Opinion

The Great Debate

A crash course in growth economics

By Hedrick Smith
February 6, 2014

Congressional Republicans like to talk about creating jobs and growing the economy. With the government shutdown and rigid spending cuts, however, Congress created a fiscal drag that cost the economy a full percentage point of economic growth in 2013.

Now, Congressional Republicans are again digging in their heels against measures that would ramp up the economy and generate jobs. It’s time for Congress to take a refresher course in growth economics — the economic forces and programs that power U.S. growth.

As President Barack Obama barnstorms the country, he should be making the argument that it is not only fair, but smart growth economics to raise the minimum wage, extend unemployment benefits and reduce income inequality. These steps will help accelerate economic recovery this year above its anemic 1.9 percent growth rate in 2013.

Stagnant middle class pay and a yawning wealth gap have been the main obstacles to U.S. economic growth for the past three decades, especially the last 10 years, according to a new study by two economists at Washington University in St. Louis.

In mid-December, The Wall Street Journal ran a chart that explained why. It showed that 90 percent of American households suffered a 10 percent fall in income from 2002 to 2012, while the top one percent enjoyed sharp increases.

Common sense as well as Macroeconomics 101 tells you that if 270 million Americans earned less in 2012 than in 2002, they had less to spend. They had to cut back on consumption. That caused weaker consumer demand — a bad trend, because what economists call “aggregate consumer demand” is the engine of economic growth.

So the declining incomes of 90 percent of Americans over 10 years spell slow recovery, even as corporate profits soar and the stock market hits new highs. We are indeed Two Americas — the elite 1 percent riding high and the rest of us mired in the stagnation.

The economic picture was quite different three decades ago. America’s middle class was prosperous. Chief executive officers shared corporate profits. In the 1950s, ‘60s and ‘70s, Charlie Wilson of General Motors, Reginald Jones of General Electric and Frank Abrams of Standard Oil of New Jersey (now Exxon Mobil) practiced “stakeholder capitalism” — sharing profits among all stakeholders in the corporation, with workers as well as bosses and owners. To those CEOs, strong wages and generous employee benefits were good business and smart economics.

Not today. The mantra of most modern CEOs is to deliver maximum return to shareholders – “shareholder capitalism.” Most gains go to the financial elite, while average Americans face frozen wages, cuts in benefits or jobs shipped overseas.

Last year, America’s corporate captains spent $750 billion of their $2 trillion in accumulated profits in buying back company stock — not on expanding production or hiring more workers. Why? Because that delivers higher stock prices to shareholders and fattens CEO pay packages.

If American CEOs had shared more corporate profits with their workforce, average Americans would be better off today and we would all be enjoying a stronger economic recovery.

The same goes for the minimum wage, which at $7.25 an hour is now about 25 percent lower than in 1968, adjusted for inflation.

But that is not what you hear from the National Restaurant Association, in which members employ many minimum-wage workers. Increasing pay, restaurant owners say, would force them to fire waiters, raise food prices or both.

What the restaurant lobbyists don’t tell you is that the minimum wage for waiters who get tips is $2.13 an hour. What also goes unsaid is that in places like Washington state, where the minimum wage is now $9.32 an hour (before tips), national chains like McDonalds and Burger King, as well as local restaurants, are doing just fine.

It’s important to understand that what may happen in individual restaurants is not what happens in the economy. Raising the minimum wage may crimp the profit margins of some restaurants, but applied nationwide, a higher minimum wage lifts the whole economy. It puts tens of billions of dollars of increased buying power into the hands of average Americans.

If that puzzles you, imagine what would happen if restaurant owners pushed the minimum wage to zero. All those working families would have no money to spend and the economy would shrink from lost buying power. Raising the minimum wage, on the other hand, boosts purchasing power nationwide. Eventually even minimum-wage employers would begin to profit from having more customers with more money to spend.

The same logic applies to extending unemployment insurance. Not only does it give a lifeline to families drowning financially, it pumps purchasing power into the national economy — a formula for growth.

