there behind all that crap, and they're gonna go bad too.
JHK: And the thing after that that we probably have to worry about is, what are the derivative consequences of that? The hedges that these sharpies put in to get paid even if their bonds went bad. And there's a whole lot of wreckage out there waiting to happen. But anyway, getting back to the robotic thing, I put that idea in the same folder as the idea that happy motoring will continue.
KMO: Well, I can certainly see a fairly short term scenario where, because of the reasons you just described, most people can not afford to get a new car and they will either be like me driving a twenty year old car, or they will be dependent on ride-sharing services like Uber, which are about to get a whole lot cheaper 'cause they're about to fire all their drivers and replace them with self-driving cars. Those drivers have basically been training those cars for the past few years. And self-driving cars are not science fiction, and they are not anything that is projected to be developed. They exist today. They travel the roads today and the only thing keeping more of them off the roads right now is regulation.
JHK: Well, I take your point, although, I think, there's room to argue that it's not gonna work as smoothly as people think. For example, there was a similar idea about 10 years ago, or so, that we were gonna have so called 'intelligent highways.' It was, for practical purposes, the same idea as the self-driving car but they had vested the technological part in the roadways themselves. And the idea was, you'd be on board with your computer, and just the car and the road would have a conversation, right? And all these, you'd be able to cram more cars into the limited space of, let's say, the 405 freeway in Los Angeles, and the traffic would move more smoothly because the computers and cars would all be having this conversation.
JHK: Well, the thing is when you really think about it, right now in any given place in America, lets say 7% of the people driving out there are only pretending to have insurance, right? What happens when you're in a situation where 7% of the people are only pretending to be in cars that have a computerized smart car stuff? It assumes that absolutely, all the cars will be capable of doing this, but in fact, it won't be the case. There will always be some rogue cars out there with live humans in them who are capable of making mistakes, especially in a system that's overly computerized that is based on the idea that there will be no mistakes. So, I don't see it happening. I think we're actually gonna leave happy motoring behind. I could see that there could be much more of a ride-sharing thing in the short to medium term that that could be a way of getting around the fact that fewer people will be able to own private cars. That makes a lot of sense, and it's really no different from, or little different from the jitney arrangement that you find in third world countries, where just a lot of people operate in formal taxi services with vans and things. That's what you see in Mexico a lot. So, I think it could easily go to that but I don't think we're gonna have like a George Jetson automatic car system.
KMO: Well, the future I was describing is not utopian in the least. As long as those cars, those Uber cars are still running and they're still making money, there's no real reason to do any unnecessary maintenance on them. I could well imagine you've summoned your next ride and it shows up, of course it's driverless and the door opens up, and you can tell that the last occupants in this car were having sex in it or shooting up.
JHK: Or they threw up.
KMO: Oh, yeah. Exactly.
JHK: When I drove a cab, like every week some drunken guy would throw up in my cab. That was about 30 years ago, by the way.
KMO: But your cab had a driver who could stop and clean up the barf.
JHK: Right.
KMO: But if that car doesn't have a driver and can just go to its next destination and it's going to get paid regardless of the state of the cab then it will. I'm not describing a George Jetson future at all, I'm just saying that automation isn't going away and because of the financial incentive to get rid of human labor whenever possible, I think we're gonna see a lot more automation before things are done.
JHK: Well, I think that we can have a valid difference of opinion on this and just kick back and see how things work out. I'm more inclined to think that we should all become more interested in mules, for instance. But we'll see how it works out.
