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Is our economic system fundamentally flawed?
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Is our economic system fundamentally flawed?

perseus
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1 of 1 people found this post helpful Posted 04/04/07 - 12:01 AM: Subject: Is our economic system fundamentally flawed?	#1
The Capitalist system encourages us to work hard so as to provide a product or service to someone who will buy it. However, to maximize sales, potential customers of these products need to be deluged with an array of advertisements that feed on their material greed, competitiveness and personal inadequacies so as to convince them into believing they need it. Similarly these customers may be doing exactly the same to someone else so they can afford the product or service. After a while the consumer gets bored and moves on to something else often because its different and in vogue rather than because it works any better. The result of all this is that we don't use technology to provide us with more free time to do what we wish, but to increase production to meet the increased demand. Worse still trading useless material goods or services places unnecessary strain on our environment due to the consumption of vital resources and the waste it produces. Surveys suggest that in the poorest countries, income is a good indicator of well being. However, beyond a certain salary of about $12 000, money provides diminishing returns for happiness. Therefore, in most developed nations the correlation of money with happiness is small with the very rich being only slightly happier than the average person. Even in poorer countries the main reason for unhappiness is not lack of material wealth but jealousy of others who possess it. The Maasai of Africa have virtually no cash income and few possessions except their cattle. But they can meet most of their basic needs, and are not exposed to Western media. In contrast, homeless people in California who often have much greater income than the Maasai are on average not nearly as happy. They don't possess what others around them have, and it requires much greater income to meet basic needs in their society. People in ex-Soviet-bloc countries where the political and economic system disintegrated are amongst the most unhappy of all. I suspect the main reason is not the lack of money but greater exposure to the lifestyle of the West that was previously censored. Thus, income must be considered in the context of people's needs and desires. Therefore, our whole political and economic system misses the target altogether, aiming for unlimited material production and anything else people can be convinced to buy rather than meeting need so as to provide a high quality of life. However, this system will continue unless we can convince people to get their priorities correct and overcome their instinctive greed and consumer delusion driving them on. Is this vision realistic in a human population that has evolved via competitive selfish genes? Even if it is, will it simply allow other political groups dedicated to the materialist path to dominate, especially if these ideas are found to be "subverting" the population and threatening their ideological values of mass consumerism? Edited by Landlady on 01/22/08 - 10:28 PM. Reason: removed symbols
The reasonable man adapts himself to the world; the unreasonable man persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man. George Bernard Shaw

Fried Egg
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Posted 04/04/07 - 01:36 AM:	#2
You are right that political systems should not set about maximising economic growth with the assumption that whatever it does to increase production will increase happiness. But you are wrong when you say: "The Capitalist system encourages us to work hard so as to provide a product or service to someone who will buy it. ". The capitalist system does not encourage us to work hard. You must work hard to satisfy the demands of other market participants to the same extent that you would have others satisfy yours. People who don't want much from others don't have to work as hard (for others). I think that whilst it is true that people who have never gotten used to the creature comforts of modern technology will not miss them (obviously), but there are few that, once they have sampled them, would go back. I know that I would not like to have to do without a fridge, freezer and cooker. Not to mention music stereo, tv and computer. Are people being exploited by advertising that plays on our greed, competitiveness and inadequacies? Maybe, but maybe not. Each individual must judge for himself. I perfer that vastly to the alternative whereby some beuracrats sit in some ivory tower dictating what products we genuinely need and which are superflous.

