Havel (who was a playwright before becoming president of the Czech Republic) says that the theatre of the absurd should be taken as a “warning” that we are in a condition of “despair” and existential meaningless. When we understand that absurdity is a warning (rather than cynically shrugging it off or taking the meaninglessness as “the condition” impervious to change) we commit to “existential acts” of real, authentic meaning, says Havel.

“Riskless risk” is economic theatre of the absurd, one clear example of many such meaningless actions in the new derivative game (including “bail out”). The resilient response is “real wealth” which corrects for meaninglessness and launches a new economy.

In terms of resilience, Havel sees theatre of the absurd as part of a process in which meaning and authenticity is RECOVERED — i.e., a resilient process. The warning that we are absurd catalyzes the resilience of reality and meaningful action. This is the take we need on our current economic situation: that this is all a warning that we need to ‘get real.’

1. Our economics people have stopped doing forecasts. Things are changing so quickly that they’ve just given up until things stabilise.

2. A leading central bank official advised us 12 months ago that sub-prime was ‘just a storm in a teacup’ and not worth worrying about.

Clearly not even the experts know where things are going, which is a key premise of my arguments for strategic risk intelligence: http://www.resilientfutures.org/how-we-can-help/risk-governance-assurance/strategic-risk-intelligence/

One thing that does keep on coming up is whether these issues are a Main Street or Wall Street issue and how these feed into eachother.

My take on things is that the financial markets are a complex adaptive system which are tighly coupled between markets and have been deregulated to an extent that they act like organic systems rather than being controllable by a single country (see my post on ABC, hedge funds et al for some of the rationale http://www.resilientfutures.org/2008/06/allco-abc-babcock-should-we-have-seen-these-coming/)

In terms of feedback loops and how Wall Street will hit Main Street, the things to watch out for are:

1. When a threshhold hits in relation to serviceability of debt (eg. loss of job, large spike in repayments or living costs)

2. When a security theshold hits (eg. shares fall below 70% of the amount loaned causing a margin call)

3. When a loan is due to expire and funding has to be renegotiated (ie. the leader wants to look at 1 & 2, and wants more bang for their buck).

4. When 1, 2 or 3 causes a forced asset sale at lower than expected prices, or cost/job cutting to maintain serviceability.

When these things happen you not only see a redistribution of wealth, but you see a series of state changes beginning to occur such as:

a. Job losses leading to lower spending power
b. Reduced buffers in wealth leading to lower spending power
c. Industry consolidation and firming up of industry power by large incumbents.

We don’t aim to be experts on what’s happening, but aim to use resilience thinking to help understand the conditions and how they feed together, and how individuals can make a difference.

I think the article reinforces my previous point on overgrowth of supposed financial ‘assets’ and real wealth, and the points I raise in the article “An Imperfect Storm - Resilience or Ignorance Within Eight Cost Shocks” about such ‘assets’ being superficial wealth.

Daly writes:

The current financial debacle is really not a “liquidity” crisis as it is often euphemistically called. It is a crisis of overgrowth of financial assets relative to growth of real wealth—pretty much the opposite of too little liquidity. Financial assets have grown by a large multiple of the real economy—paper exchanging for paper is now 20 times greater than exchanges of paper for real commodities. It should be no surprise that the relative value of the vastly more abundant financial assets has fallen in terms of real assets. Real wealth is concrete; financial assets are abstractions—existing real wealth carries a lien on it in the amount of future debt. The value of present real wealth is no longer sufficient to serve as a lien to guarantee the exploding debt. Consequently the debt is being devalued in terms of existing wealth. No one any longer is eager to trade real present wealth for debt even at high interest rates. This is because the debt is worth much less, not because there is not enough money or credit, or because “banks are not lending to each other” as commentators often say.

Can the economy grow fast enough in real terms to redeem the massive increase in debt? In a word, no. As Frederick Soddy (1926 Nobel Laureate chemist and underground economist) pointed out long ago, “you cannot permanently pit an absurd human convention, such as the spontaneous increment of debt [compound interest] against the natural law of the spontaneous decrement of wealth [entropy]”. The population of “negative pigs” (debt) can grow without limit since it is merely a number; the population of “positive pigs” (real wealth) faces severe physical constraints. The dawning realization that Soddy’s common sense was right, even though no one publicly admits it, is what underlies the crisis. The problem is not too little liquidity, but too many negative pigs growing too fast relative to the limited number of positive pigs whose growth is constrained by their digestive tracts, their gestation period, and places to put pigpens. Also there are too many two?legged Wall Street pigs, but that is another matter.

Growth in US real wealth is restrained by increasing scarcity of natural resources, both at the source end (oil depletion), and the sink end (absorptive capacity of the atmosphere for CO2). Further, spatial displacement of old stuff to make room for new stuff is increasingly costly as the world becomes more full, and increasing inequality of distribution of income prevents most people from buying much of the new stuff—except on credit (more debt). Marginal costs of growth now likely exceed marginal benefits, so that real physical growth makes us poorer, not richer (the cost of feeding and caring for the extra pigs is greater than the extra benefit). To keep up the illusion that growth is making us richer we deferred costs by issuing financial assets almost without limit, conveniently forgetting that these so?called assets are, for society as a whole, debts to be paid back out of future real growth. That future real growth is very doubtful and consequently claims on it are devalued, regardless of liquidity.

