Have I misunderstood Econ 101, or did someone else?

[Tansy_Gold]

Crossposted from another forum.

And if I'm crazy or stupid or ignorant, well, I can always append an Emily Latella "Never mind."

Is there something about the fundamentals of economics -- and by that I mean economics of any political persuasion -- that is simply lost on the majority of human beings, including more than a few DUers? Or have I been operating on a flawed premise all this time?

It seems to me that economies, all economies, start with three basics:

1. Agriculture and other food production (including fishing, hunting, raising crops, gathering berries, whatever)
2. Mining and other resource extraction (including timber cutting)
3. Manufacturing of all objects not found naturally.

The first is essential to human existence at any economic level, even paleolithic.

The second is essential to progressing beyond #1 to #3 and the creation of transferable wealth.

All of these require the addition of human labor in order to make them useful to the human creature. Homo sapiens sapiens has to pick the berries or grab the fish outta the water in order to eat. That's labor. The addition of labor makes the resource usable.

There is no value to anything without the addition of labor.

It's labor that picks up the stone and takes it back to the cave and shapes it into a clovis point. It's labor that pick up a long straight stick and takes it back to the cave.
It's labor that fashions the string from animal sinew and uses it to attach the clovis point to the stick and make it into a spear.
It's labor that uses the spear to bring down the mammoth.

Okay, have I got it right that far?

We're talkin' about An Economy at the most basic level. No money, no loans, no prime vs. Alt-A mortgages. Human subsistence. If you got questions or wanta throw in a "Yeah, but what if...?" you can just shut up 'cause you can't interrupt my rant while I'm the one at the keyboard.

So the point is that something lying on the ground or in the ground or growing on a bush or hopping down the bunny trail represents potential usefulness but it only becomes useful through the application of human labor. On the ground or on the tree it's nothing, until the application of human labor makes it something.

As our species progresses, using its talents and skills to turn resources into useful things, it develops other products besides food and the tools to acquire food. All of those products are produced with human labor. Whether it is hollowing out a log to make a canoe to go further out on the lake and spear bigger fish. Whether it is fashioning needles out of deer antler and thread out of deer guts to sew together deer skins into warm clothing that allows comfortable movement. The production of these objects constitutes the creation of "wealth." Useful items that can be accumulated and/or transferred are "wealth." The clan with a good canoe that can go out in the lake with four spearfishers and bring back a mess o' fish every day without sinking is a "wealthier" clan than the one otherwise equally equipped that has no canoe.

These are possessions. They have value insofar as they are of use to the humans who own them.

Our species develops further. One group of folks makes really great canoes. Their spearfishers always bring home more fish in a single day because their canoes are more stable and leak less, allowing them to stay out on the lake longer. The problem is that they don't do so good at making spear points. They have to take an extra spearfisher on every fishing trip because too many of their throws don't spear a fish. So they bring home more fish in their better canoes, but it actually takes MORE labor than if they had good spearpoints. Let's call this clan the Boatwrights.

Their rivals on the lake can only stay out on the water half as long. Their canoes are wobbly and they ship water easily with the slightest waves. But these folks make superb spears. They know where there's a deposit of large obsidian nodules from which they make razor sharp spear points. And they've perfected a technique for making perfectly balanced spear hafts to which to attach those points. So even though they don't bring back as many fish in a day's outing as the Boatwrights, the Spearmaker clan only spends one quarter of their day on the lake. They can actually go out every single morning, bring home the day's catch before noon, and spend the rest of their day making new spear points.

The Boatwrights, on the other hand, come back late in the afternoon, exhausted. They've got a two- or three-days' supply of fish, a good portion of which will rot before it gets eaten. And they can't go out again tomorrow because they're just worn out from throwing their spears with dull points.

Well, those of you with any imagination at all will probably figure out that the Spearmakers and the Boatwrights are going to get together and EXCHANGE THEIR LABOR. Now, with better boats AND better spears, they can bring home tons of fish every day.

In fact, they'll have way more fish than they need or can even consume. They have SURPLUS GOODS. So what ends up is that the Boatwrights build boats, and the Spearmakers make spears, and the best of each group become the Fishers who go out each day and bring back some fish to eat and some to trade with the tribe in the inland forest, the Hunters, who have perfected a nice little snare for rabbits and therefore have more dead bunnies than they can use.

So now we've got a nice little economy going on here. Boats, spears, fish, snares, rabbits -- all acquired with LABOR. It's LABOR that produces everything. One group doesn't "buy" the boat -- they "buy" the labor that turned the fallen tree trunk into the boat, and they "pay" for it with fish caught with human labor. The neolithic housewife doesn't "buy" the freshly killed deer; she buys the hunter's labor in stalking and killing it.

Nothing happens without labor.

Advancing a few generations, we now have a rudimentary civilization. Our Boatwrights and Spearmakers, Fishers and Hunters, Skinners and Potters, Farmers and Shepherds have built a little town with little huts. They have some petty crime and occasional raids from a distant tribe. They need some watchers, people who will stroll through the village and keep their eyes open for trouble, whether it's kids maliciously pulling down thatch just before a big storm or those raiders from across the river. The problem is that the watchers will have to have places to live and food to eat, so how can they take time away from those necessary activities in order to patrol the village?

This can only happen if the other villagers produce enough surplus to "pay" the Constables for their services. And since no one knows ahead of time which villager will actually need the Constables' service EVERYONE chips in to the common fund. And so taxation -- and socialism -- are born.

Let's move up a few more generations. In addition to the Boatwrights' canoe business and the Spearmakers' weaponry shop, the village now has a pottery factory, a cart factory, a tannery. They're so good at what they do that every family has a private cart, a set of every day pots and "good" pots, all kinds of wealth. In fact they have so much that they're trading their products around the whole region. They're "buying" sparkly stones from the Miners up in the mountains and fancy furs from some Minskies that come into town once in a while from parts unknown. They're even able to pay priests to do nothing but pray all day. Whether the priests actually get results from these prayers is questionable, since everything is supposed to happen after death -- those 72 virgins and all that -- and no one has provided any proof, but anyway it happens. The villagers have a lot of surplus LABOR stored up in their possessions.

Eventually of course they establish a medium for their trading, and money is born. This makes it easier to exchange the goods they make with their labor and to pay for those who don't produce any actual products, like the hairdresser and the musicians at the daughter's wedding.

About that wedding. See she was planning to get married next fall, after the harvest was brought in, but she and the guy got to bundling up one winter night and you know what happens, so to save the family's reputation, the wedding got moved up to spring. And now the dad has to go to the musicians and says, "Hey, fellas, I woulda had the money in October but we gotta have this wedding in April, so can I like pay you half now and the other half in October?" And they talk it over for a while and tell him, "Yeah, sure, but it's gonna cost you more." Rather than lose face by having the wedding after the baby comes or, worse, having a wedding without musicians, Dad agrees to pay more. And voila! Credit was born.

Credit is essentially the buying of Time. Time does not make things. Only Labor makes things.

Whether it's the individual family, the village, or a whole 21st century nation, debt is the purchase of Time, and the only way to pay off the debt is with Labor.

If you have two families or two villages who trade only in services -- whether it's protection from thieves or teaching the children -- there can be no creation of wealth for exchange. Wealth comes only from the production of goods beyond the needs of the producer, and then those goods can be exchanged for other goods or for services. At some point in any economy more complex than simple individual existence, the essential three activities have to be engaged in and be healthy. Any complex economy that doesn't provide its own food, procure its own raw materials, and manufacture
its own products cannot survive.

Time is not a viable commodity. Time, in the form of credit, can facilitate 1 or 2 or 3, but it cannot take the place of any of them. And when the extension of credit, or the sale of Time, exceeds the ability of Labor to repay the debt, then the economy collapses. It may be an individual's maxed out credit cards, or it may be an entire nation that has such a voracious appetite for the things other nations' economies make or for useless commodities like War and Faith that it cannot pay for them.

And when the sellers of Time, those who have tried to alter reality so that the villagers believe Time is a real thing and a necessary Thing to their existence, more important in fact than the very real goods and services that they need to remain alive, then the economy begins to collapse. People begin to sell more and more of their Labor -- which is ultimately the only source of Wealth -- for less and less of value. Like the Boatwrights in their marvelous canoes that could go out on the lake all day and never sink or turn over, these people are working harder but getting less in return. If it used to take five fish to buy a bucket of berries, it now costs 12 fish.

