Context is all, even to a royal wedding
The discussion of last week’s royal wedding provided a case study in how not to put events into their proper historical context.
For supporters of the wedding it was the latest in a long line of glorious royal events stretching back to the wedding of Charles and Diana in 1981, the queen’s silver jubilee in 1977 and beyond.
For critics of the wedding it was the latest in a long line of tedious royal events stretching back to the wedding of Charles and Diana in 1981, the queen’s silver jubilee in 1977 and beyond.
Both views have more in common than they care to admit. Each projects its perception of the present back into the past. From this perspective a royal wedding today is, in broad terms, the same as a royal wedding 30 years ago or 170 years ago.
What the ahistorical approach misses is the specific character of each event. For instance, anyone who is old enough and has a good memory, or who cares to examine the relevant statistics, should recognise that last week’s royal wedding was fundamentally different from that in 1981.
Patriotic fervour has, for better or worse, become far more muted. For most people, last week’s wedding was more akin to an up-market soap opera than an expression of national identity. (Comment continues below)
What does all of this have to do with economics or finance? A lot more than might initially be assumed. The important point is not the economic effect of the wedding, which is likely to be marginal, but the pervasive failure to understand the historical significance of events.
Take an example that comes directly from the stockmarket: the possibility that another technology boom is emerging. Judging by the high valuations of cloud computing stocks and social networking companies there is certainly a case to answer.
However, is it not possible to come to a proper conclusion by looking at valuation measures, or even the stockmarket, on their own.
To decide whether the experience of the technology boom of the late 1990s is being repeated it is necessary to look at the broader economic and social context. From there it is possible to construct a picture of the similarities and differences with the past.
For example, many large technology firms today have built up huge cash reserves on their balance sheets rather than relying heavily on debt. Both types of behaviour can be problematic, but they are diametric opposites.
Ahistorical thinking is the enemy of anyone trying to understand the real significance of any event.
Ferraris For All, Daniel’s book defending economic progress, was published last year. His personal website can be found at www.danielbenami.com.
Have you looked at investment trusts more since RDR?