Is Civilisation A Pyramid Scheme?

This diary originated from a discussion of real estate markets, so we will eventually get to financial matters of today. The sweeping bottom question is: how can an apparently steady growth or progress possibly be halted, or even voided? Do civilisations collapse often, and how? Do they just meet bad luck or barbaric invaders sooner or later,  or do they always collapse once they fully employ a “no-brainer” affluence strategy, like greed or self-indulgence? Can gains of globalization and free markets increase forever, or will they abruptly end just “around a corner”?

Globalization must have the limits of the globe, or not? It works all fine while new markets open and expand, while masses of new individuals enter speculative markets, either directly or via inescapably more aggressive pension funds. Will the global economy continue to prosper when the stream of eager new buyers will dry out?

Deep down, it is not exceptionally remarkable that evaluation of the markets grows while their volume rapidly expands. You can run a pyramid scheme with the same effect!
While I was preparing this diary, I googled up an internet article with almost the same title. Interestingly, it was written in the year 2000. (Remember those times?) For the beginning, let’s follow the article.

Earth is full of dead cities. Civilizations, like individuals, are born, flourish and die. Except ours. Ours, we believe, is different, the beneficiary of all the rest. The sunny afternoon in which we thrive will stretch ahead forever. In this belief, we carry on our lives against the evidence of time.

Indeed. Egyptians and Maya had much more than their stone pyramids. Yet we know now well only the pyramids. How did it happen that everything else went gone?

Tikal, the greatest city, seems a Manhattan of art deco pyramids [presiding] over a conurbation of 120 square kilometres. It took 1,500 years to reach that size, yet all of Tikal’s skyscrapers were built in its final century, an extravagant flowering on the eve of collapse.

Jared Diamond has the same observation: civilisations tend to collapse after an imposing boom.

Civilizations rise because they find new ways to exploit natural and human resources, to tip the balance between culture and nature. They feed on their local ecology until it is degraded, thriving only while they grow. When they can no longer expand, they fall victim to their own success. Civilization is a pyramid scheme.

The cusp between rise and fall is a matter of scale, of demand outrunning natural limits.

Are we sure the modern civilisation was never warned?

[There] was a cost, a debt to nature accruing so gradually it was seldom observed, let alone understood. Woods dwindled and receded, denuded land became prone to drought and flood (including, perhaps, the Flood), irrigated fields turned sour. The cities of the plain turned their surroundings into a saltpan. The desert in which their ruins stand is a desert of their making.

Can we make better guesses, what can the greatest biblical human folly possibly be? What about blind confidence that growing wealth can grow forever? Or that things never go catastrophically badly to a prospering civilisation? That greed is an ultimate vehicle of progress?

In the past, these cycles were regional. As Rome fell in the Mediterranean, the Maya rose in Central America, and so on; the setbacks were local, the overall experiment kept going. But now the 10,000-year bets all rest on a single throw. We have one big civilization, feeding on the whole Earth at such a rate that we can observe the exhaustion of natural capital within our lifetimes, whether it be the loss of wildlife, water, coral reefs or rain forests. We are razing forests everywhere, we are irrigating everywhere, we are fishing everywhere […]

Couldn’t Darwinnian selection of civilisations be somewhat more effective up until this global moment?

During the 20th century alone, our population multiplied by four, while our consumption grew by 40. Yet the number in abject poverty today is as great as all mankind in 1900. Is this progress? Can the stock market be trusted to run the world? Or is our consumerist boom the illusory wealth of wastrels blowing an inheritance – by no means only their own? Is the promise of prosperity for six billion the Big Lie of our time?

Will we be very lucky if just a meek portion of humanity will survive a sweeping climate/geological change and self-inflicted chaos? Should we at worst hope for not much more but unambiguous preservation of a single big lesson for the next civilisation cycle?

Ok, I stop here with digging the apocalyptic spectrum. Please browse that great article by Ronald Wright on your own.

I am changing the subject with the words stock market.  I may be dumb with putting this “demystification” in a heartlessly depressing way, but would it be really more considerate to wait?

The financial markets just had a bad day across the world, after a rocky week. Can we make more sense of this than the excuse a combination of factors?

The hypothesis is that the modern economy is dominated by ever increasing and ever expanding speculation in stock and real estate markets. These markets will grow just as long as the volume increases. The markets are vastly overvalued due to a pyramid-style growth of the number of players. The markets will fail when there won’t be any bottom to add to participants’ pyramid.

How did we got here? What is the more important effect of Bush’s tax cuts: blatant enrichment of already the most wealthy and most influential, or inducing millions of Americans into stock and real estate markets? Do we need now many thousands (a day) of Chinese entrants into financial markets to keep the world economy afloat?

An important factor for market’s fall last week was the anticipation that the Chinese government is going to control China’s speculative markets more seriously, or raise capital gain taxes making speculation less profitable. Even conservative pro-market gurus stress that. Isn’t this is a striking test of how important is the volume growth to the current economy?

What the world has been following now is perhaps precisely a recipe of a pyramid disaster – a moment without buyers is coming, and most of the players will never exercise the equity they nominally have at this moment. We should look closely to similarities with the First Great Depression. The pro-market leaders might have been following the same pattern inadvertently, believing they found perpetum mobile for the fulfillment in this world. But it is not so that governments were never building financial pyramids unknowingly. Does humanity has no better ambition than gambling for an eternally easy living?

Show me some rays of light.