We expect our presidents to be a cross between Superman, Moses, Mohammad, and Jesus. And we have an almost cartoonish conception of their ability to get the rest of America’s institutions to go along with their views. The president’s power, as Richard Neustadt famously argued, is the power to persuade. But circumstances for that persuasion must be present — and most of the time, they’re not.
The emphasis upon entrepreneurship as the crucial factor in capitalistic evolution involves both theorist and historian in considerations that go far beyond the limits of economics. Schumpeter is explicitly aware of this fact, and insists that in his conception the economy is not isolated but functions in a larger universe which requires in the first instance sociological analysis for its interpretation. The theory of innovations is neither a “great man” nor a “better mousetrap” theory of history. The innovator is a person whose traits are in some part a function of his sociocultural environment. His innovation is a new combination of factors and elements already accessible. It relates in every phase to previously developed business and monetary habits, technological skills, and variable tastes, none of which can be regarded as functions of economic activity alone.
I met a group of Google employees in their early twenties, beneficiaries of the country’s most elite educational institutions, now applying their sharp minds to the investigation of multiple concurrent relationships. They all did yoga, were extremely attractive, and accompanied their sexual experimentation with controlled consumption of psilocybin mushrooms and MDMA. They spoke of primary and secondary relationships, and described a world in which jealousy and possessiveness were the sins to overcome. I attended the cult-like meetings of a group of people who have devoted themselves to the female orgasm. After a “game” at one meeting, where I stood directly in front of a male stranger who looked in my eyes and repeatedly demanded answers to the question “WHAT DO YOU DESIRE?” for several minutes, I went home, drank almost a full bottle of wine, and wept.
Again, it is important to underscore that it is the indirect psychological effects from Fed support and the low cost of capital—not the popularly imagined injection of Fed liquidity into stock markets—that have gotten investors to mobilize their idle cash from money market accounts, increase margin, and take financial risk. It is our money, not the Fed’s, that’s driving this rally. Ironically, if we all understood monetary policy better, the Fed’s policies would be working far less well. Thank God for small favors.
We’re all, to varying degrees, slaves to our experiences. The [titans of finance’s] formative experiences, almost to a man, were in the early 80s. This is when they built their knowledge and assembled their financial playbooks. They learned words like Milton Freidman, money multiplier, Paul Volcker, Ronald Reagan, and the superneutrality of money. Above all, they internalized one dictum: real men have hard money. This understanding implies that an increase in bank reserves deposited at the Fed (i.e. “printing”) eventually feeds credit growth and thereby inflationary pressures; in other words, no base money increase, no credit growth. Only one problem: reality disagrees.
Whenever I hear people crow about how Bitcoin is “immune from manipulation,” I sigh and wish the Fed could actually do the things so many think it already does…
Imagine two variants of Uber:
- hail via smartphone app
- pay by swiping a credit card from your wallet
- hail by calling an operator
- pay “touchlessly” with a saved credit card
Which would you rather own? What does that tell you?
Markets allocate resources, but governments structure markets.
For more on this concept, check out Reinventing the Bazaar by John McMillan.
In other words, much of the “missing” gdp [driven by an 11.5% drop-off in military spending] — whatever its long-term geopolitical value for foreigners — was not creating actual, consumer-relevant value for the United States. Putting back that military spending would pump the gdp number back up, but that is distinct from the economy improving. Fetishizing gdp makes the least sense when it comes to military spending, and it is remarkable how few media accounts recognize this point in even a partial fashion.
The rational agent model has more questionable consequences in the domain of policy [vs. economics] because the assumption that individuals are rational in the pursuit of their interests has an ideological coloring and policy implications that many would view as unfortunate. If individuals are rational, there is no need to protect them against their own choices. At the extreme, no need for Social Security or for laws that compel motorcycle riders to wear helmets. It is not an accident that the department of economics at Chicago University, one of the most illustrious in the world, is known both for its adherence to a strict version of the rational actor model and for very conservative politics.
Silly headline. Nice interview. It’s interesting how in the search for pithy takeaways we’re almost triumphantly enthusiastic about discarding nuance.