The business cycle

In one sense there is no solution for our economic difficulties. We have a society full of mature adults who are illiterate, or innumerate, or both. They have all the skills they will ever acquire. They won’t be allowed to starve in the street. They won’t be denied the right to vote. When they get old and infirm they might me “euthanized,” but that’s a topic for another day.

In another sense, the solution to our economic difficulties could appear tomorrow. The economy crashed because people realized they had built a lot of useless stuff nobody needed – second McMansions for everyone! Then we realized we could only live in one house at a time, and came to see we could not sustain an economy in which people sell burgers to their childcare providers and the government taxes their employers to pay both an earned income credit. The recovery and then the next boom will happen in the same crazy way. One day people will simply decide they’re rich.

Maybe this time it will be, not McMansions, but obelisks. “Look at all these obelisks!” Paul Krugman will say. “Nobody has obelisks like America! We’re the greatest!” The economy will heat up as bankers loan money to build new obelisks out on the edge of town. The illiterate will get jobs counting obelisks for the government. The innumerate will write panegyrics to people’s obelisks, which people will post on the hot new app that’s gleebing all the frellbots. Apple will make a fortune selling easy-to-use Burlboxes to host the obelisk panegyrics. Thomas Friedman will explain how the economy has been fundamentally transformed.

Then one day people will look around and realize Finistere is a stupid waste of time and obelisks are useless. The market will crash, and we’ll all be broke again.


6 Replies to “The business cycle”

  1. As a non-economist, I suspect a big part of the problem is speculation. Large numbers of speculators got into the housing market which increased the demand which increased prices. As prices kept going up, more speculators got involved which increased demand even more, which made prices rise even faster. At some point, this pyramid-like situation has to fail. Prices no longer go up, and suddenly all of the speculators drop out of the market, causing demand to plummet which causes prices to plummet.

    1. Usually the bubble bursts after Joe and Jane Sixpack get in. And yet, how long after? I don’t know if people eventually come to their senses, or if they they just go mad for something else, but a man can go broke waiting for it to happen. There’s almost nothing I can say about finance and economics without multiple qualifications, so I resort to absurdity.

  2. Thomas Friedman will explain how the economy has been fundamentally transformed.

    I think this is pretty close to the heart of the problem– it’s not that markets go up and down, it’s that folks think they can be “fundamentally transformed” without the…bones being changed. Supply is supply, demand is demand, but there’s so much going on to blunt the edges that bubbles don’t pop until they’re so big that even blunt edges seem sharp.

    Housing, for example– a lot of different groups were able to force other groups to pay a little here, a little there, into their hats; that meant a lot of folks were pushing for more new houses, and that meant a lot of focus on turning folks into the kind of person that buys a house even if they just aren’t that kind of person. Making it so the kind of person who can’t buy a house actually CAN means that the kind of person who can buy a house is now able to buy two, sometimes really impressive ones. The incentives get all screwy until the thing that couldn’t possibly go on doesn’t any more.

    There is a solution, simplify things as much as possible and make it as above-board as possible, with as much local control as possible. That makes the forces smaller, so the blunting is less, so the bubbles don’t get as big before they pop.

    But an awful lot of folks are awfully happy with the way things are on top of the bubble…..

    1. Yes; people build careers, and develop business models, on the false assumptions that sustain the status quo, which must on no account be called a bubble or questioned at all.

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