After the Crash

by on October 24, 2008 · 9 comments

Forbes has produced a scintillating special report on the market crash and what comes next. Steve Forbes tells “How Capitalism Will Save Us.” In “Curbing Washington’s Growing Power” economist David Malpass explains the policy mistakes that led here and describes the key threats that could make it worse. Rich Karlgaard compares today’s market to the malaise of the 1970s, but offers hints of optimism bubbling up. And George Gilder, summoning Peter Drucker’s mantra — “Don’t solve problems; pursue opportunities” — previews the technologies that portend a “Coming Creativity Boom” and offers, characteristically, the deepest insights on the nature of capitalism:

Knowledge is about the past; entrepreneurship is about the future. In a crisis the world of expertise pulls the global economy ever deeper into the past, where accountant-economists ruminate on the labyrinthine statistics of leviathan trade gaps, tides of debt and deficits, political bailouts and rebates, regulatory clamps and controls, all propping up the past in the name of progress.

The crucial conflict in every economy, however, goes on. It is not between rich and poor, Main Street and Wall Street, or even government and the private sector. It is between the established system and the new forms of wealth rising up to displace it–all the entrenched knowledge of the past and the insurrections of futuristic enterprise and invention.

The real source of all growth is human creativity and entrepreneurship, which always comes as a surprise to us, especially in the worst of times, as Rich Karlgaard notes. No amount of knowledge about the present can predict the specific profile and provenance of innovation. From the pits of the crash of 2000, when the Internet and the dot.com siege were famously dismissed as a barren “bubble,” came Google (nasdaq: GOOG – news – people ) and MySpace to rise up and take all the chips and establish a new Internet economy. If creativity was not unexpected, governments could plan it and socialism would work. But creativity is intrinsically surprising and the source of all real profit and growth.

You’ll find lots more economic and investing advice, including a report on “What Ben Graham would do.”

  • http://srynas.blogspot.com/ Steve R.

    Capitalism is a wonderful system. As the post notes “The real source of all growth is human creativity and entrepreneurship, which always comes as a surprise to us,…”. However, things are not that idyllic.

    The New York Times today has an article Greenspan Concedes Error on Regulation Greenspan is quoted: “Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief,””.This points to a fundamental flaw in how the free market should operate.

    The free market mantra is: “give us freedom, don't regulate us, trust us”. If there is a problem the free market magical black box (will through an invisible hand) fix it. Unfortunately, our corporate leaders, through their willful actions,broke the free market magical black. Why did the magical black box break? It broke since there was NO commitment by these so-called leaders to act responsibly. All the leaders thought about was how to aggrandize their own personal power/wealth without considering the ramifications.

    Unfortunately, Steve Forbes (who I like a lot) as a free market advocate appears in his article to refuse to acknowledge the cause of the financial crises simply referring to it in the abstract as “a chain of major economic policy errors” and the gratuitous “These government blunders … While Steve's statements are true, they overlook the causative factor, which was capitalists running amok.

    The article immediately after Steve's article is one by David Malpass titled “Curbing Washington's Growing Power”. Were David writes: “Big government is walking away as the knock-out winner over the private sector in the latest financial crisis. Washington spinmeisters have placed the blame for the crisis on too much capitalism and too little regulation, with no blame left over for Washington's own bad regulatory, monetary and tax policies.”

    If we want the free market black box to work effectively, the free market argument should not be based solely on self-interest, but moderating selfish behavior through responsible actions. (If you live in a glass house don't throw stones.) I would hope that articles such as “After the Crash” would have calls for responsible behavior. If you want freedom from regulation, act responsibly.

    Unfortunately, because of the abuses by our corporate leaders, our “After the Crash” economy will be even more regulated by over zealous politicians trying to show the public how they are leaders (after the fact) making those hard decisions (after watering down the language and adding substantive pork). The free market should not be a license to “steal”.

  • Arnold J

    We need a free market in coining money so the market can discount “dishonest weights and measures”. As long as the coercive force of government is manifested in monopoly legal tender laws then it remains the prime source of misallocated capital.

    The discipline of gold and silver is needed to avoid the excesses of hubris that accrues to those in power. To hope in government to allocate capital better than those who earn it and save is an exercise in utter futility.

  • Arnold J

    We need a free market in coining money so the market can discount “dishonest weights and measures”. As long as the coercive force of government is manifested in monopoly legal tender laws then it remains the prime source of misallocated capital.

    The discipline of gold and silver is needed to avoid the excesses of hubris that accrues to those in power. To hope in government to allocate capital better than those who earn it and save is an exercise in utter futility.

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