Friday, August 12, 2011
A Thesis on Production and Consumption Under the Soverign Debt Crisis
The two major crises behind the two major stock market plunges are: the sovereign debt crisis in Europe and the United States. How has this changed the two important economic categories of production and consumption, which, in turn, changing the relationship between nations as a whole?
The key word is change and the unknown factor inherent in change creates fear and uncertainty. One thing to help to counteract fear is for governments to reform policies inconsistent with the changes in production and consumption. This is a tough but true road to take a road with contentious pursuits. It entails focusing on production and consumption and forming policies to facilitate inevitable changes in these areas of the economy.
The debt ceiling cliffhanger in the United States and the downgrading by Standard and Poor causing more turbulence in the economy are over-reactions rather than rational acts of prevention and planning.
It is important to prevent one sided measures in regulations with a vision toward social cohesion and stability. It is interesting to note that a private institution would act to obstruct one of its own institutions not to mention the most powerful country in the world. The catalyst for this action, and this is pure speculative insight, might be in the polarizing political nature of race relations in the United States. Never the less, the change on the horizon is color blind and international in nature.
While it is probable that the governments concerned will resolve their crises in the short term, the major shift will come from the changes in production and consumption in the long term. Who produces and what they produce, how much and when, is expected to dictate serious tensions between controlling interests and emerging new rivalries between nations and at the center of the changes is the United States' role as the dominant force in the world. We can choose to have a peaceful transition or a calamitous one filled with disaster after disaster, will depend on the Will of leaders and the Will of the masses.
A way out of the slump is far from being resolved for all concerned. First, it is the wrong approach to present the people with the bill at the behest of the wealthy. The right approach is to re-define growth based on the recent historically unprecedented limited latitude between the two spheres of production and consumption of each nation. In the last decade, the gap between production and consumption narrowed; in the past, earnings were high enough to shelter the population from recessions and unemployment levels intolerable for social cohesion. Job seekers were out of work for an average of 6 to 10 months. Today the average is 3 years between jobs. Additionally, the demand for labor fell in relation to the quantity of production. Consumption patterns shadow a corresponding rise in profits that is concentrated into fewer and fewer hands brings into question the ability of capitalism to sustain growth and prosperity or is it an engine for poverty and ruin.
In the last eight years production and consumption transformed. Production moved into other countries through shortsighted policies leading to unintended consequences; some countries are better at manufacturing goods and services than others, cheaper, more efficiently with falling consumption patterns in the home country. This constitutes a structural change that offers opportunity for nations to customize production and consumption filling the network of needs individual nations have and don't have in terms of their natural and economic resources is a theory of mass customization of production and mass individuation.
Unemployment levels was never embedded in the same profile as growth, contrary to past economic wisdom; which stated, everyone is better off when profits are high, production and consumption for the last eight years reflects a corresponding gap between real wealth and employment, that the slightest recession can cause much damage to the society and population weakening growth and therefore, rendering mass production a useless activity for mankind under a paradigm of rich and poor nations and persons.
Because employment and growth levels fused in the eight year period translating into less jobs and less income, lower consumption rates and slow growth reflects a structural transformation of the nature of production. At the same as production costs cheapened through globalization, a new average demand for labor corporations and employers have adjusted themselves to, translates into less jobs and therefore, consumption is too weak to expand production into an ever growing pattern of prosperity. It is a formula headed straight toward a collision without immediate policy changes at the bottom of most societies with highly mechanized production in comparison to nations still utilizing non-mechanized productive techniques.
Under this circumstance, economic policy in banking, industry and society as tehy relate to both spheres are key factors for true progress. For instance, in the recent Supreme Court ruling against Obamacare, national health needs return into the decision making power of private insurance companies, whose single interests are incompatible with the demand for health care in the general population given the rate of mortality and its chief causes. Realistically, the each individual’s needs are different and thus health insurances ought to customize health plans for the individual based on individual need, thus costs per policy will vary but the total, multiplied and divided, can be spread over a broad income tax to cover its costs. Education and health care are the same and can follow this same principal of taxation. Social regulation for health and education funded through an income tax instead of each municipality carrying the burden through property taxes is a sensible approach keeps these services fully well funded to develop greater prospects of success and wellness. The simplest plan works the best and inclusively it is perfectly logical to exempts youths from taxes until gainfully employed.
Reforming work and production to conform to productive capacity hinges on full employment, earnings are less per individual customizing production based on real values in relation to cost of production but so too would be goods and services. Deflating price under these current circumstances does not reduce profits since production is global and employment and development can proceed in regions of the world most desperately in need of jobs and human development that many nations can develop a strong middle class and thus maintain strong markets for the absorption of excess capital. Changing the tax structure, closing loop-holes for corporations makes complete sense and yet does not expropriate controlling interests but limits the speed and threshold with which wealth is produced and accumulated before detrimental effects are perceptible in the socieies. The duality between production and consumption require a dual policy approach where reforms in one compliment reforms in the other. In other words everyone might have a part time work schedule, but no one is out of a job, prices would conform to production costs yet a slower rate of profit and growth is no less negatively felt under a general income tax rate spread across the whole population and many nations providing robust markets.
The concentrations of wealth limit growth, too much creates a highly specialized market unable to absorb the productive capacity of global production. Herein is the problem risking the survival of the economic system as a whole that world production raises its productive capacity way over the ability of a certain few nations given the slow down of income are able to consume. The balance of goods and services subsequently remain unsold, increases poverty in the midst of material abundance.
Treating production and consumption as one sphere of human activity also commits production and consumption to conform to the careful management of resources and natural elements that are finite to human needs, namely, enhancing the quality of life on Earth for the many.
Posted by DXR at 12:38 PM