Maybe you saw the headlines blasting the rich (again!) for failing to spend money in order to enable us to get out of this ever-lasting recession. It turns out that in boom times, the rich spent $145 per day. Now they are only spending $119. So, there we go: a new scapegoat! Those greedy rich people are failing to do their duty.
The press reports that the rich are not booking at the Four Seasons, not putting on the Ritz, and not filling their closets with furs and jewels from Saks. It gets worse. The women who shop for goodies by Dries van Noten and John Galliano told the New York Times that their husbands are telling them to cool it on designer bags, shoes, and dresses. Yet another reason for the recession: patriarchy! Let those tax cuts expire!
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Lew, clearly the intellectual emptiness of the authoritarian left (and too many times, the right) is shown again in this display of schizophrenia, when at one time the rich are bashed for not giving away their “fare share” to the government, and when they are accused of not buying enough stuff (which is nothing more than an iteration of the old Keynesian fallacy against “hoarding”.)
Llewellyn H. Rockwell, Jr.,
http://economix.blogs.nytimes.com/2010/06/10/whos-spending-again-the-rich-and-the-old/
Dated one month prior to the article you listed. I wouldn’t call 145$ boom time since they spent that in May.
It’s like Atlas Shrugged, it really is.
Darned rich people aren’t spreading their wealth around enough. John Kerry could have helped MA to the tune of half a million on his boat alone. They have a deficit, the healthcare system is going down the tubes, they need that money! He and Teresa wouldn’t have even felt the tiny scratch. Nope, he docks it someplace else with lower taxation… which he has to drive to, which hurts the earth and increases his carbon footprint.
Sigh. Eat the rich!
QUE DALLE !
Yup, the planners only efficiency is finger pointing. The banks did not/are not loaning enough, the rich are not spending enough…
I agree with Ryan “It’s like Atlas Shrugged, it really is.”
And it’s not just the rich, or banks, it’s all sorts of other businesses as well. If they are not spending it, and not investing it, I guess they must all be Galting it. Who really thinks things will get better before they get worse?
Five more months of no death tax. It’s a sad state of affairs when a sound financial decision for a wealthy individual to make is to die.
There’s an old adage – you don’t get rich by writing checks. The wealthy are those smart enough to know that in uncertain times, it’s a good idea to pull back on the spending.
$145 X 365 = $52,200. This is “rich?” This is $25/hour times 2080, the standard work year.
Let’s look at the standard “rich” person.
Let’s take an annual salary of $250k. Of that, $60k is immediately taken as a Federal income tax. The standard rich person doesn’t draw a salary in a traditional manner, so they’re stuck with the entire 12.4% OASDI and 2.9% Medicare tax. This is $13,243 and $7,250 respectively. We’re up to $80,493 in taxes. That is for the rich in a place like Texas or Florida without state income taxes. Now, let’s put this person in NYC. That’s another 7.375% in state income tax, or $18,438, and the NYC tax of $8,908. The total tax comes up to $107, 839.
After taxes, the “rich” couple has $142,161. Now let’s take into consideration non-discretionary costs. $400/month in food (not restaurant) x 12 = $4,800. $137,361 remains. A $700k home, 30/yr mortgage, loan of $560k, $4,502/month (or call it rent for NYC) x12 = $54,024. $83,337 remaining. As you can see, I just scratched the surface of this fictional couple and we’re already pushing the bounds of the $52k/year in discretionary spending. Start adding in other expenses and suddenly, that $52k/year in spending ceases being “only” and starts pushing out of reach, especially if that rich couple is planning on the giant income tax hike next year, ObamaCare surcharges for the offense of earning that much, plus the uncertainty the earnings will persist.
Remember, rich is an arbitrarily set number of $250 (the most common number used by this administration, but I’ve heard it range from $150k to $300k at varying times during campaigns and after the elections). It has nothing to do with apparent capability of buying the most expensive yacht all the time.
J Murray: Lew didn’t define “the rich” as earning 250K a year, you did. And 250K is not exactly rich, IMO. It’s atop the usual definition of “the middle class”, or up to around 200K. I would call these people “comfortable”.
Why? Let’s see… after paying taxes, the mortgage and food, they still have 83K left over for incidentals. That’s pretty plush… but not rich. Most Americans don’t have 83K gross to raise a family on. So even these fortunate ones, comfortably above the middle, aren’t hurting.
