[ExI] economic parableRe: Sudden outbreak of democracy baffles US pundits

Emlyn emlynoregan at gmail.com
Wed Oct 8 00:34:22 UTC 2008

2008/10/8 gts <gts_2000 at yahoo.com>:
>> The wealth that the U.S. recently lost never really existed to begin with
>> except in people's minds. Suppose that there is an economy composed of
>> three people
>> Alice, Bob, and Carrol. Alice has the only dollar in the
>> economy. Fiscal year 1 passes and Alice being the only one
>> with any wealth clutches it tightly. At the end of year 1,
>> the GDP of this economy is $1.00 and per capita GDP is
>> $0.33.
>> Now in year 2, Alice pays Bob the dollar to fix her
>> toaster. Bob then pays Carrol the dollar for a cup of
>> coffee. And Carrol pays Alice the dollar for a deep tissue
>> massage. At the end of year 2, Alice is still the wealthiest
>> of the three but the GDP of the their economy is now $3.00,
>> their per capita GDP is $1.00, and there was still ever only
>> one dollar in the economy.
>> What happened?
> What happened? Well...
> 1) Alice got a fixed toaster,
> 2) Bob got a cup of coffee, and
> 3) Carroll got a deep tissue massage.
> These events did not happen only "in people's minds". They really happened, and they made people's lives better.
> It was a good year for Alice, Bob and Carroll, just as your economic statistics suggest.
> -gts

Not quite.

1) Alice got her toaster fixed, and gave a deep tissue massage
2) Bob got a cup of coffee but had to fix a toaster
3) Carroll got a deep tissue massage but had to make a cup of coffee

So what does that gdp measure? Nothing absolute, just that there is
activity. In fact, just that there is dollar measurable activity.

Before they were trading the dollar around for these things, what were
they doing? My bet is that they were still doing these things, just
without involving the dollar. Involving that dollar isn't generating
anything. It may very well be skewing Alice, Bob and Carroll's
activity, however.

Similarly, I've wondered if the growth of the "service economy" in
recent years hasn't actually been growth at all. As it has grown, and
more of us are working more hours for dollars, we have simultaneously
been bemoaning the death of volunteerism, which is really an aspect of
the sharing economy. Is it actually a gain when someone decides to
stop volunteering at the local school canteen, or looking after their
sick grandma, in favour of a job at Starbucks?

On a large part of the rest of the service economy, how much of what
is done is actually useful? When Carroll makes you a coffee and you
pay for it, is that really a productive use of Carroll's time? Or, is
it that we have great swathes of people displaced out of
manufacturing, agriculture, what have you, who now are taking part in
a giant make work program, generated out of the creative workers
having enough money to pay other people to do things for them that
they could do themselves and don't really need anyway, and those other
people having no alternative? Comparative Advantage would say this is
fine, but it begs the question at some point, do the activities
undertaken by the less competitive parties need doing at all? Or are
they just materializing out of thin air because the system needs
everyone to be doing something?

I posit that the service economy is actually hiding the fact that the
majority of people in the west are now unemployable in any productive
sense. That the economy is structured such that we can still consume
massive amounts of products, while contributing nothing of substance,
is probably what underlies the current financial crisis, and implies
deep sustained crisis.


http://emlynoregan.com - my home
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http://speakingoffreedom.blogspot.com - video link feed of great talks
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