Stimulus Bill and Hyperinflation

[TwelveToneMusic 0]

I've never been into politics or economics really, and I have a question about hyperinflation.  There's another forum where people are saying the stimulus bill is going to cause immediate hyperinflation, and is in fact the opposite of what needs to be done in a situation like our economy is in.  I looked up a definition of hyperinflation, but I'd still like to know exactly how it works.  You dump a bunch of money into the system, and everything goes up because the dollar is less valuable?  Why?   That doesn't make sense.  When I go to the grocery store, you're telling me that the store checks the number of dollars in circulation before setting their prices?  And if the stimulus bill would 'so clearly' cause such a situation of hyperinflation, why is it allowed, why are people divided over it?  Anyway, like most people, I have a lot of questions.  Like I said, I'm not the most informed on politics and economics.  I'd just like to understand this issue.

[Easy Bakes 253]

The problem our economy has is that the things people spend money on have overinflated values. All drivien by speculation that prices will continue to rise. Thats not a bad thing to have prices rise but when wages dont rise to match you will eventualy have the situation we are in now.

They realy just need to stop trying to fix this and let the companies that cant compete close down or become smaller. This stimulus bill is not going to work, because a year or so from now were are going to get storys of were most this money went into the pockets of the company execs who got a hold of it.

[LarksTonguesInAspic 28]

Our money isn't backed up by anything... not any more. It used to be backed up by gold, and you could take a $10 bill into a bank and exchange it for $10 worth of gold. But that was ended decades ago. Now, our money is backed up only by the "Full faith and credit of the United States Gov't". It's just an IOU, nothing more. It's called a currency by fiat, it's only acceptable for goods and services because the gov't tells us it is.

If someone starts issuing lots of IOUs, it's obvious they have a lot of debt that they can't pay, at least right away. You can see then that their credit, or their "full faith and credit", isn't worth as much. The IOUs in existence are being diluted by the nonstop printing of more and more IOUs. Eventually, the IOUs aren't worth the value of the little scrap of paper they're printed on. The currency crashes, and as it was in various places at various times throughout modern history, a wheelbarrow full of money won't buy you a loaf of bread. No one (like the foreign gov'ts that hold our debt) want an endless stream of IOUs instead of hard money, i.e. gold, silver, or similar 'real wealth'.

The grocery store doesn't check the number of bills in circulation, but the commodities that are sold are priced by the value of the dollar because it's a world market. If the value of the dollar drops, the world prices for things like wheat, corn, sugar, coffee, cocoa and even frozen concentrated orange juice go up. Ditto oil, natural gas, steel, zinc, copper... you get the idea.

The reason people are divided over the stimulus bill is fear. People are afraid of doing nothing, so in the rush to do something, anything, they do the wrong thing. Remember how Obama railed about the national debt? Now he wants to expand it even more. He voted for many of the Bush spending bills. He said McCain wanted to run our economy full speed off a cliff. Yet, here he is with at least $2 trillion in debt spending. Debt that will be underwritten (yet again) by the Chinese, primarily. Debt that will further hurt our economy in the long run. Make no mistake, Obama is a hypocrite.

Congress wants to appear that they care, so they cobble together a spending bill that, while costing $800-some odd billion, only has about $130 billion in new jobs stimulus. The rest is 'keeping up appearances'. All of this debt and its interest is on the young people to pay. When coupled with other obligations, like Entitlement spending, our national debt is getting too big to ever be repaid. At some point, our currency will crash... it must. This will be a financial Doomsday for every developed nation worldwide. What that will lead to enters the realm of Conspiracy Theorists.

[fukuda 351]

Let the obscure magic laws of economics solve everything by themselves, that's how it always works out, no?

[saltandsauce 0]

economics is a form of divination staring into a crystal ball, throwing stuff in the air and chanting strange things repetativley

aka. staring at stock prices, throwing money in the air and saying "Confidence in the free market"

[Patricius Maximus 236]

Our money isn't backed up by anything... not any more. It used to be backed up by gold, and you could take a $10 bill into a bank and exchange it for $10 worth of gold. But that was ended decades ago. Now, our money is backed up only by the "Full faith and credit of the United States Gov't". It's just an IOU, nothing more. It's called a currency by fiat, it's only acceptable for goods and services because the gov't tells us it is.quote>

Well put. I'm not an economist, but I do know some things about the economy.

The value of money is controlled by supply and demand (I'm no expert in the demand part). If demand is larger than the supply, the value of money goes up (deflation). If the supply is larger than the demand, the value of money goes down (inflation). If neither side moves much relative to the other, there is stability in the value of money.

To pay for the more than 8 trillion in government programs enacted so far (that includes Fed programs), the government has to either borrow the 8 trillion or print the 8 trillion. So far they've enacted a mixture of both.

The economy is not expanding (thus increasing the demand for money), it is contracting. The money supply is being rapidly increased, so there will be more inflation in the near future.

