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[Reelya]

I'm kind of curious what will happen when the demographics shift more and more to less wealthy younger generations.  What will companies do if people can no longer afford to buy anything?

That's not happening because (1) Younger generations are smaller because people have less kids than replacement level and (2) when the young generation becomes the main one, the old one dies off, and their wealth becomes the next generation's wealth. Most wealth on paper is in fact tied up in things like owning real estate, which is an inheritable asset that the old generation cannot consume.

[SalmonGod]

It always bugs me about things like the stock market and the fact that "wisdom of the crowd" cuts both ways and is also "foolishness of the crowd."  That is, the economy does well so long as enough people think it's doing well, but it does poorly if enough people think it's doing poorly.

What impresses me most is that recessions and depressions are almost always a result of the financial system (including regulations), rather than a result of actual changes in the ability of society to produce goods and services.  After all, economic strength is really based on the ability to produce, not consume. I think this fact is where the last generation or two has lost the boat - we have this strange sentiment that it's consumption that makes the economy strong, so as soon as consumption falters then the economy is weak.  But in reality what makes a strong economy is the ability to produce, the ability to be flexible in what is produced, and the ability to produce as much as possible with the least inputs.

I mean, look at the financial crash of 2008: the day after the crash there were the same number of factories, workers, and the like. The only thing that changed was numbers in spreadsheets, so we just stopped using our production equipment. Why? If we would have just kept people working, producing widgets, and paying them, things would have just kept going.  Yeah I know it's not quite that simple, but it's largely applicable.

It's just stupefying.

This was my perspective back in 2008.  That the economy as a whole is an abstraction that we just take for granted, and there's nothing stopping that abstraction from becoming wholly divorced from reality and convincing people to walk off a cliff for no reason.  I refer to it as the imaginary number game.  Some people said "the imaginary numbers are looking bad right now", so millions of people got kicked out of their homes... so that those homes could sit empty and rot.  Zero pragmatism involved in that.  Zero correlation with reality.  There were so many panicked discussions about what should be done, and my response was typically "Can't we just ignore it for being ridiculous, and go about our lives?  Do things for each other because it makes sense, not because people with imaginary numbers assigned to them tell us we can?"  And the response to that was typically, "Well... yeah... you're right... but how?"

Spoiler (click to show/hide)

I'm convinced more and more that the root of the problem is the way money is created. Money represents a debt - if someone gives you a good or a service, you give them money instead of exchanging goods or services right away (barter).  Later that person redeems the money for other goods and services.

The problem with our system is that instead of the person who is indebted "creating" the money, a third party creates money and uses it to give the debtor "permission" to let the provider of goods and services claim redemption later.  When you work, your employer is actually in debt to you - by working you should just generate money in your account, with no need for your employer to have the money.

Say you work in a factory to make widgets.  You work, your company has widgets, you have.... nothing.  By working, you should immediately just be granted in your account money equivalent to the value of the widgets.  If you were to buy the widget - you get the widget and the money should be destroyed - the debt is paid.  Our system fails there too - when goods are purchased with money, the debt is not cancelled, it's just "transferred" which is conceptually odd.  Our system is out of whack - it allows creation of money without any goods or services having been produced - furthermore it doesn't even depend on the promise of future goods or services being produced*.  The debt is wholly financial debt, not goods-or-services debt.

Note that I'm not saying money is bad - money as debt is a good thing, and avoids all kinds of problems with barter-only, but money has to be created and destroyed sensibly.

I could go on about more details of the "producer creates money" system, and how to ensure you don't have money just getting out of control, but that would be a digression...

*What I mean is that when you take out a loan, you repay it with more money.  Perhaps you got more money by making goods and selling them, but maybe you just got it by offering loans to someone else, or paying with money you already had sitting in a bank. There is no link between money and actual production of goods and services, which is why our system can have whiplash.

This is a take I've never been exposed to before.  Thanks for this.  I'll be giving it some thought.

Regarding your first point, this article should resonate with you strongly.

And thanks for taking it further.

[RedKing]

As with the above, the futures market took a major hit yesterday.

"I'm sorry gentlemen, but we have no future... We cannot afford it."

"But what will we do if there's no future? How will we survive?"

"As we have always done; by living in the past."

Somebody set us up the recession!
All your money are belong to us.
You have no future, make your time.

[Reelya]

I mean, look at the financial crash of 2008: the day after the crash there were the same number of factories, workers, and the like. The only thing that changed was numbers in spreadsheets, so we just stopped using our production equipment. Why? If we would have just kept people working, producing widgets, and paying them, things would have just kept going.  Yeah I know it's not quite that simple, but it's largely applicable.

It's just stupefying.

If you only look at it from the point of view of consumable goods, sure. However, a correction happens because there was some fundamental imbalance before that. Before the crash, the economy was running too hot, prices were high because of asset bubbles. That bubble had to burst because the assets were over-priced.

Sure, you can say that production of physical goods shouldn't be affected by that, but that's not really correct. When an economic correction happens, everyone changes their purchasing patterns. That means the things we produced yesterday aren't in such demand today, which of course sends ripples and/or shock-waves through the rest of the economy since everything is interlinked.

