Materialism Age Ending

This article was inspired by a recent article by Mr John Mauldin, entitled "The more things change". Mr Mauldin, who is undoubtedly one of the most competent and objective financial analysts I have ever come across, approached the subject from two perspectives, namely "cyclical" (various lengths) and "human psychology".

Whilst reading his very well researched arguments, I found myself intuitively focussing on some structural issues that I had with these arguments. Eventually, my left brain came to understand that the "core" issue I had with John's argument's is that in today's fast moving world, the "grand sweep" of history is really confined (in the world of financial analysis) to the period encompassing the Industrial Revolution.

Unfortunately, a mere couple of hundred years of accumulated data probably occupies only one single volume in God's library. From this analyst's perspective, I see the potential for structural dislocation (and, thankfully a relocation) in Human Society of a nature that we have never experienced in recorded history.

To set the scene of my own argument, I reproduce below the following photographs (Source: http://news.bbc.co.uk/1/shared/spl/hi/picture_gallery/05/sci_nat_how_the_world_is_changing/html/2.stm ) (Thank you Igor)

What these photographs (and others on the web site) show, is that Global Warming is not just a figment of Prince Charles' (and other "tree huggers") imaginations. It is real, and it is having serious consequences.

Is there a link between this and any of the economic arguments put forward by John, when he referred to economists such as Kondrat'eff and Schumpeter?

Probably the most compellingly plausible article I have read on the concept of the Innovation Cycle was written by an Engineer by the name of Cesare Marchetti, and published in New Scientist on 2 May 1985, at page 12.

What Marchetti demonstrated via a remarkably tight mathematical "fit" of the squiggly lines above to the solid - mathematically forecast - lines, was that energy cycles are predictable with a high degree of accuracy.

Even more compelling, flowing from the chart below, was the close correlation between Schumpeter's Innovation Waves and the Energy Waves above.

What I find particularly compelling, and which is a fact on which neither Cesare Marchetti nor John Mauldin focussed with sufficient intensity, in my view, is that the increasing "acceleration" of the rate of market penetration of successive waves of innovations will logically culminate when the last line is perpendicular.

Clearly, a perpendicular line will imply an instantaneous market penetration, and anyone of moderate intelligence will immediately understand that such a phenomenon will be physically impossible. In short: It will not happen, and something structural needs to change. In reality, what we have been witnessing during the Industrial Revolution phase of humanity's existence is an exponential rate of growth which, as anyone who has ever studied such phenomena, will readily attest inevitably culminates at "infinity". In a world of biological constraints, such an outcome simply will not happen.

When you look at these two charts side by side with the photographs above, it becomes clear that there has been a "cause and effect" relationship between accelerating Industrial growth (cause), and the impact thereof on the ecological environment (effect).

It follows, that where we now find ourselves, is that Humanity is being threatened with the possibility of extinction, unless we modify our behaviour.

The following is a quote from John's article:

"Last year's winners of the Nobel Prize for Economics were two psychologists, who came up with the sometimes obvious thought that investors are irrational. Their contribution, however, was that humans are not just irrational, but predictably irrational."

My take on this is that regardless of how brilliant these two Nobel Prize Winners may be (and they are undoubtedly brilliant, given their having won this prize) their conclusion regarding the predictability of human behaviour is flawed when looked at in the "grand sweep" of Darwinian oriented history.

John's wife got it dead right (Bull's Eye, if you will excuse the humour): "Insanity is doing the same thing over and over and expecting different results." In simple terms, if Mankind continues to behave along the lines that Schumpeter and Kondrat'eff 's models forecast, mankind will eventually annihilate itself through ecological destruction.

Using plain old "common or garden variety" horse sense, it does not take a genius to conclude that "something's got to give".

What will give?

The most compelling evidence before us is the increasing obtuseness of the angle of the best fit innovation waves. What is undoubtedly happening is that the age of Materialism is rushing exponentially towards a point of culmination. Of this there can be no doubt.

From another perspective, the decreasing trend the 600 year silver price below merely confirms this conclusion:

This is a 600 year graph of silver prices and silver/gold ratio from 1344 to 1998 as shown in 1998 dollars. (Source: http://goldinfo.net/silver600.html )

This begs two questions:

1. Can we survive?
2. If so, what will change?

Possibly the best known example of Natural Adaptation is the story of the white moths in London which changed colour to grey so as to ensure their survival as Industrial Pollution threatened them with extinction. Because their white colour made them more easily visible to predators against the grey cloud of industrial smog, they adapted physically and changed colour.

It follows from this, and other examples that drew Charles Darwin's attention to the concept of evolution of the species, that humanity will adapt in order to survive.

This is not just a theoretical argument. It is this analyst's view that the human responses to environmental pressures - which have started to manifest in immunological system breakdowns ranging from Chronic Fatigue at one end of the Spectrum to AIDS at the other end - are forcing changes in our genetic mapping. In short: We will either change genetically, or we will expire.

As yet, the evidence is only tenuous, and is not statistically verifiable to a high degree of confidence. Nevertheless, there is sufficient anecdotal evidence - to have at least become noteworthy - that there may well be genetic changes occurring at some levels of society. (The Indigo Children)

On a more tangible and concrete level, Marchetti's models show that our dependence on oil is not umbilical. There are other sources of energy and, if the "rocket scientist's" view of the world turns out to be correct, hydrogen will eventually become particularly important.

In one area, I am in complete agreement with John Mauldin: "Governments are the problem, they are not the solution." "The change that I think is really coming over the next four decades is the demise of centralized governments because they are not "profitable." They don't work in a globalized and industrialized world society with mobile capital and mobile people. What we will see is the rise of the sovereign individual, which is a very uncomfortable change; governments won't willingly give up that power."

However, in one area I do not necessarily agree: "The "spread" between the rich and poor will increase as well, making the politics of envy all the more susceptible to politicians who love to demagogue."

In this analyst's view, the credibility of conventional politicians is already in tatters. As the economy starts to unravel, no one will be listening to the promises of pork barrel politicians. Society is evolving. We are starting to understand at a much deeper level that these men and women, who are typically driven by ego and self aggrandisement, are "bad news".

We are also starting to understand at a much deeper level than heretofore - as evidenced by the outpouring of voluntary assistance to the victims of the Indonesian Tsunami - that we are our brother's keeper. As a group, we will survive. As individuals, we have no chance.