Wednesday, February 10, 2010

Efficiency versus Resiliency

I've been reading Barbara Tuchman's very compelling book A Distant Mirror, a sweeping narrative of, as she puts it, the calamatous 14th century. That it was. For anyone who thinks, like me, that we are headed for a crash of historic proportions, Tuchman's work provides a fantastic lesson in just how ugly things can get when an entrenched system unravels in the face of economic disruptions, climate change, plague and endemic war. Interestingly enough, Tuchman's work was published in 1978, during a significant bear market.

One topic that is not covered directly in the book, but which I keep coming back to when trying to figure out actions I can take in the face of this coming storm and that is efficiency vs. resiliency.

Growing up in the warm sunshine of the late, great bull market I usually default to libertarian ideals when it comes to economic relationships in trade, finance, manufacturing and regulation. (On a side note, as mood has changed I have noticed my own opinions morphing a bit - maybe it is a case of getting older and mellowing or because I am caught up in this mass mood like everyone else and my opinions are just as malleable as the rest of the herd.)

Efficiency and lowest cost to the consumer are results that I have almost always regarded as the "chief good" as it were. Just in time inventory systems, outsourcing and off-shoring, the hiring of consultants and contractors to fill key technical roles and other innovations that blossomed over the past couple of decades were cross-fertilized by the increasing optimism that ruled the day until the turn of the millenium and I tended to regard them as at worst necessary evils on the road to a hyper-efficient and more wealthy society.

In times of mass optimism, measures that increase efficiencies and lower costs to consumers have a lot of merit. In times of mass pessimism, I am not so sure. Or to put it another way, mass pessimism precludes the efficiencies of the free market from operating properly. Yes, free markets are always better for producers and for those who strive for liberty and justice. In times of mass pessimism, though, many men and women are no longer producers and they are driven by anger, greed and a "I gotta get mine" attitude which leads them to alter the governing structures to pervert market structures and drive money and benefits their way at the expense of the greater market. Logical efficiencies such as privatizing government functions can, in such times, lead to something more akin to strip-mining of public assets by criminal cliques than to the cost-savings and efficiencies that theory would teach.

The Response of Those Who Lived Through Hard Times

Hard times leaves an indelible impression on societies. In a prosperous, free-market era things such as agricultural subsidies are mocked and decried as nothing but a sop to pressure groups and a mechanism to keep food prices higher than they ought to be. Often they devolve into that very thing, but when first put into place, such subsidies were a reaction to people who had seen real hunger and real devastation. These programs were, in part, a legacy of past negative moods. Europeans who had seen hunger and privation, who had seen international trade and imports choked off by war, implemented strong supports for local farmers. Japanese policy-makers did the same with their rice farmers, the memory of the hard years of WWII fresh in their minds.

These policy makers were not total fools. Many surely knew that they were building in inefficiencies and higher prices. They probably felt that these were small prices to pay for some measure of resiliency in their food supply chain should war or disruption come again.

In times of pessimistic mass mood, you better be ready for disruption to come your way:

  • Just in time inventory is great - until a riot prevents delivery of parts to a factory.
  • The vast transport network which is required to distribute food is wonderful in a free market sense and has allowed for the closing of many inefficient regional bakeries, canneries and food processing plants across America and is a great way to get cheap food all across the continent - until violence and insurrection results in blown bridges, blasted railroads and breached levies that disrupt internal transport.
  • Privatization can make public services much more efficient and cheaper, until a criminal clique (whether a group of influential locals or a big multinational bankster outfit) comes in and buys both the services and the local judges and then takes in revenue while providing poor service in return - with no recourse to open, public scrutiny

Food for Thought

I'm reaching here, groping in the dark to find action items I have missed in preparing for the coming long economic winter. We are entering this phase with little to no resiliency left in our economy. The efficiencies wrung from our production and supply chains have cut out the fat, the redundancies, so necessary to keeping a network such as our economy up and running when put under stress. All of our public officials are schooled in some form of economic or political theory that prizes efficiency and low consumer costs as the highest good, at the expense of backups, of inventory, and of the producers of the goods. Our manufacturing sector is laughably reliant on China. Our ag sector is frighteningly dependent on foreign oil, as is our distribution network.

When the disruptions come, the value of inefficiencies, the value of resiliency, the value of multiple human beings capable of doing productive work, will be revealed as positive values in an age of pessimism.


David said...

The choice is always between voluntary relationships or force. Libertarian philosophy recognizes that in all times and places voluntary arrangements produce more goods like food, security, privacy, etc. Social mood changes cannot alter this axiom. All we have in social mood is the degree to which cooperation trumps exclusion. Thus we see peaking social mood accompany all sorts of rot in political systems (which are by definition coercive) because people are so optimistic that they just don't give a darn about the crooks who rule them.

As to your comment about a criminal gang controlling the judges and cops, it has long been shown that the state is always a criminal gang writ large. How would you know that a criminal gang had seized power when all that would occur is a change in the names on the organizational chart?

Coercive systems appeal when fear drives people to want control. Unfortunately, coercive systems reinforce the decline in production of goods and amplify the production of bads (domestic and foreign wars, particularly). One of the great paradoxes of life is that the tighter people try to control life, the more disorder they yield. As Proudhon stated, "liberty is the mother, not the daughter, of order." People want order, but investing in politics, regulations, and such is like drinking alcohol to cure depression.

This is also part of why declining and bottoming social mood are accompanied by disorder.

I agree with your take on resilience. It costs real money to install backup systems for provision of essential utilities, and until quite recently the economies of scale for power and water were pretty clear-cut.

For instance, my home sits on a hillside. The grade is such that the street dips below my basement's floor at my property line. Despite this, my sump pump is quite active half the year, and a power loss would soon render my home uninhabitable. I am faced with two choices, either install a costly back-up battery-operated pump or pay ten times that amount to have a trench dug and have the system drained directly out to the street.

This doesn't even touch on installing a wood/pellet burning fireplace insert to backup the furnace, and duplicating water provision is impossible.

Disorder isn't cheap.

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David J. Williams said...

Either the 14th century, or Rome 300 A.D.:

"Will I become a beggar? Will I take to flight? Will my flight be stopped?" -- questions asked an oracle during late roman empire

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