March 01, 2012

Are we lost?


"Greed is good.” Or is it not? Gordon Gecko’s maxim has been lately at the center of some major soul-searching by world leaders. Is Capitalism a failed system? Should it be changed or reformed? Is the inequality engendered by it so pronounced now that it endangers the stability of societies? 

Increase in Gini Coefficient mid '80s to late '90s
OCDE
Report, Pg. 4
The discussion is everywhere. Pundits all over the world are attempting to tackle the fundamental question: "How did we get here?", "Is the model exhausted?", "Should we change course?" Some frame the discussion about the cause of the current crisis in terms of the loss of conservative values and its decay. Good values of the past are now gone, they argue. Somehow the passage of time has allowed for the relaxation of self restraining behaviors, normally deemed conducive to a stable, healthy society. Others argue that this permanent "doom and gloom" mode is an illusion. That this is just the product of the -incorrect- perpetual perception of older generations about how easily corruptible younger generations are. Every generation thinks their successor will blow it, but in reality the young ones turn out to be just fine when it is their turn to rule the world. No need to fret, they conclude.
Bill Maudlin, Life magazine, Jan. 1950
Like viruses or hyenas, our biological goal is to thrive and seek rewarding sensations without regard to our habitat or to the effects of our actions on others, even ourselves. We are addiction-prone creatures. When we are looking to thrive economically, we look for ways to game the system, leverage on it and get rich. The self-serving behavior is not characteristic of one economic system: just like capitalism breeds inequality thanks to our love for excess, socialism is fertile ground for despotism -where only despots and their cadre succeed and thrive. Self interest will seep in every economic system, even in the ones supposedly designed to protect us from ourselves.

On a more instinctive level, we seek to feel good and obtain instant gratification with the least possible effort. This is why we accumulate mountain deficits and let our grandchildren pay for them, why we look for one-night stands (courting is so much effort), and why we obtain insider information to score big on one trade. Our excesses are usually punished by the burden of consequences (diabetes, STD's, collectors' harassment, divorce, jail), unless, of course, there is a superior benefactor with some social justification willing to foot the bill, save us from our stupidity, fix the situation for us, and put us back on square one in exchange for  (hopefully) some promise or assurance that we have learned our lesson and will not relapse again.

Those who think this crisis is a sign of the end of times should think again --we have been here before. Examples of bubbles fueled by speculation date as back as the Venetian bankers of the 1300's, when they took massive long gold positions at low gold-to-silver prices, then lobbied kings for the gold standard to be adopted where silver used to be currency, and pocketed astronomical profits --until relative prices collapsed. Or the early independent years of Latin America (1822-1825), when £20,000,000 in debt was raised by the newly born nations --including £200,000 for the fictional country of Poyais by Gregor McGregor-- only to default a couple of years later. The year 1947 saw simultaneous sovereign defaults in countries representing 40% of world's GDP. Anecdotes of debauchery were pervasive in ancient Greece and Rome. Moral failings on the part of religious leaders were evident 6 centuries ago in the times of the Western Schism. Proof that we love to let ourselves go into sexual excesses since the prehistoric times (including the thesis that we are not biologically monogamous) has been documented as well.

But despite all of this, we are not at a stage of constant, irreversible decay. Human existence has been bound by an inter-generational self correcting mechanism, an "anti-chaos" force that brings us back to stability every time we wander astray thanks to our innate penchant to binge: a historical pendulum that acts as opposing force to human-induced entropy. Yes, maybe we're in a low point, but if history shows us something is that we are able to bounce back from our low points. The dreadful 1300's --with its 1340's financial collapse, bubonic pest and Catholic Church crisis-- gave birth to the Renaissance. WWII gave birth to the biggest cultural integration effort ever attempted. We learn from our mistakes. We correct the course. We are not lost.

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