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Posted 04/04/07 - 10:00 AM:	#3
perseus wrote: Surveys suggest that in the poorest countries, income is a good indicator of well being. However, beyond a certain salary of about $12 000, money provides diminishing returns for happiness. Therefore, in most developed nations the correlation of money with happiness is small with the very rich being only slightly happier than the average person. Even in poorer countries the main reason for unhappiness is not lack of material wealth but jealousy of others who possess it. The Maasai of Africa have virtually no cash income and few possessions except their cattle. But they can meet most of their basic needs, and are not exposed to Western media. In contrast, homeless people in California who often have much greater income than the Maasai are on average not nearly as happy. They don’t possess what others around them have, and it requires much greater income to meet basic needs in their society. People in ex-Soviet-bloc countries where the political and economic system disintegrated are amongst the most unhappy of all. I suspect the main reason is not the lack of money but greater exposure to the lifestyle of the West that was previously censored. Thus, income must be considered in the context of people's needs and desires. I do largely agree with your assessment of rampant consumerism in First World countries and the exploitative role advertising plays in creating that consumerism. However, I very much disagree with your assessment of how "money" or material goods function in the developing world. I wrote my senior honor's thesis in college on economic development issues in Third World countries (specifically on the role government corruption plays in barring that development), and one of the most common factors in undeveloped or currently developing nations was the rich/poor stratification when it came to wealth. And when I say "wealth," I do not mean dollars and cents. I am talking about the means for living. The basic needs that you assume even the poorest of these countries already have are, in fact, the very means for survival that are kept from them due to the wealth stratification I referenced above. You are correct that individual income does not play as large of a role in these countries as it does in countries like the U.S., but income does play a role in the development of these countries if it is distributed fairly by the central government. In many cases it is not, and it results in the destitute conditions we see large majorities of these populations living in every single day. The World bank estimates that 3.8 billion people are living in poverty right now. And by "in poverty," I mean that they live under $2/day. Out of that 3.8 billion, 1.1. billion are living under $1/day. Even if you take into account deflated prices for material goods necessary for survival (food, water, shelter, etc), that is nowhere close to enough to afford one's basic needs. So, if we take your premise that having one's basic needs is the only thing necessary for happiness, then we can see that there are billions of people all over the world who certainly are not happy given that their basic needs are not being met. Many of the countries experiencing this extreme poverty are not capitalist at all, so I do not believe that this particular instance is a unique indictment of the economic system of capitalism. Just my $0.02.
"I am firmly persuaded that a great deal of consciousness, every sort of consciousness, in fact, is a disease." Fyodor Dostoevsky - Notes From Underground

unrealist42
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1 of 1 people found this post helpful Posted 04/04/07 - 05:14 PM:	#4
The economic system is fundamentally flawed, but not for the reasons you mention. The real reson is that without perpetual growth, it would collapse.

altrdperception
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Posted 04/04/07 - 07:16 PM:	#5
perseus wrote: Therefore, our whole political and economic system misses the target altogether, aiming for unlimited material production and anything else people can be convinced to buy rather than meeting need so as to provide a high quality of life. Isn't it up to the individual to provide themselves with a high quality of life? All a "political system" needs to do is protect our liberty, imo. I can only imagine how much better life would be without the government squandering 40% (or however much) of our income. Our political system doesn't (necessarily) aim for unlimited material production, moreso it aims for individuals be free. Its a common thing for people to crave material production, in hopes of improving their lives. Material production is a good thing, especially in an unrestricted free market because then people are going to have access to what they really want Edited by altrdperception on 04/04/07 - 07:30 PM

FreedomEvolvesB9
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Posted 04/04/07 - 09:14 PM:	#6
The System per se, that is, the liberal state with the free market economy, is what Fukuyama saw as Hegel's "World Historic State", and the end of the dialectic of history. The Liberal free market ecomony has soundly triumphed over the command model and is now adopted by otherwise closed societies. The fundamental flaw lies in how we prioritize the bounty of the economic engine. When too many losers in genetic or demographic lotteries are unable to participate in the market, crime rates rise, welfare rolls swell, black markets develop, the tax base shrinks and the nation is less competitive. When a president cuts taxes to benefit the wealthy, instead of allocating funds to bring non-players into the game, it shows an obtuseness in effective prioritization. Of course it's not really obtuseness in this case. Callousness in quest of a libertarian dream of the thankfully aborted "ownership society". Aborted like the rest of this man's unmeritted term.
Our autonomy does not depend on some miraculous suspension of causation, but rather on the processes of education and shared knowledge (Daniel Dennett, "Freedom Evolves". In the name of tolerance we claim the right not to tolerate the intolerant (Sir Karl Popper)

