The risk of human cultural catastrophe is like a stock-out in a company's inventory

Modern warehouse with pallet rack storage system (Wikipedia) -- depending on customer demand volatility and supply chain reliability, huge amounts of inventory can be kept to optimize customer delivery and cash flow.

There's always a certain amount of noise in everything. Daily and hourly financial news is noise. It's up one day but will be down the next. It's down in the morning? Don't worry, it'll probably be up by the afternoon. Like Mark Twain (probably) said, "If you don't like the weather in New England now, just wait a few minutes."

To properly interpret financial markets, we must take a slightly longer view, one that includes at least a week of data, and probably much more. If we do that, we can talk statistically, and calculate three numbers: (1) the current market value, (2) the trend in market value over time, and (3) the volatility in market value. The first two numbers make intuitive sense. The mind can quickly see how they would be used to make predictions, e.g., if the market is currently valued at 1,000, and is increasing in value at 5 per business day, then in 15 business days you would predict that the market would be valued at around 1,075. You can even assign statistical certainties to these predictions based on how much data you have, and whether you have other known mechanisms that you can rely on to constrain your predictions.

The third number, volatility, is just as important. I'll simplify it a bit, and say that volatility tells you how much the market is likely to "randomly" change in a single day. It is a measure of the noise, up or down. If volatility is high enough, then random daily changes could exceed the daily trend; they could even be large compared to market's overall value. When this happens we say that the market is unstable, implying low confidence in the market and the possibility of a crash.

If you're running a business that ships physical inventory, you have to keep similar concepts in mind. Supply chain managers do their best to predict demand from customers. But customer demand can be highly volatile, especially if the product is a once-in-a-while purchase. And supply of the product can be highly volatile, as well, if the raw materials are scarce, or if competitors are able to command a dominating share of the raw material market.

If a company keeps a lot of inventory to accommodate this kind of volatility in their supply chain, then they're tying up cash and risking that the inventoried product will never be purchased at all. If the company keeps too little inventory, then it runs the risk of a stock-out, forcing customers to wait through a backorder and possibly losing them to the competition. The safe way is to keep inventories high or make deals with their suppliers (if they have the bargaining power, like Walmart or Amazon) is to pad their inventory and quickly deliver to customers. But not everyone can do that. It's a tough balancing act, and the best supply chain managers do all they can across their entire product line to keep their suppliers and customers happy, and keep the product moving when needed.

A very similar volatility problem is faced by human populations in terms of their wealth. When all is peaceful and right with the world, volatility in wealth is low compared to the total amount of wealth that has accumulated in the population. Under these circumstances, most people are unlikely to experience significant daily or even yearly changes in their wealth, and catastrophic changes (much like an inventory "stock-out") are extremely unlikely.

However, unless you're really, really lucky, life doesn't work like this. There's always a certain amount of wealth volatility associated with just being alive and heading out the door. Wealth volatility can take the form of unforeseen costly events, like a medical emergencies, being hit by a car, a mass layoff in a company town, being robbed at gunpoint, living with domestic or spousal abuse, being born with a disability or suddenly caring from someone with a disability, a car breakdown, or setting your alarm to PM instead of AM or being stuck in traffic right before an important job interview.

To be fair, some events can be unforeseen and positive, like getting a better job, winning the "startup company lottery" (and typically thinking that you did because of your superior virtue or the virtue of your company's value proposition), being born to rich parents, or meeting the love of your life.

But the point here is that there is always some baseline level of volatility. I've talked in previous post about how people go out of their way to avoid catastrophic loss. Kahnemann and Tversky's concept of loss aversion is really important here. When an individual is already running low on wealth, the baseline level of volatility that everyone lives with looks like a much bigger deal than when wealth is running high. Those who live comfortably often fail to understand this, conveniently assigning "ill-virtue" to the mishaps that bring catastrophe to the poor, and "good virtue" to the many serendipities without which the relatively luxurious lives of the comfortable would be impossible. What they don't realize is that the probability of catastrophic loss is very high when wealth is low, no matter how virtuous you are. They also tend not to understand that a catastrophic loss to individuals is costly to everyone.

If human lives were like a company's inventory, we would all try to save as much as possible to keep a buffer against negative, unforeseen events, or we would put systems in place to provide robust safety nets to individually protect everyone from catastrophic loss. But if forces beyond our control eat through our buffer or erode the safety nets, then we run a strong risk of being left helpless, powerless, and unproductive (at a cost to everyone).

The fear of risking that kind of catastrophe is a powerful force. And it's hard-wired into our psychology as culturally evolving beings. As I wrote in the last post, human populations can live in one of two different regimes, (1) the cultural selection regime, which we fight to maintain, but is only possible when the cultural solutions (i.e., resources and know-how) are available to overcome the vicissitudes of our environment, and (2) the genetic selection regime (or "tribal" regime), which is the bloody, awful consequence of volatility causing our individual and collective wealth to peg at zero. I've outlined it in the following figure:

How volatility in wealth can lead to catastrophe (a "stock-out") when average wealth is low.

As humans we can sense where we are on this curve, and we respond to our proximity to catastrophe accordingly, clawing to keep what we already have. If we open up the idea of "wealth" to include more than just money and property, the concept can be applied to many things. For instance, it is widely assumed that Trump supporters are at least as motivated by a desire to restore the racial hierarchy upended by Obama's presidency as they are by anything else. Why? Because being white in America, even if poor, has throughout our history implied power. Losing that power brings unknown consequences, since "power" and "wealth" are really just ways of saying that you can get more with comparatively less work. True, for some the consequences of losing the wealth of "whiteness" could be individually catastrophic. At the very least, those who have enjoyed the advantages of being at least white in America might have to adopt different styles of conduct and learn to respect those who are not white ... habits that don't come naturally after generations of cultural entrenchment.

At the same time, the GOP establishment is deadly afraid of Trump supporters, because it sees them as interested in goals that are at cross purposes to their own. Trump's supporters -- overwhelmingly white and lower and middle-income -- are desperate to stop and hopefully reverse the economic disintegration they have seen in their communities. Sure, they blame the wrong culprits when they should be blaming people like Trump, but they also make it very hard to make something like, say, tort reform and important plank in the Republican party's platform. So the establishment fears the loss of the base they have relied on -- and consistently betrayed -- for so long.

A final note: I'm not a Trump supporter, and I despise Trump himself, but it's worth keeping in mind that when people see a threat to their "wealth" -- however you want to define it -- they will do whatever they can to avoid a "stock-out." The only way to fix the problem of Trump's support is to remove the risk of the stock-out. So I was amused recently to read a number of articles saying that the GOP needs to lose big in order to reform itself, blah, blah, blah. What none of these articles takes into account is the fact that they will still face the threat of the stock-out, that they will continue to behave according the mental models of how the world works that can be seen on loud display at Trump rallies, that they are heavily armed, and they have no natural leadership other than people like Trump. The destruction of the GOP as we know it won't change any of that.