Published on bearblog

A Thought - Maybe More Money is not More Better

Nobody understands the economy. But more money is more better, right?

That’s how you measure the economy after all. If more money is moving, then more goods and services are being purchased, and society benefits.

So it follows that it’s good for society to increase money. Consumer credit. Corporate financial engineering. Making the money printer go brrrr. Stocks, and derivatives. All these and more function to increase the amount of money in the economy, and as such are incentivised by the government, which prioritises the economic figures above almost all else.

Trouble is, it actually takes real effort to make money. It takes work to make that number on the screen go up. You have to employ accountants, lawyers, marketers, build offices, lobby the government, get debt collectors and many things more. And all these need complicated infrastructure, expensive education and a big city in which to do all the hard work.

And this is very different from the old economic model, where you make money by making things that people want, or doing things people want. It requires different infrastructure, different raw materials, different education and different management. And an economy cannot be based on the creation of money alone. The financial economy of money creation must coexist with this real economy.

So there is a choice, if one has money, to spend it on making oneself happy; to invest it in the real economy; or to invest it in the creating of money itself 1.

Spending it is right out; after all what is there to buy? Manufactured goods are cheap (they come from abroad), and there’s only so many services one can use (if one’s moral code even allows unbounded service consumption 2). So it’s investments, the only choice is which ones.

And that’s the trouble with information technology. If there’s one thing computers are good for, it’s calculating that number on the screen. But a computer can’t interact with the real world in any meaningful way. Computers increase the efficiency of making money far beyond the amount they increase the efficiency of the real economy.

So the information age has accelerated the existing transition, further tipping the balance of investment from the real economy to the financial economy. And with further technological development, the balance shifts further and further; compounded by the extrapolative tendency of the market expecting the rapidity of recent technological advances to continue far into the future.

So the real economy stagnates from underinvestment while the financial economy grows. It’s worse than that, of course, because participation in the money-making economy is predicated on the non-universal trait of already having lots of money, while the real economy often requires little money to participate. Therefore it’s possible to make more money by hurting the real economy (as in the case of loss-making ‘disruptive’ startups which ruin functioning economic sectors but have high valuations).

And that’s the stage we’re at. The real economy is stagnating, and our standards of living with it, because people have too much money, which they’re just using to make more money.

Well, that’s just today’s thought. I’m not an economist; I haven’t done any research, I don’t have any figures and I can’t think of any way to measure whether this is right or not anyway… But some time out in the public air will do it some good.

Footnotes:

  1. publicly traded stocks are not the real economy, and to invest in property is simply investing in the success of others’ money creation 

  2. consuming cheap services is unethical owing to the unstable and exploitative conditions of workers; for some reason the modern economy refuses stable jobs with good conditions to the low-paid 

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