Are crises predictable? That's what most economists are thinking about these days. The great Hyman Minsky spent a lifetime building a model of macroeconomic crisis, striving to do exactly that. Our subject? Why media just might be the new Wall Street. Wall Street's subprime crisis was built on toxic financial instruments. The mediascape's subprime crisis is being built on toxic communications. Social gaming — Facebook's Farmville, for example — is the hot growth area for VCs, advertisers, and publishers alike. But last week, TechCrunch blew the lid off it: much revenue in this nascent market is derived from scams masquerading as "ads." To me, there are striking echoes of CDOs — a hot new growth market for Wall Street, later revealed to be a house of cards. Financial capital was misallocated on a historic scale by toxic financial instruments. So venture capital is being misallocated on a tremendous scale by toxic media. Investors are rushing into markets that look appealing today, like minigames. But let's face it: minigames aren't going to be durably, wold-changingly profitable (sans dubious tactics). The world has bigger problems, and there's significantly higher returns to be generated by taking on those problems.
The great challenge of the 21st century isn't churning out more toxic junk - it's learning to make stuff that's not toxic junk. Whether strip-malls, SUVs, or FarmVille.
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