Economics and psychology revisited

Awhile back I commented on Galbraith's The Great Crash by emphasizing mass psychology as an important part of economic booms and busts. Today David Brooks in The New York Times has a column on the economics of technical innovation versus heavy industry: http://www.nytimes.com/2009/12/22/opinion/22brooks.html. Brooks emphasizes institutions, culture and psychology as important to the technologically- and organizationally- based economy we have now. He ends with the statement that "When it's about ideas, economics comes to resemble psychology." So true and so long in being recognized by the academic part of the discipline.

Mystery Books as Portrait of Technological Development

During the blizzard, I finished listening to the current bestseller The Girl with the Dragon Tattoo. My previous mystery was Blood Work by Michael Connelly, published in 1998. In Blood, one character has a car phone, but the detective is continually looking for pay phones and leaving messages on answering machines. A reporter can search The Los Angeles Times archives, and the author explains carefully how this could be because he can't presume the reader is familiar with computer searches. Photo enhancement is possible. Fast forward ten years to Dragon, whose plot hinges on hackers who anonymously download the content of peoples' hard discs and take control of their computers. The detective himself can manipulate pictures with Photoshop. Could this decade have been the fastest change in our personal control (or lack of it) over our information sources ever?

When do we need to know?

This morning at the Press Club members' breakfast table, I mentioned that the Hirschorn Museum in DC is going to build an inflatable, blue egg-shaped structure that will be erected twice a year on the top of the museum. The story was in the Washington Post today, and on the New York Times web site yesterday. Apparently this blue balloon will be able to house a 1,000-seat temporary auditorium. As a temporary structure, it can be put up on the mall without the usual procedures.



A young journo-geek across the table informed me authoritatively that this was old news because it had been on DCist, a blog, yesterday. This later set me to wondering how much it matters whether I discover(ed) this fact yesterday, today, or tomorrow, assuming I ever need to know it. Would it matter if I just happened to notice a giant blue egg on the museum one day? Why do I need to know "breaking news?" Is this question blasphemy and a violation of the First Amendment?

The appeal of the mystery story

Having finished two serious treatments of the Cold War and one of the 1929 stock market crash, I find myself searching for entertainment, but wondering why a mystery involving murder and crime is relaxing. (It's Blood Work by Michael Connelly.) Upon reflection, I think it's because the classic mystery story has the elements of storytelling that have appealed to people since they told stories around the fire in caves: believable good vs. believable evil and a resolution at the end. Real life and much of modern literature don't provide these gratifying elements.

Economics vs. mass psychology

I just finished hearing a recording of John Kenneth Galbraith's The Great Crash for a book club. Not able to attend the meeting, I promised several people who asked what I thought about it that I would post some comments. Galbraith emphasizes the mass psychology of a stock bubbles, going back into history and examining the beginnings of the 1920's bubble. He is a bit inconsistent, spending some time early in the book explaining why the Federal Reserve followed an easy money policy, but later dismissing that policy as a reason for the boom and consequent bust. We are left with mass psychology and almost fraudulent optimism as an explanation for the boom - people didn't want to miss the chance to get rich quick. Galbraith goes into great detail, month by month and day by day in late 1929, to trace the history in an ironically mocking style.

In the end, the story reduces to mass psychology combined with minimal regulation and oversight. Since then the United States has gone through cycles of regulation and deregulation, along with a few more bubbles and consequent busts - for example, the dot.com boom and the recent housing boom. The contrast between the present and the 1930's depression is that, despite the severity of the current recession, it has been ameliorated by permanent programs and current policies. The opposite situaiton prevailed in the 1930's. Deposit insurance and unemployment compensation prevent bank runs and maintain consumer spending to some degree. Federal Reserve policies to make loans available to encourage businesses to invest and hire and the stimulus package are in stark contrast to the policies of the 1930's that exacerbated the downturn.

However, human nature and the consequent mass psychology are not going to change so it is likely that there will be more bubbles based on the idea that, "Conditions are different this time." Regulators, like generals, may have a tendency to plan for the last war, rather than for unexpected new problems, such as the mortgage backed securities created outside the regulated banking system in the recent boom and bust.

"Nostalgia Ain't What It Used to Be"

I was reminded of this Yogi Berra quote when reading Yours Ever by Thomas Mallon, as one of the readers for the Arts Club of Washington's literary award. The book reviews famous correspondents as diverse as H.L. Mencken and Heloise and Abelard. Mallon laments the instantaneous nature of email as opposed to the lags in letter writing when recipients would be reacting to events long past, or commentaries on the same event would cross in the mails. The letter writers themselves constantly lament the delays for which Mallon expresses nostalgia. Mallon also feels that electronic communication has degraded the population's writing ability; I think that is debatable because more people communicate in writing on a daily basis than ever before. It could be argued that the telephone degraded writing more than email has. Ah, readers, do you write more and better, less or less and worse in this new age? Do you lament the lags in communication when separated from your correspondents?