Deflation or Reflation

If you follow FinTwit (financial twitter for my readers who are less hip or who have other things to do with their lives than follow economic tweets on Twitter. Hi Mom!), you know that the main theme right now is Reflation. The common hypothesis goes that now that we have a vaccine, as soon as we reach some unknown but foreseeable level of protection, the economy will bounce back, people will start going to restaurants again, and everything will be fine. In theory, all this will result in inflation that shows up in a variety of places like stocks and gold and Bitcoin. Reflation is the predominant meme. It’s an attractive one especially if you have a kind of short term, first order view of the world.

However, there is a much less dominant theory but one that I think has more merit. Steven Van Metre and Travis Kimmel talked about it in depth over at Real Vision this week and that theory is that we are still due for a deflationary period in the short term (12-24 months) where many of the effects of COVID on the economy that have been kicked down the road through forbearance and other can kicking activities start to show up.

When COVID first hit, we had a massive dislocation in the market. The world economic function sort of just rolled over and died briefly. Stocks plunged, bonds exploded upwards and the Fed largely struggled to get control of the situation at that moment. Since that time, there’s been a Presidential election (in case you live under a rock), a great deal of can kicking and a general run up in stocks and a very specific run up in Bitcoin. Yields are starting to climb again in bonds (the 30 year treasury is approaching 2%) and it really does look like inflation is on the rise.

However, we still have millions of people on unemployment. Unemployment rate in the US is currently 6.7% which granted is a massive improvement over the April 2020 numbers of around 15% but is still exceptionally high for the last 20 years. The improvement seems to be stalling in recent months as well. On top of of that, 2.7 million people are still in some sort of forbearance program with their mortgage. At some point, the music has to stop and people are going to have to start paying again. And eventually the extended COVID relief will stop.

All this leads me to think that we are likely a few years from a real inflationary period. Some of the forbearance programs are payment plans but others may be a lump sum required upon expiration of the program. People aren’t going to suddenly have that kind of cash laying around and they are going to get foreclosed on. The service sector has obviously been obliterated and new restaurants aren’t exactly easy to start up and be profitable. In general, it seems like there are some less flash and crash events but more “slowly grinding lower” type events on the horizon.

As the government programs begin to expire, all the past will come due in some way. Best case, terms of loans get extended into the future. However, in a capitalist society, I wouldn’t count on servicers operating in the best interest of their clients. More likely to me is that based on some house price data, they think they can just foreclose and then sell the property to someone else. This is fine if it’s gradual and spread out. It’s not fine if it happens suddenly in a contagion.

One way out of the deflationary winds would be if the government came up with some plan to make good on the debts that will come due. However, this would be politically difficult in my mind. If it did happen, it would likely be truly inflationary though there still exists the very real problem of people not having jobs. You hear people refer to the money that’s come from the government as “stimulus” but there is nothing stimulating about $600 a person. That’s just aid, aid that is brief, small and unlikely to cause a real inflationary event. There are a great number of people still suffering and that’s just a drop in the bucket compared to a 12 month lump sum mortgage payment coming due or an end to unemployment benefits.

What do I think that means for investing? Not entirely sure as I’m just barely knowledgeable on the subject. However I do think that bonds still have room to run for 24 months even though they have shown some weakness in recent months. Granted, bonds look just as bubbly as stocks in some ways but if it turns out that we really do have to pay for all this can kicking, bonds will go up as the Fed turns the spigot back on for QE 85 or whatever. The next 6-12 months will be key and it will largely be dependent on how the government programs wind down.

On The Realm Of Shadows

I recently finished reading this book which was the final major philosophical work of Henri Lefebvre, a French philosopher in the 20th century who is best known for his development of the critique of everyday life. He also was the first to develop a French reading of Nietzsche that was tragic in nature which plays a large part in this book. I picked up this book early last year from Verso Books when the pandemic hit and small bookstores were in dire shape. I had been reading some Marxist thinking without actually reading Marx which made this book appealing.

Because the book took me most of a year to read, these notes are less an insightful summary of the book and more a collection plate for tithes to a future reading that is more concentrated. Most of what I remember and took notes on was the Nietzsche file so it plays a prominent part.

