Our Economic Entropy

While it's certainly true that we're in an economic downturn, I question whether the conditions before last summer were really all that great either.

Yes, the housing industry and other sectors were (or seemed to be) booming, and doubtless many did well as a result.

However, recently I was discussing the economy with a friend, and I mentioned the pervasive tendency to cut costs by cutting services, and I got to thinking: why is that? Why is it that cutting costs has become the primary management strategy, rather than increasing value? Airlines offer less and less, including smaller seats, fewer meals, more expensive meals, or no meals. Food and other product packaging gets smaller, while the price continues to rise. Services are outsourced to third parties who may not have the same commitment to quality as the parent company. Fees go up. I don't know about you, but I can't remember the last time a "cost of living" increase actually matched inflation.

As I look back, I remember this happening for more than a decade; way before 9/11, which was the first major economic downturn of the millennium.

A permanent state of cost-cutting is not the hallmark of a healthy economy, it is economic entropy. Cost cutting as a means of surviving a temporary downturn is one thing, but it seems like it has become the norm and the primary means of maintaining profitability. It should be a temporary, emergency survival tactic, or one of several techniques, not a permanent overriding policy.

This is often ascribed to intense competition, but cost-cutting is only one way to compete. The fact of the matter is, many businesses seem unable to increase the value of products offered. Instead of providing more value to customers, many businesses are struggling to maintain existing levels of service. It is an exception when a business provides additional value for the same price. This seems to happen a lot in technology, where advances enable quantum jumps in the level of product or service provided.

The causes of this have been discussed at length among Objectivists and other advocates of capitalism, but fundamentally it is because the "free market" is not really free, and success is not our society's goal.

The economy is laboring under an ever-growing yoke of prohibitions and burdens that aim to destroy value and enshrine failure. The recent overextension of credit (to those who can't really afford homes, for example) and the bailouts (rewarding failure) are obvious examples, but things like taxation, minimum wage, antitrust, etc. all have the same effect: they all punish success and make it more difficult for successful businesses and successful people to flourish. And quite logically, failure is what we are getting.