Think About This

One of the most interesting economists of the early 20th Century was Joseph Schumpeter. (You can read about him at http://en.wikipedia.org/wiki/Joseph_Schumpeter )

Here is a quote from the Wikipedia article:

“Schumpeter's theory is that the success of capitalism will lead to a form of corporatism and a fostering of values hostile to capitalism, especially among intellectuals. The intellectual and social climate needed to allow entrepreneurship to thrive will not exist in advanced capitalism; it will be replaced by socialism in some form. There will not be a revolution, but merely a trend in parliaments to elect social democratic parties of one stripe or another. He argued that capitalism's collapse from within will come about as democratic majorities vote for the creation of a welfare state and place restrictions upon entrepreneurship that will burden and destroy the capitalist structure. Schumpeter emphasizes throughout this book that he is analysing trends, not engaging in political advocacy.”

In this analyst’s mind, there is no doubt that entrepreneurialism and private enterprise are two of the forces behind economic growth in particular and behind human advancement in general. What appears to happen as the economy evolves is that an old energy paradigm gives way to a new energy paradigm. Entrepreneurs see opportunities flowing from the new energy paradigm and they move to capitalise on these opportunities.

I was fascinated to discover, in 1985 (thanks to reader feedback at that time), that the new energy paradigms emerge with exquisite mathematical precision – according to a set of equations known as the Volterra-Lottke equations. Particularly fascinating were the following implications:

• " The Volterra-Lottke equations were originally developed to describe a biological phenomenon (the interplay of populations of buck and wolves in a forest). Given that the historical emergence of new energy paradigms were also able to be quantified in terms of these equations, it might be concluded that the entire planet earth is an integrated biological system which pulses with a heartbeat.
• Separately from 1 above it was discovered that there was a mathematical relationship between market penetration of the new energy paradigm/s, and the emergence of related entrepreneurial innovations.
• When the innovations reached “critical mass” within the economic environment, they became drivers of the new “long wave” economic cycle.
• The actual historical data relating to new energy paradigms fit with the forecasts of the Volterra-Lottke equations so amazingly tightly that the probability of 1-3 above being random was vanishingly small.

Ultimately, it was the discovery of 1-4 above that finally led this analyst to write Beyond Neanderthal (www.beyondneanderthal.com ) – which examines and postulates the likely “next generation” energy paradigm/s that will drive the world economy for the next one hundred years or so.

But, forecasting the next generation energy paradigms turned out to be not as easy as it seemed in 1985.

Which brings us back to Joseph Schumpeter:

The more alert reader will have noticed over the years that I am not a fan of modern day political leaders (of any political persuasion). Ultimately, the reason for this is that I see them, generally, as selfish and spineless, and predisposed to pander to special interests. Of course there is a distribution curve in all populations and there will be exceptions on both left and right – but the bulk of the population of politicians appears to put their own interests and those of their power broker supporters before the interests of society.

My attitude is not based on altruism or socialism or even cynicism. It is based on my perception that Schumpeter was correct. Here is some evidence:

• The failure to ratify the Kyoto Protocols had the effect of entrenching the coal and oil energy paradigms when the time had come for new energy paradigm/s to emerge.
• The bankers, believing they could substitute “money” for “energy” as a primary driver of the world economy, created an environment of easy credit. The result was a mountain of debt.
• To prevent the economy from falling over as a consequence of the non servicing and/or non repayment of this debt, the politicians have been forced to behave as if we are living in a welfare state. For example, the Bear Stearns bailout cannot be justified by any principle which underlies the system of free enterprise and capitalism.
• Because the failure to ratify Kyoto delayed the emergence of new energy paradigm/s, the impact of Peak Oil is reaching crisis proportions. In response to this crisis, we are now playing catch up. In playing catch-up, the politicians in the USA passed an act in 2007, which “forces” the use of biofuels.

Faced with the above, I sat back and I thought about it all, and I asked myself two questions:

• What if biofuels are not the next generation energy paradigm that would have emerged had the forces of Mother Nature been allowed to prevail? Arguably, the time has come for humanity to move Beyond Neanderthal fire.
• What is the likely consequence of arrogant humans trying to “control” or “block” the forces of Nature?

The conclusion to which I arrived is that Mother Nature will very likely swat us aside, as if all of humanity was nothing more than an irritating gnat. It was then that I came to focus on the meaning of the word “Islam”.

In the religious sense, Islam means submission to the will of God and obedience to His law.

Now, before any reader goes off with the pixies and starts imagining that the purpose of this article is to push a religious viewpoint, let me hasten to clarify that there are issues surrounding the very meaning of the word God, and there are various ways of looking at religion; and religious “dogma” is not a particularly constructive thought paradigm. It leads to clashes of culture – which is probably one reason we are experiencing the current so-called Clash of Civilisations. My mind is operating at a high level here. I am not focusing on any particular dogma. What I am focusing on is that, sometimes, (most times) it pays to listen to what the other guy has to say.

