What makes a society abandon the concept of a ‘rainy day’?
My family and close friends have heard the story (perhaps too many times) of the collapse of my father’s business when I was 12, and our family’s loss of almost everything. A complete reset.
That experience fundamentally influenced the way I have approached life ever since. For both good and bad. I have never really accepted good things at face value. I have always been attracted to pessimistic forecasts. I have been cautious. I have let good opportunities pass me by when they exhibited too much risk. I have sold my existing home before buying a new one, unlike friends who have successfully leveraged their equity and retained a string or now very valuable houses.
This cautious ‘mental frame’ I have adopted has been out of step with the society I have lived in for over three decades. Even taking a global and long-term historical perspective, Australia has experienced an unprecedented period of peace and prosperity. It is hard to appreciate just how extraordinarily wealthy and lucky the current generation of Australian’s truly are.
So, while most Australians have been spending up big on cars, multiple houses, business-class holidays and a luxury lifestyle, I have been living in a mindset more like my grandfather’s from the Depression Era. Saving, bargain hunting, cautiously progressing along life’s path. Even despite this cautious bias, I have been extremely lucky. I live in a large family home in the inner city, I drive imported cars, I holiday regularly, I eat out more than I can keep track of, and I indulge in the very expensive hobby of flying aeroplanes. But compared to our friends, many of whom earn much less than our family, we are conservative, even frugal.
The most profound thing I heard during the COVID experience was the decision of the State Liberal government in SA deciding to abandon its decision to privatise SA Pathology. The government realised that it needed to live with some level of ‘sub-optimal’ short-term economic cost to have ‘surge protection’ to cope with an ‘outlier event’ such as a pandemic. The same applied to the three hospitals they were in the process of shutting…
This highlighted to me how all-encompassing our approach to ‘optimisation’ and ‘hollowing-out’ has become. At both an individual level and at a social level, we have all become completely ‘un-cautious’. We are now porcelain-like fragile.
What makes a society abandon the concept of a ‘rainy day’? A couple of things. First, almost perpetual sunny days for as long as living memory. Secondly, a government willing to spend almost any amount of our future prosperity to shelter the current day from any adverse change or event.
My son brought home with him from ANU the concept of ‘New Monetary Theory’ — being the concept that there is no limit to the amount of money a government can print or borrow, without any adverse impact. This prompted me to try and explain the concept of ‘debt’ to my three children. I explained how every dollar of debt incurred today is a dollar of current spending brought forward from the future. Even if you default on your debt, someone else (the lender) will miss out on a dollar of their future expenditure. They stared blankly back at me, having lived their entire lives downing in abundancy.
One of the key things I remember from Nassim Taleb’s books on Fooled by Randomness and on Antifragility was the concept of accepting a predictable and small loss each day, and then being massively rewarded when a random (unpredictable) outlying event eventually occurs (and they always do). His thesis was that humans weren’t designed to operate like this. We are designed to take every little thing we can get now, just in case we can’t find another buffalo or watering-hole in a week’s time. We are also not designed to care if eating everything now means we just might starve a little down the track.
But it you want to be ‘anti-fragile’ or even just cautious, for how long can you accept a little bit of a loss each day, even if it is a ‘loss of opportunity’ rather than any real loss? Three decades is almost my entire productive life. It is certainly my ‘best years’. Even though I am objectively very lucky and well provided for, I can’t help but think I have been paying a small predicable price for far too long — and the real random event is well overdue!
The saying goes that the market can remain irrational longer than you can remain solvent. In my case, the market is (in my view) becoming increasingly irrational (at least in terms of intergenerational equity) for maybe longer than I will ultimately be able to stay alive.
