I am going to try a scratchpad post, with lots of "first approximations" -- ideas that currently seem obvious to me, but which do not reach deep, and which might have something fundamentally wrong with them. I think I have some good ideas here (but my thinking that is not enough, of course).
So, ok, first off, money. Dollars.
Popular wisdom has it that Dollars are pieces of paper backed by nothing. There's this guy in the federal reserve and when he thinks we need more dollars, he writes down a note that says create x dollars, and all of a sudden we have x additional dollars in our economy.
And, yes, there's a bit of truth to that.
But that does not mean that dollars are backed by nothing. For one thing, we have to pay our taxes in dollars. This means that dollars are backed by taxpayers. Taxpayers have to collect dollars to pay their taxes, so the efforts of taxpayers are available to anyone with dollars.
Another issue is that people like things to mostly stay the same. That is pretty much the whole reason we have government. And governments tend to topple when things change too much or too fast. Which is not exactly a backing for money (though there might be something there that I am not bright enough to grasp), but it is a reason to believe that the current system of dollars and taxes will be with us for a long time.
End of thought.
Except note that the people who are closer to the issuance of dollars will tend to have some advantages in collecting them.
And, note that this sort of suggests that to really understand economics we would have to understand not just the dollars but the people behind them. Dollars are easier to count, but I think we can make a few observations based on this hypothesis:
First: some people are "worth more than others". This is going to be situational -- the people that are worth more to you are going to be the people you wants stuff from, and if you are trading in dollars they will be the people you are giving your dollars to.
Second: economic worth has a rough correlation to population size. But this is complicated by the whole thing where some people do things you want and others do not.
But this also suggests that high unemployment corresponds in some way to untapped wealth. If you can find unemployed people that you like dealing with and if you can help them and if they can help you, you will both be better off. And you might make friends besides?
But I want to tie this back to The War On Drugs, and The Housing Bubble and The Educational System and maybe a few other issues, and 9/11 and a few other issues.
Specifically Cantor Fitzgerald. According to wikipedia:
The firm is one of twenty primary dealers who trade U.S. government securities directly with the Federal Reserve Bank of New York, and is also involved in investment banking, asset management, market data, and brokerage services.I was looking at a lot of data on 9/11 victims and I noticed that a lot of them were Cantor Fitzgerald employees. And, almost universally, they were really nice folk who would go out of their way to help other people. Which sort of makes sense, given that they were in the office when most people would be elsewhere.
But, given that I am supposing that our real economic wealth is our people and that the dollars are just a way of gaining access to that wealth, I am also imagining that having this kind of person between the issuance of dollars and their use was important for for making our wealth "real". This kind of person would be naturally inclined, I imagine, to direct money in ways that it would do the most good -- which also happens to meant that they would be inclined to direct money in ways that "generate the most wealth".
Their loss, I imagine probably made our markets a fraction of a percent less efficient than they had been. And, as any market economist can tell you, a tiny fraction of a percent loss in efficiency can snowball.
Of course I might be wrong here, or I might even be irrelevant -- I suspect I am right, but it's a very impressionistic sort of "right" if I am right. I have no clue how to measure the kind of efficiency I am hypothesizing here. But, if I am right, it's a sort of right that would probably be mostly useful in the HR department of big financial outfits.
P.S. I am not envisioning here, that these guys acted like loan officers dealing with small loans. I am, however, envisioning that they had something of a model for the consequences of their decisions -- that sometimes they would have insights beyond the bare facts of risk and profit.
Remember that my idea was that dollars have value because people have to pay taxes with them. Unless they also have value for other reasons, and unless those other reasons have some overriding importance, this means that raising taxes devalues dollars (causes inflation). This is because raising taxes increases the rate at which dollars have to flow without increasing the wealth behind the dollars.
If I am right about the reason that dollars have value, to increase actual wealth you have to increase the size of our population, increase their general education level and/or get them involved in worthwhile projects.
One way of increasing the size of our population involves having babies, letting them grow up and so on -- this has something like a 20-30 year lag time. And we also have a lot of people worrying about population growth. And they have some good reasons behind their worries. I could go on about population growth, crowding, cities, farms, population distribution and so on... and maybe I should, but not right now.
Another way of increasing the size of our population involves immigrants. Historically speaking, much of the U.S. population is an immigrant population. (There were also hundreds of nations here before the U.S. and many of them have been wiped out, and a few of them are doing well and most of the remainder are doing poorly, but that's another series of blog entries that is just going to have to wait.) Anyways, this approach has a fair bit of angst associated with it. And, again, some of the reasoning behind that angst might be good reasoning.
But we have the resources to support a much larger population than what we currently have. And, in fact, one of the big problems we are currently facing, economically, is a lack of growth in the housing market. We want to support a increase in family homes but we do not have the people interested in buying them (in part because people are being economical and doubling up on housing).
Which brings me to the Housing Bubble.
So, ok, the housing bubble is bad. Mkay? The housing bubble means that dollars got way disconnected from actual wealth.
Too obvious, right?
So, how about the War on Drugs?
If you look into the history of the War on Drugs, another country went into a severe loss of face and power because of addiction problems. They did it to themselves but they apparently had some outside help also. So, to keep that from happening here, we have the War on Drugs -- we do not want that happening here, right?
But, as near as I can tell, the underlying issue (which is that people can get diverted from productive activities to non-productive activities) is not being addressed in the War on Drugs. In other words, I think that it's an attack on a symptom which does not halt the disease. Ferinstance:
http://usat.ly/jFu7yL The economic winners of the last decade are states that focus on raw materials, government and senior citizens. The big losers are places that make thingsIn other words: from one point of view we have shifted our economy from doing something useful (making things) to keeping things from changing (government and senior citizens) and raw materials.
The raw materials thing is interesting, and maybe a hopeful thing? But other than that we apparently are not being very productive or worthwhile. Which, in turn suggests a loss of wealth behind our dollars.
Which, I think leads us to things like:
http://www.thenewfederalist.eu/Europe-vs-USA-Whose-Economy-Wins US growth, unlike that in the EU, is funded by a dangerously high mountain of foreign debtI really should find more quotes for this blog. I found this quote because I was talking to a friend about my thinking here and he pointed out to me that our economy was being dragged down by failures in the European economies. So I went out to find out about that issue... maybe I need to do more searching?
Anyways, these are half formed thoughts right now.
Currently... ok, currently, if you are trying to survive, perhaps the safest way to do it is to try to get a government job. We have a lot of rules and regulations about what you are allowed to do and how you are allowed to do it, but jumping into them head first seems (temporarily at least) like the best way to get access to the food supply and to housing. (But that's certainly not the only possibility. Here's a representation of Moody's Analytics projections: http://www.usatoday.com/money/economy/story/Jobs-Forecast-2011/34083932/1 -- requires flash.)
I think I read that something like 3% of the U.S. population is farmers. I do not know how much of the population is housing. But it's not most of us.
In the long run, though? In the long run, we need people doing things which other people value. And, for better or worse, no one seems to want to pay for government unless they are forced to do so. This suggests that things need to change, if the government is going to live up to its purpose (which is to keep things from changing too much or too fast).
How's that for a contradiction?