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Posted 04/05/07 - 12:00 AM:	#7
unrealist42 wrote: The economic system is fundamentally flawed, but not for the reasons you mention. The real reson is that without perpetual growth, it would collapse. Could you explain your reasoning behind this claim? FreedomEvolvesB9 The System per se, that is, the liberal state with the free market economy, is what Fukuyama saw as Hegel's "World Historic State", and the end of the dialectic of history. The Liberal free market ecomony has soundly triumphed over the command model and is now adopted by otherwise closed societies. The fundamental flaw lies in how we prioritize the bounty of the economic engine. That isn't a flaw of the free market economy because it is not determined by a free market system how that wealth should be used (or else it wouldn't be free). Once people have earned their wealth, how it should then be used and distributed is another question and if they should not choose to use their wealth in a way that you would regard as proper, that does not make it a flaw in the free market system. When too many losers in genetic or demographic lotteries are unable to participate in the market, crime rates rise, welfare rolls swell, black markets develop, the tax base shrinks and the nation is less competitive. People being unable to participate in the market is not a consequence of a free market economy but rather the regulation and control that that the government exerts over the market.

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Posted 04/06/07 - 02:03 AM:	#8
Yes, Fried Egg. My points were that the flaws were not in the SYSTEM, but in prorites in using the superabundance of a successful system. I'm making a value judgment which I'll stand by. And if you think poverty is tolerable, one can make positivist argument that bringing 3rd and 4th world countries into the market benefits the whole. But I'll take those points up when I the time can email me. I join you with your points on regulation and the overheating of the economic engine. You find a synopsis of Fukuyama's "The End of History and The Last Man". Google should turn one up. It's a modern classic by our leading neoliberal.
Our autonomy does not depend on some miraculous suspension of causation, but rather on the processes of education and shared knowledge (Daniel Dennett, "Freedom Evolves". In the name of tolerance we claim the right not to tolerate the intolerant (Sir Karl Popper)

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Posted 04/07/07 - 10:14 AM:	#9
perseus wrote: The Capitalist system encourages us to work hard so as to provide a product or service to someone who will buy it. However, to maximise sales, potential customers of these products need to be deluged with an array of advertisements that feed on their material greed, competitiveness and personal inadequacies so as to convince them into believing they need it. Similarly these customers may be doing exactly the same to someone else so they can afford the product or service. After a while the consumer gets bored and moves on to something else often because its different and in vogue rather than because it works any better. The result of all this is that we don’t use technology to provide us with more free time to do what we wish, but to increase production to meet the increased demand. Worse still trading useless material goods or services places unnecessary strain on our environment due to the consumption of vital resources and the waste it produces. Surveys suggest that in the poorest countries, income is a good indicator of well being. However, beyond a certain salary of about $12 000, money provides diminishing returns for happiness. Therefore, in most developed nations the correlation of money with happiness is small with the very rich being only slightly happier than the average person. Even in poorer countries the main reason for unhappiness is not lack of material wealth but jealousy of others who possess it. The Maasai of Africa have virtually no cash income and few possessions except their cattle. But they can meet most of their basic needs, and are not exposed to Western media. In contrast, homeless people in California who often have much greater income than the Maasai are on average not nearly as happy. They don’t possess what others around them have, and it requires much greater income to meet basic needs in their society. People in ex-Soviet-bloc countries where the political and economic system disintegrated are amongst the most unhappy of all. I suspect the main reason is not the lack of money but greater exposure to the lifestyle of the West that was previously censored. Thus, income must be considered in the context of people's needs and desires. Therefore, our whole political and economic system misses the target altogether, aiming for unlimited material production and anything else people can be convinced to buy rather than meeting need so as to provide a high quality of life. However, this system will continue unless we can convince people to get their priorities correct and overcome their instinctive greed and consumer delusion driving them on. Is this vision realistic in a human population that has evolved via competitive selfish genes? Even if it is, will it simply allow other political groups dedicated to the materialist path to dominate, especially if these ideas are found to be ‘subverting’ the population and threatening their ideological values of mass consumerism? Let us consider some possibilities. One is that people are happier to the extent their position is superior to others. This can be true, or false, in any society whatsoever. Let us consider another possibility--what position would you prefer to have. Would you rather be poor in a society in which poverty assures survival, or one in which poverty means one will die of starvation? If the former, then you might just prefer a rich society to a poor one, even though in both you will be unhappy--and perhaps equally unhappy if asked to rate your happiness on a scale from 1 to 5. Now consider another possibility. Is it not true that in advanced society it is possible to work less than full time and live? Is it not the case, at least in the US, one can trade off income for leisure? If this is the case, what exactly is your objection--that others do not make the same choice that you do? As to advertisement--let us note that probably over half of what people spend their money on is not particularly subject to advertisement that tries to create a need. For example, housing, mass transit, most foods other than snacks and sweets, furniture, etc, are not subject to advertisements other than those designed to inform us of prices. Why exactly do you think that we spend only because of advertisement? Is it not possible that advertisements only influence, in certain kinds of markets, which things we spend money on, rather than our desire to spend money and have income on the whole?
NBR

