Paul M Foster wrote:
> On Thu, Jul 24, 2003 at 08:22:29PM -0400, John Pedersen wrote:
>
>
>>>Well, I suppose, if you want to frame it that way. But using that
>>>scenario, I don't see that manufacturing a table increases wealth,
>>>unless you do send it overseas.
>>>
>>>But if my dentist takes porcelain, plastic and other raw materials, and
>>>makes me a mouth full of crowns, he's brought something into existence
>>>that didn't exist before. And if it improves my self-confidence, I may
>>>go out and get a better job just because of it. I increased his wealth
>>>and he increased my wealth, though not in a global context. And a
>>>dentist is really a service provider, not a manufacturer.
>>
>>(I'll ignore that bit about improving your confidence--you're
>>reeeeeaaaaching a bit too far on that one! I don't think any
>>economists are doing charts on the productivity factor of nice smiles;-) )
>>
>>Do the math: you had a thousand dollars and the dentist had some
>>porcelain and plastic. He does the work, you give him the thousand
>>dollars. Net increase, in wealth: ZERO. (taking the sum total between
>>the two of you)
>>
>
>
> Only with accrual accounting. With cash accounting, I lost money on the
> deal.
>
> But if you want to look at it that way, any transaction is a net zero. I
> pay Pedersen Products $1000 for a table. I get a $1000 table, Pedersen
> gets $1000. Net zero.
We're not assessing transactions--we're talking about the ACTIVITY of
manufacturing something, vs the activity of performing a service.
After I spend 8 hours making a table, I will have changed the NET
wealth of the entire nation by $900. But after the dentist does his
job on you, the net wealth remains unchanged.
> There are intangibles that have worth as well. I buy an expensive
> membership at an expensive country club, which puts me in contact with
> all manner of expensive people. Because of this, I'm able to land a
> number of deals worth considerably more than the sum I paid for
> membership. Equals increase in wealth.
>
>
>>If you have some lumber, worth $100, and you plane it, fit the
>>dovetail joints, sand it, lacquer it--now it's worth $1000. Net
>>increase in wealth: $900.
>>
>
>
> Wow, you're leaving out a lot of expenses. You're just talking about
> cost of goods. What about labor? What about benefits? Rent? Electricity?
>
> Okay, maybe you're oversimplifying to make a point.
>
> So let's say you spend $800 to make your table and sell it for $1000.
> You made $200 profit. Now let's say that the Foster Travel Agency puts
> together a number of packages for which it pays $800 (including labor
> etc.) and nets $1000. I make $200 profit.
>
> I made the same profit as you, but selling a service rather than
> manufacturing an object. I still fail to see how the table is more
> wealth than the service.
Ok, I'll try one more time. Suppose, at some instant in time, I own
$800 worth of materials for table-making. Now FREEZE the entire
nation--everybody mark time while I go to work for one hour. After I
made my table, EVERYBODY ELSE in the entire nation has EXACTLY the
same assets that they had before, but I have a $1000 table, instead of
$800 worth of materials. NOTE!!!!!! NOBODY, NOBODY in the entire
nation had to get any poorer in order for me to become $200 richer.
Now compare to the case where somebody performs a service. Like your
travel agent that puts together an $800 package. Sure, he can make
$200, BUT ONLY WHEN SOMEBODY ELSE GETS $200 poorer!!!! (In other
words, somebody pays $1000 for the service + $800 package.) NET, in
the nation, no change.
>
>>From an economist point of view, manufacturing increases wealth,
>>service doesn't.
>>
>
>
> Er, not. My best friend's father when I was a kid was an economics
> professor at SMU and later at U Wash. I studied the first year economics
> text he wrote (The Economic Way of Thinking, in case anyone's
> interested). He would not have agreed with you. Anything which can be
> paid for can increase wealth.
Hey, I can only debate one person at a time;-) But if I had to guess,
I would say that you're comparing apples and oranges. Yes, an
INDIVIDUAL can increase his/her wealth by doing anything for which
they get paid. They will be paid by some other individual, whose
wealth will decrease. But the NATION will only have a NET increase in
wealth (assets) if you BUILD something, GROW something, or DIG
something out of the ground.
>>Which is not to say that you can't sell services to China, for
>>example, but it's just not a significant element. You would have to
>>sell over 1 BILLION dollars a day of programming to the Chinese,
>>repeat, PER DAY, to bring the books into balance. I don't think
>>that's going to happen, do you?
>>
>
>
> Again, I haven't figures on goods versus services in international
> trade.
Consider the math. If you provide service at the rate of, say $25 per
hour, $1B per day would take about five million people working full
time. Somehow, I don't think five million Americans are working full
time, at $25 per hour, providing services to China.
>>>As for trade deficit, I confess it's always been a mystery to me why
>>>this is important. I don't see why it's important to keep this in
>>>balance, in the broad scheme of things. I would imagine, for example,
>>>that Japan has a huge trade surplus-- that is, they import much less
>>>(value) than they export. And yet, until recently, they had one of the
>>>most tremendous economies in the world. And I kinda doubt that the fall
>>>of their economy is caused directly by their trade deficits.