Many economists, including former Treasury Secretary Larry Summers, warn that unless we take action to break our current cycle of low wages and high economic inequality, we are in for a long period of “secular stagnation.”

That is economist lingo for a long-term economic slump — hardly what any of us wants.

 

PHOTO (TOP): Demonstrators gather during a nationwide strike and protest at fast food restaurants to raise the minimum hourly wage to $15 in New York, December 5, 2013. REUTERS/Shannon Stapleton

PHOTO (INSERT): The Chevrolet Corvette assembly line in 1953.   REUTERS/Courtesy GM

Comments
30 comments so far | RSS Comments RSS

Let’s see, “The economic picture was quite different three decades ago.” Wonder who was in charge back in 1984, and what kind of policies were in effect? And how were those policies different from today?

The other problem with this article is that minimum wage has nothing to do with the middle class; anyone making minimum at the new proposed level would still not be middle class.

Posted by stevedebi | Report as abusive
 

Saint Ronny, more than any single person, is responsible for the decline of the U.S.:

Anti-union policies and destruction of the labor movement, starting with busting the air traffic controllers (his partner in crime, Maggy Thatcher).

Iran-Contra scandal, 14 indictments, 11 convictions, but Ronny is senile at this point, so he’s not responsible.

HUD scandal, 16 convictions.

S&L scandal, over $1 trillion in cost to taxpayers.

32 convictions in his administration during 8 year term.

James Watt. (The beginning of the end for sound environmental policy.) Say no more, nod nod, wink wink.

Record deficits.

7.5% average rate of unemployment.

Supply side [voodoo] economics. Followed by trickle-down economics.

Billions wasted on Star Wars (Strategic Defense Initiative.

Escalation of the arms race that we are still living with today.

LBOs of $64 bn/yr.

130 separate investigations against DOD contractors.

Slashed taxes on the rich, said he wouldn’t raise taxes, but his large deficits made it impossible not to. He lowered the top marginal tax bracket from 70% to 50%. Further reduced the top rate to 28% in 1986, while raising bottom rate from 11% to 15%.

The largest peacetime tax increase in American history: Tax Equity and Fiscal Responsibility Act of 1982.

Beirut Barracks Bombings October 23, 1983.

Invasion of Grenada.

The never-ending War on Drugs.

1986 bombing of Libya.

Reduced the maximum capital gains rate to only 20%.

Cut the budgets of non-military programs including Medicaid, food stamps, federal education programs and the EPA. Sound familiar?

Posted by Andvari | Report as abusive
 

Let’s see, let’s begin with the simple reality that for every dollar spent by the government cost the private sector—that place that creates tax revenue, doesn’t spend it—2 ½ dollars. So you’re telling me that the sequester, that didn’t do a damn thing to reduce the spending, only decreased the rate of the Keynesian monetary and fiscal policy of communist central planning government, somehow reduced the GDP of this nation?
I’m not sure but the information you have is in error. On top of that you’re evaluation is wrong. Compounding the error is that government is an expense to society, not an asset—it is not revenue to tax, as our current confused believes. It is also not an increase in the economy when the central planning government spends that which is doesn’t have. This is call theft from future generations. I’m not sure why this article is in the economic section, for you apparently went to the Keynesian communist school of central planning. Not the school of economics envisioned by notes economist as Adam Smith, John-Batiste Says, Condy Raguet or any other that had a clue of economics or how enterprise works. Yet you are allowed access to inundate the ignorant of this nation…what a tragedy.
A president that is clueless about all is becoming mindboggling. To continue the advancement of illiteracy is criminal.

Posted by DanShort | Report as abusive
 

@Andvari, You left out funding and arming of Mujaheddin and Islamist forces in Afghanistan.

Other than that, I would concur. Ronald Reagan was the absolute worst President in U.S. History.