Whether it turns into hyperinflation or not depends on how much the supply is increased. If the economy continues to contract and the supply continues to be increased, hyperinflation is likely, in my opinion, because of hyperinflationary policies by the Federal Reserve.

It is my opinion that they are victims of their own deception, as there have been modifications since 1980 to the CPI that understate inflation, so there is no deflation going on now, contrary to what you may see in the news. There is undeniably disinflation for the moment, but it won't last for long, because inflationary policies take time to ripple across an economy.

I believe an "inflationary depression" (to borrow a term from an economist) is coming in the next 5 years. Do not panic at this, because the US economy has come out of every single downturn it has experienced. This will be no different.

I could be wrong, though, if Bernanke can get it right on the mark and decrease the money supply and raise interest rates at the right time without stifling economic recovery. It's possible he could do this, but the odds are against getting it exactly right.

For the record, my prediction for the stock market and economy is that the Dow will bottom at 5600-6600 sometime between mid-2009 and mid-2010, with the economic decline bottoming in 2010.

There will be a recovery in time, but the downturn will be rough, with many companies not surviving. The end result, if the government doesn't prop up failing companies, will be a more efficient and prosperous economy.

[Meg 368]

Some economists say that it will all work out in the long run.   Others say that, in the long run, we are all dead.   Neither view is very helpful in practical terms.

 

The sad truth is, the American economy must contract and stay contracted for a long time (as in probably the rest of my lifetime; possibly not all of yours.)

Far too many Americans have spent years living beyond their means.   Maintaining a balance on your credit cards is simply not a sound financial practice.   The interest charges will zap you big time and it takes a lot of doing to get back on top of the balance.   Getting a mortgage or car payment above your means is not a sound practice either.   The standard of living that many of us have enjoyed has been propped up by unwise borrowing habits.  The materialism of the 1980s was a really bad idea and we are continuing to pay for it.

The surest way to build wealth is to live below your means and invest the difference but that is going off topic.

Jobs have been leaving America for years now and they are going to continue to leave.   Companies are going to China or India or wherever they can find cheaper labor.   They are only going to return when labor there is as expensive as it is here.

Politicians are going to try to make things easier and, to some degree, there are a few things that can be done.  In the long run, however, we are going to have to face that the party is over.

 

 

 

[belfastuniguy 18]

economics is a form of divination staring into a crystal ball, throwing stuff in the air and chanting strange things repetativley

aka. staring at stock prices, throwing money in the air and saying "Confidence in the free market" quote>

Economics is just a touch more complicated than that. I'm an economist so I know. There are various aspects of economics, though some tend to focus on a small part and ignore the rest, as you have done.

[jon7985 3]

Hyperinflation may not occur, since not a dime of the money Congress just promised will see any consumers pockets. Its a bad idea, this "stimulus", though its not a stimulus.

[duack 14]

Im actually optimistic of the stimulus plan. Hyperinflation occurs when governments print out too much money, but even though the stimulus plan may increase money printing, chances are most will be borrowed from external sources, which is the safer option. The government knows not to print out too much. 

Inflation is not much of a concern now. I read in manticore fan's statement, about money not being backed up by gold. thats not really neccassary nowadays, because it would severely slow down progress. When the economy is growing too fast, and production is at its maximum and there is no way they can posibbly churn out more goods and services in the short term, it is said that the economy is overheating. Say the economy is overheating, and all this extra money is realesed into the economy, supply stays the same but demand rises and this causes inflation, as consumers out-bid each other. But now, the economy is slow, consumer demand is lower than supply so prices are dropping and its this drop in prices thats actually casuing businessess to slow down. People are saving more, and investing and spending less because confidence is really low. Im not sure of the exact statistic but Im pretty sure inflation is now low, or maybe even negative.

If the government realeses money into the economy now (whether from borrowing or printing) then demand for goods and services will increase and hopefully meets supply to achieve market equilibrium (the desirable status). If this occurs, then employment will rise once again to meet demand, then these people will start spending more which leads to more demand and creates a cycle of economic growth which will once again bring employment to its natural rate. Now becuase there is so much unused capital and labour in the economy, this is why after a reccession economies grow very strongly, like in the early 90's. Eventually, the economy will reach its constraints. Unemployment will be low, and supply maxed out again. Once we get to this point, the government can start paying back debt, because tax revenue will be high and welfare payments low. 

As far as I know, Obama's economic plan is something like this. You can't blame him for the debt we have now, and he has no other choice but to borrow externally. You can however blame George w Bush for his debt, because he was borrowing externally in order to keep an overheating economy growing which is extremely reckless and idiotic, because when the economy is overheating, governments shuld try to slow it down and use this time to repay debt.

Id like to hear more from belfastuniguy, seeing as a lot of people seem to get their economic theory from their imagination, saying things like reccession last a lifetime and and outsourcing is bad. Outsourcing is good. If you want to know why, read a little on the theory of comparitive advantage because Im not going to explain it.

