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No Holds Barred

by Ricardo Pachon
4 minutes read

Regular readers of the economic section in newspapers may have noticed that global stock markets dramatically plummeted two weeks ago (what experts called a “market correction”) and then rebounded, resulting in a notable but not catastrophic net loss. For a couple of days, this news even made it to the front-page headlines, catching the attention of people who normally pay little heed to market fluctuations. Some columnists revisited discussions on the fragility of our capitalist system, some acquaintances on Facebook sarcastically noted the similarities between markets and casinos, and some concerned friends asked me whether they should shift their investments.

A common and quite natural perception is that such events shouldn’t happen. Clearly, something must be profoundly wrong if we are periodically subjected to these collapses, and even more so if the entire economy is vulnerable to the whims of the markets. Shouldn’t we aspire to a system where such swings simply don’t occur? Perhaps some of us hope that all those well-meaning officials in central banks and finance ministries are working to fix these issues. Maybe these crises are just kinks in the well-oiled machinery of capitalism that, over time, will become more robust and less likely to break.

The truth, however, is somewhat different. Crises and collapses are inherent to the current design of the free market. The plethora of decentralized forces operating at any given moment in the economy, each pulling in a different direction, are not centrally coordinated enough to guarantee a slow and steady rhythm. On the contrary, the free market is designed to reward rapid growth and punish any signs of stagnation. This chaotic nature of the market resembles the unpredictable British weather more than a precise German machine, and expecting that there will no longer be any future crises is like hoping for an end to rain and hurricanes.

We could then conclude that this entire exercise has been a total failure if we can’t even rid ourselves of these recurrent collapses. We don’t know when, how, or why, but we can be certain that what we witnessed a couple of weeks ago will likely reoccur sooner rather than later. Moreover, I doubt anyone would blindly bet that we won’t face another catastrophic crisis like that of 2008 in the coming decades.

However, the free market has been an unequivocal success in terms of its central objective: an economy driven by free supply and demand has done nothing but grow at a dizzying speed. Every day it seems we break new records in the number of products we produce and consume while the indices that measure the value of companies or debt soar to unprecedented heights. Despite the long list of economic setbacks over the past century, the economy always manages to pick itself up, hungry and desperate for more growth.

It’s hard to acknowledge that we are living the best possible alternative, especially if we seek the tranquil wellbeing provided by paid work, access to quality health care and education, and the many goodies of capitalism. Furthermore, as a real force for change, the industrialization that has accompanied the free market is unmatched, having been the main engine for lifting hundreds of millions of people out of poverty, particularly in China and India.

In our current system, we are trading stability for the promise of unleashing the spirits of the economy, which will make it ever larger and more universal. So far, all evidence suggests that this promise has been phenomenally fulfilled. To say that the free market has not worked for the interests of humanity because we periodically undergo sudden falls is to ignore that these are exceptions and that the norm is a state of absolute calm and expansion.

And yet, the free market does indeed exist in existential conflict with humanity, but for other reasons. Precisely because its primary, perhaps sole, objective of growth has been achieved so perfectly that it has steamrolled the entire planet. The systematic and large-scale destruction of the biosphere is a natural consequence of riding in a vehicle with no brakes. And the crusade for greater efficiency and growth can only widen the gap between a handful of super-rich and the rest. In the optimization exercise that is the free market, there is no attempt to maintain the balance of nature or reduce inequality. Here, the goal is simply to grow.

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