We’re Professional Consumers
We’ve become really good at consumption. In fact, we’re professionals. We’ve become so good in fact, that we can consume our present, past and future, all at the same time!
Consuming Millions of Year of Solar Energy in 200 Years
We’re well on our way to consuming millions of years of our past in just a few hundred years. Oil is, after all, nothing but super concentrated solar energy packaged into liquefied bio-mass. Likewise, we’ve become really good at deriving, packaging and selling off our future. All so that we can feed our need to consume today. Junk bonds, short-term negative-interest mortgages and the likes are all about maximizing today’s consumption, with little regard to the full price of that consumption in the same period it is consumed.
It’s rather ingenious in a way. We’re masters at pushing off payment of today’s consumption into the future. The problem is, in many cases, we’ve been able to condense and consume the future in such high quantities and at such an accelerated pace that reconciliation cannot always be pushed off indefinitely. It typically comes back to bite us.
Just Another Form of Ponzi Scheme
In some senses, many of the crisis (bubbles bursting) of the past few decades have been a grand sort of Ponzi scheme, in which everyone has participated. As long as good money enters the front of the funnel fast enough to hide the fact that we’re accumulating an enormous hidden cost to pay down the road, everything is ok. But sooner or later, we always have to reconcile the imbalances.
My overarching concern is that time and time again, new forms of Ponzi schemes are being created. Each time, very smart people are able to create and package up derivatives of our future that do not account for the full future cost of that consumption in the present.
Without a shift in what society values, regulations can do only so much…
Regulation, by the very nature of how it is created (in reaction to something bad happening), will always be one step behind the new Ponzi scheme.
Generally speaking, the thing I object to is not all of the creativity that goes into how we can create and consume more, but what appears to be an imbalance in accounting for the true cost of that consumption. I believe that we need to return to longer time horizon when it comes to our sense of responsibility. Consuming our past is one thing. Consuming our future without a plan to pay for it in our lifetime is as people say, generational robbery. In many of the bonus reform conversations, it’s become recognized that the structure of many annual bonuses provide management a means of concentrating gains in the current period, while pushing off the cost of those gains into future periods. By extending the view of what should be as bonus for exceptional performance to a longer time-horizon (a horizon that extends continually beyond simply the current year), we can encourage a different behavior, a behavior which will have people balancing current consumption with the potential for future consumption.
Matching Consumption Increases with True Productivity Gains
In GAAP accounting, there is a notion that revenue and expense needs to be recognized in the same time-frame. The importance of this is to ensure that companies do not report all of their revenue in one time period, and all of the expense at some future time period (or vice-versa). If we really care about the stability and sustainability of our growth curve, (as versus the roller coaster ride we seem to be on as we condense and consume chunks of our future in a short amount of time) we need to return to our sense of reasonableness with regards the true costs of our consumption in any period of time.