Smoothing Out the Peaks and Troughs

“Booms and busts are amplified when a select few control the allocation of money.”

— William Stewart, just a second ago.

Here’s my question — does crowdfunding have the ability to help smooth out the peaks and troughs of an economy over time?

In any market, or more generally any economy, enthusiastic demand for things causes expansions (peaks) and underwhelming demand for things causes recessions (troughs).

Being a cub of the Celtic Tiger, I’ve lived through one of the most emphatic boom-bust cycles in history. I think I’ve picked up some learnings along the way. So here is my biased opinion.

The issue, as I see it, is that when a recession looms, the supply of things being created drops because the creators (businesses) start being starved of the capital investment they need to create things. And without things to buy, people buy less things — effectively supply influencing demand. A lot of this is down to banks and institutions holding the big buckets of cash money.

So in a financial system where the money, and therefore the investing power, lies in the hands of a few, we see a scenario spin out kinda like what happened in Ireland not so long ago. An unplugged but overflowing bath followed by a swift righty tighty of the tap.

But let’s say this scenario plays out within a purely (hypothetical) democratic financial system where everyone has the ability to make their own investment decisions. The kind of system that crowdfunding is helping create.

So in this crowdfunding friendly economy a recession looms; there’s some fear, anxiety and hesitation amongst The People.

Some of us will rein in our investing activity. We’ll look at the menu and our appetite to save is greater than our desire to invest in companies — fair enough. But, it’s not a widespread slam on the brakes that happens when there is centralised control, when the ‘big boys’ make decisions on everyone’s behalf.

In our scenario, there will still be those who want to put their spare money to use in a meaningful way. This may be by investing in companies which have the vision and ability to spur the economy, create value, jobs and all that good stuff. The key point is that, knowing that there are people like that out there (heaps more people than there are financial institutions), many companies won’t feel the need to shrink into themselves until the tide has turned and the institutional tap is turned back on. Instead they go out to their crowd and with their help, make the brave decision to continue to push, advance and overcome.

So could crowdfunding help ease the lows of this warped capitalist system we live in?

I reckon it could.

Instead of grinding to a halt and waiting for monetary policy and government incentivisation to restart the economy, crowdfunding helps cultivate a landscape of continual opportunity. It may be an idealised vision but, even in this emergent era of crowdfunding, the potential of open, accessible, inclusive and decentralised investment is mighty.

We’re already seeing the effect of shifting the power away from the few and to the many on PledgeMe.

If you had told me a few years ago that people would invest in a startup like Ooooby with no discernible profit, I might have laughed at you. But it happened, and they’re thriving, and having an impact which in itself will help protect us from global financial bad weather. Wow.

So what’s missing in order to establish a more democratic economic system?

Well here in New Zealand we’re already seeing crowdfunding taking off in a big way. But the kicker that would tip the economy in favour of this kinda direction is education.

There are heeeeaaaps of people out there at the moment who give their money to banks and other financial institutions to look after. And that’s cool and everything, but there are other options for those with some disposable income and a desire to have positive impacts. Getting the word out about equity crowdfunding and lending, and creating a demand for it is probably the best next step we can take in this direction. So get sharing our How To PledgeMe guides, and let’s help iron out some of those peaks and troughs!