Is irrational optimism necessary for progress?
Some economists such as Jaume Ventura and Alberto Martin of Barcelona's Universitat Pompeu Fabra go so far as to argue that bubbles are the price we pay for vigorous growth. They say the optimism reflected in sharply rising prices can become a self-fulfilling prophecy: Rising prices induce more hiring and investment. That generates the growth that justifies even higher prices, and so on in a virtuous upward spiral. Of course, eventually the bubble pops and causes a mess. Yet however jarring a boom-bust economy may be, they say, it's better than an overregulated economy stuck in perpetual underperformance. "The bubble has costs. But you prefer the world with the bubble over the one without the bubble," says Ventura.
Most businesses fail. If optimism didn't spring eternal we wouldn't get as many attempts at starting businesses and the smaller number of super successes would come less often.
Jeremy Grantham, Co-founder and Chief Investment Strategist of Grantham Mayo Van Otterloo (GMO) - with $107B under management, writing in a bleak article about Peak Everything points out that optimists do better in life in spite of the fact that they cause market bubbles.
Fortunately, optimism appears to be a real indicator of future success. A famous Harvard study in the 1930s found that optimistic students had more success in all aspects of their early life and, eventually, they even lived longer. Optimism likely has a lot to do with America’s commercial success. For example, we attempt far more ventures in new technologies like the internet than the more conservative Europeans and, not surprisingly, end up with more of the winners. But optimism has a downside. No one likes to hear bad news, but in my experience, no one hates it as passionately as the U.S. and Australia. Less optimistic Europeans and others are more open to gloomy talk. Tell a Brit you think they’re in a housing bubble, and you’ll have a discussion. Tell an Australian, and you’ll have World War III. Tell an American in 1999 that a terrible bust in growth stocks was coming, and he was likely to have told you that you had missed the point, that 65 times earnings was justified by the Internet and other dazzling technology, and, by the way, please stay out of my building in the future.
Look at the German software industry (if you can find it) as a comparison to the US software industry. The Germans ought to be able to spin up lots of highly successful software companies. But no. It takes irrational exuberance (like with the current Silicon Valley social media bubble) to produce excellent companies that are game changers.
What's key: Some investment bubbles (notably in tech) are constructive. They throw up lots of experiments and a few work. Other investment bubbles (mostly involving finance and excessive loans) are destructive. They pull people away from constructive work and misallocate capital with no long term payoff. The excessive real estate build in the US, Ireland and some other countries did not make these countries richer in the long run - quite the opposite.
So have our bubbles become more destructive on average? If so, why?
The US Postal Service has experienced a 20% drop in mail volume in the last 5 years due to more online banking, utility billing, and other shifts to the web. As a result, half the nation's post offices are operating at a deficit and the Postal Service is thinking about closing over 16,000 out of 32,000. In 2010 the US Postal Service ran an $8.5 billion deficit. So little post offices like the one in Star Tannery West Virginia are on the chopping block.
It's all about the bottom line, Voorhees said. The Postal Service pays only $300 a month for its office in Star Tannery and a minimum of $33,000 a year for a postmaster, but revenue has fallen - from $37,316 in 2008 to $31,341 last year.
I've got a few modest proposals:
- Let post offices open fewer days of the week. If everyone in some rural hamlet knew the post office was only open on Monday they could do their mailing on Monday.
- Let post offices operate for reduced hours. If a post office was only open from 8 AM to 10 AM on Monday and noon to 2 PM on Thursday it would provide a large portion its current usefulness to rural towns. So one would have to wait a day or two before picking up or mailing a package. People would have to plan ahead more. But it would work.
- In any rural area where the US government has field offices assign the occasional mail handling to people who do other things for the US government. For example, the US Department of Agriculture, US Forest Service, and US National Park Service have people all scattered about in rural areas. Some of them could be dual trained to do light postal service work.
- Contract out postal service provision to Wal-Mart. They've got stores in lots of rural areas.
- Contract with UPS to accept and deliver mail in areas where the USPS does not have enough business to sustain it.
BTW, if you haven't already moved your utilities and other bill handling online I highly recommend it. The total work load goes down when you no longer have to collect and open so much mail and when you can set up automated payments. The banks vary considerably in the quality of online service they provide. You might want to have one online bank and a separate bricks-and-mortar bank.