GuidoWorld

Economic Myths

Our free market economy is based on competition. In any competition there is at least one loser for every winner. In the long run in any area there is only one winner. It is not unusual for a society’s recreational activities to exhibit and mirror its basic values. There has been much written on how the games at the Roman Coliseum reflected the social structure and filled a need of Roman society.

One look at our sports structure shows how important competition is in our society. In every sport the victor is hailed and the loser is quickly forgotten. The victors themselves are quickly forgotten if they do not repeat the next year. In most professional sports we have twenty to thirty teams all vying for the title. In the Olympics one thousandth of a second can separate fame from anonymity.

Yet, when it comes to our economic realities we often act as if the majority of people win. We act as if the loser in one field can quickly change into another economic activity or career and experience success. We talk as if monopolies are uncommon and unnatural and the exception rather than the rule. We have a myth that hard work and talent make one successful and only the lazy and weak lose in our society.

In each and every economic transaction there is a winner and a loser. If both parties were equal there would be no profit, it would be an exchange. If I gave you two quarters and in return you gave me five dimes it would be an equal exchange and neither of us would make a profit. In order for me to make a profit I must make more than the total cost or overhead of making the product, and the consumer must pay more than the products actual worth.

We often talk about the measures taken in order to keep costs down as a miracle of capitalism. We talk of the inventions and improvements in technology as if they create profit and wealth. We often go a step further and assert that economic realities spawn invention and raise the standard of living for all partakers of our wondrous economy.

We will fully address how our economic system fosters and restricts both invention and the standard of life in our next few posts, but for now let’s focus on the dynamics of profit and loss.

Economies are generally closed systems in which wealth is created thru increased capital generated by increased profit. If I mass produce an item there are many factors which go into the final cost of production. The factors change for different industries but in this essay lets say I’m building large appliances such as washing machines.

One factor is the cost of materials involved in making the object. In producing washing machines I would need various metals and plastics for the many parts that go into producing the final product. Another factor is the cost of the assembly line machines and energy needed to run those machines. In less I have a totally automated plant I will also need to pay the workers for their time and labor.

Transportation is another prominent factor which involves both how I get the materials to my factory and how I get my end product to the customer or distributor. I also have to consider the cost of packaging my product along with the expense of advertising my product to the general public.

In most cases, other than electronics, changes in technology do not happen often. For the most part I will not be able to cut cost thru technological advancement. Increases in profit margins could be made by being more efficient in how we make our product or by cutting down the profit margin of my suppliers. Additional ways of making a profit would be to reduce overhead by having my workers salaries take a smaller percentage of costs (overhead), or by increasing the productivity of the workers without compensating them for their efforts.

In many cases one’s major form of making a profit is thru increasing both the volume of things produced and their sales. In such situations I may be making less profit per washing machine sold but make a hefty sum thru the sheer number of washing machines sold. When the major portion of profit is generated by sheer volume the movement towards one business having a monopoly is but inevitable. If you look at any US sector you will find it dominated by one, two or three entities.

The winners from one geographical district will then meet up with the winners from another district, and thru take-overs, mergers, etc. they will determine the two or three winners of the next larger area. After national winners are determined this same competition will be played out on the international scale with regional and continental winners vying for the championship until one champion, one monopoly wins. This process happens in department stores, oil companies, computers, car companies, etc.

In this expansion phase where resources are being utilized at a rate far faster than ever before in human history, the standard of life of many people on the planet is improved. Yet, the very structure of the free market competitive economy demands that the gaps between the winners and losers becomes larger and larger. The general improvement of the standard of living of most of the populace allows them to not only tolerate, but even support the widening gap between the have’s and the have not’s.

Yet, the reason for the rise in the standard of living is not inherent in the system of competition. The rise is a by product of the system. What is inherent in the competitive form of free enterprise is an ever widening gap between those who profit and those who are profited from.

The odds of someone making exactly what their labors and talents are worth is infinitesimal. In almost every case either you are being overly or underly compensated. In a system of competition the majority are under compensated and the minority are making huge sums of money.

In my next post I will talk more on how our capitalistic economic system generates profit and wealth. I will attempt to show how colonialism and rapid exploitation of natural resources have given us a false sense of progress and wealth.

Guido

The US is Getting Wasted

As you know the last few days I’ve been talking about the short comings of the recycling industry. And a few of the bloggers out there are wondering why I’m hating on the garbage businesses.

They are saying things like, who is this Guido dude, and just because they pulled the plug on Tony Soprano doesn’t mean he can start dissing waste management. One wise guy even was reported to say to an associate, “Can you believe the coglioni on that little worm. Who’s he to talk about garbage. What could give birth to a twit like that? If he wants to talk about garbage, why doesn’t he just talk about his momma who I bet is an old bag?”

Hey there’s no reason to talk about my momma, the lady’s a saint. And anyway any guy who’d say that about my momma, well his momma’s got to be a bag lady. Yeah, I know I’m taking the whole garbage bag too far, but sometimes things have to be said.

