[KaiserJeep]

Economics Compacted

John Kenneth Fredbraith Speaks

February 7, 2015

This column contains everything there is to know about economics. Hereafter it will be possible to shut down university departments and stop talking about Keynes and the Austrian School, to the great relief of mankind. In gratitude you can send me your children's college funds.

In 1850 people all lived on farms and grew food, which they ate. Eating was really important to them. They liked eating. There was in 1850 tremendous demand for refrigerators and cars, but people didn’t know they wanted these things because they hadn’t been invented. Anyway, they didn’t have any money to buy them with.

Yet the demand was there, crouched to spring. Much demand for almost everything, but little supply.

Then farming automated and people all went to cities to work in factories to make refrigerators and cars, which had been invented. These weren’t as important as food, but they were pretty important. People had a little money now, and bought them. You don’t need advertising to sell what people actually want.

There was lots of demand and getting to be pretty good supply.

Soon the factories were spitting out more than anyone could use of everything that anyone could reasonably want. A family needs only so many refrigerators. Here we encounter the first crucial problem of the modern economy: too much supply and not enough demand.

Yet the factories had to make stuff so people would have jobs, and the people had to buy the stuff so they could keep having factories. Economics is thus the study of the squirrel wheel.

To keep people working and buying, the economy began making things that nobody really needed or would think to want, such as nail salons, electronic gadgets, and designer jeans. To get people to buy these things, the supply of demand had to increase. Advertising came about to manufacture demand for things that, without advertising, no one would buy. Consequently society now depends for existence on pop-ups, singing commercials at twenty minutes to the hour on television, billboards, and Google ads. Advertising thus became more important to the economy than anything it advertised.

Labor

Labor followed a similar pattern. When factories came, they needed lots of people to make the refrigerators and cars. Most work involved digging holes or lifting heavy objects, so the workers didn’t have to be smart or know much.

Automation

Then came the rolling disaster that economists don’t seem to have anticipated: automation. As factories produced the increasingly trivial goods that supported the economy, they needed fewer and fewer workers to make the trivial goods. This raised two questions: Who was going to buy the $450 running shoes that nobody needed except that advertising told them they did, and how were the workers who didn’t have work making them any longer going to get money to buy them? Or to eat?

It became obvious, except to economists, that automation could do just about everything people were paid to do. Just now, someone has invented a burger-maker machine that will presumably replace hundreds of thousands of burger-flippers who aren’t needed anywhere else. Self-driving vehicles approach practicality, and will first replace long-haul truckers and then cabbies and delivery truck drivers. Much worse is in the offing. Here is the second crucial problem of modern economics: Where to put unnecessry people?

The Theory of Increasing Uselessness

A search continues, long quietly underway but now intensified, for ways to keep off the work force people for whom there is no work, or no real work. These are not necessarily lazy, shiftless, or parasitic. They just don’t have anything to do.

Child-labor laws and requirements that people finish high school helped diminish the labor force. Then society told the young that they all needed to go to college, when most of them didn’t, and since the universities served chiefly as holding pens, the quality of education dropped. Universities did however employ professors and administrators. Here was another example of selling at high price something that no one really needed, namely the appearance of education.

Swollen bureaucracies popped up to provide the appearance of work while the purported workers did little that would not better have been left undone. Military enterprise soaked up more people doing nothing that should be done. Exotic fighter planes that would never do anything to justify their existence but bomb remote goat-herds absorbed thousands of engineers and hundreds of billions of dollars. The engineers could as well have been paid for digging holes and filling them in, but this was judged unduly candid.

Finally even these measures ceased to be enough. College graduates began living with their parents and lining up for jobs a Starbucks because there was no need for them anywhere else. Resort was had to outright charity. Thus food stamps, Section Eight housing, free lunches at school, AFDC, and all the other disbursements of free money. Those receiving the free money no longer had any incentive to work even if the opportunity offered. In the cities generation after generation now lived on charity, largely illiterate and in what is never called custodial care. They are simply unnecessary. There is nothing for them to do. So they don’t do anything.

Poverty

In America this is usually a state of mind rather than an economic condition. The allegedly poor have all their time free, a luxury not available to the indentured drones who pay for this leisure. The poor have enough to eat—gobbling Cheetos instead of real food is their choice—and they have access to libraries and parks and museums. Graduate students at the same economic level used to live a life of books, music, illicit substances, and good conversation. The recipients of charity are not economically poor, but mentally empty.

Cognitive Stratification

Meanwhile an elaborate and highly effective system developed for sucking the very bright young from every cranny in the country and sending them to the remaining good universities: SATs, GREs, National Merit, ACT, and suchlike. Here the top two percent in intelligence partied, married, and made babies, not always in that order, and went into brain-intensive trades like Silicon Valley, i-banking, and medicine. As the middle class sank into the lower-middle, the brain babies increasingly formed a thin layer of dominant if not always morally impressive intellects at the top of society.

Increasingly aware of each other thanks to list-serves and web sites for the very smart, they foregathered internationally with their own kind, eschewing contact with the surrounding sea of slugs. (I will bet you are not reading this on a site where the comments are misspelled.) They prospered. Nobody else did. The battle lines were being drawn. Which brings us to:

The Minimum Wage

Conservatives harbor the curious notion that people will work if they don’t have to. This is because to them work, real actual work, is an abstraction with which they have no familiarity. Real work is usually unpleasant or boring. But to economic theorists, work means being a cardiac surgeon, talking head, columnist, or CEO. Thus they say that if we eliminate the minimum wage, black youth (these are always given as examples) will rush to labor for a dollar an hour, learn the trade, rise, and become CEOs. Horatio Alger and all that.

