I didn't expect to become exceedingly angry when I woke up this morning. but that's how it turned out. The trigger: Thomas Friedman's latest column in the New York Times, "All Fall Down."
In the column, Mr. Friedman himself is very angry. As so many others have done, he directs his inchoate anger and vituperative bile at the straw man now commonly called "the credit crisis." For instance, according to Mr. Friedman, "This financial meltdown involved a broad national breakdown in personal responsibility, government regulation and financial ethics."
After reading the column, I got angry too. But I didn't get angry at Mr. Friedman's supposed "broad national breakdown in personal responsibility." Instead, I got angry at what I see as a colossal meltdown in forward-thinking. Therefore, Mr. Friedman, I'm pointing the finger at YOU. There is a deep flaw in your reasoning, and I'd like to try and explain it to you. Hopefully, if I can show you this flaw, then your future columns will not stoop to the level of undisciplined invective -- which, quite frankly, is the single biggest threat to our world's security. Loose lips don't just "sink ships." They can also start world wars. I for one think that two world wars in the past 100 years is plenty of enough.
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There is a well-known finding of behavioral psychology called the Kübler-Ross model for grief -- commonly referred to as "the 5 stages of grief." They are, in order, denial, anger, bargaining, depression, and acceptance. Today's credit crisis is, without a doubt, a large helping of grief that has been doled out to the entire world. For some time -- most of 2006 and 2007, in fact -- we were in denial about the problem. Now, the threat is undeniable; we have been forced to move into anger. Recently, bailouts and stimulus plans from governments around the world seemed to be moving us further along the path to recovery - bargaining. But then today, I woke up to find Mr. Friedman still stuck on anger, seemingly unwilling to move on.
Sometimes anger has its benefits -- When someone is clearly at fault, they must be punished. It is unavoidable and necessary that we mete out justice when appropriate. Therefore, I understand the knee-jerk need to blame Lehman Brothers, Fannie and Freddie, AIG, and now Citigroup (among others) for their failings. In some sense, they deserve it. So too do many in the US government who looked the other way, or who willingly fueled the bubble before it burst.
But if we're prepared to deliver harsh judgments on these people, the dictates of logic and fairness will take us still farther on our crusade for justice. We should also blame financial institutions in Europe (Northern Rock, for one example), and governments like Iceland. In fact, since the entire EU is headed for recession, maybe we should blame all of Europe. But why stop there? Doing so would break the original logic of our need for justice. Japan and Korea are also headed toward recession, probably due to "short-sighted" policies. Asian stocks have been tumbling just like the NYSE. Let's blame those guys too. And then there's China -- it seems that China's leaders in both business and government relied too heavily on the US as a manufacturing and consumer products customer. Now, the lack of overseas demand is short-circuiting their economy as well. Let's blame China's leaders too! And so the blame-game continues, in an unending circle that is as unproductive as it is tedious. We can do better.
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The blame-game is unproductive...because we have all been "wrong" in a sense -- complicit from birth in a system that has been rusting and decaying for many years. The useful question, therefore, is not "who," but rather "why." The answer is simple: the Information Revolution.
At its root, globalization has been fueled by technology -- a point made very effectively in Mr. Friedman's bestselling book "The Lexus and the Olive Tree." Political, social and other proximate causes notwithstanding, technology was the silent crowbar that ended the Cold War. Then, Internet-fueled eCommerce boom was there to precipitate the Asian financial crisis in the late 1990s, and the subsequent dot.com bubble burst in the early 2000s. Technology has spawned Napster and the ensuing disgrace of the movie and music industries. Technology-driven blogs and tagging sites have upended the media industry globally. Technology has even given itself fits -- with the likes of Apple and Google sending shivers of fear toward companies such as Sprint and Verizon. And technology is now challenging world-beaters such as Microsoft and Oracle, as they struggle to adapt to the distributed, networked, Web-based model of next-gen global computing.
