Wednesday, June 8, 2011

Doug Casey on our Future

Doug Casey has written an article, linked via LewRockwell.com, on the prospects of our future.  He outlines three possible scenarios and says that we could see any one of them or a combination of pieces from each of them.  I would like to comment on this and add to it.  If you haven't read it, it is a long piece, but Doug Casey is always worth the read.

First, he runs through the last 100 years in 20 year increments.  It really is amazing what this planet has been through in the last 100 years.  It is really the best and worst of human history.  It is the worst because of the world wars and all of the people that died at the hands of government (mostly their own).  We saw 2 major communist empires (China and the Soviet Union).  We also saw the end of the Soviet Union.  We have also seen communist China change towards more economic freedom, at least by action and not by name.  The 20th century also saw the rise and fall of the Nazis.  One other unfortunate event was the dropping of two atomic bombs that killed tens of thousands of innocent people.

The last 100 years has also been great in other ways.  We would not recognize the world of 100 years ago when there was no air conditioning, no television, no cars as we know them today, no microwave ovens, etc.  We could make a list pages long.  In just the last 20 years we have seen the amazing technology of computers and cell phones and the internet revolution.  The last 100 years really has been a combination of great and horrible things.

Doug Casey lays out three scenarios for what things will look like in 20 years.  He has a best case scenario, a middle of the road scenario, and a worst case scenario.  His worst case scenario involves war, which is hard to argue with.

While hyperinflation is certainly a possibility, I don't think people understand the ramifications of this.  If there is little warning for the market to prepare with an alternative form of money, we could literally see massive devastation that could wipe out much of the population.  Hyperinflation in the U.S. would mean that food is no longer shipped to the grocery stores.  It means most people staying home from work.  It means a total breakdown of the division of labor, unless there is another form of money that is legal to use and has already been established in the marketplace.  This is why I don't think the Federal Reserve will purposely put us into hyperinflation.  They would be granting their own death wish.

In Casey's best case scenario, it actually isn't too rosy.  I think another possibility, that isn't too far fetched, is new technology getting us out of the mess we're in.  Let's say that someone invents a car that does not run on oil, but is just as cheap or cheaper to buy and to operate than what we have now.  This would be huge and would help our standard of living tremendously.

In Casey's best case scenario, he says, "most governments decide to endure the pain of allowing interest rates to rise and limiting increases in the money supply."  I'm not sure that he quite stated that part correctly.  It would actually be the general population that would decide this.  Most or all governments will seize power if they think they can get away with it.  The only check on government power, when it comes down to it, is public opinion.  They will not just relinquish power.

Politicians can make a difference, but they aren't going to voluntarily give up their power.  For example, Gorbachev would not have voluntarily given up power if public opinion had stayed in his favor.  He saw the writing on the wall and gave up.  The good thing is that he was decent enough not to fight public opinion with violence and start a massive war.  But ultimately, public opinion is what matters.  He could not prevent the collapse of the Soviet Union.

I would lay out a best case scenario that Ron Paul gains tremendous popularity in this election cycle.  He doesn't need to win, but we need for a sizable minority of people to become strong libertarians.  If this were to happen, it would actually be possible to start rolling back government and moving towards liberty.  We would still have to go through a correction from the massive increases in the money supply and the massive debt built up.  But if government were significantly reduced from our lives, the correction from the previous misallocation of resources would not be too bad.

If you need some optimism, just think of Japan and Germany after World War II.  They were both a mess.  As Casey says in his history part for 1951, "Who imagined that Germany and Japan, although literally leveled, would be perhaps the best investments of the century?"  These two countries turned to free markets and they became two of the richest countries on earth in a fairly short amount of time.  If they can recover from that, the U.S. can certainly recover from high debt and bureaucracy.

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