Did Tom Wolfe have it right when he claimed that much that is strange and crazy and wonderful in American culture has a way of starting out on the West Coast and eventually filtering East?

For those of us far more fascinated with the inception and dissemination of fashion trends than the consumption of them, the neighborhoods of San Francisco have always been a buffet of people watching for the street style destined to seed the runways and department stores. And Guy Trebay of the New York Times nails it in his opening line of Fashion Diary: The Tribes of San Francisco:

IF a decade spent following the fashion flock will teach you anything, it’s that fashion people seldom have much to do with generating style. This little-appreciated truth naturally comes to mind as the Fashion Week juggernaut lumbers toward Manhattan, a rolling, continuous loop of live-streamed, Tweeted product-placement set to ambient glamour-buzz cranked out by the Industrial Hype Machine.

…What she likes about San Francisco style, said Ms. Grim, who is in her early 40s, is that the town is remarkably free of fashion hierarchies and in-crowd tyrannies. There is no shoe of the season here. There is no It bag. Except perhaps for the pulp-novel heiresses Vanessa and Victoria Traina (who anyway are almost New Yorkers), there are no Vogue-anointed darlings-du-jour.

Photo: Heidi Schumann for NY Times

One thing notably absent, however, in Trebay’s analysis is the influence of Burning Man culture on the San Francisco fashion scene. Given the thousands of key Burner players whose default world residence is the bay area yet keep their culture alive and well year round, I find it hard to believe that their DIY radical self expression anti-corporate style wouldn’t permeate out onto the streets.

Interestingly enough, even though the quirky, innovative aesthetic is pervasive, my handful of trips to San Francisco hunting for the corresponding retailer sources - especially local designers - have left me standing mostly in resale shops or malls in tourist destinations. Ever so often there will be a brave entrepreneur opening a collective of local designers, a curated vintage store in a high rent district that mixes in refashioned pieces, or a boutique carrying avant-garde designers from NY… but those are the exception, not the rule.

Even locals tend to concede, unasked, that San Francisco has historically been an also-ran in fashion terms. “Every time a designer from here has a little bit of success, they disappear to New York,” said Gladys Perint Palmer, executive director of fashion at the Academy of Art University, whose fashion department has an enrollment of 2,500.

Allow me to digress for a moment… 2500 fashion students? That’s about 1000 graduating a year, and that’s just one school in one city. A private, for-profit school with 5 digit tuition. Are there enough jobs in the industry for all of them? Um, no. Back to San Francisco…

Ms. Perint Palmer was referring specifically to Nice Collective, a San Francisco-based label founded in 1997 by Joe Haller and Ian Hannula in part to capitalize on distinctive elements of a local style that, like so much else in the Bay Area, seems to be generated by some loopy organic collective impulse rather than an editorial cabal.

It’s so good I have to restate it: “generated by some loopy organic collective impulse rather than an editorial cabal.” But really, especially since the ‘youth revolution’ of the 60s, has that editorial cabal really dictated much? I’d argue that the best they can do is distill and co-opt the shapes, colors and styling that settles out of the collective choices of the loopy ones. And where do those loopy young ones go for the raw materials of their sartorial expression, especially when their piled into shared bedrooms in sky high rent apartments? You guessed it - thrift stores. Which has over the past couple of decades seeped into the mainstream to the point of becoming a standard style option, perhaps even one with far more cred for the find than the spoon fed trends of the big stores. Trebay quotes a former department store buyer:

“The stigma attached to used-clothing is gone,” she added. “You can either spend $300 on a top at Neiman Marcus or go to the thrift store and buy a bag of clothes for a tenth as much.”

Exactly. And this leaves one with far more time and disposable income for living, not just posing like a well dressed doll.

…Or you can do both and then mash up the results, as the women of the Mission tribe do.

“Those girls are the local Holly Golightlys,” Mr. Ospital of M.A.C. said of women like Rachel Corrie, a waitress at Tartine, who as she left work last week hopped onto her bike wearing what looked like a gingham onesie, feet shod in gladiator sandals and a velvet equestrian hunt cap passing as safety gear perched atop her head.

Girls like her are all over the Mission. You see them flying down Valencia Street on Vespas, their wildly improvised get-ups composed of, say, rags scavenged from the Bay Area’s fabled thrift shops (Out of the Closet in the Castro, Eco-Thrift in Vallejo, the Goodwill outpost just off the 101 Freeway in San Rafael), Marni skirts, vintage SM leathers culled from an eclectic assortment of goods at Marc Josef’s locally legendary antiques shop, Tradesmen, and wingtip shoes.

