Saturday, 2 March 2013

Potemkin Economies: System D and Stealth Inflation

The black and gray market is one poised for rapid growth. Recently, horsemeat was found in hamburgers in the UK instead of beef. This has far larger implications than ruined fast food. This was due to the authentic product being too expensive for the supplier to handle. This is a type of “stealth inflation,” a substitute of lower quality goods instead of the advertised content. A recent Supreme Court case in the US threatens to gut what remains of consumer protections and the ability to sue for violations of them. Given the massive money printing in the US, UK, EU, and other economies, stealth inflation is sure to rise as the currency wars expand. 

System D, the globalized black market, rushes to fill the gap. From anonymous currencies like Bitcoin to shady distributors, the alternative networked economy may soon replace the economy that political and financial talking heads dwell within. Like the Potemkin villages of the Soviet Union, the economic “growth” benefits a few connected individuals at the expense of the many. As Charles Stross writes, worldwide democracy is malfunctioning, as politicians race to defend the illusion of the prior status quo at all costs. 

Those costs increasingly include everything that made those nations free and pleasant places to live in the first place. Civil liberties, developed infrastructure, and other quality of life metrics increasingly circle the drain. The political elites and business elites escape trial with impunity. Faith in governments and economies decreases as do the natural resources that fuel the status quo too many people take for granted. The entire socio-political structure resembles a decaying bridge with heavy trucks driven across it. The wrong one will set into motion a costly cascade of economic and political failures. 

As Alvin Toffler wrote in "The Third Wave," the dominant political and economic machinery of the Second Wave (industrial, bureaucratic nation-states) increasingly fails and falters. The reason many corporate and political elites grasp for power is not out of confidence in the future but desperation. Ironically, the desperate measures they use may easily accelerate the negative trends instead of fixing them, such as silencing and prosecuting whistleblowers instead of dealing with corruption. This allows the tumor of corruption to grow unchecked, and capture or compromise the rest of the "checks and balances" against it. This is why bureaucracies may be vulnerable to "regulatory capture," especially at the highest levels. This is by no means limited to "socialism," as private companies may have books cooked by a corrupt executive seeking to cover up numbers seem better than they actually are. 

The answer lies not in returning to feudalism (whether corporate socialism or "First Wave" agrarian feudalism), but in a "Third Wave" society. The Third Wave (Information Revolution) could create all manner of new systems. Cyberdemocracy, semi-direct democracy (perhaps some fusion of the Swiss and Icelandic models), or perhaps even a distributed polity in the style of "The Diamond Age" may prove viable. 

One possible vector for infiltrating an existing political entity is a form of "auto-immune disease," turning its political and economic machinery against it. Imagine a non-profit corporation, or a corporation serving as a "host" for related subsidiaries, sharing a new organizational structure (workplace democracy with company catered dorms/lodging/etc.).  New industries (including ones to make it self sufficient) could easily bud off and spread. It could offer social capital, technical capital (in the form of education and training), and perhaps legal or political capital (assuming lawyers could be hired). Of course, keeping such a structure from becoming a cult of some sort is another challenge. Of course, some religious and cultural enclaves (especially close-knit ones from various diasporas) could be a good example or place to start from. 

Such alternative polities are a topic for later, however. The bottom line is that despite its best efforts, the Second Wave institutions and status quo are their own worst enemies. New institutions are arising, and often employ swarming tactics against their slower foes. A Second Wave enemy may act like a great white shark, while a Third Wave enemy may act like a school of piranhas. Time will tell how long the Second Wave system takes to fail past, or if it drags the world ecology down with it. As the illusion falls away, the world's Potemkin economies will be revealed for the frauds that they are.  

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