WEBVTT NOTE 13. The Glories of Change 1 00:00:00.000 --> 00:00:08.100 Chapter 13 The Glories of Change, September 15, 2008 2 00:00:08.100 --> 00:00:12.640 The events on Wall Street, the collapse of Lehman Brothers and the selling-off of Merrill 3 00:00:12.640 --> 00:00:17.680 Lynch are magnificent and inspiring events. 4 00:00:17.680 --> 00:00:24.100 What we see here are examples of sweeping and fundamental change taking place, a huge 5 00:00:24.100 --> 00:00:29.900 upheaval that affects the whole of society, and toward the better, since what we have 6 00:00:29.900 --> 00:00:35.980 going on here is a massive reallocation of resources away from failing uses toward more 7 00:00:35.980 --> 00:00:38.980 productive uses. 8 00:00:38.980 --> 00:00:44.300 Hundreds and hundreds of billions of dollars are on the move, sweeping all before them. 9 00:00:44.300 --> 00:00:52.060 And yet, take note, it is not war accomplishing this, it is not violence, it is not the result 10 00:00:52.060 --> 00:00:59.500 of a Planning Committee. No election is necessary. No terrorist act took place. There was no 11 00:00:59.500 --> 00:01:06.460 government edict. The agent of change here is the composite of all the world's exchanges 12 00:01:06.460 --> 00:01:11.320 that relentlessly shove resources this way and that way so that they will find their 13 00:01:11.320 --> 00:01:19.640 most economically valued uses in society. No one person is in charge. Layers upon layers 14 00:01:19.640 --> 00:01:27.880 are the essential mechanism that makes the process move forward. 15 00:01:27.880 --> 00:01:34.520 All these decisions and choices and guesses come to be aggregated in a single number called 16 00:01:34.520 --> 00:01:36.280 the price. 17 00:01:36.280 --> 00:01:44.200 And that price can then be used in that simple calculation that indicates success or failure. 18 00:01:44.200 --> 00:01:49.280 Every instant of time, all around the world, that calculation is made. 19 00:01:49.280 --> 00:01:53.840 and it results in shifts and movement and progress. 20 00:01:53.840 --> 00:01:59.400 But as wonderful as these daily shifts and movements are, what really inspires are the 21 00:01:59.400 --> 00:02:04.940 massive acts of creative destruction, such as when old-line firms like Lehman and Merrill 22 00:02:04.940 --> 00:02:11.640 melt before our eyes, their good assets transferred to more competent hands and their bad liabilities 23 00:02:11.640 --> 00:02:15.040 banished from the face of the earth. 24 00:02:15.040 --> 00:02:18.860 This is the kind of shock and awe we should all celebrate. 25 00:02:18.860 --> 00:02:24.540 It is contrary to the wish of all principal players and it accords with the will of society 26 00:02:24.540 --> 00:02:30.580 as a whole and the dictate of the market that waste not last and last. 27 00:02:30.580 --> 00:02:37.240 No matter how large, how entrenched, how exalted the institution, it is always vulnerable to 28 00:02:37.240 --> 00:02:40.260 being blown away by market forces. 29 00:02:40.260 --> 00:02:45.120 No more, no less so than the lemonade stand down the street. 30 00:02:45.120 --> 00:02:48.000 Dramatic shifts are essential for progress. 31 00:02:48.000 --> 00:02:53.000 But adapting to changing conditions and becoming an agent of that change, staying with the 32 00:02:53.000 --> 00:02:58.560 curve and jumping out in front of it, this is the real challenge. 33 00:02:58.560 --> 00:03:05.480 Enacting change, any kind of change, but especially big and fundamental change, sometimes seems 34 00:03:05.480 --> 00:03:08.160 impossible in this world. 35 00:03:08.160 --> 00:03:11.480 We all desire it and know it is necessary. 36 00:03:11.480 --> 00:03:15.020 Seeking the reality of rebirth has an appeal. 37 00:03:15.020 --> 00:03:19.740 But finding the mechanism to make it happen is hugely difficult. 38 00:03:19.740 --> 00:03:24.620 Try to change an institution from the inside and you will meet resistance around every 39 00:03:24.620 --> 00:03:26.420 corner. 40 00:03:26.420 --> 00:03:29.420 Bureaucracies are nearly impossible to change. 41 00:03:29.420 --> 00:03:34.420 Even firms and private enterprise are reluctant to adapt and have to be pushed and nudged 42 00:03:34.420 --> 00:03:38.660 by the accounting ledger or no movement happens. 43 00:03:38.660 --> 00:03:43.460 Churches and other charitable organizations can wither and die without periodic and fundamental 44 00:03:43.460 --> 00:03:45.660 Change and Upheaval. 45 00:03:45.660 --> 00:03:50.400 Many institutions grow up around the principle of stability first. 46 00:03:50.400 --> 00:03:55.400 The organizational structure tends in the direction of the protective mode, with everyone 47 00:03:55.400 --> 00:04:00.400 burrowing in and resisting doing something different today and tomorrow from what he 48 00:04:00.400 --> 00:04:03.600 or she did yesterday and the day before. 49 00:04:03.600 --> 00:04:06.540 Inertia is the default. 50 00:04:06.540 --> 00:04:10.280 How to break away from this problem is a great challenge. 51 00:04:10.280 --> 00:04:15.440 The theory of democracy was that we would have a voting mechanism to enact and force 52 00:04:15.440 --> 00:04:19.840 change, but the problem is that the votes and personnel shifts bring aivid change in 53 00:04:19.840 --> 00:04:25.040 the look and feel of government, but do not get below the surface. 54 00:04:25.040 --> 00:04:29.480 Wars and revolutions yield change, but at too great a cost. 55 00:04:29.480 --> 00:04:33.880 The change wrought by markets goes to the very core of the issue. 56 00:04:33.880 --> 00:04:40.040 It makes and breaks whole institutions, sometimes overnight, and it does so in a beneficial 57 00:04:40.040 --> 00:05:00.040 All of the plans of big shots, all of the desires of our governing masters, all of the wishes and dreams of people who imagine themselves to be larger and more important than the rest of us, melt like snow on a sunny day. 58 00:05:00.040 --> 00:05:06.680 In this sense, the market is the great leveler, the force in the universe that humbles all 59 00:05:06.680 --> 00:05:11.800 people and reminds them that they are no more important than anyone else, and that their 60 00:05:11.800 --> 00:05:16.920 wishes must ultimately be shelved when faced with the overwhelming desire on the part of 61 00:05:16.920 --> 00:05:22.000 market traders that some other reality emerge. 62 00:05:22.000 --> 00:05:27.200 For this reason, everyone should celebrate the end of Lehman and Merrill. 63 00:05:27.200 --> 00:05:33.920 Over night, while we slept, the seemingly mighty were humbled, the first made last and 64 00:05:33.920 --> 00:05:40.920 the last made first. The greatest became the least, all without a shot being fired.