Thursday, August 24, 2017

Stable Economies

As much as everyone seems to like to have a stable economy, there is no such thing unless you want an authoritarian government that will suppress the economic activities of the people. Problem is that economies exist because people do things. So to get a stable economy you cannot let people do things. You limit what they can buy and sell. You limit where and how they live. You limit what they can do and say.

Of course if you suppress people or stop them from doing any economic activity you end up with no economic activity and no economy. This is why communism does not work. Socialism does not work because of the suppression of people, but since they do not suppress everything, it takes longer to fail.

The failure of both communism and socialism is that people will not work hard if they see no benefit for themselves and/or their families. Under both these systems, leaders expected people to work hard to the benefit the whole country. What actually happened is that people did whatever they had to do to survive and that is all they did. (By the way, slaves act the same way.)

The problem with allowing economic activity is that people are unpredictable. The other problem is that they can act like a herd. Think about bear markets. We have them because everyone all of a sudden gets worried about something. A problem could have existed for some time, even for years. However, at one time everyone now worries about it. For the stock market this herd thinking often happens in October or November.

So if you want economic activity you have to allow people the freedom to act. You have to allow them to a great deal of freedom to buy and sell and live as they please. This is what produced the rich Western world.

You, of course, cannot provide total freedom because you would have chaos. There needs to be rules and regulations, but not too many rules and regulations. Capitalism is the same, for it to function properly it needs some rules and regulations. However, if you have too many rules and regulations, you just strangle the economy and capitalism.

On my other blog I wrote yesterday about Jean Coutu Group Inc. (TSX-PJC.A, OTC-JCOUF)... learn more. Tomorrow, I will write about Superior Plus Corp. (TSX-SPB, OTC-SUUIF)... learn more on Friday, August 25, 2017 around 9am.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

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