Arnold Kling  

Economic Slack

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Cost-of-Living Arbitrage... Stories of the 1930s...

Shalah M. Mostashari writes,


As more firms take advantage of the cost savings of an increasingly international division of labor, continued growth in the variety of imports coming from developing nations can be expected.

Pointer from Mark Thoma.

Let me take this issue of product variety in a different direction. We went to the mall yesterday, something that I do pretty rarely. So the variety of products, which you might be used to if you went to the mall frequently, left me stunned.

We were somewhat interest in three things--a new watch for me, a new phone for one daughter, and a new wallet for another daughter. We bought nothing.

We may actually have experienced the paralysis of choice. There were so many different kinds of watches, so many different phones, and so many different wallets that it was somewhat numbing.

You can see where there is a lot of slack in the economy. Notwithstanding research that suggests that product variety has really improved our standard of living, I suspect that we could sustain a major contraction in the variety of goods without suffering a major loss.

In fact, it may be true in general that we could sustain a large decline in economic activity (as measured by income and spending) without suffering a major loss. There are so many goods that we don't need. People may be able to get by for a long time without steady employment, instead working only sporadically. They do not enjoy an affluent lifestyle, but they do not fall into sub-human conditions, either.


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CATEGORIES: Income Distribution



COMMENTS (9 to date)
Randy writes:

You're describing what I call a Luxury economy. That is, an economy in which a large percentage of what is produced is not really "needed". I also believe that much of this "production" could be easily transferred to leisure - and that it is. The major trend that I see is people starting to work later and quitting earlier. And this "great recession" may actually be doing much to increase the speed of the transition.

Matt C writes:

> They do not enjoy an affluent lifestyle, but they do not fall into sub-human conditions, either.

I wish the intelligentsia in our society had more of a concept of "respectable" poverty.

It's possible to be poor and still have a decent life. I have friends that do it/have done it, and we don't live all that high on the hog ourselves.

Unfortunately, our benevolent leaders don't understand this, or don't dare to act on it publicly. So we destroy low tier employment, credentialize the middle and upper tiers to keep out competition from the lower classes, and then mandate everyone to buy upper middle class health insurance, I guess because medical services are currently 17% of our economy and we want to keep inflating that bubble as long as possible. Gah.

I'd like to see a full economic recovery, but I'm not too optimistic. My next best hope is for a thriving gray/black market in employment. We're willing to tolerate it with illegal immigrants, so maybe a home grown version won't get crushed by the authorities either. Maybe.

Liberal Roman writes:

Hmm...this is kind of funny. I think Arnold falls into the same trap lots of liberals do. The same argument is used against policies that favor growth.

"We can't base our society on perpetual growth in our material well-being. We must direct resources to other things."

This is a common refrain from the left.

But, just to show how foolish this is, I recently finished William Bernstein's "A Splendid Exchange" and in it he makes the interesting point that even though the Spice Trade drove the world economy for a big portion of the last millineum there really was no NEED to travel half way across the world to obtain some nutmeg and cloves. There were spices indigenous to Europe. And yet the mystery and the far away nature of the Spice Islands drove its demand and drove much of the economy back then.

Philo writes:

Let me expand this remark of yours (additions in CAPs): "It may be true in general that we could sustain a large decline in economic activity (as measured by income and spending) without suffering a major loss OF WELL-BEING. There are so many goods that we don't need, AND DON'T EVEN WANT *VERY URGENTLY*."

We are so rich that our well-being-versus-income curve has substantially flattened out; each extra dollar of income makes us only *very slightly* better off (or, to put it negatively, a marginal loss of dollar income makes us only *very slightly* worse off).

Daniel writes:

You wrote:

People may be able to get by for a long time without steady employment, instead working only sporadically. They do not enjoy an affluent lifestyle, but they do not fall into sub-human conditions, either.

Sub-human conditions begin when people set that as the low, low bar over which people must be able to leap for the well-employed to conclude that all is right.

Serously, what do you have to be to be living in "subhuman conditions"? Five adults in a condo? Six adults in a tenament? Nine in a grass hut?

Thomas Esmond Knox writes:

I never go to the mall (Aussies call it "shopping centre") without purchasing what I went for.

My time is too valuable.

It would be utterly fascinating to listen to Mark Thoma's definition of the word "need." He seems rather confident about his assessment of what people need, but what in the world does the word mean?

RobertB writes:

oldmanangryatcloud.jpg?

joecushing writes:

I think your final conclusion won't come true until we have house building robots. The cost of housing means we have to work. Also, our cars become ever more complex and this offsets cost saving from robots building them. We will need to see productivity outpace complexity in autos to get the breaks you speak of. Today, housing and transportation consumes half of my income and I don't live or drive well in today's standards. I earn aprox. The average houshold income.

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