Tipping Points: Socio-Economic Systems Near the Point of Collapse

Posted on March 23rd, 2011 by admin in Culture and Consumerism, Demographics, Political Economy, Retirement, Scenarios, Tipping Points

Society at Multiple Tipping Points

Economist Herb Stein famously said: “If something cannot continue forever, it will stop.” We now see many socio-economic systems in USA that cannot continue as they are forever, and which seem to be close to the point at which they could easily move into damaging and chaotic states. Let’s take a look at some of our favorites: But first, we need to roughly define a “Tipping Point”.

What’s a Tipping Point?

Every system has limits, including social systems. For every system there is some generalized boundary of system behavior and its use of resources that constrains system operation. When a system reaches its boundaries, some form of dramatic behavior can ensue. As systems approach these boundaries, they may cross their “tipping point.”

The “tipping point” is the state of the system at which catastrophic and usually unpredictable results emerge. For a simple, physical example, consider a sand pile. If you add sand by dripping handfuls on a flat plate, eventually you will have a cone and then it eventually takes only one more grain of sand to cause the whole pile to collapse. For socio-economic systems, people’s behaviors will change as the tipping point is neared. What will happen when these systems get close to their limits? We will make this general question more specific in several current socio-economic systems.

The Banking System Tipped

We have already seen a painful example of a system that tipped over its boundary: Banking. When people and corporations are unable to pay their debts (induced in large scale by government easy-borrowing policies), they default. Defaults vaporize money (the amount owed and not paid back), promoting deflation and breed wide distrust by lenders and leading to a freeze in economic transactions. Then government succumbs to the urge to stop the crisis by “bailing out” the biggest debtors. These government payments (effectively making money materialize) thus relieve the borrowers of the consequences of the risks they freely chose to take. Bailouts are examples of “moral hazard”, which is a condition in which risk-takers expect no unpleasant consequences since they expect to be indemnified by other People’s Money (OPM).

Systems Near Their Tipping Point

We have compiled a series of some of the more obvious social systems near their tipping points. We present them in tabular form, describing the system, a natural tipping point, and give some examples of what could happen once the tipping point is reached. This is the heart of the matter, and will affect almost everyone. We give a number for each system described, starting with Banking.

Financial

System 1

Banking

Tipping Point

A number and valuation of unpaid debts, tempting government intervention

What could happen?

The excessive risk taking continues, since the borrowers know government will again bail them out. Moral Hazard rules.

Demographic

System 2

Baby Boomer Retirement Plans:

Tipping Point

For a variety of reasons, millions of ageing Baby Boomers cannot retire, since they have insufficient retirement assets but also cannot continue to work (due to bad health, being too old, or being forced out of their jobs) and likely will outlive their money.

What could happen?

Homelessness, poverty capture many boomers. Migrations to low cost, rural regions, which in turn loads rural medical system beyond capacity.

 

System 3

Employment of Professionals

Tipping Point

Thousands of skilled professionals cannot find work after more than two years in a slow growth economy. They expect economic growth to continue slowly. Their skills wither, or they acquire new skills. They become “over-qualified” for many jobs.

What could happen?

Savings are depleted. More house foreclosures. Homelessness increases, along with suicides and sickness. Burden on medical system increases.

 

Health Care System

System 4

Health Care System

Tipping Point

Many physicians retire early to avoid working for radically reduced government reimbursements, thereby reducing the number of providers. Demand increases due to millions of previously uninsured joining the system. Medical rationing thus becomes common or wait-times for fewer providers increase substantially..

What could happen?

Huge numbers of folks exist in limbo and pain. Headlines graphically describe misery. Political tsunami of change. Calls for real, radical overhaul of the system.

 

State and Local Government

System 5

State and local Government finances, constrained by state constitutional requirements for balanced budgets, also must start paying more retirees whose pensions are promised but unfunded.

Tipping Point

Political courage doesn’t exist and political gridlock persists. Unfunded pension obligations become a major portion of state spending. States cannot pay both major bond obligations and “needed” services. Something must be cut even as politicians refuse to. IOUs are issued.

What could happen?

Reduced pensions? Bond defaults? Massive layoffs?

 

System 6

Public unions’ parasitic relationship to state governments

Tipping Point

The cycle of unions contributing their automatically collected dues to re-elect Democrat politicians, who in turn raise union wages, dues and pension benefits is close to the tipping point. State governments cannot pay the huge pensions as well as the other, usual state obligations like schools and prisons.

What could happen?

Union members retire early to capture current largess, and hope to become grandfathered in whatever new pension scheme emerges. Unionists increase public agitations to block pension reforms. Legislatures become hyper-partisan and in some cases legislators flee their states to block quorums. Right to work laws get passed?

 

 

Foreign Affairs

System 7

Mexican cartels brazenly murder, send drugs and launder money along USA southern border.

Tipping Point

Cartels get full control of Mexico by buying most politicians under threat of death. When this occurs, Mexico becomes a Narco-State.

What could happen?

Foreign policy and activity will by driven by drug cartels. They also will create more drug and money routes across USA southern border. Cartels may also smuggle Islamic terrorists with weapons into USA.

 

The Biggest System: For How Long Can Government Itself Continue to Function so Incompetently?

People choose their governments for pretty basic reasons, such as maintenance of a legal system, operation of courts and enforcement of contracts, construction of shared infrastructures, protection from foreign invasions. Governments have naturally massively expanded beyond these basic roles, but one expects that whatever they do should at least be done reasonably well, even if not really in their charter. We are starting to see that governments have become so big they cannot successfully solve the problems they were elected to solve, let alone efficiently operate in their vast regulatory systems.

Government failures to competently manage recovery from natural disasters set off alarms, because one expects government to at least get that function right. Such management is one of the few things governments are actually required and expected to provide the tax payers.

Since the attacks of Sept. 11, 2001 (a failure of our expensive intelligence bureaucracy) the world has seen these catastrophic events and others:

  • Tsunami in the Indian Ocean,
  • Hurricane Katrina,
  • Global flu pandemic,
  • Global financial crisis
  • Earthquake in Haiti,
  • Oil spill in the Gulf of Mexico,
  • Devastating floods in Australia and New Zealand.
  • Earthquake in New Zealand
  • Japanese earthquake, tsunami and nuclear crisis.

It seems that despite national governments having an uncontroversial mission to help its citizens recover from disasters, every government has been incompetent in trying to do so. This government incompetence seems evident even with the Japanese in their current crisis-the same Japanese who have the most disciplined society in the world, and who were famously meticulous in their preparations for earthquakes and tsunamis. Has government size reached a tipping point where it collapses under its own bureaucratic weight and becomes generally incompetent?

In many socio-economic systems in USA, this fear seems born out.

 

One Comment on “Tipping Points: Socio-Economic Systems Near the Point of Collapse”

  1. Ruth

    It’s interesting that many of these issues are independent from one another (or are they???), yet lack of a stable environment (the fact that each is occurring in the presence of the others) is exacerbating the situation. Will there be a domino effect if one or more events tips?

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