Keynes' Over-worked Grandchildren?

In a New Yorker book review essay, Elizabeth Kolbert revisits one of my favorites, "Economic Possibilities for Our Grandchildren" by John Maynard Keynes:

Keynes delivered an early version of “Economic Possibilities” as a lecture at a boys’ school in Hampshire. He was still at work revising and refining the essay when, in the fall of 1929, the stock market crashed. Some might have taken this as a bad sign; Keynes was undeterred. Though he quickly recognized the gravity of the situation—the crash, he wrote in early 1930, had produced a “slump which will take its place in history amongst the most acute ever experienced”—over the long run this would prove to be just a minor interruption in a much larger, more munificent trend. In the final version of “Economic Possibilities,” published in 1931, Keynes urged readers to look beyond this “temporary phase of maladjustment” and into the rosy beyond.

According to Keynes, the nineteenth century had unleashed such a torrent of technological innovation—“electricity, petrol, steel, rubber, cotton, the chemical industries, automatic machinery and the methods of mass production”—that further growth was inevitable. The size of the global economy, he forecast, would increase sevenfold in the following century, and this, in concert with ever greater “technical improvements,” would usher in the fifteen-hour week.

To Keynes, the coming age of abundance, while welcome, would pose a new and in some ways even bigger challenge. With so little need for labor, people would have to figure out what to do with themselves: “For the first time since his creation man will be faced with his real, his permanent problem—how to use his freedom from pressing economic cares, how to occupy the leisure, which science and compound interest will have won.”

As Kolbert notes, Keynes' predictions about growth were pretty well on-target. He wrote: "I would predict that the standard of life in progressive countries one hundred years hence will be between four and eight times as high as it is to-day."  That implies an annual growth rate between 1.39% and 2.08%.  According to Maddison project data, UK real GDP per capita rose 4.37 fold between 1930 (when Keynes wrote) and 2010, which gives an annual growth rate of 1.84%.

While Keynes was correct about growth, his prediction about leisure has not come true.  At least not fully - hours worked have fallen, though much more in Europe than in the US -

but even Western Europe is far short of "three hour shifts or a fifteen-hour week." 

That we're still working so much calls into question how we think about work, leisure and preferences.

Among the explanations are:"conspicuous busyness" - i.e., that appearing overworked is a signal; Paul Krugman discussed this on his blog a while back:

First of all, [James Surowiecki is] right that for what he calls knowledge workers — I’d just say elite workers in general — the whole time ethos has changed. When I was growing up on Long Island, there was a clear class hierarchy on commute times. Early trains were filled with menial workers; the later the train the more and fancier suits, with executives starting their day at 9:30 or 10. These days it is if anything reversed: lots of hard-driving suits on the early trains, much more mixed later on.

So what is this about? Surowiecki emphasizes the incentives of employers, and their difficulty in taking the negative effects on productivity into account. My sense, however, is that the most important factor — which he alludes to but doesn’t put at the center — is signaling. Working insane hours is a sign of commitment, of willingness to sacrifice for the job; the personal destructiveness of the practice isn’t a bug, it’s a feature.

This may be true in parenting, as well - as Kolbert writes (referring to "Overwhelmed" by Brigid Schulte): 

One theory she entertains early on is that busyness has acquired social status. The busier you are the more important you seem; thus, people compete to be—or, at least, to appear to be—harried. A researcher she consults at the University of North Dakota, Ann Burnett, has collected five decades’ worth of holiday letters and found that they’ve come to dwell less and less on the blessings of the season and more and more on how jam-packed the previous year has been. Based on this archive, Burnett has concluded that keeping up with the Joneses now means trying to outschedule them. (In one recent letter, a mother boasts of schlepping her kids to so many activities that she drives “a hundred miles a day.”) “There’s a real ‘busier than thou’ attitude,” Burnett says. 

