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A company called Genkii is hoping to rope a chunk of the 40-million worldwide web-connected phones and iTouches into a new 3D avatar-based virtual world, Sparkle. Too bad virtual worlds died around 4 years ago.

Genkii appear to have had Sparkle in the works for quite some time, but they must have spat out whatever drink they were drinking at the time when Apple announced their inter-app micro-commerce structure for iPhone 3.0, which is perfectly tailored to Second Life's "pay 65 cents, increase penis length by 200%" mini economy.

Currently, Genkii has a $5 IM app in the App Store that ties into your Second Life IM account. They hope to expand their actual standalone virtual world later this year, preserving the ability to tie into pre-existing worlds like Second Life and Playstation Home.

If there is anyone out there who can't wait to get a mini avatar on their iPhone, buy it clothes and an apartment, and seek out other mini avatars to IM with, forgive my skepticism. But I think Sparkle has missed the boat by about a half decade. We'll see what happens. [TechCrunch]

Many observers are pessimistic about the economy because they believe a vicious downward cycle has taken hold, where less spending leads to fewer jobs, which reduces purchasing power, leading to even more job losses. Many just can't see how this vicious cycle will stop.

We are frequently asked, what is the "catalyst" for a recovery? What force (external or internal) will break the downward cycle of job losses? How does it ever end?

Taking this thought process to its conclusion clearly shows that something is missing. If job losses beget less spending and more job losses, then recessions would never end. On the other hand, if job gains beget more spending and more job gains, then expansions would never end.

A cursory look at history shows that this can't be true. Since 1854, the U.S. economy has gone through 32 business cycles (recessions and recoveries). In other words, the direction of economic activity eventually changed. Many times in these past cycles, the economy started to recover well before employment turned up. Take the last time consumption fell during a recession, in the early 1990s. In the four quarters after the end of the official recession, "real" (inflation-adjusted) consumption increased 2.9% even as payrolls continued to decline.

There are a number of reasons why this is true. The first reason is that the combined decisions we make as independent members of a free society tend to generate economic growth. When people lose their jobs, it does not mean they lose their ability to be productive. It may take time for them to find a new position that matches their skill set, but as long as they have worthwhile abilities, they will eventually get another chance to produce.

In the meantime, companies can use layoffs to increase efficiency, laying the groundwork for future increases in profits and wages for their remaining workers. What that means is that a 1% loss in jobs results in a smaller than 1% loss of production. And using assets more productively frees up resources to do "new" things. We have lost millions of farming jobs over the decades and centuries, but the nation as a whole is more prosperous as a result, not less.

In addition, if a recession is partly caused by over-investment in a particular sector, two forces drive down jobs in that sector, but one is temporary. For example, home building exceeded demand, and those extra jobs were unnecessary. Reducing inventories of homes will cause employment to fall even further. But once excess inventories are worked off, the industry will add jobs, even if it does not ramp up to the previous peak in production.