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Why do we have to make things? Or why tangible things? Take for instance the financial sector. They make allocation decisions in essence and sell service aroun

Why do we have to make things? Or why tangible things? Take for instance the financial sector. They make allocation decisions in essence and sell service around management, consulting, and financial engineering. A large chunk of our economy is based around resource allocation, not actually turning resources into products more efficiently than the last guy. As an economy progresses, it moves further and further away from things and towards ideas. We went from hunters and gatherers of food and clothing, to agriculture, to machining things, to primitive banking, all the way up to modern financing. At each step we became further and further removed from actually putting iron-to-iron and producing this. We become more involved in how to efficiently allocate resources for those that did produce. And that population of those that do produce continues to fall as automation comes along and we become better at making more with less. Finance has really put productive resources to amazing efficient use though capitalism. We will get to a point where almost nobody does machines or sits on an assembly line anymore, and their jobs will give way to a larger and larger pool of people who work in the meta-market, the mental-based market that really drive the physical-based market.

marcosdumay 11y ago
> A large chunk of our economy is based around resource allocation, not actually turning resources into products more efficiently than the last guy. Writing this should have made you pause. Really. May I ask where are you so proficiently allocating resources into? You are correct in that information products and services are wealth too, but that applies only for stuff people want. Real people. Everything else is not wealth by itself, including almost the entire banking system.
- skolos 11y ago
  Soviet Union resource allocation was performed by central planning committee instead of markets. The result of that is known. With good financial system the resource allocation is same as capital allocation. Good capital allocation is not possible without transparent and liquid markets. Transparent and liquid market depends on its biggest players - institutional investors, banks and their regulators. Hence the banking system is huge wealth provider. Otherwise we would be living under communism now.
  - marcosdumay 11y ago
    > Soviet Union resource allocation was performed by central planning committee instead of markets. So is big any bank investment portfolio... Anyway, the point is that if the bank does not invest the capital into something that ultimately produces wealth, you have just a big dysfunctional chairs game, where a few people get out with a lot of money, taken from the others that get out poorer, while the entire economy goes into the drain. But yeah, the above can not last unless there is some central planning committee overruling the market allocations. What I don't get is why you think that is an exclusivity of the old Soviet Union.
JDDunn9 11y ago
Finance hasn't contributed nearly as much to global GDP as your post suggests. Innovation (specifically the industrial revolution) has been the key driver of improved productivity. Everything of value has to be based on something real. The tractor is beneficial because it is a multiplier to labor. Derivatives based on thin air do nothing.
DiffEq 11y ago
It is about balance, independence and longevity of the nation. A diverse economy is more able to resist economic challenges of ALL types. It is also able to resist sudden turns in foreign policy (war) and maintains options for such a country if they find themselves at war with the country that supplies their manufactured goods or their services, or whatever it may be. Additionally making things, providing services, whatever it may be, develops with practice, into the arts. If we don't ever have that practice we lose the ability, as a nation, to develop those arts.
intended 11y ago
I'm not that smart. In smart enough to know where smart really is and what that future economy means. But I'm not smart enough to add value to it. And the crux of it is that unless you add value to the system - there is no reason the economy should support you. From the PoV of the system, I and many others are dead weight, and people who bring the economy efficiency gains , develop new growth paths, remove old pain paths - those people add value. In short- there's no way such an economy will ever exist. Because such an economy will serve itself and its needs first. It will build reserves for lean times, to preserve itself. If you don't contribute, why should/would it help you?
chishaku 11y ago
There's a well-trodden argument that much of financial innovation has little positive effect or even negative effect on the larger economy. Jack Bogle, founder of Vanguard Group: "The job of finance is to provide capital to companies. We do it to the tune of $250 billion a year in IPOs and secondary offerings. What else do we do? We encourage investors to trade about $32 trillion a year. So the way I calculate it, 99% of what we do in this industry is people trading with one another, with a gain only to the middleman. It’s a waste of resources." http://time.com/money/3956351/jack-bogle-index-fund/ http://time.com/money/3956351/jack-bogle-index-fund/ Paul Volcker, former chairman of the Federal Reserve: "Echoing FSA chairman Lord Turner's comments that banks are 'socially useless', Mr Volcker told delegates who had been discussing how to rebuild the financial system to 'wake up'. He said credit default swaps and collateralised debt obligations had taken the economy 'right to the brink of disaster' and added that the economy had grown at 'greater rates of speed' during the 1960s without such products." http://www.telegraph.co.uk/finance/economics/6764177/Ex-Fed-chief-Paul-Volckers-telling-words-on-derivatives-industry.html http://www.telegraph.co.uk/finance/economics/6764177/Ex-Fed-... IMF: "...the effect of financial development on economic growth is bell-shaped: it weakens at higher levels of financial development." http://www.imf.org/external/pubs/ft/sdn/2015/sdn1508.pdf http://www.imf.org/external/pubs/ft/sdn/2015/sdn1508.pdf OECD: “...above a certain point, further financial expansion is associated with slower growth.” http://www.oecd.org/eco/How-to-restore-a-healthy-financial-sector-that-supports-long-lasting-inclusive-growth.pdf http://www.oecd.org/eco/How-to-restore-a-healthy-financial-s...
- aianus 11y ago
  > "The job of finance is to provide capital to companies. We do it to the tune of $250 billion a year in IPOs and secondary offerings. What else do we do? We encourage investors to trade about $32 trillion a year. So the way I calculate it, 99% of what we do in this industry is people trading with one another, with a gain only to the middleman. It’s a waste of resources." Very few people would invest in IPOs or secondary offerings without a secondary market for the shares.
wycx 11y ago
Is this an April Fools reply? What you are saying is that we should build an economy of ticket clippers on top of very few who actually generate physical wealth. How is that efficient? Some other economy will come along without all the ''efficiency'' overhead and eat your lunch.

