Economics 102

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Economics 102

How the rich get richer and the poor get poorer –and the difficult solution.

Part One: Background Stuff

For the essence of “Economics 101”, please see “the Law of Supply and Demand“.

Any economic system will include certain basic factors. One is “population” –it should be obvious that “demand” cannot exist without population.

Another basic factor is “resources”. While the Law of Supply and Demand largely references “goods” without being highly specific of the definition of that word, here we will note that the word is often (but not always) incorporated into a particular phrase, “finished goods”. We may now define “resources” as “the stuff from which finished goods are made”.

Any particular finished good may have been made from a variety of resources. And because the word “goods” is not always used as part of the phrase “finished goods” –for example, because ordinary rocks could be used/sold as ship-ballast– it is possible for almost all resources to also qualify as “goods” –especially if the definition is stretched a bit.

For example, consider the fact that the traditional process for converting some resources into a finished good involves “labor”. Also consider another phrase that commonly includes “goods”: “goods and services”. Services are very directly labor-related, so, logically, labor is itself a resource, and it is well known that the Law of Supply and Demand can apply to labor as well as to more-ordinary goods –which in turn indicates that labor can be treated like just another member of the overall set of “goods”. (Notes: This article will prefer to categorize labor as a “resource”, and the concept of “non-traditional” will be examined later on in this article.)

It should now be noted that a finished good can itself be a resource. Examples of this abound in the electronics industry, where things like resistors and capacitors, basic components of more-complex devices, are themselves finished goods that were constructed from still-other resources, and sold for general not specific use (unlike, say, the average automobile component). It is because the concept of “resources” appears to be more generic than the concept of “goods” that this article will prefer to include “resources” in the foundations of its chains of reasoning, while “goods” are considered as being derived from resources, whether they qualify as “finished” or not.

Next, it happens that the availability of traditional labor is directly associated with “population”, and leads to a complication, because now population is both a source of “demand” and a source of “supply”. More, it becomes possible to show how that complication can easily lead to economic situations in which the rich get richer and just about everyone else gets poorer (not just the already-poor).

Three more concepts now need to be mentioned/distinguished, “individuals” and “groups” and “organizations”. While any group, such as an entire population, is comprised of individuals, not all groups also qualify as organizations. Organizations exist to accomplish goals that are beyond the capabilities of single individuals. With respect to Economics, many organizations exist to convert resources into goods (and/or convert labor into services, but the generic phrase “convert resources into goods” can include this).

Next, with human nature being what it is, each organization includes an “Authority” or “Boss” responsible for keeping the organization on-track toward achieving its goal. (Sometimes the Boss is itself a group –a “junta” is an example of such– but that distinction makes little difference when such a group is focused on an organization’s goals, so in this article the word “Boss” should be considered more generic than specific.)

Finally, let us focus for a bit on the topic of “wealth” or “riches”. The words can be used in a number of situations; for example, someone who has many friends might be considered “richer” than someone who has few friends. Or, a small neighborhood that has a public park might be considered richer than a large neighborhood that doesn’t. Or, a small city that has museums, an opera house, and a zoo might be considered richer than a large city that doesn’t have those things.

The commonest definition of “riches” involves the word “money”, and that is the definition most relevant to any article about Economics. Money is basically a compact way of representing “effort” (another word for “labor”). Person A generally is willing to put some effort into obtaining some money, because of the knowledge that Person B is equally-generally willing to do the same. Thus, if Person A first acquires some money, it becomes possible to “employ” Person B to put effort into accomplishing something that Person A desires, in exchange for Person A’s money.

Over the course of thousands of years of people interacting with others and exchanging money for effort (or for other things that were laboriously acquired), some people became richer than others. Most of the various ways that happened do not concern us here –for example, someone could get rich just by being lucky, and discovering a place with lots of gold in the rocks. What concerns us here is the fact that to create an organization dedicated to a particular goal, a certain amount of wealth is generally required. And, usually, anyone rich enough to do that becomes the Boss of the organization. Other people, lacking the initial riches, might not be able to do more than become employees….

