Structured discipline, controlled chaos, and the in-between
Fictional times (podcast episode)

The word that few are talking about

The word is future and maybe its time we get real about it.

During more stable times, it is enough that our thinking about the future extends maybe a few months, maybe into the next quarter, or perhaps into the next election cycle.  During these times, we can feel confident simply going to work, attending school, taking on a little debt, maybe saving a little, buying a house, and going shopping when we need something.  During these times, worries pretty much concern questions like, "Can I pay my bills for a few months if I lose my job?" or "What kind of career would make me happy?"  This way of life depends very much on economic and social stability; where well-established rules exist, we learn them, we follow them, and we are rewarded fairly.  This is the world that most of us grew up in and the world that most of us want to believe still exists.  But something very different has already begun and most of us don't see it.

In times of disruptive change, so much of the conventional wisdom we've built our lives upon begins to shift beneath our feet.  The old paradigms die and the new paradigms are either undeveloped or are not yet properly understood.  A clear example of this, in our lifetime, is what happend in Eastern Europe and Russia after the fall of Communism between 1989 - 1991.  Citizens of these regimes grew up understanding quite clearly how their society functioned, which kinds of behaviors were rewarded or punished, which kinds of thoughts were accepted and which were suspect.  Watching this transformation from the outside (in the Western World), most of us failed to perceive how unexpected and difficult this transition must have been for the average person at the time.  In just a few short years, most professions (and the social status associated with them) disappeared or had become irrelevant, the education that a person had earned was widely acknowledged to be worthless, a lifetime of money saved became nearly worth much less, and entire societies became nothing more than a memory or a butt of jokes.

We, in the West, watched this process with so much happiness and optimism.  How wonderful it was that the borders were opened (though few could afford to go anywhere or do much of anything at first), that Western products were flooding into these markets (though very few could afford them for some time to come), and that real freedom was possible (though with free-market capitalism comes ruthless consequences for those who cannot compete).  We easily ignored the fact that many lives -- perfectly happy lives -- were destroyed or thrown into turmoil for years to come (some never recovered).  Of course I'm not arguing that Communism should have continued just as it was; I'm only describing the reality of this drastic change to Democracy and free-market capitalism.  But I use this example because I believe it is directly relevant to what is happening in our world at present.

So come with me back to here-and-now.  The disruptive transition we are starting to witness is being caused by the following trends:

  1. The Debt Bubble (enormous debt that mostly cannot be repaid)
  2. Demographic trends in nearly all prosperous countries (disproportionately aging populations that cannot keep earning and spending as they have been)
  3. Asset bubbles everywhere (except, arguably, gold)
  4. Technological innovation (disrupting the traditional employer / employee model, radically changing social relationships, and making new kinds of revolutionary movements possible)
  5. Extreme economic injustice (2% of the world's population owns 50% of the resources at a time when an economic crisis is coming into focus...a crisis that can very easily be solved by taking some of that money from the rich)

These 5 trends have been happening for some time, but the first clear signs of the new reality ahead started to become apparent with the real estate / stock market / bank crashes of 2007 and 2008.  These crashes came about because the bubbles cannot be maintained forever.  Every bubble eventually has to burst, however hard politicians and businesses decision-makers deny this and try to fight it.  How were US real estate prices supposed to keep going up when wages were not (due to technology and extreme economic injustice)?  How were all the bad loans made by banks ever supposed to be repaid (they couldn't, which is why the banks passed them off to unsuspecting entities to blow-up at some point in the future)?  How can governments continue solving these problems when they are already stretched to near-bankruptcy (too much borrowing and low taxes through good times and no spending capacity left now that we need it)?   

The problems are global and the crash will be (is?) also global.  Here are some more important questions that I think should prove that we are approaching some fundamental, disruptive changes to our world-order:

  • How can consumer spending continue when most of it was done on credit and on rising property values?  Wages have been flat for some time in the US.  Spending was a result of second-mortgages made possible by rising real estate values.  Middle-class wealth (and consumer spending) in Eastern Europe and so many other places was also based on their real estate price bubbles.  So what is the new economic paradigm if it cannot be primarily based on consumer spending?
  • How can there be a middle class with money to spend if unemployment is high, wages are flat, and the wealthy 1-2% control most of the world's wealth?  Who are businesses supposed to sell to?  How can they hire more if they can't increase sales?
  • How can the GDP grow when the population is aging and shrinking?
  • How can low taxes on the rich be maintained when the requirements for elderly pensions are increasing and the cost of healthcare is increasing?
  • Why should employers take on the expenses and burdens of hiring employees when work can so easily and productively be outsourced over the Internet?
  • How can a world-order based on cheap, available oil continue after oil starts to decline?
  • How can debtor nations avoid defaulting on their loans when they are running at an annual budget deficit with a flat or shrinking economy?
  • Why should a population continue to tolerate impossible circumstances if the rules governing society are not just and no realistic ideas are being brought forth to solve the obvious problems we all understand?

Of course there are other similar questions, but I'll stop there for now.  Let's remind ourselves that the USSR collapsed because it wasn't feasible to continue under the prevailing economic model and social structure. Let's also remember that it took a long time.  For how many years and decades, during Communism, did the leaders know that the system could not continue indefinately?  For how long did they project "normalcy" to the population even when eventual failure was all but inevitable?  In the end, the collapse was mostly peaceful because leaders knew they had no real choice.   So they did not fight it.

This is what will happen to our current form of economic world order.  In future posts and on the Abscondo Podcast, I'll begin to describe what I think the next world-order will look like.  More importantly, I'll try to tie this back to what it means in our real lives.  I'm not interested in proving whether the crash will happen.  That's going to happen with or without my analysis. :-)  Instead, I'll be talking about practical solutions now and into that next phase.