Robert's Radical Economics Ideas

November 12

Why have a Stock Market?

The recent financial and stock market crisis has reminded of a radical train of thought which has been on my mind periodically for many years -- namely, that the stock market may be a counterproductive force. Recent events have reinforced this notion. Let me examine this issue in more detail.

First, what is the stock market? Basically, it is a place in which people can invest in corporations. The more people invest in a stock, the more it goes up. That is because the perceived value of the stock increases. Thus, the stock market is psychologically driven. When the stock market goes up, the increase is not real money. It only becomes money when a person sells a stock, in which case, the money literally materializes out of thin air. When a stock market goes down. money disappears because the perceived value of the stocks are reduced. The money does not go somewhere else when the stock market declines. Rather, I repeat, it simply disappears. Thus, basically, the first persons to invest in a stock stand to gain the most, particularly if they can convince others to invest in the same stocks. In other words, the stock market basically amount to a legal, gargantuan pyramid scheme (A.K.A. Ponzi scheme).

Second, who created the stock market? I do not know the history of stock markets, but it is clear that they were the idea of rich corporation owners. Basically, it was a way to make the rich even richer. The only rationale that I can think of to justify the stock market is that is provides funds to corporations which provide needed services and new innovations. I suppose this rationale has been given at times to provide a tangible justification of the stock market. However, even this justification does not really work. Successful corporations do an excellent job of generating their own funding for research and development, etc. They are obviously not welfare cases that need more money. In fact, stocks being exchanged on the stock market are the farthest possible thing from being welfare cases. It is true that some individuals or groups of individuals genuinely need investors in the beginning so that they can develop a product, but this period is generally before a corporation becomes tradable on the stock market. Perhaps stock markets are an outgrowth of such investments, which do serve a useful purpose, but they in no way resemble people investing in the development of a promising product.

Third, what benefits or harm result from the stock market? Benefits from the stock market only occur when an individual's stocks have increased in value and the person decides to actualize those gains by selling the stock. Any real benefits realized are only represented by gains above and beyond the amount of inflation which has occurred since the money was first invested in the stock. However, if stocks go down, or fail to match the level of inflation which represents the increase in the cost of living, the value of the money invested in the stock actually decreases. Thus, stocks can financially hurt a person as easily as they can help a person. Add to that the fact that stock investment takes time and energy. Of course, some people make a career of dealing with the stock market. Unfortunately, the efforts of such persons do nothing to help the economy. There is no product of the stock market. The most the stock market can do is to increase the money of investors, but the stock market provides nothing of value. If a financial broker wants to really help the economy, he or she could do much better by taking a much lower paying job producing or selling some useful product or providing services which allow others to become more productive. The stock market is about using money to make more money or simply moving money around.

Fourth, is the stock market rational? Proponents of the stock market have claimed that it is a rational reflection of the economy, and that good corporations evidence greater increases in stock prices than corporations which are not functioning well. However, the stock market is clearly a stupid entity, one which has little regard for rationality. Saying that the stock market is rational is like imputing great intelligence to an airplane, just because it happens to go up and down. Actually, the stock market is like an airplane without a pilot, and as such, sometimes it crashes. People invest or deinvest in stocks based on psychological forces which often have little to do with rationality. For example, when more people lose their jobs, the stock market goes up, because people perceive that the cost of labor is likely to go down as potential workers become more desperate for jobs, plus, cutting jobs is a way for a corporation to save money. Also, there is a mass psychology to the stock market, a sort of conformity in which, when the stock market goes up, more people want to invest, but when it goes down, more people want to sell. This has virtually nothing to do with how businesses are being run. The wild fluctuations of the stock market obviously do not reflect wild fluctuations in worker productivity; rather, they illustrate the fickle perceptions of stock investors, which result in a sort of delusional elation when stock prices increase, and irrational panic attacks when stock prices suddenly go down.

