People are ridiculous. Folks are panicking because they suddenly realize they didn’t consider the obvious facts about the serious, deep, underlying problems in the U.S. financial industry.
It’s funny to think that people could have overlooked the possibility that something could go wrong with a massive system of interconnected, automated, poorly understood financial instruments and transactions, the viability of which was predicated on the assumption that real estate will perpetually boom. And it doesn’t require much expertise to think twice about the assumption of a perpetual housing boom when you consider that an unprecedented number of people already owned homes, and many of those were purchased in a market already heavily incentivized by low interest rates, alluring mortgages, and aggressive marketing, amidst a culture of consumption in which Americans on average spent more than they earned year-after-year.
As house prices went up, the cost of knowledge went down, foremost because the prosperous years since the last recession opened up new channels of information online.
Someone with curiosity like mine could start with articles and essays published online for free by the mainstream media, locate the most important ideas and arguments – by searching for the most recent on Google Scholar, as well as the old classics on Project Gutenburg — while getting a sense of the a discipline’s culture by evesdropping on their forums and online conversations.
Then there are the big book retailers and their liberal in-store reading policies that make it feasible to read enough of a book to extract the main points and references without buying it or having to wait for a library copy to become available.
And no, the waits at the library have not been long. Most people have been too busy trying to get ahead financially, spending too much time and attention at work, trying to add qualifications to their résumés. We joke that it’s a rat race. The better metaphor is that it’s an expensive arms race: the more you build up, the more everyone else will try to get ahead, which makes it even more expensive just to keep up.
Another metaphor is a crowded market — a “red ocean,” as described in Blue Ocean Strategy. The career market is croweded with sharks; even great talent and effort may produce a poor return on investment. A much more profitable and sustainable “strategic move” is to create an open “blue ocean” with no competitors.
But the notion of a “career market” doesn’t go deep enough. It’s more instructive to consider wealth itself as a distinct commodity, the relative value of which goes up and down periodically.
We pay for wealth with our time and attention (or perhaps ‘time of attention’ is more precise). Money is but one currency (albeit the standard one) with which we measure and exchange the value of our time. In these terms, the ‘cost of wealth’ stays the same — as it is the standard currency by which everything else is measured – but other currencies (such as knowledge and friendship) can go up and down, thus affecting the relative cost of wealth.
Knowledge and friendship have been absurdly cheap for a few years. I initially meant that as a shorthand metaphor, but then as I thought about the things like Wikipedia and Facebook have quite literally cheapened knowledge and friendship into pocket change, in many cases.
Simply put, at any point in the past 5 years, if you wanted knowledge, you could just go ahead and get it without many barriers beyond one’s own control. Of course a sustainable body of knowledge takes years to build up, but you’re unlikely to find challengers fighting over the sources of knowledge the way people compete over sources and vehicles of financial wealth.
The greatest hindrance to building knowledge is insufficient time and attention. All of the little thoughts in the course of a day add up: “How can I get a raise?… How much can I save if I negotiate a lower interest rate?… What kind of faucet should I install in the new bathroom?… How much will my car be worth if I trade it in?… When’s the best time to book a flight?… When can I comfortably retire?… Can I afford a bigger TV?…”
Those concerns use up precious time and attention that could otherwise be spent on concerns like, “How do we know house prices will continue to rise?… What are we risking by making that assumption?… What are the underlying weaknesses of our system?… Why are we justified saying our age is different from any other?… Are we justified not looking at history at all?… If we do look at history, what episodes are the most relevant to our time?… Where else can we find insight to help us understand these problems?… What else do we need to learn?… How have we changed the way we look at the world?… How have we changed the world?… What opportunities have we created with this new environment?…”
You could look at it the other way around, of course — that the latter set of questions occupy precious time that could be spent on more practical concerns — but as we are witnessing, the former set are largely dependent on the latter being properly addressed (kind of a ‘hierarchy of cognitive needs’), and my argument isn’t that everybody should think about the big questions, but simply that it isn’t any more wrong to focus on the latter than on the former, and at least some people need to invest in the latter.
Two years ago anyone asking those big questions would have been ridiculed. You might say their demand was at an all-time low. Today those questions are printed daily on the front pages of every major newspaper around the world.
You’d be right to wonder what kind of profit I’m making now that my currency is in such high demand. In terms of wealth, I’m not making anything yet. In terms of time and attention — far more fundamental resources – my investment is now at the point of covering its own costs of continued growth, and I’m still enjoying increasing returns.
The kind of questions I’ve been asking for the past eight years – “What are the underlying weaknesses of our system?… Why are we justified saying our age is different from any other?… How have we changed the way we look at the world?… How have we changed the world?… What opportunities have we created?…” — are now occupying people’s minds at a huge cost they can’t afford to pay.
The people who are abandoning their homes and most of their possessions in a mad rush are actually being crushed by intellectual poverty as much as financial losses (read my essay, The New Pragmatist). Everything they thought they ‘knew’ is gone. People who didn’t stretch their finances to ‘buy’ an oversized home can still try their luck on the stock market — and “try their luck” is more apt than ever, as markets no longer reflect real information but are purely volatile and irrational, with uncertainty reinforcing and perpetuating itself.
When I wrote my first essay last August, when I discussed the importance of “investing in ideas,” I cited Warren Buffett as an exemplar. Wow, am I glad that I did. Buffett, who saw this coming and saved his cash, is now grabbing huge chunks of companies at bargain prices (well, it still remains to be seen if the latest transactions will be profitable).
My words demonstrate in a very concrete way how “intellectual investment” works. I committed myself to an idea in writing, I took a risk attaching my name to it — owning it, buying into it — and now that risk is paying off by: the valid prediction is a real result that demonstrates the quality of my thinking and can be reinvested to generate even more insight.
If the value of my investment still isn’t apparent, consider my list of questions agian — “What are the underlying weaknesses of our system?… Why are we justified saying our age is different from any other?… Are we justified not looking at history at all?… If we do look at history, what episodes are the most relevant to our time?… Where else can we find insight to help us understand these problems?… What else do we need to learn?… How have we changed the way we look at the world?… How have we changed the world?…”
Despite all of the panicking and uncertainty — at the exact moment that everybody is asking those questions — they don’t occupy my mind anymore. Not only have I already thought about them and answered them (several times over), but events from the past few months have actually confirmed and validated my answers to the degree that I don’t have to think about them at all, which frees my attention for the next level of concerns:
What opportunities have we created… what can we create to work, learn, and live even better than we have before?
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