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Guest Post: Why Our Consumer-Debt Dependent Economy Is Doomed

Tyler Durden's picture





 

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

If you understand the difference between the first pair of shoes and the 25th, you understand why America's debt-dependent consumer economy is doomed.

Yesterday I explained Why We're Stuck with a Bubble Economy:

Now that interest rates are near-zero and mortgage rates are rising from historic lows, there is no more juice to be squeezed from low rates. Asset bubbles always burst, destroying collateral and rendering borrowers and lenders alike insolvent.

Without organic demand from rising real income and new households with good-paying jobs and low levels of debt, the consumer-debt based economy stagnates. This has left the economy dependent on serial asset bubbles that create phantom collateral that can support new debt, albeit temporarily.

The other critical dynamic is the marginal utility of additional consumption in a debt-dependent consumer economy. In an economy in which 49% of all residents (156 million people out of a total population of 317 million) receive a direct transfer of cash or cash-equivalent benefit from the central government, and millions of these people also receive cash and/or benefits from state and local governments (49% of Americans Get Government Benefits), poverty is relative rather than absolute for the vast majority of Americans.

The American economy is highly dependent on consumption. Household consumption accounts for about 35% of developing economies' activity--roughly half of America's 70% consumption economy.

As noted yesterday, with the earned income of the lower 90% of wage earners stagnant for four decades, America has enabled consumption by leveraging income and collateral into ever-rising mountains of debt.

The problem with debt, of course, is that it accrues interest, and that paying interest reduces the amount of income left to spend on consumption.

In this way, depending on debt to finance consumption is akin to the snake eating its own tail: at some point, the cost of servicing the debt reduces the income available to be spent on additional consumption to zero. Additional consumption becomes impossible without asset bubbles to temporarily enrich the households that own assets or "helicopter drops" of interest-free cash into household checking accounts.

This is how we have reached the point that a majority of U.S. households live paycheck to paycheck, as earnings are eaten up by essential bills and debt service.

Given that the majority of Americans already enjoy a considerable array of consumer goods and services, the only way to fuel more consumption is to entice consumers into buying more of what they already own or buy a replacement for a perfectly usable good or service. Let's illustrate the concept of marginal utility with shoes.

To those with no shoes at all (a common enough occurrence in the 1930s Great Depression), the utility of one pair of shoes is extremely high: the utility (i.e. the benefits) resulting from owning that one pair of shoes is enormous.

Now consider an aspirational-consumer (i.e. someone striving to look wealthier and more successful than they really are) of the upper-middle class: this consumer might own several dozen pairs of shoes, and his/her problem is finding space for more shoes.

The retailer attempting to persuade this consumer to buy a 25th pair of shoes must overcome the diminishing utility (i.e. marginal utility) of yet another pair of shoes. This is accomplished by offering a "deal you can't pass up" or appealing to the always pressing need to jettison last year's style in favor of this year's "new thing."

Here's the critical point of this dynamic: to the consumer who already owns so much stuff that he has to rent a storage facility to store all the surplus goods, the utility of any additional purchase is low. In practical terms, the utility has declined to the thrill of the initial purchase and the initial wearing/use of the new item. Beyond that, it's just another pair of shoes in the closet.

To the manufacturer/retailer/government dependent on more sales for survival, the value of the first pair of shoes sold and the 25th pair sold are the same. The manufacturer/retailer needs to sell more shoes just to stay in business, and the government living off sales and other consumption-generated taxes also needs more sales.

In an economy in which most people have the essentials of life--i.e. the first pair of shoes with the highest utility--all consumption beyond replacing a hopelessly broken essential is of marginal utility.

An additional $1 of debt adds the same burden to the household whether it is spent on the first pair of shoes or the 25th pair. Taking on debt might make sense for the first pair of shoes, or the first bicycle, but it makes increasingly less sense for each additional pair of shoes or replacement bicycle: the debt piles up but the utility derived from the purchase is increasingly marginal.

The $3,000 I could spend on a replacement bike for the perfectly serviceable bicycle I bought used 15 years ago for $150 is of marginal utility; the better-quality parts and lighter frame, etc.--all the benefits that would flow from spending $3,000 for a "better, more modern" bike are extremely marginal to me, even though I put well over 1,000 miles a year on my bike. All those improvements are too modest to matter. This is the essence of marginal utility.

If you understand the difference between the first pair of shoes and the 25th, and the increasing diversion of income to interest payments that results from debt-based consumption, then you understand why America's debt-dependent consumer economy is doomed.

