He’ll probably have to because the employer is going to cut his hours in half so that the employer doesn’t have the backing up inventory and can keep the extra productivity for himself and mitigate the effects of the bad risk he took.
Hypotheticals are not the way to analyze this situation. You need to compute the probability of success versus failure, some probability function for the profits, and see who comes out the best. If you do this and the owner comes out with an expected return of less than minimum wage, the owner is either a nitwit or doing it as a hobby. Chances are the expected return is a lot higher than this. If it is much higher than alternative investment options, than the owner has room to maybe increase his chances of profit by sharing. And remember, no downside risk, because the loss doesn’t get any worse with profit sharing.
The standard of living part is at the other end of the equation. In the widget example productivity doubled, meaning the cost per widget falls. Now the widget-man can afford a widget that previously cost too much.
Take the iPad as a terrible example: Last year the first version cost $500. This year they came out with a snazzy new one (duel core processors, more batter, better screen) but the cost is still the same. Technically speaking, our quality of life improved. For the same $500 we can get a way better iPad.
All this increased productivity gives us the life we have now. A 42" flat panel LCD today costs less than the shitty 26" I bought a couple of years ago.
Ignore inflation for a moment, and consider the dishwasher making the same salary for 10 years. In 2001 I bought a 256mb MP3 player for $100. 5 years ago I bought a 2gig mp3 player for $100. Look at what you can get for $100 now. 16gb with touch screen high resolution video.
But you’ll notice the widget-man doesn’t have to worry about that, he just shows up and gets paid. Someone else has to worry about finding a market for the widget, and selling it for as much as they can. Widget-man gets paid.
And what happens if people don’t want widgets any more? Is the investor required to pay the widget guy forever? Continue giving him a salary to sit next to a powered-down machine?
And I agree 100%. But the middle class isn’t and shouldn’t be made up of general labour. The nature of the job doesn’t allow for it. (and here we’ll have an issue of what is middle class, I think I’m taking it to be more than $30k a year)
But you’re also getting into the classic agriculture issue. It used to take nearly all of our workforce to produce food. Then we got really good at it, designed refrigerated box cars, and allowed people to go off and live their dream of making and buying widgets.
The Restaurant-Failure Myth. And interesting read for those who are curious.
Ditto for the dishwasher. And what is the response to that? Do they employees see it as helping ensure the success of the business? Or do they see it as getting screwed?
Also, to address the point of wages and inflation, let’s pretend inflation is 3% but wages remain steady.
Last year an mp3 player cost $100, meaning this year it costs $103. One might look and say Labour is worse off because now things cost more money.
But if we actually look at what’s going on, the $100 mp3 held 4gigs last year, and it cost $200 for 8gigs. This year the 4gig player is only $50. And for $103 you get 16gigs of video touchscreen.
I’m also not advocating that system, it just happens to be the one we have. I think what most people fail to realize is that if we didn’t keep coming up with crap to buy people wouldn’t keep showing up for work. Salary earned is only valuable is there are things to do with it.
I work to earn money to buy things I want (99% of which is travel). Remove the option to travel and I’m not going to bust my ass day in and day out.
This is something that I’ve noticed with quite a few of my friends that remained childless. There was a point where they didn’t really want or need more money. They reached a point of upper middle class where they didn’t have enough vacation time to use the money they earned. They didn’t need a bigger house or car. They had all the stuff they needed and then began looking at the job they were performing. Some of them took unpaid leave, others scaled back their hours.
Like it or not, jobs are the result of consumerism.
Interesting. I wonder if the common over-estimation has to do with noticing closed restaurants more than open ones, and the effect of the “death location” problem.
The role of capital hasn’t changed very much either and in the past the split between capital and labor was not nearly so favorable to capital as it is today.
A chief reason for income inequality (which seems to be the recurring theme of this thread despite its odd title) was already mentioned in a more aptly-named thread:
Curiously, the resident apologist for capitalism’s excesses seemed to understand the point. Perhaps his memory is selective.
So, only 1% of your income is for non-travel necessities and luxuries. Supposing those needs to be only $40,000/year, that makes your annual income $4,000,000. [DEL]Lucky you!![/DEL] Thank you for being such a hard-working contributor to American greatness.
Listening to this, one might almost think emacknight is unaware that some workers have scaled back their hours involuntarily, and have more pressing concerns than which new consumer electronic device to buy.