Posted by AlkalineState | Report as abusive
 

How could I forget: Saddam Hussein uses chemical weapons on the Kurds. Reagan, Shultz and Rumsfeld do nothing, well, sort of…. Rummy goes to Iraq in 1983 to discuss oil pipeline from Iraq to Jordan. We also provided satellite intelligence to Saddam in his war against Iran.

The consequences? In the following two decades we begin two separate wars in Iraq. We are still paying for St.Ronny’s foreign and economic adventures.

Posted by Andvari | Report as abusive
 

Maybe we should seriously think about tying tax rates and brackets to the minimum wage.

Say minimum wage is $7.25 an hour; we tie the rate brackets to a 35 hour work week multiplied with 52 weeks in a year is 1,820 hours. Each bracket is thus a multiple of $13,195. The tax rates are an arithmetic progression of the base rate. So if base rate is 3%, the first bracket is 3%, the next 6% and so on until twenty brackets have been made. There should be a 20 x Base Rate + 10% tax rate for taxable incomes exceeding 20 x Min. Hourly Wage x 1,820 hours.

$7.25 1,820
min hours

Income Tax Rate
1: $13,195: 3% (1 x Base Rate)
2: $26,390: 6% (2 x Base Rate)
3: $39,585: 9% (3 x Base Rate)
4: $52,780: 12% (4 x Base Rate)
5: $65,975: 15% (5 x Base Rate)
6: $79,170: 18% (6 x Base Rate)
7: $92,365: 21% (7 x Base Rate)
8: $105,560: 24% (8 x Base Rate)
9: $118,755: 27% (9 x Base Rate)
10: $131,950: 30% (10 x Base Rate)
11: $145,145: 33% (11 x Base Rate)
12: $158,340: 36% (12 x Base Rate)
13: $171,535: 39% (13 x Base Rate)
14: $184,730: 42% (14 x Base Rate)
15: $197,925: 45% (15 x Base Rate)
16: $211,120: 48% (16 x Base Rate)
17: $224,315: 51% (17 x Base Rate)
18: $237,510: 54% (18 x Base Rate)
19: $250,705: 57% (19 x Base Rate)
20: $263,900: 60% (20 x Base Rate)
21: >$263,900: 70%

The minimum wage and base rates shall be adjusted to achieve a balanced budget.

I recommend basic deduction of 1,820 hour x minimum hourly wage allowed for each tax payer considered individually.

Children under 18 should not be taxed until their income exceeds 520 hours x Min. Hourly Wage. They shall receive guaranteed school education and meals which is expense enough to not require providing them cash.

Corporations may be exempted from income taxes, assessed licensing and regulatory fees and all income must be passed through to shareholders as ordinary income. No special treatment for any kind of income.

I am on the fence about a 1,820 hour x minimum hourly wage guaranteed income for each adult and then eliminating the standard deduction. This could be used by young adults to finance their higher education or set a business or pay for sustenance. If this is done, there shall be a life time maximum of 10 year equivalent (I am thinking 520 weeks). This will eliminate the need to have subsidised loan programmes for students. Colleges/Universities will compete for students to bring their min. guaranteed income as tuition and fees and their operational budgets can be tied to the minimum wage as well and to the population they serve.

Social Security retirement support should also be tied to the prevailing minimum wage.

Posted by juggernaut | Report as abusive
 

this is not only unequal wealth…but it is “unequally distributed.”

the system Republicans are supporting are leading directly to bankruptcy for their constituencies…meaning their State legislatures…and they will cease to exist as a Party apparatus if this continues.

Democrats are in even worse shape. They’ve bankrupted pretty much every City in the country now.

One major exception is Washington DC.
Los Angeles looks like it might make it.

There are a couple of States that what’s left of the Banking System that might be supportable.

Posted by lkofenglish | Report as abusive
 

The problem is that highly paid, well connected lobbyists seem to keep congress voting their way to the detriment of the American public. I see that in Texas, which boasts that it is “business friendly”. Problem is, the state’s lawmakers aren’t just business friendly, they’re in bed with big business and tilt the laws to favor business over Texans. Texas laws affecting Personal Injury cases are a disgrace by siding with insurance companies over the injured parties.

