A serial journal of cogent reflections and irreverent insights on the social effects of capitalism and the roots of partisan politics. Pairing prose with HDR photography and “flash points” drawn from current and historical perspectives, the author seeks to recover lost wisdom and courageous action beyond the shouting and noise of today’s headlines.
Chapter Eleven
Booms and Busts
Time Range: 1985-Present
The bull market of the 1980s saw greater numbers of people investing and realizing larger returns. A whole new financial investing industry was growing up alongside corporate growth. Workers were working longer hours and taking on second jobs, but day traders could get rich in an instant. As we headed into the ’90s, the political focus was on the economy, stupid. A new president argued that government could smooth out the economy’s rough edges, and by playing by the rules and working hard, we might finally see an end to capitalism’s wild gyrations.
Dot-Com Crash, Silicon Valley, March 2000
On March 20, 2000, the NASDAQ Composite index, tracking stocks heavily weighted with technology companies, peaked at 5,132.53. On average, stock prices for these companies had more than doubled from a year earlier. Venture capital investment provided companies with high levels of cash, giving birth to what became known as “burn rates.” Stock analysts saw no limit to profits soaring, and MBA programs were hotbeds of “flipping” business ideas into cash and then getting out.
Over the next 18 months, however, the market value of these technology companies dropped by $5 trillion. In the fallout, which included several bankruptcies, unethical practices and wild excesses were made public at companies such as WorldCom, NorthPoint Communications, and Global Crossing. Americans were shocked and alarmed by stories of greed and excess. However, the notion arose that a few rotten apples shouldn’t upset the whole apple cart.
Many rushed in to affirm the capitalist system itself was a good one, only those who acted illegally should be punished. Some, such as Henry Blodget, argued that excesses are built into the system due to human nature and busts are simply the price we pay for the vitality of capitalism. REALLY? Capitalism’s roots lay in a belief that human destiny was malleable, yet the belief that human nature is unchanging persists.
How human it is to live too comfortably with our contradictions.
FLASH POINTS
Housing Bubble Popped, December 2008
“Well, we did it again. Only eight years after the last big financial boom ended in disaster, we’re now in the migraine hangover of an even bigger one — a global housing and debt bubble whose bursting has wiped out tens of trillions of dollars of wealth and brought the world to the edge of a second Great Depression…
“Predatory lenders did bamboozle some people into loans and houses they couldn’t afford. The SEC and other regulators did miss opportunities to curb some of the more egregious behavior. Alan Greenspan did keep interest rates too low for too long (and if you’re looking for the single biggest cause of the housing bubble, this is it). Some short-sellers did spread negative rumors. And, Lord knows, many of us got greedy, checked our brains at the door, and heard what we wanted to hear.
“But most bubbles are the product of more than just bad faith, or incompetence, or rank stupidity; the interaction of human psychology with a market economy practically ensures that they will form. In this sense, bubbles are perfectly rational — or at least they’re a rational and unavoidable by-product of capitalism (which, as Winston Churchill might have said, is the worst economic system on the planet except for all the others). Technology and circumstances change, but the human animal doesn’t. And markets are ultimately about people.”
~ Henry Blodget, “Why Wall Street Always Blows It,” Atlantic Monthly
Henry Blodget was the tech-stock analyst at Merrill Lynch vilified for his role in the dot-com crash. His comments in the Atlantic Monthly article suggested that bubbles in free-market capitalism were a natural consequence of human nature functioning with competing economic incentives. He pointed out that immediate economic self-interest naturally generated individual decisions removed and often at odds with collective consequences. Due to human nature, he seemed to suggest, be warned, but on the other hand, get used to it.
Next Week:
Chapter Twelve: Occupy Wall Street
“I have a feeling that right now, this human experiment
on planet Earth is hitting the wall!” ~ Kalle Lasn, Estonian-born former adman lamenting the
environmental and psychological costs of modern capitalism. He suggested in his
magazine, Adbusters, that a September
17 occupation of Wall Street might be a good idea.
From an article by Steve Denning in Forbes:
No popular idea ever has a single origin. But the idea that the sole purpose of a firm is to make money for its shareholders got going in a major way with an article by Milton Friedman in the New York Times on September 13, 1970.
As the leader of the Chicago school of economics, and the winner of Nobel Prize in Economics in 1976, Friedman has been described by The Economist as “the most influential economist of the second half of the 20th century…possibly of all of it”. The impact of the NYT article contributed to George Will calling him “the most consequential public intellectual of the 20th century.”
Friedman’s article was ferocious. Any business executives who pursued a goal other than making money were, he said, “unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades.” They were guilty of “analytical looseness and lack of rigor.” They had even turned themselves into “unelected government officials” who were illegally taxing employers and customers.
I have found it ironic that conservatives love Friedman, who preached absolutely amoral corporations, while they themselves are the most diligent of moralists. With their focus on externals, the Democrats have offered little opposition to the money machine, having frequently swept away obstacles in its path.
The great hope for our humankind is in the millions of grassroots groups around the world, who are rekindling relationships with others and with the natural world. They are consciously aware of the internal realm and know that citizenship and love, to be effective, are verbs. They are evolving new ways of doing business, of forming institutions, and of influencing existing institutions. Theirs is an ethic of radical connectedness.
Fantastic oberservations and analysis.