Just look at the long-term chart of the Dow Jones Industrial Average below. The first thing you’ll probably notice is that it starts at the bottom left and rises strongly to the top right of the chart. So the message is clear: U.S. stocks have risen over this period.
And that’s why many pundits keep claiming that stocks always rise in the long term.
Unfortunately this conclusion is not only somewhat naïve; it is even false, because it makes some hidden assumptions about our future.
It is impossible to draw a universal conclusion from a single observation — or even from a myriad of observations. This method is called induction, and logic proves it’s impossible.
So the correct statement should be something less ambitious. It goes like this: “Since the early 1900s, stocks have risen strongly in the U.S.”
And I want to add an important point: There was a very good reason for them to do so.
You see, during that relatively long period the U.S. rose from a very low starting point to the most powerful and wealthy nation the world has ever harbored. It’s actually one of the most amazing success stories of all time.
If there was ever a country whose economic path seemingly went straight up, it has been the U.S. The very country we Europeans used to call the country of endless opportunities.
Growth Miracles Aren’t
Miracles at All
Of course we would all like to extrapolate this impressive trend into the future. But history teaches us that we have to be somewhat cautious in doing so — the next 100 years will not necessarily resemble the past 100 years. If they did, we could expect a similar satisfying outcome for the stock market.
But even if this ambitious assumption turned out to be right, we’d have to allow for major drawbacks on the way up. Drawbacks like the Great Depression and World War II. In the bigger picture they both turned out to be mere bumps in the road. Yet for millions of people living through those times it was much, much more.
But how about the assumption of a continuation of the American success story?
I think there is a very important point to be made, a point of utmost importance to all of us living in the U.S. or in Europe today. The U.S. success story was not just happenstance. Far from it. Growth miracles aren’t miracles at all, never. They are always the logical outcome of capitalism, free market and pro-growth oriented policies.
Unfortunately the U.S. and Europe have strayed away from this concept … even far away recently. Instead of letting the free market take care of our economy and wellbeing, we are on a path to ever more government regulation and intervention.
We have allowed our central banks to become extremely powerful central planning agencies. And we have allowed our governments to run up surreal deficits, mountains of government debts and cockamamie promises.
Therefore we have to be skeptical about the next chapters of the U.S. success story. Without a major shift back to prudent monetary and fiscal policies, which are the cornerstones of free market oriented success stories, there will be no success … but demise.
History’s Four Valuable Lessons
It’s definitely possible to learn from history. And the history of mankind tells an interesting story of the rise and fall of nations. So there is still hope.
And for you as an investor this is very important …
First, it leads to some humility and humbleness. All of us who have been born into the wealthy and relatively free western societies are blessed without our own doing.
Second, nothing outside the law of nature is for sure and accepted as unchangeable. We were lucky enough to witness the sea of change that freed huge parts of the world from communism and made the world a better place for hundreds of millions of people. Other generations lived in much more demanding times.
Third, it’s your responsibility to take precautions to make sure you will not be swept away by major changes and impositions. Diversification — even geographically — can do a lot to achieve this goal, at least financially.
Fourth, history teaches us that we better keep an open mind. If you think outside the box, will you be flexible enough to cope with major changes unthinkable to a vast majority — and even anticipate them to some degree.
We Are in the Midst of
a Tide Change
Decades of monetary and fiscal mismanagement in the U.S., Europe and Japan are driving the current financial system to a tipping point.
Unfortunately it is unclear how the endgame will turn out. If market forces were allowed to take over, a huge wave of debt deflation and a deflationary depression would likely follow. But if the ubiquitous inflationists were to get their way, the world would be heading to an inflationary crisis.
Both scenarios involve huge losses of wealth and welfare. Both imply severe social and political risks as well. Due to the mechanics of politics in our social welfare democracies I rate the inflationary scenario at a much higher probability than the deflationary one. Therefore I continue to suggest gold as insurance.