Another hypothesis is that people derive satisfaction and a sense of identity from work.  Kolbert quotes from "Revisiting Keynes" - 

A third group of economists challenges the Keynesian presumption that leisure is preferable to labor. Work may not set us free, but it lends meaning to our days, and without it we’d be lost. In the view of Edward Phelps, of Columbia University, a career provides “most, if not all, of the attainable self-realization in modern societies.” Richard Freeman, of Harvard, is, if possible, more emphatic. “Hard work is the only way forward,” he writes. “There is so much to learn and produce and improve that we should not spend more than a dribble of time living as if we were in Eden. Grandchildren, keep trucking.”  

Phelps and Freeman are correct that our standard treatment of work (bad) versus leisure (good) often misses something important.  This was present in the early "romantic" Marx, who said, "man is a tool-using animal".  The relevance varies a great deal, I suspect - some of us have the good fortune not to feel "alienated" from our labor, though, for many, work is the drudgery that standard economic theory assumes it to be. 

A third explanation relates to the fact that "quality" is a relative concept and the desire for ever-higher quality goods keeps the consumption motive from slackening - this was explained well by Robert Frank in an NYT column.

Flo Doesn't Know the Lucas Critique

In the March issue of Automobile magazine, Ezra Dyer recounted his experience with Progressive insurance's "snapshot" system, the latest innovation in trading privacy for money (which we all seem pretty well inured to these days).  Customers who sign up for snapshot receive discounts for "safe driving," which is measured with a device that transmits data to Progressive from your car using the cell network.

Dyer explains:

According to the rules, Snapshot can generate a discount but not a surcharge -- unless you live in Rhode Island. The device logs your speed, but that's not a factor in the calculations because Progressive doesn't know where you are -- you might be doing 65 mph in a 70 zone or 45 mph through a car wash (although one wonders if a few trips into the triple digits would disqualify you from a safe-driver discount). The deciding factors are what time of day you drive, how far you drive, and how forcefully you brake.

The reason for the braking criteria is that "gentle braking apparently correlates to low insurance claims".  Anyone familiar with the Lucas critique will spot the problem with this, as Dyer does: 

If you're approaching a yellow light, Snapshot is an incentive to risk running the red rather than hitting the brakes. If a deer jumps out in front of you, Snapshot would prefer that you swerve into the oncoming lane rather than mash that brake pedal.

That is, the past relationship between braking behavior and driving safety reflects the behavior of agents under one set of incentives - if you change their incentives, their behavior will change, and the previous relationship between braking and safe driving will no longer be valid.

What Progressive really needs is a "structural" model that embodies the underlying preferences of their customers, which will be invariant to the policy change.  Of course that's a much harder thing to do (as macroecomists have discovered over the past several decades...).

A Professorial Dilemma (RIP, Saab)

Sad news from Trollhättan, the NY Times reports:

The owner of Saab Automobile finally threw in the towel Monday, filing for bankruptcy after hopes of a life-saving investment from Chinese investors collapsed in the face of opposition from General Motors.

This creates a dilemma for those of us who feel a professional obligation to uphold the stereotype of the Swedish-car driving college professor, but believe we are too cool for Volvos.

The Economist's "Schumpeter" column gave a the brand a nice (though slightly premautre) obituary in September.  It is still possible someone will buy the company whole in bankruptcy and restart it, but most reports suggest liquidation is more likely.

The College Tour

In the Times, high school senior Lauren Edelson writes of a new cliche on the campus tour:

I was surprised when many top colleges delivered the same pitch. It turns out, they’re all a little bit like Hogwarts — the school for witches and wizards in the “Harry Potter” books and movies. Or at least, that’s what the tour guides kept telling me.

During a Harvard information session, the admissions officer compared the intramural sports competitions there to the Hogwarts House Cup. The tour guide told me that I wouldn’t be able to see the university’s huge freshman dining hall as it was closed for the day, but to just imagine Hogwarts’s Great Hall in its place.

At Dartmouth, a tour guide ushered my group past a large, wood-paneled room filled with comfortable chairs and mentioned the Hogwarts feel it was known for. At another liberal arts college, I heard that students had voted to name four buildings on campus after the four houses in Hogwarts: Gryffindor, Ravenclaw, Hufflepuff and Slytherin. Several colleges let it be known that Emma Watson, the actress who plays Hermione Granger in the movies, had looked into them. I read, in Cornell’s fall 2009 quarterly magazine, that a college admissions counseling Web site had counted Cornell among the five American colleges that have the most in common with Hogwarts.

