Countryboy JJ
Rick Barton
Skyler the Weird
Wiley Coyote
BooneCountyGirl
Economic Growing Pains
In my previous essay I addressed the idea of economies evolving from a growing, dynamic state to a static one where people try to maintain position and use their assets to build monuments to themselves. Nothing derogatory was meant about service businesses; in fact, the business I operate is a service business. The point is that without manufacturing, when people only move their wealth, as Kayser Sosa notes, from one place to another, nothing is produced; the economy doesn’t grow and so it will slowly, but surely deteriorate.
Most importantly, our economy is now in this state and has been for almost 100 years. If something doesn’t change to start us on a path toward a growing, dynamic economy, we will continue to slowly fade. Don’t misunderstand; this is not something that will happen soon, although symptoms of it abound. In fact, one of the reasons Barack Obama was elected was because he epitomizes the mindset of those who find solace in the efforts to use government to offset the economic distress caused by lack of economic growth. To explain further one need look at how economic growth affects individuals.
When growth occurs people have no trouble finding jobs; their expectation is that some job will be available and they will make a decent living. If they perform well, they believe they will move ahead, they will be able to accumulate some excess for their old age, and their children should be better off than they were. But when the economy changes into one where this is no longer true many things change.
During a period of growth, people get along with their neighbors, rich or poor. People have no concern about politics; it is something you do one Tuesday a year. One’s concern is his/her job and making a good living, knowing very well some will do better than others; but since everyone is doing better, it is fine that some do even more so. But as the ability to find a decent job goes away, dissent starts to creep into the social fabric. It is not ‘OK’ for your neighbor to do very well when you can’t do at all. It is ‘wrong’ for some to be making millions while you can’t feed your family and no good prospects are in sight.
This situation occurs for various reasons but may be distilled to one of a lack of investment in productive enterprises. It is not that there is anything inherently wrong with service or entertainment, but nothing is produced by these. When a lawyer sues some company because he can, nothing is added to the economy; it is only transferred. When the Panthers win a football game, nothing is added. A football stadium does not produce anything of use, that you can wear, that is used to produce more widgets. Getting a job selling popcorn is not the job that pays the rent. What occurs here is a transfer of wealth to the football players, but that transfer doesn’t provide any additional wealth to the general population.
Unfortunately, as previously noted, this situation has existed for a number of years. Today we hear about companies sitting on millions and not investing it. Generally speaking, they are afraid to. So where do the new jobs come from? We have been dependent upon housing, and it is slowly coming back. But it will not cure our long-term ills. The people have become disgruntled and seek solace from the government. They are angry with those who do very well and seek solace from the government. They need money to pay for their housing, food and clothing and seek solace from the government.
Barack Obama, having spent some of his formative years with ACORN, sees the symptoms and says he is concerned about those who are not so well off. He wants the power to fix things and so runs for office. He wins because he campaigns on the ideals of what the people see as the answer: punish the rich for keeping their money; make everyone equal. Take from the rich to give to the poor. Tax the rich.
But in punishing the rich, in taking the savings and earnings from the rich to give to those who cannot find the jobs, the economy is further pushed away from growth into deterioration. Those who are in need of an income to feed their family cannot see this because they are too concerned about their immediate needs. Those in positions of power, especially those in government, write news laws making it more difficult to invest or to lend and so they exacerbate the problem.
They do this because the people demand they do something to help them and so must do something to show they care. But their actions are often the reverse of what is needed. They continue to protect the special interests while doing little, if anything, to enhance innovation and growth. There are also many who have the money to invest but no longer wish to do so, wanting to maintain their position; and so they too seek solace from the government. As delineated previously, they ask the government to protect them from competition. Even worse, they build football stadiums instead of factories.
Growth is the answer to our divided polity. But it is growth our political actions are inhibiting. One answer is to stop catering to those whose goal is to maintain their economic and political position. Unfortunately we have elected a president whose overwhelming message is to slow economic growth. That may not be his intent, but that will be the result of his policies. One need only examine the results of his decisions to see that most are intended to help some group that is seeking protection from change. This might be the environmentalists, unions, Social Security recipients, Medicaid recipients, government employees and those who receive any sort of benefit from government, whether monetary or subsidy or tax write-off or credit.