 


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Tue, 12/10/2013 - 22:46 | Link to Comment jet813
jet813's picture

lol you know what they say about opinions - everybody's got one :-)

Tue, 12/10/2013 - 23:04 | Link to Comment Almost Solvent
Almost Solvent's picture

This guy meant what he said when he said NO MORE SHOES!

http://www.nydailynews.com/news/world/man-commits-suicide-girlfriend-ref...

Wed, 12/11/2013 - 07:14 | Link to Comment new game
new game's picture

what should happen is dump the bitch in the river and float the 47 pairs of shoes down the river as a going away ceremony - bye bye bitch. spending problem solved.

Tue, 12/10/2013 - 22:47 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Shit, most people don't have wages that cover the cost of living.  $3,000 bikes?  WTF?  Get in shape or dope and they will give you those bikes.  Just ask Lance.

Tue, 12/10/2013 - 23:04 | Link to Comment SafelyGraze
SafelyGraze's picture

I think you misundestood the authors point which is more about how shoe sales are declining because of student debt and credit cards and so forth and that means that nike or reebok and so forth will decline and he is saying that he is shorting these companies and so that is what the author is saying and I am glad to be clearing that up some.

Tue, 12/10/2013 - 23:49 | Link to Comment SafelyGraze
SafelyGraze's picture

hey SG,  I am sorry but you appear that you did not read all the way to the end of what the author was writing about where he was writing that bicycles are not necessarily what you want to upgrade and so he is using that as a way to talk about upscale cars you have seen the lotus haven't you and so the article is about channel stuffing and he is saying to short transportation stocks, you should read more closely

Tue, 12/10/2013 - 23:53 | Link to Comment SafelyGraze
SafelyGraze's picture

you are mistaken because I did read it all the way to the end and maybe you are the one who missed where he was saying about how 

"the thrill of the initial purchase and the initial wearing/use of the new"

and probably that is about getting a new girlfriend you should try it oh yeah now I remember you are in your grandmother's basement and so you wouldn't know about that ha ha so this article is saying that hookers are the new reeboks but you probably wouldn't get that either because you just sit in a chair and play video games

Tue, 12/10/2013 - 23:54 | Link to Comment SafelyGraze
SafelyGraze's picture

enough already!

get a room, you two!

Wed, 12/11/2013 - 00:00 | Link to Comment akak
akak's picture

I think this thread is unraveling!

Wed, 12/11/2013 - 11:55 | Link to Comment JoBob
JoBob's picture

Punctuation is helpful if you want anyone to read your comments.

Wed, 12/11/2013 - 21:53 | Link to Comment mkhs
mkhs's picture

If you don't read them, how do you know they lack punctuation?

Tue, 12/10/2013 - 23:08 | Link to Comment infinity8
infinity8's picture

Nobody "worth-a-shit"  is playin' this fucked up game anymore.

Why?  I know you're with me on this. Hang up yer spurs, boys. Zip your wallets. Stop it.

Tue, 12/10/2013 - 22:56 | Link to Comment BandGap
BandGap's picture

Like brussel spouts washed down with stout beer, something has to give.

Tue, 12/10/2013 - 23:07 | Link to Comment Zero Point
Zero Point's picture

I read an interesting story once about Walmart's research into underpant buying habits.

They found that most people had a certain number of pairs on average, and did much soul searching before trying to break into that market.

After offering a nice brand at very low prices, they found an interesting thing:

Instead of chipping a percentage off some other retailer, the average number of pairs in people undy drawer went up.

Go figure. Strange old world.

What happens when the drawer gets full though? Sell furniture?

Tue, 12/10/2013 - 23:16 | Link to Comment akak
akak's picture

I have about 45 pair of underwear, but only because I hate wasting energy (i.e., hot water), and underwear are the only whites that I have to wash, so I would rather do only one load every 6 weeks rather than one load every week.

Tue, 12/10/2013 - 23:23 | Link to Comment SafelyGraze
SafelyGraze's picture

that is a lot of information to process and add to our database

hugs,
the people in the big white van parked at the corner 

Tue, 12/10/2013 - 23:33 | Link to Comment akak
akak's picture

And just for the record, those idiotic Jockey underwear with the horizontal "kangaroo pouch" fly completely suck, and clearly HAD to have been designed by either a woman or a eunuch.

