Luxury Economy

I’ve only now figured out that ‘consumer economy’ is not an absurd concept.

I happened across a semi-random web comic that made me ponder how the economy works. In particular, this statement troubled me: “jobs will disappear as technology and globalization rises”.

Hmmn.

The fundamental question that confused me is this: how can the economy change independently of the number of people and work they are willing/capable of producing?

I ended up in an interesting line of thought — possibly obvious to someone who’s taken economics courses, but new and interesting to me.

Consider a society of ten people, one of whom (Bob) owns and operates a machine that handles the basic needs (food, clothing, shelter) for all ten. And let’s say anyone could get such a machine, but operating it is a full-time job regardless of output, so this would be a waste of effort.

How would an economy work in this situation? Bob has what everyone needs, but no one else has anything Bob needs.

The intuitive answer is to work on things that Bob wants. This could be creating products (art, a nicer house, a sports car) or rendering services (cleaning, bringing food, having sex). In other words, when lacking needs, society creates luxury. And when luxuries exist, everyone will desire and trade for them, not just Bob.

So, a few things I didn’t understand until now:

  • The economy is based on trading your work for the work of others. You do not have to produce anything, you just have to do something others want. Likewise, you need to want things other people do.
  • We (the residents of the first world) live in an economy dominated by luxury goods – services we want rather than need. This means that the work most people do is creating luxury goods. Cutting down on such goods reduces the work available to others. This is true even if nothing about the capacity for producing work changes.
  • When trust diminishes, we reduce shopping for luxury goods and try to focus on our needs. In the ten-person society, the equivalent would be everyone only trading with Bob. Though none of the constraints change, everyone’s lifestyle worsens.
  • The economy is suffering because you’re not getting enough useless shit luxury goods. It’s crazy, but it’s true.

Suddenly, economics seems kind of interesting.

None of this addresses the credit/loan/bubble questions, of course.

Following on the above, thoughts on the ongoing tax debate:

  • The more you abstain from spending, the more people you’re robbing of work.
  • The rich are able to abstain more than the poor, since a larger fraction of their spending is luxury goods.
  • If we steal money from rich people and give it to poor people, this will benefit the economy because the poor are less able to restrain their spending.
  • Therefore, as a practical solution, increasing taxes on the rich makes sense.

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