Will financial mess inspire innovation?
The saying goes that necessity is the mother of invention. So will a troubled economic system cause a rise in financial innovation? Economics correspondent Chris Farrell tells Scott Jagow that it will.
Economics editor Chris Farrell (American Public Media)
More on Innovation, Internet, America's Financial Crisis
TEXT OF INTERVIEW
Scott Jagow: Have you ever seen the movie, "The Third Man?" It's a 1949 film starring Orson Welles. There's a famous scene in it where Welles' character talks about the difference between Italy and Switzerland:
Orson Welles: In Italy, for 30 years out of the Borgues, they had warfare, terror, murder and bloodshed -- but they produced Michaelangelo, Leonardo Di Vinci, and the Renaissance. In Switzerland, they had brotherly love and they had 500 years of democracy and peace. And what did that produce? The cuckoo clock.
So, what comes out of the financial mess we're in now -- innovation or the cuckoo clock? Time to visit with our economics correspondent, Chris Farrell. Chris, has our history of boom and bust in this country also produced periods of innovation?
Chris Farrell: Yes! If we look at the dot-com boom and bust, I think I have a very strong story there. We created the Internet future incredibly fast. All this investment went into creating the Internet and building these telecommunications networks. And we tried all these business models, and some of them went under, but others like Amazon.com, they were incredibly. And then the Fed comes in, and you know, they kind of prevent a recession from becoming too bad, and so this is OK. This time around, it's a little bit of a . . . am I being too much of a pollyanna? Has something really changed here? Because the downside is so scary.
Jagow: Are you saying there's going to be some kind of financial innovation?
Farrell: Absolute. We have an innovative financial system. We don't want to crush that innovation. Because it's very easy to sort of say, oh you know, this innovation, it's very dangerous. Well, what about money market mutual funds? You know 25 years ago, money market mutual fund was an incredible innovation. What about equity index funds? Innovation in the financial sector has been important to our economic growth. It went out of control in recent years.
Jagow: But Chris, it seems that there is a distinct possibility that any benefit that could come out of this particular bubble might be crippled by the fact that the government is bailing everyone out.
Farrell: Yes. But I think the way to look at it is the entrepreneur. I've been talking to a lot of small business owners. And you know, we all applaud when they make money, but if their business fails, they lose their health insurance, you know, they're not going to be able to fund their pension, their out of work, they might even lose their home. They're at risk. We need to have the same system at work for the head of Bank of America, for the head of Wells Fargo, for the head of Goldman Sachs. Otherwise, we're going to have a system where I get the upside, and the taxpayer gets the downside.
Jagow: All right, Chris Farrell, our economics correspondent. Thanks.
Farrell: Thanks a lot.
Comments
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From Yardley, PA, 11/13/2008
No! In this case invention has been the mother of necessity. Do we really need all of these new "products" apparently no one understands in the so-called financial industry? Innovation is needed in real industries that efficiently provide to real markets useful goods and services, not new gambling schemes.
From marrero, LA, 11/13/2008
Farrell deserves the piling on as in the comments above. Tell an out of work, out of house, out of college, out of retirement funds, out of health care options, out of educational choices, out of hope family that innovation will win out as in credit default swaps. Good luck Farrell with your Hogwash.
From Phila, PA, 11/13/2008
You're quoting Harry Lime? You guys need to watch the movie over again. Orson Wells is playing the BAD GUY!! The line about the Bourges is supposed to be ironic and fallacious. It’s delivered amid the ruin of postwar Europe and invites obvious comparisons. You see, Germany just finished 12 years of the Nazi regime, and they had warfare, terror, murder and bloodshed - but what they produced wasn’t the Renaissance!
Financial “innovation” brought on by reckless and rapacious scoundrels inevitably leads to disaster and I have no respect for their apologists on NPR.
From Greeley, CO, 11/13/2008
There is a difference between productive innovation, and bookeeping innovation. We all know the basic power of leverage, productive in prudent amounts, destructive in reckless amounts. The last 20 years was not "innovation" just creative accounting that allowed us to borrow more than was prudent. Little of the borrowed money increased our productive capacity or generated new ideas. Most (thought not all) was consumed. We got out of balance.
From Reno, 11/13/2008
And you're assuming that the "innovation" wouldn't happen in a more even market. Amazon or something like it would probably still be here, though it may, MAY, have taken longer to get to the point it is. And with all the ups and downs, in the end is it, or are we, better off than slow steady growth? Remember that story about the tortoise and the hare?
From Phila, PA, 11/13/2008
Everyone driving a Fiat, raise your hand...
Everyone owning a Swiss Army knife, raise your hand...
From Dallas, TX, 11/13/2008
Apparently Mr. Farrell has never heard of a little company called Rolex which has made what some consider a pinnacle of timepieces. This small obscure company sells watches from a small but innovative facility in of all places the 'home of the cuckoo clock' - Switzerland. By some reports it is highly sought after by free marketers all over the world. Peace has a way of producing benefits too. Fortunately, Mr. Farrell's words are high fiber if low in nutrition and hard to swallow; chow down.
From SANTA MONICA, 11/13/2008
I remember all of the dot com retail businesses that went belly up. Like delivering groceries. And all of the websites believing advertising would simply walk in the door. Not to mention the innovation side of the technology that was being pushed. So my question is, for all of the innovation we realized,, how much did it cost?
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