Checking In On Five Long-Term Cycles

The decline phase of S-Curves can be gradual or a cliff-dive.

Way back in 2007 I charted five long-wave cycles that I reckoned consequential:
1. Public debt (accumulating federal deficits)
2. Inflation
3. Oil (energy)
4. Interest rates
5. Speculative fever

Fifteen years ago, my chart look-ahead was about three years, to 2010, with the basic idea being that these long-term cycles had already turned or were about to turn. Looking back, I should have added a few other long cycles: demographics, for example.

I have two takeaways looking at this chart 15 years later. You probably have similar takeaways.

1. I underestimated the status quo's ability to kick the can down the road for a decade. The motivation to kick the can down the road was never in doubt; what was in doubt was the system's ability to respond to doing more of what's failed spectacularly and keep on keeping on more or less unfazed.

2. After 15 years of frantic can-kicking, the cycles have indeed turned. I would say the predicted turns were correct but frantic can-kicking extended the existing cycle of hyper-financialization / hyper-globalization an extra decade.

Various dynamics extended the hyper-financialization / hyper-globalization bubble phase. Fracking in the U.S.--funded by the massive expansion of cheap credit--extended the global energy abundance as the resulting losses were swept away in a tsunami of cheap credit. Zombie frackers were fed as many billions in new loans as were needed to keep the cheap oil flowing.

The whole shebang was at risk of unraveling in 2011, but China's gargantuan credit expansion saved the day, and did so again in 2016. But China's credit expansion has now reached systemic limits, and so those relying on China to save the global economy yet again from the banquet of consequences are about to be severely disappointed.

The Federal Reserve's ten-fold expansion of its balance sheet artificially suppressed interest and mortgage rates while various gaming-how-we-measure-what-we-measure tricks understated real-world inflation while hyper-globalization continued deflating costs by shifting production to the lowest-cost regions.

The success of frantic can-kicking to extend hyper-financialization / hyper-globalization pushed speculation into hyper-speculation. The monumental bubbles in stocks and housing 1999-2008 now look modest compared to today's Everything Bubble. The past 20 years have "proven" the profitability of buying the dip which is essentially a bet that there are no limits on frantic can-kicking.

Alas, it is now clear that at long last there are limits on frantic can-kicking, and the cycles have turned. The 40-year decline in interest rates has turned, the four-decade quiescence of inflation has turned, the era of low-cost extraction of abundant hydrocarbons has turned, the cycle of being able to "borrow our way out of trouble" has turned and the era of rewarding hyper-speculation has turned.

How gradual or dramatic the new cycle will be is unknown. If we imagine all these dynamics as a pendulum, the pendulum has been pushed by frantic can-kicking to systemic extremes that will reverse to extremes at the other end of the spectrum (minus a bit of friction).

The decline phase of S-Curves can be gradual or a cliff-dive. While we don't know the decay / unraveling trajectory yet, we can anticipate all these long cycle turns reinforcing each other. It's all one system, after all, and the decay / unraveling of each subsystem will accelerate the decay / unraveling of the other subsystems.

As a general rule, it's a good idea not to stand in the way of the pendulum. Put another way, it's considerably safer to be in the stands watching the great beasts slouching towards Bethlehem than being on the blood-soaked sand of the Coliseum, clutching a wooden sword and a shredded net.








Recent podcasts/videos:

The Big Problems And Crash Dynamics Of The Spring/Summer 2022 Housing Market Crisis, Simplified (1:08 hr)

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If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.


My recent books:

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $25, audiobook) Read Chapter One for free (PDF).

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($5 Kindle, $10 print, ( audiobook): Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 Kindle, $8.95 print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 Kindle, $15 print) Read the first section for free


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Curveballs in the Housing Bubble Bust

All these curveballs will further fragment the housing market.

Oh for the good old days of a nice, clean housing bubble and bust as in 2004-2011: subprime lending expanded the pool of buyers, liar loans and loose credit created speculative leverage, the Federal Reserve provided excessive liquidity and the watchdogs of the industry were either induced (ahem) to look away or dozed off in a haze of gross incompetence.

