[quote=FlyerInHi]Another thing CAr, in your wish to micromanage everything, you’re drawing too many distinctions on what is productive or not.
People trading commodities is productive. There’s a speculative aspect, but higher prices eventually result in more production and more technology. Plus there’s employment in the trading activities.
If I give you a hair cut this week, and you give me a hair cut next week, that’s productive work. We are doing work and exchanging money and that’s a good thing. If there were a lack of liquidity, we’d be sitting around doing nothing. Bad for the economy.[/quote]
Glad you posted this…you knew how I was going to respond to your previous post. 😉
Yes, I draw a distinction between productive and non-productive activities, and I always will until somebody shows me a *genuine* reason for not doing so.
Spdrun already addressed a few of the problems with your post. As for that misallocation of labor resources, he’s spot on. I have a couple of friends who graduated from Harvard. Both have said that the advisers there will guide the brightest and most driven students toward a career on Wall Street (one of these friends followed their advice). Mathematicians, scientifically-minded students, etc. are often re-routed to the financial sector.
Additionally, speculation is zero-sum. And all of that extra production (misallocation of resources) that might result from speculation? I’ve addressed that in another post, above.
[quote=CA renter]
Asset prices can affect GDP numbers, too. The prices of raw commodities is priced into things that we buy.
Additionally, when asset/commodity prices are artificially inflated, it causes a misallocation of resources. You’ve noted energy, so let’s use that as an example. If prices are being driven up by speculation, it will cause people in the energy industry to commit more resources to drilling for oil, or building massive solar or wind farms, etc. That’s good IF the prices are based on real supply and demand (not speculators of any sort). If the prices increases were caused by speculation or other market manipulations, then the boom will eventually go bust, and all of those direct and indirect jobs will be lost, the equipment will be sidelined (possibly only working a fraction of its intended lifespan), the environment will be damaged (and the companies responsible for the damage might go BK, leaving the mess for taxpayers to clean up) and the economy will be decimated, especially in the regions where all of this work was happening.
This is just one example. Market manipulations have a ripple effect on the economy, and if booms are allowed to grow to bubble proportions, they can take down whole sectors of the economy for a prolonged period of time.
And I doubt that a “lack of liquidity” will exist for very long. If the economy is that dicey, it will usually collapse, then the money from elsewhere comes rushing in during the vulture stage. Of course, I favor a public bank, so in my theoretically ideal world, there would almost always be liquidity in the system, especially if the boom-bust cycle was damped as speculators are prevented from controlling or greatly affecting the market.[/quote]
