Isn't Surplus a Consequence of Growth?

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RT's picture
RT
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Isn't Surplus a Consequence of Growth?

Hi CM,

What a pleasure it was to discover your site and to find that there are so many here that understand the underlying problem of growth.  It will take me several days to absorb all that is here, which I greatly look forward to.

Therefore it is with caution that I write my first posting here as a contradiction, though perhaps it is more of a question.  Like others here I find myself agreeing with CM's fundamentals, with the one exception being Chapter 5 "Growth vs. Prosperity."  My mantra for the past few decades has been this -- In order to have prosperity, we must have growth.  Unfortunately, growth is exponential, and thereby unsustainable.  This is the great Catch-22 of all economics, for which there is no solution other than to 'permit' Growth bubbles to pop BEFORE they become too big."

I've heard nothing over those past decades to contradict this until I came across CM's Chapter 5.  Even then, there might not be an actual contradiction, except to ask this question -- "Isn't it true that Surplus is a consequence of Growth?  And therefore, it is Growth that is the engine, from which we gain Surplus, which can then be channeled off into either more Growth or more Prosperity?  Growth, being the engine, therefore equals both Prosperity and Surplus in that it contains both as subsets within the Growth bubble?

Furthermore. what happens to that Surplus that was channeled off into Prosperity?  Does it not fuel the Growth of others (eg, the shop keeper from whom you but that shiny new object)?  All of which simply propels the unsustainable Growth bubble?

Shouldn't CM's diagram be more like this:

 

mainecooncat's picture
mainecooncat
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Re: Isn't Surplus a Consequence of Growth?

Hi Rollie,

I'd like to respond at length but don't have the time right now.

However, for a quick, philosophical take on it. Try substituting the word/concept of "prosperity" with "happiness" or "well-being."

We must have economic growth to achieve happiness/well-being?

RT's picture
RT
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Re: Isn't Surplus a Consequence of Growth?

Hi mainecooncat,

Thank you for your reply.  Yes, I see your point, though my question is slightly different.  (I am poor at phrasing my questions.)

In CM's Chapter 5 diagram, he shows Surplus at the bottom, which can then be split into either Growth or Prosperity -- as if Surplus magically appears out of nowhere.  Since Surplus is first created by Growth, his diagram is anti-intuitive, as is his conclusion that Growth does not equal Prosperity.  Yes, they are two different things, but only in the sense that Prosperity is a subset of Growth.

For example, let's say that I buy a pair of pedigree dogs and breed them.  I now have a Surplus of dogs.  I can then choose to either sell the dogs for profit (more Growth) or keep the dogs as loving pets (Prosperity).  In this example, CM's analysis seems to say that "Breeding does not equal pets."  

Instead of having Surplus at the bottom of his diagram, shouldn't Growth (breeding) be at the bottom?  The Growth then leads to Surplus.  That Surplus can then be chosen to be divided into either more Growth (buying more breeding pairs) or into Prosperity (keeping as pets).  

It all begins with Growth.  It is all continued by Growth.  Growth is the macro-bubble.  Both Surplus and Prosperity are subsets within Growth.  Since it is then Growth that creates Prosperity, it seems just as odd to say that they don't equal as it does to say that.a Twinkie does not equal its cream filling.

Rollie

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Re: Isn't Surplus a Consequence of Growth?

Truly I think MaineCoonCat said it best.

In the economic vernacular - which is comprised of mostly Keynesian foul language (read: BS) - a surplus usually refers to a trade balance (read: trade imbalance).

Up until the 1970s before we off-shored our manufacturing so we could compete against labor earning 2 bucks a day thereby screwing wages to the floor of hell's cesspool- we manufactured more widgets than we could purchase ourselves. We sold the extra widgets and we had a trade surplus. That accounted for a surplus (savings). And to digress for a second, when we purchased widgets we made we did so with good wages and savings - NOT HELOC or credit card debt. 

With the good jobs went our savings.

Now we borrow from Communist China et al so we can consume their goods. They are our biggest creditor. And, our wages are circa 1973.

You can draw that graphic 9 ways till Sunday but I assure you, in no uncertain terms, is our situation good. The only thing this disaster our genius (read: moron) Keynesian Economist left of a surplus of is stupidity, debt and suffering.  

Even if we had a surplus CM is about the first person I have read that takes into account the mother of all deficits - resources. 6.5 billion people and 3% compounding growth is a recipe for resource depletion. Again, something none of the moron economists ever fathomed. 

