Three Most Important Dates In World Economic Dynamics

If we see the world economic history for the last 100 years, we will come across many important incidents that changed the course of world economy and politics. But we can very easily separate out three dates, which have impacted the course of world economy to the greatest extent.

 Just look at the impacts of these three dates:

 7th Nov 1917: Lenin has triumphed. Communism has arrived. The 70 yr. old philosophy of a Jewish revolutionary will rule half of the world for next 70 years and will threaten the most powerful and prosperous allied forces of the world. A utopian state is in sight, where nobody will be deprived of anything. No one would be allowed to exploit anyone; no one will loose his job. The state will not allow the greed of the rich to be satisfied by the flesh of the poor.

 The Russian revolution changed the way economic values were seen in the intellectual world. Those who believed that Marx's philosophy cannot succeed in actual world were stunned by the massive industrialization of the Soviet State. The world powers were so threatened by once starved Russia, that they started appeasing Hitler, because communism was supposed to be the larger evil than Nazism. For the next 70 yrs USSR dominated the world both economically and militarily.

World was at the cross roads after World War-1. Europe was devastated. Germans were in hyperinflation and one piece of bread used to cost 24,000,000,000,000 Reichsmarks. Britian was no longer the undisputed leader of the world and it was sharing the status with USA. French were feeling lucky, because they survived the war and got some more lands in Africa and Far East. The Muslim world was outraged by the fall of Caliphate in Turkey.

The Chinese and Indians..... Who Cares?

And the future superpowers were developing fast, very fast. Russians were setting up more and more industrial complexes, building more and more arms and ammunitions, and Americans.....

They were drinking Coke, smoking "Camel" and.......buying STOCKS, more and more Stocks. The bubble was getting bigger and bigger.

Finally the day came.....

29th Oct 1929: The original Black Tuesday changed everything. What started with this day would ultimately engulf the whole world and pave way for the rise of "The Most Barbaric War", the world has ever seen in Modern History.

It took three years for the recession to become depression. The government didn't intervene and didn't want to intervene, since it was a free market. Interfering with market forces was supposed to be a communist theory which was Haram in capitalist world. What started in USA, spread to Europe soon and the whole world economy was heading for a doom.

This was the time when Soviet Russia, began to be perceived as the ideal economic model, a state which controlled the "Commanding Heights" of the economy. A state where people were not prone to the devastating recession and depression caused by the greed of 20 something Harvard MBAs.

The great depression paved way for Hitler and Mussolini. People, suffering from deep economic slowdown, supported these charismatic leaders. This was the time of aggressive nationalism. The third reich was in sight, which would include the Urals too. Germans had not seen anybody so charismatic since Bismark. Finally Germany had produced its own Nepolean. Whole Germany was swept by the popularity of "Herr Hitler", doesn't matter even if he vowed for "The Final Solution" for the minorities of his own country.

Soviets were flexing their muscles under the leadership of another legendry leader named Joseph Stalin. Britan was fighting with the uprising of people in its colonies. The sun of the empire was finally setting. French people were not ready to accept their status of the second rate power within their own continent. Overall, Europe was moving towards that one final war, which would change the world forever.

Americans were licking their wounds, since their economic model failed miserably. Millions of Americans were starving, whereas traders were burning the stocks of wheat, just to keep the prices stable. Almost one third of the American banks closed down. Millions of Americans lost everything. So much so, for the "land of opportunities".

As they say, radical times need radical decisions. Troubled times need some leader to navigate the country through troubled waters. USA chose Franklin Roosevelt in 1933. First thing he did was to declare a bank holiday for 4 days, just to cool the system. Later "New Deal" was announced and USA started shifting towards socialism. Uncle Sam started building roads, bridges, freeways and what not. Govt started spending and providing job opportunities to the people. No one could even think of such acts in a capitalist economy till 4 years back. Surprisingly, the stimulus started to work, and people thought that the days of capitalism were over. "The color of the Cat is immaterial, as long as she can catch rats." If socialism can uplift people out of poverty, so be it. The laboratory of capitalism had turned its back on free market.

Karl Marx had defeated Adam Smith. Keynes was beatified and Hayak has become a pariah.

The cold war was on for political reasons. Economically, it was accepted all over the world that socialism was the only way to go and states only should control the "Commanding Heights" of the economy.

The system worked well for 50 years. Then it started to show the strain. As the new generation took over, people started becoming more and more inefficient. They were no longer moved by the same emotion of war and depression. The official policy of governments to "Incentivize the Inefficiency" gave rise to a new phenomenon, named as "Stagflation."

