Are we our own worst enemy?

I'm getting alarmed by the stockpiles of cash Microsoft, Apple, and Google are hoarding.

Just these three companies alone hold a combined $200B in cash. That's the equivalent of the US's median annual household income x 4 million.

We have roughly 600K people filing for unemployment each month. That $200B is enough to cover those 600K for nearly 7 YEARS--not just for the unemployment claim but for a full $50K/year salary.

The public's fascination with gadgets and technology, while great for those who make a living in the sector, is looking like a huge detriment to our economy.

It's nice to think that the free market can solve this inherent problem of winners winning and winning by such a large a margin, but the problem is that the people's wants and desires aren't varied enough to support more than a handful of winners.

The bandwagon effect is a vital part of the mechanism whereby the free market picks and chooses its winners, but it's self-defeating. Today's free market has a huge gravitational force toward forming oligopolies, and that means an unfettered free market is not sustainable. It has built-in mechanisms to cause its own destruction.

So what do we do about this? We want to continue nurturing the free market because it's the only politically correct thing to do, but it's becoming clearer and clearer to me that our 8.2% unemployment rate is only going to get worse as technology moves forward.

Well said. I'm no economist but, as I understand it, it's not considered healthy for the wider economy if individuals or organisations stockpile large quantities of cash. Of course you can have the opposite problem too, where people don't keep contingencies or spend beyond their means...

What needs to be done is to get these companies to invest their money somehow - whether through investing in other businesses, increasing employment by expanding their operations, investing in R&D or just being charitable. How you'd do this I don't know - by taxing their bank accounts, perhaps (but is it really for the government to try and make them use their money in a particular way?)?

Technology in general kills jobs. We are replacing human labor with machine labor, and although there are people that need to take care of and improve the machines (that's us), it takes less manpower overall. I don't know what the solution is, but I know it is not fighting technological progress.

3 hours ago, cbae wrote

I'm getting alarmed by the stockpiles of cash Microsoft, Apple, and Google are hoarding.

Just these three companies alone hold a combined $200B in cash. That's the equivalent of the US's median annual household income x 4 million.

We have roughly 600K people filing for unemployment each month. That $200B is enough to cover those 600K for nearly 7 YEARS--not just for the unemployment claim but for a full $50K/year salary.

Or the government could print money and then pay people to dig ditches and fill them back up again, same difference. Some people argue it worked, some didn't. But eventually you want to create a real economy and Microsoft eventually has to create jobs that have some long-term meaning to its business. That's a harder problem to solve.

8 minutes ago, Bass wrote

Technology in general kills jobs. We are replacing human labor with machine labor, and although there are people that need to take care of and improve the machines (that's us), it takes less manpower overall. I don't know what the solution is, but I know it is not fighting technological progress.

Whats been going on recently is less that and more like replacing more expensive human labor with cheap human labor.

@brian.shapiro:

If you look at some recent news it looks like even Foxxconn is trying to replace people with robots. The price of automation is reaching the critical point that maybe even cheap labor is not competitive with machines. Regardless, cheap machines and cheap labor have very similar effects on the economy, except cheap machines is more permanent.

The free market really starts to break down once human labor is devalued, because human labor is the primary way money gets distributed around the population.

But labor like any free market is supply and demand. So when machines can do things better than humans, the human laborers get pay cuts, they get laid off, while the people who control the machines get very very rich by the cost savings.

@Bass: Technology does replace human labor with machines, and that may temporarily affect unemployment. But historically, it has created a host of new jobs out of thin air and I suspect the two effects pretty much balance out.

Take the jobs that Foxxconn is allegedly about to cut: those jobs simply didn't exist thirty years back, neither at Foxxconn or at some other company, as cellphones where just something fit for a Dick Tracy comic, or something. The same, on different timescales, go for software, game consoles, internet, it's a long list.

I believe you cannot have one effect without the other: by compressing the cost of some commodities, technology frees spending capacity and then the void gets filled by some other need that technology can satisfy.

"First, understand there is no such thing as "money."  Money
really doesn't exist.  It is only a means by which we track and account for
how much labor somebody gave up for "payment."  If you look at the economy all
it is, is really people just exchanging their finite time on this planet in
barter for goods and services that either extend, maintain or enhance their
lives "

http://captaincapitalism.blogspot.ca/2012/06/were-taking-you-with-us.html

Perhaps the three companies listed above, along with the other tech companies, could spend that money hiring people for quality control and customer service. It's obviously not being done now.

