What If Solutions That Worked in the Past No Longer Fix What's Broken?

You see the irony here: the more successful the old solutions were, the greater our compulsion to cling to them even as they fail.

Humans use inductive reasoning to solve problems. If a solution fixed a problem in the past, we assume it will solve the problem again. This is a rational expectation based on prior experience.

But if conditions change, the solution won't fix the problem. It might even make things worse.

The difficulty is what's changed isn't always visible or obvious. On the surface, things look the same. What's changed is buried deep in the structural machinery grinding away beneath the superficial sense of continuity with the recent past.

This describes the current global system: conditions have changed but these structural changes are not visible. On the surface, the present looks like the recent past. Yes, technology changes, but this constant churn of new technology has long been part of the system.

Make America Great Again is an explicit call to return to the solutions that worked in the past, specifically The Reagan Revolution of the 1980s, which was characterized by these policies:

1. The federal government is the problem, not the solution. The solution is to reduce the influence and financial footprint of the federal government.

2. Deregulation of private industries, starting with finance. Loosen regulations to enable financial / market solutions, even if they're disruptive.

3. Focus on growth. Grow the economy by loosening up credit, drill baby drill, reducing regulatory burdens and taxes, etc.

4. Pursue a muscular global policy of America First. No more wishy-washy playing nice: choose sides, but choose carefully because there will be consequences.

5. It's morning in America. We can get back on track by unleashing America's native optimism and vigor.

These solutions from the past are compelling because they delivered decades of growth. Of course reality is complicated, and it wasn't just these policies by themselves that spawned decades of expansion. Demographics, the "peace dividend" and many other factors helped.

And there were spots of bother: deregulation enabled the Savings and Loan debacle in which a third of the nation's S&L associations closed as $180 billion went up in smoke, losses that cost taxpayers $132 billion in bailouts.

Beneath the political rhetoric, these policies boil down to Keynesian stimulus which has been the de facto go-to policy "fix" for 60+ years: loosen credit, increase government borrowing and spending, encourage risk-taking and "animal spirits."

As for regulations, the machine increases regulatory burden until it is restrained politically. Unproductive dead-weight regulations pile up along with the occasional regulation that serves the public interest. Sorting out the unproductive regs from the useful regs is tedious, and so private interests "help" by lobbying to get rid of whatever was inhibiting their expansion into malfeasance and fraud, and then we end up with the S&L debacle in the late 1980s and the Global Financial Meltdown of 2008.

Then the political machine rushes new regulations into law. The pendulum swings back and forth.

Political realities are glossed over to fuel optimism for "hope and change." No politician ever wins re-election by reducing the federal budget. This is an abstraction we claim to care about but in the real world, we care more about decaying bridges where we live, the cost of medications, whether jobs or plentiful or scarce, etc., and so politicians win re-election by sluicing federal funding to repairing the bridge, reducing the cost of medications and funding the defense plant making weapons the Pentagon didn't want but Congress loved because "defense spending" is viewed politically as a jobs program.

This process cannot be repealed. Congress controls the government's purse strings, and when re-election comes around then slashing $2 trillion in federal spending will mean defeat and a loss of power. Not many politicians will fall on their sword, and for those who do, to what purpose? Whomever replaces the politician will pursue the same "guns and butter" free-spending budgets that the new leadership vowed to slash and burn.

Beneath the surface, things have changed structurally, and so the tried-and-true solutions won't work as they did in the past. Our inductive reasoning will slip into magical thinking, and we'll think that the reason the past solutions aren't working as anticipated is that we're not pursuing them vigorously enough, so we do more of what's failing.

Magical thinking then slips into denial: the old solutions are working, we just have to do push harder. The problems that the solutions were supposed to fix get worse, and we refuse to change course because we don't have any other solutions in the toolbox except the old solutions that no longer work.

You see the irony here: the more successful the old solutions were, the greater our compulsion to cling to them even as they fail. This clinging strikes us as completely rational: these solutions worked like magic, they will work again in the same way, it's cause and effect. But conditions beneath the surface illusion of continuity with the past have changed, and so the effects are different.

While we're focusing on the first-order effects, the second-order effects are melting the buffers we assumed were permanent and forever. Once the buffers are gone, we're forced to admit the solutions we were confident would work didn't work, and due to our confidence and unwillingness to admit they weren't working, it's too late to stave off collapse.

What if solutions that worked in the past no longer fix what's broken? We're too busy doing more of what's failed to forge new tools that might fix what's broken--but there's no guarantee of that, either, if we misdiagnose the problem.




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