Is the economy fake?

February 2, 2008 1:41 AM

Bill Hicks said, in one of his acts, and I quote "It's gonna fuck up the economy... the economy thats fake anyway!" Is the economy fake?

While acknowledging that Bill was talking about drugs and how great they were for altering your perception of reality in this very same act in which he says the economy does not exist, I have started to consider what he meant by that, exactly. He never really went into any further detail on the topic as far as I'm aware.

I have always taken this observation of his to mean that the economy is not real because there is no tangible thing one can touch or see that is called 'The Economy'. To extrapolate, while there is money that one can touch and use to pay for goods and services, money and its value to the economy is only a human construct that does not necessarily need to exist to allow people access to goods and services or for people to live life harmoniously.

Mind you, I'm no economist, so what would I know?

Is this likely what Bill meant? Or is there a different (or deeper) meaning than the one I have construed? And how would an economist refute (or even relate to) Bill's argument?

I ask this question because of a book which I'm writing. As I said, I'm no economist and while I plan to research economics and maybe even interview a few economists to further my work, I'd be interested in hearing the hive minds views (especially from those well versed in economics) to help me find the direction my research should take.

posted by Effigy2000 to work & money (27 comments total)

"Paul Grignon's 47-minute animated presentation of "Money As Debt" tells in very simple and effective graphic terms what money is and how it all is being created."
posted by sharkfu at 1:43 AM on February 2 [9 favorites]

'The economy' exists as much as, say, 'the weather' does. It's a useful shorthand for a huge collection of smaller things and events - though it seems a bit vaguer due to the influence perception, mood etc - which can have quite a material effect. Money is a part of it, but you can certainly have an economy without having money.
posted by pompomtom at 1:56 AM on February 2

arguably after we went off the gold standard (see bretton woods conference) the value of a dollar is now created by exchange rates - ie, by its own market value. IN that sense, its 'fake' (based on perceived value in the market, not tied to physical quantity of a finite substance like gold ore) and the entire economic system based on that is in that specific sense 'fake'.

Not that i'm an expert in economics. I read that somewhere.
posted by jak68 at 3:18 AM on February 2

On the gold standard: today's economy is no more "fake" than establishing value based on shiny rocks.

On this other stuff: Economics explains how things are exchanged between rational people. Calling it fake was probably just an attempt to sound "deep."

Economics is by no means perfect, because the world is a complex place. But economists try to find order and patterns in it all.
posted by Pants! at 6:18 AM on February 2

[a few comments removed - if you could stick to answering the question and not calling people names who hold differing opinions, it would really help this question go smoothly. there is metatalk if you can not help yourself]
posted by jessamyn at 7:02 AM on February 2

The doc linked to by sharkfu, makes it abundantly clear that "the economy" is very much a house of cards, that's not opinion, it's a cold, hard fact.
posted by dbiedny at 7:21 AM on February 2

Our first-world economy may be a variation on a house of cards, but economies are real-world phenomena as real as marriages or tornadoes. Facts are in ready supply and usable for whatever purposes clever people want to put them to. Yeah, "the economy" is fake, as fake as marriage, as fake as any property rights, as fake as free will. Bill Hicks didn't have an answer for this question; he had an attitude and a perspective, Effigy2000.

We might be able to help you better if you told us what type of book you're writing.
posted by cgc373 at 8:02 AM on February 2

I have heard people (who would have agreed with Bill Hicks on this one tiny statement and then had their heads explode when they heard other statements the man made) argue this sort of thing because the people at the controls (the Fed, et al) can change thing on a whim and do things like "create the housing bubble". By this logic my car is fake because I can steer it all over the road and if I swerve hard to avoid running into something I'll end up in a ditch.

