The economy, Money or Work?

The Coffee Shop
1

I think this falls into the category of why I believe the market will fix itself. It might not be pretty, and it might be completely lifestyle altering, but it WILL fix itself.

When was the last time you woke up and said “there is absolutely nothing that needs to be done today”. There is almost ALWAYS something that needs to be done in order for us to survive, always. And if we’ve covered everything we need to do to survive most of us always have something we’d like to done to make that “Survival” a little nicer.

In short the “Market” will always exist.

The economy as it stands is only loosely based on the market. We want to be paid “x” amount to do something that needs to be done, not necessarily what others are willing to pay.

Assuming there’s always something to be done, and assuming you are willing to accept the amount others are willing to pay, does it not stand to reason that the economy will indeed survive and balance itself out at some point?

The question is not whether the economy can fix itself, it will, the question is are we willing to allow it to and accept the lifestyle it dictates to us?

~Matt

2

“Assuming there’s always something to be done, and assuming you are willing to accept the amount others are willing to pay, does it not stand to reason that the economy will indeed survive and balance itself out at some point?”

What you’re basically describing is the process by which supply equilibrates with demand in the market, assuming that the motion of prices is not hampered in some way by governmental intervention. So the answer is yes, provide the market is allowed to operate without intervention. That, BTW, is why all the political hooey about “creating jobs” is misplaced.

3

Well I just wanted to point that out in a “Basic” form.

There’s been some debate on the idea of “the economy will not exist”, which using my logic, which may not be correct, can’t happen.

The question is then are we willing to accept the lifestyle that results by allowing the economy to return to the point it is at a real equilibrium? From a political, and I’d guess most peoples positions, the answer is a resounding no. They would rather continue to prop up the “inflated” economy to retain their current lifestyle.

Of course this means it will continually have to be “Subsidized” and I’m guessing will become more and more unstable and less sustainable. This will then leave the same question with possibly far larger consequences for future generations to answer.

~Matt

4

“There’s been some debate on the idea of ‘the economy will not exist,’ which using my logic, which may not be correct, can’t happen.”

You’re correct there, because of a basic fact of human nature: Once we have satisfied our most basic needs, we start looking out for needs higher up in the hierarchy (think of Maslow’s “hierarchy of needs”). Or as you put in earlier, we look for ways to make survival “nicer.”

“The question is then are we willing to accept the lifestyle that results by allowing the economy to return to the point it is at a real equilibrium? From a political, and I’d guess most peoples positions, the answer is a resounding no. They would rather continue to prop up the ‘inflated’ economy to retain their current lifestyle.”

As you and I know, of course, the latter can’t be propped up indefinitely. It’s important to understand, however, that the equilibrium established by the market is only an equilibrium for a particular point in time. If the economy is allowed to develop naturally (rather than artificially through inflationary stimulus or other interventions), it becomes more and more productive as the capital structure grows and as technological innovations are introduced. Consequently, the equilibrium points of prices and wages evolve such that the real value of wages continues to rise. That’s the flip side of the so-called “dismal science” of economics: Economics (more generally, praxeology) also shows us a route to unprecedented long-term prosperity–if people are willing to apply its principles.

5

The question is not whether the economy can fix itself, it will, the question is are we willing to allow it to and accept the lifestyle it dictates to us?

That much is obvious… the question is whether you think reverting to a 3rd world socio economic system is an ok thing to let happen.

6

That much is obvious… the question is whether you think reverting to a 3rd world socio economic system is an ok thing to let happen.

If that is what the economy can support not only is that “Ok thing to happen” but no amount of “Subsidizing” and government intervention will keep it from happening. In fact it make put it off and make the inevitable fall worse.

Personally I don’t see that happening even if we went to a completely “Free market” tomorrow.

~Matt

7

The question is then are we willing to accept the lifestyle that results by allowing the economy to return to the point it is at a real equilibrium? From a political, and I’d guess most peoples positions, the answer is a resounding no. They would rather continue to prop up the “inflated” economy to retain their current lifestyle.

I think you are asking the wrong questions. The “propping up” you speak of is really designed to provide a softer landing so we don’t suffer the consequences of a sudden crash. If that happened things would really get crazy. But everyone with sense knows that it cannot provide a long term solution.

We are in crappy economic shape because we were led to believe that we could outsource our technology and manufacturing expertise without suffering a hit. This has been masked up by deficit spending and increasing consumer debt and insane financial fraud until recently. Now the crap has hit the fan.

The only way out of this is for us to invent and utilize better technologies leading to greater efficiency and productivity. That is the only way to prosperity… unless you are lucky enough to be sitting on a huge amount of valuable natural resources…

8

“the question is whether you think reverting to a 3rd world socio economic system is an ok thing to let happen.”

