From: Michael S. Lorrey (mike@datamann.com)
Date: Wed Apr 26 2000 - 09:54:20 MDT
John Clark wrote:
> Michael S. Lorrey <retroman@turbont.net> Wrote:
>
> >When its not foreseen (as Moore's Law helps us to do), then excessive
> >productivity growth causes overcapacity, overstocked inventories
>
> So, what do you do if you're making more stuff than you need? You gave the answer
> yourself "and then a slowdown in production". That's exactly what should happen,
> things worked differently in the old USSR, somebody would just set manufacturing
> quotas that seemed nice, the result was they'd have 10 times as much of one
> product as they needed an a tenth as much as another they needed.
>
> >and a layoff of employees
>
> Why layoff people? If I find an improved method of making fiberglass underwear
> so that only a few manufacturing people can satisfy the entire world demand then
> the thousands of people that had been making this wonderful product can now
> make something else that we need more. Any large change in the economy or
> large change in anything else for that matter, will be bad for some people, but in
> general people should always make things that other people want the most,
> it's good for most workers and good for most consumers.
>
> >which reduces purchasing,
>
> Why would purchasing decline when prices fall?
John, this is what happened in the 30's. There was significant deflation, partly due
to a tighttened money supply, and partly due to overproduction by farmers and
manufacturers that only knew one thing: producing. When you lay people off, they don't
have money to spend. Less money being spent means less stuff being bought. Less stuff
being bought means lower prices and less production and more layoffs which means less
spending, less buying, less production, more layoffs, etc.
>
> >if cheap and easy nuclear fusion magically became possible
> >today, and within a few months most everybody had a fusion plant in
> >their back yard, what do you think would happen to the economy?
>
> Then the current economic expansion would accelerate. Of course.
All except for the millions of people who work in the energy recovery, distribution,
and generation industries. They'd all be out of work. Since their industries make up
some thing like 25% of our economy, at least, then you are talking about a major
contraction, in actuality, because all those energy workers are no longer making
money, no longer spending money on all sorts of products from the rest of the economy.
>
> >How about if nanotech became magically possible today? I'll tell you:
> >the economy would go into a major depression for a good 3-10 years.
>
> Well, that's a rather silly thing to say now isn't it.
>
> >You are talking about making obsolete a whole economy almost overnight.
>
> Yes, but you almost make that sound like a bad thing.
Not in the long run, no, but making a whole economy obsolete overnight, or almost
overnight will cause a) people to not invest in anything, because they can't be sure
if it will be viable or dead 6 months down the road, b) massive sell offs in all
markets, with crashing prices, and concurrent evaporation of a majority of the wealth
in the world. Just as was seen with the meltdown in Asia a short while ago, when the
markets crash like that, industries that are leveraged need instant liquidity to pay
expenses, while banks are calling in loans by the bucketload, which the debtors
obviously don't have the liquidity to cover, so you wind up with a massive banking
failure. Banking failures cause banks to freeze assets, which also decreases
individual consumers' ability to spend money, and to refund deposits for pennies on
the dollar, which also has a rather disincentive effect on consumer spending.
Once the herd has started to stampede, its hard to stop until people are jumping from
buildings. As I stated previously, knowledge helps alleviate this vicious panic cycle.
Knowledge of Moore's Law has been of immeasurable benefit in allowing industries to
manage the increase in productivity and the decrease in prices. Note how the average
desktop PC is not much cheaper than it was 8 years ago, but it has a WHOLE lot more
features. If a manufacturer didn't know about how Moore's Law can be used to manage
change profitably, you'd see some dumb manufacturer still making 286 PC's for $1500.00
and wondering why he's bankrupt and not selling anything. He drops his price down to
$50.00, and he can sell some units at that price, but it costs hime $400 to make those
$50 PC's so he's still going out of business.
If we could build this sort of productivity gain into car manufacture, we'd all be
flying supersonic aircars by now, and paying the same amount for a car we were paying
in 1980. If you magically introduced one of these aircars for a price of about $20,000
today, with a production capacity of a million units a year, GM, Ford, Toyota, Daimler
Chrysler, et al would all be declaring bankruptcy in short order, and you'd have
millions of unionized autoworkers out on the streets unemployed. Markets would crash
(all except your AirCar, Inc. stock), wealth would evaporate, consumer spending would
decrease (all those autoworkers unemployed), and you'd get the vicious cycle I
described earlier. Those other companies could try to introduce similar products, but
they can't compete being saddled by all those union labor costs, by their outmoded
factories, and their lack of automation.
Are you starting to see what I am getting at?
Mike
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