The blog provides a left-wing non-partisan perspective on socio-economic issues in Russia and throughout the world. The focus is on qualitative development of national economic systems and ensuring flexibility in economic policies to meet the challenges of the 21st century. Email: leftistobserver@gmail.com

BENIGN GROWTH OR MALIGNANT TUMOR?


There has been a debate over the possibility to simply “print” our economies out of the crisis. Some insist that more stimulus is required to jump-start a sustainable recovery while seeing current problems as a financial crisis only, able to be fixed by playing with financial indicators.

To me, this is another proof that the modern civilized world, so arrogant due to its previous economic accomplishments, has gone bananas. We have made ourselves an idol of financialization and are frantically worshipping it. In modern financial capitalism, leverage reigns over equity while debt is no longer a debtor’s problem but a creditor’s. Financial markets have taken control and are manipulating the real sector at will. The entire society sees financial gain as the ultimate goal. Modern economists, obsessed with mathematical modeling, consider maximization of financial profits as the dominant function of economics. Production of material goods is perceived as an unnecessary anachronism.

It is believed that the value that the market assigns to a particular financial asset should be accepted as benign. This makes speculators very happy in times of fluctuating markets as they gain from both growth and slump. But the danger is that in certain conditions this benign financial value may quickly turn into a malignant financial tumor affecting entire markets and, as it is the case now, the entire global economy.

Now, imagine an upscale cruise liner with the passenger capacity of 1,000 people besides the crew. When a passenger pays for the ticket, it is not the ticket that he buys. He buys the right to board the ship in a particular place at a particular time and make use of the ship’s various services for a particular time. The ticket is only a token confirming that right.

What if the advertising campaign turns out to be so successful that the ship’s owner decides to print 2,000 tickets, but that seems unable to satisfy the demand? The buying frenzy goes wild on the day of the departure and a multitude of people gathers in front of the liner on the quay in hopes to get a spare ticket for any price. This immediately creates a spontaneous speculative market with people buying and selling tickets thus driving the ticket price up to unbelievable highs.

It is obvious that the outcome of this hypothetic situation would be highly pathetic. The foresight-lacking owner of the vessel would be counting a hefty short-term profit and watching its liner rocking from side to side as people contended for their right to occupy their cabins. As soon as the news about the actual amount of tickets in circulation reached the crowd, improvised speculators would have very little time to get rid of their tickets before their “value” plummeted to zero. The sentiments of the crowd towards the ship owner, I believe, need no clarification on my part. He would need to be fast, very fast to run for his life.

You might say this ridiculous situation is unlikely to happen in reality. How stupid should one be to own a ship and ruin excellent long-term business prospects for the sake of some hefty, but short-term revenue?

But it is not so unlikely –

The financial capitalism of our time is very similar to that spontaneous market on the quay, longevity being the major difference. The only reason why the modern epoch of financial speculations is not yet over lies in the fact that most people are still ignorant of the true value of assets they possess. When that realization sinks in, we will all have very little time to catch hold of available real assets before our illusory financial wealth turns into dust. The scariest thing is that something similar will be happening simultaneously all over the world with crowds searching high and low for their own “ship owners”.

A financial asset is a token that confirms somebody’s right to a particular real asset (a good or a service). Financial assets are easy and cheap to make – today all it takes is a computer with the right codes and passwords. Those are not only derivatives, but even the very money most of us are working for. And I deliberately refrain from drawing any lines between them in this article for the sake of showing that, regardless of whether they are government-issued or privately issued, financial assets are nothing but tokens. The uncontrolled growth of the modern financial sector can easily put the world economy at risk. Large transnational banks and various other financial institutions are in charge of running the ever-increasing mass of artificial assets up and down the world economy in search of new profits. Some of them are capable of challenging entire countries; they are almost like countries themselves.

We often forget that the real wealth is comprised of forests and lakes, mountains and hills, valleys and fields, natural resources and clean environment, human skills and knowledge, effort and labor. These are the values that will remain long after our pursuit of valueless financial gains runs out of steam.

Boris L. Anisimov

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