Monday, October 14, 2024

Can We Rein In the Excesses of Financialization Without Crashing the Economy?

Or we can let the bubble implode under its own weight and have a plan ready to clean house when the dust settles.

Thanks to recency bias, we tend to think the world has always been more or less as it is today. Tectonic shifts beneath the veneer of everyday life escape us unless we make a concerted effort to peel back the veneer of normalcy.

For example, consider the rise of finance as the dominant force in our socio-economic / political status quo. Statistics give us a rough picture of the dominance:

In 2023, the finance, insurance, real estate, rental, and leasing industry contributed 20.7% to the United States' gross domestic product (GDP). This is higher than the long-term average of 7.29%. In 1947, the finance industry made up only 10% of non-farm business profits. By 2010, the finance industry made up 50% of non-farm business profits.

The chart below of non-bank financial institutions' assets as a percentage of GDP (Gross Domestic Product) tells the story: prior to the era of financialization, non-bank financial institutions' assets trundled along for decades at around 40% of GDP. Recall that "non-bank financial institutions" is shorthand for the mechanisms of financialization, which is the globalized commoditization of everything into a tradable financial instrument.

Labor, capital, risk, currencies, commodities, income streams, real-world assets--everything is converted into a financial doppelganger that can be arbitraged and traded for profit. The actual use-value is no longer the "value" being "created;" the "value" is "created" by generating an entirely abstract financial shadow cast by the collateral of the real world.

This transmogrification of the global economy into a fully financialized shadow-world took off in the early 1980s when financiers were first given access to unlimited credit and the other tools of financialization. Non-bank financial institutions' assets soon soared from 40% of GDP to 140% of GDP, and in the final blow-off phase of hyper-financialization that we're experiencing now, these assets are 200% of GDP-- five times the pre-financialization era levels that were deemed "widespread prosperity" (the Trente Glorieuses, the 30 glorious years of shared prosperity from 1945 to 1975).

The wealth generated by financialization and hyper-financialization isn't shared; it's concentrated in the hands of those with access to credit and and the other tools of financialization, currently epitomized by private equity.

This excerpt from a post on promarket.org illuminates the reality that financialization isn't cost-free to the economy:

"Epstein and Montecino argue that the total cost of the financial system is comprised of rents, misallocation costs, and the costs of the 2008 crisis. Such costs can be divided into two types: transfers and inefficiencies. When combined together, Epstein and Montecino estimate that they total to $688bn a year, or 4 percent of GDP. Cumulatively, from 1990 to 2023, this number would add up to $22.7 trillion."

Adjusted for inflation, this sum totals $30.2 trillion in today's dollars--larger than America's entire GDP of $27 trillion.

The larger point is that an economy that's dependent on the distortions of financialization for its "growth" and profits is not a stable system; the gross imbalances generated by the distortions undermine its stability, and the system collapses under its own weight once the imbalances destabilize society and the real-world economy.

I had an interesting conversation with a very successful Millennial entrepreneur (A.C.) on this problem: how do we reduce the destabilizing excesses of financialization without crashing the economy? A.C.'s concern was the immense suffering that would result once the speculative bid of financialization collapsed, something he felt was inevitable if even the most modest restrictions were put in place, for example, restoring the Glass-Steagall separation of commercial from investment banking.

That the suffering caused by the implosion of the Everything Bubble will reach every level of society is self-evident and should concern us all. But we must also place all finance-economic questions in the context that we inhabit a moral universe, not a purely mechanical or digital system like a clock or a computer.



In the moral universe, the question is: "what is the right thing to do now for future generations?" The self-evident answer is to deflate the financialization bubble, defang its predatory tools, and take the lumps now rather than dump the ever-expanding destructive consequences on the next generation. This can be viewed as our civic / moral duty.

We also discussed an alternative strategy: wait for the inevitable collapse of the bubble and then clean the nation's financial house of both the wreckage and the causes of the catastrophe, financialization. Either way, the implosion of the Everything Bubble will occur and the suffering will be great. We can try to deflate the bubble slowly via restoring the Glass-Steagall, etc., but given the extremes of speculative excess, even modest reforms might trigger the collapse.

