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

[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.