From James Richards' weekly missive.
V. CAPITALISM’S UNDER ATTACK GLOBALLY AND GAINS WILL DISAPPEAR BEFORE YOUR EYES
If you followed the news from the Davos World Economic Forum last week, you heard a lot about climate change. It was certainly the main topic of the event. Speaker after speaker, including BlackRock CEO Larry Fink and teen-aged activist Greta Thunberg, warned that the planet will face catastrophic floods, famines and fires within years if steps are not taken to wipe out the coal, fracking and oil industries. The fact that these claims are hysterical and based on false science did not get equal time. Yet, there was another topic discussed at Davos that did not get nearly as much attention as climate change, but that might have a real impact on your portfolio. That topic, as reported in this article, was the death of capitalism. Modern capitalism emerged in the mid-eighteenth century with the rise of the Industrial Revolution. Means were needed to expand the output, factories and infrastructure that the Industrial Revolution required and made possible. Capitalism received a theoretical framework with the writings of Adam Smith (The Wealth of Nations (1776)) and other classical economists such as David Hume, David Ricardo and Thomas Malthus. Pursuit of capitalism and support for it by governments has produced the greatest rise in wealth and the standard of living ever recorded in history. Yet, today capitalism is under attack. Critics claim pursuit of profits and focus on shareholder interests leave out other “stakeholders” such as workers, civil society and environmentalists. Efforts to minimize taxes by global corporations also deprive governments of the revenues they need to pursue social programs. Of course, much of this critique could simply be a power grab by parasitical interests who lack the entrepreneurship and risk-taking courage of true capitalists but are willing to grab a slice of the pie they didn’t bake. Regardless, the view that capitalism is “dysfunctional” and needs to be regulated to serve the greater good is gaining traction. Investors need to watch this trend carefully. Unlike climate change, the decline of capitalism is a serious threat. The value of your stocks could be greatly diluted by the claims of outside stakeholders before you know it. It’s not too late to diversity into assets that are not subject to such claims including gold, land, fine art and natural resources.