This the kind thing I'm resisiting. People invoke "ponzi" and then forget that WalMart is engaging in commerce, and providing a tangible service. People cook WalMart food in their WalMart pots. Ponzi, in the true sense, was selling a false hope of purely paper manipulation and profits (postal coupons).
Now ... you wanna go on about leverage and risk? Pfft. Retailers have been around since the dawn of civilization. Wine merchants sold product shipped in those amphorae on those little Roman ships. Were some of them leveraged too far, and did they suffer when ships sank, etc.? Sure, why not. That too is as old as civilization.
... but there is a clear difference between a retail business and a paper company.
I think the obvious extremes are a good solid company with products and services ... and then out at the other end a company with nothing but paper.
In the middle we have to distinguish between companies that are merely "overvalued" (quite common) and companies that are running a true scam (somewhat less so).
I recall a computer add-on company of some kind (sound boards?) who was discovered to have taken massive numbers of returned and defective product, and stashed them in a warehouse ... trying to keep them off the books. They certainly veered into scam territory, who knows by what incremental path.
Ponzi defrauded new investors (new devotees) by mis-informing them that the money older investors received came from profits recouped off of real investments when in fact it was just the money of new investors (new entrants into his system) being passed forward to older entrants.
Of course this sounds strangely similar to our US Social Security system.
Does it correspond to other parts of our "system"?
What other parts are built on mis-information and fraud?
Ponzi, Pyramid, same basic animal. One criterion for identifying a 'Pyramid' scheme is the proportion of 'product' that is moved, as opposed to simply expanding the pyramid by recruiting more suckers.
Seems to me that the Ponzi scheme idea is only partly true and only on a long time frame. Product is being delivered as long as we have the cheap energy for creating it. As cheap energy wanes off, the Ponzi component of the whole shebang gets larger because more is promised and less delivered.
It's really more of a 'Squander' scheme, with the empty promise of being able to squander endlessly into the future.
There is an interesting line between the two. Market systems have always allowed, as part of the game, for the seller to make his best case for value, even as the buyer denigrates it.
In the market 5K years ago:
Trader: I have these jars of excellent imported wine, I will sell them for just 6 coins.
Merchant: They smell like they're starting to go off to me. I'll be lucky to move them before they go sour. 3 coins.
Trader: Are you serious? I should take these to the palace, for they are truly suited for kings ... 5 coins.
Merchant: You know, the local stuff is getting much better. My customers are starting to prefer it. 4 coins.
... and so one.
If you ask me, they "analysts" on CNBC in the afternoon are just playing the role of "Trader," one (again) as old as civilization. They are putting the best possible face on their products.
We've actually decided (as a society) what constitutes a scam, and embodied that in a whole series of laws and institutions.
Some people want to throw that over and say it's all a scam ... while I think it's useful to distinguish from things that are merely overvalued or oversold.
Traders of 5K years ago did not possess technology of neuro-linguistic programming (NLP), nor did they possess "mass" media for simultaneously programming the masses all at once.
"Maybe we have enough generations history dealing with swarmy salesmen to develop neural countermeasures."
You do. I do. But advertising still has some sway with us. And a large fraction of society's neural countermeasures aren't nearly as well developed.
Heck, my university educated mother can't resist buying a new household product after a new round of advertising hits the television. And I don't think she's atypical.
Honestly, if it didn't work, do you think companies would spend billions on advertising? Check out No Logo by Naomi Klein.
Of course, the oil companies are milking the Oil Peak! It would be no fun otherwise, in accord with that Jay Hanson character. Jay Hanson is the definitive Doomer. Doomer or not, I'm sure glad - and gladder by the day - that I never had kids for their sake. After all, it will get harder to go about daily missions as time goes by.
While the Cuba powerdown is romanticised, an alternative situation can exist in the form of North Korea. Not good! As if Cuba wasn't bad enough, North Korea is a micro-case of America but with capitalism - only making things worse. Get ready for a looooong ride doooooooooooown! We are misappropiating resources to the military NOW. To be honest, I don't want to see that wreck from a cockpit!
