Skyler the Weird
Countryboy JJ
Rick Barton
Wiley Coyote
BooneCountyGirl
Rent-Seekers Inc.
The economy of the United States has expanded since before we were a country. This constant expansion came to be part of the norm, the expected, and so has led to people believing their children should be better off than them. But economic expansion is dependent upon certain things in society and when those things change, the ability to expand also changes. One of those things is investment in production.
When an economy is growing and savings are invested in production facilities and processes, the economy continues to grow because new employees are needed to run the facilities, who are then paid from the cash flows of these companies, giving them money to spend on consumer goods, perhaps money to save, which they spend, driving up demand, creating a need for new production facilities and so the cycle continues. This part of the economy will continue so long as producers seek to make their profits by controlling and lowering their costs.
Unfortunately, the history of civilizations tells us that mindset will change at some point (see Carroll Quigley’s “The Evolution of Civilizations”) and the producers, instead of seeking to reduce costs through efficiencies will seek to increase prices. According to Quigley this is the institutionalization of the method of expansion. We can see that in many industries where the participants seek restriction to entry or competition through government action. Needing a license to operate a taxicab, or a tanning parlor, or a beauty salon are all examples of this. They are no different than tariffs and restrictive quotas that keep foreign goods out of the country in order to maintain the price for domestic producers. A perfect example is sugar, where the international price is usually one-half the domestic price. The $3.5 to $4 billion this costs the US consumer annually flows directly to the sugar producers. Is Duke Energy any different? Are the car company bailouts or the cash-for-clunkers program any different? These are all examples of the change in an economy from one of growth to one that Quigley calls an age of conflict.
We see evidence of this conflict almost daily. Jobs don’t exist and are not being created, so people are upset. Instead of creating new productive, more efficient facilities, businesses and individuals seek solace from the government, and those who are opposed to such comfort become their enemies. Where once the people were united in seeking new ways and opportunities, where all would be lifted by the common rising tide, they become divided as one group seeks to maintain or increase its position, not by hard work and the implementation of new ideas, but by government control and transfers, by what is commonly called “rent-seeking.”
There is another side to lack of investment in production, which has to do with spending on non-productive edifices whose main purpose is for show. Large public buildings become monuments to the officials in charge when they are built. Libraries are overbuilt, adding nothing to their function but wasted, non-productive investment in their pleasant lobbies. Court buildings are among the worst. This is not limited to public building, but occurs in the private sector as well. The Panther’s football stadium is a perfect example. Built with a combination of public and private savings, its function is solely one of entertainment. It will produce nothing, yet the investment there could have built a new factory, producing goods and jobs.
Because this waste of investment is detrimental to economic expansion and thus job growth, intellectual arguments must be made about why it is a good thing. In this case from the uptown paper, Mr. Steve Luquire, who owns an advertising company, performs that function for the Carolina Panthers and their bid for looting the taxpayer. His is the typical argument about why this is an investment in a positive economic facility. His is the typical propaganda of an advertiser. There is enough truth to make one believe, but the fact is the facility is nothing but entertainment, producing nothing, and reflects the change of a growing, expanding economy to a static one where those who have try every avenue they can to maintain their position. What Mr. Luquire argues for is government taxing of the people to transfer to this monument of wasteful investment. What would be better for the economy is letting the people keep their money to be spent on things that are to their personal benefit, which might encourage a factory to stay open or a new one to be built. What Mr. Luquire and friends propose is the slow deterioration of our economy while saying otherwise.
The fact is government has become complicit in the lack of expansion of the economy; the tax transfer to the Panthers is just another nail in the coffin. If we want the people to have jobs, the economy will have to expand; and that will not happen so long as those who seek a free ride from government are in charge.
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……….and the producers, instead of seeking to reduce costs through efficiencies will seek to increase prices………..
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This is exactly what Wal Mart has done to become the largest retail corporation in the world, the largest employer in the world and the third largest public corporation. They have taken inefficiencies out of the supply chain and other areas to reduce costs and pass along those savings to consumers. Yet they continue to be hammered by government regulations, (many of them local trying to “keep them out”), unions and other groups trying to make Wal Mart get in line to what will give them a piece of the pie they feel entitled to.
