5 ms·

Let me share my theory that the economy is impossible or paradoxical and that the American dream is impossible and that everything is built on by faith. To buy

Let me share my theory that the economy is impossible or paradoxical and that the American dream is impossible and that everything is built on by faith. To buy a loaf of bread, the price needs to pay for the wheat, ovens, energy and the employee costs. This relationship is recursion. The staff of the bread company need to afford bread of their own and shelter and energy and transportation. Everyone is thereby supporting themselves and everyone else with what they purchase. This guarantees poverty as not everyone can scale their earnings to provide for themselves and everyone else as the prices all come from the same money supply. Inflation is baked in. This is why central banks don't want wage growth. If you understand recursion and recursive relationships then you understand that poverty is baked into the system. (Edit: due to not everyone producing more than they cost) Think what this means for people at the bottom and give to the poor.

MuffinFlavored 4y ago
why do some people make it to the top then? why do some people make $40k/yr, some make $80k, some make $120k, some make $200k, some make $400k, some make $4m, some make $40m, some make $100m
- samsquire 4y ago
  For someone to earn high value numbers someone else has to be doing the grunt work, the work that allows that value to be unlocked. These people are desperate and have no capital. Money is a time machine and if you have none of it you are forced into grunt labour. You don't get 100 million working as a pizza delivery driver or delivering parcels but the owner sure does.
- truckerbill 4y ago
  The answer is usually luck
readthenotes1 4y ago
I think that is the author's point, that a closed system makes it impossible. You need the wealth from outside sources to fund the debt to fund the spending. Also, at some point, there is some production that is not just shuffling existing assets around.
alacritas0 4y ago
The United States is a society of excess. Yet, we still let people starve and go unsheltered. There is an easy solution that doesn't have the unreasonable expectation of the poor relying on the goodness of other people: tax individuals with high incomes at higher rates. The marginal tax rate for the highest income earners has steadily fallen in the past decades. People with those high incomes have the least marginal utility on their income and should have a higher tax burden on the portion of their income which isn't necessary for their comfort. This isn't to say that charitable giving is bad. If you are financially stable and have money to spare, please donate your time or money to those that need it. It just isn't the solution to a national problem.
- samsquire 4y ago
  Those wealth creators go elsewhere or stop doing a business if isn't lucrative. I think they're called Laffer curves. Tax more and people do less as it doesn't pay to do more labour and get less of it back.
  - VintageCool 4y ago
    The Laffer Curve argued that revenue from taxation might represent an inverted U shape with tax rate. If you were above the revenue-optimizing tax rate, then lowering the tax rate could increase revenue. But that revenue-optimizing tax rate, which is the subject to much debate, is probably somewhere around 65% to 70%, far higher than the tax rates in the United States. We could surely increase taxes on high income individuals without doing much harm to the economy.
    - seanhunter 4y ago
      My understanding is every time a "Laffer curve inspired" tax cut has happened in practise, tax revenues have indeed gone down.[1] The thing about the Laffer curve idea that I don't understand is the curve doesn't need to be continuous. Say we accept at a tax rate of 100% you get no marginal benefit from working so no-one will work and the tax take will go to zero, at a tax rate of 100%-epsilon you still get (small) additional marginal utility for each additional dollar earned, so it's still in your interests to work. So it's literally only at a tax rate of 100% that the Laffer concept would make the tax take go to zero. [1] https://medium.com/junior-economist/the-laffer-curve-6bb2833513f3 https://medium.com/junior-economist/the-laffer-curve-6bb2833... "In practice, the Laffer Curve has not provided the dual benefits of lower taxes and higher revenue. In fact, every US tax cut since 1965 has been followed with a sharp decrease in tax revenue, while every increase in taxes has led to an increase in government tax revenue."
QuadrupleA 4y ago
I like to think of it simpler - if everyone in a society contributes something helpful, however it's organized / monetized - we all win.
- samsquire 4y ago
  I like staying in a city as I rely on all the people around me to pay towards the costs of garbage collection, water pumping, electricity distribution costs and supermarket logistics chains of getting food from factories to where I am. Society requires everyone to produce more than they cost. The government invests in you in terms of free education and in some countries free healthcare. Work is the resource that is renewable. Everyone is forced into a grind to raise enough to pay for everyone else's costs and your own due to the recursive relationship of costs.
sterlind 4y ago
It's not recursion because the earth is not a closed system. Farmers don't have to pay for the energy used to grow wheat. The Sun provides that for free. Same with the oxygen, and much of the water. Value is created, it's not a zero-sum game (except from the perspective of universal entropy.) In a healthy economy, most of the value should be created rather than extracted from others. But ownership of fixed resources like land led to serfs and sharecroppers, which led to landlords and industrialists accumulating capital, which led to exploitation. That's Marx's whole thing.
- samsquire 4y ago
  I need to pay the farmer indirectly through supermarket food, the electricity company, the water company, the gas company, my phone manufacturer, my computer manufacturer, my rent for my landlord or my mortgage to the bank. The farmer doesn't pay the sun but they still have to pay other costs ad infinitum. There is no last cost. Each of those people also have the same problem I'm not arguing for zero sum. I'm just saying that the problem of costs is recursive, you need to produce more than you cost. As each of those people has the same costs that I do. So it can only grow in size and costs can only inflate.
  - kamray23 4y ago
