| Keynes divided liquidity preference into transaction demand, precautionary demand and speculative demand. Transaction demand refers to earning money with a job or business and then spending it. Precautionary demand refers to demand for money based around uncertainty in the future, you keep some money around because you want to insure against losing your job (rainy day fund) and finally, once you have so much money you satisfied these two, there is still the fact that money is the most liquid asset. Money can be traded into other things faster than anything else. So this is basically day trading, buying low and selling high. The problem though is that at some point the Keynesian beauty contest begins. People not only react to fundamentals but also the reactions of other investors making investment decisions. Someone invests because they genuinely believe in the stock, then people invest because they think people believe in the stock, then people invest because they think people invest in the stock because people invest in fundamentals. This is a rationality trap that doesn't end until the bubble pops and then people move onto something else. What you are concerned about can be explained by a weakened form of a liquidity trap. The problem with the liquidity trap is that it is pretty theoretical in the sense that it is absolute. Like getting 100% efficiency. But in practice a liquidity trap can also be in the form of trapping liquidity in specific economic sectors and that can be described as a continuum. For example, we separate the economy into the real economy and the financial economy. The financial economy is just a model of reality, but it is possible that messing with the model of reality is more profitable than actually doing something in the real world. This means money is allocated away from the real economy and into the fantasy of the financial economy. People do sell their financial assets but only to buy something else in the financial economy. It is a one way street of money flowing into the financial economy but never back and this is why you need constant government intervention that reinvests the money back into the real economy. It is obviously an ugly solution but what are you going to do? Introduce a wealth tax? |
Consider that newcomen’s engine was based on prior engines, and itself wasn’t that much of a success - but everything that followed was explosive in terms of the changes wrought on society and industry. The technology was interesting, but as long as you could pay a few blokes to man the pumps, installing an expensive engine and buying coal to power it wasn’t an economical route to follow. When the triangle trade had accumulated enough wealth with nowhere to go other than gilding, and when the workforce started emigrating to the colonies to escape their miserable conditions or getting shot on the plains of Europe, and the remaining souls started demanding Real Money, suddenly, those new-fangled engines looked like a sensible investment.
Which technology will be our next revolutionary step is up for debate, but I would (and have) place my chips on AI/ML. The last few rounds have been all about the decoupling of unskilled and semi-skilled labour from productivity. Next up on the block is skilled labour. Why would you hire developers or lawyers or diagnosticians or any knowledge worker for $stupid per annum, when you can spend a bit more, and never have to pay a human again?