Why did the price of berries suddenly go so high?

Well, there's a clan of folks who weren't any good at canoe building or spear sharpening so they went off to live on some scrubby swampy land loaded with mosquitoes and prickly bushes. All they had going for them was the berries on those bushes. They tasted good, but no one wanted to get down in there with the mosquitoes and the prickers on the bushes. The Berry clan, however, found out that they could pick a few extra berries, take 'em down to the village and sell 'em for lots of "cash." And then they found out that they could pay people a little bit of that cash to pick berries for them. So they'd sell a bucket of berries for five fish, pay someone two fish to pick 'em, spend another fish on the bucket, and pocket two fish for profit! Such A Deal!

And capitalism was born. The Berrys didn't do any work. They added nothing in Labor to the production of the fruit they were selling. They owned the land and they hired some Harvesters to do the real work, and they kept the profits.

And the next year it was six fish a bucket. And the Berrys bought out the family who made the village's leather. The Tanners retired and the Harvesters brought in some immigrants to run the tannery, but the Newcomers didn't control the price of the product or the quality. They didn't own the tannery the way the Tanners had; they just sold their labor to the Berrys. The Berrys paid them way less than the Tanners had made, but the Berrys were able to lower the price and still took the profit. And they used that profit to buy out the tannery in the next village and the next. The people in the villages had nowhere else to buy their leather, and they knew the new stuff wasn't nearly as good quality as when they were buying from the people who actually owned and ran the business with their own LABOR, but hey, the prices were cheap and what could you do?

Next thing you know, the price of berries is eight fish a bucket. The Berrys are getting richer all the time, but they are producing nothing. And the priests who make all the after-death promises are saying the Berrys are perfectly right in what they do, so all the people who live in misery as a result of the Berrys are told to shut the fuck up!

The Berrys and all of their ilk eventually create the whole banking and "insurance" industries, all of which create no wealth; they simply facilitate the transfer of it, sometimes for good, sometimes for not so good, and either way th bankers and the insurers take their cut.

What too many of us have not realized -- or not been taught -- is that without productive LABOR, the kind that produces the transferable wealth, there can be no economy. Banks are not an economy. Insurance companies are not an economy. Stock markets are not an economy. Labor is. Labor that produces useful goods and services (such as health care and teaching that facilitate labor to produce physical goods) is the foundation of any and all Economies.

We need the Boatwrights and the Spearmakers. We need the Carters and the Fishers and the Farmers and the Miners and the Tanners and the Shoemakers. It's possible to have an economy without the Bankers; it's not possible to have an economy without Labor.

Until more of our people understand this, we won't be able to turn this catastrophe around. And sadly, there are a whole bunch of people on DU even who don't get it.

Or else the one person who REALLY doesn't get it is




Tansy Gold

[BrklynLiberal]

1. Stop! Stop!! That flash of reality is blinding!!!

[Hannah Bell]

2. you understood. the rest = bait & switch.

[PretzelWarrior]

3. just look at how cotton farming takes place today vs. 50 years ago

and you will see what people are talking about re: productivity and a focus on relying on high skill labor that help to automate basic manufacturing and agricultural processes.

No one is saying anything could happen without labor. What they are saying is that our population continues to rise and businesses are continually looking for ways to automate our daily modern lives to remove some of the labor content.

Ever self check out at a grocery store? I bet you couldn't do that 20 years ago. Ever do your own banking online and at an ATM versus having a teller do it?

It took some form of labor to develop and build those automation tools, but once they are built and refined and the general public becomes socialized to those new products, it has the net effect of removing labor from millions and billions of transactions every day.

[Tansy_Gold]

7. that's a change, not a removal

Labor builds the machines, the scanners, the computers. No labor = no machines, no technology.

Econ 101 doesn't say labor has to remain static or even muscle-intensive. Labor can change and even become more efficient, which is what happened with the Spearmakers.

Also, do not equate "jobs" with "labor." The cashier at the grocery store -- and I've been one at more than one time in my life -- does not produce anything. She/he facilitates the exchange of wealth -- cash paying for food -- but does not in and of herself produce anything. (This gets into the distributive aspect of a modern consumer/commodity economy in terms of services that, through convenience, add value/cost. That's more for Cost Accounting 101 than Econ 101.)

The cottonpicker, on the other hand, achieves the conversion of plant part to picked boll. The cotton plant itself cannot be fed into a gin (either Eli Whitney's small hand-operated one or a modern mechanized one) but requires an intermediate process separating boll from plant. This can be done by hand (see Sally Field in "Places in the Heart") or, more recently, by large machines resembling corn pickers or wheat combines.


Tansy Gold, who lived in Arizona cotton country for 20 years

[PretzelWarrior]

12. so I guess I don't understand your question

are you saying there is a group of people looking to remove labor from the equation?

You and I will quickly be getting into ECON202 or higher with regard to macroeconomics and comparative advantage.

[Tansy_Gold]

26. It's a rhetorical question, aimed at those here on DU

who post or even those who just lurk and still believe that pouring bazillions into Goldman Sachs et alia is the cure for "the economy."

Too many have lost sight of where economies come from, and if they don't understand the basics from Econ 101, they can't go on to the more complex issues of Econ 202 and Econ 486 and so on.

Hell, I'm not even ready for that yet!

It's the whole "Thank God it passed" bull shit and the "What would we have done if the economy had collapsed!" when in reality it was just a bank that was on the verge of failing, not "the economy." (Why not let AIG go down the tubes? Hell, they weren't even a bank! They were just a gambler on steroids that welched on its bets!)

My intention was to spark discussion, and maybe allow that spark to light a little flame that would enlighten those who have only learned economics as "explained" by Lou Dobbs, Paul Krugman, Tim Geithner, etc. None of us is in a position to really personally benefit from that kind of economic theory whether it's correct or not. We need to understand how "economics" is built into and affects our everyday individual lives. And that includes why "free trade" is nothing of the sort and how it hurts both the underpaid producers and the bargain-hunting consumers, but that's for another post.



Tansy Gold, proud proponent of Dorothy Smith's sociology of everyday life and therefore much more of a social scientist than an economist

[PretzelWarrior]

29. well, I do appreciate the thought provoking discussion. let me just say this...

as our economy and very lives become so wired, interconnected, and automated. as the methods of monitoring a business and its health and results becomes easier to preprogram in, the more likely that one business' decision will quickly have reaction from other business.

As disgusting as all that money going to Goldman Sachs and other banks/insurance really was.....they had/have our government and economic system over a barrel. Despite their lack of "production of goods" you mention, you might want to remember that interest income is part of the income method of computing GDP so from a purely economic standpoint, what the guys are doing to utilize their capital in lending was, in fact, creating value.

The folks who are the bankers and lenders are essentially able to multiply the money in the system by taking deposits, lending them out at interest and holding only a certain percentage cash in reserve. This is exactly why the flow of credit created such a hyper economic picture.

too much credit creates speculation markets and bubbles. too little creates stagnation of economy and potential depression.

although I 100% agree with you that there needs to be a balanced approach to bailouts that not only get credit markets going but also help main street production of goods and services, the fact of the matter is they had to shore up the fundamentals of our financial foundation of an economy before they could engage in stimulus activities that help businesses.

In fact, since a lot of the corporate paper had ceased to be written and companies who also are highly leveraged with notes payable were not able to secure more funding, the fix to the financial markets and getting lending going was of much greater power than merely handing a few hundred billion to main street and corporate business parks.

[earcandle]

69. I appreciate this perceptual field that educates and allows us to play about and banter in!

We need some small talk so we can grok the big talk.

I refuse to become a CPA until they stop teaching derivatives
in Intermediate Accounting.
They prop up criminal behavior that undermines the economy at
best. 

But I think everyday folks can understand the story you tell
above. 
I am going to post it on my site.  Thank you. 

[wolfgangmo]

80. Our economy is built on main street

Not on wall street.

[truedelphi]

52. This response, and yr entire OP are great pieces of writing.

And I never knew that Arizona produced ANY cotton.

It is comforting to know that you have thought about Econ 101 and come to many of the same conclusions as me. Though I have not been able to articluate them into one overall piece. Thanks!

