If I was a mathematical economist — and I have very, very good reason not to be — I would try to create a formal model for what I call antiprosperity.
What is antiprosperity? It is a strange effect. I hypothesise thus: as nations (and to a lesser extent, people) become more prosperous, they tend toward greater fragility. In other words, fat times create weakness. This is not a universal law, because there are some exceptions. It is more of a tendency. The children of the strong, the hard-working or the wealthy often grow up lazy and stupid and conceited. People who keep winning don’t learn about their weaknesses, and without being aware of their weaknesses their weaknesses can fester and develop into glaring cracks.
An example of antiprosperity is the global system of derivatives. By creating a system of side bets, market participants could “hedge” against any undesired eventualities (for example, shopping chains dependent upon high consumer turnout could create an option on weather — if the weather was poor, and thus their sales were down, the option would payoff, mitigating their losses). By 2008, over $1 quadrillion of derivatives had been created to hedge against inflation, rate spikes, weather, price changes, defaults on debt, climate change, and almost anything imaginable. The problem was that if a counter-party with a large amount of derivatives on their balance sheet fails, then those “assets” become worthless. Any liabilities go unpaid, and so other companies who have agreed to contracts with the bust counter-party may themselves become illiquid due to their losses with the bust counter-party. This can quickly cascade into systemic meltdown. So, to recap, a system designed to “stabilise” global markets — and, let us not forget, was once prophesied as the end to systemic risk — ends up destroying them through unprecedented systemic risk..
I am still trying to understand what causes this mechanism. I think human life tends to be characterised by a steady process of building and breaking. As we learn skills we face setbacks, and failures, we learn from our mistakes and we fix our weaknesses. Humans once had no choice but to work for their food. Taking away this gradual process — say, by creating a system that guarantees a constant and steady stream of food that requires no work to fulfil — creates a weakness, because the skills necessary to fulfil the pre-existing need become rusty. Western civilisation has become so good at feeding itself that it creates huge surpluses of goods and food. People don’t need to learn to feed themselves. Many people — who take the welfare route to “prosperity” (left-wing readers — yes, this includes bankers, defence contractors, and other corporate welfare recipients) — don’t even need to learn to work. They just suck up the handout and go on their merry way.
This tidal wave of prosperity hides a sickness inside, and we are seeing the first symptoms: overflowing bellies. Why learn the skills necessary to survive in the wilderness when it is easier to sit on your ass, stuffing your face with junk food? After, all the global resource infrastructure that pulls oil out of the ground in the middle east, refines it, ships it in oil tankers to America, and creates petrochemical-based fertilisers that are used to grow crops, produce (what can loosely be described as) food and transport that food to the consumer will always exist, won’t it? Readers are advised to know where their next meal is coming from — and their next meal for six months or a year — if the global system of trade were to break down.
To become stronger we must seek volatility, and to some extent, failure. When I was learning to play the guitar, I didn’t get better by playing pieces I could already play. I got better by seeking out failure by trying to play pieces and measures that were too difficult for me. Failure is beneficial and useful, because we can learn from it. Weakness is beneficial and useful, because we can learn from it.
How can governments and businesses learn the lesson of antiprosperity? Well, Steve Jobs seemed to know a thing or two about it. He was famed for his management style, whereby he lashed employed with vicious criticism to keep them on their toes. Failure and weakness built strength.
Governments should learn to keep welfare nets — both corporate and social — to a minimum. While the vulnerable (e.g. children, the aged, and the severely disabled) should under no circumstances be abandoned, welfare should never become a gold-plated ticket for an easy life. Governments should also peel back barriers to entry and overregulation so that the poor and unemployed can easily become self-employed without having to pass futile certifications, and pay thousands of dollars for licensing.
If we humans cannot avoid the excesses of prosperity, nature is a cruel mistress. What is the punishment for gluttonous obesity? It can become difficult or impossible to find a mate, thus making it difficult or impossible to pass our genes onto the next generation. The obese die younger, and thus turn back into dust sooner than their thinner counterparts.
And so too do societies enamoured with bread, circuses and free lunches. Rome was sacked, and its empire crumbled. Ming China collapsed under the weight of its traditionalism and technophobia. We here in the West — fed fat by the free lunch of petrodollar supremacy, the beauty of globalisation, the power and simplicity of a carbon-driven economy, and the largesse of the state — should heed those warnings. It is estimated that 99.9% of all species that have ever existed are now extinct
Thanks. I thought this was one of my better posts.
