Most of the comments fell into two camps:
1. Capitalism is fine the way it is.
2. People would never stand for those new restrictions.
Some people also assumed I was recommending new restrictions on freedoms. I'm not. I'm predicting the restrictions because it will become clear that the alternatives are impractical. And as always, it is just a thought experiment. Don't take it too seriously.
First let's look at the notion that capitalism is fine and we're experiencing nothing more than another recession. I don't think that's the case this time for several reasons. The biggest reason is the baby boomer generation that is retiring and poised to absorb all social security and health care resources while adding little in productivity. And by the way, they didn't save enough money to retire. Next you have the Kazillion dollars in debt, and another tsunami of mortgage defaults that will trigger over the next few years as rates automatically adjust upward according to contract.
Meanwhile I see no obvious candidate for an economic driver to the upside. Apple can only sell so many iPhones.
Unwise debt and unsustainable bubbles had masked the fact that the economy was already bankrupt. The next mortgage meltdown (unavoidable), and the baby boomer impact (unavoidable) are not balanced out by anything that looks like good news. In other words, capitalism Part 1 failed.
The second objection to yesterday's post is that people wouldn't put up with any additional curbs on their spending and investing freedoms. That seems ridiculous to me since we already put up with so many societal restrictions. A few more would hardly be noticed. I don't remember the last time I heard anyone grumble about seatbelts. And if the government told banks they couldn't make billion-dollar loans to the homeless, no one would complain about that new restriction on freedom. Some restrictions on freedom just make sense.
Suppose your so-called restrictions on freedom came down to this question: "Would you rather have affordable healthcare or the right to make ignorant and risky investments?" Or how about, "Would you like to have a job or the right to be obese without being taxed extra?"
I don't know what capitalism's second act will look like, but it probably involves preventing individuals from being as self-destructive as they would prefer.
I remind you that I lean libertarian, so I'm happy to let anyone engage in risky and morally ambiguous behavior, but only up to the point where it has an impact on me. When your behavior raises my taxes it becomes my business.
1. Absurdity is achieved.
2. The reader feels as if it all makes sense.
My comic from Saturday illustrates that principle.
According to Google Alerts that comic has been posted to more blogs than any comic I have ever created. It inspires me to more fully explain the theory of finance in this blog.
Think of financial theory as a stool. The stool is supported by three legs, or truisms.
These three truisms can explain any financial phenomenon. For example, if your financial advisor suggests that you invest in a market bubble that is about to burst, he will explain that the past is no indication of future results. Just because a Price/Earnings ratio of 45 has never been sustainable in the past doesn't mean it won't be perfectly safe in the future.
And when the bubble bursts and you lose half of your money, your advisor will explain it's because history always repeats. In other words, he's an asshat trying to steal your money.
This stool also explains the housing situation. Financial experts knew that making loans to hobos had never been a good idea in the past. On the other hand, past performance is no indication of future returns. Maybe this time would be different. Then history repeated and asshats stole your money. As a bonus, they even stole each other's money this time. You have to admire their thoroughness.
One last thing you need to know: People who say it is a good time to invest are called bulls. The bulls are at the center of all financial problems.
In summary, if you want to understand financial markets find a bull and look at his stool.
This makes me reevaluate my rule of thumb on conspiracy theories. I have to move the bar in terms of what is too ridiculous to be potentially true.
If you tell me the government has been covering up alien visits for decades, I still consider that too ridiculous to be true, but mostly for the reason that alien visitation seems unlikely. I have no problem believing that the government would cover it up for some dumbass reason. That is well within the realm of believable.
I have no problem believing that during the 9/11 attacks our government ordered the Air Force to destroy the passenger jet that was heading for the Whitehouse, and found it convenient that the passengers rushed the hijackers at about the same time. It makes a good hero story. I'm not saying that's what happened. I'm just saying that it doesn't qualify as too ridiculous to be true. To me it even sounds more likely than the official version.
The most evil conspiracy theory I have ever heard involves the idea that the 9/11 attacks themselves were planned by the U.S. government as a pretext for military action and subsequent profit by some industrialists. I don't believe that's true, but again, thanks to Governor Asshat, I can no longer rule it out simply for being too ridiculous to consider. The bar has been moved.