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Posted 04/09/07 - 05:29 PM:	#10
Fried Egg wrote: Could you explain your reasoning behind this claim? ... I assume you are familiar with the way money is generated in our modern economic scheme, yes? That money is basically conjured out of thin air by banks? And that once this money is conjured up it becomes real? And that this real money must be repaid to the bank with interest? And that this creates a situation where there is always not enough money to repay all the loans? That more and more money must be loaned so there is enough to retire the old debt and pay the interest on it? And that this expands the amount of money but it is never enough to pay back all the loans and their interest. The only way to avoid economic collapse is for the economy to grow pereptually so that there is always more activity to absorb the necessarily perpetually growing amount of money.

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Posted 04/09/07 - 05:44 PM:	#11
unrealist42 wrote: I assume you are familiar with the way money is generated in our modern economic scheme, yes? That money is basically conjured out of thin air by banks? And that once this money is conjured up it becomes real? And that this real money must be repaid to the bank with interest? And that this creates a situation where there is always not enough money to repay all the loans? That more and more money must be loaned so there is enough to retire the old debt and pay the interest on it? And that this expands the amount of money but it is never enough to pay back all the loans and their interest. The only way to avoid economic collapse is for the economy to grow pereptually so that there is always more activity to absorb the necessarily perpetually growing amount of money. Well, no. there is no reason that borrowing and interest require a growing economy. Imagine an economy that perfectly reproduces itself if 10 percent of all income is invested in capital goods. Let us further imagine that any investment beyond 10 percent in capital goods will produce nothing. Finally let us assume that an investment of less than 10 percent of income in capital goods will result in a smaller income in the next year. I will assert without proof, that in such an economy there will be a positive interest rate, but that no growth will occur if more than 10 percent of income is invested in capital goods. (If less than 10 percent of income is invested in capital goods, then growth in this economy will be possible.) Edited by Nonblack Raven on 04/09/07 - 06:07 PM
NBR

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Posted 04/10/07 - 12:53 AM:	#12
It is people's priorities that are flawed, not the free market economy. In any case, what do you suggest we replace our economic system with? Communism? Increasing everyone's standard of living equally? We all know how well that worked out.

