IS the US Economy a Ponzi Scheme?
- Thread starter Michael
- Start date
Well, there's an argument to be made that any economic system founded on limitless growth is effectively a Ponzi scheme. And Western economics for the last thirty years or so expected limitless growth.
Typically a Ponzi scheme works with people only investing money. In the worlds economics we deal mainly with goods and services in trade for money. That's just one difference. China buys stuff from America like scrape metal and converts it into other stuff which they sell all over the world thereby recouping their investment and making a profit.
The answer to your question is pure and simply, NO. The United States economy is not a Ponzi scheme. The economy is not founded on growth. As previously pointed out the economy is founded on the creation and delivery of goods and services, as is the world economy. Economic growth is a principal of population growth, and improved productivity.
Finally, a Ponzi scheme operator cannot create money to fill his demand for money. Governments have no problem creating money. But do not confuse fiscal policy with monetary policy. Congress administrers fiscal policiy (does not affect money supply). The Federal Reserve manages the money supply.
Finally, a Ponzi scheme operator cannot create money to fill his demand for money. Governments have no problem creating money. But do not confuse fiscal policy with monetary policy. Congress administrers fiscal policiy (does not affect money supply). The Federal Reserve manages the money supply.
Carcano
Valued Senior Member
Not the whole economy but the fed treasury bill market is a ponzi scheme yes.
The return on old investments can only be paid off with new investment.
When new investors disappear the music stops and the house of cards comes crashing down.
kmguru
Staff member
I thought it is. The growth and appreciation in housing market. Paying for the social security and medicare by hoping on growth etc...
Carcano
Valued Senior Member
Computers, aircraft, military tech, agricultural products, pharmaceuticals, machinery, cars, etc.
The service sector is even bigger.
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Carcano
Valued Senior Member
kmguru
Staff member
Yup...Lawyers, judicial system, Military, and healthcare
Part of mine, which was a local build as a whole, was made here: http://www.htch.com/career_hutchinson.aspSAM said:
My wife spent the past week making about five thousand of the little roto-rooter lead ends of those things they snake up arteries to clean out blockages. Next week, something else.
Lots of stuff still gets made, in the US. But that's changing, maybe.
Fraggle Rocker
Staff member
Growth does not have to be based on population growth. Increasing resource efficiency causes massive growth in per-capita wealth and therefore in aggregate wealth. I can't find any figures but by my own analysis I'd say the Industrial Revolution ultimately increased the per-capita wealth of the citizens of the industrialized countries by a factor of at least one hundred and possibly one thousand or more (using uninflated units of measurement). That increase is the manifestation of the growth in production of a healthy economy.
The Information Revolution is going to do the same thing, and in fact has already started. I had twenty LPs when I went away to college; look at the size of the average teenager's iPod music library today. Sure, much of it was probably duplicated clandestinely, but it's still wealth and the economy will eventually invent new ways of paying for new kinds of "production."
Our cars represent far more wealth than my 1951 Chevy, with all of the new features made possible by information technology such as antilock brakes, air bags, solid-state ignition, computer-crafted suspension and aerodynamics, reduced fuel consumption, and memorized seat shapes. Same for our kitchens, our hobbies, our TV, our communication, everything in our homes. And outside, such as medical care of nearly Star Trek scope and an increasing percentage of jobs that can be done virtually, without "going to work." I'm far wealthier than my grandfather was at my age, even though I'm at roughly the same percentile on the national income curve.
We're using resources more efficiently due to the Information Revolution. Not only is it helping us reduce the consumption of traditional resources in many ways, but information itself is a new type of resource that is, almost literally, "too cheap to meter."
So yes, the world economy can continue to grow without necessitating the continuation of the death spiral of population growth.
If you read this far then I'm sure you figured out that the new market in goods and services is virtual. I'm something like forty years older than you and I can see the Paradigm Shift to a post-industrial economy clearly. You young kids are right smack in the center of it.
Whoever said that didn't get the words right but he caught the spirit. We're producing information, which includes software and all virtual commodities, and will be shortly (if it isn't already) a far larger chunk of the economy than the hardware.
Carcano
Valued Senior Member
Made or assembled?
Most of the big names like IBM, HP, Dell, Apple assembled the hardware in the States but have it made in the far east.
I recall hearing its the same with Harleys.
Carcano
Valued Senior Member
Try living completely 'virtual' for a month.
Without food, clothing, housing, furniture, transportation, energy, real human relations, etc.
And see how you like it.
kmguru
Staff member
While it is true that Computer Technology has improved our lives, it is a mistake to use the words Information Technology to describe everything that uses electronics. It is like saying we do Knowledge Management while doing Document Management (the library). Because of this abuse of semantics, we have not developed any real automation since 1990s that can produce products with minimal human labor. Otherwise, we would not have outsourced all our industry to China and importing $321 Billions of goods in 2007. Worldwide we imported $2 Trillion of products. That is a loss of $16 Trillion of economy in one year in USA. Yet to keep our standards of living going, we acted like we have unlimited resources (Borrowing from everybody and the future). If that is not a Ponzi Scheme, then what is?
Not as efficiently as it should be. For example, we have broadband for quite a while. Neither the Government nor the private enterprises use it to do remote work. Every week I get calls and emails from recruiters for me to go to New York City to do Business Analysis or stuff that can be done remotely. Yet not a single time they offered me to work out of home and visit only for meetings. If I accept the job, I will be in front of a monitor all day in NYC!
Bottom Line is the value comes from producing more stuff per capita and not paper money per capita. If you are not producing and selling physical products at the least possible price due to advances in technology that you are going to consume, then you are getting in to a ponzi scheme.
