The Collapse Wager

Robert Avotin

[This is a guest post from Howard. I reformulated his wager somewhat. I am not a betting man myself. I also consider those who bet against collapse to be a bad risk. But to each his own, plus I think Howard\’s collapse wager may have some didactic value in forcing people to think hard about collapse even as they steadfastly refuse to be disabused of erroneous notions they hold dear.]

On the evening on April 14th, 1912, was someone banished from the Titanic’s captain’s table for being so rude as to mention that the ship was sinking?

It troubles me deeply that bringing up the subject of immanent collapse is regarded as uncouth, while blithely talking about the satisfactory present and an ever-more-agreeable future is not seen as irresponsible denial. (“Forget about the lifeboats, and try some of this pheasant. It’s delicious!”)

We were having dinner last week with two other couples. Both are considerably more affluent than we, but not One Percenters – perhaps Five Percenters. They were bloviating about the recovery and bright prospects for the future and I finally got exasperated and declared that the United States will suffer economic collapse within the next decade. This, of course, is a grievous breech of social etiquette today – especially if your dinner companions’ professions include information technology and the airlines industry. But I have been doing a slow burn for some time over the fact that people like these continue to be enablers for the scoundrels who have already destroyed our economy and political system. Why should their complacent denial be accepted as polite dinner conversation, when looking realistically at the situation or, indeed, even trying to warn people about what’s coming is considered antisocial?

Having already caused gasps around the table, and after being derided as foolish and delusional by the husbands, I decided to take them to the mat: I announced that I will back my declaration with a wager of a thousand dollars. One guy immediately backed off, while the other rose to the challenge. I told him that I would put the wager in written form for his consideration the next time we get together.

My first draft follows. If you have any thoughts or suggestions they are, of course welcome. If not, then I hope this might at least amuse you – or possibly even your readers – as an interesting thought experiment.

Collapse Wager

Wagering that collapse will occur (“Pro” Party):
________________________________

Wagering that collapse will not occur (“Con” Party):
________________________________

Date of Wager: ____________

Duration of Wager (“Duration”): ___________ years

Amount of Wager (“Amount”): _________ ounces of gold

This wager regards “Pro” Party\’s contention that “The American Way of Life” will have collapsed within Duration of Date of Wager. The Amount of this wager is in ounces of gold in bullion form. Each of the Parties to this Wager agree to hold said Amount in reserve in physical form, in private, non-commercial storage, and agree not to pledge it for any other purpose or encumber it in any other way. On or shortly before the Duration of the Wager expires, the Parties agree to come together and make a good faith effort to reach a consensus as to whether collapse has occurred. If they fail to reach a consensus, Wager is declared null and void; if they do reach a consensus, then the Party that lost the Wager will remit the Amount to the Party that won. This Wager can also be settled before Date + Duration, in favor of “Pro” Party, at “Con” Party\’s sole discretion. If the Parties are unable to meet on or before Date + Duration, Duration is automatically extended until such a time when the Parties are able to meet and settle the Wager. The Wager becomes null and void upon the death of either Party.

Since the word “collapse” is open to subjective interpretation, this document is intended to provide an objective framework for the Wager\’s resolution. In the context of this Wager, the term “collapse” means that key components of the infrastructure of American life, as enumerated and described below, will have been compromised so profoundly that our lives will have been fundamentally changed. For the purposes of this Wager, collapse will unambiguously involve all of the following elements:

1. The stock market will have suffered another collapse more severe than that of 2008.

2. Several major banks will have failed. The FDIC will be unable to compensate depositors.

3. The power grid at the regional level will have suffered numerous failures, the cascading effects of which will decimate commerce.

4. There will have been severe disruptions of the nation’s fuel supply, some of geopolitical in origin.

5. The Internet will have gone down with increasing frequency and duration, with catastrophic commercial repercussions.

6. Air travel will have become inaccessible for most people. Most shipping and transport will have reverted to more rudimentary forms of conveyance over much shorter distances.

7. Many schools, colleges and universities will have shut down. The old business model for higher education will no longer pertain for most providers or consumers and many young people will be pressed into service for vocations essential to survival.

8. Many occupations will have ceased to exist. The financial and information technology sectors will have been essentially wiped out.

9. The food supply will become almost everyone’s foremost concern. There will be widespread hunger and malnutrition. Supply lines will have collapsed to the local level and frequently-empty grocery store shelves will have given rise to widespread kitchen gardens.

