We've Optimized Fragility, Failure, Denial--and Rage

What happens when optimization is itself the point of failure?

In today's zeitgeist, everything must be optimized or we'll fail: our time, productivity, fitness, diet, supplements, career, income, wealth--everything must be constantly optimized lest we fall behind or fail.

The grand irony is optimization generates fragility which generates failure which generates denial which eventually generates rage. We've optimized global supply chains for efficiency and cost, rendering them exquisitely vulnerable to disruption and collapse. We've optimized the global economy for "growth" based on expanding consumption of energy and everything that depends on energy, which is everything.

To fund this endless expansion of consumption, everyone must borrow more money to buy more than their income allows. To enable this endless expansion of debt, money must be nearly free to borrow after adjusting for inflation.

The irony here is when money has no cost, it's squandered on excess consumption or speculation. The incentive to borrow and spend / invest wisely is that borrowing money has a high cost. Reduce the cost to boost borrowing / consumption / speculation and you create credit-asset bubbles and households, enterprises and governments one mis-step from insolvency.

Optimization raises expectations to lofty heights. The promise of optimization is endless--there's no limit to optimization, and so there's no limit to technology, profits, health, wealth and prosperity. If we keep optimizing, everything becomes possible. By tweaking technology and finance, we can endlessly expand consumption and wealth.

The mindset this generates is: follow the rules of optimization and you'll enjoy all the benefits of success. Optimize your career by borrowing a small fortune to obtain a university diploma, chase the Next Big Thing, optimize your engagement, visibility, and the buzzword du jour, and all the good things in life will be within reach.

The expectations are as fragile as the system they rely on. We've been taught that "our vote counts," that democracy means we have a say in collective decisions via representatives we elect. We've been taught we have agency--control of our destiny: work hard, work smart, optimize work flows and innovation, and anyone can be a startup founder who cashes out with millions of dollars--and the high agency that comes from high visibility.

Except all of this that's presented as stable, trustworthy, predictable and real is fragile, unstable and artificial--simulations of stability, trust and predictability. The belief that this vast system of mythologies, beliefs and "the real world" is as it's presented is civilizational psychosis, a self-reinforcing state of denial in which some new innovation / optimization will "solve" whatever problems arise.

So what's the optimized solution when optimization itself is the problem? What if a new product or profitable technology is not a solution but an extension of optimized fragility?

What's been optimized is centralization of power and control in the hands of the few because distributed capital, agency, power and control are inefficient. So we inhabit a world of overlapping monopolies and cartels, the marriage of state and private sector monopolies. In terms of optimizing profits, the optimized structure is monopoly. Nothing else comes close. So an economy of overlapping monopolies and shared-monopoly (i.e. cartels) is the perfection of a system optimized to maximize profits for the owners of the monopolies.

This is why it doesn't matter who you vote for, as the decisions are made to suit the interests of those at the top of the optimized concentrations of power pyramid. The masses are fed distractions, us-vs-them divisions, fake virtue-signaling policy-tweak "solutions," and a circus of entertainment.

As for optimizing security and a place in the sun--oops, you didn't optimize enough. You didn't optimize innovation enough, and let's face it, you didn't optimize optimization enough, so you failed. Maybe your AI chatbot can console you.

High expectations lead to dreams dashed which leads to denial crumbling on contact with the real world. And when denial crumbles and the scales fall from our eyes, and we see everything that was presented as authentic is actually artificial, a synthetic simulation designed to obscure the gearing of an increasingly fragile system, our sense of betrayal, the shattering of trust, the awareness that we've been lied to, conned, to benefit those doing the bamboozling, then we become angry.

We become angry because we're social beings who depend on trust and truth to function as a group that benefits its members and not just its leaders. When trust and truth have been replaced by artifices to serve the interests of leaders touting how the system benefits everyone, the group dynamics transition from positive to destructive. Nobody likes being conned, and there is a selective advantage to this trait.

Part of the con is to claim that we can collectively transit smoothly from denial to acceptance, skipping the messy, difficult stages of anger, bargaining and depression. (Kubler-Ross's progression of the five stages of grief: denial, anger, bargaining, depression, acceptance.) But this isn't how we're wired, and this progression cannot be optimized away.

So never mind you're selling your blood to make ends meet while a handful of others are about to reap fortunes in IPOs. Just accept this is your lot in life. Not all outcomes are equal, creative destruction, blah blah blah.

But what if optimization is the techno-speak cover story for a rigged casino? What if all the buzzwords --innovation, growth, super-abundance, and so on--are all techno-speak cover stories for the substitution of economic metrics for a life that's actually worth living?

We've been herded into a Mouse Utopia of metrics--financial metrics, systems, data, models--that leaves out the reality that we exist in a moral universe in which trust and truth matter more than GDP, stock markets, and the hollow, surreal realm of consumerist transactions.

In this universe, anger leads to redress or retribution. The current system is optimized to avoid redress by optimizing the substitution of artifice for authenticity. This optimization has reached such perfection that the status quo leaders, public and private, believe their mastery of this substitution will continue protecting them from public anger come what may. Just pull the levers, and the public will continue believing.



Our leaders have effectively optimized their belief in their own PR. There is no need for redress because the public will accept more of the same: distractions, us-vs-them divisions, fake virtue-signaling policy-tweak "solutions," and a circus of entertainment.

But this isn't how the transition from denial to anger works. Applying more of the same will only push anger into rage, where it becomes an emergent force with non-linear dynamics: unpredictable, uncontrollable.

In terms of optimized metrics and systems, rage is irrational. In the moral universe, it's perfectly rational. What happens when an unexpected asteroid shatters all the interconnected fragilities of hyper-optimized supply chains and finance?

We can rephrase this to: what happens when optimization is itself the point of failure? What happens when the optimization of substituting artifice for authenticity to mask the decay of trust and truth fails?

All this boils down to: what happens when redress is set aside as needless? That leaves retribution as the only outlet for all the energy being converted from denial to anger.

What seemed preposterous before the asteroid is later recognized as destiny.




NEW PODCAST: Dennis Tubbergen and I discuss the growing risks facing the U.S. and global economy. (32:45 min)


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Chaos Unleashed: When "Irrational" Makes Perfect Sense

Once fairness and honesty have been stripped out of a social order, social trust collapses. Once trust collapses, society disintegrates.

It's important to understand the dynamics of chaos before the certainties in our lives are swept away.

Over the past few months, I've been exploring the dynamics of delusion and breakdown:

1. our reliance on models to make sense of the world and what happens when those models no longer track reality;
2. the difficulties in adapting when our old model breaks down;
3. our growing reliance on complex systems and AI;
4. our frustration with broken systems that are impervious to reform;
5. how the status quo makes a show of reforming broken systems, substituting theatrics for substance;
6. the destabilizing consequences of extremely asymmetric distributions of wealth, power and income;
7. the erosion of our standard of living and quality of life as "progress" is replaced by Anti-Progress and an Ultra-Processed Life of transactions and synthetic facsimiles of authenticity;
8. how these forces have shaped two "fork in the road" narratives:
A. boundless prosperity for all generated by AI and technology
B. the breakdown of an imbalanced, inherently destabilizing socio-economic-political system of the powerful and the powerless defined by moral decay, the collapse of trust in institutions, widening extremes of inequality and the substitution of artifice for authenticity, a.k.a. everything is fake, to maintain the illusion that all is well.

These ideas inform my recent work:

One of Us Is Delusional, But Which One?

When Predictability Collapses, What's Scarce and Valuable Is Adaptability

AI, Money, Human Nature and the Problem with Problems

Why We're Helpless When Things Break Down

The Fork in the Road Ahead

Recession and Revolution: Our Experience Isn't a Model or System

What Would Be Truly Bullish? Actually Fixing What's Broken

There are two underlying material-world dynamics that tie all these themes together:

1. Growth / Progress--defined as higher energy consumption per capita that results in increased purchasing power of wages--is no longer robust enough to raise all boats. This reality is reflected in the declining purchasing power of wages, which is typically labeled "a rise in the cost of living" / inflation.