Part Two: Scenarios

The obtaining of “Profit” is the main goal of most organizations (“businesses”) operating in the realm of Economics and in accordance with the Law of Supply and Demand. Any time some entity (whether an individual or an organization) can buy something for a low price, and sell it for a higher price, the difference qualifies as “profit” (provided that the processes for buying and selling have accounted for all associated expenditures, such as, for example, the cost of water passed through flush-toilets used by customers).

Profits generally allow a business to expand its operations, one way or another. However, there are always limits. For example, a “market”, the realm in which any particular finished good is sold, can become “saturated”, such that (1) an increase in Supply fails to become associated with an increase in Demand, and (2) the organization producing the finished good is offering it at a price that is basically equal to the cost of producing it. It should be obvious that in this situation, it cannot be profitable to expand that particular production-operation!

On the other hand, it can be noted that the organization can remain “in business”, converting resources into finished goods, even if no profit results. So long as it earns enough to meet expenses, the business can continue its operations. Nevertheless, this situation is generally considered to be risky, mostly because we live in an era full of technological changes. Any business not earning a profit will lack the ability to explore options that might, for example, result in a way to reduce its expenses. If some other (competing) business starts using a reduced-cost production method, it will be able to sell finished goods at a price that the no-profit business will be unable to match and survive.

If the no-profit business goes out of business, then the competing business can take advantage of the fact that, “before”, two businesses were selling a Supply of a particular finished good, and “after”, only one is. This is widely considered to be an Excellent Opportunity for the surviving business to raise the price of the finished good, and increase its profits thereby –but it depends on how many other businesses are still in the business of selling that particular finished good.

It might now be obvious that whenever some market approaches saturation, businesses strive to put each other out of business, one way or another. (One alternative: If the competing business with the lower production cost chose to sell finished goods at the same price as the no-profit business, it would be making a profit. The profits could simply be saved-up and used to buy the no-profit business, and close it down.) ANY tactic that can successfully reduce Supply, relative to Demand, can lead to increased profits. The “diamond cartel” is widely known to control a large proportion of the world’s diamond production, and deliberately acts to keep Supply limited (“artificial restriction”), for increased profits.

In many places the artificial restriction of Supply is considered to be unethical and is illegal; various nations have Laws designed to, basically, limit the magnitude of greed exercised by the Bosses of businesses. The fact that organizations such as the diamond cartel continue to exist, and continue to artificially restrict Supply, simply points out the extent to which not all nations agree on this issue (and/or the extent to which the law-makers/enforcers of various nations have been corrupted by (the usually indirect) actions of excessively greedy business organization Bosses).

While the preceding is obviously a way in which the rich might get richer, it is not directly related to making others poorer. In general, the rich tend to pump much of their income back into the overall Economy, thereby directly benefiting others. Some portion of the income of the rich might be saved, but History has shown that as time passes, many accumulations of wealth tend to eventually become distributed, one way or another (it might be divided among several offspring, for example, and subdivided among their offspring…).

Nevertheless, with respect to business Bosses, there appears to be an overall trend supporting the notion that the rich are getting richer, while most other people are getting poorer. Identifying the mechanism behind that trend is the purpose of this article. Why?

Well, here is some text extracted from the Preamble (a single longish sentence) of the U.S. Constitution: “We the people of the United States, in order to … promote the general welfare, … do ordain and establish this Constitution for the United States of America.” (the words not included here do not affect the meaning of the extracted phrases). Basically, the People did not sign up for an Economic System in which the rich get richer and everyone else gets poorer! Therefore, logically, the mechanism causing it needs to be identified, and Laws should be enacted to address the problem. Anything else would be unConstitutional!