[Duke87 1,070]

In simple terms:

Let's say there are 10 trillion dollars of currency out there in circulation (I have no idea what the real figure is, I just pulled that number out of my ass, but it works for the sake of example).

Now, the government, in stimulating things, prints $800 billion more worth of money.

Well, they can print more money but they can't print more monetary value or wealth. The result is that now instead of $10 trillion in circulation, you have that plus $800 billion, or $10.8 trillion... but that $10.8 trillion now is worth exactly the same as the $10 trillion was before. The result is that now a dollar is worth only 10/10.8 or 92.6% of what it used to be.

Of course, the devil is in what the numbers actually are. If there's $100 trillion of wealth, then the dollar is 100/100.8 or 99.2% of its former value (not so bad). But if there's only $1 trillion of wealth, then the dollar is 1/1.8 or 55.6% of its former value (bad).

I'm not sure, obviously, but I think the real number is closer to 100 trillion than 1 trillion. And not all of the stimulus is printing money, anyway. Some of the debt is carried by other methods.

It will cause inflation, that's for certain, but it won't cause anywhere near doomsday levels of hyperinflation. That kind of thing tends to happen when you have unstable governments who horribly mismanage things. Sometimes (as with the Wiemar Republic) it leads to revolutions. Other times (as with Italy), the country adjusts and gets over it.

[Meg 368]

Originally posted by: duack

Id like to hear more from belfastuniguy, seeing as a lot of people seem to get their economic theory from their imagination, saying things like reccession last a lifetime and and outsourcing is bad. Outsourcing is good. If you want to know why, read a little on the theory of comparitive advantage because Im not going to explain it. quote>

 

I would like to hear more from people studying economics too but I would like to address some of your points.

This recession will last for some people's lifetimes and outsourcing is bad for some people.   Yes, in the long run, the economy will cycle back up again and, yes, from an overall perspective, outsourcing is more efficient.  But a lot of decent people are going to be screwed over in the long run.

 

Take, for example, Harry and his 200 buddies at the widget factory.   They are decent, hard working guys who have spent their adult lives manufacturing widgets.   Now, their factory has closed and they need to find other work.   No problem, economic theory says, they can be retrained to do whatever jobs are available.   But let's be honest:  the average 48 year old factory worker is not going to be retrained to work in information systems technology, for instance.  A few of them might but certainly not hundreds and thousands of them.

Every time the economic shifts or technology advances, good people get left behind.   Zebadiah, the expert, kick-ass, carriage maker suddenly found himself without work when those darn horseless carriages became popular.  Ugh, the master flint knapper, suddenly found himself without work when people learned how to make knives from steel instead of stone.   It's been happening since the beginning of time and it's going to continue to happen.  It's just how things work.

I agree that people need to learn to adapt.  It's an issue of adapting or being left behind.  I'm just saying that we will have a lot of people who are too young to retire but are not in a position to get retrained.  For starters, they have kids to support and don't have the luxury of spending all day in classes.

 

 

 

 

[TwelveToneMusic 0]

Very interesting responses, guys.  I appreciate the input.  Although, I don't really feel any more informed on my confusion about how inflation works.  Let me take the above given example of having x-amount of wealth vs. y-amount of dollars, and how changing the y-amount doesn't really impact the x-amount.  That doesn't make sense to me.  Wealth is how much money you have.  So when someone gives you money, your wealth should go up.  If that's not correct, well that's just where I don't understand how people having more money in their pockets aren't actually more wealthy.

[buddybud 63]

Here's a good link to the newyork federal reserve http://www.newyorkfed.org/aboutthefed/fedpoint/fed49.html which explains how the american currencies value is monitored. There used to be three reports the m1, m2 and m3. As of march 2006 the federal reserve stopped advertising the m3.... What this means is that a true value of the currency from that point on is not possible to clearly define. This is the point i made sure i had no outstanding debts and no investments. Essentially we are at a point where the borrower (the us) will not tell the creditor how much he owns or how much he is producing. Because of that over the last 3 years we cannot tell how much money is in circulation. Now since 2/3rds of the american debt is held by foreign countries, that makes the world markets rather jittery and a collapse very possible, especially if at any time all these creditors come back and demand payment. When this occurs as it has been, (bank run in sept etc) then the fed pumps out more money with nothing but more debt and no assets to back it. So in order to get their money back the people providing all the cheap goods will raise their prices to cover their losses. So when you go to buy something it will cost more even though nothing has changed within the country.......if this snowballs pretty soon your dollar won't buy squat. Hence hyper inflation.

Hope that helps....

From a personal point of view, learn to live with less and get rid of any personal debts as soon as possible. Then at least you only need to worry about problems in hand.