2. At the same time, the top 10% ownership / professional / managerial elite is taking a larger share of the pie due to a number of factors, including regulatory capture, political changes in tax laws that favor asset-owners, etc., and the explicit but unstated policy decision to give the stagnating economy the appearance of "growth" by inflating credit-asset bubbles that enrich those who already own assets at the expense of those who don't own enough to matter.

These boil down to the distribution of "pain" and "gain": who gets the pain and who gets the gain, and whether the pain and the gain are distributed across all socio-economic classes or are they asymmetrically distributed.

The "pain" of declining purchasing power of wages, living standards and quality of life (for example, health, financial security. etc.) is being distributed to the bottom 80% while the "gains" are distributed to the top 10% owners of capital. (A tiny percentage of the gains trickles down to the cohort between 80% and 90% who own enough capital to maintain a "middle class" lifestyle.)

As I have noted many times, humans are hardwired to be innately attentive to the three dynamics that give humanity's social skills such immense adaptive power:
1. fairness / unfairness (justice, injustice)
2. truth / honesty / authenticity
3. trust (but verify)

Once fairness and honesty have been stripped out of a social order, social trust collapses. Once trust collapses, society disintegrates.

I consider it self-evident that extreme asymmetries of distributing pain and gain cannot be justified as "fair" nor are they perceived to be "fair" by those absorbing the pain.

I also consider it self-evident that truth / honesty / authenticity have been replaced by theater, staged performances and the self-serving artifices of making a show of reforming broken systems.

That social trust is in steep decline cannot be plausibly denied.

This raises the question: how does this disintegration manifest?

Tim Morgan of Surplus Energy Economics (highly recommended reading) has provided an insightful context for understanding how social-economic-political disintegration follows a profoundly human and inherently "irrational" emotional progression.

As he explains, in our technocratic system, causal chains are invariably presented as mechanistic: technology changes this, monetary policy changes that, and so on. We understand "how things work" as linear, reductionist, left-hemisphere mechanical processes of inputs, processes and outputs.

But humans are not machines, and society is not a mechanism comprised solely of institutions and technocratic / financial processes.

Morgan offers the missing half of disintegrative dynamics: the emotional progression of grief famously described by Dr. Elisabeth Kubler-Ross in her 1969 book On Death and Dying, a process that in one way or another works through five emotional states: Denial, Anger, Bargaining, Depression, and Acceptance.

Morgan posits that we are collectively grieving the loss of growth without being fully aware that we're experiencing this dynamic because we're in the denial stage.

#323: They First Make Mad: Stress and Grief at the End of Growth (Tim Morgan of Surplus Energy Economics)

Kubler-Ross describes a system that is not linearly mechanical; it's a progression that often veers into emotional states that can be described as "irrational" even as they are completely rational to those experiencing them.

This is a system of emotional processes and truths that can't be understood with the conventional tools of systems dynamics or the social sciences, for the "irrationality" of each state is intrinsic to the progression.

Humans are not mechanisms, and neither is this emotional system. What appears "irrational" is not irrational; it's the way this system works to reconcile our inner life with existential life-changing events.

The status quo's survival strategy is to claim that the Anti-Progress of systemic decline in the standard of living / quality of life experienced by the bottom 80% is still "growth" and "Progress," but this model is veering so far from lived experience that it's increasingly delusional for those not being enriched by bubbles in stocks and housing.

Since we resist losing what we value and are accustomed to--a positive social identity, livelihood, security--the bottom 80% are experiencing the uneasy limbo that precedes a profound phase change that cannot be reversed.

In this temporary state of instability, they're clinging to denial that the era of "growth / Progress" that actually improved their living standards and quality of life has ended, even as the tightening vise of decline increasingly stresses their security, social mobility and belief in the model of permanent upward mobility and prosperity.

The pain generated by decline comes in forms that don't lend themselves to measurement: anxiety, precarity, etc., emotions that make denial a form of emotional solution. But this "solution" doesn't resolve the anxiety or precarity; it's only an emotional Band-Aid / coping mechanism.

Our hardwired awareness of unfairness, artifice and the collapse of trust can't be suppressed, and these chip away at denial. Eventually the denial breaks down, much like an avalanche: the scales fall from our eyes and we see everything we've denied as inescapably real.

On the other side of this phase change is anger.

Denial becomes increasingly delusional as declines that would have been shocking in previous eras of prosperity are now accepted with the passive shrug of the powerless. Selling one's blood for extra cash--once the sole domain of destitute junkies needing cash to feed their addiction--is now an accepted middle-class "gig" to earn extra cash to support a lifestyle that is slipping away:

The Middle-Class Suburbanites Who Sell Their Blood Plasma to Get By.

Another hallmark of middle-class security--the IRA/401K retirement fund--is being drained to pay for everyday expenses:

They Withdrew 401(k) Money Early, and They Have Some Regrets.

In an era of declining purchasing power of wages, the money being withdrawn is unlikely to be replaced.

This account by an anthropologist sheds light on the themes I'm describing:
"The America I move through today often feels alien to the one I thought I knew. Those who fall behind are seen not as constrained, but as having failed. The result is a pervasive, if often unspoken, alienation--one that erodes shared bonds and leaves people to navigate inequality on their own.

Most troubling is the way this environment feeds a politics of grievance. Anger and frustration are redirected toward scapegoats rather than toward the structures that concentrate wealth and power. Identity and culture become tools of division rather than sources of connection. In that context, authoritarianism finds its opening--not as a rupture, but as an extension of patterns already in place."

Since humans are social animals, private anger that is shared becomes public anger--a much more powerful, more volatile emergent property of the phase change from denial to anger.

In this context, we can understand the "wealth tax" in California and the tax on second homes worth in excess of $5 million in New York City as precursors of this phase change from denial to anger which fuels the desire to restore some balance by clawing back some of the gains of the super-wealthy.

This is an example of what I call redress in my book Investing In Revolution: the desire to rebalance extremes of inequality to restore some measure of trust in institutions and the system. Redress can also be fulfilled by restoring previously existing limits on concentrations of power that tilted the system to distribute the lion's share of gains to the few at the top.

Examples of the rules being changed to benefit the wealthy include stock buybacks (previously illegal), Citizens United and a long list of other regulatory changes designed to benefit those with the wealth to buy political influence.

If redress is thwarted or watered down to just another virtue-signaling performance of fake reform for show, the alternative manifestation of anger is retribution. When anger slides into rage as redress is thwarted, retribution has the potential to gain an emotional momentum few anticipate.

Absent systemic unfairness, deception and distrust, anger can proceed to bargaining without transitioning into rage: when bad things happen to us while others are unaffected, it feels unfair--but since it isn't intentional--no one sacrificed our interests to serve their own--we eventually find ways to accept that life is inherently unfair.

But when the system is built on unfairness, deception and distrust so the few can benefit at the expense of the many, anger heats up into rage when redress is denied. This rage seeks expression, and if it's shared by others, it quickly spreads into a volatile public movement.

Bargaining, depression, and acceptance are off the table until substantive redress is achieved or the rage burns itself out.

Chaos looks irrational due to its unpredictability and destructive potential. But when viewed as part of a hardwired emotional casual chain triggered by unfairness, deception and distrust, then not only are anger and demands for redress rational, so too is rage unleashing chaos when legitimate demands for redress are denied by those in power.

At this volatile juncture where the emergent properties of public rage take on a life of their own, the importance of shared beliefs and ideals becomes paramount: absent a narrative and model that inspires positive collective actions, the emergent properties of public rage manifest as uncontrollable chaos.

History offers several templates for what happens once the spark of public anger ignites a fast-spreading wildfire of rage and retribution. One is martial law, a military clampdown that erases public expression and replaces democratic institutions with authoritarian rule. This is the root of Napoleon's famous quip about quelling the mob with a "whiff of grapeshot," i.e. blasting the mob with cannons loaded with round bullets.

