Ok. Very good. So we have tons and tons of ready, willing, able, creative, healthy, educated un-used labor.
So now tell me now, What should I make?
Mansoor
Please ask your friends, co-workers, relatives if they would do the deal?
Mansoor
So a guy who claimed that building pyramids and burying jars of paper money would cure a depression caused by animal spirits was light years ahead of a guy who developed praxeology, business cycle theory, the economic calculation argument against socialism, etc. Do you realize how ridiculous that is?
No. it is not ridiculous at all. It is about managing the process. Sure. Some projects will help us in the future more than others. ofcourse.
The evidence of keynes’ insight is all around you. All those umemployed people. That is your evidence.
Mansoor
Yes, all those unemployed people who are out work because of a depression brought about by people who advocated and implemented Keynesian policies and remain unemployed despite using every page in Keynes’s playbook. Problems caused by too much debt, too much consumption, and too much inflation are not solved by inflating more, borrowing more, and consuming more. There are a limited number of resources in the world, the government borrowing money and printing money does not suddenly eliminate scarcity. The only thing it can do is take resources from somewhere and put it somewhere else. This is what Keynesians never seem to grasp.
Yes. We still have scarcity. We have not created a heaven yet on earth. We will NEVER be able to successfully do that. I agree.
But things after five thousand years (or pick your number) of learning are much less scarce! Yes. Less scarce. Not more Scarce. That is the ultimately beauty of my insight (exactly opposite of malthus). More people but less scarcity. You see it now? We can make stuff so much faster and cheaper. We have outdone ourselves.
The real capital is between the ears: Our energy, creativity, initiative, team work, modes of teaching, modes of learning, knowledges in all kinds of fields, engineering, information technology, business process management best practices, ways of managing and motivation people and most of all our spirit.
You see it now!
Mansoor
You need to first step back and think in terms of time. None of this happens overnight.
You need to understand interest rates. Interest rates artificially pushed down by the Fed. causes production in places that don’t need production. It’s a waste. So all this bread is being made with no buyers. Meanwhile over here in this sector of the economy the price of butter is going up. Why? Because there is less of a supply of butter. Yet people desire butter. They have for thousands of years. Yet all the investors are flocking over to making bread because the loans are cheap, ie. artificially lowered interest rates. Meanwhile the interest rates on butter are lowering naturally, because the Fed. hasn’t lowered the interest rates on butter. They are becoming lower as the demand for butter dries up, disappears, because the price of butter is rising. Investors will not go to those lower interest rates of butter because the Fed. is artificially lowering interest rates on bread, artificially lower than the actual - real - interest rate of bread. Because there are no buyers of bread anywhere to be found in the market, but all this production is going into bread counter to actual market consumer demands, then all this bread will sit around and nobody buys it. It gets wasted. Just like all those houses that were built -wasted because nobody really wanted all those houses. YET meanwhile people want butter. The natural lowering of the interest rates of butter was signaling that butter is in need of supply. Yet since the Fed. lowered the interest of bread below that of butter, then more investment money/capital went to bread instead of butter.
Yet - nobody wanted bread.
Yet all of these consumers do want butter.
So why is the Fed. artificially lowering the interest rate on bread and thereby making incentives for investors to buy up bread production, increase bread supply, when nobody wants bread. The whole time the market was signaling, naturally, that people actually wanted butter. So all that investment was wasted. It went to bread when it should have gone to butter. But the Fed doesn’t know what people want. The natural interest rate, the actual measure of supply and demand based on actual real consumers that drive the economy, that put people to work, was ignored. So the Fed. created incentive for people to produce bread when nobody wanted bread, when all of these people wanted butter. So now BOTH the bread and butter industries are hurting, so, double the unemployment, because consumers would have put butter workers to work, but instead the Fed. created incentive for the money to go to bread making when nobody wanted the bread. So now all these people lose jobs not only in butter making, but in bread making. Artificial interest rates create a false sense of demand that is NOT consumer driven but is actually credit driven.
So if the money went to butter making, then butter supply would have gone up because that’s the signal that consumers created in the first place, so, consumers go to market buy butter and the butter producers get their returns on making the butter because there are actually consumers that want to buy butter. And since the demand for butter went up, then production could have gone up, thereby creating jobs that were not present because now there is this real increase in demand by the consumer to make butter. The lower demand for bread would have shifted some of the workforce from making bread to shifting over to making butter. Nobody loses a job, because the “NEED WORKERS” or “HIRING” signs would have gone up in the butter industry because now they have all this butter to make and need more workers. And since there is less a demand for bread, then the workers that are no longer needed to make bread can switch jobs and make butter. Nobody loses a job. Unemployment never falls.
But what the Fed. did, did create unemployment because while the butter factories needed more workers, there were no workers to be found due to all the workers keeping their jobs making bread. Yet bread that nobody wanted. So when nobody shows up to buy the bread, workers lose their jobs because their employer can’t afford to pay their wage (no consumers buying the bread to pay the workers wage). But what about the butter industry? Couldn’t all the workers simply go to making butter now because we know that their is a demand for butter? No. Because it’s too late now. Who’s going to buy the butter? All the bread makers are losing their jobs and don’t have money to buy those extra things like butter anymore, and even worse, no money to buy anything anymore. So what happens in the long run everything can get back in order, but it will take time. The slow decline of bread makers having no money to buy butter causes a problem in the short run. But if everything is let alone, then all those breadmakers eventually are able to get to those butter jobs and in time work again, butter demand goes up and soon, bread demands go up and the cycle happens all over again.
