What is the ELI5 20 people trading things in a small town definition of a recession? I get the whole 2 quarters of economic decline definition, but I guess I ask because part of a recession is psychological right? It gets worse because people stop spending, creating a downward spiral. I guess the question is, if we just spend through it, will it last a shorter amount of time? I get the impression that that creates economic risk - i.e. if you're spending through it and lose your job or have a financial crisis, you might additionally lose your house or some other bad thing could happen.
At the risk of butchering an old joke, my attempt at the ELI5 small town version of a recession is the following story, but the rich tourist never shows up....
From [0]:
It’s a slow day in some little town……..
The sun is hot….the streets are deserted.
Times are tough, everybody is in debt, and everybody lives on credit.
On this particular day a rich tourist from back west is driving thru town.
He stops at the motel and lays a $100 bill on the desk saying he wants to inspect the rooms upstairs in order to pick one to spend the night.
As soon as the man walks upstairs, the owner grabs the bill and runs next door to pay his debt to the butcher.
The butcher takes the $100 and runs down the street to retire his debt to the pig farmer.
The pig farmer takes the $100 and heads off to pay his bill at the feed store.
The guy at the Farmer’s Co-op takes the $100 and runs to pay his debt to the local prostitute, who has also been facing hard times and has had to offer her services on credit.
She, in a flash rushes to the motel and pays off her room bill with the motel owner.
The motel proprietor now places the $100 back on the counter so the rich traveler will not suspect anything.
At that moment the traveler comes down the stairs, picks up the $100 bill, states that the rooms are not satisfactory, pockets the money & leaves.
NOW,… no one produced anything…and no one earned anything…however the whole town is out of debt and is looking to the future with much optimism.
but the $100 wasn't the motel's to spend yet; it was a conditional deposit and reclaimed quickly. had it gone elsewhere in the chain the actual owner of that money would have a case for theft.
David Graeber's Debt: the First 5,000 Years is really worth reading to understand the anthropology of debt.
It's common in societies to accumulate unpayable debts (that, over time, evolve into debts designed never to be paid) for ceremonial purposes. A society might foster interdependence by having everyone in debt to everyone (as described in the fable above) in small amounts. Over time, these amounts grow. Nothing really stops them. House prices and education costs are no longer limited by what people can pay, because borrowing in increasingly large amounts becomes licit (and necessary, due to inflated prices). This generates a spiral. People can't afford to pay off their coming-of-age debt? Yeah, it's designed that way. In other societies it has been marriage or funeral expenses or receiving one's first hunting tools--in ours, it is the last 4-8 years of schooling.
These ceremonial debts seem harmless, insofar as the penalties for nonpayment are rarely enforced--few people actually have their wages garnished over medical bills or student loans--but, of course, they're anything but. In practice, they reify the ruling class's self-asserted superiority by giving them a legal justification for bringing harm to those who "freely" took on these debts. For reasons unclear, although Graeber examines a few possibilities, there seems to be a psychological weight given to the notion of debt, so strong that debts even outlive governments and states.
That does have a resemblance to what happens during a recession, but I'll point out that clearing houses mitigate that specific problem with debt cycles. For a more realistic analogy than the one you mentioned, I'd check out Krugman's article about a recession in a babysitting co-op: https://slate.com/business/1998/08/baby-sitting-the-economy.... . It seems to be exactly what the GP was looking for
Adam sees a gold nugget on his property. He decides that rather than preserving plums like he normally does this time of year he will start a business mining gold. He takes out a loan from Bob at a high interest rate. He hires Charlie who previously worked as a tailor, and Dick who was unemployed.
Anticipating future riches Adam, Bob, Charlie and Dick all start spending more money. Evan the innkeeper has to cook more and fancier food for them. He works longer hours and builds up some savings, thinking that he will spend it on fine gold jewelry from Adam later.
The mining effort finds absolutely nothing. Adam has neither gold nor plums and defaults on his debt to Bob. He lays off Charlie and Dick. For Evan business goes back to normal, he has money but the jewelry he wanted to buy doesn't exist.
Eventually Adam starts preserving plums again and Charlie goes back to tailoring.