…“People will wear vintage with some D.I.Y. thing they made themselves with some piece that they couldn’t resist in a boutique,” Ms. Grim said. “They’re not afraid to mash things up.”

Because it might be that one innovative, interesting piece from the boutique, something that might have been inspired by vintage, might even have been made from vintage, but definitely didn’t happen prior to this decade… that’s the piece that communicates that subtle status that signals to other members of the targeted tribe that you’re doing well enough, and care enough, for bits of investment dressing.

“It’s a very difficult city to read,” Mr. Lopez said, owing largely to the local distaste for ostentation and hype, a suspicion of anything that requires a high-degree of difficulty to pull off and that people spend a lot of their lives in cars.

“San Francisco is definitely about quiet style,” he said. “People care. They have the clothes, but they wear them in private. They bring in the most amazing stuff for consignment and I’m always thinking, ‘Where did you wear this thing?’ ”

Stealth Wealth indeed.

I’ve venture to guess that the large majority of investors - particularly the professional ones - might admit to following their gut to some degree, but would still insist their decisions are informed and rational ones. But how different are their purchases and discards than a teen at the mall?

David Doubilet for National Geographic

Jason Zweig explores the latest attention getting scientific theory that everyone is talking about in his article for the Wall Street Journal, So That’s Why Investors Can’t Think for Themselves:

Why do investors so often seem to resemble a school of fish, all changing direction together?

…A study published last week in the journal Current Biology found that the value you place on something is likely to go up when other people tell you it is worth more than you thought, and down when others say it is worth less. More strikingly, if your evaluation agrees with what others tell you, then a part of your brain that specializes in processing rewards kicks into high gear.

In other words, investors often go along with the crowd because—at the most basic biological level—conformity feels good. Moving in herds doesn’t just give investors a sense of “safety in numbers.” It also gives them pleasure.

That may help explain why market sentiment can change so swiftly, why true contrarians are so hard to find and why investors care so much about the “consensus view” on Wall Street.

Most of our brains are programmed to reward us when we swim with the school.

The brain scans showed that as soon as people learned they had chosen the same song as the experts, cells in the ventral striatum—a reward center wired with dopamine neurons that respond to pleasures like sugar and sex—fired intensely.

“If someone agrees with your choice, it’s intrinsically rewarding in the same way food or money is rewarding,” says one of the experimenters, Chris Frith of University College London.

Why might other people’s estimates of what something is worth lead you to change your own? Their appraisal could make you unsure that yours is correct. You might become more popular once you agree with others, or joining the experts may make you feel like one yourself. “We are very social creatures,” says Prof. Frith, “and we are desperately keen to be part of the group.”

In 1969 sociologist Herbert Blumer was the first to publish a theory that the fashion mechanism operated in all fields of human endeavor, not just clothing. I’ve included these quotes from his theory of collective selection (this blog’s namesake) in a previous post on how most economists were fashion victims of their own thinking and completely failed to predict the crash of 08, but they’re so good they bear repeating (emphasis my own):

It is necessary, first of all, to insist that fashion is not confined to those areas, such as women’s apparel, in which fashion is institutionalized and professionally exploited under conditions of intense competition. As mentioned earlier, it is found in operation in a wide variety and increasing number of fields which shun deliberate or intentional concern with fashion. In such fields, fashion occurs almost always without awareness on the part of those who are caught in its operation. What may be primarily response to fashion is seen and interpreted in other ways – chiefly as doing what is believed to be superior practice.

Not only are most investors (and artists and psychiatrists and economists) blind to their immersion in the fashion mechanism, they get downright offended when you propose that their decisions are informed by anything short of ’superior practice.’

…The absence or inadequacy of compelling tests of the merit of proposals opens the door to prestige-endorsement and taste as determinants of collective choice. The compelling role of these two factors as they interact easily escapes notice by those who participate in the process of collective choice; the model which emerges with a high sanction and approval is almost always believed by them as being intrinsically and demonstrably correct. This belief is fortified by the impressive arguments and arrays of specious facts that may be frequently be marshaled on behalf of the model. Consequently, it is not surprising that participants may fail to completely to recognize a fashion process in which they are sharing. The identification of the process as fashion occurs usually only after it is gone – when it can be viewed from the detached vantage point of a later time. The fashions which we can now detect in the past history of philosophy, medicine, science, technological use and industrial practice did not appear as fashions to shoes who shared in them. The fashion merely appeared to them as up-to-date achievements!

Zweig sums up more on the brain chemistry behind this:

The experiment also showed that learning that the experts agree with one another—regardless of whether you agree with them—triggers activity in the insula, a brain region associated with pain and heightened body awareness. This suggests that the agreement of others may have a special ability to grab our mental attention. No wonder a consensus opinion is almost impossible for many investors to ignore.

He also calls out the myth of the market as a rational and impersonal mechanism:

Benjamin Graham, the founder of value investing, wrote that “the market is not a weighing machine, on which the value of each issue is recorded by an exact and impersonal mechanism, in accordance with its specific qualities.” Rather, he added, “the market is a voting machine, whereon countless individuals register choices which are the product partly of reason and partly of emotion.” Herding, Graham understood, is part of the human condition.

Zweig’s prescription? Do everything you can to go against the herd and establish tracking mechanisms for your decisions to go back and evaluate more objectively:

Thus, if you buy individual stocks, you should note which way the herd is moving—and go the other way. You should get interested in a stock when its price gets trampled flat by investors stampeding out of it. The list of new 52-week lows is a rough guide to what the voting machine has been trashing lately. Then run your own weighing machine, studying the company’s financial statements, products and competitors to determine the value of its business—while ignoring the current price of its stock. And make a permanent record that thoroughly details your rationale for making the investment. That way, you set in stone exactly where you stood before the herd began trying to sweep you away.

When Simon Doonan, Creative Director of Barney’s, (one of the handful places where fashion forward designers have access to the rare slice of edgy yet wealthy clientele that can afford their pieces), the extremely influential guy who the rest of the fashion industry knows to pay attention to… when Simon Doonan declares The Death of Trends then it’s a zeitgeist shift worth pondering. There are still going to be shapes and norms that we collectively select (whether you follow them or rebel against them) but I see this as more of a backlash against the accelerated cycle of the spending on disposable clothing hamster wheel and a coalescing around an iconic vocabulary of modernist elements; classics that are tweaked and revised with the times.

photo by Roxanna Lowit for the Jewish Daily Forward

Doonan writes for the Observer:

Fashion is no longer icy and aloof. Fashion is a massive, forgiving, ambiguous melting pot where people and trends can dig in their Lee Press-On nails and hang on for years and years without ever being out.

He goes on to list a few examples:

Uggs. Style pundits may have broadcast their out-ness for years, but last week’s snowy streets were packed with Uggs-sporting fashion plates.

There is a delicious personal irony in this example given that back in 2004 Uggs were cited in a lengthy discussion in Fashion Theory class as an example of trendy for trendy’s sake. Even though this trend might have been initiated by celebrity sitings, (so awesome to slip on between takes on outdoor shoots) could it be that they’ve had staying power because those who bought them discovered they were super comfortable and well made and lasted forever?

Skinny jeans. Despite their supposed out-ness, they have managed to become a fashion staple, especially when tucked into riding boots. Tally ho!

Key term, “Fashion Staple.” So they became ‘in’ a few years ago as the bootcut finally reached mass market saturation, but could it be that one fashion staple was traded in for another? Could it be that people want fashion staples?

Filson clothing, used as an example of 'American Workwear' trend on brand consultancy blog "We Are The Market"

Of course, now that the skinny jean is headed for eventual  mass market saturation, it will eventually go the way of the mom jean (which has been ‘out’ almost long enough to be revived…), so it’s not as if the trend cycle is no longer. But given that ‘fast fashion’ retailing cycles had accelerated to the point of new trends every six weeks, could it be that more and more consumers are weary of this and seeking alternatives?

These alternatives - especially to spending too much - have been found for the past few decades in the ‘indie’ and ‘alternative’ subcultures continued fascination with vintage. As these ‘trends’ arise in the vintage industry about which items are hot and eagerly sought after, it was a natural progression for designers to use said items as inspiration for re-issues.

A couple of months ago, joining the chorus of ‘how come nobody saw this coming’, I wrote on how the majority of highly paid professional economists gave us a picture perfect illustration of Herbert Blumer’s fashion mechanism operating outside the realm of apparel. You think they would have learned, but the cognitive dissonance is apparently just too much. Here they go clinging to the models and techniques that failed so spectacularly. From the NY Times - Some Forecasters See a Fast Economic Recovery:

In the midst of the deepest recession in the experience of most Americans, many professional forecasters are optimistically heading into the new year declaring that the worst may soon be over….If the dominoes fall the right way, the economy should bottom out and start growing again in small steps by July, according to the December survey of 50 professional forecasters by Blue Chip Economic Indicators.