Or we can let the bubble implode under its own weight and have a plan ready to clean house when the dust settles. This is the result of letting greed, corruption and fraud run amok for decades under the phony guise of "creating value:" Once the bill comes due, those responsible will wring their hands, blubbering that they were simply "doing God's work." Yes, well, you can tell the preacher on Devil's Island, where you'll be living out your retirement.

Can we rein in the excesses of financialization without crashing the economy? Sadly, no. Now that the economy is dependent on the speculative excesses and distortions of financialization, there is no way to avoid the banquet of consequences that has already been served and is only awaiting the seating order. But we can do what's right, and take the pain now rather than let it pile even higher before it implodes on the next generation's watch.

New podcast: How Asset Deflation Could Play Out (35:37 min)



My recent books:

Disclosure: As an Amazon Associate I earn from qualifying purchases originated via links to Amazon products on this site.

Self-Reliance in the 21st Century print $18, (Kindle $8.95, audiobook $13.08 (96 pages, 2022) Read the first chapter for free (PDF)

The Asian Heroine Who Seduced Me (Novel) print $10.95, Kindle $6.95 Read an excerpt for free (PDF)

When You Can't Go On: Burnout, Reckoning and Renewal $18 print, $8.95 Kindle ebook; audiobook Read the first section for free (PDF)

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, 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).

The Adventures of the Consulting Philosopher: The Disappearance of Drake (Novel) $4.95 Kindle, $10.95 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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Friday, October 11, 2024

A Hard Rain Is Going to Fall

The core skill going forward--frugality--is largely a forgotten skillset. Time to get busy while we still have time.

There are core systemic dynamics that are impervious to technological or financial gimmicks, and as they play out, a hard rain is going to fall:

1) The credit-business cycle. The credit-business cycle has been pushed forward for the past 15 years, and arguably for the past 24 years. The last "real recession"--the organic contraction of credit and risk-taking that drains the excesses from the economy and financial system over the course of several years--occurred 43 years ago in 1981-82.

The mechanism for pushing this essential cleansing is moral hazard, the disconnection of risk from consequence by unprecedented central bank monetary stimulus and central state fiscal stimulus. The net result of moral hazard is the excesses of risk and debt are rewarded and expand to even more precarious heights, ensuring the eventual downturn will be far more destructive than had the system been allowed to fully re-set in 2000-02 and again in 2008-09.

2) The reversal of financialization and the collapse of the Everything Bubble and the wealth effect. The commoditization of credit, leverage and speculation is a boon when first introduced to a credit-starved economy, but once the productive investments have been made, financialization continues expanding into extremes of debt, leverage and speculation.

Central banks have used one trick to keep the expansion going: they dropped interest rates to zero, enabling borrowers and speculators to borrow / leverage more with the same income. This expansion of credit boosted assets to extreme valuations as all this new "money" chased a limited quantity of assets. The credit-asset bubble increases the value of the collateral--the house, the stock portfolio, etc.--which then supports additional borrowing / leverage.

The payoff was not just putting off the credit cycle--the credit-asset bubble generated a massive wealth effect for those who owned the assets before the bubble multiplied their value. The top 10% who own 93% of all stocks have seen their net worth expand by tens of trillions of dollars, enabling their spending to account for roughly half of all consumption.

The resulting extreme of wealth-income inequality has social repercussions that are not yet fully realized, but the pressure on those left behind is mounting.

Interest rate cycles are multi-year affairs, generally running between 15 and 40 years. The current cycle--from 1981 to the present--is extremely long in tooth, reflecting the financial repression of interest rates over the past 15 years.

Nothing lasts forever, regardless of what policy is applied. Interest rates are rising and will continue to rise.

This means that central banks' favorite trick to put off the credit cycle--lowering interest rates to zero--is slipping out of reach. This means that central banks will no longer be able to keep the credit-asset bubble inflated. It will deflate as interest rates rise, unpayable debt is defaulted and risk emerges in force.

