Global markets are increasingly incapable of handling stresses. And, like indulgent parents, central banks are responding with a view to alleviate pain without considering the short and long-term consequences of that aid. The spoiled child does not grow up to be a well-adjusted adult without many interludes of pain, setbacks, learning, and growth in between.
I worry that this (1) postpones pain rather than eliminating it (2) increases the amount of future pain and (3) makes markets ever-more incapable of handling setbacks. Diminishing returns mean that it will take increasing levels of stimulus to generate the same level of “stability.”
A tree falls in the biome
The Biosphere 2 was an experiment in Arizona that was originally designed to test and demonstrate the viability of human life in outer space. It was made up of seven biomes, one of which was a 20,000 square foot rainforest.
As compared to the same species in the wild, trees in the biome grew much more rapidly, but were beset with an early death as they fell over and shattered their trunks upon reaching a certain size. The reason? A lack of stress.
Take a long look at an old tree the next time you come across one. Start at the bottom of the trunk and work your way up. What do you see? Initially, a largely straight, firm trunk. As you move your way up the tree, you begin to see all sorts of twists, turns, and odd angles. They often appear with no rhyme or reason. But that’s the deceptive element. There often *is* a reason.
As a tree grows, it vies for energy (nutrients in the soil and sunlight), but must maintain stability. There’s a perpetual push and pull between these two forces. When a tree is bent by wind, or when it has to twist in odd ways to get enough sunlight, it employs something called compression wood as a balancing mechanism. Compression wood–which differs from normal wood in that it’s thicker and sturdier– grows on the lower side of the impacted stem, working to correct the imbalance. This is often accompanied by an inhibition of normal wood on the opposite side, speeding the correction process.
But compression wood isn’t free. It costs resources to create stability. And resources are constrained. The tree has to divert growth resources toward stabilization. This stunts the growth of the tree, preventing it from growing as quickly as it could have in a more welcoming environment.
That brings us back to the biodome. This is the welcoming environment. No wind. No fires. Scientists pruning branches and killing unwelcome competition. A tree can allocate more of its resources to growth because it doesn’t have to allocate them to resiliency. But because the tree never went through adequate stress while growing, it never develops the stability it needs to weather likely future stresses and ends up growing all the way to an early grave.
A cancer by any other name
Perpetual, unchecked growth is somehow seen as a good thing in our markets. In nature, unchecked growth of biomass results in systemic imbalances that lead to painful corrections. In nature, perpetual, unchecked growth means cancer.
“A man should be upright, not kept upright.”
Marcus Aurelius
Just because something feels good doesn’t make it right. And just because something feels bad, doesn’t make it wrong. Constructive pain is necessary for stability and sustainable, justified growth.
Unfortunately, like a mother who nurses her teenaged son, bankers realize they’ve parented an organism that can’t face the real world without significant pain. The longer they wait and the more they help, the worse the pain will be. There’s no Deus Ex Machina.
Gravity is waiting. And gravity always has its way.
Remotely Credible 