A clue to that mechanism was mentioned earlier in this article. Paraphrased: “It becomes possible to show how that complication [population is both a source of demand and a source of supply] can easily lead to economic situations in which the rich get richer and the poor get poorer.”

Let us begin with a very simple Model Economy. In this model, everyone has their needs met. All appropriate members of the population are employed (some as Bosses, while the unemployed are children, of course). Resources are adequate for producing all the finished goods needed by everyone in the model economy. All the markets are saturated, there is no “inflation” (we might also say that prices and wages are “in sync”), all the businesses are managing without making profits, and the overall population count is stable. While this model economy might be called “stagnant” or “boring”, at least nobody is suffering.

Now let’s add some more people into that Model Economy, without changing anything else. Whether the cause is a “population explosion” or “immigration” makes no difference at all, in the long run (because children grow up, and then will mostly seek employment just like immigrants).

The Law of Supply and Demand now tells us that there will be two major consequences to that single change in the model economy. First, more people equals more Demand, and since Supply was not changed, prices of goods will go up. Well, this might be somewhat inconvenient for all the original people in the model economy, but how can the newcomers afford to buy anything?

So, the second thing that the Law of Supply and Demand tells us will happen is: There now exists competition for employment. Each one of those newcomers can seek out a Boss and say, “I’m willing to offer my labor for less than what you are currently paying.” Logically, any Boss who recognizes this is a way to lower the production cost of finished goods, and thereby generate profit, can be expected to hire the newcomer.

Overall, the net result of arbitrarily injecting extra people into the model economy is: Prices go up and wages go down. And Bosses, who hire labor and sell goods, directly benefit from both changes!

We now note that Real Economies are much more complicated than that model economy. For example, it often happens that new businesses will be started, in order to increase the Supply of those more-expensive goods (resulting in prices going back down). And inflation is very real, affecting both prices and wages in a way that can make it difficult to see the degree to which they might become out-of-sync. And of course we still live in an era of rapid technological change; new ways of doing old things, along with brand-new things, are constantly being invented.

On the other hand, it already has been noted how existing businesses have tended to act to restrict Supply –and in this case, thanks to a population increase, it is easy to see how they can profit without having done anything like that –so all they now need do is resist increasing Supply (or at least resist increasing it at the same rate the population increases). There are no Laws against them doing that!

Also, if we look at the evidence of History, we can note that in the 1950s the income of one man working at one job was generally enough to support a family. Today, however, many parents have to both work two jobs each to support a family. What has happened in the intervening years? Answer: The world’s population has approximately tripled, but the global production of resources, used to make goods, has not kept pace. Compared to the 1950s, today’s wage/price ratio for basic goods (food, clothing, shelter) is extremely out-of-sync!

Therefore, Bosses who hire labor and sell goods have been profiting from that mis-match, non-synchronized prices and wages, as population increased faster than resource-production, for over 50 years. They have gotten richer, and just about everyone else has gotten poorer. More than one economist has noted how the “Middle Class” has suffered during that time.

Per the U.S. Constitution, the situation cannot be tolerated. The People did not sign up for an economic system in which the rich get richer and everyone else gets poorer!

So, exactly what needs to be done to alleviate the problem? There really are only two fundamental possibilities, and both are sort-of the same thing, stated different ways: (1) Production of resources must be increased at a rate that at least equals the rate of population increase; (2) Population must not be allowed to increase faster than the rate of increase of resources. And both variations on the theme have significant problems.

The problem with (1) is known as “environmentalism”, but a simple way to think about part of that concept is to focus on the words “psychology” and “biomass”. It is known that the psychological health of people can be enhanced through exposure to various natural things, such as forests and flowers and birds and whales. Logically, the more people that exist, the more that those other things need to exist, for our psychological health.

However, “biomass” is the totality of organic matter on the planet, and it is relatively fixed in quantity. This means that the more biomass is converted into human bodies (and their food supplies such as croplands and grazing animals), the less biomass is available for trees, flowers, birds, whales, etc. Environmentalists strive to protect those things, and while they know about the psychological benefits, they are mostly not thinking about biomass. It is basically Mathematically Impossible for the world’s population to increase without those other things decreasing –biomass is a resource, see?

