Notes From Someone Who Was In The New Economy Before You Were

I don’t normally fisk bloggers – and, indeed, I don’t want to “fisk” this, per se.  There’s just so much in this piece by Charlie Quimby that deserves an answer from someone who’s had to get comfortable with the “new economy” back when most of this nation was still well within the “old economy” [*].

Four bartenders prior to the shift change talk about one of their buddies who worked 100 hours last week at three jobs, including a 7:00 a.m. shift at Starbuck’s “so he can get benefits.” One bartender needs someone to cover for him on an upcoming shift, and though willing, no one could commit because they all had to check the schedules at their other jobs.

Tending bar is one of those old economy jobs that’s likely to be around for awhile, and some of these guys may move on. But it will be to a one-paycheck career?

Good question.  Some others that might need to be answered first to solve it:

  • Do they want a one-paycheck career?
  • What choices have they made to move them toward a one-paycheck career?  They don’t just happen, these days.

Last week the Strib documented the case of a Hmong immigrant who works two janitorial jobs for $9 an hour, earning about $1,800 a month pre-tax, which goes to help support his parents and eight younger siblings. Tong Lee has limited English and no time to go to school.

The future he sees for himself: Just working all the time.
At least the bartenders can be charming and collect tips.

It’d seem Mr. Lee and his family are doing something that’s very “old-economy”, something that people in immigrant families have always done in this country; have the oldest and most able work to help the younger ones succeed (and not just immigrants, either; a woman I knew in college, a black woman from rural Mississippi, started college at age 28 because she’d worked for ten years to put her siblings through school.  Then, esconced in decent jobs, they repaid the favor). 

So is there some reason Mr. Lee’s siblings won’t turn around and help out?

Sure, kids in America can overcome the disadvantages of a broken home and teachers who under-estimate them. But to become a hedge fund manager, it still helps to be born speaking English and win a Harvard scholarship.

Leave aside the fact that speaking English (and speaking it properly) and going to Harvard “helps” whether you want to be a lawyer, teacher, poet, computer programmer, lesbian performance artist, physicist or hedge fund manager; would someone please explain to me what is this fascination liberals have with “hedge fund managers?”  Michelle Obama complained that our “best and brightest” are becoming “hedge fund managers” instead of social workers, nurses and teachers.  So why is hedge fund management the sine qua non of American working life? 

Philip Falcone made $1.5 billion last year betting against the home mortgage industry. There’s someone who’ll tell you his strategy helped some investors, but his outsized rewards required the mortgage market to blow up, so it’s not as if his creativity created anything.

Nonsense.  It created wealth out of an event that would otherwise not have.  It allowed his fund participants to have money to save, to reinvest, to put in their gas tanks or spend at Saks or Dairy Queen, to use in the economy.   

He  just played the speculation game better than anyone else.

And had he not?  Who’d be the better off?  It’s not like his wealth caused the implosion in the mortgage market.

In the next wave of speculation, investors are betting on hunger, more or less. Hedge funds are taking actual positions in food production, where they buy up farm land and warehouse corn, for example, instead of just holding contracts.

The investors plan to consolidate small plots of land into more productive large ones, to introduce new technology and to provide capital to modernize and maintain grain elevators and fertilizer supply depots.

But the long-term implications are less clear. Some traditional players in the farm economy, and others who study and shape agriculture policy, say they are concerned these newcomers will focus on profits above all else, and not share the industry’s commitment to farming through good times and bad.

That “commitment” is utterly relative.  The number of farmers in this country has been in freefall for decades.  There are currently less than half a million full-time farmers in this country who make their living entirely from farming, and perhaps three times as many who make a good chunk of the family income doing other, non-farming things. 

Indeed, the number of farmers has been in freefall ever since society developed the concept of “surplus production”; 3,000 years ago, 99.9% of people farmed (or hunted and gathered); 500 years ago, 95% of people in Western civilization worked the land, mostly for subsistence and to pay taxes to nobles or chiefs.  Today, it’s a tiny fraction of that. 

“Farmland can be a bubble just like Florida real estate,” said Jeffrey Hainline, president of Advance Trading, a 28-year-old commodity brokerage firm and consulting service in Bloomington, Ill. “The cycle of getting in and out would be very volatile and disruptive.”

As opposed to…what?  Letting the market stay in its current, stagnant state?

But there’s some suspicion the investment is is simply a way around limits to speculating on commodities. Having possession of the commodities also helps limit some of their risk.

And this is bad why?

There are other ways to speculate that get even closer to gambling. Joel Stein writes about prediction markets such as InTrade that allow people to place bets on things like politics, the economy, global warming and the top marginal income tax rate in 2011.

It’s like owning a fantasy baseball team: I no longer care about what’s best for the country, as long as I have money on it. I have no idea if Gov. Charlie Crist of Florida would make a great GOP vice president, but I do know it would make me $800.

Quimby and his source ignore the concomitant benefit; when money is on the line, people take these choices much more seriously, and study them much more carefully.  And that’s not just of idle importance.  As Steven Green noted in an article about the same subject as my link…:

The “market” for intelligence works, such as it does, opposite of the stock market. A guy who knows one important bit often can’t effectively share it with another guy in another agency who knows another important bit – and so two plus two ends up equaling something quite less than four. Those who simply have good hunches generally aren’t intel pros, and therefore aren’t given much credence by the government. And so hidden knowledge remains hidden, and good guesses go unheeded. Then people die.  

Now that is a truly grotesque system, yet that’s how the intelligence world has operated for approximately ever.