The truly rich are in a different category. The nation’s richest one percent, about 1.5 million families, own as much property as do our bottom 90% of population. In fact the combined 2005 wealth of only two people, Bill Gates and Warren Buffet, was $90 billion, while that of the bottom 40% of the population (that’s 120 million people) was $95 billion.
I think the rich can manage to get by, even if their income taxes do return to 2001 rates.
Re: Michael,
J Murray clearly states in his post that the $250K threshold for being “rich” came from the current administration.
Besides the fact that some of these “rich” are actually small companies whose owners report the income as personal to the IRS, arguing for more looting of someone’s income just because they fit certain description (i.e. “the rich”) reeks of immoral and infantile envy.
The $250K threshold is the line above which Obama asserts that people can stand a tax increase without materially being harmed. One’s purchasing power has not eroded significantly if it goes down from $83K net to, say, $77K. One can still buy a pack of cigarettes.
So such people don’t fit my definition of “rich”. They just fit the definition of people who have a little bit more money than they need to keep body and soul together. Besides, we have an emergency on our hands, an exploding debt. And just as these people benefited from easy money policies when they were on their way up, they can certainly pitch in a little now that the economy needs their help.
Or are you saying that they benefited from easy money policies and should now skip out on the bill?
When he was still selling you, how much did your agent assert the Afghan and Pakistani people could stand?
That’s an irrelevant and nonsensical comment. I get the slur. Now make some sense of it.
Couldn’t be anything more relevant, as you skip out everywhere else I have your prevaricating ass nailed. You lefties dropped the anti-war jazz the second it was to your benefit, like the whores you are. Why are the Pakistani poor so much less important than the infinitely wealthier American “poor”, Mr. Humanitarian?
When the drumbeat to invade Iraq was pounding, we were there. Greater numbers would have had a greater influence. You’ll recall back in 1969, when we were gathering in front of Dick Nixon’s White House in protest, that we had a strong impact on his thinking about prolonging the war? I didn’t think so at the time… but subsequently it came out that he and Kissinger were indeed scared of the mob, and understood that there was real pressure on them to end our involvement in Vietnam.
It was the numbers that did the work. And we had one to two million marchers, across the country and in Nixon’s front yard. This more recent time, with the Iraq buildup to war, we didn’t have the numbers. You weren’t there.
I do get tired of your posturing. You’re more pure than anyone else. Yet in all your posts, we never find that you know the first thing about economics (for example), or that you’ve ever made any contribution to anything. You are uniformly a negative influence, useful only as the hopeful instigator of some mob bent on the destruction of the many objects of your hatred.
Oooh, slightly embarrassing, I was going to leave for awhile, but all the implications of this scared me right back:
http://original.antiwar.com/henderson/2010/07/25/life-in-the-ussa/
Then I read your 88th laughably ignorant attack on me and I just had to respond, but try as you might, I’m not going to be bated into crowing about myself as ridiculously as you do.
Prancing peacock, I *do* feel sorry for you; this pathetic narrative you bought, which you would inevitably buy in your ridiculous vanity. Nixon wasn’t scared of you whining, preening, spoiled-stupid turds. Sure he knew what really upset your class, being drafted, so he moved towards murdering more peasants from the air, congrats, please don’t strain your arm on the back-pats so. It was the conservatives who eventually stopped the war when they were forced to acknowledge what a loser it was, as it will be the conservatives who stop this one (check out Ann Coulter recently).
What do you do but posture, ass? You’re tired of getting garbage back? That’s precious. Yes, I directly attack (only with words, the attempt to destroy memes, to destroy the fortresses your government erects in minds) the center of organized crime, the State. I kind of agree with you here though. Attacking the State probably is like a doctor treating the symptom. The disease is rooted in every individual brain, it springs from immoderate desire and idolatry. I’m a musician, I should work harder in that direction, in working directly on growing culture in the face of your corruption. I’m definitely going to do that and leave the economics to experts like you, (god, you’re a joke).
One final thing, numb nuts, you do get my overriding point that I always allude to, don’t you, that’s why you’re finally getting hot under the collar. It’s simple, but so are you. You leftie bleeding hearts: it’s not good enough to feel for people, if you’re going to help people, especially if you’re going to steal our money to do it, you have to make damned sure you’re actually helping. Just look at what you did to the Black American population, yikes!
No, you don’t make me hot under the collar. You’re only a minor but persistent irritant, with aspirations to offend. I’ll just note that your comments, including this one, remain both irrational and content-free. I’d welcome your making actual contact with something I’ve said, so we could engage on it.
