Joseph Tainter’s The Collapse of Complex Societies epitomizes what I think has been a fundamental reason behind the decay of the economy. Tainter’s theory is that as societies become more complex, the costs of meeting new challenges increase, until there comes a point where extra resources devoted to meeting new challenges produce diminishing and negative returns.

In yesterday’s post, I wrote about the “diminishing” returns of caring for the elderly in nursing homes and Tainter’s theory seems to apply. The residents of a nursing home will require more and more complex care. First there are regular doctors visits, then complicated prescriptions, then devices to aid in movement (wheelchairs, walkers), then bed-ridden devices to check status of health (heart monitor, oxygen, feeding tube) until ultimately death. I can already foresee news stories about abuse or lack of quality care at these nursing homes so Congress will inevitably pass laws REQUIRING inspectors, audits or monitoring of nursing homes.

The complexity of nursing home societies will reach a tipping point when the burden is too great on the business or people running the facility that people choose to follow careers in other industries and the nursing homes will go bankrupt. Tainter’s thought experiment works on many levels and with many industries.

Is GM a microcosm of the collapse of a mini complex society? GM started as a business making and selling cars but then unions formed to improve wages and benefits, the net result was GM had to hire union negotiators, administrative (benefits) personnel, and incur other expenses. As GM branched out into other areas (i.e. financing), it continued to incur additional administrative costs not only internally (IT, HR, Payroll, Procurement, Distribution) but from government as well (e.g. Sarbanes Oxley, EURO SOX, etc) until it reached a point of diminishing returns.

I personally think that the US government has gone way beyond the diminishing returns and is at negative returns. If you really stop to think about it, government doesn’t produce anything of any real value. Government passes laws, increases bureaucracy, and mandates all sorts of compliance policies but it doesn’t produce ANYTHING. There are no widgets produced by government but government sucks a great deal from industry.

Tainter writes in his book that societies structured in high order complexity will eventually fail and I certainly agree with him. Tainter uses the Roman Empire and Mayan empires as historical reference and perspective but EVERY empire in the history of civilization collapses at some point and it is never pretty. The only question now is when the current system will undergo a complete collapse.