Famine in the Land of Plenty

25 11 2010

Let’s imagine a hypothetical situation for a moment.  We’ll take a pre-Industrial Revolution town, just some plaster houses with a small business district and surrounding farms, and we’ll give it a combine and a tractor and all of the necessary mechanized implements.  In this way, one man can  manage enough farmland to feed the entire community and have plenty left over for export.  This is an incredible boon for the town, because they now have all the food they need, provided for minimal cost.  Now the farm workers are out of a job.  Because the town was mostly agrarian, that means that most of the inhabitants are now unemployed.  Those merchants with a non-agriculture occupation are also forced out of business, because the majority of their customers are now unemployed.  The whole town slides into economic depression, because, although the food is plenty and cheap, no one has money to buy it, because no one has a job.  The man on the combine must find new customers in a hurry, because the town can’t buy his goods.  In this case, the community has more resources than ever before, but they slip into poverty anyway.  All of their basic needs are filled.  They don’t know what a television is, or a cell phone, or a computer.  They only needed a roof, clothes and food.  They could make their own clothes from the sheep in the backyard.  The roof is a done deal, and the food is plentiful and provided by one man.  With the work of a single individual, the entire town could take a more or less permanent vacation.  This is, of course, an exaggeration to make a point.  But the entire town has done nothing to deserve the food.  Only that one man earned anything.  Therefore, the entire town cannot get the food, because they have done nothing to earn it, even though it is there and ready for the taking.

The real paradox of a depression is that, while the society has all of the machinery necessary to produce everything it needs, which are all of the things it was producing prior to the depression, no one can afford those things.  Through the law of supply and demand, one would expect the products to become cheaper as demand decreases, offsetting the problem, but if the people are unemployed, then the luxuries could never be cheap enough to be purchased, yet expensive enough to be produced.  If the people have no income, then they can’t afford anything at any price, and if they are unemployed, then they have no income.  If people don’t buy their goods and services, then they will be unemployed, but people cannot buy their goods and services because they have no income, either.  So there’s the paradox.  Everyone is willing and able to produce all of the things that everyone else wants to buy, but can’t, because no one is able to buy their goods and services, either.

Getting back to the problem of the man on the combine.  At first glance, we would fault the farmer for buying the combine and putting others out of a job.  That would be foolish, though.  He should not be faulted for providing an abundance of food to the community, or for finding a much more efficient way of doing it.  We should say, rather, that the farm hands have been freed to provide other services to the community.  Unfortunately, these services can not be afforded by anyone, because too many people are unemployed.  Everyone wants to sell something, but nobody can, because nobody can buy anything because they can’t sell anything either.  The problem is not that the town had too much food.  That could never be a problem for anyone.  The problem was that the food industry was too big of an industry for the town.  When it changed, the economy could not absorb the change.  A few unemployed people might eventually find a new niche to fill.  An entire town full of unemployed people would be hard pressed to find any means of income.

A single industry can have a sudden shift.  A market for cars or widgets can saturate overnight.  Suddenly, nobody needs another car or widget.  Everyone who wants one has one, so the industry must downsize, and people are left looking for new employment.  Sometimes, as with the combine, new technology displaces the old.  People who made a living making and selling the slide rule were driven out of business by those who make and sell the electronic calculator.  We cannot fault people for inventing a marvelous new device.  We cannot fault people for finding a better way of producing things.  The problem is not that an industry shifts.  All industries shift.  That’s how progress is possible.  The problem is when an industry shift is so huge that it takes the entire economy down with it.

Those communities in the Midwestern United States area are often plagued by single-industry towns, like a town built around a paper mill, or a town built around a pencil factory.  When that one major factory fails, when the pencil business drops in response to the use of computers, for example, the entire town, all the way from the mechanic to the jeweler collapses.  In terms of basic needs, they still had available everything that they needed to live, same as before, but no one could pay for those things, because too many people were out of a job.  The supply was untouched.  The demand would be untouched if people could find a way to earn their right to the supply.  The economy for the country at large is not entirely different.  When any one industry becomes so huge that it cannot hiccup without taking down all other industries, it has the potential to, sooner or later, start a chain reaction that ultimately has us all waiting in a food distribution line.  On the large scale, these industries are big things like automobiles, fuel and housing, the things that we dump the greatest portion of our income into.  The greatest of these is housing.

At the moment of this writing, foreclosures are extremely high.  The country is full of empty homes and people badly in need of them.  Society has everything it needs to be prosperous.  There are enough homes to go around.  No one need be without one.  In this case, the combine has been replaced with the housing market.  Everyone needs that industry badly, and that industry has ample supply, but no one can afford it at any price, because people are becoming highly unemployed.  There’s no shortage in supply.  There’s not really even any surplus of demand.  There’s just a shortage of jobs.

