Inventors of Derivatives vs. the Inventor of Disneyland – or, Why We Got in So Much Trouble
The evidence keeps mounting regarding the proliferation of traders over builders, and this has not been a good development for our economy.
I first saw this distinction described in Richard Florida’s book The Great Reset. I blogged about it here: “Traders” vs. “Builders” – the “Fantasy Economy” vs. the “Real Economy.”. Here is the key quote from his book, which I included in that blog post:
We’re witnessing a replay of the age-old conflict between “traders” and “builders,” as Geoff Beattie, the head of Woodbridge, dubs it. Traders make money off, well, trading things. They create little or no real wealth, because they do not engage in productivity; they profit through trading. Builders, on the other hand, focus on investing in real assets in the real economy… The landscape today is littered with instant tycoons who made their fortunes on tiny upticks in the stock market or by trading shares in other people’ debt. For far too many of these traders, the only productivity was profit and their only customers were themselves. I raise this to make this point: builders need to take their preeminent position back from the traders for the economy of the future to flourish.
This weekend, Frank Rich referred to this problem in his column Who Killed the Disneyland Dream? It’s a revealing column, but this one paragraph reveals the shift from builders to traders:
It’s a measure of how rapidly our economic order has shifted that nearly a quarter of the 400 wealthiest people in America on this year’s Forbes list make their fortunes from financial services, more than three times as many as in the first Forbes 400 in 1982. Many of America’s best young minds now invent derivatives, not Disneylands, because that’s where the action has been, and still is, two years after the crash. In 2010, our system incentivizes high-stakes gambling — “this business of securitizing things that didn’t even exist in the first place,” as Calvin Trillin memorably wrote last year — rather than the rebooting and rebuilding of America.
It’s not that I think we should “judge” those who are in the “trading” business. Men (and now women) have always gone where the jobs are that pay the most, and help them get ahead. If finance is the golden goose of this generation, then so be it.
But…but… our society needs to do a better job at building things. Who will rise up to fill these slots, and help us restore this economy in a real, not a fantasy, way? This really is the question of the day.
(I just read the Calvin Trillin article that Frank Rich referred to. It really is worth reading!)