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Do You Want An Answer? There Are No Answers
Last night, the stock market continued melting down. I tweeted this out.
If there is one takeaway from this whole thing, it’s that centrally planned markets fail, and fail spectacularly
— Jeffrey Carter (@pointsnfigures) August 24, 2015
I also tweeted out this:
one good thing about investing in startups is they are valued the same today as they were at the beg of last week.
— Jeffrey Carter (@pointsnfigures) August 24, 2015
If you’re a startup, don’t worry about the market drop. Keep your head down. If you haven’t already, start talking to your investors about your business. You are going to need to calm their nerves so you can raise capital. Maybe more importantly, talk to your existing customers and position yourself as a partner that can generate more top-line revenue for them. I’d also be transparent with my employees. Things you can’t control, like market melt downs, test your skills as a manager. Dealing with fear is a weird thing, but a skill you must have to go forward. Ironically, managing fear can turn into a strength. Many of your competitors won’t manage it correctly and it will cause them to fail.
A few socialist trolls took issue with my tweet about the Chinese. This is why there will be no answers. Krugman and the Keynesian cabal won’t admit they were totally incorrect. The central bank bureaucrats will not admit that they were 100% wrong about how they manipulated markets. The pundits won’t admit they were wrong about the Chinese economy.
But, they were.
In 1929, 1987, and in 2008, Capitalism was blamed for the market crashes. By the way, we haven’t had anything resembling a crash yet. Because capitalism was blamed, the central planners decided they were going to “fix” capitalism. They could pick and choose and allocate resources better than the market-and with all their knowledge and all the artificial circuit breakers and protections they built in, markets wouldn’t fail.
But, instead the Chinese market is failing spectacularly.
The reality is in 2008, it was the central planners that set the bait and hook for the market to build a bubble and burst. Without Fannie and Freddie and all the “wink, wink, nudge, nudge” going on, the bubble wouldn’t have built itself up the way it did.
Right now, the advocates of central planning cannot afford to be wrong. Because if they are, their entire theoretical canon is wrong too. They will obfuscate, debate, and argue stronger than a Clinton caught in another scandal to make their point.
On the way up, the Chinese were the envy of the central planners here in America. “If only we could trample people’s property rights and do what we think is best for them.” they would wistfully think. On the way down, the answer is more government spending. More quantitative ease. More 0% interest rates. More currency devaluation. None of it is optimal for individuals, or individual liberty. All policies like that do is create adverse incentives in markets that eventually burst.
On the way down, the Chinese banned short selling. They put in rules about how long you had to hold a stock (the second one sounds like Hillary Clinton’s tax policy). None of this worked. Buyers and sellers make a market. Limiting how they can make a market, or taxing it leads to broken markets.
The socialist trolls can’t answer my question, “Who allocates the resources in China?”. It’s just like the question classical economist John Cochrane asks Keynesians, “Where does the dollar come from that the government spends?” The answer to my question is the “communist party”. The answer to John’s question is “taxpayers”. Both are uncomfortable answers to big government advocates.
Free markets are the best allocators of capital known to man. They are an inherent part of being human. Sometimes, they break down. But, the best solution to a market break down is letting the free market clean it up. The US didn’t do that in 2008. The US bailed out the banks. The US bailed out GM and Chrysler to the detriment of bond holders. The US did an artificial stimulus that got us nothing, and Dodd-Frank which only made things worse. The US Fed made the initial right moves in 2008. Then, it made all the wrong moves leading us down the path to another bubble.
The market break might help out Vermont Presidential candidate Bernie Sanders. In times like this, socialists will promise the world to anyone that will listen. They have plausible answers that make sense on the surface. You will see some great quotes on friend’s Facebook walls. But few people think through the real economics of what’s behind those quotes. Of course, there is the human suffering that will inevitably happen. That’s when they dispatch the photographers which is a lot easier these days. What they don’t take are photos of the back rooms where the elite make decisions and are unaffected, insulated from everything.
By the way, if we weren’t focusing on China there is always the horrible economic situation in various European countries to focus on. Spain has 24% unemployment and it’s possible to buy whole villages there for under $200,000. Or, the horrible economic situation down in Brazil. What do they all have in common? Centrally planned economies.
Ironically, the best answer to the question “What do you do about the market?” is probably “Nothing.”.
Source: http://pointsandfigures.com/2015/08/24/do-you-want-an-answer-there-are-no-answers/