Until someone else comes up with a wild idea? I guess this is sort of what I had in mind, to make it at like state or industry sized scale, new idea comes along 20 companies try it. Spend a bunch of money hire people etc, feeding the economy. 16 companies fail. 1 company grows to 4x, 3 companies stay at 1x = 7x. 13 companies worth of value sort of has to dissolve into the economy before the next innovation/growth train comes along.
It's very easy to understand if you just think about the basics. Put the books and academic theories back on the shelf.
In the USA we want "good" jobs that come with personal fulfillment, agency, mental stimulation... great. We also want free healthcare, free education, free everything. Fine. But at the end of the day our money has to buy things of actual value, even as we provide the aforementioned niceties, such as food, housing, medical equipment, computers, i.e. manufactured products, which can only be made by soul-crushing labor and toil.
There's a difference between productive labor (creating value) and service (moving value around). Our currency loses value because too much of the economy is constituted by unproductive jobs where people just attend to each other instead of creating any value. 1.2 trillion dollars on health care every year. 800 billion dollars on welfare. The wolves are at the doorstep.
One slight adjustment to your thinking, tech titans create massive value: "In 2021, the Big Five tech giants—Apple, Amazon, Google (Alphabet), Meta, and Microsoft—generated a combined $1.4 trillion in revenue."
Have you thought about why it's tricky? Maybe because each person on this thread has a different perception of what the word 'value' even means. If you start with an unclear definition, you cannot hope to arrive at a clear answer.
Advertising creates revenue, but does it create value? Imagine Coca-Cola pays Google a bunch of money to run ads. You are thirsty and go to a store and decide between a Dr. Pepper and a Coke. You choose the Coke. Has this process created value?
I would argue that they create a secondary item. The same way lumber is created from wood, and then picture frames from lumber. Value is added, and this creates revenue. Here, the value is virtual, but it's still value -> the market says so. I could argue this is just a service, but if that were true it would be worth less and the market would correct.
Of course advertising creates value. It connects buyers and sellers. It generates demand for products that are built and created by other people. You can disdain advertising all you want, but occasionally an ad connects with you and presents you with what you're looking for. In aggregate, that has tremendous value.
Advertising would create value if it would only serve to connect buyers and sellers, but instead modern advertising serves to "generate demand", as you mentioned. That means making you, artificially, usually using emotions and psychological tricks, spend money on something that you wouldn't and shouldn't spend money.
We can thank Edward Bernays for single-handledly ruining the world.
The parent isn't speaking about paying someone else for their manual labor. They're speaking about administrative overhead required to operate a business.
Think the accountant that your clothes washer has to hire just to stay out of jail. (theoretically, of course)
At some point overhead is actually overhead, and not value. It's pretty much a given that all regulation has some amount of inefficiency, and the inefficiency is not value.
Personally, I think most people know their job is largely bullshit and they kind of like it that way. Or are just fearful of what the alternative would mean.
If you're willing to pay someone to move value around, then they are in fact creating the value that is == to what you're willing to pay them. Otherwise it would not be advantageous to pay them to do it, so you wouldn't.
Arguably much of those services are to try to recover a portion of value that we lose by default due to bad decisions beyond our control.
You pay for an Uber, or you pay for a car and all of its associated costs, and pay with your time sitting in soul-crushing traffic either way, because your municipality responded to population growth by building incredible sprawl and dangerous roads with no alternatives instead of a development and transit infrastructure that scales. Or you pay premiums and copays and various fees as tribute to the insane byzantine healthcare system that the U.S. has because there is no simple public option or sane way for providers to communicate information to each other. Or you pay 4x the cost for 1/4 the speed for Internet because $TELCO_GIANT has a monopoly and lobbied the municipality not to compete.
We have incredible, jaw-dropping amounts of misallocated value, with expensive services willing to sell you back a fraction of that value at an outrageous price. I don't think I would call that economically productive.
Yeah totally agreed with all of this. It’s just a question of what you want to consider the context and what you want to consider the more mutable “subject” of your inquiry. A more expansive view of context will give you more ideal options, but will also get harder and harder to manipulate.
> Our currency loses value because too much of the economy is constituted by unproductive jobs where people just attend to each other instead of creating any value.
