Socionomic Trendspotting for 2008

As you know, we like to pull out Robert Prechter's theory of socionomics on occasion and use it as a lens through which to view current events and plan for the future. For those that are not familiar with this theory, click here for a brief overview.

It is just one of the tools in the FutureJacked toolkit, but an important one. The theory basically states that collective mood or herding can impose powerful trends on the behavior of markets and communities. On a basic level, the theory implies that humans are subject to some of the same types of behavior you see when ducks migrate south for the winter or when thousands of individual fish form huge schools as an aid to survival.

One way to view socionomic trends is to lay out two opposite poles of behavior and try to game out which "pole" the vast majority of people will tend towards during times of negative behavior versus times of positive behavior. One key way of measuring this is use market indices as gauges of real-time sentiment. If the trend is up, the investing public, the financial and political elites and even academics tend to herd in a more positive manner. So if we see DJIA above 12,000, we should remain towards the positive pole, if we see it drop substantially below 12,000, you can expect more behavior from the negative end of things. This is very simplistic, but if you want more, check out the Socionomics Institute for details.

With that in mind, assuming that the herding impulse, or collective mood, is the real driver of events (as we reviewed in a variety of scenarios in Catastrophic Abundance), then here are some trends we can look for in 2008:

The FutureJacked Top 5 Socionomic Trends to Watch in 2008

1. Discord wins out over Concord. The past year turned out to be full of far more positives than I would have expected going in. Financial markets held up in the face of incredibly negative news (the ongoing credit and derivatives debacle, the continuing collapse of real estate investment markets in many parts of the U.S., etc.) and that indicates that the mass mood was still quite positive overall. In response we saw what counts for progress in Iraq, an easing of tensions between the U.S. and Europe, the North Koreans making serious moves to disable their nuclear capability and credit markets that, while stressed, continued to function reasonably well in response to central bank actions.

I expect 2008 to mark the shift point from the setup to the payoff. If discord gains the upper hand, watch for renewed violence in Iraq (this time, U.S. forces versus Shia insurgents and allied with ex-Saddam and Sunni forces), an attack on Iran by the U.S. and/or Israel, a very bitter U.S. presidential race, intense partisan divisions in the U.S. federal government, a wave of protests and possibly violence as the home foreclosure tsunami gains in strength. Anything that requires cooperation to work well will be vulnerable.

2. Protectionism wins out over Openess. This will be an easy call, again assuming DJIA strongly below 12,000. Protectionism, tariffs, use of government powers to seize foreign-owned assets, etc. - some or all will rear their ugly heads this coming year. Right now, foreign investment in financial firms is hailed as free markets at work and as a good thing for American companies. In 2008, you can expect it to be viewed very, very differently. Foreign sovereign wealth funds that move in to buy U.S. assets will be characterized as looters and plunderers with no stake in the communities in which their assets operate. Trade barriers could go up and the results could make Smoot-Hawley look like the efforts of enlightened geniuses.

One thing to keep ticking in the back of you mind - the U.S. is still an agricultural powerhouse. If recent UN reports on food shortages and low grain stocks turn out to be correct, a disruption of trade could spell disaster for some countries that already live on the edge...

3. Inclusion loses out to Exclusion. We've been following the occasional appearance of the Secession bogeyman recently and, if my amateur take on socionomic theory turns out to be correct, you can expect to hear a lot more about regions wanting to secede in the coming year. We may see some counter-trend movement, such as Belarus being absorbed by Russia, but overall, I expect the trend to not be the friend of nation-states this year.

I won't speculate too much here - the idea of the viability of micro-states was reviewed in-depth in Catastrophic Abundance - but I will produce a list of places where I expect to hear more about secessionist movements.

Likely: Scotland, Quebec, Kosovo, portions of Nigeria, Northern Italy, the shattering of Iraq, Baluchi movements towards independence in both Pakistan and Iran.

Possible (but 2008 may be too early for much traction): the Lakota movement, Aztlan, coastal regions of China, the rupture of Spain, defacto independent gang provinces in Los Angeles, independence for Puerto Rico, Aceh agitation in Indonesia, the Transylvania region of Romania.

4. The tension grows between Magical Thinking and Practical Thinking. This is one area where my amateur analysis comes up at odds with the socionomic theory as worked out by Prechter, et al. Theory states that in times of negative social mood, magical thinking (interpreted by me as the neglect of reason and a belief that faith and confidence will result in positive, practical developments in the real world) trumps Practical Thinking (reason, science, free markets, etc.). I personally view this as a transition category. Practical Thinking most certainly drives economic expansion, new ideas and progress (hallmarks of positive social mood) - but I think that it has its roots in negative mood.

It is my interpretation that Magical Thinking actually kicks in during the 5th wave advance of the positive trend. During this long afternoon of progress, economic expansion and positive mood - societies become convinced that this is a permanent condition, that risk never has a downside and that what in earlier times would have been considered pathological conditions (rampant drug use - and I'm talking psych meds as well as dope, coke, etc., massive levels of debt, a focus on finance instead of agriculture or manufacturing, etc.) are now considered as benefits of progress. Debt is fine! Ignore the fact that incomes aren't growing quickly enough to service it. The hollowing out of manufacturing and the graying of farmers is fine! The food will always be there - it always has been. Don't build any new coal or nuclear plants - use natural gas - a rapidly depleting resource, because we like it better!

When a downtrend is firmly in place (after the 4th wave up has reversed itself and the 5th wave down of the main trend is recognized) then it is my interpretation that the fantasies and faith that could thrive in better times and linger in bad times are finally overturned. It sinks in that if individuals are to survive, then the blinders have to come off and the bullshit needs to be dispensed with. That said, the long, ugly slide can wreck education and social insitutions beyond recognition and, if the negative mood plunges deeply enough, the magical thinking can become institutionalized via laws and religious enforcement.

In 2008, expect more delusional thinking. Expect more "bailout" programs, more budget deficients, more willful ignorance on the part of political and economic elites to recognize that the U.S. can no longer live beyond her means. Even if we run up against a credit crisis that destroys the retail lending "industry" you can expect that we are still too early in the downturn for rational action.

5. Forebearance gets knee-capped by Anger. I interpret this as an intensely local response, but part of a larger trend. I regard this as the roots of vigilante and riot actions and the lubrication that will see society slide away from remarkable tolerance for individual misdeeds (and non-conformity to social "norms") to small-scale sanctions against everything from gangs (as well as the disintegration of truces between gangs) to the (perceived or real) lack of supervision of teenagers by parents, attacks on county tax officials and a general rise in violence.

I am seeing this one play out in my very own town. Columbia, Missouri, is generally regarded as an island of left-wing liberalism and touchy-feely citizenry. Throughout 2007, there have been an increasing number of home invasions and car-jackings. These incidents generally went off without a hitch for the criminals - until the last week, that is. In the past week we saw one intruder shot to death and two other incidents where crime victims fought back successfully. We'll see if this is a trend, or just a few outliers. I personally expect the lead to be thick in the air in 2008.