Not all “stuff” is created equal….or is even useful at all.<\/p>\n\t
I’m not talking about diamond studded toothbrushes for your toy poodle.\u00a0 That’s fine with me.\u00a0 If you want to waste money on your dog’s oral hygiene, so be it.<\/p>\n\t
I’m talking about entire industries\/sectors of the economy that don’t provide anything useful or are unduly bloated.\u00a0 Their existence is a distortion; a fluke of a particular set of conditions at the marcro level (govt, laws, etc).<\/p>\n\t
Here is an example often given:\u00a0 Income inequality creates crime because the really poor want what the really rich have….so some portion of them steal it.\u00a0 If there are more poor and more rich (the income distribution widens)….there is more theft.\u00a0 To combat this situation the really rich simply move into gated communities, install security systems, etc.\u00a0<\/p>\n\t
Some portion of the home\/personal security market is a distortion due to income inequality.\u00a0 In my opinion, although it adds to GDP, it should subtract from it.\u00a0 It is a negative value service\/product.<\/p>\n\t
Though the US has a 12 trillion dollar GDP….I think much of it is a fantasy.\u00a0 I don’t know what percentage might fall into this “useless” or “distortion” category…but it does make me wonder how “rich” our country really is.\u00a0 What is rich?\u00a0 Is it having enough money to buy stuff that will insulate you from the poor?<\/p>\n\t
Anyway, these arguments have been made before, but the reason I’m bringing it up again is that there is another sector of the economy much larger than personal security that I think is of debatable usefulness…and whose size is certainly a distortion:\u00a0 FINANCE.<\/p>\n\t
Finance will of course always exist (as will Accounting, Financial Advisors, Insurance, Lawyers, etc); however, there are so many laws and obscurity in finance, that sometimes I wonder if much of the industry is a fiction….just pushing around numbers on balance sheets, or “trading” assets that aren’t backed by anything REAL.\u00a0<\/p>\n\t
I’ll give two examples:<\/p>\n\t
1)\u00a0 Hedging:\u00a0 In managing hedges, if someone makes a negative bet on company A, in theory it allows someone else to make a positive bet on company A and maintain the overall hedge.\u00a0 In my example it is easy to see that there is no real value created, just two opposing bets in a zero sum game.\u00a0<\/p>\n\t
But if you manage thousands or millions of those bets, and roll them up into a balance sheet and play some accounting tricks….it may look like you have real assets, which of course someone else could then potentially hedge against.\u00a0 The fact remains it is a zero sum game, an accounting fiction adding no real value….just pushing paper.\u00a0<\/p>\n\t
2)\u00a0 Derivatives:\u00a0 If hedging seems complicated, derivatives are even more mind blowing.\u00a0 Let’s take the “assets” created in the previous example, and decide that we don’t want to invest\/hedge on Company A anymore…..we want to invest in part of company A and part of company B.\u00a0 Of course that entity doesn’t actually exist, but through derivatives you can create it on paper.\u00a0<\/p>\n\t
Do you have a new asset?\u00a0 If you combine a bunch of things based on a bunch of other things in a cascade of derivatives, you eventually get so far from reality that you don’t understand the assets backing the paper.\u00a0 Are there any?\u00a0 Is your derivative simply backed by another package of derivatives that folds back on itself or ends in a dead end?<\/p>\n\t
It is easy to see that if enough people play the game outlined above, you’ve created something from nothing.\u00a0 Its a distortion too complex to get your head around, so you assume its real because really smart people are using big formulas at the top of tall buildings to work it all out.<\/p>\n\t
In the end, I think much of the “cloud” of finance exists as a distortion.\u00a0 In a world where people eat, sleep, talk, and move on things that EXIST in the real world……if all those fancy financial instruments didn’t exist would we be any worse off?<\/p>\n\t
I don’t think so.\u00a0 At least not materially (since of course there isn’t much material about finance).<\/p>\n\t
What about all those jobs?\u00a0 Legions of very, very smart people are employing their time in industries (Accounting, Finance, etc) that shouldn’t be as large as they are….which means they are NOT doing something else, which could be more useful:\u00a0 Medicine, Science, Construction, Engineering, Teaching, etc.<\/p>\n\t
Imagine how much better off we’d be if the brainpower of finance were focused on advancing clean energy technology?<\/p>\n\t
Some may say, “Finance is enabling clean energy technology…by allowing money to flow into it.”<\/p>\n\t
I say, “Yes.\u00a0 Finance can be useful, parts of it are useful.\u00a0 However, the bloat and complexity of the current system is not.\u00a0 It is just dangerous paper pushing….created by distortions, enabling further distortions…..creating assets that don’t really exist and diverting brainpower from other industries where it could be better employed.”<\/p>\n\t
I remember when Enron went bust I said, “Through fancy accounting tricks, one day a company is going to make a profit selling to itself.”\u00a0 Well….its already happened.\u00a0 The entire industry of Finance is making a profit selling to itself….forever pushing pieces of paper back and forth amongst itself….thinking that somehow it is creating value.\n<\/p>\n","protected":false},"excerpt":{"rendered":"
