Rebooting the Economy (In the Head)

[Ancient History]

Spin-off of the Hungary Death Pool, someone asked why they didn't just redistribute all the wealth in the country equally and try to reboot the economy. Of course, this wouldn't work, but I thought it might be fun to discuss why it wouldn't work.

At the most basic level, I think this is because economies have almost always been driven by circumstance - person/group A has excess X, person/group B has excess Y, they start bartering because no one wants to risk getting killed. In a primeval wilderness where everybody is equal in what they need (demand) and gets (supply), the concept of money as a medium of exchange or store of value is fairly minimal. Basic microeconomics stuff right there.

But we've had pre-economic cultures brush up against economic cultures before, and we see that people (and monkeys, studies have shown chimpanzees get it too) pick up on the idea of money very damn quickly. The economic cultures have a limited period of dominance because they have a different idea of what constitutes money and what the value of that money should be - so they can trade (to them) worthless glass beads for (to them) valuable beaver pelts or something. Here again we have an inherent imbalance, not just of supply and demand, but of information. Presumably, any society that is already familiar with money that goes off of using money for a while and then reboots the economy is going to start off very differently.

Let us say we have a population of ten people, each of which is given 100 grubniks, and they are asked to re-start an economy on a desert island. Who decides how much a grubnik is worth in terms of goods and services? Well, obviously the person with the scarcest good and/or service. If two different people offer the same yub-yub fruit for two different prices, then all else being equal (and assuming perfect information), the other 8 will buy the cheapest yub-yub fruit, and the other yub-yub fruit dealer will have to lower his prices - or wait until the run on the first yub-yub fruit dealer exhausts his inventory, leaving him as yub-yub king of the island, but here again we run into the scarcity issue.

Given that there /will/ be scarcity at some point, and a limited number of people will have access to some scarce skill/resource, that means certain individuals are going to be accumulating a lot of grubniks - leaving others relatively poor - and possibly eliciting a general lack of grubniks in circulation. Now, if there was a government there to pump additional grubniks into the economy, that might smooth things out a bit.

[Maxus]

Spin-off of the Hungary Death Pool, someone asked why they didn't just redistribute all the wealth in the country equally and try to reboot the economy. Of course, this wouldn't work, but I thought it might be fun to discuss why it wouldn't work.

No argument from me there.

It wouldn't work and it'd cause fiscal insanity, but it'd still be more fair and intelligent than this.

But yeah. There's a ton of different factors which could fuck it up.

Without any sort of laws or regulation to control behavior and make this system sustainable by making sure it doesn't unbalance itself, money would gradually go to a handful of individuals with the most cut-throat methods, who would then crown themselves king or something.

If you took the experiment off an island, put them into a piece of property capable of sustaining a population (say, the size of Hungary), and then turned them loose, it delays the failure point by a good margin. Of course, if you really did try to reboot an economy, you'd have to cancel debts and a ton of other things which would cause economic ripples and dings because this ain't happening in a vacuum.

[tzor]

Let's see now ... what's on my twitter feed?

30 Statistics That Show The Middle Class Is Dying Right In Front Of Our Eyes http://read.bi/rT1DvL

#1 Today, only 55.3 percent of all Americans between the ages of 16 and 29 have jobs.

#2 In the United States today, there are 240 million working age people. Only about 140 million of them are working.

#3 According to CareerBuilder, only 23 percent of American companies plan to hire more employees in 2012.

#4 Since the year 2000, the United States has lost 10% of its middle class jobs. In the year 2000 there were about 72 million middle class jobs in the United States but today there are only about 65 million middle class jobs.

#5 According to the New York Times, approximately 100 million Americans are either living in poverty or in "the fretful zone just above it".

#6 According to that same article in the New York Times, 34 percent of all elderly Americans are living in poverty or "near poverty", and 39 percent of all children in America are living in poverty or "near poverty".

#7 In 1984, the median net worth of households led by someone 65 or older was 10 times larger than the median net worth of households led by someone 35 or younger. Today, the median net worth of households led by someone 65 or older is 47 times larger than the median net worth of households led by someone 35 or younger.

#8 Since the year 2000, incomes for U.S. households led by someone between the ages of 25 and 34 have fallen by about 12 percent after you adjust for inflation.

#9 The total value of household real estate in the U.S. has declined from $22.7 trillion in 2006 to $16.2 trillion today. Most of that wealth has been lost by the middle class.

#10 Many formerly great manufacturing cities are turning into ghost towns. Since 1950, the population of Pittsburgh, Pennsylvania has declined by more than 50 percent. In Dayton, Ohio 18.9 percent of all houses now stand empty.

#11 Since 1971, consumer debt in the United States has increased by a whopping 1700%.

#12 The number of pages of federal tax rules and regulations has increased by 18,000% since 1913. The wealthy know how to avoid taxes, but most of those in the middle class do not.

#13 The number of Americans that fell into poverty (2.6 million) set a new all-time record last year and extreme poverty (6.7%) is at the highest level ever measured in the United States.

#14 According to one study, between 1969 and 2009 the median wages earned by American men between the ages of 30 and 50 dropped by 27 percent after you account for inflation.

