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Pop Quiz

May 6, 2010

It’s time for a pop quiz … choose the best answer to the following question:

Today’s 1,000 point plunge and 700 point rebound in the Dow Jones industrial index  reflects:

a) Fundamental uncertainty and insecurity about the strength of the economic recovery,

b) Fundamental uncertainty about the soundness of market indices as a reflection of the recovery,

c) Deep-seated uncertainty about the who or what controls market decisions and transactions, or

d) All of the above.

This is not a timed test.

Do you have an answer yet?

No? Why not, don’t you know that time is money?!

OK, pencils down.

What’s going on here?

We live in interesting times. The fact we find this question difficult at all says something about the situation in which we find ourselves and the assumptions we use to guide our decisions.

Most of the economic principles we learned in school had their genesis in much simpler times, when the parties to any market transaction probably knew each other personally. If they didn’t they still knew something about the other person and what they had to offer. They used this information to make inferences and judgments about the probity of the other party and the value of their goods or services.

Today a huge part of our economy involves financial instruments and transactions so far removed from our day-to-day experience of the world that we would never make a decision if we tried to rely on the same inferences our great-great-great grandfather may have used when considering the price of a bushel of apples. We may try to judge the integrity of a corporation in the same way we judge another individual’s actions, but more often than not one involves personal experience and the other relies on what someone else tells us, or more likely what we see them doing and assume they’re thinking.

We have always been sensitive to the decisions and actions of others. But these days, their actions have a different influence on us than they once did. As a consequence, we seem to have lost our connection to and our confidence in our own abilities to either predict or control the future.

In the end, it may not matter all that much which answer you chose to the question. To the extent that any of them is true, they all rely on our confidence in ourselves and our understanding of our place in the world.

The bigger and perhaps more important question — the one we should be asking ourselves — is whether we want to keep living this way. We always have choices. We can labor over the past looking for signs that will illuminate us about the future. We can worry about what the future holds, speculating on the myriad and troubling possibilities that will never occur. Or we can live in the moment, and do the best we can with what we have.

In the end, all we have is now. How can we make the most of it?

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