Old Tools in a New World
By Martin Siesta, CFP®
Much of what I have been hearing and reading from planners is around questions like “What did I miss?” “What if this is different?” It is surrounded by fear and shame. Let’s step back.
I want to start off by saying, I believe that this crisis is “different” and it has been coming for a while. While the cost of the “bailout” has been in the headlines, it pales compared to the other debts that will come due all too soon:
• 12 trillion dollars to support the current and future beneficiaries of social security
• $140 trillion to fund Medicare as it is currently legislated
• $170 trillion to fund Medicaid (this is a difficult number to evaluate as it is a combination of Fed and State).
By 2082, the above would total a staggering 32% of GDP. Compare that to the 1.2 trillion dollar bailout. It seems a bit like Argentina.
Since the 1950’s we have been living by consuming more then we produce. We have pursued a foreign policy based on a perception that our way of life is nonnegotiable and an entitlement. It has maintenance of a dysfunctional lifestyle as an objective
While pumping liquidity into the market at this point will bring down short term rates and, perhaps, spur consumer spending, it is pushing off a significant crisis. It is clear that all the King’s horses and all the King’s men can’t put Humpty together again. Political leaders are not telling the truth. Our responsibility as citizens and as planners is to have these discussions. These are the conversations that matter. This is different than anything we have seen before. We can come at this from fear or centering based on values that matter.
New York Times columnist David Brooks recently wrote:
Perceiving a situation seems, at first glimpse, like a remarkably simple operation. You just look and see what’s around. But the operation that seems most simple is actually the most complex; it’s just that most of the action takes place below the level of awareness. Looking at and perceiving the world is an active process of meaning-making that shapes and biases the rest of the decision-making chain.
We missed much of this for a number of reasons. The “profile” of those we serve is very limited. They do not represent most of the country or most of the world. In the past few years, I have become more deeply involved and aware of a much broader community. And as a profession, most of the conversation that we have in the international area is limited to the importance of having “CFP” credentials. Wow. Tell that to someone in Haiti or Zimbabwe.
If our education/awareness has been limited to “industry” sponsored conferences, the topics have been around products or around a deterministic model that gives an illusion of order and control. What’s forty years worth of data really worth in the lifespan of the universe? When we come together, there is often more about self-promotion rather than knowledge. Even in our “Naz group” the tone has often been “We need to show the way.” “We are the wise ones.” Well, we may have a broader view, but there are a lot of blind spots that we will never see if we don’t go outside of our field and client profile. We need to bring a sense of humility and curiosity.
In the communities that I have been working with lately, the systems have been strained or falling apart for years. None of this is a surprise. They are health care systems, educational systems and mental health systems where both care givers and consumers are in incredible pain and strain.
For me, what I am noticing is the importance of letting go of the fear and just listening. Something is dying and something is being born. Letting go and letting it come. We may be redefining wealth. A precept of Chaotic Theory is that creativity is the “edge” between chaos and order. What would sustainable wealth look like? Can we listen to our fear to see what is really going on? Can we have conversations with our clients about what is wealth? What is money? Can we become part of a much broader group of people who can co-create communities that can have conversations that matter?
I believe that one thing that may be dying is a “planning” model that is based on asset allocation and using the old tools. Maybe part of it in the future is being a community organizer and builder. These are extraordinary times. We are building a bridge as we are walking on it. It’s a struggle but maybe we need to listen deeply to the chaos and recognize the patterns that are likely to emerge. We need to be warriors of the heart.
© 2008 Martin Siesta. Reprinted with permission.
November 4th, 2008 at 6:35 pm
Nice Site layout for your blog. I am looking forward to reading more from you.
Tom Humes
November 5th, 2008 at 6:03 pm
I too am struck by the gap between the “models” we rely on in our profession and those required in the world we are entering. However expansive our self image many planners rely on asset management to pay the bills. We rely on asset models and theories that are outdated and rapidly becoming in consequential (although very dangerous to the well being of our clients). We do indeed need to expand our dialogue about wealth and money.
There are no straight lines in nature. The circle may appear perfectly smooth but is fractured in the most exquisite manner. Yet we base our economic and financial models, even our entire money system, on theoretical constructs that assume realities that are non existent when viewed from an empirical observation of how the world works.
I love your image of a warrior of the heart. There is an old Irish saying, “Never give a sword to a man who can not dance.” We are seeing the results of the carnage that can ensue when the sword is wielded without benefit of, not only the mind, but also the deep feelings and emotion of the heart.
