Social dilemmas and freeriding; self-interest and the urge to overconsume

Note to reader: I am writing this post in response to an article I read recently regarding the prisoner’s dilemma, and why two completely rational individuals might not cooperate, even if it appears that it is in their best interests to do so. It got me thinking about some everyday scenarios in which we observe this and other types of social dilemmas (e.g. overconsumption of government goods or utility services when costs are shared in some condo developments).

Given the comprehensive problems we are currently experiencing in the economic supply-chain, and with rising inflation data, I thought this examination could help shed some light on why people are over consuming.

Social dilemmas in real life are costly

The tragedy of the commons is a very real economic issue where individuals tend to exploit shared resources such that the demand greatly outweighs supply, and subsequently the resource becomes unavailable for the whole.

Tragedy of the commons, Investopedia

Problems arise when too many group members choose to pursue individual profit and immediate satisfaction rather than behave in the group’s best long-term interests… Examples of phenomena that can be explained using social dilemmas include resource depletion, low voter turnout, and overpopulation. The collective action problem can be understood through the analysis of game theory and the free-rider problem, which results from the provision of public goods.

Collective action problem, Wikipedia

In the social sciences, the free-rider problem is a type of market failure that occurs when those who benefit from resources, public goods (such as public roads or hospitals), or services of a communal nature do not pay for them or under-pay.

Free-rider problem, Wikipedia

Government social spending by its nature, invokes these dilemmas.

In real estate, I confront these dilemmas when determining proper condominium investments.

The problem of shared utility costs

Problem;  why do people who own and reside in condo developments with shared utility costs consume so much more utilities versus those who are personally responsible for their own utility consumption?

This is a variation of the tragedy of the commons. In particular, I have observed that the common charges of units with shared utilities are much higher than when compared to submetered condo development units with their respective utilities added back.

In other words, owners of condo units in developments that have shared utilities (e.g. electric and gas are in included in the common charges) tend to have much higher monthly costs than unit owners who are personally responsible for paying their utility consumption.  These differences are usually so stark, that I rarely recommend anyone purchase a condo in a development with shared utilities. I only purchase and manage condos that have submetered units. I am not the only one who observes this phenomenon; most condo construction project developers recognize this failure and avoid it by submetering the units.

Keep in mind that these condo developments are non-profit establishments, so nobody is making any profit from the monthly assessments. Thus, there must be something else that places condo developments with shared utilities at such a costly disadvantage to those with submetered units.

While the issue of freeriding in shared utilities is non-existent, so to speak, since each unit owner does pay every month with his or her common charge, there is no longer any incentive to conserve. Each unit owner will attempt to get as much as it can from what it spends. Thus, they undervalue the utility’s true cost.

The problem is even more glaring as the percentage of units in a condo development that are turned into investment properties rises. Tenants have even less incentive to conserve, and these older developments with shared utilities can have total costs that are up to 100-150% higher than with submetered investment units.

These costs get fleshed out somewhere, and they show up in the lower capitalized value of the condo units. During the housing down turn of a decade ago, it was not uncommon to see older shared-utility condos with $800 monthly charges selling for as low as $25,000, while their submetered counterparts were fetching double and triple that amount. The delinquency rates of the shared utility condo developments were also much higher.

Bottom line; sharing the costs of utilities brings out the worst economic behaviour in people and causes so much long-term collateral damage to the development. So I ask, why does the government insist on socializing everything?

Socialized government resources are always in deficit; consumers always undervalue the resources they consume

The social dilemmas we list above go along way in explaining why these human shortcomings manifest. When any resource is socialized, it becomes self-apparent for any participant to consume as much of that resource as possible.

Moreover, when consumers are given government stimulus money in which they do not have to work to obtain it, they tend to spend more recklessly, with little heed to the prices they pay. All this socialized fiscal stimulus money has created a sense of moral hazard and it cultivates a mindset of overconsumption, while undervaluing the true costs of their consumption.

So why does the government insist on socializing everything? Based on the research of all these social dilemmas and their variations, it would make sense for the government to make each consumer personally accountable for his or her consumption. Economists widely believe that optimal allocation of resources in relation to public goods is not compatible with the fundamental incentives belonging to individuals. Therefore, concepts like the free-rider problem and the undervaluing of socialized goods consumed are expected to be an ongoing issue.

While there are a number of theories that have been developed over the decades to address these dilemmas regarding public goods and services, nothing has truly been feasible enough to help conserve on consumption. Moreover, the economists who seem to find fault with socialized consumption will normally recommend it when asked.

Given the obvious results of socialized anything, we know one sure constant; the more social spending, the more sovereign debt.