Wake up, America! The way you let the fat cats dominate discourse makes me suspect that, despite its rhetoric of freedom, your country is becoming the stereotype of a deluded people.
[QUOTE=septimus]
(from an earlier post) It is straightforward to conclude that unskilled laborers “deserve” far less than their proportional share.
[/QUOTE]
In terms of historical change, our economy is increasingly more dependent on technological advancements and skilled labour.
Consider the act of growing corn. It used to take an entire village. Dozens of people would line up and march down the fields planting and later harvesting the corn. Dozens would sit and shuck. Only to produce a few bushels per acre. And even then, the wealth generated from fields went to the owner, while the labourers earned a base pay for their efforts. Going back to the OP, it was the guy that owned the land who risked crop failure, or cheap Mexican corn flooding the market.
Now, it takes a couple of very skilled farmers and extremely sophisticated equipment to produce considerably much corn per acre.
100 years ago the cost of production was split between material and labour. As technology improved the cost was then split amongst material, labour and technology. Now as markets get more competitive we need to add marketing to the costs. So why shouldn’t labour get squeezed out. They’re playing a smaller and smaller roll.
We also need to look at how labour is divided now, and realize that it used to be unskilled workers. Then it switched to 1 skilled and 9 unskilled. Now it’s 2 skilled and 1 unskilled. The job performed by unskilled labour is still essential, but not nearly as value added as the rest of the players.
No, that’s that wrong way to look at personal finances. Half my income goes to necessities, of the remainder 99% goings to travel. I don’t waste a lot money on new gadgets or fancy cars. So like I said, if you remove the option of luxury goods (which for me is travel), I’ll work half as hard. That’s what capitalism and consumerism do for an economy. If all I had to do was earn enough for my government issued car and apartment it would take me about 15 hours a week, then I’d have to sit around bored for the rest of it.
You’ve said this before. As far as the OP is concerned, this statement represents risk that the workers are taking, which lines up with commissioned sales. Again, they are paid from revenue, if there aren’t enough sales, they aren’t going to be paid to produce.
GM saw sales drop dramatically. So they reduced production to match. Can you think of a reason why they should have continued paying people to produce cars no one wanted?
If hours are scaled back, that represents the opportunity cost they lose not working at a different factory (ie Toyota) who didn’t see sales fall as far. Again, you need to look at the big picture and realize that hours were cut because sales were cut. Again driving home the point that there can’t be job security without sales security.
And yet they continue to be obsessed with new consumer purchases.
That happened long ago when they were convinced the American dream mean two cars in the garage and a chicken in every stove, good luck waking them up now. From 2002 until 2008 people weren’t struggling to make ends meet. They were struggling to keep up with the Jones. The gluttony of foreclosed houses were McMansions that went way beyond necessity.
Like food and clothing. :rolleyes: The people just on this side of homelessness are not standing in line for new iPads.
On the contrary, most of the homes on the foreclosure list near me were condos or very small homes of 1,000 sq. ft or less, not McMansions. These were the homes bought by people who had never been able to buy anything before, and they went for the cheapest places they could get.
Unfortunately they are (no, not specifically iPads). We live in a consumer driving society where it’s not enough to live simply, eating rice and beans, and sewing your own clothes. People want boneless skinnless chicken breasts and processed cereal.
A few months ago I watched a few friends take “The SNAP Challenge.” Their goal was to live off of what food stamps provides, about $4 per day. Each one of them bitched about how bad the food was, but at the end of the week they all had a ton of leftovers. Meanwhile, my job was to produce complete meals for $1.60 (most of which was packaging).
$4 is a damn lot of food, but it won’t include boneless skinnless chicken breasts.
About a decade ago there was an article in Canada about “the new working poor.” It described the life of a kid out of college and how bad things were. $50k a year quickly went to rent, car payments, cell phones, computers, internet, cable, student loans, and eating out.
No, the data doesn’t back that up, and you’re welcomed to prove me wrong*. People were given the opportunity to buy homes without capital. Think about that for a minute. The biggest challenge to go from rent to own was coming up with the downpayment. Between 2002 and 2009 the downpayment was eliminated! The second biggest challenge was not having a sufficient credit score, and then that was eliminated.
The poor in American were given an incredible opportunity to go from renting to owning. But instead of seeking to reduce their costs, they choose to maximize their gains. They chose to get the most loan they could, instead of the best loan they could afford.