Arguably, if politicians across the planet are going to continue to try to control or block (as opposed to submit to) the forces of Nature, we will likely be wiped out.

So let’s come down to earth again. What’s happening at the coalface – in particular, at the coalface of the most powerful nation on the planet?

Well, in terms of Schumpeter’s model there is no shortage of evidence (at face value) that the US is starting to behave as if the word capitalism no longer exists in the lexicon of politicians and industrial leaders. There is even an argument that the Bear Stearns debacle was specifically orchestrated to enable JP Morgan to protect its balance sheet. (See http://www.sandersresearch.com/index.php?option=com_content&task=view&id=1354 for an article published on April 24th 2008)

It seems that at one end of the spectrum we might be witnessing a form of financial terrorism, and at the other end we might be witnessing a move for the US to become a welfare state. In terms of this “model” it could be argued that the entrepreneurial spirit of the USA is being smothered.

An interesting possibility, and seemingly plausible – until one focuses on the paradox of the Nasdaq, which can be seen from the chart below (courtsydecisionpoint.com)

This weekly chart is giving off conflicting signals:

From one perspective, there is a non-confirmation of falling bottoms in the PMO and rising bottoms in the Index chart.

From another perspective, it looks like the Nasdaq might be about to give a buy signal. Indeed, technically speaking, in rising above its 43 week moving average it already has given a buy signal

Question: Why am I focusing on the Nasdaq?

Answer: Because, in terms of Schumpeter’s thought paradigm, that’s where we find that entrepreneurial activity within the USA is concentrated. The performance of the Nasdaq is a reflection of the performance of America’s entrepreneurs.

And the circle of logic completes. Whether the old banker/politician/oil industry thought paradigm prevails, or whether some evolved version of the capitalism thought paradigm prevails will ultimately be a function of – you guessed it –integrity.

If those who lack integrity prevail, the US economy (and probably the world economy) is doomed. But if integrity begins to re-emerge, then we might be facing a very interesting future - which is why I have been scanning the media for possible evidence of the emergence of integrity.

Here are a few flashpoints:

• Will Gordon Brown actually move to soften the UK’s legally enforceable biofuel targets – as he recently said he would – because it has become so painfully clear that the very act of forcing biofuel targets was one cause of the food riots that have so far occurred across 13 countries?
• How will the Zimbabwean elections turn out? Will Robert Mugabe be able to hold on to his power base by duplicitous means, or will integrity prevail – resulting in his eviction?
• What will happen with regard to Tibet? Will the question of sovereignty be resolved by reason or by force?
• Will Hamas, aided and abetted by Iran and Syria, continue to aspire to “wipe Israel off the map” based on an argument that has no reasonable foundation – either in fact or in logic?
• For how long will the IPCC scientists and their followers continue to focus so intently on the microscopic minutiae that they remain wilfully blind to the big picture – which shows quite clearly that Mother Earth’s climate pulses to a 26,000 year and 100,000 year rhythm of warming and cooling? Their arguments are based on facts which are confined to the period 1750 CE to 2008 CE. 258 years represents 1% of 26,000 years; and 0.26% of 100,000 years. At what point will they come to acknowledge that humans do not have the power to overcome – or even manage – the forces of Nature? Will that point be before or after it’s too late to do anything about it?

Well, dear reader, your guess is as good as mine. But I’m a glass-half-full kind of person. I happen to think that the human animal is reasonably intelligent, and also that our genetically programmed instinct for self preservation will kick in – thereby paving the way for us to apply our intelligence.

We will see evidence of the self preservation instinct kicking in when we see evidence of integrity beginning to manifest.

Of course, if you’re a glass-half-empty kind of person then, quite naturally, you will strongly disagree with the ramblings of this analyst. You will argue that human nature does not change, and that its every man for himself; and that therefore, all of humanity is doomed.

I will, of course, agree that human nature doesn’t change. My argument is that genetic instinct for self preservation transcends genetic instinct for ego aggrandisement. My view is that when the chips are down, our petty differences will evaporate and we will all join forces to face the common threat. It’s a question of timing. Will we move timeously or will we wait too long?

So, if you are a also glass-half-full kind of person then you may want to read my novel, Beyond Neanderthal, which is doggedly making its way through the editing, layout and printing process. It lays out a vision of the future and plots a possible pathway towards that future. It also lays out milestones along the pathway. My publisher is advising me to quote “late May” as the publication date, so there is still time to register your interest to acquire a copy by going to www.beyondneanderthal.com