In his best selling book The Tipping Point, Malcolm Gladwell describes how a counter-intuitive observation about the progression of disease epidemics can be applied to understanding social trends—everything from the sudden rise in popularity of Hush Puppy shoes in the mid 90s to the decade’s rapid drop in crime.
The idea of a “tipping point” is counter-intuitive because it flies in the face of the common assumption that effects are relatively proportional to their causes. “To appreciate the power of epidemics,” he writes, “we need to abandon this expectation about proportionality. We need to prepare ourselves for the possibility that sometimes big changes follow from small events, and that sometimes these changes can happen very quickly.”
Such changes can, of course, be either positive or negative. But either way it is a crucial idea in understanding and preparing for the coming impending economic and social crises.
Without even mentioning peak oil, author Michael J. Panzner gives a chilling outline of these coming crises in his recent book Financial Armageddon. Panzner is only one of a string of recent authors who have made the case that our country is in deep trouble (other recent books include America’s Financial Apocalypse, by Mike Stathis, The Coming Economic Collapse by Stephen Leeb, Crash Proof, by Peter D. Schiff and America’s Bubble Economy, a collection of essays by several authors).
Panzner’s case? That the American economy is faced with four enormous threats: soaring, out-of-control debt (personal, governmental and institutional), a failing retirement system (not just Social Security, but also Medicare and a bankrupt pension system), unsupportable government guarantees (by which he is not referring to entitlement programs, but to deposit insurance and implicit and explicit promises by the government to bail out failing institutions, states and municipalities in a time of ever-greater risk), and the astronomical rise of derivatives (complex financial instruments that often rely on massive debt-leverage and which Warren Buffet has called “financial weapons of mass destruction”).
Taken together, these threats (among others which Panzner doesn’t mention) make it virtually impossible to see how we can avoid “Financial Armageddon”. None of what he says is new, but where he book is useful is in the way it describes what the grim social effects of this crisis as it unfolds; first with economic malaise, then systemic crisis, depression, and finally hyperinflation—all coupled with skyrocketing unemployment, bankruptcy, crime and social unrest. The sheer magnitude of this crisis is likely to shock a country which hasn’t felt a real, consumer-led recession since the early 1990s, and which is very far removed from the historical struggles of the Great Depression.
Why is it so difficult for people to imagine or accept the possibility of this coming catastrophe, even when the evidence is staring them in the face? The answer, I think, is our collective failure to truly appreciate Gladwell’s “tipping point”: the idea that small changes can have big effects—that a few misplaced bets in the derivatives market during an economic downturn could cause a wholesale rout of the stock market or a collapse of the U.S. dollar; that the decline of a only a few percent of global oil production could lead to unimaginable price spikes, hording behavior and a vicious circle of geopolitical instability that in turn takes much more oil off of the market, etc.
Or maybe we are just unwilling to face bad news. Last week the Government Accountability Office finally finished its long-awaited report on peak oil. By law it will be released to the public within 30 days, but at the moment it is being reviewed by the members of Congress who requested it; according to preliminary comments by Congressman Roscoe Bartlett, however, it says that while the date of peak oil is hard to determine, “the largest number of [experts] believe that it has occurred, that conventional supplies have peaked.”
But that didn’t stop the New York Times from yesterday rehashing the oft-refuted claim that production declines can be reversed by “technology” and secondary recovery techniques and arguing that peak oil theory “has been fading”— this, even as the ordinarily circumspect Stuart Stanford from The Oil Drum points out that despite a flurry of drilling, Saudi Arabian oil production is down 8 percent over the last year—leading him to write “overall, I feel this data is clear enough that I’m willing to go out on a limb and conclude . . . [that] Saudi Arabian oil production is now in decline.”
If there is a good side to the idea of a tipping point, it is that public opinion can be changed very rapidly. Let’s hope that this happens soon enough to mitigate, rather than exacerbate, the coming crises.