(follow up to “Sufficient conditions”, part 1 )
So what constitutes sufficient motivation, sufficient pain, for people to change what they are doing? The answer to that comes in many parts, maybe as many parts as there are individual situations. And inflection points wont be especially predictable, it will be more of a case of, “I couldn’t describe it exactly, but I will know it when I see it”. However, for all the randomness of each persons individual circumstances, there are gross trends as well. Sentiment indicators/public psychology, unemployment statistics, GDP growth/contraction, Balance of payments surplus/deficit, prices -inflation/deflation, mortgage foreclosures/debt defaults. When the statistics, or indicators, on any of these flip to negative, then there is pain coming to some-one. When the whole lot turn negative, there is a whole lot of pain coming for everyone. Are we at that point? Well it remains to be seen how long and how deep the current recession will be. If it is shallow and short, then we will be back to business as usual in due course, painful but not sufficient. Sufficient is Screaming – not just grumbling.
I just read a commentary by Charles Hugh Smith(‘Of Two Minds’) that I have taken an edited extract from, if you are interested, the whole article can be read at: http://www.oftwominds.com/blogdec08/govt12-08.html
“In every case, [people take on] burdens in the belief that their career will be enhanced and they will make more money/gain more prestige. Yes, we all understand this. But they also must believe in the structural fairness, justice, opportunity, security, meritocracy, etc. of the machine they willingly serve–even if their belief is subconscious or rarely in their conscious thoughts… [Yet] You see the alienation, the bitterness, the disbelief, in factory workers when the factory shuts down, and their livelihoods are gone(and all too often too the pension and benefits they were promised)… You see it in the face of an academic who worked long hours for years “on the tenure track” carrying much of the department’s teaching load, when she/he is ultimately denied tenure. Thank you for working for $40,000 a year for years alongside people doing the same work for twice the salary; good night and good luck… When the most dedicated servants of the system awaken to the realization that they are not benefitting from their service as they’d once believed, that their near-religious faith in the System has been bruised by the grim knowledge that the few are benefitting from the lives and sacrifices of the many, then they simply quit, or move down the chain to an undemanding position… At some point, the pressures on the people …reach a point where the person realizes, “This isn’t worth it.” That is, the sacrifices made … are not being compensated by either the inner rewards (sense of purpose, sense of being appreciated, prestige or respect factors, etc.) or the tangible rewards (financial compensation, security, etc.)… Many in high-stress … jobs … feel the asymmetric burdens… carry huge responsibilities, and …raise the same question: “Is it worth it?” …Even though it’s devastating for an entrepreneur to close the business they’ve dedicated their life to, it’s also an enormous relief; the long struggle to maintain solvency is over...
Note to commercial landlords and local government: you think we need to operate this business? Well guess what, we don’t. Here’s the bankruptcy papers, have fun trying to collect a dime. We’re too tired to care how it all pans out, we’re moving on to a life without employees, rent, regulations and taxes… Now multiply this scenario by a million and you get a taste for what lies ahead. Beneath the headline-grabbing greedfest of the past 20 years, one bubble after another in the make-believe debt-fueled world of high finance … those struggling to make a living in small business have seen the rewards decrease and the hassles, taxes and other costs increase… Government is about to discover “the impossible” is happening: nobody’s paying taxes anymore because they no longer have a job or formal small business”.
It is a great article and touches on a number of the issues I am talking about. When people get over worked and underpaid to the point they can’t continue and give up, then there is sufficient pain. When the rewards they expected for serving the system fail to materialise, then there is sufficient pain. When you are forced out of business by impossible burdens, then there is sufficient pain. When it is happening to millions of people simultaniously, then there is sufficient pain for a Revolution to begin. (Interestingly, when the “impossible happens” and nobody is paying taxes, then too the State take a mortal blow to its lifeblood and becomes suddenly vulnerable.)
But returning to the core question, “are we there yet, or will we be back to business as usual in due course, painful but not sufficient?” The answer is NO – not yet, and maybe never. The economic system may stumble and then recover before any significant harm is done – who knows. But only if the indicators start to turn back to positive. If they don’t then the State is in deadly danger, because the pain of the people WILL get visited upon the State. That much as a general principle is clear enough to anybody and everybody with an interest in the matter. And as a matter of course, the institutions of Government will try their best to ameliorate and influence the trends and the indicators. Well, best of luck to them, I am guessing their chances are no better than 50/50. New Zealand is a pygmy amongst giants, whatever we may do here is going to be swamped by macro economic trends in the global economy. We gain our prosperity from a pretty limited range of activities. What we do and how we do it can be cut out from underneath us with spectacularly rapidly. A 1/2 dozen – dozen globalized contrary trends can easily devastate our economy, lifestyles and national consensus.
