Have you heard from a financial advisor (and maybe even from your parents) that your money needs to grow? This idea has become so ingrained in the minds of working people around the world that it has become almost inextricably linked with the very idea of work.
These words were repeated so often that they are now virtually part of the work culture. Get a paid job, set your maximum retirement plan contributions (your employer may be contributing 3%!), Pick a couple of big-name mutual funds, and watch your money grow. Most follow this path on autopilot without thinking about the meaning and without realizing the risks. After all, this is what “smart people” do. Many people now associate this activity with savings, but in fact, financialization has turned pension plan participants into eternal risk carriers, and, as a result, financial investments for many, if not for most, have become a second permanent job.
Financialization has become so normal, distorting perceptions, that the line between saving (risk-free) and investing (risk-taking) has blurred to the point where most people think they are the same thing. The conventional wisdom that financial engineering is a must-have route to a happy retirement doesn’t make sense.
Over the past decades, economies around the world, but especially in developed countries (in particular, in the United States), have become increasingly financialized. Increasing financialization has become a constant companion of the idea that your money should grow. But this idea itself arose in the mass consciousness only when everyone got used to the sad fact that money eventually loses its value.
Money loses value → Money must grow → For money to grow, financial products are needed → Repeat
graph of the purchasing power of the dollar in the dynamics of 1970-2020
The purchasing power of the US dollar in dynamics (from 1970 to 2020). Source: FRED
To a large extent, this need exists precisely because money is gradually depreciating. This is the starting point, and the saddest thing is that central banks are deliberately creating this situation. Most central banks in the world seek to devalue their national currencies by about 2% per year, and for this they increase the money supply. How or why is not so important; the main thing is that it is a fact that has its consequences. Rather than just saving for a rainy day, pension funds invest at constant risk, often just to keep up with central bank inflation.
Central banks artificially create demand for such investments by devaluing money. An overly financialized economy is a logical consequence of monetary inflation, which encourages constant risk taking and makes saving unattractive. A system that makes saving unattractive and forces people to take risks creates instability, which is unproductive and unreasonable. It should be obvious even to the common man that behind the trend towards financialization and financial engineering in general is the disordered motivational structure of the money on which all economic activity relies.
Fundamentally, there is nothing necessarily wrong with joint stock companies, bond issues, or any type of collective investment vehicle. While individual investment vehicles may have structural weaknesses, collective investment and capital allocations can (and often do) generate income. The issue is not risk sharing or the existence of financial assets. The fundamental problem is how much the economy has become financialized, and that it is increasingly a by-product of a perfectly rational response to a frustrated and manipulated monetary structure.