If we continue in the path that Congress and the president have been laying out for us of late, that’s exactly where we’re going. I think it’s obvious, however, that Matt would rather see us go the opposite direction (i. e., toward freedom and hence sustainable economic growth), as would I.

9

I think you are asking the wrong questions. The “propping up” you speak of is really designed to provide a softer landing so we don’t suffer the consequences of a sudden crash.

I’m nto disputing this as a possibility, I just don’t see it that way. If indeed the economy needs some major shrinkage then trying to “Create” jobs via government spending is not going to allow that.

The other question would be by spending the money we are spending for so little return are we not compounding the longer term problem? It is my belief we are and although in the short term it could be very ugly, the long term could be and most likely will be uglier due to current attempts to “Prop up” the economy.

We are in crappy economic shape because we were led to believe that we could outsource our technology and manufacturing expertise without suffering a hit. This has been masked up by deficit spending and increasing consumer debt and insane financial fraud until recently. Now the crap has hit the fan.

You’ll get no disagreement from me and have been saying as much for almost a couple decades now. In my mind we have been playing the “National credit card” game, paying one card off with the other to avoid fees and penalties. We finally missed a payment and all hell is breaking loose.

The only way out of this is for us to invent and utilize better technologies leading to greater efficiency and productivity. That is the only way to prosperity.

Again agreed, but it also takes work a “Taboo” subject to mention in this country to many.

**… unless you are lucky enough to be sitting on a huge amount of valuable natural resources… **

Which we are, and always have been.

~Matt

10

“If indeed the economy needs some major shrinkage then trying to ‘Create’ jobs via government spending is not going to allow that.”

I would suggest the word “adjustment” rather than “shrinkage.” Our current problem is not that our economy as a whole is overinvested or overextended, but that its resources (including labor) are malinvested. That is, we have overinvestment in some segments and underinvestment in others. Specifically, those segments of the economy that were favored by artificially depressed interest rates during the boom period (such as those producing high-order capital goods with a long period of production, or producing highly durable goods) are overinvested at this point, while those that were disfavored by the interest-rate policy (those producing lower-order capital goods or less durable consumer goods) are underinvested. In order to overcome this pattern of malinvestment, resources need to be shifted from the overinvested segments to the underinvested ones.

11

I’m nto disputing this as a possibility, I just don’t see it that way. If indeed the economy needs some major shrinkage then trying to “Create” jobs via government spending is not going to allow that.

The other question would be by spending the money we are spending for so little return are we not compounding the longer term problem? It is my belief we are and although in the short term it could be very ugly, the long term could be and most likely will be uglier due to current attempts to “Prop up” the economy.

They like to pretend that the propping up will get the economy hopping again, but I think that is just PR. They know we are scewed and all the bailouts and money printing are just making bottom fall out more slowly. The complete economic collapse and social unrest that would likely occur if nothing was done is what they are hoping to avoid.

It is difficult to say if things would be better in the long run if nothing were done. A major collapse could have very long term effects as well… ie dig a hole we could never climb out of. If our monetary system utterly fails, how many decades or centuries would that set us back?

12

You think it will take decades or centuries to get back? Come on…

It is thru economic disruption that we advance and improve. Its thru this pain that we learn. Everything is relative…in the early 1980s we had much higher unemployement and Mortage rates pushing 16-18% - we keep talking about pain yet we really haven’t feel any yet. I can promise you we will not “change” for the positive with all the crap our govt is feeding the masses right now…I heard today after we wasted 750B on Tarp/ 1T on the “stimulus” package and billions more in printing cash for the Fed, we are talking about another package in the $1T range.

The biggest problem we have right now is governement.

13

I would suggest the word “adjustment” rather than “shrinkage.”

Shrinkage is never good :slight_smile:

I agree with the rest and why I think the “Adjustment” would not be as “Earth shattering” as people believe it would be. We’re already seeing that “Shifting” of resources as people yanked their money out of the stock market because they realized how “Fragile” many of those companies had become.

The market is far better at “Readjustment” than is the government and all I see the government doing is trying to “Re alocate” more money to the sectors that are likely “overinvested”.

The “Market” looks forward, the government looks backward. The government tries to “Fix” what is clearly broken and the market tries to find someplace that is not broken to go to.

~Matt

14

The question is then are we willing to accept the lifestyle that results by allowing the economy to return to the point it is at a real equilibrium? From a political, and I’d guess most peoples positions, the answer is a resounding no. They would rather continue to prop up the “inflated” economy to retain their current lifestyle.

