Why is the world so messed up?

Read this Article on IBankingFAQ's EconomicsFAQ section. This guy expresses a pretty pessimistic view of the current state of the world. Not looking to express whether I agree or disagree, but thought that an interesting discussion could be made around this. Here's a few snippets from his argument

"Why is the world so messed up?

Here's another post inspired by the Trump election. What the hell is going on in the world? Why are people so angry? Why are the Brexits and the Trumps of the world winning elections? Why are extremists of the right-wing and the left wing, the populists, the isolationists, the politicians of anti-immigrant and anti-trade persuasion, the fascists and the socialists gaining power all across the western world?

I believe that the world is experiencing forces brought upon by a combination of two global trends: 1) massive financialization brought upon by short-sighted monetary policy, and 2) the growth of big government and its evil-twin, crony capitalism. Together (and they do go together), these two decades-long trends have depressed productivity and economic growth, subsidized job loss due to technological disruption and excess international trade, and sown the seeds for global terrorism.

No institutions have done more damage to the global economy over the past several decades than the world's central banks. No idea has done more damage to the global economy over the past several decades than the belief that a centralized government agency can, and should, dictate the economy's interest rates. Led by the U.S.'s Federal Reserve, this monetary policy experiment has lead to a world in which money is in massive over-supply, risk is massively under-priced and the financial sector has grown to become a massive drain on productivity.

Low interest rates are supposed to encourage investment. Financial bailouts are supposed to prevent disastrous depressions. Perhaps a short-period of monetary stimulus and a once in a blue-moon bailout might not do too much economic damage. But 30+ years of easy money and near-continuous bailouts of banks and the financial system have created such economic distortions that to categorize the U.S. economy as anything near a free market would be utterly wrong.

Of course, Wall Street is not the only entity in town that has grown substantially larger. Growth of federal governments has been almost as devastating to global economies. Marx thought that it was capitalism that was unstable and would inevitably collapse. He was wrong. Regrettably, it is democratic government that seems ultimately unstable and prone to collapse by slowly, but inevitably strangling the economy.

Democracy's fundamental flaw is that it is biased towards its own growth. Growth of the government workforce, growth of regulation, growth of taxes, growth of disincentives, growth of monopoly. The flip side? Lack of productivity, lack of efficiency, lack of employment, lack of competitiveness, lack of growth, lack of freedom. What began as more or less a free market, becomes, through the growth of government and the cradle-to-grave welfare state, a system of crony capitalism, less and less distinguishable from socialism.

Decades of easy monetary policy combined with the growth of big government have, among other things:

