[samsquire]

Let me share my theory that the economy is impossible or paradoxical and that the American dream is impossible and that everything is built on by faith.

To buy a loaf of bread, the price needs to pay for the wheat, ovens, energy and the employee costs. This relationship is recursion. The staff of the bread company need to afford bread of their own and shelter and energy and transportation.

Everyone is thereby supporting themselves and everyone else with what they purchase. This guarantees poverty as not everyone can scale their earnings to provide for themselves and everyone else as the prices all come from the same money supply. Inflation is baked in. This is why central banks don't want wage growth. If you understand recursion and recursive relationships then you understand that poverty is baked into the system. (Edit: due to not everyone producing more than they cost)

Think what this means for people at the bottom and give to the poor.

[alacritas0]

The United States is a society of excess. Yet, we still let people starve and go unsheltered. There is an easy solution that doesn't have the unreasonable expectation of the poor relying on the goodness of other people: tax individuals with high incomes at higher rates. The marginal tax rate for the highest income earners has steadily fallen in the past decades. People with those high incomes have the least marginal utility on their income and should have a higher tax burden on the portion of their income which isn't necessary for their comfort.

This isn't to say that charitable giving is bad. If you are financially stable and have money to spare, please donate your time or money to those that need it. It just isn't the solution to a national problem.

[jimbob45]

It’s not that easy and having money isn’t the problem here. If we could pay off the homeless to stop being homeless, you have to believe that we’d have already done that.

SF spends ~60k per homeless person per year (maybe more now). It’s clearly not money that is the limiting factor here.

[ben-schaaf]

That 60k per year seems to come from a small program where they're spending 60k per year for a tent, food and washrooms - twice the median cost of a one-bedroom apartment.

https://nypost.com/2021/06/26/san-francisco-run-homeless-enc...

[samsquire]

Those wealth creators go elsewhere or stop doing a business if isn't lucrative. I think they're called Laffer curves.

Tax more and people do less as it doesn't pay to do more labour and get less of it back.

[VintageCool]

The Laffer Curve argued that revenue from taxation might represent an inverted U shape with tax rate. If you were above the revenue-optimizing tax rate, then lowering the tax rate could increase revenue.

But that revenue-optimizing tax rate, which is the subject to much debate, is probably somewhere around 65% to 70%, far higher than the tax rates in the United States. We could surely increase taxes on high income individuals without doing much harm to the economy.

[seanhunter]

My understanding is every time a "Laffer curve inspired" tax cut has happened in practise, tax revenues have indeed gone down.[1]

The thing about the Laffer curve idea that I don't understand is the curve doesn't need to be continuous. Say we accept at a tax rate of 100% you get no marginal benefit from working so no-one will work and the tax take will go to zero, at a tax rate of 100%-epsilon you still get (small) additional marginal utility for each additional dollar earned, so it's still in your interests to work. So it's literally only at a tax rate of 100% that the Laffer concept would make the tax take go to zero.

[1] https://medium.com/junior-economist/the-laffer-curve-6bb2833...

"In practice, the Laffer Curve has not provided the dual benefits of lower taxes and higher revenue. In fact, every US tax cut since 1965 has been followed with a sharp decrease in tax revenue, while every increase in taxes has led to an increase in government tax revenue."

[bmm6o]

> So it's literally only at a tax rate of 100% that the Laffer concept would make the tax take go to zero.

Yeah, that's the point of the curve. I don't think you've made a convincing argument against continuity.

And the quote seems to misunderstand the curve (I didn't read the article). The curve itself is reasonable, the main debate is where the current tax regime puts you - to the right or left of the peak. The other mistake is that many people using the curve to argue for lower taxes are not really honest debaters. They want lower taxes and use any argument available. They state that we're on the right even though ask evidence suggests the opposite.

[imtringued]

This is why you would tax land as it does not tax human effort.

[imtringued]

I am having trouble understanding your comment. Farmers and bakers easily produce more food than they need to stay alive themselves.

