A “Service” economy is a dead economy.

You’ve probably often heard that the United States is transforming from a Manufacturing Economy to a Service Economy, and that is OK!  What a bunch of crap.

(See: https://dannesrepossessions.wordpress.com/2013/05/17/what-wealth-is/ for a discussion on some of the concepts in this post.)

If everyone in our new Service Economy now works at a Service Job, who exactly are we Servicing?  If no one is actually creating any wealth, then what Wealth are the Service Businesses trading?  Let me give you an example.

Many of you have been to a Home Depot.  Inside the exit or entrance often there is a Hot Dog stand.  This Hot Dog Stand is a service business.  They serve customers or employees of Home Depot with good hot dogs.  Very few seek out the Hot Dog stand and ignore the Home Depot itself.

But we are in a Service Economy now!  So let’s transform the Home Depot into Hot Dog Depot.  We’ll be fine with a Service Economy, right?  Now there is no place to get home building supplies, but there’s two Hot Dog joints right next to each other!  The people that work at the original hot dog joint no longer have the foot traffic of people going from the parking lot to Home Depot buying hot dogs.  And now the big warehouse just sells hot dogs, too!

How many people would go out of their way to visit a large Hot Dog Stand?  Or even two Hot Dog Stands?  Who is going to pay for all these hot dogs?  Where is all the money going to come from to pay for the hot dog employees?

After that, where is the money going to come from to buy something that isn’t a hot dog?  These people are now in a Service Economy, offering services to people who don’t have any money, and don’t need or want that many hot dogs.  And if they ever need building supplies, they now have to look outside of the Service Economy (i.e. The United States) to buy it.  So any and all money that would be used to buy services is suddenly going elsewhere.

It is no coincidence that we see cities die when their manufacturing leaves.  If a service economy is OK, then why isn’t Detroit booming?  Why aren’t the dozens and dozens of steel towns across the United States booming after the rug got pulled out from under them after WW2?

A service economy is akin to trying to fill a bucket with a hole in the bottom at a rate slower than it’s leaking out.  Eventually the whole thing will be empty and any water you try to pour in will go through the hole at the bottom without ever touching the bucket.

Anyone who tries to sell you on a “Service Economy” is either, A.) Not smart enough to understand or mentally plot out the consequences, or B.) Does know better but is trying to accomplish something more sinister.

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1 Response to A “Service” economy is a dead economy.

  1. Bob says:

    I like where you’re going. But I have several issues with the points you’re trying to make:

    1. Home Depot sells things that are made IN this country and (actually most of their product is) OUT of U.S. I think you get the point that manufacturing in U.S. doesn’t always guarantee a shelf spot at a major retailer like Home Depot.

    2. Manufacturing “tangible” items is similar to manufacturing “intangible” things. Think of Software. Software is built – like a truck would be built in a factory. Software has intricate parts that do their own specific thing that contribute to the overall usability of the end-result/product. So software firms are essentially very similar to manufacturing facilities. Now let us review an economy that is fueled by “manual” labor vs. “mental” labor. A manual laborer is much more likely to cost the company/firm a lot of money in the long run due to health issues resulting from strenuous/hard physical work. A manual laborer is also at a higher risk of being injured (long-term) and would require State-paid benefits such as disability. I’m not even going to mention the typical pollution/environmental hazards of running a manufacturing facility and how these hazards affect both employees, customers and citizens living in close proximity to the factories.

    Now after saying this, I don’t agree with ANY of the “extremes”. NO MANUFACTURING or TOO MUCH MANUFACTURING (think of China and the empty cities and malls to falsely inflate the economic growth numbers) But a good balance is where the local manufacturing focuses on locally needed “tangible” items (this would amount to a much smaller percentage of U.S. manufacturing than was happening in the past). In other words; Ford building trucks exclusively to be sold in Mexico or Canada should not be manufacturing those trucks here in U.S. Japan did this successfully in the 80’s by building Japanese factories in U.S. to provide “tangible” products to the U.S. consumer. They employed American workers and provided a stable income for their towns and families. Thus, having a great/positive impact on the local economy, while helping improve Japan’s economy at the same rate. The happy balance is where you don’t concentrate an entire city’s workforce on one type of work (manufacturing) hence why Detroit is in shambles now. There is no balance.. most of the employees were skilled “manual” laborers and could not go out and find a job where they would be able to contribute to the manufacturing of “intangible” items. When Detroit took a dive, cities like San Francisco/San Jose were seeing booming employment rates due to the high demand in manufacturing of “intangible” things (e.g. software)

    Like anything in life, balance is key. U.S. needs a healthy mix of local manufacturing (for local use) Nationwide manufacturing (for global use) and local & national manufacturing of intangible things (software) for both local and worldwide use/benefit. Bringing back manufacturing-based cities by building manufacturing plants will also bring back the spikes in long-term disability claims, pollution of vital natural resources and ultimately bankrupt economies (because all the manual labors can do is look for manual work). Intellectual work can be a good healthy mix to add to the economy as intellectual work may not require a local presence to perform work (you can write software at home in your underwear and sell it anywhere in the world – helping your economy and improving lives of people outside of U.S.) That’s where the future is, and that’s what U.S. is betting on. China will see this in a bout 10-15 years when other countries (with cheaper labor) will begin to steal business and China’s economy comes crashing down because majority of it’s workforce is unprepared for “Intellectual labor” towns like Detroit are going to be everywhere in China (already happening) and history will repeat itself.

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