Why the Economy Goes Bust
(despite our best efforts)

T   
he cause of the present recession has its roots in the actions of individuals as opposed to the actions of a unified mob. What we do as individuals is profoundly different than what a totalitarian state would have us do, i.e. act in concert in lockstep with the wishes of a dictator.

This has an upside and a downside.

If we have a dictatorship there is, by definition, no recession. What happens is that in the long run things go downhill gradually because no one wants to live under a dictatorship. Workers slack off on production. Those who would normally drive the economy in new directions drop out of the equation since the dictator has stripped them of their autonomy. Such an economy rapidly goes headless and fails.

On the other hand, where men are free to do as the please more or less unfettered by government ... to profit from their own initiative ... rapid progress ensues.

The downside here is that individual freedom has as a side-effect ... economic oscillation. Like a flag waving in the breeze no matter how steady the wind, we always get a wave motion. Up and down and up and down ... over and over and over. Many wave dampening mechanisms have been instituted by a well-meaning government to bring such waves to an end but don't actually work in the long run. Perhaps they have damped out the very worst depressions. If so, this alone is worth the price of their interference.

What do individuals do that forces out a wave structure?

A couple of examples should suffice:

The Water Conservation Problem

Here we have a drought condition. We need to conserve water overall ... despite the desires of individuals. What happens? If you ask individuals to comply voluntarily, a few will but most will continue to do as they have done in the past ... use water just as they have always done. After all it still flows out of the tap doesn't it? And they are right. They are relying on the free market to give them a reason to cut back. But if the government allows the free market to operate in so basic a commodity, the result will be that the wealthy people will be watering their lawns while the poorest individuals will be unable to give their kids a bath. This is a prescription for political disaster because the free market has as its lowest consumption rate ... zero. That is, if you can't afford to pay you must simply, voluntarily die. Very few individuals will give up on their families to ensure the continuation of free market principles. Thus, the government steps in and mandates water conservation across the board whether you can afford to pay more or not. Then the rains come, the restrictions are lifted and we are "up" again.

The Reduced Lane Traffic Problem

Go back to previous Let's say there is a traffic accident that ties up two lanes of a three lane interstate freeway. What happens? Traffic goes to a crawl as every muther's son pushes his way up to the accident in every lane ... and ... even on the shoulder ... figuring that if there is any empty space available he can further his own cause by scooting on up to the head of traffic which should (for optimum effect) move to one lane way in advance of the crash sight. In fact, when there is construction and cones are placed forcing traffic gradually into one lane, one can get past the obstruction at 40 mph instead of the 5 to 10 mph that results when everybody tries to move up on his own. This causes the traffic to merge at the crash sight at driveway speeds as people alternately let one guy go from one lane then the next, etc. Then the obstruction is removed and we're back in the race. [rollover image >>>]

The Economic Problem

Each investor in the stock market knows that the "computer bubble" is going to burst ... sometime. They know it like they know their mother. But they can't just get out then and there because they might miss out on greater profits if they stay in ... just a little longer. So many do. They keep the bubble going and in fact are the ones encouraging its development. They majority of investors are there to make money (accumulate wealth) by any legal means.

They gamble just like Las Vegas. The more gambling the greater are the odds that they can make a few more bucks at the expense of the "suckers" who, in turn, think they are the "savvy" ones. Finally, something triggers a mass exodus (like a herd of cattle that gets spooked ... anything will do it ... a coyote howling, a broken twig that somebody stepped on, whatever) ... and the last man trying to get out gets stuck holding the bag.

The problem here is no different conceptually than the above problems. Civilization does not work under duress ... neither does it work smoothly unfettered. Everyone acting in his own self-interest conspires to bring the enterprise to a grinding halt, then after an indeterminate hiatus it returns to "normal". What can be done about it?


Absolutely nothing

... unless you want a totalitarian state in which case you get a steady economy (steadily declining, that is)

I believe what we have here is an example of Lenz' Law (from physics) as it appears in sociology/economics. econb2.gif - 10kb



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