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Understanding "Technological Revolutions and Financial Capital"
I have finally finished Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages by Carlota Perez.
The basic idea is that technological revolutions follow a similar S-curve development. They start slow, then speed up into a frenzy when everyone piles in and hopes to make a mint. But the frenzy turns into a bubble and a credit crisis and a depression until things get sorted and the revolution slowly become same-old same-old.
Perez counts five revolutions and their starting dates as follows:
1771: Industrial Revolution — machine textiles
1829: Age of Steam and Railways
1875: Age of Steel, Electicity and Engineering
1908: Age of Oil, Automobiles and Mass Production
1971: Age of Information and Telecommunications
Perez published the book in the early 2000s just after the NASDAQ bubble popped and she wasn’t sure if things were going to heal or whether we were in for another Great Depression.
In fact, in the early 2000s Apple and Amazon were about to take over the world. And I remember thinking: yes, the kids are buying iPods like crazy, but is that really going to take off? And I remember Amazon and thinking about its very heavy debt and wondering if it would ever make a profit.
And it turns out that the tech bubble wasn’t the problem, not in 2002. The problem was government policy encouraging low-down liar loan mortgages, in 2008.
Which shows, of course, that nobody knows nothing, and everything is obvious after the fact.
Perez is fairly conventional, politics wise. She talks about
designing an adequate and enforceable regulatory framework, devising ways of effective intervention to reshape the demand profile… and acting… to stimulate a truly global economy[.]
But I think that’s rubbish. Politicians, regulators, academics are people that live in a static world. They have no clue about what it means, e.g., to be Elon Musk developing resuable rockets or to be Marc Andreessen, King of Venture Capital.
And I think it’s a mistake to differentiate, as Perez does, between “production capital” and “financial capital.”
My understanding about technological revolutions is to make it Real Simple, so that even Sen. Iselin (or insert your least favorite politician) can understand things.
First of all, nobody has a clue. Not even Elon and Marc, although I have a deep respect for both of them. But the main thing is to stop the clueless from gumming up the works. That means that when the bubble pops we need to understand that there is nobody that can fix thing in ten minutes.
But why does a popping bubble create such a mess? The answer is Debt. People make bets with borrowed money and when the bubble pops they can’t pay back their loans. The result is a credit crisis.
So my Real Simple theory has to do with Debt. My view of debt comes from Walter Bagehot, the founding editor of The Economist:
All loans must be properly collateralized so that the borrowed money can be recovered if the borrower defaults.
All borrowers must be able to service their loans.
I asked Grok about that and this is what it said. Notice the idea of “lender of last resort.” Here’s what that means. Bagehot said that, when there’s a credit crisis, the central bank needs to lend money to the tottering financial institutions to prevent the credit system from collapsing. These days, that involves printing money, known in polite society, as “quantitative easing” or QE.
Here’s a Real Simple history of recent credit crises.
When ordinary investors are borrowing a lot of money to buy stocks, that’s a problem, we we discovered in 1929. That’s why today you can only borrow 50% of the purchase price when you buy a stock.
When ordinary homeowners are buying houses with very small down payments then there is no way for the bank to recover its money if housing prices go down at all, as we discovered in 2008.
Then there are derivatives, usually highly leveraged by debt.
Between 2000 and 2008, exchange-traded derivatives grew by 475% and OTC contracts by 522%. This era, characterized by high leverage and a low-interest-rate environment, saw massive expansion in credit default swaps (CDS) and mortgage-backed securities, directly leading to the 2008 financial crisis.
“High leverage.” What could go wrong?
Then there is SBF, Sam Bankman-Fried, convicted of fraud.
Bankman-Fried said he and FTX cofounder Gary Wang together borrowed over $546 million from Alameda Research in order to finance Emergent Fidelity Technologies’ purchase of Robinhood Markets stock.
See the problem? Using borrowed money to purchase stock? What could go wrong?
Right now, the big story on the debt front is using debt to finance server farms.
Using debt to finance server farms, particularly in the context of the artificial intelligence (AI) boom, has become a massive, rapidly expanding trend. Driven by the urgent need for AI infrastructure, Big Tech companies and data center operators are taking on record levels of debt, with projections suggesting this debt could exceed $1 trillion by 2028.
What could go wrong? Maybe Big Tech will make trillions on AI. Or maybe not.
Look here’s my Real Simple understanding of debt and finance. If you have a risk proposition then it should be financed by equity, a share in the business. What happens if the good idea does not turn out to be a good idea that works? The stock goes down. Sorry Charlie.
If you have a low risk proposition such as a 50% mortgage on a home, then debt is fine. Chances are that house prices will not decline by 50%! So if you lose your job and have to sell your house, the bank will recover its money.
Yeah! But why should the bank be made whole when I’ve lost my job! The answer is that to avoid a crash, all debtors must be able to service their loans. And/or repay the loan in full. When that comes into question, that’s when you have a credit crisis, a crash, a market meltdown. In the credit crisis, the government is not worrying about you. And it never will. Not until the crisis is over. The government is worrying about the big borrowers going broke. Hello Lehman Brothers.
OK. So what am I missing out? I’m glad you asked that. The answer is “government.”
Governments have a different relationship with Debt. Beware!
You see, if an ordinary citizen or a medium sized corporation can’t pay your/its debt you/it loses and go bankrupt. But if the government can’t pay its debts then it prints money and you lose a good part of your savings. Hello Argentina and most recently Venezuela. So you can see that governments have a completely different relationship to debt. They don’t care if your bank account gets hammered by inflation: as long as the ruling class stays in power.
