Thursday, 26 March 2009

Designed to fail

Not a week goes by where a talking head doesn't bemoan the fact that Canadians (and/or Americans) are choosing to save and pay down debt instead of spending. Apparently keeping our own money is risky as it causes deflation, slows growth, affects GDP, reduces government income, causes autism, and makes earthquakes more frequent.

Wasn't it just 6 months ago that we were being warned that Americans and Canadians had record levels of personal debt? Wasn't a trigger for this recession massive defaults on mortgages people couldn't afford?

To keep the economy humming, consumers have to spend. For an economy to succeed it has to constantly grow. Growth is the only option. Worse than that, it has to grow quickly year over year. A retraction is a recession or a depression. Holding steady (or low growth) is called "stagflation". I love that, holding steady isn't a form of stability its stagnation.

The only option for an economy is rapid growth. Any other option is considered a failure.

But its not realistic. Economies can't grow forever. You either run out of money, resources or both.

Conclusion: Capitalism is a system designed to fail.

Am I wrong? How?


ADHR said...

Well, according to standard theory, economies can grow forever as resources are assumed to be infinite. This gets cashed out in practical terms such that we can either find new (more efficient) ways to use what we have, or ways to use things we didn't know how to use before.

That said, someone in government needs to get the memo that people don't spend when their wages/salaries are declining. You need a robust middle class in order to have a productive and decent society. That's what's currently in danger of collapsing -- the rich will be fine, and the poor are screwed no matter what.

Catelli said...

Exactly. Right now the cash flow side has been very debt dependent. That's the crises we're in now, and seems to be the more immediate one.

Though the infinite resource theory is sorely strained right now too. Natural Gas, Oil, Water, phosphorus, platinum supplies etc. are severely strained.

It was only last year that thefts of the more common metals (steel/iron/copper) were on the rise due to supply shortages as well.

ADHR said...

I agree the infinite resource theory is under stress, but it's still somewhat defensible. Natural gas and oil are replaceable, as energy sources and as raw materials for manufacturing (well, oil, in the latter case; not sure how you would use natural gas to manufacture something). Phosphorus and water can be chemically manufactured, as long as we have sufficient power -- so, solving the energy issue can solve both those issues, too.

But, it does require that people have the resources to try things out and play with new technological solutions. There's not a lot of willingness to do the transfer of wealth from the top down which would need to happen in order for the other problems to be solved, too. McGuinty, for example, hasn't spent anything in his big spending budget on universities and colleges; and is now talking about backing off on increasing the minimum wage. Agh....