Once the credit-asset bubble deflates, the wealth effect reverses, and consumption plummets as all those who rode the bubble higher are now poorer. The net result is the economy slides into recession.

Central states have piled up such a mountain of obligations and debt that their ability to stimulate the economy out of a much-needed cleansing of bad debt and speculative excess is limited.

So neither central banks and central states have the capacity to push the credit cycle forward any longer. The games have all been played and now the bill is due and payable.

3) The reversal of globalization. central banks were given the one-time luxury of lowering interest rates to zero by one dynamic: the emergence of China as the global exporter of deflation and a new "credit impulse." As the developed economies shifted production to China, costs declined and profits soared, fueling the stock market bubble and offsetting the inflationary pressures generated by expanding credit and fiscal stimulus.

China has now matured to the point that it no longer exports either deflation or the credit impulse. Now the inflationary pressures of expanding credit and fiscal stimulus are not being offset, so they're finally manifesting globally. There is no replacement of China's one-time gift of deflation and credit expansion, and so inflation and interest rates will rise.

Throwing more money into the system will only accelerate inflation and interest rates. That game is over: checkmate.

4) The limits of scale. The latest technological advance on the lab bench rarely scales up: vaporizing plastic waste is nice, but the cost and inherent limitations of this "advance" mean it will remain a curiosity, not a global solution that magically eliminates the 400+ million tons of plastic waste that isn't recycled, out of the 450 million tons of plastic produced annually.

Even when a new technology may make financial and practical sense, the time and money required to scale it up t useful levels are significant. Consider the "next big thing" in nuclear power, Small Modular Reactors. The first one is slated to come online in 2030, but such projects are typically plagued by cost and time over-runs in the early stages of development.

If the goal is to build 100 such reactors, how log will that take, and how much capital will it consume?

Will it take a decade? or two decades?

The point here is we're entering a credit cycle recession with the infrastructure we have, and improvements will be incremental, time-consuming and expensive, draining capital from consumption, in effect deepening the recession. This is the dynamic I endeavor to illuminate in the 1970s, when vast sums of capital were invested in pollution mitigation and the upgrading of the nation's industrial base, with only modest payback in the near-term. The real benefits only accrued decades later.

A similar upgrading of the nation's industrial base is starting, but it will be a drain on consumption for decades to come.

5) The downsides of centralization. Optimizing profits has relentlessly driven centralization on every scale: a handful of corporations dominate every sector, and facilities--from slaughterhouses to chemical storage--are geographically centralized, inherently increasing the risk of "normal accidents" triggering catastrophic losses. This reality was explained by Charles Perrow in his book The Next Catastrophe: Reducing Our Vulnerabilities to Natural, Industrial, and Terrorist Disasters.

Decentralizing the economy increases costs, reducing profitability and pushing prices higher. This is the cost of resilience and redundancy. The cost of centralization is invisible until it's too late.

6) Climate extremes. Setting aside the debate about causal factors, that extremes of weather are increasing in number and intensity globally is placing agriculture and infrastructure at greater risk of cascading, non-linear avalanches of consequences. Centralization adds to these risks.

Add all this up and we have a recipe for global recession in which inflation and interest rates rise, The Everything Bubble pops, possibly violently, the wealth effect vanishes into thin air, consumption plummets and job losses soar. Central banks and central states will not be able to push the credit cycle (i.e. recession) forward any longer, and if they try to do so, they will only make the decline more severe and painful.

I often post this chart of the S-Curve to emphasize that cycles are organic and cannot be reversed or pushed forward forever. Pushing them forward has only increased the bill that must now be paid.



Our hubristic faith in the god-like powers of technology and central banks / states creates an illusion that the credit cycle turning is the result of a "policy error," when in fact it's just the way systems function. We've created extremely fragile, centralized systems optimized for profit, and operated on the false premise that all systems are infinitely controllable given the right technology or policy.

The result of our hubris is that the turning of systemic cycles will be more disruptive and painful than was necessary, as a direct result of our attempt to manipulate / rig the system to suit our expedient, short-term desires.

A hard rain is going to fall, and we serve our best interests by preparing for the coming storm.

