Monday, June 11, 2012

Plutocracy versus the free market

The market economy needs a healthy balance between investment and consumption. Mal-distribution of wealth skews the balance towards investment even when productive investment opportunities are insufficient to absorb the investable funds. This is a circumstance itself largely due to under-financed consumer demand. The funds flow instead into casino-like speculation -- moving money around instead of putting it to work. Worse than merely wasteful, worse than merely raising the risk of new bubbles, the current post Glass-Steagall banking system structure favors directing the surplus wealth to the high-frequency trading, derivative swapping, "innovative" bankers who exploit their access to what remains of household's savings, pensions funds and insurance company reserves putting those funds at serious risk. They also cause distortions of market allocation of credit through excessive demand for treasury debt, which among other problems causes rates available to savers to be too low.

Too many politicians who pose at being pro-market are actually just pro-business -- there is a very important difference. In their slavish devotion to the plutocrats they are blind to the damage they are causing to the markets.

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