The book has three main sections, one for each of the major philosophers covered. It is a comparison of their thought and impact on Western philosophy, culture and civilization. Lefebvre believed that these three men had contributed the core philosophies to develop the modern world and that each one contributed a different idea. These ideas actually conflict in many ways and Lefebvre wrote this book to analyze and attempt to reconcile the differences.

These three philosophers represented three key ideas to Lefebvre and to the modern world. Hegel, through his study of history and belief in rationalization and logos, contributed much of the foundation for the modern State. Hegel essentially believed history was inevitable. For Hegel, the State was the highest point of human progression. This was based on a historical viewpoint that basically said the State was the logical conclusion of man’s progression. And for Hegel, it was THE conclusion. There was no other thing to move towards. Hegel believed and in fact contributed a great deal to the philosophical concept of idea as harmony and his vision of the State is driven by this. His idea of the State was a harmonious one, a support for a constitutional monarchy that was liberal in nature. If we look at the State since Hegel’s time, we see that this must be incomplete, that the natural progression does not end in a liberal, rational State but instead often becomes fascist (in the true definition of the word, ala the fascists of Germany and Italy in the early 20th century).

For Hegel, knowledge is key to the development of The State. Knowledge rests on reason and rationality and his historical interpretation of the development of the State rests on the supremacy of knowledge. The paradox here is that knowledge also leads to power. Those who control knowledge have power. This in turn leads to ideology and the abuse of knowledge by the State to meet its own ends as it begins to control the information required to develop knowledge. This is a key triad in the development of the state: knowledge, constraint (violence), ideology. The State rests on knowledge but the State eventually controls and directs knowledge to keep power. This is a powerful critique of Hegel’s thought and requires that we turn elsewhere for help. That help for Lefebvre is Marx.

Hegel represents the past because his philosophy is defined by it. He believes and adheres to the historical progression to the modern State as the end all. Marx on the other hand represents the future because one of the key tenets of Marxism is the day the proletariat rises up in the future and subsumes capital or the bourgeoisie and becomes a single movement. Where Hegel represents the State, Marx represents Society. A key to Society is space defined by Lefebvre and others as social space where those within society can operate freely and safely. The State eventually seeks to restrict this space through necessity to retain ideological power. The rational, logical State of Hegel’s philosophy breaks down.

For Marx, a different triad (from Hegel’s knowledge, constraint, ideology) is key: exploitation, oppression, humiliation. This triad then synthesizes into a single concept: alienation. This was key to Marx and anyone who analyzes our modern age sees it as a key concept today as well. The working class was (and is!) alienated from society, from the Hegelian State, and is left to enjoy the crumbs from the hegemonic class.

Marx looked at Hegel and saw that the Hegelian State could not be correct because of alienation. However Marx did not give us a systematic way to look at society. What he did provide was a vocabulary, a language, that was different from anything we had at that point or since, a vocabulary that opened up ways of expressing modern life that had been missing. For example, Marx gave us “surplus value” instead of “profit”. This new vocabulary enables a social interpretation of our experience where Hegel (and others) only provided a political or economic interpretation.

Marx believed that eventually Labor would have a revolution to remake society away from the concentration of Capital (that he had already been writing about and which continues today far more expansively) and towards a new society which at times was expressed ethically by Marx (each person respects all others) and other times aesthetically (everyone would be a poet or an artist, or at least interpreted as such). One of the interesting paradoxes of Marx is that this revolution would happen within a current class, defined by the system within which it worked. Working within the system, the system would be overthrown. How? Knowing what we know now about the modern State and its penchant for constraint (violence) to achieve its means, both foreign and domestic, this seems to be a strong criticism of any future proletariat revolution.

Marx (along with Saint-Simon) recognized and elevated social classes as a construct in political analysis. Hegel misunderstood the French Revolution, ignoring the conflict between the working class, those masses in the street, and the aristocracy. Marx saw this as THE key to the French Revolution, that social classes, not political ones, were the driving force of the world. Marx also named the manager class the bureaucrats or bureaucracy and was the first to notice that they were incentivized to expand their control to the point of dominance. The bureaucrats control the surplus social value through taxes, state corporations and others and over time tend to dominate the economy, sucking value up and out away from those who produced it. We see this today in the expansion of the federal government in many ways, especially the military-industrial complex.