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I totally agree that subsidies should stop, especially sugar subsidies that have been in place for decades.
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The question is, how do we convince a manufacturer who makes shirts to keep his plant in the United States and make shirts at a cost of say $20.00, versus relocating overseas where the same shirt can be made and shipped back to the US for $10.00?
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Wages, cost of raw materials, benefits, unions, taxes and government regulations all contribute to the extra $10.00 in cost to that manufacturer to produce that $20.00 shirt.
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But a $10 shirt will last about six weeks and two washings before the stitching starts to come undone.
Buy it nice or buy it twice.
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You missed the point. Okay, let’s pick a very well known US brand, Levi’s.
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The shirt was just an example.
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Lewis – your points regarding rent-seeking behavior are made well. The only point of which I disagree is the idea that good jobs are only those that “make something” in factories. A free economy has a broad array of jobs – not just factory jobs. A balanced economy has the factory jobs as well as service sector jobs. These jobs can include entertainment jobs and even make a venue such as Panther Stadium a positive economic facility. The “rent-seeker” in this situation would prefer to lower his costs for doing business by foisting a large portion of the costs required to demonstrate to his customers that he is superficially improving “the product” and thus raise ticket prices as his seeming only path to growth.
I’m surprised at the lack of ingenuity. I would think there are other ways to grow my business if I owned a 75,000 seat entertainment venue. But that would take work, creativity and a real investment of effort. It’s much easier to sit back, hire a few consultants to make the case of having taxpayers bolster your net worth.
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Scott, in the short run you are correct. In fact the economy will survive for decades, even centuries, doing exactly as you say. But in the longer term, the waste of stadiums, tourism, government programs, are all dependent upon what came before and allowed them to exist, which is production. As investment in that area falls and is transferred to the pleasure seeking, the society slowly, but surely, deteriorates.
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That’s a kind dystopian, zero-sum world view for a free-marketer.
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Interesting choice of descriptors, but thank you for reading and writing.
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Jobs are either productive (meaning, they create wealth) or they aren’t. Both types can co-exist in a society, but if you’re economy is based on non-productive jobs then you’re going to fail. An economy with a majority of productive jobs will not fail.
Whether a job is productive or not is determined by whether that job creates wealth.
Wealth – by the only true definition – in the value of an object which was produced by digging stuff out of the ground and turning it into a product that can be sold.
By this definition, a person who works at a car wash or sells insurance policies or installs your roof and so on is working in an unproductive job. None of these jobs create wealth.
So, what gets the balance of jobs out of whack? In short, the amount of capital in an economy and the cost of money.
To wit:
If money is cheap (low interest rates) then it becomes attractive to use it for consumption and unattractive for savings. This destroys capital (as capital comes only from savings), it forces investors (in search of yield) into risks they otherwise wouldn’t take, it drives money into unproductive and consumptive uses (like using debt to take a vacation), and most importantly prevents wealth from being created.
If money is expensive (high interest rates) the opposite is true. Savings becomes attractive, capital is created, the use of debt for consumptive purposes decreases while the use of debt (and capital) used for productive uses increases.
So, knowing that, we can easily determine which jobs are productive and which are not, as well as why we should embrace HIGHER interest rates.
And, of course, we all know who is in charge of (manipulating) the interest rates. So, yes, I agree with Lewis that govco and that private cartel called the Federal Reserve are the problem; if interest rates were set by the market we never would have had a 2008 crisis. But then again we never would have seen the false “growth” of the last 30 years. But the piper will always get his due. Mathematics assures of this.
While many people can and do get rich in unproductive jobs, in the end they are simply helping destroy their own society in the long run.
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Since Kayser’s comment doesn’t generate a “reply” option, I’ll reply above it. The problem seems to develop around the “only true definition” of wealth. This is an unnecessarily narrow definition of wealth under about any branch of economic theory. Such a reductive view of the breadth and depth of the economic system fails to acknowledge, even on its most basic level, the collaborative and dependent nature of any economy on both manufacturing and services.
