A simple model of how the economy works is it’s some kind of rewards system. You do something good that other people will pay you for and you are then rewarded with money. You are a smart engineer and your boss gives you a raise, you’re a smart entrepreneur and VCs give you tons of money. That money entitles you to stuff, the idea being that there is only so much stuff, yachts, housing, fancy clothes, holidays, and you are rewarded for being good at something by being being first in line to get that stuff in lieu of someone else getting it. And then we say that this encourages people to work hard and be smart, and that is good for society overall. This is perhaps true to a degree but it is in many way the less interesting (and less important) part of what “the economy” is.
Instead, we should think of the it is a preference aggregator. From the perspective of extraction of raw resources, we have a few fairly simple rules.
- Some resources are genuinely scarce, such as oil and precious metals, and not only is extracting them hard but their deposits will not last forever, in some pure sense of what earth as a ball of rock in space can eventually provide.
- Some resources seem scarce but really aren’t, like food. Arable land is limited but methods of growing more food with less water and land use do exist, and given that agriculture is a single digit percentage of GDP, if we wanted to go more food, we just could. The same is true of a lot of other things like most building materials, iron, cement, wood etc, many other consumer goods, and, yes, even housing.
- Substitutes exist. There’s always talk of if scientific progress can develop new substitutes for some resource we use that we are worried about using (like cobalt for batteries or neodymium for magnets) but the issue is much less if the science can be done versus if there is economic incentive (preference) to find it (or just use something that’s marginally more expensive). Substitutes aren’t the only way either, designs can be made that just don’t incorporate certain materials, if only the economy wanted it to be that way.
Yes I know I’m anthropomorphizing the economy but bear with me, the point I’m trying to make is that people buy stuff and they buy what they need and thereafter what they want. What they want then influences what the economy produces and if you want a health economy you have to give people the power (money) to buy what they want and I know this all just demand side economics but again, with me please, bear.
When we say we want “growth” we want more of those raw resources and we want those raw resources to be turned into cool useful stuff and we want that to be done in an efficient way in which we are not chucking silicon into the ocean (cough cough or data centers where they won’t get used cough). People go on and on about how to incentivize new businesses and ensure high employment and deregulation and subsidies and the works but there is another perspective that I’ve already written about on this blog and it’s so good I’ll just copy it:
Imagine a world in which all work is automated. There’s still money, people, and stuff to be bought. There are companies, but they are AI run, with robotic workers and legal-entity owners (not owned by people). This still isn’t the same idea as a post-scarcity economy, there are still limits on the amount of stuff that can be made and there are equilibriums to be found in balancing how much food we should grow vs how many yachts we should build. So, we still want an economy in this world, we want people to express what stuff they want, and then they buy that stuff and the free market makes more of that stuff if demand is high. The usual. Here’s the question: Where do the people get the money to buy things with?
“But we don’t live in that world!” I hear you cry. Indeed, even if AI could do every job no doubt some humans, lavishly wealthy and/or powerful, would be at the head of it all (private or government, someone is in charge1). Still, we are heading in that direction and ultimately that is a good thing. People, by and large, don’t like working. Some work is very rewarding, and I do not doubt that many jobs would still get done by people who love them, even for no pay, if their other needs and wants were met. Many would still work less though, and some not at all, or do things that we would not today classify as “work”. With that in mind and with a historical perspective the measure of human progress and prosperity is largely a story of receiving more stuff for having done less work, and we can do that. More infrastructure can be built, more advanced farms, industries, cities, for a population that probably will be under control in the coming decades/centuries.2
The problem we need to solve then is this simple one: Where do the people get the money to buy things with? We discard the notion that the economy is some sort of rewards system and in becomes what it truly should be, a preference aggregator. Then, we just need to give people money somehow, let them buy stuff, and then get some of that money back from the sellers of that stuff so we can give it to people again in one nice big circle. To give people money, we want a universal basic income (UBI). This kind of policy has been gaining popularity recently and it is so simple it needs hardly any explanation. You get money for existing. That’s it. Maybe you get some more if you have some particular need, like a disability, but you could also just have universal healthcare for that. Maybe also you can still work for a job for someone or some entity, that doesn’t sound so bad, I see no reason to make it illegal. To get money out of the “rest” of the economy, we need some sort of tax. We can’t just take all of a companies money or profits, our industries will never be static, they’ll have to expand, shrink, make bets using extra cash and have a cushion if those bets are wrong. At some point though, in a fully automated world, it has to get back into the hands of people. If our legal entity constructions just accumulate wealth, the system will break just as badly as it is doing right now. Last time I wrote about this I lent heavily on VAT as the solution, but to be honest I leave that problem to policy people that are smarter than me.
What I can’t get over is how obvious all of this seems to me these days. Everyone thinks of “the economy” as something else, something where work is an integral part and you get paid for good work. Of course, we still need good ideas, and so encouraging that through “reward” is a good thing, but when someone like musk can say “cars, but they drive themselves” or “rockets, but they land themselves” and get a bajillion dollars I just think we are leaning way too heavily into the “rewards” side and are just forgetting that people need to buy stuff and they need money to buy that stuff and we are trying to automate away everything and that is not a bad idea per-se but holy shit we need to think about how that society needs to be structured really really right now.
- Perhaps some decentralized system is possible but that does feel hard to even envision. I do encourage anyone to try though. ↩︎
- I know I’m glossing over a lot of things here. The world may literally end because of war or climate change or societal collapse or whatever, but in terms of can we build a society that gives people lots of stuff they want, the argument I’m making is that it’s very possible but we need to rethink our economies. ↩︎