We do live in interesting times, especially in India. While things look more or less familiar on the surface — markets, technology, culture have not been drastically different in the past ten-years, once you account for organic growth — almost every aspect of the modern life is changing underneath. The modern world, unlike the ancient one, relies a lot on things being predictable. We rely on out-of-band events in the future to be minimal to make our way forward in the way we do now and we trust that the underpinnings of the world as we know it will always be stable, trustworthy and predictable.
The key thread that holds most of these together is the expectation from money. For most of us money has rarely been anything beyond a means to pay for things we want and use. There has always been income derived from interest in various forms, but that has never been even close to a multiple of the principal to figure as a major factor, unless the principal itself was substantial in the first place. For most of its existence, economic growth in the modern world was always tied to actual economic activity. Someone produced something, which was sold to someone else at a price. This is, of course, a gross oversimplification, but we won’t stray from it for the sake of convenience.
Somewhere in the past 20-years that apparently simple equation changed and money started to be used to create more money (edit: In the sense that wealth creation led by money being directly used to create more money). Speculation in its various forms is hardly a new thing in the world. It has existed probably since the first economic activity took place in human history. What is different is the scale to which it has grown in the past two decades. By recent estimates, the derivatives market is at a quadrillion US dollars, which is twenty times the global GDP. Once, as a minor part of the global economic activity, speculation was not a problem and was even a required feature. Now, the size it is at, it is like proverbial riding of the tiger. You can only get on it and not off it.
Now, why should this post be concerned at all with complex financial instruments? The reason why I am concerned is that the we don’t really understand or know the impact that this speculation has had on our lives. This is the beneath-the-surface change I had referred to in the beginning of the post. Our exposure and understanding of the impact of money being used to make more money is severely limited to the fear cycle that kicks off when a slowdown or a contraction looms high on the horizon. What we don’t realize is that much of the uptrend, that we too benefit from, is a result of the same speculation.
As a part of our daily existence we hear now about scams, media manipulation, paid news, start-ups without revenue attracting investors in their hyper-growth phase. All these are essentially linked and the common link is the speculation-driven money that is looking for stories of growth everywhere. As a result, we are starting to lose one of the key factors that enable our modern lives, which is the predictability/reliability of what we know and what we have. Civilization is a massive unspoken/unwritten social contract that depends on this predictability and on that front we are on unchartered waters.
As it is the case with everything in the world, there is hardly anything purely black or white about all of this. While the speculation has brought about a lot of problems, it has also opened to us a lot of possibilities to do good with it. While not every problem in the world can be solved with money, there are a lot of problems in the world that can be solved by it. The key is in finding the connections and ensuring that the greater context is to do good than to purely ride the wave, cash in and then leave the world a far worse place than the one you started your life in.