BOOM and BUST
- it's in our genes.
One of the most irritating features of the current banking crisis has been the barely- disguised glee with which journalists and politicians of the left have reported it.
Mainly this has been in the ‘proof at last that market forces cannot be trusted’ type thing, but what has surprised me is the sheer lack of understanding by supposedly intelligent commentators about what ‘economics’ is, and what ‘the market’ is.
To many it seems the free market is some kind of theology, a cast in stone political and economic philosophy that has been followed by right wing politicians with seemingly disastrous results.
In fact the term free market is nothing more than a euphemism for civil freedom. People free to behave as they wish will buy, sell and trade their legally held assets as the mood takes them; and because humans do periodically act as a herd, occasionally they all choose to sell, or buy, at the same moment in time, and when that happens there will be a very temporary spike or dip in the prices. This process (‘boom’ or ‘bust’) can be very messy but is as inevitable as leaves falling off trees in the Autumn.
Human nature also inevitably provides the solution – it never takes too long before the bold in society turn these situations to their advantage and act differently, becoming very successful in the process, encouraging imitators and reversing the spike/crash in the process.
Stupid politicians and their left of centre supporters imagine that this apparently random process needs to be somehow ‘controlled’ by a higher authority, namely those same politicians. There is no example in history of any authority managing the process of trade with anything other than disastrous results.
The most that a Government needs to do is to protect citizens from the temporary fal-out if there is one. A good example of this is George Osbournes ideas on fuel duty that would rise as prices fall (and vice-versa) thereby ironing out the worst effects of oil price fluctuations.
Yes, there is a massive correction going on in the financial services world, banks have become over-borrowed and the fall out will be destructive and cause short term problems for economies around the world, but this crash is the aftermath of 20 years of an unprecedented increase in living standards world-wide, from Manchester to Mumbai citizens are richer, happier and healther than at any time in history thanks in large part to those same bankers and speculators.
Human progress is messy. Some of the biggest and most successful business ventures ever have been the result of, or have caused, the destruction or breaking up of venerable institutions in the process. Some of our best inventions, greatest sociological steps forward and greatest freedoms have been the result of wars.
The lefts desire to regiment and organise all aspects of our lives is a failed philosophy and it will be a huge step backwards if the temporary breakdown of the loan market were to be an excuse for a widespread abandoning the freedom to speculate that is at the root of all of our wealth.