Wednesday, June 3, 2015

All Too Real Non-Problems

From the Reuters News Service on Tuesday, June 2, 2015, we have the news that, Fed's Brainard says U.S. economic slowdown may be more than temporary.”  This is, of course, news to all the people who lost their jobs in 2008, are losing them now, and when new minimum wage laws are making employers look to Robbie the Robot as a source of uncomplaining, non-human, and less expensive labor.  As one of the Fed-Heads put it,

Fed-Head Brainard
“The U.S. economy's recent poor performance may be more than transitory, as the full impact of weak consumer spending, low investment and a strong dollar become apparent, Federal Reserve board member Lael Brainard said on Tuesday.”

Let’s address these three alleged causes of economic poor performance in the order given.

Weak Consumer Spending

This, frankly, is the only relevant factor on the list.  As readers of Dr. Harold G. Moulton’s 1935 classic The Formation of Capital should be aware, the demand for new capital investment (number two on the above list) is a “derived demand.”  Derived from what?  From consumer demand, or (as the Fed-Head put it), “weak consumer spending.”

And why aren’t consumers spending?  Because they don’t have money.  Why don’t they have money?  Because they’re not paid enough?  No, it’s because they don’t own enough.

If you want people to spend money, you need to make it possible for people to make money.  And what is doing most of the production in the world today?  Human labor?  No, it’s technology.  And the proportion of technology just gets bigger every time you make human labor more expensive.  It means that technology just became less expensive.

Think about it a moment.  All other things being equal, if you raise the price of something, people buy less of it.  If you price something higher than a substitute, people will buy the substitute, especially when it turns out that the substitute does what you want done better and cheaper.

"Danger, Will Robinson, I just took your job."
Not surprisingly, raising the minimum wage makes robot labor relatively less expensive and reduces consumer spending.

The only thing that’s going to increase consumer spending is empowering consumers to produce marketable goods and services, either with labor or capital.  With labor jobs disappearing, that leaves capital, and ownership of capital is the only thing that gives someone the right to receive the income generated by productive capital.

Conclusion: if you want to “strengthen” consumer spending, make people producers as well as consumers.

Low Investment

Want to increase low investment?  Make people producers with capital as well as with labor.  This will increase the demand for capital, stimulating investment.

Strong Dollar

A strong dollar is only “bad” if exports are more important to domestic consumers than imports — and imports are only important if the domestic economy isn’t producing sufficient consumer goods of the highest quality at the lowest price.  A strong dollar actually increases domestic consumption by empowering consumers to buy more for less . . . IF consumers have buying power because they are owners of capital getting increasing profits instead of laborers getting decreasing wages.

How to solve all three problems?  Try Capital Homesteading.


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