Collapse of the Service Economy - Part 1

Posted On: Saturday - December 26th 2020 9:50AM MST
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Peak Stupidity has fixated lately on the Kung Flu stupidity, especially the Totalitarian face-diapering LOCKDOWN business. We haven't had a solid economics post in ages. ("Ages" in internet time, that is.) We have written before with this topic key about Inflation, debt of all sorts, and most American's terrible financial ways and current state. This time, the subject, one we've wanted to write on for, ages(?) is slightly different, and enough for at least a 3-part series. At some point, it will come down to the Kung Flu PanicFest too, yes.

The question long ago was: Can you really have a good economy that consists of guys serving gourmet hamburgers to customers whose livelihoods are the serving of fancy craft beer to customers who run or are employed at said gourmet hamburger joints? OK, that's probably not exactly the way this was put in the early 1990s. The gist of it, however, was can America have a great economy just based on service industries? Can we be an economically powerful country just by serving each other?

The answer from most of the pundits and politicians at the time was "sure, why the hell not?" (There were exceptions, such as THIS GUY - your blogger here, without an internet to blog on at the time - and this guy - H. Ross Perot - and your Buchanans and another guy that I will highlight in an a personal anecdote in Part 2). "What exactly is wealth creation, and do you really need that stuff?" was never asked, by anyone I was familiar with.

The 2nd question may have been understood by fiscal conservative types, those who understood that you can't borrow from the world and each other forever. The 1st question is kind of a doozy, which is due to the fact that after one gets through that 1st semester of Econ, supply & demand, elasticity, the Laffer Curve, and that, the "Science of Economics" can be seen to be no such thing at all, but more a hazy cloud of bullshit.

What is wealth creation? I admit that it's hard for me to wrap my mind completely around this subject too, hence my passing grade in a 2nd economics course. It's pretty obvious that when a company produces cars for a profit, there is wealth creation going on. Those cars produced are more wealth in the world. Then, the steel, glass, plastic (LOTS of it), and electronic components (LOTS MORE of that!) that are components were wealth produced by other people beforehand. One could go back to the digging of the sand, the mining of the iron ore and coal, and the drilling for oil (plastics) as even lower-level wealth creation too.

It is wealth creation when the Australians dig out all kinds of minerals from what is otherwise unusable Outback and send it to China. The manufacturing that goes on in China using these materials is higher-level wealth creation that obviously makes for a stronger economy than the lower-level type. What goes on there is that Australia is being used as a colony of China*, just as the Western Europeans used the colonies for lumber, tea, sugar cane, etc.

It's hard to separate some services from production wealth creation too, especially when the terms are purposely confused - see Services are now Products. (Ex: "Let us introduce you to our newest life insurance product!") American ag is the best in the world still, so there's some wealth creation in producing the beef, bread, and veggies for the gourmet burger guy, and production of barley, hops, and berries/chocolate/whatever-they-put-in-the fancy stuff for the craft beer is wealth creation. There is cooking and brewing (obviously at the big-swill breweries with their own amusement parks, the latter is production), but what about service with a smile? Again, is a nation with lots of people serving others with a smile (well, not all the time) creating wealth at all?

This is interesting stuff to me. Hopefully it's the same for readers here - please feel free to comment.

I will continue in Part 2 with the same question as put forth by pundits and pols back 3 decades ago, as asked more in the context of Big Biz and the already burgeoning computer technology business. Then, there is the subject of the current Kung Flu PanicFest doing a number on this service economy of ours. Stay tuned. I hope you all are enjoying some masks-of family time, if possible.

* In more ways than this too, as the Chinese are immigrating to Australia in big numbers (not big for China, but big for Australia), changing the good character of the country.

Adam Smith
Wednesday - December 30th 2020 2:42PM MST
PS: Good evening Mr. Moderator...

I hope Mr. Anon patented his chicken suit idea. It really is the best approach to fighting the most sinister of viruses. I think Fauci owes him some $$$.

I really should have listened to your sage advice to go long in the floor sticker and acrylic glass sectors. Unfortunately, I sold my shares of Dupont and 3M on March 23. D'oh! Should have bought more guns and ammo this spring.

Adam Smith
Tuesday - December 29th 2020 12:47PM MST
PS: Good afternoon Mr. Ganderson...

I am not an inmate of the People's' Republic of Massachusetts. I was born in and grew up in a formerly prosperous northern rust belt city by a lake but headed south in search of some sunshine and warmth as soon as I came of age. Through good fortune I settled in the most charming little town in North Georgia where I live high atop a mountain overlooking the city of gold.

