top of page

Financialization as an Economy Disruptor

 

Financial "gurus" continue feeding us lines by claiming that there is no problem and the "invisible hand" of free market will correct everything. They refer to 150 years ago as if forgetting that at that time the economy was completely different. The basis of the economy at that time was relatively simple production in which it was easy to replace one manufacturer with another. The invisible hand of free market driven by profit-making forced manufacturers to compete and produce what consumers needed. By the way, the gurus forget to say that all infrastructure projects, from road construction to electrification of cities were not planned and implemented by private capital because there was no profit, only losses. The complex production structures were built over many decades, although such structures could be destroyed very, very quickly ...

 

In general, concepts such as “invisible hand of free market”, “marketing requirements” and alike are usually used for the sole purpose of switching off the opponent’s thinking. Gurus say that everything could be fixed by the invisible hand of free market, and there is nothing to think about anymore, it works by itself. How does it work? Who cares? This is a mystery. You cannot argue with mystery, there is nothing to argue about. Alas, those who use the "stop-thinking" arguments can do any nasty things and crimes: anyway, an invisible hand will correct everything.

 

It turned out, however, that the “financialization" of the economy combined with the "invisible hand" of free market works well with economics of artisans. But contemporary economy is complex, with hundreds and thousands of enterprises working for production of any more or less complex product. These enterprises are not interchangeable. In such economy this simplified model of self-organization does not work. Use of this model can only ruin the techno-fabric. Consider the contemporary industrial power of the once highly industrialized “former Soviet” republics such as Moldova, Ukraine, Latvia, Lithuania or Estonia. Take a look at how the “invisible hand” managed to plunder and destroy the Russian industry in the 90s. Then, look overseas, "admire" the state of the US industry after decades of “outsourcing” and financialization. Just look not at propaganda, but at real analytical reports. Hair stands on end.

 

Such a mismatch between simplified economic model and complex nature of the real economy can, ultimately, lead to a systemic crisis. This mismatch cannot last forever! Trump’s struggle to “Make America Great Again” seems to be an attempt to counter the trend of “financialization” and its consequences. Another question is whether he will be able to overcome the systemic crisis with "old-fashioned" means such as raising customs tariffs. Or will it all come down to delaying the financial crisis and, accordingly, to useless resource overruns? I’m afraid of the latter...

 

The trouble is that the further you delay the financial crisis, the more the “untreated” systemic crisis gets worse. Even more so, a terrible financial crisis can finally erupt.

How the Systemic Crises Occur | Financial and Systemic Crises | How to Foresee and Overcome the Crises

bottom of page