>>
>>Actually, Japan is a GREAT example. We are following in their
>>footsteps exactly. They USED to be great manufacturers and exporters.
>> Then they decided that they would tranfer their manufacturing to the
>>other Asian tigers (as their standard of living increased, the other
>>countries offered cheaper labor). Next, when their economy started
>>going down the toilet, they embarked on the path of printing money,
>>and offering lower and lower interest rates in order to "grease the
>>wheels" of their faltering economy. Eventually they were giving away
>>money practically interest-free. Sound familiar?
>>
>
>
> Can't comment. I don't know why Japan's economy has faltered. But per
> your example, it's not at all clear that their trade deficit killed
> them.
>
>
>>When you were young, the USA was the worlds greatest creditor nation.
>> As recently as the 1980s we were still in the black. Now, we are
>>the world's largest debtor nation, by miles!
>>
>>I believe the amount now owed to foreigners is something like 3 or 4
>>TRILLION dollars. It's increasing at over a BILLION dollars a day.
>>(There's that trade deficit you were asking about).
>>
>>If you really don't think this is a problem, then why don't we ALL sit
>>down and watch tv all day, and drink beer and watch our big-screen
>>tvs. We can just print up more money, as required, and buy whatever
>>we need. I'm serious--if piling up a deficit isn't a problem, then
>>we're nuts to knock ourselves out at jobs.
>>
>>Here's the problem: If I go to my neighbor and buy his lawnmower, and
>>say, "Mike, I'll give you an IOU for $100, ok?", he might well go
>>along. He might even trade my IOU to his brother, to buy his old 486
>>computer for a firewall. The next day I go to my neighbor again, and
>>buy something else, for an IOU. Etc, etc....
>>
>>Depending on how much my neighbor likes me, sooner or later, there
>>WILL come a time when he starts having doubts about these IOUs. It
>>turns out that I won't redeem the IOUs, because I have nothing of
>>value. The only thing that Mike can do with my IOUs is trade them to
>>others. And his brother, and others, won't take them at face value
>>any more either!
>>
>>At some point, your currency starts to plummet. In the history of
>>man, no country has had a fiat currency (ie, not backed by anything)
>>that did not eventually self-destruct. (and reach a value of zero)
>>
>
>
> You would be correct if that were the case. If the mint printed money
> willy nilly, eventually the money would become worthless. I'm inclined
> to think that the figures on money supply don't support this, though.
I had to hunt around to find you a chart of M3 (below). M1 and M2
don't look any better, but I think M3 is more meaningful. I found
this site that lets you change the years to generate new graphs.
Cute--don't have time to play with it right now, but it looks like fun.
http://www.economagic.com/em-cgi/charter.exe/fedstl/m3sl
> You're suggesting mercantilism as the answer to our economic woes? All
> that does is limit the supply of money. You could pass a law to limit
> the money supply, which would do the same thing. Tying the currency
> supply to the gold supply (or other objects), given a relatively fixed
> supply of gold and an ever-more-productive economy would simply create
> deflation on a scale never imagined.
>
>
>
>>So, I would suggest to you that one reason to worry about a printing
>>press, consumer-driven economy is because of the "reckoning" that WILL
>>come some day. I imagine it will be so painful that the 1929+
>>depression will look like a picnic.
>>
>>But perhaps an even more compelling reason is the immorality (there's
>>that word again;-), of piling up all this debt which will be paid (in
>>one way or another) by children who had no responsibity for it.
>>
>
>
> What debt? If you're talking about trade deficit, I don't see the
> reasoning. Assume for a moment that the US has a trade deficit, and that
> a trade deficit is really a way of saying, "We consume more than we
> produce." How could that be? Unless we had accumulated enough unspent
> wealth to afford to buy all these products. Then the wealth was finally
> spent. That would indicate that some of the wealth formerly housed in
> this country was going elsewhere. At some point, it would equalize.
We might start going around in circles here. What debt?
Specifically, in this case, the money we owe to foreigners. There are
published figures on this--I'm not making it up.
You ask "how can we consume more than we produce?" Ever own a credit
card? It's easy.
> You mentioned that we used to be the world's biggest creditor, and now
> we're the world's biggest debtor. Should we have remained the world's
> biggest creditor forever, or should the debt equalize at some point?
> This reminds me of a principle of physics called entropy. A pendulum
> swing in which there is ebb and flow until there is finally equilibrium.
I don't really see your point here. I've noticed that you think in
terms of economic cycles and variations. I think you should consider
the historical view, and the rise and fall of nations. The British
empire was the one previous, now we are at the peak (heading down) of
the American era, and China will be next. Hey, I don't like it any
more than you do--don't shoot the messenger. As you said earlier, the
decline of a civilization is marked by certain things, like
immorality, laziness, decadence.... I guess we can put our head in
the sand if we choose.
John
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