Life After Scarcity
The FT is running a fascinating and truly out-there series called “Beyond Scarcity”, basically asking what happens to modern finance, macroeconomics, and ultimately capitalism itself in a world of abundant goods. The basic assumption here is that productivity continues to grow indefinitely through greater mechanization, meaning sooner or later the marginal cost of a manufactured good drops to pretty darn close to zero.
It’s not particularly easy to follow without being pretty macro-savvy, a category that does not include me, but the basic causal reasoning seems sound. As productivity grows, the quantity of goods in the economy to rise inexorably. Thus the natural tendency of a growing economy is for deflation (as the ratio of goods to money rises). Generally, in a capitalist system, deflation creates depression – but of course, in a developed capitalist system the tragedy of depression is emphatically notthat of a shortage of goods. A depression is, rather, industrial capacity sitting idle while people go hungry and real needs go unmet. For the last few hundred years, governments have generally forestalled this fate by constantly increasing the amount of money and credit – hence why over time total debt grows inexorably. Credit simply must be created to allow growth to continue.
The FT authors argue that this will become more and more untenable as overall productivity rises and mechanization starts to completely displace large parts of the human workforce. As the quantity of goods soars and their marginal costs drop dramatically, sooner or later the debt-creating instruments of fractional reserve banking will prove inadequate at creating money sufficient to keep up with the stock of goods. Growth will cease, and a state of more or less permanent deflation will set in. In that case, the artificial scarcity of capitalism will be politically untenable to maintain in a world of incredibly abundant goods. This will be especially true as more and more people literally have no plausible way to add marginal productivity to the economy, but the real material prosperity of the economy is incredible and continuing to grow.
While it’s a more or less happy vision, I can easily see at least one option for the continuation of scarcity-driven capitalism. The author admits that traditionally a way of absorbing the abundance of goods, restoring scarcity and thus growth, has been war. That’s certainly one possibility for growth – total war has traditionally been a pretty darn good way of sucking excess production out of the economic system. And it’s hard to argue that the causal factor for war has generally been “shortage of productivity”, so there’s no reason to think a world of abundance would cease to have wars.
On the other hand…that still doesn’t really solve the issue of mechanization leading to an absolutely growing number of citizens without a productive role to play in the economy. I’m willing to believe, in fact, that the number of those citizens will asymptotically approach 100% over a long-enough timespan. Having a war will provide the opportunity for GDP growth as the spare capacity is sucked out of the system…but there are still many people without much to do. I really wonder whether our governing liberal-democratic-capitalism paradigm, which has served us pretty well (all things considered) the past few hundred years, makes any sense in a world without scarcity.
The other option besides war for GDP growth in a world of abundance is plowing that excess capacity towards space. Which I obviously wholeheartedly support, and it coincidentally emerged that there are a lot of places to visit out there.