Consumption is not the key to economic wellbeing. Deferring consumption is. When you defer consumption and instead invest your resources into enhancing your ability to produce, you wind up producing more.
Consumption beyond subsistence is only possible because of such investments. And its as true for countries as it is for individuals. High levels of consumption are made possible by economic wellbeing, not the other way around.
If everybody decides to defer personal consumption at once, they save more and borrow less. That means more savings and lower interest rates. More capital is then available to invest in new businesses, education and other things that create wealth.
Of course, that's how it works when government isn't distorting the cost of money and subsidizing consumption. Things are so distorted now, no one can tell which banks are sound or whether housing will rise or fall even more.
And all of these uncertainties are a much bigger factor than Facebook.
Agreed. Investment is the machine that moves the economy. Consumption is the natural by-product of people investing in their power to produce more value. When you produce value in the world, the world pays you for it and you are able to by what you want (miracle of exchange and currency).
I think you may have been down-voted because you forgot to mention that the investment you refer to is not investing in a 401k or S&P 500 fund. You refer to business spending on capital goods, new technology, entrepreneurship, and productivity. Retail demand grows with wealth. The worry shouldn't be on a future where we don't demand, as demand will always find new products to make scarce. We should rather worry that wealth will be redefined as having things, which will reduce a person's focus from producing to consuming. If we are all worried about consuming more and focus our effort and energy there, we'll stop focusing on producing and will then turn to financing our consumer goods (spending tomorrow's capital today).
I think I made it clear I was talking about investing in productive capacity. Why they down vote I leave for them to say.
I think people know how much consumption is right for them and how much they wish to invest in their own capabilities. They balance these things all the time. So I don't worry about them.
The problems start with government subsidizing consumption like owning bigger houses. Many people actually got deceived into thinking buying such houses was the way to make money. And everything not subsidized must get more expensive
"Consumption is not the key to economic wellbeing. Deferring consumption is."
This statement, as well as "we need to work harder to be better off" never make sense to me. Translated they seem to be equivalent to "we need to be less well off to be better off". Doesn't make sense. (Other translations: "we need to live in a smaller house to live in a bigger house" or "we need to eat less to eat more").
It still doesn't add up: suppose I earn one piece of chocolate per day. If I defer eating one piece of chocolate today, I can eat two pieces of chocolate tomorrow. On average, I still only have one piece of chocolate per day. So I am not better off.
In the same vein, if I work harder today I maybe have more money tomorrow and can afford to work less. But on average, I have still worked the same amount of time as before. So working harder does not make me better off on average (if by "being well off" in this case we take "can afford to not work too much").
What REALLY works is increasing the efficiency of work. We are not well off because we work so much. We are well off because we have machines that do a lot of work that other people still have to do manually.
Increasing the efficiency of work is what we've been talking about.
When you defer consumption and use the funds to improve your productive capacity, you are improving the efficiency of your work. I wasn't just talking about not consuming.
Sometimes a thought is not complete in the first two sentences of a paragraph. Sometimes the third sentence has to be read too.
There's still a matter of status. When everything mass produced is cheap, the wealthy will demand hand produced goods.
Entertainment will not all go free -- it will still cost goods and services to create more elaborate entertainment. (How do you stage an 18th century show? Perhaps CGI will be advanced enough to cover the material cost, but how do you organize 150 people doing CGI without paying them? After all, nobody wants to do the grunt work for free...)
The problem, instead, looks to be that we won't have enough for unskilled labor to do. We used to be able to throw them at manufacturing -- even that is going away.
There's still a matter of status. When everything mass produced is cheap, the wealthy will demand hand produced goods.
Why would I want something produced by a human when I can instead get something produced by a robot to within 0.001" tolerances?
Humans are very poor craftsmen; their only advantage is that so far everything else is even worse. 20 years from now we'll probably react to hand-made goods the same way as parents today react to what their 5 year old children produce -- admire, praise, and then place on an out-of-the-way shelf to collect dust.
Because anybody can get something produced by a robot to within 0.001" tolerances. Therefore it looks cheap and gauche, and darling, you surely can't want that on your shelf, can you? My God, it looks like you'd bought it at K-Mart, dear.
Exactly. $100,000 limited run Patek Philippe watches? One-of-a-kind works of art/clothing/food which come with a story and an "experience"? Even today people a farmers market to a supermarket.
Perhaps this will change when robots are able to create completely individually-customised products, but we're already pretty close to that. Some people will always value "authenticity".
Yes but if you follow that argument to its logical conclusion then we're all wearing unisex wipe-clean grey jumpsuits, on the basis that they're the most efficiently functional clothing.