Weekend update; Keeping perspective on UST yields, inflation, and inflationary expectations

The yield on the 10-year TIPS continues to drag along the bottom of its long-term trading range; The 10-year UST yield continues its long-term downward trend; the 10-year breakeven inflation rate is coming off its long-term resistance
The explosive growth in the Fed’s balance sheet should be put into perspective; Perhaps the Fed is rightly concerned about an inflationary growth slow down.
In a centrally managed UST market, we can see how the inflationary expectations (five- and 10-year expectations) in the fixed income market diverge from the actual CPI data (red). Inflationary expectations are less predictive of the actual outcome when the Fed manages the yield curve.
The long-term downward trend of the 10-year UST yield is still intact, and based on these data points, I expect the yield to trend between here and 75 bps over the next couple years.
Though the small speculator correctly started building a net short position during the sharp rise in yields early in February, much of the current short position trades were added subsequent to the rise in yields and collapse in the futures price. Thus, many of these traders are underwater here and if yields sink further we could see a capitulation. This would help the 10-year to rally further.
The charts don’t lie; We were predicting a drop in yields as the 10-year UST yield lost the 50-day sma; then the 100-day sma, and now a test at the 200-day sma (1.256) looks like a lock.
I see a test of the 135 level on the front-month 10-year futures as a logical next step over the next week or two (perhaps sooner if the small specs get spooked)

 

Fed’s Monetary Policy Report; The central banks are pursuing their own ambitious reset

Even central banks want a reset

For more than a decade that belief has been undermined by inflation that has remained weak despite trillions of dollars pumped into the world’s biggest economies through quantitative easing programs and ultra-low interest rates.

That prompted the top central banks to review how they do business, and on Thursday the European Central Bank joined the Federal Reserve and the Bank of Japan in pursuing an ambitious reset in hopes of reasserting control.

Analysis: A fine mess – Weak inflation prompts a global central bank reset, Reuters July 8th

Fed monetary policy report

 

Recent readings on these measures indicate that inflation is expected to return to levels consistent with the Committee’s 2 percent longer-run inflation objective after a period of temporarily higher inflation. That said, some measures suggest that the upside risks to the inflation outlook in the near term have increased.

Federal Reserve Monetary Policy Report, July 9th

The Fed provided new details on how it expects the labor market to reach its goal of maximum employment. Unemployment remains elevated, and labor force participation has been flat in recent months as Americans remain on the sidelines.

While the Fed says it’s possible the COVID-19 recession and the resulting worker shortage will have “long-term effects on the structure of the labor market,” we know the real causes of a subdued labor force participation rate.

Imagine how many older folk would go back to work if their retirement portfolios and home equity wealth shrank to pre-pandemic levels. Imagine how aggregate demand would dry up if asset prices fell. Imagine how few home improvement projects would be continued if house prices dropped to pre-pandemic levels.

“The pandemic seems to have accelerated the adoption of new technologies by firms and the pace of retirements by workers. The post-pandemic labor market and the characteristics of maximum employment may well be different from those of early 2020,” the central bank added.

Again, willful ignorance on how asset inflation has permanently distorted the labor markets and aggregate demand.

It’s difficult to call a secular top in the asset markets when the central banks will maintain low interest rates on the longer-dated maturities, and are pursuing their own ambitious reset.

For those looking to peer into the future of the Great Reset agenda, look to see how the central banks are looking for their own reset. Inflation is here to stay and will be indexed. Of course, scarcity will be blamed on a number of items, including climate change and social justice, but it will ultimately be caused by monetary policy.

Dow Transports breaks support and may be an ominous sign

Dow Jones Transportations Average; One-year daily chart – I warned of a reversal a couple weeks ago in the averages as the Trannies seemed to be leading the way. Today’s ominous red candle points to an eventual test of the 200-day sma after todays decisive 100-day sma fail

I wanted to pass along this chart for my readers to consider. Although the Biden regime announced today that it was going to examine pricing and competition in the rail and sea shipping industry, the transports were already vulnerable. They took it on the chin today; taking out daily technical support around the 100-day sma. It seems that the 200-day sma may be next.

I think the index will trend around the 100-day sma for several days before making its next move. That move will likely trend lower.

If the 10-year UST yield is a predictive indicator, we may be in for some consolidation on the averages. Indeed, the talk on the street regarding the movement in the yield curve is one of confusion. But, I have to believe that all this extra debt that has been generated to goose GDP growth is in the process of being digested. Of course, the average worker will have to eventually eat it as they don’t have the assets to offset the debt millstone.

Some good news for asset owners?

