Wednesday, February 16, 2011

Economics 1.0 is broken.

We have reached a point where a genuinely free market would leave people to starve. If those people have the strength of course, then they can introduce the concept of negative utility into the equation.

(Negative Utility relates to an offer to provide a product or service which will be actively detrimental or harmful to the recipient unless the recipient agrees to pay the price of not providing that service).

But that simply sidesteps the question. We have reached the point where everything that can be needed by the whole population can be provided by a fraction of the population, leaving the rest with literally nothing to offer. The market cannot and will not provide for those people's needs and since governments can gain income only by taxing (or by providing services free of charge, thus taking many commodities out of economics altogether since they are as abundant as air - and thus denying those still in the economy a chance to profit).

The point of an economy is to find a way of distributing resources. The market works as long as there is enough demand for labour but once demand for labour falls, as it has now, then we are in a position that means we need to find some other way of distributing resources.

There have been arguments about 'fairness' but in the realm of the possible, 'fairness' doesn't get a vote, so what else can happen? We know that planned economies are even less efficient, leading to mass starvation in Stalin's Russia for example.

Economics 1.0 is broke and somebody needs to fix it, but who? The market has failed. Communism doesn't work with real humans. Some kind of religious equation won't work unless people believe in the god or gods involved.

I believe that Economics 2.0 will evolve over the next century or so, but in the meantime, there is going to be a lot of death and a lot of suffering as the market moves meaningless tokens into higher and higher concentrations while elsewhere food rots in the ground and people starve, all for the want of an efficient system for the distribution of resources.