Digging ditches and Wall Street

Keynes advocated paying people to dig holes and fill them up again as a method of economic stimulus. Obviously this is nothing but busy work, a disguised form of welfare. It's clear that this would receive a lot of criticism. But something similar exists which is often praised and those who do it are called geniuses.

I am referring to speculating, playing the market, whatever you want to call it. These are certainly hard and can take a lot of time and effort. You need to find the trends and predict what will happen, get the capital, and generally spend a lot of time watching. And yet it produces nothing. It is digging holes and filling them up again while being paid for it.

The only difference is that digging holes relies on government while speculation relies of gaps in the market. Government takes your taxes. Does the market? Yes. Speculators close those gaps, passing on the difference to themselves. This difference would have otherwise taken the form of higher profits or consumers getting bargains. Speculators are taking and wasting your money just like government. Okay one other difference: paid digging of holes keeps people from starving and possibly getting violent, think of it as cheaper indirect security (I'll say more about this later if I remember). Speculators only fatten their own wallets.

To make it worse, speculators drive well, speculation. They inflate and burst bubbles.

It is important to not confuse speculation and investment. Investment is a wonderful thing. What's the difference? Investment drives production. Loan money to a business, they use it to buy computers or machinery or to hire more workers, that increases their profits and then some of those profits go to the lender. Investment does not directly produce anything, but it stimulates production. In contrast speculation puts in money and takes back more without any stimulation. While it could be argued that speculation could become investing given time, this is rarely the case, as seen by rapid buying and selling of stocks and bonds, especially on the secondary markets.

And then there's short selling. This practice is on par with kidnapping children and selling their blood to mad scientists for the moral depravity of it, though in defense of the kidnappers, they just might end up playing a role in advancing human knowledge.

Next time you see money taken from your pay for welfare, remember that it is keeping someone alive and housed. Look carefully and you might see the extra chunk taken out for cigars and cars for speculators.

To defend the ditch-digging, think of a side benefit which makes it more helpful and beneficial than welfare. By creating work it keeps people busy and in the habit of work. This has two big effects. The first is to reduce the potential for crimes caused by idleness such as vandalism or other activities which exist mostly out of boredom and lack of socially productive ties. The second, keeping people in the habit of work, will ensure that when the economy recovers they can make a smoother transition to a real job. It makes them more employable and that is good for workers and employers and will help to speed up recovery when it comes.