Bud

[duack 14]

This is the simplest I can explain inflation-

Assuming right now, everyone had on average $1000 disposable income to spend on whatever they want. Lets say, everyone wants a new TV, and because everyone has $1000, TV's will cost about $1000 each. Now say all of a sudden, everyone was given $1000 extra which was just printed out and given to everyone, so now everyone has $2000 dollars to buy a TV. In this case, people can now offer $2000 for a TV, and because the supply is limited, shopkeepers will increase the price of TV's to $2000, because everyone can offer $2000. This occurs because the good is sold to the highest bidder and now everyone has more money, and will therefore be willing to pay more for the limited supply of TV's. This would cause inflation because now your paying $2000 for a TV that cost $1000 a month ago. 

This scenario is totally unrealistic, but thats inflation as simple as I can explain it. In real life, its often those who get increased income that put pressure on inflation whilst the ones who dont get extra income fall behind. I could go on forever but that will only confuse you so ill stop here for now. My previous post was kind of out there.

[saltandsauce 0]

Originally posted by: SkiGeek

Originally posted by: duack

Id like to hear more from belfastuniguy, seeing as a lot of people seem to get their economic theory from their imagination, saying things like reccession last a lifetime and and outsourcing is bad. Outsourcing is good. If you want to know why, read a little on the theory of comparitive advantage because Im not going to explain it. quote>

 

I would like to hear more from people studying economics too but I would like to address some of your points.

This recession will last for some people's lifetimes and outsourcing is bad for some people.   Yes, in the long run, the economy will cycle back up again and, yes, from an overall perspective, outsourcing is more efficient.  But a lot of decent people are going to be screwed over in the long run.

 

Take, for example, Harry and his 200 buddies at the widget factory.   They are decent, hard working guys who have spent their adult lives manufacturing widgets.   Now, their factory has closed and they need to find other work.   No problem, economic theory says, they can be retrained to do whatever jobs are available.   But let's be honest:  the average 48 year old factory worker is not going to be retrained to work in information systems technology, for instance.  A few of them might but certainly not hundreds and thousands of them.

Every time the economic shifts or technology advances, good people get left behind.   Zebadiah, the expert, kick-ass, carriage maker suddenly found himself without work when those darn horseless carriages became popular.  Ugh, the master flint knapper, suddenly found himself without work when people learned how to make knives from steel instead of stone.   It's been happening since the beginning of time and it's going to continue to happen.  It's just how things work.

quote>

the problem now is that there are no new jobs being created as has been proven by Scotland,

1960s the heavy industry started to close they said that light manufacturing wold replace it- it kind of but never really a substitute more like a small supplement. then that left in the '80s and computer programming was supposed to replace light manufacturing, it never provided as many jobs as light manufacturing and nowehere near as much as heavy industry. that left in 1998 roughly then financial services came and replaced the same amount (roughly) of those in computer programming. and oh look that's leaving (shutting down this time not moving to China) too.  Often there are no new jobs available.

outsourcing is not only detrimental to the donaters economy and social fabric it's bad for the factory owner. as many have found out, China doesn't care much for patenting laws and copyright so Mr. Miller moves his widget factory to China and then somebody in China with some money works in his widget factory and then sets up his own widget factory illegally and then all the workers go from Mr. Millers factory to the new factory. putting mr. Miller out of business.

[TwelveToneMusic 0]

Duack, that makes it clearer.

Buddybud, with the role that the American economy plays in the world market, I'd think that other countries wouldn't want us to collapse.  I just read that Japan's economy is also in a recession, for example.

[Duke87 1,070]

Originally posted by: saltandsauce

the problem now is that there are no new jobs being created as has been proven by Scotland,quote>

That's actually another issue. Automation. It's more energy efficient, more cost efficient, and it makes higher quality products...

...but it permanently erases jobs from existence, which is even worse than moving them from one country to another, socially speaking.

It's not a big problem currently, but it could become one. Think about it. If everything is made by robots, transported by robots, and sold by robots... what work is there left for humans to do? Making and repairing the robots, or management... and that's it. The situation would be such that the number of jobs available would be a small fraction of the number of working-age people.

That's the problem with added efficiency. If you create a system that can support a million families with ten thousand workers... well, now what do those other 990 thousand families do?

In this way, automation helps the business and makes better products, but it hurts the economy overall.

Paradoxically enough, there is such a thing as making things completely unsustainable by making them too efficient here.

[Meg 368]

Originally posted by: Duke87

That's actually another issue. Automation. It's more energy efficient, more cost efficient, and it makes higher quality products...

...but it permanently erases jobs from existence, which is even worse than moving them from one country to another, socially speaking.

It's not a big problem currently, but it could become one. Think about it. If everything is made by robots, transported by robots, and sold by robots... what work is there left for humans to do? quote>

 

Automation is the next step after mechanization, which was a big issue when I was younger.  I first became aware of it when I was a kid in the grocery store.