I don't know if the Mafia fixed the election for President Kennedy, then had him whacked because he didn't return the favor, but it is well within the realm of non-ridiculous.
What other theories do you think are now in the realm of not-too-ridiculous?
With the uncommon problems, such as my spasmodic dysphonia, I have to wonder if Google (or WebMD, etc.) can do a better job than a doctor, if not now then maybe in the near future. If you could call up videos of people with identical symptoms, couldn't you diagnose most of your own problems?
For example, are you any worse than your doctor at looking at High Definition pictures of a skin problem and comparing it to your own skin problem?
My guess is that the Internet could equal your doctor in diagnosing uncommon problems. WebMD for example asks a bunch of diagnostic questions and narrows down your symptoms just as a doctor would. That system will only improve over time.
Common problems are even easier to diagnose, give or take someone looking in your ear or down your throat. And I'm imagining someday you can buy a home kit that takes a picture down those orifices and puts it on your computer for easy comparison to stock medical pictures.
This leaves us with the issue of dispensing meds. Your first reaction is that obviously you want a doctor to do that because otherwise people will abuse the system or diagnose something deadly for themselves. But perhaps there is another way to approach this safely.
Suppose as a patient you simply needed to answer a series of questions on your other health issues and medications to determine if a drug is safe for you. Once you establish your medical database, you have fewer questions the next time you need a prescription. The database plus your pharmacist would be enough to keep you from killing yourself accidentally. In some cases you still need a doctor if the meds are especially risky, but that would be rare.
You still have the risk of a patient requesting things he doesn't need. The pharmacist plus your database can flag most of that abuse. And perhaps you could have a system where a doctor "approves" patients to handle their own prescriptions if they appear to be responsible, up to a certain age.
I don't have the details worked out, but I think Google will be your new doctor in some fashion.
My prediction about confusopolies was better than I imagined. For example, I keep reading articles about entrepreneurs starting their own electric car companies. When the barriers to entry for starting your own car company come down, you know we're in a commodity world.
Thanks to the Internet, relatively efficient capital markets, and the fact that some company in China can make just about anything, anyone with drive can start just about any kind of company. The interesting part is that in the near future it can never be profitable to do so, because a hundred other people will start the same company next week and drive down your margins. Your only defense is to be confusing, so customers believe, incorrectly, that your product has advantages.
When I started my first restaurant I was surprised how easy it was for someone with no experience to succeed in that business. I hired the right people or companies for every facet of building the business and my operating partner put all the pieces together. The restaurant was an instant hit and lines wrapped around the block when it opened.
But you know the rest.
The fact that it was easy to enter the business is exactly what eliminated the margins. Scores of independent restaurants opened in the general area in the next few years and all cannibalized each other. With our current economic downturn, I predict 40% of the restaurants in my area will shut down within three years. Their margins had disappeared even before the economy imploded.
My theory of confusopolies had a lot to do with my involvement with dilbertfiles.com. It's a business with lots of competitors, and the options and features are confusing. Most of the comments on this blog about the service took the form of "Why would you need a car when a horse can do the job!" In other words, the competing services had confused people about exactly what they offer to the point of equating a horse and a car.
My involvement with dilbertfiles.com is different from the typical celebrity endorsement in an important way: I actually use the service for my own work, and did so long before I had the notion to partner with sendyourfiles.com for a Dilbert branded version of their product.
When you see a tennis star endorse a tennis racket, there is no chance that star uses that actual racket. Pros use heavier rackets, tricked out for their preferences. You couldn't buy Roger Federer's actual racket if you wanted.
I could give other examples, but the point is that you rarely see a case where the celebrity was already using the product before the endorsement or licensing deal was initiated. Sure, he might play professional games in the sneakers that have his name, but there is little chance he would have chosen that particular shoe if his name wasn't on it.
Obviously I could be risking my reputation and lying about a product I use, trying to make a few bucks, but my incentive to do that isn't high. I see my role with dilbertfiles.com as "a guy you know (sort of) who is already using the service and is happy about it." If you don't want to wade through the confusion and do the research yourself, that can be helpful to know. And realistically, no one has time to research every little decision.