That's about where you can stop. You do know you can create gold using
a coat hanger and a glass tube, right? The problem is it takes a hell
of a lot of energy--it's actually less labor-intensive to mine gold.
No I didn't know that was possible... What you probably want to say
is that those resources, such as land, are really just savings from
previous labor. Clearly not all labor is equal.
Governments are also the product of labor; although that's not the
issue here. You're talking about markets, while I'm talking about the
actual capacity to produce things at a given price.
Governments are necessary to form stable markets. I you want to
produce and sell things, you are probably going to want stable
Consider cost and price as an exchange of labor, instead of an
exchange of money. If you make chairs by the labor of 10 workers each
working 1 hour for $10/hr, that's a $100 chair; if the labor of 10
workers each working 1 hour makes 2 chairs, that's a $50 chair. The
naive first-pass is that the $10/hr workers worked 10 hours to buy 1
chair before, and now work 5 hours to buy 1 chair.
I'm not disputing that wages and efficiencies effect the cost of
goods. I even agree that an economy should be a way to trade "labor".
If we maintain a 2% inflation (we do) and this reduction of labor
occurs over 10 years, then that $10 wage must go up. We want that $100
chair to be a $122 chair. With 5 hours of labor, that's $24.4/hr; and
still, you will work for 5 hours to buy that chair, whereas when it
was a $100 chair you had to work for 10 hours to purchase it.
Clearly you are trying to make some kind of point with your example,
but it's difficult to understand because you example is not based on
reality. Perhaps you could make your point first and then give an
We can do things to make the model imperfect--wage inequality, minimum
wages, taxes, business profits, artificial scarcity, and other market
behaviors. All of those things generally operate to a maximum extent:
people try to get the most wage they can, and businesses try to pay
the least; governments tax what they will tax; businesses take the
maximum profit they can get; and so on. In the long-term, you can
assume that businesses taking a 10% profit margin will lower their
prices 40% if they find a way to make things 40% more-cheaply, simply
because the market conditions don't allow them to take a high profit
margin; although previously-expensive goods which become quite-cheap
can suddenly allow competition on a greater scale, which can push
profit margins down on low-demand luxury goods.
That's the strange thing about the "science" of economics. These
kinds of details are actually the important details. While you can
come up with a simple model, it's not like physics where you can just
apply the ideas of the general model to solve new issues. In
economics, things fall apart.
Re creating jobs: the implication is that an economy didn't have jobs,
and you made jobs. The truth is an economy has the capacity to employ
some people (rather, to spend some money), and so that capacity will
be consumed. If there are 2,000 jobs to be made, Amazon can expand or
Apple can expand or Microcenter can expand or someone else can expand
or start a new business. A business does not create jobs in a vacuum;
an economy as a whole is capable of supporting a given number of jobs,
and businesses take advantage of the capacity to employ.
A business will hire someone if the feel they can make a profit off
that persons labor. That's probably a function of the economy but it
also depends on other things. (Unless you define the economy is some
overly broad way.)
> The net goods bought can go up as the higher salaries increase
> purchasing power. This includes having less unemployed people
No, that doesn't happen.
Higher salaries increase the spending and purchasing power for the
individual whose salary is higher. Salaries are paid out of revenues:
you sell to individuals who get wages. Prices are ultimately fixed to
wages based on the level of technical progress at the time, so wages
That means higher salaries for everyone just creates inflation, but no
additional purchasing power. Higher salaries for some subset of people
concentrates the limited amount of spendable income in the given frame
of time into fewer hands, meaning fewer jobs.
Higher salaries for some subset of people can be beneficial. For
example, increasing the minimum wage can boost consumption and
stimulate the economy. In many ways it's just a transfer of wealth
from the richer to the poorer. Fortunately, the poorer are better
consumers and they stimulate the economy creating need for more stuff
and maybe more jobs.
Businesses don't create money when they write a paycheck; they use
money taken from consumers. You can't account for the ability of a
complete population to buy by looking at one person and saying, "Oh,
he makes more, so he can buy more; that means the next guy can buy
more, because he created a job; and so forth!" You need to look back
and say, "Oh, he makes more, so the thing he produces by his job costs
more; the people buying the thing he produces are capable of
purchasing less, so something else must not be bought at as fast a
rate, and thus somebody else must make less income!"
I'm not sure what question you are answering. Are you trying to
define some type of zero sum game? If some guy has a monopoly on some
item and can sell it for a high price then yes, he will get a larger
share of the "production" pie.
It also doesn't analyze what happens with our current trade
imbalance. As money leaves the country, it must return otherwise the
value of the dollar would decrease and solve the trade imbalance.
Money is a proxy for labor. You're trading labor hours, not cash.