Hmm... for something different, she should visit Carleton College in Northfield Minnesota, where the tour guide would no doubt highlight the fact that a scene from "Mighty Ducks 3" was filmed in Carleton's Great Hall.

The Theory of the Blackberry Class

In the Times last week, Daniel Gross revisited The Theory of the Leisure Class, the most famous work of Carleton College's most famous alumnus, Thorstein Veblen. Though much of what Veblen wrote continues to be relevant today, Gross notes that conspicuous leisure no longer seems to be a preferred way for people to display their wealth. Indeed, quite the opposite:

In the contemporary money culture, to be at leisure, to be idle, is to be irrelevant. After Bank of America acquired Merrill Lynch, John Thain, the former chief executive of Merrill, was pushed out, in part because he insisted on going skiing at Vail over Christmas and wanted to attend the World Economic Forum in Davos amid the company’s continuing crisis. A great many people can afford not to work and could spend their time shuttling between multiple homes, eating fabulous meals and playing golf. Yet they continue to work around the clock. Of course, the private jet, the BlackBerry and the Internet allow people to do all of the above. But among Type-A, self-made members of the leisure class, there’s a sort of reverse prestige associated with leisure. At Davos, which is filled with conspicuous consumers, the only people who ski are the journalists.

Ezra Klein has an explanation: unlike in Veblen's era, when tycoons derived their income from capital, their contemporary equivalents - investment bankers, CEOs, professional athletes etc. - are the beneficiaries of increasing disparities in labor income. Klein writes:

Veblen, who died in 1929, saw a large overclass that earned most of its wealth through returns on capital. Essentially, their money made money for them. Which gave them time to hang about and conspicuously consume. In the period after his death, that overclass shrank substantially, first because the Great Depression battered them and then because the New Deal disadvantaged them. But by the start of the 21st century, they were back. At least in terms of wealth concentration. Their money, however, wasn't coming from capital returns. It was coming from wages and salaries. They were -- gasp! -- working.

Inefficient Labor Market Outcomes (NY Yankee Edition)

One point made by Keynes is that the classical assumption that labor supply is based on the marginal disutility of working ignores the fact that people care about their relative wages. For example, SI's John Heyman reports:

Saw a headline the other today in an NY paper: "Pavano Solid.'' And I can't think of any bigger waste of space. To learn what Pavano's about, read John Feinstein's interesting book Living on the Black, about Mike Mussina and Tom Glavine. In one story, when Mussina was offered slightly less than $10 million a year in a new contract by the Yankees, he told Cashman, "I can't be paid less than Pavano,'' or words to that effect, and Cashman understood completely. Mussina was then paid $11.5 million a year, or slightly more than the sedentary Pavano.

Keynes (General Theory, ch. 2):

Though the struggle over money-wages between individuals and groups is often believed to determine the general level of real-wages, it is, in fact, concerned with a different object. Since there is imperfect mobility of labour, and wages do not tend to an exact equality of net advantage in different occupations, any individual or group of individuals, who consent to a reduction of money-wages relatively to others, will suffer a relative reduction in real wages, which is a sufficient justification for them to resist it....

In other words, the struggle about money-wages primarily affects the distribution of the aggregate real wage between different labour-groups, and not its average amount per unit of employment, which depends, as we shall see, on a different set of forces. The effect of combination on the part of a group of workers is to protect their relative real wage. The general level of real wages depends on the other forces of the economic system.

Of course, the marginal product of Mussina's labor is way, way higher than Pavano's (a fixed nominal contract the Yankees surely regret).