Which is a broad enough context for my point. The incredible inefficiency of the U.S. economy means that it is not providing the quality of life to its people that our per-capita economic activity suggests that it should be. In the aggregate, there's a lot of people paying a lot of money and getting a crappy life in return. That manifests itself in, among others, physical/mental health problems, constant economic precarity, overconsumption of natural resources, degradation of public services, profligate time-wasting, frustration with each other and one's self, and unachieved potential. And those things put the U.S. on the path to long-term decline.
After you account for externalities, and the fact that much of American economic activity would not exist if it simply had a better-structured society to begin with, the amount of value it actually creates starts to look a lot lower.
One could argue that much of that at least produces actual goods rather than the latest SV startup. At the end of the day there is still a gun produced even if we don't like it. Meanwhile exploiting pizza arbitrage is just a middleman sticking himself in something.
If the goods aren't useful to anyone (and a lot of the military's hardware isn't useful even by the military's own estimation), then producing them is a worse-than-pointless exercise. Better to do nothing at all than to do active harm.
"Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed.
"This world in arms is not spending money alone. It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children. The cost of one modern heavy bomber is this: a modern brick school in more than 30 cities. It is two electric power plants, each serving a town of 60,000 population. It is two fine, fully equipped hospitals. It is some fifty miles of concrete pavement. We pay for a single fighter with a half-million bushels of wheat. We pay for a single destroyer with new homes that could have housed more than 8,000 people. . . . This is not a way of life at all, in any true sense. Under the cloud of threatening war, it is humanity hanging from a cross of iron."
> Our currency loses value because too much of the economy is constituted by unproductive jobs where people just attend to each other instead of creating any value. 1.2 trillion dollars on health care every year. 800 billion dollars on welfare.
I think you're almost there but not quite. It's not that we're spending money pushing people around. It's that we're spending people pushing money around. If medical spending were focused on medical equipment, facilities, and professionals, we would free up huge amounts of resources. But we have legions of hospital and insurance administrators whose entire job is to fight against each other over billing. Those people are resources who could be used to produce things, or provide care!
You're almost there, but not quite.
ACA incentivizes the disease insurance companies to spend more on disease care (machines, drugs, processors, etc.), not to ameliorate costs. Executive bonuses, marketing, overhead, almost come from 20% of total costs, so the only way to get a bigger bonus is for the whole pie to grow.
Even before that, litigation encourages the same.
Companies (hospitals and the like) in the US resell (or used to) perfectly good equipment abroad with a huge discount after it's been used so that it can be replaced with the newest model with the shiniest bells and most expensive cost to avoid a lawsuit.
The US taxpayer already pays for the best socialized medicine system in the world[0], our government/compulsory spending on a per capita basis ($10052) is higher than the nation (Germany) with the next highest overall per capita spending ($7383). We are being ripped off. Anyone who tells you we need to raise taxes to pay for Medicare for all is a friend of the medical industrial complex, not the people.
The great thing is that we can all blame our own political bogeyman (ACA) for healthcare costs for expensive medical equipment bought to avoid lawsuits, and not say, the enforcement of HIPAA on electronical data 17 years ago. The answer will surely lie in first blaming a political enemy, then vaguely hinting at something relevant (litigation).
I didn't mean to blame ACA for the equipment problem. That was happening well beforehand because of litigation.
ACA is directly responsible for the perverse incentive in not reducing medical costs.
ACA is bad, and they knew it when they passed it. IIRC, senator Lieberman stopped government supplied medical care for the other 50% of people who don't already get it that way
Could you explain that delineation a bit more... at the end of the day everything is just serving others, including manufacturing. Mining minerals, the guy building my deck, etc., they're all things I buy to use for me, which is a service. I'm going to enjoy that deck about the same as I do the TV I watch on streaming.
If you're talking about making machines that make everyone more productive... then you're back into IT and Finance allowing everyone to be more productive... just as much as robots and factory lines. And at the end of the day it's still just goods people buy or use.
> food, housing, medical equipment, computers, i.e. manufactured products, which can only be made by soul-crushing labor and toil.
Can you show that labor is the bottleneck here because I don't think it is. Agriculture is more and more industrialized and the issue is more stuff like fertilizer and fuel prices, and also shipping issues. All due to war. Housing is made expensive because no one wants a poor (hence annoying - so people think) neighbor. Medical equipment and computers, actually I really don't know enough about how those are made to say.