NPR had an interview with bankruptcy lawyer that spent his career representing foreclosures. The situation had always been the same, foreclosure occurred after something dramatic like single income family lost their only source of income. After 2005 that changed. He was getting answer like:
“my hours got scaled back”
“I was expecting a bonus this year and didn’t get it.”
“my wife lost her job.”
The mortgages people took between 2002 and 2007 represented their maximum possible payment in order to get the maximum possible house.
If you wonder why this bothers me so much, it’s because my wife and I moved to the US in 2004, and rented a condo while our friends bought townhouses. As recent immigrants we had a credit score of zero, imagine that. So we spent a couple of years renting a one bedroom and saving. During that time people thought we were weird, first because were renting, then because we shared a 1 bedroom, and also because we said about funny.
While renting, our landlord would frequently try to sell us the condo we were in, each year asking for another $10k as prices kept going up. And every time he did it we looked at our cost of living, then checked to see how much of a mortgage that could get us. Each time we concluded the same thing: mortgage plus association fee was more than our rent. So we continued to rent while people continued to think we were weird.
Finally in 2008 the world went to shit and with it house prices and mortage rates. At the same time our landlord raised our rent $100 and tried to sell it to us again. Now when we looked at what we could get for the cost our new rent plus parking there were options. Now we had a credit score that got us a decent rate, and we had a downpayment to avoid mortgage interest. The result: we bought a house that fits us comfortably and our monthly payments went down not up. We could have maxed out our living expenses and bought a house 3 times as large. Instead we looked for a house that fit us.
And even after all the shit that happened in 2007, the mortgage brokers we met with still tried to push us to buy “3 times our income.” We’d ask for $250,000 and they’d say, “we can approve you for $500,000.” But we had no desire to a) spend that munch monthly, or b) live in that large a house.
Were we crazy?
*Foreclose rates for subprime remained consistent while it was foreclosures on prime loans that sky rocketed.
No. You were intelligent, hard-working, motivated, talented and/or lucky.
Where you lose touch is failing to understand that some people are handicapped. In addition to obvious physical handicaps, some people are gullible (whether due to poor genes, poor prenatal nutrition, indoctrination, or whatever). Where progressives often fall out with right-wingers is when the latter gloat “I got mine, suckers! If you’re forfeiting money to banks due to your own stupidity, that’s just a bigger pie for me to share in, Ha Ha!”
My goodness. In America, sometimes it seems there’s more compassion for pet animals than for fellow humans.
And of course some people who are intelligent, hard-working, motivated and talented still suffer in the New Economy, e.g. if their skill can be outsourced. I remember being astounded in the 1990’s (an Era of Prosperity, but Prosperity based on Greed) when a bank manager apologized to me for being unable to perform a simple routine task. The problem was that almost all their employees were part-time – bank didn’t want to pay benefits.
I do agree with you, emacknight, that over-exuberant consumerism is a problem, especially in America. But that’s a discussion for another thread in which you’ll lose many of your right-wing cheerleaders, as there you’re taking a rationalist position.
Costs for material, technology, marketing, these are all different ways of describing the role of capital.
Nobody is taking exception to the fact that the unskilled worker is making less than the skilled worker, peoplea re taking exception to the distribution fo wealth between capital and labor generally.
And doesn’t this mean that the factory worker is taking enterprise risk?
Sorry, I hadn’t realized that a chicken breast was a consumer item, and I also hadn’t realized that there was a crisis due to the overconsumption of healthy food by the working poor. I’m glad we have food stamps, because before they were around a lot more people did go hungry.
I’m waiting for the right to propose replacing them with tax credits - should happen any day now.
About two years ago there was an article in the Times about how bankers said they needed their bonuses because it all went to private schools, nannies, and payments on their million dollar Manhattan condos. Things are tough all over.
Have data on that? Clearly McMansions couldn’t have driven the crisis, since there weren’t that many of them. Of course it depends on what you call a McMansion - I’d hardly think a 1,000 sq ft. house qualifies, even if it goes for $300K.
Yes, foreclosures on prime rate loans did skyrocket, after the recession from the collapse in subprimes drove people who were qualified for them out of work, and as the decline in property values meant they couldn’t sell their houses to perhaps downsize. But they didn’t start the collapse.
