Buying Time

Confusion that never stops
Closing walls and ticking clocks
--Coldplay

Opponents of free markets often claim that market participants are too short term oriented. Because they care about profits today, capitalists avoid, for example, investments in technologies that could benefit society down the road (e.g., alt energy). It is therefore necessary for government to intervene to provide longer term perspective.

This argument is ludicrous, of course. Capitalists, like all people, act in their own self interest (2.1 here). If it is perceived that long horizon investments have a suitable payoff, even if that payoff is years off, then chances are that such investments will be made.

The poster children for decision-making mypopia are politicians. Politicians, like all people, act in their own self-interest. In the case of politicians, however, the payback period for their actions is limited to their time in office. Moreover, the basis for their decisions is political calculation rather than economic calculation. The present election cycle constitutes their typical horizon.

An excellent example of the stunted political time horizon can be found in the past two yrs worth of stimulus programs. We've taken on a massive amount of incremental risk (more debt, inflation, etc) because politicians choose not to deal with problems today. This weekend's Greece bailout is merely the most recent example of pushing out the pain.

Buying time while creating ever greater risk is consummate short sightedness.

no positions