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December 29, 2008

Comments

James Drogan

Have you any recommendations for "...the rules of the road of the 21st Century global economy?"

The answer to this is, I think, what vexes many of us. It's a question which I have been thinking about for some time. Answers with which I am both comfortable and confident do not emerge.

Now perhaps this is because the knowledge, skills, and experiences required to fathom the complexities of the world is beyond me.

On the other hand, I do think I am a reasonably well-educated, well-read citizen. My view is that it is people like me that need to comprehend the issues and participate in their resolution.

This leads me to suggest that the basis for "the rules of the road of the 21st Century global economy" is an education of the body politic.

Chris Ward

I think there's a 'Rule of the Road' related to technology, and the difference between 'public' (Government) and 'private' (Business). It may come to the fore as the backwash of the $700B 'bail-out', which seems likely to cause a number of private businesses to fall into public hands.

It's noticeable that all US Government software is either 'secret' or 'free'. Here is NASA's pile http://www.nas.nasa.gov/Resources/Software/Open-Source/opensource.html . In neither case can you buy it; it's either 'unavailable' or 'available at no charge to everybody'.

At the other extreme, Microsoft make their money by selling cheap software by-the-copy; famously Windows and Office, but also video-games such as Age-of-Empires.

IBM fell off one rule-of-the-road and climbed on another when OS/2 saturated its market; I believe that instead of trying to sell 'authorisations to copy OS/2', IBM now tries to sell 'warranties for Linux' ... and Linux is, of course, free.

The body politic probably knows; after all, NASA is part of the 'body politic', and I presume Microsoft has people on payroll who lobby periodically.

But what will the body politic do ? And how will it change as the body politic takes direct ownership stakes in automobile manufacturers, banks, and whatever else falls out of the current crisis ?

I think it all has to do with competitiveness. And that's Darwin's speciality.

Jack Krupansky

Maybe the problem is simply that we had too many financial innovations that were running too far ahead of our ability to regulate them, regardless of whether it is government, industry, or the markets themselves who are doing the regulating.

Innovations can grow without regulation, but only as long as they do not become the "tail" that can "wag" the "dog" of the financial system. At that stage, regulation should become automatic and not a matter of ideological debate.

When growth of innovation continues unregulated beyond that stage, it should be no surprise that the system becomes compromised, regardless of the quality of the innovation.

I would suggest that the Federal Reserve should require banks to apply a discount to assets to reflect price movements that are significantly in excess of "historic norms" and also to discount asset prices for moderately deep recessions as well as global recessions which can impact all regions of a country.

This might have limited the amount of AAA-rated asset-backed securities that banks were holding and persuaded others that AAA does not mean risk-free.

Banks and other financial institutions need a solid foundation. Period. No "innovation" can eliminate that requirement.

Sure, we can certainly allow innovation in cash, money, capital, and credit without overly-intrusive government intervention, but stress testing for severe recessions must be a foundation requirement.

The Federal Reserve, FDIC, and other banking regulators must assure that stress testing is continuous, regardless of whether an asset is innovative or traditional.

Think of stress testing as "Darwin-light." Do it or you put yourself at risk of suffering from a "full Darwin" test in which failure means you do not survive. Simulate or perish!

-- Jack Krupansky

Michael Saunby

A very interesting post.

I've long had an interest in evolution, genes, and human behaviour. Certainly for longer than my interest in management, which seems to be almost zero these days.

Here are some other thoughts to consider. Not all young women wish to marry old men, even if they'd like to marry a powerful (these days wealthy) man. So they've probably evolved some useful strategies - useful for recruitment for example, as well as dating. They might choose to date the sons of wealthy families, or maybe there are other indicators of future wealth? For example women seem to like men with a sense of humour. Which does seem to be linked to intelligence.

Yes, a sense of justice is clearly present in many people. Past generations of my family have volunteered for military service, some have lost their lives. Medicine and law enforcement have also drawn some. None have shown any interest in becoming financial regulators, though many are very good with maths. So perhaps the structure of such employment doesn't create the right feel for people so inclined - it's just another job, not a career that a young person dreams of.

Perhaps the greatest warning for our species from the work of Darwin should be that human intelligence is no longer a survival trait. By that I mean that where a prey animal runs fast it's because there's a fast predator about (and vice-versa). There is no longer any competitor to humans that is similarly intelligent - we now stand alone competing only with each other.

Joe Metzger

The question of what "caused" the recent economic issues in the United States can surely be answered on several levels. I suspect that one could investigate the details and begin to build a map of the detailed events involved. But I think we can also benefit from simply recognizing one of the macro issues.

In the United States we are taught that a significant reason that the US has prospered has been that we have an economy based on capitalism and open markets. The assumption being that these ideals have built in safeguards and self regulation. For many years this seemed sufficient as local economies grew. First person to person, then city to city and state to state.

But now we have a "global economy". We may still practice capitalism and open markets in the United States but every year more and more of the global economy does not. The implication is that the safeguards and self regulation built into our economy are no longer sufficient.

This is evidenced in many ways including the existence of monopolies such as OPEC, corporations that are "too big" to be allowed to fail, business's that are global and no longer feel any social responsibility, record numbers of Americans underemployed or unemployed.

At the end of the day, the United States needs to acknowledge and comprehend that we are no longer protected by the safe guards built in to capitalism. I certainly do not suggest that we isolate ourselves from the rest of the world but we certainly do need to build safeguards that ensure we have an equal chance in the larger/global economy.

To bring this full circle, it is clear that some of the implications of this issue have been major contributors to our current economic situation. Fuel prices driven upward by monoplies, whole industries moving to other countries driving umemployment higher and consumer confidence lower, large corporations no longer considering the impact of their decisions on individual countries and the erosion of the American workers ability to protect themselves from corporate excesses.

We can certainly improve the appearance of the current situation by artifical manipulation (stimulus packages, bailouts, etc) but we will never be healthy again until we address these underlying issues.

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