Tuesday, January 17, 2006

Economic System Change

I saw a quote on economic system change, but I don't know where I saw it, or who said it.

The gist was we have finished the battle between Austrian Economics and Keynesian Economics, and have entered the war of Keynesian Economics versus Socialist Economics. The implication was Keynes won the first battle, Socialism will win the war.

I disagree.

We are currently at a transitional fractal point between ages, and on shorter measures peaks in eras of good times. The ascendancy of both socialism and Keynes are probably over.

Socialism owes its modern application to Marx and Engels reacting to imbalances in an emergent industrial age. The industrial age is ending. The problems of the industrial age have mitigated over the decades, but socialists gained power. The feel good thought of stealing from those that have more than you, to give it to those poorer than you, was quite attractive.

Limits exist to this approach in the emerging information age; information is transportable, hence extortion as a means of theft will be limited.

Another limit is those who in the recent past embraced socialism were the educated middle class of the industrial era.

These educators and their pupils are seen as rich by 95% of the world. They are more than willing to steal from capitalists for redistribution, but if you want to take their perks and salary for the poor - they will fight.

"The inherent vice of capitalism is the unequal sharing of the blessings. The inherent blessing of socialism is the equal sharing of misery." - Winston Churchill


As an aside this has created the strange bedfellows of big unions and anti-globalists. The unions looking to protect their privileged status by fighting jobs for foreign poor - the anti-globalists fighting for greater privilege for foreign poor. Together they stage demonstrations against offshore sourcing by corporations.

Back on topic.

We are at the peak of several business cycles (an Austrian Economics concept) of varying dimension. These cycles have been extended artificially by government interventions, and will cause a great deal of pain when they turn down. Financial bubbles have even been mentioned in the main stream press, and they present an interesting picture of where we are.

Normally in a standard business cycle the bubble inflates and deflates, then does it again. With government intervention the deflations are avoided by constant artificial inflation. Eventually the bubble will explode.

There are several bubbles, of different sizes, nested inside each other. The inflating is continuing, the burst may be far worse than the sum of the deflations avoided.

Inevitable is not the same as immediate, I do not know when a greater depression may start, but it could be sooner rather than latter.

A depression will require Keynes to surpass socialism to preserve society. As we exit the depression the information age should gain traction, shrinking those governments that survive.
An information society will continue to cause the implosion of bureaucracies, accelerating the trend toward privatization.

This is a whole bunch of "what ifs."

My guess is probably as good as anyone else's.

So is yours.

Which economic system do you see as winner?

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