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The paper economy refers to markets where assets are traded on paper rather than physically changing hands. This includes service-based jobs that do not produce a physical product. Traders buy and sell speculatively, often without wanting the product to be bought or sold. The paper economy has been criticized for artificially inflating the value of products, and economies built on services are generally considered weaker.
The paper economy generally refers to markets where the value of assets is traded on paper rather than the physical assets themselves changing hands. Often, those trading in the assets have no intention of taking ownership of the physical product. They simply hope to get the maximum profit from the merchandise before the contract reaches delivery. Another use of the term paper economy involves an economy based on service-type jobs that do not produce a physical product and therefore do not add much real value to the economy.
In the case of markets, most trades and profits made are paper based. If traders feel that a particular commodity will be more valuable when the time comes for the commodity to be delivered, they may buy with the anticipation that the contract will be worth more. This involves a lot of risk because at some point the merchant will need to sell the contract or take delivery of the product. This can lead the trader to lose if the value of the product decreases.
The paper economy has been criticized in some cases for artificially inflating the value of a product. Oil is one of the main examples of this. Many analysts feel that the value of oil, when it is rising or falling, may not truly reflect market conditions as defined by supply and demand. Despite this alleged contradiction, traders price contracts by buying and selling speculatively, without first-hand knowledge of the real situation. In almost all cases, marketers do this without ever really wanting the product to be bought or sold.
The term paper economy can also apply, to some extent, to stock exchanges around the world. Often, those who buy stocks don’t do so because they really might want an equity stake in a specific country. Instead, they are simply trying to make a profit based on what companies think will increase in value. What they’re really doing is trading shares, which by default make them owners of a company, albeit temporarily, whether that’s the ultimate goal or not. They will generally never attend shareholder meetings or take an active interest in the company.
To a lesser extent, the term paper economy can apply to people working in services such as secretaries and sales positions. These individuals don’t produce a product, but simply handle the paperwork associated with more concrete transactions. Whether these positions are valuable depends on the company and the value they place. Economies built more on services than products are generally considered weaker and more prone to economic downturns, although there will always be exceptions as some services are inherently more valuable than others.
Asset Smart.
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