The financier class does not just make undeserved profits from interest and dividends. They are heavily involved in speculation, seeking to receive gains by buying assets at low values and selling them at high values. The Thomas Pynchon novel The Crying of Lot 49 provides a key insight about our economy: for the wealthy, the goal is to “keep it bouncing”. Where there is movement and volatility, the wealthy can make gains. Sometimes that involves making bets. More often, their gambling recalls the WC Fields line in My Little Chickadee when asked if poker is a game of chance: “Not the way I play it, no.” Besides the gamblers themselves, a whole Wall Street industry makes fabulous amounts of parasitic profit by taking a piece of the action on asset trades. When Fed policy had kept interest rates at the floor for too many years and people had stopped believing them when they kept saying “we’re going to raise them soon … really … we mean it this time … not this time, but soon …”, the Fed policy makers (who serve the banks and traders) expressed concern that the lack of volatility in bond prices was making it hard for the traders to make money, and the Fed wanted to take action to make prices more unstable.1
We see this currently in the Artificial Intelligence field. Consumers have not really said “gee, we really need X, Y and Z and we need AI to get it. We want AI to replace our jobs! We want AI to replace being able to talk to a human being! We want to lose the ability to tell what’s real!” Instead, the ever-growing financier capital needs a new thing to invest in, so all of their pet consultants, media, academics and politicians have started the drum beat of “we need AI – if we don’t invest hundreds of billions there will be an AI gap!” AI stock prices rise and financiers and speculators make more money, regardless of any human need for the products.
Similarly, much of cryptocurrency is basically a big pump-and-dump scheme. Financiers love crypto because it provides the ultimate outlet for their excess trillions – an asset that does not have any use whatsoever in the real world, and therefore can grow infinitely large. Because most crypto is not backed by anything except dreams, financiers can buy in, talk it up in the media as a hot investment opportunity, then sell out, repeating the process again and again. They don’t have to demonstrate any reason to believe that there will be growth in underlying production like they do for stocks, and likewise because there is no underlying value for the crypto they can crash the price at will. Fortune favors those with fortunes.
Laborism will stop the destabilizing games designed to generate capital gains. As discussed in an earlier post, the new form of equity will make gambling in existing stocks obsolete. Taking risks on start-up companies developing new products will still happen, with lots of cash chasing those opportunities, but it will not be like the current Wall Street casino. If a speculator invests in 5 companies and 4 go bankrupt but he increases his money by a factor of 5 on the 5th, then he will have made a worthwhile investment, but it will not be wildly profitable. Laborist policy will place controls on speculation in real estate (discussed in a later post) and will provide that trading in commodities for the account of persons having no corresponding interest in the production or use of those commodities is forbidden. Trading in derivatives will be limited in order to remove the gambling (as opposed to hedging) element. Cryptocurrency will be regulated to restrict its use to legal transactions and to require that it be supported by currency holdings or other valuable assets, so that its price would not be governed by the enthusiasm of misguided investors. As would-be speculators invented new ways to gamble with the economy, those channels would be shut down. Our economy should not be disrupted so that billionaires and hedge fund managers can use it as a giant casino, making leveraged bets with other people’s money and getting taxpayer bailouts if they lose.
Laborism will also reduce the component of capital gains produced by inflation, because inflation will be reduced. The Fed policy of actively seeking 2% inflation would be abandoned. The corporate strategy of raising prices to create a profitable lag between price rises and employee raises would be discouraged because with the new form of equity shareholders will not benefit from price increases but would be hurt by inflation. Financiers, deprived of the ability to earn unlimited profits on their money, will become inflation hawks.
The equity and debt reforms discussed here will naturally tend to result in international financiers seeking to move their money to countries lacking these reforms. For this reason, laborism will require certain policies to control these effects, policies designed at the same time to help to rebalance the economy and reduce the power of existing concentrated wealth. The details of those items are discussed in another post.
To defeat the power of compound interest, we must use compound effort. Please subscribe as a supporter (it’s free) and pledge to recruit at least 5 other people who each pledge to recruit at least 5 others. Recruit family, friends, co-workers, church members, union members, lodge members, people in your organizations, strangers. We can do this, but we each need to put in the effort.
Policy makers can be surprisingly explicit when they think they are just speaking to their fellow insiders, as in trade magazines and other paywalled forums.