Tuesday, August 31, 2010

Economics and Growth

Economists favor trade and wider markets to promote economies of scale and higher degrees of specialization. Yet trade increased widely from the feudal period to the modern period without producing sufficient growth to lift the world out of its Mathusian state, only technology did that. They prefer to side with consumers over producers, at least when they don't have ulterior motives, and often favor lower wages to lower costs and raise productivity. Yet wages were lower in the east, but the industrial revolution occurred in the west. Lower wages reduce the incentive to develop technology. Economic policies do not give enough attention to technology and do not always promote growth.

Manufacturing has been very productive and generally still is. While some services are productive, it is generally more the exception than the rule. Services, for the most part, have not been amenable to automation that produces increasing returns to scale, nor are they scalable for the most part. That is why they are still services and not goods. The differences are significant. Only technology accomplished lifting us out of the Mathusian state and know how itself was never enough but its embedding into tools that could be used without it. Services are costs. This is not to say they aren't desirable or valuable, but by themselves they are consumption rather than production. It is only when they and the knowledge they represent become embedded in the devices and processes of the world that they really become productive. As long as we have agriculture to feed us and industry to enrich us we should prosper. We are moving to a service economy, but that is something to regret, not celebrate. It does, however, offer us the potential of many more creations and discoveries, and many more new products as fewer are necessary to produce them. Due to this, workers are increasingly a cost that only serve to reduce the wages of others, unless they can partake of that creative process.