November 29, 2008

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Bailing on the bailout

November 29, 2008 in Uncategorized | 16 comments

Back in September or so I blogged in favor of the $700 billion stimulus package. In those days, now so long ago, I thought, against my otherwise better judgement, that we needed to do something.

Now I don’t.

Now I think we need to let the train wreck finish happening before we “stimulate” anything. If we even bother at all.

I say that for two reasons.

First is that nobody knows wtf to do, really. If we do anything.

Second is that “doing something” is overrated. For that insight I thank this excellent piece in the Washington Post, by Shankar Vedantam. And to Russ Nelson for pointing to it.

The gist:

  The action bias, or the desire to do something rather than nothing when you have just been through a terrible experience, plays a powerful role in our lives. It influences individuals and companies, investors and leaders. You can see the action bias on display in current thinking on the housing and economic crises, in the bitter debates over the war in Iraq — even in discussions about how to fix a football team that’s a perennial loser.

  When people suffer losses and confront the possibility of even greater reverses — it doesn’t matter if you are talking about a terrorist attack or a meltdown in retirement savings — it is psychologically difficult to do nothing, to hold course. This is true even when the action you contemplate produces an outcome that leaves you demonstrably worse than you were in the first place...

  When things are going well, there is a tendency to stagnate, rather than innovate and make things even better. When things are going poorly, on the other hand, our bias is to flail.

We’re flailing, and we’re doing it with trillions of non-existent dollars. Spending them risks making them even more worthless than they already are.

Unexpected but inevitable pops

November 29, 2008 in Future, News, Past | 13 comments

What if every product category, every business, is a bubble — and some just last longer?

We know the newspaper business was a bubble. It lasted over a century, but here we are, at the end of it. Papers will still be around, for the same reason that railroads and mainframe computers are still around. But they’ll never be what they were in their golden decades.

Television will follow. That golden age is coming to an end as well. Same with radio. These will also persist, in somewhat different forms. But the golden age is over.

I’m thinking now that we’re seeing the same thing with cars.

A few days ago I took in my old Volkswagen Passat to get the water pump replaced. Turns out lots of other stuff was worn out or broken and needed fixing too. The final bill came to around $5000, which is what I paid for the thing three years ago.

For a minute I thought about getting a new car. They’re cheaper than ever, with lots of good deals, and guarantees that would relieve me of the need to pay much for upkeep. But I decided to fix the old car instead, becuase it’s good enough. Spending $5k is better than spending $20k, especially if I don’t have to borrow the difference.

The mechanic told me his business is booming. Most car owners have awakened to the fact that cars are cars, and most of what we do with them is just drive from place to place. New cars purchases are impelled mostly by advertising and fantasy. Drive a lot of rental cars and you get hip to the obvious: the differences between cars, especially fairly new ones, isn’t large. After a few years they all plateau at a certain level of partial suckage and stay that way for the duration. You forget the quiet cabin and tight handling that turned you on in the first place. You care less about its color than just being able to find it in the parking lot. You know the noise in the heater is some rocks your kid put down the vents and won’t ever get fixed.

Now, what happens if an absence of new car fantasy prevails for the duration? What if the whole automobile business has jumped the shark, and the problem isn’t just Detroit’s?

Even if it hasn’t now, the business will falter eventually. They all do. Disruptions happen. Trees do not grow to the sky. That’s Nature’s nature, in business as well as the wilderness.

Bonus link.