The Real Economy and the Financial Economy

The recent crisis did reveal very clearly about one aspect of how the world works. There are in essence two economies: the real economy, where real goods and services are produced and consumed, and the financial economy, where assets are swapped for investment or speculative purposes. These two economies interact and affect each other, but each requires a unique regulatory framework to support. While government intervention in the real economy is almost always bad, government intervention in the financial economy is almost always necessary. For this reason, I fully agree that we need more regulation in the financial economy, as long as we are careful not to let it spill over to the real economy.