Posted by schmendric | Report as abusive
 

What is causing this economic and social stress at this time are fiscal conservatives and conservatism that believes capitalism no longer has a benefit to creating a better civilization.

Fiscal conservatives no longer believe of investing in infrastructure or people. Any investment is seen as spending. This is documented in our failing infrastructure, lagging education and job training in the world, and attacks on the our quality of life.

We do not have a debt problem, we have a revenue problem!

Since the Eisenhower administration we have gone from a nominal tax rate of over 90% for the wealthy to under 40% in the name of job creation.

You would think by now unemployment would be 0 if this were true.

Fiscal conservatives are socializing the cost of doing business in placing that cost on the public in reducing taxes on employers and deregulation of industry and weakening of environmental laws. A prime and recent example of this is the chemical leak into the Elk River in Charleston, West Virginia. These people are so desperate for jobs that they kept taxes low for employers and did not take the advise of the EPA, who they attack, to strengthen their environmental regulations. Now the company is claiming bankruptcy and the municipality, county, state, and federal government are stuck with the bill. While years back fiscal conservatives changed the Clean Up Super Fund from being funded by businesses to now coming out of the general fund paid by citizens not responsible for the spill. Now Charleston, West Virginia is having an economic loss, a lower quality of life, business will now be unlikely to move there, and a loss of tourism.

Why Americans accept capitalism as their economic model is that it provide a benefit for a better civilization.

Not everyone accrues the highest wealth of capitalism, but they expect a benefit of capitalism in their lives. If Americans do not see the benefit of capitalism in the way of safe roads and bridges, clean water and air, pregnancy leave, leave to take care of elderly parents, and a general improvement of quality of life their is a threat to capitalism.

The conservative mantra of lower taxes and deregulation has proven ineffective in creating a business environment, and that in fact and is shown to deter jobs.

We taxpayers are now demanding a progressive tax base and strong regulations for business and those well compensated to provide for infrastructure, education and job training, and clean water and air that will truly provide a sustainable environment for job creators.

Posted by Flash1022 | Report as abusive
 

“The same logic applies to extending unemployment insurance. Not only does it give a lifeline to families drowning financially, it pumps purchasing power into the national economy — a formula for growth.”

No, it takes “printed money”, money for which NO ONE WORKED, and shovels it out into the economy to EVEN FURTHER dilute the “intrinsic value” of each dollar in circulation. America has become a “paper and ink” economy.

The single reason that there is not already rampant inflation is that the great majority of “printed money” dollars have wound up in vaults of various countries. As bad an “investment” as our poor dollar is, it’s still widely perceived as the best fiat money to hold in lieu of gold.

This allows America to buy goods and services on the world market for the cost of paper and ink as long as that party lasts. Hint: Start squirreling away some of those hors d’oeuvres in the freezer and fridge because the clock is ticking towards midnight.

There isn’t a person on the planet that has a clue what will actually happen when countries wake up, more or less simultaneously jerk all those dollars out of their vaults, and try to exchange them for anything tangible. Google “not worth a Continental”…

I’ll tell you this…it ain’t gonna be good for anyone.

Posted by OneOfTheSheep | Report as abusive
 

Raise minimum wage to $11. Raise import tariffs back to 20%.

This would put us back to roughly the same economic playing field we had in the 1950′s. Fail to do either one, you’re just just testing different turd polishes.

Posted by AlkalineState | Report as abusive
 

How about some good adverting slogans; “Support the Communist Party, buy MADE IN CHINA”. If more us bought stuff made by us, more of us would be working. Asking Uncle Sam for anything is a waste of breath, unless you are very young, healthy, and can what a very long time. “Ask Not What You Country Can Do For You, Because It won’t Get Done”. Spend some money on Made in the USA and buy yourself a job.

Posted by nozone | Report as abusive
 

Close, but no cigar.

The actual reason the US economy has been in decline since 1980 is that the wealthy class has begun moving back into power, which they have not had since the 1920s.

