Don't Worry, Of Course The Economy Still Needs You

Yesterday guest contributor Hank Williams argued that the real problem with the economy is that it doesn’t need you anymore:

Roughly speaking the world’s economy has always worked as a giant pass-along-game between the planet’s citizens. Person A needed stuff from person B and person B needed stuff from person C and person C needed stuff from person A. So everyone needed everybody. It has been a kind of giant circle of needs.

But as a smaller and smaller number of people are needed to make the basic things that people need for survival, from food to energy, to clothing and housing, the less likely it is that some people will be needed at all.

First of all, this “pass-along-game” definition of the economy is overly simplistic. It’s not just that I need something from you, and that you need something from someone else. It’s not zero-sum like that. Instead, it’s in the connection between me and you that we create value or wealth that hasn’t been there before. You have something I want, and visa versa. And voila, we have something new that nobody had before.

Second, the economy is nothing but the process of humans pursuing their wants and needs, so the idea of an economy that’s somehow divorced from human activity doesn’t make any sense.

But most importantly, this is an old fable. Technology has for a long time been reducing the number of people making things that are basic for survival. Not as many people need to work in agriculture or mining, and that’s freed up labour for all kinds of wonderful, but thoroughly non-essential things like blogs and iPods and artisan foods and sunglasses and designer clothes, etc. They’re not essential for survival, but they’re valuable, and with our spare time (not spent doing hard labour so we can eat the next day) we create all kinds of other things.

Now, Hank’s diagnosis, isn’t totally incorrect. There is a medium-term downside to the pace of technological change. But it’s not that technology allows us to produce our essential needs without people (that’s an old story). It’s got nothing to do with production curves. Instead, technology is like a tornado, coming in violently and completely rearranging everything. In this period, the economy may suffer because our old habits and ways of doing business aren’t working, and we have to relearn totally new systems. This takes time and it’s painful.

We’d argue that this particular factor in the economy is being under-appreciated. It’s not just that we had a financial crisis, we’re also experiencing major secular change to age-old industries (think media, real estate, manufacturing, education, and transportation). So this is something to be concerned about. But the concern about technology itself replacing humans, and the economy not having anything for humans to do is an old, but wrong, story.

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