The core skill going forward--frugality--is largely a forgotten skillset.
Time to get busy while we still have time.

New podcast: How Asset Deflation Could Play Out (35:37 min)



My recent books:

Disclosure: As an Amazon Associate I earn from qualifying purchases originated via links to Amazon products on this site.

Self-Reliance in the 21st Century print $18, (Kindle $8.95, audiobook $13.08 (96 pages, 2022) Read the first chapter for free (PDF)

The Asian Heroine Who Seduced Me (Novel) print $10.95, Kindle $6.95 Read an excerpt for free (PDF)

When You Can't Go On: Burnout, Reckoning and Renewal $18 print, $8.95 Kindle ebook; audiobook Read the first section for free (PDF)

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, 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).

The Adventures of the Consulting Philosopher: The Disappearance of Drake (Novel) $4.95 Kindle, $10.95 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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Wednesday, October 09, 2024

When Did Our Institutions Lose Our Trust?

This has now reached the point that corporations and institutions are in effect "mining what remains of our trust" to boost profits / private gains.

Social cohesion is another ill-defined concept which is core to social and economic stability, despite the difficulty of measuring it. As with social trust, we sense its presence and its decay rather than measure ups and downs with any precision. Social trust is a core component of social cohesion, and we sense the decay of both, even if there is no easy metric to chart.

When did our trust in our core institutions start unraveling? Perhaps the more insightful question is: when did our institutions lose our trust? For trust is not just given, it is for institutions--government, healthcare, higher education, industry, media, etc.--to gain or lose by their actions and the disconnect between their claims and the reality.

In the broad sweep of recent history, the trust earned by institutions in the 1940s and 1050s began unraveling in the 1960s and accelerated in the 1970s. For many Americans, the inconsistencies of the official version of the assassination of President John F. Kennedy in 1963 were deeply troubling. Similar inconsistencies arose in the 1968 assassinations of Martin Luther King, Jr. and Robert Kennedy.

If the public wasn't being given the full story, why not? Was it really "national security," or were institutional malfeasance and cover-ups what was actually going on?

The war in Vietnam was another source of institutions losing trust. Between the claims of victory just ahead, the 5 o'clock follies and body counts, the "splendid little war" transmogrified into a big, dirty war that could no longer be contained within the neat narratives established in the "good war" of World War II.

The majority of Americans still wanted to believe in the rightness of their government and the causes of American policy, but many others had suffered complete disillusionment and loss of trust in the official accounts.

Watergate fueled the disillusionment as cover-ups increasingly appeared to be the primary modus operandi of all institutions. This disillusionment increased as the Church Committee revealed the politicization of the nation's law enforcement agency, the FBI, and the illegal domestic activities of the FBI and the nation's premiere intelligence / covert action agency, the CIA, both of which sought to suppress critics of the war in Vietnam with illegal means.

While the conservative movement openly derided government competence in the 1980s, the big, bad government continued expanding regardless of whether "conservatives" or "liberals" were nominally in charge. The federal government's footprint was reduced in President Clinton's campaign to "reinvent government," and the federal budget briefly enjoyed surpluses in the Internet boom years, but since then the expansion of government and institutional /corporate power has continued unabated.

The decay of public-private industries such as healthcare and higher education gathered speed in the 1980s, as costs and profits soared. Consider this chart of student loans. It is astonishing that somehow, despite a rapidly expanding population of college students, higher education managed to remain affordable and did not need students to borrow $2 trillion prior to the early 2000s.



Healthcare also rocketed far beyond affordability, and as with higher education, what expanded wasn't the number of doctors or professors; it was the cadre of highly paid administrators that expanded.

The public slowly caught on that insiders were busy covering up their self-service. The institution had become a profit center rather than an entity performing a vital public service. The pandemic experience accelerated this awareness.



This has now reached the point that corporations and institutions are in effect mining what remains of our trust to boost profits / private gains. Correspondent M.S. offered an example of this: "We bought a GE microwave because of the company's reputation, and it failed within two months. The appliance technician said that he noticed many similar failures with GE."

