This little (19-second) gem is from Calculated
Risk (the other video there, Greenspan and The
Simpsons, is good too):
That says it all. It is the short version.
The longer armchair version is this:
All economic activity is composed of four basic elements, or “atoms” is
the Lucretian sense. Granted, this is not the most modern of
theories, being based upon Lucretius‘
Rerum Natura (On the nature of things; ProjectGetenberg
version). This was written in the year 50 BCE
(Before the common era).
Bodies, again, Are partly primal germs of things, and
partly Unions deriving from the primal germs. And those which are the
primal germs of things No power can quench; for in the end they conquer
Lucretius was perhaps the first to conceptualize matter as being
composed of atoms and empty space. He did not have the
technology to understand atoms, or even to prove their existence, but
he was correct about some things. Matter is composed of
elements, which can be combined in different proportions to make
Of course, economic activity is not composed of chemical elements.
Rather, the four elements of economic activity are:
1. Things we need
2. Things we want
All financial innovation consists of finding different ways of mixing
these four elements, in various proportions.
For example, the greatest innovation of the first half of the 20th
century was the work of Edward
Bernays. Bernays figured out how to blend the
element of things-we-want, with the element of deception.
This influences people to believe that things-we-want are
The outcome was the greatest economic expansion that ever was, and ever
will be. It was based upon the production and purchase of
things we don’t need. There was only one problem: it led to
an economy that is inherently fragile and unsustainable. The
problem stems from the simple fact that, if it ever happens that people
cannot afford all that stuff, AND they realize that they don’t really
need it, then they will stop buying it.
Then everything falls apart.
That is what is happening now. Not that it is the entire
explanation for the economic stagnation-deflation
we are seeing, but it is a part of the cascade of events that took us
past a tipping point.
In the 21st century, the great innovation was a peculiarly diabolical
blend of risk and deception. You’re gambling without knowing
it. And someone else is pocketing the money.
“I’m shocked, SHOCKED, by the gambling that is going on here!”
“Your winnings, sir.”
“Thank you very much”
This of course highlights the biggest lie of all. The firms
that say they are in the “financial services” business have nothing
whatsoever to do with service. To the extent that
they appear to provide service, it is only to pick your pocket.
Ever see a tapeworm
grab your wallet? It happens all the time.