Can an increase in productivity destroy an economy?

[snousle]

I'm not an economist, nor do I play one on TV, but I do have a concept that's been rolling around in my head that must surely have some more formal theory associated with it.

Imagine a simple model economy that has only one product, which we can call "saltines". There is a baseline need for saltines, and if you don't get enough, you die. There is also an upper bound to the need for saltines, and nobody is willing to put effort into getting more than that maximum amount.

If production per worker can't keep up with the baseline production of saltines, everybody dies, for reasons that should be obvious - under no circumstances can the population sustain itself.

If production per worker is somewhere between baseline and maximum, everyone is working because everyone wants more saltines than are being produced. This is the "sweet spot" where the free market works as intended; there's always more demand, so the factory owner always has an incentive to hire an unemployed worker until full employment is achieved.

But imagine a process improvement that puts saltine production per worker above the maximum demand. The saltine factory finds it has some idle workers, who are laid off. Because they can't buy saltines anymore, they die, and demand falls a little... so more workers are laid off. And so on. Because of an increase in productivity, the economy descends into a death spiral where the demand for saltines collapses entirely, and everyone dies.

I haven't totally clarified the model in my head, and it's obviously not realistic unto itself - but does this death-spiral mechanism have any relevance to the real world? Could it be a cause, or even THE cause, of increasing economic inequality in today's economy? Can higher productivity per worker lead to not just inequality, but lower total production as workers are kicked out of the economic system entirely? Would the world be a better place if we had lower productivity, less wealth, and a greater emphasis on human input than on labor-saving machines?

The reason I ask is that we are facing a future of super-automation where the labor of just one person could potentially satisfy the needs of hundreds or thousands. The saltine model is ridiculous, but an economy driven by extreme automation is possibly even stranger than that. The very premises of free market economics - that labor has value, that money provides motivation, and that prices can set themselves - might become wholly invalid. What is everyone supposed to do then?

This is basically a Luddite argument, and I spend a lot of time wondering if they weren't right all along.

Comments

[pink-halen.livejournal.com]

Wheat Farmers are already experiencing that to some degree. The ASCS was created to artificially cut the production to maintain a lifestyle for producers while preventing oversupply. Supply and Demand was circumvented but workers were still laid off or producers went out of business.

Compounding the problem for wheat farmers is the improved varieties of grain that yields more from the same acreage. Combine that with better equipment and better farming practices and you get over production and even fewer producers.

Add to this the idea the transportation costs are skyrocketing. It becomes so expensive to ship the product to those who need it that it effectively reduces the demand and kills off the end users.

With the end of oil there may be mass famine because here in the US well be overrun with Saltines and can't get them to the rest of the world.

We will have to find a different model for payment and distribution. There will be great wars over food and water. The future is a scary place.

[snousle.livejournal.com]

IMHO commodity transportation is never going to be a problem. Worst case is that ships and trains have to run off of coal based synfuels at $12/gal or so. The whole "food miles" thing and concern about food transportation in general is not supported by cost data; multimodal rail/ship transport is efficient and dirt cheap. By far the most expensive leg is between the grocery store and the home.

[chefxh.livejournal.com]

à propos de rien, the saltine was invented in St. Joseph, Missouri by a man whose historic grand mansion has fallen so into ruin that the city is about to knock it down: 914 Main, the Cracker House.

[snousle.livejournal.com]

SEE??? MY ECONOMIC THEORY PREDICTED THAT!!!

[fogbear.livejournal.com]

That certainly aligns with my naive (ok, naïve - for danthered) conception.

[danthered.livejournal.com]

I sëe whatchya did there…

[kevynjacobs.livejournal.com]

Resource-based economics. That's my answer.

[snousle.livejournal.com]

??? This term doesn't seem to be in widespread use.

[kevynjacobs.livejournal.com]

Seriously? It's the hot new topic in economics. Star Trek operated on a Resource-based economy.

http://www.youtube.com/watch?v=4mkRFCtl2MI

[snousle.livejournal.com]

It is not a hot new topic in economics. AFAIK, economists have largely ignored this. They do, however, sometimes discuss the results of efforts to create alternative economic systems, mostly to point out that getting rid of money just transforms old problems into new ones.

The author of that video comes across like the socialist calculation debate never happened.

But sure, let's radically restructure the economy with an entirely untested approach that depends on collective will. What could possibly go wrong?

[kevynjacobs.livejournal.com]

I'm not wedded to the idea of no money. My point is that the saltine model you describe above is a post-scarcity scenario.

As far as the socialist calculation debate, I've never heard of it before. But it seems to presume that labour and goods always have some sort of monetary value. In the saltine example, the value of labour is reduced to practically nothing. When one person can do the job of millions, labour is no longer a viable commodity.

