The Econalypse / Depression 2.0 and Kant's Categorical Imperative

In an earlier post I identified a few key drivers that lead to the Econalypse of 2009-2011 aka Depression 2.0: Maria distributed a list of companies about to close but still selling gift cards; I distributed that list very widely to make sure that I wasn't given any bum cards; and I took the few dollars remaining in my 401K out of the stock market.

Each of those actions, taken alone, made sense to me. Apparently they made sense to a lot of people, because it seems like a lot of people did the same things at about the same time, especially withdrawing from the stock market and avoiding retail outlets.

Brendan Koerner's recent Wired piece suggested that Depression 2.0 was driven not by M's list, but rather by a situation where rational micro-economic steps cause negative macro-economic effects. He wrote,

This is why colleges split economics into micro and macro. Unless your name is Madoff, your individual impact on the economy is negligible. You can't spend us out of Depression 2.0 all by your lonesome. Buy the Jet Ski; don't buy the Jet Ski. Whatever.

It's only when everyone decides to put off buying a Jet Ski—a reduction in aggregate demand—that things get dicey. When we all stop spending, the economy collapses, and theoretically, without a massive Keynesian infusion of government dollars, it's just you and the zombies.

It's sort of the opposite of moral hazard, where risky behavior bears reduced personal consequences; in Koerner's explanation of good micro / bad macro, judicious individual economic behaviors produce undesirable economic consequences.

Flogging the dead horse one more time: it's okay when I avoid buying gift cards at the mall, but when everybody does it there are serious economic consequences.

Koerner's good micro/ bad macro jumped off the page for me because not only is it a succinct demonstration of micro/macro economics, it's also a very tight example of Kant's Categorical Imperative. There aren't many instances of a philosophical maxim that map directly to an economic model.

Immanuel Kant's Categorical Imperative

Immanuel Kant was a philospher who sought to build a bridge between the empiricists (knowledge comes from experience) and the rationalists (knowledge comes from reason).

Kant described his Categorical Imperative with these words: "Act only according to that maxim whereby you can at the same time will that it should become a universal law."

In other words, act only in such a way that you're willing to have (literally) everybody do the same. If you're considering cheating on your taxes, you might reflect: What would happen if everybody cheated on their taxes? Realizing there would be dire implications if everybody did it, you would refrain from cheating on your taxes. If it's not all right for everybody to do it, then the individual has a duty to refrain from that action. This is a deontological or duty-bound ethic, which is concerned with the morality of motive rather than of effects.

You Kant Do That

In application, the Categorical Imperative says that you can't (get it? Kant?) do a lot of things. It's generally not a permissive approach.

Kant would not have taken his money out of the stock market.
Kant would not have avoided the retail chains.
If every man were a Kantian, maybe we wouldn't be in Depression 2.0 now.

The Econalypse / Depression 2.0 Killed Broadband

Years from now, forensic economists will study terabytes of historic information trying to identify the tipping point of the Econalypse of 2009-2011; when did the economy start an irreversible slide? What single datapoint broke the camel's back? For the record: It's Maria's fault. Maria is a lady I work with. She caused Depression 2.0 ; it started with the best of intentions in October 2008.

A buddy of Maria's faxed her a list of stores still selling gift cards, even though they'd probably be closing soon. Some of the names surprised me. I made copies and passed them around; I didn't want anybody giving me no-good giftcards. Good thing I distributed that list widely.

Later that day I was reviewing my 401K and I thought, if all those businesses are folding, I should get that last bit of money out of the stock market. So I transferred my 401K money to savings bonds. I was talking with friends about what turned us to the Bear side and I think I can pretty accurately say: it was that list of Maria's.

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Unexpected things happen in economic tipping points.
Used to be, the railroads were the mainstay of the economy.
Used to be, Pittsburgh made steel.
Used to be, real estate couldn't go wrong.
Used to be is no guarantee of future performance.
What would be Unexpected 2.0?

I've read about scenario planning and the way they use it at Royal Dutch/Shell. One of their techniques is to consider these questions: What's a current market assumption about something that's either plentiful/cheap or scarce/expensive? What would happen if the assumption turned out to be false?

So: what relatively recent trend is so firmly embedded in our assumptions that we can't imagine it going poof? What's new, popular, widely adopted, and we can't imagine doing without it? I suggest: high speed web access. Continual growth of high-speed web access underlies almost everybody's business strategy, The web is always becoming faster, cheaper, and more ubiquitous. It's an accepted article of faith. What would happen if that changed?

How could Depression 2.0 affect growth of domestic broadband? Suppose we have a four-year economic downturn and 13% of the country is unemployed. Suppose 30% of the country cancels their high-speed web access because it's an unwarranted luxury when next month's paycheck is uncertain?

How would the cable companies, with significant fixed costs and few variable costs, respond? They'd consolidate through M&A, raise rates, and allow cable to go dark. The ubiquitous web might be gone, and we'd be back in 1996. The people unaffected by the Econalypse will be online, but there'll be a broadband ghetto.

The pure-play businesses will suffer. The clicks-and-bricks will struggle. The bricks-and-mortars will do better. Newspapers and magazines, or any industry betting on the web for their salvation, will probably fold.

How will children do their papers without high-speed internet? Hello, public library with web access! Congratulations, banks that maintained branch offices!

All the businesses that shifted to the web-based version of customer relationships will suffer when their relationships move offline. Companies that moved their HR posture to self-serve, or that moved their information systems to the cloud, will have remote employees who can't access their key systems.

I'm just saying.