Tuesday, February 12, 2008

We Don't Know What We're Doing - Part II

I just finished reading a book called The Ingenuity Gap by Thomas Homer-Dixon His basic premise is that things are very complicated and we don't know what we're doing. In the previous post, I wrote about the grand experiment on our planet - considerably risky since we have so little knowledge of the ramifications of our actions. Today however, I would like to discuss economics.

First, the “market” is not a force of nature. It’s a man made concept. It seems obvious, but to hear free market advocates talk about it, one might think it’s as natural and inevitable as the weather.

Do the “experts” really know what the heck is going on? These experts – financial analysts, media stars on CNBC, get paid a lot of money because they supposedly have insight and analytical skills that allow them to predict what the market, and elements of the market, will do.

The expert’s track record indicates one of two things to me: either they are grossly incompetent or corrupt. Let’s consider three relatively recent large economic events: the 1997 Asian currency crisis, the 2001 dot-com meltdown, and the current subprime credit mess. What do they all have in common? All of these events showed a failure of the financial analysts and rating organizations to warn us in time. Right up to the end, in all of these cases, analysts were either pushing stocks (the dot-com meltdown) that tanked, or were rating companies and bonds (Asian companies, dot-coms, and mortgage backed securities) as good bets. The “system” that is supposed to help out the smaller investor totally failed us in these three cases. In retrospect, you have to wonder how they (or we) got it so wrong. Of course, the fact that the “experts” get paid indirectly by the same entities they rate (through investment banking deals, for example) leads me to think it’s not exactly incompetence, but a conflict of interest. Either way, it seems the “average joe investor” can’t really trust the experts to get it right – at least get it right in time for us to get out of the way of the financial avalanche. We have to do our own homework and act based on our own intuition – just following the crowd, even if that crowd is led by a so-called expert, could lead to significant losses.

Monday, February 11, 2008

We Don't Know What We're Doing - Part I

I read a book recently called The Ingenuity Gap by Thomas Homer-Dixon. His basic premise is that the world is a complicated place and we really don't know what the heck we're doing. And, we'd better get smart quickly before we really screw things up.

I also read on Yahoo that ranchers, farmers and timbermen in Africa and South America are burning 60 acres of tropical rain forest every MINUTE! Consider this: the state of Illinois is 57,000 square miles. At the rate of 60 acres a minute, they are burning a rain forest the size of the state of Illinois every 424 days!

The Yahoo article states that 20% of all manmade CO2 emission are due to this burning. That's more than all the planes, trains, trucks and automobiles combined. It's second only to the burning of fossil fuels for electricity and heat. So, if we can get nuclear technology back in business, this might be the #1 source of CO2. Plus, the burn of the rain forest is a double-whammy: the forests absorb and store carbon from the atmosphere. They clean up the junk we put up in the air as a result of burning stuff! So, if they are burning down our atmospheric cleansing mechanism, it compounds the problem.

What does this have to do with the book? We're unwittingly performing a huge experiment on a planetwide basis. We don't know the ramifications of our activities because we really don't understand how the whole system works. And, we may never understand how the whole system works. But, destroying vast tracts of the system, when we don't know the implications, seems really stupid. I don't understand the plumbing system in my house. It would be similar to me ripping random sections of plumbing out of my house... and not expecting any adverse effect.

Some think they know more than they do. Many of those people are policymakers or influence public opinion - and that's the problem. As Shakespeare said: "The fool doth think he is wise, but the wise man knows himself to be a fool." We have so few wise people in the public eye today.

Thursday, February 7, 2008

Spring Can Start Now

Spring can start next week as far as I'm concerned. We've had more snow this winter than we have had in a decade or so. I'm tired of it. I didn't go to work yesterday (I work occasionally at our local library in the computer room) because the library closed early due to the snow. We really didn't get too much (around 5"), but places north of us got 10" - 12". And, while we have a day or two respite from the snow (more supposedly Friday night / Saturday), there is no relief from the cold for weeks. What ever happened to global warming? Where did it go? It makes me want to buy a big - no, not big, GIGANTIC - SUV and just let it idle in the driveway.

Beautiful Fall Day

It's a beautiful fall day here in Illinois. Seen on the Fox River Trail