Thursday, December 25, 2008

capitalism - gone wrong!

I have been finding ways to justify extraordinary amount of money being made by the folks at Wall Street and in the financial sector, in general. I know, for a fact, that financial industry has some of the smartest (analytically) people that I have come across. So, while the equation of smart people making more money in general has been directionally correct, what has troubled me is that the relative value created by the financial industry has not been commensurate with these vertigo inducing paychecks.

I am now convinced that our system has created an incentive structure that is directing our smartest away from the most pressing problems of our time. For a while, I was trying to justify it through the rationale that creation of investable surplus requires financial wizardry which in turn funds research and innovation in the real economy. The concept of leverage, aggregation, NPV and numerous others to create a financial structure that fosters innovation and continues to be, IMHO, a critical requirement for sustained investment into future technologies. But I think the value of these innovations pales in comparison to the challenges facing us in the real world with energy and range of other real world challenges. We need our best and the brightest to focus on solving these challenges and not working on creating fancy financial instruments which, as we now know, create a lot of destruction when they do not work as expected.

No human created system is a silver bullet solution including free markets or socialism. It needs to be clear that in the end these are approximate models of human behaviour in a wide range of circumstances that have more unknowns than knowns. Ideologues do a great dis-service to mankind and are singularly suited to media soundbytes due to the inherent simplicity of their position. World is complex with complex problems and our positions need to be nuanced and subtle while actions need to be decisive.

We, in the US, are so attuned to creating camps around free-marketers and neo-socialists that we fail to even present a nuanced argument that may not lie in either camp. Too often do I see masses and mass media giving preferential treatment to simplicity rather than accuracy.

I have been studying the current economic situation along with a wide range of geo-political issues and I have come to a conclusion, like many others, that we are in uncharted territory. We keep hearing the Great Depression etc, but while the effects may or may not be greater than Depression era, the underlying problems are deeper than what we saw during the Great Depression.

Our current financial tools are not going to solve the problem at hand and may just defer the situation. The solution lies in addressing the real world issues arising out of scarcity of resources and unsustainable growth models and the whole virtual wealth that is predicated on these unlimited and faulty growth assumptions. It is time for us to take a bitter pill and recognize the laws nature and once again tame the forces to serve human life.

Our best and the brightest need to be looking at these fundamental issues and all of the rest have a role to play too. Most importantly, we need to brace ourselves for bigger sacrifices, from hereon.

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