Yes. time. It is gift. It confuses us. But we can find our way. That is why in the beginning of post. I mentioned it is this time traversal of the loaves of bread that everybody is trying to do. Everybody is trying to make sure that they can retrieve their loaves of bread in the future. We have to figure out how to help people do that. The current ways are not working very well. And they are scared because they thought their 401Ks and IRAs will do that. And when they realize they won’t they rush to safety of cash and/or treasury bills.
Do you see this?
Mansoor
But not everybody wants loaves of bread. So stop giving them bread or else you don’t get paid. Why make bread when nobody wants it?
Nobody had the cash. People were making bread using credit, not cash.
Ok. So what do you want me to make? I am at your service!
Mansoor
Ok. So if credit is not real capital. How were the producers able to produce loaves of bread (something real) from nothing?
Mansoor
Irrelevant. Why would even those 3% do anything else but make themselves richer by simply watching TV and sitting on their savings? How about you answer my question? If everyone only saved, no one consumed, and no one invested, who are you going to buy your loaf of bread from? How much is a single loaf of bread going to cost in a world of million “wealthy” hoarders, all fainting from hunger, and not a single bread factory around?
So “we” need to invest more in order to keep up with up the increase in productivity? That makes no sense whatsoever. Or perhaps we need to traverse more in order to keep up with the increase in florality? And btw, who are these “we” that you keep referring to? “We must consume more!”. “We mustn’t hoard!”. Do you feel it’s your (patriotic, humanitarian) DUTY to consume more and “hoard” less? Are you pulling your weight in “our” war against deflation by increasing your own consumption and hoard-destruction?
I am a human being, willing and able, very talented: I can do 300 push-ups per hour for eight hours straight, daily. How about you relieve yourself from your hoarded savings and help us both fight deflation by you employing me with $5000 a month salary in return for my 300 push-ups/hour? You win. I win. The economy wins. Humanity wins.
Your God Complex is blatantly at display. Who are you to tell “us” what we ALL must or mustn’t do! You’re bordering on lunacy here.
Z.
We can figure out what to do with excess labor based on a democratic process!
Mansoor
“Capital” just means “Savings.” Capital is important because capital allows us to invest our time and labor into things other than basic survival. If I make my living foraging in the woods, and I have a good sized stash of food saved up, that means I can spend some time doing something other than foraging. I can invest my stash of food into keeping me alive while I prepare a field to use for agriculture and grow my first crop. Once I have my field operation up and running, that means I can generate even more savings, which can be invested even further.
If they knew that in a year, they could buy two cartons of milk for the same dollar as todays single carton of milk per dollar, I think the answer goes without saying.
Sure. And if I give you $1000 bucks you can hire someone to that? Therefore $1000 bucks is also capital. It has real value since you would be able to hire some labor to do the same thing.
Mansoor
They do so at the expense of the economy. The economy re-directs real objects, not monetary objects, to places with the greatest purchasing power. Or in our case those who received credit. They built loaves of bread though no one wanted them, they continued to make bread but no one was buying. They took out more loans, squelching natural resources. Causing monetary inflation, and price inflation due to the employment of natural resources being used on things no one wanted.
Eventually reality catches up and a vast majority of these firms go bankrupt. Hence the bust.
There is a distinct difference between Capital (Factories, equipment, ect…) and Savings or investment. Savings/Investment is mobile, Capital(Factories) is not.
Please do some honest field research by explaining the scenario as I have explained to you and ask them what their decision would be? And then ask them why they made that decision?
They will decide to keep the pieces of gold rather than take a risk at 9% if deflation is 10%.
Mansoor
Capital=real wealth, ie. factories, real tangible economic good. Producers made it not on the wealth of any savings, as you keep assuming there is all these savings (which obviously there was not, ie. mortgages, MBS, CDS, other loans, etc…). People made bread with credit, in the hope that consumers will pay actual savings in return thereby the loans can be paid off. That’s why they are loans. They get the money now as a promise they, ie. producer, will pay back the loan (with interest) later. When the producers pay it back later, the producers can only get that money from consumers. The people who buy the bread. But nobody wanted the bread so all those loans, ie. credit, go unpaid. Bankruptcies, bread factories close down, etc… Making bread but nobody wants the bread when consumers were actually demanding butter. The Fed. thereby created malinvestments. That’s what a bubble burst is. That’s why there is unemployment. When people wanted butter, the Fed. was making the incentives via lower interest rates, for production to go to bread making meanwhile nobody wanted the bread. People wanted butter. Fed. should have stayed out of it, because they can not know what the consumers want. It’s is impossible. Only the price signals of natural interest rates going up and down due to consumer buying measures the real supply and demand of real products based on real consumer demand.