For which WE will pay.

romer catching some z's

 

 

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affert
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Re: Isn't Surplus a Consequence of Growth?

No, surplus doesn't come from growth.  Surplus comes from being able to produce more value than you consume.  Growth is one of the things you can *do* with surplus.

For a very small-picture example, imagine a farmer.  He lives on a farm with his mule.  In 1 year, he can grow enough food to feed 2 people for a year.  Which means he can hire someone else to work for him.  

He can have this worker to do 3 things:

1) also be a farmer, in which case the 2 of them will grow 4 years worth of food (while only consuming 2 years worth of food).

2) make beautiful paintings that the farmer will hang in his farm house.

3) be the farmer instead of him.

1) is growth, while 2) and 3) are 'prosperity'.  He can make his business larger or he can use the surplus value to improve his life in some way.

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land2341
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Re: Isn't Surplus a Consequence of Growth?

You can draw that graphic 9 ways till Sunday but I assure you, in no uncertain terms, is our situation good. The only thing this disaster our genius (read: moron) Keynesian Economist left of a surplus of is stupidity, debt and suffering.  

Our great leaders are not Keynesians.  We haven;'t had one of them as Fed Chair in decades.  These guys are all Friedman, von Mises and Hayek  Chicago School free market anything goes people.

Keynes may be wrong on many points,  but it wasn't his school of thought that brought this one down.

 

RT's picture
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Re: Isn't Surplus a Consequence of Growth?

Hi Davos,

Like your pictures.  In your text you seem to be suggesting that the reason why the U.S. economy is collapsing is because of mis-managed surplus.  I contend that it was because we reached our inevitable limits of growth.  The mis-managed surplus is a natural occurrence at this stage of the macro-growth bubble..  This current collapse has been preductable for decades, just as is the next world-wide Depression in another 50-80 years.

If I might take this opportunity to summarize my own broader viewpoints of economics.  Observations that first occurred to me during the early 1980's, while I was considering becoming a stock broker.  (You might remember that the DOW was at 1100 around this time, and de-regulation was in the air).  My premise below focuses on the need for growth.  Feedback on these broader observations will be appreciated:

OVERVIEW:

All economic systems boil down to one thing -- how best to keep the bubble growing.  Keynesian theory being the most blatant, anything goes, just keep the bubble going at any cost.  All other economic theories are just a variation on how best to keep growing the bubble.  

We can confine this observation to Capitalism, though I suspect that this viewpoint of growth is true for all economic systems, even Communism.  I also suggest that this 'desire' to keep the bubble growing at all costs is both irresponsible and the most fundamental immorality a society can impose upon itself.  

Though there is no solution, there is a responsible way to behave -- keep it real.  Let the growth bubbles pop early, at the point that they naturally want to pop.  Never subsidize a company, nor any other micro-bubble.  Always let the macro-bubble pop when needs to naturally.  It hurts, frequently, but only a little each time.  

One always know when an economy has crossed that line is when it stops keeping it real, trying to artificially keep the macro-bubble growing -- such as with Fiat currency and going off the gold standard.  The economy becomes fake, and the still-inevitable crash is only post-poned until the point that it becomes nuclear.  It did not need to be this way.

Those who facilitate this 'at the top' realize that the macro-bubble must inevitably reach the limit of its growth -- but why should they care?  These macro-bubbles tend to last about the length of a human lifespan.  That is likely just a coincidence, though this is an interest topic in its own right, (in another thread).  

The super-rich will have manned plenty of lifeboats by the time the crash occurs.  The masses will take the hit.  Wars will follow to redistribute resources and to inspire the development of new technologies.  The macro-bubble starts all over again. wages plummet back down to 'starting wages,' growth disappears for a while, and once the wars are decided the spoilers start up their own bubbles all over again.  

This is no conspiracy, anymore than is the universal desire to a have prosperity is a conspiracy.   We are all complicit by not taking economic democracy seriously.  We only want MORE, and we only listen to those who promise us more.  The only way to get a handle on this, and to still have a growth-based economy that allows for some prosperity, is if we develop a morality to avoid excessive prosperity -- by keeping the economy real -- by letting the bubbles pop when they want to.  

A realist knows that this is unlikely to ever happen, so this economic 'process' will keep on bubbling along in the same old preductable manner.  At least by understanding the why's and how's, some of us can stay ahead of the game.  Andrew Jackson understood this (for all his foilables) when he eliminated the National Bank in 1836.  By doing so he instantly erased the national debt -- and also severely limited excessive prosperity.  The class of super-rich was contained and kept relatively small.   Growth and prosperity still grew gradually, but annual inflation was ran at only about 0.04% during this period -- until 1913.  At that point the modern industry revolution, the thirst for oil, and World War I ended all of this.  Human civilization was about to enter a period of massive, unparalleled growth bubbles. 

