Economy Musings III

I was thinking that trickle down economics implies that water flows up, and then from the wealthy at the top it trickles down to the rest of us... 

But a more accurate model is probably something like this.

It flows down, collects in a pool at the bottom... And you need a pump to get the water back at the top so it can continue circulating.

If it doesn't, the fountain dries up. Though it starts at the top, and the pool at the bottom is the last to be affected.

What's strange, though, is that the people who control a pool at the bottom resist and resent like hell any efforts to make sure that pump is working.

It's like they can't see how the whole thing flows, and just focus on keeping their big pool of water untouched. 

Of course, that has consequences. Predictable consequences, like, say, support for socialism when it's clear the current system is leaving them dry.

That's part of why FDR believed he was saving capitalism from itself. 

Unfortunately, some people have to learn that the hard way.

Economy Musings II

I'm not really satisfied with my earlier analogy with farming and mining, mostly because as I delved into them the distinction I was trying to make didn't seem as clear as I thought it did.

Perhaps I was trying too hard to force it to fit.

Stepping away from that for a second, I think what I want to envision is more like this:

Picture one of those lazy rivers, where the water loops around and people float along in inner tubes.

Now, imagine a much bigger and more intricate one, where water may flow into another channel where it turns a water wheel before returning to the main loop.

Now, imagine that this isn't something that was built with water proof walls. Some of the water sometimes seeps into the ground, and flows out.

Also, there are springs in various places where water comes out and adds to the volume of water.

To bring this back to my little economic image - some things are springs, and add volume to the water flowing through the system. Some things are water features that redirect the existing flow. And sometimes, some of the water seeps out into the ground and lessens the volume of water.

It is not quite a closed loop, but we want the flow to circulate around continuously. Most of the volume of water loops around. For the economy to grow, though, we want more springs adding to the volume of water. And we want to reduce the places where water seeps out of the system.

For my farming and mining analogy, when I started it I was basically imagining the typical 'someone gets isekai'd to a wilderness area trope and thinking of how they survive if they can't immediately find civilization.

You basically have to secure water, shelter, and food right away. Generally that means trying to create tools out of anything in your vicinity so that you can hunt and gather food. Farming generally comes next, if you can. Mining is... useful and important for making life easier, but not something you really focus on before food and shelter. At least, not unless you're taking advantage of resources that are easily visible.

It's true that in a modern economy there's startup costs to farming - the cost of the land especially, but also seed, water, and farming equipment.

So in thinking about it more, what I want to distinguish between the circulation of the existing volume of 'water', things that add more 'water' to the flow (like a spring), and things that reduce the volume of 'water' (like dehydration or ground seepage) - where water can sometimes mean the flow of currency, but it's not strictly limited to money because this would also work in a barter based economy. So maybe the flow of economic value? I think I'll leave that to the economists.

I also want to point out that some things occur 'downstream', or later on in the economic flow. Mining is more downstream than farming, since it relies on having a labor pool that doesn't have to spend all it's time farming. Plus having the resources to find veins, dig into the ground for them, etc.

Whether it's a 'spring' or just a water feature that moves around the existing flow depends. I don't know if there's a way to measure the net volume, to see what goes in and what comes out or something...

Again, you'd probably want to talk to a real economist as I'm sure there's somebody out there who's already thought of this.

I suspect the initial raw goods of food production act as springs, overall. I am less certain about all the 'downstream' products that depend on earlier flows.

Posting for Posterity

This was a really engaging speech, and he made some excellent points. 

Economy Musings

 I had two possible topics - on the desire for control and it's role in the poor decision-making of our powers-that-be, and another going over some idle thoughts I'd had about economics.

While I feel like I should write about control, I keep thinking about my little pet theory instead. So here we go:

When talking about economics, we often focus on the flow of money. And, as the term 'flow' implies, we tend to see it as a fluid.

I think I even heard of someone building a model once that simulated that flow (alas, my internet searches get swamped with models of water economics when I search for it). 

