The tempting answer is to try to wriggle free from the dilemma with a compromise that would permit innovation but exert just enough control to squeeze out financial failure.
It is a nice idea; but it is a fantasy.
Financial progress is about learning to deal with strangers in more complex ways.
From the archive:
The most pervasive cultural characteristic influencing a nation's prosperity and ability to compete is the level of trust or cooperative behavior based upon shared norms.
Canada may be the source of modern multiculturalism, but I think it is simultaneously a model for the sort of national transformations required in Europe. Canada's English majority transformed their country's identity from one that was primarily tied to the British Empire to one which all of its citizens can connect with. I think there is something to learn from that.
The crisis will only end when house prices stop falling and banks stop racking up huge losses on their loans. Doing that, however, will require the US government to intervene directly in the real estate market to end the wave of foreclosures. Ideologically, it is ill-equipped to take that step and, as a result, property prices will fall and the financial meltdown will go on and on.
Business, of course, needs consumers to carry on spending in order to make money, so a way had to be found to persuade households to do their patriotic duty. The method chosen was simple. Whip up a colossal housing bubble, convince consumers that it makes sense to borrow money against the rising value of their homes to supplement their meagre real wage growth and watch the profits roll in.
As they did - for a while. Now it's payback time and the mood could get very ugly. Americans, to put it bluntly, have been conned.
In the longer term, lessons must be learnt from the turmoil. One is that you don't solve the problems of a collapsing bubble by blowing up another, which is what Alan Greenspan did after the dotcom fiasco in 2001 - the most irresponsible behaviour of any central banker in living memory.
From the archive:
The belief that corporate power is the unique source of our problems is not the only idol we are subject to. There is an idol even in the language we use to account for our problems.
... Perhaps the most powerful way in which we conspire against ourselves is the simple fact that we have jobs. We are willingly part of a world designed for the convenience of what Shakespeare called "the visible God": money. When I say we have jobs, I mean that we find in them our home, our sense of being grounded in the world, grounded in a vast social and economic order. It is a spectacularly complex, even breathtaking, order, and it has two enormous and related problems. First, it seems to be largely responsible for the destruction of the natural world. Second, it has the strong tendency to reduce the human beings inhabiting it to two functions, working and consuming. It tends to hollow us out.
From last summer:
How far do housing prices have to fall before a slump becomes a bust?
If the pessimists are right that there’s more to come, look out. A 10 percent decline in prices is likely to feel pretty awful. And then everyone might agree on what a housing bust is.
From January:
Because all asset hyperinflations revert to the mean, we can expect housing prices to decline roughly 38 percent from their peak.
How on Earth was a strawberry-picker in California making $15,000 a year able to qualify for a no money down loan on a $720,000 mortgage? That is just unconscionable.
Housing prices might not fall all at once, though -- they can just go sideways for twelve years and that's the inflation-adjusted equivalent of a 20 percent drop.
It was so obvious it was going to fall apart eventually. What is so amazing is how long it took to actually happen.
From James Suroweicki in early November:
The havoc on Wall Street following the collapse of the subprime-mortgage market boils down to a simple truth: for years, lots of very smart people took lots of very foolish risks, betting borrowed billions on dubious mortgage derivatives, and eventually the odds caught up with them. But behind that simple truth is a more surprising one: the financial whizzes made bad decisions in part because that’s what they were paid to do.
In the Internet era, high-speed networks are increasingly the economic and scientific petri dishes of innovation, spawning new businesses, markets and jobs. If American investment lags behind, the nation risks losing competitiveness to countries that are making the move to higher-speed Internet access a priority.
Any technology that is going to have significant impact over the next 10 years is already at least 10 years old.
Innovation is not about alchemy. In fact, innovation is not about invention. An idea may well start with an invention, but the bulk of the work and creativity is in that idea's augmentation and refinement.
The heart of the innovation process has to do with prospecting, mining, refining, and goldsmithing. Knowing how and where to look and recognizing gold when you find it is just the start. The path from staking a claim to piling up gold bars is a long and arduous one. It is one few are equipped to follow, especially if they actually believe they have struck it rich when the claim is staked. Yet the true value is not realized until after the skilled goldsmith has crafted those bars into something worth much more than its weight in gold.
At a time when the rest of the world is increasing its emphasis on math and science education and increasing their budgets for basic engineering and physical science research, the US Congress is telling the world these areas are not important to our future.
Perhaps this would all be a moot discussion if we could continue to import the best and brightest minds from around the world to start and staff our next generation of high tech startups. But Washington can't even get that strategy straight.
The United States stands at a pivotal point in our history. Competition is heating up around the world with millions of industrious, highly educated workers who are willing to compete at salaries far below those paid here. The only way we can hope to compete is with brains and ideas that set us above the competition - and that only comes from investments in education and R&D. Practically everyone who has traveled outside the United States in the last decade has seen this dynamic at work. The only place where it is apparently still a deep, dark secret is in Washington, DC.
