Random Thoughts: The Confidence Game
We all live in gated communities. Sometimes literally, as in housing projects with security fences, or a country-club enclave of the rich and snobby, but always figuratively. (Brief random tangent: San Francisco mayor Gavin Newsom is getting married in the Bitterroot Valley, spending time in the new gated community near my hometown. How weird is that?)
Most of us have been spared hardships the rest of the world suffers, such as drought, food shortages, civil wars. Until recently, we were relatively unscathed by natural disasters. Even after the heartbreak of Hurricane Katrina, we have still been able to tune out stories of floods and tornadoes in the Midwest and around the world as apparently lacking a direct effect on our lives.
And the foundation of that insularity is our money. Economists talk about bubbles bursting, and I find that image quite appropriate. So much of our economy is based on intangible ideas, the perception of what something is worth, and a general understanding and acceptance that stocks are worth what we agree they are worth. Consider the subprime mortgage crisis: speculators, mortgage brokers, a whole flotilla of people greedy or gullible or both, all overextended their reach, like a balloon that is inflated too far.
It is not just our economy that is based on abstract ideas of value, of course, and there are sophisticated laws of supply and demand and market value that I won't pretend to understand. But fundamentally, we take pieces of paper and say, "Okay, this paper is good for this much product." Or we say, "This piece of paper called a stock was worth this much a while ago, and now, a few days later, it is worth an entirely different amount." It might make for an easy substitute for trading five oranges for a loaf of bread, or trading sex for free housing, or other more tangible economic transactions, but it is undeniably abstract, and based on 'consumer confidence.' And now in the heyday of electronic transfers and credit cards, it is a game of numbers, a confidence game. And of course, everyone wants to win when it comes to games.
But what does it mean to win this game? To have a bank account with inflated numbers? Does that really do you any good in the event of a natural catastrophe?
A current example of this can be found in Mexico. My friend Marina works for a non-profit group that distributes grant money to conservation projects in Mexico. They are currently gearing up for another battle against hotel lobbyists to defend current laws aimed at preserving mangroves along the coasts. Hoteliers want to remove the current stringent laws that forbid any destruction of wetlands; the people of New Orleans could tell them what a good idea that would be. But the thing is, hoteliers could make money by building additional properties, and their argument is that would benefit the locals economically. They do not consider the tangible effects of their actions on the environment. It's an argument of the abstract versus the tangible.
Standardization of costs and values through the abstract techniques of our modern economy is beneficial in many ways. An economy is a method of collecting and distributing and using resources, and money is, obviously, a simplifier for that process. But the process needs to stay tangible. We must understand that it is a tool to allow us to live, not a goal for which we live. Abraham Maslow's hierarchy of needs features many elements that can be fulfilled only with the possession of resources. But it is a long way to go between needing shelter and needing multiple homes in the suburbs, or needing satellite TV, or needing a new car every couple of years. A Humvee is not self-actualizing.
If we are told that suddenly our stocks have less value, or the dollar is losing strength, for most of us, that is a very abstract notion based purely on confidence and instinct. Phil Gramm has many flaws, including: a) calling Americans 'whiners', which is mostly unfair; and b) supporting a candidate for President who has not unequivocally distanced himself from the worst administration I have ever known. However, his assessment that we are going through a 'mental recession' is not entirely baseless, even if he didn't quite get the idea or the presentation right. Say what you will, but we are not the happiest people in the world by any measure.
The trick is to find meaning in life that can be more tangible, to establish what you really need, as opposed to what society says you want. Do something tangible, like pick up trash on the beach. Figure out what toys you might want that you would actually use. How much do you really need?
Most of us have been spared hardships the rest of the world suffers, such as drought, food shortages, civil wars. Until recently, we were relatively unscathed by natural disasters. Even after the heartbreak of Hurricane Katrina, we have still been able to tune out stories of floods and tornadoes in the Midwest and around the world as apparently lacking a direct effect on our lives.
And the foundation of that insularity is our money. Economists talk about bubbles bursting, and I find that image quite appropriate. So much of our economy is based on intangible ideas, the perception of what something is worth, and a general understanding and acceptance that stocks are worth what we agree they are worth. Consider the subprime mortgage crisis: speculators, mortgage brokers, a whole flotilla of people greedy or gullible or both, all overextended their reach, like a balloon that is inflated too far.
It is not just our economy that is based on abstract ideas of value, of course, and there are sophisticated laws of supply and demand and market value that I won't pretend to understand. But fundamentally, we take pieces of paper and say, "Okay, this paper is good for this much product." Or we say, "This piece of paper called a stock was worth this much a while ago, and now, a few days later, it is worth an entirely different amount." It might make for an easy substitute for trading five oranges for a loaf of bread, or trading sex for free housing, or other more tangible economic transactions, but it is undeniably abstract, and based on 'consumer confidence.' And now in the heyday of electronic transfers and credit cards, it is a game of numbers, a confidence game. And of course, everyone wants to win when it comes to games.
But what does it mean to win this game? To have a bank account with inflated numbers? Does that really do you any good in the event of a natural catastrophe?
A current example of this can be found in Mexico. My friend Marina works for a non-profit group that distributes grant money to conservation projects in Mexico. They are currently gearing up for another battle against hotel lobbyists to defend current laws aimed at preserving mangroves along the coasts. Hoteliers want to remove the current stringent laws that forbid any destruction of wetlands; the people of New Orleans could tell them what a good idea that would be. But the thing is, hoteliers could make money by building additional properties, and their argument is that would benefit the locals economically. They do not consider the tangible effects of their actions on the environment. It's an argument of the abstract versus the tangible.
Standardization of costs and values through the abstract techniques of our modern economy is beneficial in many ways. An economy is a method of collecting and distributing and using resources, and money is, obviously, a simplifier for that process. But the process needs to stay tangible. We must understand that it is a tool to allow us to live, not a goal for which we live. Abraham Maslow's hierarchy of needs features many elements that can be fulfilled only with the possession of resources. But it is a long way to go between needing shelter and needing multiple homes in the suburbs, or needing satellite TV, or needing a new car every couple of years. A Humvee is not self-actualizing.
If we are told that suddenly our stocks have less value, or the dollar is losing strength, for most of us, that is a very abstract notion based purely on confidence and instinct. Phil Gramm has many flaws, including: a) calling Americans 'whiners', which is mostly unfair; and b) supporting a candidate for President who has not unequivocally distanced himself from the worst administration I have ever known. However, his assessment that we are going through a 'mental recession' is not entirely baseless, even if he didn't quite get the idea or the presentation right. Say what you will, but we are not the happiest people in the world by any measure.
The trick is to find meaning in life that can be more tangible, to establish what you really need, as opposed to what society says you want. Do something tangible, like pick up trash on the beach. Figure out what toys you might want that you would actually use. How much do you really need?
Labels: economics oversimplified, environment, money, politics
posted by Devin at 10:01 PM
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