  • Encouraged speculation and short-term financial results at the expense of long-term productive investment in infrastructure, research and development and human capital.
  • Subsidized consumption at the expense of savings, fostering a culture of indebtedness and instant gratification and exacerbating worldwide trade imbalances.
  • Subsidized investment in vastly unproductive uses, creating serial asset bubbles in the process. Nowhere is this more evident than in the technology industry where money losing companies funded with massive amounts of inexpensive capital that employ few disrupt profitable companies that employ many. This is not creative destruction, as some would claim. This is subsidized economic suicide.
  • Subsidized large, publicly traded and monopolistic companies at the expense of small, privately-held and entrepreneurial companies because of easy access to capital markets, crony capitalism and an emphasis on financial engineering, M&A and private equity activity.
  • Caused enormous inflation in non-tradable goods such as healthcare, higher education and real estate. Is it any wonder why the middle class is drowning in debt? Is it surprising that young people can't afford to pay for college, can't afford healthcare and can't afford to buy a house?
  • Destroyed the centuries-old business model of local, relationship-based banking and is in the process of destroying pensions, retirement savings and the insurance industry. Collectively, these are the cornerstones of a capitalist economy.
  • Directly enriched the wealthy by funneling money through and to Wall Street and inflating financial assets, creating an enormous bifurcation of "haves" and "have-nots."
  • Encouraged an entire generation of the best and brightest to become investment bankers, traders, venture capitalists and consultants, rather than scientists, engineers, doctors, and teachers.
  • Allowed governments (the U.S. in particular) to finance naive, adventurous wars in the middle east without the sacrifice of higher taxes, and thus without sufficient contemplation from the citizenry. Further, easy money and big government has subsidized a military-industrial complex lobbying for arms sales, arms subsidies, arms grants and general armament of questionable groups, not to mention all sorts of military involvement and war.
  • Needless to say, the predictable result has been anarchy, terrorism (often, facilitated with our own weapons), untold number of deaths, and the largest migrant crises since World War II.
  • Fueled a worldwide energy and commodities boom that enabled petro-dollar dictators like Vladimir Putin and Hugo Chavez to stay in power, and countries like Iran and Saudi Arabia to sponsor and finance global terrorism and religious extremism.
  • Subsidized internet and communications technologies that have led to a less-informed global citizenry, the decimation of more-or-less non-partisan media coverage in favor of the consumption and belief in "fake news" and conspiracy theories, as well as aiding in the planning and recruitment of terrorists. Oh, and few if any productivity increases.
  • Destroyed entire manufacturing sectors because of regulation, tax policies, protected unionism, and the short-sighted policies of refusing to allow wages to fall. The result being outsourcing, offshoring and global trade far beyond what would likely occur under a true global free market, and significant unemployment.
  • Completely divorced the healthcare industry from competitive forces, resulting in the worst of all worlds, the privatization of profits and the socialization of costs (just as the government did with the financial services industries). The inevitable results being skyrocketing healthcare costs, a less healthy populace and monopolization within the entire healthcare vertical.
  • Created a bloated, wasteful and monopolistic education system that favors teachers, administrators and bureaucrats at the expense of students. The result of which is an education system that neither produces the "good citizens" necessary for democratic government nor the job skills necessary for a competitive economy.
  • Fostered a culture of dependency, blame, over-sensitivity and selfishness rather than self sufficiency, responsibility and community.

The ramifications of poor economic growth and the slow-motion implosion of the welfare state

The upshot of decades of absurd and counterproductive monetary policy and an ever-growing government? Economies especially prone to speculative bubbles and financial crises. Economic growth and productivity far below potential. A bleeding and resentful middle class. Easily financed and poorly planned wars with the terror and chaos that follows. And income inequality the likes of which the world has probably not experienced since before industrialization.

But it gets worse. Combine poor economic performance with the enormous welfare state and you get a downward spiral difficult, perhaps impossible to break.

First and foremost, poor economies hurt those at the bottom of the food chain, most notably young people. With job prospects few or nonexistent, young people delay or completely avoid forming households and having children. You wind up with an aging population with fewer and fewer workers paying into the ponzi-like welfare system and ever greater number of aging retirees taking money out. This is playing out all over Western Europe, but even more obviously in Japan, a country in its third decade of economic depression. (It is mainstream economics to blame Japan's weak economy on its demographic challenges and aging population. However, this gets cause and effect exactly wrong. It is Japan's weak economy and poor job prospects that causes its demographic challenges and aging population.)

Further, what happens when masses of unemployed and underemployed young people with poor prospects and little hope are further and further removed from productive society? They turn to drugs (witness the opiate epidemic in the U.S.), crime, and in some cases terrorism.

Moreover, a stagnant or shrinking economic pie causes everyone within society to take a zero sum mentality. That is, whatever government benefits you get, means less that I get. The result is a bifurcation of the populace into two groups: those within the system that are currently benefiting from the crony capitalist welfare state, and those outside it trying to get in. Most notably, who's in the "out" group? The young and the immigrants. Naturally, this bifurcation leads to resentment and anti-immigration bias. It leads to a two-tiered society. It leads to an unassimiliated underclass, as has occurred in many Western European countries.

So now you've got a slow death cycle. The economy is weak and jobs are scarce. The young are unemployed. Immigrants are shunned. The population ages and more and more money flows to entitlements, to pensions, to retirees, to healthcare. Meanwhile local services, education, infrastructure and other forms of investment are cut. More money to unproductive uses, less money to productive uses. So the economy becomes even weaker, and the cycle continues. Yet the elite blame capitalism and ask for even more government. Sooner or later, crises ensues. Pensions can't be paid. Local governments go bankrupt. Then state governments. Then federal governments. The implosion of the welfare state. It is occurring in Western Europe. Though less apparent and more slowly, it is occurring in the United States too."

http://www.ibankingfaq.com/category/economics-faq/

Comments (15)

Best Response
Mar 11, 2018

Pls post extended Lord of the Rings edition next thank you...

