The Real Problem with a Virtual Economy

“In the future everything will be personal, mobile and virtual.” That is what Carly Fiorina – the former CEO of HP – proclaimed at one of the annual shareholders meeting, shortly before her departure. Of course, she referred to the electronic devices that HP is known for. But the meaning of that prediction transcends the applications in their industry. It is more a reflection of a different set of values characterizing the new society.

The emphasis on the virtual characteristic is underscored by scientific data provided by psychology studies. Researchers discovered that humans react to a stimulus not according to its impact on our senses but based on the interpretation of that impulse by our brains. Hence, it is the perception of a phenomenon - not necessarily the reality of it - that triggers the reaction. So as long as the brains believe something as being true, whether that is a pure illusion or a reflection of what actually happened becomes irrelevant.

Marketers were first to understand and apply these findings, in perfecting their message to exploit perception formation independent of the intrinsic attributes of a product. Now, the financial wizards are taking over this production, and embellish the portfolio of investment vehicles with concepts that are increasingly difficult to measure and progressively disconnected from the investor. By creating products that are farther removed from the true value of their underlying assets, the banks make everybody think that wealth could be accomplished just by transacting money from one fund into another. The more people believe that, the greater the intensity of the exchange activity and the higher the stock markets will grow.

The advancements of the computer industry just fuel the ability of the virtual world to overtake the reality. Almost everything around us could be simulated and manipulated to the point that is harder and harder to distinguish between real and fake, tangible and intangible, substance and image. We have become the slaves of a lifestyle that creates in our brains a mental picture full of illusions. Gambling, guessing, mimicking and faking are the terms describing the navigation tools in the new virtual universe.

The casino created by the betting system that the financial markets are based on, pollute our society with the false illusion that everybody can get rich through gambling. What is purposely hidden from the uneducated participants in this process is that any system based on speculation is a zero-sum game. In order for some to gain, there are others who are loosing an equal combined amount; and the bigger the gain for few, the more losers at the opposite end.

It is true, the sophistication of the financial instruments, these days, require intelligence and imagination for their creation and very good traders for their commercialization. But in the end, so does the traffic of narcotics from third-world countries, or the planning of satanic terrorist attacks. None of these activities are condoned by the society at large, nor supported by responsible governments. So why would financial speculation deserve a different treatment?

An entire generation of baby boomers – and I am one of them - worked and studied most of their life with the belief that at the center of the societal progress is the real economy – the one that creates value for consumers (material, psychological, spiritual, educational). It is hard for them to understand or accept the increasing power of the transactional and speculative economy in the universe of our collective need.

The source of global advancement and prosperity cannot be the simple mechanism of buying and selling virtual products, especially when the perception of their value is motivated by greed, irrationality and ignorance. Once this euphoric wave will fade out, the countries promoting it will end up without a real economy, and they will be ruined by the inability to handle domestically the true means of generating goods and services that are, indeed, needed by the consuming population – food on the table, cars on the street, education in the class room. In the end, the bread winner in any family is someone who contributes through a physical or mental effort to the creation of value to the benefit of the society. Countries that don’t lose site of this will be the real winners in the future.