Socialism failed because it couldn’t tell the economic truth; capitalism may fail because it couldn’t tell the ecological truth.
~ Lester Brown
Update: This article was selected for the Best of Money Carnival #61 posted at Canadian Personal Finance Blog. Thanks Big Cajun Man!
On Monday, we looked at 5 financial bubbles floating around our economy and asked whether the proliferation of bubbles could mean that we’re in a bubble of bubbles. We defined a bubble as a structurally tenuous entity with nothing of substance at its core. Today we’ll look at 5 socioeconomic bubbles that could easily be viewed as both causes and effects of those financial bubbles.
The current version of capitalism seems to be based on the idea that growth is always good. Is that realistic? Is it desirable? Is it even capitalism? The very fact that much of our culture is based on the idea that more is better would seem to indicate that we are indeed in the midst of a bubble of bubbles.
The Bubble Roster – Part II
There are many trends over the past few decades that could easily be called bubbles. Here, we’ll take a look at 5 socioeconomic bubbles that are still inflating:
5 Socioeconomic Bubbles
1. Growth: One could argue that growth itself has become a bubble. Over the past 30 years or so, governments seem to be willing to do whatever it takes to avoid a slowdown in growth. But growth, unchecked, can become cancerous. Sustainable growth requires balance. We cannot have more, more, more without consequences. Whether you’re talking about biology or economics, a balance between resource capacity and utilization is paramount. Cells that grow out of control sap the resources of the organism, eventually killing it. The same is true of economic resources.
If we use up all of our resources in order to sustain growth, that growth, and the economy itself, will eventually stagnate and die. The concept sounds so simple – and yet we have failed to grasp it. We, the electorate, continue to support the cancerous policies that promote growth at any cost. We are willing to take on unprecedented amounts of debt in order to support failed corporations. We’ll max out our credit lines to have the newest, biggest and best. We’ll worry about paying for it all later. It’s a perfect example of how one bubble feeds another.
2. Consumption: Our insatiable desire for more has fueled the growth and debt bubbles. The 1200 square foot home in which we grew up isn’t good enough for our kids. We need it bigger. Last year’s gadgets are so passé. We need the new ones. Our old T.V. still works great, but we’ve got to have that new giant screen model with HD and hundreds of channels. (Never mind that the quality of content on those channels is in a deflationary spiral, perfectly representing a culture with “nothing at its core”.)
While all of this inflated consumption has lead to economic growth, we must remember the foundation of these purchases: a growing pile of debt. That can go on . . . until it can’t go on any longer. Charles Hugh Smith sums up the consumption conundrum perfectly in a recent article entitled Oversupply of Old Failed Ideas, Undersupply of New Pragmatic Ideas:
“Beyond a modest level, consumption is the classic example of diminishing returns: you keep spending more but enjoying it less. At the end, ennui, alienation and exhaustion replace enjoyment.”
If we insist on growth at any cost, we’re going to have to be prepared to pay up. But it seems like most of us want the growth without the cost. Not only is that impossible, it’s undesirable. Too much of anything becomes toxic.
3. Complexity: Is it just me, or is everything a lot more complicated than it used to be? Ordering a plain cup of coffee is boring. Our cars are so computerized that the backyard mechanic can’t fix it himself anymore. Our financial system, tax system and legal system are comprised of a web of information so complex that the average person has neither the time nor the expertise to untangle it all.
Perhaps that’s how Fannie and Freddie are still in existence. Perhaps that’s why no substantial regulation or transparency exists in the $600 trillion derivatives market. Perhaps no one in a leadership position even understands the structure and implications of these ticking time bombs. Is it a coincidence that the only people who fully understand them are the ones making loads of money from them while taxpayers foot the bill when they blow up? If that’s the case, perhaps they shouldn’t exist – at least not until we can figure out how to keep them from destroying our economy or until those who play in those markets are ready to fully shoulder the risks associated with them.
The Paradox Of Choice is a book by Barry Schwartz which postulates that more is less. Too much complexity and excessive choice don’t lead to greater satisfaction. Rather, they can hinder our ability to make effective decisions.
4. Complacency: It seems we have a complacency bubble on our hands too, and it feeds the other bubbles as well. Back in 2006 many experts told us that it was OK that U.S. housing prices had gone parabolic because demographics supported the rise in prices, etc., etc.. We might see a correction, but no crash was in the cards. We believed them. We were complacent. After all, nothing bad had happened yet, right? Again, it continued until it couldn’t.
Right now, we are hearing similar shushing from experts who tell us not to worry about the massive (and growing) heaps of debt on the books of countries and consumers worldwide. Don’t worry. We’ll grow our way out of it, they say. All we have to do is borrow a few more trillion to help consumers buy another home, car, or iGadget they don’t need and we’ll be back in business. Really?
I would contend that we’ve already borrowed so much consumption and growth from future generations and that it will take those generations quite a while to pay the bill for our profligacy. I wonder when the complacency bubble will pop? I’m not sure, but I guess it will probably happen right about the same time the other 9 bubbles we’ve outlined here start to pop. Who knows? Maybe I’m off base on this. After all, it hasn’t happened yet, right?
5. Narcissism: I’ve often wondered if my perception that people are a little more self-interested than they used to be was just a factor of growing older and becoming a little curmudgeonly. Unfortunately, recent studies have shown that people are indeed becoming more narcissistic. A new book called The Narcissism Epidemic: Living in the Age of Entitlementdetails research that shows that we have a narcissism bubble too.
So it seems that we are a society addicted to consumption and growth. But we’re too complacent to do anything about it because it’s all just too complex for us and we don’t care anyway because it hasn’t affected us personally – yet.
Enough Is Enough
Having described 10 bubbles over the past two articles, it seems like we can conclude that we have a bubble of bubbles on our hands. If that’s really the case, then society itself has become a structurally tenuous entity with nothing of substance at its core. But these bubbles have been building for many years and could conceivably continue for many more.
Still, it feels like we are approaching the “enough” point. That’s when we collectively decide that we’ve had enough – enough growth, consumption, complexity, complacency, and narcissism. Like the child who eats one too many chocolates or the imbiber who indulges in one too many cocktails, we are reaching the point at which we realize we passed Enough 2 drinks (or chocolates) ago and we’ve now crossed into the land of Too Much.
What will the catalyst for this realization be? Who knows? Maybe it will be more stories about Goldman Sachs and Wall Street getting rich while starving the poor. Maybe it will be the simultaneous popping of several bubbles that finally ends the tyranny of the capital markets.
What comes next may not be pretty. But like the hangover from any other overindulgence, it will pass. Then we’ll swear to never do it again. And we probably won’t. But our great grandchildren might.
Do you see any evidence of bubbles where you live? How do you think this will all turn out?