Okay, last post for a while on the economy. Macroeconomics fascinates me, mainly because I think it’s about as well-developed as psychohistory, so Monday morning quarterbacking is possible as in no other discipline. But other commentators comment better; if you’re really interested, you’ve found them. This post is simply a long rant aimed at getting it all out of my system so I can go back to prognosticating on marketing.
I have been told there are four virtues: compassion, joy, friendliness and equinamity. Of these, I suppose only equinamity comes naturally to me. Maybe that’s why finger-pointing over the current mess seems so completely uninteresting.
If Wall Street borrowed too much and made too risky bets with their money, then they committed the same sins that Main Street does. Complaining that they were well paid to make these mistakes merely points out their customers rewarded those who made these common errors–something that can hardly be blamed on the bankers themselves. Saying, on the other hand, that they were professionals and should have known better shows, in my opinion, a certain lack of self-awareness.
I think Wall Street should have known better. I think everyone should know better. I think anyone who handles money at any point in their life should be taught this:
There’s No Free Lunch.
1. If you’re borrowing money, you have come under the watchful eye of someone who but for the sake of the law would break your knees as an object lesson, or just for fun. Borrowing money–including using (or even applying for) a credit card or getting a mortgage or a student loan–is a big deal. A BIG deal. You would think that as a movie-going nation we would understand the dire consequences of falling behind on paying off a debt (Get Shorty, American Gangster, The Big Lebowski… need I go on?). Borrowing money is a bad idea. But borrowing money is also a good idea. Buying a car or home or college degree costs more than almost anyone can afford to pay all at once. And, since you use your purchase over the course of time, paying for it over the course of time makes sense. So, good idea, bad idea, what to do? Approach borrowing with the same legal firepower and accounting self-knowledge that you would when making a deal with the devil. And the same expectation that, even if you’ve thoroughly done the legal and accounting thing, you’re probably about to be totally screwed in a completely unforeseen way. (If you haven’t done the legal and accounting thing, you’ll be totally screwed in a completely mundane way.)
2. I referenced a graph last week showing the growth in per-capita GDP. It’s 1.8% a year; not year-in, year-out, but over any medium-term period of time. If you’re investing money and expect to earn more than 1.8% a year before tax, ask yourself why you deserve that. Why do you deserve it? What did you do to earn it? You’re probably investing in the US economy, which grows at 1.8% per year per person. Why would your investment grow more than that? If you’re thinking of buying shares of some stock, are you going to earn more than 1.8% because you are smarter than the scores of people who spend 147 hours a week, 51 weeks a year relentlessly investigating and modelling nothing but that particular stock? Or are you planning to contribute your brainpower and sweat to making the recipient of your investment more successful? If not, then why do you deserve a better return than 1.8% per year, before tax? You know what you do to deserve it? You take a chance. You take some risk. This is a good thing… a wonderful thing. It could be viewed as a joyousness about humanity’s potential, a friendliness to your fellow strivers, or compassion for someone trying to lift themselves up. But it shouldn’t be. It should be viewed as a bet on red. So next time black comes up, please don’t whine.