10. Few will any longer regard whatever remains of the American political process with anything but bitter contempt. Regularly-scheduled elections at any level may no longer be taken for granted, and many citizens will regard some sort of non-elected leadership—perhaps even martial law—as preferable to further malfeasance by elected officials.

Signed,

“Pro” Party:
 _______________________________________________

“Con” Party:
  _______________________________________________

Witnesses:
 _______________________________________________

 _______________________________________________

On the Edge with Max Keiser

Hunger Insurance

[In italiano]

[Week Two of ClubOrlov summer vacation. Food prices are about to go through the roof because of the disastrous harvests. Meanwhile politicians here in the US are conjuring up ways to keep entitlements going with just two underemployed working-age people there to support each retiree. And so, it\’s time to recycle this post. See if you can guess what it\’s about.

And if you can\’t, then why don\’t you go out and take part in the Reverse French Revolution that\’s underway in the US. That\’s where revolting peasants do all they can to elect an aristocrat who will swindle them out of their savings even faster and lock up even more of them in the Bastille. And what makes these peasants so revolting is that they are all fat—from eating cake instead of bread, just as Marie Antoinette had suggested.]

I would like to sell you some hunger insurance. Are you insured against hunger? Perhaps you should be! Without this coverage, you may find it impossible to continue to afford feeding yourself and your family. With this coverage, not only will you be assured of continuing to get at least some food, but so will I. In fact, thanks to this plan, I will get to eat very, very well indeed.

Here\’s how it works. You buy a hunger insurance plan from my hunger insurance company, or from one of my illustrious competitors in the hunger insurance industry. The hunger insurance market is very competitive, offering you plenty of consumer choice. You can even decide to go with a hunger maintenance organization (HMO); that would make a lot of sense if you are on a diet.

Whichever company you choose buys up food in bulk on your behalf. Then, should you come down with a case of hunger, you can file a claim, pay the copayment, and get some of the food. Certain feeding procedures, such as breakfast, are considered elective, and are not covered.

The company is in a position to demand lower prices for food from the food providers, and can even pass some of these savings on to you. (But the fine folks in the hunger insurance company do have to eat too, you know.) Of course, the food providers try to make up the difference by charging those without hunger insurance much higher prices, but how can anyone blame them? That\’s just market economics. There may also be some food-related benefits, such as lower rental rates on bowls, spoons, napkins and feeding tubes (check the details of your plan).

There is just one more twist: you should try to arrange your hunger insurance plan through your employer. You see, it is much more expensive for companies to do business with consumers directly. It is much cheaper and easier for them to deal with other companies, and this allows them to, again, pass along some of the savings. In fact, many hunger insurers may decide not to sell individual hunger plans because group hunger is much more profitable. This is just Business 101: nothing personal. Plus, how can you afford to pay your hunger premium every month if you are unemployed? It goes without saying that if you want to keep your hunger insurance, you better try to keep your job, whether they pay you or not! And if you are currently unemployed, then, well… why am I still talking to you?

I am sure you will agree that this is a damn good system: it offers you consumer choice, a healthy diet, and, most importantly, peace of mind. But, as you may have heard, some people have been clamoring for a so-called \”single-feeder system\” run by the government. Now, that sort of thing may be very well for those miserable communists, but let me ask you a couple of questions.

First: Do you want to get fed the same as everyone else, even if you can afford to pay a little extra? What if you, say, win the lottery; wouldn\’t you want to upgrade to the premium plan, and dine on filet mignon, foie gras and truffles like I do instead of the corporate-government-provided Happi-Meals?

But even more importantly, who do you want your children to be when they grow up: lowly, overworked, underpaid government bureaucrats, or fat-cat capitalists like me? Isn\’t this compelling vision of hope worth tightening your belt for? To be perfectly honest, those jobs are reserved for my children, but yours might still be able to find work as their personal bathroom assistants, if they are docile and pretty… let\’s pretend you didn\’t hear that.

But ultimately it is still all up to you, because it is you who, every few years, walks into a voting booth and pulls a lever. And then I have to work with whoever you elect, and bring them around to seeing things my way. We are in this together, you see: you get to pull the lever, but I get to write the checks, with your money. Politicians have to eat too, you know, I am there to help them, and they know it.

Is that your stomach growling, or are you just happy to see me?

Corn Madness

[ClubOrlov is on a much-needed vacation this week. In the meantime, if you haven\’t read it already, please read this. Originally published in March of 2010 as a bit of a long shot, this turned out to be one of the most widely read pieces.]
 
