New discovery in economics

Gregg Easterbrook on success, housing, risk, and other stuff

Could it really be this simple? Gregg Easterbrook:

Once, in Silicon Valley, I heard Joe Costello -- a founding light of "electronic design automation" and now CEO of the lowercase think3 -- give a talk about the difference between seeking success and avoiding failure. Studies of crashes during aircraft landings under difficult circumstances, he said, showed that pilots who made bad mistakes when approaching an airfield and crashed, but lived to tell the tale, reported that they had been focused on avoiding obstacles. Pilots who made difficult landings without incident reported they had focused solely on the runway. Business and artistic success, Costello continued, follow the same pattern. Setbacks result from constantly trying to avoid obstacles, worrying about what might go wrong. Achievement results from keeping your eyes glued to the prize and endlessly repeating to yourself, "I can do this." Or, as I once wrote, "Keep your gaze in the distance, and though you will stumble, you will reach your destination."

Note that you'll get your money's worth with this Easterbrook column. In addition to the speculaton on the origin of success above, there is a good observation on the Colts-Pats game, some fine analysis of the housing crisis--

Many of those who bought into the overheated housing market using gimmick instruments such as piggyback loans, in which downpayments were borrowed, put hardly any cash into the purchase -- the home's equity would not have been theirs for years or decades, even if everything went well. In most cases, a person who forfeits a recently purchased home will have paid only a tiny fraction of the appraised value of the property, and thus will suffer relatively small out-of-pocket losses. (The exceptions are speculators who bought on margin and victims of the fraudulent practice known as "equity stripping," but the latter is something done by criminals, not by legitimate mortgage lenders.) Blue-blooded Merrill Lynch is reeling from bad mortgage loans -- it'll need to cut back on caviar in the executive dining room! Pinstriped, made-of-money Citicorp is reeling from bad mortgage loans -- the executives will need to share company-paid private jets to Aruba instead of each taking their own! Some estimates hold that mortgage-loan losses might total $400 billion, almost double the inflation-adjusted cost of the savings and loan losses of the 1980s. But remember, most losses are by lenders, not by individuals who bought homes on credit.

--and some sage comments on real versus perceived risk:

Some parents drive their children to school, rather than let them ride the bus, because school buses do not have seat belts. This is a classic case of perceived versus real risk. National Highway Traffic Safety Administration figures show that school buses are by far the safest form of passenger vehicle -- a child is about eight times safer in a school bus than riding in a parent's car to school. That school buses lack seat belts pales before the fact that they get into crashes far less often than other types of vehicles. School buses are huge and bright yellow, and drivers make way for them; the result is that collisions involving school buses are rare.