The thing about the economy is that it has a lot of moving parts and they're all moving at the same time. The simple (one moving part) model argues if folks got paid more there would be inflation because the demand for goods would go up. When this happened in reality (largely thanks for Henry Ford realizing that he could only make money on cars if virtually everyone could afford one) goods started flying off shelves, factories made piles more money on economies of scale and the US became a dominant economic force with the highest standard of living in the world. (Not that I'm endorsing every economic decision made by Ford, the auto industry or the US in the first 2/3rds of the 20th century.)
posted by Kid Charlemagne at 8:40 AM on February 2

I've always interpreted that Hicks line as referring to a mixture of things.

First, it's important to note that directly preceding the quoted line, he's discussing what would happen to the arms industry if people realized they all were one. So, partly, the economy can be viewed as fake because the military-industrial complex subsidizes certain goods. It's "fake" because it's artificed away from what would occur without government interference.

Second, recall Hicks' disdain for marketing. From that perspective, our economy is fake because consumerism is the result of brainwashing the public into buying things they don't need or even want.

Third, he did have a libertarian bent, so it's quite likely the fiat currency argument made by others in this thread holds some weight.

And who knows? The Working Group on Financial Markets was formed before his death; maybe he was aware of that.

Also, don't forget how much Hicks loved his conspiracy theories. He might have outright meant that the economy is total BS, with all the statistics made up à la 1984, with all real decisions handled by the NSC that (as I believe he argued in one of his shows) usurped the executive branch via the JFK assassination.
posted by jbrjake at 9:06 AM on February 2

So America became the world's dominant superpower because Henry Ford made cars cheaply? That absolutely doesn't follow.

My take on what Bill Hicks said - The economy is fake because it only as strong as people believe it to be. If everyone were to decide (or somehow be influenced to believe - by the media, word-of-mouth, and so on.) that the economy was "doing well," the economy would just do well. It has nothing to do with any state of affairs in the world, it's all in our mind.
posted by kpmcguire at 9:22 AM on February 2 [1 favorite]

Let me respectfully suggest that the way you have framed your question is getting you into trouble, because it is basically unanswerable. Or rather, any number of contradictory answers are in some sense correct. For example:

- No, it is not fake, because we have a number of ways of concretely measuring it: GDP, GNP, inflation, consumer price indices, etc.

- Yes, it is fake, because (as pompomtom said) it is not a thing that you can see, hear, or touch, but rather an abstraction that we use as shorthand to refer to many very different transactions.

- No, it is not fake, because it refers to the aggregate of concrete transactions of goods and services. Some of the more esoteric transactions - derivatives, CDOs, etc. - may seem "fake" to uneducated observers, but they are ultimately no different from buying and selling a loaf of bread.

- Yes, it is fake, because ultimately the determination of the value of things is relative. Nothing - not even gold - has an intrinsic value of x; its value is determined by 'the market' - yet another abstraction that we grant more agency than it deserves.

And so on and so forth.

I haven't heard the Hicks piece, but it seems like he is referring to the idea that certain things are "good" or "bad" for "the economy." We are bombarded by news stories saying that (immigrants, outsourcing, tax hikes, environmental regulation, global warming, etc. etc.) are "bad for the economy;" and that others (tax cuts for the wealthy, deregulation, etc.) are "good for the economy."

Many critics will (correctly) point out that often "the economy" is a code word for a particular interest group. Tax cuts for the wealthy are billed by supply-siders as "good for the economy" - that is, eventually their extra wealth will 'trickle down' to the rest of us in the form of greater capital investment. Depending on your point of view, they may or may not be the case; either way, they are clearly good for the wealthy. So some critics will say that "the economy" in this case is simply a smokescreen for a payout to the wealthy. Its a "fake." And you can insert any number of arguments, positive or negative, here.

Additionally, keep in mind that, at least in our political economic system, very few things are unequivocally bad for everyone - someone will almost always find a way to profit. The current subprime mortgage crisis is really bad for a lot of people, because a lot of value has evaporated. But it is, and will be, good for some people: landlords who will now have a larger market of people desperate to rent; bottom-feeding real-estate speculators who will pay cash for homes; financial counselors selling services to help get people out of debt; and so on.