Fifth, how should we best characterize the stock market? Basically, the stock market is a sophisticated, legalized form of gambling. My motto regarding gambling is that "gambling is for losers." People who enjoy investing in the stock market do so for the same reason that some people enjoy gambling. It gives the thrill of watching one's wealth go up or down, without having to do anything. It is a way to get something for nothing, if one is lucky. As is gambling, investing in the stock market is addictive. In psychological terms, the stock market operates on a variable ratio schedule, which means that people are reinforced on an intermittant and unpredictable basis for investing in stocks. The only people who know they will benefit from the stock market are those who make it their careers -- the stock brokers and financial analysts, just as the only people guaranteed to profit from gambling are the owners of the gambling institutions, while most of the gamblers themselves end up becoming more impoverished by their gambling activities. However, when the stock market crashes as it has recently, everyone suffers, especially when government decides to bail out failing stocks as has been done recently. If nothing else, dropping stock prices create an atmosphere of panic which can result in further economic problems. Even stock market specialists may lose their jobs. May main argument against having a stock market, however, is that it is simply a waste of time and effort which could be employed much more productively. Thus, I honestly feel that society would be better off if we had no stock markets.

I admit that I am not an expert on stock markets, but like other members of the public, I have had ample opportunity to observe the stock market and make inferences about its nature. My entire personal experience with the stock market consists of having a few mutual funds worth a few thousand dollars each which were given to me by my parents. Actually, I have sold most of these already at times when I needed the money. I have often thought about having the chance to invest in stocks that I believe in -- ones with a social conscience that do actual good -- but frankly, I have never had enough money to do so, and even if I did have enough money, my reservations about the stock market would make me hesitant to do so. I would rather put my money in an interest bearing bank account, as Eunice and I have done, and if I were to invest in some business, I would want the money to be used in a productive way such as the development of a useful and innovative product, not be used like chips at a gambling table.

I know that stock markets are not likely to be disbanded any time soon, However, I feel it is my obligation to present my argument against having stock markets, to give people something worth thinking about.

September 25

Testing and grading duties have kept me busy the past couple days. My classes are really large this fall semester.

The Food Chain Theory of Economics

Once again, despite my lack of formal training in economics, or perhaps because of it, I have my own creative and radical ideas about economics. Actually, this one is an analogy which is a continuation of the analogy I made last time.

The economy may be seen as working much like the food chain which is so well understood by ecologists. As you are probably aware, the primary producers of the food chain are plants. They convert sunlight and minerals into organic matter. They also recycle both plant and animal wastes, converting them back into living matter. Animals begin with protozoans, single celled animal-like creatures such as amoebas which surround and ingest other single celled organisms. From that point, animals vary in size and diet. Basically, animals are divided into herbivores (plant eaters), plankton feeders, omnivores (eaters of both plants and other animals), and carnivores (meat eaters). With the exception of plankton feeders, larger animals tend to feed on larger food items.

Now I will analogize this information to the economy.

Plants/Algae: Machines, Technology, anything which can be used to help us produce goods other than by hand

Protozoans: People who are virtually unseen to the more advantaged, such as illegal immigrants, people living in virtual slavery, or sweatshop workers

Herbivores: People who use technology for productive purposes, such as factory workers and repair persons

Plankton Feeders: People who profit by the cheap labor of others; remember, these are some of the largest creatures such as whales

Omnivores: People who use technology for both their own benefit and those of others; these are the traditional middle class citizens who both support the economy and benefit from society's and government's protections in a mutually beneficial relationship

Carnivores: People who prey on the middle class, such as large business owners and executives including the financial institution executives involved in the current economic crisis

Parasites: People who intentionally take advantage of other individuals, such as con artists and people who commit welfare or disability fraud

I know that this is not a perfect analogy, but it makes a number of important and relevant points. First of all, the environment can only support a relatively small number of carnivores and plankton feeders. These are the fat cats who have been growing larger and larger in the past few decades, what I refer to as corporatists. There actually is a role for these economic carnivorous Tigers in the economy. They function to coordinate economic activity and make important economic decisions, but they should not be allowed to become too large or powerful. Some of them in fact, may need to be "caged" if you know what I mean. However, human beings deserve better than to be protozoans. The fewer human economic protozoans, or the plankton feeders who profit by their labor, the better. The fewer parasites, the better, as well.

