Sunday, April 26, 2009

I think they know they're lying

I've heard it said many times that the economic crisis is based on the lack of confidence in the economy, that if people would start believing that the future was secure enough to spend more and save less the economy would be set back on its right course and their future would be, indeed, secure once again.

I don't think this works. Money isn't valued by the gold standard anymore, or whatever the term is that means it no longer represents a certain amount of gold/silver/whatever, but you can't say that it only has what value we think it does. I think that if you were to strip away the financial wizardry and accounting trickery, there has to be some link to human capital, and a step farther the output possibility of the earth itself.

At the most generic, the market exchanges goods and services. People must be well-fed enough to have time to make good or devise services, the goods must be made from something, and indeed the society in which the good makers and service providers must be more productive per citizen to allow for them to have the ability to do so. If you put money in a bank, the bank loans that money out to someone to build a superconductingsupercollider, the builders and schemers must be fed and raw materials must be extracted and derived.

The bank didn't create that wealth, it just moved money around as other people actually did. The idea that if we just start spending money again everyone will get jobs and be comfortable doesn't work. At any given time there is an absolute, and I suspect quantifiable, amount of wealth available to humanity. The bursting of the Big Bubble wasn't due to decreasing confidence, it was due to people's overconfidence meeting tragically with the outer limit of our collective means. The slump we're in now is a correction; our perceived value is sliding back to a level closer to our real value.

This idea has been rolling around in my idea for a while, and I almost can't believe this hasn't been thought of and proven yet. I'm almost certain that I'm right, which if true means that we are in major trouble if we don't get on track to more sustainable ways of taking our livelihood out of the earth. Given humanity's history of dealing with crises (thanks to firefox's spellcheck for teaching me the plural of crisis, by the way) before they hit, I'm not confident that this will happen.