When people start a business they must borrow money and usually pay interest. That interest forces you to be profitable, you can't just run your company at 0% profit as that would only pay for your salary and the salary of your employees and the materials and machines you bought.

It is impossible for every company to be simultaneously be profitable. After all, if there is a million dollars in the economy, you can't have a 5% profit and reinvest the money as that would require a money supply of 1.05 million dollars. Thus, the money supply must grow endlessly and if the economy can't keep, there must be inflation.

[samsquire]

I guess my thought process goes similar to this.

I am one person out of 7 billion. I need to provide for myself, everything I pay must cover the costs of all the costs of those people I bought from. When people buy my labour they must cover my costs of providing for everyone else.

My work and the work those people are doing needs to pay all those costs. We effectively pay eachother to work at what we are independently good at - trade.

But a worker only receives revenue from the work they do (I'm excluding unearned income)

If everyone gets everything they need ultimately from other people, and each of those people needs to get everything they need from everyone else - and sometimes the same people.

Where does the salary of the workers I buy things from come from?

I feel intuitively it doesn't matter how much bread someone can create, the total revenues from selling bread in general needs to cover the costs of all their employees and the business costs themselves.

But this process repeats for all transactions the total transactions for MasterCard pays the bills that MasterCard employees have.

Everyone needs to earn more than they cost but so does everyone else! How can this not inflate endlessly over time?

When I look at government deficit and debt levels of the world, people don't produce more than they cost and relative and absolute poverty.

What's the proportions of owners of wealth? Compare the bottom 99% with the top 1%.

[spiralx]

Bank loans create new money by increasing bank deposits, which is then destroyed when the principal is repaid, leaving behind the interest on the loan. So it is theoretically possible for every company to borrow money at once.

[trhr]

The price of bread has a net addition into the system in the form of sunlight. Seeds essentially germinate into wheat for "free."

In fact, you could make the argument that all of human endeavor is simply withdrawing from the bank of 4.x billion years of sunlight.

[spiralx]

Or as Henry George put forward over a century ago, we should tax only the unimproved value of land, as everything else is the product of humanity, while land is finite and required for everything else.

https://astralcodexten.substack.com/p/your-book-review-progr...

[sterlind]

It's not recursion because the earth is not a closed system.

Farmers don't have to pay for the energy used to grow wheat. The Sun provides that for free. Same with the oxygen, and much of the water. Value is created, it's not a zero-sum game (except from the perspective of universal entropy.)

In a healthy economy, most of the value should be created rather than extracted from others. But ownership of fixed resources like land led to serfs and sharecroppers, which led to landlords and industrialists accumulating capital, which led to exploitation. That's Marx's whole thing.

[samsquire]

I need to pay the farmer indirectly through supermarket food, the electricity company, the water company, the gas company, my phone manufacturer, my computer manufacturer, my rent for my landlord or my mortgage to the bank.

The farmer doesn't pay the sun but they still have to pay other costs ad infinitum. There is no last cost.

Each of those people also have the same problem

I'm not arguing for zero sum. I'm just saying that the problem of costs is recursive, you need to produce more than you cost. As each of those people has the same costs that I do. So it can only grow in size and costs can only inflate.

[kamray23]

There are several issues with that. The largest one is that you assert that the costs can only inflate. They cannot.

TL;DR – Yes, but the added value gets smaller each recursion, such that even if you add on an infinite amount of these costs it will only come out to a finite value. The productivity of a single person, which in today's industrial world is immense, makes these costs so small they might as well be cents on the final product.

Let's say a farmer farms a square field with 100 metre sides, or exactly 1 ha of land. This is a size which it is perfectly reasonable for one person to farm, even entirely by hand, and which is woefully small considering modern farming equipment. On it they grow wheat, with a production of 0.25 kg/m² annually, or 2 500 kg when you do the calculation. This is a perfectly reasonable yield. Taking into account milling yield, we end up with only about 70% of that, or 1 750 kg of flour. A loaf takes roughly half a kilo of flour so, assuming water and yeast are effectively free, so selling this to a baker, they produce 3 500 loaves in the end.

