Basic economics tells you that this is not a good growth strategy to adopt especially if you have a consumption-based economy, and not savings-based one (aka China, India). In short population is going to increase over time, resources are going to decrease over time, in order to keep GDP per capita in line with an increasing population, you cannot just decrease your spending (or tighten your belt). You have to grow by increasing income levels, and thereby increasing aggregate demand.
If we only increase incomes, and dont spend, then aggregate demand goes down, leading to less consumption, less investment, which leads to lower employment opportunities, which leads to even lesser consumption, and so on so forth until we get to a severely regressive cycle, where our industries shut down.
Point is, more power to you if you want to spend less, but making everyone else adopt your way of life because it works for you, does not mean it will work for them, and in entirety would not promote greater economic growth.
PS for those arguing 'well it works for China'; well the USA is not China, and they are big structural differences which make it unnecessary and useless to adopt that model.
Well, not to worry, most people won't make "the sacrifice".
Maybe if we transitioned to a production based economy but producing only quality items we needed. That way we wouldn't have to work so much. Unemployment would go down because people weren't scrambling for the the ability to consume. Concepts like planned obsolescence would go away.
A lot of what we refer to as "growth" is just an indicator that the volume of economic transactions is going up. However, just because the economy is getting bigger doesn't necessarily mean it's getting better. Breaking windows and replacing them creates economic growth, but it doesn't make the house better.
Well you have a point, and this model of an alternative economy based on self-sustenance, producing what we need is something that is being tested by a philosopher Frithjof Bergmann. Unlike most (read all) philosophers, Bergmann actually practices his ideas which are detailed in his book, "on Being Free". He talks about such an economy based on producing little and necessary items within communes and trading them amongst each other:
They are actually applying New Work to various parts of the world including South Africa, Iraq (in Kurdistan) etc. I know this because in undergrad I worked with him on this project for a year.
However, the main problem regarding an alternate system is quite philosophical; that what is the basic human condition? Hobbes came up with an answer calling life "nasty, brutish and short" and that our animal spritis needed to be kindered. In government we did it through Rousseau's suggestions that we need a system through which we do not kill each other. I don't kill and take your money/land, and you do the same for me. In economics, we came up with an answer through capitalism, and saw the biggest implosion of wealth ever in the 20th century. So it is hard to argue against that capitalistic/democratic mindset unless there is a viable alternative especially in the US, where it has worked the best for the better part of the century. As far as crises go, we have seen destruction and subsequent creation of wealth throughout this century, so that is not a reason to give up I think.
I would say that the OP understands that a growth economy is not the end-all be-all of human progress, and in the end may not be ideal.
Maybe it's not about imposing a way of life on other people, but realizing that the underlying philosophy of a growth economy is flawed- it's inherently true that limitless growth is impossible, so in some sense we are all just waiting until we either slide over the top of that curve naturally, or people realize that there are other dimensions to the problem than just the x and y plot of that graph.
It is hard to argue against the underlying principle of the growth economy because it is the ONLY principle that has served has so well over the past century and gotten so many people out of poverty, and increased overall wealth, distribution of wealth is still a problem though. We are unequivocally better off today in standard economic terms than we were a 100 50 or 25 years ago. Growth can be tempered and slowed but you cannot look at growth in entirety.
In Europe, Japan, Singapore you have a shrinking population and as such you need to create less wealth to support growth, whereas in China India you absolutely need exemplary growth to make those lives better off.
It's true that a growth economy is needed in third-world countries, but the curve is also steepening, so it's not as if we need another hundred years of similar progress in order for everyone to come closer to parity (that is, the curve of human progress in general)
It's quite easy to argue against the underlying principle of the growth economy, because it pre-supposes that the previous 100 years of industrialized capitalism are what's going to continue to fix the world's problems.
It also scares me that China's growth, for instance, is tied to me being able to go to walmart and get a cheap skateboard I'm never going to use and a huge LCD TV I'm going to throw away in two years. Our economic system of moving capital and wealth creation is now dependent on being convinced to want things we don't need, and shuffling around the systems of credit we created for that system. It used to be about creating value- mostly having to do with real things that fulfilled basic human needs, and now that the market's power isn't based on that, credit default swaps are what we come up with. It's a logical conclusion of a system that only has the principal of growth behind it.
