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In Case You’ve Ever Wondered What Economic Sci-Fi Would Look Like…

February 26th, 2015 · 12 Comments
Income Distribution · Markets

In a recent article, labor economist David Autor was quoted as saying that “If we automate all the jobs, we’ll be rich—which means we’ll have a distribution problem, not an income problem.” David, have you been reading drafts of my dystopian future economic science-fiction novel again?

The synopsis of my (mostly, but not entirely) hypothetical Hunger Games fan fiction goes something like the following: Imagine a world where technology has progressed to the point where one person can create all of the output that we have today (or maybe even then some) by pushing a really fancy version of the Staples easy button- you know, like this:

Would society in the aggregate be better off economically as a result? The answer is most surely yes- if we believe that most people would rather sit on a beach and have their work done for them than actually do the work, then the button basically has to be a boon to society overall. In this situation, people would have two options: one, they could be content with the current standard of living and continue sitting on the beach, or they could use their newly-acquired free time to produce new (hopefully) cool stuff for society. (You know you were just looking for the right moment to get into the artisan cupcake pick business.) Let’s, for the sake of argument, assume that people take option number one- this is what Autor meant when he said that technology would make us richer, since we would now have all of the stuff and all of the free time rather than just all of the stuff.

You’ve probably caught on by now, however, that the GDP button presents some interesting challenges for society. We are currently pretty much accustomed to distributing money in exchange for labor and capital- that’s how markets for the factors of production work. Under this regime, the guy/girl who owns the GDP button (Katniss Everdeen in my fan fiction, obviously, to make up for being from a poor family) would get all of the factor payments. (Hence the distributional problem that Autor referred to.) But this is where it gets sticky- payments from whom? If Katniss keeps pressing the button and people keep buying her output, eventually everyone but KAtniss is going to run out of money and not be able to buy the output anymore. Granted, this might not bother Katniss, since she has the button that makes stuff and therefore doesn’t really need your money. Everyone else, on the other hand, runs into a bit of a problem.

This problem is not technically insurmountable, so it’s not a given that everyone but Katniss is going to die of starvation. (I suppose this is where the narrative diverges from the parent books a bit.) That said, the problem isn’t the easiest to solve either. One option would be for Katniss to give away the stuff that she doesn’t use. This would prevent at least some of the starvation problem, but it would introduce new logistical problems- giving stuff away doesn’t exactly get said stuff to those who value it the most. For example, if I saw that, say, a motorcycle was being given away, I might go get it because hey, free motorcycle, but I don’t actually like motorcycles that much. Now, you might think that this would take a motorcycle away from a motorcycle enthusiast, but think this through a little more. Since I’m not the only person wandering around perusing free stuff, society would likely end up in a situation where the more popular free items have longer lines. (Just ask the people who tried to get free Krispy Kreme the other day.) This would solve the resource allocation problem to some degree, since I would be more likely than the motorcycle enthusiast to balk at the line for motorcycles, and it approximates a world where time is the currency used for resource allocation. On the up side, this seems pretty fair, since everyone has the same endowment of time. On the down side, we’ve now gone from a wondrous society on the beach to a society where we’re all waiting in line for our “free” stuff.

What if, instead, Katniss kept giving out the money that people pay her for stuff each period so that people can keep paying for stuff? Prices would adjust so that resources are allocated efficiently, so this approach seems promising (especially if Katniss realizes that this approach doesn’t make her worse off)- just don’t think too much about how the money gets allocated. Does each adult get the same amount? Do parents with more children get more? Do people with health issues get more than healthy people? These sorts of questions really highlight the fact that issues of fairness don’t have a “right” answer.

The world described above is obviously a very extreme version of what we actually see in society today and what Autor is referring to, but it presents a nice allegory for some of the issues that society is currently facing or worried about facing in the future. Specifically, how can companies continue to thrive by selling stuff to middle-class and working-class households if these households don’t continue to get the money to spend? Conversely, how can middle-class and working-class households thrive if they aren’t endowed with or have the means to develop the factors of productions that are valued in the economy? If capital (the analogue to the magic button) becomes the most crucial factor in production, how does society ensure that citizens have an endowment of capital equivalent to their current endowment of labor? (You have to admit that nature does a nice job of leveling the playing field by endowing most people with the ability to work.) At the risk of channeling Piketty, I will fully acknowledge that it seems like a shift towards capital being the main factor of production would have to, as per the allegory, be accompanied by some serious thought as to the heritability of wealth and even possibly a wealth endowment. (For comparison, consider that the median household is endowed with somewhere in the neighborhood of $1 million of labor “wealth,” assuming a 5% return and $50,000 median household income.)

Fun fact: Fifty Shades of Grey started out as Twilight fan fiction, so feel free to suggest some BDSM aspects of the narrative so that I can make a boatload of money, thanks.

