Monday, 16 June 2008

Crash

[Updated - added consultants, advertising and coffee shops]

I do believe that there will be a crash - it is unavoidable one way or another, and the signs are now appearing everywhere. Here is my perception of how I think it will play out. I know I'm late and that lots of others have done this already, and that I won't be adding anything different or radical. Nevertheless I wanted to put down my own particular view on this, and how I think it will play out in loose, general terms. Just to see if it does turn out as I assumed. I'll keep it as high level as possible, so as not to get bogged down in lots of details.

The first point is that some form of crash is inevitable and bound to happen:
  • All previous large civilisations have crashed for one reason or another.
  • Continued growth of anything (population, food production, economies, profit, wealth) is impossible forever. You cannot grow infinitely in a very finite world.
  • Many finite resources are reaching or have reached their limits, and their usage will plateau or have to decrease e.g. oil
  • The pressures from all the many world economies trying to become full blown first world global economies will give rise to massive resource pressures and accelerate the drain of natural resources.
  • A fabricated market economy founded simply on the movement of money within the system rather than on real physical items.
So how will it all start? Slowly at first, obviously. As a result of various small but significant changes the price of some things will rise. Just some things, not everything, but they will become more expensive at a much quicker rate than other things rise in price.

This has already happened for oil, and is happening for various food items.

Initially people will ignore it. (Peak oil is not a new issue - only its effects are newly visible to everyone). But then people will realise that these increases in price are inevitable.

The price rises will spread to other things - from oil to food - both due to the increase in the price of oil itself, and its reduced availability due to the greater global demand from the fast growing new third world economies.

In the first world people will end up with less disposable income, as all their major costs rise - transport fuel, heating, electricity, food, long distance travel, holidays. Many are essential, while others are not.

Once the impact is felt by the ordinary people in the western world, they will simply tighten their belts to begin with, look at what they spend their money on and spend less by making cutbacks.

In turn this will end up having a major impact on the economy. It's unavoidable one way or another, and so the economy will have to shrink. This will cause major problems for those companies affected, as they can no longer report either growth or large profits year after year.

I believe that the first areas to be impacted will be all forms of entertainment, including leisure and services. People don't actually need to go to the cinema every week or buy a new DVD / CD / video game every week or month. People will simply stop spending money on this kind of stuff. This will have a major impact on the entertainment industry, which simply believes that it can make any old kind of stuff and people somewhere will buy it. When people stop going to the cinema all the time, Hollywood will make major loses initially. Then it will stop making so many films, and paying the actors such vast sums. That will be somewhere to look for major losses and various shutdowns.

Likewise restaurants will be hit as people eat out less. Possibly less than entertainment, but people will realise that they can cook their own meals at home and not have to pay the overheads for chefs, waiters and buildings. So, many restaurants will also go under and close.

Takeaway food shops of all forms will also be hit as people eat out less. On the basis of last in first out, it will be all the coffee shops that will go first, as people decide they do not need to spend money on a freshly made latte when they can make do with a kettle and some instant coffee.

After one last splurge by people, the travel industry will be reduced to a fraction of what it once was. I think there will be one last boost to the travel industry as many people take the one holiday they always wanted to, just before it becomes too expensive to travel anywhere in the world. So long distance travel and holidays to exotic places will hold the travel industry up for a year or too. And then it will just disappear, because everyone stops traveling long distance. At which point most of the airlines simply go bust. Some of this has started already, with many US airlines filing for chapter 11 because they are either bankrupt or insolvent, and trying to put together some rescue deal. These will become more common, and unstoppable.

With people spending less the whole economy suffers. Initially it will be leisure and entertainment as I have indicated, and also high ticket price items. You don't need to change the car / television / music system every year. So retail companies suffer too. And many, many companies suffer much lower revenues and profits turn into losses.

Also hit will be various 'soft' services that never existed before the very end of the twentieth century. There never were personal fitness trainers or life coaches 50 years ago, or even 25. They are all a result of people having too little time and too much money. When the money goes away so will the demand for all of these things that no one really needs in the first place.

Initially you will see retailers shutting down as they do not have enough business or turnover to make a profit, so there is no point staying open. More shops will close in the main shopping centres, and stay closed. This will then spread up stream to the various distributors and suppliers who provide the stock that the retailer sells. And in turn it could spread all the way back to the manufacturers.