Tuesday - December 29th 2020 12:14PM MST
PS: "I've placed durable floor stickers around the yard so we'll all keep six chevrons apart and we will all be wearing our chicken suits." Well the chicken suits (and the soap enemas to go with that PPE) were Mr. Anon's idea, but floor stickers...

Don't you all remember Peak Stupidity's financial pages urging our readers to go long in the floor sticker sector back in January? You'd have all been rich by now, dammit! (No, I don't follow the advice in our financial pages, as I must recuse myself per PS lawyers.)

What, you can't find that post?? It's here somewhere ...
Not Sure
Tuesday - December 29th 2020 7:53AM MST
PS I thought that the printing press created wealth?
Surely mommygov will fix everything and buy me a pony.
Government is magic and the people who work in it love me dearly.
The globalist utopia will be administered by the smartest people ever to live and human nature will cease to exist as all comrades hold hands and sing by the magic Benetton unicorn fountain.
Economy? We don't need no stinking economy, we have EBT.
Forward! Yes we can.
Monday - December 28th 2020 11:17AM MST
PS Mr. Smith I'm glad you've seen the light. I assume from your links you are an inmate of the People's' Republic of Massachusetts- better run your future plans by Charlie Parker, AKA Charlie Baker, AKA Tall Deval, and possibly Karen "Pay to Play" Polito as well. Remember- those fake stories about friends with COVID don't write themselves!

The Karens are out in force here in the western part of the PRM, so watch your ass if you come west of the Quabbin!
Adam Smith
Monday - December 28th 2020 9:26AM MST
PS: Good morning Mr. Blanc...

I'm afraid their insatiable lust can never be quenched.

Adam Smith
Monday - December 28th 2020 9:22AM MST
PS: Indeed Mr. Ganderson. ASAP! 211!

If you see something say something.
It's too dangerous not to.

Please rest assured, I promise to follow the guidance and obey the science at all times. I promise I will use safety. I've placed durable floor stickers around the yard so we'll all keep six chevrons apart and we will all be wearing our chicken suits.

I also checked with Fauci and he is very confident that fire kills the most sinister of viruses.

Thanks for your concern for my wellbeing.
I hope you have a great day.

Monday - December 28th 2020 9:15AM MST
PS It might work. If the guys at the top who were running the show kept the goods producers elsewhere on a short leash and paid the service workers a wage sufficient to purchase gourmet burgers and craft beer. But neither of those conditions have been met. The Asians have gotten uppity, and soon will be running the show, and the guys at the top running the show have not lost their insatiable lust for cheap labor.
Monday - December 28th 2020 7:01AM MST
Mr. Smith, our betters have informed us that we are not to congregate in groups- I need to call the COVID dime-out hotline ASAP!.
Adam Smith
Sunday - December 27th 2020 5:01PM MST
PS: Good evening everyone...

Robert, I always have "better things to do" since there is always some sort of work to be done. Today I cleaned the house in preparation for visitors from out of town. All I have left to do is build a giant fire in my giant fire pit and clean the patio furniture as it seems it will be warm enough to spend some time outside. Having work to do does not keep me from reading peakstupidity and the comments. I'll always make time for that.

I have no view yet of Thomas Carlyle as you've just introduced me to him and his work. Thanks for the recommendations.

I look forward to reading these. Thanks.

The Alarmist
Sunday - December 27th 2020 3:37PM MST

@Dieter Kief, the internet wouldn’t be as advanced today as it is without the driving force of porn. Bandwidth über alles.
Dieter Kief
Sunday - December 27th 2020 9:23AM MST
PS P. J. O' Rourke had all this economy-brouhaha down to the following thesis: That one time you'd have to serve the sexual needs of the man at the car wash to get your vehicle brushed and vacuum-cleaned - that'd be how life would look like the more we get "back to basics": Sex 'n' Drugs 'n' Rock 'n' Roll. - And you might as well ask Jerry Garcia: - - Haven't we been there already? I mean - Height-Ashbury St. 1967 ff. ? Or Montague St. for that matter - : - I was living on Montague Street / A basement down the stairs / There was music (service economy)  in the cafés (service economy) at night / And revolution (destruction of the service economy - resurrection of the heavy industries Soviet-style) in the air and in the avenues // Tangled up in Blue (= the song about the state of mind of the hippie who checks that he can't have a) the utopian cake of perfect freedom without - b) starving to death, so to speak.

Alas - the economy is what you have as soon as you dig that you can't build a society on perfect freedom - unless you create a porn industry and succeed in making people believe, that this very industry would be proof of their total societal liberation. - In this case: All your economical problems are solved by the successful implementation of slavery (a task, which isn't totally unachievable but no easy goal for sure. It might well be easier to run a regular business). Hahaha - "business is greening," said who? Karl Marx said that! Yogeri Museveni - who is the President of la république de l'Ouganda and does indeed know stuff about Karl Marx - this gentleman spoke recently to "defense-students" from the  Republique de Kenya whom he had invited over. And what did he say to these students? -  That the modern world needs "entrepreneurs"! Because without them Yogeri Museveni told them with a weary smile, all the precious riches of the African countries would be "just laying around".

