So is Capitalism inherently flawed ? Not inherently, but as all things it works very well in theory, but in practice Capitalism needs a lot of help ! One thing the theory of truly free market economies assumes is just that – a free market with equal access to information so that everyone is making considered decisions. Well, given the complexity of the financial world (which I know as a former chartered accountant is often a deliberately created complexity) it is an assumption that one just cannot make. But much more fundamentally, a true free market theory assumes a continuing flow of wealth back into the economy. Whether in form of saving or consumption, money/wealth by individuals or by organizations is pumped back into the economy. It does not matter whether the money is in form of debt or cash – Capitalism is essentially based on a free barter system, with means of negotiations being cash or credit.
However when large chunks of wealth are pulled out of the economy and put into the ‘hyper economy’ imbalances are created within the economic system……
…..A ‘hyper economy’ is an ‘isolated island economy’ where the super rich play amongst themselves, investing large sums of money that does not go back into to the productive economy but tend to circulate within that isolated system. So the economic system begins to bleed ultimately leading to it’s collapse. At it’s simplest form imagine a king of an oil rich economy that usurps the revenues for his own pleasures – not putting it to use productively. Or the Indian Industrialists bleeding their companies to put their fortunes int Swiss banks. In the US for example and all over the world for that matter in the banking and financial sector, people at the top of their game were creaming billions of dollars away from the real economy and putting it in the isolationsist ‘Island economy’. In effect destroying the financial structures of the real economy, and ultimately unable even to sustain the ‘hyper economy’. After all the whole financial instruments world, and the banking world sustains itself by making money from the ordinary people of the real world. A truth they often forget in the penthouse offices of Wall Street or of Nariman Point.
I think economists are wrong to blame the subprime mortgage fiasco as the fundamental problem that led to the world wide economic collapse. Consumer debt just leads to increase in money supply which, if backed by consumer spending and a desire to increase productivity is actually good for the economy. The subprime mortgage problem was symptom, not a cause.
I am surprised that no one, not even Senator Obama has called for any particular legislation in the banking system. The bankers must be made responsible to their depositers, not just their shareholders. I believe the policy holders of Insurance companies too, for example, should have the power to question executive bonuses and salaries. This is a legislation that s sorely needed.
that was quite knowledgeable .Than k you sir..didn’t know you did CA.
i think it will take at least 2 years to recover from this crisis.The fundamentals are all wrong.
Hello Sir,
I completely agree with your views, regarding our (US – I am a US citizen, therefore Our) economy; Especially your concerns over obama’s neglegence in the banking system. A similar article is published in this weeks Time magazine. It also suggests antidotes for “fixing” the current situation. Speaking of which, You write well sir, Have you considered a column in one of such magazines? Just a suggestion sir. It would be nice to see your insight regarding such matters in these highly publicised magazine.
Happy Diwali & A Prosperous and a Creative New Year.
Regards,
Prakash Barot.
Here dwells a wise economist in artistic mind!! very rightly said, Shekhar
a very informative post-but couldn’t get anything on ‘hyper economy’ from the net – not the way it is used in this post.
Marx gave capitalism a hundred years before it collapsed. but it survived, proving him wrong. cultural theorists offer explanations for this -but again they are all theories – – theories.
guess this ‘isolated island economy’ spells the doom of capitalism.
what would be the source of this concept? could you please recommend a book that the layman can grasp without difficulty?
Oh I forgot that before you turned full time film maker, you were a CA…Yes getting your answer quite well. What you stress about legislation is mandatory about high salaried…may be years to come, people will have socio-capitalist economy?
kochuthrasiamma : that’s because ‘ hyper economy’ and ‘island economy’are terms i have coined ! sorry about that, shekhar
Thanks for that insight Shekhar. Very lucidly conveyed and it makes a lot of sense to people like me, who are still green to the dynamics of the economic system.
The basic question I had was if wealth is created and gets recycled within the system where does it disappear and how does it disappear by itself. For instance why did the prices of houses fall in the first place to cause this whole sub-prime mess. I understand there is a basic value of every commodity which is dictated by the cost it took to create it and then there is the value addition or subtraction that is driven by demand and supply. If there is a demand, the value should not go down. Yet it did. One reason is could be that the demand was artificial and the projected values were way beyond the actual value. If that is true the maybe we need regulation on how much rope you want to give to free-pricing. After all a house of straws will fall, it is a matter of time.
So yes, we are seeing socialism make a resurrgence in the last couple of years. In US the Democrats have been making noises about it for a while esp. in the area of health-care(and rightly so!). And with this whole sub-prime crisis the Republicans also fell.
Maybe it is time to invent a new ‘ism’? After all no model has really shown to work completely. Hell even nature is not perfect. There is no 100%. All laws of physics talk about 100% only as a hypothesis. e.g there is no perfect black body.
