Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
S&P Stock Market Trend Forecast to Dec 2024 - 16th Apr 24
No Deposit Bonuses: Boost Your Finances - 16th Apr 24
Global Warming ClImate Change Mega Death Trend - 8th Apr 24
Gold Is Rallying Again, But Silver Could Get REALLY Interesting - 8th Apr 24
Media Elite Belittle Inflation Struggles of Ordinary Americans - 8th Apr 24
Profit from the Roaring AI 2020's Tech Stocks Economic Boom - 8th Apr 24
Stock Market Election Year Five Nights at Freddy's - 7th Apr 24
It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- 7th Apr 24
AI Revolution and NVDA: Why Tough Going May Be Ahead - 7th Apr 24
Hidden cost of US homeownership just saw its biggest spike in 5 years - 7th Apr 24
What Happens To Gold Price If The Fed Doesn’t Cut Rates? - 7th Apr 24
The Fed is becoming increasingly divided on interest rates - 7th Apr 24
The Evils of Paper Money Have no End - 7th Apr 24
Stock Market Presidential Election Cycle Seasonal Trend Analysis - 3rd Apr 24
Stock Market Presidential Election Cycle Seasonal Trend - 2nd Apr 24
Dow Stock Market Annual Percent Change Analysis 2024 - 2nd Apr 24
Bitcoin S&P Pattern - 31st Mar 24
S&P Stock Market Correlating Seasonal Swings - 31st Mar 24
Here's a Dirty Little Secret: Federal Reserve Monetary Policy Is Still Loose - 31st Mar 24
Tandem Chairman Paul Pester on Fintech, AI, and the Future of Banking in the UK - 31st Mar 24
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The Black Box Economy

Politics / Social Issues Aug 21, 2014 - 11:09 AM GMT

By: Andrew_McKillop


Love, Sex and Marriage
Opinion polls in Japan paint a stark picture. Around 40% to 50% of Japanese below the age of 45 regard sex as “uninteresting” or even “degrading”. They do not want sexual partners, marriage or children. An impressive number of polled persons add the claim that the human instincts of love, sex and marriage are unknown to them.

In tandem with this and for at least 30 years in the western democracies, the economy has become an “unknown”. It is now perceived, and even described as a “black box” like airplane flight recorders that only reveal their information to experts able to interpret the coded data – if the recorders can indeed be recovered from the ocean's depths when the airplane disappears, like Malaysian Airlines flight 370.

The archetype images of love in western society were handed down by the early Greek philosophers. They were a triptych of Erotic love, Parental love, and what later became Christian or Dutiful love towards fellow persons of all kinds. Likewise the “classic model” of the economy, of the heavily-cited and claimed father of economic liberalism, and guru of the 1980s neoliberals – Adam Smith – was drastically simple. Smith, with his mentor the shadowy quack doctor Francois Quesnay who “advised” Marie Antoinette at the court of King Louis XVI, shortly before the French Revolution, both said that all service sector activities are parasitic.

They produce no wealth, and only shuffle it around. The real wealth of the nation is produced only by savings and by investment in fishing, farming, mining and manufacturing. As we know, in today's “mature economies” such as the US or other G7 countries, around 70% to 80% of all employed persons work in the service sector!

The Rocky Path of Neoliberalism
This unfortunate fact was immediately unknown, by and for the neoliberals of the early 1980s, proclaiming a “supply side revolution” of the economy. Indeed, in the British case of Margaret Thatcher's neoliberal revolution one of her first actions was to almost totally shut down British coalmining – airily proclaiming that the redundant miners could “go and clean windows”, a classic service sector activity! The neoliberal “revolution” also heavily featured the financial industry, or so-called industry which is entirely a tertiary or service sector activity. Thus the supposed intellectual basis of the “new economic liberalism”, of the 1980s was mutated and deformed from the moment it started down its rocky path to the 2008 crisis. In reality when the “neolibs” said productive industry they meant service sector activity. Put another way, their “revolution” was entirely confused.

