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Views from the Prairie

July 2023

Cascading Failures and Resilience

Someday, stop by a children's playground, pick up a handful of sand, and dribble it out in a pile or watch the sand in an hourglass. The pile will build up and appears to be stable for a while. But then, the top will start sliding and a bunch of sand slides down. This is a cascading failure. One small grain of sand won't stick and as it starts sliding, it triggers others to let go and slide also. The longer the sticking, the larger the failure. The failure stops when many catch the falling grains and hold them fast.

The world is a lot like that. We have what appears to be stability for a while. Then, a small failure will happen and cascade through life. It happens with earthquakes when one small rock cracks under the strain. It happens in finance when one small company fails only to bring down a whole set of other companies. It happens in marketing where one small error in an ad brings down not just a beer, but much of a drink empire.

This unstable state is normal for the world. We long for a stable world. Parents try to build a stable home for their children. Politicians promise to bring back stability. None of this works. The world is an unstable place.

We can't have a stable world because we live in a complex world and we are making it more and more complex. People want more, want things better for their children, and in seeking that more, make the world unstable. Cascading failures are the natural result of an unstable and complex world.

Cascading failures happen when a bunch of things are interconnected. One small part can fail causing other parts to overload and fail or run out of resources and shut down and on and on. A good example is how the Texas electric grid failed during a bad cold snap. The operators of the grid tried to use rotating blackouts (a standard technique) to balance the load. However, when they blacked out some areas, the natural gas pipelines shut down cutting off power plants making the lack of electricity worse. Similarly, earthquakes happen when a small rock finally cracks under the strain which puts more strain on other rocks around it which might crack making a small earthquake into a much larger one.

Because we live in an unstable world, government actions to manage things don't work. Centralized bureaucracies can't know all the details needed to make regulations work everywhere. State governments can't know how to make the rules to fit the needs of cities. Central bank rules don't fit all situations. Large corporations can't know how to meet the needs of all small customers.

Businesses want a stable economy and stable laws. They keep asking for consistency and stability for laws, rules, and regulations. That is an impossible hope. The more we build a "stable and consistent" business environment, the larger the cascading failures become.

The failures in business stop when many other organizations are able to catch the failures. The thousands of bank failures in the 1930's stopped when the FDIC deposit insurance meant that all the banks were working together to catch the failures. When we all work together, we can catch the failures and stop the cascade. Resilience comes from many working together.

Let us work together.

Make a Profit?

So many impressions, so many clicks, thousands of followers, hundreds of connections on LinkedIn, book listed on the New York Times Best Seller List, EBITDA, Rule of 40, etc. When people are asking for money, we can hear so many ways that sound like success. But most of these are not sustainable success.

Many a startup company wants to show investors that they are being more successful than they really are. They can make presentations showing all sorts of statistics that imply success. But there is only one measure of success: making money. In order to make money, sales have to bring in more money than it costs to generate those sales.

The problem is that many startup companies are spending wildly in order to get sales. Instead of charging their customers, some ride sharing systems were paying customers to ride using their app. Other apps offer other incentives to get people to use them. The final results were that these sales were hugely unprofitable.

There are many other opportunities to invest in unprofitable ventures. A number of cities in China have large numbers of unfinished buildings and many of the finished buildings are empty. A recent report stated that one out of seven residential sales by investors lost money. So many people jumped into the "sure thing" of "flipping houses" that they are losing money.

Statistics can be manipulated. A publishing house can guarantee "your" book will show up on the best seller list if you want to pay them $150,000 to publish it. Other groups are buying up movie tickets to boost sale statistics but the theaters have empty seats.

Look for the real measures of success.

Risky World

The people who won the right to refuse to bake a cake for customers just got some serious competition. You can send a design to a bakery in East Los Angeles that will use a 3-D printer to make any sweet in any design you want.


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