Monday
Aug032009
Best of Times, Worst of Times: Two Economies, by design
Monday, August 3, 2009 at 10:27AM
Today's generally accepted business headline, from the NYTimes: "Signs of Economic Growth Push Markets Up"
Just parsing that phrase pretty much says it all. Signs of economic growth can and will push markets up. This means, literally, that if the metrics we use to measure economic growth indicate a positive trend, more speculators will invest capital into the shares originally used to lend money to corporations.
Of course, the signs of economic growth - these metrics - are really just derivatives of the GNP. More-ness of output or consumption. The sign of economic growth leading to today's market optimism was that manufacturing activity in Europe increased. Oil prices are going up again, as well - having nothing to do with actual demand, but speculators' belief that demand may grow. Even if it doesn't, they can make money by investing now, promoting the belief that demand will grow, and then selling to the next round of speculators who believe the story.
Meanwhile, the most worshipped indicator of economic growth - the stock indexes - aren't really signs of economic growth at all. They're just a measure of speculators' belief in whether the bubble in that investment is inflating or deflating.
Most significantly for those of us living back in the real world, however, all these economic indicators inspiring confidence on Wall Street have little or nothing to do with the real economy of work, home, and basic security. Job losses continue to pile up - most likely to above 10% actual unemployment in the US (the figures come out lower because of those who have given up actively looking after losing unemployment benefits), credit card and mortgage defaults are only beginning to get registered, and prospective home sellers are only now realizing the painful truth that no one is interested in buying.
My point is not gloom and doom. Rather, it's that the "signs of economic growth" stimulating the speculative economy and DowJones average have little or nothing to do with the prospects for real people to make ends meet, find gainful employment, or - more importantly - create and exchange value back here on earth.
In fact, the vital signs of the speculative economy might better be understood as the health points of the monster whose very purpose is to extract value from the real, and inject it into the virtual, derivative economy.
Just parsing that phrase pretty much says it all. Signs of economic growth can and will push markets up. This means, literally, that if the metrics we use to measure economic growth indicate a positive trend, more speculators will invest capital into the shares originally used to lend money to corporations.
Of course, the signs of economic growth - these metrics - are really just derivatives of the GNP. More-ness of output or consumption. The sign of economic growth leading to today's market optimism was that manufacturing activity in Europe increased. Oil prices are going up again, as well - having nothing to do with actual demand, but speculators' belief that demand may grow. Even if it doesn't, they can make money by investing now, promoting the belief that demand will grow, and then selling to the next round of speculators who believe the story.
Meanwhile, the most worshipped indicator of economic growth - the stock indexes - aren't really signs of economic growth at all. They're just a measure of speculators' belief in whether the bubble in that investment is inflating or deflating.
Most significantly for those of us living back in the real world, however, all these economic indicators inspiring confidence on Wall Street have little or nothing to do with the real economy of work, home, and basic security. Job losses continue to pile up - most likely to above 10% actual unemployment in the US (the figures come out lower because of those who have given up actively looking after losing unemployment benefits), credit card and mortgage defaults are only beginning to get registered, and prospective home sellers are only now realizing the painful truth that no one is interested in buying.
My point is not gloom and doom. Rather, it's that the "signs of economic growth" stimulating the speculative economy and DowJones average have little or nothing to do with the prospects for real people to make ends meet, find gainful employment, or - more importantly - create and exchange value back here on earth.
In fact, the vital signs of the speculative economy might better be understood as the health points of the monster whose very purpose is to extract value from the real, and inject it into the virtual, derivative economy.
Reader Comments (5)
Hi Doug-
I'd be interested to see your thoughts on high frequency trading as described here:
http://arstechnica.com/tech-policy/news/2009/07/-it-sounds-like-something.ars
"If you look under the hood of the markets in 2009, you'll find that the trading floor has been replaced by electronic networks; the frantic, hand-signaling traders have been replaced by computer systems; and all of moves in the trader's dance—a thousand little tricks and techniques (some legal, some questionable, and some outright illegal) for taking regular advantage of speed, location, and information to generate profits—are executed hundreds of times per second, billions of times per day."
I did a paragraph on them last week here:
http://rushkoff.com/2009/07/29/front-page-analysis/
I should devote a whole post to this story, though. I wanted to do one for Daily Beast but they thought the story was a little off my "beat."
Do you ever think something is off your "beat?" It seems to me that all your takes on the media/headlines is skewed towards only your view - which is quite myopic. Might you expatiate on your work history which makes you think or at least posit to the rest of us that you are knowledgeable in all these arenas i.e. finance, politics, etc.
Aaaand that's me busted for not keeping up with your blog...thanks, I'll check out what you wrote. Reading that Ars Technica article was an eyeopener. Really enjoyed your show today too.
These headline analyses are great.