Wednesday, November 28, 2012

The High Cost of Conformity: All Now, Nothing Later

I just took this picture of tonight's full moon with Jupiter.  I took it with a point-and-shoot on full digital zoom, so it's clearly an optical illusion.  Someone can probably explain why the moon appears relatively small and Jupiter very large - unfortunately I can't.

This scene got me thinking about Elliot Wave Theory which I recently dubbed "financial astrology"...

The premise of EWT is that markets are moved by Social Mood which ebbs and flows, therefore affecting the rise and fall of financial markets.  To accept this concept in its totality ultimately means believing that there is an exogenous force ("social mood") acting on human behaviour, which therefore lacks any feedback loop with reality.  Of course, like religion, EWT can neither be definitively proven nor refuted, so it makes good money.  For my part, I don't accept any religion, ideology or theory in totality.  People who get overly absorbed in those abstractions have a frequent habit of getting bludgeoned by the brick wall called reality.  Therefore, I think EWT is a factor, but not the sole factor guiding markets and human behaviour.  Obviously if we can be aware of something like social mood then we can affect its outcome by doing the exact opposite of whatever the "herd" is doing at that point in time.  

Stupid Ideas Are Contagious
Which gets me to the point of this post, this concept that social mood can dictate anything.  If it is a factor, then it's only because human beings feel a need to herd and otherwise conform to the norms of the day.  What EWT really implies is that people are sheeple who don't think for themselves and otherwise behave as though life is still a high school popularity contest.  Let's face it, when one person does something stupid and unsustainable, it's deemed stupid and unsustainable.  When the vast majority do something stupid and unsustainable, it's deemed a "lifestyle".  So it's not social mood that drives markets, it's actually human desire for conformity, because without conformity social mood would have no behavioural transmission mechanism.

I believe that overriding conformity is also the main reason why globalization fails the vast number on this planet.  First off, the "keeping up with the Joneses" effect has led to egregiously asinine and unsustainable consumption oriented behaviours that in the fullness of time will bankrupt the vast majority in the Western world.  I just talked to a guy at work who told me that he drives his 10 year old son to hockey practice 100 miles away, two nights per week !  I told him he was insane, but it's not what I was really thinking.  But how can I talk when I just sent my oldest son to a private University here in the U.S. His first semester cost more than my entire four year degree in Canada.  Don't even say it...

Competition drives Conformity
The second aspect of conformity that is failing, involves extreme competition.  Economic theory brainwashes us that competition is the end all be all for economic success.  No one even questions that concept.  The reality is that competition requires extreme conformity.  After all, you can't compete at something if you are not replicating another's behaviour.  The truth is that the most successful entrepreneurs and innovators were not replicators, they were pioneers dreaming up products that had never before existed.  By coming up with new products and new industries, they broke new ground and created new jobs.  Extreme competition on the other hand just depresses wages in a zero sum game.  Look at Third World manufacturers.   How many disk drive manufacturers do we need?  How many make money ? None.   Even for Apple's suppliers, their profit margins are ludicrously low (1.5%) v.s. Apple (30%).  The PC industry is the latest example:  Dell and HP in a commoditized death spiral.  Lenovo the sole Chinese vendor is eating their lunch.  "Consumers" benefit from this extreme competition- until they lose their jobs too.  It should have been commonsense that Third World nations couldn't bootstrap their way to a First World lifestyle by manufacturing the exact same commoditized widgets.  Ironically, commonsense competes very unsuccessfully with glossy economic theories, no matter how ludicrous those theories may be.  

The inherent nature of globalization is homogenization (aka. conformity) - a McDonald's, Starbucks and Walmart on every street corner.  No regional variation.  All factors of production commoditized and standardized for maximum economies of scale.  The price to be paid for this "efficiency" is extremely steep.  The price at the low end of the wage scale has been paid all along in terms of subsistence wages.  When the jobs and workers are interchangeable, basic economics dictates that the "excess" rent aka. wage goes to zero.  And again contrary to popular economic belief, the less people are paid, the more they work i.e. supply increases when price falls.  That's a phenomenon known as survival which is not a factor acknowledged in economic text books.  In addition, the implicit cost of this unsustainable model is steep at higher wage levels as well in the form of over-specialization.  Most of us with jobs in this "complex" economy are overspecialized.  Which is a fancy way of saying if you lose your job and can't find another one requiring the same skills, you now get to work for minimum wage or become permanently unemployed, because your skills are not transferable.  So the real question on the table is how many economists have to get financially decimated by their own fucked up theories before they admit that their Nobel prize winning fantasies aren't working?  I'll take a wild guess at 99% - which should be highly achievable in the not too distant future.  Beyond the hard economic costs, there is the entire aspect of denaturalization.  When factors of production are commoditized there is an implicit cost in terms of lack of variation and diversity.  Why are so many people on Prozac right now.  Could it be because we were not intended to be undifferentiated corporate drones working at jobs we hate, to buy shit we don't need?  And don't get me started on the willfully overlooked environmental aspects of this latent catastrophe. The human costs are high enough...

Cue gratuitous photo of buffalo running over a cliff...
The main reason I wrote this post is because I feel to some degree we are all being marinated in society's "special sauce" right now.  As I alluded to above, I myself am by no means immune from the siren song of suburban drone syndrome.  After all, I don't want to be seen as a bad parent for having denied my child a quarter million dollar education.  The most ironic aspect of this entire fiasco is that those ultra-competitive replicating behaviours that are deemed the hallmark of success in this waning era of excess, will be a major liability in a resource constrained paradigm.  Instead of "more" being "more".  Less will be "more".  Therefore, if there is a social mood, and I believe to some extent there is, then we all have to make a conscious decision to swim in the current, against the current or best of all, out of the current.  

Those obliviously swimming with the current as it goes over the waterfall, will find out the hard way that blind conformity comes at a very steep cost.