I’ll just start off by saying I am not an economist nor even an investor.  In fact, much about economics I find somewhat confusing.  There isn’t much that confuses me either.  I am really good at math and science, I like to think I’m reasonably literate.  I have a decent understanding of history and try to view alternative viewpoints on it when possible.  Just in general, I am pretty good at “figuring things out”.

Economics is one thing that generally confuses me still.  Actually, it’s possible it doesn’t confuse me at all and there are in fact gaping holes in it’s logic and process that most people don’t see or choose to ignore.  This isn’t really much of an report either, more of a rambling analysis.

Enough about me though.  Let’s talk about the Economy.  Everyone is looking for a solution to  problem to “fix the Global Financial Crisis”.  The problem is, there isn’t really one problem to fix.  This whole situation may in fact be irreparable.  I can count many many unrelated issues in our world, in our lifestyles, in our politics, in our economy, that have factored into this huge snowball that has been created and is now looming over us all.

I had considered doing separate posts on each topic but I figure it’s better to just lump them all into one essay.  It may come off a bit random but I’ll try to keep things coherent.  Unfortunately, these topics are often unrelated so there isn’t necessarily a good starting point.  If there was one starting point we’d be able to easily find one solution.  The general commonality is “greed” but I hate the idea of coming off as some psychotic anti corporate jackass.

The Greed Factor

It’s as good a place as any to start.  Greed has to be included because it certainly is a factor and it’s likely the most commonly pushed one.  Greed by the corporations ruling the world.

In the name of cutting margins and gaining “quick short term returns” companies push layoffs and cut corners on manufacturing.  Cutting employees is a quick way to keep a company a float when it’s in trouble of course and it’s a very common tactic in the immediate news as more and more companies are trying to make things work in the tight economy.  The problem is as employees get cut and unemployment rises, there is no where for these people to go.  Less people have money, less people spend money, thus the circular nature of the economy fails.  Money dries up even more and companies cut even more.

One can easily argue of course that the way to help prevent this downward spiral is to not cut employees.  Where does savings come from?  Maybe cut salaries.  There is  tremendous disparage between “the wealthy” and “the not wealthy”.  Families can be supported on 20-30k a year if push comes to shove, often less, why would any one need an annual salary of 500k per year?  I’m not saying we should level everyone to poverty, I am suggesting that perhaps some of the higher ups should take a second look at their own salary when considering where cuts should come from.  Do you even need a regular raise when you’re making that much?  You’re already well above the “standard living level”, you don’t need a “cost of living increase”. 

One might suggest that being in a position of power implies a need for nicer better things to impress with.  Is there really truth in this?  When does the need to impress surpass into the level of pointless Greed?  Ok, there’s a difference between say, a $20 suit and a $500 suit, but is thee really a difference between a $500 suit and a $10,000 suit?  I admit my numbers may be off as I don’t generally shot for suits but the example can be applied to many other things, especially basic things like clothes, food, or even home furnishings.

There was a news article recently about a company that sold itself to a Dutch company.  The employees were told they were going to keep their jobs and everything.  What did the previous owners do?  Why they gave the money out to the employees based on years of service.  Yeah, they could have kept it all and lived he life of multi millionaires but instead they chose to reward their loyal employees.  some of these bonuses were in the $30,000 range.

The Population Factor

There is also the factor of population.  China is a pretty crowded and crummy place to live, but being Communist isn’t the only factor.  Having Billions of people is certainly one important reason for this.  Why is China so easily exploited for cheap labor?  Maybe because there is a ton of people in need of any work they can get.

While there aren’t too many places besides China with such a bulk of people, the rest of the world is working on catching up.  I’m not suggesting we adopt some sort of crazy birthing law or anything but population can eventually reach a saturation point.  This is partially due to the next point I want to discuss.

The Efficiency Factor

The world is becoming much more efficient.  Manufacturing is becoming more automated, the Internet means less travel, computers mean less physical space needed for storage of data.  Things are just streamlining down as technology becomes better.  this is actually good for society as a whole.  Less waste means it’s good for the environment too.  I can’t wait for the day when I don’t have to use any paper for anything.  I’m already pushing documents and receipts to PDFs for archival on a hard drive instead of a file cabinet.