The basis of a good economy and progressive society should be a strong middle class, productive herbivores and versatile omnivores who live productive lives and enjoy the fruits of their labor. In turn, the productivity of the middle class depends on a combination of their hands-on labor, and their use of technology. By nurturing technology, we essentially become technology farmers who help the economy grow. But remember, farming is hard work. To put the current financial institution bailout issue into context, the proposed bailout represents throwing more meat to the Tigers and Wolves in the hopes that if these already bloated creatures are fed more, they will take care of the rest of us better. This is the same sort of reverse logic seen in Reaganomics, the idea of the "trickle down economy" -- somehow, rich conservatives argue, disingenuously, that if take off all restraints on their feeding, and allow them to grow to humongous proportions, they will start nurturing the rest of us better. How rediculous! It is middle class workers, particularly teachers and scientists, who nurture the economy. Feeding the rich more money only results in more manure and urine which trickles down on the rest of us. That is the real trickle down economy that has been dumped upon the public. Now we need to cut those fat cat carnivores down to size, and make fertilizer out of all the manure and urine we find lying around us..

September 22

Yes, I finally have the long-awaited (at least by me) message board. Hopefully, there will be comments other than mine in the near future. In other news, there was a disturbing recent poll which found that racial prejudice could very well cost Obama the election. (Hidden racial prejudice among voters was a recent topic on this blog). I think the researchers were from Stanford University. I have already linked to this report on Thom Hartmann's website and on MySpace. Here is the link to this report: Poll: Racial Misgivings of Dems an Obama Issue

The Tip of the Iceberg

Here is a more direct commentary on the current financial crisis the U.S. is facing. Freud's iceberg analogy is famous in psychology, but here, I am using it in an economic context. Actually, there are two analogies here.The more mundane interpretation is that the current financial crisis may be just the tip of the iceberg. I am afraid that is true if we do not soon change the way we do business -- literally. If our economy crashes, we may be facing an economic depression, not just a recession.

However, there is another interpretation of the iceberg analogy. The tip of the iceberg may be seen to be the business of finance and stocks, the ones which have recently been in the news, such as Fanny Mae, Freddy Mack, the Lehman Brothers, and so forth. Big businesses such as these are the only ones which are visible to Republicans. The Republican hierarchy only takes notice when big businesses, especially dealers in loans and stocks, are hurting. The American people have been suffering for a long time, but Republicans including McCain and Palin had continued to insist that the economy was fine. Even now, McCain asserts that the fundamentals of our economy are strong, but does acknowledge that there is a current crisis.

What to do about this crisis? The Republicans think the stock and loan industry needs a bailout at taxpayer expense, as though the obscenely wealthy miscreants who run these companies deserve to be on, or need, welfare. Actually, what I suspect most of them need to be, is in jail! But of course, we couldn't have that for some of the Republican Party's best donors. Meanwhile, a bailout may serve as a stopgap measure to buy time until after the election, when the boom is lowered on the economy, giving McCain a chance to win the election. To be fair, the Democrats are also considering a bailout for these companies, especially since Fanny Mae and Freddy Mack are financing so many people's home loans.

I am no expert on economics; in fact, as I have stated before on this blog, I have never taken an economics course, but it seems to me that there must be a better way. Fanny Mae and Freddy Mack were government institutions until the Republicans convinced Lyndon Johnson to privatize them. Over the years, they, along with coporate America in general, have become less and less regulated. It seems to me that the government needs to take Fanny Mae and Freddy Mack over again, permanently. As for financial companies which go bankrupt, tough luck. They purport to believe in a competitive system, a system of winners and losers. Well, Lehman Brothers, AIG and so forth, you are losers, and losers are supposed to be out of business. It makes no sense to give special support to the people who are to blame for this mess, especially when they are at the top of the economic food chain. They are the predators who have satiated themselves so much on the money of the workers, that they have run out of prey and are now facing famine. In fact, economically supporting these top-of-the-economic-food-chain businesses represents what has been called "reverse welfare," in which the risks and borne by the public, and the profits are made private. This is crazy and dysfunctional! We need to remember that the basis of the economy is the productive output of workers, not the skill with which business owners and financial institutions handle money. The Republicans do not seem to realize that. In fact, many Democrats and even economists (especially conservative ones) don't seem to realize that. I thought that education was not supposed to wipe out a person's common sense, but then, maybe these people never had any common sense. The workers of a nation who serve the public good are the undersea portion of the iceberg, and that is who needs help, so that this economic iceberg we all depend upon won't melt. (That would be what is known as a "meltdown" I suppose.)

