[jimmy1]

> All it can do is move money around.

Not to be pedantic, but this is exactly how the economy works. One person's spending is another person's income and vice versa. An alternative definition of an economy is "the way money moves around"

[vidanay]

The difference is that historically there was some tangible and durable result from that transaction. A house was built, a ship was commissioned, a food was grown. In the last 50 years the intangible transaction has become prevalent so there is no obvious and lasting product of that movement of money from one pocket to another.

[bilbo0s]

Why is this bad now?

To be clear, the American economy has always had a "Big 5" of Real Estate, Finance and Insurance, State and Local Government, Health Care, and then Durable Goods manufacture. That hasn't really changed. (At most maybe Lawyering and IT combined could knock off Finance? I seriously doubt either Legal or Tech could knock off even Durable Goods on their own.)

Point is, we've been operating like this for at least a century and a half now. Why are the big intangible transfers in Finance and Insurance, or Health Care, or even sometimes Real Estate* all of a sudden a problem now?

* Finance, Insurance, Health Care, and Real Estate are the intangible transactions that still dominate the economy today. Transactions for legal services or computer/tech type services could not even approach any of the Big 5 in terms of scale. Again, maybe if you combined them? But even then, I doubt they would be number one. There's no way they challenge Real Estate.

[rtpg]

If a lot of money is just flowing in circles between a small group of people, then that's effectively taking money out of circulation.

I'm not a fan of money going into a bunch of real estate, but given that our society is built around certain kinds of transactions (financing stuff via income/property/sales taxes, plus... y'know, paying people wages and having wages go up eventually) having a bunch of people use their stockpiles of money to just shift stuff between each other in m&a deals doesn't get us far.

[doctorpangloss]

It's almost as though we already live in the high tax society Paul Graham hates so vehemently, with all its supposed inefficiencies. The taxes are just paid to private, unelected elite instead.

[hi5eyes]

and you hit the nail on the head

>The taxes are just paid to private, unelected elite instead.

of which tesla bears use as a point when writing about the company, tesla/boring/spacex/the defunct solarcity are all vehicles for elon to "burn tax money" on his own megalomaniacal ideas, of which the arguments are about his companies and whether or not they... change anything about their industries

[akiselev]

> Why are the big intangible transfers in Finance and Insurance, or Health Care, or even sometimes Real Estate all of a sudden a problem now?

Because those transfers are becoming less and less attached to tangible transactions of value while increasingly allowing the middlemen to embed themselves into the economy through regulatory capture. That's not to say they weren't a slowly growing problem before, but there was enough productivity to be gained through low hanging fruit to justify many middlemen who could claim to efficiently allocate it while taking a cut. Lawyers who can navigate complex regulatory schemes, investors who can free up capital by stripping companies in a dying industry for capital to invest in a growing one, bankers who let companies hedge their bets and trade their extreme highs for less risk of a catastrophic low, insurance companies to do the hard work of data collection so that risk/reward can be accurately priced, and so on.

There is a lot of room for all of these industries to act as middlemen while providing value, but just like a bunch of farmers can grow so much of one vegetable that they all collapse economically (taking the food supply with them), so can these middlemen go too far and bring the entire system down with them.

Take health care for example: we spend more of our GDP on healthcare than the vast majority of developed nations with worse outcomes despite the fact that the majority of research and development for drugs/devices/therapeutics is financed and carried out in the US. How much of that money is going to health insurance middlemen who structure the system to obfuscate pricing from consumers through layers of bureaucracy? How much of that money went (and continues to go) to corrupting the nation's politicians to prevent proper reform of our healthcare system? How much longer can we go with out of control healthcare costs before there is a reckoning like Medicare for all that wipes out the medical insurance industry - essentially putting everyone in the terrible spot of trading the livelihood of millions for the livelihood of millions?

That has always been a problem and it's only getting bigger.

[appleiigs]

There is still a house and ship being built at the end of it. Money and markets are just an abstraction of the physical work. Just like when i write in python - at the end, there is physical work being done in memory and cpu hardware. Money and markets allocate capital and no economist suggests otherwise.

[JetSpiegel]

Derivatives, securities and other finacial "products" have no physical backing, they are purely abstract concepts. They don't even exist on paper now, just intangible bytes.

[appleiigs]

Derivatives are derived from something... they have a notional, underlying, or delivery.

[pkulak]

People have been saying that for centuries. Is it really more true now? Jesus was thrown out of the temple, Hamilton was kicked out of politics, etc.

[jgalt212]

indeed r >> g

and the velocity of money is much slower now than it was pre-GFC. And it if wasn't, Paulson would have made almost as much on his long gold trade as he did on his short housing market trade.

[dalbasal]

Agreed, it's impossible to comment on the subject (I'll admit it was off-hand and rantey) without either (a) being really long and boring or (b) offending pedantry.

If we're getting pedantic though... money doesn't just move around. It also comes in and out of existence.

To the larger point though, what I meant is money moving in and out of investment pools. If Tesla raises money to build a factory, the money they raised results in operating revenue upstream for parts makers, materials companies, builders, toolers.. If Google raises money to by a company, it just goes from one investment pool to another.

BTW.. in some economists conception of the market, banks and similar (not sure if a PE funds count) are not part of the economy. They're outside of it.

[appleiigs]

You're mixed up here and so are many other HN comments about finance. Banks and markets are the middle men. They move the money around. If money happens to flow into investment pools, the money doesn't go there to die. Those pools in turn invest into things such as car part manufacturers. We need these middle men to make the money flow easier and more efficient.

The place that wealth gets destroyed is at the investment level (in your definition is the economy). At my previous company, they spent billions on plants and they very often sit idle... like 95% idle. That is where the wealth dies.

Google moving the money around from one pool to another doesn't destroy value. Google laying optical fiber down then abandoning it does destroy value.

[Gpetrium]

Most nations are shifting or have shifted to a service based economy, which means that most of the exchange of money is for a service, not parts, materials, etc. Services are often meant to augment the lives of individuals and businesses in different ways.

A lot of folks complain that companies like Google have made so much money that they don't have anywhere to spend so they start to hoard it instead of 'helping the economy'. The reality is that for a company, it is better to wait instead of investing for the sake of investing without considering the returns. It is also worth noting that when a company makes so much money, they often shift a portion of their business into the 'Financial services' segment of the economy.

I find it difficult to sell the idea that banks, etc are not part of the market. For example, without a bank loan at X% interest, some industries wouldn't exist. Without insurance for X product, a lot of companies and technologies wouldn't exist since insurance impacts risk level, etc.

[itronitron]

I like to view this as an interconnected series of pipes through which money flows. It always flows somewhere else although some percentage spend most of its time in large tanks. Or in the case of Google et al. flows out of the tank, into adjoining ones, and then back in again. When a recession hits there is less liquid in the system, the flow slows down and cut off from some sections of pipe.

[rorykoehler]

I think the point being made is not every dollar spent is equally as productive in the meat space.