Looking around my community lately you will easily notice one commonality that is on the rise, garage sales. Church yard sales, neighborhood garage sales, garage sale signs on almost every medium at every intersection; there exist almost a race to pool everyone's junk together and sell to the first bidder. This, of course, represents human action as a strategy to rid ourselves of what we perceive as less valuable property in exchange for something perceived as more valuable (money).
My perception, at the moment, is that while the economy is shaky and experiencing a necessary correction of past malinvestments, much of the consumer fear and uncertainty is a result of the mainstream media's scare tactics and upcoming political uncertainty. Of course, much of the media's dwelling on poor consumer outlook is based on the notion of Keynesian economics - consumer spending lift's us out of economic downturns.
The analogy present is that these neighborhood garage sales represent a liquidation process not much different than that which occurs during a correction period in the business and financial sector. Moreover, the present garage sale scenario is empirical evidence of two economic principals; (1) man's propensity and (2) consumerism does not spur long-term real economic growth.
In order for a liquidation process to be successful there must be a buyer present who is willing to exchange his money for what he perceives as a better deal. This is man's propensity. People are inclined to transfer one commodity for another, as long as there is perceived value on both sides of the exchange. Therefore, the garage sale provides an example of a situation where there are those of whom are still looking to exchange their money for a product and those of whom are in need of liquidating non-productive assets. The problem, however, that presents itself is that the liquidator is looking to rid his unnecessary assets for money and the consumer is looking for a deal on something that he could probable otherwise live without. The aggregate economy, as a result of this exchange, has not been made better off.
What is necessary for the aggregate economy to benefit is real capital accumulation - investment and productivity (shown here).
My perception, at the moment, is that while the economy is shaky and experiencing a necessary correction of past malinvestments, much of the consumer fear and uncertainty is a result of the mainstream media's scare tactics and upcoming political uncertainty. Of course, much of the media's dwelling on poor consumer outlook is based on the notion of Keynesian economics - consumer spending lift's us out of economic downturns.
The analogy present is that these neighborhood garage sales represent a liquidation process not much different than that which occurs during a correction period in the business and financial sector. Moreover, the present garage sale scenario is empirical evidence of two economic principals; (1) man's propensity and (2) consumerism does not spur long-term real economic growth.
In order for a liquidation process to be successful there must be a buyer present who is willing to exchange his money for what he perceives as a better deal. This is man's propensity. People are inclined to transfer one commodity for another, as long as there is perceived value on both sides of the exchange. Therefore, the garage sale provides an example of a situation where there are those of whom are still looking to exchange their money for a product and those of whom are in need of liquidating non-productive assets. The problem, however, that presents itself is that the liquidator is looking to rid his unnecessary assets for money and the consumer is looking for a deal on something that he could probable otherwise live without. The aggregate economy, as a result of this exchange, has not been made better off.
What is necessary for the aggregate economy to benefit is real capital accumulation - investment and productivity (shown here).
The overall connection here between the garage sales and liquidation processes undertaking by business ventures and or the financial sector is that investment and productivity are what spur long-term economic growth - capital accumulation. As a result of bust cycles, market corrections are necessary to rid malinvestments that occurred during the boom. Consumer spending does not attribute to long-term growth, which is why government's attempt to increase consumer spending (i.e. economic stimulus packages and public work programs) will fail every time.
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