Savitri Era of those who adore, Om Sri Aurobindo and The Mother.

Thursday, January 31, 2008

Capitalism is about values, not about steel and cement

LEADER ARTICLE: Enjoy The Ride Meghnad Desai TOI 31 Jan 2008
So people can't accept the simple explanation. There has to be a conspiracy.
Something similar happens when we encounter theories of who runs the world, who controls global capitalism. People are convinced that it is the Americans or the multinational banks which are also American. Others blame the Jewish conspiracy, the Elders of Zion, Saudi oil money and the Masonic movement. It is hard for people to believe, as Karl Marx did, that societies and even modes of production are self-organising systems which no one 'runs' but which are run by a sum total of infinitely many decisions we all take. Some of the actors are big and others small but no one is big enough to buck the system or small enough not to make an impact. This is an insight which came from the Enlightenment, once people stopped believing that God directs the world or signs in the Zodiac do it. They sought an explanation in human action and behaviour. From Adam Smith until the start of the World War I, this was the dominant philosophy.
Last fortnight has proved the truth of that insight. On the one hand, American multinationals admitted that they goofed up big time. Merrill Lynch, Citibank, Bear Stearns and others lost billions of dollars in a market which they thought they knew and dominated. They have gone cap in hand to various sovereign wealth funds, which are by and large Asian. So the Kuwait, Qatar, Abu Dhabi and Chinese funds will own large slices of American multinational banks. Then last Monday, the French bank, Societe Generale, began to unwind contracts of more than $50 billion, larger than its net worth. A single trader had taken unhedged positions (i.e. gambled) on the equity derivatives market. That unwinding led to a sharp fall in the stock markets, enough to panic the US Federal Reserve to cut its rate of interest by three quarters of a percentage point. So the Europeans cannot be smug about the foolish American banks.
For much of the century after World War I, politicians and intellectuals thought that the world could be regulated, that it could be 'driven' like a machine. They planned elaborate schemes and created institutions to repress the market. The USSR impressed everyone by its seeming success in achieving high growth and full employment. Nikita Khruschev even said as late as 1960 that communism will bury capitalism in an avalanche of commodities. That experiment bit the dust in a spectacular fashion. All that accumulation, all those steel and cement factories produced junk that had no value. After the integration of East and West Germany, they could find no one to buy the capital stock that the East Germans had built up. Capitalism is about values, not about steel and cement.
So now even Jyoti Basu has seen the light that socialism is no longer on the cards. He said in effect that capitalism was for now the only game in town. India may call itself a socialist republic but it is luckily no such thing. It is a robustly capitalist country. Only for a brief period of 10 years between 1967 and 1977, Indira Gandhi with a little help from her Left comrades dragooned it into a low income and low employment growth regime called socialism.
Finally common sense, or shall we say, Sensex prevailed. But capitalism is not a free lunch either. Large or small countries, big or small corporations can all experience upheavals in their incomes, share values or growth rates. It is not that capitalism is in a terminal condition with each successive crisis getting ever bigger as the Leninists say. It is that capitalism is always a disequilibrium system which has periods of prosperity and then recessions. Such swings do not destroy the system; they cure it. Marx understood that. Those peddling political parties in his name don't, but then one never expects much wisdom from the Indian Left.
So enjoy the roller-coaster ride of the Sensex and the Footsie. Through 300 years of capitalism, such gyrations have shaped the system and delivered more prosperity than its rival could ever manage. India is on the way up as never before. The writer is a member of the British House of Lords.
"Stay in the game" is the only mantra that's worth repeating. It keeps you from picking stocks that can wipe you out. It keeps you from speculating on situations that are worthless. It keeps you from borrowing a lot of money, known as margining, and hoping that stocks will make a magical move upward. It keeps you from wallowing in worthless penny stocks. It keeps you from trying to make a killing in tech. And it stops you from averaging down on bad stocks, because stocks aren't like parents when you get lost at the mall; they don't always come back. Staying in the game is the ultimate lesson.
How do I know this? Because it is what I have done. I have been able to make big money when big money could be made because I didn't get discouraged or fed up or desperate when times got tough. I didn't do anything illegal or silly or unethical to stay in the game because I knew that when the game eventually turned, I would be there to pounce on what was to be gained.
Staying in the game makes sense rationally and empirically because, over the long term, we know stocks outperform all asset classes. The reason more people don't get rich with stocks, though, is that people can't seem to stay in long enough to win. They get bored, tired, frustrated, defeated, or reckless. They get discouraged. They get beaten by the unnerving and jarring and humbling process not of investing but investing successfully. My methods are designed to keep you from getting discouraged and quitting. Staying in the game is key, it is everything, and if you can't stay in the game then you have failed. And I have failed. I can't let that happen. [ET 30 Jan 2008]
Bill Gates Was Creative at Microsoft from Cafe Hayek by Don Boudreaux
Bill Gates's call, in Davos, for "creative capitalism" is getting much press. Here's a letter on this matter that I sent yesterday to the Wall Street Journal:
To the Editor:
I'm delighted that Bill Gates is reading the important work of the late Julian Simon ("Gates Calls for Kinder Capitalism," January 24). When he digests Mr. Simon's central idea - that human beings in market economies are "the ultimate resource" - Mr. Gates might then recognize that there is no need to change capitalism so that it becomes "creative." Capitalism has always been creative. It is inherently creative.
Everything from apparently mundane pencils and stocked supermarket shelves to obviously complex skyscrapers and personal computers are astonishingly complex artifacts created by human ingenuity unleashed, as only capitalism can unleash it, to experiment, cooperate, and compete. No philanthropist, no government body or commission, no Great Leader - no matter how "creative" or "kind" - has done one-trillionth as much to give dignity and comfort to ordinary people as has capitalism. It doesn't need re-inventing or to be made kinder; it just needs to be spread more widely around the world.
Sincerely, Donald J. Boudreaux January 25, 2008

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