I read this article, Our Political Economy, Time to Hit the Reset Button that was in the LeftLibertarian.org feed. I have some problems with that analysis.
To begin with, I think it’s a common misinterpretation of Schumpeter to view “creative destruction” as a driver of continual regime change. And by “regime,” it is meant the framework of a political economy. Schumpeter wrote at a time when the intellectual classes viewed socialism as inevitable. “Creative Destruction” was Schumpeter’s mechanism to explain why capitalism would converge to this regime as an endpoint. This has not happened, and, frankly, Schumpeter’s theory fails to explain why there was a renaissance of “liberal capitalism” in the 2nd half of the 20th century.
Additionally, I think it is a mistake to conflate something like the Industrial Revolution with regime change. The Industrial Revolution is something I call a “technological singularity.” And there has been precisely one of these in human history. That technological singularity was driven by energy-dense fossil fuels powering steam turbine engines. As Michael Shermer pointed out in his book, “The Mind of the Market,” the available “tools” for the agricultural economy, right up until the time of the Industrial Revolution, was around the same order of magnitude of the available “tools” of hunter-gatherer society. The “Information Age,’ which is more or less built over the quantum mechanical properties of semiconductor devices(electronics) that serves as the basis for binary State machines(computers) is not a technological singularity because in the end, every machine still relies on the same energy source that powers the steam turbine engine, namely fossil fuels. The Steam Engine itself, without energy-dense fossil fuels, would not have been sufficient for any technological singularity. The “next” technological singularity will only occur when we have efficient battery storage of renewable energy, in particular, solar energy.
The Political Economy of Complex Systems
Schumpeter’s “creative destruction” is not a sufficient mechanism to model regime change. Indeed, I think it’s accurate to posit that Schumpeter’s “creative destruction” was his alternative to Marxian class theory to explain why capitalism would converge to the same regime end point. But, in reality, there is no final regime end point in capitalism. Let’s examine this thesis from a complexity model.
A complex system is a nonlinear system that will nonetheless exhibit a normal pattern of emergent order regulated by a diverse mix of positive and negative feedback mechanisms. To model the effect of politics and class theory(that is to say, the political economy), we introduce a flow of economic rents that serve to dampen the negative feedback mechanisms. In other words, positive feedback mechanisms begin to dominate. Or more simply, moral hazard is introduced. At such point, there will begin a predictable chain events of increasing intervention to enforce an artificial stability. A system characterized by increasing intervention to enforce an artificially stable equilibrium loses resiliency, meaning that it becomes more and more susceptible to larger crises from shocks and disturbances. At some point, the system must transition to a new regime.
The last two regime changes I would document would be Keynes/Bretton Woods and Chicago/Washington Consensus. At this point, we are certainly in crises. The “shock” of AIG’s bailout, the consequence of it “insuring” the performance of CDO securities by writing essentially naked puts on the credit worthiness of the firms who were trading in these securities, and, in a very real sense, relying it’s ability to issue it’s own corporate paper to cover any loses, instead of re insuring or hedging it’s own risk, resulted in massive intervention by the Fed. The collapse of AIG would have triggred a chain reaction collapsing the credit worthiness of a large number of institutions, sending them into their own death spirals. Of course, at root of the whole thing is the relative worthliness of these underlying CDO securities to begin with. The Fed’s intervention, using massive amounts of newly high-powered money to recapitalize the big banks, leaves the Fed itself highly leveraged. The new shock would be a “currency crises.” With a loss of foreign confidence in US bonds, there would only be a very small oligarchy of six US banks that could support the government bond market. Of course, these are the same institutions that the FED has highly leveraged itself in propping up.
To be continued