The bubble burst was also straightforward: unsustainable debt, leverage, fraud and speculation all unwound in 2009-2011. The cause was obvious and the effect easily predictable.

Alas, today's housing bubble and bust has these curveballs:

1. A stupid amount of cash sloshing around the world.

2. Who has the cash and an interest in using it to buy houses.

I considered the two conventional explanations for the current bubble in Is Housing a Bubble That's About to Crash?: 1) a housing shortage and 2) the Federal Reserve buying mortgage-backed securities and flooding the economy with cheap credit, causing mortgage rates to plummet to record lows.

As the per-capita housing chart below shows, the number of housing units per person (per capita) is now at the same level as the previous bubble. This doesn't support the housing-shortage explanation on a national scale (though local scarcities could be driving prices much higher), and points to a speculative cheap-credit-fueled FOMO frenzy as the primary source of the bubble.

Now that mortgage rates have risen from 3% to 5%, the speculative credit-FOMO bubble is popping.

Unlike the national bubble bust in 2009 - 2011, the current bust will be highly fragmented due to the huge number of wealthy people with stupid amounts of cash at their disposal, thanks to the Everything Bubble that made the already-wealthy much, much wealthier.

The housing bubble will burst in places where buyers must borrow to buy, not where wealthy cash buyers want to live. Those with cash don't care much about mortgage rates, nor are they terribly sensitive to price. What matters is they get to live where they want to live.

One reason why people with cash will be interested in using it to buy a house is the urban migration is reversing. The rich people who snapped up tony homes in tony urban neighborhoods are quietly selling to the unwary and moving to rural towns and exclusive enclaves far from decaying urban centers.

The places the wealthy want to live don't want sprawl and new homes sprouting up, so supply will be limited. Locals who preceded the wealthy also have a dim view of sprawl, congestion, overcrowded schools, and all the other blights of building booms.

Strong demand from cash buyers and limited supply equal home prices which don't drop, they only notch higher. Note that 1) mortgage rates don't matter to those with stupid amounts of cash and 2) these are not the average speculative buyer, they're buying for themselves, and are protective of everything that makes the place somewhere they want to live: they are Super-NIMBYs (not in my back yard). "Growth" is fine as long as it's somewhere else.

A large number of people with insane amounts of cash are not U.S. citizens, and they're seeking safe havens and nice neighborhoods in places like Canada, Australia and the U.S. Smart populations (for example, Switzerland) place restrictions on foreign ownership for the obvious reason that foreign cash can quickly drive prices beyond the reach of the homegrown populace. Citizens become landless serfs in their own country.

Absent such limits on foreign ownership, housing prices in desirable locales quickly rise beyond the reach of the non-rich and keep on going higher.

Many of these foreign wealthy are escaping capital controls and the potential clawback of ill-gotten gains, and so they are highly motivated buyers.

Corporate owners and buyers are another curveball. Corporations which snapped up hundreds or thousands of rental houses may have confused greed with investing genius, and a nice little recession may leave them with hundreds of vacant homes or newly unemployed renters resisting eviction for non-payment of rent.

As these corporations unload their massive inventory, prices could fall considerably lower than pundits anticipate.

Yet another curveball is urban decay. It's been roughly 50 years since U.S. cities unraveled in a self-reinforcing spiral of decay, and so the conventional view is rapid decay of basic services and the resulting collapse of housing values is "impossible." Before making any rash conclusions about "impossibility," research New York City circa 1971 - 1980.

What's been forgotten is the urban decay of the 1970s was reversed by two one-off miracle-saves: the exploitation of recently discovered super-giant oil fields, which brought energy costs down in the 1980s and beyond, and 2) the hyper-financialization of the U.S. and global economies.

Discoveries of new super-giant oil fields has petered out. The planet has been scoured and there are no more. As for financialization, boosting debt and leverage are now negatives, not positives. There will be no miracle-save by expanding debt, leverage and speculation.

Urban decay--declining tax base and tax revenues, soaring costs and crime and the out-migration of the wealthiest taxpayers--is a curveball few understand. It's "impossible" until it's unstoppable. People vote with their feet.

