Home > From Dagny > Predicting the Future – A Thanksgiving Perspective

Predicting the Future – A Thanksgiving Perspective

There are highly intelligent people with a wide range of opinions on what promises and dangers the future holds. Some people say that the financial disaster is past, while some say utter civil disorder is imminent. In particular, some of my dearest friends have read a fictional account called Patriots by J. W. Rawles, and have taken it as a credible blueprint of the future.

It is the nature of the human mind to take a highly detailed and specific story and commit it to belief – the more detailed and plausible, the more they believe it. It is an unconscious mental reflex. On the other hand, it is also a deeply engrained habit of people to think that life will go on and they do not have to change their lifestyle – in part because change takes work and people want to avoid work.

Personally, I believe that both views are very incomplete and oversimplified. There will be great differences in outcome depending on where you are and what you are doing. Here is what I see happening and why:

Government spending will decrease. Even if taxes are raised, then there will be less revenues because the world economy cannot sustain this level of obscene government extravagance regardless of taxes. Tax revenues cannot – like an inviolable rule of physics, cannot be more than 20% of the GDP. Higher tax rates just reduce productive activity. Taxes above 20% simply cause people to go Galt or go underground. The Leftists can have their fantasies of ever growing well-funded bureaucracies but these are all as impossible as government supported rainbow-winged pony farms. I do not believe Obama will be reelected but even if he was and even if he raised taxes, it would still result in lower revenues. This is already happening; it is not mere hypothesis. It is inevitable.

Note that I refer to this as a world-wide problem. Using the American treasury to bail out stupid and gluttonous governments and NGOs world wide has put the effects of American government spending on a world-wide basis. Governments in general have become “too big to fail” along with their cronies in the world banking industry. News flash: There is no such thing as “too big to fail”. These international institutions and their friends have been bailing each other out and using smoke and mirrors to maintain the illusion of solvency at every opportunity. When America’s banking industry and government finances go down, so will the rest. That is why there is such a globally coordinated effort to keep the boat afloat. The big guys in government and the banking industry are all in the same boat.

Playing games with numbers can only go on so long before there are tangible results. This has a number of important implications.

Inflation is coming as soon as the burden of government is lifted. The only thing holding it back is the NAZI-like boot of government on businesses in the form of threats, taxes, regulations, employee legal bonanza “rights”, government fees, and massive compliance paperwork. Until these burdens are lifted by a genuine change in government, we will have stagnation and in due time hyper-stagflation as well. The longer it takes to get some business freedom, the more hyper-stagflation we will have to bear.

Currently productive workers and business owners can change their prices (or wages) to adapt to inflation (and to a lesser extent hyper-stagflation). In contrast, inflation will hit those who cannot currently earn. It will hit via inflation and cuts in real support from the government. Savings and pensions are not going to be worth as much. Essentially, bank accounts and pensions will be to some extent broken promises. This will hit isolated and unproductive individuals most: the elderly and the disabled. Thus financial hardship will hit especially hard in the area of major recipients of health care.

Health care and higher education costs have increased far beyond the rate of inflation due to their being subsidized, mandated, and protected by government. Clearly, the prices are what the market will bear, and subsidized goods and services bear a higher price. Essentially the same phenomenon underlaid the increases in residential real estate prices until the bubble broke. A large part of the American economy has been redirected to establishment medical care.

As people age there will be less available health care per person. It will be expensive, harder to get, and less helpful. As government abandons its support of individuals, health care costs may ultimately be driven down, but people may have to bear the cost themselves. The medical establishment will be forced to deal with the load of increasingly older and sicker individuals, with less government help. Sick people will need something to believe in as an alternative that they can use for medical problems. Thus the world of alternative medicine and medical tourism, assisted by the internet, will grow and prosper out of sheer necessity.

While America does have extensive energy resources, they are out of production and will take time to bring on line. Thus for some time there will be a shortfall of energy that can be produced domestically. With inflation, the sources of energy from out of the country will become more expensive. Combined with the loss of real income from the government, there will be greatly increased costs for transportation, home cooling and heating. Those outside of the moderate climate belts will be hardest hit by the increased costs of heating and cooling. Those who have to go long distances to work or get food etc, or need to receive shipping from great distances, will be the hardest hit for fuel costs. The cost of living in sparse rural areas will increase accordingly.

Cuts in government services will have the most impact where people depend on government services the most. Police and fire services in cities tend to be cut first, mostly as a way to blackmail the voters into approving more taxes. Thus we can expect taxes in cities to go up, and police services to go down. The remaining police will be spread thin, and will probably have to resort to more forceful techniques to deal with criminals. This will result in an erosion of civil liberties in cities, while at the same time an increase in crime. Thus cities can be expected to become less safe and pleasant places.

Just how bad can the cities get? Mexican cities and Detroit provide examples. With the weakening of law enforcement, gangs will fill the gap. Just how bad can it get in cities when the stuff hits the fan? Let’s ignore speculative fiction for the time being and look at real world examples. There is a blogger called Ferfal who is living in Argentina and reports regularly on hyperinflation as well as dealing with crime. He advises the reader from direct experience. There is also a blogger in Bosnia who lived through the civil breakdown during the Bosnia war. He also offers real world advice as to what to expect when the stuff really hits the fan. Their archives are very educational and practical. My advice is to forgo fiction and instead refer to these real world advisors.

The best place to be is in a location with a moderate climate which is away from major cities, but not so far as to have greatly increased transportation costs. It entails a trade off between travel costs and avoiding crime. But then this has always been the case for Americans moving from cities to suburbs and beyond. In our future we can just expect a more dire and painful tradeoff between crime and cost.

