The Investment Delusion

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Damnthematrix's picture
Status: Diamond Member (Offline)
Joined: Aug 10 2008
Posts: 3998
The Investment Delusion

The Investment Delusion

You might think that my position as head of a contemporary Druid order,
with the colorful title and funny hat that go along with it, would keep
me safely out of touch with the mainstream of American opinion. Still,
it's been my experience that when I talk about peak oil to a pagan
audience, I get the same reactions and questions I can expect from the
most mainstream listeners.

I had a reminder of that the weekend before last, when I spoke on the
future of industrial society at Pantheacon, one of the largest pagan
conventions in America these days. Yes, pagans have conventions; this
one happens annually on President's Day weekend at the Doubletree Inn in
San Jose, California; it's an endless source of amusement, at least to
me, that conference rooms more often used for corporate sales meetings
spend one weekend a year hosting something so different.

Pantheacon is always a learning experience. (Mind you, one lesson I
learned this year was that it's wise to avoid the Doubletree's pet steak
house, Spencer's, unless you fancy undistinguished food and glacially
slow service at a jawdropping price.) Still, I also gained a useful
reminder of the way that certain misguided ideas pervade every corner of
contemporary society, and it came – as such insights usually do – during
the question and answer session that followed my talk on peak oil and
the coming deindustrial age.

The questions that get asked after these presentations are as
predictable as a politician's excuses, though not all of them are as
pointless. There's always somebody who is sure that I haven't heard of
the energy source he's convinced will enable the world to keep on
increasing energy use at an exponential rate forever. There's always
somebody who's convinced that an evolutionary leap or some other deus ex
machina will allow us to dodge the consequences of our own bad choices.
There's always somebody who thinks I'm talking about fleeing to a cabin
in the hills with plenty of ammo and canned beans. All these get crisp
replies detailing the reasons why I think they're deluding themselves.
Then there are the people who want to know what they can do to deal with
the challenges of the future, and they get the best advice I can give them.

Finally, though, there's always somebody who wants to know what
investment strategies I recommend. These days, the person who asks that
question is usually silver-haired, nicely dressed, and visibly worried.
I wish I had a crisp reply for that question, or for that matter, some
good advice to offer. I don't, because the question itself embodies a
series of fatally flawed assumptions that reach right down to the nature
of wealth itself. On its own terms, it's as unanswerable as a question
about how to build a working perpetual motion machine.

Yes, someone at my Pantheacon talk asked about investment strategies,
and yes, she was silver-haired, nicely dressed, and visibly worried. I
fumbled through an answer, but the question deserves more than that, if
only because it's on so many minds these days. Thus this week's post. I
should caution those of my readers who have investments that they won't
like what follows.

Let's start with fundamentals: the nature of wealth. Ask ten people on
the street today for a definition of wealth, and dollars will get you
doughnuts every one of them will tell you that wealth consists of the
possession of plenty of money. That's what nearly everyone thinks, but
they're quite wrong, and it's easy enough to show the fallacy.

Imagine that a private jet full of politicians makes an emergency
landing on an uninhabited island in the Pacific. Each of the politicians
is carrying a briefcase containing $1 million – we'll be polite and say
it's from campaign contributions. The island has a water supply and
enough natural foodstuffs that the politicians don't have to worry about
starving to death. Will the politicians on the island have a standard of
living corresponding to their net worth of $1 million each? Of course
not; their actual prosperity will be measured by the breadfruit they
harvest, the fish they catch, the huts they make, and so on.

Money, in other words, is not wealth. It's a social mechanism for
distributing wealth. It means nothing unless there's real wealth –
actual, nonfinancial goods and services – to back it up. In a healthy
market economy, there's a rough balance between the amount of money in
circulation and the amount of real wealth produced annually, and so the
confusion between money and wealth can slip by unnoticed. When money and
wealth get out of sync with one another, problems sprout.

The economic history of the 19th century offers a good example. The
rising industrial economy of the time drove a massive increase in the
production of real wealth. Most industrial nations, though, inherited
money systems backed by gold reserves that offered few options for
expanding the money supply to match the supply of real wealth. The
result was a deflationary spiral that brought major economic depressions
every couple of decades for most of the century. In response, in the
20th century, nation after nation abandoned the gold standard's
straitjacket and retooled their money systems to meet the needs of an
expanding economy.

