There is a very old joke about economic systems. But it keeps getting updated – and I think it’s awesome. So I thought we’d start with a brief history of economics…
For many many years…
- Feudalism: You’re a man with two cows. Your lord takes some milk.
Then the serfs got agitated. And in a haze of guillotines:
- Socialism: You’re a man with two cows. You give one to your neighbor.
But then Lenin improved on it:
- Pure Communism: You’re a man with two cows. Your neighbours help you take care of the cows and you all share the milk.
Although in practice, it turned out a lot like:
- Communism: You’re a man with two cows. The State takes both and gives you some milk.
Which almost immediately turned into:
- Fascism: You’re a man with two cows. The State takes both and sells you some milk.
And that’s upsetting. So try:
- Pure Capitalism: You’re a man with two cows. You sell one and buy a bull.
But because we hate to be parted with our cash, we almost immediately turned to:
- Short-sighted Capitalism: You’re a man with two cows. You sell one and force the other to produce the milk of four cows. You hire a consultant to analyze why the cow dropped dead.
And then the guy you sold to got excited by the new stuff his shepherd friend heard about from the guy down the market:
- Venture Capitalism: You have one cow. You sell two cows to your publicly listed company using letters of credit from the bank and the first cow as collateral. You then execute a debt/equity swap so that you get both cows back and a third cow in goodwill with a tax exemption for four cows*. The milk rights of five cows are transferred via an intermediary to a Cayman Island company secretly owned by the trust of the majority shareholder who sells the rights of six cows back to the listed company. The annual report is published declaring that the company owns seven cows, with an option on one more. Your auditor agrees the substance of the transaction is that you control eight cows but your estimate is conservative and free of material error. You sell one cow, leaving you with nine cows. The public then buys your bull.
Meanwhile in China…
- Chinese Capi-communism: You have two cows. You eat the cows and hire 300 people to dye water white. You sell the water as milk to the rest of the world.
*You take advantage of a protectionist tax incentive that your lobbyists lobbied for and won.