Editor’s Note: Bureaucracies, hierarchies, rules and regulations – all get more complex as time goes by.
Ultimately, this leads them to fail… often with catastrophic results.
In today’s Weekend Edition, we’re featuring another excerpt from Bill’s new book, Hormegeddon.
Below Bill explains why a certain kind of complexity – one that arises as a result of free markets – benefits entrepreneurs. He also explains why another kind of complexity – one created by top-down planners – stifles innovation and real growth.
And why this leads to something he calls “the rise of zombieism”…
Are you a Zombie?
Bill Bonner, Chairman, Bonner & Partners
“It was unbelievable,” said a colleague, encountering the complexity of modern life. “My son got arrested for having a marijuana cigarette on him. I had to go to court with him.
“First, the judge seemed to know the whole thing was a farce. She looked down at my son and the other kids who were at the same party and were all arrested along with him.
“She said, ‘You all have to realize that marijuana is against the law in the state of Maryland. Also, it is a door to more serious problems. Every addict I’ve had in my courtroom has started out with pot.’
“Then she gave them each a $50 fine plus court costs of $57. But they each also paid about $1,500 to a lawyer, who sat with them in the courtroom but really had nothing to say.
“And this was the result of a raid on a house right off campus. The police knocked down the door and arrested almost everyone. And what did they find?
“Just a few marijuana cigarettes. Imagine the cost of all this… the police… the lawyers… the court… the parents. And for what?”
Each problem, he says, leads to a solution, which involves greater complexity. Bureaucracies, hierarchies, rules and regulations are imposed.
These things cost time, energy and resources. Eventually, the cost is too great. Complexity increases costs without increasing output. Ultimately, the civilization operates at a net loss, negative returns, and then… you guessed it… hormegeddon.
Not everyone loses. There is a great transfer of wealth involved: from productive citizens to lobbyists, lawyers, accountants, bureaucrats, policemen, judges, counselors and psychologists, jailers, pundits, lobbyists, lawmakers, parole officers, social workers and thousands of others.
But a little refinement of Tainter’s hypothesis is needed. There are different kinds of complexity. There is the natural complexity of the upside – with an infinite web of human and commercial relationships. And there is another form of complexity – one that is imposed by force, rather than spontaneously generated.
The first form of complexity helps reduce costs; the second increases them. The first makes the system more robust – like a web of small streets in a big town. The second – like a single large highway with a tollbooth – makes the system more vulnerable. The first allows for experimentation, innovation and correction. The second cuts off innovations and forbids corrections.
Entrepreneurs flourish in the natural complexity of a dynamic economy. But planners favor complexity in its heavy-handed, directed form.
Why?
It is easier to understand. And easier to manipulate. It is also a rich cover in which to hide special favors and privileges. Sure, you could replace the government’s revenue with a much simpler tax system, but you’d inconvenience thousands of insiders.
Better to inconvenience millions of outsiders – those who don’t benefit from the complexity.
A dynamic economy is descriptivist. It offers no prescription for success and only a few simple rules: Thou Shalt Not Steal, for example. Prescriptivist complexity, on the other hand, brings countless new rules, forcing you to hire good lawyers and accountants to avoid running afoul of them.
Artificial complexity is what you get in a non-market system. Without a functioning market, there is no way to know what things are worth or who’s valuable and who’s not.
Government output is not priced by an active bid-ask market. Nor are government workers hired or paid on a piecework basis. Instead, everything depends on theories, guesswork, prejudices, credentials, paperwork and connections. As a result, resources are invested in ways that do not necessarily pay off.
Here is a simplified illustration of Tainter’s idea: In the Roman Empire, agricultural output per person dropped as population increased. The problem was addressed by a policy of conquest. The Romans took resources – grain, slaves, gold – from their neighbors.
But this required a large army, which was an expensive, energy-consuming enterprise. And it undermined the normal agricultural economy of Italy; free farmers couldn’t compete with stolen imports and large slave-run farms. The return on investment declined and eventually went negative. The Empire collapsed.
That was not necessarily a bad thing. When the decline on investments is negative, you are better off stopping the program. And archeological evidence from bones and teeth suggest that many people were actually better fed after the collapse of the empire.
That is why the Roman policy of conquest was so successful. They were able to turn the conquered peoples into supporters of the regime, with most of the army eventually comprised of non-Roman soldiers.
The British Empire was good at this, too. The empire began by subduing the Scots, who became the backbone of the British Army. Today’s American army, too, depends heavily on soldiers from the southern states, who were conquered by Abraham Lincoln’s armies in the 1860s.
In an early stage, a society tends to be robust and efficient – or “simple,” in Tainter’s terms. Later, additional complexity degrades returns on investment. While this complexity may be described as a form of problem solving, it is better understood as an attempt by elite groups to hold onto their wealth and power.
“Complexity” is created by people who find ways to game the system. They earn their livings without contributing to useful output (even though they may or may not be working hard). Growth rates slow as much of the society’s energy is diverted to unproductive uses. In short, more and more money goes to zombies.
What are “zombies?” Neither dead nor alive, from an economic perspective, they are people who live at the expense of others. Are you a zombie?
Here’s how to tell: Ask yourself, in the absence of the government, would people voluntarily pay you to do what you do? If not, you’re probably a zombie.
Further Reading: Bill’s new book, Hormegeddon, is packed with valuable insights just like the one above. It will show you how to be a better investor, manager, parent, spouse, and business person.
Bill is also working on a new project that promises to make you smarter, richer, more interesting… and more successful. And it has nothing to do with stock, bond, or option recommendations.
Get a sneak preview of this fascinating new project – and claim your copy of Hormegeddon before it’s available on Amazon.com or anywhere else – by clicking here.