We observe this mining the last of our trust for private gain everywhere. We are frogs in a simmering pot of water that is approaching the boiling point, and as we await the complete unraveling of the social order, we sigh You can't stop Progress. Indeed.

Sixty years of institutions and business interests mining our trust has eroded social cohesion to the point that non-linear instability now looms as the banquet of consequences. Forfeiting our trust for private profits and power has a price that has yet to be paid.

New podcast: How Asset Deflation Could Play Out (35:37 min)



My recent books:

Disclosure: As an Amazon Associate I earn from qualifying purchases originated via links to Amazon products on this site.

Self-Reliance in the 21st Century print $18, (Kindle $8.95, audiobook $13.08 (96 pages, 2022) Read the first chapter for free (PDF)

The Asian Heroine Who Seduced Me (Novel) print $10.95, Kindle $6.95 Read an excerpt for free (PDF)

When You Can't Go On: Burnout, Reckoning and Renewal $18 print, $8.95 Kindle ebook; audiobook Read the first section for free (PDF)

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, 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).

The Adventures of the Consulting Philosopher: The Disappearance of Drake (Novel) $4.95 Kindle, $10.95 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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Tuesday, October 08, 2024

Social Trust: It's Not Warm and Fuzzy, It's the Money, Honey

That most of us live in a low-value, low-trust economy of shoddy goods and services hidden beneath high-tech frictionless, faceless transactions is not recognized.

Social trust manifests in all sorts of ways, and it's often amorphous and difficult to measure. We sense its presence or absence, but exactly what is it? Is it our trust in strangers, or our trust in institutions, or a warm and fuzzy feeling that our society isn't falling apart?

In several critical ways, social trust isn't warm and fuzzy, it's all about the money, honey. In high-trust societies, transactions are frictionless and low-cost. In low-trust societies, transactions must go through multiple levels of verification, trusted third-parties, etc., each of which is costly.

Correspondent Bruce H. illuminates the differences between high-trust and low-trust transactions:

"There must be a high degree of social trust in order to make business transactions. If you think the other person is likely to take the goods and not pay, you are not likely to engage as freely, and the "shadow work" of ensuring that a transaction is honored drains the economy.

In cultures where cunning and deception are seen as laudable, business transactions are slow, proceeding only carefully, in a time-consuming way because both parties have to ensure the other's compliance at every phase of the arrangement. This is costly.

In cultures where personal honor take primacy, a quick handshake is sufficient and work can begin immediately, confident that payment or the exchange will proceed to both parties benefit.

That, in essence, is what my father told me about his experience of doing business around the world.

There are places where you just discuss what is needed and agree on a price shake hands and write it down, there are places where you make sure the paperwork is in order and signed before you work, there are places where you make sure they have the money they claim they have and do all the paperwork and get some up front, and there are places where you make sure the money is in the hands of some secure third party (which, of course costs money) before you sign any agreements.

This also absolutely correlates between the relative wealth of these places. The places with the least trust are the poorest, those with the highest levels of trust are the wealthiest, all other factors being equal."


It's the money, honey: low-trust = poor, high-trust = wealthy as cumbersome, time-consuming costly transactions suck the life out of an economy.

There are other financial aspects of high-trust / low-trust societies. In high-trust economies, transactions are the core of the economy. The vast majority of transactions occur online or with complete strangers. In low-trust economies, trusted relationships are the core of the economy, and so business is conducted in much smaller circles which are connected by trusted go-betweens, often related by family or other close social ties.

This relationship-based economy was the model used in the ancient world, and it works well when trade and communications took months or even years. It works well on high-value transactions, for example, ships carrying luxury goods long distances. It works less well in a globalized, commoditized economy where the volume of transactions and business is enormous and covers a range of goods and services.

We can understand the U.S. economy as bifurcated into high-trust / low-trust segments which are difficult to tease apart unless we analyze the society and economy through the lens of class, an unpopular analysis in our supposedly classless culture.

High-value goods and services still tend to function on the level of relationships, while the shoddy, low-value goods and services are strictly transactional. The wealthy have connections, the rest of us get automated customer-service apps.