Is Ann Coulter the person who will bring this worthless war to a stop? I’m intrigued. If it’s not too much trouble, give us a link.
I said “getting” hot under the collar. Your getting a little testy is the only thing I have to go on that you’re not a cyborg or some crazy, spoofing performance artist. I’ve just never met a more pompous asshole in all my life, that’s all, and I think about 27 other people around here will back me up on that one. You’re about as popular as a wicker chair in a nudist colony, now why would that be? Oh, I know: you deflate our silly little balloons and we’re probably just jealous of your brilliance.
I know that my skills to offend are no match for yours, not too shaby though, eh?”
Irrational and content-free?” As I’ve said many times before, I tailor my posts to yours.
Schmuck, you said your merry band of brats scared Tricky Dick into quiting his insane war; I engaged your vanity-pleasing assertion quite nicely, I think.
http://original.antiwar.com/justin/2010/07/11/ann-we-hardly-knew-ye/
Your supporting argument: “[like] other recent Democratic ventures into military affairs,” she avers, the occupation of Afghanistan “isn’t likely to turn out well.”
So according to Ann it was the Democrats who ventured into Afghanistan? I would suggest checking the historic facts on this. Every foreign adventurer since the British has found entry into Afghanistan to be an unwinnable proposition.
As for the left’s getting America out of Vietnam back in 1970, I think we know that didn’t happen. But we at least know that behind the White House walls, Nixon was worried about popular discontent. And we have few tools to deter those in power when they decide to make, or prolong, some war of choice. So again in 2003, I protested. But by then there were many fewer of us.
What exactly did you do to try to deter the warmakers? I don’t recall that you’ve said anything about that. You’re very smug, but about no accomplishments that I can see.
“ventured into Afghanistan”
You’re just a born liar, that’s all there is to it. You automatically edit every troublesome sentence to suit you. It’s sad really. When Obama took over and ramped this thing up it certainly became his venture.
“worried about popular discontent”
Yeah, the conservatives’ discontent, and this was a very conservative country (and still is to a lesser degree, despite your party’s more massive attempts to corrupt)
“What exactly did you do to try to deter the warmakers? I don’t recall that you’ve said anything about that. You’re very smug, but about no accomplishments that I can see.”
Zero, zero accomplishments, like an even more minor Ron Paul (more minor than zero? Ralph would say so). Tried to tell you idiots not to vote for Obama. Trying to tell you on the other forum not to vote for Hillary in 2012. You and Noam Chomsky still will. You guys are really stupid and all I gots my lungs.
I stupidly denigrated Dr. Paul there. Yesterday Russ pathetically asserted that W. successfully protected us (God’s children, Americans) from the Injuns between 9/12/01 and 2009. Leaving aside the fact that it was a suddenly slightly awakened citizenry who stopped the fourth plane that day and stopped other attempts by a few misguided Muslims thereafter, I maintain that it is people like Dr. Paul and Dr. Paul more than anyone I know of that protect us from your government’s victims. When he stood up to the reptile Rudolph Giuliani so wonderfully at that debate, millions upon millions of people all over the world were presented with the powerful evidence that we Americans can’t all be scum like Giuliani, thoughtless burghers like Russ, or fools like you. It tends to blunt a lot of hatred.
@mpolzkill – “I’ve just never met a more pompous asshole in all my life, that’s all, and I think about 27 other people around here will back me up on that one. You’re about as popular as a wicker chair in a nudist colony, now why would that be?”
Which begs the question: if michael is consistent in his ideological support of democracy as he has claimed:
[quote] michael June 12, 2010 at 12:24 pm
“All the guns in the world are meaningless if the majority wants to do something.”
Tube– I’m intrigued by this statement.
Are you implying that the temptation was there for you to take up arms to try to overthrow the decisions the majority among us have made concerning how we prefer to be governed? That you feel so strongly that you’re entitled to make such a move, and to execute it with violence against the majority?
That seems counter to the spirit of America. When we were all young we were taught that the strength and worth of our country was that we were organized according to democratic principles.
Of course that was then, this is now. I note that the Texas School Board, in its wisdom, is now putting out new history books with the word ‘democracy’ excised. In its place we now see the new formula– we are a ‘Constitutional Republic’. Which doesn’t exactly stir the same allegiance in a fourth grader’s breast!
So we slide toward a state I would describe as fascism. I suspect you’d use another word for it.
[/quote]
…….would he abide his convictions by complying if a majority voted him off of here?
