Tied to the tipping point

“When philosophy paints its grey in grey, one form of life has become old, and by means of grey it cannot be rejuvenated, but only known.  The owl of Minerva takes its flight only when the shades of night are gathering.” – (Georg Wilhelm Friedrich Hegel, Elements of the Philosophy of Right, 1821)

In this month’s issue of National Geographic Magazine, the cover story entitled “The Super Trees” by Joel Bourne describes the current trends in Redwood forest management.  With only approximately 5% of the old growth redwood forests remaining and under protection, the challenge is now to bring sustainable forest management back to  2^nd or 3^rd generation growth forests.

The tale of the redwood forests mirrors the tale of most of human resource management.  In a sad irony of human history, the story of earth’s largest trees is a microcosm of the drama still playing out across the globe.  If the current patterns continue we shall only recognize the error of our ways when, like the redwood forests, only a fraction of the world’s ecosystems remain.  Then, with the shades of night upon us, as a species, perhaps we will understand how to begin to restore in some way the planet we have destroyed.

In terms of the history of the Redwood forests Bourne tells the story of Charles Hurwitz who in 1985 with underwriting from Michael Milken, engineered a hostile takeover of Pacific Lumber.  As Bourne goes on to say:

“With Pacific Lumber, Hurwitz inherited roughly 70 percent of the remaining old redwoods in private hands. In his first meeting with the employees, the dark-suited businessman told them—in a now famous quote—that he believed in the golden rule: “He who has the gold, rules.” Hurwitz then proceeded to break up the company and sell its assets…  Most important for the redwoods, Hurwitz adopted a business model of clear-cutting, doubling—and some years even tripling—the annual amount of timber harvested from the company’s holdings, which eventually reached 210,000 acres.”

The application of this business model based on high yield and short term profit pitted loggers against those outraged by the company’s practices.  According to this model the leveraging of junk debt is used to acquire a company in order to extract every ounce of productivity at the expense of its capital resources.  This model functions to the point where the productive capacity of the company is unable to continue to service the acquiring party’s debt.  At this point the company collapses into bankruptcy, its capital siphoned off and exhausted.  The acquiring party then moves on to another “victim” repeating this process ad nauseam.  It’s not difficult to see how according to this model the incentive to sustain both the business and the resources was absent due to the inherent lack of a vested interest in the stable and long term growth of the company.

In 2008 Pacific Lumber ended up in federal bankruptcy court and is now known as the Humboldt Redwood Company, part of the Mendocino Redwood Company. Bourne’s article goes on to detail the efforts now being made on the part of responsible owners of the 2^nd and 3^rd generation Redwood forests to create a business model based on sustainable forest management.  This example illustrates classic issues with capitalism.  How can society foster the responsible application of capital to the profit of its owners, while at the same time regulating its use in order to maintain a secure and lasting social order?

Year after year, decade after decade we have continued along a path that the vast majority agrees is leading to systematic collapse.  The reliance on regulation of companies and industries whose products and by-products cause harm to individuals and society’s interests has proven to be counterproductive from a systematic perspective.  To maintain a system which regulates the same broken business model allows very profitable companies to pay symbolic fines and allows politicians to claim defense of the public good.  In the meantime business as usual continues, profits are made, and the capital resources of society as a whole are exhausted further and further.

We can see the same dynamic playing out in the debate on American health care, in the response to the financial crisis, and in the response global warming and mass extinction which is underway across the globe.  The question in each of these cases is do we have the collective will to choose to take preventative measures to at least slow the rate of decline, if not to solve the underlying causes in time to avoid the tipping point?  Or will we again claim ignorance and impotence in the eyes of future generations to the dialectic of history?

In each case entrenched opposition on both sides will vehemently defend their vested interests and fight any change to the current model.  The time however is almost past for us to have the ability to choose to move the old dichotomies.  Very shortly we will be faced with the ruin of both the current financial interests and remaining natural resources themselves.  We have the supposed luxury in economics to stave off systematic financial collapse through our ability to change the rules of the game in order to avoid ruin.  But unlike economic systems, ecological systems are not the products of human invention.  Once ecological degradation reaches the point of crisis we will be unable to stop it, and once that occurs the very foundation upon which our economies are based will collapse.

What is necessary is to reorganize the way we quantify natural resources in terms of economic units to better align our measures of economic value to those ecological significance.  The value or liability of a given resource must be able to be measured and quantified in the market place.  In this way standing forests, marshlands, prairie, etc.. could all have an economic value equal to their ecological value.  The current model of resources being economically null in value until such time as they are “harvested” or utilized and transformed into some derivative product builds into the system the incentive to pillage functioning ecosystems in the quest to create wealth and value.  By fundamentally reorganizing the way in which we quantify a given resource’s value in terms of its carbon impact, its ability to provide clean water and clean air, the economic incentive will be built in to not only preserve, but to restore and manage living biosystems.

