Unfree Markets, and Economic Collapse

January 25, 2008

I’ve long maintained that we don’t have a “free market.” Not in the U.S., not elsewhere. Sure, some markets are comparatively “freer” than others, but the least-bad alternative is not necessarily good. Well, when mainstream financial publications like FT start denouncing the rise of corporatism…

How can it be that Merrill Lynch, Citigroup, Morgan Stanley, Bear Stearns, UBS and other big banks have been turning to foreign governments for financial lifelines with so little public controversy? Perhaps it is because the dangerous broader context of what is happening – the rise of “state capitalism” – is not sufficiently recognised….

Unlike the changes of the past [from feudalism to capitalism], this new trajectory does not represent progress.

Told you so.

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Not a big fan of George Soros, but analysis in the FT I believe is on par.

Boom-bust processes usually revolve around credit and always involve a bias or misconception. This is usually a failure to recognise a reflexive, circular connection between the willingness to lend and the value of the collateral. Ease of credit generates demand that pushes up the value of property, which in turn increases the amount of credit available.

Soros’ thesis is that the current “bust” phase is the culmination of a 60-year trend beginning with Bretton Woods. I am inclined to believe that increasing competition, and the spread of globalization has made economies more resilient and has diminished the recessionary bias, as firms lack market power, prices can’t rise like they had in years past. Of course, this does not mean that I don’t believe economic apocalypse is possible. It is. If there is indeed a 60-year mega-bubble, and intermediary cycles were not self-contained economic incidents, but instead a part of a broader picture, then eventually the bigger bubble has to burst.


Posted in: ponderings, World Politics

Comments

1 Comment so far

  1. Francois Tremblay January 25, 2008 3:11 pm

    The RISE of State Capitalism?

    BWAHAHAHAHAHAHA!

    What clowns!

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