[p2p-research] Fwd: More on the Supply and Demand Curve

[Stan Rhodes]

Paul, a quick reply: the assertion that "a specific key assumption of
macroeconomics [is] (infinite demand for consumer goods and services)" is
incorrect.  You may find it a worthwhile exercise to challenge your
assumptions using the existing literature out there.  Also, no one really
practices what's known as "classical economics" anymore, although it's not
always easy to know what good economists DO practice, because it often
defies easy labeling.

Demand curves are for a specific commodity, and are created using data
(known as a demand schedule). They do not assume infinite anything.

Aggregate demand and aggregate supply models also depend on data, with many
factors affecting the aggregate demand curve (consumer confidence, money
supply, wealth, etc).  Again, nothing infinite applies.

I realize you were not intentionally creating a strawman, but wanting to
think through economic issues.  Macroeconomics tries to use aggregate
indicators to model economies, but the complexity presents an incredible
challenge.  We're in the midst of coalescing economic theory right now, as
behavioral and experimental economics smash into previous syntheses like the
"New-Keynesian" school.

Empirical economists seem to know that macro is generally a big fuzzy area.
While many people profess a particular belief in a particular policy, when
gently pressed on the empirical basis for models, they seem to admit a lot
of simplifications and assumptions.  Those with reasonable approaches that
admit these flaws don't receive much public exposure.

I've never read Marshall Brain's book, but if he presents conclusions from
some thought-experiment, the assumptions in that experiment should be judged
independently.  The "automation means unemployment" theory has no empirical
support.  Unemployment is not positively correlated with automation at all.
  When people are free to work on other projects because of automation, they
work where automation isn't possible or economical.  There are many ways to
crack this nut, so you may want to consider attempting to disprove Brain's
claims, and see if such attempts bring additional insight.  I don't mean
Devil's Advocate, but true investigative skepticism, rooted in uncommitted
curiosity.

-- Stan

On Wed, Jul 1, 2009 at 5:53 AM, Paul D. Fernhout <
pdfernhout at kurtz-fernhout.com> wrote:

>
> I posted the below to the Open Manufacturing list, but I am forwarding it
> to the P2P research list with some prefacing notes because I feel this
> analysis gets at the core of the difference in sentiment from classical
> capitalism and peer production (as well as issues related to a gift economy
> and a basic income). Essentially, I am trying to show that a specific key
> assumption of macroeconomics (infinite demand for consumer goods and
> services) is flawed, and to consider the consequences of assuming limited
> demand.
>
> Classical macroeconomics assumes demand for consumer goods and services is
> unlimited (infinite), and so it makes sense to automate the production of
> these goods in centralized factories to the point where they are produced as
> cheaply as possible (or to redesign them to that end), even if the
> consequence is unemployment from automation and centralization and redesign,
> since (the theory goes) the unemployed will be able get jobs in other
> centralized factories producing other consumer goods and services to meet
> the assumed never ending infinite demand for more stuff and services.
> Essentially, infinite demand means infinite jobs. Also, based on the
> thinking that flows from this assumption, there is no need for a basic
> income, because there will always be good jobs producing goods and services,
> even if there may be some temporary discomfort while the unemployed search
> or new jobs in new industries making new goods and services (thus, maybe a
> little need for temporary unemployment insurance). The Supply and Demand
> Curve, at the core of such classical economic thinking, reflects this
> assumption of infinite demand by the asymptotic tail going to the left
> approaching but never touching the X-axis. The theory goes that each
> commodity is like this, and when you add up all these microeconomic curves
> for an infinite demand by people for each product if it was only cheap
> enough, you get a macroeconomic curve for our society that is the same shape
> reflecting an infinite demand for all products. It is easy to see limited
> demand for any specific good on a microeconomic level (my free iPhone
> example below, showing eventual market saturation), but the macroeconomic
> implications are easily handwaved away for any specific produce, even as the
> big curve depends on adding up the little curves -- essentially, there is
> some slight of hand here by mainstream economists, where the sum of
> macroeconomic demand is somehow greater than the microeconomic parts. :-)
>
> However, if you instead assume limited demand (or, at least, demand growing
> more slowly than productivity, which has essentially the same effects) for
> all products added over all of an emotionally healthy society, where that
> tail of the curve on the Supply and Demand graph touches the X-axis at some
> point of material saturation (or service saturation) the macroeconomic
> implications are very different from classical economics. If that was true,
> that the curve touches the X-axis, then there would *not* be an infinite
> demand for goods and services, and so there would not be an infinite number
> of jobs as productivity increases so less people can produce more goods. So,
> rising productivity (given a stable population) would mean rising
> unemployment, either directly by layoffs or indirectly by "jobless
> recoveries" as we have already experienced in the USA. There would be no
> classical way for these unemployed people to get jobs, because there would
> be no demand for more goods and services beyond what were already being
> produced by other people augmented by machinery. And, with exponentially
> increasing technological capacity, including the development of ever more
> human-like robots, this jobs situation will only get worse from here on, as
> Marshall Brain talks about in "Robotic Nation" and "Manna".
>
> There are at least four possible interpretations of the implications of
> limited demand (beyond mass unemployment). These interpretations, or paths
> of future development for our global society, are not necessarily mutually
> exclusive, although our society may tend more towards one depending on
> social movements.
>
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