Budgeting for a Lifestyle Contraction

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by Gary North GaryNorth.com

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I regard survivalism as a legitimate lifestyle that is hedging against a series of events that are unlikely to take place, but which if they ever take place, the serious survivalist will be in a much better position to deal with these events than most others who live in an urban environment.

The basic issue of survivalism is this: preparing against a rapid, comprehensive, and unexpected collapse of the division of labor. There are very few examples of anything like this in modern times, other than war and revolution.

If there were a major crisis in the banking system in which central banks could not create digital money fast enough to save the largest banks from collapse, there could be this sort of contraction. But even in the Great Depression, it took three years to get from 1930 to 1933, which was the trough of the depression. There was time to react.

There is always the possibility of nuclear war. We came perilously close to this in 1983, and close calls probably happened on more than one occasion. But it did not happen. To think that it could not possibly have happened is naïve. But, on the other hand, to think that there was a high probability that it would happen was also naïve. It was a long shot, but it was within the realm of possibility.

In today’s world, I think the greatest threat in this regard is the threat of biological warfare. I think that this threat will increase over time. Again, I regard it as a low-probability event, but the devastation that it could cause is unthinkable — so we prefer not to think about it. If we were in a situation in which a true plague struck modern society, the only way to prevent or at least reduce the likelihood of being afflicted is complete isolation. This would mean complete isolation from family members who show up on our doorsteps. I regard this as a risk that most families would take, which means that the spread of the plague would probably continue unabated. It would simply have to play itself out. The economic devastation would be massive, because millions of people would refuse to go to work. They would not want to have contact with other individuals in closed spaces. The division of labor would contract, although I am not saying that it would collapse. Our lifestyles would be fundamentally altered until the plague receded.

If you are not willing to hedge against this kind of event, then it seems to me that the word "preparation" is better than the word "survival." Survival planning means a systematic withdrawal from the division of labor society for several hours a week. It means getting prepared emotionally for a major contraction of the division of labor. It means getting the skills necessary to function in such an economy. Almost no one is willing to do this, so I do not really believe that we should spend a lot of time on survivalism. In other words, if you are not willing to spend 20 hours a week on gaining the skills necessary for productivity in a society with the division of labor comparable to 1850, which was a lot better than 1790, I do not think survivalism is sensible.

LOSING YOUR JOB

I think the best way to think about the problem would be to imagine your situation if your family lost all income from outside sources for a period of two years. This is not beyond the realm of possibility. Most middle-class families would be out of money within six months. But if this were to hit all families equally, some of the largest expenses would be removed. There would be very few people paying their mortgage payments every month, but there would also be relatively few foreclosures. If something like this happened across the boards, the foreclosure process would be delayed. But if you alone were the victim of this kind of reduction of income, you would then face the possibility of foreclosure, but probably not within a two-year period. You would have some maneuvering room.

If you had a year of stored food, which can be purchased cheaply today, you would be in much better psychological shape to deal with unemployment. You would not know that you had two years of unemployment facing you. You would hope that something would turn up. What you need in that situation is the ability to cut your expenses to the bone overnight. You have to match your lack of income with a lack of outgo. Most families are not prepared to do this. They are stretched to their limits in terms of debt. They have few reserves.

The best way to prepare for this kind of scenario is to build up reserves in the broadest sense. These include reserves of personal business contacts, reserves associated with a small business on the side, reserves associated with regular consumer goods store in the home, and cash in the bank. These are the kinds of reserves that really are necessary to families in a recession. If we have another recession, and if that recession were to turn into a depression, both of which are possible, and both of which are much more likely than biological warfare, the family with reserves would be in a far better position. These reserves above all would be psychological. The individual would not be forced take the first job that came along, nor would he be in panic mode with respect to his inability to maintain his own lifestyle.

This is why I think lifestyle preparation is more important than survivalism. I think it is wise to begin to prepare for a sharp loss of income before this loss of income takes place. The individual begins to budget his time and money in terms of building up reserves for a time of unemployment that lasts longer than the head of the household would otherwise expect.

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Gary North [send him mail] is the author of Mises on Money. Visit http://www.garynorth.com. He is also the author of a free 31-volume series, An Economic Commentary on the Bible.

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