Obviously our market-based capitalistic system is the only viable way to efficiently move capital around right now, but you can't blame someone for being unhappy with the underlying message that growth is the only way forward, forever. Some people would argue that we've already reached the peak of the curve in the first world.
I'm sorry, that's not "basic economics". That's neo-keynesian economics. (They call themselves keynesians, but they aren't following what keynes said.)
The word "capitalism" comes from the word Capital. You accumulate capitals so that you can invest it in productive assets.
You could blow your money on a consumptive lifestyle, as you advocate.
Or you could save that money, and use it to start a business. Notice, your business has value, and if you do well, you will have turned the money you saved into a lot more money. You will employ people, and you will make products that make your customer's lives better... generally by lowering the costs for doing things, for them, making them richer.
This increases productivity.
Your argument is only looking at one side of the coin and kind ignoring most of economics.... but it is the perspective put forth by politicians who want to spend spend spend. They want to spend because spending gets them power. But it damages the economy (government spending.)
Henry Hazlitt wrote a good book "Economics in one Lesson". It's really a really good primer on economics.
Every Austrian economics school recommendation should immediately be followed by the caveat:
The Austrian school of economics is like the anti-climate change minority, but in economics. If you accept their premises you are in the minority of professionally recongized economics.
If you had an economic argument to make, you would make it.
Your reliance on ad hominem backed by the fallacy of appeal to authority where the authority is non-existent shows that you are making an ideological political claim, not an economic one.
The comparison to global warming is also hilarious, because, like the political ideology you're espousing it too has been disproven by science. I can do it right here: IR absorption of CO2 is less than water vapor. If you understood the science of global warming, you'd be devastated.
The thing is, when you understand a subject, you can defend your position with arguments. You don't need to rely in the low form of characterizing your opponent or their arguments in derogatory ways. You can simply make counter arguments, presumably, if you're right, superior counter arguments.
That you have chosen not to shows that you've replaced ideology for thinking.
Ok let's all save money and try to be entrepreneurs, is that what you are advocating? Lets see, in your economy we are going to have a lot of producers, but who is going to consume these products if people are saving. Now if you say China does it, then I would answer back that China does it because it has the US and Europe as huge consumption bases for its produced goods.
You are trying to give me an economics lesson, I actually have an advanced degree in economics, and I know every economics model there is in and out. Your talking about producing things somehow making lives better by increasing productivity, and then everyone lives happily ever after. I dont what kool aid your drinking but I can share with you a hundred papers which repudiate what you are saying.
Next time you want to argue regarding economics, please argue with actual theoretical knowledge rather than some flimsy theoretical base that you have created in your own mind.
> who is going to consume these products if people are saving?
Peter Schiff tells the story of a six guys stranded on a deserted island: five Asians and an American. They divide up the work as follows: one Asian hunts, one Asian fishes, one Asian gathers vegetables, one Asian cooks, and one Asian tends the fire. The American has the job of eating.
Peter says that an economist would look at the situation and explain that the American is the key to the whole enterprise. Without the American, the Asians would not have jobs.
The truth is that supply is its own demand. Whatever you produce that is surplus, you can trade for another's surplus. The problem in economics is not how to increase demand, but how to increase supply: how can people produce more useful things so that they can trade their surplus for the surplus of others.
If you are going to be a self-sufficient farmer, you need land. Otherwise, you need something you can trade for food. If you can't produce something that anyone wants, you are labor isn't worth much. If you labor isn't worth enough to eat, you starve.
China inflates its currency to buy dollars. Then, US consumers use those dollars to buy products from China, which requires employing lots of people.
The government could just hand out money to poor people, but that could just result in lots more corruption. They can also create useless jobs but that also has problems.
I am not saying producing is not important, my point is that you cannot just demote consumption to an unnecessary side variable, because even when you trade your surpluses, you each are the market for the other.
Does that not make consumption as important? What if no one likes fish other than the one Asian? What happens in that scenario?
If no one likes fish, then fish are not "supply." They are waste from an economic standpoint. Toyota famously took this view, that over-supply is waste. Their just-in-time production was designed to eliminate this waste.
