Geoff Colvin of Fortune magazine offers good news for those who’ve been spooked by recent stock market fluctuations.
Investors from Manila to Munich to Manhattan were aghast at the spectacle of market contagion during August’s global stock-price meltdown—all those markets and many more took a heavy hit. What’s an investor to do when a bursting bubble in China can wipe trillions of dollars from the value of assets on every continent?
It’s a good question, and it has an answer: Celebrate. Not that a plunge in net worth makes anyone want to raise a glass (a bottle, maybe). But the worldwide rout is evidence of an emerging financial order that is, on the whole, a good thing. Here’s how to think about it.
We increasingly live in one big capitalist world. Obviously some countries aren’t there yet, and a few don’t want to be. National economies don’t move in sync and probably never will. That’s not what matters most. What counts is that the world’s capital is more willing and able than ever to go anywhere, moving around the globe as comfortably as Carlos Ghosn or Beyoncé. A given investor’s mutual fund money at a given moment might plausibly be in any or all of the world’s stock markets. …
… In the one big system, markets aren’t any more or less rational than before. The madness of crowds still happens. Investing fashions come and go. Making markets bigger or smaller doesn’t make investors wiser. But a bigger system does bring in more participants with different perspectives, motivations, and information. They may behave like a crazed crowd for a while, but broad diversity can also bring steadiness. It’s worth noting that the August correction in U.S. stocks—a drop of roughly 10% from recent highs—lasted all of three days.
A more global financial system certainly isn’t perfect, as we learned in the financial crisis, and it won’t banish bad times. But it brings more liquidity, more opportunity, better price discovery, and more economic efficiency. That’s progress. Why call it by a nasty name??
