What is the purpose of an economy anyway?

What is the purpose of an economy anyway?

I heard a reporter on a recent Economist podcast say that, in light of the growing UK economy, creating jobs is a good thing.

It seems to me that creating jobs is not only a good thing, creating jobs is the thing. What other purpose is there for an economy?

Here’s what I mean. An ‘economy’ is kind of a meta-thing that emerges whenever two or more people get together and decide that working together to meet everybody’s needs is more efficient than everyone trying to each meet 100% of their own needs (like, say, some kind of off-the-grid survivalist). Economies emerge in all kinds of places: prison economies, school-yard economies, national economies, global economies.

Occupy Wall Street’s Beef: Wall Street is Cheating

These people aren’t protesting money. They’re not protesting banking. They’re protesting corruption on Wall Street.

Matt Taibbi finally articulated what I have been trying to find words for. I don’t begrudge Wall Street, or anyone, their good fortune (I seek the same good fortune). I just begrudge the way a few people have rigged the system in their favor.

“The Market” vs “The Economy”

With all the volatility in the stock market lately it is a good time to remind ourselves that “the market” is not the same as “the economy.” The best that I can tell — at least as of the last few years — “the market” has contracted to a relatively small group of:

  • professional traders
  • automated computer programs
  • institutional investors
  • hedge fund managers

This tight-knit circle trades amongst itself with very little relevance to what we think of as “the economy.” In contrast to this closed group, the economy is the vast sum of the creation and delivery of the goods and services we want and need.

It seems to me that the Dow Jones Industrial Average and S&P 500 bears little connection to these things these days.

Don’t be afraid. Now is the time to be bold. If you don’t like the economy, let’s go out and make one of our own.

Financial Rigor

One of the things you learn in engineering is to be rigorous. If you build a bridge that falls down on a windy day, there’s going to be hell to pay. Financial markets are not like that; they are very noisy. It’s hard to tell who’s skillful and who’s just lucky. And a lot of analyses are done in extremely haphazard, primitive ways, but the investing public doesn’t know any better.

Feb 23, 2009 issue of Wired.

Dan diBartolomeo is the head of Northfield Information Services, a Boston financial analysis firm. He has a long history of analyzing investment strategies and complex securities. His comparison of financial markets to the rigors of engineering is noteworthy.