Since the financialization of the economy in the 70-80s, the economy has bifurcated between "productive" parts which ate well off debt and globalization, and the rest that has had to deal with the fallout of de-industrialization and shift towards a service economy with lower paying, lower skill jobs that are less secure overall.
Politicians have just kept digging us deeper into the hole because while it is not sustainable there is no turning back without major social upheaval and massive uncertainty.
Your path to a better world is less healthcare, less help, and more soul-crushing labour?
> "In the USA we want "good" jobs that come with personal fulfillment, agency, mental stimulation... great"
That doesn't so much depend on the type of job, it depends on the management environment and coworkers. People can be happy with a sense of fulfillment and agency, or unhappy without those things in both skilled or menial, high or low paid jobs.
> "i.e. manufactured products, which can only be made by soul-crushing labor and toil."
In Henry Ford's autobiography, he wonders at the factory worker who is happy dipping metal components in liquid, with only the gentlest wave of the hands as their labour, over and over all day, and cannot be tempted by money to do anything more interesting or complex.[1]
Are the people making James Webb, or ASML's EUV-lithography machines or X-Ray machines doing soul-crushing labour? Are the people making hand-made wooden furniture doing soul-crushing labour with no agency and no mental stimulation? And, more importantly, do they need to be? Is that the only way we can imagine work and jobs? Does labour necessitate micromanagement, time tracking, awful bosses, skeleton staff, high stress, squeezing for maximum value extraction? Couldn't we change that instead, and keep the healthcare and welfare?
[1] in as many words; I forget the exact anecdote.
Fed printed crazy amount of dollars. I am not confused at all why we have inflation. I am confused why Fed is not rising interest rates which should never go below 2%.
Everybody is trying to explain this away with Russia, Covid... I'm not even following the excuses anymore. It'll be climate change soon. But that's ridiculous.
Literally the only way to have inflation is if the Fed chooses to cause inflation, or not to resist inflation, of which it has done both in the last few years.
Absent supply constraints (putting aside the fact that's another way of saying demand exceeds supply), do you believe there is any point at which printing money drives inflation? If yes, at what point would you say it would? See the M1 graphic linked above.
That's because economists think there's a rational market, and there isn't, only a human one. Everything in the human world, including the economy, is affected by human psychology as a primary driver, everything else is secondary to emotionally driven discussions based on prognostication.
To my economics is one of the peak science "cargo cults" it would seem that if there was some sort of science behind it many of the experts would all agree on the same thing, yet the argument between Austrian and Kenseyian economics is alive and well.
I studied economics for a long time got deep into it, and what I've concluded is that it has much more in common with Philosophy than science. They dress it up with words and charts and formulas but it always seem that what they say doesn't pan out.
I'll agree with the idea of supply and demand that seems to work pretty well in most cases to describe things, but beyond that the economy is such a complex system it is too chaotic to model with any degree of accuracy.
It would help if the people that actually know it and want to honestly speak about it had a voice, instead of politically oriented talking heads and entertainers.
At some point you have to ask yourself if maybe they're not simply confused but rather they say whatever anyone pays them to say. In short: Stop attributing to confusion what can be adequately explained by payola.
> When taxes are factored in, last year’s corporate profit increases were even more of an outlier. They soared 37% year over year, more than any other time since the Fed began tracking profits in 1948.
Companies that embrace this mysterious "massive shift in the way people work" will have a nice competitive advantage.
I don't see anything unusual there, there was a big spike in Q2 2020 obviously, and a matching dip in Q3 2020, which causes havoc with change in a short time, but the average seems about in the ballpark of the 2012-2020 range.
The experts have never experienced an economy suffering from supply constraints in their lifetime. Just prior to the pandemic there was talk of how to do economics in a "post scarcity" world. That's how foreign of a concept supply constraints are.
Thanks to their advanced healthcare and pharmaceuticals, the West has largely put the pandemic behind them. Life has more-or-less returned to normal, meaning demand has more-or-less returned to normal. In fact demand has increased - there's pent-up demand from being on lockdown for two years. Bottom line - demand is up.