Now, who let this terrible thing happen where it never happened before? Did the poor and those not qualified to get a big loan walk into mortgage offices with a gun, demanding one? Did the government force the banks to make the loans, even ones like Countrywide which were not under the programs to give loans to minorities and which did lots of subprime business? Or was it the mortgage companies and the banks who, once they found out they could sell the paper and hide the crap amidst real loans to make the paper AAA? They got high interest rates with supposedly low risk. If you consider yourself an expert on the very topic of this thread, you know that is a disaster in the making.
No, given the low initial rates and the balloon rates after, and that the mortgages were hard to get out of, they represented a concerted effort by the banks to sell mortgages which would maximize their profits. These people have sophisticated models which tell who is a safe risk or not. These do not involve giving mortgages without documentation of pay. The salesmen got their mortgages and the lendees got screwed. Really, have you been asleep the past three years?
Well, good for you. I don’t know where you live, but in the Bay Area lots of young people new to the job market, and with new families, were good and rented, saving their money, only to see themselves getting further and further away from being able to own a house. Some of them got into cheaper houses by moving far away from their jobs, to get screwed when gas prices rose and to see their far away houses fall in value more than ones closer to Silicon Valley.
A house 3X your income is not necessarily a bad deal if you have a stable job with growth potential. But you see that the bankers didn’t really care how much you could realistically afford, but how much they could get out of you. Dopers have reported how their mortgage brokers tried to switch them to subprimes at the last minute, as another example. Now, take innumerate people, who’ve been reading about how owning a house makes them part of the American dream, give them to mortgage brokers who lie about how they can always refi their subprimes because housing prices always go up, and you have a disaster. They sold so many subprimes because there was demand for subprimes from investors, not because house buyers wanted them. Surely you’ve read of people who owned their homes free and clear and who were enticed to take out a subprime loan on them so they would be able to get all that money out of their homes. The airwaves were full of ads for home equity loans, none of which mentioned paying them back.
Sure people shouldn’t be so consumption driven, but when that happened in 2008-9 look how the economy crashed. The very attitude you’re expressing here, that workers don’t deserve a part of productivity growth, has stalled wages and caused people to use credit to make up for it. I suspect everyone would have been better off if some of the wealth was shared - the relatively rich lost more in the market crash than the poor, after all. A more equitable society is good for everyone.
What do you mean by distribution of wealth in that sentence? I interpret it as meaning you think labour deserves more of the profits, since to me wealth comes from profits.
So if you go back to the OP, what you’ll see is that I think profit come from risking capital.
risk -> profit -> wealth
I’m then frustrated (and accused of creating a strawmen) when statement such as your as made, without including the qualifier that you think risk should also distributed between capital and labour. Because to be risk and wealth are one in the same.
So we’re back to the beginning of the debate. Consider the comment before that:
The conclusion I draw after the 2008 recession is that labour isn’t interested in sharing the risk. They don’t want to have their hours scaled back, or make fewer tips, or earn fewer commissions. They want job security, an annual pay raise that matches inflation, and get pissed off if they have to increase productivity. Or if productivity does increase, they then think there should be a bonus to match, regardless of what their role in that was. (this is in reference to the sandwich maker in the other thread). From everything I’ve observed over the past decade, wages in the US need to fall, but good luck convincing unions of that. When unemployment was down around 5% a few years ago wages rose too far too fast. Just like in the dot-com era, they shot up to unsustainable levels. Now they need to return to normal, which means a lot of people will make a lot less.
Hence the need for a thread about understanding risk, so at least I can understand what the hell people are talking about when they say a cashier is investing just as much as the owner. Or that a general labourer invested 15 years in a company.
I know, few people realize that. Americans are trained to expect meat with every meal, “a chicken in every pot.” At $5.50 per pound boneless skinless chicken breasts are a luxury item (and actually costs more than lobster where I’m from). So someone making $20k a year, or getting food stamps (SNAP) goes to the store and wonders why they can’t afford to eat. The answer is that they aren’t smart enough to eat properly. I spent two years teaching low income families how to shop and cook before I got fed up.
The US has the cheapest food in the world, yet no idea what to do with it. I was compared to Scrooge a few posts back, think about that story, a Christmas goose was a big deal, because few people would have meat that often. Except now we’re conditioned to have chicken with every meal.