When it reaches this more advanced stage, you will then see a great many companies simply shutdown, lay everyone off, and disappear overnight. Why? Lets not forget that companies exists for one and only one reason - to make profit and put it back into the pockets of the senior directors and presidents and shareholders. They do not exist to take care of employees or the community or anything else. Those are all myths. Be realistic. Once companies can no longer make enough profit to keep their presidents in the lifestyle they have become accustomed to, they will simply shut up everything and walk away from it all. Why work hard trying to save a company of any size, when you can simply take a big pay off and close it all down?

This gives rise to an increase in unemployment. And with so many companies shutting down there is no other work to be found. Unemployment will rise to never before seen levels.

We could also see issues with many companies reducing the wages of the employees using a reverse logic that their revenues have decreased too, and so they don't have as much money to pay people with. This further pushes more people over the threshold and they cannot make all their payments and go bankrupt. Note that directors and presidents wages will not drop their salaries correspondingly, because they are making the tough decisions that will save the company. And for that they will also receive large bonus payments each year.

Companies will also stop using so many consultancies to 'help' them with various parts of their business. No amount of reviewing by outside people is going to magic up a growth in revenue or profit when sales are falling. So the consultants will be kicked out, and in turn most of the large consultancies will lay off most of their people and then close down.

With people spending less, and less revenue coming in, many companies will stop advertising too, as it stops being a useful tool to try and trick people into buying what they don't need. In turn advertising and media companies will be affected too and close down, as their revenue streams dry up. All the television channels will disappear one by one, as the advertisers stop placing advertisements on them. Remember, television does not deliver good programme content to viewers - it really delivers a quantity of viewers to advertisers. That is where their revenue income stream comes from. From the advertiser, not from the viewer.

With all these companies shrinking in size, going bust, or simply closing up, the stock markets will crash all the way around the world. With no basis on which to value a share in a company, the price of shares will plummet. Not unexpected given that their share prices do not actually reflect any true measure of the value of a company anyway.

And when the stock markets crash, so will many pension funds that had peoples' life savings invested in the market. Which means that many people who thought they had some money set aside to retire with, now find that they have next to nothing. Which brings home the reality of having to work and earn money until you die, because you will never be able to afford to live off your savings. Retirement will no longer be an option for most people - only the super rich.

Housing will be affected too. Initially we will see that with less money to spend on mortgages and loans, people are not willing to pay the same for houses. And so their prices drop. I'll admit that I did not see the credit crunch issue coming which has already affected the west, and started to drive down house prices. So this has already started, but for different reasons - people borrowed more than they could afford, banks lent it to them anyway, and eventually they missed payments and the banks repossessed.

I originally assumed that people becoming bankrupt would happen in the second phase of the crash, after the rise in prices and the layoffs and closures of many companies. Instead it is happening much sooner, due to the credit crunch because many people were lent more than they could afford several years ago when interest rates were lower. There is also the factor of landlords borrowing money to buy property to then rent out. Again more money has been lent than should have been, and rental income has not achieved what people assumed. When a landlord defaults on one property they own due to not getting enough rent for it, the lender will often move to repossess all the property the landlord owns, thereby making the landlord bankrupt too.

When all these homes are repossessed and put up for re-sale they will not fetch what they did originally - continuing the drive down in house prices, and accelerating it to greater levels. As already mentioned, this has actually already started, due to the credit crunch. Something that was quite avoidable by all parties if the banks had not lent too much money to people who could not really avoid to pay it back.

In turn all of the major governments of the world will struggle with significantly reduced income from tax revenue, as more and more people become unemployed. I don't know anything about the inner workings of governments, but the simplest things I can see is that they will simply be forced to reduce their expenditures. Less in equals less out. Which areas get the biggest cuts will be the interesting thing. Governments will never cut the money they pay themselves, or other large government departments such as defense and the army. So it is likely that the ordinary man or woman on the street will be hit the hardest with the cutbacks.

The other option is to raise taxes, but the governments will struggle to do this. The poorest people will have no money to pay taxes with, so raising the level of the lowest tax thresholds will not increase tax revenue that much and will simply drive more people to bankruptcy if they cannot pay their bills any more. Raising the tax levels for the richest people does make sense - they clearly have money to spare. But most of the major governments in the western world are right wing one way or another, and so the rich man is their friend. They will avoid taxing the rich for as long as possible.