You can conveniently buy it as an ETF, like SPDR Gold Shares (symbol GLD). Or you could buy the real thing, that is bullion or coins.
Best wishes,
Claus
{ 28 comments }
You again are correct , Claus, while inflatonary crises is most likely, that is only a postponement of the inevitable deflationary crash, because to get to a true, sound ecocnomy debt needs to be brought back to a normal level, We have witnessed debt levels never seen in the history of the world. History does repeat itself, but I dont know if we can compare what we now have, to any other time. mostly because the largest military and economic power at this time is also the one in the most trouble. If we have inflation the world has inflation, if we have deflation, the world has deflation. What is needed is a controlled visable decrease in debt levels, If a we had a Real President and Congress whose interest was the well being of the nation in the long run . They would declare a national emergency, and spell out a plan of economic reconstruction .But I feel there are too many who still believe that Marxism is a viable goal. I fear we are doomed to have to reconstruct from the ashes of a total meltdown.
Hello,
Yes , I fear too that already too many “little” people, are not going to be able to “scratch back” from any position they are in NOW . let alone a year or two from now .
That’s where i think most of the “working class’s funds and taxes will be funneled to. and to try to resurrect another “growing” nation form this coming ASH fall out is going to take at least one whole generation. It am trying to protect what little i own , and hope we won’t have a ” nationalization” of our personal property again ( which I think is imminent). No wonder Americans , that have the luxury of being retired and actually getting a check every month, which I don’t think i will get ,are moving away form the USA ( i read somewhere between 15 thousand and 25 thousand people per year).
All I know , is Ron Paul ( my fav Prez’l candidate) will have the very difficult task of going back to root value’s and try to come out strong again .But i fear it is the only way. to re-create “the people’s” right’s and freedom’s now taken away and or highly taxed and /or censored.
You are a breath of fresh air Claus. It appears that we have a world full of people who can’t think outside of “normal”. Anyone can see we are sailing into a world of “Not Normal”. Gold is probably the best short term investment, but long term we will need food, energy, and clothing. It appears to me, that we are so fat, greedy, and economically challanged that we will get where we are are headed. Like the old truism–“If we stay on the road we are on, we will get to where we are headed”. Keep pointing out the obvious. We need to see more clearly.
So far, with incredibly vigorous efforts at inflation, the ‘Bernank’ has managed to avoid the deflationary collapse. We have inflation in stocks, bonds, commodities. Jobs (wages) and housing are relatively still deflationary. Will he be able to continue to do so? Personally, I doubt it,,, but as they say, that is what makes horse racing,,, and makes investing such a challenge. Many forces are at work, and many people are trying their best to interfere, and at each point we need to decide who will be the winner, while the middle class is the looser.
I believe you are right about inflation in which case the U.S. stock market is definitely going to go up as stock asset prices will be inflated.
Your chart of the DJIA is almost flatlined to 1980. Born in 1930, I know there are a few areas that do not show some peaks and valleys. The recessions that occurred were mild compared to the 28-29 period but never the less caused significant losses to many people. The Oil Boycott in particular was a major problem to industries and the people. I agree with you that the problem is with the central banks position and the growth of statism here in the USA. I believe it began with the first Roosevelt who planted the seeds with his conservation efforts. It continued with Wilson’s actions during WWI. FDR added plenty of fuel to the fire, particularly with his appointees who were basically socialist or even communists. The UN brought us Korea. JFK’s world view gave us Vietnam, Johnson topped all of them with his war on poverty. and so it went. The climb starts during Reagan’s terms, but even he failed to cut the spending habits. It has proceeded to the point where many individuals are afraid of losing their congressional seats if they try to bring spending in line with income.
I also agree that what the latter’s choice will be inflation, (properly hyper) and God help the middle class. They will once again bear the brunt of the crunch.
I find the comments here, as well as Claus’ original article generally well reasoned, and that of Ron Carney, above, especially astute. Carney reasons from the vantage of having lived 81 years, still in possession of a sound, perceptive mind.