There were two guys working behind the scenes in the meat department.   One was hacking up the meat and the other was wrapping it in those styrofoam trays and covering them with plastic wrap.  Then they got a machine to do the wrapping.   The second guy was quite insulted that this machine put him out of work.   A small scale example but he wasn't the only guy in that situation.

Take, for example, the robotic arms used in factories.   Used to be that all of that was done by hand.  It had to be a mind numbing job to do the same rivets on one car after another all day but it was a job.  People were quite upset when those factories cut the work force down to a fraction of what it had been.

My aunt said once that, time was, a business owner was proud of how many jobs he had created.  Those days appear to be gone.   And, as Duke says, things can become unsustainable.

 

 

[JanYpe 17]

Originally posted by: SkiGeek

My aunt said once that, time was, a business owner was proud of how many jobs he had created.  Those days appear to be gone.   quote>

Then again they've been headed out the door for a long time. Industrialisation created the blue collar worker, and in the search for efficiency it has made a lot of them as obsolete as the skilled manual labourers they'd replaced. Anyone looking to go back to a moral economy these days just runs the risk of being painted with the big red 'socialist' brush.

Originally posted by: manticorefanWhat that will lead to enters the realm of Conspiracy Theorists. quote>

...unlike the rest of your post? All you really left out was the part where you praise the many virtues (cough) of the gold standard.

[Hanson784 165]

Hyperinflation may occur but it tends to happen in governments with unstable government structure. Consumer prices are falling across the board in nearly every market because people are saving money and are assessing their expenses in terms of wants vs needs.

Stores cut prices and offer sales to try to lure customers back and also to stay competitive so we have deflation. Although, the value of the dollar has been steadily decreasing for sometime so I’m not sure what will happen.

Japan had a stock market crash in the early 90's and they had a deflationary depression:

They are just coming out of now (though the world economy the world economy is destabilized so they might be going into it again)

In terms of debt, Americans have so much debt many might never get out of debt. The NY Times has a good interactive article on how large our national debt has gotten. www.nytimes.com/interactive/2008/07/20/business/20debt-trap.html

I will say though that a few years ago we were in a period of inflation created by the housing bubble and overvalued stocks. Now, the true cost of housing is starting to come down to realistic, more affordable levels.

Personally, I'm not sure how much the stimulus bill will help as it is a watered down version of what was originally planned and the money to fund bankrupt states, create jobs, and bailout foreclosed homeowners might be redirected to corporate executives or unethical state and local government officials- or even rouge agencies. Hopefully there's some sort of measure within the bill to make sure the money goes where it needs to go.

 Also, there have been 3.6 million job losses in the past 13 months; I'm wondering how long it will take all these laid off workers to gain the knowledge and skill to work in the green jobs or infrastructure projects. That's a massive undertaking. (Just as another visual for job losses: http://www.speaker.gov/img/jobsrecessions.jpg)

Let's hope the goal of this stimulus bill is to redirect the nation toward a more sustainable economy, not get us back to where we were a couple years ago where consumer goods and housing were overproduced and everything was measured by how much the highest bidder paid.

Maybe the media should stop using recession and instead use the big D word. Maybe it's time to stop bailing out failing companies and let them fail or become smaller and maybe GDP isn't the best way to measure the success of a country.

[TwelveToneMusic 0]

Let's hope the goal of this stimulus bill is to redirect the nation toward a more sustainable economy, not get us back to where we were a couple years ago where consumer goods and housing were overproduced and everything was measured by how much the highest bidder paid.

quote>

I trust that is the intent of the bill. Everyone gets so freaked out over government stepping in, but that's what happened and what got us past the 20's.

[Duke87 1,070]

Originally posted by: JanYpe All you really left out was the part where you praise the many virtues (cough) of the gold standard.quote>

Well, there certainly are virtues to having a gold standard. One is that it controls government spending since it prevents the government from being able to simply print money to deal with debt. Another is that it controls inflation by limiting the amount of currency printed.

Of course, we can't just now decide to go back to it now that we've got this huge national deficit on our hands. The gold standard would prevent and prohibit such a deficit, and so in order to go back on it we would first have to pay off all that debt... which wouldn't be a bad thing to do but it also wouldn't be easy, would take a long time and, most importantly, would be politically unfavorable since people would not be happy with the government collecting more money in taxes than it spends.

The interesting part is the history behind why we ditched it. Increasing the ability of the feds to spend money as they got bigger and more powerful was obviously a reason, but perhaps the largest group of supporters for it was the Populist party. They wanted to ditch the gold standard because they specifically wanted to cause inflation.