    There are several issues with that. The largest one is that you assert that the costs can only inflate. They cannot. TL;DR – Yes, but the added value gets smaller each recursion, such that even if you add on an infinite amount of these costs it will only come out to a finite value. The productivity of a single person, which in today's industrial world is immense, makes these costs so small they might as well be cents on the final product. Let's say a farmer farms a square field with 100 metre sides, or exactly 1 ha of land. This is a size which it is perfectly reasonable for one person to farm, even entirely by hand, and which is woefully small considering modern farming equipment. On it they grow wheat, with a production of 0.25 kg/m² annually, or 2 500 kg when you do the calculation. This is a perfectly reasonable yield. Taking into account milling yield, we end up with only about 70% of that, or 1 750 kg of flour. A loaf takes roughly half a kilo of flour so, assuming water and yeast are effectively free, so selling this to a baker, they produce 3 500 loaves in the end. So far, so easy. Then we take into account the losses that are going to be accrued for the loaf of a single customer in this very small thought experiment economy, in which exist only the farmer and the baker. Each, we say, might eat 2 entire half-kilogram loaves in a week, so 8 in a month and 96 in a year. The baker prices one loaf at (flour cost + 96·loaf cost)/3 500. The farmer prices his flour at 96·loaf cost/1 750 kg, but as the farmer buys everything, we can ignore the division. The price of one loaf is now (96·loaf cost + 96·loaf cost)/3 500, or 192·loaf cost/3500, or, rounding a bit, 0.05·loaf cost. Propagating it down, we have 0.05²·loaf cost, then 0.05³·loaf cost, and when you recurse to infinity, we have 0. The further you get from the producer, the smaller the added cost becomes in reality, such that even if you add up all the costs you eventually reach not an infinite value but a finite one. If we say that each take a profit of $100 annually in addition to what they need to live, we get that the farmer prices their flour at ($100 + 96·loaf cost)/1 750 kg and the baker their bread at ($200 + 192·loaf cost)/3 500. Propagating it down, the price becomes ($200 + 192·($0.06 + 0.05·loaf cost))/3500 = ($210 + 0.05·loaf cost)/3 500. Going further, it will be ($210 + 0.05·($0.06 + 1.4·10⁻⁵·loaf cost))/3 500 where we entirely lose precision and the added cost from profits appears to stay at $210/3 500, while the rest of the calculation becomes so small it disappears off to 0 at infinity once again. While this example is only very simple, and I won't prove here that it applies in larger or more complex cycles, it is nevertheless fairly obvious that this disappearing off applies to everything. Whereas your recursive argument about costs only being able to inflate is correct, they can only inflate up to a finite value at the limit due to the inflation added at each level of recursion being smaller than the last.
IfOnlyYouKnew 4y ago
I don’t get what point you’re trying to make. A baker can make bread for a thousand people with relative ease, there is no need for them to be poor. The US produces enough to feed and clothe and house everyone with ease, including both the working poor and others. They choose not to do so for various vacuous reasons, none of which have anything to do with the FED.
- samsquire 4y ago
  I agree. It upsets me deeply that people are working poor and can never earn enough to stay still. I am arguing that in a society each person needs funding from somewhere, it can only come from everyone else in exchange for their work. Each person therefore depends on their costs being provided by everybody else. This relationship is therefore recursive. As each person must also provide for everyone else that someone is providing for. As we witness in the world, not everyone can produce more than they cost. Some people cannot afford to travel or stay near work. Opportunities are cut off from them.
  - automatic6131 4y ago
    >As we witness in the world, not everyone can produce more than they cost And we also witness that others can produce more than they cost. So it could (actually, is and has been for the last ~500 years) be that overall, the average person produces more than they cost. Forget your recursion idea.
wardedVibe 4y ago
fun fact, the sum across x_n of x_{n+1}=1/2*x_n, with x_0=1 is the fixed value 2. Don't blame math for your inability to understand that trade creates value.
- imtringued 4y ago
  If trade creates value why set the system up in a way that it delays trade eternally?
imtringued 4y ago
I am having trouble understanding your comment. Farmers and bakers easily produce more food than they need to stay alive themselves. When people start a business they must borrow money and usually pay interest. That interest forces you to be profitable, you can't just run your company at 0% profit as that would only pay for your salary and the salary of your employees and the materials and machines you bought. It is impossible for every company to be simultaneously be profitable. After all, if there is a million dollars in the economy, you can't have a 5% profit and reinvest the money as that would require a money supply of 1.05 million dollars. Thus, the money supply must grow endlessly and if the economy can't keep, there must be inflation.
- samsquire 4y ago
  I guess my thought process goes similar to this. I am one person out of 7 billion. I need to provide for myself, everything I pay must cover the costs of all the costs of those people I bought from. When people buy my labour they must cover my costs of providing for everyone else. My work and the work those people are doing needs to pay all those costs. We effectively pay eachother to work at what we are independently good at - trade. But a worker only receives revenue from the work they do (I'm excluding unearned income) If everyone gets everything they need ultimately from other people, and each of those people needs to get everything they need from everyone else - and sometimes the same people. Where does the salary of the workers I buy things from come from? I feel intuitively it doesn't matter how much bread someone can create, the total revenues from selling bread in general needs to cover the costs of all their employees and the business costs themselves. But this process repeats for all transactions the total transactions for MasterCard pays the bills that MasterCard employees have. Everyone needs to earn more than they cost but so does everyone else! How can this not inflate endlessly over time? When I look at government deficit and debt levels of the world, people don't produce more than they cost and relative and absolute poverty. What's the proportions of owners of wealth? Compare the bottom 99% with the top 1%.
- spiralx 4y ago
  Bank loans create new money by increasing bank deposits, which is then destroyed when the principal is repaid, leaving behind the interest on the loan. So it is theoretically possible for every company to borrow money at once.
trhr 4y ago
The price of bread has a net addition into the system in the form of sunlight. Seeds essentially germinate into wheat for "free." In fact, you could make the argument that all of human endeavor is simply withdrawing from the bank of 4.x billion years of sunlight.
- spiralx 4y ago
  Or as Henry George put forward over a century ago, we should tax only the unimproved value of land, as everything else is the product of humanity, while land is finite and required for everything else. https://astralcodexten.substack.com/p/your-book-review-progress-and-poverty?s=r https://astralcodexten.substack.com/p/your-book-review-progr...

