Some Grist readers in comments seem to think we should ignore the financial aspects of the crisis to focus on the “real economy.” The problem is, finance is part of the real economy. Credit was invented before paper currency; there are records of debt in ancient Babylon. Try and imagine life without currency, or checkbooks, let alone without finance. Finance is a very real thing. It is information, and it is also a form of human cooperation — a way for people who never meet or know of one another’s existence to work together.
But that doesn’t mean people who talk about the real economy don’t have a point. An old story: A priest in ancient times insists that the world is flat, resting upon the back of a giant turtle. “What does the turtle rest on?” a philosopher asks. “Another turtle,” the priest replies. “And that turtle?” queries the philosopher. “You can’t fool me,” says the priest. “It’s turtles all the way down.”
Our financial system can’t be like that cosmology. Up to a point, we can pile finance layer upon finance layer, letting information interact with information. But ultimately that financial system has to rest on production and non-financial services. Your whole system can’t just consist of financial transactions. There are a lot of detailed ways our finance system fails. The bottom line is that it is too disconnected from what it needs to reflect — human needs and ecological and other constraints. As currently constructed it tries to be “turtles all the way down.” My next post will go into a bit more detail on this — the nature of those needs and constraints, and the physical limits and social limits within which our financial system needs to be placed.