The longterm solution is regulation of the industry. Even McCain is talking about re-regulating the industry, but that is sort of like a child with his hand caught in the cookie jar telling his mother that he doesn't like cookies. Truly useful regulation cannot be expected from the Republicans, at least not in their current state. They are the deregulators, not the regulators. Democrats such as Barack Obama offer a much better chance of promoting reasonable regulation of the industry, although many Democrats have also had their hands in the cookie jar as well. I do believe this financial crisis will substantially help Obama in the election, in fact, because most voters know that the Republicans are the party of deregulation and that deregulation played an integral role in our nation's current financial problems. But whatever happens between now and the election on November 4, let us hope and pray that Obama is the true and publicly declared winner of this election, so that we may begin the process of reversing the problems derived from the destructive and misinformed (and I think, simplistic) ideology which has dominated politics in the United States, with some relief during the Clinton Administration, since 1980.

There is one addendum I would like to mention. As basically a humanist and "positive psychologist" (as the new textbook I teach with says), I believe, and have stated the reasons for, that human nature is by and large, good. However, none of us is perfect, and some are less perfect than others. That is why we need a comprehensive set of laws, rules, and regulations, as well as good socialization practices, in order to maintain a productive, harmonious and civilized society which promotes welfare, happiness and fulfillment of potential (self-actualization) in its citizens. To think that deregulating corporate America and its finance industries, and allow some of our greediest people to take advantage of the rest of us, would somehow work out for the best, is ridiculous, but then, I think such verbiage was only a rationalization by wealthy and powerful people in the first place -- a rationalization which in their minds justified their efforts to increase their wealth and power while viewing themselves as the only truly deserving people. That is because such people are the opposite of humanists, and view people as basically evil and rotten, except themselves. We need to evolve a more humanistic society and form of government.

April 22

My car is in the repair shop now. The rattling turned out to be just some unimportant plastic which the mechanics cut off, but they also found the car needs new struts and "motor mounts" (never heard of those before), plus I decided to get all new tires, so it is going to cost about another $1,000 in addition to the $500 plus I spent last week. Staying on this car topic, my topic for today involves cars and the economy.

The Dented Car Syndrome

There is something interesting about the economy that I have noticed over the years about cars that I see as I drive around. It is not about how expensive the cars look, although I suppose that expensive cars do not sell as well when the economy is poor. I don't really know that much about the price of different cars, so I cannot comment very much on that. It is not about how new or old cars are, either, although I suppose people try to hold onto their cars longer when the economy is poor. What I am fairly certain of, though, is that the more dented cars I see driving around, whose owners do not bother to fix the dents, the worse the economy seems to be for the average driver. I have noticed lately an increase in dented cars once again, which seems to correspond with our current economic woes and probable recession. Of course, this is a different way to assess the economy than the way the goverrnment does, or investors do, or major corporations do, but I would argue that measures such as these, which look at the standard of living of ordinary people, are more valid indicators of the economy than other types of measures which are used.

Unfortunately, people who make it their business to assess the economy all too often look at corporate profits or the value of the stock market, rather than living wages or the value of a famiy's belongings. They all too often look at employment rates rather than the type of employment that people are finding. To these people, the economy is just faltering a bit, but nothing major. Corporate profits and the stock market are down a little. Perhaps employment rates are down a little as well. But this is purely a corporate perspective, and the economy is there to serve the people, rather than people being there to serve the corporations. It is the standard of living of the majority of citizens that is really crucial in assessing the economy. Imagine if the international news, for instance, were exclusively about the rich people of other nations -- the rich people of Sudan, for instance. Never mind that many people are starving there and a brutal civil war is going on. As long as there are some oil barons in Sudan, and some corporate moguls or filthy rich corrupt politicians, as long as Sudan's economy is "generating wealth," the corporatists would argue that Sudan's economy is not too bad. The corporatists would prefer to look at mean income (the mathematical average of all citizens, including the rich who skew the mean income upward), not the median income (the point at which half of the population has a greater income, and half, lower). But the median income tells us more about how the average person lives.Of course, raising the median income without changing the mean income would require that wealth be more evenly distributed among people, and that is what this economy really needs, but "heavens no" the CEO's of the world cry, "We can't take a pay cut. That's not the way our world works!" No, it is not, but it is the way the real world works, as opposed to the fantasy world these people have been constructing for the past 28 years.

As for me, I take my cues regarding the health of the economy from the condition of the cars people drive.