This topic requires many considerations that may be more political than economic, but to try and retain focus, the point is primarily to examine how economic principles (like supply and demand) are dealt with in this arena.
There are two ways in which multi-national businesses may manifest. In one case, a company maintains operations to provide goods and services in another country and is completely self-contained. In other words, the goods/services provided are provided by individuals in that country for individuals in that country. This is simply another closed system(1), albeit with a company that originated elsewhere.
The other case, is where segments of production exist in various locations with the products of its efforts being directed indiscriminately to whatever global markets exist. In this situation, we have a complex economic situation whereby the means of production and consumption do not have a precise definition. Various systems may be used to exploit each other or to gain advantage which can create a very aggressive business strategy.
However, despite what many people may feel, economics isn’t about business, it’s about society. Success or failure in business is not the purpose of economic theory, but rather it is a social science that is intended to model how societies can operate under these conditions.
Therefore despite how successful a particular business strategy may be, it is incumbent on economic theory to also consider the effect on the supporting societies. In a previous post I indicated that the relationship between supply and demand is largely symbiotic in that both sides benefit by operating within the closed system. In an open system, the relationship becomes parasitic whereby the business exploits various sectors without any need to provide benefit. I want to be careful to ensure that this statement is not intended as a value judgment regarding business. I’m not suggesting that such businesses are evil or bad, but rather that they operate as a direct consequence of how their operation is organized. In economic theory, we need to establish an explanation that helps us understand whether such an arrangement provides benefit or not and to whom.
Just as communism had flaws because of its dependency on altruistic behaviors, so does the idea of the unfettered multi-national corporation have flaws in its ability to disrupt the underlying societies it exploits.
Consider a company X operating in country A which is the intended target for its products. The labor however exists in country B. The company X is increasing the money available in country B which increases the demand side, while decreasing the money available in country A which reduces the demand side. In this simple example, it is clear that the company X could not sell any products in country A because there can be no demand (money = $0). However, when we add other companies, it becomes clear that the company X is depending on other companies subsidizing the demand side to create a revenue stream for its products. In other words, company X has become a parasite on that society by draining resources. Similarly if other companies are available in country B to exploit the increased demand, that economy will tend to grow as resources are infused into the system.
No matter how such a scenario is viewed, invariably country A’s economy must decline while country B’s economy will grow(2). Often this discussion is couched in terms of competition, but there is no competition since it is the same company operating in both countries.
One of the effects of such globalization is that many countries can more readily compete on the labor front because of lower standards of living or laws that effect labor. However, in the arena of foreign trade, this becomes part of the political environment to ensure that parity is achieved by the use of tariffs to equalize competition. The failure to do so will result in a “race to the bottom” so that only the cheapest solution will prevail. Once again, this type of activity doesn’t raise the standard of living, it lowers it for all involved.
Whether a company benefits from such choices is immaterial, since (as I’ve already stated) it is not the purpose of economic theory to produce profitable companies. Instead economic theory needs to be able to guide public policy so that the actions of individual companies doesn’t decimate the societies in which they operate.
(1) The concept of the closed system is intended to demonstrate how the distribution of resources is symbiotic between the supply and demand side. Companies provide wages which fuels the demand side, which generates income for the supply side. This cycle of money represents a closed system. If one of the parties can go outside of this cycle, then clearly the model doesn’t not represent the complete flow of money and does not represent a supply/demand model
(2) This is an obviously simplified example, in that we are examining the behavior of one group of consumers (demand) and one group of suppliers only. The point is only that if a company doesn’t put resources into the system (i.e. wages to consumers), then it can only be said to extract resources (i.e. income from products).
Comments
While other companies in country A may help create demand, a more important ingredient for demand is that company X is selling something that citizens of county A want.
I'm sorry, but you're missing my point. What citizens "want" has nothing to do with anything. If they don't have money (i.e. no jobs), their desires are irrelevant. Since few consumers are financially independent enough to not need jobs, then they depend absolutely on the "supply side" to provide those jobs. If those jobs are no longer there, then unless they're being subsidized by the government (i.e. unemployment), there can be no demand.