In the world of Star Trek, where you can instantly replicate any physical thing you need -- food, clothing, tools, medicine, entertainment, -- then objects are no longer commodities. If you don't have to work to live, you have time to devote to other pursuits. Utopian, I know, but that science fiction world is getting closer and closer. We already have matter printers and nanotech. That is another example of a post-scarcity economy.

In our lifetimes, we've already watched one commodity collapse in value in a post-scarcity world. Look at what the computer and the Internet did to the music Industry, the newspaper industry, the movie industry. Information used to be scarce, producers could physically control the distribution of their product. When everything went digital, copying information became cheap. Information became cheap. And because of our propensity as social monkeys to share with our band of fellow primates, information has a tendency to spread. RIP "Intellectual Property."
(Don't get me wrong, most information is cheap, unless I need it, then it has value. Until it gets on facebook.)

All three examples are of a post-scarcity world.

What could go wrong? EVERYTHING. But the system isn't working for everyone. So something's already gone wrong.

I have a suspicion that this is the direction human economics will have to take as technology continues to cause the old economic models to lose their utility.

[fingertrouble.livejournal.com]

Oh that's basically a link to Zeitgeist Movement...I watched their recent movie, then studied around it. Some rather big holes in the idea of living in a hub and the machines doing all the work.

It's all very Logan's Run.

Former conspiracy theorists go all economist? Hmm.

Very similar to other films that sound very plausible but are rather flexible with their arguments when it comes to hard facts - cf. Adam Curtis's documentaries...they smell like propaganda in their techniques, almost like Scientologist videos.

[kevynjacobs.livejournal.com]

Yeah, it's Zeitgeist, but the idea of a resource-based economy predates the Zeitgeist movement. (I have some problems with the Zeitgeist movement myself. But it was a convenient way to introduce the concept to Tony.)

I think there is some fundamental truths here, rules set by the physical world, that modern economics is blind to.

I encourage cold-hearted, scientific scrutiny to be shined in this area. The first step in finding a better economic system is to look at the alternatives.

[fingertrouble.livejournal.com]

Problem is that's kind of expecting the shark to police it's own intake of nice crunchy super sweet surfers...it aint going to happen, those economists know where their money stream comes from and just like in Pavlov's dogs they aren't going to stop pushing that bell.

No I think it's going to come from the people and then politicians...who then pressure the economists and their money streams to actually do something different. Or indeed - try things without waiting for their agreement ala Great Leap Forward.

I think the latter is more likely since bankers and economists have shown they actually have little control or real knowledge of the system, they are more like game keepers in Safari reserves trying to keep the animals in, really.

[kevynjacobs.livejournal.com]

Totally agree on the intractability of those currently in power, and that real societal change comes when the people demand it... and the old way becomes obsolete.

Heh. Nice simile. All the animals in the safari reserve are armed too!

[fingertrouble.livejournal.com]

But alternative systems are worth looking at; barter or Anarcho-syndicalist ideas, something other than money tokens, something closer to resources keyed into need rather than greed. How is more complicated.

Also the greens have a real contradiction with some of those ideals though - never worked out why they get involved with Occupy and anti/bad capitalist stuffs because at some point they're going to have to roll out how everyone can't be all they want to be (contrary to Star Trek ideals) cos it'll cost the earth.

[kevynjacobs.livejournal.com]

Frankly, I expect a Malthusian die off. That's how everyone will learn they can't be everything they want to be.

[fingertrouble.livejournal.com]

Rather a hard way to learn...but yeah. Either that or the zombies :-)

I do think population can go a lot higher than people think though....there's actually loads of space. Just might not be a nicer world to be in, so crowded...

[kevynjacobs.livejournal.com]

Yes, we homo sapiens are very headstrong monkeys. Sometimes hard lessons are the only thing that gets through. We'll find out we can bend the laws of nature, but that doesn't mean we can break them. We are still a population of monkeys on this little blue animal reserve we call Earth, and if we don't control our population, nature will do it for us. Hopefully, we won't exterminate our species in the process of learning this truth about ourselves.

Ned Lud had his moments

[arkanjil.livejournal.com]

Only the darkest of my dismal economist feeds will discuss this openly, but it pops up every now and then like a fever dream, especially when people start looking hard at past & current employment stat trends and ask just where the needed jobs might come from. I bookmarked this choice piece a while ago, and I've been wondering what to do with it ever since:
http://dyske.com/paper/945

It also haunts certain social theorists I encounter doing future projections too, usually along the lines of this may be the hugest issue of all but we don't know how to quantify it so we are not including it in our models for the purpose of this exercise. Salon had a recent article I no long have about how the Creative Class is a Myth- tie it with the 19% decline in new college grad earning power out of the gate for the last decade, and you start capturing glimpses of something really special... but huffing paint will do that too, je?

