UPTHINKING FINANCE

• [4:28] Why Charles started his blog, “Of two minds”
• [7:13] Will 2023 be just an average recession?
• [11:53] Three signs that the tides are turning 
• [17:53] Inequality has been stretched too far
• [19:43] Is a huge wake-up call coming?
• [25:20] Each of our lives is a system and an enterprise
• [31:55] What next steps should we take?
• [38:17] The way that social change occurs

Charles wrote this article to cover two concepts: the mainstream idea that we will see a small recession and the small outlier camp that believes this will be something bigger. Charles points out that humanity sees great periods of socioeconomic and political change. In the 20th century, there was the Russian and Chinese revolution, World War II, The Civil Rights Movement, The Women’s Movement, and so much more.

Charles believes that we need a transformation because the system we have isn’t sustainable. We’ve had a long trend of everything stabilizing back to a bull market. In the last 20 years, we’ve seen hyper-globalization and hyper-financialization which accelerated trends, destabilizing the system. The tides are turning. 

What we are seeing and feeling isn’t aligning. We might see decay and renewal. We might have periods of flux that launch a renaissance. How can we deal with the unsustainability of the current system? 

Problem #1: Energy is not forever. Energy is a limited resource and there are constraints and costs associated with every form. We’ve indulged in “easy” energy with hydrocarbons. That industry is so large it’s beyond comprehension. It’s an incredible system that we take for granted. Green energy systems have their own constraints. It’s not an easy problem to replace hydrocarbons and people are ignoring that.

With degrowth, a new model of growth and prosperity, we use less energy, materials, capital, labor, etc. When we use “more,” we contribute to what Charles calls the “landfill economy.” GDP is essentially measured by waste. Globalization has led to everything becoming disposable. 

Problem #2: The quality of life, goods, and services is enormous and consequential. The decline in the quality of goods and services is a decline in well-being and a waste of irreplaceable resources that people take for granted. 

Problem #3: The collapse of morality where anything goes as long as you make money. In a technocratic mindset, morality doesn’t count. The corruption that’s become pandemic has a consequence that people don’t measure. 

The average person realizes the system is unfair. Humans are wired to be attuned to fairness. When things are systematically unfair, people get upset. They may not know why. A lot of the contention we see is because the system is rigged. The system is supposed to limit greed and corruption. But if the system can’t enforce that, the system will collapse from moral decay.

Social mobility has declined. In the past, anyone with a high school education, a willingness to work, and a willingness to sacrifice and save could buy a house. Anyone could do well for themselves, especially if they married into a two-income household. 

Now, what’s expected of you to reach the upper middle class is beyond what most people can manage. So they give up. That’s why we see quiet quitting. We see inequality of opportunity. We are paying more and the super-rich are paying less. 

The dynamics that we’re discussing work from every scale—from the individual household to the global economy. Ralph Waldo Emerson talked about self-reliance in the sense of thinking for yourself and trusting your own intuition. You make your own way in life and avoid being conventional.

Now, we depend on corporations and the government to provide everything for us. Our solution to everything is buying something. You need skills that you learn from experiences and make connections with other productive people. That’s self-reliance. 

In terms of finance, we look at risk and return. But Charles believes that’s how we should analyze life in general. Each of our lives is a system and an enterprise. We need to understand the risks and make calculated risks in exchange for a return. Human capital can’t be taken away. You carry your skills and your social connections. Trust and integrity are your core assets. 

We invest in ourselves and our own intelligence, knowledge, and expertise—and those of our kids. You want a piece of land in a place that has rule of law. You need to be comfortable with the people around you with who you can work productively alongside. You need a shared vision and value system. You invest in things that benefit you and help you grow. 

We need to broaden the scope of what is considered an investment away from things you can’t control. If you buy shares of a corporation, you only control selling it. That’s it. Control of your assets and investments is under-appreciated.

What next steps should we take? Listen to hear Charles’ interesting thoughts on the economy as we move forward in 2023.

Charles Hugh Smith is not affiliated with or endorsed by LPL Financial or Capital Investment Advisers.

Securities and Advisory services offered through LPL Financial. A registered investment advisor. Member FINRA & SIPC.

The financial professionals associated with LPL Financial may discuss and/or transact business only with residents of the states in which they are properly registered or licensed. No offers may be made or accepted from any resident of any other state. 

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• Of Two Minds
• Self-Reliance in the 21st Century