Democracy is not necessarily libertarian. As evidence, I give you our recent election of Obama. I think that the concept of a Constitutional Republic is more libertarian than the concept of pure democracy. And the Constitution, especially the Bill of Rights, is an explicitly anti-democratic document, saying that people have certain rights that a democratically elected government may not rightfully infringe, no matter what the majority may think.
Your opinion doesn’t matter. Lew didn’t define the income level at all. Rich is a political determination set by those in power, and those in power set an arbitary level of $250k (hence the surcharge on those making $250k and above in ObamaCare). Therefore, $250k is rich.
“I would call these people ‘comfortable’.”
What?! These people? “These PEOPLE??!!!!”
What else should I call such people, to distinguish them from other people? They’re not among what I think of as “the rich”. Nor are they poor. Nor are they exactly the typical middle class. So an innocuous name might be “the comfortable”.
You are very easily offended, Franklin. I assume you are comfortable, though.
Michael, relax. Sometimes I can’t avoid a pun and I was providing a bit of silly levity. I am sorry if it came off improperly.
As far as being comfortable, depends on my chair at the moment.
Thank you, Franklin. I’ve adjusted my medication and am quite comfortable myself now.
It says the rich were spending $145/day, not making that much, you idiot.
Re: Billwald,
That’s spending, not income.
I find the focus on money nonsensical at a certain point. Money is a unit of exchange. Production is what creates wealth. Money can be spent. Money can be borrowed. Money can be printed. However, no matter what we do with the money supply, if money is “divorced” from production — money has become the tool of the evil by which they plunder society.
Where is the focus on production?? We need control of the money supply and the release of PRODUCTION!! We don’t need politicians wrangling and the Federal Reserve talking a good game. We need the elimination of the Federal Reserve, elimination of taxes, elimination of anti-production regulation (not anti-negative regulation).
Production is positive. We need more of it. If we had more production, the economic malaise would be over. It is sleight of hand what these politicians are doing pointing us to the machinations of Wall Street (who produce nothing) and DC (who produce nothing) and the control factor of the Federal Reserve (who produce nothing).
These are “evil magicians” at work distracting us with all of this senseless motion of the money supply divorced from production and become the tool of organized criminals.
Yes, I was thinking this way too. Ignore money. If you’ve got a lack of production, hence less wealth being produced (production turns raw materials into more valuable things), then the best thing is to reduce consumption so that more can be invested in production. Once that’s ramped back up, then you can start consuming more.
I like to think of a petri dish with something you’re growing on it. You put a tiny bit in the middle and let it sit for a while, then it grows into a large puddle. At that point, you can start taking a good portion of it away each day, and it’ll grow back by the next day. But if you tried to take that much in the beginning, there’d be none left and nothing would grow.
Shay: If all we needed to spur lost production was investment capital, we’d have it already. The banks are sitting on boatloads of unlent cash. What we need is buyers.
Without a market for product, there’s no sense in producing. And the statistic in the article tells us even the relatively well off are not spending like they used to spend. Without their consumer dollars entering the marketplace, producers have no incentive to produce and banks have no incentive to lend.
Cash isn’t capital.
You’re absolutely right. Cash intended for consumption is totally different from cash looking for an investment home.
Here’s my question: which one is healthier for a company? To receive a loan of a million bucks, one on which they have to pay interest from their income stream until the day they can pay it back? Or a million bucks worth of product sold, which directly enhances their bottom line?
I was in business for myself. And I never borrowed a penny of capital. I funded my operations out of proceeds. And without owing anyone, I turned a very nice profit doing so.
Re: Michael,
Buyers of what?
And all this time, people wasted their time doing advertisement.
And so the rich need to be taxed . . . right?
“Buyers of what?”
Buyers of any product or service. Any time you have unused capacity, you have a management decision to curtail production because your product can’t be sold. A lack of customers is the limiting factor.
“And all this time, people wasted their time doing advertisement.”
Ads work fine, when people are employed and have money in their pockets. But when times are tight and consumer confidence is down, more dollars spent running ads don’t sell any more Chevies.
“And so the rich need to be taxed . . . right?”
That’s a non sequitur. It does not follow. Taxes need to go up so we can pay down the national debt. And right now, high earners (let’s say over $250K) can afford to pay a little more than low earners. Plus, our tax base is currently depleted because we have so many former earners presently making nothing to pay taxes on. So we need the revenue.
And once we approach full employment even the low earners will be able to afford paying a little more in taxes.
