Volume 9 No. 2 - Adask's law

The Multiplier Effect
by Alfred Adask
There’s an old (allegedly true) story that,
according to technical studies by aeronautical
engineers, bumble bees can’t fly. They’re
too big, clumsy and aerodynamically unfit.
The punch line, of course, is that since no
one bothered to tell the bumble bees, they go
right on flying.
The humor conceals the larger truth:
The scientific conclusion that bumble bees
can’t fly says more about aeronautical engineers
and their science than it does about
bumble bees. Since bumble bees do fly, the
engineers only proved that their science and
understanding are incomplete or fundamentally
flawed.
Our economy reminds me of the
bumble bee story. Anyone with even a superficial
understanding of economics who
looks at the stock market, national saving
rates, total consumer debt, etc., has to conclude
that this economy not only can’t fly,
but should’ve crashed years ago. For years,
various economists have predicted the
“crash” would hit within sixty days, buy gold
now, and stock up on food. Although I
couldn’t afford to stock up, I’ve believed a
crash was imminent for years. Nevertheless,
our “doomed” economy seems destined
to fly forever. Apparently nobody told the
“bumble bee” stock market it couldn’t soar
to 11,000, and so it did.
However – just as the conclusion that
bumble bees can’t fly tells us more about
aeronautical engineering than bumble bees –
Bumble Bee Economics
if our stock market and economy defy conventional
wisdom and seem to do the impossible,
that doesn’t tell us that the economy is
magic, it tells us that there are forces at work
that we don’t understand.
For example, economists recognize a
“multiplier effect” which mysteriously increases
the beneficial economic impact of new
money added into a local economy.
For example, when a Wisconsin tourist
spends $1,000 in Miami, the local community
receives a positive economic benefit equal
to $5,000 to $7,000. Although the idea that
$1,000 can somehow “multiply” into a
$5,000 effect seems irrational, economists
say it’s so.
This article explores the possibility that
the “multiplier effect” can also have negative
economic consequences. I.e., if the tourist’s
$1,000 caused a $5,000 benefit in Florida,
did it somehow also cause a $5,000 loss back
in Wisconsin? If such negative consequences
exist, the multiplier effect might explain some
previously unseen economic forces, the similarity
between colonies and corporations – and
even why our bumble bee economy defies
conventional wisdom and continues to fly.
In AntiShyster Volume 9 No. 2, the article
“Concentration of Agricultural Markets”
hinted at the fundamental changes in the social
structure of rural American communities
caused by corporate agriculture. According
to three University of Missouri Phd.s (Drs.
Heffernan, Gronski and Hendrickson):
“Today, most rural economic development
specialists discount agriculture as a contributor
to rural development because of the
food system’s emerging structure. Formerly,
in most family businesses . . . profits were .
. . distributed locally among labor, management
and capital. . . . [I]t made little difference
how the profits were distributed . . .
since the local family spent most of their profits
in their local community. Thus, the rural
community retained all of the profits [derived
from local farms] and those profits. . .
. contributed to the economic well-being of
the community.” [Emph. added]
“Today, however, large non-local corporations
instantly remove farm profits from
farm communities. Instead of being spent
locally, farm profits now go to the company’s
distant headquarters and are then sent to all
corners of the globe to be reinvested in the
food system.”
Note that even though local workers
are still earning wages on these corporate
farms, because ownership has moved outside
the local community and taken farm profits
with it, those farms no longer make any
“contribution” to rural “development”
(growth).
Thus, by reducing family farmers from
owners (who by definition receive profits)
to mere managers, laborers, growers or sharecroppers,
(who merely receive wages) the
globalized, corporate food system sucks farm
profits out of farms, leaves rural communi-
ANTISHYSTER Volume 9 (1999 A.D.) www.antishyster.com adask@ gte.net 972-418-8993 145