One of the not-enough-discussed culprits at the heart of our economic melt-down is a portfolio theory which promises that, through the miracle of diversification, smart investors need not trouble themselves with the messy details of any potential investment. This has quantitative problems that any competent investor would have tried to address. For example: correlations in bull markets can not be expected, with any certainty, to hold in bear markets, but given that our political and economic watchmen feel obliged to restrain bear markets, there is limited data available to derive more meaningful correlations. There is, however, no getting around the fundamental qualitative issue: So long as somebody is minding the store, diversification-investors can piggyback. The more investors adopt this approach, the fewer investors there are minding the store and the more executive decisions are made to benefit management or short term, vulture, investors.
This is, I think, an instance of a general pattern. Central Bankers, and their would-bes, looking mostly at coarse grained economic indicators feel comfortable directing whole economies. Regulators and Legislators -- not to speak of Journalists! -- are heroically unrestrained by an often for-dummies (if that) understanding of the industries they oversee. Our President has apparently adopted that theory of foreign relations which argues we need not bother understanding the internal political dynamic of other nations. In the middle of it all is a culture of management, in which everyone's highest professional aspiration is to take credit -- and be paid -- for other people's work.
In the end, the strength of an economy boils down to the aggregate willingness and ability of people to do things valued by other people. And underneath all the awful decisions made by all sorts of economic actors, lies a culture that increasingly devalues the painstaking work that goes with ordinary productivity.
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