The funny thing about high-end anything is that you buy it once and it's yours for the rest of your life, vs buying something cheap and replacing it every year (or 5 years or whatever). That Rolex is self-powering and can be repaired in a backroom workshop (quite literally at a 1930s tech level) and will last long enough to pass onto your kids. The Timex has to be replaced with a whole new unit, and damaged ones go into landfill. Manufacturing the Timex involves sweatshop labour and toxic chemicals for the semiconductors. Etc..
Actually, the cheapest electronic watch will be several orders of magnitude more accurate than any however-expensive mechanical watch. Which goes to show that people do not value this, but rather the image, the signal the good conveys. Conspicuous consumption, in Veblen's word.
> Why would I want something produced by a human when I can instead get something produced by a robot to within 0.001" tolerances?
Because of social norms. Aren't you aware that a 5000$ swiss watch is always inferior to any 5$ chinese watch, from a precision point of view?
Why do you think that rich people assemble at Pebble Beach and buys 50 years old cars for 3 millions $? Because objectively, a Ferrari GTO sucks compared to anything made by volkswagen nowadays on almost any aspect but looks.
>Why would I want something produced by a human when I can instead get something produced by a robot to within 0.001" tolerances?
The problem here is you're thinking like a technical person. You don't buy a Rolex to keep time. You buy a Rolex to let women around you know you can afford to buy a Rolex. Same goes with a Ferrari or Bruno Maglis or any of the other conspicuous brands.
Yeah, I don't know why we're blaming facebook. Seems like Industrialization has been "killing the economy" for a while.[1] But I think unskilled labor is still doing okay... as long as you'll work cheaper than machines (which is why the demand for illegal immigrants is still so high).
More alarming is the fact that America's education system and Facebook are jointly producing a mediocre generation that is not prepared for the great changes that lie ahead over the course of this century and defines itself by how much stuff they own and how much attention they get, a worldview that centers around a "Wall" is blind to the universal picture that concerns all humanity and organisms of Earth. If homo sapiens has any chance of even surviving ecologic-economic collapse that is due within a few centuries with our current understanding and application of science, we need more than social networking, we need compassion networking.
Call me crazy but I am building such a network and will be applying to YC this fall.
Interesting observation that Facebook is something that is consumed with equal vigor by people at the top and bottom of the socioeconomic pyramid. Tough to think of other products like that.
Sorry, but I just don't think I understand how this post drew such a conclusion. What does decreasing marginal consumption have to do with this? If the argument here that all those fabulously rich people are content with wasting their time on Facebook, I'm just not buying it.
Technology, while a potent equalizing force, is also a moving target, and it's one that depends on creative input much more than an infinite supply of cheap labor. Even if we have a post-scarcity society by 2025, I don't see any reason why the "elite" will not have access to some expensive, difficult-to-produce, meticulously customized product or experience that is coveted by people without it.
EDIT: Seems like someone changed the submission to point to the linked article. My point seems less valid now, but I would still maintain that creative activity will not be cheapened as much as Mr. Bookstaber seems to think.
I went to business school where some of my classmates were from "fabulously rich" families (multiple $billions). Many of them spent a lot of time on Facebook (I would never call the way someone chooses to spend their time a "waste.")
Wow. In this dark, dark future, everyone has sufficient food and cheap transportation, along presumably with medical care and other material needs, but the "economy is broken".
How is that broken? Because everybody isn't sitting in cubicles all day? Sounds to me like a description of the ideal end state of technological development - we all get to go back to being neolithic social butterflies, only without starving or dying at the age of 22.
Besides, I'm pretty sure this same sort of scare story has been told about every technology since the printing press - maybe since fire. We're still H. sapiens, and still haven't solved the economy and brought that damnable universal prosperity - we've just raised the ante. I think there's no need to worry just yet because Facebook is Changing Everything.
I sort of read this article as "this guy's book makes no sense if you assume The Singularity", which I don't think we have a reason to assume. Yes, all of what he says makes sense if super-robots and iMovie9000 are really 15 years off, but there's no reason to believe that that will be the case.
"The root of our economic problems is the ever widening income gap. The rich, who are laying claim to a higher and higher percentage of income, don’t spend as much of their income as do those down the income ladder, so demand for goods and services is dropping"
Actually, a case could be made that a rich man not spending his money is actually beneficial to society. It is like society owing the rich person services, but the rich man never claims them. That implies that before the rich man gave some things to society for free (in exchange for the money).
An example might be China exporting lots of stuff to the USA in exchange for "worthless" slips of paper (a ka dollars).
Of course the whole story might be more complicated than that - but it is also very likely more complicated than "our problem is that the rich don't spend more".
You are not taking into account the viewpoint of many of our elites.
A loaf of bread is not produced in order to be eaten and satisfy hunger. Instead, people get hungry in order to stimulate demand for bread and create jobs.
