Charles,
At 09:14 23/12/2010 +1100, you wrote:
Mike
Thank you for this story, and Keith thanks for your commentary.
Keith, You are probably right. No-one ate in this example, but they all
ate in the first place when the debts were created. What they lacked as
they were eating was the money to pay for their food, and what the
stimulus packageprovided was that money.
This is why I am such an advocate for local currency systems, they can
make this story come true relatively indefinitely -- so long as they are
properly constructed, and can be relatively easily exchanged for other
currency.
I believe very strongly that a future sustainable economy will have to
become far more more localized than now. The growing big company-ism and
big bank-ism (and big governmentalism) of today plus increasing automation
means that fewer and fewer people are actually becoming engaged in the
value-adding part of the economy. (The personal service part of the modern
economy -- for the most part lowly-paid -- can only exist from the
additional value gained from making actual products or food.) But if we
are to have more local economies they can't exist as self-contained cyclic
economies. Their internal work still has to be topped up with external
benefits -- even if it's only sunshine that energizes the growing of food
or valuable material that lie under the ground. Alternatively, each local
economy can exchange products or supply services that they are particularly
good at with another local economy's speciality products. It's a win-win
situation. But in this case there have to be specializations on both sides
of the market. This has been the problem with LETS-type schemes so far.
Keith
regards
Charles Brass
futures foundation
www.futuresfoundation.org.au
From: [email protected]
[mailto:[email protected]] On Behalf Of Keith Hudson
Sent: Thursday, 23 December 2010 8:28 AM
To: [email protected]; RE-DESIGNING WORK, INCOME DISTRIBUTION, EDUCATION
Subject: Re: [Futurework] Stimulus package: a model
At 16:03 22/12/2010 -0400, Mike Spencer wrote:
I really, *really* don't know how money and finance work at the macro
level. As with many people, my model for economics is the the sale of a
pig by one farmer to another, the biz of a small tradesman in colonial
America or the like. So here's an easily followed analysis at a scale
that I can grasp, however lacking in detail if not totally spurious.
It is a slow day in the small Nova Scotia town of Pumphandle, and
streets are deserted. Times are tough, everybody is in debt, and
nearly everybody is living on credit.
A tourist visiting the area drives through town, stops at the
motel, and lays a $100 bill on the desk saying he wants to inspect
the rooms upstairs to pick one for the night.
As soon as he walks upstairs, the motel owner grabs the bill and
runs next door to pay his debt to the butcher. The butcher takes
the $100 and runs down the street to retire his debt to the pig
farmer. The pig farmer takes the $100 and heads off to pay his
bill to his supplier, the Co-op. The guy at the Co-op takes the
$100 and runs to pay his debt to the local prostitute, who has
also been facing hard times and has had to offer her "services" on
credit. The hooker rushes to the hotel and pays off her room bill
with the hotel owner. The hotel proprietor then places the $100
back on the counter so the traveler will not suspect anything.
Shortly, the traveler comes down the stairs, states that the rooms
are not satisfactory, picks up the $ 100 bill and leaves.
No one produced anything. No one earned anything. However, the
whole town is now out of debt and looks to the future with a lot
more optimism .
And that, folks, is how a Stimulus package works.
Not mine. Found on the net.
It's a very clever story and dupes many people. However, it has a fallacy
within it -- even before it's supposed to represent a stimulus package.
Let me deal with "level 1" first. It has a missing component. It may seem
trivial, but it's not really. No-one has been eating during the whole
episode! What this means in formal terms is that a cyclic economy (that
is, by far the most part of a normal national economy) still needs
additional energy coming into it from outside the system to keep the cycle
going. This is part of the law of thermodynamics -- without additional
energy, any system gradually dissipates energy merely by its activity. It
cannot keep going except by constant injections of energy.
As to the story exemplifying how a stimulus works (level 2), this is even
more lacking as a model. A real stimulus in an economy means that it is
has to be an additional input over and above the normal "topping up"
energy required for a cyclic economy. The additional input is, in formal
economic terms, investment. It creates a new product or service which, if
it's considered to be desirable, is then worked hard for by potential
consumers with work over and above the normal level required for a cyclic
economy. (It doesn't mean that in a real economy everybody has to work for
longer and longer hours as the years go by. Usually most investment goes
into making existing products more efficiently which means that, by
working for the same number of hours a consumer can buy an additional
product -- which then draws more people into employment in making it.)
Keith
Keith Hudson, Saltford, England
<http://allisstatus.wordpress.com/2010/12/>http://allisstatus.wordpress.com/2010/12/
Keith Hudson, Saltford, England
<http://allisstatus.wordpress.com/2010/12/>http://allisstatus.wordpress.com/2010/12/
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