Wednesday, August 14, 2013

How Bad Can Things Get?

How bad can things get? Nobody knows, but it makes sense to look ahead and plan a response to all 10 problems heading our way rather than bask in the false confidence that 9 will magically vanish before we have to deal with them.

How Bad Can Things Get? Nobody knows the answer, so we have to consider our responses to a spectrum of possibilities. President Calvin Coolidge famously remarked, "If you see ten troubles coming down the road, you can be sure that nine will run into the ditch before they reach you." While there is certainly much wisdom in this reassurance, that still leaves us the task of preparing for the one that doesn't run harmlessly into the ditch.

There are all sorts of martial processes for assessing which troubles are the most dangerous and hence the ones that we should prioritize as high-risk: threat matrix, etc. Then there are assessment-response-feedback schemes such as the OODA loop developed by USAF Colonel John Boyd: "observe, orient, decide, and act."

These conceptual frameworks have value, of course, but they remain abstract until some extremely unwelcome events don't run into the ditch: a negative health diagnosis, loss of a job, and so on. Once the problem is real, our instinct is denial, seeing only what we want to see to avoid the trauma that results from responding to the problem.

Thus people with throat cancer will wait until they can no longer swallow before admitting to themselves that denial will cost them their life.

In less-than life-threatening circumstances, we are prone to all-or-nothing thinking, and we lose sight of the spectrum of threat and response.

One of the most under-appreciated psychiatrists of the 29th century, Karen Horney, wrote extensively about all-or-nothing thinking as an emotional trap, and I think we can discern a bit of this in conventional prepper advice, which is often geared to the expectation of complete social breakdown and open warfare in the streets.

While this is certainly one possible outcome, it is by no means the only one or even the most likely, at least in food/energy-rich North America. In focusing on the currently remote outcome, we lose sight of all the less drastic but more likely possibilities, chief of which is a reduction in our real income (purchasing power).

On the other side of the all-or-nothing coin, the typical American household has made no preparation for anything but the state-debt-feudal Status Quo: they have essentially no food, cash or energy in reserve, leaving the household extremely vulnerable to the slightest disruptions in income, energy and food delivery.

How bad can things get? I confess to following Andy Grove's dictum that "only the paranoid survive." Clearly, a healthy appreciation for risk and the benefits of advance planning should obstacles arise offers selective advantages.

Even if 9 of 10 problems run into the ditch, it pays to look ahead and think about what responses are likely to be the lowest cost and most successful should any of the 10 reach us.

Once again this is easy when in the abstract, but less easy in real life. One potentially straightforward tool to aid our planning and response is a three-three matrix.

One set of three is the classic Plan A, Plan B and Plan C, with Plan A being the easiest, cheapest response to low-level disruption, either in our household or the wider economy or both. Plan B is a more comprehensive set of responses to serious disruptions and Plan C is the "Katie bar the door" set of responses to severe disruptions.

On the other axis are the three components of any advanced society/economy:the State, the market and the community. Our responses play out in each of these three. For example, a reduction in State healthcare entitlements would be met with responses in the market (paying cash for our healthcare needs) and the community (trading time for healthcare service, contributing to the establishment of locally controlled and funded clinics, etc.)
How bad can things get? Nobody knows, but it makes sense to look ahead and plan a response to all 10 problems heading our way rather than bask in the false confidence that 9 will magically vanish before we have to deal with them, and the one that reaches us will require no forethought or planning.

There is a time-decay feature in all this; cancer that is detected and accepted very early has a very high cure rate, and putting aside small amounts of money monthly builds a useful nestegg of capital with little sacrifice in the present. As the Chinese saying has it, "When you're thirsty, it's too late to dig a well."

What is the most likely disruption? I would guess involuntary poverty, i.e. a reduction in purchasing power coupled with increasing costs for essentials.

Voluntary poverty is a strategy for hardening the household while options are still plentiful: drastically reducing expenses so the household can get by quite nicely on half the current income, sacrificing discretionary spending to accumulate cash capital to invest in small enterprises the household owns and controls, and reducing earnings voluntarily to avoid confiscatory tax rates.

This can be called resilience or wealth-building. Both terms apply, as wealth is more than cash in the bank: it is social capital, skills, income sources we control and a desire for active independence over passive dependence.

Things are falling apart--that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify or understand. We will cover the five core reasons why things are falling apart:

go to print edition1. Debt and financialization
2. Crony capitalism and the elimination of accountability
3. Diminishing returns
4. Centralization
5. Technological, financial and demographic changes in our economy

Complex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).

We are not powerless. Not accepting responsibility and being powerless are two sides of the same coin: once we accept responsibility, we become powerful.

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