American Business, What Went Wrong

With the second round of big money government bailouts coming through, many Americans are asking: how did this happen? They went to work, they paid their bills, they paid their taxes, so why is the economy in the toilet?

I've already posted a History Lesson for people that are willing to put in the time to get a long view of the situation, but in 2009 information comes at us so fast and with so little effort, I know that most people will want the short version. The History Lesson shows the fluctuations of the economy over more than 100 years. Here's the summary of the last twenty-five:

First, we need to accept that what went wrong was not confined to America. We are no longer an isolated community with an independent economy. We are a vital part of a global economy that has run off the rails.

What went wrong?

In the 1980s computers created a significant change to investing and the stock market. Computers not only made normal trading easier, they created the ability to trade whole markets, and to trade in new complex ways because humans no longer needed to perform the complex mathematics needed to accomplish such trades. Those who understood a bit about the market and about this transition began encouraging those without said understanding to indulge in magical thinking.

The whole emphasis of investment shifted from employer/producer business to get rich quick schemes. Ordinary investors (doctors, lawyers, and successful professionals of all stripes) stopped wanting to do the hard work of identifying solid businesses with great ideas to be nurtured and began looking strictly for investments with a turn around of mere months and returns of upwards of 500%. This shift in the way investors select their investments starved the very foundation of our economy - new business - and fed the cancer which rots away all wealth - con artistry.

Where are the jobs? Where are the products and services? Where is our stable economy? They are exactly where we left them - dying of neglect next to hundreds of potentially outstanding businesses passed over in favor of short term schemes.

When we stop looking for easy money and start taking responsibility for investing in long term, sustainable solutions, then we will have some hope of resuscitating our ailing economy.