Don't Give Up on Capitalism, Fix It

Wait until the end of 2009 at the earliest to consider long-term investments in risky asset classes, such as stocks -- except for self-financing, large-cap consumer staples companies -- commercial real estate except for apartments in supply-constrained markets, hedge funds and lower-than-A-rated corporate debt.

Avoid borrowing and using leverage as much as possible unless: it is for something you want to own long term; you are fairly certain of your ability to carry the debt service; and it is financed using long-term, fixed-rate debt.

Avoid any complicated investment strategies or securities that you do not fully understand. The world is moving away from risk, and that movement is only going to get more severe if capitalism remains under attack.

Maybe it's been too long since the Soviet Union collapsed, so people don't remember why we had a Cold War for 50 years. It was exactly because we understood that the government, especially the federal government, should not decide who gets to keep what in our economy. If having a scary enemy to remind us of this very important concept is what it takes, then I would be very happy to bring back the Soviets.

That would be better than having our system slide its way into socialism because the public is too ignorant or too desperate to understand what is happening. Redistributionist economics, as Hayek famously wrote, is the "road to serfdom" because you cannot repeal human nature, even at the barrel of a gun.

It is human nature to expect to be paid for working and taking risk. That is why there will never be a better system than capitalism for creating prosperity, even though it is has many flaws that have been on display for everyone to see recently.