Asset Price Distortions & Human Resource Allocation



When I can earn the equivalent of ten years of widget making income in a few months of speculation, why should I bother learning to become a better widget-maker? In fact, why should I even bother making widgets at all?

Translating that into today’s 2010 devaluation scenario, if one company CFO can “make” more via financial market position hedging than hundreds of company staff struggling to keep the company in the black by doing “real work”, is the CFO not duty-bound to do so?

On the face of it, this seems absolutely true. In this light it is no wonder that millions of Americans, Chinese, Spanish and the like are now “expert” house flippers.

Unfortunately for all of us, unlike widget-making this skill set does not result in any tangible long-term wealth. It is a drag on the economy, not an asset. Moreover, it is a drag in two respects. Not only is it a malinvestment in terms of physical capital; it is also a malinvestment in terms of human capital.

Humans utilize prices, of which wage levels form a part, as their primary guideline in decision making. Though perceived long-term stability undoubtedly plays a role, higher paying activities tend to attract more people. As Ludwig v. Mises pointed out, malinvestment does not become apparent until that particular bubble breaks.  When this happens, the opportunists discover that their newly minted skill sets have become essentially worthless. Understandably many of them feel cheated. Perhaps they blame the “market”; perhaps they blame the government; perhaps they even fault their own short-term greed. Of course the truth is that governments ARE almost always to blame – because typically only governments can force large groups of people to attach value over long periods to something inherently worthless.

What is interesting to me is that even for those who see through the scam, those who realize its nature and have a strong preference for “real” work over “pseudo” work, it is arguably negligent not to play along and devote at least some time to the pseudo-economy. The fact is that in a real economy under the pressure of substantial asset price manipulation, those entrepreneurs determined to stick to “real work only” can often end up working for the manipulators.

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2 Responses to Asset Price Distortions & Human Resource Allocation

  1. two_worlder says:

    calling speculation “work” is a creative use of language.

    just ask warren buffet – whose “speculation” work nearly wiped out the quarterly income of berkshire hathaway with a 3/4 billion dollar loss, offsetting lots of real “work” profits…

  2. Der Gothmann says:

    Oh yes, this is definitely up my street. I am very, very pleased that someone else actually has the sense to see more than two feet in front of them!
    I have added a link to my “now reading” blog menu for yours, as I think you have a plethora of interesting goodies for everyone!

    In case you are interested, I have recently started my own blog, wherein I will happily bash any subject available. Plenty of fun, but not for minors!
    Coincidentally, my last post touches on similar subject matter to this one.
    I would be pleased if you felt you could link to mine somewhere.

    It can be found here: http://dergothmann.wordpress.com/
    Feel free to have a read!

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