Tuesday, January 15, 2008

The Economy, Stupid: Or, Further Thoughts on the House of Cards

I got a couple of comments on my previous post reacting to what they saw as a knee-jerk anti-corporatism. The term "hegemon," I think, triggered some of this; honestly, look it up. I consider myself sort of an agnostic on this issue, a four on the one-to-ten scale of "Visceral Response to Corporations," where 1 is "They are the fat-cat horsemen of the apocalypse spreading disease over lands far and wide out of malice and spite!" and 10 is "They are at the vanguard of the march of progress to liberate us from our cave-dwellings out of the goodness of their hearts!"

I do think there is something unhuman (not inhuman, quite) about corporations. They take on an identity apart from the people whose aggregated labor they represent (hence our legal treatment of corporations--limited liability, corporate "rights," &c.--they are both de facto and de jure entities unto themselves). I think also that given the scale and scope at which they currently function, we treat them less like human forces and more like implacable forces of nature, like hurricanes or governments. The lack of transparency disturbs me. The something else disturbs me, the part of them that is not people and seems more self-propagating than beholden to human interests. We do not need Coca-Cola; how is it that Coca-Cola convinces us that we do? And why?

Truly, though, people need jobs and corporations provide them. People want soft drinks and toothbrushes and arcane financial advice and corporations provide them.

But as Moom, an honest-to-God economics professor, so helpfully explained, there really is this question of "how far can this go?" Others have mention that population growth fuels economic growth. But population growth, too, is limited by the intersection of natural resources and human technology (i.e., how much we have in the way of natural resources and how far we can stretch it), and it looks, some days, like we are beginning to approach that endpoint. Now, we're resourceful creatures, and so I wouldn't be super-surprised if indeed we now set ourselves to the business of stretching our stretched natural resources further than ever they have stretched before, but doesn't it seem logical that at some point, there is terminus? At some point, population growth must, for everyone's sake, flatline? And as Meg said, just imagine what would happen if we all scaled back, immediately, synchronically, and drastically. Imagine if everyone suddenly decided (realized?) that Coca-Cola is full of vile high-fructose corn syrup, tastes like cough syrup, and rots your teeth. Imagine if everyone suddenly decided that their old sheets are good enough, that their old car is good enough, that the store brand is basically the same, that Gucci is tainted with Tom Ford's disgustingness, that they don't really want any more DVDs after all. Imagine what would happen if no one bought things they didn't need, either because they'd decided that they couldn't afford to or because they'd decided they no longer wanted to. Imagine what would happen. I can't even imagine it, quite. We rely on all those people spending all that money. We need them. So how can it be that we both depend, desperately, on their continuing to spend every penny to which they have access and chastise them for their profligacy? All of the guilt and shame and finger-wagging--why and wherefore? We need those people.

I know that I sound more and more like a crazy person as I struggle to explain this, and please do believe that I know that I don't really know what I'm talking about, that I am not waving my arms in the air for the head of Ben Bernanke or putting on a stocking cap to raise my tiny fists like antennas to heaven against the WTO. I lack a certain vocabulary here, and I would like to find some relevant information. I am not necessarily even saying I am right. I am saying I have a hunch here, that I wonder about the way it all works, the power it has to shape our lives.


MEG said...

You need to immediately find and read a copy of the book "Ishmael" by Daniel Quinn. Like, this week. I'm in the middle of it right now. As an English major, you'll appreciate it. As a philosopher on the subject of the economy, human nature, and corporate citizenry (not to mention religion, culture mythology, and animal rights/environmentalism) you'll salivate over it. OMG I can't wait for you to read it. So crazy that you're musing about all these same topics right now!

Anonymous said...

I just finished my degree in Finance and must say that the best book for you to read would be "Structure and Change in Economic History". It was written by the famous economist(and Noble Laureate)Douglass North. One of his main arguments is that once a population grows beyond what is sustainable by available resources/technology, economic decline and war occurs. Once the population has become low enough or the technology high enough, economic growth will occur. For North, all of economic history is the result of one thing: population growth.

mOOm said...

If everyone decided to stop buying junk tomorrow there would be a sudden contraction in the economy - a recession - and after that things would adjust and go on as normal with a somewhat smaller economy.

I said yesterday that investing in stocks for the long term depends on believing in economic growth. If growth suddenly stopped stock prices would fall as those growth expectations were removed. After that companies would pay out bigger dividends probably and stock price indices would remain fairly stable. After the once off adjustment, returns to investing in stocks might not be much different. If the economy started to contract in the long-term stock prices would fall even more sharply.... but companies can still make profits without growth and return those profits as dividends to shareholders. It's the adjustment to a steady state sustainable economy that would be wrenching.

Andrew Stevens said...

