DEMAND FOR GOODS

By Karl Arnold Belser
07 August 2013




I read an article, Post-Scarcity Economics by Tom Streithorst, that argues against austerity. The author rightly observes (in my opinion) that the world is experiencing deflation because of lack of demand. The cost of production has gone down and it takes fewer workers to produce the goods. There is a high unemployment rate, and people in general just do not have the money to spend even though things are cheap.

What's wrong with this? Maybe nothing. The US needs to cut imports to reduce the balance of trade deficit. The government is borrowing money to allow large transfer payments so that people do not starve and have a place to live. The US needs to come back into equilibrium and live within its means.

Again, what’s wrong with this? What’s wrong is that borrowing money to support the population is not a steady state solution. At some point the borrowing must stop. The fed will have to reduce its quantitative easing (buying debt to keep interest rates low). When interest rates rise the government will have to back off on its borrowing and hence its transfer payments. This will put pressure on the unemployed to earn money somehow. If this process happens slowly the change will be a good thing because people will have to adjust to a lower standard of living – a steady state standard of living. Economics tells us that we can’t spend more than we make. So our standard of living must go down.

Where will the jobs come from? If robots do most low level tasks including harvesting crops in the field, then there will be little need for uneducated labor. In addition the government could more easily control the means of production because of the robotic automation. Hence a workers strike would produce no meaningful result. This may be the trend for the private sector that provides goods and services.

The author argues that the government should make people work in order to get their transfer payments. He says that the  infrastructure should be improved. But will the improved infrastructure make the nation as a whole more productive? That is questionable, and if it doesn't the spending is equivalent to a brute force transfer payment. I think it is doubtful that productive, bread-winner jobs will be created in the private sector that can compete with the extensive, large scale automation that is being developed. See The Wastefulness of Automation for a discussion of this problem.

The public sector (in conjunction with the leaders of industry) is in a different situation. Someone needs to control the distribution of wealth to the ordinary people and to control the robots that do the production. They are essentially the elite, and a strike here would cause pain.

I see this dichotomy between public and private sectors as being dangerous. Why does anyone need all these non-working and non-contributing people in the private sector? Does the world really need a large population to support a high standard of living for most people? The more the non-contributing burden increases, the more likely it might become that society cannot afford to support them. This suggests that the world might have to evolve to have a smaller steady state population than what we have today.
 
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