President Obama wants to change nothing that has gotten us into this situation because it is the situation that gave him his position. He is a man for the times. If we want to return to growth, where people can find jobs, his policies are the wrong ones. Make no mistake; Mitt Romney did not propose anything drastically different.
There are a few in Congress and in the state legislatures and governors mansions who understand that something is wrong and needs to be changed. What they might do is take the perks away from the special interests and return opportunity to those who seek a chance to succeed. Otherwise we will continue on this path and will watch sadly as China continues to become what we once were.
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Regarding “our economy is now in this state and has been for almost 100 years.” by what economic or analytic measurement?
I would submit an argument of disagreement: Let’s say for simplicity sake the US produces NOTHING, but through there intellect designs (a service) everything the world produces and is able to charge 10 times what is currently charged for design work. Could this not create a “growing, dynamic state”?
… Same argument for financial products (another service) used by other countries?
Not that this would be desirable, just possible.
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Jack, I refer to work by Carroll Quigley – The Evolution of Civilizations – written in 1961 for the thought. He uses the year 1927 as the year we crossed over into this type economy. K. Sosa makes a very detailed supportive arguement. The point is you can’t live on monuments, NASCAR museums and tall buildings whose only function is to house people who push paper from one side of the desk to another. We must have people who grow food, produce clothing, make tools. As the society evolves into one where pushing paper and monuments take more and more of our spending and investment, there is less for the general population – jobs and things. Government is another example, producing nothing but taking much.
Your argument is a typical rationalization of the intellegentsia. They are used to support whatever is going on at the time in order to reinforce the current situation and to prove the value of the intelligentsia. – See Paul Krugman.
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1913. Hmmmm What significant event happened in 1913????
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I’ll play along. How about: What is the Federal Reserve Act and the passage of the 16th Amendment? Happy 100 year anniversary of being Bent Over!
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Jack,
In the short run what you describe would work; possibly even for a couple hundred years. However, there are several assumptions that must be made by the man who does not produce his own shelter, food, and warmth. He must assume his customers will pay him on time, in a valuable currency that he is willing to accept. He must assume his customers will continue to want whatever service it is he has to offer at a price that will sustain him (of courses prices, and hence margins, are a function of the currency, vis a vis inflation/deflation). He must assume his suppliers (those who supply his shelter, warmth, and food) will also accept the currency he accepted when he tries to pay them. He must assume his suppliers are capable of getting his supplies to him in a continual and timely fashion. And so on. Point being, if any one of these assumptions breaks down, then the man goes without shelter, food, or warmth. Now, extend this out to an entire society over numerous generations. People can no longer fix anything, they can no build anything, they no longer PRODUCE anything. At some point their creditors and suppliers wake up and say, “Boys, we’ve got these people b the short and curlies. Let’s take ‘em for everything they’re worth and they’ll be helpless to stop us ’cause without us they’re helpless.” In short, those who don’t produce are utterly reliant on the kindness of others.
Now, let’s take it a step further and say the man who produces nothing gets hooked on easy access to material things via cheap credit (provided by his suppliers, of course). He will, as is man’s nature, become accustomed to operating in such a fashion and extend this to his business. Over time he will build a business model that is built not around cash flow and savings but availability to credit. He will seek this credit from his supplier, who seeks it from his supplier, who seeks it from his supplier, and so on. Eventually no one is operating on cash flow from profits, but on 30 days terms and revolving lines of credit from banks based on accounts receivables or other terms. But what happens when the chain of suppliers starts stretching to 90 or 120 or 180 days? What happens when your customer can’t pay you because his customer hasn’t paid him? What happens when cheap money becomes expensive? The society who PRODUCES goods may no longer be able to sell them, but if they produce shelter, food and warmth free of debt they can go on living without becoming DEBT SLAVES.