What about supply? Almost everything manufactured has at least one component manufactured in an East Asian country. Even if you're an American manufacturer you probably rely on at least one component coming from one of these countries. Significant portions of East Asian manufacturing is still locked-down due to the pandemic. There have been articles here on HN just in the past two weeks talking about, for example, American synthesizer companies going out of business because they can't get needed parts - parts that in some cases they ordered two years ago! Bottom line - supply is down.
What happens to prices when supply is down and demand is up? ECON 101 says they increase. Which they did. That increase has freaked out central banks who see the inflation as a need for fiscal policy intervention and raise rates. The U.S. dollar is trading at historic levels against the panoply of world currencies yet the Fed took action to make it even more valuable - incredible!
Maybe instead we should stop pretending the pandemic is over all over the world and start focusing on the impacts the still-continuing pandemic is having on supply chains. Just a thought.
Another thing - this is why Putin invaded the Ukraine now. With the global supply chain out of sorts this is the time that's allowed Putin to maximize the chaos and economic pain on the West should they attempt to retaliate. Putin wasn't stupid, he thought this one through. Putin knew he could throw the oil market out of sorts, the nitrogen fertilizer market out of sorts, the noble gas market out of sorts, and the world grain market out of sorts. Russia is waging economic warfare against everybody but the Middle East, China, and India. Stew on that one for a while.
1. Russia has definitely chosen the optimal time to act. Grain harvest is down everywhere due to drought except...Russia (https://www.bbc.com/news/world-62149522) and they naturally benefit. Based on the heating/cooling cycles, the Ukraine land will produce better harvests in the next 10-20 years. So we see Russia impacting Western countries and alliances with grain/oil. China & India are happily importing said oil. Russia still is enjoying its victories in the information war on the West. Obviously militarily, Russia is behind where they would like to be.
2. It's also important to note that artificially low interest rates have allowed businesses to charge more for the same goods/services (sometimes less with "shrinkflation") since consumers/businesses have access to higher lines of credit. High demand inventory is turning over, unemployment is still low, and wages remain stagnant.
I think the problem is that a handful of very large companies have found ways to extract a lot of money from the economy whilst providing essentially no economic value in return. The economy has become so manipulated and schematized, in certain sectors, it's essentially all fake at this stage. All money through the economy just flows to people based on where they fit within the grand financial scheme. This scheme is not connected to fundamentals like supply and demand of consumers.
It almost seems as though some companies have literally found a way to print themselves unlimited money and other economic participants won't figure it out for another decade... They're still playing by the rules.
I have a strong suspicion that the benefits of increased productivity are claimed by the finance industry. Credit/debt increases along with productivity keeping us mere mortals from enjoying the benefits we otherwise could (e.g. greater security and leisure time).
That's not a mystery, even to Keynesians (which is why it's the Keynesian response to a particular condition, and not the Keynesian approach to, well, everything), and isn't the issue of confusion the article is addressing.
I doubt Thomas Sowell is confused, Milton Friedman wouldn't be either. Having read both I am not confused. Events have transpired as they have predicted. The only thing that is confusing is how someone could think it would've went any other way.
I wouldn't expect that it's the sole cause of the current instability and troubles (there are a number of other obvious sources of perturbation), but it can't be entirely irrelevant that we've been going for ~50 years with minimal increases in real wages, and vast increases in income and wealth at the top, and then thrown in on top of it a global pandemic, a war in Europe creating supply shocks (particularly in energy), and now very, very clear signals that if you're not part of The Elect (rich non-queer white men), you're going to have your rights stripped away from you, including your (effective) right to vote (if you're a minority or queer in a red state) and your right to bodily autonomy (if you have a functioning uterus).
These things can have a real effect on how, and whether, people choose to spend.
oh, very easy. illegal naked short selling. hedge funds and too big to fail banks got caught with their hand in the cookie jar. very very simple to explain. too bad no one cares to listen, though.
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[ 4.1 ms ] story [ 164 ms ] threadFrom [0]:
It’s a slow day in some little town…….. The sun is hot….the streets are deserted. Times are tough, everybody is in debt, and everybody lives on credit.
On this particular day a rich tourist from back west is driving thru town. He stops at the motel and lays a $100 bill on the desk saying he wants to inspect the rooms upstairs in order to pick one to spend the night. As soon as the man walks upstairs, the owner grabs the bill and runs next door to pay his debt to the butcher. The butcher takes the $100 and runs down the street to retire his debt to the pig farmer. The pig farmer takes the $100 and heads off to pay his bill at the feed store.