As I mention at my Yahoo-group site, Steps to Laissez-Faire, however, the fate of any nation-state that adopts a government currency (via a national mint and concomitant legal-tender laws in the case of the U.S.) is already sealed. Failure to turn away from innumerable examples of failed government currencies at the time of the establishment of the Republic around 1790 has led us to the point where we are today, and facilitated the many disastrous wars that Carney, above, refers to.
[Although I would add that many of the wars he mentions were only fought as consequences of prior chauvinistic and imperialistic wars that may have appeared at the time to be “successful”–e.g. the invasion of Mexico by the U.S. Army in 1846, the Civil War, and the Spanish-American War of 1898 which brought us a colony directly in the path of Japanese expansion, and a Corregidor built with 125,000,000 gold dollars to serve only as a tomb for the thousands of American and Filipino soldiers who attempted to stand in the path of history.]
The fate of all people is likewise sealed, unless they find a way to repudiate the institution of government currency, and discover the power of merchants and bankers to fashion currencies which appeal by virtue of their genuine, commodity value, that appeal by virtue of the reputations and the integrity of their makers,
The problem with blaming social programs for a long-term erosion is that they actually helped in many ways not being factored into economic models. Conservation efforts under Roosevelt have made lasting and ongoing contributions to a livable world, and help to give us some of the environmental respect and buildings, and monuments we still use today.
If a person stacks up the social programs and their effects on socio-economic progress or stagnation, they would provide a lot of pros, cons, and debate–while excessive military spending under the massive yearly deficits that Reagan initiated (an ave. of $160 billion in red ink yearly during Reagan-Bush I years of militarization and middle-class suppression), the social programs will win out handily, I think.
Overbounding, dead-end military spending in pursuit of resource always seems to eat up empires drunk on the gluttony of power, temporary wealth, and excessive spoils.
The reference by an author above to the DJ rise beginning with Reagan to me also represents the beginning of exaggerated growth uisng huge debt spending, beginning the inevitable bankruptcy of the government, and overemphasizing economic factors averse to stable growth. Necessary attention to social imperatives and environmental constraints also inevitably lend us toward massive instability and an inevitable return to a much lower Dow and other important indicators of economic welfare and performance such as GDP growth, home ownership, small business health, employment, community networks, and a healthy environment.
The huge debt begun by RR; his targeting and breakdown of the vaunted American middle class , and pushing dysfunctionally low taxes for the rich, began major trends coming to roost today. Lower marginal tax rates (if you do the study the history) lead to economic instability, boom and bust cycles, and governmental crisis (predictable). Lowering taxes increases debt, a contradiction in Republicans current plan to mainly just continue the fleecing of taxpayers for millionaires and billionaires, ‘the base’. Yo gotta pay attention to the environment guys, it’s the Big Kahuna in the sky…and we’re little kahunis who got blinded by the sun. Icarus?
A logarithmic scale for the value of the Dow would make a more “readable” graph out of that chart. It would also demonstrate that the gains since 1980 are not so overwhelmingly huge compared to the gains from 1920 to 1980. Basically the Dow increased by about 20 times in the first 60 years (about 5.1% annual gain), while increasing about 12 to 13 times in the most recent 30 years (about 8.8% annual gain). But I would contend some of the gain in the last 30 years has been inflation-driven, wheras the gain during the first sixty years contended with a stiff headwind of some substantially long periods of deflationary pressure (1930 to about 1947).