Would investors put their money on the line if there weren’t any profits to be made? Of course not. Yet today, we ask our military and intelligence professionals to risk their reputations and careers, working mostly in the dark, with zero extra incentive.

I guess it’s just a difference in perspective.


The new economy venture that really ties it all together is gold farming, where Chinese sweatshop workers labor away at online games like World of Warcraft. Their objective isn’t to win, but to harvest “gold” by successfully completing some aspect of the game, often by doing the same part of a quest over and over. The gold, which allows gamers to buy better weapons or create more valuable products, is sold for real money to actual players through online exchanges.

In effect, the gold buyers get richer and become more powerful, while gamers who try to build value added products through honest play find their products devalued because the “investor” players don’t need them to build their own wealth. Meanwhile, in China, perhaps a hundred thousand gold farmers make better money than they could from real farming.

I’m not sure what Charlie advocates, here – Congressional hearings? 

But these things tend to have a solution of their own.  Two words:  Pet Rocks, Beanie Babies, Pokemon Cards.

Oops.  That was six words.

Because the end game of such fripperies as Warcraft “Gold Farming” should be three times as obvious; either…:

  •  people will continue to be willing to trade their real wealth for imagined virtual wealth; no blood, no foul.
  • people will not continue to do so; the “gold” market crashes and ends up as a side note on “VH1’s I Love the ’00s”, complete with snarky comments by Danny Bonaduce.
  • Warcraft fades, fads move on, people forget about it all.

Just saying – we have bigger things to worry about.

[*] I got whacked from my first radio job when I was 17; I learned then that loyalty is as loyalty earns, and that one’s main goal, if one wishes not to be broke ones’ entire life, is to always see to making oneself marketable.

6 thoughts on “Notes From Someone Who Was In The New Economy Before You Were

  1. I think you’re reading ideology into this, Mitch. I called them notes, because they’re observations of different aspects of the economy that popped above the surface for me over the weekend. They’re offered for people to draw their own conclusions, as you have.

    If I had to draw one conclusion, it’s that these examples place value on what I’d say are largely non-value-creating activities, while labor is devalued. That’s bad news for people who don’t get an education.

  2. I’m trying to figure out how someone can be ‘born speaking English”.
    This is actually a significant point — Speaking proper English is a learned skill (though easier for children than for adults). ‘Born speaking English’ implies that English speaking is an accident of birth, like being born with a trust fund.
    Speaking of hedge fund managers, George Soros didn’t learn English until he was thirteen years old. Believe it or not, Soros is a native speaker of Esparanto.

  3. Charlie is hung up on this because he believes in the Labor Theory of value. Example: I worked long and hard producing this clay pot, therefore it must have value. Except it’s lopsided and leaks.

    If mine were the only clay pots, the scarcity of pots would drive up their value. But if Charlie learned to make pots that didn’t leak, the fact that I worked long and hard on mine would not make them more valuable than his. I’d simply have wasted a lot of time making valueless pots.

    Example Two: spend all morning digging a hole, and all afternoon filling it again. What value did your labor create? None. Labor doesn’t have value. Results have value. If I’m willing to pay Juan to dig a hole, it’s because I want a hole and am willing to pay for it. Likewise a war hammer in my favorite video game. What’s it to Charlie whether I want to pay someone to provide me with a hole or a hammer?

    Charlie doesn’t think my desires have value, hence the people satisfy them aren’t engaged in value-creating activities. And he thinks he knows this because he, like all Progressives, is so much wiser than the rest of us.

    And therein lies the exact problem with socialists everywhere.

    Joe Doakes, Como Park

  4. I think you’re reading ideology into this, Mitch. I called them notes, because they’re observations of different aspects of the economy that popped above the surface for me over the weekend. They’re offered for people to draw their own conclusions, as you have.

    Not sure that I was into ideology (other than the hedge fund observation). Possible, I suppose.

    If I had to draw one conclusion, it’s that these examples place value on what I’d say are largely non-value-creating activities, while labor is devalued. That’s bad news for people who don’t get an education.

    My counterobservation – I’ve made it in a number of posts – is that education is, obviously, valuable – but the most important subject in the new economy is “marketing yourself”. That’s something you do via the little things – showing up on time, sober, and speaking intelligibly – and bigger things, like keeping your job skills current. All second nature to a lot of us who grew up knowing that we’d be going through a couple of careers in our lifetimes; not so much for people who thought they’d latch on to a $25/hour union job at age 19 and hang onto it until they retired at 55 to full benefits.

  5. I think Charlieq makes a mistake when he says that hedge fund managing is a non-value-creating activity. Hedge fund managers are easy to pick on (even Thomas Wolfe has done so) but they fulfill the same basic function as a bank. Banks manage risk, or rather, they determine which activities are most likely to return the greatest amount of capital.
    If Joe’s plumbing company wants to spend the equivalent of $100k in man hours working to refurbish a vacant factory that will result in, at most, $75k in value added to the property a bank won’t borrow Joe the money he needs for the project. If Joe decides instead to spend $100k worth of manpower constructing a new building that will return $125k a bank will be happy to lend him the money.
    This can hardly be called an activity that doesn’t produce wealth.
    A lot of hedge funds make money by spotting an under-performing company, buying stock in it, then leveraging there share of stock into a position where they can oust the current board & elect new members who are more interested in making money for the share holders. I’m thinking specifically of Carl Icon here, but there are others who follow the same model.
    One can always find examples of sharp practice and self-dealing in the hedge fund business (as in politics, regardless of party) but overall they add value by, say, replacing a group of directors and executives that are more interested in making money for themselves rather than the share holders.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.