If you listen to commentators like Australia’s Steven Keen (www.debtdeflation.com/blogs/) you get a sense that, this time, the ‘correction’ is one of major state change proportion - “We are not in a Great Depression–not yet anyway–but a key pre-condition for one has developed right under the noses of Central Banks: excessive private debt. In fact, debt levels today are twice as high as in 1929, which is why this financial crisis is causing far more carnage than 1929 did”. And, ”(US treasurer) Paulson’s Plan is like bailing the Titanic with a thimble.”

Given Steve’s comments, maybe the financial system itself knows something that Mr Paulson and his international colleagues don’t know?

In resilience science theory, Buzz Hollings speaks of the adaptive cycle (www.resalliance.org/570.php) where systems go through processes of destruction and reorganization, which are often neglected in favor of growth and conservation.

Sound familiar?

The adaptive cycle has two primary phases or transitions. The forward loop which is characterized by growth or exploitation and conservation, and then a backloop lead by collapse or release, and reorganization. Though, as Buzz states, the adaptive cycle is a ‘tool for thought’, and is primarily applied to ecosystems, it has always struck me that when I observe breakdowns and breakthroughs in teams, businesses, community and the like, it is extremely useful to think about things within these two cycles, and four states.

It could be argued that over the past ten to twenty years - at a global, and national/regional level - the tightly connected financial system and related economic system have been doing everything to ‘max’ a position in the forward loop, with an emphasis on maintaining a state of conservation. As happens in forests, when you do that, eventually the forest will burn through over-growth, and self-impose a state change as it enters a back loop and releases energy to later reorganize into a different form.

The bad thing about that is that there is a huge amount of heat, and a lot of players get burned - even those that wandered into the forest, and didn’t know the conditions in that environment.

Still sounding familiar?

The good thing is that, with a lot of energy being released, the propensity to create in the new state abounds. Taking what is left that will grow in the new environment, under a new set of emergent conditions, and innovating new capability in tune with the emerging, new state. And, the people most likely to succeed are those who can master and expedite the jump from old to new. In previous but gentler longer-term transitions, Microsoft, Australia and the Beatles.

The choice as to if and when to make the leap is usually a very personal one, as it is usually the individual actions of a few that have the least baggage to carry across the divide that make the jump the easiest. Large organizational forms with big investments in the past by their nature are coerced into trying to innovate the old dog into doing new tricks. While more free thinking and relatively unattached innovators just see the abundant opportunities.

A word of warning - investment in the old ways could be a lost investment. Half burnt, but still overgrown forests will always eventually burn and, when they do, they could also take the work done to salvage them with them.

And, more familiar?

Interestingly I read an article on how capitalism is dependent upon one bubble after the other to keep up the appearances of prosperity, primarily because the underlying economy is so weak.

At the time of publication (this week), this is possibly the most comprehensive economic analysis on climate change available and hence for the boffins amongst us is an important read. For those of us with less time he has an audio transcript of his press release.

http://www.garnautreview.org.au/domino/Web_Notes/Garnaut/garnautweb.nsf

Todd Davies
Practice Leader, Risk

In my mind it really begs the question on how to mobilise people on emerging risks BEFORE they hit rather than afterwards.

RFN would argue that an important first step is for leaders, stewards and individuals to have a good understanding of emerging conditions. (I would argue that without this then leaders are actually being reckless - http://www.resilientfutures.org/2008/05/are-you-being-a-reckless-leader-without-realising-it/).

Secondly people need a model that allows them to act, rather than go into denial, complacency, or shock. We’re working hard on both of those enablers through Larry’s work with the RFN process.

The video of AFR’s event can be found here: http://tv.afr.com/index.php?videoID=3567

And the transcript can be found here: http://www.afrboss.com.au/events/transcriptintro.asp

(Note that the transcript does not include questions from the floor).

The Resilient Futures Framework is based on a whole systems view and recognizes the deep connectivity and interdependence of not only social, economic and ecological systems - but also other systems like, community knowledge, the aesthetic and built form systems that also play a huge role in human behavior and planetary health.

So, I think we are aligned on that.

What I would ask is - how do you think that the bailout will provide for an ecological disaster?

Just got this from a close US colleague - interesting.

Heard an interesting interview recently with a guy who wrote a book call The Limits of Power. Forget his name. A retired U.S. Army Colonel. He makes the interesting point that Jimmy Carter in his “malaise” speech, which cost him re-election, was in fact speaking the truth to the American people…that we were living beyond our means in an unsustainable way, that we needed to reduce our energy consumption and our debt-driven lifestyle or face deep consequences to our national security and our economy.

He was right and it’s playing out now.

Ronald Reagan, far from being a “transformative leader”, simply told Americans what they wanted to hear…that we can have whatever we want and have it now, that our children, our grandchildren and the planet as a whole don’t matter.

The country took the easy road, and we’re paying for it now. It will be difficult for anyone, even someone with Obama’s communication skills, to overcome the habits formed from decades of national self-indulgence.