[Tansy_Gold]

53. Arizona and the Five C's

Cotton
Copper
Citrus
Climate
Cattle

[raccoon]

67. And Cactus? LOL Great op. nt

[Grinchie]

84. Claiming that a resource not used is worth nothing is misleading

Simply because the fact that it evolved has givien it a add to the environment one way or another. A good example is a Tree. You can look at it as useless if left alone to grow for another century, but I see it as a valuable producer of goods and services that will outlive me in many cases. It produces annual litterfalls that nourish my crops, while at the same time it may or may not shade out my crops, or obstruct me for "Increased Efficiency" by disallowing mechanization. It also absorbs tons of water that would otherwise wash my soil away, or beat the understory to death. It provides homes for Birds, Bee's and epiphytic plants. It protects me from the brutal sun.

It also provides Timber if the need arises, but as a source of money, the crop cycle is too long to depend upon it, so I'd rather just leave the trees and harvest the fruit (berries) and utilize it efficiently for the hundreds of products it provides.

Nearly every plant has some sort of invisible value, and I think that casting value it dependant on man is a bad argument. It removes the reality that Nature runs on her own economic system, which is based on energy inputs, chemical reactions, and birth and death. Man is too arrogant to be able to see the interactions, and his kneejerk reactions in regards to resource utilizations are going to kill us all.

[Tansy_Gold]

92. Those are all potential values, but until they are put into

use they are not part of the economy. And that's what I'm talking about.

We're only dealing with Econ 101 here, not more advanced studies.


Stick to the basics, okay?

[Grinchie]

99. What is more basic than the needs of the Ecosystem?

Jesus H. Christ!

Yes Schoolmaster, I won't dare to raise any other inconvenient externalities until the Students are paying 10K a year in tuition, ok?

Who the fuck put you in charge of the Laws of Nature?

[Hannah Bell]

60. yeah, aren't those scanners great? here's a hint: they don't "remove"

labor. they let the customer do the work so they don't have to pay anyone.

[GinaMaria]

72. but the price of the items remains the same

interesting huh?

[krispos42]

82. It's an increase in productivity by the companies as a whole

It's been going on for quite a while, and to be expected. Nobody is saying we should go back to using oxen and mules to plant our crops simply because John Deere's tractors affected agricultural employment.

The economy adapts... more worker productivity simply means more diversity of products.

[lumberjack_jeff]

4. When the first capitalists realized they could get governments to patent the canoes, berries, spears

tanning solutions and shoes, they were good to go.

[demwing]

5. So what is it that you think DU doesn't get about economics?

and, more importantly, why don't we get it? Finally, and of the greatest importance of all, what do you suggest we do about all this not getting-it-ness?

By the way, that was a very enjoyable essay. :)

[Tansy_Gold]

8. Thank you for the compliment.

It's not DU that doesn't get it; it's the DUers who insist that saving the banks and Wall Street was/is essential to saving the economy, but saving industries like the auto makers isn't. These are generally the same people who insist the stimulus is reviving the economy because it's saving teachers' jobs.

Obviously, my essay doesn't cover all aspects of a more complex 21st Century economy, with the complications of patents and copyrights, regulations (or not) and enforcement, wars and taxes and so on. But if people persist in believing the stock market is "the economy," we've got some serious problems.



TG

[demwing]

28. Agreed. And I believe that stimulus should be applied

from the bottom up, not the top down. Wasn't that a Reagan economic policy? We should inject cash where it will get spent by creating jobs where there are none. Surely we have enough bridges in this country falling apart, why not hire a few thousand people to fix them? Why not renew the National Parks program? Why not hire inner city reconstruction workers to reclaim and rebuild crumbling areas of the country so that small businesses would be encouraged to open their doors, then open a wave of government loan offices to directly invest in those areas, to give those newly encouraged small business owners the capital they need to succeed?

Imagine how many jobs could have been created following that model...

[Greyhound]

6. "Capitalism" vs. currency control.

"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning." - Henry Ford

[Sinti]

10. +1 We live in the age of cunning men

who would make slaves of your children, have you believe you've been blessed with the honor of servicing them.

[earth mom]

9. Problem is that too many people in this country think they are "too good" to be called laborers

and they go to extreme lengths to prove how their college education makes them different and so much more special and better than that laborer with the high school diploma down at the factory.

Sorry, but if you work for a paycheck, you are a laborer.

[jimlup]

11. The people who don't get it are the folks drawing the $15 million bonuses!

They don't get Economics 101 and yet "they are the brightest and best".

The other part of Economics 101 that these idiots don't get is that we can put an END TO THEIR STUPID GAME IN A COUPLE OF WEEKS. You detailed it pretty clearly in your discussion. Since money is nothing but paper all that has to happen is for folks to actually REALIZE THAT! Then their whole house of cards falls down - AND FAST!

They think we are their slaves. This is only because we don't realize that we actually control ALL THE LEVERS OF ACTION. Their wealth is nothing except for our labor. If we recognize this then we can stop them in an instant.

[Hannah Bell]

61. i'm sure they get it.

[jobycom]

13. That's pretty much it, except maybe a little negative on capitalism. But yeah, money is labor.

That's the part Republicans don't get. Money is simply labor made transportable, and only labor gives money its value. When a stock market or a corporation like Enron or a Ponzi system creates the illusion of wealth by manipulating money, eventually the system will fall because there is nothing to base the value of the money on. The coyote's legs are still churning, but he's over the edge of the cliff, and he will fall, even if he thinks he's still running.

Capitalism in its basic form has a purpose, though. It allocates resources--labor or materials--where they are needed. People want, maybe even need, the berries in your description, but it is not economically feasible to pick them. In order for your Berrys to pay labor to get them, they have to have money to pay, and labor to hire. Both imply surpluses. If the Berrys didn't have more money than they needed--which can only happen when whatever labor they provide is more valuable than the labor they trade it for--and if there weren't laborers who could make more picking berries than doing whatever their natural skill is, then the Berrys could not make a profit from paying others to pick berries. And the Berrys have to charge what people are willing and able to pay. If they charge too much for the berries, people will eat something else. If they pay too little for the labor, laborers will do something else. The capitalist Berrys have to provide the right price at both ends of the transaction, or they have nothing.

That's how a capitalist allocates resources. They have access to the berries that no one else can profitably pick while doing their regular job, and they have access to laborers who are underemployed or unemployed. They use their organizational skills to bring them together. Organizational skill is a type of labor. If no one needed the fruits of that skill--in this case berries--no one would buy the product.

Move on to the leather. The Berrys have made a profit from the berries, and invest in buying tanneries. They need three things now. They need the resource, meaning the tannery, they need the laborers, in your example the immigrants (which opens up another question of how wide a circle is drawn around an "economy," since the immigrants would only be available if their own economy wasn't paying them better), and they need capital, meaning labor converted into money. Even with all three of those things, they still need a market to buy the leather. If they make inferior leather and charge an inferior price, then people will only buy it if they need an inferior leather. If the people need a better quality leather, then they will search for a better quality leather, and someone will make or sell it to them. Maybe the laborers who were bought out will open up shop in another village after pocketing the proceeds. Maybe someone else will make the leather. Or maybe, since the inferior leather isn't as profitable as expected, the Berrys will hire more skilled laborers and make a better leather.

In short, in a simple capitalist economy, if people are buying inferior leather from the Berrys, then the people want an inferior leather rather than the more expensive one. Or rather, they want the extra money they save, so they can buy something else, and put some other laborer to work.

Capitalism isn't bad, and it involves a skill--a labor--of its own that improves the economy by offering more and advanced goods to the people in the economy. This is a positive. The problem comes when no one can control the capitalists. In a simple economy the consumer regulates by boycotting, or maybe even by tarring and feathering. In a slightly more advanced economy, someone is hired to regulate the capitalist. Every village fair in the Middle Ages had regulations to control corrupt capitalists, even if they didn't have the words to describe it yet.

Our economy has become more complex, and it needs more sophisticated regulations to control capitalist ventures, to protect consumers, and to further the best interests of the economy. That's where we are failing. We are a debtor nation because we import more than we make, which means our whole economy has become a Ponzi scheme, or a coyote running in mid air, waiting to fall. That's a little too harsh--we still manufacture, so there is still ground beneath our feet, but the ground is less and less stable.

