Friday, April 03, 2009

The New Global Economy is Local

It's pretty obvious by now (at least, I think so) that modern capitalism is in the process of failing. There are a number of good reasons for this, some to do with greed and short-sightedness, others to do with the strange idea that infinite growth is possible. That latter has always been a strange idea to me; not just unintuitive, but demonstrably wrong. However, the major concern now seems to be that money is essentially fictional, on a worldwide basis.

For most of human history, money - currency - has represented something real. Sometimes it was gold, sometimes grain, and there have been currencies backed by things as diverse as beef and beer. Modern money, though, is backed by... nothing much. Agreement, between national banks, that we might as well jst pretend there's something there, and as long as nobody stops pretending, we're all fine. The trouble of late seems to have been that many of the people working in and around these banks had too much imagination, and a truly stupendous amount of pretend money went into circulation.

There was an occasion last year in the US in which the imaginary money had to be reined in. Had it not, we're told, the US economy would have completely vanished down an equally imaginary plughole, leaving rather a vaccuum - all, essentially, by agreement.

Anti-globalist protestors have been pointing out the flaws of modern capitalism for more than a decade now. The main trouble seems to be that nobody has been able to suggest anything to replace it - nobody seems to be able to conceive of a global system that will work, be reasonably fair, and not subject to abuse by any party involved. I'm beginning to suspect that this is because we're looking in the wrong places - or, rather, the wrong place.

We're not finding a global solution because there is no global solution. We need local solutions, and each local solution needs to be able to negotiate exchanges with other local solutions, situation by situation. Different areas worldwide have widely different priorities. 

Look at real estate, for instance. In Ireland, despite recent falls in house and land prices, you still need to go into debt for, essentially, the rest of your life in order to own a piece of ground. There are exceptions; I know of a site in Wicklow which you could probably have for about 33% of a year's average pre-tax salary, rather than the 1000% you'd pay for a house near Dublin. Unfortunately, it's boggy, isolated, you can't buy it unless you have ancestors who were born in Wicklow, and in any case, planning permission will never be granted on it becase it's right beside the Wicklow Way.

On the other hand, in Detroit, you can buy a house - with some land - for less than a month's take-home pay. At the moment, these two situations exist in the same economy. There are all kinds of reasons for this, but look: it makes no sense. It's perfectly reasonable for land prices to vary based on location, quality, accessibility, and even historical notability, but these places in Detroit are not very different to the ones in Dublin that are selling for more than three hundred times the price. The prices are instead determined by... the prices, in a self-referential spiral.

It would make a lot more sense to decouple these. If you break the global system up into national, or even regional chunks, deliberately isolate them so that they have to make sense internally first, and only then permit an interchange, there will be more stability. No region, having to keep its own books straight first, is going to tangle with regions who don't have things settled - and that's good.  

Let me pull out an analogy here. If you need a huge amount of computing power, you don't try to build a single supercomputer. Nobody has tried to do that in years. Instead, you build hundreds of smaller, reasonably powerful computers, and then connect them together sensibly. You get a lot of computation, your whole system can no longer break down at a single point of failure, and the whole thing works better. And, obviously, anyone attempting serious computing with imaginary cycles is going to crash into reality rather quickly - as should have happened to the global economy years ago.

The best thing about this idea, I think, is that it will probably happen on its own. Sooner or later, some nation or region is going to look at its own economy, and say "Look, we can basically be self-sufficient. Take your fictional debts and credits and shove them; we're going our own way for a few years, and you can come back and talk to us when you have real goods and services to trade." Certainly, they'll need to import things - I don't think there's anywhere in the world that produces all the raw goods it needs, and very few regions can produce all the pharmaceuticals their population requires. But as long as the trade for such goods happens in real rather than imaginary terms, it will work.

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At Friday, April 03, 2009 11:29:00 p.m., Blogger cartographer said...

"These places in Detroit are not very different to the ones in Dublin that are selling for more than three hundred times the price."

The buildings may not be, but the neighbourhoods are. Detroit has huge numbers of abandoned properties in neighbourhoods which are now too dangerous to live in. Apparently they have a huge problem with arson: people burning down abandoned houses for fun.

At Sunday, July 03, 2011 9:21:00 p.m., Anonymous Anonymous said...

The ideas expressed here are very far off the mark. The reasons for the problems and the conclusions drawn, are completely wrong.
Please acquire a basic education of reality, by carefully reading and re-reading (until you get it)
"THE ORIGIN OF WEALTH" by Eric Beinhocker 2006


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