Why a Culture of Speculation Has Led to the Economic Crisis

As the global economy stalls, the media is working hard to identify those responsible for the economic chaos, but is there really a distinct group of people to blame? The issues and events driving the current economic slowdown are complex, and it is therefore impossible to identify a single cause – but oil speculators are currently taking much of the flack.

Speculative Investors

Certainly, oil companies and investors have reaped spectacular returns during the crisis, but can their influence really have global reach?

Speculators have become the bogeymen of the current crisis, but they are less monstrous than the media would have us believe. In essence, a speculator is just a short-term investor that takes a high-risk position against a fast moving stock in either direction – a speculator can make money by correctly predicting if a stock will increase or decrease in value. Like any other type of investor, they are simply taking a risk by speculating about the future of a stock.

Oil speculators have become high profile targets for two reasons. Firstly, the outstanding market performance of oil has attracted large numbers of speculators to the commodity, and secondly, the price of oil has famously only moved in one direction, making it an easy commodity to predict and keeping most speculative investors in the game. Certainly, their positions will have some market influence, but they cannot be held responsible for taking oil from $26 to $140 per barrel. After all, they are following market trends, not dictating them.

A Culture of Speculation

Speculators exist simply because our current economic system allows them to operate. It is not speculative investors themselves that are causing damage to the global economy but rather the whole concept of speculation, which has found a home in the free market.

Speculation has become more than an investment approach; it’s become a sensibility that runs deep into the roots of our financial and economic system and is particularly prevalent in the global banking system.

So, can we blame central bankers for the crisis? Certainly, they must share a proportion of blame because they knew what they were doing. Unless the global banking institutions were grossly negligent, they must have been fully aware of the extent of their subprime exposure and the associated risks.

However, hindsight has demonstrated that the imprudent risk management procedures in the global banking industry as a whole have been short-sighted. The financial services have worked to maximize profits during the boom years at the cost of massive losses in today’s downturn.

The irresponsibility of these institutions was highlighted in April when the Institute of International Finance (representing more than 375 of the world’s largest financial companies) accepted blame for the crisis, acknowledging “major points of weaknesses in business practices.”

Failed Gods

In their book, The Gods That Failed, Larry Elliott and Dan Atkinson argue that our current financial and economic model is headed by a new “Olympian” class of politicians and central bankers. These elites have instilled greed, excess and speculation into the very heart of our current system to facilitate their own financial gain.

In their defense, global financial institutions remind their critics that they have delivered an unprecedented period of economic growth. “If you look back historically, this period of growth is not unprecedented,” explained Larry Elliott in an interview for the Guardian. “We’ve had longer periods of higher growth in previous decades when the spoils of that growth were spread far more evenly than they have been over the recent few years.

“And in fact, the cost of the growth we’ve seen has been building up in the background. Essentially, these economies have only been able to keep going through the creation of bubbles; when one bubble bursts, policy makers have engineered another. So I don’t think that the way in which the economy’s been run over the last 15 years has been sustainable.”

In our enthusiasm for prosperity, it seems that we have forgotten a basic law of economics: that bust will always follow boom. Certainly, there is little that politicians, central bankers or investors could have done to avert the business cycle altogether, but if the financial services were in better shape and more tightly regulated, then we could have experienced a softer landing.

Somewhere along the way we have lost contact with the realities of our global economy. A culture of speculation has opened a chasm between the financial markets and the underlying economy – and we are now witnessing the resulting fallout.

All that remains is lessons for the future.

Locum Tenens: Doctors as “Hired Guns”

While I have posted previously on how various business models in the practice of medicine, there is one business that is actually quite profitable for a physician who does not want the cost or hassle of running a private solo, group, or managed healthcare type of medical practice. That is the job of being a locum tenens.

A “locum tenens” position is a temporary physician position where a doctor fills in a need for a short term assignment. Typically it is a traveling position, and the doctor will register with a locums company. A hospital or practice needing a physician on a short term basis can hire a locum temporarily. It is actually quite similar to the “traveling nurse” type of career where nurses move from one location to another.

There is a small percentage of physicians who work as locums permanently with no home practice. In this day and age of shift work type of medicine, the locum position is probably most similar to an ER physician’s career where the work is shift work: you come to work for a condensed period of time then you relax and take it is easy when not working.

What is attractive for a physician to do locums is that they are filling a need and typically get paid by the day, with travel and lodging included. Thus, that physician does not have to worry about running a medical practice or hiring employees or getting patients or any overhead.

I personally know a handful of friends who do locums work. They are semi-retired and want to travel a bit while also working to make some money. They don’t want to retire fully because they don’t want to lose their skill set.

As far as compensation, you are a “hired gun” and can make good money. It is an eight-hour workday with overtime usually. For those in specialties in demand, a locum position can be several thousand dollars per day. You don’t necessarily get the satisfaction of building relationships with patients or running your own business, but you can have a better life if you set it up right.

Election Issues IV: “The Palin Effect” and Working Moms

Let me just say right off the bat that I’m not here to add fuel to the raging tabloid fires burning everywhere these days over John McCain’s selection of Sarah Palin as his running mate. Better bloggers than I have already said better things than I can even imagine, both pro and con and everything in the middle too, and this is after all an economics blog, not a political blog.