Similarly economic models need to be based on more real-time parameters.
Goddess Laxmi, Global Financial Meltdown & Hyper Economy. I remember reading somewhere, Goddess Laxmi sits on Flower (which does not last longer) and Goddess Saraswathi sits on Rock (which lasts forever). But whats happening to all that knowledge we get everytime, we do a mistake. Enron and now Sub-Prime and what next ?
Goddess Laxmi, Global Financial Meltdown & Hyper Economy. I remember reading somewhere, Goddess Laxmi sits on Flower (which does not last longer) and Goddess Saraswathi sits on Rock (which lasts forever). But whats happening to all that knowledge we get everytime, we do a mistake. Enron and now Sub-Prime and what next ?
Great points Shekhar — and it’s worth highlighting that the cause was GREED.
Also, have you seen that the UN has just released new maps of underground water sources? Interestingly, they also highlight how many are under national borders, which will likely lead to conflict:
http://www.unesco.org/water/
Shekhar,
Will we see a film about this from you in the near future? As for every Shekar Kapur film, I’ll definitely watch it.
As a Chartered accountant and film-maker, you are uniquely qualified in this matter.
@ Shekhar
Wow!
Good if you could post some more blogs on this.
james phelan : james, is greed not the fundamental driving force in the theory of free markets ? the ‘profit motive’ is what defines the movement and flow of money and formation of enterprise, shekhar
Dear Shekhar:
Capitalism, the widely accepted economic system that benefits a large segment of modern societies has been subverted by greed and has become a monstrous mutant of a once well functioning balancing tool of free market forces, ready to eat its own children. In the U.S. I believe more wealth has shifted in the past 8 years to a new class of ultra rich without the attendant toil of many decades of hard and honest work and its eventual rewards than at any time in the history of capitalism. This was made possible through the creation of sophisticated and complex financial instruments the purpose of which was only understood by a small fraternity of insiders, far beyond the comprehension of a large middle class that was duped into believing that wealth would also find its way to them. All they had to do was invest in these dubious tools of asset multiplication and live happily thereafter. This wealth was irretrievably shifted from a shocked middle class to a new class of ruthless risk takers who could be found within the ranks of banks, security houses, insurance companies and institutions that traded in this nether world of subprime notes and derivatives and reveled in buzz words such as hedging, arbitraging, leveraging and swapping of credit, currency and interest rates. Hundreds of billions of dollars, maybe even a trillion were bled from the middle class and found their way into the soiled hands of a new breed of scoundrels of whom only a tiny minority will ever be called to task.
Many decades of communism fear mongering in the U.S., driven almost to the intensity level of a pogrom, instilled suspicion and trepidation in the common man for anything that was related to the terminology of socialism. The spreading of wealth, advocated by Barack Obama, was branded by a certain dim-witted vice-presidential candidate as being indicative for his socialist bent. All this wonderful and enlightened man is trying to do is to redistribute some of the ill gotten gain back to the middle class where it was stolen from in the first place. Quite a few years of habit forming to get used to the language of social equity and justice will have to pass before this new vernacular attains acceptance and is afforded the respect it deserves. In the past 2 decades there have been changes that were long considered unthinkable. Walls of prejudices and real ones have crumbled, despots and dictators were removed. It is not altogether unimaginable that capitalism in its present form will no longer be able to function. A gentle and human expression will have to replace the smirking countenance of its face, a dose of socialism will have to be thrown into the mix, the vast chasm between the middle class, teetering on the edge of becoming an underclass and the ultra rich will have to be narrowed. The ruthless adherence to the principles of the survival of the strong will no longer find acceptance and will increasingly lose its traction among an ever-growing segment of the world populace. With improved education people will realize that a more equitable world is not an impediment to their aspirations and their pursuit of happiness. The obscenity of our class differences will have to be recognized by all societies in order to establish the foundation for the human race to live peaceful and productive lives. As you so rightfully have said in your blogs, with poverty and a lack of hope more and more young people are driven into the arms of fundamentalism. The globalization of the dispensation of news has pulled back the curtain that was drawn over the ugly scene of conspicuous consumption of the rich societies. The poor masses are increasingly seeing what they are missing.
Barack Obama may very well be the catalyst to a truly new understanding of societal concepts, one that will hopefully be emulated and adopted. Will 8 years of his assumed presidency be anywhere near enough to eliminate old and stubborn stereotypes and ring in an era of new principles, ideas and perceptions? Not by a long shot but we are running out of time to at least get into the starting-blocks before an anxious world of observers has lost its interest and has turned away, disillusioned and angry.
With kind regards.
Horst
you have make ca profession proud that a ca can be good in creative field. sir you are role model for many ca student who are doing ca and they have some creativity.I hope to look to see your films.