It flows in, circulates around, collects in a pool somewhere, flows out... all very fluid descriptors. And we use it mostly to track currency, but it's not necessarily about the flow of money.

To talk about it like water - there's a difference between water pooling somewhere, and a spring adding more water to the system.

Unfortunately, mapping out all the flows is more like trying to capture what 1000 Rube Goldberg machines are doing, all at the same time.

But let's get back to 'adding water to the flow'.

When I really think about it, I wonder how much of it is tied to basic food production like farming, ranching, or fishing.

Hear me out.

A farmer has a bumper crop one year. So they make a little more money than normal, and they use it to buy some new clothes. Eat out at the local restaurant a bit more often. Replace some worn out farm equipment.

And so on, and so forth.

That comes from having a bit more discretionary spending than normal, and it creates a little stimulus. If the entire town had a bumper crop, it can create a town-wide stimulus.

The local restaurant starts needing additional help to keep up with demand. The clothing retailers decide to expand their store. The blacksmith starts making more plows.

Then we get a bad year. A drought. Yields aren't as great, people start tightening their belts and sitting tight.

They don't have the excess funds to eat out with. They'll only replace farm equipment if it's a dire need. They put off any major purchases they can.

And so we have a bit of a depression. 

There are elements of supply and demand, of course. At the same time, people need to eat... so there's always some level of demand. Also for grains and cereals the ability to store most of the product for later means that crop values aren't necessarily dependent on a given year's harvest.

Still, I think there has to be some degree of relationship between a good harvest creating economic stimulus and a bad harvest causing a small depression. It can be affected by international trade, a good harvest when the market is glutted by soy beans means that the return on that increased yield may not return enough profit to create that small stimulus, and so on and so forth. 

I think it's more like - other elements of the Rube Goldberg machine may come back and affect that relationship, but at the heart of it food production can add more 'water' to the economic machine. It's like a spring, pumping more 'water' into the flow.

Now consider a similar scenario, but with a mine. 

First of all, all miners need to eat... and if they're mining they aren't growing their own food. So the industry is already related to agriculture, even if it's only peripherally.

But even if we put aside any correlation between mining production and agriculture, we have to ask the question - 

Who is buying the ore produced? Where is that demand coming from?

There's generally enough of an economy that there's always some low-level of demand. That essential farming equipment, for example.

But then village with a bumper crop has the resources to purchase more and better products. Pots and pans for their kitchens, farming equipment, etc. The blacksmith is working more and more, and needs more metal to keep up with demand.

The real thing is vastly more complicated than my simple little analogies, but the point here is that additional demand for mining product comes from having more people with discretionary spending.

For my earlier question, I would say that food production can act like a spring, adding fluid to the economic model... but mining is more like a windmill downstream from the spring.

Sure, that windmill will influences the region around that part of the stream. Maybe they add in an overflow pool to help regulate the flow of water through the stream, etc.

(In other words, the miners making money may create a 'stimulus' in their village just like the farmers did, but it's a downstream flow. They're shaping how the stream flows through their little area, not necessarily adding more water to the stream like a spring.)

Does a mine produce more 'water', increasing the size of the stream? Or is it just changing up how the existing stream passes through?

Let's try adjusting the 'bumper crop vs drought year' analogy by applying it to the mine. First of all, doing so takes startup capital. (Yeah, yeah... farming does too... but I think the land, seed corn, and farming equipment required to start is less than the land, digging equipment, and labor needed for a mine).

Anyways, they've gotten past all that and find a big vein of ore. They start producing more and more ore...

And on the surface, it looks similar to the farmer's bumper crop. They sell more ore, have more money circulating around, they can create a little local stimulus in the mining village right down the road.

But when we get into the laws of supply and demand - if the demand isn't there, then the price of the ore will go down and so will the profits. Unlike with food, people will not starve to death if they can't get any ore.

There is always some low level of demand for the essentials, of course. Can't make a good plow without metal. But having an increase of supply won't really create more profit unless there's enough demand to keep the prices high. Or you use economies of scale and are able to reduce the cost of production or something.

