Bad Models Result In Terrible Outcomes

Recently I spent a month in Buenos Aires.  I went there to study the culture and the economy of a formrely prosperous land, filled with kind well-educated people.

One key lesson was this: Given enough time, bad policies will eventually ruin any advantage.

While not as bad off as it was in 2002, when the masses took to the streets banging pots and pans in protest of their nations ruined economy, the city of Buenos Aires is still clearly depressed. As are most of its people. 

More than that, all hope has been lost.  Every time a new politician is elected, things are promised to get better, but they don't. Argentina's current woes are the result of far too many successive political regimes that made terrible decisions. It's a clear as simple as this: Bad policies lead to bad outcomes.

As we learned in our interview with Daron Acemoglu on Why Nations Fail, what matters most for widespread prosperity is that the political and economic institutions be fair and inclusive. From the podcast:

It all depends on incentives and opportunities. If people have opportunities to become rich, to open businesses, be innovative, do things that are going to further their interests and at the same time the nation’s GDP (Gross Domestic Product) and they have incentives to do so, that’s going to lay the foundations of economic prosperity.

It sounds extremely simple but the thing is that most nations don’t provide those sorts of opportunities and incentives to their citizens and therein lies the big divide. How do we summarize those opportunities and incentives?

It's the institutions, the rules, formal and informal regulations, and organization of society that determines what sort of opportunities are available to different people, to people from different walks of life, and what sorts of incentives they function under.

In Argentina, after having been economically disappointed so many times, any sense of economic vitality and entrepreneurial spirit has long since disappeared. 

Old buildings there display a grandness in the quality of their architecture. Newer construction is clearly blocky, rushed, and low-grade. 

“Basuras” are everywhere. They're the street-side dumpsters located all throughout the city.  Sometimes I would notice people rummaging in them as I walked about during the day. But after dark, formerly middle-class people can be seen in the basuras, usually from the knees down with their feet waving in the air, as they rummaged through looking for anything of value to glean:

How did Argentina get here?  How did a nation -- once the most prosperous in the world on a per capita basis -- stumble to a place of forlorn hope and such diminished prosperity that economists sometimes joke that there are first world economies, developing economies, and Argentina?

The answer is: Poor policies.

A long succession of flawed governance, coupled to some crucial mistakes in apportioning the spoils of the land to too-few wealthy families at the outset, has seved to erode the prospects for nearly all Argentinians. 

Now rapid inflation is again back in the news. Having seen this movie before (and not that long ago, either) everyone dreads what’s coming next.

Argentina is instructive for us living in the rest of the world, because it is a real-time case study in how bad polices lead to bad outcomes.  And in applying this same logic to central banks, we can conclude: Bad models lead to terrible outcomes.

So we should all very much care when our institutions, both political and economic, are becoming less inclusive and more extractive (and/or oppressive). Because if we continue down that road far enough, eventually the majority of us will find ourselves similarly waiting for night to fall as we slink off to tip headfirst into a basura.

On Delusions & Rackets

The longer this massive delusion of the viability of perpetual economic growth goes on, the more entrenched I find myself in a foxhole half-filled with dread.  And I really don’t like it. 

I'm ready for meaningful change.  I want to be able to once again focus on the positive.  I want to find ideas and people in leadership positions in whom I can believe.  I’m sure you do as well.

I find myself thinking: Let's just rip the Band-Aid off already!  Let’s count the losses up now, apportion them fairly, and move on having learned some painful but useful lessons about living within one's means as a society.

But that's just fanciful dreaming. The powers that be are doing (and will continue to do) everything in their considerable power to prevent this from happening.

And so the list of things in which I have lost faith in in the US is large and growing:

  • The rule of law.  Laid bare as a complete joke by Eric Holder under Obama, and now under Sessions/Trump. 
  • Financial “markets.”  These are now the playthings of machines that apparently cannot produce a single losing day for their owners as if they were legitimately money-making machines.  But pay no attention to the fact that central banks are pouring $200 billion a month into these same “markets.”   Further, try to ignore that it is the taxpayers on the hook for the “assets” the central banks are accumulating to legitimize the farce and remember to bust out your best ‘surprised face’ when the Wall Street machine operators get to keep their ‘winnings’ while taxpayers have to foot the eventual bill.
  • Politicians.  Always a suspect crowd, their complete fawning subservience to banks, bankers and corporate money in general has led to an even more profound, almost final collapse in public confidence in them.
  • Sick care.  Misnamed ‘healthcare’  this racket is so obviously a cesspool of corrupt, price gouging activities foisted upon desperate captive hostages in the throes of a medical emergency that it beggars belief that not one proposal out of DC has yet included the simple application of existing price-gouging laws that already protect you from hikes in the price of plywood during an approaching hurricane. 
  • Foreign policy.  Sure this is a complex sea of ever-changing interests and alliances but I am going to throw up if I hear one more State Department person talk about “democracy” in whatever country we’re bombing or secretly funneling arms into while saying nothing at all of Saudi Arabia’s grotesque violations of every principle that the State Department swears we hold dear.  Bombing and creating chaos everywhere is a really bad policy, yet it’s somehow gotten entrenched and I am beyond tired of it.
  • Environmental/ecological policy.  Anybody who thinks the US already went through and achieved something with the environmental movement in the 1970’s either hasn’t read the papers carefully lately, been outside in enough places, or both.  500,000 chemicals, many of them far more toxic than ones previously banned, have been released and done their damage.  Insects are now gone from thousands of square miles subjected to neotnicotinoid pesticides.  Obama’s administration punted as long as possible and then when the bad data was inescapable opted for “more study.”  Trump will be worse.  There’s another Silent Spring upon us.  Shame is too light a word.
  • Main Stream “News.”   Could it get any worse for the MSM?  Apparently it can.  Caught firmly between the proverbial rock and a hard place, those being declining viewership and public hostility towards their lies, the MSM response has been to double down and manufacture clearly fake news to serve a truly awful set of craven purposes.  At a time when we desperately need clear analysis and proper context, the MSM has stampeded off in a different direction.

I could keep going, but why bother?  This list of ridiculous awfulness will serve as a rocket fuel for the speed and the depth of the coming big reset when it finally arrives.

Don’t worry, there will be good news on the other end of the correction. But only once we finally get that Band-Aid pulled off.  We should already be imagining that next world, and everything that we want to find in it. Which is why we need to understand how to adopt better models than the ones we're currently navigating by.

Bad Models = Terrible Outcomes

The main predicament at the core of everything is that economics is the primary way we organize ourselves.  If your economic models are seriously flawed, meaning they will eventually fail, then your very society is at risk, as Argentina's neighbor Venezuela is currently demonstrating.  Money is a critical part of our social glue, it is a central part of the narrative that we live by, and this is why we find it so deeply disturbing when that narrative is obviously beginning to fall apart.

That feeling in the air right now?  The one making folks angry, hostile, anxious, and scared?

That’s just the herd appropriately sensing an approaching storm.

The big issue here is that the central banks have seriously flawed models that guarantee even worse outcomes for everyone.  This is no different than, say, if NASA were calculating a trip to Mars and used miles instead of kilometers for part of the atmospheric approach calculations and burned up a $125 million orbiter -- as indeed happened in 1999. 

Whether or not you have the right numbers, the wrong model will always give you a bad outcome. 

In Part 2: A Better Model For Predicting What Happens Next, we detail how today's bad models will literally destroy financial and economic markets for generations to come when that pesky thing called "reality" finally intervenes.  Debts do matter, because debts are a claim on future production.  As we have repeated over the years, GDP growth is now way below past periods of GDP growth -- leading us to conclude that future resource constraints will not only prevent the economy from ever again returning to its prior rates of rapid expansion, but force it to face the prospect of shrinking instead.

Click here to read the report (free executive summary, enrollment required for full access)

This is a companion discussion topic for the original entry at

You nailed my mood precisely.
My “ripping the bandaid off” plan is to devote most of the time I am now spending watching this slow moving, orchestrated, global disaster, to more uplifting old favorites, like meditation and yoga.
In addition to being unhappy with what is going on, I’m becoming increasingly dissatisfied with what it has done to my outlook.

Here is a good explanation for how society works. It has been this way for by far the majority of history.

Economic growth allows the guy in the middle to “create” additional wealth, via his job, for the guy on the right to take. When real economic growth is no longer possible due to various reasons discussed at length on this site, the middle guy can’t keep his job [edit: he can’t keep his job merely because of the way the economy is currently structured around growth and profit, and cheaper robots stealing jobs; there is still a need for work as shown below], but the guy on the right still wants what little cookies he has left.

This next one would have better effect if he could spell properly, but good nonetheless.