Tue, 12/10/2013 - 23:45 | Link to Comment SafelyGraze
SafelyGraze's picture

we will pass that information-rich communication along to our handler

btw we spend a lot of days in this van and our motto re: u-wear is

flip 'em
turn 'em
flip 'em again

so we get 4 days of usage out of a single pair

sometimes more if it is a longer assignment 

Wed, 12/11/2013 - 02:03 | Link to Comment Boris Alatovkrap
Boris Alatovkrap's picture

You are transmission of excessive information ("TMI").

Wed, 12/11/2013 - 11:56 | Link to Comment Uncle Sugar
Uncle Sugar's picture

Boris - I don't read everything you post, but I immediately up arrow them all.  You are the anti-MDB.

Wed, 12/11/2013 - 16:49 | Link to Comment Boris Alatovkrap
Boris Alatovkrap's picture

Spasibo! You are very thankful!

(What is the "MDB"?)

Wed, 12/11/2013 - 18:46 | Link to Comment Miffed Microbio...
Miffed Microbiologist's picture

Now Akak, that was unkind. If I were to design underwear for a man he would feel like the biggest cock on the walk. You know who designed that underwear and they aren't known for their impressive scale in that region, hence such a design.

Miffed;-)

P.S. I enjoyed your subtle, sexual innuendo there. Sexual innuendo is a hard topic to stay on top of. As a humor tool, it stands erect in the English language. While there are no hard and fast rules as to what constitutes sexual innuendo, many people have mass-debated over the ins-and-outs of the topic, and now the general principles at the root of the topic are firm and well-rounded. However, full penetration of the subject requires that the reader take a long, hard look at the target and be a cunning linguist in order to avoid limp phrases and imbibe the phrase with a large handful of meanings. The topic can become hot by attempting to grasp it, and the more one experiments with it, the more interested they become. Also, as the language changes innuendos must change in order to fill the newly created holes and satisfy listeners.

Sorry, I can be an insatiable flirt. ;-)

Wed, 12/11/2013 - 19:26 | Link to Comment akak
akak's picture

I would accuse you of stroking your ego and massaging your cunning linguist talents with your fertile and turgid imagination, but your prior intercourse with others in this forum have demonstrated that your spunky nature invariably shoots out and comes to a head regardless of the topic in hand.

Wed, 12/11/2013 - 20:52 | Link to Comment Miffed Microbio...
Miffed Microbiologist's picture

Touché! One just needs to stimulate me to get my juices flowing in various topics. Sexual innuendo as an art and hobby of mine. An individual needs a certain level of oral skills in order for the fluidic exchange of innuendo to be received properly by the intended recipient. This is not an easy task for most people, especially those so doctrinated in PC tripe or the unimaginative whose lives resemble a rock, so it is only through rigorous repetition of the insertion of sexual innuendo that one can fully master the uplifting effects it can have on vocabulary.

Crap, I've got to stop or I'm sure to get a spanking. It's times like these when I realize my flunking sexual discrimination training was probably justified. ;-)

Miffed;-)

Tue, 12/10/2013 - 23:25 | Link to Comment grid-b-gone
grid-b-gone's picture

So Wal-Mart and the undie company win, but the electric company, water, detergent, and drier sheets companies lose. 

Squeeze the middle-class and this is what you get - thinkers, and thinkers don't expand GDP like the good old days of habitual consumerism.

Tue, 12/10/2013 - 23:47 | Link to Comment F22
F22's picture

Dude....go commando

Tue, 12/10/2013 - 23:54 | Link to Comment dick cheneys ghost
dick cheneys ghost's picture

I haven't worn white underwear since the Reagan Administration

Wed, 12/11/2013 - 00:02 | Link to Comment akak
akak's picture

That's a good point, actually --- why don't they make yellowish-brown underwear, and save us all a lot of stress?

Wed, 12/11/2013 - 05:10 | Link to Comment cbxer55
cbxer55's picture

I just wear black underwear. No dis-coloration problems. Can wear them for multiple days, and no one would no the difference. ;-)

Wed, 12/11/2013 - 18:20 | Link to Comment Miffed Microbio...
Miffed Microbiologist's picture

Cb,

Mr Miffed would have truly appreciated that suggestion. A few years back I was ill with stomach flu and he tried to do a laundry unsupervised ( that man MUST have clean underwear, some kind of genital pride thing) He ran a hot wash with his white jockeys but added a few of my red cotton bikini panties just to be efficient. Yup, you guessed it. Thirty pairs of pink jockeys. This was so hysterical. Being quite the he man he was loathe to wear pink underwear but he is also very frugal so tossing out good underwear was anathema. I called it his Jewish Dilemma ( free ham). He was so distraught I came to his rescue and managed to bleach them sufficiently to where he viewed them as wearable. He has great respect for me as a laundress as well as a few other things. ;-)

Miffed;-)

Wed, 12/11/2013 - 07:49 | Link to Comment shutdown
shutdown's picture

I was thinking that, too. 