A Beacon of Insane Deals

The sale of domestic assets to foreign owners is one manifestation of the US current account deficit (and the declining dollar is making those assets cheaper). On the Daily Show, Lewis Black considered the implications:

Tom Wolfe, Schumpeterian

A year ago, just before the credit market crisis began, Tom Wolfe visited the New York Stock Exchange and declared: "we may be watching the end of capitalism as we know it." The Times' Andrew Ross Sorkin has an interesting follow up:

When I asked Mr. Wolfe about his comment on the floor of the stock exchange, he said, “I didn’t realize anyone would take me seriously.” He says he has since made up an explanation of why he thought it could be the end of capitalism.

Citing Joseph A. Schumpeter, the economist, Mr. Wolfe said, “Stocks and bonds are what he called evaporated property. People completely lose touch of the underlying assets. It’s all paper — these esoteric devices. So it has become evaporated property squared. I call it evaporated property cubed.”

Then he cautioned, “Of course, I’m not an economist.” Maybe that’s why he’s gotten it so right.

So, does this mean the 1980's are over for real this time?

The Economic Consequences of Mr. Bickle?

According to the FT's Alphaville blog, Robert Mundell is claiming that "Taxi Driver" played a crucial role in economic history:

The 1976 classic, directed by Martin Scorsese with Robert De Niro as the bitterly alienated protagonist [Travis Bickle], gave the world De Niro’s catchphrase “You talking to me?,” and also introduced a young Jodie Foster. But what does it have to do with the world economy?

John Hinckley, the deranged would-be assassin who attempted to kill Ronald Reagan in 1981, claimed that he was inspired by it. He said that his action was an attempt to impress Foster. (The movie features a scene in which a mohawked De Niro attempts to assassinate a politician.)

According to Mundell, the wave of sympathy for President Reagan that was engendered by the assassination attempt deterred Democrats in Congress from voting against his proposed tax cuts. Due to this accident of history, the US administered a big fiscal stimulus at the same time that Paul Volcker at the Federal Reserve was administering tight money. This, for Professor Mundell, was vital in creating the era of prosperity that followed.

“Taxi Driver is the most important movie ever made from the standpoint of creating GDP,” Mundell told delegates. “It’s the movie that made the Reagan revolution possible. That movie was indirectly responsible for adding between $5 trillion and $15 trillion of output to the US economy.”

Um... I'm not quite sure what to say about that, but, setting aside my disagreement on the merits of Reagan's economic policies (see, e.g., this earlier post), here are several thoughts:

• It was also very crucial that Hinckley missed - as an opponent in the 1980 Republican primary, Vice President Bush had referred to Reagan's economic proposals as "voodoo economics."
• Reagan did have a complicated relationship with movies, as this story told by former House Speaker Tip O'Neill reminds us:

  When Reagan commented on O'Neill's huge oak desk, the Speaker said it had once belonged to Grover Cleveland. Replied Reagan: "You know, I once played Grover Cleveland in the movies." O'Neill had to correct him: "No, Mr. President. You're thinking of Grover Cleveland Alexander, the ball player."

• Movies are endogenous - the same climate of disaffection that made films like "Taxi Driver" resonate with the public also led to the political shifts that allowed Reagan to be elected.

The Economist Rap

I am so un-hip that I was unaware of the existence of "Nerdcore" rap, until Chris Blattman (and Tyler Cowen) pointed me to this hip-hop homage to "The Economist" magazine:

Psikotic – The Economist

Does this mean it is, indeed, hip to be square?

Brauchli Chopped?

Or so I think Rupert Murdoch's New York Post might have headlined this Times story about change at one of his other properties. The Times' editors were, naturally, more restrained:

Wall St. Journal Editor Expected to Resign

Marcus W. Brauchli will step down as the top-ranking editor of The Wall Street Journal after less than a year in the job, four people briefed on the matter said on Monday, just four months after Rupert Murdoch took control of the paper.

Mr. Brauchli, 46, will announce his resignation soon, according to friends and current and former colleagues, all of whom requested anonymity because they were not authorized to discuss the matter. They differed as to whether he was being forced out as managing editor of The Journal, one of the most coveted posts in journalism, or leaving out of frustration.

Perhaps Murdoch was inspired by this classic song: (sorry, couldn't resist...)

