The Upside of Down

I read a really intelligent post on a financial forum where this book was recommended. Whereas Jared Diamond’s Collapse deals with an ecological breakdown, this book deals with the patterns of all breakdowns.

The Upside of Down: Catastrophe, Creativity, and the Renewal of Civilization
The Upside of Down: Catastrophe, Creativity and the Renewal of Civilization by Thomas Homer-Dixon is an amazing book. I now see the world in a different way. Preventing the breakdown of any system is impossible. The longer a system goes, the more complexity must go into maintaining it. The more complex a system has, the less resilient it becomes. The author makes a solid case for adding slack or overlap into systems, so when they do eventually receive a shock, the depth of the damage is contained and rebirth begins from a more advantageous position.

The book draws heavily from Rome and modern disasters (earthquakes, fires) to describe the phases that lead up to collapse and what happens afterward. This review is a brief overview of some of the concepts. The book offers much more. I highly recommend this book. It is the best book I’ve read this year so far.

If you don’t have time to read this book, the author has a library of articles andย podcasts on his website. Despite the long introduction and song in the middle, which you can skip, the best podcast is The Growth Imperative and the transcript is here. It was recorded in February 2009 and it connects concepts in the book to the current global economic situation.


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  1. I read some of the reviews.I get the impression the author thinks something good comes out of a collapse of a major superpower.

    unless Im mistaken, what are the good things?

  2. The author states that collapse of ANY system will eventually occur. The only way to keep it going is via more inputs (the growth imperative) or more complexity. The longer it goes, the deeper the collapse.

    The book spends a lot of time discussing the Roman empire. The massive amount of farming and caloric labor required to build and maintain their empire. The empire relied on more and more input to sustain itself and became less resilient and more brittle. Then the farmers stopped producing as much and the caloric requirements needed to sustain the empire weren’t there. The population plummeted.

    The benefit of a system collapsing is the creative response. A tree in a forest fire will throw seeds out for future growth as it is getting burned. If the fire is too intense (deep collapse), the seeds themselves get destroyed.

    What is happening now in our credit market might end up being a deep collapse. Ending Glass-Stegal and raising the leverage limits allowed the growth of an already debt heavy system. Now we can see that massive credit growth may be like the forest fire that gets too hot and destroys the seeds of rebirth.

  3. re:The benefit of a system collapsing is the creative response.

    It sounds like his speculative outcome is somewhat lighthearted. Some expert economists predict revolution, martial law and global war following a collapse of a major superpower. This makes the most sense to me.

  4. I think we both agree that a major shock to the system is coming. Timing, depth and how it occurs are the unknown.

  5. Along similar lines I found this fascinating:

    I did some additional research and the last 3 cycles similar to the one we are now entering were …GD/WWII, Civil War and The Revolutionary War.

    If we have anything of similar magnitude in our future then we are still in the 1st inning.

  6. And this article discusses the inherent instability in financial systems (like the book above)…

    Maulden has been hot lately! ๐Ÿ™‚

  7. I’m a big fan of John Mauldin. I’ve been reading his newsletter since 2006. His book Bullseye Investing is a great primer into why buy-and-hold isn’t always a good investing strategy.

  8. The point isn’t when or how deep the shock becomes. Its the aftermath and what becomes of it.
    John Mauldin doesn’t seem to possess any insight when it comes to this, or maybe he’s like many others out there that hold onto the slightest bit of optimism, so they can play the markets again, don’t want to hear it or talk about it.

    America is finished.

  9. Why would you expect an investor to provide insight into how a society emerges from collapse?

    Let us use recent history to see what could happen. We could tear each other apart – like post Katrina New Orleans 2005. Or we could pull together – like post wildfires San Diego 2007. Beats me.

    I am always reminded on my favorite joke.

    Two guys are in the jungle when they see a lion running towards them. Frantically, one of the men starts putting on his running shoes.

    Surprised, the other man says ” What are you thinking, you can’t outrun a lion!!!”

    ” I don’t have to outrun the lion,” said the man, ” I just have to outrun you.”

