Examples of how bankruptcies, cutbacks and layoffs power economic growth

[SimpleDon]

Sweet, then all the businesses should go bankrupt and lay everyone off to produce the best possible economic growth.

Not all of the businesses, obviously. But it is the way to get rid of the poorly managed, the inefficient and the obsolete. The economy as a whole benefits.

 

[SimpleDon]

Indicating that bankruptcies are the source of economic growth.

<snip - Already answered>​

No, the sources of economic growth are increases in population, increases in trade, increases in demand mainly from wage increases, increases in productivity and from innovation. Creative destruction increases competition by removing the inefficient companies and replacing them with more efficient ones.

 

[Nice Squirrel]

Indicating that bankruptcies are the source of economic growth.

<snip - Already answered>​

No, the sources of economic growth are increases in population, increases in trade, increases in demand mainly from wage increases, increases in productivity and from innovation. Creative destruction increases competition by removing the inefficient companies and replacing them with more efficient ones.

Psst Don, I was describing the thread title.

 

[untermensche]

They are not being redeployed. This is capitalism.

They are being thrown away like garbage and cheaper younger more desperate workers replace them.

Really? No one who ever worked in a video store ever got another job?

Many times they did it on their own at great cost in spite of all the factors working against them.

And some didn't find employment for a long time.

Again, in capitalism, most humans are just disposable commodities. Thrown out no differently than the garbage is thrown out.

If they are ever treated better than this it is because of the efforts of government.

In other words, anti-capitalistic measures.

 

[Loren Pechtel]

What about the human misery?

The hunger, the stress, the depression?

The suicides, the broken families, the return to alcoholism?

They all occur when people lose their jobs. Especially in a shitty economy with little opportunity destroyed by the malfeasance of bankers who were rewarded for it.

It is not just a bunch of numbers in a computer.

What you find time and time again from analysis from the right is an analysis completely devoid of the knowledge that we are talking about human lives and evidence of any normal human empathy.

You take the reduction of empathy to it's extreme and of course you end up with the Nazi's and groups like them.

No failed companies means basically zero progress.

Like being a subsistence farmer?

 

[Loren Pechtel]

Or you could attempt to address arguments being made.

Heads up moderators - I think someone reversed the attribution on these quotes.

aa

No, they're correct.

 

[untermensche]

What about the human misery?

The hunger, the stress, the depression?

The suicides, the broken families, the return to alcoholism?

They all occur when people lose their jobs. Especially in a shitty economy with little opportunity destroyed by the malfeasance of bankers who were rewarded for it.

It is not just a bunch of numbers in a computer.

What you find time and time again from analysis from the right is an analysis completely devoid of the knowledge that we are talking about human lives and evidence of any normal human empathy.

You take the reduction of empathy to it's extreme and of course you end up with the Nazi's and groups like them.

No failed companies means basically zero progress.

Like being a subsistence farmer?

Today you have failed companies and most are seriously harmed and can be out of work for a long time.

And you have others, usually the people who's decisions caused the failure, floating away in their golden parachutes.

That is oligarchical capitalism of today.

A few matter and the rest are nothing but expendable commodities, thrown out when they become bothersome and replaced.

 

[RVonse]

Bankruptcies, cutbacks, layoffs, terrible things, right? People lose their jobs, and the lost income of these people means they spend less, therefore harming other businesses and shrinking the economy, true? Not so fast. This is the short term, visible effect. What is not seen is what happens with those resources that are now freed up to be used for other purposes - land, labor and capital that becomes available for some other economic use. This is the "creative destruction" of capitalism........

Those who lose their jobs in these instances are able to be offset by growing industries and companies who buy the assets that become available or jobs can be created in brand new industries. Without the layoffs and the availability of these abandoned assets, growth would be limited. There would be fewer employees available to hire into growing industries and it would be far more expensive to start up a business or expand it when the demand is available.

It doesn't always work out so well though. Here is a good example. In 1995 Chrysler had a minivan plant in St. Louis that was building at maximum capacity, making huge profits, and supporting 7000 union scale middle class jobs in the local area. The 2008 banking crises and huge spike in gasoline prices changed all of that. Lack of sales resulting in this plant being closed and nearly bankrupting the company.

You would say someone else should be able to utilize the plant and equipment for another purpose but real life was different. Making automobiles is highly specialized equipment. Despite all efforts this minivan plant was finally razed to the ground for scrap steel pennies for the pound. And the 400 acres of ground around this plant can not be used for a football stadium or a shopping center because there is years of hazardous waste still in the soil. Its not even being farmed. Had this plant remained open it most probably would be running again at full capacity as it did in the mid 90's. We know this because there is GM plant nearby that is now at full capacity. The GM plant was very similar to the Chrysler plant also in a similar state of affairs during banking crises but GM had more resources to hold out. The end result for Chrysler was over 1$billion in plant and equipment wasted and for the local area over 7000 either underemployed or unemployed. As far as I can tell there never has been anything good that came out of this colossal waste.