Your example of "soiled baby diapers" also misses the point, because it has nothing to do with whether someone wants the products or not. If they don't, then it doesn't cost anyone anything and only the business fails. However, when someone has a product that people want, then the only way that will help a company is if people have the disposable income to purchase that product. Any company that sells products in a country where they have no employees, is simply taking resources away from that country. Any company that has employees in a country is providing income to those that will act on the demand side, and therefore they are creating the impetus to grow.
The point is that in order for company X to sell anything, it has to sell stuff that people *want*. This is where company X - assuming it's profitable - is adding value to country A.
I'm sorry, but this is backwards. This presumes that people are sitting around with money to spend looking for something they "want". First people must obtain what they need, then they can entertain what they "want". Without the financial resources, both elements are irrelevant. Company X cannot be adding value, by taking revenue. How does the success of a company convey value to anyone except the company until some of that revenue is converted back into money for the people of that country?
One of the overarching fallacies is the notion that supply determines demand, which presumes that demand can exist independent of finances. There may be many items that you "want", however if you can't afford them, then you cannot contribute any revenue to that company's profits. As a result, you are irrelevant as a consumer.
Many companies will learn this lesson the hard way, in that, eventually they will discover that when people don't have jobs, it doesn't matter how cheap that company's products are, because they won't be sold.
Gerhard Adam | 07/22/09 | 19:47 PM
How does the success of a company convey value to anyone except the
company until some of that revenue is converted back into money for the
people of that country?
This is not correct. The value that Bill Gates added to the American economy doesn't lay in the billions of dollars that he is worth&the mass amount of people employed at Microsoft. It rests in vastly accelerating the utility of the PC by creating DOS and Windows. Where would the economy be without them?
How much further, in contrast, will it excel when the market is hit with the massively innovative futuristic products of Soiled Diapers Inc, located in Detroit?
The converse can be seen in the argument over health care. If we're only concerned about revenue within our country creating more jobs, then expensive health care would be a good thing.
Yes, you need money to buy things & finances to fund them, but the roots of demand - be it for necessities or luxuries - are purely human. & without money, man would find some other manner with which to fulfill these needs.
kerr jac | 07/22/09 | 20:11 PM
It rests in vastly accelerating the utility of the PC by creating DOS and Windows. Where would the economy be without them?
No, it rests in the millions of people that had jobs that could afford to buy PCs and allow this technology into their homes. When people have the funds, then such demand can be satisified, however you can't credit the development of DOS and Windows as the trigger. The consumer was primed to act, so those products could take advantage of that situation and move forward.
I've never suggested that companies that are unresponsive were owed anything either (i.e. Detroit). However, like many companies, their entire economic view was that demand could be sustained simply by focusing on the cheapest price. As a result, they entered into a symbiotic relationship with each other rather than competing (after all, they didn't want to leave themselves open to an actual "free market"), so things stagnated.
I've never believed that companies were entitled to survive, nor am I opposed to the idea of companies competing in an open market (although I've yet to see such a thing).
If we're only concerned about revenue within our country creating more jobs, then expensive health care would be a good thing.
What good is cheap health care if you still can't afford it? If we don't worry about revenue within our country, who's going to? First and foremost, economics is a social science which is intended to help in understanding the flow of resources within a society. If that society ignores its own needs, it does so at its own peril, because that is the epitome of foolishness. For too long the government (and many people) have catered to and worried about the needs of companies, instead of letting them compete and succeed or fail on their own merits. Every step of the way has been paved with special privileges and financial assistance that gave the lie to their real belief in a "free market".
BTW, the whole health care argument is a red herring, since it is only expensive because we refuse to allow competition. By limiting the number of doctors that can be admitted to medical schools (I'm not talking about lowering standards), we artifically constrain the level of competition. Then by letting insurance companies determine what constitutes a legitimate medical action (based on profitability), we introduce the waste and inefficiency we've come to know and love.