You like being in the lifeboat. But you don’t want to get your hands dirty handling an oar. Do business here and pay your taxes. Or don’t stick around enjoying the benefits. You’d probably do better someplace else.
How many times does he have to tell you, egomaniac, he’s already in one of your government’s outlaying fiefdoms? Or are you finally blantantly telling us to go build our own rocket ships for Mars (drop dead)?
You know the fastest way to reduce the national debt? To have the Fed stop loaning it out. But then, of course, the Fed couldn’t do its job of “controlling” inflation and interest.
We’re never going to pay off the national debt at the rate the U.S. is going, no matter what the tax rate is.
Argh, “blatantly”
Taxes are already too high and raising them is only going to hurt demand even more. In the long run you end up with less money collected.
The solution to the deficit is to stop spending more than you earn, but I simply don’t see this happening. Political third rails, and all. What’s really going to happen is that the deficit will be reduced in actual size by reducing everyone’s standard of living. There is no other choice if Americans, as a nation, want to keep on consuming what they have rather than work on increasing production and wealth.
“You know the fastest way to reduce the national debt? To have the Fed stop loaning it out. But then, of course, the Fed couldn’t do its job of “controlling” inflation and interest.
“We’re never going to pay off the national debt at the rate the U.S. is going, no matter what the tax rate is.”
Clem, that would appear to be a good idea. But I think you’re putting the cart before the horse. The Fed doesn’t set the pace, Congress does. The Fed just facilitates the deed.
When Congress decides to spend more $$ than the IRS takes in, they call up the Fed and say they need to hold a T-bill auction. And they get the Fed to buy all the notes and bonds they aren’t able to sell on the open market. That way they don’t have to raise interest rates.
And the Fed in turn is holding a lot of these T-bills as collateral on the loans. Probably close to $2 trillion by now, would be my guess. Look at this slightly out-of-date tally:
http://www.federalreserve.gov/releases/bulletin/1208assets.htm
If the Fed were to sump all those assets onto the market at one time, they would swamp the bond market. And US Treasury interest rates would have to rise. And if those rates rose by a factor of two (not far-fetched at all) that means our interest on the federal debt would double. BTW it’s already at a half trillion this year, so next year just paying interest on the federal debt would cost us a cool one trillion dollars. A serious budget buster.
So the Fed would have to dribble out these assets a little at a time, to keep us from REALLY operating in the red. And that, I agree, would be a very prudent policy, keeping the market stable while continually retiring down their old money issues. But first, Congress would have to either raise taxes or lower spending. Or both.
Re: Michael,
Any? Have we finally achieved full satisfaction?
A lack of customers may mean your product sucks. You might consider that possibility. At one time, people stopped buying buggy whips.
That may explain the total lack of car advertisement during the Great Depression. No, wait . . . there was NO lack of advertisement.
This is why it is NEVER a good idea to give your uninformed opinion on an economics site. When money is tight, people simply do not spend money on those things they value less, at the margin. But that does not mean they will stop buying underpants, shoes, rice and beans.
Of course it was a non-sequitur – I was being facetious. By the way, saying that the rich can afford to pay higher taxes right after asserting that taxes need to be levied to pay off the debt IS committing a non-sequitur; one thing does not follow the other.
Well, what’s with this “we” business, Kimosabe? “We” don’t need the more revenue. The politicians may say that the government needs the revenue to pay the debt, but who racked up the debt in the first place? It’s like my wife saying “YOU need to get a second job to pay the debt I racked up”. I cannot argue with the wife, but she and the government are equally WRONG.
How sweet. Who cares? The problem is not a depleted tax base, it’s the SPENDING.
Ohhh, I just love it when authoritarians argue from shame. Except that the boat has a big fat elephant asking everybody else to row for him.
Mr Mexican, you’re twisting your head around backwards to avoid the points I’ve repeatedly made. I’m pointing to the fact that we now have a great deal of unused capacity in our consumer economy, across the board. Do you believe we suddenly found out the products on offer were no good? That they no longer suited our needs? It hardly seems likely that our recession was caused by American consumers suddenly becoming disenchanted with all the crapola they formerly loved to buy. But then, I’m not the economist you present yourself as being.
Secondly,it does seem apparent to me that once people enter that rarefied zone where they are making more money than they know how to spend, they are capable of paying a bit more in taxes than those who are barely scraping by. But again, I’m not the economist, and can only see the plainly obvious.
