Thursday, February 26, 2009


Recently I came across an article which was talking about how this depression is different from the one in 1929 from a information availability perspective. What will happen if we say stop watching the news, reading newspaper and stop hearing anything about the economy. Let's say we go on a long vacation of say 4 weeks to a deserted island and then come back.

I feel that the media is putting unnecessary fear in the minds of people which in turn makes people very cautious which in turn affects the economy. It is very well know fact that 80% of our GDP is based on consumer spending and that consumer spending was aided by easily available credit, now since the credit markets have almost frozen, it is becoming difficult to spent.

But there are many indicators that in the past couple of weeks, the credit markets have thawed and credit is flowing if not at the old levels, but much better than what we were in Nov-Dec of last year.

It is very tempting at these times, to look towards the govt for help, which in turn will lead to more regulations by the govt in the private sector which will not go away when the times are good. Heavy government role in the economy is never a good thing, long term for a capitalist economy. Government should only be involved in defining the rules of the game and ensuring that the rules are followed not actually play the game. The problems we see today is not because govt was not playing the game, but not doing a good job of defining rules and managing them.

I hear a lot of fuzz about the salaries of CEO on Wall street and how people talk about caps on the same, all that is just political rhetoric, will just go aways in a year or two when the economy is good. Caps never helped anyone, every person has the right to earn what he/she can earn in a honest way. I do agree some of the acts of some people on Wall street was questionable, but that happens everywhere, you are going to have some bad apples in any scenario. To blame and put CAP on everyone is just a short sighted approach. The basic rule of capitalism is that market defines what it can pay or not. This is surest way of making talent go away. Remember the saying 'If you throw peanuts, you will only get monkeys'. We don't any more monkeys

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