Another guest post. Translated from the Russian by Your Humble Narrator. It\’s a letter sent in by one young, once optimistic Russian who finds himself marooned in some blighted Boston exurb in southern New Hampshire.

Dear Dmitry,

I hope you don\’t mind that this is in Russian. I think that this way I can be more completely honest. I am a relatively recent graduate of one of the many faceless post-Soviet institutions of higher learning, with a degree in philosophy. Last year I moved to the USA and married an American woman.

The question of when the modern capitalist system is going to collapse has interested me since my student years, and I have approached it from various directions: from the commonplace conspiracy theories to the serious works of Oswald Spengler and Noam Chomsky. Unfortunately, I still can\’t fathom what it is that is keeping this system going.

My wife is a very pleasant woman, but a typical white conservative American. Whenever any political question comes up, she starts ranting about the Constitution and calling herself a libertarian conservative and a constitutionalist. I used to think that she is well-educated and understands what she is talking about. In fact, she is the one who introduced me to the US, and I once believed everything she told me about it. But as I found out later, she understands nothing about politics, and just repeats various bits of populist nonsense spouted by Severin, O\’Reilly, Limbaugh and other mass media clowns. Well, I am not going to try to prove to my wife that she is wrong on a subject that I don\’t quite understand myself. After all, she is a good wife. And so I try to steer clear of any political questions when I am with the family, although I do not always succeed. Perhaps if I had a copy of your book, it would help me explain myself to her better, but our family was one of the first to be flattened by the real estate market collapse. My wife went bankrupt, lost her bank account, house, job and the rest a while before I came here, and so we can\’t buy anything online.

In the talk you gave at the conference in Ireland you mentioned that there are certain regions of the US where the common people only eat garbage food from places like Walmart, which consists of artificial colors and flavors and corn, and that such a diet makes them \”a little bit crazy.\” To my utter disappointment, I have to entirely agree with you. Various witty Russian commentators love to heap ridicule on the \”dumb Americans\” and on the USA as a generally stupid country. But if they spent a bit of time living here and paid closer attention, they would realize that it is not the low cultural level that distinguishes Americans from, say, Russians: both are, on average, quite beastly. But even when I\’ve visited here before, as a student, my first impression was of a country that is full of madmen, ranging from somewhat mentally competent to total lunatics. And the further south I traveled, the more obvious this became. At first I even marveled at this, thinking, look at how intoxicating the spirit of liberty can be! But now I understand that this is a catastrophe, that American society is brainwashed and alienated in the extreme, and that all that\’s left for Americans to do is to play each other for the suckers that they have become.

Unfortunately, I feel the pernicious influence of all this on my own family right here and now. You don\’t have to be a brilliant visionary to realize that in the current situation all these endless suburbs, built on the North American model, are slowly but surely turning into mass graves for the millions of former members of the middle class. Those that do not turn into mass graves will become nature preserves – stocked with wild animals that were once human. My family is turning feral under my very eyes. Lack of resources has forced us to live according to the Soviet model – three generations under one roof. There are six of us, of which only one works, who is, consequently, exasperated and embittered. The rest of the household is gradually going insane from idleness and boredom. The television is never turned off. The female side of the family has been sucked into social networks and associated toys. Everyone is cultivating their own special psychosis, and periodically turns vicious. In these suburbs, a person without a car is as if without legs, and joblessness does not allow any of us to earn money for gas, and so the house is almost completely isolated from the outside world. The only information that seeps in comes from the lying mass media. And I understand that millions of families throughout America live this way! This is how people turn into \”teabaggers,\” while their children join street gangs.

For me, as for you, this is the second collapse. You had left USSR before it happened, while I was there to observe it as a child. I saw what happened when people were finally told that they were being had for seventy-odd years, and were offered a candy bar as consolation. Now, after all this, Russian society is finished. It grieves me to see the faces of Americans, who still believe something and wave their Constitution about, and to know that the same thing is about to happen to them. I think that the model which you have proposed will allow us to confront and to survive this collapse with dignity.

Yevgeny
New Hamshire

Revolutionary Conditions

Alex Jeffries

Travel advisory: Starting in 2013, in many parts of planet Earth there will be too little food and too much political unrest to make them pleasant destinations.

Food is about to get very expensive everywhere: farming states in the US are living through the worst drought since the Dust Bowl; in Russia and Ukraine, heat waves and drought have produced similar results, with estimates for grain production down 30-50% from last year; in India, the critical monsoon rains are already down 22%.