In other cases, an authoritarian or self-serving, corrupt neofeudal regime attempts to quell the disorder, but the force needed to suppress the public rage is beyond those being tasked to shoot down their family and friends to save the regime from the consequences of its exploitation and lies.

But the consequences of model collapse don't go away with force. All that force accomplishes is the suppression of public anger. What's needed to nurture a society that values, prioritizes and incentivizes fairness, authenticity and trust is a new model that inspires the disenfranchised with a coherent set of values and goals.

Ivan Illich described this in a way we can all understand:
"Neither revolution nor reformation can ultimately change a society, rather you must tell a new powerful tale, one so persuasive that it sweeps away the old myths and becomes the preferred story, one so inclusive that it gathers all the bits of our past and our present into a coherent whole, one that even shines some light into the future so that we can take the next step. If you want to change a society, then you have to tell an alternative story."

Developing this alternative story is the point of my work. The outlines are not complicated:

1. shift the goal from "growth" (The Waste Is Growth, Everything Is Disposable Landfill Economy) to a sustainably rewarding quality of life that isn't measured solely by material consumption but by the "prosperity" of positive social roles, upward mobility (chances to get ahead), agency (control of one's life) and a say in decisions affecting shared interests (for example, the quality of air / water and public institutions).

2. Limit centralization and the consolidation of financial, economic and political power in the hands of the few, who inevitably use this power to serve their interests at the expense of the many.

We can understand this alternative story as a secular Reformation, a necessary response to a incorrigibly corrupt status quo whose foundational story (infinite growth via what Tim Morgan succinctly describes as "infinite monetary stimulus and limitless technological possibility") is unsustainable and therefore delusional.

Absent a coherent, realistic, inspirational alternative story, once chaos is unleashed, there is no pathway to the restoration of fairness, authenticity and trust within a sustainable model that serves everyone's interests.

John Maynard Keynes famously stated that "markets can remain irrational longer than you can stay solvent." The same can be said of redress-denied, rage-fueled chaos: it too can remain irrational longer than we can imagine.



SHORT VIDEO: Unleashing Chaos: When "Irrational" Makes Perfect Sense (my narration, 1:48 min)

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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. All contributors are listed below in acknowledgement of my gratitude.

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When US Treasuries Play a Reverse Card

Rather than being sold, Treasuries will be sought after for their safety, predictability and yield.

In the card game Uno, playing a Reverse card reverses the direction of the game. If the play moved to the right, it reverses direction and moves to the left.

The consensus view is the US dollar (USD) and US Treasuries are both weakening as global capital flows to other currencies and investments such as cryptocurrencies, commodities, precious metals, reshoring industries and of course AI.

It would surprise quite a few players if US Treasuries play a Reverse card and capital flows out of current darlings and into Treasuries. How is this even possible, given that the USD is on a terminal trajectory to zero due to out-of-control federal borrowing / debt?

Here's how the Reverse card scenario plays out. All the current investment darlings are based on two conditions that are currently locked away in the Denial Basement:

1. Virtually every asset class other than commercial real estate is in a gargantuan, unprecedented bubble that will track all the other bubbles in history by popping, surprising everyone who believes the extreme valuations are fully justified and therefore not a bubble.

2. The essentially limitless expansion of the money supply and public / private debt driving the global asset bubble has been normalized, i.e. accepted as "the way it is," a condition that is sustainable based on the self-serving fantasy that AI and technology are ushering in an era of super-abundance of everything we value: energy, resources, leisure and of course financial wealth.

Unbeknownst to those who believe that the Denial Basement is impenetrable, the Monster Id is currently melting the thick steel walls like they're butter. All bubbles pop for the same reason all extremes reverse: the pendulum--of excess, momentum, euphoria, greed, confidence, hubris--reaches a point of exhaustion and then gravity takes hold and the swing to the other extreme gathers momentum.

When asset bubbles pop, there's a symmetry to its collapse. The initial decline mirrors the last push to the peak. Since this final push higher is generally near-verticial, the drop is the reverse: a steep decline.

The smartest money missed profiting from the bubble peak due to prioritizing return of capital rather than return on capital. (Hence Buffett's $400 billion stash of cash.)

The smart money kept dancing as long as the music was playing, but once the music stopped, they noticed the bow of the Titanic was dipping lower into the icy waters of the North Atlantic. Those tasked with protecting the capital of the wealthy revert from greed (maximizing return on capital) to safety: return of capital.

The credulous money remains greedy, and continues to "buy the dip" until their capital is depleted. Due to this "buy the dip" buying, the collapse of the bubble back to its initial starting point is frequently interrupted by manic bear market rallies that inspire a fervent belief that "the bottom is in" so it's time to buy, buy, buy.

Alas, nature and markets are not always warm and fuzzy, and since the conditions that inflated the bubble are no longer controlling the game, the dynamics have changed, and "buy the dip" only works for short-term players.



Those tasked with protecting the capital of the wealthy seek two things: investments that guarantee a return of capital and some positive yield / return on capital. A handful of sovereign bond markets offer both.

Why only a handful? For these reasons:

1. Liquidity. Since there's several hundred trillion dollars sloshing around global asset markets, the ideal bond market is liquid enough that money managers can move tens of billions of dollars in and out without moving the bid and ask much.

2. Stable currency valuations set by the market, not the issuing state. There's one threat to the desired return of capital that money managers can't control: the valuation of the underlying currency. A 4% yield looks inviting, but if the issuing state suddenly devalues the currency by 10%, the positive gain reverses into a loss. So the ideal bond market is based on a liquid, transparent currency that can't be devalued by central state / central bank decree.

Any currency that's pegged to another currency, either formally or informally, is disqualified as the valuation is hostage to A) arbitrary decrees changing the peg and B) changes in the underlying currency. In summary: the currency underlying the bond market is the risk.

Superman looks invincible until the Kryptonite Monkey of currency devaluation jumps on his back.

3. A solid, transparent foundation comprised of A) the diversity and strength of the issuing nation's economy and B) the predictability / stability of the legal and financial systems governing the bond market.

As raising cash and escaping risk become paramount, the bubble popping spreads to all asset classes. Everything eventually gets sold to raise cash / pay down debt, including safe haven assets.

As capital gains reverse into losses, money managers accustomed to sneering at Treasury yields paying a pathetic 3% while assets were reaping 30% gains annually suddenly change priorities to earning any safe yield that comes with a guaranteed return of capital without any offsetting devaluation in the currency.

The one sovereign bond market that best meets these qualifications is the US Treasury market: liquid, transparent, valuation set by market force not state decrees, not pegged to any other currency, and predictable based on the diversity and adaptability of the US economy and the relative predictability of its legal and financial system.

Rather than being sold, Treasuries will be sought after for their safety, predictability and yield. It's widely assumed that yields will drop toward zero in a recession, but this is recency bias not reality: in inflationary eras, yields rise even as capital exits the stock market. Consider this chart of the 10-year Treasury bond yield.



That's how US Treasuries play the Reverse card. While everyone's partying around the AI super-abundance punch bowl, the Monster Id is melting the last steel containment shield in the Denial Basement. Denial will turn to anger--this can't be happening--to bargaining--look, just make the market go back up once more so I can get out whole--to depression--it's gone, it's all gone--to acceptance. Oh well, time to start over.

There's a remarkable irony in this reversal: the profligate borrowing of the US Treasury looks unsustainable when Treasuries are being sold. But when asset bubbles pop and those reaping 30% gains annually have lost 30% of their entire capital, then even if a modest percentage of the hundreds of trillions left sloshing around the global economy seek the safety and predictable yield of Treasuries, that modest percentage will be more than enough to fund federal borrowing.