Please explain to us how a person who has $83,000 extra dollars each year after he’s paid his taxes, mortgage and food bill (as in J Murray’s example) should be an object of our pity, and exempted from paying such taxes as are required to keep our country afloat, and on a fiscally even keel.
You’re missing the core element that allows distinction between production and destruction. Production implies a certain process was economical, meaning that its outputs are more than the inputs, as internally valued by all affected participants.
If people are not buying the output of some process, it’s because they don’t consider it worthwhile, according to the price they’d have to pay to effectively trade with all the contributors to the process something which they prefer in exchange for their resources, efforts and opportunities expended.
When there are no buyers at a price which justifies the “production” process, this means that nothing was in fact produced, but instead destroyed – as a whole, people end up with less than they put in, according to themselves.
But how they wish it weren’t so! Instead of accepting reality when this happens, the political structure caters to an emotional attachment to the existing process and roles, rather than letting the uneconomical process disband and a new (potentially economic one – yet to be validated by reality) form in its stead.
Alex, welcome to the discussion.
“If people are not buying the output of some process, it’s because they don’t consider it worthwhile.”
Actually, during the last two recessions demand slowed because people didn’t have the money. Your postulate is only a sufficient explanation when everyone has enough money.
People may decide not to buy because the price is too high. But they certainly don’t buy when they’re out of work… or when they fear getting laid off and so spend their money paying down debt. And that latter is the case now, just as it was back in 2002-05. Production was below optimum levels because demand had been suppressed.
2. “When there are no buyers at a price which justifies the “production” process, this means that nothing was in fact produced, but instead destroyed.”
When something is not produced, how is it “destroyed”?
3. “..as a whole, people end up with less than they put in, according to themselves.”
How much of what do people “put in” when they produce nothing?
Michael, I’ll try to be as clear as possible:1. People get money by doing worthwhile things for others.You’re focusing on the money instead of the actual trading involved. If you have no money, it’s because you’ve not created anything you can trade with me (money simply allows the trade to be indirect, with your output passing through others). To get around this by simply “pretending” you have money at this point (rather than borrowing it from a willing creditor who believes you can contribute something in the future) is a corruption of the trading system.Think of the economy as a network of people aiming to do worthwhile (read profitable) things for each other. Money is just used as an information tool to establish ratios between the participants’ subjective valuations and to provide visibility into whether any particular circuit is economical (there’s a profit to show for it at the “consumption” end of any chain of production, meaning consumption was enjoyed sufficiently to justify all the contributions that went into it).The total amount of money is irrelevant – you can easily redefine each dollar as a million dollars without making a lick of a difference (so long as all dollars become a million at the same time) – only the ratios are relevant.2. I’m saying that when something is “produced” (note the quotes), one could easily be destroying (same as consuming) without knowing it, especially if it involves many contributors (in a specialized economy, even a pencil is produced by thousands – see “I Pencil”) providing their time and physical resources into a process.This is really an information problem, which is solved with a peer-to-peer distributed information system: nobody has ANY way of knowing the alternative things each of these participants could be doing with themselves and with their resources – only they themselves have the best view of their options and potentially productive relationships, as expressed by the bids/valuations on their time/resources by their peers in the network who have uses for them, downstream in various chains of production. Profitability is simply a sorting algorithm to validate any production chain relative to others, allowing the network to evolve ever-more-efficient chains, making the most enjoyable use of limited resources.To give you an extremely simplified example for illustration purposes: suppose I bid just enough to hire 10 workers and instruct them to erect a sculpture in my back yard. I have destroyed (consumed) rather than produced *if* I can’t find a buyer (including myself, if I were to fund this as an entertainment expense or hobby) to pay enough to cover my bids on the workers’ time plus my time managing the project.3. In the example above, 10 workers put in a day of their time. Assuming nobody is willing to pay anything for the sculpture, there has been destruction of 100% of the worthwhile things the workers would have done (for themselves or for others) had I not come along to hire them. This opportunity cost is just under the bid price I had to offer each of them to work on the sculpture, an amount just high enough to divert them from those other opportunities.In this case, my loss (negative profit) is the amount I had to spend to draw the workers from their self-valued alternatives. The amount of the loss shows me how much I have destroyed (consumed), and if I have to pay for my destruction I have a strong interest in ceasing this activity.OR, if I enjoy this sufficiently to pay for it, I can treat it as a worthwhile hobby – nothing wrong with that: I get to enjoy my consumption rather than pretending it’s production, and it’s expensed as such – in other words I must relinquish other consumption or produce something extra to make up for this.Had my hiring been subsidized (e.g. through a ‘make work’ program paying me 100% of the workers’ pay plus a 15% management fee) I might instead be disposed to believe I’ve done something worthwhile for other people (“produced” a sculpture!) due to the illusion of profit, and have no reason to stop until a better opportunity came along.
