For Your Consideration

This is a massive post for which I apologize in advance. Hope you have some time.

To my eyes it seems that society’s perception of risk is getting closer and closer to the actual risks we face. I have been a staunch proponent of markets ’self-correcting” and I have not minimized or sugar-coated the “pain” likely to be felt during this process. But my cautious optimism has in large part been based upon the political and regulatory processes of our country not radically changing.

But it’s right that we should expect change. The political wonks will tell you that it’s what the majority of voters “voted for” in November. While many can lament that more people didn’t ask for details of the proposed change, the reality of the situation is palpable.

Today, U.S. citizenry is faced with a dizzying array of emerging, high severity risks:

•     Surveillance Risks
•     Access to Information
•     Taxation Risks
•     Inflation Risks
•     Social Engineering Risks
•     Financial Risks
•     Regulatory/Political Risks
•     Class-Warfare Risks
•     Job and Home-Loss Risks
•     Loss of Liberty Risks

Probably not since our country’s founding have such a confluence of ideas and issues been thrust to the forefront for society to work out. Some thoughts on each risk follows:

• Privacy and Surveillance: Advances in technology has made it possible for government to surveil hundreds of thousands, even millions of people at relatively low cost. Whether the surveillance takes the form of monitoring computer searches or through security cameras the result is the same. I am appalled by the disingenuous nature of “marketing” these programs, using the guise of “protecting the public” by “helping fight crime” or “making the streets safer”. Privacy is a linchpin of liberty and the more we relent to intrusive surveillance, the more liberty is lost.

• Access to Information: In 1989, the modern internet was born when “Tim Berners-Lee invented a network-based implementation of the hypertext concept” (which we now call the world wide web). It is hard to imagine modern life without the internet. But our growing dependence upon “easy” access to information is a risk in and of itself as information may be withheld or corrupted to serve the needs of those who control not only the information itself but its flow and availability. The growing rate of loss of print media is also an alarming trend as we can envision a time when information is only disseminated through the internet.

• Taxation: The recently passed “Stimulus Package” at its heart is morally corrupt, as it makes future generations financially responsible for our folly today. Higher rates of taxation and new taxes not yet devised are a virtual certainty. Monies surrendered to a government means that it cannot spent in the “regular” economy. Taxation however, has a potentially dark underbelly as well. It can be used as a tool in social engineering, where taxed activities can be monitored. A recent idea of taxing people on the basis of the number of miles they drive rather than on how much gasoline they burn is only one step away from monitoring the who, what, where and when of such usage. See Privacy Risks.

• Inflation: A cousin to Taxation Risks. A natural consequence of “inflating” money supply in an economy is inflation, which is the loss of purchasing power over time. We intuitively understand this concept as the cost of goods and services tend to increase over time. However. as a result of current monetary policies, we can expect much higher rates of inflation in the near term future. The good news is that a little inflation is better than deflation, which is commonly defined as a “persistent” decline in the costs of goods and services.

• Social Engineering: For those unfamiliar with the term, social engineering can be thought of as those “efforts to influence popular attitudes and social behavior on a large scale”. Social Engineering is glaringly apparent in a bill currently circulating in the Illinois General Assembly, (HB0687). The bill, if passed, would amend the current Illinois Firearm Owners Identification Card Act to require firearm owners to provide proof of liability insurance in the amount of at least $1,000,000 specifically covering any damages resulting from negligent or willful acts involving the use of such firearm while it is owned by such person. As of today, lawmakers sense that they will not be able to suspend the Second Amendment to our Bill of Rights, so we can look at this proposed litigation as an attempt to circumvent it. Issue #1: the proposed law will require an insurance policy that covers “negligent and willful acts” of firearm usage. Good luck finding that today. Issue #2: if such a policy is not obtained, the owner’s firearms are subject to seizure. If something cannot be banned, there are those that seek to control it.

• Financial: A picture is worth a thousand words. As of this writing, the Dow Jones Industrial Average is shown directly above, which as of this writing is down more than 16% YTD. The basic problems? Lack of trust, lack of transparency, and lack of ethics. Increasingly, we do not trust our elected officials to get it right. Changing rules of the game “while the ball is in play” is particularly troublesome and does not assuage the people that make up the markets.  The Fed’s refusal to disclose the recipients of over $2 TRILLION dollars that not one American citizen or his designated representative voted on is completely unacceptable. In an information vacuum, trust suffers. In the “lack of ethics” department, think Madoff, Tom Daschle, Tim Geithner or Rod Blagojevic, all involved in some violation of trust. Simply speaking, without trust (which flows naturally from open and ethical frameworks), financial markets will continue to exhibit weakness and society will bear the brunt of its full force.

• Regulatory/Political: More and more, this is aligned to Financial Risks as New York and London cede financial power to Washington DC. So long as we delude ourselves into thinking that Washington has the answers to all our problems, the higher the frequency and severity of risks CAUSED by the political process. I promised a friend I would not mention that the “cult of personality” of some of our leaders today poses its own set of risks.

• Class-Warfare: a cousin to Taxation risks and an increasingly closer cousin to Political Risks. Societal unrest is an increasing possibility as battle lines of class-warfare are being drawn. There does seem to a bubbling sense of unease between recipients of governmental programs and those tasked with “paying the freight”. I sincerely hope this doesn’t rip us apart.

• Job and Home Loss: Simply speaking, the rock upon which our modern society stands (or falls). Job losses can cause an “infinite vicious regress” of home losses, which results in tax-base erosion, which results in lower tax amounts to government, which further strains government resources, which has to increase tax rates, which may result in further home losses and so on. (I’ve always wanted to use the term “infinite vicious regress” and now I have!)

• Loss of Liberty: By far, the risk that concerns me the most. Without blatant political commentary, I ask that you remember and consider this one risk as time goes by and events unfold. It is likely that this will take the continued form of “incrementalism“, where small liberties are asked (or demanded) as a “reasonable” trade-off for perceived safety. This is a close cousin to Privacy/Surveillance Risks, but be aware that the more power we relinquish to our government, a commensurate loss of liberty results.

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While our future is uncertain, being aware and thinking carefully of the emerging risks we face will put you ahead of the curve. As always, I look forward to your comments!

This entry was posted on Friday, February 20th, 2009 at 15:58 and is filed under Life. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.