I had been entertaining the idea of writing a book for several months before I was laid off from a prominent money management firm in early 2009. My initial thought was that the populist backlash against the banking establishment would prove to be fertile ground for a self-deprecating narrative chronicling my adventures as a door-to-door salesman. Since peddling Fuller Brushes is no longer en vogue, I tried to get myself into a Mary Kay party to investigate sales opportunities. The hostess politely refused to extend the invitation, so I checked into the unemployment office instead.
As I came to appreciate my partial culpability in the global financial meltdown, it dawned on me that people of means shouldn’t let themselves be rewarded by the State for their participation in creating the biggest financial disaster in eighty years. So instead of collecting my unemployment insurance claim, I decided to work at McDonald’s. There was just one problem: despite repeated application efforts, they wouldn’t hire me. In my moment of despair, I remembered that there is always refuge for the downtrodden at the one dining establishment whose doors are open when all others are closed. After ten minutes of conversing with the assistant manager, I was hired as a Waffle House server.
If you’ve never eaten at a Waffle House, it’s a 24-hour diner specializing in breakfast food. It’s impossible for me to capture its unique ambiance in the space of a paragraph, so I’ll refer you to my excerpt, “Friday night at Waffle House”
Some writers retire to Walden Pond for two years to gain inspiration for their magnum opus. I, on the other hand, found my muse by spending six months serving hashbrowns and grits to a bunch of drunks after last call. While I will likely never achieve Thoreau’s preeminent status in the annals of American literature, I defy any reader to conclude that Walden can even remotely compare to Waffle Street when it comes to comedic value.
As I interacted with my new co-workers, managers, and customers, I began to realize that the restaurant was offering me something more profound than just a bevy of humorous anecdotes: Waffle House was a school of economic education. Although I had earned an undergraduate degree in finance, an MBA in Finance, the Chartered Financial Analyst designation, and spent eight years working in the bond market, simple economic truths that had eluded me in the classroom finally revealed themselves as I delivered plates of waffles and hashbrowns. In particular, I developed a visceral appreciation for the economic philosophies of a 19th-century French academic and businessman, Jean-Baptiste Say.
Say had once expressed his “Law of Markets” as follows: “as the amount for which we can buy is equal to that which we can produce, the more we can produce the more we can purchase.” This simple idea– that productivity places an upward constraint on consumption– is profound in its implications for both financiers and economic theoreticians alike. Although his Treatise on Political Economy was the preeminent economics textbook in 19th-century America and Continental Europe, Say’s financial and political doctrines are no longer imparted in our institutions of “higher education.” Consequently, we find ourselves mired in a mass of confusion in our public economic discourse.
On one hand, we have Keynesian economists like Paul Krugman pounding the table for another half trillion dollars of Federal stimulus spending. According to the Keynesians, recessions are caused by people saving too much of their incomes, creating a decline in “aggregate demand.” While this school of thought acknowledges that consumers spending 101% of their incomes over the past decade has not lead to economic nirvana, it still maintains that our nation will somehow be placed on a more desirable trajectory when our government consistently spends 105% of its tax receipts.
At the other end of the philosophical spectrum is the “market fundamentalist” crowd, which believes that market participants evaluate information independently of each other and act in a manner that consistently optimizes societal outcomes. This view was espoused by Alan Greenspan, who served as Chairman of the Federal Reserve Board of Governors from 1987 until 2006.
In late 2008, Greenspan acknowledged in Congressional testimony that his thesis had one or two holes in it:
Rep. Henry Waxman: In other words, you found that your view of the world, your ideology, was not right, it was not working?
Greenspan: That is — precisely. No, that’s precisely the reason I was shocked, because I had been going for 40 years or more with very considerable evidence that it was working exceptionally well.
The financial press has published numerous stories over the past eighteen months covering the need for a serious rehabilitation of macroeconomic theory. Here’s one excerpt from a recent Wall Street Journal article:
“Economics needs to become broader, and less arrogant,” he [University of Cambridge macroeconomics lecturer Michael Kitson] says. “It doesn’t always have the explanations for human behavior….the problem with economists is they believe the whole world operates according to their models.”
The Economist has expressed comparable sentiments: “two central parts of the discipline—macroeconomics and financial economics—are now, rightly, being severely re-examined…. Economists need to reach out from their specialised silos: macroeconomists must understand finance, and finance professors need to think harder about the context within which markets work.”
While the academics fiddle with their theories, you can simply read Waffle Street for a cogent explanation of financial reality. To my knowledge, no other single volume explains the financial system in such comprehensive, lucid, and entertaining fashion. I wrote this book because people need and deserve to know how money actually works. Most importantly, they should laugh at a financier’s expense along their journey of discovery. As fantastic as the incidents chronicled in this narrative are, let me assure you that there is no hyperbole– I recorded all of the events exactly as they transpired.
In writing Waffle Street, I tried to use my table waiting anecdotes to make the “dismal science” of economics as entertaining as possible. After all, seldom does a finance text explain risk management using the illustration of a man-hungry female demanding a blood test from her suitor before agreeing to a second date with him. (My hero, Jean-Baptiste Say, was also partial to using real life illustrations in his Treatise, although he used a markedly higher level of discretion in selecting them than yours truly).
I make three promises to my readers. By the time you’re finished reading Waffle Street, you will:
1) have enjoyed numerous “laugh out loud” moments at the author’s expense
2) understand macroeconomics better than the majority of Economics PhDs (then again, perhaps that’s not saying much)
3) recognize Waffle House as America’s greatest restaurant chain