So perhaps one refinement of your question would be something like: When people argue that something is good or bad for the economy, what do they really mean by "the economy?" Investors? Labor? Producers? Consumers?
posted by googly at 9:25 AM on February 2 [1 favorite]

If you put 10 people in a room, each with some "stuff" potentially of value to others, you've got an economy. Whether people are swapping stuff and deciding what stuff is of equal value, agreeing all to share-and-share-alike, getting into smaller groups to pool their stuff and swapping it with other groups - at the end of the day, the "economy" is just a shorthand for referring to all the decisions that people make. Money isn't fake. In this imaginary group, we might find Person 1's iPod is twice as valued as Person 2's crate of eggplants, which is twice as valuable as Person 3's crate of rotten eggs. Eventually with all these comparisons you could create a "points" system ascribing each thing a numerical value based on how much people want it compared to everything else, and soon you have a basic monetary system.

So yes, even if a lot of the governmental influence on the economy seems "fake", and as much as our modern desires are more arbitary, unjustified and actively manipulated than ever before, as long as you have people with stuff and people that want stuff, an economy is what you have.
posted by so_necessary at 9:28 AM on February 2

pompomtom’s comment above is good. “The Economy” is a name given to a huge system. The economy is made up of many things: individuals, natural resources, firms, governments, legal rules, social norms, currency, technical standards, asset markets (like stock and bond markets), savings, etc. The list of things that make up “The Economy” is immense.

To get an overall idea of what a modern economy looks like, take a look at what is called a circular flow diagram (slide 8 and onwards of this PowerPoint presentation).

Not all economies consist of the same things. Prehistoric economies obviously did not have currency, legal standards, etc., but they had people working together and making things. Communist economies are different than market economies (see The Socialist System: The Political Economy of Communism by János Kornai), and market economies differ from one another in important ways (see The Seven Cultures of Capitalism: Value Systems for Creating Wealth in the United States, Japan, Germany, France, Britain, Sweden, and the Netherlands by Charles H. Turner and Alfons Trompenaars), but at the most basic level, the economy consists of people making and consuming things.

Too say the economy is fake is meaningless in the sense that the evidence for the economy existing is all around us. We are surrounded by people, firms, money, products, savings. These things obviously exist.

I think when people say the economy is fake, they either mean that (specifically, the modern market economies of places like the US, Europe, Canada, Japan) it is not sustainable or that the things that are produced by the economy are fake (i.e., cheap, flimsy, disposable).

As to the economy not being sustainable, the evidence seems to show that living standards have been increasing over the long run and as a whole, humanity is much better off today then it was in the past (see Estimating World GDP, One Million B.C. – Present by Brad Delong). Poor countries (like China and India) are catching up to the rich because they are able to use technologies that have already been invented. As rich countries continue to develop new technologies, they’ll be able to continue to grow (see Solow Growth Model).

As to the second meaning of fake –the quality of products is low—there maybe some truth to this. Consumers seem to have an enormous appetite for things like the latest gossip about Britney Spears, clothing (of questionable quality) emblazoned with designer logos, etc. It’s an open question, if the consumption of this type of stuff increases happiness (see Class, Status, Prada by Brad Delong). In this second sense, the economy may produce a "fake" sense of wellbeing.
posted by Jasper Friendly Bear at 9:55 AM on February 2

Maybe he was just pandering to a college audience where a comment like that would be considered deep?
posted by gjc at 10:03 AM on February 2 [1 favorite]

If you do watch the film (Money as Debt) that sharkfu links to above, I'd advise you to be sceptical of the argument presented. The film glosses over some fairly important points and reaches some odd conclusions.
posted by ssg at 10:35 AM on February 2 [1 favorite]

It's not platonic.
posted by apetpsychic at 11:55 AM on February 2

So America became the world's dominant superpower because Henry Ford made cars cheaply? That absolutely doesn't follow.

