Menu
“An extreme and self-satisfied manifestation of the sanctimony that attaches to big bucks… And the result is that you can’t imagine America’s singularly depraved culture without him.” Robert Hughes’ review of Jeff Koons’‚ Balloon Dog.
The walls in our office are glass, and we write on them often with erasable markers—as do my young children when they visit.
One day, my son declared (with 4-year-old firmness) “I want one of those.” He was pointing to a particularly messy diagram, which looked something like what’s to the right:
“I’m not really sure that you do. It’s Daddy’s attempt to understand a bit the current distress in the economy. I think it’s a pretty unhappy picture, don’t you?”
“Oh, but it’s a balloon dog!” chimed my daughter, who at 6 knew the economy looked nothing like her dad’s musings.
Seizing the opportunity for parental multi-tasking, I continued my work and our conversation at the same time. They were an ideal audience, and so I began.
The balloon dog was created by thoughtful people with good intentions. Let’s start with the tail. After the stock market decline and the tragedies of 2001 (which I glossed), the Federal Reserve lowered interest rates. This, as hoped, fueled real estate prices and— through the “wealth effect”—consumer spending.
At the same time, other well-meaning policies—domestic and international liberalization—took hold. Glass-Steagall reform was intended to unlock America’s creative potential (our most persistent national comparative advantage) in the financial services industry. And, the rise of the World Trade Organization was a concerted effort to enhance efficiency through expanded trade. These reforms created unprecedented global liquidity, which (as hedge funds manned the pumps) then drove worldwide bull markets in equities and—through the “China effect”—in commodities.
Innovations in financial markets spawned a third pair of bubbles. Experts engineered structures and products to share, spread, and mitigate risk. In a low-interest, high-liquidity environment, these technologies created more risk by inflating two more bubbles: one in banking and one in asset management, both soaring to Icarian heights.
These bubbles are of a piece—just like those of a balloon dog. They reinforce each other in natural (if troubling) ways: the agency problems born of deregulation stoking the mortgage bubble, the “private equity put” lifting equity prices, the “carry trade” multiplying apparent liquidity, the Beijing Olympics (the ultimate WTO-sponsored event) elevating commodity prices.
These inspirations, distorted by simple greed, and contorted by unintended consequences, produce a Koonsian balloon dog: a gaudy icon, both simple and twisted, at once a joy-to-behold and a disappointment-in-waiting.
And how does this dog’s tale end?
For any balloon dog, the Great Deflation is inevitable and yet unpredictable. Each component bubble collapses with unforeseen timing, with surprising speed, and with no apparent proximate cause.
Subprime mortgages, equities, commodities, global liquidity, consumption, financial services, hedge funds—serial collapses with timing seemingly independent and yet preordained.
As any 5-year-old can attest, a balloon dog can persist for some time with a deflated tail (or leg or ear), completely oblivious to its eventual demise. But in hindsight, being but a single balloon, its fate is completely obvious and pre-determined.
Sensing her father’s pilotless drone returning to base, my daughter brightened, “Let’s go to the park!”
“Yes, yes, yes,” said her brother, “we can get a red balloon dog there. The balloon man says that they’re free.”
My own bubble popped, I agreed.
Still, as they walked to the elevator, I heard my daughter say to her little brother, “You know, the balloon dogs aren’t really free. That’s what Daddy was saying: you have to pay for them.”
Fussing with his mittens, my son thought for a moment. “Okay,” he said.
And then he ventured, “Are the balloon swords free?”
Peter Yu
New York, 2009
“An extreme and self-satisfied manifestation of the sanctimony that attaches to big bucks… And the result is that you can’t imagine America’s singularly depraved culture without him.” Robert Hughes’ review of Jeff Koons’‚ Balloon Dog.