Thursday, September 15, 2011

Setting Records in Output and Severe Poverty

Do you know that in America we are producing more than we ever have? GDP is higher than it has ever been. Production has recovered from the 2008 downturn. Manufacturing companies are enjoying record profits. US exports are at an all time high. We have record corporate profits.

The same is true of consumption. More things are being consumed than ever. Isn't that wonderful?

But there are more records being set. Severe poverty, defined as half the official poverty line, which amounts to $100/week is higher than it has been since data began being recorded (1975). The % in poverty, which is $200/week, is as high as it has been since 1993. Median income is down to 1996 levels. Income gains are ocurring. But only for the highest income earners.

Real GDP/capita is about twice what it was in 1975. How is it possible that we can as a country make twice as much and yet push even more people into severe poverty?

The problem is the way we allocate the goods we produce. We allocate largely by employment and naturally we think employment is desirable. But is it really?

Let me propose a hypothetical scenario. Let's just suppose that as a society we decided that we would discontinue growth in output. We would just say that the present GDP would be a maximum. Suppose we were concerned about depleting natural resources and we thought this would help. What would happen?

What would happen is employment would drop. Why? Because technological advancements are always permitting us to do more with less. Fewer people are required to produce the same output this year as compared to last year because we always get better at what we do. That ought to be a good thing. We should be happy to have more free time. But in our system this is not good. Why? Because we allocate based on employment. And we don't ask everyone to equally share the reduction in required work. What we do is we lay people off. So while some continue to work as before others have nothing. Those that continue to work get a larger allocation of the goods produced. Those that are laid off get nothing. Does this make sense?

What it really means is that in our society we absolutely must continuously increase our consumption. People that are laid off must find new areas to work in and provide an ever increasing amount of goods consumed. That's not always easy. You need consumption increases. Even though present consumption may be at record levels, the increase we've seen recently may not be enough to offset the gains in productivity we've enjoyed. So it may not be enough to employ more people.

Imagine a system that is so efficient, with robotics, solar power, and computer programming, that on average only 1 hour/week of work is required per person to sustain the system. That produces enough that it's possible for every American to enjoy a lifestyle typical of an upper middle class member of society. Sounds pretty good, right? In fact it's a nightmare. We'd have 95% unemployment. So these so called parasites that happen to not have jobs do nothing and are thus not entitled to any of the output according to some liberterian minded thinkers. Is that acceptable? A system that permits most to not even work, some work a tiny amount, is one that would probably lead to revolution. Rather than being a system that is enjoyed it is a system that would inevitably be destroyed. That's irrational.

Free market capitalism leads to production for exchange, not production for need. This leads to a society that could never be satisfied with what it has. And if increased production meant increasing consumption of our limited natural resources, those resources would be depleted, with catastrophic results. Increased leisure time is possible if production for need is considered. In that scenario productivity gains are embraced by all sectors of society. Today they are embraced by owners and those unlikely to lose jobs. It seems possible to do better than this. We are treating the earth like an infinite resource when it is not. We are leaving many people with next to nothing. We are in fact working more and more. It has to change. It is really not sustainable.


Chad said...

It is a bit scary that your not recognizing that the Liberal/Progressive movement has created this.

Starting with the Left and aided by those on the Right that lost their conservative roots over a hundred plus years have successfully created an entitlement society - congrats. You have successfully created an untrained, uncontrolled and undisciplined class of people who have next to nothing to offer society and are putting the burden to take care of these people on the backs of earners. That is what this is all about - demonize all of us that have decided to put in the necessary work to be successful and who are not willing to part with what we have earned to advance a movement that we do not believe in.

Thankfully the worm is turning - NY 9 and Nevada tell the story - the Progressive movement is going to take a huge hit next year and beyond.

The only hope for the Liberals is Mitt Romney - they need him to be the President just to advance the Progressive movement at all for the next 8 years, but we are going to fight like hell to make sure that doesn't happen.

Jon said...

Explain this one to me, Chad. Entitlements have created a society that funnels more and more of production into the pockets of the rich? Entitlements are what cause us to have a society that must necessarily consume more and more? How have entitlements done this?

HispanicPundit said...

Bet you are wondering why I havent responded?

I've made a new resolution to leave your "fundamental economic" type posts alone. They are usually so filled with economic misunderstandings that it takes us a while to get through it all (time is of a premium), and worst of all, we hardly ever come to a resolution. I end up saying things that offend you. You end up, probably as a result, standing your ground more - and defending your "economics" - even when I show you Krugman disagrees.

You walk away thinking I am an asshole and I walk away thinking you are ignorant. Not healthy.

So expect less interaction with me on these posts. Chad can carry the weight...