Sunday , February 11, 2018 - 4:00 AM
Complex systems are difficult to predict. We try to predict, so we structure most of our laws and society in such a way that the complexity seems simple. The yearly legislative frenzy is a testament to our faith that somehow a few words in a law book will improve things and surprisingly, it often happens. The problem is we also get unintended consequences, and things can get worse. Or as is often the case, some things get better and some things get worse. Whatever the case, human beings inherently crave certainty.
As I write for the newspaper and put my words out for the community to read, I strive for accuracy and relevance. I want you to read knowing I've done my due diligence, giving you the best of my knowledge through hours of research and study of these complex systems. I want you to consider my personal take and particular light I cast on the issues I raise. But as much as I'd like to think what I write is accurate and relevant, with every word I type, I realize I could be wrong.
It's humbling to think about what you don’t know. Especially when you jump into a realm about which you know little or worse, you know just enough to be dangerous, as the saying goes. We have all seen supposed experts in their fields completely miss what's actually happening.
Everything seems to be going along well and then, last week, in just one day, all of the stock market gains over the last year were wiped out. Why? I’ve been reading CNBC, along with other financial sites, and everyone has a different take. Some say it's due to rising interest rates, other say it's inflation fears, and still others claim small wage increases are another potential cause. Some say it's a combination of all three and more.
One of the more interesting speculations was that the crash was related to derivatives trading on the volatility of the stock market.
We all know about buying and selling stocks in a company. However, there are also “financial products,” which are not based on anything tangible in the real world, but which allow you to bet on what's going to happen in the future. It was bets like this that led to the economic crash in 2008, when people simply bet on the value of "mortgage bundles." Recently, new products allow you to bet on "stock market volatility." By definition, allowing these bets on market volatility is a gamble; yet no one seems to know if it will make things better or worse.
Spending time reading the financial pages, I realized that our society is in a financial bubble. I’m not talking about the historical financial bubbles of tulips (1634-37), dot.com stocks (1995-2000), mortgage-backed securities (2002-8), or BitCoin (the last six months and currently sinking). I’m talking about the type of bubbles in which we all reside: paradigms. Purveyors of financial products and the financial sector are in their own bubbles, seeing the world through their own stock-ticker lenses.
However, in my daily legal practice, I see the financial world through a completely different prism than the denizens of Wall Street. Through my lenses, I see a financial reality in which almost half of all Americans don’t have $400 in cash for emergency expenses. I see people go bankrupt who have never been in debt in their lives until someone gets sick. How does that reality coincide with a system that lost $3 trillion on paper last week? That's right, $3 trillion dollars, right out of everyone’s 401(k). In case you're wondering how much $3 trillion dollars is, here's a frame of reference: Utah’s state budget is about $14 billion dollars a year. So $3 trillion would last us a little over 200 years.
I see a financial world where health care costs and wage stagnation make simple survival too difficult for too many families. I also know the small business owner side: we need revenue to make payroll, pay for insurance, and keep our employees' lives stable and safe for themselves, as well as their families.
I don’t spend my day reading the financial pages, but when I do, I walk away dismayed, more than a little frightened, and convinced high finance is a world with no real connection to the lives of everyday Americans. The best example of this, and the truest confirmation of my fears, was encapsulated by quote from an article in The Economist which proclaimed its faith in the stock market because "Big American companies are wielding increased market power, enabling them to earn outsized profits at the expense of America's customers."
Yes, complex systems are difficult to predict, and we all want certainty. But the creation of great wealth at the expense of the greater good has never brought long-term stability nor certainty to our lives. That is one thing this writer believes is true, but things are complex.
E. Kent Winward is an Ogden attorney. Twitter: @KentWinward.
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