Musing on markets

I haven’t paid any attention to this blog in a long time. It basically serves as a kind of diary of random thoughts about things, and predictions about the future that I fondly hope will be wrong.

What’s struck me over the last couple of months, especially at the end of March when governments were freaking out about stabilising the world economy in the wake of the general strike on good humour brought on by Italy’s quarantine, is the way that this financial crisis is compared to the previous one, in 2008.

How we talk about crises affects the kinds of actions we take. That’s my feeble justification for paying attention to international finance, or what used to quaintly be referred to as ‘macro-economics’.

The current crisis is referred to as an economic crisis that impacts the financial system. The 2008 crisis, on the other hand, was caused by the financial system, and then rippled out to ‘the economy’. That the ‘financial system’ and ‘the economy’ are considered two discrete entities seems to come as news to many people. But indeed, they are quite separate.

The financial system as grown since the 1970s, and is basically premised on the financialisation and speculation of capital. It is, and this is critical, premised on continued growth, or ‘optimism’. ‘The economy, on the other hand, is both reliant on, and subservient to, the financial sector. The finance sector provides credit for increased productivity growth, but also dictates the way in which companies must adjust their profiles to ‘keep capital happy’. There has long been a debate amongst everyone from conservative economists to ardent Marxists about the role of labour in the economy. The orthodoxy in modern western capitalist democracies has held that the financial sector produces infinitely more wealth than the productive sector. In other words, gambling on the movement of money, rather than the production of money through productivity (making stuff to sell). In this way, the financial sector is premised on ‘derivatives’ – even though this has a more proscribed term within finance, obviously.

What the current crisis tells us is that, contrary to popular thinking, there is an enormous importance placed on the service and consumption sector. It is not ‘dancing to the tune’ of the financial system, expanding and contracting at its whim. We learned this when it collapsed, and everyone had to stay home for a couple of months. Suddenly, growth, predicated on real labour, people going to work and earning money and then buying things with that money, was important again.

This seemingly intuitive concept (people earn money and use it to buy things, or as sociologists might say, ‘socially reproduce’) has become anaethematic to the finance sector, and global elites, including governments.

This is a timely reminder that much of the financial sector is premised on ‘growth’ which is not ‘growth in the production of stuff’ but instead is, ‘growth in the movements of money’.

 

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