Tuesday, April 7, 2009

More On Investing In Real Things

In a recent Mark Steyn article, he analyzes the problems with the recent G-20 summit, noting that they were looking for scapegoats while refusing to do what would really be necessary to really grow the GDP of the western nations. There was one particular gem of a paragraph in which he touches on our country's growth of "investments". Bold is mine.

Let it be said that in recent years in America, the United Kingdom and certain other countries the "financial sector" grew too big. In The Atlantic, Simon Johnson points out that, from 1973-85, it was responsible for about 16 percent of U.S. corporate profits. By this decade, it was up to 41 percent. That's higher than healthy, but it wouldn't have got anywhere near that high if government didn't annex so much of your wealth – through everything from income tax to small-business regulation – that it's become increasingly difficult to improve your lot by working hard, making stuff, selling it. Instead, in order to fund a more comfortable retirement and much else, large numbers of people became "investors" – albeit not as the term is traditionally understood: Instead, you work for some company, and it puts some money on your behalf in some sort of account that somebody on the 12th floor pools together with all the others and gives to somebody else in New York to disperse among various corporations hither and yon. You've no idea what you're "investing" in, but it keeps going up, so why do you care? That's not like a 19th century chappie saying he's starting a rubber plantation in Malaya and, since the faster shipping routes out of Singapore, it may be worth your while owning 25 percent of it. Or a guy in 1929 barking "Buy this!" and "Sell that!" at his broker every morning. Instead, an exaggerated return on mediocre assets became accepted as a permanent feature of life.

This is interesting to me, as the more I have been reading about our banking and investment systems, I've wondered about the ethics of mutual funds and the like. As we become further removed from those with whom we invest our money, we lose the ability to hold them accountable, all in the name of reducing risk and gaining larger returns. It seems that if we invest, we are morally responsible for the actions taken by the businesses in which we invest, but our thinking has become muddled on this point because we have wanted to remove all risk, which in turn removes any sense of responsibility. All the more reason, I think, to invest in real things and perhaps businesses closer to home.

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