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The Internet Has Caused All Our Economic Woes

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In The Crisis of the Real (Sep. 2006), I put forth the argument that we were entering a dangerous economic phase, essentially a revolt against the precession of the simulacra in economics and culture, particularly in the pricing structure of securities. To understand what this meant, I looked at the precession of the simulacra outlined by Jean Baudrillard in Simulacra and Simulation, published back in 1981. See, the idea is neither new nor original, though it is unorthodox when applied to securities markets. For some reason, most of us presume securities markets operate in a defined reality which is somehow immune or independent of philosophical considerations.

Simulacrum, for Baudrillard, is a copy of an original that displaces the original as a sign and becomes real in its own right.  In fashion, think of the way Ralph Lauren's "Double RL" label operates; largely these are reproductions of vintage wear, a commodity supplanting the original in terms of desire and authenticity.  Presumably, consumers would prefer to purchase new reproductions of vintage clothing, paying a premium for the simulacra that displaces the original in authenticity, creating a new reality.

In terms of finance, we can characterize modernity as a seemingly linear (linearity being an idea we will return to) progression of the following:
- increased modes of production
- increased movement of goods and capital
- the development of a structural framework in which the movement of goods and capital can interrelate and "grow"
- corresponding division of labor.

What, then, is postmodernity as it relates to economics and finance, securities markets? In the simplest sense it is a reaction to the authoritarian linearity of modernity.

What is the price of a security but an image? It is a "signifier" of some "thing." But what? Is it objective? Is price "real"? Baudrillard's successive phases of the image, if viewed in terms of securities pricing, suggest the cyclical phases of markets.

Successive Phases of the Image (with price relation in parentheses)
- it is the reflection of a profound reality (Price means something profound with respect to the security; for example in the earliest forms of exchange, barter, where one chicken is exchanged for a defined amount of cotton. This is a tangible price relationship.)
- it masks and denatures a profound reality (Price disguises a profound reality - the value investor's dream, for example, where the price of a security itself disguises the reality of tangibility, where we begin to detach from it.)
- it masks the absence of a profound reality (1999, the dotcom bubble, home prices in 2005 and 2006.)
- it has no relation to any reality whatsoever; it is its own pure simulacrum, a copy without a model (The decoupling of paper money from tangible goods, the continuous, seemingly endless ability of paper money to self-perpetuate, derivatives, trading vehicles which exist for their own sake and which no longer have any relationship to an underlying; structured securities, weather futures, futrues of futures.)

From the standpoint of the final phase of the image (price) then we are now witness to securities markets that have no relation whatsoever to anything - solely existant as a pure simulacrum from which higher and lower are relations to something without meaning; in other words hyperreal markets.

More recently, this Crisis of the Real has emerged as a Crisis of Non-Linearity. And this is where the Internet, while perhaps not really the cause of all our economic and cultural problems, has at least helped expose them. It's this exposure which has caused the rupture.

The technological revolution was not simply the ability to detach communication from land lines. It was not simply the ability to deliver massive amounts of information across vast distances. It was not simply the ability to shrink geography and expand our cultural and social networks across space and time. Instead, this ongoing revolution has illuminated a world of non-linearity that already existed but which, faced with the limitations of physical space and time, was not always readily apparent. The unexpected, unfamiliar and unexplained in that previous world was the outlier, the exception. Consequently, our experiences were readily shaped by narratives, self-created and self-imposed linearity on a chaotic world masked by the the power of modernity; the assembly line, the order of the urban landscape, the institutionalized translation of events into narrative cause and effect, that is to say, media, history's gatekeeper.

This morning I ran across an article in the Harvard Business Review: Grandiose, Narcissistic, Impulsive E-Personalities — and What They Might Do to the Economy.

"Is it possible that the Great Recession of 2008-2010 might have something to do with our coming of age as virtual creatures?," asks Elias Aboujaoude. It's not only possible, it's probable. "They call it "real" estate for a reason, yet many of us approached first, second, and vacation homes as though they were virtual property, castles we built in the sky. Debt stopped scaring us because money had stopped being real. The "correction" that has followed is surely very painful, but only as painful as the buying binge that preceded it was unhinged from reality."

Indeed. This detachment of the "real" from real estate, is deeply interwoven in the non-linearity the Internet magnifies. By simultaneously shrinking distances and expanding both the amount of information we can access and the size of our social and cultural networks, the Internet has increasingly forced us to confront non-linearity at every turn; events which could not have been predicted, narratives that are no longer explanatory for our experiences. The assembly line has failed. The order of the urban landscape was a hoax. The gatekeepers have fallen. It is no longer possible to explain our experience of the world in a convenient linear narrative because empowered by advances in technology, advances we are still grappling with, and the shift in physical space these advances have create, the compression in time these advances have created, A + B does not always lead to C. It is a crisis, a crisis of non-linearity and the failure of our former narratives to account for how we now experience the world. This crisis affects everything from communication to currencies to finance, valuation, what constitutes a "price," to education, entertainment, art and religion.
POSITION:  No positions in stocks mentioned.