Hype vrs. Anti-Hype

Commentary on
UpSideDown Economics

What Is Wrong With This Picture?

A recent article in The Standard (February 5, 2001) profiled the cut backs at Amazon.com. Amazon will be profitable by the 4th quarter but is now being criticized for no longer being a growth oriented company. It seems Amazon will enjoy a “dismal” 20 to 30 percent growth this year and this is no longer interesting to a jaded market. It is being called the end of the e-retail revolution - or at least Amazon’s leadership of it.

Amazon will reach 3.4 to 3.6 billion this year - this from scratch a few years back. Was a time when an accomplishment like this would have been applauded. Five years ago the question on the street was if people would really buy on line. Seems like a revolution to me.

In over 50 years of watching the US economy, this is the first time I have seen people offended because they discovered that getting rich with out thinking or effort is not a sacred right.

The DOT whatever is a tale of HYPE and ANTI-HYPE. It became a gold rush with no purpose or dignity and now is a whimper with the analysts presiding over the Freudian couches. You can’t have it both ways from Sunday but many are still trying.

All of this, of course, stems from the totally false assumption that the purpose of business is to make money. In particular, to make money for absentee landlords of passive capital. Until this UpSideDown premise is righted, market dynamics will continue to wildly swing the foolish between godlike arrogance and them despairing the end of the world.

How about this idea? Business is about creating, marketing and servicing GOODS. Goods as in good-for-you. These goods are provided by people who are passionate about what they do. Passionate, not impassioned about seeing how rich they can get in three years. They build their organizations to be ValueWeb enterprises which serve, equally, the investor, user (customer/buyer) and producer. These are stable enterprises managed as a commons should be - not as egocentric expressions of who is on top this week. They create WEALTH. They do not destroy people or the environment in the process of doing so - people are happy, Gaia is happy, LIFE is the dominate principle. Those that make the truly great hacks get recognition and a fair share of the earnings. Everyone is respected.

Sounds crazy? It is what is going on today that is crazy. If a single individual acted the way our “economy” does (us collectively) they would be judged clinically insane by the standards of modern psychiatry. If we saw animals doing the equivalent imagine what we would say. We would call it brutish, dumb, tooth and claw, lemming-like and bent on self-destruction.

First off, someone comes up with some neat ideas which almost everyone ignores or declares not useful. Then, there is a breakthrough of some sort and the utility of the new thing is demonstrated. One of the gatekeepers who controls access to the financial citadel expresses interest. Then, all common sense is thrown to the wind. 10,000 years of human history is ignored. The keepers of the system find out they can make tons of bucks by lending their name to any jackass idea that comes along. Things really get manic. A giant positive feedback loop roars into motion. IPO after IPO each more outrageous than the last. Basic businesses cannot compete for capital because it is so easy to get rich in the new “economy.” Hype on hype as fortunes are “made” overnight. The new Gurus are godlike as everyone sits at their feet believing their every utterance about anything and everything. People who just go out and make useful things for a decent profit are ignored. On it goes until one day this manic-depressive trip comes crashing down on the rocks of reality. The very same people who cheered on the excess now become wolves. Budgets are slashed, people are laid off, and an entire economy goes into chaos. Some get out with a lot a cash. Many are left holding the bag of their delusions. Already, the hunt is on for the next BIG thing...

Companies with real potential get junked along with the trash. Management Teams struggle to redefine their strategy and read the tea leaves of the “disappointed” market analysts. A few people in each sector, who do not invent, create nothing, have nothing at stake and are beholding to no one exercising enormous power - the power to take 30% from a companie’s value in one day. A value they were in large part responsible for making in the first place. Both “values” cannot be right - not from one day to the next, even a quarter apart.

Folks, there is a name for this behavior. Fortunately, it couldn’t happen here - not to us, surly. No harm done, I guess, as long as we see it as a game on the level of Monday Night Football. However, if we believe in it... Anyway, it is just the peasants who lose their job, what do they count? The smart money gets out. Naturally. The market just churned one more time pouring billions into a few hands while opening the doors to some new comers who get to join the ranks of the financial elite. Where is the economy “for the rest of us?”

Is this what you want your life to be about?

Don’t get me wrong, by the way, I totally believe in free enterprise. Regulation is not an answer. I just point out there are choices in how we use this tool. I also point out that when the keepers of the system get in the game this is not only a breach of fiduciary duty it quickly destabilizes the system itself to an inevitable result. You might ask yourself just how free is this economy. Ever try to do an IPO on your own?

When something like the recent dot bubble burst happens look closely at who benefits.

Tulips anyone?

thanksgiving

10 year update:

As I write this it is Thanksgiving morning, 2010. Tomorrow, starting at 4:00 AM for some stores, will start the advertising and media hype known as “Black Friday” - the day the “economy” so much depends on. I remember just a few Christmas (?) seasons back the question being asked in serious financial magazines was “if the U.S. consumer would be able to continue carrying the world economy.” An outrageous question which has been answered in the specific but not the general. Note that almost all establishment commentary about the present economy is how we are going to get it “back” with the two parties offering variations on the same thing, pretending there is a difference, while the media “reports” on it all as if it were the coming Super Bowl. Who will win? Does it matter?

You may notice that we are in our seventh quarter of growth yet the “jobs” are not returning. The growth rate is now about 2.5 percent, “sluggish” according to some, “still feels like a recession” to others.

Yet there is little dialog about the structure of this economy. Have we established the conditions necessary for a solid, sustainable economy? What will be the consequenses of another steep growth curve? What is the doubling rate of 2.5 percent? How is it that a “free economy” produced the result that 1 percent of Americans take home 24 percent of the income and the average CEO pay is 531 times that of an average worker? Is this how “the market” really voted? How do you rate the U.S. infrastructure and education system? Were people really happy and healthy with the McMansions, four cars and the pharmaceuticals?

How does this “economy” come back? By another bubble, I am afraid. Is there, structurally in the short term, another way? And, if it does come back, what are the long term economic/ecological consequenses? What are the consequenses of another bubble burst?

Notice that the Bubbles are getting bigger, coming faster and ejecting more and more people out of the game. In Cybernetics this is called a positive feedback loop. The power supply of the simplest piece of equipment you own would not be designed this way yet your economy is. You would not buy another such power supply. Will you by bubble version 8.5?

Thanksgiving, before it became commerce, was a day of reflection, thankfulness and community celebration. It was to acknowledge harvest productivity, God-Nature, and some first citizens who lent a critical helping hand at a desperate moment. The good story had a dark side given the reports of people drinking and eating then vomiting so they could drink and eat some more. And, there is the issue of the genocide that followed. This is clearly a case where the myth about the time is better than the reality. Maybe we can recreate and live up to the vision.

A recession is a drop in a few percentage points of growth. In this recent “worst experience since the Great Depression” we actually had negative growth for a short period of time. Who designed a system this fragile? If you think that Boeing would craft the control system of one of their airplanes in this way, I suggest you walk home from your family Thanksgiving dinner. It will be safer. And, that is what I think we should do - walk home.

One of the advantages of a slow time is that we can slow down - like the winter times of old. I think we have enough wealth left that we can reasonably re-sort things a bit and create a space for everyone at the table. This can release a great deal of now wasted genius, productivity and innovation - the seeds of our future wealth. We can think things through a bit before trying to get back to a system that has demonstrated its evolutionary unfitness. Time to take a breath and honor what we have accomplished which is a great deal. Face the mistakes we have made which are many. Dialog and collaborate with one another and design a future we want rather than a default version of a dying era.

Sounds like fun to me and it goes real well with turkey. We really do have a lot to be thankful for.