“ We are healthy only to the extent that our ideas are humane. ”
— Kurt Vonnegut Jr.
What else is a Grand Supercycle bear market for, if not to smash a sclerotic business model, clear away the detritus, and allow for a new order to emerge? A ninety percent loss of value in the stock market is indicated for this bear market. That means the dominant companies in the dominant industries will either drastically change the way they operate, or fail and go out of business. Is this a bad outcome? Not if history is any indication. Most of the corporations of the era preceding the Great Depression either failed or were merged during the thirties, and yet the nation recovered fully and more profitably than ever.
A great bull market in social mood is the petri dish in which sociopathic behavior flourishes, particularly in the centers of power. The longer it lasts, the higher it goes, the more self serving the business and political decision making by the elites becomes. As companies get bigger, they get more power. As they get more power, the elites become obsessed with using and misusing their power to get more wealth for themselves.
The peak in social mood in this Grand Supercycle bull market occurred in 2000. Almost anything that the elites were doing was acceptable in the general euphoria of the times. Social mood has been flat to down since, and the problems created by a long period of business and political misfeasance are coming under ever closer scrutiny by the wide sector of the population that has steadily lost ground to the Superzippers.
Big banking, big oil, big agriculture, big pharma and big retail are destroying the ecology of the nation’s economy, its financial structure, and its environment. During the bull market years, the men and women that ran these businesses got away with this, while extracting obscene wealth from the system for themselves. The bear market underway now will eliminate this practice by exposing the fragility of the system.
The concentration of power in these industries has created an environment that Taleb calls extremistan, which induces multiple ills. When you have five big banks accounting for most of the financial sector, you have institutions that feel it is their right to take huge risks because when they go bust they will get bailed out.
When you have one retailer as the largest business in the world, that business can force the entire industry to pay poverty wages to its employees to remain competitive, forcing increasing numbers of workers to rely on public assistance–food stamps and Medicaid–to get by, so that the taxpayer is underwriting big retail’s business model. This is unsustainable.
An extremistan business is vulnerable to collapse because, to wring ever more profits for the senior executives out of the system, extreme cost cutting eliminates redundancy in the operating systems. Something goes wrong in a big company with little backup, and the company goes bust. The big service companies operate this way. Consequently, they are so paranoid of losing market share that, when a customer calls in on a service issue, management makes the service reps badger the customer incessantly with surveys on how they did. Major bullshit.
Eventually, extremistan brings about its own demise. A bear market in social mood brings the markets down, reduces consumption and bankrupts an overleveraged economy. Big loses power because it is operating without redundancy. The behavior of the stocks of the Bigs in the market right now is signaling the end of their dominance.
It’s a rank hipshot as to how the economy will recover, but is certain to be small, initially. Based on trends that are already underway, my guess is that the new era will have three parts: 1) The informal part that Robert Neuwirth wrote about in The Stealth Economy, a vigorous, entrepreneurial underground economy that soaks up much of the unemployment brought on by the depression. 2) Small and medium sized corporations building very high quality products for the domestic market and for export to the global emerging economies–Made In America will regain its cache. And 3) A considerable expansion of the already rapidly growing trend for countries with emerging economies to invite Americans to come in and build out their infrastructure. Why? Because, unlike the Chinese or the Europeans, Americans have a reputation for fairness, integrity, and doing what they say they will do.
We have a lot to look foreword to.