The Economics of First Wives

As he surveyed the roomful of people to which he would be speaking shortly, Fred Wilcox's stomach churned, and not from the fish on his plate, nor from the task of his speech, an annual assignment that he actually looked forward to. He knew many of those in attendance by sight, and of those he knew at least a plurality by name; they were his fellow employees at Maritime Bank & Trust, where he was the lone academic on the payroll. His job was to watch larger trends that the boys and increasingly girls on the banking floor would be unaware of, busy as they were pushing money out the door or else, in the pungent phrase that he'd heard often, they'd find their ass in a sling.

No, his job didn't cause him much stress.  He didn't lend money or take on risk; he simply kept his eye on the horizon, so to speak, in the manner of the sea captains that the bank had financed at the turn of the century--the eighteenth century he liked to inform luncheon guests in the dining room on the top floor of the building.  He had perfected an oracular style that he described outside the office by the Japanese word ippoudeha; which meant on the one hand, but which could also be interpreted as on the other hand. No particular investment decision could be traced to him, and so no blame for a loss could ever be pinned on him.

With that insulation from risk came, he reminded himself, a commensurate reduction in the rewards that he reaped from his principal job, and it was that fact that gnawed at him.  He was smarter than every man and women in the room, he thought with bitter smugness, and yet the top producers were admitted to the bonus pool and the executives were granted stock options that would make them very rich men over time.  He could use some of that money, now that he was getting divorced.

He had tired of his wife of twenty years, and in his part-time academic position he was exposed to a steady stream of young women who were not unlike what she had been at one time; interested and engaged, not consumed by domestic trivia.  Over time, he had watched as her mind had dulled from lack of use until she was unable to do simple sums in her head, a fall from the relative acute state of her youthful mind that he assumed was irreversible.  He marked as the watershed the night when they had been dragged to a basketball game after a client dinner and he had noted, looking up at the scoreboard, that the Celtics were behind by fourteen points. "How did you do that so fast?" she had said in a tone of wonderment that wasn't facetious.

And so he had allowed himself to go further than he'd ever gone with one of the graduate students in his econometrics course.  She reminded him of the woman he had married, not the one he was married to; Adele was quick-witted, the leader in the after-class bull sessions that would sometimes take place in a dark bar across Commonwealth Avenue.  Her mind ranged freely from dry topics that he was familiar with to those with only a tangential, metaphorical connection to the subject at hand.  "An Austrian economist looks at a crowded beach and says 'Let's go someplace else, too many individuals have the same subjective preference as us,'" she had said one night as she sipped her white wine while he and everyone else drank from a pitcher of beer, and he had laughed and smiled more broadly than he had in the company of his wife for many years.

When the inevitable day had come when he woke up beside Adele and not his wife, he decided, in what he thought to be an uncharacteristic impulse of courage, that he would calmly but firmly tell his wife that their marriage was over; nothing personal, they had just outgrown each other, and now that their two kids were on their own, there was no reason for them to remain together and unhappy, when they could part amicably and pursue their destinies separately.

"More wine, sir?" the waiter at his elbow asked, breaking his reverie.

"Yes."

"Red or white?"

"I was having the white," he said, and he thought of how Adele had worked this change in him.  White wine had always given him a headache until she had taught him to slow down.  "You're slurping it--sniff the bouquet first," she had told him, and that suggestion had blossomed out from the taste on his tongue to larger issues in his life.  Their love-making became languorous after a first night of heated pawing--instead of the perfunctory pumping that had come to prevail in the bed of his marriage.  A new life lay ahead of him, he discovered, once his first wife was out of the way.

But his wife was, despite the placid temper she had maintained for three decades, livid.  She recalled for him how she had abandoned her pursuit of an advanced degree to raise their children, how difficult her two pregnancies were, how he had encouraged her to stay home with them rather than hire an au pair, as other academic couples they knew had done. Usually there was no visible difference in outcomes, he had argued, but who knew twenty years later how a kid separated from his mother would turn out? He reminded her of one boy they knew who grew up in a household where both parents worked; he'd been in and out of private schools, crashed two cars and only narrowly avoided jail on drug charges. He found this last point particularly galling; yes she had stayed home with the kids, but they had been forced to live more frugally as a result. He had suffered as much as she, he thought.

