Friday, September 19, 2008

Why hippies shouldn't make economic policy

After my men's group meeting last night, I was chatting with a few of the guys. The recent market turmoil came up.

I really haven't got a fully formed decisive opinion on courses of action. I'm rather torn. I'm generally for free markets, and minimal regulation and interference. I think financial industry forrest fires are good, and clean out that which needs burning. But I recognize that the momentum in such events can take out companies that don't really deserve to go under, and that massive failures trigger more fear which triggers behavior that triggers more failures. The vicious cycle of human irrationality needs to be stopped. I accept some government intervention, even though I wish it wouldn't happen: Let firms fold, let credit tighten, let interest rates rocket, let purchasing power drop, let prices drop. Eventually, the prudent people who patiently saved on the sidelines, refusing to participate in the orgy of greed and madness, will step in and buy and fare well. But that'd suck for all the boomers looking to retire who see their home's value cut in half right when they were about to sell and buy a condo in Florida. Of course, that's their fault for not hedging their home's value.

So, yeah, I've not got a firm opinion yet on right action in the crisis. But we were chatting. I said we'd end up with some new rules coming out of all of this.

One of the guys asked "Are you familiar with the 'derivatives' market?"

He said 'derivatives' as if it were a word from an exotic foreign language, and that merely knowing this word implied a special knowledge.

He continued "I feel this is all because of the 'derivatives' and we should get rid of them."

I was rather stunned. This is like someone saying "This forrest fire is all because of 'oxygen', and we should get rid of it." While there's some truth in it, yes, fires do need oxygen, and with no oxygen, there'd be no fires, it'd also be catastrophically harmful, and earnestly voicing the idea requires a profound ignorance of the vitality of oxygen for the functioning of all life on Earth.

I shouldn't have been too surprised, though. This is the guy who (and I'm not making any of this up) is making a go at a career as an 'energy worker' and thinks he has special powers that let him 'manipulate energy' and is trying to sell this new age voodoo bullshit at various hippie conventions full of others who've never had one skeptical, empirical thought in their lives. He also does "breath work" and literally wants to charge money for breathing lessons.

I'm all good on the breathing, thanks. I seem to be doing okay there, as evidenced by the fact that I am not dead.

So Mr. breathing lessons wants to ban all derivatives. Awesome. So no more locking in costs/ revenues through futures. Instead, we all pays our money, and we all spins the wheel, and we all takes our chances. Good times!

Airlines now get exposed to even more fuel price risk and must specialize not only in moving planes around, but buying and selling fuel. Farmers just get what they can for their crops on market day, no agreeing to a price before the date of sale. That'll help those family farms! Banks that lend you money for a home have to wait 30 years to get paid back, which means their limited supply of money gets spread over the same demand for it, so it'll cost more, so interest rates will go up. Good luck buying a home without mortgage-backed securities. But don't worry, tightening of credit will kill purchasing power, crushing home prices, so you'll still be able to afford it, it'll just be worth a lot less.

Have fun when oranges prices are 30 cents a pound, then $10 a pound, then $4 a pound. Or the prices of any food product made from corn, or wheat, for that matter show similar levels of stability. Yes, let's have everyone who owns anything with any risk attached to it have to own and manage all that risk themselves. That way, we get to pay for not only the product, but all the price risks that go along with the product. Because it's fun to pay more, and to take on more risks at the same time. Plus, shopping becomes an adventure. I wonder what bread will cost this week?

Goddam hippies.