Deciphering The Current Economic Situation

I just read a FANTASTIC article in The McKinsey Quarterly called Creative Destruction And The Financial Crisis: An Interview With Richard Foster. It clearly explains our current economic environment.

Foster, who was a McKinsey director for 22 years, does a wonderful job of describing how capitalism creates cycles that lead to economic downturns like we’re in now. It’s not only very informative, but it’s also an easy read — which is a major feat for any discussion about economics. Here’s an excerpt:

The new entrepreneur often seeks ways to innovate outside the scope of the newly established regulations. In the beginning, all that works out fine. We have innovations… the returns are strong… The opportunity starts drawing less savory figures-charlatans who overmarket, cut corners, establish usurious contracts, and do other clever things to generate profit for themselves. They end up bringing the system down.

The bottom line: If you’re interested in understanding economic cycles, then you must read this article.