So, the problem with (1) is that in order to increase production of resources, one of the direct casualties will be the world’s remaining biomass, with collateral damage in the form of poorer psychological health for the human population –and that doesn’t even count the effects of pollution on the world’s life-forms (a completely different aspect of environmentalism), including humans and human physical health, as production of other resources gets increased!

The problem with (2) is that for many thousands of years people have been urged to “be fruitful and multiply”. Even though we have done that thing, and even over-done it, the urgings persist. It is almost as if people have been brain-washed to not only think they have a “right to breed”, but they have a duty to breed. Well, do they really (have either of those things)?

With respect to “duty”, it could be noted that the USA is a nation of immigrants and descendants of immigrants. It is not impossible to think that if nobody in the USA had any children, but the doors to immigration were opened wide, with earning-of-citizenship required for all of them, then the USA could survive just fine in the long run, with no births whatsoever! Strike off the notion that there is a “duty to breed”, therefore, at least in the USA.

The “right to breed” notion is trickier. We do have “right to liberty”, which includes freedom to do many things, breeding included. On the other hand, raising a child is an expensive thing to do, and there is an expectation that anyone who breeds should support their offspring. It is often considered socially unacceptable to breed and expect others to pay the bills (see the “octomom” for a specific example).

The implication, then, is that a “right to breed” actually exists in the USA only to the extent that one is rich enough to afford it –or daring enough to defy the social convention, expecting others to pay the costs. We might now note that in quite a few nations where the rich have been getting richer, and everyone else getting poorer, birth rates have dropped significantly. People are not generally acting as if the natural biological drive to breed is equal to a “right to breed”!

Per the Law of Supply and Demand, we could expect that trend to continue, so long as population grows faster than the rate of production of resources. On the other hand, it is quite logical to expect that if resources were increased enough, the prices of goods would come down and more people would think they could afford to breed. There are two major Historical events supporting this.

First was the “Black Death” in Europe in the 1300s. A disease killed about 1/3 the population of the continent –and that meant 3/3 of the resources of the continent fell under the control of 2/3 the population. The old “feudal” social system (which included a fairly static population level) was destroyed, the Renaissance began, new resources began being exploited –and after the continent’s population recovered, it continued to grow.

Second was the colonization of the Western Hemisphere, especially North America. The native population did not make use of as many types of resources as the newcomers, whose population exploded. We can be quite sure that the natives would have been overrun even if a large percentage had not died from diseases brought over with the Europeans.

The pre-Renaissance events hint that an alternative to increasing the production of resources is to promote more birth control, possibly even to the extent that population begins to drop. One way of looking at that alternative is to ask, “Which is more important, quantity of human life, or quality of human life?” If “quantity” is the answer, then we need do nothing, because it is happening without any assistance whatsoever (global population is increasing by roughly 80 million every year).

But if the answer is “quality”, then we need to pay attention to such things as psychological health (we need those trees, birds, etc!) and physical health (pollution cannot be allowed to increase) –both of which argue against increasing the rate of resource-production. The only way left at this time for the overall population to become richer, and have a better quality of life, relative to any chosen constant/fixed rate-of-production of resources, is for the total population to drop.

Logically, some sort of Balance should exist, between population and resources. Finding that balance-point is not a goal of this article, but recognizing it needs to exist is a goal of this article. Because the current economic system is one that encourages an imbalance between population growth and resource production, leading to the rich getting richer while just about everyone else gets poorer. And the People did not sign up for that!