Professor Jones and the Committee of Doom?

Inside Higher Ed reports:

...Blowtorch Entertainment will next month begin filming on “Tenure,” which is about a college professor coming up for tenure (Luke Wilson) and facing off against a female rival who recently arrived at (fictional) Grey College. (The part of the institution will be played by Bryn Mawr College, where the movie will be shot.) David Koechner will play the professorial sidekick to the Wilson character, and the production company is planning kickoff events next year to promote the film in college towns.

Brendan McDonald, the producer, said that he viewed academe as “one of the interesting worlds to explore” and said that he viewed the project as “lampooning the tenure process.”

Hmmm... the tenure process certainly could use some lampooning. Its hard to see that doing well at the box office, but I'll go see it. Then again, maybe I should wait and rent it after I get tenure. OK, back to work...

Steven Colbert: Lose Hope to Gain Confidence

The number of people working fell last month, but the unemployment rate declined (see earlier post). Steven Colbert explains:

None More Black

This has nothing to do with economics, but I can't resist. The Washington Post reports:

Researchers in New York reported this month that they have created a paper-thin material that absorbs 99.955 percent of the light that hits it, making it by far the darkest substance ever made -- about 30 times as dark as the government's current standard for blackest black...

"It's very deep, like in a forest on the darkest night," said Shawn-Yu Lin, a scientist who helped create the material at Rensselaer Polytechnic Institute in Troy, N.Y. "Nothing comes back to you. It's very, very, very dark."

Or, in the immortal words of Nigel Tufnel: "It's like, 'how much more black could this be?' and the answer is none. None more black."

Remebering the 1980s

On its 20th anniversary, the Times revisited The Bonfire of the Vanities, Tom Wolfe's novel capturing the zeitgeist of the 1980's. I particularly liked this comment:

“Twenty years later, the cynicism of ‘The Bonfire of the Vanities’ is as out of style as Tom Wolfe’s wardrobe,” proclaimed the Rev. Al Sharpton.

The book, which featured a bond trader as main character, came out about a month after the 1987 stock market crash (see this previous post).

German Efficiency?

According to this fascinating NY Times story, in Germany, it is illegal to sell new books at a discount. This regulation helps keep small, independent bookstores and publishers in business:

In the United States chain stores have largely run neighborhood bookshops out of business. Here in Germany, there are big and small bookstores seemingly on every block. The German Book Association counts 4,208 bookstores among its members. It estimates that there are 14,000 German publishers. Last year 94,716 new titles were published in German. In the United States, with a population nearly four times bigger, there were 172,000 titles published in 2005.

At first glance, this is economically inefficient - high-cost retailers are not driven out of business, economies of scale are not realized, and Germans pay too much for their books. Three reasons come to mind about why the German regulations might make economic sense (i.e. improve overall welfare):

1. People like having bookstores in their neighborhood, and enjoy spending time there (even if they don't buy anything), and like variety, so the small bookstores have a positive externality for consumers.
   
2. A positive externality for national culture (which seems to be the argument of most of the people quoted in the story).
   
3. The utility of the producers themselves. Our customary models of profit maximizing firms ignore the obvious fact that many people - and I suspect this is particularly true of many small business proprietors - are motivated more by a sense of pride and accomplishment in their own work, than by wages.

The Germans are concerned by a recent decision by the Swiss competition commission to allow discounting. The director of the commission said:

It was a cartel. The German and Swiss booksellers said it was for a good purpose — they made a cultural argument, but we are an economic commission. They said the system fosters a broader, deeper market for books, that discounting will hurt the small booksellers who support the small publishers, and then you will have fewer books and more focus on best sellers...

I’m not quite sure they’re completely wrong. Nobody knows for sure yet. But nobody can read one million titles, so the question is, is it better that more people read fewer books or that fewer people read a lot of different books?

That's a good - and difficult to answer - question. However, being an "economic commission" is not a reason to disregard a cultural argument - good economic policy should be about improving the well-being of people ("welfare" or "utility"), much of which derives from difficult to quantify, non-pecuniary sources.

