Intractabull

Pendulum Theory

I have been spending a lot of time lately thinking about the natural tendency for social systems to swing back and forth between some centralized and decentralized state.

Balaji Srinivasan is an outspoken technologist, businessman, and academic who recently made headlines with a public $2M bet that the price of Bitcoin would go to $1M within 90 days. Although the cryptocurrency world did its dance and hyped up the bet on social media - his underlying thesis on the global economy provides a more fascinating perspective on the near future.

His conviction is that the economic decisions of the last few decades by western central banks (e.g. US Federal Reserve) will hyper-inflate the dollar, reduce its value, and lead to a collapse in the its status as the global reserve currency. This is not an uncommon phenomenon. We know from history that both the British pound and Dutch Guilder lost their reserve currencies as their empires expanded debts to untenable levels. Ray Dalio wrote a book about this.

With this in mind - let’s discuss pendulums.

Foucault devised the pendulum to demonstrate the rotation of the earth. It is natural that we see pendulums in human behavior as we do in physics. Pendulum Theory iterates on this to say that human behavior swings from one end of a spectrum to another. For example, many times in history we have seen society swing back and forth between some type of revolution and reaction.

Examples:

  • The French revolution brought the Reign of Terror and eventually required Napoleon’s dictatorship to reach some semblance of stability
  • The emancipation proclamation was immediately followed by Jim Crow
  • The cryptocurrency threat to fiat currencies was followed by government crackdown and regulatory reaction.

These are a few examples in a world of many. Some revolutions are peaceful, others are not. Once you look around, you can find pendulum swings in various walks of life.

The pendulum on globalization

Over the last 30 years, we have seen a steady trend towards globalization. The world has become increasingly connected via advances in technology, transportation, and communication. Generally - this trend has significantly reduced the marginal cost of goods and services for most people globally. Much of this globalization was fueled by historically low interest rates and high levels of debt in the west.

This 2021 research from the European Central Bank displayed a leveling off of globalization alongside a bottoming for inflation. The authors found “globalization appears to be linked to a lower persistent inflation.” Thereby if inflation were indeed transitory we would see continued globalization. However, we know how the transitory hypothesis has played out.

While many communities have benefited from globalization, some communities have not. This trend is often very clear with rural America. The globalized economy made America more urbanized and service-driven. This led to significant capital transition from rural to urban communities. Then the pandemic led to a strong migration away from cities and back to rural communities. But many rural communities have not been able to handle these population shifts effectively.

If we do encounter de-globalization and a de-stabilization of the dollar - Dalio writes this usually leads to some type of revolution. Sometimes these revolutions are peaceful, sometimes not. Regardless, it would be beneficial to better prepare for both a revolution (technological, political, societal) and the subsequent reaction. I regularly think about what this means for our communities, especially the micro-economies right outside our doorstep. There is a glaring need to better prepare our own neighborhoods for a world much different than the one we are presently familiar with. Recently, I have been thinking a lot about what role technology and the private sector can play in increasing economic development for the businesses and organizations we walk, drive, or ride our bikes by every day.

A globalized economy makes our purchasing behavior feel distant. A de-globalized economy forces us to invest more at home in the businesses and people we interact with every day. I see these as a necessary balance - but economic resilience gets to the core of it.
With this in mind, here is some food for thought:

  • Has globalization made your local community more or less resilient to economic shock?
  • What did the pandemic teach us about global supply chains?
  • How will population demographics like aging and migration determine the resilience of our economy and small businesses?
  • What role does economic localization and technology play in developing more resilient communities?
  • How can we develop more entrepreneurship and increase competition closer to home?
  • How do we make our communities more self-reliant, especially those most disconnected from large urban centers?
  • Is there a near future where public sector subsidy dries up?
  • How can the private sector better support community resilience?

Those are a lot of questions. In many ways, de-globalization and technological advancement gets to the core of them. It is important to consider how we each can play a role in improving our communities closest to home.

So where does the pendulum go next?

As of this writing, Balaji’s bet on Bitcoin has not played out the way he predicted.

Regardless of his premonition on the global economy, one thing is certain: The trade deficits the West has experienced in tangent with increasing globalization have not proved well for folks in the west. This issue is amplified for many of our most disconnected communities. There is significant work to be done to build technology that advances economic development without relying too heavily on an increasingly indebted public sector.