Tuesday, July 17, 2012

Notes on Why the Economy Won't Get Better

With all the thundering noise and wild accusations on both sides of the Congressional aisle and each campaign bus about whose fault it is that the economy is still in the toilet, I think we have lost sight of the fundamental reason things aren't getting better.

It's us.

Not "Congress," "Republicans," "Democrats," "unions," "business," or "China" ... all part of the problem, of course, but I see them more as symptoms than as the problem itself.

The real problem is us ... all of us ... you and I.

Now, I'm not the brightest bulb in the economic chandelier, but there are a few economic truths that seem pretty self-evident to me. Consider the following ideas, connecting the dots as necessary:

1. Consumers (that would be you and I) want the lowest possible prices.

2. Businesses want the highest possible profits, and their stockholders want the maximum return on their investments.

3. In order to keep prices low (to keep consumers happy) and profits high (to keep stockholders happy), businesses must minimize their costs of operation. They do this in a variety of ways, for example:

  • Cut prices in the hope that increased sales volume will make up the difference in income.
  • Lay off all but the absolute minimum number of workers, and maximize the amount of work done by each one.
  • Do not hire new workers unless there is an absolutely clear economic advantage in doing so.
  • Move operations to areas with lower labor costs.
  • Defer replacement of aging equipment.
4. When stockholders aren't happy, they don't invest in businesses, which causes businesses to resort to the sorts of actions in #3 above.

5. The results of #'s 1 - 4 above are predictable ... for example:

  • No matter how low a business keeps its prices, if its customers don't have jobs, they can't afford to buy the products and services offered.
  • If a business moves operations to areas with lower labor costs (particularly overseas), its former employees will not have the income to buy your products (see the previous bullet).
  • Deferring replacement of aging equipment causes the businesses who make that equipment to lay off workers ... who, in turn, will not have the income to buy other products.
So ...

It seems to me that the real root of the economic problem is not job-killingTM regulations or taxes that are too high - it's the diametrically-opposed desires of consumers (you and I) for minimum prices and of businesses for maximum profits.

If any of you, Dear Readers, has a good idea of how to reconcile these two economic points of view, you will be a front-runner for the Nobel Prize in Economics.

But in the meantime, it's a lot easier to just mindlessly shout about job-killingTM regulations, high taxes, and what America-hating skunks the (insert Democrats or Republicans here) are.

That's all.

Have a good day ... while you can still afford it. More thoughts tomorrow.



eViL pOp TaRt said...

Bilbo, you have gotten the economic ducks in a row, and make an excellent point. I know of no effective solution, other than Buddha's to reduce suffering by reducing craving.

The fact that people want lots of stuff drives consumerism.

Duckbutt said...

We were in Target last night, and there were only four cash registers open out of 35 or 40. Therefore, we waited. Long lines at checkouts are another spinoff to this.

Dealing with outsourcing of jobs may someday come to be a political issue, along with the suspect NAFTA.

Mike said...

Thus the saying that's going around right now. The rich don't create jobs. The middle class creates jobs by buying stuff.

Henry Ford knew the solution. Pay the workers a decent wage.

Maybe we're past the point of no return on going back to the feudal system.

allenwoodhaven said...

There is a concept that is rarely associated with capitalism, but it can solve this problem: enough!

Elvis Wearing a Bra on His Head said...

Right now the economy seems to be slowly improving due to an increase in small purchases. It's like people not taking major risks with their money. My girlfriend and I can eat ow at Panera!