Noah denkt™ -
Project for Philosophical Evaluations of the Economy
We are still living in a reputation bubble
Dialog on the current recession between Noah denkt™ and its Alter Ego, first drafted on April 3,
published on June 2, 2009
Question by Noah denkt™ (Nd): Does our Alter Ego share the notion that we are currently living in an economy
whose bubbles have burst?
Answer by Alter Ego of Noah denkt™ (AE): Yes.
Nd: Do you then also believe that the current state of the economy can be best described as free of inflationary
AE: Absolutely. After all, the outlook for this economy is more deflationary than it is inflationary.
Nd: How then would you characterize the fact that the ex-coach of the Mexican national football team, Sven-
Goeran Eriksson received 3,5 Million US$ in severance pay for having his contract terminated ahead of time?
AE: I would certainly not call this an inflationary bubble!
Nd: In other words, you do not believe that his services have been overvalued?
AE: Perhaps, they have been, I do not know. But, one instance of overpricing does not yet create a bubble. For
that you have to have a widespread paradigm that affects the economy on a larger scale.
Nd: Alright, let’s look then at the fact that Penelope Cruz and her sister, Sienna Miller and her sister, Beyoncé
Knowles, Victoria Beckham, to name just a few, all have their own line of clothes commercialized. Look also at the
fact that Kate Moss is now publishing a cooking book. And if that is not enough think about the exorbitant
amounts of money that bank-CEOs receive for their salary. And last not least do not forget the fact that it is
largely the same faces that show up again and again on television talk shows to have their voices heard. Do you,
in view of all this, still cling to the position that reputation, celebrity and appearance aren’t being overvalued in our
AE: Look, what you are describing here is evidence of market forces at work. And since all of us agree that
market forces are best equipped to determine what the price of a product should be, we should also accept that
the examples you cited reflect the true value that they have at this point in time.
Nd: Well, if you apply this kind of logic you would also have to call the earlier sub-prime housing prices accurate
that created the current recession.
AE: But that’s a different issue, isn’t it?
Nd: How so?
AE: Because on the housing question, you had one product that was clearly overpriced in a systematic way. What
you are talking about, however, is a wide array of products and services, including cooking books, fashion lines,
executive pay and access to TV shows. That is a totally different ball game. After all, you do not believe that
cooking book prices are inflated, do you? And even if you were to believe that you would not want to qualify this
as a systematic risk to the economy as a whole, correct?
Nd: Come on. You just try to duck my point. Just take the executive pay issue: Don’t you agree that the money
which is being handed out to there is distorting reality? Don’t you think that this money unnecessarily weakens
company balance sheets? Don’t you think that it inflates regional house prices? Don’t you think that such
remuneration practices set the wrong standard for others? And don’t you also think that too much kowtowing to
existing leadership damages the creativity and flexibility of an organization and an economy as a whole?
AE: Now that may be all true. But first of all, bank-CEOs are now accepting that an overhaul of their remuneration
practices is needed . And secondly the key word in your litany is “regional effect”. A regional house price inflation
should not be a worry to us.
Nd: So you do not accept the argument that such payment practices set the wrong example for others?
AE: To the contrary, we think that a solid remuneration of the best and the brightest exactly sets the standard
right. After all, you do want to reward excellence and thereby create the right incentive for high yielding
Nd: So you think that those who receive the highest bonuses are also the best performers?
AE: By and large, yes. Obviously they would not have gotten into their current position, if that weren’t true, don’t
Nd: Well, we categorically deny the conclusion that those who have made it could still be part of the best
performing group. They may have belonged to that category on the way up, but now you can at best view as part
of the second best and second brightest. After all, they have now no reason anymore to really go out of their way
to give it all. For that you have to look elsewhere, in particular among the pioneers and the as yet unrecognized
entrepreneurs. Because it is this group of creative destroyers who truly adds the highest value to the economy.
AE: Granted! But these guys aren’t making money yet for their shareholders. And what’s more they probably
even need a highly rewarded establishment in order to be able to better fight it.
Nd: You know what, you might even be right on that last point.
AE: You see! So, after all, you do share my point that the high pay that bank-CEOs receive is justified?
Nd: Well, we agree with you in as much as that the undue admiration that fat cats receive is probably needed to
help pioneers muster all the aggression that it requires to dislodge the reigning princes from their perky
positions. That kowtowing admiration however is rampant even in times of a more modest executive pay. So what
we are talking about here is not necessarily a money issue.
AE: But it is close to being that.
AE: So, to finish this off: Are we living in a reputation bubble or not?
Nd: Yes, we are.
AE: And will this ever change?
Nd: Well, it may eventually get a little more palatable. But it well never really go away.
AE: And can something be a bubble that will never really burst?
Nd: There can be little bursts even if the underlying pattern never truly changes.
AE: In other words, you are eventually expecting a correction in this?
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value of reputation, cost of recognition, excessive paychecks, excessive remuneration,
excessive compensation, kowtowing to existing leadership, worshipping success, admiration of
celebrities, importance of name recognition, value of fame, price of fame