A very well thoughout and written post. I clicked on the provided link above and when I saw it was the NY Times, for a moment, I thought I would be forced to read another dipstick Krugman post. But, to my surprise, it was a short and sweet post by Mr. Taleb. (Whom I feel will go down as one of the great minds of our times)
But, reading a couple of comments below the article, I am still flummoxed by the “regular Joes and Janes” interpretations of Mr. Taleb’s post. Actually, the NYT Picks seem to wander off on a tangent and reinforce what Mr. Taleb is trying to warn us to avoid.
A one of nugget from the commentor alan caught my eye:
“As a business owner as well, it seems to me that ww2 WAS a very keynesian response. Ed Garren above is correct. Financial hard times such as we are in now are made significantly worse by the hoarding of money.”
Again, here is yet another maliformed and miseducated soul, that “has the answer” and sees keynesianism as the solution. As a business owner, it his “job” to convince the masses to “dehoard” money by offering and good or service that “money hoarders” will then willing “dehoard” their money and buy his good or service. That he misses the point of “business” is scary.
Or the now common view that WW2 or just war is actually good for the economy. Of course this tortured soul losses sight of the fact that during WW2, the US population went on a massive saving spree (hoarding of money) during those 4 years. I say forced, because there was actually very little goods and services to buy, examples include no new cars, no cola sodas and no gum, just to name a few. I would also be remiss if I didn’t point out, that the US was the only “developed” country to have it’s industrial base left intact after the war ended. A huge advantage and one that explains much of the US prosperity during the next 25 years.
To circle back to the views that both Taleb and yourself. Faulty econonomic models and the various business models and public programs built using these methodologies usually fail precisley because complexities, systemic risk and black swans are always part of the any environment/ecosystem.
Or, as a guy with a great mustache once said, “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”
Taleb often rants about the NYT being evil. It greatly amuses me how he writes for them at times.
The big difference between me & Taleb and the vast majority of other commentators is me and Taleb do not want to offer solutions. We just want to describe nature.
Taleb has a new book coming out. I can’t wait!
I’ve read most of it already. It’s brilliant.
Turning back to the obesity theme, I just recently went into a US hospital for the first time in 15 years. The first thing that struck me was the amount of nurses that were obese. An eyeball estimate was 75%+.
Yet another sign of a bubble?
“If we humans cannot avoid the excesses of prosperity, nature is a cruel mistress. What is the punishment for gluttonous obesity? It can become difficult or impossible to find a mate, thus making it difficult or impossible to pass our genes onto the next generation. The obese die younger, and thus turn back into dust sooner than their thinner counterparts.?”
Can’t help put have to point it out that the number of obese females is almost close to the number of obese males. So there, they will find their mate and continue to pass their genes and non-stop reproducing. Although mating becomes hard work for them but hey, fertility clinics are always there to help! 😉
Don’t believe the junk science about fat genes. Before China’s economic reform, there were literally no fat person (save Chairman Mao and the like of course cuz they eta drink as they wished.) Do you see a fat person in the starving countries such as Ethiopian or Sudan? All you see are bones wrapped by skin. But those skinny people after immigrated to the U.S or Britain, they without exception blow up their body body like balloon. So it’s personal life style and activity/eating habits. Surly the grandparents of many of the obese people would be rolling in their graves if they could hear their the ones to be blamed for passing so called “fat genes” to their offsprings.
I often see many slim babies come from some very large obese parents too. Many time children don’t want to be like their parents. So human beings are still very hopeful.
Well, a lot of it depends on the interaction between genetics and environment. Everyone is skinny when there is a shortage of calories, but I think only people with the right genes will become fat when there is a surplus of calories.
Skinny monkey gene right? Oh Common!
Look, monkeys are skinny because they have to jump up and down all day to get just few fruits. They can eat non stop all day but their life style burn all the calories. Olympic Gold metal swimmer Michael Phile eats 8000 – 10,000 calories a day but you have to look at what he does how he burns the calories he ingested.!
So call skinny gene — don’t even dream of it. It’s good to be the ODD but the ODD is not good to anyone, like winning the lottery. Just to observe the natures around you. Fat cows are fat because they stand still eating all day. Running horses are not fat because they run! Horses get very fat too when they eat but not run. So do dogs and cats and rats. Monkeys at the zoo are getting fat too when they don’t jump up and down while eat a lot.