The reason insurance costs are so high, is because they've been subsidized by corporations instead of having individual citizens pay their own way. If individuals had to pay, there'd be more competitive programs available, or at least a better sense of how "out of control" the entire system is. The majority of people that want to complain about changing health care, do so because they don't pay a dime and are subsidized by corporations. Talk about socialism.
...without money, man would find some other manner with which to fulfill these needs.
How?
Gerhard Adam | 07/22/09 | 20:31 PM
The value that Bill Gates added to the American economy doesn't lay in the billions of dollars that he is worth&the mass amount of people employed at Microsoft.
We should also be clear that Bill Gates success was because of huge financial subsidies and a partnership with IBM, without whom it is highly unlikely that Microsoft would've ever achieved the market penetration that it did. Once again, my point is that it isn't simply the creation of a product, but (1) the finances to produce it, and (2) the consumer finances to purchase it.
BTW, there are many that would argue that Microsoft was also depleted a significant amount of value from the American economy by practices that have kept out competitors that might have made the technology cheaper or even move in different directions.
There were plenty of potential competitors that could've steered that technological development, so I don't think it's reasonable to look back on Windows/DOS and conclude that somehow it was the intrinsic value of that system alone that advanced the PC.
In any case, my point is not to replay the Microsoft/IBM history, but rather to point out that everything in an economy depends on the flow of money. Supply is not created independently of demand, and demand cannot exist independently of supply. The two are absolutely and unequivocally intertwined, so when money doesn't flow between these two groups, the economy will stall. One cannot point to only one element and suggest that it is the singular cause for value. All participate, and all contribute.
Gerhard Adam | 07/22/09 | 20:57 PM
No, it rests in the millions of people that had jobs that could afford to buy PCs and allow this technology into their homes.
Yes, but even more people could afford that technology in their homes b/c that technology made things more efficient.
If you just look at the flow of money, you can go back and forth and back and forth: We need money for demand; we need money for supply; we need money to supply demand; we need money to demand supply; we need money to supply demand for supply. You're getting caught in a loop my friend.
It's rather similar, I think, to my debate with Gary about reason&subjectivity (see my comment with Hume's excerpt: http://www.scientificblogging.com/comments/19701/bye_I_should_have), with money likened to reason, & qualitative progress/human needs likened subjectivity/sentiment. Money, as with reason, is a means to an end; but it's those subjective human factors which provide an impetus for action, imbuing tools such as money or reason with meaning. A company offering a product that is not desired (such as my Soiled Diapers Inc) does nothing for those human factors. Sure you need money to, say, buy a car, but who is to say whether Bob is better off paying for it all once, paying added interest in an auto loan, buying American or Japanese, or just living without a car, except for Bob himself? Money is involved, & his decision will affect his amount of money on hand in the long term and the short, but the final decision, and the value added or taken away from Bob's life, is purely subjective.
You're right to say that, in the first place, Bob needs money in order to buy the car. But you're wrong if you think that, if he has money, his final decision - from his choice of how to finance to brand, make, and color - doesn't matter.
kerr jac | 07/22/09 | 21:37 PM
You're getting caught in a loop my friend.
That ... is the way an economy is supposed to flow.
Money is involved,&his decision will affect his amount of money on hand in the long term and the short, but the final decision, and the value added or taken away from Bob's life, is purely subjective.
I can appreciate all the estoteric reasons that people may have for their choices, and I can also appreciate the intrinsic value that items have beyond simply financial. However, that isn't the point when discussing economic models.
The choices a consumer makes, certainly matter and will add to the flow of money through the system, as well as the success or failures of the various components.
However, economics is supposed to be a "science" at least to the degree that it can offer insights to make policy and social decisions for the society in which it operates. This presumes that the leadership uses those tools to protect the society they are charged with leading instead of giving in to business fancies and faddish theories.
