We should have seen it coming.

My website, The TimePage, is about social cycles in history.  It is an interesting idea and many people have used these, and other, cyclic ideas to try and predict what will happen in the future based on what we have seen happen in the past.  That is one way to look at cycles in history.  There is a bigger and better lesson to be drawn from the study of these cycles though.  A lesson that is maybe not as mathematically precise as we would like but a lesson that is almost impossible to avoid if you look at history with open eyes.  What I take from my observations of patterns and repetitive events in history is this.  Things are not linear.   Things change and sometimes even repeat.  Things go up…and, almost without fail, they then go down.  If you are going to stay on top of things you must plan for these possible variations.

When I was in college (a depressingly long time ago by the way so forgive me if I can’t qoute my sources) I learned that you should always plan for a range of outcomes.   There was always, of course, the best case scenario, but if you were wise you always sought to be prepared for the worst case scenario as well.   Generally, this left you somewhere in between, in the area that was most likely to occur.  Not the most aggressive or exciting approach you could take but it always left you fully aware of your limits.   Somewhere along the line we lost sight of that line of reasoning.   The root cause of our ongoing financial disaster, I believe, is that we all decided, some time ago, to start planning to the best case scenario.

There is no doubt that the big banks and corporations are in serious financial difficulty but it is, oh, so much worse than it might have been if they had been running their businesses with the thought in mind that things might go south at any moment and, more importantly, they would have be able to live with it.  With that approach we would never have reached the peaks that we reached a couple of years ago (inviting but false as they were) but we wouldn’t have fallen to the depths that we have fallen either.

I am sure that once some business decides to throw caution to the wind, chasing the best case scenario, and begins to run his business as if there is no tomorrow, it is very difficult for that business’s competitors not to do likewise.  But somehow, through most of history, businesses manage to control their impulses and enough, correctly perceived, caution is accepted by all of the players so that the financial markets can stay within acceptable limits.  Once in awhile, however, everybody loses it.   It happened 80 years ago and it is happening again today.  It seems to me that if we are to avoid starting our economy over every human lifespan or so we are going to have to somehow find a way to institutionalize this seemingly obvious need for caution in planning.  We need to prevent these financial bubbles from happening because we clearly have no ability to fix it after it has happened.

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Retired and loving it.

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