The Biggest Bust

The Biggest Bust

Unbridled greed doesn't happen in nature because it is unsustainable.

We are told that economic cycles are natural - booms are naturally followed by busts. This is bunk; growth and development occur in nature, but booms caused by greed don’t. There are certainly cycles of growth and decay but if booms occurred they would result in widespread death and destruction. They don't occur, though, because nature checks and balances itself. Through self-regulation nature tends to survive without major uphevals.

Advocates of free trade and a free-market economy often say the market is like a natural system where unrestrained competition will lead to growth, excellence, efficiency and an equitable spread of wealth. This is bunk too. A market does not operate in isolation it operates within a connected web of systems including human communities, ecosystems and natural resources. A free market where greed can run rampant will always impact and be impacted by these other systems - and will ultimately 'bust'.

The current economic downturn was caused by greed. The failure of many providers of subprime mortgages is blamed as the catalyst for the downturn. The risks inherent in subprime lending were largely ignored because of greed - property values were booming and there was plenty of money to be made from the high interest rates charged to ravenous borrowers. When the US ‘housing bubble’ burst increasing numbers of borrowers couldn't make payments or refinance and many lenders folded leading to a global credit crunch and ultimately an economic recession.

Blame can be apportioned more widely than just the lenders of subprime loans though. Some mortgage brokers can be blamed for steering borrowers to unaffordable loans, valuers and realtors for inflating house values, and investors for backing subprime mortgage securities without knowing the weakness and risk of the loans. Borrowers have also justifiably been criticised for taking out loans that they knew were risky or that they could not afford. Everyone wanted to make an easy buck. In addition, there was a lack of effective oversight by governments.

If the economic downturn was limited to just the greedy people who perpetrated it, it would be quite good. Of course the real shame is that the people who are hurt the most in an economic downturn are those who can least afford it, namely the poor, and the poor are largely innocent of the greed that induced the downturn. The irony is that rich people become relatively richer in downturns because they can afford to buy the cheaper assets.

Since the industrial revolution began growth in the economy has been trending upwards – it’s the biggest boom in history. This boom has been 'funded' by taking more from nature than is repaid. These 'free' resources - including minerals, forests, land, soil and water - are now running out or being degraded to the point that they are unusable.

Markets are a highly effective way of selling goods and services but there must be checks and balances to regulate greed. The 'wishful-thinkers' must wake up to the fact that a market cannot self-regulate because there is no such thing as free. The market must yield to the things that sustain it – specifically people and nature.

If the market economy isn't checked and balanced, like nature, the biggest boom in history will surely lead to the biggest bust.