The Failure of Market Capitalism?

If you watch TV, read the newspaper or get your news online, it is impossible to ignore the talk about what is being called the “worst economic time since The Great Depression.”  In fact, a quick review of major news websites might lead one to articles calling for the need of a “new world order” because “capitalism has failed us.”  These views are rather alarming to us because lessons from history can clearly highlight the futility of humans in their quest to control things that are ultimately out of our hands.  In the stock market’s entire existance, there can only be two conclusions made about what will happen in the future…over time, the market will go up (one conclusion) and the market will go down (second conclusion).   It is only the hubris of humans that falsely leads some to believe that we can control the when, the how much, and the how long of these ups and downs.

The closest we can come to understanding those issues is in understanding the two factors that move markets more than anything else…fear and greed.  Greed, which is most often fueled by hubris or a lack of knowledge (sometimes both) at the height of mania, and fear, which is fueled by despair or a lack of knowledge(sometimes both) at the bottom of the panic.

There is no tangible evidence to suggest that governments are the answer to our current economic conditions both in the United States and around the world.  Time and again, throughout history, we have been in similar situations and have recovered without too much reliance on government (governments can help, but are not the answer).  It has been capitalism, itself, that has provided the fuel for reigniting the economy.  Why would it be different now?  Below is a list that represents a relatively “recent” history of economic crises.

Tulip Bulb Crisis (1637)

Mississippi Company Crisis (1719)

South Sea Bubble (1720)

The Panic of 1873

The Winter of 1886

The Panic of 1907

The Collapse of America’s Oil Industry

The Stock Market Crash of 1929

The Great Depression

World War II

The Recession of 1973-74

The Crash of 1987

The Dot Com Crash (2000)

The Panic of 2008

At the risk of appearing glib, there are only two reasons we can think of as to why the economies and stock markets around the globe will NOT recover.  Both of them have serious “end of the world” overtones, but the bottom line is that most of us will most likely not be around to worry about it anyway.  And if you are around, you’ll have bigger problems than your investments to worry about.

Capitalism has not failed.  Humans have failed.  The weakness of the human species has lead to the growth of fear and the disease of greed.  “What we want and what we need has been confused,” once mused a radical lyricist, but the truth in that line is that our greed and fear have led to irrational behavior.  Irrational behavior hurts investors.  Rational behavior helps investors.  Using a scientific approach to investing, based on rational behavior and thought, is the only way to experience long-term portfolio success, especially through periods of mania and panic.

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