So far, so easy. Then we take into account the losses that are going to be accrued for the loaf of a single customer in this very small thought experiment economy, in which exist only the farmer and the baker. Each, we say, might eat 2 entire half-kilogram loaves in a week, so 8 in a month and 96 in a year. The baker prices one loaf at (flour cost + 96·loaf cost)/3 500. The farmer prices his flour at 96·loaf cost/1 750 kg, but as the farmer buys everything, we can ignore the division. The price of one loaf is now (96·loaf cost + 96·loaf cost)/3 500, or 192·loaf cost/3500, or, rounding a bit, 0.05·loaf cost. Propagating it down, we have 0.05²·loaf cost, then 0.05³·loaf cost, and when you recurse to infinity, we have 0. The further you get from the producer, the smaller the added cost becomes in reality, such that even if you add up all the costs you eventually reach not an infinite value but a finite one.

If we say that each take a profit of $100 annually in addition to what they need to live, we get that the farmer prices their flour at ($100 + 96·loaf cost)/1 750 kg and the baker their bread at ($200 + 192·loaf cost)/3 500. Propagating it down, the price becomes ($200 + 192·($0.06 + 0.05·loaf cost))/3500 = ($210 + 0.05·loaf cost)/3 500. Going further, it will be ($210 + 0.05·($0.06 + 1.4·10⁻⁵·loaf cost))/3 500 where we entirely lose precision and the added cost from profits appears to stay at $210/3 500, while the rest of the calculation becomes so small it disappears off to 0 at infinity once again.

While this example is only very simple, and I won't prove here that it applies in larger or more complex cycles, it is nevertheless fairly obvious that this disappearing off applies to everything. Whereas your recursive argument about costs only being able to inflate is correct, they can only inflate up to a finite value at the limit due to the inflation added at each level of recursion being smaller than the last.

[samsquire]

Thank you for writing this down.

What I witness in the world is endless costs, from housing maintenance to shelter and rent and mortgage costs and transport costs. Everything is very expensive. Housing is not cheap relative to salaries nor is transport.

If I wanted to pay someone to do work for me, I need to pay enough to pay all the workmen's costs.

I need to provide for myself and provide enough revenues for everybody else to pay for these things. So the prices you pay provide revenues for these costs fans out in all directions through everyone you buy things from.

Is the finite value that these cycles larger than the money supply?

There is a finite amount of work that can be done per period of time but some people work 60 hour weeks. But work is renewable until you ruin your joints and knees or health problems.

I am sure everyone wants to earn more and has costs they want money for and want larger houses and to own housing rather than rent.

I didn't even include profits or value addition to my theory as they need to come from somewhere.

[kamray23]

I doubt money supply has much to do with the issue at hand, since we're looking at the real world and money is just a tool for managing it.

I think you're correct in that everything is very expensive, possibly close to the most expensive it can be. Salaries paid are essentially just what is enough to keep yourself alive nowadays, often not even enough to keep yourself in decent mental health. I doubt your average worker is capable of purchasing everything they create in a month with their monthly salary.

It's certainly not the first time this has been observed either. Let me give you a classic criticism. Take the old but reliable labour theory of value. We ignore price fluctuations for this analysis because they are considered nothing but representative of true value – a method of making trade easier. Work is what people value, specifically the time used for labour. Creating something in one minute gives it one minute of value, it would be more valuable if it took more effort to create. For the purposes of markets, it's also obvious that what matters to us is not the individual value per se but the socially necessary labour time, the average value taken to create something. Therefore a man who creates a spoon in one minute and a man who creates one in 20 will make an equally valuable object in the societal context. Creating an object from materials will have the value of those materials plus the value you create through your work, so $2 bread from $1 wheat will have $1 of additional work done by the baker.

With this in mind, let's investigate farming. A farmer works land, they create $1 worth of wheat and sell it. That $1 is the full reimbursement for their work and if they want to buy their wheat back they will pay that $1 for it.