Now, this might seem counterintuitive, Why would anyone want the inflation rate to go up? Isn't that a bad thing? Well, for the economy as a whole, usually, yes. But the base of the Populist party (namely, farmers) stood to benefit from it. See, back in the industrial era, farming was an old and tired business, the industrialization of things had made food products cheap, and farmers were going deeper and deeper into debt because they couldn't afford to keep their farms up for the income they got from selling their crops. They thus wanted inflation because it would raise the price of cash crops (and of everything), raising their income ... but would not alter the number of dollars they owed, and thus would enable them to more easily pay off their debts. Of course, while this would benefit the farmers, it would hurt the banks, who would then effectively collect less money since as the inflation rate rises the effective interest rate drops.

Okay, quick little economics lesson here (warning: math). The effective interest rate is equal to the gross interest rate minus the inflation rate. Say a bank gives someone a loan at 5% interest per annum. The inflation rate is 2% per annum. Therefore, the bank is really only effectively collecting 3% interest since over time the value of the money they're collecting is dropping. Now, let's say the same loan is given and the inflation rate spikes up to 6%... now the effective interest rate is -1%... meaning the bank is actually losing money on the loan.

This is one way in which hyperinflation can really wreck an economy. By putting banks in that situaton.

Of course, it's a godsend to anyone in debt.

Like I always say, there's a positive side to everything.

[hym 358]

Originally posted by: Duke87

It's not a big problem currently, but it could become one. Think about it. If everything is made by robots, transported by robots, and sold by robots... what work is there left for humans to do? Making and repairing the robots, or management... and that's it. The situation would be such that the number of jobs available would be a small fraction of the number of working-age people. quote>

What they have found is that for every job that a robot takes, it creates two jobs.  Yes, people lose the job they had and have to look for a new one elsewhere, but on the national scale, the increased automation is actually creating jobs.  There will always be jobs that can't easily be automated using the present technology, so there will always be non-management jobs available.  And then there's always work for the people designing the machines that take someone else's job.

In this way, automation helps the business and makes better products, but it hurts the economy overall.quote>

Interestingly, the wealth of modern nations has been improved by the use of machines and automation.  Increases in the right capital goods (such as robots), has led to higher prosperity for the nation involved.

But the base of the Populist party (namely, farmers) stood to benefit from it.quote>

Little history lesson here.  The farmers pushed for inflation because they recognized that they'd make more money from selling their crops.  However, they didn't seem to realize that due to the inflation, they'd have to pay more for their supplies, which would greatly offset the money they made from the increased cost of their farm goods.  Also, they didn't expect that families, due to the increased prices of food, would attempt to cut back on their food purchases.  So, ultimately, all the farmers managed to do was land themselves with higher supply costs.

[Meg 368]

Originally posted by: hym

What they have found is that for every job that a robot takes, it creates two jobs.  Yes, people lose the job they had and have to look for a new one elsewhere, but on the national scale, the increased automation is actually creating jobs.  There will always be jobs that can't easily be automated using the present technology, so there will always be non-management jobs available.  quote>

um . . . those jobs that "will always be" there . . . where are they now?     There are millions of people who would like to know.

And then there's always work for the people designing the machines that take someone else's job.   quote>

True.  Those people will be doing well.  but, as salt and sauce said,  there will be fewer of those jobs.

Interestingly, the wealth of modern nations has been improved by the use of machines and automation.  Increases in the right capital goods (such as robots), has led to higher prosperity for the nation involved. quote>

Automation can lead to higher output of goods, which can lead to a higher GNP.   and the guy who lost his job and can't find another one isn't going to give a hoot.

My point is, we need to be doing something with the people who lose their jobs.  Some of them can be retrained and some of them can't.  Some of them will find other jobs in the diminishing job pool and some of them won't.   There are going to be many "extra" people who really don't have a place to fit in.   

They are not going to quietly sit around, not causing any problems.  Even if you subscribe to the theory that they deserve their fate, they aren't going to just sit around and take it calmly.

This whole conversation reminds me of a discussion in my freshman philosophy class.  The question was about the definition of "maximizing good".   If X results in more "good" than Y, then X is a better thing.  Seems simple enough until you start talking about distribution.  

As the prof put it:  Say "good" is symbolized by a gallon of milk.  Then say that there are 100 empty milk jugs.  Which is the better scenario?   To have 5 gallons of milk distributed among 10 milk jugs or to have 3 gallons of milk distributed among 50 milk jugs?

 

Philosophy professors love questions like that.

It gets back to what JanYpe was saying about a "moral economy".   That phrase threw me at first until I realized that it made more sense to me to talk about an "economic system".   I'm not trying to quibble with words here.  I see a huge difference between "this economy sucks" and "this economic system sucks".

 

 

 

[hym 358]

Originally posted by: SkiGeek

Originally posted by: hym

What they have found is that for every job that a robot takes, it creates two jobs.  Yes, people lose the job they had and have to look for a new one elsewhere, but on the national scale, the increased automation is actually creating jobs.  There will always be jobs that can't easily be automated using the present technology, so there will always be non-management jobs available.  quote>

um . . . those jobs that "will always be" there . . . where are they now?     There are millions of people who would like to know.quote>

They're still there, there just aren't as many of them as there was before the downturn.  Before the downturn, there were X number of road construction jobs.  Now there are Y number of road construction jobs, where X>Y.  While there are less jobs, those jobs haven't been automated into non-existence, and that's very important.  The economy effects the number of road construction jobs needed, but it doesn't change the fact that they are still needed.  They haven't been automated into non-existence, and they won't be automated into non-existence any time in the near future.  Even when they are, there will still be other workers needed for other fields of construction that haven't been automated.