As a result, they have managed to corrupt the US government, which is why ALL the tax, trade and banking legislation since 1980 has been increasingly to the benefit of the wealthy class.

This, in turn, has resulted in the economic and financial collapse you describe above.

What has made the wealthy class return to successful this time is the concurrent fact of the paradigm shift in technology (i.e. advent of computers and linking them to provide the internet).

Why has the internet made such a spectacular difference? Because the internet gives the wealthy class virtual “real time” control over manufacturing facilities located anywhere in the world.

So what? So, it reduces the risk of capital investment enormously (more than at ANY period in history), thus increased profitability that could not otherwise be obtained.

So what? So, THIS is where the wealthy class initially got the money to stage a comeback into power so dramatically.

WHY can’t ANY so-called economist or financial writer seem to understand the simple links to what went wrong with this nation’s economy?

It’s the wealthy class, stupid!

DUH!

Posted by EconCassandra | Report as abusive
 

I forgot to mention, you state that Many economists, including former Treasury Secretary Larry Summers, warn that unless we take action to break our current cycle of low wages and high economic inequality, we are in for a long period of “secular stagnation.”

That is economist lingo for a long-term economic slump — hardly what any of us wants.

——————————

Larry Summers is wrong!

Here’s some economist lingo to describe what is really happening.

We are in a “Keynesian Liquidity Trap”.

Which means basically in this case the problem is a lack of demand due to a lack of jobs (especially in manufacturing) that is being caused SOLELY by the wealthy class who has been outsourcing jobs to emerging markets for better profits.

http://en.wikipedia.org/wiki/Liquidity_t rap

“Outsourcing” is wealthy class lingo that means they are screwing you royally and they know you are too stupid to understand what they are doing to you.

Posted by EconCassandra | Report as abusive
 

EconCassandra, I like your action. I do agree with your bigger picture of the wealth class now being in power making for a poor domestic economy (wealthy Americans are more global than American). I think your internet theory is good too, but probably needs expanding to account not only for manufacturing control, but market control in general. Real-time control of currencies, futures, equities, news. The fact that certain entities are now allowed to trade at 20,000 trades per second on wall street, while regular investors are not afforded this bizarre access…. is a glimpse into the fishiness.

Posted by AlkalineState | Report as abusive
 

It’s interesting and sad that Hedrick Smith, of all people, doesn’t even mention the destructive affect of globalization on the American middle class.

This week the annual World Economic Forum in Davos, Switzerland, the birthplace of the GLOBALIZATION movement of the wealthy, is finishing up.

That conspiracy of the wealthy always knew that if protective tariffs are removed in the advanced nations then manufacturing would move to the undeveloped nations, and the giant, impoverished populations of the undeveloped countries would see their incomes go up, but the middle classes of the advanced nations would be ground down to lower and lower levels, until the masses of all nations had the same level of income.

As water seeks the same level on its own.

All this talk of Hedrick Smith in this column today, about the Republicans and Democrats is just so much bull. The truth is that the current, unprecedented destruction of the American middle class is coming from globalization. The two main avenues of destruction by globalization has been:

1. The removal of the American protective tariff system (originally formulated by George Washington and Alexander Hamilton, and removed by Bill Clinton’s NAFTA).

2. An tsunami of immigration into America, on an unprecedented scale, that is driving down wage and driving up housing costs, destroying the middle class.

Posted by AdamSmith | Report as abusive
 

What is also forgotten, or just plain ignored, is that the minimum wage does NOT apply to businesses with less than 25 workers…. Get schooled, it’s educational.