Adding in an agricultural conglomerate, lets say that a bunch of farmers work the land of this conglomerate as employees. As a large oversimplification, we once again say that a farmer creates $1 worth of wheat for the company. The company sells it and returns to pay the farmer a salary: ¢80. The ¢20 missing is the profit of the company and it has to be larger than zero for the company to keep existing at all, profit being their singular reason for existence.

This is fine and all, and it's how most companies work, the issue arises when you think about the farmer being a consumer. The farmer is not reimbursed in full for their work, in other words, they become incapable of purchasing back their own labour in full. If the farmer the goes home and to the store, they cannot purchase the wheat they themselves created, it will cost more than what they were paid. This repeats itself in every company, the employees simply cannot be fully reimbursed for their work, not now and not ever. Yet, the workers also form the base of consumers, they are the vast majority of people who must be relied upon to consume these products. The end result is that everything seems expensive relative to salaries and you will, at some point, have to have a violent economic event to correct the markets as consumers simply run out of money.

Now that's not accurate in its entirety and it's a critique from the 19th century, but it goes to show that we have always recognised this being an issue. We just deal with it by accepting that some people will be unjustly hurt in regular recessions in the boom and bust cycle and move on – there's no just way of doing things without entirely removing companies from the picture. That's the way our economy is doomed to work, and we just have to accept it and move on unless we want to literally outlaw companies and organise production on a national level.

[QuadrupleA]

I like to think of it simpler - if everyone in a society contributes something helpful, however it's organized / monetized - we all win.

[samsquire]

I like staying in a city as I rely on all the people around me to pay towards the costs of garbage collection, water pumping, electricity distribution costs and supermarket logistics chains of getting food from factories to where I am.

Society requires everyone to produce more than they cost. The government invests in you in terms of free education and in some countries free healthcare.

Work is the resource that is renewable. Everyone is forced into a grind to raise enough to pay for everyone else's costs and your own due to the recursive relationship of costs.

[IfOnlyYouKnew]

I don’t get what point you’re trying to make. A baker can make bread for a thousand people with relative ease, there is no need for them to be poor. The US produces enough to feed and clothe and house everyone with ease, including both the working poor and others. They choose not to do so for various vacuous reasons, none of which have anything to do with the FED.

[samsquire]

I agree. It upsets me deeply that people are working poor and can never earn enough to stay still.

I am arguing that in a society each person needs funding from somewhere, it can only come from everyone else in exchange for their work. Each person therefore depends on their costs being provided by everybody else. This relationship is therefore recursive. As each person must also provide for everyone else that someone is providing for.

As we witness in the world, not everyone can produce more than they cost. Some people cannot afford to travel or stay near work. Opportunities are cut off from them.

[automatic6131]

>As we witness in the world, not everyone can produce more than they cost

And we also witness that others can produce more than they cost. So it could (actually, is and has been for the last ~500 years) be that overall, the average person produces more than they cost. Forget your recursion idea.

[readthenotes1]

I think that is the author's point, that a closed system makes it impossible. You need the wealth from outside sources to fund the debt to fund the spending. Also, at some point, there is some production that is not just shuffling existing assets around.

[MuffinFlavored]

why do some people make it to the top then? why do some people make $40k/yr, some make $80k, some make $120k, some make $200k, some make $400k, some make $4m, some make $40m, some make $100m

[samsquire]

For someone to earn high value numbers someone else has to be doing the grunt work, the work that allows that value to be unlocked.

These people are desperate and have no capital. Money is a time machine and if you have none of it you are forced into grunt labour.

You don't get 100 million working as a pizza delivery driver or delivering parcels but the owner sure does.

[truckerbill]

The answer is usually luck

[wardedVibe]

fun fact, the sum across x_n of x_{n+1}=1/2*x_n, with x_0=1 is the fixed value 2. Don't blame math for your inability to understand that trade creates value.

[imtringued]

If trade creates value why set the system up in a way that it delays trade eternally?