The guy at the Farmer’s Co-op takes the $100 and runs to pay his debt to the local prostitute, who has also been facing hard times and has had to offer her services on credit. She, in a flash rushes to the motel and pays off her room bill with the motel owner. The motel proprietor now places the $100 back on the counter so the rich traveler will not suspect anything.
At that moment the traveler comes down the stairs, picks up the $100 bill, states that the rooms are not satisfactory, pockets the money & leaves.
NOW,… no one produced anything…and no one earned anything…however the whole town is out of debt and is looking to the future with much optimism.
[0] https://www.econlib.org/archives/2012/01/an_answer_to_a.html
It's common in societies to accumulate unpayable debts (that, over time, evolve into debts designed never to be paid) for ceremonial purposes. A society might foster interdependence by having everyone in debt to everyone (as described in the fable above) in small amounts. Over time, these amounts grow. Nothing really stops them. House prices and education costs are no longer limited by what people can pay, because borrowing in increasingly large amounts becomes licit (and necessary, due to inflated prices). This generates a spiral. People can't afford to pay off their coming-of-age debt? Yeah, it's designed that way. In other societies it has been marriage or funeral expenses or receiving one's first hunting tools--in ours, it is the last 4-8 years of schooling.
These ceremonial debts seem harmless, insofar as the penalties for nonpayment are rarely enforced--few people actually have their wages garnished over medical bills or student loans--but, of course, they're anything but. In practice, they reify the ruling class's self-asserted superiority by giving them a legal justification for bringing harm to those who "freely" took on these debts. For reasons unclear, although Graeber examines a few possibilities, there seems to be a psychological weight given to the notion of debt, so strong that debts even outlive governments and states.
the $100 bill appearing didn't do anything but help them realize that
if they sat down at a whiteboard and drew it out they could have figured it out.
if they didn't cancel out, the $100 bill would stop before it got back to the inn keeper and he'd be in trouble
Adam sees a gold nugget on his property. He decides that rather than preserving plums like he normally does this time of year he will start a business mining gold. He takes out a loan from Bob at a high interest rate. He hires Charlie who previously worked as a tailor, and Dick who was unemployed.
Anticipating future riches Adam, Bob, Charlie and Dick all start spending more money. Evan the innkeeper has to cook more and fancier food for them. He works longer hours and builds up some savings, thinking that he will spend it on fine gold jewelry from Adam later.
The mining effort finds absolutely nothing. Adam has neither gold nor plums and defaults on his debt to Bob. He lays off Charlie and Dick. For Evan business goes back to normal, he has money but the jewelry he wanted to buy doesn't exist.
Eventually Adam starts preserving plums again and Charlie goes back to tailoring.
In the USA we want "good" jobs that come with personal fulfillment, agency, mental stimulation... great. We also want free healthcare, free education, free everything. Fine. But at the end of the day our money has to buy things of actual value, even as we provide the aforementioned niceties, such as food, housing, medical equipment, computers, i.e. manufactured products, which can only be made by soul-crushing labor and toil.
There's a difference between productive labor (creating value) and service (moving value around). Our currency loses value because too much of the economy is constituted by unproductive jobs where people just attend to each other instead of creating any value. 1.2 trillion dollars on health care every year. 800 billion dollars on welfare. The wolves are at the doorstep.
https://www.visualcapitalist.com/how-big-tech-makes-their-bi...
We can thank Edward Bernays for single-handledly ruining the world.
I actually think services create more value than my code, so I’m unclear why I get paid so much.
Think the accountant that your clothes washer has to hire just to stay out of jail. (theoretically, of course)
You pay for an Uber, or you pay for a car and all of its associated costs, and pay with your time sitting in soul-crushing traffic either way, because your municipality responded to population growth by building incredible sprawl and dangerous roads with no alternatives instead of a development and transit infrastructure that scales. Or you pay premiums and copays and various fees as tribute to the insane byzantine healthcare system that the U.S. has because there is no simple public option or sane way for providers to communicate information to each other. Or you pay 4x the cost for 1/4 the speed for Internet because $TELCO_GIANT has a monopoly and lobbied the municipality not to compete.