The mythology of the "free market" defines a scenario that doesn't exist (except in a village square). For good or ill, governments are involved and will continue to be involved. I can also appreciate periodic cycles of boom or bust, when they occur from the natural ebbs and flows that are intrinsic in such a system. What I can't abide is all the fawning over the business leaders, political leaders, and economists, whose greed and ineptitude have acted to take a reasonable economic premise and practically run it into the ground.
Overall, the problem I have is that economic theory is a human invention, and yet humans have been supremely obtuse in understanding it and tweaking it to achieve optimum performance. Businesses (and people) must be allowed to fail, but they should never be allowed to become so large that they represent a political power in their own right. An unconstrained free market has the potential to produce tyranny. Certainly one can't legislate or control human interactions, to dictate or determine how economic choices can be made, however that doesn't automatically open the flood-gates for every business notion that someone can dream up. We currently don't allow every "demand" to be met, so there is no requirement that a "free market" has to be synonymous with anarchy.
While a "free market" might be workable, it is impossible to achieve, so rather than delude ourselves into pretending that it exists, it is much more prudent to regulate the boundaries, and then ensure that freedom exists within the system (including the freedom from abuse and/or exploitation). This isn't protectionism. It's up to governments to try and provide as level a playing field as they can, however it isn't up to them to simply prop up internal industries that can't legitimately compete. Other countries can and will do that to some of their own industries, and this is precisely why we need to act accordingly to deal with those kinds of competitive issues. If our companies are destroyed because of our blind adherence to a mythological "free market", then shame on us, because we have the means to know better, and to do better.
Gerhard Adam | 07/22/09 | 23:02 PM
However, economics is supposed to be a "science" at least to the degree
that it can offer insights to make policy and social decisions for the
society in which it operates.
Perhaps only as much as political science is a science.
Overall, the problem I have is that economic theory is a human
invention, and yet humans have been supremely obtuse in understanding
it and tweaking it to achieve optimum performance.
This seems to be more of a problem with democracy than economics. Part of the solution, I think, is in increasing the public's understanding of economics. Somehow economic lessons - such as the failure of the New Deal to help the economy, or how the short-term pain caused by Volcker set the stage for growth during the 80s - just don't hit home with the public.
Another part of the solution is modifying the structure of democracy in order to better suit the economy - not in terms of abstract economic theory, but just common sense. The most extreme example of this is in California (see http://www.economist.com/world/unitedstates/displaystory.cfm?story_id=13...) where spending and taxation are determined by completely independent political processes. It doesn't take an economics scholar to tell you that that's a recipe for disaster. In California, the problem was not misinformation from the field of economics, it was a lousy governmental structure.
California is an extreme example, but similar principles can be seen in the federal government, where poor spending habits are often reinforced as well. National political debates revolve around tax rates and various government programs as if these were independent issues. The public doesn't like taxes, but you'll having a hard time campaigning on cutting funding. In this context, when it comes to economics, politicians (and their constituency) will put on selective hearing aids and only listen to those economists who back them. In sum, economists' advice - even when sound - carries little weight to correct the real problem, which often lies in the basic structure of the government. Proposing to change that structure is a political process, not an economic one. As in the case of California, it's taken a full-fledged meltdown - not scholarly or common sense advice - to provide the impetus to make real structural changes (as they consdier whether to rework their entire constitution).
What I can't abide is all the fawning over the business leaders,
political leaders, and economists, whose greed and ineptitude have
acted to take a reasonable economic premise and practically run it into
the ground.
Only individuals can be accountable for their actions, but when you start to see such widespread moral ineptitude, you have to go beyond individuals and groups of individuals; you need to look at the structure that is in place and the context if you want to find any semblance of causality. In such areas problems often run deep. Good science won't cure these problems, just as reminding the public over and over again that safe sex prevents the spread of HIV will only do so much to prevent it from spreading.
kerr jac | 07/23/09 | 18:56 PM
Somehow economic lessons - such as the failure of the New Deal to help the economy, or how the short-term pain caused by Volcker set the stage for growth during the 80s - just don't hit home with the public.