All these curveballs will further fragment the housing market. If national home prices fall 20%, locales blighted by corporate dumping of rentals and urban decay could fall 50% on their way to "impossible" declines. Locales favored by the wealthy with stupid amounts of cash could go up 50%.

Generational and regional inequalities have reached extremes that further fragment the bubble bust. Folks who bought homes for $150,000 decades ago in bubblicious coastal areas are selling out for $1 million in cash, while those who paid roughly the same price in a less-bubble-blessed region have $250,000 after selling-- $100,000 less than the current median home price. When you bought and where you bought makes all the difference.

This will drive further fragmentation as the sorta-wealthy with $1 million in cash scoop up the tier below the mega-wealthy. The $2.5 million house in the exclusive enclave is out of reach, but the one for $950,000 in a highly desirable locale is still do-able for the top 5%. Those having to borrow a mortgage and make payments out of wages will have to look for locales that have good fundamentals but aren't quite attractive enough to be over-run by those with stupid amounts of cash.

Paul of Silver Doctors and I discuss these topics in depth in The Big Problems And Crash Dynamics Of The Spring/Summer 2022 Housing Market Crisis, Simplified (1:08 hr).








Recent podcasts/videos:

The Big Problems And Crash Dynamics Of The Spring/Summer 2022 Housing Market Crisis, Simplified (1:08 hr)

My new book is now available at a 10% discount this month: Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $8.95, print $20)

If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.


My recent books:

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $25, audiobook) Read Chapter One for free (PDF).

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($5 Kindle, $10 print, ( audiobook): Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 Kindle, $8.95 print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 Kindle, $15 print) Read the first section for free


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Herd on the Street

The casino has become complex and there are no easy answers or predictable paths.

The Wall Street herd had it easy from 2009 to 2021. Life was simple and life was good: markets were easy to predict. As long as the Federal Reserve kept interest rates near-zero and increased its balance sheet to buy Treasury bonds, the stock market rose.

As long as the Fed increased its balance sheet to buy mortgage-backed securities, housing rose.

If the Fed tried to reduce its balance sheet, the market would quiver and shake and throw a tantrum, and the Fed would go back to keeping interest rates near-zero and increase its balance sheet.

To make money all one had to do was buy the dips. Easy-peasy.

Alas, life is not so simple these days, and the herd doesn't know quite which way to run. Dynamics that were relegated to the margins for 13 years have emerged from the shadows to complicate the process of making money in markets.

Inflation has risen from the depths, breathing fire, stampeding the herd. The herd hears all sorts of messages and it can't discern signal from noise: inflation in transitory, no it's embedded, supply chain issues will go away, no they won't, wage inflation will reverse, no it won't, and so on.

All this complexity has confused the herd mightily. Keep it simple, stupid (KISS) no longer works.

Then there's foreign exchange (FX): the relative value of currencies barely moved. Who cared what micro-moves the yen and yuan made other than currency traders?

But now FX moves are big and spooky. The herd became complacent, everyone forgot that currencies mattered, and now the herd is skittish: what the heck does the yen and yuan getting crushed mean? Nobody's sure, and that spooks the herd.

Globalization has also run off the tracks. It was all so easy for the past couple of decades: close the plant here, shift production to sweatshops overseas, drop the quality of goods to boost profit margins, and voila, nothing to do but watch corporate profits climb.

Now that globalization is reversing, the herd doesn't know which way to run. Where will the easy, guaranteed profits come from now?

Energy has been cheap for so long, the herd took it for granted. Now that it appears there are actual physical limits that might affect the financial castles in the sky, the herd is discombobulated. You mean the input costs of everything will go up? Bu-u-u-ut what about the guaranteed higher corporate profits?

After decades of being compliant pack animals, the workforce has started wandering off. Millions of workers are quitting every month, dissatisfied and restive.

The Wall Street herd believed the hype about robots doing all the work and so automation would force workers to accept lower wages, but a funny thing happened on the way to lower-wage-Nirvana--the workers' pay was no longer enough to pay rent, student loan payments, food, taxes, etc.

The herd has no response to Marx being right after all except a deer-in-the-headlights blank look. That labor might actually stop caving in to corporate capital is incomprehensible, and the herd is in a real spot of bother.