Oh really? But what does one of the few guys who got it right have to say?

…Many economists are more pessimistic, of course. Nouriel Roubini at New York University, who called the 2008 market disaster correctly, wrote in a recent commentary on Bloomberg News that he foresees “a deep and protracted contraction lasting at least through the end of 2009.”

Even in 2010, he added, the recovery may be so weak “that it will feel terrible even if the recession is technically over.”

I’m going to go with the guy who saw it coming, not the ones who remain in denial.

But Mr. Roubini is not among the economists surveyed by Blue Chip Economic Indicators. These professional forecasters are typically employed by investment banks, trade associations and big corporations.

Ah, that makes sense. Better be careful about what you tell your employer. Forecast too much doom and you might find your position cut.

They base their forecasts on computer models that tend to see the American economy as basically sound, even in the worst of times. That makes these forecasters generally a more optimistic lot than the likes of Mr. Roubini.

Oh right! Those computer models, way too complicated for us ordinary humans. Too bad it’s the collective actions of ordinary humans, not computers, that determine the economy.

Their credibility suffered for it last year. They did not see a recession until late summer. One reason they were blindsided: their computer models do not easily account for emotional factors like the shock from the credit crisis and falling housing prices that have so hindered borrowing and spending.

Simple rule of building a model (computer or otherwise): if you can’t fit it in, simply exclude it from the equation!

“It is not fun to be a portent of doom,” Mr. Barbera said. “And even now in these doomlike times, we in the forecasting profession say it won’t last.”

So you’re saying it won’t last… because it’s not FUN? Okay, while the wide world of corporate media and the advertisers who sponsor it, disregarding something because it’s not fun enough to put on a brochure might fly, but all throughout history reality doesn’t seem to feel so constrained.

Let’s take a look at the thoughts of someone not afraid to say what’s not fun. James Kunstler has been making harsh, but well researched, predictions about peak oil for quite sometime. He posted his Forecast for 2009: on his blog. First he starts by outlining the dominant majority/minority expert views:

There are two realities “out there” now competing for verification among those who think about national affairs and make things happen. The dominant one (let’s call it the Status Quo) is that our problems of finance and economy will self-correct and allow the project of a “consumer” economy to resume in “growth” mode. This view includes the idea that technology will rescue us from our fossil fuel predicament — through “innovation,” through the discovery of new techno rescue remedy fuels, and via “drill, baby, drill” policy. This view assumes an orderly transition through the current “rough patch” into a vibrant re-energized era of “green” Happy Motoring and resumed Blue Light Special shopping.

The minority reality (let’s call it The Long Emergency) says that it is necessary to make radically new arrangements for daily life and rather soon. It says that a campaign to sustain the unsustainable will amount to a tragic squandering of our dwindling resources. It says that the “consumer” era of economics is over, that suburbia will lose its value, that the automobile will be a diminishing presence in daily life, that the major systems we’ve come to rely on will founder, and that the transition between where we are now and where we are going is apt to be tumultuous.

My own view is obviously the one called The Long Emergency.

Now here’s the interesting part - why this majority of ‘experts’ are hanging on to the Status Quo for dear life:

Since the change it proposes is so severe, it naturally generates exactly the kind of cognitive dissonance that paradoxically reinforces the Status Quo view, especially the deep wishes associated with saving all the familiar, comfortable trappings of life as we have known it. The dialectic between the two realities can’t be sorted out between the stupid and the bright, or even the altruistic and the selfish. The various tech industries are full of MIT-certified, high-achiever Status Quo techno-triumphalists who are convinced that electric cars or diesel-flavored algae excreta will save suburbia, the three thousand mile Caesar salad, and the theme park vacation. The environmental movement, especially at the elite levels found in places like Aspen, is full of Harvard graduates who believe that all the drive-in espresso stations in America can be run on a combination of solar and wind power. I quarrel with these people incessantly. It seems especially tragic to me that some of the brightest people I meet are bent on mounting the tragic campaign to sustain the unsustainable in one way or another. But I have long maintained that life is essentially tragic in the sense that history won’t care if we succeed or fail at carrying on the project of civilization.

Ji Lee's photoillustration for Michael Lewis' "The End" on Portfolio.com

Michael Lewis’ The End , the behind-the-scenes story declaring how the era of Wall Street is finally over, has been the number one story on Conde Nast’s Portfolio.com for weeks. Back in the 80s Lewis wrote a book about Wall Street called Liar’s Poker.

