Transcendental Nonsense

The idea behind this post is extremely centrist and perhaps right-wing. But here it is: if you are one of those that thinks crises are bad and we should try to minimize them, then how about applying modern portfolio theory to the array of assets we call “society”?

One of the tenets of modern portfolio theory is that diversification is good.  It allows one avoid firm specific risk by buying stock in several firms, and to avoid industry specific risk by buying in several industries.  Moreover, the theory argues that one who does not diversify incurs “uncompensated” risks because the price of the stock only reflects the risks that one cannot diversify.

If you buy into this theory, how would a diversified portfolio of society’s assets look like?  In the political arena this would mean that you shouldn’t vote all the time democrat. You should, like big corporations do, give money to both parties.  Whoever is in power will benefit you.  Just like if you buy stock from competing companies if one goes down the other is likely to go up. This same analysis applies to having diversified centers of power.  Federalism, localism and internationalism come in here.

But the real concern of this post are also the so-called “private” sources of power.  Hence, one thing that bothers me is why are we so stupidly listening to whatever those market analysts constantly say?  As if they were some kind of oracles.  That seems to me to be clearly an undiversified source of information.  Maybe we should ask the workers, what do they know?  Maybe we should ask mothers, maybe they know.  Maybe we should ask priests, they should know–they were the original oracles.

Thus, I think that part of the reason for the current financial crisis is our individed attention to a very small group of people.   The natural response to this is, “Yeah, we are listening to them and for a reason: they are the ones making us rich.”  Maybe, maybe, but if you were an investment advisor, with the benefit of modern portfolio theory, you would’t have told your client to put all his stocks in tech companies before the 2001 bubble or for that matter to put them all in clean tech today.  By the same token, just because financial people are making money we shouldn’t be listening solely, or even primarely, to them.  Our world is just too complex for us to trust our hands into so few people. But more fundamentally trust is simply the basis for monopoly rents: do you want to be the consumer in such a market?

In conclusion, I think distrust, disloyalty and skepticism are in.  A well diversified outlook to society would be constantly betraying the winners because we think their victory is not going to last.