Undernews is the online report of the Progressive Review, edited by Sam Smith, who has covered Washington during all or part of one quarter of America's presidencies and edited alternative journals since 1964. The Review has been on the web since 1995. See main page for full contents

January 27, 2009


One thing I can't get straight in my mind is how do you rebuild an economy that was so heavily based on speculation, hypotheses, options, futures, non-existent assets, hedge funds and Ponzi schemes?

What exactly are you rebuilding? For the economy to flourish do we have to recreate all the aforementioned with a new generation of hustlers, high rollers and suckers?

In other words, if much of the money was never there, how do you ever find it again? - Sam


Anonymous wellbasically said...

I agree with you Sam about the amount of waste fraud and abuse in our private economy. However some large part of it must have been making things that people want.

The over-financialization was a result of delinking the dollar from gold in 1973. It's no coincidence that 1973 was the year of the invention of the derivative, and the first oil shock. Since the US government took absolute power over the value of the dollar, most of the highest finance is arbitrage and hedging against government mismanagement towards inflation or deflation.

For production and manufacturing to continue, this apparatus of protection must be maintained as long as the government can yank the dollar this way or that, on a whim, really. But I agree with you that it's a waste.

It's no accident that all the math phd's who used to send rockets to the moon now work in finance making algorithms to hedge currency movements. It's no accident that guys who used to manage Consolidated Industries went to work for finance companies. In an environment where you get much richer making bets on the currency cost of a thing, much richer than making the thing itself, why won't the government look to lotteries and gambling schemes for revenue, rather than taxes on things people want?

I don't like to see you looking for populist inflation for public works though as a solution. Public spending may be the thing, but not with sham inflationary money. That will just hurt the wages and savings of workers. The wages are the thing that has to go up.

January 27, 2009 1:52 PM  

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