Defense of Capitalism

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Whatever Happened to the Invisible Hand of Capitalism?

in Defense of Capitalism

When I was growing up in the Soviet Union, our local grocery store had two types of sugar: The cheap one was priced at 96 kopecks (Russian cents) a kilo and the expensive one at 104 kopecks. I vividly remember these prices because they didn’t change for a decade. The prices were not set by sugar supply and demand but were determined by a well-meaning bureaucrat (who may even have been an economist) a thousand miles away. If all Russian housewives (and househusbands) had decided to go on an apple pie diet and started baking pies for breakfast, lunch and dinner, sugar demand would have increased but the prices still would have been 96 and 104 kopecks. As a result, we would have had a shortage of sugar — a very common occurrence in the Soviet era.In a capitalist economy, the invisible hand serves a very important but underappreciated role: It is a signaling mechanism that helps balance supply and demand. High demand leads to higher prices, telegraphing suppliers that they’ll make more money if they produce extra goods. Additional supply lowers prices, bringing them to a new equilibrium. I am slightly embarrassed as I write this, because you may...

Putin’s World: Why Russia’s Showdown with the West Will Worsen

in Defense of Capitalism, Macro

I grew up hating America. I lived in the Soviet Union and was a child of the cold war. That hate went away in 1989, though, when the Berlin Wall fell and the cold war ended. By the time I left Russia in 1991, the year the Soviet Union collapsed, America was a country that Russians looked up to and wanted to emulate.Twenty-three years later, a new version of cold war is back, though we Americans haven’t realized it yet. But I am getting ahead of myself.After Russia invaded Crimea and staged its referendum, I thought Vladimir Putin’s foreign excursions were over. Taking back Crimea violated plenty of international laws, but let’s be honest. Though major powers like the U.S. and Russia write the international laws, they are not really expected to abide by those laws if they find them not to be in their best interests. Those laws are for everyone else. I am not condoning such behavior, but I can clearly see how Russians could justify taking Crimea back — after all, it used to belong to Russia.I was perplexed by how the Russian people could possibly support and not be outraged by Russia’s invasion of Ukraine. But...

Crony Capitalism and the Oracle of Omaha

in Defense of Capitalism

I am back from the Berkshire Hathaway annual meeting in Omaha, Nebraska, and my brain is still spinning from the dozens of meetings and stimulating conversations. In a series of articles over the next few weeks, I’ll try to download the thoughts that were triggered by this trip, a lot of them unrelated to the main event — the Warren Buffett & Charlie Munger show — but rather by-products of the conversations I had. After I wrote about my disappointment with Buffett’s mishandling of Coca-Cola Co.’s “excessive” compensation plan, I got an e-mail from Carol Loomis asking me if I wanted to ask Mr. Buffett a question about Cokegate. Loomis is the Berkshire Hathaway CEO’s longtime friend, editor of his annual shareholder letter and one of three reporters at the annual meeting who ask Warren and Charlie questions submitted by readers. Here is the question I submitted:I’ve been coming to shareholder meetings for seven years, and for the first time I’m seeing two Warren Buffetts: The first is the moral compass of corporate America — the standard of corporate ethics and integrity (the one we see in the Salomon Brothers scandal intro video year after year). And then last week a second Warren...

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