Things will not be good during ANY "powerdown". It seems that a powerdown does require a "command economy" but the way it's done make a giant difference. Fidel did maneage a "powerdown" though admittedly not optimally. Much more likely our own powerdown will be way sub-optimal. Democracy, like capitalism takes a powerup case, so all bets are off.
It's no wonder why doomers love the oil peak topic! PO allows for doomers to have fun. It is up to us and people to remediate it like Y2K but it will be harder by far. Can PO be remediated? We will sure find out, most likely the hard way, as TSHTF.
I think the mis-communication here is this: the retail sales are a real business, no problem there. But the people buying stocks in the company are paying a price that is based on the assumption of infinite "growth". If the company stops growing then the stocks lose value, even though actual sales and profits remain the same. The stock system is the Ponzi scheme, along with the whole "growth"-based financial system. Without "growth", there is no reason for more "investment", and no way for "money" to "make more money". Imagine that, making money will require work!
BTW I keep putting "growth" in quotes because the only thing that truly grows is the throughput of nonrenewable resources and the destructive impact on the planetary environment. When economists learn to subtract as well as add, the externalized costs will show that the "growth" is a loss to most of us.
Growth for it's own sake is the ideology of the cancer cell.
Great list. I think Stigler is the best of the batch. His understanding of concentrated benefits and diffuse costs -- and how that shapes human investment and indirectly regulatory agencies -- is brilliant.
This is the first time I've seen anyone mention Kenneth Boulding anywhere. He was the subject of my senior thesis and I studied under him at University of Colorado. If we had listened to him 30 years ago, it is unlikely we would be in this mess --- including overpopulation.
I suspect most people who invest in the stock market buy into the infinite growth thing at least somewhat. Some may think they can time the market and get out before it tanks, but most are probably like those Enron employees, who just never imagined the company stock could stop increasing in value, let alone decline.
I think we crossed timescales in the last few posts. It's one thing to look for "the next Polaroid" as people did in the 80's (when they should have been spotting "the first Microsoft"). It's another thing to make aggregate growth predictions for US (or world) companies over longer timescales.
While fossil fuels last they will provide (in combination with technology of the day) a "harvest" or "return" or "growth."
We like to point out that oil shale has the energy density of mere baked potatoes. Well, if there were a few billion tons of baked potatoes out there (even inedible) somebody would probably mine them too.
Ultimately, on the long timeline, we will be working with resources lower in energy density, but with a higher technological lever. It's science fiction to say, at that far distant point, what the outcome will be.
Another old saying is "don't count your chickens until they're hatched." I try to keep that strategy with respect to energy technologies.
It stikes me now that both "cornucopians" and "doomers" are making the same mistake and counting chickens. The cornucopians see infinite chickens, and the doomers see zero chickens.
Some things to note about our past: ball bearings are easy to make, but we only started deploying them widely in 1900. Ball bearings have a profound efffect on our lives, an effect that was masked by oil.
Shiny reflective surfaces (i.e. solar ovens) are a recent invention. But people in Africa love them, even though for many these things ("cookits" is what they call them) are the only modern trapping in their homes.
I can think of corner reflectors, those things that reflect radar to the radar station from which it comes. Small boats have them, but could be easally made.
If that Kin Jong Il were to launch a 4-stage rocket with one and some boulders the would would take notice if in orbit like Sputnik. The boulders would serve only as added weight to prove he can do it. If he can launch a 500 pound (245Kg or so) payload into space he proves he can launch a 500 pound-weighing weapon -including nuclear - to any spot onto Earth. Not good. BTW the boulders if released serve as a road hazard to space shuttles :)
It is possible though not probable that Kim Jong Il launched that long range missle as a deliberate dud. By launching a known dud you get the rest of the world to think you're not up to the job yet - a bluff in reverse. That way, you get the diplomatic adavantage of not being a "full scale" danger BUT you wait until America is done with Iraq then you fire off an underground nuke PLUS put those boulders in orbit then America is militarily and diplomatically stuck. Any time you get a rocket to get 500 pounds into orbit you can get a nuke anywhere only if you aim good.
I emphatically agree with "indeterminate." I can write convincing doom scenarios and convincing semi-cornucopian ones. The future may or may not lie somewhere in between.