thank you Claus
You mention that governments drifting from free market capitalism and expanding the reach of gov’t. are the cause of our expected decline. But many of the problems we face today cannot be solved by the private sector. For example, Glass-Steagal financial regulations worked for decades to prevent financial collapse. Look what happened a few short years after we deregulated financial markets. And in the US, health care costs are out of control, and health care does not lend itself to private markets so well. Doctors have incentives to overprescribe care, and insurance companies to underprescribe. The only way to control costs is for gov’t to become involved. And the private sector has a terrible track record in protecting the environment. Without gov’t regulation our air and water would be filthy. And transportation. Have you driven the freeways in a major US city at rush hour? If so, I think you’d agree there’s a role for gov’t there, too. The social safety net. Do we really want to let our fellow citizens wallow in poverty in old age, and have our children grow up in poverty? Then there’s the importance of education. These are the major functions, along with defense and enforcement of property rights, that governments do. And most of these functions, aside from perhaps health care, were performed by governments over what you essentially describe as a golden period of US history. So what is so different today, and what is it that gov’t is doing now that you would rather it not do?
Quite frankly Claus, I agree with you, I don’t think that it is possible to avoid a crisis of unbelievable proportions, but unlike you, I don’t think anybody will survive intact. The wealthy are under the illusion that they can avoid this calamity by virtue of their wealth. We are all in this boat together. There is an interesting parallel between the issue of global warming and environmental degradation and the current state of the world economy. Somehow the rich think that they will escape unscathed. They won’t. When everything collapses, our world will surely change to a completely different paradigm. What that paradigm will be is impossible to predict.
The institutions that we take for granted will probably not exist in these dire conditions. The only way we can avoid this is to work together as a planet to find realistic solutions. So forget about buying gold, a more useful approach to protecting your wealth is to demand your local politician engage in intelligent solutions to protect what we’ve got. For example, America needs to raise taxes on the wealthy and introduce carbon taxes to do something about global warming.
We cannot afford to dither any longer. EVERYBODY has to become part of the solution, otherwise we will lose it all.
What most people don’t realize is that we are quickly coming to the end of an approximately 150 year run of cheap energy and natural resources. These two factors, I believe, were the foundations of the frantastic growth shown in this country. Fortunes were made with iron, timber, coal, oil, copper, etc which were, for the most part, free for the taking. Local business gave way to national business which have given way to international business. For example, instead of each town of moderate size or larger having it’s own beer brewery, today, giant trucks burning precious hyrocarbon fuels haul flavored water with a little alcohol in it, hundreds of miles from the brewery to the consumer. The same same thing is true with many other products. So when the cheap sources of transportation, such as container cargo ships hauling merchandise from Asia to the Uniter States, are no longer cheap what is the prospect for the companies dependant on low cost transportation? With the identifiable natural resources mostly gone and recycling becoming more and more important, what will happen to their value? In turn, what happens to the financial markets dependant on the survival of these corporations? Finally, if the government cannot handle the problems developing now while we are still in a relatively properous mode, what will happen in the future when things really get tough? Tough question with no easy answers, and general statements like the stock market always goes up will be tested.
A partial solution would be to amend the constitution to require term limits on elected members of congress. Amend the constituion to require a balanced budget amendment. Amend the constitution to insure that congess will pass no laws that do not apply to members of congress as well as citizens of the US.
How does that ‘great growth’ look when compared to something tangible like gold?
Klaus:
Thank you, as always, for your exceptionally well written articles, revealing the education of a thoughtful and discerning man and the sophistication of a true gentleman.
As our great nation declines, one of the horrible consequences that precedes the actual fall is the terrible psychological toll it is taking on the populace. Here in America, any sensitive person can feel an extreme angst in the air, generated by the tortured and worried people who are creating all the thoughts of woe and worry as they go about their daily lives filled with stress and anxiety about the future.
It seems this psychic “monster” that is consuming the soul of America is growing ever stronger. One can feel its power increasing, as fear and dread consume the populace, and as their daily suffering increases. That problem is bigger and more damaging than the actual loss of wealth, because it eats at the psychic and spiritual core of our people.
Fear saps strength. Anxiety drains courage. A woeful interpretation of what is to come cuts out the legs from under us. Only by dismissing fear, realizing that we will must go through the results–the just desserts of our actions—and resolving to bear the pain and suffering nobly, will we have any hope of emerging on the other side of this mess a better people and nation.