The herd--fat, dumb and happy after years of easy money-- also has no means to comprehend diminishing returns. The fuel for higher profits and markets is expanding debt: nothing could be easier. And since the Fed will keep interest rates near zero, there's no real limit on debt, so borrow as much as you want.

But borrowing more eventually ceases to generate the desired effect. Rather than boost revenues, taxes, profits and markets, borrowing more now has a cost, and that cost is weighing on the gravy train.

Then there's global capital flows. For the past 13 years, money sloshed around the world more or less making everyone who was already rich even richer. The herd liked this, a lot, as the herd skims a percentage of all wealth and an even bigger chunk of new wealth.

Governments liked this too, because governments also skim a percentage of income, profits and wealth that boosts capital gains and property taxes.

But now global capital is flowing from the periphery to the core, and that complicates things. There are now big losers in the global casino, and should the flow of global capital become a raging torrent, the winners could become losers faster than they thought possible.

The herd on the Street is whining, please just make it simple and easy to make money. Sorry, Herd on the Street. Now you'll actually have to work to make money from not producing any goods and services. The casino has become complex and there are no easy answers or predictable paths.

I'm hearing good things about the yen-quatloo-bat-guano-Slobovian-bond-volatility ratio. You might give that a try. Or just run with the herd and hope you don't go off a cliff somewhere.








Recent podcasts/videos:

The Big Problems And Crash Dynamics Of The Spring/Summer 2022 Housing Market Crisis, Simplified (1:08 hs)

My new book is now available at a 10% discount this month: Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $8.95, print $20)

If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.


My recent books:

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $25, audiobook) Read Chapter One for free (PDF).

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($5 Kindle, $10 print, ( audiobook): Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 Kindle, $8.95 print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 Kindle, $15 print) Read the first section for free


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The Problem with Money

I'm simply pointing out "money" isn't simple, and "backing money with X" leads to questions about the nature of "money," collateral and the fluidity and complexity of the social construct we call "money."

The problem with money is it isn't just one thing. We think it's one thing because we use it to buy things, but it's actually a bunch of different things. This is why I often refer to it as "money:" in other words, one of the class of things that are stores of value, transactional grease, debts and various other bits and pieces.

Recall that "money" is not a fixed class of things; it is a social construct. People agree to use (or are forced to use) something to transact tax payments, debt payments, stores of value, etc. "Money" only has value in a socio-economic system that is a social construct with social contracts and power relations.

Everyone wants to pin down what money is, but it isn't that easy. Money stock in the U.S. is called M2, which is basically the total of cash in accounts. On the chart of total debt below (TCMDO), courtesy of the Federal Reserve St. Louis database (FRED), I've noted M2 is currently $21.8 trillion.

Is this all the "money"? No. If you own a Treasury note or bond--debt issued by the federal government-- or a bond issued by a state or local government agency, you can sell that debt instrument fior cash. All government debt instruments are also "money."

So are private-sector debt instruments. If you own a corporate bond or shares in a mortgage-backed security, you can sell those debt instruments for cash and buy whatever you want--or pay your taxes.

Notice how "money" expands. This isn't just from the Treasury printing currency bills, or issuing new bonds, or the Federal Reserve creating "money" out of thin air to buy those Treasury bonds, it's also government agencies issuing bonds, corporations issuing bonds, mortgages on real estate being originated, student loans being issued, auto loans being originated, etc.

Note that all this debt "money" is backed by some sort of collateral. It might be a tangible object like a house on a parcel of land, or it might be the income stream from a government, corporation or individual.

Let's say we want to back all our "money" with gold. Which kinds of "money" do we back with gold? All of it, or just M2? If we only back M2, i.e. cash, then what's going to back the issuance of new "money" via mortgages originations, Treasury bonds, student loans, etc.? If not more gold, then what?

You see the problem. There is $88 trillion in "money" and only $21.8 trillion in cash. If we only back the cash (which also expands--see chart below), then what backs the rest of the "money" when people sell their bonds, etc.?

