Saturday, October 23, 2010

Please let markets correct. If you do not let them we are just going to die a death of a thousand rate cuts, or now QE efforts.

By Nick Sorrentino

The main reason in my estimation that we continue to slog along in this economic ugliness is because the markets have not been allowed to correct.

Home prices want to go down. Most consumer product prices want to go down. Some commodities are conversely trending up. Either way we are fighting reality.

Now “reality” is not always ideal. Ask anyone in a bar this. But once a vacation from ones senses become a ruinous stupor one must reassess.

The economic geniuses in Washington and in New York refuse, at the detriment of most other Americans, to let the market correct. They keep building walls and digging moats in the hope that the current economic and political order can be maintained. They believe that what is going on is merely a storm to be weathered, not a complete economic earthquake that will bring down their castle no matter how hard they try.

In one sense it is perfectly natural. Self preservation is the most basic of instincts and Fed chiefs and politicians have gotten to where they are by developing this instinct to an art. So how these folks are acting may be entirely rational from their perspective. Rational or not, it is killing this country.

The world has changed, and is continuing to change. 10 years ago people spoke of an “information revolution.” Well folks the revolution is here.

Certain groups hold onto information in an effort to use it to their advantage. This has been the game for eons. In my view, so long as this is not done in a fraudulent or dishonest way, there is nothing wrong with this.

However what constitutes what is valuable in the marketplace and society is fundamentally changing. Whereas it was until very recently the ability to hold onto and manage information in the shadows that was most valuable for an economic actor, now it is the ability to innovate and create that the world is saying is most valuable.

Vested interests though are not keen on letting sunlight and new ideas in, so they stonewall. That is what our political and economic establishment is doing right now. They see their advantages being stripped away one by one by technology and by a population used to fumbling about in a blurry reality of very incomplete information, but which now has a fresh pair of glasses on. The prescription of the lenses will never be perfect but the world view of the average person is infinitely more clear than just a few years ago thanks to the information revolution.

This means that the market for ideas is now much more liquid. There are more actors. It is also more volatile. The economic and political actors who could once simply dismiss the unwashed middle class as essentially uninformed hicks have now had the tables turned on them. It is current establishment’s antiquated thinking, Keynesian economics, a vested 2 party system, that puts them at a disadvantage. In many ways the uninformed hicks, are at least as informed about things as the current establishment is. This scares the establishment.

Some of this new found power has taken the form of the Tea Party. For the time being the GOP seems to think that it has gotten the Tea Party’s unbridled energy under the reins. I think this is just the beginning of what is to come and the GOP may indeed be dying, even as they now celebrate what they think will be big gains in November. The game is fundamentally changing. The GOP and the Dems, and their machines will have to either radically change or perish.

This seems obvious to me at this point. Everything is changing, and changing a great deal. The advantage America has as a society have is that we at least have a tradition of innovation and ingenuity where other countries do not. China for instance has 2000 years of conservative Confucianism to deal with. We were born on the frontier and we can again flourish. But we need to let the newly informed America emerge. If we do not, and continue to allow interests that have a vested interest in clinging to the past (and I sure as poop don’t mean gun owners and religious people here) to determine our collective future we will soon have much bigger problems than what we are dealing with now.

If the current establishment does not yield in a fundamental way soon, there will be a very large dislocation, and it will be very painful for everyone.

So instead let’s embrace the information revolution. Let’s put some faith in markets. Let the power of crowd sourcing work its magic. Let’s let new ideas shine, instead of sweeping them under the rug. Let’s encourage our young people to actually learn. Let’s figure out how to detach ourselves from the horrible national debt that hangs like an albatross around our neck. Let’s figure out how to transition off of oil and give the middle finger to the rest of the world that thinks its got us over a 50 gallon drum. Let’s get to know our neighbors. Let’s focus on our families. Let’s cut taxes. Let’s let innovation grow. Let’s let the market work!

Our current economic crisis, and it is a crisis, is not because of markets that were too free. It is in fact because we have not allowed the market to breathe for decades. Let’s breathe again.

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About Me

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Nick Sorrentino is the Editor of The Liberty and Economics Review and CEO of a social media management company.