First, when did Say's Law ever function as a workable model? When people produced much of what they needed locally, the fixed scarcity of time use was still largely tied to local resources and commodities. However this had already changed before the 20th century. Even so, we all have the same amount of time at our disposal for production and consumption, and Say's Law was once a natural outcome of that fact. Only with the onset of technology and specific skill set designations, did that dynamic begin to shift. Whatever anyone felt about the transition, random resource scarcities which were unrelated to time, were expected to somehow make up for those who inexplicably had "no job to do". Only one problem, there remained no easily understood monetary link between those who still had economic access, and those who did not.
A simple microeconomic interpretation applies, in that most individuals held definable (producer) responsibilities in their environments except the very young and old. Some individuals were less free than others re choice of responsibility, but survival itself must have been a bit less confusing, just the same. Today, confusion as to survival for the marginalized, continues to confound everyone. That's why the Say's Law concept - failed or no - remains vitally important. After all, initial distortions in production and consumption at local levels only spread further with the passage of time, hence the issue is also important at a macroeconomic level.
In macroeconomic terms, the use of money keeps Say's Law from being possible in a strict sense. Plus, there is good reason for this. By necessity, money represents both the fixed scarcity of time use, as well as the random scarcity realm which may or may not be accurately considered, in accordance with time use (nominal targeting). What's more, fixed and random resource scarcities can have different growth trajectories, depending on the ways in which they intersect.
As a blogger, I believe it is necessary for Say's Law to apply for product flows in general, which I'll also try to explain in this post . Not only is nominal targeting capable of creating better equilibrium between different scarcity formations, but services between individuals can also be recreated at a microeconomic level with monetary representation. I did not appreciate Paul Krugman speaking of Say's Law as primitive, in a post earlier this year. This only shows a lack of consideration on Krugman's part, that random scarcities cannot be all things to all people, at all points in time.
One example of the present lack of balance in equilibrium flows, are increasing calls on the part of developed nations to create greater export capacity and step up manufacturing at home. Germany in particular is held up as a "good" example. So what's that all about? For decades, developed nations, in particular the U.S., were perfectly happy exporting skills sets, knowledge and technology to the rest of the world. What's more, doing so led to tremendous increases in global wealth.
Even if it were possible to bring back former manufacturing with vast economies of scale glory, that's not really the world anyone wants to return to. Who would fill their homes with manufactured goods now? What people miss is the capacity that former manufacturing once held for services generation. When manufacture left our shores, consumer as "economic savior" took its place. Both upper and lower incomes were expected to buy into the building construction wealth to services model, which demands a higher portion of disposable income than thirty years earlier. By no means did this process happen overnight - indeed it was like a pot coming to a slow boil - present day "bubbles" and all. What's more, managing the bubbles is a fools errand: services and employment are pounded every time "dangerous growth" is forced back.
While some high ranking citizens have questioned this outdated strategy for wealth creation in recent years, both government and private industry have been quite reluctant to let it go, because of the wealth and power it has extended to the entire group. With the relative decrease in manufacture, personal consumption took its place as the driver of services. One could say the consumption "product" was funding the services "product", a sort of Say's Law norm writ large - at least until the Great Recession.
For many, it's still too easy to think that money negates the need for any production flow balance. Certainly at a micro level there's truth to that for random scarcities. But the problem comes in monetary flows around the world, as the random scarcities of resources and commodities work at cross purposes with the fixed scarcities of human time. Even though people no longer needed physical product in a Say's Law sense, the need for their fixed scarcity time in equal measure, never stopped.
Why was it hard to see that the fixed scarcity of individual time for survival had become threatened? There remains a belief that random scarcities can somehow tend to all the necessities of life for everyone, even in recessionary times. Indeed, central banks remain inclined to look first to government budgets and finance considerations, before they consider actual spending capacity which is inextricably linked to the fixed scarcity of time use. This rationale of random scarcity wealth lies behind the confusion as to why we can't somehow feed a starving world with "excess" agriculture, for instance. Just as important, a lack of understanding re fixed scarcities means that nominal targets do not receive adequate attention in recessionary times.
It was the apparent wealth and plentitude of so many random scarcities, which encouraged local economies to build lifestyle expectations beyond the actual capacities of their residents. All too often it appeared that more would be able to benefit from the abundance than was actually possible. The same misguided directive applied to real estate valuations, pension expectations, and the local retailer who would get swamped with requests for community donations in the space of any given month. Small wonder that many resorted to hoarding money, so as to meet the unknowable service load one would inevitably face in old age, due to the healthcare structure which was the primary imbalance in the equilibrium itself.
How does one approach the broken link between fixed and random scarcities which underlies this problem? Two conditions need to be met to create a more sustainable balance: Greater economic access in terms of physical product production, and in services production as well. Nominal targeting can especially assist the first condition, alongside innovation and regulatory reform. As for the second condition (services production), skills arbitrage can be utilized for a reformulation of Say's Laws in services at local levels.
The object for any society is not equalization of income, but to simply make certain that the monetary link between all citizens is not broken, so that the basics of life are always within reach. Monetary compensation for time arbitrage could provide the nominal connection between fixed and random scarcities. Allowing people to find and create their own supply and demand for services is neither irresponsible, nor an impossible luxury. Given the chance to choose between the vast proposals of the individual versus limited offerings as reduced by power struggles, most would take diversity of choice - if indeed they had the chance.
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