This is clearly the "build it and they will come" bullshit. I had hoped the Hacker News crowd would be the first to recognize that demand doesn't just "appear."
Supply and demand are just two sides of the same coin. To Apple, the iPhone is supply. Apple supplies iPhones to meet consumer demand. But the iPhone is also Apple's demand. Its production of IPhones determines how much other things it will be able to buy.
To consumers, the IPhone is something they want (demand). But their demand is determined by what they supply. A programmer ability to pay for (demand) an iPhone depends on his ability to supply programs that someone else wants.
"Build it and they will come" is truth as long as you're building something someone wants. A farmer who decides to plant corn or soybeans will have a demand for his crop, because people want corn and soybeans. The price/demand fluctuates based on how badly they want it.
Programming is no different. If you build something people want, they will come. The problem is that programming has so many degrees of freedom and it's so scalable that it's a lot easier than farming to supply something that no one wants.
I'm intrigued by your comment that you have an advanced degree in economics. I don't, but it seems obvious to me that you're missing something (I'm happy to be corrected here!): the problem isn't the lack of consumers so much as a lack of incentive to produce.
If everyone becomes an entrepreneur, compelled to be stingy and just do productive things for the fun of it, then they're still being productive, and the world is still getting useful stuff. But, it seems your concern is that if everyone just does the work they'd like to do then there will be a misallocation of labor: certain things that need to get done won't get done.[1]
Is this really true? Are there well-organized economies that are stagnating while people are engaged in their own independently productive pursuits? Is Japan's economy stagnating because they consume too little or because they are working too little?
[1] An immediate counter-argument here is that people are likely to be more productive when they love their work.
Actually that is NOT at all what my argument is. My argument is that people can produce as much as they want, but you still need someone to consume your product. Just being productive gives you only the supply side, but what about demand, why make would make something when people do not demand it.
Remember PG's rule: Make something that people want. Want is demand.
You cannot make things without taken into contention who would consume them and by how much. A business is based on how many people actually USE what it makes, and are ready to pay for it.
> but you still need someone to consume your product
Do we? We're not trying to make a lot of money, just enough to get by. And we're talking about an entire economy here, not about the profitability of an individual business. The whole point is that people in this model don't really care about how much money they're making (or, put another way, they place a very high value on their time).
The question is whether there would be something fundamentally wrong with a society in which people spent very little, but were nonetheless productive doing "their own thing".
. . . they shall beat their swords into plowshares, and their spears into pruninghooks: nation shall not lift up a sword against nation, neither shall they learn war any more. But they shall sit every man under his vine and under his fig tree; and none shall make them afraid . . . --Micah 4:3b-4a
> You cannot make things without taken into [consideration] who would consume them and by how much. A business is based on how many people actually USE what it makes, and are ready to pay for it.
Exactly. Perhaps a good way to view this would be to resrict the definition of supply to be only something that has a demand. So a fisherman that "supplies" rotten fish that nobody wants is not providing a supply, he is just wasting resources.
The hard part of economics is always the supply part: how can you increase supply? (Supply defined as what people want.) When productivity is below the subsistence level, increasing supply consists in just producing more food. But as productivity grows beyond the subsistence level, the challenge becomes an informational one: out of all the things you could do, what should you do to increase the total supply the most? A man who is hungry just wants more food, any food. But a man who is sated will only want certain particular kinds of food or maybe something else entirely.
This is what prices in a free market are for: they provide information about what the economy needs the most. In an economy of hungry people, any kind of food will sell. But as the population gets sated, prices will tell producers that common-place food is not needed anymore and that they should produce something else.
You're just redefining terms without adding anything new.
Parent's question is: what if people are stated, and like OP, they don't want different kinds of food, or anything else? What if, like OP, they're happy consuming only a small part of what can be produced by all those entrepreneurs?
The point of trade is to allow each party to get what they want at less cost than they would be able to get independently. If one party wants to sell, but the other party doesn't want to buy, then trade does not happen. This is not bad thing. In fact, per Micah, it's even idyllic: "every man sitting under his vine and under his fig tree." That is, every man having his own food supply so that he is not dependent on someone else.
Defining supply to require a corresponding demand makes this explicit. An entrepreneur can't just start producing stuff that nobody wants and then complain that there is no demand for his supply. He's not entitled to force a trade.