Like I keep saying, it's complicated.

But back to the ore from a newfound vein in our mine. Where does the demand for more metal come from?

Once you get past the bare necessities, it's people with discretionary spending.

(Yeah, okay... food production can reach the point where supply outstrips demand. Hell, we have government subsidies to discourage doing so. Given that it's essential to living, however, and given we have people around the world who are unable to get enough food, I think this is more an indication of a 'plumbing problem', i.e. something about the way the fluid is circulating around the economic system is causing it get blocked up or clogged and unable to flow. Whether that's because it's the wrong crop, or because of the costs of hiring labor to harvest the crops, or whatever other reason it's snarled up is something I'd leave to the economists to untangle. I just don't think it's truly a case of supply outstripping demand given that we have people around the world who are not getting enough to eat.)

Both of these analogies come pretty close to capitalism's 'means of production'. However...

The means of production are not, in and of themselves, the springs adding 'water' to the economic machine. Some of them may even be used to help shape something downstream, like my watermill analogy above. It's just changing where and how the stream flows.

i.e. to get the capital to start production you have to have 'water' from some other activity, so before you can build your iPhone factory you need to have profits from other parts of the economy. And I suspect if you were able to follow that stream, that it would come back to food production.

I wonder if there's any way to actually study that?

Oh, one more thing - I talk about a spring and downstream, but it's true that this complicated and fluid economic model circulates.

By which I mean that things will loop around and come back to the start. Makes it even harder to tell what is a true 'spring' adding water to the pool, and what is just taking that existing pool and moving it around back to the start.

I do think that one of our current issues is that quite a lot of that 'water' is pooling at the very end. Or top? It flows quite easily to the 1%, who then let it pool in their bank accounts and whatnot, and very little of it is then returning back to the source and circulating through again. Maybe just whatever the banks are loaning out against those stockpiles, assuming it's pooling in a bank in the first place.

Which would be fine, if the spring was producing enough to compensate for that. Otherwise the stream starts drying up, and less and less of it makes it through all those fantastical stops along the way.

On the Economy

I hesitate to say certain things about the economy because I've had enough economic and macroeconomics classes to know just how complicated it is.

To understand that a dollar spent can add more than a dollar's value to the economy (as that dollar goes to the business it was spent at, which will then use that dollar for other things - like hiring another person,or buying more goods for the business, or putting it in a bank which then uses that to loan money to someone else, etc)

And there's entire arguments in the field - Keynesianism, the Austrian school, etc.

So I mostly just suggest talking to the experts. Preferably a diverse set from the various schools of thought, because in the course of their debate you'll probably get a good sense of the pros and cons of your chosen policy.

Still, in the course of my dabbling, there are some things I think are important.

First, and in the stock market especially, the genuine use and purpose gets overwhelmed by the human tendency to game the system.

For example in the value of the stock is supposed to be related to the expected profit. A company does well, it pays out a dividend to it's shareholders, and the value of the stock should be related to that expected payout (though, tbf, that value probably depends on how long you expect to hold the stock. For example, if you expect to hold it for ten years and expect a dividend of $1/share every year then a stock price less than $10/share would give you a profit. Eventually. But if you only expect to hold it for one year you would need to purchase the share for less than $1 to see a profit. Via the dividend that is.)

This isn't considering the value of selling your stock, ofc, which leads to the part where people start gaming the system.

Because instead of valuing the stock based off expected payouts, many people try to value it based off what everyone else values it as. And they all want some secret that will let them buy low and sell high.

Which means that the actual value stops being related to the likely dividend from a company, and instead turns into a game of predicting what everyone else is doing and trying to outguess them.

In other words, we get big dramatic bubbles and price fluctuations related more to specific short term events rather than any solid analysis of what a company should actually be valued at.

It's not that stocks or the stock market are bad per se. It's that the way people use it gets decoupled from it's real purpose, is prone to manipulation, and basically becomes little better than gambling.

Unless you're in it for the long haul, I suppose. Or any other number of caveats I'm sure an economist could tell you.