This implies two things: First, that anyone in his right mind would spend eight hours a day flipping burgers for a pittance when he could live on charity in leisure at the same standard, and second, that any employer in his right mind would want to hire semi-literates with bad work habits when, given our current endemic unemployment, he has a choice of much more educated and dependable workers.

In short, if the minimum wage were abolished, the bottom rungs of society would remain unemployed because their labor isn’t worth enough for them to live on, or worth anything at all. The bottom rungs creep upward. When almost everybody is unemployed, we will have to institute communism manque: "To each according to his needs and, from each, nothing much. I will then write The Theory of the Leisure Classes: A Study in Urban Chaos."

There you have it, all of economics in a small package. Buy survival gear.

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The original, along with lots of other columns, is here: http://www.fredoneverything.net/fred-columns.shtml

[GHung]

One word: Twinkies! I always wondered how much we spent in terms of time, labor, bandwidth, money and other resources on the demise and rebirth of Twinkies; not actually producing and consuming them. It's not like we have wars to pay for.

What a world,, where we have such choices.

[KaiserJeep]

After 20 years have passed, Twinkies will still taste better than MRE's.

[GregT]

After 20 years have passed, Twinkies will still taste better than MRE's.

And to think that all of this time, some people believed that Twinkies were a food group.

Thanks for the article KJ. Buy survival gear, and soon.

[SeaGypsy]

Has anyone not American tried & liked a Twinkie? They are horrible, sugar fat & starch.

[GregT]

Has anyone not American tried & liked a Twinkie? They are horrible, sugar fat & starch.

Seriously? Anything with a half life can't be that bad, can it? You must be from off-continent.

[dolanbaker]

British chocolate is better tasting.

http://www.bbc.com/news/world-us-canada-31120182
In this globalised world, it's increasingly easy for British expats to buy the creature comforts of home - English tea, Irn-Bru or that most beloved British staple, Cadbury chocolate.

But in the United States, consumers will soon have trouble finding the "proper" Cadbury chocolate made with the British recipe.

Chocolate giant Hershey Inc has successfully blocked the import of many British sweets because, it says, it creates "brand confusion" with Hershey's products.

[GregT]

[quote="dolanbaker"]British chocolate is better tasting.[quote]

Sorry Dolan,

Cadbury is now a subsidiary of Kraft foods. (IE: not British anymore) That being said, we will allow you to enjoy "The British Recipe", but we have substituted a few ingredients. I'm not entirely sure if it's true, but rumour has it, the soy lecithin in export products has been replaced with reconstituted Twinkies that have surpassed their first half-life. Enjoy

[dolanbaker]

British chocolate is better tasting.

Sorry Dolan,

Cadbury is now a subsidiary of Kraft foods. (IE: not British anymore) That being said, we will allow you to enjoy "The British Recipe", but we have substituted a few ingredients. I'm not entirely sure if it's true, but rumour has it, the soy lecithin in export products has been replaced with reconstituted Twinkies that have surpassed their first half-life. Enjoy

True

But at least they haven't changed recipe for the UK version, if they try, they'll be hell to play

[vtsnowedin]

I liked this bit. It rings depressingly true.

Then society told the young that they all needed to go to college, when most of them didn’t, and since the universities served chiefly as holding pens, the quality of education dropped. Universities did however employ professors and administrators. Here was another example of selling at high price something that no one really needed, namely the appearance of education.

That and the bit about the $450 running shoes that advertisements convinced you you needed.

[ROCKMAN]

Following the silly subject I'll offer a silly comparison just to expand our club's knowledge base: Twinkies are not oil patch snacks. The official well site survival pack included potted ham, Vienna sausages and, for the sweet tooth, Honey Buns. The Rockman always carries a box of Honey Buns to give the crews working on the well site when they need a little sugar boost.

[sparky]

.
Formal education is the pink ink stamp on the beef carcass , they passed sanitary inspection
as for knowledge , the good ones will somehow sort themselves out the rest will work for the government

[vtsnowedin]

.
the good ones will somehow sort themselves out the rest will work for the government

Hold on there buster! I resemble that remark!! or at least I used to.

[Simon_R]

The underlying message seems to be

Why did we bother killing off our inherited (Genetic) monarchy (ruling elite)
when we seem to simply have swapped them for a different (genetic) elite

plus ca change

time for another revolution ?!?!?

[SeaGypsy]

No brainer. Inbreeding.

[sparky]

.
@ dolanbanker ...."British chocolate is better tasting."

From the guardian

http://www.theguardian.com/uk/2003/jan/17/foodanddrink

Despite the fact that purist chocolate-loving nations such as France and Belgium agreed to accept what they regard as impure British chocolate two years ago, Spain and Italy have steadfastly refused to allow British chocolate to even be called chocolate.
Insisting it contains too much vegetable fat, is too milky, and cannot be seriously compared to its continental counterpart - traditionally made using 100% pure cocoa butter - Spain and Italy demanded that it be called "chocolate substitute".

It follows on the Belgian complain that British "sausage" not be classified as a meat product as it had less than 10% animal meat in it