Wed, 12/11/2013 - 05:02 | Link to Comment Seer
Seer's picture

Well, That explains where that smell is coming from!

Imagine the energy we could save if we were to solve the self-cleaning clothes puzzle!

BTW - You don't need to use hot water unless you've got greasy stuff: this was made very clear to me by the owner of a laundry-mat that I used to use (it was one of the highest rated laundry-mats around).  Bacteria isn't going to be killed by the temps (and duration of wash) of typical water heater temps: soaps with disinfectants or bleach (ugh; I like H2O2- that's how I treat my well water) can do that, or... sun light (which also helps whiten).

Tue, 12/10/2013 - 23:27 | Link to Comment SilverFish
SilverFish's picture

No, this happens.......

 

 

http://www.youtube.com/watch?v=tO5sxLapAts

Tue, 12/10/2013 - 23:17 | Link to Comment grid-b-gone
grid-b-gone's picture

The movement of U.S. jobs offshore was a short-term corporate bonus. Corporate execs may have honestly believed that consumers from Mexico and China would pick up the slack of an American middle-class with stagnating wages, but that has not been the case.

The strategy of eroding the consumer base of an economy representing 25% of the world's wealth comes down to this:

Cost-cutting decisions have not resulted in new, affluent customers worldwide, but rather only destroyed the richest customer base that was essential to revenue and margin growth. Now that prime U.S. demographic group is more dependent than ever on government largess, and more likely to vote for promises that keep the gravy train chugging along its faux prosperity tracks.    

Wed, 12/11/2013 - 02:43 | Link to Comment Freddie
Freddie's picture

What is this "American middle-class" you speak of?

Wed, 12/11/2013 - 05:07 | Link to Comment Seer
Seer's picture

It was always a losing game.  Eventually growth wouldn't/couldn't be there.  I suspect that They know/knew this.

"Middle class" is a product of excess growth.  That's the reality.

Automation plays a HUGE role in cost-cutting.  Robots don't seem to get out and shop much... clearly, the "model" had/has a flaw.

Wed, 12/11/2013 - 07:24 | Link to Comment new game
new game's picture

seer, someone in upper management figured it out, but did he/they give a shit-fuck no, cause it is always about taking what one can get and worry about tomarrow when it arrives.

key words; monsanto, gmo, farmland, water table...

Wed, 12/11/2013 - 10:21 | Link to Comment Seer
Seer's picture

Maybe it's me, that I tend to view things in a more neutral perspective (IMO that keeps biases from blocking important information), but I don't see it so much as some diabolical plot so much as it is being about the big rat race.  The System itself demands constant growth, and, well, any edge that can be had is an edge over a competitor.  We can blame it on the shareholders, but, I suspect, many here have been one from time to time (and, if one is a day-trader then it's for a very short time), we've helped support this very system.

In a nutshell: human hubris led us to feel god-like in our ability to create growth, resulting on mass cognitive dissonance; the conclusion will be what it always is- collapse; I'm not seeing how we can reprogram our genetic engineering to not do other than "load up during good times and try to hold on during the bad times." (the ONLY way is if we were to understand growth itself, but then there's the problem of a "solution")

Tue, 12/10/2013 - 23:32 | Link to Comment NIHILIST CIPHER
NIHILIST CIPHER's picture

grid          Well I don't know about the mexicans but too funny that the Chinese and Indian people have spent their new increase in income on gold, shoes not so much.

Wed, 12/11/2013 - 05:10 | Link to Comment Seer
Seer's picture

I suspect that the numbers of Chinese and Indians buying gold isn't as large as your comment might suggest.  There are 750 million people in India living on $0.50/day; I'm sure that there's a similar situation in China.

Tue, 12/10/2013 - 23:36 | Link to Comment Crawdaddy
Crawdaddy's picture

Dear Guest Post - Stop it please. You are harshing my mellow.