I wonder if a government can go bankrupt? And if it does, does that mean that people can stop paying all the different taxes imposed on them?

At this point the crash will be pretty much fully underway:
  • The economy has shrunk to a fraction of what it was before, because people are simply spending less on unnecessary items and are forced to spend more proportionally on the essentials of food and fuel for heat.
  • Many companies of one form or another have shut down and laid off all their employees. These are both big and small companies. Some companies avoid this by merging with other companies, to try and create almost a monopoly in certain markets. But this still results in massive layoffs from the merger, and eventually the final company is only slightly larger than one of the original ones.
  • The transportation industry has big problems, all in the long haul area. No one travels long distances any more, except the super rich. Even businesses cut down on travel.
  • Unemployment rises to massive levels.
  • House prices drop, to the point where there is little difference between the cost of the raw materials and the finished house itself. This is due to both the reduced spending power that people have, and the availability of houses from repossession due to the failure of the owners to make the mortgage payments.
  • The revenue of each major government decreases sharply. They make adjustments by simply cutting their spending in the short term, which again impacts the ordinary people the most. In later phases of the crash governments may try and tax the super rich, but this proves difficult as the super rich simply relocate themselves and all of their assets to some remote, isolated, safe haven.
At this point things are a big mess. Unemployment is at record levels, and many people have nowhere to live because their property has been repossessed. There will be major issues over where these 'unhoused' people live. It is possible that large tent cities come into existence. Or that people move onto unused land and set up any form of dwelling.

Land ownership becomes a big issue. Both in terms of who legally owns each piece of land, and in terms of enforcing that ownership.

One big growth area will be in security forces - almost private police forces - employed by rich people and companies to enforce the law regarding their own property and assets.

Probably some people will move away from the cities and into the country. But this is difficult to tell, as it becomes a very personal decision.

Those left with jobs will find more and more of their wages going on only the basics of life - food, heat and shelter.

Black markets spring up, and barter replaces monetary transactions. Many people simply trade what they have for what they need. Whether an item or a service - mending broken things for instance. Money has little use or no relevance to them, especially when they are unemployed with no home of their own.

And so it will get messier and messier. In some respects this is the tip of the iceberg, and it could get a lot worse in so many ways.

Generally I do not see the crash as a 'bad' thing because I think it is inevitable and so unavoidable, and because in the long term it might be better for everyone and for the planet. Some good things do come out during the crash, as well as the many bad things.

Production of many things moves back to being local. Initially this is a result of the cost of oil rising, and increasing the cost of food produced abroad, many thousands of miles away. With the move to local production, the range of choices increases as there is no longer a single one size fits all answer.

Manufacturing rises up again in each country. It is no longer cheaper to have it manufactured in the Far East somewhere and then transported over. Small manufacturers will come back into existence, and continue to grow in size over time. The effects of the rising costs of transportation due to oil will have less of an impact on these local companies in the long term.

The cost ratios change in many other industries too. Take basic transportation such as rail or bus or the airlines. Oil has been so cheap that the major cost component of the travel industry is actually the people cost (I have no evidence of this, but it seems a valid assumption to me). Look at the rise of the low cost airlines within Europe and elsewhere. How do they do it so cheap? By having almost no staff, paying very little to those they have, and offering the minimal possible level of service. Once oil has risen high enough, and become the largest cost component, then people costs become less significant. Old fashioned service starts to rise again as a differentiator.

Many industries will replace technology (now expensive) with people (now cheap). Instead of a manufacturing line of machines on 24 hours a day consuming energy, we might have a line of people doing the same tasks. The people cost may end up being far less than the machine cost. And people are retrainable and can learn new skills, while machines can only be replaced at the cost of a brand new one.

Alternative house construction techniques become more widely used. Anything to cut the cost of making and maintaining a house. Less raw materials, cheaper and more local raw materials, less processed materials, better insulation, and even smaller houses.

And many other things happen too.