Two more things--while the Republicans use the word that way, "socialism" isn't the same thing as a community spending collectively to provide necessary services. And lending isn't just buying time. That was the medieval concept of lending and interest rates, and why it was not only illegal but also a sin. It was too simple, though, as they soon learned. Money decreases in value through inflation, so paying back over time at the same rate would be paying back less. Also, there is risk in making a loan, so interest is an exchange for that risk--otherwise there is no logical or economic reason to loan out your money and risk losing it, if not for making a profit. Most importantly, loaning out money takes away your use of it, so you are also paying a rent--charging someone to use your possession to compensate for you not being able to use it. So banking, at least in its simplest form, is a positive service.

But into that basic Econ 101 picture reality must be introduced, and that's why they have advanced Econ courses. Scale changes things. The interaction of competing and complementary economies changes things. Differing weights and standards and values and forms of money changes things. That's why governments exist--to regulate commerce (in part). A government that lets capitalists run unchecked invotes feudalism and slavery. A government that throttles the elements of capitalism kills the goose that lays the eggs. Somewhere between the two is the ideal. The Republicans and their "Free Market" nonsense don't get this. Even genuine Communism operates on the basic principles of economics, and uses the basic facts of capitalism, only replacing private ownership with government entities. There are basic rules of how an economy works, despite the capitalized isms that claim to be the best way to manipulate those rules. The problem is that not enough Republicans take any economics courses beyond Econ 101.

[MellowDem]

14. I don't think you understand...

what the problem is. The problem isn't that we don't have enough labor or too many bankers, it's simply the lack of regulation of banking and the rapid changes that globalization has on labor that is forcing us to make changes, some of which are painful. Indeed, the trading scenario you talk about is now being expanded to the whole world as part of the market now, which is why so much of the traditional labor we've had has gone overseas. Cheap labor is itself a useful commodity. It's like you want the global trade but not any of the ramifications that come with comparative advantage in trading.

[Tansy_Gold]

16. the thing is, I *don't* want the global trade

The "trading" scenario is not the economy. That's what you don't get.

You've reduced labor to a "commodity," which is part of the cancer of corporatism.




TG

[OneTenthofOnePercent]

20. America, as you know it, cannot survive without global trade of labor values.

For example, rare earth metals will be VITAL in the 21st century. (Computing, batteries, fuel cells, alternative energy,... etc). America must trade globally to acquire such raw minerals. Oil (energy) - America does have the reserves to function as-is. We must trade globally for our energy.

In a global economy, without energy or the ability to compete technologically, you will not advance. If you do advance you will be pass over, eventually. At the very least, you need global allies for protection and assistance when needed. America, and a few other major global forces, are to the point where they would HAVE to regress if they chose to pull out of global trade. Global trade is needed to survive, it's a never-ending competition and benching yourself is a terrible strategy.

[Tansy_Gold]

40. America as we know it is in a lot of trouble

I'm not saying we don't need certain commodities/resources. I'm saying that the economic model we're using to obtain them may be seriously flawed.

Unless you're comfortable with the existing situation, of course.



TG

[PretzelWarrior]

48. this labor surplus will soon be dwarfed by a labor shortage so large...

in this country that we risk seeing slowed or zero economic growth due to it. That is one reason why health care must be adjusted now before baby boomers exit work force en masse. It is why politicians will talk a good game on immigration reform but even die hard Republican leaders won't really take action. We are facing a labor shortage.

Automation will be one way our country can maintain a somewhat high standard of living and GDP besides less people in the work force.

[Hannah Bell]

62. um, the boomers aren't going to leave en masse. they'll leave over 15 years like they entered.

and there will still be plenty of people left to do the work when they leave.

only about 50% of working age people currently are in the workforce.

employers might try paying better.

or maybe there's just too many trust-funders.

we cant support them all.

[GinaMaria]

73. It's expected that many Boomers will remain in the workforce after

retirement age. Many took hits to their retirement funds and they will have to continue working.

[Hannah Bell]

77. that too. what's sure is they're not all giving notice the same day.

[GinaMaria]

95. You are right. They are not leaving all at once.

The expectation that boomers would leave a big hole in the workforce was before their portfolios took a massive hit. The times have changed and boomers cannot retire right now.

[Hannah Bell]

97. good thing they're not all planning to.

[hunter]

83. All this global trade is actually a threat to this civilization's survival.

Mother Nature always wins in a game of resources. The fierce high energy competitors will slaughter one another on the playing field and the scavengers and decomposers will take apart their remains.

That which is unsustainable in nature will not be sustained. The low energy communities of bench sitters will survive and prosper within the limitations of their environment by ordinary cooperation, as the ferocious fall.

There are no advances in nature, no forward position, no hierarchy, no winners, no losers. There is no game. What is, is, what is not, is not.

Our fossil fueled civilization will be a fleeting thing. Our ports will sink beneath the waves of climate change and the container ships will come to rest. The competition will be over and those who remain will leave their useless automobiles in the parking lot, their useless planes on the runways, and walk home.

[MellowDem]

25. Well, if you don't want global trade...

you have no understanding of economics. The fastest way to destroy our economy and all of our livelihoods is to cut off trade.

Labor is simply a part of the formula that makes a product. If it can be done cheaper some places more than others, guess what, that makes the product cheaper. It has nothing to do with corporatism and everything to do with having an advantage in production.

Your screed made it sound like you totally understand that trade creates more excess wealth because of its efficiency, yet then go on to denounce it. I'm pretty sure you've never taken Econ 101.

[PretzelWarrior]

32. not true at all. there is a value to optimizing markets so person A can get the widgets they want

for a reasonable price and sell their gadgets for a reasonable price.

The markets of today are even allowing for more sophisticated direct sale of commodities like corn. Whereas before all farmers had to deal with a local grain agent, it is now possible for some to set up direct sale on an internet-based trading board and extract the true market price without the inefficiency of hundreds of agents across the grain market.

And you are wrong. That person standing at a quick shop counter is also part of the cost of sales and a necessary portion of how a quick shop owner engages in business to maximize profit and efficiency while minimizing risk.

[PretzelWarrior]

30. exactly. that's where I was going with the ECON202 comment and comparative

advantage. Right now, the US does a better job than many countries at devising new business models, designing new products, and even creating new industries. Countries like Dominican Republic still mainly do well at extracting natural resources, low skill ag labor, and tourism. Countries like China and India provide various sectors of manufacturing and service labor at a comparatively cheap price.

We must view the entire world as an entity figuring out how to get along as one. The U.S. and it's advantages and problems and how to fix the problems cannot be viewed in a vacuum. We must look at what the flow of capital around the world really is and why.

[OneTenthofOnePercent]

15. Rapid Economical Renaissance is impossible. America simply owes too much.

Such an Economical Renaissance is impossible unless America's creditors and suppliers allow us to take our country back.
At best, it will be a long endeavor to bring the American economy back (like... decades).

To compete and sell Labor, America will have to make and buy US goods. Our industrial raw labor is so "behind" that we cannot keep up with foreign competition. To do so we would have to levy high import taxes as incentive to buy US made items. The problem is our creditors are also our marketplace competitors. Think about it - economical suicide. In essence, America would have to go to China with the message, "Would you mind looking the other way while we dramatically hurt your economy to improve ours?" I am skeptical China will feel the love - likely they'll simply raise their own import taxes, hurting American export. However without import taxes, American labor would have to compete with foreign labor on a level playing to be competitive in the marketplace. I am also highly skeptical of the American laborer taking massive paycuts to compete with foreign labor. This leaves the only viable route being Americans have to learn to think and buy American... even if it costs more. (Remember the good old days when a 'Made in USA' sticker meant you were willing got pay more?)

America's largest current export is Money. We are a nation of consumers and our labor force is mostly retail. America used to be #1 and at some point decided it did not want to be #2 so we traded our overalls for suits & ties & cash and now that the cash is running dry we're surviving on credit to keep up with the Jones'. If we continue down such a path we are fucked. When countries go bankrupt, it's ugly. :(

Excellent OP. Rec'd.

[blindpig]

17. GD Commie.....

Hey, you bin readin' Capital or somethin'?