Signed,
DC Snuge Licker
ps and my party bro - banky wanky douchebag from NY

Tue, 12/10/2013 - 23:40 | Link to Comment F22
F22's picture

How about the marginal utility of that 25th Gold American Eagle...or the 250th....

Wed, 12/11/2013 - 09:33 | Link to Comment Bobbyrib
Bobbyrib's picture

Same as the marginal utility of saving?

Tue, 12/10/2013 - 23:49 | Link to Comment Stuck on Zero
Stuck on Zero's picture

This is depressing.  I think I'll borrow $50K and go buy myself a new Mercedes.  Wouldn't the President be happy that I'm helping the economy?

 

Tue, 12/10/2013 - 23:54 | Link to Comment pupdog1
pupdog1's picture

As can be illustrated using the famous Imelda curve from banana republic economics, the two-thousandth pair of shoes has utility equal to the first pair.

Using the recently developed Moochelle curve, the four-thousandth pair is equal to the first, but only when purchased with taxpayer funds that were earmarked for orphans and pediatric medical research.

 

Wed, 12/11/2013 - 05:15 | Link to Comment Seer
Seer's picture

As someone married to a Filipina I can vouche for the shoe thing...  To be fair, however, my wife isn't all that excessive (lots of boots- we're on a farm!), and, while growing up in the Filippines she usually only ever had ONE pair of shoes.  Lots of exercise kicking shoes around... constant tirpping hazard! (not endowed with shoe closets)

Wed, 12/11/2013 - 00:09 | Link to Comment Diogenes
Diogenes's picture

"If you understand the difference between the first pair of shoes and the 25th, and the increasing diversion of income to interest payments that results from debt-based consumption, then you understand why America's debt-dependent consumer economy is doomed."

What are you a commie?

Wed, 12/11/2013 - 00:34 | Link to Comment Enough Already
Enough Already's picture

For the past 8 years I have purchased most of my "stuff" from the Value Village. Most recently, a pair of Michael Kors jeans. $6.99.From Michael Kors, directly, probably $149.99. 

This is the future. 

 

In the USofA we already have Too Much Stuff. Made in China. And in the USofA there are Value Villages and Goodwills, everywhere. 

Yes, there are poor people. But they are taught to be poor. 

Nothing will change until the economy collapses. 

Wed, 12/11/2013 - 05:18 | Link to Comment Seer
Seer's picture

"Yes, there are poor people. But they are taught to be poor."

Huh?

Given the reality/fact that upward mobility is mostly BS (higher rates in those socialist EU countries for chisst sakes!) I'd have to disagree that this is mostly about "choice."

"Nothing will change until the economy collapses."

Nothing will change until something changes.  Um, like, duh! (some sarc)  If you think that you'll be able to calmly stroll down to that Vallue Village after the economy collapses then I've got news for you...

Wed, 12/11/2013 - 05:50 | Link to Comment cossack55
cossack55's picture

WTF is a Michael Kors?  The only way I'm paying $150 for a pair of jeans is if the zipper is 24Ct gold

Wed, 12/11/2013 - 10:12 | Link to Comment Seer
Seer's picture

For some of us $150 would be pretty cheap for a BIG zipper...

Wed, 12/11/2013 - 07:33 | Link to Comment new game
new game's picture

the economy is like a candle slowly burning til the wax is gone and the wick lies in a small circle of molten wax that snuffs it out...

Wed, 12/11/2013 - 09:38 | Link to Comment Seer
Seer's picture

That's some sad shit right there!

Wed, 12/11/2013 - 07:39 | Link to Comment honestann
honestann's picture

The problem with debt, of course, is that it accrues interest, and that paying interest reduces the amount of income left to spend on consumption.

This is true, but focuses on the wrong problem.  When someone buys 25 pairs of shoes, the interest charges on the excess 23 pairs of shoes is vastly less than the cost of those shoes themselves.

Therefore, the main problem of debt is... the availability of debt is what lets people waste the cost of those 23 excess pairs of shoes.

The waste is the problem.  When I was a very young kid (maybe 5~8), I heard two kinds of conversations about debt.  They were:

#1:  The only people who can get loans are those who don't need them.

#2:  The only valid reason to borrow is to for productive business.

Follow those guidelines and the current disasters never happen.

However, when money need not be saved, and can instead be printed by the very banks who own the fed (as well as other banks), lending fiat money becomes a feeding frenzy.  And so, what became "normal" was "lending for anything, everything, whatever".