Depending on how you care to look at it, pretty much all of global outsourcing is an exercise in efficiency, if done honestly; resource utilization based upon technical advances that allow oh so many nifty tricks. The Occupy folks talk about rolling back corporate greed, but what if the greed didn't change, only the tools by which they could exercise their desires? For some time now, William Gibson says it every year in his WELL conference: the Internet will grind literally everything down to fine sand...

Re: Ned Lud had his moments

[snousle.livejournal.com]

Interesting article, very much along the lines of what I was talking about.

what if the greed didn't change, only the tools by which they could exercise their desires

Well, yes, exactly. Which is why I dismiss pretty much all revolutionary ideas out of hand these days.

We need the governments from around the world to intervene in the global economy and make things more inefficient.

Not a totally crazy idea but the chance of obtaining that kind of cooperation seems rather low.

Re: Ned Lud had his moments

[kevynjacobs.livejournal.com]

>"what if the greed didn't change, only the tools by which they could exercise their desires"

>>"Well, yes, exactly. Which is why I dismiss pretty much all revolutionary ideas out of hand these days."

So you don't believe new tools are possible? That doesn't seem very... homo sapiens.

[furr-a-bruin.livejournal.com]

One thing that intensifies the effect you describe is when the rising efficiency doesn't result in a lower price for the saltines; if the prices fell, it seems to me that would partially mitigate the decline. If the owner of the factory is greedy and simply hoards the additional profit, that accelerates the collapse.

Star Trek: The Next Generation posited the idea of an economy of abundance thanks to the replicator, but (perhaps understandably) never really went into how that actually worked.

Funny you should mention that...

[kevynjacobs.livejournal.com]

I was just thinking back to when TNG was on the air, and was dating an artist. We were discussing the value of one of his one-of -a-kind sculptures.

I pondered, what would happen if I put his sculpture into one of Star Trek's replicators? Or, what if I decided to make an exact replica of the Mona Lisa, right down down to the molecule? Would the original lose value?

If everyone could have an exact copy of the Mona Lisa, would the template matter any more? I suppose the original would have value in the very fact that it was the original, but if it was a perfect copy, then even experts would have difficulty telling the original from the copy.

Needless to say, my artist boyfriend did not like that line of thinking one bit!

Re: Funny you should mention that...

[furr-a-bruin.livejournal.com]

The thing I always wondered about was - OK, most of the basic commodities of life - food, drink, clothes - come out of the replicators for free somehow. But how do larger things get dealt with - like living space? There's always going to be places that are more desirable to live, generally speaking - how does it get worked out who gets to live where?

Re: Funny you should mention that...

[kevynjacobs.livejournal.com]

Well to live on the Enterprise, you gotta be in Starfleet. ;-)

[fingertrouble.livejournal.com]

If replication was a truly 'free' process (ie used water or air or something) would it only work.

If like the 3D fabricators it needs expensive polymer then you still have the age old problem of supply and demand. Which given the way chemistry, physics work, I suspect you'd need some source material of some sort, unless they perfect fusion.

[furr-a-bruin.livejournal.com]

The idea of the TNG-era replicator is that there is a "matter bank" that is refilled when replicator systems are used to dispose of something (e.g., when in some episodes you'd see someone putting remnants of a meal back into the replicator for recycling). The only ongoing "cost" for a Trek-style, transporter based replicator system is energy.

[growler-south.livejournal.com]

The saltine effect is what makes me sad for the future. I always hoped for a utopian future, in which machines did all the work and humans got to live a life of leisure, but that is entirely dependant on a socialist society in which increases in efficiency are used for the good of all, not to increase individual wealth. The saltine effect can only happen in a capitalist society in which workers displaced by production efficiencies were allowed to die. the moment you throw taxation and social welfare into the equation things become a lot more complicated- to me the trick is finding the balance point at which taxation is high enough to fund welfare, but low enough to make being a producer worth it for people who value income over leisure.

[fingertrouble.livejournal.com]

'a concept that's been rolling around in my head that must surely have some more formal theory associated with it.'

Marx's Theory of Production, for one.

https://secure.wikimedia.org/wikipedia/en/wiki/Mode_of_production
https://secure.wikimedia.org/wikipedia/en/wiki/Capitalist_mode_of_production

I haven't studied Marx, but I'm pretty sure something like your observations are in there somewhere. Certainly I know he talked about Luddites and Chartists and previous political strife caused by the Industrial Revolution.

[barbarian-rat.livejournal.com]

RE: Luddites - there needs to be a balance of labor saving devices and employment, otherwise we get mass unemployment. The labor saving devices are not in themselves bad, it is how they are used, and to what extent.

While individual people can change, from good to bad, or bad to good for instance. Humanity does not change. It will always contain the whole range of human emotions from giving of ones self to greed.... That is the problem any utopian society will have to face.