We have incredible, jaw-dropping amounts of misallocated value, with expensive services willing to sell you back a fraction of that value at an outrageous price. I don't think I would call that economically productive.
> Our currency loses value because too much of the economy is constituted by unproductive jobs where people just attend to each other instead of creating any value.
Which is a broad enough context for my point. The incredible inefficiency of the U.S. economy means that it is not providing the quality of life to its people that our per-capita economic activity suggests that it should be. In the aggregate, there's a lot of people paying a lot of money and getting a crappy life in return. That manifests itself in, among others, physical/mental health problems, constant economic precarity, overconsumption of natural resources, degradation of public services, profligate time-wasting, frustration with each other and one's self, and unachieved potential. And those things put the U.S. on the path to long-term decline.
After you account for externalities, and the fact that much of American economic activity would not exist if it simply had a better-structured society to begin with, the amount of value it actually creates starts to look a lot lower.
You accidentally forgot the $800 billion for the military-industrial complex every year (it's easy to miss, I know).
"This world in arms is not spending money alone. It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children. The cost of one modern heavy bomber is this: a modern brick school in more than 30 cities. It is two electric power plants, each serving a town of 60,000 population. It is two fine, fully equipped hospitals. It is some fifty miles of concrete pavement. We pay for a single fighter with a half-million bushels of wheat. We pay for a single destroyer with new homes that could have housed more than 8,000 people. . . . This is not a way of life at all, in any true sense. Under the cloud of threatening war, it is humanity hanging from a cross of iron."
US President Dwight Eisenhower, 1953 https://en.wikipedia.org/wiki/Chance_for_Peace_speech
I think you're almost there but not quite. It's not that we're spending money pushing people around. It's that we're spending people pushing money around. If medical spending were focused on medical equipment, facilities, and professionals, we would free up huge amounts of resources. But we have legions of hospital and insurance administrators whose entire job is to fight against each other over billing. Those people are resources who could be used to produce things, or provide care!
Even before that, litigation encourages the same.
Companies (hospitals and the like) in the US resell (or used to) perfectly good equipment abroad with a huge discount after it's been used so that it can be replaced with the newest model with the shiniest bells and most expensive cost to avoid a lawsuit.
[0]https://data.oecd.org/healthres/health-spending.htm
ACA is directly responsible for the perverse incentive in not reducing medical costs.
ACA is bad, and they knew it when they passed it. IIRC, senator Lieberman stopped government supplied medical care for the other 50% of people who don't already get it that way
If you're talking about making machines that make everyone more productive... then you're back into IT and Finance allowing everyone to be more productive... just as much as robots and factory lines. And at the end of the day it's still just goods people buy or use.
Can you show that labor is the bottleneck here because I don't think it is. Agriculture is more and more industrialized and the issue is more stuff like fertilizer and fuel prices, and also shipping issues. All due to war. Housing is made expensive because no one wants a poor (hence annoying - so people think) neighbor. Medical equipment and computers, actually I really don't know enough about how those are made to say.
Politicians have just kept digging us deeper into the hole because while it is not sustainable there is no turning back without major social upheaval and massive uncertainty.
> "In the USA we want "good" jobs that come with personal fulfillment, agency, mental stimulation... great"
That doesn't so much depend on the type of job, it depends on the management environment and coworkers. People can be happy with a sense of fulfillment and agency, or unhappy without those things in both skilled or menial, high or low paid jobs.
> "i.e. manufactured products, which can only be made by soul-crushing labor and toil."
In Henry Ford's autobiography, he wonders at the factory worker who is happy dipping metal components in liquid, with only the gentlest wave of the hands as their labour, over and over all day, and cannot be tempted by money to do anything more interesting or complex.[1]
Are the people making James Webb, or ASML's EUV-lithography machines or X-Ray machines doing soul-crushing labour? Are the people making hand-made wooden furniture doing soul-crushing labour with no agency and no mental stimulation? And, more importantly, do they need to be? Is that the only way we can imagine work and jobs? Does labour necessitate micromanagement, time tracking, awful bosses, skeleton staff, high stress, squeezing for maximum value extraction? Couldn't we change that instead, and keep the healthcare and welfare?
[1] in as many words; I forget the exact anecdote.
