What Happens When Assumptions are Wrong?

It’s a directly simple but perhaps deeply disturbing conclusion:

“Everything we know is wrong.”

To be specific, Patrick Leach says everything is wrong about what we know about the U.S. economy.

That’s not just his opinion. That’s the title of a talk he’ll be sharing this month at the AAPG Annual Convention and Exhibition (ACE) in Pittsburgh.

Leach is an author and CEO of Decision Strategies, a consulting firm that helps clients in the oil and gas industry untangle the complexities of the decision-making process.

He’s also the speaker for the Division of Professional Affairs-Association for Women Geoscientists luncheon that will be part of the upcoming ACE in Pittsburgh.

His basic premise about why everything we know about the economy is wrong:

All the logic, intuition and metrics humans have for making decisions were developed during a time when resources were abundant, human populations were relatively small and we could afford to focus on maximizing returns today because tomorrow always held new frontiers filled with limitless riches.

But today, he believes, the primary objective of most modern societies – constant economic growth – is mathematically unstable and impossible.

Adam Raised a Cain

Leach’s inspiration stemmed from Stuart Kauffman’s “At Home in the Universe.”

“I began to wonder if the increased economic volatility and global economic stagnation we see these days might be related to a fundamental change in the nature of the global economy,” Leach said, “as everything has become more interconnected.”

After further investigation, Leach decided that the common accepted economic theory of Adam Smith’s “Invisible Hand” needed to be challenged.

“Adam Smith developed his theories at a time when the world’s resource base must have looked essentially infinite,” Leach said. “As a result, underlying many of his – and our – approaches to economics is an assumption that there is always more stuff out there to get.”

Leach said he concluded we as a country have moved from a labor-constrained economy into a resource-constrained one – and that meant if we don’t begin to change our way of thinking, we could be in some serious trouble.

“Every previous society that grew, developed and prospered to the point where their environment could no longer sustain their standard of living ultimately faced a choice,” Leach said. “Change your behavior or collapse.”

The Unanswered Question

Leach realizes his message isn’t easy for some to accept.

“By historical standards, Western civilization is still pretty young,” he said. “The fact that we’ve made huge progress for the past 200 years or so does not mean that it will automatically continue.”

He hopes his ACE luncheon talk will inspire convention goers to challenge some of their pre-existing beliefs about the economic world.

“I would like the audience to really consider the possibility that we have moved into a new era of a hyper-connected global economy, one in which we find ourselves repeatedly bumping up against resource limitations,” he said.

Leach believes geologists, of all people, have the most chance of understanding this new theory, because geologists understand that one hundred years is not a very long time.

“The fact that our society has seen enormous success over the past 200 years or so doesn’t mean that the trend will continue, regardless of our technological prowess,” he said. “We are currently faced with the same decision that successful societies of the past have faced.”

His question: Can we learn from their mistakes?