Capitalism, 9/11, And The Economic Crisis

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You know that the best you can expect is to avoid the worst1 D I SA ST E R CA PITALISM 2 AS A ZER O SUM GAME 3 Since 2008, more than $9,700 billion -- “in taxpayer dollars -- has been pledged, committed, lent or spent by the federal government in response to the economic crisis.” 4 This does not even account for the more than $50,000 billion fall in the value of financial assets worldwide from September 2008 - March 2009.5 Along with this unprecedented wealth destruction, the economic crisis, over the last 14 months, has produced a loss of 4.4 million jobs in the U.S.. Additional federal bailout funds are expected to be required and continuing job losses over the rest of the year are predicted. If Wall Street financial institutions, for example, are unable to pay back the loans already provided to zombie banks,6 this means that these financial institutions have not generated any profits since 1970. It has all been smoke and mirrors: profits, annual GDP growth, the whole ball of wax. T H E ST R AT E GY OF 9/11 AS A PRISONER’S DILEMMA7 FOR CAPITALISM Virtually, an infinite number of responses to the tragic terrorist attacks of 9/11 were available to the U.S. government. In retrospect, the government made the wrong game moves. Reacting with a politics of fear, the federal government spent $1,000 billion to “fight a war against terror.” This was not only an unwinnable war,8 it produced a cascading effect throughout government and the private sector. Already severely weakened by disaster capitalism, the U.S. economy succumbed by 2008 and collapsed. Was 9/11 the economic trigger that pushed the U.S. economy past its tipping point? 9 Is disaster capitalism just one very large and complicated Ponzi scheme? Is global warming the final nail in the coffin of a failed global economic system? Italio Calvino, If on a Winter’s Night a Traveler (1979) in William Poundstone, Prisoner’s Dilemma (New York: Doubleday, 1992), 53. 1

Disaster capitalism refers to making a huge fortune from natural and planned disasters exacerbated by poverty, social tensions, environmental degradation, ineffectual leadership, and weak political institutions. Disaster capitalism’s raison d'être may be the promotion and generation of market inefficiencies – pricing signals that distort real prices for goods and services and their real cost to the environment, public health, and social justice. See Naomi Klein, The Shock Doctrine: The Rise of Disaster Capitalism (New York: Henry Holt and Company, 2007). 2

A zero sum game always has winners and losers as the size of the pie is fixed; one person’s gain is another’s loss (Poundstone, 51-2). Adam Smith’s capitalism as a non-zero sum game. 3

Byron Dorgan and John McCain, “Let's Learn What Caused This Crisis,” The Washington Post (Sunday, March 8, 2009): page A15. This amount is about $92,000 for every U.S. household. 4

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The estimated financial losses of U.S. households is $11,000 billion (Federal Reserve System).

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Zombies are financial institutions that only remain open for business by the provision of federal loans, bailouts and/or tax relief. A game defined by a strategy whereby one is rewarded for cheating, but if the other party also cheats, both players will be worse off than if they had cooperated (Poundstone, 120-1). 7

A game state where it is impossible for the player to win the game. The only options are restarting the game or stopping and deciding to play another game with different rules. Playing an unwinnable game is a zombie situation (Wikipedia). Is disaster capitalism also unwinnable? 8

All systems have a tipping point, a set of stresses (an overload beyond a threshold rate of change of inputs) beyond which they breakdown (loose complexity and cease to function within normal ranges) and sometimes collapse (recovery is uncertain) or suffer deep collapse (multiple systems experience synchronous failure when systems are tightly coupled). As failure proceeds, moments of contingency arise. 9

LYLE A. BRECHT

DRAFT 410.963.8680 - - - C A P I T A L M A R K E T S R E S E A R C H - - - MARCH 11 2009

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C A P I T A L I S M ,

9 / 1 1 ,

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T H E

E C O N O M I C

C R I S I S

W R O NG GA M E MOVES GOING FORWARD MAY ONLY REINFOR CE ECONO M I C C O L L A PSE Wrong game moves are any moves that attempt to shore-up disaster capitalism. Disaster capitalism must be put to rest once and for all, forever. Instead, we need policies and actions on the part of both government and the private sector to become accountable for capital allocated and spent, to make certain that capital is used to decarbonize the economy, and to make certain that capital produces a reasonable return both economic (ROIC) and social (SROI).10 S U STA I NA B L E ECONOMIC RECOVERY REQUIRES PL AYING A DIFFERENT GA M E B E CAU S E THE PRESENT GAME IS UNWINNABLE The objectives of an economic strategy for achieving both national and global economic stability might include: (1) moving from a leveraged, consumer-driven debt economy to a deleveraged production-driven infrastructure investment economy; (2) moving from markets governed by principles of disaster capitalism to markets governed by sustainable capitalism and the recognition of markets for ecosystem services;11 and (3) the de-carbonization of the global economy to avoid catastrophic climate change that could destabilize global economies, produce resource wars, and potentially collapse global food production. We also now have a once in a generation potential to rebuild our soft power in the rest of the world rather than relying almost entirely on hard military power. For example, (4) if we were to reallocate $200 billion annually from the almost $805 billion estimated costs for conventional national defense spending for FY 2009 12 and put this amount of annual budget to use on human development projects around the world, for example, to bring clean water, wastewater treatment, and adequate nutrition, this could provide the impetus to defer potential resource wars and transnational, privatized terrorism directed towards the United States, and reduce the specter of nuclear proliferation and the prospects for nuclear terrorism.13

Economic Value Added monetizes the value of the activity. Social Value Added measures how activities “generate improvements in the lives of individuals or society as a whole.” 10

Sustainability involves responding to today’s planetary emergency by reengineering interconnected systems that are transitioning from high EROI (Energy Return On Investment) energy inputs to low EROI sources. Sustainability is the process of transforming these systems undergoing change into complex and adaptive dynamical systems that are resilient when shifting to lower thermodynamic states. Systems are sustainable when thermodynamic state shifts do not cause disruptive nonlinearities - abrupt changes of the system to an unanticipated, lesscomplex state. See Thomas Homer-Dixon, The Upside of Down: Catastrophe, Creativity, and the Renewal of Civilization (Washington, DC, Island Press, 2006). 11

“Our military forces have become high-cost dinosaurs that are insufficiently lethal against most of the enemies we are likely to face. Our forces have also broken free of their constitutional controls to the point where they have essentially become a presidential military. Congress exerts meaningful control neither in peacetime nor in wartime – and has lost all control over going to war. The large peacetime standing army established just before World War II (and maintained ever since) has become a vehicle for misuse by presidents, and multiple other parties both internal and external to the Pentagon.” See “Introduction and Historic Overview: The Overburden of America’s Outdated Defenses” by Lt. Col. John Sayen (U.S. Marine Corps, ret.) in America’s Defense Meltdown: Pentagon Reform For President Obama And The New Congress, World Security Institute’s Center for Defense Information, Washington, DC (November 2008), 15. 12

Some recent historical research has linked climate change and resource wars and terrorism. For example, climate change could be to blame for many of the 899 wars that occurred in eastern China between A.D. 1000 and 1911. Researches found that warfare correlated strongly with temperature oscillations that stressed existing populations ability to produce food or access adequate freshwater. See David D. Zhang, “Climate Change and War Frequency in Eastern China over the Last Millennium,” in Human Ecology, Volume 35, Number 4 (August, 2007), 403-414. 13

LYLE A. BRECHT

DRAFT 410.963.8680 - - - C A P I T A L M A R K E T S R E S E A R C H - - - MARCH 11, 2009

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