That's the context of the present crisis because, in terms of real
wealth, we no longer have an expanding economy. The production of real
wealth in the world's industrial nations has been in decline now for
decades. Some of the deficit has been made up by importing real wealth
from overseas, but not all; compare the lifestyle available to a single
salary working class American family in 1969 to the lifestyle available
to a similar family today and it's possible to get a glimpse of just how
much impoverishment has taken place over the last forty years.

This impoverishment went unnoticed by most people because the money
supply didn't follow suit. Until the economy came unglued in the second
half of 2008, money had never been so abundant or readily available.
Some of it got spent on real wealth, which is why real estate and other
commodities soared to giddy heights, but most of it was diverted instead
into various forms of abstract pseudo-wealth related to money in much
the way that money relates to real wealth. Yes, I'm talking about your

The confusion between money and wealth and the biases imposed by the
long economic expansion of industrialism have made it almost impossible
to talk sensibly about investments these days. It seems normal to most
people that they should be able to invest their money and, as a matter
of course, get back more than they put in. This reflects the dynamics of
an expanding economy; if the production of real wealth is increasing,
investments on average will increase in value over time to match the
growth in real wealth, and the payback on investments reflects this.
Outside of the special conditions of a growth economy, though, that
logic no longer applies.

The long economic expansion of the industrial age has fostered the
massive growth of what old-fashioned Marxists used to call a rentier
class – a class whose money makes money for them. Even among people who
work for a living, the idea of joining the rentier class on retirement,
and living comfortably off investments, has become very popular in
recent years. The problem, of course, is that the age of industrial
expansion is over; it was made possible in the first place only by
exponentially increasing the use of fossil fuels and other natural
resources; like all exponential growth curves, it faced an inevitable
collision with the limits of its environment – and that collision is
happening around us right now.

We are thus entering a period of prolonged economic contraction – not a
recession, or even a depression, but a change in the fundamental dynamic
of the economy. Over the centuries just past, a rising tide of economic
growth was interrupted by occasional periods of contraction; over the
centuries ahead, the long decline of the industrial economy will
doubtless be interrupted by occasional periods of relative prosperity.
Just as a rising tide lifts all boats, a falling tide lowers them all,
and if the tide goes out far enough, a great many boats will end up high
and dry.

The desperate attempt by full-time and part-time members of the rentier
class to avoid dealing with this unwelcome reality has had the ironic
result of making the situation much worse than it had to be. As actual
investments in productive economic activities stopped yielding a
noticeable profit, more and more investors sought to make money via a
menagerie of exotic financial livestock notable for their complete
disconnection from the economy of goods and services. The result was a
series of classic speculative bubbles, culminating in the crash of 2008
and the crisis still unfolding around us. In the process, eager
investors who might have lost their money slowly over a period of years
have, instead, lost it all at once.

Still, in a contracting economy, on average, all investments lose money.
This is the hard reality with which all of us will have to deal. This is
why, in the twilight years of the Roman world, a complex money economy
that made heavy use of credit and investment gave way to purely local
economies of barter and customary exchange, in which money played a very
minor role and credit was unheard of. It is also why the two great
religious movements that rose out of Rome's ruins, Christianity and
Islam, both considered lending at interest a mortal sin – though
Christianity managed to talk itself out of that useful teaching some
centuries ago.

Thus the only investment advice I can offer is to get out of investments
altogether, and put your money into something that will actually be
useful: training in practical skills that will make you employable in a
deindustrializing economy, for example, or extra insulation so you can
keep your home livable with less energy. At this point in history, the
belief that it's possible to have your money make your living for you is
basically a delusion; it's likely to be a fairly persistent one, but
those who can shake themselves free of it and adjust to life in a
radically different economic reality are likely to do better than those
who keep on chasing the prospects of an age that is ending around us.

SamLinder's picture
Status: Diamond Member (Offline)
Joined: Jul 10 2008
Posts: 1499
Re: The Investment Delusion

Good post, Mike.

Makes me laugh to think that even the Druids have the same problems as everyone else!

But, for that matter, why should they be any different.  Undecided

ceci1ia's picture
Status: Bronze Member (Offline)
Joined: Feb 7 2009
Posts: 79
Re: The Investment Delusion

Yah, I was supposed to be at Pantheacon but couldn't get down to the bay area. (Drat.) Even pagans want to hang on to what is familiar. The denial I'm seeing from even the financially savvy people at my work is impressive.

I even notice this on this site, people discussing "solutions" as if we can somehow get out of the situation and save this current system.

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