A Five Part Critique of Orlov’s Five Stages of Collapse

Part One: Financial Collapse

A few years back Dmitry Orlov cleverly responded to James Howard Kunstler’s suggestion that we should understand our collective situation in light of the five stages of grief by writing an essay entitled the Five Stages of Collapse. Since then Orlov’s essay has proven to be influential in some circles, and in an effort to get a better grasp on what is often meant when people speak of collapse I thought I would turn my attention to Orlov’s essay with a critical eye.

Orlov starts his essay by asserting that we face a “discontinuous future” because “our institutions and life support systems [are] undermined by a combination of resource depletion, catastrophic climate change, and political impotence.” That’s an interesting combination, and I find it particularly interesting that that third reason behind our discontinuous future is so often left out. According to Orlov political impotence was one of the reasons for the collapse of the Soviet Union, but this essay offers no understanding of the cause of this impotence and there is no suggestion that this political impotence could be remedied. In fact, all three components are treated as though they are natural facts. Unchangeable.

But putting aside Orlov’s failure to engage with this third component in his collapse scenario, I want to take a closer look at how Orlov describes each of his five stages, and in this blog entry I’ll look at how he describes his first stage which is Financial Collapse.

Orlov writers: “Financial collapse, as we are currently observing it, consists of two parts. One is that a part of the general population is forced to move, no longer able to afford the house they bought based on inflated assessments, forged income numbers, and foolish expectations of endless asset inflation. Since, technically, they should never have been allowed to buy these houses, and were only able to do so because of financial and political malfeasance, this is actually a healthy development.”

Let’s go over that again. The first step in the financial collapse is that millions of people are thrown out of their homes. According to Orlov this is a good thing. They should never have had those houses in the first place.

Now it is absolutely true that people were encouraged to purchase houses with nonfixed rate liars loans. That is the bank wouldn’t establish that the buyer had the ability to pay back the loan before lending and would lend on condition that the customer assumed the interest-rate risk that a reputable lender would normally assume. So, in fact, people bought houses that they couldn’t afford or bought houses that they couldn’t afford when their rates increased. The important question is why were people put into this position, and what is the proper remedy for the situation now. The question is, do we want people to be pushed into the streets?

In order to answer this question we have to answer a couple of other questions first. The primary question is this: What do we want? If the answer to that question is that we want to consolidate the power of the banks and corporate institutions by looting government funds, driving down employment and wages, and generally weakening the general population of the United States then I believe we should absolutely support the eviction of people from their homes. If, on the other hand, we want an organized retreat from a way of life that is destroying the ecosystem then perhaps we do not want to put people out.

Let’s take a moment to reconsider what Orlov is telling us:

People purchased homes they could not afford. Now, while home ownership is not a universal right, access to a home is. One question we might naturally ask ourselves is this: Why are so many people in the United States too poor to afford a home, and why are so many forced to accrue massive debt in order to achieve a decent standard of living? (A friend of mine has frequently suggested that we should abandon the notion of a high standard of living, or a decent standard of living, because this decent standard is based on false and unsustainable norms. He suggests that we should instead speak of a decent quality of life. Current standards are absurd, especially in America. However, the term standard of living includes the concept of equality, and a hobo or drifter might be considered to have a high quality of life, especially when viewed romantically. Talk of quality of life in this context of crisis, especially when one doesn’t include talk of a struggle for political power, is often the equivalent of asking those who have been foreclosed on and forced into the street to learn to enjoy the great outdoors.)

According to many economists including Professor Rick Wolff, the current financial crisis has its roots in the 1970s.

“In the 1970s, employers found a way to stop the long-term slow rise in real wages of their employees.  By outsourcing jobs overseas to take advantage of cheaper wages, by drawing US women into the labor force, by substituting computers and other machines for workers, and by bringing in low-wage immigrants, employers drove down their employees’ wages even as they produced ever more commodities for sale.  The results were predictable…After a few years, stagnant workers’ wages proved insufficient to enable them to buy the growing output of their labor.” -Rick Wolff, Capitalist Crisis, Marx’s Shadow

What this led to was the solution of creating private debt. If the workers could no longer afford their products due to stagnating wages then the owning class would simply lend the workers the money with interest. This solution “provoked wild profit-driven excesses and corruption (the stock market “bubble” and then the real estate “bubble.” It also loaded millions of Americans with unsustainable debts.

The class of people who own the corporations and the banks are not driven to these acts against their fellow human beings out of some personal pathology, but are driven rather by the imperatives of the free market system. Companies are only profitable to the extent that they maximize the exploitation of labor. Companies have to compete with each other, and the more profitable company will often destroy its less profitable competitor or absorb it. This isn’t about moral choices, it’s about institutional logic.
This is something Orlov either has yet to understand or refuses to understand. During our conversation on the Diet Soap podcast I brought this fact up to him this way:

“When you say that this model just represents stupidity, from the perspective of someone who is trying to maximize their profits…how is it stupid to move to a third world model?”

“Because you’re basically killing your own consumer.”

“You know, the irrationality of the system is something that has been talked about in Marxist circles for decades. Ultimately a production process for profit does have this [irrational character]. It may be irrational on a collective level, but for each company it’s not irrational.”

“In the short run that tendency of private greed to undermine public purpose can be mitigated in various ways. Mostly political involvement in running economic affairs and setting economic policy. [But] in the long term the unintended consequences of what you do will thwart your purpose. As Douglas Adams put it, ‘People are a problem.’ Any kind of system that you put together to control human behavior will eventually fail.”

“So social solutions aren’t viable.”

“I’ve never seen it be viable. All my life I’ve seen just mass stupidity. The larger the scale the greater the stupidity.”

So what’s behind Orlov’s position that massive foreclosures are a good thing? Not much apparently, except that the people who were foreclosed on were stupid. And while it’s tempting to suggest that his misanthropy, his view that people are a problem, is the real foundation for his argument I don’t believe that. Yes, Orlov believes that people are stupid and deserve whatever they get, but this belief itself may be just a symptom of a misunderstanding.

What’s important to understand about Orlov’s position on the financial crisis is not just to see how he fails to apprehend the true causes of the crisis (or to take those causes into account even if he does see them) but also to appreciate how he misses what the official solution has been and what its effects are likely to be.

Orlov claims that the government wants to continue to prop up the stupid people who bought houses they couldn’t afford and the stupid people on Wall Street who lent them the money and this is a bad thing. However, he’s only half right.

The bailouts have gone to the lenders while attempts to stem the tide on foreclosures were half hearted measures to adjust interest rates for people at risk of foreclosure to affordable levels. The effect of the current policies is not to increase the risk of the collapse of the multinational institutions of financial power, but rather will just bring the third world model home while maintaining the current power structure if not all of the institutions of power.

The driving force behind this move isn’t necessarily resource depletion, although that may play a role. The driving force is the institutional logic of the system itself.

“But, in any event, the economy’s becoming much more internationalized, it’s much easier to move capital abroad. The effect of that is that production can be shifted much more easily to low-wage/high-repression areas elsewhere. And the effect of that is to bring the third world model home to the United States and other rich countries. It means that these countries themselves are drifting toward a kind of a third world model in which there’s a sector of great wealth and privilege and a growing mass of people who are basically superfluous. They’re not necessary for a profit either as producers or consumers. You can produce more cheaply elsewhere and the market can easily become the international wealthy sectors. You end up with south-central Los Angeles and that’s happening more and more. ” -Noam Chomsky, 1994