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Mar 11, 2018

here's my Sunday backyard balcony thought.

I think the digital age (i.e. internet) has developed too quickly for our mammalian brains to handle. specifically, it allows everyone to observe anyone's WORDS in an instant, around the world, while being completely blind to their actions.

this magnifies the obvious human tendancy to lie. but being a majority of humans are grossly naive and/or too lazy to investigate further, these lies are often taken at face value.

so essentially, I think the internet/social media has ruined order in society.

suicides among teen girls 15-19 have DOUBLED since 2007.
facebook, ironically, came out in 2007.

and let's not forget, Trump is the first truly "digital president".
(Obama was elected in a time where few of the masses had smartphones).

Mar 12, 2018

2016.... 4chan became the most powerful political force on earth. 12-18 year olds now control the world in ways unimaginable.

Mar 13, 2018

Going off of this, there's an older guy in my office who talked about the changing landscape of ER.

Back in the day, the guy who hustled the most got the information; now, with information so plentiful, it's about being about to shift through the data.

Similar to the digital age, so much information is thrown at us (most of it is garbage), it's difficult to shift through everything.

Mar 12, 2018

Dude wtf? The world is better than ever. Read a book about world War 1 and you will understand. More and more people live live outside poverty. There are no more countries except for Russia and now Turkey that fight offensive / imperialist wars. Nobody is now dumb enough to drop some atomic bombs.

Mar 12, 2018

You're obviously (mentally) blind.

We've internalized the violence that used to be external.
And it's far more sinster, since it's not overt and slowly erodes at the human moral/psyche.

Mar 13, 2018
Mar 12, 2018

will get factset customer support to summarize this and will get back to u asap thx

What concert costs 45 cents? 50 Cent feat. Nickelback.

Mar 13, 2018

Have it on my desk COB. thx

Mar 12, 2018

Definitely plagiarized from Tyler Durden.

Mar 12, 2018

why is the world so mad? because 99% of people don't get into a target school and make it immediately to the middle to upper middle class. Instead they are/were struggling to find ditch digging jobs that pay the rent.... meanwhile the government says they are spending tax money on things to help foreigners. I'll make a prediction that the EU won't exist in the next 50 years. Italy is on the way out, and France came very close in this last election. The UK really just got a jump start on everyone in securing favorable trade deals.

Mar 13, 2018

Just going off some of your points:

I think some of human nature is to not think long-term. Most people can't correct save for a rainy day, or properly take care of themselves physically because they don't think past tomorrow. That's not really a current environment thing, thats a people thing.

Subsidized consumption at the expense of savings, to me, is somewhat of a broad topic. I think a lot of the problem stems from every company trying to sell you something, but also people are willing to buy it. I also think it's from the perspective that people don't want to be viewed as "poor". You didn't buy the new Iphone, youre poor, you made coffee home instead of Starbucks, youre poor, wore the same shirt from last year, youre poor. It's more of a matter of keeping up with the Jone's.

Also, people love the "haves", we literally have shows about how rich people are. But I do agree the gap between the "haves" and "have nots" is definitely a problem and needs to get fixed.

I do agree that we foster a culture of dependency and blame in this country. The biggest problem is that people's dont care like they use to. We live in a country where people can tell you more information about one of the teams in the super bowl or one of the people on the bachelor than they can about ether presidential candidate that actually matters.

Mar 15, 2018

One of the biggest "messed up" / tragedies of humanity is the misallocation of food.

When I lived with a homestay family for 3 days in rural Bolivia, they literally ate bread for every meal. No meat (only on birthdays and holidays).

I hear it's (much) worse in sub-Saharan Africa.

Yet we waste SO much food. When I was in high school, my friend worked at a supermarket, and the food he says gets thrown away is shocking.

I reckon the IMF is to blame. Actually, they are 100% guilty. Sad.

Mar 17, 2018

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