The total value of global assets cannot be measured with certainty, but estimates of liquid assets (cash and securities / cash equivalents) place the total around $450 trillion. US debt (the entire Treasuries market) is $31 trillion, about 7% of current global liquid assets.

This doesn't include real estate or fixed assets. (Please note estimates vary widely depending on what's being counted.)

All the Money in the World, And Who Has It (2022)

How Much Money Is in the World in 2026? Shocking Figures (Updated 2026-02-04)

Should the asset bubbles pop, total assets will fall significantly, but the sum of cash and cash equivalents will be extraordinarily large as fixed assets collapsing in value will be sold and converted to cash.

If 10% of all privately held wealth seeks the safety and yield of US Treasuries, that's a very large pool of capital trying to get a piece of a relatively limited asset class.

Some final points that must be made. Assets that looked safe as inflation hedges get sold because inflation in the cost of living doesn't necessarily translate to inflation of asset valuations. If demand craters, valuations fall. Once capital appreciation reverses to losses of capital, money managers will seek any safe yield and a return of capital over risking further downside.

Resources rise in value in global growth. But demand can drop far faster than supply, and so even limited resources can crash in price in a deep recession that crushes demand.

Individual investors can absorb losses in the hope that prices will soon return to nosebleed levels, but money managers don't have that luxury. The winning strategy in terms of saving their jobs is sell everything, put the capital in Treasuries earning some yield, and await the return of organic demand after the washout of all asset valuations reaches exhaustion.

Recency bias stretches back 17 years to 2009. Few believe a deflation of asset valuations is possible, or that yields could rise or that Treasuries will be in high demand while all the current darlings are being sold.

Money managers have a different risk calculus than individual investors / gamblers. And since they manage large sums, what they process through their OODA loop will influence markets. So it usually pays to put ourselves in their shoes. Losing our own money is one thing, losing other people's money is another.


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What Would Be Truly Bullish? Actually Fixing What's Broken

Refusing to recognize, much less actually fix, what's broken hurries our collective rendezvous with consequences.

We've come to an interesting juncture in history, interesting because while we're being assured that AI will solve all problems, including any it creates, back in the real world, AI is incapable of fixing what's broken because too many people are getting rich off the status quo, and since the status quo is the problem, those who own / control AI will use it to maintain the status quo, guaranteeing that what's broken spirals into irreversible breakdown.

Richard Bonugli and I discuss what's fatally broken in a new podcast on what it will take to become Bullish (32 min).

Let's start with what's "obvious": letting what's broken fester until it implodes the status quo is not bullish, and neither is substituting delusion and denial for a realistic appraisal of what's actually broken--the essential observe and orient steps in the OODA loop (observe, orient, decide, act).

I've often described the two dynamics that are broken that AI can't fix because those who own / control AI are using it to increase the asymmetrical distribution of wealth and income that are the source of breakdown. Consider healthcare. Everyone except the managers / owners / shareholders of healthcare / pharma cartels agrees healthcare is fundamentally broken and is bankrupting households, employers and the government / nation.

Those profiteering off the status quo healthcare system claim AI is going to reduce costs. They fail to mention this won't reduce the price, it will only serve to increase their profits. Cut costs by replacing human labor with AI tools, yea, we reap even higher profits. Nobody is claiming healthcare will magically become affordable because a truly affordable healthcare system wouldn't be as profitable because it wouldn't be as open to exploitation, fraud, profiteering, extraction and parasitic pricing.

In the same way, AI can't solve the other fatal dynamic--widening wealth and income asymmetry--because it's widening the asymmetry to new extremes. The owners of AI are reaping vast fortunes while stripmining resources to run their AI data centers and laying off wage earners. Rather than fixing what's broken in America, AI is accelerating the endgame of what's broken.

Let's run through why increasing numbers of online comments suggest burning the whole rotten healthcare system down and starting over. Healthcare insurance--which often turn out to be a profitable facsimile of actual insurance--has more than doubled beyond the official rate of inflation. If healthcare insurance had tracked inflation, it would cost $10,000 a year for family coverage in 2026. Instead, it costs $25,000+ annually.

Diagnosis: broken.



Regardless of how you toy with statistics, the reality is administrative costs / bloat / profiteering have soared. Diagnosis: broken.



Meanwhile, back in reality, rapidly aging populations are far from their peak demand for healthcare services. Check out the white line on this chart (courtesy of @econimica) of those aged 65+. While births collapse and the workforce is pressured by AI and the soaring cost of living, millions of elderly retirees are being added to the Medicare beneficiary pool. Diagnosis: broken.



Here is the chart of Medicare costs: parabolic. It's nice we can borrow a few trillion every year, but can we borrow $5 trillion or more every year with no consequence? Diagnosis: broken.



Here is the chart of Medicaid costs: parabolic. Diagnosis: broken.



As for the health of the general populace: it's been declining for two generations as our diet has shifted from real food made at home to ultra-processed goo and fitness has bifurcated into a thin layer of extreme fitness and a majority of the populace burdened with the complex ill health of poor diets, poor fitness and metabolic disorders.

Weight of the populace in 1985:



Weight of the populace in 2023:



Yes, now we have GLP-1 drugs that reduce weight and the diseases related to weight, but these drugs have side effects in many patients and they must be taken for life. Once the patient stops taking them, the weight returns.

Drugs that must be taken for life are not a substitute for being healthy. Healthy = not needing any medications.

Diagnosis of the healthcare system: broken. Prognosis: bifurcation: the rich will get "the finest care in the world," and everyone else will be in a queue or denied care--basically the same result--or offered extraordinarily profitable meds and a spectrum of side effects.

What's broken is the entire financial-economic system that distributes the pain and the gain: the pain of sharply higher costs of living and increasing financial precarity is distributed to the bottom 80% while the gains are distributed to the top 10%, with a dribble going to the cohort between 81% and 90% who own enough capital to support their claim to being "middle class."

Note to America's elites: when only the top 15% just below the top 5% qualifies as "middle class," that's not a middle class. I know, you don't concern yourselves with such trivia: there are trillions of dollars to be reaped "solving problems" with AI.

The "problem" you can't solve with AI is AI only "solves" the "problem" you see, which is how to increase your wealth and income before the bottom 80% awaken from the 24/7-hyped delusion that credit-asset bubbles (AI!) raise all boats and will continue to do so forever and ever.



Real life has diverged from that delusion, and the radioactive power of AI to extend that delusion has a short half-life. Refusing to recognize, much less actually fix, what's broken hurries our collective rendezvous with consequences.

What would be bullish is actually fixing what's broken. Promoting self-serving illusory "solutions" that only widen the asymmetries stretching the socio-economic fabric to the breaking point is not bullish.

New podcast: what it will take to become Bullish (32 min).


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Recession and Revolution: Our Experience Isn't a Model or System

The Chinese proverb "When you're thirsty, it's too late to dig a well" summarizes an experiential approach to the challenges many of us will encounter should recession and/or some form of revolution upend our lives.

I often write about experience and models and systems, but I realize I've never addressed the deep chasm between them. We experience life on multiple levels, reflecting the complex nature of life, our species' social and cognitive foundations, and the complex interactions of our senses, awareness, emotions, intuition and our ability to return to the past in memory and leap forward in time in anticipation.

I often refer to tacit knowledge gained through the accumulation of direct experience in the tactile, real world. Experiential knowledge / skills cannot be acquired by "book learning" or the purely intellectual processes of formalizing a model or system; this type of knowledge can only be acquired by doing, making mistakes, seeking to correct them, and pushing ourselves to expand our skills by pursuing tasks beyond the boundaries of what we already know how to do.

Author Michael Polanyi summarized the nature of tacit knowledge in seven words: "We know more than we can tell." We can't explain exactly how we came to "know how to fix this" or the steps we took to diagnose and solve the problem, as it's an intuitive right-hemisphere type of knowledge, not a linear, formalized left-hemisphere type of knowledge.

