Trenchant Thoughts on the Crisis

Concern with the economy should not be a function of how much value one has invested in it at any given time. In other words, its a weak excuse to believe that because one doesn't have a diversified portfolio, one shouldn't care about the economic crisis. This is because it affects us all, no matter what we do or where we live. I believe that most of our apathy and exasperation concerning this current meltdown stems from the way that it's presented to us; we are confronted with a gigantic, technical beast that only 'experts' (our modern equivalent to intellectual Knights in Shining Armor-- or better yet, mystic Merlin living in The Tower) can tackle.

This is unfortunate. Like I mentioned in my first post, our economy is ultimately a product of human action. Any anthropomorphic treatment it receives ("the market did this") only fuels this opacity and contributes to the feeling of helplessness that I believe is pervading our society.

Seeking to get a better sense of economic forces, taking college (and graduate) economics courses introduced me to some of the fundamental concepts of our economic system; notions that I believe should be mandatory for any undergraduate education (particularly the inevitable and perpetual battle between supply and demand). Even so, dialogue surrounding this crisis is replete with concepts that only a certain segment of the population understands (a segment that ironically is largely to blame for this shitshow). Talk of credit default swaps, mortgage backed derivatives, etc., only serves to widen the disconnect that exists between the people at the helm of the economy and those most affected by it.

A recent article recommended to me by a fellow minion-intern that was published in The Atlantic takes on this crisis from a unique perspective. It is better than anything I've read dealing with subject, if only because it avoids the technical jargon that often pervades economic articles.

Henry Blodget, an ex-financial investor turned journalist, was around for bubbles of yore (particularly the internet one that exploded at the turn of the century). His discussion centers around the nexus of economic and psychology, two disciplines that I believe are not mutually exclusive; any discussion of economics must be firmly based in an understanding of the psychologial factors that guide those who navigate through and control the market (see Herbert Simon and bounded rationality).

Blodget explains that bubbles-- including the housing one-- are an inherent quality of capitalist economies:

But most bubbles are the product of more than just bad faith, or incompetence, or rank stupidity; the interaction of human psychology with a market economy practically ensures that they will form. In this sense, bubbles are perfectly rational—or at least they’re a rational and unavoidable by-product of capitalism (which, as Winston Churchill might have said, is the worst economic system on the planet except for all the others). Technology and circumstances change, but the human animal doesn’t. And markets are ultimately about people.

After taking us through a not-so-hypothetical example of a couple victimized by the appeal of a quick buck in real estate, Blodget provides prescient insight into how we can learn to live with and accept the flaws of our capitalist system; flaws that must be understood and embraced by our incoming presidential administration if we are to have any hope of overcoming them in the short term.

Moreover, these skeletons in the closet of capitalism should be acknowledged by every person fearful of what is almost inevitable thought nowadays-- the world crumbling upon itself, and life as we know it ending -- if only to reassure us that things are not as unprecedented as they seem.

By clearly indicating that this mess was made by man, and not some intractable problem, Blodget's story of the crisis is one of the few even tangentially optimistic pieces out there on economics today.