Homer Simpson’s line should now read…

by

… “in theory Capitalism works. In theory.” 

What will the economic crisis do to:

1) The age at which we “settle down,” marriage or otherwise? (Jana’s question)

2) The allocation of talent between industries and professions?

3) The rate of innovation, financially or otherwise?

4) Worldwide economic integration?

My initial guesses would be 1) reduce it slightly 2) better align it to the optimal 3) stagnation over the next year, rapid acceleration of the next five 4) further integration as worldwide capital gushes to shore up financial institutions everywhere.

It is not immediately obvious to me that a dislocation and rebuilding of our economic infrastructure is necessarily a bad thing. Although it certainly won’t be pretty in the short term.

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3 Responses to “Homer Simpson’s line should now read…”

  1. Nic Says:

    1) why do you think the age for “settling” will come down? Is it because you think people will perceive their market opportunities to be lessened, and therefore reduce by one their reasons for putting off marriage?
    2) Why do you think we will have a more optimal talent allocation? i think we’ll just be swinging far into one direction. There are clearly bankers and other people in the financial industries who are excellent at what they do, but now forced to look elsewhere.
    3) Only if there is some competition we have to get over. Japan came out of WWII with rapid development because it realized how far behind the rest of the world it was. The US financial system is still in the lead. It just took a wrong turn and will have to backtrack, but it’s not like we have anybody else to model ourselves after (nor would we if there were, because we’re far too proud to admit we’re not #1 at something important.)
    4) I see three distinct groups of people.
    a) People who have money and talent (US, parts of W. Europe).
    b) People who have money but no talent (Middle East, parts of China and E. Europe/Russia).
    c) People with neither of the above.

    There will clearly be greater integration between groups a and b where money will flow b -> a. But there will still be people in group c that nobody cares about and will be left out of all the goodness.

    Just my $0.02

  2. phil Says:

    1) On settling: I think you pointed to the economic reason for settling, but more importantly the psychological sense of security and comfort in an uncertain world. I’d love to see a chart of the number of 20-somethings in relationships against economic indicators. Bet there is an inverse correlation.

    2)

    Almost all the physicists in my undergrad class went into banking and consulting after school. Those decisions may have maximized individual utility — they did not maximize societal utility. They only add to society in banking / consulting the marginal product over the next guy who didn’t get the job. They were uniquely qualified to be physicists, but not to be bankers and consultants. If you are 5% better as a consultant than I, but 400% better as an engineer, society is better off if you do engineering — even if consulting pays you more — and leave the consulting to me. It’s almost like a comparative advantage of labor.

    The physicists end up as consultants/bankers because those jobs offer better individual value propositions (not just salary). Now that their value proposition has been weakened I hope we see more scientists, artists, and even employees in non-sexy industries like logistics. No sleight against consulting and banking: I think they are important. I just don’t think always deserve our top talent, especially when that talent is uniquely qualified for another area.

    3) Not sure I understand your point here.. think innovation comes naturally out of disruption. That was my only point.

    4) Great point: We can segment the expected outcome by human capital and actual capital. I agree with your take on who wins out and is integrated. More generally, who has talent and who has $$$ should be great determinate of future success. It used to be those two were highly correlated worldwide (becuase $$ bought education), Hopefully educational opportunities worldwide for those without $$ will debundle human capital from actual capital.

  3. Nic Says:

    1) Interesting perspective. I keep thinking that the rise in average age for marriage has more to do with the sense that the we have choices than anything else. There was a point in American history when our choices were fewer (real or perceived, I’m not arguing either way), and we subscribed to certain roles in our work, family, life and marriage (some of this minimized sense of options still exists in a strong way in the Middle East as well as other parts of the world). This allowed for arranged marriages, and people coming together at a young age – because there was an understanding of what was expected: I am the man, so I work to bring in money; you are the woman, so you stay home and take care of the home.
    Today, we all have a multitude of options and we all want to customize our lives (for better or worse), but one of the downsides is it complicates agreement on marriage. We have more specific expectations of what we’re looking for (tall, dark hair, smart, ambitious, but wants to stay home with the kids, and won’t threaten my manhood, for example) and that inevitably makes it harder to find somebody who actually matches our requirements. Add to that more international travel and work, and all you do is expand the list of options from which the average person thinks to select qualities they look for in a mate.
    I know it doesn’t align exactly with your theory, and I’m sure there is an overlap in drivers here, but I have a sense that the increase in options and desire to customize our lives is probably a stronger driver of age of marriage, and it’s pushing the age up.
    And one last thing, finances are the number one cause for divorce in young couples. A bad economy may actually increase the rate of divorce.

    2) Also, another interesting perspective. I think I was coming to the discussion with the thinking that there are some great bankers who are going to start opening flower shops, without thinking of all the good writers who decided to become bankers. But you made some great points I hadn’t considered.

    3) I agree that generally from destruction comes new creativity (ah the wonderful cycle of life). I just wonder how much new creativity will come out of this particular downturn given new regulations that are likely to be imposed. I’ll be interested to see what Goldman chooses to do now that they’re no longer an investment bank, but surely are still eager to make the returns they’re used to.

    4) Not sure which Star Wars movie it was, but there was one where the premise of the story was that Earth joined the rest of the universe when it was observed that humans discovered light-speed travel (or hyper speed, or something like that). As soon as we reached that point, the rest of the people/aliens/creatures in the Universe brought us into the fold and shared with us all the science/knowledge that everybody else already knew.
    I think the same is kind of true on a more micro level between countries.
    Countries need to reach a certain threshold before they’re invited to participate in the world markets (WTO) and can share in knowledge sharing. China is a perfect example of how well it can work, and how quickly a country can get up to speed. And N. Korea is the perfect example of how far behind you can fall when you aren’t allowed to share information.

    I bring this up because Education is a key component of success (both formal, institution based, and informal OJT based). Western countries (very generally the holders of advanced information/science) generally don’t share what we know for altruistic reasons. We share it with potential business partners. No business, no education. (Think about NYU opening a new campus in Doha.)

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