Saturday, February 10, 2018

Margins of Safety For the Marginalized

While this title seems obvious in retrospect (for my own efforts), a recent post from Shane Parrish, made me more aware, how I approach potential non tradable sector "circles of sustainability". In "Making the Most of Second Chances", Shane Parrish provides some explanation for margins of safety:
We can make the most of our second chances by building margins of safety into our lives...The concept is a cornerstone of engineering. Engineers design systems to withstand significantly more emergencies, unexpected loads, misuse, or degradation than would normally be expected.
What happens when societies are no longer convinced they have sufficient margins of safety? What's more, it's not just citizens that are slowly being marginalized. So too, are many forms of knowledge use, which - when private interests only find them profitable up to a point - are becoming less amenable over time, to the budgetary burdens of government funding.

Also, note Parrish's engineering reference. Many economists prefer that the discipline not be approached from an engineering or problem solving perspective, but as an act of passive observation. However, this "hands off" observational approach, likely bears some responsibility, for the fact that too much economic activity has consequently ended up as wealth capture (with its associated public debt), rather than wealth creation.

Wealth capture also functions by establishing margins of safety that are mostly intended for higher income levels. Alas, lower income levels also need more viable options for risk management. Even so, it's not easy to make peace with the fact one's resources (and internal fortitude) might have become insufficient for prevailing norms. As a result, we often don't realize that it's time to let go of commitments in line with societal expectations, until they become too risky. Once this occurs, personal attempts to "bounce back" from adversity, cease to be as reliable as before.

How to know when better margins of safety are needed? Parrish provides an apt example:
There is no doubt that the prospect of death wakes us up. We don't often think about how dangerous something can be until we almost died doing it. Then...we adapt. We recognize that if we don't, we might not be so lucky next time. And no one wants to rely on luck as a survival strategy.
When people no longer have recognizable margins of safety to continue life as before, it's not just frustrating for those who personally experience setbacks, but also those who have previously depended on them in some capacity. A close brush with death can sometimes be an economic "bridge too far" as well, since societies lack sufficient local environment options which make it feasible for individuals to continue work and personal responsibility, in any "diminished" capacity.

One unsettling aspect of the Great Recession, is that this economic catastrophe should have provided a wake up call, which would have encouraged populations to build stronger margins of safety for the marginalized. Hopefully, we will be able to create local environments which are more responsive to actual income and personal resource levels, before any economic catastrophe may strike again.

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