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Posted 04/10/07 - 02:25 PM:	#13
FreedomEvolvesB9 wrote: The fundamental flaw lies in how we prioritize the bounty of the economic engine. When too many losers in genetic or demographic lotteries are unable to participate in the market, crime rates rise, welfare rolls swell, black markets develop, the tax base shrinks and the nation is less competitive This is certainly a problem, but everyone seems to be completely missing the environmental angle. I have just been watching a TV programme by Jonathan Porritt who has just reiterated some of the points I made. As one may expect from an ex director of Friends of the Earth, he argues that consumerism has a dark and destructive side and is in danger of destroying the planet. (Indeed perhaps "consumerism" rather than "capitalism" is more specifically the problem although the two doctrines are closely linked) So there are two issues really; first what economic system will make the average citizen most happy in the short term and secondly what economic system is most beneficial for the planets ecosystem? Perhaps these two issues are inextricably linked in the long term. It certainly seems unfeasible that every individual, including those masses still to be born can achieve the rate of consumption we see in the developed world, even at present rates. Nonblack Raven wrote As to advertisement--let us note that probably over half of what people spend their money on is not particularly subject to advertisement that tries to create a need. For example, housing, mass transit, most foods other than snacks and sweets, furniture, etc, are not subject to advertisements other than those designed to inform us of prices. I am not sure of where you live, but there are plenty adverts in the UK for house builders, estate agents, supermarkets and cars. One of the most frequent and annoying is one for budget sofas. All of these present a lifestyle image and provide little objective information Why exactly do you think that we spend only because of advertisement? Is it not possible that advertisements only influence, in certain kinds of markets, which things we spend money on, rather than our desire to spend money and have income on the whole? This sounds like the argument by tobacco companies that they only wish to obtain a greater market share rather than to increase the market in absolute terms, but I doubt if many take this claim too seriously. Net co-operate growth must be based on selling more rather than just re-distributing it, otherwise it becomes a zero sum game like gambling. Seneca wrote: It is people's priorities that are flawed, not the free market economy. In any case, what do you suggest we replace our economic system with? Communism? Increasing everyone's standard of living equally? We all know how well that worked out. Communism like Capitalism aimed for unlimited economic growth and is no less guilty of economic materialism. Besides I am not completely convinced that these command economies were a total failure in the conventional economic sense. Were not some of the highest economic growth rates in Mao's China, Stalin's Soviet Union and Hitler's Germany who came out of recession faster than those relying more on the free market? What I am suggesting is that something similar to green politics (which claims to be neither right or left leaning) deserves better attention, but not just for environmental reasons but to redefine our personal objectives away from a materialist culture to one of happiness or well being. miss_illuminati wrote: You are correct that individual income does not play as large of a role in these countries as it does in countries like the U.S., Did I not suggest the opposite? From my first post Surveys suggest that in the poorest countries, income is a good indicator of well being. However, beyond a certain salary of about $12 000, money provides diminishing returns for happiness. However in many of the poorer countries there is the additional issue of corruption which is preventing their economies developing at all. Susceptibility to famine is another issue; hence the environmental angle comes into play again. Edited by Landlady on 01/22/08 - 10:31 PM. Reason: removed symbols
The reasonable man adapts himself to the world; the unreasonable man persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man. George Bernard Shaw

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Posted 04/11/07 - 03:33 PM:	#14
Nonblack Raven wrote: Well, no. there is no reason that borrowing and interest require a growing economy. Imagine an economy that perfectly reproduces itself if 10 percent of all income is invested in capital goods. Let us further imagine that any investment beyond 10 percent in capital goods will produce nothing. Finally let us assume that an investment of less than 10 percent of income in capital goods will result in a smaller income in the next year. I will assert without proof, that in such an economy there will be a positive interest rate, but that no growth will occur if more than 10 percent of income is invested in capital goods. (If less than 10 percent of income is invested in capital goods, then growth in this economy will be possible.) Perhaps I misled you a little by using the word economy, sorry. What I was talking about was the monetary system. When the entire money supply is generated by lending money at interest then there will almost always be an insatiable demand for more money than the banks create. To avoid a collapse, the economy must grow at the rate of interest. When it grows at less than the rate of interst, then the perpetually growing money supply will exceed demand and prices will rise. To combat this, banks raise their interest rates to reduce loan demand and slow the excess money flowing into the economy. When the economy grows faster than the interest rate the opposite happens, the perptually growing money supply does not provide enough to finance the demand for old loan repayment and new loan demand so banks lower the interest rate and flood more money into the economy. But, this is tuning the growth of the economy to match the growth of the money supply, not the other way around. The money supply must grow for all loans to be repaid. When it does not, default and bankruptcy become rampant and the economy sinks into a deflationary spiral that takes more and more banks down with it until the entire economy grinds to a halt and the government is overthrown. This is why governments and their central banks are so concerned about economic growth, it is the crutch of the monetary system.