Low income neighbourhoods have high rates of obesity. It’s not an issue of being able to afford food, it’s an issue of not knowing what to buy or what to do with it. I watched Food Inc. a few months ago and showed a family that went through the McDonalds drive thru every morning because they thought it was cheap, “Just look at all those $1 items.”
Then it shows the family in the grocery store complaining about the cost of an apple. But they had no problem spending $1 on a small soda. The meal at McDonalds costs way more than $4 per person. But it’s advertised as a $1 menu so people think it’s cheap.
Watching middle class educated friends try the SNAP challenge was hilarious because they had no idea how to cook rice, oatmeal, or even a chicken thigh. So then they’d complain how crappy the food was and how shitty/hungry they felt through the day. One of my friends was sitting there with me trying to each a bowl of oatmeal, he complains about how much he hates oatmeal, then complains that he’s got three days left and a lot of oatmeal. Then I told him if he mixes his cooked oatmeal with flour and yeast he’ll have oatmeal brown bread. Which combined with his left over peanut butter is a great breakfast.
Skill is a valuable asset. Without it you will always be worse off.
I’m glad we had it too, I just wish it came with instructions. $4 a day is a damn lot of food, but it won’t buy you boneless skinless chicken breasts with every single meal. What’s even worse, while I’m on the subject, is that a typical breast in the store is nearly 8oz! No one needs 8oz of chicken. Americans have such a warped perversion towards food that they are unhappy and unfull with 2.5-3oz.
I know you’re joking, but it’s the same thing I’m talking about. Poor is a state of mind. I saw a similar article about millionaires in Silicon Vally struggling to make ends meet, and that you needed at least $4million a year to not be poor.
Living pay check to pay check isn’t about the income you earn. I have a lot of friends that are “cash poor” because they don’t know how to cook and eat out every day for lunch. That’s $12 a day they could put to better us. My wife takes leftovers, is she a sucker?
There’s lots, it’s all been done before in the multitude of threads about the crash. I also use the term McMansion loosely, and tend to mean any of the new development from 2002-2007. There weren’t a lot of *modest *houses built during that time. At least in my area new houses weren’t built with 2 bedrooms and 1 bath.
Right, too many 1000sqft houses sold for $300k. You can look for data about the types of homes on the foreclosure list. The key point was that before 2006 McMansions weren’t part of the foreclosure list. It used to be a rare find for a nice house to go up for auction. It wasn’t until (I believe) 2005 that lots of McMansions started being foreclosed on. All the result of middle-class families that had to have 4 bedrooms so there’d be an empty room between them and each of their two kids.
It was all tied in together, not linear the way you think. Subprime loans were always part of the foreclosure rate, I believe upwards of 90%. It wasn’t until house prices stopped going up that prime loans started being foreclosed on, which hadn’t happened since the Depression. Part of that was people buying multiple homes with prime mortgages.
Subprime is the most misused and misunderstood term in the American lexicon today.
Hold that thought, it will be needed in a minute.
Did they hold a gun to anyone’s head?
Last three years? I’ve been well aware of this mess for the past 6 when I first learned what a variable rate mortage was. When a very slimy mortage broker tried to talk me into a mortgage that I could refinance once my house value went up. Am I seriously the only one that followed that with, “what happens if my house value goes down?”
Seriously, did not one single American ask what happens if house prices fall?
I don’t live in the Bay Area, wanna know why? Because I can’t afford it. I don’t live in Manhattan either, wanna know why? I’ll let you guess.
Yup, and now they can.
Right, but there is no such thing as a stable job with growth potential, ever. Lots of people took mortgages on the assumption that they could afford it when they got their pay raise or yearly bonus. Suddenly they didn’t get a bonus and foreclosed on their house. They weren’t subprime borrowers, they were solidly upper-middle-class duel-income families.
So did they put a gun to anyone’s head? I got offered considerably more than I planned to spend, I got offered all kinds of deals. I knew what I could and could not afford.
Yes, am I supposed to feel bad for them? House values doubled and people thought home equity loans were free money. That’s a really stupid thing to do.
Nor should they, that’s up to the moron that signs up for it.
Bullshit, consumerism and over consumption caused people to use credit, unless a gun was put to their head. Every single store I go into offers me a credit card, and for some it seems like free money. Why wait when you can have everything you want right now?
Sure, but that means sharing more risk.