In the end, those who produce nothing and live on credit will become lazy, stupid, fat, and incapable of taking care of themselves. Call them debt slaves or domestic pets, either is appropriate. Now, I don’t know about you, but this sounds very familiar to the majority of people across the socio-economic spectrum that I see trudging around in good ol’ USofA today. And that worries me. For if I quit sheltering, feeding and watering my dogs they have only three choices: Depend on the welfare of others, die, or go feral. In terms of Americans who know longer know how to shelter, feed, or keep themselves warm without a paycheck, I fear they will choose the former early on (as we are seeing now) only to realize they are forced to choose the latter later on. And then we get to the middle, and that’s when the society that produces nothing dies.
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Kayser,
You are an excellent rhetorician. Your ability to take market aberrations and turn them into the impending zombie apocalypse is unmatched. Each of the examples you’ve cited have a sound basis. Your lack of faith in the long term effect of market correction is the factor that sets you apart from many of us who are equally concerned about issues such as:
- a degradation of our manufacturing base in the U.S.
- the deterioration of our education system and its ability to prepare people as productive members and not perpetually dependent on others or the government.
- the overuse and dependence on credit in our economic system
Each of these symptoms has the ability to turn into a larger and larger problem, and I suppose – by your measure, turn part of the population in feral dogs (to borrow your term). There is a need to raise a flag of warning when any of these issues takes us down a road of imbalance.
Mr. Guignard’s essay is spot on about the issues facing a society that values escalators to 3rd level seating at a football game to shiny factories that provide jobs for many. Charlotte, during this time, presents a large number of examples of these stilted priorities that legitimately feed this narrative. The stadium improvements and the streetcar seem perfectly tailored to show how we have tumbled into some kind of rabbit hole and awoken in a world where common sense seems to have gave way.
I still believe that every action will face its reaction over time. And, that reaction needn’t be a dystopian netherworld where only the people who know how to fire a 30-06, scavenge for root vegetables and dress a feral pig will be the survivors. This too will pass.
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Scott,
Thank you for reading, and the compliment (I think!). To be sure, I pray every day the scenario I so easily envision never, ever comes to pass. I am admittedly guilty of viewing things in the extreme; the world is very black and white to me based on a few foundational beliefs.
As for my, “lack of faith in the long term effect of market correction,” we have to agree first that market corrections do not exist in a vacuum – they rely on the operating envrionment in which the market exists. Secondly, we have to come to an understanding on what value or point in time we desire for the market to correct to within the scope of the current operating environment as compared to the operating environment in which the market existed at whatever point we wish to correct to.
If we dismiss (or fail to recognize) changes in the underlying realities in which the market exists we will fail to recognize that the market will not function in the manner we would historically expect. I would argue we are, for the first time in our history as a nation (and as a world) living through a market that is operating in an entirely fabricated and illusory fashion based on underlying factors. To wit, in the US alone, Glass-Stegall no longer exists, mark-to-market rules have been abandoned (See FASB), HFT algorithms and computers have replaced human traders and intuition (effectively destroying the backbone of the market: the retail investor), and most importantly, quantitative easing and artificially low interest rates have completely distorted and disconnected nominal asset values from earnings and forward potential. In accepting the premise of complex systems theory, we have to accept (and act on) the understanding that the severity, depth, length, and likelihood of corrections, divergences, volatility, and yes, even irreversible, fatal collapses, grows as the system becomes more complex.
That said, as I mentioned above, while recognizing the operating environment in which the market exists, we must also agree on where we desire the market to correct to. Are S&P 666 and DOW 1500 the real market values? Would you accept those if they meant we had a balanced budget, decreasing debt, and lower taxes? Or, is DOW 36,000 really desirable if a loaf of bread costs $450? As I’m sure you know these nominal values are merely numbers (which are easily manipulated) and not necessarily a reflection of the real economy (look at Zimbabwe; their stock market was the top global performer last year in nominal gains). Yet, millions of Americans make actual day-to-day financial decisions on these numbers alone. The fact that you or I may be better educated than this does not insulate us from the effects of their poor decision making. Likewise, if nominal values are not a good basline, is time? Is 2007 (which many now agree were the “good old days”) where we want to correct to? And if so, knowing what we know now (i.e., 2008) what would we change about the operating environment of the market prior to 2007 (say 2001 – 2006)? And, post 2008, should the Fed continue to deal with the crisis as they are (a la 1929) or would would be better off if they dealt with today’s depression as they did in 1921?
