160 J. Magnuson
to expect continuously compounding financial returns without giving it a second thought. Even if the markets crash, which they do on occasion, the general assumption is that they will bounce back and continue appreciating. The mantra on Wall Street is that markets always bounce back. If we look at the last two hundred years of stock market history, that certainly seems to be the case—a long-term trend showing a 7% rate of return after factoring out price inflation. It is no surprise, then, that people see this as a normal aspect of our economy. Cultural norms, however, are not always grounded in reality. Is it truly valid to expect that just because the market value of Wall Street securities has always grown in the past, they will continue to do so in the future? The growth of our bodies is something that happens in our adolescent phase of life and stops at maturity. We have natural limits to growth and it would be madness to argue that since a person has grown zero to six-feet-tall in their first twenty years, they can be expected to twelve feet in the next twenty years, and to eighteen in the next twenty, and so on. In fact, continuing growth after maturity is pathological: obesity or cancerous tumors. All forms of growth are bounded by limitations, yet in our culture we tend to believe otherwise when it comes to economics. We believe in this because the endless accumulation of money is a very alluring idea and also we have become dependent on it. People pour trillions into pension funds, hedge funds, mutual funds, etc., because of the promise that these investments are going to continuously appreciate in value and will provide for us in our retirement or pay for our children’s education. Because the Fed’s zero-bound rate policy rendered savings on bond funds are essentially useless, institutional investors had to explore riskier funds in equity and derivative speculation. When these funds began racking up double-digit returns, dreams of becoming millionaires spread, everyone wanted more. Institutional investors including pension funds with defined benefits sought higher and higher returns wherever they could find them. Bond returns were too low, and the allure of risky ventures became irresistible. A kind of institutionalized gambling addiction was created. Parents used to say to their children that money doesn’t grow on trees implying that you have to work for it. That has changed and money now is always expected to