I think society needs to fundamentally change its objective - in terms of a measure, or currency, that we can use as a touch stone for deciding what something is worth.
If the subject of cost is extrapolated enough, traditional concepts of worth could be factored out of the equation to an extent. I believe this is especially true when an economy moves from consumption (and the trade of finite resources) to an economy that revolves around the trade of intellectual property (and infinitely renewable) resources.
I quite firmly believe that the sale of intellectual property is corrupt. I don't hold this view because I'm particularly morally opposed to the idea, but because - logically - I don't feel it's either sustainable in the long term, or compatible with the economic models that society has been traditionally built upon up to this point.
In the intermediate term, I think a logical solution to the problems presented re. making money from IP, is to sell IP as a service. This model deals in absolutes - real costs can be factored into pricing decisions associated with the sale of IP. Rather than consider sale of IP as a 'cash cow' (able to be milked infinitely, creating an unending stream of capital for the associated company), I believe a service model is - by its nature, tied to the real world in a much more realistic way.
If this idea is extended .. what is it that's unique about the sale of a service? How can its essence be factored down, and what is the base variable that's being sold?
I'd argue that the new currency is time - the most important 'finite' currency that's available to human beings.
The concept of money has become so abstracted from both time, and the physical resources it's traditionally represented. I think in the coming decades this abstraction needs to be resolved. If physical resources are are to play a reduced part in economics due to necessity - I think that latter logically needs to step to the fore and be considered as more important.
It would lead to a fundamental shift in the way we all function on a day to day basis - and I think the change would be entirely positive.
36 comments
[ 3.9 ms ] story [ 50.7 ms ] threadConsumption beyond subsistence is only possible because of such investments. And its as true for countries as it is for individuals. High levels of consumption are made possible by economic wellbeing, not the other way around.
If everybody decides to defer personal consumption at once, they save more and borrow less. That means more savings and lower interest rates. More capital is then available to invest in new businesses, education and other things that create wealth.
Of course, that's how it works when government isn't distorting the cost of money and subsidizing consumption. Things are so distorted now, no one can tell which banks are sound or whether housing will rise or fall even more.
And all of these uncertainties are a much bigger factor than Facebook.
I think you may have been down-voted because you forgot to mention that the investment you refer to is not investing in a 401k or S&P 500 fund. You refer to business spending on capital goods, new technology, entrepreneurship, and productivity. Retail demand grows with wealth. The worry shouldn't be on a future where we don't demand, as demand will always find new products to make scarce. We should rather worry that wealth will be redefined as having things, which will reduce a person's focus from producing to consuming. If we are all worried about consuming more and focus our effort and energy there, we'll stop focusing on producing and will then turn to financing our consumer goods (spending tomorrow's capital today).
I think people know how much consumption is right for them and how much they wish to invest in their own capabilities. They balance these things all the time. So I don't worry about them.
The problems start with government subsidizing consumption like owning bigger houses. Many people actually got deceived into thinking buying such houses was the way to make money. And everything not subsidized must get more expensive
This statement, as well as "we need to work harder to be better off" never make sense to me. Translated they seem to be equivalent to "we need to be less well off to be better off". Doesn't make sense. (Other translations: "we need to live in a smaller house to live in a bigger house" or "we need to eat less to eat more").
In the same vein, if I work harder today I maybe have more money tomorrow and can afford to work less. But on average, I have still worked the same amount of time as before. So working harder does not make me better off on average (if by "being well off" in this case we take "can afford to not work too much").
What REALLY works is increasing the efficiency of work. We are not well off because we work so much. We are well off because we have machines that do a lot of work that other people still have to do manually.
When you defer consumption and use the funds to improve your productive capacity, you are improving the efficiency of your work. I wasn't just talking about not consuming.
Sometimes a thought is not complete in the first two sentences of a paragraph. Sometimes the third sentence has to be read too.
Entertainment will not all go free -- it will still cost goods and services to create more elaborate entertainment. (How do you stage an 18th century show? Perhaps CGI will be advanced enough to cover the material cost, but how do you organize 150 people doing CGI without paying them? After all, nobody wants to do the grunt work for free...)
The problem, instead, looks to be that we won't have enough for unskilled labor to do. We used to be able to throw them at manufacturing -- even that is going away.
Why would I want something produced by a human when I can instead get something produced by a robot to within 0.001" tolerances?
Humans are very poor craftsmen; their only advantage is that so far everything else is even worse. 20 years from now we'll probably react to hand-made goods the same way as parents today react to what their 5 year old children produce -- admire, praise, and then place on an out-of-the-way shelf to collect dust.
Perhaps this will change when robots are able to create completely individually-customised products, but we're already pretty close to that. Some people will always value "authenticity".
There are many reasons someone might want to buy a Rolex, of which quality is just one.
