But outside of newspapers that specifically cater to the economic elite, articles about futures, contracts, options, housing bubbles, derivatives, hedge funds, degrees of financial leverage, swaps, the financial regulation of markets and the like don’t sell newspapers. Well, at least not until some major collapse of scandal occurs, and even then discussions of the underlying financial shenanigans is generally minimal. Understandably so. This, after all, is economics – the dismal science. That’s all about obscure equations rendered in the language of calculus or worse. Who can grasp that? The “Futures Market?” What is that?

(Here is an article that explains what many of these arcane and confusing terms mean]].

When I was around 12 or 13 years old I became an amateur magician. I wasn’t particularly skilled at tricks that actually involved sleight of hand, but I was amazed at what dramatic effects could be achieved by a lot of hidden apparatus. With the help of some carefully constructed equipment, I became a modest success in my neighborhood. When I changed confetti into candy and distributed it the the delighted members of the audience, they would ask “how do you do that?” I loved it. But I knew that I should never tell. That was the first rule I read in the first magic book I studied. Do not tell how it is done. Ever.

Something like magic happens in the modern-day markets. They keep changing confetti into candy for the wealthy, and candy into confetti for the not so wealthy, and nobody can see exactly how it they do it. Apparently it is done by a lot of hidden apparatus. Things like “derivatives.” Satyarjit Das, in Traders, Guns and Money, his expose of how business is really done, talks about how investment bankers spend “hours devising structures to circumvent the rules.” Technically, I suppose, all this is not hidden. If any of us were willing and able to dedicate most of our time to learning all about it, I suppose we could master it as well as the wheelers and dealers who spend all their time working the magic. But there is the rub. Most of us have other interests, obligations and concerns as well. So, if we cannot become experts in things like swaps, derivatives, hedge funds and leverage, do we simply need to leave it the big markets crew to make all the major decisions about the allocation of goods and resources in the world?

It is time for us to look beyond the smoke and mirrors that keep us supporting, or at least not opposing, an economic system that is not in our interest, and is certainly not in the interests of the less advantaged people in the world. It is not possible for all of us to become expert in the nuances of the derivatives, hedge funds, and futures markets. But this does not mean we are helpless. There are things that can be done.

The first step is to demystify economics – to see illusions for what they are. Perhaps the most important illusion that needs to debunking is that most of the big players in most of the financial markets and institutions around the world actually provide the people of the world a needed service. A simple credit union could provide the average person with the financial services s/he actually needs – a safe place to stash some money, and a source where a modest amount of money can be borrowed for items the person needs. A few straight forward and easy to understand insurance policies could provide most of us with all the risk management we need. These simple services are not what the big banks and major markets are mainly about. They are about allowing a small and clever elite, who must think about nothing except money, and who make no positive contribution to the well-being of the planet, to become wealthier and wealthier at the expense of the rest of us. They are about transferring wealth – from the less wealthy to the more wealthy. Hence the growing gap between the rich and the poor. These financial tycoons produce nothing, and the risk management services they provide ultimately make the world a riskier place.

Why, for example, are oil prices skyrocking so dramatically? Why will many people be cold this winter due to the cost of heating fuel? The answer is not, as you may suppose, simply that we are approaching “peak oil.” While the oil reserves are being depleted, the immediate problem has more to do with very greedy speculators making huge amounts of money at our expense. The first paragraph in the above cited article by Mike Whitney sums it up nicely:

“The Commodity Futures and Trading Commission (CFTC) is investigating trading in oil futures to determine whether the surge in prices to record levels is the result of manipulation or fraud. They might want to take a look at wheat, rice and corn futures while they’re at it. The whole thing is a hoax cooked up by the investment banks and hedge funds who are trying to dig their way out of the trillion dollar mortgage-backed securities (MBS) mess that they created by turning garbage loans into securities. That scam blew up in their face last August and left them scrounging for handouts from the Federal Reserve. Now the billions of dollars they’re getting from the Fed is being diverted into commodities which is destabilizing the world economy; driving gas prices to the moon and triggering food riots across the planet. “

In other words we are facing this sudden skyrocketing of prices in oil so that the same people who created the housing bubble that has recently popped can have another arena in which to do their mischief. While Whitney’s article (The Great Oil Swindle) deals mainly with the issue of oil, note that he mentions food as well. Stefan Steinberg, an his article (Financial Speculators Reap Profits From Global Hunger) spells out in more detail how exactly the same thing is happening with food. He begins his article by noting:

“A series of reports in the international media have drawn attention to the role of professional speculators and hedge funds in driving up the price of basic commodities—in particular, foodstuffs. The sharp increase in food prices in recent months has led to protests and riots in a number of countries across the globe.”

