First, let’s assume we have a stapler

Of all the articles and readings we discussed these past two sessions, I found none more interesting than Paul Krugman’s piece, “How did Economists get it so wrong?” In the article, Krugman details the numerous issues that U.S. economists either blatantly missed, or simply ignored, issues that ultimately led to the utter financial collapse we witnessed in July 2008. This crash is widely considered to be the worst economic downfall since the Great Depression. Aside from the deep, long-standing issue I take with economic theory (namely that it’s just that: theory), this article reminded me of a similar financial disaster related to Short Termism: the Bernie Madoff  ponzi scheme. While one may initially struggle to see the ties between these things, allow me to share a little information about the Madoff Scheme that some may not know. In a nutshell, Madoff schemed his investors by consistently declaring larger profits than their assets were actually earning. Thus, on paper, all appeared not just well, but fantastic for those from whom he’d taken money.

        Did you guys hear something? 

The weird part of this story comes in the form of New York Mets’ principal owner, Fred Wilpon. Having had nothing but success with Madoff in recent years with his investments, Mr. Wilpon encouraged several people to make the same decisions he had: Invest with Bernie. He’s the best. Several Mets players were reportedly paid, but promised compensations that had been invested with Madoff. As external investors, noone was allowed to speak with Bernie directly. They were shown the extraordinary too-good-to-be-true numbers, told the same would happen for them, but were allowed to ask limited questions regarding the actual investing process itself.
Let’s stop right there, as this is all I need to make my point. How do you blindly invest MILLIONS from your life savings with a man whom you’ve never met, and aren’t ever allowed to question?  While this comparison may be a bit of a stretch, I feel that it all falls under the same pervue of Short Termisim. That is, focusing on short-term goals (in this case, earn profits quickly) and ignore potential long-term issues.  U.S. economists did it. Madoff’s investors did it. And if this continues to happen, with the heads of this country throwing around billions of dollars without asking the right questions, or making the right insights, we could all be victims of a continuous onslaught of disasters and scandals for years to come.

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4 Responses to First, let’s assume we have a stapler

  1. Jordi says:

    Add tags to your post! Love the adding of the graphic…but, um, can you explain it?

  2. mcardinute says:

    Ha Ha nice picture Justin. I agree, anything that is a “quick fix” is usually a too-good-to-be-true scheme. Everyone wants answers, but lacks the courage or knowledge to ask how these answers or goals will be reached. Although, it is easy to tag along when the President of your organization is highly encouraging you to invest your money with Bernie. You have to think, not every American, let alone, professional athlete is rational.

  3. kjc013 says:

    I agree with both of you. First of all, people are way to impulsive in most aspects of life, wanting immediate satisfaction rather than being patient and reaping the long term benefits. Unfortunately, when it comes to the economy, acting in this manner has much more detrimental and long-lasting consequences than those other aforementioned life decisions. On an unrelated note, it is ironic that Americans value money so highly, yet they were willing to invest millions of dollars with a man who was not available to speak with them. Very ironic. I can definitely see how that relates to the concept of short-termism. Ps, great writing style 🙂

  4. JWitty says:

    Hey guys thanks for the feedback (particularly that part about the writing style). I’m glad that my post was able to generate some discussion, and it’s clear that your comments aren’t posted only because they’re mandatory (I think the Prof and I both benefit on that one). KJC, I like how you pointed out the irony in the American mind of making money. I will say these people were given very persuasive presentations about Madoff, and promised extravagant returns far above that of market level. However, it just strikes to reason that you should know SOMETHING about where you;re putting your money. Right?

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