Falsifying the economy, like falsifying love and romance generates inevitably growing confusion among ordinary persons – and experts – concerning what is an evidently false image or paradigm. For example when it concerns love and romance, this is not the same thing as sickly “moon june” love tunes, whether tricked out as rap music or not. A direct result is declining record sales, like newspaper and book sales. Voter turnouts in almost-symbolic two-party election events are also affected, often explained by the frequent one-liner that “Nobody is interested”. For the economy in particular, the “not interested” paradigm has moved on to “not being able to know” because it is a Black Box. It is literally Deus ex Machina or a magic thing which surges from nowhere, with nobody in charge and therefore nobody being responsible.

In Debt We Trust
Kevin Phillips is well-known for his many books and articles which focus what he calls “the scary intersection of oil, debt, and religion” in what he calls an emerging “economic theocracy”. He mostly focuses the USA and his key theme is that “the financialized economy” is a dangerous epiphenomenon, creating only speculative froth and little or nothing real, a symbolic and parasitic wealth play with its own high priests that hinges on more than simple public tolerance. The party cannot go on unless the people credulously believe in the Black Box economy – and are maintained in a disinformed state, where firstly they do not know what is really happening, and secondly become unable to know.

At one and the same time, shown by-so called algorithm trading, derivatives, Dark Pools and HFT or high frequency trading, the high priests of finance have placed themselves behind a wall of arcane techniques and technology. Ordinary persons are simply unable to understand how it all works. What happens in and on the financial markets is therefore now unknown to most people and in strictly logical terms, which do not apply here, not knowing things should make it hard to believe in them. What is needed, as Kevin Phillips says, is religious-type belief, that is all.

Phillips and others argue that transforming the economy into a “black box' is closely related to the substitution of the belief in democracy, to a modern form of economic theocracy and its debt based economy relying entirely on “confidence”. Any kind of belief will in fact do, whether it is partly-rational or purely ritual, but the people have to confidently believe – not just believe.

Phillips started his professional life as a political strategy adviser to Richard Nixon and shares several  similar life-changing, and belief-changing experiences with David Stockman, the former national budget director of Ronald Reagan. With others such as the former US trade official Paul Craig Roberts, they can be called major critics of “late-stage crony capitalism”. For Philips, what has happened in the US and other so-called mature democracies, and their so-called “liberal capitalist” economies over the past 30-odd years is easy to see as a frenzied get-rich-quick New Religion with its own “canonical laws' relying solely on childlike belief.

The operating system of the new economic theocracy strictly avoids and rejects rational knowledge, and replaces it entirely with belief.

The “neolibs' in fact did a lot less than develop “the supply side”. They set in motion the massive de-industrialization and outplacement of the economy which made huge trade deficits a “permanent feature” of the New Economy. Using the title of one Phillips' books “Bad Money” it was clear that the economy had to be mutated or transmogrified into a giant Ponzi scheme, but like power in any theocracy – whether it is The Vatican, Saudi Arabia, Israel or Iran – the people must go on believing. They must abandon rational knowledge, but must never abandon belief.

When they stop believing, the trouble starts. Charles Ponzi discovered that printing stamps is not so different from printing money but when the people asked him for the stamps he had promised, and they didn't come, their belief collapsed. Until that moment “everything was fine”.

Economic Democracy
The economy model of democracy that we have today is above all that – cheap or Low Cost. The black box economy, the erosion of democracy and rule by incompetent and corrupted governments run together like hand in glove.

Knowledge of the democratic process and its institutions or governance is now largely unknown to perhaps the straight majority of western citizens today, but their “instinctive belief” in democracy and their “confidence” in the economy must be maintained, for the party to continue. Philips, Stockman, Roberts and others including Charles Hugh-Smith hammer the message that the giant Ponzi scheme of national debt and money printing is only a meta crisis or the metastase of a deeper cancer inside the “body politic”. They argue that the Ponzi scheme is only possible because democracy failed and government was “out to lunch” on a meal ticket supplied by the crony capitalists.