Actually if you knew your military history you'd might have a different opinion. The US of the first half of the 20th century became a highly mechanically-competent nation, largely thanks to the affordability and economy surrounding the mass-produced automobile.

When WW2 rolled around we had the human capital -- millions of people comfortable operating and servicing cars since birth -- to expand this mechanical basis into thousands of tanks, trucks, machine guns, fighters, and bombers to overwhelm Germany and Japan, who (especially in the later case) lacked this mechanical human capital.

To answer the FPP, to understand the economy IMO one needs to understand what wealth is.

Wealth is not your bank balance or stock certificates; that is money or monetary instruments.

Money is just a claim on wealth.

Wealth is defined in classical economics as Goods that satisfy human needs and wants.

The economy is the system of actors and capital that creates and redistributes this wealth.

And this gets back to Bill Hick's point, drug usage reduces the necessity to participate in our modern-consumer goods economy. If you feel good with a needle in your arm under a bridge, you have substituted that heroin hit for housing.

If we lived in the ST:NG world where all consumer goods came free out of the pattern replicators, there would not be an economy (in goods). There would still be an economy in human services like prostitution, education, musical performance, etc.
posted by panamax at 12:36 PM on February 2 [1 favorite]

My opinion is that the economy, as it currently operates, is fake because the incentives it creates disconnect people from more fundamental truths and realities. For example, I think most people intuitively feel that someone's status in society should come from the quality with which they contribute to the world around them. Under that concept, a very wise teacher would have high status, but in our current society, all people willing to sit in a room with 8-year-olds are considered fundamentally interchangable and don't get paid much, so teachers may end up in a lower economic class. For another example, economic incentives encourage people to destroy ecosystems (clear cut forests) in a way I think would happen much less without the intermediary of money (or anything fungible that can be stored indefinitely).

So, when I hear the quote "It's gonna fuck up the economy... the economy thats fake anyway!" I enthusiastically agree. Some people argue that "taking action against global warming is going to hurt the economy." My response is, "c'mon, the economy is a subset of our ability to continue subsisting on earth!" but that's not really a response to what they said. Given current incentives, and the way we currently define and understand "the economy," it is (at least arguably) true that stopping global warming will hurt the economy. So, I say not only is the economy unreal, but it actually blinds us to real realities.
posted by salvia at 1:54 PM on February 2 [2 favorites]

One addendum: I don't mean to make the point that "the economy is therefore evil." The economy has both good and bad effects. My only point is that we should keep in mind that it's a human creation, not confuse it with reality, and change it if we're not getting the results we want.
posted by salvia at 2:37 PM on February 2

salvia, I appreciate your idea, but it seems to imply that money is the only compensation "important" people in society get or deserve. As the old song goes, money can't buy love. It's important to remember that capitalism has its flaws, but it's better than anything that's been invented yet.
posted by gjc at 6:53 PM on February 2

gjc, interesting points, and I thought a bit about them while writing the comment. Here's where I ended up.

> it seems to imply that money is the only compensation

Maybe I'm missing your point a bit, but I'd say that unless you consider those non-monetary compensations part of the "economy," then the economy is still fake and those other things are just ways to compensate for a flawed system. Money may not buy love, but it does buy food, health care, most status symbols, and plane tickets to visit the grandchildren.

> capitalism has its flaws, but it's better than anything that's been invented yet

Right, I'm not saying "let's destroy capitalism." I'm saying we should remember that the economy is a human creation and we should change the rules slightly if it's not creating the right incentives.
posted by salvia at 2:49 PM on February 3

The part of the economy that I find to be questionable/'fake' is the derivatives, tertiary, quaternary etc financial instruments markets, which is as far as I can tell a bunch of highly intelligent and ambitious men doing little or nothing of any value and trading in abstracts that aren't particularly necessary for the functioning of a modern healthy economy, yet skimming off a lot of money.