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Posted 04/12/07 - 03:50 AM:	#15
unrealist42 As you know, I am no advocate of the modern western monetary system and yet I do not agree with your analysis. When the entire money supply is generated by lending money at interest then there will almost always be an insatiable demand for more money than the banks create. Why? Excess demand for credit is met with higher interest rates which dampens demand for credit. To avoid a collapse, the economy must grow at the rate of interest. When it grows at less than the rate of interst, then the perpetually growing money supply will exceed demand and prices will rise. To combat this, banks raise their interest rates to reduce loan demand and slow the excess money flowing into the economy. When the economy grows faster than the interest rate the opposite happens, the perptually growing money supply does not provide enough to finance the demand for old loan repayment and new loan demand so banks lower the interest rate and flood more money into the economy. But, this is tuning the growth of the economy to match the growth of the money supply, not the other way around. The money supply must grow for all loans to be repaid. When it does not, default and bankruptcy become rampant and the economy sinks into a deflationary spiral that takes more and more banks down with it until the entire economy grinds to a halt and the government is overthrown. This is why governments and their central banks are so concerned about economic growth, it is the crutch of the monetary system. If there is not enough money to repay all loans, why does economic growth enable them to be met? In any case, the problem here is in our government's mistaken belief that the money supply needs to perpetually grow. Such ideas are belied by decades under the gold standard when the money supply remained near constant and yet we saw substantial growth. No partuicular level of the money supply is superior to any other. What matters is that the supply and demand of credit are brought into balance by letting the markets determine interest rates. No particular level of growth is superior to any other. What matters is how well production is aligned with the desires of consumers.

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Posted 04/12/07 - 02:09 PM:	#16
Fried Egg wrote: unrealist42 ... If there is not enough money to repay all loans, why does economic growth enable them to be met? Economic growth does nothing more than enable the growth of the supply of money without undue dislocation of the entire scheme. In any case, the problem here is in our government's mistaken belief that the money supply needs to perpetually grow. Such ideas are belied by decades under the gold standard when the money supply remained near constant and yet we saw substantial growth. Under the gold standard economic growth was hardly a smooth affair and the only thing that allowed economic growth was growth in the gold supply. This is why new gold strikes created economic booms and lack of new gold devolved into stagnation and widespread economic calamity as loans were unable to be repaid due to a scarcity of money. When all the money, backed by gold, is loaned out with interest, it is impossible for all of the loans to be repaid unless new money enters the economy before these loans come due. Many will default for lack of cash. If they refinance, the difference between money available and due broadens even further making the need for cash even more desperate. Prices drop and a deflationary spiral begins. Then suddenly, a new gold strike!! Gold in California!! the Klondike!!! Nome!! and the entire population rejoices for new money is available to repay old loans and take out new ones. Deflation becomes inflation as this new money floods into the moribund economy and kickstarts the economy. But eventually, the economy absorbs all this new money and slowly slides back to its previous situation of a lack of enough money to repay all loans. No partuicular level of the money supply is superior to any other. What matters is that the supply and demand of credit are brought into balance by letting the markets determine interest rates. No particular level of growth is superior to any other. What matters is how well production is aligned with the desires of consumers. What matters is if the economy can grow at the rate of growth of the money supply which must grow as long as banks make loans at interest. Our modern consumer society was invented to absorb the excess economic growth necessary to keep the monetary system from collapsing. Why else would everything be so disposable?

