I recently listened to a podcast from the Aspen Ideas Festival about our social fabric, the forces breaking them down and the new community builders trying to bring people back together. Speaking was New York Times columnist, author, and television commentator David Brooks, who referenced a concept introduced in 2014 by Ruth DeFries in a book titled The Big Ratchet: How Humanity Thrives in the Face of Natural Crisis.
DeFries’ theory suggests significant technological progress takes place in a cyclical pattern. A technology or other significant innovation is introduced that benefits the world and allows society to ratchet up. While these ratchet periods are “the good times,” they never occur without causing new problems for society and disrupting the lives of some.
Next comes the hatchet, where change is demanded as increasing numbers are impacted by the damage these new problems caused. Society looks for ways to pivot and solve these problems, leading to new innovations and another period of ratcheting up before the whole cycle repeats itself.
DeFries applies this primarily to humans’ ability to develop technologies to use more resources in new ways to grow as a species. She cites the domestication of crops as an example, calling it “probably the biggest ratchet in history.” Moving from a hunter/gatherer culture to a farming culture allowed us to settle into communities, grow families, etc. This phase also came with consequences. Diets became starchier, waste management became a concern and disease spread more easily. These and many other issues reduced life expectancy, causing an uprising and demand for change. This hatchet period led to another pivot as society improved how it raised livestock, developed antibiotics, and addressed many other concerns with technological advances that allowed for society to grow again.
Brooks takes this concept and extends the application to cultural progress. He argues that societal hatchet periods get quite nasty politically and socially as, in any period of major change, there are those that rise and benefit and those that suffer in some way. This creates challenges for politicians, businesses and social discourse in general.
As an example, he cites the cultural shift from the “we’re all in this together” mindset of the Depression and World War II that pivoted to a society valuing freedom, individualism and a “free to be me” culture that began in the 60s and continues in large part to this day. Society has continued to ratchet up through this period, with most of the world in a better position than ever in history by most measures.
This has not been without consequences. Specifically, Brooks’ argues that we’ve entered a hatchet period over the last several years as we recognize how isolated individualism has left us. He cites historical highs for suicide, depression and opioid use as proxies for loneliness in many cases. This loneliness creates a flight to safety which either occurs within the self or in reverting to our own likeminded tribes, compounding the isolation and loneliness.
There is hope. He goes on to talk about a multitude of ways community builders are working to find that next cultural innovation to help pivot society back towards center and kickstart the next cultural ratcheting. In one segment of our society, this is occurring right here in Cincinnati as the Family Independence Initiative, a venture co-sponsored by the GreenLight Fund and Greater Cincinnati Foundation, looks for new ways to allow neighbors to work together to solve their biggest challenges.
How does all of this connect to the world of investing and financial planning? The connection to investing is clear. Whether talking about individual companies or the broader market, things move through a very similar cycle. Markets grow over some unknowable period of time. Headwinds present and the hatchet sets in, causing prices to drop and investors to suffer. Companies look for new innovations, ideas and trends that will once again jumpstart consumers and the economy. Eventually, something works, investors benefit, and the markets ride another wave of growth, each one higher than the preceding wave.
In many ways our own financial plans experience these same cycles. We put a plan in place that allows us to enjoy today while ensuring we have enough for our future as we know it. Provided things continue on-course, we experience a ratchet period and our net worth grows.
Inevitably changes, good and bad, present themselves. The sale of a business, a job change, relocation, new baby, death, divorce or an unexpected major expense are examples of what could cause a hatchet/pivot period that force us to reconsider the plan. Most often, this is a temporary disruption, typically leading to greater heights down the road than we originally planned.
Reflecting on this concept, my biggest takeaway is that we should not live in fear of this kind of change. Like major technological and societal change, seismic change in our own lives will come whether we seek it out or not. We can accept being caught flatfooted, or we can engage in active, ongoing discussions around our financial plan to help ensure we make the most of these moments when they arrive. Taking advantage of the disruptions and challenges that life presents and converting them into opportunities to pivot towards a new path forward leads to less hatchet and more ratchet.