The wealthiest few reap fortunes from the low-value automated transactional economy that they don't have to endure.

Consider the "value" of an elite university education. The cost is higher than a standard-issue university, but not that much higher. Compare the student who spends $100,000 obtaining a diploma from a second-tier "good" university, and one that spends (or gets scholarships) $150,000 to graduate from an elite university. The difference is in reputation, of course, and entree to elite institutions, but also in the relative ease of making connections.

On rare occasions, outlier institutions such as Black Mountain College (1933-1957) offer unique opportunities for commoners to make valuable connections with luminaries, but as a general rule the "high value" goodies are reserved for the elite, which is why the top 1% has great trust in the same institutions that the bottom 99% have lost trust in.


source

That most of us live in a low-value, low-trust economy of shoddy goods and services hidden beneath high-tech frictionless, faceless transactions is not recognized, much less understood as a manifestation of wealth-income inequality. Yes, we trust institutions: we trust them to rip us off, ignore our queries, mess up simple transactions, sell us rubbish that falls apart or is "no longer supported," stripmine us with hidden fees and burden us with endless shadow work to keep all their kludgy apps and digital services functioning.

This raises a question: what happens in a society of intertwined high-trust and low-trust when polycrisis starts applying great pressure on social coherence and institutions?



Those living in a high-trust circle of relationships and connections will do just fine, the rest of us in steerage will be on our own. It's a good idea to start forging our own network of trusted, high-value connections because "when you're thirsty, it's too late to dig a well."

New podcast: How Asset Deflation Could Play Out (35:37 min)



My recent books:

Disclosure: As an Amazon Associate I earn from qualifying purchases originated via links to Amazon products on this site.

Self-Reliance in the 21st Century print $18, (Kindle $8.95, audiobook $13.08 (96 pages, 2022) Read the first chapter for free (PDF)

The Asian Heroine Who Seduced Me (Novel) print $10.95, Kindle $6.95 Read an excerpt for free (PDF)

When You Can't Go On: Burnout, Reckoning and Renewal $18 print, $8.95 Kindle ebook; audiobook Read the first section for free (PDF)

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, 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).

The Adventures of the Consulting Philosopher: The Disappearance of Drake (Novel) $4.95 Kindle, $10.95 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 $3/month patron of my work via patreon.com.

Subscribe to my Substack for free





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Thank you, Dan G. ($70), for your marvelously generous subscription to this site -- I am greatly honored by your support and readership.

 

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Friday, October 04, 2024

Adapt or Die, Or...?

Those few who grasp the crisis in its entirety have been marginalized, and those who are left are drifting downstream, unable to move the mass of self-interested inertia even if they wanted to.

In eras of stability when little changes, the capacity to adapt takes a back seat. As noted in Why Political "Solutions" Don't Fix Crises, They Make Them Worse, absent any pressure from tumultuous change, nature is hard-wired to keep the genetic instructions unchanged, as there is little selective benefit in modifying what's working well and potential risks in messing with it.

In other words, nature is conservative in eras of stability and low volatility. Since its genetic instructions are working pretty well, the shark genome is relatively stable over millions of years, with a few tweaks here and there to adapt to changes in its environment.

But adaptative churn takes the driver's seat when the ecosystem changes rapidly and the existing instructions are failing. This is the adapt or die moment, when species must experiment by churning out modifications (semi-random mutations in the instructions) and test them in trial-and-error: the ones that add selective advantages live, the ones that don't die.

If this period of intense adaptive experimentation is ultimately successful, the species' rate of change spikes and then drifts down to the baseline of low activity. This is known as punctuated equilibrium: the instructions drift along when nothing much is changing, suddenly spike when selective pressures shoot up, threatening extinction, and then diminish as the new adaptations relieve the selective pressure.

All this is automatic and beyond the individual's and the species' conscious control. We can't order our genome to speed up mutations and get cracking on the adaptive modifications.

Human civilization operates on the same principles of adapt or die: when circumstance change, selective pressures mount and the society must adapt or perish.