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Posted 04/13/07 - 01:46 AM:	#17
unrealist42 Under the gold standard economic growth was hardly a smooth affair and the only thing that allowed economic growth was growth in the gold supply. This is why new gold strikes created economic booms and lack of new gold devolved into stagnation and widespread economic calamity as loans were unable to be repaid due to a scarcity of money. That is completely false. There was steady growth throughout most of the period of the classic gold standard (1830-1914) whilst the gold supply remained fairly stable. When all the money, backed by gold, is loaned out with interest, it is impossible for all of the loans to be repaid unless new money enters the economy before these loans come due. Many will default for lack of cash. If they refinance, the difference between money available and due broadens even further making the need for cash even more desperate. Prices drop and a deflationary spiral begins. All the money will not be loaned out because the demand for it will not be that high. In order to loan out all money, interest rates would have to drop to zero (or below). This would not happen so there would be no shortage of cash. Then suddenly, a new gold strike!! Gold in California!! the Klondike!!! Nome!! and the entire population rejoices for new money is available to repay old loans and take out new ones. Deflation becomes inflation as this new money floods into the moribund economy and kickstarts the economy. But eventually, the economy absorbs all this new money and slowly slides back to its previous situation of a lack of enough money to repay all loans. It is productivity increases, not new money, that drives economic growth. Economic growth stimulated purely by new money (as in what we see these days) is unastable and leads to malinvestments which is why we see booms and busts. What matters is if the economy can grow at the rate of growth of the money supply which must grow as long as banks make loans at interest. Imagine an economy with a fixed money supply. Imageine also that a particular amount of money is loaned at interest. If there is no growth in output, those who took out the loans will have less income in the future and those who made the loans will have more. Note how everything balances. No shortage of cash and no economic collapse. All the loaning of money does is redistribute cash, over time, from the debitors to the creditors. How what about if we introduce a growth of output into our model? Is an increase in the money supply necessary now? The same amount of cash is chasing more goods which means prices must go down. As long as prices can adjust, we still have no shortage of cash and no economic collapse. Will we end up in a deflationary spiral? No, because there are two types of deflation. One is induced by a reduction in the money supply and the other is induced by an increase in output. In our model, deflation is induced by an increase in output (with cash levels ramaining the same) so we get no deflationary spiral. There is nothing harmful about this sort of deflation. It is the sort of deflation we see all the time in those markets that achieve substantial productivity increases (i.e. technology products).

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Posted 04/13/07 - 04:26 AM:	#18
Nonblack Raven wrote: Now consider another possibility. Is it not true that in advanced society it is possible to work less than full time and live? Is it not the case, at least in the US, one can trade off income for leisure? If this is the case, what exactly is your objection--that others do not make the same choice that you do? The problem is that people conform to societies views. It was possible (and still is to some extent) to convince some people to suffer intensely in this life in hope of another. Capitalism or consumerism is another of those irrational beliefs where people in search of happiness turn to materialistic solutions simply because most others do, but above a certain salary there is no evidence it works. Moreover nations and political parties are forced to some extent to conform to the forces of Globalization to stop a run on their currency etc. Fried egg and Unrealist42, as fascinating your economic discussion is to many, what relevance does it have to the points and questions I originally raised. Can we apply conventional economic wisdom to a system that may be fundamentally flawed since is assumes that having excessive money and access to more resources than we need is the aim in life? Edited by perseus on 04/13/07 - 04:40 AM
The reasonable man adapts himself to the world; the unreasonable man persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man. George Bernard Shaw

Fried Egg
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Posted 04/14/07 - 12:28 PM:	#19
perseus Fried egg and Unrealist42, as fascinating your economic discussion is to many, what relevance does it have to the points and questions I originally raised. Can we apply conventional economic wisdom to a system that may be fundamentally flawed since is assumes that having excessive money and access to more resources than we need is the aim in life? Money and wealth are not ends in their own right. They are the means to certain other ends. If we have "excessive" amounts of money or wealth, does it guarantee that we'll be able to attain that which will make us happy? Certainly not. But those of us who pursue money and wealth do believe that we'll at least be able to alleviate many of the things that make us unhappy. I really don't believe that happiness is someting that money can buy. But that does not mean that money isn't (or shouldn't be) important. Our economic system may do nothing to make us happier. But is that the purpose of economics? Edited by Fried Egg on 04/14/07 - 12:33 PM