The crash didn't just randomly put people out of jobs, it was a sign that the previous situation was unsustainable, and that situation included the levels and patterns of physical goods production.

[SalmonGod]

I mean, look at the financial crash of 2008: the day after the crash there were the same number of factories, workers, and the like. The only thing that changed was numbers in spreadsheets, so we just stopped using our production equipment. Why? If we would have just kept people working, producing widgets, and paying them, things would have just kept going.  Yeah I know it's not quite that simple, but it's largely applicable.

It's just stupefying.

If you only look at it from the point of view of consumable goods, sure. However, a correction happens because there was some fundamental imbalance before that. Before the crash, the economy was running too hot, prices were high because of asset bubbles. That bubble had to burst because the assets were over-priced.

Sure, you can say that production of physical goods shouldn't be affected by that, but that's not really correct. When an economic correction happens, everyone changes their purchasing patterns. That means the things we produced yesterday aren't in such demand today, which of course sends ripples and/or shock-waves through the rest of the economy since everything is interlinked.

The crash didn't just randomly put people out of jobs, it was a sign that the previous situation was unsustainable, and that situation included the levels and patterns of physical goods production.

See... I hear explanations like this all the time.  And I know it makes sense from within its own artificially fabricated constructs, usually in terms of the imaginary number game returning to an ideologically determined ideal state.  But it doesn't explain to me why goods that are already produced and available cannot be distributed to people who need them, and must go to waste.  For these words to be meaningful to me, they have to come back around to the tangible reality of what resources are available and who's allowed to use them at some point.  Until that happens, and it never has, it will still be an imaginary number game to me.  And I'm willing to accept that the imaginary number game is a better oil for greasing the wheels of industry than barter... but I'm not on board with the inability to recognize that it's still ultimately all made up, and we should be capable of ignoring it when it's incredibly obvious that it's not aligning with any pragmatic/ethical goal or limitation of material reality.

[Hanslanda]

Societal collapse for 200, Pat.

[McTraveller]

Regarding your first point, this article should resonate with you strongly.

Very interesting - I had not read that.  I take it as a compliment that I came up with largely the same observations as these 'academics'.

If you only look at it from the point of view of consumable goods, sure. However, a correction happens because there was some fundamental imbalance before that. Before the crash, the economy was running too hot, prices were high because of asset bubbles. That bubble had to burst because the assets were over-priced.

Yes, I know that bubbles can affect current spending habits - I was trying to keep it simple. I think the point is still valid though that the effect on spending habits is a "we think things will be bad" so we tighten our belts - which causes things to get bad so is self-fulfilling when too many people do it.

Also, dammit, Fed, please do raise the interest rates. My "high yield" account at 0.06% should be illegal  (Yes yes, I know I need to move my account to some other places. I could probably get 1.5% - 2% easily enough on cash savings).  Might also help make housing affordable again, assuming the rest of the economy doesn't tank because it's over-leveraged.

[Kagus]

Regarding your first point, this article should resonate with you strongly.

Very interesting - I had not read that.  I take it as a compliment that I came up with largely the same observations as these 'academics'.

"I have a natural instinct for science"
--McTraveller

[Reelya]

See... I hear explanations like this all the time.  And I know it makes sense from within its own artificially fabricated constructs, usually in terms of the imaginary number game returning to an ideologically determined ideal state.  But it doesn't explain to me why goods that are already produced and available cannot be distributed to people who need them, and must go to waste. 

Except ... that's kinda bullshit. Any surplus in produced goods is only a temporary thing.

Demand drops, that leads to surpluses, which leads to price cuts and reduced production, which clear the surpluses. Sure, you can have situations where there are oranges on trees and it's not economical to harvest them, but that's because the cost to get other things needed - such as fuel and labor, make those uneconomical to harvest and transport. Oranges growing on a tree in the countryside are only a nominal value, it costs additional resources to get them into the cities.

[Gentlefish]

Except ... that's kinda bullshit. Any surplus in produced goods is only a temporary thing.

Demand drops, that leads to surpluses. Then, production is scaled back to reduce the surplus. Sure, the government could intervene to create artificially steady demand for particular products, but that would end up being a very rigid soviet-style system.

That's uh. Untrue. There is a marketable surplus of "ugly" produce that goes to waste yearly simply because it's not the platonic idea of said vegetable even though it's perfectly good to eat.

And it's better for the farmer to write them off as crop loss and literally waste them than it is for them to find a market (since no current market aside from a few accepts these perfectly edible uglies) or to donate them to shelters.

Produce production produces way more produce (heh) than Americans need at once, and that's not including supermarket "sell by" waste which is also an egregious crime where still-good-slightly-old produce is again wasted due to appearance.

[Reelya]

But that's not necessarily a distortion. if you have food that's less appealing, and it's far away from where people want it, it's expensive (money cost is a proxy for resource cost) to get that food to the place where it can be eaten. "people don't eat enough food" isn't really the problem in the USA, and in places where it is a problem, they don't have the picky culture about how food looks in the first place.