#15 According to U.S. Representative Betty Sutton, America has lost an average of 15 manufacturing facilities a day over the last 10 years. During 2010 it got even worse. Last year, an average of 23 manufacturing facilities a day shut down in the United States.

#16 Back in 1980, less than 30% of all jobs in the United States were low income jobs. Today, more than 40% of all jobs in the United States are low income jobs.

#17 Most Americans are scratching and clawing and doing whatever they can to make a living these days. Half of all American workers now earn $505 or less per week.

#18 Food prices continue to rise at a very brisk pace. The price of beef is up 9.8% over the past year, the price of eggs is up 10.2% over the past year and the price of potatoes is up 12% over the past year.

#19 Electricity bills in the United States have risen faster than the overall rate of inflation for five years in a row.

#20 The average American household will have spent a staggering $4,155 on gasoline by the end of 2011.

#21 If inflation was measured the exact same way that it was measured back in 1980, the rate of inflation in the United States would be well over 10 percent.

#22 If the number of Americans considered to be "looking for work" was the same today as it was back in 2007, the "official" unemployment rate put out by the U.S. government would be up to 11 percent.

#23 According to the Student Loan Debt Clock, total student loan debt in the United States will surpass the 1 trillion dollar mark at some point in 2012. Most of that debt is owed by members of the middle class.

#24 Incredibly, more than one out of every seven Americans is on food stamps and one out of every four American children is on food stamps at this point.

#25 Since Barack Obama took office, the number of Americans on food stamps has increased by 14.3 million.

#26 In 2010, 42 percent of all single mothers in the United States were on food stamps.

#27 In 1970, 65 percent of all Americans lived in "middle class neighborhoods". By 2007, only 44 percent of all Americans lived in "middle class neighborhoods".

#28 According to a recent report produced by Pew Charitable Trusts, approximately one out of every three Americans that grew up in a middle class household has slipped down the income ladder.

#29 In the United States today, the wealthiest one percent of all Americans have a greater net worth than the bottom 90 percent combined.

#30 The poorest 50 percent of all Americans now collectively own just 2.5% of all the wealth in the United States.

Read more: http://theeconomiccollapseblog.com/arch ... z1iPxaYTup

[Ancient History]

Tzor, why this thread?

[Username17]

They tried something kind of like that in Czechoslovakia. The problem comes down to corporate ownership and control. You have something like a steel plant - it's all very well and good to say that everyone owns it because it is owned and operated by the State - but in the hands of the state it still has a little subsidiary corporation that is operated by a small set of interested people. But when you privatize stuff, you still need a small number of people to be looking over that steel plant.

So what they did in Czechoslovakia was to let people invest in vouchers that turned into stock in the newly privatized state industries. Ideally, one person would have some of the stock in a steel plant and another person would own part of the water works and so on and so on and then you'd all get down to capitalist competition and everything would be sunshine and roses. That is of course, not what happened. What actually happened is the coinage of the phrase Tunneling.

While one person would get stock in one previously state owned industry and another person got stock in another, groups of people would collect stock sufficient to form controlling interests in the companies and then sell the company's assets to themselves at a huge "loss". Then even as the company collapsed, the people in on the scam would have a fat pile of cash and only the people on the outside would have all of their vouchers turn to ash before their eyes.

Capitalism requires an incredibly intrusive set of regulators, because capitalists can't be trusted to sit around and make money. The lure of crashing the economy for a quick personal buck is simply too strong.

-Username17

[tzor]

Tzor, why this thread?

Because if you want to reboot the economy you are going to have to address all 30 of those issues.

[Ancient History]

No. First off, this is a thought experiment, so we do not have to consider every real life issue. Second, if we /were/ rebooting the economy, none of those issues would apply to the new economy because they are issues of the old economy, and depend on that past state for any degree of relevance. Third, your list of issues is bullshit, wrong, and full of economic fail and spin. You have crapped on this thread for no good purpose.

Now, if you had come in and addressed and argue that the New Grubnik should be on the gold standard or something, that would at least be relevant to the thread.

[K]

The problem is also that people are going to create situations of scarcity in order to drive prices up and take a larger share of the wealth.

There is an old saying that every great fortune begins with a great crime. It's hard to find examples where that is not true.

[Dominicius]

I might be a bit late on the topic but what does the den this of the resource based economy model proposed by some scientists? Impossible? Too good to come true?

Considering that frank is an advocate for communism I thought that people here would have at least heard about it.

[DSMatticus]

Considering that frank is an advocate for communism I thought that people here would have at least heard about it.

I don't think those words mean what you think they mean.

[mean_liar]

Just a few historical notes.

1. Money is older than writing. Mesopotamian temples kept accounts of debts and income. By the time there's written history, there's already people being sold into slavery to pay meticulously-tracked debts.

2. Glass beads were wampum, which was a valued gift among the Iroquois. It wasn't really currency, but it wasn't value-less either. The example of trading wampum for beaver pelts makes sense - the local natives were basically getting expensive art in exchange for abundant crap they didn't need or want. It was a great example of a non-zero-sum trade.

