April 20, 2017

Grow, (just not that much)

Face it. We're all still playing catch up to the reality that this election laid bare. Our collective recency bias kept us blind, thinking that what held true in the recent past (a corrupt, skewed political system serving a ring of cronies) would simply keep happening going forward. Never mind that the world's interconnectedness had made things inherently unstable. Or that it had already fed revolutions all over the middle east.

That was them --it seemed we thought. We're different. 

Turns out, we're not.

Now that the fire has reached home, we're scrambling for solid ground amidst this tectonic plate rearrangement. The Liberal World Order is under siege --fascists are at the gates!-- and Fukuyama had it all wrong. The sense of loss and drifting is palpable.

It's clear --by now-- why we missed it. But is it really clear why we got here?

Interconnectedness may have been the spark, and our yearn for belonging may have exacerbated it, but the reality has to do more with our very human "need for growth". After all, growth is --alas-- an inexorable, numbing, --and most dangerously-- misunderstood crushing force that sneaks up on our way of life --until it is too late.

At the risk of stating the evident, growth is exponential. It assumes the immediate past as the new base. And that base always shifts. Higher, building on top of the last one. Every time. But here's the crucial part: we --wrongly-- assume growth happens within an infinite environment. When you have multiple entities (people, companies, groups) growing in parallel, it always gets to a point where growth happens at the expense of others'. The consequence is that growth spawns a winner(s)-take-all dynamic --given enough time, of course.

Clusters are the prime manifestation of growth. The virtuous co-dependency of its individual parts begets more growth --at the expense of other regions. We all know Clusters by their more mundane name: Cities. We barely stop to think about it this way, but this election was the culmination of the "success" of the Cluster over SmallTown, USA. The Cluster ate SmallTown's lunch at recess because... something something capitalism. But fret no more! Some thinkers are already suggesting we break Clusters down (the way they did with Ma' Bell) and re-direct jobs to SmallTown, USA, because... Liberals.

Wealth is another example of exponential growth. Piketty saw this fundamental aspect very well and based his entire book on the pernicious aspects of Capital's exponential growth (whether his prescriptions are adequate is a matter for another post). The benefits of starting accumulating wealth early are sweet (if you're part of the in-group, that is), and this can be neatly seen in the U.S. wealth distribution by race:

Different waves of immigrants look different (after all, they hail from different places), each one joining this party called the U.S. of A. at a different stage with the goal of accumulating wealth. Since wealth accumulation is exponential, when you start (as a lineage) accumulating wealth matters more than how much you save or your life decisions/habits* (meaning, for example, that you can still be a drunkard, but if you're white and smart/lucky enough you could technically still marry into old white money and be ok). The power of compounding roughly accumulates transgenerationally by race because same-race marriages are still (although less so lately) more likely than interracial marriages, (Black folks, for reasons all known to us, were locked out of the wealth accumulation race --no pun intended-- until the Civil Rights Movement, which accounts for their catastrophic late start). So, the earlier your immigration vintage, the more the transgenerational wealth compounding worked (very well) for you.

The pattern repeats and repeats. With huge winners and small losers. Here's the case of firms. Under pressure from boardrooms to make stockholders richer (that wealth accumulation thing again), companies dutifully deliver:



















If the environment where firms grow was infinite, they'd be able to grow without creating "losers", right? The proverbial pie would expand for all! Well, if that was the case, mergers and acquisition wouldn't exist.

And the loser, as usual, is the small little guy...


None of this would of course be a problem if growth didn't negatively affect those outside the virtuous circle that's doing the growing, but as I've shown above, that rarely is the case. "Losers" (surprise!) don't like being crushed. And exponential growth eventually --and inexorably-- gets unbearably unequal. That is a recipe for instability, which is exactly what we're witnessing now.

Am I advocating for no growth at all? No. Living standards wouldn't improve if we didn't aspire to some sort of growth. Am I arguing that Capitalism has failed? Hell no! But it is evident that it breeds inequality, and that inequality breeds instability (despite the fact that people say they can withstand inequality as long as there's "equality of opportunity"). Clearly, a new approach needs to sink in people's minds when defining what is it that makes us happy with regards to our standards of living.

Growth needs to occur, but with an eye on the "losers", because, if this election has taught us anything, it's that anger can be destructive.


* There's also the element of advantage if you moved in early to a place of untapped resources to make them grow. Meaning it was statistically easier to hit gold in California's goldrush than it is pulling a unicorn in Silicon Valley nowadays. Just because we glamorize the Zuckerbergs of the world doesn't mean you can make it big in the Valley. For each Saverin there are literally a thousand brogrammers living in their Honda Civics in Palo Alto.