The bank's president rose and the plink of silver against glasses rose above the din, causing the crowd to slowly quiet their table talk and turn towards the dais. The man thanked those assembled for coming, and noted that the bank's success was in large part the product of the hard work the invited guests did every day to keep their businesses humming.  "So enjoy your dinner, but don't have too much to drink!" he exclaimed, to restrained but sincere laughter.

"Would you like me to refill your glass?" another, different waiter asked as Wilcox clapped.

"Yes, please.  I'm having white," he replied.

He wished he could have been with Adele, or that she could have been here with him, his younger girlfriend he was justly proud of, but they weren't quite ready to go public, and so she had stayed in their small apartment on the ragged edge of Brookline, close to campus but a bit removed from the neighborhood where most undergraduates lived.  His wife would get the home, and to avoid a legal fight he wouldn't ask her to buy him out; she would get their joint investment account, while he would keep his retirement plan and she would waive any claim to alimony on his future earnings. He faced a longer span of working years than he had in mind before he embarked upon his affair, but when he was with Adele he didn't think about that; it was only when he was by himself, or like tonight in a crowd without her, that he was troubled by the thought.

There was movement among those seated at the head table, and the chairman of the bank approached the microphone to say a few words. Further into their dinner than before, the crowd became quiet with only slight prompting, and the chairman launched into a seemingly off-hand review of the bank's results that took note of how well the organization was doing in somewhat difficult times, given changes in focus that had been put in place under his tenure, with as much self-effacing modesty as he could manage. The wait staff circulated among the tables removing the dinner plates and replacing them with dessert, a cheesecake that was greeted by those at Wilcox's table with looks of naughty wonder, but which he waved off.

"You're not going to make us feel guilty, are you?" a woman to his right asked with an expression of mock disapproval on her face.

"Got to keep my slim, girlish figure," he replied with a smile, but he was more serious than he let on.  He was self-conscious around Adele's friends as the eldest member of any group they socialized with, and he didn't want the gap between his appearance and hers to widen more rapidly than it had to.  "Anyway, I want to save my calories for the wine."  As he said this he nodded at a waiter passing by for a refill; he knew he would be called on after the chairman's remarks and a brief introduction by the bank's president, and he wanted to relax himself a bit more before making what he told himself was just his "little speech."

The chairman wound up his remarks with an allusion to the bank's stock price, which elicited murmurs of contentment from the assembled vice presidents in the room, all eager to share in the wealth they were helping to create, all content for now to play the role of loyal lieutenants to the brass they'd be listening to for the past half hour. The president returned to the microphone, thanked the chairman and then shifted gears from the self-regarding institutional talk that had been the evening's diversion thus far to the larger world outside the building. "We are a parochial town in many ways," he said, and many in the audience smiled in polite agreement, "but we are also part of the larger world, whether we like it or not. Our bank has been a leader in international trade finance since its beginnings, and we can truly say today that the sun never sets on the Maritime empire." Here he paused and waited for laughter which came in a tiny, underwhelming ripple, like the tiny waves that lap your feet as you walk along a beach. "Thankfully, we don't have to rely on reports from our far-flung outposts to learn which way the winds of commerce are blowing, as we have a full-time economist on the payroll who is charged with keeping his eye on the big picture. Those of you who have attended these thank-you dinners of ours in the past know him well from his past prognostications, some of which actually turned out to be correct." 

Again, the president paused for laughter, which came with greater force than before, causing Wilcox to blush a bit and smile in an effort to be a good sport. "So without further ado, here is Maritime Bank's Chief Economist, Fred Wilcox." The applause that greeted him was robust, he thought, a word he considered trite but which he understood to be part of the approved lexicon of the bankers and business people who sat before him. He wondered whether they were over-compensating for the laughs they'd had at his expense a moment before. He stood up in his place, as was his practice, so as to avoid the long walk to the front of the room and a possible misstep as he strode to the podium. He cleared his throat, took a final sip of his wine, and let his eyes wander over the room, trying to imagine the overstuffed crowd before him in their pajamas, as he had once been counseled to do by a high school public speaking instructor.

