Our “problem” is that we can produce a sufficient quantity of goods and services without employing the services of all willing workers.That is the 'paradox of productivity' and is a central question to policy. Because if there is intrinsically insufficient demand in an economy then the private sector can never reach maximum output on its own. Even with a simple model the equilibrium falls short of maximum output.
If we do have a 'paradox of productivity' then there must be an active government sector keeping demand up so that the private sector will perform at maximum output. The public sector has to at least pay for some jobs. There is no choice in the matter.
Posts
8 comments:
I saw that argument in John's article.
A similar formulation by Ben Strubel recently:
Due to productivity gains, the private sector is able to produce enough goods and services for society without employing all available workers.
I find this argument utterly confusing.
Society can now produce a "sufficient quantity"? There is no demand for more stuff or services? So, in nations with non-growing populations, we can look forward to declining employment figures from now on, due to this "peak demand" and ever growing productivity? Did we incidentally reach this magical limit now, in 2011?
This obviously sounds weird -- am I misunderstanding things? What?
You wrote: Even with a simple model the equilibrium falls short of maximum output.
I'd be interested in seeing this. Do you incorporate a "society-now-produces-enough"-effect in the model?
I do agree that the private sector is unlikely to reach maximum output on its own -- but for other reasons. I tried to outline it earlier today in an overly long comment on NEP: http://neweconomicperspectives.blogspot.com/2011/10/mmp-blog-19-effects-of-sovereign.html#comment-330831631
(Sorry.. A clickable link to the comment over at NEP I was referring to)
Yep,
If you accept the argument that we can produce enough stuff without employing everybody then the private sector on its own will not produce enough stuff for everybody.
That's the paradox of productivity.
And the counter argument is as you point out that desires and demands are infinite. But there's no evidence for that either - because there are so many unemployed.
The argument is visualised in John's video here:
Aggregates often mask what is going on at the housed and firm (individual) level. The macro v. micro problem of productivity involves the disproportional relationship of productivity and standard of living.
Individuals are often more productive but their standard of living does not reflecting this proportionately. Consequently, the middle class is not keeping up and shrinking at the margin.
On the other hand, many at the top are being reward with a standard of living disproportionately high wrt to actual productivity, i.e., productive contribution independently of rent. The distortion is particularly evident when comparing the uppermost and lowest quintile.
A minimum wage JG doesn't really address this disparity. The point of increasing productivity is increased eed to expend work hours and therefore more leisure opportunity. That is being distributed disproportionally to the top given actual productive contribution. Moreover, the bottom quintile is being excluded culturally from participating in the economic system other than as serfs, while the middle is in debt peonage.
Thanks, I get it. I had a problem with "enough stuff" -- how do you define "enough stuff for society"?
Spelling out a suggested definition: It is the amount of stuff that would have been sold if everybody was fully employed.
I suspect the "paradox of productivity" describes sort of the same phenomenon as the "paradox of thrift", only expressed differently.
You wrote: If [...] we can produce enough stuff without employing everybody then the private sector on its own will not produce enough stuff for everybody.
An alternative formulation:
If we can potentially produce *more* than "enough stuff", then full employment will not be reached, and the private sector on its own will not produce enough stuff for everybody.
There is a small difference in formulations there, but the statements should be pretty much equivalent.
And from there we can clearly go to:
If the economy, when at full employment, produces *more* than what is "enough stuff for society" -- i.e more than what can be purchased using the aggregate full employment income -- then the private sector will not employ everybody. (And the unemployed will not be able to purchase stuff, so the private sector will not produce stuff for them).
And is this not starting to sound much like the problem of "desired net saving", i.e the paradox of thrift etc?
"A minimum wage JG doesn't really address this disparity."
Agreed.
1. the minimum wage should be tied to metro area housing costs anyway. I'm a big fan of the universal living wage which makes cities choose between a high minimum wage or a high zoning tax.
http://universallivingwage.org/ulwformula.htm
2. Long term, there's really no peaceful alternative to redistributing income via a basic income system. Marshall Brain's Robotic Freedom piece does an excellent job explaining why.
http://marshallbrain.com/robotic-freedom.htm
To unpack what I meant by "zoning tax"
if affordable housing is the goal, they say, zoning reform is the place to start... "reducing the implied zoning tax on new construction could well have a massive impact on housing prices.”
http://news.heartland.org/newspaper-article/2002/11/01/land-use-regulation-makes-housing-less-affordable-harvard-study-finds
The idea that we are already producing a “sufficient quantity of goods” is true in a sense that was put by Jesus, Buddha, etc two thousand and more years ago. That is, they advocated a simpler life style.
The idea is not true in a sense which economists often refer to (and which someone alluded to above), namely that mankind’s needs and greed are infinite. Assuming we adopt the latter sense, there is no need for the state to step in and produce stuff because the private sector does not demand enough goods and services. That is, put money into people’s pockets, and they’ll demand a VAST range of goods and services which they think they have an inadequate supply of at the moment. That is, they’ll get themselves better houses, cars, holidays, education, etc etc etc.
Post a Comment