You really should take some basic economics and accounting classes. I’m not saying this to be mean. It’s just a good idea to have a basic understanding of how businesses and the economy works.
Companies are not “propped up” by investor credit. They are initially but in the long run, a company must be self sustaining (investors like to get their money back).
Where money comes from - The short answer is ‘banks’. Banks lend out money with the expectation that it will be paid back with interest. Banks also have the ability to lend out many times the amount they keep in reserve. The Federal Reserve adjusts how much money (loans) are created through it’s ability to set interest rates and the reserve requirements (% of loans a bank must be able to back with actual money(deposits)). Basically the system works pretty well unless everyone wants their money at once.
Population generally increases unless something unpleasent happens (plague, famine, war).
The economy is cyclycal. Companies and industries do grow, peak, and decline.
More or less. But every little gadget, game, toy, piece of furtiture or vehicle that makes our life easier or more enjoyable helps contribute to our overall standard of living. It all has to be made by someone.
Reliance on population - The population is what drives the economy. The economy is an expression of the needs and wants of the people living in it. The economy doesn’t grow so IBM stock will increase. It grows to meet the endless needs and wants of the population. The reason we want it to grow is so that we can all enjoy a better standard of living.
The reason population reductions cause economic downturn is that companies loose their revenue base while facing increased labor costs. Eventually they will adjust to the new population levels but it causes a lot of problems. It’s wasteful having factories run at 40% capacity or buildings at 50% occupancy.
[qupte]** You really should take some basic economics and accounting classes. I’m not saying this to be mean. It’s just a good idea to have a basic understanding of how businesses and the economy works.**
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Well fair enough, though due to my economics, I’ll take my classes in GD…
You still haven’t addressed my query about a consumer-based society being largely supported by (potentially) finite resources though.
Don’t know whether your public library gets American books. I recommend Thomas Sowell’s Basic Economics: A Citizen’s Guide to the Economy and Susan Lee’s Abz’s of Money and Finance, by Susan Lee (of course). Both books are short, well-written and to the point. Lee’s book is availble in paperback for around $8.
The answer to to consumer based society being based on potentially finite resources is that most resources have alternatives. If the resources is being used up it grow scarce and it price goes up. The high price then causes people to usemore of the alternative and less of the scarce resource. In this way the market is self correcting and robust. Also technology improves leading to more resources being recoverable and being able to use less to do more. Fourty years ago being were concerned about being able to grow enough food to feed the US and were predicting mass starvation by the 1980s. However, because of productivity improvements there are less farmers and fewer acres being farmed in the US and there is a huge problem with too much food.
The laws of supply and demand are based on scarce (and finite) resources. The more scarce something becomes, the more expensive it is. The more expensive something becomes, fewer people want or can buy it and are forced to seek alternatives. Take oil for example. Right now, oil is relatively cheap so people can afford to drive big gas guzzler SUVs. If gas was 3x as expensive, you would see a lot more people driving little economy cars. Alternatives energy or electric cars would seem like a more cost effective option.
[qiote]**The laws of supply and demand are based on scarce (and finite) resources. **
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Which is the thing that’s worrying me. Regardless of how well the market copes with scarcity/extinction of various resources, doesn’t it worry you that scarcity/extinction is built into the system?
Just to add to msmith’s argument, I suggest finding a copy of Julian Simon’s “State of Humanity.” It makes a compelling statistical case that backs up exactly what msmith is saying, and argues that basically on every indicator of human happiness and economic production, the trend of history since the Industrial Revolution is unambiguously a postive one, with good reason to think that the mechanisms that buffered it before will do so again as we switch to new fuel sources as old ones are priced out.
Simon is a real character, and even if you don’t agree with him, his position is worth considering. He rejects utterly the idea that more people is a bad thing. More people may mean more problems, but it also means more minds to solve those problems, if properly situated in society that allows them to make use of their ingenuity and innovation. e argues that the real solution to our problems doesn’t lie in limiting the population (or even the population density), but in liberating and enabling people.
Another component of that argument is that the more people there are, to more geniuses there will be in any given generation. The contribution of geniuses by far outstrips the cost of a larger population necessary to get them (it only takes a single bright guy to figure out how to double the food supply of the entire world or discover an entirely new source of energy).
Which is the thing that’s worrying me. Regardless of how well the market copes with scarcity/extinction of various resources, doesn’t it worry you that scarcity/extinction is built into the system? **
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Not really. Look. It’s not like there is a finite amount of resources. Will we ever run out of wind power? Solar power? Water (remember that 2/3 of the Earth is water and it doesn’t actually get used up, just recirculated)? As we start to run out of non-renewable sources of energy, economic forced will compell us to turn to renewable sources. Technology allows us to utilize pump water from further away or desalinate the oceans. If you asked someone 1000 years ago if the Earth could support a population of billions, it would have seemed ridiculous.
You should be worried about a system where scarity is not built into the system. Such a system would set some arbitrary price to make everyone happy and then we would burn through resources as quickly as we could dig them up. It’s the whole reason that communism sucks and anyone who believes in it is considered a crackpot.
This is true up until a point. As education and standards of living increase, people on average have fewer children. At some point the number of children had (I think the magic number is like 1.3 per couple) will only maintain the population, and eventually, the population numbers will start to recede. This is already happening in russia, and I believe also in Italy and Spain. I also read somewhere (i believe here) that if you take away the imigration numbers the same has happened here in America.
Which brings me back to the first point - rephrased - if a growth-based economy demands that a population continually increases, clearly there will be a point where a country has to say “we’re full now”. What then?
A lot of (right wing) politicians allready now say “we’re full”. Of course those are no economical reasons. Unfortunately there is even some truth to it. Can you imagine France to be a melting pot of nations? Or Germany for that matter? Economy might be good, but those who will be at the very bottom of society - and there’ll allways be some - will be very susceptible for right wing nationalistic bullshit. So we have economic growth at the expense of riots?
Your model if flawed. First, a company doesn’t need to keep increasing its profit rate. I’ve seen no evidence whatsoever to back up the idea that the rate of return on stocks has been growing over time.
Second, a firm can increase its profitability by becoming more efficient. It can produce more/better products with the same amount of input.
Third, there is no reason to assume that the market & funds are required to become binding in the long term. Suppose the Earth’s human economy were entirely based on solar energy. Then there would be a maximum limit on energy (low entropy?) available per any given time period. That doesn’t prevent people from producing more efficiently. More efficient production would mean that the economy could still grow. If I can go from 2 hours labor to produce one set of brass knuckles to 1 hour of labor to do so, then I will be able to lower my price. My consumers now have some extra cash to spend elsewhere, either at an existing business or a new one. Regardless, real wealth can still go up, which means that the market can still grow.
So population growth is not required to have an expanding economy. Therefore, more resources are not needed. Note also that even if population were growing, that still wouldn’t imply more raw materials being consumed–a modern cell phone certainly consumes less stuff than a phone from the 1930s.
Most anti-immigration sentiment comes from outright racism, xenophobia or simply a desire not to have to deal with anyone who speaks a diferent language. “They’re stealing our jobs!” people cry. Well, unless you are a migrant worker or a cleaning lady, I’m pretty sure your job is safe. Of course the IT workers are having a hard time right now. But that can be expected after 5 years of irrational industry growth.
