Rethinking Economic Indicators

2010-04-24

There is a pervasive attitude and propaganda that the health of the economy relies on increasing the perceived value of investments. The stock market, for example, works almost entirely on this principle. The price of a stock on a given day is determined by whether or not investors perceive the stock to be valuable, and more importantly, whether investors think that other investors think that the stock is valuable or will become more valuable. In other words, stock prices go up or down based on what investors think other investors are thinking.

Unfortunately, a great many influential people including our leading economists and politicians like to pretend that perceived value is the most important indicator of economy. The media runs stories daily about how the economy is up or down on the mood of investors.

But lets forget our that imaginary thing called money for a moment. Food, shelter, education, science, technology, culture, social bonds, and jobs that meet real world needs are not created because investors anticipate that other investors will decide that an investment is more valuable. In fact, speculative investments based on perceived value are very often exploitive. Real economics development is really about making honest, well informed, involved, creative, and humane investments.