It is a foolish assumption on our part today that we consider the basic elements upon which our societies and economies are based as given to us from either God or from Nature.  While quantifying the natural world in terms of economic value will be opposed by both classical economics and by traditional ecology, a synthesis of two zero-sum gain problems to create a win-win solution is at the heart of the issue.  It is a question of universal significance as to whether humanity can finally learn from its past and apply those lessons to the present. Can we as a species reach a synthesis with the planet without having the harsh logic of history force change upon us, or will history’s dialectic again force humanity’s hand into reacting to catastrophe?

Redwoods Owl

Crack Economics (originaly posted Sept. 3rd ’07)

Generally, political and social events are preceded by economic ones.  While this may grate against people’s sensibilities that they act as free individuals, there are large systematic forces individuals exist within.  When society is governed rationally and in the service of its citizen, these forces lift individuals up and provide them with the basis to make choices that benefit both society and themselves.  When society is governed poorly these forces serve the ends of those with the power to chose, at the expense of the vast majority who have only the means to serve.

            We may think that grand economic and social movements are forces beyond our control, like laws of nature.  It is this illusion that is perpetuated by those in power as a way to keep the majority convinced of their own impotence.  The fact is that history is not like gravity and current world events are not like the weather.  Society and economics are nothing more than the sum of human activity, and therefore under the control of humanity. 

            As powerful as we believe we are as a people to create and sustain wealth, we are yet nothing in the face of the forces of nature.  As powerful as we believe the leaders of our nation and the world’s economies are, they are nothing in the face of the truth of the economic realities of the individuals upon whose backs the powerful rest.  It is in this context that we should understand the effect economic events will have on society over the coming years. 

The relationship between the U.S. dollar and the price of oil illustrate a larger picture of the nature of our economy and the relationship between the state and its citizens.  Since oil is priced in dollars, a rise in oil prices would be tied to a fall in the U.S. dollar relative to other major currencies.  A weaker dollar means more serviceable national and consumer debt, but it also means higher inflation, more expensive goods from overseas including oil, less buying power for the average American.  As long as the price increases are not too dramatic, nobody seems to notice.  What we had owned is now worth less, but so is what we had owed.

Prices increase to compensate for the loss of value in the dollar. Inflation rises and the cycle continues, effectively transferring the wealth from the citizens to the government.  As the government creates more money, the value of the dollar falls as does the wealth of the individuals; and the government’s debt effectively shrinks in relation to the currencies that hold our debt.  The government in effect is in the business of producing Americans, shares of which are sold to private and foreign investors. 

The owners of this country have a vested interest in devaluing the U.S. dollar just enough to continue to expand the generation of wealth, but not enough to jeopardize their investment.  Individual Americans experience the real value of their money decrease through inflation while the government as a result must take on more and more responsibility.  The government then treats any threat to this economic order as a threat to the national security of its citizens.  It is a deal with the devil in which we implicitly agree to cede our power as citizens over to the government in return for the life we have created for ourselves.    

In 2000, Iraq converted all its oil transactions under the Oil for Food program to euros. The U.S. invasion of Iraq has more to do with the fear of losing control of the universal denomination of oil the US dollar enjoys, than it does with 9-11 and the war on terror.  When the U.S. invaded Iraq in 2003, it returned oil sales from the euro to the USD.  Similarly, Iran planned to begin selling oil denominated in euros in March of 2006.  Wars continue to be fought to protect the transfer of capital from the U.S. middle class to the owners of the U.S. Government’s debt. 

We have been convinced that we have had a healthy and strong economy.  In actuality, what we now have is an economy in which credit functions like a cancer; and where we cannot stop growing our debt because it is the thing that sustains us.  The gradual devaluation of the US dollar since the 1970s has been the means by which we have achieved growth; the true cost of which has yet to be fully realized.

Each economic revolution whether agricultural, industrial, or digital is a form of the reorganization of society in fundamental ways.  While there are powerful economic currents which individuals must navigate, the source of all wealth is still the activity of individual human beings.  While the culture of debt is powerful, the individual always has a basic ability to choose.  Economic events generally precede social and political ones.  We have felt but a momentary fix of the withdrawal that awaits.  It is our national addiction, getting high off a pawned future. In crack economics, you either get clean or die a slow death.