There is a Golden Dawn after the Storm. As the dark and terrible Storm envelops us, we must take heart and know that we will come through it, though we must also acknowledge that what comes we brought upon ourselves. Some deep soul-searching will reveal this fact. Wealth cannot be protected. It can blow away as so much dust in the wind. When we begin valuing the truly important things of life over wealth, then the lesson will have been learned. But it seems it will take a lot of deprivation to get us to that point.
What will be the final sign of the Great Storm’s impending arrival? When the elite, who’ve already begun moving their operations and fortunes abroad, begin moving themselves— when the rats jump ship. After they’ve gutted the treasure troves of America (witness the massive bailouts to the elite, and the continuing, behind-the-scenes fleecing of our money) they will move on, leaving us to our misery.
It is then that the true Storm will descend.
Lets just have Infinite money printing and No austerity (Krugman and Reich say so and non savers luv the idea:)
Then our crisis is solved Forever (or until our savings are worthless and our bonds have lost all credibility).
What does this mean for PLroShares Ultra Short Financials (symbol SKF). As far as I can see it has been consistently dropping in value. You recommended that we short the market as it is bound to turn around. Now you are recommending gold shares (GLD). They both can’t be right. This is like recommending that we prepare for deflation and inflation.
I appreciate the clear and positive tone of your article. I do believe a mixture of free enterprise with suitable regulation and social & environmental legislation and policies are necessary guides and boons to the economy as New Deal policies, higher taxes on wealthier individuals and corporations, and common sense protection of critical ecosystems contributed strongly to building the boon era of the halcyon 1900’s in the U.S. Ruleless games tend to deteriorate into individualistic play and then disorganized nonsense as we are seeing today with wealthy people indulging their hoarding instincts and heedlessly ruining the playing field for the next generation of life seekers here on Earth. Capitalism under corrupt banking and low-regulation seems to deteriorate as rigid communism fractures under its own dogma. The forces of man need to be substantially free yet directed to social ends or we would have to live as third world villages etc. where the excesses of those who act beyond the communal spirit and good are not as destructive or benign, being low-tech. I think the communal model will win out eventually, since the individualistic one has been such a glorious and repeated failure during the recent human era…
I think Claus is very smart but he and Martin were very bearish in March of 2009. He recommeneded shorting the market at 8500 and was saying to not chase this market at 7500 and to wait for a small bounce to short. I am almost positive Martin said JPM was going out of business in 2009 and recommended shorting it and its up well 300%. So just be cognizant of market conditions when heeding his warnings. He is better to listen to at market tops vs. market bottoms. I believe he has good intentions but he was screaming get out all the way down and like many market prognosticators you should know thier track record. Although this post will probably be removed. Sure the worst may not be over and we could have a double dip but by listening to Martin and Claus in 2009 you would have missed the biggest equity rally since 1936. Like I said I think everything is done in good intentions but when you hold yourself out to the masses more disclosure is probably a plus if the goal is to help people which I believe it is.
Good article and excellent reader comments. But I’ve failed to find the most important single cause that ruins our beloved country mentioned here: Excessive government spending. The root of all evil for our government is over spending which is destroying this nation and put our kids into $100’s of trillion deficit. The solution, however, is rather simple but our government will choose not to do: Cut spending of all government levels 25% across the board now, problem solved, a balance budget. Remember, we all have to live within our means!
Claus, your comments concerning the general direction of economic and political affairs in the U.S. and Europe are very good. However, I suggest that the statistics concerning stock market trends and the economy in general may be misleading. The influence of fraudulent money creation on these statistics should not be overlooked.
