I came across this video and it’s really good. It simplifies something that can otherwise seem too complex.
Created by Ray Dalio this simple but not simplistic and easy to follow 30 minute, animated video answers the question, “How does the economy really work?” Based on Dalio’s practical template for understanding the economy, which he developed over the course of his career, the video breaks down economic concepts like credit, deficits and interest rates, allowing viewers to learn the basic driving forces behind the economy, how economic policies work and why economic cycles occur.
We already know that in many situations when actors only act in their own self interest it can often leave everybody worse off. Yet the idea of simply being laser focused on “maximizing shareholder value” is clung to like a religion.
And that’s simply because it’s the easiest way to be precise about the rules. When we make it fuzzy it makes us all uncomfortable. Reality is way more nuanced than we like. We keep chasing the ultimate answer, the golden rule, the essential nugget that can somehow free us from this discomfort of not knowing. There’s peace in simplicity. I love a hammer while I get a little stressed by a multi-tool.
But a hammer can’t do everything I need. I need the right tool for the right task and many tasks require several tools together.
Here’s a great post that goes into some of the unexpected consequences of this mindset. It’s a little too dramatic but it makes some good points.
All this was done in service of a lunatic religion of “maximizing shareholder value.” “MSV” by now has been proven a moronic canard – even onetime shareholder icon Jack Welch said ten years ago it was “the dumbest idea in the world” – and it’s had the result of promoting a generation of corporate leaders who are skilled at firing people, hustling public subsidies, and borrowing money to fund stock awards for themselves, but apparently know jack about anything else.
If the economy stayed suppressed this way where almost 20% of it is idle, what exactly do we run out of?
1) do roofs magically disappear in 3 months? Do people who can repair them disappear? Or do we just don’t know whose “paper strips” should be transferred to maintain them?
2) does food magically disappear in 3 months? Do people who can grow food disappear? Or do we just don’t know whose “paper strips” should be transferred to maintain them?
Can folks who grow food give their food to folks that fix roofs? It’s possible right?
So when food and shelter are taken care of, for everyone, our sense of security also goes up right?
When we say we are killing the economy, what is that a proxy for? The idea of the economy didn’t really exist until we invented it. My cat doesn’t know what the S&P means and I know for a fact she is way more satisfied with her life than I will ever be.
Although Singapore is itself an island nation, it ran out of its own sand many decades ago. Today the entire island consists of urban areas or protected-environment sanctuaries. This shortage has fueled a massive industry, worth at least $1 billion between 1998 and 2008. And it’s only growing: In 2008 alone, according to its own figures, Singapore imported more than $273 million worth of sand, more than any other country in the world. But these numbers — which account for only the legal trade in sand — are only the tip of the iceberg.
When I lived in Seattle, there was a neighborhood grocery store that I liked. One fine day I found it closed. And it stayed closed for many days. Then word came out that the landlord had jacked up their rent to something they felt was unreasonable. For months the store stayed closed, as they tried to negotiate or find someone else. The grocery store never re-opened, it was eventually replaced by a new business.
This displacement of local businesses is quite a common phenomenon. But the thing that was quite interesting about this case to me was who the landlord was. It was a Teacher’s Pension Fund! Teachers in the Midwest, working hard to educate their students with the limited resources and support they get, with the assurance that they will have a pension to draw from when they retire. So from each paycheck, a small amount went into this fund, and fund managers were investing on behalf of the teachers, buying up stocks, mutual funds, real estate etc.
The goal of the pension fund was to maximize its return for their teachers to guarantee they have enough for their retirement. In a weird, ugly way, these teachers in the Midwest were gentrifying my neighborhood in Seattle, probably without even realizing it 🙂
This is when I first came to understand how closely we are *all* tied to the “market”. The largest investors in businesses, stocks are often pension funds. At some point in the last 5yrs, the largest 300 pension funds held $3trillion in assets (I don’t have more recent numbers). When the stock market rallies – pension funds and other retirement accounts grow. When companies chose to forgo increasing wages and instead give out dividends to their investors, they still end up helping pension funds and retirement accounts grow and helping retirees have larger safety nets. Public marketplaces are the ultimate tool to align incentives across people of all income levels, as long as all income levels are enabled to have a seat at the table, can make the same bets and are treated fairly.
We started with the information economy. It quickly narrowed to an attention economy. Now it seems to have narrowed further to an outrage economy. Every time we are outraged, someone, somewhere is making money 💰. Let’s choose our outrage carefully 😊, and let’s help each other channel it in constructive ways.