MuffinFlavored 4y ago

why do some people make it to the top then? why do some people make $40k/yr, some make $80k, some make $120k, some make $200k, some make $400k, some make $4m, some make $40m, some make $100m

samsquire 4y ago
For someone to earn high value numbers someone else has to be doing the grunt work, the work that allows that value to be unlocked. These people are desperate and have no capital. Money is a time machine and if you have none of it you are forced into grunt labour. You don't get 100 million working as a pizza delivery driver or delivering parcels but the owner sure does.
truckerbill 4y ago
The answer is usually luck

readthenotes1 4y ago

I think that is the author's point, that a closed system makes it impossible. You need the wealth from outside sources to fund the debt to fund the spending. Also, at some point, there is some production that is not just shuffling existing assets around.

alacritas0 4y ago

The United States is a society of excess. Yet, we still let people starve and go unsheltered. There is an easy solution that doesn't have the unreasonable expectation of the poor relying on the goodness of other people: tax individuals with high incomes at higher rates. The marginal tax rate for the highest income earners has steadily fallen in the past decades. People with those high incomes have the least marginal utility on their income and should have a higher tax burden on the portion of their income which isn't necessary for their comfort. This isn't to say that charitable giving is bad. If you are financially stable and have money to spare, please donate your time or money to those that need it. It just isn't the solution to a national problem.