Posted by edgyinchina | Report as abusive
 

There is a lot that can be done to spur investment and employment that is simply not discussed much these days. The federal tax code is too complicated, and serves as a disincentive to invest in many ways. The federal government is too big, and has many overlapping agencies and mandates. The nation is arguably over–governed, and has too many rules and regulations that stifle private investment. There is little will to reform the federal government’s entitlement programs, which collectively have many $tens of trillions in unfunded liabilities, which lead to huge uncertainty about U.S. fiscal policy in the future. The list of what can be done to make the U.S. a place where its private sector can once again make the nation a world showcase of economic growth goes on and on. Unfortunately, much of the public, such as this article’s author, is focused on redistributing income through additional government regulations and higher taxes, rather than on making the economy more prosperous and growing it.

Posted by ExDemocrat | Report as abusive
 

The author says, “The economic picture was quite different three decades ago. America’s middle class was prosperous”. Hmmm.

According to US Census income data, in 1984, 25.9% of households were low income (100k/yr) [income measured in current day dollars]. The current distribution is 24.7% of households are lower income, 53.5% are middle income, and 22.0% are upper income.

If the middle class were doing better 30 years ago, would there be more middle income and fewer upper income households now?

Posted by jambrytay | Report as abusive
 

I guess greater than or less than signs fouls the Reuters web site, let’s try again:

The author says, “The economic picture was quite different three decades ago. America’s middle class was prosperous”. Hmmm.

According to US Census income data, in 1984, 25.9% of households were low income (under 25k/yr), 59.8% of households were middle income (25k/yr to 100k/yr), and 14.4% of households were upper income (over 100k/yr) [income measured in current day dollars]. The current distribution is 24.7% of households are lower income, 53.5% are middle income, and 22.0% are upper income.

If the middle class were doing better 30 years ago, would there be more middle income and fewer upper income households now?

Posted by jambrytay | Report as abusive
 

For those who took exception and posted (lengthy) diatribes about Ronald Reagan, I was simply observing that this obvious liberal was harkening back to a time when Reagan was in office, and his policies in effect.

I think it is basically useless to try and convince people how great a President he truly was; people either loved or hated him. He was my commander-in-chief for my military career, and I saw what he did for world peace. Only those serving at the time were aware just how weak we were when he came into office (I came on active duty in 1980). His policies ended the cold war.

I do think that the free trade pacts were not good for American workers. They have been pursued by politicians of both parties (the current administration is trying to expand them now). It really should not have been too hard to see that unless wages are constant all over the world, any such agreement is going to result in layoffs at the higher income country.

Posted by stevedebi | Report as abusive
 

The core of the “crash course” is in the following paragraph:

“Common sense as well as Macroeconomics 101 tells you that if 270 million Americans earned less in 2012 than in 2002, they had less to spend. They had to cut back on consumption. That caused weaker consumer demand — a bad trend, because what economists call “aggregate consumer demand” is the engine of economic growth.”

The problem which more and more people start to accept is that in the closed, and finite natural system we exist in constant quantitative growth is impossible.

In order to drive constant growth humanity started building artificial bubbles. The “aggregate consumer demand” is nothing else but unnatural brainwashing of people through clever marketing, so they start desiring, chasing pleasures, goods they never actually needed, never even dreamed about.
Since they are forced to thrive for things that are excessive and unnatural, and in order to generate profit, they need to extend beyond their means, work more, take more credit, which has finally exhausted the consumer base.

No artificial bubble can survive within a natural system.
No excessive demand based human structure can exist in a vast natural system that is based on available resources, natural necessities, finely balanced balance and homoeostasis.

We have no choice but to accept the environmental conditions we exist in, we have to accept how integral, interdependent, natural systems like our own world function, and we have to start adapting accordingly.
No superficial political, financial or economical “solutions”, “tricks”, “short-cuts” exist. We are facing strict, unbending natural laws.

