by nerdponx | 2025-08-12 14:10:14+00:00
I have had this pet theory for a decade+ that this is the case for most of the economy, and the current "recirculative bubble" is just a really strong example of it happening in a tighter loop than usual.

Think about the classic economics fairy tale of why income redistribution is bad ("inefficient") and trickle-down economics is good.

Billionaire Bill buys his 10th yacht. Workers need to manufacture the yacht and all the different parts of it. He needs to hire staff to keep it clean, to maintain it, to operate it, and to stock the fridge; he needs to pay for satellite internet so he can do business on the yacht; and he needs to buy TVs for the kids. All of that stuff is produced by other businesses with their own employess and sometimes independent contractors. So all of this economic economic activity results in a flow of income to a large number of individuals. Those individuals then themselves all need to buy groceries, clothes, housing, transportation, etc. so all that income then continues to flow outward throughout the economy. The price system orchestrates everything so that the proceeds from Billionaire Bill's yacht are used to provide the goods and services of greatest value to everyone else.

That story of course is nonsense, but the question is: why? It seems correct. In fact it is broadly correct in the sense that the things described in the story do in fact happen in real life. So why isn't it a happy ending like in the fairy tale?

There are a few things going on here, but the one of importance here is where are those yacht-builder employees buying their goods and services from?

One missing aspect of the story is that they're paid a tiny amount compared to the top management of the yacht company and a few other specialists like the naval engineer, the captain, and the lead software developer. So they don't actually have a lot to spend. And what they do spend money on is largely provided by conglomerates controlled largely by Millionaire Mike and Trillionaire Todd, who of course are very close friends of Bill. Mike and Todd know ensure that their prices are as high as possible to capture as much of their customers' income as revenue. Mike and Todd then go buy golfing trips, yachts, mansions, etc. And the cycle continues.

The effect is that all the individual employees do in fact get some of Bill's billions of dollars in the form of income, but they only get enough to cover their essentials, and any profit from buying those essentials goes right back into the hands of another person just like Billionaire Bill. The income does in fact flow throughout the economy as in the bedtime story, but you can't understand the welfare of individuals within the economy by just looking at total flows.

You don't need to be a Marxist to see that this is how the economy works and has worked since the dawn of capitalism. It's a natural low-energy state that economies naturally tend towards, because humans are humans and there is always a minority that is willing and able to take avantage of others.

The only difference here is that the loop is tighter, where Bill Todd and Mike are all just buying each other's services directly.