Both types are useful and work together without our awareness, until we're asked to explain something like "how did you learn to write?" This question can't be answered neatly because writing is thinking, and engages both our intuitive, tacit-knowledge capabilities and our linear analytic capabilities.

If we say "writing boils down to the rules of grammar and the definitions of words," this linear description misses the most important attributes of writing, which is the thinking that finds expression in what we call "voice," the writer's expression of their unique experiential knowledge / skills.

When AI tools "clean up" text, they homogenize / dilute the "voice" and the tacit knowledge that created it.

Improvisation is an example of what I'm describing. Learning to play a classic improvisation note for note is one thing--an advancement in skill--but that doesn't give the student the ability to improvise on their own. Learning to improvise as an expression of "voice" is far more demanding and experiential in nature--it cannot be formalized, for the formalization ("follow these rules to create an improvisation") isn't an authentic expression, it's just instantiating a formal program, an ultra-processed simulation of authentic improvisation.

Which brings us to recession and revolution: how we experience these socio-economic-political upheavals is different from how we understand them as formal models.

To those who lose their jobs or see their income drop precipitously, the experience of a deep recession is disorienting and distressing. Our world collapses around us, one piece at a time, and then altogether. We may feel trapped, and feel there's no way out. Our experience may not offer much guidance on how best to respond to financial stresses beyond our control.

The intellectualized explanation that capitalism generates prosperity by its very nature isn't helpful. Neither is looking at charts of interest rates and unemployment rates, or other abstract models that "explain" recession as the result of system dynamics: excesses of debt and speculation, rising inflation, and so on.

The disconcerting experience of navigating a decline or collapse in income and the dominoes that fall as a result cannot be "solved" by abstract models and systems. We can understand that our crisis is caused by larger forces, but that doesn't help us extricate ourselves from the downward financial and emotional spiral.

The same is true of experiencing revolution: technological, financial, political, social or cultural, or a mix of these revolutionary forces. In the present, we're each experiencing some exposure to the AI revolution, and there's no clear historical guide that can be formalized with any utility or accuracy for those experiencing the downsides of the revolution.

If deception, deceit, artifice and exploitation are the primary tools of those in power, human nature (Wetware 1.0) kicks in and demands some version of a truthful accounting of the parasitic elite pulling the levers in a Hall of Mirrors. This can manifest as formal processes--a truth commission or judicial proceedings--or as a tumultuous free-for-all of retribution and the settling of scores.

Formal models and systems help us understand the dynamics at work beneath the surface, but they're not guides to how we experience tumultuous disruptions in our own lives. Our experiences may be shared in part, but they are inherently as unique as our own life experiences.

From the start, my "job" here has been to explore and illuminate both worlds, the abstract realm of models, ideas and system dynamics, and the personal living-in-the-real-world experiences of navigating disruptive, non-linear eras. The abstract realm gives us a context in which we can locate our own experience, and illuminates dynamics that we can either avoid or slip-stream in our own responses.

But the experimentation, risk and potential ruin fall on us as individuals and households. These are not abstractions, these are often chaotic experiences with unpredictable outcomes.

No one individual can experience every variation of challenge and crisis, but many of us have experienced quite a few, from serious bodily injury to mental health crises to being broke to moving to a new place where you know no one to starting a business to changing careers to run-ins with authorities to situations where "doing the right thing" means sacrificing one's own interests--the list of potential challenges and crises arising in our own lives in tumultuous times is almost endless.

In the realm of experience, I promote self-reliance and formulating Plans A, B and C which can be summarized as setting a goal of acquiring tacit knowledge and skills and thinking through what options we have or can start creating before it's too late.

The Chinese proverb When you're thirsty, it's too late to dig a well summarizes an experiential approach to the challenges many of us will encounter should recession and/or some form of revolution upend our lives--and our Plan A.

Self-awareness is a critical component of tacit knowledge and skills. Being aware of the limits of our knowledge and experience--knowing what we don't know--and trusting our own intuition are both "skills" that can't be taught or learned by rote. It's the doing that teaches us what's most valuable--starting with humility and a willingness tp fail and persevere.



Video summary: I narrate key points (1:44 min): Navigating Recession and Revolution: Our Experience Isn't a Model or System


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Why We're Helpless When Things Break Down

Only then do we realize that by optimizing profit and efficiency, we've also optimized systemic failure.

In my essay AI, Money, Human Nature and the Problem with Problems, I refer to boundary conditions but didn't offer a thorough explanation of the role this concept plays in understanding not just how the world works but more importantly, how things break down.

Boundary conditions define what the system needs to function. The more complex the machine / system, the greater the number of conditions. For example, a car needs a source of power, fuel, tires, control mechanisms, seats, and so on--hundreds of components are required for the car to function optimally.

Some boundary conditions are narrow--there's little or no wiggle-room in what the system needs to function. Everything has to function perfectly or the system breaks down. We can call these tight systems as there's very little leeway in what they need to function.

In contrast, loose systems have boundary conditions with leeway: some components can fail or function poorly and the system will degrade--i.e. not operate optimally--but it will still function.

Consider a tire. A tire is a fairly loose system. If the optimal tire pressure is 32 pounds, the tire will still function if pressure falls to 28 or is overinflated to 34 pounds.

Now imagine a tire that fails if pressure exceeds 32.5 pounds or falls below 31.5 pounds. Those are unforgiving, tight boundary conditions with very little wiggle room. If tire pressure declines even slightly, it fails.

Which tire do you want--the one optimized for price/efficiency or the one with looser boundary conditions? Our entire way of life is dominated by systems optimized for price/efficiency, not survivability when the system veers outside its boundary conditions.

If a critical semiconductor chip fails in a modern vehicle, the vehicle breaks down and ceases to function. The chip controlled an essential subsystem, and once the chip failed, the subsystem failed, and the vehicle rolls to a stop: complete breakdown.

Certain characteristics of systems create tight boundary conditions that we don't see until they break down. During the pandemic in the early 2020s, the supply chain of some semiconductors broke down, and as a result the production of cars and trucks that needed those chips broke down.

Supply chains with single-source suppliers within long dependency chains (this part needs this part which needs this part) have exacting boundary conditions: since the supply chain depends on a single source for a critical part, if that supplier is disrupted, the entire chain breaks down.

Since the economy is optimized to maximize profit, it's maximized for efficiencies which demand tight boundary conditions and lengthy dependency chains: the system only works if every component works perfectly and every condition is met.

Centralization generates tight boundary conditions. Consider a mega-farm growing a single crop--a mono-crop that the region depends on. This centralized mega-system is optimized to maximize yield of a single crop via optimized subsystems: specific seeds, fertilizers, mechanized equipment, soil sensors, irrigation, harvesting and transport, and at the end, a market price for the crop that covers all the costs and yields a profit.

Financially, this is an optimized system. In the real world, it is a system prone to failure due to its tight boundary conditions. A pest or plague that evades the genetically modified seeds' defenses can wipe out the crop, a sudden bout of extreme weather at the wrong time can wipe out the harvest, and a drop in the market value of the crop can make it unprofitable to even harvest, so it's left to rot or plowed under.

Contrast this with a system of 100 independent, decentralized farms. Financially, this system is inefficient and not optimized to maximize profit, so it's anathema in a financial system that demands optimizing everything to optimize profits. Some of the farms will grow crops with low profit margins or non-optimal yields, and some will be inefficient due to raising a variety of crops instead of one financially optimized crop.

When the pest, plague or price collapse wipes out the mega-farm, the system of 100 farms growing a variety of crops continues to function, albeit at a reduced yield as some farms will suffer lower yields and incomes while many will be unaffected.

When a centralized system / mono-crop fails, everyone depending on that system / mono-crop starves. Once the system veered outside the boundary conditions, it broke down.

Here's a graphic illustrating tight and loose boundary conditions:



Analog - physical systems tend to be more forgiving than digital-dependent systems. When a bracket on a home appliance breaks, it's typically possible to substitute a non-optimized part to fix it. In other words, the manufacturer's bracket is nice to have but not essential, as some other piece of metal can be worked to serve the same function.

