Ed Abbey, in a great essay on development in Arizona (anthologized in One Life at a Time, Please), commented that “the religion of endless growth ? like any religion based on blind faith rather than reason ? is a kind of mania, a form of lunacy, indeed a disease. And the one disease to which the growth mania bears an exact analogical resemblance is cancer. Growth for the sake of growth is the ideology of a cancer cell. Cancer has no purpose but growth; but it does have another result ? the death of the host.”
Modern societies worship innovation. When tech wizards get rich by founding Facebook or YouTube, people tend to celebrate. But this healthy admiration for success is subject to exceptions. When a different species of tech wizard gets rich by founding a hedge fund, the reaction is ambivalent — even though hedge funds contribute to the success of the economy as surely as tech firms.
That last sentence is ? at best ? not justified in his essay. Hedge funds generate wealth, true. Tech firms like those he cited do that, too, but they also produce something useful, at least if Time magazine is to be believed.
Hedge funds produce wealth by exploiting other people’s inefficiencies. And in doing so they do bring prices closer to something resembling their true values, which ought to bring someone, somewhere some benefit. But this process is basically moving money from one pile to another, not generating novelty. Given the limits on who is permitted to invest in hedge funds (those with more than $1 million in assets), that benefit is accruing only to those who have no particular need for that added wealth.
We might consider this as an generalization of the critique of “economic fundamentalism.” It isn’t that hedge funds are bad, just that the claim that they are as beneficial to the economy (or society at large) as tech firms needs to be justified with more than evidence that they make money.
They concentrate wealth, something that many people consider harmful. And the interventions necessary to stabilize hedge funds when their failures threaten to crash the economy certainly has to be figured in. Those factors alone justify calls for stricter scrutiny and more careful regulation of hedge funds, policies to which Mallaby seems to object simply because hedge funds make money.