12/23/08

The American economy was too vast. Too many people depended on it. Most of all, it was too complex for one man or even twenty to comprehend it all. That was the problem with the models that everyone depended on. Sooner or later it came down to trying to gauge and measure and regulate something that simply was. It existed. It worked. It functioned. People needed it, but nobody really knew how it worked. The Marxists' illusion that they did know had been their fundamental flaw. The Soviets had spent three generations trying to command an economy to work instead of just letting it go on its own, and had ended up beggars in the world's richest nation. And it was not so different here. Instead of controlling it, they tried to live off it, but in both cases you had to have the illusion that you understood it. And nobody did, except in the broadest sense. At the most basic level it all came down to needs and time. People had needs. Food and shelter were the first two of those. So other people grew the food and built the houses. Both required time to do, and since time was the most precious commodity known to man, you had to compensate people for it. Take a car-people needed transportation, too. When you bought a car, you paid people for the time of assembly, for the time required to fabricate all the components; ultimately you were paying miners for the time required to dig the iron ore and bauxite from the ground. That part was simple enough. The complexity began with all of the potential options. You could drive more than one kind of car. Each supplier of goods and services involved in the car had the option to get what he needed from a variety of sources, and since time was precious, the person who used his time most efficiently got a further reward. That was called competition, and competition was a never-ending race of everyone against everyone else. Fundamentally, every business, and in a sense every single person in the American economy, was in competition with every other. Everyone was a worker. Everyone was also a consumer. Everyone provided something for others to use. Everyone selected products and services from the vast menu that the economy offered. That was the basic idea. The true complexity came from all the possible interactions. Who bought what from whom. Who became more efficient, the better to make use of their time, benefiting both the consumers and themselves at once. With everyone in the game, it was like a huge mob, with everyone talking to everyone else. You simply could not keep track of all the conversations. And yet Wall Street held the illusion that it could, that its computer models could predict in broad terms what would happen on a daily basis. It was not possible. You could analyze individual companies, get a idea of what they were doing right and wrong. To a limited degree, from one or a few such analyses you could see trends and profit by them. But the use of computers and modeling techniques had gone too far, extrapolating farther and farther away from baseline reality, and while it had worked, after a fashion, for years, that had only magnified the illusion. With the collapse three days earlier, the illusion was shattered, and now they had nothing to cling to.

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