The real American miracle in the U.S. occurred during the industrial revolution between January 1, 1879 and passage of the Federal Reserve Act on December 23 of 1913. During the civil war, the U.S. had gone off the gold standard and was still issuing fiat money in the early 1870s. In 1874, approximately 3,000 businessmen met in Baltimore to pressure Congress into stopping its issue of fiat paper money and returning to the gold standard. In 1875 Congress passed the resumption act mandating a return to the gold standard on January 1, 1879. During approximately a 20 year period (1880 – 1900) while we were on the gold standard, prices rose one-half of one percent while wages doubled. This occurred while foreigners (predominantly European) were flooding into the U.S. at a rate of one million per year; this was a significant influx considering the U.S. population at that time.
Between 1914, when the Federal Reserve went into operation, and 1920, wholesale prices increased 126.7 percent. An excellent account of Federal Reserve operations during its early years can be found in Dr. Benjamin McAlester Anderson’s book “Economics and the Public Welfare.†Dr. Anderson was an economists for the Chase National Bank from 1920 to 1939 and was deeply involved in national and international bank decisions. His book provides a wealth of information about Federal Reserve operations from its beginning of operations in 1914 to 1939 – the figures quoted above are from that book.
My point is simply this: the graph you provide is based on statistics that are greatly influenced by Federal Reserve fraudulent money manipulations and therefore do not represent a free market economy to the extent indicated. The Federal Reserve Open Market Committee has enormous power to manipulate investment markets such as Wall Street and the commodities markets. When you have unlimited power to create money by writing numbers in books, you can manipulate a lot of things. In Chapter 9 of a book titled “The Federal Reserve System†written by a group of experts in the banking industry and edited by Herbert V. Prochnow, President , The First National Bank of Chicago, we find the following statement:
“Open Market operations are, of course, a highly flexible method of control. They can be speeded up, slowed down, or even reversed, from one day to another – or even from hour to hour.â€
Several of the contributing authors of this book were officers of the Federal Reserve – including a former member of the FED Board of Directors. I consider the information in this book, plus one authored by the Board of Directors of the FED, as very authoritative concerning Federal Reserve operations.
In his essay “Abundance and Scarcity†the French political economist Frederic Bastiat (1801 – 1850) said: “Wealth consists in an abundance of commodities.†Notice that he did not say that wealth consists in an abundance of paper money – but gold is a commodity. Fraudulent money is the destroyer of wealth, not the creator. It’s a form of capital consumption, not capital formation, and will destroy any nation that adopts it as legal purchasing media – which we have done. The point is that FED Open Market Operations may drive stock prices up, and thus make the trends look good, the underlying principle of using fraudulent money to do so is destroying the capital base upon which true progress depends. Unfortunately, there’s a time delay between cause and effect that obfuscates attempts to solve our economic problems.
The key to recovery of our nation is a better understanding of fundamental principles: the fundamental principles of economics, politics and morality. Yes, fundamental principles exists in all three of those disciplines and we are trying to violate all of them . We will only succeed in destroying our society – as the Egyptians, Greeks, Romans and the other eighteen major civilizations have done – and for the very same reason.
Keep up the good work. Your promotion of free market principles is appreciated.
It would be wise to revise one’s comments … just like the DOW revises the contents of it’s INDEX regularly.
Most stocks within the Original Index disappeared. To be TRUTHFUL and HONEST the DJIA and the SP500 and others should have a Version Number attached to it every time it dumps a company in favor of another that will make their Index CHART look better. The beginning point on SP500v31(or whatever) should start on the True Date of inception which is when they changed their lineup. The end point of each Index version should end when each company in that Index version no longer exists. Then you would have the Reality of What has occurred in US Stocks. Obviously it is better for stock brokers to point to a FAKE CHART like the one above so they can falsely claim, “Invest for the long haul” unless you were fortunate to be born a long time ago and were sharp enough to buy an index tracking fund. Look at a Gold Chart, did it change contents, booting out Gold for something else when it was doing poorly? No. That gives a more realistic view of markets as manipulated as all of them are. Fair value is achieved when Goldman Sachs bigger faster computer sitting besides the NY Stock Exchange’s slower older computer drives the market up through fair value or down past it. If anyone is looking for an actual answer to “The Flash Crash” look at an unaccounted for scenario by Goldman Sachs programmers and a coffee break at the wrong time. Or you can believe the BS. As long as the weenies you vote for in congress do nothing about Goldman Sachs and the rest of their ilk. You will be at their mercy and whim in the markets. I like Claus too… but lets get a non theory lesson in real time.