Other bloggers gesticulate wildly as they snort, “who is this new boy. He’s barely even entered the game and he’s woofing like he’s some kind of superstar. He comes into our hood and right out of the box he starts talking trash.”

Now I’m new to this blog gig, and I’m just learning about who runs these streets. So far I haven’t been jumped by either the “scripts” or the “bloogs” but I do feel the heat coming.

Any way back to the whole profit makes waste argument. I still contend that our current economic system not only promotes waste, but is dependent on it.

If things in our society lasted a long time and were durable, our economy would fall. We’ve long ago accepted the premise of planned obsolescence. What this means is that we make things which have a short shelf life, so that people will have to go out and buy more stuff.

Sometimes we create this “planned obsolescence by making things which will break down and need to be replaced. Sometimes we do this thru creating an appliance or object that is dependent of constant servicing or on other devices which will have to be purchased often. Other times we make things which will be quickly out of date or out of style (ie:fashion and fads).

If we really created truly durable goods the Maytag repairman wouldn’t just be lonely, he wouldn’t exist. Just think of the millions of jobs and services which would vanish if we made things durable and easily upgradeable. In many cases we are talked out of fixing or keeping perfectly functioning machines and objects.

As they say necessity is the mother of invention. Go to Cuba and due to our embargoes and political pressures, you will still see cars from fifties tooling down their roads. Cars built now a days would not probably last as long, and for sure we’d be convinced and pressured into buying a new vehicle thru ad campaigns and even legislation if the bulk of us were to try and hang on to our old vehicles.

When i talked earlier this week about how we could make the recycling industry real by replacing plastic “recyclable” bottles with reusable glass bottles, I hinted at the number of people who would be out of work with the shut down of plastic bottle manufacturers.

Yet, those layoffs wouldn’t even scratch the surface of the total effect on jobs. Get rid of the plastic bottles and you get rid of all the jobs involved in design and advertising of the plastic containers.

I saw an article a couple of years back which talked extensively on the amount of waste which is generated by packaging. The article claimed that packaging makes up over 7% of all stuff that are manufactured. Now I don’t know about the real percentage, but it had me think about all the packaging that is involved in our culture. The bulk of those uncountable tons of packaging are not able to be reused unless they re-enter the marketplace after being toxicly and wastefully recycled.

Since almost all packaging is involved with the advertising and marketing aspects of products and corporations, businesses are very resistive to reuse. This is not only true of the packages sold in stores, but in the stores themselves. When a chain store closes down the building is seldom reused, more often it sits idle for years and years or is torn down. Competing chains almost never occupy that store, and often will opt to build next door to the vacant building rather than move into the existing site.

The major reason for this is that the buildings design, floor space and front are not their official design. The store name would not present itself the same, and customers would be forced to adapt to a foreign floor plan. The store isn’t a building but an image that advertises itself. This is just another example of how packaging produces endless mountains of waste and endless production of materials which have a unnaturally short shelf life.

The examples of how our society is wasteful and dependent of waste is endless. I will decline to expound upon other aspects of fad and fashion which generate waste. Instead I’ll leave it to you to find your own examples and write to me when you find them.

In most situations it is costly far corporations to manage their own waste. If my business is making cars or producing electricity, recycling the cars or the polluting waste caused by the use of coal would cut severely into my profits. Yet, those same materials can become the source of profit if my business is to recycle those waste materials. As I pointed out earlier the basic flaw of this system, no matter how efficiently it is structured, is that waste expands and does not contract in this system. And more importantly, the toxic aspects involved in the production and recycling process grow in a geometric manner.

From a logical point of view profit and waste are synonymous. Look at the following chain:

Profit = surplus = excess = waste

A profit is a surplus. In a totally balanced and efficient transaction their is no profit. A profit means more money was charged than the cost of the item.

So a profit is a surplus. Another word for surplus is an excess. And an excess being more than what was needed is a waste. At first glance you might discount this relationship and say that it isn’t true. Yet, I challenge you to think about it. I think you will find, as I have, that for every exception to this I find I can find a number of practical situations where this is true.

I’ll write again in a few days. My plan next time is to discuss how the game of monopoly can be used to talk about the real economy.

Capitalism and Waste

In the previous two posts I’ve talked about the limitations of our current recycling system and what would need to be changed in order for recycling to have a significant positive impact on the environment.

In this post we will look at how much waste is built in to the very fabric of a free market economy. Competition and choice are hallmarks of our free market economy.Yet, we often overlook the close relationship market competition has to the proliferation of waste.

Let’s say we owned a company that mass produced a product to sell to the public. The amount of the product we produced whether that be cars, books, furniture or appliances would be based on our anticipated market share.

Businesses do not want to limit their profits and possibly alienate their potential customers by under estimating sales and not producing enough of their product. This means that almost every manufacturer and business over produces. This excess inventory is of course waste.

The average company compounds the problem by either destroying the excess of the product or just letting it sit dormant. Sure many companies unload a portion of their excess thru sales and discounts, but at some point they decide it is more profitable to eat the losses rather than set the precedent of lower prices.

