Today\’s RitchieNovember 2, 2009 Tim WorstallFinance9 Commentsfinance is in effect a zero sum game Just try living in a society without a finance sector. You\’ll see how \”zero sum\” it is. Jeebus, the man gets worse, doesn\’t he? previousOK, OK, so I don\’t do macronextMemo to Keynesians 9 thoughts on “Today\’s Ritchie” MatGB November 2, 2009 at 1:32 pm Why do you even bother reading? I read people I mostly disagree with (or even those at about 50/50, hi), but only if they’re actually worth reading. Blithering idiots who know not of what they speak are only worth it if they’re overpaid newspaper columnists. But, y’know, if you’re having fun. Richard Murphy November 2, 2009 at 2:45 pm I was quoting the former chief economist of HSBC But you know more than him, don’t you Tim? Richard Tim adds: Not in that phrase you weren’t. Your quote from Bootle is above that. This idiocy of claiming that the finance is zero sum is entirely of your own manufacture. Bootle says that some parts of what the financial industry are more about distributing wealth than creating it. But he most certainly does not go so far as to say that the whole process is zero sum. So, you were not quoting him, contrary to your claim. Further, we do need to make one thing clear. I don’t have to know more about finance than Roger Bootle to make fun of your pretensions. I simply have to know more than you. Luis Enrique November 2, 2009 at 2:51 pm Richard, I’d be interested to see a link to that statement; if the former chief economist of HSBC really thinks that “finance”, tout court, is zero sum, I will be flabbergasted. Anybody armed with definitions of “zero sum” and “banking” could see that this is not so. He might be talking about something like share-trading being zero sum, but even that’s not really true because: 1. if the market rises over the long run, there are net gains, and it is not true that every winner is match with a equal loser and 2. there are capital allocation externalities to speculation that feed back into the non-zero-sum real economy. Fred Z November 2, 2009 at 3:20 pm It is not possible for any voluntary sale, purchase or exchange of goods or services to be zero sum. Is Murphy really insane? I doubt it and am forced to ask the eternal question: Cui Bono? The buggar is making money off this somehow, but how? Is there really any money in pimping falsehoods to unions? dearieme November 2, 2009 at 5:43 pm He does seem to have displaced that sad old bag Toynbee in your obsession cupboard. Surreptitious Evil November 2, 2009 at 6:08 pm A simple guide to all finance not being “zero sum”: I get a mortgage and buy a house. I could not afford to buy the house without the loan and my family are not rich enough to provide me with one. Provided I don’t default, I pay the mortgage back, capital and interest. Both sides benefit – overall positive social sum. Even in the forex side where it is more strictly zero-sum (somebody wins, somebody loses and the banks take a cut), the insurance effect provided, converting future foreign earnings into a known value of your currency of choice, allows companies to accept contracts (providing employment and wages, and the evil of return on capital employed) that exchange uncertainty would make unprofitable. The whole point of the finance industry is to provide social value (whether you hold to Maggie’s view of society or Ritchie’s) from moving cash around. Dennis the Peasant November 2, 2009 at 6:10 pm Tim- There you go dragging facts into the matter. Again. Hugo November 5, 2009 at 1:26 am That quote from Fred Z needs to be repeated often: “It is not possible for any voluntary sale, purchase or exchange of goods or services to be zero sum.” Hugo November 5, 2009 at 1:30 am The only sector I can think of which even appears zero sum is currency trading. But of course it’s not because we ordinary mortals benefit from more efficient allocation of capital around the world and thus cheaper goods. In general, speculation by others provides us with stable prices. I risk ridicule applying this to currency markets, which are not renowned for their stability, but it ought to apply. Though not conventional wisdom, currency trading probably does make currency prices more stable. Leave a Reply Cancel replyYour email address will not be published. Required fields are marked *Comment Name * Email * Website Save my name, email, and website in this browser for the next time I comment.