Yes this country is heading for a long long long correction, all those dumb … politicians that LOVE to spend money we do not have and putting in danger the future of little kids and the next generation, we need to go back on track, the 7 years of skinny cows are coming , maybe times 7, get rid of all misspending and cut all those waste of money programs , this EMPIRE cannot continue with its current policies and ways, it will crumble, thanks for keeping your good advice to you all from all your websites !
Ed from Las Vegas NV
Like “vj” says:
1. Measuring investments against fiat currency is of limited value, given unbacked fiat currencies rapidly lose value over time; the US Dollar is no exception. I suggest you also show a separate graph with the Y axis as the toz of Gold value to buy the index; I bet the graph will look far worse, and more accurate!
2. “Survivorship Bias” (see https://secure.wikimedia.org/wikipedia/en/wiki/Survivorship_bias ) makes most stock market indexes more and more of a sick joke, with each passing decade, for buy and hold, given the statistics show overly optimistic results; and a better composed index would likely show far worse performance!
Physical Gold and Silver, does not suffer, from these faults, and are providing me an excellent gain against all the plummeting fiat currencies, for most of my savings, and even beating the current rises in shop price. I’m only buying stock based mutual funds as part of my pension, and even then mainly aimed at natural resources and developing economies; I want nothing to do with US, UK and EU Shares.
What has not been mentioned as the cause of our country’s woes is that God has taken away His Grace from our beloved America.
The MILLIONS of human beings decapitated, dismembered and burned in their mother’s womb is bringing about this situation. Reading history as well as the bible should not surprise us that a chastisement is upon us.
I don t give a hoot about the us markets go offshore to where the markets are exploding in Asia S.America Australia or use etf s the trend is your friend.gday dave j
I’ve read this article and what has been interjected in replies. I think some of you are missing the point. Adam Smith, in his book “The Wealth of Nations” wrote that capitalism has to have a governing force to tamp the excessive greed inherent in capitalism. Laissez-faire does not imply that the government has a small role to play in the affairs of capitalism. Just think a moment. The excessive greed inherent in capitalism brought on the recent economic crisis. If the government had not intervened we WOULD BE now in the throes of a depression much deeper than that of the thirties. (There are some now who cannot find employment liken this downturn as equal to the depression of the thirties.) In fact, we are still tottering on the brink. I should also add that the excesses of capitalism’s inherent greed in the twenties contributed greatly to the crash in the thirties.
Capitalism would cannibalize itself if government did not intervene as it has done in this country. You guys should know that. Even though Karl Marx was wrong in many of his theories–his labor theory of value, for an example-he did write correctly about the dangers of capitalism left unchecked. I would suggest that all of you read again Adam Smith’s “The Wealth of Nations” and Marx’s critique concerning capitalism. The way that capitalism can survive and not be led down the road to Marxism is to allow government to intervene when the tide of economic forces mandate a corrective intervention. Government’s function is to regulate the excesses of capitalism so that capitalism can survive and thrive. Capitalism left unchecked could very well lead us down the road to Marxism in its worst form; and no sane person would want that to happen.
Many of you may not want to admit it, but Obama saved this country from a devastating depression. GM is coming back. Chrysler is coming back, albeit slowly. The consumer is beginning to spend again. What I would like to see happen is that those responsible for the recent downturn in the economy–those greedy capitalists-I would like to see them spend some time in jail as an object lesson for those who are now in a position in America’s capitalistic system to ratchet the system for excessive short-term gain at the expense of long-term macroeconomic pain. There should be serious consequences for those who create havoc in the system.
In a perfect world laissez-faire economics would work; however, we do not live in a “perfect” world, unfortunately.