Tick Talk

by Ren Richardson

(I promised Brian that my first entry here would be about the lessons my Scout Master taught me when comparison shopping for, uh, strumpets….but I thought I should enter the forum with more decorum.)

An economic climate like the current spurs a lot of people to draws parallels to other bearish times and, for even the moderately literate in financial history, there is little trouble in bringing them immediately to mind. Going backwards, we can point to 2001-02, 1998, 1987, 1981-82, 1974, 1929-37, 1907. Some of these episodes affected the financial markets far more than the economy (1998, 1987) while others had deep and long-lasting effects on both the broad economy and the markets. But what is interesting is that in over 100 years, we have had 5-8 significant disruptions to our economy, depending on your definition. If the current crisis develops into something comparable to the Great Depression, we will have had 2 very serious economic periods that could rightly be called ruinous. Not to diminish their severity but how many of us see 2 such instances in over a century of economic activity as an extraordinary triumph?

In this environment, what I believe is more worrisome is our expectation that financial crises can and ought to be eradicated. Whether attempted through free market channels or government intervention, the attempt to suppress the business cycle – or what we might more appropriately call inevitable effects of human economic activity – is the real failure. Just like in modern medicine’s infancy (and even today), often the cure we insist on taking makes our malady far worse than it would have been had we let our own immune system do its job. We stubbornly believe that the intervention of a cure must have beneficial properties because we intended it to be that way. We therefore don’t even bother to look empirically at our alternatives and let the evidence guide us. So when the first set of intervention fails, we intervene again and again to repair its consequences.

Thinking that we can manage financial crises out of existence is an expectation that has no empirical grounds. What country, what population, what economic system has ever seen continuous growth with no halts to its prosperity? I put that question as blithely as I can. Take it further: outside of our own, how many countries or eras have not experienced drastic and crippling economic climates with regular frequency? It is no stretch to say that the large majority of cultures we can survey in history have struggled economically and have found prosperous periods to be more the exception than the rule.

Ironically, it is the very affluence that our economy has generated over the last 200 years that has spun off these unrealistic expectations as an unfortunate side effect. The better and more efficient our economy has become at raising our living standards the more we expect what has been, from a long historical perspective, nothing short of stunning. We anticipate the rare and exceptional as a matter of course. We see the miraculous as an entitlement. Any member of the human race belonging to an era other than this most recent who witnessed the kind of prosperity to which we have become accustomed would be dumbfounded. And equally dumbfounded by our lack of perspective.

In the end, we can analyze the causes of this crisis until doomsday. Our differences lay not so much in our interpretations of the analysis as in our philosophical outlook. It is a difference between the Tragic Vision and the Utopian Vision, to borrow Thomas Sowell/Steven Pinker’s portrayal. 

The Utopian Vision looks at what went wrong; it asks what needs to be done to prevent such crises from ever happening again; it implicitly assumes that we can permanently correct our present situation if we take the aim seriously enough; and it fully believes that we can ensure a future without similar financial crises. The Tragic Vision (in the ancient Greek sense of Tragedy) looks at what went wrong balanced in the scales of what goes right; it assumes that correcting what is wrong often comes at the expense of what is going well; it asks how to temper what is wrong, not how to eradicate it; and it explicitly assumes that crises and disasters will always be a part of our future - because humanity and the human condition will always be a part of our future (my title, by the way, is adopted from a famous quote by Kant). To the Tragic Vision, victories come in small packages. But small wins that have real impacts on our future are preferable to grandiose plans that have no impact at best, and at worst can bring devastation in its own right. Just like the cure.