:hi: :thumbsup: :bounce: :toast:

Labor precedes and is superior to capital.

k&r

[Tansy_Gold]

22. Thank you!

Not exactly a commie, but more like



Tansy Gold, your friendly neighborhood socialist :hi:

[Prism]

18. We're taught corporate success is the measure rather than worker success

That really is the bottom line. The stock market goes up, it goes down, and the media and politicians behave as if that is The Barometer. Worker conditions? Wages? Income distribution over time? Manufacturing and agricultural erosion? All interesting academic numbers, and they occasionally get a mention on the nightly news, but Dow 10,000, baby. Nothing else matters. Wall Street is having problems? Pour those trillions in!

Which is why we're in such a bad political place nowadays. People just don't know how the economy works, what measurements are actually important to their bottom line, and which systems and government policies are actually going to raise the middle and working classes. It's why we've been in this long, slow, 30 to 40 year decline. The people are ignorant, and it's on purpose. As long as people can be brought around to believing that corporate mega-success is simultaneously good for them and the country, they'll go along with untold numbers of policies that continue reapportioning wealth to the highest echelons of power.

It's what the politicians, including President Obama, are paid to do, and they do it very well.

Even now, even among liberals, there is a mantra that all those trillions going to the richest of the rich is what we need to do to stave off a Great Depression.

And they believe it.

It's really quite extraordinary.

[glitch]

56. Very well said, sorry to say. nt

[optimator]

19. good post

[Roland99]

21. Said it once but I'll say it again....

Pure gold, Tansy. Pure gold.

[Tansy_Gold]

23. You rock, my friend, you ROCK.

And as always, I hope the good luck stays with you.

:hi:

[anigbrowl]

24. Yes, you got it wrong.

Well, there's a clan of folks who weren't any good at canoe building or spear sharpening so they went off to live on some scrubby swampy land loaded with mosquitoes and prickly bushes. All they had going for them was the berries on those bushes. They tasted good, but no one wanted to get down in there with the mosquitoes and the prickers on the bushes. The Berry clan, however, found out that they could pick a few extra berries, take 'em down to the village and sell 'em for lots of "cash." And then they found out that they could pay people a little bit of that cash to pick berries for them. So they'd sell a bucket of berries for five fish, pay someone two fish to pick 'em, spend another fish on the bucket, and pocket two fish for profit! Such A Deal!


Ah, so the Berry clan's labor in picking the berries and bringing them to market is worthless, along with thei knowledge of how to survive in the swamp and which berries are safe to eat vs being poisonous, etc. Nobody was forced to buy those berries, they just liked them but weren't prepared to put up with the fetid swamp conditions to obtain them...while someone who made the most of the seemingly-crappy land they had available is to be despised.

There are a bunch of other things wrong with your analysis. For example, you glorify the labor involved in manufacturing while attaching no economic value to innovation or design. You complain about imaginary musicians inventing a pernicious system of credit to make up for deferred payment, and say that credit is worthless, but apparently you think the musicians should put in the labor of producing wedding music and be happy with just getting paid whenever it's convenient for other people, which just means you're devaluing their labor instead of that of the harvester (after all, nobody is forced to pay for wedding music).

As someone who works in the arts, and encounters this attitude regularly in the real world ('you're doing it for art, so you don't really care that much about money, right?'), I find this particularly obnoxious. If you want to pay later, of course you should pay more. You think guitar strings, paintbrushes, celluloid film or quill pens grow on trees? You think artists have smaller stomachs? If someone doesn't get paid at the time of delivery, there's an economic cost to that - it's called the 'opportunity cost', and it's the price of not being able to spend money when you come across a good deal because you're waiting on someone else to pay you. If fruit is cheap and I want to buy some while it's in season but I can't because you owe me money, are you going to make up the extra cost of buying dried fruit 6 months later when prices have gone up, instead of buying fresh fruit and drying it myself?

Getting back to my first point about the Berries, you've just decided that the idea of teaching someone else a skill and turning it into a farming operation is bad. Somebody has to be the villain in this story, and so it's the people 'just' procure berries from the swamp. Nobody else wants to actually do this and the Berry-sellers smell of swamp water, so obviously they're inferior people in their particular specialization is worthless. How dare those swamp-dwellers try to profit of something whose proceeds rightfully belong to everyone!

Why, if it wasn't for the idea of having to rub shoulders with those jerks in their disgusting swamp we could pick those berries ourselves and eat them for free. Next thing they'll be demanding the right to marry our daughters! Yes, those who live outside the village are basically evil and exploiting us noble hunters, fishers, and other village-dwellers. We need to send a message: next time they come with their buckets of berries, we'll just take the berries and drive them back to the swamp - it will be a small consolation for all the fine fish and game we have given them in the past.

[Tansy_Gold]

31. Actually, I did attach value to innovation and design

That's how the Spearmakers and the Boatwrights got together.

As for the Berrys and their swamp, it wasn't that they shouldn't have been "paid" for the berries but rather that they exploited other people's labor for harvesting them. If the Berrys had done their own harvesting and been paid for it, that's one thing; they exploited other workers. The berries themselves -- as distinguished from The Berrys -- were indeed valued, or the villagers wouldn't have been willing to pay for them. I know I sound like I'm writing some anti-Randian fable here, but that's not really the case. Oh, and by the way, I used to spend many hours every summer picking wild blackberries and raspberries and dewberries down in the swamp on the south side of Loon Lake in Steuben County, Indiana.

I've also worked in the arts -- in fact I'm doing it currently and yes, I encounter that anti-artistic-labor attitude all the time. ("You're charging THAT MUCH for a rock you picked up off the ground?" No, you dumb shit, I'm charging THAT MUCH because I drove my car out to the middle of blue fucking nowhere to find that rock, then I brought it home and used MY saw and MY electricity and MY cutting oil to slice it and rough shape it, then I used MY grinder and MY tumbler and MY labor to cab and polish it, and then I used MY artistic imagination and MY skill and MY tools, and MY labor to wrap it sterling silver wire and paid a booth fee to set up at this frickin' "art show" to sell it to you, you cheap-ass son of a bitch.)

My point with the musicians was not that credit was a bad thing -- after all, the musicians were running the risk that Dad would renege on the deal -- but that the abuse of credit leads to bad things because credit is indeed the buying of Time. And if you buy more Time than you can earn the repayment funds in, then you're truly bankrupt. The father put a value on his reputation -- a product of more complex social structure than a tiny band of roving hunters and gatherers -- and was willing to pay for the cultural product of the musicians. The father valued it, but so did the wider community as a sign of status.

My intention was not to cover EVERY aspect of a complex 21st Century consumer economy, fraught with credit and mortgages and systems of distribution, etc., but merely to set a foundation for that discussion. And if I'm setting that foundation with a different point of view, is there something wrong with that?


Maybe.


Tansy Gold

[anigbrowl]

35. I still think you're wrong, but appreciate your considered reply

I absolutely fail to see why paying someone else to pick berries and selling them is a bad thing. Maybe people have a mania for berries and it's so desperate they'll get money to do that rather than put their efforts where they'll get the most reward, but how is that the fault of the Berry farmers? You say they don't labor, even though they presumably put effort into training and managing the people they hire to pick the berries (maintaining a certain level of quality control etc.).

You also seem to assume that they choke supply for their own profit, without considering that doing so would reduce the amount of hired labor they employ and thus leave more available for the other economic activities. Strangely enough, this is exactly the sort of flawed argument made against sustainable farming or exploitation proposals - they're somehow going to damage the economy by artificially pushing up prices, despite the fact that limiting output for reasons of sustainability lowers costs elsewhere by reducing demand for labor.

The basic problem that I see is that you're viewing everything in zero-sum terms, and assuming that all 'good' trades reconcile out to zero; your whole model of successful trade and labor assumes an equilibrium that doesn't exist, and concludes that any kind of disequilibrium is therefore bad. Ultimately, what you're proposing a kind of economy called 'autarky'. And historical experience with autarky is that it sucks...hard.

I've also worked in the arts -- in fact I'm doing it currently and yes, I encounter that anti-artistic-labor attitude all the time. ("You're charging THAT MUCH for a rock you picked up off the ground?" No, you dumb shit, I'm charging THAT MUCH because I drove my car out to the middle of blue fucking nowhere to find that rock, then I brought it home and used MY saw and MY electricity and MY cutting oil to slice it and rough shape it, then I used MY grinder and MY tumbler and MY labor to cab and polish it, and then I used MY artistic imagination and MY skill and MY tools, and MY labor to wrap it sterling silver wire and paid a booth fee to set up at this frickin' "art show" to sell it to you, you cheap-ass son of a bitch.)

