Monday, June 13, 2011

Pyramid Revisited

In an earlier post on the “old” LaMarotte, here, under the title of “What Goes Up, Must Come Down,” I presented a pyramid of the economy. This one:


My argument there was that the economy basically rests on Agriculture, Forestry, Fishing, and Mining—thus on the acquisition of the basic stuff of life. All other activities rest on that foundation. Advanced economic life, and above all urban life, depend on the sectors piled above it—and indeed dependent on the base. I also said that to the extent that any layer depends on its well-being on one above it, to that extent it is also vulnerable to problems that arise there. The example I cited is the dependence of Agriculture on heavy machinery, oil, and financing. Wealth cumulates as we extend the pyramid. And for all things to go well, that which goes up (money) must also come down again. We need a proper circulation of human energies, which, in a way, money represents. Hence a financial meltdown affects all sectors.

In a comment on that post, Monique wrote:

Now, wouldn’t it be interesting to see this pyramid made in such a way that each sector’s importance to the GDP were reflected…? I’ll bet that would turn things on their head!
Well, I thought, that’s a good point. It’s been a while, but now I’ve gotten around to doing it. I’ve constructed the pyramid Monique asked for. Now she is a knowledgeable economics maven, as it were, and she was, of course, right on. The pyramid inverts. The data I used came from this Bureau of Economic Analysis publication, p. 14, for 2010. Here is the graphic:

The bars are proportioned here by each sectoral cluster’s contribution to the Gross Domestic Product measured as Value Added. In this graphic I have added Government, missing from the earlier graphic—where, if I’d drawn it in, it would have been the smallest item and at the very tip.

Government is large because it includes education—public schools at the local and universities at the state level. Some education, privately managed, is in Services. Trade here means Wholesale and Retail Trade. Warehousing ought to be in that sector, but my source puts it in with Transportation and I cannot tease it out. If this chart were based on employment, rather than money, Banking and Finance would be smaller, Trade would be much larger, and the bottom (Ag, Mining) sector would be even smaller than it already is. One of these days I'll post an employment-based pyramid too...

For many decades now I’ve argued that modern economies are inverted pyramids when measured either in money or in employment. Very small numbers of people vitally support the total structure. You might liken it to a child’s spinning top—which only keep right side up because of the whipping—thus the flow of energy, the circulation of money. The most stable, reliable, and lasting economies don’t have much motion. They’re just sitting solidly on the firm base of fundamental human life, close to the earth—with just about everybody engaged in basic activities. And this pyramid shows that as well.

I will end this post as I ended the other. Appropriate, mutually supportive exchange is the guarantee of welfare all around. The Banking and Finance sector accumulates excess wealth. It—or Government—must ensure that it goes down again. If the wealth is spoiled at the top, it will affect the bottom. But when everything fails, we’ll still be hunting and gathering.

2 comments:

  1. Now, wouldn't it be interesting to compare that chart with previous decades? Offhand, I suspect that it looked a heck of a lot more like a pyramid in the 1950s.

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  2. Thanks you, thank you, thank you.

    Just as I thought. And the image of a turning top is delightful. It completely supports the idea that modern, industiralized or, should I say Service dependent economies are more dependent than ever on motion, rapid exchange, the spinning, the churn. Scary stuff really.

    And John, you're right. Back in the 1950s, of course, Manufacturing was king. In 1950 the goods producing sectors (the bottom two categories of the pyramid--Manufacturing and what Arsen calles A/M/F/F) represented 40.8% of GDP. In 2009 that figure was 17.7%...

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