Summer fruit season and prosperity

We're in the thick of summer fruit season, so there's plenty of baking going on, but the last few have been straight out of Ken's awesome book. There's not much pressure to come up with innovative recipes when so many delicious ones are right there.

As such, it's an interesting time to contemplate the financial crisis. The most recent Planet Money podcast featured a panel discussion of "financial innovation", and whether or not it's a good thing or a bad thing. The most obvious answer is "it depends," although I generally agree the last twenty five years, generally the age of massive consumer credit, have been a net negative. Most interestingly, one of the members pointed out that just as there was a need for serious innovation, namely, as the predicted subprime collapse, there hasn't been any innovative way to turn things around. In fact, the rate of introduction of new products has slowed considerably (I think, but can't find a source).

Instead, we've got a lot of talk about new regulations. Just as in the 1930's, when the opportunities for financial innovations slacked off, the opportunities for government innovations rose. This actually teaches an important lesson about innovation: it follows opportunity, not need.

My most creative baking comes not when I am lacking time and resources, but when I have plenty of the first and interesting ingredients. This is why I post more recipes over the winter and early spring, during the sailing off-season, and when the normal fruits are supplanted by ones that I hadn't thought to use before. Financial innovation, and its attendant systemic risk, always has and always will follow the same pattern. Macro economists believe that good monetary policy can lessen the impact of this, and perhaps they are right, but central bankers are human, and no human is truly independent political pressure. Supply-siders will claim that regulation is itself the problem, ignoring the history of financial bubble bursts going back to the early days of modern banking. Keynesians and those farther left believe that if only regulation were done correctly, by the correct people, disaster could never happen. All ignore the fact that people are fallible, often greedy, and only work to the best of their ability when there is a clear reward, be it a massive bonus, the satisfaction of a job well done, or a delicious pie.

So, financial disasters happen because any system that provides prosperity for a lot of people relies on assumptions that are not always true. The same can be said of transportation, electrical grids, and fruit farms. Policy prescriptions that include naming a "systemic risk regulator" or otherwise trying to prevent disaster provide a false sense of security that encourages people to buy into systems whose risks they do not understand in the hope that some powerful, disinterested party is watching out for them. That party will never, can never, be as powerful and disinterested as the legislation demands, cf. Madoff and the SEC. Instead, let's try not to forget that to everything there is a season, and as individuals, companies and governments separately prepare for both a large harvest and a long drought.

Yes, this is much easier said than done. But at least I think it's saying the right thing.