And that's just construction.  Medical services isn't going to be automated anytime soon, nor will other emergency personnel jobs.  Auditors that have to perform physical site visits aren't going anywhere anytime quickly either.  Police and firefighters aren't getting automated anytime soon.  Landscapers aren't going anywhere.  There will still be people needed to teach defensive driving classes.  Small shop owners are still going to need employees.  Electricians and plumbers aren't going anywhere.  Auto mechanics aren't getting automated anytime in the near future.  The US needs scientists like it's never needed them before, and you can't automate those jobs.  The list goes on and on and on, ad infinitum.

And then there's always work for the people designing the machines that take someone else's job.   quote>

True.  Those people will be doing well.  but, as salt and sauce said,  there will be fewer of those jobs.quote>

That's not necessarily true.  In fact, there's evidence to the opposite.  People are needed to service robots, people are needed to design robots, people are needed to program robots, and so on.  Those industries didn't exist before the advent of modern automation, and those industries are in need of employees.  Additionally, as robotics and general automation practices become more and more common in the workplace, the demand for people in the robot design and service industries is going to continue to grow.

Take the modern engineering world, for another example.  As a whole, engineers have tried to automate, simplify, and streamline as much of their work as possible.  And yet the United States needs engineers so badly that US companies are having to look around the world to find enough people to do the work, offer them insane salaries to move to the US, offer to pay to move them and their family, streamline the process of getting visas and becoming naturalized citizens, buy them a place to live in the US, possibly a car, and other stuff.  All because they need engineers that badly.  These jobs aren't going away; they're becoming more and more needed as time progresses.

Interestingly, the wealth of modern nations has been improved by the use of machines and automation.  Increases in the right capital goods (such as robots), has led to higher prosperity for the nation involved. quote>

My point is, we need to be doing something with the people who lose their jobs.  Some of them can be retrained and some of them can't.  Some of them will find other jobs in the diminishing job pool and some of them won't.   There are going to be many "extra" people who really don't have a place to fit in.quote>

As I said earlier, the whole "robots are going to take all the jobs and leave us with nothing" prediction is nothing more than playing the FUD card.  Robots have proven that they have many, many benefits to their implementation in the workplace.

Humans aren't always the most effifcient workers, as they can only work so quickly.  Machines can often work much more quickly, and if you put them at the right points on the assembly line, you can actually raise efficiency enough that you have to hire more workers to keep up with the machine(s).  There are companies that have had this happen.  They took jobs that humans couldn't do very efficiently, gave them to robots that could do them much better, and the robots were so efficient that they had to create a new assembly line just to keep up with the robots.

Many manufacturing jobs have repetitive motions that, if not compensated for, will result in something known as a repetitive motion injury.  Robots make excellent candidates for taking these jobs as they don't suffer from this problem.  Some jobs are very damaging to the environment when done by humans, but far less so when done by robots. 

Then there's the issue of worker safety.  Who'd you rather have clearing a minefield?  A robot that doesn't care that it just rolled over a landmine, or Abdul-Zahir, an Iraqi, who accidentally sets one off and is so badly disfigured that his family abandons him because they can't stand to look at him anymore?  Who'd you rather have doing sewing work on mass produced gloves?  A robot perfectly synced to work with the machinery, or Susan, whose index finger slipped just a bit and now has to have the end amputated because the sewing machine just drove an industrial needle through her finger 20 times and shattered the bone beyond repair?  What do you say to Demitri, a bright kid who is studying to be a surgeon and working at night to support himself, and was so unfortunate as to get his hands stuck in a stamping press and when the machine lifted the plate, he didn't have hands anymore?  Or maybe when it's time for Boeing to clean the welds off the aircraft it's making, maybe it shouldn't use a machine that doesn't care that it spilled caustic chemicals on itself.  Maybe the cruel, heartless, money-obessessed boss should make Bob do it, and then hope that Bob doesn't accidently spill the stuff on himself and then die an excruitating death while his coworkers are trying their best to help a man that is being eaten alive by caustic chemicals that are destroying his flesh.  Or maybe the chemical plant manager, evil bastard that he invariably must be (after all, he's a vice president, so he must be a jerk, right?), shouldn't buy an automated pressure reporting gauge for that pipe that is carrying 1500F water.  Maybe he should make Fred do the reporting by hand, and hope that one day, the pipe doesn't burst and literally turn Fred from a living, breathing, human being to a gas in the atmosphere that the rest of us are now breathing.

