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Author: rmhj Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 442543  
Subject: Re: fiscal cliff and the market Date: 12/31/2012 10:28 AM
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It is simply not enough demand for product.

MetroChick: Demand for what product(s)? When I look around, it seems...

Any products that require {production,delivery,adjustment,...} by workers who earn wages. Wages are part of GDP.

When too few workers are earning too few dollars, GDP falls for two reasons: wages are part of GDP, and impoverished citizens have very little money to spend.

Throughout history, as humans have grown technically and practically, they have produced more and more goods and services with less and less labor.

We could choose to let workers work less and less, and distribute the lessened work load across the same workers. However, we (in the U.S. recently at least) have generally preferred not to do that. Instead, our companies reduce their workforce, and let wages fall (since there's more competition among the newly unemployed surplus labor).

This is a macro-economic problem, not amenable to micro-economic thinking. Allowing the "free market" to work for labor will generally result in a deflationary spiral, as capital siphons off the circulating dollars in the economy and the cost of labor plummets.

Businesses, however, usually see this as a good thing, at least until they cannot find buyers for their widgets and services because nobody who wants their widgets and services has money to buy them.

In the more distant past, we shifted from a 72 hour work week to a nominal 40 hour work week, we restricted child employment, we enacted minimum-wage laws, and took various other steps to improve the lot of labor. In extreme situations, we've had the government create jobs to prevent mass starvation (e.g., when farms mechanized in the early-to-mid 20th century).

rj
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