Why Produce More?

During his interview on CNBC Robert Reich tried to explain that business will not produce more if there is no demand. The interviewer, Kudlow, responded by saying that you have to produce before you can consume.

If production must precede consumption how could we stimulate the economy by starting with consumption? Production must come before consumption, but what must precede production?

Two things are necessary before business will produce anything. The producers must have money to produce, and the producers must expect that there will be a demand for what they produce. Do the producers lack money? Can they expect demand?

Investors are not short of money to expand production. Tax cuts for the very rich will not stimulate the economy, because without profitable investment opportunities investors will only put their additional surplus income into speculation in existing assets or loan it to the government.

Consumers with too little income are the ones holding back increased production because they can't afford to buy the increased output. If consumer income is in decline (falling wages) investors will reduce output to prevent producing more than they can sell. The result is that jobs are being killed while the "job creators" sit on their money (rising profits). As demand falls jobs are lost. That leads even lower demand and repeating cuts in sales and cuts in output. That cycle feeds on itself. It is the cause of economic depression.

If we can't understand how to expand the economy we will have even more trouble trying to understand that expansion of the economy is the wrong goal. We need to cut consumption to cut pollution and to conserve resources, but cutting consumption will also cut jobs.

Starting over ...

Imagine a fully automated economy in the future. It would need only a few workers. If a few people, or the government, owned the world's assets they would get all the profit income, and the few remaining workers would get all the wage income. No matter how income is divided between profit and wages all income would go to those two small groups. The way we're headed most people will have no job or an adequate share of ownership.

What are our choices if we continue toward a concentration of wealth and increases in labor productivity? By taxing or borrowing money from those few people with income we will be able to provide income to the largest group, unemployed workers. The 'investors' can help the economy best by allowing their surplus income to be taxed.

Call it socialism or not, but when wages are finally supplemented by dividends, the unemployment caused by automation will be seen as a blessing.

What would the best possible economy do? It would try to fill all demand, to satiate demand wherever possible. If demand were filled, that would cut the need to produce new items.

A basic income guarantee would allow immediate conservation and a functional economy without any need for busy-work and waste. Today's wage dependence means we can't have the best kind of economy, one that would seek to fill demand, because if demand were filled durablly production and jobs would be cut. A basic income would end people's total dependence of wages, and that would allow us to begin to conserve resources and to end the unnecessary threat that if you don't work you don't eat. (Which does not apply to the idle rich.)