Over the past 1-2 decades, we have seen a series of rolling blackouts that are still sweeping across our institutions. They began in the most "sensitive" industries -- style-driven, consumer-facing industries such as media and entertainment. Now it is moving to the heavier, more conservative, more lumbering institutions such as finance. Eventually it will move to governments as well -- necessarily the most conversative institutions of all. This realization alone should be of no surprise to any thoughtful observer. Similar "rolling blackouts" -- and the subsequent emergence of better, stronger institutions in the aftermath -- happened according to a similar pattern during the Industrial Revolution (and especially the "Second Industrial Revolution"). For those interested in learning more, I'd recommend Carlota Perez's book on the dynamics of bubbles and golden ages.
Beyond what our common sense tells us, there is clear evidence that the same patterns of technology invention, economic and social upheaval, and resulting consolidation and stability are happening again today. In their book on "Global Migration and the World Economy," Professors Hatton and Williamson suggest that we are in the midst of the largest wave of worldwide mass migration since the mid-1800s. The cause back then was railroads and urbanization from industrial factories. Instead of taking weeks to get to a port of call, the lower-middle-class could get on a train and travel across the continent in a few days. Suddenly, rural citizens seeking opportunity were emigrating in massive volumes not seen in hundreds of years.
Today, the story is analogous, but the proximate cause is new: the Internet has fueled our globalization, in a way that railroads never could have. Foreigners come from all over the world to study at US universities. Before the rise of the mass Internet, they tended to stay in America and settle their families in the US -- an industrial-age mindset. Now, increasingly, the return home to seek opportunity where it is needed most -- in their home country. This has helped produce the Asian Miracles of India and China; a rising Latin America; and an Africa that may finally find peace and prosperity. And it was not possible before the Internet. Many other similar pieces of evidence also point to the enormity of the Internet's impact on "changing the game" for the functional patterns of our economy, our institutions, and our social habits.
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Instead of sticking with the blame-game, I suggest that we all work toward two goals that we also all share: 1) understanding the causes and the dynamics of the these rolling blackouts; 2) using our understanding to create solutions that address the root causes.
Starting with #1, I propose that these rolling blackouts are truly a "force of nature" -- natural forces of massive gravity that easily transcend individual questions of guilt, responsibility and greed. They affect the entire world, in the same way -- and to the same degree -- that a hurricane affected New Orleans, or that an earthquake affected Sichuan. And they have been caused by a new and powerful technology infrastructure that is ushering in a new economic paradigm. It is the onset of this paradigm that has promulgated the financial crisis. Greed, stupidity, and irresponsibility are the symptoms, not the causes.
We are now able to predict hurricanes very well, and earthquakes somewhat well. But economic shocks of massive proportions -- this is the cutting-edge of today's scholarship in economics and social science. This is an uncharted frontier -- NO ONE is certain of the precise rules and patterns behind these phenomena. As a result, the specter of a truly Digital Economy looms ominously today on the horizon, and more clearly apparent than during the early blackout tremors in the 1980s and 1990s.
In fact, I am willing to wager that much of the risk-taking and financial "innovations" in recent years have been attempts to avoid further blackouts. As investors and institutions suffered from the first series of blackouts in the 1990s and early 2000s, more and more pressure rested on the rock-solid institutions -- banks, insurance companies, and governments -- to keep the economy stable and healthy. The fact that they accomplished this for more than a decade is testament to their skill. Unfortunately, for reasons that NO ONE fully understands, even today, it turned out that these efforts were merely delaying the problem rather than solving it. Now, Mr. Friedman and many others are lampooning these people and institutions as the culprits. This is horribly disingenous; we are shooting the messenger, and blaming those institutions that desperately tried to prop up a system that was already implicitly in shock.
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The real question is this: Why did we all ask the bankers to prop up a dying system? And now, why do we persist in our shrill -- yet increasingly quaint -- demands for justice and retribution on the people that answered the call? And most importantly, where do we go from here? Far more than another go-round on the blame-game, these are the types of questions that everyone around the world -- and I mean EVERYONE -- needs to address.
As parting words, I'd offer
one suggestion for where to get started: technology. The age of ubiquitous,
networked computing has unleashed these elemental forces of nature upon us.
Nature, in essence, is trying to tell us that we should make better use of what
we created. I say...let's get to it! Instead of speaking in industrial-age,
pre-information-age terms, let's give our society a system upgrade. Let's take
the gears of government, business, and non-profits and graft them onto this
amazing technology backbone that we now have. This is how to get past the
annoying economic blackouts that plague us all.
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