samsquire 4y ago
Those wealth creators go elsewhere or stop doing a business if isn't lucrative. I think they're called Laffer curves. Tax more and people do less as it doesn't pay to do more labour and get less of it back.
- VintageCool 4y ago
  The Laffer Curve argued that revenue from taxation might represent an inverted U shape with tax rate. If you were above the revenue-optimizing tax rate, then lowering the tax rate could increase revenue. But that revenue-optimizing tax rate, which is the subject to much debate, is probably somewhere around 65% to 70%, far higher than the tax rates in the United States. We could surely increase taxes on high income individuals without doing much harm to the economy.
  - seanhunter 4y ago
    My understanding is every time a "Laffer curve inspired" tax cut has happened in practise, tax revenues have indeed gone down.[1] The thing about the Laffer curve idea that I don't understand is the curve doesn't need to be continuous. Say we accept at a tax rate of 100% you get no marginal benefit from working so no-one will work and the tax take will go to zero, at a tax rate of 100%-epsilon you still get (small) additional marginal utility for each additional dollar earned, so it's still in your interests to work. So it's literally only at a tax rate of 100% that the Laffer concept would make the tax take go to zero. [1] https://medium.com/junior-economist/the-laffer-curve-6bb2833513f3 https://medium.com/junior-economist/the-laffer-curve-6bb2833... "In practice, the Laffer Curve has not provided the dual benefits of lower taxes and higher revenue. In fact, every US tax cut since 1965 has been followed with a sharp decrease in tax revenue, while every increase in taxes has led to an increase in government tax revenue."

QuadrupleA 4y ago

I like to think of it simpler - if everyone in a society contributes something helpful, however it's organized / monetized - we all win.

samsquire 4y ago
I like staying in a city as I rely on all the people around me to pay towards the costs of garbage collection, water pumping, electricity distribution costs and supermarket logistics chains of getting food from factories to where I am. Society requires everyone to produce more than they cost. The government invests in you in terms of free education and in some countries free healthcare. Work is the resource that is renewable. Everyone is forced into a grind to raise enough to pay for everyone else's costs and your own due to the recursive relationship of costs.

sterlind 4y ago

It's not recursion because the earth is not a closed system. Farmers don't have to pay for the energy used to grow wheat. The Sun provides that for free. Same with the oxygen, and much of the water. Value is created, it's not a zero-sum game (except from the perspective of universal entropy.) In a healthy economy, most of the value should be created rather than extracted from others. But ownership of fixed resources like land led to serfs and sharecroppers, which led to landlords and industrialists accumulating capital, which led to exploitation. That's Marx's whole thing.

samsquire 4y ago
I need to pay the farmer indirectly through supermarket food, the electricity company, the water company, the gas company, my phone manufacturer, my computer manufacturer, my rent for my landlord or my mortgage to the bank. The farmer doesn't pay the sun but they still have to pay other costs ad infinitum. There is no last cost. Each of those people also have the same problem I'm not arguing for zero sum. I'm just saying that the problem of costs is recursive, you need to produce more than you cost. As each of those people has the same costs that I do. So it can only grow in size and costs can only inflate.
- kamray23 4y ago
  There are several issues with that. The largest one is that you assert that the costs can only inflate. They cannot. TL;DR – Yes, but the added value gets smaller each recursion, such that even if you add on an infinite amount of these costs it will only come out to a finite value. The productivity of a single person, which in today's industrial world is immense, makes these costs so small they might as well be cents on the final product. Let's say a farmer farms a square field with 100 metre sides, or exactly 1 ha of land. This is a size which it is perfectly reasonable for one person to farm, even entirely by hand, and which is woefully small considering modern farming equipment. On it they grow wheat, with a production of 0.25 kg/m² annually, or 2 500 kg when you do the calculation. This is a perfectly reasonable yield. Taking into account milling yield, we end up with only about 70% of that, or 1 750 kg of flour. A loaf takes roughly half a kilo of flour so, assuming water and yeast are effectively free, so selling this to a baker, they produce 3 500 loaves in the end. So far, so easy. Then we take into account the losses that are going to be accrued for the loaf of a single customer in this very small thought experiment economy, in which exist only the farmer and the baker. Each, we say, might eat 2 entire half-kilogram loaves in a week, so 8 in a month and 96 in a year. The baker prices one loaf at (flour cost + 96·loaf cost)/3 500. The farmer prices his flour at 96·loaf cost/1 750 kg, but as the farmer buys everything, we can ignore the division. The price of one loaf is now (96·loaf cost + 96·loaf cost)/3 500, or 192·loaf cost/3500, or, rounding a bit, 0.05·loaf cost. Propagating it down, we have 0.05²·loaf cost, then 0.05³·loaf cost, and when you recurse to infinity, we have 0. The further you get from the producer, the smaller the added cost becomes in reality, such that even if you add up all the costs you eventually reach not an infinite value but a finite one. If we say that each take a profit of $100 annually in addition to what they need to live, we get that the farmer prices their flour at ($100 + 96·loaf cost)/1 750 kg and the baker their bread at ($200 + 192·loaf cost)/3 500. Propagating it down, the price becomes ($200 + 192·($0.06 + 0.05·loaf cost))/3500 = ($210 + 0.05·loaf cost)/3 500. Going further, it will be ($210 + 0.05·($0.06 + 1.4·10⁻⁵·loaf cost))/3 500 where we entirely lose precision and the added cost from profits appears to stay at $210/3 500, while the rest of the calculation becomes so small it disappears off to 0 at infinity once again. While this example is only very simple, and I won't prove here that it applies in larger or more complex cycles, it is nevertheless fairly obvious that this disappearing off applies to everything. Whereas your recursive argument about costs only being able to inflate is correct, they can only inflate up to a finite value at the limit due to the inflation added at each level of recursion being smaller than the last.

