It will never happen, and yet it did. My friends thought that one of my ideas was ludicrous and that it could never happen. I disagreed. In times of severe economic crisis sacrifices must be made. I suggested that sometimes it makes more sense to sacrifice one piece of a system rather than make the entire system suffer indefinitely. What would happen if we sacrificed one segment of the economy, maybe the mortgage industry, as a way to generate cash flow and invigorate the rest of the economy? The response was that the inequities would be too great. No one would ever agree to it, regardless of how much discretionary spending it would make available. Yet, Iceland did it this week. The mortgage debt of all citizens have been forgiven. We are in an unlikely situation. Unlikely things happen.
Any system can be upset. Small upsets resolve themselves in a stable system. Large enough upsets may recover, but may take very long if there is a lot of inertia in the system. Extreme upsets may exceed the stability of the system, in which case a normal recovery may take too long or may never happen. If the system was never truly stable, then trying to make it recover using the same things that propped it up has no guarantee of success and may make things worse.
My idea was simple, and possibly naive. Imagine what would happen if instead of throwing money at the problem, or by bailing out the institutions, one industry was sacrificed. Farming is food and we need that. Utilities are necessities. Manufacturing can export goods. So, I wondered what would happen if there was a federally mandated default on something more abstract like home mortgages or student loans. Individuals would have much more discretionary income. Anxieties over underwater real estate values would vanish. Mobility would increase. People might begin to think that the government cares more about people than corporations.
It is an idea that is easy to dismiss because of the great inequities in the system. Someone with a brand new mortgage would effectively be handed a house for the price of the downpayment and taxes, while their neighbor who dutifully paid thirty years of those bills did it for nothing. That is an inequity, but is that inequity smaller or larger than the inequities we’ve witnessed within trillion dollar bailouts? Is it more direct and effective to have the government print more money, or to have people redirect their own funds? The Icelanders bailouts were smaller because their country is smaller and yet they made the choice. (I wonder what the per capita comparison would show.) I enjoy repeating: The mortgage debt of all citizens have been forgiven.
I don’t expect it to happen here. I also don’t expect things to return to normal normally. We are in an unlikely situation and any recovery will encounter unlikely things. Long range plans based on extrapolations from the fifties are more likely to fail than plans that are flexible.
There is great debate about globalization yet the number of countries continues to expand. (I recommend Parag Khanna’s Ted Talk.) The number of countries has grown from about 100 after World War II to about 200 now. Much of that happened as African countries gained independence, but many were also formed when the Soviet Union broke up. That was unexpected at the time, though I am sure some think it is obvious in retrospect. Take a look at how maps have changed in that time. Big blocks of land have cracked like shattered glass. Two of the most prominent blocks of land remaining are China and the US. Some will say that they can never fracture. They’re too big to fail. The European Union is big too, but it doesn’t look very stable. China has great divisions within its borders. Financial and cultural disparities are more apparent now than ever. And of course common wisdom is that the US can’t fracture, except for the fact that it almost happened once and that many haven’t forgotten what happened generations ago.
Most money is abstract. If it isn’t based on gold or seashells, it is based on – well – an agreement that it is worth something. That seems to work. Yet, some suggest that it won’t, and that our problems are tied to money’s abstract nature. Currencies have collapsed, probably as long as there have been currencies. We are an evolving civilization and our method of trading value is trading too. We’ll get it right, and what we have may be right enough. But I keep in mind that it can go away too. True security is hard to buy for nations and people. Besides, money may come under assault. So much of the world’s finances exist as data, and enough hackers are hacked-off, that I wonder if someday I’ll wake up to find that someone flipped the bits and collapsed the currencies while I slept.
Enough For All
Unlikely things can be good. Much of technology has developed through laborious research, but discoveries can be strokes of luck or ingenuity. Fusion has been researched for decades, and yet aside from cold fusion, none of the designs seem scalable, cheap, or easy. Will cold fusion work? I don’t know. Maybe it is unlikely. But it was also unlikely when we learned that matter, the stuff we are made of, is less than 10% of the universe, and that the majority of the universe is dark matter and dark energy. They are ubiquitous. Maybe we’ll find a way for everyone to tap them. Maybe other discoveries will provide everyone with food, water, shelter and security. It appears unlikely, but so have most advances.
Trying to predict the unlikely can be fun. Trying to develop a financial plan that accommodates all the likely and unlikely scenarios can hurt a brain. Being aware of the possibilities and being flexible are my preferred middle path.
This week I applied for a job with Planetary Resources. (And anyone can check my resume.) They plan to mine asteroids. It sounds unlikely until it is compared against the extremes we already accept in deep sea mining and drilling. And mining asteroids does not require poking more holes in our planet. Will I get the job? (I hope so. See My Space Remorse.) I don’t know if it is likely or not. But Iceland has proved that even unlikely things can happen. I like that.