In an interesting article by the author of Liar’s Poker, Michael Lewis discusses the current stock market collapse.
The article is thought-provoking in its own right, but it brings up an intriguing question: Were the folks who created the Wall Street securitization machine part of the creative class? Were these financial innovations innovations at all? To put a punctuation point on the question, are flimflam persons and those that create Ponzi schemes creative? They certainly are clever and imaginative.
Tags: Liar's Poker, Michael Lewis, Wall Street
November 23rd, 2008 at 11:17 pm
No doubt they are “creative” — but they are using their talents for evil instead of good. That said, I’d be curious to know if Richard thinks that they belong to the “creative class.”
November 24th, 2008 at 1:25 am
I think Richard’s definition of the creative class is people who create value with their minds. So they did create value, but it was for themselves and was a flawed model that destroyed more than it created.
But a class isn’t a value judgement, its a large group of people with shared economic characteristics, good or bad. The working and service classes certainly have their share of bad actors and con artists. I’d say the securities manipulators definitely met all of the requirements for the creative class.
November 24th, 2008 at 9:35 am
They most definitely are members of the creative and I would consider many them ’super’ creatives or part of the creative ‘core’, because their ideas were ‘meta’ ideas that get copied and extended.
Both Wendy and Michale make important points that a) not all/society benefit from value creation and b)value creation for one person or group can destroy value for other persons or group (think of public goods).
I think one of the core issues here is that other members of the creative class (academics, think tankers, regulators = policy makers) are always playing catch up to wall street creative class members. This may be part and parcel of capitalism today.
That said, it now appears the balance of power has changed to the regulating creative class given the state of the economy, the government bailouts/investments in global economy, and the recent election (prez/capitol hill) in the US.
November 28th, 2008 at 12:47 pm
Con men and women definitely are part of the creative class. It is a bias to assume that all creative-class people are moral.
Finance is the oil in the machine of the economy. Derivatives were intended to be a better lubricant to particular types of economic exchange, especially regarding real estate. Traditionally, the blessing of real estate is that it is REAL and thus retains a baseline value no matter what happens in the larger economy. Lots of old-money families invest heavily in real estate for this reason. The curse of real estate is that (in comparison to other assets) it is not liquid. Derivatives were intended to ‘liquify’ the value of real estate. Richard has suggested that real estate’s lack of liquidity is a drag on the creative economy in times of change (perhaps leading folks to choose to rent rather than own their homes). There is a demand for such liquification. Unfortunately, in too many cases the effect instead has been ‘liquidation’, as the presumed economic value of many properties has dissolved in the current market. Should we blame the tool - the derivative? Or should we more fundamentally blame the attempt to liquify an asset whose value is based on its stodginess? The folks who work through this stuff will be creative class, and some of them will be as slimy as Gordon Gekko.
November 29th, 2008 at 12:39 am
Hi to all of you,
Thanks for the comments. Zoe here is my problem with your formulation. How much of what the creative class is doing is creating no value at all or even subtracting value from society? What part of the growth of the creative class was just an expression of the Bubble? If the credit bubble of the last 15-20 years is going away never to come back?
Will this class shrink dramatically? Just questions, but worth thinking about.
December 1st, 2008 at 8:22 pm
Nothing new is ever clear cut from the beginning. There will be false starts and stops and detours. As any scientist can tell us, many more experiments end in failure than success, but they gain knowledge from both. Because the derivative designers did it wrong, with impure motives and maybe even fraud in their hearts doesn’t mean it wasn’t creative. The fault was more with the lack of regulation by government and oversight by the bank executives who should have known better than the whiz kids who did the formulas.
Were the people who developed Betamax or 8 track tapes non-creative because they lost out in the marketplace? How about all of the Silicon Valley dotcom flashes in the pan? Failure is part of innovation.
I don’t think the creative class is part of a bubble. Some experiments went massively wrong and lots of people have gotten hurt, but I don’t think those mathematicians and programmers are going back to being farmers or assembly-line workers in the long term. They’re tied to using their minds for their work, and so not part of a bubble.
December 2nd, 2008 at 9:30 am
Zoe - Interesting take on derivatives, in my recent research to understand them, I had not come upon that. Real estate is one of the last illiquid things, or so it seems to me. Will the derivative be effective in that? It won’t be completely eliminated, considering its popularity (it wasn’t the inventors who caused the problem, but rather the abuse of their instrument: it wouldn’t have been a problem if it wasn’t useful), but even curtailed, it will still be used and expanded upon.
Martin - My feeling is that the Bubble allowed society to shift into a digital age, and now that technology is entrenched, and we have not even come close to realizing all possibilities of it, the creative class is here to stay, and only will play a greater role in bringing old industries into the new framework.