Examples make this clear. The auto industry has the capacity to produce many more cars than they do. But they will not be heard to complain that people should be forced to buy more cars so that they can produce more. Likewise movie theaters with empty seats are not allowed to force people to buy tickets.
By the way, there are industries that partner with government in order to be able to force trade. The money industry is the biggest one. See G. Edward Griffin's presentation of The Creature from Jekyll Island (http://video.google.com/videoplay?docid=6507136891691870450).
I am not trying to be dismissive, but I am trying to talk with some theoretical base. Initially Nirvana derided my claims, in my opinion, without producing an actual theoretical base for his claims. He also said I should learn economics from Hazlitt's economic philosophy, rather than from a university, which is quite demeaning.
I'm sorry you feel demeaned by my advice to read Hazlitt's book in order to learn some basic economics. I didn't think that it would be appropriate to advocate that everyone should go to a university to learn economics, especially given, as as you later made clear, that some universities don't even teach economics to those who get degrees in it.
You have no theoretical base. You are regurgitating a political ideology that is, quite frankly, nonsense. You focus on demand, when it is irrelevant to this discussion, and your argument presumes that "advising people to save is bad" because "if everyone saved there would be no demand".
Obviously, when people run their lives prudently, they don't eliminate all spending (and thus all demand is not eliminated). Obviously, consumers are not the only source of demand in an economy. And obviously you can't really defend your point and that is why you spend your time characterizing others -- and in fact your "economic" argument is really just disparaging a savings plan with a fallacious -- but oft repeated by political hacks-- story.
So, of course, I was dismissive. Your "argument" was easily dispatched.
If you really want to have this argument with me: lets do it privately, my email address is in the profile. I will even invite some economists into the midst for some discussions, and you are welcome to invite whoever you want. I always appreciate counter points, and counter arguments. So I think it will be a very interesting debate. Lets keep it civil.
> Next time you want to argue regarding economics, please argue with actual theoretical knowledge rather than some flimsy theoretical base that you have created in your own mind.
I can't imagine a better base for economics knowledge than Henry Hazlitt's "Economics in One Lesson."
> I know every economics model there is in and out.
Then you should be familiar with Austrian economics.
Though that is probably not covered in an "advanced degree in economics!"
Well of course there is that other Austrian Economist, you know the one produced the Chicago School of Thought with Milton Friedman: Friedrich Von Hayek, who is one of the biggest reason that monetary economics came to the fore. And with all due respect Henry Hazlitt, as brilliant as he was as a public intellectual, he is not an economist that is often taught in curricula. Economics is highly quantified and Hazlitt's contribution was economic philosophy.
And here is a concise history of Austrian School of thought, most of which came from London School of Economics post-1930, Nowhere does anyone mention Hazlitt:
"I actually have an advanced degree in economics,"
If this were true, you'd be able to comprehend what I said, and you'd be able to repeat my argument correctly, and then you'd be able to present a counter argument based on the science of economics. Your appeal to authority just tells me you made a really bad economic decision yourself.
I'm not going to debate your political ideology, because, why should I? The current economic state of the USA proves that endless government and consumer spending does not produce a healthy economy.
Your ideology is disproven by reality. The "stimulus" resulted in higher unemployment and a worse off economy. Bush's handing out "stimulus" checks to the people did the same thing.
Reality has already disproven your ideology.
Now, I know, having seen your ideology before, all the standard excuses. "The patient died because we didn't apply ENOUGH leeches!"
But they are not economic arguments. They are ideological ones. They are based on trying to rationalize a particular set of political positions. There's really no point in attempting to debate your desire to rationalized. I can't stop it.
If we only increase incomes, and dont spend, then aggregate demand goes down, leading to less consumption, less investment, which leads to lower employment opportunities, which leads to even lesser consumption, and so on so forth until we get to a severely regressive cycle, where our industries shut down.
Point is, more power to you if you want to spend less, but making everyone else adopt your way of life because it works for you, does not mean it will work for them, and in entirety would not promote greater economic growth.
PS for those arguing 'well it works for China'; well the USA is not China, and they are big structural differences which make it unnecessary and useless to adopt that model.