While Logic might specify a need for today’s world population to stabilize and even decrease, things could well be different in the future, because of continuing technological advancements. It should be possible for population to start increasing again without a loss of quality-of-life. That’s because we can expect new ways to be developed, for processing raw materials, that reduce pollution to little more than “waste heat“. For example, if some particular resource-production is now/today associated with some X amount of pollution, then an improved process could allow resource production to increase, before the same X level of pollution is produced again. It is that greater production of resources that can allow quantity-of-life to increase without sacrificing quality-of-life.

It is now time to consider the subject of “non-traditional labor”, as promised near the beginning of this article. It first began to exist in the form of “power machinery” that could do the “grunt labor” of many human workers. Those workers had to seek other jobs –and they were mostly able to succeed because those machines could only be built (and serviced) using specialized labor.

The second stage of non-traditional labor began to exist as a result of “automation” —some types of specialized labor were replaced, while other types opened up (the automatic-production machines were even more complex than the grunt-work machines).

The third stage of non-traditional labor has been under development for a few decades, and is starting to make waves in various industries. This stage involves robots that are as physically capable of specialized work as any human. They will even be able to construct and service each other, practically eliminating a need for specialized human workers in those industries. We should expect that, eventually, robots will be able to replace humans in all “service” type jobs, as well. Bosses like the new machines because they are associated with a significant reduction in the cost of producing finished goods (profits can go up).

However, the Bosses don’t seem to be thinking about the fact that without jobs, nobody will be able to buy those robotically-produced finished goods (profits will go down)! It is obviously very important that all workers who become displaced by robots will need to have some sort of alternative work they can be paid to accomplish….

At the present time, there is still room in the realm of “mental creativity” for people to accomplish things and earn money. Unfortunately, advances in Artificial Intelligence research is already yielding results hinting that labor in the field of mental creativity could be usurped, also. On the other hand, Mathematical Research has given us “Gödel’s Proof”, which can be interpreted as indicating that the field of mental creativity can never be exhausted….

Finale

In closing it is now appropriate to imagine what Laws might be passed in order to alleviate the problem of the rich getting richer while everyone else gets poorer. The following list should be treated like the results of a “brainstorming session”, in which ideas are tossed out no matter how bizarre. Each notion might make a certain amount of sense from a certain point of view, but might qualify as “horrible” from some other point of view (at the start of this article, the solution was called “difficult”).

(1) To the extent that various resources can be increased without degrading the biosphere, Laws should be passed to encourage or even require it.

(2) The most fundamental physical resource is “energy”. With enough cheap energy available, every garbage dump can be converted into a resource. Even the toxic waste products of various industrial processes could be converted into useful and non-dangerous things, so long as enough cheap energy is available. Logically, then, we need Laws to greatly encourage development of more energy sources, such as, for example, nuclear fusion and space-based solar power.

(3) Since the population-vs-resources issue is a global problem, the USA cannot be expected to be a “dump” for people breeding like mindless animals in other countries. Immigration into the USA should be basically curtailed until after the population-vs-resources problem is solved. Illegal immigration should be a capital offense, but mostly as a deterrent; only a few executions should result in a huge drop in illegal immigration.

(4) Suicide should be tolerated (but not encouraged), and assisted suicide should be legal everywhere.

(5) Fully legalize and tax all addictive drugs, and ensure they are properly warning-labeled. Also ensure there are easily-accessible places where people can publicly imbibe and recuperate (we don’t want them driving while impaired, of course). The death rate from drug overdoses might not go down, but the death rate from improperly prepared/purified drugs would definitely go down. Also, this will strike a major blow against organized crime, and raise money that might be used to reward people for not having children.

(6) If it is Formally Recognized that there is no such thing as a “fundamental right to breed”, then it logically follows that breeding is a privilege that must be earned, by being able to support offspring. (In a way, that is the situation for every other species in Nature; insufficiently supported offspring tend to die.) Political “conservatives” who oppose Welfare (on the grounds that Person A should not be required to pay for what Person B wants) should appreciate this.

(7) Import a modified version of a Chinese policy, in which many children are associated with taxes, not tax breaks. It is a well-known principle in Economics that taxes can put a damper on many types of activities (which can even include addictive-drug use).