OK, fair enough. But would there be something wrong with employing 5 people to do the different parts of that if you hit on a particular for which people's demand far exceeded your ability to supply? I mean, I like some kind of things to be hand-made and unique. On the other hand, I am happy for some other things to be commoditized and uniform...for example, I don't especially want every plate in my cupboard to be unique. I am just fine with it if someone comes up with an attractive-looking plate and then churns them out in their thousands. For that matter, suppose one of the selling points of your hand-made jewelry is that it uses some kind of unusual rock. I don't feel you're under the slightest obligation to share the information of where to find it with anyone else, even though you derive a competitive advantage from its rarity.

You seem to be saying that as soon as anyone steps away from the hands-on production of something, an economic ill results. To me it's the leapfrogging and pursuit of competitive advantage that ultimately drives the innovation.

[PretzelWarrior]

36. great post and well articulated notions of how TRADE economies work

it just doesn't make sense that we are even having this conversation in this day and age when most of us engage in dozens of transactions per week involving the global trade that is supposedly behind all of societies ills.

[Tansy_Gold]

37. Yes, I do have my "secret" rock hunting places

And no, I'm not opposed to mass production of "commodities." I am not pleased with the commodification of a lot of things that ought to have individual value, that's a discussion more for Econ 356 or even Soc Theory 398: Special Topics.

My discussion here is not of comparative trade advantage but of the basics. The berries could as easily be cotton in 1840s Georgia, grown and picked by slaves. For the planters I guess it was a great system, but as with the Lincoln quote down (or up) thread, it depends on your point of view.

As William Appleman Williams pointed out, the US public education system doesn't even for the most part allow an examination of any other economic model. Our presidents proclaim capitalism works better than anything else so we accept that at face value. We accepted trickle down economics and voodoo economics and there are many here on DU who still blindly defend the Wall Street bail-outs as not only good, but necessary and the only way to 'save' the economy.

I'm just asking that maybe we need to look at alternatives in an effort to determine if indeed the only POSSIBLE model is a corporate capitalist one or if others might work. If we don't even know what those other models are, how can we have that discussion?



Tansy Gold, who likes her agates and jaspers because they are ALWAYS one of a kind

[anigbrowl]

55. I think there's a degree of reinventing the wheel here

I am not blaming you for this, since you raise a valid point about the way economics is generally taught as received wisdom, and so most people have never been given a serious opportunity to explore alternatives. Offhand I can't think of a particular book to recommend on comparative economics, and while I could say 'look at this, study that', but if I give you 'an answer on a plate' which I feel makes the point, someone else is going to say that it's just capitalist propaganda.

I do have the slight advantage of being from Europe and getting an agnostic education on economics in school, as well has having visited the USSR back when communism was still going and things like that.

My discussion here is not of comparative trade advantage but of the basics. The berries could as easily be cotton in 1840s Georgia, grown and picked by slaves.

Only, they couldn't. There's a massive difference between hiring someone to do a job and owning them; you might argue that people who were slaves to debt end up working at a particular job because they have to, but that's a) totally different from being forced in slavery and b) in most cases, a creditor doesn't give a hoot what you do to make the money you owe them as long as you keep paying them. You are at liberty to perform the kind of work you see fit.

Now, there is a good analogy between slavery and the kind of indentured worker situation that some capitalists practice, but that really doesn't tell us much about capitalism, because you could just as easily compare slavery with work on a collective farm, but that wouldn't tell tell you everything you need to know about communism. The fact is that exploitation and theft of liberty can occur in any economic system, and whoever does best out of a given economic system will use the law to perpetuate it.

There is a basic problem with elevating labor as the sole (or even primary) determinant of value, and it is this: not all labor is equally productive. Dig a big hole in the morning and fill it in in the afternoon, and you have labored all day but to no useful end. It's a factor of production, rather than being an end in itself. Basically, you're arguing the labor theory of value while I'm pointing out that misapplied labor has zero marginal utility. A major reason I prefer to use the latter as a metric is because labor-as-value can lend itself just as easily to rent-seeking as more 'exploitative' models like capitalism.

As an example, a while back I took my phone to the store to have it upgraded, which necessitated a new SIM card. Well, while I'm getting this done the lady pulls out tissue and is cleaning the phone as she opens it up and changes out the card. I tell her not to worry about it, she carries on anyway...OK I figure, she's just got her habits. Until it's time to get the phone back and she wants an extra $20 over what it's supposed to cost. Long story short, she thinks I should pay her $20 for 'cleaning the phone'. I didn't ask her to do that, in fact I told her it was unnecessary, and I basically tolerated it as a slow delivery of the service I actually wanted. We ended up yelling at each other because she was holding my phone for ransom.

Obviously the full story was more complex than this, but the basic point is that the LTV can be used to rip someone off just as much as any other economic philosophy. Building contractors do it on a regular basis; so do lawyers. Billing someone for a ton of work that wasn't requested or desired is not an uncommon phenomenon. In an economy run on Marxist principles, it's institutionalized to the point of slowing down economic activity to the point that it gives everyone something to do, which results in wholesale destruction of value.

[Hannah Bell]

63. "not all labor is equally productive" - marx addressed this over 100 years ago.

[anigbrowl]

76. I guess your labor is too valuable for you to summarize his argument for other readers.

[ieoeja]

27. So ... if we had automation that could provide all of our needs ...

You would oppose that?


With technology making it possible for fewer people to do more work, the "natural" result should be:

-- decreased hours; instead of three people working three shifts for one 24x5 position, we could spread that job to four people/shifts
-- earlier retirement; fewer people in the workforce.

Instead, we have been increasing hours and delaying retirement. Because we need more people doing more work? No. But because our ecnomic system is setup that way. And we don't even have to toss out the whole system. We went from a 6-day/60-hour work week, introduced Social Security and created a mandatory retirement age a few decades back. That is the direction we should be heading today with the eventual goal being ... 100% unemployment. Or at least, people only working at what they enjoy doing when they enjoy doing it.

[Tansy_Gold]

33. That's what William Morris said 120 years ago.

And I consider him one of our more brilliant thinkers (who did have his flaws, nonetheless) who tried to combine economic theory with aesthetic theory.

It's not the fault of 'automation'. It's the fault of a political economy that allows one segment of the population to acquire the means to keep acquiring more wealth, leaving those who do not have such means only the opportunity to work more and harder for less and less. Thus stagnating wages over the last 35 years or so even while "productivity" has gone up. The system of ownership and taxation and non-regulation provides for a steady stream of wealth transfer. Unless and until that system is altered -- or destroyed and replaced -- that transfer will continue. And it will never go in the other direction. As long as the system itself functions to move wealth from bottom to top, it CANNOT function to move wealth in the opposite direction. There is no such thing as trickle down.

That's why giving bazillions to the banks to "stabilize" the markets -- which are not part of the real economy but only a holographic reflection, if you will, of one -- did nothing to restore the fundamentals of the economy. It's like pouring wine into a coffee cup on the kitchen counter and expecting the goblet on the dining room table to be filled.


Tansy Gold

[trof]

34. Dang, lady? How'd you get so smart? K&R.

And that ain't sarcasm.
I mean it.

[Tansy_Gold]

39. Thanks, trof. Much appreciated

I got smart by reading. :evilgrin:

[trof]

42. I got (and still 'get') at least less ignorant the same way.

Reading Rules.
;-)

[Starry Messenger]

38. Thank you!

That was a nice overview with visuals easy to understand. I appreciated it. Bookmarking. :)

[hfojvt]

41. seems to me that you missed quite a bit

and your simplistic example is not the way history really worked.

You wanted us to let the banking system fail because it isn't really necessary? That's about as ridiculous as suggesting we get rid of cars tomorrow since it's possible to have an economy without cars.

In my experience banks provide services to me. They keep my money and pay interest on it. They process the checks I get and the checks I pay. I just used my credit card to pay for some groceries. It allows me to goto the store without carrying pockets full of cash.

