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Musings Report 2020-48 11-28-20 Social Capital Will Become More Valuable Than Financial Capital
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Social Capital Will Become More Valuable Than Financial Capital
The primary difference between my views and the conventional punditry is their assumption that the past 45 years is a reliable guide to the next 45 years: once we get everyone vaccinated, we'll naturally return to the "normal" of soaring debt, consumption and "growth," growth which powers assets ever higher.
My views also differ from alternative-media expectations of a straight line to hyper-inflation and/or some version of civil war.
I want to explore one very basic idea today, the idea that extremes lead to reversions. This is a statistical dynamic (reversion to the mean) but it is also a human social dynamic: for example, once the social / financial / political pendulum reaches Gilded Age extremes of wealth/income inequality, the pendulum swings back. The more extreme the inequality, the greater the resulting extreme at the other end of the pendulum swing.
In the heyday of the postwar boom in the early 1960s, finance--banks, lending, mortgages, loans, investment banking, derivatives, futures, FX, all financial market trading, research firms, hedge funds, mutual funds, etc.--was about 5% of the economy. It now exceeds 20% of the economy, and its actual role and impact is much larger than 20%. Finance is the dominant force in the economy in terms of wealth creation and influence.
(This parallels healthcare, which went from less than 5% of the economy to 20% in the same time span.)
While finance creates some jobs, it is essentially extractive: it produces no goods, it extracts wealth from the goods-producing economy via debt and speculation.
Thus a reversion that reduces finance back to 5% of the economy can be expected. I think the swing back is about to begin.
How will this reversion to a much more constrained and modest role in the economy play out?
There is much to be said about such a complex and consequential process, but today I want to focus on one potential dynamic: the idea that social capital--our connections and loyalties to groups and other people--will become more valuable than financial wealth, i.e. "money."
The past 45 years can be characterized as the ascendance of finance: finance rules everything. Most people would say this has been true for all of human history, but it isn't quite so simple.
In many instances, loyalties, membership and devotion to causes far outweigh the influence of money. In periods of severe labor shortage, labor has more value that money, in the sense that labor sets the price of labor rather than capital setting the price.
This article caught my eye a few weeks ago:
The Rich in New York Confront an Unfamiliar Word: No The pandemic is causing inequality to soar, but increasingly the privileged are discovering that they can’t bend the world to their will.
The wealthy are accustomed to buying whatever they want with money, and the possibility that there might be limits on the power of money is shocking to them.
These limits might take political forms such as regulatory limits on what wealth can buy, they might take financial forms such as bans on certain speculative skims, and they might also take social forms, where people refuse to provide some good or service for cash because they've been reserved for family, friends or exchanges within trusted networks where membership cannot be purchased at any price.
Here is a simple example. Let's say I have an in-law unit adjacent to my house. It's been promised to a family member, and so when a prospective tenant offers me $1,000 a month to rent it, I decline.
In the unmoored, soulless world ruled by money, the prospective tenant reckons the "problem" (my refusal) can be solved with more money. So he offers me $1,500 a month. I decline, because the bonds of family are more important and valuable than a few more dollars.
The "problem" for the wealthy isn't money; the "problem" is that social ties, obligations and commitments are more valuable and binding than money.
The wealthy assume that "everyone has a price," a truism proven by Jeffery Epstein, who bought his way into Harvard, MIT, etc. with bundles of cash.
But as the status quo unravels, the wealthy will discover that not everyone can be bought. Indeed, accepting a big bribe might terminate all sorts of much more valuable connections.
Thus it seems likely to me that social capital--our connections, loyalties, memberships, obligations and bonds--will become more valuable and financial capital will become not only less valuable, but an actual liability--a "Mark of the Beast" if you will.
This devaluation of financial wealth (and its transformation to a dangerous liability) will reach extremes equal to the current extremes of wealth-income inequality--in other words, an extremely-extreme extreme.
Highlights of the Blog
Podcasts:
The Frustrations of Unfairness Are Reaching a Boiling Point
Posts:
A Dimly Lit Thanksgiving 11/26/20 -- one of my personal favorites, as it expresses some of my private interests...
Our Frustrations Run Far Deeper Than Covid Lockdowns 11/24/20
Why I'm Hopeful About 2021 11/23/20
Best Thing That Happened To Me This Week
The pie factory in our household fired up for the holidays: the pumpkin pies are all scratch, made with Kabocha (Asian pumpkin), and the lilikoi chiffon pies are also made with freshly squeezed passion fruit juice--a laborious process. Since we shared all but one pie, this pie-fest won't put on too many unwanted pounds....
From Left Field
Chicago Public Library Eliminated Late Fees, Now They're Seeing Inspiring Results (via GFB)
New stats reveal massive NYC exodus amid coronavirus, crime-- 300K and counting....
The dates of the sudden 2020 Autumn COVID-19 boost in European countries is linked to latitudes and not to temperatures
Big White Ghetto (via Cheryl A.)
The kids aren't alright: How Generation Covid is losing out
First COVID-19 Vaccine 90% Effective? (via laserlefty)
Italian researchers attribute newly discovered sketch of Christ to Leonardo da Vinci
Long covid: Damage to multiple organs presents in young, low risk patients
Covid-19 Vaccine Protocols Reveal That Trials Are Designed To Succeed (Forbes.com)
Test sensitivity is secondary to frequency and turnaround time for COVID-19 surveillance
Outcomes for Out-of-Hospital Cardiac Arrest in the United States During the Coronavirus Disease 2019 Pandemic --Covid is crowding out other care...
Why Are These Guitars Worth $1 Million Dollars Each? (16 minutes) -- let's check back in after the Great Deflation...
"The less power a man has, the more he likes to use it." (Jean Antoine Petit-Senn, via GFB)
Thanks for reading--
charles |
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