Breaking Points

Breaking Points

Collaborative Fund Jul 31, 2022 by Ted Lamade

Guest post by Ted Lamade, Managing Director at The Carnegie Institution for Science

Two weeks ago, Mitt Romney wrote an opinion piece in The Atlantic titled, “America Is in Denial”. The piece highlights numerous potentially “cataclysmic events” facing the nation, namely droughts out west, inflation, rising debt levels, profligate government spending, melting ice caps, illegal immigration, and the events of January 6th. Interestingly though, Romney argues that the most significant threat is actually not the events themselves, but rather Americans’ refusal to address them.

The question is why?

Romney believes it is due to our “powerful impulse to believe what we hope to be the case — We don’t need to cut back on watering, because the drought is just part of a cycle that will reverse. With economic growth, the debt will take care of itself. January 6th was a false-flag operation.”

You may or may not agree with Romney’s causes for concern, but for the moment let’s assume that at least a few have merit. If so, why do people so rarely act before a crisis occurs? Why do we instead choose to bury our heads in the sand and hope for the best?

The answer is actually quite simple — no one knows when something will break. It could be imminent or many years away. No. One. Knows. As a result, people tend to push the throttle until it does.

History is full of examples. It’s why governments don’t reform until it’s too late, real estate developers believe there is always room for one more building….theirs, the Federal Reserve is almost always late to “pull the punchbowl away” during an economic expansion, and why so many investors rarely de-risk in the later stages of a bull market.

The trouble is that when things do eventually break, they tend to break more suddenly and quickly than anyone had imagined. It happened to the Soviet Union with the fall of the Berlin Wall in the late 1980’s, real estate developers in the early 1990’s, dot.com companies in the late 1990’s, banks and homeowners in the late 2000’s, energy companies in the mid 2010’s, and many investors over the past year, especially those focused on high growth tech, crypto, and ESG.

During these moments, confidence and clarity evaporates and is replaced by pessimism and doubt. People once viewed as oracles and geniuses morph into scapegoats and know-nothings. Endless opportunities filled with sky high potential become toxic. Hope turns to despair.

To continue reading, please go to the original article here:

https://www.collaborativefund.com/blog/breaking-points/