[Tansy_Gold]

44. Banks do provide services. I'm not denying that.

Nor am I denying that in a complex economy, much more complex than the basic model I presented, banks may in fact be essential.

But what I'm trying to illustrate is that at the fundamental level there are different possibilities, different models.

In a sense, I guess what I'm suggesting is that if in fact the US economy reaches a collapse point similar to the 1930s -- we ain't there yet -- do we continue with business as usual, following the same models and same economic strategy that caused the problem, or do we look for/at other models? What is there about the existing system that makes it vulnerable to these cyclical recessions/depressions? Is there a way to avoid them? If not, why?

And how do these things affect "ordinary" people? the "ordinary" people who in fact do most of the work around here, whether it's building widgets or teaching fist grade or standing at the drive-up teller window.

Too often -- and today's suggestion by Paul Krugman that essentially deficits be damned and spend more money on the stimulus -- we don't seem to take the basics into consideration. Why are we as a nation so monstrously in debt to the Chinese? Is this a healthy thing? Is it healthy for our population? Is it healthy for the Chinese workers? Or is it just a way to get cheap plastic crap into Wal-Mart and then into the hands of the masses to keep them happy but starving while the elites make war and live in 40,000 square foot mansions? Should we working people just accept it that the harder we work the poorer we get, because it's just natural that the rich get richer?

Is this part of the health care reform debate? Is class stratification by health care part and parcel of a capitalist/corporatist economic model? Is it the one we want to maintain?

But if we don't understand the basics -- the econ 101 basics -- how can we conduct the debate?



TG

[Cleita]

43. Yeah, the economics I learned in the classroom is not the one in

practice today. It's more like it's evolving into a feudal economy with a few kings owning everything and everyone. Those who are the workers are kept uneducated and on the edge of starvation. Going to war is what stimulates the economy in times of recession by vanquishing one's neighbors and stealing their land and resources.

[Hippo_Tron]

45. I don't know anyone who is arguing that we can have an economy made up of bankers

There's a few University of Chicago types who tout the idea that outsourcing is okay because while we lose jobs in manufacturing we get new jobs in investment banking and thus are better off. Outside of that I haven't really seen too many arguments along those lines.

Fact is that the banking system (in some form) has been around since at least Ancient Greece and is crucial to a modern economy. That said, anybody who thinks that rescuing the banks alone will fix the economy does indeed have no understanding of how an economy works.

[Tansy_Gold]

46. there you go. That's my point. Or at least part of it

Rescuing the banks ALONE will not solve the problem, especially the banks, as they are constituted now, are part OF the problem.


Thanks!


:hi:

[Hannah Bell]

64. economies can & have survived without bankers, but bankers can't

survive without the real productive economy.

[Dr.Phool]

47. Kick and rec!

Awesome post.

[bread_and_roses]

49. A K & R here, Tansy. As for the elitists who are content to turn labor into a "commodity"

I wish I had the energy tonight to take them on, but I don't. No matter, in the long run. Their mindset is crucial to the system that has brought us to the very brink of almost unimaginable environmental disaster, and it's probably too late to avert it, even in the remote event some had a light-bulb go on. Just like those who think we "saved" anything for ourselves when we "saved" the Banksters.

[Tansy_Gold]

50. Thank you. Thank you.

We'll get 'em tomorrow! :evilgrin:



TG

[nc4bo]

51. K&R for some basic truth telling. Glad you posted this here so more can see it. nt

[SmileyRose]

54. I flunked economics in High School but I have learned a lot in my 52 years - such as

1. Everything costs more to buy every year except my labor.

2. Humans are merely an exploitable resource and we have more humans than we need, thanks to computers and other machinery.

3. Smart people are apparently more worthy than strong people and that's why God rewards them with lots of money and great benefits.

4. It doesn't freakin matter if I save for retirement. If I save half my income all my working life and work straight up until I am too disabled to work, I will still live in abject poverty in my oldest years.

There is absolutely positively nothing I can do to significantly change any of the above.

[unc70]

57. The problem with your "economics" model (and nearly all others) is automation

Nearly everything that underpins macro and micro economics (all versions) is rapidly being swept away by the onslaught of automation and the increasing velocity of information and its availability to everyone. This time things really are different, and the change is so great that we now should speak of quantum economics. We are witnessing the end of the Industrial Age and the ascendance of the Information Age; unfortunately, nothing can prepared us adequately for what will follow.

Wealth, power, value, etc. have never been based on "labor" as you describe. If a group of us use our "labor" to rob your tribe of its food, tools, and some of its women, how do you account for the value of our labor?

Several factors contribute to gaining power, wealth, and advantages compared with other people. Physical brute strength, size, and abilities as individuals (particularly males) form a core set of components for dominating and controlling others. A second component is location; if you are fortunate to live somewhere with special resources (minerals, plants, animals, natural barriers protecting from enemies), then you gain an advantage by making better weapons or by having goods desired elsewhere. The third component is special knowledge, whether how to make better swords or how to navigate long distances, or anything else. Secrets and spies.

Until very recently, information moved very slowly and those holding the information preferrred it not move at all. Knowing that Napoleon has lost at Waterloo was worth a fortune on the London markets, while not knowing resulted in the Battle of New Orleans. Today, almost nothing remains a secret for very long. Now everything is moving at nearly the speed of light and with similar issues.

A couple of quick implications before I return to bed:

1. Efficient markets have little profit for anyone, employ few people, and are highly unstable. Because of high fixed costs being offset by tiny profits on large volumes, almost any drop in volumes can quickly eliminate all suppliers before any market response is possible.

2. Any product or service that can be automated and delivered primarily electronically will quickly lose almost all its perceived value.

3. Any practice that attempts to leverage capital to significant profits will almost immediately be countered, thus removing any advantage. Too much capital will desparately chase every arbitrage or artificial advantage, but with profits evaporating almost immediately. Much of what we have seen the last few years have been a frantic effort to maintain returns on capital that previously had been derived from insider information, market access, geographic restrictions, or outright theft (legal or not).

There is a lot more involved and the implications completely change everything.

What if the robots and automation of various types eliminate most jobs? What then? If we have enough to feed, clothe, house, educate, and cure everyone, can we figure a way to make it happen before it's too late?

More from me later.

[bbgrunt]

71. great post, well stated.

A related and interesting book: Jeremy Rifkin's "The End of Work"

[unc70]

85. Thanks. Another aspect is implosion of markets, even electronic ones

I have a couple of entries in my DU Journal on some related topics. For example electronic markets now are restricted by the speed of light.

Everyone needs to understand that no job is safe, in the US or anywhere else in the world. Some will take a little longer before disruption hits them. Those who point to healthcare need to take a really close look at Japan and leaps they are making in robotics for in-home care.

"Internet Time" is not constant; it is accelerating.

"...time is fleeting, Madness takes its toll"

[Tigermoose]

87. Thank you for adding 21st century reality to this discussion.

We are a long way away from Adam Smith and Karl Marx.

[JonLP24]

58. Greatest post I've read in months K&R&BMRKD

Economy is very confusing issue for me and you explained it in a way that I could understand even if it's only econ 101 :dunce: :thumbsup:

[timtom]

59. I'll guaran-dam-tee that I get it.

Thanks for a brilliant piece! Am bookmarking for further consideration (as I am pig-ignorant concerning economics, though I did struggle and fight to get my lousy A in college economics).

[elleng]

65. "Courage in women is often mistaken for insanity."

Thank you, Tansy Gold.

[varelse]

66. K&R

[bvar22]

68. Don't worry.

NAFTA is going to kick in any day now, and labor will make a surging comeback in the good old USA.

Yep....Any day now.

[Winterblues]

70. It would appear your point is a Republican held strong belief

Hire Cheap Labor....Pay less Charge more.....Get Rich and flaunt your affluence and then achieve Power over all who reside in your area...Act Republican

[goodboy]

74. can I repost this as a note on my facebook? (nt)

[saracat]

75. K=R Tansy. Very insightful. But remember, thinking is no longer

appreciated. It can lead to questioning and that is no longer allowed.:rofl: :yourock:

[Democrats_win]

78. So when did humanity have an election to decide this is the way it would be?

Look at the natives that lived on islands in the Pacific. They were happy just picking food off of trees until someone stole their island.

