Engine of Inequality

Chapter 5Following the Money

We “finance people” see the world very differently from the way economists do.

– Ray Dalio*

As this hedge-fund billionaire observes from much experience, economists do not understand money with anything like the unblinking ferocity of financial-market traders. Economists often flatter themselves by calling economics a “hard” science. But, no matter the dizzying plethora of complex mathematical models on which financial policy is premised, economic data aren't quarks. GDP, inflation, and all the indicators on which economists rely are not impermeable manifestations of the forces of nature; they are the end result of the asset prices and market valuations anticipated and created by finance people and, when finance people follow the money with acumen, also a source of wealth so vast that many economists needed new categories for it after the great financial crisis.

Given the stakes, finance people are not only inexorable realists, but also short-term actors. They measure success or failure by the minute, hour, day, month, or quarter regardless of whether they sit at a trading desk, make loans, sell services, or reside in plush corner offices where they are beset by demands from investors looking at their own profit-and-loss clocks. Economists measure success or failure not by how much money they make, but by what a thesis adviser says, at which university they teach, how many books they publish, and whether anyone important or rich asks for their ...