It was thereby easy, for example, to preduce that we were in a house bubble as early as 2000, and that gold would inevitably take off once that end-stage super-bubble brought down the dollar.  Even if one is not interested in investments, at least we can erase our fears by understanding why these growth bubbles and their consequences are so preductable.

THE REASON WHY THIS BUBBLE EXISTS:

It all boils down to the desire for prosperity.  If we did not have this desire, especially the desire for excessive prosperity, then we would all be happy with a no-growth economy.  No growth = no prosperity.   If we want prosperity, then we must have growth.  There must be usury, companies must grow bigger every year just to maintain pace, and the market place (population) must grow as well to service the ever-increasing production, and workers are continuously incentivized by raises.  The pressure for growth comes from every direction.   Once the engine of growth is kick-started, the amount of fuel it requires increases exponentially.  

Growth itself is thereby exponential.  Like a heroin addict who needs an increasingly larger dose just to feel normal.  Growth of 3% per year really means this:  3% the first year, 6% the following year, 9% the following year, 12% the following year, etc.  Eventually the need for growth exceeds the ability to continue growing at that rate.  The system then collapses.  We go into a transitional period, followed by a new macro-bubble beginning.

WHY AND HOW A MACRO-BUBBLE PLAYS OUT THE SAME WAY:

Each macro-growth bubble is fueled by a series of increasingly larger micro-bubbles.  If those micro-bubbles ever stop, the macro-bubble collapses.  Each micro-bubble must be larger than the preceding micro-bubble.  Otherwise it is not growth.  Nothing can grow at this rate forever.  This fact that growth is exponential compounds the responsibility to let the bubbles pop before they get 'too big'.

This economy was exhausted by 1970.  We as a nation were faced with a critical decision at that point:  Either keep it real and let the bubble pop, fall behind, then catch back up, or, -- go fake and super-inflate the bubble with a series of increasingly larger micro-bubbles -- (each of which lasted around eight years, btw).  We all know which way we went, and now come the consequences.  This macro-bubble became so grossly enormous and the crash will be so severe that there will not be a recovery this time for the U.S.  At best, we might maintain second-world status by continuing our colonization of oil-producing countries.  Watch for this to kick into high-gear during the Spring of 2011, when Israel bombs Iran (with the backing of the U.S.).

PUTTING ALL OF THIS INTO PERSPECTIVE WITH A TIMELINE:

1940's - The U.S. suddenly found itself as the only industrialized super-power to still have its factories and ports intact.  One of the most envious positions in human civilization.  

1950's - We were fully in charge of being the unchallenged kings of manufacturing.  Growth was explosive, as was population.  The U.S. needed to help rebuild our allies so that we would have a market for our rampant production.

1960's - Things began to turn.  Japan and Europe had by now re-built and were becoming competing manufacturers.  The U.S.'s ability to keep growing exponentially was becoming more difficult -- while at the same time our need to grow was increasing.  In hindsight, the 1969 moon shot will likely be remembered as the point at which the U.S. peaked.

1970's - Here is where we had that critical decision to make -- either keep it real by letting the macro-bubble naturally pop -- our go fake by letting the other shoe drop on a Fiat system -- we went off the gold standard and the Fed was now freed to inflate at whim.  By the late 70's the bubble-surge brought on by going fully-Fiat system was already wanting to pop again.  We needed an even bigger micro-bubble.

1980's - By now the bubble, and its desire to pop was becoming serious.  This was about the time that it began to dawn on me personally what was happening.  Research on the issue of usury bothered me and questions led to the enclosed observations.  In order to keep the bubble going we immorally decided to de-regulate corporations and let them run at full steam -- with no governor in place any more at all.  Regulations are the masses only defense against explosive growth.  The corporations hired an soothing actor to sell this fakery, and we bought into it.  Why?  Because our universal desire to keep prosperity going at any cost blinded us. 

1990's - Even the de-regulation bubble-surge had run out of steam by now and so -- what the heck -- let's go completely through the looking glass and start buying into iTulips.   The mega-Internet-growth bubble dwarfed even the de-regulation micro-bubble.