My point is, to have faith in the long term effect of market corrections we can no longer blindly rely on the invisible hand to outweigh and correct human error and folly. Nor should we allow normalcy bias to provide soft cover for our own ignorance or apathy. Make no mistake, in today’s world there are forces that can and do manipulate the market in such a way as to cause the risk of unknown and extremely dangerous outcomes to rise precipitously in ways (and with outcomes) the likes we have never seen.
Now, realizing that all of this thus far – to the average American – comes across as useless and academic at best and boring as all hell at worst, is it not necessary to exhibit some form of hyperbole in an effort to get their attention? Even you said, “Each of the examples you’ve cited have a sound basis.” Hopefully my reliance on mathematics and truth in the face of my use of hyperbolic rhetoric comes through to others as well.
It is for all of the reasons above that I find my more serious discussions on “what to do about __________” dismiss the majority of what we (as a nation) spend our time on, that being the political hot-button issues du jour that in actuality mean very little. When speaking on whatever topic needs “fixing” we spend countless hours trying to determine what usually ends up being little more than how to go about controlling other people. To me, this is not only philosophically wrong, it’s a waste of time in a nation as large and diverse as the US. And even more so when realize the US exists in the context of a global economy. Like herding cats, we will never get everyone to agree on X.
Thus, we must put aside X and turn to a discussion of what our core beliefs are and to what lengths we are willing to go to implement and defend them.
My core belief is that any just society (including its market) is grounded in, and exists solely on the reliance of, the Rule of Law and private property rights. These concepts exist – in my mind and heart – as gifts from God given to each of us inherent by birth.
It is with a heavy heart and a growing sense of despair and hopelessness that I’ve come to realize most people cannot even define these terms (as many are not even aware of them). As such, through their seemigly innocuous daily lives and personal belief systems, Americans trample these foundational concepts through their own actions or through the encouragement of others to do so on their behalf (the officially-sanctioned version of which is voting). It is important to understand they do so through no fault of their own. Most people truly believe they’re doing the right thing when they use the courts of public opinion and the justice system to force others to bend to their will whether their actions support the Rule of Law and private property rights or not.
However, this self-destructive behavior is always present in my mind. From the utterly obvious and widespread breakdown of the Rule of Law (observable from the lowest levels of trailer trash and ghetto society, to middle America and her churches, universities, and small businesses, to the opulent halls and corner offices of our largest corporations and government), to the destruction of private property rights, to the more mundane but just as realistic “Just-In-Time” nature of our nation’s supply chain (as it relates specifically to food and energy), we are, as a nation, consciously or unconsciously abandoning – and in the course of doing so, destroying – the very foundations of a just society. All the while being sure to enjoy our bread and circuses paid for mostly with other people’s money.
When observing these changes and realities through a philospohical lens it becomes quite easy to see what an extreme end could look like. My use of rhetoric to describe that extreme end is not to say this is what I believe will happen or to glorify a hero complex or other zombie fantasy, but to present a ‘tail risk’ reality in an effort to shock people out of their normalcy bias. Is it an undue use of hyperbole? Perhaps. However, from the marco-market discussion to the kitchen table discussion, things are changing ever more rapidly in the US, and not for the better.
You said, this too will pass. Jack B. said the only constant is change. I agree with you both. It is the “after” that I am concerned about. After all, I don’t have fifty years left for a long term market correction to happen.
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Very good analysis – and I agree
The basic premise I proposed would also require status-quo to remain the same. We have seen cheap labor move from China to India in the last couple of years and (as mentioned) seeing the Chinese get comfortable relative to their new found wealth, demand more. Change is the only constant.
In your last paragraph, I think you missed one other option – the dog can attack his owner to fulfill his immediate needs – i.e. kill the goose.
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Jack, re: “In your last paragraph, I think you missed one other option – the dog can attack his owner to fulfill his immediate needs – i.e. kill the goose.”
Damn, you’re right. You know, I’ve used that example a lot of the last several years and you’re the first person to ever point that out. I guess it just never occurred to me – being from the mountains it was accepted behavior to put down an unruly or dangerous dog with a single round behind the ear. Of course if things got so bad that I had to turn out my dogs to fend for themselves I could never do that to them. I would eat them first.
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