Michael, I’ll try to be as clear as possible:
1. People get money by doing worthwhile things for others.
You’re focusing on the money instead of the actual trading involved. If you have no money, it’s because you’ve not created anything you can trade with me (money simply allows the trade to be indirect, with your output passing through others). To get around this by simply “pretending” you have money at this point (rather than borrowing it from a willing creditor who believes you can contribute something in the future) is a corruption of the trading system.
Think of the economy as a network of people aiming to do worthwhile (read profitable) things for each other. Money is just used as an information tool to establish ratios between the participants’ subjective valuations and to provide visibility into whether any particular circuit is economical (there’s a profit to show for it at the “consumption” end of any chain of production, meaning consumption was enjoyed sufficiently to justify all the contributions that went into it).
The total amount of money is irrelevant – you can easily redefine each dollar as a million dollars without making a lick of a difference (so long as all dollars become a million at the same time) – only the ratios are relevant.
2. I’m saying that when something is “produced” (note the quotes), one could easily be destroying (same as consuming) without knowing it, especially if it involves many contributors (in a specialized economy, even a pencil is produced by thousands – see “I Pencil”) providing their time and physical resources into a process.
This is really an information problem, which is solved with a peer-to-peer distributed information system: no one has a way of knowing the alternative things each of these participants could be doing with themselves and with their resources – only they themselves have the best (though imperfect) view of their options and potentially productive relationships, as expressed by the bids/valuations on their time/resources by their peers in the network who have uses for them, downstream in various chains of production. Profitability is simply a sorting algorithm to validate any production chain relative to others, allowing the network to evolve ever-more-efficient chains, making the most enjoyable use of limited resources.
To give you an extremely simplified example for illustration purposes: suppose I bid just enough to hire 10 workers and instruct them to erect a sculpture in my back yard. I have destroyed (consumed) rather than produced *if* I can’t find a buyer (including myself, if I were to fund this as an entertainment expense or hobby) to pay enough to cover my bids on the workers’ time plus my time managing the project.
3. In the example above, 10 workers put in a day of their time. Assuming nobody is willing to pay anything for the sculpture, there has been destruction of 100% of the worthwhile things the workers would have done (for themselves or for others) had I not come along to hire them. This opportunity cost is just under the bid price I had to offer each of them to work on the sculpture, an amount just high enough to divert them from those other opportunities.
In this case, my loss (negative profit) is the amount I had to spend to draw the workers from their self-valued alternatives. The amount of the loss shows me how much I have destroyed (consumed), and if I have to pay for my destruction I have a strong interest in ceasing this activity.
OR, if I enjoy this sufficiently to pay for it, I can treat it as a worthwhile hobby – nothing wrong with that: I get to enjoy my consumption rather than pretending it’s production, and it’s expensed as such – in other words I must relinquish other consumption or produce something extra to make up for this.
Had my hiring been subsidized (e.g. through a ‘make work’ program paying me 100% of the workers’ pay plus a 15% management fee) I might instead be disposed to believe I’ve done something worthwhile for other people (“produced” a sculpture!) due to the illusion of profit, and have no reason to stop until a better opportunity came along.
Excellent response, Alex!
Every time Michael drops a post Walter (from 0:07 to 0:19) comes to mind.
http://www.youtube.com/watch?v=LrLLdNuOESk
(and 0:41 to 1:01 is for Tokyo Tom, haha)
“Production is positive. We need more of it. If we had more production, the economic malaise would be over.”
Laura, I have to ask this. If production had been the cure you describe, couldn’t Chrysler and GM have stayed out of trouble just by producing more vehicles in a flat-out, full capacity production program? Why instead did they shut down plant, lay off workers and close dealerships? Do you know something their CEOs didn’t know?
Or was it because they had no buyers for those vehicles, so they didn’t continue spending money producing them?
Michael, if I had a dollar for every time I have seen you entirely miss the point of (or consciously avoid, I’m not sure which) someone’s post, I could likely pay off the national debt with it. Ah, problem solved.
Honestly though, all of these strawmen arguments do not make people take you seriously. If you truly think Laura meant what you have described, then I’m sorry, there is no help for you.