The factors we should watch include: oil, tourism, capital/debt, commodity prices, deflation/inflation, exports/imports – (in no particular order). We are very vulnerable to all of these factors and we are in control of none of them. What happens to New Zealand over the next few year is in the hands of other much larger players. And it all comes back to money, because money is what makes the world go around, and because we have actively constructed things that way. There are some(few) people who don’t measure themselves against money, but the vast majority do. Our self esteem, our success, our contentment is a reflection of our financial status. Take away the money and the psychological impact is devastating, let alone any practical considerations. I suspect relatively few people appreciate just how vulnerable our financial situation currently is, or how painful that could be. It has been a long time since the Great Depression. Regarding the factors I listed above, I don’t know the exact stats in anything more than a general sense, and the specifics will be important, but so too will the general trend.
Firstly, oil – we have already had this year a sharp indication of what dramatically higher oil prices mean. We have benefited since from a bounce back from those highs, but I am not expecting that to last. Low prices force high cost producers out of the market, that is happening, and extreme price volatility will discourage market participation too. Low or even stable prices I expect are a thing of the past, ‘Peak Oil’ is real enough, whatever other factors may be in play. Oil flows through into every aspect of the economy and I expect the pain to resume flowing sooner rather than later too. My guess is oil to return to over US $80 barrel.
Tourism – is vulnerable to a lot of factors, including oil. But more to the point, NZ has a huge exposure to tourism economically. With tourism making up something in the order of 30% of our GDP, a 50% drop in visitor numbers chops a big chunk out of our income. Is that at all realistically possible? Well, who is going to come here if the rest of the world is in a Depression? Make your own judgments, but consider the impact if it is true. What sort of unemployment would that cause?
Capital/Debt – NZ is essentially under capitalised. That was a big part of the rational for Kiwisaver. It has a lot less to do with securing you a halfway decent retirement income – that was only ever marginally possible at best, it is a lot more to do with eventually having a significant domestic savings base for commercial investment. In the meantime NZ imports capital and always has. The implication of that is that we are all extremely vulnerable to global capital markets. So in-spite of all the Central Banks racing each other to zero % interest rates, that isn’t actually going to affect what you end up paying, regardless of official Monetary policy and jawboning by bureaucrats. For the moment interest rates are coming down, but your deposit required is going up, and so too could interest rates at any time. House prices and debt of all types is in danger and our whole economy lives on debt now. For more information on this topic there are a lot of sources available on the net. Also, check out the article “Falling houses” in my sidebar. The upshot is that middle class wealth is invested in housing(real estate), falling prices = falling wealth. Opps!!! The ramifications of that are multi-fold and painful.
Commodity prices: The major part of our national income comes from exporting agricultural commodities. A significant fall in prices has a significant impact on our national income. likewise a significant change in the exchange rate has a significant impact on prices as well. Interestingly enough though, it is probably not an absolute fall or rise that is the most damaging thing, but volatility. That is what will actually make it difficult to remain in business, when your whole basis for projections and modeling becomes a lottery. There is a huge global re-pricing phenomena underway at the moment and it has a long way to run. Volatility will be the name of the game for a long while yet and it will hurt all businesses sooner or later, one way or another. Right at the moment, it is meaning a cut to rural sector incomes and they are something like 50% of our economy. Ouch!!! Where to, the future?
Deflation/inflation: Neither of these is good under the circumstances. Volatility is going to be evident here too. For the middle class it is going to show up increasingly as depreciating assets and inflating costs. What you own is worth less and going lower, what you owe and must pay for is going higher. Is that guaranteed – No, thats just my guess at this stage. Care to bet against me? It also has some nasty implications for businesses and employment too.
Exports/imports: At the moment everyone is saying, “we must not repeat the mistakes of the Great Depression, we must not raise trade barriers and tarrifs, that is the route to beggering your neighbour and ultimately, yourself”. Care to bet what the outcome will actually be when the blowtorch really comes on? There is an expression for it – Real Politik – self interest by the biggest players will trump any other consideration(“there are no permanant friends – there are only permanant interests”) NZ lives and dies by exports – and imports too for that matter (oil, capital, vehicles, machinery/tooling, computers, medicines, skilled immigrants…). If our exports are blocked from markets by self-interest at the other end – and our ability to pay for imports is choked, painful doesn’t begin to describe it.
It is all a matter of degree of course. All of these things could happen – to a little degree – and we would suffer a little, and then recover. Or……!!! Watch this space…! (should that be, ‘watch out below’?) Where is the inflection point where a little pain becomes – a lot of pain – becomes – too much pain? Pain enough for people to spontaneously flock to a flag of Revolution.
Maybe soon – maybe a while – maybe never. Que Sera. But I foresee a clear and present danger. How about you? And what are you doing about it?