Layoffs are Okay

Our wealth is created by private companies that create a product that is distributed by sale to the rest of the nation/world. So what happens when we develop technologies and methodologies that improve the production of these products? A few things can happen, depending on the demand.

If the demand is greater than the current supply, the supply gets a quick boost and prices drop and total national wealth is increased (total national production is increased). If the supply and demand are matched, or if supply is greater than demand, the increase in productive ability will either cause a glut in the supply, driving costs to ridiculously low prices, or the suppliers will reduce their workforce, both to cut their costs and to keep the supply even with the demand.

What? People would lose their jobs? We can't let that happen!

Ok, this is part of what Adam Smith called creative destruction. Is there a loss of national wealth with the loss of jobs? Absolutely not. The production is the same, but with fewer workers. So is this bad? The workers no longer have employment, thus they no longer have income to buy with. They personally will struggle while unemployed.

Let's follow the process. Production workers get laid off because of new equipment that will streamline a company's production. The company produces the same amount of product with as good or better quality. Costs for the product drop as a result of the new process. But now workers are out of work. What do they do? They find new jobs. Where? In growing industries, or in other words, industries in which there is still more demand than supply. Thus the workforce is redistributed naturally in order to produce a supply to match demand.

http://mjperry.blogspot.com/2009/02/made-in-usa-alive-and-well.html

So, what happens when demand is already matched by supply, and there is a surplus? Actually this is where we in the U.S. are right now. We easily produce much more than we need. So what happens? How is the surplus wealth used?

It can be invested in research for further production improvements. This is one of the best ways to use this money. The faster, better, cheaper the nation can make a product, the greater the surplus wealth it can create. The U.S. has been wise enough to invest a lot of surplus wealth in research, which has created an exponential increase in the production of the nation relative to the production workforce.

The surplus can be used to fund quality of life products and services. This is where most of our surplus goes. We pay for medicine, entertainment, fashion, fine foods, toys, comfort, and much more. What wealth do these produce? Strictly speaking, they don't. We fund them with our real production surpluses. However, we typically include these unnecessary products in our wealth summary. And rightly so, for their value is what anyone will pay for it, and when a surplus is great, these toys are valuable. However, when surplusses run dry and supply is tight, all of a sudden these benefits become worthless, for nobody can afford them. Whether they have a dollar value or not, demand, and thus value, is dissolved.

Now, unless there is some kind of natural disaster that destroys our nation's crops, or we run low on/out of our resources, our national production of necessary goods should not significantly decrease. So what causes a recession then? A recession is a decrease in the demand for quality of life products and services, which has been traditionally a result of an articifial inflation of that demand. We have a limitted surplus, we overspend that surplus into debt, and when we can't keep up the spending, so we can no longer demand the inflated supply, and the supply has to recess.

Here is the root of the problem of the 'stimulus' bill. We want to create wealth with quality of life products, when these products do nothing to increase the surplus, but instead lose value in a recession because they become unaffordable comodities. Instead, we should be focusing on real product technologies. We need to increase the surplus in order to afford a higher quality of life demand. So if we want to stimulate the economy, the things we need to invest in are the things that will create a greater supply. And as I said before, these things are created by private companies.