  10. Ed – Just curious where you are moving to?

    Also, the point of a really severe crisis is that it is impossible to know the aftermath. Who could have predicted the aftermath of the Revolutionary War or WWII? Hell, we could have lost for starters! ๐Ÿ™

    Anyone without some level of doubt about the future is either delusional or wants your money. The point even with the markets is to only be right >50% and/or make your winners > losers.

  11. re:Why would you expect an investor to provide insight into how a society emerges from collapse?

    I don’t, that’s why I never read his commentary and I think its worthless to do so. Nice joke by the way.

    Jim, Its the other way around. There were signs that lead up to the revolutionary war and WWII that were very noticeable among the observant, just as there are signs today of the demise of U.S. imperialism. The only problem is, unlike the collapse of Rome, the U.S. has over 6000 military bases in its homeland and over 700 in foreign lands. With over a trillion dollars being spent annually on the military.

    The invasion of Iraq a week or two after Saddam declared switching to euros for oil is a stark reminder of the seriousness of the game being played in politics, and when the Saudis, China and Russia try and make an equal threat as well, it only puts us that much closer to the brink of war.

    I hate to say this because I know it hurts. The neither of you will ever invest like you use to ever again.

  12. The best explanation I’ve read in regards to oil and the USD is from Mish.

    Ridiculous Hype Over Secret Oil Meetings

    The comments in this thread have strayed away from the book. In a few days, I will post a separate blog on our discussion.

  13. My apologies for the stray.

    Hmmm…. The upside of down. I haven’t read the book but I doubt I ever would because of the underlying theme that no matter how deep the crisis becomes, things will always bounce back and all becomes well again. So the title itself, to me is a delusion, in effect no real upside this time around except for those in the elite financial realm, which none of us are.

    Any upside trend for those people is usually planned way in advance anyways.

    furthmore if terms like “New World Order” aren’t used its further proof that the person is heavily promoting the notion of the intrinsic worth of fiat currency.

  14. Ed – You are either a prophet or a lunatic. Both exceed my ability to analyze, so I leave you to your own devices.

    In your defense, I think the outcome will be far more severe than most anticipate.

    I am haunted by a Richard Russel newletter in which he describes complete normalicy for the first year after the crash of ’29 …a year later there were unemployment lines around the block and many beggars with signs.

    I do fear very hard times ahead.

  15. Ed –
    The book does draw heavily from Rome. That was a system that did not rebound from collapse. Also discussed were the fires that were contained in the San Fran earthquake. So the book has examples of both.

    The Upside of Down is not a book about what is going on today. It is just a way to view systems and cycles. I will do a post that relates some of your ideas with the ideas of the book in a few days.

  16. LOL Jim. I try and stay in between somewhere, but I’ll take it as a compliment anyways.:) I try to remind myself that history is not necessarily a trendline extended indefinitely, its a series of unexpected events. The lesson of the Black Swan. You cannot predict the future with any level of certainty just by examining trends alone. It appears to be different this time around then in post ’29, in the sense that there’s a changing of the guard, namely in concideration of our enormous account defecit combined with our over expanded empire.

    MAS, I just read the Mish article. I think the article is partially correct but irrelevent. The pricing unit does not matter as much as the trading currency. I take issues with #7 on the list, and #9 I call misleading. If Saudi Arabia will accept Dollars for some of its oil, then there is incentive to hold dollar reserves. If they will NOT accept Dollars, then there is no incentive. THERE”S NOTHING BACKING IT.

    Also missing from this argument is that if someone is selling a lot of Dollars on the currency markets, then aside from :currency interventions”, by world banks, the value of the Dollar falls.

    This idea that countries can switch when they just feel like it is bogus in my opinion. This gets back to the question of how foreigners reduce their Dollar holdings. Naturally foreigners feel resentful when they see what the U.S. government is doing with promises about expensive programs being pushed through….the Dollars they are holding are being debased. So they would rather remove their own incentive to hold them, but its not an easy solution. Reasonable scenario?

    However he is right that the Iraq invasion did not happen specifically because of Huseins threat to switch to Euros since the invasion was planned way in advance and he more then likely knew it was in process. But nevertheless it was possibly an attempt to rally support from middle East nations to side up against the U.S. and cause a halt to the invasion.

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