January 13, 2012

Self-Fulfilling Prophecy Or, How I Learned to Stop Worrying and Love the Global Economic Crisis

"Based on the findings of the report, my conclusion was that this idea [a Doomsday Machine] was not a practical deterrent for reasons which at this moment must be all too obvious."— Dr. Strangelove, in Dr. Strangelove or: How I Learned to Stop Worrying and Love the Bomb (1964)
Being from Texas myself, naturally my
favorite character in Dr. Strangelove is
Maj. 'King' Kong.
Disclosure: I am trained in a field that studies expertise, or really the history of expertise… How it changes over time, or has different criteria for credibility in different cultures, or how it undergirds or undermines other kinds of authority (wealth and power, i.e. "might is right"; folk wisdom or "street smarts"; and so forth). So recently I've found myself thinking about all the expert opinions floating around in the punditsphere regarding the global economic crisis. It got me thinking about the movie Dr. Strangelove. Back in the 1950s, scientists and especially nuclear physicists were the experts of the hour, turned to for advice by policy-wonks politicians to inform their policies about our geopolitical futures, and in a more direct sense, potential nuclear threats and counterattacks. Now to cut an already long introduction short, Dr. Strangelove, through its brilliant satire of expertise, offered a very simple critique of the atomic age: None of these guys (politicians, experts) know what they're doing, and they're gambling with _our_ futures!

The beginning of a beautiful fable: "The haba and the tree." Dilemma... This year on Reyes,
 I was both the 
rey, for finding a tree figurine, and in debt (for next year's roscón), for finding the haba.

(This must be how how 
Rajoy feels.) It was because I _had_ to eat that second slice.

So what would be our Dr. Strangelove for this economic crisis? Because let's face it, none of these guys know what they're doing, and they're _literally_ gambling with our futures. I spent the first three months of this blog willfully ignoring the topic of economic crisis in Spain. (Stage 1 of the "Stages of Grief": Denial. The road ahead: Anger, Bargaining, Depression, Acceptance.) This was no small feat, since I'm a news junky, and all I was hearing on the news was Spain's economy looking grim. Record unemployment. PIGS this or PIIGS that. Macro-economic statistic this, and anecdotal grim story that.

I've long been fed up with all the global economic crisis talk and all the doom and gloom specifically about Spain. Doom in the media (_especially_ the British foreign press). In the politics. On the last working day of 2011, "recortes." On the first working day of the new year, "recortes." (How many "cumbres extraordinarias" can the EU hold, and at what point do they become "ordinarias"?) And perhaps most of all, the endless negativity among economists and financial analysts. 

I'm wondering if this former Barça coach, Louis van Gaal, ought to be our poster-child
for dealing with outside critics on the economy. He made a splash with this statement,
"Tú, siempre negativo, nunca positivo," back in 1999.

Upside to global economic crisis: I get to learn a whole lot of new economy-specific Spanish vocabulary… recortes ([budget] cuts), huelgas generales (general strikes), and so on. For example, how many times will they say "hoja de ruta" (roadmap) on the news _this_ year? (It's also good hunting ground for Spanish-specific jokes, too. Consider for your entertainment what has my vote for Phrase of the Year for 2011: "prima de riesgo"… Nope, it's not your cousin's risk. Look it up. Punchline: "¿Quién es esta prima, y dónde está "Riesgo"?) Downside: It's _bor-ing_. What happened to when news meant something new? It's all so predictably negative, self-defeating, and an all-around bummer.

It also has all the trimmings of the housing bubble, but in a negative inverse form. I still remember when, about five years ago, my friends were all telling me, "Buy a house now before they're all gone or too expensive!" Even then I was thinking, "This is just not socially sustainable. This must be some kind of lemming effect." For all of people's gushing about "crowdsourcing" and the "wisdom of the crowds", there has also long been a counter-wisdom, with labels such as "groupthink", "herd mentality" or more recently "information cascade," basically when everyone reads the same two or three faulty sources and thus recapitulate those source's biases and errors. (Another great line in Dr. Strangelove, when the Soviet minister explains to the U.S. President that his source for the erroneous "fact" that the U.S. was also making a doomsday device was the New York Times.) And just like five years ago when my instincts told me that the housing market was too inflated and surreal to be real, well, now my instincts tell me that all this doom and gloom is too gloomy and doomy to be real. 

Let us recall what started the economic crisis: It wasn't crop failures. It wasn't world war.
It was a bunch of overly cocky rich kids playing monopoly. The movie Margin Call (2011)
did a nice job of illustrating the problems of relying on a fixed, mechanical,
and opaque market device to determine our financial futures.