Posted by ZGHermann | Report as abusive
 

ZGHermann, I’m generally in agreement, and this should have been apparent to thinking people for at least the past 100 years (and has been clear to some). But does economic growth need to be about expanded natural resource consumption? Can’t we have economic growth around better health care, better education, better arts accessible to more people? Granted, all of these activities involve resource consumption, but at a comparatively low rate. Instead, they tap into our human labor informed by our training and our capacity for compassion and innovation. And these “products” can all vastly improve our quality of life. Yes, GDP is a really lousy measure of our well-being, but I’m not convinced we need to go to zero growth with regard to economic activity in order to live sustainably. If our natural resources were priced accurately (reflecting its value to the natural system, its capacity for renewal, etc), perhaps this alone would turn our energies in the direction of low-consumption/high value activities. I am not convinced of this, but I think it’s worth considering. Of course, such a change in direction is impossible until the current power structure is toppled, but it’s important to decide what our goal state should be.

Posted by Sanity-Monger | Report as abusive
 

@stevedebi, I can appreciate your reflections on Reagan as commander-in-chief. But I have served also, and Reagan’s meddling has done more to endanger U.S. troops than just about any president in History. This is the guy who armed Al Qaeda. Caved and gave long-range missiles to Iran for some hostages. Posted unarmed USMC guards in Beirut during a civil war there. Supported Saddam Hussein and sent him chemical weapons. Started wars in Panama, Grenada, Libya…. and you people think he was neat because he kicked down some trinkets for the aircraft carriers? Expanded military spending 300% to no real avail (USSR was collapsing anyway. Reagan later admitted that). Reagan was the beginning of the end for America. Sorry.

Posted by AlkalineState | Report as abusive
 

Dream on. USA Congress is 100% fascist. Corporations have taken over the USA and most of the rest of the world and soon you will be known not by which country you live in but which corporation you work for. There will only be shells of countries and shells of citizen rights left. There is nothing you can do to stop it. Hop on the train or get crushed by it.

Posted by UScitizentoo | Report as abusive
 

@Sanity-Monger, thank you for your reply.
I agree with you, it does not have to be “zero growth”.
But we have to revise how we consider and measure growth, we could call it qualitative growth instead of quantitative growth.
Just like in a healthy body, after it has reached maturation, there is hardly any quantitative growth (except getting fat…) but a person is qualitatively developing, improving continuously.
It could include all the fields, areas you yourself mentioned, but I think the most important element should be changing the present ruthless, exploitative and extremely wasteful competition into mutually complementing cooperation.
After all the globally interconnected and interdependent human society functions as a single “organism” after reaching maturation.

Posted by ZGHerm | Report as abusive
 

@ AlkalineState (and to others who do not understand how the internet is the great enabler that has created the present ultra-wealthy class) –

You state “I think your internet theory is good too, but probably needs expanding to account not only for manufacturing control,

but market control in general.

Real-time control of currencies, futures, equities, news.

The fact that certain entities are now allowed to trade at 20,000 trades per second on wall street, while regular investors are not afforded this bizarre access…. is a glimpse into the fishiness.”

————————————

First of all, the basis for my remark is that I have an MBA in Finance and worked primarily in the global high-tech industry, both before and after the internet came into common use as a business tool.

Maximizing “return on investment” (ROI) (a.k.a. profits) is the SOLE function of a capitalist economy. ANYTHING that detracts from that basic premise will be avoided as much as possible.

“Risk” is the biggest problem in making capital investments outside one’s own country, obviously because of the multitude of local factors that cannot be controlled.

One of the greatest elements of risk is the lack of real time information. Thus, the further one goes to make capital investments in the global economy, the greater the risk.

Prior to the internet, going all the way back to the beginnings of the Industrial Revolution (especially) and beyond that paradigm shift in the global economy into the emergence of Europe from the Dark Ages, capital investment in trade has always been the most profitable business activity. It is a fact that those nations who engaged in trade inevitably became among the wealthiest and most powerful of their time.

Prior to the internet, investment “risk” was ALWAYS the greatest threat to capital investment — hence, the beginnings of the insurance business to ameliorate that risk, for example — mainly due to a lack of real time control that would be available in an investor’s own country.

After the internet, the element of capital investment not only in trade, but in the ability to relocate manufacturing facilities — which was almost never done due to the high risk involved — outside an investor’s own nation dropped to virtually ZERO.

