My brothers always laugh at me because I’m a big fan of the 80’s. I’m not sure why I have such an affinity for the decade. I think in many ways we tend to cling to an era that generates fond memories. In my case I think the eighties represented the last point in my life where I had no real responsibility and was free to simply have a good time.
Ah yes..the joys of adolescence. The victories were huge (getting a date) and the defeats were small (losing the basketball game).
It was also during this time in my life that kids at school started to dress, act and speak in different and strange ways. As I was exposed to these behaviors, I picked some of them up and brought them home with me. My parents were not amused by what they considered “weird” behavior and they thankfully counseled me on the meaning of these actions. My father, the scientist, was typically blunt:
“Son, if you start acting like a loser, sooner or later you will become one. “
Priceless advice that holds true even today.
Anyway, the 80s were a time of big hair, bad music and the tail end of the Cold War…yea….the Cold War.
For those too young and for those that need a quick refresher, the Cold War was an ideological conflict between the USA and its allies and the Union of Soviet Socialist Republics and their allies. The Cold War was fought with propaganda, intelligence agencies, and if any shooting started, through proxies, North Vietnam, Afghanistan, etc.
Social studies class was abuzz with talk of how the citizens of the USSR could not own property, could not choose their professions and how wildly inefficient and of poor quality their collective farms and factories were. We would also be amazed at how the USA was selling massive amounts of grains and other foods to the USSR just so they could feed themselves.
To summarize the basic difference in the competing philosophies between the USA and USSR we present the following table:
|Disaggregation of Risk to Individuals||Aggregation of Risk to the State|
|Private Property||State Ownership of Most Property|
|Open Political System||Closed Political System|
The table above is grossly oversimplified, but it will do for our purposes.
So to complete the discussion of the Cold War there were two basic competing philosophies that competed in many ways and in many places throughout the world. At the close of the 1980’s, the Cold War suddenly ended.
And then ……….
We proceeded to adopt nearly the exact policies of the losers.
Over the past 15 years, we have increasingly been susceptible as a society to promises of Utopia. Somewhere along the line we came to believe that no one should be hungry, everyone should have healthcare, no one should fail and other such fantasies.
In order to attempt to bring these ideas into reality, we have essentially adopted the communist dream of a perfectly egalitarian society. We moved from creating equal opportunity for all, to attempting to create equal outcomes for all.
In our attempt to accomplish this distortion, we have steadily taken away freedom from individuals (for freedom includes the freedom to fail) and ensconced power in centralized institutions.
Referring back to the chart above I would like to discuss (you guessed it) the aggregation vs. disaggregation of risk.
Our system used to be structured around the individual. Individuals would make various economic choices and either succeed or fail based upon a myriad of factors. Those individuals who were not successful in their endeavors did not pose a systemic risk to society as they risked their own capital, time and prestige.
By taking individual economic decisions and nationalizing them in the areas of home mortgages, automobiles, health care, etc., we have put everyone into the same boat where we will must either all succeed together or all fail together. In short we have taken a system where risks were spread out and confined, to one where risk is concentrated and has the ability to destroy the lives of many.
So what’s the big deal? We could end up succeeding together and everyone will live happily ever after …right? Well..let’s go to the metaphor for more insight.
Imagine each individual in his own little boat rowing toward the shore. Some of these individuals will make it to the shore and others will not. Overall; however, the chance that the entire population will not make it to shore is very low. This describes our old system based on private property, individual freedom and disaggregation of societal risk.
Now everyone has been herded into a very big boat with everyone else. We are now supposed to row together towards shore under the direction of the captain. Human nature being what it is, some will row hard, some will row a little and others will not row at all. The simple truth is that the “hard rowers” cannot row hard enough to compensate for those who do not row and they will soon exhaust themselves.
In addition, the success in getting to shore depends a lot on the captain. Is he interested in getting the people to shore? Is he just overjoyed with the power of being captain, not caring where the boat goes and if it ever arrives on shore? Does he want to make detours to some islands where there are some foxy mermaids waiting for him?
In this case the chance that all of the people will not reach the shore has been dramatically increased. This describes the system we have been moving towards where collectivism, state ownership of assets and aggregation of risk dominate.
It’s amazing to think that we won the Cold War only to adopt the policies of the USSR. Hearkening back to my Dad’s advice, I just hope we stop acting like a loser before we actually become one.
Well enough with the heavy discussions for now, let’s remember the happier times of 1980s where songs like this one from The Outfield were enough to get girls to interact awkwardly with you at the school dance.
Have a great week,
Michael Bechara, CPA
Granite Consulting Group Inc.