Even if we want to ascribe to this type of view and say that “gold” is the only kind of wealth that is the “true” wealth. Writing off the guys who build and repair the mine equipment, who provide clothing to the miners, who prepare the food for the miners to eat, who mend the miners when they injured, and I could go on, and on… Writing off all these people’s activities as part of “helping destroy their own society in the long run,” seems to point toward an ignorance of the collaborative role of a balanced economy.
There is no doubt that an economy can get out of balance and the imbalance can be detrimental (see “knowledge economy”, “service economy”, “creative class”). In the end, a balance is made – sadly, and too often, at the behest of the piper looking for payment.
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Scott,
The way the site works you have to Reply to the original post in the thread; kind of weird, but as you can see it put your reply below mine in the proper place.
I don’t have time to reply otherwise, and won’t until later this weekend or early next week, but suffice it to say for now that we live on a planet of finite resources (including capital); we are either productive with them or consumptive of them. One is wealth, the other is not. Please show me how the laundry mat that washes the miner’s clothes produces wealth greater than the resources it consumes. Bear in mind I didn’t say these consumptive jobs aren’t necessary or even desirable, I said they are non-productive (meaning they do not create wealth). Just because money changes hands and someone’s pile gets larger does not mean wealth was created. That’s just moving money from one pile to the other.
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Re: “Bear in mind I didn’t say these consumptive jobs aren’t necessary or even desirable”
No, you said they are “simply helping destroy society.”
The majority of any economy is built on these transactions, and while you may demean the transaction as simply shifting money from one pile to another – it is how most people eat.
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Scott,
The point is, and I still don’t have time to properly respond, is that you consider a pile of currency as wealth. Knowing the government can devalue or demonetize currency at any moment, I don’t consider that currency wealth. A store of value, yes. Wealth? No. As for how people eat – using fiat currency – that’s their problem, not mine. I eat by what I raise, grow, and kill. That is wealth. Not dependency on a fiat currency and a truck to bring it to me.
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Scott, it is the wasteful expenditures, football stadiums, NASCAR museums, race tracks, $10,000,000 homes, gambling casinos, overbuilt government buildings, research on how ants have sex, tax breaks and credits for solar power and the list of wasteful expenditures goes on. It is the waste which is the problem. It is not that it ‘destroys’ anything but does nothing to create, only spends. If invest in capital is to help the economy and thus the people it needs to be in things which expand the economy creating new ways to make more. All the things listed are no different that a good massage. Money changes hands, it feels good, but it produces nothing. Tourism is no different. It’s fun, money changes hands, nothing is produced so the jobs add nothing to the economy even though they ‘count’. So too do lawyers fees, often exorbitant, count. They move money around but create nothing and so the people are poorer. The evidence is all around you. People are without jobs, yet the NASCAR museum, the coliesum, the football stadium, the racetrack, the new baseball stadium, are all wonderful things. But produce nothing so the assets, the wealth of the people is spread around, but not increased.
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Scott:
You said “The majority of any economy is built on these transactions”. Let’s take a look see how that works. Using an old economics joke will illustrate the point ….
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It is a slow day in the small Minnesota town of Marshall , and streets are deserted. Times are tough, everybody is in debt, and everybody is living on credit.
A rich tourist visiting the area drives through town, stops at the motel, and lays a $100 bill on the desk saying he wants to inspect the rooms upstairs to pick one for the night.
As soon as he walks upstairs, the motel owner grabs the bill and runs next door to pay his debt to the butcher.
The butcher takes the $100 and runs down the street to retire his debt to the pig farmer.
The pig farmer takes the $100 and heads off to pay his bill to his supplier, the Farmer’s Co-op.
The guy at the Farmer’s Co-op takes the $100 and runs to pay his debt to the local prostitute, who has also been facing hard times and has had to offer her “services” on credit.
The hooker rushes to the hotel and pays off her room bill with the hotel owner.
The hotel proprietor then places the $100 back on the counter so the rich traveler will not suspect anything.
