Economics as the study of abundance
That we at Pieria have spent the last few weeks discussing an economy based on abundance rather than scarcity may have seemed oddly timed. After all unemployment is still horrendously high in most developed economies over five years since the onset of the Great Recession.
Persistent unemployment, underemployment and low wages have increased reliance on food banks, food stamps and meagre unemployment benefits and should embarrass policymakers talking about recovery. This should not simply be a debate about where the gains of growth accrue to but how, when our economy has suffered a serious setback, governments have proven so short-sighted in their response.
It is out of this frustration that the discussion of post-scarcity economics has become an important issue. As Justin Wolfers put it on Twitter:
“Economists often say we study the problem of scarcity. So dismal. Why not say we study abundance—how to produce it, & how to distribute it?”
We couldn’t agree more, but it is equally important to lay out the many challenges that face us. Firstly, the unemployment rate in the US and the UK remain well above their pre-crisis levels:
And the unemployment situation in the Euro Area is, frankly, awful:
Of course, within the eurozone unemployment rates differ hugely between member states. But the overall picture is that the labour force has taken the brunt of economic adjustment, while capital markets have received most of the attention from recovery efforts. Even now with central banks in the US and the UK setting policy against unemployment thresholds it remains unclear how monetary policy alone is expected to impact these measures.
So it is apparent that abundance, insofar as it can be imagined to exist in the present, is far from widespread and remains an alien concept to the vast majority of people. It is from this position that critics of the idea of technological unemployment such as Dean Baker tend to come from. To them any analysis of the current situation that does not point the blame squarely at poor policy allows those in charge to get off the hook.
At Pieria we have repeatedly argued, and continue to hold, that a sustained recovery could put these idle resources to productive use and that stories of structural damage to developed economies threaten to become self-fulfilling prophesies. In order to achieve this goal, however, governments must acknowledge the private sector investment dearth that has lasted over a decade and the failure of monetary stimulus at the zero lower bound to meaningfully increase aggregate demand gives them a mandate for more activist policy.
Prolonged sub-par growth puts incredible hardships on the most vulnerable in society and can do significant damage to long run potential output. We would contend that concern should squarely be on enacting a meaningful growth agenda that takes advantage of historically low borrowing costs to fund productive investments. When the private sector is prepared to pay the state to take on long-term investment risk it is remarkable that governments are instead taking the opportunity to attempt fiscal consolidation into the downturn.
Of course, central banks should remain watchful for the threat of runaway inflation but at present signs of that are hard to find. Indeed in both Europe and the US inflation looks so well anchored some worry that it threatens to pull down the ship.
It is to be hoped that signs of improvement in the UK in the face of austerity and the ability of the US to continue to grow despite the sequester headwind and the rolling debt ceiling stand-off can continue. Yet while the Great Recession avoided the worst policy mistakes of the 1930s, the impression that policymakers chose to do so little in the face of so great a challenge will linger. As a consequence of these choices we may be even further from abundance than where we were five years ago. But that’s no reason to stop dreaming.