I expect a great diaspora from the cities into rural areas with moderate climates. The internet has reduced the need for centralized human activity. The economic forces that created massive cities has changed with internet discourses and distributed shipping networks. Higher education in many cases is shifting to internet-based curriculum. We get higher quality, more convenient, and more diverse entertainment and education from the internet at lower cost than we do from the old media or the brick and mortar colleges and universities. The centers of communication and economic life in cities are gradually dispersing into the countryside.

Smaller towns with a critical mass of useful businesses and rational small governments run by local citizens will function better than cities. Technology has transformed the way we will live, and big cities are monumental relics of the past.

There is another reason to be away from cities besides the crime: Terrorism. Pax Americana is over.

In the past and present, America has been providing military power and cash in exchange for political favors from governments around the world. The intervention in Iraq on behalf of Saudi Arabia and Kuwait is one such example. While our military is not made up of individual mercenaries, our government has used them as mercenaries for foreign policy and economic goals, as well as for old fashioned graft and deal making.

China is making aggressive moves in its declared sphere of influence. With a downsized military we will not be able to respond in a credible way to support our allies. This will invite military adventurism from Russia and China. We can expect wars in the future, ones we are not well positioned to deal with.

The Arab Spring is just one example of this inevitable dissolution of American power as financial support to regimes is withdrawn. Al Queda now has new sources of financial power as well as weaponry. Even now Pakistan is becoming an openly hostile nuclear threat.

Our borders are open. Cities are targets for terrorism, as well as a strong market for drugs. As a result, smuggling into cities is easy for drugs, criminals, terrorists, and weapons. Cities make attractive soft targets that will show up in the evening news with impressively frightening footage.

It is harder to get away with criminal behavior outside of cities. That applies to the kid who engages in petty theft, as well as the Islamic terrorist or drug dealer. Unusual behavior is more detectable. This will be especially true as surveillance technology continues to improve. Businesses that relocate to smaller towns will be more secure as well as more economically viable.

The whole world has been using US currency for transactions and as a store of wealth. When the economic stuff hits the fan the value of the dollar will drop in world trade. China’s central bank will no longer be able to financially support the currency trading imbalance. As a result, American manufacturers will be able to become more competitive in exports. Manufacturers outside of the major cities will have a sustainable economic advantage. Those that hold useful trade goods will also have an advantage.

Gold is a highly manipulated market by central banks. It is hard to know how much physical gold there is in the world, and where it is. I am very disappointed that Ron Paul, for all his good words, did next to nothing to expose this during his tenure as the Chairman of the Financial Services Subcommittee for over a year. In the end, gold will likely be the underlying material of value that underpins the world economic structures. In the meantime, it is a highly manipulated market which means that it is hard for outsiders to predict its value. Small denomination gold is good to have for use in an economic meltdown, and larger denomination gold is probably a good longer term store of wealth. However, it is no substitute for positioning yourself properly for the future in a broader sense.

So is disaster heading your way? It depends on where you are and what you are doing.

Are you relying on government promises of any kind?

Do you have expenses that are close to your income?

Are you living in an area that would be safe if government services were cut back?

If the dollar dropped and you had to pay a lot more for energy would it destroy you economically?

What services or goods can you offer people to supplement your income? What equipment do you have to help you do this?

Are you taking proactive care of your health independently of the medical establishment?

Do you have family or friends you could move in with or cooperate with if you needed to for any reason?

These are the practical questions you should ask yourself and your family during this holiday season. If you have good answers then you are likely to weather this economic storm well.

It is helpful to consider the situation using what I call “Here and Now Thinking”. Right now food is being grown and delivered to stores. Right now businesses are running. Basic needs are being met for most people. Economic forces have a way of providing for people who provide for others, who in turn provide for others. Economic life is resilient and adapts to change quickly. It will almost certainly continue to do so.

This Thanksgiving is a good time to reassess what you can do for others, and what others really need and will pay for. You can find a place in the basic economic circle of life. Not only will it be prudent for economic reasons; it is also part of feeling useful, alive, and part of the real human experience.

We may try to educate people about the economic and political realities. It does not do much good to try to educate people when times are good. Now that they are actually being affected – by loss of jobs, by having to move back in with parents or vice versa, trying to find medical care for their problems, and generally trying to cut back to make ends meet, they are more ripe for learning.

We can quote economic wisdom as eloquent as Reagan, Milton Friedman and others, but they all fall short when compared to the eloquence of Reality. Reality is speaking now. People are listening. Death is coming to this unsustainable political monster we call our government. Lifestyles may revert to levels of the 1950’s for awhile in some places, and to third world countries in others.

There will probably not be a wide-spread apocalypse, nor will it be business as usual. However, we real Americans are flexible and ingenious. Economic systems spontaneously adapt. We will muddle through and succeed in the end.

I wish a Happy Thanksgiving to you and your families. I hope you take this opportunity to put your heads together and figure out how to be resilient and together weather the economic storm. Sometimes the darkest times end up being doorways to the brightest times ahead. I believe this is the case now.

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Categories: From Dagny
  1. Carey P. Page, M.D.
    November 25, 2011 at 3:24 pm

    Dagny,

    Your view of the future is quite similar to John Robb’s (Global Guerrillas BLOG), but with less emphasis on potentially profound chaos. Your recommendations pretty much define “Resilient Communities.”

    I agree with your assessment: we are likely to see a remarkable decrement in government services, overall safety, and quality of life…..and an attempt at even greater government control. I suspect we will muddle through without a chaotic implosion of everything.

  2. November 28, 2011 at 12:34 am

    Muddling through is not as exciting, or book selling, or news media pleasing, but it does have the ring of truth to it, doesn’t it?

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