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Posted 04/14/07 - 01:51 PM:	#20
Fried Egg wrote: Our economic system may do nothing to make us happier. But is that the purpose of economics? Actually I didn't say that money couldn't buy happiness, so a form of economics should still be relevant. It is obvious that money (or access to material goods and services) has considerable happiness value up to a certain amount. That amount will vary for different people, but it should be enough to ensure you have a secure food supply, a roof above your head and access to appropriate medical treatment. Beyond that money becomes more illusionary. Does driving a 3 tonne car enable you to do much more than a 1 tonne car? you can only live in one room at a time so what good is a palace except to isolate oneself from society? What use is gold or diamonds? Beyond a certain amount the purpose of money appears to be to impress others and install a feeling of success in oneself. Therefore if we generate an attitude of disgust at extravagance and waste and useless trinkets rather than desire and jealousy, we can kill two birds with one stone. That is provide greater average happiness in accordance with the Utilitarian principle by spreading it around more evenly, and by capping the total wealth provide a sustainable culture with less impact on the Environment. Follow the current economic doctrine where will it all end? Will technology always come to the rescue? How can each of the expected 15 billion people which are predicted to be born possibly drive fast cars, own 2nd homes and travel round the world several times a year when our resources and environment is struggling to support 1 billion?
The reasonable man adapts himself to the world; the unreasonable man persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man. George Bernard Shaw

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Posted 04/15/07 - 12:17 PM:	#21
perseus wrote: ... Fried egg and Unrealist42, as fascinating your economic discussion is to many, what relevance does it have to the points and questions I originally raised. Can we apply conventional economic wisdom to a system that may be fundamentally flawed since is assumes that having excessive money and access to more resources than we need is the aim in life? At some point the world economy's growth will stop. Our current economic system is not designed to deal with that. It requires the excessive consumption of resources to keep the monetary system from collapsing. This requires people to have excessive consumption as thier aim in life. I cannot see how this makes people happier. The shift to sustainability will require a complete reordering of how money is created.

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Posted 04/15/07 - 11:37 PM:	#22
unrealistic wrote: At some point the world economy's growth will stop. Our current economic system is not designed to deal with that. It requires the excessive consumption of resources to keep the monetary system from collapsing. This requires people to have excessive consumption as their aim in life. I cannot see how this makes people happier. The shift to sustainability will require a complete reordering of how money is created. I see what you mean now. Is there any period in history when man had a sustainable yet prosperous economy and if so how did their economy operate? Alternately did each race go through a boom and bust cycle? Interestingly, historians use Easter Island as a parallel for the world today, they had a prosperous but unsustainable economy. After the trees ran out they could not build boats to fish and their race died out since there was no other source of food. Edited by perseus on 04/15/07 - 11:48 PM
The reasonable man adapts himself to the world; the unreasonable man persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man. George Bernard Shaw

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Posted 04/16/07 - 03:58 AM:	#23
The problem is unrealist that, as I have shown, it is not necessary that the money system perpetually expand. Yes, our government's do perpetually expand the money supply, but this is to help fund their ever growing public spending.

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Posted 04/16/07 - 04:03 AM:	#24
perseus wrote: I see what you mean now. Is there any period in history when man had a sustainable yet prosperous economy and if so how did their economy operate? Alternately did each race go through a boom and bust cycle? Interestingly, historians use Easter Island as a parallel for the world today, they had a prosperous but unsustainable economy. After the trees ran out they could not build boats to fish and their race died out since there was no other source of food. I do not know, but presumably the Easter islanders had no well defined concept of property rights? If they had, those who owned the land with trees on would have had far greater incentive to manage the supply so that it did not exhaust itself. Afterall trees, unlike oil, are a renewable resource if managed properly.

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Posted 04/19/07 - 01:27 PM:	#25
Fried Egg wrote: The problem is unrealist that, as I have shown, it is not necessary that the money system perpetually expand. Yes, our government's do perpetually expand the money supply, but this is to help fund their ever growing public spending. Governments do not totally control their central banks which are private enterprises. What the government treasury does is trade interest bearing bonds to the central bank in exchange for cash money. They redeem these bonds with tax revenues. The Federal Reserve Bank holds some 40% of the national debt. The rest if publicly traded. Where does this money come from? The private central bank makes it up from thin air. It is an interesting issue. Why does the government give franchise to print money to a private enterprise? It is in the reserve banks interest that the government be in debt for if the government were not in debt, the reserve bank would be unable to print more money and collect interest on the national debt. It would no longer have taxpayers by the throat. And you wonder why the central bankers say that deficits don't matter and continually push for tax cuts.

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