I think we are living in a particularly interesting time. This is where capitalism shows its true value in my opinion. I say this at a time when this value is being discounted by the opposite actions of very interventionist governments.
The value is that of creative destruction. The best ideas continue to survive. People are still earning some money, maybe less, but some. People are tightening their belts but the world is carrying on. They will still spend their money on what you are doing IF it is the best use of their money.
To a large degree... having to fight means the best ideas and most efficient users of resources will be those that survive. In a centrally planned economy, things don't fail... on the outside. In fact, things that fail actually attract resources like a black hole.
That being said, while this creative destruction is probably good at `taking out the trash'. I am sure some great ideas (for the future) will not work right now because of the harsh environment, and I am sure that this process is a painful one for lots of people.
But... how do you improve if you aren't allowed to fail?
4 comments:
I think Capitalism is showing its true danger.
If left to right itself a year ago ,the subprime problem would have swallowed most financial institutions in the US. Lehmans!!
The problems we have now are systemic in nature-- it's a bit like the Titanic, which was built to have up to 4 areas breached, but faced an iceberg that took out more. They also discovered that the metallurgical nature of the steel used was brittle in icy water so more vulnerable to dent-induced ruptures.
The peculiar feature shared between the titanic and the financial system is the human belief that something could be built that is infallible, or at the very least, contains risk lowered to the point it can be ignored.
Ultimately they hit conditions where their own risk assumptions were hopelessly wrong.
Capitalism, like the events on that cold night in April, if not intervened with, would simply (and correctly), sink the ship that had failed to meet real-world criteria for staying afloat.
In that scenario, everything dies.
My personal view? The best survival trait that humanity has at the moment is diversity. Discuss. :-)
I don't think we can be confident about hat would have happened if things had been left to themselves a year ago. Reading economists discuss the crisis suggests that there is little agreement over what went wrong and how we should act now. Ho much of this was greenspan's fault etc.
I'm a little confused about something. You talk about the peculiar belief that we could build something infallible, but in the next paragraph you imply that if we intervened we could stop these bad things from happening.
Of the two scenarios (intervention/non-intervention), intervention seems to me to be a much clearer example of us believing we can make something infallible.
Has intervention historically been a better way of insuring diversity? Which economies have typically been the most diverse?
I'd say there is consensus over the cause of the current crisis, at least in an "the iceberg made a hole there" kind of way. Subprime asset bubble and the resulting fallout is pretty obviously the cause. Finding an idealogical long-term cause is obviously more debatable and where economists, fans of the trends etc lack consensus.
I'd also say there's increasingly wide spread consensus that non-intervention would have lead to systemic failure, evidenced by the increasingly desperate measures taken by the US government after they witnessed the catastrophic results of leaving Lehmans to fail (the non-intervention test case maybe?) As to how to intervene, and whether intervention will prevent the inevitable, a whole other debate!
The key to my point is the word "built", past tense.
The risk manager ( / humankind) says "The system is built, and is now infallible, as I've identified all risks and neutralised them". Parameters of assumptions are mostly forgotten. That other unknown unknowns exist is largely ignored.
The assumptions are built into the hull, the rigid structure.
On that basis, I'd argue that intervention is a better approach- it's a recognition that the assumptions asserted failed. It recognises that the belief (e.g. "The efficient market") that the system, left alone, might continue despite the huge gash in the hull, MAY be wrong.
Like a human body, it diverts resources to perceived areas of weakness and attempts organic repairs, recognising that while the system may be behaving exactly as it should (It is sinking because it has holes in it), that the outcome may not be in the interest of continued diversity. That the outcome may be extinction.
Let me, at this point, separate out the debate the MEANS of intervention, because sadly no government or intervening party can know for sure whether the chosen intervention is healing or exacerbating the crisis.
If the financial system failed tomorrow, it's my hope that we won't be debating whether it was going to fail anyway, or the government broke it, and that the governments will continue to "intervene", doing their best to do whatever is within their means to ensure the continued survival of their constituents.
Like you suggest, I don't think it's fair to blame the final straw for causing the broken back.
I read plenty of stuff arguing against intervention, but I'm a libertarian, so I guess that's not surprising.
I don't really doubt that most economists think we should "do something" and that intervention was necessary, but that wasn't really what I meant. I meant lack of consensus about what to do, not whether to do anything.
Your description of the rigid structure that capitalism has built doesn't have a lot of resonance with me. Failure, flexibility and dynamism are the defining characteristics of capitalism. I see them as built into the structure.
"sadly no government or intervening party can know for sure whether the chosen intervention is healing or exacerbating the crisis."
This implies that the best thing may be to do nothing.
I've blogged about this before, but I think to few people have articulated what disaster scenarios actually look like. The "dire" predictions I've read just don't seem all that bad to me.
Finally, I realise that you can't really say this stuff in polite society (and I don't actually), but I do live in libertarian fantasy land.
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