To this day, the willingness of a Wall Street investment bank to pay me hundreds of thousands of dollars to dispense investment advice to grownups remains a mystery to me. I was 24 years old, with no experience of, or particular interest in, guessing which stocks and bonds would rise and which would fall. The essential function of Wall Street is to allocate capital—to decide who should get it and who should not. Believe me when I tell you that I hadn’t the first clue.

At least he knew he didn’t have a clue.

I’d never taken an accounting course, never run a business, never even had savings of my own to manage. I stumbled into a job at Salomon Brothers in 1985 and stumbled out much richer three years later, and even though I wrote a book about the experience, the whole thing still strikes me as preposterous—which is one of the reasons the money was so easy to walk away from. I figured the situation was unsustainable. Sooner rather than later, someone was going to identify me, along with a lot of people more or less like me, as a fraud. Sooner rather than later, there would come a Great Reckoning when Wall Street would wake up and hundreds if not thousands of young people like me, who had no business making huge bets with other people’s money, would be expelled from finance.

Too bad he was wrong about the sooner/later part: (more…)

Globalization creates interlocking fragility, while reducing volatility and giving the appearance of stability. In other words it creates devastating Black Swans. We have never lived before under the threat of a global collapse. Financial institutions have been merging into a smaller number of very large banks. Almost all banks are interrelated. So the financial ecology is swelling into gigantic, incestuous, bureaucratic banks - when one fails, they all fall. The increased concentration among banks seems to have the effect of making financial crisis less likely, but when they happen they are more global in scale and hit us very hard. We have moved from a diversified ecology of small banks, with varied lending policies, to a more homogeneous framework of firms that all resemble one another. True, we now have fewer failures, but when they occur - I shiver at the thought.

The world view of finance and economic changed within weeks as previous economic models were rendered useless. Now that we’re in the post-financial-meltdown world, the airways are filled with pundits and experts everywhere exploring and analyzing in hindsight how ended up in this mess. (The best, by far, is This American Life’s The Giant Pool of Money - which, btw, aired pre-collapse back in May - and the follow up piece, Another Frightening Show about the Economy) As I’ve watched this unfold and learned more about the behind the scenes dynamics, I’m blown away wondering how in the world did they not see this coming?

from www.mathworks.co.kr - Risk-assessment model developed in MATLAB

From a NY Times interview with James K. Galbraith:

Do you find it odd that so few economists foresaw the current credit disaster? Some did. The person with the most serious claim for seeing it coming is Dean Baker, the Washington economist. I saw it coming in general terms.

But there are at least 15,000 professional economists in this country, and you’re saying only two or three of them foresaw the mortgage crisis? Ten or 12 would be closer than two or three.

What does that say about the field of economics, which claims to be a science? It’s an enormous blot on the reputation of the profession. There are thousands of economists. Most of them teach. And most of them teach a theoretical framework that has been shown to be fundamentally useless.

Contemporary writers are weighing in with similar questions and explanations, all lending credence to sociologist Herbert Blumer’s theory of Collective Selection. Here are a few quotes from his still influential paper published by the Sociological Quarterly in 1969 explaining that ‘fashion’ is not a ‘thing’ limited to clothing, but a mechanism pervasive in all areas of contemporary life, including those whose leading voices would deny this most vehemently:

It is necessary, first of all, to insist that fashion is not confined to those areas, such as women’s apparel, in which fashion is institutionalized and professionally exploited under conditions of intense competition. As mentioned earlier, it is found in operation in a wide variety and increasing number of fields which shun deliberate or intentional concern with fashion. In such fields, fashion occurs almost always without awareness on the part of those who are caught in its operation. What may be primarily response to fashion is seen and interpreted in other ways – chiefly as doing what is believed to be superior practice.

Robert J. Shiller explains this phenomenon of economists confident in their ’superior practices’ in terms of social psychology and Groupthink. From the NY Times, Challenging the Crowd in Whispers, Not Shouts

And why didn’t a consensus of economists at universities and other institutions warn that a crisis was on the way?

The field of social psychology provides a possible answer. In his classic 1972 book, “Groupthink,” Irving L. Janis, the Yale psychologist, explained how panels of experts could make colossal mistakes. People on these panels, he said, are forever worrying about their personal relevance and effectiveness, and feel that if they deviate too far from the consensus, they will not be given a serious role. They self-censor personal doubts about the emerging group consensus if they cannot express these doubts in a formal way that conforms with apparent assumptions held by the group.

… Deviating too far from consensus leaves one feeling potentially ostracized from the group, with the risk that one may be terminated.

(more…)