2000's - When the Internet bubble burst I thought for sure that that was going to be it -- what can we possibly bubble bigger than that?  Houses!  Of course!  Houses are the single most expensive an item the masses can buy.  We were encouraged to deplete their saving, and were told how wonderful it would be to own a house.  Banks took off almost all restrictions on making loans.  The macro-bubble was by now fully out of control. When it became obvious in 2000 that we were going into a housing bubble -- I personally left the country for Europe, awaiting the inevitable mega-crash from afar.  I'm back now, got homesick, and I now have the corn popping for the final act of the big show.

2010's -- I supported Obama only because of the slight chance that he might be different -- that he might be above being yet another corporate spokesman.  Unfortunately, it is now clear that he fully sides with the banks.  It is just not possible to become a politician in this country without having the support of at least some powerful entities.  There was also the chance that his election would be the last nail in the coffin of the U.S.'s shame of racism.  Alas, we now see the opposite happening.  The Tea Party is looking like the inevitable germ of Fascism that a country always risks running into when a macro-bubble pops.  They know they should be angry -- they just don't yet realize (and likely never will) that the bell tolls for them just as much as the rest of us.

Currently we are in what must be the last micro-bubble -- currency itself.  Please pass the popcorn for 2011.  

Rollie Tesh

 

RT's picture
RT
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Re: Isn't Surplus a Consequence of Growth?

I agree land2341, and also with most everything else I've read here so far.  This site is a wonderful education.  

Keynes was perhaps the strongest advocate of growth-iness, but the Austrian School also is based upon growth, as are all others, you are right.  The real problem is unchecked growth in the first place -- am I right about this?

My observations above on economic fundamentals are long-winded -- sorry about that all.  Any feedback by those you have the patience to read through it will be greatly appreciated.  Please disregard the opening viewpoints on surplus, as my main focus is on the fundamental problem of growth and why macro-bubbles always play out the same approximate manner.

Rollie

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land2341
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Re: Isn't Surplus a Consequence of Growth?

The other way to achieve surplus is to reduce demand.  This can be done in a wide variety of ways:  drought and famine,  plague are good ones,  but so are war,  governmental unrest or disarray and in a pinch you can always commit massive acts of genocide.

Think about this.  Early US government needed more land to deal with land hungry immigrants so they killed off the Native Americans.  One of Hitler's goals was to claim the assets that had been held by the jews in the many countries involved.  Reduce your population dramatically you reduce demand,  reduce your population's ability to buy and you reduce demand.  

Right now in the global economy,  one of the things which drove this bubble and are keeping it from genuinely popping is that there is a surplus.  The surplus is of money.  Bear with me,  what happened when the money began to be concentrated in the hands of a few was not reinvestment in caipatl expenditures (the holy grail of trickle down economic theory)  but the strong desire to invest in stocks and derivatives.  Hands off clean I can sell this if I want to stuff,  no messy, labor intensive building of new companies or factories. All that extra money needed somewhere to go,  so they invented a place - derivatives.   The piece of this bubble that had to do with actual houses was so small that I get very frustrated when I hear people refer to this as a housing crisis.   Home buyers,  and even construction companies were largely pawns in this game.

The problem became clear when not only did they drain the resource pool that fed the growth beast,  but they kept trying to get more growth out of a reduced demand sector.  IE they had drained the middle class of all assets so there was no ability to continue to grow - demand had dried up.  This is still a huge issue.

People are going hungry in this country and we "had to" throw money at the banks to keep them afloat,  but look at them now.  The problem is a surplus at the top that wants to keep getting free money for nothing and a dearth of demand at the bottom because there is no capital.

So I think the direct connection between surplus and growth are not as clear as people act as if they were.  People are using old school economic theory to fix a new economic paradigm.  The old models are not fitting the situation,  the technology, or the financial innovation.  

Sorry, my explanation is also long winded.  And I could also be completely wrong.

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Full Moon
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Re: Isn't Surplus a Consequence of Growth?

  It seems like we have been given just enough rope to hang ourselves .   We got what we wanted....  health and wealth ... now we have taken it too far .

People get soft in all areas when times are too easy . We become spineless jellyfish .  If we study women and men  that show the qualities of perseverance , steadfastness, etc. they are not those that have had it easy .   I think it is like a butterfly ... if we help them out of the cocoon too early it will be to easy and the butterfly will be crippled . The struggle and difficulties make them stronger .  Tough times are important for us to grow ... times have been too easy for to long .

  Rollie ,  thank you for the time line  post .    Buy your popcorn in bulk .. 50 pound bags . ( maybe some dried cheese or sugar to sprinkle on it )    We could very well be seeing  tough times  for a long time .

 FM

 

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