I was having a discussion with a conservative friend recently, and challenged him to write up a budget for a decent life for a responsible, hard-working American:
Living in Shoreline, a relatively inexpensive area north of Seattle.
Divorced, two kids.
Not very smart or capable, but has worked hard their whole adult life.
He has so far demurred to do so. Said:
Ahhhhh. “Decent.” Sadly the scarcity red herring rears its head again.
This is why I want you to do a budget. Because I think your baseline minimum — “not starving or freezing in the streets” — is Dickensian, cruel, utopian in a very dystopian way, and wildly unrealistic.
With very good reasons, none of us wants a large portion of our population living on that edge. I think you included.
We’re all worse off at that dystopian baseline.
Is there a scarcity of money in America? If that means “not enough for everyone to live a decent life,” no. (Though of course there’s competition for money. Not the same thing.)
I don’t think you understand what you’re really saying:
If income/wealth were less concentrated, inflation would be rampant because demand would be banging against scarce supply of real resources.
But that’s a fundamental misunderstanding of monetary economics, and of scarcity and resources in a modern economy.
In an 80% service economy where many physical goods are produced on demand (basically a service itself):
• The totally dominant “resource” is human effort/work hours/labor. (You know that your theories are are only true in a full-employment economy, right?)
• More spending causes more production (quantity). Close to 1:1. Think massages, and iPhones. If you don’t buy it, it doesn’t get produced. The primary adjustment mechanism is not via price. (The real market is not like the financial markets that way.) It’s via quantity.
IOW, in a market with huge untapped labor resources (limited “scarcity” of “resources”), the quantity elasticity of labor (“resources”) is high.
More spending (demand) causes more production (supply).
Another way to think about it: as the demand curve shifts up, it pulls the supply curve right. Quantity adjusts (mainly), not price.
Higher GDP (and GDP/capita), not higher inflation.
This is not, of course, an argument for perfect equality (don’t try that straw man). We know that would be a dystopia too. Other (i.e. incentive) effects are at play. Lots of moving parts.
But bottom line: in the high-productivity American services economy as it exists, Say’s law is pretty much 180 degrees wrong.
And we haven’t even bolted on lending/borrowing/debt/credit yet, much less fiat money or central banks.
The fundamental notion of scarcity is not the simplistic real-goods/barter-economy thing you think it is.
The policies you promote would result in a return to a more Dickensian society. Exactly what we see in countries with high inequality and small governments. Not a country you want to live in.
Truly, taking America back.
Show me a realistic budget for a decent life for the responsible, hard-working American I’ve described.
And tell me why — if we can have a country where everyone can have that decent baseline, while huge upsides still exist for smart stivers — we shouldn’t do so.
Since you’re so fond of pooh-poohing “fairness” arguments, a reason beyond “It’s not fair to confiscate my money!”
Cross-posted at Asymptosis.