I agree that we need a lot more education about food. But the home economics classes that everyone had to take when I went to junior high, boys and girls, are gone now, because the schools can’t afford them. It is nice to talk about healthy food, but the profit margin on junk is higher, and it gets sold in the relatively small, high rent, markets in poorer areas. We buy boneless skinless breasts for $1.99 / lb all the time. I bet urban markets never have them that cheaply.
So is intelligence. But do you want to abandon people who are neither?
Families living in cars or in homeless shelters don’t just think they are poor.
No houses true. Given the price of real estate and construction during the bubble house builders wanted to maximize the profit from each. But there were plenty of smaller condos built during that time, smaller row houses close to jobs and transportation. Those got clobbered.
I doubt it was 2005. 2007-2008. If you wanted new construction then, 4 bedroom houses were what you had to take. There were some build a block from me. I was not impressed by their layout or quality, but there were no 3 bedroom houses in the development.
What I said. Especially when the higher rates cut in, and the owners could not refinance the way they were told they could.
In a sense they did. There was a major imbalance of experience and confidence. On one side you had a couple who never bought a house before, who weren’t exactly rocket scientists, and whose English was not so great sometimes. (One broker made Spanish speaking couples sign a contract in English.) On the other was a guy in a suit, who understood the business, who had a carefully designed sales pitch telling these people that they deserved a house, it was the way to the American dream, and that they shouldn’t worry about all those terms. You and I have no trouble with this, but the great untapped market was those who wouldn’t have qualified before.
The banking system does not work by giving loans to anyone who asks for one, and then tsk tsking about how dumb they are. It works by giving loans to only those for whom the risk is reasonable. When you can dump the risk on someone else, you don’t have to worry about them defaulting.
Variable rate mortgages are not new. I had one 25 years ago. They were very good when the interest rates were high and going down.
I’m sure some did, but the risk departments of the major banks didn’t. If they had, they wouldn’t have been pushing these loans so hard, and people who weren’t qualified wouldn’t get them.
If you work in the computer business there is no real option. When I wanted to leave Bell Labs, there was no place in NJ to go to. When I moved here, and later wanted to leave Intel, the only impact on me was a somewhat shorter commute. Houses were expensive, even relative to the Princeton area, but it turned out that I bought at the low.
My bonus never counted in my income, nor should it. Over the years reasonable, cost of living, raises make fixed monthly payments more affordable. It is not an unreasonable strategy. That is different from assuming you are getting a 10% raise or a promotion, and banks shouldn’t give out mortgages based on hopes. People are unrealistically optimistic, banks shouldn’t be. But they were.
How about 75 year old widows who can be talked into things? In the old days, the local bank and banker also suffered the consequences when a loan defaulted. These days, they took their big commissions and laughed at the suckers who bought the loans.
You know why they offer you a credit card? Because using their card means they don’t pay to Visa and MasterCard. They can also track purchases and market to you more effectively. And, as I said, if everyone were like me, buying a new car every 12 years whether I need to or not, we’d be in serious trouble. You can’t give raises out of nothing, but you can out of productivity improvements. If the owners keep those for themselves, they shouldn’t complain that no one buys, The holy grail has been to sell to China and India, and has been for 20 years, but it hasn’t worked very well because of their protectionist policies.
You’ve read about the execs of TransOcean, who built the BP platform, getting raises and bonuses because they had their safest year ever, right? Risk? Pull the other one, it has bells on.
At this point I give up.
I have pointed out the fungibility of money, the changes in the relative share of wealth allocable to labor versus capital, the fact that lenders also risk capital and you still insist that your half baked theory is fact.
Yes capital takes risk, that is teh FUNCTION of capital in a capitalistic system, that has ALWAYS been the function of capital in a cpitalistic system. It takes risk in the form of equity and debt. It is the application of labor to capital that results in prduction and over time, labor has enjoyed increased wage levels along with increased productivity.
This allowed labor (with their consumer hats on) to consume at levels commensurate with their productivity and there was a virtuous cycle of economic growth.
Now we have labor being squeezed by capital with the result that labor (in their role as consumer) producing far more than they are able to buy. This results in reduced demand for labor which reduces demand for product and creates a vicious cycle.
To the extent that you believe that the marketplace should be structured to maximize human utility, the first scenario is far more favorable than the second scenario.
That is why we have governments. Governments are not supposed to protect the interests of business except to the extent that those interests are aligned with the interests of the people. What we have today is a system taht is movingm more and more in the direction of protecting markets and businesses to the detriment of people.