Are the "facts" overwhelming in this
crisis, or just all the numbers?
[Warning: I'm gonna get a bit nerdy here.] There are so many tools in the toolkit in my profession which one could use to explain this recent roller-coaster ride of faith it's hard to know where to start. The key one is the "self-fulfilling prophecy", a prediction that directly or indirectly causes itself to become true. Robert Merton based this on the Thomas theorem: "If men define situations as real, they are real in their consequences." More recent sociological models talk about "reflexivity" in risk decisions – the fact that risk-taking people, take for example stock market investors, know that they are being watched, and thus predictions or anticipations of their actions can have consequences on how they act. Risk studies gave us the clunky but oh-so-true notion of "offsetting behavior". (For the über nerd, check out how sociologist David Stark builds on the concept of performative utterance to explain how finance people follow each other to a fault, rather than following markets or the real world, thereby creating bubbles and crashes.) My personal favorite is the Mathew's effect, often shorthanded as "the rich get richer and the poor get poorer," which basically explains the positive snowballing effect that awards can have, such that one person can end up accumulating them all… Not necessarily because that award winner (or market leader) is _that_ _great_, but because it is easier and safer for a committee (or lenders) to give the award (or investment) to an already recognized great than take a risk on an unknown. These are all examples of how our self-awareness and future-mindedness shape the present often in spite of the actual present. Each could also be the thesis statement for an entire dissertation on how Spain is getting screwed by the current crisis of confidence and finger-pointing.

Hans Christian Andersen's fable ought to be
required reading on Wall Street 
But you don't need to be a sociologists to know all this doom and gloom talk about Spain is bunk. Heck, this is kid's stuff. Hasn't everyone read The Emperor's New Clothes. Isn't it abundantly obvious that the smartest guys in the room in these rating agencies didn't know jack about the real economic health of banks back in 2008, and clearly don't know jack about how to predict the economic health of a given country's citizenry today? Here's a New Year's resolution: I will not pay heed to the self-serving zany and after-the-fact unreliable prognostics of Standard & Poor's, Fitch Ratings, or Moody's. (Big tip off: Why _are_ we trusting agencies called "moody" or "standard and poor", anyway?)

So I offer you all a manifesto. How about all of you my faithful readers? join me in an experiment. Ignore it. That's right, stop listening to the doom-and-gloomers, and start focusing on all those things that are still going _right_ in Spain. This was my realization sometime last November. I was unemployed and feeling quite discouraged by all this negativity. How does one get up the energy to apply for a job, and want it, when everyone is telling him its a horrible market with poor prospects? When it hit me. It wasn't helping me to believe all this negativity. It was disempowering me while making gloomy economists and pundits rich. I also suspect that it is this negative talk from other countries that is directly pushing Spain into the mud, and undercutting Spaniards' abilities to adapt, innovate, and keep positive.

The New York Times's country page for Spain opens, and I quote:
In Spain, after two decades of dizzying growth, the party is over.

The party's over? Yikes! But I just got here!

Let's all start telling a different story. I've decided I'm going to listen for more success stories of Spanish entrepreneurs and businesses, and then share them on the blog. (Uh, that is, _after_ Fallas. Even global economic crises take a backseat to Valencia's magnificent street festival.) That's right. There are stories of Spaniards who had a business or non-profit initiative, took a risk and made it. It happens all the time in this country, yet somehow economic pundits in the acronymopolis —the US, EU, and UK— only ever talk about the problem of the PIGS, debt and unemployment, when Spain comes up. (Forget that Spain has demonstrated a unique democratic strength in being the only economically challenged country to let voters determine its fate. Such trivial democratic track-record or virtues apparently don't have a measure at Moody's.)

Look at all those Logos! This economic powerhouse,
Inditex, is Spanish. It can be done!

I already have some candidates: at the top of the list, Zara and its parent company Inditex Group, a Spanish clothes retailing company that has grown at incredible rates despite the crisis. Or, the other day on the national radio (thank you RTVE!) I heard an interview with the CEO of Imaginarium. It's a pretty cool sounding Spanish toy company that is expanding globally. Last fall EmTech Spain gave out its first round of Technology Review 35 (TR35) awards to ten talented scientists and engineers under the age of 35. That's right. Talented, forward-looking Spanish innovators. The New York Times was recently talking about the rise of caviar fish farming in Spain, what a concept! How innovative! Heck, and we shouldn't forget all the local businesses and freelancers sprouting up all over the country with smaller or more modest ventures, such as the Serie Limitada collaboration here in Valencia among others. I'd say that "after two decades of dizzying growth" it's time we let go of Hemingway paradigm stereotypes about lazy or backward Spaniards or stifling bureaucrats holding the country back. This is a new Spain for a new century.

Imaginarium S.A. Building economic success on a sense of enchantment.

So, yeah, it's the economy, stupid. But let's not forget that _we_ are the economy. And we are also much, much more. So don't consider this rant post a prediction, consider it a call to arms!

Are you one to say the cake is half eaten, or half remaining? 
I say, have your cake and eat it too. It's good to be king!  


scritic said...

I laughed quite a bit at "Why _are_ we trusting agencies called "moody" or "standard and poor", anyway?" Nice post, Xaq.

An Expat in Spain said...

Glad you enjoyed it Shreeharsh. I have to admit I had fun writing it. I suppose I was feeling moody, instead of just standard and poor like usual.

Mr Grumpy said...

Hi, hope you don't mind me linking to your site in my latest blog ?? couldn't find your contact details and would really appreciate your opinion / point of view ....

An Expat in Spain said...

Mr Grumpy, of course I don't mind. "Any news is good news," right?

I've been meaning to rectify the whole no contact info thing. So I've added an email address link on the right-side of the blog. Let's hope that email doesn't get crashed by spam bots. Or worse, by angry paella-makers (or eaters) with strong opinions about what I have to say about paella valenciana.

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