Jamie

Weinstein

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February 24, 2009

Even When Capitalists Know Nothing, Capitalism is Still the Best

As the world turns, the economy continues to turn downward.

Yes, as you probably have surmised, the world economy isn't doing so well right now and no one really knows exactly what to do (or not to do) to get things moving again. This is not surprising considering very few economists saw this deep recession coming in the first place. We have entered an economic storm that has everyone flying blind, and unfortunately we have no Sully Sullenberger of the economic world to glide us through it. Sorry Larry Summers.

Last month supposedly brought us hope. Besides witnessing the inauguration of the infallible One of Chicago, some of the world's sharpest minds met in Davos, Switzerland at the end of January to ruminate over our troubled world economy. Surely, I thought in a moment of delusion, someone amongst this star-studded list of names would come up with a bright solution to our economic woes. Then I saw a picture of Virgin Group Chairman Sir Richard Branson participating in an event at Davos called the Refugee Run. This is an event where successful CEOs pretend they are refugees much like little girls pretend to have tea parties with imaginary people. 

Well, if this is the type of idiocy that the supposed bright minds at Davos are participating in, I quickly concluded, we are all screwed.

I'm no economist and I don't try to pretend to be one, but it is evident that one of the problems with the world economy is a lack of confidence. When you can't trust supposed "sure things" like Bernie Madoff, then who can you trust?

I don't say this in jest. As billionaire and Madoff victim Norman Braman aptly noted soon after the scandal broke, "He was respected. He was chairman of NASDAQ, a consultant to the Securities and Exchange Commission. He had every single pedigree that you could possibly imagine." You can understand why many successful people with little knowledge of the stock market would trust Madoff with his impeachable reputation to invest their money (though it is completely incomprehensible that some people would invest all their money with the man). Sure, there were signs Madoff was a fraud. But the former chairman of the NASDAQ couldn't really be a fraud, could he?

Yes he could. And therein lies the crisis of confidence. If you cannot trust the Bernie Madoffs of the world, you can't trust anyone. It isn't just the crooks either. Virtually everyone that purports to be some type of stock market expert is currently losing their shirt in the market. These people claim to be experts, but they only seem to be experts when the Dow is gaining. When the Dow is approaching 14,000, they are virtual Einsteins of the financial world. As the Dow approaches 7,000, they are bumbling idiots. 

Of course, there is plenty of blame to go around for the current economic turmoil, from the so-called Masters of the Universes on Wall Street, to consumers who signed up for mortgages they couldn't possibly pay, to Congress who created legislation which forced banks to make such mortgages and so on and so forth. 

But what strikes me as one major problem is that all these geniuses running major investment banks on Wall Street were investing in derivatives so complex they didn't really even understand what they were actually investing in. Usually, when you have little to no idea about what you investing in, things don't turn out too well. One just expects more common sense and expertise from people making eight-figure bonuses. 

Warren Buffett, maybe one of the few economic minds worth listening to with regard to the stock market, saw this whole mess coming as far back as 2003 when he warned about  "madmen" on Wall Street creating complex derivatives that would blow up and disrupt our whole economic system. "Derivatives," he wrote in his annual letter to his Berkshire Hathaway Shareholders, "are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal." 

Bingo! That is why he makes the really big bucks.

It certainly seems that there will be economic turmoil ahead for the foreseeable future. One only wishes that alleged fraudsters like Bernie Madoff and Sir Allen Stanford duped the likes of Iranian Supreme Leader Ali Khameini and Venezuelan aspiring dictator Hugo Chavez in addition to the good and decent people whose money they made off (catch the pun) with. At least then we could give mixed reviews to their alleged treachery instead of just blistering condemnation.

I don't know how this thing will turn out or when the economy will turn around, but when it does, we will have to figure out some way to reduce this piling mountain of debt we have signed on to (or, in the case of the recent stimulus bill, was forced down our throats without debate or even time to read the 1,000-plus page bill). Among other things, this means serious entitlement reform is most definitely in order. 

The one thing we should all remember is that, despite this economic downturn, capitalism remains the best economic system we have. Those who have tried to use this crisis to claim that capitalism is a failed system are simply wrong. We shouldn't be fooled by such hogwash. No economic system has yet been discovered that is more effective in creating wealth as the free market system. After all, only capitalism has helped the world's downtrodden rise out of the mud of poverty. Just look at the hundreds of millions who have risen out of poverty in the last few decades in India and China by adopting free-market principles.

Things are bad now and they will probably get worse. But there is no question that in the long run, we have no better economic system than the capitalist model. Let's not throw it out with the dirty bathwater.

© 2009 North Star Writers Group. May not be republished without permission.

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