Not all “stuff” is created equal….or is even useful at all. I’m not talking about diamond studded toothbrushes for your toy poodle.\u00a0 That’s fine with me.\u00a0 If you want to waste money on your dog’s oral hygiene, so be it. I’m talking about entire industries\/sectors of the economy that don’t provide anything useful or are […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_newsletter_tier_id":0},"categories":[1],"tags":[28],"jetpack_sharing_enabled":true,"jetpack_featured_media_url":"","jetpack_shortlink":"https:\/\/wp.me\/p3IMYj-1P","jetpack-related-posts":[{"id":710,"url":"http:\/\/chasingeden.com\/?p=710","url_meta":{"origin":113,"position":0},"title":"Pope Francis: Keep talking…I’m interested.","author":"kellio","date":"January 6, 2014","format":false,"excerpt":"Pope Francis is doing three things I've never seen in religion before (in my lifetime): \u00a0 1) Being extremely relevant to our daily lives, 2) Potentially offending powerful people\u00a0, and 3)\u00a0Leading. \u00a0I'm going to focus on his comments on Capitalism because that is my area of interest. 1) Being extremely\u2026","rel":"","context":"In \"economics\"","block_context":{"text":"economics","link":"http:\/\/chasingeden.com\/?tag=economics"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":769,"url":"http:\/\/chasingeden.com\/?p=769","url_meta":{"origin":113,"position":1},"title":"Income Inequality: Labor is losing and we should care (since we are Labor)","author":"kellio","date":"January 13, 2015","format":false,"excerpt":"Many believe some version of the following regarding income inequality: The current income distribution is the free market outcome; we can't regulate ourselves out of income inequality...it is a natural outcome of our global economy. The statement is untrue.\u00a0 It is better worded as follows, \"The current income distribution is\u2026","rel":"","context":"In "Inside My Head"","block_context":{"text":"Inside My Head","link":"http:\/\/chasingeden.com\/?cat=9"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":313,"url":"http:\/\/chasingeden.com\/?p=313","url_meta":{"origin":113,"position":2},"title":"Is Racism Ok? The issue with Libertarianism.","author":"kellio","date":"May 24, 2010","format":false,"excerpt":"Rand Paul has come under serious fire lately for his staunch libertarian stance on the Civil Rights Act.\u00a0 The basic gist is:\u00a0 Government doesn't need to interfere in a business's right to be racist if it wants.\u00a0 The market can decide; if people don't like racism, they won't shop at\u2026","rel":"","context":"With 1 comment","block_context":{"text":"With 1 comment","link":"http:\/\/chasingeden.com\/?p=313#comments"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":552,"url":"http:\/\/chasingeden.com\/?p=552","url_meta":{"origin":113,"position":3},"title":"Tax cuts for the rich do not stimulate the economy. They aren’t even a neutral. Tax cuts for the rich are a drain on the economy.","author":"kellio","date":"May 15, 2012","format":false,"excerpt":"A little high level data\/history here, and then we'll jump into Myths related to taxes for the rich. \u00a0I will provide a logical plausible mechanism for why low taxes for the rich do not stimulate the economy. 1. \u00a0The GDP growth rates during times of high marginal tax rates on\u2026","rel":"","context":"In \"economics\"","block_context":{"text":"economics","link":"http:\/\/chasingeden.com\/?tag=economics"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":500,"url":"http:\/\/chasingeden.com\/?p=500","url_meta":{"origin":113,"position":4},"title":"The difference between “Occupy Wall Street” and Tahrir Square","author":"kellio","date":"October 4, 2011","format":false,"excerpt":"Tahrir Square ended in revolution in Egypt.\u00a0 \"Occupy Wall Street\" probably won't.\u00a0 Why not? What is similar? They are both demonstrations protesting general disaffection with the current state, with the economy, etc. They are both using social media. They are\/were both disorganized somewhat at first, but growing in clarity and\u2026","rel":"","context":"In \"government\"","block_context":{"text":"government","link":"http:\/\/chasingeden.com\/?tag=government"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":320,"url":"http:\/\/chasingeden.com\/?p=320","url_meta":{"origin":113,"position":5},"title":"The stock market is a meaningless ponzi scheme.","author":"kellio","date":"June 16, 2010","format":false,"excerpt":"There.\u00a0 I said it. And I mean it.\u00a0 Not that certain stocks are a ponzi scheme....the entire concept of the stock market is a ponzi scheme. Think of all the people that work in industries related to the stock market......are you thinking?\u00a0 There are newspapers, magazines, and entire TV channels\u2026","rel":"","context":"In "Favorite Entries"","block_context":{"text":"Favorite Entries","link":"http:\/\/chasingeden.com\/?cat=10"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]}],"_links":{"self":[{"href":"http:\/\/chasingeden.com\/index.php?rest_route=\/wp\/v2\/posts\/113"}],"collection":[{"href":"http:\/\/chasingeden.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/chasingeden.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/chasingeden.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/chasingeden.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=113"}],"version-history":[{"count":0,"href":"http:\/\/chasingeden.com\/index.php?rest_route=\/wp\/v2\/posts\/113\/revisions"}],"wp:attachment":[{"href":"http:\/\/chasingeden.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=113"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/chasingeden.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=113"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/chasingeden.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=113"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}