Rent seekers the lot of them.

Don't get this comment wrong, the personal tragedy of the WTC is all too real for the victims and their families, but I don't think the economy really missed all the merchant bankers that died on 11/9/01.
posted by wilful at 3:21 PM on February 3

Wilful: I have made a significant portion of my money by writing derivatives. To call them fake seems like you misunderstand them.

It's true, that I always strove to turn a profit on them, but they also help people. If your business is sensitive to the price of oil (or the weather in some area, or whatever else) you can come to the derivatives market and somebody like me will offer you a solution. We'll say "If you pay us a small, but pre-defined premium, we will accept that risk for you."

Then you can go about your business selling widgets, without fear that a change in the price of coffee will make your existing long-term customer contracts a liability. You'll be able to plan your business with certainty and surety.

As for us... yep, we're trying to turn a profit, but we're surely adding value to the economy as well.
posted by Tacos Are Pretty Great at 8:40 PM on February 3

This is an unpopular sentiment, but it seems likely to me that he called the economy "fake" because he wasn't at the top of the income ladder and had no personal way to get there.

Many people complain about systems being unfair or fraudulent if they lack the ability to reach the highest levels of that system.

I've seen it in poker, in trading and in nearly every aspect of life. It's possible he was just whining.

I know Jessamyn deleted this basic comment twice already, but I still think it's a valid point. If it pisses you off, maybe you should take solace in the idea that many people with economic wins would happily trade them for something else and a lower ability to earn.
posted by Tacos Are Pretty Great at 8:45 PM on February 3

Tacos, that's fine and I do understand their necessity, to an extent. It's the derivatives on derivatives etc shell games that are a load of bollocks. Rent seekers, working very hard, but adding very little value.

I don't agree that that is what Bill Hicks (I don't even know who he is) was referring to. I don't call organised religion fake because I'm not the Pope. I don't call wrestling fake cause I'm not a wrestler, I don't call politicians pandering to the media fake because they're more accomplished liars than me.
posted by wilful at 9:37 PM on February 3

wilful: again, I think that you're mistaking "financial instruments that you don't need" for "shell games that are a load of bollocks".

It's absolutely true that most people have no need for exotic options. The example I gave was a vanilla forward, and it's true that many businesses could manage their external risks quite effectively using nothing but the simplest, vanilla European options. You could buy some options to hedge against changes in exchange rates, commodity prices, all sorts of things.

But sometimes that's not enough. As an example, imagine a company who sources their raw materials from one of three countries, depending on the exchange rates. They could have a situation where as long as one of three exchange rates was within a particular window, their business would be fine, but if all three left the window, that they'd lose the ability to deliver their product at cost, according to their existing contracts.

It's likely that said company's best solution is to talk with a financial firm and purchase some complex options.

And that's ignoring the obvious issues that the financial firms themselves face, simply by choosing to cover everybody else's risk. They themselves need to create instruments so that their own risk is tolerable, so that they can stay in business, servicing their clients and satisfying their needs.

I know that on the face of it, a bet on the volatility of the volatility of X seems like a high-stakes casino game, but the financial instruments exist because there is somebody who has decided that it benefits their business to pay the vig.
posted by Tacos Are Pretty Great at 6:45 AM on February 4

An extremely belated comment:

When people use the term "the economy," they're implying that there's stuff in the world that is internal to "the economy," and stuff that is external to it. I think Hicks was suggesting that this distinction is bogus. The "fakeness," in other words, isn't about the instruments and measures used to talk about and manipulate our real commerce with each other and the world somehow being unfounded, or "the economy" of our time specifically somehow being fake. It's the verbal move that is made by talking about "the economy" as if some phenomena in the world were part of "the economy" and some weren't.

Cf. this little article from Scientific American.
posted by paul! at 5:59 AM on June 20