I did get that impression, Matt. When someone tells me that more production would cure the national malaise, I tend to think they mean that’s the spot where the cure should be applied.
So what do you suppose Laura actually did mean when she said the following?
“Production is what creates wealth. Money can be spent. Money can be borrowed. Money can be printed. However, no matter what we do with the money supply, if money is “divorced” from production — money has become the tool of the evil by which they plunder society.
“Where is the focus on production?? We need control of the money supply and the release of PRODUCTION!! We don’t need politicians wrangling and the Federal Reserve talking a good game. We need the elimination of the Federal Reserve, elimination of taxes, elimination of anti-production regulation (not anti-negative regulation).
“Production is positive. We need more of it. If we had more production, the economic malaise would be over. It is sleight of hand what these politicians are doing pointing us to the machinations of Wall Street (who produce nothing) and DC (who produce nothing) and the control factor of the Federal Reserve (who produce nothing).
“These are “evil magicians” at work distracting us with all of this senseless motion of the money supply divorced from production and become the tool of organized criminals.”
Here’s how it looks to me. There were no evil money-supply magicians forcing Chrysler and GM to curtail production and shut down plant for the duration. They did so for the very sensible reason that not enough of their cars were being sold. That is, there was a reduction in demand leading to the sound business decision to curtail supply for a while. Until business got better.
But I believe you have a differing, and superior, explanation. Please go into it in further detail.
Increasing production IS the answer to our economic problems. But there’s only one way to increase production. Not through printing more money and loaning it out, but by saving and investing, that is, use less resources for final consumption and direct more resources towards production. Of course, as you rightly note, it’s not just the production of anything that will help, but the production of goods and services that consumers actually want. Only the entrepreneurs and businesses can figure that out, however, not government politicians and bureaucrats.
Keynesian-types think that this production can be stimulated simply by spending money, and seem to ignore the saving and investment of resources, or what is being produced, which is why their prescription is flawed.
Re: Michael,
They don’t call it a correction for nothing!
The BIG reason everybody’s in this mess is not because people stopped spending, is because people spent TOO MUCH. Savings were wasted in consumer goods, instead of used in capital investment.
What everybody has been telling you is that the economy is not going to be saved by people spending again (which is the tone of the article that Lew mentions), but by production. What kind of production? NOT the ONE that was found to be unprofitable after the artificial boom created by teh easy-money policy of the Fed. The correction (the recession) is required to liquidate the bad investment and shift resources towards the profitable venues.
And they may have more disposable income to pay for pink champagne. WHY would it matter, Michael? The issue is not if they can afford it, but the morality of taking part of their income by force.
Would you make the same argument to a family that has 10 kids, that they can afford to lose one to a family that has no kids?
No, you are not pointing out the obvious. You’re instead making a case for the forced taking of property.
Please explain how a) taxes are needed to keep the country “afloat”, and b) why would that be the $83K per year person’s responsibility?
After all, WHO racked up the debt? Don”t say “we”, Kimosabe.
“Please explain how a) taxes are needed to keep the country “afloat”, and b) why would that be the $83K per year person’s responsibility?”
Let’s explore the reverse, Mex. Taxes are not only NOT needed, they actually keep in place an oppressive power structure of laws and regulations that strangle business. We’d be much better off to eliminate all these strictures and get back to just operating freely, without constraint by the oppressors.
Is that a fair summation of your core belief? If so, you’d be far better off to live and operate somewhere far, far away from such a fascist-socialist dystopia. Am I right?
So what are you still doing here? From all the world’s nations, can’t you find a single one that’s more business-friendly? Or is the United States of America still the very best place anywhere in which to locate your operation? Despite the fact that they apparently take your money and create laws that keep you from freely taking what you can from the economy at large.
I did point out that there are two nations that have absolutely no income tax, Macau and Brunei. The standard of living in either is quite high. Wouldn’t one of those places be more suitable to your inclinations?
Or is it that you secretly find this to be the very best business environment on earth? And if so, isn’t it worth paying dues to support this environment? After all, your hypothetical $83K a year person is not just a person making $83K a year. That’s what he has left over AFTER he’s paid his taxes, mortgage and food expenses.
What other nation could offer you that level of affluence? If you find one, vaya con dios, hombre quien no sabe.
Firstly, most rich people are smart, they dont just spend money on unnecessary staff. They are careful on what what they spend their money for…..The idea is Rich = More Income – Less Spending.
Thanks for your constructive information. Keep on doing the good work.
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