>Yes there are always periods in which capital is exported or caught up in
>frenzied speculation but these are usually short lived before capital
>finances a new upsurge in real production. That is part of the normal
>functioning of capitalism, and perhaps the drop in the dollar will chase
>out destabilizing speculative capital flows and abet US mfg capacity.
>Don't see the confidence for that at present.
>Yours, Rakesh
>
>
I think this analysis needs closer scrutiny.
By my calculation, while the bubble was going on (1996-2006), fixed investment in the real economy rose by 55%. This rather robust capital accumulation yielded a 20% rise in output per worker and a 36% rise in total output. That includes a 46% increase in manufacturing production.
So the frenzied speculation did absolutely nothing to dampen real investment and production. Nor should it. I don't know where the idea comes from that speculation somehow crowds out real activity (at least in any direct way).
A bit of logic shows why. At any given moment, there is a finite stock of labor, nature and existing capital goods available to produce new goods or services. Therefore, at any given moment, producing more of one thing (e.g., iPods or restaurant meals) requires that less of another thing be produced (e.g., Nikes or haircuts).
But the same logic does *not* apply to speculative transactions. You can double, triple, quadruple the number of stock market transactions, say, without having to reallocate more than a negligible increment of real resources (labor, nature, capital goods) to the financial sector -- that is, away from real activity. During a major bubble, there might be some minor increase in the share of the labor force working in finance but it will be nowhere near proportional to the increase in the number of speculative transactions. From 1996 to 2006, employment in the financial sector (including real estate) rose from 5.9% to a whopping 6.1% of nonfarm employment.
So Carrol's question...
>"Why did this look like a _better_ way of making
>money than _other_ available options (ASSUMING such options were
>available)?"
>
...doesn't make sense.
Seth