There is no reason why finance and economics should be different. It is routinely observed that some of the biggest ideas in one particular field are often borrowed from an entirely unrelated field And if there is one discipline that could do more than any other in bettering our understanding of financial markets, it has to be ecology we believe. At the heart of ecology, lies a very important principle. If an ecosystem grows way too much, a destruction of the excess growth follows, laying the groundwork for a stronger system to evolve. This then leaves the ecosystem in a much better shape than before. And what happens if this process is interfered with.
A real life example can be had from the famous Yellowstone National Park fire in the US in the 1980s and which was 30 times bigger than any previous fires recorded there. It occurred mainly because the forest officers there had decided to stop the earlier fires at the very first blaze. In other words, they had interfered with the nature's mechanism of destroying the most fire-susceptible vegetation which eventually grew bigger and bigger in size and thus increased manifold, the intensity of the final fire.
That's it. The Governments and central banks around the world need no more than this simple lesson to understand the implications of their actions. By repeatedly bailing out sick institutions and by throwing money at the most inefficient businesses, they are interfering with the natural process of capitalism i.e. survival of the fittest. It does not take more than perhaps a sixth grader to realise that every such action is increasing the possibility of a much bigger inferno further down the road, which will have devastating consequences on the wealth of the global economy. Not to forget that just like fire susceptible vegetation, continuous support of bad businesses is also causing unemployment to remain high and growth to remain low. Thus, while the forest officers at the Yellowstone Park seemed to have learnt their lessons, the policymakers seem far from doing it. They should realise that there is hardly any other solution in sight. They will have to let the fires run their course. This is the only way to create a new groundwork for stable, sustainable growth and higher employment. We hope the New Year will drill some sanity into them. Or else the market's way of making them realise this will be far too costly and devastating as per us.
A real life example can be had from the famous Yellowstone National Park fire in the US in the 1980s and which was 30 times bigger than any previous fires recorded there. It occurred mainly because the forest officers there had decided to stop the earlier fires at the very first blaze. In other words, they had interfered with the nature's mechanism of destroying the most fire-susceptible vegetation which eventually grew bigger and bigger in size and thus increased manifold, the intensity of the final fire.
That's it. The Governments and central banks around the world need no more than this simple lesson to understand the implications of their actions. By repeatedly bailing out sick institutions and by throwing money at the most inefficient businesses, they are interfering with the natural process of capitalism i.e. survival of the fittest. It does not take more than perhaps a sixth grader to realise that every such action is increasing the possibility of a much bigger inferno further down the road, which will have devastating consequences on the wealth of the global economy. Not to forget that just like fire susceptible vegetation, continuous support of bad businesses is also causing unemployment to remain high and growth to remain low. Thus, while the forest officers at the Yellowstone Park seemed to have learnt their lessons, the policymakers seem far from doing it. They should realise that there is hardly any other solution in sight. They will have to let the fires run their course. This is the only way to create a new groundwork for stable, sustainable growth and higher employment. We hope the New Year will drill some sanity into them. Or else the market's way of making them realise this will be far too costly and devastating as per us.