Stagnation and inflation cannot prevail together. This was suggested by Keynes and believed by everybody. The point was missed that human being are not machines, which can be assumed to work on a particular efficiency level every time, without any fear or drive. People work under two circumstances, either you give him some incentive or you put a gun on his head. Stalin believed in later and USSR became superpower.

As the communist government became little more tolerant and people achieved a little freedom, questions were being raised about the economic model. Why the worker in Russia cannot afford a lifestyle of an US worker? Why should the government waste its time fixing the taxi fare in Moscow rather than sending some more Sputniks in space? Why should I work if no one can fire me and no one can hold back my salary? Why should a company produce if the prices are artificially fixed?

Slowly and steadily, people started realizing that there is something wrong with the model being followed. It started to change with Ronald Regan, Margaret Thatcher and Mikhail Gorbachev. "Road to Serfdom" was back in the libraries. Hayek was awarded the Nobel Prize in 1974. 

One by one almost whole world adopted the free market theory of economics. Some countries adopted it smoothly, over a period of time like China, whereas others opted for "Shock Therapy" and paid a very heavy price for the same. The laboratory of communism- Russia adopted the change and fell into anarchy. The "Oligarchs" have replaced "Communists" as the new exploiters of the people.

Once again the world was changing its economic beliefs. "Free markets" was the buzzword. The statues of Lenin were removed from the streets in Russia. Stalingrad again became St. Petersburg.

This transformation created a new breed of entrepreneurs in the East Subcontinent, India. A country, where it used to take at least 3 years to get a telephone connection suddenly became the second fastest growing telecom market in the world. The Indian software professionals were employed, envied and poached all over the world. Suddenly the world started taking Bollywood seriously. Then people realized that almost 30 % of NASA scientists were Indians, never knew of such fact. Suddenly people started saying that IIT is equivalent to Harvard+ Stanford+ MIT. So much so for a "Third World Country" of snake charmers.

The system was working well. Now, nobody had an iota of doubt that "Free Market" is the way except Hugo Chavez and Fiedel Castro.

Then came 2008.

Although the effects of the excess Greed started getting felt in 2007 only, it was not until September 2008, when the world would see the pillars of capitalism crumbling one by one within such a short period of time.

One by one, the wizards of Wall Street, the dream of any MBA, the powerhouse of US economy, the flag bearer of capitalism lined up in front of White House with a begging bowl for "Bail Out".

Initially it looked like some investment getting bad and financial institutions are in need of loan from the government. "Dubyaman" responded, either by providing loans or by instructing some other institutions to provide line of credit. After all, credit and loan is the part and parcel of the business.

Then came 15th September 2008.

The oldest i-bank filed for bankruptcy. The largest insurance company in the world was about to fall within two days.

And the world changed forever.

When I opened the newspaper on 16th Sep 2008, it was nothing less than a nuclear war. Lehaman Brothers has filed for bankruptcy; AIG might follow in two days. Needless to say, everybody lost heavily in stock market. Gold shot up, Oil tumbled and only one view was on air- "The Great Depression".

AIG was bailed out by "The White House". Within next few weeks, US will unveil a financial bailout package of 700 bn $. The amount is bigger than the GDP of Pakistan and Bangladesh combined. These two countries have the combined population of more than 300 million.

AIG was bailed out. The better word would be "Nationalized".  In old days of cold war, countries used to nationalize profit making private sector companies, so that the profit would be distributed and used for the benefit of the society. Now the largest insurance company of the largest country in the world is being nationalized not for the same reason, but because the company was about to default. AIG defaulting on its payments would mean the end of American Dream. The financial system would collapse. Millions of Americans would loose billions of dollars invested in insurance policies. Hence AIG is "Too Big to Fail".

But how big is too big? Wasn't Lehman too big? What about LTCM? What about Pan Am?  Why should the govt pick and choose where to throw the exchequers' money to bail out private enterprises? These companies took risks and the gamble didn't pay off. They made good amount of money in last 4 years, riding on the boom cycle of market. The million dollar bonus for their 20 something traders came from where? The corporate jets, the yatch were financed by the same housing boom. They didn't bother to care about stricter corporate governance and better financial reporting in those times. Now, when they are doomed, they are asking for a bail out from the same Fed, whom they always accused of tight regulations and curtailing the free markets.

Will this led to evolution of another round of socialist economic model as we saw last time late 40s? Is this the end of capitalism? Has Uncle Sam failed? Is Marx smiling in heaven?

The answer to all these questions are "It Depends...."

As it is said "Human beings are intelligent enough in finding patterns with random numbers and risking everything on such deceptive patters".

We can just wait and watch, as history unfolds in front of our eyes.