[Meg 368]

I'm not saying that robots are inherently bad.  I'm saying that the people they replace probably are not going to be retrained as engineers who can design robots.

As much as we want to declare that "all men are created equal", the fact remains that all individuals are not equally suited for all jobs.    People have different abilities and aptitudes, as well as different reactions to different environments. 

As you point out, we are already at the point where we need more engineers than we have.  Is this because people don't want to learn how to be an engineer?  Maybe, for some of them.   But, I suspect that most people do not have the aptitude or inclination to be an engineer. 

  

[PhantomOwl 3]

I don't really think that the stimulus bill will cause hyperinflation. $700 billion may seem like a lot, but it's actually not. If you take a look at Japan's 'lost decade,' you'll see that the Japanese government spent over $3 billion to bail out their banks. (The bail out didn't work by the way; too little too late. Japan was finally yanked out of its funk by increased trade with China.) If you compare Japan's economy to the US's, you'd see that our recent two bailouts are just drops in the bucket.

The current bailout is watered down too much. It's not forceful enough, there isn't enough spending in it, and it is going to fail.

The fundamentals of the US economy are all out of whack because of the housing bubble that started in the 80's. Back then the average home was valued in the tens of thousands of dollars. Even after the bubble popped a few months ago, the same houses are valued in the hundreds of thousands of dollars. In the time since this rise in housing values started, per capita income has grown only slightly. The supply of houses has risen far faster than the country's population. The higher housing prices were largely a function of easier credit (due to unstable rules) and idiotic notions that a house should function like a hedge fund (constantly gain value). The result is that a large number of people (who owned their homes before the bubble began) basically got rich overnight, and an even larger number of people signed up for mortgages that they couldn't afford, banking on the idea that the house would appreciate so much value it would pay for itself.

The result was that everyone had more purchasing power than they actually deserved. The money was imaginary to begin with, but the WHOLE economy started to rely on it. Now it has more or less evaporated.

The purpose of the bailout is essentially to prepare the whole economy for the contraction of the sectors that are no longer functioning properly. The idea is that since construction has basically halted, (and we need new infrastructure anyway), we can create work for the construction industry and other ancillary industries while we wait for the bubble to deflate properly and some other (hopefully more stable) sector to take off.

Speaking from a civil engineering perspective (I'm still an undergrad, but I work relatively closely with some professors who also do consulting), we really need the spending. Really. At least half of our bridges and tunnels are way over their design life. Our water systems are a mess. Very little work has been done on getting our levees up to spec. We're due for another major infrastructure failure soon, and it will probably dwarf the colossal failure of New Orleans' levees in 2005. I was really counting on Obama to be more firm about needing to spend this money. I'm kind of disappointed that he's been so timid.

[hym 358]

As I said earlier, people are playing the FUD card in this.  Even excluding jobs like robot technicians and engineers, the idea that robots are going to take all of our jobs is ludicrous.  The economics of switching to robots simply don't allow that and it will likely remain that way for several decades into the future.

There is another complicating factor in this.  Say Ed makes widgets.  Thanks to globalization, Ed's job is in danger regardless of whether he loses it to a robot, or to a starving dude in the Third World who will gladly work for a dollar a day.  Question is, where do you wan the job going?  Do you want to being taken over by a machine where, at the very least, the manufacturing capacity remains in the US, and there is a chance that Ed could get a job elsewhere in the plant or at a different company making a similar product?  Or would you rather it be outsourced to India, leaving the US without that manufacturing capacity and Ed with even less chance of getting a job?

I don't know about you, but I'm going with the former.

[PhantomOwl 3]

Agreed. In the US, we've let our manufacturing capacity slide too far. Outsourcing manufacturing jobs that pay ~$50K a year here to someone who will earn maybe $1K in a year "over there" may be appealing to some parties, but overall, everyone loses. People here lose because there are fewer and fewer jobs available that don't require a college degree. And while some people say that the people working in 3rd world sweatshops are lucky to be paid, those laborers lose just as much.

Instead of making sneakers for us at basically slave wages, they should be making products for their own domestic markets. That's the only way that wealth differences between the West and the third world are going to shrink. They're not going to turn China or Indonesia or India into middle class paradises like the West unless there's a commitment to paying their blue collar workers wages comparable to those in the west.

At the same time, imagine a scenario in which the third world somehow makes a large leap in quality of life. On a middle class earth, where it costs basically the same to manufacture a car in Seol as it does in Detroit, and the sneakers form Jakarta cost the same as the ones from San Diego, the US would be in big trouble. The countries with the biggest manufacturing capacity would have the most economic power, and since we've let our factories rust, we'd be the planet's economic backwaters.

So even if those "world is flat" economic libertarians are right about the direction of globalization (and I don't think they are), they're setting us up for trouble in the long run.

Although... middle class earth is definitely something to aspire to...