Add 1 - Human Capital - Priorities (August 26, 2011)
Going back to a working definition of Human Capital from Charles Hugh Smith's ebook, "An Unconventional Guide to Investing in Troubled Times":
"Human capital can be defined by what it is not: human capital generates all income which isn’t generated by purely financial investments such as stocks, rental property, savings and bonds. In essence, human capital is expressed as productive work: the combination of skills, knowledge and experience that generates income and value from providing services and making goods. ...
Trust is an integral component of human capital; an untrustworthy person with high skills has much lower human capital than a trustworthy person with the same skills. ...
Not all human capital investments serve the goal of generating income. For example, learning how to prepare healthy, tasty meals from real food is a skill that potentially pays enormous health benefits, even though it might never generate a dollar of income".
In the Money Comments - August 18, 2011, we suggested taking stock of our own personal human capital by making a list of your own skills, knowledge and experience followed by a couple of questions about each listing. There may be better ways to do this, but any start is better than no start.
What kind of Human Capital might be needed if an economic collapse happened in your lifetime? How does your current personal Human Capital compare to what is likely to be needed? By answering these questions honestly, we can begin to outline Human Capital investments we need to make.
First Hand Accounts Offer Guidance
For some guidelines about the skills, knowledge and experience needed following an economic collapse, we can look at the personal experiences of people who have been through one.
Gonzalo Lira tells of his family's experience following the economic collapse of Chile in the 1970s. The collapse in Chile came about as a result of the election of a hard-core socialist government which enacted policies that led to economic collapse and hyperinflation. The situation was resolved by a military overthrow of the elected government.
An anonymous writer using the pen name "Legal Alien" recounts the economic collapse of the Union of Soviet Socialist Republics (USSR) in the 1990s. Economic collapse led to the crumbling of an empire and reshaped global power structures forever. Some twenty years later, conditions have stabilized and improved, but the initial impact was devastating for an entire generation of common people. Unlike Chile, the collapse did not lead to a military takeover, but rather to a gradual rebuilding of social and economic institutions that allowed economic recovery.
For a third, and more recent, account of economic collapse, Fernando Aguirre recounts his personal experience with the economic collapse of Argentina in 2001. Argentina collapsed under the weight of massive corruption, a condition not yet remedied. Mr. Aguirre's saga continues with social, economic and political conditions still deteriorating.
Gonzalo Lira and "Legal Alien" emigrated away from the collapsing economy and began anew in a foreign country. Mr Aguirre plans to immigrate from Argentina before the end of the year. Perhaps we should take heed and explore the possibility of moving somewhere else in the world if an economic collapse happens in the USA. That option will be much easier before a collapse than after. At least get a passport and keep it current.
Despite the differences in time, proximate cause and culture, there are obvious similarities in the immediate effects of economic collapse on average citizens. There is no reason to think they would be different in the USA. They are:
- Law and order breaks down as people become desperate. Personal security becomes a personal responsibility.
- Basic necessities become prohibitively expensive or unavailable through normal channels.
- Savings in traditional investments lose purchasing power, are lost in the market collapse or are simply confiscated by the government.
- Jobs disappear as employers (including government) cannot meet payrolls.
- Commerce grinds to a halt due to security problems, unreliable transportation, and lack of stable currency.
Human Capital investments (acquiring personal skills and knowledge) should be directed toward becoming able to take personal responsibility for the items on the list above. When a person can provide security and necessities for himself, he has something of value to offer his friends, family and community, even if he has no money. This lays the groundwork for building Social Capital.
Future articles will address specific skills and knowledge that will be vital for survival if an economic collapse occurs and be useful even if there is no collapse. These are win-win investments with negligible risk and huge probable gain. They will require time and effort but relatively little money.