A New Direction

I was recently listening to NPR and heard a man who had contributed a lot to charity because of his great success on the stock market answer some questions. One that struck me was something like this.

Interviewer: “Do you ever feel that to make money on the stock market one has to sacrifice morals? For example, if you know that a stock is going to make a lot of money, but you disagree with its business practices, do you ever worry that you are hurting the same causes you are trying to help by investing in it?”

Interviewee: “Well, if you actually think about the stock market, and how complex it is, you have to realize that if I didn’t buy this stock, someone else would. Because the game is so huge and complex, which stock I invest in doesn’t matter, because someone else would be investing in it anyways. That way I can be cut-throat in my trading without worrying about the consequences.”

Unfortunately I can’t remember the name of the guy and I couldn’t find the interview on the NPR website, but it got me thinking. Is it possible for people to play a role in something as huge, impersonal and complex as the stock market? If something like the stock market is mathematically reduced to Chaos Theory, does what you invest in matter? Or is everything very very related? Another thing I’ve been lightly keeping my eye on is the housing market, which is quickly cooling, and perhaps even bursting. Are these bubbles simply mathematical constructs that happen when a system like our economy is so very large, or are they profoundly influenced by personal choices?

The first recorded boom and bust cycle that resembles anything our markets go through now happened in the years of 1635-36, in the Dutch Netherlands. And the product was not gold, spices, silk, or any other strict commodity. It was Tulips.
That’s right. The Tulip has a long and interesting history as a flower. The first Tulips were in the steppes of Tibet, and were idolized by the warriors and tribes there as a flower of the Gods. Because the steppes are notorious for being lackluster in color, it is easy to see how the people there would have been in awe of this brightly colored flower that stood up straight from the rocks. The blood-red hue of the original Tulips made them perfect to be worn into battle.
The English word for Tulip comes because Arabs generally worn them in their turbans. The Mongol Horde brought the Tulip with them to the Middle East, where is stayed and became cultivated. It was there that the Tulip truly came into its own in terms of prestige, probably because the Arabic word for Tulip is lale which is made up of the same characters as Allah. It became the holiest of flowers.
From there it made its slow journey to the Netherlands. At the height of the Tulip frenzy, a single tulip bulb would be the most valuable object in all of Amsterdam. The most famous bulb was recorded for selling at 6,000 Florins, with the average Dutch worker making around 150 Florins annually. Today the average US salary is 35,000 a year, so that Tulip sold today (yeah yeah its hard to compare two economies but whatever) would be around 1,400,000. In 1637 the market crashed because of over-speculation and people realizing that prices could not climb any higher. The Dutch economy was shattered and thousands ended up with bulbs that they paid hundreds of times market value for. The Netherlands then quickly came down the bubonic plague right after that (not relevant but man their luck sucked).

So who was to blame for the first market bubble bursting? Chaos theory or human error? I would say that human error has everything to do with it, and that even a system as complex as the stock market is made up only by a series of choices. It’s funny that a system made up of human choices ends up being described as chaotic (in a mathematical sense).
Traffic follows the same rules. When you apply models to traffic the closest mathematical models that fit are fluid dynamics. But really each ounce of pressure to the break and gas are human choices. Is it a coincidence that human choices end up looking like we follow nature’s laws in our decisions, that from a distance we model like falling leaves or spilling water? Is it possible to simply leave morals out of it because from a distance we have no control over what everyone else does?

But just where do you draw the line on that? If there is an average amount of murders in the US, and if no life is substantially better than another, would it be fine to just kill someone now, because there is an average and thus your decision seems to indicate that another person would be saved from murder because of averages. When looked at it this way the remark that we have no control over the complex systems we create is both ridiculous and defeatist.


Just felt like posting this, cause I thought it was relatively interesting and no one had posted in a week. PLEASE feel free to comment on any mistakes or flaws in logic that you see in either the history or the economic stuff, I welcome any input.