This has been weighing heavily on my mind lately.
Recently I’ve discussed how politicians don’t understand the economy. They don’t understand innovation – the fact that it comes out of challenge, and that without occasional crisis, the economy can’t rebalance and run as it should.
So it’s no coincidence that the two great innovations of modern economics both emerged out of a different kind of crisis or challenge – a revolution, a challenging of the status quo.
First: the Industrial Revolution gave birth to the whole system of free market capitalism.
Then shortly after: the American Revolution and the French one that followed it led to the birth of democracy.
There’s a phrase I use to describe this period when these two came together. I call it: “When Harry met Sally.†It was a perfect union, much like the characters in the film. And importantly, I always comment that these are opposite principles, like male and female. One can’t exist without the other. Or rather – they shouldn’t.
Just consider the progress in the stock market since the late 1700s, when these two innovations came together.
It’s nothing short of remarkable. The developed world has never seen a boom like this in history. And with slowing demographic trends and aging – it likely never will again.
But we have been adding to our natural demographic malaise… by progressively killing the golden goose that emerged from these dynamic principles.
Before I continue, let me just say, it’s true – I’m a proponent of free market capitalism. I believe government needs to let the economy sort itself out and get the hell out of the way.
But I also recognize that the free market system needs a buffer.
That’s because it revolves around the survival of the fittest. It rewards those that take the greatest risks and produce the most. It leverages the very selfish nature of individuals.