So its the same crew engaged in the same shenanigans that is responsible for the skyrocketing of prices at the supermarkets. For many of us this sharp increase in the cost of basic food staples is a minor hardship. It will mean adjustments in our life styles. For many others it is a matter of life and death. People who are already barely subsisting will simply be unable to feed their families.

The other big illusion is that the present way of doing business is the only way that it can be done – it is either what we have or a Stalinist type of state tyranny. There are, in fact, alternatives. There is much to learn from the quasi-socialist practices of Sweden and the Scandinavian countries over the last half of the last century. Although Cuba has not done well in sharing authority with all of the people in the country, certainly there is much to be learned from how they manage their medical system. Also, worker owned businesses have a very excellent track record in many situations. It does not seem probable that we would want to slavishly imitate any existing system, but by building on what we’ve learned from a variety of experiments, it should be possible to invent a system that does what we wish it to do.

This brings us to the second important step, which is to recognize the need to build a values driven economic system. We need to raise the question of what do we want the economic system to do. For example we would want to reward initiative, inventiveness, and hard work. But we would also want a safety net under everybody in the society, so that their most fundamental needs were dependably met. We would want an economic system that provided all people with adequate sanitation, clean water, clean air, and adequate medical care. We would also wish that education would be available to people on the basis of their abilities, regardless of their financial background. We would certainly want an economic system that protected the ecology upon which we all depend from the rapacious, myopic, and careless practices of individuals and corporations. We would also want a system that balanced the power of the owners and managers with the power of the workers. Finally, and perhaps most importantly, we would want an economic system that was based on input from all of the people who were affected by it.

The third step is to de-sanctify our technological experts. We live in a highly technological society, and expertise in a variety of special capacities is certainly to be valued. But technical expertise is always about the means, not the ends. The goals of an economic system need to be determined by all of the people that it affects – not just by the few experts who presently run the entire system for the benefit of themselves and their wealthy colleagues.

This issue of dealing with experts is pervasive in our society. There’s nothing special about the field of economics in this regard. When I go to get my car repaired, it is my hope that the repair person knows more about how engines work than I do. However I know what I want from a car, and before I decide what work I want done I expect an explanation of how much it will cost, what the probable outcome of the work will be, and what other options are available to me. If my mechanic was not able to provide me with this kind of information, I would simply go and find one who could. The same kind of issue exists in how we use medical personnel. It should be up to the patient what he or she wants from the medicine, and it should be the patient’s choice which medical procedures will be accepted and which will be rejected. Again it is up to the expert to explain the probable consequences of various procedures, the likely outcome of not accepting the procedures, and what other options there may be. In like manner, it is up to all of the people who are affected by an economic system to determine what they want from it. It is the responsibility of those who are economic experts to make it clear what an economic system can and cannot do, to clarify what the options are, and to tailor a system that does what the people want.

A fourth step is to become informed. I do not have the time, or the inclination, to amass all of the detailed information about cars that I expect my mechanic to know or the diseases that I expect my doctor to know about. On the other hand if I’m going to have a fruitful conversation with my car mechanic, it is probably helpful to me do have some general understanding of how cars and car engines work. Likewise if I’m going to discuss the treatment of a disease or disorder that I have with my doctor, a basic understanding of human biology would probably be useful. A clear understanding of what my goals are, along with a simple and basic understanding of the relevant subject matter, will generally put me in a very strong position for dealing with any expert. The same holds true for economics. The underlying principles that determine economic processes are in fact understandable by ordinary people. In this regard we would recommend the following book for anyone who wanted to begin a demystification process: Economics for Everyone: A Short Guide to the Economics of Capitalism, by Jim Stanford. It is available here.

To this day I have refused to tell how I turned confetti into candy. If people knew, they would probably be disappointed at how simple the whole process was. By not telling them I leave a bit of mystery in their lives. I think this does no harm. But in the real world of economics and money it is no longer permissible to allow the experts to deceive us with their smoke and mirrors. If we do not demystify the realm of economics, do not insist on our right to participate in defining the values and goals that should underlie our economic system, do not learn how to deal assertively with “experts”, and do not become reasonably well-informed, then the experts will be able to run the system for their own personal gain and benefit. The overwhelming evidence is that this is precisely what is happening at the present time – very much to our detriment.