It's not like all that money is in some type of Scrooge McDuck room, where Bill Gates, Larry Page, Mark Zuckerberg, and the corpse of Steve Jobs spend their evenings swimming in a pool of currency. Most of these folks are actively seeking to throw their money at fools like us, who have started some company that might offer-- once acquired-- the slightest competitive advantage against one of their competitors.

-Josh

5 hours ago, Blue Ink wrote

@Bass: Technology does replace human labor with machines, and that may temporarily affect unemployment. But historically, it has created a host of new jobs out of thin air and I suspect the two effects pretty much balance out.

The thing is that it typically replaces relatively unskilled labour with highly skilled labour. So those people who lost their jobs due to automation cannot get the new jobs it created without additional schooling (which they can't afford because they lost their jobs).

I don't know how to solve this problem, except that, as Bass said, fighting technological progress isn't the way to do it.

@cbae: I also just came across this today; a report that estimates between $13trillion and $20trillion stashed away from the tax-man globally.

I used to despise wealthy people who flamboyantly wasted money on things like 30 bedroom mansions and gold-plated taps on their marble bathtubs, but now I wish more of them would do that sort of thing just to spread the money around more. Gates and Buffett I can kind of understand -- they intend to spend their money in ways that benefit society as a whole, but for each billionaire that signed up to their charity, there are plenty who have no such intentions and just seem intent on hoarding as much as they can, even with no plans to spend it.

Herbie

12 hours ago, JoshRoss wrote

It's not like all that money is in some type of Scrooge McDuck room, where Bill Gates, Larry Page, Mark Zuckerberg, and the corpse of Steve Jobs spend their evenings swimming in a pool of currency. Most of these folks are actively seeking to throw their money at fools like us, who have started some company that might offer-- once acquired-- the slightest competitive advantage against one of their competitors.

-Josh

Compared to most companies, they are Scrooge McDucks. These companies each enjoy operating margins in excess of 30%.

At the risk of appearing to channel Bass, compare Microsoft's 38% operating margins to RedHat's 18%. Consider that RedHat even has most of its development done by the open source community whereas Microsoft depends on its own salaried developers. We're not even considering the fact that Microsoft has to have way more overhead to manage so many divisions other than WinDiv as well as fund run non/un-profitable entities like Microsoft Research and the Online Division.

Another example is salesforce.com. They've been receiving all kinds of praise for supposedly eating Microsoft's lunch in the SaaS space, but they have a -2% operating margin. Yes, they spend MORE than they take in in revenues. They are money churners. You spend $1 on salesforce.com, and there's a far greater chance that you'll be getting part of the money back than if you spend that same $1 on Microsoft Dynamics CRM.

Every now and then Microsoft does "donate" money like when they purchased Danger and aQuantive, but those amounts are drops in the bucket compared to what Microsoft's competitors have to spend every single business day in order to compete with Microsoft.

So that I'm not sounding like I'm getting on only Microsoft's case, let's compare Apple's 35% operating margins to HP's and Dell's 5% operating margins. And if you want to compare them to a company that competes with Apple only in the smartphone space, consider that HTC's has a 15% operating margin.

Last but not least, let's look at Google. They enjoy 30% operating margins, and we all know that Microsoft's Online Division, which operates Bing, loses money every quarter. Bing represents a net positive for the economy.

I'm not arguing that we should be throwing money at also-rans just to keep the economy going. The point I'm making is that the mechanism of sorting out winners from losers in the free market has a negative effect on the overall health of the economy.

2 hours ago, cbae wrote

*snip*

I'm not arguing that we should be throwing money at also-rans just to keep the economy going. The point I'm making is that the mechanism of sorting out winners from losers in the free market has a negative effect on the overall health of the economy.

 

The mechanism of selecting and electing officials in government has a negative effect on the overall health of the economy.

-Josh

disagree. That is all I am going to say.

@magicalclick: Ok, you disagree with something. That's a good start. Now please take the small step of explaining what you find so disagreeable.

-Josh

@JoshRoss: I agree.

@JoshRoss:

@cbae:

Sorry, sometimes it is better to not say anything more than that. But here is something to demonstrate my opinion on current state of our economy.