The political state is in fact tied to the social reality, something Hegel missed or misunderstood in his analysis. The political state has a social basis: the relations of production. Marx saw that because power has a tendency (always a tendency with Marx, never a rule or a law) to migrate up the relations of production towards the bureaucracy, the working class would always be disadvantaged by Capital or the bureaucracy. Eventually, the structure begins to crack as in the French Revolution, the working classes organize and reorganize but never revolutionize, and then it all starts over.

This concept of constant change violates the rationalism of Hegel, his logos. Change is key to Marx. Berman wrote an entire book about it. Hegel believed that the State was superimposed on top of society. Marx showed that it was just a construction of society and should be subordinate to it. This idea should be fertile ground for analyzing the modern age where we have allowed the State to once again be superimposed on society (think of how many people are consumed with national politics or how few actual demands we make of the State as a society, etc). Marx’ thought is almost entirely social in nature which is a great irony since his main critics in the modern age focus almost entirely on the economic writings.

Nietzsche until recently, notably with some of Lefebvre’s work, was historically misinterpreted. Nietzsche was interpreted as anarchistic or elitist. However the historical truth based on his writing is that he was neither of these. Much of this misunderstanding came after his death, spread by his sister who was anti-Semitic. This led Nietzsche to be a talisman for the far right and even the fascists in Europe in the early 20th century.

Where Hegel was the State and Marx was Society, Nietzsche is Civilization. Where Hegel was about the past (the historicism that brought about the state) and Marx was about the future (when the proletariat rose up through revolution to overthrow the bourgeoisie) Nietzsche was about the present, the lived moment, the subjective. Nietzsche did not abandon knowledge or science, he instead subordinated them to lived experience, to the moment of now. Consciousness and knowledge, far from being the rational conclusion according to Hegel, were in fact just random chances in the universe.

In many ways, Nietzsche was a mystic, at least in my reading. His main concern, starting in Untimely Meditations was a freedom of spirit. His definition of such began with nihilism brought about by the supposed knowledge of his day (the science of the 19th century was leading society to be secular, hence Nietzsche’s most famous quote “God is Dead!”) and led him beyond to a definition of free thinker which rejects any appeal to history to justify and legitimate the actual.

A key concept for Nietzsche is that man does not live as a being of need or desire but instead of ressentiment which is far stronger than the English word it resembles. Resseentiment is the result of humiliation and it leads to alienation, a core Marxian concept though Nietzsche gave no credit to Marx for it. This humiliation is irreparable in nature. Where both Hegel and Marx see a way out of the humiliation, Nietzsche believes that the being will have developed modes of life, of dealing with it, that are etched in stone. The humiliated will have found ways to psychologically deal with their humiliation, will have developed mental workarounds and explanations for the humiliation. No amount of revolution or knowledge can overcome these. This is also fertile ground for analyzing the modern state. Think about the 2008 mortgage crisis and the hundreds of thousands of families that lost their homes. The loss of a home isn’t just some moment in time, it is the crushing of a dream. It is an immense humiliation. It would never go away. Nietzsche saw that this was true for almost everyone, that the modern state with its bureaucracy and power, created circumstances that humiliated everyone. From the humiliation comes culpability which politicians in the West can then exploit for their own means. Culpability is a state, not a fact, e.g. we all live in a state of culpability for some humiliation. This in turn leads to the predominant idea of the modern Western civilization which is nihilism.

How to overcome this emptiness that the modern age has inflicted upon us? Nietzsche advocates a “return to body”, which he sees as the depth beneath consciousness. This is not a call for hedonism but instead to focus on the energy of the body, the energy of poetry and music and dance, the energy of lived experience. The present.

In our age of bureaucracy and technocratic control, a very materialistic age not just in our whims but also in our ethical and aesthetic behavior, there is something refreshing about this reading of Nietzsche who I think above all was trying to find a solution for the nihilism of modernity. Nietzsche believed that rationality in the Hegelian sense was not just limited but in fact illusory. We cannot know all the things we think we do. On top of that, one of Nietzsche’s core insights was that power was key, that power drove everything and that too often, human beings came to worship those that had power over them (or in our age, the thing that has power over them?) and the humiliation from that experience is permanent and debilitating. To escape it, we must embrace the tragic nature of our modern existence and then make a leap beyond rationality into the creative, into the body, into poetry and art as paths out of the humiliation.