THUS, THE ENTIRE GLOBAL ECONOMY IN TERMS OF NOT JUST TRADE, BUT CAPITAL INVESTMENT IN FACTORIES (which drove down ALL the costs of manufacturing to virtually zero) LITERALLY ANYWHERE IN THE WORLD WAS MADE WITH ABSOLUTE REAL-TIME 24/7 CONTROL.

THUS, FOR THE FIRST TIME IN HUMAN HISTORY, THE RISK ASSOCIATED WITH TRADE AND MANUFACTURING DROPPED TO ZERO.

THIS INCREASED THE PROFIT LEVELS EXPONENTIALLY.

WHAT WORKED FOR TRADE AND MANUFACTURING DID EXACTLY THE SAME THING FOR MARKETING AND FINANCIAL INVESTMENT IN STOCKS, ETC.

KNOWLEDGE IS POWER.

INSTANTANEOUS KNOWLEDGE IS ABSOLUTE POWER.

THAT IS THE DIFFERENCE THE INTERNET MADE TO THE WEALTHY CLASS, WHICH TRANSFORMED THEM INTO THE WORLD’S FIRST ULTRA-WEALTHY CLASS.

OK?

Posted by EconCassandra | Report as abusive
 

LET ME MAKE ONE MORE COMMENT ABOUT EVERY SINGLE ONE OF YOUR COMMENTS.

IT IS PAINFULLY OBVIOUS THAT ABSOLUTELY NONE OF YOU REMOTELY UNDERSTANDS THE ECONOMIC IMPACT OF THE PARADIGM SHIFT OF TECHNOLOGY THAT THE INTERNET HAS WROUGHT IN THE GLOBAL ECONOMY.

BY REDUCING INVESTMENT RISK TO VIRTUALLY ZERO, IT HAS ENABLED THE CURRENT WEALTHY CLASS TO BECOME THE WEALTHIEST AND MOST POWERFUL IN HISTORY.

IT REALLY IS AS SIMPLE AS THAT.

AS I HAVE SAID SO MANY TIMES BEFORE, “ITS THE WEALTHY CLASS STUPID”!

AND THE PARADIGM SHIFT IN TRADE RISK DUE TO THE INTERNET IS THE ONLY REASON.

EVERYTHING ELSE FLOWS FROM THAT SINGLE FACT.

WHY CAN’T YOU PEOPLE UNDERSTAND SOMETHING THAT IS SO SIMPLE?

ALL OF YOUR COMMENTS ARE WRONG BECAUSE YOU REFUSE TO UNDERSTAND THE UNDERLYING REASON FOR ALL OF THIS!!!

Posted by EconCassandra | Report as abusive
 

Clearly, the author of this article hasn’t a clue as to how real world economics works either.

If you read ALL of what I have written regarding this article, I have given you a “crash course in real world economics”.

Unfortunately, it is quite apparent that ALL of you are too stupid to understand what I am saying.

Thus, we will continue to repeat history instead of learning from it.

Posted by EconCassandra | Report as abusive
 

@EconCassandra,

If you were handing out tangible gold, the amount you could distribute would be infinitely greater if you didn’t tell each and everyone listening how stupid they are.

So let us evaluate the value of what you are selling. As I understand you, you are saying that the “game has already been played” and the winners are known. Beyond that, these winners have today advantages previously unavailable and so they are even more unbeatable in the “game of life”.

True or not, of what value is it to be 100% right about something, say, like the day and time a huge asteroid will hit the Earth in a few and destroy all living things? Sure, a few could spend like crazy knowing they won’t have to pay their creditors, but how much time will they have to enjoy their bounty? And you’re not giving ANY advance notice, so you’re shouting that everything is already a “done deal” and NO ONE can change the outcome.

So we ignore you and continue living as if there is contentment, pleasure and hope still in the world (which happens to be true). Which of us will have the better life and which of us will die miserable?

Since you’re already both without hope and miserable, you want us to be too? No thanks.

Posted by OneOfTheSheep | Report as abusive
 

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