I relish your insights. I hope others will join in this conversation. It is very important and central to not only who we are as planners but more importantly who we want to become.
November 6th, 2008 at 9:45 am
Mike, I love the Irish saying about dancing! Sometimes a wicked question can also be a powerful swordcut. One that cuts right to the middle. The circle is fractured. Economics, the last bastion of Newtonian thinking is being overthrown by Quantum and Chaos theory that more accurately model natural systems in complex environments. For modern economics is based on a deterministic and grossly simplistic view of the world. That price will drive everything correctly. In America, the risks are greater because this idea that one simple element, price and hence the market will govern our society best. By the way I am not saying that the state can or should do this either.
Bit, I think that the newfound view that the state can or should control directly via policy levers is just as wrong. For both ideas are really the same idea - that the man on top can control society with direct levers. The wrong idea is that we can be deterministic while living in a complex system. We are out of touch with science here. At least in science, determinism has been on the run for 100 years. In physics this idea of a neat universe with fixed relationships was severely challenged by Einstein in 1905. No one in physics questions now that most relationships in the universe are relative and effect each other in complex ways.
In 1927 what was left of determinism was demolished by the Quantum work The best you can do in a Quantum world is to use probabilities - there are no certainties. But large centralized organizations like banks and governments want there to be certainties. So they ignored all the the rest of science and clung to the idea that money and prices were the key factors. People are poor - give them money. Economy is slow, drop interest rates.
For many years, when the world was less connected and hence less complex, deterministic principles did work. It seems that since the 1980’s, the advent of the web, the world has become so connected as to increase its social complexity beyond our comprehension. Human Society has gone through a phase shift.Fortunately for us, at exactly the same time, a new form of math, itself only possible with a PC, has emerged that can help us to understand complex environments better.
Those of us that have been influenced by this new way of understanding our world, could and did see what was coming. One of the people who did see what was coming was Nassim Taleb author of The Black Swan. But what he has done is to find the geometry of complexity - which is how the natural world works. Actually he was very much influenced by Benoît B. Mandelbrot who has been working with applied theory of fractal mathematics. One of his wonderful works is The (Mis)Behavior of Markets: A Fractal View of Risk, Ruin, and Reward. It was published in 2002 but his work spans about 70 years
Why did we miss this? Why did so few see what was coming and so many dismiss the warnings. Because for most of our lives determinism worked and worked well. I suspect that the root of our wrong thinking was the 2 world wars of the 20th century. Our lesson was that machine thinking - that has to be deterministic - was the winning way. But our world now is so interconnected since 1980 that it has become “Complex”. We can see how complex it is as all struggle with the crisis. No single government can cope.
Our only chance is to put away the dogma of determinism and to investigate how nature itself governs complex systems. It feels like a time to listen deeply, to sense and to have conversations that matter
Warmly
Martin
November 10th, 2008 at 1:36 pm
It seems the question of the day is “Why did we (i.e financial planning profession) miss this?” The answer is probably right in front of us. We weren’t looking. Or we were looking in the wrong places.
Its hard to see things as they really are. It is easier to rely on self manufactured concepts and abstract theoretical models. I don’t think its either or. There is room for conceptual reality but not to the extent that we ignore what is right in front of us.
Greed has played a big role. Fear has us in its grip. Clear assessment of where we want to take this conversation and where that conversation may lead in the form of choice and action will require strength, courage and calm reserve.
I am currently pursuing study of our current money system. We know our economic models are faulty. Yet we are not questioning the foundation of our economic system. In our system money is credit. That credit is based upon a fractional reserve banking system which grants tremendous power to a narrow banking cartel. The scarcity of money forces a growth necessity in order to fund interest not created in the credit formation. Winners get richer, losers fail and wealth concentrates. The need for constant growth is testing the very fabric of our planets ability to survive.
In his most recent article Dick Wagner says we may need to redefine our definitions of wealth and money. The growth consumer credit model may have run its course. As a growing evolving conscious species have we reached the point where our old concepts of money, wealth and, most importantly, our own selves are no longer adequate to, not only support the world’s economic needs, but also our own deep sense of spirit and community? Is the credit consumer model really sustainable?
These are challenging times. These are challenging questions. I hope others will add their voice in this all important conversation.
November 12th, 2008 at 7:52 pm
Gentlemen,
Wonderful conversation. Indeed, a 21st century conversation about money and the money forces. Thanks for your expansiveness.
Dick Wagner
December 4th, 2008 at 10:23 am
[...] Old Tools in a New World | Inside Money Blog [...]