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The feedback loop argument states that consumer demand creates the desire for a product, business in turn responds to that demand by creating that product and selling it to the consumer, which in turn leads to the business hiring more people. Only flaw I can see in this argument is what if a business creates a product that consumers didn't know they wanted? Such as Apple and the Ipod/phone/pad.
Well I think if a business creates such a product and it sells, then people are wilfully buying it. No one is forcing the iPad on the masses. Therefore it doesn't matter if people know or don't know what the want.
This quote comes to mind: “If I had asked people what they wanted, they would have said faster horses.” ― Henry Ford
I'm referring to the chicken/egg question. Does consumer demand for a product/service create the imputes for starting a business or does someone spotting a gap in the market and creating a business lead to that demand? I agree there is a feed back loop I'm just not sure which way it goes. I never said Apple was forcing its products on the consumer, just stating that the masses weren't clamoring for an alternative to the CD player or mini-disk until Apple provided them with one.
Disagree with your flaw. Consumers didn't know they wanted an iPod, but they damn sure want ways to listen to music conveniently. And they sure as shit wanted ways to have more music on them at once without having to carry around a ton of CDs.
People use that "flaw" line of reasoning when arguing that there was "no demand" for computers. That line of thinking is just wrong. There is an underlying demand for the improved functionality provided by computers. i.e.) better word processing, better calculation power, better way to lay out business plans, etc. etc.
The whole point of the talk is that demand drives the feedback loop and creates a virtuous circle. You can be a very rich man and start a business and employ people, but if there is no demand for your company's products or services, it will fail.
Basically the point I was trying to make earlier, but just expressed a little better. Cheers
It's not political at all, it's called common fucking sense. TED needs to grow a spine. The rich create some jobs, the middle class creates some jobs, and the less people in poverty the better. All the drivel coming out of Washington about how "only the rich create stuff" can and should be ignored.
Middle class = everyone making $40,000 to about $1MM a year. This is the overwhelming majority of the country, and aguing that only a handful of people create jobs is a farce. Destroying the middle class is a recipe for disaster, and is the first sign of a country in decline.
The founding fathers were crystal clear about how massive pools of wealth, especially inherited wealth, create a de facto aristocracy and will destroy freedom, causing the system to stagnate and fail.
Middle Class = 40k - 1MM? That is insane. Even if you live in NYC, 1MM/year is quite a bit. Even though tax brackets and American taxes are very complicated, I think taxes in NY and taxes in West Virginia should have different brackets. $50k/year in NYC or LA is below poverty line, but in some states is easily middle class.
The speaker makes a great point that isn't heard much in the American political discourse, but it is an over-simplification, like most economic arguments we hear. There is some point of maximum efficiency in tax rates (income, capital gains, etc.) that balances 1) rich people's ability to provide capital through investment of excess funds and 2) the population's ability to purchase more goods and services. The most ideal setup, from my point of view, is one that 1) helps people who are moderately wealthy ($200K - $1M a year) become truly rich, and 2) encourages the general population ($30K - $200K) to work harder to better their lot by increasing the marginal returns on their labor. The problem is Democrats fail to take into account the principles of motivation, incentivization, and personal responsibility, and Republication fail to admit that the system has become off balance in favor of the rich.
The solution is complex, and changing as time goes on and economic factors change. Everyone agrees we're off the mark at the moment, but it will be a painful political process to make changes either way. I'm a moderate conservative libertarian, so I'm in favor of lowering most of the tax rates, with perhaps a slight increase for capital gains (20% max).
For the first goal (helping the high earners become truly rich so they can provide capital), there is a segment of our population I like to label HENRYs (High Earners, Not Rich Yet). People making roughly $150K - $400K have reached the point where they are comfortable, but where they have certain expenses that are considered necessary for their socioeconomic status. For example, everyone wants their kids to have a better life than they did, and to people at that level, the best way to do that seems to be to send them to a private school. Say goodbye to $20K - $70K a year. These individuals will also feel they have to "keep up with the Jones' " by buying a nice car, house, etc. to maintain their professional image and continue moving up the ladder. Keep adding up the expenses normally associated with an upper class lifestyle, and it takes a while to get to the point where you have a lot of extra money to invest. Having the highest tax rates on this segment of the population is highly unproductive, as it prevents more people from moving into the investor class.
For the second goal (helping the general population better their lot), one main culprit of our failure is the education system. Everything from kindergarten to graduate school is completely broken, and it will take a complete system redesign to fix. The other culprit is the society of entitlement, dependence, and lack of personal responsibility and morality that our government programs (among other factors) have created. The solution to that problem is probably a political impossibility at the moment. Neither of these things have much to do with tax rates.
Good points 808.
I think the problems with government that we are seeing are fundamentally a reflection of the state of Anerican society. Society is easy to control and people are happy when the pie is getting bigger, which was the case in America for about the past two centuries. People could pick up and move West if they wanted a better lifestyle. They could start any number of businesses, work hard, and in general expect a better life than their parents. This situation is, unfortunately, becoming a reality of the past rather than the present.
If you read Tyler Cowen's recent book on the great stagnation seen throughout the world (see: http://www.amazon.com/The-Great-Stagnation-Low-Hanging-Eventually/dp/05…), it becomes clear that the problem we are seeing is much harder to address than most people think. This is a situation America really hasn't faced before, as America was founded at the beginning of the industrial revolution and has ridden its success into the late 20th century. The industrial revolution seems to have created the American way of life and cultural viewpoints that are quite different from most other societies. However, as economies stagnate and resources become scarce, the American way of life becomes increasingly hard to sustain. People look to their government to help, but the government really has no way of remedying the situation.
This shift in perceptions is a main subject of Peter Thiel's last class (see: http://blakemasters.tumblr.com/post/23435743973/peter-thiels-cs183-star…) where he points out that we are moving to a "pessimistic determinate" period. We are conceding in many ways to the status-quo and not dreaming big anymore. The idea of risk management, keeping your options open, hedging, and waiting for the storm to pass has become the name of the game for companies, individuals, and society. The popularity of 'doomsayers' such as Roubini, Peter Schiff, and Kyle Bass all seem evidence that people in America and around the world really don't know what to do anymore. People are going into the classical "risk-free" fields such as finance, medicine, and law in large numbers. Corporations are hoarding cash. People are not saving, not investing, and spending like there is no tomorrow. Everyone is looking at everyone else and saying, "what the hell should I be doing?" as the world continues to move faster and faster and people struggle to adapt.
Personally, I think we will need a shift back to 1920s-50s American culture for us to really get the ball rolling again. We have no more 'enemies' aside from illusory terrorists who are always hanging over our shoulder. We lack unity and a 'purpose' that defined so many generations before us. I think (and sincerely hope) this will change as we see advancements in science, medicine, and technology to push us on our next great boom. If we don't have that, then I will be perfectly happy joining Illinis on a nice farm on Lake Michigan.
I agree 100% with you on the fact that if there is no demand for your product/service you fail, I think most people will agree with that statement. My point was that although consumer demand ultimately determines the success of a business, the demands of the consumer are often vague. Yes, consumers wanted a way to listen to more music without lugging around boxes of CD's, but a business still had to develop the best and most appealing way to turn that vague want into an actual product that met the consumers demand.
Right...that's why it's a virtuous circle. That said, the business isn't going to make anything without believing the demand exists.
We should focus our policies on encouraging the virtuous circle, not coddling the "job creators."
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