Dirty Thoughts: long, slow slides into stagnation
Maybe we just go sideways for real long time
It’s a beautiful day in Austin(-ish), Texas: sunny with a slight hint of fall cool in the air. But nice weather be damned. The interest rates just popped again and it is market freak out time which leads me down the path of a dark and Dirty Thought.
We are all listening for the sound of a pop. A sudden and marked burst of sound energy, like a gunshot, then the hissing whoosh as a mass of hot, pressurized air rushes from an overly inflated bubble. We expect it. We look for the signs. We are primed by the past (Great Recession, Great Depression, etc) to expect certain things like market crashes on Black Fridays or Mondays. Also layoffs and increasing unemployment, bankruptcies and capitulations. And we expect them to happen all of a sudden and then presto, we are now in a recession1.
But I’ve been wondering aloud of late about our current position in the economic cycle: maybe we aren’t on a slope at all but on a really long, flat stretch of nasty. I wonder if all of the events that we anticipate, that we are expecting because this is how it happened last time, won’t happen at all. For example, maybe we never see a spike in layoffs (and unemployment). That is what I have been looking for. Mass layoffs are my own, personal markers of doom. But what if there are none? What if there is no pop? What if there is no bang? What if all we hear are a fizzle and then the long and sustained groans of a wounded animal?
On that note I wonder about stagnation and the possibility of a full employment recession and/or depression. Why not? A recession is a decrease in economic activity. High unemployment has traditionally been associated with recessions and depressions but one is not necessary for the other to occur. Depressions classically have the symptom of deflation. But what if that never explicitly happens? What if the deflation that we expect is just a stagnant wasting away over years? What if a depression can occur in a way that is completely unexpected and never before experienced? What if it doesn’t even start with a bang?
I continue, therefore, to wonder if we as a nation look to numbers like unemployment rates a little too specifically. We look to last time and fail to see the forest for a non-existent tree. The following metaphor sprung to mind the other day, and I have been growing more fond of it: a full employment recession is a sick man whose symptoms are treated with pills and potions, he is not getting worse, he is not going to die right now, but the man feels terrible, will continue thus for the foreseeable future, and the underlying problems remain.
And so too I continue to wonder if it is possible that there will be no big pop in any big bubble at all. What if, and this might in fact be worse, the bubbles all stay mostly inflated (or at various magnitudes of inflation, inflation being a relative term), wages stay mostly stagnant, and inflation pumps along at 5-10% per year making the malaise of pseudo-contraction worse as years go by. In essence, what if we just stay sick for a really long time? Arguably, that might be worse than a quickie bang-bust-recovery (but in no obvious way since we only have one reality to experience and cannot duplicate the experiment).
Example in this possible strange new world: small businesses continue to suffer as they can’t hire because they can’t afford to pay enough and there aren’t enough workers anyway which means their sales remain stagnant which means that they can’t grow which mean they can’t hire which means they die a slow and lingering death. Reminiscent of Japan for the past 30 years: not quite growing, not quite contracting, just wallowing in a pool of stagnation (read a decent overview of the Lost Decades here).
Of course what if all of this is just a bunch of Doomie-Doomer Chicken Little kaka and everything turns out just fine? What if? What if…
A note on my Dirty Thoughts
Dear reader, I do not predict the future. It is against my religion. Although I am human and therefore Dirty and imperfect and a sinner and so sometimes I inadvertently try to predict the future which is pretty lame. But don’t listen to me because I don’t know anything. And please do not come back to me later and say, ‘you had a Dirty Thought one day and said X was going to happen but it didn’t happen so you are a cotton-headed ninny-muggins’. Nope. No. Negatory.
Dear reader, my particular philosophy and framework derives from the military planning process. I try and think of all of the conceivable bad things that could happen. Things that might happen. Things that are even remotely possible. Then, if one of those imagined possibilities rings up as plausible in my little brain and appears risky to my life, health, or capital gains then I try my best to prepare for that possibility. Risk evaluation and protection: such is the game of life. Like buying extra food for the coming zombie apocalypse or car insurance.
All that said, I generally do not assign any particular weight to any possible future and rather think of it all in terms of multi-dimensionality: an infinite range of possible futures. Of course, I have absolutely no clue which timeline I am on (like the movie Everything, Everywhere All at Once but definitely NOT like any of the bullshit marvel movies).
So Dirty predictions, no. Dirty possibilities, yes. That is all.
It never starts with a bang. This isn’t how it works. These events are a process. They take time to play out. They don’t really have a start or an end. We might point to one specific catalyst that marks the start of an event on a timeline. We will write that date in textbooks. That way we can put it all on a multiple choice test and easily measure the knowledge of a freshman business major. But when we are in it like we are in it right now, I have doubts as to whether we will be able to mark anything. All of that will come much later when we look back in stunned disbelief at what we just went through.