"Thanks, Bill, and thank you all for joining us here tonight," he began, and then self-consciously paused to take a breath. "I have been giving these talks for several years now, and I find as I go back over my notes from past presentations that I may not be doing enough to promote the growth in the after-dinner speech sector of the economy, because I seem to be recycling old material rather than making investments in new ideas." There was only scattered laughter, as his attempt at humor was too long-winded. Stay away from the jokes and digressions, he reminded himself, they never turn out as well as you think they will. He looked down at the notes he'd pulled out of the inner pocket of his suit jacket a moment before and saw the same bold-faced headings he'd been using since he was first called on by the bank to address customers nearly a decade before. He used the headings not as a road map but more like a shopping list; once he had entered the door of his talk, he would wander the aisles of his subject, picking out whatever he found first on the shelves. He preferred improvisation to a cold litany, and he tended to flit from one topic to another, always ending up with what the burghers of Boston were most eager to hear; which way were interest rates headed?

After a few cursory remarks about various indicators--the rate at which the economy was growing, the consumer price index, unemployment--he glanced down and his eyes fastened on the header "Capital Cycles." It was in his mind a fundamental yet neglected principle, but one that might be of interest to a manufacturer thinking of investing in equipment. "One of the gauges I come back to year after year is the capital cycle," he began. "Those of you who are owners of businesses--and I guess that means most of you who are here as guests tonight--know about this instinctively, but to put it into plain English for you, capital expenditures are inversely related to return on equity."

A few faces registered agreement by pursed lips or furrowed brows.

"When companies need to invest to expand capacity, investors experience lower returns. That's inevitable, and there's a lot of history we can look to for proof. Take the British Railway bubble of the 1840s. Projections of future demand fueled the over-building of railroad lines, and investors bet on those hopeful expectations. Prices of railroad stocks rose to heights that weren't justified by any rational measure, and when they crashed there were insolvencies that set the industry back for a good long time."

Here he paused and scanned the room for a second, trying to think of a homely example he could use to relate the concept to those who weren't with him. "It's a bit like a first wife," he said, and he heard a few laughs of surprise at the curious transition.  "You put a lot of money into the enterprise starting out, and you hope it grows over time. Instead what you find in some cases is that you have assigned it an inflated valuation, and it crashes."

There were more smiling faces, he noted, mixed in with some looks of puzzlement, so he continued spinning out the conceit rather than switching to "Global Markets."

"When that happens, of course, you have to re-invest in a new capital asset, a second wife, but the sunk costs in the first wife will hold you back. They are a drag on your personal economy."

A few laughs were heard, but quieter now. He noticed the beginnings of a scowl on one woman's face at a table midway between him and the bank's executives; he smiled at her to try to convey that he was only kidding.

"So as you look ahead you see diminished prospects for the future, and a need to re-allocate your capital in ways that are inefficient. Buying a home to replace one that you lost when things went south." He looked again at the woman, then over her head at the president and chairman, whose uplifted eyebrows signaled that they weren't getting the joke. He felt beads of moisture form at his hairline.

"Anyway, one way the Fed helps out when this happens is by easing interest rates in order to make investing in new equipment more affordable for businesses, and as I see it, you can probably look forward to lower costs of capital over the next eighteen months." He realized he needed to bring things to a close, but no natural conclusion to his talk occurred to him, and so he ended things by simply saying "Thank you," and sitting down.

The abrupt conclusion left the audience unprepared to applaud, and so only a smattering of claps were heard at first. Caught off guard, the president took a few moments to realize he should take over again, leading to an awkward few moments in which there was no diversion for the audience to fasten upon.

"Thank you, Fred, insightful as always," the president said, cutting off any further recognition of the speech. "Well, that concludes our program for the evening unless anyone has any questions for Fred."

There was nothing but silence while the president looked around the room for a few moments before saying, somewhat relieved, "Good night."

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