The problem is that as business and manufacturing become more streamlined, people in these industries may suffer.  Who needs assembly line workers when you can use robots?  It’s more efficient for a call center to route call through the Internet to India than to pay someone to be local and take calls.  That sort of thing.

I still stand that overall this is good.  The problem is that people still apply old principles to new ways of work.  Office use of things like Facebook is up in part because employees find they finish their work quickly and end up bored.  Give the employee more to do then you say.  Then that employee will expect more pay.  Or you’ll be pushing too much on him.  The point is that things like working 8 hours a day 9-5 need to go away.  Modern technology and methods could easily give everyone a 30 hour work week.  For jobs still requiring more time to complete you could hire two people.  This touches back on the issue of rising population.

I would like to add however that I’m suggesting that we cut everyone’s pay by 25%, just the time spent at work.  The benefit of this is general happiness would rise and more people could be employed.  The ultimate goal of course is that everything becomes automated and no one works.  The elimination of work and money would help to eliminate greed and needless “status”.  I’m meandering off a bit into the fantasy world however and off topic.

The main point of this topic is that more efficiency means less jobs and higher unemployment. 

The Globalization Factor

This is a bit of a big one. 

I had a brief discussion recently where someone told me I was full of crap for thinking layoffs like this would affect the economy and that a shift towards the single man home business wouldn’t work on a large scale.  Here’s the thing though, it doesn’t.

One person providing a specialized service works great.  Heck, ten people providing a specialized service works great.  A thousand people, not so great.  With the global factor of the internet, it only takes a small fraction of the people providing said service to undercut everyone else out of business.  And chances are there will be say, 5% of the people in this market with
a Linux Open Source style mindset that will flat out give away said service (I’m not bashing this idealism by the way).

Yeah, in the “olden days” this would have worked.  Some guy in New York can sell his custom made widgets for $10 a pop while some guy in California charges $30.  Guess what, the viability of long distance commerce hasn’t been a factor until recently.  But now, that guy in New York can sell his widgets online for $10 each very easily, guess what, the one in California isn’t going to be making Widgets for long.

I realize I’m using two US cities in my example, but this does factor in across the ocean as well. It’s basically the same concept as outsourcing that large companies do only done on a smaller scale.  Some guy in India may be able to undercut both of our Widget makers since he can produce Widgets for 50 cents (US).

Yeah, you have factors like quality and “Made in the US” but ultimately price is a large determining factor.  Look at stores like Wal-Mart.  Once again, this is a bit circular to the previous factors.  Globalizations means more efficiency and is powered somewhat by Greed

The Social Factor

This is a factor that follows well with Globalization.  In addition to Globalization of the economy, we have Globalization of mindset.  In the past, companies could much more easily control the mindshare of the population around them.  People wanted to watch TV, they had to watch network television and watch the commercials fed to them.

With the internet however, people are much more free to explore other countries and areas of the world.  Commercialism has some influence on the mindset of the populace but opinions of Peers has even more of an influence.  People are connecting with Peers in other nations with different cultures and mindsets regularly these days which makes them much less susceptible to localized control through consumerism.

Basically, here’s a good example with a pioneer industry in the Global Mindset, Music.  People previously picked up musical tastes from their friends and local radio.  Today, the friends are still a factor but most people like to pick and choose the music they listen to and use iPods (or other personal media devices).  The thing is, maybe these people are good friends with some people in England, or Canada, or Japan.  Now, instead of listening to local pop bands, hey start developing a wider taste in “foreign” pop bands.  Or even foreign obscure bands.  The same occurs with television or books or even what news to read.

As people becomes more Social and connected, the focus becomes harder to control and pinpoint.

Wrap Up

Ok, I’m going to have to wrap up here.  Unfortunately, I am terribly bad at not taking notes and it’s been a few weeks since I started writing this.  I am pretty sure I had a few other points to ad but I’m going to close off here since things are getting a bit long.

Still, these examples are given to show that the answer as to why the economy is having it’s current problems isn’t not a clear one.  Several of these factors influence the others and it’s all pretty intertwined.  Essentially, it was inevitable but it can and should be ultimately good for everyone.  The way things work will have to change and it’ll be rough but the world will come out on top eventually.

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