The problem I see with this, and some of your statements in other threads (regarding manufacturing springs to mind) is the lag or gap in the cycle for people to be able to survive. Going back to your manufacturing (you suggested making clothing IIRC) - if you were to put wages low enough to even begin to compete with outsourced, the current housing market (ownership or rental) would still leave a large enough gap that people couldn’t afford to take the job without either working multiple jobs or requiring subsidy. Basic essentials in food, housing, affordable healthcare etc have to move in line with the downwards trends that would need to happen.

Could we live with less, absolutely. I have never understood the demand for bigger and better - housing is insane inthis regard. However, unless food and housing fell in accordance with wages, I just don’t see your model working. My job in IT is always under the gun, and I keep my eye out for other opportunities - but dealing with a substantial hit in wages would be difficult, given food isn’t getting any cheaper, and downsizing housing would only return negligable gains, since my mortgage is not that huge, and rental is very high in my area.

15

Going back to your manufacturing (you suggested making clothing IIRC) - if you were to put wages low enough to even begin to compete with outsourced, the current housing market (ownership or rental) would still leave a large enough gap that people couldn’t afford to take the job without either working multiple jobs or requiring subsidy. Basic essentials in food, housing, affordable healthcare etc have to move in line with the downwards trends that would need to happen.

You’re missing a couple essential points to what I believe is my “Overall” economic plan :slight_smile:

First would be some sort of “Global minimum worker standard”. I agree 100% US labor can’t, nor to we want to, compete with a “Sweat shop” in India that forces 8 year old kids to work 14 hour days in conditions that nearly amount to indentured servitude. I realize this goes against “Free markets” but am also of the mindset that some level of “Protecting those that can’t protect themselves” is necessary.

“Competing” on that level does nothing for the US except offer “Cheap Goods” off of others suffering.

That being said we can expect that if such a “minimal workers standard” was implemented the cost of goods would go up.

Second we would not be driving the price of everything down nor forcing everyone to take these “Low paying jobs”, in fact as stated above the likely “Cost of goods” would go up which would likely stabilize and or increase wages in most sectors. By eliminating such standards as “Minimum wage” you might open up the ability and markets for such manufacturers as clothing companies. These companies might actually depend on a plethora of “Part time” workers and open up a market for those seeking a little “Extra income” rather than providing “Full time” support for a family of four.

However, unless food and housing fell in accordance with wages, I just don’t see your model working.

But isn’t that exactly what a “Free market” would do? Aren’t we seeing exactly this now? In fact I just spoke to a customer today that says all “Salaried” employees at there facility took a 10% wage cut. The net affect of moves like that will be “Lower cost” on everything. Housing is and will go down and food is falling as well, but that’s mostly due to energy issues.

Point is the market does exactly this if left alone. It’s when you start throwing in artificial barriers that certain sectors get off kilter.

My job in IT is always under the gun, and I keep my eye out for other opportunities - but dealing with a substantial hit in wages would be difficult, given food isn’t getting any cheaper, and downsizing housing would only return negligable gains, since my mortgage is not that huge, and rental is very high in my area.

Personally I think we have the tendency to look at out own lives and say “Well we are living pretty sparsely, not much to cut here”. I include myself in this category because…well…that’s the way I look at it. However after saying that there are literally TONS and TONS of way I could cut the “Fat” out of my budget if I was in absolutely dire circumstances. Most of us look at things like, internet, cable, cell phone, two cars, gym membership etc etc and say “Well I NEED all those”. I’d also be willing to bet people’s food bills could radically reduced if they were really in a crunch. (Note: the above is not speaking directly to you as I have no idea what your circumstances are, just “In general”)

Changes like we are talking about don’t take place “Over night”. Housing prices will take a while to fall if indeed the market is not artificially propped up. Food, clothing etc would as well. By implementing some level of “Global standard” you might actually see a wage increase.

~Matt

16

Matt

Again - I don’t think we are that far off. In general principle what you say might work.

  • The net affect of moves like that will be “Lower cost” on everything. Housing is and will go down and food is falling as well, but that’s mostly due to energy issues. *

OK - colour me unconvinced that this will necessarily happen. Different sectors may well respond differently. Be that as it may - my concern really is the time lag. So you take the 10% cut, but can no longer afford your housing. How much housing will have to be vacated before it re-regulates itself to the lower cost of living? If people are desprate for rental housing, cost will remain high by your very logic of the markets. You would need a sustained vacancy rate that would drive pricing down. So what happens to people during that interim.

If market forces worked in unison, I coudl see what you suggest working. However, it is the lags in the market cycles that would porbably keep this from ever being viable.

The worker standard is a nice idea - but like any “global standard” enforceability is highly dubious. Look at environmental, human rights etc. But I like the idea

I don’t disagree with you in regards to fat cutting - pretty much what you say is true. But my point was what would be “acceptable” (not really the right word) vs dire. I think the real question is as society what we call acceptable vs dire. That is probably another discussion all together. I have never been able to convince my wife on the use of road kill as a food supplement, though I have lived that way before in my life.