Give the short term thinking of virtually everyone (as endlessly promoted by media and EVERY company via marketing and advertizing), what do people expect?

People get deep in debt by buying 23 excess pairs of shoes, excessively expensive cars (and usually at least 1 more than necessary), and so forth for every product type.

The only healthy economy is an economy in which debt does not exist at all... or at the very most, debt to finance enlargement of a business that is already highly profitable but cannot meet demand.  That at least has some rationale, though personally I'd have that business save for a few years, then pay for the expansion out of savings, just like everyone else.

DEBT == DISEASE.

Wed, 12/11/2013 - 09:49 | Link to Comment Seer
Seer's picture

"#1:  The only people who can get loans are those who don't need them.

#2:  The only valid reason to borrow is to for productive business.

Follow those guidelines and the current disasters never happen."

BUT!  We're talking about a world in which there are now over 7 billion people vying for decreasing resources.  I would suggest that, as such, #2 is becoming less and less of a reality, which would then suggest that we're only really left with #1 (look around the room and ask yourself if you're wearing #1).

A disaster is guaranteed if one is basing an economic system around perpetual growth on a finite planet.  ANYTHING can be viewed as being "successful" given a short enough timeslice.

Interest and principle can NEVER be repaid- the money that is "interest" never existed.  I suspect that there's a reason for debt jubilees that history talks about.   It all went "wrong" (other than that little part about perpetual growth on a finite planet problem) when "interest" got basterdized from "I am enttitled to all calves born during transport" to "I am entitled to work that you may or may not do in the future."  The key here is that in its origin "interest" wasn't assumed.  Now days it's "guaranteed" (which is all Madoff-like)- we get to pretend that we're increasing our cattle herd.

Wed, 12/11/2013 - 13:53 | Link to Comment honestann
honestann's picture

This "finite planet" is a solid 12,000 km ball of resources with only a tiny fraction of the top 0.01% even touched, much less depleted.  This is not to say that certain conveniently available materials haven't been skimmed off (like super-easily accessible oil), but overall, the bulk (below few meters) is unexplored and untouched.  There's still plenty of "stuff" to make products with, and when certain materials get more difficult to find, they'll find or create replacements.

Nonetheless, the kind of growth that exists today should be cut back.  I mean, for everyone to buy twice what they earn by borrowing from the future is just stupid if not insane.  After all, the people who are borrowing are NOT borrowing because they only have half as much food as they need to survive!  Sheesh!

Given the fiat system, principle plus interest cannot be repaid... unless they endlessly and exponentially create more and more fiat as time passes, which they must, and they do.  So you are correct as long as people behave as they have in the past.

However, technically speaking, you are wrong.  I'll just give you one example to show how people CAN extract themselves from the monster.  Let's say you borrowed $1000 from someone at 5% interest.  Normally you would pay him back $1050 or $1100 or more (depending on how many years you take to pay back).  In the total aggregate, this requires the central banks to create more fiat so borrowers can pay back their loans.  However, if you borrowed from an individual, you could agree to work off your debt by giving him haircuts (if you know how), or taking care of his lawn and landscaping (if you know how), or tutor his kids (if you know how), or even dig up some gold and give him some of that.

ONLY when you borrow from banksters are you required to pay back "cash", which creates the situation you correctly identify.

People must come to realize their only hope is to blow up the fiat, fake, fraud, fiction, fantasy, fractional-reserve toilet-paper racket.  Otherwise those predators will literally destroy everyone by misdirecting all wealth into the hands of 1% of the population, at which point they'll find some excuse to kill off most or all of the 99%.  Once they have sufficiently capable robot slaves, the predators WILL kill off every non-predator who still lives.

If all trades involve real, physical goods for real, physical goods... none of the problems you describe exist.  Even the finite nature of resources automatically self-regulates, because people have to produce resources in order to trade for other resources.  So if resources get "harder to produce", then the volume of trade will fall accordingly.  Only in these fraudulent fiat and fractional-reserve systems can over-the-top world-wide insanity take place, as it does almost everywhere today.

Wed, 12/11/2013 - 19:04 | Link to Comment layman_please
layman_please's picture

i only disagree with the following: Once they have sufficiently capable robot slaves, the predators WILL kill off every non-predator who still lives.

to say this would be gross understatement of the psyche of these sociopaths. this action would backfire on them because it would destroy their natural environment(immense human misery is their only reality) and they would lose their identity only because they wouldn't have anybody to exploit to reflect their power. domination over robots wouldn't give them any satisfaction as it wouldn't cause them physical or emotional pain, nor humiliation or any of that sorts. of course one could argue that who am i to say robots won't experience emotions nor pain in the future but i'm just doubting, even if they would, that predators would get equal satisfaction out of it.

