The Choice Between A Controlled and Uncontrolled Descent
“In the meantime, whether it is Brussels, Washington or Canberra, expect a lot of fireworks as the process of transitioning away from the current paradigm gathers pace.”
The thing about going on a journey is that once you understand what the destination looks like, it becomes much easier to describe – and eventually predict – the journey.
As recent events at home and abroad illustrate, politicians of all mainstream persuasions are manifestly failing to explain the reality of both the destination, and by definition the journey.
The problem with this head-in-the-sand approach to governance is that:
- No matter how much money a government chooses to borrow (or print), or how low interest rates go, it is becoming impossible to reconcile the positive spin with macroeconomic reality (and particularly the fact that capitalism can no longer sustain mass wage employment)
- As a consequence, it opens up the opportunity for xenophobic / nationalistic agendas to flourish
By way of example, if British (or Australian) voters understood the Zero Marginal Cost destination to which they are all headed, they would be far less inclined to vote for Brexit (or Pauline Hanson).
As difficult as the conversation will be, until that governance conundrum is resolved (through a combination of honesty and transparency), we will see increasing fragmentation and dissent, if not outright conflict.
In aviation terms an ‘uncontrolled descent’ is defined as “descent during any airborne phase in which the aircraft does not sustain controlled flight.”
In the June Newsletter I made reference to the situation in Venezuela, which – in socio-economic terms – has now entered an uncontrolled descent.
While the immediate catalyst can be found in the inelasticity of demand for oil (on which the Venezuelan economy has been dependent for many years) the root cause of the breakdown of civil society can be traced to two factors:
- The accumulation of large amounts of debt (relative to the size of the economy)
- Poor governance
While for many readers of this blog post the situation in Venezuela would represent little more than a Latin-American outlier, we can increasingly find these same factors at play in almost every advanced economy in the world, and particularly:
- The US
(However Saudi Arabia – which is now running a budget deficit equivalent to 15% of GDP – will be next cab off the rank).
As any Sydneysider will tell you, fireworks can provide great entertainment value, full as they are of light and sound.
However as you get closer to the fireworks, what was once entertainment value can begin to appear threatening.
As governance in Australia begins to look more and more like the US and Europe:
- The novelty of the current fireworks will wear off
- The window of opportunity for a controlled descent will close