Why are they idiots for having reasons you disapprove of?
The funny thing about high-end anything is that you buy it once and it's yours for the rest of your life, vs buying something cheap and replacing it every year (or 5 years or whatever). That Rolex is self-powering and can be repaired in a backroom workshop (quite literally at a 1930s tech level) and will last long enough to pass onto your kids. The Timex has to be replaced with a whole new unit, and damaged ones go into landfill. Manufacturing the Timex involves sweatshop labour and toxic chemicals for the semiconductors. Etc..
Because of social norms. Aren't you aware that a 5000$ swiss watch is always inferior to any 5$ chinese watch, from a precision point of view?
Why do you think that rich people assemble at Pebble Beach and buys 50 years old cars for 3 millions $? Because objectively, a Ferrari GTO sucks compared to anything made by volkswagen nowadays on almost any aspect but looks.
http://books.google.com/books?id=D__29PemDKoC&pg=PA88...
Written in ~1898
The problem here is you're thinking like a technical person. You don't buy a Rolex to keep time. You buy a Rolex to let women around you know you can afford to buy a Rolex. Same goes with a Ferrari or Bruno Maglis or any of the other conspicuous brands.
[1] - http://www.youtube.com/watch?v=o3Hdobado20
More alarming is the fact that America's education system and Facebook are jointly producing a mediocre generation that is not prepared for the great changes that lie ahead over the course of this century and defines itself by how much stuff they own and how much attention they get, a worldview that centers around a "Wall" is blind to the universal picture that concerns all humanity and organisms of Earth. If homo sapiens has any chance of even surviving ecologic-economic collapse that is due within a few centuries with our current understanding and application of science, we need more than social networking, we need compassion networking.
Call me crazy but I am building such a network and will be applying to YC this fall.
Technology, while a potent equalizing force, is also a moving target, and it's one that depends on creative input much more than an infinite supply of cheap labor. Even if we have a post-scarcity society by 2025, I don't see any reason why the "elite" will not have access to some expensive, difficult-to-produce, meticulously customized product or experience that is coveted by people without it.
EDIT: Seems like someone changed the submission to point to the linked article. My point seems less valid now, but I would still maintain that creative activity will not be cheapened as much as Mr. Bookstaber seems to think.
How is that broken? Because everybody isn't sitting in cubicles all day? Sounds to me like a description of the ideal end state of technological development - we all get to go back to being neolithic social butterflies, only without starving or dying at the age of 22.
Besides, I'm pretty sure this same sort of scare story has been told about every technology since the printing press - maybe since fire. We're still H. sapiens, and still haven't solved the economy and brought that damnable universal prosperity - we've just raised the ante. I think there's no need to worry just yet because Facebook is Changing Everything.
Actually, a case could be made that a rich man not spending his money is actually beneficial to society. It is like society owing the rich person services, but the rich man never claims them. That implies that before the rich man gave some things to society for free (in exchange for the money).
An example might be China exporting lots of stuff to the USA in exchange for "worthless" slips of paper (a ka dollars).
Of course the whole story might be more complicated than that - but it is also very likely more complicated than "our problem is that the rich don't spend more".
Reference: http://www.slate.com/id/2110817/ (Defense of Uncle Scrooge)
A loaf of bread is not produced in order to be eaten and satisfy hunger. Instead, people get hungry in order to stimulate demand for bread and create jobs.
If the subject of cost is extrapolated enough, traditional concepts of worth could be factored out of the equation to an extent. I believe this is especially true when an economy moves from consumption (and the trade of finite resources) to an economy that revolves around the trade of intellectual property (and infinitely renewable) resources.
I quite firmly believe that the sale of intellectual property is corrupt. I don't hold this view because I'm particularly morally opposed to the idea, but because - logically - I don't feel it's either sustainable in the long term, or compatible with the economic models that society has been traditionally built upon up to this point.
In the intermediate term, I think a logical solution to the problems presented re. making money from IP, is to sell IP as a service. This model deals in absolutes - real costs can be factored into pricing decisions associated with the sale of IP. Rather than consider sale of IP as a 'cash cow' (able to be milked infinitely, creating an unending stream of capital for the associated company), I believe a service model is - by its nature, tied to the real world in a much more realistic way.
If this idea is extended .. what is it that's unique about the sale of a service? How can its essence be factored down, and what is the base variable that's being sold?
I'd argue that the new currency is time - the most important 'finite' currency that's available to human beings.
The concept of money has become so abstracted from both time, and the physical resources it's traditionally represented. I think in the coming decades this abstraction needs to be resolved. If physical resources are are to play a reduced part in economics due to necessity - I think that latter logically needs to step to the fore and be considered as more important.
It would lead to a fundamental shift in the way we all function on a day to day basis - and I think the change would be entirely positive.