Thu, 12/12/2013 - 15:51 | Link to Comment honestann
honestann's picture

Well, I guess I'm not able to infer exactly how predator psyche works at this detailed a level.  I would have thought that having 100% power and control over 100% obedient slaves (organic or inorganic) would satisfy their power-lust just fine.

But if they are indeed as completely sick as you claim (need to know they inflict pain), then... they might keep some small quantity of human slaves around.  What sickos.

Thu, 12/12/2013 - 20:41 | Link to Comment layman_please
layman_please's picture

obviously, neither am i familiar exactly how their psyche operates but i'm trying not to make a mistake of imagining them as something i can comprehend or relate to on any level, so i always assume the worst. and so far, as has history, so is present my witness to their insatiable lust for endless domination, as they have secured more power/money/production than any healthy person could ever wish or claim for. important part is that everything in this world is relative and none of the previous three would matter without a reference or a context, which i think has to be of a similar nature, that is human, to relate to. even though they consider most of the population nothing more than a cattle, and rightfully so, they still wouldn't get the same kick out of for example beating a dog over whom any man can have 100% control.

furthermore, predators know instinctively that the effort to bring up a human being and the emotional attachment by doing so, are nowhere near the effort invested in that of an inorganic conscious entity or a robot, as i would assume they are quite independent from the very beginning as their physical form wouldn't be wimpish subject to the environment they operate in. moreover, one can't replace human body and restore their conscious at the push of a button, at least not yet. please excuse my wild assumptions because i was only extrapolating based on my understanding of the information you have provided here on zh about your ice project, which i have to admit, i find extremely fascinating. 

when it comes to small quantities, i'm not sure they would satisfy with that either. it would allow these few individuals to remain hidden(if they would be lucky enough to escape the bondage in the first place) in the vastness of an empty planet or if they wouldn't become completely replaceable by robots, predators, for their adversity, might once again witness the same effect bubonic plague had on the creation of the middle class.

so really, i don't see how they could benefit more from anything else than from the status quo. i guess seeing billions of people being obliterated in slow motion or in a heartbeat might provide these predators instant gratification from the process itself but that would be for their own detriment in the long run. i don't want to sound depressing but in my opinion it really can't get much worse than the current affairs.

Wed, 12/11/2013 - 07:47 | Link to Comment falak pema
falak pema's picture

Krugman's take to refute that fiat is now a bubble and to maintain that providing CB liquidity to sustain consumption, all the while hiking taxes on filthy rich to reduce state debt imbalance, is the way to go, finally boils down to one argument :  why this is the best solution given that it COULD make FIAT into a self fulfilling bubble, as screamed by the Austrians today.

Here's what he said : I agree that Bitcoin phenomenon is a safe haven for goldbug type cranks but I also feel its a self fulfilling bubble (that will burst eventually). This argument does nOT apply to reserve fiat 'cos :

a) It provides TAX revenues to build the social safety net in society that ensures internal social peace.

b) Its backed by GUNS of the State

So basically a State can print to infinity to ensure its elitist existence and to ensure the safety net for the sheeple consumer all because of ONE THING; the State has guns which BITCOINS and Gold Bugs do not!

Now you know WHY some Bubbles are Kosher while others are just bubbles! 

Krugmanism, the holy word of current Arch Shaman, is watered down Mussoliniism !

Yikes! For an economist to say its guns that run the republican world and not brains! No limits to printing has as collateral no limits to droning if you don't agree. Runaway Debts are therefore what the world needs to keep the economy rolling!

Its time to make, out of dumbed down CONSUMERS who will soon have nothing on their plates, responsible CITIZENS who vote  and who ASK for true representivity in Congress  and the Law Courts!

People WHO know how to count! 

Wed, 12/11/2013 - 10:05 | Link to Comment Seer
Seer's picture

"Its time to make, out of dumbed down CONSUMERS who will soon have nothing on their plates, responsible CITIZENS who vote  and who ASK for true representivity in Congress  and the Law Courts!"

This still doesn't address the fundamental problem of growth...  Consider this linkage:

http://gailtheactuary.files.wordpress.com/2013/07/world-oil-energy-real-...

