One of the great hallmarks of a capitalist economy is successful competition. Build a better mousetrap and the world beats a path to your door. Theoretically, that’s how capitalism works. It’s survival of the fittest. Darwinian economics. You have to adapt to changing conditions and always make a better product if you want to successfully compete with all the other players for all the loot out there. Of course there is another way. Sort of a shortcut, you might say. You can just steal the money. For some people, actually for a lot, it’s just easier that way and it also eliminates all that inconvenient stuff about being better, stronger, faster, et cetera. Which brings me to the topic of bubbles – not the type in your bathtub, the type in our economy.
Capitalists have always resorted to the bubble method of making money whenever they ran out of resources or ideas. The basic idea is to promote something as a “must have”, jack up the price, create a buying frenzy, make a gazillion dollars, and bail out at the top, just before the whole thing collapses. The key ingredient to a successful bubble is having enough ignorant (meaning not fully informed) people who buy into the bubble while the bubble manufacturer stays on top of the situation, fully informed and fully in control. Bubbles have a long and distinguished history in capitalism; however, if one looks deeper they are also a harbinger, a canary in the coal mine, if you will. This is because they tell those who are paying attention that the movers and the shakers have resorted to the last means of making a quick fortune, all other methods seemingly having dried up or vanished. It’s a sign of a dying economy.
One of the most colorful bubbles in history was the Dutch tulip bubble of many, many years ago. Somehow people became enchanted with tulips and began buying them at ever higher prices. Those tulips that were a bit different from the norm commanded higher prices, and pretty soon, people were bidding up the prices for tulips. Investors found they could buy and flip flowers for huge profits. It was all nonsense of course. After all, what is the intrinsic value of a flower that has such a fleeting existence? Nevertheless, the bubble grew and grew until one day it popped. And some people became very rich and some people became very poor.
The key thing to note about the tulip bubble is that there was a major element of untruth to the whole thing – an element of deception perhaps. There are two sides to the bubble equation: the person who makes money selling the item and the person who loses money by buying the item. The key thing to understand is that the item being sold isn’t really worth anything close to the actual sales price.
Not too long ago we had a grand bubble in America. I’m talking about the tech bubble, not the real estate one. Back around the turn of the century people began to get the idea that computers and the internet and anything technical was the next big thing. The Nasdaq skyrocketed. People were making fortunes investing in tech. However, the old money that was invested in the old economy wasn’t doing so well. Mr. Greenspan, who was chairman of the Federal Reserve at the time decided that this was not a good thing. So he killed the tech bubble by continuously raising interest rates so that borrowing money became too expensive for the bright young startups and they all collapsed. People who had invested in these winning companies lot their shirts. A lot of that money was 401k money. Huge numbers of Americans lost big time. But, on the bright side, the old, stodgy, unimaginative economy guys – the old wealth – did OK. Thank God for that, right Alan?
The problem, of course was that after all was said and done – all we had was an old, stodgy, unimaginative economy that was going nowhere. So, thankfully, our government stepped in and relaxed a bunch of regulations and adopted a policy of just not paying attention and pretty soon we had a good bubble, i.e. one that the old economy guys could profit from. That of course was the housing bubble. The housing bubble was fertilized by the government by giving an enormous income tax benefit to little people who bought and flipped houses. Then the banks decided they didn’t really need to verify anyone’s actual ability to repay a mortgage and they gave out free money to anyone who could breathe so they could also play the housing bubble game. Everybody won. Especially people like Bernie Madoff who was running a little independent bubble on the side called a Ponzi scheme. Fortunately, he came under the overall government policy of “let the children play – it’ll all work out”. So the SEC ignored all the warnings and let Bernie make his fortune while all the suckers lost theirs. Hey, it’s Capitalism, with a capital C. Right? It’s not a game for sissies.
Of course the housing bubble pooped or popped and there were some really big winners and a lot of losers. We don’t hear a lot about the big winners in the news, but they have to be there in accordance with the Law of Conservation of Winners and Losers in Economic Bubbles. You hear a lot about the crying sissies though, don’t you? They say it wasn’t fair and such. Please. What does fair and just have to do with Capitalism anyway? Just look at Pfizer. They just got fined $2 billion for illegally promoting a drug that really wouldn’t help certain medical conditions that they said it would. Oh well. Nice try anyway, Pfizer. You got the deception part right, you just didn’t cover it up well enough. You could have made a fortune otherwise. It would have been a private drug bubble of sorts. But don’t be a sissy, OK? Stop crying. You got caught, deal with it. It happens. Next time learn to cover up better. That’s how you play Capitalism. And don’t forget, next time get the government on your side. Get some Senator or Congressman to write some legislation protecting companies that go out on a limb trying to help the public or something. A little protection always helps.
Hey! We just had a mini-car-bubble. Not mini-cars, a mini-bubble. Did you notice? The cash for clunkers thing. Everyone knows the clunkers weren’t worth a bent nail, but the people who traded them in got $4500 in clunker bucks and the car dealers sold a bunch of cars. (I wonder who will be paying for all those clunker bucks the government gave away?) Anyway, the Japanese car manufacturers did real well. That’s good. Help the world economy. Too bad that the clunker mini bubble didn’t do so much for GM and Chrysler. Those guys could use a good big, limousine-sized, gas-guzzler-sized bubble right about now, because the American public doesn’t seem to hold their products in high regard. Only a big bubble can save them now.
Which bring us to us. I think we need a bubble for us too. Let’s face it. Everything’s made in China now. Or India. What little we still do make is being outsourced as fast as humanly possible. Thank God for Bill Clinton and NAFTA. OK. So what do we do? We plan. Pretend, for a moment, that we are big bankers or investment houses. How can we make a ton of money from all the unsuspecting little people? How can we get them to bite one more time? Hmmm. How about health care? We could get them all to buy expensive insurance and then not pay off! That would be good. At least for those of us in the insurance business. But we need something bigger than that – something that everyone can play. We need to sucker them in and then we pull out the rug from under them, just like the Robber Barons of old. We’ll make a fortune – for a few of us anyway. First, we need to get the government on our side – so it’s all legal and such. Hmmm…. Hey, here’s an idea: why don’t we create a shortage of water all over the planet and then sell melted Antarctic icebergs to people for drinking water? Wait – are those icebergs salty? Maybe that won’t work. Anyway, you get the idea. Deception is the key. Sell things for a lot more than they are worth. Get the government to look the other way, or even help out – that’s key too.
OH! I think I’ve got it! I have an idea!! Yes!!!
What??? You didn’t really think I was going to tell you my idea, did you?
Come on. Please. Don’t be a sissy.
