A primer on the economy

Anyone like me, whose mind glazes over in trying to understand what has happened to our economy, could do no better than to read the clear and concise series on The Depression and on Deregulation by my friend Michey Nardo on his blog at http://1boringoldman.com/

I gleaned a couple of lessons from thinking about this:

1. Any system that lets people get rich by investing in loss is ultimately going to fail. It should be self-evident: if you can get rich by investing in others’ loss without taking any risk yourself, then it’s going to encourage loss in the system rather than success.

2. The ultimate result of deregulation and de-firewall-ization is the creation of financial institutions that become “too big to fail.” Then the taxpayers have to bail them out in order to keep the whole economy from collapsing (i.e., where we are now). Without these enabling measures, the market would punish smaller lenders when they take too much risk, some small institutions would fail, and others would learn the lesson

Instead, the loss-swap measures and the conglomeration of financial institutions kept the market from working to self-correct. I’m not advocating total free markets, like Ayn Rand does, because I think that ignores humanistic values that a humane society wants to insure.

Instead of a really free market or an effectively managed economy, we created a hybrid monster that pretended to be freeing up the markets, while also protecting them both from regulation and from self-correcting forces that would operate in a real free market.

So both governmental regulation and free-market self-correction were eliminated, while encouraging rampant piling up of "assets" that had no real value, only trading value.

I don’t need a PhD in economics to know that’s a formula for ultimate disaster.

Ralph