Saturday, January 29, 2011

Seasons of the Economy

Thinking in terms of Patterns of Sustainable Specialization and Trade, one could say that the economy develops such patterns over time but these patterns are subject to instability and collapse which then have to be rebuilt, usually in a new and different manner. One can consider it seasons of growth and decay. In spring, growth and production is low but improving, over summer strengthens and becomes vigorous, bearing the bounty and fruit of fall, in winter decaying and collapsing to a low level from which new growth develops. In summer, production and profits are high with high levels of specialization and trade, but winter comes, production and profits fall, and specialization and trade collapses. The economy itself is less productive until new patterns can be found to support growth. Meanwhile, people are left with time on their hands and find it cheaper to learn to do it themselves or do without than hire. One can argue this occurs continually so what is it that causes this to overwhelm the entire system and result in a recession? Just a matter of size and scope of the change required or errors and mistakes in trying to compensate for them, or in suddenness and rapidity with which it strikes?

This brings to mind the various kinds of specialization available to those of differing productivity and wealth, such as creator or owner that capitalizes on his creations or assets to extract rents if they can obtain and sustain them, performer that relies on his unique knowledge and talents to produce for the few or the many, and servant that relies on his general knowledge and specific spatial and temporal presence to produce. Creators and owners earn incomes without effort or with past effort and are not dependent on their efforts for their current incomes. Performers rely on their efforts and can work in conjunction with other performers to produce for many. Servants have little specialization to trade other than their general knowledge, effort, and specific presence. Servants lack the specialization to make it worthwhile to trade with each other. The best they can hope for is to work for one of the former or become one. If it becomes more difficult for creators and owners to sustain their rents and performers find it more difficult to sustain their advantage due to offshoring, greater numbers of servants will have difficulty as well. Sustaining incomes monetarily would still help through lowered exchange rates or inflation in countries with pegged currencies.