Monday, January 26, 2015

Spaceship Finance

In its simplest form, personal financial planning is governed by one inescapable requirement: Total income over remaining lifetime must be greater than or equal to expenses over remaining lifetime. If you're lucky, "remaining lifetime" is the sum of working years and retirement years, where you are not physically working during retirement.

In practice, planning gets complicated by the many forms of income and expense, but even they can be simplified when you realize that there are basically only two types of each: constant and exponential. The exponential types, in particular, can get pretty tricky, since they depend on the ability to accelerate growth of money without limits, and that money can represent both physical things and non-physical things. As the constant types have been increasingly linked to the exponential types (for example, your "constant" salary is likely paid by an employer who relies on exponential growth in profits), they too have become harder to plan for.

Now that we face hard limits to the availability of quality ecological resources, upon which our economy and our physical survival is based, basic assumptions built into our economy are beginning to lose their usefulness, which is making successful planning by most individuals and many organizations even more difficult. In addition to reducing room for growth, which has been assumed to be infinite, we are degrading the ability of social and physical ecosystems to absorb or nullify the negative effects of our actions within a period of time that is meaningful to people. This results in decreasing exponential income and increasing exponential expense, as an average, for our whole population, which reduces our effective lifetime.

One positive aspect of our situation is that we are collectively becoming a global village, re-creating some important dynamics of near-isolated communities of the past. In an idealized version of such a community, the social and environmental impacts of economic activity were felt directly by both businesses and their customers. Since the number of prospective customers was practically limited, businesses had to focus on keeping them satisfied; and since resources were limited, their consumption had to be kept below the regeneration rate (such as the growth of new trees for wood) if the business along with the community was to survive over a long period of time. Businesses were rewarded with enough profit to create new products or services only if they could find more resources or efficiencies in the use of existing resources, and if it didn't result in harming the community. Exponential growth became possible as a community's territory expanded and its population grew to take advantage of the newly available resources. Combining of multiple communities also contributed to that growth, leading to our present situation. Enabled by multiple technologies that have also grown exponentially, we have turned much of our planet-sized spaceship into a giant community of communities, subject to rules of survival similar to the ones those early communities had to live with, but without most of the self-replenishing resources they had.

Our new community and the environment it occupies is much more complex than the ones we were naturally evolved to maintain, which is a big reason for our heavy dependence on technology. Our computers and communications enable us to share and mentally process experiences around our community, translating its complexity into much simpler forms we can comprehend, thus keeping us from being aware of all but the largest of the consequences of our actions, and, even then, not with the gut-level feedback we naturally depend upon for knowing and acting to change the status of our environment. Put another way: We have taken over Spaceship Earth by cannibalizing its parts for our pleasure and thereby sabotaging its life support systems, while knowing a lot about the small part we were supposed to operate before we went rogue, and knowing very little about the rest of it.

One thing we do know is that life tends to maintain habitability for itself, and there is still a chance that species we haven't destroyed could fix enough of the damage we've inflicted to keep our planet habitable (if still uncomfortable) for at least a few decades more than if we don't let them. To give them that chance, we will need to let them have more resources. From a personal finance point of view, I estimate will all need to learn to limit our individual expenses to under $12,000 per year, which, not surprisingly, is most easily done by reinforcing the necessary regrowth of natural ecosystems and their denizens so they can provide more replenishing resources like what we evolved to consume (of which we should use less than half). This should also help reduce our greenhouse gas emissions, one of our largest negative impacts on ecosystems both directly and indirectly (through climate change).

Ideally, the world community would eventually function like an isolated sustainable community, utilizing exponential income and expense only as necessary to deal with conditions that require swift growth or contraction to maintain survivability, instead of an ongoing expectation for personal gain. For most of us, our life focus would shift to favoring quality over quantity. The inevitable fraction of the population that found this impossible to live with would have the option, like generations of the past, to explore new environments – this time in space – and make them habitable for people, so long as those efforts did not degrade the lives of existing communities.