Sun Sep 2nd, 2012 at 03:45:14 AM EST
This is a very short piece - inspired by recent discussions both in my diary about the 1970s and Migeru's latest Eurozone diary.
(The next 1970s diary is coming soon...)
I've been musing on simple models of how we increase societal income/wealth/well-being.
Particularly if we consider countries in the European periphery - we need to find a way to improve their wealth that isn't dependent on out-trading other countries.
PerCLupi didn't like the word "income" as it puts us into a particular frame, but I think it's important not to lose sight of the system as is, as well as the system we'd like.
front-paged by afew
Anyway - at a basic level it seems to me there are three factors in the production of "societal wealth" if we take an overview.
- Raw materials
- Human labour
Technology exists as a mechanism for reducing the need for any of these factors for a particular use - which frees them up for some other use.
Let us note that raw materials are a limiting factor, but there are quite a few workarounds if you're willing to use energy or labour in greater quantities. And let us note that while current energy supply is an carbon problem, this is not inevitable. It's easy to take the discussion in a different discussion which is all about energy efficiency, but I think there's more to talk about than that.
Lots of random thoughts follow from this, which I'm going to write down in no particular order - and note while the abstract is interesting, I think it's important to connect it to the European periphery or other countries who are in a bind.
- If you move your factory from Country A to Country B you may be financially rewarded because of lower wages. In terms of world wealth, probably nothing has changed because you haven't freed up any labour.
- For a periphery country like Spain, what can they do to become wealthier? We've talked a lot about capital investment etc. but so much of this is about "trade" which is of marginal importance, because rich countries don't do much Ricardian trade (see Krugman's work) and thus the main gains are zero-sum (German mercantile model) - but realistically this is no model for more than a few countries.
- Having said that - it seems obvious to me that a basic strategy for the whole of Europe, but particularly the periphery is to end the dependence on energy imports. If you have your own energy, a big part of your wealth puzzle is solved.
- More generally, to become wealthier, a country can use more energy, more raw materials or more labour. Or use current amounts in more efficient ways.
- A basic failing of current economics is that it seems incapable of increasing the amount of labour in use.
- Maybe another way to look at this question is "How wealthy could we be?" Now the goal might not be to be wealthy, but it seems to me lacking in current economic debates any sense of the possibility frontier - and thus any sense of how far we're failing to meet it.
- We could be wealthier by building more solar/wind farms. "Energy too cheap to meter is an old phrase - but I think there's still something there."
- We could be wealthier if everyone who wanted to work could work, contributing to improving things.
- Raw materials are an issue - but we could be wealthier if we found ways not to depend on others for materials...