Monday, September 3, 2007

More Efficient Use of Global Financial Resources

There has been enormous liquidity in the global financial system. There has actually been more money to invest than places to invest it. Thus, in the U.S. within the past decade, we have seen a dot-com bubble and a real estate bubble, and there have been other bubbles abroad. Those with funds to invest are less worried about the security of their investments. They are more willing to risk a loss of principal in exchange for a chance at making large additional amounts. That is, they do not desperately need to preserve their capital.

This state of affairs suggests that too much profit has been extracted from lower-income people. The money has been concentrated in the hands of investors; but now what? Now we invest it in projects that do not always make long-term sense. To some extent, it becomes unneeded office buildings or inflated salaries, or in other ways more of it is spent than would actually need to be spent to achieve the socially desired goal (e.g., to recruit qualified leaders; to insure an adequate supply of office space).

Meanwhile, some of that money could be performing more effectively elsewhere. There are people who will die for want of a sheet of plastic; there are bridges that will rust for want of a coat of paint. A billion dollars becomes a mere cipher on the macro level; but on the mezzo level, it would have meant four thousand projects, each costing a quarter of a million dollars.