Reeling From Big-Gain Quackery

Americans, as Los Angeles' robust Jewelry District so vividly illustrates, are optimists. They buy beautiful rings and pendants in hopes of lasting love.

Immigrant diamond cutters and silversmiths come to our country from just about everywhere in search of a better life. I think most would agree such aspirations are part of our strength. We are not a nation where centuries-old class distinctions, parentage, race, gender or property are thought to limit personal achievement. A perfect home and a perfect mate are everyone's possibility.

Yet, the spectacular collapse of the "new economy," and now the Enron debacle, highlight the less happy side of our collective optimism. Although I do not have a scientific basis for claiming so, I think it likely that Americans lead the world in their susceptibility to get-rich-quick, no-pain, big-gain quackery.

Nowhere else, for example, are the airwaves and email as cluttered with snake-oil infomercials. We are bombarded by promises of instant weight loss while sleeping, eating "all the foods we love," taut thighs and tummies with no exercise, anti-aging elixirs or riches gleaned from secret, yet guaranteed schemes. In our hearts, I'd like to believe, we know this is rubbish. But we're still suckers for the possibility that we've found a loophole in the otherwise ironclad laws of life.

Enron and the stomach-wrenching stock market dive represented loophole thinking at its worst. "The principal lessons Enron has taught," the Los Angeles Times said recently, include the need "to think twice before affording sky-high price-to-earnings multiples to stocks of businesses heavy on hype and light on specifics."

We needed a lesson for this? And one with a trillion dollar price tag at that?

Apparently so. Far more than Enron's political hubbub, we should be asking how so many could so blithely throw away one of the world's greatest fortunes on mirages like asset-free energy companies, hip but hollow dot-com ventures, and Internet booksellers. Our shame at such gullibility, I think, is one real reason why Enron is front-page news. How could we have been so stupid?

Some think Americans have a larcenous streak. "They are a nation of gangsters," a Frenchman opines about our country in the one scene I recall from a long forgotten film. We attract people who want to make a score no matter what the cost. Such desires, perhaps, can be all too easily manipulated.

Yet, larceny is hardly confined to the U.S. People in Japan, China, Italy and even France have much the same weakness for a can't-miss wager. The difference is that, in recent years, huge segments of the U.S. economy involving vast sums of money have been dedicated to such pursuits.

I believe that our increasingly costly penchant for loophole hunting is a byproduct of America's demographic change over the last two decades, particularly among our elites. By the mid 1980s, the country's most prestigious and influential journalism, academic, legal, political and financial jobs had largely become populated with suburbanized 1960s radicals and their college-educated offspring. This new elite had contradictory goals. It wanted to become fabulously rich, or stay that way, above all else. Yet, it didn't want to sell out to the manufacturing or other industrial evils it had long loathed.

To square this circle, our elites chose to distance their livelihood from the real economy that actually produced wealth, not unlike a posh food shop selling steak or chicken while decrying slaughterhouses. Given this mindset, accepting corporate funds for research was fine, but helping a company actually generate profits was not. Managing stocks was tolerable, but working for a gas, logging or auto firm unthinkable.

In short, pretty much any job found in a posh Manhattan or San Francisco office somehow became acceptable. And by the late 1980s, the new elite started to learn it could extend its own fantasies to the entire economy.

Just about everyone, for instance, jumped aboard the leveraged buyout craze. This was the idea that a young, brilliant Wall Street hotshot could borrow billions to buy established companies run by aging troglodytes. Investors got junk bonds in return. Once the sale was closed, the hotshots magically broke up the companies in ways that unleashed hitherto undreamed of "value."

Politicians, the financial press and the academy became fawning advocates of this effort. It took the most sickening excesses, such as tinhorn savings and loan managers living like Saudi princes on other people's money, to reveal the sobering reality.

Then came the "new economy," the fairytale land of endless productivity and Internet miracles from which evil recessions were forever banned. By the mid 1990s, it was no longer necessary for America's media and financial elites to even pretend interest in the bricks and mortar firms they hated. Instead, they created a parallel, virtual universe of paper profits and digital goods. It seemed like heaven--limitless wealth without strain, auto pollution or, best of all, long lines at the mall.

Once again, the media, professionals and academics warmly embraced the new economy their elite brethren were concocting. Yet, in its aftermath, they bitterly resist any responsibility for the inevitable demise.

"Unlike a Pets.com or a Webvan whose implosions did little damage outside of costing dice-rolling speculators some money and techies some jobs," a Newsweek press release explains, "the Enron bubble exploded like a grenade: stockholders and lenders are out tens of billions of dollars; at least 20,000 Enron employees have lost their jobs and many of them have lost their retirement savings too."

Well, no. Each dot-com and "tech-stock" fiasco might have been smaller than Enron by itself, but collectively they did far more damage. Millions of people lost jobs, trillions of dollars vanished from once robust retirement funds, and the entire economy sank into a recession.

We need to recognize how easily our natural optimism can be diverted to serve class conceits if we are to avoid another boom and bust cycle in the future. Hype and fiscal manipulation can, for a time, make a relative few very wealthy. But, like diet free weight loss, they have no substance. We must skeptically view even the most widely heralded economic news with the same skepticism we afford fat blocker ads, wrinkle free creams, and cancer-curing fruit juices.

In the end, our deepest hopes and dreams are better invested in the diamonds and bracelets we give those we love. Let's leave the natural gas derivatives and computer chip stocks to Vegas.