Each year uncountable tons of new and unsold merchandise is entered into our landfills and waste management system.

All the companies are competing for the same customer. Since they all can’t win, they all can’t successfully sell their merchandise. In the literary world how many books are thrown out of stores and warehouses to make room for the optimistic sales of new releases. The odds of getting hit by lightning have to be higher than producing the exact number of books to be sold.

The grocery market is a good example of creating waste in order to protect current and future profits. A grocer dealing with produce with a short shelf life faces this dilemma every day. When the bananas being sold at 59 cents a pound are getting a bit too ripe he needs to decide how much to reduce the price to move the merchandise.

Let’s say his research indicates that if he sells the bananas at 45 cents a pound he will be able to sell 80% of his remaining bananas. Yet, if he sells them at 50 cents a pound he will only sell 70% of the remaining stock. In order to make the most profitable decision he looks at the profit he will make on the two prices. In many cases he will end up making more money by selling only 70% of his stock rather than 80% of his produce at the lower price. Therefore, from a strictly profit oriented point of view it would be better to let 30% of his produce rot than 20%.

This fact of economics gets played out daily in products with both long and short shelf lives. Waste is an essential aspect of a free market and profit based economy.

Often times like in the example of the bananas the amount of the old product put on sale at a low price will be small to protect the profits of the new stock of the product. If everyone is buying the older bananas at the discount rate, than the new bananas offering the highest profit margin would not sell. This would cause the new bananas to not sell until they got riper and continue the chain of lower profit sales.

Likewise if the new unsold 06 cars were sold at a huge discount while the new 07 cars hit the market, it could hurt the sales of the new 07 cars which have the higher profit margin.

Now I’m not saying that these dynamics occur in every situation or that there are some people who will only buy the newest greenest bananas no matter what the price, yet it would be foolish to imagine that what was here described doesn’t play a major role in the excessive waste production of our society.

In tomorrow’s post I will give one last attempt at trying to demonstrate how our economic system is dependent on waste.

I hope that you all don’t view this discussion as a “waste” of time.

Guido

Ecology and Recycling

Before reading this it might be good to read yesterday’s post.

So why did the Ecological movement return as a recycling issue? And what is the net benefit to the environment obtained by recycling?

First it is important to realize that recycling quickly grew into a major industry. In other words recycling exists because it is a business, a lucrative business.

Like any industry it’s success depends on increasing profits. If you look at the statistics you’ll see that recycling has not decreased the amount of trash we generate, in fact, the amount of waste has skyrocketed since the advent of the recycling industry.

The ecological movement went underground until it found a way to become profitable, to become economically viable. Once altered enough to generate substantial profits it became the PR darling of many ambitious fledging businesses. This is not to imply that all of the participants in the recycling industry are greedy or inhumane, it only points out the realities of succeeding in a profit based economy.

A relatively small amount of waste material is recycled. Even if the percentage of waste being recycled were to substantially increase, it still would not mean that our society was becoming more efficient.

If we were to become more efficient the first industry to go bankrupt would be the recycling businesses. Their success currently depends on increasing amounts of trash and of waste. They are totally dependent on our society producing escalating amounts of waste.

Without increases in waste they would lack the growth needed to increase their profits and sustain their existence.

True ecological efficiency would strip the industry of a sustainable profit margin.

Lets take a look at the use of milk, water and soda containers as an example of how a truly ecological system would work. In our current system recyclable plastic containers are produced and sold to beverage companies to place their beverages in. The production of these containers is in itself harmful to the environment both in energy used to produce the plastic, transportation of the bottles to beverage companies, and the toxic waste produced in the manufacturing process in making the plastic.

The bottles once used are available to be recycled. Yet, the bulk of the recycled plastic bottles aren’t used as plastic bottles. So an endless stream of plastic bottles need to be produced. The process of making ex-plastic bottles into new plastic bottles would still entail more energy, pollution and toxic waste to be generated.

Yet, in every step of the recycling process profit is made by someone in the chain, and costs are passed on to the next person (business) in the chain.

So, what would an ecological friendly recycling system look like in the beverage industry?

Instead of plastic we could use bottles. The bottles would need to be sterilized, but that could easily be taken care of somewhere in the chain. One option would be for the supermarkets to have conveyor belts which would sterilize the bottles before you filled the bottles with the beverage of your choice. The beverages could be dispensed into the the sterilized containers by a tap much like you use to get your drinks at a fast food restaurant.

So why won’t we use this method? The main reason is that its efficiency would prevent a number of businesses from making a profit. It’s a simple technology which is hard to make profitable.

Tomorrow I’ll state my case as to why I think a for profit society (capitalism) is incompatible with efficiency and ecology.

If you ever want to become dissillusioned with the recycling process I suggest you do a little research on the process by whcih newpaper is recycled. The entire process of leaching newsprint off of the paper and how the paper is made useable again is extremely toxic and relatively inefficient.

As I mentioned yesterday, I myself, do recycle. Yet, I do so realizing that recycling is not a solution to either pollution or waste.

More tomorrow.