There is absolutely positively 100% certainty that there is no way to KNOW the future.
Not for nothing did I read some tens of thousands of pages of philosophy;-)
I suspect most people who invest in the stock market buy into the infinite growth thing at least somewhat.
Only if you invest in long positions, and for the long term. A lot of people invest in short positions, and if they invest in long positions, do so only for the short term. A lot of TODers believe that infinite growth is impossible, but have invested anyway (in Peak Oil-based portfolios). My point is only that the only important growth is for the company whose securities you hold (in long positions), and only for the duration you plan on holding it.
I understand that, but most American investors are not that sort. They are ordinary folk who are investing via their company's 401(k). Like those Enron folk. The payroll deduction and forget it crowd.
I took econ 101 in college 30 years ago, that's the sum of my expertise!
But there are two ways to make money in stocks - dividends and capital gains. On the surface it looks like dividends is the sustainable route and capital gains not. But the tax law favors capital gains. Companies can use stock buy-backs to turn profits into higher stock prices. So a company making a nice steady profit can still have a rising stock price even though the total value of outstanding shares is fixed. Toss in the occasional stock split - my guess is that profits can sustainably be returned as capital gains instead of dividends.
Somebody might suppose that profit itself is unsustainable. It gets a bit absurd though. Prigogine's notion of dissipative systems seems like a pretty good model for life. The game is just to tap into the flow of energy from the sun into deep outer space. As long as the sun shines, there is a flow of energy to tap. Sustainable enough for me.
As long as the sun shines, there is a flow of energy to tap. Sustainable enough for me.
Did you read Mike Hearn's contribution? It explains (among other things) why usury - charging interest - was such a grave sin in Biblical times, and why interest makes growth necessary.
Now ... you wanna go on about leverage and risk? Pfft. Retailers have been around since the dawn of civilization. Wine merchants sold product shipped in those amphorae on those little Roman ships. Were some of them leveraged too far, and did they suffer when ships sank, etc.? Sure, why not. That too is as old as civilization.
... but there is a clear difference between a retail business and a paper company.
In the middle we have to distinguish between companies that are merely "overvalued" (quite common) and companies that are running a true scam (somewhat less so).
I recall a computer add-on company of some kind (sound boards?) who was discovered to have taken massive numbers of returned and defective product, and stashed them in a warehouse ... trying to keep them off the books. They certainly veered into scam territory, who knows by what incremental path.
When the music stops, the ones who came in late - the ones at the bottom of the pyramid - are going to be screwed.
Of course this sounds strangely similar to our US Social Security system.
Does it correspond to other parts of our "system"?
What other parts are built on mis-information and fraud?
Seems to me that the Ponzi scheme idea is only partly true and only on a long time frame. Product is being delivered as long as we have the cheap energy for creating it. As cheap energy wanes off, the Ponzi component of the whole shebang gets larger because more is promised and less delivered.
It's really more of a 'Squander' scheme, with the empty promise of being able to squander endlessly into the future.
In the market 5K years ago:
Trader: I have these jars of excellent imported wine, I will sell them for just 6 coins.
Merchant: They smell like they're starting to go off to me. I'll be lucky to move them before they go sour. 3 coins.
Trader: Are you serious? I should take these to the palace, for they are truly suited for kings ... 5 coins.
Merchant: You know, the local stuff is getting much better. My customers are starting to prefer it. 4 coins.
... and so one.
If you ask me, they "analysts" on CNBC in the afternoon are just playing the role of "Trader," one (again) as old as civilization. They are putting the best possible face on their products.
We've actually decided (as a society) what constitutes a scam, and embodied that in a whole series of laws and institutions.
Some people want to throw that over and say it's all a scam ... while I think it's useful to distinguish from things that are merely overvalued or oversold.
Maybe we have enough generations history dealing with swarmy salesmen to develop neural countermeasures.
You do. I do. But advertising still has some sway with us. And a large fraction of society's neural countermeasures aren't nearly as well developed.
Heck, my university educated mother can't resist buying a new household product after a new round of advertising hits the television. And I don't think she's atypical.
Honestly, if it didn't work, do you think companies would spend billions on advertising? Check out No Logo by Naomi Klein.