marcosdumay 11y ago

> A large chunk of our economy is based around resource allocation, not actually turning resources into products more efficiently than the last guy. Writing this should have made you pause. Really. May I ask where are you so proficiently allocating resources into? You are correct in that information products and services are wealth too, but that applies only for stuff people want. Real people. Everything else is not wealth by itself, including almost the entire banking system.

skolos 11y ago
Soviet Union resource allocation was performed by central planning committee instead of markets. The result of that is known. With good financial system the resource allocation is same as capital allocation. Good capital allocation is not possible without transparent and liquid markets. Transparent and liquid market depends on its biggest players - institutional investors, banks and their regulators. Hence the banking system is huge wealth provider. Otherwise we would be living under communism now.
- marcosdumay 11y ago
  > Soviet Union resource allocation was performed by central planning committee instead of markets. So is big any bank investment portfolio... Anyway, the point is that if the bank does not invest the capital into something that ultimately produces wealth, you have just a big dysfunctional chairs game, where a few people get out with a lot of money, taken from the others that get out poorer, while the entire economy goes into the drain. But yeah, the above can not last unless there is some central planning committee overruling the market allocations. What I don't get is why you think that is an exclusivity of the old Soviet Union.

JDDunn9 11y ago

Finance hasn't contributed nearly as much to global GDP as your post suggests. Innovation (specifically the industrial revolution) has been the key driver of improved productivity. Everything of value has to be based on something real. The tractor is beneficial because it is a multiplier to labor. Derivatives based on thin air do nothing.

DiffEq 11y ago

It is about balance, independence and longevity of the nation. A diverse economy is more able to resist economic challenges of ALL types. It is also able to resist sudden turns in foreign policy (war) and maintains options for such a country if they find themselves at war with the country that supplies their manufactured goods or their services, or whatever it may be. Additionally making things, providing services, whatever it may be, develops with practice, into the arts. If we don't ever have that practice we lose the ability, as a nation, to develop those arts.

intended 11y ago

I'm not that smart. In smart enough to know where smart really is and what that future economy means. But I'm not smart enough to add value to it. And the crux of it is that unless you add value to the system - there is no reason the economy should support you. From the PoV of the system, I and many others are dead weight, and people who bring the economy efficiency gains , develop new growth paths, remove old pain paths - those people add value. In short- there's no way such an economy will ever exist. Because such an economy will serve itself and its needs first. It will build reserves for lean times, to preserve itself. If you don't contribute, why should/would it help you?

chishaku 11y ago

There's a well-trodden argument that much of financial innovation has little positive effect or even negative effect on the larger economy. Jack Bogle, founder of Vanguard Group: "The job of finance is to provide capital to companies. We do it to the tune of $250 billion a year in IPOs and secondary offerings. What else do we do? We encourage investors to trade about $32 trillion a year. So the way I calculate it, 99% of what we do in this industry is people trading with one another, with a gain only to the middleman. It’s a waste of resources." http://time.com/money/3956351/jack-bogle-index-fund/ http://time.com/money/3956351/jack-bogle-index-fund/ Paul Volcker, former chairman of the Federal Reserve: "Echoing FSA chairman Lord Turner's comments that banks are 'socially useless', Mr Volcker told delegates who had been discussing how to rebuild the financial system to 'wake up'. He said credit default swaps and collateralised debt obligations had taken the economy 'right to the brink of disaster' and added that the economy had grown at 'greater rates of speed' during the 1960s without such products." http://www.telegraph.co.uk/finance/economics/6764177/Ex-Fed-chief-Paul-Volckers-telling-words-on-derivatives-industry.html http://www.telegraph.co.uk/finance/economics/6764177/Ex-Fed-... IMF: "...the effect of financial development on economic growth is bell-shaped: it weakens at higher levels of financial development." http://www.imf.org/external/pubs/ft/sdn/2015/sdn1508.pdf http://www.imf.org/external/pubs/ft/sdn/2015/sdn1508.pdf OECD: “...above a certain point, further financial expansion is associated with slower growth.” http://www.oecd.org/eco/How-to-restore-a-healthy-financial-sector-that-supports-long-lasting-inclusive-growth.pdf http://www.oecd.org/eco/How-to-restore-a-healthy-financial-s...

aianus 11y ago
> "The job of finance is to provide capital to companies. We do it to the tune of $250 billion a year in IPOs and secondary offerings. What else do we do? We encourage investors to trade about $32 trillion a year. So the way I calculate it, 99% of what we do in this industry is people trading with one another, with a gain only to the middleman. It’s a waste of resources." Very few people would invest in IPOs or secondary offerings without a secondary market for the shares.

wycx 11y ago

Is this an April Fools reply? What you are saying is that we should build an economy of ticket clippers on top of very few who actually generate physical wealth. How is that efficient? Some other economy will come along without all the ''efficiency'' overhead and eat your lunch.