When the digital motherboard on the modern appliance fails, there is no replacement except that exact board. Some other mix of semiconductors and circuitry can't be substituted. The appliance--or vehicle, digital device, etc.--is now a brick. And if that one component is no longer available, the appliance is unrepairable.

In an old analog auto engine, if one of the four cylinders was no longer functioning optimally--the gasket was leaking, valves clogged, etc.--the engine would still function, albeit generating lower horsepower and dirtier exhaust.

The majority of systems we rely on for life's essentials--water, power, food, transport, banking, healthcare, etc.--are now digitally dependent systems with tight boundary conditions. They work perfectly until some critical component in a dependency chain fails, and then the entire system fails.

There are no replacements or substitutes for what failed, and so the entire system ceases to function. All the features of systems that optimize efficiency and profits tighten boundary conditions. Everything that widens boundary conditions--i.e. everything that increases survivability and flexibility--increases costs and reduces profits and optimization of efficiency: redundancy, warehousing of spare parts, constant training of personnel to deal with unlikely emergencies, etc.

The vulnerabilities of our optimized way of life are hidden until systems veer outside their boundary conditions and break down. We've witnessed many such breakdowns as every system is optimized for efficiency and profit by stripping out redundancies, second suppliers, spare parts, analog backups in favor of digital efficiencies, etc.

This is why we're surprised--and helpless--when they break down. We think they're robust because they work so well within their boundary conditions, but the narrowness of their boundary conditions makes them extremely sensitive to failures in critical components. This fragility is invisible until the system breaks down.

Only then do we realize that by optimizing profit and efficiency, we've also optimized systemic failure. Go ahead and hold control-alt-delete, but the system won't reboot or repair itself, for it's been optimized to break down.


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AI, Money, Human Nature and the Problem with Problems

How we define "problems" also defines what we "understand" as a "solution," and if our definition is circular, it's delusional.

Readers kindly point out I don't understand either AI or human nature. I readily confess to having an imperfect understanding of AI and human nature, along with everything else.

One thing I do understand is that "understanding" exists within the confines of an implicit milieu that is typically assumed by those embedded in it to be "the way it is," i.e. objective reality when in fact it is a cultural-conceptual mental construct with boundary conditions those operating inside this construct do not see because they're confident that their "understanding" is 1) complete and 2) accurate.

Due to the nature of all cultural-conceptual mental constructs, these assumptions are false. To those embedded in a particular cultural-conceptual mental construct, this construct is "reality" in the same way that mice living in Mouse Utopia (a large cage with abundant food and other mice) "understand" this artificial world is "real" and their "understanding" that this is "real" is 1) complete and 2) accurate.

What the readers kindly pointing out my deficiencies of "understanding" aren't stating is the cultural-conceptual context that they view as "the real world" is actually a mental construct. The current era's cultural-conceptual context is a remarkably narrow, remarkably distorted "understanding" of human experience based on two implicit mental constructs:

1. Human nature boils down to behavioral constructs: stimulus-response, avoidance of pain, the seeking of pleasure and leisure, which boil down to dopamine cascades, and so on.

2. All problems are ultimately technical / financial problems that can be solved with technology and "money."

And since AI is a technology that leverages all knowledge and all previous technologies, it is the ultimate technology-can-solve-everything technology. This construct is reassuringly circular: by defining all problems as being solvable by technology, then all we need to do to solve all problems is increase the power and reach of technology. The conclusion is "obvious": all problems created by technology can be solved by creating more technology.

Once again, this construct is reassuringly circular: since technology solves all problems, problems created by technology can be solved by more technology.

The same can be said of the financial system, a.k.a. "money." Since "money" can buy everything in the tangible world, it has a special kind of magic which blends perfectly with the magic of technology. And "money" has a magical component, credit, which enables the creation of "money" via the mechanism of using income or assets as the real-world foundation of this new "money."

Put these constructs together and voila, Nirvana-Utopia comes into sharp focus: robots and AI will solve all our problems and do all the work so we'll have the limitless leisure to amuse ourselves by staring at screens that unleash dopamine cascades or jet around the world (consuming nearly-free energy) racking up leisure-world experiences, with all this super-abundance funded by "money."

To those who "understand" everything within a construct whose boundary conditions they don't see, the possibility that their "understanding" is delusional cannot possibly be true. Isn't it "obvious' that humans love leisure and novelty, that "money" is all we need to buy limitless quantities of leisure and novelty via financial transactions enabled by technology, which will also provide all the energy, resources, manufacturing, transport, etc. needed to keep Nirvana-Utopia at our fingertips?

The possibility that the truly critical problems are beyond the reach of technology--or that technology itself is one of the problems--are anathema to the reductionist behavioral-technological mindset, which is trapped in a delusional construct in which there must be a technological / financial solution, so let's identify it.

In this construct, erecting thousands of giant machines to sequester carbon is the solution to climate change. OK, solved that, next problem. The solution to ground-based traffic congestion is thousands of electric-powered aircraft that will flit around, transporting us here and there, all controlled by the loving grace of infallible AI.

And when all this purposeless, dopamine-exhaustion, transactional Ultra-Processed Life makes you sad, lonely and depressed, here's a chatbot that is a "friend" and "therapist" combined to "solve" your mental health "problems." For in this financial-technological cultural-conceptual context, everything can be optimized by technology, for problem-solving is fundamentally a process of optimizing human nature via optimizing technology and "money": stimulus-response, pain-pleasure, dopamine receptors firing, problem solved.

And when all this purposeless, transactional Ultra-Processed Life makes you ill, AI will conjure up countless new pharmaceuticals you can wolf down as the "solution" to the "problem" of your ill health, neatly avoiding the real problem which is purposeless, transactional Ultra-Processed Life is inherently unhealthy and deranging.

My "understanding" of technology and "money" is a bit different from this conventional techno-financial construct which I view as a modern mythology of Progress). I "understand" technology as the manifestation of humanity as a tool-making species. Tools and "money" (with money understood as a tool with both tangible and imaginary/conceptual value) offer us wide-ranging utility value.

I also "understand" both tools have boundary conditions that define and limit their utility. These tools are not infinite or infinitely malleable; they only function within specific boundaries. Beyond these boundaries, they fail, or fail to provide utility, or they become a "problem" as they consume resources and lead us away from conceptualizing "problems" in ways that enable "solutions" beyond the narrow confines of technology-finance's boundaries.

Trapped inside the confines of technology-financial "solutions," we're caught in a doom-loop of doing more of what's failed due to our inability to "understand" that we're blind to the construct we accept as "the way it is" and its boundary conditions.

In the Mouse Utopia construct of finance, the "solution" is to turn everything into a market, unleashing the magic of market forces which solves all problems by turning everything into a commodity orbiting supply, demand and "money."

One of the boundary conditions of markets is that once everything's been reduced to a "market," it can be manipulated to the benefit of those proclaiming a "free market" that they control. The door labeled "free market solves everything" leads to "some are more equal than others" depending on who controls the "money" and supply-demand.

It doesn't matter what form of "money" is being circulated. what matters is how it's distributed by the boundary conditions, i.e. the rules governing the initial creation and distribution of the "money", the taxation rules and the rules enabling control of transactions, supply-demand and what's visible to all (i.e. transparent) and what's hidden to maintain advantages invisible to the mice scurrying around Utopia.

Humanity isn't just a tool-making species; it is also a social species, as our embedded social coding is what enables the knowledge of tool-making to be conserved and distributed.

Our social nature is as complex as our minds, our bodies and the world we inhabit. The narrow, reductionist, behavioral-technological construct that's taken as "the way it is" views the Universe as a mechanism with inputs, outputs and processes that can be duplicated and controlled once the instructions / coding are revealed.

