= 27d567bc2d48d9f40e9ccc20ea370b15)
27chaos comments on Unemployment explanations - Less Wrong
You are viewing a comment permalink. View the original post to see all comments and the full post content.
= 783df68a0f980790206b9ea87794c5b6)
Loading…= b715d02e85f7b3b4ae65ca3d3e450868)
Subscribe to RSS Feed
Powered by Reddit
= f037147d6e6c911a85753b9abdedda8d)
You are viewing a comment permalink. View the original post to see all comments and the full post content.
Comments (96)
His claim that a shortfall in supply can cause a shortfall in demand makes sense. But he goes beyond that and claims without any real justification that every shortfall in demand is the consequence of a shortfall in supply, which contradicts modern economic thought. One reason that quantity demanded might decline other than a production problem would be if there's an increase in production by a competitor whose goods are superior or cheaper than yours. Another potential reason would be an increase in uncertainty - if say, a country is on the brink of war, people in that country will be inclined to hold on to their money rather than to spend it on luxury goods, and this can cause an economic contraction.
I guess in a roundabout nonfalsifiable kind of way it might be hypothetically possible that a shortage in supply on the other side of the globe is the indirect root cause of the war, but this isn't very helpful for figuring out anything useful about the economy even if it does happen to be true, and we have no reason to think that's so.
He kind of comes close to conflating "shortfall in supply" with "scarcity", but those are two different concepts in economic thought. A shortfall in supply is someone not producing as much as they ought to have to maximize their company's profit. Scarcity is the idea that no matter how much is produced people will always want more.
Disclaimer: barely paid attention when this was explained to me in class.
Superior competitors don't tend to cause widespread unemployment, though. People just go work for the company that's on the rise.
As for uncertainty about a coming war... he's saying that it all comes back to natural resources, access to land, and sure enough that tends to be what wars are about.
Okay, thought things through.
Not every change in material resources is a change in supply. For example, the rate at which the Sun burns energy is not controlled by humans, nor was it even known to us in the past. However, the Sun's energy can effect demand nonetheless - for example, ice cream might become more popular if the sun heats up.. Thus the sun is a counterexample to the claim that changes in demand are all the result of changes in supply.
You might claim that the change in (quantity of) ice cream demanded is actually the consequence of increased ice cream production. That is true in the sense that if no more ice cream was produced then no more ice cream would be purchased. But we can also ask what caused the company to choose to increase production, and the clear answer is that the company thought the demand for ice cream would increase as a consequence of the heat wave. If there was no anticipation of increased demand due to external reasons, the ice cream company would not increase production and thus would miss out on potential profit.
Just to make completely sure I understand you here... you went looking for something that's not a natural resource underlying major economic issues, but could still affect those issues, and the best answer you could come up with was the sun ? The local star, that gigantic nuclear furnace whose radiant energy is the source of power for all photosynthetic life on earth, excepting maybe some geothermal-powered grow-lights in Greenland or something. That sun, that's the one you're referring to?
If solar energy flux abruptly changed by even one percent, up or down, or was widely anticipated to do so, i don't think unemployed ice cream manufacturers and salespeople would be the main economic consequence, or even noticeable among all the other chaos.
Supply is defined as that which is produced by human beings, not that which is made of physical matter. Otherwise, saying that demand only responds to changes in supply would fail to constrain our expectations any more than the laws of physics do. But we're pursuing a different level of analysis when we engage economic questions.
You are looking at aspects of my example that are irrelevant to my argument. My point is that human decisions and innovations are not the only factors behind changes in demand. Whether or not we restrict our analysis to the ice cream market alone, the point stands that demand would be changed if the Sun's behavior changed and thus we need to look at things other than changes to supply if we want to accurately predict changes in demand.
Henry George was looking at the labor market, and pointing out that you can't really understand the causes of large-scale unemployment, "the paralysis which produces dullness in all trades," without looking all the way back up the supply chain, if necessary to natural resources and how they're being used or prevented from use, until you find something necessary that's not being supplied. Can you find a counterexample to THAT claim, a cause for general unemployment which can't be traced back to a lack of supply?
If by necessary you mean "in demand", then yes I agree, otherwise I don't know what you mean. You need to look at what products have unmet demand if you think the market's being prevented from reaching full employment. But examining supply chains from the ground up isn't a requirement for this, and actually no one understands the economy that well as it's computationally impossible. So we look at intermediate simplified components of the supply chain and at demand itself. There are times when looking at an extremely detailed picture is necessary, but I don't think that's always so.
Two exceptions to this:
Governments can employ people to do jobs that aren't demanded by the market.
There might not be enough resources for people to do any work that's in demand. For example, if I am a farmer in a developing country and foreign food imports are priced lower than what my costs are, I will probably not be a farmer for much longer.