What's different is humans can stifle or encourage adaptive churn. As social beings hard-wired to organize ourselves in hierarchies, those at the top of the power pyramid will naturally deploy all their power to conserve the status quo, as any modifications might threaten their outsized share of all the good things such as wealth and status.

The view from the top of the pyramid is rather grand. Those at the top see the vastness of the imperial reach, the army's strength, the peasantry toiling away and the obsequious Mandarin bureaucrats bowing and scraping, and the idea that all this immense structure could decay and blow away is incomprehensible.

There is little sense in the top circle that the extinction of the entire social order is a threat. The threat is more personal: is my private fiefdom at risk of being diminished? Are rivals gaining influence? Are the reforms being proposed positive for my fortunes or could they pose a threat?

This narrow view of the overlapping crises (a.k.a. polycrisis) favors short-term expediency over more radical long-term modifications, as the Powers That Be have a grip on expedient "stave off the immediate crisis" measures such as imposing curfews, lowering interest rates and increasing the pay of soldiers, but these measures are slapdash rather than part of a recognition that radical changes in the structure of the society must be organized now, not later, for later will be too late.

In other words, there is no urgency for the kind of reforms needed to avoid extinction, there is only urgency for expedient "kick the can down the road" measures because these measures 1) are within easy reach and 2) they don't threaten the pyramid of power the "deciders" dominate.

Put another way, faced with skyrocketing risks of a heart attack, the leadership concludes that cutting out the HoHos but keeping the DingDongs and Twinkies will be enough to maintain the status quo. That the crises demand a complete overhaul of diet and fitness, now, not later, is both 1) too painful to contemplate, and 2) beyond the reach or the leadership's atrophied adaptive skillset: the leadership only has experience with managing stability, not tumultuous crises.

There is an irony in this atrophy of competence: the longer the good times roll, the less experience anyone has of polycrisis. In the competitive churn at the top of the pyramid, the skills that are most valuable in periods of stability are those of bureaucratic in-fighting and maintaining the status quo. Since there is no selective pressure demanding radical changes to survive, the skills needed to manage such a radical transition are nor longer present.

Those with the necessary character and skills to manage radical transformations have all been sent to Siberia for threatening the status quo with all their crazy proposals. Those in power have been selected to believe the organization they rule is perfectly capable of adjusting as needed, without actually changing anything.

This is the exact opposite of what's needed to survive the challenges ahead. And so expedient can-kicking continues (cough, the Fed), grand pronouncements yield nothing but hot air, and everyone reckons cutting out the HoHos and reducing the DingDongs will be enough to ride out the rough patch.

This is of course hubristic delusion. But since events are accelerating and interacting in ways far beyond the grasp of the under-competent leaders, the focus is not on managing a desperately needed radical transformation but on managing the narrative so it looks as if the crises are under control, and the status quo is functioning as intended: we have top people on it, top people. Indeed.



Adapt or die or... decay. Complex systems that have survived for a long time seek to restore equilibrium. These are the expediency feedback loops, where interest rates and taxes are trimmed, money is thrown around, narratives that question the competence of the status quo are suppressed, insiders who reveal the self-serving predation of the leadership are hustled off to Siberia, and all is well, as the decay can be covered up for quite some time.

So quality decays first, then quantity decays, too. Each crisis reveals another layer of under-competence and dry-rotted foundations, and each one is dutifully papered over.

Those few who grasp the crisis in its entirety have been marginalized, and those who are left are drifting downstream, unable to move the mass of self-interested inertia even if they wanted to--and they don't really want to because why should we risk upsetting such a splendid arrangement that's capable of handling anything that arises with ease?

Decay is a perfectly adequate strategy if there's sufficient resources to keep everything glued together as it slowly unravels. Magical thinking (AI!) helps smooth the decline, and soon everyone habituates to decay.

Polycrisis has a way of disrupting decay. If conditions remain stable, decay can be managed. But if volatility soars and multiple crises arise and reinforce each other, decay accelerates into collapse.

The ability to discern an existential challenge before it's too late is rare and unrewarded. "When you're thirsty, it's too late to dig a well."

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