Here in BC we just had an election where the increasingly corrupt right leaning, pro-big business government finally got kicked out after 16 years. The first thing they said during the political campaign was how they support and foster economic growth.
Instead, now the left-leaning party got in which I have much greater faith in, but I’m still not overly impressed with. Their motto is that we are going to grow our way to prosperity.
Well, I unfortunately missed out on the real estate boom. Vancouver has been growing at a rate I would not have believed 20 years ago. It’s a disgrace how the condo towers have sprung up everywhere, and they are actually modeling us on Hong Kong. Now they are talking about how the traditional dream of single family home ownership is a thing of the past as if that’s a good thing, and even suggesting that people would now PREFER to live in condos than houses!!! Unbelievable the lies they try to convince us.
Has this growth brought ME any wealth? Nope, houses are totally unaffordable. I have never in my time here been at a point where my (increasing) salary could buy so little here. Therefore, as a member of the middle class, economic growth has NOT brought me prosperity; it’s merely allowed me to keep a job and avoid spiraling into dumpster diving.
Luckily the left leaning party only gained power by aligning with the Greens who got three seats, who together can form a razor thin majority. Hopefully they can keep it together.
Hello? Is anybody in there?

At least there is one commodity you actually have some control over:

With 7.4 billion soles living on earth today and a growth rate of 1% the math says we should have 15 billion people striving to get more stuff in 70 to 80 years. In that time frame is it unlike we are going to be able to increase the supply of natural resources to meet that increase. There are a few different ways to deal with this situation:
a. stop the population from growing
b.everyone uses less stuff
c. some use a lot less stuff so others can keep using the same amount of stuff
d. some grab as much stuff as they can get so the rest get little or nothing.
e. a combination of all the above

themccarthyfarm wrote:
With 7.4 billion soles living on earth today and a growth rate of 1% the math says we should have 15 billion people striving to get more stuff in 70 to 80 years.
I understand and agree with the main point of your comment, that a growing population implies a need for either more stuff or a significant re-shuffling of who has stuff. I just want to note that the UN disagrees on what the population will be in 75 years. To reach the figure you cite, we will need to increase the global birth rate, something that (in my mind) is not likely to happen. Source (Choose "World" from the drop-down list.

I don’t even need to read your blog to know you haven’t understood modern money theories yet!
Let’s see if I can help. the Mainstream theories are all seriously flawed. Steve Keen goes into it if you want evidence beyond looking around you at the current dysfunction they have caused for ages now. Monetarism and Austerity supported by right and left wing politics have truly caused the reactions such as Brexit and Trump to surface as missing out is obvious today for the non wealthy majority of the population.
What we need to do is put ,for example Modern Monetary Treory into the Overton Window so it gets understood much more widely. Right now it is a heterodox explanation as to how modern money actually performs. It is based on laws, not model assumptions of behaviours etc that underpin mainstream academic schools. These are fighting a rearguard response trying to stave off irrelevance that will have to come so we can move forward.
Here’s a Forbes Artiucle;
Five Reasons You Should Blame The Economics Discipline For Today
(14) Money is NO Object - YouTubeplus;
Here is a page about the base laws;
A Memo From MMT’s Legal Department - New Economic PerspectivesNe
Then here is one of a host of blogs on MMT.
The Millennials’ Money - YouTube

Wow ejhr! Have you got nothing better to do other than to troll every peak resource blog with your MMT fallacies. A theory that you yourself don’t understand… We’ve been through this on Tim Morgan’s blog. The Achilles heel of MMT is the foreign exchange.

I think I mentioned in the outdoor movie post, I’m a bit biased with 26 years in criminal law, but I can’t help feeling that most history shows that criminal law, or more accurately, criminal tendencies, eventually control all other “laws”. A few years back, Chris had on William Black who, being involved with it himself, saw the VAST difference between who and how many got prosecuted in the S&L crisis and the sheer absence this time around despite the scale, location and harm of the crime(s) being exponentially larger - probably fatal.
The only rational explanation is sure corruption of the system. It seems to be a self feeding, toilet swirl, desperate, groping at straws, hypocritical kind of corruption that goes not only with a quickly dying empire but as we all know in our gut, a global, resource and global poison issue that touches us all.

Hi Chris,
I know that Doug Casey is bullish on Argentina and sees positive changes happening there. He lives there much of the year and has written some articles on it, such as this.
Did you sign any positive signs and would you share any of his optimism?
Thanks, E.

For your consideration:

Thanks for the link, but that article doesn’t really address Argentina’s overall prospects, which is what I’m more interested in.
Argentina is down (and cheap) but are positive changes happening?

f. Start a war to kill off a significant chunk of the population, reducing their consumption and allow taking their resources.
g. Take another groups resources, starving them to extinction and permanently reducing their consumption
h. Start an epidemic with clandestine biological weapons, reducing another groups consumption and allowing taking of their resources.
These additional techniques are variations on each other. Each has been used many times in the past. In the case of settling the New World by Europeans all three were used against the native populations.