The only exception is artistic products such as songs, pictures, movies etc for your eyes and ears. Even then to consume you have to use and produce devices. When you keep importing those stuff, that changes the dynamics.
When you produce a cucumber for one cent and sell it at 80 cents, that is not efficiency, that is highway robbery and that country becomes the most unproductive in comparison to those who sell it at say 4 cents.
Just some thoughts...
Not as efficiently as it should be. For example, we have broadband for quite a while. Neither the Government nor the private enterprises use it to do remote work. Every week I get calls and emails from recruiters for me to go to New York City to do Business Analysis or stuff that can be done remotely. Yet not a single time they offered me to work out of home and visit only for meetings. If I accept the job, I will be in front of a monitor all day in NYC!
Bottom Line is the value comes from producing more stuff per capita and not paper money per capita. If you are not producing and selling physical products at the least possible price due to advances in technology that you are going to consume, then you are getting in to a ponzi scheme.
The only exception is artistic products such as songs, pictures, movies etc for your eyes and ears. Even then to consume you have to use and produce devices. When you keep importing those stuff, that changes the dynamics.
When you produce a cucumber for one cent and sell it at 80 cents, that is not efficiency, that is highway robbery and that country becomes the most unproductive in comparison to those who sell it at say 4 cents.
Just some thoughts...
kmguru
Staff member
For those who love stats....
In 2007 USA Import and Export Numbers in Billions of Dollars
China________321________65
Canada_______313_______248
Mexico________210______136
India__________24______18
Every one is talking about how India is taking the American Jobs away for a mere $6 Billion differential. Imagine what other are doing!
We imported $2 Trillion of products in 2007 out of that oil products were $360 Billion. Assuming we can not live without oil, the rest is $1640 Billion of electronics, vehicles, machineries etc that we do not want to make, because it is cheaper to get it made else where.
Reality is I think we lost our engineers and factory workers. We can not use Lawyers and Politicians to make $1640 Billion worth products.
By the way, because we import high technology products, if we would be building them using advanced automation, we would have a $13 Trillion dollar worth economy doubling our GDP. The accountants and politicians do not want to do that.
In 2007 USA Import and Export Numbers in Billions of Dollars
China________321________65
Canada_______313_______248
Mexico________210______136
India__________24______18
Every one is talking about how India is taking the American Jobs away for a mere $6 Billion differential. Imagine what other are doing!
We imported $2 Trillion of products in 2007 out of that oil products were $360 Billion. Assuming we can not live without oil, the rest is $1640 Billion of electronics, vehicles, machineries etc that we do not want to make, because it is cheaper to get it made else where.
Reality is I think we lost our engineers and factory workers. We can not use Lawyers and Politicians to make $1640 Billion worth products.
By the way, because we import high technology products, if we would be building them using advanced automation, we would have a $13 Trillion dollar worth economy doubling our GDP. The accountants and politicians do not want to do that.
kmguru,
Hey! It sounds like your job is made-to-order to be done in India.
Your numbers were for goods only, not including the service sector jobs outsourced to India.
I agree that the US should retain all the high tech jobs and services we can to help balance our trade deficit. Part of the problem with producing high tech products with advanced automation in the US is the costs of the factories themselves, not the raw materials or labor costs. It costs only a fraction as much to build the factory in China as it does in the US, plus further profits are realized through currency exchange rates after the product is imported into the US. Bring the yuan up closer to the value of the dollar and those Chinese advantages will evaporate, though the products will cost more (inflation). Inflation can be very helpful to those individuals and businesses deep in debt as long as wages and prices do not lag too far behind the curve, but can be disastrous to current lenders of long-term debt such as fixed rate mortgages. Savers with money in the bank can move their savings into stocks and real properties to grow with the inflating economy.
kmguru
Staff member
Looks that way. But if the Businesses do not insource long distance...then...
You are correct. It is very hard to get a breakdown of service statistics from our government. Here is what I found:
In 2007 we imported$378 Billions of service while exporting $497 Billion. Which means we have a surplus. As to India, they exported about $30 Billion to us.
For starters why does our factory costs so much? I do not think that is true because several years ago I designed a Titanium Plant for China. We wanted to duplicate the same in the USA. We felt the price was on par with the Chinese plant. When selling the equipment to the Chinese, we added a 20% fee which we would have saved in our domestic plant. Our electricity was a lot cheaper than the Chinese. The only variable was the amount of people we would hire. The Chinese planned to hire 600 to 800, we planned to hire 60 to 80 which is equivalent to established plants of that size about 200 miles away.
You have to come up with some other explanation why we do not produce high tech products.
dixonmassey
Valued Senior Member
Seat tight and watch what will happen to the creation and delivery of goods and services without growth
Economy is built around banking, usury and maximization of returns on investments. How would you pay investors their dividends without growth? Without growth (local at least) investors lock their fortunes up and economy built on banking, usury and growth transforms into a death trap not delivering chit. There is no point for delivering goods and services if it cannot pay back debt + interest to the investor master class.
Hint, $1 invested in 1809 at 4% would yield 1*(1+0.04)^200=$2550. Ok, let's assume inflation rate is 3%. Still investors expect (I took a conscious, bleeding heart investor willing to invest at 4% as an unrealistic example). 1*(1+0.01)^200=$7.3. How would you pay for that inflation adjusted very MODEST expectation of returns without growth?
Another hint, series (1+1/n)^n never converge when n approaches infinity. Economy is built around (1+1/n)^n series, therefore it must grow endlessly or transform into something else.