What are they thinking? When will they wake up? It may already be too late.
The question becomes not how best to understand the social network, but how best to understand what new memes the society is ready to accept. It's really about market timing.
Consider:
"The aim of marketing is to know and understand the customer so well that the product or service fits him and sells itself." -- Peter Drucker
Philip Kotler: The most important tasks in marketing have to do with studying the market, segmenting it, targeting the groups you want to service, positioning yourself in the market, and creating a service that meets needs out there. Advertising and selling are afterthoughts. I don't want to minimize their importance. But you put it so well years ago when you shocked a number of people by saying that the aim of marketing is to make selling unnecessary.
What could marketing be if it isn't selling? The shortest definition I've heard is that it is finding needs and filling them. I would add that it produces positive value for both parties. The contrast between marketing and selling is whether you start with customers, or consumers, or groups you want to serve well -- that's marketing. If you start with a set of products you have, and want to push them out into any market you can find, that's selling.
(Update: I was amused to notice -- only after making this post -- that in the print edition of Fast Company, the advertisement which is located adjacent to the conclusion of this article features a quotation by Peter Drucker.)
A delicate condition - Fears of both recession and inflation
Topic: Business
9:44 pm EST, Jan 17, 2008
The world economy is increasingly powered by countries, such as China and India, whose growth is far more energy- and commodity-intensive than that of rich countries. This shift means that the usual relationship between America’s business cycle and commodity prices may change. Past American recessions have sent the price of oil and other resources down. That may no longer be so.
The rich world could easily face a prolonged period of weaker growth and persistent price pressure.
How much to worry depends on whether this combination affects people’s expectations of future inflation. Because central banks have earned a reputation as inflation fighters and people expect long-term inflation to remain low, price shocks -- even on the scale of the recent commodity-price surge -- need not translate into persistently higher inflation. Were workers and firms to expect higher inflation, and set wages and prices accordingly, central bankers would face a big problem.
The company that turned DVDs into a subscription service for millions of consumers said Monday that it no longer will put a cap on the number of hours its customers can view movies and TV shows over the Internet.
With all of these recent developments looking so promising, someone is going to have to break the news to Sony that all of this fuss over Blu-ray isn't going to matter in a year or two.
"Unlimited has always been a very powerful selling point with our subscribers and a large part of what set us apart in the marketplace," said Leslie Kilgore, the company's chief marketing officer. "In talking with members about our streaming feature during the past year, it became clear that, as with DVDs, the idea of streaming unlimited movies and TV episodes on a PC resonated quite strongly. And we're now in a good position to offer that."
'Goldilocks needs tax reform ... not root-canal economic populism'
Topic: Business
11:19 pm EST, Jan 5, 2008
Here's Larry Kudlow:
The key thing to remember is that businesses drive the economy. Businesses create jobs and incomes for consumers to spend. Today’s John Edwards/Mike Huckabee anti-business populism sounds more like William Jennings Bryan than Adam Smith. It’s absolutely crazy. They attack Wall Street and investors, which is another way of attacking capital. Without capital investment, there will be no new business, no new jobs, and no middle class.
... America is an optimistic country, and for the life of me I don’t know why the Republican presidential candidates can’t understand this.
I am no fan of the populists' spiel. But I recall this essay, from last year:
The belief that corporate power is the unique source of our problems is not the only idol we are subject to. There is an idol even in the language we use to account for our problems. Our primary dependence on the scientific language of “environment,” “ecology,” “diversity,” “habitat,” and “ecosystem” is a way of acknowledging the superiority of the very kind of rationality that serves not only the Sierra Club but corporate capitalism as well.
... Perhaps the most powerful way in which we conspire against ourselves is the simple fact that we have jobs. We are willingly part of a world designed for the convenience of what Shakespeare called "the visible God": money. When I say we have jobs, I mean that we find in them our home, our sense of being grounded in the world, grounded in a vast social and economic order. It is a spectacularly complex, even breathtaking, order, and it has two enormous and related problems. First, it seems to be largely responsible for the destruction of the natural world. Second, it has the strong tendency to reduce the human beings inhabiting it to two functions, working and consuming. It tends to hollow us out.
Amid all the fervor for Going Green this election year, what ever happened to Reduce?
Really, the best thing that we can do for the planet is to use less of it.
So, whose platform is that? The chatter about "energy independence" is code for farm subsidies. It's about domestic growth, perhaps to the detriment of foreign profit, but it's not as though OPEC would pump significantly less oil -- they just wouldn't earn quite so much for it. The developing world will pick up all the slack. Recall, from earlier this week:
