framework understanding what happens during a recession

Because of that model I described. Imagine economic exchange without the money (so we can avoid being distracted by unnecessary complication). Just two people involved in exchange. Obviously in this example it's impossible for consumption to go down because they are scared to engage in economic activity.

In a similar example, what happens when you add in the money is that prices go down. Consumption doesn't (although the types of economic production purchased may shift).

It's not really the best model to explain recessions.

 

Yeah, but.

Yeah, but.

lol

There is a possibility that small groups of the unemployed could get together and start a business. The trouble is, those folks are relying on that business and using all their wealth. It's best if they are not directly in charge of the functioning of the business or it is doomed to fail. It would be better to have a group of wealthier folks invest and have a living other than this new business.

If they tried to build a larger firm, there are laws which were made to stop some competition with those large conglomerates. They paid congress to put them into place....and they paid others, depending on the area they needed to protect and what or who was in charge.

There is no incentive other than for him to have a money tree to pick from. In that sense, both the large and small companies are similar. Small businesses who sell high priced diamond rings do better near wealthy neighborhoods, while poor neighborhoods don't usually have fine jewelry shops.

Where large corporations differ is, they can go to countries purchasing what they are selling and do business. Small businesses can't. So, unless the world has an economic issue, big businesses are safer. When profit margins which investors ordered the large conglomerates to make aren't, those conglomerates find the quickest way to recoup is to lower the burden of paychecks and have the remaining workers do more. Benefits for workers is another area that is easiliy manageable. and provides a quikc return.

When those investors decide to pull their money out of the businesses, the market tends to lower. When they put money in, it grows. They don't do it on a random basis. They are intending to become more wealthy and powerful, or they wouldn't bother.

"Well, that's my story and I'm stickin' to it". I'm open to being proven wrong.

 

THANK YOU! you are actually the first individual so far in this thread to respond to my ideas in the original post.

The trouble with that is that these wealthier individuals who actually know how to run a business wouldn't think it worth their time, energy, or money to invest in this new business. Remember, in the economic model I am propounding, the business only forms because one segment of the population becomes so poor that it's not worth the other segment of the population's time dealing with them.

 

I believe this is very true, but you're entering into a very different topic.
Or, maybe it's not so separate from what I'm talking about after all.

Look at the most profitable industries left in the U.S. today. They almost all receive some form of regulatory protection so they don't have to compete directly with foreign competition in other countries. The pharmaceutical industry, medical providers, the two most prominent examples that come to mind. To some extent it goes on in the insurance industry too, you can't buy medical insurance across state lines. A lot of the big internet companies have virtual monopolies on the distribution of information, while I'd say Amazon has situated itself in a sort of natural monopoly, because the way running a large distribution system like that works, the greater the volume the more economy of scale. (another example of a natural monopoly is running power lines to people's houses, because once those power lines are already there it doesn't make economic sense to run a completely separate network of power lines to these same homes to compete)

Of course this isn't truly reality, but according to this economic model, if poor neighborhoods don't have jewelry shops the reason would be that the people in these poorer neighborhoods are less productive. If they were more productive they could start their own jewelry shop, catering to their own community at lower prices. If that makes sense.

I mean, the poor neighborhood might have a jewelry shop but nobody goes there because the jewelry shop in the rich neighborhood is much better, even if a little bit more expensive. So the poor neighborhood gets less money because those people are, taken as a whole, not quite as competitive as the ones in the rich neighborhood. Even the poor people prefer to buy their services from the people living in the rich neighborhood, and that doesn't stop until the price differential becomes disparate enough.

 

Well, I suppose this is true.

I disagree their productivity has much to do with it. I think education produces folks who are not very productive, yet understand languages most don't. Mathematics, computer programming languages, etc. It's a different world.

I don't think a small business can get the lower prices that a large corporation can.

 

That is one impediment to my theory.
If people become so poor they cannot afford to shop at Walmart, it's difficult to imagine them setting up their own retail stores at lower price.

(I would imagine my theory is only part of the greater economic whole)

 

Even if those employees get laid off and try to start a business, unless the overhead is extremely low, it won't happen. Maybe a cleaning business, but they still have to buy insurance and so much more. Plus, there is so much competition in every sector of this country, it just isn't possible any more. You have to now be better than everyone else with lower prices, because there isn't much new under the sun, nor is there much anyone needs they can't afford. So, all the new technology must be marketed properly, and the old must no longer be supported, so folks are forced into buying new. None of it is needed, but we seem to want it badly.

 

One would think there would be some sort of economic equilibrium, where if people couldn't find employment this marginalized group could always establish business and economic exchange amongst themselves, willing to work for less, but that doesn't really seem to be the case.

Hence the mystery.

 

There is a point where you have to work two jobs to make it on your own. That's two eight hour jobs or one part and one full time job. When you are young it's possible. Once you hit about forty, it gets tougher. Fifty and you are mostly incapable, unless you have great health.