The boundary conditions of this construct are absurdly narrow. For example, our "understanding" of the human organism is comically reductionist. Sugary cereals are considered "healthy" if they've been fortified with a handful of vitamins. Meanwhile, outside this comically narrow "understanding" of food and human health, every real food (for example, garlic) contains hundreds of compounds which interact with hundreds of compounds in other unadulterated foods and the thousands of types of micro-organisms in our digestive tract microbiome.

The constructs of "money" and technology--including AI--are equally reductive and equally blind to their own limited "understanding" of what they claim to understand.

Human life does not distill down to dopamine cascades and behavioral if-then coding. Our hard-wiring has been selected to conserve what is most advantageous to our survival, and these traits are largely social in nature, as our social skills are our primary selective advantage.

We seek connection with others, avenues of self-expression that serve our need to have purpose and meaning through being useful to others and mastering the means of being useful to others. We seek to be part of something larger than ourselves and our attraction to dopamine hits.

The reductive, mechanistic, behavioral-techno-financial optimization mental construct is blind to the boundary conditions that limit the utility-value of this extremely limited model of "how the world works." This construct replaces complex relationships and their inter-connections with discrete transactions that can then be optimized as if-then constructs. All of human life and experience is distilled down to financial or technologically mediated transactions.

For example, dynamic pricing, where data on each "consumer" is collected and analyzed to identify factors such as income, impulse control, patterns of spending, etc., that enable the AI pricing tool to jack up the price of the item/service anticipating that the "consumer" has both the income/credit and willingness to spend more than "consumers" with less disposable income/credit.

To those whose belief structures align with the behavioral-techno-financial optimization mental construct, this optimization is itself optimal in terms of delivering dopamine-cascade Nirvana-Utopia. Since transacting every material essential of life in a bloodless, relationship-free exchange of "money" increases our leisure time to trigger dopamine cascades by staring at screens, we're "happy."

The possibility that the dopamine-cascade Nirvana-Utopia of AI-powered transactional Ultra-Processed Life is a poor match for human nature doesn't occur to them because that would force an examination of all the boundary conditions limitations of the cultural-conceptual construct they incorrectly assume is "the way it is" when in fact it's all a cripplingly reductionist mental construct that's completely untethered from a comprehensive understanding of human nature and our experience of the world around us.

The data showing that this AI-enabled dopamine-cascade Nirvana-Utopia is in reality a living Hell does not compute in their belief structure in this mental construct. If this artificial, synthetic, ultra-processed, transactional, delusional, fake world makes us ill and deranged, the "solution" is more technology and more "money."

This is the self-liquidating circularity end-game of the entire delusional behavioral-techno-financial optimization mental construct.

The idea that the truly existential problems can't be solved by "money" or technology doesn't compute in their mental construct, which is based on their belief in the limitless power of "money" and technology to solve every problem that could possibly exist--a belief that is circular because it has no "understanding" of the boundary conditions of this construct.

To offer up one example of many, the believers in the behavioral-techno-financial optimization mental construct do not "see" moral decay as a causal factor because the moral universe doesn't exist in their model, just as the complex workings and value of real food, real relationships, real meaning, real purpose, real-world mastery of real-world skills don't exist except as ultra-processed tokens that can be distilled down to if-then optimizations of transactions.

I "understand" the appeal of this belief structure in the behavioral-techno-financial optimization mental construct of dopamine-cascade Nirvana-Utopia --it's simplistic and offers the implicit promise of god-like powers to the believers, and who doesn't want god-like powers, as those are the ultimate ultra-optimized triggers of the dopamine-cascades of self-reinforcing delusion.

Here's the problem with problems:

If we believe AI will provide a "solution" to the "problem" of moral decay, I submit this is delusion without any self-awareness of its delusional construct or the circularity of that construct. How we define "problems" also defines what we "understand" as a "solution," and if our definition is circular, it's delusional: all problems are technological-financial in nature, so "money" and technology can solve all problems.




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Sex, Money and Demographics

Maybe focusing on next quarter's profits and reaping short-term gains from financializing everything under the sun with debt weren't such great ideas after all.

Traditionally, the two taboo subjects are sex and money. Perhaps we should add demographics, as sex and money determine demographics which then determine the trajectory of the economy and society.

Sex, Money and Demographics are wide open to interpretation. I'm sketching out what I consider "obvious," but what's "obvious" to others may well be completely different.

The Modern Era has untethered a great many socio-economic bonds. In the current era, economics reigns supreme: everything is interpreted through a financial lens. But social-cultural forces--more difficult to measure than money--are intertwined with economic forces.

For example, the social-cultural obligation of men to marry the woman they impregnated decayed not just because the state began supporting single mothers with social welfare but as part of broader social forces untethering social obligations across a wide spectrum.

Birth control equalized the untethering of sex and the responsibilities / obligations of bearing a child. Women were as free as men to have sexual relations that were untethered from becoming pregnant /bearing a child.

The equalization of gender roles played out culturally, socially and economically. The signal value of Modernity is the elevation of the Self / Individual above all the constraining orders: family, the employer, the state. All these structures are now viewed through the lens of the Self.

Culturally, the notion that women should have fewer freedoms than men due to traditional gender roles was no longer justifiable. Women could choose a traditional gender role, but they could also choose to pursue employment and opportunities traditionally reserved for males.

Legal and financial structures changed to reflect this. Legal mandates required women's sports to be funded on par with men's sports.

Larger economic-financial forces were also at work. As inflation and globalization ate away the purchasing power of wages in the 1970s, households found that one wage-earner (traditionally the husband/father) could no longer earn enough to support the desired middle-class lifestyle of homeownership and secure finances.

So "women's liberation" melded with financial necessity. Women were "liberated' from the household in order to earn wages to increase the purchasing power of household income.

In strictly financial terms, financializing the household economy was highly expansive and profitable. Replacing all the services performed by the stay-at-home mom with corporate services financialized the traditional household economic functions, and the vast expansion of household credit--credit cards, and then later, home equity loans--financialized the savings and frugality of the traditional household.

As the household's income soared, it was spent on childcare, eldercare, takeout meals, housecleaning services, au pairs, etc.--replacing all the services performed by the stay-at-home mom with financialized transactions that turned a profit for someone or some enterprise. As the costs of these services rose, debt--the financialization of the household budget--filled any gaps that opened between income and spending.

Japan's giant real estate asset bubble in the late 1980s transformed housing from shelter into a financialized asset. This financialization of housing has gone global, and since capital (which views housing as nothing more than an asset generating appreciation and income) has far deeper pockets than households (which view housing as shelter and long-term security), capital can always outbid households.

It makes perfect sense to capital to leave dwellings empty. Renting creates overhead and risk, and since the core driver of housing as an asset is appreciation due to the bidding war of capital seeking low-risk assets to snap up, then it's sensible to hoard housing because it can't be replaced at the original price.

So dwellings sit empty. They're not shelter, they're an asset to hoard. This is the net result of the financialization of households and housing.

The net result of this global financialization of households and housing is only the wealthiest households can afford to buy a house and have children. And the net result of this is crashing birth rates and rising debt as households and states attempt to maintain their desired lifestyles by borrowing money.

Here's a snapshot of America's demographics. Population scale is on the left, births scale is on the right. females of childbearing age are stable (between 35 and 40 million) while the number of elderly (65+) is rising, on track to almost double in one generation (from 2007 to 2027).



Ultimately, the elderly depend on the younger generations to keep the economy/society functioning. That gets harder as the number of elderly rises and the number of young workers entering the workforce crashes.

Yes, AI and robots will fix all this, but AI and robots are not "free," they have inherently high costs. So will they pay for themselves? By what means, if they are not consumers generating profitable transactions?

Here's a snapshot of China's demographics. Births have fallen rapidly from 24 million annually to 7 million annually. The Fed Funds Rate and global debt are shown as the financial backdrop of low interest rates fueling skyrocketing debt, which ultimately must be paid by the workforce. China's population--along with many other developed and developing nations--will decline as a demographic consequence of falling birth rates.