Tags: Income Distribution · Markets

12 responses so far ↓

  • 1 Alexander // Feb 27, 2015 at 2:00 am

    Why should Katniss bother producing more than she needs?

    The answer, if there is one, will be relevant to the nature of the economy that results.

  • 2 econgirl // Feb 27, 2015 at 2:21 am

    The simple answer is that I decided that that is what the button does. 🙂 The likely more realistic/interesting answer is perhaps that she acquired the button functionality by automating stuff and buying up companies. In other words, there was some transitory period of time where people could pay for the output that she was producing, and this gave her the incentives that resulted in the button. And now that the button exists, assuming no depreciation, zero marginal cost, so why not?

  • 3 Peter Webb // Feb 27, 2015 at 3:01 am

    By what means does the button produce goods? Does the desired good simply puff into existence in front of the button, or do robot drones somewhere harvest the raw materials, process them, and transport the finished product to Katniss? My question is, does the button/Katniss own the factors of all production in the world, or can others still gather resources and produce goods? In the first case, she becomes a god, but in the second case, she very well may just end up as some girl trying to sell motorcycles or whatever to people, just depending on how creatively she used her button.

  • 4 Brett // Feb 27, 2015 at 3:36 am

    Declining income within the middle class sounds like it would lead to a bifurcated consumer economy. You’d see more and more of the “dollar value” of consumption spending happening in the Upper Middle and Affluent Classes, while retailers competing on price would be competing for lower-income customers and selling a higher volume of goods and services even if they’re cheaper in dollar value.

    So, imagine that 10,000 rich people spending $100,000,000 on 10,000 very expensive consumer goods, while 10,000,000 poorer people spend $10 on 10,000,000 cheap consumer goods. In terms of GDP, they’d show up as exactly the same, even if vastly more goods and services are actually being sold to poorer people.

    If capital (the analogue to the magic button) becomes the most crucial factor in production, how does society ensure that citizens have an endowment of capital equivalent to their current endowment of labor?

    Hmm. You mentioned the $1 million in “labor wealth”. Figuring $1 million in asset wealth, a 2% inflation rate, and you could have about $30,000/year if you had “safe” returns around 5% (which seems increasingly unlikely at the present – so much competition for safe assets).

    You’d have to phase that in over time. Do “birth right grants” that accumulate interest earnings at higher growth rates (if possible) until you’re 18, at which point it switches into 5% mode and starts paying out dividends.

  • 5 Michael // Mar 1, 2015 at 7:51 pm

    That’s um not what money is. In the absence of taxation, money is a very different thing, and since Katniss doesn’t need to tax…

  • 6 Michael // Mar 1, 2015 at 7:52 pm

    Anyhoo, Charles Stross and Iain Banks have each written a couple dozen books each which have this idea embedded in them. “Consider Phlebas,” probably the earliest of them, came out in ’87, when I was 11.

  • 7 Eric Gonchar // Mar 6, 2015 at 12:36 am

    Eric Gonchar…

    In Case You’ve Ever Wondered What Economic Sci-Fi Would Look Like……

  • 8 Jeff L // Mar 20, 2015 at 4:22 pm

    “Specifically, how can companies continue to thrive by selling stuff to middle-class and working-class households if these households don’t continue to get the money to spend?”

    There is a further issue with inequality and it’s effects on the rich. As technology advances, it is not just the research dollars that help with the advance, but also customer eyeballs. There is a law in software that code seen by a million people has fewer bugs than code seen by 10 people regardless of the budget per line of code.

    ” Fifty Shades of Grey started out as Twilight fan fiction…”

    .. so she could be sick of money and you could call it 50 shades of green.

  • 9 Adam Corlett // Mar 29, 2015 at 9:33 am

    I think there are a number of ways to make this work – some of which you’ve discussed – and I hope it’s useful to list them:

    1) The uber-capitalist gives output away for free. In the case of digital goods that doesn’t seem so unbelievable, but otherwise this seems like a bad option.
    2) The state taxes the uber-capitalist and redistributes that to everyone else.
    3) The state is the one who ultimately owns the button, and gives everyone a citizen’s income and/or certain free services. (This is similar but different to 2)
    4) The button is owned by, say, a company and everyone has shares in that. i.e. Capital ownership is well dispersed.
    5) Technology and economics permitting, everyone could have a GDP button in their own home – i.e. everyone owns some land, some solar panels, a food producer and an advanced 3D printer / Star Trek replicator… (This is similar but different to 4)

    A mix of all of those things seems most likely (for now), though it nonetheless seems too early to write off market-based labour.

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  • 11 umbrarchist // Jun 23, 2015 at 6:42 pm

    What happened to the NDP button? Oh yeah, that button does not really exist because economists can’t do algebra. The depreciation of Durable Consumer Goods disappears into space and consumers having to buy new junk to replace thrown away garbage becomes part of GDP. Planned obsolescence is actually growth.

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