"There ain't no peak oil, it's just them dang oil companies gouging us!"
While the Cuba powerdown is romanticised, an alternative situation can exist in the form of North Korea. Not good! As if Cuba wasn't bad enough, North Korea is a micro-case of America but with capitalism - only making things worse. Get ready for a looooong ride doooooooooooown! We are misappropiating resources to the military NOW. To be honest, I don't want to see that wreck from a cockpit!
Things will not be good during ANY "powerdown". It seems that a powerdown does require a "command economy" but the way it's done make a giant difference. Fidel did maneage a "powerdown" though admittedly not optimally. Much more likely our own powerdown will be way sub-optimal. Democracy, like capitalism takes a powerup case, so all bets are off.
It's no wonder why doomers love the oil peak topic! PO allows for doomers to have fun. It is up to us and people to remediate it like Y2K but it will be harder by far. Can PO be remediated? We will sure find out, most likely the hard way, as TSHTF.
BTW I keep putting "growth" in quotes because the only thing that truly grows is the throughput of nonrenewable resources and the destructive impact on the planetary environment. When economists learn to subtract as well as add, the externalized costs will show that the "growth" is a loss to most of us.
Growth for it's own sake is the ideology of the cancer cell.
Like Kenneth Boulding said, "Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist."
While fossil fuels last they will provide (in combination with technology of the day) a "harvest" or "return" or "growth."
We like to point out that oil shale has the energy density of mere baked potatoes. Well, if there were a few billion tons of baked potatoes out there (even inedible) somebody would probably mine them too.
Ultimately, on the long timeline, we will be working with resources lower in energy density, but with a higher technological lever. It's science fiction to say, at that far distant point, what the outcome will be.
Then that's where we disagree. I don't think we'll be able to maintain our technological complexity on a diet of inedible baked potatoes.
And I think our past is a pretty good signpost of what our future will be like.
Can you tell me what the best shale technology will look like in 100 years?
It stikes me now that both "cornucopians" and "doomers" are making the same mistake and counting chickens. The cornucopians see infinite chickens, and the doomers see zero chickens.
;-), moderates wait until they hatch.
Shiny reflective surfaces (i.e. solar ovens) are a recent invention. But people in Africa love them, even though for many these things ("cookits" is what they call them) are the only modern trapping in their homes.
If that Kin Jong Il were to launch a 4-stage rocket with one and some boulders the would would take notice if in orbit like Sputnik. The boulders would serve only as added weight to prove he can do it. If he can launch a 500 pound (245Kg or so) payload into space he proves he can launch a 500 pound-weighing weapon -including nuclear - to any spot onto Earth. Not good. BTW the boulders if released serve as a road hazard to space shuttles :)
It is possible though not probable that Kim Jong Il launched that long range missle as a deliberate dud. By launching a known dud you get the rest of the world to think you're not up to the job yet - a bluff in reverse. That way, you get the diplomatic adavantage of not being a "full scale" danger BUT you wait until America is done with Iraq then you fire off an underground nuke PLUS put those boulders in orbit then America is militarily and diplomatically stuck. Any time you get a rocket to get 500 pounds into orbit you can get a nuke anywhere only if you aim good.
There is absolutely positively 100% certainty that there is no way to KNOW the future.
Not for nothing did I read some tens of thousands of pages of philosophy;-)
But there are two ways to make money in stocks - dividends and capital gains. On the surface it looks like dividends is the sustainable route and capital gains not. But the tax law favors capital gains. Companies can use stock buy-backs to turn profits into higher stock prices. So a company making a nice steady profit can still have a rising stock price even though the total value of outstanding shares is fixed. Toss in the occasional stock split - my guess is that profits can sustainably be returned as capital gains instead of dividends.
Somebody might suppose that profit itself is unsustainable. It gets a bit absurd though. Prigogine's notion of dissipative systems seems like a pretty good model for life. The game is just to tap into the flow of energy from the sun into deep outer space. As long as the sun shines, there is a flow of energy to tap. Sustainable enough for me.
Did you read Mike Hearn's contribution? It explains (among other things) why usury - charging interest - was such a grave sin in Biblical times, and why interest makes growth necessary.