Professor Cringed (A Note on Ayn Rand)

One of the weirder aspects of Alan Greenspan's life was his association with Ayn Rand. In his excellent NY Times review of Greenspan's memoir, Michael Kinsley writes:

Freedom. For this proud square, this eager conformist and joiner of the establishment, freedom is nevertheless the supreme value of his life. Freedom and, he would add, rationality. In the early 1950s he joined the inner circle of Ayn Rand, the author of ''The Fountainhead'' and ''Atlas Shrugged,'' whose philosophy, known as Objectivism, was an extreme form of libertarianism that actually celebrated selfishness and greed. Many young brainiacs of dorkish tendencies go through an Ayn Rand period (her books are very popular at Microsoft). But Greenspan credits Rand as ''a stabilizing force in my life'' and was ''a regular at the weekly gatherings at her apartment'' through the early 1960s. She stood at his side when he was sworn in as chairman of the Council of Economic Advisers in 1974, and they ''remained close until she died in 1982.''

Occasionally I encounter students who are going through an "Ayn Rand period" - its just a phase, I remind myself. One I fortunately managed to avoid (I was more inclined towards Leon Trotsky), though one of my high school friends did make me read "The Fountainhead."

For Greenspan, though, it was more than just a phase. While I can excuse a central banker with questionable taste in literature, I always found it troubling to have a bona fide acolyte - a man who could say "objectivism" with a straight face - in such a powerful position. Lest I smirk too much, Paul Krugman's latest column is a reminder of the real consequences of Greenspan's worldview.

To the students I say: if you must be libertarian, its time to graduate to Hayek and "The Road to Serfdom," which is actually a good book.

As my for high school friend - he made it to the other side, and is now an attorney with a federal regulatory agency in Washington (take that, Ms Rand!).

The Economic Consequences of Mr. Torre

The market for New York Yankee mangers was once a notoriously flexible labor market, but now it provides an example of the rigidity known as "sticky wages."

Joe Torre recently turned down a $5 million contract to return to the team. That's lots of money - more than any other baseball manager - but a cut from the $7.5 million he received this year. Torre explained his decision:

If your salary is such and it’s reduced, yeah, $5 million is a lot of money; I’m not going to sneeze at that. I’m not going to make that this year. So it’s nothing I take for granted. The fact that someone is reducing your salary is telling me they’re not satisfied with what you’re doing.

Sports Illustrated columnist Tom Verducci described it as a de facto firing of Torre. The Yankees made "a contract offer they thought would strike just the right balance: just good enough for public relations purposes, but insulting enough that no man of Torre's pride and accomplishments would ever accept."

The psychological response to interpret a nominal wage reduction as an insult - preferring to withdraw labor rather than accept a cut - means that wages cannot effectively adjust in a downward direction.

This type of behavior has implications for the macroeconomic aggregate supply curve. One standard version of Keynesian* aggregate supply is based on sticky wages: a nominal wage is set in advance, and the quantity of labor demanded increases with the price level, leading to an upward sloping AS curve. In a recession, the adjustment of nominal wages necessary to return to the full-employment (classical) equilibrium is downward, while in a boom when output is above potential (i.e. the economy is "overheating") wages should adjust upward. If the upward adjustment can be accomplished easily, while the downward adjustment is resisted - i.e. wages are more sticky downward than upward - the resulting aggregate supply curve is flatter below potential output (full employment) and becomes vertical when potential output is reached. This is described by Keynes in chapter 20 of the General Theory:

There is, perhaps, something a little perplexing in the apparent asymmetry between Inflation and Deflation. For whilst a deflation of effective demand below the level required for full employment will diminish employment as well as prices, an inflation of it above this level will merely affect prices. This asymmetry is, however, merely a reflection of the fact that, whilst labour is always in a position to refuse to work on a scale involving a real wage which is less than the marginal disutility of that amount of employment, it is not in a position to insist on being offered work on a scale involving a real wage which is not greater than the marginal disutility of that amount of employment.