Seems pretty logical to me.  I tend to be less capable of doing work when I'm hungry: when I eat I've got more ability to do work, I have more "energy" to burn.  Less GDP means less wealth per-capita; and, whether it's GDP or energy/oil leading the other, clearly there's linkage.  And since GDP is more or less an abstract (it's not a PHYSICAL thing) I'll continue to focus on energy/oil, physical resources, as being governor of our robustness.  I don't know which is worse, to know about resource depletion or to NOT know about it... the political propaganda always comes down more as groupism than as solution.

Wed, 12/11/2013 - 11:17 | Link to Comment falak pema
falak pema's picture

Seer, 

The problem today in the US, and for the world by ricochet, is that the US political system is CORRUPT. Huge consequences.

Agreed the longer term world focus should be on energy/consumer paradigm change.

But what has blocked the process since Brazil 1992/Kyoto global warming and population increase agenda were formulated has been the US political class's total indiference to these issues; more intent in raking in the $$$.

So to get achieve this  End we want we have to identify the Means to it in a powerful and politcally organised world : changing the leadership mindset of these corrupt short term thinkers who are PRIME movers in blocking this world wide Process! 

The "Our way of life non negotiable" meme deniers! 

Its gonna be a long and painful road. I know you guys at ZH are all pessimists on this front...

Wed, 12/11/2013 - 09:08 | Link to Comment mumbo_jumbo
mumbo_jumbo's picture

facts, piled on more facts......solutions?

Wed, 12/11/2013 - 10:08 | Link to Comment Seer
Seer's picture

"Solutions" only exist if there is a timeframe.  The very word suggests a state of permanence, and since time keeps ticking along there's really no way anything can be permanent.  Everything changes, stasis doesn't exist.

Further, I don't believe that we really even know what the problem is.

Wed, 12/11/2013 - 10:10 | Link to Comment Mi Naem
Mi Naem's picture

Has anyone else noticed that many of the articles on ZH are somewhat negative? 

Could this be a meaningful pattern?  This Tyler fellow must be a awfully grumpy sort. 

Wed, 12/11/2013 - 10:29 | Link to Comment Seer
Seer's picture

"Negative" and "positive" require some basis from which one is applying those qualifiers.

Is saying bad things about something bad, bad?  How about saying something good about something bad, is that good or bad?

One of my favorite movie lines, from White Men Can't Jump, Gloria Clemente (Rosie Perez):

Sometimes when you win, you really lose, and sometimes when you lose, you really win, and sometimes when you win or lose, you actually tie, and sometimes when you tie, you actually win or lose. Winning or losing is all one organic mechanism, from which one extracts what one needs.

Wed, 12/11/2013 - 12:04 | Link to Comment MagicMoney
MagicMoney's picture

I don't know how many times I have said this in my lifetime, but here it is again. Consumer spending is not economic growth. Consumer spending is dependent on finite cash balances from wages, interest, whatever. Consumer spending in itself does not achieve the ends of increased wealth. If a consumer makes $30,000 a year, & yet manages to increases his spending by 15%, this is not economic growth. He still makes the same annual wage, yet his spending has increased with no relation to cheaper consumer goods. Investments, & production is economic growth, ie more job creation from the production of value goods, & services. Things that generate a revenue are wealth creation. Investing in more valued rents in society is example. Yes even a lemonade stand generates revenue.  Keynesians argue that consumer spending is growth, they advocate that consumers have not enough money to spend for maximum consumption, so government must step in, & drain the coffers of government money, increasing debt, toward the tendency of bankruptcy & hyperinflation. Hahaha. This mind blowing implications stretches to all things in trade, yes even international trade involving trade deficits, etc. This is really junior stuff, yet most economist seem to ignore what is plainly obvious.

 

This is no different from the US government's definition of economic growth in it's GDP definition. That R&D is economic growth. What? How is R&D economic growth when it hasn't even lead to production of something tangible? Debt is wealth, don't matter the need for debt, or even if the debt even helps to facilitate the ends in which were aimed for. Economic growth simply accounts to bean counting, or counting stars. It doesn't even treat the economy, which is human society that trades with any dignity at all. It's treats the economy like a robot, instead of acting humans beings who are striving for fulfill their wants.

Wed, 12/11/2013 - 11:48 | Link to Comment Whiner
Whiner's picture

Marginal utility? Wait til ObammyCare chomps off 1.2% of GDP. Retail goes over the cliff.

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