3 Hours of Sex, Drugs and Economics

If you haven't seen this 180 minute extravaganza yet, it's definitely worth a watch. 

The story is of a Wall Street broker (Jordan Belford) who loses his job after Black Monday and with no other great opportunities available to him, a career in Penny Stocks is the best way forward. 

From securing an IPO at Stratton Oakmont (His own brokerage firm) to the simple concept of demand and supply for a pen, this film consists of all aspects of basic economic theory to complex laws and regulation of money transferal. 

Stratton Oakmont is known in the finance world as an over-the-counter brokerage house. This simply means a trade that is carried out between just two parties and their is no supervision of the exchange. Therefore this allowed Stratton Oakmont to con those involved by taking their money and not paying them back. Jason Belford wasn't a stock broker, he was a salesman. His ability to persuade the rich that he was selling them something worth buying made him a multimillionaire. The use of an illegal trading scheme, known as the 'pump and dump' allowed his firm to make money both easily and quickly. A pump and dump scheme consists of artificially inflating or 'pumping' the price of a stock to benefit those that own it. Once the price has been pumped up, owners quickly sell off the stock or 'dump' it at a huge profit causing the price to plummet. Jordan Belfort would often buy large amounts of worthless stock and then, using his flock of stockbrokers at Stratton Oakmont, spread rumors and positive statements about the company. This caused the price of the stock to rise rapidly. Once the stock reached record highs, he and his associates would sell it off, causing the price to reach record lows.

The ability of making money effortlessly didn't last forever. Joseph Borg, a financial administrator who served for the securities comissioner of Alabama, investigated the firm from 1994 due to overwhelming number of complaints regarding Stratton Oakmont. Following an investigation into their illegal trading schemes they were taken to court and prosecuted soon after. Belford spent 22 months in prison and was ordered to pay over $100 million in restitution to his victims (which he has apparently failed to do). As the film depicts, he became a motivational speaker after leaving prison; at the seminar in the movie, DiCaprio as Jordan is introduced by the real Jordan Belfort.

As well as the record breaking number of F-bombs being dropped, the film contains numerous scenes of nude women and prostitutes. Drugs are the norm throughout and being sober is a rarity. For those wanting to work in the city, take a leaf out of Jordan's book. 

(Sorry to those of you who thought this may have been about the book; Sex, Drugs and Economics. Sadly, it is not.) 

What is wrong with our economy?

Many people will have different answers to this question and in a way, there are many answers, but for me there is one answer in particular that screams out the loudest, maximising short-term  profits. 

Since looking at this in our current A2 syllabus I have come to believe that those who are not prudent and forethought may be better off themselves but as Pareto's theory suggests, it is impossible to make any one individual better off without making at least one individual worse off. 

This is what is happening; Multinational corporations (MNC's) are obsessed with maximising their profits that long-term growth is something of the past. It is the employees of these companies that are suffering the most. Employees are people who devote their lives to creating money for customers, shareholders, and colleagues. Therefore, in return, at least in theory, they share in the rewards of the value created by their team. 

However in reality, it is far from this. Employees aren't regarded as people of a team anymore. Businesses nowadays see their employees as "costs" due to the ever increasing obsession towards maximising short term profits.  For the greatest profits costs are to be kept at a minimum. In order to do this, reducing costs as much as possible is something that has to take place (expect the "costs" of salaries to senior management and shareholders). 

The problems with this increasing short-term profit maximising is what it leaves us for the future? If these MNC's -of which some could be referred to as monopolies- are more focused on creating abnormal profits which pays for the luxury lives of those that run them then how are the firms to develop? Abnormal profit is supposed to create money towards R&D (Research and Development), so without this firms cannot progress. In the long-run this is likely to cause competition that would diminish these abnormal profits being earned but this will take time to happen. 

More so, cutting "costs" to create this short-term profit is having a huge affect on the working class population. For those lucky enough to be kept in labour, their wages are still reduced to keep costs at a minimum. This is effectively removing their purchasing power, coincidentally stunting the growth of these same corporations making the choices. 

If consumer expenditure is being reduced then businesses can't grow. Right now, firms aren't concerned about the growth of their companies but more so maximising their short-term profits. In the overall aspect of an economy, aggregate supply is likely to decrease due to the fall in labour force, thus resulting in an overall decrease in economic growth and the development of these companies in the future.