Literally the only way to have inflation is if the Fed chooses to cause inflation, or not to resist inflation, of which it has done both in the last few years.
High oil prices, restricted supply chians from covid do drive inflation
I studied economics for a long time got deep into it, and what I've concluded is that it has much more in common with Philosophy than science. They dress it up with words and charts and formulas but it always seem that what they say doesn't pan out.
I'll agree with the idea of supply and demand that seems to work pretty well in most cases to describe things, but beyond that the economy is such a complex system it is too chaotic to model with any degree of accuracy.
In fact, it is hard for me to differentiate between the two.
What possible massive shift in the way people work could possibly explain this?!
It’s so obvious but people just don’t want to hear it.
sounds like he's talking about remote
Citation needed. In 2021 corporate profits increased more than any year in recorded history:
https://fortune.com/2022/03/31/us-companies-record-profits-2...
> When taxes are factored in, last year’s corporate profit increases were even more of an outlier. They soared 37% year over year, more than any other time since the Fed began tracking profits in 1948.
Companies that embrace this mysterious "massive shift in the way people work" will have a nice competitive advantage.
Not OP, not arguing for OP, but was curious myself and found the link below.
https://www.bloomberg.com/news/articles/2022-05-05/u-s-produ...
No need for the OP to grind their axe.
https://www.bls.gov/charts/productivity-and-costs/manufactur...
I don't see anything unusual there, there was a big spike in Q2 2020 obviously, and a matching dip in Q3 2020, which causes havoc with change in a short time, but the average seems about in the ballpark of the 2012-2020 range.
Thanks to their advanced healthcare and pharmaceuticals, the West has largely put the pandemic behind them. Life has more-or-less returned to normal, meaning demand has more-or-less returned to normal. In fact demand has increased - there's pent-up demand from being on lockdown for two years. Bottom line - demand is up.
What about supply? Almost everything manufactured has at least one component manufactured in an East Asian country. Even if you're an American manufacturer you probably rely on at least one component coming from one of these countries. Significant portions of East Asian manufacturing is still locked-down due to the pandemic. There have been articles here on HN just in the past two weeks talking about, for example, American synthesizer companies going out of business because they can't get needed parts - parts that in some cases they ordered two years ago! Bottom line - supply is down.
What happens to prices when supply is down and demand is up? ECON 101 says they increase. Which they did. That increase has freaked out central banks who see the inflation as a need for fiscal policy intervention and raise rates. The U.S. dollar is trading at historic levels against the panoply of world currencies yet the Fed took action to make it even more valuable - incredible!
Maybe instead we should stop pretending the pandemic is over all over the world and start focusing on the impacts the still-continuing pandemic is having on supply chains. Just a thought.
Another thing - this is why Putin invaded the Ukraine now. With the global supply chain out of sorts this is the time that's allowed Putin to maximize the chaos and economic pain on the West should they attempt to retaliate. Putin wasn't stupid, he thought this one through. Putin knew he could throw the oil market out of sorts, the nitrogen fertilizer market out of sorts, the noble gas market out of sorts, and the world grain market out of sorts. Russia is waging economic warfare against everybody but the Middle East, China, and India. Stew on that one for a while.
1. Russia has definitely chosen the optimal time to act. Grain harvest is down everywhere due to drought except...Russia (https://www.bbc.com/news/world-62149522) and they naturally benefit. Based on the heating/cooling cycles, the Ukraine land will produce better harvests in the next 10-20 years. So we see Russia impacting Western countries and alliances with grain/oil. China & India are happily importing said oil. Russia still is enjoying its victories in the information war on the West. Obviously militarily, Russia is behind where they would like to be.
2. It's also important to note that artificially low interest rates have allowed businesses to charge more for the same goods/services (sometimes less with "shrinkflation") since consumers/businesses have access to higher lines of credit. High demand inventory is turning over, unemployment is still low, and wages remain stagnant.
It almost seems as though some companies have literally found a way to print themselves unlimited money and other economic participants won't figure it out for another decade... They're still playing by the rules.
I have a strong suspicion that the benefits of increased productivity are claimed by the finance industry. Credit/debt increases along with productivity keeping us mere mortals from enjoying the benefits we otherwise could (e.g. greater security and leisure time).
These things can have a real effect on how, and whether, people choose to spend.