Sure, the state can subsidize the process, but in effect, it's a money-losing proposition, so the taxpayer foots the cost of providing cheap-but-actually-expensive food. You lose money, e.g. expend more resources, than you gain in value. In fact, the ultimate end result wouldn't be "more food for all" it would be a scaling-back of food production and a reduction of choice. We'd produce only as much as people can eat, and you eat exactly whatever the state decides to produce that minimizes cost of delivery.

Also, the food that's not harvested isn't wasted, it stays in the soil as compost. Plus it costs fuel to transport that stuff, which adds to the carbon footprint. Scraping literally every speck of edible food from those farms and getting it to the cities isn't necessarily the best idea in terms of the environment. With stuff that humans don't want as much, you can just compost it and/or feed it to livestock. That's better than trying to artificially prop up some "market" for it.

[SalmonGod]

See... I hear explanations like this all the time.  And I know it makes sense from within its own artificially fabricated constructs, usually in terms of the imaginary number game returning to an ideologically determined ideal state.  But it doesn't explain to me why goods that are already produced and available cannot be distributed to people who need them, and must go to waste. 

Except ... that's kinda bullshit. Any surplus in produced goods is only a temporary thing.

Demand drops, that leads to surpluses, which leads to price cuts and reduced production, which clear the surpluses. Sure, you can have situations where there are oranges on trees and it's not economical to harvest them, but that's because the cost to get other things needed - such as fuel and labor, make those uneconomical to harvest and transport. Oranges growing on a tree in the countryside are only a nominal value, it costs additional resources to get them into the cities.

If it were just a matter of investment not being made for the infrastructure to distribute surplus that the population doesn't need, then I would be fine with your explanation.

But I'm talking about enforced scarcity.  I'm talking about money and manpower being invested in preventing people from getting their hands on resources that are otherwise going to waste. 

To use your example with the oranges, the business that owns those orange crops won't pay to harvest and distribute them.  That's fine.  What doesn't match up with your explanation is when people find out those crops are going to waste and show up to harvest it themselves.  But they're caught and arrested for doing so, and then security is hired to make sure it doesn't happen again.  This is actually the direct opposite of what you're saying.  It's not a lack of incentive to invest in distribution of the resource due to low demand.  They are in fact investing in the resource... to make sure that the resource is wasted.

To connect this example with reality, that's the standard response to dumpster diving in a nutshell.

And my original example is even worse.  The homes people were kicked out of during the recession were a resource that was already actively in use, and investment was made to enforce that they go from a being used status to a being wasted status.

And I understand that there are explanations for this, but every one I've ever heard that actually tries to address the specific nature of the material consequences of the housing bubble, instead of circumventing it as yours did, is rooted in the abstract nature of the imaginary number game creating incentives that are placed at a higher priority than pragmatic/ethical distribution of resources.

[Reelya]

For housing, the cost to produce houses is quite high. If, when there are extra houses, we let people stay in them without any economic requirements, it would have a strongly negative effect on future housing construction.

e.g. if you let people get away with not repaying the people who financed their house, then interest rates on future mortgages will skyrocket, because you've just institutionalized higher risk for lenders.

The alternative is not in fact "free houses for all", it's that everybody is stuck in rental accomodation, or in cheap, substandard hovels, since we've done away with getting a house on credit. Sure, letting them stay in their houses now sounds great, except it would lead to a huge downturn in building nice new houses to live in. Instead, you've got great benefits like people living in nice old houses that are riddled with lead paint residue and similar.

[SalmonGod]

Yeah, so the problem was people being sold houses that they couldn't afford in the first place.  And the market had to correct for that.  Which I've heard many times.

So... let's say all those houses were never sold to that very large number of people who ended up foreclosed on, and instead sat around unused waiting for hypothetical people who could afford them.  How in this alternative reality is there greater motivation to build more houses?  And how is this supposed to convince all those people that went from having a place to live for a few years to never having a place to live that this all makes sense?

[Reelya]

So... let's say all those houses were never sold to that very large number of people who ended up foreclosed on, and instead sat around unused waiting for hypothetical people who could afford them.

But ... they wouldn't have built those houses in the first place if there wasn't the demand, so this point is hard to make any sense of.

If a house existed, but wasn't sold, it wouldn't be "usused" because the existing owners would probably live there or be renting it out. Any "unused" housing were new houses built specifically so they could be sold, and that pre-assumes the market conditions for getting a houses: housing demand and credit availability.

We can agree that the loans shouldn't have been made in the first place, but that wouldn't lead to "unused houses" just "never built houses". It's not as if "houses" are some platonic zero-sum resource.

Alternatively, like i said, given that the bad loans were made and the housing market crashed like it did, if they did let people stay in the houses then that would in fact cause  a ton of problems.

When people realize the penalties for defaulting on your home loan were non-existent, then many more people would have started defaulting. What was a wave would become a tsunami. Sure, in the short-term more people stay in their houses, but the long term result is that the banks will have far higher requirements for taking out home loans, and long-term investment in new housing would plummet.