Exacerbating the poor harvests around the world is the brain-dead scheme in the US which mandates that a lion\’s share of its corn harvest be diverted to ethanol production, raising the price of corn and squeezing out cattle and poultry producers. (This is yet another symptom of a broken political system in the US: with an extremely low EROEI, corn ethanol barely qualifies as a source of energy.)

The problem is further exacerbated by the financialization of agricultural commodities; instead of being used to hedge risk to consumers, the agricultural futures markets have become the playthings of traders who gamble with large blocks of money trying to reap a windfall from disaster. The effect is to make food price spikes much worse; this has already happened in 2008 and is happening again now.

When food gets too expensive, people riot. A study by Marco Lagi et al. (cited in Trade Off by Korowicz) includes the following chart, which shows the timing of outbreaks of social unrest relative to price spikes:

The countries most at risk are those where food makes up a large portion of overall spending: 40% in China, 43% in the Philippines, 45% in Indonesia, 48% in Pakistan, 50% in India and Vietnam, 70% in Congo. If food prices double, much of their population will become malnourished (if it isn\’t already). Go here to explore these data on your own. (It would be helpful to include data on the percentage of calories each country imports; poorer countries that import basic carbohydrates are most at risk.)

The United States, with just 14% of its spending going toward food, may seem relatively immune to this effect, but it really isn\’t. There are 50 million people in the US on food stamps, and if food prices double then, unless there is a similar increase in funding for food stamps, this will halve the amount of food available to them. With the federal government\’s finances in disarray, the Congress deadlocked, and the federal budget headed for sequestration which will result in automatic, draconian budget cuts starting in 2013, such an increase seems unlikely. Millions more people in the US will be forced to choose between buying food and paying their mortgage, resulting in another round of mortgage defaults and the next wave of the endless financial crisis. With the widespread availability of cheap, low-quality processed food in the US, food price increases will mean that such unhealthy food will come to make up even more of the average diet, with negative effects on nutrition and health. The US is not Congo, but it isn\’t Switzerland either.

Food price spikes and food shortages are very effective in driving people to revolt. Since everyone has to eat, food is not a divisive issue. Whereas political régimes are quite adept at exploiting differences of opinion to divide and neutralize the populace (in the US, issues such as gay rights and abortion rights are their favorite tools) a shortage of food divides the population into the hungry and the well-fed. The well-fed inevitably turn out to be in the minority, defended, for a time, by the slightly less well-fed. They also tend to be associated closely with the régime or the moneyed interests that prop it up, and once they are dislodged, so is the régime.

Political régimes tend to be quite adept at putting down rebellions, but social unrest produced by a food shortage can only be addressed by alleviating the food shortage. If there simply isn\’t enough food left to distribute, their choices of action become rather limited. In some cases the government can exercise direct political control over food production and feed those who serve and protect it, allowing everyone else to starve. But the last few decades of neoliberal policies around the world have left few countries where this is still possible. Thus, the brunt of the revolt is likely to be focused directly on the transnational companies, and their presence in many countries will either come to an abrupt and messy end, or, where their vital interests are involved, come to resemble a military occupation. Given the recent advances in guerilla warfare, such occupations are likely to come to a messy end as well.

The failure of weak, neoliberal political régimes around the world will expose the men who have really been pulling the strings. Most countries remain nation-states in name only; their sovereignty has been eroded to the point where they are now mere servants to transnational business and finance. Vestigial nation-states continue to serve one function: controlling their borders. They are, in fact, prisons—keeping some people in, others out. But for transnational business and finance they are now porous entities, allowing them to practice labor arbitrage (finding cheapest labor), and jurisdictional arbitrage (finding least regulation). The US government is now little more than a proxy, with its presidential candidates (1, 2) vetted, appointed and financed by the global investment firm Goldman Sachs. A recent vote in the UN General Assembly accusing Bashar Assad of Syria produced a list of the remaining nation-states. These are the only countries whose governments still possess sufficient independence of will to oppose the US-led drive for régime change in Syria. They are: Syria (naturally), Russia, China, Iran, Belorussia, Myanmar, Zimbabwe, North Korea, Cuba, Nicaragua, Venezuela and Bolivia. It remains to be seen how helpful their independence will prove when it comes to them feeding their own people.

The three main indicators of collapse seem to be oil use decline, debt deflation and population decline, with oil the leading indicator and population the lagging indicator. But given the food crisis that is now upon us, it is starting to look like it won\’t be lagging by very much.