Sunday, November 03, 2013

Why Is Predicting Crisis/Reset So Difficult?

Here are ten possible factors in why it's so difficult to predict crisis/reset.

Doom-and-gloomers (myself included) have been wrong for four years. The financial markets continue higher, and the excesses of the status quo continue expanding with little ill effect (so far).

Why is it so difficult to predict the onset of crisis/collapse? The question is equally valid for both bears and bulls; how could all the boosters of housing be so wrong in 2008 when they asserted that "housing is not a bubble"?

I've assembled ten possible factors in why it's so difficult to predict crisis/reset:

1. Everyone in the status quo has a stake in its survival. Every one of us wants to get our social security, our disability, maintain the freedom of a personal vehicle, have access to clean water and all the other goodies, and those becoming (or maintaining) wealthy and powerful in the current system want to retain their wealth and power.

There are titanic forces that will bend whatever needs to be bent to keep their share of the swag flowing to them. This is just as true of the welfare recipient as it is the global corporation or politico. We shouldn't underestimate the power of this desire to maintain the status quo and bend perceptions to make that appear as if it is not just possible but inevitable.

Consider the housing bubble and bust. Look at the forces benefiting from the bubble: the 2/3 of all U.S. households that owned homes, the entire financial/mortgage/Wall Street investment bank complex, mortgage brokers, realtors, the media that profited from housing/mortgage-related adverts, and last but not least the government, which reaped huge gains in property and income taxes as a direct result of the bubble.

On the other side of the bubble: a handful of marginalized analysts and bloggers, virtually none of whom would profit from the bubble's implosion. Guess which side had the momentum to inflate the bubble for years after it became obvious that a vast credit/real estate bubble was already in place?

2. Self-referential systems with numerous feedbacks are inherently difficult to predict because the forces we extrapolate into the future are adapting under various selective pressures that feed back into each other. Innovations that seem small can trigger outsized consequences (for example, the web, fracking, etc.).

In this context, it's worth recalling an anecdote about Bertrand Russell. A young critic detailed a previous position Russell had taken and noted an inconsistency with his current position. Russell declared, "Young man, I changed my mind." We're allowed to do that as new dynamics emerge and what we extrapolated as critical turns out to be less critical than some other factor we dismissed as minor.

3. Systems feed on the herd instinct of humanity. Real estate was visibly in a bubble in 2004, at least in key markets, yet the bubble continued expanding for 3 more years as the herd drew in skeptics. Those of us who declared the bubble in 2004 were wrong for three long years. The dynamics of the herd overpowered rationality and prudence. Humans will thunder over the cliff just like other herding animals. Just keeping the ability to make independent judgments and sort data without ideological filters should be a key goal.

4. There is a body of sociological study that looks at how what we perceive as risks defines our ideological/sociological world view. Risk assessment by groupthink is very powerful: we are moved by what we perceive to threaten our world view. Hierarchical types see different risks than egalitarian types, for example. This line of analysis goes by the academic name of "cultural cognition of risk."

5. The status quo is a dynamic system with many players. As I have often noted, just for one example, the US military/national security state does not necessarily share the same world view and priorities as other chunks of the empire. Various conspiracy theories neatly tie up the entire system with a bow, but I don't think it's that static and simple. If it was, it would be easier to predict. If we look at systems with few feedbacks, i.e. the sort of systems dominated by small cliques of the sort that all conspiracy theories require, we find systems like the former USSR. It imploded because it lacked the intrinsic ability to reform/adapt for systemic reasons.

6. As a result of #1, alternative systems have very little leverage. Why bust our behinds getting a local farmer's market going when every supermarket is bulging with produce and products engineered to satisfy our reward centers? Everything is an uphill battle to reach the critical 4% threshold of influence in terms of establishing alternative systems. Our own personal resilience only goes so far, but getting people to invest in systems beyond themselves is difficult for any number of reasons, including active suppression by those benefiting from the status quo. The need for real alternatives just isn't strong enough to change world views.

These systems are still nascent. We're still feeling our way forward in revolutionary alternatives (such as "accredit yourself" as an alternative to $100K college degrees in theater studies).

7. Nobody fully understands these complex systems such as the reserve currency, even though the systems have been functioning for decades. If we add up certain dynamics, we would feel very confident in saying this system should not exist--it should implode right now. Yet it continues on year after year. It is not just being perverse--it's very difficult to understand these systems because of the self-referential feedbacks and the motivations of the players to keep it going by whatever means are at hand.

I have been looking at the USD reserve currency for years and am humbled to realize nobody really has a firm grasp of all its dynamics. (At least I haven't found any such source.) There are widely disparate descriptions of its mechanisms and costs/problems, none of which totally accounts for its continued resilience.

8. I tend to think John Michael Greer's concept of catabolic collapse is likely to be the most correct in terms of predicting future dynamics. Things keep following the same vectors for all the reasons stated above until something gives and they reset at a lower level of complexity/energy consumption. Everyone with a stake in the current system takes a hit to their desires but they still retain a meaningful share of the swag. Those who lose their share are too marginalized to threaten the majority who still gain by participating in the status quo.

This stairstep-down process can continue for quite some time, Rome being a pretty good example and various corporate/nation-state failures being more recent examples.

9. It is fairly self-evident that we are in an unprecedented era--just looking at energy, debt and the Internet is enough to reach that conclusion. This means the past is not a very reliable guide. As a result, many people look to behavioral models of economics to explain everything in terms of human emotions and cognitive deficiencies. This also has limits, as systems include forces that may originate in human psychology but psychology and cognitive flaws do not account for the system's full dynamics.

10. New models of doing things are emergent, but that is not a passive process. Some individuals actually have to make this happen by thinking things out, proposing systems, setting up a network of like-minded people, etc. etc. etc. My goal is to part of the process of building alternative structures at least conceptually so people who are completely wedded to the status quo have some alternative framework to grasp when the stairstep down finally breaches their confidence/faith that the system is eternally sustainable as-is.

This occurs when they discover the status quo has deemed them inconsequential enough that their share of the swag can be reduced with no negative consequences to those still at the trough. 




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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. We will cover the five core reasons why things are falling apart:

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