I'm thinking about going on a burglary spree. With the right tools, some stealth, and a bit of luck, I could get that flat screen TV, upgrade my camera equipment, and bling out the fam.
My neighbors would, of course, end up worse off as far as their possessions are concerned, but too bad for them.
But this might earn me a dog bite (or a visit from the local constabulary).
Better idea: buy a printing press, print up a lot of money, and pay it to myself. Then I'd be rich!
I could buy a lot of stuff, and vacation in Mustique. This would -- let us postulate -- have no effect on the quantity of real goods/services in existence. In that case, I would command a bigger share of the pre-existing quantity of goods/services than before. Less would be left over for everyone else. They would be worse off, in real terms. They wouldn't be any poorer in cash terms than before -- I didn't steal any money from anyone, I just paid fresh money to myself. The worsening of their condition would manifest in everything becoming a bit more expensive than it had been -- in "inflation".
While putting me at minimal risk of canine attention, I might still receive a visit from the Secret Service.
Third try: a rather more roundabout, and legally less risky, approach: open a bank, and start issuing loans. This would also expand the amount of money in circulation (money being debt, after all). Collecting the interest on these loans, I would thereby have paid myself a wee bit of the total new money created.
Now this tiny payment to myself won't obviously make everyone worse off. If my transactions cause more real goods and services to come into existence, I might not have thereby made everyone else worse off than before -- that is, if the total amount of real stuff created exceeds the amount I have paid to myself. (This is, of course, the essence of capitalism: the greatest means of wealth creation known to man!)
But that's a big if! While often the whip-hand of the debt collector drives us on to ever-more-energetic spectacles of production, it's far from obvious that this will happen in any particular case (let alone in general or globally), and it's certainly the last of my concerns. What do I care if my lending makes everyone else worse off?
Which sorts of loans make both the banker and the rest of society better off, and which sorts make the banker better off at the expense of the rest of society? I don't know, but one would speculate that among the purposes of sensible banking regulation is to encourage the former sort of "productive" lending and discourage the latter sort of "confiscatory" lending.
It's obvious to anyone with a TV and the ability to use it that bank regulators have snoozed out over the last several years. But a big macro respect of regulation failure has been a failure, in the US, over the last few decades, to force lending into productive and away from confiscatory patterns. This has allowed bankers to expand the money pool, while paying more of this expansion to themselves than proportionate to the amount of real wealth created.
In a slogan: banks have inflated the currency and captured the new money for themselves.
(In a slightly more complex slogan, banks have inflated the currency and captured a share of the new money for themselves that is massively out of proportion to the wealth created by the economic activity made possible in part by their loans.)
Some evidence:
- Quantitatively, the debt--GDP ratio through all sectors of the economy has more than doubled since 1981: so clearly much lending activity has not been accompanied by proportionate follow-on growth. (Note the relatively tiny portion of this debt owed by the government, so don't believe the hype that spending our way out of the Great Recession will lead to hyperinflation. Hyperinflation is already here in the explosion of household and interbank debt.)
- The "phenomenological" effect of this is a condition we have observed before: against the prevailing pattern in the period before 1980, running a household requires two incomes. This is due to big increases in the costs of housing, medical care, education, and insurance. (Costs of consumer goods have been kept low by pouring vast quantities of petroleum into their manufacture and shipment, making it possible to fire middle management, cut inventory, and shed capital; and by shifting manufacturing to areas with ultra-low labor costs. Eventually these games will play out their string -- a revived global economy will see petroleum back at its Summer '08 prices or higher; labor arbitrage will end either by Chinese wages increasing or US wages decreasing or both -- and refrigerators will start to be priced more in line with real estate and education.)
- By contrast to the stagnation in income -- really, decline in purchasing power -- in the productive economy, asshole bankers have been vacationing in Mustique and driving up the cost of everything that can't be made out of cheap plastic by Chinese wage-slaves.