 

not realistic at all, a guy watches the news and gets scared over stock decline, unemployment numbers, trade deficits, layoffs, wars, etc. etc. in two person if one guy thinks his farm will be less productive he saves more consumers less and then so does other person to create their mini recession.

 

you mean economics a social science in part concerned with economic allocation of resources.

psychological is very different: scientific study of mind

 

If we exchange our choice of trade goods from money to say food and building msaterials, one person may not feel confident to trade his sheep for some bricks in year with poor harvests.

 

In the industrial revolution countries economies changed form being resourced based to human resourced based.
While a king may need food, he needs a trusty set of rifles more. And radios and tanks and all the rest.

So the industrial revolution changed things.Old money didn't start the industry. New money did. New barons emerged. Oil barons, factory barons etc. And they rose to rival the agricultural barons and eventually dominate them.

 

I can get a market stall in Cambridge for £20 a day.
Or I can sell off my front lawn.

Use Ebay to make a great living, like my sister.

I can sell my own produce. Grow it in my garden, sell it in my garden and charge way less than Walmart.
And in my country people commonly do this.

One advantage a small business has over a large business is lower overheads and the other is, lesser regulation. It's too small a fish to get targeted by the taxman. Too small a fish to get health and safety inspected etc.Too small a concern to require insurance. Who gets insurance to clean windows or dig old ladies gardens? No one.
My labour is my own only, so I can work for lower wages and for longer hours.

Who gets insurance to run a cleaning business? Insured against what?
Any company I work for pays public liability insurance on their premises, I don't.
I just vacuum, empty the bins and clean the toilets. Bang. Payola.

Economies of scale cut both ways.

My internet shop stores it's goods in my house and garage and unlike Walmart my shop front costs £15 a year for the webpage. I have no wages to pay, no rates on my business premises. No utility bills.

Economy of scale.

My graphic art business has no need of storage at all. No shop and not even a webpage. I custom make to order on my PC and then email it or use a zip disk.

I could go work for a company, but they wouldn't pay me more. I could mass produce, but it wouldn't pay me more.

Economy of scale.

My friend has a small burger shop 3 doors down from Macdonalds.

Can my local garage compete with dealerships?
Of course it can. My god it's about 1/5th of the price of getting work done at the Lexus or Mercedes dealership.


Can a single dentists practice compete with a chain of dental practices?
Yes.Easily.

Can a single window cleaner compete with a national window cleaning business?
Yes, easily.

Real life example.
My friend used to publish a local nightlife guide. He'd go round the local pubs and clubs, collate their info and special offers etc, print it up on a circular and distribute it.
He made modest living.
A big company moved in. They got funding to make nation wide circular aimed at the same target market. But in every town nationwide.
Economies of scale, one advertising campaign, one boss to over see every town in the country. Only problem is the business couldn't support any advertising budget or any extra layers of staff. It went bust quickly.
The lone guy however, ran it profitably for years.


Local pubs vs chain pubs. Can they compete? Yes.
Does my local village shop compete vs Tesco the supermarket, Yes it does.
And so on. Example after example after example.

OOoo Walmart has more money than I do. And?
My PA business didn't just start as a bunch of dolehead druggy twits with two homemade speakers and a record collection, it went on to be the loudest PA in the world. From garage gigs to Rolling Stones @ Wembly stadium and beyond.

You can't compete with big business? What's your problem? The rest of us can.

 

Yes, it is the study of how people allocate their scarce resources among competing ends over time. It is the study of people's behavior, so hence it's a social science.

 

I know someone who's a window washer. He made fairly good money in the 90s, about $45,000 a year, but then his business started drying up as the business climate changed and he was down to $16,000-$19,000 a year, and is now receiving government assistance because his income is so low, despite usually having at least one job six days a week. Very high cost of living area too, he had to move into a small trailer home with another roommate, since otherwise just the cost of renting the space in the trailer park (he owns the trailer) would consume most of his income. A little difficult for him to change careers now, he is now 55, and just a little bit slow from mild-onset Parkinson's.

 

Was his small business taken out by a bigger company in your opinion? Or even a smaller one?

Window cleaning doesn't pay well. How you make 45K a year 90's money is beyond me. Did he clean skyscrapers?

 

It's hard to say what the causes were. The business really dropped off in 2009 during the Recession but it had already begun declining a little bit before then. Maybe increased competition from undocumented workers. Elderly people, who were his main customer base, having less money than they used to. Perhaps rising rent levels leading to customers deciding not to have their windows professionally washed as often. There were probably several causes. At one point he had to switch to mainly doing carpet cleaning jobs because there didn't seem to be much work available washing windows. Or perhaps as he started getting older and a little bit slower, customers were more reluctant to hire him, even though he could still do the job, I don't know.

100% sure he used to make around 45k (saw his tax returns, long story). No skyscrapers.
(I don't think that was including expenses though, all the driving took a toll on his old van)