Monday, August 24, 2015

Re Too Much Investment Class Wealth Chasing Too Few Plausible Investments

Paul Krugman writes about it this morning.

Two observations I've been making for a while––and the financial press has been ignoring.

1. You don't have as many plausible investments when workers'/consumers' incomes are flat for 35 years. (This, combined with a concentration of investment wealth = bubble)

2. Now that the Boomers are living on their portfolios they don't want working incomes to rise either.

I wrote about this fragile combination in 2011

I believe Paul Krugman was there before I was.

Question: why has economic orthodoxy moved so far to the right that it cannot see this dynamic and its dangers?

One explanation I’ve been suggesting more recently is that we have allowed our money to think for us. Money is impatient, greedy and has no human factor in its calculations.

(I think letting our money make its own rapid decisions is similar but more dangerous than this new chimera the press is worried about: AI, artificial intelligence, HAL the computer.)

Far from being coldly rational, the money brain is easily panicked, as we’ve seen over the last four days.

When wealth is distributed more broadly with a framework of practical safeguards, the brain in the economy isn’t as skittish or irrational. Look at how it behaved from 1945-1980. But we were too impatient and greedy to tolerate that kind of economy. Or some of us were: The 1% who now make all the financial decisions.

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