One of my favorite cartoons describing the financial crisis shows two guys standing below a “Wall Street” street sign looking out into the distance. There a wave starts to build up that over several panels of the cartoon gets bigger and bigger. The wave comes directly at the two guys as they are looking on. In the penultimate panel the wave washes over them and completely drenches them. In the last panel one guy turns to the other and says: “I totally did not see that coming.”
To me it perfectly captured one of the essences of this crisis. There were tons of signs all along that the housing bubble was not sustainable. But collectively we were in a state of denial until things finally went sour. The sensation of something suddenly becoming clear to everyone that should have been clear long before that was the same as at the end of the dotcom bubble. What I have been thinking about a lot since is what else is out there that we have a lot of warning signs on but are collectively in denial about.
The obvious candidate is the environment. Imagine a sudden dramatic change in the climate because we cross some kind of temperature threshold that sets off a chain reaction. I believe we would experience the same sensation of being taken by surprise by the magnitude of the calamity but at the same time looking back it would all seem obvious. Tim O'Reilly alludes to the same idea in his The Biggest Ponzi Scheme of Them All post when he writes
And while most reasonable people are aware that we’re using up much of our children’s inheritance, and handing them debt in exchange, I don’t think as a society we’ve really come to grips with the consequence of that knowledge.
But I don’t agree with his basic contention that economic growth itself is a Ponzi scheme for two important reasons. First, a Ponzi scheme is essentially a zero sum game, whereas human ingenuity will continue to make amazing breakthroughs in how we can make more with less (the miracle of increased productivity). Second, as Tim himself hints at in the last paragraphs, economic growth is not just about quantity but also quality.
Back to the environment though. What we are all complicit in is releasing greenhouse gases into the atmosphere. There are plenty of signs telling us that this is a bad thing (just like with say the housing bubble, there is of course no definitive proof that it will end badly). So the fundamental question is how can we as a society start to reign in excesses that seem free (or even positive) at the time before being crushed by the wave that is building?