In addition to the implications for aggregate supply, The Economist suggests Torre's behavior illustrates a problem with efforts to improve corporate governance and reduce obscene CEO compensation:

In theory, if executive pay rose too high because it was set in a market dominated by cronyism (ie, a board of directors who are chums of the boss, who appointed them), then shouldn’t a move to a system in which the board actually tries to get value for the shareholders’ money result in lower pay?

Mr Torre’s fate shows why the answer is probably no. Once a pay level has been reached, it becomes a minimum. Mr Torre may still have been the best paid manager in baseball under the new contract, but he would not have been as well paid as before. He is already wealthy and successful. He needs the extra money less than he needs respect—much like the typical boss of a big company after a few years in the job.

Or, as Keynes wrote in chapter 3 of the General Theory:

Though the struggle over money-wages between individuals and groups is often believed to determine the general level of real-wages, it is, in fact, concerned with a different object. Since there is imperfect mobility of labour, and wages do not tend to an exact equality of net advantage in different occupations, any individual or group of individuals, who consent to a reduction of money-wages relatively to others, will suffer a relative reduction in real wages, which is a sufficient justification for them to resist it...

Of course, the alternative interpretation of his decision is that Torre places an extremely high value on leisure time activities, like watching the Red Sox play in the World Series on TV.

* There is some dispute regarding whether this is an accurate interpretation of what Keynes really meant.

Black Monday (and Gordon Gekko) Revisited

Wall Street marked the 20th anniversary of the largest-ever one-day percentage plunge in the Dow Jones Industrial Average with a 367-point (2.6%) drop. On October 19, 1987 - "Black Monday" - the Dow fell 508 points, which was a 22% decline from its previous close of 2247. The New York Times revisited its coverage (check out the screaming headline). The Wall Street Journal marked the anniversary on Monday with a comparison to today's market (and some nifty charts and a video interview with floor broker) and an interview with NYU financial historian Richard Sylla.

It was scary stuff indeed - certain middle-schoolers anticipated an economic depression - but the economy ultimately shrugged it off. Financial markets sometimes seem oddly disconnected from the real economy. The recovery that had begun in November 1982 continued until July 1990.

Though it was an economic non-event, perhaps it marked a cultural turning point - an end to the greedy, selfish materialism of the 1980's. In a recent Slate essay on the movie "Wall Street," which starred Michael Douglas as greedy corporate raider Gordon Gekko, Jessica Winter wrote:

Released in December 1987, two months after the Black Monday stock market crash and just one week before Ivan Boesky was sentenced to three years in prison for securities fraud, Wall Street appeared like the indignant coda to an era that had suddenly self-destructed. (Parts of Gekko's famous "Greed is good" speech are freely paraphrased from comments Boesky made in 1985.) "The eighties are over," Newsweek announced in its first issue of 1988, adding, "Maybe the best pop-culture indicator of the post-'80s spirit is the respectful reception given to Oliver Stone's dreadfully ham-handed Wall Street."

George Bush was elected in 1988 promising a "kindler, gentler America" - an implicit rebuke to the harshness of the Reagan era. Two decades later, as Winter notes, it seems like the 1980's didn't so much end in 1987, they just paused. "Corporate raiding" is now called "private equity," the second gilded age rolls on apace, and that Don Henley CD I'm listening to now seems oddly un-dated. Just as we did with "Born in the USA," we seemed to miss the point of Wall Street:

Douglas says he's still stunned by the number of people who tell him that his Oscar-winning role was the reason they went to work on Wall Street. "It's so depressing and sad," Douglas says.

A sequel, "Money Never Sleeps" is in the works.

Cone of Silence

I was shocked to learn that my international trade students were unfamiliar with the Cone of Silence (not to be confused with the Cone of Diversification). I can only conclude that children today aren't raised properly - in front of the TV watching reruns - as I was. Or perhaps they just watched different reruns?

For the sake of cultural literacy, via YouTube, a demonstration of the cone, and the classic opening of the show, "Get Smart." Here's more about the show. The movie, starring Steve Carrell and Anne Hathaway should raise awareness of the threat from KAOS when it comes out next year.