How has risk aversion become the American way? From Charles Hugh Smith at oftwominds.com:
If our faith in the future and our resilience is near-zero, then we can’t take any chances.
You’ve probably noticed how risk-averse Hollywood has become: the big summer movies are all extensions of existing franchises–mixing up the superheroes in new combinations, or remaking hit films from the past–all safe bets.
The trend to “playing it safe” is not limited to Hollywood:–we see risk aversion in every sphere of the economy and society.
The unfailingly stimulating Ben Hunt of the Epsilon Theory newsletter has been highlighting the connection between super-easy-money financial policy and the avoidance of risk that’s so apparent in Corporate America: rather than take a chance that an investment in new technology, worker productivity etc. will increase sales and profit margins, corporations are borrowing super-cheap money and using this “nearly free money” to buy back their own shares in the stock market. ( Gradually and Then Suddenly).
This reduction of outstanding shares boosts sales and profits per share, creating higher earnings per share without actually boosting sales or profits.
Hunt’s point is that easy-money policies actually reduce the incentives to take risks to improve productivity/ profitability, and this ends up crippling our economy, as growth and productivity require taking on some risk. No risk-taking = no productivity gains and thus no gains in wealth, prosperity, social mobility, etc.
I agree with Hunt’s description of the perverse incentives created by easy-money policies, but I don’t think that’s the only driver of risk aversion, or even the primary driver.
We see this pervasive avoidance of risk in other areas as well–for example, in what college students are choosing as majors and what policy makers at the highest levels (the Federal Reserve, for example) are saying, in word and deed, “We Can’t Take That Chance.”
To continue reading: Why We’re So Risk-Averse: “We Can’t Take That Chance”