The problem is not that financial markets are too mature and able to create too much capital and credit. The problem is that the corporation is too immature and unable to create profitable opportunities using that capital and credit. The result? Capital bids up the price of existing assets and we have a series of bubbles. Policy makers looking at financial markets will only see the symptom of this problem. We need to start talking about corporate reform.
James Fallows of the Atlantic talked to Nouriel Roubini, who spoke about the danger and increasing severity of economic bubbles.
“These asset bubbles are increasingly frequent, increasingly dangerous, increasingly virulent, and increasingly costly,” he said. After the housing bubble of the 1980s came the S&L crisis and the recession of 1991. After the tech bubble of the 1990s came the recession of 2001. “Most likely $10 trillion in household wealth [not just housing value but investments and other assets] has been destroyed in this latest crash. Millions of people have lost their jobs. We will probably add $7 trillion to our public debt. Eventually that debt must be serviced, and that may hamper growth.”
After talking about the dynamic of bubbles and how we've been dependent on them for growth, Roubini says,“'The question is, can the U.S. grow in a non-bubble way?'” He asked the question rhetorically, so I [James Fallows] turned it back on him. Can it?"
For me, the core problem is that we’ve created massive potential for financial stimulus but have not created a corresponding potential for translating that into new ventures. So, the financial clout is used to bid up the prices of existing assets rather than create new ones. This can’t help but create a series of bubbles, it seems to me. The problem is not that financial markets are too capable of creating capital. The problem is that business markets are too feeble at using that capital to fund innovation.
Businesses are not that interested in innovation and creativity. They prefer predictability. This is typical of fiefdoms run by the last of the monarchs. The dispersion of power within corporations to employees who would be eager to create equity would not only result in more innovation but would require more capital. Financial markets are capable of creating the credit and capital to finance new ventures at a faster rate: corporations don’t avail themselves of this, more often than not generating cash rather than consuming capital as if they did not operate in a possibility-rich environment.
As long as capital markets are biased towards the purchase of used securities – buying stocks and financial instruments for investments already created – we’re likely to see a series of bubbles. Once we get better at making entrepreneurship a normal part of the daily routine of business, we’ll still have bubbles but I suspect that they won’t be nearly as frequent or pernicious. And the foundational economy upon which financial markets rests will be more diversified and vibrant, offsetting the bubbles that do occur.
R World (Ron Davison muses aloud)
Showing posts with label The Atlantic. Show all posts
Showing posts with label The Atlantic. Show all posts
09 June 2008
The Internet is Re-Wiring Your Brain
In the latest Atlantic, Nicholas Carr provocatively asks, "Is Google Making us Stupid?" The point he makes is that our new style of search, hypertext, and scanning rather than "deep reading" is actually changing how our minds are wired. He speaks to it as a problem of diffusing attention, and I agree that there is an element of that. But, as I tend to be, I'm an optimist on this score. I think that the Internet is changing how we attend to issues in a positive way.
The Internet has created a new kind of communication that facilitates understanding, coordinating, managing, and participating in systems. Such facility with systems - from ecosystems to economic systems to technical systems to social systems - is emerging none too soon.
The last century or so has been characterized by the emergence of specialists. We have experts who can improve the design and performance of products like combustion engines, bombs, and financial derivatives. They are heads down focused on parts of larger systems but their actions have implications that spill outside of their products. Getting here has been a journey characterized by "deep" reading, drilling down to greater nuance and detail and understanding. The problems created by their success has created a need for a different kind of thinking and communication, a communication that looks shallow at first glance.
Going further down the rabbit hole on these specialties won’t necessarily improve our world. The issues that matter are those that spill across domains, that don’t neatly fit into Cartesian boxes of categories that say more about what we project onto reality than reality itself. “Deep” reading and thinking promises less in the way of progress than “shallow” reading and thinking that make connections and perceives system dynamics.
The Internet is changing how we think. By raising our awareness of connections, it raises the probability that we will properly understand and manage the systems that define our world. This, it seems to me, is a good thing.
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On a related note, Milena pointed me to Hyperwords - a program that allows you to make any word on a page searchable, as if it were all hypertext. Talk about connections! Economist article here.
The Internet has created a new kind of communication that facilitates understanding, coordinating, managing, and participating in systems. Such facility with systems - from ecosystems to economic systems to technical systems to social systems - is emerging none too soon.