We Are Now into Controlled Demolition (Catherine Austin Fitts via USAWatchdog)

Renowned financial expert Catherine Austin Fitts warns there is not much time left for the current system. Fitts contends, “We have built an infrastructure that doesn’t make economic sense, and we are going to have to change. What’s happening in state and local budgets is the same thing that is happening in health care. It’s the same thing happening in all these different areas, which is we have engineered government investment to prop up the stock market. . . . Washington, D.C., is basically run for the political campaign contributions generated from capital gains in the stock market. The problem is, to get that rise in the equity markets, we’ve ended up pumping out enormous amounts of government debt and government money that has a negative return for taxpayers. It’s not sustainable, and the game is up. . . . I’ve been telling you for 15 years we were going to have a slow burn. I am telling you that’s over, and we are now into controlled demolition.”
as Argentina's neighbor Venezuela is currently demonstrating
but it is difficult to consider them neighbors. : )

Well this post could have been written here 10 years ago when I first became aware of when a friend sent me " The end of Money" It seems like everyday doomsday gets closer yet also seems to get further away.
I have followed this site for 10 years and the same things keep being said. Some accurate some not so much. For example I don’t recall any advice here to buy stocks when the Dow was at somewhere in the 5,000 range. Yet lots of advice to buy precious metals. I think the former was a better bet.
On the other hand When Chris Martenson was analyzing the financials of the banks months before their ultimate collapse in 2008, that certainly was good actionable information. On the vast majority of points in the blog post in the ten years of off and on reading I would have reiterate not much new info to be gleaned.
Also not much is offered in the way of what to do about it except hunker down and get ready for TEOTWAWKI. This is why I take rather long breaks from reading this site and did not post for a long time.
The following from the post actually caught my attention " Money is a critical part of our social glue, it is a central part of the narrative that we live by, and this is why we find it so deeply disturbing when that narrative is obviously beginning to fall apart." In the evolution of mankind through various systems say fro the Roman Empire on, the Middle Ages social structure bears mentioning. In the feudalist system there was a very rigid order. At the top you had a monarch, followed by different levels of vassals. Of course at the bottom there were the serfs. The serfs interestinly enough were tied to the land which belonged to the monarch. Serfs could not eise above their station nor leave the land.
In light of the above quote which caught my eye one might say the serfs were glued to the land. Modern day serfs which we all are are now tied/glued to the currency. I don’t know anyone personally who is living without being tied/glued to a currency of some form. So cleverly tptb have just shifted from land to currency as a means to keep the serfs bound. As Michael Hudson has posited we are witnessing the establishment of a Global Neo Feudal system. This has been clearly defined by US presidents as a New World Order.
Clearly the source of power for the new Lords is currency. If one wishes to escape from the bondage of serfdom one will have to escape fro the control of the central banks. Ron Paul understood this very clearly yet the vast majority of Ameikans are too stupid to see it. I have serious doubts as to whether there will ever be a critical mass to change much of anything.
The other statement from the post which gave me pause and a rather hearty laugh was this one “The big issue here is that the central banks have seriously flawed models that guarantee even worse outcomes for everyone. " I don’t know how anyone can seriously believe that statement. It starts with the assumption that you or anyone reading this is a constituent of the Federal Reserve. You are not. You never have been and never will be. Whatever models the Fed may or may not be using have nothing to do with the benefit of the Amerikan people. The constituency of the Fed is composed of banks. Mostly large banks with a small core that actually owns the Fed. So any benefits which come from Fed models or policies are strictly limited to its own constituency. Or as the saying goes " follow the money”
As I see it the only chance of real change will come by robbing the Lords of the Manor of the source of their power… Feeble attempts have been made such as local barter systems, and local currency. The only possible chance and I admit it is a slim one will be crypto currency. Otherwise this is just is just much ado about which not much one will be able to do…

The container in the picture is not called a “basura” in Spanish. I know, because I’m Argentinean. “Basura” means trash, so the container (which is called “contenedor”) reads “basura” because that’s what you’re supposed to throw inside.
The container itself is not a sign of decadence, but rather of the (relative) progress of Argentina. Before containers were adopted, people used to take out their trash in bags to the street, and street dogs would make a mess before the garbage collector picked them up. (Yes, the people sorting through the trash in containers are indeed a sign of the poverty.)