Although genetic factor does make some people heavier than the others but it doesn’t make them obese. Obesity is out of the norm. Life style is the major cause of obesity. For excample at smoking issue, some people do have the good gene that allow them to smoke without getting lunge cancer, like the former Chinese leader Deng Xiao Ping who was a heavy smoker all his life but never had lunge cancer. But for the people who don’t have the good genes are lunge cancer free too when they don’t smoke. So for those born with heavy set gene all they need to do is eat less and exercise more.
Actually I’d say the real link is that genetics predisposes some people to be more physically active than others.
clarify: I wrote: ” Surly the grandparents of many of the obese people would be rolling in their graves if they could hear their the ones to be blamed for passing so called “fat genes” to their offsprings.”
Because many of the obese people’s parents and grandparents were not fat at all all their lives.
“If I was a mathematical economist — and I have very, very good reason not to be — I would try to create a formal model for what I call antiprosperity.”
If only you had completed college. 🙂
Yeah, lucky for me I wasn’t an economics student, anyway. So I was never exposed to the cult of turning everything into a (simplistic) mathematical model and then using those models to try and arbitrarily predict the future. Well, I exposed myself to it by self-teaching later, which I did very sceptically. I guess most 18 and 19 year old kids encounter DSGE with the mindset that this is the way reality is. I approached it with the mindset that this is what a load of puffed-up academics who failed to predict 2008 believe.
All you have to remember in Economics from a mathematicalpoint of view is
Where the surplus of revenues over expenses provides profit or income.
All other mathematical models provide commentary. But without the above rule modeling the real world, you soon end up working for wages, provided by someone who whos how get the right ratios of R-E=P
Hahaha. I don’t agree. What really matters is what market participants do with the (+/-) P.
Reality – Economics = Paul (Krugman)?
Fantastic post. It has similarities to Ibn Khaldun’s famous book, where he asserts that the Bedouin who are strong and rugged have the ability to renew decadant civillizations where people have become too soft and comfortable, by organizing themselves and taking the reign of power away from the decaying ruling classes.
Also Idiocracy a free movie available on You Tube, though we might argue that it might encourage central planners to practice eugenics, first few minutes illustrate how the genetically and culturally substandard might come to dominate a culture:
Yes. ibn Khaldun was one of the greatest economists in history. Thanks for the heads up n Idiocracy. I will watch when I get a chance.
Idiocracy is one of the most instructive movies of the last 30 years. I just watched it again last week.
The conceit is that it’s 500 years in the future, the truth is it’s set in modern times.
Just imagine Joe is any average soldier from 1776.
Two recommendations. I’ll watch it tonight.
Don’t forget how much taxes rise when the country is prosperous. When people have much more than before, surely you can take some of that excess and put it to a “good” use?
Prosperity feeds expansion of the State, and than it starts to erode basis of prosperity and cuts the branch it’s sitting on. I think your analysis is secondary to that. How much bigger govt USA now has to carry on it’s back than 100 years ago? No wonder that even with all that rise in productivity, shift to 2 people working in a family etc real growth just can’t keep up. If people are more lazy, than it’s even worse, but even if they were the same this Empire could never be sustained indefinitely.
I would like to point out that obesity is a good safety net against the upcoming supply-chain breakdown.
Bears fatten up before hybernating for months – so if/when the supply chain disruption happens, all fat people have to do is learn to hybernate (i’m sure a drug could do this) until it’s all over.
There is good in every evil.
Meh. It’s better to be slim and capable of providing for yourself. Being obese might be a calorie safety net, but it’s certainly not a fitness or skills safety net.
I was joking you know 🙂
It’s an interesting prespective. But you wouldn’t have been able to make the same point if you posted a chart of obesity rates in France for example or Japan. Put simply – the obesity epidemic in the US is less about the current global economic order and more about the US food and healthcare systems.
Obesity is increasing even in places like France and Japan. That suggests to me that the global economic order is one factor. The increase in the US has been more extreme, which suggests there are other factors.
I’m not saying it is not a factor period. I’m saying it isn’t much of a factor. Because obesity is rising in producer countries as well ie Saudi Arabia and the Gulf with the latter having some of the highest obesity rates in the world. It’s also rising in China – another producer country.
To me – encouraging farmers to produce sans subsidies is generally a good thing. Where the problem lies is the consumption mania in the west especially the USA. But at the heart of the obesity issue in the USA is the food system – food deserts, high fructose corn syrup in everything, and the healthcare system.
Nice blog btw.
Easily sourced food grown with petroleum based fertilisers plus machines to help us get around = crude oil changes into belly fat.
I hope Krugman’s Aliens are not in the Beauty Soap Trade 🙂
I hope Krugman’s aliens offer free liposuction.