(8) An “ecological niche” is any environment in which an organism can survive and successfully reproduce. Starvation happens whenever there are more organisms than the niche can support. For decades the USA and other nations have assisted various overpopulated places with food shipments –but the net effect has simply been this: Those shipments allowed those populations to survive and successfully reproduce, leading to an even greater need for food shipments. Almost nothing was ever done to discourage their breeding! This leads us to a dilemma, in which it would be considered unethical to simply stop helping starving people. But suppose the food we gave them was deliberately and publicly laced with birth-control substances? If the recipients want to breed, all they need do is obtain food from other sources… and if they can afford to do that, then they would have earned as much right to breed as anyone else!

(9) There is a song that mentions Davy Crockett killing a bear when he was 3 years old. This implies that with appropriate education, any child that age or older should be able to handle a gun safely. Suppose “gun education” was mandatory in the schools, after which every trained person was required to always carry a gun in public. Logically, anyone who tried to go on a crazy shooting spree would be outnumbered/outgunned and quickly killed. There would be no more massacres like happened in Newtown, Connecticut –but population would drop slightly as hotheads and wackos designated themselves for elimination. In the History of the Old West, where large numbers of adults were constantly armed, people tended to be very polite to each other….

(10) Formal dueling could be allowed again. Bosses might think twice about implementing greedy policies that increase the suffering of employees.

(11) Science Fiction includes many stories in which efforts to control population encompassed such things as mandatory abortions. Some of those stories could be interpreted as “defending the idea that there is such a thing as a right to breed”. Most of the stories recognize that an unborn human is innocent of the actions of its parents. Logically, then, the thing to do is to allow the child to be born, but if the parents had that child without being able to afford raising it, the child should be put up for adoption and both parents, the guilty parties, should be executed. As with the illegal-immigration deterrent, just a few executions should result in a huge drop in unaffordable births.

(12) Voluntary abortions, at any stage of pregnancy, should be totally legalized and made easy to obtain. This does not contradict the “innocent of parental actions” thing in the prior paragraph, because here a completely different topic, “personhood”, is relevant. (Also, this is about voluntary not mandatory abortions.) Note that the U.S. Constitution requires a that Census of all Persons be conducted every decade, and in no Census, including the first in 1790 where the Founding Fathers (a.k.a. “gentlemen farmers”) were there to guide us through this issue, have any unborn humans ever been counted as Persons. It would be as stupid as counting chickens before they hatched (every miscarriage or stillbirth would throw the Census Count off!). Also, Science has the Last Word on the personhood issue; simply study the topics of “normal brain development after birth” and “feral child” to understand that the Default Natural State For Humanity, in the absence of the cultural stimuli that causes some of that brain development, is to be “clever animals”, not persons. That is, personhood is an acquired trait, not an inherent trait, for humans. Therefore, per both Law and Science, an abortion at any stage of pregnancy only kills an animal organism, not a person.

(13) It might now be noted that the political conservatives who oppose abortion include many Bosses who know all about the Law of Supply and Demand; is it not obvious that they are basically trying, by forcing extra population/Demand to exist, to help themselves get richer while making everyone else poorer? Since the People did not sign up for such an economic system, it follows that those efforts of political conservatives are totally unConstitutional! Worse, their efforts are also hypocritical, because they want other people (parents of unwanted children) to pay for what the political conservatives want (extra births)! In terms of an Appropriate Law, then, the thing to do is to create a Registry of Abortion Opponents, and specially tax them, so that funds become available to pay for the prenatal care of the unborn that would be saved from abortion, and for 18 years of rearing the resulting children. (Even though this creates an ecological niche that can only last until the funds of abortion opponents are drained dry, after which they could be executed for being unable to afford more children being born… Please note that nothing in this bizarre notion says they can’t be allowed to change their minds, regarding opposing abortion!)

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