I read maybe a weird amount about finance and economics. I’m not entirely sure why: it’s not as if I have the means, educational or otherwise, to evaluate the truth of what I’m reading. Felix Salmon is one of my favorite writers in this area. He and others have been talking up this post by Steve Waldman as uniquely informative and thought-provoking. I read it and I felt that this was fair, and then I started thinking (as I will so-painfully-predictably do) about its applications to writing. You should read the whole thing, but I’ve put together a short version (with most of the assertions and very little of the evidence-by-example, the gold standard of persuasion!).
I’ll summarize in advance: finance in general, and banks in particular, are hopelessly complex and opaque, but this is basically a good thing. It allows us to trick ourselves into investing despite our naturally risk-averse nature by hiding the risk inherent to investment. Economic development requires us to solve a classic collective action problem: nobody wants to be the first to invest, but we need broad investment and many failed enterprises in order to generate returns–and benefits in terms of human welfare. Banks help us to move past this problem by lying to us (though they themselves believe the fiction). They can’t eliminate risk, but they can and do hide it. This opacity allows them to commit fraud and other shady activities, but it’s probably necessary to develop something like modern civilization. My edited-down version of Waldman’s argument, and some attempts to link this to writing and reading, are after the fold: READ MORE >