Yes, yes, I understand your claim, but you must afford me the same
courtesy you give yourself and allow me to use the term money to refer
to this labor.
I actually did a full analysis against imports for a few import
subclasses. If we pay American workers more than $18/hr to make Men
and Boys's Cotton Shorts and Trousers which are currently imported
from China, we experience a total net-loss of jobs. If we pay the
American workers less than $18/hr, we experience a net gain in
jobs. In either case--even when paying minimum wage--Americans at all
income levels have to work more hours to achieve enough income to buy
those pants, and are thus poorer.
I don't know what this means or how it is connected to reality.
> What evidence do you have for 5% unemployment?
Draw a line across the 5% axis. It's roughly-true.
Well, it has some significant deviations, and it's not a big chunk of
history, and also only for the US, but it would be interesting to see
why it's held in the US since about 1945 while it's failed in other
Basically, high unemployment rates increase poverty and create a
general sense of scarcity. We need more welfare, so we're poorer if we
try to feed people who need the aid. Even without that, we look around
and see the economic consequences of unemployment--people out in the
streets desperate for work or food, higher crime, the like. This sense
of scarcity tends to slow population and labor force growth; and
America has other controls such as immigration rate, early retirement,
and the length of time students stay in college (at the height of the
2008 recession, students were going to grad school because they didn't
believe jobs existed, and wanted to wait out the recession).
I agree that high unemployment is bad. As you would say, less labor
means less money.
Lower unemployment rates have the opposite effect. While extremely-low
UE3 causes economic problems on its own (below 2% will cause labor
scarcity and destabilize the economy), generally-lower rates lead to a
sense of security. Besides population growth, people work longer and
take later retirement (with a nice Social Security OASDI bonus);
students exit college faster; and immigration rate increases as a
tertiary control (although the argument that a large sector of
unskilled workers doesn't satisfy the immediate needs of IT businesses
is actually valid in that economic condition).
More labor means more money.
In general, this has trended toward 5%-ish in the United States for
like a hundred years. It trends toward 2% in Japan somehow; why 2% is
destructive to America and stable for Japan is an economic mystery I'd
like to see explained one day. I'm sure someone will probably just
make something up about workoholic culture.
It's easy to economically explain something from the past. I'm
waiting for a significant prediction of the future.
You've focused on the production of goods, but what about the
consumption. Workers are both cogs and consumers. It is possible
that technology can severely limit the need for workers
That's what technology is. It's the only thing technology is. We cut
the number of total workers needed for food production in half between
1948 and 1990. We created electrical and air tools so construction
workers wouldn't waste all day banging nails in with hammers. We made
the wooden shipping pallet so that the task of loading and unloading a
freight of canned foodstuffs wouldn't take three 16-hour days, but
rather only 4 hours.
I'm fine if you define technology this way.
The Industrial Revolution is an example of what happens when technical
progress occurs too rapidly. They had 60% unemployment and it took 80
years to recover.
Well there goes that 5% down the shitter.
The same amount of progress spread out over as little as a decade
would have been painful, but not catastrophic. Machines came in fast;
the Industrial Revolution actually happened late, with all of the
technology made and ready-to-go a good 20 years before everyone woke
up and decided to start actually implementing all of these advanced
manufactories. Today, we're more-agile and tend to spread things like
that because businesses have a wide breadth of choice over how much
risk to take, and some will move slow while others move fast.
So the invisible hand is more agile?
We have 3.5 million truckers and taxi drivers in America. If the DOT
immediately creates regulatory processes to enable self-driving cars
to operate, then these truckers and taxi drivers will lose their jobs
over the next 5-10 years as self-driving vehicles proliferate. Over as
little as 5 years, that's as little as 0.03% unemployment per month or
0.46% per year. Meanwhile Uber and freight get cheaper--and freight
accounts for around 50% of the cost of a lot of goods like food;
consumer purchasing power increases continuously over these 5 years,
and the fluctuation is easily buffed-out by every other economic
factor besides. The peak uptick in unemployment probably won't even
In your terms, if we can transfer their labor to something else, we
What if the DOT waits 10 years, and then passes regulations?
Self-driving cars and trucks are ready to go. The new law passes and,
in a month, 10% of every freight job is gone--a sudden uptick of 0.23%
unemployment in a month Six months down the line, we've bumped
unemployment up 2.3%. An increase in unemployment by 2% in half a year
is an economic disaster--it's a huge market crash. We declared the
largest recession in 60 years before we saw that much of an increase
(and it continued up to a full 10% unemployment rate).
You're right it would be better to slow things down so that we can
transfer the labor. Still there is no guarantee that this will always
be possible. In fact, the end game of technology is that humans will
not be needed. Technology is much faster than evolution.