[Username17]

I might be a bit late on the topic but what does the den this of the resource based economy model proposed by some scientists? Impossible? Too good to come true?

First, an SMBC for everything!

In more detail, every so often some otherwise intelligent person will freak out about the fact that money is just paper. It's just promises of value, not actual value in and of itself. And so they begin thinking about what does have real value. and some people stop at things like precious metals and gems, and some deep thinkers go beyond that to notice that even those things have largely arbitrary social value and that "real" value is in things like energy or water. And then they try to design an economic system around that as some sort of sky castle.

But the thing is: even that is not deep enough. Because real value isn't in energy or water, it's in owning energy or water. And ownership is... socially defined. That dollar bill is real value, or as close to it as it is possible to get. Because what it represents is society's acknowledgement of your right to take ownership of things like water and energy and precious metals and society's pledge to defend your claim on those things once you've taken ownership of them. And that is what it means to have value. Any energy credit or something would at most be as good as the dollars we already have: it would represent a pledge by society to acknowledge your right to take ownership of goods and services and to defend those hypothetical future property rights from contract breakers and thieves. It can't be any more than that, no matter what resources you theoretically tie its value to.

-Username17

[Dominicius]

Because real value isn't in energy or water, it's in owning energy or water.

Huh... Ok, I get that.

But what about the the criticism that our current economic model needs mass production and equally large mass consumption to be viable? Even if we assume that we could solve the problem of inequality, it would only increase the speed with which we burn through our -finite- resources?

[Lago PARANOIA]

But what about the the criticism that our current economic model needs mass production and equally large mass consumption to be viable? Even if we assume that we could solve the problem of inequality, it would only increase the speed with which we burn through our -finite- resources?

An increase in economic growth does not necessarily mean having to increasingly burn through environmental resources. Hell, since post-industrial societies are at a productivity bottleneck, the easiest way to increase your profit is to reduce the amount of environmental resources your product or services use. Aside from advances like GM-modified food and solar power and e-books and Remote Desktop Viewer that actually add resources to the planet (or cause a switch from a limited environmental resource to one of a much greater amount, which is the same thing for the purposes of this discussion), there's also the fact that there are economic sectors that use little of an environmental resource for their production in proportion to their productivity/profitability. Like the video game industry.

There are ways to reduce pollution and environmental resource consumption. But short of a Logan's Run-style complete upending of society, I am extremely skeptical that this would include a shrinking of the economy--which will happen if you switch from fiat money to anything else at all.

I mean, I assume that you're trying to shrink the economy. If you're not then why are we dicking around with this model?

[Dominicius]

I mean, I assume that you're trying to shrink the economy. If you're not then why are we dicking around with this model?

Stop putting words in my mouth. I do not want anything but I agree that a resource based economy does want to shrink the current economy to the limit where our planet can sustain it. The idea is that we actually have more resources in the economy than we realistically need but money creates a barrier for people who need those resources the most, creating massive inequality between nations and people.

It's like the old dilemma where a house stands empty as the builder can't find a buyer while a homeless person dies on out on the street during the winter. The resource is there and the demand is also there but money has creates a barrier to where the home becomes unused and wasteful.

The environmental issue is just one facet of this dilemma. I do not disagree that science will slowly put us on the path to sustainability but it still remains to be seen how depleted our current resources need to become before we start pushing for it in earnest.

[Lago PARANOIA]

Stop putting words in my mouth. I do not want anything but I agree that a resource based economy does want to shrink the current economy to the limit where our planet can sustain it. The idea is that we actually have more resources in the economy than we realistically need but money creates a barrier for people who need those resources the most, creating massive inequality between nations and people.

Why couldn't you do this with fiat money? It's not like fiat money is helpless to encourage or discourage sectors of industry. In fact that's what it's really really good at, as opposed to monetary standards that are tied to some arbitrary resource like gold supplies or water stocks.

[name_here]

It's like the old dilemma where a house stands empty as the builder can't find a buyer while a homeless person dies on out on the street during the winter. The resource is there and the demand is also there but money has creates a barrier to where the home becomes unused and wasteful.

That's not really a matter of currency, though. Whatever economic system you have, if people obtain things by exchanging foo for what they want, then situations will arise where someone has a product and someone wants it but does not offer enough foo to persuade the person who has it, the second person will not obtain the product. This will not be resolved by having foo be shiny rocks or water or energy. In fact, it will be made worse because fiat currency means the number of abstract representations of value can be raised arbitrarily instead of depending on the amount of a commodity you have.

[Lago PARANOIA]

Very belatedly, while I understand 'perpetual growth is bad' is a pretty succinct talking point when discussing about the transition to a sustainable economy oftentimes I wonder if -- like most talking points -- they get overemphasized as literal truth rather than just a starting point.

For example, it's pretty easy to imagine situations where the world economies still had perpetual growth but didn't put a strain on the planets' resources. Similarly, it's also easy to imagine situations where the world had negative growth but this negative growth directly accelerated the Malthusian crisis. I mean, just the fact that a certain level of wealth makes people in a society create a lot fewer babies means that would we should be doing is creating a modest level of growth in industrializing countries and just cut the nation of Bangladesh a ginormous non-taxable check for no reason.