They don't hit home with economists. Unless you have "scientific" type evidence regarding those statements that can be borne out with models, then those are simply political and not economic comments.
I also think the perpetual talk about taxes is a red herring, because, as long as people enjoy the "benefits" of large government, then they've essentially made their market choice. Are they going to complain? Of course. Do businesses complain every time they have to spend money? Of course. It means nothing.
While the government can certainly be inefficent, it is a complete fantasy to suggest that businesses are any more efficient. One problem is that government has to take on all those projects that are expensive and non-profitable (i.e. like the military). It doesn't have the luxury of picking and choosing only those ventures that produce revenue. In fact, if the government did compete economically, it would be a disaster for the country (especially given how problematic their involvement is already).
These are all myths that people have bought into based on political agendas. Government cannot and should not be run like a business. Unregulated markets are not rational and will not regulate themselves. There is no such thing as the free market.
People don't need to be educated about economics to participate anymore than they need to be educated about biology to act like human beings. The onus is on economics to grow up and become a real "science" if it can, and if it can't, then it needs to stop pretending that it is more than conjecture and opinion.
You can't blame the politicians either, because economic theory (except for a few exceptions) failed to raise a fuss over what was happening. If anything, politicians will respond when the public gets alarmed, but the majority of economists were strangely mum on the entire process and some were definitely cheerleaders.
It does no good to say that people are uninformed and that politicians make bad mistakes. It isn't their job to make economics work. It's economic's "responsibility" to explain what happens, which it has uniformly failed to do (and hindsight is not an explanation).
At present, economics has recommended or suggested that it is possible to lower taxes and raise revenue, spend wages overseas in cheap labor markets to improve growth at home, outsource skills to our future competitors, and bring cheaper foreign labor (including skilled) in this country to avoid hiring qualified Americans. There isn't a single idea in the lot that is capable of working (except maybe for the companies, but certainly not the society), but economics says nothing about the consequences of any of these choices. Even the most cursory examination should give anyone pause to consider the long-term consequences of these decisions.
BTW, you may think those previous points are outside the realm of economics and are only political, but my point is that these are topics that should be widely discussed within government and the public since it affects our society and country. Instead of economic advisers having these serious dialogues, we get cheerleaders going on and on about how brilliant and wonderful the financial folks are on Wall Street.
Gerhard Adam | 07/23/09 | 23:28 PM
They don't hit home with economists. Unless you have "scientific" type
evidence regarding those statements that can be borne out with models,
then those are simply political and not economic comments.
Most economists believe that the New Deal prolonged the Great Depression (see http://newsroom.ucla.edu/portal/ucla/FDR-s-Policies-Prolonged-Depression... for a popular article). There's been lots of retrospective research&very few studies are favorable of it. Moreover, things got worse during the new deal by some basic economic indicators (http://online.wsj.com/article/SB123353276749137485.html).
Looking at the way the world actually works, you're right that economists should government as an economic factor and work within that framework rather than assuming that every market is equally "free".
Nonetheless, getting at the root of the problem, I strongly urge you to read that article about California's government. Writes The Economist:
California has a unique combination of features which, individually,
are shared by other states but collectively cause dysfunction.
These features include strange standards for budget proposals and tax increases. It's the only state were budgets proposals and tax increases - determined as independent processes - require 2/3rds approval in both houses of the legislature. Out of 24 states that allow referendums, it is the only state where there is no legislative power to override initiatives that pass by the popular vote, many of which affect the state's budgets & taxes. Gerrymandering runs rampant, which makes for weird political cycles, tends to produce extremist local representatives, causes more deadlock in the government, and further confuses the citizenry.