The last century or so has been characterized by the emergence of specialists. We have experts who can improve the design and performance of products like combustion engines, bombs, and financial derivatives. They are heads down focused on parts of larger systems but their actions have implications that spill outside of their products. Getting here has been a journey characterized by "deep" reading, drilling down to greater nuance and detail and understanding. The problems created by their success has created a need for a different kind of thinking and communication, a communication that looks shallow at first glance.
Going further down the rabbit hole on these specialties won’t necessarily improve our world. The issues that matter are those that spill across domains, that don’t neatly fit into Cartesian boxes of categories that say more about what we project onto reality than reality itself. “Deep” reading and thinking promises less in the way of progress than “shallow” reading and thinking that make connections and perceives system dynamics.
The Internet is changing how we think. By raising our awareness of connections, it raises the probability that we will properly understand and manage the systems that define our world. This, it seems to me, is a good thing.
---
On a related note, Milena pointed me to Hyperwords - a program that allows you to make any word on a page searchable, as if it were all hypertext. Talk about connections! Economist article here.
21 January 2007
An Intelligent Conversation?
Indulge me in a moment of pleasure and optimism: The Atlantic and Andrew Sullivan are teaming up. Sullivan's blog will be folded into The Atlantic's website and he will become one of their senior editors.
Andrew Sullivan is a thinker I've inexplicably enjoyed since his time as editor at The New Republic 15 years ago. I say inexplicably not because his tone, erudition, and writing lack obvious appeal. I say inexplicably because I'm not conservative, Catholic, or gay - as he is. In spite of our differences in worldview, I find his ideas compelling.
The Atlantic is, for me, the epitome of good journalism. It is intelligent, thoughtful, and reluctant to rush to a conclusion when the data suggests no easy answer. I suppose no one source has had more influence on my political sensibilities; I began reading it in my late teens, more than a quarter of a century ago.
The Atlantic is more like a book than a magazine in that its articles have a shelf life rather like wine; a blog, by contrast, typically has a shelf life more like milk. Given it comes out only 10 times a year, The Atlantic is somewhat like a prepared speech to which one listens. A blog, by contrast, is more like a conversation in which one engages. (but is, sadly enough, too often like a conversation with someone suffering from ADD).
This merger of the magazine’s magazine with a pioneering blog suggests a tantalizing possibility: an intelligent conversation that occurs in real time but has, for its context, larger issues than the distraction of the day. If The Atlantic is able to merge the instantaneous, interactive nature of blogs with its mastery of showcasing ideas that deserve reprint 150 years later, they may well have a product that is able to transform the national conversation. If they succeed at this, I will become a real fan. That is, instead of merely admiring the magazine, I will wear a NFL style jersey in public that, in lieu of a name like “Tomlinson” or "Manning" has “Sullivan” or fellow Atlantic editor “Fallows” written across the back.
Andrew Sullivan is a thinker I've inexplicably enjoyed since his time as editor at The New Republic 15 years ago. I say inexplicably not because his tone, erudition, and writing lack obvious appeal. I say inexplicably because I'm not conservative, Catholic, or gay - as he is. In spite of our differences in worldview, I find his ideas compelling.
The Atlantic is, for me, the epitome of good journalism. It is intelligent, thoughtful, and reluctant to rush to a conclusion when the data suggests no easy answer. I suppose no one source has had more influence on my political sensibilities; I began reading it in my late teens, more than a quarter of a century ago.
The Atlantic is more like a book than a magazine in that its articles have a shelf life rather like wine; a blog, by contrast, typically has a shelf life more like milk. Given it comes out only 10 times a year, The Atlantic is somewhat like a prepared speech to which one listens. A blog, by contrast, is more like a conversation in which one engages. (but is, sadly enough, too often like a conversation with someone suffering from ADD).
This merger of the magazine’s magazine with a pioneering blog suggests a tantalizing possibility: an intelligent conversation that occurs in real time but has, for its context, larger issues than the distraction of the day. If The Atlantic is able to merge the instantaneous, interactive nature of blogs with its mastery of showcasing ideas that deserve reprint 150 years later, they may well have a product that is able to transform the national conversation. If they succeed at this, I will become a real fan. That is, instead of merely admiring the magazine, I will wear a NFL style jersey in public that, in lieu of a name like “Tomlinson” or "Manning" has “Sullivan” or fellow Atlantic editor “Fallows” written across the back.
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