In reality, democracy was the first victim of the process. It became unknown as far back as the early 1990s, if not long before. The process of governance progressively became “fuzzy-edged”. The two party system became Tweedledum and Tweedledee politics. A thickening fog rose up on the winding and rocky path of western society. Certainly for the dwindling bunch of persons who defend “the new liberalism”  less or no government was always a laudable goal.

The more extreme members of the neoliberal caste said the Free Market would magically replace all previously known forms of governance. There would be no need for the people to know anything about governance. Quoting Adam Smith and David Ricardo (but not Karl Marx), the early-1980s soothsayers of a New Religion claimed that democracy would be swept away and forgotten. Rulership would be “aristocratic” or “regalien”, making a direct appeal to Humanity's natural aristocratic instincts and abilities, including its ability to decide spontaneously – without any need for rational knowledge. With the Free Market acting like a Good Fairy, chaperoning and guiding the masses, the tiresome rituals of elections, parliaments, laws and regulations would all be struck down.

They would disappear like mildew on a damp pair of shoes taken from a dark cupboard and brought into the sunshine. Nirvana would be upon us. To be sure this was plain and simple millenarianism, as in Medieval Europe or in non-western “primitive societies” and in a gory and barbarous version, the Islamic State terrorists of today.

Transforming The Economy
When the soothsayers rode high, in the early 1980s, the two arch-est priests of the new religion, Britain's Margaret Thatcher and the USA's Ronald Reagan gave serial press conferences to explain and describe their Great Transformation. With po-faced, popeyed sincerity, sometimes tinged with hysteria, they would outdo each other. Margaret Thatcher arguably did it best. She repeatedly declared:  “There is no such thing as society”. In that case, do we need government? Obviously not!

Almost insanely however, at the exact same moment in time, the image of “the knowledge-based society” was being assiduously promoted. Science and technology were on the march. The Internet revolution was coming. The critical importance, in the phenomenon and process of Unknowing is again demonstrated – permanent confusion and the promotion of totally antinomic short-life themes.

Philips and other critics of the New Religion point out that something grave and somber happened to government, and even the notion of government, starting in the 1980s. To be sure this can be analyzed and attributed by many authors to some form or type of “crisis of capitalism”. Continuing with that approach, Western and  American financial capitalism hit a pivotal period in history, and capitalism – always ready for a gamble - ventured a new and risky play. Firstly, the economy was “financialized” as Old Stuff like mining and the manufacturing industries were dumped as “unclean and unsuited” to the great transformation. Then the debt handle was turned, very fast, to shower the capitalist casino with new gaming chips. Next, the housing and stock markets were “democratized” in the sense of making them a 24/7  circus show of delirious “price discovery” and “new value”.

The next market crash was set in stone – but of course further down the line.

An alternate analysis is that society “cracked” and lost faith in knowledge, and the loss of interest or abandonment of democracy was only a later metastase of that basic change. This pivotal change almost certainly happened some while before the 1980s – possibly the shock for western society of the 1975 Vietnam war defeat of the USA or the oil shocks of the 1970s. Possibly there had been a cumulative phenomenon of the type that some climate scientists pretend is in store for us, as CO2 levels build to some fatal “tipping point” after which there is no going back for Global Warming.

For the economy, not only its operating system but its “system architecture' was transformed, placing the financial industry on top of the economic pyramid. The invention of the hedge funds in the late 1960s may have been another tipping point.

In any case, the supposed Great Transformation of the economy, from the early 1980s, was a surprise to its own arch priests and their agents and servants. This millenarian mutation of the real economy, into a black box, sparked a vast and enduring firework show of dishonesty, theft, fumbling incompetence and what is politely called “quantitative negligence”. The flight recorders for the Black Box economy either do not exist or can't be found. Numbers do not matter. The economy was henceforth Unknown.

By Andrew McKillop


Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Co-author 'The Doomsday Machine', Palgrave Macmillan USA, 2012

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

© 2014 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisor.

Andrew McKillop Archive

© 2005-2022 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in