Sunday, November 3, 2013

I Believe I Can Fly

Despite his age and plenty of free time for thoughtful inquiry, former Fed Chairman Alan Greenspan still doesn’t get it.  Like Daedalus, the famed designer of the Labyrinth in Crete into which the Minotaur was imprisoned, Greenspan and his off-spring have failed to recall that the maze includes Ariadne’s thread which, if followed, can unravel the mystery that isn’t.  During his interview with Charlie Rose, Greenspan evidenced the same myopia that blinded him for over 18 years – cataracts that are alive and well in the eyes of Janet Yellen.  Spoiler alert:  It’s not the housing, stupid.

He was a man learned for those times, of ripe old age, and in his early youth hazarded a deed of remarkable boldness.  He had by some means, I scarcely know what, fastened wings to his hands and feet so that, mistaking fable for truth, he might fly like Daedalus, and collecting the breeze on the summit of a tower he flew for more than the distance of a furlong.  But agitated by the violence of the wind and the swirling of air, as well as by awareness of his rashness, he fell, broke his legs and was lame ever after.  He himself used to say that the cause of his failure was his forgetting to put a tail on the back part.   – Eilmer of Malmesbury recounted by Geoffrey of Monmouth

Eilmer, the flying monk of Malmesbury was not sponsored by Red Bull but, had the chalice been caffeinated back in 1020 CE, he would have been.  There’s a lot that’s cool about Eilmer (or EFM as I imagine his hip, rad Red Bull sponsored code name would be today).  Historians suggest that he may have been one of the few millennials in the 11th century to actually see Halley ’s Comet twice – first in 989 and second in 1066.  But EFM’s 200 meter flight, like the Icarian myth from which it was inspired, actually set in motion innovation that is alive and well today.  Well, let’s pause for a moment.  Popular culture suggests that between 1930 and 1961, 71 of the 75 people working on perfecting the design for the wingsuit paid for their efforts with their lives making this one of the most lethal innovations when measured by mortality rates (much higher than Skydiving 3.3/1000 or summiting K2 104/1000) so we need to be careful with the “alive” part of “alive and well”.

Now what do Greenspan, EFM, and flying squirrel suits have to do with the economy, you ask?  Greenspan and my all-time favorite Fox News demigod Vice President Dick Cheney (who stated that, “I don’t think anybody saw it coming”) continue to recite their conviction that “no one” could have seen the fiscal house of cards collapse risk despite mountains of published evidence (including my own from 2006) that is available to contradict their assertions.  Why would these pilots of policy fail to update their self-evident imbecilic statements?

Well the answer is really quite simple and has four degrees of freedom: Lift, Drag, Thrust and Weight.  These four variables are what makes something fly or, conversely, hang in the air the way bricks don’t (thanks Douglas Adams!).  In this metaphor, I seek to explain economic ideals through the understanding of what it takes to fly.  And the reason for this is really quite simple.  In all human endeavors, lateralized thinking – the ability to apply observed principles from one discipline to another – is helpful in assessing where we might need to go to solve for what seem to be intractable obstacles in the consensus view.

If one aspires to take-off or remain in flight, a fluid dynamic conspiracy must be engaged.  If one seeks to keep an economy going, a fluid dynamic conspiracy must be engaged.  For the purposes of our conversation, let’s unpack the analogy a bit.

For flight, lift is the aerodynamic force that is created when contour creates differential pressures perpendicular to the flow of the wind above and below the wing.  For economics, lift can be understood as the momentum of flow of transactions through the wind of trade.

For flight, drag is the mechanical form that interacts with fluid resistance.  For economics, drag is the expansiveness and complex contour of all types of transactions in trade and exchange. 

For flight, thrust is the acceleration of mass to propel an object into the flow of the fluid.  For economics, thrust is the animation and stimulus of activity in the market.

For flight, weight is the force of gravity opposing lift and creating the higher pressure on the lower surface of the wing to stimulate lift.  In the economy, weight is the carrying cost of the system that includes the entire utilitarian expectations of all things dependent on money.

Our current economic theorists, regrettably, are attempting to fly with only two variables – thrust and drag.  For over 5 years, the Federal Reserve has mistakenly increased the thrust using a variety of ill-conceived stimuli that have added viscosity to the flow.  At the same time, they continue to insist that housing is the wing that will lift the economy back into flight.  They’ve done nothing to alter the momentum of flow – which would require massive expansion of domestic production and consumption rebalancing as the flow is relevant at the surface of the wing – not in bi-lateral or multi-lateral trade agreements far from home.  And they’ve added weight by increasing the number of areas where the economy must serve humanity – more public employment, more indirect government expenditure dependency – relative to all previous periods.  At this time in our economic evolution, we need greater contour and adaptability on the upper surfaces of our wings – more agile businesses and business models; more adaptation at the margins (attack and flaps) – and we need weight reduction (less monetary dependency) if we expect to soar. 

Housing does not a flightworthy wing make.  The financing for housing still requires government intervention (Freddie and Fannie) to sustain what has become an orgy of over-consumption.  Far from shelter, our mini-palace definition of home has seen our houses grow in size 69% from 1973 to 2010.  Like our waistlines (60% of Americans are now overweight and obese), our gluttony has made our capacity to soar diminish.  Now as we blubbered our way into bigger homes, did we actually achieve a more stable economy?  Absolutely not.  Did any of our ‘growth’ actually come organically?  Absolutely not.  We grew our economy by adding weight and increasing drag.  We ignored lift and attempted to make up for our design failures by adding throttle.  The bad news is that this formula works for landing – not for taking off.

We need to regain the svelte attitude of flight.  Highly adaptable models that can respond to flight conditions at the wing.  Highly distributed transactions – more and smaller.  Lower viscosity of the fluids through which we move.  And less dependency on monetary intermediation of all of our transactions.   If we want to fly, we can.  And like EFM, we don’t need to wait for our drunken pilots to climb into the cockpit to crash all over again.  We The People can actually start living on the wing and before long, we can realize that we don’t need Daedalus anymore.  Climb up on the tower (or the face of a giant, Red Bull sponsored cliff), feel the wind on your wings..., breathe, then go ahead, jump with a tail on the back part!


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Thank you for your comment. I look forward to considering this in the expanding dialogue. Dave