But I have noticed with growing interest a strange phenomenon that first appeared in the wake of the Palin announcement, kind of like the Loch Ness monster might have appeared briefly in the wake of a motorboat scooting across some Scottish pond, then submerged again, then appeared again, until finally nobody was really looking at the boat at all anymore because that re-emerging monster was so strangely familiar.

“The Palin Effect” is a familiar beast alright; it is none other than that long (we thought) debunked rhetorical 1970s chimera,

“Do working mothers damage their children?”

Can you believe that geezer has the nerve to reemerge after all this time, and what’s more, to do it in the company of a woman who admits to shooting large animals dead in Alaska and gutting them for fun?

Well believe it. It’s back. Thirty years after 1970s feminism held its funeral and catapulted Hillary Clinton into a force to be reckoned with on the political and world stage, here comes none other than Newsweek with a feature article entitled “To Work or Not,” pitched with the familiar tag:

“A new study finds that children of privileged families fare worse when the mother works outside the home. But what does the research really tell us?”

Really? A new study on the damage wrought by working moms? You mean to tell me someone is still doing these kinds of studies? Where? In a time machine? In one of the wormholes created this week when the Large Haldron SuperCollider was turned on to investigate the Big Bang? Is someone, somewhere, also burning a bra and refusing to shave her armpits? Is Gloria Steinem going to be on Oprah with Marlo Thomas again?

No, it turns out the only working moms of interest here, the ones possibly doing the most severe (possible) damage to their progeny, are the moms of privileged families, as in rich moms. Moms who are already rich, the article suggests, may be making their kids slightly fatter and less happy by working outside the home. According to a study published by University of North Carolina economist Christopher Ruhm, kids who come from low-income families with working mothers don’t seem to be nearly as disadvantaged as rich kids who come from homes in which rich mom goes off to a job.

Poor kids with working mothers actually perform at the same level on school exams, or slightly higher, than poor kids whose mothers stay at home. Rich kids, on the other hand, see a decline in their test scores under similar conditions. Rich kids with working moms also tend to weigh slightly more than rich kids with stay-at-home moms.

What conclusions are we to draw from this data?

Ruhm explains that, while no specific conclusions can or should be drawn, the data are suggestive and warrant further study and thought. Ruhm says his own wife worked while their children were small, and he doesn’t want his study to be taken as a warning that rich moms should stay out of the workplace.

“This comes down to a fundamental principle of economics: something has to give. We can’t have it all,” Ruhm says. “But I would never tell anybody what to do or not do about that. I certainly wouldn’t tell my wife.”

Right. And yet here we have this article in Newsweek strongly suggesting that poor women do their kids a favor by earning some cash for Pete’s sake, while rich moms need to understand that their desire for a career may come at the cost of little Tiffany getting a prom date (when that special time finally comes).

My own children were born on the declining cusp of the feminist movement of the 1970s, at a time when you couldn’t pick up a collection of recipes that didn’t have an article featured on the cover about the horrible dilemma faced by working mothers. Can women have it all? Should they? Does it harm the children?

Today, most women need to work. A single income is no longer sufficient to float a middle class family. The increase in the number of children in poverty is largely due to the increase in single mothers and the inadequacy of their less-than-equal wages. It takes two people working two or more jobs now to do what one guy could do back in the 50s and 60s: put food on the table. Everyone knows this. Working women have become the norm, and working mothers, while not having it easy by any bizarre stretch of the imagination, have more than proven it can be done and done well.

What interests me about the reemergence of these kinds of articles is that they are arriving concurrent with large numbers of women exiting the workforce. Back in 2000 when economists first noticed women leaving the workforce, it was assumed that with unemployment rising and jobs growing more scarce, affluent women were choosing to sit out the job hunt until their children were of school age, or even longer, because they had that choice.

That assumption was found to be false, however, by a panel of economists in a Congressional study described in a July 22, 2008, New York Times article. It turns out that women are exiting the work force for the same reasons men are: a bad economy. Women are losing their jobs through lay-offs or attrition and have been unable to find new ones. Many women are simply dropping off the charts.

Mark Twain famously noted that there are three kinds of lies: “Lies, damned lies, and statistics.” When Palin burst onto the national scene in a conservative venue with five kids in tow, a trendy suit, designer specks, a bun, and a hot body, it made a lot of people woozy. Was she a parody of a stripper librarian or the most amazing Superwoman in the History of America? Lots of tongues wagged about bringing home the bacon, frying it up in a pan, and who changes the diapers anyway? If the red phone rings at 3:00 a.m., will her hands be full of wet naps and talcum, or will she be able to put Putin in his place while applying fresh lipstick?

Weird stuff. We shouldn’t let it distract us from real economic issues, which are issues facing people today, not women. Declining wages, too few jobs, unequal pay, poor day care choices, expiring unemployment benefits, food prices that keep rising even though food stamps don’t: these are issues facing Americans, not women, and certainly not just privileged women.

It’s great to sell magazines and newspapers. That creates jobs and profit I guess.

But do we really have to return to the 70s to do it?