Clearly there is some sense in what you say but nevertheless, what this "free" enterprise system has almost always been is a massive "fraud" enterprise. You forgot the most basic point of econ 101: In the beginning, crooked labor/businessmen charged 200% of what it cost to make the garbage you are selling. That's fraud. That's why people don't like this system because it always begins with this basic fraud and only goes forth trying to build more fraud into the system.

[Blue_Tires]

79. kick

[grantcart]

81. It appears from the examples that you list that your understanding of "transferable wealth" is

consistent with post WWII economies but does not reflect what is happening today.


Take any modern city outside of the US, lets say Kuala Lumpur. Malaysia has a decent industrial base with high tech computers and opticals and some garment and other production but is rather modest.

If you go to the most modern Mall in KL you are going to see MacDonalds, Burger King and maybe two Kentucky Fried Chickens (KFC is so popular in KL that there are corners where they have KFC's on both sides of the streets). Virtually everywhere you go you will see 90% of the consumer products are American brands - from jeans to shampoo to medicine.

Whether or not that product was manufactured in the US or someplace else they are going to be paying branding fees and overrides back to the American companies that supply that product - whether it is made in Malaysia, China or the US. These fees are transferable wealth but will never show up in balance of trade figures, and this explains why economists outside of the US are so pissed that the US only uses balance of trade figures.

Now lets look at one product in particular.

An IPhone from APPLE that retails for $ 300 in KL.

$ 100 of that goes to the retailer in Malaysia (If that is 100% locally owned then they would keep all of that. If it is a partnership it will be shared, if it is a US owned subsidiary then 50% of that will eventually go back to the American company).

$ 25 of that goes to the manufacturer in China.

$ 175 of it goes back to APPLE computers in the US.

Now in order for Apple to support its operation in the US it has designers, software engineers, management etc. Let us say that they offshore some of the engineering so that $ 25 of that goes to India.

Of the $ 150 that APPLE uses in its operation some of that goes to the type of service companies that you describe in your long piece - the normal car/health/life insurance of the company and the employees and so on.

It is no longer a question of where something is "made" but where the value added. This makes reading most of the trade figures very difficult.

In the case of our hypothetical IPHONE that was designed and owned by APPLE in the US with some offshoring engineering in India, manufactured in China and sold in Malaysia the value added is something like this:


$ 75 stays in Malaysia for local retail costs and profits
$ 25 goes back to the US for retailing operation
$ 25 goes to China for manufacturing
$ 25 goes to India for off shore engineering support
$ 150 goes back to the US for design, overhead and profit, the largest goes to intellectual labor but it also includes some services, overhead and profits.

So the big winner for an IPHONE that is made in China, has some design in India, sold in Malaysia but never physically touches the US? That would be APPLE in the US.


You simply can no longer analyze economic activity by where something is "made" because the greatest value added may have nothing to do with either where it was made or sold.

[Grinchie]

86. Ah yes, the beauty of Globalization, forget about the externalities and focus on Profit

Never mind about the lax environmental laws, because the Chinese should be smart enough to take care of the Environment, but they can't afford it, or choose not to.
Never mind about the people in Malaysia that no longer have time to pull weeds, because they are in the shop selling iPhones
Never mind about the Engineers that designed these things 40 years ago during the Space Race, or perhaps nurturing more engineers. India gets them in exchange for cheap labor.
Never mind the fact the the people in the U.S. eat food that ultimately causes disease, drinks unclean polluted water, breathes air with increased Carbon Dioxide emissions because of the promotion of person auto's instead of mass transit, and then has the privilege of paying taxes to a Government that props up the Military Industrial complex, who happens to be a prime consumer of the advanced versions of the iPods that are designed to kill more people, faster and with higher efficiency.

I haven't seen you around for a while Grantcart, But thatnks for letting me in on your worldview which is very kind to the whitewash presented as the benefits of Globalism. Since I was in the very same industry that you describe, I can speak from experience that what you are describing is nothing more than an intricate fraud, and it is unsustainable. It is a distracting on the grandest scale, and when people realize that they no longer have food and that an iPhone is just a toy, stamped out by machines and assembled by tiny hands, it will be too late.

In fact, it is already too late. 80% of the people don't have a clue how bad their food is, yet they trudge off to Doctors that are nothing more than legalized pill pushers, peddling the next best drug to offset the destruction of consuming Trans Fats, such as Lipitor. (Which is probably manufactured in Tunisia I might add)

Hows that "Investigation" on Monsanto that you were crowing about several months ago going?

[grantcart]

90. You have missed the point of my reply by 100%

The OP asked a question.

He explained the economic system as basically something you make in one place and send to another place with all of the value being in one place and then transferring to another place.

In reality the system doesn't work that way. I am not advocating for the system just explaining the reality of it.

More to the point Americans use the international indicators - like "balance of trade" that have a strong American bias and third world and progressive economists around the world object to that formulation vehemently, as it does not take into effect 1) the true reality of who benefits from trade and how the current system of statistics and reporting vastly under reports the advantages that the US (and to a lesser extent Europe) benefits from the current system of trade 2) the fact that money is flowing to where the "value" is added and not to where it is made or purchased and 3) Even when no value is added the Americans benefit from repatriated profits due to its overwhelming dominance in branding.

In other words I was making the point that Malaysian (and other third world) economists would like Americans to understand about how the international economic system really works and how traditional explanations undervalue the benefit Americans get from it.

That you would then interpret that explanation to raise unrelated policy questions that suggest that I am not sympathetic with the SE Asian is odd, I have lived for decades in SE Asia, my family is from there, I speak the languages and have taught in the universities as well as have joint ventures there.

Evidently you agree with my description of how the current system benefits the Americans over other countries, my basic point, but have some hostility from a previous discussion that you now try to insert here.

If you go back and re-read the the posts on the Monsanto Monopoly probe you will see that the Administration is setting up a schedule for a large number of events across the United States to gather information and allow people to make input, you may want to find the schedule and appear as a witness.

You can appreciate that living outside of the US for a couple of decades you can imagine that there are many things that I became familiare with that virtually no one has much familiarity with, and on the other hand there are somethings that may be well known in the progressive community that I am not well informed of. Monsanto is one of those areas. Until recently I had seen very little about it. It is clear that they are monopolistic and flaunt it, and many people I respect also have even deeper concerns about their basic mission and business plan. I for one look forward to learning more about it when the administration conducts its field hearings.

The hostility that bubbles up in your reply I find curious because on the basic issue of the economic system being jerryrigged to benefit the US is one that we agree upon, and I believe that we are the only ones to note on this thread.

[Grinchie]

98. No, I think I got your point exactly, and my response catches you exposed for what you are.

Don't get me wrong, I admire the way you are able to use subtlety to your advantage, and I was fooled once or twice,

But you Pro Globalisation rant really catalysed my perception of you.

I merely asked for an update of the Monsanto probe, and you parrot the same talking point that was emitted the first time. No updates, nor does it seem that you really give a damn.

As for hostility, well, I have to admit that I dislike yes men and cheerleaders over logic and truth. That's just the way I am.

As far as living outside the U.S., I find that quality missing in you.

The hostility is simply because you were able to fool me into thinking that you maybe were perhaps a real democrat, and not a DLC decoration, willingly throwing accolades as the necessity arises. I will happily admit it that I dislike fakers, liars, and propagandists, and I'm really pisse that you turned out to be one of them, despite your eloquence and skill with the english language.

I am truly disappointed in you.

[Tigermoose]

88. Fantastic! Thanks for that information.

[valerief]

89. And if Labor says, "Up yours, capitalists!" then the whole economy collapses--for capitalists.

It can easily be rebuilt for Labor once again. Of course, how to get Labor to say, "Up yours," all at the same time is the dilemma.

[anigbrowl]

96. As evidenced by...um...where, exactly?

I can think of a few intensely anti-capitalistic countries, but they're not what I'd call a worker's paradise by any means. Since the real world is where the rubber meets the road, can you supply some examples of non-trade-friendly societies that provide a high standard of living for their citizens?

[laconicsax]

91. No, you really don't get it.

You see, since none of this would have happened without the initial labor, labor is the problem. If we give the berrys more tax cuts, then the problem goes away. Don't ask how, just nod and vote Republican.

:sarcasm:

[slipslidingaway]

93. knr nt

[malaise]

94. Brilliant post

Rec