Sunday, July 08, 2012

Derivatives, Spoils of War

What do you expect?  You win a major war and you get to celebrate.  You get the spoils of war.

In the previous century, a major war was fought between two great economies, free market and planned economies.  It became the Cold War in the second half of the previous century, but it had been going on before that.  WWI marked the end if not the beginning of the end of absolute monarchies.  Taking their place was the modernized parliamentary rule with monarchy heads of state (hint: England), the U.S. form of constitutional law, and of course fascism - for a short, violate period - on one side and the communists and socialists on the other.

How ironic that Kaiser Germany's covertly moving Lenin back into Russia to spread revolution and take it out of WWI would result in half of Germany under communist’s control for decades.  What lesson do we learn from this:  Do what is right.  Never tempt fate.

However aggressively we and our communist enemies pursued more powerful atomic bombs and delivery systems, our economy was our greatest weapon and it is what eventually won the Cold War.

There was boom and bust to be sure and the Great Depression was surly a prime example of the failure of capitalism, but in spite of the ups and downs, those living in free markets fared better than those living in planned economies, the “workers’ paradise.”   No matter how many 5-year plans were hatched by the centralized planned economies, free markets continually out performed them and the average worker living in a free economy had more than the average worker in the planned economies.  By the 1970s, it was obvious to anyone who cared to look.

We can still see the stark difference today with the two Koreas from space at night.  You used to could see the difference in the light from economic activity in the two Europes at night. 

And then the Wall came down and communism was replaced with a mixture of socialism and free markets.  The free market won the Cold War, and to the victor goes the spoils.

Today’s derivative orgasm is a victory celebration gone wild.  

A few posts back, I suggested that we might have had a better chance of survival if our diplomacy had failed and we suffered a nuclear war than avoiding it as we did and thus our world is  headed into our current global warming nightmare. 

Could the defeat of the communist’s centralize planning economies doomed us to a worse fate than “1984” where in the name of capitalism and freedom we wreck our economy worse than any central bureaucrat could ever hope to do? 

Derivatives are to the economy what masturbation is to reproduction.