In the end, for Lefebvre, Marx represented an objective, socio-technical breakthrough and away from the rational State and its natural tendency towards violence and ideology. Nietzsche represented a subjective (poetic) breakthrough from both past and future to live fully in the present moment. This was a pretty thought provoking book that will probably require a closer reading at some point in the near future.

On Emily Dickinson and Beginner’s Mind

"Exultation Is The Going" - Emily Dickinson
Exultation is the going
Of an inland soul to sea,
Past the houses, past the headlands
Into deep Eternity

Bred as we, among the mountains,
Can the sailor understand
The divine intoxication
Of the first league out from land?

“Exultation Is The Going” is a short poem from Emily Dickinson that begins the book Poems of the Sea. As with so many of Dickinson’s poems, there is amazing insight in the fleeting verse. Poets are those who can express insights within the structure of poetry, distilling topics that require less talented writers to spend pages and pages on. There is a common theme throughout literature and aesthetics that holds the poets as the highest of thinkers. The Greeks held the poets in highest esteem, especially the epic poems. Nietzsche believed poetry to be the highest art form, a form of transcendence. James Baldwin did as well.

When I first read this poem yesterday, the meaning did not immediately jump out at me. The first stanza seems straightforward but the second required examination. Dickinson is basically saying that because the sailor is always on the sea, entrenched in its familiarity, focused on the tasks of keeping the boat moving in the right direction or safe from the perils of the ocean, he cannot understand the experience of a land bred person as a sea voyage begins.

As I considered this poem, it struck me that this is the exact description of Beginner’s Mind, a Buddhist concept related to being totally present in the moment. Beginner’s Mind is a state where we are totally focused on the experience of the present. The person first sailing out from the harbor, past the houses, past the headlands, feels the sea breeze in her face and hair, the toss of the boat and exults in the joy of this new experience. It is a brief glimpse into enlightenment.

This idea carries over to all things if we let it. It is easy to become the “sailor” in all that we do, to forget the wonder of an experience or even just of life as the pressures or fears of the past and the anxieties of the future force their way into our focus. Watching my child eat a sandwich, I feel a tiny spark of that wonder I first experienced when she learned to pick something up and feed herself. Replacing a light bulb or other common task can be filled with the experience of Beginner’s Mind if we purely focus on the present, the amazement at a new bulb casting light on a place that had been dark. Taking down Christmas decorations can be an opportunity to cherish the fact we had a wonderful celebration instead of a focus on the sadness of loss.

The sailor mindset is of course good. It allows expertise and safety and protection. But our default behavior, driven by the reptilian brain to keep us alive, can become dominant and stifling if we let it. It can squash the childlike joy of an experience and prevent creativity from blooming. Like the landlubber on the deck of the boat, grasping the railing as the ship moves with the ocean, salty sea breeze blowing around him, we should focus on the present moment with child’s eyes as often as we can. We should protect against the scales of the sailor’s eyes closing down on the wonder around us. Always stay in touch with the beginner, the child, and look for the moments of wonder around us.

As I go into 2021, I know that I haven’t been focusing on anything in a long time. Reading this poem yesterday, it took several moments and a day’s worth of contemplation to really feel like I began to understand what its short 8 lines are expressing. This is the distillation of powerful ideas that the poet provides us. It requires focus. Focus is about the present. You cannot focus on the past or the future. The former is merely nostalgia at best and depression at worst. The latter is dreaming at best and anxiety at worst. Focus is beginner’s mind and relates only to the present moment.

Our world today is built to destroy Beginner’s Mind, to hide it behind cynicism and fear. Each moment we are pushed to worry about an uncertain future or to glorify some past moment instead of being totally present with the experience of now. I’m planning to make 2021 a year of Beginner’s Mind as best as I can, to allow the joy or sadness or frustration or exultation of each experience, of each moment be what my life is about. As I look back on 2020, I realize that an inordinate amount of my time was spent in either the past or the future, ignoring the activity of now. That is a lousy way to spend a year and serves to only stifle the wonder of Beginner’s Mind. Here’s to a year focused less on fear and anxiety and more on the wonder of this moment.