Almost everyone makes the same basic mistake when it comes to economics. It is assumed that the markets and an economy tend to be naturally balancing mechanisms. Wrong! Horribly wrong!
This is the reality of economies: Economies are naturally in-stable. INSTABILITY is the natural state to which all economies will tend towards, if left unchecked by government intervention.
All economies need checks and balances if one hopes to sidestep the more grievous results of unfettered capitalism, i.e. speculation resulting in boom/bust crisis-es.
The natural tendency of economies to self-destruct was pointed out by the economist Hyman Minsky during the 1960′s. The phrase “A Minsky Moment” gained short fame during the 2008 meltdown, but the principles Hyman Minsky laid down do and will drive all economies towards instability, no matter which century you lived in.
Economies are naturally unstable in predictable ways. Minsky explained why. One can readily understand the human nature that drives instability in markets. Just read Hyman Minsky’s “Stabilizing an Unstable Economy”.
I should now mention that all major economic crisis-es are the result of bank and financial mayhem, other than war that is. So it is totally fair to blame it all on Wall Street with its financial markets and players. It is in the nature of the beast that finance eventually devolves into rampant speculation followed by disastrous results.
Instability is the real natural order of things. Left unchecked, unmonitored and ignored, human nature inevitably repeats itself.
Last time I checked, financial conditions are healthier than ever. Bank have record high profits & balances, and lending standards are more stringent than ever. The leftist pundits and their doom & gloom media enablers try to stoke fears that large systems are inherently prone to failure, when in readily they have proven to be quite stable, except for a few instances of panic (but panic is not failure). For example, going as far back as 100 years, there have only been two major financial problems in America (1929 & 2008). Small systems fail as well, but the failure rate is higher because unlike a large system there is no infrastructure to support it. That’s why every year thousands of small business fail and millions of homeowners go bankrupt. The bigger a system is, the more is at stake in not having it fail, so it doesn’t fail. That’s why the Euro, for example, has resisted the left’s predictions of its demise. But people like me were right in 2010-12 that it would not fail. Same for the TARP, which the left predicted would not work, but exceeded the loftiest of expectations and is an example of how effective policy can stem panic, thus preventing failure. Another example is the post-911 response, including the war on terror. Seven years later and there has yet to be even the lightest hint of a financial crisis relapse, and anyone who bet against bank stocks lost money. The 1998 Russia default was such a big story at the time because it’s so rare for countries to default on their debt, even though the sensationalist liberal media makes it seem like a daily occurrence.
Of course, the counter-argument raised by Taleb and others is that we shouldn’t have systems that are large enough that it necessitates bailing them out when things go wrong. But the problem is large systems and modernity are inseparable. Technological and economic progress is proportional to the size of the underlying economy. Through the division of labor and comparative advantage, large societies have the resources and infrastructure to foster modernity. A person who enjoys coding apps would be of little use in a tiny hunter-gatherer village, but modern society has the resources and infrastructure to allow him to code without having to worry about, say, not starving to death. The person with an IQ of >130 can code, learn math, design stuff (activities that engender modernity) as less intelligent people do the menial work. The only way systemic risk can ever be eliminated is for humanity to regress.