Those households, enterprises
and organizations that have no debt, a very low cost basis and a highly
flexible, adaptable structure will survive and even prosper.
The coming recession will be
unevenly distributed, meaning that it will devastate many while leaving others
relatively untouched. A few will actually do better in the recession than they
did in the so-called "recovery."
I realize many of the concepts
floated here are cryptic and need a fuller explanation: the impact of
owning differing kinds of capital, fragmentation, asymmetry, opacity, etc. ( 2019: Fragmented, Unevenly Distributed, Asymmetric, Opaque).
These
dynamics guarantee a highly uneven distribution of recessionary consequences
and whatever rewards are generated will be reaped by a few.
One aspect of the uneven
distribution is that sectors that were relatively protected in recent
recessions will finally feel the impact of this one. Large swaths of
the tech sector (which is composed of dozens of different industries and
services) that were devastated in the dot-com recession of 2000-02 came through
the 2008-09 recession relatively unscathed.
This time it will be different. The build-out of
mobile telephony merging with the web has been completed, social media has
reached the stagnation phase of the S-Curve and many technologies that are widely
promoted as around the corner are far from profitability.
Then
there's slumping global demand for mobile phones and other consumer items that
require silicon (processors) and other tech components: autos, to name just one
major end-user of electronics.
The net result will be mass
layoffs globally across much of the tech sector.Research is nice but
it doesn't pay the bills today or quiet the restive shareholders as profits
tank.
The public sector is also ripe
for uneven distribution of recessionary impacts.Local government and
its agencies in boomtowns such as the SF Bay Area, Seattle, Los Angeles, NYC,
etc. have feasted on soaring tax revenues and multi-billion dollar municipal
bonds.
The Powers
That Be in these boomtowns are confident that the good times will never end,
and so the modest rainy-day funds they've set aside are widely viewed as
immense bulwarks against recession when in reality they are mere sand castles
that will melt away in the first wave.
A $1 billion reserve looks
impressive in good times but not when annual deficits soar to $10 billion. Local
governments depend on various revenue streams, and most rely on a mix of
property, sales and income taxes, both wages (earned) and capital gains
(unearned). All of these will be negatively impacted in the next recession.
Local governments are
especially prone to The Ratchet Effect, the dynamic in which expenses move higher as revenues climb
but the organization is incapable of shrinking, i.e. it only knows how to
expand. This defines government as an organizational type.
Inefficiencies
(including low-level corruption and fraud) pile up and are offset with higher
revenues. When revenue crashes, the system is incapable of eliminating the
inefficiencies or reducing benefits and headcount.
I call the
endgame of The Ratchet Effect the Rising Wedge Model of Breakdown:
The Ratchet
Effect is visible in organizations of all scales, from households to sprawling
bureaucracies. The core of the Ratchet Effect is the ease with which the cost
basis of an organization rises and the extreme resistance to any reduction in
funding.
The
psychology of this resistance is easy to understand: everyone hired in the
expansion will fight to keep their job, regardless of the needs of the organization
or the larger society. Every individual, department and division will fight
with the fierceness of a cornered animal to retain their share of the budget,
for their self-interest trumps the interests of the organization or society.
Since each
"ratchet" will fight with desperate energy to resist being cut while
those attempting to do the cutting are simply following directives, the group
that has pulled out all the stops to resist cuts will typically win
bureaucratic battles.
Broad-based
cuts trigger Internecine Warfare Between Protected Fiefdoms as entrenched
vested interests battle to shift the cuts to some politically less favored
fiefdom. Bureaucracies facing cuts quickly shift resources to protecting their
budget, leaving their mission on auto-control. (The Lifecycle of Bureaucracy December 2, 2010)
These dynamics create a rising wedge in which "minimum" costs
continue to rise over time even if modest cuts are imposed from time to time. The eventual consequence is a cost basis that is so
high that even a modest reduction collapses the organization.
In other words, incremental reductions and reforms have zero impact on
the endgame. The organization has
become so brittle that any structural reform triggers a breakdown.
Those households, enterprises and organizations that have no debt, a
very low cost basis and a highly flexible, adaptable structure will survive and
even prosper. Those with high
debt loads, high fixed expenses and inflexible responses will find incremental
reductions and reforms will have little impact on the endgame of breakdown and
collapse.
This is one of the core topics of my latest
book, Pathfinding our Destiny: Preventing the Final Fall of Our
Democratic Republic.
Here's a household example of the type of organization that won't just
survive but thrive in the recession: a household with
$100,000 in revenues from multiple income sources and fixed expenses of
$35,000, no debt and a management team (the spouses/adults) that's willing to
implement radical changes in lifestyle, expenses and work at the first
disruption of revenues. The household that doesn't just survive but thrives
sees crisis / disruption as an opportunity, not a disaster to be mitigated with
denial and wishful thinking.
Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($6.95 ebook, $12 print): Read the first section for free in PDF format.
My new mystery The Adventures of the Consulting Philosopher: The Disappearance of Drake is a ridiculously affordable $1.29 (Kindle) or $8.95 (print); read the first chapters for free (PDF)
Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($6.95 ebook, $12 print): Read the first section for free in PDF format.
My new mystery The Adventures of the Consulting Philosopher: The Disappearance of Drake is a ridiculously affordable $1.29 (Kindle) or $8.95 (print); read the first chapters for free (PDF)
My book Money and Work Unchained is now $6.95 for the Kindle
ebook and $15 for the print edition. Read the first section for free
in PDF format.
If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.
If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.