There was about $7.5 trillion in M2 "money" in 2008. Now there is about $22 trillion. If we're backing that "money" with gold, do we triple the number of ounces of gold we hold to back the cash, or do we dilute the amount of gold backing each unit of currency by holding the same amount of gold?

Do we limit the issuance of debt based on collateral? In other words, do we limit new loans to M2 cash, meaning any lender that wants to issue a mortgage has to have all the cash in hand? Dp we limit corporations from issuing debt to the cash they have on hand?

If we allow the expansion of "money" based on collateral, then how do we back such a rapidly expanding stock of "money"? If we grant that collateral "backs money," and that income streams are a form of collateral, then why do we need to "back money" with gold or anything else?

If we back a quarter of "money" with gold and let the rest float on the value (i.e. supply and demand for) collaterized "money," then we have two forms of "money": cash which can be converted to gold in some sort of unit-for-unit conversion and all other forms of "money" which aren't backed until they are converted to cash.

So what happens when people sell half the collateral-based "money" to convert it into cash? The supply of cash increases, while the stash of gold backing cash stays the same. What's the value of the cash measured in gold, given that each unit of cash now has a smaller claim on the gold stash?

Backing "money" with tangible things like gold sounds like a splendid solution to problems like inflation, but it comes with knotty questions about exactly what counts as "money," what "money" is actually backed, and how is this "money" backed if it cannot be converted into whatever is backing it-- gold, wheat, land, shares in a corporation, etc.

Consider a mortgage. The mortgage is debt backed by the collateral of a house on a parcel of land. The house and land "back" the new "money" created when the mortgage is originated. When I pay off the mortgage, I'm converting my cash "money" into what "backed" the "money": a house and parcel of land.

In other words, I converted cash into what "backed" the money: a house. If gold "backs" money, then it's only actually "backing" money if I can convert my cash into gold, just as I can convert cash into a house by paying off the mortgage.

If we discount collateral as "backing money," then what sort of financial system and economy do we have? Is collateral not a worthy "backing" of "money"? If not, why not? Why is a house and land not worthy of "backing money" any more than gold? And if I can't convert my cash into gold, then what is backing my cash?

Wouldn't I be better off with "money" that can be converted into collateral I can use such as a house than "money" I can't actually convert into anything? These questions upend conventional beliefs about "value," "backing money with X" and convertibility of collateral and "money."

Am I proposing an answer to these knotty questions? No. I'm simply pointing out "money" isn't simple, and "backing money with X" leads to questions about the nature of "money," collateral and the fluidity and complexity of the social construct we call "money."






My new book is now available at a 10% discount this month: Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $8.95, print $20)

If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.


My recent books:

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $25, audiobook) Read Chapter One for free (PDF).

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($5 Kindle, $10 print, ( audiobook): Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 Kindle, $8.95 print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 Kindle, $15 print) Read the first section for free


Become a $1/month patron of my work via patreon.com.

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What Happens When Complexity Unravels?

Those glancing at the appearances will be assured all is well and it will all sort itself out. Those who look behind the screen will move away as fast as they can.

When finances tighten, there are two choices: cut expenses or increase revenues. Monopolies, cartels and governments can increase revenues by increasing taxes or the price of goods and services because users / customers / taxpayers have no alternative. The rest of us have to cut expenses.

Making lasting cuts in expenses generally requires reducing sources of expense, and within institutions and enterprises, complexity is one systemic source of expense. But reducing complexity is difficult, so it's rarely pursued unless the only remaining choice is bankruptcy / collapse.

The problem is there are many constituencies defending complexity and none favoring slash-and-burn reductions of complexity. As a result, complexity is defended and the core functions of the institution are sacrificed instead.

I've posted the charts below reflecting the extraordinary expansion of administrators in higher education and healthcare in the context of the Ratchet Effect and bureaucratic bloat.

The Ratchet Effect is: costs and complexity only increase, they never decrease because organizations are optimized to expand, not shrink, and so there are no institutionalized pathways to reducing complexity and costs.

Everybody clamors for a larger budget and another assistant. Nobody clamors for a radically reduced budget and staff.

This raises a question few seem to ask: what happens when complexity unravels?

