Friday, October 10, 2008

"The Age of Turbulence"

At the recommendation of a good friend, Daniel Rovey, I'm reading The Age of Turbulence by Alan Greenspan.

I still have a lot more to read, but a few things have already started sink in. The first is that this truly is an age of "turbulence". Other things:

We've already tried that...

Hearing a lot of talk about regulating financial companies these days? Though I wasn't around, supposedly in the early 70's the country was facing double-digit inflation and high unemployment, which was supposedly a new phenomenon (which they labeled "stagflation").

Everyone (including President Ford) came to the conclusion that overregulation was *causing* the problems, and that the industries needed to be deregulated. They were, and it worked. The economy started growing again.

(It would've continued, except it was an election year, and the pundits and press claimed the steady growth had stalled [which it hadn't, according to Greenspan] and somehow blamed it on Ford, who then lost the election.)

Bottom line: We were already "regulated", and it caused bigger problems than we have now.

Stunning to me how often through history we have cycled from one extreme to the other on policy (corporate regulation, foreign interventions, farm policy, etc.), when reason simply encourages us to stay carefully in the "middle".

If businesses aren't failing, it's not capitalism

Mr. Greenspan brings up several times the concept of "creative destruction" -- that the strength and beauty of capitalism is that only the creative and successful succeed in business, and they're the ones who do things better and more efficiently than the other guys. Those who can't keep up or adapt are forced out, and their resources are redistributed so others can have a chance.

That process results in better products coming to us cheaper, and innovation being encouraged and rewarded.

If we bail out the losers with public tax-dollars, what are we rewarding then? Bloat and sloth.

Let them fail and open up the market so others can step in and do better.


Economies are like plants, growing too fast is a recipe for disaster. Just like my bradford pear trees that were originally planted because they grow fast, economies that grow too fast don't have the stability needed to weather the storms.

As a rule of thumb, Greenspan seems to point to mid-to-high single digits as a sustainable rate of growth for an economy.

(Maybe a good level to shoot for on your personal investments too? As an aside, I sold my Apple stock at the beginning of June -- check it out today. My 401k isn't faring as well, I'm down 20% in just the last few months.)

Doing the right things right.

In life, it's not enough just to do the right things. You have to do the right things right.

If I get a flat tire, changing it is the right thing to do. However if I forget to tighten the lug nuts, my day's going to get a lot worse. I did the right thing, but I did it *wrong*.

We don't always know what the right things are, though, so we look at the outcomes. If the outcome is bad, we often assume that we did the wrong thing -- but all too often we have done the *right* thing, but we have done it *wrong*.

Buying a new house for most people is a "right" choice. Buying a house that costs more than a third of their gross income is doing it wrong.

We need to bailout, but we need to do it right.

We need to regulate, but we need to do it right.

We need to change some things in Washington, but we need to change them right.

I certainly don't know how to do these things right -- one of many reasons I'm not running for President -- but I hope the guy who does has some pretty good ideas. At this point, though, I'm not convinced that either of our candidates knows how to do any of this stuff right.

But I am pretty sure the solutions of one will be much farther from *dead wrong* than the other's.

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Does anyone read this thing?

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