Anatole Kaletsky writes:
Does this mean that financial cycles are pathological and immoral? The alternation of greed and fear certainly causes losses and economic disruptions in the short term, as well as suffering among innocent bystanders who have no involvement in finance, but in a longer historical perspective, financial cycles can be seen to play a crucial part in the evolution of the capitalist system.
Cycles are not pathological and immoral but the rules that inform cycles can be. The distinction is not semantics.
Cycles are produced by rule-bound societies. When governments allow markets to run their course, they are enacting a policy. When they regulate markets, they are enacting a policy. Either way, government is creating the conditions for a certain kind of market behavior.
But let’s take the author’s wording at face value and look at his conclusion: “financial cycles can be seen to play a crucial part in the evolution of the capitalist system.”
Insofar as declines are a form of feedback, then, yes, they are useful. But feedback need not come at such a high human cost as near market collapse.
Differences in states need not fluctuate to extremes for signals to be properly transmitted through a modern marketplace.
Most of the instruments in our everyday lives are finely tuned to avoid property loss or personal injury. For example, your car can accelerate to 40 mph without having to pass through 120 mph. It can also decelerate from 40ph to 30mph without first hitting 0. (Or another car.)
The application of information technologies to financial markets should benefit all stakeholders, direct and indirect, and not just those few with access to supercomputers.
Fortunately, supercomputers are no longer solely the domain of elite insiders. Google.com gives millions of people free time-shares to one of the the most luxurious and powerful “computers” on the planet.
A more transparent and inviting marketplace would allow feedback signals to travel more quickly and efficiently. If that requires a few to learn new ways to make money but saves the majority unsustainable cataclysms then, yeah, that’s the best value.
Those same few who will need to evolve have plenty of money in the bank. In a capitalist society, that’s a considerable head start.