At that moment the traveler comes down the stairs, states that the rooms are not satisfactory, picks up the $100 bill and leaves town.
No one produced anything. No one earned anything… However, the whole town is now out of debt and now looks to the future with a lot more optimism.
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In this example, 100% of the transactions are exactly of the nature you’re saying are the majority of transactions in modern economies. I’m not disagreeing with the truth in that statement; they are. But as you can see simply because the transactions exist – and even serve a purpose (retiring debt) – this does not mean they’re healthy for the economy. Money changing hands does not (necessarily) indicate that any wealth was created. If this was the case we could all get rich using the ‘broken window fallacy’ often used to illustrate the inaccuracy of liberal economic thought; that being that if we need to put people to work we could just start breaking windows so people would have to start remaking them, thus creating jobs. Of course this doesn’t work because replacing a broken window is not creating any wealth; it is in fact destroying wealth as we’ve now consumed twice the resources and labor to the same output even though we a) created a job, and b) someone got paid. Thus the net result is a non-productive job and the destruction of wealth. Add in that most transactions in modern economies are of this nature AND are financed via debt with cheap money and you have a recipe for, well, the situation we’re in today. We’ve pulled forward all the future demand we possibly can, artificially inflated asset values, destroyed our capital/savings, and forced ourselves into a position of facing a monetary deflationary depression or an inflationary political hyper-event, neither of which are we willing to yet face, but are as sure as the sun rising. This is what happens when you reply on consumptive transactions instead of productive transactions, which is why I said the people in those jobs are slowly helping destroy their society in the long run.
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I’m beginning to see that you choose your definitions and the application of certain economic principles to validate the narrative you promote. The “broken window fallacy” is not really what we’re talking about here. This argument is used primarily to counter arguments about the economic benefit of destructive events (ie. Hurricane Sandy, Tsunami’s, etc…) and not really beneficial in a conversation about the breadth and depth of a modern economy. Because in the end that IS what we are talking about. It’s lovely that you grow and kill your own food. The vast majority of our society is not in a position to do so. So, telling gainfully employed – productive individuals that they are really just involved with “consumptive transactions” and “slowly destroying society” isn’t really accurate – although you can define them a that for your narrative.
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Scott,
Excellent conversation and debate we have going here.
I’m not promoting any narrative nor making any definitions outside of decades-old accepted economic thought. And yes, telling those employed in consumptive transactions that they are contributing to the destruction of their society is entirely accurate. Perhaps it’s not what you want to hear, but math is math.
As for the broken window fallacy, I agree it does not exactly apply to our discussion here, but it does illustrate that just because a job exists and serves a purpose does not mean that job is productive.
Look, I’m not saying these jobs are invalid. I like the fact that a guy comes and sprays my house for bugs, I like the Internet, I enjoy going to Panthers games, I like riding on the Blue Line, and getting my dry cleaning done, and going on cruises, etc. But I also understand these services and the jobs they create do not provide necessary functions for human survival. From the most simple agrarian society to the most complex post-industrial society certain basic needs must be met: Shelter, warmth, and food.
In a binary example, those basic needs can be 1) met by the members of the society or 2) purchased from others outside the society. If they are purchased from members outside the society then the members of the consumptive society are utterly dependent upon the members of the producing society. I use the word dependent because the consumptive society’s basic human needs will be met only for as long as the productive society is willing to accept payment in whatever form the consumptive society is able to make such payment. This may be some form of service or currency, but if the productive society finds another market in which to sell their goods at a higher form of compensation, then the members of the consumptive society will see their standard of living decrease (as in dry cleaners go away because the guy is at home growing a garden), or they will in a most extreme case die off if they don’t adjust and become productive. Yes, I am speaking to extremes, and we already agreed above that a balance of productive and non-productive jobs is acceptable. But when 70% of our GDP is based on spending, another 18% of GDP is government spending, while the majority of our jobs are service-based and we have a greater than 100% GDP to debt ratio, then it is not hyperbole or a narrative to state that we’re an extreme case where we’re likely to be forced to lower our standards of living in an effort to become more productive.
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