Saturday, March 14, 2015

Knowledge Use: Supply Creates Its Own Demand

How might one think about knowledge use in terms of supply and Say's Law? Say's Law has been ridiculed at least since the mid 20th century, for understandable if unfortunate reasons. Those of us who believe Say's Law is important, haven't really had adequate means to defend our position, either. For one thing, employment gains which include more substantial knowledge use are possible. The problem? The organizational capacity which would bring these gains within reach, has to occur on more inclusive, decentralized, and yes - equal terms. That's difficult for many to even imagine, particularly in a time when knowledge use has divided and polarized populations.

Nick Rowe explores some aspects of employment potential (after productivity improvements) in a recent post. Something that's often missed in these discussions: many representative groups would lose their own competitive supply side "edge", should full employment be sought in general equilibrium. As a result - instead of imagining full meaningful employment - some would rather reimburse people either for not working at all, or through a marginal position which "threatens" no one. After all, what happens if everyone gets to use knowledge? While automation continues to "eat away" at traditional production, the resulting leisure time appears as though a nebulous given - even though "leisure" for some is akin to torture, for others.

Perhaps this is why some with strong knowledge use affiliation, argue against Say's Law. Why would they want to consider how full employment might actually be possible? And yet, participants of knowledge based endeavor may not always be fully cognizant that they are also part of the supply side - particularly in terms of what is sometimes referred to as effective demand. Might awareness of said effective demand (due to restricted supply) lead to a desire for hard caps on monetary activity? If so, there may be little difference between some progressives and internet Austrians, in the monetary terms of the present. Examples in this regard include conservative physicians who might vote Republican, as well as progressive educators who tend to vote Democrat.

Regarding Nick's (above linked) post: if output gains from production lead to less employment...what then? Until recently, if less employment was needed in order to make things, populations could compensate by expanding employment in knowledge based areas which would augment and assist traditional production - even if only obliquely. Now, this strategy need to be rethought. What happens to knowledge use, if it cannot actively assist traditional production? Does it decline? After all, if employment declines, so too does knowledge use. How does one know a decline would not lead to a precipitous spiral?

One of the main problems in this regard is with time use value. Services decentralization is needed, in order to internalize and capture personal time value which otherwise gets lost in the shuffle. While exclusive knowledge holdings work for both pragmatic and signaling purposes, they force knowledge to adhere to highly specific functions which may not extend to interdisciplinary interpretation. Worse, the subjective value of knowledge which applies to special time and circumstance, is either minimized or discarded. Also lost in all this - a considerable amount of intellectual and personal capacity. Ultimately - without a full marketplace for knowledge use, traditional production gains eventually mean less employment as a whole. As Nick Rowe noted:
The debate has moved on. But we sometimes need to remind ourselves that money is at the root of questions like these. It is a fallacy to assume that a doubling of productivity will automatically cause a 50% decline in unemployment. It depends. It is a fallacy to assume that a doubling of productivity will automatically cause a doubling of the demand for goods. It depends. It depends on preferences, and it depends on money.
I would add that much also depends on a broader societal understanding, as to what is at stake. In other words: knowledge use strategies of the 20th century are in serious need of reconstruction, if the present day economy is to be maintained. Even though monetary policy cannot provide solutions for full employment, it still holds a vital connection with the supply side solutions which populations need to generate on their own.

Artificial knowledge use scarcity is problematic on multiple levels. Special status for knowledge use not only represents wealth capture - it does so in ways which could possibly reverse centuries of progress. This is why it is so important to make knowledge use more egalitarian, before too much present day wealth is undermined. While some knowledge access will always remain exclusive, the survival of universities is already being threatened. This is an important clue which no one can safely ignore: the sooner that knowledge use is approached differently - the better.

Much of traditional production has gradually been moving towards less hierarchical structures, and knowledge use needs to take a similar approach. Today, services are secondary production structures with limited employment capacity. They are also hierarchical in nature, and mostly reimburse centralized knowledge use at administrative levels.

Those who want full employment which includes knowledge use at all levels, need organization which can bring the process to fruition. Closely held knowledge is a revealed preference, in the same manner as any other form of protected employment status. Now, this protected status leaves society hanging in the balance, in terms of economic participation. Demand need not remain limited. But before demand can be freed, supply has to be freed, as well.

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