IfOnlyYouKnew 4y ago

I don’t get what point you’re trying to make. A baker can make bread for a thousand people with relative ease, there is no need for them to be poor. The US produces enough to feed and clothe and house everyone with ease, including both the working poor and others. They choose not to do so for various vacuous reasons, none of which have anything to do with the FED.

samsquire 4y ago
I agree. It upsets me deeply that people are working poor and can never earn enough to stay still. I am arguing that in a society each person needs funding from somewhere, it can only come from everyone else in exchange for their work. Each person therefore depends on their costs being provided by everybody else. This relationship is therefore recursive. As each person must also provide for everyone else that someone is providing for. As we witness in the world, not everyone can produce more than they cost. Some people cannot afford to travel or stay near work. Opportunities are cut off from them.
- automatic6131 4y ago
  >As we witness in the world, not everyone can produce more than they cost And we also witness that others can produce more than they cost. So it could (actually, is and has been for the last ~500 years) be that overall, the average person produces more than they cost. Forget your recursion idea.

wardedVibe 4y ago

fun fact, the sum across x_n of x_{n+1}=1/2*x_n, with x_0=1 is the fixed value 2. Don't blame math for your inability to understand that trade creates value.

imtringued 4y ago
If trade creates value why set the system up in a way that it delays trade eternally?

imtringued 4y ago

I am having trouble understanding your comment. Farmers and bakers easily produce more food than they need to stay alive themselves. When people start a business they must borrow money and usually pay interest. That interest forces you to be profitable, you can't just run your company at 0% profit as that would only pay for your salary and the salary of your employees and the materials and machines you bought. It is impossible for every company to be simultaneously be profitable. After all, if there is a million dollars in the economy, you can't have a 5% profit and reinvest the money as that would require a money supply of 1.05 million dollars. Thus, the money supply must grow endlessly and if the economy can't keep, there must be inflation.

samsquire 4y ago
I guess my thought process goes similar to this. I am one person out of 7 billion. I need to provide for myself, everything I pay must cover the costs of all the costs of those people I bought from. When people buy my labour they must cover my costs of providing for everyone else. My work and the work those people are doing needs to pay all those costs. We effectively pay eachother to work at what we are independently good at - trade. But a worker only receives revenue from the work they do (I'm excluding unearned income) If everyone gets everything they need ultimately from other people, and each of those people needs to get everything they need from everyone else - and sometimes the same people. Where does the salary of the workers I buy things from come from? I feel intuitively it doesn't matter how much bread someone can create, the total revenues from selling bread in general needs to cover the costs of all their employees and the business costs themselves. But this process repeats for all transactions the total transactions for MasterCard pays the bills that MasterCard employees have. Everyone needs to earn more than they cost but so does everyone else! How can this not inflate endlessly over time? When I look at government deficit and debt levels of the world, people don't produce more than they cost and relative and absolute poverty. What's the proportions of owners of wealth? Compare the bottom 99% with the top 1%.
spiralx 4y ago
Bank loans create new money by increasing bank deposits, which is then destroyed when the principal is repaid, leaving behind the interest on the loan. So it is theoretically possible for every company to borrow money at once.

trhr 4y ago

The price of bread has a net addition into the system in the form of sunlight. Seeds essentially germinate into wheat for "free." In fact, you could make the argument that all of human endeavor is simply withdrawing from the bank of 4.x billion years of sunlight.

spiralx 4y ago
Or as Henry George put forward over a century ago, we should tax only the unimproved value of land, as everything else is the product of humanity, while land is finite and required for everything else. https://astralcodexten.substack.com/p/your-book-review-progress-and-poverty?s=r https://astralcodexten.substack.com/p/your-book-review-progr...