Monday, July 5, 2010

Dispersal

I'm in Houston with Laura for a few days visiting my family and not doing much by way of writing, so I'm trying to rush to completion this post in the waning hour and a half remaining for the day. In it, I'd like to rough out an idea that's been on my mind recently.

Hindsight is 20/20, and foresight is 50/50. Even so, I like to spend a lot of time in the future, thinking about it and planning for it, and readers of Just Enough Craig should know that that I assign a likely possibility to the following two speculative ideas about the future.
  • Energy is going to be more expensive, in real terms, in the foreseeable future than in the present.
  • Passive monetary investments are going to return, on average, little (if anything) in real terms in the foreseeable future (unlike in the past).
It turns out that starting with only these two premises—which, no, I'm not going to defend here—there's quite a lot of interesting conclusions about the future that a person may derive. Today, there's one particular such conclusion I'd like to share.

Here's the thought progression. Passive monetary investments are going to perform poorly, so most middle class people will feel themselves squeezed financially. It once was that a dollar spent in retirement could be accounted for by saving a small fraction of a dollar and making up the difference through investing, whether that investment was actively controlled by the individual or passively controlled, like in a company pension or Social Security benefits. If passive monetary investments perform poorly, then a dollar spent in future retirements will necessarily stem from saving about one dollar and investments accounting for nearly nothing except as a way of storing (protecting) monetary wealth.

Most people are not saving at anything near a rate that will allow them to spend a dollar for each dollar they save and live a lifestyle like what they expect, based on the implicit social conditioning of their affluent younger adulthood. It doesn't take great skills in mathematics to realize that if one expects to work for forty years and retire for twenty and maintain the same level of consumption for all sixty years, then without passive monetary investments making up the difference, a person must be saving one dollar for every two dollars that they spend—for forty years! This is a person earning $1000 per week (after taxes) and saving $333. Throw in that most people, I suspect, won't be happy still working past their mid-50s, which is to say that the forty-twenty split is a modest proposal compared to what most people dream, and I think we have here a recipe for (the perception of) widespread old-age destitution in coming decades and, consequently, general social and political instability.

Now, it happens to be that I think that passive monetary investments will perform poorly because energy will be increasingly expensive. However, rising energy expenses will further shape coming destitution in ways that many people, I suspect, haven't yet begun thinking about. One such way is that transportation will be hit disproportionately hard and that, between transportation supply decreasing due to energy being less available (the flip-side of rising energy costs) and transportation demand decreasing due to decreasing affluence of the middle class, there will simply be a lot less transportation going on in the future. And this, finally, brings me to my main point: we, as not-yet-old adults looking ahead to the future, should begin rethinking family dispersal in a serious way.

Family dispersal is the social trend of middle class grown-up offspring moving far away from their parents and family, setting up independent lives and relying upon their money-earning (and money-protecting) skills to eke out a comfortable and happy existence. This is a trend that worked well in the 20th century because money was a good gig then, as the next year generally brought us more material wealth than the previous one. However, in the case in which we accept our two initial premises, where we can expect the next year to be generally no better than the previous year, then people who are able to profit from the non-monetary benefits of close relationships will be in an advantageous position over those who cannot.

Currently, many people, such as myself, rely upon their career specialization for production and paid-for goods and services for consumption. As the money supply dwindles, in real terms, all but the eternally lucky few will increasingly need to de-specialize to “fend for themselves” more, so to speak. One great way to de-specialize is by forming solid, close relationships and entering into the “reciprocal economy,” as it's sometimes called--people helping each other out. The closest, most solid of relationships during hard times are often familial. Reciprocity is negatively impacted by distance. That is, distance adds friction cost to reciprocity. Living far from those you're related to may be a bad thing in the future.

It's often true that people do poor planning when times are good, as if, as it's been said, rising prices act as a narcotic and impair good judgment. I think it's likely that familial dispersion is one such form of poor collective judgment.

No comments: