[Puffer Fish]

These are a few thoughts I've been having, and decided to put out there.

It has commonly been said that adding more people to an economy will add more jobs, because there are more people, a larger number of people needing goods and services. Well, that's basically true, except that these jobs will be lower paying jobs. That's not surprising, because you can add more people but where is the additional money going to come from?

What I have discovered in life is that it takes a lot of extra money to "lubricate" things. Let's face it, trying to carry on economic activity is not 100% efficient. People need to be compensated for their time, effort, and risk, or they might decide trying to engage in an economic pursuit is just not worth it. Even if something theoretically makes economic sense (both Party A and Party B will accrue a net benefit), those people are just not going to do it if the gains are barely worth it. So in a society composed of poverty, people often just decide it's easier to do something themselves. Engaging in economic exchange takes extra work and resources and that's a luxury they do not have. If I'm trying to run a business and my customers can't afford to pay high prices to pad the profit margins, all the time (and fixed costs) of running a business (or offering things for sale) just don't make sense, not unless there is a huge economy of scale. When a society starts becoming poorer, all of a sudden there is not that extra money to keep transactions lubricated. Normally we don't tend to think of specialization of labor as bearing a cost, but this cost becomes more manifest when people are living on slimmer margins. To summarize what I'm saying, more people will not just automatically mean more jobs in proportion to the number of people. As profits and wages go down, a sizeable portion of the economic exchange that existed before will cease. It's not some simple theoretical economic relationship where you can pack as many people as you want and all the economic activity will continue to go on just with different amounts of money.

In older times, they might have described this as "grease the wheels of industry". It takes a certain amount of added wealth and money to make transactions happen.

[JohnRawls]

These are a few thoughts I've been having, and decided to put out there.

It has commonly been said that adding more people to an economy will add more jobs, because there are more people, a larger number of people needing goods and services. Well, that's basically true, except that these jobs will be lower paying jobs. That's not surprising, because you can add more people but where is the additional money going to come from?

What I have discovered in life is that it takes a lot of extra money to "lubricate" things. Let's face it, trying to carry on economic activity is not 100% efficient. People need to be compensated for their time, effort, and risk, or they might decide trying to engage in an economic pursuit is just not worth it. Even if something theoretically makes economic sense (both Party A and Party B will accrue a net benefit), those people are just not going to do it if the gains are barely worth it. So in a society composed of poverty, people often just decide it's easier to do something themselves. Engaging in economic exchange takes extra work and resources and that's a luxury they do not have. If I'm trying to run a business and my customers can't afford to pay high prices to pad the profit margins, all the time (and fixed costs) of running a business (or offering things for sale) just don't make sense, not unless there is a huge economy of scale. When a society starts becoming poorer, all of a sudden there is not that extra money to keep transactions lubricated. Normally we don't tend to think of specialization of labor as bearing a cost, but this cost becomes more manifest when people are living on slimmer margins. To summarize what I'm saying, more people will not just automatically mean more jobs in proportion to the number of people. As profits and wages go down, a sizeable portion of the economic exchange that existed before will cease. It's not some simple theoretical economic relationship where you can pack as many people as you want and all the economic activity will continue to go on just with different amounts of money.

In older times, they might have described this as "grease the wheels of industry". It takes a certain amount of added wealth and money to make transactions happen.

Money is trivial after a certain point for the economy. What makes the economy tick are the conditions, laws, regulations, openess of market, easy of doing business and so on. Money is just a miniscule part of it. Money is investment that you use to build up but if the build up is not possible in the first place then no amount of money will help.

In general, money by itself don't make you rich. Large GDP over a long period of time per capita is what makes you rich. GDP is not money. GDP is the commulitive sum of goods, services and other valuables that your country produces and it needs to be produced over a long period of time to make the society rich. We just use money to calculate it. Which means that simple money can help you run your business 1-5 years even if its in red but that is about it. 5 years is not a long time economy wise.

If you don't have R and D or educated people or cut off from the markets or access to technology or your system in general is lawless shit then no amount of money is going to help you besides the most rudimentary of businesses that have large Return on Investment but don't pay much to the people. Fast or large return on investment enterprises are usually pretty basic and consist of resource extraction sector.

[Puffer Fish]

Money is trivial after a certain point for the economy.

When I said "money", what I meant was a certain level of surplus wealth, that goes as a cost to conducting economic activity.

For example, there is less trade of labor services in African countries, even though costs of those services are correspondingly lower along with incomes.

[wat0n]

Congrats, you discovered the importance of aggregate demand.

[Puffer Fish]

There are all sorts of additional costs to carrying on an economic transaction. Just because I have a dollar and want your apple, and you have an apple and want my dollar, doesn't mean a trade is going to be able to take place. If the costs of economic transaction are miniscule compared to the amount of wealth people have, there will be no problem, but if the transaction costs are high and the people are poor, economic exchange may not be pragmatic, in many instances.

A plumber, for example, still needs a car if he wants to get to his customer's house. That might not be a problem in a First world country where the plumber is being paid $100 an hour, but it's not going to happen in a Third World country where the consumer can only afford $4, even if the plumber would be willing to do the work for $4.

Cost of rent for a business space can also be a big factor. Many businesses are simply not able to form in certain regions simply because the cost of available space is too high.

Excessive regulations and legal requirements can also serve as a big impediment to business when the profit margins are not very high. It might not be worth the time, effort, and risk for a business owner to be able to deal with the legal aspect. Hiring a lawyer might be a relatively trivial expense for a large corporation dealing with large profits, but will be a prohibitive expense for a small business.

Even the cost of training or education can pose a barrier, when the expected pay for the jobs on the other end isn't high enough. That's probably why there are fewer doctors in Third World countries. Even though the wages and costs of living are lower across the board, consumers can still not afford to pay what it cost for their doctor to get a medical education.

Wealth is like a lubricant that allows for economic activity to take place. You take a group of poor people with no wealth, it does not work so smoothly for economic activity to take place between them, so there will be less economic activity. It won't simply just be a matter of the same amount of economic activity with lower wages.


This is the explanation for why adding more poor people to the economy may not help grow the economy.

Because poorer people are not going to be able to engage in the same type of economic exchange between each other as people with more money.

[JohnRawls]

When I said "money", what I meant was a certain level of surplus wealth, that goes as a cost to conducting economic activity.

For example, there is less trade of labor services in African countries, even though costs of those services are correspondingly lower along with incomes.

Labour cost is not the main problem. The reason why Africa is not developing as fast as it could or other places in the world are not developing is because they are lawless shitholes that have no respect for rule of law and private property, or they are under sanctions or they don't have access to markets and so on.

If you have rule of law, decent ease of doing business and some infrastructure then opening business is easy than you might think if your idea is even half decent. International markets/investors have way too much money that they want to invest at any point of time.

The problem is the more very skilled labour/tech intensife business you want to open, the more longer is the R and D and the longer is the return on investment. So countries that are not stable or have even a slight problem with rule of law or property rights will not get that investment. Because nobody is going to invest in ot a decade development to loose it from some business raid. It is much easier to build in proven places like Europe or US.

[Puffer Fish]

The reason why Africa is not developing as fast as it could or other places in the world are not developing is because they are lawless shitholes that have no respect for rule of law and private property,

70% of that is the high crime rates. Hard to have any property when you know someone else will probably just try to steal it.

If you have rule of law, decent ease of doing business and some infrastructure then opening business is easy than you might think if your idea is even half decent.

Having rule of law and law enforcement is not free. A lot of people (especially those on the Left) have a tendency to take those costs for granted.