If Lehman Brothers goes broke as in September 2008, the government bails it out as “lender of last resort” and you pay with inflation. (Only if you are Little Ben Bernanke at the Fed you muff it and we have a market meltdown until wiser hands get to bail out the credit system.) Beware!
See, back in the day, before the Industrial Revolution, the economy was flat. So if you lent money in the flat economy, you just expected to get your money back; you weren’t making a big bet on the future. You lent money on good collateral. But with imperialism and the modern growth economy that all changed. Here’s the story:
Corporations originated with 17th-century chartered entities like the Dutch East India Company (1602), while modern limited liability for shareholders was formalized in the UK’s Limited Liability Act of 1855. These structures developed to protect personal assets from business risks, enabling large-scale investments in shipping and later the Industrial Revolution.
Limited liability is really one of the great inventions in all history. It formalizes the rules for investing in a risk proposition. But does your average politician or activist have a clue about that?
My point is that all we need to do to prevent big credit meltdowns like 1929 and 2008 is to make sure that all risk propositions are financed by equity, not by debt.
So, if you invest in an AI server farm and your particular AI investment goes belly-up, because Elon ate you for lunch, you make sure that the debt doesn’t exceed the value of the server farm after the crash. But maybe Elon will buy your server farm for 50 cents on the dollar.
This is not hard.
| perm | 02/12/26 12:38 am ET | comments |
Knowing Ourselves
Chinese military expert Sun Tzu says:
If you know the enemy and know yourself, you need not fear the result of a hundred battles.
And since Nazi jurist Carl Schmitt advises that the political is the distinction between friend and enemy, it seems to be important for US politics that we “non-liberals” understand both ourselves and our “liberal friends” — who are indeed our political enemy.
Last week I wrote about “Knowing our Liberal Friends.” Now I am going to write about knowing ourselves.
But who are we? I’d say we include a disorganized and disconnected mass:
People who are not believers in the administrative state.
People who are not believers in the benefits of regulation.
People who are not believers in the left’s secular religion that fights for the oppressed.
People who believe in God and practice their religion.
People who are not believers in globalism.
People who doubt that politics can do good things.
People who believe that government spending at 40% of GDP is a problem.
People who believe that people, not government, should care for the poor.
People who believe that parents, not government, should educate children.
People who believe that anything the government does, it does badly.
People who believe that people in government don’t have a clue.
People who believe in two sexes, marriage, and children.
My point is that we non-liberals are all over the map, believing all sorts of different things, for different reasons. But I would say that the one unifying factor is that we are not that interested in politics and do not believe that politics can do much for humans.
It’s interesting to note that the non-liberal world has changed over the years. In 1900 the Republican Party was Protestant and upper-middle class. Then after World War II a reaction to FDR progressivism set in with Buckleyite conservatism and libertarian movements. Today we see the rise of populism, which really consists of the non-educated class and the non-victim class.
In other words, to understand ourselves we need to realize that we are not organized, not united, and not really agreed upon a political or cultural or ecoomic agenda.
What happens in a society like this, when one sector believes in the saving grace of political power and the rest of society not so much? That, of course, was what JRR Tolkien asked in The Lord of the Rings. His idea was that, at some point, ordinary everyday Hobbits had to get out of their comfortable and friendly Shire and venture into the land of power and evil long enough to toss the Ring of Power back into Mount Doom.
Maybe what we need to know about ourselves is that we know who our friends are, and when the call comes to defend ourselves against the power of the liberal state we will not hesitate to join with all the diverse Americans that are not sworn into the liberal camp and find the courage to journey to Mount Doom and throw that liberal Ring of Power into the fiery furnace.
Knowing all this about ourselves we should not need to fear “the result of a hundred battles.” Provided that we know our liberal friends.
| perm | 02/11/26 1:58 am ET | comments |
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Christopher Chantrill
He runs usgovernmentspending.com, the go-to resource for government finance data, and is a frequent contributor to the American Thinker. He lives in Seattle, Washington. Click for more.
“I love this guy.” — Steve Ballmer
A Commoner Manifesto
Commoners have nothing to lose but their shame
Rule 1... is: ‘Do not march on Moscow’…[Rule 2] is: ‘Do not go fighting with your land armies in China.’ — Lord Montgomery
When a political movement achieves its objectives it is time to crush its enemies.
The simplest way to understand human society is as Three Layers such as Nobles, Yeomen, and Serfs.
My take on Three Layers is my Three Peoples Theory of Creatives, Responsibles, and Subordinates.
I believe that we moderns live in Three Worlds: the War World of politics, the Market World of the economy, and the Life World of family and neighborhood.
The world that we all live in today is the one created by the German Turn in philosophy, psychology, science, and meaning.
But our modern elite, the educated elite, has taken, I believe, a Wrong Turn and has imposed a cultural Great Reaction on the world, a lurch back to the primitive. This manifests in the elite’s conceited Activism Culture and its patronage of Subordinate people as its Little Darlings.
The principal reason for the elite’s Wrong Turn has been that it does not understand and does not want to understand how the Three Peoples’ Religions are necessarily different.
The root of the educated elite’s Wrong Turn is its conceit that it knows what the world needs. I think there is a better way; I call it “A Good Life Better than the Left”.
ABC of Politics – Activism Culture – “Anatomy of Revolution” – Allyism – Critical Theory – Downstream-ism – Dutch Finance – German Turn – Good Life – Great Reaction – Little Darlings – Perfect Plan – Women in the Public Square – Ruling Class – Three Layers – Three Peoples – Three Peoples Religion – Tribalism – Two Cultures – Wrong Turn
Today’s topic: Against Government Education