Untethering individuals from social obligations has boosted financialization profits and debt, but at the cost of undermining the household, which is the foundation of child-rearing and the next generation. To Capital--focused on higher valuations and profits next quarter--financializing the household and shelter were nothing more than opportunities to rake in higher profits and gain--the same modus operandi as financializing healthcare.

Capital is about to discover the long-term consequences of their financialization of the household and shelter is the demographic collapse of their societies and economies. Maybe focusing on next quarter's profits and reaping short-term gains from financializing everything under the sun with debt weren't such great ideas after all.


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Mercantilism: China and Beyond

The self-liquidating nature of the mercantilist model cannot be reversed, it can only be managed as stagnation.

Everyone is an expert now on China. Which to say, everyone has an opinion about China, and the majority of those opinions fall into simplistic Bull or Bear camps.

As someone who has been a student of China for over 50 years, my sense is every claim of expertise has its limits. The more substantial the expertise, the greater the willingness of the expert to confirm the limits of their expertise. The more you know, the sharper your awareness of what you don't know.

Being embedded in a culture makes it difficult to be objective. As an American, I don't claim to be an expert on America; we only learn about being American by going elsewhere and observing, listening and learning from those raised in other cultures.

So rather than discuss China per se, let's discuss the dynamics of mercantilism that play out not just in China but beyond, as they play out in every nation with mercantilist policies.

Mercantilism is rooted in a basic question facing every society: what is the primary source of our prosperity? For nations rich in natural resources, the answer is extracting and exporting these resources to those who lack them. For nations with fertile land, it's growing and exporting grains and other foodstuffs. For nations poor in natural resources, value-adding manufacturing/crafts are an answer.

Every nation manages the balance between investing and consuming the surplus generated by the economy. Every dollar of surplus that's funneled into investing in expanding production of exports is a dollar that isn't spent in the domestic economy. It's a tradeoff: we accept being poor now in order to become rich as exports expand.

Mercantilism is the political-economic-social policy that seeks to increase prosperity by focusing on optimizing profitable exports at the expense of domestic consumption. Rather than consume the surplus, the surplus is invested to increase exports. Wages are kept low to subsidize capital investment.

Mercantilism relies on manipulation of market forces. Mercantilist policy recognizes that the way to reap the biggest gains is to corner the market for whatever is being exported. The ideal way to accomplish this is to sell your exported goods at a loss, making them so cheap that the importer's domestic producers cannot compete on price, so they close down.

Once the domestic producers have been wiped out or marginalized, the mercantilist nation's producers can jack up prices because the importing nation is now dependent on the mercantilist nation's exports. At the same time, the mercantilist nation establishes trade barriers to imports, making them so expensive that they cannot compete with domestic producers.

Mercantilism rigs trade on both sides of the coin to benefit the mercantilist nation at the expense of other nations. The mercantilist nation protects its domestic producers from overseas competition while flooding the targeted importing nations markets with cheap goods, driving their domestic production out of business.

Japan demonstrated how to optimize mercantilist policies in the period 1949 to 1989. Domestic consumption was limited as the necessary tradeoff to invest heavily in production of exports. This required tight coordination of the government and private industry, who worked hand in hand to finance and favor export production.

Currency, labor costs and state subsidies are all core to optimizing exports. The weak yen and initially lower labor costs meant that Japanese goods were cheap in the US. So mercantilism favors weak currencies, ample government subsidies of favored export industries and policies that cap or suppress labor costs.

The problem with mercantilist optimization is the targeted importing nations eventually wake up to the dire consequences of their dependence on mercantilist exporters. The downstream costs of losing domestic production and jobs become apparent, and the power that was transferred to the mercantilist nation without anyone noticing is now a visible threat.

This threat becomes even more apparent when the mercantilist nation deploys its vast trade surpluses to buy up companies, farmland and other assets in the importing nations. Alarm bells go off as the importing nation awakens to their future as a dependent peasantry working for industries owned by the mercantilist nations.

In other words, mercantilism is self-liquidating, because it's fundamentally a one-sided manipulation of markets that impoverishes the importing nations. Self-preservation forces the importing nations to finally push back against the mercantilist manipulations by protecting what's left of domestic production, limiting imports and demanding equal trade access to the mercantilist's domestic market.

The unrecognized problem is the very success of the mercantilist model leads to the mercantilist nation becoming dependent on that model, which is inherently centralized and tightly controlled--the opposite of a free market. Since decentralized, open-market forces have been limited to low-level consumption, the mercantilist economy has lost the capacity to adapt as an emergent system, i.e. self-organizing based on a churn of low-level, localized experiments and enterprises.

The limits of the centralized, tightly controlled mercantilist model only become apparent when it starts failing, at which point the model becomes a trap. Since the state-corporate partnership limits localized, uncontrolled open-market forces, this capacity is too constrained to replace mercantilism. In the the mercantilist model, the "solution" is always centralized: increase subsidies for export industries, strip-mining the economy and society to benefit whatever export industries the leadership has chosen to favor.

Since domestic consumption has been limited to boost investment in export capacity, the domestic economy cannot replace faltering export growth. What the mercantilist model optimized was investment, and as centralized control has throttled adaptive forces, the investments in more export capacity are now mal-investments, as the world has changed. Dumping the economy's surplus into expanding export capacity is no longer a golden road to wealth, it's a catastrophic mis-use of capital.

The grand irony in becoming dependent on the mercantilist model is that there is no way out of its self-liquidating limits. The centralized planners--so accustomed to the successes of manipulating trade and currency markets to their exclusive advantage--have no adaptive means left, as that would require dismantling the centralized control that is the heart of the mercantilist model.

So they do more of what's failing: weakening their currency, over-investing in export capacity, and maintaining a tight grip on the levers of control, as if doing more of what cannot possibly work like it did in the past will magically work because it was so successful in the past.

The story of China is the leadership has chosen export industries to conquer the world, but the world has changed. Importers have awakened to the consequence of becoming dependent on mercantilist nation's exports: national impoverishment and the loss of control of the nation's future.

Japan has managed a controlled stagnation of the mercantilist model in these ways:

1. Japan adapted the mercantilist model by moving auto production to the importing nation's domestic economy. Profits still flow back to Japan but the jobs and parts now benefit the importing nations' domestic economies.

2. Japan bought up enormous quantities of overseas assets in the go-go bubble decade of the 1980s, assets that generate income denominated in other currencies, enabling currency arbitrage, a.k.a. the yen carry trade.

3. Japan benefited from the deflationary boom generated by China: Japan moved a substantial portion of its production to China, along with other developed nations.

4. Japan has managed the debts left by the collapse of its gigantic asset bubbles in 1990 by keeping the non-performing loans on the books. Rather than writing off all the bad debt, Japan has chosen to bleed it off over decades of stagnation.

5. Japan's cultural unity and stability enabled the continuation of the mechanisms of the mercantilist model even as the model generated stagnation. The workforce continues to accept long work hours and other sacrifices jettisoned by other developed nations, centralized planning from the 1960s that forces needless domestic consumption, and the general stagnation of the purchasing power of wages evident in many nations: the number of young people who cannot afford to buy a home or start a family is now a consequential demographic factor.

To summarize: the self-liquidating nature of the mercantilist model cannot be reversed, it can only be managed as stagnation---and only if specific conditions apply. Absent those conditions, stagnation is not stable, it generates instability.

What's playing out in China is mercantilism with Chinese characteristics, just as mercantilism with Japanese characteristics has been playing out in Japan over the past 36 years. If the income generated by overseas assets replaces the stagnating income from exports, the decay of living standards can be masked by the continuation of a stable social order: the trains still run on time, everyone can get by on their salaries, etc.

But to say this is the same as the go-go euphoria of mercantilism's glory days--no. The self-liquidation can be slowed, not reversed, for the world has changed. This is not isolated to any one nation, it's inherent to mercantilism.




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