Is this as good as it gets for consumers?

Are longer-dated USTs indicating a top in inflationary expectations? Perhaps the consumer will eventually stop spending like a drunken sailor.

10- and 30-year UST yields (candles) and the Dow Jones Commodity Index (line); I had predicted a short-term reversal in most markets, but the only ones moving this way so far are the UST and bond markets. A test of the 200-day (1.23%) sma looks more likely soon.

Complacency rules; As predicted, the small speculator is once again getting spanked here as UST yields fall and bond prices rise

Tomorrow’s Fed’s meeting minutes, due out 2 p.m, could help solidify this trend. The central bank’s May meeting minutes provided an early signal of what appeared to be change in its approach to inflation, and market inflation expectations have been declining ever since. Maybe there will be light at the end of the tunnel as the plebes cool their spending plans over the next several months. Stay tuned.

Important update; A drastic change in the central banking narrative is a warning signal

Our goal is to prosper in a hyperinflationary environment

Still, our enemies have Gates, Blair, and Schwab on their side, and we have God on our side.

Dr. Vernon Coleman

Note to reader: I wanted to pass along this Brighteon video from Dr. Vernon Coleman, which sums up well, the predictions of our website, and which dovetails with the recommendations we provide. We still need to prepare, and our diligent and unique preparations will buy us a few more years until the end.

Dr. Vernon Coleman, an old man in a chair

A deliberate change to the monetary narrative is warning us of its end

After observing the recent and persistent behavior, willed ignorance, and rhetoric of the global central banking authorities, led by the U.S. Fed, I have to conclude that the globalists seem intent on deliberately setting the monetary system on a new course trajectory in which we would consider bringing it into its terminal phase. This terminal phase is being well orchestrated, which means that they are only planning to use this system for a few more years.

QE could have been maintained indefinitely (forever) so long as the inflationary data remained low, but the monetary authorities are under order to consolidate the last vestiges of global wealth and power as quickly as possible. This consolidation was a necessary prerequisite to controlling the Great Reset narrative.

This global power and wealth grab has accelerated under QE, and rising monetary and consumer inflation, coupled with low interest rates, creates the most expedient environment for this amalgamation of global power into a central locus in the shortest amount of time.

The wealth consolidation process is nearly complete and should reach critical mass by 2025. This will allow the PTB to more easily complete their tasks on transforming the world into its desired outcome.

This process of inflation and manufactured scarcity has already begun, and will eventually lead to the deaths of hundreds of millions around the world. Since the US Fed is leading the charge here, this will just further incite the ire of America’s enemies.

These ongoing manufactured covid crises will expand in scope, and I worry that by mid-decade, at least one billion will have either died off or become incapacitated from any of a number of factors attributable to the fallout from this covid scam.

The PTB don’t seem to be that concerned about inflation, and in fact, are encouraging it and are inculcating this mindset into both consumer and business expectations. While I was slow to recognize this permanent shift in commodity prices, I now see these secular changes in the supply/demand equations as everlasting.

In the short term, the fiscal and monetary stimulus has pushed out the demand curve on most items. In the long-term, as the world transforms from the covid scam, it will be the supply curve that will permanently shift up and to the left. This latter shift will be the causes of the future famines and heartache. Read the Book of Revelation for an idea of what is to come soon.

The people around the world will begin to die off from vaccine repercussions, famine, starvation, untreated and unchecked diseases and sicknesses, and skyrocketing costs in the supply chain. The last factor listed will be the primary cause of the ongoing humanity calamity.

As for those already owning real estate and stocks, I have some encouraging news. According to Zillow, the rent rates on my single-family houses have climbed by about 20% over the past year. I do not know how people can afford these numbers.

With all this said, I still recommend income-generating assets for those who own them, and even if interest rates rise in the future, the prices of everything will continue upwards, including rents and the prices corporations charge.

Ceteris paribus, higher rates brings lower asset prices. But, we need to contemplate this scenario in a multi-dimensional environment. I ask myself, what is the cause of rising bond yields? If it’s the destruction of the monetary system, asset prices can still remain elevated and rise as those with the assets can easily pass off higher prices on to the public.

Even with higher interest rates, those who can best weather the storm are underleveraged asset owners. By remaining underleveraged, we can take advantage of any future opportunities as they manifest. While buying a house may get tougher with higher bond yields, the rents landlords will charge will continue rising even more so. The distortions in the commodities and labor markets will only work to restrict supply and those firms with the highest rates of inelastic demand (e.g. Dow blue chips) will hold up better.

This is why we need to be price makers and not price takers; whether it be with stocks, businesses, sports teams, housing, or medical practices.