"Most people are in arrested development and cannot use logic." Jacob.
"Competition and capitalism are hated to-day because of their tendency to destroy poverty and privilege." William Hutt
"America is unique in that our economy is totally dependent on global charity." Peter Schiff

Thursday, September 8, 2011

J. B. Say Explains Why We Are in a Recession. Part Two

Time to put our money where our mouth is and explain why all the evils of a recession spring from lack of production.

It's very simple. How do you buy things? With money. How do you get money? By being productive. If you are productive, someone will pay you for your productivity. Which gives you the money to do what you wish. Less productivity means less money for you. Of course, the same applies to everyone else, so that less production all round means less money for everyone all round. [Of course, since the amount of physical money is the same, less money means higher prices. Poverty is thus expressed in less bang for the buck. But that is a nicety. The key thing to grasp is that less production means more poverty, which I am informally calling "less money"]. Thus:
  • ...the demand gradually declines, [This one is easy. Less money for you means you cannot buy as much. Which is by definition decline in demand.]
  • the value of the product is less than the charges of its production; [If people are poor because they did not produce, you have to lower prices so they can afford to buy your stuff. Sometimes you have to lower it so much you have to sell at a loss.]
  • no productive exertion is properly rewarded; [Because nobody has the money to pay you for your exertions.]
  • profits and wages decrease; [Profits decrease because you have to lower prices to make stuff affordable to the poor. As a result of lower profits, you have to pay your workers less.]
  • the employment of capital becomes less advantageous and more hazardous;  [Because you aren't sure people will have the money to buy what you are going to make.]  
  • it is consumed piecemeal, not through extravagance, but through necessity, and because the sources of profit are dried up. [A direct result of your not making enough money.]
  • The labouring classes experience a want of work; [They get fired from their jobs because the employer isn't making a profit. See above.]
  • families before in tolerable circumstances, are more cramped and confined; [Too poor to keep up the mortgage payments.]
  • and those before in difficulties are left altogether destitute. [Because they are even poorer.]
  • Depopulation, [Since people move away from the formerly productive areas, there being no jobs there now.]
  • misery, [a result of poverty]
  • and returning barbarism,  [As Gerald Celente says, when you have nothing to lose, you lose it.]
  • occupy the place of abundance and happiness. [When people had money.]
Now some economists think they have a simpler answer. No need to increase productivity to make everyone richer, just print more money and give it to them. Instant wealth for all, problem solved. That's Ben Bernanke's solution. Is there anyone out there who thinks Zimbabwe's problems were solved with their trillion dollar bills?

Then we have Obama's solution. Borrow money from the Chinese and give it to Americans. He calls it raising the debt ceiling. Instant wealth for all, effortlessly. We leave it to those who have tried this in their personal lives, living on credit cards with no job, to explain the flaw in this solution.

The Marxist solution to making everyone richer is stealing it from the wealthy by force of arms. This is similar to another Obama solution, taxing the rich. I leave it as an exercise to see why this does not increase the wealth of the country as a whole.

Say tells us what Obama should have said in tonight's speech, but didn't [emphasis mine]:

The same principle leads to the conclusion, that the encouragement of mere consumption is no benefit to commerce; for the difficulty lies in supplying the means, not in stimulating the desire of consumption; and we have seen that production alone, furnishes those means. Thus, it is the aim of good government to stimulate production, of bad government to encourage consumption.

And how do you get increased production? Say tells us that too [emphasis mine]:

Such are the concomitants of declining production, which are only to be remedied by frugality, intelligence, activity, and freedom

Frugality means save your money, don't spend it. A good govt would encourage this by staying out of the way and not artificially forcing low interest rates and/or print money. A high interest rate with no inflation means people will save their money in the bank. The bank will lend it to businesses, who will use it to become more productive.

Intelligence includes not being a Keynesian, to begin with. The really intelligent among us will find new ways to be productive. The govt can encourage intelligence by getting out of the way and lowering taxes, especially on profits. This encourages the intelligent to use their noodles to be productive and get rich, which will make us all richer.

Activity means people going out there and making things. Govt can encourage this by getting out of the way and repealing all kinds of restrictive rules and regulations which discourage economic activity.

Freedom means the govt getting out of the way and letting people work if they want to. This means repealing minimum wage laws, which free the workers, and all kinds of impositions any small businessman will tell you about.

Since the govt in the US is doing exactly the opposite of what it should be at every turn, we know what to expect, right? No need to copy that list again.

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