Why will complexity unravel? The answer is simple: it costs too much, and supply-side and labor costs are rising. Something's gotta give, and that something will be complexity.

Complexity serves us well when it radically increases productivity. But this type of complexity is rare. Most complexity is self-serving waste and friction that reduces the productivity of labor and capital.

Labor has been suppressed for 45 years, and now labor costs must rise so workers can afford a higher cost of living.

Costs will rise inexorably for another reason: supply chains have been optimized for a perfect world of endless expansion. Barry Lynn, executive director of the Open Markets Institute, summarized the dynamic nicely: "Corporations have built the most efficient system of production the world has ever seen, perfectly calibrated to a world in which nothing bad ever happens."

Recalibrating every corporate supply chain for all the bad things that are happening will cost a fortune.

These costs will be passed on to consumers, but as the purchasing power of wages declines, there will be limits on how much consumers will be able to pay.

These higher costs will depress profits which will depress employment and tax revenues.

Corporations have two pathways: one is to cling to the old model and go bankrupt (or decay to irrelevance) or radically reduce costs by reducing unproductive complexity.

Corporations have been able to borrow vast sums to mask their insolvency but now that the cost of credit is soaring, that door to zombie-corporate-Nirvana has closed.

Stripped of the option of cheap borrowing, corporations will have to adapt or perish. Yes, it really will be that simple. Enterprises that burn through their capital run out of money and vanish.

Public organizations have long been optimized to increase their revenues and complexity because an expanding economy also expands tax revenues. Nothing boosts local tax revenues like a real estate bubble, and nothing boosts state income taxes like a speculative bubble in stocks, cryptocurrencies, etc.

But all bubbles pop, and public agencies are incapable of reducing their budgets, staff and complexity, because one politically influential constituency or another favors every program. So there's no way to trim anything without igniting a political firestorm as whatever sacred-cow program that gets trimmed arouses the constituency committed to preserving that sacred-cow.

But beneath the surface, the administrators protect their fiefdom by slashing staff that actually does the real work.

So universities cut tenured teaching positions in order to maintain administrator positions.

Healthcare cut physicians and nurses to maintain administrator positions.

Building departments cut onsite building inspectors to maintain administrator positions.

And so on. Lifeguards will be cut, library hours slashed, etc., while administrative positions remain (behind the screen of public-relations) largely untouched because all the complexity and political battles must be managed.

The net result is critical systems will be hollowed out and cease functioning. Those of us who depend on these systems will have to find workarounds.

When it takes six months to get a building inspection before you can pour a foundation slab, the workaround will be to just build the house: forget getting permission, just ask for forgiveness. That process will probably take years.

When there's a six month wait to see a physician, the workaround will be to pay cash.

In other words, all the complexity will remain firmly in place because somebody somewhere will wage ruthless political warfare to keep it, making it impossible to resize the system to fit available resources.

Those with the power to protect their jobs will make the unstated choice to throw everyone without the power to protect their income overboard to save themselves.

Meanwhile, the solution is obvious to administrators: raise taxes and fees to get more money out of all those rich folks, i.e. anyone who owns a house, has a good job, etc.

You're welcome, Tax Donkeys. We had to double your property, sales and income taxes to fund essential programs.

Things will fall apart behind the screen of normalcy. Cities double their business license fees, raise other fees (for trash collection. etc.) by 20% a year, year after year. The real budget crises are still ahead. The tax donkeys who've had enough will vote with their feet, moving away, forcing cities and counties to raise taxes and fees on the remaining tax donkeys.

This is how complexity unravels. Agencies' ability to manage their budgets and employees decays, hiding the reality they lack the structure or the will to downsize their complexity and costs to protect the agency's core functions.

All the compliance and reporting will be cobbled together to maintain the desired appearance, i.e. the illusion of precision in two-inch thick financial statements.

The appearances of fulfilling all the requirements of complexity will be maintained. The constituencies defending each sacred-cow will be placated, even as the system supporting all the sacred-cow programs collapses behind the PR screen.

Those glancing at the appearances will be assured all is well and it will all sort itself out. Those who look behind the screen will move away as fast as they can.












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