>>> Seth Ackerman
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.
^^^^^^^^
Isn't this a crisis where the ultra-wealthy financial sector is losing some ultra-super-profits ? But this sector literally has money to burn. So, they can "lose" a lot of money without it triggering a recession. They lose a lot of money, but it is surplus that is difficult to invest profitably anyway. So, they are destroying some capital that can't be invested profitably, creative destruction, but not a problem. In fact typical. There is very little variable capital or even fixed real capital destroyed. It's mostly destruction of fictitious capital, Monopoly game money, play money.
So, no recession.
Charles