The New York Times reported that sales of smaller compacts and subcompacts are on the rise, now that we’re in a gas crunch. Industry analysts (who are young enough that they don’t remember the 70s) are calling this “a first.”
I tried to tell a friend that we’ve had cars that got 50-60 mpg for at least 30 years. When I was a teenager buying my first car, in the middle of the gas crisis of the 1970s, I was looking at a Honda Civic that was rated at over 50 mpg city. Once the oil shock was over, we went right back to huge, hulking contraptions that get gallons-per-mile instead of miles-per-gallon.
Is there anyone who didn’t see this coming? If so, you’ve never had a milkshake through a straw.
When you’re drinking a milkshake, you’re drinking faster than the milkshake can be replenished. Eventually, no matter what, you’ll get to the end of the milkshake and start slurping noisily. Sadness and despair, no more milkshake. If you knew how fast you were sipping and how much the cup held, you could predict exactly when you’d run out of tasty dairy mouth treat.
The story with oil is a bit more complicated. We don’t know how big the cup is, so we don’t know when we’ll hit bottom. And while one problem is how big the cup is, another problem is that more and more people are trying to suck on the straw at once, and we haven’t known how fast they would all start wanting some of our milkshake. (Warning: metaphor breakdown imminent.)
But the trend is utterly, completely, unambigiously predictable.
Because we don’t know the specific numbers, we can’t predict when oil will become expensive. But we know that it will, and there’s simply no doubt about it. If you jump off the top of a building, you’ll fall. How long you’ll fall depends on the height of the building. If you jump from a very tall building, you might even have enough time to pretend that the ride will go on forever. But eventually, you’ll land. That’s pretty much guaranteed. And you might even survive the landing (heck, Michael Holmes fell from 12,000+ feet without a chute and survived). It seems like a pretty stupid thing to do on purpose, though.
The sub-prime banking crisis was also predictable. All these analysts saying no one could have predicted it should be out of a job. The trends were obvious in a single news article last year. I—a non-finance guy—even blogged about it.
Warren Buffett and Charlie Munger have been watching the rise of complex financial derivatives for years, noting that their accounting conventions allow people to get rich when there’s actually nothing supporting the underlying assets. They’re pretty sure (and I agree) that the derivatives market is headed for a meltdown. We can’t predict when, but we can predict that markets are very good at eventually bringing assets back down to their underlying value.
Humans seem hell-bent on believing what we want to believe and ignoring unambiguous trends until they actually become crisis. There’s a whole field called “system dynamics” that deals with the behavior of complex systems, and more importantly, with the ways people seem to be hard-wired to misunderstand complex systems.
We’re living in an era of complex systems. Growth (and melting ice caps) happens faster than we project. Every year. On the surface, it appears things change, but the underlying trends are remarkably constant.
What are the trends you can predict now, but don’t want to? What are the underlying forces shaping your industry, country, or family that will come home to roost? You may not be able to predict specifics of when, where, or how, but you can predict with near-certainty that they will. And when they do, life will be … interesting.
Some interesting trends with highly uncertain timing, and highly certain momentum:
- The interest payments on the national debt will continue to grow as a percentage of the national budget. (Think: compounding interest on variable rate loans.)
- Wealth will continue to concentrate in the hands of a small number of people. (With the tax rate on capital gains less than the tax rate on income, even if everyone makes 10% more each year, the rich will get taxed at a lower rate and keep a greater percentage of the overall pie.
- We’ll have increasing demand for energy of all forms. (Whether or not our total supply will increase at the same rate or faster seems to be unknown.)
- We have a generation of people in our workforce pipeline of whom somewhere between a quarter and 40% don’t even have a high school diploma. There are serious societal implications there…
- Precious and non-precious metals are being steadily mined at a rate greater than the rate at which they’re replaced. (For example, Copper may be finished in 61 years, within the lifetime of some of you reading this article.)
So go out and buy a subcompact. And while you’re planning for retirement, consider that the world may be very different then than it is now. Those differences will be driven by our actions today (and our actions of the last 40 years, when it comes to climate change). Are you taking action today that will set up the trends you want in your old age?