Quote from peilthetraveler:
Lets see if I can prick a hole in that theory. Ok so 5% suddenly become unemployed. That means these 5% are no longer spending money. So its safe to reason that whatever business's these 5% spent their money on, will no longer be getting that money, so that means that those business's lose 5% of their income to which they then cut 5% of their work force or lower wages 5%. Now yes...we all have free cars now, but there is no extra money. Tell me where that extra money is coming from? I drive a full paid for honda. If tommorrow ferraris were dropping out of the sky, I just have a nicer looking car. I didnt make anything extra...my paycheck is still the same. (well actually im about to get a 5% paycut because all those autoworkers just got unemployed so business is going down) So i have a new car and less money. Now if i can only spend 95% of what i used to spend, and everyone else is the same, there is ANOTHER 5% drop in GDP and you can see how it actually snowballs if there is no new job growth anywhere.
Now i know what you are saying...I have a fully paid for car and alot of people finance cars so they wont be making those monthly payments anymore and they can use that money to buy other things.
How? If a guy is making payments and cars suddenly drop out of the sky, he is still making payments on that car. He might have 3 or 4 more years of payments to make before he finally has that extra cash. I mean unless he decides to just let the bank take his car back which will then proceed to sue him for the balance of whatever they auction it off for and since cars are free now, they wont be able to auction it off, so now the guy is sued and has a judgement against him and the court is docking his paycheck (which is already 5% less than what he used to earn) so he is hurting even more. Not to mention that if the banks decided not to come after him, it would be devastating for them to take so many loses and then the bank would cut jobs making it even worse!
Also the banks would be taking a hit anyway because they are not making any new loans for cars since they dropped out of the sky, so the banks finance department has to cut those jobs so theres another 5% out on the streets.
Did i shoot enough holes in your impossible to beat theory yet or do you want some more?
"Now if i can only spend 95% of what i used to spend, and everyone else is the same, there is ANOTHER 5% drop in GDP and you can see how it actually snowballs if there is no new job growth anywhere."
Multiplier effect, this is only temporary. True economic performance depends on productivity level. The 95% (or 93% because of multiplier effect) remaining people with jobs are not going to slack off. These people will produce the same amount they used to, and they will want to give it to the 5% unemployed as well, but want something back from them. This is when demand from the 95% employed, and supply from the 5% unemployed come together. In the end, the economy will produce the same, minus the cars (they are free already), plus something new. So, unless the government will take measures like shortening the workweek to bring employment levels to 100% quicker than they naturally should, the people in this economy will be better off overall in the long run. In the short run there will be some stress, agreed.
No, I don´t agree you shot enough holes ;-)