Thursday, 12 June 2008

Effects of starting school on young children

I always assumed that the teenage years were the worst at school - forced to study dull, uninteresting topics day after day, taught by the same teachers year in year out; forced to sit exams and be graded and measured for your ability to remember and recite things back; very little choice in what those subjects are; and the monotony of it all, day after day at the same school buildings, just to get a piece of paper with a grade on it at the end.

But the other day it struck me that there is a much larger impact on a child when they first start school and full time education at around 5 years old. And that this probably has a more immediate impact on them overall than what happens later on. Later on the child / teenager has become adjusted one way or another to the education system. But when they first start school it is a total change in emphasis from the nurturing environment of their home (assuming good parents).

The key thing that struck me is that this initial impact of sending your child to full time education - a legal requirement in the UK - is probably the complete opposite of and undoes the effects of the previous 5 years development and growth by the parents of trying to raise an independently minded, able child. This is a full 180 degree u-turn in the emphasis of the child's development.

In the first 5 years of a child's life the emphasis is on development in many forms - physical, mental, language, social. Generally parents encourage their developing children to do and achieve more all the time. This is not a forced development, but a natural one. And it takes many forms:
  • Physical movement, hand eye co-ordination, dexterity
  • Language - sounds, words, sentences
  • Crawling, walking, running, riding a bike
  • Reading and writing
  • Personal social interaction
  • Memory
You could characterise this kind of development with descriptive words like 'growth', 'explore', 'interact' and 'independence'. The focus of the parents is normally on getting the child to the point where they can do most things themselves - dress, speak, toilet, feed. When young children ask for things we often say "You can do it yourself. You don't need me to do it for you.". And if the child says that they cannot we often say "Try it. You can do it.".

We want the child to become an independently able and independently minded person.

Then at age 5 we send them off to school and the education system, and all of this independence is systematically suppressed and quashed by it. From day one - like turning off a tap. Now the children can only do what the teacher says, when the teacher says they can do it. No other activity is allowed at that moment. Suddenly each day is not full of new things, but full of the same things with the same people. The same classroom, the same other pupils, the same teacher, the same few topics (repetition seems to be the key to successful teaching). Day after day, week after week, year after year. Yet more conditioning to be a mindless employee sitting in an office in a cubicle somewhere.

Instead of 30 independently minded and capable children, the education system ensures they become 30 identical, dependent, mindless children, all sitting quietly and all doing the same thing when told. Any individuality or deviation from the norm is quashed.

The goal - the child stops thinking and doing for themselves and waits to be told what to do. Perfect future employees. No original unique thoughts themselves, always waiting to be told what to do next.

When they are young we encourage them to be independent and proactive and to try new things and push their boundaries and experiences - "Go on, try it.", "What do you want to do now?".

But the education system changes the child from being proactive to being reactive. Passively waiting for the teacher to tell them what to do. Not bothering to think for themselves. Everything provided for them. In real terms the education system encourages them to switch off rather than be actively engaged.

Once I realised this of course, it then struck me how tragic this whole thing is. These are children who have only lived on this earth for 5 years and we are shipping them off wholesale to an education system that drains them of any individuality and originality they had.

Of course all of this is hidden by the system, and we are presented with school as somewhere to send your young child to gain all the basic knowledge they need - reading, writing and arithmetic as they say. School is presented as an advantage rather than a disadvantage. And not sending your child might mean that they do not learn as fast as the other children, and so fall behind. We blindly assume that sending them to primary school with all the other children is the best thing we can do for them.

But the reality is probably the opposite of what we imagined. We have expended all this effort to help our babies grow up into independent, capable, self minded young children, ready to face up to and explore all of the world and its wonders. But when they get to school most of this is undone. Right from the very beginning of the school system. Five years of personal attention by the parents is nothing compared to the next eleven or more years from the education system. And it all starts immediately, right from day one.

I truly believe the impact of this schooling system must be incredible on these young minds. All originality is suppressed, until they all become mindless zombies, just sitting in class, waiting and following orders. Up to 5 years old the message from the parents is one of "everything is possible", but after that the message from the education system is "don't do that, sit down, you can't do that, be quiet".

Scary. And all the more so because I just never realised that was the reality of it all. I just assumed that at least primary education was good, because it got the basics of reading, writing and arithmetic across, which are universal things to know. Just proves how wrong you can be about anything in this system we call civilisation.