Jan 17, 2008

Kevin Duffy on the creators and destroyers of wealth

The interplay of wealth creation (entrepreneurship) and destruction (government intervention) is constantly at work; it is the focus and mood swings of investors that change. During the late 1920s investors turned their attention to the positive – the wonders of new technology such as autos, electrification, radio, and the telephone. Meanwhile, the negative – government goosing of the money supply in the name of maintaining a stable price level – went either largely unnoticed or celebrated by mainstream economists as a powerful force to prevent any serious downturn, both for the economy and the growing crowd of stock investors. The "New Economics" of 1929 was followed over time by similar flights of fancy regarding government’s ability to manage an economy: the U.S. "New Era" (late 1960s), "Japan Inc." (1989), and a global "New Economy" (2000).

In contrast, major stock market lows are often set when the failures of the state are exposed and become engrained in the public psyche. Depression (1932), world war (1941), expected return to depression (1949), inflation (late 1970s), and deficits (late 1980s) created the best buying opportunities for investors of the past 75 years.

~ Kevin Duffy, Bearing Asset Management, "Investing as an Entrepreneurial Endeavor," July 13, 2004

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