A common example is household income and spending. When the couple were just starting out, they lived like students with barebones expenses. Then as their income rises, so do their expenses, and so by the time they're making $300,000 a year, every dollar is already spent yet they're still deep in debt. LA couple who earn $300K/year told Dave Ramsey they're drowning in $119K of debt.

Institutional bloat is even more difficult to reverse. Way back in 2010, I posted a link documenting how a major public university's administrative staff bloated up from 3.2 full-time administrators per 100 students in 1993 (before student loan debt skyrocketed) to 13.5 administrators per 100 students in 2007. The Ratchet Effect: Fiefdom Bloat and Resistance to Declining Incomes (August 23, 2010).

As staffing increases, a powerful self-interest in maintaining the status quo becomes the norm. This drive to maintain the status quo at all costs becomes the implicit mission of the organization. As budgets expand, there's no end to the ways it can be spent–all in service of "improving" something or other.

Human ego manifests The Ratchet Effect as well. We like to live large and show off our shiny new campus offices, and resist downsizing and sacrifices with every fiber of our being.

In households, we want to maintain the look and feel of our elevated status: our numerous travel extravagances, our new SUV, etc. But the financial The Ratchet Effect is key, for it's easy to add debt and painful to make sacrifices to pay debt off.

Another core dynamic of The Ratchet Effect is the normalization of extremes. As expenses and debt soar, we soon view what would have been seen as extreme in a previous era as not just normal but sustainable.

So student loans go from $0 in early 1993 to $1.8 trillion in Q4 2024, and nobody thinks anything is extreme because it's been going on so long we accept it as normal.

The dynamic that leads to collapse is as invisible as the extremes. Once the organization–household, institution, corporation or nation-state, the dynamic is scale-invariant–has hardened into a brittle state of stasis, it's impossible to shrink the budget without collapsing the entire structure.