17

If market forces worked in unison, I coudl see what you suggest working. However, it is the lags in the market cycles that would porbably keep this from ever being viable.

As usual the “Lag” will always be a problem. My point is that the “Lag” in the market is far less than the “Lag” when there is government interference. I think part of the reason we aren’t seeing housing prices drop even more is because the continual promise of a government bailout and government support.

My concern is that pretty much all government “Spending” is adding to the situation is lag. The more they try the longer the lag. Sooner or later you have to pay the piper.

If people are desprate for rental housing, cost will remain high by your very logic of the markets. You would need a sustained vacancy rate that would drive pricing down. So what happens to people during that interim.

People will move to “Rental property” they can afford leaving the “higher cost” rental properties un rented. That will lower upper level prices and that should trickle down, but yes a lag will exist as in any market.

We are already seeing a move in construction to “Smaller” less expensive houses.

I don’t pretend to even comprehend the whole system other than to say everytime I’ve looked at the “doomsday” scenario’s I just can’t see it. Now that could very be my limited ability to comprehend the problems, or possibly the politicians ability to overstate them.

Point is, in my uneducated opinion, economics is pretty closely tied to “human nature”. Humans aren’t just going to fall apart, drive up and blow away because some economist or politician says that’s what’s going to happen if “We don’t do X”.

At some point we have to come to the realization that indeed it’s “The people” and their behavior that drives the market, not the government. The “Base line” is created by the people and the economy will ALWAYS seek to find the baseline the people want to support, not that which the government wants to exist.

Certainly “Societies” and “Economies” have simply evaporated throughout history for many reasons. But in every case I can think of it was due to some other occurrence, war, invasion, to much government intervention, nature etc etc rather than not enough government intervention. Also I would bet the number of societies that have disappeared to factors completely out of the control of the government, invasion, nature, disease etc out number the one that government had any involvement in quit handily. But I’ve been wrong before :slight_smile:

Also I would say that most of these economies didn’t “Evaporate” as much as “Changed markets”. Often times one society would disappear and another would spring up. “Displaced”, if you will, rather than lost and regained.

~Matt

18

“Competing” on that level does nothing for the US except offer “Cheap Goods” off of others suffering.

Well… the other thing it does is remove the incentive (or possibility) of manufacturing in the US to do the same job efficiently. Instead of improving our processes, we outsource to low wage areas.

That being said we can expect that if such a “minimal workers standard” was implemented the cost of goods would go up.

Minimally… if at all. You can do a lot with robotics if you put creative people to the task. IMO we should only have “free trade” with countries that have a living standard and policies similar to our own.

However after saying that there are literally TONS and TONS of way I could cut the “Fat” out of my budget if I was in absolutely dire circumstances. Most of us look at things like, internet, cable, cell phone, two cars, gym membership etc etc and say “Well I NEED all those”. I’d also be willing to bet people’s food bills could radically reduced if they were really in a crunch.

Certainly… but what you propose is a cascading spiral of contraction. The less you buy, the more people are put out of work… who then have no income at all to buy anything, etc.

19

IMO we should only have “free trade” with countries that have a living standard and policies similar to our own.

I wouldn’t go that far as you can’t really quantify “Living standard”. I would say we only have “Free trade” with countries that provide some level of minimal “safety, environmental etc” standards. If their labor chooses to work for .10$ and hour not much we can do about that. But if their labor is only provided environments that are extremely dangerous to work in and companies to work for that are dumping mercury into the local water supply, well then no free trade.

**Certainly… but what you propose is a cascading spiral of contraction. The less you buy, the more people are put out of work… who then have no income at all to buy anything, etc. **

First the statement was meant only as an example of a way to “contract” the economy. Second not all people will do this. Third you have to stop at some point. In short I meant it as a temporary way to get to a more sustainable living standard rather than trying prop up the current one.

~Matt

20

I would say we only have “Free trade” with countries that provide some level of minimal “safety, environmental etc” standards. If their labor chooses to work for .10$ and hour not much we can do about that.

Their labor will choose to work for that if they have no better options. We can’t control what other countries do… but we can hopefully control the policies of the one we live in.

In short I meant it as a temporary way to get to a more sustainable living standard rather than trying prop up the current one.

The problem is that the sustainable level could fall to a very low one if we allow most of our present companies to go bankrupt. We could easily end up with only a few companies existing to service the few rich people with disposable income, and set our society back more than 100 years. Everyone who isn’t rich will end working hard just to afford food, clothes, and a warm place to sleep. Then what would happen to improve things?