Global Agenda: Just right

The concept of the "Goldilocks economy" has become increasingly popular over the last few years.

By PINCHAS LANDAU
February 8, 2007 21:35
3 minute read.
Global Agenda: Just right

global agenda 88. (photo credit: )

The concept of the "Goldilocks economy" has become increasingly popular over the last few years in the context of either the US economy or the entire global economy. You find the phrase all the time now, in the financial press and on the dedicated TV channels. The idea behind it is that things are not too hot and not too cold, but just right - meaning that growth is not too fast (risk of "overheating") and not too slow (risk of recession) but just the right pace to keep chugging along. Ditto inflation - not too high and not too low. (You wouldn't use the Goldilocks model for executive pay and bonuses, because the idea of "not too high and not too low" is inappropriate there; it's never too high and always too low…) Goldilocks, therefore, is good and desirable - in this version of reality. Of course, anyone who actually read (or listened) to the end of the Goldilocks story knows that after she sat in the little bear's just-right chair, ate his just-right porridge and slept in his just-right bed, the three bears came home and went through the "who's been sitting/eating/sleeping" spiel, at which point Goldilocks jumped out of the window and ran away. So the Goldilocks scenario - like many children's fairy tales - gets pretty hairy and scary and doesn't really have a happy ending. In other words, what Goldilocks is really about is constructing a model that ignores reality and pretends that obvious risks don't actually exist when, in fact, they're increasing all the time. If Goldilocks had been acting rationally, she would have figured out that the bears wouldn't have just left in the middle of breakfast and - unless they sensed an imminent avalanche or earthquake - they were likely to return shortly. The longer she stayed, the greater the likelihood that they would come through the door the next minute, or that the earthquake/avalanche would strike and flatten the house. Either way, she should have split. But Goldilocks preferred to behave irrationally and to assume that her luck would hold out indefinitely. That way she got to eat the porridge and had a brief nap, but that was interrupted - and she was lucky to escape in one piece from the enraged bears (in the mainstream version of the tale, at least). Of course, when talking today in business and financial circles about Goldilocks, it's wise to focus on the part where she has a good time. Any mention of bears, let alone of jumping out of windows, could generate unpleasant associations. "Risk" has now become an acceptable code-word for "assorted bad things," such as bears, big bad wolves, evil witches and other nasties that five-year olds accept as a part of life you have to deal with. In the financial world, too, "risk" can be dealt with - by neutralizing it, offsetting it or even chopping it up and passing it out in little bits presumed to be harmless. If risk can be ignored, or if we at least can persuade ourselves that it can, like explosive devices, be rendered harmless by qualified technicians, then Goldilocks can slurp porridge and slumber in bed for evermore. Indeed, we can even learn to use and enjoy the techniques being developed to play with risk. The result is that people are being bombarded via emails, pop-up ads on Internet sites and even through the printed media, with offers from companies to teach them how to trade various financial markets using exotic-sounding instruments and techniques about which they understand little or nothing. Even the supposedly solid commercial banks, in Israel and around the world, are busy pushing "structured products" that are "capital guaranteed," so that the investor "is assured of getting his/her money back." The latter, in the best case, are porridge. In the medium case, the milk used has gone sour already - and in the worst case, they are simply dung. People tempted into the on-line trading operations are in much greater peril, with a best case scenario akin to drug addiction where they have some enjoyment while ruining themselves. They are all playing make-believe in a global Goldilocks story that they are convinced is on permanent hold at the porridge-slurping bit and in which bears never arrive to force people to jump out of windows. [email protected]


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