- Now: Thus spoke a truly wise man! - And P. J. O'Rourke's basic insight proves to be true in the Ungandian case once again: Capitalism is about getting things done. - If possible, with a smile!
What would I say about the nature of Communism? That Communism is not so much about getting things done as about to avoid everything necessary that would have to be done in a reversed order: Don't do what is most necessary by any means and if you work on something, make sure it is rather unimportant ... See the difference?  The difference between Capitalism and communism is what basically constitutes economics and economies. If you don' trust me - ask Yogeri Museveni. He is the genius who - - - counts, hehe - in this realm! I thoroughly recommend you study his words in-depth and with a lot of your heart's very blood pumped into your efforts - - - -

If you follow my advice, you will still face a myriad of problems, but they will be real ones - aas oposed to semi-problems like the one of the service-economy. - Economy is not so much a differentiation between necessary and unnecessary but rather a differentiation between what people want to have done and - what not. 

And don't forget: Perfect capitalism as performed in Switzerland, for example, comes often times with a smile, whereas economies of the perfect mess are often times accompanied by rather sour faces, even though people in those rotten economies often times don't do much - and for sure work less hard and less effective than - the Swiss (for example - I could have mentioned the Liechtensteinians and the Arlbergians and the people of - - - - hm - - L'Alsace (Straßburg) too.
Bill H
Sunday - December 27th 2020 8:56AM MST
PS My father has been dead for more than 30 years, and this quote was said long before he died, so he said it 50 years ago or so of the (then) new Service Economy concept. "Hell no, we can't all make a living selling each other hamburgers."

So when a company produces a car, is there really wealth creation? I would argue no, at least not real wealth. The car is paid for with a car loan. The bank pays for the car, but it doesn't take a box of cash and ship it to the seller. It makes a ledger entry that permits the seller of the car to spend some money, but prior to the ledger entry that money did not exist.

So is money that isn't even printed, that exists only in a ledger because some bank clerk wrote it there, constitute actual wealth?

The stock market has grown like a highway embankment of weeds. Why? Not because those stocks are worth more. They're not. The price went up because that is what a bunch of idiots are willing to pay for them. What happens when those idiots wake up and say, "Oops, these things are not worth this much money" one afternoon?

Will we call it "wealth destruction?" Yes, actually, we will. We are that stupid.
The Alarmist
Sunday - December 27th 2020 6:37AM MST

@Moderator said, “Can you really have a good economy that consists of guys serving gourmet hamburgers to customers whose livelihoods are the serving of fancy craft beer to customers who run or are employed at said gourmet hamburger joints? OK, that's probably not exactly the way this was put in the early 1990s. The gist of it, however, was can America have a great economy just based on service industries? Can we be an economically powerful country just by serving each other?”

It was never supposed to be that we’d be serving one another, rather a sufficient portion of the economy would engage in “higher order” economic activities like producing the entertainment and software to play on the cheap electronic crap produced in the RoW as well as be the designers of that stuff, and that would inject the new wealth into the system. Our “betters” never figured the Asians might actually produce their own software and other programming.

Merry Christmas... we celebrated with too many households, including kids, in too small a room with lots of hugging and hanshaking and no masks, so I now wait for the Angel of Death to come and take me.
Saturday - December 26th 2020 11:00PM MST
PS: Mr. Moderator, I will warn you that Carlyle was NOT a libertarian. He definately followed the 'strong man' version of history.

Mr. Smith, if you are reading this (and, given the season, I hope you have better things to do) how do you view Thomas Carlyle?

P.S. Although rather long, his 'History of the French Revolution' is the most accessible of his workes.

And, project Gutenberg probably has all of Carlyle's works for free. Communism does have some (very few) merits.

Saturday - December 26th 2020 10:12PM MST
PS; Thanks for the book recommendation, Robert. The library has an e-book of a lot of Mr. Carlyle's writing.

Saturday - December 26th 2020 4:55PM MST
PS: Well, a Hamburger on my plate is worth more to me than one in the kitchen, obviously the server is creating wealth.

But, then I proceed to destroy that wealth, so I guess it is a wash.

P.S. Although it is not really an economics text, Carlyle's 'Past and Present' is my favorite. His 'Latter Day Pamphlets' are pretty good too.

WHAT SAY YOU? : (PLEASE NOTE: You must type capital PS as the 1st TWO characters in your comment body - for spam avoidance - or the comment will be lost!)