Wednesday, August 31, 2011

the dismal science

finally watched a fantastic movie the other day: inside job, the oscar-winning best documentary of 2010, about the financial system crash that led to our recent great recession.

let's face it, most of the time beating up on economics or economists - even when i do it - feels a bit like kicking some poor old guy collapsed on the street. it's too damn easy, right? there are so many things wrong with economics and with the way it's used.

but economics survives as a discipline in large part because it is, ultimately, really freaking useful. not just the supply and demand, invisible hand type of things. these are just some applications of economic thought that, as they were being developed, were shaped by the personalities and the times of the people who developed them. sometimes these ideas stand the test of time, sometimes they don't. but that's not what economics is.

at it's very core, economics is a framework for understanding decision making, that works best on an individual level. and decision making is all about incentives. that's what was so great about the movie inside job. although in many ways the movie spent a fair bit of time bashing economists - particularly academic economists - they (we?) were redeemed by the presence of a few who never forgot what the discipline is all about: incentives.

markets are not systems that inherently drive themselves towards stability - something that people often forget. it's part of the base theory of economics that, over time, actors acting in their own interest will produce some outcomes that are stable - in the sense that, say, supply and demand will intersect at an appropriate price. but that is only if the incentives are correct and the actors are bit players. in the late 2000s, while most analysts and academics were all blinded by their own bed-sharing interests, a few clear-headed people looked at the system in place and could see where it was headed. could see that the rhetoric defending derivatives markets and other shady, unregulated financial services industry concepts was flawed.

for example, in 2005, raghuram rajan, the chief economist for IMF at the time, delivered a paper that clearly predicted that the crash would happen. he could see that the short-term incentives at play for the agents controlling the system were such that a crash was inevitable - and that, in fact, there was nothing that would stop it from happening.

or nouriel roubini, an economics professor who predicted a crisis as early as 2006, and was disparagingly referred to as 'Dr. Doom' for it. 

or charles morris, who delivered a book about an impending crisis to his publisher in late 2007. published in 2008, the trillion dollar meltdown erred only in underestimating the final cost we'd bear thanks to the financial market shenanigans then occurring.

anyway. a long time ago i had a post in mind bashing micro-economics to follow my earlier macro-economics bashing. it was one of those posts that formed in my head in the middle of the night and was dazzlingly clear and brilliant then that faded away come morning, but nonetheless, it's been sort of sitting on the back burner since then. i've been feeling very grouchy for the past two years about economics - seeing all that was wrong in it, seeing all that is flawed in the fundamentals of it.

oddly enough, watching inside job re-energized me slightly. because, while economics gave us the justification for actions that completely fucked a previously stable system, it also gave us - well, gave some people, anyway - the tools to be able to clearly see where we were headed. it's a powerful field, if we just remember to remove ourselves and our own incentives from our analysis of it. easier said than done, i realize that, but essential, if we want to recapture what's good about economics from what's dismal.

in other news, it would appear that i am the deloach distinguished graduate fellow in economics this coming year. which means, yep, they failed to kick me out of the program, again. oh well. they will surely wise up soon enough and send me packing. until then, it's good to head into the new year feeling slightly warmer towards my chosen field of study.

Sunday, August 21, 2011

and so goes twenty years...

i just got back from my 20-year high school reunion.

what an adventure.

i was a bit nervous - and worried - i admit it. i've changed somewhat, in what people see. i'm not nearly as skinny as i used to be, for starters. i was worried that people wouldn't recognize me, and i'd see it in their eyes as they searched for my name: "...(ohmygod-she's gained so much weight-who was she when she was thin)...oh hi, yes, of course!" but that didn't happen. or at least, not that i noticed. (i did, of course, go straight to bed and dream that it happened, that i showed up in my old black leather motorcycle jacket that i used to stomp around the halls in and someone grabbed my arm, saying 'boy, you've filled out, haven't you?' seriously, what a waste of a perfectly good dream-time, right?)

but at the reunion, one of the first conversations i had with old friends - and i mean OLD friends, like this was a group of people that i went to kindergarten with and went on family vacations with and went to junior high dances with and skipped class with in high school and saw again on our kids' first day of kindergarten - was somehow sort of telling.

"we're all sort of the same, you know?" said one friend.

i said, "you mean, deep down inside, we all have the same dreams and goals as each other?"

the group around the table laughed. "no," said the speaker, "i mean we're all the same, at the core, as we were back then."

the beauty of that few hours, for me, is that both interpretations of that were true. we were all the same - in our deepest core - as we once were. which means that all that striving and trying during those angst-filled years was for naught - and that we are nothing more or less than we always have been, for better or for worse.

but also, the other - at the end of the day, we are all the same. we were all there laughing together and remembering things and talking about struggles with kids and some of us divorced and some of us never married and some with many kids and some with no kids but there was a piece of us that was all the same - this piece that is the product of our place, our time, ourselves and each other - a mysterious alchemy of personality and environment that affected us all.

when i got home today, i dug out my senior yearbook. in one section we had been asked the standard sort of cheesy yearbook sound-bite question: where will you be in five years? and i didn't really have to look up my answer - i remember its general gist quite clearly - but i did anyway, and was struck for the first time just how still completely true it still was (note in particular the misuse of the word "hopefully"):

"MINDY CRANDALL: 'Hopefully I will be driving around the U.S. looking at everything and listening to everyone.' "

well, for fuck's sake. that's just who i am. i have no real higher goal, no loftier aspirations now, no matter what i dabbled with or proclaimed over the past 20 years. i am who i am, and always have been, no matter what shell i'm wrapped in, no matter where i am or what i'm doing, i'm still the same person that these people knew - and somewhat grudgingly accepted - all those years ago.

and that, my friends, is a pretty fucking sweet feeling. it is, in fact, what going home is all about.