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Musings Report 2022-16 4-16-22 What Happens When Complexity Unravels?
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What Happens When Complexity Unravels?
I've posted these charts reflecting the extraordinary expansion of administrators in higher education and healthcare in the context of the Ratchet Effect and bureaucratic bloat.
The Ratchet Effect is: costs and complexity only increase, they never decrease because organizations are optimized to expand, not shrink, and so there are no institutionalized pathways to reducing complexity and costs.
Everybody clamors for a larger budget and another assistant. Nobody clamors for a radically reduced budget and staff.
This raises a question few seem to ask: what happens when complexity unravels?
Why will complexity unravel? The answer is simple: it costs too much, and costs are rising. Something's gotta give, and that something will be complexity.
Complexity serves us well when it radically increases productivity. But this type of complexity is rare. Most complexity is self-serving waste and friction that reduces the productivity of labor and capital.
Now that we've depleted the cheap-to-get energy and other resources, costs will rise. There are no more super-giant deposits within easy reach anywhere on the planet.
Costs will rise inexorably for another reason: supply chains have been optimized for a perfect world of endless expansion.
Barry Lynn, executive director of the Open Markets Institute, summarized the dynamic nicely: "Corporations have built the most efficient system of production the world has ever seen, perfectly calibrated to a world in which nothing bad ever happens."
Recalibrating every corporate supply chain for all the bad things that are happening will cost a fortune.
These costs will be passed on to consumers, but as the purchasing power of wages declines, there will be limits on how much consumers will be able to pay.
So these higher costs will depress profits which will depress employment and tax revenues.
Corporations have two pathways: one is to cling to the old model and go bankrupt (or decay to irrelevance) or radically reduce costs by reducing unproductive complexity.
Corporations have been able to borrow vast sums to mask their insolvency but now that the cost of credit is soaring, that door to zombie-corporate-Nirvana has closed.
Stripped of the option of cheap borrowing, corporations will have to adapt or perish. Yes, it really will be that simple. Enterprises that burn through their capital run out of money and vanish.
Public organizations have long been optimized to increase their revenues and complexity because an expanding economy also expands tax revenues.
Nothing boosts local tax revenues like a real estate bubble, and nothing boosts state income taxes like a speculative bubble in stocks, cryptocurrencies, etc.
But all bubbles pop, and public agencies are incapable of reducing their budgets, staff and complexity, because one politically influential constituency or another favors every program.
So there's no way to trim anything without igniting a political firestorm as whatever sacred-cow program that gets trimmed arouses the constituency committed to preserving that sacred-cow.
The only politically acceptable "solution" is to cut every department's budget except for public safety--police and fire departments.
But beneath the surface, the administrators protect their fiefdom by slashing staff that actually does the real work.
So universities will cut tenured teaching positions in order to maintain administrator positions.
Healthcare will cut physicians and nurses to maintain administrator positions.
Building departments will cut onsite building inspectors to maintain administrator positions.
And so on. Lifeguards will be cut, library hours slashed, etc., while administrative positions remain (behind the screen of public-relations) largely untouched because all the complexity and political battles must be managed.
The net result is critical systems will be hollowed out and cease functioning. Those of us who depend on these systems will have to find workarounds.
When it takes six months to get a building inspection before you can pour a foundation slab, the workaround will be to just build the house: forget getting permission, just ask for forgiveness. That process will probably take years.
When there's a six month wait to see a physician, the workaround will be to pay cash.
In other words, all the complexity will remain firmly in place because somebody somewhere will wage ruthless political warfare to keep it, making it impossible to resize the system to fit available resources.
Those with the power to protect their jobs (the clerisy) will make the unstated choice to throw everyone without the power to protect their income overboard to save themselves.
Meanwhile, the solution is obvious to administrators: raise taxes and fees to get more money out of all those rich folks, i.e. anyone who owns a house, has a good job, etc.
You're welcome, Tax Donkeys. We had to double your property, sales and income taxes to fund essential programs.
Things will fall apart behind the screen of normalcy. The process of unraveling has been underway for years, but it will accelerate.
Here is a small example. A few years ago I reviewed the 200+ page annual financial report of my local school district. I noticed there was no account of the number of employees, full-time , part-time and contract workers.
So I emailed the public affairs office of the Berkeley Unified School District, a district that prides itself on its vast budget and numerous programs, asking for this basic data on how many people worked for the district.
The reply: this data was unavailable and they'd have to work on it. I never heard from them, presumably because finding out how many people worked for the district was too complex.
The city doubled the business license fees (from thousands to multiple thousands of dollars) and raised other fees (for trash collection. etc.) by 20% a year, year after year. (We moved away in early 2019.) The real budget crises are still ahead.
This is how complexity unravels. Agencies will lose the ability to even count their employees, and hide the reality they lack the structure or the will to downsize their staffing to protect the agency's core functions.
All the compliance and reporting will be cobbled together to maintain the desired appearance, but it will be worthless due to inaccuracy.
But the appearances of fulfilling all the requirements of complexity will be maintained. The constituencies defending each sacred-cow will be placated, even as the system supporting all the sacred-cow programs collapses behind the PR screen.
Those glancing at the appearances will be assured all is well and it will all sort itself out. Those who look behind the screen will move away as fast as they can.
Highlights of the Blog
Video:
The Dam Has Cracked (37 minutes, with Gordon Long)
Posts:
Debt Saturation: Off the Cliff We Go 4/15/22
Yes, It Is Different This Time 4/13/22
Which Leads to Doom, Which Leads to Revival: Free Money or Frugality? 4/11/22
The Demographics of Financial Doom 4/8/22
Best Thing That Happened To Me This Week
Harvested goodies from the garden: Malabar spinach, guajillo peppers, eggplant, plus a gift of wild-grown fiddlehead ferns; and breadfruit, papaya, bananas and air potatoes.
From Left Field
NOTE TO NEW READERS: This list is not comprised of articles I agree with or that I judge to be correct or of the highest quality. It is representative of the content I find interesting as reflections of the current zeitgeist. The list is intended to be perused with an open, critical, occasionally amused mind.
Social Credit Market by Physical and Cyber Infrastructure (via Simon H.) -- techno-fascism is so affordable!...
Rents Are Roaring Back in New York City
Recent Productivity Trends in China: Evidence from Macro- and Firm-Level Data -- China's productivity has sunk to near-zero...
The Tortuous Way to Nuclear Fusion -- from a former fusion researcher...
Energy efficiency guru Amory Lovins: ‘It’s the largest, cheapest, safest, cleanest way to address the crisis’
Forget Fusion, The Future Of Energy Is Already Here. And it lies far beneath your feet. -- yes....
California exodus visualized by State -- nice graphic display...
California's Vanished Dream, By The Numbers -- how many registered vehicles have left? How many high-earners have left? Numbers are outdated, trickle is likely a flood....
Why All the Billionaires Are Moving to Hawaii -- sharpen the spears...
Wrangham R (2019) The Goodness Paradox: The Strange Relationship Between Virtue and Violence in Human Evolution
Three Months In Web3: What I Learned
In 1911, a genius revealed a forgotten science of how to be 50x more productive without working more hours -- methodical analysis of processes....
"Where there is ruin, there is hope for a treasure." Rumi
Thanks for reading--
charles |
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