Now, in any economic crisis, the focus is always on the jobs.  Everyone wants to be employed.  In fact, they’re more concerned about having a job than they are about getting the newest gadget.  Yet, if they don’t buy the newest gadget, then someone else will be out of a job, and other gadgets will not be purchased.  In the past, the government has responded to this one-sided predicament by emphasizing its opposite, by encouraging people to spend their money.  The government is always anxious to have us spend more money, not only because it generates tax revenue, but also because it helps to balance the supply versus demand.  It takes the focus off of getting more money, that we might spend more money, to ultimately help us get more money.  This has two problems to it.  First, it puts the cart before the horse.  No one should be expected to buy anything that they did not already want to buy.  The burden is on the seller to provide something worth buying.  Second, this approach has never once succeeded.  That, alone, should be reason enough to abandon this method.

The real solution goes back to the man on the combine.  His single industry is huge for an agrarian culture.  Any change in his one industry, even a positive change, can cause the economy to collapse.  The people have more food, but fewer people actually get any food, because nearly everyone is now unemployed.  The problem was not that he ruined the industry.  In fact, he improved it greatly.  The problem was that his industry was too important to the over-all economy.  Had he been in the business of selling widgets, he could rise and fall without affecting anyone else.  Likewise, the housing industry is not to be faulted for creating too many houses or too few, but for being too big a part of our expenses.  Home loans, coupled with the rush on the housing market, caused prices to soar.  People could spend more if they could borrow more, and if they were suddenly motivated to buy a bigger house on the same income, then they had less money left each month to spend on other things.  This would not be such a problem, except that those other things happened to be other people’s livelihoods.  When those other things were no longer being bought, then those people lost their jobs.  When they lost their jobs, they could no longer afford to buy other things, and those people lost their jobs.  Eventually, the chain reaction worked its way around to the housing industry, itself, because the people who got the bigger loans could no longer pay for them, because they were largely unemployed.  So the housing industry collapsed.  We have a lot of people in need of homes and a lot of homes in need of people, with no way to bring the two together.  It’s like the town full of people starving to death, because the man with the combine is producing too much food.

In the end, the economy pulls itself together.  The government is always useless in this effort.  If they could have done anything, then they probably would have found a solution to these things by now.  Despite great odds, people must strive to find a way to produce goods so worthwhile that they can squeeze a profit in a dry economy.  The unemployed farm hands must invent other services to provide the world.  Avoiding a recession is quite a different thing than getting out of one, though.  A recession happens not only when something big goes wrong, but it even happens when something big goes right.  The problem is that something big happened.  The problem is that any one industry should be too big a portion of our economy.  If a business cannot shrink and grow, change and develop without toppling the economy, then we have the makings of economic instability.  It would be tempting to suggest government-legislated price limits, but this only forces the problem out in other directions.  The real problem lies in the mentality of the people in our society.  It’s a problem that no single individual can do anything about.  I can do my best to live within my means, thusly creating a stable personal economy, but if the rest of the world does not do this, then my finances will always be at risk.  I can diversify my portfolio, but the whole thing can still plummet entirely if the rest of society crashes.  The best thing I can do is buy a smaller, more affordable home, drive less, and drive an economy car.  In this way, the biggest industries can have less impact in my life.  Still, the economics of one person is not enough.

The fact is that we all love to have the biggest, nicest home, drive the flashiest car, and travel the world.  So long as this country remains addicted to this limited sort of materialism, it will not have the economy to pursue these very things.  It’s almost like trying too hard to sleep, or trying too hard to be happy.  The effort is self-defeating.  In the meantime, the best that the government can do is to avoid making any big changes in spending and taxation, unless necessary.  Sometimes the last thing we need during times of trouble is someone’s idea of a solution.  The government, after all, is possibly the biggest industry of them all.

The story of the town with the combine is not entirely fictional, though.  Just prior to the Great Depression, farmers were complaining to their government that food was too plentiful, and they were not generating enough revenue from their farming.  The government’s solution was to pay the farmers to destroy food.  The economic collapse that followed left people standing on the riverbanks watching trucks dump potatoes into a river, with police guarding the load to keep people from jumping in to save the food.  A man could earn a wage to dig a ditch, so that pigs could be herded into it and shot, then buried.  By destroying enough food to feed an entire town, he could earn enough to buy his family a meal.  The masses were starving in the land of plenty, and the government was using their money to make the land less plentiful.  Clearly, they were solving the wrong problem.  But then, the government always did have a way with money.




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