I agree that we treat corporations less like human forces and more like implacable forces of nature. I was saying that I don't think we should. E.g. "Enron" didn't do anything; a bunch of rapacious numbskulls at Enron broke a number of laws, both legal and ethical.

Some corporations are quite unethical (like Enron); others are about as straightlaced as it's possible to imagine. Almost all corporations move back and forth depending on who the CEO is and how the corporate culture changes.

I agree with Moom that if people stop buying junk, this wouldn't be an economic disaster. It would probably hurt all of us reading this blog somewhat. The American consumer's propensity to consume is part of what allows those of us who are willing to invest to make such good returns. If everybody decided to save and invest along with us, that would drive down interest rates. The fall in spending and increase in saving and investment would cause companies to lose revenues, leading to a recession. The reason why this wouldn't be a disaster is because if demand slackens and prices fall, that's an encouragement to buy and if interest rates fall, that's an encouragement to borrow, so it is usually only a short-term problem.

But we are right to finger-wag. I would gladly weather a recession if everyone in the country took the opportunity to stock up their emergency funds so they can easily weather the next recession. I think this would lead to less tension, less unhappiness, and fewer problems in general. Despite what you may have thought about my last comment, I never thought you were a knee-jerk anti-corporatist (I've been reading your blog long enough to know better). Many of the people who are genuine anti-corporatists are people who hate businesses because they hate their jobs and they hate the prices they have to pay for necessities. They hate their jobs because they feel trapped in them and they hate the prices of the things they buy because they constantly feel their paychecks are being squeezed. All of this is a result of not having enough in savings.

Miss Noodle said...

As a nota bene: I there's a lot more transparency in the financial world than is immediately apparent to little investors like us. As somebody who's covered the securities industry, companies spend millions on accounting firms preparing disclosures for the Securities and Exchange commission (SEC). They have to tell the Feds very detailed information about how they do their accounting, what they earn, how much they pay all manner of people, why, etc. They have both an internal and external auditor review all of their doccuments.

So, I'm not saying there's not reason for some skepticism and anxiety. Keep asking the big questions and finding out more!

PiggyBankBlues said...

i am beyond grateful for the industrial revolution, but it will take hundreds of years to work out its kinks, the least of which is market regulation and distribution of wealth.

but then, bartering and agrarian societies weren't exactly the old hegemons in a world of rampant equality...

i've really enjoyed reading your last of couple posts (and their comments). you're like the people's version of darcy taggart, or a numismatic's reverie...

Anonymous said...

Props on the Godspeed you! reference...

Sistah Ant said...

"We rely on all those people spending all that money. We need them. So how can it be that we both depend, desperately, on their continuing to spend every penny to which they have access and chastise them for their profligacy? "

this really, really resonates. conversely, i am personally not doing much to help the american economy - i don't have the SPEND SPEND SPEND mindset. never really have. and as my income increases, i'm still not persuaded to change my mindset. somehow i feel like my frugality comes at the expense of my country. how can that be?

mOOm said...

It's a myth that you're "helping the economy" by spending. So don't worry about it.

Andrew Stevens said...

Besides, when we say that "the economy is good" or the "economy is bad," what do we really care about? That statistics about how fast money is circulating look good or that this circulation is actually improving people's lives? Obviously the latter. (If we just wanted to improve the statistics, we could pass a law mandating that every person in the country must both give to and receive from another person exactly one shoeshine at a cost of $2,000,000. Nobody will actually be any better off, other than having cleaner shoes, but our GDP would explode by quadrillions of dollars.)

Spending money on perfectly useless junk which you don't need and which doesn't make you happy and restricts your future choices on spending which would make you happy is bad for the economy, in the sense that productivity is being wasted in creating this junk that you don't really want or need anyway. Personal finance is about responsible spending, the kind that actually makes your life better (which can, I believe, include Coca-Cola, Gucci, and DVDs; I'm not going to judge other people's little luxuries).

People like Warren Buffett, who is worth billions but lives a pretty solidly upper middle class lifestyle (other than his one luxury, a private corporate jet he calls The Indefensible), are national benefactors. By not engaging in all the consumption they could, they are bidding down prices and interest rates, thus making it easier for other people to afford things and to borrow money. The people we should be looking askance at are those people who engage in conspicuous consumption, who buy lots of stuff they don't need and rarely use or who buy things merely to flaunt their wealth. Ebenezer Scrooge was a hero; he produced far more than he consumed, making all of his countrymen better off.

Anonymous said...

It should also be pointed out that corporations have to be profit machines. They can actually get sued by their shareholders if they don't do everything in their power to boost or maintain the maximum profits. The very structure of our corporations helps to contribute to the lack of focus on anything but profit.

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