There are many other manufacturing plants idle right now that were once thriving creators of wealth and prosperity for middle class individuals. I can think of another huge plant in Newton, Iowa that used to make Maytag wash machines. At least that plant still stands although it has been mostly empty for many years now.

The main point to be made, is that these factories were far more useful and beneficial to society as they were instead of as they exist today. Somehow the supposed efficiency of free market capitalism did not appear to work for these examples.

 

[arthur_preister12]

Yeah, like SimpleDon said, Bankruptcies create opportunities for more efficient concerns to make money. If the demand of a product or services are still there, even if the company go bankrupt they still have the share value of higher and that can be gained by other companies. This can help to get out of bankruptcy with any way possible. Since there are many consultancies that deal with bankruptcy in Toronto, I used to get advice from Kevin Thatcher & Associates for all bankruptcy related issues.

 

[ZiprHead]

Hey, new member! Welcome to TFT.

 

[ronburgundy]

Axulus and dismal,

Are you going to address SimpleDon's point made in the 2nd post of this thread that the OP invalidates anti-min wage arguments, because companies are driven out by the wage increase just power economic growth and "destructive creation" where companies with more competent business models arise from their ashes?

BTW, the only think the OP supports is that companies going out of bussiness, especially due to no consumer interest in their crappy products, is not a bad thing in the long term.
The OP does nothing to support the rampant use of Bankruptcy laws, such as when used to allow corporate managers to parachute out with millions, and not pay their debts to their workers or other creditors (which usually includes the taxpayers). Basically Chapter 7 liquidation types of bankruptcy should either be eliminated or massively restricted to only companies where the top brass and shareholders have seen little to no benefit within the last year or so. For example, in any bankruptcy all assets paid out to shareholders and corporate managers within a year prior to filing should be recalled, with first priority going to paying workers and debts to government agencies (aka the taxpayers). The engine of all economic growth is consumption, and its main driver is the income of the lower to middle classes who spend all their income and must reduce spending when they are not paid.

 

[SimpleDon]

I have often mentioned how it is ironic that those who claim to be the champions of capitalism often turn out to believe that capitalism is a delicate mechanism that can't stand any deviation from their set idea of how capitalism should operate. Nothing can be further from the truth. Capitalism is a very resilient, strong, adaptable system. It is the product of thousands of years of evolution that have shaped capitalism to be this way.

Many of the champions of capitalism also deny the mixed mode nature of modern capitalism. They insist that capitalism has to be changed from the way that it has evolved to where more of the government involvement is turned over to the market. This misguided attitude is unquestioningly responsible for the massive increase in health care costs as more of the health care industry has converted to a for profit business, starting in the 1970's with the hospitals. In 1970 US health care costs were on par with other developed first world countries when the industry was primarily not profit, operated by charities and by government. After forty years of increased privatization the US's health care costs exceeded twice the average costs of the other first world countries.

During the evolution of capitalism naturally we found that some endeavors were not suitable for the for profit model and are best left to government and other forms of professionalism. Health care is best left to the professionalism of doctors. Similarly we rely on the professionalism of judges, lawyers and law enforcement officers as a basis for our law enforcement and judicial systems. We rely on professionalism in education, engineering and many other professions to produce results that aren't produced by the rather simplistic for profit model.

 

[arthur_preister12]

Yeah, like SimpleDon said, Bankruptcies create opportunities for more efficient concerns to make money. If the demand of a product or services are still there, even if the company go bankrupt they still have the share value of higher and that can be gained by other companies. This can help to get out of bankruptcy with any way possible. Since there are many consultancies that deal with bankruptcy in Toronto, I used to get advice from Kevin Thatcher & Associates for all bankruptcy related issues.

 

[Axulus]

Axulus and dismal,

Are you going to address SimpleDon's point made in the 2nd post of this thread that the OP invalidates anti-min wage arguments, because companies are driven out by the wage increase just power economic growth and "destructive creation" where companies with more competent business models arise from their ashes?

This is a fundamental misunderstanding of the reason why natural failure is a good thing as those resources can be put to a better use but artificial bankruptcy (due to government imposed increase in cost) is not necessarily so.

If a business fails because it's market costs are greater than revenue, then it means that the value the business provides is less than the value of society's resources it consumes. It is a simple process for those resources to be reallocated to other businesses at that market price that are able to provide value greater than the cost. The market price is determined by how useful/valuable those resources are to other businesses in relation to their supply.

If a business fails because the government imposed a non-market cost onto the business, it means that there may be no other business that deems that resource worthwhile at the government imposed cost. In other words, the business fails and no other business utilizes that unused resource because the government imposed cost is greater than the market benefit given the supply. This means that there is no one able to figure out how to get more value out of the resource than the government imposed cost. That resource will never be utilized as a result and just sit idle until things change to the point that the value that can be realized from the resource goes up, either due to changing market conditions or due to innovation in figuring out how to obtain more value from that resource than anyone else in the world has been able to figure out.