Tuesday, December 03, 2019

Crunchtime: When Events Outrun Plan B

Not only will events outrun Plan B, they'll also outrun Plans C and D.
We all know what Plan B is: our pre-planned response to the emergence of risk. Plan B is for risks that can be anticipated, regular but unpredictable events such tornadoes, earthquakes, hurricanes, etc. In the human sphere, risks that can be anticipated include temporary loss of a job, stock market down turns, recession, disruption of energy supplies, etc.
Hidden in most Plan B's are a host of assumptions that all the systems running in the background pf the economy will remain stable. Even if electrical and cell-phone service go down, for example, we assume the outage will be temporary. We assume delivery of energy and food will resume shortly, we assume medical care will be available somewhere nearby, roadways will soon be cleared and so on.
In other words, we assume emergencies will be short-lived and that these non-linear events will leave the rest of our social and economic orders as fully intact linear systems, that is, predictable because the outputs (results) will continue to be proportional to the inputs.
If one road crew can clear five roads of debris, then if ten roads are blocked, we reckon adding another crew will generate a proportional result: two crews will clear all ten blocked roads. This is a linear system and response.
But if for some reason the second crew can't clear even a single road, and adding a third crew also fails to make progress, the situation becomes non-linear: increasing inputs doesn't generate proportional outputs.
If the situation goes non-linear, events can quickly outrun Plan B. Consider a restaurant with high fixed costs and high operational costs, i.e. the typical restaurant: fixed costs like rent and liability insurance don't change as the customer count rises or falls; they stay the same. Operational costs--utilities, wait and kitchen staff hours, etc.--go up and down depending on how many customers come through the door.
Let's say the owner's Plan B addresses the risk of a temporary slowdown in business: staff hours and orders for ingredients are trimmed, advertising offers deeper discounts, etc. Plan B is designed to deal with a temporary 10% decline in sales because that's the worst the owner has seen in ten years.
So what happens when sales decline 30% and continue dropping? Customers don't respond to discounts as they did in the past, and the business starts hemorrhaging cash as changing the inputs isn't changing the output (declining sales).
Staffers whose hours have been slashed can't make a living, so they quit, creating turnover problems. Staff morale plummets. Events have outrun Plan B and the owner has no pre-planned response as the financial situation deteriorates with alarmingly ferocious velocity.
If Plan B assumes modest, temporary, linear disruptions, it will fail if events start following a non-linear dynamic. Recency bias--the natural assumption that the recent past is a reliable guide to the future--leads us to underestimate the risk of non-linear financial-economic dynamics.
Central banks and governments have gone to extreme lengths to maintain the illusion of linearity, the illusion that all is well and the economy will remain firmly expansive because central bank inputs (QE, purchases of assets, lowering interest rates) will reliably yield proportional outputs (low inflation, steady growth, etc.).
Despite the happy PR issued by central bankers and government authorities, these extreme measures have generated emergent properties beyond their control, specifically, soaring wealth and income inequality, fragile financial systems and zombie corporations which only continue operations by borrowing more every year.
The contrived linearity of the past decade is about to give way to non-linear dynamics accelerated by the financial repression of central banks and the corrupt state / cartel-monopoly excesses of Big Pharma (opioid crisis), Big Tech (we're only evil when it's profitable, which is all the time), Big Banks (legalized looting is our game) and pay-to-play politics, where the greediest private-sector sociopaths rent the power of the greediest public-sector sociopaths.
Not only will events outrun Plan B, they'll also outrun Plans C and D at which point the runaway system no longer responds to any controls.



My recent books:
Money and Work Unchained $6.95 (Kindle), $15 (print) Read the first section for free (PDF).


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.

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.
 
Thank you, Steve W. ($10/month), for your outrageously generous pledge to this site-- I am greatly honored by your support and readership.
 

Terms of Service

All content on this blog is provided by Trewe LLC for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The owner will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information. These terms and conditions of use are subject to change at anytime and without notice.

Our Privacy Policy:

Correspondents' email is strictly confidential. This site does not collect digital data from visitors or distribute cookies. Advertisements served by third-party advertising networks such as Adsense and Investing Channel may use cookies or collect information from visitors for the purpose of Interest-Based Advertising; if you wish to opt out of Interest-Based Advertising, please go to Opt out of interest-based advertising (The Network Advertising Initiative)
If you have other privacy concerns relating to advertisements, please contact advertisers directly. Websites and blog links on the site's blog roll are posted at my discretion.

Our Commission Policy:

As an Amazon Associate I earn from qualifying purchases. I also earn a commission on purchases of precious metals via BullionVault. I receive no fees or compensation for any other non-advertising links or content posted
on my site.

  © Blogger templates Newspaper III by Ourblogtemplates.com 2008

Back to TOP