But I digress.

When I think about the entire economic system, I think about the very basics.

Like, manipulating the money multiplier by adjusting interest rates or what percentage of it's funds a bank needs to keep on hand vs use to lend out to others is all well and good. And again, go find a professional to talk to for that. 

But what is the real source of all that? Where does that first dollar that gets multiplied come from? 

Or if we talk about capitalism and the means of production and businesses making smartphones and all that... Those businesses have to have people buying their goods - at a profit no less - if they are to grow and expand. Or show that there's enough of a market for a competitor to set up shop. 

Obviously, this then turns the focus to consumption, and reminds me of George W Bush and the whole "buy, buy, buy" campaign after 9/11. Except there's a very obvious problem with that, one which I can't believe all these highly educated people miss. 

For consumers to spend, they have to have disposable income. If you want to have consumer spending get you out of a recession, or kick start the economy, or whatever - they need to be making enough money to be able to easily increase their spending.

Having all your income tied up in essentials (your rent or mortgage, a car payment, a student loan, healthcare, plus groceries) gives you very little to spend on anything else. 

I think that's part of why economists have not seen the previously expected increase in unemployment in the cities that raised the minimum wage.

Don't get me wrong - deciding a fair wage is a very situation specific kind of thing, and yes it's entirely possible that at some rates wages will be too high and would make businesses choose not to hire more people and lead to unemployment.

It's just that currently we're so far in the other direction that it goes the other way. It gives more people more disposable income that they spend on more things, giving businesses more profit, etc.

All of which is a fancy way of saying "the shrinking of the middle class is a problem for everyone. The stinginess of businesses refusing to pay fair wages and the way the wealthy hold on obsessively to stockpiles of money ultimately hurts the very economy they claim to value."

Being upset about that is not just sour grapes, or lazy people trying to get unearned wealth. It is drawing attention to a major issue, one that will lead to future problems if not addressed. 

And the obstinate refusal to take it seriously, and to work towards a society with a thriving middle class, is an indicator that all the people currently benefiting from this system so not, frankly, deserve to be where they are. 

Maybe It's a Gen X Thing...

As I am reaching the point where I may have to accept that I won't find a cybersecurity role, I have been considering the alternatives. 

And most of them feel a lot like what is described here . 

"Constantly engaging on social media to keep your name out there is degrading. Constantly pitching yourself is degrading. Constantly sucking up to people who might be able to open up opportunities for you is degrading. Constantly exposing yourself to unsympathetic and even potentially hostile audiences—an inevitable byproduct of becoming better-known, regardless of the quality of your work—is degrading. It makes your life suck. " 

The timing of this article intrigues me, because as I face what I have been calling 'some hard decisions' I am realizing how disgusted I am with the entire rat race.

Perhaps it's just a way of protecting my ego, of not wanting to admit failure. Perhaps it's childish, an adult version of 'then I'll just take my ball and go home'...

But I'm honestly so damn tired of a system that makes us jump through hoops for the slightest bit of security.

Especially one that has empowered the current fools wrecking everything worthwhile.

Like - fuck it. 

If I sell my house, I should be able to pay off any remaining debt and still have a bit of a reserve. Maybe I'll just do something truly worthwhile, like volunteer in a place where the cost of living is really low.

My Spanish is rusty, but if I'm immersed in it I probably would pick it up reasonably fast - I could just, Idk, volunteer to teach kids in Latin America or something.

Get away from this depressing disaster of a society and just focus on doing something worthwhile and meaningful. 

Idk if I'm truly serious or not.

No, that's not quite true. I am serious, but I also have some potential job leads and if things work out there I'm okay with not taking such a drastic step.

I think the key is whatever happens this week. I'm tired of the uncertainty and the desperate search for employment. One week, inshallah.

Whatever comes next will depend on how this coming week goes.

Billionaire Donations By Any Other Name...

Are basically a tax. Right? Giving money to the government is a tax. 

I guess they're actually okay with paying taxes, so long as they get to dictate where the money is spent.