These manipulations of the real economy, as well as the financial manipulations which enable them, enrich the financial and consuming sectors and impoverish the actual producers of real goods and services. At this late stage, many productive sectors are deprived of the real resources necessary for them to grow, and ultimately to maintain themselves.

For in the case of the modern economy, there are two relevant systems: The real economy itself, and the financial economy which feeds off the real economy. The financial economy produces nothing of the substance itself. When useful it serves as a multiplier of production, by increasing the efficiency of allocation of resources. If feeds itself, first, however, before the real economy, and when overgrown it diverts more resources to itself than it saves the real economy by that allocation of resources. The result is a decline in the efficiency of the real economy, and its ability to grow.

In any case, this happens at a late stage in the development of the real economy, when the resources available to the real economy to mount opposition to the growth of the financial economy are diverted away. Part of this is the result of increasing real costs in the rest of the economy outlined above. Part is the increasing diversion of resources by and to the financial sector itself. (Inter-sectoral competition for resources is seldom considered by business leaders.) A point is reached when effective regulation of the financial sector fails. (One part of this process is that one of the consequences of the increasing concentration of wealth is that the value of non-financial rewards offered by the society declines, and become devalued, reducing the cost of corrupting other institutions.)

Once the financial economy evades the controls set on it by the real economy, it grows without effective bounds. The financial sector then out-competes the real economy for money. The financial sector is designed around the acquiring of money, and, unregulated, is simply more efficient at this than any sector of the real economy.

Feeding off the real economy, finance is also a non-self-limiting, self-organizing system.. It too is subject to overgrowth and collapse. This happens when it exceeds the ability of the real economy to support it. When this occurs, if and only if it occurs before a critical point in the growth of the real economy, the real economy may yet be saved. This is not because the real economy is self-limiting. It is only because it has been increasingly organized to service the financial economy, and with the collapse of the financial economy, the real economy may be reorganized into a self-limiting form. This is not guaranteed. This may not even be likely. In 2008, the opportunity for such reorganization arose and was missed. And whether or not the real economy can still be saved still depends on whether or not it is already too big to be reorganized into a sustainable form. (It should be mentioned that capitalism, per se, is organized around efficiency, not sustainability.)

With the financial economy in the ascendant, money is pumped out of the real economy almost as fast as government spending can pump it in. This severely reduces the profit margins of productive industries. Producers in the real economy would be hurt two ways. Because of lags in production, prices of final goods are reduced vis a vis the prices of the factors which went into them. And because of the money diverted into finance, prices for those final goods are also diminished.

Because of the diversion of money to the financial economy, the quantity of various forms of money in the financial economy increases. This is accompanied by an ever greater concentration of wealth. While all assets become overvalued, consuming assets, in particular, the assets of producers of toys for the wealthy, gain the highest profit margins, and so gain the highest valuation. At the same time, the assets of more basic industries, caught between rising costs and more limited demand, have lower profits, and thus a lower increase in value.

This growth is in the demand or consuming side of the economy, which conceals a relative decline in the extracting and manufacturing sectors. GDP, for instance, does not distinguish between growth in basic industries, whose value added is underpriced, and growth in consuming sectors such as retail (High and low-end retail. Retail oriented toward the middle and working classes, as these are the classes from which the wealthy can most efficiently extract money, does not do as well.) and, increasingly, finance. The economy becomes increasingly skewed, away from production and towards consumption.

This financial extraction becomes ever more difficult and costly, as the real economy becomes progressively impoverished and less productive. The concentration and availability of extractable community assets also decline. These assets, historically, because of their low potential for profits, were unattractive to private enterprise, and the government was virtually compelled to assume these responsibilities. Public services become attractive to private monies only due to the combination of being cheaply acquirable capital, the dearth of alternative investment opportunities, and, because of the increasing inability of the undercapitalized public sector to defend itself, opportunities for graft.

This decline in efficiency of financial extraction means more labor is required for the financial sector to extract wealth from the real economy. Thus, even though most labor is no longer involved in real extraction and production, there results from the paradox of an increasing burden on labor in non-productive jobs. This is obscured by the fact that these financial costs are increasingly externalized onto the real economy, ie absorbed by non-financial industries and labor. However, because of the decreasing efficiency, the profit to be made off these jobs is very low and decreasing, and the pay must be commensurate.

Meanwhile, since the cost of all maintenance increases, the cost of maintaining the burden of the financial and consuming sectors is also increasing; the costs required for extraction increase, the actual financial profits decline to zero and even go negative.

The degree of financial exploitation is not reduced, but more resources are devoted to the process. Even as this happens, fewer resources are available to the real economy. This is both because the financial sector externalizes its costs onto it onto the real economy, (and thus appearing artificially profitable,) and because greater real resources must be expended in acquiring resources from an increasingly impoverished natural environment.

Combined, these processes render the usual indicators of economic health and prosperity at least useless and even more likely misleading. Much growth occurs in the wrong sectors and is indicative of impending failure, rather than success. Further, with increasing deregulation, more fraud may be expected, both in production and in reporting on that production, further corrupting indicators.

Current Economic Models Fail To Answer The Question Of Sustainability

Mankind has yet to develop a modern, self-limiting economy. Hunter-gatherer societies existed in ecological equilibrium with their environment, fitting into the limits set by the rate of replenishment of renewable resources. For pre-industrial economies, the growth trap must be considered as a possible factor in their ultimate decline. Since economies ultimately serve a population, clearly, with unrestricted population growth, no self-limiting economy is possible. And any non-self-limiting economy will be subject to the growth trap.

More to the present, however, there is no evidence that capitalism is self-limiting. Indeed, the virtue of Capitalism is efficiency, not sustainability. Because of its inherent drive for efficiency, it is able to out-compete any sustainable system and destroy it. It even out-competes those sustainable systems it depends on and destroys those.

Only a self-limiting economy can survive the growth trap. Only an economy which can limit its consumption of renewable resources to some rate less than the rate those resources are renewed, and its consumption of non-renewable resources to some rate less than those resources can be recycled, can be indefinitely sustained. All other economies will fail. Once an economy reaches the limits to its growth, it is doomed to collapse. And a failing economy will be incapable of providing sufficient resources for the survival of most of its members. Indeed, because of the enormous efficiencies brought about by a modern economy, if that economy fails, such a failure will be catastrophic, and only small percentage of the people who depend on that economy can be expected to survive.

There still seems a choice, however, although, judging from their antics, our political class seems either incapable of or uninterested in confronting the issue.