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I have written many nodes about economics, and I hope that they don't continue to repeat the same information, especially since my information is based on a small slice of the available information, namely what I observe around me, and a smattering of books and news reports. To truly make my case, I would have to do a large amount of research, and I don't have the training and the resources to do serious economic research. What I present to you, then, is a model, which may or may not have much connection with realities, economic or otherwise. I leave it to the reader to see if my model fits with the reality that they see.

The one advantage I do have in analyzing the economic picture is something that is outside the cultural experience of many older people with a training in economics. Namely, that commodities are no longer rare. Food, clothing, electronics and consumer goods are no longer hard to obtain. While finding "just what you are looking for" still takes some time, effort and money, you can go to a second hand store and clothe and entertain yourself for quite cheap. You can go to a grocery store and buy food for a pittance. Anything that is produced and consumed can be obtained for a nominal cost. I doubt the poorest person here has a problem fulfilling their basic caloric intake. This is obvious to anyone in my generation. For those who grew up in the depression or even the economically turbulent 1970s, it is not only unthought, it is literally unthinkable. Scarcity is the cornerstone of economics.

Of course, some things are still scarce. These are things that I call capital, which include such traditional items of capital as real estate, heavy machinery, stocks, bonds and gold. I also would include such big ticket items as health care and education in this list. Advanced electronics and vehicles might also be included. While the amount of commodities is virtually unlimited, the amount of capital is still limited.

The problem arises because there being a great preponderance of consumer goods, prices must be kept low. After all, if you try to raise prices, there will be imported goods available, or people will go for a used item, or go down to the liquidators to pick up a slightly imperfect item. This by itself, would be considered good in economics, because it gives people access to cheap resources.

The problem is, while the price you can charge for goods is neglible, the price you pay for capital is not. And if you own a store, you own capital. Or, more likely, the bank owns capital and you have to pay for it, with interest.

Say you want to open a lamp store.You borrow 50,000 dollars from a bank at say, 3% interest. You open your store, and you start selling lamps. You buy the lamps for a neglible price, and then you add on your operating expenses, salaries and the like. Then, on top of that, you put in some money for the payment back to the bank, with interest. You charge people a little extra for lamps. This causes inflation, which in economic terms, is not a bad thing, although if it gets too big, it can be. But while you are trying to sell lamps at an upmarked price to pay for your new, fancy shop, your customers realize that there is a close out at K-Mart, or at the liquidaters, or at a garage sale. After all, there are hundreds of factories in places like Mexico, or Taiwan, or Indonesia, churning out more lamps than a sane person needs.

The price of your capital is going up while the price of your commodity is staying the same. So you decide to sell fancier lamps, to give you that slight advantage in preference. And people come and they buy, but they don't pay with cash. They pay with credit. After all, as Calvin once learned, its much easier to put the burder on yourself in the future than the yourself of right now. By getting people to pay money that they really don't have, you can manage to cover your operating expenses, pay back the bank, and even make a profit for yourself.

Debt is the only way that people can keep up with the rising cost of capital in an economy where commodity, and also real wages are more or less static. While inflation on the whole has not been happening in the past 10 years, the price of housing and education has been rising rapidly, which means the real price of commodities has undergone disinflation.

What happens to all the debt that people run up, with interest? In a standard economic model, debt is payed off with economic growth and inflation. What seems to be happening to all the debt, however, is that it is going into the hands of various individuals and institutions that don't really know what to do with it. After all, the price of commodities is neglible. Say you have invested in the bank that gave that lamp store owner his money. What do you do with the money he pays back as interest? You might go out and buy yourself some new shoes, a fancy watch, but unless you have incredibly profligate tastes, you are probably going to reinvest it. Of course, having all this money to spend on capital drives up the price of capital further. The next person who wants to open a store might have to borrow $55,000. Someone might want to open a factory to build goods, goods that will never be profitable unless purchased under more credit.

Eventually, this leads to a chain reaction, where business, households and the government are all in debt to each other. All while the real flow of goods remains at an incredibly high level. This is happening mostly in the United States, but the effects ripple outwards. Since United States institutions, both public and private, continue to enjoy people's trust, they can pay with imaginary, inflationary debt dollars. Nations like Taiwan and Ireland have a limited supply of real money, and thus have to go into debt, buying things with imaginary money to compete with the United States' imaginary money. Countries like the Phillipines and African nations, which don't have a particularly good credit rating, can't purchase anything, and can't modernize their countries, leading them deeper into a cycle of dependency.

Eventually the large store of imaginary capital in the United States will have to be used to purchase real producing assets, such as hydroponic farms on Mars, or on expensive sources of utility, such as the soon to be unveiled Chocolate Pudding and Orgasmatron 2005. Otherwise, the money will just continue to chase itself around, driving up such things as real estate prices and health care further.

The debt system was, I believe, created at a time in America's histories (the 1930s through the 1950s) when the government and the business sector had a tacit agreement between them. Buying debt, government or private, was a way to ensure stability. Business, government and household debt were a tripod, so that if anyone of them went through a dip, the money that the other two owed would help rectify the situation. I think that today, instead of leaning on each other, these three debts could cause a chain reaction. If the government ever came close to defaulting on its debt, it would cause a business panic. If households suffer too much bankruptcy, it will cause the government to lose tax revenue, leading to their attempts to sell debt to become even more of a ponzi scheme. If business suffer from overextending, it will also lead to a lack of government revenue, as well as massive layoffs.

There could perhaps be a reason to be a doomsayer with all of this. But, upon reflection, in the past 40 years, there has been only two in which the United States has not suffered from either budget deficits, high inflation or high unemployment. Despite this, the United States has continued to, more or less, remain functioning and growing as an orderly society. There will probably be some short term readjustment, as well as a long term rethinking of one of economics' pillar: the idea of scarcity.

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