A Severed Hand, Goat's Head and Weeping Guitar

Steven Saville's missive Economics Myths, spawned some interesting comments,... This Naybob Nattered: "Is it better that one person has $100 mln or 1 million people have $100?"

Kramer responded: "Depends on what's available to buy. The dissemination of wealth to the masses should match the producers' ability to supply the masses. Before Henry Ford, there would be nothing for those million people to buy; they would have bid up the price of the few things available, the currency would have tanked, and no one would have any more than they had before. After Ford pioneered mass production, he pioneered paying people enough to afford to buy its outputs. At that point it BECAME better for everyone, including HF, for a million people to have $100 each than for one person to have $100,000,000. Prior to that time, there was no point in taxing incomes to counteract the concentration of wealth. Of course, the incentive for entrepreneurial commitment and capital risk must remain in place: large rewards for large achievements still make sense. But the condition of the masses depends on the supply of stuff, not the supply of money."

Nattering back: Kramer..."After Ford pioneered mass production, he pioneered paying people enough to afford to buy its outputs. At that point it BECAME better for everyone, including HF, for a million people to have $100 each than for one person to have $100,000,000."

I concur, in the days of yore, when what was good for GM was good for US, you would see Adam Smith's invisible hand in action and all prospered.

Gently Weeping

Kramer... "The dissemination of wealth to the masses should match the producers' ability to supply the masses."

Nattering back: In this day and age, due to the diversion, perversion and inversion of capital and labor flows, this condition is not so. The redistribution of wealth and income (money supply) through current monetary policies, as in monetary repression, has the masses real income's declining, and the wealth gap growing exponentially larger.

"I look at you all, see the love there that's sleeping

While my guitar gently weeps

I look at the floor and I see it needs sweeping

Still my guitar gently weeps"

Kramer... "The incentive for entrepreneurial commitment and capital risk must remain in place"

Nattering back: I concur.  However, 1. CB debauchery which stokes inflation, causes allocation of a large share of spending to goods and services that do not benefit from higher productivity or innovation; 2. repressive CB monetary policy, QE, ZIRP, and the resulting financial engineering (money shuffling) through derivatives arbs; have all resulted in the incentive for capital risk being dislocated; resulting in the "supply of money" or capital being misallocated, or the diversion, perversion and inversion of capital and labor flows. 

"I don't know why nobody told you

How to unfold your love

I don't know how someone controlled you

They bought and sold you"

Part of the dislocation in capital flows is a result of labor flows due to outsourcing to labor at the margin.  The workers making the "ipods" can't afford them, and quite a few of the consumers, due to wage declines as a result of the flow of labor, are accumulating an ever soaring household debt in order to do so.  The perversion of these flows has resulted in the emasculation or lack of "economic independence" within developed nations localized economies. In other words, what is good for Wall Street, WalMart, Apple and BIG BOX or MEGALOMART is not good for US.

"I look at the world and I notice it's turning

While my guitar gently weeps

Every mistake, we must surely be learning

Still my guitar gently weeps."

Adam Smith's Severed Hand

Which brings us full circle: ""Is it better that one person has $100 mln or 1 million people have $100?"

Kramer... "Depends on what's available to buy.... The condition of the masses depends on the supply of stuff, not the supply of money."

Nattering back: Perhaps, here is where Kramer and I diverge, because if we are dependent on what's available to buy, and the "supply of stuff", then IMHO we are in a world of shit for which there will be no happy ending.  

China alone, creates 1.1 million jobs per month, and in order to keep those bodies employed, housed, fed and satiated (as in non revolutionary) a large percentage of their production is at an unstated loss. Along with India and the other EM's "labor at the margin", the result is a world awash in EM global exportation of overcapacity, in which any "scarcities" (inputs or outputs) are contrived speculative market manipulations.  

"I don't know how you were diverted

You were perverted too

I don't know how you were inverted

No one alerted you"

Coming back to the diversion, perversion and inversion of capital flows, which are neither flowing nor being utilized properly... and resulting in, the theory that the individuals' efforts to pursue their own interest (education, livelihood, purchases, investments) may frequently benefit society more than if their actions were directly intending to benefit society, or what is known as Adam Smith's "invisible hand", being severed.  

A Goat's Head

"I look at you all, see the love there that's sleeping

While my guitar gently weeps

I look at you all

Still my guitar gently weeps"

Go ahead keep chasing yield, and parking the money in "risk free" mismatched derivative, T-bill and bond arbs. Go ahead, keep buying at Megalomart and soaking up the lip service of "all boats rising" that the globalization media narrative so richly offers. Go ahead, keep inexplicably bidding up asset classes into unjustifiable bubbles, while turning your homes, backyards and nation into an ATM, inside a graveyard of debt and a bankers morass.  Go ahead and think, that the "powers that be" really do have your best interests at heart. Go ahead and believe, its a new paradigm, it's different this time, and see where this "new world order" lands us. You just goat head, while "my guitar gently weeps"...