Modeled Behavior explains our fundamental economic dysfunction, with charts:
This is a failure of our basic institutions of production. The job of the market is to bring together willing buyers with willing sellers in order to produce value. This is not happening and as a result literally trillions of dollars in value are not being produced.
Let me say that again because I think it fails to sink in – literally trillions of dollars in value are not being produced. Not misallocated. Not spent on programs you don’t approve of or distributed in tax cuts you don’t like. Trillions of dollars in value are not produced at all. Gone from the world entirely. Never to be had, by anyone, anywhere, at any time. Pure unadulterated loss.
This is what has bothered me for months — the opportunity cost of having so much human and industrial capacity idle. We live in a world where many, many things are needed and wanted by people, and the capacity to produce them exists but is going unused. I don’t know if another round of government spending will help or if that’s what we should do, but “stimulus” is exactly the right word for what needs to happen.
His main point is that this loss should bother everyone to the extent that they’re willing to move beyond their political hobby horses and look for a solution. That isn’t happening.
September 7, 2010 at 3:51 pm
Here’s my simplistic view of things. This is probably offensive. If I am wrong, please point out how.
It used to be the case people could get by doing manual labor. But now many of those jobs are now being done by machines. And in the near future, they will all be done by machines.
Even minimally intellectual jobs, like secretaries, are becoming less necessary. Why would I need a secretary when I have an iPhone? (I realize that iPhones don’t yet have all the functionality of secretaries, but I bet it will be just a matter of decades before they do.)
Increasingly, the only way a person can make meaningful contribution is to use their brain. And a lot of people aren’t doing that.
We can blame it on them as individuals, or we can blame it on our system of education, or we can blame it on whatever else. But I believe the fact of the matter is simple: A lot of the people who are struggling are not utilizing their intellect. And until they learn to think for themselves, they are going to fall further and further behind.
It seems like a waste that the US has factories that aren’t being used even though there are people to work there. However, if there was money to be made having people work in those factories, then it would probably be happening. Instead, what these people should do is not work for minimum wage in a factory. They should hit the books and acquire the ability to make more meaningful contributions.
The largest problems of our time are intellectual. Here are some:
Solving these problems will not require having more people work on assembly lines. It will require that people use their brains.
Note that I would apply this same criticism to a lot of educated people, not just the working class. An awful lot of college-educated people come nowhere near utilizing their full intellectual capacity as well.
So how do we fix this situation? Well, somehow, we’ve got to make people smarter and more knowledgeable, and we’ve got to encourage them to use those skills in their work.
Caveat: I am a physics graduate student. Although I have not yet made the kinds of meaningful contributions I talk about here, the whole purpose of my studying physics is to acquire the knowledge and skill to be able to make those kinds of contributions.
September 8, 2010 at 12:21 pm
There’s still a need for Secretaries (or Personal Assistants, if you please), something that an iP* can’t do.
That need is for the PA to handle little tasks that need to be done, but for which I do not have the time/bandwidth. It may be screening my calls/organizing my calendar or preparing a report with the latest sales figures. It may be picking up my dry cleaning or making sure my car’s tank is filled.
The US has been on a steady move from being a production-based society to a service-based one for decades. Is that better? If the service adds value, then yes. If it doesn’t (for example, answering phones and taking messages), then we’re in trouble; as Ryan stated, that’s what voicemail is for.
September 8, 2010 at 12:28 pm
The main reason for the decline in the number of secretaries (or admins or assistants or whatever) is that the labor market does not discriminate against women in the ways it once did. Back in the day, you could hire a female assistant at a fraction of the price of their boss who was in all likelihood more intelligent and capable than the person they worked for. The labor market is more efficient these days and the opportunities available to women aren’t artificially constrained in the way that they once were.
September 8, 2010 at 8:13 pm
“We live in a world where many, many things are needed and wanted by people, and the capacity to produce them exists but is going unused.”
These things people want and need are still being produced, more affordable than ever, just not in the U.S. This is also the reason there is no money to be made in our empty factories.
We are seeing the result of our move to a service based economy. Our current situation of 9.5-10% unemployment will be considered normal before long.
Neither political party have any good ideas on how to turn the economy around either. The democrats want to prop up the stimulus that did not work as planned. The republicans seem to think giving a tax cut to businesses will create jobs. Giving my boss a tax cut will not get the company more work that requires new hiring.
September 8, 2010 at 9:12 pm
I don’t agree with that. Look at Germany’s export-driven growth. If Germany can grow through exports, so can we, if the country is governed properly.
September 9, 2010 at 9:48 am
The author of the cited article didn’t zoom out far enough. It’s not just a failure of markets. It’s a failure of the capacity for collective action — and it was deliberately caused, for factional advantage.
September 9, 2010 at 3:32 pm
Manufacturing in the US will rebound when:
Labor Cost in Asia + Shipping Cost from Asia to US
is greater than:
Labor Cost in US
We almost saw this when oil prices shot up a year or two ago, but it didn’t last.
Of course, there are other downsides to oil prices reaching that level.
September 9, 2010 at 4:44 pm
I would agree with that if Germany were not still running an export-driven economy. Germany is a very expensive place to do business with a high standard of living.
September 9, 2010 at 8:52 pm
Germany exports more than it imports. The U.S. does the opposite. Germany is more balanced in its trade than the US. About half our total imports come from Canada,China,Mexico or Japan. About half Germanys imports come from France,Netherlands,US,China or UK. The US is very top heavy with countries that have lower standards of living, (China and Mexico), and US companies like to use the insanely cheap labor in these countries to produce goods to sell back to Americans at much lower prices and with higher profits than if these goods were produced in the US. Germany picked its partners more wisely than the US did and if something doesn’t change everyone will feel the effects of our trade policies. ANYTHING that you can produce can be produced by someone else, and if someone else will do it for 75% less, they got the job.
How can a service based economy work when you can’t export services? Or are we supposed to import everything and export nothing?