Sunday, June 26, 2016

A Capitalist Economy is a Ponzi Scheme

It might be shocking to learn this if you haven't already worked it through, but as you might imagine the truth about a capitalist economy is that it is really a #CapitalistPonziScheme. I have understood this for years, but didn't write it down because I assumed more people knew it than didn't.

There are others that explain it in specific terms like city growth rate versus property taxes is a Ponzi scheme like Charles Marohn: The Growth Ponzi Scheme, Part 3 .

But essentially a total capitalistic economy is an expanding bag of assets and liabilities. Things and work are monetized, and then traded, and the value is supposed to go up. Fractional banking allows more people to borrow against the same assets and thereby increase the money outstanding. Provided more people are confident that the economic outlook remains positive for them personally, they are willing to sign up for more debt they will transform into work.   That allows the economy to expand and propagate to further people benefiting. Economic laws like supply and demand govern the general application of these transactions.  Of course, the best capitalists are the ones that figure out how to extract all the value and avoid paying for liabilities in order to sustain them personally.  You've probably realized that by yourself, they are the flashy self-important ones that have acquired all that wealth.  But so long as the ones at the top continue to make money available through fractional banking for those at the bottom, and the sentiment to keep investing remains positive, then the system continues.

Here is how it succeeds. So long as the sentiment of the people participating in the scheme is generally positive, then they continue to live by those governing economic rules and the economic assets and liabilities continue to grow over time. Those rules work so long as the wealthiest people and corporations continue to play by the rules of economics.  As long as people are generally treated well, they continue to produce and that leads to growth that increases the amount of assets and liabilities.

This all seems shocking but there's really nothing more complicated than that. It's like a combustion reaction seen above; continue to feed a mixture within the experimentally-proven range of energy and reactants, and they will continue to produce output within that range.  Too much, or too little, and it stops working. As an analogy of course red-ox reactions do not adequately consider all the nonlinear/emotional/actuarial factors of human beings but in essence just consider those second, third, and fourth order effects.

Just like a Ponzi scheme, the system continues to work so long as it is operated properly. It's like solipsism, one can argue till your blue in the face if I'm an illusion or not, but as long as you continue to treat me as if I am a real person things tend to go better for you so long as you follow the rules and assume I exist. When you don't accept it, that's when there's a problem.

Here is when a capitalist Ponzi breaks down. When those that operate at the highest levels of an economy do not follow the expected behaviour, when they take money out of the system or they change the rules to benefit themselves exclusively, then the sentiment of the people changes and they stop producing.  This is seen now when free money is being created with nothing to back it up through quantitative easing and it still hasn't worked. The economy has more money that it ever had and yet it can't sustain growth, how is that possible?  Those in major currency management, like the Fed banks, Bank of Japan, and ECB, have demonstrated they do not understand what they are in charge of if they can't control corporate banks to make the economy work again.    The corporate banks are running amok unchecked and politicians are attempting to white wash the episode and fake it till they make it. That is why the people are not happy and it doesn't matter which people you talk about they are all living under the tyranny of incompetents. This is why desperate people are turning to the most regrettable options.

When the people are unhappy, they stop producing, and the entire system collapses on itself. That is a major problem that, cynically, the wealthiest people plan to avoid by means of their wealth. They can buy there way out of dire situations.

And here is the most ironic point, the wealthiest wealth is meaningless without the sentiment behind it propping it up with work. They will gamble and lose huge portions of imaginary money and still be rich but it's meaningless all the same. Humanity is suffering and will continue to suffer until the system changes back to within experimentally-proven ranges.