Monday, February 29, 2016

Sincere Optomism, Self Delusion, or Self Serving Propaganda?

Warren Buffett has clearly been a quite successful business man. And as such folks go, he's even been known to display a real sense of social conscience now and then. One has to wonder, however, at this most recent comment directed at the current presidential candidates.

On the one hand, if someone with his business acumen says our economy isn't nearly as bad as the candidates make it out to be, you would have ample reason to think he might be correct. If you then add the automatic assumption that candidates for our highest office will manipulate our fears to what ever strategic degree they deem necessary, you have even more good reason to think he is correct.

On the other hand, it doesn't take an economist, or a systems analyst for that matter, to see that there are very real reasons to be concerned for both the short term, and long term prospects for our economy. 

First are the physical realities that our economy must operate within. Resource shortages will establish themselves more prominently whatever the current supply situation might be for any given item. As such, even though oil is in oversupply now for a lot of different reasons, the trend line of where that situation will inevitably go is undeniable. Useable water is another example. Rare earth metals another as well, and one could no doubt continue. The problem with this sort of thing, however, is that it is not only that decreased availability increases costs directly in commodity markets, it adds strategic pressures on governments to protect not only what they already have, but to ensure their access to what little might be left. Which then puts them at odds with each other and more likely to seek negotiations by other means. The cost to be prepared for that has become ever more burdensome, and the cost of the failure of more ordinary negotiating tactics unthinkable.

Other physical realities to be considered are the true costs of development and production that have always been kept out of whatever the market cost has reflected. In this do we see the bill for burning fossil fuels now coming due. Perhaps not so obvious, though, are the delayed costs of taking resources from others who now have little to show for it, and of value commensurate with that which was taken. Call it Colonialism, resource rape, or out right conquest and annexation, the result is region after region where instability, corruption, greed, and hate are the main exports. The cost of addressing these has also become ever more burdensome.

Then you have our own internal physical realities to consider. Every aspect of social life, which makes economic life possible, needs to be maintained, upgraded, and/or replaced on an ongoing basis. And in an ever more competitive world, this becomes ever more important. And, as the pace of that competition is also increasing, the rate at which we conduct these upkeep processes must also increase. But this then begs the question of who will pay for it. How much of this cost can be put upon either side of the commercial, public, equation before there is inevitable overload?

And finally, there is the physical reality of just how competitive human wet ware can remain as a commodity. As we have already seen, cost increases are all about the landscape of economic life. But there is also the threat of other producers making things, as good or better than we can make them, but for which they can sell at a market significantly cheaper price. How far can this dynamic continue and still not significantly undermine the supply of purchasers able to purchase anything other than food and shelter? And how do you contain the growing dissatisfaction, or insanity, of those forced to work harder for ever less of any meaningful return?

Apart from these physical givens are the unexpected events that life in a complex swirl of astrophysics, geophysics, meterology, and biology can throw at us. These become even more significant in an already complex social/economic context, where a breakdown in one maintenance system can lead to inexorable breakdown in others. This is why the term "cascade events" has become so fasionable these days. In this context you have to see things in terms of carrying capacity.

An anology here is to think of it in terms of the shields on a "Federation" starship. Take a "Galaxy" class ship for instance. The Federation's best can get into some pretty tough situations, take a beating from both natural, and sentient driven, causes and still keep on warping it's way into new adventures. But even for a Galaxy class ship there are limits. Too many hits from Borg energy weapons, or a solar event beyond its ordinary out put of radiation, can cause the shields to fail.

Our social/economic system is no different. Put it under repeated stress, with ever smaller recovery times, and it will fail. And this will occur no matter what new technology you might apply. A fact for which, even if fundamental change occurred, would still be in effect. My contention, however, is that a cost based form of economy is much less resilient than an effort based one would be, and for reasons that I believe should be obvious now.

When you consider all of this, as well as Mr. Buffet's statement, you really have to wonder where he's actually coming from. He's certainly not an idiot. One could reasonably expect that he's just as aware of these physical realities as we are. Is it just the fall back reasoning that the right technology will save the day? It has certainly allowed for some effective short term fixes in the past, but have any of them truly changed the underlying physical givens? I don't think so but that is just my take on this. Perhaps there are other factors, or application of existing factors, short of fundamental change, that I am not aware of. Certainly a possibility, however low the probability might be. Are any of you willing to bet on the survival of our species on that marginal probability? I sincerely hope not.

Warren Buffett Says Negative View of U.S. Economy is 'Dead Wrong'