Basic terms. "Supply" is stuff on the shelf, already produced.
"Demand" is cash money in a potential buyer's hand. There's a curve
that describes how many people will pay a low price for something and how many
will pay more to outbid them. A few decide that price is no object, which I did
many times, paid top dollar to get instant delivery of goods and services in very
limited supply (scarcity).
"Productivity" has nothing to do with human labor. It expresses
how capital multiplies the somewhat puny input of workers. Take a 7-Eleven for
instance, hundreds of thousands of dollars invested 30 years ago when the
dollar had 30% more purchasing power. Real estate and zoning, construction
plans and permits, plumbing, electrical, fixtures, tanks and pumps and
refrigeration, a huge body of regulatory law concerning handicapped access and
cleanliness. If sales are soft in a recession, the profit margin shrinks.
Businesses close if they lose money. Wages are low until you qualify for
promotion to shift manager, store manager, supervisor of several locations, or
franchisee (if you buy your way in). Jobs at 7-Eleven are not good career
choices or secure investment opportunities, especially in rough neighborhoods.
A middle-aged blue collar customer in an F-150, grabbing a donut and a cup of
coffee on his way to work, is not going to flatten a hillside barehanded. He
needs a bulldozer, diesel, grease, qualified mechanics, spare parts,
construction management, lawyers, developers, bank loans, and workers comp if
he gets hurt on the job. He can't work as a heavy equipment operator without
Caterpillar. That's capitalism.
Which brings us to "investment." It has nothing to do with Wall
Street speculation in shares. Bidding up the shares of Pets.com or GameStop or Uber
doesn't make a company profitable or investment grade, destined to pay
dividends and gain share value in the future. Early investors in a start-up
sometimes have a fantastic windfall. Most do not. Many ideas are stupid. They
fail, and everybody loses their paid-in venture capital and founder
contributions. Almost 80% of all successful investments are retained earnings (profits)
from successful enterprise, used to expand operations, buy better machines, or
buy another business from a failing competitor. After the Bell System break-up,
AT&T was a high tech giant. It went broke, acquired by Southwest Bell for
$1 and assumption of AT&T debt and pension liabilities. Bell Labs was spun
off as Lucent, never made a profit, merged with Alcatel. The merged telecom device
manufacturer went stupid and lost market share, a failure of leadership and
lack of innovation.
"Innovation" has nothing to do with big operations like FedEx or
WalMart. Rather, it means inventing something basic and revolutionary, like the
transistor invented at Bell Labs in the 1950s, which made vacuum tubes
obsolete. The first computers used vacuum tube logic. Transistors became
integrated circuits by stepwise improvement of the invention. A large number of
competitors worldwide raced to make transistors smaller and smaller, until
chips were etched by robots in nanometers. What FedEx did was to compete
effectively against molasses slow UPS and the Post Office, charging a premium price
that customers were willing to pay to get stuff in a hurry, expanding the business
model of "just in time" shipment of industrial freight, most of it
delivered by long haul 18-wheelers deployed by hundreds of trucking companies
and thousands of individual owner operators who make payments on a Peterbilt.
The only reason WalMart exists is cheap goods in China, daily arrival of
container ships in Los Angeles, and hundreds of rail, truck, distribution, and
maritime companies. None of those players are innovators like Bell Labs and RCA
once were, both of which were disbanded long ago. Big screen LCD and plasma
displays were Asian innovations. Whether Facebook invented anything is
debatable. Google amped up Alta Vista, which was pioneered by DEC, long gone as
a computer manufacturer. The computer mouse was invented by Xerox, an innovator
who made important leaps and faded away. So did Commodore and Lotus. Commercial
operators like WalMart and FedEx work relentlessly to increase productivity by
deploying more efficient machines (bigger container ships, new planes for FedEx,
digital devices and networks). Profits attracted competitors like Dollar General,
Costco, UPS air hubs, and USPS tracking of 2nd day Priority delivery.
Competition, cash flow, retained earnings invested in capital expenditure for faster,
better service, and lean management pushes down prices paid by consumers like
you and me.
Consumption does not produce anything, unless you buy tools and equipment, or
a new suit to make yourself more presentable as a salesman, or medical care to
stay in action as an economic actor of some sort, producing something of value
or selling your labor to the highest bidder, unless you're a dodo like me. I invested
my labor in doing work that nobody ordered. My consumption of food, shelter,
transport, raw stock, film crews, labs, television cameras, and oodles of
computers produced nothing that people wanted to buy. Presto! I was out of
business as a film director.
"Government spending" is a shell game. They borrow, throw trillions
around, earn zero profit, and the dollar is devalued. Prices rise because
everything costs more to produce, burdened by taxes and market distortion,
subsidizing incompetents and the idle to consume without producing anything,
especially the tens of millions who are directly employed by government. You
like to think that government keeps us safe and orderly. It's a lie. Our armies
kill people and break things, always a costly disaster. Our cities are hollowed
out. They were built by generations of private actors, private savings, technology
innovators, and private investment in factories and small enterprises that are
no longer viable in murderous urban jungles created and worsened by lavish
government spending. Riots do not promote equity.
When I feel like it, I'll explain equity. It has nothing to do with racism.
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