I'd by fascinated to read a study of the economic effects of the state's awkward political structure, but I doubt that it would have much effect in changing the way that things work. Where would state budget reform even begin? One popular referendum was to freeze representatives' pay in budget deficit years. No doubt this is democracy gone seriously mad, where you have the citizenry voting to not just have the budget restrained, but to inflict punishment on the individual 120 state representatives in years when they can't balance the budget, the budget itself being determined, at the very minimum, by passing 2 bills each requiring 2/3rds approval in both the state Senate and the state assembly, not to mention the effect of miscellaneous referendums that can affect both spending and the tax rate.
This is not a problem for economics to solve. It is simply a poor system, which - as the economy has worsened - merely sets up any players in the game, be it politicians or policy analysts, for failure. Such bad systems are reinforced by the public's mis-perception of basic economic principles - where, just as in gov't, spending (be it of current revenue, future money, or printing money) is not connected with revenues in their minds (likely due to liberal education & media as well in my opinion).
It's not clear, then, how the problem rests with economic "science",
any more than poor medical science is "responsible" for the current
sharp rise in obesity. A doctor can tell an overweight patient to eat less, just as an economist can give official recommendations. Afterall, adjusting one's lifestyles in such instances is difficult, particularly given the rich short-term rewards of continuing the problem-behavior. Unhealthy food tastes good, just as spending tomorrow's money is very tempting (particularly when it's phrased alterantvly as social wellfare). You wouldn't say that medicine is responsible for obesity, rather the problem has fallen into the field's lap due to circumstances outside of its control. Nonetheless, the field is doing everything it can to respond, & likewise are economists.
I like science, and in very tangible ways it can really improve people's lives. But to vaguely blame the problem on economic science - or any science for that matter - is unrealistic; science itself rarely causes such problems. Currently feuling the economic problem is the web of conflicted interests, poor gov't structure, and placement of decisions and types of power in the hands of people who shouldn't have it - all rather analagous to CA's gov't. As you like to mention, people are good at acting first and justifying later. It is this post-hoc justification that you are calling economic science; but science it is not, and even if it were, it would be powerless to solve the problem.
kerr jac | 07/24/09 | 22:33 PM
In fact, it's sort of like doctors praising the availability of food and how great the fast food places are in providing cheap food, and how great pastries are ... and then being shocked when it results in obesity. The problem is that economists were NOT giving sound advice. Truth be told, the infatuation with free markets is precisely because in the absence of any real scientific models, economists hold out hope that somehow the free market will resolve all ills.
Another difficulty is that the majority of economists don't actually know whether a free market would work or how it would even look. This is simply an assumption on their part, because there are no models, nor examples from the real world to demonstrate such interactions.
While I can certainly appreciate the points you're making about California, it doesn't really matter because it isn't part of economic science (like your obesity example). The question isn't about how people interact, or even the choices the make. The point is what does economics say about it and the evidence is that it has little or nothing to say because they don't know.
Gerhard Adam | 07/25/09 | 23:14 PM
The point is what does economics say about it and the evidence is that it has little or nothing to say because they don't know.
Referring to "economics" as one entity is one step down from referring to "science" as one entity. Certainly it's safe to conclude that science generally supports the scientific method, but aside from that it's rife with controversy and competing theories. Blanket statements like "the majority of climate scientists believe that global warming is man-made" are never as straightforward as they appear. Yes, you have constructs that come to the fore, various ideas and connections which are widely supported and reported to the general public, and a handful of both assumptions and findings that are so well supported that they're accepted as basic truths. But to portray science as a unified voice - to personify it as if to say, "what does economics or field x have to say?" - is not only untrue to the nature of science, but it does disservice by misrepresenting it to the public.
The field of public health is rife with these problems, as it's constantly bringing medical findings to the public, even as these findings are changing. Even basic things like salt is bad for you, you need to take lots of vit d supplements, and if you're mildly obese you're at greater risk of dying earlier are being called into question.
It's further questionable whether economists' cries would've even been heard. In 2004 the CEO of Fannie Mae proudly announced that his company was financing $2 trillion of US mortgages with $30 billion of private equity, a little under a fifth of US GDP at the time. But it wasn't an economic debate with Fannie and Freddie - it was a housing debate.&likewise for other economic issues, it's never directly about economics.
