The Tyranny of the Immediate (John Michael Greer)

Oct., 22, 2008 (Archdruid Report) -- One of the great challenges that has to be faced in any attempt to make sense of history while it’s happening is the misleading impact of short-term trends. While the late housing bubble was still inflating, for example, soaring real estate values made it easy for most people to fool themselves into believing that it made sense to sink their net worth, and then some, into houses priced at even the most delusional levels. They had seen prices march steadily upwards, month after month and year after year, and that experience made it seem likely that the same steady march would continue for the foreseeable future.

The same mistake on an even more grandiose financial scale underlies the implosion of much of the world’s banking system in recent months. The first generation of derivatives, credit default swaps, and equally exotic financial livestock netted huge profits for their original breeders; so did the next generation, and the next, and before long these dubious securities – valued with an optimism usefully summed up in the phrase “mark to make-believe” – accounted for a very large proportion of the paper assets held by banks, hedge funds, and the like. Because the financial community’s recent experience with such things had been so positive, all too few investors glanced further back and saw what happened every time in the past that financial paper unlinked to sources of real wealth had been allowed to breed beyond the carrying capacity of the market.

The difficulty, as I’ve suggested in previous posts, is that historical change happens at a pace much more leisurely than textbook summaries suggest. Most people who didn’t live through the opening years of the last Great Depression leave school with the notion that when the stock market crashed in the fall of 1929, the economy reached a full stop by the time investors stopped plummeting from Wall Street windows. In reality, it took more than three years for the economy to finish contracting, and scenery en route included a dramatic stock market rally in 1930 and some of the best days of rising prices, in percentage terms, that Wall Street has ever seen. At every point along the course of contraction, furthermore, financial pundits drew false conclusions from short-term changes. The resulting headlines have more than a little similarity to the ones that clutter the financial press today.

This habit of reading too much into short-term conditions has shown itself more than once in the recent economic convulsions, and guesses about the future price of oil – a subject of interest to many peak oil researchers – have been particularly affected. Earlier this year, as the price of oil soared to $143 a barrel, a great many people argued that it would keep on climbing to $200 or $250 a barrel in the near future. Now that the price of oil has slumped below $70 a barrel, the tide of opinion has turned, and some pundits are now predicting a continued slump to $50 or even $35 a barrel. These predictions seem quite plausible at the moment they’re uttered, but then so did the idea that shares in dot-com startups would keep on climbing in value all through 2000.

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