Productivity gains are always touted as a good thing, and they are to the extent that they free up labor for other productive endeavors.  However, as productivity increases to the point where very little labor is required to produce vast amounts, we run into the problem of 'useless population'.  This, in my opinion, is one of the main reasons we find ourselves in our current economic situation.  This is also a situation for which libertarianism has no good solution, which, even as a libertarian, I'm willing to acknowledge.

Let's take an extreme example:  Consider a population with one need/want -- food.  If we maximize productivity, we have robotic farms which can feed millions with a handful of human workers.  This sounds wonderful, except that most of those millions have no way to earn a living, as their labor is completely redundant.  So one of three things must happen: (1) Those people farm for themselves so that they can survive, (2) We accept a socialistic society so that the productivity of the farms is distributed evenly, or (3) We borrow so that the 'useless population' can purchase food in the hope that they'll eventually become productive.

In situation (1) above, we devolve back to a much less productive society, which seems to be a very silly thing to do.  In situation (2), most people are getting a free ride on the back of those that actually produce, which hardly seems fair.  Finally, in situation (3), we start off with the equivalent of situation (2) and end up with unsustainable debt (which eventually causes either huge inflation or a crash) such that we're right back to situation (1).

I think it's easy to see how this simple example applies to the much more complex economy of the real world.  We're currently in a nightmare hash of situations (2) and (3), and rapidly headed for situation (1).  Many don't realize how prevalent situation (3) is at this point, but if one looks at the percentage of GDP that is subsidized through government debt, it's a rather astonishing 12%.  This is a topic Denninger (rightly) keeps harping on and the referenced post is just the latest of his many diatribes on the subject.

Given our complex economy, it can be difficult to discern just how few people are actually productive, but it's probably far fewer than most realize.  Take tax accountancy for example.  From the standpoint of actual wealth, this is a completely useless and unproductive profession -- the financial equivalent of filling in holes that have been dug by the government.  The profession neither creates nor preserves wealth, and is effectively part of a socialistic society -- just one in which make-work jobs replace completely free handouts.

At the moment, the governments of the world are trying to cover up the issue of 'useless population' by papering over the problem with a needless increase in economic complexity (health care legislation, etc.), borrowing, and outright printing of currency.  The former is obviously socialism, while the latter is unsustainable.  Either we're going to have to accept socialism, allow the expansion of debt/currency until we have hyperinflation or a crash, or we're going to have to find a better solution.

Clearly, I'm in the camp of find a better solution, but it's far from obvious what this solution should be.  For today, however, this post is long enough.  The reader (all zero of you) will hopefully think about the issue -- in the near future, I'll post about some of our options and the direction in which I think we should head.

Posted by: Hermit Dave at 10:33 AM | No Comments | Add Comment
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