Regardless of the complicated issues involved in economics, it's not even clear whether fields of "science" - in issues that are much more straightforward - even deserve a role in policy making. The FDA adds billions of dollars to drug costs, and in many cases the clinical trials for approval take over a decade, while still releasing drugs that prove to have unacceptable side effects. Even if you're a fan of the idea behind their service, you have to admit that they're extremely inefficient in what they do. Simple decisions - should company X proceed with the next trial? are we going to approve drug z now that they've run the required trials? - are delayed for months, even years in some cases, often chalked up staffing issues, unexpected delays, or just no excuse at all. As it shows, mixing science with policy can give you some ugly results.
As it is, the US government currently has at their exposure the BEA, BLS, CBO,&GAO, not to mention various congressional committees and national/state reserve banks, all offering them economic analysis, advice when possible, and deceptively rosey economic projections. But even if they had an expert economics agency on hand, then what would it even look like? How much power would it be given? And would congressmen actually listen? In all likelihood, if it was given any power to override poor decisions, then its personnel would be replaced. As it is the current agencies merely produce descriptive reports and a tad bit of oversight. Yes, Alan Greenspan in a sense admitted getting caught up in the boom, but he remained rightfully skeptical of many other things, from the spread of creatively financed mortgages and Fannie & Freedie to Social Security and Medicare.
kerr jac | 07/26/09 | 00:46 AM
I think you're missing my point. I understand that policies can be good or bad. What bothers me is that there doesn't seem to be anywhere that economics ever really said anything except in hindsight. Most of the financial organizations have economists on their staffs, so it's pretty clear that they either didn't say anything or weren't listened to. Similarly we already know about how poorly the economic advice fared in political circles.
Interestingly, some of the biggest mistakes occurred on the financial networks that were supposed to be dispensing advice to the public, so apparently they didn't listen either.
You keep bringing up political decisions and my point is that economics doesn't even know how something like a "global economy" works and yet they're leading the cheers for it. Businesses are suddenly waking up to the realization that the trend in consumers being more frugal can have significant consequences. There's a growing realization that the consumers are tapped out in the United States and finally, businesses are starting to get concerned.
The point is that all of this is so obvious, that it boggles the mind that so many supposedly trained professionals couldn't see it, and many still can't. You can't equate economics with all of science. However you would be correct in your criticisms if there were a field like biology that couldn't actually tell you anything about living organisms, which is the current state of economic theory.
As I've mentioned before. I would love to see even ONE economic model that talks about globalization, or supply and demand, or outsourcing. I've never seen one, because if we did then we could see what assumptions went into the model and determine what the basis of the advice was.
Your point about drug approvals also doesn't fit the issue. The FDA isn't there to validate the science, it exists because the "free market" can't be trusted to be self-policed. In reality, the issue of drug companies is questionable in whether they are even legitimately a "free market" style enterprise since it effectively holds a monopoly on approved drugs. Unless you believe that life-saving medications and iPods are on the same plane as far as economics goes, there is clearly a problem in the way much of this is managed.
Gerhard Adam | 07/26/09 | 18:41 PM
I've yet to see this play out on a grand scale.
One of the defining aspects of the current downturn is that its widespread international effects. But according to this theory, such a downturn would free up countries whose economies have been pray to companies based in more successful economies.
The majority of empirical and qualitative evidence demonstrate that countries have risen together and fallen together, rather than fall as others rise.
I'm also little confused by your drawn out example with company X, but I think you're going wrong here
While other companies in country A may help create demand, a more important ingredient for demand is that company X is selling something that citizens of county A want. Again, country A can be filled with all the companies in the world, but if company X makes a living by selling soiled used baby diapers then no one is going to buy. The point is that in order for company X to sell anything, it has to sell stuff that people *want*. This is where company X - assuming it's profitable - is adding value to country A.